by Patrick J. Buchanan – July 10, 1998
The economic fate of Asia and to a great extent the rest of the world … rests more than ever before in the hands of Japan’s political leaders and bureaucrats,” writes James Baker on July 8 in The Washington Times.
The “worst-case scenario,” says an alarmed ex-secretary of state, is “now all too easy to see. … If Japan does not follow up its most recent rhetoric of reform with a resolve to act, the yen is bound to sink further, taking down the Chinese yuan.
“That, in turn will spark a deleterious cycle of competitive currency devaluations across Asia, spreading the effect of the Asian meltdown to the European and American economies.” Baker notes that Europe’s banks are far more exposed in Asia than U.S. banks.
Readers of this column will find little new in Baker’s alarm; for months, some of us been shouting from the rooftops.
What is new is Baker’s admission that immersion in the Global Economy has put the financial stability of the West in the hands of Japanese politicians and bureaucrats who have been unable to get their act together since 1991. And Baker concedes that the real danger of a continued fall in the yen is that Beijing may follow and devalue the yuan. That could bring the Global Economy down.
Frankly, we may be even closer to the edge than Baker imagines. Writing the same day in The Wall Street Journal, Judy Shelton, a professor of international economics, claims the only thing preventing a devaluation of the Chinese yuan is a decision by the regime. When Beijing concludes that it no longer wishes to squander its $140 billion hoard of cash and gold reserves defending its currency, the game is over.
When one recalls that today’s crisis has its roots in a 1994 decision by China to devalue — in order to grab U.S. markets from Free Asia — this is an appalling situation. China, with an economy one-tenth of ours, and a fifth of Japan’s, now has the leverage to bring down the financial houses of Japan, Europe and the U.S.A.
That China has such clout can be seen in all the kowtowing going on. Britain’s Tony Blair gushes that Beijing’s decision not to devalue is “a very, very strong commitment to financial stability.” France’s Jacques Chirac hails China for its “extremely responsible and cooperative attitude.” In Shanghai, Bill Clinton said of China’s decision, “I personally appreciate it.” I’ll bet.
To save us all, Baker argues, Japan must cut taxes, shut down insolvent banks and “redeem its oft-stated pledges to open up to foreign investment, trade and competition by actually doing so. After 15 years of such pledges, Japan remains one of the most closed economies in the world.”
Well, at least this crisis has brought some candor. For years, U.S. officials asked us to believe in Japan’s pledges to open its markets. Now, Baker confirms that we were played for suckers.
Baker urges Tokyo to take a page out of Ronald Reagan’s playbook. In the 1980s, he recalls, when the U.S. Big Three begged for protection from auto imports, the Gipper said no. But soon after taking office, Reagan slammed a quota on Japanese auto imports. Then, in the Plaza Agreement of 1985, Baker & Co. triggered a U.S. devaluation that cut the dollar’s value from 220 yen to 80 in a decade, a devaluation of 63 percent.
One recent study attributes almost all the recent growth in U.S. exports to that devaluation. If true, this would mean that the U.S. merchandise trade deficit — clocked at an annual rate of $260 billion in April! — is about to explode. For since 1995, the dollar has risen from 80 yen to 140 yen, an appreciation of 75 percent. With the dollar soaring against other Asian currencies between 25 percent and 75 percent since the crisis began last summer, the portents are ominous.
Asia will be forced to cut back U.S. purchases. Our exports will contract, and imports will soar, once the Asian countries get over the twin shocks of currency and market collapses.
The situation Baker describes raises grave questions: Who is responsible for putting the financial security of the West in the custody of Japanese bureaucrats and Chinese Communists? What happened to the fire walls that protected our republic from crooked, incompetent or malevolent regimes? What benefit do we receive to justify being repeatedly dragged to the edge of the abyss?
Globalists tell us the International Monetary Fund is our last, best hope. Yet the IMF that is hailing China, Brazil and Hong Kong for not devaluing brought on today’s crises by urging Mexico in ’94 and Thailand and Indonesia in ’97 to do the exact opposite.
As Casey Stengel said, “Can’t anybody here play this game?”