9
will come early in 2001.
ECONOMIC POLICY
The Federal Budget deficit is forecast to be paid off by 2013. This will strengthen the U.S.
economy and will cause interest rates to drop since the U.S. government won't be dipping into
the credit markets to borrow. Over the next decade $160 billion would be dedicated to Social
Security Trust Fund. Currently the political struggle is to keep paying down the debt or have
massive tax cuts. A series of tax cuts about $350 Billion is aimed at the "middle class".
Assuming the world economy improves, this would have a major positive impact on Long
Island and New York City export economy. However, the world economy is forecast to grow
more slowly (higher energy prices, the Fed having raised interest rates to slow down the U.S.
economy ). The IMF (International Monetary Fund) calls for growth to be 4.2% down from 4.7%
in 2000.
The Internet has been reshaping how business and commerce is conducted. Congress plans
to extend the moratorium on Internet taxes beyond 2001 and permanently ban taxes on
charges for internet access.
In spite of over a nine year expansion, the U.S. has continued to run up a major trade deficit.
Consumers continue to soak up imported capital and goods. In fact the current account deficit
surpassed 4% of the GDP for the first time, according the Wall Street Journal 8/14/2000.
One potential problem is that if confidence in the U.S. collapses before this current economic
slowdown reverses, capital flows into the U.S. will slow, the dollar will fall and interest rates will
rise. This could precipitate a stock market collapse.
There is no clear consensus as to how this imbalance will correct itself. Should Fed policy be
reversed and the foreign economies start expanding, they would purchase U.S. goods and
services thus reversing the trade imbalance, hopefully in an orderly fashion.
Leading economic indicators (LEI) which portent future economic activity have been falling
during 2000 indicating a slow down - recession for 2001. The LEI peaked in December 1999
at just above 106 according to the Conference Board.
Soft landing - A survey by the Fed points to a soft landing. The beige book survey found a.
manufacturing and real estate activity continued to slow and demand for business loans fell,
b. continued weak car sales, c. stable inflation, d. the ultra tight labor market eased. In NY
retail and real estate remained strong. Mortgage refinancing activity was considerably down.
As of the end of the Year 2000 the Fed has announced a shift in policy. Their moves and the
economic policies of the new President ( tax cuts vs. paying down the debt) will have a strong
influence.
