We are all Brazilians now
One point I think is really important in understanding the crisis is that there has been a huge increase in financial globalization just in the last few years — basically since 1995. The chart above shows rest-of-world assets in the United States (red) and US assets abroad (blue) as a percentage of non-US GDP; while we talk a lot about the US as a debtor nation, what’s really striking is the surge on both sides of the balance sheet. This has made the global financial system a lot more tightly linked, so that big economies are now experiencing the kind of contagion previously associated with emerging markets caught up in the 1997-1998 crisis. We’re all Brazilians now.