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There have been numerous currency devaluations around the world since the speculation binge began. At first they were small. Now, devaluations in the order of 30% have become almost common place, adding further to the instability in the financial world. The Thailand currency crisis in the summer of 1997 is an example in point. It began with a $30 billion loss in real estate related loans, most of which were financed by Japanese banks. The Japanese banks hold altogether more than a trillion dollars in worthless paper from loans that went "non-performing" (on which no payments are being made). The volatility of the Japanese banking system is such, that, apparently, it couldn't tolerate the relatively tiny additional losses incurred in Thailand, which were probably no greater than 2% of Japan's already existing portfolio of bad loans. The danger that this small increase might blow the whole Japanese banking system out of the water was so great that $16 billion in additional loans were quickly arranged to gloss over a large portion of the otherwise defaulting loans. By this action Thailand, Japan, and the world were saved, so it seems, for another day. For this the IMF declared itself a hero.
Today, the bankruptcy of the financial system has been spread throughout much of Asia, while the need for bail-out funds almost doubles by the week. By mid December the needs far exceeded what the banks and governments can supply, which can barely hold their own. Nor do such rescue operations save anything. Mexico, which was saved with a $50 billion infusion, is virtually bankrupt again. The reality is, that nothing has been saved pouring in the moneys.
In Thailand, the collapse was far greater than Mexico's was. Of its 91 financial firms, 51 were shut down, the currency was floated and allowed to drop in a free fall fashion, new taxes were imposed, together with drastic spending cuts, including the lay-off of 40,000 people. While all this was in progress the need for rescue funding grew from $20 billion to $100 billion in a matter of weeks.
And still, nothing has fundamentally been saved, because another tens of billion in debt-paper matures in less than a year, in number of countries, for which no resources exist in the world to cover the shortfall. The IMF has congratulated itself in public for having come up with a $16 billion bail-out package, which by all accounts was not easy to assemble, while Thailand's real need stood at $70 billion at this point. Also, this scenario covers only one country of the Asian Tigers, which no longer roar. The reality is, that the IMF simply doesn't have the resources to prop up the rapidly collapsing world-financial system, not now, and certainly not in the future. Even the biggest banking system in the world, the Japanese banks, can no longer tolerate any more losses, even small ones, though it appears Japan will be forced to absorb vastly more defaults as the economies around the world continue to be looted by financial speculation, to the point that entire system disintegrates.
One must realize, of course, that before the Japanese banking system dies, the U.S. banking system will become wiped out as well, because the Japanese will naturally try to save themselves. Japan owns such a huge mountain of U.S. treasury bills, which it will need to dump much of it onto the market if it gets deeper into trouble. Such dumping will wipe out the U.S. bond market. Should this become necessary, no institution in the world will be big enough to prevent a global financial disintegration.
The world has come very close in recent years to this actually happening. The most dangerous crisis was prevented only a few years ago, with a $500 billion line of credit that was set up for Japan by the U.S. Federal Reserve. But even this enormously gigantic loan didn't fix anything. It didn't even overcome the volatility of the Japanese banking sector, which is now much greater that it had been before. The new credit merely inflated the speculative bubble some more and increased its volatility. Of course, it also added a huge chunk of debt to Japan's already immense problem.
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