HOW SERIOUS IS THE THREAT FROM THE EMERGING WORLD?

Whenever there are sharp falls in share markets like recently, there is a temptation to wonder whether we are seeing a re-run of the last major crisis. Fortunately, the conditions today are very different to the run-up to the global financial crisis (GFC) which originated in the developed world, notably the US. The developed world hasn’t seen the sort of excesses that preceded the GFC: there has been no generalised bubble in investment spending (housing or otherwise), there has been no asset bubble, there has been no easing in lending standards like that which occurred with sub-prime debt and there has been no build up in inflation pressures or monetary tightening. So it’s hard to see the sort of unravelling in global financial markets that started in interbank lending and credit markets, threatening a seizing up of the global financial system and spreading through all growth assets that we saw through the GFC.