How Does an Economy Experience Crisis?
Owing to advancement in technology, financial markets have become complex. By combining massive computing capabilities and mathematical models, economic experts are building more advanced trading models and financial products. To most of us, such advancements make the financial market seem safe and reliable. This has not been the case however.
Bursts of economic crises have been witnessed in recent decades. More than often, such crises are assumed to be as a result of the unstable financial market. Taking a closer look at the financial market sheds light on a number of occurrences that offset such meltdowns. Any economic crisis is usually preceded by an event related to the financial market. In the United States for example, the stock market was closed for a week following the 9/11 terror attack, only to resume with a drop of almost 10%.
The most significant cause of economic crisis however lays in the attempts of financial experts to improve the financial structures. There is an unending need to make financial structures more attuned to the needs of the people such as making financial transactions faster, integrating financial markets globally, timely access to financial information and an array of other complex derivatives. These complexities make crises inevitable resulting in catastrophes. Yes, innovations have positive outcomes, but these financial innovations come at a price. Since markets are connected globally, a financial problem in one country can affect another, even if they are not economically related, thanks to linking bank credit lines and investor portfolios.
The only solution to curbing economic crises is by applying the use of simpler financial structures. The simpler the structure, the more robust and dependable the economy will be.