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fomc | 1,977 | Thank you, Mr. Chairman. I hate to admit it, but I find I'm getting confused with this discussion and having a little difficulty understanding-- | 29 |
fomc | 1,977 | The hour is conducive to that sentiment. | 8 |
fomc | 1,977 | I hope that, when I go back to the clean air of Minneapolis, I can figure out what happened. | 22 |
fomc | 1,977 | You're casting aspersions on the air of Philadelphia, and I don't think it's being fair. | 19 |
fomc | 1,977 | Lest that be the lasting impression, let me say that I find that I'm delighted to see that my former colleagues in Philadelphia and my former neighbors in New York seem to agree on the same prescription, and still being favorably under their shadow, I'd like to align myself with their comment. | 58 |
fomc | 1,977 | All right. Who would like to speak now? Yes, Mr. Baughman. | 18 |
fomc | 1,977 | I haven't been to either Minneapolis or New York, but I'll have to admit I come out at the same place, which means concurring with your recommendation on the federal funds rate, but essentially alternative C for the aggregates ranges. | 45 |
fomc | 1,977 | Thank you, Mr. Baughman. Mr. Roos, please. | 16 |
fomc | 1,977 | I'd just like to say ditto to that. | 10 |
fomc | 1,977 | Thank you, Mr. Roos. Mr. Lilly, please. | 14 |
fomc | 1,977 | Well, I'd like to associate myself with alternative B and the 4-1/2 to 5-1/4 range. If we take seriously what we just disposed of not so long ago, I think this is an interim step, and I would hope that we don't restrict the growth of M1 by an increase in the funds rate at a very inappropriate time. | 75 |
fomc | 1,977 | Thank you, Mr. Lilly. | 7 |
fomc | 1,977 | Mr. Chairman, it seems to me that it's flip a coin because our precision doesn't match our finite aptitude to focus on either one of them. | 29 |
fomc | 1,977 | The precision of our language? | 6 |
fomc | 1,977 | Yes. | 2 |
fomc | 1,977 | Well, I think that there was a rough consensus within the Committee in favor of a range of 6 to 10 for M1, 8 to 12 for M2, and 4-1/2 to 5-1/4 for the federal funds rate. A rough consensus further for an asymmetrical midpoint of the federal funds rate, that is at 4-3/4. I believe also that not everyone has expressed him... | 152 |
fomc | 1,977 | Yes sir. The words "will deviate significantly from the midpoints" would be replaced with "are moving beyond the limits." | 26 |
fomc | 1,977 | Would you accept the language "approaching or moving beyond the limits"? | 14 |
fomc | 1,977 | Yes sir. Then we'd strictly have the money market directive, but call it an aggregates directive. I believe that's exactly the wording in the money market directive. | 31 |
fomc | 1,977 | Well, let's have first a show of hands on the language as it stands, on lines 46 and 47, by members of the Committee. | 30 |
fomc | 1,977 | Six. | 2 |
fomc | 1,977 | Now let's have a show of hands on Mr. Black's suggested language, paying no attention at this point to my suggested modification of the suggested language. Let's have a show of hands. | 37 |
fomc | 1,977 | Could you repeat your language Bob? | 7 |
fomc | 1,977 | I'd be glad to, Steve. On page 3, lines 46 and 47, beginning with the words "will deviate significantly from the midpoints", replace that with "are moving beyond the limits." | 43 |
fomc | 1,977 | That means that you wouldn't move the funds rate unless M1 was at 10 percent. | 18 |
fomc | 1,977 | That's right. | 3 |
fomc | 1,977 | [Unintelligible]. | 6 |
fomc | 1,977 | Below 2. | 4 |
fomc | 1,977 | Let's have a show of hands on Mr. Black's suggested language. Now let's have a show of hands on my modification of that, and that doesn't mean I'm endorsing it. I'm simply trying to determine the Committee's thinking. Then it would read "if it appears the growth rates over the two-month period are approaching or moving... | 83 |
fomc | 1,977 | Can you stand an editorial comment? | 7 |
fomc | 1,977 | No. Declined. | 5 |
fomc | 1,977 | If it adds to confusion, yes. | 8 |
fomc | 1,977 | Well, you're solving my problem. I wanted to reduce the range, and so if you approach it, why that satisfies me very well. | 28 |
fomc | 1,977 | You misunderstood me. | 4 |
fomc | 1,977 | He hasn't widened it as much as Bob Black widens it from this language. | 16 |
fomc | 1,977 | It narrows -- | 4 |
fomc | 1,977 | The other would mean you would move the funds rate if you were significantly above 8. | 18 |
fomc | 1,977 | Ask Peter. | 3 |
fomc | 1,977 | I won't. | 3 |
fomc | 1,977 | Gentlemen, I think we're ready for a vote to employ the monetary aggregate directive, to leave the language as the staff has worded it, to have a range for M1 of 6 to 10, for M2 of 8 to 12, and for the federal funds rate 4-1/2 to 5-1/4, with an asymmetrical midpoint at 4-3/4. | 87 |
fomc | 1,977 | Would it be helpful to the Manager to describe how we now interpret this thing? | 16 |
fomc | 1,977 | I hope the Manager will not be surprised by it. We do have difficulties at times. | 18 |
fomc | 1,977 | No, what you're proposing now is just the standard language, now. I would have liked clarification had the Committee voted for one of those alternatives. I've no problem-- | 33 |
fomc | 1,977 | The standard language is something you've lived with for a long time, and therefore you have-- | 18 |
fomc | 1,977 | That's right, I have no problem with that, just on the alternatives. | 15 |
fomc | 1,977 | I think we're ready for a vote, unless members of the Committee want to discuss the matter further. Apparently not. Would you be good enough to call the roll? | 33 |
fomc | 1,977 | Chairman Burns Yes Vice Chairman Volcker Yes Governor Coldwell Yes Governor Gardner Yes President Guffey Yes Governor Jackson Yes Governor Lilly Yes President Mayo Yes President Morris Yes Governor Partee Yes President Roos Yes Governor Wallich Yes Unanimous. | 49 |
fomc | 1,977 | Well, the final item on the agenda is the date of the next meeting, and I take it we're confirming it, and therefore we've beaten our own time and we're ready to adjourn. | 38 |
fomc | 1,977 | A motion to approve the minutes of the April 19 meeting will now be in order. | 18 |
fomc | 1,977 | So moved. | 3 |
fomc | 1,977 | Any objection to that? We pass now to Mr. Holmes's report on foreign currency operations. | 19 |
fomc | 1,977 | [Secretary's note: This statement was not found in Committee records.] | 14 |
fomc | 1,977 | Thank you, Mr. Holmes. Are there any questions? I hear none. A motion to approve the transactions on foreign currencies would now be in order. | 31 |
fomc | 1,977 | So moved. | 3 |
fomc | 1,977 | Second. | 2 |
fomc | 1,977 | Do you have any recommendations, Mr. Holmes? | 10 |
fomc | 1,977 | No, Mr. Chairman, except, as I mentioned earlier, there may be a possibility that we may want to make small drawings on the swaps. I think we have the authority to do that. I have no new recommendations to make. | 48 |
fomc | 1,977 | All right, then we will turn to Mr. Kichline now. May we have your report, Mr. Kichline. | 27 |
fomc | 1,977 | [Secretary's note: This statement was not found in Committee records.] | 14 |
fomc | 1,977 | Thank you, Mr. Kichline. Now, we are ready for such views as members of the Committee may have on the state of the economy or such questions as they may wish. Mr. Mayo, please. | 44 |
fomc | 1,977 | Just one supplementary comment, Mr. Chairman. We have checked out some of our heavy-goods industry people since the energy message occurred, and they have no changes contemplated in their capital spending. Part of this is just time, but to the extent that it's been discussed, and it has been discussed quite a bit in th... | 80 |
fomc | 1,977 | Thank you, Mr. Mayo. Mr. Winn, please. | 13 |
fomc | 1,977 | Mr. Chairman, the scenario that has just been presented, and also it's in various [staff] books--it seems to me highly probable. On the other hand, I am puzzled by the loan demand facet of the future. When you talk with insurance companies, their backlogs are going down, not up. And this doesn't look like robust demand... | 323 |
fomc | 1,977 | Mr. Chairman, let me clarify the point you made. My recollection is that the staff memorandum we received indicated that the outstanding volume of commitments by life and insurance companies was going up. Did I forget-- | 42 |
fomc | 1,977 | I think the recent data that we have from the Life Insurance Association of America--and it's about three-fourths of the industry--indicated rising corporate commitments. The weak segment continues to be the commercial mortgages, but that, too, was just edging up a bit. I think one of the comments that we sorted out fr... | 142 |
fomc | 1,977 | All right. Thank you, Mr. Winn. Mr. Willes, please. | 17 |
fomc | 1,977 | Thank you, Mr. Chairman. Just one question. When our staff worked through the numbers for this month, they came out in general very close to where you came out. They did place less confidence in consumer spending and more confidence in business fixed investment. I just wondered, suppose that consumer spending was not a... | 83 |
fomc | 1,977 | Well, I think the key area of business investment--that's the one that has fooled us for some time. And if we got into a situation where consumer spending slowed substantially, we could find that business investment plans were deferred, and I think that would pose a risk to our forecast. I might note, though, that in t... | 255 |
fomc | 1,977 | How soon would you think that feedback would come? | 10 |
fomc | 1,977 | Well, I think, perhaps by later this year. We have raised our forecast for this quarter in plant and equipment expenditures, and I think the third quarter looks very good, given the orders and shipments data. But as you get on into the fourth quarter and early next year, I think that's where you might find something ha... | 66 |
fomc | 1,977 | What kinds of probability would you assign to that kind of scenario? | 13 |
fomc | 1,977 | We talked about that--among the staff--and I think our assessment is rather low. But not minimal. I think there is a risk, of course, if consumer spending were to slow and the momentum that we have now in industrial production [were to be maintained],we could find inventory backing up a good deal. And concerns could ar... | 77 |
fomc | 1,977 | All right. Mr. Baughman now, please. | 12 |
fomc | 1,977 | Mr. Chairman, we have no areas of significant difference with the staff's projection. It seems a good a characterization of prospects to me. And I guess it probably comes as no surprise that the President's energy program was received with a good deal of wailing and gnashing of teeth in the Southwest. But that notwiths... | 317 |
fomc | 1,977 | Thank you, Mr. Baughman. Would you--yes, Mr. Balles. | 19 |
fomc | 1,977 | Since Ernie has brought up this housing boom situation in California, I suspect I should say a few words on it. It's obviously a very unhealthy development, and I would have to also say it's being somewhat encouraged by all the major banks in California getting into a second mortgage business. That used to be anathema ... | 497 |
fomc | 1,977 | I might add, Mr. Chairman, that farmland values and sales prices in the Midwest are continuing up. We have 10 percent higher just in the first quarter of this year. We were expecting that this would level off. This is a 40 percent annual rate--sales are basically at a 40 percent higher price than they were this time a ... | 73 |
fomc | 1,977 | These are very disturbing comments. I am not too aware of the speculation and things going on in California. Which banks are involved in the second mortgages? | 30 |
fomc | 1,977 | My recollection, right off the top of my head, Mr. Chairman, is that there is not a single major bank that isn't involved. | 29 |
fomc | 1,977 | Does our staff know anything about this? | 8 |
fomc | 1,977 | We're familiar with the housing situation in Southern California, especially, but I'm not familiar with the second mortgage situation. | 22 |
fomc | 1,977 | This is nothing new, Mr. Chairman. This has been going on all throughout the country for the last 10 years or so. Really, consumer finance companies have offered this type of financing. Their experience has been excellent. The last nationwide figures I saw for one of them showed a net underwriting profit instead of a l... | 159 |
fomc | 1,977 | Well, I think-- | 5 |
fomc | 1,977 | I need to be shown the figures to see that this is wild speculation on the banks' part because it's a practice that's been pretty well known throughout the country in the last 10 years. | 38 |
fomc | 1,977 | I think I would want to see the figures to see whether it is or isn't. I think we need to gather evidence, and I think our staff should look into this very promptly. | 37 |
fomc | 1,977 | This, I think, performs a function. People have substantial capital gains in their homes. All they get out of it so far, if they don't refinance, is higher taxes, so they actually think they're poorer when their wealth has increased. Their consumption could legitimately rise. So therefore, a question of how soundly thi... | 110 |
fomc | 1,977 | Why aren't these mortgages refinanced? Why a second mortgage at 12 percent instead of a first mortgage at 8-3/4 or 9? | 31 |
fomc | 1,977 | Because many times the existing first mortgage, which may be assumed or retained, is at such a low interest rate--4, 5, 6, or 7 percent--that the combined total cost of the two produces a lower cost to the customer than a refinance rate at current rates, which now have risen to the 9 to 9-1/4 rate, I understand, out th... | 88 |
fomc | 1,977 | That's right. The prime lending rate on [mortgages] for good property has gone up about a half point. But in response to your comment, Phil, I agree that there is nothing new in this in terms of the principle. But what is [new] in my opinion is the intensity of the speculation to get amateurs of all kinds buying these ... | 129 |
fomc | 1,977 | Are these real estate loans, John? Do they classify them as real estate? | 16 |
fomc | 1,977 | Yes. | 2 |
fomc | 1,977 | So they are primarily secured by the real estate. | 10 |
fomc | 1,977 | The second deed of trust. And it's not just the banks, it's the S&Ls, too, that are doing it. | 26 |
fomc | 1,977 | Mr. Chairman, I think a similar phenomenon is occurring, as Bob Mayo has said, in bank loans to farmers. These loans are frequently predicated on the value of the land, which has been speculatively bid up terribly and unrealistically high in Illinois and Missouri and places like that. And the farmer's ability to repay ... | 164 |
fomc | 1,977 | Mr. Chairman, there are two aspects of this farm pricing question. Some of it is accounted for by speculators. A large part of it, however, is accounted for by dollar averaging by the existing farmers who have such a low price basis for their existing farms that they can get their neighbor's farm at a decent price--I s... | 186 |
fomc | 1,977 | It's not evident to the farmers yet. | 8 |
fomc | 1,977 | Not as such. | 4 |
fomc | 1,977 | Mr. Chairman, as an addendum to what Bob Mayo has said, I would also note that this increase in the farm values in our part of [the country] is the support for the bank loan to these farmers and ranchers--they have not sold their crops since '75 and '76--they're in business to put a new crop in. It is a support that pe... | 84 |
fomc | 1,977 | Well, I continue to think that this is a disturbing development. When you can pick up a piece of real estate at one price today and sell it at a profit the next day or the next week, you've got a real estate boom that can't last. And the world has had a great deal of experience with that, and I've lived through more th... | 77 |
fomc | 1,977 | Well, I think, John, isn't this pretty well isolated down around San Diego, the intensity of this boom? | 23 |
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