Economic Euphoria, Depression or Sluggish Growth?
Silk, Leonard, THE JOURNAL RECORD
Is this a time for economic euphoria, depression or a bland, boring and sluggish condition between those extremes?
Generating euphoria is the collapse of Communism and the end of the cold war. This week brought agreements between the Soviet Union and the West on a framework for negotiating the reunification of the two Germanys and cutbacks in conventional forces in Europe, with the Soviet president, Mikhail S. Gorbachev, so eager to get a deal to rescue his nation's failing economy that he is willing to accept bigger cuts than President Bush.
Some analysts are hailing these events as the triumph of capitalism; they hold forth the promise of a continuing decline in military spending that sooner or later will enable the United States to wipe out its budget deficit, raise its savings rate, eliminate its trade deficit and regain its world leadership.
Euphoria is also fed by hopes that the opening up of Eastern Europe and the Soviet Union may provide a vast new area for capitalist development that would rekindle the postwar boom.
But fears of depression feed on the mountain of debt and the danger that it could collapse and wreck the economic structure. It would be an irony beyond belief if, in the hour of capitalism's triumph, when the Communist states are seeking a model, capitalism should collapse under the weight of its speculative excesses.
Such fears were heightened this week by the failure of Drexel Burnham Lambert, the mother of the ``junk bond'' revolution, now in disintegration.
``Drexel illustrates the overall problem of too much debt - government debt, consumer debt, corporate debt,'' said William N. Griggs, managing partner of the investment advisory firm Griggs & Santow. ``A disaster is brewing,'' he added.
James J. O'Leary, economic consultant to the U.S. Trust Co. of New York, agrees. ``We have already seen the serious consequences of this overhang in rising delinquencies and foreclosures of commercial and home mortgages which have occurred during the strong business expansion,'' he said.
``The very heavy overhang of debt seems bound to pose much greater dangers in an economic slowdown or a possible recession.''
But when will the disaster arrive - and must it come? The stock market this week shrugged off the Drexel debacle, which it had expected. Some on Wall Street even felt that the fall of Drexel was a good and necessary corrective to a decade of excess and hazardous debt.
Most economists, including Griggs and O'Leary, still expect continuing slow growth and also see it as part of the remedy for past excesses.
The consensus forecast of the 50 economists and economic forecasting groups surveyed this month by Blue Chip Economic Indicators calls for the American economy to grow at the sluggish rate of 1. …