Strategic Analysis | January 1999

Seven Unsustainable Processes

Medium-term Prospects and Policies for the United States and the World

The purpose of this Strategic Analysis is not to make short-term predictions about the life expectancy of the current economic expansion in the United States, but to determine if the present stance of fiscal and trade policy is appropriate in the medium term. The expansion has been generated by economic processes that are unsustainable—processes in private saving, private borrowing, and asset prices that have fueled the growth of demand against a negative impetus from both fiscal policy and net export demand. Given unchanged fiscal policy and the consensus forecast for growth in the rest of the world, continued expansion requires that private expenditure continue to expand relative to income on a record and growing scale. It seems impossible that this source of growth can be forthcoming indefinitely, although it may well continue into next year. When private demand falters, it will be necessary to bring about a substantial relaxation of fiscal policy and ensure a structural improvement in the United States’ balance of payments. (Table 1 revised October 2000.)

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