Dave:
I was tempted to respond to your remarks.
As far as I understand the situation, the US policy makers are very concerned about Asia affecting the US economically and politically. They know that if South Korea declares debt moratorium, the global economy is going to nosedive. Today, Robert Rubin made a comment that "in the national security interest," US will make direct lending to S Korea. Japan has also announced direct lending. Both Japan and the US have asked their commercial banks to roll-over loans by considering S Korea's long-term creditworthiness. Federal Reserve has dispatched an economist (who, incidentally, was a colleague of mine!) to Korea for a direct assessment of the economic situation there.
It is thus very important to judge the enormous impact that a fall-out in SE Asia will have on the global economy from the actions (not words) of the Fed, Treasury Department and other international financial institutions. The IMF pronouncement that SE Asia will have little impact on the US and the West is as wrong as the declarations a few months ago that roaring Asian tigers will continue to boom. Their remarks may also be to calm the markets here; but their frantic actions speak a volume for the anticipated troubles.
I believe that the US and European corporations' profit growth will severely erode due to the SE Asian problems. Asian countries have already taken serious steps to export as much as possible, import only the necessities, trade among themselves, pay off foreign debt, save as much as possible. [Mahathir says they are forced to do so.] As this happens, (IMO) the all-time high US$ will gradually fall in value against the Asian currencies as investors pull out of their US Treasury investments to invest in the highly lucrative Asian debt markets, US will be forced to raise interest rates to restore some equilibrium, and the US equity market will shrink. Between October and now, the US equity market has shrunk considerably [Microsoft alone has lost $36 bil, and one has to keep adding the losses in ORCL, INTC, SUNW, MOT, ....] The level of DJIA or S&P 500 tells very little about the actual erosion in the US equity markets. I believe more erosion will follow.
Today, a London investment banker was saying that it was perhaps the time to get into the cheap Asian equity markets! This was after the whole world began to firmly believe in the resolve of US/Japan/IMF to rescue South Korea after Indonesia. This banker did not say if he felt it prudent to pull out of the US and European markets -- but there is a limited amount of money.
Sankar |
