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The newest and most immediate worry is the impact of a default by New York City, which could happen practically any day now. President Ford, who has vowed to veto any congressional attempt to help the city avoid bankruptcy, insists that financial markets have already discounted a default and so the impact could be contained without serious damage to the economy.
He is disputed by a host of critics who fear that a default could abort the recovery. Robert Nathan, a member of TIME'S Board of Economists, says that if New York goes under, the shock waves in money markets will drive up borrowing costs for many states and municipalities, forcing them to cut services and spending and hike taxes, and drastically harm the economy. A New York bankruptcy would also wipe out much of the value of $2 billion worth of city securities held by banks round the country. Though the Federal Reserve has pledged to lend the banks enough money to keep them from closing, they might have to curtail their lending to business. Much of the remaining $11.5 billion in city securities is held by individuals, who would suffer serious losses of principal and interest and thus have their buying power reduced.
All together, Otto Eckstein estimates, default would eventually cost the nation a disastrous $14 billion in lost production and 500,000 jobs. The effect would be greatly magnified if New York State followed the city into default—and unfortunately that is much more than a remote possibility. Basically, the effects of a New York City bankruptcy are immeasurable, since the situation would be unprecedented. But many economists believe the risk is too great to be worth taking. Says Heller: "No one knows how to judge a New York City default on a Richter scale of financial earthquakes, but we should try to handle it without testing the repercussions."
If the U.S. recovery has its flaws, problems and worries, it still is strong enough to excite the envy of most other industrial nations. Generally, the recession hit them later and less severely than the U.S., but it is lingering longer. One major reason is that these nations generally are far more dependent on foreign trade than the U.S., and thus more sensitive to their neighbors' troubles. Exports account for only 7% of gross national product in the U.S., but 19% in Britain, 12% in Japan, 23% in Germany, 23% in Canada and no less than 50% in Belgium. The situation in detail in the most important nations:
BRITAIN, the industrial world's perennial postwar invalid, continues to languish. Output this year will be a bit below that of 1974, and Common Market experts predict zero growth next year as well. Meanwhile, exports are sluggish and living standards are dropping. Unemployment has passed the politically sensitive level of a million workers and could hit 1.5 million this winter. Prime Minister Wilson's Labor Government can do little to stimulate the economy because inflation, despite price controls, is already roaring along at an annual rate of 27.9%, highest in any major nation.