An economic crisis is a state in which dramatic shifts in the economy create severe hardship for everyone connected with that economy. While the term is sometimes used to refer to shifts in the personal fortunes of individuals or even the downward movement and collapse of a company, a true economic crisis is normally associated with severe changes in a national or even the world economy. Events such as the Great Depression that began in 1929 with the stock market crash can rightly be referred to as an economic crisis.
There are several characteristics common to any type of economic crisis. One has to do with an upsurge in unemployment rates. This is often due to a chain of economic events that force employers to either pause or shut down operations altogether. The end result is that more people are out of work, which in turn further affects the sale of goods and services and leads to additional layoffs as companies fail to generate the revenues necessary to sustain their operations and pay their workers. During an economic crisis, banks may fail, companies go under, and homeowners face greater threats of foreclosure due to nonpayment of mortgages.
During an economic crisis, stock markets and other forms of investment markets are likely to experience severe downturns. As companies begin to fail, the value of their shares also decreases and trading begins to wane as investors cannot unload their shares for any price, even at a severe loss over the original investment. It is not unusual for the currency undergoing this type of crisis to be devalued, which in turn only serves to further impede the chances for an economic recovery. Typically, there is no type of economic activity that is not adversely affected during the course of a true crisis.
An economic crisis can take on many forms, including periods of recession or depression that also include other issues such as the bursting of the financial bubble within key industries, a currency crisis or even a banking crisis that threatens to undermine the banking system in one or more countries. While there many examples of national and even worldwide events of this nature, there are still a number of differing theories regarding how to anticipate, manage, and finally overcome an economic crisis. For this reason, there is no uniform approach favored by most analysts, although there are often basic principles that many will feel can be applied once the crisis is actually underway.
