By Alan Stoga. Alan Stoga is managing director of Kissinger Associates, a. New York consulting firm.
The Christian Science Monitor
WHILE it is increasingly clear that the United States economic recovery is finally gathering momentum, economic conditions in the rest of the world are much bleaker.
Germany and Japan are in recession. The Japanese downturn threatens to slow growth in the rest of Asia, while Latin America's emergence from its decade-long crisis looks increasingly vulnerable. The descent of Russia into depression and hyperinflation casts a shadow much larger than warranted by what is left of the Soviet economy.
All of this is mirrored in unstable currencies and nervous capital markets. It directly affects the prospects of the US economy. Unfortunately for President-elect Clinton, the US economy has become dependent on foreign trade and foreign capital. American savings are too low to finance the recession-swollen budget deficit by themselves. Exports, whose share of the economy is at a post-war high, account for most of the little growth in recent years.
Weakness abroad will inevitably limit the pace of recovery in the US. If the result of faster growth in the US than in its main markets is rapid deterioration of the trade balance, then the Federal Reserve could be forced to raise interest rates. Heavily indebted consumers and companies would inevitably curb their spending, and the expansion now underway would again falter.
Not all the news is bad. The recent agreement between the US and Europe on agricultural subsidies could lead to a resolution of the six-year-old global trade negotiations. This would not only forestall a potentially disastrous trade war, but would create new opportunities, especially in services. Nevertheless, international conditions represent a risk to a US economy already burdened by a range of factors that have prevented the normal recovery from recession. Debt levels are too high, the probability of increases in taxes is too certain, the need for companies like General Motors and IBM to restructure is too great, and the monetary policy has been too restrictive.
The result is not only modest growth and slow job creation, but an economy more vulnerable to developments in the rest of the world than has been the case in the post-war period.
S Mr. Clinton comes to grips with this reality, it is essential that he recognize two basic threats to global economic stability. First, there is a worldwide lack of savings and, second, the major industrial countries have failed to find common purpose in the wake of the collapse of the Soviet Union.
The US has long been a net borrower from the rest of the world; during the 1980s Germany, Japan, and parts of the developing world filled the savings gap. …