The Asian Economic CrisisOver the last several months, the economic news has been dominate

The Asian Economic Crisis

Over the last several months, the economic news has been dominated by the crisis in East Asia—uncontrollable fluctuation in stock markets, widespread business and banking failures, and the sharp decline of currencies throughout the region. Americans are concerned when our stock market fluctuates in response, they wonder about our role in responding to the crisis, and they worry about the overall impact of the crisis on the U.S. economy.

What is the Crisis？

The economic trouble in East Asia is largely a banking and investment crisis linked to a collapse of investor confidence. Because East Asian economies are closely tied together, a series of problems—starting with a flawed exchange rate policy in Thailand this past summer—have quickly spilled over into neighboring countries. Five countries have been hit the hardest—Thailand, Indonesia, South Korea, and to a lesser extent, Malaysia and the Philippines—but a total of thirteen countries have been affected. Taken together, these economies comprise approximately a third of the world economy. The sum of money involved make this the largest economic crisis in recent years, far larger than the Latin American debt crisis of the 1980s or the Mexican peso crisis in 1995.

What Caused it？

For several years, Pacific Rim countries were growing rapidly. A huge wave of investment poured into these "Asian tiger" countries, but much of it was invested unwisely. In a word, there was too much of everything: over-investment, overloading, and over-building in ill-conceived real estate and industrial projects; over-saving, diverting the buying power from people; and over-guidance, with too many bureaucrats and government officials deciding which companies receive loans and investment. The region's successes Obscured banking and financial systems full of mismanagement and corruption. People ignored warning signs in the booming, rapidly changing economy, and overlooked the lack of reliable information and financial system safeguards.

How Serious is the Crisis？

The Asian financial turmoil represents a serious threat to global prosperity. We are clearly at a critical moment for Asia. The outlook today is better than it was a few weeks ago, with most markets showing signs of recovery. Yet we should not be complacent. The problem is that the loss of confidence can be highly contagious. If, for example, Indonesia's economy collapses, so could other nearby economies, and that could take down markets across the world. In addition, although the crisis has not spread to China, it faces some of the same problems as its neighbors. So clearly the main concern is that the crisis will not worsen and spread.

What is the Impact on the U.S.？

Most experts believe that the current turmoil will have a modest but meaningful impact on the U.S. Our economy is fundamentally strong and should be able to weather the current crisis. Moreover, as a result of our own financial crises in 1929 and in the 1980s, protections have been put in place to prevent most of the problems the East Asian economies are experiencing.

On the negative side, U.S. will likely see its trade deficit grow as changes in exchange rates make imports cheaper and our exports more expensive. Some U.S. companies could see lower profits and some job loss, and wages could be held down. The experts think that U.S. economic growth for 1998 could be cut by up to a point, to around 2%. On the positive side, cheaper imports mean lower prices for consumers and should help keep down inflation in the U.S. In addition, our interest rates are falling, as investors worried about East Asia shift their funds to the U.S. That means, for example, lower home mortgage(抵押) rates for Americans.

A greater fear is that the problems may undermine the political stability of the region and affect U

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