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fomc | 1,977 | Jim, have you assumed a shortfall in the expenditures as estimated by the Administration in the July review? If I've interpreted the Greenbook correctly, you have an estimate of a shortfall, and I think it's around $10 billion. Is that about right? | 52 |
fomc | 1,977 | That's right--you're talking about for fiscal '78? | 11 |
fomc | 1,977 | Right. | 2 |
fomc | 1,977 | It's about $10 billion in expenditures, and then we have interest payments, which are about $2-1/2 billion or so higher than that of the Administration's. Net, we're about, I think, $7-1/2 billion off. | 52 |
fomc | 1,977 | I would like to make a quick comment on this, Mr. Chairman. As my staff [members] looked into the causes and the nature of these so-called shortfalls, [they] found out something that kind of surprised me. There have seldom, if ever, been shortfalls in expenditures if you start with the--say, in this case, the July--Mid... | 192 |
fomc | 1,977 | This is a difficult area [in which] to compare notes verbally, since there are many concepts of what number you take and when and what you include. We have a different impression. I only would like to note that, if we're wrong in $455 [billion], I would think that we're probably better assuming something like 459. Whic... | 203 |
fomc | 1,977 | I'd like to finish up one other thing, Mr. Chairman. I noticed no comment, Jim, on the impact of expectations. Have you factored this into your forecast? | 35 |
fomc | 1,977 | Well, we have, we think--importantly in the investment area, and that's where we're particularly concerned. If we look at the fundamentals in a variety of ways and dispense with expectations, we tend to [estimate] a more rapid rate of growth of business investment outlays than we have in our projections. But we think e... | 184 |
fomc | 1,977 | Let me ask--if you pay attention to the wealth factor, do you include in wealth the value of dwellings? | 24 |
fomc | 1,977 | Yes. | 2 |
fomc | 1,977 | And doesn't that more than offset what has been happening in the stock market? | 15 |
fomc | 1,977 | That's right. As you can well imagine, it's difficult to have a great deal of faith in the numbers that one cranks in on real property values, although they're large. But in any event, the stock market is highly visible, and real property is not generally thought of as very highly liquid. There is some notion, too, tha... | 74 |
fomc | 1,977 | Well, I was really thinking of a formal point only. Namely your econometric model. You did include the value of dwellings. | 28 |
fomc | 1,977 | Yes, we do. | 5 |
fomc | 1,977 | Do you include the value of farm property? | 9 |
fomc | 1,977 | As far as I know, we include, yes, all of that, and debt instruments as well, and equity values. | 25 |
fomc | 1,977 | I would have expected, Jim, that you would have placed more weight on the effect of the stock market on capital spending plans than on personal consumption. Because the small man is out of the market. Granted that he has a psychological factor of watching the market go down, but I would have thought that you would have... | 96 |
fomc | 1,977 | I perhaps didn't emphasize that enough. I did refer in my briefing to cost of capital. And what I had in mind there was both the cost of physical capital and the cost of capital implied by low equity values. I might note that there are a couple of ways in which we think that enters into the calculation. One is, as you ... | 107 |
fomc | 1,977 | Well, Jim, it's a matter of interpretation and to some extent expectation, I guess. My net result, looking over the data, is a somewhat different pattern of GNP real growth than you have. I think you're over-optimistic in the fourth quarter. And [will] perhaps be surprised a little bit with a higher rate--partly by exp... | 91 |
fomc | 1,977 | All right, thank you, Mr. Coldwell. Mr. Eastburn, may we hear from you? | 22 |
fomc | 1,977 | Thank you, Mr. Chairman. I reported, I guess about three meetings ago, about a meeting that we had of businessmen which produced a very pessimistic tone. We had another meeting last week, which Governor Lilly attended. And there, I think, they were considerably less pessimistic. It wasn't actually bullish--I think this... | 217 |
fomc | 1,977 | That comes out largely as a result of what's happened to man-hours in the past two months. Particularly in August, when man-hours declined roughly 1 percent. If you discount those man-hour figures somewhat, as we have, the only way you can get something like a 4-1/2 percent rate of real growth is if you get large gains... | 271 |
fomc | 1,977 | Perhaps I might comment at this time on the cloud that seems to surround our numbers. You may recall [that] last year we looked at successive quarterly figures of real GNP. The increases showed progressive diminution, and there was great concern toward the end of the year about the slowing of the economy and about the ... | 598 |
fomc | 1,977 | Mr. Chairman, I thought your comments on final sales very well taken, because there is a difference now, and one has to bear that in mind. But overall, as I look at the change in our projection from here through the end of 1978, I am struck that for some one-year periods, mid-'77 to mid-'78, end-'77 to end-'78, there a... | 491 |
fomc | 1,977 | All right. Mr. Morris next, please. | 10 |
fomc | 1,977 | Mr. Chairman, on this business of full employment, I tend to define where we are in terms of the unemployment rate for married men and for heads of households. And if you look at that, it suggests that we're about 1-1/2 percent from full employment, which means that full employment would be measured around Bob Mayo's 5... | 465 |
fomc | 1,977 | I'd like to comment, if I may, on what Mr. Morris has just said. First, one point where I basically agree--I think consumer credit is in a dangerous area, and I don't agree with Mr. Kichline one bit. I read the evidence quite differently. Secondly, the contrast between stock exchange securities and dwellings: There, I ... | 185 |
fomc | 1,977 | Let me just interject a question here, Mr. Chairman. I think it's true that the figures show mortgage outstandings going up very rapidly now, for the reasons you suggest. I'm just a little puzzled, and I don't know whether the staff would want to comment on it, as to whether this is basically a favorable or unfavorable... | 92 |
fomc | 1,977 | Well, favorable from one point of view, very unfavorable from another. But I wasn't commenting on that; I was merely commenting that it has taken on liquidity dimensions. | 33 |
fomc | 1,977 | I don't think there's any question about that aspect. The question that puzzles me a little bit--I just pose it in the form of a question against the background of the consumer credit picture that exists--whether this is something we look to basically as a sustaining factor to the economy through the kind of forecast p... | 141 |
fomc | 1,977 | Not much. I think it has mixed effects. Actually, in our forecast, we assume for 1978 that there will be less borrowing per start in given dollars than there is today, that we will be [cutting back] some of this withdrawal of equity from the housing market. In fact, that's implicit in our forecast, in a way, in which a... | 252 |
fomc | 1,977 | I do think, Jim, though, that you're running into a situation--as I recall, in the California area, [according to] one of the banks that I talked to that was active in the second mortgage area, about 28 to 32 percent of the second mortgages extended were for the purpose of refinancing existing consumer debt, to reduce ... | 192 |
fomc | 1,977 | Mr. Chairman, if I might just make a brief comment on this real estate situation. It seems to me that what we have going here in both the residential and the farm real estate picture is something more or less comparable to an inventory situation in the business sector. And when it's building up, it's a strong stimulati... | 253 |
fomc | 1,977 | Mr. Gardner, please. | 6 |
fomc | 1,977 | I don't know whether this will help or not, Jim, but I have some concern about your analysis that indicates that the credit demands aren't likely to show much change over the balance of the year. I'm a fugitive from the crowding out theory. And as I look at this situation, I have to try to find the perspective that sai... | 571 |
fomc | 1,977 | Federal government-- | 3 |
fomc | 1,977 | --federal government, I haven't mentioned that--I thought I was the fugitive from the crowding out theory. But nevertheless, I look at the demand side, and then I look at the supply side, and it's also true the banks are offering more competitive terms. They've had time also to deal with their internal problem. We see ... | 200 |
fomc | 1,977 | I think perhaps we expressed our idea incorrectly. You are quite right. In fact, total credit demands in our forecast are rising in the second half of this year compared to the first half. But that is largely associated with the substantial increase in government borrowing. In our flow of funds forecast, for example--i... | 301 |
fomc | 1,977 | All right, we will move on now to Mr. Partee. We will hear from you. | 20 |
fomc | 1,977 | Well, Mr. Chairman, I have a couple of comments. First, I'm very agreeable to your view of the current situation, that with the continued expansion in final purchases through the summer--and as far as I can see, right up to date--we don't have to be overly concerned about the signs of slowing of the economy that show i... | 209 |
fomc | 1,977 | Except that I quarreled only with one point, his comment on consumer credit. | 17 |
fomc | 1,977 | Well, I was going to make the point about consumption generally. As I look at possibilities of the projection being too high, it seems to me that an awful lot is being asked of the consumer. If I understood you, Jim, you said you have a projected real increase in consumption of about 4-1/4 percent above the trend. | 70 |
fomc | 1,977 | No--4-1/4 percent real increase over the next five quarters. | 16 |
fomc | 1,977 | And that's above the long-run trend. | 8 |
fomc | 1,977 | Well, the longer-run trend is somewhere [between] 3-1/2 and 3-3/4 percent. | 26 |
fomc | 1,977 | It's a rather good performance in real consumption. | 9 |
fomc | 1,977 | Oh, yes. | 4 |
fomc | 1,977 | Excuse me, 4-1/4 percent over an annual rate or-- | 17 |
fomc | 1,977 | Annual rate. | 3 |
fomc | 1,977 | Annual rate. | 3 |
fomc | 1,977 | Annual rate of 4-1/4. That's strikes me--as I recall [how] the last few years have been--a pretty good number following on what has been an unusual surge on durable goods purchases. I'm not so sure--I think I would be more inclined to agree with Frank than you, Steve. I think [we] probably won't repeat the current car ... | 691 |
fomc | 1,977 | Thank you, Mr. Partee. Mr. Winn, please. | 14 |
fomc | 1,977 | Mr. Chairman, the two big uncertainties that hang over the forecast as far as I'm concerned are with respect to the energy bill and with respect to the tax bill. The unknowns in the energy bill have really held up major investments in transportation, mining, a whole series of activities that really would give a tremend... | 189 |
fomc | 1,977 | On the tax bill? | 5 |
fomc | 1,977 | Yes. | 2 |
fomc | 1,977 | No, we have done nothing yet. | 8 |
fomc | 1,977 | And I haven't any idea how that's going to come out, but there's really more discussion of this in terms of the consumer sector, the capital gains area, and a stimulus for investment; and these are going to be major developments to affect the outlook. The third thing I'd mention is the status of the steel industry. Bus... | 215 |
fomc | 1,977 | Thank you, Mr. Winn. Mr. Willes, please. | 14 |
fomc | 1,977 | Thank you, Mr. Chairman, just one quick question and then two comments. Are you going to circulate that little analysis that was done on the seasonal adjustment of the unemployment rate? | 36 |
fomc | 1,977 | Yes, I will be glad to. | 8 |
fomc | 1,977 | I would like to see it. I don't know if anyone else would. The two brief comments I would make are, first of all, the discussion relating to using property values as a form of liquidity. One area that I think has been misunderstood rather broadly is the area of using farm land as a source of liquidity. In our part of t... | 473 |
fomc | 1,977 | 100 percent increase from the year passed? | 8 |
fomc | 1,977 | A 100 percent increase from the year passed. Now interestingly enough, they all admitted that they were not building new physical facilities [and] that the kind of investment they were engaging in [was] new equipment, new ways of making their physical plant more productive. But they are looking at very large numbers. N... | 122 |
fomc | 1,977 | Well, you know, on a global basis, the successive surveys have been showing increases in the expected rate of increase in business capital spending. Now, the progression has had a modest upward slope, but it definitely has had the uniform upward slope. But what you say about Minnesota sounds as if Texas is going to tak... | 66 |
fomc | 1,977 | We are trying. | 4 |
fomc | 1,977 | You have become converted. | 5 |
fomc | 1,977 | It doesn't take long. | 5 |
fomc | 1,977 | Mr. Guffey. | 6 |
fomc | 1,977 | Well, lest the euphoria about the agricultural sector get out of hand, I think it is important to note that the productive capacity of the agricultural sector has added nothing to the farmer's or the rancher's wealth--that the wealth in and of itself has come from the increase in land price. To be sure, some sales are ... | 299 |
fomc | 1,977 | You are only reflecting the differences in your crop structures. You have a very large wheat percentage in total agricultural output, whereas Mark has substantially less. | 29 |
fomc | 1,977 | No, I think that's not true. | 8 |
fomc | 1,977 | Clarifying--this discussion has also served to clarify the distinction between the capital and the income. In terms of capital, many farmers have become millionaires recently. On the other hand, as far as income is concerned, income has been on the low side and declining. I think Mr. Guffey is right that scissors move.... | 104 |
fomc | 1,977 | Banks, though, and other sources of financial strength to the agricultural economy, could likely feel a real squeeze if things indeed did turn down in [the sense] that land value was not realized. And that, I think, is what we have more concern about. | 53 |
fomc | 1,977 | Roger, has the appreciation of land prices caused a commensurate increase in taxes on farms? | 19 |
fomc | 1,977 | I don't believe that the governmental units are quick enough to have picked it up yet, but certainly as those sales occur, then reassessments will be made, and taxes will increase. But it isn't something that's going to come tomorrow. | 47 |
fomc | 1,977 | That's another part of the squeeze, to the extent that begins to happen. | 15 |
fomc | 1,977 | These farmers that have become millionaires, I might hasten to add, it's on a before-tax basis. In Idaho, where my wife happens to have some relatives on a farming business, they are very concerned about how they are going to pass on their farm to the children after the death taxes. It appears they may have to liquidat... | 84 |
fomc | 1,977 | That's right, but honestly, I don't know what is wrong with people. Why don't they enjoy it now? Mr. Balles, may we hear from you on your views on the economy, or any questions you may want to put to the staff. | 51 |
fomc | 1,977 | I have several comments and several questions, Mr. Chairman. I think your point on real final sales being steadier than the GNP quarterly changes is a very good one. I draw one additional conclusion from that analysis, and that's that the trend of real final sales may in fact be a better guide to policy than the quarte... | 119 |
fomc | 1,977 | Incidentally, the point is now being made about the so-called $50 rebate. If that had gone through, the inventory adjustment would have been all the sharper. | 33 |
fomc | 1,977 | Exactly. | 2 |
fomc | 1,977 | Maybe it's a good time to start thinking about it. | 11 |
fomc | 1,977 | To start thinking; not about that. | 8 |
fomc | 1,977 | Something else, maybe. | 5 |
fomc | 1,977 | As far as the outlook is concerned, our staff in San Francisco has a very similar view to that of the Board staff through, say, to the middle of '78, but as Frank Morris commented, we are somewhat less optimistic about the second half of '78 for much the same reasons that he cited--less optimistic about the strength of... | 555 |
fomc | 1,977 | We do look at them, not so much in terms of trying to form our own judgments but rather after the fact as a check to see where the differences occurred and what's happening. And as the point has been mentioned earlier, in the last two months or so, most private forecasters have been adjusting their forecasts downward. ... | 201 |
fomc | 1,977 | For the year, Jim? | 6 |
fomc | 1,977 | No, in the latter half of '78. Most of the contour of the forecast in the current quarter is much weaker than we have it; fourth quarter, roughly the same. | 36 |
fomc | 1,977 | I'm going to make an extreme comment. I think these fellows ought to be ashamed of themselves, because they don't have a shred of fact to support any of this. And they are just playing a con game. I think it's a disgrace. | 48 |
fomc | 1,977 | Well, that's--any help? | 7 |
fomc | 1,977 | That's just what I firmly believe. | 7 |
fomc | 1,977 | I would only say I think the major areas of difference are in personal consumption, which has been mentioned earlier, [and] inventories, [which] are projected to have accumulated at a much slower rate than we have. And I think there are policy differences which are not always clearly specified. But consumption and inve... | 70 |
fomc | 1,977 | I was surprised on this point just the other day hearing [that] the New York bank economists [had] just met with our people, and apparently they were rather consistently above what I would have expected in terms of more or less optimistic talk. And they were, as I recall, all around 4-1/2 percent for next year on the a... | 82 |
fomc | 1,977 | That's a good point, Paul. I think the commercial bank economists are generally more optimistic than the economists working for industrial firms. | 25 |
fomc | 1,977 | You know--I don't know, I don't know. I sometimes get discouraged. When are we going to learn that we don't know how to attach numbers to future events? | 34 |
fomc | 1,977 | Isn't that the way in which we've got to work-- | 12 |
fomc | 1,977 | No. | 2 |
fomc | 1,977 | We're not doing very well [at quantifying], but the direction alone isn't good enough. | 18 |
fomc | 1,977 | We can supplement an adjective with an adverb. Well, thank you, Mr. Balles. We will hear from Mr. Kimbrel, and we will break for lunch. I mean coffee--it might not be a bad idea. | 49 |
fomc | 1,977 | I promise you it's not going to take that much time, Mr. Chairman. Just expanding, though, the ideas--the consumer installment credit. I guess our people are somewhat less optimistic about the total new automobile sales over the coming year than you would project, and I recognize that these numbers, if we read them cor... | 126 |
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