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tv   Jeffrey Garten Three Days at Camp David  CSPAN  October 13, 2021 9:32pm-10:30pm EDT

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the presidency highlights the politics >> at the presidential retreat. up next author jeffrey garten recount's president nixon's
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decision to end the connection between the u.s. dollar and the gold standard. >> when the nixon administration untethered gold and the u.s. dollar it sends shockwaves throughout the world economy and upended american political and military alliances. why was this decision made? one of the challenges to the dollar? luckily, we have with us tonight to individuals to discuss this. good evening and welcome to the program. thanks for joining us. i'm the first president and ceo of the council of dallas -- >> our program this evening features jeffrey garten of the yale school of management, and author of three days at camp
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david, how a secret meeting in 1971 transformed the global economy. richard fischer former president and ceo of the federal reserve bank of dallas is here to moderate this discussion. you can purchase copies at camp david -- . and remember, the code is good for any of the books. the council will continue to offer virtual programming through the summer. check out our website for newly-scheduled events. now, i'd like to invite richard fischer to kick off the program. richard is the former president
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and ceo of the federal reserve bank of dallas, and currently a recipient of the council honor. i he began his career in private banking before becoming secretary of the treasury in the carter administration. his experience also includes working for secretary of state henry kissinger. i know we are all in for a fascinating conversation. gentlemen, thank you again. with that, take it away richard. >> thank you, lids. i want to introduce jeffrey beyond what was stated in the book. he and i have been friends now for 44 years.
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jeffrey is a true. he went to dartmouth, and he went into the army, where he was in the 82nd airborne, following in the steps of his father. he is a vietnam war veteran. i jeffrey has served in the nixon and carter and ford administrations. i had the privilege of meeting him when both of us were called to write a memorandum for president carter on economic policy. as you mentioned, he still -- i want to tell you the most
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distinctive feature of jeffrey garten, which is he's been married 53 years. he is better known as the barefoot can tessa. of all of jeffrey's classmates at yale, where by the way his classmates include robert rice and hank paulson, they like to say he was the most famous person lyon trump. this fantastic book, three days at camp david is a remarkable summary of one of the key events that happened in the global financial world. i would also argue it's one of the greatest or more first important events in terms of really dealing with the u.s. role in the rest of the world and changing what is the dynamic of global diplomacy, as well as global financial
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markets. jeffrey, welcome. i want to open this up by asking why you wrote the book, and why you think this is a subject of crucial importance. jeff? >> you know i've written several books about the global economy. they have dealt very much on -- and i wanted to try something else. i wanted to identify a single event and really focusing on it, focus on great detail so you knew the people and knew what was in their head and knew what was influencing them in their environment and background, and make it so that you could really feel the decision.
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in doing that, you've got to look at the larger picture. i was looking around at what event what landmark event could i write about? one that most people didn't know a lot about. and this event that i wrote about it camp david was a weekend in which president nixon and six of his top advisers met in secret. nobody knew about the meeting. and they made a very important decision. since 1944, the dollar had been
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based on gold. and the link between the dollar and gold was 35 dollars per ounce. it was irrevocably all. presidents kennedy and johnson went out of their way time and again to say the dollar was as good as gold. that meant that anybody outside the u.s. who held dollars could come to us and come to 14 ox and basically say they want gold for their dollars. that was a cornerstone of the prosperity. it's a miraculous recovery
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claudette, the almost unprecedented prosperity in the u.s., which was a different kind of prosperity than we had known. it was in middle class prosperity. we didn't have the extremes of well. it's a real question. why did nixon and his advisers decided to delineate the dollar? why did they take a sledgehammer? that's the story that i told. and i think that what they did had reverberations right through today. >> we will get into some of those reverberations. i think the important thing for
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people who are looking at the book is there is a description in the book. you have henry kissinger and george schultz at that meeting. i wonder if you can give us a little hint as to how that impacted the dynamic of what president nixon was seeking to do? >> first, let me explain why they dealing to the dollar from gold. it turned out that during the fifties and the sixties, united states was exporting a huge amount of dollars. we had big military commitments. we had big foreign aid programs, and the world wanted to use
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dollars,. there is no other currency for people. and it turned out that there was so many dollars abroad that we actually didn't have enough gold to make the purchases we had committed to. in 1955, we had 100 60% of the gold we needed for dollar abroad. by 1971, we only had 25. in effect, the emperor had no clothes. in addition, the administration felt that the value of the dollar had been set in 1944 when the u.s. was so preeminent. but in the interim,, the dollar
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was the victim of its own success. in the fifties and sixties, it emerged as a major powerhouse, and by 1971, we were running our first -- since the late 1800s. congress was up in arms. so nixon knew something had to be done. in a sense, this post world war ii era had ended. we needed a new system to replace it. at the heart of the decision was we have to deal inc. the dollar from gold. we have to allow the dollar. that was why they did it. it was because there was so much prosperity around.
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>> you had a fierce nationalist and john connally. you had an advocate for total free currency and george schultz. there were different views and i wonder if you can give insight into how these personalities came to this decision? >> that's a good way to put it. nixon knew something had to be done. he didn't really have a grasp on the international. in fact, only one person there did, but let me just take one step back. what was remarkable about the people was most people had never heard of it. and if they had heard of him, they heard of him in a different context. as you richard said, john connally was a secretary of the
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treasury and in many ways he would've been very much at home. he was a fierce nationalist. basically, his motto was, let's screw the foreigners before they screw us. let's -- he had no interest at all in global finance. he arrived in washington thinking that the europeans and japanese had taken advantage of us over the last decades. in contrast, there was paul, volker under secretary of treasury, he was the only one there that understood. he understood the only way to -- he really felt okay, the value of the dollar, and then you
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relink. connally couldn't understand with that system was. he just want to be sure that we take advantage of the europeans and japanese. who he thought were really ungrateful for all we had given them. so you had collin connally, you had volker, and then you had george schultz. who at the time, no one had heard of either. he had just come from the university of chicago business school. his expertise was as a labor negotiator. coming from chicago, he had george strong, a very strong market leaning. he couldn't understand why currencies would be linked at all. or just like any other commodity. at their core. there was one other person
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there, peterson, who had come from industry. again, no one had heard of him. he went on to wall street. but at the time, he had a whole different approach, which wise we blame foreigners too often for our own problems. and that a key for american competitiveness would be, that we invest heavily. invest heavily in technology. he didn't think that changing the value of currencies or forcing other countries to do anything as much as the kind of investments we should make. so nixon had surrounded himself with these guys. they always one other player who wasn't at camp david,
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because he was secretly negotiating with the north vietnamese, that was kissinger. kissinger became a major player in chicago. when president nixon announced that the dollar was no longer link to gold, when that happens, the allies went crazy. they couldn't understand how the u.s. could do it. as if that wasn't bad enough, or if that wasn't a big enough shock, nixon said that until the allies agree to a substantial we would put a 10% tariff. and it started with 10% across the board. connelly love this, the demonstration of american. but the europeans and the
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japanese felt that we had lead the world, from preaching free trade and here we are putting up a barrier. so the allies were very upset with. and had to be revealed in right after the meeting in order to keep the alliance intact. so you had nixon, who didn't know much about the global economy, forging a common vision of people who had very different views. and he was very skillful. and i have a lot of friends who have read this book and they say, have you tried to rehabilitate nixon? toand i say, no, no, i'm just looking at the situation as it was then. i'm not filtering through watergate but 1969 1970 1971,
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and there were many areas in which nixon was very skillful. >> it seems jeffrey that he did not understand monetary affairs but he did understand that we were no longer omnipotent. he dealt with china and russia and it seems to me one of the great differences was this legacy of watergate. he worked with congress, he had a congress you could work with. and i'm just wondering about two parts. i see a lot of similarities in what was described to the situation today. you mentioned connally being a mini trump. i came from the central bank and i hear people saying that
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powell is another arthur burns. but there are differences in the image and legacy that is stuck on the president, on president nixon. he weighs more of an internationalist and people give him credit for. it doesn't seem possible today, either with president trump or another president. you have any thoughts on that? on the similarities and differences? between that time and now? >> that's a very interesting question. let me say, when i started to write the book, i was really intending to write a history of a momentous decision. and what followed from it. and as i was writing, i became much more conscious of some of the parallels and some of the
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major differences. so i'd like to talk about this for a second. one thing i want to make clear is, history never repeats itself exactly. i think we all know that. so i think what's important about the book is that it is really interesting and sometimes instructive for context for today. but you can never make that direct parallel. let me talk about some of the similarities. richard, as you have said, makes nixon understood that we were [inaudible] he believed american leadership was possible. but their relationship between
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the u.s. and its allies, between china and the u.s. and russia, had [inaudible] . that this was no longer possible for the united states to be so omnipotent and so powerful. and that really was the situation. in the particular meeting i wrote about, they realize that on the economic side, that the dollar was [inaudible] . and also that other countries needed to open their markets in a much more expansive way. so i think one kind of similarity here -- i think we are coming to an end of an era for now. you know, over the last several
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decades, the u.s. has really had seen more and more power. not necessarily leadership. but you have -- you need the cooperation of more and more countries, more than you ever did before. i think that's true. you are right in the middle, richard, of the global financial crisis in 2000 date. with the pandemic. as well with climate change. it's almost no big problem, the need for stronger alliances, stronger cooperation, even with countries we don't care for, that's really important. but i think we are entering another era in which we have to reconsider how the u.s. relates. and that's one similarity. i think a second is, in terms
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of economic competition, to go back to pete peterson said. we can blame the europeans or the chinese, and i'm not saying -- i'm certainly not saying that we should do that. but until we get our act together, until we we lies that technology, and in particular human capital, until we build the infrastructure, [inaudible] . the cyber infrastructure, we are not going to be able to be competitive or prosperous as we have the potential to be. for.so i think that's another parallel. one big difference, and you alluded to that. was in 1971, nixon was able to
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get behind big policies. and nixon, republican obviously, he faced the house and senate controlled by democrats. not one or two votes. the democrats really controlled. and yet he managed to get a coalition of liberal democrats, conservative democrats, liberal republicans. and that was a big part of our political establishment. and so when it came time to deal with the dollar and all these negotiated issues, he had enormous support. he was very skillful in cultivating that support. but it was there. and i think that's a huge difference. another difference is, in 1971, and i found this very interesting, we were just
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beginning to experience what globalization was all about. congress was worried about unemployment, automation. but our interaction with the rest of the world [inaudible] . today, of course, it's so incredibly linked to other countries, that it's nowhere near as great. so i think the biden administration challenges much deeper than nixon did. i'm not sure it has the same level of talent that nixon did. there's a lot of sobering thought there. >> back then, as you mention in your book, the gall was in power in france, they had their own image of themselves, they
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were difficult to sell. on this pronouncement. and the programs to de-link. now we have xi jinping in particular. nixon recognize china but now they are the opposite pole of what we are doing. i'm just wondering if you -- i know we've already seen a question here on the dollar itself, as you know jeffrey, the dollar actually got up dramatically the last two years. and somehow seems to increase well over 75% of commercial transactions -- but is there an alternative to the chinese renminbi, i wonder what your thoughts are there, the euro. basket currencies. how do you view this now
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against the background of what is set in place? of the bac>> a great question. i left something out. when you asked me about it, i should have talked about inflation. in 1971, inflation was rising, and the inflation stems in good part from the vietnam war and president johnson raising taxes. so when nixon became the president, inflation was beginning to be a real problem. and nixon held a very strong view that in the trade-off between inflation and
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employment, employment was more important. he had been vice president under eisenhower, ran against jfk, and he was convinced he lost that close election because the eisenhower administration decided to deal with controlling inflation. so nixon was extremely clear to his advisers that he would allow inflation, if that meant increasing employment. he was very clear about that. in other circumstances, -- he said if you are going to do that -- >> but his chairman was burns, a very complex person.
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burns above all wanted nixon's admiration. i go into this a lot about how personality plays a major role. burns simply wanted to be in these situations. he came to the conclusion that neither fiscal nor monetary policy was the right policy but in fact, inflation was being caused by labor unions negotiating for higher wages which made companies raise prices so, rather than focus on interest rates, he wanted a way to convince nixon.
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so, inflation played a big role. when i think about it today, i think we face a tricky situation now. i don't know if it's a parallel, but certainly, the biden administration is very focused on getting everyone back to work. they are saying the inflationary pressures are pressing. and i hope they understand that there is expectations. let's put it this way. the approaches to inflation are
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of more than just academic interest. a lot of people are saying, are we there again? richard, let me throw the ball to you for a second. i have told you all i know. how do you see it? >> of course, you and i worked together in the carter administration, and it keeps growing and growing. now, we have a residual at the federal reserve which is different than anything before. basically, we will be reactive. once we see that white of the eyes of inflation, and we don't think it will be post-transitory, then we will take less accommodated monetary policy. you pointed out correctly, it
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takes a while to adjust policy, and it works its way into the real economy. financial markets can react. but, to get companies to reorient their cabinet and their payable's, it takes time to work inflation into the system. the current one is risky, -- and secondly, another 12 to 18 months to affect the real economy, during which time you can have, as we saw, you and i were there when it was the most painful, you can have expectations. that's the risk we are running here, and we will just have to
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see if the bet is right. i will note that at his last press conference, chairman powell seems less optimistic and seems to be backing away from it. but there are these similarities that you mentioned. and it's a good question whether he has that talent. you document the incredible talent that nixon had. it truly was a remarkable group of people, many of whom behaved anne -- peterson became one of the great financiers of all-time. i will say one thing, and this is what haunts everybody there, no chairperson wants to go down with a bad legacy.
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at one end is the chairman's office, and they've got a portrait gallery. no one looks at his portrait. he is viewed as a big mistake. and as we mentioned, it was because he wanted to please the president. the question now being debated is does powell want to please this president? is he looking for a reappointment when it comes up? or is he really serving in the interest of the central bank? i know him very well? we text each other and played golf together? -- that should be a saving grace. >> let me ask you one other question. in 1971, there was a debate
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about the so-called -- . it's the trade-off between inflation and unemployment. and a lot of distinguished economists said the phillips curve is no longer a diagram of hope. a lot of them admitted that they knew how to stimulate the economy, but they really didn't know how to deal with inflation and the kind of inflation they were seeing had not existed in the u.s., except maybe in wartime. . do you think that we really understand this phenomenon any better today? as i follow this current thinking, there is obviously a lot of conflict. here it is, 50 years later.
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are we more sophisticated about inflation? or is their only one way to do it to tighten to the point where the economy softens and everyone has to do it in such a way that there is no doubt that the expectations of continued inflation are in play? are we basically there, and a very crude way. >> as you said earlier, history repeats itself, or at least rhymes. i'm not sure we are smarter. there is a piece that's just gone up here about president nixon and inflation everywhere and anywhere as a monetary phenomenon. the monetary base has now increased to 39.4% year over
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year. his formula was annum is going up and the prices going up and then the question is what happens to transactions on the economy? i'm not sure we are any further than we are before. the point is, when you have an accommodative fed and a graceful of aggressive fiscal policy, you are in a significant risk of inflationary pressure. but i don't want to deviate again. >> i'm going to come back to the dollar. >> this was driving part of the decision. there were other proposals put on the proposal that our listeners could understand. in dealing with this serious thing that nixon saw. >> there were two ways to go. actually, three.
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one was to go back to fixed exchange rates. just allow more flexibility. >> that's what volker wanted. >> a second was to go to floating exchange rates. that's what schultz wanted. that's where we ended up. i think a third was to try to replace those with a creation of international money from the imf, which they called special drawing rights. people felt, you know what, it could sort of go, let's create something else. and have a fixed system that was backed by something solid. but they did create a special drawing rights but the private markets just weren't buying it. so we went to floating rates. but the
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future of the dollar, let me put it this way, anyone who thinks they really no, no is nothing. but if you had said to any of those guys around the table, we can remove gold entirely, and the dollar will get even stronger, and it will stay that way for decade after decade, i don't think they would have believed it. and the question is why did that happen? to me, it's not -- i mean, looking back, it's not such a mystery. there really wasn't an alternative. no other country grew so big and so powerful that you would want to use their currency. no other country wanted their currency to be so ubiquitous. so there was, everyone had been using the dollar in kind of a network effect, it continued. the
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second is, that actually the world had a lot more confidence in u.s. policy and u.s. institutions than it did most other countries. and they really focused on our institutions. independent fed, or very credible sec, the rule of law, the way we made decisions. the depths of the democracy. but i don't think anyone worried that we would put money in the u.s. and they wouldn't be able to get it out. it was not the same for the countries. what worries me -- here is what i think, it's a great advantage for the u.s. to have this currency. it certainly allows us to finance at a much lower cost and at an easier way than we would otherwise do, because everybody is willing to hold out. but
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here is what i worry about. i think that we have been using economic sanctions far too indiscriminately. and that it is a fact that the europeans and the chinese are really looking for a way to get out from under the u.s. dominance of the plumbing of the international financial system. we levied secondary sanctions on the europeans. and i think if there is a way around the dollar, the europeans and the chinese -- they are certainly looking for it. and you have to believe that they are going to be fairly creative. especially as we continue to use sanctions. secondly, i don't pretend to fully understand the digital world, digital currencies, but when i look at
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china, i am not so worried about the rmb but they are way ahead of us in terms of central bank digital currency and they will use this in china but also currencies traded heavily with china. before we know it, i think that a sizeable part of the world, given chinese trade, may actually be using china's central bank digital currency. i can't prove it, and i'm sure nobody knows whether that's the case. but we are entering a really new era when it comes to digital currency. and you set aside cryptocurrency. i think that younger generations really
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don't trust government when it comes to a lot of things, including currency. so i'm not predicting that there is going to be eclipsed of the dollar, but it's a situation we haven't faced before. and what our strong military position is, which has also been a cause of people coming to the dollar. i think that is going to account for what we have going forward, and the natureof warfare is not going to be tanks and planes. >> so jeffrey, you mentioned there was confidence in those u.s. institutions back then. now we have a hyper divisive society. cultural issues, racial issues, both sides are wondering about how they're supposed to perceive democrats and republicans. it's almost impossible for a president to deal with congress, as opposed
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for nixon being able to do it. so there are those significant obstacles. i mention this on the chinese renminbi and the digital yuan, which is that xi jinping is using it for control. and block chain is a remarkable thing when you think about it. however, in terms of what the medicis created in terms of double ledger accounting, and now we have block chain. so with block chain, as we know, xi jinping and the ccp contract down every single transaction and use it to allocate better or penalize people you don't want to have credit. so it may not be as ubiquitously used, although they are way ahead of us on this front. and that raises an issue as to the yuan because
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they got 4% of the str but they had opener capital accounts. and it would be helpful to explain to our listeners the importance of having an open capital account, which the europeans have. the euro is the only deep liquid pool that is an alternative to the dollar. and their central bank is spending even more even more accommodative than ours. so i'm just curious what your views on that are, in terms of the need to have an open capital account in china. and whether that limits or maybe gives them an advantage, i'm not sure. your views on that? >> well, let me say, my starting point is, you are dealing with a lot of factors. all of which are very new. so, anyone has to be somewhat humble about predicting what will happen. i don't think that china's
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currency will become an international currency until they do open their capital account. until money can flow in and out of china without restriction. but, you know, they have a policy called the belt and road initiative, which is basically financing infrastructure throughout eurasia, now in south america. certainly in africa. and i just worry that many of these countries are not going to care so much about the ulterior motives of control. but the ease of which they can actually obtain the currency and the fact that they are not going to be subject to a whole range of
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u.s. foreign policy goals, you know, from elections to human rights and labor standards. and so we could be -- china's international role could creep up on us. they are not going to have -- the currency is not going to be widely used in the u.s. and europe. that's obviously a really big thing. until they totally liberalize their financial markets. so that's way off. but i think in terms of foreign policy leverage, that comes with currency, it would be a real mistake to leave them out, especially because of the digital capabilities. >> so jeffrey. >> the digital world will create a new era.
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most of the people who are in charge are of a different generation and they basically live in a digital time. i think that if you looked at the internet in 1990 or 1993, you never would have been able to calculate what it would be in the world. and i think that's where we are with digital stuff and this crypto. very cautious about predicting america as an economic power. >> you and i grew up in an analog world. so it can be hard to understand. i want to ask you to just sort of summarize. what do you think the biden
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administration can learn from this experience and what you documented? >> when the nixon guys met at camp david, they had a very extensive analysis of the global economy, the u.s. role in it, how the ball could bounce in the future, and what we needed long term. they may not have followed that script exactly, but they had a real understanding. and i just hope the biden administration does the same thing. that's one. and let me say the same thing taking into account the underlying issues and looking ahead.
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here is the range of possibilities. following from that, the men and they were all men then, men and women today, nixon surrounded himself with great -- the difference between schultz and connally and peterson and volker, it was something to get him in the room and make decisions everyone could agree to. i don't know if biden has this diversity. but when you are making really big decisions, the most dangerous thing is to have everyone feel exactly the same way and not present any challenges. third, kissinger was acutely aware that there was a
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relationship between international economic policy and our foreign policy. and in the end, they were really heard. i hope biden is able to do that. there is no kissinger in this administration. and there is no connally, who basically brought the opposite viewpoint. so i hope that this whole question of if they are linking foreign policy and economic policy is taken seriously by biden. i think that's one of the lessons of camp david. >> i will hold up the book here, because i think, not just because i am a monetary policy nerd, someone who's spent time as a negotiator, but because it gives you incredible insight
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into how policy is developed, and how important it is when the personalities involved influence decisions. the way you documented this, i found it spellbinding. i'm not saying this as a friend. it's really well written. and it draws you in in terms of the different perspectives of a president who did surround himself with enormously capable people. the only thing i've regret about doing this virtually is jeffrey is a real mention. he's a lovable character. he's not just a brilliant intellectual but he understands people. that's what's so well documented in this book. so jeffrey, we are at the end here. i want to thank you for your
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friendship of almost 45 years now. >> i think i will turn it back to the council, and thank you jeffrey, very much. >> thank you both for this amazing conversation. we truly appreciate you spending your evening with us. we'd like to invite you to come in person and richard, please feel free to come moderate that conversation. do you pick up a copy of richards book. we appreciate the support. if you are not a member yet, please join us. we would love to see you more, and i look forward to meeting you all in person again soon.
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it's been way too long since i've seen most of you all. thank you again for joining us and have a great evening. >> and critic mark bower line of emory university about the best way to teach americans history. >> why do we think teachers will be teaching this all from a liberal plane? is this a case where maybe freshman seminars -- you would know more about those
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lower grades than i would. but you do you based the social studies teaching profession as non partisan? there is not an ideological plan in a social study teachers professional organization? >> i think when people are teaching kids they are trying to help them learn more productive behavior in a classroom and tried to help them understand
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our weekly series the presidency highlights the policies of u.s. presidents and first ladies. up next, what do thomas jefferson, abraham lincoln, lyndon johnson and richard nixon have in common? they face not just political opponents but americans who actually hated them. what were the reasons? an american historical association panel discussed the answers to those questions.

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