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Sound of falling stocks heard round the world. Global moves to rescue stock markets

Government officials around the globe are hastening to the rescue of stock market investors. Federal Reserve Board chairman Alan Greenspan announced Tuesday that the Fed would provide adequate liquidity to the nation's economy. This was interpreted by the markets as a promise to fight any recessionary tendencies in the economy.

West German authorities moved to lower interest rates. Similar reassuring measures were taken elsewhere in the industrial nations. But after the panic that swept the world's stock markets Monday, the restoration of confidence is expected to take some time.

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Investors saw a huge chunk of their wealth disappear like smoke up a chimney. In the United States alone, the collective value of stocks was slashed $1 trillion in the six trading days through Monday.

This ``poverty effect'' worries economists.

``It is a dangerous situation because of the loss of wealth,'' says Scott E. Pardee, vice-chairman of Yamaichi International (America) Inc. But Mr. Pardee, a former Fed economist, believes that depression is unlikely to follow this market crash, as it did the crash of 1929.

Markets are now more flexible, he notes.

This market has especially suffered from computerized trading. The phrase ``an automated avalanche'' is being bandied about Wall Street.

Moreover, mutual fund shareholders have been selling their shares both in the US and Western Europe. There were lineups outside Fidelity offices in Boston, the world's largest mutual fund group. These redemptions force mutual funds to sell the stocks or other investments underlying the fund shares. Fidelity lengthened its redemption period from a day to seven days to delay this problem, give the markets a chance to recover, and perhaps encourage shareholders to change their minds.

Central bankers of the major industrial nations are expected to counter any depressive effect of the stock market crash on their economies by pumping sufficient money into the financial system to lower interest rates.

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J. Paul Horne, European economist with Smith Barney, Harris Upham & Co., expects short-term interest rates to fall sharply, as investors shift their money from stocks to US Treasury bills and other money market instruments. This downtrend should eventually spread to long-term bonds, he says. This decline in interest rates could stimulate the economy, even stepping up its pace, he suggests.

But some other economists predict the reverse. For instance, Robert D. Hormats, vice-president of Goldman, Sachs & Co., sees a slowdown or recession ahead because both individuals and companies have seen the value of their stocks clipped dramatically.

C. Fred Bergsten, director of the Institute for International Economics in Washington, reckons that investor sentiment was affected by the prolonged problem of the US budget and trade deficits. Investors finally recognized that ``these time bombs were ticking away,'' he said. Changing the metaphor, he added, ``These chickens have come home to roost.''

Mr. Bergsten hopes that as a result of the crash President Reagan will compromise on the budget with Congress, permitting a tax increase. He says that if the administration and Congress agree on a plan to reduce the deficit by $30 billion a year for three years, this would inspire confidence among investors.

Curing the trade deficit, he adds, could be more difficult. This could require the dollar to fall another 20 percent. Bergsten also emphasizes the importance of more cooperation on economic policy among the major industrial nations.

Mr. Hormats expressed confidence in both Mr. Greenspan and US Treasury Secretary James Baker III as ``seasoned fellows'' who should move to prevent the market crash from causing greater economic damage.

In terms of growth in the money supply, the Fed has been conducting a tight policy for the last eight months or so. Growth has been below target by some measures.

That, however, follows a period when money growth was far above targets. That rapid money growth did not push the economy into a boom or much higher inflation. Because of this failure of the economy to track the money supply in recent years, economists have had doubted that the present tighter money would push the economy into recession.

If the economy does enter a slump, it would reaffirm the position of some economists that growth of the money supply has a powerful impact on the economy.

From Tokyo, Takashi Oka writes: Like a cyclone touching down from financial center to financial center, the stock markets' downward spiral has swirled and whirled from New York to Tokyo, from Tokyo to London.

Despite the biggest stock market drop in its history, however, the atmosphere in Tokyo was relatively calm. Finance Minister Kiichi Miyazawa said the situation was not at all comparable to the 1929 crash.

Developments in Japan's stock markets draw attention around the world, because this narrow island nation has now become the world's largest international creditor, as the US has become its largest international debtor.

The figures, by themselves, were grim. On Monday, the Nikkei index lost nearly 4,000 points and stood at 21,910 points at the end of the day. Shares lost nearly 15 percent in value - compared with the 22.6 percent loss on the New York stock market. What happens here today depends largely on what happened in New York yesterday.

Economists took comfort from one reassuring index: The yen-dollar exchange rate held steady, and the yen ended the day 11.45 yen lower against the dollar. In Japan, the economy seems to be pulling out of a prolonged slump caused by the high yen. Production is up, inventories are down, profits are recovering their health. It is jitteriness about what happened in New York, a kind of induced panic, that led to the drop here Tuesday, a number of experts say.

They also point out that the stock market has become global, that no market can fully insulate itself from the others. Share prices tumbled throughout the region yesterday - in Seoul, Taipei, and Singapore. In volatile Hong Kong, the authorities closed the market and said it would remain closed for the week.

``This is a very good lesson for us,'' said economist Naoki Tanaka.

As the world's largest creditor nation, Japan has to park its money somewhere. The crash has showed the Japanese how unsafe it really is to put money simply into dollar financial assets, Mr. Tanaka said. More money, in his opinion, needs to go into imports and into productive assets designed to improve the quality of life in Japan.

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