European Stars And Stripes (Newspaper) - January 31, 1988, Darmstadt, Hesse                                Sunday january 31. 1988 the stars and stripes Page 19 business news gop fears election year recession options for avoiding one appear severe limited by Tom Raum Washington api seven years Afler presi Dent Reagan proclaimed a new economic order re publican Ore nervously scrutinizing every new so cd of data for warnings of a dreaded election year recession. Most economists say lie Economy now appears like in to escape a full fledged recession in 1988. But if one appears on the horizon the admins ration s options for heading it off seem severely limited analysts Sug Gest. With towering budget Arij Tad deficits a deteriorating Dollar and consumer Confidence shaken by october s Stock Market collapse the usual prescriptions for avoiding a recession easier credit lax cuts More Federal spending seem out of the question. Monclare and fiscal policy Are both stuck. We Don t have any latitude. We. Arc trapped by past mis takes said William Dunk Lberg. Business Dunn at Temple University in Philadelphia. The administration is locked in on spending and tales by the agreement it reached last fall with con Gress to Cut the Federal deficit to si36 billion in the fiscal year that begins oct. 1. The deficit was j148 billion last year. The White House Congress budget pact to be incorporated in the $1.1 trillion budget Reagan will submit nest month also Calls for 114 billion in new axes in risen in meanwhile even if it were inclined to yield 10 White House pressure the Federal Reserve Board under chairman Al a Greenspan appears to have few of Lions. If the fed cases Money and credit to pump up Lite Economy it could Send me Dollar into a free tall ins Ger Sharp increases in inflation and dry up foreign financing of the budget deficit. On the other hand if the fed Lightens monetary policy to support the Dollar thai would mean higher interest rates which could hasten a recession. Although Independent of the White House the fed eral Reserve in the past has t been immune from suggestions of Al Cerion year manipulation of the econ omy. Most frequently mentioned is the persistent Saccu digest Honda will expand Canada car production Toronto up1 Honda of Canada mfg. Inc. Has announced it will spend $61.6 million in a three phase program 10 Start a new car line and add two operations at us Allison Ontario Plant. The expansion expected to create about 100 jobs on a two Shin operation would add production of the three door civic Hatchback Model to its i 1st ing line of four door Accord sedans. Honda has built about 16.000 Accord models since the Plant opened in november 1986. Citicorp cutting 85 jobs in London securities unit London a Citicorp investment Bank is cutting 85 jobs in its London securities Divi Sion or just under 4 percent of its staff. The investment Bank employs 2,200 people out of a total Citicorp work Force of 4,500 in Britain. Exxon reports 87 profit Down from previous year new York a Exxon clip. The world s biggest Oil company has announced that its 1987 fourth Quarter profit was up  percent from a year earlier but the annual profit was Down 9.7 percent. Exxon earned si.56 billion in the three months ended dec. 31. Thai compared with a $ 1.48 billion profit in the same period of 19s6. Lation never confirmed that then fed chairman Arthur bums in 1972 yielded to president Nixon and pumped up the Money Supply in Lime for the 1972 elections. But fed observers say such a course seems unlikely new just As it was in 1980 when then chairman Paul Volcker lightened monetary growth just two weeks before the election a move some aides in former president Carter suggest was a Factor in Carter s de feat. Analysts suggest the state of . Economy is extremely fragile but administration defenders Point to the longest peacetime recovery in history As n source of economic momentum. But at the same Lime. Republicans Are car fun of an economic downturn that could spell political disaster. The Economy now stands at a  said Richard Rahn chief economist for the . Chamber of Commerce. As one of his first official acts Reagan in february 1931 presented Congress a bold plan to restore a fail ing Economy one that called for a Large personal income tax Cut deep reductions in All Federal programs expect defense and a vow for i balanced Federal budget by no later than 1984. It was an embodiment of the so called Supply Side theory of economics that lower taxes and less gov. Cut mint regulation would cause businesses to nourish  the Economy with a Prosperity that would trickle Down through All society. Congress in july 1981 sent Reagan a five year 1750 billion tax Cut and so called Raja comics was launched. But a year later the nation was plunged into one of its deepest recessions Ever. The idea of reaganomics is that you Cut spending and Cut taxes and the Economy responds. We got inc Lai part All right. But we did t get the spending part. And today the ratio of taxes to Gross National product is no lower than it was in 1980," said Michael k. Evans an co Momiel and author of a 1933 Book the truth about Supply  Evans a frequent administration critic gives Rea Gan policies much of the credit for getting inflation and interest Rales Down from the double digit Levels at the beginning of this decade. But the Way we got there was through the worst recession in  Evans said. And that s the old style  economist Paul Craig Roberts a Well known Lup ply Sidur who served As an assistant Treasury Secre tary in Reagan s first term argues thai the proof of reaganomics is self evident in an expansion now in its sixth year unprecedented in the history of our  we have a full employment Economy Anil no one else docs he said. Lawrence Kudlow. A former senior Reagan administration economist now with Bear Stearns a new York investment House said holding inflation Down is the Paramount achievement of  and the foun Dation of the Strong economic performance since 1982."but Kudlow a supporter of Republican presidential candidate Robert Dole of Kansas said the Achilles Heel of Reagan economic policy has continued to be the budget deficit which will be inc unsolved Agenda item of inc 1990s no matter who is elected  Kudlow added i Don t think the administration will try to interfere with Federal Reserve policy or seek to Lake other election year Steps to Heads off a recession until after november. However there remains some scepticism among  is some suspicion on the pan of foreign investors that some people in the administration want the Dollar to fall further to boost Export demand even More in 1988 to assure Republican election victories said David Jones senior economist for Luburcy g. Larston & co., a new York based government Securi ties dealer. Top adminis Lvalion officials have publicly stated that the Dollar has fallen enough and that further de Clines would be counterproductive to world economic growth. A panel of lop economists has told Congress thai they believe there was Little that the government could do to Avert a new recession. One. Allen Sinai chief economist of the Boston co., said the next downturn would probably occur in 1989 or by no later than 1990. The question at this Lime is less one of whether a downturn will occur but when and by How much he told the joint economic committee of Congress. Budget Trade deficits hinder Long term recovery of Dollar United press International the Dollar greeted the new year with a rally fostered by the world s Central Banks and spurred by a Good Trade report but Market watchers do not expect these developments to bring about a Long awaited turn around in the . Currency. The Central Banks seeking to trap speculators who my against the Dollar and Losel a floor beneath which traders would be afraid to let in drop undertook massive interventions in the currency markets in Early january. Their cause was aided by the si3.2 billion novem Ber . Trade deficit announced Jan. 15, a Gap 25 percent below that of october and far better than most financial Market participants had expected. But economists said the nation s budget and Irac deficits still threaten the Dollar and it will not make a meaningful recovery until they Are resolved. Traders already Are focusing on the december Trade figures to be released in february and some feel they have cause for concern. Japan has released its december numbers and they show its Trade surplus surged to j8.6 billion from no vember s 4.7 billion. While not All of Japan s surplus arises from its Trade with the United states inc Sharp gain has Given Rise to concerns that december s figures May not be As heart warming As november s report Many observers said they think the Dollar will continue to slide in coming month j in the absence of any serious Effort to resolve the budget and Irac gaps. The Trade deficit is still very urge. Even at no vember s Levelin is about s150 billion annually say Stephen mams of the Institute for International economics in Washington. "1 still remain bearish on the Dollar. If you go Back to 1977-78. The Strong pressure on the Dollar came 18 month after the Trade balance had  on the budget front budget director James Miller said in Early january that president Reagan s proposal for fiscal 1989 appears nol to exceed the si36 Bil lion deficit agreed to with Congress last year. Marris predicted the Dollar will fall from its current level to 115 yen or even lower in inc second half of the year. He also said he thinks n recession is unavoidable by Sauk higher interest rates will be needed to boost the currency and Stem inflationary pressures later this year. We have no foreign lenders and the Central Banks will run out of ammunition he said. Harris said the level of inc latest Central Bank Pur chases to prop up the battered Dollar was at least four times As Large at those in previous interventions. Estimates of dollars bought by the Banks Range from j2 billion to s3 billion. That action caught several speculators by Surprise and As they scrambled to cover their Short positions the Dollar soared. Albert Soria foreign Exchange manager at the new York Branch of Swiss Bank corp., said the weak Dollar could set off another global Stock Market collapse 11 was the mid october plunge thai led inc Central Banks to massively incr acne to support the Dollar whose declining value made foreign investors hesitant to Commil to . Securities. When Wall Street went in look the rest of inc world s Stock exchanges with it the Dollar opened in Japan at the precarious level of 120,5 yen Jan 4 and the Banks realized the Dollar was sitting very weak and Market crashes could ensue and they would have a terrible economic situation on  said  japanese Central Bank intervened and was quickly followed by West Germany a Bundesbank and the . Federal Reserve. The thing about this intervention is that All the Banks coordinated their Effort and in was the first time they showed any Unity since the louvre