ASIAN ECONOMIC CRISIS
I've had the chance to read and review lots of material on the Asian
economic crisis and financial mess. The weakness of Thailand's, South
Korea's, and Indonesia's currencies has made their dollar denominated debts
virtually unpayable, and without outside financial help they will default
on many of these loans. The IMF(International Money Fund) has attempted to
come to their rescue, but is attaching strings to any money advanced. Many
of the Western World's financial experts have postulated both high-powered
theoretical and belt-tightening conventional solutions. Some support, and
others refute, the tight money and austerity conditions imposed by the IMF
in exchange for billions of dollars worth of loans to keep the former Asian
Tigers' economies functioning.
Most of what is happening overseas has yet had no adverse effect on the
average American. We have begun to notice a slight drag on our economy.
It has helped us obtain cheap gasoline, since slowing Asian economies use
less of it and the surplus of crude oil lowers our price at the pump. It
has kept American companies from raising prices on the goods they make. A
suddenly impoverished Asia is attempting to export more, and devalued
currencies result in inexpensive imports to America. It has most likely
kept our Federal Reserve from raising short-term interest rates in America,
because that would make our exports even more expensive and foreign imports
cheaper than they already are. Naturally, people in Asian nations are
trying to convert their savings into a more stable currency: the U.S.
dollar. Their readiness to exchange depreciating money for our stable
money increases the worth of the dollar. Simply put, our money buys more
Actually, for a brief while, most of the effects of Asia's problems
probably benefit the American consumer. But as time goes on, American
exports will diminish, our factories will have to cut back on production,
and that means layoffs. Further, farm goods, lumber, and other raw
materials the Asians once bought from us also pile up. Parts of our economy
slow, prices for farmers' crops and lumberjacks' tree trunks decline, oil
exploration and our refinery profits are hit, and numbers of Americans also
suffer. Unless we modify America's position on free-trade, which is
unlikely, the long-term, fundamental result will be that Asia exports its
unemployment over here. Americans who are employed will be content, but
low prices don't mean too much to people who have lost jobs and can't find
But all that is many months away from a nation whose present unemployment
rate is 4.5%, as ours is now, where tens of millions watch their stock
funds appreciate every month. Most of us are probably unaware of anything
that's not directly in our face, and the Asian crisis is across the Pacific
Being American, and being practical, and being through with this little
tutorial, now what do we do about it! Well, the answer is we jawbone a
bit, as our Secretary of the Treasury, Mr. Rubin, has done. We mention
that Japan is the engine that must now do for Asia what the United States
did for Europe after WWII. We tell the world that a stable yen will serve
as an anchor for the Asian Tigers, and even help China keep the value of
its yuan unchanged. Then, after declaring that currency intervention will
not remedy Japan's basic problems, Mr. Rubin stated that Japan must take
steps to solve them by writing off half a trillion dollars in bad bank
loans. Further, he asked the Japanese to modify their life style by
becoming a nation of consumers just like us. After all that jawboning, Mr.
Rubin did finally intervene by ordering the U. S. Treasury to massively buy
yen for dollars. The United States bought enough yen to drive its price
from 148 to a dollar to 137 to a dollar, which in five days increased the
value of the yen by seven and a half percent. Without growing,
manufacturing, or servicing anything, some currency traders made a handsome
profit that week.
For its part, Japan's Prime Minister, Mr. Hashimoto, has pledged to
introduce a publicly acceptable tax cut which sometimes seems as though it
will be permanent, sometimes not. Much of what has been said by officials
of his Liberal Democratic Party resembles electioneering. If it sounds
ambiguous, it is. Nothing will be done until after the impending election
of the upper body of the Japanese Diet.
My take on the matter is that the Japanese have for centuries lived in an
insular way on several islands. Over the centuries, they have developed
the strongest us versus them mentality I have ever seen. Over here, when
the economy gets tough, we digitally select a million or so lone cowboys
and toss them overboard to swim, thus making it easier to save the ship.
Band playing, the ship steams off into the night with the remaining
passengers dancing in the salon. Except for those in the water, everyone
is happy, particularly the sharks.
In Japan, they believe in sharing the pain. No-one gets deep-sixed over
the side, and the ship, off course and listing badly, continues on too
slowly to answer the rudder. A sudden storm could sink her, and if one
occurs, that is what may happen. From the point of view of the sharks,
it's either feast or famine.
Where Americans seem to have trouble with the Japanese is we naively, or
perhaps arrogantly, expect them to act as we do. Their culture and
background differ so greatly from ours that they do not want or permit free
trade, and are incredulous that we do. Their pay system of large
semi-annual bonuses is intended to promote hefty savings of 20% of their
earnings. Because of Japan's protection of Mom and Pop stores and an
archaic distribution system, their domestic prices for goods are higher
than for the same goods in Hong Kong or New York City. Their system's
unofficial bias toward helping Japanese businesses that are doing badly,
causes them to carry along weak and inefficient firms: the strong support
the weak in a rather humanitarian and noble effort to float all boats. In
so doing, bad loans stay on the books, preventing a crisp recovery. Our
assumption that we can transform them into a nation of spenders, people who
live on credit beyond their means, is destined to failure. Worst of all, I
think the Japanese concept of us versus them is so deeply ingrained they
regard the entire world, including other Asians, as total outsiders. In my
view, Japan lacks the moral imperative to jeopardize its own interests in
order to help the rest of Asia.
None of that is terribly optimistic, but I think it is accurate. Japan is
highly unlikely to generate a modern Marshall Plan to rescue Asia as
America did to save Europe after WWII. Where does that leave Asia today?
My answer is: in considerable trouble. Most of the help will have to come
from the West. If we deny further aid to Asia, if Japan fails to take
effective action and the yen weakens further, and if China subsequently
devalues the yuan, the world-wide economic impact will become significant,
perhaps affecting America's GDP by as much as 5%.
Our political system is reluctant to provide additional money for IMF
loans, and the average citizen is primarily concerned about his own garden.
All I can say, and it isn't much, is that after another six months of
inactivity, America will become fully aware of and experience significant
economic dislocation from the Asian crisis.
Sam Orr email@example.com