Financial Crisis: A History of 'Exogenous' Shocks Flashcards
Name the nine crisis that have hit international markets in the post-WWII era.
1962 Cuban missile crisis 1973 Arab oil embargo 1979 overthrow of the Shah of Iran 1979-80 oil price spike 1984 Mexican 'tequila crisis' 1990 Persian Gulf War 1990 Japanese stock and real estate bubble collapse 1998 Asian financial crisis (followed by Russia and Latin American crisis) 1998 LT Capital
In brief, what happened during the 1962?
Date when crisis was resolved?
After the failed Bay of Pigs invasion of Cuba, nuclear weapons were placed in Cuba by the Russians to deter another invasion.
October 28, 1962 the conflict was resolved when Kennedy and Khrushchev agreed Russia would dismantle its Cuban launch sites and Kennedy would follow by removing missiles from Turkey.
In brief, detail the developments that took place before and after the 1973 Arab oil embargo.
The robust US economy of the 1960s led to an increase in the price of major commodities by the start of the 1970s, mainly due to the rising costs of the Vietnam War and Great Society programs.
The increase in commodity prices led to a self-reinforcing surge in demand, as producers tried to get ahead of the coming ‘supply shortage’ by building up their inventories . That hyped up demand and inevitably squeezed supply, leading to even higher prices.
On October 9th, 1973 the Saudi-led Organization of Petroleum Exporting Countries (OAPEC) instituted an oil embargo on the US in retaliation of President Nixon’s $2.2 billion aid to Israel in the Yom Kippur War.
Real consumer spending growth collapsed as inflation raged.
Then, to top it off, the massive orders of inventories arrived in 1974 and new orders and production came to a halt, sending the US economy into three consecutive quarters of negative GDP growth.
Elevated commodity prices (due to the embargo) and inventory-building spree turned to liquidation and, as a result, production plummeted.
How high did Volker push the Fed’s funds rate in 1981 in an attempt to ward off inflation?
from 11 percent to 19 percent
At what level did inflation peak in the March of 1980?
14.6 percent
