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Sunday, October 23, 2011

Paul Krugman, "The Hole in Europe’s Bucket": If Only Greece and Italy Could Still Print Their Own Currency

In his New York Times op-ed of today's date entitled "The Hole in Europe’s Bucket" (http://www.nytimes.com/2011/10/24/opinion/the-hole-in-europes-bucket.html?_r=1&hp), Paul Krugman writes:

"Think about countries like Britain, Japan and the United States, which have large debts and deficits yet remain able to borrow at low interest rates. What’s their secret? The answer, in large part, is that they retain their own currencies, and investors know that in a pinch they could finance their deficits by printing more of those currencies."

Sure, Greece and Italy could print more of their own currencies, as Germany did in the 1920s, with the result that a pound of bread in 1923 cost 3 billion marks.

Krugman would have us know that "the real danger is a replay of the 1930s." What of hyperinflation in the 1920s?

There are no simple answers. Enough said.

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