Newspaper article The Christian Science Monitor

Brave Predictions for a Boom in '93

Newspaper article The Christian Science Monitor

Brave Predictions for a Boom in '93

Article excerpt

PRESIDENT-ELECT Clinton has a transition group looking at monetary policy. But economist H. Erich Heinemann says the group is "not appropriate."

The Federal Reserve System determines monetary policy. "The White House does not," says the chief economist for Ladenburg, Thalmann & Co., a brokerage house.

Nor does the economy need further monetary stimulus, Mr. Heinemann says. He estimates that real national output will grow 4.9 percent between the fourth quarter of 1992 and the fourth quarter of 1993. That's a rate far above the consensus forecast of 2.8 percent. Indeed, it is nearly the most optimistic among economic forecasters today. If Heinemann's prediction is right, Mr. Clinton will enjoy a vigorous United States economy that will eat into the federal budget deficit and bring unemployment under 7 percent by the end of this year. Nearly 2 million people will find jobs, Heinemann says.

Heinemann could be right this time, says Paul Kasriel, monetary economist with the Northern Trust Company in Chicago. For much of 1992, he disagreed with Heinemann's optimism, arguing that the Fed needed to ease even more to get a broad measure of money known as M2 growing faster before the recovery would step up its pace. M2 actually shrank during the four months ending last July.

Since August, though, M2 (currency, checkable deposits, small denomination certificates of deposit, and some other elements of the money supply) has been growing at a 3.3 percent to 5.7 percent annual rate. That's enough, in Mr. Kasriel's view, to fuel economic expansion at a 3.5 percent annual rate in the first half of this year.

Heinemann pays more attention in his forecasts to M1 (a narrower measure of money that includes currency and checkable deposits). M1 has been growing at an 18.9 percent rate in the last three months. Checkable deposits, those most used in transactions, have grown $110 billion last year, a record amount, Heinemann notes.

The divergence in growth between M1 and M2 last year was troublesome to Fed officials and many economists. Arguments over such monetary details may sound arcane. But they will be deliberated by the Clinton monetary policy group. …

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