113. Editorial Note
On December 20, 1966, Secretary of the Treasury Fowler telephoned President Johnson to report on his recent meetings in Paris with Debre and Callaghan. (Later in the conversation, Fowler read a detailed memorandum of his conversation with Debre.) At these meetings, Fowler believed the three expressed a common concern over “worldwide tight money and high interest rates.” Rather than leave the situation “to the mercies of the Central Bank Governors and whatever they may decide, particularly with reference to international capital flows,” Callaghan wanted to convene an early meeting of the big four Finance Ministers in London to “work together toward a general easing of monetary conditions and reversal in this interest rate escalation in the Western world.” Specifically, Fowler hoped the meeting would “give the Fed no balance of payments reasons for holding back on monetary ease, which I fear the New York bank will constantly throw in the picture.” If the four could get a “general understanding,” they might extend it to the Italians and Dutch. When interest rates in the United States moved down, “they will then try to move down with us,” and thus there would not be a “balance of payments hurdle in our going forward with the right kind of monetary policy for our domestic problems.” Germany, Fowler added, would be a key player in this process.
In the ensuing discussion, President Johnson agreed among other things that the proposed meeting was “a helluva good initiative.” He wanted Ambassador McGhee to know that the Germans had “to help and play ball here.” He also said that Federal Reserve Board Chairman Martin should “help us by easing money, and I think you ought to tell him just as cold and hard and tough as you know how that you and your people and many other people really think that they ought to let the banks know by letter … that they are going to ease this situation.” He emphasized that the “white elephant, ivory tower crowd at the Federal Reserve” needed to loosen up some by buying Fannie Mae paper, for example, before tight money plunged the nation into a depression.
Fowler replied, “I couldn’t agree with everything you’ve said more.” He thought some monetary ease would occur, “but it’s a question [Page 329] of how much and how fast and how far it goes.” He thought that declining interest rates were all right domestically, but they had to counter the argument that the loosening would “cause capital outflows and our balance of payments will be ruined.” When Fowler remarked that the administration had to rely on its legislative program and international negotiations “to make other people come along so we won’t be hurt,” President Johnson agreed. The President reemphasized that the Federal Reserve should buy Fannie Mae paper and that Fowler should talk to Martin about these matters. (Johnson Library, Recordings and Transcripts, Recording of Telephone Conversation between President Johnson and Secretary Fowler, December 20, 1966, 11:47 a.m., Tape F6612.02, Side A, PNO 4)
In a January 4, 1967, memorandum to President Johnson, Francis Bator noted that he knew Fowler had already mentioned the upcoming meeting to the President. He explained that its purpose “is to try to stop the international tight-money competition of the past year, with governments driving up interest rates to protect their balance of payments,” and he requested permission to accompany Fowler and Deming there. The President wrote on the approval line of this memorandum: “Heartily. This is very important & you can make an excellent contribution as you always do. L.” (Ibid., Bator Papers, Chequers Trip, Box 8)
On January 12, James Callaghan, British Chancellor of the Excheq-uer, sent a message to the Group of 10 Finance Ministers informing them of the upcoming four-power monetary conference. Callaghan’s message recalled that at the NATO Ministerial Meeting in Paris in December 1966 he had talked separately with Debre and Fowler about fiscal and monetary policy, “and in particular the implications of this for world interest rates.” Although Schiller was not in Paris, Callaghan had had a similar conversation on that occasion with Willy Brandt. Callaghan summarized these conversations as follows: “We were all inclined to think that interest rates were too high and could, with advantage, be brought down.” Although unable to pursue the subject in Paris, he had since arranged with Debre, Fowler, and Schiller to meet in London January 21–22 “to try and see whether we can make some progress. For public purposes we shall announce the subject for discussion in general terms such as monetary policy and international co-operation.” (Telegram 5499 from London, January 12; Department of State, Central Files, FN 10 IMF) The text of a slightly expanded version of this message from Callaghan, January 12, is in the Johnson Library, Bator Papers, Chequers Meeting, January 21, 1967, Box 8.
On January 16, the Department of the Treasury issued a press release announcing that the upcoming meeting of the four Finance Ministers would be held at Chequers, the Prime Minister’s country residence, January 21–22. “The meeting,” the press release indicated, “will focus [Page 330] mainly on interest rates and possibilities for further relaxation of monetary stringency.” The Treasury release said that Secretary Fowler “welcomed the meeting and the opportunity it presented for a cooperative exploration of the ways and means of achieving a rational and timely easing of monetary conditions.” It also noted that there might be speculation that other matters such as the price of gold or the reevaluation of sterling might be discussed at the Chequers meeting, but it was expected that the discussion would be limited “‘to discuss international interaction of monetary and credit policies,’” as outlined in Callaghan’s public announcement calling the meeting. The press release added that Fowler had already made it explicit (in circular telegram 115957, January 10; Department of State, Central Files, FN 19) that the raising of the price of gold was unacceptable to the U.S. Government. Text of the press release is in circular telegram 119071, January 16. (Ibid., POL 7 UK)
Circular telegram 119071 also informed U.S. posts privately that “Major attention expected center on international effects of German monetary policy.”
A January 17 Department of the Treasury paper summarized the U.S. objectives at the upcoming meeting. (Johnson Library, Bator Papers, Chequers Meeting, January 21, 1967, Box 8)
For documentation on the Chequers meeting, see Documents 115 and 116.