Sunday, October 26, 2008

Dani Rodrik's Doomsday Scenario

Dani Rodrik sees this as the make-or-break week for emerging markets and their currencies. The IMF must act, he says, or we enter the first act of a doomsday scenario in which collapsing emerging market currencies trigger protectionist responses in the advanced industrial countries. A "vicious cycle of unemployment and protectionism" would ensue, à la the 1930s. Hence the just-in-the-nick-of-time salvation of Dominique Strauss-Kahn from the sequellae of his Davos dalliance may be something we all need to be thankful for.

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