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Pace of Trade Collapse Exceeds That of 1929

April 10, 2009 (EIRNS)—Paul Krugman reports on a study done by Barry Eichengreen and Kevin O'Rourke comparing the pace of the international trade collapse since April 2008 to that of 1929, showing that the current collapse, over the ten months from April to February 2009, far exceeds the equivalent period beginning June, 1929, and is equal to the collapse over 25 months of 1929-31.

Krugman also hits Larry Summers in his New York Times article. With the elimination during the 1980s and '90s of all the FDR regulations which had made banking so "boring," the debt bubble quickly returned to "just about the same level relative to GDP as in 1929. And the financial industry exploded in size. By the middle of this decade, it accounted for a third of corporate profits."

Krugman continues: "Needless to say, the new superstars believed that they had earned their wealth. 'I think that the results our company had, which is where the great majority of my wealth came from, justified what I got,' said Sanford Weill in 2007, a year after he had retired from Citigroup. And many economists agreed. Only a few people warned that this supercharged financial system might come to a bad end. Perhaps the most notable Cassandra was Raghuram Rajan of the University of Chicago, a former chief economist at the International Monetary Fund, who argued at a 2005 conference that the rapid growth of finance had increased the risk of a catastrophic meltdown. But other participants in the conference, including Lawrence Summers, now the head of the National Economic Council, ridiculed Mr. Rajan's concerns."