The Economy: Uncompetitive U.S.

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THE ECONOMY

The dollar's steadiness in money trading last week was a tribute to its role as the basic currency of the world monetary system rather than to the international strength of the U.S. economy. At week's end, the Treasury disclosed that the U.S. balance-of-payments deficit rose in the second quarter to $3.8 billion — more than double the dollar out flow of any previous quarter.

The figure was heightened by a book keeping fluke. Americans have been making large deposits of dollars in Eu rope, where they have commanded interest rates as high as 12.5%. U.S. banks, pinched for funds, have borrowed many of these dollars to re-lend in the U.S. These "turnaround" dollars count as a capital outflow when deposited in Europe, but do not count as an off setting inflow when re-loaned in the U.S. Government economists say this distortion may have accounted for $2 billion of the $5.5 billion first half pay ments deficit.

That still leaves a shocking deficit. In the early 1960s, U.S. exports exceeded imports by an average $5.5 billion yearly. This year imports are exceeding exports — by $29 million in the second quarter. With no trade surplus, the U.S. is dependent on inflows of foreign capital to offset its overseas military and tourist spending, and it is no longer getting such inflows. As stock prices declined, foreign purchases of U.S. securities dropped by $1 billion in the second quarter, to $300 million.

Treasury Under Secretary Paul Volcker last week called the deficit "one cost" of inflation, which raises U.S. export prices and sucks in low-priced imports. To control inflation sufficiently to restore a trade surplus, he added, will take "years rather than months."