The economic and financial turmoil in Asia is unlikely to end quickly and may spread, according to several economists.
And for the United States, the situation heralds slower economic growth but not necessarily a recession.
"I think we will be seeing far more moderate growth a year from now, but it's premature to assume a recession might develop," said Philip Braverman, chief economist at DKB Securities USA, the New York brokerage arm of Dai- Ichi Kangyo Bank.
"I think the Asian situation will have a long-term impact on the U.S. economy and financial markets," said Sung Won Sohn, chief economist at Norwest Corp. He also noted that "large banks have meaningful exposure in Asia."
Mr. Sohn equated the Asian currency meltdown to an oil slick. Last week, pressures that had forced devaluations across Southeast Asia reached Hong Kong. Financial markets worldwide plummeted.
"Unfortunately, the slick won't stop at Hong Kong harbor," Mr. Sohn said. "Soon, it could reach the shores of Japan and the rest of the world."
In reaction, Japanese stocks could tumble and the yen sag to a new low, he said. European currencies, already suffering from the belt- tightening required to meet Maastricht Treaty criteria, are likely to weaken against the dollar as efforts are mounted to maintain exports.
Last week, a currency crisis in Brazil caused a major break in financial markets.
"The biggest risk I see is that Japan's economy will be hard hit by the turmoil in Southeast Asia, which accounts for almost 40% of Japan's exports," said Edward Yardeni, chief economist at Deutsche Morgan Grenfell Inc.
He said he doubts Asia will rally as quickly as Mexico did from its 1995 currency crash, noting that many countries are involved in the present crisis.
At the same time, the United States "had the will and the might to help Mexico," Mr. Yardeni noted. "Japan is more likely to be destabilized than to stabilize the Asian situation."
For the U.S. economy, serious ripple effects can be expected, starting with the balance of trade.
"We will be able to sell less to Asia," Mr. Sohn said. "For instance, companies like Kodak will have problems making profits in Asia, and the 'translation effect' into U.S. dollars of money they do make will hurt earnings."
To be sure some importers from Asia like Compaq, the computer maker, may be helped. "If the price of components goes down, the margin goes up, so Compaq may actually be able to lower prices," he said.
Overall, the U.S. balance of trade with Asia is likely to deteriorate. Asia accounts for a large amount of U.S. trade - 43% of imports and 35% of exports.
"It's likely we will be importing some deflation from Asia," said Mr. Braverman. "And that will act to hold inflation down in this country."
Why has all this happened? Japanese banks, awash in liquidity, directed large amounts of low-rate financing into emerging Asian nations because Japan's own business conditions were slack. Global investors did their part.
"The capital inflow and an export boom put upward pressure on the currencies of Asian emerging economies," Mr. Yardeni said. "Asian central bankers chose to peg their currencies to the dollar because the U.S. is their biggest export market. They had to purchase loads of U.S. Treasury securities to do so.
"It all worked great as long as the dollar was a weak currency," he said. "But the dramatic rebound of the dollar since 1995 wreaked havoc on emerging Asia's exports as the Japanese yen became cheaper and as China gained global market share."
In the bargain, Japan's banking system may face another wave of bad loans.