The Meltdown of the Global Economy

by Patrick J. Buchanan – August 14, 1998

As the talking heads of the cable channels chatter on about what Bill Clinton should tell the grand jury — the truth is among the options being discussed — an event of epochal significance is taking place beyond our shores. The Global Economy is careening toward disaster, and the Clintonites seem clueless about how to stop it.

Treasury Secretary Robert Rubin’s June intervention to rescue the Japanese yen failed. The yen is now at an eight-year low against the dollar and sinking. Tokyo’s stock market is 60 percent below its high a decade ago and falling, and Japan’s banks are sitting on perhaps $1 trillion in bad debt. Asia’s mightiest economy is shrinking and incapable of helping pull the continent out of the maelstrom.

China is watching the yen slide with rising alarm. With the currencies of Free Asia far below where they were a year ago, Free Asia’s exports are now undercutting China’s. As the U.S. market takes an irreplaceable 8 percent of China’s gross domestic product, Beijing is under pressure to devalue the yuan. But if China devalues, the peg that ties the Hong Kong dollar to the U.S. dollar at a fixed rate of exchange will snap. Another sweeping round of devaluations will roll across Asia.

Should that happen, Asian governments, unable to buy dollars to service their foreign debt, would default, and Asian companies, unable to pay off dollar-denominated loans, would tumble into bankruptcy. As in America in the ’30s, Asia’s financial collapse would be followed by a depression, and then would come the political eruptions.

In Russia, we are almost there. The latest $22.6 billion IMF bailout bought Moscow about three weeks. Its stock market is down 80 percent in 10 months, and the yield on Russia’s debt is at 150 percent — another way of saying Boris Yeltsin’s regime is on the verge of default.

In Europe, the major stock markets have seen double-digit falls since mid-July record highs. German banks, heavily exposed in Asia and Russia, have been hardest hit. A series of defaults across Asia — Indonesia is on the brink — could trigger a banking crisis in Japan and Europe that could cause upheaval in the European Union.

In Brazil, stocks have fallen 20 percent in five weeks, and there is immense pressure for a devaluation, so as not to lose export markets to Asia. Should China and Hong Kong devalue, the Latin dominoes will be next, unless, of course, South Africa, the largest economy in sub-Sahara Africa, gets there first.

As OPEC oil is priced in dollars, and Asia is both in recession and starved for dollars, the world oil market is drying up. A glut has appeared, and oil prices have fallen, in real terms, below where they were before the Arab oil embargo of 1973.

Great news for us, but major producers like Russia, Mexico, Venezuela and Nigeria have seen their oil revenue cut in half, with nothing to replace the lost income. Budget deficits have soared, and the currency speculators can smell the weakness a world away.

What is propping up the Global Economy, preventing a raft of defaults by nations awash in debt? First, the bailout billions being shoveled into Asia, Russia, Africa and Latin America by the International Monetary Fund; second, a humongous U.S. merchandise trade deficit that will come in between $275 billion and $300 billion this year alone.

To keep afloat the bankrupt regimes of the Global Economy, U.S. taxpayers are being put at risk for scores of billions of dollars in IMF loans that will never be repaid, as the U.S. market is flooded with the goods of foreign factories that keep producing, only because of those IMF loans. America is subsidizing her own decline.

The administration is running out of cards to play. The Rubin intervention failed to rescue the falling yen, and jaw-boning Japan has proven about as effective as barking orders at a roomful of cats. Investors are bailing out of Russia faster than the IMF can bail us in.

The mother of all bailouts may be the last card of the globalists.

But the Republicans seem equally befuddled. Terrified that the White House will pin the global disaster on the GOP, Newt Gingrich and the Senate want to expand the North American Free Trade Agreement to Africa, to surrender all of Congress’ power to amend trade deals to Clinton, and to give the IMF another $18 billion, to put off the day of reckoning. The GOP appears to believe that the cure for the disasters of globalism — is more globalism.

The Davos Republicans are prisoners of an ideology that might be summarized: “What’s good for the Global Economy is good for America, and vice versa.” Even now, one can hear solemn warnings that the real threat is not the worldwide collapse brought on by free-trade fanatics and the acolytes of “interdependence” but the dangerous possibility that someone might dare to put America first.