Source: Foundation for Economic Education
by Sergio Martinez
“August 5th was supposedly a ‘Black Monday.’ Stock markets around the world suffered declines that were far greater than normal. The VIX Index, which measures the volatility of financial markets, reached a level not seen since March 2020. Financial turbulence always sparks criticism of speculation. John Maynard Keynes (1883–1946) thought that investors often fall prey to mania or ‘animal spirits.’ But alluding to animal spirits is unconvincing. Rational explanations should be preferred over simplistic allusions to human psychology. Is there a rational explanation for what we saw in the first weeks of August? The answer is yes, and the key to understanding what happened is to look at interest rates.” (08/28/24)