Politicians, international bureaucrats, & pundits in the mainstream media opportunistically use the term “crisis” to describe conditions of economic turmoil as that is currently being experienced. In turn, the world seems to be constantly threatened by a tsunami of “crises” that invite more interventions by public officials.
For their part, politicians use images of impending doom to frighten citizens into accepting restrictions on their freedoms or acquiescing to increased taxes. Indeed, politicians seen as “doing something” legislatively, even if what they do is costly & ineffective, tend to lauded.
But the good news is that economic & financial “crises” are not what they used to be. Or perhaps better said: they never were. As it is, using “crisis” to describe economic turmoil is a misnomer since it implies catastrophic collapses of national, regional or global financial markets.
It turns out that financial markets are increasingly less fragile due to structural adjustments in emerging economies & reforms in advanced economies that offset possibilities of systemic failures. Similarly, financial instruments like derivatives spread risks & costs that can improve the quantity & quality of financial data from domestic capital markets so global capital markets operate more efficiently.
Now, global investors have access to better data that is both rapidly & widely available so they can assess risks associated with investments in far-flung reaches of the world. But problems arise from central bankers undermining the concept of risk by flooding markets with excess liquidity & artificially-cheap credit.
In the end, financial shocks are not necessarily a cause for alarm. That is unless they lead to precipitous actions by public-sector officials such as nationalization of the debts of Fannie Mae & Freddie Mac.