The world is watching with shock at the growing economic crisis. The global financial crisis, brewing for a while, really started to show its effects in the middle of 2008.The world stock markets began to fall, large financial institutions like Lehman Brothers collapsed and many other institutions had to be bought out and governments had to come up with rescue packages to bail out their financial systems.
The global economy is teetering on the brink of recession. The downturn after four years of relatively fast growth is due to a number of factors: the global fallout from the financial crisis in the United States, the bursting of the housing bubbles in the US and in other large economies, soaring commodity prices, increasingly restrictive monetary policies in a number of countries, and stock market volatility.
During this recession period all people irrespective of wealthy or middle class or poor are hit hard. For example, people may find their mortgages harder to pay or remortgaging could become expensive. For many recent homebuyers the value of their homes are likely fall in value leaving them in negative equity and many sectors may find the credit crunch and higher costs of borrowing will lead to job cuts. Also people will have to cut back on consumption to try and weather this economic storm with businesses struggling to survive.
THE CRASH OF 1929
It happened on October 29, 1929. The economy had been growing robustly for most of the so-called Roaring Twenties. It was a technological golden age as innovations such as radio, automobiles, aviation, telephone and the power grid were deployed and adopted. Financial corporations were flourishing as can be seen from the stock market value of the Dow Jones Industrial Average touched 381.2 in September 1929. By the summer of 1929, it was clear that the economy was contracting and the stock market went through a series of unsettling price declines. These declines led to investor anxiety and events soon came to a head. October 24 (known as Black Thursday) was the first in a number of increasingly shocking market drops. This was followed swiftly by Black Monday on October 28 and Black Tuesday on October 29. Black Tuesday was a day of chaos. By the end of the week of November 11, the index stood at 228, a cumulative drop of 40 percent from the September high. The markets rallied in succeeding months but it would be a false recovery that led unsuspecting investors into the worst economic crisis of modern times. The Dow Jones Industrial Average would lose 89% of its value before finally bottoming out in July 1932.
The Crash of 1987
The mid-1980s were a time of strong economic optimism. The rise in market indices for the 19 largest markets in the world averaged 296 percent during this period. The crash on October 19, 1987, a date that is also known as Black Monday, was the climactic culmination of a market decline that had begun five days before on October 14th. The Crash was the greatest single-day loss that Wall Street had ever suffered in continuous trading up to that point. The 1987 Crash was a worldwide phenomenon. In the month of October, all major world markets declined substantially. Despite fears of a repeat of the 1930s Depression, the market rallied immediately after the crash, posting a record one-day gain of 102.27 the very next day and 186.64 points on Thursday October 22.
One of the consequences of the 1987 Crash was the introduction of the circuit breaker or trading curb on the NYSE. Based upon the idea that a cooling off period would help dissipate investor panic, these mandatory market shutdowns are triggered whenever a large pre-defined market decline occurs during the trading day.
The Global Economic Crisis of 2008
The current Wall Street meltdown is now the worst financial crisis in the US since 1987’s “Black Monday” stocks plunge with the collapse and crippling of major American financial institutions.
The turmoil also saw investment banking firm Lehman Brothers, which after 158 years in business, forced to declare bankruptcy. Beginning on September 16, failures of large financial institutions in the United States, due primarily to exposure to securities of packaged subprime loans and credit default swaps issued to insure these loans and their issuers, rapidly evolved into a global crisis resulting in a number of bank failures in Europe and sharp reductions in the value of equities (stock) and commodities worldwide. Other countries also suffered. In the United States, 15 banks failed in 2008, while several others were rescued through government intervention or acquisitions by other banks. On October 11, 2008, the head of the International Monetary Fund (IMF) warned that the world financial system was teetering on the “brink of systemic meltdown”
The economic crisis caused countries to temporarily close their markets. European banks had to be bought up by the respective governments to safeguard the people’s money while many Asian countries temporarily suspended trading. Many countries also halted Stock market trade to prop up falling currencies.
The ongoing global financial crisis is likely to have only a moderate impact on India’s export growth rate in 2008-09, according to industry and experts. This is because lower exports of traditional products like handicrafts, textiles and leather will be compensated by higher overseas sales of engineering goods and resource intensive items like metals and petroleum products in 2008-09 to China, countries in West Asia as well as economic blocs like the South East Asian nations. Moreover, the 14 per cent depreciation of the rupee against the US dollar will also lead to an increase in rupee realisation of export earnings. India may find it difficult to achieve the $200-billion export target set for 2008-09, for which exports from the country will need to grow by at least 25 per cent over $160 billion recorded in 2007-08.
History books are spotted with numerous references to Black Mondays, Tuesdays and Thursdays. We’ll have to wait and watch to see how the economy swings after this recession period while we tighten our belts for the time being.
