The Financial Effects of the COVID-19 Pandemic Are not Unprecedented: Multiple Historical Events Help Contextualize the Crisis

Abstract

The COVID-19 Financial Crisis seems unprecedented, but this is largely because it combines attributes of multiple historical events, several of which occurred more than one hundred years ago. The easiest way to understand the fundamental dynamics of the crisis is to isolate the distinct phases and map them to the most relevant historical events. This paper reveals several of the more useful historical points of reference, which may help demystify the COVID-19 Financial Crisis. Examples include the Financial Panic of 1914, the Post-World War I/Great Influenza inflation of 1919-1920, the Dot-com bubble of the late 1990s, and the 2008/2009 Global Financial Crisis.

By placing the COVID-19 Financial Crisis into a meaningful historical framework, this paper demonstrates that what seem like unprecedented financial events have, in fact, occurred in the past. Recognizing this truth is valuable because it may make it easier for investors to cope with gut-wrenching market volatility and remain focused on their long-term objectives. The ability to remain calm under such conditions is what distinguishes successful long-term investors. In fact, those who master this discipline often view spasms of market volatility as an opportunity rather than a peril. The hope is that this paper helps investors to develop this discipline.

Keywords: World War I, Great Influenza, Spanish Flu, COVID-19, inflation, Great Inflation, Monetary Policy, Federal Reserve

JEL Classification: E02, E31, E44, E52, E58, G00, G01, N20, N22