What is an Economic Collapse?

Published by Thomas Herold in Economics

'Economic Collapse' is explained in detail and with examples in the Economics edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.

Economic Collapse refers to the total breaking down of an economy in a territory, region, or nation. Such an end result is the most possibly serious rendition of an economic depression. When this type of collapse occurs, it often requires years or even decades for an economy to escape from distress. When a true and complete collapse of an economy happens, the events which transpire around it are ugly. Poverty levels massively increase, jobs disappear entirely, and civil unrest and widespread crime become more commonplace.

Many individuals who contemplate such a possibility in developed nations like the United States wonder how they can effectively prepare for such an Economic Collapse. The truth is that it is difficult to effectively avoid personally simply because the warnings of imminent collapse are not easy to see coming. Consider the real world example of the nearest event to an economic collapse the United States has suffered from since the end of the Second World War.

On the day of September 17th in 2008, the entire American economy nearly collapsed. This was the date when terrified investors pulled out an all-time record of $140 billion in deposits from money market accounts. Money Markets are the storage vehicle for the daily cash funding of countless companies and corporations. Had such enormous withdrawals lasted for only one week, the whole U.S. economy would have ground to a screeching halt. Businesses would have closed to never reopen, trucks would have ceased carrying their loads around the country, and most dangerously grocery store shelves would have been empty.

What staved off this particular episode of Economic Collapse was the quick thinking of both the Chairman of the Federal Reserve and the Secretary of the United States Treasury. The pair saw the signal of the enormous money market account withdrawals and instantly understood the meaning of it. This is because Chairman Ben Bernanke proved to be a scholar of the Great Depression while Secretary Hank Paulson had served as a long time veteran on Wall Street. They quickly crafted a bailout plan together which flooded the markets with sufficient cash to calm and arrest the panic.

The best known example and closest the United States has been to a complete Economic Collapse is the Great Depression of the 1930s and 1940s. This began with the infamous 1929 stock market crash that started on Black Thursday, the date of October 24th in 1929. Only a few days later by the following Tuesday, stock markets were down an incredible 25 percent. It took only a weekend for a huge number of American investors to watch their entire life savings disappear into the ash can. The recovery to the levels seen October 23rd of 1929 did not occur until 1954, nearly 25 years later. It is the nearest the American economy flirted with total economic catastrophe. It proves how susceptible to another such near disaster the U.S. economy still is today.

Such an actual American economy collapse would be devastating for the entire planet. It would lead to worldwide havoc and panic. Dollar and U.S. Treasuries’ values (many of them held by foreigners) would crash and burn. Interest rates in the United States would skyrocket higher. Investors would trample each other in their efforts to cash out of dollars into euros, Swiss francs, and gold. Hyperinflation would infect any economy which was closely tied to the United States as it spread from the U.S. to its closest trading and investing partners.

Unfortunately, the history of the world is replete with examples of total or partial Economic Collapse. It tends to happen in cycles every so often. The classical world collapsed economically and took the mighty Roman Empire with it. The Byzantine Empire suffered economic collapse and this led to lasting economic decline for huge portions of the Greek world, the Balkans and parts of Eastern Europe. An economic collapse that came along with the Thirty Years War in continental Europe devastated everything from farms to commerce in the first half of the 1600s.

There have also been slow motion and partial economic collapses which have occurred in the last few centuries. The Spanish Empire experienced a slower collapse economically which led to economic stagnation for over a century in the Latin American, Caribbean, and Spanish-ruled world. Over the period of the two world wars, the British Empire suffered from a slightly milder form of collapse economically. This impacted much of the quarter of the world which was a part of the empire at the time. It led to the dissolution of the greatest empire the world has ever seen and the subsequent independence of more than 50 countries (including India, Canada, Australia, New Zealand, half of Africa, and most of the Caribbean and Pacific islands) in a matter of two decades.

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The term 'Economic Collapse' is included in the Economics edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.