My dear boy....so many positive thoughts today. Old man....hmmmm.... Hope you don't mind of I call you "the kid". How's the kid today? I hope you are loaded with internet goodies. So much sugar.
Don't know whether you caught this...
(C) Stratfor For Private Use Only
" Asia is no longer in crisis. It is now in an endemic
malaise, from which it cannot, generally speaking, recover.
Asia's economic dysfunction is no longer a crisis, but a long-
term Asian condition.
Since some are predicting recovery in 1999, let us explain why we
are so negative. The essence of the Asian crisis, as we have
said many times, is to be found in the appallingly low rate of
return on capital that Asian economies have experienced. This
low rate of return is rooted in the ability of Asian governments
to abort the business cycle through export-generated growth and
high savings rates. Because interest rates were kept
artificially low, businesses that had no business surviving
actually expanded. They grew in spite of the fact that they were
only minimally profitable, if at all. These businesses soaked up
available credit, while continuing to erode financially. In the
end, they could not even repay their loans.
Recessions are normally triggered by rising interest rates. The
rising cost of money forces marginally profitable business to
restructure or fail. This is an essential aspect of the
discipline of capitalism. Capitalism without business cycles is
a contradiction in terms. Nevertheless, Asian governments
managed to avoid this discipline for almost half a century. They
avoided business failures, lay-offs, restructuring and all the
nastiness of capitalism. The net result is a group of economies
that are breathtaking in their inefficiency.
The key is Japan. Japan led Asia into its current situation.
Japan must lead Asia out. But Japan is institutionally committed
to preventing the needed massive, shattering, agonizing
restructuring of its economy. It cannot proceed. The huge
dinosaurs of the Japanese economy must be compelled to
restructure. The only force that can compel them to do this is
rising interest rates. As Japanese credit worthiness continues
to decline, foreign investment and loans are either drying up or
available only at much higher interest rates. Internally, the
Japanese government continues to protect the dinosaurs by keeping
interest rates absurdly low. Japan understandably wants to
prevent a massive collapse of the economy. But unless the
economy is permitted to collapse, it cannot be reconstructed. In
other words, Japan can neither endure the disease it has caught
or the medicine that can cure it. It is not Japan's politicians
that have created gridlock. It is the Japanese reality.
This is the agonizing dilemma throughout Asia. Having played
with the business cycle for generations, inefficiencies have
built up to such a degree that the culling that must take place
will be cataclysmic. Socially, Asian societies are completely
unprepared to pay the price they must pay in terms of
unemployment, declining standards of living, and loss of control
to foreign investors and creditors. Politically, leaders are
trapped between the economic and social realities. They are
therefore paralyzed. The inefficiencies continue to rise, hopes
of recovery are constantly aborted by economic realities, and
social tensions rise.
In weaker Asian societies, such as Indonesia, society has already
essentially exploded and the government is trying to contain the
consequences. In some countries, like Singapore and South Korea,
owing to fortunate circumstances and skillful political action,
restructuring is actually taking place within the existing
political framework. In Japan, however, the government's
inability to bear the social consequences of depression has
paralyzed it. This is not because Japanese politicians are
stupid or weak as some have charged. The paralysis of the
Japanese state is built into the collision of the Japanese
economy with Japanese society. There can be no solution without
a radical restructuring of the Japanese political order,
replacing it with a structure that is able to impose pain on a
society unprepared to endure it.
This is precisely what China is trying to do. On the one hand,
China is permitting economic reality to ravage its economy. It
is shutting down inefficient businesses, allowing unemployment to
rise, allowing standards of living to begin falling. It is also
taking political steps to control the situation. Apart from its
very public crushing of dissent, Beijing is shifting its
political base away from the coastal regions to the interior
agricultural regions, by shifting state investment patterns. It
is not clear that China will succeed in this partial, politically
controlled house cleaning. It may well be, as we strongly
suspect, too little and too late. But the combination of
powerful political repression with some degree of restructuring
may well become an Asian model.
It is a model that can mitigate the economic problems, but cannot
solve them.
Asia cannot endure the long-term reconstruction
needed to make it competitive with a rampant America. As Asia
becomes less competitive, it will find that it must protect
itself against American economic encroachment. Obviously, the
U.S. is sensitive to Asian exports surging into the United
States. But the real friction is caused by the Asian need for
U.S. investment and Asia's inability to pay the price it must to
get it.
Japan badly needs U.S. investment and credit. It cannot solve
its problems without them. But U.S. investors and lenders
require a level of transparency and a degree of control that is
incompatible with Japanese social requirements. Someone lending
billions to bail out a Japanese bank will want a large degree of
control over that bank. American owners will want to make
investments based on economic rationality rather than on the
bank's keiretsu relationships. The intrusion of American capital
would cause the very social chaos that Japanese politicians badly
want to avoid. This holds true throughout most of Asia. Asia is
unable to generate sufficient capital to solve its problems,
unable to restructure its economies to generate that capital, and
unwilling to allow an uncontrolled influx of American capital on
American terms.
Asia cannot solve its problems. It is therefore caught in a
process of mitigation, keeping things from becoming unacceptably
bad. In order to do this, Asia must seek to insulate itself from
the United States in particular and the global economy in
general.
It appears to us that the Asian solution will be to
create Asian institutions to supplant the global institutions
within which Asian economies are increasingly uncompetitive. We
expect to see increased resistance to American demands for trade
liberalization along with increased utilization of Asian
solutions to problems, from using the yen as a reserve currency
to an Asian Monetary Fund to Asian based security systems. We
expect 1999 to be a year in which Asia begins creating Asian
institutions". |
