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There Are Many Examples of Financial Collapse

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Financial crises are nothing new. In fact, they’ve been happening for hundreds of years. Below, we highlight some of the most famous examples of economic decline.

The Financial Crisis in 2008

Considered by many to be the second worst global financial crisis behind the Great Depression, the financial crisis of 2008 wreaked havoc on global economic systems and the banking industry and caused a great recession worldwide for a number of years.

The crisis began in 2007 when subprime mortgages within the United States created a housing bubble that then crashed. Although some gave their prediction and warning that the volatile position of subprime mortgages could have been avoided, such warnings seemed to fall on deaf ears.

Things rapidly escalated thereafter, with the crash causing downturns in financial markets and the banking system, both in the United States and abroad.

Notable casualties of the downturn were the Lehman Brothers, an investment bank that went bankrupt in 2008, whilst elsewhere governments were forced to bail out their banks to prevent them from collapsing.

A quick crash then led to a surprisingly slow return to growth and overall global wealth, with it taking many years for the world economy, and millions of the world’s population, to recover from the impacts that the crisis and subsequent recession brought.

In many ways, the financial crisis was also a precursor to many of the economic issues and austerity measures that followed economies within the Eurozone during the early 2010s as well.

The Dot-Com Bubble

A crisis largely related to the United States, the dot-com crash is a great example of a speculative bubble and market volatility.

Towards the end of the 1990s, the internet sector saw a period of exceptional growth, with a great number of internet companies completing IPOs, and seeing their stocks rise in value.

However, after a peak in value in 2000, the value of internet companies within the Nasdaq Composite declined, and the bubble was then well and truly burst, with stock prices falling dramatically. Many companies simply shut down following the crash, although there were some survivors, such as eBay, who managed to recover.

Shocks to Oil Prices in 1973

Known as the first shock to oil prices, in 1973 the Organisation of the Petroleum Exporting Countries (OPEC) set up an oil embargo, which was targeted at countries such as Japan and the U.S., among others. This conflict and tension then had implications for the global economy as a result.

The embargo led to a sharp rise in oil prices in the impacted countries, with prices almost quadrupling. What’s more, the embargo meant that there was the prospect of petroleum shortages. The oil crisis also contributed to a period of stagflation in the U.S., which is where inflation is high, but economic growth slows.

An image of an oil rig. An oil embargo threatened economic collapse in the United States. An oil embargo helped create an economic crash. (Source: CC BY 2.0, Paul Lowry, Flickr)

The Great Depression

The Great Depression of 1929 is perhaps one of the most famous examples of global economic collapse and was caused by Black Tuesday, also known as the Wall Street Crash, which was the worst stock market crash in the United States’ history. Although it began in the U.S. the crash spread and caused a global economic depression.

Used by some as a prime example of a boom and bust market, the Great Depression is regarded as the deepest economic depression of the 20th century, causing:

  • rising unemployment;
  • shrinking GDP; and
  • minimal economic growth

the world over. Although recovery is thought to have begun in 1933, it took many more years for countries such as the United States to get back to their pre-crash state.

The French Revolution Is a Lesson in Economic Collapse

As noted above, not all financial crises are recent, and there are plenty of examples of economic crashes even from hundreds of years ago.

Although the French Revolution of 1789 is more associated with, well revolution, it is equally true that the revolution began as a result of economic crisis, debt, and ultimately economic collapse in France.

Although it almost certainly was not his intention, King Louis XVI’s spending to support the American army during the American Revolution was in part to blame for his own downfall.

French spending on the war, coupled with the lavish expenses of the Crown and the upper classes, meant that ordinary French people were left in poverty, with little food or financial support, and revolution quickly ensued.

Two gold ingots. The French Revolution came about as a result of the economic crash in France. Overspending on the American Revolution led to a financial collapse in France. (Source: Public Domain, Szaaman, Wikimedia Commons)

The Banking Crisis of 1763

The Amsterdam banking crisis of 1763 was in effect a credit crisis, which caused the collapse of De Neufville.

Some argue that the crisis draws similarities with the global financial crisis of 2008, due to the fact that in 1763 many banks in Amsterdam were over-leveraged, which meant that they were very sensitive to changes in the availability of credit.

The Mississippi Bubble

One of the earliest examples of an economic bubble followed by economic collapse, the Mississippi bubble was a French economic bubble that incurred large losses during the 18th century.

The Company of the West, as it was known from 1717, had obtained rights to develop French territories in Mississippi. Within a few years’ time, the Company of the Indies, as it was then known, held massive interests in the tobacco and slave trades, and essentially held a monopoly over French territories in:

  • North America; and
  • The West Indies.

Due to the company’s vast interests and profit-making potential, the valuation of the company increased beyond all rational measure, until, in 1720, the value of the shares in the company crashed, bringing the stock market in France down along with it, whilst also proving that stock market crashes are not a recent invention.

The South Sea Company Economic Crash

Whilst France had its own Mississippi bubble, the United Kingdom wasn’t immune from a similar bubble of its own.

In Britain’s case, the bubble centred around the South Sea Company, which was also the subject of intense speculation on the stock market. Although its value grew to insane heights, in 1720 the price of the stock crashed, which had a significant impact on the British economy and economic activity.

Tulip Mania Almost Drove the Netherlands to Financial Collapse

One of the most famous crashes of the past is the near collapse of the Dutch economy following a period of tulip fever between 1636 and 1637. It is considered to be the first instance of an economic bubble, with the South Sea bubble and the Mississippi bubble, both noted above, being other early examples.

In essence, what happened was that tulips, after their introduction to the Netherlands at the end of the 16th century, became incredibly popular and everyone wanted one. However, as tulips are seasonal flowers, a future’s market was created, which meant that customers could buy the right to purchase a tulip bulb at a later date.

However, this led to speculation in the market, which drove up the price of the tulips to unbelievable levels, with some people even selling their land or years’ worth of salary to purchase them. Unsurprisingly, the market crashed in 1637, leaving many people poor. In 2017, the film Tulip Fever was made, which is set during the tulip bubble.

A picture of tulips. Tulip mania caused an economic crash in the 17th century. Tulip fever in Holland led to a small financial collapse. (Source: CC0 1.0, MabelAmber, Pixabay)

Spain’s Economic Crash in the 1600s

The Spanish Empire was famous for its exploration of the New World, and notably for their search for gold. The riches that Spain was able to extract from places such as the Americas bolstered Spain’s currency and purse strings, making Spain one of the most powerful empires on the globe.

However, continual wars drained Spain of its money, as well as the fact that the almost constant stream of gold and silver produced inflation within its monetary supply.

Overall, Spain’s riches proved to be a blessing as well as a curse, with the country declaring bankruptcy six times in the 17th century, in:

  • 1607;
  • 1627;
  • 1647;
  • 1652;
  • 1662; and
  • 1666

Learn About the Causes Behind An Economic Crash

The above examples are just some of the most famous examples of economic collapse. As a result, it’s likely that you’ll have come across one or two of these examples during your A-level or university studies in economics.

Fundamentally, each economic crisis is different, as they range from disasters caused by speculative behaviour in stock markets to banking systems that collapse and cause mass panic and a global slowdown. As a result, it’s best to learn as much about the most famous economic crises as possible, as they all have their own unique causes and effects.

If you want to learn more about economic crashes, and in particular what causes them, then you may look at hiring an economics tutor to help you understand more about these economic crises.

A tutor can:

  • Walk you through the key events that led to an economic crisis;
  • Help you identify whether there are any common trends or similarities between collapses; and
  • Provide you with relevant examples that you can use in a piece of coursework or essay.

Superprof has a range of economics tutors that are familiar with the study of economic collapse, and they’d be more than happy to help you succeed in your future economic studies.

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