A few points:
1. The Latin American debt crisis of $120 billion, if that number is correct, is trivial. $120 billion can be financed to the tune of $6 to $10 billion a year. That money can be found, no doubt much of it by the affected countries themselves. It is true that they don't have much control over investors' dumping their equities in order to cover losses in Russia. But I don't see anything in that number which looks insurmountable.
2. The Wall Street establishment has been more intelligent than members on this list give it credit for. Standard ISLM analysis, whatever people may think of it, indicates that when the demand for money is low fiscal policy rather than financial policy is indicated. That's why the WSJ and the US gov are hammering for deficit spending in Japan. (NIMB Keynesianism, was Davidson's remark: not in my budget deficit spending) In the US, where higher interest rates give room to increase liquidity through lower rates, the WSJ is hammering for a lower discount rate. No one expects it to "save the day" but could ease things a bit. Futures markets are trading at around 4.75% for Federal funds for February (or at least they were yesterday). In other words no-one-in-his-right-mind is trading, as a practical matter as of today, on the assumption that the discount rate will stay high. It is quite likely that, since the redemptions are not pushing major firms to bankruptcy as they did in '87, the Fed would like to see some more shakeout in stocks before it announces a lowering of the rate.
3. I think that it's quite obvious, contrary to Mark Jones, that we are on the verge of major new technologies in the energy/transportation field. And I mean production possibilities. I think it likely that the traditional dichotomy between stationary power grids and the transportation system is going to be effaced, much the same way as computers altered the differences between the mechanics of calculation and the technicques of communication. I posted on this and then went on vacation, so I don't know if it made it up or elicited any comments.
4. If the DOW were to fall at 5000 P/Es would be, I think, in the neighborhood of 13-15 (about half of the average 25 for the record high). That would be a tremendous buy and average dividends would compare favorably with bank yields. Perhaps average dividends will fall, putting further pressure on PEs. But even so I doubt P/Es will hit 7 as they did in the 1970s.
5. Even outstanding consumer debt in the US isn't as high as some apocalypse theorists would have it. There is a high percentage of so-called "convencience charging", people that pay in full each month but in doing so have high outstanding balances. I know, because I started to do it, and have gone from 0 outstanding debt to an average of $800 to $1500 per month, and occasionally two or three times that. This is not real "outstanding debt" in the traditional sense of the term. Back in the 1970s the supreme court ruled that merchants had to have discounted prices for cash sales (i.e., less 2 or 3% used to pay for the card). But that's been ignored. So here I see that the grocery market is making me pay for so-and-so's airplane miles. What the hell, why pay cash? I can accumulate miles at someone else's expense too. But that doesn't mean I'm dying from debt. In fact, I read in the paper today that the growth of "convenience users" has been so great in the credit card industry that they're thinking of bringing back annual fees. (which will push people like me out). (the credit card article was run by the local paper and can be accessed at www.timesunion.com, probably in the business section; I don't think the article was reprinted from a wire service)
6. As for the US trade deficit, we have to consider that looking at a trade deficit through the eyes of a gold standard horror of same is really not relevant. The US in addition to whatever imbalance there may (or may not) be in goods versus services, etc., the fact is that there is a whole world economy, both legal and illegal, which functions on the US unit of currency. The dollar is the de facto real currency of Russia. If the US has to export currency to run two economies at once you have to figure that people who are using the currency unit *have what they want*, an exchange instrument (transaction demand in standard economics), and that is why the dollars are not coming back in search of goods and services. On this and other matters see Eisner's book on deficits.
All of which is to say that I am not expecting a revolutionary crisis. Rather, the real crisis is that we will get more of the same: more malls, more shitty public schools, more bogus excuses for cutting back social security, more reactionary drivel on social equity matters, more skewed income distribution. But I don't see the end of capitalism with a DOW at 5000 and, only perhaps, an unemployment rate (US) at 8% instead of 4%.
The Asian crisis is more serious but do you expect it to be any different than it already has been? Non-Asian crisis Indonesia shot at least 100,000 radicals back in the 60s. It was not the end of capitalism, far from it. Maybe they'll need to do it again. Those that read the press may be upset about it but most will adjust. We always do (back to Ally MacBeal & Seinfeld re-runs) In every age, the capitalist world system has existed on a mixture of blood (mostly in the periphery) and grinding crisis mixed with prosperity in the core. Why should this be any different? What is amazing about this social system is not its fragility but its strength. And I *do* think that a flurry of radicals hoping for the millenarian "coming end" is perhaps one of the best "buy" indicators around, as the Rothschilds figured out well before me.
-- Gregory P. Nowell Associate Professor Department of Political Science, Milne 100 State University of New York 135 Western Ave. Albany, New York 12222
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