Volume 41, Number 13 · July 14, 1994
World Capital: The Need & the Risks
By Felix G. Rohatyn
The recent weakness and volatility of financial markets here and abroad have been perplexing. Since the US economy has been growing fairly steadily, the markets, which had fallen in value by as much as 10 percent since February, evidently do not reflect the state of the economy. The recent increases in interest rates imposed by the Federal Reserve to prevent inflation have been criticized for threatening the economic recovery, especially since inflation has barely increased. In any case while the costs of some loans, particularly mortgages,have risen, they cannot possibly just by themselves have a large economic effect, even though sharp turns in the market are attributed to them. [1] The explanation for the shaky condition of the financial markets has to be found elsewhere.
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