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fomc | 1,978 | Well, now to get us back in order. Murray, you'd better put Henry's name down. Phil Jackson. | 23 |
fomc | 1,978 | I think we're in a process [typical of] most finance committees. Every member of the committee wants to add another condition to the loan, and that's a mistake. I'd like to ask some questions because of the suggestions made earlier. How much yen is being traded and how much is being bought by the Japanese now? And in w... | 145 |
fomc | 1,978 | Well, the magnitude can be very big. The Japanese themselves did of intervention in March, as the rate moved against them. And many people felt that they were just sitting ducks. Each day they moved, you'd throw another $100 million at them and they'd move again. You'd take your profits and then throw another $100 mill... | 574 |
fomc | 1,978 | May I ask one more question in that connection? To what extent will our announcement of intervention make it possible for some major holders of dollar reserves to feel that they can then make the currency shift to yen reserves with some more assurance that the market will be broad enough to get out later if they want t... | 154 |
fomc | 1,978 | We would still have a floating exchange rate and the key element in our experience with the German mark was not to peg the rate. Once we peg, then we provide the substitution facility and everybody will come at it. But as long as they recognize that the risk will go both ways-- | 57 |
fomc | 1,978 | We can't have a zone or a peg. | 9 |
fomc | 1,978 | Well, I recognize that. | 6 |
fomc | 1,978 | The yen would run up. | 6 |
fomc | 1,978 | That's right. | 3 |
fomc | 1,978 | I just wanted to discuss it because it strikes me that it's one of the risks that we have to be very alert to--that we don't provide the vehicle for our own destruction. My impression is that by careful structuring and some very nasty demands, if I might characterize them that way--at least the Japanese probably would-... | 71 |
fomc | 1,978 | Ernie Baughman. | 6 |
fomc | 1,978 | Mr. Chairman, first a question to Mr. Pardee. Could you hang any amounts on the concept of the operations you're suggesting as compared to the $4 billion? | 34 |
fomc | 1,978 | Well, it all depends on how the market takes it and what happens afterwards. The first day or two I would anticipate that we should be there forcefully when the market tests this. We will be tested by the market. Remember, back in January we had a testing period. | 56 |
fomc | 1,978 | In marks, too. | 5 |
fomc | 1,978 | In marks, and we may be tested in other currencies, including Swiss francs. So we ought to be thinking in terms of a budget in the first couple of days of $200 to $300 million. If we aren't prepared to spend it then, we'll have to spend it later on. But if that doesn't work--of course, you'll have other elements in the... | 166 |
fomc | 1,978 | Is it fair to say that you are thinking in terms of hundreds of millions rather than billions? | 19 |
fomc | 1,978 | I'm not thinking in terms of billions. But if that is part of the announcement, then that would help--that the amount that we might have to deal with is credible. | 35 |
fomc | 1,978 | Mr. Chairman, I would have to admit to never having been an enthusiastic supporter of the swaps program. And I guess I cannot generate much enthusiasm for the [proposed] program. It seems to me that our problem is more basic. Unless we can demonstrate by some means that we're going to make some progress in getting hold... | 150 |
fomc | 1,978 | The Board of Governors has the right to set any reserve requirements they want. | 15 |
fomc | 1,978 | These are eurodollar borrowings--borrowings by banks from the eurodollar market. | 19 |
fomc | 1,978 | Yes, we put [a reserve requirement] on specially some years ago; there hadn't been any before that. | 22 |
fomc | 1,978 | So this wouldn't come under the 3 percent limit on time deposits. | 14 |
fomc | 1,978 | No, no. Steve, am I correct? | 10 |
fomc | 1,978 | Yes, as an exemption. Reg. D would provide a basis and also Reg. M for both. | 21 |
fomc | 1,978 | What is the rate now--3 or 4 percent? | 12 |
fomc | 1,978 | Four. | 2 |
fomc | 1,978 | It's 4 on all. | 6 |
fomc | 1,978 | It's 4 on borrowings from branches and 4 on borrowings directly for that branch. | 19 |
fomc | 1,978 | The question is how much--you can go up or down--you can differentiate them and create a bias in favor of pulling in eurodollars. Thank you. Bones. | 35 |
fomc | 1,978 | Mr. Chairman, I, too, have not been particularly fond of swap lines all along, so I have some difficulty generating any warmth for this one. I'd like to feel that maybe we could move in this area and generate some favorable psychology, recognizing that stability would be desirable now. But these numbers that are sugges... | 189 |
fomc | 1,978 | Thank you. Bob. | 5 |
fomc | 1,978 | Well, I have to say that I do have some enthusiasm, although it's in a lesser of evils department, I'll admit. I think Scott has given a good explanation of the technical side of this and I concur in what he has had to say. I know exactly what John Balles is talking about. I've had the same experience, having been in J... | 401 |
fomc | 1,978 | Thank you, Bob. Henry Wallich. | 9 |
fomc | 1,978 | I've been a proponent of a yen intervention. I've changed my mind, given the vicissitudes faced by the dollar, but in my view what we should do here is to support the dollar rather than to hold down the yen. The Japanese can do all of that themselves. They can do $800 million in a day and I don't think they need any ad... | 543 |
fomc | 1,978 | Thank you, Henry. Paul. | 7 |
fomc | 1,978 | Well, [everything] has been said, I suppose, at this stage of the game, although not always in the same way or with the same meaning. Everybody approaches it from a different point of view. You did emphasize right from the start the importance of a bargain here, and one of the reasons we haven't intervened was that the... | 671 |
fomc | 1,978 | Phil, did you mean a take-out from Treasury in terms of how we get the yen to repay? | 21 |
fomc | 1,978 | No. I meant in terms of conversion of the swap line into long-term bonds. | 17 |
fomc | 1,978 | So you don't need the yen. I'm saying that we ought to get the yen to repay from the Japanese. | 22 |
fomc | 1,978 | But if we do that, Paul, then we have not solved the problem. Things continue, and we exacerbate it by-- | 26 |
fomc | 1,978 | We're going to get it from the Bank of Japan, not from the market. | 16 |
fomc | 1,978 | Well,-- | 2 |
fomc | 1,978 | It throws the risk back on them. | 8 |
fomc | 1,978 | From the time you close out, they take the risk. The only reason I wanted to raise the question again is that I'm not sure it would be possible in 48 hours for the Treasury to commit to a yen-denominated [bond]. I just don't know. | 53 |
fomc | 1,978 | They did a long-term denominated D-mark bond before. | 12 |
fomc | 1,978 | But why wouldn't you rather have the Bank of Japan do it? What advantages are there for having the Treasury do it, assuming they will do it? | 30 |
fomc | 1,978 | For one thing you continue to keep those dollars off the market. If you dump this back on the Japanese central bank, you know perfectly well they're going to take those reserves and put them out into the market again, as they've been doing with their own reserves. | 52 |
fomc | 1,978 | Well, they do that with a lot of their intervention anyway. The amount involved here, I think, wouldn't affect that volume significantly. | 27 |
fomc | 1,978 | What I'm talking about in the Treasury is that I'm not sure they can take the currency exchange risk--an unknown risk in advance without legislation. That is what I'm saying. I don't think they have any room in their-- | 44 |
fomc | 1,978 | It's outmoded. | 5 |
fomc | 1,978 | It's completely out of line. | 6 |
fomc | 1,978 | That's what I thought. | 5 |
fomc | 1,978 | So I don't see how they can agree to something [like that]. | 14 |
fomc | 1,978 | The [ESF] would have to take the risk of their swap too and I don't see how they're going to manage that. If they can manage one [unintelligible] they can manage the other. | 43 |
fomc | 1,978 | They have enough accounting problems now. | 7 |
fomc | 1,978 | They may not be able to. | 7 |
fomc | 1,978 | I would not insist that the Treasury take any major part of this for that simple reason--their financial capacity. We want their support. We want it publicly. All of these political considerations that have been raised are very valid and there's no point in doing it unless we really have White House support and Treasur... | 62 |
fomc | 1,978 | As far as any loss on transactions is concerned, it comes right out of the Treasury because our earnings go to the Treasury. If we don't have it, it comes out of the Treasury. | 38 |
fomc | 1,978 | Yes. It's just a question of which pocket it comes out of. | 14 |
fomc | 1,978 | In that sense, it doesn't make any difference which pocket it is. Okay thank you, Paul. Dave Eastburn has been trying to get a word in here edgewise. | 35 |
fomc | 1,978 | Very briefly, Mr. Chairman, I'd just like to join those who have expressed reluctance on this. That's not from the point of view of any fondness or lack of fondness for swaps per se, but I have skepticism as to how much effect this will have and how well it will work. We're dealing with credibility and psychology here ... | 108 |
fomc | 1,978 | Thank you, Dave. I think we've heard from all the members of the Committee, except Willis Winn and Mark Willes. Do you have anything to say? | 32 |
fomc | 1,978 | No I really don't, Mr. Chairman. | 9 |
fomc | 1,978 | [Would you] say yes or no? | 9 |
fomc | 1,978 | I share the skepticism. I think we are again addressing the symptoms and not the real problem. I'd rather see our attention focused on the real issues and not divert our attention here. | 36 |
fomc | 1,978 | Mark. | 2 |
fomc | 1,978 | I have nothing to add. I am on the side of those who are skeptical. | 17 |
fomc | 1,978 | I would add only a couple of words. I don't think there's any point in our taking action on a swap agreement to do intervention for the sake of the Japanese. We should only do it for the sake of the United States, believing that there is no good mechanism to prevent money panics in the world, even though we may have cr... | 356 |
fomc | 1,978 | Well, I'm very pleased with what you just said. I concur with Henry and Philip and whoever else was suspicious. There's an underlying problem here that's got to be solved. Now, we can try with intervention and a stop-gap measure. But I'm sincerely suspicious of the effectiveness of that. | 57 |
fomc | 1,978 | If I counted noses correctly, on the Committee there were seven who expressed themselves in favor of pursuing this course and four who either felt we shouldn't do it or were skeptical. The four who expressed disagreement or skepticism would be Ernie, Dave, Mark, and Willis. | 53 |
fomc | 1,978 | I would consider myself in that group if we were not going into full-scale intervention. | 17 |
fomc | 1,978 | Okay, let's put a question mark. It depends on the terms in your case. I think it depends on terms for all of us. SEVERAL. Yes, the conditions are important. | 39 |
fomc | 1,978 | So I think we would need [to know them]. I want to be sure I don't mistake this. But there seems to be a clear majority to let us see what can be developed. Obviously, we don't want to open the subject with the Japanese until we know more about a governmental program because the last thing we'd want is to have the Japa... | 131 |
fomc | 1,978 | That clock is slow. | 5 |
fomc | 1,978 | That clock is very slow. That's right; the electricity must have been off. I think the only thing we can do is to come back to the Committee by phone or otherwise and get clearance for the details. Dave. | 44 |
fomc | 1,978 | I'd just like to say that, speaking for myself, on a matter like this it seems to me important for the Committee to be fairly united and not to have considerable dissent on this kind of action. | 40 |
fomc | 1,978 | Oh, yes. Anyway, with that guidance, we will go forward. Unless there are any more comments on that, we'll keep you fully apprised and ask you to keep extremely close confidence about this because this is information that can affect markets. Therefore, we have a very high fiduciary duty to see that it is not handled th... | 420 |
fomc | 1,978 | Good luck. | 3 |
fomc | 1,978 | The luncheon is on for the Presidents and the host will be the Board's Vice Chairman Gardner. And I'll have a sandwich in my office in five minutes. | 31 |
fomc | 1,978 | We're missing a couple of people, but it is 9:30 so I think we will proceed. I think the most important order of business this morning is to welcome Nancy Teeters to the Board of Governors and to the FOMC. It's very nice to have your first full day at the Federal Open Market Committee meeting; my first day was testifyi... | 106 |
fomc | 1,978 | I've done quite a bit of homework. | 8 |
fomc | 1,978 | Well, it gets worse. I would also like to say, Larry, how pleased we are to see you back [though] with your cane. It was probably the low point of humor last night--I won't give any attribution--when they said that was because you were a Keynesian. I thought I would not really be able to have [your] support. Nonetheles... | 205 |
fomc | 1,978 | [Statement--see Appendix.] | 6 |
fomc | 1,978 | Is it possible to so look toward future operations as to make it plausible that the Treasury and the Fed will get out of debt at about the same time--that we are more or less in step in terms of the 50-50 on new drawings and 60-40 on when we purchase D-marks? | 63 |
fomc | 1,978 | It will be closer than it was before now that we are drawing on the basis of 50-50 but we are repaying on the basis of 60-40. Rounding it off, we have about $700 million left. | 48 |
fomc | 1,978 | That's 7 to 3 and we're repaying 6 to 4; it's closer than it was before. It would be hard to calibrate it so we'd both be out of debt at the same time. It's not unreasonable to say that that's a possibility. | 53 |
fomc | 1,978 | It's close, yes. | 5 |
fomc | 1,978 | We've gone through a number of actions and announcements, and so forth, and seen the consequences of them. Do you have a judgment as to whether or not future actions of a similar character or scope would have any impact on the marketplace? In other words, I'm really asking your judgment as to whether or not we're about... | 106 |
fomc | 1,978 | This is a very difficult question because the market is now so pessimistic, so bearish, and so negative on everything that comes out. It's not everybody; many people out there feel as we do that the dollar is oversold, unrealistically low, undervalued--all of the terms that we bring out under these circumstances. But t... | 424 |
fomc | 1,978 | Larry. | 2 |
fomc | 1,978 | Scott, assuming that this gas bill passes--and there's been a lot of difference of opinion as to whether or not the energy package is really important--what would be your thinking as to the effect on the dollar? And how long-lasting will that effect be if next week this package passes? | 58 |
fomc | 1,978 | I think it will help, and it may give [the dollar] a brief rise. But I'm disappointed in the reaction of the market to the Camp David [outcome]. They were all focusing on it, speculating up and down last week. And then when it went through positively, for all intents and purposes, the dollar is now lower than it was be... | 122 |
fomc | 1,978 | Bob Mayo. | 3 |
fomc | 1,978 | I had the same question. | 6 |
fomc | 1,978 | Thank you very much. Now we'll turn to action to ratify the transactions since the previous meeting. You've all had the packet on transactions. Are there any questions or comments? May I have a motion to approve? | 43 |
fomc | 1,978 | I move. | 3 |
fomc | 1,978 | Second? | 2 |
fomc | 1,978 | Second. | 2 |
fomc | 1,978 | Any discussion? All in favor say "aye." SEVERAL. Aye. | 17 |
fomc | 1,978 | Opposed? So voted. Now we'll turn to consideration of the Manager's recommendation with respect to foreign currency operations. Alan Holmes. | 26 |
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