Yet Another Warning
IN THE DAYS when the United States was a creditor, it drew a steady stream of investment income from abroad to raise the American standard of living. But now that the country is a debtor, the stream has reversed and-for the first time since 1914-the net flow is going abroad. That's another signal of an approaching crisis.</br></br>This country's international deficit was running, in the summer quarter, at a rate of $173.5 billion a year. That's the amount the rest of the world has to put into this country, in dollars, to keep its economy in balance. But the rest of the world is getting tired of it. The appeal of putting billions more into the dollar, a declining currency that its own government refuses to defend, is very limited. Not only the United States but all the trading nations together are headed toward a disaster unless they can change course rapidly and forcefully.</br></br>The necessary moves are pretty clear. Last month the Institute for International Economics here convened a gathering of 33 economists from most of the major trading countries. They quickly sketched out a strategy that belongs to neither the ideological right nor the left, but represents a wide international consensus among specialists who are not in government and can speak freely.</br></br>Devaluing the dollar has gone just about far enough, they warned. Continuing drops in the exchange rate won't balance American trade. They will just generate inflation.</br></br>Any serious remedy has to begin with an attack on the U.S. budget deficit. That's central. It's straining and distorting monetary relationships worldwide. If the United States started to bring that deficit down by $40 billion a year, that would buy enough time and good will to do other necessary things-like bringing down its trade deficit equally fast. It's got to swing toward surplus by a massive $150 billion to $200 billion over the next four or five years to bring it to a size that this country can finance.