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Economic Crisis -A bird's eye view
- 2. Crisis Reasons Solutions • A situation in which the economy of a country or the world experiences a sudden downturn brought on by a financial crisis. • An economy facing an economic crisis will most likely experience: • A falling GDP, • A drying up of liquidity • Rising/falling prices due to inflation/deflation. • Unemployment • An economic crisis can take the form of a recession or a depression
- 3. Crisis Reasons Solutions • Happened in 1637 in The Netherlands due to the collapse in prices of tulips. • Some single tulip bulbs sold for more than 10 times the annual income of a skilled craftsman. • It is generally considered the first recorded speculative bubble • First recorded crisis with Global economic implications • Caused due to the failure of the South Sea trading company in 1720 • First evidence of practices such as insider trading leading to a crisis • Also known as Black Tuesday and the Stock Market Crash of 1929, began in late October 1929 • The crash signaled the beginning of the 10-year Great Depression that affected all Western industrialized countries
- 4. Crisis Reasons Solutions • The Great Depression was a severe worldwide economic depression in the decade preceding World War II. • Went on until the late 1930s or middle 1940s. • It was the longest, most widespread, and deepest depression of the 20th century. • Triggered by the US housing bubble burst • Resulted in the threat of total collapse of large financial institutions, the bailout of banks by national governments, and downturns in stock markets around the world
- 5. Crisis Reasons Solutions • Oil Shock of 1973 • Black Monday of 1987 • Asian Financial crisis of 1997 • Dotcom bubble • Eurozone crisis
- 6. Crisis Reasons Solutions • Risk-taking behavior • Housing speculation • Corporate risk-taking and leverage • Financial market factors • Financial product innovation • Inaccurate credit ratings • Lack of transparency • Regulatory avoidance • Macroeconomic conditions • Inefficient economic production • Globalization and Trade deficit • Unstable currency • Oil price fluctuation
- 7. Crisis Reasons Solutions • Environmental Factors • Famines • Droughts • Natural Disasters • Political Factors • Government instability • Political unrest • Fluctuating public sentiment • Run on banks causing bank failures • Reduction in spending leading to deeper recession
- 8. Crisis Reasons Solutions • Government Policies • Fiscal & Monetary Policy • Deficit Reduction • Capital injection through public spending • Bank bailouts • Financial policies • Stricter regulation • Stabilization of currency • Foreign Policy • Encouraging foreign Investment • IMF & World Bank Funding