What is the economic crisis? Did this happen on purpose?

An economic crisis is defined as a sharp deterioration in the economic situation of a country, which is manifested in a significant decrease in production. Learn more about the world’s most famous economic crisis.
Economic crises were not a phenomenon that followed the massive economic earthquake caused by the global financial turmoil in the United States in 2007, nor were they new during the Asian crisis of the 1990s.

Economic crises are not new even in the most powerful crisis of the modern era, the Great Depression or the Great Depression, which swept the world economy in the 1930s, and its effects spread to countries all over the world.

In fact, economic crises are an integral part of human history and have contributed to the collapse of empires known to man in the past. Beyond the turmoil caused by mismanagement of national resources, economic crises are inevitable, and the problem is that no one knows when and how it will happen.
This may be spontaneous, due to the cyclical nature of the economy, it may be due to unexpected human intervention (such as debt buildup and eventual default), or it may be the result of natural crises (such as epidemics, severe weather conditions, or devastating earthquakes) from.

To gain a deeper understanding of the nature of these economic crises and why they occurred, we review some facts and information about the phenomenon in this topic.

What is the economic crisis?
First of all, we need to know that the word “crisis” is a general term used to refer to a temporary problem or perhaps a domestic problem, such as high commodity prices (increased inflation) that may constitute a crisis for the economy, but can be controlled by government policies and the influence of the central bank.
In other words, not every problem in the economy can affect it, and it can be considered a complete economic crisis, but if the problem is not contained, consequences can occur, especially since the components of the economy are interconnected, and the fall of one of them has the effect of dominoes falling on the rest.

In any case, an economic crisis can be defined as “a severe and sudden disturbance in any part of the economy, possibly a stock market crash, a rise in inflation or unemployment, or a series of bank failures, with serious repercussions.” To news and economic reports, The Balance said that although this would not necessarily lead to a recession.

On average, a country like the United States faces an economic crisis every 10 years or so, and each time it occurs for a different reason, it is difficult to avoid; It was the 2008-2009 financial crisis that led to bank failures and mortgage problems to blame, and then the 2020 coronavirus pandemic.
As mentioned above, despite the severe effects of an economic crisis, it does not necessarily lead to a general disorder of the economy, such as a recession or stagnation, except under certain circumstances where no crisis can be described as an ‘economic collapse’.

For example, the economic crisis of the 1930s plunged the world economy into a deep depression, which declined by 15% between 1929 and 1932, with negative spillovers, but shrank by only 1% during the 2008-2009 global crisis, according to For the financial portal “Raqqam”.

Types of economic crises and their causes
As with most economic terms and cases; Experts do not have a single, absolute and consistent definition, but have common and generalized definitions of meaning.

  • relaxation
    This is two consecutive quarters (6 months) of economic downturn (reducing its size or the so-called negative growth). It is also defined as a sharp decline in economic activity for several consecutive months.
    Recessions can occur spontaneously due to the cyclical nature of how the economy operates (including phases); Expansions, peaks, stagnations, troughs, and recoveries hit markets as the economy begins to grow until it peaks, and demand declines as production increases.
    Recession occurs here and continues until the weakness in economic activity reaches its lowest point (the bottom of the business cycle), when commodity prices fall sharply and consumers begin to buy in large quantities again.
  • Disappointed
    It can simply be defined as a prolonged stagnation, which means that the economy continues to contract for years, so it is a real disaster for the country, as tariffs indicate that it means a decrease of at least 10% in the size of the economy, and the effects of it will last for years.

    They usually occur in periods other than recessions and are the result of a combination of factors, such as factories and companies increasing production amid a sharp drop in demand, which has attracted great interest from investors.

    In this case, prices remain high, investors start to move away from buying, capital spending decreases, production and employment decrease, unemployment rises, the purchasing power of the population decreases due to investor fears, and this is a naturally occurring depression. No outside interference or interference.

    This happened in Indonesia in 1998, when its economy shrank by 18%, while Thailand’s economy shrank by 15% in two years in the 1990s.

  • stagflation
    In other types of economic crises, this is a rare situation where unemployment rises and inflation increases at the same time that economic growth is slowing (growth too slow or even shrinking).

    As economic growth slows, companies start laying off some employees in an effort to save money, consumers lose purchasing power, spending falls, growth slows, and the economic crisis deepens, making it one of the worst crises that can affect the economy.

    Until the 1970s, economists did not believe that this would be the case (slowing growth and higher inflation) because inflation was believed to result from positive economic growth.

  • economic collapse
    An economic crisis is considered a collapse only at a certain stage and for specific factors, an economic collapse is a deterioration in the economy of a country or region that usually follows a period of crisis. Simply put, it can be defined as the effect after the above situation.

    An economic meltdown occurs at the onset of a severe recession, depression, or stagnation, and can last for years, depending on the severity of the situation. Due to its global impact, the Great Depression of the 1930s is considered one of the worst economic downturns in history.

    According to the Encyclopedia of Economics and Economics, an economic collapse may occur quickly due to unexpected events, or it may be preceded by a set of events or signs that indicate economic weakness and are not considered a normal part of the economic cycle. Financial information.

The most famous economic crisis

  • credit crunch 1772
    The crisis broke out in London and quickly spread to the rest of Europe. In the mid-1860s, the British Empire accumulated enormous wealth through its colonial possessions and trade
    This led to a period of excessive optimism and rapid credit expansion for many British banks, but this boom ended abruptly on June 8, 1772, when a prominent banker fled to France to avoid paying his debts.

    The news spread quickly, sparking a banking panic in the UK, as creditors began lining up at British banks to demand an immediate cash withdrawal. The crisis that followed quickly spread to Scotland, Holland, the rest of Europe, and the British and American colonies.

    According to Encyclopedia Britannica, historians claim that the economic impact of the crisis was one of the main contributing factors to the Boston Tea Party protests and the American Revolution.

  • The Great Depression 1929-1939
    It was the worst financial and economic disaster of the 20th century, and many believe that the Great Depression was the result of the 1929 US stock market crash, which was later exacerbated by poor policy decisions by the US government.

    The Great Depression lasted about 10 years, causing huge income losses, record unemployment, and lost production, especially in industrialized countries. At the height of the crisis in 1933, the unemployment rate in the United States approached 25%.

  • OPEC shock 1973
    The crisis began when the member states of the group – made up mostly of Arab countries – decided to retaliate against the United States in retaliation for the United States’ supply of arms to Israel during the Fourth Arab-Israeli War.

    OPEC countries announced an oil embargo and suddenly stopped oil exports to the United States and its allies, which led to an acute oil shortage and a sharp rise in prices, causing the United States and many other developed countries to plunge into an economic crisis.

    The crisis that followed was unique in that rising inflation coincided with a stagnation in the economy, which we called “stagflation” above, when economists first learned that it would take years for production to produce a recovery, and inflation fell to pre-existing levels. calamity.

  • Corona Virus Pandemic 2020
    So far, little is known about the impact of the coronavirus epidemic and the magnitude of the crisis that the world has experienced since the emergence of the virus, but so far, the year 2020 has seen a downturn in the world since the Great Depression, as international institutions such as the International Monetary Fund say the worst economic crisis.

    The International Monetary Fund estimates that the global economy contracted by 4.4% over the past year and experienced a severe recession, especially during the first wave of the pandemic, but it will take some time to assess the impact now and for the rest. Next year.

What is the global financial crisis?
Also known as the Great Depression or the Great Depression after the Great Depression, it occurred between 2007 and 2008, the worst economic crisis since the 1930s and even before the COVID-19 crisis the world experienced last year.

The crisis was triggered by the bursting of the housing bubble in the United States due to heavy debt, which led to the collapse of Lehman Brothers (one of the largest investment banks in the world at the time), and pushed many financial institutions and large corporations to the edge of the cliff, asking for government assistance.
It took nearly a decade for things to return to normal, eliminating millions of jobs and billions of dollars in revenue along the way. It caused chaos in the global financial markets.

The difference between an economic crisis and a financial crisis
As mentioned above, an economic crisis is simply a direct deterioration in the economic activity of a country, which can affect the size of the GDP and, depending on the size of the crisis, can have broad effects, as happened when the Covid-19 pandemic appeared.

As for the financial crisis, it is a situation in which the value of financial assets in the economy decreases rapidly, which directly affects the financial and banking sectors (components of the macro economy), which can eventually have an impact on economic activity and can lead to an economic crisis, as happened in 2008.

In short, the economic crisis is a problem that affects economic activity directly, and the financial crisis is part of its injury, especially financial or banking, and then it can turn into an economic crisis.

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