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This central problem. in fact, was
not even an official ítem on the
agenda. The Americans, accused by
their partners of treating the sick
dollar with "benign neglect" for
many months, had come to Bonn
determined to play down the prob–
lems of the dollar. The American
view prevailed that the Bonn meet–
ing should deal only with trade im–
balances and how to stimulate
world economic growth.
Within two or three days of the
summit's conclusion the foreign ex–
change markets went wild again, as
money managers unloaded hun–
dreds of millions of unwanted sur–
plus dollars (there are over 500
billion so-called "stateless" dollars
outside U.S. boundaries and thus
outside of etfective U.S. control) in
search of stronger currencies such as
the Japanese yen, the Swiss franc,
and the West German mark.
Why the Dollar ls Slck
U.S. currency inspires no confidence
today largely because there are
many more dollars in foreign banks
than are needed or wanted. More–
over, the supply increases every year
.as the United States continues to
run up both huge federal deficits
and balance-of-trade losses.
Prospects for a solution to the dol–
lar glut seem remote. America's rec–
ord balance-of-trade loss of $26.7
billion for 1977 is certain to be
topped this year.
America's trade partners are an–
gered at Washington's all-too-obvi–
ous strategy of letting the dollar
drop still fur ther in the hope that 1)
American exports can obtain a com–
petitive edge worldwide, and 2) im–
ports to the U.S. wi ll decrease
because they will become too ex–
pensive.
This deliberate debasement of the
dollar's worth not only doesn't work
(infiation inside the U.S. robs U.S.
manufacturers of their supposed ad–
vantage over imports), but it hurts
everybody, not just Americans.
Worst of a ll, it gives a clear message
to others that the U.S. either doesn't
know how or doesn't want to man–
age its economy in such a way as to
give the dollar any lasting value.
Don't Americans realize, ask the
6
Europeans and the Japanese. that
the dollar serves not only as Amer–
ica's medium of monetary ex–
change, but other countries also use
the dallar and have a vested interest
in the maintenance of its value?
Too Much of a Good Thlng
Ever since the end of World War 11
the dollar has played a role most
Americans have only a scant knowl–
edge of:
It
acts as the international
"reserve currency"- meaning that
other countries use U.S. dollars as
the store of wealth that backs the ir
own currencies. These dollars are
used, furthermore, to settle debts in
international trade. In fact, over
two-thirds of international trade is
transacted in dollars.
For a considerable period, as long
as the dollar was "as good as gold"
and international trade continued to
boom, foreign countries and their
central banks were willing-indeed
eager- to hold growing supplies of
greenbacks. A steady, but manage–
able, deficit in America's balance of
payments ensured access to the cov–
eted currency of the world's Iargest
economic power.
The fiexibility of the dollar as op–
posed to a rather stable world sup–
ply of gold, which then carried a
fixed price of only $35 an ounce,
helped fuel the great worldwide eco–
nomic expansion period of the
1960s.
Despite this rapid expansion of
world trade, the United States gov–
ernment was held to a certain
amount of interna! monetary dis–
c ipline by virtue of the dollar's con–
vertibility into gold. In other words,
U.S. presses could not go wild print–
ing dollars since foreign central
banks could exchange excess paper
for the gold in Fort Knox.
Shutting the Gold Wlndow
However, in 1970, when the United
States began t o se ri o usly live
beyond its means in foreign trade,
confidence in the dollar slackened.
Foreign central banks began a run
on the U.S. gold hoard. The U.S.
solution to the problem was not to
put its own house in order (perhaps
by sutfering a politically undesirable
economic "adjustment," or reces-
sion), but to slam the "gold win–
dow" shut in 1971 . No longer was
the dollar convertible to gold.
More than a year Iater even the
attempt to maintain fixed exchange
rates-the key feature of the Bretton
Woods agreement of 1944- was
abandoned. Since 1973 currency val–
ues have been "ftoating" on the mar–
ket, at times violently, and the value
of the dollar has steadily eroded.
Still, up until now there has been no
substi tute for the dollar as the world's
leading reserve currency. (British
sterling once played a major reserve
role, but the decline ofBritain's econ–
omy no longer allows this role.) With
the gold window shut and restraints
upon the government's overspending
neutralized, the United States has
been able to take undue advantage of
the privileged position the dollar has
enjoyed. The U.S. has been able to
pile deficit upon deficit and literally
leave its trade partners holding a
larger mountain of cheapening dol–
lars.
Cheatlng Our Creditors
America is finally beginning to pay
a penalty for its years of profiigacy.
Yet the U.S. federal government
continues to piJe up deficits every
year- even in good years.
Congress, for example, has just
raised the " temporary" ceiling on
the national debt to $798 billion.
Deficit spending has doubled the
national debt in the past ten years.
If spending trends continue, this
mountainous debt could reach $ 1
trillion in the early 1980s.
Writing in the August 1978 issue
of
Atlantic Monthly,
author Martín
Mayer, in an article entitled "The
In credib l e Shrinki ng Dollar,"
noted: "Infiation in America not
only disrupts and demoralizes our
own society but also in [Winston]
Churchill's terms, 'cheats our credi–
tors.' The nations that hold dollars
as their reserves are entitled to our
best etforts to maintain the value of
those dollars by restricting both our
domestic budget deficit and our bal–
ance ofpayments deficit."
Continues Mayer: " Insisting on
our power to print the world's
money at a time when the world
(Continued on page 42)
The
PLAIN TRUTH October-November 1978
l.
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