The “Gold and Dollar” 1968 Economic Crisis contributed to the US losing the Vietnam War

The economic crisis began in March of 1968. A “chronic” US balance-of-payments deficit, exacerbated by an increase in imports from Europe, and a surge in US tourists spending their money overseas caused an increase in dollars heading abroad. This weakened confidence in the dollar, causing inflation. Foreigners, panicked by the weakening dollar, sold dollars and bought gold, causing the “largest goldrush in history”.^[1] Johnson had attempted to preempt the economic crisis by proposing a tax increase in 1967. But the legislature had been held up in Congress by conservatives who preferred that Johnson cut domestic spending on his “Great-Society” reforms instead. In early 1968, Congress and Johnson reached a compromise. Johnson would cut domestic spending by $6 billion, and Congress agreed his tax increase, but it was too late to avoid the worst impacts of the crisis. Johnson himself cited the financial crisis of 1968 as a major reason for not escalating the Vietnam war. He said, “budgetary problems were constantly before us as we considered whether we should or could do more in Vietnam”. He knew that increased military spending in Vietnam would put more pressure on the dollar and could lead to further weakening. The dollar simply couldn’t support it.

The economic slowdown of 1968 caused Lyndon B. Johnson to cap the escalation of the Vietnam War. He could not longer afford to finance a constantly-escalating war half-way across the globe.