Global Economic Crisis

 

In 2008 a great economic crisis led to a recession of the economies around the world. What began as a credit crisis turned out to be the biggest banking crisis since the Great Depression. Although the implications of the crisis are most severe in the USA, banks and insurance companies all over the world have collapsed and governments have come to the rescue by lending them money.

The American government wants to save the global financial system with 700 b dollars. With this money it wants to restore trust in America’s banking system.

 

Causes of the crisis

There are many reasons for the current crisis.

  • Governments, especially the American government, did not control the banking sector enough and let the banks give loans to people without asking for securities.
  • Many companies, banks and firms have become too greedy and wanted to make a lot of quick money.
  • Since the 1970s too many goods and services have been produced.

 

Background

The Post-war Period 1945 – 1975

After World War II economies around the world grew very quickly. Europe and Japan were being rebuilt. Workers received higher wages.

This period of growth came to an end in the mid 1970s. Developing nations like Brazil or the tiger states of Asia (Taiwan, South Korea, Singapore and Hong Kong) started producing more and more, which led to overproduction. In the industrial countries consumers were not able to buy as much as they did before because prices and inflation went up. On top of all this a dramatic energy crisis and the rise in oil prises led to a world wide recession in the mid and late 1970s.

 

Globalization

At the beginning of the 1980s companies and firms in industrialized nations began looking for new ways of making more money. They started transferring their companies to Asia where they hired cheaper workers and had access to less expensive raw materials. Because of low labour costs they could produce more cheaply and make more profit.

Global Economic Crisis - Housing Bubble


The economic bubble

 

In the last 15 years more and more investors and companies wanted to make larger profits. They bought real estate, stocks at high prices and sold them at even higher prices in the hope of making quick money. When prices got too high nobody bought stocks and real estate any more. Prices fell and as time went on they became worthless.

Such an economic bubble burst in Asia between 1997 and 1998. It led to the economic collapse of some countries, including Japan. Within a few weeks stock market prices fell and nobody bought stock or real estate any more. Foreign investors pulled out their money out of Asia.