What is a global financial crisis?

We hear global financial crisis bantered around with a sense of imminent fear but what exactly does it mean and how does it affect us?

What is a global financial crisis?

When economies around the world head into a recession and other events simultaneously occur such as stock markets collapse, major companies go into receivership, capital dries up and the world experiences a global financial crisis.

Some countries are hit harder by a global financial crisis than others, where their major banks go bust and other nations need to help. Other countries that are regulated much more heavily and are protected by a wealth of natural resources are not as impacted by a global financial crisis.

The housing market usually suffers during a global financial crisis because funding is tight, construction slows, unemployment rises and so too does home loan interest rates. Australian banks are only now starting to relax their stringent lending rules after the onset of the global crisis. But economists say a global financial crisis is often unavoidable and all part of the economic cycle.

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