U.S. in Wrong Season to Pursue Once-Right Economic Policies

By Silk, Leonard | THE JOURNAL RECORD, August 8, 1986 | Go to article overview

U.S. in Wrong Season to Pursue Once-Right Economic Policies


Silk, Leonard, THE JOURNAL RECORD


NEW YORK - Halfway through 1986, the United States trade deficit has hit a new high of $83.9 billion - about $170 billion at an annual rate. The worsening trade performance is adding to worries about the ability of the American economy to keep growing.

In his testimony before the House Banking Committee last week, Paul A. Volcker, chairman of the Federal Reserve Board, was pressed to say whether the current slowdown in economic growth could lead to a recession.

He responded cautiously: The Fed's policy makers, he said, were ""not as a group anticipating'' a recession.

""The harbingers that are normally associated with a near-term recession are absent,'' he said, ""but we live in a more complex world.'' The soaring trade deficit, he added, had put the United States in a ""difficult and dangerous'' situation: ""Our financial market becomes more and more hostage to the continuing flow of capital from abroad.''

The trade deficit last year came to $148 billion and is now virtually certain to go higher this year. Even if the deficit drops to $100 billion by 1988 and to $50 billion by 1990, the Institute of International Economics, an independent research center, estimates that the net United States foreign debt will rise to $650 billion by 1990.

Interest payments and amortization of a debt that big would be a serious drag on American economic growth, deducting 2 percent or more from the nation's gross national product. Since real growth has amounted to only 2.5 percent a year thus far in the 1980s, the cost of servicing so huge a national debt could mean virtual stagnation for the United States, unless a noninflationary means of spurring growth can be found.

Economic stagnation would pose dangers for foreign policy. Sherle R. Schwenninger and Jerry W. Sanders of the World Policy Institute in Washington say in an article in the current issue of their institute's journal: ""Countries that once turned to the United States will increasingly look to Japan, which, with America's financial decline, has become the world's largest creditor.''

The worsened trade figures - combined with the Administration's opening of the American market to more textile imports from South Africa - are bound to intensify congressional pressures for protectionism. The Democratic speaker of the House, Thomas P. O'Neill Jr., this week called on Reagan to change his lapel button from ""Stay the Course'' to ""Made in the USA.''

Hard times always intensify nationalism - and in both parties. Reagan will be feeling the heat from Republicans as well as Democrats to support measures to help hard-hit American industries and create more jobs. …

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