Plight of the Debtor

April 30, 1991

Americans should hardly be surprised that Germany and Japan rebuffed President Bush's personal appeal for a concerted worldwide reduction in interest rates. That's just how creditor nations habitually deal with debtor nations.

Not so long ago the United States was the biggest creditor nation. Now it is the biggest debtor due to the profligacy of the Reagan era. So we had better get used to all kinds of slights from better managed countries that like tight money, not easy money.

Mr. Bush has good reason to appeal for help from U.S. trading partners, especially if soft demand in foreign countries short-circuits the current rise in exports. If this recession lingers until late in the year and then is followed by a droopy recovery, the president's bright prospects for re-election could be clouded. The 2.8 percent decline in gross national product in the first quarter was disheartening, not only because it made the recession "official" but because of unexpected weakness in business investment in plant and equipment.

For several weeks the administration has been clamoring, with little success, for a cut in interest rates by the Federal Reserve Board. Because the International Monetary Fund is meeting in Washington this week, it was perhaps predictable that the pressure would switch to the finance ministers and central bankers of the Group of Seven leading industrial powers.

Mr. Bush got nowhere, however, even though he invited them in for an unusual Sunday afternoon discussion at the White House where he invoked the specter of a worldwide recession. There were the usual platitudes about combining economic growth with non-inflationary price trends. But there was not even a pretense of concerted action over the near term.

Germany's central banker, Karl Otto Poehl, let it be known that his greatest fear is a burst of inflation unleashed by prosperous western Germany's investment of $56 billion this year in economically devastated eastern Germany. So he was not about to lower interest rates which are already the lowest in the European Community, a factor illustrated by the recent decline of the deutsche mark. The Japanese were equally adamant, having no desire for the kind of expansionary bubble that sent asset prices rocketing after a 1987 easy-money accord.

There was a time when the United States could roll over such resistance and get its way, regardless of the consequences. No more. Until this country gets its fundamentals in order by increasing its savings rate and making progress in reducing federal deficits, it will remain the world's largest debtor -- a nation dependent on foreign sources for the capital needed to fund its borrowings. Germany, Japan and other strong surplus nations will set their own monetary policies for their own domestic reasons -- and the United States will learn what it means to be a mendicant.

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