Office of the Historian

38. Memorandum From Francis M. Bator of the National Security Council Staff to President Johnson1

Washington, February 7, 1965.

Mr. President:

Bill Moyers suggested that, despite the hour, I send in the attached draft of the Balance of Payments Message this evening.2 Gardner, Walter and I finished it this afternoon, and I have gone over it with Secretary Dillon.3 He liked it, and made only minor suggestions, all incorporated in the draft.

The only issues on which your Government is still divided are:

1. The rate schedule under the Interest Equalization Tax (page 10).

Ackley, as you know, wants us to ask for an increase in the tax rate. He feels that without an increase the whole package lacks punch. Dillon and Martin want to keep the rate where it is. They are worried about making the bankers angry just when we are asking their help.

2. What you say in the Message about tightening money.

The draft contains two alternative paragraphs on monetary policy, on pages 12 and 13.

  • —Alternative A is Ackley’s preference, but according to Dillon it will be unacceptable to Martin and, if for no other reason, Dillon himself is opposed.
  • —Alternative B is acceptable to Dillon and, he thinks, probably to Martin. Ackley feels it represents a retreat from your position in your Economic Report.4

There is a chance for a sensible compromise which will make it clear that you are against a general tightening of credit, such as would hurt us at home, yet leave Martin satisfied that he has enough flexibility. At any rate, Ackley, Dillon and Gordon will try to work something out tomorrow, before the issue is brought to you for a decision.

Apart from the above, there is one more important and new issue. Martin, Connor and Dillon believe that to insure the effective cooperation [Page 103] of Connor’s businessmen and Martin’s bankers they will have to be assured of some protection from the anti-trust laws. This would require legislation. Katzenbach is uncomfortable but willing, and pending your decision, is drafting some language for insertion in the Message on pages 4 and 12.

One last point concerns the Canadians. Dillon recommends that you call Pearson to get him to agree that they will sharply cut down on their borrowing. A memorandum on this will be over first thing in the morning.5

Also first thing tomorrow I will get copies of the draft Message (on an eyes-only basis) to Gordon, Connor, Ball, McNamara and—he just walked in—Bundy, none of whom have yet seen it. We should be ready to present to you all outstanding issues and to ask for your final decision on the entire package by mid-afternoon.

I apologize that this is so late and that the draft is not in perfect order, I did not finish with Dillon and then Katzenbach until 9:30 p.m. and then had to make changes in the draft.

Francis M. Bator 6
  1. Source: Johnson Library, National Security File, Subject File, Balance of Payments, Vol 2. [1 of 2], Box 2. No classification marking.↩
  2. Presumably a draft of the President’s message on the balance-of-payments problem. No drafts have been found. For text of the February 10 message, see Public Papers of the Presidents of the United States: Lyndon B. Johnson, 1965, Book I, pp. 170–177.↩
  3. Dillon does not know about Heller. [Handwritten footnote in the source text.]↩
  4. The Annual Message to the Congress: The Economic Report of the President was delivered on January 28. For text, see Public Papers of the Presidents of the United States: Lyndon B. Johnson, 1965, Book I, pp. 103–117.↩
  5. Presumably a reference to Document 41.↩
  6. Printed from a copy that bears this typed signature.↩