Keep your eyes open!...


Hoofbeats of the Black Horseman

(Rev 6:5) When the Lamb opened the third seal, I heard the third living creature say, "Come!" I looked, and there before me was a black horse! Its rider was holding a pair of scales in his hand.

(Rev 6:6) Then I heard what sounded like a voice among the four living creatures, saying, "A quart of wheat for a day's wages, and three quarts of barley for a day's wages, and do not damage the oil and the wine!"

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The following is an editorial in the Jerusalem Post dated January 14, 1998:

Is the end of the world nigh?


(January 14) - Fortunately for most people in Israel, and in Europe and the US for that matter, the main thing that interests them right now is the weather. The mild snowfall experienced in Jerusalem, Mitzpe Ramon and even Haifa, and the ferocious weather that has paralyzed eastern North America, are far more pressing concerns than the worsening financial disaster in East Asia.

This way of looking at things is further compounded by the tone of the financial media - primarily the international press and TV networks, which are echoed by the local ones. Whilst giving ample coverage to the dramatic plunges (and occasional surges) that punctuate trading on the Far Eastern stock exchanges and that spill over into US and European markets, they emphasize that these falls are driven primarily by corporate issues: The slump in demand is expected to drive earnings lower.

Falling profits - and certainly the fear of more bankruptcies in the Far East - are valid reasons to sell shares. For investors, sliding stock markets are reason enough to be unhappy.

But for everyone, and especially people who think they are not exposed to share markets, all this does not presage the end of the world.

Regrettably, however, the crisis in Asia is about nothing less than the end of the world - at least the world's financial system. It sounds like a cliche, but even cliches can sometimes be no more than the bare truth.

The fact that Indonesia, a country of hundreds of millions of people, is effectively eliminated as a functioning economy, is grim for Indonesians and unpleasant for South-East Asia generally.

However, for the West it's a minor matter.

The fact that South Korea, until recently the tenth or eleventh biggest economy in the world, is facing the collapse of entire industries, the bankruptcy of thousands of companies and the urgent need to fire with immediate effect in excess of one million people, is pretty gruesome, and will certainly have some impact on the West. But it's still not a major concern for the man in the street in Atlanta, Manchester or Hanover.

But that Japan, the second biggest economy in the world, the biggest buyer of US government bonds and the major foreign investor everywhere (except Israel), is facing the threat of an imminent meltdown of its entire financial system - if that fact was appreciated by the general public, then the weather would soon cease to be its main concern.

Unfortunately, that's what it has come to: If the Japanese don't quickly get their act together, then the crumbling of their banking and financial system, which has been underway since 1990, and which has led to the entire East Asian crisis, will lead to the paralysis and possible collapse of the global financial system. For those who don't quite see what that means, I would suggest reading any available short history of the 1930s.

It may seem incredible that the threat is on such an apocalyptic scale; it may seem incomprehensible that the Japanese have dithered, fumbled, lied and dissembled for so long, as to have reached the point where they can bury themselves and drag everyone else down with them (inevitably, the conspiracy junkies are convinced that "the Americans are behind Japan's woes" - as if the Americans are going to benefit from what is happening); it may seem extraordinary that the world should be forced to relive another slump, brought on by political cowardice and wrong-headed economic policy-making. But it's true; the threat is real.

Even now, it shouldn't happen and it can certainly be avoided. But the speed of events and the pace of collapse means that there isn't much time left to take the measures needed to head off disaster. The long-simmering crisis in Japan has blown open the extent of the threat. It might yet blow over - or it might blow away the economic boom of the 1990s and give the doom-and-gloom Millenarian nuts a more apocalyptic scenario than even they had bargained for.

(The writer comments on economic affairs.)


August 14, 1998

What is propping up the Global Economy, preventing a raft of defaults
by nations awash in debt? First, the bailout billions being shoveled
into Asia, Russia, Africa and Latin America by the International
Monetary Fund; second, a humongous U.S. merchandise trade deficit
that will come in between $275 billion and $300 billion this year

Investors are bailing out of Russia faster than the IMF can bail us
in... The mother of all bailouts may be the last card of the

But the Republicans seem equally befuddled.

Terrified that the White House will pin the global disaster on the
GOP, Newt Gingrich and the Senate want to expand the North American
Free Trade Agreement to Africa, to surrender all of Congress' power
to amend trade deals to Clinton, and to give the IMF another $18
billion, to put off the day of reckoning...

As the talking heads of the cable channels chatter on about what Bill
Clinton should tell the grand jury -- the truth is among the options
being discussed -- an event of epochal significance is taking place
beyond our shores. The Global Economy is careening toward disaster,
and the Clintonites seem clueless about how to stop it.

Treasury Secretary Robert Rubin's June intervention to rescue the
Japanese yen failed. The yen is now at an eight-year low against the
dollar and sinking. Tokyo's stock market is 60 percent below its high
a decade ago and falling, and Japan's banks are sitting on perhaps $1
trillion in bad debt. Asia's mightiest economy is shrinking and
incapable of helping pull the continent out of the maelstrom.

China is watching the yen slide with rising alarm. With the
currencies of Free Asia far below where they were a year ago, Free
Asia's exports are now undercutting China's. As the U.S. market takes
an irreplaceable 8 percent of China's gross domestic product, Beijing
is under pressure to devalue the yuan. But if China devalues, the peg
that ties the Hong Kong dollar to the U.S. dollar at a fixed rate of
exchange will snap. Another sweeping round of devaluations will roll
across Asia

Should that happen, Asian governments, unable to buy dollars to
service their foreign debt, would default, and Asian companies,
unable to pay off dollar-denominated loans, would tumble into
bankruptcy. As in America in the '30s, Asia's financial collapse
would be followed by a depression, and then would come the political

In Russia, we are almost there. The latest $22.6 billion IMF bailout
bought Moscow about three weeks. Its stock market is down 80 percent
in 10 months, and the yield on Russia's debt is at 150 percent --
another way of saying Boris Yeltsin's regime is on the verge of

 In Europe, the major stock markets have seen double-digit falls
since mid-July record highs. German banks, heavily exposed in Asia
and Russia, have been hardest hit. A series of defaults across Asia --
 Indonesia is on the brink -- could trigger a banking crisis in Japan
and Europe that could cause upheaval in the European Union.

In Brazil, stocks have fallen 20 percent in five weeks, and there is
immense pressure for a devaluation, so as not to lose export markets
to Asia. Should China and Hong Kong devalue, the Latin dominoes will
be next, unless, of course, South Africa, the largest economy in sub-
Sahara Africa, gets there first.

As OPEC oil is priced in dollars, and Asia is both in recession and
starved for dollars, the world oil market is drying up. A glut has
appeared, and oil prices have fallen, in real terms, below where they
were before the Arab oil embargo of 1973.

Great news for us, but major producers like Russia, Mexico, Venezuela
and Nigeria have seen their oil revenue cut in half, with nothing to
replace the lost income. Budget deficits have soared, and the
currency speculators can smell the weakness a world away.

What is propping up the Global Economy, preventing a raft of defaults
by nations awash in debt? First, the bailout billions being shoveled
into Asia, Russia, Africa and Latin America by the International
Monetary Fund; second, a humongous U.S. merchandise trade deficit
that will come in between $275 billion and $300 billion this year

To keep afloat the bankrupt regimes of the Global Economy, U.S.
taxpayers are being put at risk for scores of billions of dollars in
IMF loans that will never be repaid, as the U.S. market is flooded
with the goods of foreign factories that keep producing, only because
of those IMF loans. America is subsidizing her own decline.

The administration is running out of cards to play. The Rubin
intervention failed to rescue the falling yen, and jaw-boning Japan
has proven about as effective as barking orders at a roomful of cats.
Investors are bailing out of Russia faster than the IMF can bail us

The mother of all bailouts may be the last card of the globalists.

But the Republicans seem equally befuddled. Terrified that the White
House will pin the global disaster on the GOP, Newt Gingrich and the
Senate want to expand the North American Free Trade Agreement to
Africa, to surrender all of Congress' power to amend trade deals to
Clinton, and to give the IMF another $18 billion, to put off the day
of reckoning. The GOP appears to believe that the cure for the
disasters of globalism -- is more globalism.

The Davos Republicans are prisoners of an ideology that might be
summarized: "What's good for the Global Economy is good for America,
and vice versa." Even now, one can hear solemn warnings that the real
threat is not the worldwide collapse brought on by free-trade
fanatics and the acolytes of "interdependence" but the dangerous
possibility that someone might dare to put America first.

Global Intelligence Update
Red Alert
August 19, 1998

Japan and China Brace for New Banking Crises

According to Agence France Presse, Taku Yamasaki, a senior official of the
Japanese ruling Liberal Democratic Party, told Indonesia's President on
Tuesday that Japan's economy would face its "most serious crisis" within a
week.  The story was also carried by the Japanese Kyodo and Jiji news
services.  While Yamasaki did not specify what crisis was brewing, he is
quoted as having said that "I contacted very important persons in the
Japanese government, and they said that they decided not to let ailing
major banks go bankrupt to avoid negatively influencing the economic
situation in the world, especially in Asia."  An obvious inference to be
drawn is that some major Japanese banks will be facing a major cash flow
problem next week and may be unable to meet obligations.  If this is the
case, the Japanese government is sending out a signal in financially
devastated Indonesia, telling the rest of Asia that the Japanese government
is prepared to bail out the banks, preventing bankruptcy.

Yamasaki's reassurance in anticipation of a crisis that has not yet
surfaced is more chilling than calming.  Clearly, senior officials in the
Japanese government are aware of an impending crisis of substantial
proportions, such as the bankruptcy of some of Japan's major banking
institutions, and are trying to soften the shock.  This is not the usual
Japanese style.  Denial until the last possible moment has been the normal
operating procedure in Japan.  Yamasaki appears to be trying to do damage
control in the ASEAN countries, attempting to reassure them and to limit
the effects of the crisis.  As economic crises have become the norm in
Japan, Yamasaki's unusual warning indicates that Japan is facing a new
crisis of truly impressive magnitude.

Perhaps part of Japan's concerns were events in China.  On Monday, China's
Ministry of Finance announced that they were issuing 270 million yuan
(about $32 billion at the official rate) worth of special, 30-year, yuan-
denominated bonds, carrying an annual coupon of 7.2 percent.  The purpose
of these bonds was to supply capital to the Industrial and Commercial Bank
of China, the Agricultural Bank of China, the Construction Bank of China,
and the Bank of China.  The bonds were not to be sold to the general
public.  Wang Wuhong, a Finance Ministry spokesman, pointed out that the
Ministry could not guarantee that the bond issue will enable the four banks
to meet the eight percent capital adequacy ratio set by the International
Bank of Settlements.  According to Agence France Presse, these banks had
capital bases of four to five percent and at least 25 percent of their
loans were non-performing.  The banks are also being pressured by the
government to write off bad loans, which involves foreclosure and other
aggressive collection efforts.  As in other Asian countries, this action is
difficult to execute because of political and social implications.

At the same time, the People's Bank of China issued a circular urging all
banks to separate themselves from non-financial entities they owned.  This
is a crucial step in saving the banking system, since there is a tendency
to support unprofitable linked businesses with favorable loans that are not
economically justified.  This linkage between banks and non-financial
businesses has been a key element in the Asian meltdown, since banks'
irrational lending practices have undermined their stability.  Of course,
this circular comes about five years too late.  With a conservative count
of 25 percent non-performing loans, the damage has already been done.

Not surprisingly, China's Xinhua News Agency reported that Beijing banks
reported a 121.7 percent rise in sales of foreign currencies in the first
half of this year.  Thus, we have the key elements of the Asian economic
crisis now clearly in view in China.  First, Chinese banks cannot meet the
minimal IBS standards, even with massive infusions of capital.  Second,
their non-performing loans stand at 25 percent.  Third, the government is
trying, far too late, to get banks to sell off capital-draining assets.
Fourth, the government is trying to get banks to write off bad loans.
Finally, the price of the yuan is kept stable while the public is buying
foreign currency.

The Japanese and the Chinese are tied together now.  If the Chinese were to
devalue suddenly, economies throughout Asia, including Japan, would be
devastated.  If the Japanese weakened any further, the Chinese would be
forced to devalue.  China has been warning Japan about this for the past
few weeks.  The Japanese can hear the creaking sounds of China buckling
under the strain.  The Chinese see an uncontrolled plummet in Japan's
economy, and are scrambling to do damage control, albeit too little and
much too late.

We believe that the next two weeks will be critical in the Asian crisis.
Japanese banks seem about to break.  The Japanese government is going to
forced to save them.  They will need to borrow money on the international
market to do so.  That means that they will need to strengthen the yen.  Of
course, strengthening the yen involves selling dollars, which undermines
their ability to borrow money.  The pressure on China will increase.  China
is trying to get its house in order, hoping to stabilize its banks in
anticipation of the crunch.  Of course, their own banking crisis is far
greater than a $30 billion bond issue can handle.

A question arises: the Chinese have been defending the yuan with currency
controls.  If Japan is facing its "most serious crisis" yet next week, is
there any way they can navigate through the treacherous waters without
imposing some sort of currency controls of their own?  Given the magnitude
of their problems and their unwillingness to impose genuine, wrenching
controls, we are beginning to wonder if there is any way out, short of such
controls.  And with the two largest Asian economies having controlled
currencies, what other Asian countries would follow suit?  We note that
Yamasaki was in Indonesia when he made his dire prediction.  Even if the
Japanese decide not to impose currency controls, the mere threat should
achieve what Japan wants most -- an American solution.  The U.S. is
committed to the current monetary arrangements.  If Yamasaki's crisis is as
serious as he is implying, the threat may not be as farfetched in a week as
it seems today.

That is speculation.  What is not speculation is that the Japanese are
worried about something, or at least want the world to think they are
worried.  We think it is a combination of a Chinese banking crisis and
Japanese bank bankruptcies, converging on each other.  And that is a
radical event requiring radical solutions that leave Japan's internal
social and political arrangements intact.  We are open to other
suggestions, but Japan does not seem to have many options.


STRATFOR Systems, Inc.
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Global meltdown poses nightmare scenario for U.S.

By Knut Engelmann

WASHINGTON (Reuters) - As U.S. Treasury Secretary Robert Rubin enjoys
a last week of summer vacation, a nightmare scenario is threatening
to unfold for the global economy that could be beyond the reach of U.
S. policymakers.

The financial crisis that started in Asia last year once looked
manageable, but analysts warned Monday it may turn into a global

Billions of dollars in international emergency aid have failed to
contain the turmoil. There is hardly an emerging market left that has
been spared. Russia's economy is crumbling fast, and now Latin
America threatens to become the next victim.

``This is a serious global emergency,'' said Greg Mastel of the
Economic Strategy Institute, a Washington-based think tank. ''It's
foolish to think that this problem is going to go away overnight.

Rubin has warned time and again that U.S. prosperity and jobs, among
the greatest achievements of the Clinton administration, could be at
risk if Asia's economic sickness infected other emerging economies.

The speed with which it is spreading around the globe has left U.S.
policymakers scrambling for new solutions. But as they struggle to
keep up with the crisis, officials are running out of fresh ideas.

``I don't think there's really much left that Washington can do,''
said Jay Bryson, international economist at First Union Corp. (FTU -
news) ``Nothing really sticks out that they haven't tried yet.''

``We must recognize that at best we can make marginal changes,''
added Mastel. ``The bulk of the work must be done by these countries

Washington has had its successes in preventing a financial meltdown.
Huge rescue packages drawn up by the International Monetary Fund
under the guidance of the United States helped some of the hardest-
hit nations, notably Thailand and South Korea, regain a semblance of
financial stability

Others have fared less well under the IMF regime, with political and
economic turmoil in Indonesia bringing down the government of
President Suharto.

An IMF-led $23 billion bailout package for Russia, concluded a month
ago, unraveled faster than Washington could have forecast even in its
worst-case scenarios.

What's more, the IMF's kitty has been all but emptied out, leaving
the international community ill-prepared financially for whatever
problem might spring up next.

That next challenge may well be a renewed round of economic turmoil
in Latin America. Last week, markets across the region were pummeled
by fears that Venezuela was about to devalue its currency, fanning
rumors that Brazil might not be far behind.

The financial firefighters at the U.S. Treasury Department kept out
of the limelight in recent weeks.

``We're watching things closely and we're in close touch with the G7,
the IMF, and our counterparts in major emerging markets,'' a senior
Treasury official told Reuters on Monday.

``Ultimately, what is important to a successful resolution of these
problems is sustained implementation of strong policies to restore
confidence,'' the official added.

Yet as Washington continues to lobby for economic reforms in the
affected counties, analysts said years of misguided policies that
helped to bring down many of the world's emerging markets could only
be dealt with effectively at their roots.

Russia, where President Boris Yeltsin has fired the entire government
of prime minister Sergei Kiriyenko because he failed to address the
country's worsening financial crisis that led to the devaluation of
the rouble, may be the best example yet for a crisis in which
Washington can do very little to help.

``This is almost beyond the reach of policymakers in the Group of
Seven (top industrial nations),'' said Thomas Gallagher, a political
economist at Lehman Brothers in Washington. ``Just look at how
impenetrable Russian politics are.''

President Clinton will have a first-hand chance to gauge the
situation in Russia when he travels to Moscow next month, accompanied
by the Treasury's top trouble-shooter for international affairs,
Deputy Secretary Lawrence Summers.

A financial collapse in Russia alone would have little effect on the
still-booming U.S. economy.

But the Asian crisis already has caused the U.S. trade deficit to
soar, and all that combined with a collapse of wobbly Latin American
economies might all of a sudden ring closer to home than most
Americans would like.

``It's like hurricane Bonnie,'' said Mastel, referring to the storm
threatening the eastern U.S. seashore. ``These problems are not of
our own making, and they are beyond our power to eliminate.''

US Warned on Global Economic Crisis
By Peter Alan Harper
AP Business Writer
Tuesday, September 22, 1998; 12:52 a.m. EDT

NEW YORK (AP) -- A leading investment guru and one of labor's biggest
leaders are among those warning that the United States is closer to crisis
than it thinks and must immediately increase its efforts to solve the global
economic crisis.

Robert Hormats, a vice chairman at Goldman, Sachs & Co., said the United
States is facing ``probably the biggest threat to prosperity since the oil
crisis of the 1970s.''

He and AFL-CIO president John Sweeney spoke Monday at New York University
Law School, part of a daylong conference on democracy and the global
economy. President Clinton and British Prime Minister Tony Blair addressed a
late afternoon session.

Sweeney spoke of being sure to include the world's devastated workers in any
solution to global economic problems.

Hormats' remarks came on a day the International Monetary Fund said that
global capital markets could face more turbulence if Japan does not resolve
its pressing economic problems quickly and if financial difficulties in Asia
and Latin America grow worse.

The IMF's annual report on capital markets also said net private capital
flows to emerging markets fell dramatically in 1997, the first significant
downturn in a decade.

The report did not address problems in Russia, where the government Monday
began printing 1.9 billion rubles, or $55 million, in an attempt to resolve
central banking problems.

Hormats and Sweeney spoke just hours after Japanese legislators failed to
complete a bill resolving its multibillion dollar banking problems, which
sent Japanese stocks into a swoon. Japan's main stock index hit a 12-year

Should the Japanese banking system fail, ``It would make the Russian crisis
look like a picnic,'' Hormats said.

Hormats, who is working to resolve private investment problems in Russia and
flew in for the panel, offered solutions:

--The Group of Seven industrialized nations rededicate themselves and work
with emerging markets.

--The United States needs to ``help Brazil in every way. If that falls, lots
of other problems will occur,'' Hormats said. ``If we abandon them now,
those supporting reform will say we did not come in their hour of need.''

--Build community by helping those who need it most -- which also resolves
long-term security problems.

``We need to show the softer side of capitalism,'' Hormats said. As an
example, he suggested delivering medicine and food to northern Russia, where
workers have not been paid for months on end

``They'll remember that. That will be an important contribution,'' Hormats
said. ``We will look concerned about these countries and not just be

Sweeney -- chief of a 13 million-member labor federation that signed up
400,000 new members last year -- spoke for the workers.

``Make no mistake about it, the real economy is taking the hit,'' Sweeney
said. ``Workers across the world'' are suffering.

Sweeney spoke of workers in South Korea, where 25 people commit suicide a
day, an increase of 36 percent since the economic crisis began.

He also spoke of places where children leave school to help support their

``The middle class is being pushed back into poverty,'' said Sweeney, who
subsequently offered a twist on such popular solutions as lowering interest
rates in the United States and getting the Japanese economy stimulated.

The world ``needs new international agencies ... not credit agencies or life
rafts'' for the rich, he said, taking a shot at such agencies as the IMF,
whose prescriptions include saving banks and cutting employee ranks.

``The president is right. We need not be an oasis of prosperity in a sea of

Is the big crash coming?
Economist warns to brace
for serious downturn

By Stephan Archer

As major markets in Asia and South America are forced to devalue their currencies sending unsettling messages through Wall Street, some economists believe that America should brace itself for a serious downward trend in the nation's economy.

Ron Holland is one of those economists who says a major market crash is likely. Having over 25 years of experience in trusts, investments and retirement planning and having authored numerous books and special reports, Holland is also president of JML Swiss Investment Counselors USA, Inc., sister company of its larger counterpart in Switzerland.

Holland not only believes that a crash is likely but that it could happen very soon -- possibly some time this year. The reason that he gives for a likely crash is the apparent bear market that the U.S. dollar has entered.

Referring to this bear market, Holland cites three reasons for its existence.

Commenting on the competition that has been introduced into the world market by the Euro, Holland said, "Many experts predict that $1 trillion will move out of the dollar to the new Euro and this may have a dramatic weakening effect on the dollar."

But it's not just world trends that have affected the U.S. economy. Actions taken by politicians have affected the world's economy in a big way. Holland said that over the past 50 years, government intervention in the economy has grown. Just in the last decade alone, manipulation of the market has become a full-time program by the Federal Reserve.

Why would the Federal Reserve manipulate the market? Holland said that it is due in large part to the political elite's desire to have a nice, ongoing bull market for election purposes. Holland said that there is nothing more important to a politician running for re-election than a sound economy. Thus, Alan Greenspan, chairman of the Federal Reserve, has, on a number of occasions, bolstered the U.S. economy through such means as extending credit to prevent any serious downward trends, according to Holland.

"Victory and survival of the U.S. financial infrastructure and the Washington establishment at any price are the goals of the Federal Reserve," said Holland. "This even includes manipulation and intervention in our investment markets to 'keep the good times rolling' for a while longer."

Not only will these "quick fixes" seriously affect the nation's economy, it will eventually do away with the free market, according to Holland.

"The opportunity to succeed or to fail is the primary requirement for a free society," said Holland. "Investment success or failure is also required in a self-regulating free market. When politicians disrupt the free market by bailing out politically favored institutions or investments, it only makes matters worse in the long term."

The reason that matters will be worse in the long term is that the free market must be looked upon as a living entity. Like a living organism, the free market has various processes and cycles. If something disrupts one of these cycles, which, in the case of the free market, are its financial peaks and troughs, serious consequences will follow. Thus, preventing the troughs from occurring could take a hard toll on the U.S. market and world markets as a whole.

With all of the quick fixes in our nation's economy, Americans may soon have to pay a heavy price. Holland expects that when the crash, which he refers to in his latest report as the "Greenspan Crash," occurs, the initial market pullback for the Dow will be 25 percent. A worst-case scenario, according to Holland, could resemble that of what happened in Japan last year with the Dow possibly dipping as low as 50-60 percent.

These things alone could possibly cause the market to crash, but other factors must be taken into account. One of these factors is what Holland calls "Washington's dangerous game of making foreign enemies instead of friends."

Immediately after the Asian market crash, billions of taxpayer dollars were shipped to the International Monetary Fund to buy time for the financial industry in the U.S. Holland said that during this time, some in the financial industry conducted "currency raids" on weakened foreign economies to make a quick buck, but this looting on other nations by U.S. investors left a bad taste for the U.S. in the mouths of foreign nations.

America's foreign policy is also creating more enemies than friends, said Holland. "While many foreigners feel they are hostage to American military power and foreign policy, American citizens and our financial markets are now becoming hostage to the escalating war between Muslim terrorists and the military power of America's aggressive foreign policy of attempting to police the world," said Holland.

Considering the reality that harsh feelings towards the U.S. are developing among foreign nations and including the fact that foreign nations now own over one trillion dollars of our nation's $5 trillion debt in the form of federal bonds, the consideration of a potential overseas dumping of these bonds in a financial crisis needs to be thought through as well.

Summarizing the stock market problem, Holland said, "Under Greenspan's leadership, the Federal Reserve's strong dollar policy has been to entice Asian investors to invest in the U.S. Treasury and stock market as they were forced to flee their own collapsing economies. This reduced Washington's debt interest costs and resulted in untold profits for U.S. banks and brokerage firms. Yet, we must weigh the benefits of this policy to Washington and the financial industry with the human and political cost to the rest of the world."

To get a free copy of Holland's print report entitled "Get Ready for the Greenspan Crash," call toll free at 1-800-985-4321 or send e-mail and mention WorldNetDaily. Provide name and postal mailing address.

The WTO and the De-synchronization of the Global Economy
29 November 1999


The World Trade Organization (WTO) is meeting in Seattle this week. The participants are so divided that they could not even develop a formal agenda for the meetings. While everyone is focused on China’s admission, the fact is that the WTO is moribund, only a few years after its creation. Its failure is rooted in the fundamental reality of today’s global economy: de-synchronization of regions of roughly equal bulk. Ever since the Asian meltdown, the world’s economic regions have been completely out of synch. Indeed, individual nations within regions are out of synch. That means that the creation of integrated economic policies is impossible. What helps one region hurts others. Thus, organizations like the WTO cannot function. Instead, regional institutions are emerging. The,y too, face conflict among constituent nations, but are more likely to create coherent and beneficial policies for their regions. This points to increased tension among and within regions. Such de-synchronization has been seen in the past. It is, over the course of a generation, a warning of the potential for serious international conflict.


The World Trade Organization (WTO) will hold ministerial level meetings in Seattle on Nov. 30. Representatives from 135 member countries and several observer countries, including China, will gather. Demonstrators protesting the effect of WTO policies on workers in the Third World will share space with demonstrators protesting the effects of WTO policies on workers in the advanced industrial countries. In fact, the demonstrations outside the meeting halls will be more interesting than the discussions inside. This is not to say that the demonstrations will be all that interesting. Rather, the meetings inside the hall will be an exercise in near irrelevance.

The purpose of the meetings is to kick off a new round of trade talks designed to increase free trade and reduce barriers to international trade. Preliminary talks in Geneva revealed such a sharp division among the 135 participant nations that it proved impossible to create an agenda for the meetings. In other words, the members were so divided that they couldn’t even agree on what ought to be discussed. President Clinton, the host, sought to break the logjam by turning the meetings into a summit, on the theory that a summit would raise the political stakes and decrease the chances of a total breakdown. By last Wednesday, however, the president had abandoned his plans for a summit, claiming that the logistics were simply too complex. The fact was that few were willing to come. Fidel Castro is said to be considering a trip. For the others, a WTO meeting has become a no-win proposition. They have come to expect little from the WTO but political trouble at home. Therefore, at best, nothing will happen at the meetings. At worst, a nasty confrontation will take place.

The international economic scene is divided by the usual issues. The United States wants Europe to cut its subsidies of farm products so that it can sell more products to Europe. The Europeans are refusing, since free trade between U.S. and European agriculture would devastate Europe’s farmers. Developing countries want to be excused from further liberalization of their trade policies, based on the fact that they still haven’t recovered from the benefits of the last round of cuts. Labor unions in advanced industrial countries want to set minimum labor standards in the Third World, which would make the Third World a less attractive investment. The Third World wants to do without the labor unions’ solicitude. None of these issues will be settled in Seattle. If the meetings go well, the countries will sign a meaningless document that will be hailed as the beginning a new round of trade liberalization. Nothing will come of it.

The WTO has ceased to be interesting. And that is very, very interesting. Ten years ago, as communism was collapsing, it appeared that we were entering a new era in which borders would no longer mean very much, corporations would become global and trade would become free. The development of the WTO represented a major event in human history, because for the first time, a single, international organization would exist whose mission it was to manage an increasingly integrated, global economy. However, instead of a Leviathan, the world delivered itself of a beached whale.

There are many small issues that have paralyzed the WTO. For example, the WTO is now dealing with a range of agricultural problems that are extremely difficult to manage. Implementing a strict free trade regime on agriculture would mean putting masses of farmers out of business in Europe and Asia. That would lead to social upheaval that the governments in those regions could not survive. Another example is the management of international trade on the Internet. No one knows how to enforce rules, let alone what those rules ought to be. Part of the problem is that the easy aspects of trade liberalization are behind us.

But there is a much deeper and much more important aspect to the decline in hopes for the WTO and other multilateral organizations, such as the IMF. The WTO, and the international economic system as a whole, is falling victim to the deepening de-synchronization of the global economic system, a de-synchronization which not only will define the first decade of the new millennium, but which also signals intense danger for the global system as a whole.

In the fall of 1997, the world’s economy went into a massive de-synchronization. The collapse of Asia’s financial and stock markets represented a definitive shift in the fundamental economic patterns in the region. The collapse was not accidental, but rooted in the region’s public policies and economic processes. It has defined Asia’s economy for a generation, and will continue to do so. Its problems will not be solved quickly. The current recoveries are quite real, but far from representing a return to patterns prior to 1996-97, they represent rebounds in general down trends or bottoming out. Nothing goes in a straight line. There were several upturns during the U.S. depression that seemed to indicate its end.

At the same time that Asia went into a massive downturn, the United States continued the expansion that began in 1982 and deeply intensified in 1995. This de-synchronization between the U.S. and Asian economies is stunning, when one considers the expectations at the beginning of the decade. We are not speaking simply of those who expected Asia to lead the way into the 21st century. The more important expectations were from those theorists who argued that the growth of international trade would create greater interdependence between countries and regions. This interdependence would have, as a key consequence, the emergence of an integrated global economy, in which business cycles would be intimately linked.

If this theory were correct, the Asian meltdown should have, at the very least, aborted American economic expansion. Indeed, the expectation was that Asia would lead the United States into its own collapse. There was, in fact, tremendous anxiety around the world during the last quarter of 1997 and throughout 1998 that precisely this would happen. It simply didn’t. This meant that the theory of the emergent, integrated global market was in error. Or more to the point, economic expectations remained regionally and nationally based. One of the results of the Asian meltdown was a massive shift of money out of Asia and into the American markets. This increased capital formation in the United States and actually fueled American growth, while limiting Asian growth.

This meant that the markets did not perceive a global market place but rather a series of linked regional markets, which could behave not merely differently, but in opposite ways. Indeed, they could cannibalize each other. The very liberalization of capital flows that developed over the previous generation had resulted in the creation of processes that weakened one region in the world and strengthened another. Each region, rather than converging on a single business cycle, diverged into its own cycle. Each region is at a different stage of its cycle, and therefore, policies that are beneficial to one hurt the others. This is compounded by divergent cycles on the national level.

Europe, as a region, behaved more like the United States than Asia over the past couple of years. But that is only if it is viewed on an aggregate basis. Disaggregated, or viewed nation by nation, one can see that Europe’s nations behaved in very different ways. Germany’s economic condition is very different than the United Kingdom’s. This nationalist aspect extends throughout Asia as well. It is increasingly difficult to speak of a single Asian region behaving in a single, integrated way. South Korea behaves differently than Japan, and both behave differently than Singapore or Malaysia. Thus, there is not only de-synchronization among regions, there is also de-synchronization within regions.

We have seen de-synchronization before. De-synchronization during the post-war period had a very different quality than today, due to two additional factors. The first is bulk: Asia, Europe and the United States behaved very differently during the 1950s, but the consequences of this de-synchronization were severely limited by the sheer bulk of the American economy as compared to Asia’s or Europe’s. When two relatively small economies are out of synch with a massive economy, the global system does not destabilize. The United States had more than enough bulk to stabilize the system. Today, the order of magnitude of Asia, Europe and the United States is such that there is a very rough equivalency in bulk. That means the system as a whole is no longer supported by one stabile mass.

This leads to the second phenomenon, which we will call equi-linkage. Three equally bulky economies are now connected to each other with a set of linkages that are not identical but significant. That simply means that Asian economic policy during the 1950s had little effect on the United States. Therefore, the United States could permit Asian economies to protect themselves from the United States, creating asymmetric rules. That is no longer the case. Policies adopted by Asia affect the United States and Europe, and so on.

We now have a series of regional economies (Asia, the United States, Europe and the Commonwealth of Independent States) and numerous nations all at different points of their business cycles — all out of synch. Three of these regions are of roughly equivalent bulk. Each region affects the other in its policies. The potential for political confrontation is enormous.

Consider: The United States is relatively late in a massive up-cycle. The Federal Reserve Bank is naturally concerned about inflationary pressures, which can be seen in the rise of commodity prices on a world-wide basis. The natural response of the Fed is to increase interest rates in order to cool off the economy and introduce greater discipline. As interest rates in the United States rise, money flows out of Asia, undermining the Asian recovery. Asia needs the United States to keep interest rates low in order to enhance Asia’s attractiveness to investors. The United States, de-synchronized from Asia, needs higher interest rates.

With regions of equal size leading to equivalent linkages, de-synchronization leads to constant friction. Every step taken by one region affects the other substantially. Now, since the United States is, at the moment, the most dynamic economy, it is affected least by the actions of the others. It therefore has the greatest interest in trade and finance liberalization, since its dynamism can take the greatest advantage of the situation. But, since the regions are out of synch, this will change over time. What will not change is this: The international trade and financial policies that benefit one region inevitably harm another. This means that the possibility of creating a single, integrated trade regime evaporated when the Asian and American economies went out of synch in the 1996-97 period. This can be seen in the trade disputes over agriculture with the European Union (EU) and within the EU, just as it can be seen elsewhere. De-synchronization is a global phenomenon.

In a de-synchronized world, politics take precedence over economics. In the case of increased U.S. interest rates threatening Asian recovery, there are two solutions. One is to accept the fact that Asia’s future is in the hands of the U.S. Federal Reserve and accept the discipline to become more competitive this imposes. This is good economic theory, if the society is politically and socially capable of accepting the costs. The other option is the creation of institutions to protect the region or nation from the most powerful economies. A key idea being discussed in Asia is the creation of an Asian Monetary Fund to prevent precipitous capital flows out of the region. Built around a pool of money called the Miyazawa initiative, it would work by issuing bonds guaranteed by Asian governments. This would essentially create a controlled Asian regional capital system that managed its relations with the rest of the world. The net result would be a currency bloc built around the yen or a yen-focused equivalent to the Euro.

The details of the proposals are less important than the fact that they are being made, and that they are being made by the Japanese, and taken seriously. Several countries, content to be in the dollar bloc, are less than enthusiastic. Others are avid advocates. The politics of the bloc will be fascinating to watch unfold. But this explains why no one is particularly interested in the WTO meeting. The real name of the game in a de-synchronized global economy is not the creation of global institutions, but the creation of regional institutions that function in synch with the regional business cycle.

In a de-synchronized world, integrated global trade and financial policies are impossible. The needs of each region and nation are so wildly different that most nations can’t afford to sit at the table. Regional policies become much more realistic. But because of equi-linkages, it is impossible to create autarkical, self-contained regions. What emerges are regions that possess tremendous tensions and that are in continual friction with other regions. Economic inefficiencies resulting from controlled capital markets increase divergences within and outside the bloc. Yet, the economies remain linked. What one does affects the other. Tensions among and within the blocs grow, beginning as economic tensions, then turning into political tensions. This is what is happening now.

De-synchronization was visible in the inter-war period from 1920-1930. The American boom in the 1920s ran parallel to economic depression in Germany, and later Japan. It resulted in American protectionism. While the United States was deep into its depression, Germany was emerging along with Japan. De-synchronization forced the creation of regional economic blocs built around regional currencies and regional interests. This led to intra-regional conflicts between the dominant power and lesser regional nations. It also led to inter-regional disputes. Those inter-regional disputes proved politically explosive, as the leaders of regional blocs manipulated the other blocs through economic and political means.

The inability to develop even an agenda for the WTO meeting is not accidental. The Asian countries held an ASEAN meeting over the weekend that was much more important to them than anything going on in Seattle. There can’t be increased liberalization and a central, global apparatus for managing the international economic system during periods of de-synchronization among regions of roughly equal bulk and linkage. We are, therefore, in the early stages of working through the political consequences of an economic phenomenon that is already in place. It is a phenomenon that the world has seen several times before. It is, over the course of a generation, a very scary phenomenon. We are still early in the process, but de-synchronization in a world of regions of roughly equal size and substantial linkage is a difficult process to arrest. It is even more difficult to contain the consequences.

Hoofbeats of the Black Horseman Page 3

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