Gold, the Dollar and Watergate

Stirring words spoken by French president Charles de Gaulle on February 4, 1965, based on a centuries-old and widely held conviction. Capturing the spirit of the preference for gold, the Irish playwright George Bernard Shaw declared:

You have to choose between trusting in the natural stability of gold and natural stability of the honesty and intelligence of the members of the government. And, with due respect to the gentlemen, I advise you, as long as the capitalist system lasts, to vote for gold.⁵

The Harry White affair cast a pall over the early days of the IMF, and the new institution was hardly involved in the major issues of the time. Dealing with the aftermath of World War II in Europe was initially largely left to the World Bank, which timidly provided modest loans for reconstruction. This support turned out to be insufficient for a devastated continent full of uncertainty following a short period of euphoria. For many, “[s]urviving the war was one thing, surviving the peace another.”⁷³ The war effort had depleted the gold and foreign exchange reserves of the European Allies, who urgently needed to be able to purchase goods from the United States and formerly neutral countries such as Sweden. Dollars were the only means with which countries that desperately needed American foodstuffs, raw materials, and machinery could pay. And the only way to obtain dollars was to run a trade surplus and take up large dollar loans. This turned out be an enormous challenge, as most European countries, with Great Britain the first to face economic collapse, were running large trade deficits and were also not creditworthy. In a visionary act, the United States announced the European Recovery Program in 1947, popularly known as the Marshall Plan, having been conceived by the American secretary of state George Marshall.

Richard Nixon may have won the election in November 1972 with an overwhelming majority, but only weeks into his second term, the Watergate scandal escalated as growing evidence of an elaborate coverup became public. Besides the ever-active Washington Post, the New York Times and other newspapers, such as the Los Angeles Times, provided new accusations that the White House, and possibly the president, was involved in the sordid affair. Feeling the pressure, Nixon came to the conclusion that he had to do something drastic. On April 30, 1973, he announced the resignation of his two closest lieutenants, Bob Haldeman and John Erlichman. John Dean also packed his bags, as did the similarly tainted attorney general, Richard Kleindienst. Although tearfully communicating on television that letting the “Germans” go was one of the most difficult things he had ever done, Nixon had carefully planned his course, convinced that throwing his closest advisors to the wolves was the best way to take the heat off himself. An anonymous aide commented that “[f]or Nixon … the shortest distance between two points is over four corpses.”³⁵³ Declaring sanctimoniously that he would “do everything in [his] power to ensure that the guilty are brought to justice,”³⁵⁴ only served to further raise suspicion that the president was somehow involved.

After several years of mounting suspense, the wrenching Watergate crisis had finally been put to rest, avoiding a potentially chaotic and dangerous political situation with possible global ramifications. And the departure of Nixon and the xenophobic elements in his administration created space for improvement in international financial cooperation. But economic threats remained: stubborn and worsening stagflation and a lack of guidance of the international monetary system. And Gerald Ford faced the delicate legacy of Watergate: What to do with his predecessor? Moving swiftly, the “accidental president” pardoned Richard Nixon barely a month after taking the helm as America’s supreme leader. The full and complete pardon elicited furious reactions. Bernstein and Woodward, the young journalists who had played a crucial role in Nixon’s downfall, saw the pardon as a “betrayal,” a “secret and dirty” act.⁴⁷⁹ Ford’s press secretary, Jerry terHorst, promptly resigned in disgust. Speculation about a deal between Nixon and Ford was rife, but the new president steadfastly insisted that there had been none. For months indignation about the pardon was vented, and it may have cost Gerald Ford the presidential election against Jimmy Carter in 1976. What the pardon did achieve was to remove the possible embarrassment that a Nixon trial and conviction would have caused—Judge Sirica revealed that he would have sent Nixon to prison—possibly encouraging America’s Cold War adversaries to exploit Washington’s perceived weakness.