THEY ADMIRE THE BOOM, FEAR THE BUST

THEY ADMIRE THE BOOM, FEAR THE BUST

There's growing concern in the international financial community about the U.S. economy. If there was one common theme of the on- and off-the-record remarks made by bankers after this month's Group of 7 meeting in Tokyo, it was the feeling that ''something has to give, and we can only hope it will all be carefully handled.''

Before proceeding, however, one must emphasize that other countries really admire what has been achieved in the U.S. economy during the past decade. The dynamism of the information technology sector has shown the U.S. economic, political and financial system at its best.There are fewer criticisms from European leaders about short-termism in the U.S. financial system. There is also much praise for the way innovators in the world of computers and electronic technology found the finance to develop, expand and prosper.

What concerns European finance ministers and central bankers are the obvious macro-economic imbalances in the U.S. economy. It is not just that the high-tech Nasdaq exchange is valued at 200 times annual earnings. It is that the U.S. boom has been accompanied by dis-saving - where people spend more than they earn - and credit creation on a vast scale.

This has led to a situation where the U.S. balance of payments is 4 percent of gross domestic product and rising. If that were happening in one of the developing economies to which the U.S. Treasury and the International Monetary Fund like to preach, alarm bells would be sounding.

The position is being rationalized by suggestions that because the U.S. economy is so fundamentally strong, it offers opportunities to investors from all over the world, so the current deficit is easily sustainable.

But history suggests this cannot go on indefinitely. At some stage markets and investors traditionally demand a higher price from borrowers whose appetites for funds show every sign of becoming insatiable. That moment may have already been reached with the recent rise in U.S. long bond yields.

Once such a process begins, there is no obvious end in sight, and panic could result.

So far the U.S. Federal Reserve has been slow to raise short-term interest rates, and done little to slow down the boom. The problem is that this is a boom in which the appetite for consumer goods is far outweighing even the mighty U.S. economy's ability to satisfy it. The result is that imports are soaring and being paid for with all this borrowed money.

U.S. inflation may be low, but the asset price bubble is colossal. Instead of printing money, the markets are printing financial ''wealth.'' Yet Wall Street is now more than 50 percent above the level of two years ago, when Fed Chairman Alan Greenspan warned of ''irrational exuberance.''

There have been hints in the recent speeches of Greenspan and Treasury Secretary Lawrence Summers that the two are concerned about the situation. International officials believe the fallout, when it comes, could be so colossal that they wonder why Greenspan agreed to another term in office.

Given that the United States has been serving for some time as the world's importer of last resort, Summers has been showing his concern by urging Europe and Japan to do more to stimulate demand in their economies.

There are already enough protectionist tendencies in the United States during the boom; when the crash comes, America will want some thriving overseas markets for its exports.