(Reuters) - World leaders were set to arrive in Washington on Friday to discuss overhauling international structures in response to a financial crisis that now threatens global recession.
Below are details of some of the worst economic crises in recent years and the policy responses:
* FIXED EXCHANGE RATE SYSTEM BREAKS DOWN:
-- 1971 - The Bretton Woods fixed exchange rates system, set up in 1944, breaks down after a big drop in U.S. gold reserves and a large increase in foreigners’ claims on U.S. dollars, partly due to heavy spending on the Vietnam war. Washington suspends the convertibility of the dollar to gold and devalues.
-- Treasury Secretary John Connally told a European delegation the dollar was “our currency but your problem.” The Smithsonian agreement that followed allowed currencies to fluctuate by plus or minus 2.25 percent and increased the official value of gold.
* THE 1970S OIL SHOCKS:
-- 1973 - An Arab oil embargo during the Arab-Israeli war disrupts oil flows and triggers panic buying. OPEC countries wrest pricing fully from Western multinationals in the first “Oil Shock” and prices soar from around $2.50 a barrel in January 1973 to $11.50 by 1974. Major industrialized economies were badly hit but less developed countries fared worst of all.
-- 1979 - Revolution in Iran, then the second biggest OPEC seller after Saudi Arabia, creates the second “Oil Shock.” Supply never runs out but Japanese buyers lead new scramble for stocks on fears it might.
-- 1980 - Iraq invades Iran. By the end of the year, North Sea crude Forties stood at a new high of $40, a peak not to be exceeded for 10 years. In the 1970s and 1980s, high prices led the West to produce more of its own oil from areas like North Sea. Global recession and fuel-saving in reaction to high-cost oil mitigated world petroleum demand and later creates a glut.
* THE 1987 STOCK MARKET CRASH:
-- October 1987 - An August U.S. trade deficit of $15.68 billion triggers a record fall on Wall Street. On Friday October 16, the Dow Jones Industrial Average suffered the first 100-point dive in its history as a record 338 million shares were unloaded in New York. The Dow ended down 4.6 percent, or 108.36 points.
-- On October 19, now known as “Black Monday,” stock markets crashed in Asia and Europe, after being rattled by the fall in New York. Subsequently Wall Street dived 508.32 points, taking the Dow down to 1,738.4. The crash wiped 22.6 percent off the value of the NYSE, compared with 12.8 percent on the worst day of the 1929 Wall Street Crash.
* THE ASIAN CURRENCY CRISIS, RUSSIAN MELTDOWN AND LTCM
-- 1997 - Currency markets in Asia are hammered as the market loses confidence in the so-called “Tiger economies.” Thailand, Indonesia, the Philippines and Malaysia were the most seriously affected. On October 27, 1997 the Dow plunged 7.18 percent. Stock markets across the world suffered.
-- ASEAN plus China, Japan, and South Korea promoted ties to help avoid a repeat of the crisis. China overhauled its banks and wiped billions of dollars of bad debt off their books. Indonesia, which was among the hardest hit in southeast Asia, was given a $43 billion rescue package by the IMF.
-- 1998 - Russia devalues the ruble and defaults on $40 billion of debt. On August 17, Russia abandoned the floor value for the ruble to the dollar; banks shut and refused to give people their money. The IMF lent Moscow $4.5 billion to pay old debts and avoid a confidence-cracking default.
-- In September, the New York Federal Reserve Bank helped broker a $3.5 billion private-sector bailout for hedge fund Long-Term Capital Management, which was teetering on the brink of collapse. The Fed cut interest rates three times in successive months in response to the Russian financial crisis and near-collapse of LTCM.
* THE DOTCOM BUBBLE:
-- 2000 - The “dotcom bubble,” which saw shares in hi-tech and internet start up companies soar to dizzying heights, bursts. The Dow, having peaked at a closing high of 11,723 in January 2000, hit a low just above 8,000 in September 2001.
-- In January, in response to a economic downturn following the popping of the tech bubble, the Fed cut rates by a half point.
-- September 11, 2001 - Hijacked airliners crash into the World Trade Center, the Pentagon and a field in Pennsylvania. The attack kills nearly 3,000 dealing a devastating blow to the U.S. economy.
-- The Fed responded by cutting rates four times before the end of the year, building on a campaign of reductions that began in January. Over the course of the year, the Fed lowered rates by 4.75 percentage points to a 40-year low of 1.75 percent -- one of its most aggressive campaigns ever.
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