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Market Meltdowns
THE GLOBAL CONTAGION
Today’s financial marketplace is as globally integrated as it has ever been. The impact of events outside
America’s borders will directly impact the U.S. Here’s how past global events have shaped our economy.
1992
1819
1819
Adverse
Financial
Adverse
Financial
Conditions
in Europe
Conditions
in Europe
The Maastricht
Treaty
1931
1931
The
Collapse
of
the
Bank
The Collapse of the Bank
Credit-Anstalt
in
Austria
Credit-Anstalt in Austria
2008
2008
TimeLine
1931
The collapse of the bank
Credit-Anstalt in Austria
in 1931 had a domino
effect on global financial
markets and hastened the Great Depression.
Credit-Anstalt was considered “too big to fail”
and was rescued by the government and the
Austrian National Bank, leading to bank runs in
Poland and Hungary, the end of the Austrian
gold standard and concerns about the German
economy.
2008
The Asian crisis and
the American crisis in
2008 both involve the
basic characteristics of
a boom-bust event. In
both cases, easy credit, much of it tied to real
estate, and an overly optimistic private sector
created a boom that would inevitably lead to a
bust. Investor expectations were too
aggressive, and when reality became apparent,
financial markets corrected themselves.
1819
1992
The
Asian
The Asian
Crisis
Crisis
Adverse financial
conditions inEurope
impactedthe United
States, leadingto the
Panic of 1819 and
the depression of
1819-1922.
The Maastricht
Treaty in 1992
and eventual
creation of a
common
currency (the
euro) didn’t set sovereign fiscal policy
parameters, so European nations are free to
pursue nonaligned fiscal policies. Countries
such as Greece can run up massive debt while
EU nations such as Germany are more
restrained, creating the possibility for
catastrophic national debt defaults.
If there is a loss of investor confidence arising from any catastrophic financial event in Europe, the impact
upon American banks, investors, and the overall domestic economy will likely be swift and significant.
Source: John Moore, associate professor at Walsh College; Richard S. Grossman and Christopher M. Meissner of University of California at Davis; J. Bradford DeLong of University of California at Berkeley.