Sanguine & Somber

After Britain devalued the pound last month, the gold-backed U.S. dollar faced a rush of gold-buying speculators who figured that the free world's key currency was next. Last week, well after the gold rush had subsided, President Johnson saw victory. "The speculative attack on the system," he said, "was decisively repelled." The price? "A relatively small cost in reserves."

These were reassuring words--and some reassurance was needed. The week of speculative fever following Britain's devaluation cost the U.S. $475 million in gold. That was the biggest single week's loss ever suffered by the nation's steadily dwindling gold reserves, which as a result sank to a 30-year low of $12.43 billion. And because $10.45 billion worth is used as backing for currency, the loss slashed by 20% (to some $2 billion) the "free reserves" available for redeeming foreign-held dollars (currently $14 billion) in gold.

For the most part, the $475 million went to cover the U.S. commitment to the seven-nation international gold pool in London. Meeting secretly at the Bundesbank in Frankfurt when Britain devalued, the pool governors determined to continue sales of gold at $35 an ounce in order to thwart speculators who bought in hopes the price would rise--which would, in effect, devalue the U.S. dollar. The big payment by the U.S., which has a 59% share in the pool, by no means represented the total cost of the defense. Britain, West Germany, Italy, Switzerland, Belgium and The Netherlands, who hold the remaining 41%, also contributed heavily in defense of the dollar.

Some money men think that such efforts cannot continue for much longer. As somber as L.B.J. was sanguine, First National City Bank Chairman George S. Moore last week told a National Association of Manufacturers meeting in Manhattan that the sterling crisis only showed that "the dollar is at bay." Before long, he warned, rising inflation, the "virtually out of control" budget deficits and the deepening balance-of-payments problem might force the U.S. to devalue by raising the $35 gold price, which it has maintained since 1934.

Few would disagree with Moore that the nation's fiscal problems need attention. Yet the point at which the U.S. can no longer defend the price of gold --and thus the dollar--hardly seems near. Although the U.S.'s gold supply has fallen far from its $24.6 billion peak of 1949, the nation's gold pool partners and its creditors throughout the world are not at all anxious to bring down the present monetary system by drawing out the remaining U.S. supply. And Congress, as Moore urges, may soon expand the available supply by ending the requirement that enough gold be kept frozen to back a minimum 25% of the value of currency in circulation. That would free all of the nation's $12.43 billion in gold for the support of the $35 price abroad.

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