'DETENTE' IN SOVIET POLICY AND THE CRISIS IN CZECHOSLOVAKIA

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP70B00338R000300190069-0
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 2
• Document Creation Date: December 16, 2016
• Document Release Date: July 25, 2005
• Sequence Number: 69
• Publication Date: July 29, 1968
• Content Type: OPEN

Approved For Release 2005/08/03 : CIA-RDP70B00338R000300190069-0
July 29, 1968 CONGRESSIONAL RECORD - SENATE
an important leading indicator, dropped
more than 4 percent in June.
Utilization of manufacturing capacity
fell slightly in the second quarter of this
year from the first-quarter statistics. We
are now operating at only 84.5 percent of
capacity.
Mr. President, these are economic
phenomena which deserve constant scru-
tiny. Prosperity is not automatic; eco-
nomic effects derive from economic
causes.
I ask unanimous consent that the ar-
ticle published in the Wall Street Journal
of July 23 be printed in the RECORD.
There being no objection, the article
was ordered to be printed in the RECORD,
as follows:
END OF THE BOOM?-MANY ANALYSTS PRE-
DICT EXPANSION OF ECONOMY FINALLY WILL
HALT IN 1968-SOME SEE A RECESSION
EARLY IN 1969-TAX BILL IS EXPECTED To
HAVE A MAJOR IMPACT-THE NEXT PRESI-
DENT'S KEY ROLE
(By Alfred L. Malabre, Jr.)
This is beginning to look like the year in
which the country's record-smashing eco-
nomic expansion will finally end.
That's the view of a broad range of busi-
ness analysts interviewed in recent days.
Most say that the expansion, which began
in February 1961, is already slowing. It will
grind to a dead halt by the end of the
year, many economists predict. And some
forecast an actual recession, probably a mild
one, in the early months of 1969.
"By the fourth quarter of this year, I
don't expect to see any real economic
growth," says Don R. Conlan, a vice presi-
dent of Chemical Bank New York Trust Co.
"The dollar statistics will. still be rising but
only because of continuing inflation."
One insurance company official, who de-
clines to be identified because "the firm
wouldn't want to see this in print," pre-
dicts that -business will enter a recession
around the start of 1969. Its severity; he says,
will depend greatly on who happens to be
the next President.
"If he's a spender, the downturn should
be short-lived, but there will be other prob-
lems later, like more inflation," the insur-
ance man declares. "If the new President is
more conservative, the recession will be
somewhat more severe, but in the long run
the economy will be a lot better off."
IMPACT OF FISCAL RESTRAINTS
Most analysts base their predictions of
slowing business on the fact that the Con-
gress has finally enacted the new "package"
of fiscal restraints-the tax surcharge and
the reduction in Federal spending. "The new
fiscal measures portend a tremendous change
in the Federal budget situation," says Avram
Kisselgoff, chief economist of Allied Chemi-
cal Corp. The change involves about $20
billion, from the $25 billion budget deficit
recorded in fiscal 1968 to a projected deficit
of only some $5 billion in the year ending
next June 30.
Forecasts of a slowdown also reflect the
view that business had been tapering off even
before the new fiscal measures became effec-
tive this month. "The fiscal package should
serve to reinforce a trend that was already
becoming evident," says an economist at the
National Bureau of Economic Research.
Alan Greenspan, president of Townsend-
Greenspan & Co., a New York business con-
sultant, offers a reasonably typical assess-
ment of the overall economic outlook for the
coming months. In the fourth quarter, Mr.
Greenspan estimates, the country's gross
national product, the broadest possible gauge
of economic activity, will rise at an annual
rate of- some $10 billion, at best, and "just
about all of that will be simply higher prices,
rather than'real growth."
WANING INFLATION
This would represent a massive change
from the recent record. In the April-through-
June quarter, GNP increased at an annual
rate of nearly $20 billion, with price increases
accounting for about half the rise. That sort
of increase, comments William Butler, a
Chase Manhattan Bank vice president, "was
clearly unsustainable." The bank economist
looks for a quarterly rise of about $10 billion,
on an annual basis, in both the third and
fourth quarters, with "certainly less than
half" of the increases reflecting real growth.
As the economic pace slows in coming
months, most analysts forecast, inflationary
pressures in the economy will doubtless
abate. Mr. Conlan of Chep ical Bank, for
instance, predicts that the consumer price
index, now climbing at an anual rate of
about 4%, will be rising-after one more
"burst of price pressure"-more slowly by
year-end. By the second quarter of 1969, the
official predicts, the price Index will be in-
creasing at perhaps 3 % yearly.
While this would certainly represent an
improvement, it would remain far above the
1.2% rate of inflation that prevailed in the
early years of this decade. "There's an awful
lot of momentum built into the sort of cost-
push inflation we've been experiencing "
,
comments George Cline Smith, executive
vice president of Mackay-Shields Economics
Inc., a New York consultant.
HIGHER 'UNEMPLOYMENT
The belief that price inflation will die hard
prompts many analysts to conclude that
America's balance-of-payments problem is
far from cured. Worsening price inflation in
the U.S., of course, has clearly contributed
to the country's perennial dollar outflow.
Most economists believe the outflow will
continue at a worrisome rate as long as ex-
cessive inflation continues to weaken. Amer-
ica's competitive stance in world markets.
Mr. Smith of Mackay-Shields expresses a
widely held view: "Our balance of payments
is likely to remain severely out of joint."
On the labor front, most analysts foresee
higher unemployment in the motions ahead.
Mr. Kisselgoff, for example, expects the na-
tion's unemployment rate to rise about 4.5%
by. December and "possibly reach the 5%
level during the first quarter" of 1969.
This would be appreciably above the 3.8%
level of unemployment in June. But it would
remain considerably less than the jobless
rate in 1961, the first year of the current
expansion. At that time, 6.7% of the labor
force was unemployed, and unemployment
remained above the 5% level until as re-
cently as 1965. Among the reasons most
analysts don't anticipate a sharper rise in
joblessness as the expansion slows is the
belief that companies, expecting at the worst
only a mild recession, will be reluctant to
let employes go.
This reluctance, however, could fast dis-
appear if corporate profits begin to decline
sharply. Few economists predict that this will
happen, but some do anticipate a significant
profit downturn. For example, Sam Naka-
gawa, a vice president of Argus Research
Corp., a New York investment research firm,
estimates that before-tax profits may be run-
ning as much as 15% behind the 1968 pace
by the second quarter of next year.
Such forecasts no- doubt are among the
factors affecting stock prices in recent days.
Mr. Nakagama, typically, advises investors to
follow a "conservative investment policy, with
more pronounced emphasis on bonds and on
stocks of companies that show real promise of
resisting the profits contraction."r
Among the few relatively bright spots in
the outlook, many economists say, is the
housing industry. At an annual rate of about
1.3 million units in recent months, home
starts have been declining. But many econo-
mists say that the new fiscal restraints should
enable the Federal Reserve Board to pursue
a somewhat easier monetary policy in coming
S9651
months and that this, In turn, should make
mortgage funds for home-building more
readily available.
Most analysts, however, stress that Federal
Reserve policy thus far shows little clear evi-
dence of changing markedly from what has
generally- been categorized as a "firm" policy.
Obviously, the precise degree by which busi-
ness growth does slow in the months ahead
will depend in part on what decisions are
taken by the Fed.
There is general agreement among econo-
mists that some signs of a slowing expansion
-already are apparent. New factory orders for
durable goods, a closely watched "leading in-
dicator" of the general economic trend, de-
clined 4.2% in June, after seasonal adjust-
ment, from May. June's 3.8% unemployment
rate is up from 3.5% in May. And the Fed-
eral Reserve estimates that U.S. manufac-
turers, on the average, used only 84.5% of
their plant capacity during the second quar-
ter, down slightly from the operating rate for
the first three months of the year.
GNP In the second quarter rose nearly as.
much as in the first quarter. However, some
analysts note that inventory building played
a much larger role in the second-quarter rise.
The- second-quarter rate of inventory ac-
cumulation, in part reflecting hedge-buying
of steel against a possible strike next month,
was approximately four times the first-quar-
ter rate. Consumer spending, at the same
time, declined by more than 60% In the sec-
ond quarter. As a result of the slowdown,
consumer savings rose sharply. Some analysts
believe these savings may serve to lessen-but
certainly not eliminate-the impact of the
tax increase on consumer spending in com-
ing months.
"DE i SOVIET POLICY AND
THE CRISIS IN CZECHOSLOVAKIA
Mr. MOSS. Mr. President, the press
this morning announces that the lead-
ers of the Soviet Union and Czechoslo-
vakia are to meet today to discuss the
liberalization program of the new gov-
ernment of Czechoslovakia. All of us fer-
vently hope that accommodation and
settlement will come from these talks.
But in the past few weeks the press has
been filled with alarming accounts of
developments in this Soviet satellite.
This feeling of alarm arises, from the
threat of military intervention.
The world is concerned that the So-
viets may repeat the role they played in
Hungary during 1956 when they crushed
militarily the peaceful Hungarian revo-
lution.
There is a fear of the possibility that
Czechoslovakia may become another
Hungary.
The danger is great in Czechoslovakia.
It is real. It is immediate. We would de-
ceive ourselves were we to close our eyes
to the awful possibility that Soviet mili-
tary forces might roll into Czechoslo-
vakia full force, destroy the nascent ele-
ments of freedom in the country, and
revert to the old patterns of rule by
repression and Stalinism.
Seven months have passed since the
reformers took over in Czechoslovakia;
their record has been impressive.
An internal political crisis had been
brewing since the Writer's Congress in
mid-1967. Demonstrating students in the
fall protesting against the actions of the
regime led to repressive police measures.
The issues, among contending fac-
tions, were clearly drawn in the Decem-
ber meeting of the Czechoslovak party
leadership. And in January the crisis was
Approved For Release 2005/08/03 : CIA-RDP70B00338R000300190069-0
 S 9652
Approved For Release 2005/08/03 : CIA-RDP70B00338R000300190069-0
CONGRESSIONAL RECORD SENATE July 29, 1968
resolved with the dismissal of Antonin
Novotny, the Stalinist leader, and the
ascendancy of a liberal, reforming fac-
tion within the Czechoslovak Communist
Party under the leadership of the Slovak
party leader, Alexander Dubcek.
From its beginning in January, the
new regime Initiated a series of reform
measures that were destined to take
Czechoslovakia out of its dismal Stalinist
past and set it on a new course heading
in the direction of expanding freedom.
Hope for a brighter, more prosperous,
and more progressive future was infused
In the entire country by the new leader-
ship.
Censorship was lifted; the press was
liberated from the shackles of repressive
Communist orthodoxy; peace was made
with the church; a new party program,
guaranteeing a new and wider freedom
for Czechoslovakia, was formulated for
the consideration of the leadership; the
wrongs and injustices of the past were
righted in a series of rehabilitations; the
political leaders went to the people; they
confided in them; they won the people's
confidence.
In short, during these 7 brief months
a peaceful revolution was carried
out in Czechoslovakia, a revolution that
has taken that once Stalinist country far
along the road to a form of democratic
socialism.
But this movement into a wider area of
freedom was not done without consid-
erable alarm and anguish over the pos-
sible negative reactions from the Soviet
Union and its allies in the Warsaw Pact,
especially Poland and East Germany.
Dubeek and his reformers did not have
to wait long for the reverberations from
Moscow. Virtually from the beginning-
Brezhnev actually participated in the
December conference that preceded the
removal of Novotny-the Russians reg-
istered alarm. The Poles and East Ger-
mans, both sharing a common border
with the Czechoslovaks, were firmly
united behind Moscow in a determined
effort to check liberalization in Czecho-
slovakia. Accordingly, conferences were
called in Moscow and Dresden. Soviet
Premier Kosygin, along with Soviet mili-
tary leaders, spent a few days in Czecho-
slovakia, conferring with the Prague
leadership and surveying developments
in the country.
All of these actions were taken with a
clear intent: To put pressure on the
Czechoslovak leadership, pressure that
would force it to brake its liberalization
drive and return to the more orthodox
forms of communism.
Perhaps the greatest pressure has been
applied Wce June, greatest because it
was military pressure. In the spring,
Moscow and its allies insisted that
Czechoslovakia permit full-scale military
maneuvers of the Warsaw Pact on its
territory. For weeks the Czechoslovaks
were able to resist, but finally they were
compelled to acquiesce: This they did on
condition that the maneuvers would be
limited in scope.
However, once the maneuvers began
it could be very quickly seen that they
were far from being limited. The So-
viets were believed to have had some
20,000 to 27,000 troops engaged. More-
over, when the maneuvers ended, the
Soviets failed to withdraw these troops.
And when they agreed to do so, they
withdrew them piecemeal and then very
slowly. Now we learn that the Soviets
are staging large-scale troop maneuvers
all along their western border, part of
which abuts Czechoslovakia directly.
This last display of "muscle flexing"
was carried out amid Soviet demands
that the Czechoslovak leaders confer
with Its Politburo somewhere in Russia.
The Czechoslovaks very wisely resisted
this pressure, but finally conceded to
meet somewhere in Slovakia, near the
Soviet border.
This is where the matter now stands.
How all this will end, we just do not
know. There are powerful arguments for
the case that the Soviets will Intervene.
Yet, on the other hand there are per-
suasive arguments against It.
What should concern us most of all
in this obvious use of military pressure
for political purposes is the real mean-
ing behind these actions and pressures
of the last few months and its connection
with American foreign policy.
In recent years we have been hearing
a great deal about detente in Soviet pol-
icy. A feeling seems to have arisen that
the Americans and the Russians are
entering a new era of accord. All signs
were said to be pointing toward a decom-
pression of the cold war. In fact, writers
began to speak categorically of an end In
the cold war.
Now. I want to make it clear that I
am not now nor have I ever been a per-
son who sees a Communist conspiracy in
every action taken by the Soviet Union
or its allies. I have long looked upon my-
self as a realist in these matters, seeking
to assess Soviet intentions dispassion-
ately and evaluating their acitons in the
same objective spirit.
Having said this, I must confess to a
great deal of doubt for what has been
asserted as the authenticity of the so-
called detente in Soviet policy. I seriously
question whether the Soviets are in real-
ity In a mood to establish a secure peace
In Europe. How else can one interpret
these military pressures and military
threats they have been making against
Czechoslovakia. Time and again the
Prague leadership has given assurances
of its loyalty to the Warsaw Pact and of
its friendship toward the Soviet Union.
But, apparently, for the Russians this is
not enough.
The point of my inquiry is, therefore,
that were the Soviets genuinely inclined
to establish a detente with the West. if
they were genuinely concerned about
peace, certainly they would not resort
to military means, perhaps even in mili-
tary intervention, to impose their will on
Czechoslovakia.
I submit that we goo too far in attribu-
ting peaceful intentions to the Soviet
leaders, especially in this very critical
situation.' Realism requires that we set
aside all notions of sentimentalism and
consider these recent Soviet actions in
the hard, cold light of reality. To do less
Is to do a disservice to the American peo-
ple and to ourselves as their legislators.
THE POTENTIAL IMPACT OF
THIRD-PARTY CANDIDATES ON
THE U.S. PRESIDENTIAL ELEC-
TION OF 1968
Mr. BAYH. M=. President, there has
been widespread speculation on the im-
pact which the entrance of third- or mi-
nority-party candidates might have on
the coming presidential election. For a
number of reasons interest has been
heightened in the possible effects that
might result if a contender other than
the nominees of the two major parties
secured a sizable electoral vote.
Among the able scholars who have
carried on serious research into the
problems related to the selection of the
President, and Vice President, none is
more qualified to write with authority
than Pror. James C. Kirby, a member of
the faculty of Northwestern University
Law School. Professor Kirby served at
one time as chief counsel of the Senate
Judiciary Subcommittee on Constitu-
tional Amendments, and he was a mem-
ber of the American Bar Association's
special commission on electoral reform
which has advocated adopting an
amendment to provide for direct popu-
lar election of the Chief Executive.
Professor Kirby is the author of a very
interesting article entitled "Will the
United States Graduate From Its Elec-
toral College?" which was published re-
cently by the Christian Science Monitor.
In this -tudy, Professor Kirby analyzes
several interesting facets of our electoral
system, and points out other situations
in our history which have relevance for
the present. Because of the timeliness
and realistic approach of this article, I
ask unanimous consent that it be printed
at this point in the REcOaD.
There being no objection, the article
was ordered to be printed in the RECORD,
as follows:
WILL THE UNITED STATES GRADUATE Faoie ITS
ELECTORAL COLLEGE"
(By James C. Kirby, Jr.)
Political reformers are eyeing the presiden-
tial candfdacy of Geoige C. Wallace with a
sort of nervous satisfaction. These reformers
are working to ab>Aish the Electoral College
in. favor of direct popular election of the
American president. Mr. Wallace, by drF.mat-
izing the quirks and oddities of the Electoral
College system, may be unwittingly serving
the reformers' cause.
By January of 1969, the former Alabama
Governor may well have manipulated i t into
a major miscarriage of the national will. In
any event, the 1963 election promises to edu-
cate the American public on some fine points
of constitutional law.
The constitutional base of the nation's
only truly national election is quaint but
hardly suited for l;s modern function: choos-
tng a chief executive for all the people. The
system is substantially unchanged since the
1789 election of George Washington.
On Tuesday, Nov. 6, the voters will select
538 "electors" who will subsequently attempt
to choose a presicent. Members of the Elec-
toral College. these people will convene Dec'
16 in state capitale and the District of Colum-
bia In fit groups ranging in size from 3 to 43.
Their ba:.lots will produce a winner if some
candidate receives a 270-vote majority. Other-
wise, the electors serve merely es a nominat-
ing convention for a January runoff election
in the House of Representatives.
Mr. Wallace's candidacy spctlights three
Approved For Release 2005/08/03 : CIA-RDP70B00338R000300190069-0