Coronavirus and stock crash force to review the ho …


In the face of unexpected events, such as the coronavirus, economic responses have to be as quick and exceptional as those being applied in the field of public health.

They are useless neither fiscal nor monetary prudence to please the beasts of the city, who today are wounded enough and not by the Argentine market, nor the balanced economic discourse to attenuate the criticism of the first, second and third generation of pathetic neoliberal economists dominant in the media space.

The urgent priority is to mitigate the spread of the Covid-19 virus, but also it is essential to immediately deploy a defensive economic strategy so as not to exacerbate the foreseeable weakness of productive activity which, as is known, punishes vulnerable groups much more.

The public health emergency became a sudden stop (stop suddenly) and withering in the world capital market. The slowdown in the world economy is inevitable with its two major engines affected by the pandemic.

A recent report from the United Nations Conference on Trade and Development (Unctad) noted that the presence of the coronavirus in China It caused a 2 percent contraction in its manufacturing output during February, and optimistic forecasts say the economy will drop 1 to 2 points in the year.

Meanwhile, it is estimated that the Gross Domestic Product in U.S it would contract in the second quarter of the year and the economy would enter a recessive scenario.

There is consensus that international trade will decrease, the price of raw materials has already dropped sharply and you can keep doing it and very sensitive sectors like all those linked to tourism (area lines, hotels, gastronomy and travel agencies) they will suffer immense brokenness.

Balance sheet analysts in the global stock market have started making projections about what the next corporate results will be. The optimists, who estimate a resolution of the crisis in the short term, calculate a 20 percent drop in operating profit, and not a few situations of financial stress on corporate debt.

Black Swan

The shocking collapse of world stock markets and the abrupt brake on the world economy were caused by the coronavirus pandemic, with the addition of the dispute over the price of oil between Saudi Arabia and Russia.

What has happened in the stock market with a monumental destruction of value (fictitious capital evaporation) is what is called “black Swan”. The Lebanese philosopher Nassim Nicholas Taleb He popularized that analytic category in his book. The black swan, published in 2007.

Taleb explains that a “black swan” is an event with three attributes:

* It is an atypical case, which was not expected and there were no expectations that it could happen because there were no signs of that possibility.

* It is of withering impact generating an extreme alteration of the operating rules of the markets.

* The event is so rare that after breaking through a legion of experts seeking explanations appears of that disruptive event to give it rationality and say it was predictable.

“Black swan” is an expression of impossibility of happening and originates from the 16th century when in Europe all swans were white according to the records of the time. In this context, a black swan could not exist until a Dutch expedition discovered them in Australia.

The term then became a concept to indicate that what was perceived as an impossibility could happen unexpectedly.

For a couple of years, several analysts have warned about the danger of the Wall Street stock bubbleBut none foresaw when it was going to be punctured and that the needle was going to be the coronavirus and the dispute over the price of oil between Russia and Saudi Arabia. The world’s attention was on the trade dispute between China and the United States, and instead the factor that ended up destabilizing the stock markets was the fight in OPEC.

Mania, panic and crash

When you rush global financial crisis As the current one, the question to begin to understand it is not what has been the cause, if not what are the structural reasons that caused it.

The next logic exercise can help in that task: A bomb is thrown by A towards B’s face, B cuts it off and throws it at C, then C at D, and so on until Y finally blows it up in Z’s face Who is to blame for the explosion? A or Y?

The answer: A is the remote cause; And, the next cause.

What precipitates the collapse of asset prices may have been any trivial event. This constitutes the next cause. It was the indicator of new home sales in the United States, for example in the crash of 2008, or the fight over the price of oil and the coronavirus, in the crash these days.

In these days of collapse of stock and bond quotes, fear of corporate bankruptcies and danger of disruption in the global supply chain, we try to find the origin of such a crash in a globalized economy that does not stop promising to be part of the chain of happiness.

As in so many other great crises in history, speculation and rampant credit expansion are the root (remote cause) of the impressive disruptions in global finance, as explained well Charles P. Kindleberger in a reference book for these days, Hobbies, panics and cracks.

That remote cause lays bare the fragility of the current phase of finance-dominated global capitalism. In this crash it was not only the credit that exacerbated the mania, but was fueled by deregulation and the use of artificial intelligence (algorithms) in stock market operations that brought the speculative frenzy to levels never before reached.


Speculative hobbies and subsequent panics are associated with the general irrationality that dominates the financial market.

In all the great financial crises in history, speculation and rampant debt expansion were the root (remote cause) defaults (the next cause) and the subsequent financial and economic debacle.

Speculative excess, which can be simply defined as mania, and the revulsion of this excess in the form of crisis, crash or panic proves to be, if not inevitable, at least historically common.

Before this shocking outburst, in 2008 the subprime mortgage credit bubble burst in the United States, and between 1997 and 2001 the bank inflated the business of Internet companies, dotcom bubble which ended up exploiting and collapsing the prices of technology companies at the 1996 level.

The so-called “new economy”, made up of telecommunications, computer, biotechnology and Internet companies, had entered speculative mania as at the time it happened with the appearance of the railway in the 19th century.

The train caused a revolution in the economic and social organization, which led many to dream of being millionaires betting on that “new era” that promised the expansion of trade to levels unthinkable for the time. The train did indeed undergo a profound transformation, but not before precipitating a speculative fever. In 1847, in Great Britain with railway company bonds, and in 1856, in the United States with public land bordering on alleged railway tracks. Both hobbies led to deep financial crises.

Dotcoms at the start of the new century or railroads in the 19th century, tulips in Holland in 1634, and closer to the debt of Latin American countries, were all financial bubbles, like this last one that exploded with the coronavirus pandemic, with an uncertain fate of how and when to get out of the current global chaos.

The world is another

The Argentine economy needs to generate defensive levees not to avoid the crisis, but to cushion its unavoidable costs. Have a countercyclical strategy to lessen the impact of this new negative external shock.

Alberto Fernández’s economic roadmap a week ago was obsolete. That path consisted of launching the debt restructuring proposal, advancing in a negotiation with creditors to achieve high adherence and achieving the “sustainability” of the debt, starting the recovery process to emerge from the Macrista recession.

That sequence, which was controversial because it did not ensure a take-off of the economy, today no longer made sense. The timetable and the official proposal for the restructuring can continue as planned, but an expansive economic policy should not remain in the waiting room.

The abrupt drop in the parities of the bonds to be restructured will not necessarily be a favorable factor in the negotiation with creditors. Vulture backgrounds may appear to take advantage of those prices, but also debt securities from other countries also fell, and they deliver better future returns as lower risk assets. At once worsened prospects for the Argentine economy to grow and generate fiscal and trade surpluses to guarantee future payments on refinanced debt.

The global context is another And failing to warn it is just as damaging as failing to take preventive measures to flatten the virus’s spread.

Monetary Fund

Having expansionary measures are recommended even by the IMF. In a series of specific articles on the coronavirus, published on the agency’s blog, he recommends active fiscal and monetary policies.

The economist Gita Gopinath published the article in this diffusion space of the Fund “Limit the economic consequences of the coronavirus with great targeted policies.” It proposes firm and sustained public policies. It advises governments that households and businesses affected by this crisis should receive cash transfers, wage subsidies and tax breaks from the State. Those measures aim to help people meet their basic needs and companies to stay afloat.

They are councils aimed at central countries, but that does not prevent peripheral economies, such as Argentina, from adopting them.

Gopinath stresses that these policies aim to “prevent a temporary crisis from permanently damaging individuals and companies through the loss of jobs and bankruptcies”.


Several countries are applying expansionary measures from the public sector so that the inevitable recessive trend does not turn into a depression or a prolonged crisis. The 2008 debacle is a close teaching so as not to delay the implementation of active policies.

The reactions of the countries are several to prop up the economy. The Federal Reserve (central bank of U.S) reduced the interest rate by half a point, with prospects of making another downward adjustment and made 1.5 trillion dollars available to the financial system; Congress approved a $ 8.3 billion health package, and the Trump administration announced that there will be tax incentives for affected production sectors.

There are likely to be many other initiatives to deal with the economic crisis and they will be coordinated with the European Union and with the rest of the G-20 countries. This is what happened in the two years following the crash of 2008, which prevented a great global depression.

Italy extended the deadlines to pay taxes to companies based in the affected areas and expanded the salary supplementation fund for unemployed workers.

South Korea It established wage subsidies for small businesses and increased allocations for home care.

Germany It established a “limitless” line of credit for companies to avoid liquidity problems in their productive fabric.

The holder of the european commissionUrsula von der Leyen promised to adopt “maximum flexibility” in budget rules and in state aid to help the countries of the European Union in the face of the coronavirus.

Gopinath claimed substantial measures to supporting the economy during the pandemic, “keeping intact the network of economic and financial relationships between workers and companies, between lenders and borrowers, and between suppliers and end users so that activity recovers once the outbreak subsides.”

Other crises

The Argentine economy has a close history to detect how it has faced a negative external shock and to identify what the opposite results have been according to the form of intervention that was faced with each of the crises.

That of nineteen ninety five, called Tequila effect and precipitated by the Mexican financial debacle following the devaluation of the currency, did not have a contingency program. Conversely, Carlos Menem’s government with Domingo Cavallo as economy minister reaffirmed the convertibility plan.

The balance was disastrous: capital flight, fall of almost 10 percent of total bank deposits, bankruptcy and merger of more than 70 financial entities, the Gross Domestic Product plummeted 4.4 percent in 1995 and the unemployment rate reached a peak of 18.6 percent in May of that year.

Instead, the 2008 subprime credit debacle, which was precipitated by the fall of the Lehman Brothers and had its epicenter in the United States and Europe, was faced locally with a series of defensive measures. The government of Cristina Fernández de Kirchner with her Minister of Economy Amado Boudou in 2009, who previously had been the holder of the Anses, ordered countercyclical measures that allowed to buffer the collapse of the central markets.

The economy grew by just 0.9 percent in 2019, when it had been galloping at Chinese rates, while the unemployment rate rose to 9.1 in the third quarter of the year, an increase of almost 2 percentage points compared to 2008 . The crisis had its negative impact but the defensive strategy cushioned costs.

The stellar measure in those years was the nationalization of the pension system managed by the AFJP, recovery of public resources that allowed expanding social coverage and channeling funds (with the FGS-Anses) to productive activity. Added later the law that established the retirement mobility formula which implied a persistent increase in assets in real terms.

Those measures together with fiscal and monetary expansion allowed the Argentine economy to suffer much less than that of other countries in the region from the 2008 financial crisis.


The greater vulnerability of the Argentine economy to the pandemic is part of the heavy inheritance left by Mauricio Macri. This situation is not the responsibility of Alberto Fernández, but it is face without conservative inhibitions this crisis, aggravated by the debt trap, and use the intervention tools available to the State.

Getting caught up in prudence to win favor with the establishment or an illusory balance between conflicting economic interests is a poor road to travel.. It could be a political option in another context, like the one that existed before the pandemic, but now another orientation is required so as not to return the economy to the path of the precipice.

The predictable and repeated observations of conservative orthodox and heterodox economists to the increased state intervention in the economy can be quarantined.

It is a necessary hygienic attitude so that this virus does not continue contaminating with criticism of emergency measures, such as price controls, increased public spending and monetary expansion. Those economists are so toxic that they came out to question the setting of maximum prices for alcohol gel.

It is true that it is difficult to predict what will be the magnitude of the crisis, but that it exists and that it will be important there is no doubt, and its depth will depend in part on the quality of the political response that will be given on the economic front.

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