Financial Crises: The Asian Crisis low G high D

The main flaw of money is its static nature. It does nothing by itself, unlike grains that can grow into food by themselves.

Money has to be spent or invested for it to gain dynamism and therefore gain value.

This is why banks are always pressured to give loans or invest their money.

However, the profit maximization motive prevents loans from being given to poorer people such as through microfinance.

And so banks prefer to lend or capitalize big corporate or national projects, even going overseas to look for opportunities.

They even force some countries to open up to foreign money as liberalization.

The Asian Crisis: Deregulation Leading to Currency Speculation

In the 1990s foreign money increased after the fall of the Soviet Union which reduced the need to spend for defense. This naturally shifted the spending for business and finance.

That money could not go to the ex-Soviet countries which still needed 2 decades to change their mentality to be worthy of investments.

But Southeast Asia was now free from the Communist wave and was seemingly ready for investments.

So the IMF pushed Southeast Asia to liberalize their financial industry to allow the entry of foreign money.

• In Singapore, this led to a new round of infrastructure development
• In the Philippines, this began a new wave of privatizations
• In Thailand, this opened up the country to investments, expats, and tourism
• In Indonesia, this led to new economic development in Jakarta
• In Korea, foreign ownership was increased

The problem was that the financial deregulation caused too much speculative inflow – there was a lot of command of work, without work being done.

The sudden inflows distorted the real currency values. This scheme was perfected by George Soros earlier in 1992 as Black Wednesday by attacking the British pound.

This violated the 4th law of value of fair exchange since there was nothing to give for those inflows which were speculative.

• Speculation is common when riches increase since money is dead stock that only gains value when spent
• An analogy is song lyrics only having value when they are sung.
• And so a singer must always sing the song to people
• But sometimes there are no listeners and this causes a violation of the giving of singing-energy without reciprocating receivers.

This distortion began with the Thai baht and then with the Malaysian ringgit. The Philippine peso was also affected to a lesser degree.

In contrast, the Singapore dollar was already expensive and Vietnamese dong was state-controlled so these currencies were not so much affected.

So the Asian Crisis was a flawed deregulation that led to currency attacks. It is the Black Wednesday for Asia.

Unlike the 2008 Financial Crisis which had many warnings, the 1997 crisis took many by surprise.

The Asian Crisis caused:

• currency controls in Malaysia
• the rapid rise of Thaksin (and subsequent fall) in Thailand
• the closure of many companies in Korea
• the fall of Estrada in the Philippines
• riots in Indonesia and the fall of Suharto

We solve hot money through Multilateral Clearing.