As Americans debate the wisdom -- or folly -- of war on Iraq,
someone had best look in on the Global Economy. For it has taken on a sickly
pallor. Five years after the IMF bailouts of the 1990s, some of the rescued
regimes are swooning again. And America appears in no condition to conduct
new global bailout operations.
When we rescued Mexico in 1995 and Thailand, Indonesia, the
Philippines, South Korea, Russia, Brazil and Argentina in 1997-98, America
was enjoying boom times. The goverment was about to project budget surpluses
all the way out to the horizon.
A few of us argued then that it would be better if we let the
debtors default and the Big Banks take their hit. Get it over with, we said.
But by Y2K, the bailouts seemed to have worked. Clinton and Robert Rubin
were miracle workers.
Now, the chickens are coming home to roost. For as one looks
around our world, scarcely a region seems free of economic crisis.
Last winter, Argentina cut its peso loose from the dollar and
defaulted. Argentina is today a failed state, with its wealthy and middle
class fleeing the country. Brazil, ninth largest economy on earth, $264
billion in debt, is teetering on the brink of default and about to elect
Marxist "Lula" da Silva. Banks like Citicrop, Fleet Boston and J. P. Morgan
Chase have $27 billon in loans at risk. The regime's bonds are going on the
open market for 50 cents on the dollar. Investors are hedging against an
early Brazilian default.
Colombia is in the grip of an endless war with narco-terrorists,
and a senior official lately told the legislature the economy is "a Titanic
headed for the iceberg." Venezuela's middle class seems ready for a second
coup against Hugo Chavez, who has run his oil-rich country into the ditch.
Mexico's boom is over. NAFTA factories are moving to China in search of even
cheaper labor. And looking at the First World, the picture ranges from glum
Leading U.S. indicators point to a second recession in two
years. The Nasdaq has lost 75 percent of its value since its peak, and the
Dow a third of its value. With the United States running a trade deficit in
goods nearing $500 billion and a budget deficit near $200 billion, and
preparing to launch a war inside the world's gas station that could cost
$100 billion to $200 billion, America is in no position to be bundling up
tens of billions for new bailouts.
The world's second-largest economy, Japan's, is in the middle of
the third recession in a decade. Its stock market has given up 75 percent of
its value since 1989. Japan's debt is now 140 percent of GDP, and the Bank
of Japan believes the nation's financial institutions are in so deep a
crisis it has taken the desperate step of buying shares to provide banks
with the cash to deal with their huge bad debts.
Germany, the world's third-largest economy, is flagging, and
Germans have just re-elected a Red-Green alliance to deal with an economic
crisis that same alliance could not resolve in four years. Most of the
European markets last week were hitting five- and six-year lows.
Who keeps the Global Economy upright? America's consumers, as
they go deeper and deeper into debt buying up the world's goods. If old
reliable, the American consumer, goes on strike, the Global Economy goes
down the tubes. No wonder Wall Street brokers await those monthly reports of
"consumer confidence" the way heart patients await the results of their
Where are America's consumers getting the cash to keep on
invading the malls? Many are spending all they earn and more with plastic
credit cards. Others are borrowing on their homes at the lowest interest
rates in decades, refinancing and spending the equity piled up over the
If there is a housing bubble -- as there was a stock market
bubble -- and housing prices collapse, the lately knighted Sir Alan
Greenspan may have to begin creating new money. And if he does, and the
dollar begins to fall against world currencies, Americans will no longer be
able to afford all those imported goods that keep millions of Europeans,
Asians and Latin Americans employed.
And should the war on Iraq cause an interruption of oil
shipments, or a run-up in price to $50 a barrel, we could be headed for
How did we get here? Were avoidable mistakes made by the
mandarins of the American economy, the locomotive of the Global Economy? Had
we taken our medicine of debt default and write-offs years ago, would the
world today be sunk in unpayable debt?
Probably not. But this much seems apparent. The combination of
corporate corruption and greed in America, and failed free market
experiments in Latin America and around the world, have given capitalism a
pair of black eyes from which it may not recover for years.