As most everyone can recall, President Bush stated his 1990 State of the Union Address that his spending plan "balances the budget by 1993 with no new taxes." There have been new taxes, however, and the federal government will end fiscal 1993 some $330 billion in the red.

As James Grant, editor of Grant's Interest Rate Observer, reported Friday, the monetary base of the United States has grown by 11.2% this year and M1 has leapt by 14.2%. Short-term interest rates are close to their lowest levels in 25 years.

The fiscal throttle is wide open. The monetary pedal is pushed to the floor. Yet the economy, like a Detroit-made rattletrap with 100,000 miles on the odometer, is sputtering and stalling, barely moving forward, Fiscal and monetary policy are not enough.

The credit markets retreated a little last week, disappointed that the Federal Reserve did not push interest rates lower as many bond traders had anticipated. The Fed apparently decided it did not want to appear partisan with only a month before the presidential election and did not want to cause anymore turbulence in the foreign exchange market. It could take this position, apparently, because the latest economic data do not conclusively show a renewed slowdown.

This minor move, however, is beside the point. The real difficulty for the credit markets is to determine how the economy is going to move ahead in 1993 and 1994.

They need to regain some sense that economic activity will increase faster than it has since mid-1990 and that inflation will remain controlled. Nothing in the political and economic news last week shed real light on this great necessity.

Bob Woodward of The Washington Post last week wrote a four-part series on President Bush's economic record, and the articles were the hottest topic in the capital. But for all the detailed reporting - on Bush's "read my lips, no new taxes," pledge, his decision to break that pledge, and then his declaration that he had made a mistake - the Post series, of course, does not decode the future.

The Woodward series, however, does make clear how difficult it will be for the next President to implement a clear fiscal policy. Some economists will call for deficit reduction to precede economic stimulus, and others will demand stimulus before deficit reduction. The matter cannot be set aside, for the federal government will brush up against its legal debt ceiling in February, well ahead of projections.

Even if a sound long-term debt reduction plan is devised and carried out, it remains to be seen whether the U.S. economy will have growth without inflation. The economy and the credit markets face more unanswered questions than at any time in the last 50 years.

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