The resulting loss in global GDP is greater than under the bad solution, at least over the fiveyear horizon. Doing half the job, in other words, is worse over the short- to medium run than doing nothing. Fiscal consolidation and the repair of household balance sheets are necessary and inevitable, but doing them quickly, unassisted by growth from elsewhere, deepens global deflation.
There are many things that went wrong for the countries caught up in the Asian crisis of 1997, but out of the myriad causes, two clear central problems can be identified: the fatal combination of large and volatile international capital flows, interacting with fragile domestic financial sectors. Today, I want to focus on the first of these issues: international capital flows.