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Another major factor in 1968 was that merger fever seized U.S. industry as never before. An estimated 4,200 mergers took place, up 41% from 1967. Instead of laying out cash, most merger-minded companies simply swapped securities through increasingly complex combinations of debentures, warrants and ordinary common shares. Such methods are enticing because stockholders avoid capital-gains taxes. More important, stock swaps give Wall Street's favorite companies, whose shares carry a high price in relation to earnings, powerful leverage to acquire firms whose shares have a low price-earnings ratio. This fact often enables smaller cor porations to swallow concerns many times their size.
The merger pace also accelerated in Western Europe, and several large firms moved across state boundaries to form multinational giants that made competition rougher for U.S. companies. Partly because of dwindling profit margins abroad, and partly because of Washington's restrictions on sending capital out of the country, U.S. firms have begun to level off their foreign expansion. Their capital spending abroad, which rose 7% last year, increased only 5% this year, to $9.7 billion. Meanwhile, non-American companies pressed ever deeper into world markets, including the U.S. While U.S. exports rose 8%, imports soared 22%—mostly as a result of inflation and voracious demand.
The U.S.'s traditional trade surplus, which was $4.1 billion in 1967, melted to scarcely $1 billion this year. Protectionist pressures are mounting, and Nixon may be tempted to raise further barriers to imports, even though foreign nations would retaliate with everything from quotas to border taxes.
Chances for Currency Crisis
For the eighteenth year out of the last nineteen, the U.S. ran a balance-of-payments deficit in 1968. It was comparatively small—perhaps $1.5 billion as against $3.6 billion in 1967—but the decline was due mostly to U.S. luck and other countries' misfortunes. After the student strikes in France and the Soviet invasion of Czechoslovakia, businessmen and speculators sent billions of dollars from Europe to safer haven in the U.S. That helped to buoy the U.S. stock market and to strengthen the U.S. dollar, which early in the year fell under speculative attack but then survived the November monetary crisis without damage.
Even so, Richard Nixon—and the other world leaders—may face another serious monetary crisis next year. The Western world's moneymen in 1968 earned high marks for some inspired improvisations, which kept the creaking old monetary system functioning fairly efficiently. But the basic deficiencies have been merely papered over by loans, currency swaps and temporary austerity programs in Britain and France. As the system stands, commerce is manipulated —and consumers are often hurt—to help out a country's money. France's franc and Britain's pound remain weak, while Germany's mark, Switzerland's franc, Italy's lira and some other currencies are stronger than their official, pegged values imply.