Causes for 1980s Debt Crisis Essay

After rapid growth in the international debt of developing countries in the 1970s – and the increasing incidence of scheduling back debt in the early 1980s, the risk of countries reflecting the ability and willingness of a country to financial services has been a topic of concern for the international world (Cosset and Roy, 1991).

Thesis: Broadly speaking, the debt crisis facing the US and the international community is an issue that has far reaching implications not only for financial institutions but also to many working people and many economists are giving top priority in solving this issue.

In early 2000s, most private and public budgets in the U.S. were funded through local and sovereign debts. In this regard, staggering mortgage industry, weak fiscal policies, and unscrupulous financial investors principally contributed to the 2008-2009 financial crises. Due to surging inflation and accumulated interests, most borrowers failed to payback their loans due to continued bankruptcy. Consequently, interest rates in various countries were adjusted to balance the demand and supply of the circulating money. In economics, any increase in the price levels concurrently increases demand for money, which means that supply and demand for money did not balance in various economies during the 2008-9 crises.

During this time, there developed well financial markets, giving back liquid which attracted more debt investments than what was needed. This is confirmed by Killoren (2009)

The recent Global Financial Crisis (GFC) initially began with the collapse of credits and financial markets, which caused by the sub-prime mortgage crisis in the US in 2007. The sub-prime mortgages were given to high-risk lenders (with bad credit history) who were in danger of defaulting, which eventually caused a global credit crunch, where the banks were unwilling to lend to each other. In October 2008, the collapse of the major financial institutions and the crash of stock markets marked the peak of this global economic slowdown (Euromonitor International, 2008).

❖ Late 2009, fears of a sovereign debt crisis developed concerning some European states. Sovereign debts (Gov’t debt) externally issued rose sharply due to numerous bank bailouts.

The Debt Crisis was the result of the euro currency failing in the Euro-Zone members of Greece, Spain, Ireland, Portugal, and Italy. This outcome came to fruition by these five members in the Euro-Zone abusing their fiscal policies. These fiscal policies controlled how much a government

The purpose of this paper is to provide an analysis of the Greek sovereign debt crisis that we witness during 2010-2014, its global impact and sustainability by examining GDP and the real interest rate. This paper will also examine that several members of the European Union such as Portugal, Italy, Ireland, Spain by comparing with Greece. These countries historically known as PIIGS with Greece. Also, this paper will analyze Argentina crisis by comparing with Greece crisis.

This debt crisis was certainly foreseeable, but the difficulty with the debt of the states lies in the history that can be made for each country, notably Greece, Ireland, Spain, Italy and Portugal. In fact, all countries have followed different paths and today they are burdened with debts more or less important that have multiple causes. The common cause that has weighed in all states is the gradual weakening of economic growth. Beginning in the 1970s, with highs and lows, the euro area tends to grow less strongly, resulting in a limit on the resources of states to meet their needs. We also observe the widespread phenomenon in all Western countries and Japan, namely the demographic aging, which gives rise to additional burdens with which European states can not "cheat", cease paying pensions or cease Care for elderly people who are sick and dependent. These are general factors to which are added factors such as the lack of awareness of the new competition of Asian and emerging countries, which affects both the

The Latin American Debt crisis did not occur over night, the crisis was many years in the making and signs of its arrival were prominent in Latin American society. The reasons for its occurrence are also expansive; some fault can also be place in countries outside of Latin America. The growth rate in the real domestic product of many Latin American countries grew at a constantly high rate in the decade prior to the crisis in the 1980s, this growth led to an increase in foreign investment, corporate investment, and the world began supporting these developing nations (Ocampo). The foreign investments into Latin America created a new international financial system that gave the foreign banks access the funds to give massive loans to the

This financial crisis mainly resulted from some domestic macroeconomics problems and immature national financial markets, influences of international foreign markets, and crony capitalism between government officials and big-business owners and international gamblers’ actions. The high inflation rate in Asian countries rises the price of goods, and when their currency exchange rates pegged to US dollars, the exports became more expensive. The domestic production decline, unemployment rate increases. Foreign countries refuse to lend loans, force them to repay and devalue to become more competitive. Immediate ‘speculative attack’ lead speculators suddenly purchase large amount of foreign currency, as the foreign currency value increase more, the domestic money holders lose more. The Asian financial marketplaces were becoming dependent on foreign capital, foreign investors motivated to copy peers, when some investors change investment decision, it can produce insecure, dramatic, destabilizing swings of inflows and outflows. In the developing countries, it 's common some government officials give relatives who own major banks or firm low-cost loans or bail them out when their firms’ in trouble. Usually the major banks and firms didn’t care on investing on high risk projects then take earning, but push losses to taxpayers when it happens.

3. Government debt-level: The long period with high yearly budget deficits (starting in 1981), caused a situation where the debt-to-GDP ratio since 1993, was always found to be at an unhealthy territory above 94%. In the aftermath of the GFC the debt level worsened reaching to 120% of the GDP as the Government’s commitment towards social and other unproductive schemes continued. It kept worsening as the GDP growth rates collapsed in the aftermath of GFC and had reached to an unsustainable level triggering the likely default.

Euro crisis also known as European sovereign debt crisis resulted from a combination of factors, including the globalisation of finance, easy credit conditions during the 2001–2008 period that encouraged high-risk lending and borrowing practices; the GFC which exposed the fiscal weakness and high debts levels of many nations; international trade imbalances; real estate

Numbers in charts shows that government debt was growing above its GDP reaching 110% on 2008, which mean they was expending more than the economy was generating. Moreover, the disparity on the balance of payment confirms the low level of productivity that link with a high labor cost, the rise on social benefits and employees compensation are some basics element to speculate about a probable crisis.

The late half of 1997 and the early parts of 1998 presented the world with one of the world’s most famous financial crises. This financial crisis proved to be detrimental mainly to the south-eastern Asian area, including South Korea, Thailand, Malaysia, Singapore, Hong Kong and Indonesia. The aforementioned south-eastern states recorded astounding economic growth in the preceding decade. The downfall of the economy caused a domino effect in the local markets and currency markets of each country. The nations’ leaders, as a result, had to request assistance from the IMF. Politics were important in creating the financial boom, but they were also guilty of the subsequent consequences.