Golden Rue

In the network of U.S. military bases that reaches around the world, service morale was lower than a buck private's pay. It all had to do with the gold problem--and though few servicemen or their dependents understood much about the problem, and gold is something they see all too little of, they were convinced that they had unfairly been made its victims. Up to a point, they had a case.

1960 is the third straight year the U.S. has had a balance-of-payments deficit of more than $3 billion. One reason is that the U.S.'s vast military and foreign-aid commitments overseas far outweigh the current surplus of exports over imports. Result: some $1.2 billion--in gold--has been transferred to overseas creditors. In its efforts to stem the flow, the Eisenhow er Administration last November ordered that the number of service dependents overseas be cut from 484,000 to 200,000 within two years. Two weeks later, the Administration decreed that post exchanges and commissaries might no longer carry such non-U.S. goods as Leica cameras, Japanese yukata dolls and tax-free Scotch whisky.

Arguable Estimate. Such expedients, the Administration calculated, might jar a lot of lives, but would make a $500 million difference in the deficit. Even that estimate is arguable. For one thing, many servicemen are certain to bring their families overseas as "unauthorized dependents," spending U.S. dollars tourist-style. For another, a serviceman who can no longer go to the PX to buy, say, a Leica, can still get it at bargain rates in German stores. Either way, American dollars get spent.

What most irritates the overseas servicemen is the feeling that they are being made to pay for the U.S.'s international deficit when other, perhaps more effective, measures might have been taken. Administration critics say that extensive plans to halt the gold deficit should have been made at least a year ago. Instead, they argue, the Administration waited until too late, then rushed in with the moves against service spending for the simple reason that such moves could be made immediately, by executive decree requiring no legislative action.

Moving to Help. Some critics maintain that the gold flow could have been slowed to a trickle if the Treasury had asked major U.S. creditors overseas--e.g., government controlled central banks in friendly Europe--not to turn in their dollar credits for gold. Others argue that the problem might still solve itself: once the U.S. economy recovers, much of the gold that has been transferred to prosperous Europe as "hot money" for quick investment will flow right back to the U.S.

Some European governments have already moved to help the U.S. maintain the strength of the dollar. The Netherlands offered immediate repayment of $100 million in postwar debts; Britain's Bank of England moved to head off any further flow of hot money by cutting its discount rate from 5^% to 5%. And last week, with the aid of the International Monetary Fund, which sold $300 million of gold for U.S. dollars, the U.S. gained $267 million of gold--the first such weekly increase since November 1959.

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