Foreign Relations of the United States, 1964–1968, Volume VIII, International Monetary and Trade Policy

34. Memorandum From the President’s Special Assistant for National Security Affairs (Bundy) to President Johnson¹

Washington, February 1, 1965.

SUBJECT

• Cabinet Committee Meeting on Tuesday²

1. Douglas Dillon now agrees to a balance of payments meeting on Tuesday, and I enclose the almost final draft of an agreed paper from the Cabinet Committee to you, for your reading this evening.³

2. As you will see the principal divided issue that remains is the travel tax.

3. In the background there are also latent differences about the effectiveness that “moral suasion” has on those who control short-term capital controls and overseas equity investments, but I myself see no way around a trial period on this, in the light of Jack Connor’s determination to make them work. If he fails, your position in going for legislation will be that much stronger. If he succeeds, even for a year or so, we have done something important.

4. Still one major aspect of the “moral suasion” problem is whether we are really ready to act if it fails. You may remember that Don Cook⁴ emphasized this point to me very hard. It may be worth your while to press Connor and Dillon on this point. They will assure you of their readiness to recommend stronger measures if, against their expectations, moral suasion does not work. It may be important for you to have those assurances in hand.

5. Douglas Dillon wants you to know that he talked to Don Cook for 45 minutes this afternoon, and he thinks that Cook is on board on this program. He admits that Cook does not like the travel tax but says that Cook emphasized the necessity of doing “enough.” Douglas thinks that this constitutes a tacit acceptance of the travel tax. I myself doubt this very much in the light of my own talks with Cook, so I plan to have an informal chat with him tomorrow morning and will pass the results on to you.

6. The overall descriptive tone of this memorandum is gloomier than your Economic Advisers and your Budget Bureau would wish, but we have agreed not to fight over the mood music. I have not yet heard final January figures (and one thing certain is that monthly figures do not prove much), but it remains interesting that the heavy December outflow was overbalanced by the inflow of the first three weeks of January.

7. Let me offer one final, more general point: the immediate balance-of-payments problem is troublesome and can even become dangerous, but the underlying position of the dollar is as strong as the economy of the United States. It is only in the world of central bankers that the U.S. monetary position is “weak.” It is much better to defend the dollar, as we are now doing, than to have to show the bankers who is boss, but it is always worth remembering that Franklin Roosevelt did not weaken his eventual place in history by his refusal to let gold be his master.

8. I believe Don Cook shares the basic conviction in the paragraph last above. That is one reason I was so greatly impressed by him.

McG. B. ⁵

1. Source: Johnson Library, National Security File, Subject File, Balance of Payments, Vol. 2 [1 of 2], Box 2. No classification marking.
2. February 2.
3. Document 33.
4. Don Cook, President of the American Electric Power Company, was nominated to succeed Secretary Dillon as Secretary of the Treasury but did not accept the nomination.
5. Printed from a copy that bears these typed initials.