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.