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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: re3 who wrote (58916)	5/9/1999 1:00:00 PM
From: Lucretius	Read Replies (1) \| Respond to of 132070

May 9, 1999 ECONOMIC VIEW 3 Ways a Frail Global Rally Could Come Again to Tears By DAVID E. SANGER ASHINGTON -- WHEW. Glad that crisis is over. From Bangkok to Berlin, people are celebrating the end of the global turmoil that started in Asia nearly two years ago -- investors, that is, not the unemployed of Indonesia, Thailand and South Korea, who are wondering what all the excitement is about. While real economies languish, stock markets are surging. Thailand was up 10 percent on Wednesday. The South Koreans fret that their currency may be getting too strong. Hong Kong just witnessed its own Internet frenzy. Even Russia's market is rising, now that the International Monetary Fund has agreed to make believe the country can pay its debts. Nonetheless, this is a pretty nervous group of partygoers. Catch a finance minister or central banker in a moment of candor, and you discover someone surveying the land for signs of imminent eruptions. Here are a few of the favorite worst-case scenarios kicking around: The fate of the world economy rests on the performance of Yahoo and a handful of other American stocks. If they buckle, kiss the rest of the world's markets goodbye. Overly simplistic it may be, but this thinking has a certain gut appeal. American consumers are on a spending spree, egged on by a wealth effect based on how much a rising market has added to their net worth. Sung Won Sohn of Wells Fargo Economics notes that housing and traditional consumer spending equaled 119 percent of the amount by which the economy grew in the first quarter, meaning consumers more than compensated for a sharp fall in exports. The stock market's rise, in turn, is built on a strikingly small galaxy of star stocks, though the galaxy has grown a bit lately. So the theory goes that if those stocks crack, consumer spending cracks, too, ravaging the rest of the market. And as America stops sucking in the world's exports, countries and regions that depend on American demand -- Japan, Latin America, Europe, Southeast Asia -- also go over a cliff. This theory is widely discussed in the upper reaches of the Clinton Adminstration, but never in public. "Too radioactive," one of the President's economic advisers says. "Too ugly to think about." The fate of the world economy has less to do with Yahoo than with a bunch of yahoos in the Japanese parliament. Washington politicians like this one more because it places the blame on the world's second-largest economy. All hands nodded politely as Japan's Prime Minister, Keizo Obuchi, explained last week that the country's worst troubles were behind it, that the recovery was in sight, that after seven years of fumbling the Government had figured out what to do. And as soon as Obuchi was out of earshot, most of Clinton's advisers had the same reaction: Yeah, right. Here's the fear: The Japanese Government is spending roughly 8 percent of gross national product on a stimulus package to reflate the economy andis predicting a growth rate of 0.5 percent this year. Everyone else thinks the economy will go on shrinking. Even the International Monetary Fund, which hates to offend its members, downgraded its 1999 projection to a 1.4 percent decline in G.N.P. Despite the Government's huge spending spree, Japanese companies say they are still cutting back on capital investment in new plants and technology. And that's where the disaster scenarios start. The Government can't keep spending like that. "They are pretty much out at the limit now," says Edward Lincoln, a Brookings Institution economist who once worked as special adviser to Walter F. Mondale when he was Ambassador to Japan. And if the tap runs dry, Japan's slow retreat could turn to a rout -- a highly contagious one. Yet Japanese legislators visiting Washington in recent weeks acknowledged that they had no plan for speeding the restructuring of Japanese industry, because that would mean more unemployment. Instead, they talk about "job preservation" and steer the conversation away from the Internet and toward the travails of rice farming. Shades of 10 years ago, or 20. It suggests that Japan's political system is still unable to come to terms with how its economy must be transformed. Forget Yahoo and the Japanese yahoos. The real trouble is a counterattack on a fellow named Zhu. That would be Zhu Rongji, China's Prime Minister. No sooner did he arrive back from his trip to the United States than Chinese businesses began assailing him for the concessions he made in trying to gain membership for China in the World Trade Organzation. The telecommunications minister reportedly threatened to quit. The Government began hinting that some of the offers were coming off the table and then ordered the removal of some foreign-origin programs from satellite television systems -- not exactly an embrace of the global economy. China, of course, is still an economy unto itself. So even if Zhu were to lose his war to modernize the economy, or China's insolvent banks were to acknowledge their insolvency and go over the edge, it might not matter much in the rest of the world. On the other hand, it's a bigger country than Thailand. And look what happened after a little problem there.