New Day, New Rules For The G 7

There is a simple lesson in the turmoil roiling the markets this August. "Even the world's largest, most perfect economy is not insulated from external shocks," says David M. Jones, chief economist for New York securities trader Aubrey G. Lanston & Co. "We will pay a price."

The only question is how steep. Asia's depression helped clip second-quarter growth to 1.4% and dimmed the outlook for earnings. Now, with the Japanese economy showing no sign of near-term recovery, the yen is racing toward new lows, threatening devaluations of currencies from Beijing to Brasilia. Already, the plunge in commodity prices set off by Asia's problems has reached North America, dampening the economies of Mexico and Canada, whose currencies have dropped sharply against the dollar. With this rising tide of woe, analysts are scaling back earnings estimates for the rest of 1998, markets are "correcting," and economists are assigning a higher probability--though still low--to a mild recession within a year.