Tape 97 - Dollar parity in the current market
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| - | Welcome once again as MIT Professor Paul Samuelson | 0:02 |
| discusses the current economic scene. | 0:04 | |
| This biweekly series is produced by | 0:07 | |
| Instructional Dynamics Incorporated | 0:09 | |
| and was recorded March 10, 1972. | 0:11 | |
| - | There are a number of interesting questions | 0:14 |
| sent in by subscribers that I should like to comment on | 0:16 | |
| if time permits today. | 0:19 | |
| First, there's always interest in | 0:22 | |
| how the current business outlook is shaping up. | 0:23 | |
| Second, I've had several letters asking whether | 0:27 | |
| I share the sentiment in favor of zero growth, | 0:30 | |
| in particular, of whether I agree with the stand attributed | 0:34 | |
| to my Newsweek columnist colleague Henry Wallich. | 0:38 | |
| Finally, we are still in something of | 0:43 | |
| an international monetary crisis, | 0:46 | |
| or at least we are in an international war of nerves. | 0:48 | |
| What about that? | 0:52 | |
| I think this last question is the most timely and pressing, | 0:55 | |
| so let me begin with it. | 0:58 | |
| Just today, in this morning's New York Times, | 1:00 | |
| in a front page story, | 1:03 | |
| we learn that the dollar is again under attack. | 1:05 | |
| The exchange rate for the dollar | 1:10 | |
| is very near to hitting its ceiling, | 1:12 | |
| or as I think seems slightly more natural to us Americans, | 1:16 | |
| the dollar has been so weak | 1:21 | |
| that it has very nearly hit its floor, | 1:23 | |
| the floor which is 2 1/4% below | 1:26 | |
| the agreed upon new parody of the dollar and a pound | 1:31 | |
| that was agreed upon at December 18th | 1:36 | |
| at the Smithsonian Institution in Washington. | 1:38 | |
| Of course, it's precisely that agreement reached | 1:41 | |
| on December 18th in Washington which is in question now | 1:45 | |
| in the markets of the world. | 1:49 | |
| Is it coming apart? | 1:51 | |
| That's what the speculators are asking each other. | 1:52 | |
| I suppose we oughta be sure that we understand | 1:58 | |
| exactly what it means for the dollar | 2:00 | |
| to be near its floor or near its ceiling. | 2:03 | |
| Before August 15th, the official parody | 2:08 | |
| for the British pound was $2.40. | 2:12 | |
| You'll remember that. | 2:15 | |
| Officially it could vary 1% up or down from that. | 2:17 | |
| Actually, it tended to vary only within about 1/2%, | 2:21 | |
| but officially 1% up or down for that. | 2:24 | |
| So, we could say that the effective band before | 2:26 | |
| was from just over $2.42, 2.424 to be exact, | 2:30 | |
| down to just under $2.38, 2.376, | 2:38 | |
| and when the pound was weak, the pound was at | 2:44 | |
| the lower limit of that band just under 2.38. | 2:47 | |
| When the pound was strong, | 2:51 | |
| it was at the upper limit just over 2.42. | 2:52 | |
| When supply and demand for foreign exchange | 2:56 | |
| just about balanced out, the pound floated inside the band | 2:58 | |
| around the $2.40 parody level. | 3:02 | |
| Now of course, a strong pound means a weak dollar. | 3:06 | |
| Everything is relative in this matter. | 3:09 | |
| One's being traded against the other. | 3:11 | |
| So, when the pound was strong, and the dollar was weak, | 3:13 | |
| the pound exchange rate was near its upper ceiling. | 3:16 | |
| Well, that's what the New York Times is reporting on today | 3:20 | |
| that the pound in yesterday's trading | 3:24 | |
| went as high $2.65, 2.6510 actually, | 3:30 | |
| and as I look at the new parody as agreed upon | 3:39 | |
| on December 18th, and I allow for a band | 3:43 | |
| above that ceiling and above that parody, | 3:47 | |
| I find that 2.6514 is the upper limit. | 3:52 | |
| I won't vouch for that because you have to be careful | 3:58 | |
| whether you take the 2 1/4% this way or the upside down way. | 4:01 | |
| Actually, when you look at the German mark or the franc, | 4:08 | |
| most other currencies, they're quoted in a way | 4:13 | |
| that makes the dollar, when they're weak, | 4:16 | |
| appear to be down near its floor | 4:19 | |
| which, I think, is a more natural way | 4:21 | |
| for us provincial Americans to look at things. | 4:22 | |
| Instead of saying how many cents a mark is worth | 4:27 | |
| which would be quoting the mark the way we quote the pound, | 4:31 | |
| for some historical reason, we always quote how many marks | 4:34 | |
| to the dollar, and the new official rate is 3.223 marks | 4:37 | |
| to the dollar as against the old official rate | 4:44 | |
| before last May which was 3.66 to the dollar, | 4:48 | |
| and so the stronger the mark gets, | 4:54 | |
| the less of them to the dollar, | 4:56 | |
| and so the dollar goes to its floor | 4:58 | |
| in the foreign exchange situation. | 5:02 | |
| Why is the dollar so weak? | 5:06 | |
| It's quite obvious that a number of people think | 5:08 | |
| that the new parody and the new band | 5:13 | |
| around the parody will not hold. | 5:16 | |
| Some people think that this is a prelude | 5:21 | |
| for a change in parodies. | 5:23 | |
| Just as we had a meeting in Washington on December 18th, | 5:25 | |
| these people argue why can't you on April 18th, | 5:28 | |
| in a crisis, have a meeting in London, | 5:31 | |
| and some new rates will be established, | 5:35 | |
| and if you are out of the dollar in one of these currencies, | 5:37 | |
| you stand to make an appreciation. | 5:39 | |
| I can't tell you that that's impossible. | 5:43 | |
| I can only evaluate the betting odds with respect to it, | 5:46 | |
| and I think it would be very rash to hold your breath | 5:51 | |
| in the expectation that that's about to happen. | 5:55 | |
| We might get some meetings, as I've said in earlier tapes, | 5:59 | |
| we might get some meetings after the system breaks down | 6:04 | |
| to the demonstrated satisfaction of everybody | 6:08 | |
| a year and a half from now, two and a half years from now | 6:11 | |
| in which new parodies would be set. | 6:14 | |
| Indeed, I hope that we are moving towards | 6:16 | |
| some further agreements in which moderate flexibility | 6:19 | |
| of the whole band will become the order of the day, | 6:24 | |
| and we won't consider it a crisis | 6:28 | |
| or a war of nerves when this happens, | 6:29 | |
| but there's another possibility. | 6:33 | |
| This possibility makes the behavior of the speculators, | 6:35 | |
| I'm using this word not in a pejorative sense as nasty men | 6:41 | |
| but to describe all the cool and hot money | 6:45 | |
| which is taking a position one way or the other | 6:49 | |
| with respect to the dollar currency | 6:52 | |
| and with respect to other currencies, | 6:55 | |
| there is another reason why these doubters | 6:58 | |
| of the Smithsonian arrangements may have | 7:04 | |
| a certain rationality on their side | 7:08 | |
| in behaving in the way they do. | 7:10 | |
| I must emphasize in the strongest terms that in a degree, | 7:14 | |
| you can have here a self-fulfilling prophecy. | 7:19 | |
| If everybody thinks that a woman of virtue has a bad name, | 7:24 | |
| that can give her a bad name. | 7:31 | |
| I suppose it can't really change the virtue of the woman, | 7:34 | |
| but it can change her reputation. | 7:37 | |
| If everybody thinks that the dollar is weak | 7:41 | |
| and is gonna get weaker, that can, in the short run, | 7:45 | |
| be a self-fulfilling prophecy. | 7:48 | |
| Of course, in economics as in other matters, | 7:52 | |
| everything tends to come out in the wash in the longer run. | 7:55 | |
| A Ponzi can promise you 30% interest per month, | 7:58 | |
| and if you believe in him and send in money to him, | 8:05 | |
| he can, out of the new money that's coming in, | 8:09 | |
| pay that interest, and so the game goes. | 8:12 | |
| It's a case of living on its own expectations, | 8:18 | |
| but nobody believes that a geometric progression | 8:22 | |
| at 30% a month can find enough new suckers | 8:25 | |
| to keep going very long. | 8:29 | |
| We just had a case in Ohio of a modern-day Ponzi | 8:30 | |
| who has just come to grief, | 8:35 | |
| and of course, with him his creditors. | 8:37 | |
| So in the long run, if the parody set in December | 8:40 | |
| is an equilibrium rate | 8:47 | |
| and a rate at which, over the long run, | 8:50 | |
| supply and demand will balance, | 8:54 | |
| then the speculators who get stuck | 8:56 | |
| with bidding down the dollar | 9:00 | |
| will be punished very, very badly. | 9:03 | |
| But the quick pump speculator, the one who operates | 9:06 | |
| on the greater fool theory that he'll pass on | 9:09 | |
| maybe to somebody else, the hot brick won't stay | 9:11 | |
| in his hands, and he'll make his profit before | 9:14 | |
| this day of judgment arrives, he can hope to make a gain. | 9:17 | |
| Let me turn to my second point which is that | 9:23 | |
| there is a rational reason for having doubt | 9:28 | |
| at this point of the game about the dollar. | 9:31 | |
| I don't wish to encourage any speculation | 9:34 | |
| one way or the other. | 9:39 | |
| I don't think that my small words will affect the issue. | 9:40 | |
| I am trying in the most objective way that I can | 9:43 | |
| to sort out the issues for somebody | 9:46 | |
| who wants to think correctly in this matter. | 9:48 | |
| If the December agreement breaks down, | 9:53 | |
| it will break down, in my judgment, | 9:56 | |
| in the wake of a whole new set of exchange controls, | 10:01 | |
| of capital exchange controls primarily. | 10:06 | |
| A lot of people who say the December 18th parody | 10:12 | |
| may be right in the long run, | 10:15 | |
| but there are such fools around who are so volatile, | 10:18 | |
| they are rocking the boat, and they will succeed in | 10:23 | |
| if not turning the boat over at least upsetting | 10:27 | |
| its equilibrium, and when that happens, | 10:31 | |
| there will be exchange controls. | 10:34 | |
| And so, I'd better get my money out of the stable | 10:37 | |
| before the door is locked. | 10:41 | |
| For this reason, a treasure of an American corporation | 10:46 | |
| might well be loathe to bring back dollars, | 10:51 | |
| bring back funds in the form of dollars | 10:56 | |
| which he had taken out prior to last August 15th | 10:59 | |
| or during the August 15th to December 18th period. | 11:03 | |
| He has no great inducement on the interest side | 11:09 | |
| to bring his funds in a hurry back to the United States. | 11:13 | |
| As you know, treasury bills are still very low here. | 11:16 | |
| They're not as low as they were, and in my judgment, | 11:19 | |
| one of the reasons why they're not quite as low | 11:21 | |
| as they were, why they're not at the 3% mark now, | 11:24 | |
| is precisely because thinking in American banking circles | 11:29 | |
| and in official American circles is beginning to shift | 11:34 | |
| towards the view that you've gotta do something | 11:38 | |
| about the short-term rate in the way of lifting it | 11:41 | |
| as an adjustment to the balance of payments crisis. | 11:44 | |
| Now, I know that Arthur Burns in testimony has said | 11:48 | |
| that we shall not raise interest rates too high | 11:51 | |
| for domestic prosperity purposes just in order | 12:01 | |
| to accommodate to the international balance of payments. | 12:05 | |
| I know that, you know that. | 12:09 | |
| I know that Herbert Stein is quoted today as saying | 12:11 | |
| that we shall not do that. | 12:14 | |
| This is in today's newspaper. | 12:16 | |
| I know that Paul Volcker when asked what about the situation | 12:19 | |
| said it's just another little spasm, | 12:24 | |
| and that everything is okay, | 12:26 | |
| but I know and you know that | 12:30 | |
| that's the sort of thing which public officials have to say. | 12:32 | |
| I think there's no information in denials like that. | 12:37 | |
| Some people say ah, the moment they make denials like that | 12:41 | |
| hold onto your hat. | 12:44 | |
| It means that there's something to deny, | 12:45 | |
| and that things are gonna change. | 12:48 | |
| I don't believe that's a correct reading of past experience. | 12:49 | |
| I think it would be premature to jump to that conclusion. | 12:53 | |
| But on the other hand, I don't think we should | 12:57 | |
| particularly attach any credence to this view. | 13:00 | |
| The primary interest of the American government | 13:06 | |
| at this point in this phase of the business cycle | 13:08 | |
| in this election year is certainly in the direction | 13:13 | |
| of domestic expansionary monetary and fiscal policy, | 13:17 | |
| but let's make no mistake about it. | 13:21 | |
| Government officials are subject to many pressures, | 13:25 | |
| and the international amounts of payments pressure | 13:28 | |
| is a real one, and in my judgment, | 13:30 | |
| it will substantially shape matters. | 13:32 | |
| I think that not very much can be accomplished | 13:38 | |
| by Operation Twist. | 13:41 | |
| Operation Twist, I'll remind you, is a procedure | 13:43 | |
| by which the central bank, our Federal Reserve System, | 13:47 | |
| through its Open Market Committee, when it expands | 13:51 | |
| the reserves of the banking system, | 13:54 | |
| utilizes its discretionary choice as to | 13:57 | |
| how it shall conduct its open market purchases. | 14:00 | |
| It purchases with its checks and with its currency | 14:03 | |
| securities from the open market. | 14:08 | |
| Shall they be short-term Treasury bills? | 14:10 | |
| If they are, the first impulse and pressure | 14:13 | |
| from the action is to raise the price of Treasury bills | 14:17 | |
| and lower the interest rate on short-term bills. | 14:23 | |
| Alternatively, they do have the option, this is an option | 14:29 | |
| which they didn't have 15 years ago | 14:34 | |
| because they were acting under a self-denying ordinance | 14:36 | |
| called Bills Only Doctrine or Bills Preferably Doctrine. | 14:41 | |
| It was never a very well-reasoned doctrine, | 14:46 | |
| but it was officially and explicitly dropped | 14:49 | |
| at the beginning of the 1960s. | 14:53 | |
| So, they have the option of conducting | 14:55 | |
| their open market purchases, which they must do | 14:57 | |
| in order to have the money supply grow at all | 15:01 | |
| and certainly to have it grow in the amount | 15:06 | |
| that is needed to support the expansion, | 15:08 | |
| they must undertake open market operations, | 15:12 | |
| and they can put in those operations more at the long end. | 15:15 | |
| I think it's desirable that they do this. | 15:19 | |
| I think in the short run, if somebody wants to buy coffee | 15:23 | |
| funnels his demands for coffee towards Columbian coffee | 15:28 | |
| and away from Brazilian coffee, I think he can, | 15:31 | |
| in some small degree, raise the price of Columbian coffee | 15:35 | |
| relative to that of Brazilian coffee. | 15:39 | |
| But of course, as sophisticated analysts, | 15:42 | |
| we realize he can't do it very much because | 15:45 | |
| many other people will regard Brazilian coffee | 15:48 | |
| and Columbian coffee as very close substitutes, | 15:52 | |
| and if he bids up the price of Columbian coffee, | 15:55 | |
| they will adjust by funneling many of their purchases | 15:58 | |
| towards Brazilian coffee. | 16:02 | |
| So, it all depends upon how close substitutes, | 16:04 | |
| for portfolio purposes, | 16:08 | |
| are short term and long-term securities, | 16:10 | |
| and I think there's a very big overlap. | 16:12 | |
| The expression money mingles is an expression conveying | 16:14 | |
| much wisdom about the capital markets of the world. | 16:20 | |
| But, money mingles more in the long run | 16:26 | |
| than it does in the short run. | 16:28 | |
| Even the levels of water in the oceans are not uniform. | 16:31 | |
| The Pacific Ocean and the Atlantic Ocean are connected, | 16:37 | |
| but you must go through locks | 16:41 | |
| when you cross the Panama Canal because | 16:45 | |
| there is a permanent difference maintained by friction. | 16:48 | |
| Well, some policy can trade upon the differences | 16:53 | |
| permitted by friction, and those differences | 16:58 | |
| are greater in the short run than in the long run. | 17:00 | |
| I think we're getting a little bit | 17:02 | |
| of that increase in short-term interest rates. | 17:04 | |
| I think the danger is that if we adjust too much | 17:07 | |
| to the international crisis in this way, | 17:10 | |
| you will find that long-term rates | 17:14 | |
| will also feel the rise, and instead of having | 17:16 | |
| the scissors movement in which long-term rates | 17:20 | |
| are stable or continue to come down very slowly | 17:22 | |
| and short-term rates rise, | 17:24 | |
| you will find both of them beginning to go up again. | 17:26 | |
| At this point, I oughta say something | 17:31 | |
| that bother Europeans and people abroad very much. | 17:34 | |
| Frankness is perhaps an overrated virtue | 17:41 | |
| in the area of diplomacy. | 17:44 | |
| Perhaps it's an overrated virtue | 17:47 | |
| in the area of high finance. | 17:48 | |
| I'm not sure that it is. | 17:52 | |
| I think that plain talking, what you lose in the short run, | 17:53 | |
| you're gonna gain in the long run because | 17:56 | |
| people will think you have no guile. | 17:58 | |
| That's generally been my council to people. | 18:01 | |
| In any case, we have been fairly frank | 18:06 | |
| in saying that domestic considerations | 18:10 | |
| are primary for the United States. | 18:14 | |
| We have not paid lip service to the view | 18:17 | |
| that we should be saying we are virtuous. | 18:23 | |
| We will try to be virtuous. | 18:26 | |
| We are conscious of the balance of payments problem. | 18:27 | |
| We are conscious that the December 18th agreement requires | 18:30 | |
| actions and attitudes on the part of the United States. | 18:34 | |
| We have not engaged in double talk. | 18:37 | |
| On the contrary, from President Nixon | 18:40 | |
| down through Secretary Connally through Arthur Burns | 18:44 | |
| through the Council of Economic Advisors, | 18:48 | |
| there has been a fairly cavalier ignoring | 18:51 | |
| of the international balance of payments crisis. | 18:55 | |
| The quotations I've given you just from | 18:58 | |
| today's newspaper are perhaps typical. | 18:59 | |
| Well, I can assure you from my many contacts | 19:03 | |
| that this is infuriating abroad. | 19:06 | |
| It is infuriating not simply to so called gnomes of Zurich, | 19:09 | |
| but it is infuriating to governments elsewhere. | 19:14 | |
| Since there always is a residue of anti-Americanism | 19:19 | |
| and question about whether we didn't get ourself | 19:22 | |
| in these financial situations in the first place, | 19:25 | |
| resentment of Connolly's strong arm tactics, | 19:28 | |
| there is the extra sentiment | 19:32 | |
| that they don't really owe us very much, | 19:35 | |
| and that they don't have to go out on really long limbs | 19:37 | |
| to save us even though there is a consciousness | 19:40 | |
| on the part of responsible people abroad. | 19:43 | |
| I mean responsible people in treasuries abroad, | 19:46 | |
| responsible people in cabinets abroad, | 19:49 | |
| responsible people in central banks, | 19:51 | |
| that there is a mutuality of interest here. | 19:53 | |
| That if December 18th agreement goes down the drain, | 19:55 | |
| it's not going to simply gore the American ox. | 19:58 | |
| It's, at the same time, going to gore | 20:02 | |
| the ox of Western Europe. | 20:05 | |
| This reminds me of a development in the news last week | 20:09 | |
| that one of our subscribers asked me to explain. | 20:13 | |
| It's called, I think, the snake inside the tunnel. | 20:17 | |
| I have reference to the fact that the six countries | 20:21 | |
| of the common market have just recently agreed | 20:25 | |
| that although under the rules of the IMF, | 20:31 | |
| as amended on December 18th in Washington, | 20:36 | |
| their currencies can fluctuate 2 1/4% | 20:40 | |
| on each side of the dollar and on each side of official gold | 20:46 | |
| and on each side of paper gold, the SDRs, | 20:51 | |
| those are all three the same thing, | 20:54 | |
| giving them an effective range | 20:57 | |
| of 4 1/2% fluctuation that as against themselves, | 21:00 | |
| as against any two currencies of the common market | 21:10 | |
| such as the franc and the mark or the franc and the pound. | 21:13 | |
| I'm sorry, the British will be in this, | 21:18 | |
| but they're not yet in it. | 21:20 | |
| The frank and the mark or the franc and the guilder, | 21:23 | |
| that they will not permit themselves | 21:26 | |
| the full 4 1/2% spread, but by agreement, | 21:29 | |
| will have cut that spread down by 50% to 2 1/4%. | 21:34 | |
| Now, my subscriber says what does this mean? | 21:42 | |
| I've explained very briefly | 21:45 | |
| and not in enough detail what it is. | 21:47 | |
| What is its significance? | 21:52 | |
| I think it raises some very serious questions. | 21:55 | |
| I appreciate why the six countries of the common market | 21:59 | |
| would want to minimize the difficulties of trade | 22:03 | |
| among themselves, but for the same reason | 22:07 | |
| that I am in favor of flexible exchange rates, | 22:11 | |
| gliding bands, crawling pegs moving our way | 22:14 | |
| maybe even towards freer floating, | 22:18 | |
| I am for that on the vast continent of Western Europe | 22:22 | |
| where there are independent central banks | 22:26 | |
| with different policies, | 22:29 | |
| where there are different union pressures | 22:30 | |
| in the different countries, | 22:32 | |
| and I think they're gonna have some problems | 22:34 | |
| with respect to themselves. | 22:38 | |
| They're just going to be pegging their exchange rates | 22:40 | |
| in narrower limits which means that they're gonna have | 22:43 | |
| more frequent breakdowns. | 22:46 | |
| I must say that I could lose sleep at night | 22:48 | |
| at the thought of Britain going into | 22:52 | |
| the common market at its present parodies. | 22:54 | |
| I know that the chill winds of competition | 22:58 | |
| of the common market may invigorate the British, | 23:00 | |
| but I also know that the chill winds | 23:04 | |
| may cause them to have pneumonia. | 23:05 | |
| For the British to go in at the current parody | 23:09 | |
| but also to have almost no leeway | 23:11 | |
| or to have sacrificed half the leeway | 23:13 | |
| which has been granted under the December 18th agreements, | 23:15 | |
| seems to me to be a dangerous business. | 23:18 | |
| Let me in the remaining moments comment on | 23:23 | |
| what this agreement means with respect to | 23:26 | |
| the six common market countries vis-a-vis the United States, | 23:28 | |
| and what it means for this international currency crisis. | 23:33 | |
| It is not an accomplished fact. | 23:37 | |
| It's something which is agreed upon, and it's to take effect | 23:40 | |
| gradually and not for some time will it be in operation, | 23:43 | |
| but let's assume that it is already in operation. | 23:50 | |
| What it means is that in the Chicago Exchange, | 23:53 | |
| the new international market which is about to be set up | 23:59 | |
| for trading in foreign currencies, I think I mentioned this | 24:04 | |
| in one of my earlier tapes, there's going to be | 24:08 | |
| less independent variation between the franc and the mark. | 24:12 | |
| Those quotations still can go the full range | 24:17 | |
| each one of them, but if one goes the full range, | 24:20 | |
| the other one will have to go at least | 24:23 | |
| half the way up towards it 'cause they're, | 24:26 | |
| this is the snake inside the tunnel, | 24:29 | |
| they are going to be limited. | 24:31 | |
| What this means is that since various of those governments, | 24:36 | |
| depending upon the speculated pressure, | 24:41 | |
| are finding themselves having to support the dollar now | 24:43 | |
| or having to buy dollars very reluctantly | 24:46 | |
| and with great groaning and complaining | 24:48 | |
| and with much pressure on us to give them some guarantees | 24:51 | |
| that those dollars can be converted at known exchange rates | 24:55 | |
| into SDRs at a later date. | 24:58 | |
| But, my point is that the pressure now | 25:02 | |
| is upon a particular government. | 25:06 | |
| This particular government can spread this pressure | 25:10 | |
| onto the other five because no one country of the six | 25:12 | |
| is going to be permitted not to bear | 25:18 | |
| its fair share of dollars. | 25:21 | |
| Indeed, if they maintain the snake inside the tunnel | 25:22 | |
| and stay within the very narrow limits, | 25:28 | |
| suppose one renegade of the six refuses | 25:30 | |
| to accept dollars when they are thrust to it. | 25:34 | |
| Then, the others must pick them up otherwise | 25:36 | |
| their exchange rates will move out of line with his. | 25:39 | |
| Now, I don't know what strains and stresses | 25:42 | |
| this is going to create inside the councils | 25:44 | |
| of the governments of the six common market countries, | 25:49 | |
| but I can anticipate that when the six become 10, | 25:52 | |
| when you have Denmark and Norway and England | 25:58 | |
| and perhaps still some other countries in the common market, | 26:01 | |
| that coordination is going to be more difficult. | 26:05 | |
| Let me sum up. | 26:08 | |
| The longer this crisis prevails, I think, the higher | 26:12 | |
| must I move up the odds that the December 18th agreement | 26:18 | |
| will break down prematurely. | 26:22 | |
| I say prematurely because in my judgment, | 26:25 | |
| there is no basis for a rational evaluation | 26:28 | |
| of whether it was a good or bad agreement | 26:31 | |
| for another year or two. | 26:33 | |
| I once said the odds of our doubling | 26:37 | |
| the price of gold were 99 to one. | 26:39 | |
| I think I'll stand by the odds with respect to that matter, | 26:42 | |
| but I will not stand by the odds which I stated earlier | 26:46 | |
| that it was nine to one that | 26:51 | |
| the December 18th agreement would hold up. | 26:53 | |
| Then, I shaded those to eight to two. | 26:57 | |
| I think that it's a seven to three proposition. | 27:01 | |
| Congress has raised the price of official gold | 27:05 | |
| from $35 to $38 an ounce. | 27:08 | |
| That isn't quite completed, but no hitches have developed | 27:11 | |
| in that particular process. | 27:14 | |
| Some of the things that have worried the speculators | 27:17 | |
| have been set to rest, but I want to stress that | 27:20 | |
| every fractional reserve system is subject | 27:25 | |
| to self-fulfilling prophecies of their own break down, | 27:29 | |
| and since we cannot do what you can do domestically | 27:33 | |
| which is to create, by the printing press, | 27:36 | |
| the money that meets the drain, | 27:39 | |
| the December 18th agreement could break down. | 27:42 | |
| Let no one take satisfaction from this | 27:44 | |
| not even a believer in quoting exchange rates because | 27:46 | |
| when it breaks down, I very much fear it's going to | 27:49 | |
| break down with a proliferation of capital controls, | 27:53 | |
| and I don't think we're gonna like that very much. | 27:57 | |
| - | If you have any comments or questions | 27:59 |
| for Professor Samuelson, address them to | 28:01 | |
| Instructional Dynamics Incorporated | 28:03 | |
| 166 East Superior Street Chicago, Illinois 60611. | 28:06 |
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