For some time now, as the financial storm clouds approached, various analysts have touted the view that the emerging markets and the rising powers – China, India, Brazil and Russia, and others – are increasing decoupled from the United States and the sub-prime threat. Now that the financial meltdown is upon us, I suspect those who argued such a line would be happy to take it back (Note Dani Rodrik’s disdain for decoupling as well in his blog post ‘The Other Shoe Drops‘.)

Now it is not to say that these Rising Powers are bound to find themselves in the situations they faced in say 1997 or 1998, but they are all being buffeted in different ways by the gales of this widening financial meltdown.  Contagion is upon us it increasingly a global crisis.  I think one of the most trenchant observers on the financial crisis is Jim Grant and his Grant’s Rate Observer.

On the China side I would recommend Professor Michael Pettis.  Michael Pettis is a a professor at Peking University’s Guanghua School of Management where he teaches about Chinese financial markets and he runs a insightful blog, China Financial Markets.

So back to where these Rising Powers are.  First a quick look at the developed economies tells you how the contagion has spread.  European banking is having to be bailed out – or to put it more tactfully – nationalized in part or in whole.  Meanwhile European equity markets are ‘falling out of bed’.  In Japan the equity markets are in a major tailspin though Japan’s financial sector seems more insulated from the liquidity crisis.  But the export model of prosperity is looking bleak with the spreading economic gloom and slowdown in the key markets of North America and Europe.

Indeed in a number of the Rising Powers – Brazil and Russia – they have taken steps to create stabilization or reserve funds to certainly protect then sovereign default but also to create liquidity and avoid, presumably, the collapse of the financial sector.  But each finds itself with equity markets melting down.  This also the case for China. Certainly the export prosperity models for China and Brazil are threatened by the growing prospect of a wide and deep economic slowdown.

Beyond the immediate bleak picture, there is the somewhat ‘sotto voce’ expression by experts that this financial meltdown marks the decline of New York and London and the rise of something else.  I don’t buy it either because of a growing global governance collaboration or because of the rejigging and the ‘new’ distribution of financial power to elsewhere.  As Pettis suggests, “This is simply a form of the old traders saw – “liquidity draws liquidity.”  If liquidity truly dries up around the world and trading and issuance volumes collapse, the value for investors and users of capital of accessing New York or London will be greater, not smaller.”  So no paradigm shift at this point and at the moment all eyes remain fixed on Wall Street and/or the City of London.