The Second Debt Crisis Is Coming
Several issues of great immediacy dominate most current thinking about the world economy: How long will the American expansion continue? Will the American political system cope effectively with its huge budget deficits, and how will political systems in Europe cope with the structural problems facing their societies? Will Europe be able to expand sufficiently to start reducing unemployment? Can real interest rates be brought down to tolerable levels and renewed sharp rises, as recently experienced in Britain, be avoided? How can the huge American trade deficit be corrected-what cure can be less a problem than this particular disease? And will the debt crisis of the less developed countries remain relatively quiescent? Will Latin America be able to avoid major social disruption if it experiences several more years of substandard growth? The contemporary focus on these key questions is fully understandable. In my view, however, the issues they raise can only be diagnosed properlyand lasting answers suggested meaningfullyby stepping back to observe several related changes that appear to be evolving in the world economy.