333. Letter from Ball to Dillon, July 91
Since our conversation this morning, I have given further reflection to the balance-of-payments program that would be included in the President’s press statement. As I told you, I think most of the program is excellent provided that, as you suggested, the action of the Federal Reserve in increasing short-term rates can be done in such a manner as to avoid deflationary consequences.
I mentioned to you, however, that I was troubled by the inclusion of a statement regarding military redeployment in the President’s statement. Further reflection has only served to intensify my concern. It seems to me that the statement should omit any reference to military redeployment for the following reasons:
1. The statement is scheduled to be issued while Averell Harriman is in Moscow negotiating with Chairman Khrushchev. Any suggestion that the United States is reducing its military exertions overseas for [Typeset Page 1463] balance-of-payments reasons would inevitably appear as evidence of weakness.
2. Not only would this appearance of weakness impair our bargaining position with the Soviet Union, it would cause apprehension among our NATO allies. [Facsimile Page 2] Many Western Europeans are already nervous about the Harriman talks, and I doubt that the Gaullist Government would resist the temptation to exploit the built-in suspicion, particularly on the part of the Germans. The announcement of troop deployment—no matter how phrased—could easily be served up as confirming the General’s prediction regarding American staying-power in Europe.
3. You indicated that the statement would not spell out the manner in which we would effect a saving of $300–400 million a year in foreign exchange in connection with our defense effort. But I am afraid that uncertainty would be more likely to create suspicion than allay it, since each area of the world would be likely to feel that it would be affected by redeployment. I have the dismal feeling that on the morning after a Presidential statement regarding measures to achieve a foreign exchange saving of this magnitude our doorstep would be crowded with Ambassadors.
4. Even if we phrased the statement merely in terms of “economies” on our overseas defense operations, I doubt that this would do much to allay suspicion, since economies of the magnitude of $300–400 million a year would clearly be a signal of substantial troop redeployment.
5. I think, on balance, that there are grave dangers in any public justification of troop redeployment on balance-of-payments grounds—whatever may be the internal basis for our action. After all, defense is a matter of life or death, and this Administration should never repeat the Eisenhower Administration’s mistake of suggesting that our defense posture should be dictated by any considerations other than our national security. It would, in fact, be particularly unbecoming for the Kennedy Administration to announce that it was adjusting its defense arrangements for balance-of-payments [Facsimile Page 3] reasons, since the President played a leading role in 1958 in chastising the Eisenhower Administration for—as he put it—placing “fiscal security ahead of national security”.
The President said: “We tailored our strategy and military requirements to fit our budget—instead of fitting our budget to our military requirements and strategy”. The President referred to an alleged quotation from Lenin “that the destruction of the capitalistic world would come about as a result of over-spending on arms.” After pointing out that Lenin never made this statement, he said: “I should think that in the future it would rank high among the slogans which had proved to be useful in the effort to destroy the capitalistic system.” Finally, he said, “Surely our national security overrides budgetary considerations . . . .”
[Typeset Page 1464]6. What the President said then about budgetary considerations would, it seems to me, apply a fortiori to considerations of our balance of payments, since informed Americans will know that there are a number of other measures that can be taken to achieve balance-of-payments equilibrium besides troop redeployment.
I do not think the difficulty could be avoided by any disclaimer that the proposed redeployment would impair our military strength. If that were true, the public would certainly ask why these actions have not already been taken without regard to balance-of-payments considerations.
In making these comments, I do not wish to appear as opposing a carefully-developed program of economies [Facsimile Page 4] in our foreign exchange expenditures in connection with our defense arrangements, provided such a program can be developed without causing either military or political damage to the American position. But we should never announce such a program. We should undertake it quietly, seeking, so far as possible, to accomplish these economies as routine operations, undertaken in local situations in the interests of modernization and improvement of military strength. Any Presidential announcement of a world-wide program of military redeployment, undertaken out of weakness due to the deficit in our balance of payments, would be extremely costly to our national interest.
Yours ever,
- Ball’s concerns about President’s statement on balance of payments. Secret. 4 pp. Department of State, Central Files, FN 12 US.↩