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Raghuram Rajan has warned that the world is at risk of repeating the mistakes it made during the Great Depression.

A series of policy mistakes made matters worse during those painful years. Central banks cut back money supply. Competitive devaluations did not help. Trade barriers were raised. Fiscal spending remained conservative by today’s standards. It would seem that world leaders did well in 2009 to agree on a coordinated plan to stimulate their economies as well as remain open to trade.

That episode of cooperation is history. Countries that have weak domestic demand are hoping that weaker currencies will help them export their way out of trouble. But everybody cannot play the game. At least one country has to anchor the global monetary system with a stable currency. The US did the job for many decades, but it too has basically been printing money without a care about what happens in the rest of the world.

But global cooperation is still better than it was in the 1930s.

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