What financial event often follows a financial crisis?

The financial crisis can lead to extended periods of economic hardship as it typically disrupts markets, erases wealth, and results in high unemployment rates. After a financial crisis, businesses may experience lower consumer demand, leading to further layoffs and a contraction in economic activity. This can create a negative feedback loop, where reduced economic confidence results in consumers hesitating to spend and businesses holding back on investments, ultimately prolonging the downturn.

Economic recovery often takes time, requiring policy interventions such as fiscal stimulus, monetary easing, or structural reforms to support a return to growth. While improvements in financial regulation may occur after a crisis to prevent future occurrences, they do not immediately alleviate the hardships caused by the crisis. Similarly, rapid recovery without intervention is unrealistic, as economies typically need time to heal. Increased consumer spending might take place eventually as confidence returns, but it is unlikely to happen immediately following a crisis. Therefore, an extended period of economic hardship is a more accurate depiction of what usually follows a financial crisis.