I never thought I would see the day when serious market commentators furrowed their brows over the issue of whether there would be sufficient supplies of Treasury securities to support a deep and liquid market. One long-run challenge that we do face is dealing with the demographic strains on the Social Security system, but as many of you know, President Clinton has made clear his determination to address this issue now, and to reserve the budget surpluses, in their entirety, until we have arrived at a solution. Indeed, the President is prepared to veto any bill the Congress sends him that would threaten to squander the surplus before Social Security reform is in place. The lesson I take away from all of this is that, if we must enter a period of heightened global financial turmoil and greater macroeconomic risk, which we clearly are doing, then we are starting from a remarkably favorable position. Output and employment are at a high level and retain forward momentum.
Inflation is under control.
A major step toward getting our fiscal house in order has been taken, with the achievement of the first balanced budget in 29 years. And a process for shoring up the long-term finances of the Social Security system has been put in place. That said, the financial and international environment clearly has grown less hospitable of late, and poses decided risks to our economy. Indeed, we concur with the 57 percent of respondents to the latest NABE Economic Policy Survey who identify fallout from the international financial crisis as posing the most serious risk to the U.S. economy. Beginning with the devaluation of the Thai baht in July 1997, Asia, Russia, and, more recently, Latin America have come under varying degrees of financial pressure.