AUSTIN, Texas -- Ecuador recently moved to the dollar standard for its
economy in an effort to bail itself out of one of those credit-flight crises
that seems to afflict countries like a case of flu going around the globe.
The dollarization of that economy has touched off a flurry of commentary
among economists, who are on-the-one-handing with even more vigor than
The alternative to the Ecuadorean move is something like what Singapore
tried to do, a little late, during the collapse of most of the Asian economy
two years ago. Basically, what Singapore did was to freeze foreign capital
and say, "Sorry, buddy, but you can't take your money out of here for a
while." This naturally upset all those geniuses at the International
Monetary Fund, who are wedded to the "we had to destroy the village in order
to save it" school of economic repair.
There's a wonderful word, "iatrogenic," describing an illness that you get
from going to the hospital to have another illness treated. I always think
of the IMF as a dispenser of iatrogenic ills.
So here's this nifty little economic debate: Should a country in trouble
try the Ecuadorean solution or the Singaporean solution? I have another
question: If a capital-flight crisis hits the United States, how do we
dollarize our economy?
In a little-noticed move a few days before Christmas, Standard & Poor's put
the U.S. financial system on its watch list of 20 countries that are
vulnerable to a credit bust. We're on it, along with such powerhouses as
Turkey. The excellent Bill Greider, now reporting for The Nation, says,
"Aside from the stock market, the credit-rating agency observes the rapid
rise in domestic debt and in non-performing loans at commercial banks."
And on top of that, the United States is now a debtor nation to the tune of
18 percent of the gross domestic product -- which is, economically speaking,
a hole the size of the Grand Canyon.
Greider notes that America got very lucky when the global financial crisis
caused falling prices and sent foreign capital surging into U.S. financial
markets. We naturally assumed that the resulting wave of prosperity was due
to our own genius; that we had invented a "new economy" that would never
have a down cycle again; that Alan Greenspan, the Washington Wizard of Oz,
has us on a fail-safe course; and so forth.
Hubris? Who, us? We're the Alfred E. Neuman of economics. (Alfred E. is the
red-haired, gap-toothed symbol of Mad magazine who is always saying, "What,
Assume, just for a horrible moment, that the United States itself undergoes
a sudden flight of foreign capital. Recall that this no-downside "new
economy" was nearly brought to ruin by one overleveraged hedge fund. OK,
capital pulls out in droves, and what have we got?
Under the Great Guru Greenspan, the volume of reserves required at
commercial banks has been dramatically reduced -- Greider says from around
$40 billion 12 years ago to less than $10 billion today. Banks are now also
stockbrokers and insurance companies, which spread financial flu nicely
across the entire structure. And, you may have noticed, our stock market
bears a striking resemblance to a market infested with ... well,
You may recall from your history books that the Crash of '29 was caused by
people buying stocks "on margin" -- in other words, putting in real little
money. One of the things that the Great Greenspan has refused to do is raise
the margin on investors' borrowing.
This is because Greenspan does not believe in government regulation. He
thinks banks should be allowed to police themselves. (Anyone else remember
the time that our genius banks put all that money into Latin America and
then had to write off the loans?) Unless, of course, they're "too big to
fail" -- which most of them already are. Then the Fed bails them out, along
with delinquent hedge funds and other merrymakers.
The one form of "regulation" that Greenspan embraces is raising interest
rates, which he is fixing to do in a few weeks. (We more or less know this
because Greenspan, who does not speak English, so indicated in a Delphic
utterance on Jan. 13.) There is, of course, no inflation anywhere on the
horizon, and that's what interest rate increases are supposed to control,
but Greenspan's idea of a shrewd move is to increase unemployment -- as
Greider says, "to punish innocent wage earners for the excesses of Wall
Meanwhile, none of this is part of the presidential campaign. We are
getting zip, nada, on globalization and the risks of the current economy.
(George W. did plead to "tear down terriers and bariffs" but I don't think
that counts.) We are getting nothing from our candidates about whether this
is actually a technology-driven boom or whether tech stocks are the latest
equivalent of the 17th-century tulip mania.
>From 1994 to 1999, the S&P index increased in value by 192.7 percent, but
company profits increased by only 64.9 percent. Consumer debt is at
unprecedented levels. Greenspan's only prescription for how to slow this
down is that you should lose your job.
And all our candidates are worried about the Confederate flag in South
Molly Ivins is a columnist for the Fort Worth Star-Telegram. To find out more about Molly Ivins and read features by other columnists and cartoonists, visit the Creators Syndicate web page at
www.creators.com. COPYRIGHT 2000 CREATORS SYNDICATE, INC.