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To: John Hunt who wrote (16803)	10/20/1998 10:27:00 PM
From: Thomas M.	Read Replies (1) \| Respond to of 18056

forbes.com It's the Taxes, Stupid By Robert Lenzner THOUGH NEITHER IS IN A POSITION of political power, Milton Friedman and George Shultz are listened to with respect by people in authority. Friedman is almost certainly the greatest living economist. Secretary of State under Ronald Reagan, Shultz knows the world of business, economics and diplomacy at the highest level. FORBES interviewed them separately last month. Both resident scholars at the Hoover Institution in Stanford, Calif., they say: To fend off an impending recession and to help the world economy, Congress should: one, cut income taxes; and two, help kill the International Monetary Fund and stop its meddling in currencies. Both men worry about what will happen if the U.S. economy slows down— the U.S. has been the locomotive pulling the world economy the past several years. Instead of pumping money into the IMF, says Shultz, Congress should strengthen the U.S. economy. How? By cutting taxes. Shultz recommends a 10% across-the-board cut in income taxes, thus strengthening purchasing power, increasing corporate profitability and encouraging investment. "Outside of the World War II period, federal, state and local taxes are at an all time high as a percentage of national income." Friedman: "If we don't cut taxes Congress will opt to spend the money anyway." On the IMF, too, they agree: "Let the IMF be abolished," says Friedman. "Distribute the assets to each country and let the markets take care of the fallout." Friedman and Shultz agree that the 1995 IMF bailout of Mexico set the stage for the present East Asian crisis. "Because of Mexico everyone thought they would be bailed out of Russia, too," says Shultz. Friedman: "Businessmen should not have a free insurance policy every time they take a risk in global markets. The Mexican bailout helped fuel the East Asian crisis that erupted two years later. It encouraged individuals and financial institutions to invest in the East Asian countries, and reassured them about currency risk by the belief that the IMF would bail them out if the unexpected happened and the exchange pegs broke. "By encouraging people to speculate with other people's money, the IMF has been a destabilizing factor in East Asia. Not so much because of the conditions it has imposed on its clients, whether good or bad, as by sheltering private financial institutions from the consequences of unwise investments." Indonesia's solution isn't IMF money, Shultz says. "The solution is to restore the confidence of the ethnic Chinese so they bring back the $80 billion they pulled out." Japan is at the center of most of the Asian problem, Friedman says, and Japan doesn't need the IMF either: "Japan's been following a deflationary policy. It turned illiquid banks into insolvent banks just as the Fed did in the U.S. in the early 1930s. Our depression was caused by allowing the money stock to be reduced by a third. "The Bank of Japan should print more money, raising monetary growth to 6%. Then let the weak banks go under and allow others to acquire the good assets. Just as the U.S. did during the savings and loan debacle." The bad news: Even as Shultz and Friedman spoke, both parties in Congress were getting ready to agree on new spending programs, the Republicans having cravenly abandoned their efforts to reduce taxes. And both parties seemed close to agreeing to refund the IMF.

To: John Hunt who wrote (16803)	10/21/1998 6:59:00 AM
From: John Hunt	Read Replies (1) \| Respond to of 18056

Interference with Free Markets Causes Global Crisis aei.org << Some of the great ironies and tragedies of a global financial crisis, such as the current one, are the misperceptions created by governments attempting to avoid responsibility. Along with currency devaluation, the free market and the unfettered flow of capital across national borders are being vilified as the causes of this disaster. Such blame is absurd and dangerous for two reasons. First, it leads to government actions that worsen the crisis. Second, it leaves in place false impressions that make more likely the reemergence of another tragedy like the one unfolding today in Asia, Russia, and perhaps Latin America. >>