Question

In his book Manias, Panics and Crashes Charles Kindleberger explains the three stages of how a financial crisis develops and evolves over time. Please briefly explain these stages and how the Russian Ruble Crisis follows this economic pattern or paradigm.  

Answer 1

Answer

The financial crisis is one of the most significant reason behind the downfall of the economic expectation which takes place in the entire economy. The main three reasons behind the economic crisis are the manias, panics, and crashes based on the theories laid down by the author, in this case, is Charles Kindleberger. The authors are actually effulgent about certain points during the explanations of the paradigm regarding inherent reasons behind such kind of financial crisis:

• Based on the author's views the mania and panic are quite obvious reasons for the upswing in business. It is quite significant to have uniformity in the economic-financial flows in order to overcome the major financial crisis. The panic takes place when the entire economic condition actually gets into serious critical situation which further leads to ultimate crash in the stick markets resulting to the repayment of debts and losses.
• The financial crisis actually takes place due to excessive optimism where the policies are needed to be taken care of by the officials which include potential improvisation during the process.
• It is significant to check out the wealth and resources and right utilization along with that it is needed to be noted about the rightful individual or owner of such kind of business wealth. The entire economic crisis results in the vicious circle of the three potential discussed reasons but despite that certain norms may help the economy to avoid such kind of financial crisis.
• Lessons are needed to be learned from the manias, panic, and crush which takes place in the business along with the other potential factors which are associated with it. It is quite an enormous challenge for the policymakers to set the policies in such a manner so that at the time of worst-case scenarios such that outcomes may lower the possibility of financial crisis or market crash.