Word: argentina
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...winter in Argentina, but the chill that country is feeling isn't seasonal. It's economic. Argentina is on the verge of defaulting on its debt, and people have taken to the streets to protest economic policy. A debacle in Argentina is by itself no big threat to the U.S., and Treasury Secretary Paul O'Neill has said as much. Nor is a meltdown in Turkey. But Argentina is only one of several dangerous financial storms brewing overseas that in combination could damage the U.S. economy. Think about sharply rising energy costs, lower output and an even shakier stock market...
...have enough to worry about. Last week the government reported that the domestic economy barely has a pulse. It grew at a 0.7% rate in the second quarter, the weakest in eight years. Yet beyond Argentina lurk at least three more insults that could make things worse. In the Middle East, OPEC is flexing its muscles again. Last week it vowed to cut oil production 4% to prop prices. In Europe, the single-currency system called the euro may be fighting for its survival if stagflation continues to cripple the region. And in Asia, Japan's new Prime Minister...
...Despite the global problems from Europe to Japan to Argentina, this ain't 1997. "The tinder out there is much less" for a major, contagious currency-style meltdown infecting the U.S. at a time when it's much less able to withstand it than four years ago. "The problems we have seen are in one sense, more domestic than international" - and trust me, senators, we're not, nor will be in any imminent future, Japan...
...What we really need is stimulus from the middle-income countries. But several in that category are in renewed crisis?despite having done most of what was asked of them by the IMF. The problems of Argentina have spilled over to Brazil, and those of Turkey have set off the usual round of bad mouthing of emerging markets from the always overpaid, usually undereducated people who run London's trading desks and the world's major (mostly American) investment banks. Their juvenile views get instant exposure on the wire services, TV talk shows and the business dailies. Western orthodoxy tells...
...east Asia has not been seriously touched by Turkey and Argentina. But those not-so-far-away problems are making regional governments hesitant to take the bold measures needed to stimulate demand at home, such as lowering interest rates. Asia's huge trade surpluses ought to be spurring spending at home. But they are not being put to use for fear that irrational markets will seize on a statistic, such as a current-account deficit, as an excuse to savage an Asian currency...