Octopus in a Blanket

In the past nine years, while playing its problem-loaded role of banker and Santa Claus to the free world, the U.S.

has run up deficits totaling $24 billion in its international accounts. And be cause the U.S. permits foreign countries to exchange their dollars for U.S. gold, the balance-of-payments deficit has severely eroded the U.S. gold stock. Today, in the unlikely event that all foreign governments decided to cash in all their dollars at the same time, the Treasury's $13.1 billion store of the precious yellow metal would simply disappear. Last week that unlikely possibility prompted the nation's two largest banks to call for some major changes in U.S. gold policy.

Shifting the Burden. David Rockefeller's Chase Manhattan bank, airing its views in its bimonthly "Business in Brief" bulletin, suggested that the nation make it "unmistakably clear that in a crisis" the U.S. would cease selling gold. Such a policy, the bank contended, would help shift to European countries "the burden of decision regarding the defense of the dollar"--a move that

Chase Manhattan implied might be a pretty sound idea. Two days later, President Rudolph A. Peterson of California's Bank of America went even fur ther. In a talk to the New York Chamber of Commerce, he argued that "as a last resort" the U.S. should refuse to sell gold if the gold drain becomes "intolerable." He added that "there is no overwhelming reason why we should sustain the dollar value of gold. We may have to reconsider our gold-buying policy."

To a remarkable degree, both suggestions echoed a thinly veiled warning issued last month by Treasury Secretary Henry Fowler, who said that European countries are inviting economic retaliation by their failure to help the U.S. end its balance-of-payments deficit. Last week, in a subtle move giving substance to that message, the U.S. offered to boost its dollar aid to poor countries through the World Bank only if an increased share of the bank's loans was used to buy U.S. products. Moreover, Washington insisted that the U.S. share of such "soft loan" largesse be trimmed from its present 42% to 40%. However unpopular abroad, such restrictions would minimize the strain foreign aid places on the U.S. payments deficit.

Piecemeal Harm. In his New York address, Banker Peterson castigated Government efforts to end that deficit as a "piecemeal attack" that so far is doing the nation more harm than good. Such business curbs as voluntary restraint on overseas spending by private companies and the interest-equalization tax that penalizes foreign borrowers in U.S. markets, Peterson warned, "chip away at what makes U.S. and world enterprises profitable and productive. The whole show," he said, "is reminiscent of a silent-motion-picture comedian trying to wrap an octopus in a blanket. Every time he gets one tentacle covered, another pops out."

Instead of worrying about a payments deficit equal to a mere 1/2% of the total U.S. output of goods and services, said Peterson, Washington should develop a new "global economic strategy" that recognizes the extraordinary strength of the U.S. economy. "The anxiety at home and abroad over the soundness of the dollar," he insisted, "is grossly exaggerated. The dollar will remain indefinitely the medium par excellence for financing international trade."

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