In the best of times -- unwarranted or not -- the U.S. president often finds himself getting credit for an economic boom or being made the scapegoat for recessions that lead to falling stock prices and lost jobs.

It's not that the president is irrelevant to the nation's economic fortunes: His administration crafts the budget, which helps set taxes and determines whether the nation will run a surplus or a deficit.

But it's the Federal Reserve that sets monetary policy -- interest rates -- which decides how much money is available to flow through the economy. Higher rates tighten the money supply, make borrowing more difficult, and can ratchet the country into recession. Lower rates boost the money supply and can lead to the kind of boom this country has enjoyed since 1991.

What's more, there's no longer just the U.S. economy to consider. We truly enjoy a world market, where the good or bad fortunes of one region can spill into another.

For that reason, many economists say that blaming yesterday's 249.48-point drop in the Dow Jones industrials on the potential for impeachment now facing President Clinton is an incredible oversimplification. After all, the sex scandal involving former White House intern Monica Lewinsky has been in the news since early this year and the possibility that the president obstructed justice by trying to cover up the affair is not new either.

"I don't think people woke up this morning and said: 'Geez, the president's in trouble, I think I'll sell stocks,' " said Genio Staranezak, director of long-term forecasting for the WEFA Group, a forecasting firm based near Philadelphia.

Just as presidents are often credited or blamed for boom times or recessions, so too are they ascribed as the cause of rising or falling stock prices. Too often, however, the credit or criticism is unjustified. For instance, the Watergate crisis and President Richard M. Nixon were often blamed for the 1973-1974 bear market that clipped 43.6 percent off the Standard & Poor's 500 index. But the real cause was the Arab oil embargo, double-digit inflation and a tightening of credit used to combat the dangerous rise in the general level of prices. The result was a 16-month recession that started in November 1973.

At a time when investors are praying that the 18.4 percent drop in stock prices since July is merely a "correction" -- and not a full-fanged bear market -- they are once again looking for a simple cause for the demise of the longest-running and most-profitable bull market in stocks the nation has ever seen.

There isn't one.

While the Dow's fall leaves it short of the 20 percent drop that would technically qualify as a bear market, indexes that track the stocks of smaller companies are suffering even more.

The possible causes are legion. Japan's banking sector is a disaster and much of emerging Asia is in a recession -- if not an outright depression. Once-mighty Russia is a mess fiscally and politically and is likely returning to hard-liner control. Parts of Latin America are an economic wreck.

And, thanks to a series of factors that include earnings disappointments by the big companies long seen as safe investment havens, the U.S. stock market has tanked, taking down the value of consumers' savings and retirement accounts -- and maybe with it, consumer confidence.

In a curious paradox, Clinton's problems are part of the mix, too. When it comes to the U.S. economy, Federal Reserve Chairman Alan Greenspan can exert a much more direct -- and immediate -- impact than the president, either by altering interest rates or by issuing public pronouncements that can cause the U.S. stock market to climb or dive.

However, while Clinton may not be top dog -- economically speaking -- at home, his absence from the global stage threatens to deepen the world financial crisis because of a leadership vacuum that exists worldwide. It's not a role that Greenspan can assume: First, his chief focus has typically been the domestic economy; and, second, he is not an elected official and lacks the entree to the inner sanctum of world leaders that only the president enjoys.

This leadership vacuum could allow recession to spread, which would hurt the profits of U.S. exporters, and of domestic producers undercut by cheaper products imported from Asia. And, since profits determine stock prices, at least during the market's "rational" periods, that lack of leadership could end up sending U.S. stock prices lower.

"There's no one there," said Mark Eaker, professor of business administration at the University of Virginia's Darden Graduate School of Business Administration, and vice president of Sire Management Corp., a New York City group that invests in hedge funds.

Japan's leaders appear unwilling to fix that country's insolvent banks or open up their markets to foreign goods, said Eaker. German Chancellor Helmut Kohl, an institution for 16 years, could lose his coming election. France has exhibited no global leadership of late and British Prime Minister Tony Blair has yet to establish himself among world leaders.

That's why yesterday's drop in stock prices -- while reflecting continued concern about the worldwide financial crisis -- also was partly due to the deepening political crisis here at home.

"That's the reaction to Clinton's problems," Eaker said. "Everyone is relying on the U.S. and Clinton to provide initiatives, provide ideas and provide financial backing. Parts of the world need all three."

Several economists -- critics of the International Monetary Fund's trifecta prescription to ailing countries of higher taxes, higher interest rates and reduced government spending -- say Clinton may actually be exacerbating the creeping global recession by endorsing policies that they say are only deepening the economic problems of the countries that grudgingly adopt them.

The IMF policies cause those economies to contract even more, driving up unemployment and deepening their pain. Instead, these economists say, Clinton should be pushing the IMF to advocate policies that allow the problem-plagued emerging countries to expand their economies.

"Only Clinton can tell the IMF to change," said Lacy H. Hunt, economist with Hoisington Investment Management Co. in Austin, Texas.

Deutsche Morgan Grenfell economist Ed Yardeni said the U.S. stock market could continue to fall if the details of the Clinton affair turn out to be worse than the public believes.

"If the market continues to decline, that, in turn, could depress consumer spending," Yardeni said. "Through that circuitous route, we could have a situation where the political mess depresses consumer spending and depresses the economy."

Under that scenario, it could also depress stock prices, which could imbue Clinton with a legacy as a bear market president even though the stock market's ills began with declining profits due to Asia.

That's not a universal view. The world's economic problems cannot be solved simply through stronger leadership. And that means stock prices shouldn't fall every time there's a new revelation in the White House scandal.

Pub Date: 9/11/98