When Plus Is Minus

Can any enterprise show a deficit and a surplus at the same time? The U.S. Government seems to think it can. Reporting on the balance of payments last week, the Department of Commerce announced that on a "liquidity" basis (which includes the amount of dollars owed to all foreigners), the U.S. lost $7 billion in 1969. By the "official reserve transactions" yardstick (which includes only the amount owed to foreign central banks and world financial organizations) the nation gained $2.8 billion. Both deficit and surplus were records.

About $7 billion of the gap between the two measures represented dollars repatriated to this country by foreign branches of U.S. banks to help beat the credit squeeze. These funds count as part of the "liquidity" deficit because they will have to be paid back. Even so, the huge liquidity deficit did not cause the tremors on foreign exchange markets that lesser deficits did only a few years ago. Reason: the dollar is stronger now than it has been in many years, partly because the whole international monetary situation has become more stable. The U.S. gold stock rose last year 9%, to $11.9 billion, and the nation's total reserves are at the highest level since 1962.

Eugene A. Birnbaum, Chase Manhattan Bank economist and a veteran of the International Monetary Fund, was moved to question the relevance of balance of payments figures in determining whether Washington should continue restricting investment overseas. Said Birnbaum: "The way that the rest of the world regards the U.S. in a very broad economic and political context provides the true test for the dollar." The situation could change rapidly if foreigners lost confidence in the U.S. and suddenly started cashing in their dollars for U.S. bullion. But for now, the dollar is better than gold.

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