All things happening at the moment remind millions of people about the collapse of the housing market in the US in 2006 and the financial crisis occurring in the following year that brought the US economy and the whole world into trouble.
In contrast, crises are quite common in history. The first world economic movement was in the 1st century AD, specifically in the year 33 AD, known as the economic crisis of the Roman Empire.
It was followed by other world economic crises such as: The Empire Crisis of the III century, AD 235-284; European Crisis (XIV century); Tulip Syndrome (Seventeenth Century); The Indonesia Bubble and the Credit Crisis of 1772 (18th Century); The recession lasted 1873 – 1869 (nineteenth century); Great Depression 1929-1939 (Twentieth Century), …
And of course, once a crisis occurs, it will often cause “tsunami” to the affected economies. Here is a brief summary of the most devastating financial crises in human history.
Tulip syndrome appeared in the Netherlands around the middle of the 17th century, considered the first economic bubble in the worldwide history. In the years 1636-1637, the tulip craze began to explode. Thousands of people rushed to buy Tulip flowers, causing the price of flowers on the market to increase rapidly, some even had to sell their house to buy them.
At one point, a rare Tulip root was sold for $750,000 at today’s value, six times as much as the average person’s annual income.
Tulip syndrome in the Netherlands in the seventeenth century
However, the tulip market suddenly collapsed in February 1637 because of a rumour about a disease spreading from this flower. Investors sold off tulips in a panic, pressing prices to 1% of their previous value.
That success lasted in short time, many people’s assets evaporated and virtual profits on documents were wiped out. A series of tulip businesses declared bankruptcy throughout the Netherlands. The Dutch economy became depressed during this period due to the Tulip financial crisis.
The extraordinary orchids trend in Vietnam in recent times has also made many people think of the “tulip bubble”. At the time of the pandemic breaking out in 2020, the extraordinary orchids market also appeared a lot of “giant” transactions with the scale of billions of dongs.
During the 1760s and 1770s, Great Britain became extremely prosperous thanks to its achievements in trade and its extensive colonial system. This created a wave of excessive optimism, leading to British banks being “wide/cool hand” in lending circulation.
Nevertheless, in June 1772, one of the major partners of James, Fordyce, Neal and Down banks was Alexander Fordyce flying to France to fraud his debt.
This incident created chaos in the British banking system at that time. Creditors quickly withdrew money from the bank, resulting in a credit recession. The crisis soon spread to Scotland, the Netherlands, parts of Europe, and the British colonies in the Americas.
The recession lasted nearly a decade, leaving a quarter of Americans unemployed. This is considered the worst economic and financial crisis of the twentieth century. It not only devastated the US economy but also impacted the whole world economy.
Unemployed workers wait in long lines for food subsidy in 1928.
Currently there are multifarious opinions around the cause of the Great Recession. Most people supposed this disaster’s root from the Wall Street stock market crash of 1929 and the wrong decision of the US government
The crisis became worn out when the countries of the Organization of the Petroleum Exporting Countries (OPEC) announced an oil embargo, an exporting oil ban to the US and its allies to retaliate against the US for arming Israel in the fourth war between Arab and Israel.
This arose a large shortage of oil and a spike in oil prices, leading to economic crises in the US and many other developed countries.
On October 17th, 1973, OPEC declared an oil embargo.
What a unique note of the recession was afterward the “right time” emergence of extreme inflation (born from a spike in energy prices) and economic stagnation (caused by the economic crisis).
As a result, economists have named the era as the “stagflation” period (the term for stagnation combined with inflation), and it took several years for output recovery and inflation rate being at the previous level. This stagnation is also becoming a concern of the global economy at the moment.
The 1997 Asian crisis began in Thailand and spread to East Asian countries. In July 1997, the Thai government abolished the fixed exchange rate to the US dollar. This action caused the Thai Baht to continuously depreciate and lose 40% of its value within just one year.
This has sparked a wave of panic across Asian financial markets. The huge influx of foreign investment capital into East Asian nations at that time massively withdrew from the market.
Thai companies that borrowed in USD quickly declared bankruptcy and the stock market fell down by 72 % in value. Finance One, Thailand’s largest financial company, also collapsed. The influence of this event not only spread to East Asian countries, causing political instability in the region, but also contributed to the financial crisis in Russia and Brazil.
The most recent global economic crisis stemmed from the bursting of the US housing bubble. At that time, American banks offered mortgages to buy houses with high interest rates for those with risk of debt repayment.
This has dragged on a series of events such as rising credit debt, bottoming housing prices, stock market crash, banking system wabble, unemployment rate soaring. At its peak, Lehman Brothers, one of the world’s largest investment banks declared bankruptcy in 2008.
Lehman Brothers declared bankruptcy.
The crisis has quickly hurt to other nations, ravaged global financial markets and precipitated the biggest financial disaster since the Great Depression of 1929. And the must-paid amount of the 2008 crisis was $10 trillion was washed away, 30 million people lost their jobs, 50 million people returned to below the poverty line.
Economic Cycle or Business Cycle is a term used to refer to the circular movement of an economy as it moves from expansion to contraction and is cyclical
The process of fluctuations of the economic cycle can basically be divided into 3 stages: recession, recovery and peak. Including:
The economy is at its mount, before the onset of a new recession described by the turning period from prosperity into recession, and is known as the top of a business cycle.
Looking back at the world economic crises like the depression in 1930, or recently the Asian crisis in 1997, the collapse of Dot-com Company at the end of the 20th century or the world economy 2007 – 2008 crisis can be seen that the duration of an economic crisis is getting shorter and shorter.
Many experts believe that every 10 years, the global economy will tend to have a negative fluctuation, or worse, become a crisis.
What’s happened if we lived in a place where there was a recession every 3 years? This utopian scenario actually existed in the 1970s-1980s in the United States, one of the worst periods in American economic history.
Within 13 dark years, 4 recessions took place (1969-1970, 1973-1975, 1980, 1981-1982), inflation and unemployment were sky high, all enterprises, government and people sank in dire straits.
Now, from the late 2022 to early 2023, many reputable organizations predict that the world economy in 2023 will continuously face headwinds. The biggest risk is still the conflict between Russia and Ukraine and economic activity slows down due to monetary tightening to control inflation.
The volatilities from geopolitics, pandemics, etc. have made the world economy in general wobble, causing many people to worry about the probability of a new economic crisis.
Besides, in the future, developments in biotechnology, artificial intelligence AI, etc. will open a lot of opportunities for mankind, but also generate next hazards.
And one thing is for sure, once it has happened, the scale of the crisis can only be larger, not reduced and only end when the conflicts are resolved.
For instance, the conflicts that caused the long-lasting Great Depression of 1929-1939, which led to the outbreak of World War II and at the end, this WWII set the world to a new balanced level.
Although the economic movement may be limited to a country or a region, with the current strong globalization trend, the crisis is easy to spread worldwide.
So, what should businesses do when the economic crisis cycle is getting shorter and shorter with increasingly unpredictable variables?
