the global melodrama

Doug Henwood dhenwood at panix.com
Mon Aug 17 09:45:10 PDT 1998


Today's Wall Street Journal reports:

"The impact of a Russian devaluation 'would be disastrous,' said David Malpass, chief international economist at Bear Stearns in New York in a note to clients last week, as it would set off another cycle of competitive devaluations and put pressure on emerging markets globally. Eastern Europe, Turkey and India would be badly hurt, while a ruble devaluation would 'create another price shock on commodities,' given that Russia is a major oil and natural gas exporter, and severely limit corporations' ability to raise prices in general."

That, of course, was written before the Russians did devalue the ruble. Now that it's happened, I wonder if Malpass would stick to his characterization.

It's hard to resist the conclusion - and god knows, I've tried - that a global deflationary script is playing itself out. What seemed initially like a local financial problem in a few Southeast Asian countries has spread, with the U.S. about the only corner of the world that's been spared, so far. Indeed, U.S. markets are rallying on the old flight to quality reflex, though I'm a little mystified why a $1.8 trillion debtor is considered a safe haven. Countries with big current account deficits, big foreign debts, bloated financial markets, and overvalued currencies are usually considered targets for speculators, not refuges. But truly this is a new era.

Today's WSJ also has an impassioned letter from Jack Kemp to Alan Greenspan declaring that he's been way too tight, and, mixing food and drink metaphors, "the economy is being starved of liquidity." The supply-siders all seem to agree on this one; with gold down from $385 to $285 an ounce over the last year or year-and-a-half, their sacred metal is telling them that the deflation is upon us. Surely Greenspan, who says he follows gold closely, recognizes this. So I'm wondering if the world's central bankers really *want* this deflation to run its course.

Can any of you Russophiles out there tell me if Yeltsin is as repellently crude as he seems in the TV clips?

Doug



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