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Letter to David Rockefeller on the Balance of Payments Question.

July 06, 1962

Dear David:

Many thanks for your very thoughtful and constructive letter. The problems posed by our balance of payments deficits over the last several years are neither easily understood nor quickly solved; and I welcome the efforts undertaken by you and other business leaders to weigh the steps this Administration has already taken, and to help devise new steps that might be taken, to improve our international accounts and stem the outflow of gold.

I have said many times that we must meet this problem with positive solutions, not negative action--and therefore this country will not--I repeat not--increase the price of gold, thereby devaluating the dollar, impose exchange controls, rely on restrictive import barriers or reduce our efforts to strengthen economic recovery. Nor can we afford to weaken our efforts for international peace and security which necessarily require some foreign outlays.

I appreciate your approval of the steps we have initiated thus far and the progress which has been made. Developments in the first 5 months indicate that our balance of payments deficit will be smaller this year than last--and last year was, as you know, a considerable improvement over the 3 previous years. During these last 17 months, moreover, speculative fever has virtually ceased as confidence in the dollar has been maintained. Our supply of gold is clearly sufficient--our exports far exceed our imports- and we are not, as a nation, in debt to the world but a creditor, with the annual increase in the value of our assets abroad consistently exceeding our annual payments deficit. Our drawing rights in the International Monetary fund serve as a backdrop to our own monetary reserves--and under legislation recently enacted by the Congress, this nation will, once enabling appropriations have been enacted, participate in additional IMF lending arrangements which would be available to cushion any shock. And the two-way processes of balance of payments adjustment with other countries are being greatly furthered by the close relationships being developed among the treasuries and central banks of the free world.

In short, our basic position is strong--but there is still much to be done. Last year our expenditures abroad for the security and development of the free world (after subtracting foreign military purchases in this country, and grants and loans tied directly to U.S. procurement) amounted to $3.9 billion; net long-term private investment abroad amounted to $2.1 billion; American travelers abroad spent roughly $1 billion more than foreign visitors to this country; and the surplus of our exports over imports, added to the receipts earned by this country on foreign debts and private investment, fell more than half a billion dollars short of covering these foreign payments, even including special foreign debt prepayments which we will obviously not receive every year. Short-term capital movements aggravated this problem even further. The efforts to which you refer must, therefore, be intensified until an equilibrium is reached.

foreign economic and military assistance, and overseas defense expenditures, are being increasingly tied to procurement in this country, and to the expenditure of local currencies instead of dollars. Already the net spending of dollars to maintain our defense establishment abroad has been cut from an annual rate of $2.7 billion down to $1.7, and negotiations for more cuts are going on now. But there is another conflict of objectives here which I know you will understand. We cannot supply more of these goods directly from the United States, if these are only available at higher costs, without adding to budget expenditures here at home. To keep total Government expenditures under control I have, therefore, had to put limits on acceptable price differences between home and foreign supplies.

Our allies will be pressed to increase their share of our joint defense costs, to increase their military procurement in this country as a means of offsetting our overseas costs, and to increase their share of economic aid to the developing countries. The net outflow of dollars on development loans and assistance is being cut to $1 billion or less and I have just initiated new administrative arrangements within the Government to bring that down further.

Our new efforts to attract foreign visitors and foreign capital to these shores will be stepped up, as we continue measures to lessen undue dollar outlays abroad by American tourists and military families.

As you note in your letter, our principal outlays, in addition to defense and foreign aid, are for private foreign investment. While the latter should not be subject to restrictions, and Government must confine its restrictive influences to its own expenditures, such as those mentioned above on defense and foreign aid, our tax laws should surely not encourage the export of dollars by permitting "tax havens" and other undue preferences. The Senate finance Committee is now considering what changes would be desirable.

We shall continue, as you suggest, to strike the most appropriate balance in interest rate policy. We have endeavored to keep our short-term rates high enough to avoid any unnecessary outflows. At the same time, we have tried to use our influence on the supply and demand for funds to give the fullest support for recovery, to increase the availability of capital for the purposes of investment and modernization you so rightly stress, and in general to help in the attainment of a growing, prosperous economy which would more surely keep American capital at home and attract foreign capital here.

Other means of international cooperation, as you know, include new monetary arrangements, such as our current efforts to acquire balances in other currencies, the prepayment of allied debts, and operations, when necessary, in foreign currencies in the international exchange markets. We know we cannot solve this problem alone--and other free nations know that they, too, cannot afford any weakness in the dollar, which is the very foundation of the international monetary system.

Our principal avenue, as you suggest, must be an increase in the surplus of our exports over imports. We have stepped up extensively our programs for export promotion, guarantees, and credit insurance. Essential to our hopes for wider and more accessible markets is passage of the trade expansion act now before the Congress.

Equally essential is the prevention of another inflationary spiral. Our share of the world's manufactured exports declined in the 1953-1960 period by nearly 16 percent--at the same time that our prices on those products, relative to those of other industrialized nations, increased 14 percent.

The current recovery shows the best record of price stability of any comparable postwar period of rising production and recovery. It is for this reason that we have urged labor and management to hold labor cost increases within the confines of productivity increases.

fully aware of the need you cite for increased investment, we have proposed a new tax credit which will increase the profitability of investments in new equipment and machinery by a far greater margin for every dollar of revenue foregone than alternative proposals. This will be supplemented by revision of the Treasury's depreciation rules which will give businessmen both far more flexibility and more realistic, up-to-date guidelines for charging off the cost of depreciable assets. The combined impact of these two moves is, in effect, a "tax cut" for American businessmen who modernize of more than $2.5 billion, a lessening of the squeeze on profits, a greater supply of funds for investment and a greater incentive to invest them. In addition, the "thoroughgoing overhaul of the Nation's tax system" to which you refer is planned for next year, effecting a net reduction in the burden of both corporate and personal income taxes.

But the real key to increased business profits--an objective I wholeheartedly share--is increased use of capacity. Idle plant anti equipment incur costs but no return--and certainly they discourage investment in additional capacity. We must, as you point out, end the slowdown in the Nation's rate of economic growth--and all of the domestic measures of this Administration, both short-run and long-range, are aimed at this objective.

Some of these measures cost money-money which is an investment in creating jobs or training skills or building the dams and highways and other facilities upon which our economy depends--money which, for the most part, is used to purchase goods and services, steal and concrete, groceries and gasoline, from the American business community. This does not, however, diminish the need for strict control of budget expenditures-and I have found it desirable to trim the budget request of the various departments and agencies by several billion dollars each year, to prevail upon them not to spend all of the funds appropriated by the Congress and to urge upon the Congress measures designed to end the postal deficit, curb our farm surpluses and eliminate unnecessary defense expenditures. The failure of the Congress to enact this year's farm bill, for example, may cost the taxpayers an additional $1 billion a year. More than 2/3 of our budget increases have been for national security and space. Except for unavoidable debt charges and veterans' pensions, our domestic expenditures showed no increase in the budget I submitted in January--and new domestic civilian programs took less than one half of one cent of the taxpayer's dollar.

There are other points in your letter deserving of comment, which I look forward to discussing with you at an early opportunity. I am gratified that we agree so widely on basic problems and goals; and I assure you that this Administration intends to do whatever must de done to make certain that the dollar remains as "sound as a dollar."



[Mr. David Rockefeller, President, The Chase Manhattan Bank, 1 Chase Manhattan Plaza, New York 15, New York]

Note: On May 11 Mr. Rockefeller was a guest at a White House dinner for Andre Malraux, French Minister of Cultural Affairs. During a private conversation with the President on the state of the U.S. economy, the President asked Mr. Rockefeller to write down his views in a personal letter to him. Mr. Rockefeller's letter and the President's reply were published in the July 6, 1962, issue of Life magazine under the title "A Businessman's Letter to J.F.K. and His Reply."

The President's letter is printed through the courtesy of Life magazine.

John F. Kennedy, Letter to David Rockefeller on the Balance of Payments Question. Online by Gerhard Peters and John T. Woolley, The American Presidency Project

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