Financial Crises, 1929 to the Present

Financial Crises, 1929 to the Present

Sara Hsu

This fascinating volume offers a comprehensive synthesis of the events, causes and outcomes of the major financial crises from 1929 to the present day. Beginning with an overview of the global financial system, Sara Hsu presents both theoretical and empirical evidence to explain the roots of financial crises in general. She then provides a thorough breakdown of a number of major crises of the past century, both in the United States and around the world.

Chapter 4: 1980s: emerging markets debt default crises

Sara Hsu

Subjects: economics and finance, economic psychology, financial economics and regulation


As discussed in the last chapter, the economic shocks of the seventies caused severe economic imbalances, leading to crises in the eighties. Through the seventies, oil importing nations were forced to accept higher oil prices and/or restricted supplies, and developed nations felt obligated to assist developing countries in financing their oil needs. Mounting debt in developing countries was a tremendous liability, particularly when interest rates ratcheted up in response to burgeoning inflation. The debt crisis refers to the subsequent financial problems in liquidity-squeezed debtor countries all over the world. Although the debt crisis in Sub-Saharan Africa wrought disastrous effects on those economies, it was smaller in scale, especially in terms of private debt, than the crisis in Latin America. On the other end of the spectrum, Asia generally recovered more quickly due to higher growth rates (as in the case of Korea), targeted state intervention, and capital controls. Latin America, with large amounts of privately funded debt and a sudden slowdown in growth, bore the brunt of the crisis.

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