Boom and bust
Down the transatlantic cable growled a familiar voice, deeper than the ocean: 'We have a disaster on our hands.' Eliot Janeway, sage emeritus of Wall Street and Washington, foretells the end of the great American boom. It is ending, to his mind, in the classical way of booms. The demand for credit piles up the burden of debt, and then forces up interest rates on that debt.
We've been enjoying the best recovery that short-term money can buy.' But it can buy only so much. Now, says the sage: `We're in the blades of the scissors. The interest rates reflect the level of debt, and the lay-offs from jobs reflect the level of debt.' So much, then, for the idea that the monetarists of Reaganomics had success- fully re-invented the demand management of the 1950s and 1960s. 'It's a Keynesian deficit that's producing a bust. All our Keynesian friends got very excited, but you're sensing a real change of atmosphere here.' For the moment, that is more than compatible with a strong dollar — this week buying more than three German marks. Until the flow of investment from abroad, which has financed the recovery, dries up? 'That will take a little time.' About until election day? 'Possibly.' Mr Reagan owes his Presidency, in part, to a predecessor who was the first significant head of state in our time to engineer a pre-election slump. That mistake, at least, has not been repeated. But if Eliot Jane- way prophesies truly, next year will bring the familiar post-election hangover, with sore heads — such is the unfairness of life — even for the economies that have stayed sober. Sore heads in stock markets, too. In our own markets, it is unnerving — if only because it is unfamiliar — to find the building societies leading interest rates up. They have long been content to follow the banks. Now they seem to be showing the way.
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