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- | Welcome once again as MIT Professor, | 0:02 |
Paul Samuelson discusses the current economic scene. | 0:04 | |
This biweekly report is produced | 0:07 | |
by Instructional Dynamics Incorporated | 0:09 | |
and was recorded August 14th, 1972. | 0:11 | |
- | Today I'd like to talk about | 0:15 |
the international situation as far as the dollar, | 0:17 | |
the floating of the pound, | 0:22 | |
the run that has been taking place on the dollar. | 0:23 | |
But first, since we are in the middle now | 0:28 | |
of the third quarter, I might mention | 0:30 | |
that the full impact | 0:34 | |
of the national income account revisions | 0:36 | |
by the Department of Commerce in July | 0:41 | |
is still not yet realized among the forecasters. | 0:44 | |
Once the forecasters have learned | 0:51 | |
that the fourth quarter of last year | 0:54 | |
and the first quarter of this year were stronger | 0:57 | |
than they earlier had been told, | 1:00 | |
they of course must feed this into their computer models | 1:03 | |
and the computer model so to speak, gains new heart | 1:06 | |
and a comes out with more optimistic forecasts | 1:09 | |
with respect to the future. | 1:13 | |
I have before me a recent revision | 1:17 | |
by Data Resources Corporation. | 1:21 | |
That's Professor Otto Eckstein | 1:26 | |
of Harvard's Computer Forecasting Group, a consulting group. | 1:28 | |
It consists of a tremendous data bank | 1:33 | |
so that the clients of Professor Eckstein | 1:36 | |
can make their own forecast, | 1:38 | |
can vary his forecasts quite conveniently. | 1:40 | |
Professor Eckstine's model now has taken into account | 1:46 | |
the new data and has come up | 1:50 | |
with the quite cheerful reading. | 1:54 | |
The present recovery is to last well into 73 even beyond | 1:57 | |
and it's to have a renewed strength, | 2:04 | |
based upon the new data. | 2:08 | |
Similarly, we have as I think I mentioned in the last tape, | 2:13 | |
a new Wharton calculation based upon the new data | 2:19 | |
and it tells a very similar kind of story. | 2:23 | |
The White House has just provided some briefing | 2:26 | |
of the financial press. | 2:30 | |
Before you hear my words, you will have read all about it | 2:31 | |
and I think that this is the proper time | 2:35 | |
for them in this election year | 2:39 | |
to point out how good the news is | 2:43 | |
as far as the rate of advance of the economy is concerned. | 2:45 | |
But so much for covering the domestic picture. | 2:52 | |
But as I mentioned in my last tape | 2:57 | |
and going over the new outlook, | 2:58 | |
almost every sector of the economy | 3:03 | |
did well in the second quarter. | 3:09 | |
Inventories which had been sluggish picked up. | 3:12 | |
The behavior of prices was surprisingly good. | 3:15 | |
The total increase in real output was fantastically high. | 3:20 | |
Plant and equipment expenditures have come nicely up | 3:27 | |
as many people had expected | 3:33 | |
and beyond the expectation of the skeptics. | 3:36 | |
The consumer is doing extremely well | 3:40 | |
in passing along his income. | 3:46 | |
So it goes sector after sector after sector. | 3:51 | |
Housing, still quite strong. | 3:55 | |
But the one place in the GMP accounts where there's bad news | 3:58 | |
has been the field of international exports | 4:07 | |
in comparison with imports. | 4:10 | |
We are now more than half a year | 4:14 | |
beyond the Smithsonian Agreement. | 4:18 | |
We are now a year. | 4:21 | |
We should celebrate the event | 4:26 | |
since the income variability of the American dollar | 4:30 | |
was announced by President Nixon on August the 15th. | 4:33 | |
So de facto, we have had an appreciation of the end | 4:37 | |
and an appreciation of the mark relative to the dollar | 4:42 | |
of five, 10% ultimately, 17% for the end, 14% for the mark, | 4:47 | |
12% on an overall average basis | 4:57 | |
as against the large industrial countries. | 5:00 | |
We've experienced most of that for a full year now. | 5:03 | |
According to the theories | 5:07 | |
of the international trade experts, | 5:10 | |
a depreciation of the dollar | 5:12 | |
and an appreciation of our rivals abroad, | 5:14 | |
economic rivals abroad is supposed to begin | 5:17 | |
to perform an adjustment in our current balance of payments. | 5:20 | |
It's supposed to stimulate our exports | 5:26 | |
and our export receipts, | 5:28 | |
credit items in the American balance of payments. | 5:30 | |
This in terms of merchandise | 5:33 | |
is supposed to cut down on our imports. | 5:35 | |
It's supposed to cut down on our invisible debit items. | 5:37 | |
Less tourism in Europe, now that Europe is more expensive. | 5:41 | |
That is how the oversimplified account would go. | 5:45 | |
If we leave merchandise and look to services, | 5:51 | |
it's supposed to improve our competitiveness | 5:56 | |
in the shipping services and insurance services | 6:00 | |
and intangible non merchandise items in international trade. | 6:03 | |
Well, you go right down the line | 6:08 | |
and if the optimistic classical theory | 6:10 | |
of international trade were valid, | 6:15 | |
if small adjustments in price result in very elastic, | 6:18 | |
corrective responses, then I should be able | 6:24 | |
to report to you now in August of 1972, a year later | 6:27 | |
that although the situation is far | 6:32 | |
from being completely corrected, | 6:34 | |
we are on our way towards an adjustment. | 6:37 | |
And if I could give you that simple good news, | 6:41 | |
then you may be sure that the cool money, | 6:45 | |
the controllers and treasurers | 6:49 | |
of multinational corporations, the men of financial affairs | 6:51 | |
who have a foot loose money so to speak, | 6:58 | |
they would have discerned this | 7:01 | |
long before my words were recorded | 7:03 | |
and they would have registered this appreciation | 7:07 | |
that the medicine of the Smithsonian | 7:12 | |
was working nicely, thank you. | 7:15 | |
By optimistic expectations with respect to the dollar parody | 7:18 | |
as it floats within this admissible range | 7:25 | |
of two and a quarter percent on one side | 7:28 | |
or two and a quarter percent on the other side | 7:30 | |
of the Smithsonian Parody Agreements. | 7:32 | |
Now, I don't have to tell any of you | 7:36 | |
that that is not quite the way the matter looks. | 7:38 | |
If we turn to our quarterly exports minus imports | 7:43 | |
of goods and services, visible and invisible, | 7:50 | |
that is still in a very sorry state of affairs. | 7:54 | |
I am now not talking about | 7:58 | |
the speculative capital movements, | 8:01 | |
the volatile movements. | 8:06 | |
Those will follow presumably | 8:07 | |
after the basic balance corrects itself | 8:09 | |
or shows that it is not going to correct itself. | 8:13 | |
But I'm talking now about the more basic balance. | 8:16 | |
And thus far, we have no improvement to a report. | 8:20 | |
Indeed, there has been some further deterioration. | 8:26 | |
Now, we have to ask ourselves | 8:32 | |
whether this is in accordance with proper expectations | 8:34 | |
or whether we are being surprised. | 8:39 | |
I think the only honest answer that I can give | 8:43 | |
is that it would be premature | 8:45 | |
for a sophisticated international analyst | 8:47 | |
to have had firm expectations that now one year later, | 8:51 | |
we should have definite, concrete, | 8:55 | |
quantitatively important signs of an improvement | 9:00 | |
in our balance of payments. | 9:05 | |
Many people did expect that, | 9:08 | |
but I think that they were naive. | 9:11 | |
I certainly say this in hindsight, | 9:14 | |
but I think that a sophisticated person | 9:16 | |
could have said this at the time and some did. | 9:18 | |
Nonetheless, the first year is a year | 9:24 | |
and it should tell us not that we have turned the corner | 9:28 | |
and that the situation is correct, | 9:34 | |
but it should tell us whether we are beginning | 9:35 | |
to turn the corner in the proper fashion | 9:38 | |
and there frankly, is a more difficult question. | 9:41 | |
Is the first year of performance | 9:48 | |
actually disappointing to a sophisticated analyst? | 9:50 | |
So that he must begin now to prepare his defenses | 9:54 | |
or to prepare his expectations that the nice story | 9:57 | |
of over a couple of year period two or three-year period, | 10:01 | |
we are going to improve our basic balance of payments | 10:05 | |
on current account by seven or eight billion dollars | 10:10 | |
and I think I have reviewed in an earlier tapes, | 10:13 | |
the various quantitative econometric estimates | 10:16 | |
have been made on this basis. | 10:21 | |
I mentioned that Professor Branson of Princeton | 10:23 | |
for the Brooking's papers, you can get those | 10:29 | |
of a couple of issues back, they are issued the quarterly, | 10:34 | |
reviewed the evidence and he pointed out | 10:37 | |
that the World Bank has made some computations, | 10:40 | |
IMF, World Bank and they suggest such an improvement. | 10:44 | |
He pointed out that the OECD, | 10:49 | |
Office of Economic Cooperation and Development in Paris, | 10:53 | |
the clearinghouse for the leading nations of Europe, | 10:57 | |
North America, Japan, made a similar calculation | 11:03 | |
and privately, Professor Stephen McGhee | 11:07 | |
of the University of California | 11:11 | |
and the Graduate School of Business | 11:12 | |
at University of Chicago, made calculations | 11:13 | |
and all of these are in the same general ballpark. | 11:16 | |
Now, if those calculations were correct, | 11:21 | |
should we have expected the balance payments | 11:25 | |
to have done as poorly by this time as it has actually done? | 11:27 | |
I don't know the answer to that question. | 11:33 | |
I must admit the possibility, point out the possibility | 11:36 | |
that the record so far has been disappointing. | 11:43 | |
Now, why is this possibility just a possibility | 11:49 | |
and not a certainty? | 11:52 | |
Why can a rational man, not expect the situation | 11:54 | |
to have improved dramatically by this time? | 11:58 | |
The reasons are many, but they can all be summarized | 12:02 | |
in the technical statement that however elastic | 12:05 | |
the various elasticities of supply and demand | 12:10 | |
in the international trade are in the long run, | 12:12 | |
and elasticity is a good thing | 12:15 | |
if the Smithsonian medicine of dollar depreciation | 12:16 | |
is to do its work. | 12:19 | |
However elastic things are in the long run, | 12:21 | |
they ought definitely to be expected | 12:24 | |
to be less elastic in the short run. | 12:27 | |
Let's give examples. | 12:29 | |
A lot of Japanese goods even today, | 12:31 | |
are still being priced at the pre August, 1971 prices. | 12:35 | |
They were shipped, they were paid for, | 12:41 | |
they were contracted for at an earlier date. | 12:43 | |
And so you might think it irrational to sell off | 12:45 | |
goods which you can't replace at this price. | 12:48 | |
Say you as a retailer, as a wholesaler or as the distributor | 12:52 | |
for one of the large Japanese corporations, | 12:55 | |
apt those previous bargain prices, | 12:58 | |
but nevertheless, it's still being done | 13:00 | |
and so we haven't had a real testing. | 13:02 | |
Secondly, take exporters in the Japanese export industries, | 13:05 | |
in the German industries. | 13:12 | |
They have lots of fixed costs. | 13:13 | |
They've got the men hired whom they can't get rid of | 13:15 | |
in the short run. | 13:17 | |
They have no alternative really in the short run, | 13:19 | |
but to cut their profit margins | 13:22 | |
as expressed in their domestic currency | 13:26 | |
in order to hold their share of the market. | 13:28 | |
Better to get something than to get nothing. | 13:30 | |
And so again, you aren't getting the foreign goods | 13:32 | |
becoming more expensive as in the longer run, | 13:39 | |
they must become more expensive as a result of depreciation. | 13:42 | |
So different are short running elasticities | 13:48 | |
from long running elasticities | 13:52 | |
that they can actually result | 13:53 | |
in a worsening of the situation in the short run. | 13:54 | |
In other words, you could find that the balance of payments | 13:59 | |
of Japan is actually improved | 14:02 | |
by the appreciation of the end. | 14:04 | |
Improved, I said not the hertz. | 14:07 | |
Now, I don't know whether things | 14:10 | |
are at such a bad pass as that | 14:12 | |
It is a fact that the Japanese | 14:14 | |
are still in a very comfortable surplus | 14:17 | |
on current balance of payments and in fact, | 14:20 | |
they are accumulating more and more of reserves. | 14:24 | |
So although they have 10, 15 more than that, | 14:27 | |
the number of billions of dollars | 14:32 | |
worth of international reserves, | 14:33 | |
that total is still growing. | 14:35 | |
What is the moral for my listeners? | 14:38 | |
I think it should be that you should still reserve judgment. | 14:41 | |
You should still on balance expect the Smithsonian Agreement | 14:47 | |
to be working and working in the right direction. | 14:50 | |
But your confidence in that expectation | 14:53 | |
must rationally now decline somewhat. | 14:57 | |
Not decline absolutely so that you doubt this, | 15:00 | |
but you must so to speak, shift the betting odds | 15:04 | |
and the minority odds, which is that the medicine | 15:08 | |
won't work and that therefore, | 15:12 | |
more dollar depreciation is called for by the experts | 15:16 | |
and hence should be feared by any person | 15:22 | |
who must plan his holdings of dollars | 15:25 | |
versus of foreign currencies. | 15:29 | |
That, the minority view, | 15:31 | |
you must now give a little more respect to. | 15:33 | |
Very well. | 15:40 | |
I've talked about the basic background | 15:41 | |
and all successful speculation in other than the short run, | 15:44 | |
I think I wanna warn you, I'm a fundamentalist. | 15:48 | |
I'm not a chartist, must be based | 15:51 | |
upon going with the fundamentals. | 15:54 | |
Let me now turn though to the short run | 15:57 | |
secondary phenomena of speculation. | 16:00 | |
It was several weeks ago that the newspapers reported | 16:06 | |
that the dollar had turned the corner. | 16:10 | |
Now, why had the dollar turned the corner? | 16:12 | |
Because suddenly, Dr. Arthur Burns, | 16:14 | |
the Chairman of the Board of Governors | 16:20 | |
of the Federal Reserve System | 16:21 | |
announced that the Federal Reserve | 16:23 | |
was supporting the dollar. | 16:25 | |
It was so to speak buying dollars and selling marks. | 16:28 | |
Was this really an important event? | 16:37 | |
Well first, it was in numerical quantitative terms, | 16:38 | |
not important. | 16:43 | |
It was a dramatic announcement, but the actual operation | 16:45 | |
was not substantial. | 16:51 | |
Nonetheless, it could be said to have | 16:54 | |
a symbolic significance more than token import | 16:56 | |
because it showed the good intention | 17:02 | |
of the American government. | 17:05 | |
Now, we know that good intentions aren't enough in life, | 17:06 | |
but they usually are the first presupposition for actions. | 17:10 | |
And so some people said, | 17:17 | |
it looks as if former Secretary of Treasury, Connolly, | 17:19 | |
who was the most recalcitrant, isolationist, | 17:23 | |
who said, "Let them eat dollars. | 17:28 | |
"That's their problem. | 17:31 | |
"We will go it alone. | 17:34 | |
"They must insist upon letting us improve | 17:35 | |
"our balance of payments," | 17:39 | |
I think he once said, by $12 billion. | 17:40 | |
Some people reading the newspaper announcement said, | 17:43 | |
Aha, the Arthur Burns segment is the tip off. | 17:45 | |
We now have a more sober, more conciliatory man | 17:48 | |
as Secretary of Treasury, Dr. George Schultz | 17:53 | |
and he is now beginning to go over | 17:57 | |
to where the Europeans have asked the Americans to go, | 18:00 | |
namely towards convertibility and the stakes are large. | 18:04 | |
There are $60 billion abroad that have gone there | 18:08 | |
in recent years, and those dollars are very restive dollars. | 18:12 | |
The central banks abroad have not wanted them, | 18:14 | |
but as part of the Bretton Woods Agreement, | 18:17 | |
they a had them forced upon themselves. | 18:21 | |
Well, there's no secret that the French | 18:23 | |
have been asking that we Americans honor those dollars, | 18:25 | |
that we convert them into gold | 18:28 | |
or we convert them into a guaranteed security or into SDRs. | 18:30 | |
And so a lot of smart people have been conjecturing | 18:35 | |
that we are now on the path to convertibility. | 18:42 | |
I don't think that so small an event | 18:46 | |
can be given such an interpretation, | 18:48 | |
but let me state the issue fairly | 18:50 | |
for those who do think that. | 18:54 | |
It wasn't just Arthur Burns who acted | 18:56 | |
and made the announcement. | 18:59 | |
But the authority of President Nixon himself was invoked | 19:00 | |
that President Nixon authorized the Federal Reserve | 19:06 | |
and the Treasury to intervene. | 19:10 | |
So many people said, now it's not just a question | 19:13 | |
of the European nations and the Japanese | 19:16 | |
supporting the dollar, | 19:20 | |
because although they're very powerful, | 19:22 | |
who knows whether their will can last to support the dollar, | 19:24 | |
but now they have the cooperation | 19:29 | |
and the extra support in the United States. | 19:31 | |
And since so to speak, four shoulders are better than two, | 19:33 | |
the burden is now being borne by twice as many shoulders | 19:39 | |
and the very powerful shoulders of the Americans | 19:41 | |
and it can be presumed these smart people go on to say | 19:43 | |
that the Americans have a long line continuing interest | 19:46 | |
and their interest will not languish as the Europeans might | 19:48 | |
in supporting the dollar. | 19:52 | |
That is provided it really is now policy | 19:54 | |
of the United States to support the dollar. | 19:58 | |
Well now what is one of to think? | 20:02 | |
First, I've said that I doubt that there has been | 20:04 | |
any momentous agonizing reappraisal | 20:08 | |
at all comparable to what took place last August 13th, 1971 | 20:12 | |
and now we're going back to a position on convertibility | 20:17 | |
but let's make no mistake about it. | 20:23 | |
There's been a small moving in that direction. | 20:25 | |
What are we to think about the move? | 20:28 | |
Is it a good thing or is it a bad thing? | 20:31 | |
Anyone who believes in clean floating exchange rates | 20:34 | |
is very likely to think of this as a retrograde movement. | 20:39 | |
This is a bad a thing. | 20:42 | |
If the Smithsonian medicine wasn't sufficient in dosage | 20:45 | |
and by the way, many of the people | 20:52 | |
who's views I'm now expounding | 20:54 | |
believe it would be premature, so to conclude. | 20:58 | |
But if one is rational entitled to conclude that, | 21:00 | |
then they say there's only one solution for the problem | 21:04 | |
and that is further depreciation of the dollar | 21:06 | |
and further appreciation of the yen | 21:09 | |
and the mark and the other currencies | 21:11 | |
and it's up to the rest of the world | 21:13 | |
to see that that takes place. | 21:17 | |
It would be a tragedy for us to get back | 21:19 | |
on the old treadmill of supporting an over valued dollar | 21:23 | |
of sacrificing domestic goals for foreign goals. | 21:29 | |
Such people are sometimes accused of being isolationists | 21:34 | |
in economic matters in the same way | 21:37 | |
that the people who want to retrench in a military sense | 21:40 | |
are deemed to be isolationists. | 21:46 | |
Pull our man out of Southeast Asia, | 21:49 | |
pull our men out of Europe, and so forth. | 21:51 | |
Now nobody likes to be called an isolationist | 21:55 | |
and I think that most people | 21:58 | |
when tarred with that particular name | 22:00 | |
can produce arguments to show | 22:02 | |
there's really in the interests of the United States | 22:05 | |
for this to happen and also sometimes | 22:07 | |
in the interest of the rest of the world. | 22:10 | |
What do I think? | 22:16 | |
I think that you have to make up your mind | 22:18 | |
on this terribly difficult question | 22:21 | |
of whether the Smithsonian dosage was about right. | 22:23 | |
If ever you decide that the Smithsonian dosage | 22:27 | |
was insufficient then it is a mistake | 22:31 | |
to support the American overvalued dollar | 22:33 | |
at an overvalued level. | 22:38 | |
But if you conclude that on the base of all the evidence | 22:40 | |
is premature now to so infer | 22:43 | |
that the dollar is overvalued, | 22:49 | |
then it makes a good deal of sense | 22:52 | |
to do what Arthur Burns has done. | 22:54 | |
First place, it makes a good deal of sense to talk about it. | 22:58 | |
It has been known for many, many years | 23:01 | |
back well into the 19th century | 23:06 | |
what is a good strategy to meet a domestic bank run? | 23:08 | |
If people are going to the banks and asking for their money, | 23:13 | |
then the good strategy is for you to give them their money. | 23:17 | |
The good strategy for the central bank, | 23:22 | |
for the Federal Reserve, Bank of England, Bank of Japan | 23:24 | |
is to create whatever money is needed | 23:28 | |
to stem that psychological run | 23:31 | |
because it's well known | 23:33 | |
that if people can freely get their money, | 23:36 | |
they still will not want it. | 23:38 | |
Now, that analogy of putting up a bold front | 23:40 | |
and supporting the deposits is not a perfect analogy | 23:45 | |
with respect to international affairs | 23:52 | |
because in international affairs, it is not predestined | 23:54 | |
that a pound is a dollar in the same sense | 23:58 | |
that a dollar is a dollar is a dollar. | 24:02 | |
I take it that if the Washington authorities | 24:07 | |
after reviewing all the evidence have concluded | 24:14 | |
that the American dollar parody is still about right, | 24:19 | |
that they are then well advised | 24:26 | |
to not throw all the problems of support upon the Europeans. | 24:28 | |
In any case, it was a very successful operation. | 24:34 | |
The dollar recovered in foreign markets, | 24:37 | |
the price of gold in the free market, | 24:41 | |
which is just kind of a bellwether of speculators' hopes | 24:46 | |
that Bretton Woods will break down | 24:54 | |
and the Smithsonian will break down, | 24:56 | |
that price reached $70 in the London market. | 24:59 | |
I think that's a record, but remember, | 25:03 | |
it's a very narrow market. | 25:05 | |
South Africa is not feeding that market | 25:06 | |
with her full current gold production | 25:09 | |
and therefore, it wouldn't surprise me a bit | 25:13 | |
if that price went anywhere. | 25:18 | |
$70 I say it doesn't surprise me. | 25:22 | |
What about $80? | 25:24 | |
$80 is perfectly a definite possibility. | 25:26 | |
$90 is perfectly definite possibility. | 25:28 | |
It doesn't mean the gold is so scarce for dentists inlays | 25:30 | |
and that that's kind of a normal equilibrium | 25:37 | |
supply and demand price, | 25:40 | |
but it does mean that the speculators want more of the stuff | 25:41 | |
than is freely available. | 25:47 | |
That's a market as I've said again and again, | 25:48 | |
completely dominated by speculators. | 25:50 | |
I might add by the way one is tempted | 25:53 | |
in the recordings like this to recall one's triumphs, | 25:56 | |
cases where one correctly predicted months and months | 26:02 | |
before the event what was going to happen. | 26:06 | |
Perhaps it's proper that once you call attention | 26:08 | |
to those triumphs, but in a Freudian way, | 26:11 | |
one tends to forget about one's failures. | 26:15 | |
And I am asked by subscribers | 26:20 | |
and I've commented on this in tapes, | 26:24 | |
what about gold stocks as a hedge. | 26:25 | |
And I've pointed out how badly people have done | 26:30 | |
holding Homestake gold mining stock from, | 26:34 | |
well really from 1939 up to this present time. | 26:37 | |
Nevertheless, if you actually look at what's happened | 26:43 | |
to say a very good bellwether | 26:46 | |
for you to follow in this regard, | 26:48 | |
would be a closed end investment trusts | 26:49 | |
that invests in gold shares, | 26:51 | |
perfectly legal for an American to have ownership | 26:54 | |
in American South African investment trust. | 26:57 | |
You will see that you'd have done quite well with your money | 27:00 | |
in that stock in recent months. | 27:04 | |
That's rational as long as the gold producing companies | 27:09 | |
can sell their gold output, | 27:13 | |
not at the official $38 an ounce price, | 27:17 | |
not as small premium over that price, | 27:20 | |
but at a very much a higher price. | 27:22 | |
Now, I think one of the reasons such stocks have gone up | 27:26 | |
is the hope that the two tier system will break down | 27:29 | |
and become a one tier system at a much higher price | 27:33 | |
and there, I do not think that the odds | 27:35 | |
are good for the investor. | 27:40 | |
Let me say though that you're very wrong in human affairs, | 27:43 | |
in the social sciences to say that can't happen. | 27:49 | |
What you have to say | 27:53 | |
is that that is very unlikely to happen. | 27:54 | |
Now, I think that that is not very likely to happen, | 27:58 | |
but I don't think that the probability | 28:02 | |
that we'll go back on a one tier system is so low | 28:04 | |
that a prudent investors should disregard it. | 28:09 | |
I think that there is an appreciable probably | 28:11 | |
and the reason for that I think is that | 28:14 | |
if things break down and if they break down | 28:17 | |
in the welter of lots of controls, | 28:19 | |
then it will not be | 28:21 | |
the worst possible alternative in the world. | 28:23 | |
It will not in my view, would be a good alternative, | 28:25 | |
but it will not be the worst possible alternative | 28:27 | |
to go back onto a one tier system | 28:29 | |
at a much higher price of gold. | 28:32 | |
That is, I can't call that a second best approach, | 28:35 | |
but let's call it a fourth or fifth best approach | 28:39 | |
and remember that very often in this sad world of ours, | 28:42 | |
men of affairs in fact, | 28:47 | |
are forced into seventh best and ninth best. | 28:49 | |
Let me as a digression, express my opinion on a policy issue | 28:51 | |
which is discussed now. | 28:56 | |
Secretary of Treasury, George Shultz | 29:00 | |
has been put under some pressure | 29:01 | |
to make available our gold supply to domestic users. | 29:03 | |
Say auction off our gold supply | 29:08 | |
in the way that silver was auctioned off | 29:11 | |
after we no longer use silver | 29:13 | |
as part of our official currency. | 29:15 | |
I hope that he will resist that pressure. | 29:17 | |
I don't think it will be a good thing | 29:20 | |
to cater to the needs of dentists and jewelers | 29:23 | |
and the legitimate gold users, those who use them in relays | 29:27 | |
in this particular fashion. | 29:31 | |
If it was just a question of feeding them some gold, | 29:35 | |
it wouldn't be important. | 29:39 | |
But I think you will so inflame the imagination | 29:40 | |
of all the gold speculators | 29:43 | |
that we're on our way back to a one tier system | 29:44 | |
with a vastly increased price of gold, | 29:46 | |
that any benefit from this program | 29:48 | |
would be much, much outweighed by the adverse consequences. | 29:50 | |
I'm leaving aside the question | 29:56 | |
of whether it's even legal under the post 1968 | 29:57 | |
rules of the IMF for a central bank | 30:04 | |
to feed domestically gold when it's illegal for it | 30:07 | |
to sell gold into foreign free markets. | 30:11 | |
But I strongly counsel the Secretary of the Treasury | 30:15 | |
to resist this particular proposal. | 30:19 | |
It has very little political appeal | 30:21 | |
if he really analyzes it down and economically, | 30:23 | |
it could haunt us and plague us | 30:27 | |
for a long time to come in an important way. | 30:29 | |
I think I should conclude by saying that at the moment, | 30:31 | |
the dollar is not under the most intense pressure, | 30:36 | |
but I believe you should not be too complacent. | 30:40 | |
I don't think that Smithsonian has yet proved itself. | 30:44 | |
I think the dollar is still going to be under testing | 30:47 | |
for a long time to come | 30:51 | |
and the pressure which was eased by that rather dramatic | 30:53 | |
statement out of Washington of Arthur Burns, | 30:59 | |
I don't think that basic underlying pressure | 31:03 | |
can be fended off indefinitely by such statements. | 31:06 | |
So I warn any listener that there is a good chance | 31:10 | |
of a reoccurrence of the jitters, | 31:14 | |
whether it'll be triggered by some other currency | 31:17 | |
than the pound floating, | 31:20 | |
one needn't try to conjecture about | 31:23 | |
but the underlying situation | 31:27 | |
with respect to the Smithsonian | 31:29 | |
has not yet worked itself out | 31:31 | |
so that the rational man can say, | 31:33 | |
Smithsonian will stand up. | 31:37 | |
- | If you have any comments or questions | 31:40 |
for Professor Samuelson, | 31:42 | |
address them to Instructional Dynamics Incorporated, | 31:44 | |
166 East Superior Street, Chicago, Illinois, 60611. | 31:46 |
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