A new global strategy, with the United States taking leadership, is the only possible way to deal with the exceptionally grim economic and financial situation facing the world economy, C. Fred Bergsten told the National Press Club yesterday.
He warned that the U.S. dollar, key currency in the international monetary system, "is riding for a fall. One cannot say when that fall will come. But history demonstrates that it will come, and, when it does, that the fall may be precipitous and severe."
Coincidentally, Treasury Secretary Donald T. Regan told reporters at a breakfast meeting yesterday that a strong dollar was one evidence of the strength of the U.S. economy. "Dollars are just pouring in here, out of marks and out of the yen," Regan said. He noted that some analysts consider that the dollar is "too strong."
Bergsten, director of the newly formed Institute for International Economics here and assistant secretary of the Treasury in the Carter administration, gave what was by his own definition a gloomy analysis of international economic problems and prospects.
With Federal Reserve Chairman Paul Volcker among guests at the Press Club head table, Bergsten said the first step that should be taken to counter the crisis is a shift within the United States to an expansionary economic policy, including "a prudent easing of monetary policy."
The method of achieving such a monetary policy is less important than the change in policy, he said: " . . . recent events here show that such a policy can bring down interest rates, demonstrating the fallacy of the 'policy immobility' thesis which was widespread just a few months ago."
Bergsten outlined three separate but interrelated parts to the developing worldwide crisis:
A downward spiral of world trade, which limits the possibility that debtor nations can earn enough foreign exchange.
An "outbreak" of international monetary instability "centering on a sharp and sudden plunge of the dollar from its present unsustainable level."
Disruption of the international lending and repayment system, because of the "perilous" international debt situation. He raised the specter of "a debtors' OPEC" -- that is, a chain reaction of declared moratoriums by countries that owe money.
In addition, Bergsten urged a change in fiscal policy--tighter in the United States, but looser in Japan and Europe.
He stressed also the need for a successful ministerial meeting of the General Agreement on Trade and Tariffs in November, calling on the United States and others to "put aside their current quarrels to do so."
Bergsten again said that the United States must be more generous in its contributions to both the World Bank and the International Monetary Fund.