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Why Is The 2020 Crash Different From 2008?

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Forge Your Wealth is meant for education and entertainment and should not be used for financial advice.

2008 is still fresh in most people’s minds. You are probably thinking some traumatic thoughts. Admittedly, I am having a few myself. Some people are already bracing for the impact of the new crisis. Despite these efforts I would not expect people to be fully prepared for this crash because the 2020 crash is different from previous economic crashes. In this post I will explain why the 2020 crash is different from 2008 and many other crashes.

A Crash Happens With A Global Health Crisis

While it is easy to associate the current economic crash with the Coronavirus, you should remember that the US market was over-inflated. The markets were due for a pop, virus or no virus. The Coronavirus just accelerated the process. Fear manifested with the outbreak, with that fear came uncertainty and sales in the market. While the initial wave of hits was devastating there are bound to be aftershocks. The only question is how massive the aftershocks will be. They may just take a small hit in the stock market or they could affect the housing market similarly to 2008.

It is hard to say this is the first time that an economic crash happens with a global health crisis. In fact, if you read this report from the University of Minnesota, you would see that a novel influenza virus had manifested in our world before 2008. If you replaced “novel influenza virus” with “novel coronavirus” it could read the same as most articles today.

Housing Market Is Not [As] Overstretched

The 2008 crash is commonly tied to subprime mortgage loaning. Subprime mortgage lending is when people with lack of credit are lent mortgages and in many cases before 2008 people were given mortgages sometimes with 0 down. 0 down mortgages are still around, but they are not very common and require many hurdles. It could be argued that the housing market is not as volatile as it was before 2008.

However, in 2016 the average down payment for a house was 6%. Furthermore, the only mortgages that increased since before 2008 were VA and FHA loans. It would be a stretch to say that only people with prime or above prime credit obtain mortgages. With the government allowing forbearance on mortgages it could be suggested that some mortgages were given without full consideration. I would say that the housing market is a little overstretched.

Oil Prices Are Lower Not Higher

Oil is now lower in price than before 2002. The oil price war and the shut down of global economies caused a sudden change in supply and demand. This brought oil down to prices I have not seen in a long time, even with inflation factored in.

In 2008 oil prices grew at levels that were unseen just before the recession. It is almost a complete opposite of what is going on right now. But it is worth mentioning that with the sudden loss of jobs and income in 2008 oil dropped in price. It could be argued that the order that these events occur are only a result of the loss of demand, not necessarily with the recession. That being said, having cheaper oil before the recession may help to cushion the blow from the new crash.

Economic Crashes Are Very Similar

If you look for reasons why the 2020 crash is different from other recessions including 2008, you may be surprised to learn that they have very similar reasons for occurring. It appears that recessions are caused by many of the same things in different order. The GDP will recede considerably. The economic crisis we have at hand has a similar set up as other recessions, almost scarily so.

The Details Determine The Strength Of The Recession

While the causes of recessions are very similar, the details will determine how deep of a recession we will have. One of the details I feel like is worth mentioning is the novel coronavirus itself.

The world has faced many pandemics before, and this is not the first one that happened before or even during a recession. But if you look back on history there are many factors of the pandemic and how it affects the economy. Factors such as lethality and how contagious it is are well known, but I personally feel like there is a crucial factor people technically know, but are not aware.

What Are The Crucial Details For The Novel Coronavirus?

The novel coronavirus, COVID-19, is part of a group of viruses commonly known to cause colds. As far as I know, when scientists develop a vaccine for this novel coronavirus, this will be the first cold virus with a vaccine. Influenza is a tricky and potentially deadly virus, but at least scientists have developed vaccines for these viruses since World War II.

There is no vaccine for any of the cold viruses. Too many viruses and strains cause the cold. Furthermore, until recently only very small groups of people have severe issues when it comes to the cold. Vaccines cost money and effort and there are many other diseases people are dying from so developing a vaccine for a coronavirus has never been a priority. It is a priority now, but unfortunately, scientists do not have the same knowledge to develop a vaccine for the novel coronavirus as compared to a novel influenza virus. In other words, this is not just another flu.

Final Thoughts

This recession has very similar signatures to other recessions. There are new yet familiar fears in the markets including pandemics, fluctuations in oil prices, and questionable housing markets. However, people’s responses to these fears will determine how strong the recession will be.

We are looking to much at why the 2020 crash is different, but we should look at what is similar. The fears we face are legit and they may push us further than we expected. While some things are different this is not unlike anything we have faced before. What we must remember is that much like any other recession, this too will pass.

Author: Papa Foxtrot

Most of my life I was careful with money and learned where I should invest it. I was very lucky to have parents who taught me financial literacy when I was young. Unfortunately, I am very lucky because many people lack the financial literacy I know. The purpose of Forge Your Wealth is to teach people who are just starting out in life how to obtain their wealth or anyone who just realized they may need to learn more to handle their finances. I currently have a PhD in biochemistry, just started a job in industry (will not disclose where exactly for personal and professional reasons) and am currently married to the love of my life. I am one of the lucky few people in America who graduated with no student debts, my wife was not. Over the series of a little over 3 years we paid for our wedding with no debt and paid off her federal student loans.

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