Every year, globalization tightens and strengthens relationships between countries and regions. It brings development opportunities but also potential threats of being hit by regional crises that may spread worldwide at the speed of light. Over the last hundred years, we have witnessed multiple examples of economic turmoil and each economic crisis impacts society in many different aspects.
The Definition Of The Economic Crisis
Multiple traders all over the world wonder what an economic crisis is and, more importantly, whether there are any ways to prevent it – both from an individual and global point of view.
First of all, the economic crisis means the ultimate downgrade of the country’s economy. Globalization usually causes a domino effect, which spreads financial turmoil in other regions and countries.
Several indicators showcase the condition of countries and, in some cases, regions in economic terms. Even though its position is not as significant as before the digital era, Gross Domestic Product (GDP) still stands as the most essential barometer. If GDP decreases, it means that the country may be in a recession or depression.
Economic crises can be caused by multiple factors. One of the most popular is wrong investment decisions on both the micro and macro scales. On the other hand, investors must take unstable geopolitical situations into account because they can also impact the region’s economic stability.
Pay attention to the differences between financial crisis and economic crisis. The first one focuses on the banking and financial sector and can lead to macroeconomic instability.
A Great Depression: Mid-War Economic Crisis
In 1929, the United States economy experienced a major boost and development. The “Hoover bull market,” named after inaugurated in January 1929 by President Herbert Hoover, presented incredible rises in the market. Back then, everybody, regardless of their profit, put their liquid assets and savings in securities. Potentially, they could benefit from this investment in the future.
At the beginning of these actions, the market had been optimistic – before the collapse, the DJIA index rose to a staggering 381 points in September. However, early October brought the first sights of the economic vicious circle – to invest in the market, the Americans had borrowed money. Eventually, these speculations resulted in an uncontrolled rush in the market, summarized on October 24th, also known as Black Thursday. Almost 13 million shares of the Dow Jones Index were sold by investors in a panic. This event started a massive economic crisis caused by an absolute lack of control in the market. It led to the loss of income, which ultimately meant massive unemployment, reaching almost 25 percent in 1933.
The Great Depression lasted ten years, ending in 1939.
The Blow Of Real Estate Bubble
If you haven’t watched The Big Short movie, you should do it tonight. It is a perfect example of top-notch cinema, which shows one of the biggest economic crises in history in a straightforward way.
It all started with the low-quality mortgages given to investors in the United States. In the short term, the banking and financial sectors were incredibly beneficial due to the number of individual and corporate clients benefiting from their services. However, at some point, the bubble collapsed. First of all, one of the biggest investment banks in the world – Lehman Brothers – has collapsed. Similar to the Great Depression, several other banking and financial institutions were on the verge of bankruptcy. The result of this story is predictable – billions of dollars held by investment banks were gone, and people could not generate income.
How Does War In The Ukraine Affect The World?
At the end of February 2022, Russia attacked the eastern borders of Ukraine. The war has been ongoing for almost two years, and at the beginning of 2024, there are no signs of resolving this matter. Moving aside from the discussion about the sense of Russian actions, both countries (Russia and Ukraine) have been fundamental to the worldwide economy, especially the European Union.
Before the start of the conflict, Russia had been a primary supplier of natural resources worldwide for decades. The European Union and the United States sanctioned their gas and oil imports. Obviously, it hit the Russian economy in a significant way – its GDP has been plummeting for the last two years. However, the lower amount of natural resources caused a fundamental increase in energy prices, especially in countries of the former Eastern Bloc like Poland and Baltic countries.
The Ukrainian economic crisis also impacted the agricultural sector not only in Europe but also in different parts of the world. Before the start of the war, Ukraine was the biggest provider of wheat in the European Union and Northern Africa. It may sound bizarre, but due to the price increase of breadstuffs in Tunisia, the government’s trust in this African country decreased substantially.
This unusual example shows how hard an economic crisis in every part of the world can affect citizens of different countries.
