Major Global Economic Crises Since 1929

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ANALYSIS OF MAJOR GLOBAL ECONOMIC CRISES SINCE 1929: CAUSES, COURSE OF EVENTS AND CONSEQUENCES 2nd year Economics and Politics students Donatas Bimba Tomas Dubinskas Justas Gaubys

Vilnius, 2012

Major Crises since 1929
• • • • • • The Great Depression 1973 Oil Crisis The Japanese Asset Price Bubble in 1990s 1997-1998: Asian Financial Crisis Global Financial Crisis European Debt Crisis

The Great Depression

Causes of crisis
• • • • • Rapid growth before crisis. 1929 October until 1932 June (S&P) decreased around 85%. Unemployment. Consumption and industrial trades declining. Widespread bank failures.

Unemployment

Fed impact
• FED could not avoid about 10,000 banks bankruptcy . • Huge decrease in Money supply.

Deflation

Source: Historical Statistics of the United States, U.S Department of Commerce.

Consequences
• Effect whole capitalistic world • Greater role of the state in economy. • New Deal

1973 Oil Crisis
• A group of small and economically underdeveloped countries acting through the OPEC imposed oil embargo, cut the production and increased prices of oil

The Rise of OPEC
• The Organization of Petroleum Exporting Countries (OPEC) was formed on September 14, 1960 • Thirteen countries controlled over 85% of world oil exports • In June 1968, OPEC issued a Declaratory Statement stating that the governments had a right to participation in ownership

Reasons of the Oil Crisis
• The demand for energy was increasing rapidly • World consumption of oil grew at the very fast rate of 10.6 percent per annum in 1969-73 • Only Middle East and Africa showed increase in oil production • Other countries had to import • United States imports of oil started to rise rapidly and reached 35% by 1973 • Other resources of energy were neglected, because of the belief that the unlimited amounts of cheap oil is available • Inter-Arab relations and Israel

Events of the Crisis
• In May 1973 a prominent Arab oil expert, had recommended that the Arabs freeze their output at existing levels until the Israel had withdrawn from Arab lands • As USA decided to provide Israel financial aid, Arab countries proclaimed an embargo to USA. • On November 5 the Arabs imposed a production cut of 25 percent for November with the promise of further monthly cuts of 5 percent

Events of the Crisis
• Iran, Iraq, Kuwait, Qatar, Saudi Arabia, and the United Arab Emirates decided to raise the price of oil $3.01 to $5.12 a barrel • In 1974 March, As Israel have withdrawn its troops from Arab lands the oil embargo have been stopped

Consequences
• OPEC reached its goals and the price of oil nearly quadrupled in the market • OPEC countries became acquired a lot of wealth • Oil became an important international weapon • It caused chaos in the Western world • Lack of petrol in USA and petrol rationing • Caused inflation and unemployment in USA

The Japanese Asset Price Bubble in 1990

Causes
• After a collapse of the New York Stock Exchange in 1987, Japanese monetary policy was further relaxed • Significant decline in the country risk premium • Interest rates reached the lowest level since the Second World War • This resulted in enormous speculative boom

Course of Events
• Banks began to promote lending for investment in real estate and in the Stock Exchange • Much of this lending was offered by non-bank financial companies • The advance of credit led to price rises of land and financial assets

Course of Events
• As long as land prices kept rising, loans seemed secure • In 1989 Bank of Japan initiated an end to the cheap finance and raised interest rates • It resulted in decline in Stock Exchange prices • Trading volume, international participation, and profits of securities firms in the Tokyo Stock Exchange have all suffered dramatically

Course of Events
• Administrative measures, such as the attempt to freeze all real estate transactions in 1991, prevented a rapid collapse • But land prices...
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