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What is an Economic Crisis?

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An economic crisis is a state in which dramatic shifts in the economy create severe hardship for everyone connected with that economy. While the term is sometimes used to refer to shifts in the personal fortunes of individuals or even the downward movement and collapse of a company, a true economic crisis is normally associated with severe changes in a national or even the world economy. Events such as the Great Depression that began in 1929 with the stock market crash can rightly be referred to as an economic crisis.

There are several characteristics common to any type of economic crisis. One has to do with an upsurge in unemployment rates. This is often due to a chain of economic events that force employers to either pause or shut down operations altogether. The end result is that more people are out of work, which in turn further affects the sale of goods and services and leads to additional layoffs as companies fail to generate the revenues necessary to sustain their operations and pay their workers. During an economic crisis, banks may fail, companies go under, and homeowners face greater threats of foreclosure due to nonpayment of mortgages.

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During an economic crisis, stock markets and other forms of investment markets are likely to experience severe downturns. As companies begin to fail, the value of their shares also decreases and trading begins to wane as investors cannot unload their shares for any price, even at a severe loss over the original investment. It is not unusual for the currency undergoing this type of crisis to be devalued, which in turn only serves to further impede the chances for an economic recovery. Typically, there is no type of economic activity that is not adversely affected during the course of a true crisis.

An economic crisis can take on many forms, including periods of recession or depression that also include other issues such as the bursting of the financial bubble within key industries, a currency crisis or even a banking crisis that threatens to undermine the banking system in one or more countries. While there many examples of national and even worldwide events of this nature, there are still a number of differing theories regarding how to anticipate, manage, and finally overcome an economic crisis. For this reason, there is no uniform approach favored by most analysts, although there are often basic principles that many will feel can be applied once the crisis is actually underway.

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Bertie68
Post 12

One of the most personal and devastating parts of economic crisis is the mortgage situation. I still can't believe that banks were giving mortgages to people who were putting down a very small amount or interest only downpayments. Everyone was getting a house! Then the banks just packed them up and sold the mortgages. How irresponsible!

Of course, the buyers were irresponsible too. Many eventually couldn't pay their mortgages and their houses went into foreclosure. And some couldn't pay their mortgages because of being unemployed for a long time. This large number of foreclosures could continue to go on for some time. What a mess!

PinkLady4
Post 11

During an economic and financial crisis, large and mid-size companies usually do just fine - they lay-off enough of their employees and have their current employees work harder to produce what is needed. This way the company is making good profits.

As more companies do this, the unemployment rate goes higher and higher. Unemployment often leads to the inability to pay mortgage and foreclosure follows right behind.

The manufacturing sector suffers because many people can't afford to buy things. Government has to step in and provide funds to finance repair of the bridges, roads, and utilities that are in bad shape. This should get people back on the job. But if government has a huge debt, they can't spare too much money.

When all these events are happening, it is truly an economic crisis.

AnnBoleyn
Post 10

@StarJo - Businesses as well as freelancers have to make significant cutbacks during recessions. During the last one, many of the IT companies in particular were letting people go. Anyone know why IT would be hit so hard, as opposed to other industries?

alianor
Post 9

@bluespirit - A large part of the economic crisis is that mass amounts of investors start to panic instead of staying patient or staying calm. When they panic and want to quickly offload their stocks and other investments, it quickly drives down the prices. The same goes for the foreign currency (Forex) market.

EricRadley
Post 8

@snickerish - Actually the financial sector and private companies did downscale a lot during the last recession. Let's hope that we don't get a repeat of the economic crisis in 2008/2009!

snickerish
Post 7

During this US economic crisis, I have seen much heartache from small businesses to teachers.

Many small businesses have not made it under the financial duress of the slowing and sometimes halted economy (in some sectors such as construction). Teacher positions have been cut from the budget.

Maybe it is because I did not know many people in the financial sector but one of the things that surprises me, is that the financial sector has *not* seemed to lose any jobs. Am I misinformed on this assumption?

bluespirit
Post 6

@runner101 - The Great Depression (which did start in the 1920's but towards the end of the 1920's in 1929) was like the economic crisis of 2008 in that it did also affect Europe.

I am not an economics expert, but there were some large similarities between the Great Depression and what happened late in 2008 such as the stock market crash and high unemployment.

I know it is a controversial topic, but it seems to me that the fact that the bailout occurred is what was stopped us from having quite the unemployment rate of the Great Depression (it rose to over 20 percent at its height).

runner101
Post 5

The 2009 economic crisis has many reminders of past economic crises. In learning about the Great Depression, I feel fortunate that this was a great Recession and not a repeat of the twenties era blight.

What I was curious about in learning from and learning what might happen in the future by comparing to previous economic crises to this economic crisis was that - has there ever been an economic crisis such as this where not only was the United States in economic crisis but Europe was also in economic crisis?

orangey03
Post 4

You know that the country is going through an economic crisis when even banks start closing branches to cut corners. That is what happened to my local bank in August of 2011.

It had survived the first wave of bank crises, during which several had to be bailed out. It appeared to be performing well, while others showed signs of weakness.

Three years after the start of the crisis, I got a letter in the mail stating that one local branch of my bank would shut down. This particular branch was in a small town, and they figured that not enough people used it to justify the cost of continuing operations there.

This angered many people, particularly the elderly who did not want to drive far to get to their bank. I know many people who walked to the bank, because it was in the center of main street. The nearest other branch is ten miles away.

Perdido
Post 3

In 2010, my sister-in-law and her husband had to move to New York for his job. Unfortunately, they owned a house in Mississippi, where they lived. They had to try to sell the house, and this was a bad time to do it.

They had to go ahead and move. At first, they just put up a “for sale” sign with a phone number and hoped for the best. Months went by with no inquiries, and they were still paying the mortgage on the home, in addition to paying for their new home. They decided that they needed to just let it go to foreclosure. They were having an economic crisis of their own, brought about by the one of the entire country.

StarJo
Post 2

@kylee07drg - I think that the 2008 economic crisis affected newspapers everywhere. I work at one as a reporter, and I saw several of my coworkers lose their jobs, starting in 2009 as the effects really came to be felt.

Many of the job cuts were in advertising. Sadly, the newspaper blamed the sales reps for slow ad sales, and they trimmed the staff down because of it. They should have known that you can’t pull money from an empty pot.

Also affected were the graphic designers. The team originally consisted of five, but since they did not have as many ads to do anymore, they trimmed it down to two full-time and one part-time. It was a time of really low morale around our office.

kylee07drg
Post 1

When the economic crisis began in 2008 as the housing bubble burst, we felt it at my job almost immediately. I work at a newspaper as a graphic designer, and we put out a real estate publication once a month. It is a magazine in which realtors list houses for sale, and up until 2008, it was very lucrative for us. Revenue from it even paid the salaries of some employees.

As home sales came to a near halt, realtors could no longer afford to pay for several pages of home listings. Realty companies that once bought up eight or more pages went down to two pages over the course of one year. Some stopped advertising altogether, because they owed us for past advertising and could not even afford to pay their bill.

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