An Outsider Looking In
by Chris Gelken
International Finance Made Simple!
Saturday, June 20, 1998 -- HONG KONG -- Are you one of those folks who are completely befuddled by international finance, futures, stock markets, linked-exchange rates etc etc etc. No? then the following isn't for you - unless of course you want to have a good laugh at how little a political affairs journalist knows about the mysterious workings of the global economy - and the effect it has on you. And me. Particularly, me.
You simply can't please everyone - at least not all the time. When Uncle Sam pitched in with 2-billion-bucks to bail out the Japanese yen, the collective sigh of relief triggered a small typhoon that blew stock values wildly higher - for a day. A lot of folks were happy. Then something my business-desk colleagues describe as 'profit-taking' set in. People who bought their stocks cheaply a couple of days ago, decided to cash in on the profits - and that drives down the value and so the stock markets begin to slide again. If everyone wants to sell something, in this case a stock, obviously it gets cheaper. A few folks made big bucks. Some of those folks will take their profits to buy back the now cheaper stocks - driving up the price again. It is a cyclical process of making money - for the few that can afford it. Not me, unfortunately.
Earlier in the week World Bank executive Jean Michel Severino predicted a deep and sustained depression in Asia that could - within months - infect the rest of the world, including the United States. His remarks obviously struck a chord in Washington. A screwed up yen would make imports from Japan cheaper, but the U.S. also exports to Japan. If Japanese consumers couldn't afford products priced in dollars because of their weak currency - no exports. Bad news. Net importers (consumers - voters) liked the weak yen, net exporters (jobs - voters - campaign contributions) could have been facing hard times. Tough call for the White House.
Japan has been squeezing U.S. cajones over the balance of trade for years, here was an opportunity to prise open Tokyo's vice like grip. Quid pro quo - I would have loved to be to be a fly on the wall at the closed door sessions between Lawrence Summers and Japanese economic tsars. I bet they'll be putting in a few orders for Viagra.
Meanwhile, in Malaysia, 'Motor Mouth' Mahathir - whose own economy benefited in no small way from the greenback-yen intervention, continued his rant against capitalistic Western economic thugs who he blames for everything from the Asian economic meltdown to the erosion of Asian Values. I remember those Asian Values being lauded in the early years of this decade when the region was being lifted to new heights on the top of its economic bubble. Yep, good old Asian Values - nepotism, cronyism, corruption and an arms length flirtation with democracy.
After having 'Asian Values' flung in their faces for so many years - bet the good folks over at Treasury - Summers in particular - are savouring every grovelling minute of it all. Especially since it isn't entirely altruistic. It's good business.
As the Japanese yen picked up point after inevitable point against the greenback, several other Asian currencies strengthened. For days I had been watching these same currencies slide - and since I have to buy foreign currency money orders on a regular basis, I was gleefully calculating how much I would save this month. The Hong Kong dollar is linked to the U.S. dollar - so a strong greenback is good news for me. Then in steps Uncle Sam - after first assuring me that the U.S. would most certainly not consider any such thing - and suddenly my little nest-egg is poached, scrambled - whatever. Thanks Sam.
But I am being selfish. I am thinking of me when I should be considering the big picture. The intervention was the right thing to do.
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