(6 of 7)
As for the dollar, it is still under enough suspicion that even an offhand, ill-advised remark by a high official can cause a speculative flurry. Last week David M. Kennedy, Nixon's Secretary of the Treasury, refused to make the ritual pledge that the U.S. will maintain the official price of gold at $35 per ounce. "I want to keep every option open," he said. Next day, the free market price of gold jumped in London to a six-month high of $41.82, and Nixon Press Aide Ron Ziegler tried to quiet the uncertainty by declaring: "We do not anticipate any change in the price of gold."
A change in the gold price remains highly unlikely, if only because it would do nothing to solve the basic imbalances in the major nations' currencies and economic policies. But moneymen are talking more and more about the need to revalue many currencies at once and to expand the world's monetary reserves by quickly creating a form of "paper gold," the so-called "Special Drawing Rights." To do this, they may decide to hold the first monetary summit meeting since the existing system was set up in 1944 at Bretton Woods, N.H. More likely, they will take less dramatic steps—slowly and in secrecy.
The U.S. can make little real progress toward economic stability, either at home or abroad, until it ropes in inflation. So long as prices and demand rise at today's pace, imports will continue to increase much faster than ex ports, and the integrity of the dollar will be doubted.
Prospects for 1969
There is reason to expect that next year demand will taper and the price spiral will slow. The tax increase is finally beginning to take effect: the after-tax income of the average American, which rose at an annual rate of $36 in this year's first quarter, increased $20 in the second quarter and only $4 in the third quarter. On Jan. 1, the taxpayer will be hit with an increase in Social Security taxes; the maximum payment, for people earning $7,800 a year or more, will go up from $290 to $374. On April 15, millions of Americans will have to pay out a lot more to cover the 10% surtax on their earnings from April through June 1968, when the surtax was not withheld from paychecks. In addition, with the slowdown in Government spending and the rise in tax revenues, the federal budget may even show a small surplus in the current fiscal year ending June 30.
Even so, Walter Heller and other eminent economists maintain that inflation will continue to plague the U.S. for years to come. The task for 1969 is to gain stability without losing much of the very real progress of the past eight years. As former Eisenhower Economist Raymond J. Saulnier notes: "A stabilization program always risks recession."
To avoid that, Nixon's strategy is to cool the economy gradually, probably by concentrating more on monetary policy than the Democrats have done. He also aims to hold back federal spending on social programs by giving rather modest tax breaks and other incentives to private businessmen who hire and train the hard-core unemployed. Though many businessmen still doubt whether they can do more than dent the problem, the National Alliance of Businessmen this year got off to a good start by persuading 12,000 employers to hire 84,000 hard-core jobless people and to train many of them for productive work.