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Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: Alex who wrote (19894)	9/27/1998 1:27:00 PM
From: Sergio R. Mejia	Respond to of 116760

THE GLOBAL SYSTEMIC BREAKDOWN..."deteriorating credit quality in 16 financial systems" ( Standard & Poor). THE GLOBAL SYSTEMIC BREAKDOWN The ratings agency Standard & Poor's has just released one of its better reports - as quoted by Reuters. S&P makes the call that 16 financial systems are either in dire straits right now, or right on the very edge. S&P states that deteriorating credit quality is the common denominator. "Excessive credit 'growth', weakening external funding profiles, and deflating - or soon to be deflating - asset prices, point to deteriorating credit quality in 16 financial systems." Increasing financial weakness was present in China, Japan, Hong Kong, Malaysia, the Philippines, in the Czech Republic and Slovakia. Looking increasingly vulnerable are the U.S.A., Singapore, Taiwan, Chile, Egypt, Lebanon, Greece, Israel and Panama. China, Hong Kong, Taiwan, Malaysia and the Philippines had experienced unsustainable credit growth. In Hong Kong, credit growth was already high, and since this recent surge in credit growth had taken off from an already high level, Hong Kong could look forward to "problem assets" of at least 10% to 20%. To finish Standard & Poor's trip around the world, they conclude that in some of these national financial systems, the fundamentals are so poor that up to half (repeat - half) of their assets are at real risk. And now comes Latin America! With Brazil with its back to the wall, trying to cope with an enormous flight of capital that is draining its reserves, right across Latin America (Argentina, Chile and all the rest), governments are now holding their collective breaths. If Brazil is forced to devalue, they will all have to follow. But if they do that, their external debts, all denominated in foreign currencies, will soar. There is increasingly hysterical talk that several Latin American nations are close to being driven to debt defaults. The Global Problem: In the last issue of The Privateer, the central problem was dealt with in depth. What was not explored in that issue was the solution. Weirdly enough, Alan Greenspan knows the solution. He even talked about this historically classical solution in his testimony to the U.S. Congress. Here, he made the point that there have been only two instances in history where capital has flowed freely across borders. The first of these lasted from the mid 1800s until 1914. The only other time has been in the 1980's and 90's. Yes, the late 1800s had several financial crises, but none of them went very far and none became global because they were not systemic in nature. They were not systemic because the Classical Gold Standard acted to ensure that any problems arising inside a particular nation were reflected very early - by climbing interest rates. And why did such interest rates rise? They rose because some people always had the foresight to either send their money outside the country or, if they were foreigners, to recall the money they had inside the "problem" nation. The result, always, was an outflow of Gold. And as the Gold left, interest rates rose. In short, it was the free movement of real money - Gold - that killed any credit excesses long before they could reach systemic proportions. Capital flows freely in the 1990s too - but it's not real money. the-privateer.com