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Ford Press Releases - Fiscal Policy, 1968-1971
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The original documents are located in Box D7, folder "Ford Press Releases - Fiscal Policy,
1968-1971" of the Ford Congressional Papers: Press Secretary and Speech File at the
Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. The Council donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
(Not printed at Government expense)
Office Capy
Congressional Record
United States
of America
PROCEEDINGS AND DEBATES OF THE
90th
CONGRESS, SECOND SESSION
Republican Balance-of-Payments Seminar
REMARKS
affairs were panelists in our seminar.
Mr. Hobart Rowen, the Washington Post.
They included: Mr. Edward Bernstein,
Mr. Richard Janssen, the Wall Street Jour-
OF
HON. CHARLES E. GOODELL
Edward Bernstein Consultants, Ltd.;
nal.
Dr. Carl Madden, United States Chamber of
Prof. Robert Triffin, Yale University;
Commerce.
OF NEW YORK
Prof. Gottfried Haberler, Harvard Uni-
Mr. George Hagedorn, National Association
IN THE HOUSE OF REPRESENTATIVES
versity; Prof. Robert A. Mundell, Uni-
of Manufacturers.
Monday, February 5, 1968
versity of Chicago; Dr. Howard Piquet,
Mrs. Elizabeth Jager, AFL-CIO.
Library of Congress; and Dr. Patrick M.
Mr. John Petty, Treasury Department.
Mr. GOODELL. Mr. Speaker, at no
Boarman, director of research, House
TRANSCRIPT OF THE SEMINAR PROCEEDINGS
time in its history has the United States
Republican conference and professor of
Mr. GOODELL. It is my very great pleasure
confronted a more serious crisis in its
economics, Long Island University (C. W.
to welcome to our seminar today the dis-
international financial relations than it
Post College).
tinguished members of our panel, my col-
does today. The effect of the British de-
In addition, the following distin-
leagues, particularly those in ranking posi-
valuation was to make the dollar-as the
guished economic journalists and rep-
tions on the key committees that are going
key currency in the world monetary sys-
resentatives of leading national associa-
to be considering this important subject in
tem-even more vulnerable than it had
the weeks and months ahead, representatives
tions participated in the seminar as ob-
of the Chamber of Commerce and the Na-
been to speculation. Almost $1 billion in
servers: Mr. Edwin L. Dale, Jr., the New
tional Association of Manufacturers, the
gold moved out of this country in the
York Times; Mr. Hobart Rowen, the
AFL-CIO, and particularly the gentlemen of
single month of December, bringing our
Washington Post; Mr. Richard Janssen,
the press.
total gold reserves to their lowest point
the Wall Street Journal; Dr. Carl Mad-
This seminar is sponsored by the Repub-
in 30 years.
den, U.S. Chamber of Commerce; Mr.
lican Planning and Research Committee in
The speculation against the dollar con-
George Hagedorn, National Association
the House of Representatives. Our subject is
tinues and has been aggravated by the
the balance of payments problem and Presi-
of Manufacturers; Mrs. Elizabeth Jager,
dent Johnson's recently announced proposals
announcement that our balance-of-pay-
AFL-CIO; and Mr. John Petty, Treas-
for dealing with it. As Republicans, as Mem-
ments deficit for 1967 will be in the $3.5-
ury Department.
bers of Congress, and as Americans we are
$4 billion zone, the largest such deficit
We were fortunate in having in the
deeply concerned by the persistent deficits
since the crisis of 1960-61. These develop-
audience and as participants in the dis-
in our balance of payments, particularly by
ments have raised grave questions as to
cussions many Members of the Congress,
the record deficit of almost $4 billion in 1967.
whether the existing international mone-
both Democratic and Republican. The
We are not meeting here on partisan terms
tary system has not become so fragile as
and our participants certainly are not here
expression of interest in the seminar
to be in danger of collapsing without
as Republicans or as Democrats. They are
proceedings has been exceptional on the
warning and plunging the world back in-
here as experts on a most serious matter
part of the Members, the press, and the
which we feel should be debated and dis-
to the financial chaos and trade restric-
public. In order to make this material
cussed to enlighten the Congress and the
tionism of the 1930's. President John-
available to a wider public, I include in
American people to the fullest extent pos-
son's response to the crisis was his an-
the RECORD the individual supporting
sible.
nouncement on New Year's Day of a
papers submitted by the seminar panel-
We are alarmed at the massive decline in
comprehensive program of controls on
our gold reserves which followed the devalua-
ists and the transcript of the seminar
movements of American capital abroad,
tion of the British pound and, as a conse-
itself:
on bank lending abroad, and on tourist
quence of these developments, the threat of
THE U.S. BALANCE-OF-PAYMENTS PROBLEM
travel, primarily to Europe.
imminent international monetary crisis
Do these measures not already con-
(Seminar, Planning and Research Committee
which hangs over this country and the entire
stitute an ominous step backward toward
the Republican Conference, House of Rep-
world. We are equally concerned, may I add,
resentatives, Washington, D.C., January
by some implications of the remedies re-
the controls and protectionism of the un-
24, 1968)
cently proposed by the President.
lamented 1930's? Are there no other op-
The Committee met, pursuant to notice,
On January 1 and again in his State of the
tions open to the American people for
at 9:30 A.M., Honorable Charles E. Goodell,
Union message on January 17, President
resolving the crisis and rescuing the dol-
presiding.
Johnson proposed a series of measures of a
lar? These are issues which are clearly
Present: Representative Charles E. Goodell,
drastic nature aimed at reducing the balance
of momentous import to the Nation. not
Chairman.
of payments deficit by $3 billion in 1968.
only in terms of today but probably for
Dr. Patrick M. Boarman, Director of Re-
Misgivings have been expressed on many
search, House Republican Conference.
sides about the possible impact on the world
years ahead.
economy and our own long-run interna-
Mr. Speaker, it was to consider these
PANELISTS
tional position of the President's announced
very questions that the planning and
Mr. Edward Bernstein, Edward Bernstein
mandatory restrictions on direct private
research committee of the House Re-
Consultants, Ltd.
foreign investment, the proposals to reduce
publican conference, of which I have the
Prof. Robert Triffin, Yale University.
the tourist deficit by & head tax on tourists,
Prof. Gottfried Haberler, Harvard Univer-
honor to be chairman, sponsored a semi-
or possibly by rationing foreign exchange to
sity.
tourists, and the suggestions to allow a
nar on January 24, 1968, on the balance-
Prof. Robert A. Mundell, University of Chi-
tax rebate for exports, and to levy new im-
of-payments problem and the President's
cago.
posts on imports.
proposals for coping with it. Some of the
Dr. Howard Piquet, Library of Congress.
Many serious questions have been asked
Nation's most distinguished authorities
OBSERVERS
and must be asked concerning the domestic
in the field of international monetary
Mr. Edwin L. Dale, Jr., the New York Times.
and international implications of the de
293-820-11713
Digitized from Box D7 of the Ford Congressional Papers: Press Secretary and Speech File at the Gerald R. Ford Presidential Library
CONGRESSIONAL RECORD
CONGRESSIONAL
facto exchange controls proposed by the Pres-
think the difficulties which we face must
Now, if we do nothing, if the world can-
itself. Will these people accept the financing
third problem that bothering him and
and aid, and for private capital
ident. the same time, would like to
be viewed as two problems and not one, two
not succeed in solving this problem, think
of
policies
to
which
they
are
deeply
which
shall
not
discuss.
investment far more than the rest the
phasize
the
fact
that
in
convening
this
problems
which
are
inextricably
linked
that the path very clear. It traced for
posed?
think
this
would
be
an
invitation
We have balance of payments problem.
world wants to use in goods and
seminar, we have no preconceptions with
gether: the problem of the balance of pay-
by the path of sterling in the years since
only to an economic blow-up but to
The external evidence of this balance of
services and assets in this country or to hold
spect to the substantive issues that may be
ments and the problem of the weaknesses
1931.
deepening
and
frightening
divisions
with
payments problem that in the last ten
liquid
dollar
investments.
raised. The issues are, indeed, bipartisan, and
of the monetary system.
Somebody think it was General
allies.
years our gold reserves have dropped over
The solution to that problem has to be
of momentous import not only to the
The solution of either one of these prob-
generals don't die, they
This being said, gentlemen, think
billion.
reduction in our payments relative to
Congress, which must act on certain portions
lems would have very beneficial effects on
fade think that apply same
that
any
responsible
person
that
know
It interesting to note that the gold
earnings. It would be wonderful we could
of the President's program, but to all
the other and would contribute to solution
maxim to our reserve currency. doesn't
would favor such an awkward situation, but
reserves of the United States on January
solve this problem by increasing our foreign
Americans.
of the other. think, however, that neither
shrinks.
may be slipping into it gradually without
1958, were slightly larger than they were
exchange receipts. But in the short this
For this reason we believe it imperative
of these problems can be solved fully in
When Britain found itself unable to con-
wishing to do so, as has happened to us in
December 1950. The real balance of
quite impossible, SO the immediate solu-
to begin at once public dialogue on the
isolation from the other. We cannot expect
tinue support sterling as worldwide
Vietnam
itself.
payments problem, therefore,
tion must involve reduction of the outflow
President's proposals. And regard this
our own balance of payments problems to
currency, it salvaged what it could by mak-
conclude this broad review think my
problem. That is long enough.
dollars to the the world.
seminar as the first step in making available
disappear and be solved simply by interna-
ing it regional currency, the currency of
time is just about will refer
In the last year we have paid out about
Now, must warn you that there no
to the Congress and the Nation an impartial
tional monetary reform can the problem
the sterling bloc in the 1930s. At that time,
briefly to remedies proposed by the President
billion of gold, nearly all of it in the
easy way to solve the balance of payments
evaluation of the President's recommenda-
of international monetary reform be fully
the members of that bloc, other than Brit-
January
last two months. Essentially, we have been
problem. Anybody who tells you that there
tions and an equally unbiased examination
solved as long as our balance of payments
ain, would accumulate the largest part of
think this program can be interpreted in
spending or paying out far more dollars for
painless, automatic way of reducing the
the feasible alternatives to his program.
deficits remain as large as they have been.
their reserves in sterling and Britain would
two different ways. It leaves us an option
imports, for services, for government mili-
payments of the United States BO that
To this end we have been most fortunate
Let me turn first to the problem of inter-
manage the gold pool which would make
between policies which could follow
tary expenditures, for aid and for private
won't feel and the rest of the world
in assembling here number of the
national monetary reform and be extremely
settlements for the whole sterling bloc to
diametrically opposed lines. The first
than foreigners have wanted to
feel it selling you an patent medi-
most distinguished authorities in the
brief and unpleasantly blunt about it.
outside
members.
sincerely hope the one which
use in buying goods and services in this
cine
that
really
has
no
effect
on
the
body
field of international monetary affairs.
think the basic fact is that the old gold
But the difficulties increased for the Brit-
in the mind of the to
country or to add to their liquid investments,
economic except to intoxicate it. The truth
would like to present them briefly to you:
exchange standard on which we have lived
ish. must say that they were magnified,
meet the which have been
their private dollar holdings.
of the matter that every solution to
Mr. Edward Bernstein, Edward Bern-
for the last fifty years is now dead or at
of course, out of all proportion by the Sec-
quested by our European partners for hon-
And when the foreigners get many
ance of payments problem involves pres-
stein Consultants, here in Pro-
least
dying.
ond World War and in the end the sterling
est and fair negotiations within the frame-
lars they convert the dollars their own
sures, pressures on the country itself and
fessor Robert Triffin, of Yale University; Pro-
It rested essentially on two sources of
bloc had to be transformed into sterling
work of the International Monetary Fund.
currencies by selling them to the central
pressures world economy.
fessor Gottfried Haberler, Harvard Uni-
supply for the increase of world reserves
area. To slow down leakages of gold from the
They have been clamoring for years for
banks. The central banks, in turn, convert
The big question having allowed
versity; Professor Robert Mundell, of the
which are necessary to sustain international
members of the bloc to outsiders, preferen-
rection of huge persistent deficits
the
excess
dollars
gold.
to drift this difficult position,
University of Chicago; and Dr. Howard
trade and production. These two sources of
tial system was organized within the area,
of the prerequisites for activation of the new
Now, we must not confuse the problem of
what the solution that will have mini-
Piquet, Senior Specialist in
supply were gold, on the one hand, and,
which involved the institution of various
monetary agreement. We are now trying to
our balance of payments with the outflow of
mum
adverse
effect
and
minimum
Economics in the Library of Congress.
secondly, gold convertible foreign exchange,
kinds of trade preferences, and joint dis-
give them full satisfaction. We are taking
gold. The outflow of gold is symbol of the
adverse effect on the world. Without sub-
Gentlemen, we deeply appreciate your tak-
primarily sterling initially, and since the
crimination against the of the
to meet
problem. The problem is that we have been
scribing in detail to everything that being
ing the time from your busy to
end of World War II, primarily, the dollar.
This the fate of the pound sterling.
hope that this is the preface to speedy
paying out to the world an excessive quantity
done now, and think it would have been
help us, we hope, shed more light on most
Both of these sources have dried up.
Gentlemen, do something about
and decisive negotiation of an international
dollars, excessive, that is, compared to
well had done sooner, what being
complex
subject.
need not expand on the drying up of the
it, the same kind of fate is going to befall
agreement which could become effective even
what
the
rest
of
the
world
wants
to
use
and
done designed to have a minimum effect
In addition to our panelists, we have in-
gold source. Over the last five or ten years
the dollar. In fact, we are gradually slipping
before we the real machinery which,
wants
to
hold.
on the United States and minimum effect
several distinguished of
has provided only an ever decreasing fraction
into policy, the consequence of which
you know, still has to be hatched by many
Now, the solution to that problem is the
the
world.
the press who specialize in economic affairs
of the general increases in world reserves,
would be to my mind immensely damaging,
congresses
and
parliaments.
most urgent business which exists for our
The most important aspect of the Presi-
and representatives of leading national or-
something of the order of 25 per cent, at
not only financially and economically
There unfortunately, second interpre-
economy, domestic and international, and
dent's action program, that does not
ganizations to participate in our seminar as
most, in the years for instance. And
politically.
tation. have been all the coun-
for our monetary system, for the monetary
envisage any reduction in trade in goods
observers.
of this accretion came from Rus-
There are some isolated voices which con-
tries of the world into three groups: The
system of this country and for the interna-
and services, with the single exception of
May introduce Mr. Ed Dale, of The New
sian
sales
in
Western
markets.
sider that dollar bloc would indeed be
paradise or heaven, purgatory, and hell. This
tional
monetary
system.
penalty
on
travel
outside
the
Western
York Times; Mr. Hobart Rowen, of The
But the problem is even worse today. In
good solution. We are far more powerful
perfectly justified look at their rela-
There are other problems of
Hemisphere.
Washington Post; Mr. Richard Janssen, of
the last two years the official gold reserves of
than Britain. We could force many more
tive strengths or weaknesses because we don't
character. There a gold prob-
As Professor Triffin has said, the big part
The Wall Street Journal; Dr. Carl Madden,
all central banks together are members
countries than Britain ever did into dollar
want to hurt countries which are already
lem. That gold problem the
of the program is to reduce the private capi-
of the United States Chamber of Commerce;
of the International Monetary have
area system. What would this mean insofar
weak
or
which
are
poor.
fact that gold, the traditional reserve. is no
tal outflow. The reduction in the private
Mr. George Hagedorn, of the National Asso-
been declining. They are no longer increas-
it successful? And think it has helped
But, on the other hand, we see already the
longer growing. As Professor Triffin has
capital outflow to be achieved mainly in
ciation of and Mrs. Elizabeth
ing. They had been declining by about $200
considerably already over the last few
reactions we may expect (witness those of
pointed out, total gold reserves have de-
respect to the surplus countries of Europe.
Jager,
of
the
million previous to the big gold rush of last
years. But what would it mean if you really
my former countrymen, in Belgium) when
clined in the last few years and have recently
Presumably, these countries can afford
In opening our discussion would like to
December. And then they declined dramati-
tried to perpetuate such system some
countless people are transferred from one
dropped sharply as the result of the
operate their economies at high level
suggest the following simple agenda. It seems
cally to point which has not fully been
people
would
like
to
do?
classification to another. They will prefer to
ment gold into private hoards and specu-
their foreign exchange receipts decline.
logical to divide our topic the following
disclosed but which probably well in excess
The end result would be this: Total
be purgatory rather than hell, or in heaven
lative
holdings.
They can do this because they have strong
three parts:
of $1.5 billion, certainly of that order of
responsibility at home and political blow-
rather than purgatory. One of the things we
Now, there is no way of supplying gold re-
balances of payments and large reserves.
The problem.
magnitude.
abroad. At home would be very hard
may be tempted to do would be to say,
serves even if had strong balance of
Now, for the surplus countries of Conti-
The President's proposals for solving it.
Therefore, quite obviously, we cannot
for the Administration or for Congress to
right, you may enter the dollar area long
payments with the rest of the world. There
nental Europe, there is to be no net new
The other options or alternative courses
count on gold unless we adopt the insane
follow responsible economic and financial
you take dollars and don't convert them
no way of providing gold to the rest of the
funds coming from the United States for
of action which are open to this country in
lution proposed by Mr. Rueff, the doubling
policies if we can incur continuous deficits
into We would be slipping, then, into
world when there is shrinking aggregate
direct investment there. With respect to
lieu of the action program requested by the
of substantial increase in the gold price.
and have these deficits financed by the ac-
the solution which consider fatal to us in
of gold reserves except by their cannibalizing
those industrial countries and off-producing
President.
need not, think, indicate to this kind of
cumulation of dollar IOU's by foreigners.
the
run.
our
gold
reserves.
countries on the edge of having some
shall hear first from our distinguished
audience the reasons which in Paris
This would irresponsibility here.
this was the message
Now, mind you, am not arguing that
ments difficulty, we will permit the
panelists. May suggest that, in the interest
last week why this most irresponsible
As far as the foreigners are concerned, it
tried to carry to Paris last for you
this already happening It may be an
nance of level of direct investment
of making optimum use of our time, each
type of action and contrary, in fact, to the
would put them on notice that they have
to decide because think that the Adminis-
element in the persistence of our balance
(through new funds transferred to England,
participant keep his remarks within rea-
rational evolution of the monetary
entered the dollar area, that they are bound
tration itself is deeply divided on this.
of payments. It however, problem we
Canada, Japan, and Australia) which, to-
sonable time of eight to ten minutes. Let
system.
to finance any amount of deficits that the
suspect that it has fully made its
are going to have to deal with in the future.
gether with retained earnings, will be about
add that our panelists have submitted
U.S. would incur. It would mean that for-
Moreover, the second major source of in-
mind. In any event, we have to have coop-
And, as Professor Triffin has already pointed
per cent of the average what they had
longer statements of their views and that
creased world reserves after World War II,
eigners would have to finance those deficits
eration and new will to cooperate, more
out, growing world economy needs grow-
in 1965 and 1966. This incidentally,
these are available here to interested mem-
gold convertible foreign exchange, ster-
regardless of their size and their origins.
fully than we have had, on both sides of the
ing volume of reserves. There may be no
high
historical
base.
bers of the press and Congress.
ling and dollars, also has dried up.
think that there would always be people to
Atlantic. We cannot do on one side alone.
mechanical link, no precise
The poor countries, the less developed
point that foreigners would clearly view
sorry to say, as of now, being purely
relationship
between
the
growth
of
the
countries very generous treatment. They
After we have heard from all of the gen-
think that, essentially, the system
as irrational system to have their own
tlemen on our panel, propose that we allot
academic without any kind of official
world is international trade
are in heaven, as Bob has said. They
bound to last only for while. The death of
printing press work to finance our deficits.
further period of time for an exchange of
reserve currency is written in its birth
responsibility in this matter, remain my-
and payments and the
can have 10 more than the base
sure that in the end, even cen-
views among the panelists and that there-
self much puzzled to what the ulti-
quantity of that the world needs.
they had in In fact, that more
certificate, for the simple reason that it can
tral banks in some countries were inclined
after, until the close of our proceedings
mate
outcome
will
be.
But is quite clear that you cannot have
than they would under normal condi-
remain viable only by larger
to accept this solution for fear of the alter-
around noon, we open the seminar to ques-
Thank you.
zero growth of reserves while you have
tions.
and larger short-term debt, convertible at
native which would be chaos, these Central
tions and comments from the members of
Mr. GOODELL. Thank you, Professor Triffin.
continually expanding world economy.
facilitate adjustment by our own
any time into scarcer and scarcer gold metal.
Congress who are here with us on the dias
Banks would not, in the end, be supported
At the outset indicated to the partici-
Now, this problem of providing the world
panies, transfers are allowed within each
This cannot last indefinitely. Reserve cur-
and from our distinguished observers. note
public opinion or parliament. This would
that they could range across the board
with adequate think, well on
group of countries so that say, General
rencies have never lasted and never will, in
the presence of good number of members
be especially true when, as now, policies,
that
any issues that they felt were directly
the way solution through the special draw-
Motors needs the money in Belgium instead
form.
of Congress of both parties in the audience
decided unilaterally here, appear to be con-
relevant to our problem here. Let me
ing rights. am very hopeful that the les-
of in Germany, can transfer the funds
Events are quite clear as far as the two
and hope they will feel free to submit
trary either to the interest of the prospective
press the hope, however, that while recog-
sons of the last three will stimulate
(these may be earnings not required to be
reserve currencies are concerned, the dollar
lenders or to their view of
questions
nizing that Vietnam is relevant in many
activation of the plan for issuing new
repatriated to the United States from
and sterling. Together they still constituted
morality or common sense. And this obvi-
ways, have enough issues to divide
fiduciary reserve in the form of special draw-
And United States companies
May we begin with description of the
$18 billion of net monetary reserves in 1949.
ously would be the case because of our
without debating the propriety of our in-
rights.
erating in Canada find that they have
problem? Professor Triffin, would you be
Today this figure has declined to something
absurd and immoral venture in Vietnam
volvement in Vietnam and hope we won't
The gold problem, in my opinion, will
than enough money for Canadian invest-
kind
eough
to
start
off?
of the order of minus billion.
and
in
Southeast
Asia.
off
on
that.
main and it needs very special treatment.
ment, they can move money from Canada to
Professor TRIFFIN. Thank you very much,
During the same period, the reserves of the
Broad resolutions have already been
think we would like to hear from Mr.
come now to the basic problem, the one
England, they have operations in the lat-
Chairman.
rest of the world have increased from $18
adopted, many of them unanimous nearly
Bernstein
next.
that ought to concern us most because
ter country. easy to exaggerate the im-
As you very well said, we cannot really
billion to something approximating $54 or
unanimous, by three parliaments of coun-
Professor BERNSTEIN. recognize as Pro-
the prerequisite for doing anything else.
pact
President's
program
will
have
on
the
appraise cure without knowing what the
855 billion. This is an evolution which can-
tries which are very friendly to expressing
fessor Triffin does, that we have two prob-
said real problem that we are
group countries because there big
disease We cannot solve the problem
not continue forever and it is bound to kill
their desire to see the bombing of the North
lems here, though think he does have
out
for
goods
and
services,
for
military
valve
and
that
the
freedom
the
without knowing what the problem
the reserve currencies that try to support
stopped
or
even
withdrawal
from
Vietnam
293-820-11713
CONGRESSIONAL RECORD
CONGRESSIONAL
Canadians to borrow all they want here so
ing tourists, that is outrageously regressive.
The port tax proposal tax on im-
tional reserves will be necessary. don't
should like to approach this problem, not
billion.*
But
at
least
that funds can move say, from Canada to
Rich men can afford the additional cost, the
ports and tax refund on sys-
think this point has come. We have con-
from the point of view of the many trees
quarters of 1967, with the
England without violating either our regu-
poor cannot. When the details of the pro-
tem which comes much closer to real
fidence crisis which is rather different from
and shrubbery in the forest, but from the
travel account, we
lations or without causing too much hard-
gram are examined, they add up to what
valuation than the other programs, because
liquidity crisis. First, confidence in sterling,
point of view of the forest itself, looking
than we had been previous
ship.
used to be called Nazi methods. only hope
it would affect large segment of the Amer-
now confidence in the dollar has been shaken.
at it as whole, from above, in fairly simple
Now this adoption
Nevertheless, don't want to brush the
the Congress will not go along with that.
ican balance of payments, all exports of com-
But somehow imagine this problem will
language.
posture to solve the
difficulties away. This program is going to be
Now the capital controls are not quite so
modities and imports of commodities.
solved. Our present system which has been
For years the United States
doubt upon the credibilit
hard on the countries that are not in sur-
revolutionary because bank investments were
Let me make just one further remark on
criticized 80 much was able after all to sur-
has been the leader of the world in urging
States.
Also,
it
will
result
plus (except for the less developed coun-
previously subject to controls. However, the
this. For the United States, the proposed tax
mount number of confidence crises. The
an open multilaterial trading system and
as
Dr.
Haberler
pointed
tries).
controls have been made far more stringent.
innovations would be something entirely
crisis of confidence in the pound was han-
free and open payments system. It was our
of
the
balance
of
paymen
Now, superimposed on this essential pro-
It is interesting that there is a law already
new. The United States has not 80 far prac-
dled. The Italians into trouble few
initiative that started the reduction of
bettering of The simple
gram direct investment control there is
on the was passed in
ticed export subsidies on any extended scale.
years ago. That was handled. Of course, if
tariffs that culminated in the Kennedy
income
returns
on
the
requirement to bring back about $600 mil-
gives the President the powers to do all sorts
So if this were not highly restricted, if all
the dollar gets into still deeper trouble, that
Round. It was our initiative that resulted in
which we're trying to
lion in loans outstanding to the continental
of things in case of war, in case of declared
exports were subsidized to compensate for
is a more serious problem. But think the
the formation of the International Monetary
cumulatively for the last
countries of Europe. In 1968, 40 per cent of
emergency.
domestic taxes, an entirely new dimension
present system would be able to cope with
Fund.
about $16 billion larger
the American loan portfolio will
Indeed, the President could have put the
for foreign economic policy and for trade
that, too. And would hope that the new
And now, in one day. we have cast doubt
flow.
be liquidated and as many of the
tourist controls into effect under the terms
policy would be opened up. And think this
scheme about which you heard SO much,
upon the credibility of the United States in
Thus, even though the
loans as mature.
of this law. think covers this thing and
a very serious matter. You would have to
these special drawing rights which were ac-
really meaning what it has said in terms of
will provide some tempora
The government itself is undertaking
much more. But evidently he felt that was
set up new administrative machinery which
cepted in principle at the Rio Conference of
fundamental policy. That is point one, which
balance
of
payments,
there
program to save $500 million the foreign
going little too far, and that is just as
does not exist. The European countries are
the IMF last summer, will come into being
Gottfried Haberler brought out very well.
in
the
long
run
balance
exchange costs of its enormous operations
well.
in different situation because they have
eventually and provide additional interna-
Point what is the problem? Is bal-
these controls.
overseas. Some civilian workers will be
The controls on direct investments will
the requisite machinery in place.
tional reserves when they become necessary.
ance of payments problem or is something
cannot
away
from
brought back. Another $100 million of aid
probably help in the short run. The pro-
It can be shown quite clearly that such
The only difficulty here is the disagreement
else? There is always danger in economics of
problem is not balance
will be tied. It is wonder there is any more
gram includes moratorium on direct in-
system, once installed, will be used for other
between the big powers. The French are not
ignoring
the
fundamental
lem.
It
is
not
financial
left to tie. And presumably there will be
vestment in Western Europe (excluding Great
purposes. The tax refund and the border tax
willing to cooperate. Now am not going to
forces and relationships and concentrating
monetary problem. It is
some method of economizing further on the
Britain, Greece and Turkey). Since West-
on imports would not be uniform. They
speculate whether such an agreement will
on the obvious, the superficial and the symp-
whether the world wants
exchange costs of our military opera-
ern Europe was the place where most of
would be equivalent to devaluation but
reached. If an agreement cannot be
toms rather than the ailments. We have
dollars as its fundamental
tions
overseas.
the direct investment went, this part of
would be differentiated according to com-
reached, if the French remain adamant and
jumped at the conclusion, literally jumped
Throughout history the
As said, this is not an easy program.
the program will doubless be effective. How-
modities and according to countries, thus
the other Europeans go along with the
the conclusion that the only way that
many different things
don't think there is any danger that this
ever, direct investment in the long run
introducing new kind of discrimination.
French, then, of course, we would be in dif-
the United States can maintain international
used tobacco. Old Ben Ande
will lead to world deflation. In fact, think
yields interest and repayments. In fact, in-
So think the Presidential program bad;
ficult situation.
financial integrity is by having equality
could use old dodo
is the only kind of program that could
vestment income from abroad has grown
moreover, it is quite inadequate. should
And now let me very briefly raise an issue
tween its out-go of dollars or money and
would accept them." The
give us quick improvement in our balance
very is now running the rate of
mention in passing that the figure which
on which am sure most of the panelists will
the in-flow of money across the national
value of money is its accep
of payments without generating deflationary
$5 billion. The long term impact of these
the President used referring to this year's
not agree, namely, flexible exchange rates.
boundary line.
fidence that you can
forces.
controls on the balance of payments will
balance of payments deficit of $3.5 or $4
If an impasse is reached on the creation of
In fact, we have to do with two problem
pectation
that
you
can
is pity that we have balance of pay-
thus be adverse. In the short run, it prob-
billion is an understatement. If you allow
international liquidity, our problem can still
areas here. One is the financial area and
body else. Now what has
ments problem of this magnitude. It
ably also means loss of exports. Ameri-
for all the cosmetic devices which are being
be solved by cutting the dollar loose from
the other is the monetary. The balance of
Other countries decided
pity it wasn't dealt with more effectively
can affiliates and subsidiaries abroad ac-
used to make the balance of payments look
gold and letting fluctuate. This might come
payments itself is primarily matter of
of the shortage of gold,
before. That doesn't alter the absolute neces-
count for very large percentage, 25 per cent
better, you have to add at least 81 billion,
in any event if inflationary policies are con-
financial transactions involving money trans-
IOU's of the United States,
sity of doing something drastic on scale
if remember correctly, of the manufactur-
probably
more.
tinued and our deficit goes on mounting. The
fers rather than money creation.
that hasn't devalued
to restore the dollar to position where it
ing exports of the United States.
But don't want to be exclusively critical.
present policy simply calls for controls where
Now, if the United States were just another
time there was no reason
currency that countries everywhere feel
So, in the medium run the program will
want to say something about alternatives.
the alternative would be to cut the dollar
country, this accumulated balance of pay-
The
dollar
was
the
soundes
they want to use and want to hold. And that
reduce some of our exports and in the long
Here, find myself in some disagreement
loose from gold and let it float. I hope it
ments deficit would not have occurred be-
world and they decided to
means that we have to restore equilibrium in
it will cut into investment income.
with earlier speakers. It appears to me that
won't come to it but am not sure. If it
cause could not have occurred. What would
And
there
has
been,
as
our balance of payments.
Hence, the program will be counterproductive
the first thing we need to do is to stop or
comes to a floating dollar and if it is done in
have happened was that the IOU's, the
actual
loss
of
confidence
Thank
you.
in the long run even in narrow balance of
slow down inflation. After all, last year the
the proper way, don't see any reason why
ican dollars, would have come home to roost.
there were a fundamental
Mr. GOODELL. Thank you, Mr. Bernstein.
payments
terms.
quantity of money increased at record rate,
that should do lot of damage to the
The only place my IOU is good is with me
bility of the dollar, do you
Mr. Haberler?
In addition, an enormous amount of su-
something like 7.2 per cent. Everything has
American economy.
unless you decide to use it as money among
dollars
that
are
now
Professor HABERLER. Mr. Chairman, ladies
pervision will be required. Any investment
gone much faster than in prior years. By
An outright devaluation of the dollar by
yourselves. Those dollars would have come
dollars used by Europeans,
and gentlemen, should like to start at the
which exceeds the very narrow limits allowed
way of contrast, the period 1958 to 1964
BO many per cent or whatever
back in the form of demand for United
rowed and spent by Europe
other end from which my friend, Robert
outside Western Europe will have to be sep-
was one of fairly stable prices.
it would be difficult because we
States exports. And we would have been in
control
by
any
Triffin started, namely from the domestic
arately investigated. A new office has been
Inflation, in short, has to be stopped.
cannot know in advance what amount of
balance. If we had had fluctuating exchange
would have skyrocketed
situation. Later, shall comment on alterna-
established in the Department of Commerce
record budget deficit is in the making and
devaluation is right. you devalue a little too
rates, balance would have occurred by way
billion as reported in the
tives and the international monetary system.
which has already started to issue explana-
don't see how it will be possible to avoid
much, you get lots of other countries into
of depreciation in the foreign exchange
for January 15?
Looking at the program outlined by the
tory amendments closing loopholes and to
tax increase. am all in favor of reducing
trouble. If you devalue by too little, you
value
of
the
dollar.
Now, this doesn't mean
President in his New Year's Message, let me
make exceptions where necessary. It would
say quite frankly find it absolutely shock-
expenditures, but don't see how you can
don't the problem. So it comes to the
Now, then, we analyze the figures in the
won't
be
loss
of
confidence
be very easy to picture how this system will
ing. It is big step. It is really big step
cope with deficit of $20 billion or more,
point where the international value of the
balance of payments since 1960, we find that
and it doesn't mean that
snowball into an enormous bureaucracy.
good
friend,
in the direction of more and more controls.
realistically speaking, in political terms, by
dollar has to be changed, think a much
the subsidence of the gold rush at the fall
Robert
The other programs mentioned in the
reducing expenditures. So tax increase
better system would be to let the dollar float.
of 1960, at which time we had balance of
not strong need for
It is step in what used to be called the
Presidential Message are partly things which
Schachtian system, the system which was
probably will have to come. The alternatives
am not optimistic that this will be done.
payments deficit of billion, followed
national monetary system.
have been said many times. We are going to
would be that monetary policy would have
am afraid we go on like we have, what we
upon President Kennedy's declaration that
this, no monetary system
invented by the Nazi economic wizard,
stimulate exports. We are going to persuade
to become extremely restrictive, with interest
shall is more and more controls. But one
the United States was not going to raise the
the participants in that
mar Schacht.
foreigners to come to the United States. That
Of course, this drifts into more and more
rates rising and 80 on.
thing am pretty sure about. People will get
price of gold. The price of gold subsided in
participants want it to
has been said in every speech and every
controls. That has been going on for quite
Now, may say a few more words about
so fed up with controls, so disgusted
the London market from $41 an ounce back
standard can be wrecked
statement on the balance of payments for
to $35 and our balance of payments deficit
to
wreck
it,
if
have
some time. Our policy has been one of drift
the things which Professor Triffin discussed.
they
the petty annoyances they impose and
the last years and it is becoming
to more and more controls. We started by
The international monetary system isn't
the supervision they make necessary, that
declined from to $2.4 billion in 1961.
The dollar system can be
little stale. And to stress them so much
quite what it is supposed to be, but cannot
they won't last very long. But to get rid of
That deficit had been declining steadily
system can be wrecked.
reducing tourist expenditures, you may
cannot help but arouse suspicion that noth-
take quite such pessimistic view as my
through 1966. In 1965 it was down to
Short of world econom
the controls won't be easy unless we do the
member, and later capital controls were im-
ing decisive will be done.
friend, Professor Triffin. For instance, the
right thing. The right thing is to let the
billion and in 1966 it was down to bil-
eignty,
world
posed. The capital controls were at first mild;
There is one thing on which would like
lion. Taking the first three quarters of 1967
problem
of
internation
United States started out with tremendous
then they were made tighter, and now they
dollar float; it will be fairly easy.
to comment, namely the proposal that tax
compared with the first three quarters of
whether we want not.
have been made mandatory Controls on
international reserve so there was really
If you don't want to do that, then the
be levied on imports (the figure have seen
alternatives are either to on with the con-
1966, eliminating military expenditures only
the banker? Now we have
bank lending are also virtually mandatory.
lot of time and big margin within which
is 3.5 and tax rebate on exports
action could have been taken.
trols or have an outright devaluation where
from the current they don't
banker by the rest of the
you reflect on the details, the President's
to compensate for internal indirect taxes.
Of course, the answer will be that the
in the current balance, in my
dealing in financial interme
program is simply horrible. And one very
you are never sure whether it too much or
Now this is system which other countries
United States had to have the deficit in the
bad aspect about it is the discrimination
too little. Either route would be bad and
counting the trade balance and
by that that we are serving
have operated. The Germans have it. The
first years after the war in order to supply
it would be sheer luck if we were to hit upon
the balance on investment earnings and
we are exchanging our
that Professor Triffin mentioned. believe
French have it. But the reason is that they
for the liabilities
other countries with reserves.
Congress should act to counteract discrimi-
exactly the right rate of devaluation.
trade and transportation and
have national turnover tax which we have
This of course is perfectly true. The deficits
services, we find an improvement in the first
am
banker
and
you
nation between the Western Hemisphere and
not. We have only local and state taxes of
Mr. GOODELL. Thank you, Professor Haber-
to
build
ler. With you and Professor Triffin, we have
three quarters of 1967 over the first three
house,
you
in the American balance of payments up to
give
the rest of the world, and see no justifica-
the indirect kind which makes the adminis-
quarters of 1966 by about $100 to $125
gage, your deed and your
1960 and little thereafter were necessary
tion why tourists going to Israel or to Italy
tration of such measure rather compli-
up pretty good potential competition
because gold production wasn't sufficient to
million.
pay me over, say, period
should be taxed and those tourists going to
cated.
between Harvard and Yale here.
meet the demands of the countries that
There was, of course, an increase in the
give you the cash. am
Mexico, which they adore, should not be
But what would like to point out is that
wanted to accumulate international reserves.
And think now we will turn to the
deficit travel, largely explained by Expo
Our obligations to fore
taxed. If the program involves restricting the
this is disguised devaluation. If you put
But the situation has now changed. Other
senior specialist on economic international
Montreal.
about
$60
billion,
over
amount of money the tourist is allowed to
tax of x percent on all exports or imports,
countries don't want more dollars, so the
economics from the Library of Congress, Dr.
In other words, what am driving at is
short-term liabilities to ban
take
out
of
the
U.S.,
that
is
very
easily
and apply similar refund to all exports, this
deficit in recent years cannot be justified on
Piquet.
that it is possible that there was big
private
people.
Our
evaded. We shall need lot of police super-
is disguised devaluation of that amount.
grounds that it was necessary to supply in-
Dr. PIQUET. In twenty years of working
outflow of funds in the fourth quarter, but
vision to reduce such evasions, including
You can even look at the tourist proposals
ternational
reserves.
for you gentlemen in Congress, have
we don't have the figures on this. They are
*Official figures released
censorship of the mail, etc.
as a disguised devaluation of the tourist dol-
agree that the point will come sooner or
learned that the more expert is the advice
not yet available, except the global figures
showed
total
balance
of
If on the other hand the objective is
lar. Most of the other restrictions are really
later, if world trade goes on rising as has
you get, the more confused you get.
which
were
given
by
the
President,
$3.5
to
for
1967
of
complished by putting head tax on depart-
disguised kinds of partial devaluation.
in the period, when larger interna-
293-820-11713
CONGRESSIONAL RECORD
amounted to $112 billion at the
The gross national product increases by
even more powerfully as the world's cur-
The 1
1966. There is no question about
$50 billion every year. The gross national
rency.
that h
financial and economic strength
product in the United States is $800 billion;
If you follow the advice of my colleague,
to hay
United States. That is beyond ques-
it is running at that rate at the present time.
Milton Friedman, who says get out of the
to nar
question is one of liquidity.
World income is of the order of $1.5 or $2
in this case is the ability of the
gold market, then the dollar will become
Now
trillion. But the balance of payments of the
more important than it is now. If you don't
minut
States to redeem its dollars, its IOU's
United States is 82, $3 or 84 billion. It is
an
follow his advice and simply do nothing,
to him
$35
ounce.
always the same and this is an implementa-
now about a 40 per cent reserve
then the dollar will become more important
Mr.
tion of the working of the gold exchange
if we release the 25 per cent gold
than it is now. You cannot fight the basic
Prof
standard itself. This is the way the system
fundamental evolutionary forces that have
agreed
40 per cent reserve, if the analogy
is operating. This is not a spurious figure.
reassu
holds, is a pretty good reserve.
been at work in the international system
This is not a figure that is magic, for in-
for a decade and that are simply reflections
need :
we need primarily, it seems to me,
stance.
of the fact that it is the dollar and not
Triffin
in ourselves, confidence in the
I remember in 1963 and 1964-I expressed
gold that is the determining factor.
tion w
we are not weak and because the
the view a number of times that this figure
say we should do something
Gold is not even a medium of exchange
Let's
is something that is persistent. It is part of
mean that we should. I will con-
on the international economy. Gold can be
payme
the system. And this has been occasionally
bought and sold. Gold is an asset. It is a
balanc
saying that the President and you
laughed at and derided and called a coin-
commodity that is subject to speculation and
payme
of Congress have other options. I
cidence. But next year the same coincidence
people will want to hold it as long as there
only b
we are supposed to go into the
comes up and next year and next year. It
right now. We will come to them
is speculation that its price is going to rise.
will b
is a persistent change and it is a persistent
But when people say "In the long run gold
size of
change that is related to the rate of world
has to go up in price," when this defeatist
Now
are clearly other options than
expenditure and of world growth and the
attitude toward the U.S. dollar is advanced,
that t
the long-run economic posture
world demand for international reserves, and
what they are really saying is something re-
countr
United States. This will start the
the particular position that the U.S. dollar
has become to occupy in the world.
markable. Consider the world gold market:
be a d
again, as Dr. Haberler said, on a
workin
path dangerously similar to
Now, Robert Triffin has brought out the
There are 60,000 tons of gold floating around
in hoards in the world, 840 billion worth are
some
in
the
1930's.
fact that the liquidity position of the U.S.
in the central banks. Annual production is
myself
you.
looks bad. We started off back in the post-
about 1,000 tons. Private demand is usually
point (
OODELL. Thank you, Dr. Piquet.
war period with a very liquid situation, a lot
of gold and a few liabilities. Now we have
less than that but in the past couple of years
So f
will move to that center of enlight-
it has been a little more than that. What
agrees
the University of Chicago, Profes-
less gold and more liabilities.
tion di
But this transition is the transition of the
people are saying is that it is impossible to
Intern
world economy from a system that did not
keep the price of gold down.
MUNDELL. Thank you, Mr. Chair-
is it t
have a dominant currency like the dollar to a
Now, if that is true, then you must throw
all the laws of economics out the window.
Europe
you won't mind if I don't repeat the
system that had a dominant currency like
which I agree with other panelists.
the dollar. And the failure of policy over
They don't apply. If the world economy can
a defie
I thi
say first, I-I know I am disappoint-
the past ten years, I would say, has been
maintain the present price of gold, the U.S.
to not recognize the fact that the old figures
dollar can emerge without basic problems
the de
Haberler in this-that I agreed with
that Mr. Piquet, on my left, has
that are applicable to an old system do not
connected with the balance of payments
Depart
I think coming from outer space,
deficit, which is simply a set of figures. It is
nition,
apply to the present system.
the system which has to be run right. The
U.S. d
Chicago, coming by airplane, it is un-
From 1844-the year of the Bank Act-to
to escape the view when you travel
system hasn't been run right.
larger
1914, Britain ran the gold standard with
look down that the world is round.
The system comprises N countries in the
definit
no change in the gold price. It ran that
time I come to Washington I see
world-the IMF says there are 105, but there
having
system-the gold standard-but it was
world looks flat. And having to pre-
are probably 175-and one key currency rep-
I an
a standard that relied heavily upon sterling.
this pr
idea that the world is indeed round
resenting about 40 percent of the free world's
It ran that system by allowing reserves to
production, and that is the United States.
stays
shocking.
fluctuate but it never imposed exchange con-
that analogy of some importance
Adding up all surpluses of other countries
fallacy
trols whenever a particular set of figures
indicates what the rest of the balance of
payme
had I been in Washington in 1960-
looked bad.
payments deficit is. So it is ludicrous when
it. In
in 1961 or 1962-I could say this
The U.S. has become a bank. It has be-
I came in. When I listened to Mr.
someone says "we will put a tax on tourists,"
mittee
I wondered if his statement would
come the world bank and it is creating dol-
"we will tell this or that company they can't
from :
changed in any sense had he been
lars. It does this in a whole complex of
invest abroad."
holdin
ten years ago, in 1958 or 1960, when
different ways and I think the view that
What they are saying is that the surpluses
When
of payments problem was first
Charles Kindleberger and that Mr. Despres
of the N minus one countries are going to
more 1
Today, we have a particular set of
have expressed in this connection is worthy
change by some aggregate amount. Now I
take go
of note. The U.S. is a savings and loan asso-
don't know of a single economist in Washing-
The
of payments figures. We want to cut
on paper and so we impose re-
ciation, if you like, with respect to the world
ton who has gone around and calculated and
reason
some voluntary, some mandatory.
economy. But the U.S. is more than that.
predicted what the surpluses of the N-1
figure
little tax on this, a tax on that, in
The U.S. also manufactures dollars which
countries in the world are going to be. I
fined.
make the figures look a little bit
are demand deposits which operate as inter-
know some have tried. Milton Gilbert, in
that o
year. But in fact the figures never
national money, as an international medium
his speech before the American Economic
exceed
next year and they won't look
of exchange for all private traders, what
Association in Washington, did go around
We
year and they won't look better
Robert Roosa calls "vehicle currency." The
and try to calculate what the surpluses in
deficit
from
now.
analog to that in the domestic economy is
the rest of the world would be, but he could
billion
to think of what the U.S. bal-
simply money.
not come to any direct answer.
1958 o
payments is going to be, not next
The dollar is, in short, the cement of a
But the current trend, the current move-
more 1
years from now, but ten years
great multiproduct financial system. The
ment, the current understanding of the sys-
cause
or fifteen years from now, we will
U.S. is the world's capital market. That is a
tem is simply faulty. The proposed program
tration
won't work and in ten years we will have
kind o
when we examine these accounts
new element in the picture. All these func-
of payments, going back to
tions don't have to be concentrated in New
the same kind of problem and perhaps we
as a ca
will have the same kind of panel talking
But
1950, and up to 1966, the U.S. defi-
York and Washington, but the domination
than it is now. And it is larger
of the U.S. economy in the world has made
about it the same as we are, and saying the
without
now not for spurious reasons but
this necessary. Consequently, these policies
same things.
you W
of the systematic way in which the
Of course, as long as we keep talking, there
lion. 8
of restriction, the interest equalization tax,
is something to be said for that because talk-
of $3
standard operates.
the voluntary foreign purchases restriction
I will have to part company with
program, the new measures are all operating
ing is better than fighting.
a defic
Triffin. I don't think the dollar ex-
against a natural evolutionary law in the
Thank you.
year. :
the go
tandard is dead. I think it is going
world at large. They won't work. This would
Mr. GOODELL. Thank you, Professor Mun-
billior
the near future perhaps a new
remain true even if one took the maximum
dell.
figure
things are possible.
steps to undermine confidence in the dollar,
Generalizations are dangerous in this area
moves
failed, as I think Dr. Piquet has
and I believe that the U.S. government for
and we appear to have, however, at least two
say it
is our understanding of how the
ten years, since 1958, has come close to
of our panelists who believe the proposals
get ba
operating. If we look back over the
taking the maximum steps to undermine
made by the President are necessary, at least
confidence in the dollar.
Now
the past ten years of our balance
two that think they are bad, and perhaps
we see this number, this magic
Even if General de Gaulle has his way
one who thinks they are necessary as a tem-
a gres
ignora
$3.4, $3.9, $3.9, $2.4, $2.8, $2.7, $2.2
and his finance ministers continued to in-
porary evil.
our S)
of the same order of magnitude.
cite speculation against the dollar with the
I might say at this point that I did invite
Of CO
hy is the balance of payments always
result that the price of gold is changed, or
the President of the United States to send
why V
gold is demonetized, the dollar will emerge
a representative to participate in the panel.
29
820-11713
CONGRESSIONAL RECORD
to my mind explain all or practically
don't believe that, no matter how hard we
standard and accepted by all during those
ceptable. And that mean
that 84 billion reversal. Let me turn
try, we can simply hit the strong brothers.
years. We cannot liquidate fifty years over-
inflation.
to the January 1 measures.
We are also going to hit the weak sisters.
night. We have made the mistake of not
The answer the New y
that these measures had to be an-
Our program will affect the British. The
discussing this issue and of trying to rush
give us is to continue I
As Dr. Bernstein said, we had to
British program will affect us. And not only
into the long-run problem without solving
at $35 an ounce as long 1
omething spectacular, and we had to
that but our joint programs will affect other
the short-term one.
$12.5 billion of it. But wl
on January 1 because on January 3 we
countries which are already in a somewhat
If we could negotiate an agreement along
should we support the pr
have had to announce a loss of gold of
vulnerable position.
these lines, this would make it easier for us
ounce by giving an adva
$1 billion in a single month. And it
Therefore, these countries probably will
to finance from our own resources and in-
we will buy all gold pres
necessary to ward off the speculation
have to react and when they react, of course,
ternational borrowings from the IMF, the
fixed predetermined price
such an announcement would have
they will cut down our own exports and they
residual deficits that would still remain with
Keep them guessing.
if it had not been accompanied by
will create difficulties for us. I think that we
us as long as we refuse to look at the real
the speculator in gold ha
indication that we intended to do
might start again a spiral reminiscent of the
problem facing our current account balance.
gold, pay the interest cos
about
it.
past in which the difficulties of one country
This would make possible a quick rescue
then if we do raise the pr
being said, I think it is essentially
entail difficulties for the others. It is fright-
operation without the need to impose mutu-
it back and makes a han
ort-run program put together on the
ening to contemplate what might happen if
ally disastrous restraints on our capital ex-
100 per cent.
of various studies which presumably
some of these countries felt no compulsion
ports.
If we don't devalue 8
been in the making for some time at
about devaluing and thus reopening the
But in the end we cannot avoid the need to
price of gold, all he lose
Treasury. The study which the Treasury
speculative moves which we saw in Decem-
achieve a current accounts surplus in our
his investment. He bring
released on this point, is extremely
ber.
balance of payments which is consonant with
gets dollars for it. Why B)
though I would disagree with
As far as possible solutions are concerned,
the position and the responsibilities of the
under the price of gold?
of the interpretations in the docu-
I would like to underscore the two directions
richest and most productive economy in the
In fact, Fritz Machluj
I indicated. Clearly, we have to do some-
world. And what we are doing now is not
gested some time ago th
now to the program of January
thing to improve our own balance of
going to solve that problem.
advance that we're going
program aims at saving about 83
payments.
Mr. GOODELL. Thank you, Professor Triffin.
of gold in terms of dollar
of foreign expenditures by American
We shall also have to put into effect im-
We would like to get to our distinguished
because it was too comp
I am afraid that a substantial
mediately measures that will improve the
observers as soon as possible. I think, Dr.
Mr. GOODELL. Professor
perhaps $1 billion of these savings
international atmosphere and that will re-
Piquet, you wanted to make some brief com-
Professor MUNDELL. I
expenditures of American residents,
duce gold speculation. We will have to acti-
ments?
about solutions. I just
tourists, is likely to be offset for
vate, if you like, the SDR's in order to meet
Dr. PIQUET. I certainly wouldn't want to
my agreement with Dr. Be
easons.
the situation I have just been describing.
say anything that would indicate, as I said
that we can talk about
of all, we must take into account the
Since it is impossible to activate those SDR's
before, that I am opposed to the Triffin plan
payments deficit or we
of funds by foreign residents or
immediately, we will have to look for substi-
for a world bank or a reorganization of the
implications of the deficit
investments by foreign residents in
tute methods of achieving the same purpose
international monetary system. However, I
Now, the implications
merican market. Why should they with-
as soon as possible. In that connection, I have
think this is a long ways off.
quite clear. This, in fact
funds or why should they invest less
made proposals for the strengthening of the
Meanwhile, I tried to make clear that we
world inflation. If the U.
York knowing that such withdrawal
gold pool. This would really amount to an
had a big bulge in our balance of payments
money, foreigners have t
funds will yield the same amount
immediate implementation of some of the
deficit in 1960, as we had in 1958 and pre-
they spend it, and worl
as the export of American funds?
SDR techniques, avoiding the need to wait
viously. We made steady improvement
too much.
reasons are, first, that the new meas-
for parliamentary ratification of the SDR
through 1966, but now we have another
Here, the United Sta
are expected to tighten the current
reform.
bulge in the deficit in the fourth quarter of
sponsibility, not just to
for gold, to force up interest rates
Let me again stress that we have two prob-
1967.
the world economy; n
and to slow down interest rate rises
lems here, not one. There is the long-term
We don't have the detailed figures but the
control, over total spen
United States. It may, therefore, be-
problem, on which there is not yet full agree-
figures that we do have for the first three
manufacturing of dollars
more profitable to invest funds in the
ment, of how to increase world reserves in
quarters of 1967 and 1966 certainly indicate
lem.
dollar markets, in Euro-dollar
the future. This is a difficult problem because
very strongly that the big increase in the
And the second probl
than in New York. And foreign resi-
it implies that when you increase world re-
outflow of funds in the fourth quarter of
to that is the gold pro
will be free to do this, of course, unless
serves by fiat you have to decide who gets
1967 was speculative. There was no change
problem of the mechani
exchange control not only on
them, for what purposes they will be used
in the fundamental balance; in fact, in the
rently keeping a lid on
nationals but on the foreigners,
for, and so on. It gives us lots of difficult
first three quarters of 1967 there was a de-
The inflation problem 8
at once killing the New York market
questions.
cline in the outflow of direct investment
both require solution. TI
I don't think that we could even con-
The immediate problem which concerns us
capital.
requires responsible U.S.
such
measures.
is to prevent a sudden contraction of world
People in the Department of Commerce
well as responsible ]
the purchase of U.S. securities
reserves. At the time of the Rio agreement, I
have told me informally that they expected
policies. The gold proble
rather than here, securities floated
pointed out that we had really for four years
the errors and omissions item will be in the
agement of uncertainties
firms to finance their direct invest-
discussed essentially the long-run problem of
neighborhood of 81 billion, although that is
omy. Dr. Piquet mentior
programs, allows American firms to
how to increase world reserves in the future,
not official, of course. Now, if the problem is
it. There are other solu
to invest as long as they borrow the
but that we have not discussed the problem
speculation against the dollar, isn't that a
Holtrop of the Dutch C
abroad. But the money, the obliga-
of how to prevent their contraction.
psychological problem? Isn't it a monetary
peatedly said, we should
which they float in Luxembourg or in
We have discussed how many SDR's we
rather than a financial problem? Then what
tion about increasing th
or in Paris, may be subscribed to
should create and how many SDR's other
can we do to eliminate the speculation? The
must manage uncertaint
extent by foreigners who face alter-
countries should absorb, without saying any-
answer is to keep the dollar inviolate, that
Mr. GOODELL. At this )
of investing in New York or investing
thing about what would happen to the other
is, avoid inflation relative to other countries.
we move to the disting
So that this will not mean a net
two reserve components, gold and foreign ex-
This is essential. The President could have
any comments or quest
of $3 billion. It will mean a somewhat
change. And it is for us very difficult to make
announced on January 1 some curtailment of
would like to introduce
saving.
national decisions about how you will work
expenditures. We must choose between Viet-
search, of our Planning
and in a somewhat opposite di-
one piece of this paper machinery without
nam and the moon and agriculture subsidies
mittee, who is an inte
I would like to suggest that to the
knowing what happens to the other two. The
and all the rest. We can't have guns and but-
himself and an expert 0
that these measures are successful,
amount of SDR's that might be needed to
ter and Cadillacs and everything else and still
Dr. Patrick Boarman.
will have tremendous repercussions on
solve the liquidity problem would be very
not tax the people.
Dr. BOARMAN. Thank
countries. The United States hopes to
difficult to estimate if we continue to succeed
Now, then, if we keep the dollar inviolate
and guests.
its balance of payments by $3 bil-
in palming off dollars on Germany or Italy
in terms of confidence by whatever that pro-
I thought I would at 1
The British have taken measures and
or if, on the contrary, they decided tomorrow
cedure might be, and adopt a few other de-
to raise some general (
to improve their balance of payments
to convert them into gold. This is a problem
vices to try to take the incentive away from
might try to cope with
to $1.5 billion. That means a total of
that we tried bravely to sweep under the
the speculators in gold, that will help us sub-
remain.
$4.5
billion.
carpet at Rio.
stantially. There are steps that can be taken
The point has been ma
look at the estimates currently avail-
I said at that time that the current crisis
short of abandoning gold altogether, namely,
the United States has 8
the total surpluses of the rest of
of the pound and the dollar might eventually
throwing our entire gold supply into the in-
productive economy, the
for the first nine months of last
force us to put our nose in that dirt that
ternational breach.
in the world. But I thi
find that the Continental European
we tried to sweep under the carpet. I said
I understand we have gold in Fort Knox. I
made clear by a number
show surpluses of $700 million and
I hoped that on the occasion of the rescue
have never seen it but I am sure it is there.
in spite of this enormous
of the world about $350 million. This
operations in question, we would be able to
It certainly has no relevancy to the American
tivity that backs up t)
in all, a little more than $1 billion in
indicate how the three reserve assets would
dollars except as it reflects stability here at
what we confront today
be combined, how we would use gold, dollars,
home or the lack of it.
ity crisis, the crisis the
it would be very nice if our measures
and the new reserve assets to make possible
an orderly evolution of world reserves.
Why shouldn't we be good bankers and
firm, no matter how rich,
only countries with a surplus. But
just keep a straight poker face and pay out
its assets. If a business f
it succeeded in doing that, it will
I think that we should have concentrated
the gold as long as we have it. If we don't,
and can't meet the payr
a gap of roughly $3 billion or $3.5
first, therefore, on preventing large-scale
other countries are not going to shoot us,
doors. I think the analog
which will have to be met by putting
liquidation of dollar IOU's issued over the
countries in deficit. And, secondly. I
and we're not going to commit suicide. They
United States.
past fifty years under the gold exchange
will use dollars as long as the dollar is ac-
293-820-11713
03-820-11713
10
CONGRESSIONAL RECORD
CO
You in Congress are being urged that this
I think that this would not fail to pre-
That is moving into a different kettle of fish.
love the notion that there is an objective
If
has to be removed and you're being told that
cipitate the sort of crisis Dr. Bernstein men-
The whole question of financial responsibil-
measure of the proper quantity of money in
worl
this is of no significance domestically and
tioned.
ity is tied up with the mix of monetary and
the United States and the world as a whole,
thro
that it will strengthen the international po-
So, therefore, I think it would be com-
fiscal policy. With respect to the tax increase:
gold can't be it. This is because there has
erati
sition of the dollar.
pletely irresponsible at this stage for Con-
in 1966 I favored a tax increase and I think
been a zero increment of gold in recent
banl
But I think that you should go slow and
gress to refuse to move in that direction.
that in 1967 a tax increase would have been
years. With a zero increment in gold, there
eign
reflect on what you're doing. The 25 per
Mr. HAGEDORN. What do you think would
a good thing.
could be only a zero increment in domestic
lute
cent gold cover requirement 18 the only ex-
be the reaction of the international bankers
But the problem of predicting what is
money. Do you see what I mean?
to W
ternal impersonal limitation that exists now
if Congress took the position-now I am not
needed with respect to the tax increase is the
If you want an objective measure of the
is to
on the expansion of our domestic supply of
recommending this but I am introducing it
problem of predicting how the economy is
proper quantity of money, you have to find
Fun
money and credit. Without that the sky is
for discussion-if Congress took the position
going to look in seven or eight or ten months
something else.
ing
the limit and you are left to the discretion
that no, by God, we're going to stick to that
from now, and that is a very complicated
Mr. GOODELL. Mr. Dale, I don't know
TN
of the people who manage the money supply.
25 per cent if we have to deflate our economy
thing. It is a matter of projection. In my
whether you got an answer to your question.
not
Now, I have no reason to disparage the
to do it. What would be the reaction of the
view, the Administration has to have a little
You had a partial answer from Professor
Wh
trustworthiness or the sincerity of our money
international bankers to that?
flexibility. It may be that in two months or
Mundell. Professor Triffin, do you wish to
two
managers, but do we really want to be in
Professor TRIFFIN. Yes, but there are $16
three months' time, a $10 billion tax in-
add a clarification?
tion
a position where the only limitation on our
billion in claims which politically, at least,
crease will be far too much. It may be that
Professor TRIFFIN. My response is very
Agree
own domestic money supply is their own
and legally are convertible into gold. What
the economy ten months from now will show
simple. I do believe that, faced with the
Unit
judgment?
would happen if the next day or the next
signs of a serious downturn. And my own
present situation, we will have to choose
37 p
Now. it may be that as you explore this
week $3 billion is presented for conversion?
judgment at the present time is that a $10
between a cut in expenditure and an in-
deve
question you will decide that the immediate
Mr. HAGEDORN. Suppose we said we are
billion tax increase is too large.
crease in taxes. It 80 happens that I would
selv
arithmetic of the matter leaves you no choice
going to deflate our own economy 80 that
Mr. HAGEDORN. Bob, would you agree that
not want to make easier the avoidance of
T
except to remove or lower that 25 per cent
there will be great bargains to be bought
the removal of the gold cover is not getting
certain cuts in expenditures which are ob-
tern
gold requirement. But if that is your conclu-
in this country. Maybe nobody would want
at the basic imbalance in international equi-
viously necessary for other reasons, anyway.
of
sion, I think that you should also reflect
to take our gold; they would want to take
librium that we have here? It gives us more
Mr. DALE. But you are for reducing the
are.
on the fact that the expansion of our do-
our goods instead.
time but if we go on doing what we're doing
budget deficit in these circumstances?
If tl
mestic money supply is related to the ex-
Mr. GOODELL. Mr. Haberler would like to
and policies don't change, we could end up
Professor TRIFFIN. Yes, in those terms, yes.
will
pectation that when presented with this
make a brief comment.
in a couple of years with no gold at all.
Mr. GOODELL. Dr. Madden?
D
problem, the Congress would in fact remove
Professor HABERLER. I cannot get so excited
Professor MUNDELL. Well, I think there is
Mr. MADDEN. Yes, thank you.
I at
the 25 per cent requirement or lower it to
about this problem. I think I have a some-
a risk for foreign monetary authorities in
I would like to ask this question. I find if
gold
some degree.
what higher opinion of the intentions of
holding more gold, as the amount of gold
one interprets various time periods implicit
he
I would suggest in your study of the prob-
the foreign central bankers. Professor Triffin
the U.S. has continues to decline. To go back
in the remarks here, it is possible to agree
som
lem, that you should consider at least some
said they would be put on notice about our
to post-World War I days, the book "The
with everything that has been said, that is,
he
substitute for the impersonal limitation that
liquid liabilities. But they know already what
Golden Avalanche," written in the 1980's,
we have a gold crisis, we have a liquidity
don
has been imposed by a 25 per cent gold cover
these are and what the gold stock is.
points out that the joke in the 1920's was
crisis, we need a better system, the present
hav
requirement. It seems to me highly desirable
I think they know something else which
to ship all the gold in Europe to the United
program is necessary but it is bad. We've got
doll
that we have some sort of a criterion, some
was not mentioned, namely that the Fed-
States and then leave America holding the
it but we don't like it. We are powerful and
I
limitation. Now maybe, as a practical matter,
eral Reserve can at any time waive that
bag with all the gold, since Europe might
the dollar would probably be strong without
De
the thing to do when faced with the present
provision and, if I remember correctly, Mr.
have decided not to bring it back and to use
doing anything.
with
arithmetic, is to reduce the gold cover to
Martin has said on one or two occasions he
some other standard.
But one aspect of this whole question
righ
some percentage lower than 25 per cent, but
wouldn't hesitate to do it. And that could
After 1934, Congress raised the price of
which I would like to see the panel discuss
our
with the indication that we are not going
be continued indefinitely.
gold precipitating the golden avalanche that
further is the political aspect, in the sense of
the
to be talked very easily into lowering it the
Mr. GOODELL. Now almost everybody wants
occurred in the late 1935's. One can object
the struggle of nations to assert their own
to
next time. Or maybe you should think in
to be recognized. Dr. Piquet?
to that because it meant that Americans
interests while they are also attempting to
first
terms of some other formula that would
Dr. PIQUET. I think we have to correct a
were exporting goods and services abroad and
cooperate together.
E
limit the ability of the managers of the
misunderstanding here. As far as gold serv-
getting in exchange more gold for burial in
In this connection, someone has said that
the
money system to expand the domestic supply
ing as an impersonal regulator of the money
Ft. Knox. It is a poor investment to ship
if we can't manage our own money, why do
amo
of money and credit. Some sort of a sta-
outstanding, that died long ago. The 25 per
goods abroad and get back gold.
we expect that the International Monetary
pur
tistical formula may be the answer. I don't
cent gold cover is only against the Federal
Currently, world inflation has caught up
Fund can manage the world's money? I think
T
know.
Reserve notes outstanding, of which there
with the excessive increase in the price of
the interesting point in the question is that
crea
But at least we have a serious problem
are about 840 billion.
gold in 1934-35 and gold is now coming back
we have confiicts here in the United States
long
here. And I think you are being asked to act
The great bulk of the transactions in the
into its own as a strong international re-
about the amount by which the money sup-
affir
very precipitously, in a rush, and the sig-
United States-that which is the real engine
serve. If the United States raised the gold
ply should increase and the level of the
sho
nificance of this is being overlooked.
of inflation-is not the Federal Reserve notes
price today, we would have another golden
budget deficit or surplus, and so on. And we
for
Mr. GOODELL. Mr. Dale, do you want to
but bank credit. And the cover on that was
avalanche. We would have to import & lot
make errors such as in the present period in
beca
make a comment?
removed in 1965.
of gold but export goods and services to pay
which inflation is occurring at a more rapid
hav
Mr. DALE. I have a further question for the
Mr. HAGEDORN. But the currency bears a
for it. That again would be & very poor bar-
pace than we want. How then can we be sure
eno
panel members.
relationship to the expansion of credit, that
gain for the United States. And that is why
that the much more difficult conflicts of in-
tha
Am I correct that every member here,
is, the choice that the people of the country
the U.S. does have a responsibility to work
terest, seen most vividly in the case of the
I
regardless of their views on other things,
make in order to hold their liquid assets in
toward an international solution of the gold
French under the present circumstances, and
beer
favors a sharp reduction in our budget deficit
the form of currency or in the form of bank
problem. I don't think the Rio agreements
the real differences about whether we should
1962
and a tax increase to do it? Does anybody
credit.
even begin to touch the problem.
or should not be in Vietnam, can be recon-
tha
disagree?
Dr. PIQUET. There is very little currency
Mr. HAGEDORN. If I might just follow
ciled by the power arrangements in the Fund
sho
Mr. GOODELL. Members of the panel?
held.
through; isn't the gold problem really sim-
and the institutional arrangements in the
the
Professor TRIFFIN. I would not want to
Mr. HAGEDORN. Yes, but when bank deposits
ply a reflection of the economic develop-
Fund that would accompany the SDR's.
nev
answer that question and I don't want to
expand you can expect that the currency will
ments of the world? It isn't simply a symp-
Mr. GOODELL. Professor Triffin?
wor
go into the reasons why.
expand roughly in proportion.
tom of the changing relationships between
Professor TRIFFIN. I would like to answer
he
Mr. GOODELL. You would not want to an-
Dr. PIQUET. Yes, true. Oh, I will grant you
our productivity and world productivity?
that briefly. I think that you are perfectly
asse
swer the question?
that step by step in past years this imper-
Professor MUNDELL. Well, gold has be-
right. I am quite sure that nobody trusts
A
Professor TRIFFIN. No, because we have
sonal restraint has weakened further and
come an attractive commodity because, while
fully the management of money by anybody,
the
been asked not to.
further. Congress is being asked to take the
world prices of other commodities have gone
neither by the United States nor by the
coll
Mr. GOODELL. Oh, I see.
final step of destroying it altogether.
up in the past thirty years two or three times,
Monetary Fund nor by the French. This is
tecl
Professor TRIFFIN. But may I make a com-
Mr. GOODELL. Professor Mundell?
the price of gold has not gone up and 80
true everywhere.
Dr.
ment on the previous question, very briefly?
Professor MUNDELL. I would like to com-
gold is becoming an increasingly attractive
But, as I said once to Rueff, it would be
tha
While I sympathize very much with what
ment on both Mr. Hagedorn's and Mr. Dale's
metal in jewelry, in teeth, and for industrial
nice if we could escape our responsibilities
trac
you have said, quite clearly, removal of the
question. We have moved to a situation now
purposes.
because we will make mistakes. But it SO
stu
gold cover will not solve the basic problem,
in which the tying of the $10 billion in gold,
In the past three years there has been a
happens that man cannot avoid managing
by
that is quite obvious. It doesn't change any-
which is scarce internationally, directly to
substantial increase in the industrial use of
his own affairs. Neither God nor gold will
and
thing in respect to the basic reasons behind
domestic monetary circulation, will have &
gold. Other prices have risen to the point
manage them for him.
L
our deficit.
very severe impact on the use of gold
where industries are beginning to substitute
To be a little more precise about my an-
bre
On the other hand, I think that if the
throughout the world as an international
gold metal in airplanes and are using it for
swer to your problem: I would say this,
no
question had not been raised maybe we
reserve.
a wide variety of other industrial purposes.
really, that the alternative to some effort to
was
might have lived with it, although I doubt
I think it is going to be an extremely
Mr. BROCK. But aren't we more concerned
reach international agreement about the
war
it, really. But once the proposal has been put
heavy-handed weapon to force the Federal
with flow than with price? It is the flow.
management of the increases in world re-
I
before Congress, the rejection of that pro-
Reserve to suspend the gold cover. Congress
It is where the gold is going that is creating
serves which will be required in the future,
tra
posal by Congress would put central bankers,
has, after all, some control over what the
the difficulty, not its price.
(and which will be an increasing of credit
peo
many of whom now have become nervous
Federal Reserve policy is to be. Chairman
Mr. GOODELL. Mr. Bernstein said he had a
reserves because there isn't enough gold)
tiat
nellies, on notice that we have only $14 bil-
Martin has to justify his policy.
one-sentence comment.
would be to leave such a management func-
T
lion of gold to meet $16 billion of gold con-
I would like to make a comment on Mr.
Professor BERNSTEIN. There is a one-sen-
tion to the United States.
M
vertible claims.
Dale's question about the budget increase.
tence answer to this question. Much as we
293-820-11713
293-820-11713
CONGRESSIONAL RECORD
CONGRESSIONAL RECORD
I think the big problem is the balance of
a feasible alternative to the President's pro-
In other words, aren't you letting the tail
AFTER THE POUND: WHAT? OR AN INTERNA-
THE DEATH OF THE GOLD-EXCHANGE STANDARD
which $0.8 billion by France
ayments of the United States in the coming
gram? Is it possible now to cut the spend-
wag the dog almost entirely in your general
TIONAL MONETARY STANDARD: NETTHER GOLD
The gold-exchange standard is dead or dy-
by other countries), but wa
Now there have been conversations
ing, to achieve the domestic restraint that
attitude, that to take care of a long-run
NOR THE DOLLAR
here among the panelists that give
would bring the balance of payments around?
ing, but nothing else has taken its place yet.
by unprecedented foreign exc
problem you consider measures which would
the impression that we can't do anything
Who feels that we can do without these
result in a pretty strong deflating of this
(By Robert Triffin, Yale University)
It rested uneasily yesterday on two sources
lation by the underdeveloped
our balance of payments.
SUCCESS OF FAILURE?
of supply for needed increases in the world
THE DEBATE ON MONETAR
controls by sufficiently restrictive domestic
economy?
Some of the arguments that have been
policy which would not precipitate, we
Mr. GOODELL. Professor Bernstein?
The devaluation of the pound might have
reserve pool, essential to sustain desirable
Events have thus confirme
indicate that the balance of payments
hope, deflation and unemployment?
Professor BERNSTEIN. Well, I want to be the
opened a new era in monetary cooperation.
and feasible rates of expansion in world trade
the reluctant and belated rec
be solved by any measures because
Professor MUNDELL. In my view, I don't
first to say that I don't believe deflating
For the first time in history, meaningful in-
and production: (1) gold, and (2) gold-
official negotiators of the Gro
minute a country cuts down on its out-
think that the restorative measures pro-
would solve our balance of payments prob-
ternational consultations determined the
convertible foreign exchange. Both have
the IMF that neither gold nor
of dollars, presumably it brings about
posed will in fact improve the balance of
lem. Deflating is the one thing which would
new rate, prevented a spiralling of mutually
totally dried up in recent years.
ble foreign exchange could
immediate reduction in the inflow. Well,
payments. It will look as if they are going
make sure that demand abroad falls off as
defeating devaluations by other major coun-
Gold used to provide three fourths, or
upon to sustain indefinitely
simply
isn't
true.
to improve the balance of payments because
much as demand here. This is why I say some
tries, and elicited from them large credits
more, of global reserve increases. In spite of
serve requirements of expar
This is an emergency program. This emer-
when you put a tax on tourists or restrain
people here practically suggest that there
in support of the new rate. It could have been
increasing USSR sales, its contribution
world trade and production
program is designed to save 83 billion
the export of capital, it will certainly cut
are no solutions.
dropped to only one fourth in the quinquen-
that both of these traditio
a great, an unprecedented success in our
payments. On the liquidity definition, I
into these items. There is no question but
I would say that what I want to get out
nium 1960-1964, and has now become nega-
reserve increases have becom
groping for a new monetary order.
it probably will save $3 billion. On the
that a tax on tourists will mean that fewer
of this economy is that part of the demand
Instead it unleashed an equally unprec-
tive. Indeed it was already negative before
liance upon them threaten
settlements definition, it will not save
tourists will go abroad. It is the effects of
which is clearly excessive, which is infla-
edented wave of speculation, throwing even
the recent speculative gold rush. In the last
leash deflationary pressure
billion because of the reduction of bank
the restrictions that create the illusion that
tionary, which is the cause of the rise in
greater doubts than already existed as to the
twelve months for which estimates are avail-
feating trade restrictions on
to Europeans.
they are in fact improving the balance of
prices, which made our exports less competi-
survival of our international monetary sys-
able (July 1966-June 1967), private pur-
omy, but also to destroy the
The reduction of bank credit to Europeans
payments.
tive, which pulled in the import goods from
chases by industry, jewelers, dentists, hoard-
two currencies which used
tem. Why?
simply compel some of the New York
In the universities some very serious econ-
abroad to fill up the shortage of supply rela-
MARKET RIPPLES
ers and speculators ($1.7 billion) exceeded
gold-exchange standard.
to send their European borrowers to
ometric work has been done in this area.
tive to demand that we have been experi-
Market analysts concentrate their guess-
the total supplies coming to the market from
Four years of arduous nego
London branches. The London branches
The voluntary foreign credit restrictions pro-
encing.
new gold production ($1.4 billion), the dif-
succeeded, at the Rio de Jan
work on the day-to-day ripples that might
be told "you have got to take care of
gram, for example, has been subject to care-
As Mr. Triffin said, in 1964 we had an
quiet down tomorrow or be the beginnings
ference being met by a $300 million contrac-
the IMF last September, in pr
good European customer. We will give
ful analysis, and the upshot of the conclu-
enormous surplus on goods and services, on
of a maelstrom. They note the failure of the
tion in official gold holdings. Last month's
print for the deliberate crea
back some of your dollars we took from
sion of one study, which is coming out in
goods particularly. By 1966 we had dissipated
devaluation to restore so far full confidence
events will, of course, dig further-probably
international reserve asset,
So there will be a reduction of our
a Brookings book, is that the restrictions had
more than half of it.
in the pound and bring back to London a
by $1 billion or more-into the world pool of
necessary to supplement van
to Europe but also a reduction of our
no effect upon the balance of payments. They
Now our good friend, Mr. Piquet, has shown
substantial portion of the short term funds
monetary gold.
of gold and foreign exchang
orrowings from the dollar market.
had the illusory effect, initially, of changing
us that in the first three months of 1967 the
that flew from it in the preceding weeks,
Gold-convertible foreign exchange thus
agreement, however, must stil
Now, it is my opinion that the President's
the item to which pressure was applied, but
balance of payments was a little bit better,
months, or years. They see speculative unrest
provided the lion's share of new reserve in-
in legal form and hatch
rogram will be effective because such pro-
that after taking into account all the items,
excluding the bad items-I mean excluding
spreading from the pound to other cur-
creases: sixty-five percent of the total over
scores of Congresses and Par
can be effective for a year, or for a
no effect whatsoever was observable.
the items that went up, like military spend-
rencies, and particularly to the dollar. Private
the years 1960-1964. These foreign exchange
it can come into operation.
and a half. There are other reasons
I think we greatly exaggerate the impact
ing which he doesn't regard as in the current
reserves are overwhelmingly made up of dol-
new bird finally breaks out
gold purchases appear to have risen to rec-
thinking that the repercussions will not
of these measures. I would say that it is far
account. But he didn't, so far as I am con-
ord levels of possibly $1 billion, or more, in
lar IOU's. They were at first accepted-or
special provision will still
of the order that some people have sug-
more preferable to do without these meas-
cerned, prove that it was any good before it
or even to walk until the Un
the month following the pound devaluation.
even eagerly looked for-by other countries,
The big point is, if we get this sav-
ures than it is to put these measures into
got better, and that is our problem.
Who is to blame? And how long can this last
the United Kingdom have ST
because they carried substantial interest-
for a year, how can we make sure that
effect, and that in the long run (i.e., the
We have had inflation and it is, strictly
without forcing an official, or unofficial, in-
earnings, unavailable of course on gold
minishing substantially-or
permanent improvement in our balance of
next year or two years) the balance of pay-
speaking, along with the war, the principal
entirely and durably-their
cause of the deficit. Therefore, we have to
crease in the price of gold?
metal, and could be converted at will into
ayments will secured? We need a stronger
ments will be worse on account of these
sistent reserve deficits.
solve the problem by getting rid of the infla-
CULPRITS OR SCAPEGOATS?
gold by their holders, without any question
of payments, but not through con-
measures. The effectiveness of aggregate
President de Gaulle kindly offers himself
or embarrassment whatsoever.
I ventured to predict at th
Controls are only a device to carry us
policies, of appropriate monetary and fiscal
tion, not by deflating.
Rio Agreement would do little
hrough an emergency.
policies is several times more important than
Mr. GOODELL. A distinction between defla-
as a convenient scapegoat for what happened.
This system was killed, several years ago,
therefore, to solve the more 11
The longer range thing has to be a domestic
the particular attempts to control one item.
tion and disinflation?
He started his gold purchases several years
by our brilliant Undersecretary of the Treas-
lems raised by the storm
on credit, a domestic policy that won't
I don't need to list the gaps that are involved
Professor BERNSTEIN. If you want to use
ago, allowed-or stimulated?-press leaks
ury, Mr. Roosa, when he was forced-for very
around the pound sterling,
us too much domestic money creation,
in these credit restraint programs-the Can-
that old-fashioned term,
that alarmed speculators, refused to cooper-
good reasons indeed-to appeal to "inter-
wave of bearish dollar specu
domestic fiscal policy which will make
ada gap, the Panama gap, the substitution
Mr. GOODELL. Dr. Piquet?
ate fully with others in financing the reme-
national cooperation" in order to apply the
sterling devaluation might un
that we don't spend too much at home
effects that work throughout the economy,
Dr. PIQUET. One word about using the word
dies which we favored ourselves to get us out
brakes on gold conversions which might top-
"deflation" so fast and loose. There is little
ple the system by raiding the gold cellars of
world. I added optimistically
a wage and price policy which assures us
the effect upon foreign economic policies,
of the hole. Others blame the British for
these forthcoming crises woul
we will remain competitive in world
etc. When you aggregate these together and
emphasis here, but not enough, on the neces-
having waited too long, and for having bun-
Fort Knox. In 1949, these were overflowing
ternational rescue operation
arkets.
combine them with the increased speculation
sities of international adjustment through
gled by not closing the exchange market on
with about $251/2 billion of gold and another
finally force us to deal realis
Now, if we supplement this action program
that this leads to with respect to gold, as
the forces of the market. We did have, as
the day preceding the devaluation rather
$1½ billion of net claims on the Interna-
problem which the negotiate
real economic measures, then I think
Professor Haberler pointed out very care-
was pointed out, under the old gold stand-
than on the following Monday. As for the
tional Monetary Fund, while our gold-con-
tried to sweep under the carp
in good time, with the end of the war
fully, we have the beginnings of a concealed
ard a tolerable degree of adjustment via
new wave of speculation which rocked the
vertible debt to foreign central banks barely
tionship of the proposed ne
Vietnam, with the normal growth of
devaluation. Once you get to a whole system
trade without deflation. Adjustments do not
market from December 11th through Decem-
exceeded $3 billion. In the following years,
to the former ones, the role
trade, and above all, with a better
of controls, what governments typically do-
occur in aggregates; adjustments occur al-
ber 18th, they ascribe it to the unprecedented
our net monetary reserves dropped grad-
lars and sterling would cont
nderstanding of how much of a so-called
and the British government is the best exam-
ways at the margin.
gate-crashing of the jealously closed club, or
ually from their 1949 peak ($22.8 billion) to
future reserve creation, and
we can carry without disturbing the
ple of this-is say, "Well, now we need to
Now, this leads us into liberal trade policy
Mecca, of central bankers-the Bank for In-
$10.9 billion in 1959 and minus $3.2 billion
inherent vulnerability of the
international monetary system, we'll
change the price of gold or we need to change
philosophy. By increasing imports (or ex-
ternational Settlements-by our Undersec-
in June of this year. The net reserves of both
den or massive conversions f
a good strong balance of payments
the exchange rate so that we can get rid
ports), we do not necessarily provoke un-
retary of the Treasury, and to rumored U.S.
reserve centers together-the United States
change into gold.
controls.
of all these restrictions that we've built up
employment. There is a shift, there is an
proposals to seek agreement on various ways
and the United Kingdom-and of the other
That is the way I look at the problem.
in the process." This is a policy of 50 or 75
adjustment of workers from one line to an-
to close speculators' access to gold at the
countries were about equal (approximately
The much heralded opposit
Mr. GOODELL. Dr. Boarman wishes to pose
underdeveloped countries with inconvertible
other, as the AFL-CIO has itself pointed out.
present price, thus inducing them to scurry
$17 billion) in 1949, but the first had dropped
tween the United States and
question to the panel.
currencies and I don't think it is the policy
Mr. GOODELL. Ladies and gentlemen, I
before the door was locked in their face.
by mid-1967 to minus $9 billion or $10 billion,
had blocked agreement for S
indeed on this issue. The U.
Dr. BOARMAN. We are drawing toward the
that the United States should follow.
think we have drawn to the furthest extent
The new and drastic U.S. balance-of-pay-
while the second had risen to well over $50
Mr. GOODELL. Gentlemen, we are getting
now of our time. And I want to say first
ments program unveiled on January 1st was
billion.
cally to discourage the conve
of our discussion this morning and we
into gold, but wished also to
it seems to me, discussed a number of
near the end here. It is the normal approach
of all that we are very privileged to have
obviously timed to ward off the further spec-
Sterling, and even the dollar, no longer
as possible our chances to
We mentioned briefiy devaluation;
to have ladies go first; in this instance I
had such a distinguished group of panelists
ulative wave that might have been expected
looked quite "as good as gold," and foreign
least, of our future deficits
not considering that.
apologize, Mrs. Jager, you will have the privi-
and observers here.
otherwise from the public announcement of
countries became increasingly reluctant to
dollar accumulation by
We have the option of trying to get other
lege of going last, and maybe that is a good
I want you also to know that you've not
the unprecedented gold drain from Fort
pile up further-and less and less easily
banks, up to undetermined ai
ountries to help us in terms of creating
spot to be in.
been talking to yourselves. At one point this
Knox in December: $295 million in a single
"gold-convertible"-sterling and dollar IOU's.
as we maintain that position
international liquidity; and I think
Mrs. JAGER. I guess it is best that it is last
morning, before we got the quorum calls,
month.
They were more and more inclined in-
cult indeed (1) either to exact
has been agreement that this is not a
because my question really relates partly to
I counted fifty members of Congress in the
TWO BASIC ISSUES
stead to convert them into gold, if they
echanism which in the long run can cope
Mr. Madden's comment on the difference be-
All this makes fascinating copy indeed for
could or dared, or in gold-guaranteed claims
governments precise commi
audience, so hopefully some of this has been
a chronic on-going imbalance between
tween the short-run and the long-run. This
absorbed in places where it can do some
the newspapers, but throws little light on the
on the International Monetary Fund. In the
creation and absorption of
United States and the rest of the world.
is a confusing factor which would seem to
basic issues that will determine the ultimate
last two and half years-from the end of
sets which might conceivably
good.
We have two other options which are left,
preclude the reaching of any policy conclu-
outcome of the present crisis: the death-
1964 through mid-1967-they converted the
excessive and inflationary,
And we were also privileged to have here
either the controls which the Presi-
sions by a Congressman, from the advice of
entirety of their current reserve gains ($4.4
accumulation, or (2) to er
the Deputy Assistant Secretary of the Treas-
throes of the present gold-exchange stand-
has suggested, or the adjustment of
the panel.
ury for International Affairs, Mr. John
ard, aggravated and accelerated by the huge
billion) and some ($0.2 billion) of their
propriate safeguards against
policy, in respect to aggregate
But even more interesting to me is the
Petty.
and persistent deficits of the two countries
previously accumulated foreign exchange
sive liquidation into gold of
pending, fiscal restraint, monetary restraint,
combination of psychological and political
Along with the rest of us, as a listener
whose national currencies serve as interna-
holdings into gold ($2.4 billion) and claims
currently accruing to foreign
wage and price restraint. Although I
judgments and also timing judgments on
and a learner, I certainly learned a great
tional reserves for others, 1.e. the United
on the IMF ($2.1 billion). Foreign exchange
or already accumulated by
it that Mr. Bernstein would not un-
the part of the panel. Doesn't it seem a mat-
Kingdom, and primarily today the United
liquidation by developed countries even
long years of functioning
erstand by that that the imposition of wage
ter of some importance that the adjustments
deal and I thank all of you for taking the
price controls on the economy.
that most of the panel seem to find neces-
time and the effort to be a part of this panel
States.
reached the huge total of $2.8 billion (of
exchange standard.
Professor BERNSTEIN. I don't want any con-
sary in the domestic economy might fall with
this morning.
293-820-11713
I want good policies,
rather undue weight on certain sectors of
The meeting is adjourned.
Dr. BOARMAN. I agree. Do we have a
this economy; doesn't this seem to you to be
(Whereupon, at 12:40 o'clock p.m., the
here, on the panel, that we do have
an important aspect in this consideration?
meeting was adjourned.)
293-820-11713
CONGRESSIONAL RECORD
15
14
CONGRESSIONAL RECORD
EVOLUTION OF THE U.S. BALANCE OF PAYMENTS, 1964
3. This $4.1 billion deterioration in our
ceilings established, but much of this financ-
THE DOLLAR AREA ALTERNATIVE TO INTER-
economic chaos of the 1930's. Public opinion
de Gaulle will not be alone in preferring
TO SEPTEMBER 1967-Continued
"net worth" balance has been absorbed pri-
ing will come from foreign funds withdrawn
NATIONAL AGREEMENT
would soon awaken-or be awakened-to the
gold, especially as long as our absurd and im-
from New York or which would otherwise
marily ($3.7 billion) by & sharp decline in
These financial disagreements have now
political implications of such a system, i.e.,
moral venture in Vietnam perpetuates defi-
have been placed in New York. Moreover, our
Yearly
our capital exports ($1.5 billion) and an even
rate,
been compounded and magnified by the
the forcible financing by foreign central
cits of several billion dollars a year in our
hopes to improve our balance by $3 billion
larger increase in our capital imports ($2.2
Janu-
Differ-
billion). Both were mostly due to steep in-
political implications of continued dollar
banks and their nationals of whatever defi-
balance of payments.
and Britain's hopes to improve its balance by
ary-
ence
accumulation by foreign central banks. Our
cits we may incur in pursuing policies uni-
The most urgent task confronting us at
$1.2 billion are unlikely to be matched by an
1964
Sep-
creases in interest rates here. Only the capi-
Secretary of the Treasury called for such
laterally decided by us, even if these policies
accepted deterioration of $4.2 billion either
tember
tal exports of U.S. residents were affected by
this juncture is not so much to expand im-
1967
accumulation, particularly by the surplus
entered into conflict with their own views
in Continental Europe, whose surpluses
the interest-equalization tax and the "volun-
mediately the world reserve pool as it is to
countries of Continental Europe, as an in-
of world interests, or of their own national
totalled less than $700 million in the first
tary" restraints program. While U.S. banks'
arrest the contraction now triggered by wild
dispensable cooperation for the financing of
interests.
-3.9
-.4
loans declined by $1.7 billion (or two-thirds)
flights into gold by speculators whom central
three quarters of last year, or in the rest of
B. Settlements deficit (-)
-3.5
our direct investments abroad and of the
It is true that we similarly financed our-
bankers themselves might imitate tomorrow
the world where they barely reached $350
between these two years, direct and port-
Debt prepayments, etc
-.4
-.3
+.1
defense of the "free World" not only in
selves, in the Marshall plan and early NATO
if they finally lost their nerve. The way to
million. New troubles and spiralling of re-
folio investments continued to rise, by $1
2. Reserves and liquidity
Europe, but also in Vietnam. Negotiations
days, the huge deficits of the European coun-
do this is not to close the private gold mar-
strictions are likely to be forced upon other
balance
-3.1
-3.6
-.5
billion.
aiming at offsetting the foreign exchange
tries. These deficits, however, were associated
ket, merely transferring its activities thereby
countries by our measures, just as they were
4. The remainder of the deterioration of
costs of the stationing of our troops in Ger-
with policies on which we all agreed: the re-
to black or grey markets as in the late 1940's
forced on us by the aftermath of the British
(a) Dollar balances abroad.
+.8
our "net worth" balance ($0.4 billion) was
(b) Net official reserves.
-1.5
-2.9
many ended up, last March, with a German
construction of a Europe ruined by the sec-
and early 1950's. It is to warn speculators
devaluation.
absorbed by our "settlements balance." Our
"declaration of intention" promising appar-
ond World War, and left as a tempting prey
that central banks no longer need gold as
As for our own longer run aims and
deficit official settlements (net reserve
ently broader and unlimited dollar accumu-
for Stalinist aggression or subversion. It is
their ultimate reserve asset, are ready to use
policies, the new program confirms, but does
EXPLANATION
losses) increased far more, however (by $1.3
lation and retention to avoid undesirable
abundantly clear that many Europeans do
instead of a new reserve asset jointly created
not resolve, the dilemma highlighted above:
1. The change in the U.S. international
billion) owing to the reduced accumulation
disturbances in the gold markets. Substantial
not agree today with the policies of our Ad-
and managed by them, and are therefore able
1. It can-and I hope should-be inter-
of dollar balances by foreigners other than
preted as a laudable and long overdue at-
"net worth" (exclusive of reinvested earnings
increases of foreign exchange reserves since
ministration in Vietnam, and that some of
and willing to dump in free gold markets the
last March, not only in Germany ($172 mil-
them strongly object to what they regard
billions of dollars of sterile gold which they
tempt to pave the way for a quicker and
and price changes not recorded in balance-
monetary authorities and the IMF.
now hold.
of-payments statistics)
5. Our gold losses remained moderate dur-
lion through November), but also in Italy
as an excessive penetration, or take-over, of
fuller agreement on a negotiable plan for
their industries by American capital. They
international monetary reform, by meeting
(a) reflects the excess of our current ac-
ing the first eleven months of this year ($270
($845 million), Belgium ($307 million), the
This may well indeed correspond to the
count (primarily trade) surplus over our for-
million) but reached a record $981 million in
Netherlands ($274 million), etc., in sharp
may be wrong, but it would be highly un-
ultimate objective of the new gold pool plans
the European objections to our huge and
December alone, thus totalling $1251 for the
contrast to previous reductions, suggest that
realistic to expect them to finance indefi-
persistent deficits. It even centers our pro-
eign aid expenditures which finance it in
rumored to have been proposed at Basle by
year as a whole, and reducing our "free gold"
similar bargaining pressures may have been
nitely policies on which they have not been
Undersecretary Deming earlier this month.
posed measures on an effort to reduce dras-
part;
stock to about 81.4 billion, 1.e. an amount
exercised on these countries to bolster up
consulted and with which they may at times
To make such proposals truly negotiable,
tically the splurge of direct investments
(b) is. in turn, reflected in changes in vari-
that could easily be absorbed in less than a
their flagging interest in dollar accumu-
deeply disagree.
however, we must stop overplaying our hand
which some of them have denounced as
a
ous U.S. assets and liabilities, classified here
year by future deficit settlements combined
lation and deter them from excessive gold
The ultimate outcome of such short-
as we have done 80 often, and at such costs,
"take-over" of their industrial establishment
under:
with normal money supply increases, to say
conversions.
sighted U.S. policies could only be to arouse
over the last eight years.
by American capital.
(1) assets and liabilities other than those
nothing of another speculative gold rush
We may be slipping unwittingly indeed, by
sharp political, as well as economic, divisions
We cannot realistically expect to negotiate
2. The plan could also be interpreted, how-
regarded as settlements and entering the
similar to that of last December.
gradual steps whose ultimate outcome 1s
between the United States and Europe, as
ever, as a further move toward a "dollar
various measurements of our so-called "over-
any agreement that would enable us to elude
CONCLUSIONS
hardly suspected-a was the case for our
well as many other countries. More and more
indefinitely the correction of our persistent
area" solution, discriminating in favor of the
all" deficit;
Vietnam escalation-toward a most radical
countries would desert, sooner or later, the
countries which refrain from converting
1. The removal of the remaining gold cover
balance-of-payments deficit either through
(11) our "settlements deficit," defined here
their dollars into gold-i.e. the underdevel-
requirement has become a matter of great
solution of our balance-of-payments diffi-
dollar area, and erect compensatory barriers
bilateral palming-off of further dollar IOU's
in a way approximating the "balance on reg-
culties. Influential banking voices have re-
against the "foreign-exchange dumping" as-
on foreign central banks, or through large
oped countries, the United Kingdom, Canada,
ular types of transactions" whose publica-
urgency, but will not, of course, arrest our
cently joined the chorus of academic writers
sociated with the downward drift of a float-
and automatic earmarking in our favor (26
Japan, Australia, etc.-and against those,
tion has been suspended. This includes:
huge and persistent deficits.
calling for a demonetization of that barba-
ing dollar-no longer supported by central
"principally Continental Western Europe,"
2. The January 1st program aims at "sav-
percent) of the new reserve asset proposed
rous relic: gold. We could do this unilater-
bank purchases-in the exchange market.
which refuse to finance our deficits in this
(a) inter-governmental settlements, re-
ing" about 83 billion of foreign expenditures
at Rio, but which is unlikely to see the light
lated to debt prepayments, military exports,
ally, by suspending formally gold purchases
Economic warfare à la 1930's between a new
way.
by American residents. A substantial por-
of day as long as our deficits continue on
etc. primarily designed to reduce our reserve
as well as gold sales, or, more informally, by
gold bloc and a shrinking dollar-sterling
the present scale. We might be forced, like
I suspect that the Administration itself re-
tion of these savings, however, is likely to be
losses;
raising various forms of restrictions-on cap-
bloc would replace the economic cooperation
other countries, to accelerate the re-equili-
mains deeply divided as to which of these two
offset by:
ital, and even on current account transac-
that has assured our joint prosperity ever
directions it will take in the forthcoming
(b) changes in our net official reserves
bration of our accounts, and to finance our
(a) withdrawals of funds by foreign resi-
tions-against countries which insist on
since the end of World War II.
months. Indeed, it might be forced into the
(gold, foreign exchange and claims on the
tapering-off deficits through gold losses and
dents, or reduced investments of foreign
cashing their dollars for gold. Many coun-
recourse to our still huge drawing rights
second if the surplus countries of Continen-
IMF, minus our liabilities to the IMF and to
funds here, because of:
ROUNDING UP THE RIO AGREEMENT
tries might then prefer-according to this
tal Western Europe failed to respond con-
foreign monetary authorities) and in other
The agreement reached at the Hague be-
($51/2 billion) on the International Monetary
(1) higher interest rates abroad, as a re-
reasoning-to finance our deficits through
tween the EEC countries, and later expanded
Fund. We can, on the other hand, reasonably
structively to the first. An international solu-
foreigners' liquid dollar holdings ("dollar
unlimited dollar accumulation, since their re-
tion to what 18, after all, an international
balances"). The distinction recorded here-
sult of the curtailment of U.S. capital
fusal to buy and retain the dollar overflows
into the Rio Agreement of last September,
expect to negotiate an agreement protecting
was largely a sane, last minute reaction to
us against the danger of massive conversions
problem will require their cooperation as
and in the Survey of Current Business-be-
exports;
would either expose their industries to severe
the abyss which was opening before the eyes
well as ours. Neither is insured as yet, even
tween these two very different components
(11) purchases of U.S. securities abroad-
into gold of the huge indebtedness incurred
U.S. restrictions, or to unbearable competi-
is blurred by the inadequate recording of
rather than here-floated by U.S. firms de-
of the negotiators as a result of the unrea-
by us over the last half century of function-
though the consequences of the nationalistic
central banks' Euro-dollar claims, and can
sirous to pursue their direct investment pro-
tion with U.S. producers whose costs would
sonable and incompatible so-called "nego-
ing of the absurd Monte-Carlo roulette dig-
alternative favored by some, on both sides of
be extremely misleading at times.
grams (such investments being exempted
be slashed by the depreciation of the dollar
tiating positions" previously adopted by
nified under the name of "gold-exchange
the Atlantic Ocean, would be as disastrous
in terms of their own currency.
standard."
2. Increases in U.S. assets and decreases in
from the new ceilings when financed by
France and the United States. Substantial
for all in the late 1960's as they proved to
Other instruments of persuasion could even
concessions by the French rallied unanimity
be in the early 1930's.
U.S. liabilities appear here as positive-and
foreign borrowings);
I am deeply convinced, for my part, that
decreases in assets or increases in liabilities
(iii) possibly, though not likely, because
be brought into play, if necessary: sharp cuts
in our foreign aid to some, in our military
within the European Economic Community
the U.S. national interests, as well as those
of the world, will be served far better in this
EVOLUTION OF THE U.S. BALANCE OF PAYMENTS, 1964 TO
as negative-while the opposite convention
of fears of a future extension of U.S. con-
trols to non-residents as well as residents.
supplies to others, etc.
in favor of solutions acceptable to the United
SEPTEMBER 1967
way than by protracted delays and ultimate
is used by balance-of-payments bookkeepers.
The discriminations established by our new
States, and far preferable indeed to the "un-
dermining" of the international monetary
failure of negotiating aims unacceptable to
BRIEF COMMENTS
(b) the unfavorable impact upon our cur-
balance-of-payments program between three
other countries, or by short-sighted attempts
Yearly
groups of countries might easily indicate a
rate,
1. Information about the disastrous fourth
rent account of the U.K. austerity program,
system alluded to by Secretary Fowler at
of the direct deflationary impact of both the
further and major step along this road, as
Pebble Beach, on March 17th, 1967.
to extract unlimited financing from reluc-
Janu-
Differ-
quarter of last year is not yet available, and
U.S. and U.K. programs (aiming at a $4.2
tant partners in any "dollar area" scheme, or
1964
ary-
ence
the estimates for 1967 are for the yearly rates
they may induce countries to escape, or alle-
Having agreed, however, on the need for
improvement in their combined balance of
viate, our restrictions-shifting their status
by the monetary chaos and economic war-
Sep-
a new reserve asset, we should now try to
of the first three quarters seasonally adjusted.
tember
payments) upon foreign countries, and of
from "hell" to "purgatory" or "heaven"-by
accelerate-or anticipate-its creation, not
fare which either of these techniques would
1967
2. Instead of increasing by $3.9 billion as
the policy measures which some of them may
agreeing to limit their dollar conversions, or
so much to expand present levels of world
be bound to unleash, in the end, upon a
in 1964, our international "net worth" was
adopt in order to reduce their consequent re-
even to sell us gold against further piling-up
liquidity, but to prevent their contraction
world in which we are condemned, and must
Current account
7.6
-3.5
declining in 1967 at an annual rate of $200
serve losses. The combined overall surplus
of dollar IUO's.
through flights into gold by either specula-
learn to live together.
B. Minus foreign aid.
3.7
million. This $4.1 billion reversal must, with-
of all other countries in the first nine
There is little doubt that we could easily
tors or central banks or both.
out any doubt, be ascribed primarily to the
months of 1967 was estimated at about $1
THE JANUARY 1 PROGRAM
repeat in this manner the disastrous experi-
The new reserve asset can be made vastly
Change in international "net
direct and indirect impact of the Vietnam
The new restrictions announced on Jan-
worth" (A+B)
3.9
-.2
-4.1
billion only, and the U.S. and U.K. measures
ence of Britain with her sterling area. We
more attractive to central banks, and more
war on our economy.
will unavoidably affect some countries al-
could force even more countries into a dollar
acceptable to their politicians and public
uary 1st are primarily a hurried response to
A. Net capital assets
7.4
3.7
-3.7
Total costs of the war are currently esti-
ready in a weak balance-of-payments posi-
area, large enough to absolve us of any future
opinion, than mere sterling or dollar IOU's.
our immediate concern: plug the dramati-
mated at about $24 billion a year and ex-
tion. Their difficulties, and the measures
cally widening gold leak from Fort Knox.
1. U.S. assets
6.5
5.0
-1.5
worries about our balance of payments.
Contrary to widespread opinion, it can also be
pected to rise to about $28 billion in the next
which they would be impelled to take, would
At least, for a while! And at the cost of
made as safe for them as gold itself.
They may do so in the short run, even though
(a) Direct Investment
2.4
2.9
+.5
fiscal year. Direct foreign exchange costs are
in turn spread to others, as in previous
building up a tidal wave which would be
As long as it is not available, however,
the net "improvement" to be expected from
(b)
Portfolio
Invest-
estimated (conservatively?) at more than 82
them is likely to remain far short of the $3
ments
1.2
+.5
spirals of international deflation and re-
certain to engulf, sooner or later, such "dollar
for reserve accumulation, and the practical
billion. Indirect costs-diversion of export
(c)
U.S. banks' loans
2.5
strictions.
imperialism" into a renewal of the divisive
choice for reserve holders remains con-
billion optimistically aimed at. Direct invest-
Other
1.0
.3
capacity to military production, increased
and destructive international monetary and
stricted to either gold or dollars, President
ments financed abroad are exempt from the
imports, inflationary impact diminishing U.S.
3. The problem calls for two complemen-
2. U.S. liabilities (-)
-2.3
-22
competitiveness in world trade, etc.-are dif-
tary lines of attack, neither which can suc-
293-820-11713
3. Errors and omissions
.9
.9
ficult to estimate, but may be even higher.
ceed without the other:
293-820-11713
16
CONGRESSIONAL RECORD
CONGRESSIONAL RECORD
17
(a) internationally agreed measures ur-
years. Essentially this means that the earn-
bring down the dollars we pay out to for-
THE NEW ACTION PROGRAM ON THE U.S.
be restored quickly in order to safeguard the
and Finland. The regulations place a "mora-
gently needed to prevent a further contrac-
ings from our trade surplus and foreign in-
eigners to the amount they want to spend
BALANCE OF PAYMENTS
U.S. economy and to prevent a breakdown
torium" on transfers of capital to these
tion of existing reserve levels through fur-
vestments have not been sufficient to pay for
and invest here.
January 18, 1968
of the international monetary system. The
countries in the form of new funds from the
ther liquidation of dollar and sterling re-
our foreign investments and the aid and over-
The view that it would be painless to re-
(By Edward M. Bernstein)
new action program presented by the Presi-
United States. However, a direct investor
serves into gold metal, and indispensable in
seas military expenditures of the Govern-
store our balance of payments by letting
dent is a severe one. The objective is to
may reinvest annually in these countries up
SUMMARY AND CONCLUSIONS
the longer run to provide adequate
ment. Every President since Eisenhower has
the dollar depreciate in a free market is an
achieve an improvement of $3 billion in the
to 35 per cent of the average of his total
growth in world reserves through concerted
taken some action to strengthen the
illusion. All that a depreciation of the dol-
In a new year's message to the nation,
balance of payments in 1968.
investment (transfers and reinvested earn-
reserve creation and their use for interna-
balance of payments. Despite this, only a
lar would do is to allocate the effects of the
President Johnson announced a new action
The need for more effective measures to
ings) during 1965 and 1966, provided this
tionally agreed policy objectives;
moderate and temporary improvement was
reduction in U.S. foreign spending in &
program to improve the balance of payments
restore the U.S. payments position has been
does not reduce remitted earnings to a
(b) early correction of our huge and
achieved. In the past two years the problem
different way. In this country, it would place
by $3 billion in 1968.
evident for some time. A more rigorous vol-
smaller percentage of his share of direct
persistent deficits of the last eighteen years
has become more acute-partly because of
the greatest burden of adjustment on the
The regulations on direct investment limit
untary program had been instituted prior
investment earnings than the 1964-66
(more than $47 billion), and the recognition
the costs of the Vietnam war, partly because
consumers of import goods-through higher
capital transfers plus reinvested earnings in
to the devaluation of sterling. In the first
average.
that residual deficits should be financed from
of the inflation of 1965-66.
prices and smaller supplies. Abroad, it would
the less developed countries to 110 per cent of
three quarters of 1967, the balance of pay-
our own reserves and borrowings from the
The devaluation of sterling weakened con-
place the greatest burden of adjustment on
the 1965-66 average in these countries for
ments was somewhat worse than it had been
1. CAPITAL TRANSFER FOR DIRECT INVESTMENT,
IMF, or through other multilaterally agreed
fidence in currencies generally and in the
the countries that depend on exports to us.
each direct investor. For the United King-
in the same period of 1966, omitting special
SCHEDULE C, 1965-66
procedures, rather than through further
dollar particularly. Speculation reached fever
Canada, Japan, and the United Kingdom,
dom, Canada, Japan, and Australia, and for
transactions in both years. The modest in-
piling up of dollar balances by increasingly
pitch in the gold markets of London, Zurich
which have balance of payments problems of
the oil-producing countries outside the West-
crease in the trade balance was more than
(In millions of dollars]
reluctant lenders.
and Paris. There was imminent danger of a
their own, would find their position intol-
ern Hemisphere, capital transfers plus re-
offset by increased military expenditures in
4. The first of these two remedies could
breakdown of the international monetary
erable. They would have no alternative ex-
invested earnings are limited to 65 per cent
Vietnam and by larger capital outflow. The
1965
1966
be implemented through the strengthening
system. The speculation was brought to an
cept to let their currencies depreciate too.
of the 1965-66 average in these countries for
failure of the trade balance to increase by
of the existing gold pool (see my proposals
end through the cooperative action of the
Even some of the surplus countries of Eu-
each direct investor. In the other highly de-
more than $500 million in 1967 was particu-
Common Market
857
1,140
in this respect in Contingency Planning for
countries in the gold pool, but only after sev-
rope would feel the depressing effects of a
veloped countries, mainly continental Eu-
larly disappointing. Despite the slowdown,
U.S. International Monetary Policy, Joint
rope except Finland and Greece, there is a
the U.S. economy continued on a high pla-
Belgium and Luxembourg
117
122
eral hundred million dollars had come out
reduction of their exports to us. In order
Economic Committee, December 1966, pp.
of our gold reserves.
to maintain production and employment,
moratorium on capital transfers, but each
teau, with an increase of imports, while sev-
France
152
93
133-144, brought up to date in the accom-
So long as other countries keep acquiring
they would probably let their currencies go
direct investor may reinvest earnings up to
eral other leading industrial countries were
Germany
359
614
Italy
158
150
panying paper), and the later activation of,
a surfeit of dollars, there is danger of a re-
down to the previous dollar rate. In the end,
35 per cent of his 1965-66 direct investment
in a recession, thus holding down the growth
Netherlands
71
161
and amendments to, the September 1967 Rio
newed flight into gold. Unless we restore the
a depreciation of the dollar would bring im-
(capital transfers plus reinvested earnings)
of world trade and U.S. exports.
Agreement (see my testimony, Novem-
provement in the balance of payments in
in these countries, provided this does not
The devaluation of sterling in November
Other specified countries
293
236
strength of the dollar, which is one of the
reduce remitted earnings below the 1964-66
1967 resulted in a sharp change in the pay-
ber 22, 1967, before the Subcommittee on
pillars of the international monetary system,
the wrong accounts and from the wrong
Denmark
24
ments situation. The United Kingdom had
International Exchange and Payments and
it will be impossible to avoid widespread
countries at the cost of serious monetary and
average.
Norway
The limitations on direct investment will
to sell some of its dollar investments to re-
Spain
109
the Subcommittee's Report of December 6,
monetary disorders. The remarkable prosper-
economic disruption.
1967). International agreement on these
ity of the postwar period might then end in
To put it plainly, there will be some hard-
not create balance of payments problems for
plenish its reserves. Other foreign funds
Sweden
58
flowed out of the United States to continen-
Switzerland.
151
short-term and long-term reforms of the
a disastrous world-wide deflation as it did in
ship from a reduction of U.S. payments by
the surplus countries of continental Eu-
rope, but will cause difficulty for some others.
tal Europe, Two bursts of speculation in gold
present reserve system would, by itself, bring
the 1930's.
83 billion no matter how it is done. The
Other continental Europe
45
The limitations will also be burdensome for
necessitated large support operations by the
South Africa
quick and rapid improvements in our bal-
These are the facts and the fears that
action program minimizes the impact on the
the United Kingdom, Canada, Japan and
gold pool, and after the withdrawal of France
ance-of-payments situation. It would pro-
underline the President's action program.
world economy. Except for the proposed tax
the U.S. share in the pool increased from 50
Total
1,193
1,442
tect our dwindling reserves against wanton
The program imposes a reduction of 81 bil-
on tourist travel, it does not restrict any
Australia. There is no reason to expect the
lion in U.S. direct investment abroad. It
trade in goods and services. Even the re-
limitations to cause balance of payments dif-
to 59 per cent. U.S. net gold sales to foreign
liquidation of IOU's incurred over many
years past. It would discourage the gold bulls
requires a return of $500 million to this
ficulties in the less developed countries. On
countries, which were only $77 million in
Includes countries such as Austria, Portugal, and Turkey in
straints on capital outflow are designed to
and the dollar bears, thus improving-or even
the other hand, there will be problems for
the first three quarters of 1967, rose sub-
schedule C, and other countries such as Finland, Greece, and
country through a reduction of bank loans
avoid adverse repercussionary effects on the
U.S. foreign investors and for some foreign
stantially and necessitated the withdrawal
Ireland not in schedule C.
reversing-short-term capital outflows from
to continental Europe. It envisages a reduc-
world economy.
tion of nonessential travel outside the West-
The severest restrictions are on direct in-
countries unless the level of plant and equip-
of about $1 billion from the gold certificate
Source: Survey of Current Business, September 1967, p. 42.
the U.S.
ment expenditures of U.S. affiliates can be
fund in the last quarter. The program is
5. This should make it easier for us to
ern Hemisphere. It includes further re-
vestment in continental Europe. Many of
maintained at an appropriate level through
proof that the United States intends to de-
The limitations on direct investment apply
finance from our own resources and inter-
straints on Government spending abroad.
these countries have a balance of payments
funds borrowed in Europe. The limitations
fend the dollar and the $35-an-ounce price
separately to each direct investor, although
national borrowings our residual deficits, en-
Finally, it proposes measures to encourage
surplus and large reserves. They can absorb
on direct investment are expected to result
of
gold.
transfers between countries in Schedule C
abling us to eschew quick-acting, but mu-
a larger increase in U.S. exports which must
the balance of payments effects and they can
in a reduction of $1 billion in U.S. capital
MANDATORY CONTROL OF DIRECT INVESTMENT
are permitted. Capital outflows for direct
tually disastrous, restraints on our capital
be the principal means of restoring our
offset any adverse impact on their economy
transfers from U.S. companies.
investment in this group amounted to nearly
exports.
long-run payments position.
through expansionary domestic policies. The
Under emergency financial powers, Presi-
The new Federal Reserve restrictions on
$1.2 billion in 1965 and about $1.4 billion in
Final balance in our international trans-
The action program will entail hardships
restriction on direct investment in other de-
dent Johnson has issued an Executive Order
bank credit require no relending of long-
1966. The 1967 data are not yet available, but
actions imperatively demands the restora-
for the U.S. economy and for the world
veloped countries (the United Kingdom,
authorizing mandatory controls of direct in-
terms credits repaid by developed countries
the outflow to continental Europe in the
tion of our current account surplus to
economy. There are people who believe that
Canada, Japan and Australia) and in the
vestment and requiring the repatriation of
a
of continental Europe and a reduction of 40
first three quarters was $847 million and will
level adequate to the financing of the capital
all this is unnecessary. Some of them seem
oil-producing countries of the Middle East is
earnings of U.S. foreign direct investment
per cent in outstanding short-term credits
probably be somewhat less for the year than
exports to be expected from the richest coun-
to think that our difficulties are due to
relatively moderate. Even so, it will cause
to these countries. Nonbank financial insti-
enterprises. The administration of the order
in 1966. It should be noted that the figures
try, and most productive economy in the
wicked foreigners who insist on converting
difficulties for some of the hard-pressed coun-
has been delegated to the Secretary of Com-
tutions must reduce their outstanding for-
include funds borrowed by corporations
world. This is unlikely to be achieved, how-
dollars into gold. Others think that the
tries. In the less-developed countries, U.S. di-
merce.1 The Secretary has issued Foreign
eign credits by 5 per cent. There are addi-
domiciled in the United States through the
ever, as long as we devote a disproportionate
balance of payments can be restored pain-
rect investment can grow this year by a gen-
Direct Investment Regulations governing di-
tional requirements for the return of liquid
issue of their securities abroad. The use of
share of our resources to an insane policy
lessly by letting the dollar depreciate in a
erous 10 per cent. The restriction on bank
assets both by nonbank financial institutions
rect investment of all enterprises except
such funds for direct investment in all for-
in South-East Asia, whose main result so far
free exchange market. Unfortunately, there
credit to foreigners is virtually all on the
banks and financial institutions which are
and by direct investors. The return of funds
eign countries was $52 million in 1965, 8445
is to serve the interests of Mao-Tse Tung,
are no easy remedies for balance of pay-
developed countries of continental Europe. If
through these restrictions is estimated at
subject to the Federal Reserve program of
million in 1966, and $225 million in the first
and to create deepening divisions not only
ments problems.
they adjust their credit policies to offset re-
$500 million.
foreign credit restraint.
three yuarters of 1967.
between us and our Western Allies, but also,
The outflow of gold is a consequence, not
duced borrowing from this country, there
The President has called for a reduction
U.S. direct investment in all countries will
tragically, within our own country.
a cause of our difficulties. We cannot solve
will be no adverse effect on production and
be limited on the basis of the 1965-66 aver-
Although U.S. companies will not be able
in non-essential travel outside the Western
to remit new funds from the United States to
the payments problem by the ingenious
trade.
Hemisphere designed to reduce the "travel
age level of each company's direct invest-
GOLD, DOLLARS, AND THE BALANCE OF PAYMENTS
device of saying that we will sell gold, but
The action program is an emergency pro-
ment. The regulations divide all countries
continental Europe, except Greece and Fin-
deficit" by $500 million. The target reduction
gram. It should be a temporary program. Our
in U.S. Government expenditures abroad is
into three groups with different limitations.
land, they will be able to reinvest part of
we won't buy it back. No foreign country is
(By Edward M. Bernstein)
their earnings to finance direct investment.
selling gold to us now, except as a friendly
first job is to see that it succeeds. That re-
$500 million. The United States is also dis-
The repatriation requirement is the same
In a new year day message to the nation,
gesture, and none will sell gold to us in the
quires, above all, avoiding renewed inflation
cussing with the Common Market countries
for all countries. Each direct investor is re-
The earnings of U.S. direct investment enter-
President Johnson announced a very severe
future unless they run short of dollars. It is
by enacting the temporary tax surcharge. Be-
the difficulties caused to U.S. trade by the
quired to transfer to the United States from
prises in these countries averaged about $680
true that foreign central banks cannot con-
yond that, we must strengthen our long-run
rebates exports and border charges on im-
its share of the earnings of all its foreign
million a year in 1964-66. Their reinvested
program to restore the U.S. balance of pay-
tinue to add indefinitely to their gold re-
competitive position by holding down prices
ports equivalent to their value-added tax.
affiliates an amount equal to the greater of
earnings in this period averaged $210 million
ments. The new program is urgent because
(1) the same percentage of its share of total
a year. The income remitted to the United
of the threat to the dollar. The strength of
serves except by cannibalizing our gold re-
and costs. Then, when the Vietnam war is
In order to assure the success of the new
serves. This is the real gold problem. The
over, we shall be able to balance our pay-
earnings as it repatriated on an average dur-
States averaged $445 million a year. In South
the dollar depends on the strength of our
program, domestic fiscal and credit policy
payments position.
ments without controls. The world needs a
must hold down excessive aggregate expend-
ing 1964-66 or (2) so much of its share of
Africa, earnings averaged about $104 million
solution is to create new reserve assets, not
The United States has had a difficult bal-
to force a unilateral demonetization of gold.
strong and stable dollar. That means a strong
iture and restore the stability of prices and
earnings as may exceed the limits set for
a year, remitted income about $65 million a
ance of payments problem for the past ten
In the meantime, we can keep our gold if we
and stable dollar without controls.
costs. The President has said that the enact-
capital transfers in each group. Moreover,
year and reinvested earnings about $35 mil-
ment of a tax surcharge is the first order of
short-term financial assets abroad held other
lion a year in 1964-66. The difference between
293-820-11713
business before Congress. He has also called
than in direct investments are required to be
the sum of remitted income and reinvested
for a new voluntary program to avoid a rise
reduced to the average level of 1965 and 1966.
earnings, compared with total earnings, is
in prices and an excessive rise in wages. New
Limitations on schedule C countries
mainly accounted for by the foreign with-
price-wage guideposts are being considered.
The strictest limitation on direct invest-
holding tax on income remitted to the United
DEALING WITH THE PAYMENTS DEFICIT
ment is on Schedule C countries-South
States. In some instances, direct investment
On January 1st, President Johnson de-
Africa and continental Europe, execpt Greece
participation through second and tertiary
livered a Message to the Nation on the Bal-
companies may affect the relationship be-
ance of Payments. The essence of this message
Federal Register, Vol. 33, No. 1, January
tween earnings, remittances and reinvested
was that the U.S. balance of payments must
3, 1968, pp. 47-53.
earning.
293-820-11713
2. EARNINGS, INCOME, AND REINVESTED EARNINGS, SCHEDULE C, 1964-66
A very substantial part of the earnings of
nearly $1.2 billion a year in 1964-66, remitted
18
direct investment enterprises was retained for
income averaged about $700 million a year,
In millions of dollars]
reinvestment. The earnings attributable to
and reinvested earnings averaged over $500
U.S. direct investment enterprises in Sched-
million a year. The oil-producing countries
Earnings
Income
Reinvested earnings
ule B countries averaged nearly $3 billion a
averaged nearly $1.1 billion a year in earn-
1964
1965
1966
1964
1965
1966
1964
1965
1966
year in 1964-66. Of this amount, $2.1 billion
ings in 1964-66 and remitted almost all of
was remitted as income to the United States
it to the United States. For the group as a
and $900 million was reinvested. In Canada
whole, remitted income averaged 73 percent of
Common Market
398
395
435
275
366
316
100
-3
105
alone, earnings of U.S. enterprises averaged
earnings in 1964-66.
Belgium and Lutembeurg.
56
34
35
35
14
France.
82
27
36
4. EARNINGS, INCOME, AND REINVESTED EARNINGS OF U.S. ENTERPRISES, 1964-66
Germany
211
21
208
178
236
178
17
Italy
9
[In million of dollars]
Netherlands
33
46
13
21
16
Other specified countries
195
211
218
76
102
118
124
112
104
Earnings
Income
Reinvested earnings
Denmark
5
7
1964
1965
1966
1964
1965
1966
1964
1965
1966
Norway
Spain.
11
10
12
17
19
20
Australia
121
126
143
54
52
54
64
72
89
Sweden
Switzerland
151
157
113
Canada,
1,106
1,209
1,240
634
703
766
500
540
539
167
40
68
82
91
85
54
91
91
31
47
43
35
49
49
Other continental Europe
67
75
17
36
34
United Kingdom.
473
504
427
263
270
251
167
242
190
87
124
Middle East and Libya
1,071
1,072
1,146
1,088
1,062
1,129
16
63
102
South Africa
101
38
18
48
Total
724
773
852
424
576
545
279
164
Total
291
2,825
3,002
3,047
2,070
2,134
2,243
782
966
969
Includes countries such as Austria, Portugal, and Turkey in schedule C, and other countries such as Finland, Greece, and Ireland
Includes some countries not In schedule B.
not In schedule C.
Source: Survey of Current Business, September 1966, p. 35 and September 1967, 43.
Source: Survey of Current Business, September 1966 and September 1967, p. 43.
There are striking differences in the prac-
which cannot be adequately met from
Limitations on schedule A countries
in 1966, making no deduction for negative
tice of U.S. companies on the retention of
sources other than the United States. Others
All other countries are grouped together
investment (Table 5, page 7). In 1967, vir-
earnings in Schedule C countries. In Ger-
depend on U.S. capital inflow in order to
in Schedule A. They include Latin America
tually no new capital transfers went into
many, Italy, and Sweden reinvested earnings
avoid serious damage to their balance of pay-
and the less developed countries of Asia
direct investment in the Schedule A coun-
were negative in 1964-66. Probably for tax
ments. The regulations limit the capital in-
and Africa (excluding the oil-producing
tries of Asia and Africa.
reasons, U.S. enterprises in these countries
flow for each direct investor in these coun-
countries of the Middle East and Libya) For
The major source of funds for direct in-
transferred their entire earnings to the
tries to 65 per cent of the average of his new
the countries in this group, allowable trans-
vestment in the less developed countries,
United States and then returned as new
investment from capital transfers and rein-
fers of new capital, when added to rein-
particularly the Latin American Republics,
funds that part of the earnings they needed
vested earnings in 1965-66.
vested earnings, may not exceed in any year
is the reinvested earnings of the subsidiaries
for reinvestment. In France, Sweden, and the
Direct investment in the Schedule B coun-
110 per cent of the direct investor's average
and branches of U.S. enterprises in these
Netherlands, on the other hand, reinvested
tries is very large in the aggregate. In Canada
investment in the Schedule A countries in
regions. In 1964-66, the earnings of U.S. affili-
earnings were a very large part of the total
alone, capital transfers for direct investment
ates in all Schedule A countries averaged
CONGRESSIONAL RECORD
1965-66. Capital transfers to all of these
earnings attributable to U.S. enterprises. In
averaged $1 billion a year in 1965-66. In the
slightly more than $1.5 billion & year. The
a few countries, notably Switzerland and
countries averaged less than $500 million a
other Schedule B countries, capital transfers
remitted income averaged about $1,170 mil-
South Africa, reinvested earnings exceeded 35
year in 1965-66. Except for Latin America
averaged close to $700 million in 1965-66 with
lion and reinvested earnings averaged about
per cent of the 1965-66 average of total new
and other Western Hemisphere countries,
half of the total for direct investment in the
$355 million a year (Table 6). In Venezuela,
investment (reinvested earnings plus trans-
capital transfers to Schedule A countries are
virtually all of the earnings of U.S. enter-
fers for direct investment). In France, re-
United Kingdom. In the first three quar-
ters of 1967, capital transfers in Schedule B
usually very small and were only $158 million
prises were remitted as income.
invested earnings were probably just short
of 35 per cent of the 1965-66 average of total
countries were probably just under 81 billion,
5. CAPITAL TRANSFERS FOR DIRECT INVESTMENT, SCHEDULE A, 1965-66
new investment. For the group as a whole,
mainly because of & sharp decline in direct
reinvested earnings averaged 31 per cent of
investment in Canada.
[In millions of dollars]
total earnings in 1964-66 and were less than
35 per cent of total new investment. As some
3.-CAPITAL TRANSFERS FOR DIRECT INVESTMENT,
1965
1966
companies will have a greater than average
SCHEDULE B, 1965-66
obligation to remit earnings, because of the
35 per cent limitation on new investment,
(In millions of dollars]
Mexico
99
16
Brazil,
85
actual remittances will have to be more than
Venezuela.
109
70 per cent of earnings in this group.
1965
1966
Other Latin American Republics
176
Other Western Hemisphere
95
114
Limitations on schedule B countries
Africa
139
76
Schedule B includes a number of high in-
Australia
136
147
India
Canada
912
1,087
Philippine Republic
30
19
come countries, such as Australia, Canada,
Japan.
19
31
Other Far East
126
44
Ireland, Japan, New Zealand and the United
United Kingdom
317
384
Kingdom, as well as most oil-producing
Middle East and Libya
266
79
Total
574
405
countries, such as Iran. Iraq, Kuwait, Libya,
Total
1,650
1,728
Qatar, and Saudi Arabia. Hong Kong, Ber-
1 Includes Bermuda and the Bahamas in schedule B.
muda and the Bahamas are also in this group.
Excludes Libya in schedule and Republic of South Africa in schedule C.
Some of these countries are highly depend-
1 Includes some countries not in schedule B.
Includes Hong Kong and excludes Japan which are in schedule B.
ent on a capital inflow for economic growth
Source: Survey of Current Business, September 1967, p. 42.
Source: Survey of Current Business, September 1967, p. 42.
6. EARNINGS, INCOME, AND REINVESTED EARNINGS, SCHEDULE A, 1964-66
1966. The reduction in direct investment will
European countries are the sole source of the
be less than shown in Table 7 because
[In millions of dollars]
foreign funds borrowed by U.S. corporations
allowance must be made for funds bor-
for direct investment. Many of them can ab-
rowed by a foreign affiliate from U.S. financial
sorb the balance of payments effects of the
Earnings
Income
Reinvested earnings
institutions. This is treated as direct invest-
sharp decline in U.S. direct investment with-
1964
1966
1964
1966
1964
1965
1966
ment but is not a transfer by a direct in-
out great difficulty.
1965
1965
vestor. Allowance must also be made for ex-
Direct investment in the Schedule B coun-
clusions from the regulations-banks and
tries would be reduced by about $1 billion
Mexico
92
96
109
61
70
60
financial institutions subject to Federal Re-
from the 1966 level and by about $550 mil-
Brazil
101
122
19
33
Venezuela
547
497
456
521
475
438
serve guidelines, and direct investment of
lion from the 1967 level, before other allow-
Other Latin American Republics
398
466
574
301
305
431
166
145
less than $100,000 a year. Most important,
ances. If the reduction of direct investment
Other Western Hemisphere
149
160
158
116
126
148
41
special authorizations can be given for in-
were proportionate in all countries, the
Africa
44
21
23
vestment in excess of the limits, particularly
greatest burden would be on the United
India.
30
14
Philippine Republic
48
23
14
for work in progress and for legally binding
Kingdom because of its serious payments
53
Other Far East
84
91
102
77
119
commitments. The estimated 1968 reduction
problem. In Canada, with easy access to U.S.
of 81 billion in direct investment. as meas-
money and capital markets, the adverse effect
Total.
1,399
1,533
1,598
1,124
1,174
1,216
277
378
411
ured by the 1967 balance of payments, makes
on the balance of payments may not be
allowance for exclusions and special au-
great. The problem created for Australia's
1 Includes Bermuda and the Bahamas In schedule B.
thorizations.
balance of payments by the limitation on di-
2 Excludes Libya in schedule and Republic of South Africa in schedule C.
The developed countries of continental
rect investment is more difficult, but it may
3 Includes Hong Kong and excludes Japan which are in schedule B.
Europe would have the greatest reduction in
be met to some extent by transfers of funds
Source: Survey of Current Business, September 1966, p. 35, and September 1967, p. 43.
from other countries in Schedules B or C or
receipts from U.S. direct investment. The
by special authorizations, particularly for
moratorium on transfers of new funds would
INCIDENCE
OF
THE
REGULATIONS
ON
DIRECT
taken together with other authorized trans-
projects already under way. For the less de-
mean a reduction of nearly 81 billion from
INVESTMENT
fers of such direct investor, does not exceed
veloped countries generally, the regulations
the 1966 level but considerably less from the
The impact of the regulations on the bal-
in any year the limits authorized with re-
on direct investment are generous and can-
1967 level, assuming that the continental
spect to such direct investor [in each
not create balance of payments difficulties.
ance of payments of individual countries
cannot be determined from their historical
separate Schedule]. Thus, the regulations
experience. The regulations apply to each
on transfers and reinvested earnings set a
8.-SOURCES OF FUNDS OF DIRECT INVESTMENT ENTERPRISES, 1965
group of countries as a whole, and a direct
theoretical limit on direct investment for
each Schedule as a whole, but the practical
[Dollar amounts in millions}
investor may move funds from one country
to another in the same group. Transfers be-
limit may be less, as some direct investors
may not be able to invest to the amount of
Manufacturing
and
Petroleum
Total
tween countries not in the same group are
the theoretical limit. This is true of investors
smelting
permitted from those in Schedule a to those
with affiliates in only a few countries and
in Schedules A and B, and from those in
particularly those operating in continental
Funds from the United States
$1,369
$124
$997
$2,490
Schedule B to those in Schedule A, pro-
Europe with a relatively high repatriation
Reinvested earnings.
1,174
301
-4
1,471
vided "that the amount of the transfer,
requirement.
Direct investment
2,543
425
993
3,961
Depreciation and depletion
1.865
278
1,247
3,390
7.-APPROXIMATE EFFECT OF NEW REGULATIONS ON DIRECT INVESTMENT:
Funds obtained abroad.
2,437
260
881
3,578
Unidentified sources.
157
16
145
318
CONGRESSIONAL RECORD
[In millions of dollars]
Total
7,002
979
3,266
11,247
New funds,
Reinvested
Total direct
Ratio of direct investment (1+2) to total, per-
Maximum
Indicated
cent.
1966
36.3
43.4
30.4
35.2
earnings,
investment,
under
reduction
1966
1966
regulations
from 1966
Source: Survey of Current Business, January 1967, p. 28.
Schedule A.
405
411
816
972
+156
Schedule
1.728
969
2,697
1,726
-971
The limitations on direct investment will
Schedule
dependent on foreign financing for the
1,442
291
1,733
291
-1,442
Funds borrowed abroad
-445
-445
create investment problems for the U.S. di-
+445
normal expansion of their operations. If
rect investors and for the foreign countries
U.S. affiliates can borrow long-term through
All countries
3,130
1,671
4,801
2,989
-1,812
in which they operate. If U.S. affiliates in
issues of their securities (with the guarantee
Allowance for lower direct investment in 1967,
approximately
Schedules C and B countries had to depend
of parent companies if permitted) and if
400
Allowance for direct investment not covered by
solely on the limited amount of new direct
they have somewhat greater access to local
regulations and for special authorizations,
investment permitted under the regulations,
credits, the scale of new investment of U.S.
approximately.
400
they might be unable to finance any ex-
enterprises in Europe, Canada, the United
Indicated reduction from 1967 level of investment
by direct investors
pansion of their operations. In fact, U.S. af-
Kingdom, Australia, and Japan need not be
-1,000
filiates can use their depreciation and de-
seriously curtailed. This would require an
pletion allowances and funds obtained
accommodating credit policy in Europe.
1 Does not include international shipping companies incorporated abroad,
abroad. These sources are much larger than
Investment by the petroleum companies,
: Assumes that 1968 earnings will permit reinvestment at the 1966 level.
transfers from the United States and rein-
and to some extent by mining companies,
vested earnings. In 1965, for example, U.S.
presents a special problem for foreign coun-
The regulations as they stand would re-
billion because direct investment transfers
affiliates in all areas obtained 65 per cent
tries and for U.S. direct investment enter-
quire a reduction in direct investment
(new funds) amounted to $2.0 billion in the
of the $11.2 billion they used to acquire
prises. The amount of foreign investment
through transfers of new funds and rein-
first three quarters of 1967 compared with
plant and equipment, inventories and other
by petroleum and mining companies varies
vestment of earnings of about $1.8 billion
$2.4 billion in the same period of 1966. Funds
assets from depreciation and depletion al-
sharply from year to year, depending upon
from the 1966 level. Compared with 1967,
borrowed abroad and included in U.S. trans-
lowances, credits abroad, and unidentified
exploration and development of new fields.
however, the reduction would be about $1.4
fers, however, were also less in 1967 than in
sources. U.S. affiliates will become even more
No formula could take adequate account of
19
CONGRESSIONAL RECORD
CONGRESSI
he need for new investment funds that
credits extended within the guidelines will
The restriction of travel expenditures is
diplomatic and aid objectives. The policy of
In his balance of I
could emerge unexpectedly when new oil
have to give priority to export financing
very difficult for the United States because
the Government has been to minimize the
dent Johnson said th
ields or new mines are opened. Inevitably,
and to loans to less developed countries. The
there is no altogether satifactory means of
balance of payments effects of such expendi-
initiated with the Co
cases will require special authorization.
contraction will be especially large in short-
administering such limitations. With the
tures through the tying of aid and through
which "will examin
BANKS AND FINANCIAL INSTITUTIONS
term credits for Germany and Switzerland
ready acceptability of dollar notes and dollar
greater reliance on U.S. goods and services
cooperative action
and in long-term loans to Norway, Germany
checks, it would be very difficult to set a
to meet the needs of overseas forces. In the
minimize the disad
The President has delegated to the Federal
and Italy.
maximum sum that each traveller could
case of military expenditures, the U.S. Gov-
which arise from dif
Reserve Board standby authority to invoke
Under the new guidelines, nonbank finan-
spend abroad. The alternative of a graduated
ernment has emphasized burden-sharing
tax systems. We are
mandatory controls on transfers by any bank
cial institutions (insurance companies, trust
expenditure tax would require a far-reaching
through offsetting purchases of military
tive measures in th
other financial institution, including au-
companies, mutual savings banks, etc.) are
innovation in the tax system. The simplest
equipment in the United States by foreign
nature will depend
hority to require the repatriation of funds
requested to reduce their end of 1967 hold-
device would be to impose a ticket tax on
countries and through investment in U.S.
these consultations
abroad. if the Board should regard this
ings of foreign assets covered by the program
travel outside the Western Hemisphere, al-
securities (Government and other) which
States there are som
necessary or desirable. So far, the Federal
by 5 per cent during 1968. Holdings of liquid
though this might not achieve the desired
can be treated as capital inflow in the
services and property
Reserve Board has decided to regulate the
funds abroad will be reduced to zero or the
reduction of travel expenditures.
liquidity definition of the balance of
rules would justify
foreign transactions of banks and other
minimum working balance required for their
In 1966, U.S. travel expenditures outside
payments.
ports and border C.
inancial institutions through voluntary
foreign business, even if this entails a de-
the Western Hemisphere amounted to $1,045
These measures have held down the pay-
If the United Stat
controls. It has, however, issued new guide-
cline of more than 5 per cent in foreign
million and in 1967 they were over $1.1 bil-
ments deficit, although not by as much as
policy, other countri
ines requiring a severe restriction of out-
assets. The amount involved cannot be large,
lion. Payments to foreign carriers (about $800
is sometimes assumed. The new program con-
same in order to av
tanding foreign credits of banks and of
perhaps a reduction of $50 million in cov-
million in 1967) must have been very largely
templates a further saving of $500 million
their trade.
covered foreign assets of other financial
ered assets.
to European airlines. Even a precipitous fall
on Government payments. The number of
The United State
nstitutions.
The reduction of bank credits to Europe
in travel to Europe, Africa, and Asia could
U.S. civilians working overseas will be cut.
gram to promote the
The November 16, 1967 guideline estab-
will result in a great increase of demand for
not reduce foreign travel and passenger
The foreign exchange impact of personal
seas, One aspect of
lished a 1968 ceiling for outstanding foreign
Eurodollar credits and for credit from the
transportation payments by $500 million in
spending by U.S. forces and their dependents
mation of joint exp
credits of large banks with considerable for-
banks of continental Europe. Some European
1968, as some U.S. travel would be diverted
in Europe will be further reduced. Negotia-
which smaller corpo
claims at 109 per cent of their 1964 base
customers of American banks may try to
to the Western Hemisphere. The best hope
tions will be initiated with the NATO allies
to sell their product
(the amount of foreign credits outstanding
secure loans from the American branches of
for reducing the "travel deficit" by $500
for offsetting purchases of defense goods
will also ask Congre
the end of that year). The new ceiling for
the same banks in Europe; and the head
million in 1968 is to supplement a moderate
and investment in long-term U.S. securities.
lion of the Export-
1968 is 103 per cent of the 1964 base. For
offices in this country may find it necessary
reduction of U.S. travel in Europe with the
Similar discussions will be held with other
tion to provide bett
other banks, generally smaller ones with
to repay Eurodollars previously borrowed
return of a normal level of U.S. travel in
countries in which the United States has
pand guarantees for
limited foreign credits outstanding, the 1968
from their branches. No doubt some foreign
Canada (now that Expo is over) and a more-
armed forces. The tying of aid is already very
broaden the scope 0
ceiling had previously been set at 2 per cent
funds will be withdrawn from this country
than-normal increase in receipts from for-
stringent and the President recently ordered
of exports. Finally, t]
their total assets at the end of 1966. The
to meet the increased demand for credit in
eign travel in conjunction with the Olympic
a further reduction of $100 million in the
discount system, th
new ceiling for 1968 is their 1967 ceiling
Europe. The improvement in the reserve
Games in Mexico.
foreign exchange costs of the aid program.
will encourage comn
plus one-third of the addition that had been
settlements balance may be much less than
INCREASING U.S. EXPORTS
more generous help
envisaged in the original guidelines.
10. U.S. EXPENDITURES FOR TRAVEL IN FOREIGN
the $500 million improvement in the liquidity
In the long run, the elimination of the
nance an increase in
More important, banks are asked to re-
balance.
COUNTRIES, 1965-67
U.S. payments deficit, without depending on
DOMESTIC POLICIES T
duce outstanding long-term loans to devel-
The pressure on the Eurodollar market
[In millions of dollars]
restrictions, will require a substantial in-
ANCE OF
oped countries of continental Western Eu-
from the reduction of U.S. bank credits to
crease in the trade balance. The achieve-
rope by not renewing such loans at maturity
Europe will be intensified by the withdrawal
The action program
by not relending repayments to residents
1st 3 quarters
ment of a sufficiently large trade surplus will
of liquid assets by U.S. firms. The short-term
the balance of payn
1965
1966
depend primarily on a high rate of growth
those countries. The guidelines request
1966
impact on other cou
foreign claims on Europe of U.S. nonbank-
1967
of world trade and the strengthening of the
further that short-term loans to developed
mous shift in the WC
ing concerns amounted to $1,157 million at
U.S. competitive position. At present, how-
countries of continental Western Europe be
will be moderated b
the end of June 1967. About half of the
Canada
600
678
571
925
ever, the value-added tax in the Common
reduced during 1968 by 40 per cent of the
first place, the impr
claims were on the United Kingdom, a fur-
Mexico
540
575
Market, with its tax rebates for exports and
amount outstanding on December 31, 1967
ther indication that they included & con-
Other Western Hemi-
701
740
the liquidity definit
its border charges on imports, creates serious
a rate not less than 10 percentage points
siderable amount of liquid assets. Some of
sphere
324
360
simultaneous reduct
handicaps for U.S. trade throughout the
each quarter. The ceiling for outstanding
ities and bank asset
these funds are temporary investments of the
United Kingdom
142
167
world.
foreign credits for each bank will be reduced
tions basis, the pay
proceeds of securities issued by U.S. com-
France
125
116
These tax rebates and border charges are
by the reduction in its term loans to devel-
panies for financing their direct investments
Italy
152
153
permitted under the GATT rules. Neverthe-
reduced by somewh
oped countries of Western Europe and addi-
abroad. It is difficult to see how such funds
Switzerland
53
60
Furthermore, there
tionally each quarter by 10 per cent of the
Germany
79
86
less, the economic principles underlying such
in some phases of t)
can be returned to the United States without
Austria
27
36
action are open to question. They assume
amount of short-term credits to the devel-
reduction in bank c
disrupting plans for financing direct invest-
Denmark
23
26
that indirect taxes (excise and sales taxes)
oped countries of Western Europe outstand-
ment that may already be in process. Never-
Sweden
14
13
the return of liquid
are incorporated in prices, while direct taxes
at the end of 1967.
theless, there will be some liquid assets that
Norway
16
14
nally, the incidence
Netherlands
24
26
(income and profits taxes) do not affect
mainly on high-in
will have to be returned to the United States,
OUTSTANDING CLAIMS ON EUROPE REPORTED BY BANKS
Belgium-Luxembourg
13
13
prices. In a country in which a substantial
placing further pressure on the Eurodollar
Spain
53
portion of the tax revenue is derived from
strong balance of p
51
IN THE UNITED STATES
market.
Greece
31
34
reserves. The reperc
indirect taxes, it is very unlikely that all
FOREIGN TRAVEL
Other Europe
56
61
world economy will
[In millions of dollars)
of the tax is incorporated in prices. On the
Total Europe
806
858
735
777
other hand, in a country in which tax rates
as can reasonably be
President Johnson's message on the bal-
ance of payments calls for a reduction of
on profits (Federal and state income taxes)
It must be recogn
Oct. 31, 1967,
Sept. 30, 1967,
$500 million in the "travel deficit" by defer-
Israel
31
35
are well over 50 per cent, it is very unlikely
sudden change in tl
short term
long term
Japan
60
62
that none of the tax is passed on in the form
ments must have so
ring for the next two years nonessential
Australia-New Zealand
15
18
10
15
travel outside the Western Hemisphere. The
All other
62
71
of higher prices of goods and services. If
the world economy.
Austria
this conclusion is correct, the tax rebates for
elimination of the U.
Belgium
72
74
emphasis on reducing travel expenditures
effects would be mu
36
cannot be justified merely by the "travel
Total all other
exports and border charges on imports in
Denmark
18
58
countries.
168
186
155
178
deficit." The view that no account in the bal-
countries using a value-added tax provide a
dangerous, if the sa
France
46
Germany
198
122
Italy
118
ance of payments should have a large excess
bounty to exports and place a penalty on
U.S. balance of pay
78
Total expenditures
imports.
through severe defiat
Netherlands
31
2
of payments contradicts the principles under-
in foreign coun-
51
146
lying the freer trade and payments policy of
tries
2,438
2,657
, 162
2,620
The inequity of such a rule would be
part of the improve
Norway
Portugal
24
apparent if one country used indirect taxes
duced capital outflov
66
Spain
53
the postwar period. The case for a reduction
56
Sweden
71
in U.S. travel expenditures rests on the ur-
Source: Survey of Current Business, June 1967, p. 14; March
exclusively and another country used direct
tion and employmen
47
Switzerland
gency of solving the payments problem and
taxes exclusively. In the first country, ex-
be much less than
117
11
1967, pp. 26-31; and December 1967, p. 29.
duction in U.S. imp
Other Europe
86
25
ports would be rebated the full amount of
the importance of having the general public
GOVERNMENT EXPENDITURES
share in the sacrifices that must be made for
the indirect taxes and they would bear no
ices. Nevertheless, evo
Total:
890
745
The Government's overseas expenditures
part of the cost of operating the Government,
outflow will to some
this purpose.
are very large, reflecting the wide interna-
either in the country in which they are
of economic activity
1 Does not include United Kingdom, Greece, Finland, or Eastern
Expenditures of U.S. travellers in foreign
tional commitments of the United States.
produced or in the country in which they are
ticularly those with
Europe.
countries amounted to $2.4 billion in 1965 and
These expenditures have increased rapidly
sold. On the other hand, in the second
problem. The reperc
Source: Federal Reserve Bulletin, December 1967, p. 2151;
$2.7 billion in 1966. In the first three quar-
in recent years in response to the intensift-
country, exports would pay their full share
world economy can
Treasury Bulletin, Nov. 1967, p. 105.
ters of 1967, such expenditures amounted
cation of the war in Vietnam. In 1966, the
of the cost of operating the Government in
if the surplus countr
to $2.62 billion, about $460 million more
foreign payments on U.S. Government trans-
the country in which they are produced and
pansionary policies
The new guidelines will necessitate a re-
than in the same period of 1966, most of
actions (other than military grants of goods
would then be required through border
larger supply of loa
duction of about $300 million in outstand-
which was in Canada. For the year as a whole
and services) amounted to $8.7 billion. In
charges to bear a proportionate share of the
sharp rise in interest
short-term credits to continental West-
U.S. foreign travel expenditures were about
the first three quarters of 1967, such pay-
cost of operating the Government in the
Now that the progr
Europe at a regular quarterly rate during
$3.2 billion in 1967. To this should be added
ments were $7.7 billion, an increase of $1,073
country in which they are sold. In the first
it is of the utmost
1968. They will also result in a reduction of
passenger fares paid to foreign carriers which
million from the corresponding period of
country export goods would be completely
ceed. Time and again
nearly $300 million in outstanding long-
amounted to $720 million in 1965, $755 mil-
1966.
exempt from taxes, while in the second
introduced measures
term loans, the amount repaid in 1967. The
lion in 1966, and about $800 million in 1967.
U.S. Government payments abroad are not
country export goods would be taxed doubly.
reduction of the pa
new guidelines will leave some room for in-
Thus, in the balance of payments, foreign
responsive to economic policy in the same
These questions have been studied by the
this, the overall bala
creasing bank credits to other countries in
travel accounted for payments of about $4
way as private transactions. That is because
OECD. Their economists are aware that abso-
only modest improve
1968, perhaps by about $150 million. Foreign
billion in 1967.
they are mainly designed to achieve military,
lute distinctions cannot be made between
the past two years
the incidence of direct and indirect taxes.
While there is no diff
293-820-11713
293-820-11713
CONGRESSIONAL RECORD
CON
of economic warfare to the proposed
supply (a monetary phenomenon) is in-
ters of 1966, there is a strong presumption
since 1950, with the sole exception of 1957.
What economic sense does it make
creased.
that the large outflow of funds in 1967
During the five-year period 1962-1966 the
1.
tax tourists going to Africa, but not those
If the United States were "just another
[figures for which have not yet been released
deficit averaged $2.1 billion a year, compared
dent
to Latin America? Why should Italy
country" its continuing large balance-of-
by the Department of Commerce] was specu-
with $3.4 billion a year during the period
untar
Great Britain be hit and Canada
payments deficits could not be tolerated.
lative in nature, roughly similar to the dollar
1958-1961. In 1966 it was $1.4 billion.
flow
They would bring about weakness in the for-
outflow during the fourth quarter of 1960.
During the first three-quarters of 1967 the
sonal
General nondiscriminatory payments re-
eign exchange value of the dollar and result
This time, the immediate occasion appears
deficit was running at the annual rate of
now
could perhaps be justified as a
in a loss of monetary reserves (gold) which
to have been devaluation of the British
$2.2 billion. The outflow of gold, however,
volun
nporary measure if something decisive
would necessitate restrictionist domestic eco-
pound, which induced speculators to anti-
had declined to $158 million, which was
authorize
done at the same time to correct the
nomic policies. This was the condition of
cipate that the dollar was next in line. The
about one-third the 1966 rate.
Act,
ndamental disequilibrium. But nothing of
Western Europe at the close of World War II.
President has made it clear that the United
On the basis of these figures the expecta-
strair
sort has been proposed. On the contrary,
However, the United States is not "just
States is determined to maintain convert-
tion was that, although the payments bal-
The
Federal Reserve continues to pump
another country." Ever since World War II
ibility of the dollar into gold at the ratio
ance had deteriorated somewhat since 1966,
is to
at a record rate into the economy.
it has been used by other countries as a
of $1.00 to 1/35th of an ounce of gold, by
the deficit was still smaller than it was in
by at
a week passes without the President
central banker, performing functions of fi-
asking Congress to remove the 25 percent
1963 and 1964 and was far removed from the
2.
into law new programs costing bil-
nancial intermediation. Which means that it
gold backing against Federal Reserve notes,
$3.9 billion deficit of 1960.
Presio
of dollars, criticizing Congress at the
has been exchanging its short-term liquid
thereby making it clear to the world that
However, at his press conference on Jan-
the F
time for not spending more.
liabilities for the long-run liabilities of other
the country's entire gold stock, and not only
uary 1, 1968 the President announced that
gram
inflation is not stopped and the finan-
countries and their nationals. It is not neces-
the $2.5 billion of "free gold" over and above
he was taking extraordinary measures to
banks
house put in order, a devaluation of the
sary for a banker, or any one else engaged
the amount presently being maintained as
bring about balance in the international ac-
the
becomes unavoidable. An open devalu-
in the business of lending, to keep his mon-
backing for Federal Reserve notes, will be
counts because of the great deterioration in
paym
preferably in the form of a floating
etary inflows and outflows always in balance.
available to redeem dollars.
the country's balance of payments position
is an
would be far better than one disguised
What is essential is that he maintain suffi-
If confidence in the dollar is in danger
in the fourth quarter of 1967.1 He said that
achie
a multitude of haphazard, discriminatory
cient reserves to maintain confidence in his
of being impaired by speculation would it
the deficit for the full year 1967 was between
U.S.
and controls of which the existing and
ability to meet the demands of his creditors.
not be more logical to cure it by direct means
$3.5 and $4.0 billion.
avails
proposed batch is only the
In the short-hand of the day this is "liquid-
rather than to penalize such "normal" finan-
PRESIDENTIAL ANNOUNCEMENT OF JANUARY 1,
count
ity."
cial transactions as foreign investment and
ginning.
1968
He
There can be little doubt about the inter-
tourist expenditures-that have shown no
A continuing deficit of this magnitude, ac-
Feder
U.S. BALANCE-OF-PAYMENTS DEFICIT:
national financial integrity of the United
substantial increase (certainly not during
the first three quarters of 1967) comparable
cording to the President, cannot be tolerated
to in
AILMENT OR SYMPTOM?
States. At the end of 1966 the obligations of
to the increase in the over-all deficit for
because it would endanger the strength of the
action
(By Howard S. Piquet)
Americans to foreigners, including govern-
1967?
entire free world economy, thereby threaten-
3.
ments and central banks, totaled $60 billion,
Most of those who have expressed agree-
ing our own unprecedented prosperity. The
cans.
while American claims against foreigners
As long as the United States not only re-
deems dollars in gold at the rate of 1/35th
actions that he has taken and proposed are
for tv
with the President's action and propo-
totaled 8112 billion. The country's liquid re-
predicated on the assumption that the
the V
to narrow the deficit in the U.S. balance
serve (gold) of some $12.5 billion equals ap-
of an ounce of gold per dollar, but also guar-
antees that it stands ready, at all times, to
strength of the dollar abroad depends on
reduc
payments have deplored the fact that some
proximately 40 percent of its total outstand-
action "had to be taken". All have ex-
Americans earning abroad about as many
lion
ing liquid liabilities. If the analogy of cen-
purchase all gold presented to it at $35 per
hope that the limitations on U.S. pri-
dollars as they spend abroad. Vigorous action,
Presio
tral banking is applicable this is a pretty
ounce, is it not to be expected that specu-
foreign investment and on foreign travel
he said, is necessary to bring the interna-
Treas
healthy reserve.
lators, whenever they feel there is a chance
tional accounts into equilibrium in 1968.
Cong
be temporary and will be removed as
There has been easy acceptance by the
of the United States devaluing the dollar in
He announced the imposition of manda-
achie
as there is substantial improvement in
Administration, by many members of Con-
terms of gold, will buy gold and hold it for
international accounts.
tory restrictions on direct investments abroad
4. (
gress, and by the press of the assertion that
the rise? If the price of gold is increased they
by American individuals and corporations
thoug
Restriction of the outflow of capital and
the only way to solve the "problem" is to
will make a handsome profit. If its price does
not increase, all that they lose is the interest
and requested a series of other programs, leg-
essent
funds on the part of American tourists
bring the plusses and the minuses in the in-
islative and voluntary, to narrow the pay-
went
the same kind of effect on the interna-
ternational accounts into closer balance
cost of holding the gold becasue they can
ments gap.
taken
accounts as would an across-the-board
with each other, at least down to the 1965-
return it at any time to the U.S. Treasury in
Those who support the President's posi-
of pa
striction of imports. Ever since 1934 the
1966 deficit level of $1.4 billion. The fact that
exchange for dollars. This is not true specu-
tion maintain that, had the balance-of-pay-
tion's
States has exercised its leadership to
certain Europeans have been urging that we
lation; it is "one-way street" speculation.
ments statistics for the 4th quarter of 1967
of St
about reductions of trade barriers
do this does not mean that the restrictive
The speculators can gain but they cannot
been released without an accompanying an-
NATO
roughout the world and to maintain an
balance-of-payments measures that have
lose. Since 1962 proposals have been made
nouncement of corrective action, the result
chang
irestricted payments system. The Trade
been taken or proposed are the only, or
that the United States abandon its "guaran-
would have been to precipitate speculation
Europ
greements Acts, commencing in 1934 and
even a logical, solution of the "problem."
tee" to buy all gold presented to it at the
against the dollar and to expose it to the risk
States
Iminating in the Trade Expansion Act of
We must make sure, before taking major
fixed price of $35 per ounce. Such action
of loss of confidence.
crease
and the Kennedy Round, were accom-
action, that we understand clearly the na-
would appear to be more pertinent than lim-
In introducing his new program the Presi-
allies
by strong support of the General
ture of the problem that we are trying to
iting the outflow of private investment and
dent made it clear that "the first line of de-
instru
greement on Tariffs and Trade (GATT) and
solve. It is doubtful whether confidence in
restricting travel by Americans.
fense of the dollar is the strength of the
find V
International Monetary Fund (IMF).
the dollar depends primarily upon the at-
The most important deterrent of all
American economy". He went on to stress
can C
aturally, there is grave concern that the
tainment of balance between the total inflow
against dollar speculation is avoidance of
the importance of Congressional enactment
of Det
strictive measures that have just been
and the total outflow of funds across our
accelerating inflation. This can be done only
of an antiinfiation tax and of the exercise
foreig
lopted and proposed are in clear contradic-
national boundaries. The heart of the prob-
by hitting hard at its source. Regardless of
of the utmost responsibility on the part of
ing b
of this policy and that, once adopted,
lem is maintenance of confidence in the in-
cost-push and demand-pull explanations, the
business and labor in reaching wage-price
Europ
will become more permanent than tem-
tegrity of the dollar, which is a monetary
truth is that inflation arises from the over-
decisions. He directed the Secretaries of
problem having heavy psychological over-
issuance of money by government. The price
Commerce and Labor and the Chairman of
1. 1
Even experts in international economics
tones.
rises that ensue result from attempts by in-
the Council of Economic Advisers to work
noun
the impression of disagreeing, not only
I find it difficult to admit that there has
dividuals and groups to catch up with the
with leaders of business and labor in an
to sup
respect to the "balance-of-payments
been any substantial lessening of confidence
erosion of the value of the monetary unit
endeavor to make more effective the volun-
Comn
oblem," but also with respect to the nature
in the dollar in view of the fact that the
that has already occurred by the fact of over-
tary program of wage-price restraint.
the 88
the problem itslf. Some of the disagree-
short-term liabilities of U.S. banks to for-
issue. Inflation can be stopped only by put-
The Administration's new program consists
to ear
appears to arise from failure to distin-
eigners have been increasing rather than de-
ting an end to the continuing monetization
of four temporary measures and three per-
Bank
betwen financial (including fiscal) and
creasing and, even more significant, the fact
of the Federal debt. If the United States will
manent, or long-term, measures.
export
onetary phenomena.
that Euro-dollars in circulation are esti-
demonstrate its determination to keep its
The temporary measures affect American
export
Economic problems often involve unseen,
mated to have expanded to 815 billion. These
own financial house in order confidence in
direct investments abroad, foreign lending
of Go
forces and relationships as opposed to
are dollars that circulate freely outside of
the dollar will remain unimpaired and specu-
by American financial institutions, travel
2. I
seen and the obvious. There is always
the United States without any controls by
lative drives against the dollar will cease.
abroad by Americans, and U.S. Government
the 11
of concentrating attention on symp-
government whatsoever. If foreigners were
Under such circumstances there would be
expenditures overseas. The measures affect-
count
Instead of on fundamental ailments.
losing confidence in the U.S. dollar would
reason to believe that the international dol-
ing direct investments are mandatory and
of-pay
Unfortunately, "monetary" and "financial"
they be expanding their Euro-dollar holdings
lar-exchange standard can continue to func-
become effective immediately, whereas the
induc
not clean-cut, mutually-exclusive cate-
and operations? [In this connection see the
tion satisfactorily for some time to come,
others require enabling action, either by
tages
one reason being that, although only
article in the Wall Street Journal of January
regardless of when, or whether, the newly-
Congress or by governmental agencies.
ences
State can create "money," once created
15, 1968].
devised Special Drawing Rights are activated.
The long-term measures are aimed at in-
other
serves as the basis for private credit which
If the problem is one of maintaining con-
creasing U.S. merchandise exports, at modi-
expect
erforms the same functions as money. Fur-
fidence in the dollar there is serious doubt
LIBRARY OF CONGRESS, LEGISLATIVE REFERENCE
fying non-tariff trade barriers, and at stimu-
millio
when Government debt (a finan-
as to whether restricting the outflow of U.S.
SERVICE, RESTRICTING PRIVATE DIRECT IN-
lating investment and travel by foreigners
realize
phenomenon) is monetized, the money
investment capital and limiting foreign
VESTMENT ABROAD To NARROW THE BAL-
in the United States.
3. F
travel (which are financial transactions) are
ANCE-OF-PAYMENTS DEFICIT
in the
on target. We seem to be trying to cure
(By Howard S. Piquet, senior specialist in
1 Official figures for the fourth quarter of
United
Senior Specialist in International Eco-
symptoms rather than the ailment giving
international economics, January 8, 1968)
1967 released on February 15 showed a defi-
an in
Legislative Reference Service of the
rise to the symptoms.
cit of $7.3 billion at an annual rate and a
On the basis of a comparison of balance-
INTRODUCTION
vestm
of Congress. The views expressed
deficit for 1967 of $3.6 billion, nearly triple
curiti
are his own and are not to be attrib-
of-payments statistics for the first three
The United States has been incurring def-
the 1966 deficit.
more
to the Library of Congress.
quarters of 1967 with the first three quar-
icits in its international accounts every year
293-820-11713
293-820-11713
24
CONGRESSIONAL RECORD
effects, because foreign investments yield
It is estimated that the book value of all
there will be a changed relationship between
supply. Thus, if Bri
continuing income to Americans.
U.S. direct investments abroad amounted to
merchandise exports and merchandise im-
extended period of ti
Shortly after investment funds flow abroad
$54.6 billion at the end of 1966, which was
ports, with the latter expanding in relation
abroad than they re
there is a tendency for some of them to re-
more than 4½ times larger than in 1950.
to the former as the income from existing
tries the value of the
turn to the United States as foreign affiliates
Such investments are much larger than total
investments abroad comes to exceed new
tive to other currenc
of U.S. firms import equipment and supplies
direct investments by foreigners in the
capital outflow, allowing for payments in the
pounds (or any other
from the United States for their own use.
United States, which are estimated at about
form of military expenditures and foreign
depreciate was limit
According to the U.S. Department of Com-
$9 billion.
aid.
ping gold between c
merce, exports to such affiliates in 1964
There can be little doubt that the new
DEVALUATION OF THE BRITISH POUND AND ITS
per pound sterling)
amounted to $6.3 billion and accounted for
policy will suceed in narrowing the coun-
LIKELY EFFECTS ON BRITISH AND AMERICAN
fall by more than t
cause as soon as it re
25 percent of total U.S. exports.
try's balance-of-payments deficit. There is
CONSUMERS
considerable difference of opinion, however,
more advantageous
In the longer run there is a tendency for
(By Howard S. Piquet, senior specialist in
regarding the long-run desirability and ef-
gold than to suffer 8
funds to flow back to the investing country
international economics, the Library of
fectiveness of such a policy. Private capital
Conversely, if Bri
in the form of earnings on investment. This
Congress, Legislative Reference Service,
inward flow of funds has an effect on the
investments constitutes a net plus, rather
goods abroad than th
December 8, 1967)
than a net minus, in the country's balance
countries, there WC
balance of payments similar to that of in-
MEANING OF "DEVALUATION"
creased exports and, if continued over a con-
of payments because, in due course, it re-
pounds in the foreig
siderable period of time, will result in in-
turns more funds in the form of current in-
In years past sovereigns used to enhance
the exchange value o
creased outward payments (as would a
come than the total of funds paid out cur-
their revenues by debasing the coinage of
If the rise exceeded
steady increase of exports) usually in the
rently in the form of new investment.
the realm, either by clipping coins or by
to $4.8867) gold W
melting them down and re-issuing them in
Britain.
form of increased imports. A country that
INTERNATIONAL INVESTMENT POSITION OF THE
lighter weight. Today, when gold coins no
Because gold serve
engages in large-scale foreign investment
UNITED STATES
over a considerable period of time can ex-
longer circulate, a country devalues its
expansion, a loss of
The excess of American investments
pect that eventually its merchandise im-
money standard when it equates it to a
cause prices in that o
abroad over foreign investments in the
ports will tend to increase, relative to its
smaller quantity of gold.
its acquisition by
merchandise exports. This is because the in-
United States is large and has been increas-
When the United Kingdom devalued the
cause prices therein
vesting country receives returns on its in-
ing. In 1950 U.S. foreign investments and
pound on November 18, 1967 it changed its
more advantageous t
vestments, the anticipation of which was
claims on foreigners totaled $31.5 billion,
nominal weight from 0.08 ounces of gold
prices are high than
the reason for investing in the first place.
while foreign investments and claims on the
to 0.06857 ounces. Since the pound is not
are low, British expo
This was the position of the United Kingdom
United States totaled $17.6 billion, an excess
freely convertible into gold this meant only
tive to its imports.
during the latter part of the nineteenth cen-
of almost $14 billion on the plus side. By
that the par value of the pound sterling.
therefore, for earning
tury. Current earnings on the large British
1966 American foreign investments and
relative to the U.S. dollar (which on the
ments to foreigners
foreign investments that had been made
claims on foreigners had increased to $111.9
books of the International Monetary Fund
with each other an
throughout the earlier part of the century
billion while foreign investments in the
is equal to gold at the fixed price of $35 per
rates to remain close
enabled Britons to pay for the country's
United States increased to $60.4 billion, a
ounce) was reduced from $2.80 to $2.40. This
weight of the gold po
substantial excess of merchandise imports
favorable balance of $51.5 billion. In the 16
change in par value was accomplished after
of the weight of the
over merchandise exports.
years period 1950-66 the excess of American
consultation with the United States and
The exchange rate
claims against foreigners over foreign claims
Foreign investment is also advantageous
other countries and with the concurrence of
free gold standard, V
to borrowers because it facilitates economic
against Americans increased by 270 percent.
the International Monetary Fund.
bridge between nati
development and expansion. Economic de-
This was not the first time in recent
donment of the gold
velopment of the less-developed areas of the
INTERNATIONAL INVESTMENT POSITION OF THE UNITED
years that the British pound had been de-
tries, including the
world for some time has been an important
STATES, 1950, 1963, AND 1966 (END OF YEAR)
valued. From 1821 to 1931 its par value was
with the adoption my
cies to insulate nati
objective of U.S. foreign policy.
[In billions of dollars]
$4.8667 and throughout most of this period
the pound was freely convertible into gold.
each other, made it
The outflow of funds for direct investment
between 1954 and 1966 was approximately
Types of investment
1950
1963
1966
In 1931 the United Kingdom abandoned the
rates to vary much
possible under the fre
$1.9 billion a year, while returns on exist-
gold standard and allowed the pound to fluc-
tuate freely. It finally found its level at $4.03
Theoretically, ever
ing investment, in the form of dividends,
U.S. investments and claims on
branch profits, interest, etc., averaged $3.2
foreigners
31.5
88.2
111.9
(a 17 percent devaluation) where it re-
fluctuating (flexible)
mained until 1949 when it was devalued to
can bring about incr
billion a year. Expressed as cumulative totals,
the outflow of funds for new direct invest-
Private Investments and
$2.80 (a 30 percent devaluation). The de-
ports, as the prices o
ment over the 13-year period amounted to
claims
19.0
66.4
86.2
valuation of November 1967 from $2.80 to
lation to other prices
$24.8 billion, while earnings on outstanding
Long term
17.5
58,3
75.6
$2.40 was by 14.3 percent.
the United Kingdom
exports, the supply (
direct foreign investments over the same
Direct
(11.8)
(40.6)
(54.6)
Prior to World War I when the United
period amounted to $41.7 billion (see table).
Short-term assets and
in the foreign exch
Kingdom, the United States and other im-
claims,
1,5
8.1
10.7
value of the pound,
portant countries were on a free gold stand-
rencies, will fall. As
NEW DIRECT PRIVATE FOREIGN INVESTMENT AND INCOME
U.S. Government credits and
ard, the par values of their monetary units
becomes profitable fo
FROM OUTSTANDING DIRECT FOREIGN INVESTMENTS,
claims
12.5
21.8
25.6
reflected their relative weights in pure gold.
tain goods to the Uni
1954-66
Thus, the fact that the par value of the
[In billions]
Long-term credits and
not been profitable fo
claims
10.8
17.1
21.2
pound was $4.8667 meant that the pound was
because foreigners car
Foreign currencies and
4.8667 times as heavy as the U.S. dollar. At
ling for their own cui
New U.S.
Earnings re-
Net effect on
short-term claims
in
3.4
2.8
that time gold was valued at $20.67 per ounce.
Year
direct invest-
ceived on
balance of
IMF gold tranche posi-
two currencies (pour
The United States devalued the dollar in
ment abroad
direct invest-
payments
tion and convertible
be brought into line V
ments abroad
foreign currencies
1.4
1.2
1.6
1934, thereby raising the price of gold from
in the two countrie
$20.67 per ounce to 835 per ounce, a devalua-
prices of merchandis
Foreign assets and investments
tion of 41 percent. The dollar has remained
1954
-$0.7
+$1.9
+$1.2
in the United States
17.6
51.5
60.4
of labor and the prio
1955
-.8
+2.1
+1.3
at 1/35th per ounce since that time.
and interest rates) ad
1956
-20
+2.4
+.4
Long term
8.0
22.8
27.0
France devalued its franc four times in
Since the close of 1
1957
-2.4
+2.5
+.1
(Direct)
(3.4)
(7.9)
(9.1)
recent years from 19.3 cents (US) to 4 cents
1958
-1.2
+2.4
+1.2
Short-term assets and U.S.
been no disposition o
1959
-1.4
+2.6
+1.2
Government obligations
9.6
28.7
33.4
(US) in 1926, when she went off the gold
country to allow its ed
1960
-1.7
+2.8
+1.1
Private obligations
(6.5)
(14.9)
(20.8)
standard. In 1928 she returned to the gold
manner, to the econo
1961
-1.6
+3.2
+1.6
U.S. Government obli-
standard with the franc valued at 3.92 cents
Under the terms of t
1962
-1.7
+3.6
+1.9
gations
(3.2)
(13.8)
(12.6)
(US).
tary Fund Agreement
1963
-2.0
+3.8
+1.8
1964
-2.4
+4.4
+2.0
Excess, U.S. investments abroad
In 1936 France again devalued to about 4.6
currencies are maint
1965
-3.4
+4.9
+1.5
over foreign investments in
cents (US)-higher in terms of cents than
stated in terms of go
1966
-3.5
+5.1
+1.6
the United States
+13.9
+36.7
+51.5
in 1928 because, meanwhile, the U.S. had
terms of the U.S. dolla
devalued the dollar. In the 1949 devaluations
Total
-24.8
+41.7
+16.9
Although some flex
1 Not including gold holdings.
the franc was devalued by about 30 percent.
by exchange rates can
Source: Department of Commerce, Survey of Current Busi-
Source: U.S. Department of Commerce, Survey of Current
The next French devaluation was in 1958
each side of parity, 1
ness.
Business, September 1967.
when the franc was reduced 15 percent rela-
rect connection betw
Whereas over 85 percent of American claims
tive to U.S. dollars. In 1960 the Government
all countries has rend
These figures do not include undistributed
earnings of subsidiaries, which do not affect
against foreigners are long term in nature,
introduced the "heavy franc", equal to 100
tions in exchange rat
over 55 percent of all foreign claims against
of the old francs and thus worth about 20
about the adjustment
the balance of payments because they are
Americans are short term (see table)
cents (US), close to the historic value of the
to each other. Furth
not transferred internationally.
It remains to be seen whether the United
franc prior to World War I.
countries now pursue
Total earnings on U.S. direct investments
abroad amounted to $5.1 billion in 1966 and
States is entering a new phase in its long-
EXCHANGE RATES AND INTERNATIONAL FINANCIAL
ment, controlled inte
term international financial position. If there
EQUILIBRIUM
strictions designed to
were second in importance, on the receipts
is a substantial and prolonged increase in the
Under the free gold standard, which pre-
competitive merchand
side of the balance of international pay-
movement of American capital abroad, rela-
the outflow of too mu
vailed prior to 1914, the money of a country
ments, only to the favorable balance on
tive to foreign capital invested in the United
could remain at parity only as long as the
For these reasons, a
merchandise trade.
States, it is to be expected that eventually
external demand for it equaled its external
international supply (
terms of the money o
293-820-11713
293-820-11713
26
CONGRESSIONAL RECORD
would increase the supply of money and be
in international air fares. For the immediate
the "standstill agreement" among the air-
7. The measures will accelerate tl
inflationary.
present, however, air tickets may be pur-
lines expires. However, Americans in Britain
drawal of foreign-owned capital in
If the United States were to decrease the
chased in Britain at the old prices.
will be able to purchase air transportation,
For the first time in recent U.S. histo
quantity of gold that it is willing to give in
(c) On the U.S. economy
for a time at least, with sterling. In the
has arisen fear of potential blockin
exchange for its present I.O.U.'s (dollars), not
1. It is to be expected that there will be
United States, however, tickets must be pur-
counts, especially in the event of
withstanding previous assurances that it
a decrease in U.S. exports to the United
chased with dollars.
This negative effect on the accoun
would pay at the rate of $35 per ounce, there
Kingdom and other countries that have de-
SUMMARY STATEMENT OF REMARKS TO THE
alone be sufficient to cancel any
would be no assurance that it might not re-
valued their currencies. This does not mean,
HOUSE REPUBLICAN CONFERENCE ON THE
effects on the accounts directly aff
peat the process again and again. To in-
however, that all U.S. exports will be di-
PRESIDENT'S BALANCE-OF-PAYMENTS PRO-
8. The argument that the restric
troduce such uncertainty into the world's
rectly affected. In 1966 U.S. exports to the
GRAM, JANUARY 24, 1968
capital exports would reduce U.S.
credit system would be a sure way to wreck
United Kingdom totaled $1.7 billion and to
(By Robert A. Mundell)
tion for European assets and there
it.
all the countries that have devalued (as of
their price has a measure of validity
THE GOLD CRISIS
EFFECT OF THE BRITISH DEVALUATION
Nov. 30) a little over $3.1 billion, which rep-
sense the measures could be looked
resents only slightly more than 10 percent of
My position on the recent measures ad-
(a) On the British economy
a means, like optimum tariffs, of ex
1. Since the pound is now slightly cheaper,
total U.S. exports.
vanced by the Administration to improve the
the national monopoly power of
The U.S. exports to the United Kingdom
balance of payments can be summarized as
financial community over other c
relative to most other currencies, there will
follows:
be an increase in British exports to countries
that will be most directly affected are ma-
By preventing competitve bidding,
that have not devalued. The result will be to
chinery and transport equipment, other
1. They will not improve the U.S. balance
can lower the price of European as
enable Britain to secure an improvement in
manufactured goods, and food (including
of payments.
if this is the subtle reasoning bel
grains).
2. They will weaken the dollar in the long
its balance of payments position of at least
measures, it is a shabby example of h
2. It is to be expected that there will be an
run and seriously undermine U.S. financial
for the world's leading power.
500 million pounds annually ($1.2 billion at
increase in imports into the United States
leadership.
9. It would be a mistake to infe
the new parity).
3. There are better alternatives.
from the United Kingdom and other coun-
silence that the U.S. business con
2. For the same reason, there will be & cur-
tries that have devalued their currencies.
1. The measures are expected to improve
tailment of British imports since it will re-
supports these measures. Any acquired
Here, too, the effect will not bear directly on
the U.S. balance of payments. However, they
to the controls is based on the speci
quire more pounds than before to purchase
a given quantity of imported merchandise.
all U.S. imports. Imports from the United
could improve, worsen, or leave unchanged
ests of lobbies hoping for special exe
Kingdom in 1966 totaled $1.8 billion and
the balance of payments, depending on (a)
and fearful of reprisals if they do re
The price of imports is important to Britain
from all the countries devaluing slightly less
the definition of the balance of payments
licly against the government's policy.
which depends heavily upon them for its
economic life. The British Government has
than $3 billion, or about 11½ percent of total
used and (b) the monetary-fiscal measures
10. The measures would weaken
stated its determination to limit price in-
U.S. imports. The imports from the United
with which they are combined. They can im-
dollar by reducing its usefulness as
Kingdom that will be most directly affected
prove the tourist account and the direct
currency. Both private holders and
creases and to ensure that, where higher im-
are machinery and transport equipment,
investment account, but this is not the same
banks will withdraw balances they 1
port costs make price increases inevitable,
alcoholic beverages (mostly Scotch whiskey)
as the aggregative accounts as a whole.
be blocked. Central banks may att
they do not lead to larger wage claims.
and such manufactured goods as iron and
2. Whatever the initial effects on the for-
"get gold while it lasts." The measur
8. One of the domestic measures taken to
eign investment and travel accounts, the im-
support the devaluation of the pound is an
steel, textiles, clothing, and musical in-
a "sauve que peut" attitude.
increase in the Bank Rate( roughly the Brit-
struments.
pact on the remainder of the total balance
11. The controls will have pernic
3. To prevent an outflow of U.S. funds to
will be negative. This is because of (a) eva-
fects. They are offensive to the U.S
ish equivalent of the U.S. rediscount rate)
from 6½ percent to 8 percent, its highest
Britain to take advantage of increased rates
sion of the restrictions through loopholes,
of free enterprise. They were advance
of interest there, the Federal Reserve Sys-
(b) substitution of other forms of foreign
mistaken belief that the U.S. has n
level since World War I. Banks are to limit
tem has increased the U.S. rediscount rate
assets affected by the measures, (c) reduction
alternative to confront the crisis wh
their advances to borrowers which, together
with other domestic supporting measures, is
to 4½ percent. This will be followed by an
in the inflow of foreign capital, (d) reduction
fronts it. If that is so, it would in
intended to reduce demand at home and to
upping of other interest rates.
in the trade balance surplus, (e) disguised
open admission that the French hay
4. The dollar value of U.S. foreign invest-
capital exports through the under-invoicing
the initiative out of U.S. hands. But
meet the threat of inflation.
ments in Britain will suffer not only from
of exports and the over-invoicing of imports,
mistake. The crisis is partly the ma
4. Government expenditures are to be cut
the devaluation but also from higher tax
and (f) reduction of export supply because
the U.S. authorities themselves. The
by the equivalent of $960 million, including
rates on profits and other new austerity meas-
of the full-capacity state of the U.S. econ-
followed the wrong course in its ba
defense spending and capital investment in
ures. It is probable that industries in the
omy. All these effects can be predicted on
payments policy and needs to alter d
nationalized industries.
United Kingdom producing for export will be
the basis of economic theory and empirical
The U.S. should abandon its defea
5. The corporation tax is to be increased
studies of similar measures like the IET and
favored over those producing for the domestic
titude and take positive steps to rea
from 40 percent to 42½ percent.
British market. Producers of automobiles and
the VFORP.
financial leadership.
(b) On British consumers
machinery probably will be favored over re-
3. The long-run effects are certain to be
To this end, I would recommend
1
1. In the absence of devaluation it is es-
tailers and service organizations.
negative. To the extent that demand for
U.S. take into account the following
timated that personal consumption in Britain
foreign goods and assets is reduced, foreign
ples:
would have increased by 3 percent a year,
(d) On U.S. consumers
central banks will take action to protect
(a) The way to increase demand
thereby stimulating imports and aggravat-
1. Many imported goods from the United
their own balance of payments. Correction of
lars is to make dollars more desirab
ing the country's balance-of-payments de-
Kingdom, such as automobiles and woolens,
the U.S. balance of payments is contingent
(1) eliminate the interest equalizat
ficit. It is expected that devaluation and sup-
should be somewhat cheaper than before.2
upon worsening foreign balances, and the
(11) eliminate the "voluntary" foreig
porting policies will divert this 8 percent in-
For example, a woolen sweater priced at 10
U.S. does not have direct control over for-
restraint program, (iii) reject the
crease from domestic consumption into in-
pounds could cost $24 instead of $28, and a
eign balances.
measures, (iv) abandon all other n
creased exports.
British automobile priced at 1,000 pounds
At best, the U.S. can bring deflationary
that have mistakenly been imposed 1
2. Because of the increased bank rate, other
could cost $2,400 instead of $2,800 (on a net
pressure to bear on the world economy, but
ance of payments" reasons, and (v)
rates of interest will also rise, thereby mak-
basis).
this is an extremely risky course at the pres-
inflation in the U.S. even if it mean
ing it more difficult for British consumers
2. Higher interest rates will increase the
ent time.
crease in taxes or higher interest
to borrow.
cost of home mortgages and other install-
4. The measures would bear heavily on
more restrictive financial policy is
3. For the same reason, British savers will
ment purchases, such as automobiles and
Canada and Japan, despite the asserted at-
in the U.S. even for domestic reason
be in a position to demand higher returns
consumer hardware items.
tempt to exempt these countries from the
(b) Solve the gold problem direc
on their personal institutional savings.
3. For the same reason, savers should re-
controls; they may even contribute to deval-
stead of worsening it by weakening
4. The down payment on automobiles is
ceive higher rates of return on their savings
uation of these currencies even though no
lar as a freely usable world currency
increased to 38½ percent and the repayment
in Savings and Loan Associations and other
fundamental disequilibrium exists in the
The first recommendations spe
period reduced to 27 months.
savings institutions as the increased redis-
case of either the dollar or the yen.
themselves. The second requires a o
5. There will be a stricter "incomes policy,"
count rate is reflected throughout the interest
5. Control measures that are partial will
which must be made very soon, betw
which means that there will be greater re-
rate structure.
not be successful. The experience of coun-
cooperative solutions and (ii) a un
sistance to rising wages. Such efforts at re-
4. Increased taxes and cuts in Government
tries with inconvertible currencies in the
solution.
structuring British industry are deemed to
spending would demonstrate to world cen-
past has been that controls have to be pro-
There are two cooperative solution
be necessary to enable Britain to exploit the
tral banks that the United States is deter-
gressively tightened and ultimately lead to
is for the major central banks to
opportunity she now has to eliminate her
mined to get its domestic budget under
de facto, followed by de jure, devaluation.
their gold stocks to stabilize the fr
persistent balance-of-payments deficit. The
control. If this reasoning prevails, it is likely
This has been a common syndrome through-
ket price of gold. With over 25,000
Government hopes for an export-led eco-
that there will be increases in taxes.
out Latin America, post-war Europe, and the
it among them and yearly private
nomic growth that will not be deflationary
5. Travel for Americans in Britain and
Communist countries. But controls for the
(and demand) in the neighborhood
and that will not retard production.
other countries that have devalued will be
U.S. are even more difficult; first, because
tons, this involves no risk whatsoe
6. As exports increase it is hoped that in-
cheaper than before the devaluation because
the U.S. does not have the experienced bu-
the next five or ten years. The for
dustry will need more labor and that un-
holders of dollars will get more in foreign
reaucracy and police force trained to imple-
suggest (as I did in 1965) is for t
employment will fall.
currency for their travelers cheques.
ment them, and second, because of the
pool to issue gold-pool certificates
7. It will be more difficult for Britons to
6. Air fares for Americans will remain con-
loopholes connected with the Canadian and
change for the gold of the major
travel abroad than before the devaluation.
stant for a time, but may be increased after
Mexican borders and the huge flow of air and
The major countries would then us
Hotel accommodations abroad in countries
sea travelers.
pool certificates for reserves instead
that have not devalued their currencies will
In some cases it may be possible for pro-
6. Controls have other grave risks, and in-
When gold is fed to the market from
cost more in terms of pounds, and the money
ducers of certain British exports to increase
volve a flight from recorded to unrecorded
(interest-bearing) dollars (or other c
left over for spending will be worth less
their selling prices, in terms of pounds,
transactions and from bank deposits to cash.
ible currencies) would be received
abroad because of the devaluation. It is likely
thereby negating this effect of the devalua-
They are inequitable because they penalize
change; when gold is taken from tb
that, before long, there will be an increase
tion.
the honest.
ket, the dollars or other convertib
293-820-11713
293-820-11713
28
CONGRESSIONAL RECORD
CONGRESSIONAL RECOR
Alas for the welfare of the world, the sys-
want to embarrass the United States. In-
gold to their gold stocks. Thus the United
ing on American goods will be large, causing
course but to use the dollar as a financi
tem had been rebuilt upon sand. Currencies
voluntary dollar holdings mounted until
States gold stock goes up when the Russian
a net fall in spending on American goods and
intermediary between lenders and borro
had depreciated in terms of goods, and Brit-
France led the way to a "declaration of inde-
wheat crop is bad, and down (or up by less)
bringing about recession. But the conclusion
ers. The dollar is so entrenched, so stror
ain's fatal error of 1925 (when Churchill was
pendence." After the spring of 1965 France
when it is good.
does not follow because, for precisely the
and so useful that its use will, like the En
Chancellor of the Exchequer) in going back
began converting its entire surplus into
2. Private hoarding. When there is an in-
reason the decrease in United States spend-
lish language, spread over the world-not
to the old prewar parity left not only the
gold, and other countries became increas-
crease or decrease in the speculative demand
ing on home goods will be high, the increase
very comforting thought to the new n
pound but also the gold base of the inter-
ingly reluctant to expand their holdings of
for gold or in the demand for its use in in-
in foreign spending on United States goods
tionalism developing on the Continent
national monetary system in jeopardy. The
United States dollars. In effect, the world
dustry and the arts, the United States gold
will be high also.
Europe.
weakness might have been revealed in any
monetary system appeared to be moving back
stock goes correspondingly down or up.
It may next be argued that in all coun-
[The] resentment of American financi
event, but the undervaluation of the franc
to the gold standard.
3. Central bank conversions. When the
tries, including the United States, many
expansion is not shared by all Europear
after 1926 sealed the fate of the pound and
Thus we see that since the Second World
other central banks want to alter the com-
goods are not traded at all, so that there
many of whom see great advantages
the international system. The system col-
War the world economy has been moving
position of their reserves and shift from
will be a large drop in United States spend-
American capital investments as a mediu
lapsed in 1931 when Britain, whose balance-
toward a system which, in some respects, is
dollars into gold, the United States suffers a
ing on domestic goods and export goods
by which the technology gap between Euro
of-payments position had been undermined
similar to that of the nineteenth-century
gold loss; and when they want to increase
without any corresponding increase in
and America can be reduced. But from tl
by deflation in the United States, abandoned
gold-standard system, with the dollar, New
their holdings of dollars at the expense of
spending by foreigners on United States do-
standpoint of the world's monetary syster
gold in the wake of the chain reaction initi-
York, and the Federal Reserve System re-
gold, the United States has a gold gain.
mestic goods. But because the United States
the United States answer to the bitterne
ated by the failure of the big Viennese bank,
placing sterling, London, and the Bank of
4. A deficit in the United States balance of
is large, a given change in spending, spread
is a simple one:
the Credit Anstalt. All the king's horses
England. However, the present system is
payments. When the United States monetary
over a wide range of goods, needs to reduce
could not put the system together again.
complicated by a Federal Reserve policy that
system creates more money than Americans
demand only a little in any one sector of
"The error in such thinking
Some hope for the system was rekindled
is more ambiguous than the Bank of England
or private foreign residents want to hold,
the economy, so that price changes also need
Ignores the common ground
after United States devaluation in 1934, when
used to have. The present system makes use
the flow of dollars offered on foreign-ex-
only be minor. Price changes undoubtedly
That the dollar is a cancer
the price of gold was raised to $35 an ounce,
of numerous restrictions and prohibitions,
change markets abroad expands either direct-
occur after any disturbance, but internation-
No cure yet found."
but by that time the world depression had
and there is a greater self-consciousness on
ly or indirectly after first raising United
al disturbances in a large country with a
It is in this antagonistic milieu that th
become deep, economic nationalism was on
the part of foreign central banks about the
States prices or lowering United States in-
small international sector are likely to be
managers of the system-the central banke
the march, and the disease of totalitarianism
advantages to be gained from a system which
terest rates. Since foreign central banks keep
correspondingly small.
and the finance ministers-have reached
a
had spread all over the southern, middle,
relies heavily on the dollar and United States
their exchange rates fixed to the dollar, they
It is partly because of the adoption of this
impasse on the fundamental reform that
and eastern parts of the European Continent.
monetary policy.
have to buy up the excess dollars on the
faulty technique of automatic sterilization,
necessary. The stability of the system de
The post-Second World War system built
Let us put these complications aside for
exchange markets, dollars which they con-
based on unsound theory as well as prac-
pends entirely on their ability to agree, y
up at Bretton Woods, where the United Na-
a moment, however, and concentrate on
vert into gold at the United States Treasury.
tice, that Britain, the United States, and a
the ingredients for agreement are not pres
tions set up the International Monetary
some of the institutional features through
A lax United States monetary policy there-
few other countries that have followed their
ent.
Fund and the World Bank, was an attempt
which the system works. First of all, the
fore induces gold losses, while a restrictive
bad example have managed to maintain and
The weak link in the present system is th
to correct the mistakes of the interwar pe-
United States government forbids its own
(or not excessively expansive) one induces
perpetuate balance-of-payments disequilib-
threatened instability in the price of gol
riod by "humanizing" the gold standard. But
citizens to hold gold, so that there is no
gold gains.
riums over a long period of time, to the dis-
since the United States cannot continue
the IMF was not strong enough in experience,
legal gold market in the United States; the
The first three factors affecting the United
comfort of the inhabitants of these countries
sell gold and at the same time preserve con
reputation, or resources to replace the au-
center of the world's gold market is London
States gold stock tend to be rather volatile
and at the social cost of the remainder of
fidence in the dollar. At present, events al
thority of the major financial countries,
(which, however, is not open to the British
and suggest that the Federal Reserve Sys-
the world community. The harm is not re-
moving on a collision course, which in th
especially, now, the United States. The real
public, since the British government also
tem cannot follow as simple or convenient
stricted to a persistent weakness of the
absence of cooperation will result in
power behind the IMF system became the
forbids its citizens from holding gold). But
a set of rules for monetary policy as those
pound sterling, and an incipient weakness
sporadic and uncontrolled increase in th
United States, and its instrument was the
the United States is still the main determi-
adopted by the Bank of England in the nine-
of the dollar, but extends to the measures
price of gold. It would be far better to rais
dollar.
nant of the market price of gold, since the
teenth century, tightening the monetary pol-
adopted in their defense. These measures
the price of gold by agreement than to hav
In a technical sense and in fact, the United
United States Treasury will sell or buy gold
icy when there is a gold loss and easing it
have included prohibitions on imports, hid-
this decision forced on the world throug
States became the center of the interna-
for dollars at $35 an ounce for monetary
when there is a gold gain. If the Federal Re-
den export bounties, altered military-pro-
the inability of the major powers to coop
tional monetary system. First, the United
purposes to foreign central banks. This
serve followed such a rule uncritically,
curement plans, taxes on capital exports,
erate.
States became the sole country pegging its
means, in effect, that the London private-
United States monetary policy would be dic-
new laws forbidding private gold purchases,
Yet it is surely clear that an increase 1
currency to gold; in this sense the dollar be-
market gold price cannot differ from $35
tated in part by the whims of foreign central
and arm-twisting "gentlemen's agreements"
the price of gold is at best a second bes
came the key currency. Second, and partly
an ounce by much more than the cost of
banks and private gold hoarders and by Rus-
with banks. In the case of America these
course. The way out, the path of stability
because of the first event, other countries
shipping gold from the United States to
sian wheat harvests. Such a policy on the part
measures have created in the minds of many
lies in agreement among the main Europea
pegged their currencies to the dollar, either
London.
of the Federal Reserve System would not be
observers the sorry spectacle of a super-
countries, Japan, and the United States tha
directly or through the pound, franc, or
Let us see how the gold market works.
in the interests of the United States or in-
power, a democracy, creating on the basis
they need to preserve the present dollar prio
escudo; in this sense the dollar became the
New gold production, of somewhat more
deed in the interests of the world community
of a wrong theory and faulty practice, an
of gold and will commit their gold reserves
primary intervention currency. Third, dol-
than $1 billion worth a year (the main pro-
as a whole.
artificially weak currency, imitating meas-
that end. After all, if there can be no agree
lars became increasingly used as an interna-
ducer is South Africa, with Russia and Can-
This is the justification, in part, for the
ures invented in Nazi Germany and perpet-
ment on a new system, it is better to make d
tional asset for central banks; in this sense
ada of considerably less importance) is mar-
United States practice of sterilizing gold
uated all over Europe in the years following
with the one we now have than to allow th
the dollar became the primary reserve cur-
keted through London. Producers sell gold
movements, preventing them, in the first in-
the end of the Second World War. The situa-
forces of instability to disrupt the unprece
rency. Fourth, the dollar became increasingly
in London. Consumers buy it. Usually the
stance, from having an impact on outstand-
tion is made more ironic by the fact that
dented expansion of industry and trade tha
used for trading operations as a currency of
supply exceeds the demand, and the Bank
ing dollar liabilities. But the process of ster-
America led the battle against those very
has been the outstanding feature of th
contract; in this sense the dollar became the
of England takes up the excess gold, paying
ilization is, in fact, probably carried too far.
measures when they were imposed in Europe
postwar world economy.
primary vehicle currency (along with the
for it with dollars; it then replenishes its
As noted above, gold losses may be due to a
where to a large extent they have now been
Were the central banks to agree on thi
pound). Fifth, and finally, the dollar was
dollar holdings by selling the gold to the
deficit in the United States balance of pay-
abandoned.
there would have to be a balance of respon
increasingly used as the currency of quota-
United States Treasury or to other central
ments arising from excessive credit expansion
Until recently the continental European
sibility between the United States, at th
tion; in this sense the dollar became the
banks. (The Bank of England manages the
in the United States. If gold losses arising
position has been that the United States
center of the system, and the other majo
main currency used as unit of account. In
recently developed "gold pool," by which
from excess credit creation in the United
should correct its deficit and then make an
countries. A gentlemen's agreement is reall
these five roles the dollar became the cur-
demand for new gold by other major central
States are sterilized, the disequilibrium is
agreement on international monetary re-
necessary while basic reform is being worke
rency that was more equal than any other
banks is managed collectively.) But when
perpetuated with no compensating gains.
forms, probably through creating a new re-
out-or at least talked about. Europe an
just as sterling was in the nineteenth cen-
the private demand for gold exceeds the
If the United States authorities did not
serve asset, while the United States position
Japan must be willing to alter the composi
tury.
supply, the Bank of England sells gold from
sterilize the initial gold outflow, gold would
has been to talk about reform before cor-
tion of their reserves to the extent necessar
After the war no one doubted the strength
its own reserve in exchange for dollars and
eventually come back to the United States in
recting the deficit. In a formal sense the
to preserve the present dollar price of gold
of the dollar, and dollars were accumulated
then presents the dollars for conversion to
the process of transferring in goods, through
major countries including the United States
To make Europe's commitment worthwhile
by central banks as being more useful than
gold at the United States Treasury. Thus
a balance-of-payments surplus, the financial
have now decided to go ahead with reform,
the United States, on its part, would have t
gold because of the interest that could be
United States gold losses or gains are di-
transfer implied by the capital movement.
but it is of the kind likely to paper over the
be willing and able to preserve the stabilit
earned and because the dollar was the cur-
rectly dependent on whether there is an
It is sometimes argued, however, that un-
cracks in the wallpaper rather than under-
of its economy and take international inter
rency of intervention in the exchange mar-
excess demand or excess supply of gold in
less the authorities sterilize the gold out-
take any real replastering.
ests into account.
ket. As postwar recovery proceeded, the Euro-
the London market. They also depend on
flow, deflation or unemployment in the
The case for reform of the system is a
pean countries developed the balance-of-
whether other central banks want to keep
United States will result. But there is no
strong one, if the rest of the world is un-
THE BALANCE OF PAYMENTS AND INTERNA
payments surpluses needed to rebuild their
less or more of their reserves in dollars or
reason for deflation or unemployment to re-
willing to continue to use the dollar to the
TIONAL MONETARY REFORM
reserves. The surpluses were taken out in
gold. United States gold losses over any
sult from the transfer process. If no sterili-
extent it formerly did, but it is not clear
both dollars and gold as no one doubted the
period of time are thus composed of the
zation took place in either the United States
that the central banks can or will agree on
(By Dr. Patrick M. Boarman)
ability of the United States to convert dol-
excess of private demand for gold over its
or Britain, the British would spend more on
the ingredients constituting an improvement
For the past decade and a half, American
lars into gold. But in 1958, after the Euro-
supply in the private gold market and the
all goods, including American goods, while
in the world monetary system. Many Euro-
payments to other countries have regularly
pean currencies had become convertible and
excess of dollar holdings of foreign central
the Americans would spend less on all goods,
peans have become bitter about the intrusion
exceeded other countries' payments to us
much stronger, the United States balance-of-
banks. Russian sales or purchases have to
including British goods. The change in
of American capital into Europe and its buy-
except in 1957 when the Suez crisis raised
payments deficit, which in the early fifties
be included in private demands or supplies.
spending is not the same as a change in in-
ing up European factories-purchases which
demand for American exports and produced
had averaged 81 billion, jumped to $3 bil-
The most important causes of fluctuations
come or employment, and indeed the shift
the Europeans themselves have financed by
a small surplus (of about $500 million)
lion. Awareness of the implications for con-
in the United States gold stocks, apart from
in the international pattern of expenditure
holding on to dollars needed to lubricate the
From 1951 to 1958, U.S. balance of payment
vertibility of the dollar became apparent, and
changes in the flow of gold from the mines,
could induce inflationary pressure in the
flow of trade. In another vein they argue that
deficits were moderate, averaging about $
central banks took a closer look at their
are the following:
United States rather than deflationary
the dollar holdings of the European coun-
billion a year, and were considered desirable
portfolios. Since 1958 the United States has
1. Russian gold sales. When the Russians
pressure.
tries have helped finance the Vietnam war,
as contributing needed reserves to the res
of which they disapprove. Against this some
run a deficit of over $2 billion of which, on
have a poor wheat harvest, they ship gold
It is sometimes argued that because the
of the world then suffering from a "dollar
American economists have insisted that the
the average, about half was taken in gold
to London to get dollars to pay for wheat
United States is a large country, with only
shortage".
and half in dollars. But many central banks
imports, but when their harvest is good, they
a small proportion of internationally traded
inadequate capital markets in Europe-in-
After 1958, the deficits became a cause
held dollars merely because they did not
prefer to add their domestic production of
adequate because of Europe's own restric-
goods, the decrease in United States spend-
of concern as they increased in size, assumed
tions-have left European companies no re-
a chronic character, and were accompanied
293-820-11713
293-820-11713
30
CONGRESSIONAL RECORD
CONGRESSIONAL RECORD
31
to pay out its entire gold reserve to back up
U.S. It is, moreover, certain that the con-
deflation and depression, the ominous
plied by exporters or importers, or in some
mate restraint is capable of inducing the
A RETREAT FROM PRINCIPLE
tinued reliance on guidelines and similar
character of the ongoing international de-
cases by international institutions. Of such
domestic economic and fiscal discipline
an internationally depreciating dollar.
The United States, which led the way after
World War II in freeing the international
controls will seriously prejudice the role of
ficits of the U.S. is revealed.
commercial credit, there is in individual
which is the necessary condition of con-
Because the dollar serves, together with
gold, as a principal component of the in-
the U.S. as world banker, provoke retaliatory
INTERNATIONAL LIQUIDITY AND TRADE
countries normally no shortage, or internal
tinued participation by each country in the
economy of its shackles, is now perversely
ternational reserves of the rest of the world,
retreating from its own principles. It en-
measures in other countries, and thus ulti-
As long as the U.S. continues in the de-
credit policy can be adjusted to make up
international division of labor.
doubts about its future have measurably in-
mately force a return to the economic na-
for any untoward tightness of funds. In con-
thusiastically supports tariff cutting under
ficit position its plea for the establishment
Under the guise of a noble and seemingly
tionalism of the unlamented 1930s.
trast, international reserves are required to
creased the fragility of existing monetary
"Kennedy rounds" while adamantly resist-
of a mechanism to produce "paper gold"
disinterested appeal for more international
arrangements. World reserves are normally
ing the internal discipline-i monetary and
LONDON MONETARY AGREEMENT-AN ILLUSION
must remain suspect; in fact, its motives in
finance only the inevitable differences be-
liquidity for a liquidity-starved world, the
OF STRENGTH
this respect have been all too transparent.
tween the value of a country's total imports
incumbent Administration is in reality seek-
increased each year by additions to monetary
fiscal matters-that international trade
gold stocks from new production. In the
requires.
Spokesmen of the Administration would
But the urgency of the case for an increase
and its total exports; their purpose is not to
ing to continue adamantly with the economic
finance trade itself but net trade imbalances.
have it believed that the balance of pay-
in "international liquidity" remains dubious
status quo at home, come what may in the
last few years, however, virtually the entire
It couples demands for "liberalization" of
ments difficulties of the United States are
for more fundamental reasons. The histori-
The alleged shortage of liquidity is not a
shape of balance of payments difficulties. The
world output of gold has been absorbed pri-
trade in goods and services, hypocritically,
general illness afflicting the world because of
the outgrowth of deficiencies in the inter-
cal record shows that there is no necessary
plea in truth is not for more liquidity for
vately, with one-third of the total being
purchased by industry and two-thirds by
with programs to deliberalize capital move-
ments. The restrictions capital outflows
national monetary system. Statements ad-
relationship between the growth of world
the failure of growth in gold stocks and
"the world", but for the United States; it
verting to the seriousness of the U.S. posi-
trade and th growth of world montary re-
dollar reserves to keep pace with the growth
is a plea for more cash with which the Ad-
hoarders. The private absorption of gold was
are, in effect, a form of exchange control,
in world trade; it is a surfeit of dollars, in-
$1.5 billion in 1966, of which 81 billion was
tion have been coupled with emphasis on
serves. On the contrary, both magnitudes
ministration can continue in its "guns and
while the interest equalization tax on the
purchased by hoarders speculating on a de-
the need for reform of the international
would appear to develop in a completely un-
deed, which is the contemporary interna-
butter" policies.
valuation of the dollar in terms of gold. New
sale of a foreign securities in the U.S. is a
monetary system. The widely hailed London
related way. In past periods, world trade has
tional malaise. Since the exchange reserves
Under the circumstances, it is not sur-
disguised form of selective devaluation of
of one country are always the exchange defi-
gold production, including sales from the
the dollar. These are exceedingly drastic and,
Monetary Agreement of 1967 providing for
decreased substantially in value while
prising that the surplus countries are re-
in the end, self-defeating interferences with
world reserves have rapidly increased. At
ciencies of another country, a liquidity prob-
sisting American attempts to have them ac-
USSR, was $90 million less than the amount
the creation of a new form of international
lem emerges only in respect to some coun-
privately absorbed with the result that the
the fundamental freedoms of Americans to
reserve to supplement gold and dollars is
other times, for example in the post World
cept "paper gold" in exchange for their real
War II period, world trade have advanced
tries, viz., those with chronically unbalanced
goods and services. The surplus countries
monetary gold stocks of the world actually
declined in 1966, the first such decline in
carry on legitimate business activity
expected to resolve our difficulties. In fact,
these "special drawing rights or SDR's—
far more rapidly than the growth in re-
balances of payments. If all nations' imports
see reason for admitting the inflations
wherever they may choose. But they are the
and exports on current and capital account
modern monetary history.
predictable response of an Administration
which are simple bookkeeping entries sup-
serves.
being exported to them-via the balance of
DECLINE OF U.S. TRADE SURPLUS
which seeks to avoid at all costs the modifica-
It is significant that prior to 1914 when
exactly balanced, no international movement
payments-by the deficit countries as long
ported by the prestige of the International
nations allowed their internal economies to
of cash would be required at all. While this
as the deficit countries refuse to admit some
A particular cause of concern in view of
tion of domestic objectives in the interest of
Monetary Fund-are additional lines of
the developments here described has been
achieving international equilibrium.
credit extended by the surplus countries to
adjust to changes in the international econ-
hypothetical situation is hardly likely to be
deflation or even to moderate their own in-
realized, the principle is clear: surpluses and
ternal inflationary processes.
the deficit countries.
omy, the term "shortage of international 11-
the significant deterioration of the United
SELF-DEFEATING CONTROLS
quidity" was unheard of. It is a fact that
deficits (excesses or deficiencies of "interna-
The power to apply the provisions of the
THE NEED FOR DISCIPLINE AT HOME
States balance of trade. The U.S. has tradi-
In spite of the Administration's imposition
new agreement lies in the hands of the
Great Britain, the leading trading nation of
tional liquidity") arise in specific countries
tionally counted on its large surplus on trade
Common Market countries who are in sur-
the nineteenth century, supported a vast
as the product of their individual policies
Neither paper gold, nor "Special Drawing
to offset the large outflows of capital from
of controls on capital movements, the deficit
in the balance of payments has persisted. It
network of trade and payments on a minis-
and not in the world at large. No "world
Rights," nor flexible rates of exchange, nor
this country, both on private and govern-
plus and who represent only 18 percent of
state" exists of which it could be said that
any other devices no matter how sophisti-
amounted to $1.3 billion in 1965, $1.4 billion
mental account. But the trade surplus fell
the votes in the IMF. The other 82 percent
cule reserve; nor did the relatively small size
in 1966, and the estimated deficit for
of the British reserve prevent her trade and
it is short of "world liquidity."
cated, can dispense a deficit nation such as
from its high of almost $7 billion at the
are deficit countries, including chiefly the
the United States from the adjustments of
1967 is in the $4 billion zone. It now
U.S., Great Britain, and the underdeveloped
that of the whole world from undergoing ex-
DANGERS OF "PAPER GOLD"
close of 1964 to less than 84 billion in 1966.
its internal economy needed to achieve ex-
is clear that preoccupation with the attain-
countries. It is clear that the deficit coun-
tremely rapid growth in this period. The
Thus, the problematical aspects of Admin-
The worsening of the trade balance was due
ternal equilibrium. Chronic deficits in the
ment of short-run balance between receipts
tries-the only ones in need of more "in-
equilibrating forces at work under the gold
istration supported schemes to overcome the
not only to Vietnam-caused increases in im-
balance of payments, or a continuously de-
and payments by arbitrarily restricting ac-
ternational liquidity"-would like to see
standard reduced the need for reserves to a
alleged illiquidity of the world by creating &
ports (which increased 10 percent more rap-
preciating currency, are the result of a coun-
tivity in specific sectors, e.g., cutting back on
early creation of substantial amounts of
minimum.
new reserve unit is seen to lie in the fact
idly than exports) but to inflationary pres-
try's attempt to live beyond its means at
sures in the domestic economy which raised
capital outflows, can actually provoke new
SDRs. The steady decline in U.S. gold stocks
THE PHANTOM OF "WORLD LIQUIDITY"
that the deficit countries-the only ones
home while seeking, through trade, to in-
private demands for resources which nor-
disequilibrium. This is because items in the
has moved the Administration to engage
The basic error of the "liquidity shortage"
who would require such artificial reserves—
duce other countries to pick up the tab for
mally would have been exported. The weak-
balance of payments are closely interrelated;
in desperate maneuvering to discover new
thesis is its confusion of internal with ex-
would in effect be allowed to obtain carte
the difference. This is a situation which will
"corrections" in one item cannot be made
ness of the trade balance raises the possi-
means of covering its chronic payments
ternal liquidity. But the two are quite dif-
blanche for further deficits. It would be the
yield a shortage of international liquidity
bility of a larger balance of payments deficit
without producing counterbalancing changes
deficits.
ferent in origin and in effect. An internal
surplus countries which would be required to
for the deficit country under any interna-
in the immediate future and therewith of the
in other items.
But the surplus countries are understand-
contraction or expansion of liquidity rela-
exchange real goods for "paper gold" and
tional monetary system.
emergence of a new and more critical turn
To illustrate, exports of money capital by
ably determined not to supply resources for
tive to physical product can normally be ex-
hence to bear the burden of the continuous
The times are over in which the prestige
in the U.S. position in the world economy.
American corporations to their foreign sub-
that purpose. Neither the amount of new
pected to induce a contraction or expansion
import of inflation to which such a perpetual
and power of the dollar could compel the
sidiaries tend to increase U.S. merchandise
reserves to be created nor when they are to
of demand and of economic activity gen-
motion machine would give rise.
VOLUNTARY RESTRAINT OF CAPITAL OUTFLOWS
surplus nations to give up their own vital
exports because foreign affiliates of American
be paid have been agreed upon, nor is any
erally. Conversely, an increasing volume of
It is conceded that there must be enough
interests-in particular, their concern for
The essence of the U.S. problem is that the
firms import large quantities of merchandise
decision on these matters likely to be forth-
business and trade cannot be supported with-
international liquidity to provide the time
the avoidance of inflation-against their
imperatives of the balance of payments-the
and services from the U.S. for their own use.
coming until the U.S. has ended its deficit.
out an increasing volume of credit and cash.
required for nations to make the internal
own better judgment In international mon-
need to bring domestic costs, prices, and in-
The U.S. Department of Commerce has esti-
THE KEY ROLE OF THE DOLLAR
The function of international reserves,
adjustments called for by their balance of
etary affairs, the power of decision has
comes into harmonious relationships with
mated that merchandise exports by Ameri-
The claims made by the Administration
however, is not to consummate international
payments situation. But there must not be
passed humilitatingly from our hands. We
those prevailing in the countries with which
can firms to their foreign affiliates in 1964
that the London accord represents "one of
transactions. These are, on the contrary, fl-
an endless supply of liquidity; liquidity must
can regain it only by returning to monetary
we trade-are not permitted to interfere with
amounted to 25 percent of total U.S. exports
the great days in the history of international
nanced by ordinary commercial credit sup-
be permitted to run out for only this ulti-
discipline and fiscal sanity at home.
the ideological and political imperatives of
in that year. Moreover, there is evidence that
financial cooperation" appear vastly exagger-
easy money policies, expanded spending pro-
current cutbacks in U.S. long-term invest-
ated. The evidence suggests that it is not
293-820-11713
grams, and chronic budget deficits. The offi-
ment abroad will sacrifice future net inflows
the international monetary system that is in
cial U.S. position appears to be: it is not our
on such investments. Total U.S. direct in-
need of reform so much as the U.S. dollar,
policies which should adjust to the needs
vestments abroad are already so large that
and that it is the shaky position of the dollar
of the balance of payments, but the balance
the return of funds to the United States in
which puts the international monetary sys-
of payments which should adjust to our
the form of dividends and profits exceed the
tem in a precarious position.
policies. Accordingly, the major response of
outflow of new investment. In 1966 the re-
If the U.S. fails to bring its international
the Administration to the balance of pay-
turn on existing direct foreign investments
accounts into balance and if, as a result, a
ments crisis has not been to reduce domestic
was $4.1 billion compared with new direct
devaluation of the dollar in terms of gold
inflationary pressures but rather to clamp
investment abroad in that year of $3.4 billion.
becomes necessary, the consequence may well
controls on the movement of private capital
Similarly, the cutbacks in U.S. bank lend-
be a world-wide liquidity panic as all na-
out of the United States.
ing abroad-which were significant contri-
tions rush to acquire gold or attempt to pre-
The so-called "guidelines" promulgated by
butions to the reduction in the balance of
vent loss of their own gold. Naive hopes that
the Administration for capital lending
payments deficit at the time they occurred—
gold can be eliminated as a component of
abroad are the counterpart in our interna-
have been largely offset by declines in foreign
internaional reserves founder on the ages-old
tional affairs of the "guideposts" concept in
deposits in the U.S. Denied credit facilities
and universal preference for the metal as the
the domestic economy. Both substitute gov-
in the U.S., foreign holders of dollar deposits
one medium of international exchange which
ernment flat for the forces of the market;
in American banks have drawn them down
is beyond the control of any single nation
both conflict violently with the principles of
instead. Again, "voluntary" prohibitions on
freedom of enterprise and efficient allocation
or group of nations.
U.S. industrial investment abroad have
The continued primacy of gold as interna-
of economic resources.
caused American firms to borrow abroad;
tional money makes it unlikely that the
The techniques the Administration pro-
this has helped measurably to push up inter-
International Monetary Fund, even with the
poses for overcoming international dis-
est rates abroad relative to the U.S., thus
potential new resources established under the
equilibrium are but a throwback to the solu-
cancelling out in part efforts to stem capital
London agreement, would be able to prevent
tions used in the 1930's-the era of "inter-
outflows by raising interest rates here.
a crisis precipitated by collapse of confidence
national laiseez-faire." The nations simply
In sum, restrictions of investment out-
in the dollar. The IMF was designed to pro-
retreated from the international economy so
flows, while of help in the short run, may
vide stop-gap aid to countries with temporary
be moving the economy of the U.S. even
short-falls in their balances of payments.
that they could pursue autonomous domestic
farther away from balance of payments
It was not designed and it is not able to cope
policies and they secured this retreat with the
armor of exchange controls, quotas, and bi-
equilibrium in the long run. Instead of nar-
with the prolonged cumulative deficits of the
rowing the deficit, they tend to widen it.
sort the U.S. has been experiencing. When
lateral trade agreements. Balance of pay-
This is because none of these measures is
it is recalled that a prior devaluation of &
ments crises were avoided but at the heavy
a substitute for removing a chief cause of
key currency-the devaluation of the British
cost of almost total disintegration of the in-
the deficits, viz., the absence of fiscal re-
pound in 1931-triggered an international
ternational economy.
straint and monetary discipline within the
liquidity crisis and brought on world-wide
U.S. GOVERNMENT PRINTING OFFICE:1968
293-820-11713
CONGRESSMAN
NEWS
GERALD R. FORD
HOUSE REPUBLICAN LEADER
RELEASE
--FOR IMMEDIATE RELEASE-
April 2, 1968
President Johnson now has a singular opportunity to begin putting this
Nation's fiscal house in order.
Having decided against an attempt to seek reelection, he is free to act
without regard to political considerations. He is in perfect position to launch
the "austerity program" he recently declared is urgently needed in this country.
I ask that the President reconsider the position he took on management of
our fiscal affairs in his address to the Nation on radio and television Sunday
night. In that speech he indicated that he will simply sit back and wait for
Congress to make reductions in his budget for fiscal 1969.
If the fiscal situation at the federal level is as critical as the President
and his advisers have painted it, then the country cannot wait for Congress to
act.
I urge instead that the President immediately outline and implement the
austerity program he recently declared to be so necessary if the United States is
to maintain any semblance of prosperity. This means the President should impose
immediate lower spending limitations on each department and agency.
The President on his own can order a sweeping hold-down in all federal
spending unrelated to the Vietnam War. In view of the fact he will not be
seeking reelection, he should have no difficulty in imposing a ceiling on federal
spending immediately--a ceiling which would remain in effect at least throughout
the rest of his term in office.
President Johnson has sought to eliminate some of the divisiveness in this
country over Vietnam by removing himself as a candidate for reelection. Let him
now act to slow inflation and the continuing deterioration in the value of the
dollar by cutting his own budget. He would be doing the American people a great
service.
# #
QERALD FORD LIBRARY
25 July 1968
IIIII
U. S. HOUSE
OF REPRESENTATIVES
REPUBLICAN POLICY COMMITTEE
REP. JOHN J. RHODES, (R.-ARIZ.) CHAIRMAN
1616 LONGWORTH HOUSE OFFICE BUILDING
TELEPHONE 225-6168
10
HOUSE REPUBLICAN POLICY COMMITTEE OPPOSES H.R. 15890 - A BILL THAT WOULD AUTHORIZE
428 ADDITIONAL SUPERGRADE POSITIONS.
The House Republican Policy Committee is opposed to H.R. 15890. This bill
would authorize 428 additional supergrade positions (GS-16, 17 and 18) in the Executive
Branch.
There are at the present time a total of 9,320 supergrade posts (or their
equivalent) in the Executive Branch. These positions pay between $22,835 and $28,000
per year. The addition of 428 such posts (365 to a general pool and 63 to specific
agencies) would increase the Federal payroll by at least $10 million a year. Moreover,
a promotion to a supergrade usually creates a chain reaction of at least a dozen pro-
motions or new appointments in the lower grades, each of which requires additional
Federal expenditures.
Out of the total of 9,320 supergrade positions now in existence, Congress
establishes numerical ceilings affecting only about one-half. There are no limitations
on the remainder. Since 1961 there has been a total increase of over 4,000 supergrade
positions. This large increase is in direct conflict with the Congressional policy
that was established in Public Law 87-367.
One year ago the bill submitted by the Administration provided for an increase
of 245 supergrade jobs in the "general quota pool" under the jurisdiction of the
Civil Service Commission and 63 supergrades for certain specified agencies. At that
time, the Chairman of the Commission, John W. Macy, Jr., testified, "The 245 that we
are proposing at the present time represent the Commission's best judgment as to the
number that are needed for the foreseeable future." Now in just one short year, the
FORD
needs of the Commission's general quota pool have increased from 245 to 365 supergrade
positions. Moreover, of the 365 general pool supergrade positions, 100 would be held
LIBRARY
(over)
in reserve for future use.
This legislation has been recommended by the Johnson-Humphrey Administration
despite the fact that we are in a fiscal crisis that has placed in jeopardy the
financial structure of this Country. It would substantially expand the elite corps
of the Federal bureaucracy even though in an effort to meet this crisis, a 10 percent
surtax has been imposed on the American Taxpayer and the Administration has been
ordered to cut $6 billion in 1969 budget expenditures and reduce the Federal payroll
by 250,000 permanent positions.
The proposed legislation is economy in reverse. It is a flagrant example of
a Bureaucracy out of control determined to make its own rules and march to its own
music. If this legislation is adopted, top paying jobs could be awarded in the waning
days of a thoroughly discredited administration to key political appointees and
cronies. We urge that H.R. 15890 be defeated.
IIIII
U. S. HOUSE
OF REPRESENTATIVES
REPUBLICAN POLICY COMMITTEE
REP. JOHN J. RHODES, (R.-ARIZ.) CHAIRMAN
1616 LONGWORTH HOUSE OFFICE BUILDING
TELEPHONE 225-6168
10
91st Congress
March 11, 1969
First Session
Statement Number 4
STATEMENT ON INCREASE OF THE PRESENT FEDERAL BORROWING AUTHORITY
The House Republican Policy Committee urges the establishment of the
federal debt ceiling in the amount of $365 billion, and the provision of an
additional temporary borrowing authority of $12 billion to be available until
June 30, 1970, to accommodate seasonal financing peaks during the present calendar
year.
A projection of seasonal requirements indicates that the present borrowing
authority limitation will be clearly inadequate in the last quarter of this calendar
year. Even the financing requirements for April, 1969, will present most serious
strains on prudent financial management. An increase in the current debt ceiling to
accommodate immediate obligations is urgently needed.
The debt ceiling will require real expenditure restraint by the Executive
Branch and the Congress. Present debt projections indicate that the proposed new
ceiling will necessitate a review of the ceiling next year, thus affording a further
opportunity for appraisal of the budgetary and expenditure activities of the Executive
Branch and the Congress.
The Nixon Administration is currently reevaluating all federal programs for
the purpose of effecting significant economies. It is hoped that this reevaluation
will provide substantial reduction in federal spending.
We urge the Administration and the Congress to exert every reasonable effort
toward striking a true balance between the income of the Government and its
expenditures so that further increases in the debt limit will not be required.
LIBRARY
CONGRESSMAN
NEWS
GERALD R. FORD
HOUSE REPUBLICAN LEADER
RELEASE
--FOR RELEASE ON RECEIPT--
April 24, 1969
Remarks by Rep. Gerald R. Ford, R-Mich., Republican Leader, U.S. House of Reps.,
Placed in the Body of the Congressional Record of Thursday, April 24, 1969.
Mr. Speaker, I ask unanimous consent to proceed for one minute and to
revise and extend my remarks.
Mr. Speaker, on April 21 the President of the United States sent the
Congress a message urging repeal of the 7 per cent investment tax credit effective
as of that date.
On that same day I endorsed President Nixon's call for repeal of the
investment tax credit for several reasons but primarily because I believe such
action is necessary to curb inflation and thus shield the American people from
the repeated blows of price escalation.
Yesterday I was shocked to learn that the cost of living had jumped
eight-tenths of one per cent during March, a rate of price rise which runs to
nearly 10 per cent on an annual basis.
Mr. Speaker, as the proverb in the greatest book ever written so wisely
warned: "As ye sow, so shall ye reap." We are today continuing to suffer from
the inflationary policies of the past three years and the failure of the Johnson
Administration to take timely action against inflationary pressures that surfaced
as early as late 1965. Now the battle against inflation is infinitely more
difficult to win.
Mr. Speaker, the sharp cost of living jump in March strengthens my earlier
judgment that the Congress should respond as quickly as possible to President
Nixon's call for repeal of the investment tax credit.
Although it is possible to read too much into one month's cost-of-living
index figures, the warning signal in the March data is unmistakable.
To me it says that the fiscal and monetary measures already taken by the
Administration and by the Federal Reserve Board to slow down the economy and bring
inflation under control are inadequate for the task.
There is always risk involved in actions taken to dampen down the economy.
But we must take such risks, carefully and judiciously, if we are to bring
inflation under control.
The impact of investment tax credit repeal will not be felt in the economy
immediately. When it does register, cutting the income tax surcharge in half next
Jan. 1 as proposed by President Nixon will probably be needed as a stimulus to the
economy.
We must win the fight against inflation, for it weighs most heavily upon
the poor. And runaway inflation would inevitably be followed by a deep recession
and heavy unemployment.
FORD
I hope the members of this House will support the President in his efforts
LIBRAR
to repeal the investment tax credit.
# # #
NEWS
CONGRESSMAN
GERALD R. FORD
HOUSE REPUBLICAN LEADER
RELEASE
January 27, 1970
Remarks on floor of House of Representatives by Rep. Gerald R. Ford
Mr. Speaker:
I am sure all of us here listened to the President's talk on television last
night with great interest.
It was in my opinion a forthright and convincing speech.
It was a speech that recognized the value of and the need for not only
educational programs, but other social programs also.
But it was a speech that also made absolutely clear what the real issue is
and what it is not.
Certainly, the issue is not a debate on the merits of education or on whether
federal funds should be spent on education.
Certainly the issue is not one of whether or not we should have an impacted
aid program, although there is no doubt that that program needs extensive reform.
The issue was simply: inflation and the duty of the President as the national
leader to control it.
In the President's mind and I'm sure in the minds of most of us here, inflation
is the overriding domestic issue at this time.
This being so, the President recognizes that it is his duty and his obligation
to take the necessary steps to bring it under control.
One of these steps is to keep federal spending under federal income. This, too
the President is determined to do. That is why we have a balanced budget this year
FORD
and why we will have one next year. That is why the President has vetoed the HEW
appropriations bill. And that is why those who recognize the overriding need to
control inflation will vote to sustain that veto.
GER
LIBRARY
####
10
U. S. HOUSE
OF
REPRESENTATIVES
REPUBLICAN POLICY
COMMITTEE
REP. JOHN J. RHODES, (R.-ARIZ.) CHAIRMAN
1616 LONGWORTH HOUSE OFFICE BUILDING
TELEPHONE 225-6168
bas
10
91st Congress
January 27, 1970
Second Session
Statement Number 1
HOUSE REPUBLICAN POLICY STATEMENT
ON
SUPPORT OF VETO OF LABOR-HEW APPROPRIATIONS BILL
The House Republican Policy Committee supports President Nixon's veto of
the Labor-HEW appropriations bill.
The bill provides new obligational authority for FY 1970 in the amount of
19.7 billion, and appropriates $1.26 billion more than was requested by the
President. Such an increase, at this period in history, is clearly inflationary.
The President is making every effort to control an inflation which has
reached an annual rate of more than six percent. The necessary tools to control
the ever-rising cost of living must be provided by the Congress. It cannot be
expected that rising costs be curbed when the Congress votes large, unbudgeted
sums which make such control impossible.
Unless inflation is halted, all government programs, including those for
education, will suffer. Even more importantly, if inflation continues to run
rampant, it will be to the detriment of all Americans, especially those on the
lowest rung of the economic ladder. We cannot in good conscience add to the cost-
of-living crisis of the old, the sick, the disabled and others on low or fixed
incomes.
A major portion of the $1.26 billion increase provides mandatory grants
requiring the Administration to allocate funds regardless of real need or of its
inflationary effect; a significant portion of the $1.26 billion increase provides
LIBRARY
(over)
lower priority items which can be postponed without lessening the quality of
American education.
As President Nixon stated in his veto message, the HEW FY 1970 appropriation
represents "the wrong amount for the wrong programs at the wrong time". Much of the
add-on merely increases spending for existing educational programs without providing
sorely-needed reforms to improve the quality of those programs and to use most
beneficially and equitably each dollar appropriated.
In supporting the President's veto we wish to emphasize that neither he nor
we oppose the expenditure of adequate funds to meet today's bona fide educational
needs. Within the framework of a balanced budget the President proposed record-
high expenditures for education in FY 1970, 13% above those of last year. We
support these increases.
We do not believe, however, that the addition of a $1.26 billion spending
program, late in this fiscal year and late in this academic year, at the expense of
a balanced budget, can bring true benefit to education. Persistent inflation can
and has proved education's worst enemy. And, despite the measures taken by this
Administration to curb inflation, the cost of living has risen three percent since
the HEW appropriations bill was first considered by the House of Representatives
last July. Thus the economic picture is entirely different than it was when this
bill was initially voted upon.
In the past decade the free spenders in the Executive Department, with the
agreement of Congress, created federal deficits of $57 billion. The increased cost
of living which such deficits have brought to all Americans, is all too well known.
Inflation is largely psychological. People who make management decisions
still are thinking in terms of further inflation, because they are not yet convinced
that this Congress has the courage to make the hard decisions necessary to stem the
inflationary tide. This vote will be a clear signal to them, and to the World--
America, through its Congress, either will or will not "bite the bullet". The effect
of overriding the President's veto would, therefore, be to encourage inflation, and
further increase the cost of living to all Americans.
The House Republican Policy Committee urges support of President Nixon's
veto.
NEWS
CONGRESSMAN
GERALD R. FORD
HOUSE REPUBLICAN LEADER
RELEASE
FOR IMEDIATE RELEASE
January 20, 1970
Statement of Rep. Gerald R. Ford (R-Mich.), House Republican Leader
Once again the House of Representatives, speaking for the American people,
has upheld the President of the United States and the highest interest of
the country.
President Nixon's search for a just peace in VietNam was overwhelmingly
sustained by the House on a non-partisan basis. Today we demonstrated that in
domestic affairs, the Republicans in the House can sustain President Nixon
on a partisan basis, if need be.
I am deeply gratified that substantially more than the constitutional number
of 145 House votes to sustain a Presidential veto were cast by House Republicans.
I am also profoundly pleased that so many Democrats put the soundness of the
dollar and the future of the nation ahead of narrow partisanship in joining
to support President Nixon on this critical issue.
I am sure this victory for every American in the field of fiscal responsibility
will be followed promptly by a joint effort on the part of the President and
the Congress to support all our important health and education programs
adequately for the balance of this fiscal year.
# #
FORD i LIBRARY GERALD
NEWS
CONGRESSMAN
GERALD R. FORD
HOUSE REPUBLICAN LEADER
RELEASE
FOR IMEDIATE RELEASE
February 2, 1970
Statement of Rep. Gerald R. Ford (R-llich.), House Republican Leader
President Nixon's proposed balanced budget and his economic message
are marked by courage and candor.
It is particularly gratifying that the President proposes to achieve
a budget surplus without new or additional Federal taxes.
He is moving deliberately and decisively to slow down and stop the
ravages of inflation as he is to slow down and stop the ravages of Vietnam.
Both are difficult and dangerous situations still, but years of drift have
been checked and we are now moving in new directions.
I have not examined the new budget recommendations in detail, but
I have great confidence in the Secretary of Defense and in the other Cabinet
Officers who have been called upon to make sharp cuts in their departmental
costs for the coming fiscal year. The Congress will, as always, have an
opportunity to study, adjust and finally work its will on the President's
proposed budget, but the House has just demonstrated that we can sustain his
promised veto of inflationary increases. The American people will support
such prudent concern for their savings, the buying power of their earnings,
and their tax dollars.
IBRARI
CONGRESSMAN
NEWS
GERALD R. FORD
HOUSE REPUBLICAN LEADER
RELEASE
--FOR RELEASE AT 12 NOON WEDNESDAY--
February 25, 1970
Remarks by Rep. Gerald R. Ford, R-Mich., Minority Leader, U.S. House of
Representatives, to be placed in the Congressional Record of Wednesday,
Feb. 25, 1970.
Mr. Speaker: Last Thursday the House Majority Leader placed in the
Congressional Record a statement in which he castigated the Nixon Administration
for the inflation President Nixon inherited from the previous Democratic
administration.
This is the height of irony, Mr. Speaker --- that the Democratic floor leader
in the House should seek to blame the Nixon Administration for the inflation today
that is directly due to the policies of the previous Democratic Administration.
The gentleman from Oklahoma knows as well as does anyone else in this chamber
that the inflation from which we continue to suffer began in 1965 and gathered
speed because of excessive and often irresponsible federal spending and the
uncoordinated monetary policies in the years immediately thereafter --- years when
both the White House and the Congress were controlled by the Democratic Party.
The Democratic floor leader would have the American people believe that
their economic lot has suddenly worsened, has deteriorated because a Republican
President now sits in the White House.
The truth is that the Democrats, because of irresponsible fiscal policies,
brought on inflation which a Republican President now is forced to combat, with
all of the painful consequences attending such efforts.
The truth is that the real earnings of the non-farm worker in the private
sector rose hardly at all in the Democratic years of 1965, 1966, 1967 and 1968 --
the years when then President Lyndon Johnson said we could have both guns and butter.
Figures I have just obtained from the Department of Labor's Bureau of Labor
Statistics show that a non-farm worker's rise in gross weekly earnings between
January 1965 and January 1969 were almost completely eaten up by increases in
consumer prices and by income and Social Security tax increases.
The gross weekly earnings of this worker rose 19 per cent during this
period --- from $92.64 a week to $110.25.
But what happened to those weekly earnings as a result of price increases
and the rise in taxes? The advance in earnings almost vanished.
(more)
-2-
The Consumer Price Index jumped from 108.9 in January 1965 to 124.1 in
January 1969, a 14 per cent rise. When a non-farm worker's gross weekly earnings
were adjusted for price increases, he showed an increase in real earnings of only
4.4 per cent in that 4-year period under the Democrats.
Add to that the increase in income and Social Security taxes, and the
non-farm worker's real weekly earnings drop to $77.90 a week -- an increase in real
earnings of only 0.7 per cent in four years!
That is what the American worker has to show for all of his years of
struggle during the previous Democratic Administration -- a rise of 0.7 per cent
in real weekly earnings. This is less than a one per cent increase in purchasing
power, not much help for a growing or expanding family.
The Democratic floor leader has unfairly attacked the Nixon Administration
for its efforts to combat the inflation brought on by the previous Administration,
a Democratic Administration which committed 540,000 military personnel to Vietnam
and refused to pay for that war, an administration which ran up federal deficits
totalling $45 billion.
He should be candid enough to tell the workers of America that the Nation
is plagued by Democratic inflation -- that the Nixon Administration is finding it
extremely difficult to fight that Democratic inflation because it was permitted
to gain momentum while the Democrats controlled both the White House and the
Congress -- that Democrats currently are not cooperating with the President in his
efforts to fight Democratic inflation but are seeking to make political capital
out of those efforts.
It of course is naive to expect some Democrats to make such admissions,
although I must say that Sen. Edmund Muskie was frank enough to state in a recent
Christian Science Monitor interview that President Nixon had inherited his problems
from the previous Democratic Administration.
So we are not really being naive today. We are simply making a plea for
candor. And we would also express the hope that the Democrats would stop playing
politics with the people's pocketbook.
President Nixon is making a constructive effort to solve the inherited
problem of inflation. He is seeking to build a strong peacetime economy that will
provide jobs and industrial growth for a better America. He deserves better from
the opposition party than political sabotage.
# # #
Distribution Full
Office Copy
CONGRESSMAN
NEWS
GERALD R. FORD
HOUSE REPUBLICAN LEADER
RELEASE
--FOR RELEASE AT 12 NOON WEDNESDAY--
February 25, 1970
Remarks by Rep. Gerald R. Ford, R-Mich., Minority Leader, U.S. House of
Representatives, to be placed in the Congressional Record of Wednesday,
Feb. 25, 1970.
Mr. Speaker: Last Thursday the House Majority Leader placed in the
Congressional Record a statement in which he castigated the Nixon Administration
for the inflation President Nixon inherited from the previous Democratic
administration.
This is the height of irony, Mr. Speaker -- that the Democratic floor leader
in the House should seek to blame the Nixon Administration for the inflation today
that is directly due to the policies of the previous Democratic Administration.
The gentleman from Oklahoma knows as well as does anyone else in this chamber
that the inflation from which we continue to suffer began in 1965 and gathered
speed because of excessive and often irresponsible federal spending and the
uncoordinated monetary policies in the years immediately thereafter -- years when
both the White House and the Congress were controlled by the Democratic Party.
The Democratic floor leader would have the American people believe that
their economic lot has suddenly worsened, has deteriorated because a Republican
President now sits in the White House.
The truth is that the Democrats, because of irresponsible fiscal policies,
brought on inflation which a Republican President now is forced to combat, with
all of the painful consequences attending such efforts.
The truth is that the real earnings of the non-farm worker in the private
sector rose hardly at all in the Democratic years of 1965, 1966, 1967 and 1968 --
the years when then President Lyndon Johnson said we could have both guns and butter.
Figures I have just obtained from the Department of Labor's Bureau of Labor
Statistics show that a non-farm worker's rise in gross weekly earnings between
January 1965 and January 1969 were almost completely eaten up by increases in
consumer prices and by income and Social Security tax increases.
The gross weekly earnings of this worker rose 19 per cent during this
period --- from $92.64 a week to $110.25.
But what happened to those weekly earnings as a result of price increases
and the rise in taxes? The advance in earnings almost vanished.
(more)
-2-
The Consumer Price Index jumped from 108.9 in January 1965 to 124.1 in
January 1969, a 14 per cent rise. When a non-farm worker's gross weekly earnings
were adjusted for price increases, he showed an increase in real earnings of only
4. per cent in that 4-year period under the Democrats.
Add to that the increase in income and Social Security taxes, and the
non-farm worker's real weekly earnings drop to $77.90 a week -- an increase in real
earnings of only 0.7 per cent in four years!
That is what the American worker has to show for all of his years of
struggle during the previous Democratic Administration -- a rise of 0.7 per cent
in real weekly earnings. This is less than a one per cent increase in purchasing
power, not much help for a growing or expanding family.
The Democratic floor leader has unfairly attacked the Nixon Administration
for its efforts to combat the inflation brought on by the previous Administration,
a Democratic Administration which committed 540,000 military personnel to Vietnam
and refused to pay for that war, an administration which ran up federal deficits
totalling $45 billion.
He should be candid enough to tell the workers of America that the Nation
is plagued by Democratic inflation -- that the Nixon Administration is finding it
extremely difficult to fight that Democratic inflation because it was permitted
to gain momentum while the Democrats controlled both the White House and the
Congress -- that Democrats currently are not cooperating with the President in his
efforts to fight Democratic inflation but are seeking to make political capital
out of those efforts.
It of course is naive to expect some Democrats to make such admissions,
although I must say that Sen. Edmund Muskie was frank enough to state in a recent
Christian Science Monitor interview that President Nixon had inherited his problems
from the previous Democratic Administration.
So we are not really being naive today. We are simply making a plea for
candor. And we would also express the hope that the Democrats would stop playing
politics with the people's pocketbook.
President Nixon is making a constructive effort to solve the inherited
problem of inflation. He is seeking to build a strong peacetime economy that will
provide jobs and industrial growth for a better America. He deserves better from
the opposition party than political sabotage.
# # #
CONGRESSMAN
NEWS
GERALD R. FORD
HOUSE REPUBLICAN LEADER
RELEASE
--FOR IMMEDIATE RELEASE--
March 11, 1970
Remarks by Rep. Gerald R. Ford, R-Mich., placed in the Congressional Record of
Wednesday, March 11, 1970.
Mr. Speaker: On Monday the distinguished Majority Leader of the House
informed us that because the unemployment rate rose to 4.2 per cent in January
he had concluded this Nation is in the grip of a recession.
This is a most interesting observation, Mr. Speaker, particularly if you
look at the unemployment rates for the years 1961 through 1965, when Democrats
were in control of both the White House and the Congress.
A look at the unemployment rates for those years tells us that the Majority
Leader is making statements that are indefensible. Apparently he is trying to talk
us into a recession.
If he is not trying to talk us into a recession, then he would have to
assert that the United States suffered through a five-year recession in the last
decade -- because in all of those years the unemployment rate exceeded the current
rate of 4.2 per cent.
In 1961, the unemployment rate was a shocking 6.7 per cent. In 1962, it
was 5.5 per cent. In 1963, it was 5.7; in 1964, 5.2; and in 1965, 4.5.
In 1966, the unemployment rate dropped to 3.8, less than 4 per cent, and it
has remained below 4 per cent until recently.
Now to what can we attribute this drop to less than 4 per cent in
unemployment -- a most welcome decline if viewed as a bit of data unrelated to
other economic factors.
One does not have to hold a doctor's degree in economics to recognize that
the sharp decline in unemployment in 1966 coincided with a sharp surge in the
economy triggered by the Vietnam War.
Conclusion --- the only valid conclusion -- is that we have been experiencing
a false prosperity generated by a war into which we were led by the previous
administration.
That same false prosperity generated inflationary pressures which steadily
pushed up the cost of living for every man, woman and child in America. And, as
(more)
BERALD FORD LIBRARY
-2-
former President Johnson said in his last Economic Report, transmitted to the
Congress in January 1969: "The problems of rising prices and wages remain intense
as 1969 begins.'
The Majority Leader now talks of a recession. In fact, he flatly asserts
that "we are in a recession" because the uenmployment rate has risen to 4.2 per cent.
Would he also say then that the years 1961 through 1965 were recession years?
The Majority Leader talks at the same time of "Nixon inflation," and yet
Lyndon Johnson in his 1969 Economic Report freely admitted that "the first
significant break in relative price stability occurred early in 1965" and added
that "more pervasive inflationary pressures started in the second half of 1965
when the military buildup in Vietnam began." Mr. Johnson went on to say:
"Higher costs had been built into the economy during 1965 and 1966, and when the
economy picked up speed in the second half of 1967, prices and wages again
accelerated.' "Union settlements," he said, "which had lagged in the initial
stage of the advance, rose especially sharply in late 1967 and in 1968." And
at that point Mr. Johnson stated that price and wage increases remained a severe
problem at the beginning of 1969.
Mr. Speaker, President Nixon and others of us are fighting the inflation
which was allowed to gather momentum under the previous Democratic administration.
One of the unfortunate consequences of that fight is that we are in a temporary
slowdown and unemployment has risen.
Mr. Speaker, rather than talking us into a recession it would better behoove
the Majority Leader to lend his support to the fight against inflation. He knows
full well that it has been necessary to cool off the economy in an effort to slow
the rise in prices. He knows full well that a rise in unemployment is an
unfortunate but inevitable result of that cooling off.
The Majority Leader has been seeking to blame the present Administration
for the sins of the previous Democratic administration. This kind of "politicking"
is bad for the entire country. And I doubt it is good politics because the
American people know that our inflation problems were inherited from a Democratic
Administration, and our fellow citizens also know that the Nixon Administration
has made sound decisions which will avoid a recession, slow down inflation and
preclude unacceptable unemployment.
###
CONGRESSMAN
NEWS
GERALD R. FORD
HOUSE REPUBLICAN LEADER
RELEASE
--FOR IMMEDIATE RELEASE--
June 17, 1970
Remarks by Rep. Gerald R. Ford, R-Mich., on the floor of the U.S. House of
Representatives, Wednesday, June 17, 1970.
Mr. Speaker: President Nixon has laid it on the line in the battle against
inflation. He has--to the benefit of the Nation-told the American people just what
the situation is and what he will do to deal with it and, just as importantly, what
he will not do. This is the kind of guidance the country needs at what I consider
to be a most crucial juncture in our fight against inflation.
I am pleased that the President will appoint a National Commission on
Productivity and that he has directed the Council of Economic Advisers to prepare a
periodic Inflation Alert. This now becomes the key to achieving price stability.
It focuses attention on the area which is central to progress toward price stability--
improvements in productivity. We cannot lick inflation of the cost-push variety
without gains in productivity. So this problem is paramount at this time.
The President has also laid it on the line in urging the Congress not to grant
him powers he has said he will not use but to move ahead quickly to pass constructive,
meaningful legislation sorely needed in this time of economic transition.
Congress should act with purposeful determination to give the President the
program he has requested--stronger unemployment insurance, the Manpower Training
Act, a $50 million supplemental appropriation to provide summer jobs for students,
insurance to protect small investors against brokerage house failures, a cost-of-
living tie with Social Security, the Emergency Home Finance Act, the means to
stimulate loans to small businesses at lower interest rates, and emergency assistance
to financially-distressed railroads.
As the President so plainly and pertinently said, this is no time to play
politics with the economy of this country. It is a time that demands the utmost
display of responsibility on the part of business, labor and government. Above all,
it is a time for affirmative action-action of the kind described by the President,
action that will move this country toward a genuine prosperity based on a peacetime
economy and the price stability that keeps more dollars in the pockets of the
American working man.
I commend the President for his most timely statement and urge that the
Congress join with him in successfully moving this country from a wartime to a
QCRALD R.FORD LIBRARY
peacetime economy. The problems are big enough for all of us to have a piece of
the action.
###
Full Distribution
a Office Copy
CONGRESSMAN
NEWS
GERALD R. FORD
HOUSE REPUBLICAN LEADER
RELEASE
--FOR IMMEDIATE RELEASE--
June 17, 1970
Remarks by Rep. Gerald R. Ford, R-Mich., on the floor of the U.S. House of
Representatives, Wednesday, June 17, 1970.
Mr. Speaker: President Nixon has laid it on the line in the battle against
inflation. He has--to the benefit of the Nation--told the American people just what
the situation is and what he will do to deal with it and, just as importantly, what
he will not do. This is the kind of guidance the country needs at what I consider
to be a most crucial juncture in our fight against inflation.
I am pleased that the President will appoint a National Commission on
Productivity and that he has directed the Council of Economic Advisers to prepare a
periodic Inflation Alert. This now becomes the key to achieving price stability.
It focuses attention on the area which is central to progress toward price stability--
improvements in productivity. We cannot lick inflation of the cost-push variety
without gains in productivity. So this problem is paramount at this time.
The President has also laid it on the line in urging the Congress not to grant
him powers he has said he will not use but to move ahead quickly to pass constructive,
meaningful legislation sorely needed in this time of economic transition.
Congress should act with purposeful determination to give the President the
program he has requested--stronger unemployment insurance, the Manpower Training
Act, a $50 million supplemental appropriation to provide summer jobs for students,
insurance to protect small investors against brokerage house failures, a cost-of-
living tie with Social Security, the Emergency Home Finance Act, the means to
stimulate loans to small businesses at lower interest rates, and emergency assistance
to financially-distressed railroads.
As the President so plainly and pertinently said, this is no time to play
politics with the economy of this country. It is a time that demands the utmost
display of responsibility on the part of business, labor and government. Above all,
it is a time for affirmative action-action of the kind described by the President,
action that will move this country toward a genuine prosperity based on a peacetime
economy and the price stability that keeps more dollars in the pockets of the
American working man.
I commend the President for his most timely statement and urge that the
Congress join with him in successfully moving this country from a wartime to a
GERALD FORD LIBRARY
peacetime economy. The problems are big enough for all of us to have a piece of
the action.
###
Full Distribution
a Office Copy
NEWS
CONGRESSMAN
GERALD R. FORD
HOUSE REPUBLICAN LEADER
RELEASE
--FOR IMMEDIATE RELEASE--
July 7, 1970
Statement by Rep. Gerald R. Ford, Republican Leader, U.S. House of Representatives
Leaders of the Democratic Party would have the American people believe that
we have "a sick economy, a very sick economy," to use the words employed on
television last night by Democratic National Chairman Lawrence F. O'Brien.
This is sick talk. This is playing politics with the people's pocketbook.
This is the big lie technique, aimed at scaring the American people for political
gain. It is simply not borne out by the facts.
The facts are that the economy is not only sound but growing. The facts
are that we can expect real economic growth at an annual rate of 3 per cent to
develop over the next six months. The facts are that the economy has turned the
corner from Democrat wartime inflation toward Republican price stability and
peacetime prosperity.
Sen. Edmund Muskie, D-Me., last night suggested we should now impose wage
and price controls to halt inflation. Yet the overwhelming majority of economists
in this country, without regard for political affiliation, have repeatedly stated
that wage and price controls simply do not work. You do not solve the problem
of inflation simply by decreeing that prices be frozen for a time. During
World War II we had strict price controls, with an enormous bureaucracy to enforce
them, and the Consumer Price Index still rose an average of 3.5 per cent.
As I said earlier, we have turned the corner toward price stability and a
new period of healthy economic growth. The Nixon Administration, by judiciously
and firmly applying appropriate monetary and fiscal policies, has managed to avoid
both a deep recession and a new inflationary surge.
Inflation has been slowing, particularly in wholesale prices where it has
dwindled to a 1.4 per cent rate during the second quarter. Inflation ran to more
than 5 per cent in 1969 as a result of four Democratic years when inflation was
allowed to gather speed unchecked. The pace rose to about 6 per cent in the first
quarter of 1970 but it now is falling back to an annual rate of 4.5 per cent or
less. Most importantly, productivity has finally begun to increase and this is
a most hopeful sign in the fight against inflation. So my prediction is that
inflation will slow to 4 per cent or less this year.
We are on the right economic path. We can look to the future with
confidence -- a future that promises high employment, diminishing unemployment,
stabilization of prices, and prosperity without war.
# # #
NEWS
CONGRESSMAN
GERALD R. FORD
HOUSE REPUBLICAN LEADER
RELEASE
--FOR IMMEDIATE RELEASE--
July 7, 1970
Statement by Rep. Gerald R. Ford, Republican Leader, U.S. House of Representatives
Leaders of the Democratic Party would have the American people believe that
we have "a sick economy, a very sick economy," to use the words employed on
television last night by Democratic National Chairman Lawrence F. O'Brien.
This is sick talk. This is playing politics with the people's pocketbook.
This is the big lie technique, aimed at scaring the American people for political
gain. It is simply not borne out by the facts.
The facts are that the economy is not only sound but growing. The facts
are that we can expect real economic growth at an annual rate of 3 per cent to
develop over the next six months. The facts are that the economy has turned the
corner from Democrat wartime inflation toward Republican price stability and
peacetime prosperity.
Sen. Edmund Muskie, D-Me., last night suggested we should now impose wage
and price controls to halt inflation. Yet the overwhelming majority of economists
in this country, without regard for political affiliation, have repeatedly stated
that wage and price controls simply do not work. You do not solve the problem
of inflation simply by decreeing that prices be frozen for a time. During
World War II we had strict price controls, with an enormous bureaucracy to enforce
them, and the Consumer Price Index still rose an average of 3.5 per cent.
As I said earlier, we have turned the corner toward price stability and a
new period of healthy economic growth. The Nixon Administration, by judiciously
and firmly applying appropriate monetary and fiscal policies, has managed to avoid
both a deep recession and a new inflationary surge.
Inflation has been slowing, particularly in wholesale prices where it has
dwindled to a 1.4 per cent rate during the second quarter. Inflation ran to more
than 5 per cent in 1969 as a result of four Democratic years when inflation was
allowed to gather speed unchecked. The pace rose to about 6 per cent in the first
quarter of 1970 but it now is falling back to an annual rate of 4.5 per cent or
less. Most importantly, productivity has finally begun to increase and this is
a most hopeful sign in the fight against inflation. So my prediction is that
inflation will slow to 4 per cent or less this year.
We are on the right economic path. We can look to the future with
confidence -- a future that promises high employment, diminishing unemployment,
stabilization of prices, and prosperity without war.
###
DERALD FORD LIBRARY
CONGRESSMAN
NEWS
GERALD R. FORD
HOUSE REPUBLICAN LEADER
RELEASE
--FOR IMMEDIATE RELEASE--
August 10, 1970
Statement by Rep. Gerald R. Ford, Republican Leader, U.S. House of Representatives
I am today joining with Representative Frank Bow (R-Ohio), the ranking
Republican Member of the Committee on Appropriations, the entire House Republi-
can Leadorship and other Minority Members of the Appropriations Committee in spon-
soring the "Fiscal Responsibility Act of 1970" which would prevent budget-busting
by the Congress as well as by a President.
For years Presidents and Congresses have sought to blame each other for
big spending and budget deficits. No matter who wins this political argument, the
American taxpayer loses.
This bill would apply a $205,600,000,000 limitation on federal spending for
fiscal year 1971 in a way that would permit Congress to control the results of its
own actions on individual appropriation bills from the point of view of the total
Federal budget. In order to accomplish this it would provide a means of modifying
actions on individual appropriation bills if these actions collectively would ex-
ceed the limitation proposed in this bill.
Specifically:
(1) It would provide that Congressional increases over the budget on in-
dividual appropriation bills that would have the effect of increasing total expendi-
tures above the bill's ceiling would then be subject to automatic reduction
according to a formula and by an amount necessary for the budget to remain within
the ceiling.
(2) It would make possible the application of this formula in those manda-
tory spending programs when appropriate and necessary to comply with the limitation
and exempt the government from liability for any differences between the amount
appropriated and the amount made available.
(3) It would only exempt from the ceiling those increases or decreases that
result from the so-called uncontrollables -- social security trust fund payments,
veterans' pension funds, etc. (as shown on p. 44 of the Budget -- House Document
No. 240).
(4) It would repeal the previous expenditure limitation and substitute
this one for it.
We will press for prompt consideration of this "Fiscal Responsibility
Act of 1970" so that every Member of this Congress will have an opportunity to vote
the same way he talks on the subject of big spending.
###
CONGRESSMAN
NEWS
GERALD R. FORD
HOUSE REPUBLICAN LEADER
RELEASE
FOR RELEASE ON RECEIPT-
Statement by Rep. Gerald R. Ford
August 13, 1970
I voted to save the taxpayers nearly a billion dollars. That is the
significance of my vote to sustain the presidential vetoes of the Office of
Education and Housing and Urban Development-Independent Offices appropriations
bills. The two vetoed bills provided $994 million more than requested by the
President, although the President's budget provided funding for education and
housing at a level generously above that of the previous Administration.
The question was not whether education and housing would be adequately
funded. These needs were amply met in the President's budget. The question was
whether the Congress would appropriate far in excess of funding which is adequate
for the times -appropriate excessive funds at a time which is critical in the
fight against inflation.
This is a time when not only American families but the Federal Government
should live within a sensible budget. If the Federal Government does not live
within its means, how can the President ask the American people to do so? If the
Congress does not cooperate with the President in holding to a sensible Federal
Budget, how can the Congress expect the American people to act responsibly in the
battle against inflation?
The issue in these veto override moves by the Democratic leadership in the
Congress was just this: Fiscal responsibility. I am terribly disappointed that
the House of Representatives has failed to fully measure up to the challenge.
GERALD FORD LIBRARY
CONGRESSMAN
NEWS
GERALD R. FORD
HOUSE REPUBLICAN LEADER
RELEASE
--FOR IMMEDIATE RELEASE--
August 22, 1970
The cost of living figures for July, released yesterday, indicate that
inflation is definitely easing and that the Nixon Administration was right in
sticking to its policies of fiscal and monetary restraint.
The Nixon "game plan" is producing a victory over inflation. That is the
significance of the July figures--the fact that the rise in the cost of living in
July was 0.3 of one per cent on a seasonally adjusted basis, only about half of
the rate of increase recorded last winter.
The fact that the increase in cost of living is easing is also reflected
in an increase in the average worker's spendable earnings--up 80 cents a week in
July for a worker with three dependents. The average purchasing power of the
American worker is increasing under the Nixon Administration.
I think every American should be encouraged by the slowdown in inflation.
This easing in inflation has become more pronounced in June and July. We now can
look forward to a continued improvement in our overall economic situation, both
from the standpoint of cost of living and the general strength of the economy.
# # #
Full Distribution
0 Office Capy
NEWS
CONGRESSMAN
GERALD R. FORD
HOUSE REPUBLICAN LEADER
RELEASE
--FOR IMMEDIATE RELEASE--
August 22, 1970
The cost of living figures for July, released yesterday, indicate that
inflation is definitely easing and that the Nixon Administration was right in
sticking to its policies of fiscal and monetary restraint.
The Nixon "game plan" is producing a victory over inflation. That is the
significance of the July figures--the fact that the rise in the cost of living in
July was 0.3 of one per cent on a seasonally adjusted basis, only about half of
the rate of increase recorded last winter.
The fact that the increase in cost of living is easing is also reflected
in an increase in the average worker's spendable earnings--up 80 cents a week in
July for a worker with three dependents. The average purchasing power of the
American worker is increasing under the Nixon Administration.
I think every American should be encouraged by the slowdown in inflation.
This easing in inflation has become more pronounced in June and July. We now can
look forward to a continued improvement in our overall economic situation, both
from the standpoint of cost of living and the general strength of the economy.
###
FORD is LIBRARY GERALD
Full Distribution
O Ofice Copy
CONGRESSMAN
NEWS
GERALD R. FORD
HOUSE REPUBLICAN LEADER
RELEASE
--FOR IMMEDIATE RELEASE-
September 23, 1970
A Statement by Rep. Gerald R. Ford, R-Mich., Republican Leader, U.S. House of Reps.
There is good news today for the workers and housewives of America.
The news is that the increase in the cost of living has slowed to the lowest
pace in nearly two years.
This is conclusive evidence that the Nixon Administration policies of fiscal
and monetary restraint are working in the fight against inflation. This is solid
evidence that all of the scare talk about the need for wage and price controls was
exactly that-wild talk which flowed from a desire to reap political advantage.
We have now not just turned the corner on inflation. We are on the road to
relative price stability.
I have predicted that the Administration's policies will slow inflation down
to a 3 per cent rate. I renew that prediction today. As I see it, the annual rate
of consumer price advance will fall from the present level of 6 per cent to about
3 1/2 per cent by the end of this year and to 3 per cent by the summer or fall of
1971.
I firmly believe that the Administration's policies of fiscal and monetary
restraint are producing a victory over inflation. This has been the Administration's
game plan all along. It is a game plan which is going to push the ball over the
goal line.
And now that we have started down the road to relative price stability, it
is all the more important that Congress refrain from mandatory overspending--
refrain from jeopardizing the economic gains we have made in our transition from
a wartime to a peacetime economy.
###
CONGRESSMAN
NEWS
GERALD R. FORD
HOUSE REPUBLICAN LEADER
RELEASE
--FOR IMMEDIATE RELEASE--
September 23, 1970
A Statement by Rep. Gerald R. Ford, R-Mich. Republican Leader, U.S. House of Reps.
There is good news today for the workers and housewives of America.
The news is that the increase in the cost of living has slowed to the lowest
pace in nearly two years.
This is conclusive evidence that the Nixon Administration policies of fiscal
and monetary restraint are working in the fight against inflation. This is solid
evidence that all of the scare talk about the need for wage and price controls was
exactly that-wild talk Which flowed from a desire to reap political advantage.
We have now not just turned the corner on inflation. We are on the road to
relative price stability.
I have predicted that the Administration's policies will slow inflation down
to a 3 per cent rate. I renew that prediction today. As I see it, the annual rate
of consumer price advance will fall from the present level of 6 per cent to about
3 1/2 per cent by the end of this year and to 3 per cent by the summer or fall of
1971.
I firmly believe that the Administration's policies of fiscal and monetary
restraint are producing a victory over inflation. This has been the Administration's
game plan all along. It is a game plan which is going to push the ball over the
goal line.
And now that we have started down the road to relative price stability, it
is all the more important that Congress refrain from mandatory overspending--
refrain from jeopardizing the economic gains we have made in our transition from
a wartime to a peacetime economy.
###
FORD & LIBRARY GERALD
CONGRESSMAN
NEWS
GERALD R. FORD
HOUSE REPUBLICAN LEADER
RELEASE
--FOR RELEASE AT 12 NOON FRIDAY--
January 29, 1971
President Nixon's fiscal 1972 budget is a carefully drawn fiscal plan which
stands out as perhaps the first Federal budget clearly designed to help promote
full employment and peacetime prosperity.
It is also a fair share budget, drafted to provide proper health care for
our citizens regardless of economic circumstance, to place an income floor under
every family in America, and to strengthen efforts to guarantee the civil rights
of all Americans.
I fully support the concept of employing the Federal budget to bring about
full prosperity in peacetime, in combination with monetary policy. It is far
better to plan a deficit aimed at achieving prosperity with price stability than to
stumble into a deficit with a blindfold on. In the one instance, we have our eyes
focused on a healthy national objective; in the other, we simply sink into
uncomprehending red ink.
It is time for an expansionary budget. We have turned the corner on
inflation. We will continue to make progress on this problem. Meantime we cannot
afford to keep a halter on the economy. Instead, we must prescribe the medicine of
stimulation.
In the human needs sector of the budget, I reaffirm my support for reform of
the scandalous welfare system and pledge my support for accelerated efforts to find
a cure for cancer and to provide all needy Americans with proper healthy care. In
combatting cancer, we must provide all the funds that can be profitably spent.
I shall also support every sound effort to restore and preserve our environ-
ment. One of the most serious shortcomings of the last Congress was its failure to
establish an Environmental Financing Authority to help communities meet their share
of water pollution control costs where necessary.
I am also pleased by the sharp increases in funding to fight street crime
and organized crime and to bring about prison reform.
I thoroughly agree with the President that the Federal grant system must be
revised. I have long favored block grants in broad problem areas, as the President
has proposed under special revenue sharing, and also general sharing of completely
untied revenue.
With regard to the Defense Department budget, I feel that deep thoughtless
cutting by the Congress would be most ill-advised. Some of our forces are lacking
in combat-readiness and must be modernized. We are confronted with the need for
technological progress. We cannot afford to take a head-in-the-sand attitude toward
our military needs. Our national defense is a matter of high priority.
Coincidental with the need to modernize our forces is the need to modernize
our military personnel policies. We must reduce our draft calls to zero and make
the transition to an all-volunteer force. The funds requested by the Defense
Department to this end would be well used.
# # #
House Halleries Only
Office Copy
CONGRESSMAN
NEWS
GERALD R. FORD
HOUSE REPUBLICAN LEADER
RELEASE
--FOR IMMEDIATE RELEASE--
February 23, 1971
Statement by Rep. Gerald R. Ford
The action taken by the President to dampen inflationary pressures in the
construction industry should be welcomed--not only by the American people
generally but by construction workers in particular.
Suspension of the Davis-Bacon Act will increase competition in bidding
on government projects. It will tend to hold down further rises in construction
costs. It will tend to create more work for construction workers. In the final
analysis, both the public and the construction workers will benefit.
The President is saying that the government will not have a part in
abetting inflation. He is saying that the Nixon Administration will take decisive
action as necessary to bring inflation under control.
###
GERALD LIBRAR R FORD
CONGRESSMAN
NEWS
GERALD R. FORD
HOUSE REPUBLICAN LEADER
RELEASE
--FOR IMMEDIATE RELEASE--
February 23, 1971
Statement by Rep. Gerald R. Ford
The action taken by the President to dampen inflationary pressures in the
construction industry should be welcomed--not only by the American people
generally but by construction workers in particular.
Suspension of the Davis-Bacon Act will increase competition in bidding
on government projects. It will tend to hold down further rises in construction
costs. It will tend to create more work for construction workers. In the final
analysis, both the public and the construction workers will benefit.
The President is saying that the government will not have a part in
abetting inflation. He is saying that the Nixon Administration will take decisive
action as necessary to bring inflation under control.
###
FORD & LIBRARY GERALD
Fifth District only
Office Copy
NEWS
CONGRESSMAN
GERALD R. FORD
HOUSE REPUBLICAN LEADER
RELEASE
April 20, 1971
FOR RELEASE AT WILL
The board of directors of the National Police Officers Association
has appointed Congressman Gerald R. Ford an honorary vice-president of the
association. Ford was notified of the honor by Frank J. Schira, association
executive director.
###
CONGRESSMAN
NEWS
GERALD R. FORD
HOUSE REPUBLICAN LEADER
RELEASE
April 20, 1971
FOR RELEASE AT WILL
The board of directors of the National Police Officers Association
has appointed Congressman Gerald R. Ford an honorary vice-president of the
association. Ford was notified of the honor by Frank J. Schira, association
executive director.
###
GERALD
CONGRESSMAN
NEWS
GERALD R. FORD
HOUSE REPUBLICAN LEADER
RELEASE
--FOR IMMEDIATE RELEASE--
April 22, 1971
Statement by Rep. Gerald R. Ford
What is most striking and significant about the marked slowdown in the cost of
living rise during the first quarter of 1971 is that it comes at a time when the
economy has registered the sharpest quarterly growth in our history.
What this means is that we are now apparently enjoying the best of both
worlds- bringing of inflation under control at the same time that the economy
moves briskly forward. This stands in sharp contrast to 1970, when the economy was
at a virtual standstill while inflation still came on strong. That was a time when
we temporarily suffered the worst of both worlds--a condition brought about by our
refusal to deal firmly with inflation during the 1965-68 period.
A review of both the inflation and growth sides of the economic ledger gives
us real cause for encouragement.
The cost of living during the first quarter of 1971 rose only 2.7 per cent on
an annual basis, the smallest quarterly rise in four years.
At the same time the gross national product grew by $28.5 billion, the highest
absolute increase in history. Retail sales are up. Automobile sales are setting
records. Housing starts are at an annual rate of 1.9 million. Unemployment is
levelling off and can be expected to move downward as the economy continues to expand
and available jobs increase.
The cost of money is coming down. Interest rates have fallen sharply for the
first time in 10 years. Roughly 60 days ago, U.S. Treasury bills sold at rates
that marked an eight-year low.
ASVY RALD 717
We have genuine reasons for optimism. Overall, the economy is looking healthy.
###
Full Distribution
affice Copy
CONGRESSMAN
NEWS
GERALD R. FORD
HOUSE REPUBLICAN LEADER
RELEASE
-FOR IMMEDIATE RELEASE--
April 22, 1971
Statement by Rep. Gerald R. Ford
What is most striking and significant about the marked slowdown in the cost of
living rise during the first quarter of 1971 is that it comes at 8 time when the
economy has registered the sharpest quarterly growth in our history.
What this means is that we are now apparently enjoying the best of both
worlds--a bringing of inflation under control at the same time that the economy
moves briskly forward. This stands in sharp contrast to 1970, when the economy was
at a virtual standstill while inflation still came on strong. That was a time when
we temporarily suffered the worst of both worlds--a condition brought about by our
refusal to deal firmly with inflation during the 1965-68 period.
A review of both the inflation and growth sides of the economic ledger gives
us real cause for encouragement.
The cost of living during the first quarter of 1971 rose only 2.7 per cent on
an annual basis, the smallest quarterly rise in four years.
At the same time the gross national product grew by $28.5 billion, the highest
absolute increase in history. Retail sales are up. Automobile sales are setting
records. Housing starts are at an annual rate of 1.9 million. Unemployment is
levelling off and can be expected to move downward as the economy continues to expand
and available jobs increase.
The cost of money is coming down. Interest rates have fallen sharply for the
first time in 10 years. Roughly 60 days ago, U.S. Treasury bills sold at rates
that marked an eight-year low.
We have genuine reasons for optimism. Overall, the economy is looking healthy.
###
15 copies to Steuber Society only
Q Office Copy
CONGRESSMAN
NEWS
GERALD R. FORD
HOUSE REPUBLICAN LEADER
RELEASE
--FOR RELEASE ON RECEIPT--
May 12, 1971
West German Chancellor Willi Brandt's policy of Ostpolitik (East Politics)
will not benefit NATO or the Free World, House Republican Leader Gerald R. Ford
declared today.
Ford said he is "disappointed" that Brandt has chosen to lead West Germany
on the path of Ostpolitik. Ford said he has not discussed with President Nixon the
Socialist West German premier's efforts to negotiate with the Communists. But he
said he personally is convinced that Brandt is "giving away something he did not
have to give away and is getting nothing in return."
Ford made his remarks in an interview with the legislative committee of the
Steuben Society of America, a group which has just concluded a four-day visit to
Washington, D.C. Ford will be the principal speaker at the Steuben Society's
52nd Founder's Day Banquet May 22 at the Hotel Americana in New York City.
"It appears," Ford told the Steuben Society committee, "that the West
German chancellor is preempting the prerogatives of the Western powers in seeking
to negotiate a final East-West settlement and a German peace treaty."
On another subject, Ford expressed the view that inequities were created by
the Immigration Act of 1965. This Act, Ford said, should be reviewed by the
Congress.
###
U.S. HOUSE
OF REPRESENTATIVES
REPUBLICAN POLICY COMMITTEE
1616 LONGWORTH HOUSE OFFICE BUILDING
TELEPHONE 225-6168
REP. JOHN J. RHODES, (R.-ARIZ.) CHAIRMAN
10
92nd Congress
July 27, 1971
First Session
Statement Number 7
HOUSE REPUBLICAN POLICY COMMITTEE STATEMENT ON H.R. 8432, AS AMENDED,
THE EMERGENCY LOAN GUARANTEE ACT
The House Republican Policy Committee supports the passage of H.R. 8432, as
amended, the Emergency Loan Guarantee Act.
A severe economic and employment crisis has developed in the aerospace and
defense industries, brought about by the substantial reduction of military require-
ments in Southeast Asia, the decrease of expenditures for space exploration, and the
necessary application of strict fiscal and monetary policies to restrain the devas-
tating inflationary forces unleashed during the 1960's. This combination of circum-
stances has contributed, to a large degree, to the present financial difficulties of
the Lockheed Aircraft Corporation, the Nation's largest defense and aerospace
contractor.
If the Lockheed Corporation is to avoid bankruptcy, financial assistance is
immediately required, assistance which, without guarantees, is unavailable from
private sources. Failure of this major U.S. enterprise would result in the loss of
tens of thousands of jobs throughout the country, financial hardship for 35,000
subcontractors and suppliers (of which 27,000 are small businesses), increased pro-
curement costs to the Department of Defense, a loss of tax revenue to the federal
government and a substantial adverse effect upon our already critical international
trade balance. The failure of other major enterprises, which might be similarly
plagued by a temporary shortage of working capital, could have equal or greater
LIBRARY
(over)
-2-
adverse effect on our economy. In every instance, the avoidance of such losses and
the protection of the interests of jobholders, taxpayers, creditors and investors
are of critical importance.
To establish systematic procedures for dealing with certain financial crises
of major domestic enterprises, H.R. 8432, as amended, has been favorably reported
by the Committee on Banking and Currency. The bill is in accordance with recommen-
dations of the Administration and the Board of Governors of the Federal Reserve
System.
H.R. 8432, as amended, establishes an Emergency Loan Guarantee Board with
authority until December 31, 1973, to guarantee loans to major business enterprises
facing temporary adversity, when it is determined that failure would seriously and
adversely affect the economy or employment of the Nation or any region thereof. A
guarantee would be made only if the Board found credit on reasonable terms were
otherwise unavailable and a reasonable expectation for timely repayment of the loan
existed. Dividend payments and asset transfers by the borrower would be restricted,
and every effort would be made to collateralize fully the amount of the loan guaran-
tee; the government's loan guarantee would have a prior claim to the lender's
interest in any collateral securing the guaranteed loan and any earlier outstanding
loan of the lender. Guarantee authority is limited to $2 billion outstanding at
any one time; it is further limited to $250 million for any individual borrower.
H.R. 8432, as amended, provides limited loan guarantee authority to assist any
major enterprise whose failure in terms of lost jobs, financial hardships and under-
mined confidence in the economy would be very great. It expands in a meaningful way
the long-standing effort of the federal government to provide necessary credit
assistance in those areas clearly in the public interest.
The House Republican Policy Committee urges the prompt passage of H.R. 8432,
as amended.
NEWS
CONGRESSMAN
GERALD R. FORD
HOUSE REPUBLICAN LEADER
RELEASE
--FOR RELEASE AT 12 NOON--
August 6, 1971
Remarks by Rep. Gerald R. Ford, Minority Leader, U.S. House of Representatives, on
the Floor of the House Friday, August 6, 1971.
Mr. Speaker: Those Americans who have been engaging in an exercise known
as "knocking the economy" have been doing their country a terrible disservice.
Not only does such criticism tend to undermine the steady recovery we are
experiencing but it simply does not square with the facts.
The truth is that the U.S. economy is steadily moving toward full recovery.
As proof of that we have a host of second-quarter earnings reports showing solid
gains in various industries and we have the recent upsurge of sales in the auto
industry, the bellwether of the economy.
The autcmobile companies reported record retail sales of 260,990 cars during
the July 11-20 selling period. This sales increase was led by General Motors,
which reported a record 10-day volume of 165,663 cars.
The sales pace from June 21 through July 20 represented a seasonally
adjusted annual rate of 8.5 million domestic units--or roughly a 10 million rate
when imported cars are included.
The July automobile sales figures confirm earlier reports of strong retail
sales activity.
Total retail sales from January to June rose at a rate of 15 per cent per
year, and sales for nondurables increased at a 12 per cent per year rate during
this period. These outlays should continue to rise as real incomes enlarge and
the rate of personal saving moves down to more normal levels.
The pace of residential building is also encouraging. Seasonally adjusted
housing starts ran at an annual rate of 1,881,000 units during the first six
months of 1971. This was an increase of 48 per cent over the rate for the
comparable period in 1970.
The expanding rate of spending in these key categories contributed to an
increase of $52 billion in the nation's gross national product during the first
half of 1971.
During that same time, the rate of inflation, seasonally adjusted, averaged
4 per cent per year, well below the 6.2 per cent figure for the first half of 1969
when the present Administration assumed office.
There is also evidence that unemployment has begun to move down from the
peak level reached last winter.
The facts are that we are taking an overheated economy back to a sustainable
growth path during a period of painful transition from wartime to peacetime.
The strong growth of consumer spending is a major factor in making this transition
a success.
A closing note: If all the Americans who were in military uniform or in
defense jobs when the present Administration took office were still thus occupied,
our unemployment rate would be 4.2 per cent. The Republican Party wants prosperity
and jobs without war.
# # #
LIBRARY
Full Distribution
Office
NEWS
CONGRESSMAN
GERALD R. FORD
HOUSE REPUBLICAN LEADER
RELEASE
--FOR RELEASE AT 12 NOON--
August 6, 1971
Remarks by Rep. Gerald R. Ford, Minority Leader, U.S. House of Representatives, on
the Floor of the House Friday, August 6, 1971.
Mr. Speaker: Those Americans who have been engaging in an exercise known
as "knocking the economy" have been doing their country a terrible disservice.
Not only does such criticism tend to undermine the steady recovery we are
experiencing but it simply does not square with the facts.
The truth is that the U.S. economy is steadily moving toward full recovery.
As proof of that we have a host of second-quarter earnings reports showing solid
gains in various industries and we have the recent upsurge of sales in the auto
industry, the bellwether of the economy.
The automobile companies reported record retail sales of 260,990 cars during
the July 11-20 selling period. This sales increase was led by General Motors,
which reported a record 10-day volume of 165,663 cars.
The sales pace from June 21 through July 20 represented a seasonally
adjusted annual rate of 8.5 million domestic units--or roughly a 10 million rate
when imported cars are included.
The July automobile sales figures confirm earlier reports of strong retail
sales activity.
Total retail sales from January to June rose at a rate of 15 per cent per
year, and sales for nondurables increased at a 12 per cent per year rate during
this period. These outlays should continue to rise as real incomes enlarge and
the rate of personal saving moves down to more normal levels.
The pace of residential building is also encouraging. Seasonally adjusted
housing starts ran at an annual rate of 1,881,000 units during the first six
months of 1971. This was an increase of 48 per cent over the rate for the
comparable period in 1970.
The expanding rate of spending in these key categories contributed to an
increase of $52 billion in the nation's gross national product during the first
half of 1971.
During that same time, the rate of inflation, seasonally adjusted, averaged
4 per cent per year, well below the 6.2 per cent figure for the first half of 1969
when the present Administration assumed office.
There is also evidence that unemployment has begun to move down from the
peak level reached last winter.
The facts are that we are taking an overheated economy back to a sustainable
growth path during a period of painful transition from wartime to peacetime.
The strong growth of consumer spending is a major factor in making this transition
a success.
A closing note: If all the Americans who were in military uniform or in
defense jobs when the present Administration took office were still thus occupied,
our unemployment rate would be 4.2 per The Republican Party wants prosperity
and jobs without war.
###
Full Distribution
a Office Copy
CONGRESSMAN
NEWS
GERALD R. FORD
HOUSE REPUBLICAN LEADER
RELEASE
--FOR IMMEDIATE RELEASE--
August 16, 1971
The President's prescription for the economy is strong medicine but the
right action for these times. It is a coordinated, constructive combination that
will promote consumer confidence, increase employment, stop inflation and make
American products more competitive in both domestic and world markets.
###
GERALD FORD LIBRARY
CONGRESSMAN
NEWS
GERALD R. FORD
HOUSE REPUBLICAN LEADER
RELEASE
--FOR IMMEDIATE RELEASE--
August 16, 1971
The President's prescription for the economy is strong medicine but the
right action for these times. It is a coordinated, constructive combination that
will promote consumer confidence, increase employment, stop inflation and make
American products more competitive in both domestic and world markets.
###
NEWS
CONGRESSMAN
GERALD R. FORD
HOUSE REPUBLICAN LEADER
RELEASE
--FOR IMMEDIATE RELEASE--
September 9, 1971
STATEMENT OF REP. GERALD R. FORD (R-MICH.), HOUSE MINORITY LEADER
I was impressed by the President's nonpartisan appeal to all Americans
to work together for real prosperity without war and without inflation, and
by the strong bipartisan response from the Congress.
President Nixon reassured the nation that all the elements contributing
to our economic strength, including business, labor and agriculture, will be
consulted in planning the system of wage and price stabilization that will follow
the temporary 90-day freeze.
There is no longer any reason for anyone to fear that the sacrifices he
is making will become permanent inequities. I am confident that most Members
of the Congress, Democrats and Republicans, as well as the overwhelming majority
of Americans will cooperate fully with the President in meeting the challenges
of peace to our economy.
Internationally, President Nixon plainly put all nations on notice that
the United States intends to compete vigorously but fairly and to retain its
place as the number one economic power in the world. In this he surely speaks
the united determination of the country.
# # #
NEWS
CONGRESSMAN
GERALD R. FORD
HOUSE REPUBLICAN LEADER
RELEASE
FOR IMMEDIATE RELEASE--
October 8, 1971
Statement by Rep. Gerald R. Ford
President Nixon has outlined the proper course for this Nation to follow
in the months ahead if its citizens are to enjoy price stability once again and
the dollar is to recover its strength.
Phase II of the President's price and wage control program will demand the
highest degree of good citizenship on the part of all Americans. If they respond,
as I feel sure they will, the President's program to achieve price stability and
promote prosperity in peacetime will succeed.
Phase II of the President's program will encourage the consumer. Prices
will be controlled.
It will encourage workers. There will be equity and equality of sacrifices.
It will require sacrifice among businessmen, employes and investors.
The ultimate result will be an expanded and stable economy, with more jobs
and less inflation.
###
BERMLD FORD
Full Distribution
0 Office Copy
CONGRESSMAN
NEWS
GERALD R. FORD
HOUSE REPUBLICAN LEADER
RELEASE
--FOR IMMEDIATE RELEASE--
October 8, 1971
Statement by Rep. Gerald R. Ford
President Nixon has outlined the proper course for this Nation to follow
in the months ahead if its citizens are to enjoy price stability once again and
the dollar is to recover its strength.
Phase II of the President's price and wage control program will demand the
highest degree of good citizenship on the part of all Americans. If they respond,
as I feel sure they will, the President's program to achieve price stability and
promote prosperity in peacetime will succeed.
Phase II of the President's program will encourage the consumer. Prices
will be controlled.
It will encourage workers. There will be equity and equality of sacrifices.
It will require sacrifice among businessmen, employes and investors.
The ultimate result will be an expanded and stable economy, with more jobs
and less inflation.
###
CONGRESSMAN
NEWS
GERALD R. FORD
HOUSE REPUBLICAN LEADER
RELEASE
--FOR IMMEDIATE RELEASE--
November 9, 1971
Comment on Pay Board Decision
The Pay Board had no other responsible choice if we are to curb inflation
and bring rises in the cost of living down to the 2 to 3 per cent level by the
end of next year. The decision seems to me to be reasonable and wise.
It is now vital that members of Congress determined to lick inflation
knock out of the Economic Stabilization Act of 1971 the committee-approved
provision which would completely undermine the Pay Board decision and destroy
the President's New Economic Policy.
###
GERALD FORD LIBRARY
Full Distribution
O Office Copy
CONGRESSMAN
NEWS
GERALD R. FORD
HOUSE REPUBLICAN LEADER
RELEASE
--FOR IMMEDIATE RELEASE--
November 9, 1971
Comment on Pay Board Decision
The Pay Board had no other responsible choice if we are to curb inflation
and bring rises in the cost of living down to the 2 to 3 per cent level by the
end of next year. The decision seems to me to be reasonable and wise.
It is now vital that members of Congress determined to lick inflation
knock out of the Economic Stabilization Act of 1971 the committee-approved
provision which would completely undermine the Pay Board decision and destroy
the President's New Economic Policy.
###
CONGRESSMAN
NEWS
GERALD R. FORD
HOUSE REPUBLICAN LEADER
RELEASE
--FOR RELEASE AT 12 NOON--
November 29, 1971
Remarks by Rep. Gerald R. Ford on the Floor of the U.S. House of Representatives
Nov. 29, 1971.
MR. SPEAKER: On November 19, the Washington Post acknowledged that the
U. S. economy is faring better. And indeed it was right! Revised statistics show
that the real gross national product grew at an annual rate of 3.9 per cent during
the third quarter of 1971, rather than the 2.9 per cent shown in earlier projections.
Simultaneously, inflation, as measured by the GNP deflator, rose at an annual rate
of 3.0 per cent during the third quarter, as compared to 4.0 per cent in the second
quarter and 5.3 per cent in the first. The rise in the Consumer Price Index during
the month of October was .1 per cent, after seasonal adjustment. This was the
smallest monthly rise in the CPI since April, 1967.
It is obvious that President Nixon's New Economic Policy is working.
Phase I -- the freeze --- was a great success. It clamped down hard on the
inflationary spiral which we inherited from the fiscal irresponsibility of the
previous Administration. It united the American people in a massive attack on the
monster which has been eating away at the purchasing power of the American worker.
In constructing Phase II the Administration has sought to incorporate a high
degree of equity into the framework of its policies. Requests for exception to or
exemption from the guidelines of the Pay Board and the Price Commission will be
examined carefully on an individual basis.
Because of these positive, innovative Administration policies, 1972 will
fulfill President Nixon's prediction that it will be a great year economically.
The prestigious Organization for Economic Cooperation and Development Secretariat
has predicted that the U. S. economy will grow at a real rate of over 6.0 per cent
during the first six months of 1972. Economic expansion at this rate will
constitute a strong recovery from the economic slowdown which we experienced
during most of 1970 and will return us to a path of steady economic growth in a
climate of price stability.
###
GERALD ASVURIT FORD
Full Distribution
0 Office Copy
CONGRESSMAN
NEWS
GERALD R. FORD
HOUSE REPUBLICAN LEADER
RELEASE
--FOR RELEASE AT 12 NOON--
November 29, 1971
Remarks by Rep. Gerald R. Ford on the Floor of the U.S. House of Representatives
Nov. 29, 1971.
MR. SPEAKER: On November 19, the Washington Post acknowledged that the
U. S. economy is faring better. And indeed it was right! Revised statistics show
that the real gross national product grew at an annual rate of 3.9 per cent during
the third quarter of 1971, rather than the 2.9 per cent shown in earlier projections.
Simultaneously, inflation, as measured by the GNP deflator, rose at an annual rate
of 3.0 per cent during the third quarter, as compared to 4.0 per cent in the second
quarter and 5.3 per cent in the first. The rise in the Consumer Price Index during
the month of October was .1 per cent, after seasonal adjustment. This was the
smallest monthly rise in the CPI since April, 1967.
It is obvious that President Nixon's New Economic Policy is working.
Phase I --- the freeze --- was a great success. It clamped down hard on the
inflationary spiral which we inherited from the fiscal irresponsibility of the
previous Administration. It united the American people in a massive attack on the
monster which has been eating away at the purchasing power of the American worker.
In constructing Phase II the Administration has sought to incorporate a high
degree of equity into the framework of its policies. Requests for exception to or
exemption from the guidelines of the Pay Board and the Price Commission will be
examined carefully on an individual basis.
Because of these positive, innovative Administration policies, 1972 will
fulfill President Nixon's prediction that it will be a great year economically.
The prestigious Organization for Economic Cooperation and Development Secretariat
has predicted that the U. S. economy will grow at a real rate of over 6.0 per cent
during the first six months of 1972. Economic expansion at this rate will
constitute a strong recovery from the economic slowdown which we experienced
during most of 1970 and will return us to a path of steady economic growth in a
climate of price stability.
# # #