As a member of the baby boo This book seemed a little slapped together to capture the fame of Paul Krugman's Nobel Prize. Type of Transactions Characteristics of the Market The worldwide volume of foreign exchange trading is enormous, and it has ballooned in recent years. Many countries have crises, Krugman explains many of them in the past century. Unfortunately, due to supply-side idiocy and Protestant work ethic moralizing that economy needed to "suffer" to purge out the "rot," none of that happened. International relations theories debate has witnessed recent developments
The Demand for Currency Choosing an investment currency. All things equal, choose the currency with the highest interest rate. All things equal, choose the currency with the largest expected appreciation. Do you expect to make money excess return by investing in foreign money markets? Carry Trade Borrow in a low interest rate economy Japan and invest in a high interest rate economy New Zealand. Seems like a great way to get rich. Questions which must be asked Is this a risk free investment?
What keeps other people from making the investment? Get rich quick — especially after The Demand for Currency Exchange Rates and Asset Returns The returns on deposits traded in the foreign exchange market depend on interest rates and expected exchange rate changes.
In order to decide whether to buy a euro or a dollar deposit, one must calculate the dollar return on a euro deposit. The Demand for Currency A Simple Rule The dollar rate of return on euro deposits is approximately the euro interest rate plus the rate of depreciation of the dollar against the euro.
The Demand for Currency What is the return on investing in euros? Which exchange rate to use? Use the interest rate prevailing one year from now. But then, what does that mean for the exchange rate? We can use the easier and correct Interest Parity Eq If interest parity holds, the following must also hold: The Demand for Currency Return, Risk, and Liquidity in the Foreign Exchange Market The demand for foreign currency assets depends not only on returns but on risk and liquidity.
There is no consensus among economists about the importance of risk in the foreign exchange market. Most of the market participants that are influenced by liquidity factors are involved in international trade.
Payments connected with international trade make up a very small fraction of total foreign exchange transactions. But they may be the marginal demanders of a currency. We will for the most part ignore the risk and liquidity motives for holding foreign currencies. But, it likely really matters. The Basic Equilibrium Condition The foreign exchange market is in equilibrium when deposits of all currencies offer the same expected rate of return.
What about our Carry Trade example. Interest parity condition The expected return is the same no matter where you deposit your money. Equilibrium in the Foreign Exchange Market According to the text: Appreciation of the domestic currency today raises the domestic currency return expected of foreign currency deposits. Do you expect that this is true? Interest Rates, Expectations, and Equilibrium The Effect of Changing Interest Rates on the Current Exchange Rate An increase in the interest rate paid on deposits of a currency causes that currency to appreciate against foreign currencies.
A rise in dollar interest rates causes the dollar to appreciate against the euro. A rise in euro interest rates causes the dollar to depreciate against the euro. Effect of a Rise in the Dollar Interest Rate. Effect of a Rise in the Euro Interest Rate. A fall in the expected future exchange rate causes a fall in the current exchange rate. Exchange rates are determined in the foreign exchange market.
Summary An important category of foreign exchange trading is forward trading. Will the majority of Americans continue to accept that the only way to have a secure financial future is to direct ever more billions to the people made rich in the bubble and who remained rich after it burst? So far it looks like the most likely outcome of the GFC is that the Republicans will be re-elected in the next election. The most likely outcome of that will be another round of excessive social security directed at the already obscenely wealthy.
The kind of reverse Robin Hood syndrome you would think most people would find revolting in the extreme, but that the poorest seem to cheer along with as long as Fox News is singing its praises. We live in interesting times. View all 3 comments. This is a reworking of a book Krugman released in , now new and improved.
It is a popular-audience piece on the current economic debacle, focusing on the mechanics of banking. Krugman gets what is going on in the world of economics better than just about anyone. The Nobel committee would agree.
He links the current downfall to several that have come before across the world and shows how we have arrived at a sort of financial perfect storm condition. It is readable and very incisive. In how many ways can economic crises happen? In fact, he gives us three reasons to be obsessed about our economy: From to , Japan stunned the world wi In how many ways can economic crises happen? From to , Japan stunned the world with its miracle of transforming into the second largest economy from the destruction of World War II.
The economy of Japan was superior with well-educated workers, state-of-art technology, and high saving rate. Krugman points out two important sources of Japanese propensity: The result of this system was "a country able to take a long view" and develop stable development for strategic industries "one-by-one.
No, it is not. The irony is that "those same distinctive characterizes - the cozy relationship between government and business, the extenuation of easy credit by government-guaranteed banks to closely allied companies - come to be labeled crony capitalism and seen as the root of economic malaise.
The bubble burst and Japan's economy plummeted. Hence, Krugman shows us the first two ways that a sound economy can go wrong: The next obsession that Krugman notices us is the vicious circle of financial crisis. This nightmare circle starts with one eerie word: Meanwhile, the Thai government was stuck with the confidence game and had to raise interest rates.
Consequently, financial institutions and companies were caught in a double trap of rising-value-dollars, and rising-interest-baht debts. The combination of baht depreciation and high interest rate ultimately sank the economy in deeper recession, which further washed away the confidence.
The financial crisis fulfilled its vicious circle of melting down Thai economy. More importantly, panic is contagious.
Thus, Krugman tells us another stories of recession. Just thinking about it chills our bones. All economies depend on confidence. The banking system lacks proper regulation and engages in too many risks. Then, estate and stock bubbles swell and burst.
Consequently, people lose confidence and panic starts. The borrowing from low-interest-rate countries and lending in high-interest-rate ones complete our picture of full-scale financial globalization. When the housing bubble in the U. The mechanism of this circle is similar to the circle of financial crisis. The loss of confidence damages some institutions. In this case the losses occurred through the collapsing value of risky financial assets rather than through the collapsing value of risky financial currency.
In fact, Krugman tries to lessen the gravity, voids all dry jargon, and enlivens the book with ton of questions and a quizzical tone. Certainly you will enjoy reading the book. However, the matter Krugman tries to convey is itself serious. About 70 years ago, John Maynard Keynes said: Krugman analyzes the many financial crises the world had in the 20th century and this decade.
He derides the economists who say that the Depression is a thing of the past. The first edition of the book did not have anything to point out, but Krugman was proved right with the collapse of the financial markets in Krugman uses the example of a baby-sitting co-op to illustrate how money supply and inflation play their part in financial booms and busts. He also provides solutions on how the simp Krugman analyzes the many financial crises the world had in the 20th century and this decade.
He also provides solutions on how the simple lessons from the coop can be applied to large-scale economies of countries. He explains the dangers of large financial firms in creating modern banking crises that can devastate the financial workings of countries.
The major shortcoming of this book is that it does not consider realpolitik in the formulation of economic policies. But as a practical matter, economic and financial policies in democracies are based on political considerations.
Ignoring that means that the solutions will remain idealistic. Anyone interested in their money. Paul Krugman , if you haven't been paying attention to economics for a while, writes a column for the New York Times. He has a reputation as a modern-day Cassandra , who repeatedly describes the state of modern economics and lays out policy goals for how to fix them, only to not be listened to by anyone in power. His columns have definitely become more annoyed over the past five years because of that, and he even has his own image macro: Long before, actually--the original The Return of Depression Economics was published in in response to the Asian financial crisis of the late 90s, and this version updates it with additional thoughts about the banking crisis of and how its roots are traceable in the same sort of problems that caused the Asian financial crisis.
I originally had this as five stars, but changed it to four stars after a bit of thought. The why is down at the end. Most of the beginning of the book is a parable of economics in the form of the Capitol Hill Baby-Sitting Co-op. A group of couples composed of staffers on Capitol Hill get together and start a baby-sitting co-op, where they agree to provide baby-sitting for each other.
They print up a bunch of coupons, distribute them evenly to all founding members, and each coupon is good for one hour of baby-sitting. Anyone who wants to go out more will have to baby-sit more and save up the coupons to spend later.
Here, you have the basics of an economic system. Now, what happens if a group of couples are worried that in the future, they'll want to go out several nights in a row, and maybe a bit after that, and they won't have enough coupons saved up because the supply is limited? They stop going out now and start looking for more opportunities to baby-sit. The problem is, that reduces the pool of available baby-sitting nights for everyone, so pretty soon more people start worrying that they won't be able to go out when they want to, and they stop going out, which makes things worse and worse as more and more baby-sitters are chasing fewer and fewer baby-sittings.
You're in a recession! The main reason Krugman brings this is up is to show how malicious or stupid or both most arguments about recessions tend to be. It's not because workers are lazy, or because their skills don't fit the new economy, or because regulations are too tight, or because of some quirk of "Capitol Hill culture," or whatever the excuse is. Perfectly rational people can drive an economy into recession by following perfectly rational goals.
One way to fix this is for the co-op to issue more coupons. If the supply of coupons is larger, than the couples worried that they won't have enough coupons will be assured that there will be plenty of chances to get them, so they start going out now, thus increasing the supply of chances of baby-sit, thus mollifying everyone else who was worried, and bringing things back to normal.
And that's why banks issue more money during recessions, and what the point of quantitative easing is. Another way is for coupons to devalue over time. Since fewer people want to go out in the winter, the logical choice for any single couple is to baby-sit in the winter and go out in the summer, but that leads to supply issues in both seasons.
But if each coupon buys one hour of babysitting in winter, but only 45 minutes of babysitting in the summer, couples have an incentive to spend them instead of hoarding them, thus keeping them circulating, and so the co-op economy survives. And that's why persistant inflation can be a good thing. Obviously, this is incredibly simplified, and in a real economy there are dozens or hundreds of other things to consider, but it's a surprisingly good example for how concise it is and how silly it seems.
I don't want to go into too much detail about the various crises covered in the book, because Krugman does an excellent job, but a lot of them come down to three things: A speculators gonna speculate or B failure by the government to properly regulate or C moral hazard. Moral hazard is probably the most immediately relevant to Americans like myself, since it's a huge reason for the banking crisis that's currently still going on and was never properly dealt with.
The basic principle is that betting with other people's money means you don't really care as much when you lose, and most of modern finance is betting with other people's money without risk--the government will always bail out the banks, then if they win they keep all the money, and if they lose they suck the extra from the government, and thus win either way.
When you won, you divided the profits amongst you, and when you lost, you charged it to the Bank. You are a den of vipers and thieves. The book says that austerity is precisely the wrong way to deal with the kind of crises depicted within, because seizing up a market further when the flow of money has already been choked will just make things worse.
Here is the warning, and it was not listened to. He suggests that the government temporarily nationalize the banks and directly lend to the consumer while the financial system was sorted out.
Unfortunately, due to supply-side idiocy and Protestant work ethic moralizing that economy needed to "suffer" to purge out the "rot," none of that happened. Unfortunately, the book loses a star from me because I don't think that the solutions proposed really work. Krugman says that governments need to be sure to regulate the "shadow banking system" that provides a lot of the benefits of the actual banking system without the same restrictions.
Most of the solutions are on the national level, but as Krugman admits, a lot of the problems were caused by global finance, and without any sort of international organization to regulate that, the end result of regulations in any individual country are the creations of more Monacos and Cypruses and Canary Islands.
Exactly what form the next response should take isn't clear, but financial globalization has definitely turned out to be even more dangerous than we realized.
But if we, and Europe, can't even handle our own national financial systems, how can we regulate the international system? If only we had an answer. Krugman's claim at the front of the book that he intends to make it more readable to the wider non-economic savvy public doesn't really hold up by the end sadly. There are many head-scratching paragraphs that I had to read multiple times to properly understand.
Economics to me is like most sciences, I'm sorry, but no matter what people say, they are the sort of subjects that can never be fully accessible to the average Joe. The very nature of their subject requires jargon, near Mostly very good. The very nature of their subject requires jargon, near impenetrable concepts and a hefty dose of a good Maths background to properly appreciate.
Still, Krugman is better than most, and has some very funny turns of phrases here and there. His baby co-op metaphor at the beginning of the book for the way the housing market was treated by banks was particular inspired, and an excellent way to clarify the complex clusteruck of CDOs, sub-prime mortgages, derivatives and others that lead to the crash.
Overall, his analysis is one I agree with. Unregulated banking, along with their wanton stupidity and their ever increasing, never ending demand for more money that all capitalists share alike led to the collapse. Not, as the pernicious, worthless, dishonest little scum in the UK Conservative Party have managed to suggest, because of Labour's spending A ludicrous claim. How does a spending deficit cause a banking collapse? Krugman provides a clear, insightful, hugely detailed outline of how things went wrong, and subsequently gives an informative plan for a global recovery.
Sadly, the book, being published in , now seems a disappointingly lost cry, as his plans for a worldwide economic recovery V. Keynesian spending and growth increases have not been pursued. In actuality, we have the perverse situation in which a neo-liberal free market capitalist failure is trying to be resuscitated with a neo-liberal, free-market capitalist solution.
In continental Europe it's been an absolute disaster, with mass unemployment and huge political and economic unrest stemming as a result of it. In the UK it would seem to be on the surface doing much better high employment, low inflation etc. Also, the wider and more crucial point to make is that austerity, if not an economic red herring based on shaky and ill-founded principles the report George Osbourne used to justify his austerity plans were subsequently proven to be dogshit, which numerous data errors in it , has utterly failed on a moral level.
It is an absolute obscenity to humanity. It has produced a destroyed NHS health care system, which as Noam Chomsky has so astutely identified is a classic case of stealth privatisation, where you defund something to the point of collapse, look at the numerous failings, let the media go "look!
Public services don't work! The benefit social security system has ripped to pieces, with the mass majority of people who need benefits to, you know, live, being cruelly stripped off it, leaving them starving and reduced to poverty because of the fanatical determination of the Conservatives to stamp out the minuscule crime of benefit fraud which counts for something like 3.
Disabled people have suffered even worse through the social cleansing programmes, being chucked out of their wheelchairs in order to be shunted back to work, and sometimes actually killing themselves out of despair.
For the youth of today, they have seen public education struggle, their EMA cut, and higher tuition fees. For women, lack of money into the police force they are failing to record , crimes a year, including one in four sex offences in the UK.
Women are left caring for both small children and the elderly as their childcare services are cut. Funding for refuges and rape crisis centres has also been cut. At local levels, councils have essentially become a pointless club where councillors and local MPs meet to sit around twiddling their funds, as local government money have been so slashed it has left services such as local NHS hospitals in dreadful states, and libraries constantly under threat of closure, and with little to no power left to them.
I could go on. There is a litany of abuses and abominations committed under the guise of a rational "technocrat" way of dealing with the economy. It is of course, not technocratic, but deeply ideological. The right wing have always hated the concept of the state. They've always hated social democracy. They've always hated the idea of helping the poor and protecting the weak. They've always sneered and spat on the concept of a society worthy of being called one, where the poor, the working, women, ethnic and racial minorities, the disabled and the young are treated equally and with fairness and decency.
They've harboured these hatreds since the end of WW2, but put on a brave face and pretended to go along with the enormous social and economic changes produced after WW2. Thanks economic crash, it has given the Right the chance to utterly and finally destroy the state, and drag us all back to their utopia of the s reborn. I feel glad that people like Paul Krugman are around to constantly poke holes and demonstrate the lies and idiocy surrounding right-wing neo-liberal thinking.
I only wish more people had listened to him. It acts more like a textbook sometimes than a work of political theory which is probably what it was meant to roughly be: But it is still very erudite, and a great educational tool for understanding the mess we're in now. I read this because I wanted to hold an informed opinion about the recent financial crisis both to help me interpret many of the headlines that have appeared lately and also to help me understand just how bad it is--I mean, really, is this going to be the unraveling that will cause us to implode?
Krugman clearly taught me well on both counts. Reading the initial chapters about Japan's economic crisis in the late 80s and 90s, Argentina's in , Thailand in the late 90s I thought less benefici I read this because I wanted to hold an informed opinion about the recent financial crisis both to help me interpret many of the headlines that have appeared lately and also to help me understand just how bad it is--I mean, really, is this going to be the unraveling that will cause us to implode?
Reading the initial chapters about Japan's economic crisis in the late 80s and 90s, Argentina's in , Thailand in the late 90s I thought less beneficial until I saw how he referred to them in the later chapters. By the end of the book, I saw that his initial chapters were clearly needed for a full understanding of the what ails us.
The last three chapters are worth the price of admission alone. Take note of some of these choice sentences: But it might be more accurate to say that it's like everything we've seen before, all at once: Most of the book deals with factual and detailed economical policy and since my background is in Liberal Arts, I was able to follow most of it gingerly even though it may be dispassionate reading.
There are only a few times in the short book in which Krugman gives financial and moral advice. Finally, literally, the last sentence of the book how can it be a spoiler if there is no plot? I am glad I read this book. Interesting and very readable, but left some questions unanswered. This book was very readable. Jeder stellt irgendetwas her und verkauft es den anderen, auch wenn die es selbst fertigen könnten.
Das war die Wurzel der "Neuen Handelstheorie", die ihm nun den Wirtschaftsnobelpreis einbrachte, ebenso wie die daraus abgeleitete "Neue Ökonomische Geografie". Diese erklärt, warum sich die Menschen mit ihrer wirtschaftlichen Aktivität auf wenige Orte konzentrieren. Der Nobelpreisträger behauptet indes nicht, allein zu diesen Erkenntnissen gelangt zu sein. Er brachte sie lediglich in die Form einfacher, mathematisch und logisch schlüssiger Modelle, sodass sie in der Sprache der ökonomischen Theorie zu fassen sind.
Handelstheorie und Geografie sind bei weitem nicht die einzigen Themen, mit denen Krugman Furore machte.
Copyright © 2017 · All Rights Reserved · Maine Council of Churches