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To: Ian@SI who wrote (7135)	10/16/1998 9:27:00 PM
From: Demosthenes	Read Replies (1) \| Respond to of 10921

Ian, Well put and well said. Rgds, D

To: Ian@SI who wrote (7135)	10/17/1998 2:39:00 PM
From: goldsnow	Respond to of 10921

Talking about massive re-inflation.... Re-inflating American way... US boosts defence spending by £165bn By Hugo Gurdon in Washington <Picture>Other nations will come under pressure to follow Pentagon AMERICA began its biggest peacetime military build-up since 1985 yesterday after President Clinton and Congress agreed to increase its defence budget by 10 per cent to $280 billion (£165bn). The turn-round after years of cuts will include a doubling of spending on missile defence. It was welcomed by critics who believe that Washington has for too long spent "the peace dividend" on civilian programmes while turning a blind eye to national security threats left behind by the collapse of communism. The Joint Chiefs of Staff recently complained that the country was $15 billion short of appropriate defence spending. The switch from cuts to extra spending, comes amid mounting concern that American capabilities have dwindled dangerously, leaving the country ill-prepared to meet dangers posed by rogue states, weapons proliferation and rising instability in the post-Cold War era. In the $1.7 trillion (£1 trillion) overall 1999 budget settled on Thursday, Republican negotiators secured an extra $9 billion of military spending on top of the $270.5 billion agreed in negotiations with the White House a month ago, which would have increased defence spending by less that six per cent. <Picture> Newt Gingrich, Speaker of the House of Representatives, who once complained that military cuts meant that the Pentagon, the Defence Department's five-sided building in Virginia, should become the Triangle, welcomed the agreement to reverse the armed forces' recent decline. He said: "This is the first time since 1985 that in peacetime we have increased defence spending, because our young men and women in uniform deserve the support of the United States of America." Defence spending rose in 1991 to finance the Gulf war. Republicans want annual military spending boosted quickly above $300 billion. President Reagan's build up, which is now credited by many with winning the Cold War, reached its peak in 1985, when he spent $287 billion, which after adjusting for inflation is equivalent to $485 billion today. Of the extra money agreed on Thursday, $1 billion will be used to more than double research on a missile defence shield, a scaled down version of Ronald Reagan's Star Wars project. North Korea, Iran, Pakistan and India are acquiring sophisticated ballistic systems, and Iraq is not thought to have abandoned its hopes either. India's Agni missiles are extending their range beyond 1,250 miles, and Iran's Shahab-3 will have a range of 1,000 miles or more. North Korea's Taepo Dong-2 missile, with a range of over 3,700 miles, will allow the unstable Stalinist tyranny in Pyongyang to hit Hawaii or Alaska. It is thought the Koreans are also working on a missile which could hit Los Angeles and a vast stretch of America west of the Rocky Mountains. US intelligence services tracked debris from North Korea's failed satellite launch last month for 4,000 miles into the Pacific. "It underscored a major intelligence failure in terms of what is going on in the world about growing missile threats," Curt Weldon, a Republican congressman, said of Korea's weapons programme. North Korea's new range impressed on Washington the need for missile defence because it underlined the ability of rogue states to acquire sophisticated ballistic systems despite international agreements designed to prevent them from doing so. A $2 billion slice of the extra defence spending will go to the Central Intelligence Agency, National Security Agency and other intelligence departments to repair their threadbare espionage networks. Washington was caught completely off guard when India conducted nuclear tests in May. telegraph.co.uk

To: Ian@SI who wrote (7135)	10/17/1998 4:40:00 PM
From: goldsnow	Respond to of 10921

Asia's economic rebound likely to be shortlived By Peter Hartcher Immediately after the worst day of the Great Crash on Wall Street in October 1929, the big men of American affairs rushed to reassure the little men and women on whose confidence their own fortunes depended. "The fundamental business of the country", intoned president Herbert Hoover the next day "is on a sound and prosperous basis". It was, as they say, true at the time. He just didn't mention that the Great Depression lay ahead. The crusty croesus of America John D Rockefeller snr, the next day was jolted into speaking publicly after decades of silence: "In the 90 years of my life depressions have come and gone. Prosperity has always returned and will again." Well yes, and Wall Street recovered somewhat for a few weeks. But what he didn't say was that it would take a world war to bring back prosperity. And the luminary professors of economics at the Harvard Economic Society opined that a severe depression was "outside the range of probability". It was a dismally misplaced optimism which the learned professors reiterated steadfastly throughout the Depression and until their society was disbanded. The point is that in the midst of bad news, people naturally seek reassurance. And their leaders are happy to supply it. Today, we are witnessing a similar episode. For the second time this year, a rebound in Asian markets is fuelling the desperate hope that economies are set to improve. Harvard's Jeffrey Sachs said during the week that the worst could soon be over for Asia. The International Monetary Fund told us that Asian recovery was due within a year. Governments across the region made optimistic squeaky sounds. The central banks of the biggest rich countries "are not going to let the world economy slump", assured the ANZ Investment Bank's head of Asian Market Research, Daniel Lian, as he forecast a further 20 to 25 per cent surge in Asian stockmarkets. Of course, it was the same Jeffrey Sachs who, as economic adviser to Russia, prescribed the free market "cold turkey" which has helped halve Russia's economy in the past few years. And it is the same IMF that a year ago predicted that Asia would be still growing today. And perhaps Mr Lian did not notice, but the central banks of the biggest rich countries have already let the world economy slump. Global growth has halved from 4 per cent to 2 per cent in less than a year and continues to slow. It is a false dawn. It happened in January, it is happening again now and it will probably happen a few more times before the sun really rises. A set of profound deflationary forces have been set in motion and nothing is operating to interrupt them. The world is glutted with more commodities and manufactured goods than it can absorb. As a result, their prices are falling. Deflation is simply a price signal that says "stop producing". And if countries and companies will not stop producing voluntarily, market forces impose production cuts through bankruptcy and recession. And that is why a third of the world economy is in recession already. Capital that financed all this excess capacity is being destroyed too. The capital that has not yet been destroyed is running in fear of its life. The World Bank estimates that global liquidity has shrunk by between $US200 billion and $US300 billion in the past year. And still deflation is gathering momentum and travelling across the world through four main channels: the falling price of commodities; the falling prices of manufacturers; the destruction and withdrawal of capital; and through sheer fear. So don't be deceived, most currencies and stock markets in Asia have rebounded in the past few week but it has nothing to do with any impending economic upturn. What drove the rebound? The short answer is losses. Over the last couple of years hedge funds and institutions had borrowed a bunch of Japanese yen to finance investments in US stocks and bonds. And why not? It was easy money. You could borrow yen at 1 per cent and invest the money in US treasury bonds at 5 per cent. And as the US dollar had been on a long upswing against the yen, it meant that you were winning on the currency too. This practice was known as the "yen carry trade" and it became so big that the multibillion dollar flow of funds out of yen and into $US perpetuated the yen's weakness, the dollar's strength. But a few weeks ago, this happy one-way bet started to come undone. With the collapse of developing markets from Moscow to Mexico, weakness on Wall Street and every other street, the hedge funds and other institutions took big losses. Their creditors – mainly banks – got nervous and demanded their money back. The hedge funds and others were obliged to sell their US holdings and repay their yen borrowings. The yen carry went into sharp reverse. The yen rose sharply against the $US and because of the traditional relationship that a strong yen is good for Asia, investors immediately started moving money into Asian markets. But the yen's strength is temporary. Japan's unused economic potential was 3 per cent of its economy last year. This year its about 5 per cent. This means that, with ever more supply then demand, deflation is still gathering force in Japan. When the unwinding of the yen carry trade is finished, the yen's weakness will reappear. The rush by investors back into Asia is not based on well-founded recovery prospects. It happened simply because, as Prudential Bache Securities' regional economist, Robert Rountree puts it: "No one knows what's going on. Everybody's rushing their money from one place to another based on forlorn hopes. No one knows what the hell they are doing . . . That's all it is." afr.com.au