DEFINITION of 'Economic Collapse '

An economic collapse is a complete breakdown of a national, regional or territorial economy. An economic collapse is essentially a severe version of an economic depression, where an economy is in complete distress for years, or possibly even decades.

A total economic collapse is characterized by economic depression, civil unrest and highly increased poverty levels. Hyperinflation, stagflation and financial-market crashes can all be causes. Government intervention is usually necessary to bring an economy back from collapse, but can often be slow to remedy the problem.

BREAKING DOWN 'Economic Collapse '

The Great Depression in the United States is a prime example of an economic collapse. The 1929 stock market crash brought on a collapse that lasted for many years and saw high levels of poverty. Well-known economist John Maynard Keynes claimed this was from the total lack of government involvement in the economy or the financial markets.

An Economic Collapse Compared to an Economic Crisis

A collapse differs from a crisis in that the effects are longer lasting and it crosses multiple aspects of society. For example, the 2007-2009 Great Recession lasted less than two years, and the U.S. only experienced six quarters of negative GDP growth totaling just over 5 percent from its peak. Compare this to the Great Depression, which last 3 and a half years and wiped more than a quarter of U.S. GDP. In addition, unemployment during the Depression surpassed 24 percent, while the peak during the Great Recession was about 10 percent. 

A recent economic collapse was in Argentina at the turn of the 21st century. This four-year period included unemployment riots, a collapse of its currency, which saw the emergence of alternative underground currencies, an overhaul of the government and the infamous default on large sums of sovereign debt. The root of the collapse can be traced back to years of military dictatorship and the government deficit created by the Falklands War in the early 1980s.

Other common occurrences during an economic collapse are forced bank holidays to curb withdraws, strict capital controls, and the overthrow of the sitting government. 

RELATED TERMS
  1. Stock Market Crash

    A stock market crash is a rapid and often unanticipated drop ...
  2. John Maynard Keynes

    Keynes is regarded as one of the founding fathers of modern day ...
  3. Economics

    Economics is a branch of social science focused on the production, ...
  4. Negative Growth

    Negative growth is a contraction in a country's economy as evidenced ...
  5. Deficit Spending

    Deficit spending occurs whenever a government's expenditures ...
  6. Stock Market Crash Of 1929

    The Stock Market Crash of 1929 was the start of the biggest bear ...
Related Articles
  1. Trading

    What Would It Take for the U.S. Dollar to Collapse?

    Quantitative easing raised concerns about the dollar's vulnerability, but a review of the dollar's strengths and weaknesses suggests that a currency crisis is unlikely.
  2. Insights

    A Comparison Between a Default and a Collapse

    Is the Greek default similar to the Lehman Brothers collapse?
  3. Insights

    Why Today's "Recession" Tops The Great Depression

    The financial, labor and economic statistics show the current recession is worse than most people think.
  4. Insights

    A Review Of Past Recessions

    Here we look at the biggest economic declines in the U.S. since the Great Depression.
  5. Insights

    6 Factors That Point to Global Recession in 2016

    We may be on the verge of another global recession.
  6. Insights

    IMF on the 4 Headwinds of U.S. Economic Growth

    Explore the four major economic headwinds that the International Monetary Fund (IMF) identifies as principal obstacles to strong U.S. economic growth.
  7. Investing

    Why Britain Withdrew From The ERM

    Britain may have dodged a bullet, but it certainly was not an innocent bystander and still managed to become collateral damage.
  8. Investing

    Why Didn't Quantitative Easing Lead to Hyperinflation?

    Hyperinflation is an exponential rise in prices and tends to occur not when countries print too much money, but is instead associated with a collapse in the real underlying economy.
  9. Investing

    Government Debt: From Billions To Trillions

    The national debt has been growing in leaps and bounds. Find out why.
RELATED FAQS
  1. What is demand-side economics?

    Learn the basic theory of demand-side economics, which emphasizes the importance of aggregate demand and supports government ... Read Answer >>
  2. What are the three major economic components necessary for stagflation to occur?

    Dig deeper into the three components of stagflation -- inflation, unemployment and declining output -- as understood by economic ... Read Answer >>
  3. What caused the Stock Market Crash of 1929 that led to the Great Depression?

    Find out what led to the stock market crash of 1929, which in turn fueled the Great Depression, sparking a nearly 90% loss ... Read Answer >>
  4. What are some examples of expansionary fiscal policy?

    Learn about expansionary fiscal policy – tax cuts and government spending – that are used by governments to boost spending ... Read Answer >>
  5. How long has the U.S. run fiscal deficits?

    Read about the history of deficit spending in the United States, dating back to 1789, and learn about then-Treasury of the ... Read Answer >>
Trading Center