An economic crisis is characterized by a period of reduction of a country's production level, which is related to reduced consumption, falling profit rates and rising unemployment.
The capitalist system works in a way cyclic, that is, it has growth and retraction phases. This means that from time to time, this production system goes through crises.
Due to the cyclical movement of production levels, the economy can be analyzed within a dynamic of economic cycles. These cycles have four main phases:
- Expansion: production levels are growing, as well as demand, household income and corporate profit rate;
- Boom: economic activity peaks. At that moment, problems of overproduction and high inflation can occur;
- Recession: economic activity starts to decrease, demand decreases and the unemployment rate starts to increase;
- Depression: deepening of the economic crisis, reduction of interest rates, high unemployment rates and the occurrence of bankruptcies.
Thus, we can classify economic crises in a simplified way into phases of recessions and depressions. One
recession it is a downturn in the economy and is usually characterized by a drop in Gross Domestic Product (GDP) for two consecutive quarters.One depression, in turn, is an abrupt fall in a country's GDP or an excessive prolongation of a recession. That is, they are lasting crises, with profound impacts on a country's economy.
In depressions, economic indicators are greatly reduced, unemployment rates are very high and it is common for large companies or financial institutions to declare bankruptcy.
When a crisis happens, the state needs to adopt economic policies in order to contain the reduction of production and stimulate the economy's recovery.
Among the possibilities of measures to be taken by the government in a crisis are the reduction of the interest rate to stimulate credit and consumption; and investments in infrastructure and social areas, which increase employment and increase income.
know more about recession and GDP.
economic crisis in Brazil
Brazil is experiencing an economic crisis that began between the end of 2014 and the first months of 2015 and is considered the worst recession period in the country's history.
The country's Gross Domestic Product declined for two consecutive years and the unemployment rate reached a total of 12.2%, reaching more than 12 million Brazilians.
The Brazilian economic crisis is the result of numerous factors and is directly related to the international economic crisis, which started in 2008.
To contain the effects of the world crisis, the then President Luiz Inácio Lula da Silva, adopted measures to stimulus to consumption, such as reducing the interest rate - Selic rate - reducing taxes and investments in infrastructure.
At that time, the Brazilian economy was selling many commodities for the international market, in particular, iron ore and soy to China, a country that was growing rapidly.
understand what they are commodities.
With the international crisis, foreign demand for these products decreased and their price dropped, which caused a sharp drop in Brazilian exports.
This reduction in international demand, added to the measures to stimulate the economy that were being adopted by the Brazilian government, ended up increasing the public debt from the country.
After all, less money was coming in and more resources were being spent.
To prevent further debt growth, then-President Dilma Rousseff began to adopt measures to contain spending and increase revenue. Benefits and investments were cut and taxes were raised.
These cuts caused the economic downturn. Consumption and demand slowed, unemployment rates started to rise and some companies closed.
There was also, during this period, an increase in the rates of inflation. To curb the rise in prices, the Selic rate was raised, which caused an increase in all interest rates in the economy, reducing the supply of credit and weakening consumption.
The increase in the interest rate also had a negative effect on the public debt, as the higher the Selic rate, the greater is the State's expenditure to pay public bonds.
See also the meaning of inflation and Selic rate.
world economic crises
The two biggest economic crises of the capitalist system on a world level were the 1929 crisis and the 2008 crisis. Understand what happened in each of them:
1929 crisis
The 1929 crisis hit the U.S, which was already the largest economy in the world, and affected most countries in the world. This crisis had as one of the main causes the overproduction.
After the end of World War I, the United States became a major exporter of industrialized products to European countries, which had their industry weakened by the conflict.
But European countries were recovering and demand for American products decreased, which caused an overproduction in the United States. After all, they had a lot more products than the consumer market for them.
Unable to sell their products, many companies began to close and unemployment rate reached 27%.
The precarious situation and the threat that companies would not be able to pay their debts led to a mass sale of shares on the stock exchange, which led to the New York Stock Exchange Crash.
To recover the economy, the State had to intervene with welfare programs and measures to stimulate industry.
2008 crisis
The 2008 crisis also originated in the United States and was a consequence of financial speculation carried out in real estate credits, which became known as housing bubble.
Interest rates in the country were low and property prices were rising. A lot of credit was offered for the purchase of these properties, which became a guarantee for these operations.
For the banks, it was an advantageous business, because if they didn't get the money lent, at least they would keep the property.
The number of real estate loans was growing and they were being offered even to people who already had other loans.
To capitalize, banks turned these credits into active and sold them to investors. The bank received the money in cash and investors received the interest on that asset over time.
These assets were also placed in large asset packages and were sold to investors around the world. These assets had high profitability and were classified as low risk investments.
But actually, these assets were from high risk and credits were not paid. The banks then began to foreclose on the houses, which were devaluing, which caused the assets to lose value.
This situation led to the breakdown of Lehman Brothers, one of the largest investment banks in the United States. This crisis is considered the most serious since 1929 and had consequences worldwide.
See also the meaning of fees and capitalism.
