It may feel like 2008 all over again, but here’s how the coronavirus crisis is different

It may feel like 2008 all over again, but here’s how the coronavirus crisis is different

A plunging stock market. The widening shadow of recession. Fed interest rate cuts and government stimulus.

It’s beginning to feel a lot like 2008 again. And not in a good way.

For many Americans, the stomach-churning market drops and growing recession talk of the past few weeks – triggered by the global spread of the coronavirus – are reviving memories of the 2008 financial crisis and Great Recession.

Take a breath. While the toll the infection ultimately takes on the nation isn’t clear, the economic upheaval caused by the outbreak will likely not be nearly as damaging or long-lasting as the historic downturn of 2007-09.

“A recession is not inevitable,” says Gus Faucher, chief economist of PNC Financial Services Group. “If we do get a recession, it is likely to be brief and much less severe than the Great Recession.”

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For one thing, the 2008 financial crisis and recession resulted from years of deeply rooted weak spots in the economy. That’s not the case now.

“What we’re seeing is caused by something external to the economy,” Faucher says.

“It’s closer to a natural disaster,” says Kathy Bostjancic, director of U.S. Macro Investors Services at Oxford Economics.

Partly as a result, the economy’s major players – consumers, businesses and lenders – are much better positioned to withstand the blows and bounce back.

Here’s a look at how the current crisis compares with the meltdown more than a decade ago.

The cause

The Great Recession. The bruising downturn was set off by an overheated housing market. Banks and other lenders approved mortgages – including many to buyers who weren’t qualified, driving up home prices to stratospheric levels. The banks bundled the mortgages into securities and sold them to other financial institutions.

When home prices began spiraling down, millions of Americans stopped making mortgage payments and lost their homes while the banks that held the securities were pushed to the brink of bankruptcy.

Widespread layoffs in real estate, construction and banking hammered consumer spending and led to deeper job losses throughout the economy. Bank lending was virtually frozen, grinding the gears of the economy to a near halt. The problems had been simmering in the housing market and banking system for years.

Source: Yahoo!

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