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The Causes Of The 1997 Asian Financial Crisis

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Introduction
Financial crises are not caused by market shortcomings but rather, by market self- correction. Errors caused by speculation are eliminated in this self correction process to attain market equilibrium where asset prices are not inflated. Generally, financial crises come after a period of remarkable economic growth and follow a defined course. Overspending on investment leads to asset price inflation. As demand for supply declines, the prices start depreciating towards the market equilibrium. Confidence in the markets starts declining and investors start withdrawing capital inflows while liquidating portfolio assets (Mishel, Bivens, Gould, & Shierholz 2012). The stop in currency inflows create deficits in trade balances hence a crisis sets in as demand for foreign currency …show more content…

The 1997 Asian financial crisis and the 2008 financial crisis followed the same path. It is expected that with the experience of the 1997 crisis, the 2008 crisis would have been averted or better managed. This essay will look at the role of lessons from the 1997 Asian financial crisis in the response to the 2008 financial crisis.
Causes of the Asian Economic Crisis
The Asian economic crisis was caused by both speculations of market trends and poor structures and policies in the region. Overreactions due to panic and herding led to the plunging of asset prices and foreign exchange rates. Political regimes in East Asia were pushing corporates to ensure and sustain high economic growth rates by encouraging increased investment. Governments offered credits with subsidized interest rates and even promised to bail out those corporates that incurred

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