Economic crisis background paper.

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  • Publicado : 22 de noviembre de 2011
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Introduction:
An economic crisis is when financial institutions or assets suddenly loose all of their value. This can be associated with stock market crashes or banking panics which provoke the recession or the crisis. Although economists do not know exactly what causes an international economic crisis, it is mostly caused by a speculative attack which leads to a sovereign default. A speculativeattack causes the currency of a certain country to lower its value, due to this the country cannot cover its debt which leads to a stop in money coming in to the country and an increase in capital flight, money going out of the country.

While an economic crisis can affect countries with small and big economies it is when it affects a country with a big economy country when it triggers aglobal crisis. For example, if the United States enters into an economic crisis due its importance in global economy it can trigger an international crisis.

Governments need to work together to solve an international crisis, because it does not only affect themselves; it affects the entire population of all the countries involved in the crisis. When a crisis strikes all the sectors of thepopulation including the higher and lower classes suffer and need to change their way of living drastically. People start lowering the money they spend which affects every company in the private and public sector because the demand will lower and some companies will loose millions of dollars due to this.
Governments themselves are also affected deeply by this issue, the annual GDP lowers producing arecession and lowering the investments from foreign companies. The gravity of a crisis is that it involves everyone and it affects everyone.

To have a healthy country you need a healthy economy, that is why you need to take this issue seriously. A healthy economy is indispensable for a country to grow and evolve.

History of the Problem:

Although the biggest and most important economicalcrisis of the world’s history have occurred after the beginning of the 19th century, the first modern crisis occurred in 1720.
It involved a crash of two of the most important stock companies in France and England the South Sea Bubble and the Mississippi Bubble, in both cases the companies assumed the national debt, which lead to many people loosing everything they had.

In 1873 panic triggereda severe international economic depression in the United States and Europe. It was caused by the lowering demand of silver in Europe. In Europe, Otto Von Bismarck extracted a large indemnity in gold from France and cut minting silver thaler coins. The first symptoms of the crisis were financial failures in the Austro-Hungarian capital, Vienna, which spread to most of Europe by 1873 .In the UnitedStates the basic economic problems were overproduction, a declining market and deflation. Investors in Europe, began to ask for american loans. The New York Stock Exchange closed for 10 days; other businesses failed; and railroad construction stopped drastically, with some railroads failing to pay their bonds. The unemployed began to move out of the USA to look for jobs, and long lines for foodappeared in the cities. The hard times drove numbers of working people and those in humble circumstances to the West and other parts of the country, to seek the money and jobs this part of the country could not deliver to them.

In 1893 the collapse of railroads due to overproduction and malfunction in railroad financing caused several banks to collapse. Also in 1893 a banking crisis occurred inAustralia where the Federal Bank failed in January and several companies who had borrowed money collapsed.

In 1929, the biggest depression the world has ever seen occurred in the United States. It affected all the western industrialized countries. On October 29, the Wall Street Stock Exchange crashed; a crashed produced by all the speculation and excess of wealth the roaring twenties...
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