But volatility is intrinsic to these flows, and there is a long international history in which capital flows were either the catalyst for a crisis, or exacerbated a crisis which was set off by other factors: “the history of investment in South America throughout the last century has been one of confidence followed by disillusionment, of borrowing cycles followed by widespread defaults”.12 We might note also, in passing, that the overall international financial environment has been routinely subject to fits, starts and sudden reassessments.
The large swings in the yen/dollar exchange rate during the 1990s and the abnormally-low interest rates in Japan were an important factor in the capital flows under discussion here.13  10  High levels of international debt and large current account deficits were a reflection of saving/investment imbalances, and to the extent that the economic literature had wrestled with this issue beforehand, the puzzle was that the international capital flows had not been larger, rather than that they were somehow too large (the standard reference here is Feldstein and Horioka (1980)).