tv Jeffrey Garten Three Days at Camp David CSPAN October 14, 2021 12:45am-1:43am EDT
to individuals that can help shed light on this topic. good evening and welcome to the program and thanks for joining us. i'm the president and ceo of world affairs counsel in dallas-fort worth. our program this evening features garten of the yell school of management and author of "three day at camp david" how a secret meeting in 1970 when transformed the local economy. richard fischer former president ceo of the federal reserve bank of dallas joins us to moderate the discussion. you can get copies of providence street at our local bookstore partner. our audience receives a 10% discount from the on line store by using the code csw world and remember the code is good for any of the books in your shopping cart not just jeffries.
the council will continue to offer top-tier virtual programming through the summer into the beginning of fall so continued to check out our web site at csw world.org for newly scheduled events and now i would like to invite richard fischer to kick off the program which is the former presidency of the federal reserve bank of dallas has imagine a most importantly a recipient of the councils most prestigious honor the h. mallon award. he served as deputy representative in the clinton administration. he has worked for secretary of state henry kissinger strategic. pfizer firm and founder fischer capital management and has earned an bachelor's degrees and
it b.a. from stanford. i know will be a fascinating conversation and gentlemen thank you again and with that taken away richard. >> thank you liz and i want to introduce jeffrey beyond what was stated in the book. he and i have been friends now for 44 years. jeffrey is a true public servant. he went to dartmouth and then he went into the army where he was a lieutenant in the 82nd airborne followed by his father who was in the korean war and was also it world war ii bettman -- bet there will vietnam war veteran. jeffrey is served in the nixon carter and ford administrations. i had the privilege of meeting jeffrey nguyen both of us were called to write a memoranda for
president carter on economic policy issues and he has gone on since to be a director at lehman brothers to serve on corporate boards and as you mentioned liz the very distinguished dean of the yale school where he still professes. i want to tell you the most distinctive feature of garten and that he is married to his wife i know for 53 years. she is better known as the barefoot contest the probably one of the most famous chefs. by the way his classmates include hank paulson who they like to say is the most famous person at yale at that time was the inet garten. now we are going to talk about this fantastic look "three days
at camp david." it is a remarkable summary of one of the key events that happened in the global financial world and i would also argue one of the great events are most important events in terms of really dealing with the u.s. role in the rest of the world and changing the dynamic of global policy as well as global financial markets. jeffrey, welcome. i want to open this up i ask you why you wrote the book and why you think this is the subject of crucial importance. >> thank you david. you know i've written several hooks and they are all about the global economy and the political dimension of the global economy but they had dwelt very much on trends and i wanted to try something else. i wanted to identify a single
event really focus in on it and focus in on great detail so that you knew the people and you knew what was in their head and you knew what was influencing them in terms of the global environment and their background and you could really feel the decision but in doing that you really got also a larger picture. i was looking around for what event wet landmark event could i write about one that most people really didn't know a lot about which brought to bear domestic economic policy, international economic policy and foreign policy. this sent event i wrote about camp david was the weekend on
which president nixon visited his top adviser. they met in secret. nobody knew about this meeting at the time. and they made a very momentous decision. since 1944 the dollar had been backed by gold. that was the heart of the agreement, the agreement that the sickly establish the post-world war ii economic system. and this link between the dollar and gold was $35 for an ounce of gold and it was irrevocable. president kennedy and president johnson went out of their way time and again to say the dollar was as good as gold. anybody outside the u.s. who
held dollars could come to washington and come to fort knox and they would want gold for their dollars. that was a cornerstone of the prosperity that ensued during the 50s and 60s. the miraculous recovery of western europe and japan, the almost unprecedented prosperity in the u.s. which was a different kind of prosperity then we have known because it was a middle-class prosperity. it was growth the basically spread throughout the country. we didn't have the extremes of wealth and income that we have today. so it's a real question. if it succeeded so well why did nixon and his at visors decide to take the dollar from gold or put another way why did they take a sledgehammer to the
agreement and that's the story that i told and i think what they did has had reverberations right through today. >> we will get into some of those reverberations. the important thing for our audience and for people looking at the book is the description of the characters that evolved. you have john connolly who we know well here in texas. we have henry kissinger and george shultz paul volcker at that meeting and i wonder if you can give us a little insight as to how that impacts the dynamics of what president nixon was seeking to do. >> first let me explain why the delink to the dollar from gold. it turned out that during the
50s and the 60s the united states was exporting a huge amount of dollars. we had big military commitments. we had big farming programs and the world wanted to use dollars because global trade was expanding and the dollar was the lead currency. there was no other currency that people could use internationally. it turned out that there were so many dollars abroad that we didn't have enough gold to make the conversion. in 1950, 1955 would have 160% of the gold we needed to exchange for dollars abroad but by 1971 we only had 25%.
it was the effect of the emperor had no clothes. in addition the administration felt the value of the dollar was too strong. it had been set in 1944 when the u.s. was so preeminent but in a sense the dollar was a victim of its own -- because in the 50s and the 60s west germany and japan emerged as major powerhouses and by 1971 we were running on our first trade deficit in the late 1800's. congress was up in arms and imposing major protectionist protection so something had to be done. since the post-world war era it
was up-ended and they needed something to replace it. we had to delink the dollar from gold and we had to allow the dollar to be added so that was why they did it even there was so much prosperity left. >> you had fierce nationalists and john commonly and you had it delicate internationalists and paul volcker. you had an advocate for total free-floating currency and george shultz. there were all these different views and i wonder if you could just give us a little insight into how those personalities came to this decision. >> that's a really good way to put it a cause nixon knew something had to be done. he didn't really have a grasp of the international situation.
in fact only one person they are dead and that was paul volcker but let me take one step back. what was remarkable about the people around him was that most people had never heard of them. and if they had heard of them they heard of them in a much different contexts. as richard said john commonly was the secretary of the treasury and in many ways he would have been very much at home in the trump administration. he was a fierce nationalist and basically his motto was let's screw the foreigners before they screw us. he had no interest at all and global financial assistance and he arrived in washington thinking the europeans and the japanese had taken advantage of us over the last two decades and they owe us big. in contrast there was paul
volcker who was the undersecretary of treasury but he was the only one there who really understood. but he too realized the dollar had to be devalued and the only way to do that was to use gold but he really felt okay the value of the dollar and he wanted exchanges. connolly couldn't care less. he just wanted to be sure that we could take advantage of the europeans and the japanese whom he thought were really ungrateful for all the help we had given them. so you had connolly and you had folks are who was a real traditionalist and then you had george shultz who at the time no one had heard either. they had just come from the dean of the university of chicago
business school and his expertise as a labor negotiator but coming from chicago he had very strong free-market leanings that he couldn't understand why currency would be linked at all. he thought it's just like any other commodity. there was one other person there peterson who had come from the industry and no one had heard of them. of course he went on to be a leader on wall street. at the time he was doomed -- and industrials and he had a totally different theory which was to blame foreigners too often for own problems. and the key to american competitiveness would be that we invest heavily in ourselves and we invest in technology and the best in the workforce.
he didn't think that changing the dog of currency and forcing other countries to open their markets would do anything as much as the kind of investment that we should make so nixon has surrounded himself by these guys and there was one other player who wasn't a camp david because he was he was secretly negotiating with the north vietnamese and that was henry kissinger. kissinger became a major player because when the president nixon announced was no longer link to gold and when that happens the allies went crazy. and it wasn't a big enough shock nixon said agreed to a
substantial u.s. devaluation we would put 10% tariffs on all their sales to the u.s. and a 10% across-the-board tariffs. connolly loved this real demonstration of american leverage but the europeans and the japanese spoken enormous bad faith that we had let the world in terms of preaching free trade in here we are putting up protectionists barriers of the allies were very --. you had nixon who didn't know much about the global economy forging a common position among people who had very different views. and he was very skillful. i have a lot of friends have
read this book and they say have you tried to rehabilitate nixon and i said no actually i'm just looking at the situation as it was then. i'm not filtering at through watergate but in 19691970 and 1971 there were many areas where nixon was a very skillful. >> it seems jeffrey he didn't understand monetary affairs but he did understand we were no longer -- he wanted to open the door to china and he dealt with russia and one of the great differences was despite all this legacy he worked with congress and yet a congress he could work with and i'm just wondering
about they see a lot of similarities on what you described from the situation today. and you mentioned congress being a mini-trump. i came from the central bank as you know i may hear people saying that powell is another arthur burns. vern's was in the room but regardless of the image he was stuck on president nixon. he was more of an inner loesh just -- internationalists and he could work the congress which doesn't seem possible today with donald trump in the white house or the current president of the white house. can you talk about the simulators and the differences when you covered that in the
book and what we have now? >> let me say when i started to write the book i was really intending to write a containment history. it was really moment is decision and what followed from it. and i became much more conscious of some of the parallels today. and some of the major differences. one thing i want to make really clear his history never repeats itself and i think we all know that. and what's important about the book as a gives really interesting and sometimes instruct the context but we can never make it direct parallel.
let me talk about some of the similarities. as you astutely said nixon understood that we were coming to an end of an era. he believed american leadership was possible in the future but the relationship between the u.s. and its allies u.s. and china and the russia had to change. but this was no longer possible for the united states to be so omnipotent and so powerful and that's why it really wasn't the situation. they realized on the economic side and the financial side the dollar west showing too much
girth and also other countries needed to open their hearts in a much more civil way because we had been giving them a lot of concession. so one similarity here is a think we are coming to to the end of an era now. over the last several decades the u.s. has had to seize more and more power. not necessarily leadership but we need the corporation of other countries more and more than we ever did before. and you are in the middle of the global financial crisis in 2008 and it was true with the pandemic and true with climate change.
there is a problem for which the need for stronger alliances and stronger cooperation even with countries that we don't care for is really important. i think we are entering another era in which we have to reconsider how the u.s. relates to other countries. the second is in terms of economic competition and i go back to what pete peterson said. we can blame the europeans then we can blame the chinese and i'm not saying it's not that until we get our act together at home until we begin to invest in technology and particularly the human capital until we build the infrastructure and i keep talking about roads and ports but the cyber infrastructure we
are going to be anywhere near it as we have the potential for. and i think that's another kind of parallel. big differences and you alluded to that that in 1971 nixon was able to get behind big policies. he faced the house and the senate. democrats really control and yet he managed to get a coalition of liberal democrats, i'm sorry -- and that was a big part of our political establishment. when it came time to deal with
the dollar in gold and all the associated issues he had enormous support. he was very skillful at cultivating that support but it was there and that was the huge difference from today. another differences you know in 1971 and i found this very interesting, we were just beginning to experience what globalization was all about. we had it. deficit, congress was worried about unemployment and automation by their interaction with the rest of the world was in its infancy. today of course was so incredibly linked to other countries that it's nowhere near as great. i think the biden administration challenges -- faces challenges
that are much deeper than nixon did and i'm not sure it has the same level of talent so a there's a lot of sobering thought. >> as you mention in your book degaulle was in power in france. they had their own image of themselves and they were rising from post-world war ii. now we have xi jinping in particular and nixon recognized china but now are on the opposite poll of what we are doing now. i'm just wondering and i know i have already sina question here on the dollar itself. this is a footnote jeffrey as you know dollar bond issuance in dollar yield has gone up to
radically in the last two years. it somehow seems to increase. well over 75% of commercial transactions in the world are denominations now but is there an alternative and i wonder what your thoughts are there. baskets of currency is quick how do you view this of the backdrop in which we set in place after this meeting in 1971? >> great question but i left something out which i think we should just interject. when you asked me about the similarities and the differences i should have talked about inflation because in 1971 inflation was rising and the inflation stems in good part from the vietnam war and president johnson -- and 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 employment employment was more important. he had been vice president under eisenhower and ran against jfk. he lost a close election because the eisenhower demonstration decided to control inflation as opposed to stimulating the economy and creating more jobs. nixon as president was extremely clear to his advisers that he would allow inflation to flare that meant increasing
employment. he was very clear about that. now in the other circumstances you may have had the head of the central bank has said well if you are going to do that i'm going to tighten interest rates quite dramatically. but his bid chairman was arthur burns, very complex person. burns was above all he wanted nixon's admiration. i go into this a lot to cause personality plays a major role in knowledge these decisions and burns simply wanted to be in nixon's good graces but he also was a distinguished economist and he knew something about inflation and he came to the conclusion that neither physical nor monetary policy was the right policy and in fact inflation was caused by labor
unions which were negotiating ever higher wages which made companies -- and spiraled so rather than focus on interest rates arthur burns decided he wanted to -- and he convinced nixon to do it. it was a terrible decision and of course windows controls came off prices really shot up so inflation played a big role in the nixon years and you know what i think about it today and i'm not going to let you off the hook here, we face a very tricky situation now. i don't know the parallel but certainly the biden administration is very focused on getting everybody back to work and they are saying the
inflationary pressures are transient and i hope they understand you can't deal with inflation once it's totally recognized. their expectations but let's put it this way. the approach is to inflation in 71 and today are more than just academic interest because a lot of people are looking at the 70s and saying are we there again? let me just though this all to you for a second because i told you all i know about the analogy but how do you see at? >> course jeffrey you and i work together when it reached its zenith in the carter administration because it keeps growing and growing. once you build and behavioral patterns and expert patients and now we have a role with the
federal reserve which is different than anything before which is basically we will be reactive. that is once we see the lights of the issa inflation and we don't think it's going to be cole transitory if that's the case then we will take less accommodative mullet -- monetary policy but he pointed out correctly at takes a while when you adjust policy. but to get companies to reorient their payables and how they lag and whether they don't lag etc. takes time to work its way through the system. first you have the time like to make that decision and another 12 to 18 months to affect the
real economy. during which time you could have as we saw you and i were there when it was the most painful you could have expectations change competence diminished and begins to grip on its own. that was the risk we were running here and we'll just have to see the fed is right. i will note in his last press conference chairman powell seem to little less optimist and seems to be backing away from it slightly. but there the similarities as you mentioned because the biden administration will have to deal with it and it's a good question whether he has this challenge not just because he is president biden and i'm not being critical here of but you document in this book the incredible talent pool that nixon had to draw. it truly was a remarkable group of people many of whom became --
paul volcker and peterson evolved into one of the great financiers of what all time. this is what onto everybody there. at the end of the big table 1 and is the chairman's office and you go through door and the others to go through a door and they have a portrait gallery the former fed chairs. nobody looks at arthur burns portrait. he is viewed as a big mistake and as you mentioned it was because he wanted to please the president and the question being debated is this president looking for a reappointment when it comes up in february? or is he were serving the
central bank? i can tell you this i know jay very well. we tax each other and we play golf together. we don't talk about policy anymore. i'm not allowed to but he doesn't want to be arthur burns and i should be a saving grace. >> let me ask you one other question. in 1971 there was a huge debate about the so-called -- the trade-off between inflation and unemployment and a lot of distinguished economist said the phillips curve is no longer a guide for policy and 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 that they were seeing had not existed in the u.s. except maybe in wartime.
do you think that we really understand this phenomenon? as i follow the current thinking there's a lot of conflict among so-called experts but here it is 50 years later. are we more sophisticated about inflation or did paul volcker have a right that there's only one way to do it and that is tighten rates to dupe point that the economy softened and to do it in such a way that there's no doubt the expectations of continuous inflation art -- are we smarter than that are read basically destined to these crude instruments? >> as you should set the earlier history repeats itself. i'm not sure we are smarter.
there's a piece on "wall street journal" this morning which recalls a picture that was just drawn up your with arthur and president nixon that said inflation is savory and anywhere a monetary phenomenon and we will just have to see. the monetary base has increased at 39.4% year-over-year. his formula was mv equals pt. and prices going up and the question is what happens with transactions to the economy so we will have to see jeffrey. i'm not sure we are any smarter than we were before. the point is when you have an aggressive fiscal policy you run a significant risk of inflationary pressure. i don't want to deviate. >> i want to come back to the dollar.
>> yes. this was driving part of the decision. were there other proposals put on the table so that her listeners understand us and dealing with this crisis that nixon saw? >> there were two ways to go. actually there were three. one was to go back to the exchange rate to allow more flexibility. that's what volcker wanted. a second was to go to the exchange rate and that's where we ended up. i think a third was to replace gold with the creation of international money from the imf
and people felt you know what if we are short of goal buts. something else and have the system that is backed by something solid. to private markets weren't buying it. but i'd like to come to your point about the future of the dollar and let me just put it this way. anybody who thinks they really no, knows nothing but a few had said to any of those guys around the table we can remove gold entirely in the dollar will get even stronger and it will stay that way decade after decade i don't think they would have believed it. the question is why did that happen? to me 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 and know what other country wanted their currency to be so ubiquitous. everybody had been using the dollar and the network continued. second is actually the world have an 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, an independent fed a credible fcc, the rule of law the way we made decisions the depth of the democracy. i don't think anyone worried that they would put their money into the u.s. and would deal to get it out.
that's a lot more than you can say for other countries. what worries me, first of all it's a great advantage for the u.s. to have this preeminent current c.. allows us to finance their deficit at a much lower cost and a much easier way than we would otherwise do because everybody's willing to use the dollar but here's what i worry about. i think we have been using economic sanctions far too indiscriminately and it is the 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 put secondary sanctions on the europeans so i think if there is a way around the dollar
the europeans and the chinese are certainly looking for it and you have to believe that they are going to be fairly created especially -- secondly i don't pretend to fully understand the digital world and digital currency is but when i look at china i'm not so worried about the r&d but they are way ahead of us in terms of the central bank and digital currency and they are going to use this digital currency not only within china but with countries that are trading heavily and before we know it and unless we are really alert i think a sizable part of the world given chinese trade may be using china's central bank digital currency
but i can't prove it and i'm sure nobody knows but we are entering a really new era when it comes to digital currency and cryptocurrency. i think younger generations really don't trust government when it comes to a lot of things including currency. i'm not predicting that the dollars going to be eclipsed but i think we are facing a situation that we haven't faced before and our strong military position which is also i think the cause of people coming to the dollar in terms of prices i think that's going to count for less as we go forward and the nature of warfare isn't going to be planes but cyber. >> jeffrey you mentioned there was confidence in those u.s.
institutions that then and now we have a hybrid society with cultural issues, racial issues. both sides are fixed on how they are said post to approach democrats and republicans in its impossible to deal with congress as opposed to nixon being able to do it so there are those significant obstacles now. i rarely mention this on -- which is xi jinping is using it for control because it's driven by blockchain which is a remarkable thing when you think about it. forever we work on double entry accounting and now we have blocked chain which is the first innovation in accounting in hundreds of years. with the blockchain as we know xi jinping and the communist
party can track down every single transaction and use it to allocate credit or to penalize people. it may not be as you've pick what is lee used although they are way ahead of us on this and that raises an issue because they got 4% of the fda basket that i have an open their capital counts and i think it would be helpful if you explain to her listeners the importance of having an open capital account which the europeans have per the euro is the only liquid pool that is the alternative to the dollar in their central bank is more accommodative than ours. so i'm just curious what your views are on that in terms of the need of a capital account in china and whether that limits or
maybe gives them an advantage. i'm not sure. your views on that? >> my starting point is we are dealing with a lot of factors all of which are very new. anyone has to be somewhat humble about predicting what's going to happen. i don't think that china's 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 they have a policy called the belton road initiative which is basically financing infrastructure throughout eurasia and now in south america currently in africa and i just
worry that many of these countries are not going to care so much about the alter your motive of control but the ease to which they can actually obtain currency and the fact it that they are not going to be subject to the whole range of u.s. foreign-policy goals from elections to human rights and labor standards. so china's international world could creep up on them. they are not -- the country is not going to be widely used in the u.s. and europe and that's obviously a really big thing until they totally liberalize their financial market so that's way off. i think in terms of foreign-policy leverage that
comes with currency would be a real mistake to leave them out especially because of the digital capability. so that's why i think the digital world is going to create a new era. most of the people who are in charge are of a different generation than does the basically live in a digital society. i think if you looked at the internet in 1990, 1992 and 93 you never would have been able to calculate what it would mean to the world.
and did not grow up in the digital world. we grew up in the analog world. so it is hard to understand it. we are getting close to the end here. i want to ask you to sort of summarize, what do you think the biden administration can learn from the nixon experience and what you documented. >> when the nixon guys met at camp david, they had a very extensive analysis of the global economy, u.s. role in it, how it could balance in the future but we need to do long-term. they may not have followed that script exactly, but they
had a real understanding of the alternatives. and i just hope the biden administration has done the same thing. so that is one. let me just say the same thing meaning taking account of all of the underlying changes and looking ahead as far as you can. not to say this is where you're going to be but this is the range of possibilities. finally from that, the men, they were all men then, today of course there would be men and women. nixon surround himself with great diversity. the difference between conley and burns, and peterson it was really quite something to get them in the room and basically make decisions everyone sort
of agreed to. i don't of that biden has this kind of diversity. i hope he does but i don't follow it so closely. when you're making it really big decisions the most dangerous thing is to have everyone feel exactly the same way and not present any challenges. and third, kissinger was acutely aware there was a relationship between international economic policy and our foreign policy. and in the end, they were really emerged. i hope biden is able to do that too. there is no kissinger in this administration. and there is no connolly who basically brought the opposite viewpoint. and so i hope this whole question of interlinking foreign policy and economic
policy is taken very seriously by biden. i think that's one of the lessons of the camp david meeting. >> going to hold up the book here as a show. not just because i am a monetary policy nerd or spend time as a negotiator on behalf of our country as you have, it gives you incredible insight to how policy is developed and how important it is that the personalities involved and influence the decisions. the weight you documented this, jeffrey, i found as spellbinding. [inaudible] i did surround himself with inordinately capable people.
the only thing i regret about doing this virtually, for our audience is you'd have to understand, he is a lovable character he is a cute guy is not just a brilliant intellectual but he understands people. that is what is so well documented in this book. jeffrey we are at the end here pretty want to thank you i also thank you for your friendship of over 45 years now. and had we been alive i would have insisted i'd accompany you not just to give people food for thought but food for their stomachs as well. >> surely would have put on a couple of pounds everybody there. laugh it. >> i think i will turn it back to counsel and thank you jeffrey very much. >> thank you for. >> thank you both for this amazing conversation. you truly appreciate guys spending your evening with us.
i like to invite you to come in person whenever you feel it coming to dallas. feel free to come and moderate that conversation. >> is richard mention please to pick up a copy of the book we love that local bookstore and appreciate their support if you're not a member of the council yet, please join us, we love to see more i look forward to meeting you all in person again soon. person again soon.
>> and the founding director for presidential history at southern methodist university and you already know because you signed up for this webinar here to talk about presidents and hatred. to conceptual points that might be helpful from the start. i mentioned this to my daughter today or her first question was are you doing that because of president trump? i suspect that's why you want to do and the first place but we are talk about presidents in history.