policy - The Black Vault

THE BDM CORPORATION
$41.1 billion. (A year-by-year picture of the public debt's growth is
provided by Figure 4-5.) This growing debt was financed by a rapid increase
in the money supply, a phenomancn reflecting and, to some 3xtent, adding to
the inflation of the late 1960s. 26/
2. The Decline of the US Internatiorql Economic Position
Given the impact of World War II on our principal international
competitors and the underlying strength of the US economy, theod was little
reason in the late 1940s or the 1950s to predict that complete US domination
of the international economic system would only be temporary. In
fact, such a US role had been given a stamp of approval by -the international
community at forums such as the Bretton Woods and Dumbarton Oaks
conferences, with, for example, the dollar's position as a reserve currency
Sbeing formalized.
gold, with the US
The world's money was backed by the dollar and not just
being able to settle its balance-of-payments deficits by
simply allowing foreign countries to hold dollars.
Despite the fact that this system was designed, in part at least,
to facilitate the flow of American wealth to other countries, throughout
the early post-war period there existed a troublesome "dollar gap," with
world demand for dollars far exceeding their supply. By the 1960s,
however, the dollar shortage of the late 1940s and 1950s had turned into a
dollar glut.
There were a number of reasons for this important turnabout,
including the spectacular economic progress of Western Europe and Japan and
their improved competitive position vis-a-vis the US,
the cost of American
civilian end military aid programs (the Marshall Plan, economic aid to
third-world countries, military aid to our NATO allies, etc.), the cost of
US military operations abroad (in Europe, Korea, Vietnam, etc), increasing
US inflation in the mid 1960s, and the large outflow of dirsct foreign
investments by US corporations taking advantage of lucrative over-seas
business opportunities. The US balance of payments reflected these
developments by becoming increasingly troublesome, with US gold reserves
4 dropping dramatically in the 1960s (see Figure 4-6). 27/
Even given a perennial balance-of-trade surplus, these experses
were such that the accumulated balance -of-paymencs deficit for the period
4-17
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