The Nightly Business Report; 1990 Selected commentaries

<v News Reporter>Tonight's guest commentary features Hobart Rowen, economic columnist for The Washington <v News Reporter>Post. He says there are good reasons to withdraw the favorable trade treatment China <v News Reporter>now receives from this country. <v Hobart Rowen>President Bush will be making a mistake if he renews China's most favored nation <v Hobart Rowen>trade status before China releases the hundreds of prisoners it took after <v Hobart Rowen>the Army's bloody crackdown last year in Tiananmen Square. <v Hobart Rowen>China in 1989 sold us 12 billion dollars worth of textiles, shoes, <v Hobart Rowen>toys, simple appliances and other manufactured goods. <v Hobart Rowen>They imported from us about six billion, mostly aircraft, fire products and fertilizers. <v Hobart Rowen>So they enjoy a 6 billion dollar surplus and are heavily dependent on what they buy <v Hobart Rowen>here, especially Boeing airplanes. <v Hobart Rowen>American businessmen are naturally anxious not to upset the apple cart. <v Hobart Rowen>China is a huge potential market, and its political leaders are already unhappy <v Hobart Rowen>with American sanctions imposed after Tiananmen, including suspension <v Hobart Rowen>of military sales, a freeze on liberalization of high tech exports <v Hobart Rowen>and a suspension of World Bank loans.

<v Hobart Rowen>A loss of MFM status would be the most significant of any of these sanctions. <v Hobart Rowen>Bush reportedly leans toward those of his advisers who believe that extension <v Hobart Rowen>of the MFM privilege, if conditioned to more human rights progress over the next <v Hobart Rowen>year, will encourage his softer approach by Beijing. <v Hobart Rowen>Others in and out of the Bush administration think that granting the MFM an extension <v Hobart Rowen>will demonstrate to the hard liners that they need change, making it more difficult <v Hobart Rowen>for reformers to come to power. <v Hobart Rowen>The way I see it, the Chinese leadership already has had a years since Tiananmen <v Hobart Rowen>to move toward a system of more open political rights, but hasn't done so. <v Hobart Rowen>Reliable reports indicate that hundreds of students and other activists are still <v Hobart Rowen>behind bars and have been tortured. <v Hobart Rowen>This country should not come down on the side of a government that condones <v Hobart Rowen>beatings and torture of dissidents. <v Hobart Rowen>Bush should not worry about American corporate profits in this case, but tell Beijing <v Hobart Rowen>it has 90 days to declare an amnesty for political prisoners or

<v Hobart Rowen>lose MFM privileges. <v Hobart Rowen>Either this country believes in human rights or it doesn't. <v Hobart Rowen>This is Hobart Rowen. <v News Reporter>In tonight's Money Files segment, Eric Shurenberg, senior writer for Money magazine, says <v News Reporter>the SNL bailout will pinch your pocketbook and, perhaps in a more subtle way than <v News Reporter>you might imagine. <v Eric Shurenberg>By now, you probably know that it'll cost taxpayers as much as 500 billion dollars to <v Eric Shurenberg>clean up the savings and loan mess. <v Eric Shurenberg>How will it affect your personal financial affairs? <v Eric Shurenberg>Well, strange as it may sound, the effect will be rather subtle. <v Eric Shurenberg>Let's start with taxes. Many reports have pointed out that the 500 billion dollar clean <v Eric Shurenberg>up works out to about 5,000 dollars per taxpaying household. <v Eric Shurenberg>Now, that sounds anything but subtle, but that sum is spread over 30 years and not <v Eric Shurenberg>all of it will come out of your tax bill. <v Eric Shurenberg>Most of it will be raised by new federal borrowing. <v Eric Shurenberg>The interest on which will come to roughly 10 billion a year. <v Eric Shurenberg>That averages only about a hundred dollars per family per year. <v Eric Shurenberg>And not all of that will come out of your pocket either.

<v Eric Shurenberg>Some will come out of corporate taxes and some may not come out of taxes at all, at least <v Eric Shurenberg>not right away. Congress may just tack it on to the budget deficit. <v Eric Shurenberg>You may have heard that it will be tougher for you to get a loan. <v Eric Shurenberg>Well, that's not necessarily true either. Even though hundreds of thrifts will close, <v Eric Shurenberg>there's still plenty of lenders eager to do business with consumers. <v Eric Shurenberg>But you may have to pay slightly higher interest rates and you would have otherwise <v Eric Shurenberg>because all the government borrowing will drive up rates in general. <v Eric Shurenberg>Likewise, you shouldn't worry that the SNL bailout will devalue your home. <v Eric Shurenberg>It is true the government does have to sell some 30000 residential properties taken over <v Eric Shurenberg>from failed thrifts. But most of these properties had already been for sale before the <v Eric Shurenberg>feds moved in, first by their owners and then by the thrifts that foreclosed on them. <v Eric Shurenberg>If your local housing market goes soft, it's not because the feds are dumping houses. <v Eric Shurenberg>It's because the area is overbuilt. <v Eric Shurenberg>Now, the point is not that we're somehow getting off scot free from the SNL fiasco, but <v Eric Shurenberg>rather that the steepest costs are those we'll never see. <v Eric Shurenberg>How do you calculate the cost of desperately needed investments in education that won't <v Eric Shurenberg>be made because the bailout preempted the money?

<v Eric Shurenberg>Who knows how fast the economy would have grown had interest rates not been inflated by <v Eric Shurenberg>bailout borrowing? <v Eric Shurenberg>We may not be able to read the SNL crisis in our family's bottom lines, but we'll pay <v Eric Shurenberg>for it. all right. I'm Eric Shurenberg. <v News Reporter>As we have been telling you nightly, the Persian Gulf crisis has been sending <v News Reporter>international markets on a roller coaster ride for the past several weeks. <v News Reporter>Well, in tonight's commentary, Adam Smith, author and host of Adam Smith's <v News Reporter>Money World, looks at what that could mean for the economy. <v Adam Smith>Investment professionals are used to asking questions and running scenarios. <v Adam Smith>Where does the market go if the Fed eases? <v Adam Smith>What happens to interest rates if a recession last more than two quarters? <v Adam Smith>Well, I just spent the afternoon at such a scenario session and the scenarios are wilder <v Adam Smith>than any I remember, because now they're not just financial, they're political. <v Adam Smith>For example, what happens in the Middle East scenario when Saddam goes back to <v Adam Smith>Iraq and that scenario all comes back down as OPEC pumps more, the market sees <v Adam Smith>its lows this fall. But Saddam still has his poison gas and his army that

<v Adam Smith>hangs over the market scenario, not likely. <v Adam Smith>Scenario two: a shoot out. <v Adam Smith>One of our members said you can't have that much build up and momentum without something <v Adam Smith>breaking the tension. I don't necessarily agree, but the shoot out scenario <v Adam Smith>is very volatile. Oil could go from 40 dollars to a whole uh 61 <v Adam Smith>dollars in a shoot out. The big Saudi shipping terminal is only 10 minutes flying <v Adam Smith>time from Iraqi held airfields, and that is seven million barrels a day. <v Adam Smith>That shoot out scenario would have oil spiking. <v Adam Smith>The markets would drop like a stone. The world would shutter, but oil would drop again in <v Adam Smith>six or eight months. Why? Because at sixty one dollars, demand would plummet. <v Adam Smith>Other fuels would appear. <v Adam Smith>Scenario three, Saddam disappears. <v Adam Smith>He's voted out of office. The embargo works. <v Adam Smith>Bullish. Then you're back to the effects of the whole Saddam event. <v Adam Smith>Cost of the build up, the loss of the peace dividend and so on. <v Adam Smith>And eventually this scenario will come about. <v Adam Smith>Saddam won't be there in 5 years.

<v Adam Smith>But how quickly this happens and what happens after become the governing factors. <v Adam Smith>None of the Middle East scenarios are as bullish as the 1980s when we had declining oil <v Adam Smith>prices and disinflation. <v Adam Smith>There are very exciting long range phenomena at work that are bullish. <v Adam Smith>The cooperation of the Soviet Union and the US are of just historic importance <v Adam Smith>and actually more important than any single dictator. <v Adam Smith>If the current ruckus was about two countries in the Centra- Central African jungles, we <v Adam Smith>would forget it. But meanwhile, we're all hostages because of our need for oil. <v Adam Smith>I'm Adam Smith.