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MEMORANDUM

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l

THE W H ITE HOUSE

e;F;

WASHINGTON

Fe>r

pneferr e4 p|^n £ r

D e c e m b e r 2 3 , 1967
S a tu rd a y , 7 :2 5 p .m .

J?.?
/

F O R T H E P R E S ID E N T
FROM

J oe Califan.'

A tta c h e d a r e p a p e r s S e c r e t a r y F o w le r w an ted y ou to h a v e a s
b a c k g r o u n d f o r c o n s id e r a t io n o f the b a la n c e o f p a y m e n ts
q u e s tio n . F o r the m o s t p a r t th e y e la b o r a t e on the c a b le I
sen t y ou y e s t e r d a y , a c o p y o f w h ic h is a ls o a tta ch e d f o r y o u r
c o n v e n ie n c e .
If w e g o the r o u te o f m a n d a t o r y c o n t r o ls on c a p it a l in v e s tm e n t
a b r o a d and tig h te r r e g u la tio n b y the F e d e r a l R e s e r v e B o a r d o f
bank lo a n s , w e w ou ld not n e e d a ll o f the e la b o r a t e p a p e r w o r k
a tta c h e d , and y ou c o u ld p r o b a b ly m o v e p r o m p t ly n ex t w e e k .
T h e in t e r e s t e d a g e n c ie s in the g o v e r n m e n t o u ts id e the T r e a s u r y
h a v e ju s t r e c e i v e d the lon g p a p e r s a tta ch e d and w ill r e q u ir e s e m e
t im e to s ta ff th e m ou t.
T h e D e m in g w o r k in g g r o u p w i l l be m e e tin g t o m o r r o w to put to g e th e r
a m a n d a t o r y c o n t r o l p r o g r a m and to c o n s id e r the g o ld q u e s tio n s r a is e d
in y o u r c a b le s to m e to d a y .
F o w le r is a w a y w ith h is f a m ily and w ill r e tu r n e a r ly T u e s d a y m o r n in g .
I b e lie v e the o t h e r s a r e in tow n and a v a ila b le sh ou ld y ou w ant to have
a m e e t in g t o m o r r o w . I w ill b e at h o m e , a w a itin g a c a l l f r o m you .
I w ill b r in g R o s to w up to d a te .
A ls o a tta c h e d is a m e m o G a r d n e r A c k le y w an ted y ou to h a v e .

A tta c h m e n ts




—SE C R E T
T H E C H A IR M A N O F T H E
C O U N C IL O F E C O N O M IC A D V IS E R S
W A S H IN G TO N

D e c e m b e r 23,

1967

DECLASSIFIED
M E M O R A N D U M F O R T H E P R E S ID E N T
S u b je c t:

1.

Authority
t
,U \.-- ¥-7 3 ~r
cW
H
_
------~-------—
_____ NABS, Date i ~ /~ 7 ^
y

_
B

A lt e r n a t iv e s to the N ew B a la n c e o f P a y m e n ts P r o g r a m

T h e b a s ic o b je c t o f the n ew b a la n c e o f p a y m e n ts p r o g r a m is to get
th ro u g h 1968 w ith ou t an in te r n a tio n a l fin a n c ia l c r i s i s . It is in te n d e d
to r e d u c e the d e fic it in 1968 and b e y o n d ;
t h e r e b y to g iv e E u r o p e a n c e n t r a l b a n k e r s g r e a t e r c o n fid e n c e
and m a k e th em m o r e w illin g to h o ld d o lla r s and to c o o p e r a t e
in o t h e r w a y s ; and
t h e r e b y to c a lm s p e c u la tio n b o th on a r is e in the p r i c e o f g o ld ,
and on a p o s s i b l e d e v a lu a tio n o f the d o lla r r e la t iv e to f o r e ig n
c u r r e n c ie s .

2.

It c o u ld v e r y w e ll s u c c e e d in th is b a s i c o b je c t iv e . On the o th e r han d,
th e r e is at l e a s t a c h a n c e that it c o u ld p r o v o k e su ch a c r i s i s , b y s e ttin g
o ff e it h e r a c h a in o f d e v a lu a tio n s , o r a s e r i e s o f r e t a lia t o r y a c t io n s
le a d in g to a g e n e r a l sta te o f e c o n o m ic w a r fa r e in the w o r ld . H o w e v e r ,
in w hat f o l l o w s , I a s s u m e that it w o u ld a c h ie v e o u r 1968 o b je c t i v e .
But w h e r e w o u ld it le a v e u s ?

3.

S om e e le m e n t s o f th e p r o g r a m a r e a im e d at lo n g -r u n im p r o v e m e n t in
ou r b a s i c b a la n c e - o f - p a y m e n t s s itu a t io n . T h is is p a r t ic u la r ly tru e
o f the e x p o r t fin a n c in g and e x p o r t p r o m o t io n m e a s u r e s , the e n c o u r a g e ­
m e n t o f f o r e i g n t o u r is m and f o r e i g n in v e s t m e n t in the U n ited S ta te s,
and the e f f o r t to g e t o th e r c o u n t r ie s to r e d u c e n o n - t a r i f f b a r r i e r s .
H o w e v e r , n on e o f t h e s e is n ew , and one ca n d ou b t how m u c h fu n d a m en ta l
im p r o v e m e n t th e y w ill m a k e . A lth o u g h end o f the V ie tn a m w a r c o u ld
b r in g a s u b s ta n tia l im p r o v e m e n t , w e w ill h a v e to con tin u e to sp en d
h e a v ily in S o u th e a s t A s ia f o r d e v e lo p m e n t p r o g r a m s - - p e r h a p s n e a r ly
as m u c h as w e 'r e s p e n d in g t h e r e n o w , in t e r m s o f f o r e ig n e x c h a n g e .




■ seeder

...
2

M o s t o f the im p r o v e m e n t sou gh t b y the p r o g r a m , h o w e v e r , is n ot
l o n g - t e r m . It w ill c o n tin u e o n ly s o lo n g as w e c o n tin u e d oin g th in gs
that a r e d is t a s t e f u l, and that w e w o u ld n !t w an t to and s h o u ld n ft do in
the lo n g run* T h is is s u r e ly tru e o f the v o lu n t a r y (o r n o n v o lu n ta r y )
c o n t r o l o f ban k and c o r p o r a t e in v e s t m e n t , the t o u r is t ta x , the b u y A m e r ic a n p o l i c i e s o f D O D , the ty in g o f a id , and the b o r d e r ta x a d ju s t ­
m e n t. It is a ls o tr u e o f high in t e r e s t r a t e s d e s ig n e d to p u ll in funds
fro m a b roa d .
T h e r e is th e h o p e th at - - w ith the p r o g r a m - - w e ca n a v o id a c r i s i s
lo n g en ou g h f o r th e SD R p la n to s ta r t p u m p in g out in c r e a s in g am ou n ts
o f np a p e r g o ld , n a ft e r w h ich the p r o b le m w ill fa d e a w a y . H o w e v e r ,
ev en SDR*s w ill n ot d i r e c t l y h e lp ou r b a la n c e o f p a y m e n ts . T h e y m a y
m a k e o t h e r c o u n t r ie s a b it m o r e r e la x e d a b ou t t h e ir r e s e r v e p o s it io n s ,
and thus m o r e w illin g to f o llo w e x p a n s io n a r y p o l i c i e s , t o le r a t e a lit t le
in fla t io n , l i b e r a l i z e t r a d e u n ila t e r a lly , e t c . - - a ll o f w h ich c o u ld
i n d i r e c t l y h e lp o u r s itu a tio n . O p e r a tio n o f th e SDR p la n c o u ld a ls o ,
e v e n tu a lly , c a lm the g o ld f e v e r and r e s u lta n t s p e c u la tio n .
H o w e v e r , a g o o d c a s e can b e m a d e that w e a r e o n ly b u y in g t im e w ith
I
o u r p r o g r a m ; th a t th e fu n d a m en ta l d if f ic u lt ie s w ill n o t g o a w a y but
\
w ill o n ly b e r e p r e s s e d ; that a c r i s i s w ill o n ly b e p o s tp o n e d , n ot a v o id e d .
One c a n a r g u e th a t w e sh ou ld f a c e up t o the m o r e fu n d a m en ta l a lt e r n a t iv e
n o w r a t h e r th an l a t e r .
One a lt e r n a t iv e - - w h ic h w e s u r e ly m u s t r e j e c t
is to r a is e the p r i c e
o f g o ld . T h is m a y a p p e a r an e a s y s o lu t io n ; but it s lo n g -r u n c o s t s and
e v e n s h o r t - r u n c o n s e q u e n c e s a r e m o s t u n a t t r a c t iv e . T o s a v e t im e ,
I w o n ’ t d e t a il th e m , u n le s s y o u w is h m e t o . In an y c a s e , it s o lv e s
n on e o f o u r b a s i c p r o b l e m s .
A n o th e r a lt e r n a t iv e w o u ld be f o r the U n ited S ta tes to d e m o n e t i z e 1
1
g o ld - - q u ic k ly , and at one s t r o k e . T h e r e a r e v a r io u s w a y s to d o it .
M y ow n p r e s e n t v ie w a s to the b e s t w a y is t h is . W e su d d e n ly s to p
a ll g o ld s a l e s , an d a n n ou n ce o u r in te n tio n s :




w ill in v it e a ll o f f i c i a l h o ld e r s o f d o lla r s (g o v e r n m e n ts and
c e n t r a l b a n k s ) to le t us k n ow h ow m a n y o f t h e ir d o lla r s th e y w ant
to c a s h in f o r g o ld . I f th e sum o f w hat th e y w an t e x c e e d s o u r
s t o c k , w e w i l l p a y out p r o r a ta .
W e

-S B e K E T

,

■-&BC K E T
3

I f it d o e s n ’t and it m o s t p r o b a b ly w o n 't , w e w ill g iv e th em a ll
th e y a s k f o r and u s e the r e m a in d e r to b u y a s t o c k o f f o r e ig n
c u r r e n c i e s f r o m th e IM F o r f r o m the c o u n t r ie s c o n c e r n e d .
W e m a k e it c l e a r th at w e w ill n e v e r a g a in b u y an o u n c e o f g o ld
at any p r i c e and, o f c o u r s e , w o n ’ t s e l l an y.
W e w ill, h o w e v e r , c a r r y out ou r o b lig a t io n u n d e r the IM F to
s t a b iliz e o u r c u r r e n c y a g a in s t o th e r s - - a t the e x is t in g p a r it y - in the s a m e w a y a s e v e r y o th e r c o u n t r y d o e s - - b y b u y in g and
s e llin g f o r e ig n c u r r e n c i e s .
W e w o u ld , o f c o u r s e , u r g e a ll o th e r c o u n t r ie s to f o l l o w ou r e x a m p le
in d e m o n e t iz in g g o ld . W e w o u ld thus b e ta k in g th e in it ia t iv e in
f r e e i n g the w o r ld f r o m the ty ra n n y o f the ’ ’b a r b a r o u s m e t a l 1 - - t o
1
u s e B ill M a r t in ’ s n ic e p h r a s e - - a p p r o p r ia te c h a r a c t e r iz a t io n s b y
W illia m J en n in g s B r y a n a r e a ls o a v a ila b le . (If a n u m b e r o f m a jo r
c o u n t r ie s w a n ted to f o l l o w o u r e x a m p le , it w ou ld b e n e c e s s a r y f o r
I M F o r s o m e o t h e r in t e r n a t io n a l in s titu tio n to ta k e o v e r a ll m o n e t a r y
g o ld s t o c k s , in e x c h a n g e f o r s o m e kind o f a u to m a tic d ra w in g r ig h t s .
W ith a ll o r m o s t o f th e w o r l d ’ s m o n e t a r y g o ld s t o c k lo c k e d up in the
I M F - - w h ich w o u ld n e it h e r b u y n o r s e ll - - the p r i c e o f n e w ly -m in e d
and d is h o a r d e d g o ld w o u ld p r o b a b ly d r o p w e ll b e lo w $35 . )
I f it s u b s e q u e n t ly d e v e lo p e d that w e c o u ld n ot m a in ta in the p a r it y of
th e d o lla r w ith o t h e r c u r r e n c i e s , w e w ou ld h a v e to le t the d o lla r
’ ’f lo a t , ” o r e ls e to a n n o u n ce a ch a n g e in its p a r it y . But w ith no g o ld
c o m m it m e n t , w e w o u ld n ’ t n e e d to f e e l g u ilty t o w a r d s a n y on e w h o w a s
h o ld in g d o lla r s b e c a u s e he th ou gh t th ey w e r e c o n v e r t ib le in to g o ld .
T h e in it ia l r e a c t io n c o u ld w e ll b e one of p a n ic , d o m e s t ic and i n t e r ­
n a t io n a l. F in a n c ia l m a r k e t s w ou ld p r o b a b ly go h a y w ir e . B ut a ft e r
a fe w m o n th s , p e o p le w o u ld s e e that it r e a l l y m a d e n o d if f e r e n c e , and
th at w e w e r e m u c h b e t t e r o f f in t e r m s o f b e in g f r e e to p u r s u e the
d o m e s t ic p o l i c i e s that a r e c o r r e c t f o r u s , w ith ou t w o r r y in g abou t g o ld .
T h is m e a n s that - - i f it w e r e to be d one in 1968 - - i t s h o u ld b e done
e a r l y in th e y e a r , n ot n e x t s u m m e r .




—se e d e r

4

P m n o t n e c e s s a r i l y a d v o c a t in g th is c o u r s e , But I think y ou sh ou ld
k n ow that t h e r e i s th is a lt e r n a t iv e - - one w h ich m o s t e c o n o m is t s
w o u ld p r o b a b ly f a v o r .
T h e r e is a ls o a n o th e r a lt e r n a t iv e to the d r a s t ic p r o g r a m that J o e F o w le r
p r o p o s e s . It w o u ld o m it the b o r d e r ta x a d ju s tm e n t and the t o u r is t tax,
and w o u ld k e e p the c a p it a l o u t flo w p r o g r a m s v o lu n t a r y . It w ou ld do a ll
the o th e r th in g s he p r o p o s e s . T h is o b v io u s ly w o u ld h a v e c o n s id e r a b ly
l e s s im p a c t on o u r b a la n c e o f p a y m e n t s . But it w o u ld m in im iz e any
d a n g e r o f r e t a lia t io n , o r o f to u c h in g o f f a c r i s i s . W e w o u ld then
t h r o w th e b a ll b a c k to the E u r o p e a n s , in m u c h the w a y J o e F o w le r
d id in h is G ra n a d a s p e e c h la s t y e a r :




M g a in s t th is b a c k g r o u n d , h ow sh o u ld the U n ited S ta tes r e a c t
A
b e y o n d in t e n s ify in g it s e x is t in g p r o g r a m ? S h ou ld w e tak e the
n a r r o w , n a t io n a lis t ic v ie w that in the in t e r e s t o f the U n ited S ta tes,
the U n ited S ta te s 1 a la n c e o f p a y m e n ts m u s t b e b r o u g h t in to
b
e q u ilib r iu m no m a t t e r w h at the c o s t to the F r e e W o r ld ?
nS h ou ld w e a tte m p t to s o lv e th is p r o b le m th ro u g h a r e d u c tio n
in o u r o v e r s e a s m i l i t a r y c o m m it m e n t s ?
M ou ld w e a tte m p t t o s o lv e i t b y s la s h in g o u r f o r e ig n
Sh
e c o n o m i c a s s is t a n c e p r o g r a m s ?
"S h o u ld w e a tte m p t to s o lv e it b y r e v e r s i n g the e n t ir e tre n d
o f o u r t r a d e p o l i c y and th e w o r l d ’ s tr a d e p o l i c y ?
"S h o u ld w e r e s t r i c t t r a v e l ?
"S h o u ld w e im p o s e m a n d a t o r y c o n t r o ls on c a p it a l f l o w s ?
"S h o u ld w e s o lv e it , in s h o r t , at the e x p e n s e o f the o th e r
im p o r t a n t , c o n s t r u c t iv e d e c is io n s that r e m a in to b e m a d e - - that
m u s t b e m a d e - - i n in t e r n a t io n a l e c o n o m ic a f f a ir s in 1 9 6 6 ?
S h ou ld w e s o lv e it at the r i s k o f u n r a v e llin g the c a r e f u l l y w o v e n
f a b r i c o f in t e r n a t io n a l c o o p e r a t io n that h a s s e r v e d us s o w e ll
d u r in g the la s t 20 y e a r s ?

5

"W e a ll k n ow that the U n ited S ta tes c o u ld , i f it d e c id e d
that it m u s t do s o , s o lv e th is p r o b le m a lo n e , but it c o u ld do
so o n ly at g r e a t c o s t to the e c o n o m i e s , the a s p ir a t io n s and,
in d e e d , the s a fe ty o f a ll the n a tio n s o f the F r e e W o r ld .
" I s th is the d ir e c t io n in w h ic h w e sh ou ld m o v e at the
c r o s s r o a d s in 1 9 6 6 ?
1!O th e r n a tio n s - - m a n y o f th e m r e p r e s e n t e d h e r e to d a y
h a v e a v it a l in t e r e s t n o t o n ly in w h e th e r the U n ited S tates
s o lv e s it s p a y m e n ts p r o b le m but in h ow w e s o lv e it ,
1!W e b e lie v e that w e s h o u ld and that w e s h a ll fin d the
s o lu t io n to th is p r o b le m w h e r e w e h a v e fou n d the s o lu tio n s
to s o m a n y o t h e r p r o b le m s d u r in g the la s t 20 y e a r s . T h at
i s , w e s h a ll fin d it in a c o m b in a t io n o f m e a s u r e s w h ic h w ill
b e c o n s is t e n t w ith the r e s p o n s ib le r o l e o f the U n ited S ta tes
as a g o o d p a r t n e r in in te r n a t io n a l fin a n c ia l c o o p e r a t io n . n
14.

T h e E u r o p e a n s m ig h t w e ll a g a in r e f u s e to c a t c h the b a ll. In that
c a s e , the w e a k e r p r o g r a m m ig h t n o t b e en ou g h to g e t us th r o u g h
1968. H o w e v e r , s ta r in g the a lt e r n a t iv e s in the f a c e , th ey m ig h t
c a t c h it th is t im e .

15.

It is c l e a r th at t h e r e a r e s e r io u s r is k s in w h a te v e r w e do o r d o n !t
d o . T h e s e r i s k s h a v e b e e n b u ild in g up e v e r s in c e 1959, but a r e
s t r o n g e r in 1968 than in any p r e v io u s y e a r . M an y o f th em a r e the
r e s u lt o f th in g s e n t ir e ly b e y o n d o u r c o n t r o l , and it is h a r d to s e e
h o w th ey c o u ld h a v e b e e n a v o id e d . L o o k in g b a c k , I s e e v e r y fe w
th in g s w e m ig h t h a v e d on e b e t t e r , e x c e p t , p e r h a p s , f o r the
p o l i t i c a l l y - i m p o s s i b l e ta x i n c r e a s e in 1966.




T H E SECRETARY OF T H E T R E A S U R Y
W A S H IN G T O N

DEC 2 -3 K 7

EYES ONLY F O R THE P R E S IDENT
M E M O R A N D U M F O R THE PRESI D E N T
Subject:

M a j o r Issues To Be R e s o l v e d in New
Balance of Payments P r o g r a m

A t t a c h e d y o u w i l l find a n o ther draft of m y proposed
letter to y o u recomm e n d i n g a n e w b a l a n c e of payments p r o ­
gram, r e v i s e d in th e light of the w e e k of discussions
since yo u r departure.
In a s e p arate envelope is a draft of the Treasury
Wh ite P a p e r w h i c h is the Report r e f e r r e d to in the letter.
It wil l serve as a supporting Brief for the program, as
wel l as a n a c c o u n t of past actions, a n d a n educational
document for i n t e r e s t e d members of Congress, the public
h e r e a n d abroad, a n d officials of other countries and
in t e r national organizations concerned, as wel l as our own
p e rsonnel i n the Exe c u t i v e D e partment h e r e a n d abro a d who
mus t sell, d e f e n d or neg o t i a t e the p r o p o s e d actions.
T h e m a j o r s u bstantive issues to be r e solved are:
1,

T o E x p a n d Our T r a d e Surplus (See S e c t i o n I of atta c h e d
H H F draft letter, pp. 9-12a)
Alternative A —

Ac t on some part of d i scrimination an d
negotiate on rem a i n d e r — see H H F letter
I, par. 4, pp„ 9, 10 a n d 11

T h e a n n o u n c e m e n t as part of the p a c k a g e (Dec. 29 or
Jan. 2) of (a) a legislative pr o p o s a l on the rebate of
U n i t e d S t ates exports of all or some substantial portion
of secondary, indirect a n d p r o p e r t y taxes an d a n eq u i v a ­
lent b o r d e r adj u s t m e n t tax on imports to offset partially




-

2 -

the v a r y i n g trading advantage of C o mmon Market countries
and (b) a n int e n t i o n to negotiate a h a r m o n i z a t i o n of the
rebate a n d b o r d e r taxes to remove the disadvantage and
d i scrimination a g a inst United States trade w h i c h will
still r e main ev e n after the U 0 S 0 legislative action.
Alternative B —

Negotiate on all b e fore announcing
proposal

T h e o m ission of an y legislative proposal in the
package but the statement that U. S, representatives
(Roth & Co.) w e r e initiating immediate discussions in
Bonn (and p e rhaps a f e w other capitals) to see if the
G e r m a n g o vernment w o u l d recommend to the Bundestag a
t e m porary w i t h h o l d i n g of a n e w a n d larger border tax
a d justment s c h eduled to go into effect J a n u a r y 1. If
this w e r e possible, w e w o uld s i multaneously begin d i s ­
cussions in G e neva (GATT) under A r t i c l e XXII of the
border tax problem.
2.

To Increase Current Income From External Investment and
Reduce Current O u t f l o w (See Section III)
(a) The level of the p r o g r a m on direct investment
Th e p r o g r a m proposal w o u l d call for a c t i o n assuring
$1 b i l l i o n of b e nefit to the balance of payments in 1968
as c o mpared to 1967 through r e d u c t i o n in the us e of o u t ­
flows a n d r e t a i n e d earnings a b r o a d for direct investment
in dev e l o p e d countries.
Sec r e t a r y T r o w b r i d g e w o u l d fix the target at a
lesser a m o u n t — approximately $800 m i l l i o n on the
g r ound that the p r o g r a m could not be successfully a d m i n ­
istered on a v o l u n t a r y basis at a n y h i g h e r level.
Mos t of you r other advisers b e l i e v e that the target
should b e at least $1 billion and that m a n d a t o r y controls
u n d e r the T r a d i n g W i t h the Enemy A c t should be invoked to
a ssu r e that result, be convincing he r e an d a b r o a d in the
score of determination, and make m o r e p a l a t a b l e the legis­
lation p r oposals for taxation of tourism, etc.




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Chairman A c k l e y has strong reservations on the
effect a n d desira b i l i t y of controls.
Secretary Fowler believes the target mu s t be
$1 billion, but has r e served judgment on the choice
of m e a n s (mandatory controls v. co n t i n u e d volun t a r y
program) „
T he draft letter does not address this issue,
felt y o u w o u l d w a n t the full o p tion on this point.
(b)

I

The inclusion in the proposal of a p r o g r a m to hold
down any further increases in 1968 of direct invest­
m e n t in less d e veloped countries abo v e the level of
1967 w h i c h showed a sharp increase. (See Part III)

A n a l ternative p r oposal w o u l d not put this area
u n d e r a n y p o sitive h o l d down but a s k for r e g ular reports
f r o m the 708 companies in the Commerce p r o g r a m so as to
ke e p some track on w h a t is happening.
(c)

T i g h t e n i n g of Federal Reserve P r o g r a m on Bank
Le nding A b r o a d

T h e r e is m o r e of a n open question, a n d less of an
issue on a t o u ghening of the Federal R e s erve Board p r o ­
g r a m on ban k lending abroad. The initial Federal Reserve
B o a r d p r o g r a m called for reducing the leeway to increase
t o tal ba n k lendings a b r o a d in the yea r 1968 fro m 109 per­
cent of the base date (December 31, 1964) to 105 percent.
T h e r e is agreement that this p e r c e n t a g e should be
r e d u c e d further.
In fact, the Federal Reserve B o ard on
D e c e m b e r 20 pr o p o s e d that it be r e d u c e d to 103 percent
w h i c h w o u l d leave only a small m a r g i n of increase ($100$200 million).
It has n o w been p r o p o s e d that, in v i e w
o f a tough f i r m p r o g r a m o n direct investment calling for
$1 b i l l i o n of b a l ance of payments b e nefits in 1968 over
1967, that th e Federal Reserve Board reduce the bank
l e n d i n g ceiling (see H H F letter III, 2, on page 18) to
a p e r c e n t a g e level that w o u l d not only eliminate any
l e e w a y for increased loans or a p o t ential drain, but




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also resu l t in $500 m i l l i o n of inflows as existing bank
loans a r e paid off an d the scale of re l e n d i n g to
W e s t e r n Europe for n o n-export credit is reduced.
Th i s m a t t e r is u n d e r active co n s i d e r a t i o n by the
Board*
(d)

T r e a t m e n t of the G o l d Cover Issue in the P r o g r a m

Thi s is not a substantive issue, but a m a t t e r of
p r o c e d u r e and public relations* Everyone is a g r e e d that
yo u m u s t seek a m o b i l i z a t i o n of our gold reserves beyond
the o l d gold cover a r rangement early in the year and
that a specific statement to that effect should be
in c l u d e d either in the b a lance of payments program, the
State of the Uni o n Message, or the Economic Message.
It is also agreed that the Tr e a s u r y W h i t e Paper
a n d m y letter to you should anti c i p a t e a c t i o n by the
Congress on the A m e n d m e n t to the IMF A r t i c l e s of A g r e e ­
m e n t (the Rio proposal) a n d a c t i o n on the go l d cover.
Th e onl y difference is o n e of shading -- w h e t h e r inclu­
sion of a specific and definitive a n n ouncement by y o u on
the g o l d cov e r should be one of the n u m b e r e d points in
y o u r statement.
One w a y of h a n d l i n g it w o u l d be a l o n g the lines of
p a ges 23, 24 and 25 of the draft H H F letter.

T h i s is a rou g h summary of the m a j o r substantive q u e s ­
tions to be resolved. Y o u will hav e r e ceived fr o m Mr. Califano
a m e m o r a n d u m on the d i scussion he l d at your request Friday
afternoon.
I h a v e not i n cluded a n y thing on the travel question
because e v e r y o n e is in a g r e e m e n t on the objective — to reduce
the t r avel d e ficit by one q u arter or b e t w e e n $500 and $600
million. T h e q u e s t i o n that remains is the details of the
p r o p o sal in w h i c h I do not think yo u should beco m e embroiled.




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For a f l a v o r of the range of re a c t i o n on these issues,
in a d d i t i o n to the Galifano m e m o r a n d u m on yesterday's m e e t ­
ing, I a m enc l o s i n g a copy of the m i nutes of the m e e t i n g of
the Cabinet Com m i t t e e on the Balance of Payments h e l d last
Thursday,,




!' ■ - . |1
■ > •i. -

t

>'v 'U %

Henry H„ Fowler


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102