ASIAN CRISIS... myth exposed

[bruceb@xxxxxxxxxxxxx]

Let me first say that the situation in Asia is certainly a crisis for people
living in Asia, and I truly feel sorry for those people whose leaders have
engaged in policies of total disaster.  However, so much of what you've
heard in the mainstream press about how this crisis is affecting the US is
absolutely false.  I'll just point out some of the highlights.

First and foremost is the fact that American dependence on Asian trade has
been completely overblown.  Neil accurately pointed out on this list that
foreign trade represents less than 13% of our GNP.  What he didn't mention
is that the portion attributed to Asia is about 3%.  That's right, a
whopping 3% of our economy is affected by Asian trade, and as bad as things
have been over there, our exports to Asia haven't exactly dropped to zero.
Last night on the news ABC said that Asia "buys 10% of everything we make."
Totally false.  For those of you who think that trade with Japan is so
important, let me fill you in on a little secret.  The US does more trade
every year with the single Canadian province of Ontario than we do with the
entire nation of Japan (which has more than ten times the population).

Even more important is the fact that there have been two very beneficial
side effects of the Asian crisis.  First, the capital flight into US bonds
has lowered interest rates. Second, it has dramatically lowered the cost of
commodities, especially oil.

One thing that a lot of people forget is that most of the commodity trade in
the world is "dollarized."  The Arabs, Venezuelans, Norwegians, and Russians
simply don't want Yen, Won, or any other foreign currency for their oil.  In
most cases they don't even want THEIR OWN currency, they want dollars.

This means that the Asian crisis has a "double negative" effect on commodity
prices.  The contraction of their economies dramatically reduces the demand
for commodities, and the rising dollar actually makes those same commodities
even more expensive for those same countries!  Commodity prices have fallen,
but only for us, not for them.

The positive effect this has on the US should not be underestimated.  Lower
interest rates and lower commodity prices (especially oil) are extremely
beneficial to both the housing and auto sectors of the US economy.  High
tech may be the engine of growth in the US, but housing and autos are the
sectors high tech is growing, and they still dominate the economy.

However, just as markets fall faster than they rise, good news takes longer
to impact the economy than bad news.  We've already seen the negative
effects of Asia in the high tech sector, but the positive is only beginning
to appear in housing and autos (and the GM strike has delayed it even more).

The Asian crisis is a drag on the economy?  Not hardly, it's a bonus.  Of
course, now the pessimists will start worrying about the END of the Asian
crisis...

Bruce