VOLCKER SEES PROBLEMS REMAINING IN SOME SECTORS
Federal Reserve Board Chairman Paul
Volcker said severe problems remain in some sectors of the U.S.
economy despite progress in others.
    "Severe problems in some sectors of the economy are all too
obvious," he said in remarks prepared for delivery to a
luncheon of business leaders here.
    He said oil exploration and development, as well as
agricultural prices, have been heavily affected by worldwide
surpluses.
    Commercial construction, he said, is suffering from earlier
over-building in many areas.
    More broadly, he said, there are distortions and imbalances
in the U.S. economy that cut across many sectors.
    "Unless dealt with effectively and forcibly, they will
undermine all that has been achieved," Volcker warned.
    He said one problem is that economic activity over the past
two years has been supported largely by consumption.
    He said that rising consumption was achieved at the expense
of reduced personal savings. At the same time, he said, the
huge Federal budget deficit is absorbing a disproportionate
amount of the savings generated in the U.S.
    Volcker said the adverse consequences of the combination of
low savings rates and high Federal budget deficits have been
escaped by drawing on capital from abroad.
    He noted that the net flow of foreign capital into the U.S.
in 1986 exceeded all the savings by U.S. households.
    "That is a graphic demonstration of the extent to which
our financial markets are hostage to possible changes in
external attitudes and circumstances," Volcker said.
 Reuter
