PAUL KRUGMAN

THE RETURN OF
DEPRESSION ECONOMICS
AND THE CRISIS OF 2008.
CHS. 3-5, PP. 56-118.

MAIN ARGUMENT
Elements leading into a Financial Crisis:
1. Confidence in financial markets fuel economic booms
2. To fund economic expansion, deregulation within
financial markets arise allowing for loose credit, and
high risk investment in financial sector
3. Economic bubble and crisis emerge from a loss of
confidence in markets, investor biases, and currency
complications

JAPANS TRAP
Growth of Japan (1953-1973)
Economic Philosophy
Government Guidance

Infant Industry Protection

Bubble, Toil, and Trouble

Market Capitalization (1990s)

Deregulation of Banks
Moral Hazard

Japans Liquidity Trap

Growth Recession leading to Growth Depression

Recovery?
Provisional

ASIAS TRAP
Story of Thailand boom
External Crisis
Vulnerability of Asian Economies
Government Policies
Meltdown
Cycle of Financial Crisis
Why Asia?

Exchange rate

POLICY PERVERSITY
John Maynard Keynes
Keynesian compact
Keynesian Compact broken:

Japan Crisis
East Asia Crisis

DISCUSSION QUESTION
The 2008 Housing Market Bubble was
caused by cumulative faults both in the
private and public sector,
What do you think was the most crucial
factor in the cause of this bubble?