mead cohen berger shevtsova garfinkle michta grygiel blankenhorn
Asian Financial Crisis Ahead?


The alarm bells are going off in Asia: China, Indonesia, Thailand, Malaysia and India are all facing negative economic news. And some are beginning to worry that we could be back to the conditions of the 1997 Asian financial crisis:

“All this QE [quantitative easing] money has lead to a massive credit inflation bubble in Asia,” said Kevin Lai, chief regional economist at Daiwa Securities. “The crime has been committed, we just have to deal with the aftermath. During that process there will be a lot of damage . . . It’s like a margin call. Households will need to sell their assets. There will be a lot of wealth destruction.”

One thing seems clear: the US monetary stimulus did in fact set off some massive asset bubbles—in Asia. Will the end of the stimulus cause those bubbles to pop? More and more observers seem to think so, and that could well accelerate the rush for the door as investment funds funnel out of Asian ones and back into the US as interest rates rise here and economies look dicier there.

Fortunately most of the Asian economies have amassed much larger foreign reserves than they had back in the 1997 crash, so history is unlikely to repeat itself exactly. But from South Korea all the way around to India and Pakistan, politicians, policy makers and business leaders (to say nothing of ordinary working families) should brace themselves for tough times ahead.

Features Icon
show comments
  • Pete

    “Will the end of the stimulus cause those bubbles to pop? ”

    By stimulus, I trust you mean the Fed’s insane policy of QEing its merry way to the debt problem and government deficits. .

    And where do you get the idea that the Fed can stop QEing? Oh sure, the Fed might hint of stopping, but once the markets react negatively, the Fed retreats and goes back to printing up money.

    You do know, don’t you that the Fed might well be trapped to QEing to infinity, where infinity is defined as that time when the dollar gets replaces as the world’s currency.

  • rheddles

    Sigh. 1997. When QE began. Thank you Alan Greenspan.

    Someday we’ll have to take our medicine. But it’s been so long in coming it will be brutal.

  • Atanu Maulik

    Over the past decade, when cheap foreign money flooded into India or when the investment led boom in China led to a boom in commodity prices boosting nations from Brazil to South Africa to Indonesia, the leadership of those nations had the golden opportunity to lay the foundations for a long running economic boom. They could have invested the new found wealth wisely in infrastructure, education, healthcare and could have undertaken fundamental reforms to boost long term productivity. As it has become clear now the opportunity was squandered, the wealth was plundered (characteristic of third world leadership isn’t it ?). So now as the tide turns the realization is suddenly dawning that nations cannot bluff their way to greatness. The easy money has left. A long hard slog now lies ahead.

  • Anthony

    Simply, it can be called global carry trade result based on quantitative-easing by FED.

  • Parker O’Brien

    Striking similarities to Fed support of assurance purchases prior to the Great Depression, causing bubbles in foreign markets and therefore bubbles in domestic markets that supply them.

© The American Interest LLC 2005-2016 About Us Masthead Submissions Advertise Customer Service