Having looked at aspects of the financial architecture and at the general context of modern crises, we are now ready to look at individual crises themselves. In order to do this, we discuss crises by time period. Some time periods are long and are occupied by one large crisis, such as the Great Depression, while other time periods are relatively short and encompass several crises, such as the early 1990s in which several countries experienced economic reversals.

We move through the twentieth and early twenty-first centuries in chronological order. Chapter 2 analyzes the Great Depression and its aftermath, in which many economies struggled to recover. We first touch upon the political economy before 1929, discussing the crisis of 1907 and the destabilizing influence of World War I, then discuss at length the causes and economic debate surrounding the Great Depression. We look at the transmission of the Great Depression through the mechanism of the gold standard, which was once and for all abandoned during this period. Finally, we discuss policies implemented in the US and Europe to overcome the depression, and the impact of World War II on the global economy.

Chapter 3 examines the 1950s through 1970s, under the Bretton Woods system, which experienced a relatively low level of crises with increasing financial instability. We look at the factors that allowed for this relative stability and debate its sustainability. Although the 1950s brought on a period of general financial stability, increasingly, a high level of global coordination was required in the 1960s as imbalances threatened to undermine the system due to increasing pressures on the US balance of payments. The US could not maintain its level of spending while upholding credibility in the dollar-gold standard. Because of the United States’ growing current account deficit, the Bretton Woods dollar-gold parity was unsustainable and unilaterally canceled in the 1970s, which brought about great changes in the global financial architecture. The end of Bretton Woods coincided with unrest in the Middle East and a consequential large movement of capital from both oil-rich and developed countries to oil-poor developing nations, which set the stage for increased financial liberalization that allowed such transfers of funds.

The expansion of financial instruments and global economic and political forces gave rise to the 1980s’ emerging markets debt default crises when the indebted Latin American countries found themselves unable to repay loans at higher interest rates, the subject of Chapter 4. In this chapter, we examine the processes at work in these crises, both from the prevailing perspective at the time of the crisis, as well as from a historical perspective of sovereign debt crises.

Much to the chagrin of the developed world, crises in advanced countries were not far ahead. The Nordic crises, the Exchange Rate Mechanism crisis, and the Japanese crisis in the early 1990s are examined in Chapter 5. The Nordic crises began at the end of the 1980s and were exacerbated by the European Exchange Rate Mechanism crisis of 1992. The Japanese crisis began with the bursting of the asset bubble at the end of the 1980s, extended through the early 1990s, and culminated in a larger systemic crisis in 1997.

The mid- and late 1990s saw a return to emerging markets crises, with the Mexican peso crisis and the Asian financial crisis, the focus of Chapter 6. The Asian financial crisis was a shock to those who had considered the Southeast Asian tigers to be growth machines, and threatened global contagion. Global contagion indeed arose in Russia and Brazil. Chapter 7 elaborates on the Russian, Brazilian, and Argentine financial crises, all connected to the Asian financial crisis but also to varying degrees products of domestic economic shortcomings.

Chapter 8 covers the Great Recession of the late 2000s. We study the reasons for the initiation and spread of the crisis, as well as outcomes and changes in the global economy. Chapter 9 covers global imbalances and shows how some economists have referenced these imbalances in discussing the reasons for the rise of financial crises.

Finally, as an appeal to concerned individuals, Chapter 10 looks at policy recommendations for preventing future crises. Some of the recommendations resulted from the Asian financial crisis and endured, while others have arisen from the most recent international crisis. We study the viability of these proposals and the implications for the future global financial architecture.3


  • 1. Most recently published in 2005 with Robert Aliber.
  • 2. At the time, the World Bank was known as the International Bank for Reconstruction and Development.
  • 3. The author would like to thank Jane d’Arista and an anonymous referee for their invaluable comments on the manuscript.
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