Stuck

Recently I read The Return of Depression Economics by Paul Krugman. Enlightening.

Turns out that in deciding an economic policy, one practically always has to give up something for the other. For example, IMF has usually recommended fiscal austerity(raising interest rates, raising taxes) during an impending crisis, even though according to traditional economic theory, this will deepen the recession in the country. Reason for fiscal austerity is simply to try and bring confidence back into the markets and prevent a "hyperdevaluation" of the country's currency.

However, even if the country were to devalue its currency in order to export its way out of the recession, everything may not go according to script. For example, many companies may have dollar debts, hence with the weakening of the currency, their debts would simply explode and trigger a panic, causing massive financial distress.

Interesting.