What It Can Mean to the Average American

"I HAVE the same feeling about gold that I get when I read the society pages," said Los Angeles Drug Salesman Peter Davis, 28, last week. "What goes on in high society has no effect on my life--and that's the way it is with gold." Well, that is not quite right. And though the precise effects of the recent gold crisis upon Davis and millions of other Americans remain speculative, one thing is certain: the whole business is going to hit where it hurts.

As a direct result of the gold emergency, the Federal Reserve Board has already raised the discount rate--the interest that Federal Reserve banks charge member banks to borrow money--from 4 1/2% to 5%. That increase will make loans less avail able--and more expensive. Very shortly, people seeking a bank loan for a car, a trip or a color TV set will probably find that it is costing them more in interest than it would have last week; those with less than gilt-edged credit ratings may find it impossible to borrow from a bank. The same principle applies--in a more important way--to home mortgages. California savings and loan associations last week reported their interest rates had gone from 6 3/4% to 6 9/10%. On a 20-year, $20,000 mortgage, that mere .015% increase could cost a home buyer $375 more in interest. Minimum down payments almost certainly will go up. Moreover, since builders will be paying more for land, materials and borrowed money, $20,000 will buy less of a house than it might have only a few months ago.

Then, too, there is always the matter of a tax increase, a measure widely demanded as a sign of U.S. economic discipline necessary to remedy the gold drain. President Johnson has long since asked for a 10% surtax. This means that an unmarried taxpayer who, with an eye toward April 15, has figured this year's federal tax due on $10,000 at $1,742 would next year owe an additional $131, based on a higher tax tor nine months. So urgent has the tax issue become that Washington has begun to talk about returning to the higher schedules in effect before 1964. In that event, next year's bill for the same taxpayer with the same income would climb to $2,096.

Without a tax hike, the Treasury--which already spends 10.8% of national expenditures on interest payments--will have to borrow more money. This would make money available for private and corporate loans even more costly and difficult to get. Since Congress has shown no inclination to go along with a tax increase until the Administration has slashed nonmilitary spending, President Johnson two weeks ago agreed to a reduction of as much as $9 billion in his budget. Such a cut would affect foreign aid, the space program, the supersonic jet, and some or all of $1.5 billion in the highway, flood-control, and federal building programs.

Because the U.S. balance of payments problem is crucial to the gold crisis and because U.S. tourists abroad spend $2 billion more a year than foreign visitors spend here, the Administration has urged a tax on travel outside the Western Hemisphere. The tourist-class wanderer this summer may find his trip to Europe costing an unexpected $100 in taxes. And if the gold crisis flares again, he may find that foreign hotels and banks will--as they did two weeks ago--refuse to accept his dollars or cash his traveler's checks until they feel more confident about the strength of the dollar.

Inevitably and understandably, U.S. spending for the Viet Nam war is blamed for much of the difficulty. "I don't feel like being austere for the reason President John son wanted to be austere," complained Salesman Davis last week, "and I'll be damned if I will." He may also be damned if he doesn't, because a determined government has one more weapon: a return to the mandatory wage, price and credit controls of World War II and the Korean War. -

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