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where it has become a matter of concern. We and our Government have been spending or investing abroad several billion dollars a year more than other countries have been spending and investing here.

In the first part of 1960 the size of the payments deficit was substantially reduced. Later on, however, the situation took a turn for the worse—mainly because of developments that might have been avoided to a considerable extent if the United States and other countries had had a convenient forum to discuss their economic policies. Briefly, here is what happened.

When business in the United States began to slow up in early 1960, our Federal Reserve System gradually encouraged a reduction in interest rates here to make it easier for businessmen to obtain working capital. At about the same time the German Bundesbank and the Bank of England, seeking to deal with domestic problems of a different kind, raised their interest rates. As a result businesses and banks with liquid capital found it quite profitable to move money from the United States to Frankfurt and London. The movement of dollars increased our deficit sharply and began to affect confidence in the value of the dollar. Eventually official holders of dollars abroad began to convert dollars into gold, thereby increasing the






gold outflow. Private speculation in gold also developed in the London gold market.

Meanwhile the large flow of American short-term capital to Germany began to interfere with that country's efforts to control inflation. It also produced difficulties in Britain. When this trend became apparent, the German and British authorities cut back their discount rates, the flow of short-term capital slowed, and confidence was gradually restored.

As may be seen from this recital of events during 1960, the respective economic policies of the several nations were working at cross purposes and each of the countries suffered. If the United States had been participating in an OECD during the last 3 years—particularly in 1960—and if there had been a forum for discussing common problems, the realization of a common interest might have emerged. Consultation with Germany and Britain and other countries in OECD could perhaps have persuaded them to avoid or moderate the actions which made our problem so acute. Through OECD we can help avoid such situations in the future.

It may be asked whether we could not correct our deficit through bilateral discussions with other major industrialized nations. The danger is that action developed within a narrow framework might simply result in passing the deficit on to

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