An economic crisis is a serious and prolonged decline in the economic activity of a country or region, often accompanied by a drop in output, rising unemployment, chaotic financial markets, and weakened consumer confidence.
This was a time when the economy fell into a state of severe imbalance, possibly due to asset bubbles bursting, banking crises, price volatility, or geopolitical factors.
Economic crises not only cause significant financial damage but also leave deep social and political repercussions.
What is an economic crisis?
Economic crisis – a period of widespread weakening – occurs when the economy suddenly stagnates or contracts for an extended period, severely affecting one or more countries. The prominent signs include:
Unemployment skyrocketed: Workers lost income, impacting consumption and living standards.
Credit difficulties: Banks tightened lending, many organizations lost their ability to finance.
Businesses continuously failed: Companies closed down, bankruptcies surged.
Currency devalued significantly: Purchasing, international trade were heavily affected.
Sharp decline in trade figures: Imports and exports fell significantly.
In essence, all crises start similarly to recessions, but are more severe due to their longer-lasting nature.
Distinguishing "crisis" from "recession"
Crisis criteria Economic crisis Economic recession Severity Acute imbalance, can cause immediate collapse Reduced growth, but not drastic Recovery time Prolonged, often requiring strong intervention Shorter, typically recovering cyclically Causes Sudden: bubbles, financial collapses, natural disasters, epidemics Predictable through economic indicators Policy intervention Requires urgent stimulus, restoring confidence Applies planned stimulus measures
Causes of the crisis
Speculation and asset bubbles
A prominent example is the 1929 event – the stock market bubble when prices irrationally rose due to margin buying.
Flawed monetary and financial policies
Long-term low-interest rates suddenly tightened – typical of the 2008 crisis due to the housing bubble.
Weak financial oversight
Lack of control over derivatives led to systemic imbalance risks like in 2008.
Excessive public debt
The European public debt crisis from 2010 (Greece, Ireland, Portugal...) is a typical example.
The comprehensive consequences of the crisis
Widespread unemployment, decreased consumption, and increased pressure on social welfare.
Businesses struggle to survive, restructure, or go bankrupt.
Assets devalued: securities, real estate plummeting, causing personal losses.
Health and social decline: stress, depression, disruption of healthcare services.
Long-term impacts on economic – political: increasing discontent, policy changes, extensive reforms.
Positive perspectives from the crisis
Although the crisis caused losses, it also opened up many opportunities:
Exposing system weaknesses: Laying the groundwork for policy adjustment and management.
Restructuring the economy: Promoting operational innovation, enhancing efficiency.
Stimulating technological innovation: Businesses seek creative solutions, enhancing products – services.
Policy reforms: Driving force for economic stimulus, tax adjustments, monetary adjustments.
Changing labor markets: Retraining, career transitions – foundation for a flexible market.
Social – political impacts: Pressure for deeper reforms.
History of economic crises
The Great Depression 1929 – 1939
On a dark October day in 1929, Wall Street was no longer a symbol of prosperity but became a wasteland.
"Black Tuesday" – October 29, 1929 – marked the beginning of one of the darkest economic periods of the 20th century: The Great Depression.
In the years prior, speculators painted an illusion of prosperity. Stocks were traded using borrowed money (margin) – a high-risk gamble – causing securities to skyrocket in value, completely detached from the real economic value. Meanwhile, the deep imbalance became increasingly evident: industrial output swelled while public purchasing power shrank daily.
When the bubble burst, the stock market crashed uncontrollably, leaving numerous investors bankrupt overnight. Banks – which were already lacking liquidity – faced massive withdrawals, leading to a chain collapse.
The hurricane of unemployment swept away the livelihoods of tens of millions, leaving them homeless.
Businesses went bankrupt en masse, production halted, consumption froze – every corner of the economy sank into paralysis.
The U.S. government was forced to launch a series of extensive reform programs under the New Deal: from creating jobs through public projects, financial support for people, to establishing oversight agencies like the Securities and Exchange Commission (SEC) to restore trust in the market.
The Great Depression was not just an economic crisis – it was a painful transformation of a nation forced to reflect on its distorted growth model while reshaping social and financial policies to prepare for a more sustainable future.
Oil crisis 1973
Amid the backdrop of the Cold War still simmering, another crisis erupted from the distant Middle East.
In 1973, OPEC countries – led by Saudi Arabia – unexpectedly launched an economic strike in retaliation for the U.S. and Western support of Israel in the Yom Kippur conflict. Their weapon was not guns, but oil.
Oil production was severely cut, while prices skyrocketed fourfold in just a few months. The result was that the world fell into a state of severe energy shortage. Long lines of cars waiting to refuel became a typical image of that period in the U.S.
The oil shock quickly spread, causing a wave of hyperinflation – an economic phenomenon difficult to control once referred to as 'stagflation' (inflation coupled with stagnation).
Economies reliant on imported oil such as the U.S., Japan, and most European countries were thrust into severe crisis: production stagnated, unemployment rose, and market confidence severely shaken.
In response to this situation, governments had to change their strategies: from controlling oil prices, promoting fuel-saving measures, to pouring money into researching alternative energy sources like nuclear, wind, and solar power.
The 1973 oil crisis was not just a disruption of supply and demand – it was a jolt that forced the world to reshape the energy future, where absolute dependence on 'black gold' was no longer the only option.
Global financial crisis 2008
In 2008, the global financial system witnessed a shockwave centered in the United States – which once proudly stood as the heart of the world's financial system.
Starting from a real estate bubble, the U.S. housing market became the preferred speculation ground for financial institutions.
Subprime mortgages – for borrowers lacking financial capacity – were bundled into derivative securities and sold globally.
Those seemingly sophisticated financial instruments turned out to be a 'time bomb'. When the real estate bubble burst, uncollectable loans led to the collapse of numerous banks like Lehman Brothers like dominoes.
A wave of bankruptcies spread widely, the stock market fell into a nosedive, and global liquidity dried up.
People lost their homes, businesses lost capital, and the government was forced to act. The U.S. rolled out trillions of USD in rescue packages – saving the 'too big to fail' banks.
Central banks around the world simultaneously lowered interest rates to near 0% and pumped money into the economy.
However, the consequences are incalculable: the global economy fell into a prolonged recession, millions lost their jobs, and trust in the financial system collapsed.
This crisis was also a wake-up call about transparency, risk management, and business ethics within the banking system.
Conclusion
Each crisis in history not only leaves economic consequences but also serves as a profound warning of unpreparedness, excessive greed, and negligence in management.
From the stock market crash in 1929, the oil shock in 1973, to the financial crisis in 2008 – each period paints a new picture of how nations need to adapt, adjust, and innovate.
Today, in the context of cryptocurrencies, artificial intelligence, and climate change reshaping the global economic map, understanding past storms is a valuable preparation for facing future challenges.
Source: https://tintucbitcoin.com/khung-hoang-kinh-te-la-gi-tim-hieu-ve-khai-niem-khung-hoang-kinh-te/
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