DEFICIT CUTS SEEN UNABLE TO CURE TRADE DEFICITFinancial analysts say they are pleased with congressional moves to trim next year's federal budget deficit but believe the actions will do little to help improve the U.S
trade deficit or buoy the economy
    The House of Representatives is expected to vote tomorrow to approve a trillion-dollar budget blueprint for the coming fiscal year that reduces the deficit by 38 billion dlrs
    Similarly, the Senate Budget Committee has approved a plan that would cut federal red ink by about 37 billion dlrs next year
        "In terms of the economy, 37-38 billion dlrs is infinitesimal, so cuts of this magnitude will have little impact on the economy and the trade deficit," said Stanley Collander, a Touche Ross federal budget policy analyst
    "At best, it will have a small positive effect," Collander said in an interview
    Federal Reserve Board Chairman Paul Volcker has repeatedly told Congress that cutting federal red ink would go a long way to help reduce the massive trade deficit and also help ease some of the downward pressure on the value of the dollar
    The U.S
government has attempted to remedy the trade imbalance by driving down the value of the dollar
But Volcker has warned that a further fall in the dollar's value is fraught with danger
    Such a decline, he has said, could refuel inflation as imported goods become more expensive and chase away foreign capital needed to finance the federal budget deficit
    In addition, in February, U.S
officials meeting with other major industrialized nations in Paris agreed that the value of the dollar had dropped enough and that world exchange rates should be stabilized at around current levels
    As part of that agreement, Japan and West Germany agreed to take steps to stimulate their economies and the United States agreed to cut its budget deficit
    The alternative to driving down the dollar any further as a way to deal with the trade deficit, Volcker said recently, is to reduce U.S
consumption, particularly federal spending
    "If you don't deal with the budget deficit, everything else you do is going to be counterproductive," Volcker said in recent testimony before the Senate Banking Committee
    Volcker also said he would prefer to further tighten the government's purse strings than have the Fed tighten the credit supply if action was needed to fight inflationary pressures or to assure the continued flow of foreign capital into the United States
    Analysts say that Fed tightening now could choke off the current modest economic expansion and threaten a recession
    Kemper Financial Services economist John Silvia stressed that any deficit reduction was better than none
    But he said the size of the cuts under consideration were  not enough to give the Federal Reserve Board the flexibility it needs to steer the economy or to keep the value of the dollar from plunging further in world exchange markets
    "There's no doubt that some deficit reduction helps, but if your objective is to stabilize the dollar and perserve the Fed's flexibility to conduct monetary policy, then the answer is, it's not enough," Silvia told Reuters
    The U.S
trade deficit has become one of the government's most vexing and persistent problems
    The 1986 deficit was 169.8 billion dlrs and there is as yet little indication that this year's figure will be any lower, though administration officials have predicted it will drop by about 20 to 30 billion dlrs by year's end
    In the past, Volcker has joked that he never lost sleep worrying whether Congress would cut too much fat from the federal budget
    On the other hand, he also has made it clear he is not attached to the gradually declining deficit ceilings set for the 1986-1991 period by last year's Gramm-Rudman balanced budget law
    While the new law set a ceiling of 108 billion dlrs for next year's federal deficit, both the House and Senate Budget Committees have conceded that their budget plans would fall short of the deficit reduction goal by about 25 billion dlrs
    "For political reasons, 35 to 40 billion dlrs is about the most you're going to get" out of Congress at the present time, said Touche Ross's Collander
"To do something more than that would be extraordinary, remarkable and very, very difficult."     Collander said the real danger for Congress was to end up short of the deficit reduction goal set by its Budget panels
    "To an extent, this has become the minimum acceptable reduction level," he explained
"Anything less than that will now look like a failure to Wall Street."     The budget plan now under debate on the House floor would lower an estimated 171 billion dlr deficit for the year beginning on October one to about 133 billion dlrs by cutting defense and domestic programs by 38 billion dlrs from their anticipated spending levels for next year
    The Senate Budget Committee has called for a deficit of nearly 134 billion dlrs with about 18.5 billion dlrs in new  taxes and about the same amount in spending cuts
 Reuter
