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.
• FED could not avoid about 10,000 banks bankruptcy . • Huge decrease in Money supply.
Source: Historical Statistics of the United States, U.S Department of Commerce.
• 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a prominent Arab oil expert, had recommended that the Arabs freeze their output at existing levels until the Israel had withdrawn from Arab lands • As USA decided to provide Israel financial aid, Arab countries proclaimed an embargo to USA.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and the United Arab Emirates decided to raise the price of oil $3.01 to $5.12 a barrel • In 1974 March, As Israel have withdrawn its troops from Arab lands the oil embargo have been stopped
• 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
• 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 still have fallen significantly to led Japan into a profound crisis
• The health of banks and other financial institutions have weakened • The prices of real estate have decrease by half • The quality of loans have worsened • The decline in the value of banks’ equity holdings began to put pressure on bank capital
Beginning of the Crisis
• • • • • • Huge economic growth before crisis. Total factor productivity. U.S. influence. Lost competitive ability in international market. Asian currencies peg with dollar. Partnerships and Real estate collapse.
• Thailand baht devaluation. • Crisis spread out through other Eastern Asian countries.
International Monetary Fund
• Supported most effected countries. • Set certain commitments to get support.
• Reductions in values of currencies, stock markets, and other asset. • Businesses and Real estate collapsed. • Impact on International trades. • Political, cultural, social and institutional spheres.
Global financial crisis
Beginning of the crisis
• Sets the interest rate to 1% • No one is buying treasury bills from the state • Cheap loans
• Prime mortgages with an interest rate from 4-7% • Sub-prime mortgages with an interest rate of 10%
• Financial systems started to collapse all around the world • World leaders summit in 2009
• Affected varies financial institutions around the world • Loss of public confidence if financial institutions
European Dept Crisis
The causes of the crisis
• • • • Easy credit conditions from 2002-2008 Reccesion 2008-2012 Wrong fiscal policies: low taxes, high public expenditure Ignorance of the Maastricht Treaty
Dept expressed as a percentage of countries GDP
Hiding their dept
• Complex curency • Credit derivative structures • Off-balance sheet trasactions
Interest rate of countries
• Crisis has led to enormous budet deficits all arround Europe • High unemployment levels • Adoption of right fiscal policies