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Published on March 18, 2008

There is no doubt that the world's largest economy is already in a deep recession. The risk now is that a financial system with immense importance to the global economy could be on the verge of collapse, dragged down by the so-called sub-prime crisis.

The unfolding of events is reminiscent of the 1997 Asian financial crisis, which began with a massively overheated property market fuelled by an extended period of easy credit. This was driven by a fixed exchange rate regime and the whims of merciless global fund flows pouring in to wide open domestic financial and capital markets.

We were shocked when Finance One was shuttered because of liquidity concerns and mounting levels of non-performing loans. Apparently, the leading finance company was unable to raise funds in the market and had to resort increasingly to central bank funding. Both local and foreign financial institutions were approached with bail-out deals, but these fell through. The rest is history.

But is it not strange to see a stark similarity in the way every financial crisis unfolds?

Going by history, there could be more to come in the US, in the way of sick financial institutions needing liquidity support, lacking or losing the confidence of the market and, worse still, unable to raise capital on their own.

If this carries on, the Fed will be seriously busy rescuing these financial institutions and maintaining the soundness and integrity of the US financial system - most probably at the expense of the US dollar. Inte rest rates will be cut and the market will be flushed with liquidity, effectively devaluing the dollar just like Thailand did with the baht in 1997. Gold is already beyond $1,000 (Bt31,500) per ounce and oil will remain above $100 per barrel. We will not see a reversal any time soon.

What we may see is global currencies strengthening against the dollar. Oil at $100 a barrel will not hamper the Japanese economy much while the yen is at its current level of ¥99 to the dollar. We may even see oil and gold - and for that matter global trade - being quoted or conducted in currencies other than the dollar. Venezuela has already done just that.

But we may well ask: what will happen to the massive debt that the US government owes to the world in the form of foreign currency reserves piled up in every Asian country? Better bite the bullet, my friends. The only chance to recover those reserves may be to convert them into real assets at a deep discount price. Doesn't that have a familiar ring to it?

So, here come the Asian vultures. So long, dollar!

Adisorn Sermchaiwong, executive vice president of Siam Commercial Bank's saving and investment products division.

The Nation