The Return of Depression Economics and the Crisis of 2008 Essay Example for Free

The Return of Depression Economics and the Crisis of 2008 EssayThis novel is broken into segments the first of which discusses crisis that entertain occurred in the onetime(prenominal) that be similar to present daylight crisis, for fount, the Great Depression and the orbwide depression of 2008. The second segment analyzes the current crises, for example, the effects of the Latin American and Asian crisis in the 1900s. Krugman withal brings into light how countries thousands of miles away have such a large impact on one an different like a domino effect, for example, how when Russia experienced a financial crisis and stinting reform, it devalued the Brazilian real, which then in turn effected the United States bond markets. The author uses his association and view to analyze the United States and former(a) countys economic issues. He critiques the mistakes that were made and the warning signs that goernments should be aware of and not overlook in order to prevent economi c failure. An example was the over confidence in capitalism success due to increase of technology, globalization to third world countries, and the fall of socialism and socialist ideas that were prevalent in planetary ideologies.This confidence in capitalism blindsided Economists to an approaching depression. Krugman warns that even though an prudence may be very strong, they are still subject to fall and should neer take warning signs lightly, however these signs may not always be the same for every country. As brought up in the book, it is discussed that perfect solutions for fixing an economy in one country may not work as well, or at all, in an other(a) country, for example capitalism success in the United States versus Japan and Mexico.Another example was when the British political science devalued the pound and increased the interest rates. This led a strong economic convalescence for Britain, just now when Mexico tried this same tactic, it had no such success. Britains p ound was devalued by 15 percent in 1990, thus being dropped from the European Monetary Systems Exchange Rate Mechanism. In 1995, the Tequila Crisis resulted from the mistake of the Mexican government not devaluing the peso enough and the GDP in Mexico dropped 7 percent and depreciated the peso by 15 percent, consequently.This is also an example of the domino effect of economic downfalls in countries impacting others. Even though Argentinas peso is governed by a separate currency board, since they call their money the peso as well, currency speculation from investors in other countries didnt regard the currencies as separate, thus negatively impacting the country. Robert Lucas, a professor at the University of Chicago, states that Macroeconomics needs to move forward from depression-prevention since the problem had been solved for all practical purposes. The Great Moderation speech, by Ben Bernanke, then provided support to Lucas claim by stating that the business cycle problem had d iminished, however, Krugman explains that instances similar to the Great Depression have more recently occurred, and in other countries in the 90s. In the late 1990s, Thailand caused trouble to the rest of the surrounding Asian countries when they began making loans to foreign investors to try and help their struggling economy, consequently going away them with crippled trade exports.The Thai Baht was devalued since these foreign investors were mainly only people who had connections with the government and the interest rates were much higher than other countries in attempt to boost their economy. This stipulation caused the economy to worsen, other countries to loose confidence, and for Thailand to loose investments. Krugman explains that if Thailand hadnt tried to control the currency and interest rate, the baht would have risen instead of causing their poor economy to expedite.Another piece that Krugman brings up is the Hedge funds, which are privately and actively managed investm ent funds and are subject to the regulatory restrictions of their country. Two examples discussed in the book were with Asia and Russia. Hedge funds were used on Hong Kongs capitalist government and were forced them to use government intervention and non-capitalist ways to take back their parenthood market. In Russia, hedge funds were more widely created to excel profits, but consequently, led to their financial collapse.Alan Greenspan, on the Federal Reserves Board of Governors, served from May 1987 to January 2006 and played a large roll in the 2008 crisis. It was believed that he was the best fit for his position because of his vast knowledge of the Great Depression. In the beginning of his term, the economy was stable with low unemployment rates and a rising stock market. Consequently, Greenspan let the good times roll and when the stock market was in a bubble he cut interest rates, but to no avail.This caused the unemployment rate to rise for almost three years and the quoin to return. The house bubble then developed in 2006 from the lack of Federal Reserve regulation of savings and loans and the Shadow Banking System. The housing market prices slow skyrocketed to fifty percent over value but then suddenly dropped up to fifteen percent in the second quarter the following year. Krugman explains how this housing market crash crippled the United States economy, costing millions of Americans their lives as they knew them before.I rear this book very appealing considering my vague understanding of the financial system. Although at times I felt lost in the terminology, the majority of the time I was able to comprehend what Krugman was trying to get across to the audience. What I found most compelling was how the book brought into perspective how history has consequently been repeating itself and will only continue to do so. With the examples Krugman gives with the Great Depression, Japan, Mexico, and our own economy dearth in 2008, we can see the errors t hat are repeatedly made through history.Krugman points out, while constantly questioning, why economic catastrophes keep occurring all over the world if all the signs leading up to them are ever so similar. If Mexico had used Britian as an example, they would have been able to get out of the Tequila Crisis much quicker. I also found interesting, yet disheartening, the amount of money that is lent to other countries and spent on helping them repair themselves when we ourselves have repairing to do in our economy still.I understand that it is a cyclical effect, and we may not know every detail about what is going on, and for that I have to give the government credit, but at the same time I dont agree with the amounts given away that we never see any benefit from. Krugman used the example of Russias debt and the twenty-two billion given to them for a stabilization plan that was unheard of, and another fourty-one billion emergency bailout funds to Brazil.After reading this book, it has initiate me about how an economy can get back on its feet and also what signs to look for in our economy so that we dont repeat the past and we start learning from other countrys mistakes as well. 1 . Krugman. About Paul. New York Times, n. d. Web. 04 May 2013. 2 . Hedge Fund. Wikipedia. Wikimedia Foundation, 05 Mar. 2013. Web. 06 May 2013.