The financial crisis this week is the implosion of the “emerging markets.”
What’s an emerging market?
They’re the rich poor countries — China, India, Russia, Turkey, Eastern Europe, Mexico, Brazil, Venezuela. (As opposed to the rich countries like the U.S., Western Europe, Japan.)
What’s the problem?
Think of the emerging markets as people buying more house than they can afford. These countries showed some economic progress, borrowed big, now can’t pay back the loans in the global slowdown because their products or commodities are depressed — and/or because they spent the money on luxuries rather than infrastructure that would increase production.
More risky loans by banks in other words. (And no, Fannie and Freddie didn’t cause this problem either.)
Information gleaned from yesterday’s Planet Money podcast.