The history of the most significant economic crises of the 20th and 21st centuries

Throughout history, economic crises have been recurring phenomena that have reshaped countries and societies in various ways. Each crisis, while similar in its disruptive impact, presents unique origins and challenges, leaving valuable lessons for the future. Below, some of the most significant crises of the 20th and 21st centuries are examined, exploring their characteristics and consequences.

The 1973 Oil Crisis: A Supply Shock

At the beginning of the 1970s, industrialized nations, especially the United States, enjoyed abundant and inexpensive access to oil, leading to a significant energy dependency. However, on October 16, 1973, the Organization of the Petroleum Exporting Countries (OPEC) made the drastic decision to halt oil exports to nations that had supported Israel during the Yom Kippur War.

This measure resulted in an embargo that quadrupled oil prices, raising them to nearly $12 per barrel. The impact of this crisis was immediate and intense:

• Recession and inflation: The price increase generated an inflationary effect that, combined with a reduction in economic activity, led to a global recession. In France, this event marked the end of the "Trente Glorieuses," a three-decade period of high economic growth.
• Shortages and rationing: In the United States, price controls were implemented, and gasoline was rationed, leading to long lines at gas stations and the closure of schools and offices to conserve fuel.
• Structural changes: The crisis led to a growing energy awareness and more restrictive monetary policies. Automakers, particularly Japanese manufacturers, began producing smaller, more efficient vehicles. In the U.S., a national speed limit was established to reduce fuel consumption. Furthermore, the concept of telecommuting emerged as a strategy to save energy on commuting.

The embargo was lifted in March 1974, but its effects were felt throughout the decade.

The Asian Financial Crisis of 1997: The First Major Crisis of Globalization

Before 1997, Asia was seen as a beacon of growth, attracting nearly half of the capital invested in developing countries, with economies experiencing GDP increases of between 8% and 12%. This phenomenon was known as the "Asian Economic Miracle." However, this growth was largely supported by an excessive use of "hot money" and high external debt, facilitated by fixed exchange rates.

The crisis erupted on July 2, 1997, when the Thai government devalued its currency, the baht, unable to defend it from speculation. This event triggered a domino effect, impacting Malaysia, Indonesia, the Philippines, and South Korea.

The consequences were devastating:

• Economic and social collapse: Currencies and stock markets plummeted. By 1998, the nominal GDP of the most affected countries in Southeast Asia fell by 31.7%. Millions of people were pushed below the poverty line; in just the first few weeks, one million new poor were registered in Thailand and 21 million in Indonesia.
• IMF intervention: The International Monetary Fund (IMF) intervened, offering "bailout" packages conditioned on harsh economic reforms that included cuts in public spending and the bankruptcy of insolvent banks. These measures were controversial, and many local citizens coined the term "IMF crisis" to refer to the situation.
• Political instability: The crisis led to the fall of governments, such as that of Indonesia's President Suharto, who had been in power for 30 years.

The Asian crisis has been recognized as the "first major crisis of globalization," highlighting the fragility of an interconnected financial system.

The Dot-com Bubble (Late 90s - 2000): Euphoria and Technological Collapse

The late 1990s witnessed an explosion of optimism and speculation surrounding companies linked to the emerging "Internet economy," driven by the development of the web and the launch of browsers like Mosaic in 1993. This period was characterized by several key elements:

• Massive investment and speculation: Low interest rates and easy access to venture capital led to the overvaluation of the stocks of many tech companies. Between 1995 and March 2000, the Nasdaq Composite surged by 400%.
• The "growth over profits" model: Many of these companies lacked a solid business model or proven profitability, spending vast sums on marketing under the slogan "grow fast" with the hope of generating profits in the future.
• The burst: The bubble peaked on March 10, 2000, and burst shortly after, driven by rising interest rates from the Federal Reserve and growing awareness that many companies were running out of cash.

The collapse resulted in the bankruptcy of numerous companies, such as Pets.com and Webvan, and marked the beginning of a recession that intensified following the September 11 attacks in 2001. By October 2002, the Nasdaq had fallen 78% from its peak, losing everything. However, some companies, like Amazon and eBay, survived and would successfully consolidate their sector.

The Great Depression (1929) and the Great Recession (2008): Two Parallel Crises

The Great Depression and the Great Recession are two of the most analyzed economic crises in history, showing notable parallels and essential differences.

The Great Depression of 1929

• Origin: The crisis began in the U.S. on October 29, 1929, known as Black Tuesday, following a period of intense financial speculation supported by credit. The crisis quickly spread to the rest of the world through financial and trade systems.
• Effects: The consequences were devastating. Unemployment in the U.S. reached 25% (with some countries seeing rates as high as 33%), international trade shrank by 50% to 66%, and agricultural prices plummeted by 60%. The crisis was worsened by a wave of bank failures and a policy of non-intervention by governments and central banks in the early years.

The Financial Crisis of 2008

• Origin: This crisis was the result of an extended period of financial deregulation, which led to the development of complex financial products like Collateralized Debt Obligations (CDOs) and a housing bubble fueled by high-risk (subprime) mortgages. The collapse was triggered by the bankruptcy of investment bank Lehman Brothers in September 2008.
• Effects: It generated a global liquidity crisis, forcing the rescue of large financial institutions like AIG and Citigroup and triggering a worldwide recession. In Europe, this situation led to the Eurozone sovereign debt crisis (2010-2014), severely affecting countries like Greece, Ireland, Portugal, and Spain.

Comparison and Lessons Learned

Both crises began with a pronounced stock market crash in the U.S., followed by a contraction in credit and global trade. However, the response of governments was fundamentally different. While in 1929 there was a lack of intervention, in 2008, there was massive intervention from central banks and governments aimed at rescuing the financial system and stimulating the economy. Thanks to this intervention, although the initial impact of the 2008 crisis was more intense in some indicators, the recovery was quicker than during the Great Depression.

The history of economic crises reveals that, regardless of whether their causes are oil embargoes, speculative bubbles, or pandemics, global interconnectedness ensures that their effects are felt worldwide. Learning from past mistakes and acting with urgency, rigor, and international cooperation is key to addressing future challenges.

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