The Repercussions

In stock markets already uncertain and jumpy, the Cuban crisis set off more reaction than any other international political event since the Korean war:

TUESDAY, OCT. 23: Day after Kennedy's speech, the Dow-Jones industrial average plummets 10.54 points, its biggest drop in four months. War-scare selling also batters stocks in London, Frankfurt, Tokyo, Johannesburg. Gold prices on the London market hit a record 1962 price of $35.175 per oz. as speculators in Asia and Europe rush to swap their currencies for bullion. Other speculators, anticipating shortages, push up the futures prices of sugar, grains, copper, rubber and cotton.

WEDNESDAY: The Euro-Syndicat index of 100 leading stocks in the six Common Market countries falls to a three-year low. But after the European markets close, Wall Street rallies on Khrushchev's "reassuring" letter to Bertrand Russell. With the ticker running up to 59 minutes late--the greatest delay since Blue Monday--6,700,000 shares change hands and the Dow-Jones jumps 18.62 points, three-quarters of it in the final half hour of trading. But with the reassuring news, commodity prices begin to fall: there now seems no reason for hoarding.

THURSDAY : Europe echoes Wall Street's temporary optimism; stock prices recover most of their losses, gold prices decline. But Swiss bankers note an inrush of flight capital, much of it from West Germany.

FRIDAY: The international news has become increasingly unclear, and trading on the New York Stock Exchange simmers down. The Dow-Jones average closes at 569.02, a loss of 4.27 for the week.

If all this seemed at times frenetic, it is natural that big events affect everything from the price of tea to the fortunes of corporations, and that the reaction would be most evident in markets that must try to outguess the future. At its annual meeting in Washington last week, the National Association of Business Economists was told by Presidential Adviser Walter Heller that "some quickening of the economic pulse is likely" because of Cuba.

But business leaders dared not contemplate the results of any serious deepening or broadening of the crisis. As Chase Manhattan Bank Economist William Butler put it: "If World War III breaks out, there is no business outlook." In the light of this week's soft talk from the Kremlin, that extreme possibility seemed unlikely indeed. But U.S. economic policymakers were prepared for the possibility that the Soviets might generate another crisis in Berlin, Viet Nam or elsewhere. Continuing crisis and higher tension--anywhere, at any time in the near-term future--would probably lead to the following effects on the U.S. economy:

Stock Markets: Stocks would plunge, as they did last week. But if Khrushchev lives up to his promise to ship his missiles back to Russia and then starts no other trouble, the market would be likely to rise on hopes of a general easing of tensions. Even with a rebound in stocks, however, Wall Street expects that there would be fewer investors. Burned by the year-long slump in shares, many small investors who are not yet out of the market are vowing to get out as soon as they "get even."

Consumer Spending: Department-store sales fell off early last week, but bigger Christmas spending than ever still seems in prospect. Retailers reckon that any new crisis would spur last-fling spending, while a settlement that seemed solid would bring sigh-of-relief spending.

Commodities: Existing large stockpiles would prevent major shortages even in event of another crisis (the U.S. is stuck with two-year hoards of wheat, nickel, etc.). But pinches could come in some specialty steels used in aerospace, compressed oxygen used in making steel, bauxite used for aluminum. Runaway inflation seems unlikely, but prices would stop falling in such glutted commodities as ferrous scrap, natural rubber, petroleum.

Government Controls: Because the U.S. has so much unused plant materials and manpower, the President probably would not--at least initially--invoke his power under the Defense Production Act to allocate resources and regulate production in a dangerous crisis. Decrees authorizing him to ration goods or freeze prices, rents and wages would probably be even slower to come.

Taxes: Chances of a tax cut would fall as fast as defense spending rises. Reasons: the budget could hardly weather the strain, and higher federal outlays would rev up the economy without a tax cut.

These are prospects that every businessman must always be alert for. While a new or continuing crisis would quicken the economy in some ways, it would bring no boom, simply because the U.S. now has so much excess productive capacity and surplus labor. But if, as seemed more likely this week, the crisis fever blows over for the time being, there might well be some short-term psychological "lift" for consumer and capital spending. The basic economic outlook would remain unchanged. Last week the top corporate planners who belong to the National Association of Business Economists made this prediction: a slight dip in the first half of 1963, and a recovery in the second half.

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