4 hours ago
Tuesday, August 19, 2008
Financial history and analogies
Barry Eichengreen has an interesting article in the FT about analogies with previous financial crisies. Just as Generals sometimes fight the last war, central bankers having learned about previous financial crises may interpret events through the lens of history. But it is important to get the analogies correct. Is this another Great Depression? Certainly we are not experiencing any deflation! One thing is clear, however. The fact that many emerging economies tie their exchange rates to the dollar means that our attempts to deal with our financial crisis -- by easing credit -- transmits the shock to those countries. We are exporting inflation, and given the fall in the dollar we are importing it right back!