POLICY: Nixon's Other Crisis: The Shrinking Dollar

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Throughout the U.S. economy's ups and downs of the past four years, President Nixon has never managed to rid it of the debilitating fever of inflation. Prices kept rising rapidly through the 1970 recession, in defiance of all economic nostrums. The increases subsided in part because of the wage-price freeze and Phase II controls, but in the five months of voluntaristic Phase III the economy's inflationary temperature has climbed to its highest point in two decades. The situation has helped create near chaos in stock and dollar-exchange markets.

Millions of consumers, stunned by higher prices, go about their daily shopping chores with a sinking feeling and fret over the erosion of their earnings and savings. Along with Watergate—and partially because of the scandal's enervating effect on Government—the state of the U.S. economy has become Nixon's other crisis. Last week the signs multiplied that the President was about to strike back with yet another major anti-inflation program that would add up to a de facto Phase IV.

At midweek the President's three top economic advisers, Treasury Secretary George Shultz, Council of Economic Advisers Chairman Herbert Stein and Federal Reserve Chairman Arthur Burns, rushed home from an international bankers' meeting in Paris. Nixon's new domestic policy chief, Melvin Laird, told newsmen that he would recommend tighter economic controls.

The President himself told a Cabinet meeting late in the week that inflation "is the major problem this country faces," and on Friday, during a commencement address at Florida Technological University, he dropped a heavy hint that a new policy was being readied. After talking again about how grave a problem inflation is, he said: "We have the means to deal with it."

What the new program might consist of was not clear—if indeed Nixon had decided (he warned the Cabinet not to guess "as to what I'm going to do"). But the President's options seemed to fall into three main categories:

1. Impose, once again, a wage-price freeze. Rumors of a new 90-day—or possibly only 45-day—freeze were circulating widely. The attractions were obvious. The freeze that began on Aug. 15, 1971 as Phase I was highly popular and did break inflationary momentum. Moreover, ordering one now would steal a march on congressional Democrats, who were loudly threatening to write a freeze into law. But some of the President's closest advisers, notably Shultz and Stein, who cherish an almost mystical devotion to the free market, seemed strongly opposed; they swallowed one freeze, but might not stomach another.

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