22. Memorandum From President Kennedy to the Cabinet Committee on Balance of Payments0


It appears that we can no longer look forward to achieving a balance in our international accounts in the next year. Secretary of the Treas-ury Dillon’s last report (February 13) to me on measures to improve the balance of payments and the attached gold budget1 make clear that further substantial savings on the Federal accounts are unlikely to be achieved without program changes. I would therefore like you to survey the alternative courses of action open to us, as we look at this problem for the next several years ahead.

If we simply go forward with existing measures, how long will it be before we can expect with confidence to bring our accounts into balance? If this is our program, can we expect to finance the deficits in the interim by the methods we are now using? If we cannot be comfortable with the answers to these questions, what alternative possibilities exist: (a) for bringing our accounts into balance in a shorter period of time and (b) for financing our deficits until we can bring them into balance?


Under (a), I would like an examination of what cutbacks in AID programs and Defense deployments would be necessary to make a significant reduction in the government’s share of the external deficit. I would also like an examination of measures that could be taken in the private sector to reduce outflows, especially private foreign investment abroad, and the expenditures of U.S. tourists.

Are there any further measures that could be taken to stimulate exports, including possibly differential tax treatment of export income, which we would be wise to take?

What are the possibilities of using monetary policy to further restrain or even reverse the flow of funds abroad? What would the domestic consequences of such policies be?

In addition to this examination of what we can do to reduce the deficit, I want to be sure we have considered thoroughly all the means available to us for financing our external deficit until we can bring our accounts into balance. Further, are we doing enough to deal with the [Page 50]problem of persuading the major European nations to hold the dollars they now have? In this connection, I would like a reconsideration of the proposals examined by Treasury, State and the Council of Economic Advisers last September,2 in the light of our new and more somber expectations.
I would like your survey of these alternative possibilities, their likely effectiveness in dealing with our balance of payments problems, and their costs in terms of our other policy alternatives by the end of March. It seems to me that at that time we must confront the decisions that are necessary to prepare ourselves for the long pull in dealing with this persistent problem.
John Kennedy
  1. Source: Kennedy Library, National Security Files, Subjects Series, Balance of Payments and Gold. Confidential. A Top Secret, Eyes Only memorandum from Kaysen to members of the Cabinet Committee, March 2, indicating that the committee members were to receive the memorandum printed here as well as a copy of Acheson’s report to the President on the balance of payments is ibid. Concerning the report, Kaysen noted: “The President requests that you continue to have no discussion of this report with your staff or in any way make its existence known to any other person.”
  2. Not printed. (Kennedy Library, Herter Papers, Balance of Payments)
  3. Not further identified.