Emerging economy currencies fell 3% on news that Argentina's peso was losing value rapidly, which raises a critical question: are these economies on the brink of economic collapse? The answer depends on how long the unrest last and how far it spreads.
The Fed will more than likely pump another 10 billion euros into the United States economy on Thursday, which worries emerging economies that depend on cash flowing from the US. Meanwhile, markets are looking toward the US and Europe because they are confident these nations are leaving tough times behind. Companies with high exposure in Argentina have suffered the most on the Ibex and other world stock markets. Fears center on how Argentina's problems will affect Brazil or Mexico, where Spain's involvement is heaviest.
Economic fundamentals in Brazil, Mexico and their surrounding nations are generally stronger than they were in the early 2000s. And it will also be fruitful to distinguish between Asian emerging economies, which are strong, and weaker economies in Latin America. Overall, a week of unrest shows that we need a more credible system for exchanging currencies -- something Argentina lacks -- and to be grateful that we stayed on the euro. There were times when this option was scorned, but it ended up being our saving grace. The fear now, although it's a bit exaggerated, is that we'll catch a little financial cold from Argentina while healing from a long bout of pneumonia in Spain.
