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Published on 09/21/1998 All articles from this issue

International financial crisis the worst since 1920s, expert tells LA Rotarians

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By Clyde Noel

Special to the Town Crier

If you're an economist, there's a lot of global activity to keep you busy. Banks are closing, nations are bankrupt and more than 1.5 million people are homeless.

"This is the biggest financial crisis since the 1920s," said Richard Carlson, a Palo Alto economist and owner of Spectrum Economics. Carlson was the guest speaker at the Los Altos Rotary Club last Thursday.

According to Carlson, our global problems started in Japan more than a decade ago when its stock market began to crash. That set off a chain reaction, as property depression continued throughout Asia.

"We didn't help them because we gave them more credit and more money to build more buildings. In July 1997, the economic problems settled in Thailand, Korea, Indonesia, and the Philippines," Carlson said.

"The only place that still has a viable stock and property market is China. It's a 'socialist' country with the 'smartest' capitalists in Asia."

Here at home, the question is whether the United States will have a recession.

Carlson said the IPO market (Initial Public Offering) is dead and big money is no longer coming to Silicon Valley. New venture capital investments are slow, he said.

"Our problems are 'air profits' with the inflated prices of technical stocks. But I would rather be here than in Detroit making cars," Carlson said. "Those $20,000 Japanese automobiles will land here and sell for $4,000 less. Don't buy a new car now. Wait till the imports land. Then Detroit will have to match those prices."

The International Money Fund (IMF) is out of money and officials want the United States to put money in Russia, Carlson said.

"Don't put your money in Russia. This is a wild time for them, and it's the closest to the edge their economy has been in our lifetime," Carlson said. "Russia is bankrupt because the money goes to crooks. We understated the level of corruption in Russia, and they know how to 'cook the books' because they have been doing it for years. Every dollar we send to the Russian government winds up with a Russian crook or in a Swiss bank."

Jim Wall, president of Bank of Los Altos, asked Carlson what to look for if a prudent bank kept all its loans local or in Silicon Valley.

"In a financial crisis, the first thing is to save the banks, and nationally, given a little time, the banks can set down their losses," he said.

"Here in Silicon Valley, we will do just fine. We have low interest rates and good employment.

"We are at the point, if Alan Greenspan, chairman of the Federal Reserve Board would lower the interest rate half a point, it would only make a psychological difference."