Nixon & McCracken on Economic Policy and Currency Exchange Rates

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No, that's all right.

Well, at that time, of course, we were tied up.

Well, this will, I just have to, this will take just five minutes.

I thought I wanted to make one comment in regard to the international aspect of our program.

I think on the whole, it seems to me it's going about as well as our domestic program.

In other words, closing the gold window, cutting currencies.

But I think this is... And the importer charges.

And the importer charges.

I think this is all working out very well.

As I see our basic long-run requirement, I think it's... One of our problems is going to be to achieve the kind of adjustment in exchange rates which will equilibrate cost-price levels, you know, in the United States and the rest of the world.

And...

One thing I think we ought to keep our minds open about privately, not publicly, is the possibility that at some stage we might want to, as a part of a total package, take some action which would mean a modest rise in the price of gold and, of course, devaluation of the dollar.

Now, our posture publicly, of course, is that's out of the question.

Price of gold in our literature after the speech, remember, we said there's some adjustment, but not in the price of gold.

The basic problem is this, that if you look back over the history of changes in exchange rates, it's a lot easier for countries to devalue than to appreciate.

If the change in the exchange rates that we get is limited by the appreciations or revaluations that we can get others to do, it may be less than if we are willing to move some ourselves.

Now, as I say, this is not the kind of a thing that one would breathe publicly.

And as a matter of fact, I didn't even want to put it on a piece of paper.

something very interesting came out of the breakfast meeting this morning that we had with the Japanese.

And that is that in spite of their public posture, which is very tough on exchange rate changes, Mr. Fukuda privately indicated that in a multilateral package, they might go, say, 13%.

Now, they have never indicated that publicly.

But this might include, say, a 5% devaluation on our part at some point.

Well, I don't want to get into the details of it here, but the crux of our problem here, I think, is going to be to come out with, well, a large enough change so that our cost levels then get back in balance with those of the rest of the world

And I'm sure that if we were willing to move, we can get a larger total exchange rate adjustment than if we aren't.

I see.

Now, this is importantly a question of timing.

I don't think this is the time to...

Okay, incidentally, when I talked to Arthur and John before we go off, Arthur raised the point about what about the import surcharge?

to get rid of it and so forth.

And we are going to hang awfully tight on that.

We have to from a political standpoint in the United States.

The State Department, of course, would have us retreated away quickly, but not in your life.

So we've got to keep their call for at least a time, I guess, until

We have something which sells the people as being a very adequate substitute for it.

Do you see what I mean?

Oh, absolutely.

Well, I think this is essential.

Of course, logically, the alternative is that much of a change in the exchange rate.

That is, in other words, an import surcharge of 10%.

or a change in the exchange rate by 10% would have the same effect on the price of a Japanese automobile coming in.

I see.

And you see, this is the leverage that the import surcharge gives us.

One negative is the textile problem.

Yeah.

You still haven't come on that?

No.

I'm afraid we may have to look at the data.

Well, I would...

I would think that...

that if the textiles had been begotten behind us, I would hope that it would not necessarily alter greatly the overall changes and exchanges and that sort of thing.

Indeed, they really ought to get with it and get that doggone thing sealed down for their own good.

I told him, I said, I put a code here, he was talking about how much they agreed to double down.

I said, you know, there's a difference for your election.

I said, then you can do the textiles with it.

Well, of course.

It's a smaller part of their package, too, isn't it?

Oh, yes.

Now... Oh, sure.

Oh, sure.

Now, this...

I don't know whether this is probably not a question that I should pose to you.

I have spent a fair amount of time in Japan and have a good many friends over there.

I've had an inquiry from Mr...

Anzai through an emissary came over.

The usual Japanese way, you know.

As to whether sometime, perhaps in mid-October, I would be willing to go over and perhaps speak at a Japanese-American society or something like this.

Is this the kind of thing which is consistent with high policy?

Or should I pick up with Bill Rogers?

Oh, it's...

The idea is consistent with the difficulty we have here.

If you talk about mid-October, that's when we may be doing something on textiles.

It wouldn't be a very healthy time to go back.

This would have to be worked out.

Timing could be at a time when we could... We want to...

You've got to play a very hard game with the Japanese and you've got to get along with them.

That's what they have to do too.

They know that.

Hell, they talk about what they're going to do with the Chinese and all the rest of it.

They have no hope in the world without us.

No, that's right.

They need us.

And they understand us.

And we need them.

That's right.

But that game's got to start to be played in both ways.

Well, let's...

Professor Nishiyama, who really was sort of the emissary professor there, whom I've known for 15 years.

He was just in my office now, and he made exactly this point.

He says not the slightest possibility of a strong government in Japan unless it has close links with the Americans.

What I think you should tell them on that is that you can say that I'm right.

favor on this.

We'd like to keep the data rather loose and timeline until we see what evolves.

We're going to be in the middle of the wage price then and all that.

On the wage price, I think there wasn't a mention here until the other was just thought of a little at the last there.

It's very intriguing to me as to have that freeze followed by a thaw

I wish we would have that, and I wish John and the rest would consider that possibility.

Meaning that in certain areas, just in the fact that in certain areas we can keep it on.

You know, the whole thing, all of us give people the impression that we mean business, and the hope that it's going to work.

You know, another thing that I think we have in mind, that we should have going for it,

Let us assume that we haven't had this at all.

We still have enough confidence, I guess, in our economic policies that we thought there was some deceleration and inflation, except for the wholesale price thing I saw was not as good as it is now.

But nevertheless, CPI was gradually going down.

We admitted that, right?

I have to say, it was less than five and a half, right?

That's right.

If that is true, then we may get a double bounce on this whole thing.

That's right.

Well, I think the... We might... Now, of course, during this transition, as we come out of the freeze and into whatever it is that follows, we're going to get a little notch here.

We've suppressed a lot of things.

But the idea of...

thawing out sector by sector or industry by industry as we work out something is possible.

And we haven't.

There is a problem that even if this is the plan we want for phase two and here's the freeze, we haven't worked out all the details as to how you get from one to the other.

One way would be to thaw it out.

Yeah.

Well, let's have that in mind.

And also, it's a very significant commodity.

Right.

Remember in the minutes I said about 75% of this is cosmetics.

Appearance of strong leadership, caring, fighting inflation.

And we all know, we all know that lacking total control of inflation is here to stay.

But beyond that, it's a

making the U.N. true, cutting the budget, monetary strength, and the rest of it, if it has not been effective at all in decelerating the exchange inflation, then it's going to make a lot of people have to reconsider all their economic theories.

See, if you take the trend from 65 to 69, the rising trend in the rate of inflation, and you project that to where we are now,

If those actions had not been taken, we would be looking at 8 to 10% per year rates of inflation.

Is that right?

I see.

So really, we've done some... Oh, no question about it.

No question about it.

Yeah.

All right.

Well, like the battle.

That's a good group in there, isn't it?

It has Weber and Lincoln and all these people are just, and all the cannon officers work well.

And the cannon officers come.

They don't send us.

Good.

That's good for everybody.

All right.

Thank you very much.

Well, it seems to me that

You know, we talked about that business of your, what you would do.

I think you should keep your, if you would, I'd like you to keep very loose with regard to, you know, leaving in February.

Oh, because we may be, if we're in the middle of a transition or something like that,

You can't have a, I think you have a shift that will indicate something.

So just, could you do that?

Keep a little, just, I mean, after all, it is a, a lot has happened since we talked about that.

And I think that people understand that.

Thank you.

Actually, of course, I was thinking about the energy there.

I know you were.

I know, because we don't have the necessary budget.

But I think you ought to keep it loose.

Because maybe we can't do that, you know.

Maybe we ought to think, you see my point?

We're all working in a good scheme, and boom, off we go.

Okay?

Nixon & McCracken on Economic Policy and Currency Exchange Rates

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Nixon Library Finding Aid

Also recorded on September 11, 1971

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