Monday, March 15th, 1999

Announcements: Map quiz on Africa in two weeks. Papers were given back

Lecture notes:
I. Asian Flu
    A. The devaluation of currency throughout the Pacific Rim
    B. Reason for devaluation of currency:
        1. Economic slow down ( recession), which lead to a reduction in exports from these
            countries because other countries don't want the devalued currency; wealth in the
            country lessens; lower interest rates, and the currency decreases in value.
    C. Consequences for the lower currency
        1. Imports are higher price, so the domestic markets increase in value.
        2. Increase in exports because the goods made in the country are cheaper than the
            other countries domestic goods.
        3. In developing countries, they burrow money from the US and European banks in
            US dollars because they can't produce enough capital themselves; so, if the
            currency is devalued, the debt that these countries owe the banks go up by the
            percent the currency was decrease and the amount their income was decrease due
            to the devaluation.
            a. Capital flight is common during these periods of devaluation.
            b. It is when investors pull money out of countries causing many companies to go
                bankrupt.
II. Thailand was the first to devalue currency
     A. Where the  Asian flu started
     B. Sold currency which lowered the exchange rate
     C.  Currency traders, in New York and London, were at this time betting on the
           strength of the currency in Thailand.
     D. Thailand government sold gold reserves to keep up currency rate
     E.  They eventually have to devalue the currency
     F.  Investors started to become weary
     G. China was the only country in the Pacific Rim not to devalue because they knew that
          if they did the other countries would be forced to devalue again.
      H. Commodity prices were devalued especially oil
            1. That is why there is little inflation in the US at this time
       I. Russia was effected and had to default loans because their biggest exports are
           commodities.
            1. Russians only had about half the income
       J.  They tried to contain the recession to the Pacific Rim but it spread to Russia and
            Latin America.
            1. Brazil had to devalue its currency
        K. Asian countries are hopefully going to be out of the recession by the end of 1999.