Financial Crises: A Hardy Perennial

Abstract

The years since the early 1970s are unprecedented in terms of the large changes in the day-to-day and month-to-month prices of commodities, currencies, bonds, stocks, and real estate relative to their long-run average prices. There have been four waves of banking crises; a large number of lenders in three, four, or more countries collapsed at about the same time as the prices of real estate and securities in these countries and the prices of their currencies fell sharply. Each country that experienced a banking crisis also had a recession as house-hold wealth declined in response to the sharp fall in the prices of securities and real estate, and as the banks became much more reluctant suppliers of credit as their own capital was depleted. The Great Recession that began in 2008 was the most severe and the most global since the Great Depression of the 1930s.