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JL / V i M m a 7 h z . - i J y j, Boros 15 Conc-er'b\ecL. cc'so<»of-. -fCt. oJ1 >4 i^e.r finals. o vA traces 'K-e/r' GaelMj* <*-£ ohe*&e^+*> In f r ~ e p A W > "A* a W , W 's pfcjje BE.;. Orfr* ,y r * , * ^ — . —7 / fX V S ^ -t Ju n e 1, 1973 ('ecOi~»~*€»JLdKms D e a r M r. P r e s id e n t: In view of m y d e p a rtu re on a fo re ig n t r i p to d a y , I h a v e b een a d v ise d to sen d you a p e rs o n a l m e s s a g e b e fo re gettin g a w a y . L e t m e s a y , f i r s t of a l l , th a t I think it is highly im p o rta n t th a t you a d d r e s s y o u r s e lf to d o m e s tic e c o n o m ic is s u e s r a t h e r p ro m p tly , a s I b e lie v e you now plan to do. T h is n atio n is e x p e rie n cin g g r e a t p r o s p e r ity , but a s p i r i t of u n e a se and foreb od ing h a s n e v e r th e le s s g rip p ed the m in d s of v e r y m an y of our p eo p le. T h e in v e s to r c l a s s - - in v e s tm e n t b a n k e rs , b r o k e r s , m a n a g e r s of in v e stm e n t funds, m a n a g e r s of p en sion funds, and the g r e a t body of individual in v e s to r s - - a r e in a s e r io u s ly d e p re sse d m ood. C o n s u m e rs a r e spending th e ir d o lla r s f r e e l y . B ut if s u r v e y s of c o n s u m e r opinion a r e r ig h t (and m y p e r s o n a l o b s e rv a tio n s u g g e s ts th a t th ey a r e ) , m an y c o n s u m e rs a r e w o r r ie d about the fu tu re . - 2- B u s in e s s m e n a r e in an o p tim is tic f ra m e Of m in d . T h e ir s a le s and p ro fits h a v e been im p rov in g s h a rp ly , and th e y a r e c l e a r l y in a m o o d to expand th e ir plant, th e ir equip m e n t, and th e ir in v e n to r ie s . B u t am ong this g ro u p , to o , so m e sig n s of d isq u ie t about the fu tu re , s till faint and v e r y lim ite d , a r e beginning to a p p e a r. F o r e i g n e r s a r e show ing d im in ish ed co n fid en ce in the d o lla r , and th e ir thinking is s h a r e d by m any A m e r ic a n s . T h e s h a rp r i s e in the p r i c e of gold and in the d o lla r p r i c e of fo re ig n c u r r e n c i e s is c l e a r ev id en ce on th is point. W hat is ailin g p e o p le ? T he dom inant f a c to r a p p e a rs to be th e sh a rp ly a c c e l e r a t e d p a ce o f o u r in flatio n . M o st people - - A m e r ic a n s and f o r e i g n e r s , b u sin e ssm e n and co n s u m e r s , in v e s to r s and w o rk in g m en - - have no u se fo r P h a s e 111. T h ey s e e m to r e g a r d it a s a m is ta k e , and so m e r e g a r d it a s a dow nright d i s a s t e r . T he thinking and feelin g of people is n e v e r c o m p a r tm e n t a liz e d . W hen th ey a r e in an an xio u s m ood , one w o r r y r e in f o r c e s a n o th e r - - w h e th e r o r not th ey know o r u n d erstan d w h at th ey a r e w o rr ie d about. T h u s, m a n y p eo p le, b e sid e s being c o n c e rn e d about in flatio n , a r e w o r r ie d about th e d ev alu ation of th e d o lla r . - 3- th e d e fic it in our fo re ig n tr a d e , th e d e clin e of s to c k p r i c e s , s th e r i s e of i n t e r e s t r a t e s , fra u d on th e s to ck e x c h a n g e s , boom ing p r o f its , s h o r tf a lls in g o v e rn m e n ta l in te g r ity , th e W a te r g a te a f f a i r , e t c . Of la te , q u e stio n s h av e b een r a i s e d , in th e p r e s s about y o u r le a d e r s h ip , about y o u r I n te r e s t in th e p ro b le m s th a t c o n c e r n p eo p le, about y o u r a b so rp tio n in fo re ig n a f f a i r s , about y ou r a tte n tio n to d o m e s tic i s s u e s , and s o on. A ll th is is a ffectin g the s ta te of co n fid e n ce . In f a c t , a s I s e e it, th is co u n try is now in d a n g e r of being buffeted by a c r i s i s of co n fid e n ce . & p o litic a l a p p ro a c h . p a rt* T h is s o r t of p ro b le m c l e a r l y r e q u ir e s It r e q u ir e s stro n g le a d e rs h ip on yo u r It r e q u ir e s v is ib le p ro o f to th e A m e r ic a n people th a t you c a r e about th e ir c o n c e r n s , th a t you a r e doing so m eth in g r e a l in th e ir i n t e r e s t , th a t you intend to continu e to do m o re a s n eed ed , and th a t if one p o licy d o e s n 't w ork you w ill be r e a d y to m o v e to a n o th e r in an u n ce a sin g e ffo rt to p r o te c t and a d v a n ce th e ir w e lf a r e . I th e r e f o r e u rg e y ou , f i r s t of a l l , to d e a l d ir e c tly w ith th e p ro b le m of p r ic e s th a t is a g ita tin g th e m inds of p eo p le, a s fo llo w s: R e im p o s e m a n d a to ry co n tro ls fo r T i e r I f i r m s . B ro a d e n the p re n o tifica tio n r u le s to c o v e r m o r e firm s . A nnounce th a t so m e ro llb a ck s in p r i c e s w ill soon be o r d e r e d in th e c a s e of f ir m s th a t h a v e v io la te d th e p ro fit g u id e lin e s. A nnounce so m e re o rg a n iz a tio n of the C o st of L iv in g C ou ncil (if G e o rg e is re a d y w ith a plan ). A nnounce th a t a ll a g r ic u ltu r a l p r ic e su p p o rt e f f o r ts , w hich you ca n in flu en ce by a d m in is tra tio n , a r e su sp en d ed fo r the re m a in d e r of the y e a r . A n nounce s a le of m a t e r i a l s f ro m g o v e rn m e n ta l s to c k p ile s (including s c ra p p a g e of o b s o le te n a v a l and m e r c h a n t v e s s e l s ) , w ith a view to b rin g in g down p r i c e s of ra w m a t e r i a l s (including s te e l s c r a p ) . A nnounce th a t o b s e r v a n c e of p ro fit g u id elin es w ill be m o n ito re d v e r y c lo s e ly and p ro m p tly f r o m th is point on, and th a t so m e needed exp an sio n of p e rso n n e l is being p rovided fo r th e p u rp o s e . »5- (8) C a s tig a te b u sin e ss f i r m s th a t h av e g ra n te d la r g e i n c r e a s e s in s a l a r i e s (including b o n u ses) to th e ir top e x e c u tiv e s and o r d e r a sto p to su ch p r a c t i c e s . (9) A d v ise th e p u b lic, and p a r tic u la r ly the b u sin e ss co m m u n ity , th a t th e w ag e gu id elin es p re v io u sly p ro m u lg a te d by the P a y B o a rd a r e s till in e f fe c t. (1 0 ) P r o p o s e to C o n g re s s th e e lim in a tio n of th e " b re a d ta x ." (1 1 ) R e p e a t y o u r re co m m e n d a tio n s to th e C o n g re s s to cu t b a ck c e r t a i n t a r i f f d u ties on food im p o r ts . (1 2 ) R e q u e st a study of the c o n tr o l of food e x p o r t s , to be co m p le te d in 30 d a y s , and p ro h ib it fo re ig n o r d e r s d u ring th is p e rio d . N e x t, I would u r g e th a t you su p p lem en t w hat you a r e doing in th e p r ic e and w age fie ld w ith so m e f i s c a l p ro p o sa ls th a t would b lso co n trib u te to ch eck in g in fla tio n . I su g g e st the follow ing m easu res: (I ) B e s id e s re p e a tin g y o u r s te r n ap p eal to the Congress^ on spending, an n ou nce an OMB r e a p p r a i s a l of F e d e r a l c a p ita l spending p la n s, to be co m p le te d in 30 d a y s . -6- (2) R e co m m e n d to C o n g re s s a c o m p u ls o ry sa v in g s plan f o r c o r p o r a tio n s , u n d er w h ich so m e 10 p e r ce n t of th e ir p ro fits a f te r ta x e s would, be w ithheld, to be lo ck ed up in th e c o f f e r s of th e F e d e r a l R e s e r v e , and to be re p a y a b le a f te r tw o y e a r s o r s o o n e r , depending on th e s ta te of the e co n o m y , to g e th e r w ith in t e r e s t a t , s a y , 4 p e r c e n t. (3) A sk C o n g re s s a ls o fo r a co m p u lso ry sa v in g s plan f o r in d iv id u a ls, a t a r a t e equal to 10 p e r ce n t of th e ir in co m e t a x , but lim ite d to fa m ilie s w ith an in c o m e in e x c e s s of, s a y , $ 20 , 000 . (4) R e co m m e n d to C o n g re s s a v a ria b le in v e stm e n t t a x c r e d i t , of w hich you h a v e h e a rd m e sp eak o fte n , w hich (like th e co m p u lso ry sa v in g s plan) could be q u ick ly a d ju sted to the changing s ta te o f the e co n o m y , to be a v a ila b le f o r co o lin g off th e c u r r e n t in v e stm e n t boom and a ls o p ro v id e in s u ra n c e a g a in s t r e c e s s i o n l a t e r . F in a lly , in view of the grow ing c o n c e r n of people about th e e n e rg y p ro b le m , I would p ro p o se a p u rc h a s e ta x b a se d on th e h o rs e p o w e r of a ll new c a r s and t r u c k s . An e x c i s e t a x on g a s o lin e , -7such a s m any a re -u rg in g , h a s econom ic m e r i t ; but I would d e fe r th is fox c o n sid e ra tio n at a la t e r date -- p e rh a p s th r e e or s ix m onths fro m now. What I have put down so h a s tily in th is le tte r i s d e sig n e d to stren gth en confidence of people in their own and the co u n try 's fu tu re. I'm s u re that the p a ck a g e can be m uch im p ro v e d ; but no and p sy c h o lo g ic a l t e s t s , not ju s t the c r i t e r i a of p r o f e s s io n a l econom is L e t m e a s s u r e you, fin ally, that the F e d e r a l R e s e r v e h as been trying h a r d to b rin g m o n e ta ry policy to b e a r on the p ro b le m of inflation, that our e ffo rts in this d ire ctio n w ill continue, but that we w ill a l s o try to avoid a c re d it crunch of the 1969 type. With e v e ry good w ish S in c e r e ly y o u rs A rthur F . B u rn s The H onorable R ic h a r d Nixon The P r e s id e n t of the United S tate s Copy to: P . S. G e o rg e Shultz H erb Stein Roy A sh P r a c t i c a l l y e very point that I'v e c o v e re d h a s fig u r e d in r e c e n t d i s c u s s io n s that G e o rg e or H erb c h a ire d . I'm s o r r y that I had to get away b e fo re a c le a r c o n se n su s e m erg* Photocopy from Gerald R. Ford Library pack ag e of p r o p o s a ls w ill be s a t i s f a c t o r y u n le s s it m e e t s p o litic a l