Nixon, McCracken & Woods on International monetary affairs and Gold window

1:38:22I said, Dr. McCracken's here.
1:38:23He's right there.
1:38:24Which way do you think I'm going to head out?
1:38:26I'll tell him.
1:38:27What time is it?
1:38:285.30, then.
1:38:29Sure.
1:38:30There's only one way.
1:38:30You just head over there.
1:38:31All right.
1:38:54I'm sure you are aware that we're having a little disturbance in the internet.
1:39:09Now, I have dictated a memorandum, or, well, it's not identified.
1:39:19where I just attempt to sketch out the landscape here.
1:39:25This is something where events, of course, are moving very fast, and they could overtake us tomorrow.
1:39:38I thought something like this might be helpful to you.
1:39:41It's a little long.
1:39:43It's about six pages long.
1:39:46Well, I'm sure you do.
1:39:51Now, what I would like to do, however, is to bring this over and give it to Steve or something like this, and not send it through the normal channel.
1:40:01Absolutely should have come to you.
1:40:03You just hand it over, you got it now.
1:40:06It's just about coming out of the typewriter now.
1:40:08No problem.
1:40:09Just bring it over and give it to, why don't you tell you what you do, just give it to Rose, my second heart, and she'll bring it in.
1:40:17Fine.
1:40:17That's the best way.
1:40:18You know, the thing is, it's important to keep this very closely held.
1:40:22I saw a very disturbing column by, I don't know, Paul Scott saying he
1:40:30We have questions.
1:40:55I have in mind, I know pretty much what we, I have pretty much in mind what to do, and the question is the timing that we must, we must not, we would like not to be forced to do something in a rather clear and happy way, to do it in a more deliberate way.
1:41:13Right.
1:41:13That's really what we've got to keep all everybody in.
1:41:16It's sort of a little guessing here as to what's going on, and I've just got to keep it very close to the vest, and get started chatting around about it.
1:41:25When we meet tomorrow, for example, that meeting I'm setting up to incur your request earlier, I just thought we ought to get the tree members of the council, and George, and just the four of us, that's about it.
1:41:41Have all of you just talked for an hour or so about the economy general?
1:41:46That's a good idea.
1:41:47So that I can get a view of this international monitor, and I think probably it's not a good subject for discussion at that meeting.
1:41:54I don't mind it being brought up mainly because I just don't want any leaks.
1:42:01Sure.
1:42:02This is the one area we can't have leaks in, don't you agree?
1:42:05Couldn't agree more.
1:42:08I know that whoever did this didn't do it the right way.
1:42:11I know that.
1:42:13But on the other hand, you must be terribly stupid because it's the one area where you know very well it designed to raise the perfect tunnel.
1:42:22Well, of course, the idea was...
1:42:23Your general feeling as I understand it is still because I'm just sort of like this kind of thinking because I've gone very far in my own thinking.
1:42:31Your general thinking is in terms of letting the dollar float, the gold window, right?
1:42:36That's correct.
1:42:37Those two things, not the price of gold.
1:42:40No, I wouldn't want to go that way.
1:42:42Plus a few other actions, right?
1:42:45Because I think...
1:42:47I have a few other actions.
1:42:54Yes, well, the question I keep asking myself is, where do we want to come out at the end of the tunnel?
1:43:00And, I mean, not just what do we do tomorrow if the Swiss get another half billion or something like that.
1:43:05Right.
1:43:05But where do we want to come out?
1:43:07Now, it seems to me where we want to come out is in a position where the dollar in the new sector is going to be, is going to have the strength which comes, if anything, from a little undervaluation.
1:43:25Or, in other words, it's a little overly strong in the foreign exchange market.
1:43:29Right.
1:43:30I think the first reason for this is that it seems to me it is absolutely essential if this country is to reassert its capability for international political leadership,
1:43:58To put it very bluntly, a weak dollar is just a ball and chain on you when you come into the non-economic level.
1:44:09Now, secondly, of course, it's important that we come out in a world that generally has a liberal orientation on trade policy.
1:44:20We don't want some... Well, what I mean is we don't want a...
1:44:24In other words, we don't want to trip off and enter nice and light on the floor here.
1:44:27That I can agree with.
1:44:30Well, Paul has got a memorandum.
1:44:32He'll be saying hello over here late this afternoon.
1:44:35Late this afternoon, or what do you call it, late this afternoon?
1:44:39Or tomorrow, 30 minutes.
1:44:40Huh?
1:44:40About 30 minutes.
1:44:41Yeah, you bring it in to me.
1:44:42It's a private memorandum on a matter of the matter.
1:44:46Just like to do the stuff.
1:44:50So I'll bring it to you.
1:44:51Yeah, yeah.
1:44:52I'll bring it to you.
1:45:00Well, these are the parameters, as I see it, of where we ought to come out.
1:45:09We could go into this in great detail, I think.
1:45:13But it just occurred to me that for something like this, it might be useful...
1:45:17To you, if you just had something that kind of laid out the landscape, I don't suggest a recipe.
1:45:23Do you think this represents your thinking, or yours and Stein's?
1:45:30I think in general it represents our thinking, except that of course Ezra has just come on board today, so he hasn't had time to speak.
1:45:38How can I understand that?
1:45:41Let me ask you a couple of things over here.
1:46:10Did the retail sales figure come on yet?
1:46:13Not yet.
1:46:14Is it a little late?
1:46:16Not yet.
1:46:17I dare say I may have it now.
1:46:18I haven't been in the office or recently.
1:46:20I'm just curious.
1:46:22I think they may be down slightly from June, but not by any consequence.
1:46:28That's still substantially above last year.
1:46:32Substantially above last year, I would guess...
1:46:37at an annual rate from January, 12-15% still.
1:46:40That's a pretty strong gain.
1:46:45It's a curious thing, isn't it?
1:46:48Retail still holding up so much, despite all the bearish consumer sentiment polls.
1:46:55As a confident statement, you know, that consumers are sitting on their hands and spending.
1:46:59What does it mean, period?
1:47:02That shows you that that measure, well, somebody said in one of his studies of it that
1:47:07Some of you or somebody else read a piece here that said that the consumer sentiment do not always predict what consumers do.
1:47:21We are just finishing.
1:47:22I asked one of our staff people to look carefully at that issue.
1:47:29In other words, to analyze mathematically.
1:47:33the relationship between these swings in measures of sentiment and swings in actual buying.
1:47:40Oh.
1:47:41And I don't know just how.
1:47:43In fact, that ought to be done by the end of the day.
1:47:48My guess is it'll show some relationship, but not a very precise one, and not a very dependable one.
1:47:58So, this is... Money supply?
1:48:04Oh, I'll talk about all these things tomorrow, but I just want to get a few of my... Money supply is...
1:48:08Pretty heavy, isn't it?
1:48:10Pretty heavy rate of increase.
1:48:11Yeah, you have really not much to complain about there.
1:48:15Not a bit.
1:48:17Not a bit.
1:48:18The Federal Reserve is concerned that it's going up so much.
1:48:21I'm not...
1:48:22I'm not unhappy about it.
1:48:24Yeah, let it go.
1:48:25Let it go.
1:48:25It'll help us later on.
1:48:27Get off it.
1:48:28If money supply had a delayed reaction in February... Six to twelve months.
1:48:32Really?
1:48:33Wow.
1:48:34Then we ought to really get a wallet.
1:48:39And this is why, of course, with something like this you've got to get going early, you know.
1:48:44I mean, it's why with monetary policy you want to make your changes well ahead of when you want to see a change.
1:48:52Like now.
1:48:52Like now.
1:48:53So money supply is moving along pretty well.
1:48:59Housing is looking fairly good, and I think we'll hold up pretty well with the new money.
1:49:04With the subsidies?
1:49:05With the subsidies.
1:49:07Well, that was a choice.
1:49:09But you know, the thing is, Paul, as I said, if we're going to spend $200 million on a $150,000 rubbish job, why not $600 million or $800 million in subsidized housing?
1:49:22Sure.
1:49:23Which way are you going to do it?
1:49:26Sure.
1:49:27Well, I suggested, in terms of technical economics, I suggested going up on the interest rate.
1:49:34But I was not unhappy with the... Oh, no.
1:49:36Oh, it's a close choice.
1:49:38It's an integral of the interest rate, because it is what it used to be.
1:49:42But I think right now, and it's certainly presently, people about them as bad.
1:49:50The other thing that's curious is...
1:49:55Other retail sales.
1:49:55You know, they had a thing, which is probably a conservative check set up, in a sense, the way you go around the country.
1:50:02I've been in the last two weeks in Ohio, Iowa, New Hampshire, Maine, and all of these are, that's a pretty good cross-section of east to the north, north-east, and then west.
1:50:16And this is the...
1:50:19I was very enthusiastic.
1:50:20That was a good crowd.
1:50:22Those people are as much the size of the crowd.
1:50:26No, I didn't realize it.
1:50:29They're going to have a job.
1:50:31They have their problems.
1:50:34They have their problems.
1:50:35We know that.
1:50:36We know that.
1:50:44Indeed, my brother and his wife were in the crowd or not.
1:50:52Well, I saw them out in the audience.
1:50:54Oh, and it was a very friendly audience.
1:50:56Yes, yes.
1:50:57Yes, and they were, but I had the...
1:51:11The sort of words I report then on sentiment.
1:51:15It was a very friendly group.
1:51:19The capital goods area is very soft.
1:51:28There we've got trouble.
1:51:34It hasn't collapsed.
1:51:36It's done worse in other times, but we just can't get any life in that.
1:51:42That's where the investment tax credit would help.
1:51:44It would help.
1:51:45No doubt about that.
1:51:47That's why people talk about it.
1:51:48That's why the businessmen talk about it.
1:51:51That's right.
1:51:52Yes, if we were to move, I think we ought to have that on our list.
1:51:58And vast appreciation.
1:52:00Well, that is vast appreciation.
1:52:02Yes, that means we would have done a lot.
1:52:05That means we would have done a lot for capital goods, because...
1:52:09With accelerated depreciation, you see that's in magnitude about half, about half of the investment tax credit, if we were now to have the investment tax credit also.
1:52:20Are we going on accelerated depreciation?
1:52:26Yes, yes.
1:52:28Although the litigation and that sort of thing, I don't think many businessmen are yet putting that into their plans.
1:52:33I think that's one of our problems.
1:52:36But that error will clear.
1:52:40No, that was a good point you made in your press conference.
1:52:45No doubt about it.
1:52:46But the plan and the magnitude, you know.
1:52:49Were you surprised that the...
1:53:07I find it didn't go up more than it did in the video.
1:53:11I mean, it didn't.
1:53:12It was probably, what really happened is that June was probably 5.8 also.
1:53:18High center, in fact, that was taken earlier in the month.
1:53:21Right, right.
1:53:23July is probably a pretty accurate figure that you've entered now.
1:53:27Yes, and particularly if you take June and July together.
1:53:30Nobody says there's an aberration on July today.
1:53:33No.
1:53:34I don't know.
1:53:35No, I don't.
1:53:36You can't be sure.
1:53:37But if June had been that much of an aberration, the June and July snapback ought to have been more.
1:53:46And my only evaluation is that June and July together pretty clearly show that unemployment, which was a little above 6% in the early part of the year, is now as edged downward.
1:53:59It's a little below.
1:54:015.8, 5.7, 5.8, 5.75, let's say.
1:54:02Yeah, and be unsure.
1:54:04Yeah.
1:54:06Now, employment, of course, is not, it's still sticky.
1:54:11We're not getting the gains there.
1:54:13It would be good to see.
1:54:15Well, I won't take any more of your time.
1:54:17Sorry.
1:54:17I wanted to... We have a plan that tomorrow we'll go through this whole ball wax.
1:54:23All right.
1:54:24And if we can bring up the international, if you want to accept it, I'm just...
1:54:29I think about it as a
1:54:31I don't say anything about it myself, but I'm petrified at having stories get out in a year, meeting on that subject.
1:54:38You know what I mean?
1:54:40We're never even talking about it, because I don't want any more leaks on it.
1:54:48No.
1:54:49Well, I'll bring this over then.
1:54:50You see, a very good time, Paul, to do anything you want to do, is...
1:54:58In terms of the international monitoring.
1:55:04The question, of course, is whether you can wait that long.
1:55:07I know.
1:55:08We may be forced, but then we might be panicked.
1:55:12We might appear to be panicked most of the time.
1:55:18Now, of course, one possibility would be if this thing develops the characteristics of a run on the bank, which it could.
1:55:25It could beat them off.
1:55:28Just close the gold window?
1:55:29Close the gold window, let the dollar float, and let this be the pressure on the rest of the world to get together and develop some kind of coordinated plan.
1:55:43I cannot believe myself, and I'm not sure that this is true.
1:55:46I know Arthur has this idea that five major countries sit down and he can talk nothing over it.
1:55:54I just think that we can't count it on the French, particularly, to make it difficult for us.
1:56:02They play the game.
1:56:04And the French, if they do, we were going to talk about it, we were concerned about it, they might just go up and call in the chips.
1:56:12The Germans will play the game.
1:56:13The British will show they mean like sure that politically.
1:56:16It's the French.
1:56:17Politically, we don't know what's the damn thing.
1:56:19And we don't know them.
1:56:21And consequently, they'll play a cold turkey game.
1:56:24I think they will.
1:56:26So the Japanese know?
1:56:29Well, they've got to be watch out.
1:56:32Yes, they probably, the Japanese probably could be persuaded to go along, but I don't think there's any, I think all you could accomplish is that later on we could say, well, we tried.
1:56:49But to be able to persuade them to make the
1:56:54Themselves to take the actions of the magnitude which would be necessary.
1:56:59Probability there is very low.
1:57:03Very low.
1:57:06The key thing, the key question we have, of course, is if this thing just really starts to come unzipped, then what do we do?
1:57:16Right now?
1:57:17Tomorrow?
1:57:19Tomorrow?
1:57:20Probably don't have much alternative.
1:57:24I would think we would not have much old currency.
1:57:26No, of course not.
1:57:28And then... Because I would not... Mostly the gold window really makes the dollars look nice.
1:57:37That's what it is.
1:57:39Because then the only way a holder of dollars can get out of dollars is to sell them for another currency.
1:57:49So how much did that fellow pull in to pay?
1:57:51Now we...
1:57:52We pay it by then at least the fiction of being willing to buy some gold.
1:57:58But I would not, I think we would be unwise to let our gold stock run down too much more.
1:58:03I agree.
1:58:04But we've got to be ready to move.
1:58:07I just want to move a little more deliberately.
1:58:12I'm prepared.
1:58:13I've got some other things in mind.
1:58:16I don't want to just do this alone.
1:58:19Sure.
1:58:19I'll send it in.
1:58:20That's it.
1:58:20Thank you.
1:58:24But I don't want to talk about that anymore.
1:58:25Okay, bye.
1:58:37I think we ought to develop some kind of an overt action there.
1:59:07I think it makes people feel better.
1:59:10It might also do a little good.
1:59:13I think it might do a little good, but also if our policies were working, it would be creditworthy.
1:59:22Well, that's true.
1:59:23And there is so much sentiment.
1:59:26The scheme is pretty hard.
1:59:28The scheme is hard.
1:59:31One reason I wanted, I was trying to see the way that
1:59:53I've developed one or two variants of this old abuse of power idea.
2:00:01I don't like that approach, but I agree with it.
2:00:23I agree with it, except that it's a sort of an idle gesture that this man conquers.
2:00:31Well, that's the problem.
2:00:32This, and frankly, I guess we were developing it partly with that in mind.
2:00:37In other words, what could we do to bat the ball back into their court?
2:00:42Now I have a new variant of that, which I think I like a little better.
2:00:48Instinctively, I believe in a free gun, so I like it.
2:00:54Tell me this, uh, on the way to pricing, wouldn't you really have to have a freeze first to make it work?
2:01:02Uh, this is, uh, I saw something I ran into that a second ago.
2:01:06I, I am inclined to think that if you drive a freeze for a little while, you might have a freeze shot, and then back away with this kind of, uh, you know, a backstop.
2:01:17And this would be the second step?
2:01:18Second step.
2:01:23Just a little later, there'll be no doubt about it.
2:01:26Well, that's good.
2:01:28Yeah, well, all right.
2:01:29All right.
2:01:30We'll see you tomorrow at 4 o'clock.
2:01:31All right.
2:01:34We'll talk to her at the other call.
2:01:35Just do it.
2:01:35We just want to get there and kind of refresh the economy.
2:01:38All right.
2:01:38We'll see how things are going.
2:01:40Okay?
2:01:41All right.
2:01:41All right.

Nixon, McCracken & Woods on International monetary affairs and Gold window

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Also recorded on August 9, 1971

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