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That was the theme, implicit or explicit, of comments around the world last week. Foreign government and financial leaders have an all-important stake in U.S. economic policy. The worldwide market crack is already hurting their economies; for example, it has delayed European programs to privatize industry by selling chunks of government-owned companies to individual investors. An American recession, should that be the result of a continued stock slump, could quickly travel abroad.
French President Francois Mitterrand, speaking at a financial forum Thursday, complained about a "world that constantly moves the carpet under your feet, pulling it out and threatening to trip you up." The market bust, he said, "is the disorder of a non-system. There is no system. It has been broken." Others left no doubt about who must bear responsibility for fixing it. Says a senior Canadian government economist: "Everyone, all around the world, has been keeping an eye on the U.S. economy and wondering how long it could continue to survive without dealing with things like its trade imbalance and its huge federal deficit. When people became convinced that the U.S. lacked the will (we know it has the ability) to deal with these problems, they lost confidence in the U.S. market." Guido Carli, former head of the Bank of Italy, is specific about what needs to be done: "The only way out is to reduce the U.S. deficit. Otherwise there is a risk of recession."
Does Reagan now understand the necessity? Just before Black Monday, Treasury Secretary Baker in a TV interview restated the President's opposition to any sort of tax boost. But he and other insiders were already monitoring the stock market apprehensively. The previous Friday, White House Chief of Staff Howard Baker had pulled together an informal group consisting of himself, the Treasury Secretary, Council of Economic Advisers Chairman Beryl Sprinkel, Federal Reserve Chairman Greenspan and White House Aide Kenneth Duberstein. They met with the President after the market had closed with a then record loss of 108.36 points (shortly to be vastly eclipsed). Their message: basic economic indicators were good, but the markets were very nervous.
On Monday, Howard Baker was on the telephone almost all day long, keeping in touch with old colleagues on Capitol Hill, where he had once been Republican Senate leader, and phoning people on Wall Street, including New York Stock Exchange Chairman John Phelan, to get market reports. At 3:40 p.m., 20 minutes before the close of trading, the chief of staff and Duberstein called at the Oval Office to give Reagan a market status report. But prices were tumbling too rapidly for anyone to keep track of them. Reagan, as his later statements indicated, simply did not know what to make of the crash.