International Financial Crises|
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Mr. Piyush AryalSubmitted by:Group membersRuchi SinghalSachin ShresthaSajesh MaharjanSameer ShresthaShanti GautamShivangi Sharma|
The term financial crisis is applied broadly to a variety of situations in which some financial institutions or assets suddenly lose a large part of their value. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many recessions coincided with these panics. Other situations that are often called financial crises include stock market crashes and the bursting of other financial bubbles, currency crises, and sovereign defaults. The major international financial crises are briefly discussed below.
1. The Great Depression
The Great Depression, an immense tragedy that placed millions of Americans out of work, was the beginning of government involvement in the economy and in society as a whole. Dates: 1929 -- early 1940s
Top 5 Causes of the Great Depression
1. Stock Market Crash of 1929
Many believe erroneously that the stock market crash that occurred on Black Tuesday, October 29, 1929 is one and the same with the Great Depression. Even though the stock market began to regain some of its losses, by the end of 1930, it just was not enough and America truly entered what is called the Great Depression. 2. Bank Failures
Throughout the 1930s, over 9,000 banks failed. Bank deposits were uninsured and thus as banks failed people simply lost their savings. Surviving banks, unsure of the economic situation and concerned for their own survival, stopped create new loans. This exacerbated the situation leading to less and less expenditures. 3. Reduction in Purchasing Across the Board
With the stock market crash and the fears of further economic woes, individuals from all classes stopped purchasing items. This then led to a reduction in the number of items produced and thus a reduction in the workforce. As people lost their jobs, they were unable to keep up with paying for items they had bought through installment plans and their items were repossessed. More and more inventory began to accumulate. The unemployment rate rose above 25% which meant, of course, even less spending to help alleviate the economic situation. 4. American Economic Policy with Europe
As businesses began failing, the government created the Smoot-Hawley Tariff in 1930 to help protect American companies. This charged a high tax for imports thereby leading to less trade between America and foreign countries along with some economic retaliation. 5. Drought Conditions
While not a direct cause of the Great Depression, the drought that occurred in the Mississippi Valley in 1930 was of such proportions that many could not even pay their taxes or other debts and had to sell their farms for no profit to themselves. The area was nicknamed "The Dust Bowl." This was the topic of John Steinbeck's The Grapes of Wrath. Overview of the Great Depression:
The Stock Market Crash
After nearly a decade of optimism and prosperity, the United States was thrown into despair on Black Tuesday, October 29, 1929, the day the stock market crashed and the official beginning of the Great Depression. As stock prices plummeted with no hope of recovery, panic struck. Masses and masses of people tried to sell their stock, but no one was buying. The stock market, which had appeared to be the surest way to become rich, quickly became the path to bankruptcy. Since many banks had also invested large portions of their clients' savings in the stock market, these banks were forced to close when the stock market crashed. Seeing a few banks close caused another panic across the country. Afraid they would lose their own savings, people rushed to banks that were still open to withdraw their money. This massive withdrawal of cash caused additional banks to close. Businesses and industry were...