Stability for the Wealthy: Responding to the Global Economic Tidal Wave

Stability for the Wealthy: Responding to the Global Economic Tidal Wave
United Daily News editorial (Taipei, Taiwan, ROC)
A Translation
June 16, 2008

Global inflation continues to arrive, wave upon wave, increasing uncertainty about the propects for continued economic growth, and leading to recent shocks in international financial markets. The US, mainland China, and Hong Kong market indices have fallen to new lows over the past year. A 25-day losing streak in Vietnam's Ho Chi Minh Stock Index triggered renewed concerns about a repeat of the Asian financial crisis. Even though warming cross-strait relations are providing some support, Taiwan has not been spared. The TAIEX has fallen over 10% since the new administration took office less than a month ago This betrays investor uncertainty. This year, beginning with the U.S. subprime mortgage crisis, the world economy has endured swiftly increasing oil prices and steadily increasing grain prices. Under their combined impact, the economic challenges are formidable, and the watchword in political policy is "stability."

The current wave of economic changes and market corrections can be traced back to early summer last year. Until last April the world's major economies were still intoxicated by the longest and strongest economic expansion in post-war history. The large scale crisis in the housing industry led to bankruptcies in the financial industry. The first shot fired, the subprime mortgage crisis, failed to alert the market. Only the Bear Stearns hedge fund collapse in July touched off a chain reaction. The market has experienced an across the board liquidity crunch. Central banks in Europe and America have joined hands in an attempt to save the market by means of capital injections. Only now has the market become aware of the seriousness of the problem, and made a series of corrections in asset valuations, policy, and regulatory structures. At the same time, high oil prices and high grain prices, long a hidden concern behind the economic boom, have reared their ugly heads. But the sense of crisis remains less intense than during the previous financial storm. Therefore it is not receiving the attention it deserves.

Problems have remained unsolved, and myopic policies have fueled inflation. For example, in order to solve the liquidity crisis European and American central banks have injected massive funds into the market. This may temporarily quench the market's thirst, but it will also delay the healing process. It will aggravate inflation. In order to forstall a recession, the U.S. Federal Reserve Board has repeatedly lowered interest rates. This may slow the slide into recession, but at the cost of higher inflation. It delays the response to changes in asset prices. In Asia, Japan was on track to raise interest rates. But now business loan considerations have put this on hold. The economy has not improved, but inflation has already increased. Among the emerging economies, mainland China's overall prospects remain the same, but already seems more tentative. Crude oil prices are controlled. Grain prices are subject to short term speculation. Unrelieved increases can easily cause significant distress. Others countries such as India, Vietnam, and Indonesia, adopted similar policies. But were forced to cancel them due to increasingly negative results.

The attention of financial market investors has turned from when the United States' subprime mortgage crisis will end, to whether global inflation is worsening and how the major economies are responding. Emerging economies in Asia kept their distance from the subprime mortgage crisis. Can they withstand this acid test, and survive catastrophic inflation? Developed countries experiencing across the board slow downs are paying particular attention. Emerging countries in Asia have been the most powerful driving force in global economic growth in recent years. Their forward momentum directly affects the performance of the global economy, especially because they are export-oriented economies. Asian countries today face difficult economic policy choices. When they began economic development they were heavy on growth and light on inflation. Now however, the bill has come due.

Theoretically speaking, the standard method for controlling inflation is raising interest rates. Countries dependent upon energy imports may even require currency supports. But no matter whether they raise or lower interest rates, they may increase their industrial overhead. This may affect their export competitiveness, reduce their corporate profits, and undermine their economic growth. Countries that suffered through the Asian financial crisis understand the importance of foreign exchange reserves. They have aggressively accumulated foreign exchange reserves and have actively encouraged domestic investment. As a result, the effectiveness of efforts to control inflation have been seriously diminished by more fundamental policy countermeasures. But if one allows inflation to worsen, not only will it impact current economic performance, it is likely to change a short-term correction into a long-term recession. It is likely to increase political risk, causing social unrest, leading to unpredictable consequences. Therefore the market is watching discreetly from the sidelines. Stocks in Asia have fallen even more than in Europe and America, reflecting investor concern.

Under such circumstances, many nations are changing their economic policies. The most important task now is controlling inflation. The US has ceased lowering interest rates. European central banks have indicated that they will hike rates. Asian central banks have also substantially increased their prime rates in order to stabilize their economies. The US has successively cut interest rates. Taiwan, by contrast, has slightly raised interest rates, demonstrating a steady hand. Judging by this, Central Bank CEO Peng Huai-nan has lived up to his reputation as a first class chief executive. One hopes he will maintain a steady course, and do what must be done.

富貴穩中求：因應全球經濟巨浪之道
【聯合報╱社論】
2008.06.16 02:52 am

全球通貨膨脹來勢洶洶，加深了經濟成長前景的不確定性，導致近期國際金融市場巨幅震盪，美國、中國大陸、香港等指標股市都跌到一年來相對低點，連跌廿五天的越南股市更引發亞洲金融危機重演的疑慮；即使是有兩岸關係升溫加持的台北股市亦未能倖免，新政府上任未滿月竟已跌逾一成，在在說明了投資人的高度不安全感。今年世界經濟以美國次級房貸風暴的善後起始，遇上國際高油價、高糧價效應發酵，相斥的情勢對衝之下，經濟挑戰益形艱巨，「穩定」已是政策組合的重中之重。

這一波的經濟轉折與調整點，要往前追溯到去年的初夏。去年四月，當時全球各大經濟體依舊沉醉在二次世界大戰後最長、最強的經濟擴張氛圍裡；即使美國大型住宅金融業者新世紀聲請破產，擊發了次貸風暴的第一槍，也沒能喚起市場的警覺。直到七月貝爾斯登跟著摔倒，掀起企業連環爆，市場流動性全面緊縮，歐美中央銀行聯手注資救市，市場才意識到問題的嚴重性，展開了一連串的調整，包括資產價值、政策、監管體制等。於此同時，一直隱身於經濟榮景之後的高油價、高糧價通膨效應也冒出了頭，但仍因危急性比不上次貸風暴，未獲得應有的關注與重視。

這樣的輕忽，不只失去了解決問題的先機，更因政策過於短視而為通膨火上加油。例如歐美央行為化解流動性枯竭危機，大舉為市場挹注資金，雖暫解市場之渴，但也拉長了療傷期，並為通膨助拳；又如美國聯邦準備理事會（Fed）為防美國經濟衰退而連續大幅降息，或止住景氣滑速，卻是以升高通膨為代價，並干預了資產價格調整的速度；在亞洲，原擬步上升息軌道的日本，亦因次貸及景氣考量而停步，經濟未見好轉，通膨卻已升壓。至於新興經濟體，中國大陸的宏觀調控依舊，但已顯遲疑，而以管制售價因應原油、糧食走揚的短期性作法，隨著漲勢不墜而益顯窘迫；其他如印度、越南、印尼等，都採行了類似的政策，但也因負面效應日增，終致被迫取消。

因此，現在金融市場投資人關注的焦點，已從美國的次貸風暴何時結束，轉向全球的通膨情勢是否惡化，以及各大經濟體的對應之道；其中，一直自詡與次貸風暴保持距離的亞洲新興經濟體，能否通過考驗、安度這次通膨的劫難，在已開發國家經濟全面放緩之際，尤其受到矚目。這不只是因為，亞洲新興國家是推升近年全球經濟成長的最大動力，其續航力直接關乎世界景氣的表現；更是因為其出口導向的經濟特色，令亞洲經濟國家的政策抉擇變得困難，這也是他們一開始即重成長、輕通膨的主因，但如今已到了圖窮匕現的時刻。

在學理上，控制通膨的典型作法是升息，進口能源依賴型國家甚至還需輔以本國貨幣升值的對策，但無論是升息還是升值，都可能增加企業資金成本、影響其出口競爭力，進而降低企業獲利、干擾經濟成長；再拉長時間來看，經歷過亞洲金融風暴的國家都領會了外匯儲備的重要性，積極累積的外匯儲備及鼓勵投資的內需政策，讓控制通膨的努力更遭遇了來自政策面根深柢固的抵制，效果自是大減。可是，若任令通膨情勢惡化，不只衝擊當期經濟表現，更可能使短期修正轉為長期衰退，進而升高政治風險，造成社會動盪，後果難料。也因此，市場都在冷眼旁觀，近期亞股跌勢更甚於歐美，實在反映這樣的深層憂慮。

在此情勢下，近來各國經濟政策已開始轉向，抗通膨成了第一要務，美國停止降息、歐洲預示升息，亞洲央行更是紛紛大幅上調基準利率，力求穩定經濟現勢；相對而言，在美國連番降息之際仍力行微幅升息政策的台灣，展現了穩健的作風，於今觀之，央行總裁彭淮南不負其A級總裁之名，並期待其堅持下去，為所當為。