Wednesday, April 22, 2020

“The Great Liquidity Crisis”, "The Great Lockdown", or "The Pandemic Crisis" - What's in a name?


Every crisis needs a name, but what is in a name? A lot. It frames future discussion about the crisis and defines the type of crisis. The naming meme frames expectations of what happened and what should be the response. This crisis needs a name and a single leading candidate has not arisen. 

JP Morgan strategist Marko Kolanovic is calling the current environment “The Great Liquidity Crisis” for financial markets.  Other have called this shock "The Great Lockdown" as if the lockdown is the primal cause. The less imaginative investor will just say it is the COVID-19 or corona virus recession. 

We think it is important to separate the financial and economic shocks that we have seen from the COVID-19 pandemic. Of course, financial and economic problems are closely linked, but to truly understand this crisis the two have to be disentangled. This crisis may have initially been the COVID-19 recession. It was reformulated to the "Great Liquidity Crisis" and is now the "Great Lockdown". As we solve one crisis or component of the crisis, another one raises or takes precedent. There is not one problem or one solution, or one name. It is not a policy failure at this point, albeit ex post it may seem as though the signs of failure were obvious. Given uncertainty, failure may rest with not acting fast enough early and too slow later.  

We need a name for this.


No comments: