Summers, whose credibility has been irrevocably tarnished internationally by his inept handling of the global financial crisis in the past two years, gave another admonishing speech in Japan last Friday, February 26, 1999, warning Japan not to depend on a weak yen to boost its economy, using worn-out slogans such as: "the exchange rate cannot be a substitute for policy." Its an amazing posture after Rubin/Summers turned down a Japanese/EU joint proposal for a 3 currency stabilization regime last month at the G7 meeting in Bonn. Being a bit humbled by his own dismal record of first diagnosing the Asian crisis as merely transient, then IMF off-the-shelve conditionalities as the only cure, and finally non-intervention of free financial markets as a inviolable guiding principle, Summers declared vaguely this time the Krugman cure: "What I think is crucial is the recognition that the goal of price stabily include the responsibility to avoid deflation." He and Rubins declared only last month that while free markets are not perfect, all other forms intervention alternatives are worse. Now, he went to Japan and again asked the Japanese to intervene in their economy with interventionist monetary policies. Yukihiko Ikeda, a senior member of the ruling Liberal Democratic Party, reported told the press: "Mr. Summers says, do this, do that. But we will continue with steps already in the works." Japanese officials are generally of the opinion that reflationary policies would further weaken the yen, due to pressure on the value of the yen from any increased supply. It may lead to further currency devaluations in other parts of Asia. The BOJ, Japan's central bank, thinks Summers is offering snake oil cures in the notion of fighting deflation with easing money supply. Meanwhile, the prime minister of Malaysia is publicly urging Japan to dump its US Treasry holding to show Asia's displeasure on US nationalistic globaliztion policies. Henry C.K. Liu "JAPAN AND THE GLOBAL ECONOMY" DEPUTY TREASURY SECRETARY LAWRENCE H. SUMMERS NATIONAL PRESS CLUB TOKYO, JAPAN Just a few months ago we faced what some called the most serious global financial crisis in 50 years. Today I would like to discuss where we are in working through that crisis -- both in terms of sustaining global demand and in terms of building an international financial system that can prevent and better contain future crises. I. The Global Economic Situation This has been quite a remarkable period in the global economy. Six months ago, in the wake of the Russian financial crisis, signs of significant strain in United States and global financial markets, and evident concerns about global growth -- the G7 warned that the balance of risks in the global economy had shifted, and emphasized their commitment to promote sustainable global growth. As Secretary Rubin and I discussed with our G7 colleagues in Bonn last weekend, since then there has been some important progress made. But very large challenges remain. Two stand out. First, there is too little growth in the global economy. The risks around the world are still very much tilted toward lack of growth, spare capacity, and slowdown -- rather than toward economic overheating. Concerns are about excess supply not excess demand. And in many places worries about rising prices have given way to concern about falling prices. Growth in Europe has weakened, and is expected to average at best 2 percent this year. While prospects for Japan also look worse than they did a few months ago, with most forecasters now expecting another year of negative growth in 1999, and IMF and private forecasts projecting a decline in prices. Second, there is too little balance in growth. Growth in the United States has been very strong, but -- at 4 percent -- very likely above long run trend sustainable rates and is giving rise to very substantial imbalances. Private sector forecasts are suggesting that the United States current account deficit rose by more than $80 billion, to $235 billion in 1998, while Japan and Europe are expected to have had current account surpluses of $95-115 billion. United States imports from emerging Asia, for example, rose by close to $12 billion last year, as compared with a nearly $20 billion decline in Japanese imports from these countries. The United States accounted for more than two-thirds of growth last year in the major industrial economies and one third of global growth. On current forecasts it will account for a similar share this year. With growth in the world increasingly dependent on the United States, and growth in the United States increasingly dependent on the American consumer, it is crucial -- both because of the slowdown directly and because of the consequences of imbalanced growth -- that we see a strengthening of global growth as an imperative for policy. And appropriate domestic policies aimed at promoting sound and sustainable growth at home can also help lay the foundation for more stability in exchange markets. Full speech: http://www.ustreas.gov/press/releases/pr2983.htm
