Foreign Relations of the United States, 1961–1963, Volume IX, Foreign Economic Policy

20. Memorandum for the Record⁰

Washington, February 27, 1963.

Meeting between the President and Mr. Dean Acheson, February 26, 1963, 11 AM, on Balance of Payments¹

PRESENT

• The President
• Mr. Dean Acheson
• Mr. McGeorge Bundy

The President began by pointing out that we are facing the same problem that had been developing since 1957, and asked Mr. Acheson whether earlier action by the last Administration could not have improved matters. Mr. Acheson said he thought that if the Eisenhower Administration had undertaken the measures which had been developed in the last two years, they could have cut the annual deficit in half to about $2 billion. Mr. Acheson further remarked that the optimistic hopes of the Kennedy Treasury would have been right if exports had held up as hoped. The President asked about the problem of capital outflow, and expressed his feeling that it was really not sensible for Henry Ford to be able to lay hands on $300 million of America’s gold reserve by a single private decision. Mr. Acheson expressed agreement, and said that one way of limiting capital outflow might be to put a tax on it. The President asked whether we might not have a law similar to that in Switzerland, and Mr. Acheson replied that most such laws were easily avoided when it was a capital flight that is intended, but he repeated that taxes might limit investment. On this same problem of investment, Mr. Acheson noted that our foreign investments have been about equal to our net outflow of dollars, and he remarked that if costs should continue to rise in Europe and if they can be held in line in this country, this foreign investment flow might be cut down and perhaps even reversed. The President noted, and Mr. Acheson agreed, that on the other hand we could expect to take some losses on agricultural exports.

The President asked Mr. Acheson about the possibility of raising interest rates to hold money here, and Mr. Acheson remarked that this would hold short-term money but that such action would run the risk of slowing down economic growth in the US, and he indicated that he would not welcome this particular move at present.

Turning to his basic proposals, Mr. Acheson remarked that the whole object was to get a period of time in which it would not be necessary to use small expedients with troublesome side effects. If things went well during this period of time, no more drastic action would be needed, and if not, there would be time to note the trend and take other measures. Mr. Acheson said that over a similar period of time he thought that we would get a clear notion of what the Europeans will and will not do in such fields as military strategy and deployment, and that if they would not² meet our standards, we could make careful plans for appropriate rearrangement of our own commitments. The President expressed his concern at the possibility that he might be forced to make major political or military adjustments for balance of payments reasons at a time when tourists alone represented a billion dollar drain—since tourists contributed nothing of major significance to the national interest.

Mr. Acheson continued with a description of his basic plan, remarking that most of the borrowing should be done in France and Germany, and he expressed his belief that both the French and the Germans would be willing in fact to cooperate. In his view a persuasive argument could be made that the United States was facing these difficulties not because things are going badly, but because they are going well, and that the proposed program is in their interest as well as in ours. Mr. Acheson believed that the French would enjoy being able to cooperate in this particular field, and he did not expect that General De Gaulle would attempt to use the monetary weapon for his quite different political purposes. In response to a question from Mr. Bundy, Mr. Acheson remarked that he believed the ten billion dollar figure was adequate in size, and the balance of its distribution among the different categories was satisfactory. He was not troubled by the prospect of reduction in the gold balance, since he believed that in any long-term rearrangement of international monetary practices, there would have to be a reduction in gold holdings in any case. He believed that the gold cover requirement which could be waived if necessary by the Federal Reserve was not a serious obstacle if carefully approached.

The President remarked on the difficulty of getting State and Treas-ury together. Mr. Acheson repeated that one difficulty was that the Secretary of State expressed his own lack of interest and concern, while Mr. Ball took a breezy attitude which was very frightening to Mr. Roosa. The President indicated his understanding of this difficulty but said that we should not leave this matter simply to the bankers. Mr. Acheson agreed, but he remarked that now Mr. Roosa was deeply concerned and that indeed his own proposal was one which had been put to him first by Mr. Roosa himself.

There was a brief discussion of devaluation in which the President remarked that his own view had been that one difficulty in devaluation was that others would promptly follow suit, and the second difficulty was that dollars would not be held with great confidence thereafter. Mr. Acheson indicated his own view that devaluation was neither a great terror nor an immediate answer to the problem. A better answer would be selective revaluation of unusually strong currencies, but this was not currently likely. The President and Mr. Acheson exchanged with good cheer the thought that it would be pleasant to close down one or two bases in Spain and to discourage the Spaniards from supposing that they could draw gold and hold us up on the military front, both at the same time.

It was agreed that Mr. Acheson would talk privately with Secretary Dillon very soon and that at the end of the week there would be a meeting for discussion of the Acheson report³ among a small group of very senior officers of government.

McGeorge Bundy⁴

0. Source: Kennedy Library, National Security Files, Subjects Series, Balance of Payments and Gold. Top Secret. Drafted by McGeorge Bundy.
1. At an NSC Executive Committee meeting on February 5, the President asked Acheson “to look at our balance of payments problem, consulting with Treasury, Defense, State, and Governor Herter.” A summary record of that NSC meeting is printed in vol. XIII, pp. 173–179.
2. The word “not” has been inserted by hand.
3. Entitled “Recommendations Relating to United States International Payments Problems,” dated February 25. (Kennedy Library, Herter Papers, Balance of Payments)
4. Printed from a copy that bears this typed signature.