The Crisis And Its Effects On The Economy Essay - 2295 Words

It all began when Mexico announced to the world that they will not be able to meet their sovereign debt obligation in the summer of 1982. With the rise of large loans to the less developed countries (mainly Latin American countries such as Mexico, Argentina, and Brazil) in the 1970s, this period quickly became to be known as the â€Å"lost decade† as many creditor countries were greatly affected by a series of defaults from the debtor countries. In this paper, we will discuss the events that led up to the defaults and the impacts of the crisis. We will also look at how the crisis was resolved and what lessons we can learn from the crisis to prevent it from happening again. The crisis can be traced back to the oil price shocks after the Yom Kippur War of 1973. Yom Kippur War, also known as the Arab-Israeli War was a war fought by the coalition of Arab states led by Egypt and Syria against Israel. During the war, via â€Å"Operation Nickel Grass†, the United States backed up Israel with delivery of weapons and supplies. The Arab states within the OPEC (Organization of Petroleum Exporting) countries were not impressed by the United States support for their enemies. In retaliation, they declared a complete oil embargo on the United States and restrictions on their allies. Thus, oil price began to skyrocket and the OPEC countries were racking in massive profits. The problem is that these countries cannot deposit their US dollar denominated financial holdings in the United States sinceShow MoreRelatedEconomic Crisis: Effects on the Economy1486 Words   |  6 PagesRunning Head: ECONOMIC CRISIS: EFFECTS ON THE ECONOMY 2 Abstract The United States is obviously in a state of economic despair. This essay has supporting facts that prove the economy is definitely not on the mend. The public has been led to believe that this downward spiral is almost over. 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