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fomc | 1,978 | $10 or $20 million. It can be very flexible. | 13 |
fomc | 1,978 | Which priced drawing would you apply the proceeds to when you make such a repayment? | 16 |
fomc | 1,978 | Well, I think that=s what you have to decide. Do you pay off using a first-in/first-out approach? Or do you try to pick one where the rate is comparable to what you paid? MR. [PARDEE]. In the past we have done both, but we mainly look to the earliest maturities if we don=t face this problem with the second renewal. Usu... | 162 |
fomc | 1,978 | This is a policy question that should be addressed as we [review] these issues at the next meeting, so that we will know what the policy of the Committee is toward the swap agreement. MR. [PARDEE]. We also have a substantial negotiation with the Treasury because they are in debt, too. And sometimes we have to make acco... | 75 |
fomc | 1,978 | Also, I don=t think that this is a policy we could arrive at unilaterally. The Germans will have their views as well as the Treasury and I do think we have to leave considerable room for flexibility to those who operate the Desk in dealing with that issue. Let me return if I may to the question we considered previously... | 199 |
fomc | 1,978 | Just a comment on this loss question. I think this certainly should be secondary to [the Desk's] objectives. But my recollection is that whatever we do with the German swap is going to be swamped by the continuing repayment on the Swiss swap. So, for any relevant reporting period, we are going to show a loss whatever w... | 90 |
fomc | 1,978 | Did you comment on the Swiss transactions in the past month? | 12 |
fomc | 1,978 | I just mentioned them; I didn=t go into a description. If you wish, I can describe the reasons behind them. | 25 |
fomc | 1,978 | Some criticism has been made of our being involved in the Swiss transactions. What was your defense for it? | 21 |
fomc | 1,978 | Well, the thing is that we have operated exclusively in German marks since 1975, but that=s not the only currency that is the source of the disorder or unsettlement in the exchange market. Occasionally the Swiss franc clearly is. This very morning we have a higher Swiss franc, which tends to be pulling up a number of o... | 403 |
fomc | 1,978 | You say "absolutely defensible to the Committee." You are engaging in a bit of rhetoric now. | 21 |
fomc | 1,978 | Well, I=m hopeful it is defensible to the Committee. I have not heard any direct criticism and I=m willing to hear it. | 28 |
fomc | 1,978 | Have you heard criticism from the Treasury? | 8 |
fomc | 1,978 | They have agreed at a policy level, but they have warned us to be light-fingered. And I have been. | 25 |
fomc | 1,978 | Is there any intervention by the Bundesbank in Swiss francs? Is that a fair question? | 18 |
fomc | 1,978 | They don=t. | 4 |
fomc | 1,978 | They don=t? | 4 |
fomc | 1,978 | They do very closely coordinate their operations. They=re on the phone back and forth most of the day. | 21 |
fomc | 1,978 | Mr. Chairman, may I say what Scott was saying just a trifle differently? It seems to me that there are times when intervention in the Swiss franc--if that=s the problem in the market and that=s pushing the market--makes some sense as long as it=s limited. And since it=s a small market, it usually can be quite limited. ... | 123 |
fomc | 1,978 | There are two considerations I would like to put forth, Mr. Chairman. One is that when one is trying to defend a world currency like the dollar, one ought to think of doing it in not just one other currency like the D-mark but to broaden it. After all, the Germans deal in dollars, and that means they=re dealing with th... | 205 |
fomc | 1,978 | I hope you wouldn=t give that answer too quickly. | 11 |
fomc | 1,978 | Oh no, I never would because that would have the obvious effect of making it seem that our resources are much less. | 24 |
fomc | 1,978 | Or that the whole swap network is a charade. | 11 |
fomc | 1,978 | I think we do need to think of broadening the scope [of our operations]. At the same time, I=d like to suggest that we think again about the scale of operations. We went into this enterprise of raising the scale of intervention, as we had some new reasons--the President=s statement, the Treasury coming into the arrange... | 182 |
fomc | 1,978 | Mr. Chairman, I agree with much of what Henry was saying about reducing the scale of operations, but something he said bothers me considerably and it=s something about which I wanted to check with the Desk. At least publicly we have been saying that we are intervening to counter disorderly conditions. And yet we are us... | 92 |
fomc | 1,978 | I did refer to disorder. | 6 |
fomc | 1,978 | But is there a conflict here between using another currency as opposed to intervening only in disorderly [conditions]? | 22 |
fomc | 1,978 | Well, if that other currency is a source of disorder or rapid movement in rate, which is one measure of disorder, then I think it is justified to use that currency--if [the disorder] is localized in that area. | 46 |
fomc | 1,978 | Since 1973 we have operated in five different currencies--the German mark, Swiss franc, Belgian franc, Dutch guilder, and French franc--under conditions in which those markets were particularly disorderly. This is the one occasion where we have limited ourselves strictly to the mark and the Swiss franc. The question of... | 235 |
fomc | 1,978 | Would you or Alan like to comment on the scale of operations point that Henry made? Would you say that the scale of operations has increased over time relative to the scale of disorder? | 36 |
fomc | 1,978 | I think they have been [comparable]. | 9 |
fomc | 1,978 | We will [get] absolutely nowhere, because nobody knows what disorder means, including those who operate the Desk. Yes, we=re using words to justify what we=re doing. Actually we=re in there under the umbrella of disorder, though there is a thought in the minds of practically all concerned to stop or check the deteriora... | 150 |
fomc | 1,978 | Well, I question that, Mr. Chairman. Do you [at the Desk] think that you=re defending, say, 2.04 more strongly than you defended 2.07? I put it in your terms, I think. | 49 |
fomc | 1,978 | I=ll say "no" to that right now, Chuck. | 14 |
fomc | 1,978 | The reason I asked the question was that I didn=t have the same impression that Henry had. It was, as Scott said, a very quiet period for the most part since the last meeting and it was only with this new wave of selling of the dollar that our operations have picked up again. So I was a little surprised at your comment... | 71 |
fomc | 1,978 | Well, I have some data here, though they are approximate only. They show that in January the Treasury and the System in combined operations, both averaged on the days on which we did operate--there were 10 days--something close to $90 million. In February we've operated on a fewer number of days, so far, and we had $70... | 77 |
fomc | 1,978 | This is on the days we operated? | 8 |
fomc | 1,978 | On the days we operated. This is well above the amounts we had in October, November, and December. | 22 |
fomc | 1,978 | Oh, yes, but the 70 is less than the 90. | 15 |
fomc | 1,978 | Henry, you implied that we=re in a new period in which the "presence" pronouncement of the joint Treasury-Federal Reserve [statement] somehow no longer has the weight it had before, and I=d like to understand why you feel that way. | 51 |
fomc | 1,978 | Well, we had a chance to change the perception in the market, technically to shift the demand curve. It may have had some such effect, but that effect has been established and absorbed now and we=re back in the old game of meeting pressure on the dollar. I think we should not now, because we moved to this higher scale,... | 132 |
fomc | 1,978 | I think this is also a matter that your subcommittee may want to make a recommendation on. The frame of reference originally was procedural only. But I don=t think you need restrict yourself to that. Any thought on this subject now, I think, would be helpful. Mr. Willes. | 59 |
fomc | 1,978 | I was going to change the subject. | 8 |
fomc | 1,978 | Could I go back to Governor Partee=s question for just a moment? He asked if you defended 2.04 the same as you defended 2.06 or something like that. You said "no." | 43 |
fomc | 1,978 | I said, "Did you defend it [more strongly]?" | 13 |
fomc | 1,978 | All right. I think the question is not that but would you defend against a quarter percent reduction or deterioration in the exchange rate harder now than you did before? | 32 |
fomc | 1,978 | I don=t think there is any discernable difference in our-- | 13 |
fomc | 1,978 | It=s a question of the trigger point in the scale in which we are prepared to operate at the moment. In the early operations back in October, November, and December, we were prepared to allow a quarter of a percent or a half percent drop in the dollar rate before we went into the market. And at that moment we would off... | 248 |
fomc | 1,978 | But when do you go into the market? That=s the question. | 14 |
fomc | 1,978 | This is not so much on a quarter percent or a half percent. Yesterday I let the dollar drop a whole percent before we made a gesture to the market, which was sufficient at that stage. People saw us, [said] "Okay, fine" and then they went back about their business and the dollar rebounded. It=s that kind of credibility ... | 154 |
fomc | 1,978 | I do expect that this will be the last meeting at which I=ll be presiding. In view of that, I=ll make a comment now which previously, under normal conditions, I would have delayed making. But in making this comment, I must advise the Committee once again that everything that is said in this room at all times must be tr... | 260 |
fomc | 1,978 | I think I understood the reports to suggest that when the Swiss announced their new posture, which in a couple of respects presumably makes it more difficult for people to acquire Swiss francs, the dollar responded favorably. It would seem to me that that should simply divert speculative funds from the Swiss franc to t... | 81 |
fomc | 1,978 | There were some sales in Swiss francs going into marks but the basic unit for dealing [in the market] is the dollar. The dollar rate moved generally across the board against other currencies. There will be some movements in and out of these other currencies and between these other currencies. | 55 |
fomc | 1,978 | It=s a bit like trading in bills, I think--the old argument. You=re supplying, I guess, much needed or much desired foreign currencies through your swaps and there will be arbitrage between the currencies. And the question is: Do you get more by trading in a range of currencies or in only one currency and assuming the ... | 82 |
fomc | 1,978 | Less so in the spot market than the forward market. | 11 |
fomc | 1,978 | I assume it would be erroneous to take the next step and say that if the Germans also had done something similar to what the Swiss did that that likewise would have had a favorable effect on the mark-dollar relationship. | 42 |
fomc | 1,978 | Oh, yes. | 4 |
fomc | 1,978 | Well, we=re finally ready for your question, Mr. Willes. | 15 |
fomc | 1,978 | The second question: Is the probability that the government will take the kind of fundamental steps that you talked about going up, going down, or staying where it was? | 33 |
fomc | 1,978 | If anything, it's probably going down. On the other hand, the probability of certain bridging actions short of fundamental actions has gone up some. | 28 |
fomc | 1,978 | Could you explain, Mr. Chairman, for my benefit at least, what bridging actions are? | 19 |
fomc | 1,978 | Bridging actions would include the sale of gold into the private market, the sale of SDRs to central banks, or the executive taking certain action on the energy problem such as imposing a ceiling on imports or imposing a special tariff. The President can certainly do the latter and I believe he can do the former. I wou... | 138 |
fomc | 1,978 | Would you include in your bridging actions or your fundamental actions a clear signal that we are determined to decelerate monetary growth relative to the rate of monetary growth of other nations involved? Would a clear signal by either this group or by the government that we are determined to come to grips with that n... | 101 |
fomc | 1,978 | I think that is a question that we can best consider a little later in this meeting when we turn to the longer-range targets. | 26 |
fomc | 1,978 | That=s correct, Mr. Chairman. I don=t want to leave the impression that our monetary growth has accelerated relative to the Germans, in particular. I think in fact it=s the opposite. | 39 |
fomc | 1,978 | Excuse me, sir, but from the graphs I=ve seen the trend in the direction of our monetary growth relative to the direction of monetary growth in many of these other nations I think is a negative factor. Certainly, inflation in Germany is higher than it is here, but the trend-- | 59 |
fomc | 1,978 | It was lower. | 4 |
fomc | 1,978 | The rate of growth of inflation is lower? | 9 |
fomc | 1,978 | The rate of money growth [in their] M3 is higher than in our M1, but not higher than our M3, which is really a different number. | 34 |
fomc | 1,978 | Their M1 is higher than our-- | 8 |
fomc | 1,978 | The direction of the trend-- | 6 |
fomc | 1,978 | I think that Mr. Roos is fundamentally correct if he=s thinking of periods of a year or longer. There has been a deceleration in monetary growth rates and of inflation rates around the world in contrast to the United States. | 46 |
fomc | 1,978 | In inflation rates. | 4 |
fomc | 1,978 | I believe in monetary growth rates as well. Well, it depends on the period. If you take longer periods--I=m not sure about this--I think as a broad generalization that would stand up. | 42 |
fomc | 1,978 | I think, Mr. Chairman, that you=re right. Though in particular in the German case, as Governor Wallich was commenting, I think the deceleration, if any, is imperceptible relative to the United States. But for most of the weaker countries, there has been a sharp deceleration in their rates of monetary expansion. | 68 |
fomc | 1,978 | Gentlemen, perhaps the time has come to move along in our agenda. Oh, I=m advised that Mr. Holmes has still another recommendation. | 30 |
fomc | 1,978 | Mr. Chairman, regrettably, I do have one final recommendation. As you know, the Committee has authorized an open position of $1.75 billion in foreign currencies. At the present time, we have a leeway of exactly $106 million, which is not very large relative to potential [operations]. Hopefully, we won=t have to [breach... | 210 |
fomc | 1,978 | Let me ask you a question, a procedural question. You say this has to be an action of the full Committee. Could the full Committee delegate this power to its Foreign Currency Subcommittee? | 38 |
fomc | 1,978 | I believe it could, but I leave it to a parliamentarian. | 14 |
fomc | 1,978 | All right, we have Mr. Holmes=s recommendation. | 11 |
fomc | 1,978 | That would give you about $350 million in leeway if we went to $2 billion? | 19 |
fomc | 1,978 | Yes, about $376 million. | 7 |
fomc | 1,978 | Didn=t you say [the open position limit is] $1.75 billion right now? | 20 |
fomc | 1,978 | Yes, but they=re $100 million under that now. | 12 |
fomc | 1,978 | I beg your pardon? | 5 |
fomc | 1,978 | We have $100 million of leeway and an additional $250 million would make it roughly $350 million. | 22 |
fomc | 1,978 | I personally would prefer to have that power delegated to the Subcommittee rather than have an enlargement at this time. But this is something for the Committee to decide. | 32 |
fomc | 1,978 | What=s the purpose of that? I don=t understand your reasoning for the delegation. | 17 |
fomc | 1,978 | The reason for the delegation has been stated indirectly by Governor Wallich, who wants to keep a tighter rein on the scale of operations at the Desk. | 30 |
fomc | 1,978 | Mr. Chairman, I would prefer, I think, not to do it through that device. We have a $300 million limit on the Desk before the Subcommittee, as I understand, needs to approve an increase, and I would rather see us reduce that $300 million. But I think this [issue] of overall exposure is properly a full Committee responsi... | 115 |
fomc | 1,978 | You're agreeable to $2 billion? | 7 |
fomc | 1,978 | Yes. | 2 |
fomc | 1,978 | Leaving it at $2 billion or enlarging it? | 11 |
fomc | 1,978 | Well, it=s $1,750 million now, as I understand it, and the proposal is to raise it to $2 billion, which would give the Desk in practical terms $350 million leeway. That leeway, however, could be constrained by the Subcommittee. | 56 |
fomc | 1,978 | It is constrained by the Subcommittee. | 8 |
fomc | 1,978 | And I think $2 billion is suitable. I hope you don=t use it, but as a matter of protection, I think we need to give you that [leeway]. | 36 |
fomc | 1,978 | I would second that. | 5 |
fomc | 1,978 | No action would mean you=d have what? | 9 |
fomc | 1,978 | A [limit on the] total of $1,750 million, which would give us a leeway of about $100 million. | 27 |
fomc | 1,978 | About $100 million? | 5 |
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