[News Terms] Economic Collapse, Vicious Cycle 'Doom Loop'

‘Doom Loop’ refers to a vicious cycle in which one negative action or factor triggers another negative action or factor, which in turn worsens the initial negative factor or leads to yet another negative action. It mainly describes a phenomenon where a shock to one part of the economy causes a chain reaction of negative outcomes, ultimately deteriorating the overall economy.

[Image source=Reuters Yonhap News]

A representative example is the U.S. subprime mortgage crisis that led to the global financial crisis in 2007. The crisis began when homeowners who had taken out loans to buy houses started defaulting on their mortgage payments following the collapse of the U.S. housing market bubble. As mortgage defaults led to falling housing prices and losses for financial institutions, these institutions became increasingly reluctant to lend, which in turn caused further declines in housing prices and reductions in consumer spending. This vicious cycle eventually triggered the collapse of the global financial system, becoming an immortal doom loop.

Last year, the global economy also suffered from a dollar doom loop due to a strong dollar. The dollar’s strength caused a decline in global trade and a slowdown in manufacturing conditions worldwide, raising concerns that global economic growth would stagnate. In this process, investment increasingly concentrated on the dollar as a safe asset, intensifying the dollar’s strength and creating a vicious doom loop.

Recently, the doom loop concept has also been applied to the climate change crisis. In February, the UK think tanks the Institute for Public Policy Research (IPPR) and Chatham House jointly published a report titled ‘1.5°C Dead or Alive,’ warning that “humanity may fall into a doom loop where resources used to address disasters caused by climate change become insufficient to prevent the root cause of those disasters?climate change itself.” The two organizations pointed out that as climate change intensifies the frequency and severity of natural disasters such as floods, wildfires, and droughts, the costs and resources required for disaster recovery are snowballing, defining this situation as a ‘doom loop.’

This content was produced with the assistance of AI translation services.