Worrying About Money--But Making It

Though the world's wealthiest nation sells $4 billion a year more abroad than it buys, it still has to fret over its international finances. Now that the U.S. Government has taken three crucial steps to keep its limited supply of gold from flowing steadily abroad, the new concern is: How will these restrictions affect a delicately poised U.S. economy?

Congressional hearings last week revealed considerable opposition to the Federal Reserve Board's discount-rate hike on the part of Congressmen who fear that it may restrain domestic economic expansion; the Board itself is known to have split over the move. While supporting the increase on the ground that it will affect mostly short-term borrowing, Walter Heller, the President's chief economic adviser, showed his concern about any further rate rises: "Clearly, this is no time for tightening long-term credit."

Penalty for Aid. Bankers certainly do not mind higher interest rates, but the financial world is concerned about the second Kennedy step: the new tax on U.S. purchases of foreign securities. As financiers see it, the tax may weaken the nation's position as banker to the world, and may be just a precursor of more controls. The Administration's third step--an arrangement to borrow up to $500 million from the International Monetary Fund--brought home more eloquently than ever before the gravity of the U.S. payments squeeze. All this concern about money has hardly helped the stock market, which has dropped 4% in the past fortnight.

That the U.S. finds itself in a payments squeeze is a measure of the poor state of the world's monetary system. Last week a Government-financed report by the prestigious Brookings Institution found that the real problem is not the transient U.S. payments deficit, but the lack of enough gold and currency reserves around the world to finance the growth of global trade. The report foresaw a U.S. payments surplus by 1968, but even that would be no full solution; a surplus will lead to deficits for U.S. trading partners, which will then react by restricting their imports from the U.S. Needed: a new, broader-based monetary system that will not penalize the U.S. for the aid it pours abroad.

Solid but Moderate. The whole debate over money comes at a time of critical importance for the U.S. economy, whose current economic upswing is already 29 months old and unusually sensitive even to minor tremors. Last week Walter Heller described the economy's growth as "solid but moderate," reflecting some Administration disappointment that the gross national product in the second quarter grew by only $7 billion, instead of an expected $10 billion, to $579 billion. "This is no boom," he said.

Fortunately, businessmen themselves have reason to be more optimistic. Consumer spending has been holding at a high $20 billion monthly, auto sales are still setting records, and the annual rates of Government and business capital spending are each expected to jump $3 billion in the second half. And though business profits usually slope off as a recovery ages, reports of second-quarter earnings so far are unusually good. Average gains by industries:

Chemicals Up 9%

Electronics & Appliances Up 12 Paper Up 13

Railroads Up 29

Steel Up 200

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