A thunderbolt is about to strike the American and European economies according to the analysis of one US economist.
How will the Asian crisis reach the shores of America and Europe? The currencies of the Asian tigers and Japan have declined sharply in recent months. Their exports have become cheaper abroad and imports have become expensive at home. They have also seen business closures and layoffs. Asian consumers have been cutting back on their household spending. Expensive foreign goods and falling demand will sharply trim imports; but lower prices will stimulate exports. Thus, in the months to come, Europe and the United States will see a sharp increase in their trade deficits with Asia.
Companies in Europe and North America will suffer sales losses; their profits will fall, and that means crushing losses in share prices, which have been soaring from the promise of ever-increasing corporate profits.
At first, shareholders in Europe and North America will be complacent; they will be advised by Wall Street brokers and bankers not to panic, because the US fundamentals are supposedly very sound.
Bill Clinton and Alan Greenspan will reassure the public and possibly lower the interest rates. The experts will sing the glories of long-term investing to the public. As a result, after each downturn, stock markets will recover somewhat.
But the global supply-demand gap will not disappear, and we will continue to see crashes in the financial markets. At some point the public or institutional investors will panic. That is when a thunderbolt will strike the New York Stock Exchange, perhaps in the summer of 1998, or around Christmas, and definitely by the end of 1999.
The thunderbolt could come in one massive jolt or, as with Japan in 1990, in a series of weekly market declines. America, after all, is a...