Countercyclical private capital flows to emerging markets have acted as a safety valve mechanism preserving the international role of the dollar and at the same time exporting fragility to the periphery. The revival of flows to the developing countries since 2002 has been different in that inflows to the United States have also been increasing. This suggests the emergence of a pattern of recycling that draws from the surplus countries in the periphery and channels these capital flows increasingly towards U.S. markets. The exploding of the bubble with the collapse of the subprime mortgage market is in that sense a result of the same recycling mechanisms that led to the debt crisis in the eighties and the Tequila and Asian crises in the nineties.
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