will-the-hong-kong-peg-trigger-a-1997style-crash

Will the Hong Kong peg trigger a 1997-style crash?

In the 1990s, Hong KongÆs peg to the US dollar created runaway asset inflation that eventually led to a crash. This could be repeated.
With the Hang Seng Index up 10,000 points so far this year and non-luxury residential property starting to shoot up Merrill Lynch predicts a 50% increase in residential property by 2009, some observers are wondering if Hong KongÆs peg to the US dollar is setting the scene for another bout of destructive volatility.

History suggests it will. The last time this happened was during the Asian financial crisis of 199798. In the years prior to the crash, the economy was roaring ahead. To tame the exuberance, the government should have raised interest rates, but because of the peg, this was not an option. On the contrary, local interest rates were coming down in...
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