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fomc | 1,978 | Well, you'd need to get some kind of a currency guarantee. | 13 |
fomc | 1,978 | No. Take, for example, one device that the Bundesbank is thinking of. The Bundesbank gets Treasury certificates now, as I understand it, and they're very short-term. Instead, let them be two- or three-year certificates and the Bundesbank can turn around and sell those certificates to its commercial banks and thereby mo... | 134 |
fomc | 1,978 | That's right. But I still don't [fully understand]. Would the bank that's buying take an exchange risk? | 21 |
fomc | 1,978 | The bank that is buying in that case would be holding a dollar security. | 15 |
fomc | 1,978 | A dollar security. | 4 |
fomc | 1,978 | That is not the way I visualize the operation. | 10 |
fomc | 1,978 | The Emminger plan? | 6 |
fomc | 1,978 | I think the idea is to sell D-mark certificates to the [unintelligible] of the government here. | 23 |
fomc | 1,978 | No, no that's the second plan. There are two different things. One is to sell a dollar security; the other is to sell a Treasury security denominated in a foreign currency. | 37 |
fomc | 1,978 | That's the Alan Holmes plan, if I may call it that. That would be a way for the Bundesbank to absorb bank liquidity. But the Treasury bill in that case--or whatever security it was--would be serving I think as the guarantee feature and not as a means of making the merchant bank take the dollar risk. [Those banks] would... | 73 |
fomc | 1,978 | So the Bundesbank would take the dollar risk? | 10 |
fomc | 1,978 | The Bundesbank takes the dollar risk, that's right. But the Bundesbank's liability would show up in the D-mark obligation, I would think. | 30 |
fomc | 1,978 | Doesn't either one of these operations tend to put upward pressure on their rates, thereby narrowing the differential between them and us? | 25 |
fomc | 1,978 | In and of itself, yes. But the central banks in other countries are capable of taking action to ease credit conditions--not only to offset any such sales of Treasury securities but to go beyond that or independently of that. | 44 |
fomc | 1,978 | Another way of putting that, Mr. Chairman, is that it takes away the downward pressure on rates that comes with the expansion in their credit from the support operations. | 33 |
fomc | 1,978 | But we're seeking a widening in spreads. | 8 |
fomc | 1,978 | Well, that seeking of a widening spread is entirely consistent with the sale of Treasury securities abroad, provided foreign central banks cooperate with us, which they are eager to do. Technical problems can be worked out. | 41 |
fomc | 1,978 | [Unintelligible] the question when you said the Germans were interested in mopping up excess liquidity in their economy, because that doesn't sound like something they would want to do if they wanted to widen the spread between the dollar markets [and those] in Germany. | 54 |
fomc | 1,978 | Well, these are not matters of black and white. My language may have misled you here. The Germans are like other people; they have two minds on every issue just as we do. On the one hand, they want to mop up liquidity. On the other hand, they want to stimulate their economy and also to curb inflation. But their thinkin... | 273 |
fomc | 1,978 | Mr. Chairman, I find our intervention policy in the foreign exchange markets very troublesome. On the one hand, I'm very much aware that there are limits to what we can do in intervention. On the other hand, it seems to me that if we do decide to intervene--and if we're going to have an impact--we've got to intervene o... | 235 |
fomc | 1,978 | It has been increasing, I'm sorry to say. | 10 |
fomc | 1,978 | [We're] building up some liabilities and we're not producing, on the confidence side, any really vigorous demonstration to the market that the United States thinks the dollar has come to a level that the risk in this operation is pretty small. Now Chuck says, and quite rightly, that he doesn't know where the dollar sho... | 120 |
fomc | 1,978 | At this point, let's hear from Mr. Pardee and then I think our discussion can be continued. | 21 |
fomc | 1,978 | [Statement--see Appendix.] | 6 |
fomc | 1,978 | Thank you, Mr. Pardee. Mr. Morris made some interesting observations. Frank, you may be right that this is an area where it is very difficult for any one of us, certainly for me, to speak with a sense of authority or great confidence. But there is one thought, a political thought, that I think is tremendously important... | 286 |
fomc | 1,978 | Question to Scott. You use the terms "orderly" and "disorderly" and "efficient" markets. It would be very helpful to me if I had a more precise feeling about your definitions of those. | 44 |
fomc | 1,978 | Oh no, why do you ask that? | 9 |
fomc | 1,978 | Well, because it seems to me that this goes to the issue--to Chuck's issue as to what is a proper exchange rate and when do we intervene and when do we not. | 37 |
fomc | 1,978 | But, you know, these terms have never been defined, really. I don't object to precision and if Mr. Pardee can answer your question in a way that would be helpful to you, God bless him and the rest of us. | 48 |
fomc | 1,978 | Go on Scott, it's all yours. | 8 |
fomc | 1,978 | First, I want to assure everyone that we do not have a rate objective in mind. We do not know what the appropriate rate is or should be. There are no long-term equilibrium conditions. The underlying elements are changing every day, every week, every month, as changes in oil prices and changes in other fundamentals take... | 693 |
fomc | 1,978 | Mr. Pardee, you've made your point. We now all know very precisely what a disorderly market means. | 23 |
fomc | 1,978 | Sounds like a down market to me. | 8 |
fomc | 1,978 | Mr. Eastburn, do you want to continue? | 11 |
fomc | 1,978 | Well, as long as we're getting everything out here on the table, I think there is a further question, and that is: What are the risks of disorderliness and what are the gains of injecting order? | 42 |
fomc | 1,978 | [As for] the risks of disorderliness, I think the Chairman answered that before in terms of President Roos's question. If we back out and we have a disorderly market, then all these other things-- | 44 |
fomc | 1,978 | Well, I understood Larry's question to have to do with the value of the dollar--the more permanent aspects and not the fluctuations from day to day. | 31 |
fomc | 1,978 | Well, at this stage as long as only a one-way risk is perceived--that the dollar can only decline--then we'll have the results the Chairman outlined. Until a two-way risk reemerges, which is what we're trying to establish, [that will be the case]. Once a two-way risk is seen, then we'll have better markets, and I can't... | 80 |
fomc | 1,978 | All right, thank you. Mr. Balles, please, then Mr. Black, and then Mr. Coldwell. | 25 |
fomc | 1,978 | Mr. Chairman, I'd like to come back to the four essential fundamental corrective measures that you talked about. I'm inclined to guess that unless we really succeed on the second of the two that you mentioned--a successful anti-inflation program by the U.S. government--the other three might not work. That is to say tha... | 158 |
fomc | 1,978 | Well, I would be very glad to do that and I've recommended such a program. I don't think it's going to be adopted, but perhaps we might postpone that [discussion] because it will not help us, I think, in dealing with the foreign exchange problem that we're on at the present time. Mr. Black, please. | 66 |
fomc | 1,978 | I wonder if I might ask Mr. Pardee a question. Scott, would you quantify as far as you can--I realize this is a very difficult question--what portion of the movement against the dollar is in the form of multi-national corporations and others engaged in foreign business and investors in the normal course of business try... | 85 |
fomc | 1,978 | Well, I think-- | 5 |
fomc | 1,978 | I'd like to hear the full answer. Would you like to pull over the microphone? | 17 |
fomc | 1,978 | My estimate is that the biggest portion of funds that go through the exchange market essentially comes from the corporations--the broad economic relations that we have in this country as against other countries. We did have a discussion about the role of the banks as speculators during that interim FOMC [conference cal... | 240 |
fomc | 1,978 | Mr. Black, I sat down in Zurich just a week ago, on Tuesday, with leading Swiss bankers and asked them that very question. Unhesitatingly each one said that everybody is in it--people from all over the world as individuals and corporations. I asked more specifically about banks, having satisfied myself that American ba... | 153 |
fomc | 1,978 | When they say "everybody's in it," are they saying they are in it just to protect themselves rather than to speculate? | 26 |
fomc | 1,978 | Both, is what I was told. You know, the [dividing] line is so hard to draw. | 23 |
fomc | 1,978 | One man's speculator is another man's hedger. | 10 |
fomc | 1,978 | Yes, I know it's hard to draw the distinction. But as I see it, and as I perceived what Scott said, I gather that you think there might be a little more of the speculative element than he has suggested. | 45 |
fomc | 1,978 | Perhaps. | 2 |
fomc | 1,978 | I could give you all kinds of examples, but I don't want to because I'm afraid I'll be giving a misperception. | 25 |
fomc | 1,978 | The line is a very fine line. But I think most people--most laymen anyway--think of this as a massive speculative attack. Actually a substantial part of it, an overwhelming part of it, is simply people trying to protect themselves. | 49 |
fomc | 1,978 | Bob, an importer, for example, could [cover] his imports not at all or for three months or for six months or for a year. It makes a tremendous difference in the demand for the currency. And I don't know whether you call it speculation or protection. | 54 |
fomc | 1,978 | It's hard to define, and I realize that. | 10 |
fomc | 1,978 | Mr. Coldwell, please. | 7 |
fomc | 1,978 | Scott, you seem to be working on an attitudinal problem. How much progress have you made? | 21 |
fomc | 1,978 | Well, the last two days the market has been settled and we have not had to intervene. I haven't talked with the Desk in an hour and a half, but-- | 34 |
fomc | 1,978 | No, I don't mean intervention. I mean in terms of attitude. | 14 |
fomc | 1,978 | I think the point that the Chairman outlined has been gotten across--that the U.S. authorities are there and that this earlier credibility-- | 27 |
fomc | 1,978 | I just hate to see you say that, Scott, because it's a premature judgment, I think. We must not reach conclusions on the basis of what has happened in a day or two days or a week, though I understand your attitude. Two days' peace is a close approximation to eternity. | 59 |
fomc | 1,978 | You didn't let me finish; I was going to give the qualifier. I share your view but so far, so good. | 25 |
fomc | 1,978 | Up to an hour and a half ago. | 9 |
fomc | 1,978 | Any other questions or comments? Well, I think a motion to approve, with or without a sigh, the transactions of the foreign desk would now be in order. | 33 |
fomc | 1,978 | I so move. | 4 |
fomc | 1,978 | Second. | 2 |
fomc | 1,978 | The motion has been made and seconded. I hear no objections. Do you have any recommendations to the Committee, Mr. Pardee? | 28 |
fomc | 1,978 | I would simply mention that four swap drawings on the Bundesbank in the amount of $123 million equivalent of marks are coming up for renewal between now and the next meeting. These are first renewals and need only to be noted by the Committee at this stage. | 52 |
fomc | 1,978 | Any question about that? | 5 |
fomc | 1,978 | When do we reach the first second renewal? | 9 |
fomc | 1,978 | April, I think. | 5 |
fomc | 1,978 | Mr. Volcker has [a comment]. | 9 |
fomc | 1,978 | I would note that the Committee in between meetings raised the aggregate limit on its exposure from $1 billion to $1-1/2 billion, as I recall. We're now within $275 million of that. I hope you don't need [additional leeway] if the last two days are a minor omen but when one looks at the perspective to the next meeting ... | 135 |
fomc | 1,978 | Well, let me just understand the rules. If we did nothing today, then the Committee would have to be canvassed. | 25 |
fomc | 1,978 | It would have to be canvassed in any event with the $500 million limit [on transactions between meetings]. But this overall aggregate limit that exists "permanently" is at present closer than the $500 million normal intermeeting limit. My question is whether they might be brought into alignment, so to speak. | 63 |
fomc | 1,978 | Well, what is the sentiment of the Committee? I would only make one comment. In the past we have had no difficulty in getting certain types of actions by the Subcommittee and in reaching the full Committee when required; and the Desk has not really been handicapped. However, there may be an advantage in enlarging the D... | 85 |
fomc | 1,978 | I think I agree with President Volcker that the $500 million in transactions should be the limit. It was intended as the limiting constraint on operations without consulting the Committee. The other is sort of like the national debt limit; it is just hit because [the Desk] might run into [it in the course of executing ... | 111 |
fomc | 1,978 | Any other views or any additional views? I hear no objections to Mr. Volcker's suggestion and if I interpret the silence to mean consent--and unless I hear a word I will interpret it that way--I will take it that this is the decision. All right, thank you very much. We'll move now to a report on the economy; Mr. Kichli... | 103 |
fomc | 1,978 | [Statement--see Appendix.] | 6 |
fomc | 1,978 | [Statement--see Appendix.] | 6 |
fomc | 1,978 | [Statement continued--see Appendix.] | 7 |
fomc | 1,978 | Thank you very much, Mr. Kichline and Mr. Zeisel, for a very illuminating report. I think it would be desirable now for members of the Committee to focus on the broad economic projections made by our staff rather than on technical details. And it would be most helpful if we would indicate general agreement if it exists... | 104 |
fomc | 1,978 | Mr. Chairman, I think the net result of what I am going to say is not going to be a great difference in the average for the whole year. But I see the pattern as significantly different and it perhaps connotes the beginnings of a possible recession at the end of 1978. I think [the staff's] rate of inflation is too low. ... | 296 |
fomc | 1,978 | Thank you, Mr. Coldwell. Mr. Willes next, please. | 16 |
fomc | 1,978 | Could I ask Mr. Coldwell a question, Mr. Chairman? | 14 |
fomc | 1,978 | Please. | 2 |
fomc | 1,978 | You made reference to the beginning of a recession. Are you talking in terms of slowing growth or an actual decline? | 23 |
fomc | 1,978 | I am talking in terms of a major slowing of growth. | 12 |
fomc | 1,978 | But which presumably would move on into an actual decline? | 11 |
fomc | 1,978 | Even with the tax cut? | 6 |
fomc | 1,978 | Even with the tax cut. | 6 |
fomc | 1,978 | All right. Mr. Mark Willes, please. | 11 |
fomc | 1,978 | Thank you. I have one question and then a comment. I don't have a chart on prices in [my set of charts]. Is mine just short or is there none? | 35 |
fomc | 1,978 | No, we did not discuss prices this morning. | 10 |
fomc | 1,978 | You don't have prices and I can forgive that because we talk a great deal about prices. I find it more difficult to forgive the absence of the chart on profits. That we don't talk enough about and we don't think enough about. | 46 |
fomc | 1,978 | Mr. Chairman, I talked about equity prices in my final comment. I think very importantly about profits when talking about equity prices and I am sorry I didn't pull it out more explicitly. But clearly, when talking about a price earnings ratio one is talking about profits. | 53 |
fomc | 1,978 | The material in the Greenbook is consistent with the Chart Show, I take it. There is a price projection and a profits projection in the Greenbook. | 31 |
fomc | 1,978 | Right. | 2 |
fomc | 1,978 | I love to hear talk about profits because I am sufficiently old fashioned to think that business profits and the prospect of profits have a great deal to do with the prospects for the economy. The tendency on the part of economists to talk about the money supply and tax changes as if these little adjustments here and t... | 134 |
fomc | 1,978 | Well, I was, and I guess it is very similar in part to what you just said. The [issues] of prices and profits are very closely related in my mind at the moment. Since we don't have a chart on prices, let me look at the chart on the growth rate for real GNP. Governor Coldwell made, I thought, a fairly cogent argument th... | 165 |
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