Evening star. [volume] (Washington, D.C.) 1854-1972, 1961-11-25
The Gold Problem Again

Official disclosure that the United
States deficit in international payments.
with its inevitable demand upon our gold
reserves, picked up new speed in the
third quarter of this year redirectS
attention toward one of the admins
tration'S trickieSt problems. 1t falls into
this "trickieSt" category because it is
problem of many partS-Some involving
Government actions and policies only,
others involving private determinations
in the field of export-import trade and
the flow of capital investment to and
from this country. Perhaps the most
subtle factor of all is that of confidence
in the value of the American dollar, a
judgment that can be greatly affected
but not always strictly controlled by the
fiscal policies of our own Government.
Any fear abroad that these policies are,
or will become, inflationary, that the
dollar will be worth less tomorrow than
today, will encourage holders of dollar
credits to demand gold instead.
In brief, the situation is that total
American expenditures abroad made
up of such items as governmental out
lays on foreign aid and support of
defense forces, plus commercial pur-
chasing of goods for import and
American investment of funds in plants
and enterprises overSeaS-are exceeding
the reverse flow of income from exports
and of foreign capital coming to work
in this country. In the third quarter,
this unfavorable margin was nearly
$500 million-an annual rate of about
SO billion, and approximately so per cent
higher than the rate in the previous
quarter. Along with this imbalance,
there was a third-quarter outflow of
about $145 million in gold-not a large
amount by itself but it contrasts with
a rise in gold holdings which had been
recorded earlier in the year.
While neither of these figueS is
as disturbing as those posted during
much of 1859 and 1860, certain forces
currently at work are likely to perpetuate
this deficit trend in the immediate
future. One is the strengthening, at
increased cost in dollars, of many of
our defense establishments abroad,
particularly in Europe. A second is the
attraction of American capital invest
ment in the expanding and prosperous
European Common Market, a move
which not only offers promise of profits
but may in fact be essential to keeping
certain American owned enterprises
competitive in that area. Another is the
fact that the expected business boom
here is likely to increase the demand for
raw materials and other goods from
abroad-also at high dollar OUTLAWS. AS
one offset, the administration is con-
Sidering various steps to strengthen our
export trade. AS another, there is the
possibility in boom time of pushing
interest rates up as a means of keeping
investment dollars at home.
If only these forces remain at work
there probably will be relatively little
reason to fear a dangerous demand for
gold in place of dollars. There will be
much more reason to fear it, however,
if and when the directors of central
banks abroad have grounds for nervous
ness about the longtime value of the
dollar. Most European countries already
have had painful experience with in
flation and destruction of their cur
rencieS. Their moneymen will have no
taste for holding other currencies that
may be threatened, through persistent
budget deficits or over all fiscal
responsibility, with devaluation. Presi-
dent Kennedy gave assurances last
spring that the dollar would not be
devalued and he has promised since that
the budget will be brought into balance
These are nledpeS that must he kent