Speech

FACING UP TO THE PROBLEM* I know some of you in this group Participants in this American So- Strong Currency because I see a number of our di- ciety of Newspaper Editors meeting, rectors here and we've been privileged Mr. Philips, I thank you for the And, I believe that a strong cur- to have a number of newspaper people. gracious invitation. rency is certainly a prerequisite that As chairmen and deputy chairmen of I have no manuscript, no prepared I don't have to try to sell to this text today and I hope none of you will our Reserve Banks around the country, group as the necessary background think this is out of disrespect to this they have heard me say from time to any country that intends to be group but things have been changing to time that the important word in the great. so rapidly that if I had written any- title is "System" and we have twelve We also spend a lot of time talk- thing it probably wouldn't have been banks, 24 branches, Federal Advisory ing about the desirability of low in- worth anything by this morning. Council and 250 directors that cover terest rates and I have repeatedly I also have been singing the same the entire country, coordinated by a stated my conviction that we ought to tune for so long that I have come to Board in Washington which has au- have as low interest rates as is possi- the conclusion that it would be easier thority to pull things together and to ble to have without having inflation. to find a new audience to listen to it make decisions when decisions have to I have never been a disciple of than it would be to prepare a new be made. higher interest rates, but I want to tune. emphasize as I have tried to re- So that I have really nothing new Institutional Framework peatedly in recent years if you have particularly to say this morning, but unsound fiscal and monetary policy I have a feeling that what I have to And, although people from time you will inevitably have high interest say is of some importance, otherwise to time have questioned whether any- rates and higher interest rates. I wouldn't take your time or mine thing as cumbersome as this could to be here, because I think we're in a actually work effectively, I think over Low Interest Rates difficult period. the period of the System's life, it has I want to introduce my remarks by worked reasonably effectively and that I remember very vividly when I a few comments about the Federal Re- it has preserved as far as this is took this position under President serve System which I have (been possible in an institutional framework Truman back in 1951, having a talk privileged to lead for a good many what we need to keep in focus—the with him at the time and he was talk- years now and I go back 35 years importance of currency. ing about the desirability of low in- to a lecture on political science at Ox- Now, actually I think that we fail to terest rates and I was trying to point ford University where a noted political recognize that there is only one agency out to him the problem of a pegged scientist was holding forth in a rather of the Government that devotes it- Government securities market. dry and discursive way about political self full time to the currency of the I said, "Mr. President, you and I science and, particularly, in respect to country and I think we overlook fre- want exactly the same thing, but if the United States and i was almost quently how important that currency we have unsound fiscal and monetary asleep when I heard him say that the is and without developing the theme policies, I can assure you there is United States has produced only two of evolution from the early days of nothing in the wide world that will uniquely American contributions in the country into a merger of private make it possible for you to have the field of political science. interest and Government interest into moderate or low interest rates. The The first was the Northwest Ordi- this institutional framework of the history of this through the years is nance that provided for the merger of Federal Reserve System. This was very clear. Unsound fiscal and mone- the colonial wilderness into Statehood dramatized for me most effectively tary policies lead to high interest rates and the second is the Federal Reserve when I attended a little exhibition on and strained credit conditions and System that provided a merger of money in Lausanne, Switzerland a this has been a noteworthy attribute public and private interest in a de- couple of years ago and as I came out of those countries that have followed centralized central bank adapted to the I saw written in large letters in unsound policies." American expanse of a large country, French, Italian, and German and I know some of you will forbear a growing, developing country, in a then, in parenthesis in English, what my telling my favorite story on this way that is beneficial to preserving is a Swiss proverb, "Good money is again, on one of our friends in Latin the currency of the country. coined, C-O-I-N-E-D, coined freedom." America, explaining the situation in And this struck me, I was taking And I think if you stop and think this country. He said to me, "You notes at the time, and I wrote it don't understand the way things are down. I had no idea that I'd ever be about it you will see that there is a down here. When prices rise 40 per in this position at the time but I great deal of truth in this and that cent, we fight inflation. When they rise thought about it a good bit since and this perhaps has been one of the 20 per cent, we fight deflation." I've been convinced that there's a reasons that the Swiss people have great deal of truth in this, that we had as much success as they have. Perpetual Deficits have in the Federal Reserve System an evolutionary development of the Amer- Now, this is the upshot of what I ican heritage of recognizing the im- call perpetual deficit. portance of a sound currency and of Now with this as a background I doing what's necessary to preserve want to analyze for you the situation it. as I see it in the country today. * (Extemporaneous remarks of William McChesney Martin, Jr., Chairman, Board of Governors of the Federal Reserve System before the American Society of Newspaper Editors meeting in Washington, D. C., April 19, 1968. This unedited text was transcribed from a. tape recording.) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Since the Summer of 1965, we have think to be necessary under present the Western World until, gradually, steadily and persistently over-ex- conditions, we will be facing a budget by the early part of the 1960's, it be- tended and over-committed ourselves deficit in 1969 of $20 billion plus. I came apparent that our balance of abroad and, perhaps, under-com- consider this to be. a deplorable situa- payments deficit was progressing too mitted ourselves at homo, and we tion. long and that the balance of payment surplus of Western Europe was also have slowly worked ourselves into a It is actually an intolerable situa- progressing too long, and that it had position of what I call growing per- tion because, if during a period of the become imperative both for the United petual deficit. activities that we are presently hav- Kingdom and for the United States, Deficit finance is not necessarily a ing, we cannot make any progress who were running balance of pay- bad thing. toward a balance budget, when in ments deficits, that they move from But, when you look at the necessity the world will we make any progress large and persistent deficit in their of paying your bills, you have to towards it, because you cannot assume recognize that there comes a point at that always you are going to have balance of payments, move away from which it is important to raise the conditions such as these. it, toward balance and that Western Europe move away from large and revenue to pay your bills even though Now we all know the impact of persistent surplus. it may not be the most precise and de- Vietnam, we all know the impact of a sirable way to either stimulate or re- great many other activities that have Obvious necessity tard the economy. taken place in the recent period, but For a long time I think, the Ways hero I want to point out that we have and Means Committee thought of been, to a certain extent living, in a This was an obvious necessity for taxation only as a matter of taxation fool's paradise. mutual cooperation and it was in this framework that the central banks de- for revenue only. I think in recent Because, when you pause and look veloped a swap network, developed years we have turned around and at the world we are living in, we are general cooperation centering fre- we think of taxation not for revenue no longer living in a peaceful world. quently around the Bank for Inter- but taxation to either stimulate or We have Vietnam, we have North national Settlements and in the vari- retard the economy. And, I think as Korea, South Korea, we have the ous meetings abroad of the Working we have done this we have gradually Middle East, wo have five divisions in Party Three and the OECD, it had been put into a position where deficit Germany, we have our French friends been generally conceded that this has become a good word and surplus not exactly sympathetic to our aims was the way to pull things together has become a bad word. in Vietnam or to our basic policy in and to get a foundation that we could several other directions. I am not build on. Road to Trouble criticizing them for this, I am stating this as a fact. We then found very quickly that we were dealing with other basic prob- And this, I think, is the road to— Now under these circumstances, the lems here. I will not go so far as to say complete type of cooperation which is necessary disaster—but it is certainly the road •for building a foundation for a higher We were, on the fiscal problem, the to trouble. standard of living for all peoples is fiscal and debt management problem, It's the wrong road to be traveling. seriously undermined. And, yet we the deficit we were running from the Now our budgetary situation today have been acting as though we could budgetary side, had now gotten so is familiar to all of you. have liberal trade policy and we could largo that it was putting constant I am not 'going to try to go into move along exactly as though this pressure on interest rates and forcing the technicalities of it but we have was completely a cooperative and thorn up, in some instances, until it had 1965, '66, '67 and part of '68 and peaceful world and the result is we was absolutely essential that we have all during that period we have had have gotten in deeper and deeper, in complimentary fiscal policy, either a virtually full employment and there my judgment, into trouble. And, along reduction in the expenditures or an may be some argument about the de- with this, of course, has gone an in- increase in taxes or both, probably gree of this, but if you take the fric- tolerable deficit in our balance of both, if we were to get this budget tional unemployment and you take the payments. deficit into more manageable propor- people, and I say this will all candor, tions and to have a consistent fiscal that are virtually unemployable un- Reconstruction Aid and debt management policy that less they are retrained or their per- could be manageable and it has grad- spective in life is changed, you have At the end of World War II, and as ually become impossible to do this had, in my judgment, largely a period a means of helping reconstruction in with the recalcitrance on the part of of practically over-full employment the Western World, and as the basis the Congress to face up to the Presi- during this period and, certainly, a of the cooperation we all intended to dent's request for an increase in taxes, shortage of skilled labor. produce and to strengthen, we delib- or a reduction in expenditure?. Therefore, we have not been faced erately ran a deficit in our balance Expenditure Reduction with the social necessity of trying to of payments in order to have our provide employment. Rather, we have foreign friends have an opportunity Now, let me say to this group that been faced with the social problem of to accumulate reserves as well as to I think it has been sort of tragic developing responsibility, and devel- get some needed equipment and re- that, regardless of whether you are oping an understanding of the mak- sources, and the only trouble is that on the side that we ought to reduce ing of permanent jobs and not just we kept on at this too long. expenditures and pay no attention to "rake leaves" jobs, or temporary If we had really been seriously con- increased taxes, or the side that we expedients. sidering at that juncture doing some- ought to increase taxes and not re- thing on the world monetary system duce expenditures, that we have been Intolerable Situation and changing the price of gold when letting the child fall in the middle. we had $25 billion of' gold, $24 billion We have been arguing backwards We start out with a prospective de- plus, that would have been the ideal and forwards on this for over a year ficit which was part of the tax reduc- time for the standpoint of the United and the result is that we are in danger tion program of a modest nature and States to have changed the price of of harming the entire body politic, by we see this continue up to a point gold. We forwent that and we de- not coming to grips with what is the in the year ahead, fiscal 1900, unless liberately participated in what I think basic problem. Now, along with this, wo get the tax increase and the re- was a splendid foreign policy pro- and as a by-product in part of the duction in expenditures which is pres- gram, the Marshall Plan, and we made wartime pressures, we start out say- ently contemplated, both of which I our remarkable progress throughout Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis ing, yes, we can have guns and butter, And here is where monetary policy Weren't Sympathetic and this is just a little war, this war comes in and makes its contribution. in Vietnam—in testifying before the As long as the savings of businesses But, the thing that came out of that Ways and Means Committee I stated, and individuals are equal to the re- meeting, and was clear was that our and I still think it, that one of the quirements for credit, and you do not Western European friends were not tragic things is that we were treating have full employment, or fully really trying to unhorse or unseat the the war in Vietnam, to a large extent, utilized resources, and I say efficient dollar—the French perhaps excepted, like a baseball game — which we resources, because we are in a tech- I won't go so far as to say they were looked in and looked on the side and nological revolution, where what is doing it deliberately, but certainly thought that was a nice game and we efficient today is obsolete six months they weren't as sympathetic to our took the names of players and who from now or a year from now so that plight as others, this was not really got a home run and who did'nt [didn't], we the figures of plant capacity that you the problem. saw it on TV, and unless we had someone in our own family or some- frequently see, have to be weighed at What the problem was that they body directly connected, I think it's all times against this word, efficient. were beginning to lose confidence in been off in left field most of the time. If we have relatively full employ- our ability to handle our affairs say- ment and fully utilized efficient re- ing the United States is going to fol- Not a Small War sources, and under those conditions low the same pattern that Britain has the central bank creates money or followed. And that unless you take I think now we've come to realize if you like the phrase better, prints steps to get your balance of payments that it is not such a small war, that money, I think it can only do one in better shape than it is now, we the inequities of the war are quite thing, that is, depreciate the currency. don't want to carry dollars in our re- different from the relationship of the serves to the extent that we are Now this brings me really to the gross national product to the war. presently carrying them. heart of what I want to say today— And to again concentrate on this that we have an intolerable balance of Well, after that meeting, why, we budget aspect, I have never person- payments deficit, which goes side by had a session with the President and ally worried too much about the size side with an intolerable deficit domes- Secretary Fowler and myself and of our national debt. tically. went over this situation and it looked A good many of you have heard me Both of these have to be corrected like the situation had stabilized say this when, as a ratio of our gross and have to be corrected over the next slightly and, to a certain extent, rea- national product it tends to diminish, several years, or the United States sonably, and then we were up against and I am talking about diminishing in is going to face either an uncontroll- right away the fact that all sorts of terms of constant dollars. But, when able recession or an uncontrollable Congressmen and others who were in terms of real dollars, the ratio of inflation. sympathetic, who had been more or our national debt to our gross na- less sympathetic to reducing expendi- tional product tends to reverse and Gold Run Problem tures and raising taxes, said, well, move in the opposite direction, I think see the problem is all settled, nothing it becomes a basic concern to each one Nobody can measure exactly how to worry about. You have had an of us and, certainly, we cannot blame these forces will be brought together, agreement at Frankfurt. We can just our foreign friends who are largely but I think it is quite obvious that go on with business as usual, and we depositors over here today from look- this is the direction in which we will don't have to worry about it. ing at it askance and saying, well, move. Well, as this floated back to our these people are not managing their Now, as I said earlier, what I am European friends, we had another currency in a way so that I want to really talking about here is this prob- gold run. And, despite Secretary keep dollars indefinitely. I want to lem of the gold run that occurred. Fowler's and my efforts to make some use these dollars, not necessarily for We saw in Britain, for a long time, people on the Hill realize the im- reserves, but only where I am sure this dilly-dalling [dallying] around with coming portance of this, and I think they do, that I can get value received for them. to grips with either the balance of the battle between those who wanted Along with this, and this is my payments situation or their domestic to recognize the importance of our point on the wage-cost price front, deficit until finally this November the deficit, said well we can't do it this came very rapidly a decline in produc- British devalued and their devalua- way, we must do it this way and we tivity— statistically, I don't think this tion, despite the fact that it has been couldn't get any agreement and so has been measured accurately yet, but foreshadowed by temporary paper- another gold run developed. I am convinced that our productivity ing over for a period of nearly three This was pulled together at a meet- gains are less than 3 per cent today, years, was a shock to the Western ing in Basle in the first week in De- and our wage settlements have been world, and it placed immediately a cember. running 6 per cent, 7 per cent, and strain upon paper currencies all over 8 per cent and 9 per cent—and in our the world. Heading for Trouble neighboring country to the North, we Within a week of the devaluation of have been having even a worse, larger the British pound, there was not a And here, we lost about $400 mil- gap between wage settlements and flight from the dollar, actually the lion in pulling it together, but we fi- productivity. flight was from the pound into dollars nally stemmed it and then we realized This has to be covered in some way. to get gold. that we were heading into more The flight was from other curren- trouble and so, on the telephone, I got Serious Deflation together with the central bank gov- cies into dollars in order to get gold. ernors of the Western powers and There are some defeatists who say It was a general deterioration, dis- said to them, "We are aware of the it could only be covered by a serious integration of confidence in paper fact that we have an intolerable bal- deflation. money generally, and this precipi- ance of payments' deficit and we have tated the first gold rush that we had I don't think this is necessarily so, an intolerable domestic deficit and following the pound and this was re- but it certainly can't be covered by a steps are going to be taken as rapidly solved by the gold pool at Frankfurt, continuous and rising deficit. as possible to correct this." where Under Secretary Deming did an effective job of pulling the gold pool together and saying that it is essential that we deal with this prob- lem. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis And, having stated this, why, they I think in the course of the last This has brought about the steel agreed to continue in the pool opera- year—and I don't think the Federal people, the textile people, and others tions, and I was in touch constantly Reserve ought to be in politics as to wanting to revert from the liberal with this group and the Common what the specific cuts ought to be, but trade policies that had been developed Market group were prepared to moni- I do think the Federal Reserve has so satisfactorily through the years tor their transactions in such a way a responsibility with everyone else in to direct quotas and tariffs and regu- that even though it was painful to the Government to point out the dis- lations of this sort. And I am sur- them, they would face up to our tak- aster, the disastrous effects of a per- prised that it has not risen more than ing the steps that were offered to petual deficit, both in our balance of it has and yet, despite this period, we the public and to them, if you want payments and in our domestic econ- have had a united Government posi- to put it that way, in the balance of omy. tion on this. We have had the Presi- payment program of the President dent, you may quarrel with details, I think this is something that we on Jan. 1st. you have had the Council of Economic have to do and that this is not politics Now, let me say a word about that advisors, you have had the Treasury, in the partisan sense that some of program. and you have had the Federal Re- you think of it. That program is definitely a step serve Board, all in their individual backward. It is not consonant with Keep Focusing way doing the best they can do to the principles of Bretton Woods, tackle this deficit. multi - lateral, non - descriminatory [disIc ritmhiinnka toirty ]is absolutely vital that Now, I concede that I would tackle trade and convertible currencies. we keep focusing on this problem in it differently than some others. a direct and in a sensible way. And I might have more emphasis Cut to Ribbons Well, we then found in the course on one thing and another, but I have of another six weeks that we were reached the point, and I have sup- It was forced upon us by the ex- in the midst of another gold run. ported it as vigorously and actively igencies of the situation and by the And, in the six weeks preceding as I can, publicly and privately, I fact that for over a year we had been this gold run, again we found that have reached the point where I just trying to get a reduction in expendi- the pressure on Congress to do any- don't want to see the country go into tures and an increase in taxes to get thing, which had intensified with the the difficulties that I can foresee, this budget deficit into more manage- devaluation of the pound and with coming not right away, that are able proportions. And we have been the first two gold runs, was now going to be brought about by failure constantly cut to ribbons by the beginning to get even worse as they people who said, well, you might pre- found that the balance of payments to deal with this. cipitate a recession or a depression program that the President had an- We are in the midst, and I say this and the people who said, well, of nounced was not being terribly ef- — I am not speaking off the record, course, this is desirable but you have fective. I am speaking on the record — we to do it this way, you can't do it that Not ineffective so far as the ac- are in the midst, in my judgment, of way, and the people who were for tual items under control were con- the worst financial crisis that we have expenditure reduction across the cerned, that is direct investment in had since 1931. board, but when it came to a specific tourist trade and so forth, but inef- This is distinct from a business item were against doing anything, fective on the basis of it, which is crisis. and under these circumstances we the current account. How In an Inflation were more or less compelled to go A current account surplus that the forward with this step backward so United States had up to $7 billion The difference between the financial far as freer trade and progress to- in 1964 had run down by the fourth crisis of today and the financial crisis ward a better foundation for a higher quarter of 1967, to where it was less of 1931 is that we are now in an in- standard of living that I believe was than $4 billion and, if you excluded flation. In 1931, we were in a de- evinced in the stop-gap program pro- foreign aid from it, it was virtually flation. duced by the President in which I no surplus at all. It is, in some respects, harder to do participated fully on Jan. 1st. things when you are in an inflation Bit of Statistics than it is when you are in a defla- Interesting Illustration tion. And you say, why did this happen Let me give you an interesting and how did this happen? I remember the 1931 period very illustration of this by saying that one Let me just bore you with a little well because I went on the floor of the of my best friends, who has known bit of statistics, part of the reason Stock Exchange the day that England me for many years, got in touch with for its happening and happening so went off the gold standard and every- me and said, "I never expected to quickly was the fact in the third thing was pandemonium around the see you sell us down the river on quarter of 1967, we had inflation in place and it was the . end of an era these controls. I don't intend to cur- this country to the tune of an in- in one sense, but it was basically a tail my traveling and I don't intend to crease in the Gross National Product period when you could see that there see direct investment curtailed in any of $16 billion, over half of which was were fundamental changes taking way and I just think it is utterly out- lost in prices. And in the fourth place. And it was not hard to make rageous. I never thought you would quarter, we had another increase in changes. It was easier to make participate in anything like this." the Gross National Product of $1(5 changes under those conditions, the This was a very good friend of billion plus, over half of which was conditions of deflation, and distress mine and I said, "well, what would lost in prices. And in the first quar- and want than it is today when things you have done?." ter of 1968 which is just closed, we are going high, wide, and handsome have a very dramatic record increase in a great many directions and what "Why," he said, "I would have in our Gross National Product of $20 you are talking about is something gotten a tax increase. I would have billion plus, not quite as bad a rec- that may be a year or 18 months reduced expenditures." ord on the loss of terms of price but ahead. Recently, I had a very inter- "Well," I said, "what in the world nevertheless serious enough so that esting discussion with a very in- do you think we have been trying to our competitive position is under- telligent Congressman who said to do for six months?" mined and this has brought about, me that I agree with your analysis all the protectionists' sentiment just 100 per cent; I am sorry that I which you see throughout the land have to vote against the tax in- today. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis crease, but I think what you are talk- And, we needed to get an increase I don't want to take myself too ing about won't occur for another 18 in taxes to cover, to help reduce the seriously. That is a very easy thing months and I want to be in office budget deficit of over $20 billion to to do in a position like mine and I when it occurs. the neighborhood of less than $8 want to act responsibly. billion. I don't know what responsibility Really Distressed Some of you will say, and some really is in a position like this. people have said, but, my gracious I have tried to make my position I hope that the electorate is not that is only a debt, we still have an clear. that dim-witted, I'm not sure that $8 billion deficit. Over a period of time, I think there he may not be right but I was really The problem here is the trend. is a disposition on both sides of the distressed to hear him put it in those What I ran into with the central aisle in the Congress to face up to terms. I think this is where you bankers is the trend is what worries this problem. have the test of democracy. We are us. But, I'm convinced that we can't go a rich people, we can afford to do And, they said we don't expect you on indefinitely trying to sweep this most of these things if we are to balance the budget overnight. We basic problem under the rug. willing to pay our bills, but if we don't expect you to correct your bal- Now, here we come to the test of assume that, because we are rich, ance of payments' surplus to the dol- a democracy. we can ignore the necessity of pay- lar overnight, but this constant trend Many years ago, the totalitarians ing our bills, I think we all know in one direction simply disturbs us and others have said that democracy where we will end up. to a point where we say to you, isn't capable of handling its own Now I have been wrestling with kindly, and I said this to the Presi- affairs. this for so long that perhaps I have dent as directly as I could, unless It won't deal with this sort of prob- gotten a bit jaundiced on it, and I we reverse our trend, our current lem. want to make very clear to this group trend, on the balance of payments, Mutual Cooperation that I am not suggesting that the it will inevitably lead to world-wide world is going to come to an end if devaluation of currencies. I refuse to be that skeptical, but we are forced to the point, and God This is not a disaster story. The I say that in this matter of a world forbid, that we have to take more world would not come to an end if we financial mechanism that it requires drastic action, but I want to say that did that. And there are some academic mutual cooperation and it requires it has been touch and go and I have economists that would like floating understanding. been distressed by the feeling of a rates. But, I think it will be the great many people that you can sweep When we came to the meeting that these things under the rug. greatest setback, financially, that this established the two-tier gold system, country has faced, certainly in my here in Washington it was apparent Third Gold Crisis lifetime, and I think it will take us that our counterparts were not a long time to recover from it. anxious to embarrass us. They fully When March came along, and we It is going to be a long time before realized the difference 'between gold were in. our third gold crisis, serious we will be in the position that we now as a commodity and gold as a stand- gold crisis, with the support of the are where the dollar is the counter- ard. President and the Secretary of the part of a great power—diplomatic, I don't know what the price of gold Treasury, I went to the Bank for military economic. I go back to my ought to be as a commodity. I say to International Settlements in Basle studies in finance and I remember the this group that I studied it off and on and I spent two days talking to my day of the Athenian owl. for a long time and I happen to think counterparts there and I did nothing Commanded Respect that it is less than $35 an ounce as a to promise them that anything was commodity, whatever artistic and in- going to be done here. And they were It was an export currency that dustrial value it may have. very careful, they said to me why commanded respect all over the world. But, I don't think you can separate we read where some Senator says it from gold as a standard, and gold I remember my studies of the de- we should not give any advice to you as a standard is an evolution from cline and fall of the Roman Empire. people at all and I said to them, barter and it has become the corner- I am not trying to be dramatic or well, yes you shouldn't give us any stone of our monetary expansion of engage in histrionics. There was a advice, perhaps, but you are deposi- our credit base. time when the Dutch guilder had a tors and the banker doesn't kick his I have no expectation that gold position that was pre-eminent around depositors in the teeth. I'd like to will be demonetized in the near future. the world. And, only recently, the get your advice, I'd, like to know I see no reason why it should be. British pound has been in a pre- what you are thinking. And after What we need is a supplement to eminent position and today it is two days, we recognized that the gold, not a substitute for gold, and in gone. British were up against the budget this the Stockholm meeting which Not only is the empire gone but as problem on March 19th, that some- culminated after meetings in The a counterpart of it, the pound is gone, thing had to be done with them, Hague and two meetings in London and there is only left the American they have a problem of expenditures, and in Rio, brought under the ex- dollar. and that we still hadn't been able pertise of the International Mone- Now I am not suggesting to this to do anything, we had a gold cover tary Fund, a conscious and deliberate group that it is necessary for us to that we were trying to get removed means of creating, on a joint mutually devalue the dollar. and which we did get removed by basis where everyone can participate As a matter of fact, if I thought two votes, but this gold cover re- to the extent they want to partici- that I would probably quit my job. moval was only one item of the pate, a new unit of account that can I think it is up to me to stay in three things that were necessary. circulate between central banks as and fight to the last ditch to preserve a supplement to gold, hot as a sub- this dollar. Budget Priorities stitute for it. And I hope that there are some of you in your spheres of influence that We needed to have a reduction in will take this as seriously at I do. expenditures that would put this budget in terms of priorities, in a better situation that it is now. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Host Helpful Hot Impossible And, this is the most helpful thing But it is not an impossible task, that has developed. and I just believe down deep that the Secretary Fowler did a remarkably American people, when they really good job, in my opinion, at Stock- realize what's involved in this, don't holm, because the French were putting want us to go through a gold crisis themselves in the position—if you which will compel us to continue to read Minister Debre's statement—they siphon our gold out, and the meeting were putting themselves in the po- that we had here of the two-tier gold sition of saying, "our diagnosis of system was predicated on the faith your situation is that you don't have and the part of the participants, that the capacity and ability to handle the United States, and Britain to a your own affairs. If you demonstrate lesser extent, and other countries, that you have that ability to manage were going to do a better job than we your own affairs, then we will join have been doing in the past and with you." putting their own affairs in order In other words, they were putting without just assuming that because themselves with one foot on first base they were rich, providence would take and home plate, too, and keeping care of them . themselves in a position where they A Financial Crisis can join up if there is an indication on the part of the United States that Now, I have wasted some of your we are going to come to grips with time, and perhaps with this, but I this problem. Now for the last 4 1/2 feel very strongly about it I hope or 5 months, we have been following I'm not emotional about it, but I a more restrictive monetary policy. honestly and truly believe that this is Another Step a crisis, a financial crisis that isn't understood by the public. Yesterday, we took another step in I'm not sure that it can be put in this. terms that the man on the street We have done it gradually, effec- understands per se. tively, I think, persistently, and I Your're [You're]better at this than I am. think we have tried to do it in a way But, I think you probably under- to avoid the so called crunch of 1966 stand it and what I want to leave with and I believe it can be of help. you today is, as far as the Federal I think that if we had had this Reserve has any ability or capacity I dealing with our budget and our bal- want to assure you that we're going ance of payments deficit a year ago, to do everything at our command, everything we possibly can, to see six month ago even, it would not have that the American dollar stands high been, necessary to have as restrictive and is something we can be proud of. policy as we presently have. I'm not suggesting that if we get an increase This is really all I have to say. I have taken a long time to say it in taxes and a reduction in expendi- but I tried to keep it in the perspec- tures tomorrow that we can auto- tive that the runs that we have been matically have an easier monetary having, each one of them, has been policy the day after tomorrow, but I followed by the same sort of thing am saying that, without this, I'm that has followed the meeting here in making a plea that we have to do Washington when an individual called something about this. I see no way me up after the first two weeks of that monetary policy, unless you want publicity on it and said, "Isn't it to bring the economy to a complete, wonderful? That's a great job you grinding halt which nobody wants to did. You've solved that problem." do, I see no way how monetary policy Well, I can assure you that this is the can change a more than $20 billion exact replay of what was going on in deficit that is getting progressively Britain in the last two or three years worse. and I just hope and pray that it isn't We have got to reverse that trend. going to happen here. Thank you very Now, there is all sorts of room much. within priorities how this can be done. We have to space a lot of things out differently. And I know the dif- ficulties, the political difficulties and the economic difficulties of some of this Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

William McChesney Martin, Jr. (1968, April 18). Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/speech_19680419_jr.

@misc{wtfs_speech_19680419_jr.,
  author = {William McChesney Martin, Jr.},
  title = {Speech},
  year = {1968},
  month = {Apr},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/speech_19680419_jr.},
  note = {Retrieved via When the Fed Speaks corpus}
}