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fomc
1,977
The consensus of the Committee is that we should not depart from the rule.
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Well, that's up to the Committee.
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Well, it's alternative four we're voting on here.
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Well, I hope we don't vote. I think we ought to arrive at a consensus.
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It's alternative four on which we're expressing ourselves.
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Mr. Chairman, may I be presumptuous to suggest one further alternative, and I think you would want me to mention [it]. Governor Coldwell's letter mentioned the fact that, under the law, the seeking party is entitled to have reasonable segregable facts but that it was the judgment of the writer, Governor Coldwell, that ...
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Well, we already offered that to him, Tom. In fact, we recognize in the letter that he was entitled to it.
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But we reached, really, if I may Governor, the judgment that that letter reaches the decision, and thus we've decided not to do this.
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We said that any segregated portion of the Memoranda would be [so] fragmented as to be unintelligible and virtually useless to use.
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That's all we said.
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We had a plaintiff in the Merrill suit who was told the same thing and didn't believe us and pushed us for it and finally accepted it in settlement. So it's possible that, but for the purpose of the Times, who want to do an article, presumably our description was correct. I bring that up, Mr. Chairman, only as a--
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I think 72 facts should not be worth very much.
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Does that letter say that he will get it in January? Does it pin it down to January?
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No, it says--now, let's see: "I would note that, pursuant to the Committee to stay with scheduled public release, the Memoranda of 1972 will be available to you in January 1978." He is already advised on that.
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Well, he could be advised more specifically. It will be available January 1, so that they can spend New Year's Day--we might give it to them New Year's Eve, let them celebrate New Year's Eve.
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If they want to use it for political mischief, Mr. Chairman, January would be an ideal time for them to have it anyway.
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Well, I don't really know whether they want to use it for political mischief or not. All that I know is that this fellow Hershey, who did want to use it for what I interpret--and I think that Joe will join me in that interpretation--has mischief of some sort, political or otherwise.
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It appears to me, Mr. Chairman, that it's my personal judgment that our best course of action would be to deny this request but at the same time advise that we will release all Memoranda in January unpublished as to now.
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Well, but, I think--
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Because I think that does two things: Number one, that does eliminate any inference that we are protecting this situation for improper purposes. But at the same time, I think it pushes this organization to the type of posture where our alleged secrecy, [unintelligible], of manipulating the strings of the world, is expl...
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Well, it's a possible course of action, but I doubt that we ought to, at this late hour, reach any such decision without the most careful deliberation and without taking into account and appraising the Hannaford possibility. Now this may well be a decision that, after we spend a morning or a day on this whole question,...
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If we could count on it. Things have changed so much since we made that decision, and now I would [not] put that much confidence in it.
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Well, I think that's fair.
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Well, Mr. Chairman, I think we are probably ready for some kind of consensus.
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Some kind of what?
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Consensus motion. I think several of us have to catch airplanes.
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Well, will someone make a motion, whatever it may be, and we'll--
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I made a motion earlier. I will revise that and say I urge the Committee to adopt a consensus that's generally consistent with [alternative] four--
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Well, without voting formally, can we have a show of hands indicating whether or not such a consensus exists.
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Generally consistent with what?
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[Alternative] four.
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Members of the Committee only, yes
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Seven. There are only 11 members present, Mr. Chairman.
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Well, I think I have to interpret that as a clear majority. I have to interpret that as the closest consensus that we could get out of this meeting. Let me just check; those who are opposed to Mr. Gardner's motion will raise their hands.
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Three, Mr. Chairman
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Three, well--
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This is without prejudice to further consideration.
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I'm sure not going to vote on that side if they sue us.
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May I presume then, Mr. Chairman, that either you or I will write a letter to Mr. [Herbers]?
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Well, I think I should write that letter. Anything else to come up?
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Yes, but you don't want to bring it up--agricultural credit, farm credit, use of the discount window.
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Well, the first item on the agenda is perennial--the minutes of the last meeting. Any motion to approve?
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So move.
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Seconded.
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All right, we've had a motion to approve the minutes; no objection has been registered. We will proceed with the foreign currency operations. Yes, Alan, please proceed.
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[Secretary's note: This statement was not found in Committee records.]
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What is the total now, Alan?
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It's something on the order of $670 million.
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All right, thank you. Any questions? Yes, Mr. Wallich.
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Didn't the Bank of England operate through its own channels in the New York market when it was doing this heavy buying?
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Yes, quite heavily. They bought a large amount of coupon issues, and they did that through the market using a number of dealers and banks in New York.
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Are you talking about foreign exchange?
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I meant foreign exchange--and whatever they put it into.
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Yes, they do operate in the New York market.
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Does the Desk know what they do?
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Yes, we call them, and they inform us if there is any extra on the next day.
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Thank you.
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Any other question at this time? Very well, a motion to approve the transactions of the foreign Desk is now in order.
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So moved.
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A motion has been made.
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Seconded.
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And seconded [unintelligible] approved. Do you have any recommendations, Mr. Holmes?
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No, Mr. Chairman, with our regular agreement with the Swiss, we will have some Swiss franc debt coming due, but that's automatic--no recommendation is needed.
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Very well. Mr. Kichline, please, we are ready for your report on the economy.
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[Secretary's note: This statement was not found in Committee records.]
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Thank you, Mr. Kichline. Well, we're ready for the dialogue on the state of the economy. Who would like to speak first? Good, Mr. Baughman, please.
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Mr. Chairman, as to the characterization of the economy, I don't have any basis for differing with what's been said. I thought I might just add a comment with respect to oil and gas activities, however. [They] continue to pick up and seem to be at about a practical capacity rate. Shortages of work crews in some areas a...
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Are you speaking of exploratory activity or production?
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Essentially, development of known deposits. And this is mostly low-grade stuff, in the sense that it's areas which [have] been tapped previously but [were] not economic to develop or exploit at the preexisting prices. And now they're going through the drilling wherever they have a reason to believe that, with the highe...
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Thank you, Mr. Baughman. Mr. Black, may we hear from you?
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I continue to be concerned about this weakness in net exports that we're projecting, and I wonder if I might ask Mr. Kichline if we are wrong in our estimates of the growth that we expect to have in Europe and Japan. Say we've underestimated it by maybe 1 percent or so--would that be enough to have any appreciable effe...
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I would prefer it if we could hear from Mr. Truman, who is much more familiar with the net exports. I think that is an important influence, but perhaps he has a comment.
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In answer to your specific question, our investigation of historical relationships would suggest that a 1 percent increase in the growth of our major industrial countries--not just western Europe and Canada [but] Japan as well--would add about $3 billion to $4 billion to our trade position.
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Any other comments, Mr. Black?
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That's all I have.
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Thank you. Mr. Coldwell, please.
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Jim, let me ask three or four questions here, and comment, if you wouldn't mind. Your briefing indicated that you believe consumers still have capacity to materially add to debt. I would like to hear your rationale on that.
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Debt burdens as measured in a variety of ways relative to disposable personal income have gone up a good deal. And they're at reasonably high levels, cyclically. However, much of this has been attributable to mortgage debt, which is of a long-term character, and I think when we've looked at the various relationships, w...
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That's not your expectation?
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That's not our expectation.
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Second question is [regarding] your expectation on federal government expenditures. If I heard you correctly, you indicated some pickup in such expenditures and that the full-employment deficit would narrow significantly. Is that what you said?
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That's correct. In the third and fourth quarter of this year, we have a pickup in the rate of spending, and the deficit this quarter was estimated at $12 billion on a full-employment basis; [the deficit] rises to $16 billion in the fourth quarter, then declines in each quarter of 1978, [and] reaches $2 billion in the f...
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Presuming that there will be no new major thrust of federal expenditures flowing into 1978.
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That's right. Now, on an NIA [national income accounts] basis, we still have some grants to state and local governments that will be fed out. I might note that the Carter Administration budget outlays for fiscal 1978 were $463 billion; the concurrent resolution that was approved is, I think, at 459. And our outlays are...
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Full employment is still defined as around 4-1/2 percent?
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Just checked; it's 4.86.
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Oh, gee.
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Have you read Herbert Stein's recent article in the Wall Street Journal?
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I'm familiar with it. The argument, I guess, is that full employment is something around 6-1/2, 7 percent.
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He argues we're in full employment now. What's wrong with that argument, if anything?
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Well, I would rather turn it around and hear very clearly what the arguments are for supporting such a notion. I think that's extreme. Absolutely extreme.
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Well, you don't have to hear it; read that article.
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Well, I'm not convinced. The arguments in part relate to the demographic factors involved in the composition of the labor force, the change in welfare programs, food stamps, and other things, the upward bias associated with the numbers--a whole host of arguments. When we've looked at some of those in our own analysis, ...
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But my point is less extreme than Herb's. Isn't 5-1/2, say, just to pick a figure, a much more reasonable figure than 4.86?
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That's true, and I don't think we have any difficulty with that at all.
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And that puts quite a different complexion on the figures that you would be using. You would be far short of a full-employment surplus if you adopted that.
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Well, I would use the full-employment concept cautiously. I think what's much more important than the absolute size of the surplus or deficit is the movement in the deficit over time. And if you adopt a higher unemployment rate on a full-employment basis, then you have lower receipts and hence a larger deficit. But ove...
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In other words, you have done the figures on something like the 5.
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Right.
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That's reassuring.
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