The Continued Gold Drain

THE ECONOMY

One of the most pressing problems facing President Kennedy when he took office was the growing deficit in the U.S.'s international balance of payments. Since the deficit drains U.S. gold reserves, it threatens the stability of the dollar. By a variety of techniques, Kennedy cut the annual deficit from the $3.9 billion he inherited to $2.2 billion last year. But in the first half of 1963, the rate soared to $5.2 billion--and, to the Kennedy Administration, became one of the sorest of all subjects.

Last week New York's Governor Nelson Rockefeller hit the Administration smack on the sore spot. In a Labor Day statement, Rockefeller warned that the gold drain could lead to "worldwide financial collapse." It is getting worse because Kennedy's handling of the problem "has been characterized throughout by insufficient recommendations, tardy proposals, watering down of plans already advanced, and lack of firm follow-through." Rockefeller accused Kennedy of "timid tinkering," "temporizing" and "continued drift."

Failure of a Pledge. Dollars are flowing out of the U.S. said Rockefeller, "due to a failure to develop methods to support the economic development and defense of the free world without placing too great a burden on the balance of payments." Investment money is going abroad because of the "failure of the President to redeem his often-repeated 1960 campaign pledge to 'get this country moving again economically," and because U.S. interest rates are lower than some other countries.

Rockefeller offered several recommendations of his own to check the gold drain. He urged "an immediate federal tax cut to raise production efficiency, improving our ability to compete in world markets," coupled with "a clear goal of a balanced cash budget as soon as possible." He would soften the drain caused by foreign aid by making sure that aid "does not simply pour more dollars into nations which already have balance-of-payments surpluses" and by urging "our European allies to assume a larger share of the foreign-aid program."

A Bit Vague. Rockefeller also recommended "a vigorous and effective export drive," including "proper credit insurance" to protect U.S. exporters against unusual risks; "a greater effort to arrange offsets in connection with military expenditures overseas"; and "a more realistic monetary policy to bring our interest-rate structure more in line with other industrial countries, while providing the increasing quantity of money and credit necessary for domestic growth."

Some of the Rockefeller recommendations are similar to plans Kennedy has advocated but has not been able to achieve. Others seemed vague--Rockefeller did not, for example, say what sort of "offsets" to overseas military expenses or interest rates he had in mind.

But Georgia's ubiquitous Senator Russell suggested that the deficit might be eased by withdrawing more U.S. military personnel from overseas stations. He asked defense officials if this might not be feasible when the new C-141 transport planes, which can lift troops to Europe in eight hours, become available.

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