“We will likely witness the greatest depression of the past century”
Experts in capital markets started to make various comparisons between the crisis we are facing now and the Great Depression in 1929-1933. Passionate about financial history and crisis, Adi Lupsan drew a comparison between the crises of the past century.
The latter crisis was the dot-com bubble in 2001-2003, an industry sector in the USA, yet not iconic for the American market. “Then there was an emotional crisis triggered by the September 11 2001 and ended with a crisis in Latin America. Dow Jones and S&P indices collapsed by 45%. The recession lasted less than a year, and it had an inflationary background, being in fact a sector crisis,” said Lupsan.
In the 70’s there was the “oil price shock” and ended in the 80’s. This has lead to a major market crash, indices sinking 40-50%, Intercapital’s director added.
50-60’s crisis had no major impact for the history of financial crises.
“In case of inflationary crises, even if the capital markets fall into a downward spiral, the access to lending is toughened, financing costs soar, oil and commodities prices boost as well, and the consumer is the one who has to deal with all the bad news”, he explained.
The last events are similar to those in the 30’s. “Oil and commodities fall into a downward trend, prices melt, and the burden will have to be born by the producer. He will be forced to lower the price. In 1929, several producers preferred to throw away the products rather than selling them at a very low price, because they were aware that if they would sell at such low prices, they would only push prices to the bottom level”, said Lupsan.
An economic depression is certainly more painful and, unfortunately, foreign analysts signal the possibility of facing such a crisis.
“The oil is priced at 50-60 dollars/barrel, and if the crisis spreads even further in the coming 6-8 months, my personal opinion is that we will likely witness the greatest depression of financial markets of this century”, said Adi Lupsan.
However, there are analysts saying that things will not remain unchanged, oil and commodities market will rise again, and macroeconomic policies will possibly change as well.
“We are witnessing an extremely complex phenomenon which will reach its peak in the coming year. It is part of the financial history”, the broker added.
Another resemblance between the current crisis and the Great Depression is the speculative bubble. “At that time, the margin transactions were 10%, people would borrow money and take it to the stock market. We have witnessed a leverage, and a complete industry of investment funds that borrowed money from banks and take it to the capital market, has emerged”, Lupsan explained.
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