Financial crisis

The term financial crisis refers to a variety of situations in which some financial institutions or assets suddenly lose a large part of their value.^{[citation needed]}

They include sovereign defaults, which occur when a government fails to meet payments on its external or domestic debt obligations or both. Then there are banking crises, typically when a significant part of a banking sector has become insolvent after heavy investment losses, banking panics, or both. Another important class of crises consists of exchange rate crises, where the value of a country’s currency falls precipitously, often despite a government "guarantee" that it will not allow this to happen under any circumstances. Some crises are marked by bouts of very high inflation. These separate types of crisis often occur in clusters.

Properties

Carmen Reinhart and Kenneth Rogoff argue, that systemic banking crises are typically preceded by asset price bubbles, large capital inflows and credit booms.

Banking crises dramatically weaken fiscal positions of governments, with revenues invariably contracting, and fiscal expenditures often expanding sharply. Three years after a financial crisis central government debt increases, on average, by about 86 percent. The fiscal burden of banking crisis extends far beyond the commonly cited cost of the bailouts. The busts of real estate price bubbles average four to six years.

History

Before 19th century

The first true international debt crisis had its roots in loans made by Italian merchants to England starting in the late 13th century. Italian loans helped to finance a long series of wars between England and France. Edward III of England defaulted in 1340 after a series of military defeats and a bank run hit Florence's economy. The whole affair played out in slow motion by modern standards. One major Italian lender, the Peruzzi Bank, went bankrupt in 1343, and another, the Bardi Bank, did in 1346.

• Great Bullion Famine in the fifteenth-century Europe, with a particular lack of silver
• The crash of 1557-1560, that occurred when Spain and France defaulted in short order
• Tulip mania (1634-37) in the Netherlands
• Panic of 1640 in Massachusets
• 1720: Bursting of South Sea Bubble (Great Britain) and Mississippi Bubble (France) – earliest of modern financial crises; in both cases the company assumed the national debt of the country (80–85% in Great Britain, 100% in France^{[citation needed]}), and thereupon the bubble burst.
• Crisis of 1772
• Panic of 1792
• Panic of 1796–1797

19th century

• Danish state bankruptcy of 1813
• Panic of 1819 – pervasive USA economic recession with bank failures; culmination of U.S.'s 1st boom-to-bust economic cycle
• Panic of 1825 – pervasive British economic recession in which many British banks failed, and Bank of England nearly failed
• Panic of 1837 – pervasive USA economic recession with bank failures; a 5 yr depression ensued
• Panic of 1847 - a collapse of British financial markets associated with the end of the 1840s railroad boom.
• Panic of 1857 – pervasive USA economic recession with bank failures
• Panic of 1866 – the 'Overend Gurney crisis' (primarily British and Italian)
• Panic of 1873 – pervasive USA economic recession with bank failures, known then as the 5 year Great Depression and now as the Long Depression
• Panic of 1884 - was a minor crisis in the United States and France
• Panic of 1890
• Panic of 1893 – a panic in the United States marked by the collapse of railroad overbuilding and shaky railroad financing which set off a series of bank failures
• Australian banking crisis of 1893
• Panic of 1896 - an acute economic depression in the United States precipitated by a drop in silver reserves and market concerns on the effects it would have on the gold standard

20th century

• Panic of 1901 – limited to crashing of the New York Stock Exchange
• Panic of 1907 – pervasive USA economic recession w/ bank failures
• Panic of 1910–1911
• 1910 – Shanghai rubber stock market crisis
• Depression of 1920–21
• Japanese Shōwa Financial Crisis of 1927
• Wall Street Crash of 1929, followed by the Great Depression – the largest and most important economic depression in the 20th century
• 1973 – 1973 oil crisis – oil prices soared, causing the 1973–1974 stock market crash
• Secondary banking crisis of 1973–1975 – United Kingdom
• 1980s – Latin American debt crisis – beginning in Mexico in 1982
• Bank stock crisis (Israel 1983)
• 1987 – Black Monday (1987) – the largest one-day percentage decline in stock market history
• 1989–91 – United States Savings & Loan crisis
• 1990 – Japanese asset price bubble collapsed
• early 1990s – Scandinavian banking crisis: Swedish banking crisis, Finnish banking crisis of 1990s
• 1992–93 – Black Wednesday – speculative attacks on currencies in the European Exchange Rate Mechanism
• 1994–95 – 1994 economic crisis in Mexico – speculative attack and default on Mexican debt
• 1997–98 – 1997 Asian Financial Crisis – devaluations and banking crises across Asia
• 1998 Russian financial crisis

21st century

• 2001 – The dot-com bubble – speculations concerning internet companies crashed
• 2007–10 – The Great Recession, and the 2010 European sovereign debt crisis

See also

• Austrian predictions

References

• Atwell, William (1998), "Ming China and the emerging world economy, c. 1470–1650", in Twitchett, Denis and Mote, Frederick W. (eds.), The Cambridge History of China: Volume 8: The Ming Dynasty: 1368–1644, Cambridge: Cambridge University Press, pp. 376–416, ISBN 0521243335 

Links

• Economic Cycles Before the Fed collection of resources by Tom Woods
• Who Predicted the Bubble? Who Predicted the Crash? (pdf) by Mark Thornton
• When Debt comes calling (pdf) by Sarel Oberholster
• New Technology, Old Scam by Clifford F. Thies, October 2002
• Financial crisis on Wikipedia