The Recession Heard Round the World

It began in Asia the summer of 1997. A "currency crisis" that hit with the power of an eight point earthquake the economies of Thailand, the Philippines, Indonesia, Vietnam, Hong Kong and Japan. In a long, slow wave of economic tremors, first one "Asian Tiger" economy after another was reduced to rubble. The fiat currencies were shattered; the public confidence was depleted, and the assets of entire nations were put on the auction block. America didn't even notice.

Sure, we sent our team of "experts" over there to "fix" things in conjunction with our global buddies. And then these same experts promptly told us that there wasn't much of a problem. "Nothing to worry about really-trust us". Well, I don't trust them and am, if not worried then at least aware of the economic tidal wave (tsunami in Japanese) headed our way. One of the most disturbing things about this whole Asian crisis is the way the mainstream media has attempted to do spin control. The same way they ignored the Savings and Loan crisis until it blew up after the 1988 election. 18 months from now, when both the Asian crisis and the Year 2K "bug" have swamped the US economy, people will want to know why they weren't told the truth. And paraphrasing Mr. Kutyn, they aren't going to be in a forgiving mood.

The other thing that I find fascinating about the Asian crisis is the constant American mantra that "it won't hurt us". Watching the talk shows or news is similar to listening to someone chanting "ohm" over and over. There is a hypnotic addiction to the premise that nothing can derail the American economy. In fact, the 4-19-98 Sunday Parade magazine had an article assuring us that we are in for a 20 year economic golden age. I agree, but only if you actually buy gold or silver. I don't think that was the kind of "golden age" they had in mind. A closer examination of the American economy shows more fools gold than real. Certainly, few Americans would even accept the theoretical possibly of a currency collapse combined with a general global depression.

Yet that is what is going to eventually happen. The signs are everywhere for the viewing. I am not a trained economist, stockbroker or other "expert". However, my brain is functioning somewhat and capable of observing various odds and ends of economic minutia. My radar screen is full of economic blips; yet, the official company line is that the skies are clear.

One of the things to be expected from Asian nations is a desperate attempt to export their way to get heavy cash flow. The February US trade deficit was $12 billion. How do you think a $144 billion dollar trade imbalance will play in the fall elections? Hawaii is slipping into recession due to a decline in Asian tourism among other things. The West coast states of Oregon, Washington and California are seeing waves of layoffs due to slackening Asian demand. Demand for a wide range of US products from apples to software is drying up. Why do you think Boeing is in such trouble? Or Intel with its 3,000 layoffs. And the list goes on. Yet the official version is that there will be no significant impact on the US economy. As they say, you ain't seen nothing yet.

It is generally accepted that the Big Three Car companies, GM, Ford and Chrysler, have a massive impact on the total US economy. True, they are in record profits for now, but there are some problems looming. For starters, GM dipped under 30% market share in March indicating a major slippage. The Asian crisis does have the capacity to cause a US recession simply by imploding the Big Three. It is not enough to build cars-you must sell them at a profit. If they can't do that the Big Three will start to close auto plants left and right. Interesting that GM recently announced an auto plant for Hungary. Interesting the auto section of the Saturday paper shows $7,000 Hyundai's and $8,000 Geo Metros. Interesting that there are $8500 Ford Escorts and $8000 Mirages. The interesting thing is that in September both cars were $11,000. Maybe Wall Street and Main Street will start to notice when Big Three earnings take a nose dive. Or it might take either the idling or closure of auto assembly lines to get their attention. They will eventually notice that hordes of Asian cars are committing kamikaze attacks upon every showroom floor in the United States. What will the Big Three do when their unsold inventory reaches 120 days? What will they do when they have to cut prices drastically, offer 0% financing and numerous other gimmicks just to sell a car? By then the people of the United States might even notice that the economy has tanked.

Things are getting grim in Asia. The Korean car company Kia is bankrupt and the former dissident recently elected to office has decided to seize it and turn western style corporate predator capitalism loose. In response 13,000 Kia unionized autoworkers engaged in what can only be called a prelude to future instability. It took riot police to keep things under control. In fact, riot police seem to be in great demand all through Asia. Whether it is the college campuses of Indonesia or the streets of Korea things are getting tense. South Korea has a famine ridden military powerhouse on its border who might attempt to exploit its social chaos. The Japanese economy is a basket case, recently deregulated into the jaws of an economic buzz saw. Its stock market is testing the bottomless pit underlying the 15,000 level floor. The yen is getting very comfortable in the low 130's with a rise to 150 not out of the question. An economic, political, social and human disaster has been playing out before our eyes in Asia these last few months. Americans have smugly assumed that our economy is beyond such minor disturbances. Asia is in depression. Hawaii is now in recession. The West coast is slowing down significantly. By Labor Day, American manufacturing, auto production, agriculture and high tech will be in painful and readily visible distress. This distress will become a major political issue in the November elections with unpredictable consequences. Combined with the pain felt throughout Asia, who can say what will happen? For an administration, and indeed an entire political and economic system, that lives by the credo "It's the economy stupid" such questions can prove fatal. After all, Roman Emperors didn't last long when they couldn't keep giving bread with their 'circus'.