4:40am

Mon August 8, 2011
Economy

Asian Markets Slide On U.S. Credit Downgrade

Originally published on Mon August 8, 2011 6:23 am

Transcript

RENEE MONTAGNE, host:

Let's stay now with the economic fallout from the downgrade of the U.S. credit rating as well as troubled economies in Europe. That's caused markets in Asia to plunge today. NPR's Anthony Kuhn joins us from Jakarta, Indonesia to talk about all of this. And Anthony, how bad is the carnage on those Asian markets?

ANTHONY KUHN: Well, stock markets in the region are down about two to five percent, which means billions of value were wiped off of them. That's on top of last week, which saw the biggest rout in Asian stock since 2008.

Hardest hit were the companies that export goods to the U.S. such as Sony and Toyota and the banks in the region that loan to them. At the same time, the currencies of China and Japan jumped in relation to the dollar, which, of course, is just what those exporters don't want to see because it makes their goods more expensive.

MONTAGNE: Right, China and Japan are big exporters, especially to the U.S, or the top two holders of U.S. Treasury bonds. So the U.S. downgrade has amplified qualified economists for China and Japan to - for one thing to stop stockpiling huge amounts of dollars. Can you explain to us what that all means in today's context?

KUHN: Yes, well, a number of economists in the region have been saying for years to their governments, stop intervening in markets to keep the currencies low and exports cheap. Let the markets decide the exchange rates. Let the Yen and the Yuan, which are Japan and China's currencies respectively, appreciate.

Now why they're saying that is when we're in the debt crisis like this, the debtors have to find some way to pay off the creditors, right? So there are different ways of doing this. If you default and restructure your debt, that's one way, which is painful, or you can print money and inflate your way out of that.

But another thing you can do is you can adjust the exchange rates. And what that would do would be to increase the creditor countries buying power. Japanese and Chinese consumers would have more money in their pockets. They could import more goods. It would make up for sluggish wage growth. It would lower inflation. So among methods it's seen as something that's got to be done.

MONTAGNE: Well, are the governments of those countries responding to these calls for reform?

KUHN: Well, basically it's a very tough call for them. Either way they're going to lose money. They have to look at which is going to cost them more, hanging onto dollars which lose value or losing export revenues when their currency appreciates. But I think what the economists are saying is that one way or another, the dollar is going to go down and the Asian currencies are going to go up, so they have to just go with this momentum and let the markets take their course.

MONTAGNE: NPR's Anthony Kuhn speaking to us from Jakarta. Thanks very much.

KUHN: Thank you, Renee. Transcript provided by NPR, Copyright National Public Radio.

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