He has the impression from reading the New York Times that in trying to save some American industry over here we are being entirely provincial, are trying to start a trade war, and are being unfair in trading with Japan, because he is reading publications put out by our State Department and our Commerce Department. And he showed me an editorial in the New York Times-and as far as foreign governments are concerned, that is the only newspaper in America, that is the only one they ever see-that says that we had a favorable balance of trade. And he, for the life of him, cannot understand why we are putting quotas on things. I had to explain to that man that those figures are totally wrong.

How can one of our negotiators sit down with a man of that caliber and convince him that they have to make trading concessions to us because we are going broke when our own publications put out by the President's own appointees, by the Government of the United States, our own official figures say we have a favorable balance of trade. They simply say, "What are you complaining about? You have a favorable balance."

I do not see how you as a negotiator can get those people to concede much to you when you are presenting them figures that say that you are a billion dollars in the black, and the truth is you are $5 billion in the red.

Mr. MCLELLAN, True.

Senator LONG. Doesn't it seem to you we would be a lot better off if we presented figures that show what our disastrous situation is rather than figures that show a rosy picture which does not exist?

Mr. MCLELLAN. Yes; sir, your point is understood and it is well taken.

Senator LONG. I would think that when a Secretary of Commerce or Secretary of Treasury or Secretary of State comes up and testifies before this committee or the Finance Committee that everything is great, we have a favorable balance of trade, that those foreign governments would pick that up and confront that same American Cabinet officer or his representative in negotiations by saying you cannot make me think that you have a desperate situation over there, here is your own Secretary of Commerce's statement or your own Secretary of State's statement that everything is wonderful, you have a $5 billion surplus or a billion dollar surplus. The truth is that what we have is really a big deficit.

Can you tell me in terms of short-term credit how much these foreign governments hold and how much gold we have we can call our own right now?

Mr. MCLELLAN. I cannot. I could not give all of the excruciating details of the balance of payments. Our gold bullion reserves are around $11 billion, but I would not want to give you a figure here of what the foreign call on that would be. In the second quarter, on an official settlement basis announced yesterday there is another $1.7 billion deficit on the balance of payments. I think that would bring us, if I am right, to a deficit of something in excess of $2 billion in the first half of the year.

I do not want to represent, Senator Long, in any way, shape or form that we think we have a good trade situation. I do not believe that. I certainly do not want to represent that our balance-of-payments situation is in good shape, because I think it is in very, very poor shape.

Senator LONG. My understanding is the calls on our gold, the short term calls on our gold, exceed by 4 to 1 the amount of gold we have. Now, I would appreciate it if you would get the figures and see if that is correct.

(The following information was subsequently received for the record :)

Relationship of U.S. reserves and foreign claims

Mr. MCLELLAN. You are concerned, sir, with the foreign call, potential call on our present reserves?

Senator LONG. Yes. That I should live so long, but when I came to the Senate my recollection is we had a lot more in gold than they had a call on. In other words, we probably had 4 to 1 in gold what the other fellow could call for in payment. Now I think it is about 4 to 1 the other way around. Plus I see in the newspaper that the balance-ofpayments picture has improved, but you read on down to the second column and you find that one reason it seems to have improved is that somebody persuaded Canada to buy some U.S. Government bonds. Well, they can sell them as easily as they can buy them, can't they? Mr. MCLELLAN. They certainly can.

Senator LONG. So it seems to me if you read the whole picture, you find that is just one more misleading fact. To make our own figures deceive our own people, someone persuaded Canada to buy U.S. bonds.

Also, another item was that we had persuaded the World Bank to let us have some special drawing rights. Now, that is just another way of saying we borrowed from somebody; isn't that about the size of it?

Mr. MCLELLAN. Yes, it is general borrowing available to all members of the International Monetary Fund, so it becomes a reserve currency. The United States is borrowing this from the International Monetary Fund.

I

Senator LONG. What if I went out and reported that I had a good year, and the reason I had a good year was I went in debt by $100,000, and I managed to borrow $100,000 and then told people I broke even. I would not think that would be correct for me to say had a good year, I made a profit, when the profit was money I borrowed. That would be just about like the Penn Central balance sheet that led up to bankruptcy after about 3 years of that kind of bookkeeping.

Mr. MCLELLAN. There is one difference, and that is the economistsI am not an economist, therefore, I can discuss it-the economists argue the necessity for the IMF special drawing rights is to close the gap betwen the fact that $11 million of gold reserve does not really represent the reserve assets of the United States in terms of this great country of ours, our natural resources, all of the general reserves. But since the world is on a gold standard, as it were, on international exchange, and because the supplies of gold are fairly limited in central banks, one way of extending the reserve capacity without actually having the actual gold is to do it through the IMF special drawing rights.

So I think there is an argument for it. That does not change what you said about the fact that you are borrowing it, and it is a secondary kind of answer to the real problem on the balance of payments. It is in lieu of, instead of what we ought to be doing on our trade and tourism and so on.

Senator LONG. It just seems to me this charge that the Nixon administration has schizophrenia on the subject of trade would not be nearly as well founded, in fact it wouldn't be founded at all, I would think, if your balance-of-trade figures were showing what other nation's balance-of-trade figures would show on the same transactions, and that is that you have an unfavorable balance.

If you have an unfavorable balance, you have to do something about it. Nations are not going to negotiate away their surpluses and their profits. They might negotiate a little of it away, but not the kind of deficit we have, when we are $5 billion in the red. That is their profit.

The only way they are going to give that away voluntarily is when we are bankrupt, or we are in such sad shape that nobody will trust the dollar anymore. At that point they won't accept our currency. And by that point we would be out of gold that we could call our own anyway.

So they would then refuse to sell to us, which would achieve about the same purpose that we should be doing by a better route, and that is to either have more exports or less imports. We can't make the other fellow buy our exports, but we can control his imports.

So we would take those steps necessary in time rather than to take steps out of desperation later on. I will be talking to you on your superior, both on this committee and perhaps more so on the Finance Committee, as well as Senator Hartke and some of the others, because we don't think that anybody is serving this Nation's interests who paint a rosy picture where the situation is bad and needs correcting. Mr. MCLELLAN. I agree with you completely on this point. Senator LONG. Thank you very much.

Senator HARTKE. Senator Baker?

Senator BAKER. Thank you, Mr. Chairman. I have no questions. Senator HARTKE. In regard to the balance of payments, you are working on a new plan. You intend to submit that modernization of reporting, and you are going to take into account the fact that there are certain items which really are cash transactions, certain items which are bookkeeping transactions and certain ones which fall into neither category, that are sort of a hybrid operation. Is that correct? Mr. MCLELLAN. Yes, Mr. Chairman. That is true. I just want to

qualify your statement by saying in my office, I will be working with Assistant Secretary Passer, who is in charge of economic affairs, to see if we can't devise a better method of reporting than we have now. I have confidence we can do that.

Senator HARTKE. It is very difficult in my opinion to have any type of comprehensive long-range planning or even noncomprehensive shortrange planning unless you have some factual material which is worth looking at.

Mr. MCLELLAN. Yes, sir.

Senator HARTKE. Isn't it true that we have had a steadily deteriorating actual balance of trade in the United States in relation to foreign countries?

Mr. MCLELLAN. I am not sure I understand your question.

Senator HARTKE. In other words, in 1964, we had a positive balance of trade in the neighborhood of $7 billion.

Mr. MCLELLAN. Yes; that is on the merchandise account.

Senator HARTKE. That is right. I am referring to what is ordinarily considered trade. Some of this is in the commercial field and in finance operations. I am talking about the actual balance of trade on the merchandise account and there has been a steady deterioration of that

account.

Mr. MCLELLAN. Yes, sir; there was until 1968. We had the low point, the total surplus of exports over imports account did drop from $7 billion in 1964 to $1,410 million surplus in 1968. The sum of exports over imports did come up to $1,940 million in 1969. I want to emphasize that does include these Public Law 480 Senator Long talked about. Senator HARTKE. If you take those out

Mr. MCLELLAN. We would just about break even in 1968.
Senator HARTKE. Not quite.

Mr. MCLELLAN. Probably it would be slightly plus, I think, Mr. Chairman.

Senator HARTKE. I would be glad for you to submit that. In relation to Japan, the very sharp change of balance has occurred in Japan, isn't that true?

(The following information was subsequently received for the record :)

1968 Trade Position

[Millions of dollars]

Official exports.

Less military grants-in-aid_
Less total Public Law 480__

Add Public Law 480 cash sales in foreign currencies.

$34, 636 (-)573 (-)1, 178 (+)539

Total exports

Imports

COMMENTS

33, 424

33, 226

(1) There is a deficit of ($341) if all Public Law 480 shipments are excluded; however, we did receive foreign currency cash for approximately half of our shipments ($539) resulting in a favorable balance of $198.

(2) Imports are reported f.o.b. and if they were reported c.i.f. we would in all probability have suffered a small unfavorable balance.

Mr. MCLELLAN. We have a serious deficit of trade with Japan.

Senator HARTKE. And until 1965 we had a surplus with them?
Mr. MCLELLAN. That is correct.

Senator HARTKE. What this means really is

Senator LONG. Could I interrupt there for one point.

Senator HARTKE. Yes.

Senator LONG. If you are talking about balance of payments fig

ures

Senator HARTKE. We are talking about trade.

Senator LONG. Are you including the ocean freight in those figures you are quoting?

Mr. MCLELLAN. Senator Long, for historical reference here, I am referring to the published figures on balance of trade and that would be on our basis the f.o.b., so there is distortion in that.

Senator LONG. Then they are wrong by definition as I see it, because they fail to include the freight, they put the giveaways on the plus side, as though you received billions of dollars for them, and they fail to include the tourist trade.

Mr. MCLELLAN. But even on that basis, the chairman's point that we have swung from a plus to minus situation with Japan is certainly valid.

Senator LONG. I just wanted to be sure what figures we are talking about. Those are the figures that are not correct. Yes, I understand. Senator HARTKE. Can you give us any timetable as to when you think you might come up with a reporting system which at least has some basis in fact?

you

Mr. MCLELLAN. Mr. Chairman, all of the figures are true, but have to understand them. Senator Long obviously does. We think we can improve the method. I wouldn't want to speculate or guarantee. Senator HARTKE. Do you have a timetable for when you think you could submit it?

Mr. MCLELLAN. No, sir, we do not.

Senator HARTKE. Could you provide for the record a timetable within this century?

Mr. MCLELLAN. I would hope we will get a better reporting method by the end of this year. I would hope for that.

Senator LONG. If I might interject one more point, Senator Hartke, if they don't put them together that way, we will do it for them. I am talking about the Finance Committee will do it for them, because you agree that is how the figures should have been kept.

Senator HARTKE. Not only do I agree, but I believe there is a bigger problem here. The fact that the whole balance-of-payments concept is antiquated and is nothing more than simply shifting recession from one country to another.

Isn't that true?

Mr. MCLELLAN. I wouldn't say that it is true, but I am sure there is a lot of truth in what you have said.

I think the economists can argue that theory and a lot of them would make the point that exchange rate reevaluations make the differences and that these are not necessarily recession caused.

Senator HARTKE. So this really ties back not to the simple problem of definition and reporting and then trying to act upon that, but really calls for a complete reevaluation of our international system of exchange.