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The original documents are located in Box D23, folder "Duke University, February 2,
1968" 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States of America his copyrights in all of his unpublished writings in National Archives collections.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.
READING COPY DUKE UNIV.
FEB. 2, 1968
HOUSE OF REPRESENTATIVES, U.S.
OFFICE OF THE MINORITY LEADER
Herald R. 3rd
PUBLIC DOCUMENT
M.C.
OFFICIAL BUSINESS
ADDRESS AT DUKE UNIV.
sav:
Digitized from Box D23 of the Ford Congressional Papers: Press Secretary and Speech File at the Gerald R. Ford Presidential Library
show 11 The X
Distribution: Full, 10:45am, 2/2/68
moffio Copy
CONGRESSMAN
NEWS
GERALD R. FORD
HOUSE REPUBLICAN LEADER
RELEASE
--FOR RELEASE IN FRIDAY PM's--
February 2, 1968
An Address by Rep. Gerald R. Ford, R-Mich., Friday, Feb. 2, 1968 at Duke Univ.
The blank pages of the future have always held tremendous fascination for
the human race.
Many people look to the future with keen anticipation; some with dread.
Each year, as the 12-month period just ending limps out and the new 12-month
segment creeps in, human beings engage in rituals that range from a pursuit of
intoxication to sober reflection, predictions and avowals of reform. Pundits
peer into their crystal balls, and newspaper readers avidly devour their forecasts.
Alexander Pope summed up this fascination with the future and dreams of a
better world in perhaps his most famous rhyming couplet:
"Hope springs eternal in the human breast:
Man never is, but always to be, blest."
I am no exception, of course, And so it was with great interst that I
recently scanned a book entitled, "The Year 2000: A Framework For Speculation
On the Next Thirty-Three Years," by Herman Kahn and Anthony J. Wiener.
This book hardly feeds the hope that springs eternal. Rather than promising
utopia, the two authors explore a number of dire possibilities including nuclear
war, the triumph of Communism, the reappearance of Fascism and an international
depression.
I am not going to discuss all four of these projected developments this
afternoon but I would like to focus on two of them--an international depression
and the theoretical triumph of Communism.
Both of these threatened calamities are linked to a problem with which the
United States now is grappling in a spirit of desperation. This problem is
variously described as the balance of payments deficit or the gold drain. It
has been with us for 10 years. It has grown to crisis proportions.
Mention the balance of payments to most Americans and you draw a blank.
It is a terribly complex subject. But it can be expressed in relatively simple
terms in the current context of the gold drain.
Somewhat oversimplified, the situation is this: The United States dollar FORD
has become an international currency. For 10 years, more dollars have been
GERALD LIBRARY
(more)
-2-
leaving the country than have been coming in. Foreigners use these dollars in a
variety of ways. This includes holding them for possible investment or buying
gold from the United States. At present foreigners hold $31.2 billion worth of
claims against the United States. Meantime our gold supply has shrunk from
$23 billion to $12 billion in the last 10 years. Currently less than $2 billion
of the $12 billion we hold in gold stock is available for payment to foreign
holders of dollars upon demand. This is because present law requires that all
Federal Reserve notes outstanding be backed by an equivalency of 25 per cent
in gold. This now ties up more than $10 billion of our gold stock.
Under pressure of the current crisis, Congress may well be forced to remove
the requirement that a 25 per cent gold reserve be held as backing for our
Federal Reserve Notes. To maintain confidence in the dollar abroad, we must be
in a position to redeem dollars with gold upon demand by foreign creditors.
But removing the Federal Reserve Note gold cover will not solve our balance
of payments problem. It will simply buy time. It is symptomatic of the deep
financial troubles besetting us internationally--and domestically as well.
It is vital to America and to the Free World that the United States restore
its international financial equilibrium--that we quickly regain our balance and
ultimately achieve a surplus in dollars through international exchange. We
must earn more dollars abroad than we send and spend abroad.
This is of utmost importance not only to the banker and the industrialist
but also to the consumer, the worker, and the farmer.
The dollar is the major vehicle for transactions in international trade
and for flows of capital between Free World nations. This is so because the
dollar has been strong.
Just as a strong dollar is the bulwark of the International Monetary System,
so a strong and stable International Monetary System is the foundation for
healthy world trade. It provides a means for conversion of one nation's
currency into another, so that trade between nations can proceed smoothly.
The dollar is the foundation of the entire Free World economy because it
is the foundation of the international monetary system. If we continue to suffer
large and chronic balance of payments deficits, the dollar will go soft and
confidence in it will be destroyed.
If confidence in the dollar collapses, so too will world trade. The
inevitable result would be a Free World depression.
Thus we return to the consumer, the worker and the farmer, and the importance
(more)
-3-
to every American that the balance of payments problem be met.
The longer the United States has very large dollar liabilities abroad, the
greater will be the difficulty of maintaining confidence in the dollar and in
the International Monetary System itself.
To those who recognize no such entity as "world communism" the words I
now am about to speak will seem meaningless. The same will be true of those who
believe the threat of Communist domination of the world is vastly exaggerated.
I personally believe that the Communist powers of the world implacably seek
the downfall of the Free World nations--chiefly, the United States.
There are two means open to them to achieve this objective. One is military;
the other, economic.
The United States at least for the present enjoys nuclear supremacy over the
Soviet Union and Red China, and certainly neither of these Communist nations has
the power to bring about an economic collapse of the Free World.
But the Free World could bring about its own defeat through an international
depression caused by loss of confidence in the dollar and a resulting collapse
of Free World trade.
I am not predicting the demise of the dollar and collapse of Free World
economies. But the seriousness of the U.S. balance of payments situation and the
threat to the International Monetary System cannot be overstated.
This takes us back to New Year's Day 1968 when the Administration announced
a series of drastic measures aimed at plugging the deficit in our balance of
payments.
An atmosphere of fiscal crisis suddenly enveloped the Free World. It
pressed in most heavily and most closely upon the United States and upon
England, which has its own severe balance of payments problem and had devalued
the pound sterling in a step to solve it.
This country's balance of payments problem has long been with us. It did
not develop overnight. But it assumed the magnitude of a crisis after Britain
devalued the pound sterling and our own balance of payments deficit situation
badly worsened in December of 1967.
Ours is a nation in crisis. We are being called upon to defend the dollar
and in doing so we sorely need the help of Free World nations which have been
running a surplus in their balance of payments. In a broad sense at least,
It is time for Western Europe to repay the United States for the generous Marshall
Plan aid which put the world economy back on its feet after World War II.
(more)
-4-
The Administration on New Year's Day announced emergency measures aimed at
a total recoupment of $3 billion in dollar outflow in 1968 after the balance of
payments deficit for 1967 reached $3.5 to $4 billion.
The new program would restrict investments abroad by American corporations,
reduce lending abroad by American banks and other financial institutions,
restrain travel by Americans outside the Western Hemisphere and reduce the amounts
they spend outside the hemisphere, save on military expenditures abroad, negotiate
a better deal for American products in Western Europe against barriers other than
tariffs, increase longterm sales of American goods abroad, and stimula te more
foreign investment and tourism in the United States.
I am not endorsing all or any part of the Administration's proposals at this
point in time. But we must have an emergency program to get us through the
current crisis.
I heartily dislike parts of the Administration program--those elements
which interfere with freedom of investment and freedom of travel on a mandatory
basis. These are measures which are alien to a free society and destructive of
free intercourse in goods and persons between nations. As such, they are
damaging to goals America has pursued over the last several decades.
From a practical standpoint, the controls on investment abroad will be
self-defeating if continued for long. The reason is that such a limitation will
reduce the inflow of dollars over the long run. The inflow from overseas
investments now is about $4 billion as compared with an outflow of $2.5 billion
to $3 billion.
The proposal to restrict travel may run into trouble in Congress but it
is too early to tell. The Administration is simply exploring possible approaches
with the House Ways and Means Committee. It's a touchy matter and they're afraid
of it politically.
The Vietnam War accounts for about $1 billion of our balance of payments gap.
There is not much we can do about that except to try to end the war as quickly as
possible on terms not detrimental to our national interest.
The basic approach to a permanent solution of our balance of payments
problem should be three-pronged--persuading certain of our Free World friends to
assume part of our present burden of world development and peace-keeping,
improving our position in world trade, and restoring price stability and labor-
management peace at home.
We should long ago have shifted far more of the world development burden
(more)
-5-
to those Free World nations which are enjoying a balance of payments surplus.
We must do this by expanding programs of multi-lateral aid to underdeveloped
nations and simultaneously reducing our unilateral foreign aid program to the
barest minimum.
In this connection, it is interesting to note that the President less than
three months ago denounced Congress for reducing his 1968 foreign aid request.
And Vice-President Humphrey, while visiting Africa, said our foreign aid program
should be doubled or even tripled. This seems somewhat inconsistent in view of
the balance of payments deficit and the stated concern of the Administration.
In addition to moving much farther into multi-lateral aid and away from
unilateral assistance, we must also get our Free World military allies to pay
more of the costs of maintaining U.S. forces on their soil. NATO, in effect,
should be made into an economic unit as well as a military alliance.
But the best hope of solving our balance of payments problem and bolstering
confidence in the dollar is to greatly improve our trade position.
We still enjoy a balance of trade surplus but it has declined sharply. From
1960 to 1965 our trade surplus--excess of exports over imports--averaged $5.2
billion. It climbed to a record high of $6.7 billion in 1964. But it began
dropping in 1965 and slipped to $3.7 billion in 1966. Last year there was a
slight improvement to $4 billion.
Our trade position has worsened since mid-1965 primarily because of a rise
in prices of U.S. products due to an upsurge of demand at home and a general
overheating of the American economy. Our overall balance of payments position
also deteriorated further as a result of the foreign exchange costs of the
Vie tnam War.
We should not overlook the fact that our trading partners have subjected
our exporters to indirect taxes which have placed the United States at a distinct
disadvantage in selling to those countries. This is a problem our government
has ignored far too long. It must be resolved.
As for the Vietnam War, the ending of it will not solve our balance of
payments problem although it will help.
A recent U.S. Treasury Department report states: "We had a balance of
payments problem before Vietnam, and the cessation of the fighting will not in
and of itself effect a cure."
One fact is fundamental to a solution of the dollar crisis, the balance of
payments crisis. The basic remedy lies in a restoration of stable prices on
(more)
-6-
U.S. products and consequent expansion of American exports. This can only be
achieved through a return to prudent monetary and fiscal policies in this
country--and to restraint on the part of management, labor, industry and govern-
ment. That restraint must begin at the top. It won't work for the government
to overstimulate the economy by spending far in excess of its income and then to
say to all Americans-- do as I say, not as I do.
The President has proposed a 10 per cent income tax surtax as a means of
restoring price stability. This might be salutary except that the kind of
inflation we now are experiencing is primarily due to increases in production
costs pushing up prices on the finished product.
The respected retailer's newspaper, "Women's Wear Daily," bluntly says in
its Jan. 30 issue:
"Business generally will pass along tax increases--and the public will have
to pay higher prices, with less money with which to pay them."
It goes without saying that a tax increase also will add to the production
costs of U.S. products we are trying to sell overseas.
It is difficult to see how an income tax increase is going to increase the
ability of American business to compete in foreign markets.
Yet the Treasury Department report states: "In the long run, the best way
to restore our balance of payments is to increase our trade surplus by increasing
the rate of our export growth."
Sharply rising prices could threaten to price more U.S. goods out of world
markets--and tax increases will add to costs that are rising too fast.
I find it impossible to accept the President's New Year's Day statement to
the effect that the dollar "can be sound at home--as it surely is--yet can be in
trouble abroad."
One reason the dollar is in trouble abroad is that it is in trouble at home.
And that is where the basic solution to the trouble must begin--at home.
All is not darkness in the current situation. The United States may, in
effect, muddle through the present crisis. This is true despite the sick joke
that's going around Washington--"Come back next New Year's for the devaluation
announcement."
The saving element--but one which cannot be counted on indefinitely--is that
the fate of other Free World economies is tied closely to ours. This means that
foreign governments probably will refrain from touching off a run on the danger-
ously small U.S. gold stock for fear of the consequences to themselves. They
(more)
-7-
also should find it in their own best interests to help the United States
achieve and maintain balance of payments equilibrium.
Much of our financial future, which we see only darkly, rests on our
advantageously positioned trading partners. Now we need help.
But we must never forget that our best hope for help lies within ourselves.
It is wisely written: "God loves to help him who strives to help himself." Only
by following that precept can we cast off our present weakness and "go from
strength to strength."
###
Speech of the Week
PUBLIC RELATIONS OFFICE
REPUBLICAN CONGRESSIONAL COMMITTEE
312 CONGRESSIONAL HOTEL
WASHINGTON, D. c.
SUBJECT: 'An Atmosphere of Fiscal Crisis Envelops the Free World'
Remarks of
House Republican Leader Gerald R. Ford
Duke University, Feb. 2, 1968
THE BLANK PAGES of the future have always held tremendous fascination for the
human race.
Many people look to the future with keen anticipation; some with dread. Each year,
as the 12-month period just ending limps out and the new 12-month segment creeps in, human
beings engage in rituals that range from a pursuit of intoxication to sober reflection, predictions
and avowals of reform. Pundits peer into their crystal balls, and newspaper readers avidly de-
vour their forecasts.
Alexander Pope summed up this fascination with the future and dreams of a better
world in perhaps his most famous rhyming couplet:
"Hope springs eternal in the human breast: Man never is, but always to be, blest."
I am no exception, of course, and so it was with great interest that I recently scanned
a book entitled, "The Year 2000: A Framework for Speculation on the Next Thirty-Three Years,"
by Herman Kahn and Anthony J. Wiener.
THIS BOOK HARDLY feeds the hope that springs eternal. Rather than promising
utopia, the two authors explore a number of dire possibilities including nuclear war, the triumph
of Communism, the reappearance of Fascism and an international depression.
I am not going to discuss all four of these projected developments but I would like to
focus on two of them--an international depression and the theoretical triumph of Communism.
Both of these threatened calamities are linked to a problem with which the United
States now is grappling in a spirit of desperation. This problem is variously described as the bal-
ance of payments deficit or the gold drain. It has been with US for !0 years. It has grown to
crisis proportions.
Mention the balance of payments to most Americans and you draw a blank. It is a
terrible complex subject. But it can be expressed in relatively simple terms in the current con-
text of the gold drain.
Somewhat oversimplified, the situation is this: The United States dollar has become
an international currency. For 10 years, more dollars have been leaving the country than have
been coming in. Foreigners use these dollars in a variety of ways. This includes holding them
for possible investment or buying gold from the United States. At present foreigners hold $31.2
billion worth of claims against the United States. Meantime our gold supply has shrunk from
$23 billion to $12 billion in the last 10 years. Currently less than $2 billion of the $12 billion
we hold in gold stock is available for payment to foreign holders of dollars upon demand. This
is because present law requires that all Federal Reserve notes outstanding be backed by an equiv-
alency of 25 per cent in gold. This now ties up more than $10 billion of our gold stock.
- more -
- 2 -
UNDER PRESSURE OF the current crisis, Congress may well be forced to remove
the requirement that a 25 per cent gold reserve be held as backing for our Federal Reserve Notes.
To maintain confidence in the dollar abroad, we must be in a position to redeem dollars with
gold upon demand by foreign creditors.
But removing the Federal Reserve Note gold cover will not solve our balance of pay-
ments problem. It will simply buy time. It is symptomatic of the deep financial troubles besetting
US internationally--and domestically as well.
It is vital to America and to the Free World that the United States restore its inter-
national financial equilibrium-that we quickly regain our balance and ultimately achieve a
surplus in dollars through international exchange. We must earn more dollars abroad than we send
and spend abroad.
This is of utmost importance not only to the banker and the industrialist but also to
the consumer, the worker, and the farmer.
The dollar is the major vehicle for transactions in international trade and for flows
of capital between Free World nations. This is so because the dollar has been strong.
JUST AS A STRONG DOLLAR is the bulwark of the International Monetary System,
so a strong and stable International Monetary System is the foundation for healthy world trade.
It provides a means for conversion of one nation's currency into another, so that trade between
nations can proceed smoothly.
The dollar is the foundation of the entire Free World economy because it is the foun-
dation of the international monetary system. If we continue to suffer large and chronic balance
of payments deficits, the dollar will go soft and confidence in it will be destroyed.
If confidence in the dollar collapses, so too will world trade. The inevitable result
would be a Free World depression.
Thus we return to the consumer, the worker and the farmer, and the importance to
every American that the balance of payments problem be met.
The longer the United States has very large dollar liabilities abroad, the greater will
be the difficulty of maintaining confidence in the dollar and in the International Monetary System
itself.
TO THOSE WHO RECOGNIZE no such entity as "world Communism" the words I
now am about to speak will seem meaningless. The same will be true of those who believe the
threat of Communist domination of the world is vastly exaggerated. I personally believe that the
Communist powers of the world implacably seek the downfall of the Free World nations--chiefly,
the United States.
There are two means open to them to achieve this objective. One is military; the
other, economic.
The United States at least for the present enjoys nuclear supremacy over the Soviet
Union and Red China, and certainly neither of these Communist nations has the power to bring
about an economic collapse of the Free World. But the Free World could bring about its own de-
feat through an international depression caused by loss of confidence in the dollar and a resulting
collapse of Free World trade.
I am not predicting the demise of the dollar and collapse of Free World economies.
But the seriousness of the U.S. balance of payments situation and the threat to the International
Monetary System cannot be overstated. This takes US back to New Year's Day 1968 when the
Administration announced a series of drastic measures aimed at plugging the deficit in our balance
of payments.
-more-
- 3 -
AN ATMOSPHERE OF fiscal crisis suddenly enveloped the Free World. It pressed
in most heavily and most closely upon the United States and upon England, which has its own
severe balance of payments problem and had devalued the pound sterling in a step to solve it.
This country's balance of payments problem has long been with US. It did not develop
ovemight. But it assumed the magnitude of a crisis after Britain devalued the pound sterling and
our own balance of payments deficit situation badly worsened in December of 1967.
Ours is a nation in crisis. Wa are being called upon to defend the dollar and in
doing so we sorely need the help of Free World nations which have been running a surplus in their
balance of payments. In a broad sense at least, it is time for Western Europe to repay the United
States for the generous Marshall Plan aid which put the world economy back on its feet after
World War 11.
The Administration on New Year's Day announced emergency measures aimed at a total
recoupment of $3 billion in dollar outflow in 1968 after the balance of payments deficit for 1967
reached $3.5 to $4 billion.
The new program would restrict investments abroad by American corporations, reduce
lending abroad by American banks and other financial institutions, restrain travel by Americans
outside the Western Hemisphere and reduce the amounts they spend outside the hemisphere, save
on military expenditures abroad, negotiate a better deal for American products in Wastern Europe
against barriers other than tariffs, increase longterm sales of American goods abroad, and stimulate
more foreign investment and tourism in the United States.
I AM NOT ENDORSING all or any part of the Administration's proposals at this
point in time. But we must have an emergency program to get us through the current crisis. I
heartily dislike parts of investment and freedom of travel on a mandatory basis. These are measures
which are alien to a free society and destructive of free intercourse in goods and persons between
nations. As such, they are damaging to goals America has pursued over the last several decades.
From a practical standpoint, the controls on investment abroad will be self-defeating
if continued for long. The reason is that such a limitation will reduce the inflow of dollars over
the long run. The inflow from overseas investments now is about $4 billion as compared with an
outflow of $2.5 billion to $3 billion.
The proposal to restrict travel may run into trouble in Congress but it is too early to
tell. The Administration is simply exploring possible approaches with the House Ways and Means
Committee. It's a touchy matter and they're afraid of it politically.
The Vietnam war accounts for about $1 billion of our balance of payments gap. There
is not much we can do about that except to try to end the war as quickly as possible on terms not
detrimental to our national interest.
The basic approach to a permonent solution of our balance of payments problem should
be three-pronged--persuading certain of our Free World friends to assume part of our present bur-
den of world development and peace-keeping, improving our position in world trade, and restoring
price stability and labor-management peace at home.
WE SHOULD LONG AGO have shifted far more of the world development burden
to those Free World nations which are enjoying a balance of payments surplus. We must do this
by expanding programs of multi-lateral aid to underdeveloped nations and simultaneously reducing
our unilateral foreign aid program to the barest minimum.
In this connection, it is interesting to note that the President less than three months
ago denounced Congress for reducing his 1968 foreign aid request. And Vice President Humphrey,
while visiting Africa, said our foreign aid program should be doubled or even tripled. This seems
somewhat inconsistent in view of the balance of payments deficit and the stated concern of the
Administration.
In addition to moving much farther into multi-lateral aid and away from unilateral
assistance, we must also get our Free World military allies to pay more of the costs of maintaining
U.S. forces on their soil. NATO, in effect, should be made into an economic unit as well as a
military alliance.
- more -
- 4 -
But the best hope of solving our balance of payments problem and bolstering confi-
dence in the dollar is to greatly improve our trade position. We still enjoy a balance of trade
surplus but it has declined sharply. From 1960 to 1965 our trade surplus--excess of exports over
imports--averaged $5.2 billion. It climbed to a record high of $6.7 billion in 1964. But it began
dropping in 1965 and slipped to $3.7 billion in 1966. Last year there was a slight improvement
to $4 billion.
Our trade position has worsened since mid-1965 primarily because of a rise in prices
of U.S. products due to an upsurge of demand at home and a general overheating of the American
economy. Our overall balance of payments position also deteriorated further as a result of the
foreign exchange costs of the Vietnam war.
WE SHOULD NOT OVERLOOK the fact that our trading partners have subjected our
exporters to indirect taxes which have placed the United States at a distinct disadvantage in selling
to those countries. This is a problem our government has ignored far too long. It must be resolved.
As for the Vietnam war, the ending of It will not solve our balance of payments prob-
lem although it will help. A recent U.S. Trectury Department report states: "We had a balance
of payments problem before Vietnam, and the cessation of the fighting will not in and of itself
effect a cure."
One fact is fundamental to a solution of the dollar crisis, the balance of payments
crisis. The basic remedy lies in a restoration of stable prices on U.S. products and consequent
expansion of American exports. This can only be achieved through a return to prudent monetary
and fiscal policies in this country--and to restraint on the part of management, labor, Industry
and government. That restraint must begin at the top. It won't work for the government to over-
stimulate the economy by spending far in excess of its income and then to say to all Americans--
do as I say, not as I do.
The President has proposed a 10 per cent income tax surtax as a means of restoring
price stability. This might be salutary except that the kind of inflation we now are experiencing
is primarily due to increases in production costs pushing up prices on the finished product.
The respected retailer's newspaper, "Women's Wear Daily," bluntly says in its Jan.
30 issue:
"BUSINESS GENERALLY will pass along tax increases--and the public will have to
pay higher prices, with less money with which to pay them."
It does without saying that a tax increase also will add to the production costs of
U.S. products we are trying to sell overseas. It is difficult to see how an income tax increase is
going to increase the ability of American business to compete in foreign markets. Yet the Treasury
Department report states: "In the long run, the best way to restore our balance of payments is to
increase our trade surplus by increasing the rate of our export growth."
Sharply rising prices could threaten to price more U.S. goods out of world markets--
and tax increases will add to costs that are rising too fast. I find it impossible to accept the Presi-
dent's New Year's Day statement to the effect that the dollar "can be sound at home--as it surely
is--yet can be in trouble abroad."
One reason the dollar is in trouble abroad is that it is in trouble at home. And that
is where the basic solution to the trouble must begin--at home. All is not darkness in the current
situation. The United States may, in effect, muddle through the present crisis. This is true despite
announcement." the sick joke that's going around Washington--"Come back next New Year's for the devaluation
The saving element--but one which cannot be counted on indefinitely--is that the fate
of other Free World economies is tied closely to ours. This means that foreign governments probab-
ly will refrain from touching off a run on the dangerously small U.S. gold stock for fear of the con-
sequences to themselves. They also should find it in their own best interests to help the United
States achieve and maintain balance of payments equilibrium.
Much of our financial future, which we see only darkly, rests on our advantageously
positioned trading partners. Now we need help. But we must never forget that our best hope for
help lies within ourselves. It is wisely written: "God loves to help him who strives to help him-
self." Only by following that precept can we cast off our present weakness and "go from strength
to strength."
###
Speech the Week
PUBLIC RELATIONS OFFICE
REPUBLICAN CONGRESSIONAL COMMITTEE
312 CONGRESSIONAL HOTEL
WASHINGTON, D. c.
SUBJECT: 'An Atmosphere of Fiscal Crisis Envelops the Free World'
Remarks of
House Republican Leader Gerald R. Ford
Duke University, Feb. 2, 1968
THE BLANK PAGES of the future have always held tremendous fascination for the
human race.
Many people look to the future with keen anticipation; some with dread. Each year,
as the 12-month period just ending limps out and the new 12-month segment creeps in, human
beings engage in rituals that range from a pursuit of intoxication to sober reflection, predictions
and avowals of reform. Pundits peer into their crystal balls, and newspaper readers avidly de-
vour their forecasts.
Alexander Pope summed up this fascination with the future and dreams of a better
world in perhaps his most famous rhyming couplet:
"Hope springs eternal in the human breast: Man never is, but always to be, blest."
1 am no exception, of course, and so it was with great interest that I recently scanned
a book entitled, "The Year 2000: A Framework for Speculation on the Next Thirty-Three Years,"
by Herman Kahn and Anthony J. Wiener.
THIS BOOK HARDLY feeds the hope that springs eternal. Rather than promising
utopia, the two authors explore a number of dire bilities including nuclear war, the triumph
of Communism, the reappearance of Fascism and an international depression.
I am not going to discuss all four of these projected developments but ! would like to
focus on two of them--an international depression and the theoretical triumph of Communism.
Both of these threatened calamities are linked to a problem with which the United
States now is grappling in a spirit of desperation. This problem is variously described as the bal-
ance of payments deficit or the gold drain. It has been with US for 10 years. It has grown to
crisis proportions.
Mention the balance of payments to most Americans and you draw a blank. It is a
terrible complex subject. But it can be expressed in relatively simple terms in the current con-
text of the gold drain.
Somewhat oversimplified, the situation is this: The United States dollar has become
an international currency. For 10 years, more dollars have been leaving the country than have
been coming in. Foreigners use these dollars in a variety of ways. This includes holding them
for possible investment or buying gold from the United States. At present foreigners hold $31.2
billion worth of claims against the United States. Meantime our gold supply has shrunk from
$23 billion to $12 billion in the last 10 years. Currently less than $2 billion of the $12 billion
we hold in gold stock is available for payment to foreign holders of dollars upon demand. This
is because present law requires that all Federal Reserve notes outstanding be backed by an equiv-
alency of 25 per cent in gold. This now ties up more than $10 billion of our gold stock.
- more -
- 2 -
UNDER PRESSURE OF the current crisis, Congress may well be forced to remove
the requirement that a 25 per cent gold reserve be held as backing for our Federal Reserve Notes.
To maintain confidence in the dollar abroad, we must be in a position to redeem dollars with
gold upon demand by foreign creditors.
But removing the Federal Reserve Note gold cover will not solve our balance of pay-
ments problem. It will simply buy time. It is symptomatic of the deep financial troubles besetting
US internationally--and domestically as well.
It is vital to America and to the Free World that the United States restore its inter-
national financial equilibrium-that we quickly regain our balance and ultimately achieve a
surplus in dollars through international exchange. We must earn more dollars abroad than we send
and spend abroad.
This is of utmost importance not only to the banker and the industrialist but also to
the consumer, the worker, and the farmer.
The dollar is the major vehicle for transactions in international trade and for flows
of capital between Free World nations. This is so because the dollar has been strong.
JUST AS A STRONG DOLLAR is the bulwark of the International Monetary System,
so a strong and stable International Monetary System is the foundation for healthy world trade.
It provides a means for conversion of one nation's currency into another, so that trade between
nations can proceed smoothly.
The dollar is the foundation of the entire Free World economy because it is the foun-
dation of the international monetary system. If we continue to suffer large and chronic balance
of payments deficits, the dollar will go soft and confidence in it will be destroyed.
If confidence in the dollar collapses, so too will world trade. The inevitable result
would be a Free World depression.
Thus we return to the consumer, the worker and the farmer, and the importance to
every American that the balance of payments problem be met.
The longer the United States has very large dollar liabilities abroad, the greater will
be the difficulty of maintaining confidence in the dollar and in the International Monetary System
itself.
TO THOSE WHO RECOG NIZE no such entity as "world Communism" the words I
now am about to speak will seem meaningless. The same will be true of those who believe the
threat of Communist domination of the world is vastly exaggerated. I personally believe that the
Communist powers of the world implacably seek the downfall of the Free World nations-chiefly,
the United States.
There are two means open to them to achieve this objective. One is military; the
other, economic.
The United States at least for the present enjoys nuclear supremacy over the Soviet
Union and Red China, and certainly neither of these Communist nations has the power to bring
about an economic collapse of the Free World. But the Free World could bring about its own de-
feat through an international depression caused by loss of confidence in the dollar and a resulting
collapse of Free World trade.
I am not predicting the demise of the dollar and collapse of Free World economies.
But the seriousness of the U.S. balance of payments situation and the threat to the International
Monetary System cannot be overstated. This takes US back to New Year's Day 1968 when the
Administration announced a series of drastic measures aimed at plugging the deficit in our balance
of payments.
-more-
- 3 -
AN ATMOSPHERE OF fiscal crisis suddenly enveloped the Free World. It pressed
in most heavily and most closely upon the United States and upon England, which has its own
severe balance of payments problem and had devalued the pound sterling in a step to solve it.
This country's balance of payments problem has long been with US. It did not develop
overnight. But it assumed the magnitude of a crisis after Britain devalued the pound sterling and
our own balance of payments deficit situation badly worsened in December of 1967.
Ours is a nation in crisis. Ws are being called upon to defend the dollar and in
doing so we sorely need the help of Free World nations which have been running a surplus in their
balance of payments. In a broad sense at least, it is time for Western Europe to repay the United
States for the generous Marshall Plan aid which put the world economy back on its feet after
World War 11.
The Administration on New Year's Day announced emergency measures aimed at a total
recoupment of $3 billion in dollar outflow in 1968 after the balance of payments deficit for 1967
reached $3.5 to $4 billion.
The new program would restrict investments abroad by American corporations, reduce
lending abroad by American banks and other financial institutions, restrain travel by Americans
outside the Western Hemisphere and reduce the amounts they spend outside the hemisphere, save
on military expenditures abroad, negotiate a better deal for American products in Western Europe
against barriers other than tariffs, increase longterm sales of American goods abroad, and stimulate
more foreign investment and tourism in the United States.
I AM NOT ENDORSING all or any part of the Administration's proposals at this
point in time. But we must have an emergency program to get US through the current crisis. I
heartily dislike parts of investment and freedom of travel on a mandatory basis. These are measures
which are alien to a free society and destructive of free intercourse in goods and persons between
nations. As such, they are damaging to goals America has pursued over the last several decades,
From a practical standpoint, the controls on investment abroad will be self-defeating
if continued for long. The reason is that such a limitation will reduce the inflow of dollars ovel
the long run. The inflow from overseas investments now is about $4 billion as compared with an
outflow of $2.5 billion to $3 billion.
The proposal to restrict travel may run into trouble in Congress but it is too early to
tell. The Administration is simply exploring possible approaches with the House Ways and Means
Committee. It's a touchy matter and they're afraid of it politically.
The Vietnam war accounts for about $1 billion of our balance of payments gap. There
is not much we can do about that except to try to end the war as quickly as possible on terms not
detrimental to our national interest.
The basic approach to a permanent solution of our balance of payments problem should
be three-pronged=-persuading certain of our Free World friends to assume part of our present bur-
den of world development and peace-keeping, improving our position in world trade, and restoring
price stability and labor-management peace at home.
WE SHOULD LONG AGO have shifted far more of the world development burden
to those Free World nations which are enjoying a balance of payments surplus. We must do this
by expanding programs of multi-lateral aid to underdeveloped nations and simultaneously reducing
our unilateral foreign aid program to the barest minimum.
In this connection, it is interesting to note that the President less than three months
ago denounced Congress for reducing his 1968 foreign aid request. And Vice President Humphrey,
while visiting Africa, said our foreign aid program should be doubled or even tripled. This seems
somewhat inconsistent in view of the balance of payments deficit and the stated concern of the
Administration.
In addition to moving much farther into multi-lateral aid and away from unilateral
assistance, we must also get our Free World military allies to pay more of the costs of maintaining
U.S. forces on their soil. NATO, in effect, should be made into an economic unit as well as a
military alliance.
- more -
4 -
But the best hope of solving our balance of payments problem and bolstering confi-
dence In the dollar is to greatly improve our trade position. We still enjoy a balance of trade
surplus but it has declined sharply. From 1960 to 1965 our trade surplus--excess of exports over
imports-averaged $5.2 billion. It climbed to a record high of $6.7 billion in 1964. But it began
dropping in 1965 and slipped to $3.7 billion in 1966. Last year there was a slight improvement
to $4 billion.
Our trade position has worsened since mid-1965 primarily because of a rise in prices
of U.S. products due to an upsurge of demand at home and a general overheating of the American
economy. Our overall balance of payments position also deteriorated further as a result of the
foreign exchange costs of the Vietnam war.
WE SHOULD NOT OVERLOOK the fact that our trading partners have subjected our
exporters to indirect taxes which have placed the United States at a distinct disadvantage in selling
to those countries. This is a problem our government has ignored far too long. It must be resolved.
As for the Vietnam war, the ending of It will not solve our balance of payments prob-
lem although it will help. A recent U.S. Trectury Department report states: "We had a balance
of payments problem before Vietnam, and the cessation of the fighting will not in and of itself
effect a cure."
One fact is fundamental to a solution of the dollar crisis, the balance of payments
crisis. The basic remedy lies in a restoration of stable prices on U.S. products and consequent
expansion of American exports. This can only be achieved through a return to prudent monetary
and fiscal policies in this country--and to restraint on the part of management, labor, Industry
and government. That restraint must begin at the top. It won't work for the government to over-
stimulate the economy by spending far in excess of its income and then to say to all Americans--
do as I say, not as I do.
The President has proposed a 10 per cent income tax surtax as a means of restoring
price stability. This might be salutary except that the kind of inflation we now are experiencing
is primarily due to increases in production costs pushing up prices on the finished product.
The respected retailer's newspaper, "Women's Wear Daily," bluntly says in its Jan.
30 issue:
"BUSINESS GENERALLY will pass along tax increases--and the public will have to
pay higher prices, with less money with which to pay them."
It does without saying that a tax increase also will add to the production costs of
U.S. products we are trying to sell overseas. It is difficult to see how an income tax increase is
going to increase the ability of American business to compete in foreign markets. Yet the Treasury
Department report states: "In the long run, the best way to restore our balance of payments is to
increase our trade surplus by increasing the rate of our export growth."
Sharply rising prices could threaten to price more U.S. goods out of world markets--
and tax increases will add to costs that are rising too fast. I find it impossible to accept the Presi-
dent's New Year's Day statement to the effect that the dollar "can be sound at home--as it surely
is--yet can be in trouble abroad."
One reason the dollar is in trouble abroad is that it is in trouble at home. And that
is where the basic solution to the trouble must begin--at home. All is not darkness in the current
situation. The United States may, in effect, muddle through the present crisis. This is true despite
the sick joke that's going around Weshington--"Come back next New Year's for the devaluation
announcement."
The saving element--but one which cannot be counted on indefinitely--is that the fate
of other Free World economies is tied closely to ours. This means that foreign governments probab-
ly will refrain from touching off a run on the dangerously small U.S. gold stock for fear of the con-
sequences to themselves. They also should find it in their own best interests to help the United
States achieve and maintain balance of payments equilibrium.
Much of our financial future, which we see only darkly, rests on our advantageously
positioned trading partners. Now we need help. But we must never forget that our best hope for
help lies within ourselves. It is wisely written: "God loves to help him who strives to help him-
self." Only by following that precept can we cast off our present weakness and "go from strength
to strength."
###
ADDRESS AT DUKE UNIVERSITY. FRIDAY. FEB. 2. 1968.
THE BLANK PAGES OF THE FUTURE HAVE ALWAYS HELD
TREMENDOUS FASCINATION FOR THE HUMAN RACE.
MANY PEOPLE LOOK TO THE FUTURE WITH KEEN ANTICIPATION;
SOME WITH DREAD. EACH YEAR, AS THE 12-MONTH PERIOD JUST
ENDING LIMPS OUT AND THE NEW 12-MONTH SEGMENT CREEPS IN,
HUMAN BEINGS ENGAGE IN RITUALS THAT RANGE FROM A PURSUIT OF
INTOXICATION TO SOBER REFLECTION, PREDICTIONS AND AVOWALS
OF REFORM. PUNDITS PEER INTO THEIR CRYSTAL BALLS, AND
NEWSPAPER READERS AVIDLY DEVOUR THEIR FORECASTS.
ALEXANDER POPE SUMMED UP THIS FASCINATION WITH THE
FUTURE AND DREAMS OF A BETTER WORLD IN PERHAPS HIS MOST
FAMOUS RHYMING COUPLET:
"HOPE SPRINGS ETERNAL IN THE HUMAN BREAST:
MAN NEVER IS, BUT ALWAYS TO BE, BLEST."
-2-
I AM NO EXCEPTION, OF COURSE. AND SO IT WAS WITH
GREAT INTEREST THAT I RECENTLY SCANNED A BOOK ENTITLED,
"THE YEAR 2000: A FRAMEWORK FOR SPECULATION ON THE NEXT
THIRTY-THREE YEARS," BY HERMAN KAHN AND ANTHONY J. WIENER.
THIS BOOK HARDLY FEEDS THE HOPE THAT SPRINGS ETERNAL.
RATHER THAN PROMISING UTOPIA, THE TWO AUTHORS EXPLORE A
NUMBER OF DIRE POSSIBILITIES INCLUDING NUCLEAR WAR, THE
TRIUMPH OF COMMUNISM, THE REAPPEARANCE OF FASCISM AND AN
INTERNATIONAL DEPRESSION.
I AM NOT GOING TO DISCUSS ALL FOUR OF THESE PROJECTED
DEVELOPMENTS THIS AFTERNOON BUT I WOULD LIKE TO FOCUS ON
TWO OF THEM--AN INTERNATIONAL DEPRESSION AND THE THEORETICAL
TRIUMPH OF COMMUNISM.
BOTH OF THESE THREATENED CALAMITIES ARE LINKED TO A
PROBLEM WITH WHICH THE UNITED STATES NOW IS GRAPPLING IN A
-3-
SPIRIT OF DESPERATION. THIS PROBLEM IS VARIOUSLY DESCRIBED
AS THE BALANCE OF PAYMENTS DEFICIT OR THE GOLD DRAIN. IT
HAS BEEN WITH US FOR 10 YEARS. IT HAS GROWN TO CRISIS
PROPORTIONS.
MENTION THE BALANCE OF PAYMENTS TO MOST AMERICANS AND
YOU DRAW A BLANK. IT IS A TERRIBLY COMPLEX SUBJECT. BUT IT
CAN BE EXPRESSED IN RELATIVELY SIMPLE TERMS IN THE CURRENT
CONTEXT OF THE GOLD DRAIN.
SOMEWHAT OVERSIMPLIFIED, THE SITUATION IS THIS: THE
UNITED STATES DOLLAR HAS BECOME AN INTERNATIONAL CURRENCY.
FOR 10 YEARS, MORE DOLLARS HAVE BEEN LEAVING THE COUNTRY
THAN HAVE BEEN COMING IN. FOREIGNERS USE THESE DOLLARS IN
A VARIETY OF WAYS. THIS INCLUDES HOLDING THEM FOR POSSIBLE
INVESTMENT OR BUYING GOLD FROM THE UNITED STATES. AT PRESENT
FOREIGNERS HOLD $31.2 BILLION WORTH OF CLAIMS AGAINST THE
-4-
UNITED STATES. MEANTIME OUR GOLD SUPPLY HAS SHRUNK FROM
$23 BILLION TO $12 BILLION IN THE LAST 10 YEARS. CURRENTLY
LESS THAN $2 BILLION OF THE $12 BILLION WE HOLD IN GOLD
STOCK IS AVAILABLE FOR PAYMENT TO FOREIGN HOLDERS OF DOLLARS
UPON DEMAND. THIS IS BECAUSE PRESENT LAW REQUIRES THAT
ALL FEDERAL RESERVE NOTES OUTSTANDING BE BACKED BY AN
EQUIVALENCY OF 25 PER CENT IN GOLD. THIS NOW TIES UP MORE
THAN $10 BILLION OF OUR GOLD STOCK.
UNDER PRESSURE OF THE CURRENT CRISIS CONGRESS MAY
WELL BE FORCED TO REMOVE THE REQUIREMENT THAT A 25 PER CENT
GOLD RESERVE BE HELD AS BACKING FOR OUR FEDERAL RESERVE
NOTES. TO MAINTAIN CONFIDENCE IN THE DOLLAR ABROAD, WE
MUST BE IN A POSITION TO REDEEM DOLLARS WITH GOLD UPON
DEMAND BY FOREIGN CREDITORS.
BUT REMOVING THE FEDERAL RESERVE NOTE GOLD COVER
-5-
WILL NOT SOLVE OUR BALANCE OF PAYMENTS PROBLEM. IT WILL
SIMPLY BUY TIME. IT IS SYMPTOMATIC OF THE DEEP FINANCIAL
TROUBLES BESETTING US INTERNATIONALLY--AND DOMESTICALLY AS
WELL.
IT IS VITAL TO AMERICA AND TO THE FREE WORLD THAT
THE UNITED STATES RESTORE ITS INTERNATIONAL FINANCIAL
EQUILIBRIUM--THAT WE QUICKLY REGAIN OUR BALANCE AND
ULTIMATELY ACHIEVE A SURPLUS IN DOLLARS THROUGH INTERNATIONAL
EXCHANGE. WE MUST EARN MORE DOLLARS ABROAD THAN WE SEND
AND SPEND ABROAD.
THIS IS OF UTMOST IMPORTANCE NOT ONLY TO THE BANKER
AND THE INDUSTRIALIST BUT ALSO TO THE CONSUMER, THE WORKER,
AND THE FARMER.
THE DOLLAR IS THE MAJOR VEHICLE FOR TRANSACTIONS IN
INTERNATIONAL TRADE AND FOR FLOWS OF CAPITAL BETWEEN FREE
WORLD NATIONS. THIS IS SO BECAUSE THE DOLLAR HAS BEEN STRONG.
-6-
JUST AS A STRONG DOLLAR IS THE BULWARK OF THE INTER-
NATIONAL MONETARY SYSTEM, SO A STRONG AND STABLE
INTERNATIONAL MONETARY SYSTEM IS THE FOUNDATION FOR HEALTHY
WORLD TRADE. IT PROVIDES A MEANS FOR CONVERSION OF ONE
NATION'S CURRENCY INTO ANOTHER, SO THAT TRADE BETWEEN NATIONS
CAN PROCEED SMOOTHLY.
THE DOLLAR IS THE FOUNDATION OF THE ENTIRE FREE
WORLD ECONOMY BECAUSE IT IS THE FOUNDATION OF THE INTER-
NATIONAL MONETARY SYSTEM. IF WE CONTINUE TO SUFFER LARGE
AND CHRONIC BALANCE OF PAYMENTS DEFICITS, THE DOLLAR WILL
GO SOFT AND CONFIDENCE IN IT WILL BE DESTROYED.
IF CONFIDENCE IN THE DOLLAR COLLAPSES, SO TOO WILL
WORLD TRADE. THE INEVITABLE RESULT WOULD BE A FREE WORLD
DEPRESSION.
THUS WE RETURN TO THE CONSUMER, THE WORKER AND THE
-7-
FARMER, AND THE IMPORTANCE TO EVERY AMERICAN THAT THE BALANCE
OF PAYMENTS PROBLEM BE MET.
THE LONGER THE UNITED STATES HAS VERY LARGE DOLLAR
LIABILITIES ABROAD, THE GREATER WILL BE THE DIFFICULTY OF
MAINTAINING CONFIDENCE IN THE DOLLAR AND IN THE INTERNATIONAL
MONETARY SYSTEM ITSELF.
TO THOSE WHO RECOGNIZE NO SUCH ENTITY AS "WORLD
COMMUNISM" THE WORDS I NOW AM ABOUT TO SPEAK WILL SEEM
MEANINGLESS. THE SAME WILL BE TRUE OF THOSE WHO BELIEVE THE
THREAT OF COMMUNIST DOMINATION OF THE WORLD IS VASTLY
EXAGGERATED.
I PERSONALLY BELIEVE THAT THE COMMUNIST POWERS OF
THE WORLD IMPLACABLY SEEK THE DOWNFALL OF THE FREE WORLD
NATIONS-CHIEFLY, THE UNITED STATES.
THERE ARE TWO MEANS OPEN TO THEM TO ACHIEVE THIS
-8-
OBJECTIVE. ONE IS MILITARY, THE OTHER, ECONOMIC.
THE UNITED STATES AT LEAST FOR THE PRESENT ENJOYS
NUCLEAR SUPREMACY OVER THE SOVIET UNION AND RED CHINA, AND
CERTAINLY NEITHER OF THESE COMMUNIST NATIONS HAS THE POWER
TO BRING ABOUT AN ECONOMIC COLLAPSE OF THE FREE WORLD.
BUT THE FREE WORLD COULD BRING ABOUT ITS OWN DEFEAT
THROUGH AN INTERNATIONAL DEPRESSION CAUSED BY LOSS OF
CONFIDENCE IN THE DOLLAR AND A RESULTING COLLAPSE OF FREE
WORLD TRADE.
I AM NOT PREDICTING THE DEMISE OF THE DOLLAR AND
COLLAPSE OF FREE WORLD ECONOMIES. BUT THE SERIOUSNESS OF
THE U.S. BALANCE OF PAYMENTS SITUATION AND THE THREAT TO
THE INTERNATIONAL MONETARY SYSTEM CANNOT BE OVERSTATED.
THIS TAKES US BACK TO NEW YEAR'S DAY 1968 WHEN THE
ADMINISTRATION ANNOUNCED A SERIES OF DRASTIC MEASURES AIMED
-9-
AT PLUGGING THE DEFICIT IN OUR BALANCE OF PAYMENTS.
AN ATMOSPHERE OF FISCAL CRISIS SUDDENLY ENVELOPED
THE FREE WORLD. IT PRESSED IN MOST HEAVILY AND MOST
CLOSELY UPON THE UNITED STATES AND UPON ENGLAND, WHICH HAS
ITS OWN SEVERE BALANCE OF PAYMENTS PROBLEM AND HAD DEVALUED
THE POUND STERLING IN A STEP TO SOLVE IT.
THIS COUNTRY'S BALANCE OF PAYMENTS PROBLEM HAS LONG
BEEN WITH US. IT DID NOT DEVELOP OVERNIGHT. BUT IT ASSUMED
THE MAGNITUDE OF A CRISIS AFTER BRITAIN DEVALUED THE POUND
STERLING AND OUR OWN BALANCE OF PAYMENTS DEFICIT SITUATION
BADLY WORSENED IN DECEMBER OF 1967.
OURS IS A NATION IN CRISIS. WE ARE BEING CALLED UPON
TO DEFEND THE DOLLAR AND IN DOING SO WE SORELY NEED THE HELP
OF FREE WORLD NATIONS WHICH HAVE BEEN RUNNING A SURPLUS IN
THEIR BALANCE OF PAYMENTS. IN A BROAD SENSE AT LEAST, IT
-10-
IS TIME FOR WESTERN EUROPE TO REPAY THE UNITED STATES FOR
THE GENEROUS MARSHALL PLAN AID WHICH PUT THE WORLD ECONOMY
BACK ON ITS FEET AFTER WORLD WAR 11.
THE ADMINISTRATION ON NEW YEAR'S DAY ANNOUNCED EMERGENCY
MEASURES AIMED AT A TOTAL RECOUPMENT OF $3 BILLION IN DOLLAR
OUTFLOW IN 1968 AFTER THE BALANCE OF PAYMENTS DEFICIT FOR
1967 REACHED $3.5 TO $4 BILLION.
THE NEW PROGRAM WOULD RESTRICT INVESTMENTS ABROAD
BY AMERICAN CORPORATIONS, REDUCE LENDING ABROAD BY AMERICAN
BANKS AND OTHER FINANCIAL INSTITUTIONS, RESTRAIN TRAVEL
BY AMERICANS OUTSIDE THE WESTERN HEMISPHERE AND REDUCE THE
AMOUNTS THEY SPEND OUTSIDE THE HEMISPHERE, SAVE ON MILITARY
EXPENDITURES ABROAD, NEGOTIATE A BETTER DEAL FOR AMERICAN
PRODUCTS IN WESTERN EUROPE AGAINST BARRIERS OTHER THAN
TARIFFS, INCREASE LONGTERM SALES OF AMERICAN GOODS ABROAD,
-11-
AND STIMULATE MORE FOREIGN INVESTMENT AND TOURISM IN THE
UNITED STATES.
I AM NOT ENDORSING ALL OR ANY PART OF THE
ADMINISTRATION PROPOSALS AT THIS POINT IN TIME. BUT WE
MUST HAVE AN EMERGENCY PROGRAM TO GET US THROUGH THE CURRENT
CRISIS.
I HEARTILY DISLIKE PARTS OF THE ADMINISTRATION
PROGRAM--THOSE ELEMENTS WHICH INTERFERE WITH FREEDOM OF
INVESTMENT AND FREEDOM OF TRAVEL ON A MANDATORY BASIS.
THESE ARE MEASURES WHICH ARE ALIEN TO A FREE SOCIETY AND
DESTRUCTIVE OF FREE INTERCOURSE IN GOODS AND PERSONS BETWEEN
NATIONS. AS SUCH, THEY ARE DAMAGING TO GOALS AMERICA HAS
PURSUED OVER THE LAST SEVERAL DECADES.
FROM A PRACTICAL STANDPOINT, THE CONTROLS ON
INVESTMENT ABROAD WILL BE SELF-DEFEATING IF CONTINUED FOR
-12-
LONG. THE REASON IS THAT SUCH A LIMITATION WILL REDUCE THE
INFLOW OF DOLLARS OVER THE LONG RUN. THE INFLOW FROM OVER-
SEAS INVESTMENTS NOW IS ABOUT $4 BILLION AS COMPARED WITH AN
OUTFLOW OF $2.5 BILLION TO $3 BILLION.
THE PROPOSAL TO RESTRICT TRAVEL MAY RUN INTO TROUBLE
IN CONGRESS BUT IT IS TOO EARLY TO TELL. THE ADMINISTRATION
IS SIMPLY EXPLORING POSSIBLE APPROACHES WITH THE HOUSE WAYS
AND MEANS COMMITTEE. IT'S A TOUCHY MATTER AND THEY'RE
AFRAID OF IT POLITICALLY.
THE VIETNAM WAR ACCOUNTS FOR ABOUT $1 BILLION OF OUR
BALANCE OF PAYMENTS GAP. THERE IS NOT MUCH WE CAN DO ABOUT
THAT EXCEPT TO TRY TO END THE WAR AS QUICKLY AS POSSIBLE ON
TERMS NOT DETRIMENTAL TO OUR NATIONAL INTEREST.
THE BASIC APPROACH TO A PERMANENT SOLUTION OF OUR
BALANCE OF PAYMENTS PROBLEM SHOULD BE THREE-PRONGED--
-13-
PERSUADING CERTAIN OF OUR FREE WORLD FRIENDS TO ASSUME
PART OF OUR PRESENT BURDEN OF WORLD DEVELOPMENT AND PEACE-
KEEPING, IMPROVING OUR POSITION IN WORLD TRADE, AND
RESTORING PRICE STABILITY AND LABOR-MANAGEMENT PEACE AT HOME.
WE SHOULD LONG AGO HAVE SHIFTED FAR MORE OF THE WORLD
DEVELOPMENT BURDEN TO THOSE FREE WORLD NATIONS WHICH ARE
ENJOYING A BALANCE OF PAYMENTS SURPLUS. WE MUST DO THIS BY
EXPANDING PROGRAMS OF MULTI-LATERAL AID TO UNDERDEVELOPED
NATIONS AND SIMULTANEOUSLY REDUCING OUR UNILATERAL FOREIGN
AID PROGRAM TO THE BAREST MINIMUM.
IN THIS CONNECTION, IT IS INTERESTING TO NOTE THAT
THE PRESIDENT LESS THAN THREE MONTHS AGO DENOUNCED CONGRESS
FOR REDUCING HIS 1968 FOREIGN AID REQUEST. AND VICE-PRESIDENT
HUMPHREY, WHILE VISITING AFRICA, SAID OUR FOREIGN AID PRO-
GRAM SHOULD BE DOUBLED OR EVEN TRIPLED. THIS SEEMS SOMEWHAT
-14-
INCONSISTENT IN VIEW OF THE BALANCE OF PAYMENTS DEFICIT
AND THE STATED CONCERN OF THE ADMINISTRATION.
IN ADDITION TO MOVING MUCH FARTHER INTO MULTI-LATERAL
AID AND AWAY FROM UNILATERAL ASSISTANCE, WE MUST ALSO GET
OUR FREE WORLD MILITARY ALLIES TO PAY MORE OF THE COSTS
OF MAINTAINING U.S. FORCES ON THEIR SOIL. NATO, IN EFFECT,
SHOULD BE MADE INTO AN ECONOMIC UNIT AS WELL AS A MILITARY
ALLIANCE.
BUT THE BEST HOPE OF SOLVING OUR BALANCE OF PAYMENTS
PROBLEM AND BOLSTERING CONFIDENCE IN THE DOLLAR IS TO
GREATLY IMPROVE OUR TRADE POSITION.
WE STILL ENJOY A BALANCE OF TRADE SURPLUS BUT IT HAS
DECLINED SHARPLY. FROM 1960 TO 1965 OUR TRADE SURPLUS--
EXCESS OF EXPORTS OVER MPORTS--AVERAGED $5.2 BILLION. IT
CLIMBED TO A RECORD HIGH OF $6.7 BILLION IN 1964. BUT IT
-15-
BEGAN DROPPING IN 1965 AND SLIPPED TO $3.7 BILLION IN 1966.
LAST YEAR THERE WAS A SLIGHT IMPROVEMENT TO $4 BILLION.
OUR TRADE POSITION HAS WORSENED SINCE MID-1965
PRIMARILY BECAUSE OF A RISE IN PRICES OF U.S. PRODUCTS DUE
TO AN UPSURGE OF DEMAND AT HOME AND A GENERAL OVERHEATING
OF THE AMERICAN ECONOMY. OUR OVERALL BALANCE OF PAYMENTS
POSITION ALSO DETERIORATED FURTHER AS A RESULT OF THE
FOREIGN EXCHANGE COSTS OF THE VIETNAM WAR.
WE SHOULD NOT OVERLOOK THE FACT THAT OUR TRADING
PARTNERS HAVE SUBJECTED OUR EXPORTERS TO INDIRECT TAXES
WHICH HAVE PLACED THE UNITED STATES AT A DISTINCT DISADVANTAGE
IN SELLING TO THOSE COUNTRIES. THIS IS A PROBLEM OUR
GOVERNMENT HAS IGNORED FAR TOO LONG. IT MUST BE RESOLVED.
AS FOR THE VIETNAM WAR, THE ENDING OF IT WILL NOT
SOLVE OUR BALANCE OF PAYMENTS PROBLEM ALTHOUGH IT WILL HELP.
-16-
A RECENT U.S. TREASURY DEPARTMENT REPORT STATES:
"WE HAD A BALANCE OF PAYMENTS PROBLEM BEFORE VIETNAM, AND
THE CESSATION OF THE FIGHTING WILL NOT IN AND OF ITSELF
EFFECT A CURE."
ONE FACT IS FUNDAMENTAL TO A SOLUTION OF THE DOLLAR
CRISIS, THE BALANCE OF PAYMENTS CRISIS. THE BASIC REMEDY
LIES IN A RESTORATION OF STABLE PRICES ON U.S. PRODUCTS
AND CONSEQUENT EXPANSION OF AMERICAN EXPORTS. THIS CAN
ONLY BE ACHIEVED THROUGH A RETURN TO PRUDENT MONETARY AND
FISCAL POLICIES IN THIS COUNTRY--AND TO RESTRAINT ON THE
PART OF MANAGEMENT, LABOR, INDUSTRY AND GOVERNMENT. THAT
RESTRAINT MUST BEGIN AT THE TOP. IT WON'T WORK FOR THE
GOVERNMENT TO OVERSTIMULATE THE ECONOMY BY SPENDING FAR IN
EXCESS OF ITS INCOME AND THEN TO SAY TO ALL AMERICANS--DO
AS I SAY, NOT AS I DO.
-17-
THE PRESIDENT HAS PROPOSED A 10 PER CENT INCOME TAX
SURTAX AS A MEANS OF RESTORING PRICE STABILITY. THIS MIGHT
BE SALUTARY EXCEPT THAT THE KIND OF INFLATION WE NOW ARE
EXPERIENCING IS PRIMARILY DUE TO INCREASES IN PRODUCTION
COSTS PUSHING UP PRICES ON THE FINISHED PRODUCT.
THE RESPECTED RETAILER'S NEWSPAPER, "WOMEN"S WEAR
DAILY," BLUNTLY SAYS IN ITS JAN. 30 ISSUE:
"BUSINESS GENERALLY WILL PASS ALONG TAX INCREASES--
AND THE PUBLIC WILL HAVE TO PAY HIGHER PRICES, WITH LESS
MONEY WITH WHICH TO PAY THEM."
IT GOES WITHOUT SAYING THAT A TAX INCREASE ALSO WILL
ADD TO THE PRODUCTION COSTS OF U.S. PRODUCTS WE ARE TRYING
TO SELL OVERSEAS.
IT IS DIFFICULT TO SEE HOW AN INCOME TAX INCREASE
IS GOING TO INCREASE THE ABILITY OF AMERICAN BUSINESS TO
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COMPETE IN FOREIGN MARKETS.
YET THE TREASURY DEPARTMENT REPORT STATES: "IN THE
LONG RUN, THE BEST WAY TO RESTORE OUR BALANCE OF PAYMENTS
IS TO INCREASE OUR TRADE SURPLUS BY INCREASING THE RATE OF
OUR EXPORT GROWTH."
SHARPLY RISING PRICES COULD THREATEN TO PRICE MORE
U.S. GOODS OUT OF WORLD MARKETS--AND TAX INCREASES WILL ADD
TO COSTS THAT ARE RISING TOO FAST.
I FIND IT IMPOSSIBLE TO ACCEPT THE PRESIDENT'S NEW
YEAR'S DAY STATEMENT TO THE EFFECT THAT THE DOLLAR "CAN BE
SOUND AT HOME--AS IT SURELY IS--YET CAN BE IN TROUBLE ABROAD."
ONE REASON THE DOLLAR IS IN TROUBLE ABROAD IS THAT
IT IS IN TROUBLE AT HOME. AND THAT IS WHERE THE BASIC
SOLUTION TO THE TROUBLE MUST BEGIN--AT HOME.
ALL IS NOT DARKNESS IN THE CURRENT SITUATION. THE
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UNITED STATES MAY, IN EFFECT, MUDDLE THROUGH THE PRESENT
CRISIS. THIS IS TRUE DESPITE THE SICK JOKE THAT'S GOING
AROUND WASHINGTON--"COME BACK NEXT NEW YEAR'S FOR THE
DEVALUATION ANNOUNCEMENT."
THE SAVING ELEMENT--BUT ONE WHICH CANNOT BE COUNTED
ON INDEFINITELY--IS THAT THE FATE OF OTHER FREE WORLD
ECONOMIES IS TIED CLOSELY TO OURS. THIS MEANS THAT FOREIGN
GOVERNMENTS PROBABLY WILL REFRAIN FROM TOUCHING OFF A RUN
ON THE DANGEROUSLY SMALL U.S. GOLD STOCK FOR FEAR OF THE
CONSEQUENCES TO THEMSELVES. THEY ALSO SHOULD FIND IT IN
THEIR OWN BEST INTERESTS TO HELP THE UNITED STATES ACHIEVE
AND MAINTAIN BALANCE OF PAYMENTS EQUILIBRIUM.
MUCH OF OUR FINANCIAL FUTURE, WHICH WE SEE ONLY DARKLY,
RESTS ON OUR ADVANTAGEOUSLY POSITIONED TRADING PARTNERS.
NOW WE NEED HELP.
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BUT WE MUST NEVER FORGET THAT OUR BEST HOPE FOR HELP
LIES WITHIN OURSELVES. IT IS WISELY WRITTEN: "GOD LOVES
TO HELP HIM WHO STRIVES TO HELP HIMSELF." ONLY BY FOLLOWING
THAT PRECEPT CAN WE CAST OFF OUR PRESENT WEAKNESS AND "GO
FROM STRENGTH TO STRENGTH."
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