Glad tidings in shops on Oxford Street have dull ring in US economy

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A few days in London suggest one small aspect of the US economy's present problems - its huge trade imbalance. Pre-Christmas shopping along Oxford Street, in the clothing emporiums of Regent Street, and at Harrods in Knightsbridge brings almost more American English to one's ears than the Queen's English.

It wasn't more than a few years ago that Americans were used to paying $2 for an English pound. Then began a slide - actually, it was a slide of all European currencies against the dollar - to today's bargain $1.20. Those who can afford to come to London and shop can take home wool coats, cashmere outfits, and some of the world's finest china for about half of what they cost retail in the United States. But that is just a trickle. Most imports are not brought into the US by the individual tourist. What is causing the roughly $120 billion trade deficit this year is a massive ordering of goods and equipment from abroad, as the overvalued dollar turns foreign goods into bargains that cannot be matched at home.

According to figures by A. Gilbert Heebner, executive vice-president and economist at the Philadelphia National Bank, imports as a percentage of the domestic demand for goods and services have grown from 7.5 percent in 1980 to 8. 5 percent a year ago, and almost 10.5 in the recent quarter. Without some comparable growth of demand for US goods and services abroad, this demand for foreign products can in the long run be paid for only by attracting more foreign funds into the US. Hence, one of the needs for high interest rates to attract those funds.

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The problem is that if the economy continues to cool, there is less cushion against a recession.Current wisdom has it that the economy is only cooling off from too-robust growth early in 1984 and that with interest rates somewhat lower , demand will pick up again early next year. This may be correct, but the Reagan economic beagles must be watching closely to see if this Christmas season begins to show more consumer strength. One reason the optimists have for thinking the economy will not turn down is that consumer sentiment has stayed high. But partial layoffs caused by poor third-quarter profits in some industries could depress consumer sentiment.

A Swiss banker who was in London last week noted that the administration has few options if the economy does turn down. A budget deficit of more than $200 billion in the current fiscal year would be several billion dollars higher with even a mild recession - through a shortfall in cash collections. And at those levels it is almost impossible to talk about using fiscal policy to stimulate the economy further.

The other tool of possible stimulation - monetary policy - is also of very limited value at present, for the reasons discussed earlier. That is, interest rates need to be attractive to foreign investors. If the Fed were to stimulate the economy massively through trying to bring down interest rates, it might cause more problems than it solved.

A dollar spent on imports doesn't do the home economy as much good as one spent on domestic goods. There is a multiplier effect from spending: Those products must be replaced by workers who will get more income to spend themselves. A dollar spent at Harrods has its multiplier effect in Britain.

There is also the fact that up to $10 billion of new Treasury debt is being purchased each month by foreigners. The interest on that debt will be paid to foreigners for some years, and the multiplier effect from those payments is not apt to be felt in the US.

There should be a large room in the White House for anyone with a new idea for dealing with the related problems of budget and trade deficits, overvalued dollar, and high interest rates. One hopes an '85 recession will not be added to that list.

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