"The Financial Crisis Was Good for the BRICS."
Not for long. The 2008 financial crisis did not emanate from emerging markets. Instead, the BRICS came to the rescue when the United States, Europe, and Japan collapsed due to their overspending, fiscal imprudence, and overreliance on just-in-time production that made them too dependent on a consumer economy that quickly blew up. After the BRICS suffered brief, V-shaped recessions of their own, as swift in their decline as they were in their recovery, the BRICS' demand helped pull the global economy out of its initial slump.
It certainly wasn't clear initially that this was how the crisis would play out. The Financial Times warned (and many investors feared) that the banking systems of emerging markets would succumb to the same massive financial problems that plagued the United States and Europe, but Asia and Latin America had learned their lessons from earlier financial crises and put their houses in order. The Chinese had ample reserves for a fiscal stimulus that was not only massive, but, unlike its U.S. counterpart, also disbursed funds quickly. The BRICS' central banks, along with those in other emerging markets, cooperated on global monetary easing. Without it (and without China's quickly disbursed stimulus at home), Western stimulus and easing would have been inadequate and ineffective. With it, demand for commodities stabilized and the world avoided a depression.
These crisis interventions came at a significant cost, however, the full price of which is not yet clear even today. The real estate bubble, which played such a big part in the United States and Southern Europe, didn't burst in the BRICS. Inflation also increased well beyond the comfort zone of central banks in China, India, and Brazil. Although all this did not provoke another crisis, it might have planted the seeds for future problems. Economic history teaches us that the next crisis usually comes from the region where the applause and self-satisfaction were loudest the previous time around. If that holds true, the next economic shock will more likely than not come from the BRICS.
FABRICE COFFRINI/AFP/Getty Images
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