Authur F. Burns, on his last day in office at the Federal Reserve Board, called on the Carter administration to marshal upward of $70 billion in financial resources, including all $50 billion of the nation's gold stock, in defense of the dollar.
The controversial but highly respected economist, 73, said the gold should be made available for sale to foreigners. The currencies thus obtained would be used to buy up dollars when the dollar weakens on exchange markets.
In what amounted to his official swan song after eight years as chairman of the Fed, Burns also called on President Carter to establish a "credible anti-inflation policy," as one of four fundamental steps to cure the underlying condition that weaken the dollar.
He suggested, as the centerpiece of anti-inflation action, a 50 percent cut in any proposed federal pay raise to set an example to the private sector. He also urged Carter, Congres and all presidential appointees to take a 10 percent pay cut.
The other basic reforms urged by Burns are an energy conservation program, a tax policy stressing increased investment, and faster economic growth among U.S. trading partmers so as to encourage larger American exports.
Unless the recent dollar slide is halted, it would abot economic recovery "and have serious political implications for the whole of the western world," Burns warned.
His comments represented a shapr break with Carter administration policy. In a series of statements begining at the end of December, the White House and Treasury have pledged market intervention only to prevent "disorderly conditons" and not to stop the dollar from plunging below any specific price level.
Burns made clear he was talking about a totally new policy, one that would involve massive intervention supported by huge, multibillion-dollar resources.
And in commenting on the administration's firm position aginst "pegging" the dollar at any precise rate, Burns said that if his proposed course of action "leads to target zones, that doesn't shock me." A target zone is a fixed narrow range of currency movement that a country would undertake to defend.
Burns's successor, as chairman of the Fed, G. William Miller, has taken a position close to that of the administration, ruling out massive intervention or any effort to peg the dollar.
Burns' views, even out of office, can be exptected to bolster the arguments of Europeans who feel that the U.S. dollar-support effort has been inadequate.
So far, the administration has agreed to sell $740 million in Special Drawing Rights (SDRs), and has relied mainly on "swaps," or borrowing arrangments, for currencies used in modest intervention operations. SDRs are a man-made asset created and distributed by the International Monetary Fund.
In addition to marshaling the Treasury stockpile of gold, Burns said, Carter should announce a willingness to sell an additional $2 billion worth of SDRs, and to cash in about $7 billion in deposits and borrowing rights at the IMF.
Beyond that Burns strongly backed the sale of $10 biilion or more in Treasury bonds denominated in foreign currencies, a proposal that has been formally rejected by Treasury Secretary W. Michael Blumenthal.
The result of the sale of assets - gold, SDRs, and Treasury paper - would be the acquisition of huge amounts of D-marks, Swiss francs and other currencies that could be used to prop up the dollar.
Burns said that actual sales of assets would be a much more dramatic affirmation of U.S. determination to halt the dollar decline than more swap arrangements. Exchange markets "would turn around immediately," he said.
He made clear that he was not proposing to sell the entire $50 billion in gold at once "and build a stockpile of D-marks." Instead, he argued there might be an intial sale of $1 billion or $2 billion to see what impact it has on markets. Further sales would be made as needed.
Burns acknowledged that the administration has considered an so far rejected such a massive commitment to sell assets to defend the dollar. Treasury officals argue that massive intervention is a small force against the hundreds of billions of dollars that can be sold through holders in the Eurodollar market. They place their faith in turning around the underlying pressure, through an energy conservation program and the other fundamentals cited by Burns.
U.S. officials also contend that the sale of a Treasury bond denominated in foreign currencies - a favorite proposal in Europe - would be self-defeating. They say it would have to carry an attractive interest rate, and that in turn would cause holders of dollar-denominated assets to sell, thus increasing the pressure on the dollar.