First was the realization that Japan, the world’s second largest economy, is no closer to recovery than it was 5 years ago. In a government report this month it was reported that the economy is in a ‘mild’ period of deflation. Couple that with the Japanese stock market hitting 16 year lows, government debt that now stands at 6 trillion US$(130% of GDP) and inept political leadership-and ‘Houston, we have a problem’.
MIT economist Paul Krugman said in May of 2000 that, "Japan, uniquely among the world's major nations, has managed to recreate 1930's economics at the dawn of the 21st century." Japanese firms own 150 billion in direct investment in the US and employ 550,000 Americans. Many believe that Japan, if not terminally ill, is very ill and will drag us down with them.
Then came Turkey’s problems. Prime Minister, Bulent Ecevit, seemed to have lost his ‘mojo’ when he walked out of a stormy meeting with the President of Turkey. He talked to reporters and within hours, stock markets dropped, interest rates rose to 4,000 percent and the Turkish currency fell by a third. Turkey is important geo-strategically-being at the crossroads of Europe, the Middle East and the former Soviet Union making this type of crisis very dangerous.
More importantly is that Turkey is an important partner in the Baku-Ceyhan oil pipeline-an attempt for Turkey under US guidance to take a lead role in the region to counter Russian medling in both the Caucasus and Central Asia. As Washington Post writer Fareed Zakaria understated recently, “Losing your cool can be very costly in today’s capitalist world.”
If people can lose their cool in these nations is North America safe? This week the US markets finally hit rock bottom-for now. The same pessimistic things were being said about the US in 1982- that the economy was very sick and again in the brief downturn in 1990-1991. The Dow Jones average is coming off its worst week in 11 years and was down 8 percent. Likewise the Nasdaq was down 8 percent too-bringing it down almost 24 percent in 2001 alone and 62 percent from its peak in 2000. In those years (1983-2000) the Dow was up 1409 percent while the Nasdaq was up an incredible 3072 percent!
