The Return of Depression Economics :: essays papers

The Return of Depression Economics From the many economy-related books available I read The Return of Depression Economics by Paul Krugman. This book was written during the Asian financial crisis of the late 1990’s. Many say that Krugman wrote this book much too quickly to be fully correct on every issue that he wrote about in this book. Krugman mainly focuses on financial crises of the 1990’s and mostly on the Asian financial crisis. This book was very interesting to read even though I did not fully understand every issue he covered. In this book Krugman laid out the basic fundamentals of global economy and the choices we had to get ourselves out of the Asian financial crisis. With the Asian financial crisis done and over with, many of Krugman’s thoughts and choices are now out-of-date. Even though there were an option at the time but now dated, they were interesting and I agreed on many of his points. Krugman believes that Mexico’s crisis was a three-act play with Mexico as act one , Asia as number two and us finishing off as act three. During the 1990’s there have been many currency crises around the world. For example, Britain and Sweden in 1992 to Mexico and Argentina in 1995 to East Asia's rim in 1997 to Brazil in 1998-1999. These crises are better known as financial â€Å"panics†. There are many different things that can trigger a financial crisis but I will explain Krugman’s classic example of the â€Å"panic†. International investors in New York, Frankfurt, London, and Tokyo are known as main investors. These main investors invest their huge amounts of money in countries that they think are doing well. From this â€Å"hunch† they flood their billions of dollars, about $70 billion into Asia, into a country’s economy. If they feel that they have made a poor financial investment they quickly pull their money out of the market at huge losses. These main investors cause a stampede of smaller investors to also pull their money out of the economy at sale prices. Th is causes a panic and seems to have a snowball effect. So in effect the country that once was flooded with billions of dollars is left off worse and soon is facing economic troubles. This panic has a tendency to effect surrounding countries.