THE Western economic community - and certainly the Reagan administration - faces one of its most serious financial challenges in the 1980s. This is a moment for coordinated action, not squabbling and infighting by the major industrial nations. As the tumultuous selloffs on global stock exchanges yesterday underscored, the negativism evident on US financial markets last week has now moved into the international arena. Concern is rife that the downturn may be more than just a market correction - perhaps, instead, the end of the bull market of the mid-1980s. Indeed, much of the selling now taking place is said to be panic trading.
The Reagan administration needs to shape a coordinated policy on the dollar and interest rates that includes policymakers from the Treasury as well as the Federal Reserve Board.
In this regard, it was unfortunate that Treasury Secretary James Baker III felt it necessary to rebuke Bonn for the recent modest increases in West German interest rates, as well as Mr. Baker's observations that Washington might let the dollar continue to fall against the German mark.
Is the United States really prepared to let the dollar free-fall against foreign currencies? By how much? A falling dollar could well send exactly the wrong message to Wall Street - since foreign investors, who have been the mainstay of the US economic recovery the past five years, might find less reason to stay in US capital markets.
Baker is correct in pointing out that the ``underlying economic fundamentals'' in the US are still good, including low inflation and relatively low unemployment. But Wall Street wants assurances that the administration means business in not allowing inflation to get out of control.
Baker is in Europe. While there, he and other chief financial officials of the Group of Seven - West Germany, Britain, Japan, France, Canada, Italy, and the US - should meet to reaffirm their commitment to an agreement made last February. Then, the Western nations promised to take coordinated action to ensure that the current expansion continues.