Stiglitz' loose talk again

Doug Henwood dhenwood at
Thu Jul 2 10:29:42 PDT 1998

Brad De Long wrote:

>I think all of this "Mexico showed that the U.S. Treasury would bail
>everybody out, so everyone piled into East Asian investments that they knew
>were silly, and this creation of 'moral hazard' by the peso rescue package
>is the real cause of East Asia's troubles" is way, way overdone.
>Excluding China, as best as I can calculate (very approximate numbers):
>Investors in non-Japanese East Asian home currency-denominated corporate
>debt have lost approximately 60% of their principal in the past thirteen


But these are after-the-fact losses, which may indeed discourage the punters next time around. I was talking about the post-Mexico flows into Asia in 1995, 1996, and early 1997.

Since Asia blew up - this is the first anniversary of the devaluation of the baht, or maybe it was yesterday, right? - the hot money has been flowing into the U.S. as a safe haven. Good thing they don't have to worry about any bursting bubbles here!


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