U.S. officials have let inflation get so far out of hand that "an emergency package" is needed to deal with the problem, former West German central bank president Otmar Emminger said here yesterday.
In a brief interview following a speech at a forum sponsored by the American Enterprise Institute, Emminger said that "gradualism is not the answer when you have such a deeply imbedded inflationary psychology as you have here."
Coincidentally, New York banker Felix G. Rohatyn offered a similar appraisal, calling for emergency measures to ward off "a slide toward national bankruptcy."
In his speech, Emminger -- who retired from the German central bank last December -- said that the U.S. dollar had performed "reasonably well" in the last 12 months, fluctuating in a narrow range in international markets.
But he said this stability is now threatened by the sharp recent rises in inflation rates, especially in the United States.
"I am firmly convinced "that the world monetary system cannot afford to let inflation drag on at present levels for a very long time," Emminger said. "Quite apart from the domestic consequences, the United States can not afford it, because it would lead to a continuous weakening of the dollar and defeat to America's position in the world."
Emminger said a plunging dollar also would undercut the position of moderates within the Organization of Petroleum Exporting Countries, and send some dollar-holders scurrying even more to diversify their assets.
Europe also cannot afford a continuation of the present levels of inflation, according to Emminger, because "inevitably" it will lead to widening price differentials among European countries. He said these differentials already had grown in the last year, "and if that continues, I don't see much prospect for the European Monetary System to fulfill its proper function."
Despite his rather pessimistic view on inflation, Emminger -- he noted that he has a reputation for being an optimist -- said that overall the international monetary system had performed fairly well. The system, "has a great shock-absorption capacity," he argued.
In terms of the widely discussed need for reform of the international monetary system, he said he therefore favors only a few changes. But he endorsed the Substitution Account as a safety valve against the need for OPEC to diversify the large holdings of dollars it will be accumulating in the next few years.
The Substitution Account, under study by the International Monetary Fund, would provide a way for dollar-holders to deposit surplus cash in exchange for an asset denominated in a basket of currencies.
Among other marginal improvements, he also suggested that the IMF exercise more effective surveillance over exchange-rate movements and endorsed some voluntary controls in the Eurodollar markets.
Rohatyn said in a speech to the National Industrial Conference Board in New York that "what is happening to the U.S. in 1980 is similar to what happened to New York City in 1975, namely a slide toward bankruptcy."
He recommended a program not dissimilar to one put forward a week ago by Henry Kaufman of Solomon Brothers of New York, including a 12-month wage-price freeze, budgetary restraint, a large gasoline tax, and a bipartisan commission to recommend an integrated national economic strategy.
Rohatyn, a partner of Lazard Freres & Co. said that the nation's credit markets are in a state of "near collapse."