The Coming Financial Crisis

Dani Rodrik, a very competent economist, writes in his blog (October 26, 2008):

Paul Krugman frets that we are about to witness the mother of all currency crises in emerging markets, and I am afraid that he is right. As I wrote in my previous post, the financial crisis in the developing world has just started and there are indications that it will get a lot, a lot worse. What is different with this phase of the crisis is that it cannot be addressed by governments in the affected countries issuing their own fiscal guarantees and domestic currency. These countries need external lines of credit, and they need it fast before the scale of the problem becomes truly unmanageable.

The solution is clear. The IMF, possibly along with central banks of the G7, has to act as a global lender of last resort to emerging markets.

Comment: These guys should know! Fasten your seat belts, the going is going to get rough! JAD