Business: Greenbacks Under the Gun

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As the buck dropped and bullion soared, the Administration talked action

Trying to cope with the worst dollar disaster yet, the Carter Administration last week seemed in peril of following what has become a distressingly familiar pattern: a portentous roll of publicity drums that builds up to a toot on an uncertain trumpet. Early in the week the dollar came under a concentrated cannonade from some financial Guns of August, and its steady, summer-long retreat turned into a disorderly rout. It fell 4½% against the Swiss franc in a single day, while the price of gold, the ultimate refuge for investors worried lest their dollars become worth much less, hit an unheard-of $215.90 an ounce. So the White House passed the word that President Carter was "deeply concerned" and had asked Treasury Secretary W. Michael Blumenthal and Federal Reserve Chairman G. William Miller for advice on what he could do to stop the drop. Then the President called a press conference for Thursday afternoon; the dollar rose briskly, and the price of gold declined, in anticipation of some immediate action.

But when the President appeared before the TV cameras he had nothing new to say. He spoke of his confidence in the U.S.'s "underlying economic strength," expressed hope that a narrowing U.S. trade deficit and a topping out of American inflation this year would eventually strengthen the battered buck—and let it go at that. Even as Carter was speaking, the dollar began sliding again. Though it rose smartly the next day, following an announcement by Blumenthal that there would be "a series of continuing actions" to bolster the dollar in coming weeks, no one could be sure that the decline had been stemmed even temporarily.

Later, the Administration tried to make it clear that it was serious. In background sessions with newsmen, Administration spokesmen outlined a three-pronged program. First, they said, the Federal Reserve Board would be taking steps, in concert with other central banks, to strengthen the greenback, and had already been moving "more actively" in buying dollars to prop up their price. Second, the Administration would step up efforts to get Congress to pass Carter's energy program, which would reduce oil imports and thus stem the drain of dollars out of the U.S. Indeed, Carter personally lobbied House members to work out a compromise to end a fierce dispute over natural gas pricing. Finally, they spoke of both a flat ban on any new federal programs and of cuts in existing ones. The goal: to pare the budget deficit for fiscal 1979 to roughly $40 billion, from the $48.5 billion projected at the start of the summer, as a way of controlling the inflation that is weakening the dollar.

Unfortunately, these efforts can be compared to a statement by a city fire department that it will improve the fireproofing of buildings—without saying what it will do to put out the four-alarm blaze that is raging right now. And if the dollar's fall is not stopped, the U.S. and world economies will be in mounting danger. The cheapening of the greenback may add ¼% to 1½% to this year's U.S. inflation rate. It both raises the costs of imports, which are now about equal to 10% of the gross national product, and moves American manufacturers to increase prices on goods that compete against imports.