Jawboning the Market?

On Wall Street these days, an eight-year-old book--Six Crises, by Richard Nixon--is attracting many new readers. The part that fascinates them is a description of Dr. Arthur Burns' warning to Nixon in March 1960 that unless money was made easier, a recession could set in and cost him the presidency. Nixon wrote: "Burns' conclusion was that unless some decisive governmental action was taken, and taken soon, we were heading for another economic dip which would hit its low point in October, just before the elections."

Nixon realizes that those who do not learn from history are condemned to repeat it. Plainly, he has begun to fear the dangerous economic consequences of recession. He and several major aides lately have sounded as if they were trying to raise expectations--and public pressure--for easier money, and simultaneously to use the jawbone to slay the stock market's bears.

Two weeks ago Nixon expressed hope that "the time is coming" when credit restraint can be relaxed. The next day, at Burns' swearing-in as chairman of the Federal Reserve Board, the President turned a round of applause for Burns to his purpose: "You see, Dr. Burns, that is a standing vote of appreciation in advance for lower interest rates and more money." However, at week's end Burns appeared before the House Banking and Currency Committee and gave no further hint of any impending credit relaxation. Even so, his deftness in fielding the questions so impressed Chairman Wright Patman, an old-time foe of the Fed, that the Texan told Burns. "You fell on your feet like a cat every time." Earlier in the week, Treasury Secretary David Kennedy had predicted that lower rates "may be closer at hand than most people realize." Then Paul McCracken, the President's chief economist, swung the jawbone. In a speech at Yale, he refused to predict when money would become easier, but said that he saw reason "for a modest amount of optimism and hope."

Covering His Risks. All those words had only a temporary effect. Nixon's remarks caused stock prices to close higher for the first time in a week and a half. The next day the Dow-Jones industrial average fell again until early afternoon; then it overreacted to Kennedy's words by jumping more than 14 points in half an hour. But the extreme euphoria soon wore off, and stocks seesawed inconclusively, closing at 753 on the Dow-Jones, nine points higher than the previous week.

Wall Streeters parochially felt that the Administration's encouraging words were calculated to alleviate the stock market's phthisis. While they were not entirely wrong, Nixon was thinking of much more. His political advisers view inflationary recession as the riskiest ballot-box issue of the year and the President is trying to cover his losses--just in case. He has continually said that he foresees no recession. But he sent a delicately balanced budget to Congress and warned that the Democrats had better not take chances by upsetting it. In addition, he started jawboning for easier money. If a real recession does hit, Nixon has his scapegoats ready: a Democratic Congress and an independent Federal Reserve--but not him.

Western Suspicion. Providing bandages for wounded investors is not high on Nixon's list of priorities. In spite of five years in a Wall Street law firm, he still has some Western suspicion of Eastern financiers. The President does not have a Dow-Jones ticker in or near his office. The market is rarely a topic of serious discussion among White House staff members or government economic advisers.

The bond market is the Wall Street figure Economist McCracken most frequently consults. He regards it as a better guide than stocks; when bond yields start going down, he believes that people are regaining their faith in the real value of the dollar. As for the stock market, one of Nixon's economic aides remarked: "Some of these guys on Wall Street made a goddam fortune from inflation; they tripled their money in three years. Do they expect us to bail them out when we try to step on inflation and the market goes bad?"

In fact, Wall Street is no longer a club for the self-satisfied rich. An estimated 26 million Americans own stock directly, and 75 million more have an indirect stake through mutual funds and profit-sharing and pension plans. In the Cabinet Committee on Economics, the stock market is occasionally a topic for jokes--and some nervous laughter. To one out of two Americans, the subject right now is not very funny.

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