Events related to the Crash

• Mexico paid off its IMF loans with a U.S.$3.0 billion prepayment, funded by off-budget international reserves. Also, rising oil prices has increased Mexico's oil income by 100.2% for Jan.-June 2000 compared to Jan.-June 1999.
• Japan's government is now seriously considering a ¥3-5 trillion supplementary budget -- the eighth in ten years -- to keep stimulus spending in line with last years levels. The intent is apparently structural reform this time, however. Japan's government debt appears set to hit 130% of GDP by March 2000 -- even more extreme than Italy.

• Germany's gross domestic product was reported as growing at 1.1% for the second quarter, and 3.1% compared to a year ago.

• Solidaridad I has failed, again. This time, there is no talk of reviving the satellite. Mexico's banking system was unaffected, since they had responded to the first failure [April 28, 1999]. While the satellite still had power, the central processor had ceased transmitting. Its main computer is reported to have failed in April 2000, and its failure is well before its expected failure (at time of design) in 2006 or 2007.
• Japan's government announced plans to cancel 233 construction projects, but identified only 24 of the 233 projects immediately.

• Tokyo prices fell 0.1% from June 2000 to July 2000, belying the Bank of Japan's opinion that deflation was not an imminent threat. However, most of the decline could be attributed to falling rent. The Bank of Japan's non-numerical definition is being met: personal income has ceased to fall, and the gap between oversupply and weak demand is shrinking.

• Japan's overall trade surplus fell 19.3% in July 2000 (to U.S.$9.37 billion, well below consensus U.S.$10.2 billion) compared to July 1999. Exports rose 6.1%, while imports rose 11.7%. Oil prices rose 53.5% in yen. The trade surplus with the U.S. fell 13.8% to U.S.$5.80 billion; a large part of this was attributed to rises in imports of airplanes (143.9%), communications equipment (64.3%), and semiconductors and other electronic parts (18.5%). Japanese exports to the U.S. fell for office equipment (16.5%), but rose for automobiles (8.0%). Japan's trade surplus with Asian countries rose by 10.1%, with notable factors being exports of semiconductors and other electrical parts, and optical machinery. Japan's trade surplus with the EU fell by 10.4%, with falls in both imports and exports to the EU.

• The Euro tested its lows against the U.S.$. This was attributed to the consensus-defying ifo business climate index reading from yesterday.

• Germany's ifo business climate index fell sharply (contrary to consensus predictions) in July, repeating its contrarian behavior (it also defied consensus predictions by falling sharply in June). This is complicating the European Central Bank's task regarding whether or not to raise interest rates. The Euro zone inflation rate was last measured at 2.4%, well above the European Central Bank's target of 2%. However, Germany's unemployment rate is still above 9%.

• Thai non-performing loans declined to 34.95% in July 2000, compared to 35.15% in June 2000, corresponding to a reduction to 1.49 trillion baht from 1.51 trillion baht. The four Thai state-owned banks declined to 918.7 billion baht in non-performing loans from 940.9 billion baht, but the nine private-sector banks did the opposite, increasing to 592.7 billion baht in non-performing loans from 570.5 billion baht. Market leaders Bangkok Bank and Thai Farmers Bank managed to reduce their non-performing loan ratios to 22.63% and 15% respectively, compared to 22.90% and 15.37% for June 2000, respectively. It should be noted that fresh bad loans, and restructured loans going sour again, are affecting these figures significantly.

• Japan's all-industries index rose by 1.4%, and the core component [tertiary] rose by 1.3% for the April 2000-June 2000 quarter. It is presumed that GDP will start reviving to match (this has not held for the past few quarters, however).

• The LDP apparently is planning to accelerate and expand a supplementary budget (for boosting Japan's macroeconomy) to compensate for the BoJ ending its zero-rate policy. The current intention is to focus on structural reform rather than raw stimulus (the latter pours money into construction companies and other sectors liable to implode anyway).

• Germany's wholesale inflation was 0.3% from June 2000 to July 2000, in contrast to consensus forecasts of 0.1%. It is unclearly reported how much of this variance was attributed to fuel costs.

• While J.P. Morgan reports that under Japan's government economic model, Japanese GDP growth is expected to be reduced by an immeasurable 0.02%, it is also widely expected that the Japanese bankruptcy rate will reach another high this year [2000]. Fuji Research Institute fears that the BoJ rate boost will increase Japan's bankruptcy rate by 1,500 bankruptcies/year.

• The Korea Medical Association has called another strike. [Apparently, the discussions after the resolution of the last one were unsatisfactory.] This time, the shutdown rate is about 60%, and most hospital emergency rooms are open. There is some combination of a structural pricing problem and lethargic business skills in the Korean medical profession: currently, government-controlled medical fees only cover 80% of the minimum costs in a typical medical establishment.

• The Bank of Japan proceeded to raise the overnight rate to 0.25%, barely affecting the ¥/U.S.$ exchange rate. Apparently, Masaru Hayami had lined up a majority before mentioning his proposal to raise the overnight rate. Hayami also correctly estimated how weak PM Mori was, politically. The question that must be answered empirically, now, is how much liquidity will the rate rise drain off over the next week.

• Kenya's Central Bank governor Micah Cheserem was forced to attempt to defuse political pressure about Kenya's IMF deal (which went active August 4, 2000). Considering that there are over 60 points that must be implemented, and that some of these points dictate legislation that must be passed, there are indeed questions of national sovereignty violations. However, much of the agreement is a substantial repeat of Kenya's Interim Poverty Reduction Strategy Paper. The weekly reports on Kenya's Central Bank (apparently, somewhat unusual) is drawing political opposition. It did not help the local situation that The Economist had run a very inflammatory article about the Kenya-IMF deal already.

• Bank of Japan governor Masaru Hayami is preparing to prove to the world that Japan does not have an independent central bank -- by ending the 0% interest rate policy. Threatened retaliations include the revising of the law granting formal independence to the Bank of Japan, and political coercion of Hayami's resignation. This is in spite of computer models indicating that there is no quantitative effect between doing so now versus as late as April 2001.
• The Euro appears to be facing potential record lows against both the U.S.$ and the Japanese yen. The U.S. continues to be overheating (by U.S. Fed standards, not by those of the rest of the world), in contrast to Germany's "surprise" industrial production decline. [Euro zone forecasts for Germany have been consistently overoptimistic for the past few months, however....]

• Japan's Ministry of Finance is implementing a decision to bring its reporting standards regarding currency interventions towards U.S. standards. For April-June 2000, the the Bank of Japan spent ¥1.3854 trillion to buy U.S.$. This was spent all at once, on April 3, 2000. Japan's Ministry of Finance wishes to study the effects of such publicity before deciding whether to extend this retroactively [to before April 2000].

• Germany's industrial output was reported as falling by 3.5% from May 2000 to June 2000, far more than the consensus forecast of a fall of 0.4%. This is being attributed to a one-time blip [March, April, and May 2000 were all up compared to the immediately prior month, and May 2000 was up 2.8%]. Meanwhile, Britain's industrial output rose by an annualized rate of 2% in June 2000 -- directly opposite consensus forecasts of a decline of 1.8%.

• Land prices in Japan have fallen for the eighth straight year, which generally complicates the situation for Japan's construction sector. There are fears that necessary consolidations in the industry, combined with a potential elimination of no-progress public works projects, could cause bankruptcies and temporarily interfere with Japan's macroeconomic recovery [which has yet to properly manifest].

• India's rupee has fallen through 45 rupee/1 U.S. again. The last time was July 21, 2000; this provoked the Reserve Bank of India to both raise interest rates and tighten liquidity.

• The overall Euro zone unemployment rate fell to 9.1% in June 2000. This compares to 9.2% in May 2000 and 9.9% in June 1999. Extremes nations included Spain [14.1% in June 2000] and the Netherlands [2.8% in May 2000, the last month for which information is available]. Luxembourg is at 2.2% for June 2000, and Austria is at 3.3%.