The Asian Currency Crises
The average Canadian has become conditioned to rising prices, however it is impossible to ignore the impending threat of a sustained decline in prices and wages. Roger Bootle, a respected British analyst, points out that the chronic inflation experienced by Western economies in recent decades is unusual, as in the past centuries prices tended to fall as often as they rose. Today, however inflation has almost disappeared, due to globalization and changes in technology that have made markets more competitive and decreased the power of unions. For millions of consumers, the resulting drop in interest rates has made mortgages, car loans and other major expenses more affordable. Investors have benefited as well, because lower corporate borrowing costs and increased consumer demand have contributed to big profits and generous returns for shareholders. Unable to raise prices at will, companies have endeavored to improve productivity, which ultimately leads to a higher standard of living for all. Was Asia's economic boom a miracle, or just a mirage? That is the overriding question facing economists today. For nearly a decade, Asian economies grew rapidly where industries such as textiles
Because of high consumer indebtness, it may be hard to get the consumer to open her purse even with lower foreign prices. The desire for larger homes in Vancouver has already diminished even though prices have fallen off. A year ago, the average home in Vancouver's affluent west side sold in the $800 000 range while today most homes go for closer to $600 000. However, housing growth across Canada is expected to continue growing, but at a much slower pace than in the past two years. The Asian currency crisis may indirectly influence the housing industry by leading to higher short term mortgage rates, slower income growth and reduced commodity prices. These effects are expected to be temporary, as steady job creation and economic expansion is predicted by CMHC. In turn, with the collapse of one economy, another followed. The most significant was Japan. Japanese banks are the biggest lenders to Southeast Asia and Japanese manufacturers are the region's largest investors. As foreign markets collapse, the Japanese banks struggled to absorb large collections of domestic bad debt. Moreover, Asian corporations had been drastically overborrowed in foreign currencies (mainly the US$) on the assumption that their own currencies were either stable relative to the US$ or pegged to that currency. Many of these borrowers were huge conglomerates using high debt leverage. With the decline in their currencies, those conglomerates are now looking at average debt ratio's of eight-to-one. The current economic crisis in Asia shows that deflation in indeed looming in the shadows. In Japan, prices in many industries have been falling for most of the 1990's. The entire region is suffering its worst deflationary spiral since the 1930's. Lower priced imports and reduced Asian demand for Canadian and American products is the first noticeable effect. A drop in the prices of existing assets can affect real economic activity, not only by changing incentives to consume and invest but also by impairing the health of financial intermediaries. In dollar terms, the Asian markets have now fallen 75%. By contrast the decline in the Dow in the early years of the Great Depression was 80%, occurring over a period of four years. The Asian stock markets made their decline in a mere six to eight months. The shift from inflation to deflation would be brought on by a decrease in global capacity and devaluation of currencies, which are seen as the cause of Asia's woes, and are only beginning to take their toll on the rest of the world. Decreasing Asian demand has put downward pressure on base metals such as copper, nickel and aluminum. The continuing decline in gold prices, likely points to a coming collapse in commodity prices, says a chief economist in New York. Deflationary pressures on the commodities are expected to be boosted by lower prices in manufactured goods and other exports from Asian countries who have a price advantage due to their devalued currencies. On the car lot, this means that prices are being slashed up to $3000, and in the high tech sector prices of computer chips tumbled more that 60% last year. Massive increases in productivity is one of the only reasons the sector is performing relatively well. Rapid price deflation in assets such as real estate or equities could have severe repercussions on the economy, and the government does not have the weapon of higher interest rates handy to cool the market. Previously, it was thought that the new engine of the world economy would lie in the billions of consumers in Asia. Now it appears that these consumers face certain financial hardship, and political uncertainty. One effect from the Asian crisis that Canadian consumers can anticipate is a wave of cheaper Asian goods. Many economists expect the comparative strength of the U.S. dollar and efforts by some struggling Asian companies to raise cash with bargain sales to result in cheaper imports on Canadian soil. "
Some common words found in the essay are:
March Dow, Moreover Asian, North America, Growth Deflation, Currency Crisis, Background Asia's, Outlook Slower, York Deflationary, Roger Bootle, Oil Gas, commodity prices, asian crisis, asian currency, canadian consumers, canadian economy, asian currency crisis, japanese banks, currency crisis, lower prices, asian companies, asian countries, leverage decline currencies, debt leverage decline, currencies mainly us$, effect asian crisis,
Approximate Word count = 3367
Approximate Pages = 13 (250 words per page double spaced)
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