Fw: It takes two to tango (reformatted)

[Tom Walker]

I'm resending this reformatted because the first two paragraphs ran together.   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