If you drive a car, enjoy your 65 cents-a-gallon gas while you can. A hefty jump to 90 cents may soon be on the way, with the initial price spurt coming as early as next spring.
Baloney, you say. It won't happen because it would be highly inflationary at a time when the administration is bell-bent on curbing spiraling prices. Nor is it any secret, you tell me, that some presidential advisers (such as deputy budget chief W. Bowman Cutter) would strongly oppose any such price hike. Well, hear this, friends: The well-regarded and wired-in Washington Forum, the capital-based research arm of brokerage biggie Drexel Burnham Lambert, is going out on a limb with a private forecast to its 85 clients - the likes of Citibank, Bankers Trust, Travelers Corp. and mutual fund giant Investors Diversified Services - that it expects Jimmy Carter to pull the plug on oil price controls when they expire next June 1. The controls, which put a ceiling on domestic oil prices, were initiated in late 1973 and renewed in 1975.
The Washington Forum, which called the turn on voluntary wageprice guidelines and the ban on saccharin, believes the scrapping of oil price controls (which can be done at the discretion of the President) should immediately send the price of gas up to about 69 cents a gallon. And this in turns, it says, should pump up gas to 79 to 80 cents by '80, followed by a further rise to 90 cents in '81.
To make it palatable to the public, Washington Forum president Ed Garlich tells me, Carter will in all likelihood couple decontrols with a recommendation to Congress for an excess-profits tax for oil companies. And to lessen the inflationary impact of rising oil prices, the administration may well propose some form of an energy rebate - essentially a tax credit - to the consumer. As Garlich explains it, this would all be part of a crude-oil equalization tax program that should produce revenues of $26 billion to $28 billion over a two-to-three-year period during which domestic oil prices would rise to world levels. A healthy chunk of this tax windfall is also seen going back into oil company coofers for stopped-up energy exploration and research and development activities.
Needless to say, any excess-profits tax would be an explosive issue for the Ninety-sixth Congress. Oil-Producing states like Texas and Louisiana would surely raise hell over their resources being taxed so heavily and in effect, being asked to subsidize non-oil-producing states. Clearly, the administration would have a fight on its hands. The Washington Forum agrees, but it nevertheless expects such a bill to clear, Congress next year because of overriding concern about excessive energy use in the United States. In any event, the service is convinced, based on conversations with policy makers in the Department of Energy, the Treasury, and the State Department, that Carter will en controls.
Such a presidential action would be very positive for the dollar since one of the big reasons of its sharp decline has been the foreign view that Carter is unwilling to take a tough stand in grappling with the agonizing balance of payments deficit. And any plan that would force the American consumer to conserve energy would obviously help the balance of payments and therefore heighten confidence in the dollar.
Speaking of the dollar, the Washington Forum has been swamped by calls from clients seeking a clearer understanding of recent U.S. actions to defend the buck and to combat inflation (such as boosting the discount rate from 8.5 to 9.5 percent and creating a $30-billion war chest of foreign currencies to help support the greenback). The chief questions: What next if the dollar - which shot up after the support of the greenback was announced - falters again? And does the move represent a shift in Carter policy to aggressively defend the dollar through tighter credit and other potential steps (such as further tightening by the Federal Reserve Board)?
The response: "We think the policy has changed, that Carter has moved from style to substance," says Garlich. "We've seen a Democratic President with a Democratic Congress beholden to labor visibly opting for a slowdown . . . willing to risk a recession to wring out inflation. It's clear he means business." But should the dollar weaken. Garlich sees further increases in the discount rate (the rate at which member banks borrow from the Federal Reserve) - perhaps to the 10-percent level. And by imposing import quotas on oil.
Interestingly, Garlich, a Republican, regards recent Carter action to bolste the buck as "a stroke of genius . . . perhaps even the makings of a two-term presidency. If Carter gets the economic slowdown early, then a pickup in late '79 and '80, and he brings inflation down, he'll look terrific in an election year."
If indeed Garlich is right, Carter will owe much to a pipe-smoking amateur sculptor - Anthony Solomon, the Treasury's 58-year-old undersecretary for monetary affairs. He's not only the coordinator who put together in just five days the financial package that sent the Dow Jones Industrials up a record 35.34 points Nov. 1 - he also initiated the timing, activating a contingency plan he'd been working on for several months.
I dropped in to see him the other week in Washington, and Solomon confirmed he had precipitated the move. Nervously walking back and forth and never sitting once during a 35-minute interview, Solomon told me he had gone to see Treasury boss Mike Blumenthal the previous week with a stern warning: "We have to move. There's serious danger for the U.S. economy." As Solomon explained it to me: "The currency markets had gotten in a frame of mind where they thought there was no bottom to the dollar . . . and I saw import prices going up even more. This would have led to further rises in domestic prices, in turn increasing inflation. Something just had to be done . . . and Blumenthal agreed."
Solomon doubts the credit tightening will lead to a recession, asserting that the economy is in reasonably good shape. There's no weakness in consumer spending, investment plans for plant equipment are up, and there's no overbuilding of inventories, he observes. For all of '79, Solomon expects moderate economic growth, "a soft landing," he says, with real GNP up about 2.5 to 3 percent.
And if the dollar should sag again? Solomon emphasizes that "massive intervention" would be brought to bear by the U.S. to stabilize it. He says the $30-billion war chest could be expanded substantially - but he wouldn't say by how much. But he doesn't believe such expansion will be needed since, as he put it, "I think the dollar has hit bottom . . ."
It sound great. But the problem is that administration sources have been predicting a stable buck for the last 18 months . . . and as we went to press, the dollar was giving signs that it was getting tired again after a sprint of over 7 percent in recent weeks.
It may well be, then, that in the eyes of some hard-nosed currency traders, Carter's good intentions may just be a loosely tied bundle of too little too late.