The latest reports from Washington are that opinion at high levels in the Clinton administration and Congress is growing gloomier about Japan's economy and the other economies of struggling Asia.
Yet the Clinton administration seems not to know what to do other than whistle past the graveyard.
At least publicly, officials such as Treasury Secretary Robert Rubin and the normally voluble Deputy Treasury Secretary Lawrence Summers are keeping quiet. They are said to fear that any statement would only make matters worse for Japan and Asia and bring on a global recession.
But the world is frightened all the more by their silence. Securities markets tumbled everywhere Tuesday because investors and traders see ominous signs in Asia--Japanese politicians arguing over bank reform; China reducing Japanese yen holdings in its official reserves because it expects lower values.
Yet in reaction, the markets hear only noninvolvement from Washington--weak talk that there is little the U.S. can do to influence world markets.
In reality, say sources in and out of government in Washington, Clinton administration officials have resigned themselves to a further fall in Japan's economy and are trying to think of ways to protect the rest of the world trading system.
Such resignation amounts to a sell signal, and the markets know it. For if the world's second-largest economy--$4 trillion in annual output of goods and services, the investment and financial leader of Asia--sinks into depression, there is no way the world can go on prospering.
The sad fact is, such resignation in Washington also ignores history. It was the U.S. occupation under Gen. Douglas MacArthur and American bankers, civil servants and businesspeople who set up the Japanese economy after World War II.
With assured access to the U.S. market and the protection of the U.S. global defense system, Japan erected an economy geared to full employment, production for export and funneling the savings of its people back into industry.
But just as it has for the economies of Europe--America's other postwar dependency--the time has come for change in Japan. The massive bad loans in its banking system demand to be written off so a fresh start can be made. The paltry 1% returns Japan has made on its citizens' retirement savings demand correction through a wholesale reform of the country's financial system.
