Definition of Economic Meltdown

Job losses are only one consequence of an economic meltdown.

The 2007 collapse of the U.S. housing market and the worldwide economic damage that followed in 2008 and 2009 brought the term "economic meltdown" into the vocabularies of many people.

Identification

An informal definition of "meltdown" is a rapidly developing disastrous situation (see References 1). In an economic context, what began in the U.S. housing market in 2007 became a worldwide meltdown in 2008.

Features

An economic meltdown has global effects, a consequence of the modern global economy, in which goods and investment capital flow freely across international borders.

Effects

As a result of a global economic crisis, banks and financial institutions sharply curtail lending. Consumers, fearing further economic damage, spend less, and firms begin laying off workers.

Significance

Economic meltdowns, such as the one experienced in 2007 and 2008, can result in worldwide recessions as global economic output declines.

Prevention/Solution

Governments may respond to an economic meltdown with stimulus programs of tax cuts and spending on public infrastructure projects, designed to boost the economy or at least minimize the damage.

References

• thefreedictionary.com: meltdown defined

Resources

• CNN: the economic crisis explained