Since the collapse of Asia's economies, experts have been trying to determine its effect on the American economy. Following a background report, Elizabeth Farnsworth and guests discuss the impact of Asia's economic crisis on different regions of the United States.

ELIZABETH FARNSWORTH: For more on the Asian ripple effects we're joined by four economists from around the country. From here in the West, Michael Englund, chief economist at Standard & Poor's MMS, an economic consulting firm; from the Midwest Jim Annable, chief economist for First Chicago NBD, a commercial bank; from the Southeast Gary Shoesmith, director of the Center for Economic Studies at Wake Forest University's Babcock Graduate School of Management; and from the Northeast Rae Rosen, senior regional economist for the Federal Reserve Bank of New York. Mr. Englund, let's start with the negative ripple effects. What are you seeing so far in the West Coast beyond what Spencer mentioned?

MICHAEL ENGLUND, Standard & Poor's MMS: Well, suddenly the immediate effect has reduced Asian demand for U.S.-produced goods. If you look at California, exports from California that are bound to Asia, roughly 51 percent of goods exported, the ratio for the United States as a whole is 29 percent. If you look at state output, about 5 percent of the goods produced in the state of California are Asia-bound. The same ratio there for the United States, it's about 2 1/2 percent. So, essentially we're seeing an impact in California that's about twice as big as the impact that we're seeing for the nation as a whole, and clearly all the high-tech companies in the state that are the most high profile companies are already reporting the impact that they're seeing in their sales statistics.

ELIZABETH FARNSWORTH: And explain why they're being impacted.

MICHAEL ENGLUND: Well, their earnings reports for the fourth quarter, for instance, are already being affected. Currencies fell sharply in the Asian region, and their stock markets fell. There's two effects there that currency adjustment has raised the price of U.S. goods sold in the Asian area. The stock market collapse and the economic difficulties they're having have reduced their ability to buy U.S. goods even if they were at the same price, so America manufacturers are ultimately selling goods to Asia, which is a small fraction of total U.S. exports to Asia since many of the equipment that we ship to them, much of the equipment we ship to them is re-exported. But if you look at total demand in Asia, it's clearly being impacted, and we're already seeing it in fourth quarter data that companies are not reporting.

ELIZABETH FARNSWORTH: Gary Shoesmith, what are the ill effects so far in the Southeast?

GARY SHOESMITH, Wake Forest University: Well, here in the Southeast I don't believe the impact would be all that severe. On the export side only six or seven percent of Southeast exports go to that region of the world. The bigger effect will be on the import side, and, in particular, import price competition. Textiles and apparel will feel the brunt of that as that industry always does, whenever foreign competition intensifies. That will affect states like North Carolina, South Carolina, Alabama, and Tennessee . And then another industry that I think will be impacted fairly heavily will be the auto industry. In that respect Tennessee will be hit again. The Saturns and the American-made Nissans that are produced there will go head to head with cheaper Japanese models. And otherwise, the BMW Z-3 produced in South Carolina and the all terrain vehicle in Alabama probably won't be impacted that much. So it's going to be spotty both in terms of the industries that are impacted and also the states.

ELIZABETH FARNSWORTH: Mr. Shoesmith, are you seeing any signs yet that low price goods are being dumped on the market, or coming in great numbers from Asia, and that that is affecting apparel companies, or is this something in the future more?

GARY SHOESMITH: No. We really haven't seen it that much here in the Southeast, but textiles and apparel has been in a pretty steep decline for a number of years. So it's hard to distinguish between what might happen between what might be happening because of Southeast Asia and what is already underway anyhow. So I think it's going to be a while before we hear executives at textile companies and apparel companies in particular because the high labor content complaining about Southeast Asia imports, but you can be sure that it's coming, and all you have to do is check the tag on some of your clothing and you'll see Indonesia, Thailand, South Korea on much of that.

ELIZABETH FARNSWORTH: Rae Rosen, in the Northeast, who's been hurt most so far?

RAE ROSEN, Federal Reserve Bank of New York: It's hard to talk about being hurt most. We're pretty insulated in terms of exports of goods. We're below average for the nation, and what we do export, the bulk of it goes to Canada and Europe. We actually are seeing some benefits in the goods side. Our contacts and anecdotal evidence suggest that prior to a major price drop we have Asian exporters offering unusual terms, like take it for a year and the payments begin 12 months from now. So some of our contacts say they've already switched equipment suppliers because of better terms. I think the cuts in prices of goods are probably still ahead of us. But if you were to change from goods to services, we're the nation's preeminent service exporter and there we're benefitting.

ELIZABETH FARNSWORTH: And just staying on the losses for one minute--I'll come back again to the benefits--what about the investment banks and the big banks, how much are they hurt?

RAE ROSEN: Well, we've seen some banks make loan loss provisions, but I don't--I think they're doing it in advance of the problem. And in the same time they still have an increase in business. They're asked to do workout loans, they're asked to do renegotiate contracts. They're looking for help in establishing new markets and establishing a new financial structure, so that at least in the short run it's been to our benefit.

ELIZABETH FARNSWORTH: And Jim Annable, who are the losses--who are the losers so far in the Midwest?

JIM ANNABLE, First Chicago NBD: (Chicago) Well, we get hit doubly. We have heavy concentration of exporters, and we have heavy concentration of industries that have import competition, as well. For example, heavy equipment, capital equipment--we have a heavy concentration of those producers like Caterpillar. They've dominated their world markets. Well, heavy equipment, 40 percent of that gets exported to Asia. The Asian recession and the strong dollar relative to those currencies hurts substantially on those exports. Meanwhile, we have a number of industries that are head to head competitors in the U.S. market with Asia--for example steel--we're heavy steel producing. Korean steel is going to be a lot cheaper as a result of this crisis.

ELIZABETH FARNSWORTH: Mr. Annable, moving now to the positive effects, what has happened in your region that could be considered positive because of the Asian economic problems?

JIM ANNABLE: It's the wonderful thing about economics; every crisis has a silver lining, you know, a dark cloud, and you can find good things happening as well. For example, at my bank--we're widespread throughout the Midwest--our mortgage applications have--are up threefold, 300 percent from the end of last year. 85 percent of that is refinancing mortgages. People, households have looked at this, and said, we haven't seen mortgage rates like this in my lifetime, I'm going to go out there and refinance my mortgage. When they do that--

ELIZABETH FARNSWORTH: Just briefly, explain the tie-in, why are mortgage rates down?

JIM ANNABLE: I'm sorry. With the Asian crisis, you had a flight to quality throughout financial markets, people invested in Asia were looking for a safe place to go, and investment came pouring into the United States, and when investment comes in, interest rates drop. So there was a very sharp bond rally and a sharp drop in long-term interest rates and mortgage rates dropped as well. With those lower mortgage rates, people said, I can refinance my mortgage. When you refinance your mortgage, you don't pay as much every month, so now you can spend more.

ELIZABETH FARNSWORTH: So would you say, looking at that and the other factors, just briefly, is the net effect positive or negative in your area from this?

JIM ANNABLE: We're a heavy, trade-dependent area. The net effect is clearly negative for us. We're estimating for the industrial Midwest we'll grow about 3/4 percentage point slower because of the Asian effect than we would have without.

ELIZABETH FARNSWORTH: Okay. Mr. Englund, what pluses in California from this?

MICHAEL ENGLUND: Well, the negative effect is certainly larger, but there's a silver lining as well. As was noted, the housing sector is certainly going to benefit in California from lower interest rates. It's particularly important in California because California lagged the nation in this rebound from the recession we saw at the turn of the decade, particularly the LA market was hit very hard, the defense cuts in the early part of the decade, and it's only recently shown some signs of growth. The unemployment rate is higher in the state of California; it's been dropping recently, fairly rapidly. It's down below 6 percent, I believe, even though it's still a percent and a half behind the national level. So there's essentially more slack in the California economy. With interest rates falling that's going to provide an important boost to the housing sector, to the residential construction sector, and really for the rest of the service sector in the state of California. That is impacted by domestic demand. The state of California is going to post healthy growth this year, probably outpacing the nation, even though we are going to see a--probably twice the effect of the Asian crisis in the state as well.

ELIZABETH FARNSWORTH: Mr. Shoesmith, how bad in the Southeast?

GARY SHOESMITH: Well, it's hard--

ELIZABETH FARNSWORTH: The positive effects.

GARY SHOESMITH: Yes, the positive effects. It's hard to add to that list: lower prices, lower interest rates, increases in buildings, construction, which of course also affects building materials all the way up the line, but in general what I would add to that is that consumers are in terrific shape right now. Jobs are plentiful, unemployment is low across the country, wage inflation exceeds price inflation, which means that real wages are going up, and with the lower interest rates and all the refinancings, there's more money in people's pockets. So even though economists tend to focus on some of the negative aspects of the world economy, consumers are in great shape, perhaps you know, not better in several decades.

ELIZABETH FARNSWORTH: Ms. Englund--do you agree with Federal Reserve Board Chairman Alan Greenspan that perhaps this crisis might have a good effect on the U.S. economy just because it will dampen what might have been an overheating economy? Ms. Rosen.

RAE ROSEN: I'm sorry, I didn't hear you say my name. I would never disagree with my chairman, but I'd also like to bring out a couple of additional points because we are a unique region of the country and we're really the nation and the world's financial center, we're seeing a change in structure that will benefit this region long-term. Although we are open to financial trade coming into our country, that is other banks could come here, for a long time we couldn't operate our banks overseas under equivalent conditions, but because of what's happened in the Asian markets, our brokerage firms, our pension funds, our mutual funds, and our banks are now facing a liberalized trade agreement, and we're going to be able to go abroad and establish ourselves abroad the way these people have been able to come here. And even in our good neighbor Canada we didn't have equivalent operating conditions offered to us, and we will now be able to go there under more equal conditions. So for us it's going to be a changing in the structure of the financial community and a greater opportunity to expand our subsidiaries abroad, and that means we'll increase headquarters staff here and we'll bring in more high paying jobs to this area.

ELIZABETH FARNSWORTH: Are you surprised, Ms. Rosen, that it hasn't had a more negative effect so far, the problems in Asia?

RAE ROSEN: No. I think that problems take a while to develop, price structure takes a--the example I gave you before, in terms of a piece of manufacturing equipment being offered for free for a year before the price drops, economists would say well the real price dropped--the rest of the world just says, gee, I don't have to pay for a year, I'm changing suppliers. It takes a while for these things to occur.

ELIZABETH FARNSWORTH: And Mr. Annable, how much worse do you think it could still get?

JIM ANNABLE: You know, Sec. Rubin had a very, very good point, and we ought to remember that. We're talking about crisis in Asia that's contained in Asia. It's very important to keep it contained in Asia. If it spreads throughout Latin America and into Eastern Europe and throughout the world into emerging economies, then everybody is going to be raising their impacts on the U.S. economy. So far, the system has worked. We've kept financial gridlock from spreading throughout the world through IMF efforts and efforts of the developing economies but we've got to keep that contained in Asia. If we don't, it's going to be much worse.

ELIZABETH FARNSWORTH: Well, thank you all four very much.