Avoiding sharp objects in 1999
BOSTON — The global economy, while more calm and collected, still needs to walk gingerly. Sharp objects include:
Consumers have been on a spending spree, and everyone is counting on them to keep up the pace next year.
They need to buy imports to keep foreign economies afloat and domestic goods to keep the US engine churning. If they lose confidence, the US could sink into recession.
It's a recent economic event where prices fall without increasing demand - as if gasoline prices went to 50 cents, but motorists responded by buying more Honda Civics.
To make profits, corporations need to sell lots of goods at lower prices or fewer goods at higher prices.
Deflation rules out both.
Some parts of the global and US economies already feel it: Prices for oil, steel, grain, and hogs are all in free fall.
Spreading deflation could bring higher unemployment and recession.
Japan has apparently come to grips with its banking problems by passing a $550 billion bailout program.
It also needs to stimulate its economy and seems ready to spend billions on that effort as well, leading many economists to believe Japan will muddle through1999.
That may be as good as it gets; by 2000, say economists, problems may resurface.
Japan also has a talent for missing expectations. Business conditions now look worse than expected; consumer confidence is sinking.
Already in recession, Japan could sink lower.
If Brazil does a belly flop, Latin America likely follows. It is the economic engine in Latin America.
This key to US economic health now flirts with the same economic problems overwhelming Asia.
An $18 billion international rescue package has helped, but it requires unpopular austerity measures.
China is starting to replace Japan as the linchpin to Asia, and it faces stiff competition in building its economy.
Its Asian neighbors often have more efficient manufacturing and cheaper labor and basic commodities.
If China succumbs to pressure to devalue its currency, the rest of Asia could buckle under another crisis.
Russia tried to swallow capitalism and choked.
It is considered an economic basket case, and few experts think it will get better sooner. However, Russia is also a nuclear power, which makes for a wildcard in the global economy.
Perhaps the greatest risk to the economy is that the fixes of 1998 turn out to be little more than Band-Aids.
Alan Greenspan launched a global rescue plan by cutting US interest rates, prompting rate cuts in Europe. The experts call this "monetary stimulus" - lowering rates to boost consumer and business spending.
So far so good, but can it last? This has never been done before on a global scale, and there is precedent for it not working even on a smaller scale.
Japan has cut interest rates to near-zero, with zero positive impact.