165. Editorial Note

Foreign central banks continued to take large dollar inflows during the week of August 9, 1971. In that atmosphere Office of Management and Budget Director George Shultz met with the President from 4:45 to 6:31 p.m. on Wednesday, August 11, in the President’s office in the Executive Office Building. The tape of that conversation is of poor quality and many parts of the conversation are inaudible, but it is clear that the focus of the discussion was on the implementation of what the President would announce on August 15 as the New Economic Policy. The President acknowledged that “Arthur [Burns] is very nervous about this.” Shultz said that if the United States took this aggressive act against its trading partners, it was to stabilize a situation all agreed needing correction, and that the United States would have to follow up with constructive proposals.

Shultz counseled the President that if he were to close the gold window and took no other action, he might not get the needed change in the exchange rate if others intervened to maintain the value of their currencies. Shultz told the President his instinct to equate a 10 percent border tax with a devaluation was exactly right, that other nations did the same thing. Shultz advised that it was better to get the desired change through a devaluation than through an import tax and suggested an immediate closing of the gold window and a temporary import tax, i.e., a devaluation, followed by negotiations. As the conversation concluded, the President seemed to lean toward undertaking some of the program as early as Friday, August 13, but also thought the program might be timed to coincide with the return of Congress in September. (National Archives, Nixon Presidential Materials, White House Tapes, Recording of Conversation Between President Nixon and Budget Director

Shultz, August 11, 1971, 4:45-6:31 p.m., Executive Office Building, Conversation 272-17)

At noon on August 12 the President phoned Secretary Connally in San Antonio. Connally reported he would be leaving Texas by plane at noon to return to Washington. He informed the President that Volcker had all the information and they could expect a bad day on Friday. He thought “we are losing the initiative.” The President and Connally exchanged views on doing the program piecemeal, perhaps as early as that evening or Friday morning, or doing the entire program at one time, the approach Connally preferred. Connally did not want to leave the impression they had acted “in haste” and “were unprepared.” The President invited Connally to come directly to his office upon his arrival in Washington. (Ibid., Recording of Telephone Conversation Between [Page 458]President Nixon and Secretary Connally, August 12, 1971, 12:01-12:12 p.m., Conversation 7-112)

The President met with Shultz in his office at the Executive Office Building during the afternoon of August 12 and requested that Haldeman join them. Shultz reviewed the scale of dollar conversions since August 2 and thought the U.S. reserve and negotiating position were weakening. The President thought they should not panic. He said they were not ready to go ahead with the entire package, but that if all the key players went to Camp David they could be prepared to act by Monday. He thought September 7 was the right day to do the whole package, including the budget provisions, but that Connally could announce in a low-key way now that the gold window was closed due to speculation. He thought the wage/price freeze could also be done immediately and then on September 7 he could announce the remainder of the program. Haldeman recapped: close the window and slap on the freeze now and come back in 3 weeks with the rest of the package. The President thought most of his advisers would concur in the program but that Burns and Volcker, who was “obsessed” with international things, would have difficulty with its international aspects and would have to be brought along. Shultz should try to sell the program to Burns, who had to understand that there were only two or three choices, and the President wanted to know which one Burns would go along with. (Ibid., Recording of Conversation Among President Nixon, Budget Director Shultz, and Haldeman, August 12, 1971, 3:11-4:20 p.m., Executive Office Building, Conversation 273-7)

Connally and Shultz met with the President from 5:30 to 7 p.m. on August 12 in the Executive Office Building. The President set out three policy options. First, to prevent speculation Connally could make a low key, non-prime-time announcement that the gold window was temporarily closed and that the administration was prepared to discuss with other nations now a “new, better, more stable system.” Connally could also say the administration would take action on the budget front when Congress returned, but remain silent on the wage/price freeze. The second option was to announce now the wage/price freeze and intentions to present a legislative package when Congress returned. International aspects could be negotiated as needed, in lieu of a unilateral closing of the gold window. The third option was to close the gold window and announce the wage/price freeze, which were the only actions required to deal with the current crisis, and the legislative package could be prepared for September 7. The downside of that approach, the President said to Connally, was that it missed his “big, bold” approach, but, he mused, could we do the whole program now, tonight? Tomorrow night? Let’s go to Camp David tomorrow and announce the whole program on Monday, he continued.

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Connally thought the President needed to convince the American people that he had thought through the entire program. If it were done piecemeal, the public would speculate on “what comes next.” Ideally the entire package would be announced on September 7, he said, but due to international developments they could not wait that long. If they just did the gold window at that time, it would give the impression the President was “forced to do it” because of what had happened in Europe during the last 2 weeks, that he did not know what to do, and that it took until September 7 to figure it out. To date, Connally went on, there was no public speculation on a comprehensive package, and if the President did it all now it would give the impression he knew what was happening and was on top of it; “you picked the time.”

Shultz said Burns thought they should do the domestic program now, including the border tax, and see if that would stabilize the dollar. Connally argued that if they were to do the domestic program now, they should go ahead and close the gold window as well, rather than wait until the following week, a point the President thought was well taken. The President proposed, and Shultz and Connally concurred, that they meet at Camp David over the weekend “to set the whole thing up.” The only participants were to be the three of them, plus “Arthur and McCracken and Peterson,” and as for staff “the fewer the better.” Connally suggested that at Camp David all should be encouraged to participate in the discussion, without their letting on that the decisions had already been made. Shultz said that at Camp David it would be necessary to set up sub-meetings to develop the specifics of various parts of the program. The President agreed and said he had pretty much decided what he wanted to do; following perhaps a 3-hour meeting beginning at 3 p.m. on Friday to develop an agreement, they would break into groups and reconvene Saturday at 3 p.m., which would give him time to prepare his speech. Shultz suggested giving the speech on Sunday night to prevent speculation on Monday, a point the President took, provided they could get it ready. The conversation concluded with the three discussing the essential modalities for secrecy surrounding the Camp David meeting. (Ibid., Recording of Conversation Among President Nixon, Secretary Connally, and Budget Director Shultz, August 12, l971, 5:30-7 p.m., Executive Office Building, Conversation 273-20)

Shortly after the conversation the President phoned Connally and reported on his discussions with Shultz on the border tax and how it would give them negotiating leverage, which the President characterized as the program’s best element politically. He said he wanted to be sure Connally understood the President’s signal that Connally should take the lead in the general discussion Friday afternoon. A clearly elated President told Connally the economic program would be like the [Page 460]“China thing,” totally unexpected coming at that particular time. (Ibid., Recording of Telephone Conversation Between President Nixon and Secretary Connally, August 12, 1971, 7:22-7:26 p.m., Executive Office Building, Conversation 273-24)