Economic crisis

(noun)

A period of economic slowdown characterised by declining productivity and devaluing of financial institutions often due to reckless and unsustainable money lending.

Related Terms

Examples of Economic crisis in the following topics:

  • Recovery

    • The objective of economic recovery when in crisis is to stabilize the economy and recapture the value lost using economic stimulus strategies.
    • The 2007-2009 economic crisis has had far-reaching and profound effects on both the domestic and global markets, primarily as a result of the sub-prime mortgage disaster originating in the United States.
    • The objective of economic recovery when in crisis is to stabilize the economy, and from there recapture the value lost through economic stimulus strategies while addressing the factors which contributed to the collapse in the first place.
    • Understanding the inputs, and expected outcomes, is critical to understanding the economics behind reacting to economic crises (particularly from a Keynesian perspective).
    • That being said, the efficacy in the attached figure demonstrates that it was likely a strategic reaction to the economic crisis .

  • Consequences of Banking Crises

    • Banking crises have a dramatic negative effect on the overall economy, often resulting in an eventual financial and economic crisis in a given economic system.
    • Within a given system, banking failures create a range of negative repercussions from an economic perspective.
    • The overall economic performance of any debt-dependent industries becomes less dependable, driving down consumer and investor confidence while reduce overall economic output.
    • (and to some extent, European) banking disasters in 2008 and 2009 led to a complete global financial meltdown, destroying economies not involved in the irresponsible investing practices executed by banks in these specific regions. identifies the critical importance of economic well-being in trading partners, as the U.S. banking and financial crises spread rapidly (within the course of just one year) across a substantial portion of the globe (though there are certainly other factors that contributed to the financial crisis and its consequences).
    • The slow and negative growth demonstrates all of the economic losses that resulted in part from the U.S. financial crisis, highlighting the dependency of global economies.

  • Bernanke Era

    • The primary structural changes include increases in the economic stability of developing nations and the diminished influence of monetary and fiscal policy.
    • The Great Moderation is important because while Bernanke was chairman of the Federal Reserve, it is speculated the the economic and financial crisis in the later-2000s brought the period of the Great Moderation to an end.
    • The main controversies surrounding Bernanke's terms as chairman include how he handled the financial crisis, particularly failing to see the crisis, for bailing out Wall Street, and for injecting $600 billion into the banking system to give the slow economic recovery a boost.
    • He explained that without reform, the U.S. will not have financial stability or healthy economic growth.
    • Throughout his time as chairman, Bernanke has influenced the financial crisis, the Wall Street bailout, and the economic stimulus.

  • Growth in the Rest of the World

    • Analyzing economic growth in prominent countries provides an overview of global economic growth .
    • 2008: the credit crisis started.
    • The crisis impacted most countries, but it was not deep enough to reverse growth.
    • 2009: the credit crisis spread.
    • The U.S. experienced economic recovery, but the global economic growth lost momentum.

  • Causes and Immediate Impacts of the Crisis

    • The recent financial crisis, commonly referred to as the sub-prime mortgage crisis of 2007-2008, was borne of the failure of a series of derivative-based consolidation of mortgage-backed securities that encapsulated extremely high risk loans to homeowners into a falsely 'safe' investment.
    • This created an economic meltdown, starting with the United States, that spread across the global markets.
    • It is a fiercely debated and widely discussed issue in the field of economics (and in mainstream media), providing a real-life case study for many of the critical concepts of economic theory.
    • The inputs to the 2007-2008 economic collapse, briefly touched upon above, are complex and still evolving.
    • Within a few months, there were job cuts, bankruptcies, and reduced spending, as the crisis spread throughout the economy (both domestically and globally).

  • The Federal Reserve and the Financial Crisis of 2008

    • The crisis caused the failure of businesses, huge declines in consumer wealth, and a downturn in economic activity that lead to the 2008-2012 global recession.
    • The Federal Reserve's response to the 2008 crisis saw the use of both conventional and new monetary tools in order to stabilize the economy, support market liquidity, and encourage economic activity.
    • However, following the crisis, the U.S. experienced very low levels of inflation, and cutting the federal funds rate failed to provide enough economic stimulus to get the country out of the recession.
    • Unable to create interest rates low enough to encourage banks to resume lending money, the Fed turned to other, untried policy tools to encourage economic activity.
    • Others praise the Fed for avoiding an even deeper financial crisis.

  • Global Impacts

    • The 2007-2009 economic collapse was damaging not only to the U.S. but also global markets, driving the global economy into recession.
    • Modern markets are dependent upon one another across national borders, where global trends in economic growth and well-being will have a dramatic impact on national economic well-being and vice versa.
    • To provide additional context to the global adverse effects of the sub-prime mortgage crisis, of 65 countries that record and report GDP only 11 escaped a recessionary period between 2006 and today.
    • China has seen reductions towards the 7%-8% economic GDP growth (year on year), from clear double-digits in previous years.
    • It is quite clear in this graphic, the global GDP growth dropped dramatically following the U.S. crisis, pitching the entire global economy into a recession.

  • Greenspan Era

    • During President Clinton's terms in office, Greenspan was consulted regarding economic affairs and assisted in the 1993 deficit reduction program.
    • As a whole, the 1990s saw healthy economic growth.
    • In 2007, only months after Greenspan retired, the subprime mortgage crisis occurred in the United States.
    • It is suggested that Greenspan's easy-money policies were the leading cause of the mortgage crisis.
    • He simply stated that he did not believe in deregulation as strongly following the crisis.

  • Determinants of investment

    • The two primary factors that influence economic investment are income and the interest rates.
    • Economic investment, also referred to as capital investment, is different from and should not be confused with financial investment.
    • In economics, it is important to note that there specific types of investments:
    • The two primary factors that influence economic investment are income and the interest rates.
    • In the financial crisis in 2008, it is clear the Bank of England lowered interest rates sharply to make it cheaper to borrow, and therefore encourage borrowing for investment.

  • Growth in the United States

    • Throughout its history, the U.S. has experienced economic growth in varying degrees.
    • Industrial Revolution: a period of rapid economic growth.
    • 20th century growth: most economic growth in the 20th century was due to reduced inputs of labor, materials, energy, and land per unit of economic output.
    • The 1973 oil crisis caused the GDP to fall 3.7%.
    • The 2008 financial crisis was caused by a derivatives market, the subprime mortgage crisis, and a declining dollar value.