(emphasis mine) [my comment]
What Dollar Gold Crisis Means To You
Herald-Tribune Google News Archive Mar 19, 1968
By SYLVIA PORTER
For bluntly what happened to our dollar — meaning us — last week was this:
The world gave our policies abroad and at home a massive vote of no-confidence — and for the first time in our modern history, we were put on the defensive.
With the help of the six nations that with us formed the now disbanded ”gold pool,” we temporarily shored up the international monetary system Sunday and bought more time for us to act to defend our dollar.
Now a new transition phase in world monetary affairs opens. Now we either come through and restore confidence in the dollar by actions which count — or we invite a breakdown in the monetary system and resulting chaos.
Laughing at the Fed;
Monetary 'In-Group' Examines Ironies Of Nation's Central Bank Operations
AN EXAMINATION: FED'S OPERATIONS
By EDWIN L. DALE Jr.
New York Times - February 3, 1969, Monday
WASHINGTON, Feb. 2 -- There are many "in-groups" in this world, each with its own set of private jokes. In the monetary in-group, which just might have the prosperity of us all at stake, the biggest "yok" in town is the nation's central bank, the Federal Reserve System. Banks are laughing at it. Economists are laughing at it. Businessmen -- getting loans like crazy -- are probably laughing at it. Congressmen are not in the in-group. They are just frustrated and puzzled by it.
The easiest laugh around is to ask, at a party, "Say, have you heard? The Fed is tightening money."
The only parallel is in London. There a smaller in-group is saying the same thing about the Bank of England. Elsewhere, as far as can be determined, sensible people still believe in central banks, but they may change.
The Federal Reserve, it often seems, hurls thunderbolts and nothing happens. It raises the discount rate and it furiously buys and sells Treasury bills. It watches such arcane things as the Federal funds rate and net borrowed reserves and the bank credit proxy. It tells the world solemnly that, by golly, it means business in stopping inflation. It doesn' t know how, to be sure. As King Lear said, "I will have such revenges on you that all the world shall-- I will do such things--what they are yet I know not; but they shall be the terrors of the earth."
The Fed tells one and all that it will be the terror of the earth. And what happens? Everybody keeps on borrowing just as before. Bank and other lenders keep on lending pretty much as before. The money—for those who care about it—keeps on expanding. …
Papering The Monetary System Down The Drain
Pittsburgh Press Google News Archive Oct 10, 1969
By HENRY J. TAYLOR
During the New Frontier-Great Society overspending, political and otherwise, Fort Knox went with the wind.
Now, behind the inflation scenes, the net free reserves of the member banks in the Federal Reserve System are gone.
Our nation' s banks themselves are in the red to the Fed. Our entire nation' s banking system, in fact, is operatIng only on borrowed “reserves.”
Federal Reserve Board Chairman William Mcchesney Martin' s current yardstick for interest rates extends from 1953. It dramatically pictures the mountains and valleys. Even fractional changes are of great consequence.
The prime rate in April, 1953, was 3 per cent. Today it is approximately 8 per cent. The discount rate at the Fed was 4 to 4.25 per cent. For a short time it stood at 2 to 2.5 per cent. The rate today is more than 6 per cent.
The nation' s banks are in hock to the Fed for $1.2 billion of net ‘borrowed reserves.”
Hardly understood, this is the true dynamite that Mr. Martin is trying to dampen while the inflation flashes its brigand smile.
The Federal Government spenders' performance throughout 1968 — and also 1967 — was a case of saying one thing and doing another.
It ran contrary to the declared anti-Inflationary 10 per cent surtax.
The year 1968, you recall, was an election year. The Washington whoopla boys, socking us as usual while telling us that we' re getting something for nothing, increased the money supply so much last year that it shot up to a 90 per cent annual rate.
This was more than double the 4 per cent rate of increase in 1964-66.
No Easy Way
The courage and skill required to turn this dangerous situation around is downright monumental. There is no easy way, and probably no popular way, to do it.
Many sober observers feel that the country' s economic ailments are both intolerable and unsolvable. The Martin McCracken Kennedy Mayo Burns phalanx does not believe this. But they do believe that this is really the last chance to save the American dollar.
Nothing is more vital for our welfare. Without this victory all talk of “social gains,” “democratic advancement.” etc., becomes not only a lie but a hypocritical politically self-serving lie and a totally cruel, merciless bamboozle.
Saving the US. Dollar
Anchorage Daily News Google News Archive Mar 11, 1973
By Art Buchwald
WASHINGTON — The tragedy of the United States is that, while it is militarily the greatest power in the world, it can' t do much when everybody starts dumping the American dollar.
We have been so busy defending our honor in Southeast Asia that we haven' t been able to defend our money in Europe. I believe that one of President Nixon' s biggest mistakes has been his optimism about the American economy. Mc keeps assuring everyone that inflation is licked, wages are being stabilized and 1974 is going to be a great year for the nation' s balance of payments.
THE EUROPEAN mentality is such that the more affirmative the American President sounds about our economy, the more suspicious European bankers and money speculators bccome.
Having lived abroad for a long time I know how the people over there think, and I believe the only thing that can save the dollar is for President Nixon to stop reassuring everyone that it is healthy.
I think it is essential that the President go on worldwide television, via satellite, and make the following statement:
“My fellow citizens of the world, I wish to speak to you tonight about the American dollar I must make it perfectly clear that despite stories to the contrary, the dollar has never ‘been in worse shape. If Pat and I lived abroad, I would sell every American dollar I had. Our economy is hopeless and my Administration does not have any solutions for saving it. I predict U.S. production will go down, wages will go up and our balance of payments will be in a shambles.
“I URGE EVERY ONE of you to go to your bank tomorrow and sell your American dollars for whatever you can get for them. I feel, as President of the United States, you would rather hear the truth than be given false promises that America cannot deliver on.
“I am certain that perhaps a future President may restore the American dollar to its rightful place in the world monetary system. But, for the moment, the thing to do is to forget us and do what you consider is in the best interests of your respective countries. Thank you and good night.”
BY THE END OF THE day, the orders for American dollars would be so great that the money markets in Europe would have to close. A group of bankers would fly over to the Smithsonian institution to discuss with American bankers ways of saving their own currencies. But Nixon would remain firm and insist the dollar was still the only money in serious trouble.
If Nixon had the courage to follow this game plan, ho could go down
as the greatest President in American economic history.
Please, sir, we beg you to do it. Nothing else has worked, so what do you have to lose?
Gold soars again, U.S. dollar takes beating
Pittsburgh Press - Google News Archive - May 15, 1973
LONDON — (AP-UPT) — Speculation that the Watergate scandals in a y force President Nixon to resign helped drive the U.S. dollar to record lows in Europe yesterday and pushed gold prices to all-time highs.
Dealers here and on the continent suggested that even without the speculation on Nixon' s future, confidence in the U.S. dollar was at a low ebb any way.
“Name me a single reason why the dollar should be stronger,” a Zurich banker said.
Market sources agreed confidence in the twice-devalued dollar has been sapped by fears of a new inflationary pressure in the United States, the continuing U.S. balance of payments deficit, and concern that Watergate has weakened Nixon' s ability to bring off trade and monetary reforms.
Gold and dollar markets are related. Investors lacking confidence in the dollar have been getting out of the U.S. currency and buying gold.
They are reported to include wealthy individuals, international companies, and Middle East interests paid in dollars for their oil. (Another story Page 32).
There was general agreement that volume was relatively light, well below the huge levels of business con- ducted during the monetary crisis that surrounded the last dollar devaluation in February.
During that crisis, according to informed estimates, as much as 400 tons of gold changed hands in one day on bullion markets and billions of dollars on foreign exchange markets. Recent levels have rarely gone above 30 tons of gold in a day or $100 million according to these same estimates.
Saving The U.S. Dollar
Palm Beach Post Google News Archive Nov 5, 1978
WASHINGTON — A secret weekend flying visit to Washington by senior West German and Japanese financial officials, confidential a round-the-clock, transatlantic and transpacific telephone consultations on the highest level, a decoy mission to Oklahoma by the secretary of treasury and two hush-hush sessions presided over by President Carter were the key ingredients in a six-day drama that unfolded this year as the United States moved to rescue the dollar from possible catastrophe.
This is a detailed inside reconstruction of these events.
The dollar drama opened in earnest on Oct. 26, when it became clear in Washington that Carter' s announcement two days earlier of the new US. anti-inflation program had failed to impress both international monetary markets and the dmestic stock market. A major attack on American currency was unleashed by Western European, Japanese and New York traders.
Although Treasury Secretary W. Michael Blumenthal insisted publicly that “fundamental factors” were moving “strongly in the direction of the strengthening of the dollar,” the dollar hit record lows, sagging 2 percent against major European currencies and 1 percent against the Jipanese yen by the end of the trading sessions.
It was at this point that Under secretary of the Treasury Anthony Solomon, the principal architect of the dollar-salvage plan, swung into action. Blumenthal had delegated earher to Solomon the responsibility of contingency planning in the dollar' s defense, and the under secretary was now ready with a complex package of emergency measures.
According to informed officials, the administration felt it could not li4we gambled earlier on these measures because all the elements “were not yet in place” and it “could not have made it stick,” but on that black Thursday the judgment was made that a bold move stood a good chance of success. The moment lmd come to act to avoid serious damage to the American economy.
Solomon presented his updated package to Blunienthal late on Oct. 26. It provided for tight money poncies at home — the concept of ratslug interest rates — as well as for the creation of a $30 billion pool of American, West German, Japanese and Swiss currencies to soak up excess dollars from the markets and halt the dollar' s slide.
Among the most innovative measures in the Solomon package were the largest single U.S. drawing in history from the international Monetary Fund (the 23 previous drawings did not add up together to thi $3 billion sought now) and the offering of foreign-dominated United States Treasury bonds to commercia) banks (in the past there had been such offerings to foreign central banks).
The whole operation was held to the smallest possible circle of officials, because leaks or a premature disclosure would have undermined it, throwing world markets into dangerous chaos. American planners had a breathing pause on Oct. 27 because the dollar had finished mixed that day after a slight recovery.
About the time Solomon was concluding his session with Gleske, President Carter had returned to the White House from an electoral swing and was preparing to fly by helicopter to Camp David for the rest of the weekend. However, Blumenthal was able to reach him in time, and the president canceled the Camp David trip to meet with his economic advisers.
Secrecy enveloped the meeting that started at 10 p m. In the map room of the White House. With Carter Miller, Sehultze, Kahn and Eizen.ctat listening, Blumenthal first described the gravity of the international monetary situatlon and its impact on the American economy. He assured the group that the rescue package would work. Then Solomon outlined in detail the proposals.
After 45 minutes, Carter, who asked a number of searching questions, authorized his team to proceed with the operation. Blumenthal and Solomon said that the target date for launching the plan would be the morning of Wednesday, Nov. 1, although an effort would be made to unveil it on Tuesday. The administration was evidently concerned over any loss of time: A disaster could hit the money markets when they reopened Oct. 30 if the past week' s trend were to continue.
By last Sunday night there was an agreement in principle in the adminIstratlon as well as with iVest German. Japanese and Swiss authorities to proceed along the general lines outlined by Solomon and his colleagues.
Urgent and secret consultations continued on Monday Solomon conferred with William Dale, the acting managing director of the international Monetary Fund, concerning the modalities of drawing on the United States quota in the monetary fund in West German, Japanese and Swiss currencies. The administraLion needed $3 billion in these funds for the intervention pool, but the fund had only $2 billion on hand. The third billion would have to be provEded through the mechanism of the General Agreement on Borrowing, with the concurrence of the 10 principal monetary fund governments.
In addition to consultations in Washington with the West German and Japanese emissaries, political decisions were also required in their capitals. Both Blumenthal and Solomon spent many hours Monday in telephone negotiations with top offidais in Bonn and Tokyo. Solomon again talked with Switzerland' s Central Bank president.
Time was running out. The dollar plunged to record lows, and gold soared to $242.75 an ounce, the highest ever. Near panic was reported on the money markets as dollars were unloaded massively, compounding the trading chaos.
Tuesday morning, Blumenthal left on a long-scheduled trip to Oklahoma, where he was to deliver a speech in Tulsa. A cancellation might have aroused suspicions that something unusal was afoot — and secrecy was still essential to the success of the American plan.
But the package was not yet complete. Solomon was not yet sure he could meet the Wednesday target date. Telephoning frequently from Tulsa, Blumenthal had made arrangements for Solomon and other top officials to meet with President Carter as soon as they were ready with the package.
But there was a touch of luck, too. In Tuesday' s trading the dollar rebounded somewhat, and American strategists felt that they would make it in time. By Tuesday afternoon, in fact, Solomon concluded that everything was in shape. He requested the meeting with the president.
At 6 p.m. Carter held a secret meeting with Solomon; Miller of the Federal Reserve; Schultze, his chief economic adviser, and his anti-Inflation chief, Kahn. Vice President Walter Mondale and Eizenstat were also present.
All components of the package were presented to the president, and after some discussion, there was unanimous agreement to proceed. Blumenthal was informed by telephone in Tulsa, and he boarded a night flight to be in Washington for the planned 9 am. unveiling of the dollar package the next day.
With Blumenthal and Solomon at his side the president made the dramatic announcement Wednesday morning that the United States was embarking on new financial policies. The timing was coordinated with the opening of the New York money market but also with the afternoon session of European markets. The six-day drama had run its course.
Certain details remain to be worked out. The administration has not yet decided, for example, whether the foreign-dominated Treasury bills should include the Japanese yen, although the West German mark and the Swiss franc are definitely included. Treasury tactical teams are to be dispatched soon to West Germany and Japan to study the markets for this purpose.
On Friday, — two days after the dollar moved up — the administration was pleased with the results so far. The dollar was not only improvAng but, unlike the day before, private institutions and multinational Corporations, as well as foreign central banks, were heavily buying dollars.
Yet there are no illusions here. The administration realizes that the dollar continues to face severe tests and that underlying economic problems must be solved before full equilibrium is restored. But there was a sigh of relief that, fur now, the worst of the drama appeared to be over.
‘Rescue Efforts Secret'
Victoria Advocate Google News Archive Nov 5, 1978
Carter and Dollar
By WILLIAM GLASGALL
AP Business Writer
NEW YORK (AP) — President Carter' s top economic advisors, convinced that voluntary wage and price restraints would tail, started secretly planning last week' s drastic action to rescue the dollar even before the voluntary plan was announced.
Although Carter knew of the plans by three of his principal advisers, the preparation was done in such secrecy that Treasury Secretary W Micheal Blumenthal used pay telephones to call his aids.
This and other details of the development of Carter' s save-the-dollar plan were made available to The Associated Press by a high administration source who asked not to be quoted by name.
The dollar rescue operation became public knowledge when Carter strode into the White House press room last Wednesday at 9 a m. — an hour before the New York Stock Exchange opened — and stunned the financial world with his announcement of an overnight jump in interest rates and a program to buy up surplus dollars on world monetary markets.
But whether the plan will cure inflation or push the nation into a recession next year, halting economic growth and making jobs scarcer, is an open question.
The secret contingency planning had begun in September in case Carter' s anti-Inflation message, delivered Oct. 24 on national television, failed to bolster confidence in the embattled U.S. currency, whose strength has been sapped by inflation and by repeated U.S. trade imbalances caused mainly by huge oil imports.
Well before the inflation speech was delivered, “there was a general feeling” among many ranking economic officials “that there anti-Inflation plan would hurt rather than help on foreign exchange markets,” the source said. “I guess they were right.”
Carter' s inflation message had failed to achieve its desired immediate effect: a stronger dollar. The dollar' s plunge continued. The Dow Jones industrial average, during 12 hectic trading days, plummeted by 104 64 points and the paper value of shares fell by more than $100 bilLion..
As both the dollar and the stock market dropped the day after Carter' s anti-Inflation speech, the contingency planners, Blumenthal, Treasury Undersecretary Anthohy Solomon and Executive Assistant Richard W. Fisher, went to vork in earnest and in secret.
The plan had to be guarded “from any leaks whatsoever,” aid the source, apparently to prevent speculation and avoid political problems. “We didn' t even let the deputy secretary Robert Carswell know what was going on. It was just us, the President and the vice president.”
Blumenthal kept in touch while on out-of-town trips by pay telephone, said the source, “because he didn' t .want anyone to know” what was happening.
As the planning gained momentum and worked its way through late-night strategy sessions, Federal Reserve Chairman G. William Miller, inflation fighter Alfred E. Kahn and domestic adviser Stuart Ezenstat joined the action. West German and Japanese economic officials flew to Washington for consultations. Washington kept in constant touch with Swiss officials by trans Atlantic phone.
With the dollar dropping by nearly 50 percent against the Swiss franc over 12 months, and the speed building daily, “everybody knew the foreign exchange markets had gone out of hand,” the source said.
“We all cooperated. No one interfered. It all jelled togethel.”
Finally, on Wednesday, with the dollar already down in early Asian trading, Carter walked into the press room to announce the decision made Tuesday night to rescue the dollar.
As he approached the rostrum, the President asked an aide, “What' s the stock market going to do?” The aide said he expected an initial “euphoric response” and a decline the next day — exactly what happened.
Then Carter dropped the bombshell.
The plan includes sharp hikes in domestic interest rates to help control an inflationary economy, Increased sales of gold, and loan agreements with Japan, West Germany and Switzerland to buy up excess dollars on world foreign exchange markets.
So what' s gone wrong
Why have increases in consumer prices risen from a ¾ percent annual rate in 1976 to almost 10 percent in 1978? Why has the average cost of a new home risen from $54,300 in 1977 to $67000 today? Why is the prime lending rate — the interest rate charged the biggest and best borrowers — at a four-year high of 10¾ percent and perhaps headed higher?
…why is there so much fear that 1974' s double-digit inflation and 9.1 percent unemployment will be repeated?
No one can pin down all the factors that have led the United States into the current muddle. But some are constantly mentioned by economists:
—There was the 1973 quadrupling of oil prices by the Organization of Petroleum Exporting Countries. It gave the nation an inflationary jolt that permanently raised the cost of making steel, cars and a myriad of other goods.
—Even before the oil crisis, inflation was fueled during the Lyndon Johnson administration by massive spending for the Vietnam war, the war on poverty and other social programs, without raising taxes enough. The number of Social Security recipients, for instance, has grown from 20 millIon in 1965 to 34 million today: the number of food stamp recipients has quadrupled since 1970 to 16.7 mIllion. The spending led to today' s large federal deficits. They are financed essentially by simply printing more money.
—There has been heavy spending by industries since the early 70s on pollution control equipment, and for such items as new trucks. Less, on the other hand. has been spent on new factories and machinery. So productivity suffered, and that helped raise prices.
—The Federal Reserve has allowed the nation' s money supply to grow at 8 percent annually for the last two years. Some economists say this has put too much money in circulation. In other words, consumers have more money to spend on the same amount of goods.
President Carter' s economic rescue plan, in two parts, is designed to reverse these trends. The first part includes voluntary restraints on wages and prices intended to keep inflation in the 6 to 6”3 percent range next year. It also includes, curbs on federal spending so the government' s deficit can decline from $48.76 billion in the fiscal year that ended Sept. 30 to $38.9 billion in the year ahead.
The second part of the Carter plan is the sudden jump in the price of money. The Federal Reserve boosted its key rate on loans to commercial banks…
But how soon will price increases start to moderate, and will the slowdown turn into a major recession instead of a healthy pause?
“There are risks” of a recession in 1979, conceded Blumenthal alter the dollar prop-up plan was disclosed.
“When you turn off the credit spigots, a whole chain of events takes place,” said Robert Parks, chief economist of Wall Street' s Advest Co. As money gets tighter and tighter, banks will find it increasingly hard to raise new funds for loans and they “will be forced not to accomodate their customers,” he said.
As prospective depositors buy high-yielding government securities instead of opening savings accounts, savings institutions that supply the nation' s mortgages will face “an absolute drop or destruction of their lending power,” he said.
A recession would be felt everywhere, in reduced production, layoffs and a shortage of new jobs.
INFLATION PLAN NO. 2
All Those Billions Won't Restore Dollar
Sarasota Herald-Tribune Google News Archive Nov 12, 1978
By NICHOLAS von HOFFMAN
AFTER THE administration's anti-inflation plan was greeted with the scoffing, skeptical ridicule it merits, something like panic must have hit the White House. Plan No. 2, the one which is to save the dollar from foreign ignominy cannot have been cooked up by calm and intrepidly rational statesmen.
The fact that the stork market heard the news of our latest save-the-dollar expedition and took a record-making bound upward is no reason for thinking the plan makes sense. Day-to-day market fluctuations are inscrutably unintelligible; any administration which uses an uptick in the market as a validation of its policies is going to be sorry it chose such a quixotic standard of approval.
It' s A Judgment
The way the news was presented makes Mr. Carter a hero, as if supporting the dollar were an act of patriotism like supporting the flag. We should all support the flag, but the dollar is money — and that' s business, not red, white and blue rahrah. If the announcement of this mistaken rescue attempt is to be treated like a brave cavalry charge into the guns of international finance, let it also be recognized that it' s the charge of the light Brigade and we' re going to lose the $28 billion committed to it.
In the past, a number of nations have sought to prop up the price of their currency and it has never worked. In the long run, the price of the dollar as expressed in yen, deutsche marks or francs is a businessman' s best judgement of what each of those currencies will buy. In the short run a currency may be undervalued but the administration' s contention that the American dollar has been undervalued for months and months strains reasonable belief. If dollars were really worth more than people are willing to pay for them in other currencies, someone besides Secretary of the Treasury Blumenthal would understand that this is an exemplary chance to buy dollars cheap, convert them into merchandise to sell abroad and make a killing.
This isn' t the first time the administration has announced it would spend money to drive up the dollar' s price abroad. It did the same thing to no effect except to lose $5 billion some months ago. Now it proposes to spend $28 billion on the supposition that the first attempt to save the dollar failed because we didn' t lose enough billions.
Reasoning like this turns the mind to fudge.
In order to support the dollar, our government is obliged to borrow that 28 billion from Japan and Germany in marks and yen with which to go into the money market to bid up the buck. Ultimately that money, with interest we can safely presume, will have to be repaid, at which time our balance of payments, already a subject of White House gloom, will look worse than ever. And irony of ironies, they tell us one of the reasons for propping up the dollar is to balance the money inflows with money outflow to foreign nations.
Get Competition Going
Just as baffling is the administration' s contention it must push up the dollar to make foreign imports cheaper in the United States. The government asserts that when the prices of foreign goods go up, American domestic manufacturers raise their prices accordingly. If that' s true, it means the free market competitive system has developed some serious hitches and hiccups. The answer to that, however, isn't to waste our money speculating in the foreign currency market but in restoring effective price competition here at home.
In a tangential act having little to do with anything, the government also announced it would be stepping up the volume of its gold sales. Very dramatic but of no great importance. It' s nice if the government wants to sell gold, aluminum or chicken guano and make some money but it isn' t going to have any solid effect on inflation and the weakness of the dollar.
What would really be reassuring would be an announcement by the muckity-mucks in the Treasury that they understand you can't have a sound dollar abroad unless you have a sound dollar at home. No more tricks, no more dramatics, gentlemen, please. Dull, intelligent, stick-to-it-iveness will suffice.
Stop-Gap Action To Save The Dollar Seems Doomed
The Dispatch Google News Archive Aug 18, 1978
By R GREGORY NOKES
Associated Press Writer
WASHINGTON — For more than a year the value of the once-prized U.S. dollar has drifted steadily downward, and no one seems to know when it will stop. Lately the decline has been worse than ever.
After months of following a hands-off approach recommended by his advisers President Carter now seems determined to try to put a floor under the falling greenback, but there is reason to fear that any emergency actions to protect the dollar will be doomed to failure.
The fall in the been overdone dollar has at times, particularly when it lost 5 percent of its value in a single day against the Swiss franc this week, and 8 percent in a single week in July against the Japanese yen.
But the downward plunge, from all available evidence, reflects real trends and real underlying economic conditions that will not be changed by stop-gap measures.
An economist for a major Midwest bank summed up the view of several experts when he said that intervention by the government to buy up dollars with foreign currencies might prop up the value of the beleaguered greenback for a time, but only for a time.
Intervention in this manner has been tried before and ills considered the most-likely option for the government to take again if it decides to act.
“The moral of the past is that we could expect a temporary solution at best,” he said. “But it would just be a matter of time before reversed again,” he said.
Clearly the dollar is in trouble, and the cost to Americans in inflation and lost confidence has been high. The dollar has lost over 30 percent of its value in the past year against the Japanese yen and 33 percent against the Swiss franc. Only the Canadian dollar has done worse than the U.S currency.
An economist for a Washington-based research group summed up the problem: “Put altogether inflation is rising, there is no Federal Reserve backbone, the administration' s inability to get its policy” enacted, there is massive uncertainty... People are saying let' s get out of the dollar, and it' s not just overseas, most dolIar holders are in this country.
Miller Seeks To Save Dollar
Reading Eagle Google News Archive Jul 28, 1979
WASHINGTON (AP) — President Carter' s choice as the new secretary of treasury says the administration is determined to halt the latest slide of the U.S. dollar on world money markets.
“We are absolutely committed to a sound dollar,” said G. William Mifier. “We will not permit the dollar to deteriorate from its present level.”
The huge U.S. trade deficits of the past two years, coupled with the continuing worsening of inflation, have been the major causes of the slide of the dollar.
Miller is still chairman of the Federal Reserve Board, which has also attempted to help the dollar, by increasing interest rates. It raised its bank lending, or discount rate, to 10.5 percent last week, the highest ever.
But this approach was criticized Friday by the House Committee on Banking, Finance and Urban Affairs. In a statement released by Committee Chairman Henry S. Reuss, D-Wis., the committee urged the Fed “not to raise interest rates at home as a way of propping up the dollar abroad.”
Reuss said “raising interest rates would worsen the recession, thus actually undermining international confidence in the dollar.”
Miller became the first top government official to say the nation already is in a recession Friday when he told the Finance Committee the recession started in the second quarter of this year and may continue until the second quarter of next year, with unemployment rising to 7.5 percent from the current level of 5.6 percent.
But he argued that the administration should stick to its current economic policies that stress fighting inflation, rather than try to spend the country out of a recession, a maneuver tried in past recessions. He said such spending this time would only worsen inflation.
The latest decline in the dollar, which started two months ago after oil prices began to shoot up, still is not as serious as the decline last year that caused the government to come to the dollar' s rescue.
Persistence Will Save Dollar: Rockefeller
Pittsburgh Press Google News Archive Nov 13, 1978
By MARY TOBIN
“The President' s earlier anti-inflation speech, in which he stressed reducing expenditures and complying with wage and price guidelines, was not successful (in helping the dollar) partly because the program was long-term and didn' t involve specific action,” he said.
Rockefeller said even intervention on a massive scale, either by the United States or by foreign countries, would not be effective while there was a lack of confidence in the dollar.
“Any program can be effective only if the international money traders are persuaded that the United States is on the right track—and the admirn.straLion' s dollar-support program was very, very specific.
“Once you have re-established confidence, then intervention can be successful,” Rockefeller said.
… Rockefeller said, the dollar' s decline in value is a signal—and a “desperately important one. The international money market is trying to tell us something. . . It is telling us to stop frittering around . . . It is asking for same assurance that American policymakers understand the very real and often implacable dangers of inflation.”
‘Easy Money' Can Explain Financial Woes
Palm Beach Daily News Google News Archive Oct 15, 1979
By MONROE FRIEDLANDER
Many years ago, in response to a declining population the king of Denmark offered to pay a bonus of 100 kroner for each new birth. Eight months later he called off the deal on the grounds that his program resulted in no change in the birth rate. Either he had little knowledge of biology or, in typical politican' s style, he promised something he had no intention of delivering.
If we had to explain why the stock market, the price of gold, the value of the dollar and short term interest rates are moving in trends that are incongruous with each other, our response would be “easy money.” For those who would answer “you must be crazy,” we offer these additional comments.
Most everyone has been conditioned to understand “easy money” as relatively easy access to credit; low interest rates are symptomatic of this state. This is the financial definition of the term. The economic point of view, however, is to adjust the interest rate for inflation in order to determine true cost. Therefore, if we have a 13 percent bank rate for credit and an inflation rate of 14½ percent, the true cost of money is — 1 ½ percent. In other words, money has no cost at all.
Taking the same approach with money supply, we see that inflation is wiping out about 13 percent of the value of money, but money is growing quantitatively by about 13 percent, resulting in a standoff. However, we cannot say for sure that money is truly growing at 13 percent because we don' t know what the real definition of money is. We can only work with the numbers the Federal Reserve gives us, and these exclude significant pools of liquidity. If anything, the error is on the low side of money growth; of this we are sure.
The combination of a negative interest rate and growth of money supply that is not negative is the best reason we know of to buy equities. Why, you ask, has this not happened before? The answer is, it has. It always happens, but in order to see it you must adjust the distoction of inflation out of what you are looking at. Earlier this year, for in. stance, the inflation rate was running at a 9 percent rate while money growth was 7 percent and the bank rate was 1 1. percent. During this time the Dow dropped by 9 percent, from 885 to 804. There are similar examples in recent market history.
The rising price of gold is recognition that despite all the talk about fighting inflation, the trend of real money growth and interest rates is supporting and encouraging higher prices all the time. At this state what is favorable for the stock market is also bullish for gold.
At some time near the end of G. William Miller' s tenure as Fed chairman, it must have been realized that his gradual approach to money supply growth was getting us nowhere. The dollar had given up all of its gains since last November and was on the brink of a wide open break. It was either stop the money from growing or raise the interest rate into positive territory against the inflation rate. Since Miller balked at this in fear of a dangerous recession, he was excused, Paul Voicker seems to be a bit more aggressive with respect to interest rates. He has successfully forced the Eurodollar rate to over 12 percent, thus slowing the inflow of this liquidity into the country. As a result, banks will be forced to raise funds via certificates of deposit, a more effective means of curtailing money supply growth. It may mean recession, but the consequences are far worse.
In order to be effective, the short term bank rate must be raised above the inflation rate, That is, above 13 percent. Also, the growth of money supply must be forced down below the inflation rate. When this happens as a fact, or evidence accumulates that it is going to happen, gold will stop rising, the dollar will firm and the stock market will drop sharply.
Between now and the end of November, the dollar will enjoy a seasonal lift due to export of the late summer harvest. Demand for dollars this year will be great enough to hold or raise exchange values regardless of interest rates. Therefore, the money manager will be relieved of his obligation to intervene directly in the markets to manipulate interest rates and money supply. It will be a holiday period. Beginning in December, however, the fundamentals affecting the dollar will reappear in earnest, placing great pressure on the central bank to meet its responsibility.
Before last November, the only real support for the dollar was the direct intervention in the foreign exchange market by foreign central banks. Technically, what they did was to buy overhanging dollars by issuing their own currency in exchange. The dollars thus acquired became the reserve against the newly minted D-marks, schillings etc. In the 12 months preceding November 1, these foreign central banks acquired roughly $40 billion in the manner described and issued an equivalent amount of their own local money. As a result of these transactions, money supplies, especially in West Germany, Belgium and Holland, balooned materially leading to price instability. Unlike Americans, the populations of these countries do not sit idly by while politicans destroy private wealth. When the political pressure became great enough before last November, our money managers were told that if they were interested in saving the integrity of the dollar, the initiative would be theirs as the taxpayers of Western Europe could no longer afford to subsidize the American consumer.
The policy change and subsequent shift of responsibility for the value of the dollar from Bonn to Washington after last November 1 is entirely responsible for the trends of rising interest rates, galloping inflation and threatened recession we have seen these past 11 months. The wild increases in money supply and bank credit also stems, through a complicated process, from the shift of U.S. Treasury securities ownership that occurred following the November 1 decision. These trends have been further intensified by the oil price increase and renewed efforts of Europeans to roll back the inflation spawned by the preNovember dollar purchases. Interest rates have more than doubled in West Germany since last November. This factor alone has placed great pressure on the U.S. dollar and is probably responsible for the last two increases in our discount rate.
The point is, the European community appears determined to avoid further inflation. They do not confuse prosperity with financial instability. In his last speech, the West German president said, referring to Amencans, “what kind of people are they to allow their money to become worthless?” Austria has revalued its currency upward at a time when its current account balance is turning negative. This is terribly punishing to business and wage earners, yet, it has done it and in order to hold the EMS together, West Germany also will soon be forced to revalue.
If dollar weakness should develop again, and there is considerable cause for concern that it will, support originating from Europe cannot be relied on. The burden falls entirely on our own money manager whose only weapons are limited foreign exchange reserves (about $6 billion) and the power to manipulate interest rates. It is impossible to describe the vulnerability of the dollar without perspiring a little. Most people would not understand anyway. It' s a bit like saying that some light reaching the Earth today came from stars that expired 4 billion years ago. Incomprehensible.
The case for recession is getting stronger. Incomes are deteriorating rapidly and more economic indicators are showing signs of fatigue. For the first time this year, we detect a slight weakening in loan demand in spite of accumulating inventories. Another month of this and the tide will turn.
As the money supply and velocity begin to contract, the effect on incomes will be dramatic leading to a quick rise in unemployment. The social consequences of income starvation will generate a broad economic and political debate that surely will be the major issue in the 1980 presidential election. If the money manager responds with anything that looks like it will deepen the U.S. budget deficit, we can expect the dollar to suffer a major evaporation. On the other hand, if the dollar is maintained via interest rate stabilization, the U.S. economy will join the cab driver' s horse, wherever he is.
1980s Sure To Begin On Deeper Downturn
Star-News - Google News Archive - Dec 27, 1979
… joblessness remains low hut unemployment always lags behind the realities in our ecomony. Meanwhile, inflation is raging in the double-digits, Interest rates are at steep levels and oil prIces remain in an upsurge. Hardly a bag of economic “goodies”?
1) The 1980 downturn will he deep, broad, of unpredictable duration and cleansing:
IF the governors of the Federal Reserve Board have the courage to maintain strict control over the supply of credit in a do-or-die effort to brake the psychology of inflation which is eating away at the foundations of our economic system and to save the U.S. dollar before it collapses and drags down the world' s monetary structure with it.
IF the White House under President Carter and this mostly mediocre Congress resist the political pressures that demand restimulation of the economy so they too can help curb today' s inflation pace.
IF the power centers in U.S. labor and business grasp the imperative need of reviving productivity in our country so we can at least resume a position of economic equanty (not leadership) among our industrial competitors in West Germany and Japan.
2) The 1980 downturn will be shallow, short and lead quickly to a resurgence of even more intolerable inflation:
IF the Federal Reserve Board caves in to election-year pressures and opens the credit spigots to help end the recession.
IF the White House and Congress adopt free-spending tax policies to stop rising unemployment and reduce ban kruptcies.
In sum, we' re into a painful phase — and few of us will escape it entirely. …
Status of dollar and Americans abroad tend to tell us something
Lawrence Journal-World - Google News Archive - Jun 13, 1980
By WILLIAM SAFIRE
THE DECLINE of the American dollar, and the subsequent impoverishment of the American tourist or worker abroad, is a symptom of America' s ebbing influence in Europe. We are no longer resented for being rich and powerful. We are treated with sorrowful condescention for being unproductive and musclebound.
For the first time, America is viewed as being wholly paralyzed during an election year. Although our election-year rhetoric always favors minorities and ethnic groups, our stated government policy on both economic and diplomatic affairs has rarely been dismissed so airily by our allies
Europeans, who take for granted America' s nuclear umbrella, and who have grown accustomed to the presence of 100,000 American troops here in NATO defense, are treating Carter' s reaction to the seizure of hostages and the invasion of Afghanistan as the bellowing of a weak president anxious to appear tough to his home constituency.
…many European businessmen foresee Carter' s quick abandonment of the anti-inflation ramparts. With an unemployment surge that would topple many governments, and with a threat from the left of his own party, Carter is expected to declare inflation dead forever and to reflate frantically.
This would mean easy money, tax cuts, a flood of deficit spending, and if inflation spurts again before Election Day wage and price controls that would welcome the liberal left back into the Carter campaign.
Economic insanity? of course such premature overstimulution would start a new round of inflation from a higher base, which is why the dollar will weaken and gold looks enticing again. But it makes political sense, if you assume that U.S. leadership will follow the weathervane.
Will Carter surprise the world toughing it out — by not priming the pump too soon?
I REMEMBER a story, probably apochrypal, about the late New York (‘I ty political sage Alex Rose and former Mayor John Lindsay One August in an election year. politician Rose went to the mayor and told him that the voters were angry about potholes that the entire streetcleaning budget had to be spent right away on fixing the potholes
“But I can' t responsibly do that,” the mayor is supposed to have replied. “We won' t have the money in December for snow removal”
“Look,” said the practical politician. “If there' s no November, there won' t be no December”