America's Money Machine

33.
The Chute
THE HISTORIAN OF THE ROMAN EMPIRE,TheodoreMommsen,
characterizes inflationary progress in the third century as a "chute."
SomethinglikethatnowbeganintheU.S.-anacceleratingdropinthe
purchasingpowerofthe irredeemable currency on which the economy had
subsistedsince 1934.
In October, 1960, a near panic had occurred in the exchanges with the
London market price of gold rising to $41 an ounce, a premium of $6
over the official price, before the Treasury was able to throw sufficient
metal into the breach. The cost of maintaining the official parity of the
dollar at $35 an ounce was the loss of 200 million ounces of gold from
the Treasury stock. As usual, the cry arose laying the blame upon unpatriotic
citizens, and President Eisenhower, as one of his last acts in office,
issued an executive order forbidding U. S. citizens from owning gold
anywhere in the world. In 1963, Congress followed up this autocratic act
by passing the "interest equalization tax" on foreign securities sold in the
U. S., as a measure to discourage American citizens transferring to foreigners
dollar claims payable in gold. These official actions, and various
so-called voluntary programs ofrestraint under official suasion, did little
to counter the effect of a continually diluted currency. During 1961-65,
the balance of payments deficit increased by nearly $13 billion, and another
106 million ounces of. gold were paid out. The federal budget
remained also in chronic imbalance, with a cumulative deficit for the years
1960-65, inclusive, of $27 billion, of which half was financed by Federal
Reserve purchases of Treasury securities.
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