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10. Memorandum From the Deputy Director of the Office of Management and Budget (Malek) to President Nixon 1

SUBJECT

  • Reducing the Strategic Stockpile

I. Background

The Strategic Materials Stockpile is currently valued at $6.5 billion and consists mainly of materials such as aluminum, rubber, chromite, diamonds, tin, zinc, copper, and the like. The new policy2 you recently approved permits lowering this inventory to under $700 million. Existing law authorizes the sale of $1.7 billion, but additional legislation will be needed to sell the remaining $4.1 billion.

A Working Group including Herb Stein, Bill Simon, and representatives from the Domestic Council, GSA, COLC, OEP, State, and the NSC concur with the recommendations presented below.

II. Administrative Actions

Administrative actions to intensify sales of $1.7 billion of materials can be taken on several fronts:

1. I recommend a departure from existing restrictive policies concerning the market impact of disposals. This change would permit GSA to increase sale of commodities at lower prices as long as resulting market prices remained above those of a year ago.3 If prices fall below that level for any commodity, the disposal policy will be restudied. These revised guidelines would allay congressional and industry concern over undue market disruption.4

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2. $650 million (mostly aluminum, lead, and zinc) is under long-term contract to producers. GSA will ask these producers to step up the purchase schedule or, in the case of lead and zinc, face the prospect of GSA selling to users on the open market. The sales prospects are summarized at Tab A.5 This action is likely to encounter some industry resistance, but I recommend you authorize pursuit of this course because disposal of the materials in question could have a significant, near-term stabilizing impact on prices.

3. At Tab B6 is a decision memo from Henry Kissinger recommending a removal of the ban on sale of tin. This would permit sale from the $75 million of excess tin at a rate that would prevent further price increases. A second and acceptable choice of Dr. Kissinger, and the one I recommend, is to permit sales at a rate that would stabilize the tin price at a level equivalent to the price that prevailed before devaluation.

4. On the remainder of the commodities for which we have authorization, I recommend having OEP remove present administrative limitations on sales, enabling GSA to step up disposals of these commodities. Commodities affected and specific goals to be reached are identified at Tab A, and we would place first priority on those items identified by the Cost of Living Council as most contributing to the WPI increase. This action is likely to encounter resistance from domestic industry, but we would attempt to ameliorate this through advance briefings. We can also expect protest from foreign producers, particularly the Thai, Malaysians, and Indonesians who will be affected by sale of both tin and rubber. State will consult with these countries on the proposed disposal actions. The Secretary of State will advise you if sales will jeopardize our interests in this area.7

The net result of these administrative actions will increase fourth quarter dollar sales by 70% and FY 1974 sales by 50%.

III. Legislative Actions

In addition to the Working Group mentioned above, the recommendations below have been coordinated with and agreed to by Bill Timmons. We recommend the following legislative strategy:

1. Include all commodities in a single bill with individual authorization for each major commodity. This would reduce the potential criticism of encroachment on Congressional oversight, and yet would permit flexibility in the event the bill became stymied owing to an objection on a specific commodity.

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2. Brief Bi-Partisan Leadership at the meeting now being scheduled for March 29th,8 at which time trade will also be covered. This would be followed by briefings that afternoon for the Senate and House Armed Services Committees and other Congressional Members who have a strong interest in specific commodities. Principals who would be involved in the briefings would be Deputy Secretaries Clements and Simon.9

3. Follow the briefings with promulgation of revised stockpile objectives by OEP, a Presidential Message,10 and introduction of the legislation immediately thereafter. Present in the context of changed national security requirements resulting from the lessening of world tensions and as an anti-inflation measure.11

As I see the current situation, congressional acceptance of the new policy and approval of the required legislation is our paramount objective since this will release up to $4 billion of stockpile materials for sale. Thus, we must move with some caution in the next few weeks on accelerated disposals to prevent the political backlash which could endanger passage of the required legislation.

Subject to this timing constraint, I am confident that the actions above will significantly increase sales from our Strategic Stockpile, and members of the Working Group advise that this should have a significant impact on price levels. We will follow through vigorously to ensure that sales are made on time and in quantities consistent with the guidelines recommended above.12

  1. Source: National Archives, Nixon Presidential Materials, White House Special Files, President’s Office Files, Box 21, President’s Handwriting Files, March 11–31, 1973. No classification marking. Sent for action. A note on the memorandum reads, “The President has seen.” Nixon decided during a March 9 meeting, held in the Oval Office to discuss the previous day’s announcement of an increase in the WPI and mounting criticism of the administration’s economic policies, that “stockpile sales should be vigorously pushed” and that Malek be “placed in charge of doing it.” His decision was prompted by Stein, Simon, and Ehrlichman’s shared view that there had been a “failure as yet to implement a policy of more rapid sales of stockpiled industrial materials, which seemed especially important in view of the big increase of industrial prices just reported.” The record of the meeting is ibid., Box 91, Memoranda for the President—Beginning March 4 [1973].
  2. See Document 3.
  3. Nixon underlined the phrase “resulting market prices remained above those of a year ago,” circled the word “above,” and drew a line from that word to the margin, where he wrote “no.”
  4. The President initialed his disapproval and wrote, “go ahead even if there is heat from Industry because of lower prices.”
  5. Attached, but not printed.
  6. Kissinger’s March 16 memorandum to Nixon is attached, but not printed.
  7. The President initialed his approval of recommendations 2–4 in this section.
  8. The President corrected the date by writing a 9 over the 7 and in the margin wrote: “29th not 27th.”
  9. The President initialed his approval of recommendations 1 and 2 in this section.
  10. On April 16, Nixon sent a special message to Congress supporting the passage of an omnibus bill authorizing the disposal of 16 stockpiled commodities worth an estimated $4.1 billion. (Public Papers: Nixon, 1973, pp. 295–297)
  11. The President initialed his approval and wrote, “Emphasize this as the major reason.” During his March 15 news conference, Nixon, in response to a reporter’s question, confirmed that he had decided “to very substantially reduce our stockpiles,” explaining that the “irrelevant” stockpile inventories had been established when “we were thinking of a very different kind of conflict than we presently might be confronted with in the world.” Though he expected complaints to come “from those who produce and sell some of the materials” scheduled for reduction, Nixon explained that he opted for cuts “first, because the Government doesn’t need this much for its national security and, second, because in this particular period, we need to take every action we possibly can to drive down prices.” (Public Papers: Nixon, 1973, p. 207)
  12. On May 11, Under Secretary of State Casey sent Kissinger a memorandum indicating that, while the Department generally supported the President’s plan to dispose of commodities, it believed that the proposed disposal rates for seven strategic materials—tin, industrial diamond stones and crushing bort, metallurgical grade manganese, quartz crystals, muscovite mica, tantalum, and tungsten—“would present serious foreign relations problems with producers of these commodities.” Casey continued, “I strongly urge that the Department’s recommendations on disposal levels be approved so as to reduce the foreign relations problems involved in these programs.” (National Archives, RG 59, S/S–I File, Lot 80D212, NSDM 203)