The Aftermath of Financial Crises: The Consequences to the Economy

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Historical Financial Crises
“The Aftermath of Financial Crises” by Carmen Reinhart and Kenneth Rogoff portrays that the effects of an economic recession can have far-reaching consequences. In particular, a financial crisis can be caused by various occurrences, some of them being wars, natural calamities, and the collapse of the banking institutions. When it occurs, a country might not suffer immediately, but the consequences might take an extended period to overcome. The paper focuses on the common features and consequences of historical financial crises.
In most cases, indicators or features of a financial crisis are common for different countries. In other terms, these are things that show when a nation is about to encounter an economic recession. These characteristics include the inflation of the asset price, increasing leverage, large and sustained trade deficits, and the falling trajectory of economic growth (Reinhart and Rogoff 466). However, it does not mean that any time a country experiences one of the above signs that it will experience a financial crisis. The most significant thing that a nation should do is to act swiftly by implementing policies that might prevent an economic recession when these symptoms start showing up. In particular, developed countries face severe consequences as opposed to emerging markets. Reinhart and Rogoff depict that the aftermath of a banking crisis in developed and emerging economies have the same patterns in government revenues and debts, equity and housing prices, and the rate of joblessness.
The authors argue that financial crises are prolonged or protracted affairs. The first primary consequences of money crises are that it leads to the collapse of asset markets, which is a situ...