U.S. Allies Must Help Solve It

THE gold rush that sent prices spiraling to a six-year high on the London market reflected foreign worry about the soundness of the U.S. dollar. It was a short-term rush; last week gold prices plummeted close to the U.S. price of $35 per oz. The gold balloon was deflated by the U.S. Treasury's firm announcement that it 1) has no intention of devaluing the dollar, and 2) is prepared to sell all the gold needed to stabilize the price on the London market.

There is no such easy solution to the major, long-term gold problem that still faces the U.S. It is caused by the steady outflow of U.S. gold, resulting from a huge deficit in the U.S. balance of payments. (The U.S. lost $108 million in gold last week, bringing the total this year to $983 million.) The latest figures indicate that the U.S. payments deficit rose to more than $1 billion in the third quarter.

Chief reason for the third-quarter rise in the deficit was a flood of uneasy dollars that are always seeking the highest interest rates around the world. They flowed to such countries as West Germany and Great Britain as interest rates eased in the U.S. But the overall and continuing deficit in the balance of payments has a broader cause: the fact that the U.S. is spending more abroad on defense, economic aid, military assistance, tourism and private investments than it earns from its foreign trade, thus piling up foreign claims against the U.S. gold supply.

To keep troops and bases on foreign soil, the U.S. will spend $3 billion this year, most of it abroad. Another $1.4 billion will be disbursed for military aid programs, of which about $300 million will be spent outside the U.S. Of the $867 million that will be spent on economic aid by the International Cooperation Administration, more than half will be spent abroad. To make the balance of payments even more lopsided, foreign investments in the U.S., which usually run at a rate of about $500 million a year, have fallen to almost zero. What can the U.S. do, without angering or hurting its allies and friends, to improve its unfavorable balance of payments?

The answer most often heard: increase U.S. exports to retrieve more dollars. The U.S. has already taken big steps in this direction. Exports this year have increased 25% over last year to an annual rate of $20 billion, bringing a trade surplus of $5 billion. Imports are down 6%, partly because the U.S. compacts have cut into auto imports. Exports could be further increased if Europe and Japan would drop restrictions that they still main tain, despite some loosening, against dollar imports from the U.S.

As a further step, the U.S. could expand its "Buy American" policy so that many of the dollars that go for foreign aid would be spent for materials in the U.S. The Development Loan Fund has already adopted such a policy; the Pentagon last month ordered the military services to favor U.S. rather than foreign sellers in purchasing supplies and equipment for bases abroad. All told, the U.S. could spend at home a total of $1.1 billion of the money allotted for foreign military spending, military aid and economic assistance. This change of policy could be effected without actually cutting foreign aid or military expenditures, but it would change the nature of foreign aid and reduce its benefits materially--and the Government therefore feels that it is not practical.

To solve its balance-of-payments problem, the U.S. must have help from its allies, who must share more in the cost of the free world's defense against Communism, and shoulder a bigger part of the burden of aiding underdeveloped countries. West Germany, which is running a trade surplus of about $100 million monthly, pays not a cent of the $684 million required to keep U.S. troops on its soil, currently sends out only a trickle in foreign aid. It is running at the rate of $100 million this year, totaled only $274 million in the past six years. Last week Germany moved to substantially step up its aid. France, spending heavily in Algeria, feels that all it can afford is last year's $10 million in aid to countries not tied to France.

Only Great Britain, whose own economy is precariously balanced, has shown real willingness to share the burden. This year the British government expects to spend $386 million abroad, v. $204 million last year. This money, along with private investments, goes mainly to underdeveloped Commonwealth countries. Britain also moved last week to help stem the flight of gold from the U.S. when the Bank of England lowered its discount rate from 6% to 5 1/2%.

U.S. officials, notably Treasury Secretary Anderson and Under Secretary of State Dillon, have bluntly told West Germany and France that they must assume a bigger burden of the defense and foreign aid loads, even for their own good. Since most U.S. allies are tied to dollar exchange, any weakening in the dollar strikes at their own liquidity in the international trade that has helped them prosper. Allies of the U.S. who do more would really be protecting themselves.

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