2011 European debt crisis and the stock market
European debt crisis 2011: from April 29, 2011 to October 3, 2011.
Updated
What happened?
Fear of a Greek default and of contagion to Spain and Italy, together with the downgrade of the US credit rating in August 2011, sent stocks down almost 20%. There was no recession in the US. For this analysis, the episode runs from April 29, 2011 to October 3, 2011.
What would Crisis Monitor have shown?
Recalculating the index each week with the data available at the time, it stood at 7 out of 100 when the decline began and peaked at 34.8 in Sep 2011. The index moved to Alert (35 or more) in Jun 2010 (11 months before), but did not reach Crisis (60).
This is a reconstruction made after the fact using weekly data: it helps show how the indicators behave, but it does not guarantee that things will happen the same way again.
How did the data move in that crisis?
From one year before to the end of the crisis. The vertical line marks when it began; the dashed red line is the level beyond which the data point becomes a concern.
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Which data points warned first?
4 data points entered the stress zone before the crisis began: rise in unemployment (Sahm rule), stock market fear (VIX), financial stress (St. Louis), credit of ordinary companies.
Gold and copper are not part of the index, but they help show fear and activity: see how they moved on the gold and copper pages.
The first time each data point entered the stress zone (score 66 out of 100), searching from 12 months before the start. “Before” = it warned before the crisis began; “after” = it reacted late. Note: after another crisis, some data points were still elevated from the previous one.
| Indicator | How does it usually behave? | When did it first become a concern? | When did it warn? | Moment of peak stress |
|---|---|---|---|---|
| Rise in unemployment (Sahm rule) | Moves with the crisis | Apr 2010 | 12+ months before | 1.53 Apr 2010 |
| Stock market fear (VIX) | Moves with the crisis | May 2010 | 12 months before | 45.79 May 2010 |
| Financial stress (St. Louis) | Moves with the crisis | Jun 2010 | 11 months before | 1.34 Aug 2011 |
| Credit of ordinary companies | Usually warns early | Jun 2010 | 11 months before | 3.32% Sep 2011 |
| Copper vs gold | Usually warns early | Sep 2011 | 5 months after | -30.7% Sep 2011 |
| Ease of borrowing | Usually warns early | Never became a concern | — | -0.02 Jun 2010 |
| Consumer sentiment | Usually warns early | Never became a concern | — | -13.1 pts Sep 2011 |
| Store sales | Moves with the crisis | Never became a concern | — | 1.7% Sep 2010 |
| Unemployment benefit claims | Usually warns early | Never became a concern | — | 9.0% May 2011 |
| Long vs short rates (2 years) | Usually warns early | Never became a concern | — | 2.73% Apr 2010 |
| Long vs short rates (3 months) | Usually warns early | Never became a concern | — | 3.64% Apr 2010 |
| Recession probability | Moves with the crisis | Never became a concern | — | 0.3% Apr 2010 |
| Factory output | Moves with the crisis | Never became a concern | — | 4.2% Apr 2010 |
| Dollar strength | Moves with the crisis | Never became a concern | — | 81.48 Apr 2010 |
| Credit of risky companies | Usually warns early | FRED only publishes the last 3 years of this series (ICE license) | ||
Does the current moment resemble that crisis?
Score from 0 to 100 for each area, today and at different moments of that crisis.
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How does everything look now? See the live dashboard.