Paul Krugman is joining a growing contingent of economists and money managers from Carmen Reinhart to Mark Mobius in warning of a meltdown in emerging markets.
The Nobel Prize-winning economist said the current episode bears some resemblance to the Asian financial crisis in the late 1990s, when developing-nation stocks slid 59 per cent and governments raised interest rates to exceptionally high levels.
"It’s become at least possible to envision a classic 1997-8 style self-reinforcing crisis: emerging market currency falls, causing corporate debt to blow up, causing stress on the economy, causing further fall in the currency," Krugman wrote on Twitter.
In fact, a