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Why the Dollar is in Trouble

Exclusive Interview with a Leading International Business Consultant


FOR years, The PLAIN TRUTH magazine has published revealing articles on the true economic state of America and Britain.

Recently we sent PLAIN TRUTH staff members Gene H. Hogberg (who edits the "Prophecy Comes Alive" column) and Eugene M. Walter to research the meaning behind the crisis over the dollar and pound sterling. They interviewed bankers, economists and government officials in New York City and Washington D.C.

Those in government service, our men quickly found, were not free to express their opinions. Turning to the banking field, Messrs. Hogberg and Walter interviewed vice presidents of two of the largest banks in the world. These men also, though more informative, gave cautiously guarded answers. The reason being, of course, that the United States is in a far worse economic situation than most influential people care to admit publicly — except through carefully chosen channels of expression.

Our men then talked with Mr. Stefan Jean (Steve) Rundt, one of the world's foremost international business consultants. Mr. Rundt was not afraid to talk. His frank answers to the questions posed by our staff members appear on the following pages in this exclusive interview.

Mr. Rundt is head of S.J. Rundt and Associates, New York City. He publishes a weekly economics intelligence report that is subscribed to by many major U.S. corporations and every American bank doing international business. His thoroughly compiled and documented reports are well respected in the banking field. (Mr. Rundt and his trained staff peruse 600 sources of information in eleven languages)

Mr. Rundt's service acts as a sort of unofficial "clearing house" for the banking profession. Being completely independent, Mr. Rundt is free to say what many bankers would like to say, but feel they can't because of various official pressures.


Swiss-born, Oxford-Educated

Mr. Rundt was born in Switzerland. He attended Oxford and the Universities of Geneva and Vienna, studying international law and economics. He was apprenticed in foreign banking in Switzerland and France and has worked with banks in Egypt and Italy.

Mr. Rundt first came to the U.S. from Switzerland in 1928. He was affiliated in the late Twenties and early Thirties with companies in the West Indies and Latin America. In the mid-Thirties he represented Swiss banks in Germany and in the Middle East. Before, during and after World War II, he served as a United States Intelligence Officer. For several years he was attached to the British in counter-espionage work. He was personally cited by General Eisenhower and the British Imperial General Staff.

In addition to his weekly world business summary, Mr. Rundt is the author of numerous articles which have been published in economic journals and trade papers. He has lectured before some 150 chambers of commerce, traders' clubs and other businessmen's organizations in fifty-odd cities on more than 630 occasions.


Predicted Devaluation

Mr. Rundt accurately predicted well in advance the devaluation of the British pound which took place November 18, 1967. He is also on record as having predicted America's balance-of-payments problem.

Over the years Mr. Rundt has consistently warned of the folly of leaders adopting the hazy but popular ideas of the "new economists" who believe that it is possible for the government to spend more than it earns, year after year. He has consistently counseled both the public and government to "live within your means."

Mr. Rundt's accurate analysis of economic trends — and also his constant revelation of high-level gimmickry and figure-fudging — has "earned" him a number of unpleasant phone calls from Washington, D.C.

Here, then, beginning next page, is our exclusive interview with one of the world's leading international business consultants.

Question: Mr. Rundt, the British pound sterling has been devalued. Was there a course of action other than devaluation which the British could have chosen?

Answer: I'll tell you, a very grim one: they could have worked harder. England doesn't work enough. And her young boys today would probably not stand up in Dunkirk and Narvik and Benghazi as did their fathers during World War II. What is happening in England is a problem of values, ethics, mores and morality. And we're running the same way in this country.

Q: What is devaluation? Is it really going to help Britain?

A: Devaluation is lessening the value of a currency by official decree. It is, in effect, clipping the coin of the realm. In the old days this was one of the most heinous crimes in the world. You were quartered or boiled in oil — or whatever — because you clipped the emperor's or the king's coin. Today this is becoming the sport of the national treasuries.

Sterling's devaluation in the long run will probably help neither Britain nor anybody else to a major degree. All it did was to eliminate uncertainty for the moment with regard to one prime currency. As ex-Chancellor of the Exchequer, James Callaghan said: "Devaluation is no substitute for greater effort and higher productivity. We have got ourselves a breathing space. That is all."

Many contend that a downgrading of the pound need neither help British exports to a far-reaching extent nor reduce the U.K. import bill substantially.

Q: Why is that?

A: Well, you see Britain is preponderantly a processing country. She must buy abroad to sell abroad. And as import costs will rise, so will the price tags of many export goods.

Moreover, inflation is now likely to be fanned. After a period of relative stability, prices could rise by almost the same percentage as spelled out by the pound devaluation. There is also the possibility of excessive pay hikes gained by the undisciplined unions.

In other words, it is still uncertain whether British industry will henceforth be possessed of a meaningful new competitiveness.

The Empire is gone, Commonwealth ties are loosening and even the Sterling Area is showing cracks. Whether Britain will be able to adjust to her new role as a small, rather poorly endowed island nation, to be sure rich in human talent, which urgently needs greater output; whether she will be able to return to more discipline; whether she will be able to modernize in depth and restructure her economy, remains to be seen.



Q: How has the pound's devaluation affected the dollar?

A: It started a reaction that gave the dollar its worst pounding in memory. The U.S. suffered the most massive gold hemorrhage in history, last November. It amounted to $475 million. And much more has been lost since, with more to come. The only time this country — or any other — experienced a somewhat comparable single outflow was on February 26, 1947. At that time the U.S. paid more than $448 million into the International Monetary Fund as its initial subscription.

The huge November loss brought U.S. gold stocks down to $12.434 billion — the lowest level since July 28, 1937. Moreover, the true gross gold reserve figure is actually around $11.4 billion. This is because slightly more than $1 billion in our reserves is in fact owed to the Fund and only "temporarily placed with the U.S." against a "certificate of deposit" — a little-mentioned gimmick. [Since this interview, reports indicate the U.S. gold outflow increased another 450 million dollars by year's end.]

Q: How much of our remaining reserves consist of "free" or available gold "for which foreigners can turn in dollars?

A: At the present time we have $41.8 billion worth of greenbacks in circulation. $10.45 billion in yellow metal are required as mandatory coverage for these greenbacks under the 25 percent rule. This means that of the official $12.434 billion in gold still in U.S. coffers, as of November, less than $1.99 billion remains available or "free," and from this figure we must subtract the $1 billion mentioned above which was hocked to the I.M.F. So, in actuality, we have "available" less than $1 billion in gold! And there are foreign governmental and private short-term claims against our gold to the tune of around $31 billion! How long international financial cooperation can be maintained under such circumstances is anybody's guess.

Thus it is a foregone conclusion that the 25 percent backing of the dollar will have to be greatly cut and probably altogether eliminated. [The President called for removal of the gold cover in his State of the Union Message.] This will free some $10.5 billion — the last of our gold — for use in defense of the dollar.

Q: Why are foreigners turning in their dollars for gold? What is there about the dollar and our economy that they mistrust?

A: This country's economy is beyond any question of doubt, by almost all standards, the most potent and majestic in the history of the world, and as such is not mistrusted by anybody. But it is being wagged by two little tails. Or if you want to say, it has two little clay feet. One is our internal deficit, the other is our balance of payments shortfall — our external or international deficit.

This is so absurd that it isn't even funny — a huge St. Bernard being wagged by a tiny little tail! But it is! And because of these deficits the outside world is of the opinion that this country's monetary affairs are ill-managed. Now, I agree with that.

You saw sterling fall. It was a devaluation triggered from the outside — by lack of confidence. People forget that the word "credit" comes from the word "credo" — meaning believing, trusting, having faith in. You lend money to whom you trust; you take money from whom you do not trust. In monetary affairs it isn't so much what is or what presumably will be, but what people think is and what people think will come.

Right now foreigners trust the dollar less and less. Why the mightiest nation of all time should repeatedly have to go begging is simply not clear in the minds of many outside our borders.