A Whiff off Panic

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On Tuesday, Wall Street's defiance of Granville was heard round the world. The Tokyo Stock Exchange rebounded as breathlessly as it had earlier slumped and had its best day in history; the Nikkei-Dow Jones shot up 321 points. In London, institutional investors bought heavily and lifted the Financial Times's industrial ordinary index 24.3 points by midmorning, a record climb.

Last week's rebound of stock prices probably did not mark the end of the slide that has been pushing down prices on markets around the world for months. Stock values in the U.S. could weaken still further in the weeks ahead. A key reason is the towering cost of money. Although some interest rates fell slightly last week, the yield on risk-free, 30-year U.S. Treasury bonds went briefly last week to an unheard-of 15.32%. With bonds paying those rates and money-market funds giving 17% interest, few people are in a hurry to invest in common stocks.

A continuing dirge of downbeat American statistics last week underscored the sense of an economy slipping into recession and provided a gloomy setting for the annual reunion of world financiers at the International Monetary Fund and World Bank meetings in Washington. The Commerce Department reported that its index of leading economic indicators, which is supposed to predict the future course of the economy, dropped .5% during August, its third decline in the past four months. Sales of new one-family homes plummeted 14% during the month, to an annual rate of a mere 362,000 units, the lowest level since April 1980. Moreover, the Labor Department reported that unemployment rose .3% in September, to 7.5% of the nation's work force, the second such monthly rise in a row.

The IMF bankers and moneymen who gathered in Washington were indeed concerned with the U.S.'s uncertain economic prospects. While officials of industrial nations were privately worried that the American high-interest policy would push their countries into a severe slump, delegates of the less developed, nations fretted over the impact in their own countries of a U.S. drive to tighten up on World Bank lending and perhaps even further reduce the American share of world economic development assistance. Said one Mexican delegate: "Washington is arguing that more private financing is needed, but interest rates are already too high for the borrowers to afford the loans anyway. It's the U.S. that is at fault for not enforcing a policy that will bring interest rates down now."

The Reagan Administration, though, was not apologizing last week for its economic policies. In fact, it was preaching its free-market program to the less developed countries. Said President Reagan to the 11,000 central bankers and financiers: "The societies that have achieved the most spectacular, broad-based economic progress in the shortest period of time are not the most tightly controlled nor necessarily the biggest in size nor the wealthiest in natural resources. No, what unites them is their willingness to believe in the magic of the marketplace."