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NotN That the Do/lar
ls Devalued.
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T
WICE IN
14 months, the U. S.
government has been forced
to take emergency action to
safeguard the dollar. And, as we
rush to press, a new crisis over the
dollar has developed on the Euro–
pean money markets.
The new crisis carne less than one
month after the dramatic move of
February 12 when West Germany
and other European nations won
a clear economic victory.
"It's the weak dollar that's the
problem, not our strong mark." said
the West Germans, in effect. To be
sure, Bono patd a heavy price in
February. After devaluation, the
German borde of U. S. dollars was
suddenly worth lO% less. But as a
result of Bonn's defense of the
mark,
Germany's exports will cost more
only in the United States and those
countries realigrung with the de–
flated dollar. If the West Germans
had revalued the
mark
upward
instead, their goods would have cost
more worldwide.
How Permanent?
Did the act10n the U.S. was
forced to take m February so1ve the
world's monetary
ills?
Not at all.
Prestdent N ixon gave the answer
when he said the devaluation "is at
best only a temporary solution to
the problem." And temporary in–
deed it was - for
in
less than one
month the leading monetary nations
were forced to pursue a new
common action to safeguard theír
currencies.
Jeffrey Bucher, governor of the
U. S. Federal R eserve Board,
shrewdly observed: "Devaluation is
PLAIN TRUTH April
1973
just like an aspirin -
it
takes care of
the temperature for a while."
But not the cause of the fever!
In fact, devaluation could have
even less etfect than hoped for on
the immediate fever that triggered
the dollar crisis - America's balance
of trade deficit.
The future of the U. S. balance of
trade is not promismg. The United
States is hemorrhagmg from an un–
checked outflow of dollars. Many
Americans are buymg imports re–
gardless of price and are traveling
abroad in record numbers. The
United States is becoming increas–
ingly dependent on foretgn oil.
Deep barriers against U . S. exports
still remain in Europe and espe–
cially Japan.
Devaluation of the dollar, how–
ever, does open the way to a much
tougher American trade stance. Mr.
Nixon has stressed that America's
next monetary move will be to re–
duce the foreign restrictions on
American goods abroad.
Goods which the United States
can produce cbeaply (foodstuffs are
the prime example) are still, in
many cases, walled out of Europe
and Japan by import restrictions.
Tben tbere is the Congressional
threat of higher tariffs and quotas.
Since the jobs of many European
and Asían workers depend on ex–
ports to America, such a threat
could be a powerful negotiating
weapon.
All over Europe, Canada, and Ja–
pan, industries that sell heavily to
the U. S. will be closely watching
coming battles
in
the U. S. Congress
over tariffs and quotas. The threat
of legislating stern protectionist
measures has never been higher.
The buds of a world trade battle
have already sprouted!
During the February crisis, the
West German Bundesbank had to
create about
eighteen billion
new
Deutschmarks ír1 order to buy up an
influx of $6,400,000,000 pre-deval–
uation dollars. Most of those marks
have contír1ued to "float around"
West Germany, bidding up prices.
America's inflation rate, lowest
now among the mdustrial powers,
will
also
ibtensify. The price of im–
ports mto the U. S. has gone up. But
U. S goods soid a
t
home. facing less
competition, wiJI have a tendency to
rise in pnce.
Confidence Lacking
Most importantly, devaluation,
while it no longer carries the stigma
it once did, still does not inspire
confidence
in
the currency of the na–
tion taking the cut. To most Euro–
pean moneymen, the latest crisis
only confirms the belief that the
United States cannot effectively
manage its financia! affairs. Even an
"austere" American federal budget
of 268 billion dollars will spill ten
billion dollars in red
ink
in
the up–
coming fiscal year.
The illness of American economic
profligacy, combined with protec–
tionism on the part ofits major trad–
ing partners, won't be cured by a
simple devaluation. Look for much
rougher weather ahead on the world
monetary front. Storm clouds are
certain to gather again.
o
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