Slumping to a New Low Abroad

The mystical metal surges as U.S. prestige keeps sinking

They never liked him anyhow. From the moment Jimmy Carter took office, Europeans and many other non-Americans were deeply suspicious of his moralistic preachments and skeptical of his political wisdom. With a combination of fascination and dismay, they read his shifting pronouncements on energy, human rights and monetary policy. They were disturbed by his folksy style, his reliance on a rather young and unworldly circle of advisers from back home, and his insistence on pushing his family to the foreground. Rosalynn's role in White House decision making was unsettling, and Amy's tagging along on state visits seemed inappropriate.

Carter's standing in the world plunged to a new low as a result of last week's strange performance at the top in the nation that is supposed to be the economic and political leader of the non-Communist world. Accustomed to their parliamentary system, in which a Cabinet resignation signals the overthrow of a government, large numbers of Europeans even wondered whether the Carter Administration had fallen. As the week progressed, they became increasingly critical of the President. "He always acts too late and thus appears to be the victim rather than the master of events," summed up Les Edgar, a managing director of London's Sharps, Pixley & Co., bullion brokers.

Earlier, Carter's energy policy also met with a rather cool response. No foreign leader criticized President Carter publicly. But British Prime Minister Margaret Thatcher has long implied that the U.S. was being wickedly self-indulgent by using so much energy, and in off-the-record conversations top government aides in West Germany and Scandinavia were furious. "Another breach of promise," declared an adviser to West German Chancellor Helmut Schmidt, referring to Carter's follow-up on his pledge at the Tokyo summit to produce a tough energy policy.

The common view abroad was that the President omitted the two key elements: decontrol of U.S. crude oil prices so that domestic gasoline and heating fuel prices would rise to world levels (Americans still pay less than one half as much for gasoline and fuel oil as Europeans) and an emphasis on expanding nuclear energy. Commented Switzerland's Journal de Geneve: "The President feared, not without reason, that decontrol would push U.S. inflation to an intolerable level. But that also would have been a return to truth in pricing, which is the basis of American capitalism."

The old vision abroad of an incorrigibly profligate America led to skepticism about Carter's energy speeches. "I cannot believe Carter," said Thomas Jensen, an Oslo plumber, "until I see his words transformed into results, and that depends on Americans, who waste energy so badly." Vienna's daily Die Presse wrote: "The chances of the Carter plan's success are small because of conflicting interests and the population's clinging to 'the American way of life.'" Unfortunately, European, Asian and other foreign commentators failed to recognize that if Carter realizes his goal of creating an extremely large synthetic-fuels industry, it will spur a more significant, productive revolution in the U.S. than anything that non-Americans are likely to experience in the 1980s.

In many ways, the European press was acidly critical. Wrote Stockholm's independent daily Dagens Nyheter: "As a document of the emotional climate of the late 1970s, [Carter's] speech should be historic. It is also historic in its lack of concrete means of effecting a cure." The cover of Der Spiegel, the West German newsmagazine, had a cartoon of a countrified Carter standing atop an empty oil barrel in front of a sign reading U.S.A. -LAND OF UNLIMITED POSSIBILITIES. The President was shown painting out the un from unlimited. Stem, West Germany's largest illustrated weekly, hoked up a photo collage of Carter holding a gas nozzle to his head.

Coming on top of the energy speech, the Cabinet shake-up stunned commentators and ordinary citizens abroad. Disappointed with U.S. inaction on energy, European political leaders generally were happy to see Energy Secretary James Schlesinger go. They cheered the firing of Treasury Secretary W. Michael Blumenthal, who has never lived down his brief willingness a year ago to allow the dollar to fall to its lowest levels ever. They applauded his replacement by G. William Miller, who as chairman of the Federal Reserve Board showed a tough-minded determination to protect the dollar by tightening up on money policy, even at the risk of slowing the U.S. economy. One high West German Finance Ministry official captured that view: "A bad Treasury Secretary has been replaced by a wise man."

Even so, Carter's handling of the mass firings caused Europeans to cluck in wonder. A high-ranking West German Foreign Ministry official asked: "Is this serious, or is this just a great religious exercise for the soul?" Oslo's middle-roading daily Verdens Gang called the Washington situation a "circus" and a "balancing act without a safety net." Concluded London's conservative Daily Mail: "From this side of the Atlantic, Jimmy Carter's frenzied efforts to revive his personal standing with voters before the next presidential election look more like a narcissistic charade than a national crusade. Mr. Carter's subliminal question to America remains the same: 'How do I look now, folks?' " The weekly Economist of London, perhaps the staunchest supporter of the U.S. in the European press, bemoaned Carter's "amateurism" and warned that the President could not solve the country's problems "unless there is some understanding of how the world works and some readiness to eschew symbolism and appearances and go instead after the substance of the problems."

Countless thousands of foreign investors expressed their lack of confidence in Carter in more concrete form by dumping dollars and buying gold. In short, they were voting with their money. "We were waiting for an energy program, and the exchange rate reflects the absence of one," commented Leonida Guadenzi, vice president of the Milan Exchange, where the dollar fell sharply against the Italian lira. Added one Milan trader: "When Carter speaks, the dollar plummets."

Only eight months ago, gold sold at $200 per oz. Last week the price of the mystical metal, which historically rises on uncertainty and lack of faith in paper money, shot up $12.45 in three days and broke the $300-per-oz. barrier. It reached a record $303.85 before settling back slightly at week's end to just below $299. But the decline could well be temporary. Says Hans-Joachim Schreiber, the chief trader of West Germany's Dresdner Bank, which has been the biggest buyer at recent U.S. Treasury gold auctions: "There are no forces working to depress the gold price."

While gold is psychologically important, the fate of the dollar is far more vital to the U.S. -and the rest of the non-Communist countries, which use the greenback to settle most international trade deals. Even before Carter's actions last week, the dollar had been slipping, as some financially important countries, including Saudi Arabia, sold American currency from their monetary reserves in exchange for West German marks and British pounds.

When news bulletins of the Cabinet shuffle reached Europe, the telephone on the desk of Treasury Under Secretary Anthony Solomon, who handles day-to-day defense of the dollar, began ringing incessantly. European central bankers and Finance Ministry officials demanded to know what was going on. Solomon could not provide inside information on what would happen next. Deprived of top-level advice, foreign money managers followed their instincts and bought some dollars to head off any major upset in the international exchange markets. The Federal Reserve Board also poured some $2 billion into the foreign exchanges to buy dollars, and at week's end the slide was stemmed. Still, in the past month the dollar has lost roughly 5% of its value against the West German mark, Swiss franc, French franc and British pound.

For Europeans, who equate the strength of a currency with the prestige of a country, the weak and wavering dollar is symbolic of the Carter Administration. A declining dollar also does serious damage to the U.S. economy by pushing up the price of imports and making it more expensive for U.S. companies to operate abroad and thus directly challenge their European and Asian competitors. Unless Carter rallies and the U.S. demonstrates real signs of strength, the dollar will continue to tremble, and investors abroad will live by their old watchword: "In gold we trust." qed

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