In Brief... Prepare to Reduce Your Standard of Living

You are here

In Brief... Prepare to Reduce Your Standard of Living

Login or Create an Account

With a account you will be able to save items to read and study later!

Sign In | Sign Up


Argentina has come perilously close to defaulting on its international debt. In late August, the International Monetary Fund (IMF) agreed to lend still more money to Argentina in an emergency effort to stave off what could be a catastrophic economic event for Latin America, the United States and Europe. The $8 billion loan brings the total amount of IMF loans to Argentina to $22 billion. In spite of the huge loans, Argentina is far from solid in its financial standing.

The second voice to which people should listen is that of Brazil. The IMF has also extended $15 billion in standby credit to Brazil, fearing that Brazil's economy would be pulled into the financial sinkhole created by an Argentine debt default. A double default by these large countries would most certainly plunge Latin America into a prolonged recession. "Globally, this would prolong the current economic slowdown in the United States and European Union, since a Latin American recession would hurt the earnings in stock prices of U.S. and European corporations heavily invested in the region, such as BellSouth, Ryder and Volkswagen AG" (Strategic Forecasting LLC, August 8, 2001).

The third voice that should be heard is Japan's. Opting for a cosmetic and short-term solution to the country's continuing economic woes, Japan's central bank announced in mid-August that it would print more money-1 trillion yen ($8.1 billion). This action only papers over structural cracks in the Japanese economy. What would a collapse of the Japanese economy portend for the rest of the world? "Japan's economy is the world's second-largest and is bigger than all other Asian economies combined. When it finally topples, reverberations will be felt throughout the world. It is increasingly likely that a collapsing Japan will throw healthier economies-even that of the United States-into recession" (ibid. August 15, 2001).

Look for developments, whether normal market shifts or manipulated ones, that separate the European economies from the United States. Europe, which has been preparing for the release of its new euro printed currency, is anxious to keep the breath of life in its economic body and resents taking a beating because of ties to the United States.

Angered by alleged unfair trade practices by the United States, the European Union recently announced that it is seeking $4 billion in trade penalties. On August 20, the World Trade Organization announced its judgment that the United States had discriminated against foreign competition by giving special tax breaks to Microsoft Corp., Boeing Corp. and others.

"U.S. Special Trade Representative Robert B. Zoellick has likened any EU sanctions of that magnitude to 'dropping a nuclear bomb' on the global trading system" (William Drozdiak, Washington Post Foreign Service). Negotiations are continuing, and the EU promises to step back from its demand, if the U.S. Congress agrees to enact tax legislation.

Additional source: BBC News.