In general economic crises are caused by economic issues which grow so large that they start impacting other areas outside of economics.
In terms of what caused the most recent global economic crisis
- The collapse of the sub-prime mortgage market.
The sub-prime mortgage market collapsed due to too many people defaulting on their mortgages. This was in turn caused by several factors including general weakness in the markets as well. The initial collapse caused other people to have to call in debts. However, debtors relied on these excessively high valuations in order to leverage themselves.
- General weakness in the markets
- Prime Minister of Bhutan Jigme Yoser Thinley blamed the global economic crisis on "insatiable human greed".
- The growing sense of entitlement and lack of willingness to sacrifice.
- Mathematical Complexity of the markets. This allows some financial institutions to behave as leeches on the market without actually contributing to overall productivity. This also prevents government regulations from being written to stop these actions, as they are not easily understood by legislators. Further, lobbyists can usually stop such actions from taking place.
- Continued Government Spending. The failure of most governments to reign in spending, and instead continuing to print money to compensate for deficits contributes to overall weakness of the dollar and the market.
- Decreased financial regulation in particular areas. Whenever there is decreased financial regulation in a particular area, companies jump into these niches to squeeze out profit.
- Excessive financial leveraging which did not take into account proper risks.
