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Economic collapse
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Economic collapse
Economic collapse, also called economic meltdown, is any of a broad range of poor economic conditions, ranging from a severe, prolonged depression with high bankruptcy rates and high unemployment (such as the Great Depression of the 1930s), to a breakdown in normal commerce caused by hyperinflation (such as in Weimar Germany in the 1920s), or even an economically caused sharp rise in the death rate and perhaps even a decline in population (such as in countries of the former USSR in the 1990s). Often economic collapse is accompanied by social chaos, civil unrest and a breakdown of law and order.
There are few well documented cases of economic collapse. One of the best documented cases of collapse or near collapse is the Great Depression, the causes of which are still being debated.
"To understand the Great Depression is the Holy Grail of macroeconomics." —Ben Bernanke (1995)
Bernanke's comment addresses the difficulty of identifying specific causes when many factors may each have contributed to various extents.
Past economic collapses have had political as well as financial causes. Persistent trade deficits, wars, revolutions, famines, depletion of important resources, and government-induced hyperinflation have been listed[by whom?] as causes.
In some cases blockades and embargoes caused severe hardships that could be considered economic collapse. In the U.S. the Embargo Act of 1807 forbade foreign trade with warring European nations, causing a severe depression in the heavily international trade-dependent economy, especially in the shipping industry and port cities, ending a great boom. The Union blockade of the Confederate States of America severely damaged the South's plantation owners; however, the South had little economic development. The blockade of Germany during World War I led to starvation of hundreds of thousands of Germans but did not cause economic collapse, at least until the political turmoil and the hyperinflation that followed. For both the Confederacy and Weimar Germany, the cost of the war was worse than the blockade. Many Southern plantation owners had their bank accounts confiscated and also all had to free their slaves without compensation. The Germans had to make war reparations.
Following defeat in war, the conquering country or faction may not accept paper currency of the vanquished, and the paper becomes worthless. (This was the situation of the Confederacy.) Government debt obligations, primarily bonds, are often restructured and sometimes become worthless. Therefore, there is a tendency for the public to hold gold and silver during times of war or crisis.
Hyperinflation, wars, and revolutions cause hoarding of essentials and a disruption of markets. In some past hyperinflations, workers were paid daily and immediately spent their earnings on essential goods, which they often used for barter. Store shelves were frequently empty. A vivid example of it was seen in Armenia. During the collapse of the Soviet Union, Armenia experienced three major shocks during this early phase of transformation, resulting in hyperinflation and loss of huge part of commerce. First, the old central planning regime collapsed, and many big Armenian companies that had been developed to serve the Soviet Union lost their markets almost overnight. Second, as an energy importer, Armenia's terms of exchange deteriorated sharply as the price of imported energy soared dramatically compared to the prices of its exports. Third, the war in Nagorno-Karabakh was a huge burden on the economy, and it was followed by blockades and other economic disturbances, some of which continue to this day. As a result, by 1993, Armenia's GDP had fallen to just 47 percent of its 1990 level. However, by the middle of the 1990s, hyperinflation in Armenia had been tamed thanks to the tight collaboration of the government and the Central Bank of Armenia (CBA) in implementing strong monetary and fiscal policies. The average consumer price inflation was reduced from over 5,000% (1994) to 175% (1995). Armenia was, indeed, one of the region's true success stories.
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Economic collapse AI simulator
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Economic collapse
Economic collapse, also called economic meltdown, is any of a broad range of poor economic conditions, ranging from a severe, prolonged depression with high bankruptcy rates and high unemployment (such as the Great Depression of the 1930s), to a breakdown in normal commerce caused by hyperinflation (such as in Weimar Germany in the 1920s), or even an economically caused sharp rise in the death rate and perhaps even a decline in population (such as in countries of the former USSR in the 1990s). Often economic collapse is accompanied by social chaos, civil unrest and a breakdown of law and order.
There are few well documented cases of economic collapse. One of the best documented cases of collapse or near collapse is the Great Depression, the causes of which are still being debated.
"To understand the Great Depression is the Holy Grail of macroeconomics." —Ben Bernanke (1995)
Bernanke's comment addresses the difficulty of identifying specific causes when many factors may each have contributed to various extents.
Past economic collapses have had political as well as financial causes. Persistent trade deficits, wars, revolutions, famines, depletion of important resources, and government-induced hyperinflation have been listed[by whom?] as causes.
In some cases blockades and embargoes caused severe hardships that could be considered economic collapse. In the U.S. the Embargo Act of 1807 forbade foreign trade with warring European nations, causing a severe depression in the heavily international trade-dependent economy, especially in the shipping industry and port cities, ending a great boom. The Union blockade of the Confederate States of America severely damaged the South's plantation owners; however, the South had little economic development. The blockade of Germany during World War I led to starvation of hundreds of thousands of Germans but did not cause economic collapse, at least until the political turmoil and the hyperinflation that followed. For both the Confederacy and Weimar Germany, the cost of the war was worse than the blockade. Many Southern plantation owners had their bank accounts confiscated and also all had to free their slaves without compensation. The Germans had to make war reparations.
Following defeat in war, the conquering country or faction may not accept paper currency of the vanquished, and the paper becomes worthless. (This was the situation of the Confederacy.) Government debt obligations, primarily bonds, are often restructured and sometimes become worthless. Therefore, there is a tendency for the public to hold gold and silver during times of war or crisis.
Hyperinflation, wars, and revolutions cause hoarding of essentials and a disruption of markets. In some past hyperinflations, workers were paid daily and immediately spent their earnings on essential goods, which they often used for barter. Store shelves were frequently empty. A vivid example of it was seen in Armenia. During the collapse of the Soviet Union, Armenia experienced three major shocks during this early phase of transformation, resulting in hyperinflation and loss of huge part of commerce. First, the old central planning regime collapsed, and many big Armenian companies that had been developed to serve the Soviet Union lost their markets almost overnight. Second, as an energy importer, Armenia's terms of exchange deteriorated sharply as the price of imported energy soared dramatically compared to the prices of its exports. Third, the war in Nagorno-Karabakh was a huge burden on the economy, and it was followed by blockades and other economic disturbances, some of which continue to this day. As a result, by 1993, Armenia's GDP had fallen to just 47 percent of its 1990 level. However, by the middle of the 1990s, hyperinflation in Armenia had been tamed thanks to the tight collaboration of the government and the Central Bank of Armenia (CBA) in implementing strong monetary and fiscal policies. The average consumer price inflation was reduced from over 5,000% (1994) to 175% (1995). Armenia was, indeed, one of the region's true success stories.