Asia's troubles will reduce real growth in the United States, further dampening inflation and forestalling any need for the Federal Reserve to raise rates. Chase Research, among others, estimates that Asian weakness will cut U.S. real growth and consumer prices by half of 1 percent in the next two years. Import prices will drop because the value of foreign currencies has fallen. Global overcapacity will help hold prices down. All in it together.
Important lessons emerge from the melee.
One is that we cannot isolate ourselves but instead should play a lead role in opening the world's economy. When global investors suddenly lose confidence in a sector or an entire country the result can be an abrupt shift of vast amounts of capital at the speed of the electronic impulse that characterizes modern banking. No government in the world can resist this tidal wave of private money. Today that balance of power has been reversed. When they jump on the trampoline more or less together, the rest of the world is catapulted into space.