Sunday, May 27, 2012

Kindred spirits

Kindred and Thomas have a nice piece in FP about the peripheral-ness of Greece and the low likelihood that a Grexit will cause a global downturn like the US financial crisis did.

I largely agree with their points (though the 97 Asian crisis wasn't a small event to me), even though I recently put up a post asking "Will Greece be Europe's Lehman Brothers"?

Kindred commented on my post making many of the points in the FP piece, but now I can see that we were somewhat using the same words to talk about two different things.

In the US financial crisis, the political decision to let Lehman Brothers go, was the catalyst to all hell breaking loose in US financial markets. I was asking whether a political decision to let Greece go would be the catalyst to all hell breaking loose with the Euro (spurring contagion to produce multiple exits from the Euro)

I still think it could, but that is not to say the global fallout will be anything like the global fallout from the US financial crisis, which is Kindred's point.

Also of note, in this morning's NY Times, LeBron has a piece arguing that the Euro may fall apart altogether, which would probably have greater global consequences that just a southern member exit.

1 comment:

Kindred Winecoff said...


We don't think Asian 97 was a small event either. We just think it was a small event for non-Asian countries. We go into much greater detail in the underlying paper (currently R&R), but global growth, trade, equity markets, etc. all stayed positive in the years during the Asian crisis. Only local markets in Asia were severely affected.

As we say in the FP piece (and spell out in more depth in the paper), Asia 97 was very bad for Korea, Thailand, Malaysia, and Indonesia, somewhat bad for Hong Kong, Japan, and a few other (mostly Asian) countries with direct exposure, but was practically a non-event everywhere else. The US had zero bank failures resulting from it. I don't know of any in Europe either.

We generally think of the late 90s as being a very good time for growth in the US and the ROW. One of the best times in post-war history, in fact. That view is not compatible with a story that says that Asia was a severe global crisis.