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fomc
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Well, that would have to come to the Committee.
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It wouldn't under--could at least spend $500 million before you get there.
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As the rate drops, the prospects of loss for these operations, of course, diminishes and--
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It does?
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Well, the image of neglect rises as the rate goes down and we continue at the same rate of intervention. So I think there is a case for operating on a larger scale as the rate goes down.
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Refresh my memory, Secretary. Have we a sharing on losses on this swap?
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With the Germans--
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50-50 loss sharing.
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--and profit.
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Yes.
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Well, I'd be surprised if you really wanted to quantify this very precisely.
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We could make a lot of money on this.
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It's clear in the context that the general approach remains as it has been, which certainly has been cautious and subject to day-to-day appraisal in the market. And on that understanding I think we can go to the domestic side now. [Chairman Burns returns to the meeting.] [To Chairman Burns:] I got you up to agenda item...
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Mr. Zeisel, we are ready for you now.
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[Secretary's note: This statement was not found in Committee records.]
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[Interrupting] The increase in the third quarter--
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--was about 4 percent.
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Of what magnitude?
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That was real final demand.
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And real GNP?
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--was 4.7.
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There is another revision, recently made; has that been reported--
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There is a revision that will be coming out this afternoon that you may be aware of. I haven't seen it yet.
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Well, I am aware of it. It's not unfavorable; let me stop there.
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[Secretary's note: This statement was not found in Committee records.]
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What labor force growth are you assuming for 1978?
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About 3-1/4 percent, as I recall.
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In terms of numbers what is it? Do you remember, and how does it compare with the actual number for this year?
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It's slightly less than this year, Mr. Chairman, about 1/2 million less, as I recall, but substantially well above the normal, that is, the increases in population and long-term trends in participation rates.
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Don't bother, I think you've answered my question.
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It's 2.2 million.
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--2.2 million. But we had a much larger increase this year. Didn't we have an increase of--
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Oh yes, closer to 3 million.
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Well, thank you very much for your report. Now I think that it would be well if purely technical questions were put aside and put to the staff after the meeting, or during the recess. And I think we as a Committee should focus our comments around the staff's projections. That is to say, whether we think they're approxi...
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Well, with respect to our forecast, I think it's fair to say that, for the end of 1978 we are high among forecasters. So certainly our staff couldn't be [accused of] not stressing elements of strength. I think that very few forecasters actually have a higher end for 1978; many of them go below 4 [percent], some close t...
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Thank you, Mr. Wallich. Mr. Kimbrel now, please.
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Mr. Chairman, I think from our vantage point we are inclined to feel that the projections for automobiles are rather optimistic, significantly so. We have a similar view about housing. As a matter of fact, it would seem that the projections are almost at the high end of the surveys we've seen available, and I'd like to...
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Yes, we are--certainly in the housing area--at the upper range of forecasts generally being made, and we think we have a reasonable defense of that position, and Mr. Ettin is prepared to provide that. But let me make a few comments first about autos, if I may. I mentioned that we are concerned, obviously, with what app...
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Well, also, you know, I think the neglected factor in the automobile market is the increased participation of women, and to some degree teenagers, in the labor force. Now these new participants in the labor force need transportation. And with public transportation in many parts of the country neglected or poor, and wit...
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I think that's a very good point, and that is reflected in part, of course, in young people establishing their own household. But it is reflected as well in women having to get to work and young people having to get to a job and expecting to have a car to get there--I think a strong support to car purchases. And just t...
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Our housing projection is on the high side of most other projections, and it suggests that, while the housing starts statistics for 1978 will be very close to '77, it's about peaking even now or early in '78 and will be declining modestly. This view is supported, we believe, mainly by the funds availability at thrift i...
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Well, now you've accented the supply of finance; what about the demand side?
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On the demand side, the most recent statistics, as Mr. Zeisel has pointed out, suggest continuing demand for housing. There is no indication that the price increases in housing have, as yet, shown much impact on housing demand. Indeed, one can argue that if the household sector continues to believe that housing is one ...
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The opposite side of that, I think, should be mentioned. There is a school of thought that believes that much of the demand side of single family housing is a product of the collapse in production that took place in earlier years; and that the increases in equity of existing homeowners, together with this pent-up deman...
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That's entirely possible, but I think there is another factor that is of increasing significance to the housing market--
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The psychological factor as a financial asset is a major deterrent to that.
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the increasing awareness on the part of the American public [that] the one really effective hedge against inflation is real estate, and to the average man, that means owning a home.
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This even is one of the arguments made for the higher participation rate by women--that, [being] able to afford housing prices at these levels requires a two-earner household in order to be able to have any prospect [of buying a house]--which encourages women [to enter] the labor market.
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You know, wherever you go these days, people talk about protecting their family and doing something for themselves and their families, and then those who bought a home will recite their experience for the benefit of others. And as long as we have inflation at anything like the present rate, to say nothing of the possib...
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There should be mentioned also, if you do get your major energy program curtailing consumption of gasoline, you do have a significant impact on housing construction out in the far suburbs of major towns, because you cannot create new public transport overnight to service areas like that.
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But the opposite side of that is rebuilding of inner cities and urban centers.
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All right, but not on a single-family basis.
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No.
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You can do it on a condominium or high-rise apartment.
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All right. Mr. Roos now, please.
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I had a question, Mr. Chairman. When Mr. Zeisel reported, he alluded to two factors that confused me somewhat. One was the anticipated drop in real GNP from maybe a 4.7 percent rate to something in the lower 4 percent position, and you stated that this probably won't do much about unemployment. And the question that co...
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Well, each of us has more or less definite views on that. As far as I am concerned, what I find so troublesome about the unemployment problem is not the overall total but its massive concentration among black people, and particularly black teenagers. I think we have an explosive factor in our society in that fact. I th...
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Mr. Chairman, with the minimum wage--
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Beg pardon?
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With the minimum wage, isn't it likely to increase even more?
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Yes. I think so. I think we are on a tragic course. There is some new thinking going on. Whether it will bear fruit or not I don't know. We came closer to a youth differential [wage] in Congress this year than ever before--the youth differential lost by one vote. And that question will come up in the next session of th...
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Mr. Chairman, but aren't those sort of structural problems? In other words, if I understand the purpose of this exercise that we are involved in, [it] is to try to develop some facts from which we will make our later decision with regard to monetary policy. I doubt whether--and I don't say this in a quarrelsome way--bu...
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Oh, I would agree with that entirely.
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And so I wonder whether we don't have to be realistic in what we think we've accomplished in reducing unemployment, or cannot be accomplished; and whether we don't have to be realistic in where we are pinpointing and attempting to get real GNP growth, if we are going to relate that to a later monetary decision. What I'...
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Well, I suggest that we postpone trying to answer that question until we turn to the monetary policy part of our discussion. I'm not going to try to pre-judge the trend of our thinking.
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May I make a quick comment, Mr. Chairman? I think the problem [of] teenagers, which is very dominant now, is in part a demographic one, which in time is going to be changed around by the decline in the birth rate. That means that we have a generation that, moving up the years, will have its problems. But the teenage pr...
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Well, it may work out that way, but you have counterforces, you know--white women entering the labor force in increasing numbers; unskilled, relatively uneducated black teenagers out of jobs. Now that has been going on for some time. It's complicated. I don't think we can do very much about it here except to be alive t...
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Mr. Chairman, our sense of the business outlook has strengthened significantly in the last month or so, and I would come out about where the staff does in the overall outlook, assuming no change in tax policy, inflation policy, or regulatory policy. But if we can get some significant inroads in those areas, as you seem...
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Okay. Mr. Jackson, please.
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I think it's unfortunate that we don't furnish the other FOMC members a table labeled 1-A in the Bluebook, which discusses the details of the time and savings component. The Board gets them, and I think they have some information that is pertinent for our policy discussion.
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That should be corrected in the future, Mr. Axilrod.
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Yes. We'll provide that.
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The reason I bring it up is because I think it contains some information that is pertinent, in my judgment, about the immediate course of the economy. I think it would illustrate that the so-called passbook savings component [for] individuals is down significantly below its previous level. And it illustrates that our p...
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Thank you, Mr. Jackson. Perhaps we cannot conclude our economic discussion before coffee break.
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Mr. Baughman, please. We are resuming our economic discussion.
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Mr. Chairman, with respect to the staff projection, I have no particular quarrel with it. I'm still inclined to the view, and as I mentioned before, it may be a reflection of the economic situation in our District, that the staff projection may well be on the low side rather than the high side. And that's notwithstandi...
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With 100 percent?
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Pardon me?
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Or 100 plus percent loans?
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He indicates that's another facet of the thing on which he sees ground being given. Now there's a related development there in that part of the country, and I'm not in a position to generalize elsewhere--a rather strong foreign demand for income-producing real estate. And this foreign demand is bidding up the price rel...
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The thing to do with their teenagers is to ship them to Texas.
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I have names of members of this family in a certain order, but I'm going to part from what I have now, and having heard from Texas, I think we ought to hear from New England next.
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I think [hearing from] New York would probably have been the best thing, because New England is doing surprisingly well in this expansion, much better than the middle-Atlantic states. This is not the basis for my feeling that I'm modestly more optimistic than the staff forecast. First, for the reason Henry Wallich ment...
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You know, as a political parentheses, it's hard for me to believe that Congress would write a tax bill the effectiveness of which starts in October.
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That's the beginning of the fiscal year, and I think that's the reason.
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I understand that; November follows October--
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It sure does, very closely.
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And therefore the effective date will be sooner.
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But beyond that, Mr. Chairman, it seems to me that the numbers that have come in the past month have been considerably stronger than I had anticipated. I think the employment numbers, for example, plus the increase in the work week at the same time, was surprisingly strong. We have seen a real turn in the basic commodi...
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All right, now. Mr. Volcker, please. This is the time for your balancing act.
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That's right. There is some difference of opinion. I really should have had New York balancing Texas. I could even add northern New Jersey. However, Fairfield County [Connecticut] is booming; Stamford has more headquarters than Houston, I think. It's all moving out of New York City. But in general terms--the staff star...
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Thank you, Mr. Volcker. Mr. Winn now, please.
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Mr. Chairman, I associate myself with being somewhat more optimistic than the staff in terms of the outlook, with a couple of flags, one of which has been mentioned--the automobile area. The parts people and the accessories people are not as optimistic as the basic manufacturers in the outlook for automobiles, and I th...
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Okay, Mr. Winn. Mr. Eastburn now, please.
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Thank you, Mr. Chairman. I agree essentially with the staff projections, although, as Frank indicates, I come from an area that isn't booming. But there is one development that I think will have some effect in the near term, and that is the implications of the coal strike. One of our directors is in the utility field a...
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You know, some years ago, I made a study on the effects of major strikes on the economy--an historical study taking strikes that lasted four weeks or longer in the coal industry, the railroad industry, steel industry. And if you look at the output figures of those industries, yes, the effect was very large, but in the ...
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That's why I stressed the near-term aspects; it seems to me [that] at the end of the year you will find it.
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Near-term influence on rhetoric and some influence on psychology, but not overall activity. Well, this may be different. Thank you, Mr. Eastburn. Mr. Coldwell now, please.
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Mr. Chairman, I am satisfied with the status of the economy today. I think we are having very good improvement. The short run, I don't see much problem through the early part of '78. But I differ from the staff when we get down into mid and late '78--not on the basis of housing or anything of that character. I can see ...
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I haven't been aware. What's been happening in stockpiles?
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