The article Global
Deflation Alert: Hidden EM Debts to China Could Be Immense written by
Carmen Reinhart is about emerging economies that already face the risks of
bearing financial crises. Many emerging economies are exhibiting all the
telltale signs of financial crises such as significant slowdowns in economic
growth and exports, unwinding of asset-price booms, growing current-account and
fiscal deficits, rising leverage, and reductions or reversals in capital
inflows. Even if an economy seems to stable and rising they could have
underlying weaknesses. One weakness that emerging economies are trying to down
play is that they may also have to deal with hidden debts. For instance,
Mexico, Thailand, and Greece were all hiding economy debts which led to
financial crises and currency risks. All these countries financial risks went
undetected until it was too late. A prime example Reinhart discusses is China’s
current economic situation. China finances many major projects in other
emerging economies which sound positive but China fails to report their data to
the Bank for International Settlements. This means that countries’ debts to
China could be lower than estimated. Detecting debts and keeping track of
opaque and evolving financial linkages are now more important than ever.
Compared to the other articles written by David Stockman,
this article was far easier to comprehend. What I didn’t really understand is
why countries would keep debt or economic failures hidden? Is it due to
political reasons? I don’t see how China would benefit from trying to hide the
true value of money that countries owe them because wouldn’t they want the
exact amount that they let other emerging economies borrow be accounted for?
Other than these questions, I really enjoyed this article’s look into the
current state of the global economy.
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