Taming the twin deficits
LIKE an old family car in need of a tuneup, and maybe some body work, too - a car that's lasted much longer than the neighbors ever expected - the American economy keeps chugging along. In fact, it's chugging along fast enough that some are concerned about overheating with inflation again. But just as the kids in the front seat know that if the old clunker makes it over one last hill, it can coast the rest of the way home, so many of the nation's economists are expecting that since the expansion has lasted this long, it should continue through the election. Whoever wins, however, will have to face the challenge of finally tackling the twin deficits, in the federal budget and in trade.
The world financial community may realize it's too much to expect the United States to reorder its economy during an election year. But investors are surely going to expect to see decisive action soon after the new administration and the new Congress are installed.
Seldom has the ``danger/opportunity'' chestnut been so apt. If the foreign investors and central bankers who have been financing US deficits for some years now don't see decisive moves in Washington soon after Jan. 20, they might pull out of US markets, leading to a fall of the dollar, recession, protectionism, default on third-world debt, and so on.
Conventional wisdom has it that the Republicans will be the election-day beneficiaries of the continuing economic expansion. But the Democrats, less committed to avoiding tax increases, might be in better position to push austerity.