The Financial Crisis in Perspective (Collection)

Chapter 8. The Carry Trade

“What we may be witnessing is not just the end of the Cold War or the passing of a particular period of post-war history, but the end of history as such: that is, the end point of mankind’s ideological evolution and the universalization of western liberal democracy as the final form of human government.”

Francis Fukuyama, 1990

The “carry trade” creates cheap money by borrowing in a currency with low interest rates, putting money into currencies with high interest rates, and pocketing the difference. Japan’s market crash in 1990 brought low rates in its wake and created a great carry trade—and in 2009, investors borrowed U.S. dollars in another carry trade after the crash in the United States. The cheap money inflates ...