World Wide Web of Money Causes Fear & Panic

The U.S. stock market fell sharply Friday as the Indonesian currency plunge – and sight of the country's residents hoarding food in a Depression-like panic – renewed fear that Asia’s financial crisis will hurt the U.S. economy much more than previously thought. Stocks also sold off after a better-than-expected U.S. jobs report convinced some investors that the Federal Reserve might not lower interest rates immediately. The government report showed the nation added 370,000 jobs last month to cap the strongest employment picture in 24 years.

The conflicting signs of a surging U.S. economy but faltering global markets have perplexed investors and policy makers. On one hand, the U.S. economy is enjoying vibrant job growth, moderate wage gains and virtually no inflation. (Of course, these evaluations are all based on the government’s statistics, which are unreliable due to the influence of partisan politics on the markets. WFI Editor). But fears are mounting that it’s only a matter of time before the deepening Asian financial turmoil infects the domestic economy and dramatically eats into U.S. corporate profits.

Those worries were behind the sell-off that sent the Dow Jones industrial average down 222.20 points, or 2.9%. It was the market’s biggest drop since it nose-dived 554 points, or 7.2%, on Oct. 27, and it punctuated a turbulent week in which tumbling foreign markets pushed the blue-chip index down 4.8% -- the biggest weekly drop since mid-October 1989. (The percentages the "experts" quote in their efforts at damage control, do not reflect the dramatic rises in the stock market that have taken place in the last 2-3 years. It took the Dow Jones about 40 years to go from 1000 to 2000, but it has skyrocketed to 8000 in the last year, taking a mere 6 months to rise 1000 points. The speculators in the market -- the majority of investors -- are on edge because they are afraid that there will be a "correction," in which a large part of the value of the market may just disappear, as happened in 1987. WFI Editor)

"It’s going from a financial crisis to, in some places, a financial collapse," said Alan Skrainka, chief market strategist at Edward Jones & Co. in St. Louis. "When you see a Depression-style run on grocery stores in Indonesia, that’s the signal we’ve moved to a new phase of the crisis." Because of the fear and uncertainty, many investors are simply pulling money out of stocks into safer havens, such as short-term bonds. The way the stock market has started the year does not bode well for the rest of 1998. The performance of stocks in January has traditionally served as a barometer of their showing for the entire year, and the first five days has been a gauge of their strength for the month. Many analysts believe the stock market will be hard pressed to maintain the unprecedented gains of the past three years, when the Dow industrials surged better than 20% each year.

Investors are now focusing on the deteriorating situation in Indonesia, where stock and currency values have slumped amid worries that an economic aid package will fall apart because the Jakarta government has balked at implementing tough fiscal restraints. On Thursday, after the currency lost nearly a fourth of its value in one day, thousands of the country’s panicked residents jammed grocery stores to stock up on food, and Dictator Clinton sent Deputy Treasury Secretary Lawrence Summers to meet with Indonesian Dictator Suharto. The Indonesian turmoil, which follows by only a few weeks a major bailout of South Korea, has erased hope a little more than a week ago that the worst of the Asian debacle had passed.

The International Monetary Fund (IMF) and major governments have cobbled together aid packages to right the Asian economies. But the plans require stringent fiscal sacrifices that, at best, are likely to leave most Asian nations in, or close to, recession this year. "It’s the constant bad news every day you come to work," said Robert Bissell, chief investment officer of Wells Capital Management in Los Angeles. "For a while, it was what was happening in South Korea and how bad that was. And now it’s Indonesia. It’s like a flu that keeps spreading."

The Asian crisis hurts U.S. companies in two ways. Sagging Asian economies mean U.S. companies can sell fewer goods in the region. Also, suddenly weaker Asian currencies mean those countries can now export cheaply priced goods into the U.S. potentially forcing American companies to lower their prices. (Imagine! Lower prices for Americans when they spend their hard-earned money, those scoundrels! WFI Editor). Those worries have prompted talk lately about the possibility of deflation. That could create a unique set of problems in the U.S. by shrinking corporate earnings and perhaps triggering job cuts as companies scramble to maintain their profit margins. (God forbid U.S. companies should fire their over-paid executives. WFI Editor)

The talk of deflation was fed last weekend when Federal Reserve Chairman Alan Greenspan addressed the topic in a speech. On Thursday, Greenspan’s Fed colleague, Laurence Meyer, said he does not believe that significant deflation will occur, but he added that "a much larger spillover from the Asian crisis would encourage an easing" of credit. A few prominent market experts have suggested that the U.S. has entered a bear market, where stock prices fall 20% or more. The Dow is 8.2% off its August 6 high. Experts point to the fact that Wall Street has consistently underestimated the scope of Asia’s travails since its crisis started in July and broke out into the open in October. But many other Wall Streeters dismiss that thinking. While Asia is sure to slow U.S. economic growth, they argue that the U.S. economy is too strong and diversified to be crippled by problems abroad…

With the stock market gyrating, more investors are heading for the safety of the bond market. On Friday, buying demand pushed the yield on the 30-year Treasury bond down to 5.73% from 5.74% on Thursday. Yields on shorter-term bonds fell by greater amounts. That is a sign investors expect the Fed to lower interest rates. As yields have fallen recently, many U.S. companies have rushed to sell bonds to take advantage of low borrowing costs, and investors have gobbled up the issues. Low rates have been a boon to homeowners and home buyers by causing mortgage rates to fall. Mortgage refinancing activity has picked up noticeably, and banks expect the trend to gain even more steam in coming weeks. Falling bond yields and lack of inflation are usually good signs for the U.S. economy and might, under normal circumstances, actually push up stocks. But fear about the Asian crisis is too great: "The international events are overwhelming the domestic numbers," Bissell said.

SOURCE: Reprinted from the 11 January, 1998, issue of the Los Angeles Times, Orange County Edition. Reprinted in the public service of the national interest of the American people.

(WFI EDITOR: The stock market does not represent any kind of leveling of the distribution of wealth, and the inference that stock values are enriching average Americans is silly. The main players of the market are institutional investors, and the institutional connections they share constitute a kind of web that captures and controls the lives of real, flesh and blood human beings. Like at the time of the Great Depression, when the modern American economy was taking shape, the international economy today has been facilitated through the inflation of the money supply. Eventually the real values catch up with the market, and the result is a bust [the opposite of a "boom"]. The only problem, however, is that the money supply only effects people who rely on the money markets to acquire their most basic necessities, the wage-earning laborer; the extremely wealthy are usually not effected by swings in the market, due mainly to the fact that their wealth is not held in money, that changes in value with the market, but raw wealth, like land, jewels, industrial plant, etc. Property often acquired through less than honest means by some unwholesome "relationship" with the republic).