Debt Crisis
A debt crisis refers to a situation where a government, corporation, or country is unable to meet its financial obligations, often resulting in default or the need for a bailout. This can lead to economic instability, currency devaluation, and social unrest. Debt crises can have significant geographical implications, impacting trade, investment, and development within and across regions.
3 Key excerpts on "Debt Crisis"
eBook - ePubGlobal Political Economy
Theory and Practice
- Theodore H. Cohn, Anil Hira(Authors)
- 2020(Publication Date)
- Routledge(Publisher)
...subprime mortgage crisis and became the most severe financial crisis since the Great Depression of the 1930s. The fourth crisis, the European Debt Crisis, was partly an outgrowth of the 2008 global financial crisis, but also resulted from home-grown economic problems in Europe. The final outcome of this crisis will have major implications for the future of the eurozone and the EU. These four crises all demonstrate the degree to which globalization and interdependence have increased in the IPE. In line with the new attention to China in this edition, we also discuss the issues around its financial system. Before discussing these crises, it is important to provide some basic definitions and terminology. Some Definitions and Terminology A financial crisis can be defined as an escalation of financial disturbances such as a sharp decrease in the value of financial institutions or assets, the failure of large financial intermediaries, and disruption in foreign exchange markets. A financial crisis is often associated with a run on banks, where investors and depositors sell off assets and withdraw money because of fears about the future of financial institutions. A Debt Crisis is one type of financial crisis that occurs when some major debtor states lack foreign exchange to pay the interest and/or principal on their debt obligations. As discussed in Chapter 6, a country that finances rather than adjusts to its current account deficits must borrow from external credit sources and/or decrease its foreign exchange reserves. If the country continues to borrow, its foreign debt will increase. The severity of a country’s debt problem depends not only on the size of the debt but also on whether it has the ability and commitment to service its debt repayment obligations. Debt crises vary in severity and in the measures required to resolve them...
eBook - ePubThe Illusion of Progress
Unsustainable Development in International Law and Policy
- Alexander Gillespie(Author)
- 2014(Publication Date)
- Routledge(Publisher)
...However, before going on to examine the effects of the Debt Crisis, it should be noted that rarely can a linear, one-to-one causal link between events be demonstrated. The consequences of the Debt Crisis are no exception. None of the following examples is solely the fault of the Debt Crisis. However, the Debt Crisis is, at the very least, an aggravating factor in the negative trends that make it more a process of feedbacks than linear connections. This, in turn, may make the Debt Crisis and its consequences mutually reinforcing. 25 If, for example, one concludes that it is the estimated 300 million ‘shifted cultivators’, rather than the Debt Crisis itself, that are the principle agents of rain forest destruction, then the investigation must be taken one step further. The landless would not have to resort to slashing and burning the forest had they any reasonable alternative. ‘Shifted cultivators’, as the term suggests, are almost always displaced against their will – whether by export crops, loss of jobs, poverty, or any other force beyond their control. The Debt Crisis should be seen here as the push factor. 26 However, before proceeding, it should be noted that ‘solving’ the debt problem alone would not in itself lead to a suitable form of sustainable environmental (or even economic) 27 development. The environmental problematique is multifaceted and many aspects of this would remain, even if all the debts were forgiven. Moreover, it should be recognized that the situation of many countries before the imposition of structural adjustment policies was clearly untenable, and they had to be adjusted as they were already unstable through the lenses of many economic, social and environmental critiques. The question, therefore, is not all or nothing of structural adjustment but, rather, how to progress to a sustainable future...
eBook - ePub- Ensar Yılmaz(Author)
- 2020(Publication Date)
- Routledge(Publisher)
...2 Debt accumulation 2.1 Introduction Economists generally regard debt as a beneficial instrument that allows money to move from where it is least needed to where it is most needed by borrowers. Hence the deepening of national and international credit markets is thought to increase growth, since it makes it possible for more individuals to borrow from a bigger loan market at appropriate rates of interest. However, whenever a financial crisis occurs, debt turns out to be a problem, thus turning from a ladder into a chute. Hence in recent years the dynamics of debt and its relation with crises has become a much more important issue of economics. During the global crisis period that started in 2007, a large number of defaults on mortgages occurred in the US. Financial institutions, especially investment banks, could not bear these defaults. Along with the contagion of defaults, banks with liquidity problems could not continue to lend, hence it spreading to the rest of the economy. Governmental rescues increased public debt as well. This also caused fears to spread about the solvency of sovereign debts of some countries in Europe, ending with Greece’s collapse. Therefore, debt seems to have been both a cause and an outcome of the crisis. However, until the Global Recession, in the mainstream economic models, debt was not regarded as an issue that could trigger a sequence of problems, hence it was not incorporated into these models. The main rationale behind this was that borrowers and lenders canceled each other out at the level of the economy, thus every dollar owed by someone was also owed to someone. Hence the incorporation of debt into economic analysis seemed trivial. However, we learn each time from austere times (during crises) that debt is critical in terms of triggering the problems and their deepening. Therefore, debt is a more complex issue and not a simple zero-sum game...
