Dangers in U.S. grip on global economy revealed

By Nobuyuki Sugiura

TOKYO: On Sept. 12, the day after the World Trade Center collapsed, a major Japanese bank in Tokyo received a request from the Federal Reserve Bank of New York via the Financial Services Agency to continue its U.S. operations.

The bank's New York branch had its computer lines completely destroyed but, responding to the request, it stayed open by handling trading orders between Tokyo and New York by fax.

The episode illustrates how determined the reserve bank was to protect America's free-market system amid the longest closure of the New York Stock Exchange since the end of World War II.

"We must fight terrorism at all costs. It's symbolic, though, that Islamic fundamentalism has hit U.S. market fundamentalism," said an official of a Japanese bank that has apparently lost some of its employees in the attack in New York.

In the 1990s the U.S. role in the world economy increased phenomenally, creating a global financial network using a vast array of online data and computer-driven transactions like "derivatives" trading. With the Cold War over, America diverted big chunks of its military-related technological, human and financial resources to the private sector.

Today, information technology and high-tech financial trading- areas in which America maintains an overwhelming lead-form the basic framework for the world economy.

While piling up the largest amount of debt in the world, the U.S. sent enormous amounts of dollars circulating around the globe. In 2000 more than $600 billion (72 trillion yen) in direct and portfolio investments flowed into the U.S. from Japan and Western Europe. These funds fueled growth in America's information technology industry. The IT-led boom lifted stock prices and boosted consumer spending, pulling the world economy along the way.

Japan and the European Union depended on the U.S. for exporting and investment. Japan was beset by debt crisis in the banking sector, while the EU was busy promoting its integration.

With industrialized countries working in tandem, economic globalization gained momentum, spawning U.S.-style market economies around the world. America's economy reigned supreme.

The globalized economic system, aided by advancements in information technology, made it possible to move massive quantities of money instantly across national borders. Foreign exchange trading worldwide now involves some US$1.5 trillion a day.

In 1997 and 1998, some $8.3 trillion in footloose funds sloshing around the world annually caused currency and financial crises in emerging markets in Asia and South America.

Immanuel Wallerstein, a professor at State University of New York says there is pent-up dissatisfaction in developing countries over the "dominance of the U.S. dollar." In the absence of any credible alternative to the U.S.-led system, he adds, hostility toward America is growing.

The world's poor people who are left outside the fast lane of prosperity are increasingly unhappy with the rich countries that put a premium on economic interests.

In the same vein, anti-globalism activists protesting international economic meetings single out America's multinational corporations like McDonald's as one of their targets.

Behind the terrorist attacks on America lurks the wave of anti-globalism. Also, they have revealed some of the dangers inherent in America's economic domination.

The world economic system, supported so far by the relative safety of dollar trading, has exposed some of its weaknesses in the form of the paralysis of the New York market.

The U.S. economy, which was flirting with a recession even before the terrorists struck, is now gripped by growing concerns that a combination of reduced dollar trading and negative growth might send the world economy into a tailspin.

Spreading the risks is an iron rule for economic transactions. But today's world economic system does not have the kind of currency that spreads the risks of dollar trading and investment.

The terrorist attacks have forced the International Monetary Fund, the guardian of the dollar, to call off its annual meeting scheduled for late September in Washington, for the first time since the end of World War II.

America, its prestige at stake, is determined to rebuild the U.S.-centered international economic system. But the crisis will likely continue in one form or another unless and until a multipolar global economic system is developed that gives a fair deal to developing economies as well.

The world economy now faces formidable problems, while Japan wastes time struggling to cope with the aftereffects of the "lost decade" of the 1990s.

The author is an Asahi Shimbun business news reporter.

-- Asahi Shimbun