Luckily for the US - and the rest of the world - its fiscal stance
during the Clinton years has been impeccable and far stronger than
Europe's, let alone Japan's. The government's positive net savings -
the budget surplus - nicely balanced the inexorable demand by
households and firms for foreign goods and capital. This is why this
fiscal year's looming budget deficit - c. $200 billion - provokes such
heated debate and anxiety.
Is there a growing reluctance of foreigners to lend to the US and to
finance its imports and investment needs? To judge by the dollar's
slump in world markets, yes. But a recent spate of bad economic news in
Europe and Japan may restore the global appetite for dollar-denominated
assets.
This would be a pity and a blessing. On the one hand, only a flagging
dollar can narrow the trade deficit by rendering American exports more
competitive in world markets - and imports to the USA more expensive
than their domestic imperfect substitutes. But, as the late Rudi
Dornbusch pointed out in August 2001:
"There are two kinds of Treasury Secretaries those like Robert Rubin
who understand that a strong dollar helps get low interest rates and
that the low rates make for a long and broad boom.
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