Exports Called Best Tool Against Recession

THE United States has so far had more success fighting the war in the Persian Gulf than it has had battling the recession at home, private economists say. Hamstrung by a mountain of debts piled up in the go-go years of the 1980s, Washington has discovered that the usual weapons to fight a downturn - lower interest rates and higher government spending - may not work this time.

Economists say the government cannot spend much more to fight the recession because of its large budget deficit. The Federal Reserve Board can cut interest rates to try to boost growth, but it cannot force debt-burdened consumers and companies to borrow or banks to lend.

``There's too much debt ... and not enough income to pay for it,'' says Philip Braverman, chief economist at DKB Securities.

Federal Reserve chairman Alan Greenspan warned last week that a prolonged war in the Gulf would increase the risk of a deep recession.

Hopes for a short, shallow recession were ``shot down like a Scud'' Friday by news of a big jump in unemployment last month, says Ward McCarthy, managing director of Stone and McCarthy Research Associates.

The news that unemployment rose to its highest level in 3-1/2 years jolted the Fed into cutting its key discount rate for the second time in six weeks. Economists saw the Fed's surprise action as a tacit acknowledgment that it has so far been fighting a losing battle against the recession.

The Fed has been trying to pump up the economy since about the middle of last year, but its efforts have been stymied by the reluctance of banks to lend more.

Forced by falling property prices to write down past loans, banks have shied away from extending new credits.

Banks' reluctance to lend means that lower interest rates are not having as much of an effect boosting the economy now as they have had in the past, according to Mr. Greenspan.

Economists say they expect the Fed to cut interest rates further as it tries to coax banks to lend more by lowering their cost of funds.

The Bush administration is trying to fight the credit crunch through changes in banking regulations that it hopes will boost banks' profits and encourage them to lend more.

One measure under consideration would allow banks to value real estate loans based on their long-term worth, rather than on their worth now, at a time of depressed property prices.

The Bush administration has been reduced to tinkering with banking regulations to try to stimulate the economy because the government's big budget deficit prevents it from attacking the recession through an easier fiscal policy.

President Bush yesterday sent Congress a $1.45 trillion fiscal 1992 budget with a $280.9 billion deficit, sources in government and congress said.

The spending blueprint was shaped by war, recession, and a new budget law that limits spending.

Given the constraints at home, economists say the best chance for a recovery may lie in an increase in US exports. But hopes for export-led growth received a knock last week when Germany raised interest rates. The higher rates will dampen growth in Europe and thus demand for US exports.