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WHY the Dollar Is in Trouble
Plain Truth Magazine
February 1968
Volume: Vol XXXIII, No.2
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WHY the Dollar Is in Trouble
Plain Truth Staff

Exclusive Interview with a Leading International Business Consultant

   FOR years, The PLAIN TRUTH magazine has published revealing articles on the true economic state of America and Britain.
   Recently we sent PLAIN TRUTH staff members Gene H. Hogberg (who edits the "Prophecy Comes Alive" column) and Eugene M. Walter to research the meaning behind the crisis over the dollar and pound sterling. They interviewed bankers, economists and government officials in New York City and Washington D.C.
   Those in government service, our men quickly found, were not free to express their opinions. Turning to the banking field, Messrs. Hogberg and Walter interviewed vice presidents of two of the largest banks in the world. These men also, though more informative, gave cautiously guarded answers. The reason being, of course, that the United States is in a far worse economic situation than most influential people care to admit publicly except through carefully chosen channels of expression.
   Our men then talked with Mr. Stefan Jean (Steve) Rundt, one of the world's foremost international business consultants. Mr. Rundt was not afraid to talk. His frank answers to the questions posed by our staff members appear on the following pages in this exclusive interview.
   Mr. Rundt is head of S.J. Rundt and Associates, New York City. He publishes a weekly economics intelligence report that is subscribed to by many major U.S. corporations and every American bank doing international business. His thoroughly compiled and documented reports are well respected in the banking field. (Mr. Rundt and his trained staff peruse 600 sources of information in eleven languages)
   Mr. Rundt's service acts as a sort of unofficial "clearing house" for the banking profession. Being completely independent, Mr. Rundt is free to say what many bankers would like to say, but feel they can't because of various official pressures.

Swiss-born, Oxford-Educated

   Mr. Rundt was born in Switzerland. He attended Oxford and the Universities of Geneva and Vienna, studying international law and economics. He was apprenticed in foreign banking in Switzerland and France and has worked with banks in Egypt and Italy.
   Mr. Rundt first came to the U.S. from Switzerland in 1928. He was affiliated in the late Twenties and early Thirties with companies in the West Indies and Latin America. In the mid-Thirties he represented Swiss banks in Germany and in the Middle East. Before, during and after World War II, he served as a United States Intelligence Officer. For several years he was attached to the British in counter-espionage work. He was personally cited by General Eisenhower and the British Imperial General Staff.
   In addition to his weekly world business summary, Mr. Rundt is the author of numerous articles which have been published in economic journals and trade papers. He has lectured before some 150 chambers of commerce, traders' clubs and other businessmen's organizations in fifty-odd cities on more than 630 occasions.

Predicted Devaluation

   Mr. Rundt accurately predicted well in advance the devaluation of the British pound which took place November 18, 1967. He is also on record as having predicted America's balance-of-payments problem.
   Over the years Mr. Rundt has consistently warned of the folly of leaders adopting the hazy but popular ideas of the "new economists" who believe that it is possible for the government to spend more than it earns, year after year. He has consistently counseled both the public and government to "live within your means."
   Mr. Rundt's accurate analysis of economic trends and also his constant revelation of high-level gimmickry and figure-fudging has "earned" him a number of unpleasant phone calls from Washington, D.C.
   Here, then, beginning next page, is our exclusive interview with one of the world's leading international business consultants.
   Question: Mr. Rundt, the British pound sterling has been devalued. Was there a course of action other than devaluation which the British could have chosen?
   Answer: I'll tell you, a very grim one: they could have worked harder. England doesn't work enough. And her young boys today would probably not stand up in Dunkirk and Narvik and Benghazi as did their fathers during World War II. What is happening in England is a problem of values, ethics, mores and morality. And we're running the same way in this country.
   Q: What is devaluation? Is it really going to help Britain?
   A: Devaluation is lessening the value of a currency by official decree. It is, in effect, clipping the coin of the realm. In the old days this was one of the most heinous crimes in the world. You were quartered or boiled in oil or whatever because you clipped the emperor's or the king's coin. Today this is becoming the sport of the national treasuries.
   Sterling's devaluation in the long run will probably help neither Britain nor anybody else to a major degree. All it did was to eliminate uncertainty for the moment with regard to one prime currency. As ex-Chancellor of the Exchequer, James Callaghan said: "Devaluation is no substitute for greater effort and higher productivity. We have got ourselves a breathing space. That is all."
   Many contend that a downgrading of the pound need neither help British exports to a far-reaching extent nor reduce the U.K. import bill substantially.
   Q: Why is that?
   A: Well, you see Britain is preponderantly a processing country. She must buy abroad to sell abroad. And as import costs will rise, so will the price tags of many export goods.
   Moreover, inflation is now likely to be fanned. After a period of relative stability, prices could rise by almost the same percentage as spelled out by the pound devaluation. There is also the possibility of excessive pay hikes gained by the undisciplined unions.
   In other words, it is still uncertain whether British industry will henceforth be possessed of a meaningful new competitiveness.
   The Empire is gone, Commonwealth ties are loosening and even the Sterling Area is showing cracks. Whether Britain will be able to adjust to her new role as a small, rather poorly endowed island nation, to be sure rich in human talent, which urgently needs greater output; whether she will be able to return to more discipline; whether she will be able to modernize in depth and restructure her economy, remains to be seen.


   Q: How has the pound's devaluation affected the dollar?
   A: It started a reaction that gave the dollar its worst pounding in memory. The U.S. suffered the most massive gold hemorrhage in history, last November. It amounted to $475 million. And much more has been lost since, with more to come. The only time this country or any other experienced a somewhat comparable single outflow was on February 26, 1947. At that time the U.S. paid more than $448 million into the International Monetary Fund as its initial subscription.
   The huge November loss brought U.S. gold stocks down to $12.434 billion the lowest level since July 28, 1937. Moreover, the true gross gold reserve figure is actually around $11.4 billion. This is because slightly more than $1 billion in our reserves is in fact owed to the Fund and only "temporarily placed with the U.S." against a "certificate of deposit" a little-mentioned gimmick. [Since this interview, reports indicate the U.S. gold outflow increased another 450 million dollars by year's end.]
   Q: How much of our remaining reserves consist of "free" or available gold "for which foreigners can turn in dollars?
   A: At the present time we have $41.8 billion worth of greenbacks in circulation. $10.45 billion in yellow metal are required as mandatory coverage for these greenbacks under the 25 percent rule. This means that of the official $12.434 billion in gold still in U.S. coffers, as of November, less than $1.99 billion remains available or "free," and from this figure we must subtract the $1 billion mentioned above which was hocked to the I.M.F. So, in actuality, we have "available" less than $1 billion in gold! And there are foreign governmental and private short-term claims against our gold to the tune of around $31 billion! How long international financial cooperation can be maintained under such circumstances is anybody's guess.
   Thus it is a foregone conclusion that the 25 percent backing of the dollar will have to be greatly cut and probably altogether eliminated. [The President called for removal of the gold cover in his State of the Union Message.] This will free some $10.5 billion the last of our gold for use in defense of the dollar.
   Q: Why are foreigners turning in their dollars for gold? What is there about the dollar and our economy that they mistrust?
   A: This country's economy is beyond any question of doubt, by almost all standards, the most potent and majestic in the history of the world, and as such is not mistrusted by anybody. But it is being wagged by two little tails. Or if you want to say, it has two little clay feet. One is our internal deficit, the other is our balance of payments shortfall our external or international deficit.
   This is so absurd that it isn't even funny a huge St. Bernard being wagged by a tiny little tail! But it is! And because of these deficits the outside world is of the opinion that this country's monetary affairs are ill-managed. Now, I agree with that.
   You saw sterling fall. It was a devaluation triggered from the outside by lack of confidence. People forget that the word "credit" comes from the word "credo" meaning believing, trusting, having faith in. You lend money to whom you trust; you take money from whom you do not trust. In monetary affairs it isn't so much what is or what presumably will be, but what people think is and what people think will come.
   Right now foreigners trust the dollar less and less. Why the mightiest nation of all time should repeatedly have to go begging is simply not clear in the minds of many outside our borders.


   Q: You mentioned our balance-of-payments problem. How does a nation get involved in such a problem?
   A: A balance-of-payments problem arises for a nation when that nation is in deficit on external account. A deficit means, in effect, that such a nation spends more than it takes in that it lays out more than it can afford.
   For a while this can be done at the expense of reserves and/or by contracting obligations abroad. But in the long run it leads to loss of confidence outside one's borders, and finally to international insolvency. No matter what the contentions of the modern economists, it would appear unlikely that they will be able to abolish gravity, that they will show us how to run balance-of-payments deficits forever.
   Q: How long has the United States been running in the red on its international account?
   A: Except for one year, the U.S. has been in the red on its balance of payments for 17 years. Over the eight calendar years 1958 to 1966 the U.S. chalked up a cumulative balance-of-payments shortfall of roundly 26 billion or one of 22 billion depending on how you calculate and which set of figures you pick.
   During the same eight years and this is not a matter of the selection of statistics this country lost almost $7.4 billion of its official gold stocks. Moreover, from 1949 to late 1967, our gold loss came to more than $12.1 billion, i.e. our official monetary stock was practically halved in 18 years.
   And all this happened although Uncle Sam, 1958 to 1966 alone, recorded a huge cumulative trade surplus of anywhere from $30.5 to $35.9 billion here again depending on which statistics you use. And this balance is still in the black. Also in the black for years has been the account of private American direct investments abroad.
   Q: But how can this be? How can we have a trade surplus, but a balance-of-payments deficit?
   A: Admittedly, our official trade surpluses are by no means altogether "real." For one, U.S. trade statistics calculate both exports and imports f.o.b., even though only about one-tenth of our international sea-borne trade is carried by American flag vessels. Secondly, there is the matter of our tourism deficit presently running pretty close to $2 billion annually.
   But thirdly, and by far the most important, our trade surpluses include unrequited sales and giveaways. Some of them are on terms as protracted as forty years, against all kinds of soft currencies, most of which we shall never be able to collect. We already "hold" or are about to "own" without the right to dispose of them freely some 17 billion Indian rupees. This is more than half of New Delhi's entire paper money in circulation!
   We seem to be obsessed with the Messianic notion that in one short shrift we can lift up the entire world, while, along the way, we are buying or at least renting friends.
   It is the cost of this missionary zeal in our parts which keeps our balance-of-payments in the red. It also keeps the U.S. dollar, the currency of the foremost nation in the Free World, under a heavy cloud of suspicion.
   Q: When did we begin to recognize the seriousness of our balance-of-payments problem? And what have we done to correct it?
   A: For more than nine years, the shortfall of this Country's international accounts was no secret. Yet, for the longest of time, the issue was unceremoniously swept under the rug. Then came attempts to make others whom Uncle Sam had once generously helped help us. Messrs. Anderson and Dillon [former members of the U.S. Treasury Department] went on a Canossa Pilgrimage to Bonn to beg the Germans for assistance. But to this day, while foreign Central Banks in self-interest have, indeed, closely cooperated to maintain dollar strength, some of the major industrial countries are not exactly enthused about unending help for the chief deficit of the world, namely the United States.
   Q: What happened after this?
   A: Next came a spate of palliatives and gimmicks. These ranged from intricate swap operations to gold borrowings from the I.M.F. to the so-called Roosa bonds. The latter are something this Country cannot very well be proud of. The most powerful Nation of all time with the most potent economy in history went begging.
   Just one example: Little Austria, which after World War II had received some $1.4 billion in U.S. assistance of all kinds, was asked to lend the U.S. a measly $25 million, and did so only against specially printed, schilling-denominated U.S. Treasury paper.
   We also pressed nations which had been the beneficiaries of historically unprecedented American generosity and magnanimity to prepay their debts to us prior to maturities and to buy military hardware here.
   Yet, all these and even more palliatives some of them tragicomically only treated symptoms without attempting to cure. They failed to bring this Great Nation's balance-of-payments into equilibrium. They failed to stop the chronic gold hemorrhage. They failed to lift the dollar substantially above par on major markets abroad. And they did not prevent leading Central Banks on the Continent from setting limits on the dollars they are willing to hold in their reserves.
   Q: What does this limitation on the dollars that foreign bankers are willing to hold mean?
   A: It means that, at highest level abroad, the U.S. dollar is, indeed, not really acceptable in unlimited amounts. Thus it is fully convertible only by causing a still greater outflow of gold from our shores.
   The world prefers gold to dollars, and no matter how much we may like to make gold our servant, it remains our master. It would be easy to abolish the mystique of gold which for millennia has guided man's thought provided we could persuade every cobbler in Pakistan, every merchant in India, every peasant in France and every banker in Switzerland and Holland to abandon his faith in the yellow metal and to switch over to, say, cowry shells or pickled strawberries. But until that time...
   Q: What about the argument voiced by some that the dollar is superior to gold that the strength of a currency lies in the economy behind it?
   A: It is true that the fundamental prowess of a currency ultimately rests on the economic power and human talent behind it. But all the founding of a currency upon the productive capacity behind it, and all the foreign exchange regulations so far have been shattered on the cliffs of man's amply justified disbelief in the integrity of politicians, i.e. governments.
   Some 160 years ago Talleyrand said that diplomats and politicians are paid to lie until the truth suffices to mislead their listeners. And as recent events have demonstrated, this statement is as true today as ever.
   Q: Why do people trust gold so implicitly?
   A: People trust gold because it is an instrument of discipline and a standard of measure which is steady. In the words of George Bernard Shaw:
   "The most important thing about money is to maintain its stability... With paper money this stability has to be maintained by the government. With a gold currency, it tends to maintain itself even when the natural supply of gold is increased by discoveries of new deposits, because of the curious fact that the demand for gold in the world is practically infinite. You have to choose as a voter between trusting the natural stability of gold and the natural stability of the honesty and intelligence of the members of the government. And, with due respect for these gentlemen, I advise you, as long as the capitalist system lasts, to vote for gold."
   Q: Under what circumstances could the nation abolish the gold standard?
   A: We could abolish it if everyone else abolished it. But "everyone" hardly consists of a few politicians, mainly in the Anglo-Saxon countries, and the new-economists who want to "dethrone gold" to cover up their own guilt the mistakes of their own making. I don't think that these people will abolish gravity.
   Now I'm not madly in love with gold at all. But I do recognize that the faith in gold of the vast majority of the people of this world and that includes the Russians is very strong. I'm not making a fetish of it; I'm just reporting the facts. The whole world has demonstrated that it likes gold that it hasn't too much faith in anything else. Since the whole world believes this it certainly would be a long time job to dislodge this belief and to "dethrone gold" as some want to do.
   Q: What about a return to the pure gold standard as some are advocating. Is this necessary? Indeed, is it even possible?
   A: We cannot very well return to the pure gold standard, because to finance world trade and international investment there is not enough gold around. An upgrading of gold would probably cause more uncertainties than it would do good. The Exchange and Gold Standard, created at Bretton Woods 22 years ago, worked well, and would continue to serve its purpose if this country and Britain were to eliminate their balance-of-payments deficits.
   We must bring down our fiscal deficit to something more civilized. And we must also protect the dollar's domestic purchasing power. We are now going through the nastiest inflation in memory. Officially it is at an annual 4 to 4.5 percent, but in truth it is a great deal more. Just ask any housewife!
   If the dollar were kept shining and hard and steady fully acceptable we would always have enough liquidity.
   For many years during the Forties and Fifties the dollar was as good as gold. People took it that way. It's much nicer to fold a currency bill and put it in your pocket than to lug a small brick of gold around!


   Q: So it all boils down to faith in the United States Government's and our Congress's willingness and ability to manage both our domestic and international affairs properly?
   A: Correct. I repeat: If the dollar and sterling were fully trusted, there would hardly be a problem with liquidity because there would be wide acceptability up to the highest level ad infinitum. There would be enough money for all legitimate purposes. Interest rates could come down. The world would march toward greater stability rather than monetary uncertainties and doubts because the U.S. dollar would then be really "as good as gold."
   The question of liquidity and of financing world trade would easily be solved if the world had complete faith in the monetary management of the U.S. dollar and the British pound.
   America is going in many ways whence Europe came. The Germans on the Continent and in some respects the French, too are trying very hard to go where we told them. Checkbook in one hand, Bible in the other, we taught the world what to do: balance your books, export more, do the right thing. Well, we told them all that and they are doing it. We, on the other hand, are merrily going on huge-scale domestic and international welfare, living on borrowed money, etc. heading in the direction whence they came.
   Q: Was the present plight of the dollar predictable?
   A: Yes, it was. Way back on April 14, 1958, I stated in public that "the U.S. dollar is weak compared to most European currencies, a phenomenon emphasized by the fact that several Central Banks abroad prefer gold holdings to greenback reserves."
   And on May 12 of that same year I said: "We are a great deal more dependent upon the outside world than the outside world is upon us. The unpleasant truth is that, in our international economic relations, our fundamental long-range position is not one of strength, but one of great potential weakness." As we are going, this surely is even truer today.
   These are just two examples of warnings given years ago which have now come to pass. And please do not think that my Organization wants to take sole credit for what we discovered and forecast in the past eight or ten years. The facts were known, way back, to anybody who really wanted to know. Anybody who took the trouble of lifting the veil of governmentally managed news could prognosticate with astounding accuracy.


   Q: We have mentioned a lot about the "new economists." What do they believe?
   A: The neo-economists think you can pump-prime and make deficits year in and year out. I am old-fashioned enough to believe in gravity. I don't believe you can spend more forever than you either have or earn. In bad years you can pump-prime; but in the good years you must rake it back. It is as simple as that. The attempt to feel prosperous on borrowed money only leads to the day of reckoning the moment of truth.
   Monetary mismanagement, the application of palliatives instead of cures, loose credit policy by the growth-happy neo-economists have started to bear bitter fruit.
   Q: It seems that there are amazing parallels here between the "new morality" and the "new economics." Is this true?
   A: I'm inclined to believe it. I believe that the "new economics" are an expression in the economics sphere of the lack of morality that exists in so many other spheres. Again, I do not believe that these "new economists" will abolish gravity.
   Q: Has the "day of reckoning" you mentioned a moment ago now come for sterling?
   A: For sterling, it certainly has come. After devaluation I felt that "Britain had the measles and is not likely to catch them again in the immediate future even though later on she may get scarlet fever." But now it appears that the pound is either not yet over its measles; has caught them again; or has contracted a bad case of scarlet fever.
   It seems that even if there were confidence in the pound, there is obviously none in the people who manage it. Talk of yet another pound sterling devaluation fails to abate, even though everybody knows that such a move would globally bring down the entire currency structure.
   Q: Do you foresee the devaluation of the dollar in the near future?
   A: We are not saying that the dollar will be devalued now. Chances are, it will not. But as we are going I stress, as we are going now we are introducing more and more palliatives instead of cures. That is the basic thing: we are living by gimmickery now. In our era of systematic self-bamboozlement and far-reaching intellectual dishonesty, acrobatics in figures, manipulations and statistical doctoring are on a victory march across the world.
   Q: Could you cite some examples of gimmickery in addition to those you have mentioned here in passing?
   A: Well, there are multiple millions of dollars' worth of certain U.S. securities which we have sold to foreign governments with a maturity of one year plus one day (or longer). Now peculiarly, everything up to 365 days is generously admitted to represent a liability; but anything one day more than a year counts as an asset!
   Then there are the $800 million which are deposited by the IMF and the U.S. wholly owned by both! Now how can that be?
   And now we have in the works a plan for Special Drawing Rights from the IMF called "SDR's." I call them monetary LSD's because these things will put us on a credit trip.
   All these involved schemes remind one of the old joke about "little lies, big lies and statistics."
   Q: How and when might the nation reverse its present downward trend? What is the ultimate solution?
   A: I see no solution as things are going now. The world is drifting towards the point where everybody wants more for less, and this is no way towards strength. We live in a world in which there is a premium on disincentives. Many people on a dole or relief without taxes (now we call them "clients!") are better off than those who work and pay taxes!
   As you have seen and as history shows the gold bubbles are getting worse. This was the worst in living memory. So the next shock will be worse again.
   Catastrophes do not come in accordance with what is logical or what would be "desirable." Thus, the contention that "It can't happen here" need not remain valid forever. As we are drifting or driving, without self-discipline, it could one day, indeed, happen even here.
   So far there are no indications that a lesson is being learned from the fall of pound sterling, even though it gave us a warning in the form of the most severe monetary shock in many a year.

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Plain Truth MagazineFebruary 1968Vol XXXIII, No.2
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