Recession looms in United States

Press, 10 April 1980, Page 17

Recession looms in United States

By RICHARD THAXTON in New York President Carter found himself under attack at the beginning of April for doing far too little to curb rising prices — and also, for doing too much. Mr Carter’s recently unveiled anti-inflation programme, which aims to restrict the money and credit supply while balancing the 1981 federal budget, was denounced as inadequate by his campaign rival, (Senator Edward Kennedy) the “Wall Street Journal,” and a hos: of business analysts. Mr Carter wants to balance the Budget to convince voters and the business community that rampant Government spending has been checked, and no longer contributes to inflation, now at IS per cent. The highest it has been since 1946. But

critics say that Mr Carter’s “austerity” Budget is bigger by $l3 billion than an earlier Budget he withdrew as extravagant because of the unexpected growth in inflation. While social programmes will be slashed if Congress approves Mr Carter’s proposed cuts, there will be a 1981 surplus only because of $2B billion in new revenues. These include a 10c-a-gallon petrol tax, which the Administration admits is inflationary, and increased income tax coming from wage earners who have been pushed into higher tax brackets by the paper prosperity of inflation. The former chairman of the Federal Reserve System (Dr Arthur Burns) recently told a Senate committee that Mr Carter’s Budget plans were

“ridiculous and trivial.” They would not dampen the “inflationary expectations” which many analysts believed had delayed a long-projected recession as consumers and businesses continued spending and borrowing to avoid tomorrow’s higher costs, he said.

Several economists and financiers are alarmed that the Government’s tight-money and tightcredit policies will be too effective against inflation and will propel the United States and the global economy into a severe recession. Even some Government economists foresee a 1980-81 recession so deep that it will create at least as many political problems for the Administration as an inflation rate of 18 tp 20 per cent. A New York economist, A. Gary Shilling, for in-

stance, predicts a “long, bleeding’’ recession in which one or more likely financial disasters — the collapse of housing prices, Chrysler going bankrupt, “a wave of consumer instalment debt delinquencies” — would drive the United States into a slump evoking the 19305.

The United States Treasury plans to borrow heavily throughout 1980, and heavy Federal borrowing always drives up interest rates. At the same time, the Federal Reserve has curtailed the money supply, requiring banks to deposit more money -with the central bank, so that less is available to lend. The Commerce Department’s latest index of economic indicators, released about the same time, strongly suggests that a recession is on the way. The index has

declined for five consecutive months, and steady declines have been followed by recessions. Inflation and not recession is the economic issue on most voters’ minds, the polls show. They also indicate that most voters do not believe Mr Carter’s programme will curtail inflation.

Many political analysts believe that the economic issue will be a crucial, if not the central, issue in an election campaign between Mr Carter and the conservative Republican. Mr Ronald Reagan. The two are heavily favoured to win their parties’ nominations.

Inflation is thought to have contributed heavily to Mr Carter’s defeats by Senator Kennedy in the New York and Connecticut primaries. Mr Reagan, 'on the other

hand, appears to be scoring effectively when he blames the current economic woes on years of excessive spending by Mr Carter and other Democrats. Mr Reagan enjoys the support of many Democrats who have switched allegiance to vote in Republican primary elections. So as long as inflation continues, Mr Carter would seem to be vulnerable. On the other hand, if inflation is checked by a sharp pre-election slump — and many economists believe only such an abrupt decline could shatter inflationary expectations — the President might well continue to suffer. Economic slumps have spelled defeat for several past Presidents. — Copyright, L.O.S.