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The Bush Administration doesn't foresee an entirely pain-free fix: its latest budget, released this month, cuts dozens of programs. Still, it argues that continued growth will automatically reduce the size of the budget deficit. And U.S. Treasury Secretary John Snow argues that the trade deficit is partly the result of lopsided growth. "We are growing faster than our trading partners, and we are creating more disposable income than they are," Snow said last month. "We need Europe to be more of an engine of growth, and we need Japan to be more of an engine of growth." But TIME's experts aren't convinced. They expect Bush will have to pare spending regardless of how strong the economy grows. Already there are signs that momentum may be slowing: the estimated 3.1% annualized growth rate posted in the U.S. in the fourth quarter is the weakest in two years. Naím even predicts a battle in Washington between fiscal conservatives, who advocate a hands-on approach to managing the budget, and what he calls "starve-the-beasters," more ideological proponents who would like nothing more than to see some public programs bankrupted. (Here, too, are echoes of the Reagan years.) Naím expects the fiscal conservatives will be defeated in this contest.
As for the worst case, none in the group is ruling out a serious rupture: a devastating terrorist attack, the bursting of the bubble-like housing-price increases in some parts of the U.S. and Europe, a change of policy by central banks in Asia to limit their dollar purchases. Any of those could unnerve financial markets and trigger a bigger worldwide reaction, they agreed. Sachs said it would take just two or three such events to come together, "and things get a lot worse. That's not a high probability, but it can't be written off."
EASING UP ON CHINA
If there's a question mark over the U.S., the panel's predictions for Europe and Asia are less fraught than they were a year ago. China continues to grow fast: last year its economy expanded a breathtaking 9.5%. The country is still sucking in huge amounts of natural resources to fuel its manufacturing boom. That in turn is a significant factor in the rising prices for oil, steel and other commodities, which is good news for producers, but--especially in the case of oil--is raising fears of a worldwide resurgence of inflation. China also has a fragile banking system that is hampered by bad loans and a weak capital base.
Thus far, fears of a "hard landing" for China's economy appear to have been overblown. The Chinese government has taken measures to curb some of the wilder excesses, tightening conditions on some bank loans and raising interest rates to stave off inflation. But the government clearly has its limits. There was broad agreement among the panelists that Chinese authorities have little interest in unlinking their currency from the dollar, despite consistent pressure to do so from the U.S. "The sanguine view is that it is not in the interest of the Asians to break the dollar link," said Tyson.