Manias, Panics and Crashes: A History of Financial Crises, Sixth Edition by Kindleberger Charles P. & Aliber Robert Z

Author:Kindleberger, Charles P. & Aliber, Robert Z. [Kindleberger, Charles P.]
Language: eng
Format: epub
Publisher: Palgrave Macmillan - A
Published: 2011-08-09T05:00:00+00:00

Four innovations contributed to the surge in property prices and real estate prices in Mexico, Thailand, and other emerging-market countries in the early 1990s. The funding of the overhang of bank loans into Brady bonds, which effectively removed these countries from their bankruptcy – and they were re-christened as emerging markets. The discovery of ‘emerging market equities as a new asset class’, index-based mutual funds and pension funds began to acquire these stocks. The expectation was that these countries would industrialize at a rapid rate, and corporate profits would surge. Privatization of government-owned firms in resource extraction, communications, manufacturing, and other industries led to a surge in money inflows. The appreciation of the Japanese yen following the implosion of its bubble led to the ‘hollowing out’ of the Japanese economy and led firms to seek lower-cost production sites in Thailand, Malaysia, Indonesia, and their neighbors.

In 1992 the World Bank published The East Asian Miracle, an expressively descriptive title for the economic performance of the countries in the arc from Thailand to South Korea; the increases in their GDPs were in some ways comparable to the gains that Japan had made in the 1950s and the 1960s. The Korean peninsula had been fractured in the war in the early 1950s; in the mid-1960s South Korea began a remarkable period of economic growth. Singapore had been a fortified swamp in the 1950s but by the 1990s had achieved a first-world standard of living. The change in political leadership in China from Mao Zedong to Deng Xiaoping in 1978 led to a dramatic change from a self-contained, isolated country to one that was open and eager for international trade and international investment; the annual rate of growth averaged nearly 10 percent for more than twenty years and the increase was even more dramatic in the provinces that bordered the seacoast and in the major cities such as Beijing, Shanghai, and Shenzen. Hong Kong had evolved from an outpost for peeking into China in the 1950s, the 1960s, and the 1970s into an entrepôt center for prepping Chinese goods for world markets.

Thus the expansion of the asset price bubbles in the Asian capitals followed from the implosion of the asset price bubble in Tokyo and the surge in the flow of money from Japan at the beginning of the 1990s. Most of the money was Japanese-owned; some had been owned by foreigners who sold Japanese stocks as their prices declined. The flow of money from Tokyo to Thailand and Indonesia and the other Asian countries led to increases in the foreign exchange value of their currencies if they were floating and to increases in the international reserve assets and the money supplies if these currencies were pegged. The rates of growth of domestic income in these countries increased in response to the increases in investment spending and in consumption spending that followed from the increases in the prices of real estate and stocks. The residents in these countries who sold their securities and assets to the Japanese used most of their receipts to buy other domestic securities and real estate.

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