Hearing from the Markets

August 10, 1993

Wall Street marked its first working day since congressional passage of President Clinton's $496 billion deficit reduction package by climbing 15.65 points to a new high -- 3576.08 on the Dow. Simultaneously, the Treasury sold three-month and six-month notes at low interest rates of 3.11 and 3.28 percent, respectively. For the administration, this had to be reassuring. Financial markets, in the end, will return the surest economic judgment on the administration budget.

From the beginning of his White House tenure, the president has rejoiced not only in these low short-term rates but even more in a gradual decrease in long-term rates. If they remain near or below present levels, there could be an uptick in private and corporate investment as borrowing becomes less costly. This would spur the economic growth so necessary to provide the revenues required to hold down federal deficits.

While calling for an end to the "partisan rancor" that prevailed as his budget squeaked through the House and Senate last week, Mr. Clinton surely knows how much political weight rival party managers attach to the performance of the economy.

Common wisdom now holds that the tax increases and the spending cuts in the Clinton package are bound to slow the economy and cost thousands of jobs over the short run. This is poison for Democrats, which explains why conservatives and moderates in their ranks found it so difficult to vote for the Clinton legislation. But the difference may be marginal in a $6 trillion economy. Low inflation and interest rates could bring a long-term resurgence of some strength. The tantalizing question is when -- before or after next year's congressional elections? With this question hanging over all politicians, growth in bipartisanship, like the economy itself, is likely to be modest at best.

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