Another Year of Panic?

PARIS: Brazil's currency devaluation earlier this year, and its difficulties since in stabilizing the real as well as its stock market, have demonstrated the importance, if any new proof was needed, of financial markets and their volatile mood swings. There can no longer be any doubt that investor panic can provoke economic meltdown, as it did in Asia and Russia last year, still threatens to do in Brazil and across Latin America, and may yet stage an encore in Asia over worries about a devaluation in China and the spiral of competitive devaluations that could follow.

Now in its eighth year, the almost obscene economic growth in the United States could be used to illustrate the inverse proposition. On at least two occasions in 1998, bad news could have set off a crash in American stock prices and an economic recession. After all, the majority of observers (analysts, too) had concluded that Wall Street was overvalued, even before the onset of the Asian crisis. Stock prices did, of course, decrease as a result of the Asian panic and its financial ramifications, but America's stock markets have since then recouped all of their initial losses and even moved on to new record highs.