This article went to press on Thursday, May 22. Between that date and when you read this, it is remotely possible that the federal, New York State, and New York City governments and the financial community will have come up with a dramatic, lasting solution to New York's financial crisis, which has brought the city to the brink of defaulting on its obligations. If such a miracle has really transpired, you can skip to the next article.
It is far more likely that if anything has been done about the crisis it has been some stopgap "muddling through" measure—probably a combination of federal and state aid or guarantees, new city taxes, and modest expense cuts—which, while solving none of the city's underlying problems, postpones the chance of a default a few months, perhaps a year. It is more likely still, as you read this, that nothing will have been resolved and that the various parties will still be lurching toward an arguably well-deserved apocalypse which could well be as serious as the one portrayed below, and which could come less than one week from now.
Considering the haste with which the operation had been arranged, it was incredible that things had gone so smoothly. Not until President Ford's television address during the evening of June 1, 1975, did the public learn that Fort Knox was being closed down and that over the weekend all of the country's 8,600 metric tons of gold had been secretly transported by truck to seaports and loaded on tankers which, even as he spoke, were steaming under navy escort to Saudi Arabia and Iran.
Giving the nation's gold stocks to the Middle East oil producers was a drastic step, of course. But to government officials, some of whom had long sought to demonetize gold, it seemed a relatively small price to pay for the willingness of the oil producers to refloat the United States' $200-billion municipal-bond market by guaranteeing all outstanding obligations and to provide the United States with a $100-billion, low-interest line of credit. The "muni" market's collapse following the default by New York City the previous Friday on $220-million worth of short-term notes had thrown the financial structures of many large cities and states into chaos, had severely weakened the liquidity of the banking system, had aroused skepticism as to the ability of even the U.S. government to pay its debts, and had precipitated the beginnings of a run on Treasury securities.
How could it have happened? Those who had been involved were the country's best and brightest political and financial leaders, well-intentioned men with every motivation to avoid such a debacle. Why had they been unable to prevent it?
