Foreign Relations of the United States, 1969–1976, Volume XXXI, Foreign Economic Policy, 1973–1976

3. Conversation Among President Nixon, Secretary of the Treasury Shultz, and the Chairman of the Federal Reserve System Board of Governors (Burns)¹

Washington, February 6, 1973.

[Omitted here is discussion unrelated to international monetary policy.]

Burns: Now, I was going to talk about something else, but there was a trip to Japan, but the—that trip, in view of the foreign exchange problem, George is going to tell you about plans that we’ve been discussing. I have—it’s been discussed with the Japanese; with Tanaka and with Sasaki, the head of their central bank.²

Nixon: Yeah.

Burns: They’re waiting for word from me, and I will just tell them I will as soon as I can, but I have [unclear]—

Nixon: Well, it’s good that you go.

Burns: I’ll go later on, but this isn’t quite—

Nixon: Take your time.

Burns: —this isn’t quite the time. And I’ll check with you before I go, because I want to be sure—

Nixon: Incidentally, I was going to tell you: Henry is going to stop in, stop in Japan for a 4-hour—3- or 4-hour visit with Tanaka on the way back,³ but he won’t be going into this sort of thing. But, we’re touching base with them, so if you could get over there some time, it’d be useful.

Shultz: When will Henry—when will Henry go to Japan?

Nixon: May 9th—8th, 8th, 8th—

Burns: [unclear] Before George gets going on the foreign exchange crisis that—which we face, let me give you just a few figures. This is taking on very sizable proportions. Since January 22nd, when it began, the outflow of dollars amounts to $4.3 billion, and 2.6 of that has gone to Germany, and the rest is scattered. So, it’s no long—and today, today the Germans took in a billion and a half; so, it has accelerated.

Nixon: They took a billion and a half?

Burns: Well, I should keep my [unclear]—

Nixon: So, what do we do about it?

Shultz: Mr. President, [unclear] talked about this a little while ago, a few days ago, and we did agree to modest intervention. Not so much on the grounds that we thought we should go all out on that, but rather that we should have evidence that we had done our part to—

Nixon: Um-hmm.

Shultz: —have things be stable. And we’ve done that, although we still have not yet used up all of our $200 million that we decided to lay out for ourselves. In fact, I think we’ve used about $37 million of it so far. But, we have had a number of meetings involving Arthur, Herb Stein, Paul Volcker, myself, Bill Rogers, Bill Casey just sat in on the most recent ones, and Peter Flanigan has been our—

[unclear exchange]

Shultz: We pretty much agree among ourselves that this speculative flurry that we now see, whether it passes or not, is based on reality. The reality is that our trade deficit is very large—$6 billion or so this year. It has slowed down, as was expected. We expect it will go down next year. But even so, the reality is we have a gigantic trade deficit, and we have a very large balance of payments deficit, however one wants to measure it.

Nixon: Um-hmm.

Shultz: We don’t think that’s going to go away in a hurry. Therefore, we feel that there is this underlying situation that needs correction, and the Smithsonian Agreement⁴ basically didn’t do it, in part because it wasn’t large enough, in part because there are all sorts of offsets that countries have used, and in part because it’s deteriorated. As—the British, now, have an exchange rate this is below where they started in the Smithsonian, so that they not only are back to where we started from, but below that. So, for all of those reasons, it seems to this group that we have a situation that’s out of balance. We have talked about a package of things that might be done that has the following ingredients, and there are variations on each one of these, but I’ll summarize the line that is sort of the prevailing view. It would call for, first of all, a devaluation by the U.S. on the order of 6½ percent or so, and then a special effort with the Japanese to get them to revalue by that amount, so that the net for the Japanese would be 15 percent, or 13 percent, and with respect to the rest of the world, we would have a devaluation by the U.S. This involves persuading the Europeans, particularly, to stand still and not try to, to counter any move they think we might make, as well as persuading the Japanese to revalue when we devalue. We think that the—if that were done, if we made that effort, it would be harder to persuade the Japanese than it would be the Europeans, is sort of the assessment of the situation. But, nevertheless, there is a reasonable prospect that that would happen. We feel that if that were done just by itself, people might very well view that and say, “Well, you did that once, and it didn’t seem to work very well. So, why are you just doing that again and not searching elsewhere for things that could be done?” And they might even point to our, our plan and say, “In the plan, it calls for revaluations and devaluations of this kind when a basic imbalance is clear, but it also suggests that we should do other things than just change the exchange rates.” So, we would put as a second part of this program an announcement that we do intend to go forward with trade legislation before the Congress that would allow, would permit, give the President authority to negotiate in a manner that would help to expand world trade, but at the same time, have very strong provisions in it that would protect our workers and our businesses and would enable us to bargain for a fair deal in world trade. It would also have in it a provision through which you could declare a balance of payments emergency and impose a surcharge. We think that if we were in a position to tell the Japanese that, that would have quite some impact on their willingness to go along with revaluation, without anything.

Nixon: Hmm.

Shultz: At any rate, we would have a trade package, which could be stated in a speech in a general way. And our thought about it is that if this comes rapidly, that we should say, or we might say, rather than the meeting with [unclear] that we’re going to consult with members of Congress, and with labor, business, and so forth, about our ideas before locking them in concrete and presenting them, so that we would have a chance to rally support for it rather than just announcing it. Although, I would say that we have made a great deal of headway since the last time you and I talked. Last week, we had a lengthy go-around on it, and we have a pretty good talking paper now. That announcement spells out reasonably well what we have in mind, that we’re prepared.

Nixon: Hmm.

Shultz: There is concern about the implications of these moves for the gold market. And to some extent, in a perverse way, I guess, Paul Volcker, in particular, feels that people may suspect that somehow or other we are interested in getting the price of gold up—I guess because we have so much of it—and that we are afraid to sell any. Of course, we’re constrained by our, by our agreement with other central banks against selling gold at market rate,⁵ and since our private position has been that we’re willing to do this if others agree, we should make that public and say that we’re quite willing to, when and if we think it’s appropriate, to sell gold on the private market. If that’s what others want to do, put ourselves in a position to talk with them about that. And this would, on the one hand, show that we’re not trying to hold on to this forever, and at the same time, it probably would have the effect of not permitting a large increase in the price of gold since we’ve had quite a lot of it—

Burns: Hmm. And, also—

Nixon: [unclear]—

Burns: And, also, we were respecting an international agreement.

We’d do it only if the others want to do it.

Nixon: Um-hmm.

Burns: We’re not going do it by ourselves.

Shultz: We might tail on to this, although this is a relatively minor item, but it’s something to talk about—it’s in the Republican platform—the right of private citizens of the U.S. to—

Nixon: Yeah.

Shultz: —sell gold. That’s something that the conservative community, particularly—

Nixon: Gold traders.

Shultz: —would be interested in. But this is something we could or couldn’t do to [unclear]—

Burns: [unclear]—

Shultz: —in the package at this point. And, finally, with respect to our capital controls program that we’ve been struggling to get rid of, which you promised to get rid of back in 1968—⁶

Nixon: Arthur told me to say it.

Shultz: Well, he was right and—

Nixon: That’s right.

Shultz: —it’s hard to do.

Nixon: That’s right.

Shultz: Now, we might say, “Now, we’re trying to establish a general equilibrium right here, and we are going to phase these controls out over a period of time,” and now some end-date in a year or two years from now, let’s put that forward as a program. We have—now, all of these things are broadly consistent with our international monetary and trade plans we’ve put forward; that is, this is behavior that is in accord with what we said a nation should do when there is definite evidence of an imbalance. And we also said that not only should a nation that is running a deficit do something, but nations that are running a surplus should also do something—we make that particularly strong with the Japanese. So, that is sort of the nature of the problem. It may—the immediate crisis may or may not pass.

Nixon: What—

Shultz: We think that it will recur and that, that perhaps this week, or sometime very soon, we should be prepared to take action that is in the nature of leadership on this.

Nixon: What would be the timetable on that? You mean, like, like this week? You mean, like—

Burns: Tomorrow.

Nixon: —next week?

Burns: Tomorrow.

Nixon: Make a speech tomorrow?

Shultz: Well—

Burns: No. No speech.

Nixon: Oh, [unclear]—

Shultz: We have—we have—

Nixon: Oh, the action? [unclear] right now—

Shultz: We have, we—we have these things to do. We have—

[unclear exchange]

Nixon: Things like that, right now.

Shultz: We have—we have to try to get the Japanese to agree. We think that’s probably the first port of call.

Nixon: So, you can tell that—you can tell them categorically that I decided to ask for legislation to impose a surtax. Declare that, if you need that—

Shultz: Now, that would have some impact.

Nixon: —that’s one club.

Shultz: And, then, right on the heels of the Japanese, discussion with the Europeans. We think we should try to do this in the space of about three days, or something like that—

Nixon: Um-hmm.

Shultz: —because there is a, I would say, quite a high probability that there’ll be leaks as this goes on.

Nixon: Hmm. That’s an understatement.

Shultz: Particularly with the Japanese thing, too; it’s been very leaky. And then, we should be prepared to move ahead.

Nixon: Well, let’s come again now with regard to [unclear]. What did you have in mind in terms of when Congressional leaders—you see, Congressional leaders, a lot of them, George, are going to be taking off Thursday,⁷ you know, for this silly thing [unclear]. It’s not silly Republicans, but they all take off. You could get to them, but [unclear] when you talk about, for example, getting speechwriters, or something, what did you have in mind? Or, do you have a speechwriter only when you have something to present to the Congress [unclear]—?

Shultz: Right. Well, there are, there are, in a sense, these timing points. There’s one point in time in which you decide, “All right, let’s do this.”

Nixon: Um-hmm.

Shultz: Then, there’s an elapsed time, while we try to get our trading partners to go along with it.

Nixon: Um-hmm.

Shultz: Relatively short vista.

Nixon: [unclear] on the monetary side?

Burns: No—

Shultz: Right, well, monetary side—[unclear exchange]

Shultz: —knowing—knowing the fact that you have made the decision—

Nixon: Well, right—

Shultz: —that you’re not going to [unclear] sit here.

Nixon: Right.

Shultz: You’re going to go ahead with the trade legislation whether they like that or not.

Nixon: Um-hmm.

Shultz: You’re proposing this exchange rate realignment.

Nixon: Hmm.

Shultz: If they don’t go along with it, then we’re not convertible into gold, and we will announce what we think proper exchange values are, and they will have to struggle in their currency markets, and we won’t help them any. But that’s a—that is a—

Nixon: Arthur, what is your feeling about getting rid of controls? You know, about a year ago, you had thought that we shouldn’t move on that. Are you, are you—do you feel we can now?

Burns: I’d phase them out—

Nixon: You would?

Burns: —and announce a schedule, but I would do it over 2 or 3 years; would indicate, you see, that they’re going to be phased out and indicate the period. [unclear]—

Nixon: What about the gold thing? Now, I—now, what about the gold thing? Do you—does that bother you [unclear]?

Burns: No, the only thing that would bother—

Nixon: I mean the purchase of gold—the right of the private citizen to purchase gold.

Burns: Oh, I think—I think that’s a silly business.

Nixon: You wouldn’t put it in?

Burns: No, I wouldn’t. But, I don’t know that I would—I don’t know that I would fight awfully hard against it. It could, you see—it’s silly; it could be counterproductive in a minor way, because—

Nixon: That’s what I heard—

Burns: —people might want to accumulate gold and would be importing gold, and thereby—

Nixon: Yeah.

Burns: —worsening our balance of payments. But, if you saw some political advantage—I doubt it. I think they’ve—you know, the number of people who worry about this, I don’t think—I doubt if one [unclear]—

Nixon: Well, first, the number of people that understand it is very small.

Burns: One one-hundredth of one percent.

Nixon: Yeah. Well—

Burns: I wouldn’t [unclear]—

Nixon: —let’s come to the, the main—

[unclear exchange]

Nixon: Oh, yes.

Burns: Central banks having now the power or willingness to sell off into private hands, because that means, you see, a gradual dismantling of gold in the international monetary system.

Nixon: What we’re talking about now, then, is a decision with regard to devaluation by 6½ percent.

Shultz: And a drive to get the Japanese to match it.

Nixon: And you—you all agree this is what should happen—should be done?

Shultz: Well, there’s some—on that, there is a variation on the theme that is not favored by the group, but which is nevertheless, I think, an important variation. And that is to say, and we wouldn’t have to consult with anybody about this, that we think the dollar is still over-valued, and that exchange rates should change, and they should change by something like this amount, and that that’s our view, and we’re not going to engage in any intervention or whatnot. In other words, more or less float the dollar and try to force others to let it float. Now—

Nixon: You don’t like that?

Shultz: Arthur doesn’t like that at all.

Burns: [unclear]—

Nixon: [laughs] I know. I—[unclear exchange]

Shultz: I’m not sure, I’m not sure that I’d like it, but, after I—

Nixon: You’d lean that way normally, but not now?

Shultz: I—I have my inclinations. I think the, the principal argument for it is that when you set another set of parities, then there is a—at least an implicit—

Nixon: Then where do you go from there?

Shultz: —suggestion that you’re going to defend those reasonably, so—

Nixon: Like we were going to defend the Smithsonian rates. Yeah.

Shultz: And, when—and our trade picture won’t improve dramatically. And we could come up against another crisis if people get in the habit of pushing us over. So that, just as the British had these successive devaluations that were not, not too successful, they now have a float,⁸ which they regard as much more successful, because a float basically insulates you against this kind of speculative rate. The rate just moves rather than, the, there being an accumulation of dollars going in here, or going out of there. So, that is, that is an advantage to the floating system. Now, I would have to say, the basic plan we’ve put forward envisaged discrete exchange rate changes in a situation like ours, for a country like us, so that to float would not be fully consistent with our plan, even though we envisaged other countries possibly doing it.

Nixon: The problem, too, with the—the British can do that; it doesn’t make a great deal of difference to the world. And Asia; it still doesn’t make a great deal of difference—

Burns: That’s the problem.

Nixon: But if we do it—

Shultz: Right.

Nixon: —it does make a great deal of difference. And I just—

Burns: [unclear]—

Nixon: And I think it’s just too much of a “To hell with the rest of the world” as a policy—

Burns: That’s exactly right; it would be regarded as economic belligerency on our part against everybody else.

Nixon: The way that it has to be presented, George, you understand, on this 6? percent, and so forth, is—you remember, we got by with the August 15th thing by pointing out this doesn’t affect the value of your dollar and so forth.⁹ The average person doesn’t know a damn thing about this; it’s the stock market people and international monetary people. But, the way it has to be presented is that the dollar, at the present time—that we are doing this because American goods are at a disadvantage, in an unfair advantage in the world market, and that’s due to the fact that the dollar is overvalued as against other currencies. And so, we are trying to—we’re change—we’re making this change in order to get, again, American goods in a competitive position. You know, if you go back and [unclear] the August 15th, for the rhetoric at least—

[unclear exchange]

Shultz: —the trade package to go with it.

Nixon: The trade package is—

Shultz: That describes the spirit—

[unclear exchange]

Nixon: And the trade package should be one that should be—but should be, in its rhetoric, tilted very hard for protection. And what we do, of course, tilt it—what we do, however, being as expansive as possible, so that—because, basically, I do not believe in a, in a totally protective, or a—I mean [unclear] and neither of you are. I believe in protection for certain purposes, and the Congress certainly does, but if we have to move, if we can move other nations to trade, why we should move in that direction. If they don’t want to, if they’re going to protect, though, we’ve got to do, too.

Shultz: Well, that was [unclear]—

Nixon: Is that the way you—?

Shultz: —you managed that tone in your speech at the IMF,¹⁰ and that was found in the plan, but I think we could afford to lay that out a little heavier than this.

[unclear exchange]

Burns: Another—another ingredient in any such statement would be a re-emphasis of the importance of curbing inflation, and what we are doing about it, because this is one—this is perhaps the major weapon that we have for re-establishing our position in international trade. We have price stability, whereas other countries are inflating.

Nixon: But if we have price stability, Arthur, here, why then, is the value [unclear] the dollar overvalued, then?

Burns: Well, you know, we haven’t had it long enough. And the difference between us and the other countries has not been so great. So you, so you accent the importance. I would use this opportunity, and maybe, maybe you can—maybe we can, at that time, want to announce something on the price front, you know? In any case, a re-emphasis of your determination to curb inflation, the—as a way of raising—

Shultz: There is one small thing that we could announce, which would not mean too much, but it’s something the Congress has talked about a lot; namely, a requirement that large firms and unions give thirty days notice before they change a wage or a price. That doesn’t change the structure of the system at all except that it imposes an additional reporting requirement. And, at least, has the sound of [unclear].

Nixon: Yeah.

Burns: Have you been asked about that?

Shultz: No, that didn’t come up in the testimony—

Burns: What would you say if you were asked in testimony? This may come my way tomorrow.¹¹

Shultz: I think that it is, it is something that we can do within the framework of the law.

Burns: Sure.

Shultz: And—

Nixon: And that we are—

Shultz: —we would prefer to have it left as an open possibility. We may do it, or we may not.

Burns: Hmm.

Shultz: If the Congress wants to suggest that they like that idea, we’d be very interested in that—

Nixon: We would be—why don’t you put it this way: “We’d be very interested in the views of the Congress on this.” Let them say—that, we are—as far as the administration is concerned, that we—that is one of the devices we have under consideration, but we’re also—we’d be interested if they—you know, they all talk about wanting responsibility [unclear]. I mean, maybe they think it’s a good idea or not a good idea.

Shultz: I think the thing we would want to avoid, though, is having them put it in the law as some [unclear]—

Nixon: A requirement. That’s right. That’s right.

Shultz: Then we’d lose our flexibility.

Nixon: We want to be flexible on it. But I would, it wouldn’t bother me any to require if—

Burns: Hmm.

Nixon: No, unless the reporting would just be for prices, I think it would be an enormous [unclear].

Shultz: Well, the—that’s one of the things. It leads to a—

Nixon: [unclear]

Shultz: —gigantic paperwork burden.

Nixon: Jesus.

Shultz: And we are trying to wean the business community away from an attitude of overdependence and reliance on government all the time. [unclear]—

Nixon: What would concern me would be the price—the paperwork on the price side. The wage side wouldn’t be that much, but the price side—phew! [unclear]

Shultz: We would have to have some—we could have some [unclear] on that.

Nixon: All right.

Shultz: We—we’ve talked about it, and we’ve thought about it, and I think you and I talked about it a little bit—

Nixon: Yeah.

Shultz: —and so it was considered, and we, we felt we didn’t want to do it. But it isn’t a big thing. We could put something like that in the speech. The trouble with putting it in a speech like this is that, well, that it isn’t a—

Nixon: Not ’til we [unclear]—

Shultz: —it isn’t a piece on, on the scale of the other pieces in importance.

Burns: Hmm.

[unclear exchange]

Nixon: —pretty much be basically a one-subject thing dealing with the international monetary, trade and [unclear] certainly, the—what we are doing [unclear]. But don’t, don’t mix it up too much.

Burns: Hmm.

Nixon: And, just, just zero in on the one problem and handle it. Burns: You, you understand, Mr. President, the—you could be criticized on the ground that part of this plan is a repetition of what we did before.

Nixon: Sure.

Burns: And, therefore, your old policy didn’t work, Mr. President. I think that’s why you need this trade piece as part of the package.

Nixon: Trade?

Burns: Yeah. That has to be [unclear] great emphasis.

Nixon: Um-hmm.

Burns: That’s the new product.

Nixon: You mean the [unclear]—you mean the trade aspect in terms of being able to stop imports?

Burns: No—well, sure; the authority to approach and negotiate both ways, either to liberalize or to stiffen.

Nixon: Whereas, the other time, all we did was impose a surcharge. Right?

Burns: That’s right.

Shultz: Which we then took off when we were able to negotiate changing—

Nixon: Changing the exchange rates.

Burns: And, in retrospect—in retrospect, you took it off a little too fast for it—

Nixon: Yeah, we were under a lot of heat from the [unclear]—

Burns: Yeah. But, the—but we couldn’t have gotten the agreement without it and—

Nixon: And we bought a little time.

Burns: Yeah.

Nixon: What about an international—is the time ever going to come, in the 3 years and 11 months we have left here, to have an international monetary—arrangement that’s going to mean anything? We don’t want to just lurch from crisis to crisis.

Burns: Hmm. Well [unclear]—

Shultz: Although I think this actually could—

Burns: This could—

Shultz: —help move the thing along, in the sense that—

Burns: Crises have a function.

Shultz: —we are—

Nixon: Yes.

Shultz: —we are moving—in this plan, we are moving in parallel with what we propose. And, to the extent that we are able to improve our balance of payments and trade and trade position, we’re clearing up one of the greatest problems in the monetary system; namely, the big overhang of the U.S. The problem, you see, has to get solved before you can put any machinery into place as a—sort of a stable [unclear] proposition.

Nixon: Um-hmm.

Burns: Mr. President, let me plant a thought in your mind. If the—

Nixon: [unclear]

Burns: The—I don’t know how these conversations are going to go. On trade, I’m very much discouraged. On monetary reform, well, we’re proceeding at a snail’s pace—no, no—

Nixon: Um-hmm?

Burns: —sense of urgency. This crisis may give us a strong lever, and we may move forward as a result. But, we can’t be sure. The way my thinking has been running is that, you know, you send the Eberles of this world—I don’t mean Eberle as an individual—

Nixon: I know.

Burns: —I meant having that function, and they get together, and they wrestle, and they debate, and they just irritate one another and get nowhere. Now, I’m afraid that’s the mood. The—my own thinking has been running in this direction more and more; in that trade, monetary reform, and defense—international security, will all have to be handled together and will have to be done at the summit level. But, to handle it at that level, we—we’ve got to be more fully prepared, I would say, than we are at the moment, because if you go in to a summit conference, you will want to be very sure as to precisely the point where you want to come out and then know the margin for—that could be negotiated out—

Nixon: Negotiate.

Burns: But, we want to try and work these things out. You see, they’re related. But I would not be surprised if, in the end, it would have to be done that way, and I just mention this as something you might want to keep in the back of your mind in the months ahead.

Nixon: By a summit, do you mean just the Big Six? Japan, Italy—Burns: Yes. Right—

Nixon: France, Germany, England, and the U.S. And Canada—?

Burns: And maybe, and maybe—and maybe not even the Big Six. Maybe the Big Four or Five; you know, the rest will fall in to place.

Nixon: Japan, England, France, Germany, U.S. Right. That’s it.

Burns: Well, now, you take the Smithsonian Conference; it’s a very good indication. Your meeting with Pompidou, you know, that really settled the thing.¹² Sure, a lot of things to work out after that, but they all fell into place. Without that, we’d be lost. The Finance Ministers would have met and continued meeting; we would have gotten nowhere. And I think our strongest card is the—we don’t have strong cards on trade, considering the way the world is organized.

Nixon: It’s against us.

Burns: Well—

Nixon: And for themselves.

Burns: Well, for themselves; I think that’s a better way of putting it.

Nixon: That’s right.

Burns: And, on the monetary side, well, our strong card is defense. We are protecting the world, and they know it. Nixon: Yeah, and they don’t want to pitch in—

Burns: It’s a hard card for you to play, and they know that, but this is something that you, and you alone, can best evaluate at the right time.

Nixon: [pause] Well, let’s begin by saying that we’ll go forward with your 6½, 6½ business. That’s obvious, right? You’ve reached that decision, too?

Shultz: That’s—yes [unclear]—

Nixon: Gone that far today. All right?

Shultz: Have gone that far sort of by nature of—

Nixon: Yeah.

Shultz: —free market [unclear]—

Nixon: Yeah. Yeah. All right. Well, I think it’s responsible. So, we go with 6½, 6½. With the Japanese, use the stick in the closet to the effect that I have decided to ask for legislation that will provide, as you know, the imposition of a surcharge. And also, the—what was that other thing you were talking about? The—if the market is flooded—?

Shultz: The safeguard system.

Nixon: The safeguard system. We gotta—we put that in there, too? Shultz: Yes, sir, that’s in—

Nixon: Might as well stick it all in. And then, beyond that, in terms of—you will do some consulting, is that right, now, with the Congressional people? Or have you done a lot of it already?

[unclear exchange]

Burns: Well, we can’t—

Nixon: Can’t consult—

Burns: —can’t consult Congress on devaluation.

Shultz: Yeah, we can consult on the trade.

Nixon: On the trade—oh, actually, I meant trade.

Burns: Oh—

Nixon: On the devaluation, you’ve got to dicker on, right now.

Shultz: On the trade, we ought—

Nixon: How will you handle the devaluation? Who do you talk to? The—the Japanese Ambassador here? Or does our Ambassador talk to them?

Burns: No—

Shultz: I think we probably have to send Volcker to Japan—

Nixon: Yeah.

Shultz: —to talk to their Finance Minister and, no doubt, Tanaka.

Nixon: Yeah.

Shultz: And we have a draft letter—¹³

Nixon: Uh-huh?

Shultz: —suggested for you to show—

Nixon: Sure.

Shultz: —to Tanaka—

Nixon: [unclear]—

Shultz: —that emphasizes your concern about this and dispatches

Volcker or whomever you decide—

Nixon: Right. Right.

Shultz: —to—

Nixon: Then who goes—then somebody else goes to England and

Germany—?

Shultz: Yes, somebody else, because one person can’t go around [unclear]—

Nixon: And all this is over the next 3 or 4 days, right?

Shultz: Could go immediately in this 3 or 4 days. Or, we could wait, though—

[unclear exchange]

Shultz: We tend to lose leadership capacity—

Nixon: Yeah.

Shultz: —when we wait—

Nixon: Yeah.

Shultz: —particularly if the crisis heats up. If it passes, then we’re—Burns: Hmm.

Shultz: —we have a little bit more running room. [unclear]—

Nixon: Well, all right, you’ve—let me say that on that decision, you fellows will just have to meet. I—your judgment will be better than mine in all this, as to whether [unclear]—there are no political problems involved. It wasn’t—it wasn’t like it was, you know, with the other thing—we had the French to worry about, and the British to worry—we don’t give a damn about any of them politically, now. The Japanese sensitivities—to hell with them. Let’s go right ahead.

Shultz: Well, I think the process of going around this way will make this—

Nixon: Um-hmm.

Shultz: —much different from the others. It means that if—

Nixon: When will you be ready for the—when will you be ready if you have to on the business of some sort of a Presidential statement? That would not be next week, I presume. Not that soon and—

Burns: Could be.

Shultz: Could be next week.

Burns: Could be next week.

Shultz: Could be next—

Nixon: ’Cause I will be in California next week, because I meet

Kissinger from—coming in from Japan on the 19th, Monday.

Shultz: Uh—

Nixon: Well, somebody better get busy on that.

Shultz: Well—or, if we may be able to move this in time, I take it you would prefer to not to do it quite so fast if—unless [unclear]—

Nixon: Well, I would prefer—I would prefer not to do it; I would prefer not to go all out on trade. [unclear]—the matter of financing doesn’t bother me at all. I mean, the monetary thing; that should be done. But, in terms of going out on sort of a, a reckless basis next week, saying, “Here is a brand new trade thing because of the crisis, and dee-dee-dee-dee-dee [etc.].” I don’t like the feel of that. I would prefer to do that in a more deliberate way. But, but if we—but, if it’s necessary to do it next week in order to accomplish the monetary thing, we’ll do it next week. That’s the way I would look at it.

Shultz: We think there’s a big advantage, both to the monetary move and to getting the trade business going right, to put them together in a package. We—we need to do some consulting on the trade business. George Meany called this morning and invited—

Nixon: Um-hmm.

Shultz: —me down for this weekend, and as soon as I can come. And I talk about Bill,¹⁴ and he said he’d love have to have Bill come down. We can look forward to talking with him about it.

Nixon: What about—

[unclear exchange]

Shultz: I—I haven’t got those dates yet.

Nixon: [unclear]—

Burns: George, why can’t we carry out some conversations this week with key Congressmen on the trade issue?

Shultz: We can.

Nixon: Trade issue won’t help.

Shultz: We’re in position now; we’ve got a reasonable agreement—Nixon: Well, I think I’m seeing Burns tomorrow—possibly. Is that, is that what you would recommend? Or, you did not know about that?

Shultz: You mean Mills?

Burns: Mills.

Nixon: Sorry. I meant—

Shultz: No, I just—I didn’t know about that, but—

Nixon: [unclear]—

Burns: Wilbur Mills—Wilbur—seeing Wilbur Mills? Oh, that’s fine. Nixon: Yeah, I just want to be sure that we’re ready to see him, that you’ve suggested we go to—Arthur had a suggestion that—

Shultz: I didn’t, but I think it’s a good idea. I would like Burns—

Nixon: [unclear]—

Shultz: —to be present if you’re going to see him.

Nixon: All right. All right.

Shultz: Now, we have these tax problems that he’ll want to talk about, and we haven’t had a chance to get your thinking on that.

Nixon: All right, fine. Fine. Fine.

Shultz: When, when is the Mills meeting, Mr. President?

Nixon: They’re trying to set it up this Saturday—tomorrow afternoon, sometime.¹⁵ Does that fit in with yours?

Shultz: Well, it would, yes, because I’ll be testifying in the morning.

Nixon: Yeah.

Shultz: As I understand, it we’re scheduled to talk about tax issues in the afternoon—

Nixon: Yes, at 3, I take it—

Shultz: So, if we had him after that, that would be good. [Bull entered at an unknown time after 5:11 p.m. Bull left at an unknown time before 6:03 p.m.]

Nixon: [unclear] I’d like to have Arthur there, but we can’t impose on his independence.¹⁶

[Omitted here is discussion unrelated to international monetary policy.]

1. Source: National Archives, Nixon Presidential Materials, White House Tapes, Oval Office, Conversation 851–4. No classification marking. According to the President’s Daily Diary, Nixon met with Shultz and Burns in the Oval Office from 5:11 to 6:10 p.m. (Ibid., White House Central Files) The editor transcribed the portion of the conversation printed here specifically for this volume.
2. Tadashi Sasaki was the Governor of the Bank of Japan.
3. Kissinger traveled throughout Asia, February 7–20, with stops in Bangkok, Vientiane, Hanoi, Hong Kong, Beijing, and Tokyo.
4. In December 1971, representatives of the G–10 countries, meeting at the Smithsonian Institution in Washington, agreed to realign the relative values of their currencies. See Foreign Relations, 1969–1976, volume III, Foreign Economic Policy, 1969–1972; International Monetary Policy, 1969–1972, Document 221.
5. In March 1968, the central bank governors of Belgium, the Federal Republic of Germany, Italy, the Netherlands, Switzerland, the United Kingdom, and the United States agreed to establish a two-tier market for gold: that is, central bankers would continue to buy and sell gold among themselves at the official gold price but would no longer engage in transactions in the private gold market, thus allowing the private market price to fluctuate.
6. On January 1, 1968, President Lyndon B. Johnson announced a series of measures designed to address the U.S. balance of payments deficit; among the measures were new restraints on U.S. foreign direct investment. For the text of Johnson’s statement, as well as his remarks on the balance of payments program at a press conference held that same day, see Public Papers: Johnson, 1968–1969, Book I, pp. 1–13. On October 3, 1968, the Republican National Committee issued a statement by candidate Richard Nixon vowing to rescind these restraints. (The New York Times, October 4, 1968, p. 1)
7. February 8.
8. The British pound had been floating since June 1972.
9. A reference to President Nixon’s August 15, 1971, announcement of his New Economic Policy, which included suspension of the dollar’s gold convertibility and the imposition of a 10 percent surcharge on dutiable imports. In his remarks, the President discussed “the bugaboo of what is called devaluation” and its implications for the American people. The text of the President’s announcement is in Public Papers: Nixon, 1971, pp. 886–891.
10. On September 25, 1972, President Nixon addressed the annual IMF and World Bank Boards of Governors meeting. For the text of his remarks, see Public Papers: Nixon, 1972, pp. 907–911.
11. Burns testified before the Senate Banking Committee on February 7.
12. President Nixon and French President Pompidou held a summit meeting in the Azores December 13–14, 1971, where they laid the foundation for the monetary agreement concluded by the G–10 at the Smithsonian Institution later that month. See Foreign Relations, 1969–1976, volume III, Foreign Economic Policy, 1969–1972; International Monetary Policy, 1969–1972, Documents 219–220.
13. Presumably a reference to Document 4.
14. Not further identified.
15. See Document 157.
16. In a conversation with Nixon on February 8, Shultz said: “But at any rate, we’ve got to see what happens in Bonn, and so on. And, maybe they will agree to our deal, and maybe they won’t. If they don’t, then, you remember, our plan is to just go ahead and make a unilateral announcement that we think the exchange rates are not in line, and make a statement to the IMF along those lines and say, ‘We’re not going to do anything that will try to hold exchange rates that we think are obsolete.’ And that will just cause the markets to go absolutely nutty [laughs], and I think it will force their hand. It will be acrimonious. It will not be as good as having worked it out, but we’re in the position of saying, ‘Look, we tried to work it out with you. And if—we have done this minor intervention ourselves’—and I took quite a beating on that yesterday—but the purpose of doing it is to be able to say to the Germans, ‘Look, this thing is out of kilter. You’ve spent billions of dollars, and we put some money in, and we put some good faith into this thing, and that just shows you that we couldn’t stop it.’ So, I think that we’re in a good talking position that way.” (National Archives, Nixon Presidential Materials, White House Tapes, Oval Office, Conversation 853–12)