The Politics of Money
Seen from abroad, the most important story coming off Capitol Hill this week may not have involved Oliver North or John Poindexter. The disclosure by the Congressional Budget Office of new projections showing the federal deficit rising to $198 billion in 1989 also caused big ripples across the Atlantic.</br></br>The Financial Times of London gave its account of the CBO's revised projection the lead position on its front page. Since most U.S. newspapers did not give the story such treatment, why does it attract this attention in Europe?</br></br>Here this new projection looks like a body blow to the monetary strategy that Treasury Secretary James A. Baker III has been pursuing for the past six months. Baker has been skillfully buying time, waiting for the expected improvement in the trade and budget deficits to blunt protectionist pressures at home.</br></br>The sense of the deficits turning around was also supposed to encourage Japan and West Germany to take increasingly larger steps to lead international growth and help out the U.S. economy.</br></br>Baker had relied heavily on the CBO's original prediction that the deficit would come down to $161 billion by 1989. Throughout the spring and early summer, he assured the Europeans and Japanese that the United States was making significant progress in curbing its financial profligacy. Cutting $40 billion out of the deficit, he said in conferences in Paris and Venice, was nothing to sneeze at.