WASHINGTON - Could we be on the cusp of the next economic crisis? Just in case you hadn't noticed, the latest warnings come from Brazil and India, whose currencies are under attack.
If the assaults spread to most "emerging-market" and developing countries, which represent about half the world economy, the effect on the fragile global recovery could be devastating. That's the bad news; the good news is that - for the moment - this is widely regarded as a long shot.
First, let's get our bearings.
Brazil represents almost 3 percent of the world economy, India nearly 6 percent, estimates the International Monetary Fund.
In recent months, investors have withdrawn local bank deposits and dumped local stocks and bonds. They sell their proceeds in Brazilian reals and Indian rupees for other currencies - presumably, mostly dollars - and shift the funds elsewhere.
Selling the currencies lowers their value. Panic selling in these and other countries would further depress local stock prices, confidence and spending.
Already, Brazil's stock market is off about 20 percent this year, India's about 8 percent.
These money outflows partially reverse the inflows of 2010 and 2011, when emergingmarket countries attracted more than $1 trillion from global investors, according to IMF figures. "The interest rate differentials were huge," says Peterson Institute economist Arvind Subramanian. "In the United States, you were getting 1 percent to 2 percent. India offered 9 percent to 10 percent on rupee deposits."
For a while, global investors were infatuated with emerging markets. There was a sense that "developed markets [the United States, Europe] were risky and that emerging markets were risk-free," says Angel Ubide, also of the Peterson Institute.
Emerging-market countries would grow faster; they had embraced sensible economic policies of low inflation and manageable budget deficits. Many would benefit from the relentless rise in global demand for raw materials.
Brazil seemed especially blessed, being a major supplier of soybeans, sugar, iron ore and coffee. Emerging-market countries seemed the logical destination for investors seeking higher returns.
No more. To the extent there was an emerging-market "bubble," it has popped. Yesterday's conventional wisdom is not today's. Economic policies turned out to be not so sensible - or sustainable.
India's inflation is running about 10 percent, and its budget deficit is about 8 percent of the economy (gross domestic product).