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fomc | 1,977 | Well, in our forecasts, we have continued high governmental borrowing in the second half of the year. This quarter, as you know, is the quarter in which the Treasury is not expected to raise any additional funds, or in fact may be a net repayer of debt. But it will raise substantial funds in the third and fourth quarte... | 150 |
fomc | 1,977 | Governor Coldwell, I might add one other. In the second quarter, if our projections are correct, you'll have M1 growth on the order of 7 percent, or something like that. Assuming a 5-1/2 percent midpoint of the Committee's target, which is now in place, that would imply increasing rates of growth over the next three qu... | 202 |
fomc | 1,977 | Do you give any credence to the idea that the stock of liquidity [is] available to absorb it? | 22 |
fomc | 1,977 | There is a large stock of liquidity available to absorb it, but if people don't want to hold that liquidity, and they want to use it up, the way they use it up is to sell the securities, or increase their borrowings, and those are the factors that tend to put upward pressure on interest rates. | 63 |
fomc | 1,977 | All right, thank you, Mr. Coldwell. Mr. Jackson now, please. | 18 |
fomc | 1,977 | On your nonfinancial corporation capital expenditures, is it fair to say that you have not included the inflation budget as part of these projections? | 27 |
fomc | 1,977 | That is correct. | 4 |
fomc | 1,977 | It strikes me, though, that perhaps one aspect of that inflation budget that could impact on this projection is an alleged commitment to speed up the approval process, through which planned expenditures--starts--could be made--construction permits. If we get that-- | 50 |
fomc | 1,977 | Do you expect to get it this year? | 9 |
fomc | 1,977 | I said, if we get that. The consequences would likely be that you would have an acceleration as a result of those that are already in the pipeline, going on the slow process, together with those that could get added to it in the speeded up process. Together with perhaps even a third factor, those that weren't quite com... | 291 |
fomc | 1,977 | I think it is really borrowing from the past. I think our analysis of the auto market suggests that, during 1974 and 1975, with the recession and with consumer attitudes depressed, the scrappage rate of autos declined very sharply; that is, consumers held on to their autos much longer than usual. And in our view, a goo... | 131 |
fomc | 1,977 | Which still seems to mean that lower sales may be expected next year. | 14 |
fomc | 1,977 | Well, it takes a long time for this process to work through. We were talking about, really, two years in which car sales were postponed. It is hard to sort out to what extent that's influencing the February-March numbers, and it might well go on [for] the balance of this year. But you're right, at some point that argum... | 90 |
fomc | 1,977 | How does that tie in with the continued increase in the prices of used cars? Is that a function of the price of the new rather than the scrapping rate or the trade-in rate? | 38 |
fomc | 1,977 | Car sales were depressed in 1974 and 1975, and apparently there have been substantial increases for full-size cars for 1974-1975 model years, and there are relatively few of those available because that was a poor year for large-size cars to begin with and for total cars in general. | 62 |
fomc | 1,977 | All right, thanks Mr. Jackson. Mr. Baughman, please. | 16 |
fomc | 1,977 | Mr. Chairman, I guess I'm finding it rather interesting and somewhat puzzling that the [unintelligible] items are still being made in support of the fiscal stimulus goal. It's fairly common, I think, for Administration spokesmen to suggest that real GNP growth rate would be affected possibly by as much as 1-1/2 or 2 pe... | 107 |
fomc | 1,977 | I think the Administration spokesmen are no longer speaking quite the same way. | 15 |
fomc | 1,977 | I don't think we ever added anything like that into our projection's fiscal package. | 16 |
fomc | 1,977 | At the maximum, we had about a point, and that was before the--some of it was stripped away last month, so the effect of withdrawing all of it becomes quite a bit less. | 39 |
fomc | 1,977 | The employment figures on the states in the Southwest, and I suppose in other states also, have recently been revised, and these revisions are shockingly large. For example, in the period from February 1975 through November 1976--and November 1976 was the last [period] in which the old series was available--in Texas, t... | 242 |
fomc | 1,977 | What was it before the revision? | 7 |
fomc | 1,977 | For the U.S.? I don't have that; I am not sure. | 15 |
fomc | 1,977 | This is all strikingly new to me, and I don't know about these revisions. At least I haven't been informed, or if I have been, it may be one more paper lying on my desk that I haven't gotten to. | 46 |
fomc | 1,977 | Well, you certainly haven't been informed by me, Mr. Chairman. There have been no revisions at the national level of this magnitude. There was the usual revision last year of the benchmark, but it was not a very large revision. There will be another one coming out later this spring. But I have heard nothing to suggest ... | 148 |
fomc | 1,977 | Now the figures that Mr. Baughman is referring to, are they figures from the Bureau of Labor Statistics? | 23 |
fomc | 1,977 | They come from the state employment services through the Bureau of Labor Statistics. | 14 |
fomc | 1,977 | These are the state data on employment and unemployment. | 10 |
fomc | 1,977 | I think it would be very helpful to have a full report on these revisions. Well, this is all new to me. I interrupted you, Mr. Baughman. Would you continue, please? | 41 |
fomc | 1,977 | I guess it occurred to me that, assuming they are, in fact, errors, I guess it leaves a question whether the pre-revised or the current series gives you the greatest confidence. Presumably, if there has not been much change in the national figures, there must be somewhat similar offsetting adjustments elsewhere, and it... | 356 |
fomc | 1,977 | No, I don't think that's the case, and when you are through, Governor Gardner will comment on farm credit. | 23 |
fomc | 1,977 | I think that's about all I have to mention. There is still an unenthusiastic expectation on the part of large banks in Dallas, in particular with respect to the prospects for business loans. They apparently are having real difficulty rounding up business loans, and they don't see the situation improving. And this notwi... | 89 |
fomc | 1,977 | How much of that is the falloff from expectations? | 11 |
fomc | 1,977 | Their expectations were not very bullish for a period of months. So I think very little, in this particular instance. Now the Houston situation is a little different. | 32 |
fomc | 1,977 | Thank you, Mr. Baughman. Would you, Mr. Zeisel, want to comment further on what Mr. Baughman's had to say about the farm figures and the like? | 39 |
fomc | 1,977 | Well, I really don't--I'm not familiar with those numbers, as I indicated. We will look into it and try to get a report to you on what they mean and what their implications are for both the national-- | 44 |
fomc | 1,977 | I think that would be a report that would be of great interest to all members of the Committee, because regional variation would be brought out in such a report. | 32 |
fomc | 1,977 | We'll do that, Mr. Chairman. | 8 |
fomc | 1,977 | Mr. Gardner, you might want to comment on the farm credit problem that has been brought to our attention, now that you've done some intensive work recently. | 31 |
fomc | 1,977 | Mr. Chairman, I want to first disclaim any expertise in the agricultural lending field. On the other hand, I have talked to Roger, I've talked to some of our Branch directors in the agricultural area. All of this was inspired by significant interest recently in Washington about the problems of grain farmers and feed-lo... | 750 |
fomc | 1,977 | Well, I can only say, Governor, that we are in the midst of another survey of 62 rural banks. Only 38 of them have reported so far, and I'll give you a memorandum that interprets those--with some caution, you can be sure. But, by and large, I believe that the credit situation in the rural small banks is tight, and ther... | 101 |
fomc | 1,977 | This applies to what state? | 6 |
fomc | 1,977 | Pardon me? | 4 |
fomc | 1,977 | This applies to what state? | 6 |
fomc | 1,977 | Generally, Mr. Chairman, it would be Nebraska, Kansas, eastern Colorado, and some parts of Oklahoma, and that's basically the drought area that we're looking at. But, at least in my judgment, what has occurred is probably a normal function of the financial intermediary in requiring some of these excesses to be turned i... | 115 |
fomc | 1,977 | Roger, why didn't they get CCC [Commodity Credit Corporation] loans? | 14 |
fomc | 1,977 | Pardon me? | 4 |
fomc | 1,977 | Why didn't they get CCC loans? | 7 |
fomc | 1,977 | Well, they do. I think, Governor Partee, to the extent that the banks are not willing to accommodate any further extensions of credit, for example, for a new crop year, they do go to the PCA, Production Credit Association. Now, these are the farm credit types of loans. They are picking up, and have in the last year or ... | 184 |
fomc | 1,977 | Does this influence land prices upwards or downwards? | 10 |
fomc | 1,977 | It has not. And I might say that the continual increase of land prices is [supporting the use of land as] collateral for the additional extension of credit, not only by the banks but PCAs. If something were to occur, such as a mass selling out of farmers, for example--that might affect those prices on the downside. You... | 112 |
fomc | 1,977 | Are those loans based on the market value of the land or based on the income-producing value of the land? | 22 |
fomc | 1,977 | Essentially the market value. And that may be established by "Indians trading with Indians," but nonetheless there is a transfer of land establishing market value, and that's what's being used as a broad base for these [loans]. | 46 |
fomc | 1,977 | Mr. Chairman, if I might just add one gratuitous comment here. In granting that the recent severe drought situation does not reach into the Eleventh District in any significant way at this point in time, it seems to me that this agricultural situation is one which can easily be exaggerated and could easily touch off go... | 77 |
fomc | 1,977 | It contains the seeds of that, Ernie, in my judgment. It could develop, but it needs some more external unfavorable forces at this point. | 30 |
fomc | 1,977 | I'm trying to say, I think it deserves being played down a bit, rather than up. | 19 |
fomc | 1,977 | I take it that we've made it clear in the agricultural area, through our regional [Reserve] Banks, that seasonal credits at the discount window are available, and that we're encouraging--that is, that's my impression, that-- | 45 |
fomc | 1,977 | It is correct. As a matter of fact, we analyzed the figures for all banks and notified those banks that actually have a seasonal privilege as we see it. And we have set specific communications with those banks, asking them to come in and to arrange for that seasonal credit. I might also add, however, so long as the dis... | 156 |
fomc | 1,977 | Very few seasonal loans, Mr. Chairman, even fewer than Kansas City. Maybe we haven't marketed it as well as they have. But there's very little interest in the seasonal loan program even with the liberalization on selling fed funds. | 46 |
fomc | 1,977 | Have we liberalized sufficiently on seasonal credits? Any view on that? | 14 |
fomc | 1,977 | Well, I think this is part and parcel of a much broader subject, really, Mr. Chairman. Perhaps liberalization of adjustment credit generally. The line between the two is extremely difficult for our banks to perceive. | 43 |
fomc | 1,977 | I might make one additional comment with respect to that. The seasonal borrowing is based upon a five-year experience of the bank that you're looking at. When you have unusual situations, such as are occurring this year--sometimes you have a bank that has a real bulge this year, but, because you lay it against the past... | 78 |
fomc | 1,977 | Well, that raises the question about the validity of those criteria. | 13 |
fomc | 1,977 | That's correct. | 3 |
fomc | 1,977 | I've also heard some suggestions that perhaps our use of seasonal borrowing at what we otherwise call reserve-city banks, or the denial of the use of seasonal borrowing for that size bank, has hampered the delivery system of crops in some sense. And I heard this in Memphis, Larry, that the people there were talking abo... | 113 |
fomc | 1,977 | We've not heard this, Phil, in Chicago. | 10 |
fomc | 1,977 | Mostly that's a matter of the relative rates on federal funds and the discount rate, though, don't you think? You get complaints if they were more competitive elsewhere. | 32 |
fomc | 1,977 | Mr. Chairman, just a couple of additional observations. There had been a substantial interest in the seasonal loan programming in our District, but we only have one borrower at the present time, and it's this rate situation, where if you get funds at a cheaper price than elsewhere, you'll use them. With respect to the ... | 107 |
fomc | 1,977 | Well, I think, Governor Gardner, you've been looking into this problem. I think that you might well want to take steps to reexamine the seasonal borrowing privilege and see if it cannot be usefully liberalized--this five-year formula obviously cannot cope with the kind of situation that appears to be developing in some... | 69 |
fomc | 1,977 | Mr. Chairman, there are other provisions, of course--Regulation A, which could be readily applied. In any case of emergency, there are provisions for loans at the regular discount rate independent of seasonal needs. | 43 |
fomc | 1,977 | Well, but this may possibly call for a conference of the discount officers, particularly in the farm areas. There may not be sufficient sensitivity to our regulations-- | 31 |
fomc | 1,977 | What I was trying to say is that I don't believe there's anything in the regulation that will impede this kind of lending, seasonal borrowing or otherwise. It may be a question of rate, but there's nothing in the regulation. | 44 |
fomc | 1,977 | That's right. | 3 |
fomc | 1,977 | Maybe a question of attitude on the part of the discount officers. | 13 |
fomc | 1,977 | That is possible, Mr. Chairman. | 8 |
fomc | 1,977 | I would make one comment, if I may, Steve. It is true that declaration of an emergency situation would permit us to lend and at the basic discount rate. It isn't that kind of a situation, I think, that we face. Rather, if they do not qualify for the seasonal, and if they do not qualify for emergency, than we have to go... | 131 |
fomc | 1,977 | It very well may be you need [an allowance for] more judgment in the seasonals; it's quite possible. | 23 |
fomc | 1,977 | Yes. | 2 |
fomc | 1,977 | Well, I get the impression that this is something that ought to be looked into, reexamined rather promptly. Well, I think this has been helpful. Let's move to Mr. Partee now, please. | 43 |
fomc | 1,977 | Well, coming back to the standard projection, you know, I was particularly impressed by the flow of funds projection that was included in the material that we got over the weekend. And I note there that on line 2 of table 1, the percentage of GNP of total funds raised is rising from, it looks like, about 14 percent in ... | 288 |
fomc | 1,977 | If you accept those numbers. | 6 |
fomc | 1,977 | Well now, the flow of funds numbers are consistent, of course, with the GNP projection, and that's the thing you have to ask yourself, whether the GNP projection is likely to be about right or too low or too high. I can't find a great deal to argue with in the GNP projection, except that it seems to me that there might... | 151 |
fomc | 1,977 | When you say the flow of funds estimates are consistent with the GNP estimates, you certainly cannot mean that, assuming the GNP projections, there's one and only one set of flow of funds estimates that is consistent with that, and that we have it on this table. But you didn't mean that. If you do, that's a strange kin... | 70 |
fomc | 1,977 | Well, I don't think you can be quite that precise about it. But I don't think that there's much variation. If the GNP pattern, as well as the projection, is right, [unintelligible] so much investment, so much consumption, why of course, the whole thing isn't generally consistent and it tends to break up. Now you might ... | 181 |
fomc | 1,977 | If I may interject here. The overall figures, percent of GNP, do point in the direction that you say, Chuck. I look upon them the same way. I'm struck by the fact that the acquisitions by households, which are usually the marginal element--the regular sources don't produce enough, then the procedure used here squeezes ... | 105 |
fomc | 1,977 | Well, no, I think the proper figure to look at, Henry, is the credit market instruments. | 21 |
fomc | 1,977 | It would be line 16 on this table. | 10 |
fomc | 1,977 | Well, those go up because they assume some disintermediation. | 14 |
fomc | 1,977 | That's with squeeze. That's where they squeeze it. It's similar to Solomon Brothers' residual line in their analysis of supply and demand for funds, I think. Isn't that right, Jim? | 37 |
fomc | 1,977 | That's right. | 3 |
fomc | 1,977 | So we do assume that some more credit instruments have to be pushed into the household sector? | 18 |
fomc | 1,977 | Correct. | 2 |
fomc | 1,977 | But in lieu of what they would otherwise put into thrift institutions, so that the aggregate demand of their savings doesn't increase. | 24 |
fomc | 1,977 | Well, the total acquisitions of deposits and credit market instruments does decline over this period. It coincides with the period where households are also taking on large amounts of mortgage debt and consumer installment debt. But I think the important message is that the way in which households are induced to acquir... | 100 |
fomc | 1,977 | How does the flow of funds projections predict interest rates over the past few years? | 16 |
fomc | 1,977 | Actually, quite a bit better than our other assessment. We would have gotten much looser credit markets than the money supply analysis would have given. But that's a track record which doesn't always hold. | 39 |
fomc | 1,977 | I don't think it does very well for level, but it does well for the direction of change. | 20 |
fomc | 1,977 | That's right. | 3 |
fomc | 1,977 | All right, thank you. Mr. Wallich. | 11 |
fomc | 1,977 | I have two questions. We're going through a period of very rapid changes in the picture: first the snapback from the cold spell, now the withdrawal of the rebate, thereafter possibly the impact of the energy message, so that one cannot expect a very smooth evolution of the cycle. But is there reason to think that the e... | 253 |
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