Another Financial Crisis Coming Down the Road? Maybe? Maybe not? I think it will come from the emerging market economies.

I think there will be another financial crisis in the coming years, regardless of what the Federal Reserve chairman and vice-chairman say in their calm jargon-laden public addresses. There are many articles out there on the internet that are trying to anticipate where the next financial crisis will come from. I believe this next up and coming economic crisis will not originate in the developed world, as the economic lull has finally been somewhat mitigated by the Fed's scrumptiously stimulating quantitative easing. I believe a financial crisis will most likely come with the appreciation of the US dollar and the depreciation in commodity prices. This will impact the financial stability and health of these developing emerging market economies, which will be the impetus for the next global economic crisis. After careful consideration, I have found a couple of articles that are really worth reading, with a couple of them by the famous Korean macro-economist, Hyun-Song Shin, who is famous for his work on global games.

The presentation by the famous economic theorist, Hyun-Song Shin, who also happens to work on the field of global games, concerns financial stability risks. (For those who are unfamiliar with global games, the Wikipedia article gives a bit of insight on it, even though I don't think Wikipedia is the best place for it. A better place to learn about global games is to directly read Dr. Shin's published article, even though it's a challenging read.) Two important points in the presentation that Dr. Shin's gave at the Brookings Institution:

1. Based on his perspective, a stronger US dollar could result in negative consequences for the global economy, which could ultimately impact the global economy.
2. Financial markets' problems could shift to other arenas (such as emerging economies)

This particular article helps to loop this presentation by Dr. Shin with concrete conclusions. The two points I had brought up previously is expanded upon in this brief article. I believe that a stronger dollar will lead to significantly problems for some emerging markets' central banks, such that of the BRICs. This could be mitigated by their new plan to decouple themselves from their surmised disinclination of the dominant position of the US dollar. I think their plan might come too late and the next crisis will occur before their transition, which might cause them to put off their plans to decouple from the current denominated world system.

(To those interested in following Dr. Shin's presentation, the link also provides audio recording of Dr. Shin's presentation)

Another article to be considered is the latest BIS article, whom Dr. Shin co-authored with two others. The article explores the emergence of non-financial corporations from the emerging market economies (EMEs), such as from China, who are partaking in a substantial increase in cross-border capital flows. I think this increase will not just be significantly impacted by a stronger US dollar, but it might lead to an increase in this particular activity. This will have a significant impact on the EMEs' financial stability, which I think will prove to be troubling to the long-term financial health of these EMEs. This should be a deep worry for both economists and financial policymakers in the coming years.