-Caveat Lector- from: http://www.aci.net/kalliste/ <A HREF="http://www.aci.net/kalliste/">The Home Page of J. Orlin Grabbe</A> ----- Today's Lesson From From Stock Market Crashes of 1998 & 1999 by Ravi Batra The speculative bubble burst open in Japan in 1990, but it continued to expand in the United States and most other countries, and turned into a global bubble. Even though stock markets in Asia and Latin America crashed at the end of 1997, the bubble was not yet pierced; it had been deflated somewhat, but not punctured. This is because the United States, the world's locomotive and the largest economy, experienced only a slight decline in its share markets. The Dow hovered around 7,800, which was below its August peak but still more than nine times its low point in 1982. Western Europe, Canada, and Australia also suffered only minor drops in share prices. Thus the global bubble continued to flourish as 1997 came to a close. Although Japan had already suffered a sever-year stagnation, it was still a part of the international bubble economy, which it had helped to build through its trade surpluses and reckless lending to Korea and the baby tigers. The global bubble had localized balloons in various nations, with the US balloon still the largest in the world. Europe's bubble was next in size. Japan's balloon was small relative to what it had been at the end of 1989, but it was still filled with hot speculative air. Japan's banks were saddled with numerous bad loans, domestic as well as foreign, although share and land prices had indeed collapsed. ===== US Economy US Trade Deficit Widens to $24.6 Billion in June US economy, stock market fueled by borrowed money NEW YORK - The U.S. trade deficit widened far more than had been expected in June, the government reported Thursday, expanding to a record $24.6 billion and underlining the role of American consumers as buyers of last resort for exports from weaker economies. While U.S. exports rose to $78.4 billion from $78.0 billion in May, led by automobiles and car parts, food and industrial supplies, the almost 4 percent gain in imports was much larger. The $103 billion in imports was spread across several categories, analysts noted, including automobiles, computers, clothing, manufactured goods and organic chemicals. Much of this reflected demand from individual consumers, who have been on a buying spree. ''If you look at the year-on-year percentage increase in consumer goods for the first half of this year, it is 8.2 percent larger than the same period last year,'' said Takanobu Igarashi, senior economist at Sanwa Bank. ''If you want to stop or slow this trend,'' he added, ''you have to slow the growth in domestic demand.'' There are several reasons the United States might wish to curb the yawning trade deficit, among them fear of a protectionist backlash. Some domestic industries, notably steel and agriculture, have complained of unfair pricing by foreign competitors, and the government is moving toward restricting imports. The issue presents a political problem in Washington, which is not eager to alienate its constituents but which also does not want to encourage trade barriers. There also is a question of economics. The U.S. economy has been the main engine of global growth in the past two years. But rising levels of consumer debt and dwindling savings could lead to a crisis if the stock market's outsized gains of the last four years were to reverse, reducing Americans' wealth. Finally, the trade deficit itself contains the seeds of a financial crisis. ''A trade deficit is only a problem if you can't finance it,'' said Carl Weinberg, chief economist of High Frequency Economics in Valhalla, New York. So far, he said, there has been scant evidence that foreign investors are unwilling to buy such American assets as stocks and bonds, although there have been signs of an outflow of funds from Wall Street to the faster-growing Tokyo stock market. The trade data weighed on the dollar, exacerbating its recent slide against the yen. Late in the day, the dollar was at 111.47 yen, down from 111.91 yen Wednesday. The euro strengthened to $1.0641 from $1.0528 The dollar has been falling against the Japanese currency since mid-May, when it stood at more than 124 yen. Since then, the Nikkei 225-stock average in Tokyo is up about 10 percent, while the Dow Jones industrial average has barely changed. At the close Thursday, the U.S. blue-chip average was down 27.54 points at 10,963.84. Bonds were little changed, benefiting from money flowing out of the stock market but suffering from the weakness of the dollar. The 30-year Treasury issue ended at a yield of 6.03 percent, up from 5.99 percent late Wednesday. In June, the merchandise trade deficit with Japan widened to $6.3 billion from $5.3 billion in May Mr. Weinberg said the market reaction to the trade data in particular and the relative attractions of Japanese and U.S. investments in general were overdone. ''There is a bubble of optimism that has arisen over the Japanese economy,'' he said. ''This started a flow of money into the stock market, which then became a self-sustaining speculative run.'' He said he expected the situation to reverse next month, when traders return from vacation and when Japan releases new economic data. ''There is no growth scenario in the world that gets Japan outperforming the United States in any foreseeable point in the future,'' he said. But for now, the Federal Reserve Board is expected to nudge short-term interest rates up at its policy-setting meeting Aug. 24 to slow domestic growth. Although traditional measures such as the consumer price index have not shown significant inflation, there are signs that the United States is close to running out of workers, which is causing wage pressures as employers have to pay increasingly higher wages to attract employees. Mr. Igarashi said it was also in the government's interest to let the dollar depreciate, but that if it were to fall below 105 yen, Tokyo might prevail upon it to intervene in the currency markets. As the dollar falls, it becomes increasingly difficult for Japanese exporters to price their goods attractively for the U.S. market. International Herald Tribune, August 20, 1999 Money Laundering Bank of New York Under Money Laundering Investigation Russian organized crime? The Bank of New York yesterday confirmed it was the subject of an investigation into claims the bank was used to launder billions of dollars for Russian organised crime. The bank said it had suspended two employees pending completion of the investigation. However, officials added that an internal inquiry, "supported by independent review" suggested this was an isolated incident. Frank Scarangella, a spokesman for the bank, said: "The Bank of New York has been co-operating with the office of the United States Attorney for the Southern District of New York in a confidential investigation of the use of bank facilities to transfer funds from Russia to other countries. "Two employees of the bank who have been mentioned in the investigation are now on leave pending completion of the investigation." Allegations that up to $10bn from Russian organised crime may have flowed through the Bank of New York were first reported in the New York Times yesterday, which said the bank employees suspended were both the wives of Russian businessmen. The investigation into the bank's accounts highlights efforts by international law enforcement agencies to combat money laundering by criminal organisations. Earlier this week, the Swiss authorities froze several bank accounts following a money laundering investigation requested by the Russian authorities. Swiss investigators yesterday confirmed they had frozen Russian bank accounts in Switzerland in response to a May 5 request for legal assistance by Russian prosecutors. The amount frozen was roughly $65m according to Swiss sources, and is believed to be linked to an investigation into the finances of Boris Berezovsky, the Russian businessman. Officials at Bank of New York stressed there were no allegations or wrongdoing by the bank, and there had been no loss of funds by customers or the bank itself. By around midday on Wall Street, shares in the bank were down 3.4 per cent. British law enforcement and intelligence agencies have been passing information about suspect money laundering operations by Russian organised crime for over a year, officials in London confirmed yesterday. The New York Times reported the bank accounts being scrutinised had been linked to Semyon Mogilevich, a Russian businessman under investigation by law enforcement officials. Mr Mogilevich was the key figure behind YBM Magnex International, a US-based maker of industrial magnets that traded on the Toronto Stock Exchange. The company was delisted last year following securities investigations in the US and Canada, costing shareholders about C$635m (US$429m). Additional reporting by Edward Alden in Toronto and Jimmy Burns and Charles Clover in London The Financial Times, August 20, 1999 European Commission Prodi Probed Again Held interest in Bologna consulting company while he was prime minister THE Italian authorities have reopened a criminal investigation into the activities of Romano Prodi, the President-designate of the European Commission, just two weeks before his confirmation hearings at the European Parliament in Brussels. The case involves a Bologna consulting company owned jointly by Mr Prodi and his wife which received £1.4 million in consulting fees in the early Nineties. Mr Prodi failed to declare his interest in the company while he was Italian prime minister, in possible violation of Article 12 of the code governing conduct by Italian public officials. The Procura di Bologna announced this week that it was launching a fresh inquiry into the firm as a result of investigative reporting by The Telegraph. Mr Prodi said that it had come as an unpleasant surprise, but he expected to be absolved soon. he said in an interview with the Bologna newspaper Il Resto del Carlino: "I didn't expect such a thing, but I'm calm. This deals with an old matter that has been cleared up long ago. Previous inquiries have discredited the accusation." The company, Analisis e Studi Economici, was investigated briefly in 1996 by the Procura di Bologna after reports by the journalist Antonio Selvaticci. Mr Prodi was soon cleared. The case is now being reopened because of an article in The Telegraph noting that some of the payments came from sources that overlap with another unrelated criminal investigation of Mr Prodi in 1996, in which he was also cleared, involving the privatisation of the Cirio-Bertolli-De Rica food conglomerate. In the Cirio case the prosecutor, after a damning expert report, had recommended pressing charges against Mr Prodi for conflict of interest and abuse of power. The judge appointed new experts and later dismissed the case. It is the intersection of the two separate inquiries that is potentially significant. Until now, they have run on separate tracks. Mr Prodi says that he was not obliged to declare his interest in the company because it did not pay dividends in the years in question. It reinvested the money in Bologna property instead. This is a disputed issue. The Italian law states that any stock ownership in a company must be declared. It does not appear to provide any exemption for firms that reinvest their profits. Mr Prodi has published a synopsis of the documents from Analisis e Studi Economici on the website of the European Commission. They purport to explain the origin of the £1.4 million consulting fees, but in fact do no more than recap the information that is already available to the public in the computers of the Camera di Commercio in Bologna. The internet release states that the consulting work was for Goldman Sachs International, General Electric and Pacific Telesis International. But it does not provide full documentation. The commentary refers not to the company's gross receipts but to its "operating results", which appear far less to the casual observer. The company secretary, Fabrizio Zoli, was convicted of book-keeping fraud in an unrelated case this year. Nor does the website answer the central question of who paid Mr Prodi and his wife, Dr Flavia Franzoni, £455,000 in 1993, the year that Mr Prodi took on the post as head of IRI, Italy's giant state-holding company, and carried out the controversial privatisation of Cirio-Bertolli-De Rica. Mr Prodi has retracted information provided to The Telegraph by his lawyer, Piero Gnudi, stating that some of the consulting fees came from the Anglo-Dutch multinational Unilever. In fact, Unilever paid him £18,000 a year into a different bank account when he served as an advisory director from 1990 to 1993. The London Telegraph, August 20, 1999 ----- Aloha, He'Ping, Om, Shalom, Salaam. Em Hotep, Peace Be, Omnia Bona Bonis, All My Relations. Adieu, Adios, Aloha. Amen. Roads End Kris DECLARATION & DISCLAIMER ========== CTRL is a discussion and informational exchange list. Proselyzting propagandic screeds are not allowed. Substance—not soapboxing! These are sordid matters and 'conspiracy theory', with its many half-truths, misdirections and outright frauds is used politically by different groups with major and minor effects spread throughout the spectrum of time and thought. 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