THE

: By EMIL BJARNASON
H, ite of this piece is “The

i Stisis” rather than the “Nixon
Bia cause it is quite obvious
+, bil Was driven to his action (in.
4 im

ty of the dollar into gold
Be Posing a ten percent import
tui by necessity rather than

, cai Major contradictions in
Ming st. World market have been
era generating crises, But
Wallet Crises, the United States
by Ole to it various remedies,
Wig. “ough they might be, and
i a It appears that this time
nus Were used up.
: revolts Of the present crisis were
a the international monetary
May ot at Bretton Woods in
Nt, - SyStem was an attempt to
Tder to the world market
Stat been in a more or less
tan i. Since the collapse of the

§
* te atd at the outset of the
Pression,

* * 5
wn tonopoly capitalism, gold

Py... 28 the international meas-
Me and means of payment.
Nin 2? 82d to a considerable ex-
Ty “Stise, the international flow
Pomoted economic stability.
kymen” Of gold out of a country
Ny, tt for excessive imports
Ft, promote deflation and make
tyS export more competi-
Hig’ vce versa,
WM, Coming of monopoly capi-
Wi a“ Its sharpened contradic-
iy .. With the birth of crisis-free
lates to serve as an example
Ple of other countries, the
Ma de onomic disaster of the
igs. iS clear that capitalist
AY of ea no longer afford the
Pion. ,,2!Ssez-faire automatic re-
1... €Y were forced to adopt
Monetary control of the
’ Mcluding control of the
" 88.means of averting or
eg. cOnomic crisis.
Qo a Of state monopoly capital-
My , “Ntry could allow its money
tne {tS price structure to be
. bY automatic gold move-

list

4) §

~ * *

8
tton Woods agreement tried

\

NIXON
CRISIS

‘cently, to

to devise a system appropriate to the
needs of the present era. National
monetary systems. would be based on
paper money and bank deposits. The
settlement of balances between coun-
tries would be made in gold or U.S.
dollars. The exchange rate between
currencies would be fixed (within one

rcent) and the. various countries
would hold foreign exchange reserves,

in gold or dollars, as a cushion to.

enable them to absorb unusual pay-
ments deficits. :
As a further cushion, the Internatio-
nal Monetary Fund held an interna-
tional reserve which could come to the
aid of. countries experiencing deficts
beyond the capacity of their reserves.
‘As a last resort, if all of these were
insufficient to contain a deficit, a coun-
try could devalue its currency to cor-
rect persistent trade defict by making
its exports cheap and its imports ex-
sive.
Pe The system would have been fine,
but for two factors: the preferred
position of the USA and the rivalry
between imperialist powers.
* * * .
It was essential to the system tha
the U.S. dollar should be accepted as
the equivalent of gold. Twenty-five
years ago, this seemed to be guaran-
teed by the size of the U.S. gold re-
serve which accounted for the bulk
of the world’s monetary gold. Since,
in settlements between countries, the
dollar was redeemable in gold, the
central banks everywhere regarded the
dollar as equivalent to gold at $35 an
ate this, however, is
ther side to this, ;
sae ‘the United States therefore had
a banker’s license to print money and
receive value for it. At the cost of the
paper on which it was printed, the
U.S. could issue a billion dollars
worth of money and use it to buy a
billion dollars worth of assets. pu
the past 25 years, the U.S. has us
that power like a drunk on a spending
spree. U.S. paper money has pee
used to finance the capital exports fe)
U.S. corporations, to subsidise reac-
tionary governments, and, most. re-

finance the dirty war in
The accumulated total of
t and now out-
of $50 billion.

Vietnam.
U.S. dollars so spen
standing is in excess

| OH YES, 'POLICE'

bee

ng CAN POLICE THE WAGES OF YOUR WO

YOURSELF ON PRICES!"

RKERS,

All of this represents foreign output
and wealth transferred into American
hands in exchange for paper money.
The catch is that, as long as gold
convertibility of the dollar was main-
tained, all of it represented a debt,
payable on demand, of the U.S. gov-
ernment. As this debt grew, and the
U.S. gold reserve dwindled, other
countries became increasingly nervous
about the ability of the U.S. to meet
its commitments, and some of them
began demanding gold for their dol-
lars. By the time of Nixon’s action,
the gold reserve was less than ten
billions, and therefore less than enough
to cover twenty percent of the debt.

* * *

Another aspect of the matter is that
this extraordinary flow of U.S. money

into other countries has an inflation--

_ary effect in those countries. For
example, West German capitalists re-
ceiving U.S. dollars in exchange for
their exports normally exchange them
at the bank for German money, and
thus the outstanding volume of Ger-
man currency grows, Offset by U.S.
dollars in the West German foreign ex-
change reserve.

Surplus countries, therefore, have
been under the pressure of continuous
export of inflation from the United
States.

Imperialist rivalries have prevented
the system from achieving the avoid-
ance of balance of payments crises
that had been hoped for. The designers
of the Bretton Woods agreement had
imagined that when the price levels
of countries got out of line, causing
some to have persistent surpluses and
others persistent deficits, the imbalance
could be corrected by small devalua-
tions in the deficit countries and
small revaluation in the surplus coun-
tries, keeping the currencies of both
in line with the U.S. dollar. In fact, it
turned out that while the exhaustion
of foreign exchange reserves would
compel the deficit countries to devalue,
there was no parallel mechanism to
force the fat-cat surplus countries to
raise the value of their currency. And
since, to do so would involve making
their exports less competitive, they
rarely consented to do so. Thus the
pressure of adjustment was always on
the deficit countries, and usually post-
poned until desparate necessity forced
devaluations of a magnitude that
worked real hardship on their people
(through the resulting rise in the cost
of living) as exemplified by the re-
peated devaluation of the British
pound.

Thus, instead of a stabilizing, the
system had a destabilizing effect on
national economies, generating persist-

ent inflation, recurrent balance of pay-
ments crises, unemployment, etc.

Moreover, instead of freeing coun-
tries to manipulate their internal
monetary policies according to the
needs of their own economies, the
system made them the prisoners of
balance of payments problems. For
example, suppose that, to cool on over-
heated economy, a country decided to
contract the supply of currency and
raise interest rates. With tens of. bil-
lions of U.S. dollars circulating around
the world, the majority in the hands
of central banks, but over twenty
billions in private hands, a rise in in-
terest rates in a given country inevit-
ably triggered an inflow of dollars
seeking investment on the most favor-
able terms. Thus the policy designed
to curb the money supply and inflation
was more than likely instead to in-
crease it. Again, destabilization and
persistent inflation.

But while the recurrent currency
crises of past years were provoked by
the mounting resistance of other coun-
tries to the policies and actions of the
U.S. as international banker, the pre-
sent crisis was triggered by the conse-
quences within the U.S. itself.

For the United States also has the
need to regulate its own economy.
Cyclical overproduction crisis, began to
assert itself in 1966-67 but was quckly
overcome by the boom conditions aris-
ing from the dirty war. This delayed
the crisis, but inevitably increased its
magnitude. The Nixon government
was faced with the necessity of deal-
ing with rising unemployment at a
time when the continuing war expen-
ditures guaranteed continued inflation.

* co *

Nixon tried to cope with the crisis
in traditional ways. Monetary meas-
ures designed to overcome unemploy-
ment merely increased inflation with-
out reducing unemployment. Then
fiscal measures were tried, running up
huge budgetary deficits, hoping that
the resulting expenditures would spark
an economic recovery. This did not
work either. The one thing it did ac-
complish was to aggravate the grow-
ing balance of payments deficit. In-
flation made U.S. goods so uncompe-
titive that this year for the first time
in this century, the U.S. experienced
a balance of trade deficit. Without the

‘usual foreign surplus on its trade, the

continuing capital exports from the
U.S. made the balance of payments
deficit enormous.

By the middle of this year, all of the
U.S. economic indicators- were poitit-
ing the wrong way. Unemployment
was still rising, inflation was continu-
ing at a high rate, exports were fall-
ing and imports rising. And the bdal-
ance of payments deficit was running
at an annual rate of over twenty bil-
lion- dollars. i

The U.S. was broke. Nixon had no
choice but to suspend the convertibil-
ity of dollars into gold (a few more
months and an empty treasury would
have brought this about in any case).
Simultaneously, to try to reverse the
adverse foreign balance, he adopted
the surcharge on imports and other
measures to subsidize U.S. production.

* * *

It is clear that the role of the U.S.
as the international banker is oyer.
In this sense we have come to the end
of an era, a stage of the general crisis
that has abruptly ended. It is also
clear that for the moment, the capital-
ist world is without an international
money. The system of payments has
broken down. What comes next?

That question cannot be answered
with certainty, but there are a number
of possibilities:

e A fragmentation of the capitalist
world market, followed by the organ-
ization of two or possibly three rival
trade and currency blocs, headed by
leading imperialist powers.

e A trade war sparked by retali-
atory measures adopted by other
countries in defense against Nixon’s
protectionist devices.

e Deeper depression.

Other, more favorable outcomes
are possible. But they would deperid
on a degree of statesmanship capable
of sinking the rivalries that produced
the crisis.

_PACIFIC TRIBUNE—FRIDAY, SEPTEMBER 24, 1971— PAGE 7