Bad & Good

When the Commerce Department last week released its quarterly reckoning of U.S. international receipts and payments for the first three months of 1968, the totals turned out to be both bad and good. Bad was the fact that there still was a deficit, this time to the tune of $600 million, and that the once heavily favorable trade surplus on which the nation depends had slipped again to a modest $100 million. Good was the news that other transactions--an in flow of $360 million to U.S. banks, the sale of $677 million in U.S. securities abroad--had helped to offset the trade dip. There was also a psychological lift: after a disastrous fourth quarter of 1967, in which the deficit plummeted to $1.8 billion, last quarter's appeared much more manageable.

Nevertheless, it was a deficit. And as long as the U.S. runs a deficit in its balance of payments, it must fight off speculation against the dollar. Two months ago, to beat back the speculators, the U.S. and six Western European allies met in Washington, established a two-tier price on gold. The official price would remain at $35 an ounce, and the seven nations would provide whatever gold was needed to maintain it. On the free market, gold prices would fluctuate. Impelled by economic hunches, speculators last week once again began heavily trading dollars and pounds for gold. In London and Zurich the free-market price of gold rose above $40 an ounce for the first time since the two-tier system went into effect. This was partly because some speculators were holding on to gold they owned, and partly because other speculators wanted to buy more gold. The combination, plus purchases by industrial gold users, sent the price up.

In the U.S., meanwhile, there were other pressures. One was a noticeable tightening of money. In a highly technical move, the interest rate that U.S. banks charge one another for short-term borrowings of surplus funds went up to 61%. In addition, business loans, which had been increasing, finally dropped because money was getting too costly. The bad-and-good situation prompted Treasury Secretary Henry H. Fowler to send out a warning to Congressmen contemplating the long-delayed tax increase, which the Administration wants, and a cutback on Government spending, which it would like to hold down. The way in which Congress equates the two, said Fowler, will affect the "country's international economic and financial future, the strength of the dollar and the preservation of the international monetary system."

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