The Markets Vote

• Share

George Bush did not expect a honeymoon, but he did not get even the quiet Florida fishing weekend he had hoped for. Just after American voters overwhelmingly chose him over Michael Dukakis, the world's financial markets sent Bush a message of their own: the Dow Jones industrial average plunged 75 points, followed by the dollar's drop to near postwar lows against the yen. Investors who had sat quietly through candidate Bush's repeated taunts to Congress to "Read my lips -- no new taxes" decided that President-elect Bush had no convincing plan to cut the nation's towering trade and budget deficits. As the slide started, Bush hastily convened a seaside press conference to reassure nervous markets. With Atlantic waves crashing behind him, he allowed that his new burdens made him feel a bit "shell shocked," adding, "The problems are tremendous."

This dose of reality comes with Ronald Reagan still President and the Inauguration two months away. Yet Bush and his nascent team are already being held responsible for the direction of a debt-ridden economy. Bush moved + quickly, while stressing continuity: after announcing on the day after his election that his close friend James Baker would be Secretary of State, he tapped Nicholas Brady to remain as Treasury Secretary. Bush promised to name the rest of his economic team promptly and hold budget talks with congressional leaders before his Inauguration; he started Friday by having lunch with House Speaker Jim Wright. But all the while, Bush clung to his conviction, shared by Brady, that the economy could grow its way out of the deficit without new taxes or serious spending cuts. "Our most important priority is to keep our economy growing with low inflation," he said. "We must resist the policies that will impede that effort, such as raising taxes."

That repeat version of Reagan's 1981 rosy scenario came under fire from Federal Reserve chairman Alan Greenspan, who told the National Economic Commission on Wednesday that the supply-side approach was "fanciful" and implied that Bush's "flexible freeze" plan for reducing the budget would not work. "If we do not act promptly," said Greenspan, "the imbalances in the economy are such that the effects of the deficit will be increasingly felt and with some immediacy."

Within hours, the markets echoed that skepticism, accelerating the dollar's fall to a low rate of 121.52 yen. Improved trade figures did not stanch the bleeding; the damage was halted only by the purchase of $5 billion by foreign central banks, led by the Bank of Japan. Noted John Williamson, a senior fellow at Washington's Institute of International Economics: "Foreign investors are not happy. They read Bush's lips too."