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August 17, 2001:
"In a report on the financial and money market
situations in emerging economies, the state-run Korea Center for International
Finance (KCIF) said on Thursday that declining trade surpluses are a key factor
in determining the fate of emerging economies in Asia and elsewhere. It warned
that while South Korea, Mexico and Malaysia had continued inflows of foreign
direct investment and at present maintained stable financial indicators despite
the financial crisis in Argentina, financial indicators in the Philippines,
Taiwan, Poland, Brazil and Turkey [left unmentioned was Indonesia] were
unstable - in less polite language, those places are ready to blow.
" The operative phrase in the preceding paragraph is
"declining trade surpluses". Presumably everyone knows the difference between a
surplus and a deficit. During good times the U.S. runs massive trade deficits
with the rest of the world. Europe runs surpluses with the U.S. but deficits
with the rest of the world, etc. During bad times the size of those deficits is
reduced.
From through the looking glass, Argentina's debt
crisis mirrors the recession in the rich countries. But shhhhhhhhh. It's
obviously Argentina's fault they don't know how to handle it. If somehow they
could have managed to do the right thing or do more of the right thing or start
doing the right thing earlier, they wouldn't be in such straits.
Yet the story I keep hearing is that the continuing
strength of the U.S. Dollar, in spite of decades of trade deficits, derives from
the U.S.'s status as a "safe haven" for investments. Seems like a bit of a
feed-back loop: strong dollar > direct investment flows to U.S. > weak
trading partners > strong dollar > more direct investment flows to the
U.S. and so on infinitum. One could say that international finance is a
tribute system -- it is hardly reciprocal. For the system to continue to
function, the rich MUST get richer. If they don't, everybody is put in
jeopardy.
Tom Walker
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