Many ardent investors have problem asked themselves one time or another: what is a financial crisis? We’ll we’ll take you through the five worst crises imaginable, economically speaking. It doesn’t matter whether a country has a state-controlled economy or a free market economy, everything is centered around the circulation of money; that’s basic Econ 101.
Since ancient times, when people were producing, supplying and distributing goods, the modern-day concept of an “economy” slowly arose, and much like many phenomena that arc over centuries, this process has become more and more complex.Now, the first to give birth to the concept of an economy as we know it today were the Babylonians, a society that developed an economic system with laws of debt, legal contracts and codes of law related to business and private property. To understand what a financial crisis is, it’s important to understand this fact.
Photo Credit: Daniel X. O’Neil
So, as we can see the philosophical idea of what makes up an economy–big or small–has a very long history. Despite everything, though, it still remains a system, and like all systems, there are always kinks, rocky patches, and problems along the way.
We all have witnessed one of these problems that has happened very recently, what many now call the “Great Recession,” beginning in 2008. However, economic history knows many other downturns, some of which were worse than the most recent crisis.
We have gathered world’s five worst economic collapses of all time. Let’s get a bit closer to understand just what exactly a financial crisis is.
See the list:
No.5 Russian Ruble Crisis
Photo Credit: Cts0908
The Russian financial crisis, also called the “Ruble Crisis,” affected Russia in 1998, after the government devalued the ruble and defaulted on its debt. Some causes of the crisis included a decline in productivity, an artificially high fixed exchange rate against foreign currencies, and a chronic fiscal deficit.
No.4 The Economic Collapse of the Soviet Union
Photo Credit: Daniel Antal
In the 1980s, countries from the Eastern Bloc were affected by a severe stagflation, which, in layman’s terms, resulted from a planned economy that was not quick enough to meet the needs of its participants. This stagflation lasted for over a decade, and culminated with the fall of the Soviets’ communist regime in all related countries in Eastern Europe, ending with the collapse of the Soviet Union.
No.3 The Great Recession
Photo Credit: Daniel X. O’Neil
The Great Recession started with a symbolic collapse of Lehman Brothers in the fall of 2008, which held $600 million in assets. It is widely considered to be the most dramatic recession in the U.S. since the Great Depression, as it was felt in many areas of the global economy, from real estate to manufacturing. Some of the causes are now attributed to a deregulated financial sector, and poor public monetary policies.
No.2 Hyperinflation in the Weimar Republic (Germany)
Photo Credit: Comrade Foot
Between June 1921 and January 1924 Germany (Weimar Republic) was hit by a severe hyperinflation as a result of large costs that Germany had to pay after the First World War. Germany decided to pay the costs of war entirely from borrowing, which lead to the decline of the Mark’s exchange rate against the U.S. dollar, which led to inflation.
No.1 The Great Depression
Photo Credit: Tony Fischer
The Great Depression that started in 1930 and lasted for over a decade is still considered today to be the worst and most dramatic financial crisis in modern history. More exactly, it started with a Wall Street-centric crash on October 29, 1929. An increase in the unemployment rate to 25% and a 50% drop in international trade were just two of the consequences of the Depression. The world started to recover only after the end of World War II.
