You are looking at 1 - 10 of 36 items

  • Author or Editor: Sara Hsu x
Clear All Modify Search
You do not have access to this content

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 and financial instability 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.
This content is available to you

Sara Hsu

Chapter 1 introduces the topic of financial crises and discusses the outline of the book. Financial crises have occurred for centuries, and after the Great Recession of 2008 which began in the US and spread globally, both economists and policy makers have realized that economically developed countries are not immune from such phenomena. This book seeks to describe and analyze the events, causes, and outcomes of crises from the Great Depression to the Great Recession, unifying a vast amount of literature on each crisis. We start from a general discussion of the global financial system and the roots of crises, both theoretical and empirical. We then discuss crises between 1929 and 2011. We briefly discuss select events before 1929, but focus on the Great Depression and beyond since these crises were created within or bore the current policies and institutions of our current financial system. Keywords: financial crises
You do not have access to this content

Sara Hsu

Chapter 2 addresses the Great Depression. The Great Depression was an unprecedented event that began in the US and spread to both developed and developing countries globally. Although serious crises had occurred previously, the Great Depression changed the way in which policy makers around the world responded to a flagging economy and notably ended permanently the gold standard, which had been used in varying capacities for decades. Countercyclical fiscal policy was first used on a grand scale in the US, after insufferable months of cyclical budget tightening in which economic grievances caused great social unrest. Keywords: Great Depression, Franklin Delano Roosevelt, Herbert Hoover
You do not have access to this content

Sara Hsu

Chapter 3 describes the Bretton Woods period. The 1950s through 1970s inter-crisis period was the exception rather than the rule, for preventing crisis took a great deal of global coordination and effort that could not be maintained in the face of countries’ individual pursuit of sovereign policies. We first look at the Bretton Woods regime that existed during the 1950s and 1960s, then turn to the post-Bretton Woods oil shocks that caused an economic recession in the 1970s. Keywords: Bretton Woods, petrodollar recycling
You do not have access to this content

Sara Hsu

Chapter 4 analyzes the crises in the 1980s caused by the economic shocks of the 1970s. Through the 1970s, 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. This led to debt crises, particularly in Latin American countries. In the United States, the savings and loan crisis, smaller in scale and scope than the debt crisis, sharply impacted the financial system as interest rates rose and real estate prices declined. Savings and loan institutions had engaged in excessively risky activities in the search for greater profitability. Many such institutions were shut down and the industry was put under stricter supervision. Keywords: debt crisis, savings and loan, Ronald Reagan
You do not have access to this content

Sara Hsu

In Chapter 5, we first examine the Western European Exchange Rate Mechanism crisis of 1992, then discuss crises in the Nordic countries of Norway, Sweden, and Finland. Afterward, we turn to the long-lasting Japanese crisis. In the early 1990s, several crises occurred: the Western Europe Exchange Rate Mechanism crisis of 1992, the Nordic country crises, and the Japanese crisis that spanned the decade. Crises in Western Europe and the Nordic countries in the early 1990s were not, unlike the debt crisis of the 1980s, calamitous. The Western European Exchange Rate Mechanism crisis of 1992 resulted from an unforeseen politico-economic shock, the reunification of Germany, while the Nordic country crises resulted from premature financial liberalization. Although Japan’s crisis was directly associated with financial deregulation, the roots of the crisis were embedded in structural problems in the economy, extending Japan’s financial distress for years after its real estate bubble burst in 1992. Keywords: exchange rate mechanism, Nordic crisis, German reunification, Japanese crisis
You do not have access to this content

Sara Hsu

Chapter 6 shows how the political economic climate had changed dramatically by the mid-1990s, as the United States asserted itself as the world’s only superpower. The fall of Communism at the end of the 1980s and beginning of 1990s ended the decades-long Cold War and marked the triumph of democracy and free markets. Neoliberalism and its tenets were upheld, including in Latin America, and East Asian newly industrialized countries were viewed as shining examples of neoliberal policy reforms. As a result, starting in the mid-1990s, financial crises worsened. With the continuing trend of liberalization, countries had opened themselves up to volatile capital flows. Mexico, which had suffered like other Latin American countries in the 1980s from the debt crisis and its accompanying slow growth, had been eager to regain its foothold in development through liberalization. What was not well understood at the time was that liberalization could create dangerous instability, and this is indeed what occurred as foreign capital flows reversed. The newly industrializing economies in Asia had also followed the path of liberalization. At the time, it seemed to work miracles; economic growth was as high as 11 percent in the early 1990s in Singapore and Thailand. As in Mexico, growth in the Asian countries did not last, and capital flows rapidly switched course and fled the Asian nations. The capital outflows caused both currency and banking crises, and threatened to spread to other countries. Both crises threatened global financial stability. The crisis-ridden countries were viewed as culpable for the crises, and neoliberal policies were not greatly questioned, even though crises had become both more substantial and more globalized. Keywords: neoliberalism, Mexican crisis, Asian financial crisis
You do not have access to this content

Sara Hsu

Chapter 7 describes how the world became more closely intertwined in the late 1990s and beyond, as production processes and finance became increasingly global. However, the global institutional infrastructure did not dramatically change, and financial contagion followed on the heels of foreign indebtedness and declining economic conditions. Several crises followed the Asian financial crisis in rapid succession. These were impacted by contagion from the Asian crisis and from one another to different degrees. A loss of foreign investor confidence added fuel to the fire in these countries, which were overindebted to foreign investors to begin with. The Russian financial crisis began in 1998, and was caused by serious vulnerabilities associated with economic restructuring due to the privatization process. The Brazilian financial crisis also began in 1998 and was less serious than the Russian crisis, brought about by overspending during the country’s privatization process. The Argentine financial crisis was the least expected, since Argentina had been working closely with the International Monetary Fund to prevent crisis. The crisis began in 2000 as Argentina became increasingly indebted and descended into recession. The country was unable to use monetary policy to revive its economy, and its fiscal policy suffered from structural shortcomings. We examine each of these crises in turn in this chapter. Keywords: Russian crisis, Argentine crisis, Brazilian crisis
You do not have access to this content

Sara Hsu

Chapter 8 covers the Great Recession, which caused the most severe and globalized recession since the Great Depression. Markets across the world, connected to the US financially or through trade, went into decline as US mortgage assets and their derivatives tumbled beginning in 2007. We refer to this crisis as the “Great Recession of 2008” because it was in this year that global stock markets tumbled and global banks experienced failure on a large scale. This was the year that panic set in. Eventually the crisis laid bare and greatly exacerbated structural problems in the euro regions. In this chapter, we describe the causes, events, and outcomes of the Great Recession. Keywords: Great Recession, eurozone crisis
You do not have access to this content

Sara Hsu

Chapter 9 discusses global imbalances. Global imbalances have generated the conditions for crisis, from the Great Depression through the Great Recession. Imbalances in currency stability and power, government debt, trade deficits, financial stocks and flows, have repeatedly laid the foundation for crisis. The success of the intentional, imposed stability and balance of the Bretton Woods period provides the exception that proves the rule: global imbalances allow crisis conditions to arise and ripen. Keywords: global imbalances, current account deficit, Bretton Woods, currency instability, financial instability