Re: Fwd: Re: Article from THE GUARDIAN, September 18, 2000

["ÁÎ×Ó¹â Henry C.K.Liu ¹ù¤l¥ú" <hliu@xxxxxxxxxxxxxx>]

Paul,

See the news story below.  Also, Rubin said in Hong Kong last week that
Asian contagion is a high possibility because no reformed has occurred
since 1997.

Henry


The Vancouver Sun    Wednesday 20 September 2000

U.S. trade deficit poses threat

Bottom-line numbers in U.S. economy look disturbingly like those of
Thailand just before the Asian recession.

        By Jonathan Manthorpe

        Behind all the hype about the United States economy having found
the secret of perpetual growth, its bottom-line numbers look
disturbingly like those of Thailand just before its currency fizzled in
1997 and launched the Asian recession.
        For the past few years the U.S., like Thailand before it, has
been the target of vast international investment.
        In Thailand the money went largely into property speculation and
commercial building development far in excess of the market potential.
        In the U.S. the money has gone partly into frenzied high-tech
investment where soon-to-be-published corporate numbers will likely show
disappointing rates of return.
        But most of the torrent of money going into the U.S. has fuelled
a huge consumer spending spree as Americans gobble up knick-knacks from
around the world, but especially Japan and Europe.
        The result is a U.S. trade deficit that will likely reach $500
billion US this year and a dollar, which like the Thai baht just over
three years ago, looks increasingly unsustainable.
        "This is a non-saving economy, but we are having a capital
spending boom because we are borrowing from foreigners," Princeton
professor Alan Binder said.
        "The turning point will come when the average investor in
Singapore or Switzerland looks at the rate of return and decides to
shift the money," said Binder, an economist adviser to presidential
candidate Al Gore.
        Unlike other economists, however, Binder thinks foreigners and
Americans will put up with the deficit for at least a year -- enough
time for the U.S. economy to achieve the fabled "soft landing."
        Others are much more jittery.
        The recent increase in oil prices to about $35 US a barrel has
introduced an added level of uncertainty.
        The International Monetary Fund said Tuesday that oil prices are
prompting the organization to revise the upbeat forecasts for the world
and especially Asian economies it has been publishing in recent months.
        IMF chief economist Michael Mussa said he is particularly
concerned about the unjustifiably low value of the European common
currency, the euro, and the Japanese yen. With that goes an inflated
value for the greenback, complicating efforts to control the U.S. trade
deficit.
        "The possibility that these imbalances may unwind in a
disorderly fashion remains a risk to the global expansion," Mussa's
report said.
        The Asia Development Bank is issuing similar downward revisions
to its growth forecasts.
        Clearly the U.S. economy has a strength in depth which Thailand
did not have in 1997. But markets are skittish animals that usually
react more by instinct and fear of being caught at the back of the herd
than they do by rational analysis.
        Markets across Asia thought they saw lions in the tall grass on
Monday after Friday's slip of 160.47 points in the Dow Jones industrials
index. Share prices took a significant tumble all around the region.
        "Confidence is very, very low," one Asian dealer said.
        "The market is reacting to concerns over oil prices," said
Eugene Law, director of Celestial Asia Securities in Hong Kong. There
was a bit of a recovery Tuesday as investors figured Monday's selloff
was overdone.
        But such faltering stampedes speak of a herd sensing crisis,
even if unsure from where it will come.
        For the moment it is mainly economists who are looking with
concern at the U.S. trade deficit and the strength of the dollar.
        Politicians and governments have no interest in suggesting the
good times will not roll on indefinitely.
        That's especially true in the middle of the U.S. presidential
election where neither Gore nor Republican contender George W. Bush have
raised the issue.
        By the same token, the U.S.'s Japanese and European trading
partners have little interest in making noise about the U.S.
fundamentals.
        They are both benefiting from the U.S. trade deficit as their
relatively weak currencies boost exports to feed the insatiable appetite
of American consumers.
        Last month another Princeton (MIT?) professor, Paul Krugman,
warned a conference of risk analysts in Hong Kong, "We have a looming
dollar plunge which could last for five years."
        Other economists foresee the U.S. dollar plummeting 40 per cent
or more if international confidence snaps. At best, some say, a
25-per-cent cut in value is necessary to curb the deficit.
        Those with sound memories will recall that Krugman was one of
the few economists to say in the mid-1990s that the Asian economic
miracle was built on sand and was unsustainable.
        He was widely castigated by Asian leaders.
        They trotted out gleaming numbers on economic growth, job
creation and stock market activity and dismissed his warnings as just
the grumpiness of a Western, post-imperialist mind jealous of Asia's
outstanding success.




Paul Davidson wrote:

>
>
>> Date: Wed, 20 Sep 2000 13:41:44 -0500
>> To: "J. Barkley Rosser, Jr." <rosserjb@xxxxxxx>
>> From: Paul Davidson <pdavidson@xxxxxxx>
>> Subject: Re: Article from THE GUARDIAN, September 18, 2000
>>
>> At 12:48 PM 9/20/00 -0400, you wrote:
>>
>> > Paul,
>> >       I fear that things are not so simple, as I
>> > think you well know.  There is complacency in
>> > the US partly because of the strength of the dollar.
>> > But that strength is the flip side of the continuing
>> > decline of the euro.  Perhaps in the EU they might
>> > welcome a proposal such as yours, but not in the
>> > US.  But, if the dollar crashes, that means the euro
>> > will be doing well, so they presumably won't be
>> > interested then.  Unfortunately it would probably
>> > take a full scale global depression to bring it about.
>>
>> Barkley:  The global depression is the worst possible scenario for a
>> new Bretton Woods.  But I truly believe if the dollar was attacked,
>> the result of falling values of foreign portfolio investments would
>> be sufficient for the politicians to realize a new financial
>> architecture should be explored.
>>
>> We are again beginning to experience collapsing financial markets in
>> East Asia.  Will that again bring on contagion?
>>
>> Paul
>
> Paul DavidsonEditor, JOURNAL OF POST KEYNESIAN ECONOMICSHolly Chair of
> Excellence in Political EconomyEconomics Department - University of
> Tennessee523 SMCKnoxville, Tennessee 37996-0550work phone: (865)
> 974-4221fax: (865) 974-4601/  (865) 974-1686home fax: (865) 577-7748