With investors facing yet another summer of discontent, one economist has looked back in time for clues on how the following months may place out.
With one major banking crisis behind us, Monument Securities Chief Economist Stephen Lewis said investors only need to go back to 2007, rather than the Great Depression, for clues on how the current problems may play out.
"Sharp changes in credit market conditions can have a much more profound impact on business activity than most economic forecasters are prepared to recognize" Lewis said.
He warned that people missed the scale of the problem in 2007 and could do so again.
"It is tempting to dismiss distress in those markets that are far removed from the productive sectors of the economy as having little bearing on prospects for GDP growth," he said " We ourselves were, to a large degree, guilty of assuming that in 2007." .
With globalization bringing so many markets closer together, Lewis suggested that links between one part of the system and another are not always obvious.
“It is sometimes difficult to trace, accurately and comprehensively, the transmission channels between a specific segment of the credit market and the wider economy," he said. "Then again, threats emanating from the credit markets may lie dormant for months, it seems, before their full severity becomes apparent."
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