Fighting the Flow

Gold still colored the decisions of governments from Paris to the Pedernales. Largely because of the French decision two weeks ago to cash in more of its dollars for U.S. gold, the U.S. gold supply fell last week by $200 million to a total of $15.2 billion -- a bigger drop than occurred in all of 1964.

Early figures also indicate that the U.S. payments deficit in the fourth quarter jumped to between $1.2 billion and $1.5 billion, roughly as high as it was for the first three quarters combined, thus putting into foreign hands even more money that is redeemable for gold. Though the deficit fell from $3.3 billion in 1963 to some $2.65 billion in 1964, the new figures were much higher than Washington had expected.

President Johnson's request for the smallest foreign aid budget ever -- $3.38 billion -- was clearly influenced by the necessity of stemming the U.S. gold outflow and payments deficit. The Government planned several other measures to narrow the payments gap. The Treasury's new Under Secretary, Fred Deming, said that his department might place a tax on U.S. bank loans abroad, which amounted to between $2 billion and $2.5 billion last year. The Treasury will also begin to sell an additional $100 million weekly in short-term securities, offering higher interest rates to attract buyers; by thus edging up interest rates, it hopes to keep at home more of the money that would ordinarily go abroad.

Finally markets around the world were only slightly steadied by the U.S.'s moves. In London, sterling rallied, then fell again. Gold prices continued to fluctuate throughout Europe, though they eased off from their two-year highs after the U.S. Treasury declared that the dollar would not be devalued. French Finance Minister Giscard d'Estaing, the architect of France's mischievous monetary dealings, also tried to make some soothing statements. He telephoned a popular French radio question-and-answer program to declare "as a private citizen" that France's conversion of dollars had been routine. He did, however, concede that the action had "political effects," a remark that ranks as the year's understatement to date.

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