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Essay/Term paper: Asian crisis

Essay, term paper, research paper:  Political Science

Free essays available online are good but they will not follow the guidelines of your particular writing assignment. If you need a custom term paper on Political Science: Asian Crisis, you can hire a professional writer here to write you a high quality authentic essay. While free essays can be traced by Turnitin (plagiarism detection program), our custom written essays will pass any plagiarism test. Our writing service will save you time and grade.

The financial crisis that erupted in Asia in mid-1997 has led

to sharp declines in the currencies, stock markets, and other

asset prices of a number of Asian countries. It is hard to

understand what these declines will actually do to the world

market. This decline is expected to halve the rate of world

growth in 1998 from the four percent that was projected

pre-crisis to an estimated outcome of about 2 percent. The

countries that are included in the East Asian crisis, known as

"Tiger" economies, are Hong Kong, Indonesia, South Korea,

Malaysia, the Philippines, Singapore, Taiwan and Thailand. For

these countries to participate effectively in the exchange of

goods, services, and assets, an international monetary system

is needed to facilitate economic transactions. To be effective

in facilitating movement in goods, services, and assets, a

monetary system most importantly requires an efficient balance

of payments adjustment mechanism so that deficits and

surpluses are not prolonged but are eliminated with relative

ease in a reasonably short time period. The Asian crisis of

recent falls into this category of inefficient balance of

payments facilitated by depreciation of its currency. By

competitively depreciating its currencies, Asia is exporting

its deflation, its overcapacity and its lack of growth to the

West, particularly to the US. History The past ten or fifteen

years have seen an unprecedented expansion in the extent to

which the countries of the world are tied together, both by

instant communication and by international trade,

institutions, and markets, including financial markets. On the

whole, this process of globalization has been an enormously

positive development. It has opened new markets, enhanced

competition, spurred innovation, and provided new

opportunities for workers, farmers, and businesses around the

world. For example more than 40 percent of US exports today

are absorbed by developing countries, an extraordinary

increase over past export patterns, and the jobs associated

with these exports are high-paying, good jobs. The increasing

productivity of our trading partners has helped keep inflation

down and improve standards of living in the United States. And

outside the US, probably hundreds of millions of people have

been lifted out of poverty around the world by the economic

growth and trade over the past twenty or thirty years. Effects

of the Global Economy In this new global economy, countries

are more tightly linked than ever before to each other's

fates. A decade ago, a collapse in the currency of a small,

distant country like Thailand would barely have rated a

mention in the typical American newspaper. Last year, however,

that currency crash triggered a crisis in other East Asian

countries that has dominated news coverage in a way that no

other foreign financial crisis has ever done before in this

country. The reason for the change is that we now have more at

stake than ever before in the economic performance of these

countries. Not only are they major customers for our products;

the rich countries and developing countries are also

increasingly linked by financial ties. In 1996, the developed

countries including the US invested more than 250 billion in

emerging markets, and this is compared to roughly 20 billion

ten years earlier. Much of this money was from banks

(especially in Japan and Europe), although US mutual funds,

pension funds, and individual investors also participated. But

whatever its source, the extent of this investment means that

economic turmoil in East Asia has a direct financial impact on

the developed world's capital markets, including our own.

Indeed, a brief plunge in US stocks last October was widely

attributed to turmoil in the Hong Kong stock market that was,

in turn, linked to the crisis set off by Thailand's currency

crash. What were the causes? Throughout the East Asian crisis

many different ideas have been proposed to what the cause or

causes were. Attempts to identify the fundamental causes of a

financial crisis always suffer from the problem of

distinguishing insight from hindsight. Many financial

journalists today have said the the crisis was the inevitable

counsquence of: "overvalued exchange rates, large current

account deficits, short-term capital inflows, opaque financial

systems, or one of several other supposedly fatal flaws in

East Asian capitalism." It seems fair to say that a year ago

nobody suspected that a calamity like what we have seen was

possible, although all of the characteristics that are now

described as the fatal flaws of the East Asian economies were

reasonably widely understood even then, at least by experts.  

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