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Does this feel like 2008 or what?
It’s October 26, 2022. Here’s the rundown:
How does the current economic situation compare to 2008?
Numbers and links
Does this feel like 2008?
How does the current situation compare to the last financial crisis? Here’s a very basic and rudimentary comparison.
If you don’t remember (perhaps you were a little young), 2008 was wild. Let’s set the stage — who can forget this epic rant??:
Let’s not forget that the angry people in that room who were upset at paying for other people’s mortgages were the ones who made piles of money trading toxic securities based on those mortgages….but I digress. It’s always fun to revisit Jon Stewart and Jim Cramer’s discussion about this, too.
That new administration that the angry man was referring to, the one that was all into computers and whozeewhatzits, of course, was the Obama administration, which came into the White House during a trying time, to say the least. The economy was in free fall. People were losing their homes and jobs. Nobody really understood why or what was going on, and I’d wager that the average person still doesn’t know what the hell happened.
Compare that to today: The stock market is down, inflation is high, interest rates are rising, and people are worried about a recession. It’s not great, but if you want to compare things to December 2008 or April 2020, it’s okay.
Now, as I’ve been putzing around the internet in recent weeks, I’ve seen a lot of questions being posed about whether the current situation is worse than 2008. In my mind, it’s not even close. Let’s compare a few things to illustrate my thinking on this.
The problem in 2009: Housing market meltdown
Current: The pandemic and a hangover from the housing market meltdown.
It’s almost impossible to dig into what happened between 2007 and 2008. It would require a textbook. In fact, if you want to learn more about it, go read “The Big Short,” “Too Big to Fail,” or any other number of books about the crisis.
But if we want to try and boil it down to an oversimplification, you could say that a lot of people bought homes they couldn’t afford, and they were given loans by banks that knew they couldn’t afford them, and those banks were egged on by a government that wanted more people to become homeowners. When enough people realized they couldn’t afford those homes or otherwise couldn’t make their payments, the whole house of cards came tumbling down.
Yes, there’s a lot more to it, but we’ll roll with that for now.
So, how about the current crisis? I’d argue that there are two main things at play: One, we were and are still addicted to zero interest rates and market-propping programs instituted by the Fed after 2008, and two, the pandemic. Again, this is my opinion, but we should’ve been raising interest rates a long time ago (we were, for a while, but a certain someone had a meltdown about it). QE programs should’ve ended, too.
Woulda coulda shoulda, right? It doesn’t really matter. The pandemic is the big X-factor, here. It was a once-in-a-century (hopefully) occurrence, and we didn’t really handle it all that well. While we’re through the worst of it, we’re still dealing with the fallout: A million dead people, many fewer workers in the economy, supply chain problems, and more.
Add in inflation, and baby, you’ve got a stew going!
Without going too far off the deep end, I think we’re dealing with two fundamentally different situations. In 2008, we had built up a house of cards that was destined to fall sooner or later. While we certainly have some underlying issues in the current economy, we’re largely dealing with a sort of black swan event, and the resulting fallout from it, now. We could’ve done things better, sure, and we’re going to need to deal with some bubbles popping and assets deflating, as well as slowing down the economy.
Both situations are far from ideal, but inherently different.
In 2008: S&P 500 loses 51.9% of value
The market has taken a beating this year, there’s no denying that. The Financial Times reports that retail investor portfolios are down 44% year-to-date. The S&P 500 is currently down around 20%, but has been down by as much as 25% or so. The Nasdaq Composite is down around 30%, too.
During the bear market from 2007-2009 ( a total of 15 months), the S&P 500 lost 51.9% of its value.
In this sense, the bear market of 15 years ago was much, much worse. Perhaps its because the market highs over the past couple of years were so high that a 20% decline feels more violent, but I largely believe the market was pumped up with fairy dust (zero interest rates) and unicorn farts (QE and pandemic-era stimulus programs) that it was completely decoupled from reality.
I’m no expert, but did anyone really think that Tesla was, at one time, worth more than its top five rivals combined? It’s absurd.
So, I think the market taking a steep dive was all but certain at some point, as we had to come down from the sugar rush. It may go lower. Who knows? But again, I think it’s not nearly as bad of a drop as in 2008.
In 2008: Unemployment tops out at 10%, and recovers to 3.5% in September 2019.
Current: Unemployment tops out at 14.7%, recovers to 3.5% in September 2022
The workings of the labor market, I think, mark the biggest difference between the 2008 crisis and the current economy. I remember watching people in Chicago dump boxes of McDonald’s applications on angry people in the street below. People were being laid off left and right. Companies went belly-up.
I graduated from college and promptly started my career as a professional car-parker, because there was nowhere else for me to go.
Currently? We’re seeing layoffs, and will probably see more, but in some ways, it’s almost as if companies are sort of bringing the recession on in a self-fulfilling prophecy through controlled demolition of their rank-and-file. I’m not sure what to make of it.
But if we go off the unemployment rate alone — which is not a perfect measure, of course — but we’re sitting at 3.5%. Unemployment hasn’t been that low since the late 60s. There were 10.1 million open jobs at the end of August, and 4.2 million people quit their jobs that month. It doesn’t feel anything at all like it did in 2008.
It’s important to note that the Fed is aggressively increasing interest rates, and actively trying to slow the economy down — and it may very well put us into a recession. So, these numbers could change. But again, we’re not experiencing the “world is imploding” feeling that was pervasive in 2008 and 2009.
With that, the current situation, in my opinion, is nothing like 2008 or 2009. We’re fighting through some stuff, for sure, and we likely will be for several years. Make no mistake: The pandemic was a huge, generation-defining event. I think that it’s easy to sort of brush it off and move past it, but we haven’t seen anything like it since the Spanish Flu in 1918. It’s going to take a long time to get back to “normal,” if we ever do.
But it was also an outside force that exposed weaknesses in our current system (supply chains, perhaps most notably). The crisis in 2008 was more of a systemic problem that eventually reached a breaking point. The house of cards was always going to fall, it was just a matter of when.
To wrap it all up, I — a non-expert chirping in from the sidelines with my amateur and likely ignorant opinions — feel that those comparing the current situation to the Great Recession aren’t on point. It’s likely that many of those people were too young to really understand how crazy and dire of a situation it was; many people who were plenty old when it happened probably still don’t.
But dealing with high prices and the aftershocks of a massive, global pandemic? It’s not nearly the same thing.
Numbers, links, and more
2.8 billion: The tons of metals mined in 2021, and 2.6 billion of it was iron ore. (Visual Capitalist)
17%: The percentage of engaged couples who plan to get married during the month of October. (The Knot)
2.3 billion: The amount of new warehouse square footage built since 2011, which could fit 3.5 Manhattans. (Insider)
Artificial intelligence: The new crypto? (The New York Times)
RVs get more dangerous: RV recalls are increasing, and apparently RV quality has been on the slide for years. (IndyStar)
“It was my old nemesis, the young fella with the backpack”: A plea to stop hitting people with backpacks on airplanes. (The Wall Street Journal)