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To: truedog who wrote (9573)	5/23/1999 10:44:00 AM
From: goldsnow	Read Replies (1) \| Respond to of 17770

Mr Yen warns of deep flaws in global capitalism By Peter Hartcher and Andrew Cornell One of the world's top finance officials has declared that the system of global capitalism could collapse if the US economy slumps. The warning came from Japan's leading international economic and financial negotiator, Dr Eisuke Sakakibara, nicknamed Mr Yen for his influence on world markets. He said that while last year's international crisis had passed, deep structural flaws remained in the world capitalist system. And he said that the US economy had some worrying elements, including "a bubble aspect", a lack of domestic savings, and a sharp run-up in international indebtedness. These flaws in the system and the vulnerability of the US economy could come together to bring about a collapse in the system of global capitalism. "The US, right now, is the centre of global capitalism, and if the centre collapses, the world system could collapse. And the situation in the US is not sustainable," he told The Australian Financial Review in an interview in Tokyo. Dr Sakakibara said that he expected and hoped for a "soft landing" rather than an abrupt bust in the US, "but these are the key elements of uncertainty". He recalled last year's international crisis: "Last year, I think we were on the verge of collapse." As one of the crisis managers of the world financial system, he was in close contact with the US Deputy Treasury Secretary, Mr Larry Summers, soon to be appointed to the Secretary's post. "I remember Larry Summers saying to me, 'The world is collapsing'. "But Wall Street forgets that the basic structure is the same. The US authorities have manoeuvred the situation very skilfully, but the basic structure of global capitalism is unchanged. "The basic problem of this globalised and virtualised economy has not been overcome, so it may recur. And that is huge amounts of money, highly leveraged, moving across borders very quickly." He recalled that more than $US200 billion flowed into the five Asian crisis countries in 1994 to 1996, and then $US100 billion of it flowed out again in 1997. "No country that has inflows and outflows of that magnitude can avoid crisis. The world has become a very volatile place where money drives real economies. It's amazing." Dr Sakakibara, the Vice-Minister for International Affairs at the Ministry of Finance, said that even the biggest of all economies could face such difficulty. "Lots of money has flowed into the US since 1997," when the Asia crisis precipitated a vast flight of capital from developing markets and into the US. But if that flows out again in a rush, they could have a major problem," he said. The crisis of the past two years showed that major changes to the international financial system were necessary. "We need to monitor flows of money, we need to monitor highly leveraged institutions, and we need to monitor offshore centres. 'And we may have to have some sorts of prudential regulations, especially for developing countries. "Just as the New York Stock Exchange has circuit-breakers, we may need to apply the same sorts of rules to the international system." He suggested the reporting of large trading positions in foreign exchange and other markets, a more flexible approach by the International Monetary Fund, and general acceptance of capital controls as an intermediate step for countries in trouble. He said that the greatest future risk was the US. It was Dr Sakakibara who first labelled the US economy as "bubble.com", implying an economy dominated by an internet-related speculative frenzy. Asked about this, he said: "It does have a bubble aspect and that has to be corrected. One of the basic principles of economics is that what goes up must come down. It's a question of how much, and how quickly." He was more optimistic about America's chances of avoiding a crunching "hard landing" than he was six months ago while the international crisis was gripping financial markets. But he was still concerned about some features of the US system. It was not only vulnerable to sudden capital outflow, it had developed other problems, he said. "Their savings rate is negative, and their net indebtedness has increased dramatically it has doubled in recent years. It has to stop somewhere." He added: "I think it is possible for the US to have a soft landing in the next year or two, but it is possible the Dow will crash." Dr Sakakibara's two-year tenure as vice-minister ends in July. While it is customary to automatically replace the incumbent after two years, there has been considerable speculation that he might stay on for another year. He declined to speculate, except to say a decision would be made at the end of June. In the meantime, Professor Peter Drysdale of the Australian National University has said that Dr Sakakibara has accepted verbally a part-time position as a visiting professor at the ANU. afr.com.au