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Nixon appointed Shultz Treasury Secretary last May and in December made him his economic coordinator, the man to whom all other Administration economic policymakers report. Shultz shaped much of the thinking behind Nixon's hold-the-line budget for fiscal 1974, which aims to reduce the deficit, strengthen the dollar and head.off tax increases by cutting or eliminating many spending programs. His power was fully evident last week, when he ducked out of Alice Roosevelt Longworth's 89th birthday party to announce the devaluation at a hastily assembled 10:30 p.m. press conference. The conference was attended by a pride of Government lions: Federal Reserve Chairman Arthur Burns, Secretary of State William Rogers, Presidential Assistant Peter Flanigan and Council of Economic Advisers Chairman Herbert Stein. They sat around like so many movie extras and let Shultz do all the talking. Even the President had nothing directly to say about the devaluation—perhaps wisely. Nixon had hailed the 1971 Smithsonian agreement, which provided for the first dollar devaluation, as "the most significant monetary agreement in the history of the world." He could hardly have followed up by calling last week's move the most significant monetary agreement in the past 14 months.
In part, Shultz was scrambling to recover one of his own fumbles. Last month he helped mightily to sell Nixon on loosening U.S. wage-price controls, and stressed the shift to voluntary cooperation so enthusiastically as to prompt some inaccurate headlines declaring NIXON SCRAPS CONTROLS. That caused some foreigners to fear a new burst of dollar-weakening U.S. inflation. The fear was rather illogical because the U.S. inflation rate of a bit more than 3% is the lowest among all industrial nations, and the launching of Phase III led economists to add only a fraction of a percentage point to their forecasts of this year's pace of price increases. Shultz says that misunderstandings about the new program "could have been a factor, but not a major one" in igniting the latest money crisis.
Another factor was that Arthur Burns has been jawboning bankers to hold down-interest rates. That helps keep the American economy expanding, but also keeps money pouring out of the U.S. to countries where interest returns are higher. Further, the announcement of last year's staggering $6.8 billion trade deficit confirmed foreign moneymen in the belief that the dollar was still overvalued. The root cause of dollar weakness is that ever since the early 1950s the U.S. has been living beyond its means in the world. Consumers, businessmen, tourists and the Government have been spending tens of billions every year to build factories in Europe, buy Japanese cars and cameras, bask in the Riviera sunshine, dispense foreign aid, station troops round the globe and wage the costly war in Viet Nam.