PRESIDENT NIXON'S August 15th announcement included what may have been the most dramatic economic package since Franklin Delano Roosevelt's New Deal in 1933. In the general order of importance, the President: - Cut the dollar loose from gold, inviting foreign banks, governments, and private markets to "float" the dollar's value. - Imposed an immediate 90-day freeze on all wages, prices, and rents. - Imposed a 10% surcharge on all imports. - Cut almost $5 billion in Federal spending for Fiscal 1972, including 1) postponing revenue sharing to cities for three months, 2) postponing welfare reform for another year, 3) reducing Federal jobs by 130,000 (mainly through attrition) and postponing governmental pay raises 6 months. These proclamations took immediate effect. It is the prerogative of the Chief Executive to institute such measures under "emergency" situations. In addition, the President asked Congress for swift action on the following measures: - Increasing investment tax credit from 7% to 10%. - Repealing the 7 % excise tax (about $200 per car) on autos. - Advancing income tax benefits to begin January 1, 1972, instead of 1973. Within days, foreign and domestic officials responded; the public was polled; businesses changed their future plans; officials hurriedly met in Europe and Japan. The unemployed saw hope for jobs; businessmen saw investment opportunities open up; investors saw a bonanza in the stock exchange; union leaders vehemently denounced the plan as favoring business, while a large percentage of wage earners voiced approval of the plan.
Mixed Domestic Reaction
• The Public. A poll of 220 households by Albert E. Sindlinger & Co. on Monday revealed 75% of Americans favored the President's proposals, while "most of those who dissented did so on the ground that Mr. Nixon's actions should have come sooner." Mr. Sindlinger's amazed reaction was, "In all the years I've been doing this business — more than 15 — I've never seen anything this unanimous, unless maybe it was Pearl Harbor." A Gallup Poll released Thursday evening after the announcement also revealed 75% in favor of the proposals. A telephone sampling taken by The PLAIN TRUTH staff also revealed a 75% favorable mark. The Gallup Poll revealed that only 15 % felt they would be hurt by any of the President's actions, 42 % felt they would be helped, while a whopping 43% said the actions would have no effect on them (!) or had no opinion. Overall, a new respect for the President and new hope for the economy quickly emerged. • The investor. The stock market leaped a record 33 points on a record volume of 32 million shares, but suffered declines after the first two days of euphoria, mainly due to the increasing dissent of the organized labor sector. • The labor unions. Although most workers supported the President's plan, their leaders were not as happy — especially when a "strike ban" was announced the following day. The AFL-CIO executive council said, "We flatly reject the Administration contention that it has any such power in peacetime. This is an assertion of dictatorial powers completely foreign to the American concept of freedom." After such statements, the Administration backed down partially on their strike ban, but labor remained vehemently against the President's original economic plan as "lavish handouts to the rich," "totalitarian," "favoring business over labor" and as we go to press, it is not clear whether the defiant stand by labor unions will affect the workingman's attitude, or the success of the President's overall goal of a business boom. • Economists. The consensus of most economists (although that profession rarely agrees on anything) was in favor of the wage-price freeze, against the protectionist 10% surcharge, and for the depreciation of the dollar in foreign markets. The measures to help business investments were praised, but the cuts in welfare reform and revenue sharing were criticized by social economists. Virtually all economists stressed the short-term nature of the President's changes, and the corresponding need for a permanent plan for the dollar, price and wage inflation, the International Monetary Fund, and unemployment.
Foreign Reactions
• Japan. The oriental trading colossus of Japan was most affected by the dollar "float" and import surcharge proposed by the President. The yen and the dollar were the most undervalued and overvalued currencies, respectively, in major world trade markets. Japan resisted yen revaluation as long as possible, but the indications at press time are that Japan will be forced to revalue. Rumors spread that West Germany might slap another surcharge on Japanese goods if they don't "float" the yen. The Japanese stock market lost over 500 points (20%) in the first week of trading. The semi-official Japan External Trade Organization (JETO) said the imports surtax is "one step short of a total suspension of imports on the part of the U. S." Former American ambassador to Japan, Edwin O. Reischauer, called the surcharge "almost a declaration of trade war." However it appears the Japanese will take no immediate retaliatory action, although diplomatic relations between the two trading powers were further strained. • Canada. Our neighbor to the north tried, but failed to secure exemption from the surcharge. Many disgruntled Canadian businessmen responded by not accepting American dollars. • Britain. At the London Hilton hotel the pound was sold for $2.80 — the old parity before the 1967 devaluation. One British paper headlined, "u. S. Gets Tough at Last" while the British stock market declined. • France. The French Government, in tones reminiscent of Charles de Gaulle, attacked the new economic measures as violations of international accords. It said the dollar was no longer the proper basis for the world's dealing in money, investment and trade. • West Germany. The deutschmark had previously floated upward about 8%. Together: with the 10% surcharge this would make German exports at least 18% more expensive to American consumers. The German market did not open (the Swiss, Dutch, Austrian, French and Italian markets also stayed closed all week, but opened August 23), while German businessmen and bankers were understandably glum since Germany was already in the midst of a recession. The future looked even bleaker. • Russia. Pravda declared President Nixon had opened a trade war on Japan and West Germany in order to protect the dollar. For weeks previously the Soviet press had a field day attacking the dollar as the "reflection of the very deep crisis of American capitalism." • Common Market. An all-day meeting (until 2 a.m.) Thursday solidified the stand of "the Six" for no retaliation at this time against the 10% surcharge and floating of the dollar. German and French leaders were at odds on most issues, so the Six were stymied. European Common Market officials, though deeply upset, ruled out the idea of retaliatory measures against the new American policies. "There will be no retaliation" said Prof. Ralf Dahrendorf, commissioner for external affairs for the trade group. "The whole idea is just too dangerous for trade relations between the United States and the European Community." While Germany and France debated the proper combined action for Europe the dollar floated slowly downward in relation to most of the ten major European currencies. The average drop was 2 1/2% by Wednesday, with the average eventual depreciation expected around 12%. When European markets opened the following Monday, the dollar dropped much less than most economists expected — about 1 percent.
The Future of Gold, The Dollar and the IMF
More important than the inconveniences of tourists in Europe, businessmen and workers at home, or investors and exporters abroad, is the very future of money. John Allan May of the Christian Science Monitor, feeling the pulse of the top financial experts in London, predicted that a new monetary era is going to be ushered in. New economic plans must be forthcoming with new exchange rates and more relevant rules, say most economists. The Europeans may be forced to forge a common currency for internal purposes and for world trade. Gold and the dollar are no longer sufficient. No newly mined gold is supporting burgeoning world trade while conversely too many dollars are glutting foreign markets. The dollar is no longer sacred, nor safe. The gold window may be closed forever or it may open at $40 per ounce or more. Newsweek summarized: "The mighty greenback, once as good as gold and welcomed the world over, is now indisputably the sick man of international finance, and its disease resembles the plague." On the other hand, the U. S. economic power is yet gargantuan and Europe is still handcuffed from taking any retaliatory action. Serious talk of trade war has not yet surfaced. The world still needs the USA. But the question is: "For how long?"
Needed: Renewed Sacrifice
The future of the dollar — and America — is largely up to the Americans. Whether on the inflation front, business front, or international front, Mr. Nixon made it "perfectly clear" to the American people that the new policies would be successful only if they "renew the spirit of sacrifice." "Success," he said August 15, "calls for greatness in a great people." The Administration hopes that Americans will have the character of voluntary compliance to abide by the spirit as well as the letter of the law, for there is only a small governmental agency to enforce the wage-price freeze. Former price freezes have engendered much illegal "black marketeering" which must be avoided this time if Americans sincerely want to conquer their chronic inflation. Abroad, foreigners will be watching carefully to see if the American populace can meet the test, both now and in the uncertain months after the initial 90-day period ends. Failure to meet it may well mean a thorough undermining of confidence in the American will as well as a shattered confidence in the American dollar! Read an in-depth money crisis report coming in the October PLAIN TRUTH.
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