So a crunch does appear inevitable. It is only the details of the crisis that are unpredictable. Two years ago the Asian crisis was in full spate. Last year Russia's default sent world credit markets into spasm. This year Wall Street is leading the way.
This is the Asian crisis in reverse. Contrary to the apocalyptic punditry of the time, the woes of the Tiger economies turned out to be pretty good news for the industrial economies, especially the US. Asia's weakness fed America's strength by helping keep inflation at bay through weaker goods prices and the strong dollar. Last autumn Alan Greenspan was able to cut interest rates three times in a row, fuelling the continuing boom on both Main Street and Wall Street.
Now, however, Asia is recovering, flagged by recent gains in the Nikkei and the yen. Commodity prices, especially oil, have started to pick up. The dollar has started to weaken. Investors in the US have woken up to the fact that - even if there has truly been a technological miracle too - the economic cycle has not been abolished. So as growth slows, inflation will climb, as always at the tail end of a business cycle.
This has driven US bond yields and spreads higher. Concerns about the year 2000 bug and the diminishing supply of Treasury bonds have compounded woes in the bond markets. That in turn has made US share valuations look painfully stretched even to the most optimistic of investors. Although European stock markets are not so exposed, there will always be contagion from Wall Street to elsewhere.
In these circumstances, the markets are likely to overdo their pessimism as much as they overdid the optimism. This means it would be foolhardy to predict how far shares will fall, but not that they are heading down.Reuse content