Hiccup? Or Global Meltdown?

That's why, for the first time since the summer, Tokyo recently provided some hope that it may, ultimately, come to grips with what's at stake. On Dec. 17 Prime Minister Ryutaro Hashimoto announced a much larger than expected tax cut, after it had been made abundantly clear that Japan's economy was lapsing into a free fall. ""We will never let the world fall into recession because of Japan's actions,'' Hashimoto vowed. At the same time, the government seemed to concede that, as in America's savings and loan debacle, lots of public money would have to be devoted to the financial sector in order to soothe global fears that Japan could yet follow South Korea into oblivion. (Fortuitously, Seoul on the same day announced that it would give up all controls on its currency, a move that led foreign investors to believe the worst there may finally be over.)

But all that still does not mean this story is over for the United States. Its position as the buyer of last resort as well as the world's largest exporter has enormous implications in the current environment--implications that, earlier this month, became clearer both to average investors and to professionals. On Dec. 17, 3M, a bellwether manufacturer, announced that its earnings would be lower than expected. Seems those pesky Southeast Asian flyspecks had swallowed a bunch of them up. Remarkably, Wall Street was shocked.

Expect more of this--probably much more. East Asia is now a crater. It probably will be for at least a year--and maybe more. Big American companies that do business there--think of Boeing, think of Caterpillar--have gone, in just six months' time, from projecting routinely brisk sales increases to extreme damage control. For exports to contribute to U.S. growth, other regions are going to have to take up the slack, yet none is in a position to do so.

Nor is that the only legacy from 1997's historic East Asia crisis. The coming year will see an onslaught of imports into the still vibrantly expanding American market. Do you think General Motors relishes the idea of competing with Toyota and Honda at 130 yen to the dollar? (Two years ago it was 79.) What about Caterpillar against Komatsu? Kodak and Fuji film? There are, as many economists say, real benefits to stiff import competition. Interest rates have already come down--with the Treasury's 30-year bond dipping below 6 percent--because inflationary expectations continue to diminish. Talk of a Federal Reserve rate increase in this environment is likely to vanish quickly. (Any bets that by next June--if not sooner--there'll be much talk about the need for a short-term-rate cut?)

If American managers can still keep their companies' earnings rising rapidly, then they truly deserve the seven- and eight-figure salaries their boards bestow on them. If they do it, stock prices will continue to set records, as optimists predict, and the Kevlar economy, fueled by lower rates, will roll on. God knows it's a pleasant story, heading into the holidays--and that scenario, as the Wall Street types like to say, ""is still out there.''

So too, alas, is the Great East Asian Bust. Only a Grinch would remind anyone of what James Grant wrote at the end of his recent book ""The Trouble With Prosperity'': ""Never before has a boom ended except in crisis.'' Financial watchwords ""for the millennium,'' he called them. Maybe even sooner than that. Happy New Year.