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fomc | 1,978 | It reverses out when we use the D-mark for intervention. | 13 |
fomc | 1,978 | Yes. | 2 |
fomc | 1,978 | So moved. | 3 |
fomc | 1,978 | Any other discussion? | 4 |
fomc | 1,978 | Is $3-1/2 billion enough? | 10 |
fomc | 1,978 | I think so for this stage. We have to do some rethinking with the Treasury over the next few months. | 23 |
fomc | 1,978 | We'd probably have to raise it if they go to the market again in February. | 17 |
fomc | 1,978 | This will take them through several months. | 8 |
fomc | 1,978 | Well, we have $1.6 billion already and what's the Swiss franc sale--$1.2 billion? | 23 |
fomc | 1,978 | It's not finally decided, but about that level. We probably would need another increase. We could go to $5 billion now. That would be one way of handling the second D-mark [offering]. We could do that now if the Committee so desires. | 52 |
fomc | 1,978 | Either way. | 3 |
fomc | 1,978 | This has the effect of transferring income from us to the Treasury, doesn't it? But it's income that we would be transferring anyway. | 26 |
fomc | 1,978 | It all comes out of the same pot before we get through. | 13 |
fomc | 1,978 | If it were $5 billion, you're talking about maybe 4 percent or so, so that's $200 million in income. | 25 |
fomc | 1,978 | We would lose because we would hold lower-yielding-- | 12 |
fomc | 1,978 | Which we don't have and we transfer to them so they take it directly. It's the same difference. | 20 |
fomc | 1,978 | The magnitude would be approximately-- | 6 |
fomc | 1,978 | Debt management. | 3 |
fomc | 1,978 | Very much so. Henry. | 6 |
fomc | 1,978 | I hope this doesn't sound too esoteric. We are making a very fundamental decision here. We're getting to be like every other country that has foreign exchange reserves. In the past, we only had gold and SDR. Here we have foreign exchange reserves and we are now making a decision on how to finance these reserves. For al... | 345 |
fomc | 1,978 | I have been going on the assumption that at this stage of discussion this Committee did not want to buy that foreign currency position and own it for its own account and for its own risk. I may have misread that; some day that might be a decision we'd like to take. At the moment I think if we did that, we'd be accused ... | 174 |
fomc | 1,978 | You're not speaking about owning foreign exchange, I think, Henry, but rather of developing a position where one of our assets is an exchange rate guaranteed, non-U.S. security. That [involves] proportionately fewer U.S. securities in our portfolio and that might sometime become large. I agree with the principle you ar... | 188 |
fomc | 1,978 | Especially since we urged it so hard. | 8 |
fomc | 1,978 | Yes, so I don't see-- | 7 |
fomc | 1,978 | Well, at some point we might want to raise the point of who is to own these reserves. This is very important. | 25 |
fomc | 1,978 | That's a question that's coming--to consider downstream. Dave Eastburn has been trying to get his word in edge-wise. | 24 |
fomc | 1,978 | I think this is a very good point. I had worried about it when that wire came through about the warehousing procedure. I just wonder whether one way to tackle this would be to have a staff paper on this, Mr. Chairman, which lays out the alternatives and the implications for the moment of the various ways to go. | 66 |
fomc | 1,978 | Yes, we certainly can. | 6 |
fomc | 1,978 | Mr. Chairman, may I just point out that at this particular moment the United States is not faced with the problem of having net holdings of foreign exchange. We're still relatively short at the moment, and so all the foreign exchange assets we have could be used to repay debt. | 55 |
fomc | 1,978 | To repay debt. It seems appropriate to me--in fact, [if we do not], I think it would be somewhat of a breach of faith since we're the proponents of this process, which is essential if we're going to finance our current account deficit in a way the deficit nation should do--to make this policy shift. And for the central... | 147 |
fomc | 1,978 | I would subscribe to Henry's view in a way; I think we ought to have a look down the road. I agree with you, however, that there's no way we can't support this in this initial phase. But I think we ought to look at the longer-range implications of this and who is going to hold the funds and what financing is done. So I... | 108 |
fomc | 1,978 | That's all. | 3 |
fomc | 1,978 | All right. Now we move to a kind of pro forma subject, item 9, the discussion of the report of the Subcommittee on the Directive. Chuck. Excuse me? | 37 |
fomc | 1,978 | There was an additional thing that the Committee may or may not want to take up with regard to this warehousing. Unless action is taken, half of it will have to be renewed in six months and then the other half in one year. Under the current circumstances, the simplest thing might just be to have it renewed in one year,... | 83 |
fomc | 1,978 | Oh, I think that makes sense because it will be used in the meantime. Certainly some of it will be used. | 24 |
fomc | 1,978 | It does have the advantage of bringing it back to our attention in six months. | 16 |
fomc | 1,978 | Well, we have to simply divide it up in half. As this builds up whatever half is going to be in six months the Committee will simply have to take an action to roll it over for another six months. It's purely a housekeeping procedure, and it's a question of whether the Committee wants to go through that housekeeping bus... | 71 |
fomc | 1,978 | Well, it's housekeeping only if we don't make a decision to change the direction in terms of ownership. | 20 |
fomc | 1,978 | It seems inconceivable to me that we wouldn't hold their currency. | 14 |
fomc | 1,978 | No, I'm not saying that. If we decided as a result of a long-range study that we are going to hold these ourselves, not Treasury, it will matter. We'd have the flexibility in six months. | 42 |
fomc | 1,978 | I don't think we'll have any problem in buying them. | 11 |
fomc | 1,978 | That leaves it then that half of this comes due in some sense in six months and half of it comes due in one year. | 26 |
fomc | 1,978 | Well, my preference is to go for the year, so we don't have this [twice]. We are going to study some things in the meantime. I think if we go to the Treasury with a proposal or plan, they would be perfectly amenable to a plan. But my preference at least is not to have these housekeeping issues keep rolling in here. Wha... | 77 |
fomc | 1,978 | You'd rather have a year. | 7 |
fomc | 1,978 | Yes, I would rather have a year. | 9 |
fomc | 1,978 | I think that's right. There's no possibility in six months unless there's a-- | 15 |
fomc | 1,978 | No, I think we have to do so much homework with the Congress before we'd want to hold these because of the implications to us. We might be bringing ourselves under the appropriations process by starting this. | 41 |
fomc | 1,978 | Well, we have swaps. | 6 |
fomc | 1,978 | Would the loss be the Treasury's? | 8 |
fomc | 1,978 | Yes, we'd take this from the Treasury, you see. | 12 |
fomc | 1,978 | Would it be chargeable to the budget or would it be chargeable to the Exchange Stabilization Fund? | 21 |
fomc | 1,978 | It's chargeable to the current account. That was one of the big legal and accounting decisions that had to be taken to get them to agree to do this. If they had to charge it to the Exchange Stabilization Fund, they were out of resources. If there is any currency exchange loss, it will be booked as you go as an addition... | 83 |
fomc | 1,978 | It will be a realized loss? | 7 |
fomc | 1,978 | I think they'll follow the process of realized and unrealized so that they'll put it into the quarters as they go by. They'll follow FASB, and count it on a realized or unrealized basis, which makes sense, because otherwise you build up a big blob and it may come all at once. This way it goes in [currently]. And it can... | 239 |
fomc | 1,978 | Any dissents? | 4 |
fomc | 1,978 | Oh, this is a vote? | 7 |
fomc | 1,978 | Do you want to be recorded as dissenting or would you join the [majority]? | 18 |
fomc | 1,978 | Oh, I'll join. | 5 |
fomc | 1,978 | Now we turn, Chuck, to your directive. | 10 |
fomc | 1,978 | Mr. Chairman, may I just ask a question before Chuck gets into this about how you intend to proceed in considering this issue? It is certainly of enormous importance; it's something your predecessor had planned to place before this Committee for consideration. I am talking about how we conduct policy. It affects the wa... | 190 |
fomc | 1,978 | It depends on the issue. For example, if the Committee agrees to the proposed meeting schedule, then there won't be any January meeting. And then I think we will have to do in February--in terms of a report--what is suggested here because there won't be any meeting prior to February to change the thing. Some other issu... | 70 |
fomc | 1,978 | If anyone shares my feeling on the importance of this, that might be an argument to have a January meeting devoted in the main to an in-depth consideration of this. I think it's terribly important and nothing that should be decided without a lot of thought being given to it. | 54 |
fomc | 1,978 | Let me answer your question very simply: It's the will of the Committee. If the Committee is comfortable making a decision today, I think that will be the process. If it isn't, we'll have to schedule sessions as necessary or alternative means to get us to where we need to be. We do need by February 6 to have at least a... | 140 |
fomc | 1,978 | Many of these proposals follow directly [the requirements] of the Humphrey-Hawkins Act; we haven't got much choice. They're presented as a decision of the Subcommittee on the Directive but they're really just translating the Act into what we have to do. | 51 |
fomc | 1,978 | Well, Paul, we at least worked on it over the weekend and I think there are some-- | 20 |
fomc | 1,978 | That's not true of every one but it's true of many. | 12 |
fomc | 1,978 | Well, let's give the subcommittee a chance to present it and we'll see how it goes. We'll see how good they've done their homework. There are, however, five members of this subcommittee and we only have two dissents within the group, so probably that means-- | 55 |
fomc | 1,978 | Well, Mr. Chairman, I might say that we did, of course, consider this with some time pressure because it's something that has to be instituted very shortly into the new year. But it seemed to me, and I think to the other members of the committee, that many of these decisions were procedural in nature. They had to be ta... | 215 |
fomc | 1,978 | Wouldn't it be wise to see if there is unanimous approval of any recommendation? Let's get that one out of the way. | 25 |
fomc | 1,978 | Well, recommendation 1 is simply expressing as the Committee's intent what the law requires us to do. It says that we have to specify [long-term growth ranges for the] money and credit aggregates for the calendar year. And recommendation 1 is simply an expression of the Committee's intention to do that. So I don't thin... | 75 |
fomc | 1,978 | Is there a different interpretation? I'm asking for sheer knowledge, because I've not had a chance, as you know, to even look at this with any care. | 32 |
fomc | 1,978 | For some reason, Phil didn't get it. | 9 |
fomc | 1,978 | I didn't get a copy until Monday, Larry, so-- | 12 |
fomc | 1,978 | That's because he was nearby. | 6 |
fomc | 1,978 | That's because I was too close. You have in effect said, I think, that the law says we must do it for the calendar year. My question is: Does that mean a different interpretation [is possible]? Say you do this in February; does that mean that calendar year or does the law say that the July meeting has to look at the ne... | 74 |
fomc | 1,978 | Both. | 2 |
fomc | 1,978 | It does require both in the law. | 8 |
fomc | 1,978 | The law replaces old Concurrent Resolution 133, so it's the-- | 13 |
fomc | 1,978 | We tried to sell a revision midyear just in the current year; they wouldn't buy it. And instead of much worse things, the compromise was for the revision of the current year plus a preliminary look at the next year. | 45 |
fomc | 1,978 | What were you talking about? Who were you trying to sell? I haven't gotten caught up with this. | 21 |
fomc | 1,978 | I would say, Phil, the expression is very general; it's monetary and credit aggregates. You could conceivably drop M1, drop M2, have nothing but credit, or have different credit aggregates. There's good flexibility but specification of an aggregate for the current calendar year and in a tentative way for the forthcomin... | 79 |
fomc | 1,978 | Well, this one is procedure. Does anyone have any problem with this? | 15 |
fomc | 1,978 | Excuse me. There is one decision, isn't there--whether it is to be year-over-year? | 21 |
fomc | 1,978 | That's recommendation 2. That's later on. | 9 |
fomc | 1,978 | Yes, Willis. | 4 |
fomc | 1,978 | Isn't this just a reporting requirement, not an operating requirement? In other words, we have to report twice a year on this basis but there is nothing to prevent you from looking or acting in the interim period when conditions change. | 46 |
fomc | 1,978 | That's correct, that's specifically in the law; it says that our-- | 14 |
fomc | 1,978 | It's a reporting requirement, not an operating requirement. | 10 |
fomc | 1,978 | That's correct. | 3 |
fomc | 1,978 | But you've got to tell why in July you didn't come out the way you started. | 17 |
fomc | 1,978 | That's still a reporting requirement, not an operating requirement. | 11 |
fomc | 1,978 | That's correct. We can change it at any time and we could go broader than that, I think. Well, we could report this to the Congress and be operating on something entirely different, but-- | 40 |
fomc | 1,978 | That would be a little deceitful. | 8 |
fomc | 1,978 | I really think that that is getting too complicated. | 10 |
fomc | 1,978 | We'd have to keep too many books. One second, Larry needs the floor. | 17 |
fomc | 1,978 | I would suggest, though, that Congress isn't going to be lying in a docile posture--letting us switch our processes and our signals to meet our own needs. I would agree with Nancy that we've got to think of the Congressional relations aspect. If they think we're trying to dodge the intent or the spirit of the Humphrey-... | 93 |
fomc | 1,978 | I think we have to report our intentions and we should report them honestly; there's no question about that. But if we are reporting intentions, and if there is a big strike in the interim or if there is an oil boycott, we would change our program. And we would say that's why we had done it. That's what you're talking ... | 69 |
fomc | 1,978 | Otherwise we are locked in the ages-long controversy between automation and judgment as a policy. | 17 |
fomc | 1,978 | If there's a big overshoot, you have to show it. | 13 |
fomc | 1,978 | One final question on the first point, Chuck. You have used the word "targets." Is this advisedly [or] required in the law? | 30 |
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