The Economy: Stanching the Flood

The dollar-bolstering campaign that President Johnson sprang on an unsuspecting world during the first day of 1968 was conceived in secrecy worthy of a major military maneuver. Even as Johnson was winging around the globe last month, cables were flashing between Washington and his silver-and-blue jet, Air Force One. In all, about 50 people — from the White House, the Commerce, Defense and Treasury Departments, the Federal Reserve and the Council of Economic Advisers—worked on parts of the package, but only ten or so knew its full dimensions. When the finishing touches were finally completed, newsmen were summoned to the airplane hangar at the L.B.J. ranch for what they were told would be an important New Year's Day announcement.

Johnson greeted them with somber words. "The time has now come," he declared, "for decisive action to bring our balance of payments to—or close to—equilibrium in the year ahead. The need for action is a national and international responsibility of the highest priority." Continued deficits, he warned, could "endanger the strength of the entire free-world economy and thereby threaten our unprecedented prosperity at home."

With that, the President moved to stanch the dollar drain with the most Draconian measures yet. He outlined a five-point program aimed at cutting the deficit by $3 billion in the year ahead. Principal features: a reduction in U.S. investment abroad, particularly in Western Europe, to save $1 billion; a cutback in U.S. loans to foreigners to save $500 million; scaled-down Government expenditures overseas—by the Pentagon, by heavily staffed U.S. embassies and by G.I.s and their dependents—to save $500 million; deferment for two years of all but what the President called "the most important, urgent and necessary" travel outside the Western Hemisphere to save $500 million of the $4 billion now being spent abroad each year by U.S. tourists; a series of export promotion aids to increase the U.S. trade surplus, which now runs at more than $4 billion a year, by an additional $500 million (see BUSINESS).

Target & Muscle. The deficit grows out of the nation's vast commitments around the world—and the insatiable wanderlust of millions of its well-heeled citizens. In 1967, the outflow turned to a flood—between $3.5 billion and $4 billion. Major factors included the tourist rush to Canada's Expo 67, the outpouring of private funds to finance Israel's costly war, the slowdown in Europe's economies and, most important of all, Britain's devaluation of the pound, which caused a speculative rush for gold and put intense pressure on the gold-backed U.S. dollar.