In 1997 several countries in Asia faced serious economic difficulties, known as the Asian crisis. With significantly reduced demands for domestic goods, many Asian countries had a huge excess capacity of production, and they were willing to reduce prices of their export goods. These cheap imports kept the general level of price and the rate of inflation low in America.

The Asian crisis also meant fewer profitable investment opportunities in Asia, and, as a consequence, many Asian countries invested their export earnings in American stocks and U.S. Treasury bonds. These events not only fueled the continual expansion of the U.S. stock market but also kept the U.S. interest rate low due to an increased supply of money from abroad. Since foreigners needed to exchange their currencies for dollars in order to invest in the American financial market, the value of the dollar appreciated significantly. For example, before the crisis, the exchange rate between the South Korean won and the dollar was as high as 800 won for $1. After the crisis, the rate became 1600 won for $1.

This depreciation of the Korean won (or appreciation of the dollar) strongly encouraged Korean exports to the U.S. but discouraged imports from the U.S. If a Korean exporter earns $1 from the U.S., then it would be worth 1600 won rather than 800 won as before. But a Korean importer would have to pay 1600 won rather than 800 won to import a good costing $1 in the U.S. In fact, the strengthened Asian export market mitigated both the Asian Crisis and the quick recovery of Asian economies.

However, combined with the current rapid expansion of the European economy, the rapid recovery of the Asian economies may pose a serious problem to the U.S. economy. Because Asians and Europeans now find many profitable investment opportunities at home, they may reduce their investments in America. Since Asians and Europeans want to exchange dollars into their own currencies, the value of the dollar will decline. The depreciation of the dollar will increase the price of imported goods, as well as the general level of price in America. In addition, with reduced demand from abroad, the U.S. Treasury must offer a higher interest rate to attract buyers of Treasury bonds. The combined effects will be the start of serious inflationary pressure in America.

The interest rate offers an opportunity for to invest in the stock market. If the interest rate is higher, people prefer to invest in safer bank savings such as a Certificate of Deposit; i.e., a long term savings rather than the speculative stock market. In general, This trend will significantly depress the stock market in general. When the stock market was very strong, it created a significant wealth effect for both consumers and producers, and they spent some of this paper wealth on consumption and investment. With a depressed stock market and reduced paper wealth, consumers and producers may significantly reduce their demands for new goods, and this may start a serious economic recession.

However, a depreciated dollar will encourage U.S. exports abroad, and some of the reduced domestic demands may be compensated for by the increased demands from abroad. In addition, the Federal Reserve Board may continue to keep interest rates low to avoid recession, although an almost zero interest rate in Japan did not succeed to revive the Japanese economy from a serious recession. How long government monetary policy prevents the surface of natural economic forces remains to be seen.