POLICY: Nixon's Other Crisis: The Shrinking Dollar

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2. Move back toward a controls policy more closely resembling Phase II —which went into effect on Nov. 14, 1971—than Phase III. The key would be making controls mandatory rather than voluntary. Under the mandatory controls of Phase II, a businessman who raised prices beyond Government-set limits broke the law and subjected himself to penalties: fines or orders to make refunds to his customers. During Phase III, a businessman who raises prices beyond guidelines has been guilty of nothing worse than a bad guess, and subject to no more severe punishment than being told by the Cost of Living Council to reduce or cancel the increase. Even that threat has been strictly theoretical: the COLC has not yet disciplined even one company for violating Phase III price guidelines.

3. Order a package of miscellaneous measures. The President could, for example, reimpose mandatory controls on selected industries, or order the COLC to draw up industry-by-industry guidelines specifying what increases in profits would rule out further price boosts.

A Commerce Department official speculates that the COLC could also order price rollbacks by companies that have posted especially rapid profit increases so far this year. Still other possible moves being considered include a freeze on its price of retail gasoline and extending controls to food products at the farm level. Finally, the President also could—at the cost of violating an all-but-sacred campaign pledge—try to raise taxes in order to siphon some money out of an economy that seems to be in a runaway inflationary boom.

Too "Preoccupied." The one choice that could fairly be called, in what has become a famous word, inoperative would be to do nothing. If the long roll of publicity drums heralding a new anti-inflation policy were to be followed by silence, Nixon would risk disastrous repercussions on stock prices at home and the value of the dollar abroad. He would reinforce a spreading impression round the world that the Watergate scandal has so immobilized him as to make economic policy an affair of drift, indecision and inattention. Watergate, indeed, is becoming a major economic as well as political force.

It would be wrong to blame all or even most of the nation's economic woes on the scandal; inflation undoubtedly would be soaring, the dollar sinking and the stock market slumping if Watergate meant no more than just a fancy apartment-office complex. But the scandal has fostered a belief that nothing has really been done about any of these problems—and foreigners have been spurning dollars and investors selling stocks in response.

"Watergate has cast doubt on Nixon's ability to conduct a policy that would help improve the U.S. balance of payments deficit," says Dr. Hans Mast, economic adviser to Credit Suisse, a major Swiss bank, in partial explanation of foreign distrust of the dollar.

Robert Kern, vice president of San Francisco's jeans-making Levi Strauss & Co., laments: "The nation is floundering around like a ship without a rudder because of Watergate. Everyone is looking for some leadership and direction." Robert Gutenstein, an analyst at the Manhattan investment house of Kalb Voorhis & Co., reports "fears that Nixon is so busy covering himself that he is not managing the economy."

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