Mr. Dirks, Acting Chief of the North American Division, is a graduate of Middlebury College, Tufts College, and Columbia University. He was formerly economist at the Board of Governors of the Federal Reserve System, Chief of the Financial Intelligence Branch and Deputy Chief of the Governmental Structures Branch in the Office of Military Government for Germany, and economist in the Office of the Secretary of Defense.
Mr. Zassenhaus, economist in the North American Division, is a graduate of the University of Bonn and the University of Bern. He was formerly Professor of Economics at Colgate University and research associate at the Twentieth Century Fund.
The supply of dollar funds is here taken to include proceeds from the sale of exports to the United States, plus net dollar receipts from U.S. Government grants and loans, from services (exclusive of investment income), and from private donations and private capital movements.
Throughout the text, “world” is used to describe the aggregate of all countries outside the United States.
The subtraction of all ILS. Government aid from commodity trade is not quite appropriate since part of the aid goes to pay for services. This part is ignored here because the relevant data are not readily available. The alternative method of including service items with commodity exports and imports on the chart seemed undesirable because the seasonal movement in service items would have obscured the parallelism between commodity exports and imports. The roughness of the adjustment does not affect the validity of the conclusions reached here.
This world export balance was in fact the major factor in the mounting outflow of U.S. gold and dollar assets.
The authorizations requested by the President for foreign aid in the fiscal years ending June 1952 and June 1953 would raise military aid to about 75 per cent of total aid, but the significance of these requests is qualified by the prospect of military aid including industrial supplies and equipment. The amount of actual military end items for fiscal 1952 was proposed by the President at roughly half of total aid.
These included an increase of $280 million in U.S. bank deposits and security holdings in Canada, an increase of $50 million in short-term claims on the United Kingdom, a private U.S. bank loan to the French Government of $225 million, and a private refunding loan of $54 million to the Canadian Government, which was not actually disbursed for retirement of the old securities until the following quarter. The first two of these items appear to have been largely speculative.
Other unusual transactions in the past two years include a short-term inflow of $121 million from Latin America in the first quarter of 1950, and a short-term outflow of $98 million to that area in the fourth quarter.
Third quarter net earnings by other countries from U.S. tourist travel amounted to about $190 million in 1950; in 1951, however, the figure was reduced to about $150 million, mainly because of greater travel by Canadians in the United States. Net income from U.S. foreign investment, on the other hand, increased steadily to a quarterly average of $370 million in 1951. Miscellaneous Government expenditures, mainly from U.S. installations abroad, have risen from under $100 million a quarter in the first half of 1950 to $160 million a quarter in early 1951; by the third quarter the rate had reached $280 million and was still rising. These sources of dollar earnings have been partly offset by net U.S. earnings for transportation and miscellaneous private services of about $150 million a quarter.
Nearly $2.7 billion of this was in the form of gold, and amounted to a 25 per cent addition to the gold reserves reported by these countries at the end of 1949. The remaining $2 billion was about evenly divided between short-term bank balances and U.S. securities (mostly Government issues); this amount also was about 25 per cent of the combined foreign holdings of short-term banking funds and U.S. securities (not counting foreign purchases before 1935) that were outstanding at the end of 1949.
The fact that in the third quarter the ratio of unaided imports from the United States to the current supply of funds (less U.S. Government aid) again exceeded 100 per cent may be explainable by the unexpectedly sharp drop in dollar earnings as U.S. buyers resisted the high prices that had been built up. Moreover, in view of the prospect that this drop might be temporary, monetary reserves could appropriately be used to maintain the level of world purchases in the United States.
The figures in Chart 3 are for recorded imports and exports, which include aid-financed exports. For purposes of the analysis, the published figures for merchandise imports and exports have been regrouped under the two headings, raw materials and manufactures, with subdivisions into food and nonfood. This regrouping affects imports particularly. Semimanufactures, newsprint, and jute burlap have been grouped together with crude materials to form the subclass “nonfood raw materials.” Sugar has been combined with crude foods to make up the subclass “food raw materials.” Nonfood manufactures correspondingly exclude newsprint and jute burlap, while food manufactures exclude sugar.
On the export side finished and semifinished manufactures have been combined into the subclass “nonfood manufactures.”
Price and quantity indices are available only for recorded trade. The figures used for the chart are therefore smaller than the (adjusted) merchandise trade figures in the balance of payments statistics of the U.S. Department of Commerce.
This is the only official estimate of the U.S. terms of trade with any region available by quarters. It covers all Latin American countries and does not show the terms separately for individual countries or for any subdivisions of the region.
Data in this section are based on recorded general imports, which differ somewhat from balance of payments data.
That is, military aid (MDAP), Army Civilian Supply Program payments, Export-Import Bank loans, and payments for ECA shipments other than offshore.
For brevity, exports to the United States and imports from the United States by other countries will be designated here as dollar exports and dollar imports. (This differs from the conventional usage, according to which dollar imports include imports from any country that customarily settles its international balances in dollars.)
In each period it will be noted that the difference between dollar exports and unaided dollar imports was only a small part—about a fifth—of the net outflow or inflow of multilateral dollar settlements. The smallness of the impact of dollar settlements on imports is probably attributable to the central position of the United Kingdom as a repository of balances for the Sterling Area.
The item “multilateral receipts” is a residual and thus includes the effect of errors and omissions in all other accounts. For Canada much of the third quarter decline may have consisted of errors and omissions, rather than true multilateral settlements.