The collapse of the Berlin Wall and the global credit crunch

The collapse of the Berlin Wall and the global credit crunchEdmund Conway has an interesting article in the Sunday Telegraph today in which he links the current global credit crunch to the collapse of the Berlin Wall in 1989 and the fallout from the Asian financial markets crisis in 1997-98. Stung by the harsh economic discipline dolled out by the International Monetary Fund in the wake of the emerging markets crisis of 1998, many eastern asian countries vowed never again to have to rely on western banks and western-dominated organisations for borrowed money. They have turned their trade and budget deficits into huge surpluses, largely tied their currencies to the US dollar. And they are now sitting on the biggest mountain of savings the global economy has ever seen.The emergence of sovereign wealth funds is just one sign of a desire to use this money to earn a better rate of return and it will have enormous implications in the years ahead. The Telegraph reports today that the Chinese Investment Bank has taken a 1% stake in Rio Tinto Zinc.Edmund Conway writes: ‘A massive and growing slice of world wealth, a major chunk of its resources and a growing dollop of influence are in the hands not of shareholder-controlled companies but of state-run businesses and institutions. And in recent months they have started to flex their muscles….. This year’s credit boom and the subsequent bust, which is deepening by the week, have their direct origins in the rise of Asian savings.’ More available here: http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS&grid=&xml=/money/2007/11/11/ccliam111.xml