What will go wrong next?
Just about anything. China could launch economic warfare against the west, the US could start raising trade barriers against imports, South Korean banks could dump their Russian bonds, the IMF could run out of money, European monetary union could start amidst economic turmoil. Brian Caplen explores the financial shocks waiting to happen.
When the world started to melt
Asian banks: Now comes the real crisis
Asian research: Worth the paper it's printed on?
Peregrine's still flying
Hedge funds: You can run but you can't hide
Country Risk December 1997: It could be worse
Global Economic Projections: Overall Rankings
Time to buy
China goes for broke
The worst outcome in the current economic crisis would be a Chinese devaluation. The last devaluation of the renminbi yuan in 1994 allowed China to undercut rival Asian exporters and paved the way for the current problems. A further weakening would almost certainly take the Hong Kong dollar with it and renew the downward pressure on other Asian currencies. The feared rerun of 1930s-style competitive devaluations around the world would be unavoidable.
But a weaker renminbi is a tempting option for China's leaders facing internal financial and economic difficulties. Quite simply, China's banks are insolvent and 50% of state-owned enterprises (SOEs) are losing money.
The government is committed to reforming the banks and the SOEs but it needs a healthy, growth economy to absorb the pain.