Introduction
The Return of Depression Economics and The Crisis of 2008 is an insightful book that was written by Paul Krugman. This is one of the authors illuminating work that revolves around the global financial crisis of 2008.
As a matter of fact, the global financial crisis is still playing out and that is why this has been explained in an easy to understand language that can not present a problem to anybody (Krugman 17).
Readers are introduced to the global financial crisis by looking at past financial crises that have been experienced before. In this case, the writer has used past crises to come up with the causes of the current financial crisis.
On the other hand, the effects that this crisis has had are also presented in the book. In the long run, the book has offered solutions that can be effectively used to solve the current economic woes that are facing us. This is as far as the 2008 global financial crisis is concerned.
Specific chapters or subjects
All in all, the books main focus is to answer three vital questions. This is as far as what caused the crisis, how people can recover from it and what measures can be taken to prevent such an occurrence in future are concerned. The book has looked and talked about the major financial crises that have happened before.
This can be traced from the Pacific of 1907 to the Asian flu of 1990s (Krugman 85). All this occurrences can be traced to the current happenings that revolve around the global financial crisis of 2008. This is because they bear some striking resemblance that can be evaluated.
All the crises that have happened before started with a good and interesting story that meant well like looking for money to fund economic growth, solving currency problems, coming up with a healthy financial system and others. In this case, there is one striking conclusion that can be made in that confidence in the market played a big role in fueling the global financial crisis.
As a matter of fact, the writer has tried to explain the confidence loop that leads to such crises. Confidence plays out in both directions and this is before the crisis and after the crisis has occurred.
However, the financial crisis occurs when there is a small drop in confidence which later on turns into panic that brings problems (Krugman 120). Krugman has tried to explain all this aspects through historical accounts that give a good insight on how confidence can go up and later on come crushing in the market.
In this case, this is what leaves some strain on policy makers, investors and other people who will always have a keen look at such events. In the long run, there is a general conclusion that it is difficult to restore confidence that had been lost after such a crisis has occurred.
The power of speculators has been reviewed as an important aspect in relation to the financial crisis. When there is loss of confidence in the market, the power of speculators will also be affected in a broad way. These speculators do not engage in good activities which should be a matter of concern.
In this case, speculators can be blamed for all this occurrences because they are only concerned with making profits. They do this by turning on any opportunities that might be existent without looking at the social costs of their undertakings (Krugman 154).
Hedge funds have played a vital role in the collapse of economies and various financial markets as time goes by. The market should be handled well by all speculators instead of cashing on peoples needs at a given period of time.
As a matter of fact, the currency has been the prime target of such speculators. In all the cases that have been reviewed by the author, various fund managers were responsible for the devaluation of a given nations currency.
This was mostly done by leveraging of positions that is common. In all the crises and instances, fund managers created a lot of profits for themselves at the expense of the economy and financial markets. As a matter of fact, speculators profits led to a lot of economic pain to various individuals, markets and investors in different countries.
A perfect example is Argentina that lost almost 70% of its currency value because of these speculators (Krugman 162). It can be seen that most social costs that are experienced in the economy are not relevant to profiteers and this is a fact.
Regulatory blindness is another question that comes up as a result of hedge fund managers. In this case, there is an argument that if hedge fund managers are not offering any value to the society, why is it that they not being regulated.
This is based on the fact that they are being allowed to operate freely at the expense of the society at large. Speculators are not regulated and that is why they cause a lot of havoc around the world with no fear that there will be any repercussions to them.
The shadow banking system can also draw parallels to the actions of these speculators in the society. In both cases, profits are always the motivation thereby leading to widespread destruction to the economy. The world was blinded by the shadow banking system and this is as far as the global financial crisis is concerned.
A perfect example is the downward spiral that affected the Lehman Brothers leading to its collapse (Krugman 196). People can not imagine that a banking system that had $4 million was not regulated in any way.
Conclusion and Review
This is a very insightful book and I really liked it. This book offers an extensive treatise in relation to previous financial crises and this is based on the existent commonality. As a matter of fact, how the catastrophe happened has been effectively answered by the book.
This is based on the fact that nobody could believe that the problems of the subprime market could come from the world’s largest economy (Krugman 200). The prescription that has been proposed to avoid and prevent any future occurrences and problems has been well done.
In this case, the approach that has been proposed to prevent any future calamities is practical and enforceable in a broad way. As much as all this are positive developments, the book has not offered a good solution or overview on how victims of the global financial crisis will be compensated or taken care of.
The book is very timely because it is a timeless exposition of this issue that has always been there for a long period of time. This is a book that can be easily understood by anyone who has an economic background which is good.
There are various things that I agree with the author and this is because they are real, practical and insightful. The book has offered some advice on what should be done to avoid any future financial crisis and this is based on facts. Krugman has recommended that credit should continue flowing again which I also agree with (Krugman 215).
With a good flow of credit, spending will increase which accelerates growth in an economy. Depression economics should be evaluated to avoid any future financial crisis because commonalities can be reviewed to come to a good conclusion.
The author argues that more policy direction and effort should be focused on the demand side of macroeconomics which is true. This is because an economy should be able to create demand for goods and services which enhances growth. In the process, there will be more creation of wealth and jobs which are needed to move away from the global financial crisis.
Krugman has proposed that there should be wide financial reforms and this is a very important aspect that has been ignored. In this case, reforms should be global and coordinated to produce good results (Krugman 219). This is because most of these crises that have been witnessed before trace their roots from the financial markets.
In this case, we can easily say that anything that needs to be rescued should first of all be regulated for long term sustainability. There is no clear path towards recovery and this is something that has not been well elaborated and reviewed by the author.
There are good responses in relation to the global financial crisis and something like the stimulus plan and flow of credit are expected to restore market confidence. Regulation will play an important role to avoid any future problems and this should be noted by all stakeholders.
Work Cited
Krugman, Paul. The Return of Depression Economics and the Crisis of 2008. New York: W. W. Norton, 2008. Print.