In the process of adopting market principles in the financial field, the developing countries have encountered many problems such as currency instability, credit contraction and capital outflow.
Moreover, the mitigation of credit contraction and the improvement of financing efficiency depend on the resolution of these two problems mentioned above.
The bursting of bubbles causes credit contraction, the forced liquidation of assets, deflation and wealth destruction that may reach catastrophic proportions.
And yet, although tumbling house prices and a sharp credit contraction could indeed pull the economy into a noxious downward spiral, the evidence of such an economic disaster is, as yet, slim.
