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To: Zardoz who wrote (15223)	8/3/1998 10:07:00 PM
From: Alex	Read Replies (2) \| Respond to of 116762

Imploding Japan Will the West be next? Tuesday August 4, 1998 A few months ago, most Western countries didn't think the economic crisis in the Far East was of any concern to them. They know better now. At the end of last week Siemens announced the closure of its new semiconductor plant on Tyneside with the direct loss of 1,100 jobs, an event triggered by the Asian crisis. Over the weekend President Clinton warned that Asia's downturn was already slowing down the US recovery - and yesterday HSBC, which among other things owns Midland Bank, revealed bad debt write-offs in the region totalling $1.15 billion. The question is how much worse it will be before getting better. The core of the problem is Japan, Asia's regional leader, and the world's second biggest economy. Already mired in bad debts, currency depreciation and bankruptcies, Japan is now slithering towards the cliff of deflation when prices start falling regularly instead of rising. China is not far behind. In this situation people have a logical reason to postpone purchases of goods and services in the expectation of getting lower prices later on. But what is logical for the individual could be catastrophic for an economy that is not used to it. If people stop buying, factories will produce less. Sales of cars and trucks in Japan have been falling for 16 months. More and more people will be thrown out of work to make Japan's unemployment figures, already at record levels, even worse. Deflation could prove contagious as both Europe and the US are experiencing inflation so low that economists are brushing up on the period before the second world war when deflation was a common occurence. Japan's situation is highly unusual. Its citizens save 13 per cent of their net incomes - over three times that of America. Saving is supposed to be a good thing but it is the profligate Americans who have a successful economy while virtuous Japan has started to contract. The problem? People won't spend any of their massive savings even though the government has pushed through a series of expansionary measures - with yet more promised by the new government whose finance minister, Kiichi Miyazawa is 78. Mr Miyazawa is not short of advice. Economists, mainly American, have been urging him to reduce income taxes and/or expand the money supply and/or boost public spending in order to persuade people to go into the shops and spend. Some have even resurrected the theoretical scenario envisaged by both Lord Keynes and Milton Friedman in which the best solution could be to distribute money freely, even if it has to be dropped on the population by helicopter. Most of them agree that what Japan now needs is a sustained period of inflation in the hope that, faced with goods being more expensive tomorow, they will buy more today. In theory - and in the economic textbooks - this ought to work. But in practice it may make the Japanese, already desperately worried about unemployment and financing their retirement, even more cautious. Who knows, maybe it would be better - and assuredly cheaper - to persuade the Emperor to exhort everyone to spend, spend, spend in the national cause. The rest of the world has a vested interest in the outcome for two reasons. First, as is becoming increasingly obvious, we live in a linked global economy in which a serious Japanese recession would have bad repercussions everywhere. Second, we badly need practical experience of how to deal with falling prices in a globalised economy. It may not happen, but we had better be prepared in case it does. East Asia is suffering an unnecessarily severe depression which could have been avoided if the right decisions had been taken earlier. It would be tragic if the rest of the world were to be dragged down as well. reports.guardian.co.uk