868–8

Conversation No. 868-8

Date: March 3, 1973
Time: Unknown between 10:08 am and 11:50 am
Location: Oval Office

The President met with George P. Shultz.

Press conference

Paul A. Volcker
-Location
-Work on negotiations
-Meeting with President
-Participation in meeting

Arthur F. Burns, Roy L. Ash, Herbert L. Stein, and Paul A. Volcker entered at 10:08 am.

Treasury department
-British pound
-Dollar

Volcker
-Praise for work

US dollar
-Discussion
-Format
-Memorandum
-Stein

Meeting
-Council of Economic Advisors [CEA]
-Ezra Solomon
-Wives of officials

Business confidence
-Sense of anxiety
-Inflation
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NIXON PRESIDENTIAL LIBRARY AND MUSEUM

Tape Subject Log
(rev. June-2010)
Conversation No. 868-8 (cont’d)


-Rise
-Interest rates
-Rise
-International money markets
-Slowdown of growth
-Deflationary pressures

Inflation
-Phase III [voluntary wage and price controls]
-Food prices
-Devaluation

An unknown man entered at an unknown time after 10:08 am.

Refreshment

The unknown man left at an unknown time before 11:50 am.

Inflation
-Monetary supply
-Budget
-Balance

Burns’s statement
-Joint Economic Committee

Interest rates
-Question at press conference
-President’s answer
-Explanation of money supply
-Over inflation
-Economic growth
-Compared to fiscal year 1968, 1969
-Burns’s testimony
-Credit crunch
-Fear on Wall Street
-Federal Reserve
-Psychology of concern
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NIXON PRESIDENTIAL LIBRARY AND MUSEUM

Tape Subject Log
(rev. June-2010)
Conversation No. 868-8 (cont’d)


Inflation
-Phase III
-Supply and demand
-Rates
-Moderation
-Food prices
-Reasons for confidence
-Food prices
-Problems
-Cheese
-Memorandum
-Tariff Commission
-Letter
-Investigation
-Milk producers
-Influence on Wilbur D. Mills
-Mills
-Telephone call to President
-Dealing with administration
-Patrick J. Lucey
-Governor of Wisconsin
-Cheese
-Political problems
-Mills
-Talk with President

Interest rates
-Increases
-Continuation
-Dangers
-Overexpansion, recession

International monetary markets
-Sources of instability
-Domestic implications
-Avoidance of adverse consequences
-David M. Kennedy
-Compared to Burns
-Currency circulation
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NIXON PRESIDENTIAL LIBRARY AND MUSEUM

Tape Subject Log
(rev. June-2010)
Conversation No. 868-8 (cont’d)


-Investment [?]
-Future structure

Monetary policy
-Future expansion, slowdown
-New York
-Inventories
-Manufacturing, finished goods
-January 1973
-Demand
-Accumulation
-New business orders
-Slowdowns
-Dangers
-Shortfalls in money supply
-Unemployment

Administration’s policy
-Flexibility
-Fiscal policy
-Burns’s proposal
-Investment credit

Economy
-Compared with mid-1960's
-Declining unemployment, rising inflation
-Money supply
-Inflation
-Tax reductions [1965]
-Personal and corporate income taxes
-Excise taxes
-Increased government spending
-\"Great Society programs
-Expansionary money supply
-Vietnam War
-Inflation [1963]
-Raw materials
-Wholesale prices
-Overstimulation
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NIXON PRESIDENTIAL LIBRARY AND MUSEUM

Tape Subject Log
(rev. June-2010)
Conversation No. 868-8 (cont’d)


-Effects
-Budget deficits
-Current Economic situation
-Full employment
-Fiscal, monetary policy
-Moderation

Taxes
-Investment tax credit
-Power of presidency
-Role of Congress
-Problems
-Responsibility
-Actions on President's proposals
-Modifications in President's proposals
-Problems for buyers
-Speculation
-Delays until Congress acts
-Destabilization potential

Shultz
-Testimony before Congress
-Date

Tax rates
-Flexibility
-Personal income
-Congress procedures
-Presidential requests on tax changes
-Fast track
-Rates percentiles
-Requests to Congress
-Procedure

Ronald L. Ziegler entered at 10:32 am.

President's conversation with Peter J. Brennan
-Accident
-Visit to site
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NIXON PRESIDENTIAL LIBRARY AND MUSEUM

Tape Subject Log
(rev. June-2010)
Conversation No. 868-8 (cont’d)


-Safety regulations
-Injuries, deaths
-Building collapse

Brennan
-Visit to high-rise apartment collapse
-Construction background

Ziegler left at 10:35 am.

Fiscal policy
-Investment tax credit
-Application

Credit
-Uncertainty
-Attacks by labor, liberals
-Administration's position
-Slowdown of investment
-Increased taxes

Federal Reserve study
-Congressional request
-Housing market
-Instability, fluctuations
-Reasons for study
-Method of stabilization
-Construction
-Proposals
-Economic stabilization
-Release of funds
-Future problems in housing industry

Investment tax credit
-Political sensitivity
-Flexibility
-Economic stimulus
-Restraint
-Housing industry
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NIXON PRESIDENTIAL LIBRARY AND MUSEUM

Tape Subject Log
(rev. June-2010)
Conversation No. 868-8 (cont’d)


-Fiscal policy
-Tax increases
-Criticism of William Proxmire
-Economic expansion
-Fiscal policy
-Tax credit compared with increased social services
-Ceiling on credit to large corporations
-Job creation
-Implementation
-Opportune time

Fiscal, monetary policy
-Effects
-1972 compared to 1970
-Need for expansion in 1974
-President’s previous experience
-Overexpansion in 1969
-Budget
-Federal Reserve
-Credit supply reduction
-Mild recession
-Stein’s speech
-Compared to 1960
-Economy
-1969
-Unemployment
-Decline
-Budget measures
-Money supply
-William McChesney Martin, Jr.
-Restrictions
-Federal Reserve
-Pressure from Wall Street, international monetary situation
-Martin
-1954, 1958, 1960, 1970 recessions
-1972 economy
-Anticipation for 1974
-Credit supply reduction
-Present dangers
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NIXON PRESIDENTIAL LIBRARY AND MUSEUM

Tape Subject Log
(rev. June-2010)
Conversation No. 868-8 (cont’d)


-Federal Reserve
-Need for restrictions
-Concern about economic growth
-Bankers
-Profits from high interest rates

US economy
-Higher prime interest rate
-Bankers’ complaints
-Corporate profits
-Published figures compared to unpublished figures
-Federal Reserve profits
-Profits of subsidiaries of American corporations abroad
-Level of domestic, nonfinancial business
-Manufacturing, mining, construction trade
-1972 compared to 1966
-Relation with Gross National Product [GNP] growth
-Commercial banks
-Growth in profits 1972 compared to 1966
-Source of profits in 1972, 1971
-Foreign investments
-Corporate profits
-Low level
-Problems
-Investment
-Productivity
-Technology
-International competitiveness
-Exportation of quality capital
-Report by CEA
-Stein
-Necessity for reinvestment
-Long-term economic strength, prosperity
-Investment in US
-Foreign investment
-Encouragement
-Further discussion
-Cabinet meeting
-Secretaries of Commerce, Labor
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NIXON PRESIDENTIAL LIBRARY AND MUSEUM

Tape Subject Log
(rev. June-2010)
Conversation No. 868-8 (cont’d)


-Working paper
-Danger of over optimism
-Tumor metaphor

Long-term planning and implementation
-Foreign policy
-People's Republic of China [PRC]
-Background of initiative
-US-Soviet Union relations
-Economy
-Budget for fiscal year 1974-1975
-Productivity
-Investment tax credit

Quadriad’s report
-Volcker
-Letter to Willy Brandt

Exchange rates change
-Realignment
-Devaluation
-Psychological impact
-Speculation
-Lack of confidence
-Administration’s responsibility
-Treasury Department, Federal Reserve’s response
-Lower discount lending rates
-Public statements
-Investors’ responses
-Currency speculation
-Swiss Franc, German Mark, gold

Fixed compared to floating currency regime
-Europe
-Fixed and floating exchange rates
-Floating regime
-Uncertainty
-President’s letter to Brandt
-Europe
 -17-

NIXON PRESIDENTIAL LIBRARY AND MUSEUM

Tape Subject Log
(rev. June-2010)
Conversation No. 868-8 (cont’d)


-Movement toward floating regime
-New trend
-Reluctance
-Floating regime
-Market reaction to change
-Weakness
-Speculation
-Fluctuation in exchange rates
-Domestic confidence
-Leadership
-Monetary reform
-Fluidity of situation
-Bolstering of US dollar
-Fixed exchange rate
-Possible future
-Problems
-Commitment to chosen policy
-President’s poker metaphor
-Fixed exchange rate regime
-US purchase of West German Marks
-Borrowing
-Exchange rate change
-Risk
-Guarantees
-West Germany’s position on floating regime
-Willy Brandt’s meeting with Edward R. G. Heath
-Statements
-Brandt’s letter to President
-Shultz's conversation with Anthony P. L. Barber
-Joint floating of currency
-Heath
-Mark pegged to British pound
-Reluctance
-Europe’s stabilization
-Barber
-Meeting with European finance ministers
-Limited financial commitment to stabilization
-Impact of European float
-Limitations, difficulty
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NIXON PRESIDENTIAL LIBRARY AND MUSEUM

Tape Subject Log
(rev. June-2010)
Conversation No. 868-8 (cont’d)



European floating currency regime
-Two kinds
-Joint float
-Rigid exchange rates float against US dollar
-Individual float against US dollar
-Joint float
-Difficulty
-Disparity
-West Germany, France, Italy [?], Great Britain [?]
-European motives
-Unity
-Dollar reserves

Exchange rate system
-Changes since August 1971 exchange rate action
-Flexibility
-Floating of currencies
-Japan, Great Britain, Italy, Switzerland, Canada
-Pressure on others who don't float
-Great Britain, Canada
-Effect on relations with US
-US exchange rate
-West German Mark
-Stabilization by intervention
-Small nations
-Europeans
-Inter-European trade
Compared to trade with US
-Importance
-Impact of joint float
-Stability
-US monetary policy
-Flexibility
-Support for joint float in Europe
-Problems at home
-Psychological, political, economic risks
-Joint float
-Impact if falls apart
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NIXON PRESIDENTIAL LIBRARY AND MUSEUM

Tape Subject Log
(rev. June-2010)
Conversation No. 868-8 (cont’d)



US intervention in currency exchange rate stabilization
-Recommendation
-Call from Alfred Hayes of New York Federal Reserve Bank
-West Germany
-Cooperation
-Attitude toward intervention
-Great Britain
-Support for floating exchange rates
-Heath
-France
-Support for fixed rates
-Japan
-Reaction
-New York bankers
-Preferences for fixed exchange rates
-West Germany
-Preferences
-Brandt
-US pressure
-Support
-Impact on international monetary situation
-Crisis
-Smithsonian Agreement
-Instability
-Foreign policy implications compared with domestic policy
-US leadership
-Recurrence of instability
-Pressures on US dollar convertibility
-Domestic situation
New international monetary system
-Breton Woods
-US leadership
-Flexibility, rules
-Maintenance of US exchange rate
-Condition
-Fixed compared to floating exchange rates
-Shultz
-Floating exchange rates
 -20-

NIXON PRESIDENTIAL LIBRARY AND MUSEUM

Tape Subject Log
(rev. June-2010)
Conversation No. 868-8 (cont’d)


-Burns
-US intervention
-Stabilization
-Speculators
-Risk
-Multinational declaration of rules
-Timing

Negotiations
-Foot dragging by other nations
-West Germany’s position
-US position
-Greater flexibility
-Transition to floating exchange rates
-Bubbles [?]
-US intervention
-Burns
-Long-term solution
-Europe
-Shultz
-Europe’s position
-France
-Europe’s independence
-US position
-Brandt
-Need for general rules
-Europe’s assumption
-US position at Paris meeting
-Non-intervention
-West Germany’s position
-US, France
-US Devaluation, pressure on Japan


*******************************************************************
BEGIN WITHDRAWN ITEM NO. 1
[National security]
[Duration: 8s]
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NIXON PRESIDENTIAL LIBRARY AND MUSEUM

Tape Subject Log
(rev. June-2010)
Conversation No. 868-8 (cont’d)



INTELLIGENCE


END WITHDRAWN ITEM NO. 1
******************************************************************************


-Europe’s view of US
-Source of monetary instability
-Unreliability

Monetary system
-Europe’s moves to reconstruct
-France
-US leadership
-Floating regime
-Smithsonian agreements
-Failure
-Europe’s reconstruction efforts
-US position
-Exchange rate
-Burns’s survey of economists
-Trends
-Inflationary pressures
-Economic downturn
-Ability to maintain exchange rate parity
-US intervention
-Necessity
-Prevention of further devaluation
-Method
-Borrowing from Treasury Department
-Benefits
-Dangers
-Devaluation
-Fixed exchange rate regime
-US leadership
-Europe’s position
-West Germany, Great Britain, France
 -22-

NIXON PRESIDENTIAL LIBRARY AND MUSEUM

Tape Subject Log
(rev. June-2010)
Conversation No. 868-8 (cont’d)


-Defense of parity
-Compared to flexible exchange regime
-US ability to maintain
-Massive US intervention
-Agreement on monetary reform
-Massive US intervention
-Risks
-West Germany
-Discussions with Europeans

US political relations with Europe
-Increase in contacts
-North Atlantic Treaty Organization [NATO]
-Mutual and Balanced Force Reductions [MBFR]
-European security conference
-Watershed period
-West Germany
-France
-Algeria, Vietnam
-Great Britain
-Europe’s domestic politics
-Left-wing pressures
-West Germany
-France
-Italy
-Great Britain
-Labour government
-Heath
-US relations with Union of Soviet Socialist Republics [USSR]
-Europe’s reaction
-Heath
-Discussions about US policies
-President’s trip to People’s Republic of China [PRC]
-Strategic arms talks
-Middle East
-British power
-European Union
-Europe’s relations with US
-Significance of US policy
 -23-

NIXON PRESIDENTIAL LIBRARY AND MUSEUM

Tape Subject Log
(rev. June-2010)
Conversation No. 868-8 (cont’d)


-Tendency to turn inward, isolationist
-Europe’s leaders
-Brandt
-Italy
-Administration’s goals in Europe
-European military strength
-Need for closer ties
-Preventing socialist, communist politics
-Economic partnership

US economic policies
-Review with Henry A. Kissinger
-Options
-President's decisions
-Shultz’s viewpoint
-Speech at International Monetary Fund [IMF]
-Role of US
-Political implications
-President's responsibilities
-Europe’s position
-France

US intervention in international monetary situation
-West Germany
-Great Britain
-France
-Brandt's letter
-Answer
-West German finance minister’s meeting

Kissinger meeting with Quadriad
-Scheduling
-President

US intervention
-Other actions
-Eurodollar market, Treasury bonds
-Tightening
-Speculation
 -24-

NIXON PRESIDENTIAL LIBRARY AND MUSEUM

Tape Subject Log
(rev. June-2010)
Conversation No. 868-8 (cont’d)


-Controls

Kissinger meeting with Quadriad

The President talked with Kissinger at an unknown time between 10:35 am and 11:50 am.

Discussion of major monetary matters
-Meeting of Quadriad
-Letter to Brandt
-Meeting with President and Shultz

[End of telephone conversation]

Letter to Brandt

An unknown person entered at an unknown time after 10:35 am.

President's meeting with Jack L. Dreyfus, Sr.

The unknown person left at an unknown time before 11:50 am.

Burns's work

President's message on welfare
-Need for reform

Shultz, et al., left at 11:50 am.