It seems like we have watched this movie before. After three short years, the West is once again gripped by financial paralysis. This time, of course, the source is Europe, rather than the United States.
But, regardless, the world is seemingly being dragged into another crisis. Even in Asia, which has so far remained relatively unscathed, asset prices have now fallen sharply and trade threatens to slow in the coming months. Hong Kong, too, is feeling the pinch: the equity market has had an especially rough ride of late and the city's all-important logistics sector has started to sputter.
It is easy, therefore, to fear that the region will slide into a deep, nasty recession. In fact, recent chatter is striking an almost panicky cord; and even whispers about 1997 are making their rounds again. News headlines hardly help: the focus is squarely on Europe and a quick solution to the continent's dilemma doesn't appear to be in sight. It all feels a little hopeless, truth be told - the politics just isn't right on this one.
Still, much commentary on Asia misses the point. Yes, the West is struggling again with the now familiar demon of excessive debt and all that comes with it. And, admittedly, things look a bit shaky all around. However, there is another side to recent developments in the West, with powerful consequences for Asia, which is being entirely overlooked.
Central banks on both sides of the Atlantic have rolled out their guns again. In the US, the Federal Reserve recently announced a programme dubbed 'Operation Twist' that aims to push down long-term rates further by redeploying the central bank's balance sheet.
If that programme fails to have the intended effect, officials indicated that the option of another round of quantitative easing is still on the table. The Fed, in short, may commit itself to purchase more bonds, thus pumping yet more liquidity into the financial system. With fiscal consolidation set to start next year, the pressure on America's central bank to act more forcefully will only grow.
