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Time Magazine -1967 Britains Money Crisis

Time Magazine -1967 Britains Money Crisis

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Published by: Andrew Tagg on Jan 24, 2012
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05/07/2013

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T H E
WORLD
BRITISH CARTOONIST'S VIEW OF WilSON
A
naughty boy
among
the gentfemen.
such circles. a nation's currency is itshonor. and Britain's ha ... heen constant-ly imperiled hy the country's inahilityto earn its own wa\' in the world. Thedecision of the maji)r powers not to de~value works
10
make the British movemore effective. since a me-IOO devallla~tion hv cvervhod\' would largelv cancelout \\hateve"r benefits Briwi~ ';opes toreap from its drastic move.Angry Sheiks. Last wee""s lllrmoilhegan wilh the disclosure of Britain ....trade fil!ures for Octoher. which showeda !.!ros...~ deficit of ncarlv $300 million.th~ worst such monthly gap in the coun~try's history. That in itself was certain-Iv ominou" cnou!!h. hut the contcxt in. which~ the deficit elllcr.!.!ed
T". r.H'~()L'~ \"~n"~ ~
made the figure •• far worse.Britain's cndcmic deficitsare usually largest in time,of expansion. whcn HrilOns.fully employed and flushwith cash. step up their pur-chases of goods fromahroad. This time. however.Britain is in the trough oa government~imposed slow-down now 18 months old.n helt-tightcning period of austerity imposed hy \Vil-son's government after an.other sterling crisis in 1966.The tightening clearlyfailed to work. partly be-cause Britons kept right
Oil
buying more foreign goodsthan the country could af-ford. There wer~ other rea-sons for the failure thatI,.\'ere largely beyond Brit.alll s control. The Arab-Is-raeli war in June moved angry sheiksto pull more than $100 million out oLondon banks and deposit it elsewhere.It also closed down the Suez Canal.costing Britain some $600 million ayear in higher shipping costs for its ex-ports and higher prices for the fueland other raw materials it imports. \Vildcat dock strikes in London and Liv-crpool l:ost another S 1RO million inexports not shipped abroad. And \Vil-son's austerity squeeze started ut a timewhen world trade generally was slow-ing down. making it difficult for Brit-ain to increase exports in the dramatic
'" " '< .IV
that was needed tn bring its tr,aleIkClfes into halance...The massive trade gap. coming atop[he long series of sterlinc crises. touchedoIT a tlurry of pound ~seJ1ing. Holdersof ster!in~ h,d,Lce~ rushed to their tele-phone ..to trade their pounds for gold.doiia,s cr any other h,lrd currency theyCot! d t,uy. \y'ith the ...L1pply of poundsso much greater than the demand. theprit:c of slerlillg inevitably was drivendownwards. llntil on f"riduy it slippedII"1dcr thc rover merH-supporl level of 
S2.iR25.
to
S2.7822.
In the City. l.on.Jo ;'s financial dis.trict. bew.;dcl'mel1t ~Ind confusion ranFund (to \\ hich it ~i1readv owes S 1.4 hil-lion) to ask for a fresh :Irawing of $1.4hill ion. but also had to arrange a multi-national loan of Sl.() hillio~ from itspartners. thus creating a ne\\! S.~ hill ionsupport package in order to preventthe total collapse of the pound. Tob<lck up its action, the governmentrai ...ed the interest rate from
6j%
togl:k in order to attract foreign deposits.ordered British hanks to limit their loansto priority horrowers. issued restrictionson in••tallment huvinl! and credit and an-nounced plans to' cut $240 million fromBritain's 55.3 hill ion lIefense budget. Itorderell all hanks and money marketsin the country to keep their doors closedon Monday of this week to reduce spec-ulation before final Uv1.F. approval of the new support funds for the pound.Cheaper Exports. When Clement Alt-lce'~ I.ahor govcrnment last devaluedthe pound in 1949 (from $4.03 to$2J\O). 23 nations followed h\' devalu-ing their own currencies. This time,several countries-Ireland, Denmark.and Israel-almost immediatel\' fol-lowed Rritain's 1110vehv devaluin'l!. andothers arc sure to follo~ this week. par-ticularlv within the British Commoil-wealth: The Common f\,.1arket countrie-;immcdiately lkcided not to foll,)w B~il-Olin's lead. and the U.S. lost no time inannouncing that it has no intention odevaluing thc dollar. In a \Vhite Housestatement. President hhn ...on said thathe could "reallirm unequivocally t:,<:commitment of the U.S. to hm' andsell gold at the cxi-.ting price of 
$35
anounce."'Devaluation will make Britain .... ex-ports cheaper and IlhH'e aurac.i,eabroad. thus he!ping: to ks,en its hll~'ebalance-of-payments detlcil. one of c._cchief cau~cs of the pOllmr-; tro:";llc. Inthe arcane. gentlcman!y con]ne:~
d
t~eworld's moneY nHn:l~ers. 13,i:ain ha~long been con~idered ,~ n~:u~hl) hoy. In
BRITAIN
The Agony of the Pound
(See Cover)
It
was
9;.13
p.m. on
.1
cold and fog-gy Saturday
ill
Britain when the wordfirst came. J\luch of the countr\' wasspr.l\vlcd in stuffeu chairs
v,.:atch(n,g:
anold Doris Dav movie
(iHidniR'u Ll/cc)
on the BI:K'.' First there
\\lns
a frag~menfary bulletin that hrokc into themovie. then a deja\' in the scheduled10:25
news
while ~cript\vritcrs scram*
hlt?d
to
gel
together details.
In millions
of living roomsupanddownthelength
of Britain. people watched transfixedwhile a gay Latin American dance
rhythm blared from the box. v,:hich
wenl blank except for a slide advising:"The Nev•.'s Is Coming
Soon."
The nc\vscan,c all 100 soon for once-proml Brit-ain. Afler a week in which the longagony of 
t;lC
British pound real:hcd awrithing climax. Prime ~linistcr Har-old \Vilson's Labor government an-nounced a l:ut in the p~l1nd's eXl:hangev Ille from S2.S0 to S2.40-<I 14.3%devaluation.Despite all the headlines and all thetalk during <Ilong and hard w'cek. Brit.ons-and Illany others in the Westernworld--cxpericnced a deep sensc oshock at thc new ..•. Until the last min-lite. th'~re were hopes and rumors thatB"ibin \\ould be able to free her ..c1f.at le::st temporarily, from the heavy
r
'e\Sures on the pound by getting a mas-sive loan frolll its \\'estern allies. After,ill. the pound i\ one of the two interna-tional rt~...ervc currencies (v.'ith the dol-lar), and its devaluation was bound
10
throw the West into a seven~ monetar\'crisis. Still. there it was. Growingcrowds booed the pol icc outside 1()Downing Street. and London's ne\\spa~pel's stopped their Sunday editions onthe presses. It wa ... Britain's biggest andworst ncws in many years."It is a black day for all of us," saidJohn Davies. director general of theConfederation of British~lndustry. ufteremerging from No. I
n.
The Observercalled devaluation "a hrave act," hutmost of the British press lOok off afterHarold \Vilson's scalp. "This is D.dayfor Britain without the nags:' said theSundav Mirror. "The 'D' this timestands" for disaster and disillusion aswell as for devaluation," Since Wilsonhad consistent!\; denied thut he wouldever devalue the pound. many Britonsfelt betrayed as well a•• dishc:lrtened. "Iam 4uit~ shocked," said Sir PatricHennessy. chairnnn of Ford ~lotor Co.'" have per~:onall\' told mv businc~sf;'iends abroad that'it would n'ot happen.I could not believe that
the
governmentwOl.ld
£;0
hack on its statel11~~t .....' \nd~ there was mo;-e bitter mcdi::ineIt. <:wallm\' than devaluation. In orderto hack lip devaluation wi;h fin:lncialmuscle, Britain not only had to go hmin hand to the International Monerary
T!ME, NOVEMBER 24, 1967
29
 
STRIKING DOCK WORKERS IN LIVERPOOL
Scarcely
a
segment 
of 
society that ;snot 
in
some way responsible.
~
,
I
rampant. Bowler hats bobbled after ev-ery rumor, as wave after wave of mas-sive selling hit sterling. Exactly howmuch gold and foreign-currency re-serves the government had to use up tokeep the pound afloat was a state se-cret as vital as any kept by England,but estimates ran as high as half a bil-lion dollars for the week, half of Brit-ain's expected 1967 payments deficitand one-sixth of its total reserves. Thescene was much the same on marketsin Paris, Zurich and New York, Aloneand without devaluation, Britain couldnot have saved the pound. In NewYork al~me, the Federal Reserve ab-sorbed an estimated $300 million inunwanted pounds each day last week,and on frantic Friday the U.S. helpinghand may have reached $5lJO millionor more in a support of the foreign-ex-change market not seen since the dayof John Kennedy's assassination.The Economic Dodors. Bank of En-gland Governor Sir Leslie O'Brien hadgone to Basel over the weekend to ne-gotiate a loan from the Bank for Inter-national Settlements. The pound stead-ied on the news of a new loan, thenweakened when the amount turned outto be only 5250 million-just enoughto cover an installment on a loan owedthe International Monetary Fund anddue on Dec. 1. The
Economist 
last weetartly referred to this loan as "an horsd'oeuvre." AI midweek the
Hue
reportedthat \Vilson was going to get a loan of $1 hill ion from the Group of Ten, thefree world's leading financial powers,whose representatives were then meetingin Paris' elegant Chateau de la Muette.Next day the pound struggled upward,only to nosedive once more when Chan-cellor of the Exchequer James Calla-ghan, speaking in the House of Com-
30
mons, ref used to confirm or deny therumor. As the week drew to a close andthe Group of Ten's delegates disbandedand went home with nary a publicpromise of help for Britain, the Fridaypanic in money markets around theworld inevitably resulted.
Furtively Bruited About. While all
this was going on Harold Wilson andhis ministers were bent on a coursethat they had tried desperately to avoidever since he took over as Prime Minis-ter three years ago. Two weeks before,Chancellor Callaghan had gone to \Vil-son and reported that the Treasury'squarterly forecast showed that the out-look for 1968's balance of paymentslooked even worse than had heen ex-pected, and in fact suggested that therewould be no improvement at all overthe current year. In July, Callaghanhad said publicly: "Those who advo-cate devaluation are calling for a reduc-tion in wage standards of every mem-ber of the working class in this country:'Now, he told Wilson, he had conclud-ed that Britain would have to devalue,that "there's a point at which deter-mination becomes obstinacy"-and thathe had now passed that point. Exportswere hardly rising, he told his boss,and yet enough wage increases had creptpast the barrier of the Labor Party'sprice and income squeeze so that risingdemand kept imports growing at ana1<trming rate.The subject of devaluation began tobe furtively bruited about among smallgroups of Wilson's ministers for thenext several days, but it was not takenup at a formal Cabinet meeting untillast Thursday. At the meeting the gov-ernment made its decision to devalue.That afternoon, Callaghan had to go be-fore the Commons to unswer questions"bout rumors that Brituin had made
111-
ternational loun arrangements. He didnot confirm that there were such nego-tiations for a good reason: there hudnot yet, in fact, been any. It was notuntil after the Cabinet meeting that thegovernment went out and started look-ing for loans on the basis of its deci-sion. The Bank of England's O'Brienwent to work calling up his centralbank counterparts in Europe and inthe U.S. The whole deal was finally ar.ranged by Saturday afternoon.The LM.F .. which must approve de.vnluation of any of its members. wasnotified of the plan on Friday night.and at 8 a.m. Saturday each of its direc-tors received a telephone call summon-ing him to a meeting that morning in \Vashington. The directors gave tenta-tive approval to Britain's plan (they arcto vote formally on the matter tbisweek), and that approval was receivedin London about 5 p.m. Some fourhours after that, having worked out afew more details. Chancellor Callaghanmade his historic announcement.
The Once Proud Workshop. How
did Britain, where the Industrial Rev-olution was born, fall to such a beg-gar's estate among the industrial na-tions of the world? There is scarcely asegment of British society or an cle-ment of Briti~h tradition that is not insome way responsible for the impov-erishment of the once proud workshopof the world.The ability of a nation to earn itsway in the world rests primarily on itsproductivity: its capacity to marshallits human and mechanical resources toproouce goods that can compete withthose of other nations in the world mar-ketplace. Only then does it earn enoughincome to buy the things it imports.For most of the postwar years, Brit-ain's productivity has failed to keeppace with that of its competitors.Among the major industrial nations.Britain since 1951 has had the slowestri,e in productivity, the lowest rate of in-vestment in private enterprise and thelargest rise in its export prices. Initscase. the equation is doubly exacting:poor in natural resources, Britain Illustimport much of its food and the rawmaterials for the goods it makes.Both British management and suc-cessive governments are to blame fornot pumping enough of the right kindof investment into industry to mod-ernize it or, in spite of all the exportcampaigns, for not really getting outand hard-selling British goods. The jobof salesman holds little status in Brit-ain and, for that matter, business itself still tends to be looked down upon asthe domain of the hustling parvenu orthe disdainful "gentleman amateur."Needing Every Penny. Labor, too,with its fierce class antagonisms stillsmoldering and its "I'm all right Jack"attitudes, has stoutly resisted any mod-ernization of British industry that in-fringed on shop-hardened rituals. Theunions' push for wages, backed by a pro-clivity for wildcat strikes unmatchc~l
TIME, NOVEMBER 24, 1967

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