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fomc | 1,977 | Well, we've been quite high for some time on auto sales and have been pretty much close to the mark relative to other forecasters. So we did reasonably well in the past. The argument that we felt was quite important was this notion of replacing the stock because of the downturn in sales in '74, '75. That effect is wear... | 154 |
fomc | 1,977 | Jim, the average car in the United States is six years old? | 14 |
fomc | 1,977 | I don't have the foggiest idea. I'm sorry. | 12 |
fomc | 1,977 | Oh, it is. | 5 |
fomc | 1,977 | I don't feel so bad about mine as I did before. | 12 |
fomc | 1,977 | Well, gentlemen, we'll break for coffee. | 9 |
fomc | 1,977 | Mr. Black, would you be good enough to lead off the second installment of our discussion of the national economy? | 23 |
fomc | 1,977 | Mr. Chairman, I'm sort of embarrassed to raise my question because the others have made such interesting observations, but I'm glad you didn't ask me to ask this question so that I would stand between us and adjournment. So I do just have a question, it's a technical question. I share your proclivities, and Mr. Balles'... | 202 |
fomc | 1,977 | The major element accounting for those marginal changes is the performance of fuel imports, and if you look at the net export line, you'll find that that is bobbling around quite a bit, too, and it's the related side of the coin. Namely, in the third quarter, we are assuming a rundown of stockpiling that occurred in th... | 141 |
fomc | 1,977 | Well, thank you. I was just curious about that one. | 13 |
fomc | 1,977 | All right, thank you, Mr. Black. Mr. Volcker. | 15 |
fomc | 1,977 | Just a few comments, Mr. Chairman, mostly reiterating what other people have already said, I suppose. I do think this somewhat more restrained view of the outlook that the staff has presented this time is reasonable. We're actually a bit more restrained, but I wouldn't argue about the difference between them. As I look... | 641 |
fomc | 1,977 | Mr. Volcker, can I ask you a question, please? Do you see foreign prospects as being dim versus immediate circumstances as being flat? | 29 |
fomc | 1,977 | Well, I suppose what I see is [that] the immediate circumstances are a little flatter than I foresaw. And I wonder what that portends for the future. I don't see many sources of confident optimism about what's going on abroad. I don't have a good feel, and maybe somebody in the staff does, for the impact of the German ... | 71 |
fomc | 1,977 | I'd like to comment on the question. I think the immediate prospect has been well described by Paul and by others, but what I see happening around the world is a basic improvement. It may not express itself quickly, but a financial foundation for improvement in real economic activity, a financial foundation, has been l... | 174 |
fomc | 1,977 | It's true of the U.K. I don't think that was true of France. | 16 |
fomc | 1,977 | Well, it's true of the U.K. clearly. It's true to a lesser degree of Italy, but it is true of Italy, it's true to a lesser degree of France. I went over the French record very carefully the other day. I think it's true of Mexico, though the evidence there is less clear. I think we ought to keep that in mind. | 73 |
fomc | 1,977 | It looks like Brazil is another major foreign borrower whose prospects are looking up. | 15 |
fomc | 1,977 | I have not followed developments there. I think I'd like to have--Mr. Truman here? | 19 |
fomc | 1,977 | Yes sir. | 3 |
fomc | 1,977 | I'd like to have the outside economy reviewed from the viewpoint I've just presented. What the staff has a habit of doing is looking at the real economy, that's good. But I think that the financial foundation of real economic activity--never mind whether your interpretation is the same as mine, you see--whether these c... | 103 |
fomc | 1,977 | Turkey, Spain, Portugal. | 6 |
fomc | 1,977 | Well, we've got to stop somewhere. I'll leave that to the discretion of our staff. | 18 |
fomc | 1,977 | Those are the countries that there are major problems in. | 11 |
fomc | 1,977 | I think the point that Governor Partee has, though, is important--an evaluation should include prospects for shock effect of a serious situation that might develop with an individual weak country. | 36 |
fomc | 1,977 | That's true. But I don't think the world is going to change because of what happens in Turkey. It may change because of what happens in Italy or France. Thank you Mr. Volcker for your comments. And now Mr. Lilly. | 48 |
fomc | 1,977 | Well, I have little that I can add. I agree that business is good, but I would point out, in the practice of medicine, that after a certain time in life, doctors are more concerned with the maintenance of the patient than his growth. And I think that's a problem we're faced with for this patient, which is somewhat beyo... | 112 |
fomc | 1,977 | And I'm delighted. | 4 |
fomc | 1,977 | Well, I agree with that, except we have done it in the past, you know, by making recommendations. I'm not suggesting that we do that. | 31 |
fomc | 1,977 | But I'm suggesting we consider it--not at this time. | 12 |
fomc | 1,977 | We consider recommending. If and when we do reach that point, and I hope we don't reach it in any near future, but if and when we do, then the recommendation would be useless unless it becomes specific. The fellows over there, you know, they're struggling with that question, you see. And they don't know how to develop ... | 108 |
fomc | 1,977 | Well, I can't think, Mr. Chairman, of anything that would put a further damper on capital spending plans. | 24 |
fomc | 1,977 | At this time. | 4 |
fomc | 1,977 | I can. A much higher funds rate. | 9 |
fomc | 1,977 | No, I disagree. | 5 |
fomc | 1,977 | I would hope, Mr. Chairman, if there's a serious consideration given to recommending alternatives, that addressing ourselves to market structure be on the list as a possible alternative to an incomes policy. | 37 |
fomc | 1,977 | Well, the incomes policy has so many facets. I see nothing wrong with continuing to fight the mad minimum wage proposals and some of us die-hard conservatives--they still exist--almost won a victory in the House of Representatives. The sentiment is changing. People are beginning to learn. In fact, we had a Secretary of... | 143 |
fomc | 1,977 | You lifted that slightly out of context too, didn't you, Mr. Chairman? | 16 |
fomc | 1,977 | Beg your pardon? | 4 |
fomc | 1,977 | You lifted that praise slightly out of context, too, didn't you? | 14 |
fomc | 1,977 | I did. I did. And in fairness to the truth, Mr. Marshall went on to say, the fact that the increase in the minimum wage will cause unemployment is no reason for not doing it. On the contrary, justice requires that we do it. And we being a government all powerful, having created unemployment, can set about methodically ... | 100 |
fomc | 1,977 | A minor clarification, Mr. Chairman. Dave, about "maintenance of the patient"--you didn't mean that you are now seeking a zero growth rate for the economy? | 33 |
fomc | 1,977 | I didn't. Maintenance of the present growth rate. | 10 |
fomc | 1,977 | Maintenance of the present growth. | 6 |
fomc | 1,977 | Mr. Guffey, please. | 8 |
fomc | 1,977 | Yes, Mr. Chairman, two additional brief comments. One is that as we surveyed our directors and businessmen for this Redbook, it seemed that, for perhaps the first time, absent the agricultural sector, that businessmen were rather optimistic, [with] some evidence that they're beginning to enjoy the recovery for the firs... | 87 |
fomc | 1,977 | By "enjoy" do you mean they really believe it-- | 13 |
fomc | 1,977 | Oh, yes. | 4 |
fomc | 1,977 | --or do you mean more than that? | 9 |
fomc | 1,977 | They're not only willing to believe--the only drags on that kind of confidence level, it seems, are the lack of a tax policy and the lack of an energy policy. But absent those two factors, it seems generally that the businessmen in the midsection of the country are happy with what they see and are looking forward to co... | 289 |
fomc | 1,977 | Moderation. | 3 |
fomc | 1,977 | Moderation. The fact of the matter is, the loss in Kansas City is very substantial, and the loss of lives of course is something that cannot be [unintelligible]. | 37 |
fomc | 1,977 | How did the loss of lives occur? | 8 |
fomc | 1,977 | There is what's called Brush Creek that runs through a very fashionable area of Kansas City, that one of our politicians in the past, Mr. Pendergast, cemented the bottom of simply because he was in the ready-mix [concrete] business. When the creek comes up--it is a drainage area--it's normally a very small trickle. But... | 151 |
fomc | 1,977 | And that--were people drowned? | 7 |
fomc | 1,977 | People were actually swept away. They were in businesses, restaurants, other types of businesses, and the water came in as they tried to exit. It came up very quickly. As they tried to get out they were swept away, or the alternative was that they actually drove into the waters and their cars started bobbling down the ... | 238 |
fomc | 1,977 | Did this adversely financially affect the Nichols company that owned all that area? | 14 |
fomc | 1,977 | It will, of course, because it was all owned by--the plaza area itself, and I don't want to suggest that that the damage was in the plaza area only, because it was city-wide--[but] that's the place where the greatest volume of dollar assets can be seen and where a great deal of damage did indeed occur. But that area is... | 92 |
fomc | 1,977 | I could add, Mr. Chairman, that as far as the Seventh District is concerned, it's rained just about every other day since the first of August, and not in the concentrated form in Kansas City, but it has basically restored a good share of the subsoil moisture lost, and the farmers are now shifting their worries to wheth... | 80 |
fomc | 1,977 | All right, any other comment on the economy? Well, we've ended our economic discussion on a note of sadness, but I think this is one of the most interesting economic discussions we've had in recent months. Well, we'll move on with Mr. Sternlight's statement. | 54 |
fomc | 1,977 | [Statement--see Appendix.] | 6 |
fomc | 1,977 | Thank you, Mr. Sternlight. Mr. Black, please. | 14 |
fomc | 1,977 | Peter, as interest rates move up closer and closer to the point where we could expect some disintermediation, do you think it's likely that volume in foreign purchases, maturities selected, will give us any additional leeway toward moving the funds rate up without incurring disintermediation? | 59 |
fomc | 1,977 | I think these foreign purchases seem to be a steady force in the market. It's hard to predict what might lie ahead. A lot depends on just what the U.K.'s fortunes are. There have been other foreign buyers. Some have been going in the market. A number of them of them have been just taking amounts directly from the Treas... | 106 |
fomc | 1,977 | You would guess there would be some marginal effect, anyway? | 12 |
fomc | 1,977 | I would think so, yes. | 7 |
fomc | 1,977 | All right, thank you. Mr. Wallich now, please. | 14 |
fomc | 1,977 | A couple of points, if I may. One is, as I look at today's call, you're in one of those situations again where you are making matched sale-purchases with foreign accounts and then have to compensate by supplying funds to the rest of the market. Does that kind of situation give you any problem? | 62 |
fomc | 1,977 | It has not provided a serious problem to us. We have been asking foreign accounts to hold down the volume of these repurchase agreements until we get clarification of just where we stand on this situation that was reviewed by the Committee earlier as far as the Internal Revenue [Service] is concerned. | 57 |
fomc | 1,977 | The market knows about these operations, doesn't it? So that it doesn't get a false signal? | 19 |
fomc | 1,977 | That is correct. | 4 |
fomc | 1,977 | When we had that wide spread between discount and funds rate, was the increase in borrowing more or less in line with your expectations? Were you able to make a good forecast of the rise in borrowing? | 40 |
fomc | 1,977 | I would say it exceeded our expectations, and we kind of played it by ear from day to day. It was a complicating factor in the conduct of operations during that period. | 36 |
fomc | 1,977 | Of course, you would say that the expectation of a rise in the discount rate soon would intensify the borrowing, but that would be true of any such situation where a wide spread tended to develop. | 40 |
fomc | 1,977 | Yes, it did seem to proceed with particular speed this time, based on past experience. It seemed to move quicker that way. | 26 |
fomc | 1,977 | Thank you. | 3 |
fomc | 1,977 | All right. Mr. Coldwell, please. | 10 |
fomc | 1,977 | Peter, in your contacts with dealers, do you get the impression that they're looking for higher rates? | 20 |
fomc | 1,977 | I think, on balance, they would expect higher money market rates, particularly. There would be more division of views as one went out on the maturity curve. | 32 |
fomc | 1,977 | Is there any significance to the change in the dealer inventory position, particularly bills? | 16 |
fomc | 1,977 | Well, the bill positions have increased in the last month, a good part of it, I think, because of the Treasury getting back into some net additions to bill supply, whereas they had been, since the earlier part of this, paying off bills or, well, since about the beginning of the summer, just holding steady on bills. And... | 103 |
fomc | 1,977 | Well, that short position is almost liquidated now, isn't it? | 14 |
fomc | 1,977 | They've moved out of the short position into about a small net long [position] in early September, but now they've reestablished a moderate net short position again in the last figures we've had. | 40 |
fomc | 1,977 | You did say, Peter, that the year bill is not up at all from where it was a month-- | 22 |
fomc | 1,977 | I mentioned that the six-month bill remained unchanged. I think the year bill was also-- | 18 |
fomc | 1,977 | Six-month bill. So that it's really the very short end that has risen. | 16 |
fomc | 1,977 | Yes, that's right. | 5 |
fomc | 1,977 | That's interesting. | 3 |
fomc | 1,977 | Any other questions or comments? Yes, Mr. Black. | 12 |
fomc | 1,977 | Mr. Sternlight, there are not many foreign purchases in the very short end are there? | 19 |
fomc | 1,977 | There have been some. And there's also been some liquidation by some of the foreign accounts that are moving out of bills into the intermediate coupons. | 28 |
fomc | 1,977 | I would have thought that you would have responded to Governor Coldwell's question, that that very stable [unintelligible] deal would suggest that the market as a whole is not expecting rates to rise. | 42 |
fomc | 1,977 | Well, I think they're troubled by--they're trying to sort out their own analysis. I think if you polled them, they would talk about expecting some rate increases. | 35 |
fomc | 1,977 | Have you gone back to look at the shape of the yield curve in prior recoveries of this? Where are we in regard to that shape of the yield curve, the slope of it? | 38 |
fomc | 1,977 | Well, there certainly has been a flattening of the yield curve. I wouldn't want to venture, offhand, where we stand. These are the views-- | 32 |
fomc | 1,977 | I happen to have some figures on that, Governor Coldwell, for the briefing I thought I was going to write, but it didn't work out too well. I discarded it. We have a much steeper yield curve now than we did in comparable stages of past recoveries. For example, the 20-year Treasury constant maturity is just about 2 perc... | 162 |
fomc | 1,977 | Isn't it also because interest rates didn't rise for so long, contrary to expectations? | 17 |
fomc | 1,977 | That also, but this is--I was comparing a 20-year issue to the three-month issue. Of course, if credit had been much tighter, well, short-rates would naturally rise more than longer rates just because of the economics and arithmetic of that. But I think that we've been affected by the demands for short securities by ba... | 137 |
fomc | 1,977 | Steve, can you jump to the conclusion that the Committee still has a considerable margin [for] tightening in the short area without impacting on that long-term yield? | 32 |
fomc | 1,977 | I think that you would have, in effect--if you tighten considerably, if short rates went up a percentage point--I believe that in that process, long rates would go up. | 37 |
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