2023 is predicted to be a dark year for the global economy. Many parties predict that the world economy will experience a recession and even be at risk of experiencing an economic crisis.
An economic crisis is a worse situation than a recession. If a recession is technically described as an economic slowdown for two consecutive quarters. So a crisis is an economic slowdown that has occurred significantly and shows that the economy is not healthy.
Of course, previous crises have also occurred all over the world. In Indonesia itself the last economic crisis was in 1998. Even though in 2008 the world also experienced a crisis, luckily the impact of the crisis in Indonesia was not too pronounced, so at that time Indonesia could not be said to be in a crisis, unlike in 1998 which caused the rupiah exchange rate fell. The biggest impact experienced during the global crisis in 2008 was on the stock market, because the JCI fell by 50% due to the crisis situation.
Throughout the history of the global economy, there are 5 crises that are considered to have had the most severe impact so far. And it is predicted that the 2023 crisis will also be classified as one of them. However, before that we will first discuss the 5 most severe crises that have hit the global economy in the past.
1. Credit crisis (1772)
The credit crisis is a crisis that hit England in 1772-1773. This crisis began in June 1772 with the closing of a bank in London “Neale, James, Forydce and Downe” due to bankruptcy.
The “Neale, James, Forydce and Downe” bankruptcy triggered the worst bank crisis in the modern banking system. Many customers from private banks in Scotland, England and Amsterdam panicked and chose to withdraw their money from the bank, causing a liquidity crisis and some private banks even went bankrupt.
The earliest reason was that Alexander Froydice, who was a partner of “Neale, James, Forydce and Downe”, fled to France to avoid paying debts. Alexander Forydce in July 1770 borrowed 240,000 guilders from Hope & Co. And use those funds to speculate on the stock market. Unfortunately on June 8, 1772 Alexander Forydce failed and lost big because he bet a large amount of his money into one stock. The next day Alexander Froydice fled to France because he was no longer able to repay his debts.
The news of Alexander Froydice’s bankruptcy just came a week later. Every asset of Alexander Froydice, both goods and land, was confiscated. Even “Neale, James, Forydce and Downe” also had to pay Alexander’s bills, because Alexander was still one of the owners of the Bank.
The news shocked London and sparked bank runs everywhere. Customers or creditors lost confidence in banking institutions and chose to withdraw all their money from the bank, resulting in a liquidity crisis in 3 countries, Scotland, Amsterdam (Netherlands) and England.
2. Great Depression (1929)
The Great Depression or also called the malaise crisis is a crisis that occurred in the United States in 1929 and lasted for 10 years. The Great Depression was preceded by the bursting of the asset bubble in the United States stock market on October 24, 1929, which was later remembered as Black Wednesday.
The most basic cause of this crisis is the misuse of credit easing by the government. So that many people use credit not to build businesses or businesses or other productive things, but to fulfill their consumptive desires.
In addition, many people also use credit as investment capital in the stock market, because stocks on Wall Street have been in a bullish trend for quite a long time, which has encouraged many parties to participate in stock trading on the US stock exchange.
Not only individuals, banking institutions that collect funds from customers also do the same thing. They even use customer money to buy shares. So when the stock market crashes, banks experience a liquidity crisis. Because apart from having to return customer money, many debtors who apply for credit to the bank also experience defaults due to losses from stock investments.
3. Oil Crisis (1973)
The oil crisis was triggered by an embargo action by oil-producing Arab countries that are members of the Organization of Arab Petroleum Exporting Countries (OAPEC) to countries that were considered to be supporting Israel in the Yom Kippur war, such as the Netherlands, Canada, Japan, Britain, America, Portugal. , Rhodesia (Zimbabwe), and South Africa.
What OAPEC did was not just an embargo, but also raised oil prices by up to 130% in order to push Israel away. This action resulted in energy scarcity and stagflation in the United States.
4. Asian Crisis (1997)
The Asian Crisis is a crisis that occurred in almost all countries in East Asia. The crisis began in July 1997, starting with Thailand which no longer had the peg to maintain a fixed exchange rate for the baht against the US dollar, so the Thai government decided to switch to a floating exchange rate system which actually made the baht weaken significantly against the US dollar.
Not long ago, what happened to Thailand also happened to other countries in East Asia and Southeast Asia. Several countries that were quite badly affected were Indonesia, Hong Kong, Malaysia, South Korea, Laos and the Philippines. Meanwhile other countries, such as Japan, Singapore, Myanmar, Vietnam China and others were also affected but not to a severe extent.
The fundamental cause of the East Asian crisis was the economic growth of countries in the East Asia region which relied on funds from foreign investors and the export sector. So that when a big country like the United States raises its interest rates, foreign investment funds in East Asian countries are withdrawn and transferred to the United States, because for investors, the US offers a more profitable return on investment. This situation caused East Asian countries to experience an economic slowdown and an increase in debt ratios.
5. Monetary Crisis (2008)
The 2008 Monetary Crisis was a crisis that started in the United States and then spread to European countries.
The 2008 Monetary Crisis was caused by bad mortgage loans in the US. This resulted in several financial institutions going bankrupt, one of which was the Lehman brothers.
The Monetary Crisis made the US economy contract by 3.07% in 2009, the unemployment rate increased to reach its highest level for the past 16 years. And caused global economic growth to slow down, from 5.42% of the market in 2007 to 2.8% in 2008.
The impact of the crisis also spread to other countries through the financial sector. Stock exchanges in various countries have crashed. Even in Indonesia, stock trading on the stock exchange has been stopped temporarily to give investors time to think clearly before making a decision. This step was taken to minimize panic which is the main cause of the fall in the stock market.
Conclusion
So, those are 5 economic crises that have occurred and impacted the global economy. Most of these crises lasted quite a short time, ranging from one to a few years. Except for the great depression which lasted quite a long time, up to about 10 years.
Even so the impact on the economy is not kidding. This crisis situation generally results in bankrupt financial institutions, high inflation, negative economic growth and sharp increase in unemployment. Even in the great depression, the compilation of various negative impacts created a crisis in the food sector and created a famine.
