Monday, March 2, 2009

Krugman echoes Stiglitz

The oil embargo gave huge monetary inflows to OPEC members. They invested that money in American banks. The banks then lended freely and stupidly to terrible military regimes across the developing world, and when those countries defaulted on their loans, catastrophe came for all involved.

Krugman now says that the Asian financial crisis of 1997-98 did the same. Just as Stiglitz argued, Krugman says that Asian governments built themselves up with massive financial reserves in foreign countries, creating a glut of capital in the US that had to be lended somewhere. This time, in a deregulated climate, they lent them to American consumers. The piper is now being paid. Scary article, worth reading.

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