Vietnam

The gigantic experiment in globalization may be about to turn ugly in a classic Jekyl and Hyde type scenario.

In previous blogs I wrote about the fragility of the economy in Iceland. For the past several years, global financial players have been flooding the Icelandic banking system with capital in order to cash in on the higher interest rates being offered. In other words, the classic "carry trade" was at work. The bloated banking system started lending this capital to individuals who predictably went on a spending spree and to corporations who likewise went on an acquisition spree. I can think of 2 major firms right here in Canada that were acquired by firms from Iceland. I can recall thinking at the time – Iceland?, where are these companies getting the money to come to Canada to make acquisitions? But now, this money is seeping out of the system in response to the recent financial turmoil in the global banking sector. In an effort to stave off this outflow, interest rates in Iceland have risen to 15%. The backlash has resulted in the currency shriveling and the trade deficit ballooning. Read more »

The Wall Street Journal reporting on the current currency crisis in Vietnam seems very similar to what is going on here in the U.S.

"The government said this week the inflation rate in May was 25.2% on an annual basis, up from 21.4% in April and 14.1% in January. A slow government response was in large part to blame. When oil and food prices began to rise late last year, the State Bank of Vietnam, hoping to sustain growth, was slow to rein in inflationary pressure by raising rates or clamping down effectively on irresponsible lending. Efforts to control inflation proved ineffective -- such as a loosening of the currency's dollar peg, which backfired largely because of lending practices." Read more »