Money: Forlorn Hopes

When he travels to Spain this week for an American Bankers Association conference, Treasury Secretary Henry Fowler will conspicuously fly a U.S. air line (TWA), will probably stay only one day and, he says, "I may carry my lunch." Reason for this frugality: once again the U.S.'s hopes for ending its gold outflow have proved to be forlorn.

Fowler, who only three months ago was insisting that the U.S. would whip the eight-year-old problem in 1966, appeared last week at a Washington news conference with Commerce Secretary John Connor, and reported morosely that the deficit in the nation's balance of payments jumped to an annual rate of $2.3 billion in the first quarter, up from last year's $1.3 billion. Fowler also conceded that the U.S. has surrendered just about all hopes of achieving a balance as long as the war in Viet Nam continues. The direct and indirect costs of Viet Nam, he estimated, will increase the U.S.'s deficit by at least $1.4 billion this year.

Viet Nam is an obvious, perhaps overly simplistic excuse for a complex and chronic problem. Yet Europe's conservative bankers are sympathetic to the U.S.'s wartime payments plight. With the exception of the French, they have no current plans to cash in most of their greenbacks for U.S. gold, a move that would cause a run on the dollar. They keep pointing out, however, that the U.S. could and should do more to balance its books. Said Bundesbank President Karl Blessing last week: "The raising of the discount rate last December was a step in this direction. A tax increase would also be such a step."

The Administration has all but decided against taking any such stringent measures. It has no intention of slashing foreign aid, though rebellious congressional leaders are talking of reducing it by $1 billion. As for a head tax on foreign-bound U.S. tourists, who will contribute about $2.5 billion to the payments deficit this year, compared to $1.8 billion last year, Fowler said that such an idea has been "laid quietly to rest for the time being." In all, the Administration plans to continue relying on its "voluntary" restraints, which have proved to be ineffective and which put practically all the burden of reducing overseas spending on business and individual citizens, and practically none on Government.

In the situation created by this policy, Charles de Gaulle keeps taking potshots at the U.S. position. Uncounted hoards of U.S. dollars flow from banks in Viet Nam to the Banque de France, which promptly turns them in for U.S. gold. Since Jan. 1, the U.S.'s gold stock has dropped by $100 million to a 28-year low of $13.7 billion, while France's bullion supply has increased by about $150 million. As long as the U.S.'s deficits continue, all hopes for a sensible international monetary reform to take some pressure off the dollar are dead—which suits De Gaulle just fine. Worst of all, if the U.S. encounters an economic dip next year, the Government money managers may be unable to fight it by lowering taxes or loosening credit—because such measures would only deepen the dollar drain.