Asian Markets Slip on Inflation, Recession Scare

Asian markets stumbled badly again last week, with yet another bad week expected. The main fear for China is inflation, primarily from rising energy costs.

China’s previous two bouts with inflation, in the late-1980’s and mid-90’s, both triggered social unrest. The protestors in Tiananmen Square spoke of democracy and human rights, but it was the central government’s economic mismanagement that fueled the nationwide discontent.

In recent years, the Communist party has been able to paper over policy mistakes with growth. The failure to make substantial progress on implementing the rule of law, creating enforceable property rights, and eliminating corruption has not appeared to crimp the expansion. But the game cannot go on forever; no country is immune to economic cycles or the consequences of bad governance. __GordonChang

Potential economic slowdowns in Europe and North America are also causing more than a few sleepless nights in China's economic planning circles. Central Banks in Europe and the US are uncertain how to handle interest rates to avoid both recession and inflation.

Meanwhile, global financial markets just recovering from the sub-prime mortgage crisis, are faced with uncertainties over an out of control CDS (credit default swap) market, and the investment bank speculatory oil bubble threatens to burst.

Interesting times.