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The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies. Federal Reserve Bank of St. Louis  I  Collection: Paul A. Volcker Papers Call Number: MC279  Box 9  Preferred Citation: General Correspondence, 1982 January-August; Paul A. Volcker Papers, Box 9; Public Policy Papers, Department of Rare Books and Special Collections, Princeton University Library Find it online: and haps:// The digitization ofthis collection was made possible by the Federal Reserve Bank of St. Louis. From the collections of the Seeley G. Mudd Manuscript Library, Princeton, NJ These documents can only be used for educational and research purposes ("fair use") as per United States copyright law. By accessing this file, all users agree that their use falls within fair use as defined by the copyright law of the United States. 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Mudd Manuscript Library 65 Olden Street Princeton, NJ 08540 609-258-6345 609-258-3385 (fax) Federal Reserve Bank of St. Louis  GOVERNORS BOARD CI OE -T-HE RiSi1RVE FIDE.R At  04 1881 JUI4 - I PA I: RECEIVED CW,IP,MAP OFFICE -Or THE STATE OF NEW YORK  BANKING DEPARTMENT MURIEL SIEBERT  Two WORLD TRADE CENTER NEW YORK, N.Y. 10047  •  111UPERINTIENDENT  April 23, 1982  Hon. Paul A. Volcker Chairman, Board of Governors of The Federal Reserve System 20th St. and Constitution Ave., N.W. Washington, D.C. 20551  Dear Chairman Volcker:  The enclosed resolution was adopted by the New York State Banking Board at its meeting held on April 13, 1982 as an expression of its concern over the acquisition of United States banks by foreign investors. The Banking Board is urging that an analysis be made of the issues related to foreign acquisitions of banks so that an overall policy can be developed on such acquisitions.  Sincerely,  Secretary of the Banking Board  Enc. Federal Reserve Bank of St. Louis  cn  State 0/ flew yorh, Nanking fit epartment RESOLUTION WHEREAS, the acquisition of control of a New York banking organization by foreign interests raises important issues concerning the strength and continuity of operation of the acquired bank, the maintenance of competitive equality among U.S. and foreign banking organizations and the responsiveness of foreign investors to local banking needs; and WHEREAS, these important issues are not adequately addressed by existing State and Federal legislation; and WHEREAS, the existence of the dual banking system requires that any meaningful attempt to create a comprehensive policy concerning foreign acquisitions of New York banking organizations must involve a cooperative effort among State and Federal officials; and WHEREAS, it is in the public interest that the acquisition of control of a New York banking organization by foreign interests be subject to prior review and approval by State and Federal authorities pursuant to comprehensive and uniformly administered criteria designed to maintain competitive equality among U.S. and foreign banks and to ensure the continuance of the New York banking organization as an institution committed to serve the people of the State; NOW, THEREFORE, BE IT RESOLVED THAT The appropriate elected officials and governmental agencies in Albany and Washington, D.C. be requested to undertake, in conjunction with the New York State Banking Department, an analysis of the issues presented by foreign acquisitions of banking organizations in order to develop an overall policy on such acquisitions. I, GARY BRODY, Deputy Superintendent of Banks and Secretary of the Banking Board of the State of New York, DO HEREBY CERTIFY that the foregoing copy of a resolution that was adopted by the Board on April 13, 1982, is a true and correct copy thereof. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of the Banking Department this // day of April, nineteen hundred and eighty-two. Federal Reserve Bank of St. Louis  Secretary of t  Banking Boa  ADMINISTRATIVE CONFERENCE OF THE UNITEDrsrli:LA .RiAinC OEF Fs: 2120 L STREET, N.W. SUITE 500 WASHINGTON, D.C. 20037  1981JUN - I  (202) 254-7020 OFFICE OF THE CHAIRMAN  .... : . 1,1,/  r(.  III  NI i  gro.82-A-049 OFFICE r!):4. F. Iles .  CI -n -n c, rr: c -1  May 28, 1982  ..- r•-1  La cp It A  r'4 .7.-  f" ...< Cr, 0.  Paul A. Volcker Federal Reserve System 20th & Constitution Avenue, N.W. Washington, D.C. 20551  Dear Mr. Volcker: The Administrative Conference of the United States, in accordance with its continuing mandate to study administrative procedure and to develop recommendations on methods of enhancing the efficiency and fairness of government procedures, is conducting an examination of the effects of the Government in the Sunshine Act. I am writing to request that you participate in this study by completing and returning the enclosed questionnaire. The Government in the Sunshine Act (The Sunshine Act) was enacted in 1976 to provide the public with "the fullest practicable information regarding the decisionmaking processes of the Federal Government." To accomplish this goal the Sunshine Act requires all agencies headed by a collegial body to permit public attendance at meetings (subject to certain exceptions) at which agency business is conducted. The Administrative Conference is trying to determine what impact, if any, this legislation has had on the quality and character of decisionmaking in collegial agencies subject to the Sunshine Act. Our study is being conducted by a team of consultants lead by Professor David Welborn of the Political Science Department at the University of Tennessee. Professor Welborn is a well-known scholar in the area of governmental operations and is the author of several works on federal administrative agencies. I believe that your responses to the questions in this survey will provide our consultants with valuable data, unobtainable in any other form, and ultimately may result in improvements in the operation of the Sunshine Act. On behalf of the Administrative Conference, I thank you for your cooperation in this project and assure you that time required to complete and return the questionnaire will be well spent. Federal Reserve Bank of St. Louis  Sincerely,  d Loren A. Smith Chairman  I Charles M. Bliss Chairman of the Board and Chief Executive Officer  , 6 Federal Reserve Bank of St. Louis  F-%kx HARRIS BANK August 25, 1982 Mr. Paul A. Volcker, Chairman Board of Governors of the Federal Reserve System 20551 Washington, D.C. Dear Chairman Volcker: The purpose of my letter is to urge you to defer the comment period on the so-called "noon presentment issue" from September 20 until at least November 1, 1982. I believe that commercial bankers, especially those heavily enga.ged in correspondent banking, are only beginning to understand some of the implications of the directives given by the Monetary Control Act of 1980 to the Federal Reserve Bank to offer competitive services and explicit pricing. While noon presentment by itself does not appear to be a major issue with many banks, it is part of a much larger picture which we would like to explore more carefully both internally and with other banks prior to giving our comments to the Federal Reserve. Consequently, I hope that you will extend the comment period so that the industry can give your bank more balanced and complete view of this and other mutual areas of interest. Kindest regards. Sincerely, ///-  (//,4 a,L HP Copy to Mr. Silas Keehn, President Federal Reserve Bank of Chicago  Harris Trust and Savings Bank 111 West Monroe Street Chicago, Illinois 60603 Wholly owned subsidiary of Harris Bankcorp,Inc.  ADMINISTRATIVE CONFERENCE OF THE UNITED STVS0 2120 L STREET, N.W. SUITE 500 WASHINGTON, D.C. 20037 (202) 254-7020  OFFICE OF THE CHAIRMAN  August 19, 1982  The Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Washington, D.C. 20551  ".1:1  ;I:ZERtki. IStl AUG 23  .1 12: P,  30  R.ECENE..11 OFFiCE OF  lpgq  Dear 111r—c,44.aip-Fftan: The Administrative Conference of the United States, at its Twenty-fourth Plenary Session on June 17, 1982, adopted Recommendation 82-1: "Exemption (bX4) of the Freedom of Information Act." The Recommendation was developed by the Conference Committee on Regulation of Business with the assistance of consultants James T. O'Reilly of Cincinnati, Ohio and Russell B. Stevenson, Jr. of the National Law Center, George Washington University. I am enclosing a copy of the Recommendation and the reports of the consultants. Recommendation 82-1 proposes amendments to the Freedom of Information Act (FOIA), as well as the adoption of certain procedures by federal agencies, that would serve better to protect the legitimate interests of persons who submit valuable confidential information to the agencies. The proposed FOIA amendments would define the scope of exemption (b)(4) and create a judicial cause of action in which a submitter of confidential information could sue to prevent its disclosure under FOIA. Congress is also urged to amend FOIA to require or authorize several agency procedural devices to assure that submitters are given notice of an intended agency release of their information whenever there is a reasonable possibility that the information is covered by exemption (bX4), and that submitters be provided an opportunity to contest an intended release informally through written submissions. Federal Reserve Bank of St. Louis  At the agency level, Recommendation 82-1 contains the following central features: Notice. Agencies would provide notice to submitters under certain specified conditions whenever a preliminary agency decision has been made to release the submitter's information. (Part B1) Determination of exempt status. Submitters would be given an opportunity to provide written objections to release, and the agency's final decision would he made on an informal basis. (Part B3) Final decision to disclose. A final agency decision to disclose information claimed to he exempt under (b)(4) would be made by an agency official of a rank equivalent to that of the official making decisions to withhold under FOIA. (Part B5) Information handling procedures. Agencies would consider the use of premarking to aid in identifying exempt information, as well as the use of categories of exempt and non-exempt material. (Part B2)  All of the agency procedural protections addressed by Recommendation 82-1 can be adopted in some form by the agencies without the need for authorizing legislation, and the Recommendation urges the agencies immediately to adopt these procedures to the extent permitted by law. I request your support and cooperation in implementing the Recommendation within the Board of Governors of the Federal Reserve System. I would appreciate your advising me by October 1, 1982 of the Board's practices in this area and of the steps you are taking or planning to take to comply with the procedures specified in Recommendation 82-1. William C. Bush of my office will be pleased to consult with your staff in the implementation of this recommendation. Sincerely,  den Loren A. Smith Chairman Enclosure cc: Mr. Michael Bradfield Federal Reserve Bank of St. Louis  1(  1  nt)yaricas EnARo OF or L.IVESIIRA FEDER,  %.  1S82 AUG 13 V4, S: 134 August 10, 1982  REC.UVED • CiVORMAr OFFICE -or itiE  Mr. Paul A. Volcker Chairman The Board of Governors of the Federal Reserve System Constitution Avenue and 20th St., N.W. Washington, D.C. 20551 Dear Mr. Volcker:  The great Roman Statesman Cicero once said that citizens had certain obligations to both their country and government. As a COGME Fellow and MBA candidate at the University of Chicago this Autumn, I heed this particular call of duty by asking you what internships are available in the Federal Reserve System to graduate students during the Summer of 1983. While the actual number of any such positions may be hard to determine at this time, my sole purpose in writing this letter is to inquire about their existance and to learn of their respective application procedures. Based upon my past interest in public accounting and my future interest in management, taxation and finance, I believe that I would be most interested in areas that deal primarily with our nation's economical and fiscal policies. I believe that internships of this type can be both a gratifying and rewarding learning experience. Not only will an individual have a chance to achieve a greater understanding of how the American polical system works but, perhaps more importantly, will be able to contribute directly to the economical and social needs of our country. A chance to serve our nation in this way is one which I believe that us, as individuals, should not shrink from. Thank you. ncerely,  ickson L. uie 15225 Washington Avenue San Leandro, California 94579  Enclosure Federal Reserve Bank of St. Louis  Removal Notice The item(s) identified below have been removed in accordance with FRASER's policy on handling sensitive information in digitization projects due to personally identifiable information.  Citation Information Document Type: Resume Citations:  Number of Pages Removed: 1  Resume, Dickson Lew Louie, 1982.  Federal Reserve Bank of St. Louis  V Federal Reserve Bank of St. Louis  Madison Bank and Trust company  BOARD OF GCVERNOR5 CF EDERAL RESERVE S'::-)77.. I'  1982 JUL -9 1°!1 12: 16  A SUBSIDIARY OF MADISON FINANCIAL CORPORATION  RECEIVED OFFICE or I HE CH.A.MM.IN A. Andrew Boemi, CHAIRMAN OF THE BOARD  AND PRESIDENT  July 6, 1982  Board of Governors of the Federal Reserve System 20th & Constitution Avenue Washington, D.C. 20551 Attention:  Paul W. Volcker, Chairman  Gentlemen: I have been advised that Federal Reserve Banks, as a result of changes that are being made, will not have morning clearings available until noon daily. I would assume that you are not aware of the destructiveness of this type of move. It would mean completely revamping our staff to get people in proof departments who are willing to work a new set of hours. It will mean that our ability to invest excess funds in the Fed Funds market will be limited. Our costs will be increased because of the change in working hours All in all, it appears to me that the Federal Reserve Banks, in an attempt to expand their bureaucracy, are changing the rules to suit themselves. For example, in initiating the noon inclearing schedule, only a portion of the items are included, Chicago City and the remainder will begin 4 to 6 months after. This means we will have very inefficient scheduling and people must be available 12 hours each day.  RIVERSIDE PLAZA  400 WEST MADISON STREET  CHICAGO. ILLINOIS 60606 (312) 454-1200  " Federal Reserve Bank of St. Louis  Page 2 Board of Governors Federal Reserve System  July 6, 1982  It has been evident to me that the Federal Reserve Banks cannot handle what they already have taken on and I fail to see the need for the further intrusion they are attempting to make in the private enterprise system as other than the expansion of bureaucracy. And, I'm assuming that the Congress didn't really think through what they were doing when they changed the rules a couple of years ago. On top of the upheavals in the banking system that have been visited upon us by an unreasonable amount of callousness emanating out of Washington, I fail to understand impacting us further with these incredible changes. Is it the aim of the Fed to destroy the commercial banking system that has served this country so well to date? I see absolutely no excuse for changing the clearing times or for the Fed to expand its sales forces to go out and sell services that are already available in the private enterprise system. Sincerely,  A. Andrew Boemi Chairman of the Board and President  /mz P.S. A similar letter has been sent to other members of the Board of Governors and to the President of the Federal Reserve Bank of Chicago. Federal Reserve Bank of St. Louis  BURNS FRYLimn-ED  P. O.Box 150 First Canadian Place Toronto,Ontario, M5X 1H3, Canada (416) 365-4000  I? 4f,q February 24, 1982  Chairman Paul A. Volcker BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Washington, D.C. 20551 U.S.A. Dear Chairman Volcker: Thank you for the reply to my letter of 17 December 1981 in which I enclosed some "Economic Commentaries" that I had written. The Commentaries forecast, among other things, that Federal Open Market Committee policy actions would result in rapid growth in M1 between November and March. Given that many weeks have passed and additional money supply data are now available, it is appropriate to review how that forecast has performed so far. For that purpose I have attached a diagram which compares my forecast with the money supply's Performance to date. It seems to me that the Federal Reserve is too often criticized for an erratic monetary policy. Your detractors would do well to note first of all the remarkable success the Federal Open Market Committee has had in what I regard as its most important monetary policy responsibility which is to reduce the long term growth rate of the money supply. In this endeavor you have been very successful since the middle of 1979, and I realize that such success was not achieved without some very tough decisions about what level of interest rates would be acceptable in the interests of reducing the inflation rate. Nevertheless, it would be helpful if the Federal Reserve were able to secure a more steady rate of growth in the money supply, in addition to reducing its longer term growth rate. I am writing this letter because I strongly believe that I can help you achieve a steady rate of growth in Ml.  /2  HALIFAX FREDERICTON MONTREAL OTTAWA TORONTO HAMILTON KITCHENER LONDON WINNIPEG ODMONTON CALGARY VANCOUVER NEW YORK LONDON,ENGLAND  .. •  BURNS FRYLIMITID Chairman Paul A. Volcker February 24, 1982 Page: 2 It is very clear to me that all the material shorter run fluctuations in the money supply which have occurred in the past three years can be directly attributed to F.O.M.C. policy actions. It is also very clear to me that steady growth in M1 is attainable. Furthermore, the evidence indicates that such steadier growth in M1 would be accompanied by less volatility in interest rates and more stability in the level of economic activity. I can be so confident about this because I have developed relationships over the past two years which show a very clear and consistent link between policy actions and the money supply. These relationships of mine explain all the material fluctuations in the money supply over the past three years and enable one to forecast quite a number of months into the future. The statistical techniques I use for forecasting have been developed by myself over the past fifteen years. To the best of my knowledge they are original, have not been published and enable one to forecast events very much better than standard econometric techniques. I realize that this is an extravagant claim. However, as a result of many years of experience with these types of relationships I know it to be true. If one wishes to generate a steady rate of growth in Ml, one must be able to judge accurately the impact that open market operations are going to have on the money supply. The forecast of M1 which I sent to you on December 17, 1981, (which was first published and sent to our clients on November 9, 1981, when there was no sign whatever of any growth in Ml-B) has been closely followed by the actual monthly data. That is not merely a piece of good luck. The relationships I am using to forecast M1 have given consistently excellent forecasts on an ex-ante basis since April of 1981, and on an ex-post basis ever since the F.O.M.C. changed to reserve management in 1979. As long as the Federal Reserve continues with roughly its current operating procedures, I am confident that I can forecast M1 four to five months ahead, within an accuracy of $4 billion even without making correct assumptions about future capital market developments. If I make reasonably accurate assumptions about the future level of interest rates (my November 9th forecast, you may remember for example, assumed rising short term interest rates) then it is possible to forecast M1 much further out than merely four to five months. In short, using my relationships, it would be comparatively straightforward to come quite close to an M1 target on a consistent basis. Federal Reserve Bank of St. Louis  /3  BURNS FR1(.1\1,71 Chairman Paul A. Volcker February 24, 1982 Page: 3 In addition to "backwards" to inputs to find the top end of  using my model to forecast Ml, it is possible to run it forecast interest rates. In other words, I can vary the out which combination of them places M1 near, for example, the 2 1/2% to 5 1/2% target in the fourth quarter of 1982.  The answers which come out of such an analysis are extraordinarily interesting. They indicate that if M1 is to come back within the top end of the target by the fourth quarter of 1982, then short term interest rates must rise appreciably above their previous peaks. So, although I know that I can tell you what must be done in order for M1 to hit, say, a $460 billion average in the fourth quarter of 1982, I recognize that you may not like very much what it is that has to be done to achieve this. I realize that generating steady growth in M1 (as distinct from slower growth) is only a secondary objective of the Federal Open Market Committee. But if steady growth could be achieved, much criticism of the Federal Reserve would be stifled and it might then be aimed instead at more productive targets. As these matters must be uppermost in your mind also, I would be pleased to discuss them with you further at your convenience. As I mentioned earlier in this letter, I strongly believe I can help you achieve a steady rate of growth in Ml. Sincerely yours, BURNS FRY LIMITED  Rodney C. Nicholson Economist RCN/fjl Enclosures. Federal Reserve Bank of St. Louis  Removal Notice The item(s) identified below have been removed in accordance with FRASER's policy on handling sensitive information in digitization projects due to copyright protections.  Citation Information Document Type: Newsletter Citations:  Number of Pages Removed: 3  Burns Fry Limited. "Economic Commentary: What Is The Federal Reserve Up To Now?" December 11, 1981. Burns Fry Limited. "Economics-Money Memo: United States Money Supply." February 15, 1982. Burns Fry Limited. "Economics-Money Memo: United States Money Supply." February 22, 1982.  Federal Reserve Bank of St. Louis  OT:  AANI(**  i•EOEF'4t. KESTt ‘,1  081 MAY 28 Itt#  CONFERENCE OF PRESIDENTS of the 54. 38 FEDERAL RESERVE BANKS  RECEIVED OFFICE or THE ct-4.‘.1p-4t 4* May 26, 1982 St. Louis, Missouri  Mr. Paul A. Volcker, Chairman Board of Governors of the Federal Reserve System 20551 Washington, D.C. Dear Paul: At its meeting in Atlanta on March 16, 1982, the Conference considered its first strategic issue, the relationship between regulatory policy and monetary policy in the changing financial environment. Enclosed for your review are a copy of the background paper, an excerpt of the minutes from the Atlanta Conference meeting, the minutes of the System Committee on Banking and Monetary Policy meeting held at the request of the Conference to discuss the paper, and the reactions of several Reserve Banks. When the Conference established a strategic issues calendar in June 1981, it did so because discussing these kinds of issues would assist the Presidents in keeping themselves better informed on the strategic issues that face the System. It was not the intent of this process to reach definitive conclusions. The Conference recognizes the need for additional basic research in order to clarify some of the more difficult issues. As you will see issue from the attached responses from Reserve Banks on this strategic paper, the San Francisco Reserve Bank is planning a conference on November 28-30, 1982, to deal with issues relevant to this topic. Should you desire to discuss this further at this time, the meet members of the Steering Committee of the Conference will be glad to with you. Sincer  °.os, Chairman V Law cc: Federal Reserve Bank of St. Louis  Members of the Conference Lynn A. David, Secretary Thomas J. Campbell, Asst. Secretary  .41. Federal Reserve Bank of St. Louis  141  VelAii-e,,  J7121  L 11 LJ/-46--Le-e-ey 6-A-14-  .4t7Tk-L-  b4•V  -0errsi 412•4  eeYLe  U.J.  C-  44.1 vk1'i.tN4- td-  4124, j  Removal Notice The item(s) identified below have been removed in accordance with FRASER's policy on handling sensitive information in digitization projects due to copyright protections.  Citation Information Document Type: Newspaper clipping Citations:  Number of Pages Removed: Partial  "Wright Wants Volcker's Resignation." LA Herald Examiner, June 9, 1982.  Federal Reserve Bank of St. Louis  80ARD FE70 67,4L  1981 JUN .411. Federal Reserve Bank of St. Louis  GOVIiiNcR5  16 111 1:09  RE OFFICE or CEIVED ;"1-11: cii,11P1.14!1  June 10, 1982 Dear Mt. or Mme. Legislator: You may soon be called upon, because of developments indicated by the news item reproduced above, to vote upon or otherwise participate in the promulgation of measures which may gravely affect the future of the monetary system of this country. Before you do I sincerely urge that you read the enc:csed copy of a short paper submitted to NEWSWEEK and a covering letter to Editor Lester Bernstein presenting important aspects of the present Silemma. While much more needs to be said in clarification of all the complex issues involved, it is my hope that the enclosures will be of help to you in discharging the heavy responsibilities of your office. Sincerely, -  R. Elberton Smith Federal Reserve Bank of St. Louis  R. ELBERTON SMITH  April 30, 1982 Personal lir. Lester Bernstein Editor Newsweek 444 Lladison Avenue New York, N.Y. 10022 rear hr. Bernstein: I am addressing you personally in the hone that you will seize the opoortumity which I am presenting to you to make a major contribution to public understanding of the tie nature of the long-standing interest-rate problem in this country--a problem which has now reached crisis nr000rtions. I am proposing that you publish the enclosed article in your "'"4y Turn" column, for which the article was specially written (and forwarded by special delivery to your editorial offices on April 17). By so doing you will be the first publisher of nationwide importance to depart from the "media stereotype" treatment of the interest-rate problem. This treatment consists of the monotonous repetition that Paul Volcker (or the FED) and the Administration (or Congress, or labor, or 7:al1 Street, or the economy as a whole) are on a "collision course" and that sooner or later the YED will have to abandon its "rigid fundamentalism" and create more new fiat money (over and above normal expansion rates) for the banks to lend, thereby puttine an end to doubledigit interest rates and their consequences. This fuzzy-minded but popular conception of the interestrate problem and the role of money therein is what has brought our economy to its present impasse, and the media beer a heavy responsibility for its popularity. To be sure (and herein lies much irony as well as your opPortunity) this conception is also held by many resPectable, high-priced, academic economists (e.g., your :qr. Thuraw in NETiSWEEK, April 19, p. 79, last paragraph), but in nine cases out of ten their pronouncements in the matter amount to cavalier obiter dicta instead of careful and thorough treatment of the issues. I do not pretend that the enclosed article disposes of all the issues but I think you will find that it accomplishes about as much as can be done in the limited space available. Its publication in "y Turn" will answer many questions in the minds of your readers, will provide a useful single-page summary for Congressmen and others working on the problem, and will stimulate debate in economics classes and elsewhere. Since time is of the essence please let me know as soon as possible whether Newsweek plans to publish it. Sincerely,  Removal Notice The item(s) identified below have been removed in accordance with FRASER's policy on handling sensitive information in digitization projects due to copyright protections.  Citation Information Document Type: Article (unpublished) Citations:  Number of Pages Removed: 3  Smith, R. Elberton. "My Turn." 1982.  Federal Reserve Bank of St. Louis  GOVE:RNORS BOARD OF CF RES'i.MIE FEDERAL  1982 JOI 21 t\A  53  RECEIVE,0 IPPAUor E OFF-1  Paul Volcker, Chairman Federal Reserve Board 20th and Constitution Ave., N.W. Washington, D.C. 20551  June 17, 1982  '15  Dear Chairman Volcker: As a citizen and an investor, I should like to express my views on the Federal Reserve Board. What you do affects my economic well-being profoundly. I have supported your policies from the time criticism mounted as interest rates rose to their peak and the recession began last summer up to and including the present moment. I now think it essential for the Federal Reserve to take action to drive down the level of real interest rates. Yes, the primary fault has been with fiscal policy. Stratospheric deficits in the face of two recessions in two years, with even worse times ahead a distinct danger, jeopardize hopes for a lasting recovery and make reduction of interest rates inordinately difficult. Yes, mergermania by business has added measurably to the pressure on interest rates (the balance sheet of Sears, Roebuck & Co., to use one of the less hackneyed examples, is a scandal to behold after its two recent large acquisitions). Yes, the Fed has fought hard and ably to lower inflation despite the lack of cooperation from government and business: You have applied the monetary brakes, yet also exhibited flexibility at crucial moments (the discount rate cuts late last year and some apparent easing now). Unrelenting high real interest rates broke the back of American business in that terrible plunge from 1929 to 1932. Sustained high real rates can do the same now, especially in view of the fact that business illiquidity is at a postwar high and getting worse. The nation's industrial heartland is a wasteland, as chronicled in a long NYT article recently. The bankruptcy rate is unmatched since the Great Depression. Sixty major banks and insurance companies, according to Money Forecasts, are in precarious condition, including Bank of America with estimated paper losses of about $6.9 billion against total capital of about $4 billion, while Chase Manhattan is still reeling from the Drysdale fiasco and the bank failure rate is the highest since 1942 (Globe, 6/17/82). Economists widely are forecasting no more than a weak recovery from the recession, which would fail to provide the profit margins--corporate profits are at a postwar record law, according to the Bureau of Economic Analysis--needed to compensate for unrelenting high real interest rates at a time when almost 50 cents of every $1 of cash flaw is said to go to pay off corporate debt and interest (Globe, 6/13/82). Federal Reserve Bank of St. Louis  .0%  High real interest rates are the economy's equivalent of the a-bomb: No one survives economically unless high real rates are brought under control before disaster strikes. But the possibility of signcant further improvement in fiscal policy has to be written off, it eems to me. Both the administration and Congress, Republicans and Demecrats alike, are naw and have I--n historically so committed to the differing ends they want to achieve that the means--the budget, including its unwanted ramifications, such as a trilliS n dollar deficit, stratospheric interest rates, and interest payments bigger than the entire budget not too many years ago--becomes secondary, a nS.ious chore to endure or, to the extent possible, to delay facing until another year. The Fed once again will have to deal with the fundamental problems left unfaced by Congress and the administration, in particular naw the potentially lethal problem of long-sustained high real interest rates. Perhaps the money supply should be eased more and the fight against inflation stretched out over a longer period. Perhaps selective credit controls should be applied. Since $70 billion in scarce credit went into unproductive takeovers last year (Conoco, Marathon, Grumman, Dean Witter, etc.), my awn preference would be for controls to prevent such takeovers and the additional dangerous quidity often resulting from them (Sears,Steel, corporate Meanwhile, extension of credit for most other purposes should remain unfettered, in my view. But the choice of methods obviously should be yours. You are the expert and have the comprehensive and necessary information at hand. My purpose is to emphasize that what you do affects profoundly my economic well-being and that of millions like me. Flease act--and soon. Federal Reserve Bank of St. Louis  Very truly yours,  Joseph Pattison  PITIT.A. 213-972-3413 N. Y. 212-431-7552  THOMAS W. L. CAMERON CHAIRMAN  ESTABLISPIEDIS72  CO.,INC.  SOLIDAY  ,STMENT SECURITIES 1401 WALNUT STREET  ESTABLISHED 11172  HOPPER SOLIDAY & CO.. INC.  HILADELPHIA 19102  1401 WALNUT STREET PHILADELPHIA, PA. 19102  KENNETT SQUARE PA  TELEPHONE (215) 972-5400  KING OF PRUSSIA, PA  PHILADELPHIA STOCK EXCHANGE INC SECURITIES INVESTOR PROTECTION CORPORATION Federal Reserve Bank of St. Louis  • June 25, 1982  ET,  The Honorable Paul Volcker Chairman of the Board of Trustees The Federal Reserve Washinc!ton, D.C. 20551  C.3 r?-1 -41 •,  tr)  :rzo  -4. • •  Dear Mr. Volcker: Thank you for the time and thinking you shared I with Representative Schulze's June 23 meeting. continue to congratulate you on your courage and actions in the national interest. Since I am the person who suggested the analogy of the tourniquet effect on the body, I take the liberty of offering a suggestion I believe to be constructive. First, I suggest that the unanimity of agreement that abnormally high interest rates are now our single most important economic problem would have pleased you. Messers. Weidenbaum, Baker, Trott and Michael totally agree with you. Second, I believe you feel frustrated in getting a comprehensive public understanding of the total problem, as stated in your May 19 speech in Chicago, -- let alone a solution! Thus, this letter. First, I suggest that the media and financial community (where I live) have never heard the problem stated to us in a single, credible, united way. Second, a great deal has been said about whose fault it is. Many fragmented parts of strategies and tactics have been reported.  crn C)  r: rr: , r--.! Federal Reserve Bank of St. Louis  HOPPER SOLIDAY 8 CO.,INC. The Hon. Paul Volcker June 25, 1982 Page 2 •  Third, the level of financial literacy and understanding by the vast bulk of the public is low and the level of cynicism by the financial community is high. Therefore, I recommend you consider participating in the following. A presentation by all the parties at interest (no pun intended), on one platform, on what the problem is, and what everyone's goal is. Specifically, I suggest that President Reagan, Secretary Regan, Murray Weidenbaum, yourself, the Heads of the Senate Finance Committee and the Chairman of the Ways and Means Committee and other distinguished members of both parties all appear together before a collection of New York City bank presidents, investment firm chairmen, university economic types, graduate business school presidents, etc., and announce a written and signed statement of the problem and goal. To wit: We agree that the number one problem the United States faces today is abnormally high interest rates. We agree that the economy cannot enjoy a vigorous recovery until these rates are reduced in a major way. That these rates must be reduced, while continuing to contain inflation. We call for a national effort to solve this problem and must have your suggestions and cooperation to make this effort succeed. By avoiding detailed strategy and tactics at this convocation -- recriminations, arguments, and details would be avoided until the problem was focused in the nation's eye. A national debate would thus be launched on a spotlighted, positive note. I am sure you will agree that when everyone understands a problem, the solution is almost always underway.  r  • Federal Reserve Bank of St. Louis  HOPPER SOLUDAY C3 CO.,INC. TIle  Hon. Paul Volcker June 25, 1982 Page 3 •  Congratulations to you all for succeeding in defeating inflation -- last year's number one problem. Good luck on this one. Please call me if my suggestion has enough merit to let me aid in implementing it. Thank you again for what you are doing for the country.  Since  ly,  Th mas W.L. Cameron  tf-de7/./-4a6onai  Ir.  25 BROAD STREET NEW YORK, NEW YORK 10004 JULIAN M. SNYDER EDITOR AND PUBLISHER  Tel.(212) 344-1200  June 28, 1982  The Honorable Paul A. Volcker Chairman Board of Governors FEDERAL RESERVE SYSTEM 20551 Washington, D.C. Dear Mr. Chairman: I want to thank you for your generous reply to my letter enclosing my talk to the New York Society of Security Analysts. As you may know, I have been publishing a newsletter on foreign exchange and money and credit for nearly nine years and thanks to its accurate forecasts and a healthy measure of good luck, it is probably the largest circulation letter in its category. While International MONEYLINE occupies the most pessimistic end of the opinion spectrum, as an American, I keep searching for positive answers and my sympathies go out to you in what appears to be the classic beleagured position of the central banker. My success in building my enterprise, I believe, stems in large part from the fact that while I have a degree in philosophy and 20 years market experience, I am "non-establishment" oriented as far as economics is concerned. My views tend to be more heavily weighted by studies of economic history rather than any other factor except the markets themselves. My category is that of an original and unorthodox thinker, without academic portfolio. However, my success speaks itself. I am unencumbered by the conventional wisdom and for many years was a consultant to major coporations because of my ability to stimulate creativity and new lines of thinking. I am writing about these things to you because if you have need, I would like very much to volunteer some of my time for off the record discussions, since I have a number Federal Reserve Bank of St. Louis  fNl"  2 The Honorable Paul A. Volcker  June 28, 1982  of ideas which I feel could be beneficial to the position of the Federal Reserve and perhaps of some value to the country. I am an old friend of Richard Janssen, Senior Editor of Business Week, and I am sure he would vouch for my integrity. I am also an old friend of Alan Cranston, and have met and talked with such people as Bill Simon, Rene Larre, Otto Lambsdorff, Haruo Mayekawa and Ali Khalifa Al Sabah, Oil Minister of Kuwait. I was a speech writer for Adlai Stevenson, a strategist for Robert Kennedy and Tom Russo is my attorney. I live and work in Manhattan and would like very much to meet with you informally at your convenience. Please let me know under what conditions this might be possible. Meanwhile, regardless of the possible criticisms of the Fed that may appear in IML, I would like you to know that I wholeheartedly support your efforts to restore some measure of normalcy to our economy, and I admire your courage. Sincerely,  Julian M. Snyder Editor and Publisher JMS:GC Federal Reserve Bank of St. Louis  1  9Ofill::RD sic.  SUN CITY CENTER BANK 33570 P.O. BOX 5B67 • SUN CITY CENTER, FLORIDA PHONE (B13) 634-3357  criloEvERNws  FEDER41. RESERVE  SY;...-.7L  1961 MAR 22 PK 10: 40 RECEIVED OFFICE Or Th'E CHAIR/14 tk'  William G. Hoskins President  March 17, 1982  Mr. Paul A. Volcker, Chairman Board of Governors Federal Reserve System Washington, D. C. 20551 Re:  Docket No. R-0385  Dear Mr. Volcker: Federal Reserve System to I applaud the decision of the set its own margin allow the Kansas City Board of Trade to contracts. requirements for stock market index futures function best if it is truly Our "free market system" will free. Very truly yours, 4  William G. Hoskins President WGH/bb Federal Reserve Bank of St. Louis Federal Reserve Bank of St. Louis  • Royce B. Clark Chairman of the Board and President BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM  The First National Bank of Greeley Post Office Box 1058 Greeley, Colorado 80631 Telephone 303 352-1651  1982 MAR 26 AA 9: 36 RECEIVED OFFICE OF ThE CHAIRMAN  fi  t  March 22, 1982  First of Greeley  The Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System Washington, D.C. 20551 Dear Mr. Volcker: Two weeks ago I had the privilege of visiting Washington, D.C. with a contingent of Colorado Bankers. We met with a group of your staff and had the opportunity to be briefed on the current operations of the Fed and also to ask questions that were of concern to us. This was a very informative session and we appreciate very much your allowing your staff people the time to meet with us. Even in Colorado we are now becoming very concerned about the status of the economy, particularly as it relates to agriculture and real estate. The high interest rates continue to plague every small businessman as well as the larger development firms and agriculture. Many of these are now fighting for survival and may not be around to see an econmic recovery. While we agree that fighting inflation is certainly most necessary, the length of time to bring it under control and the severity under which people must suffer during that time is a question mark in everyone's mind. Should it be six months, one year, eighteen months? We cannot cure the ills of the country that have been developed over the last twenty years in a very short time and put everyone out of business doing it. I feel there should be credit restraint imposed on large business for expansion and for acquisition purposes. Their being allowed to borrow billions of dollars for acquisitions merely takes money out of circulation, the same as if the government were to borrow it and does not in itself produce new jobs.  •  Page 2 The Honorable Paul A. Volcker March 22, 1982  The banking industry needs a money market instrument to compete with the money market mutual funds. We also need further deregulation and if we are not allowed to have it, we will be in the same predicament as the S & L's within a short period of time. We know that this is a bi-partisan effort but we hope that you will continue to work for the industry in providing this relief as a member of the DIDC. I am in total agreement with the Reagan Administration's goals and I feel that we do need to get the budget balanced. If, however, it is allowed to be too severe in a short period of time, we will lose the confidence of the American people and the Reagan ideas will not be allowed to work because they will be forced out of office. We hope that you will consider the plight of the American businessman and agriculture as the primary item at this point, rather than the inflationary factors. It seems that the priorities possibly should change. Sincerely,  /r Federal Reserve Bank of St. Louis  Royce B. Clark Chairman of the Board and President RBC:mch  551 STATISTICAL SCIENCES INC  4425 PARK ALISAL  CALABASAS, CALIFORNIA 91302  (213) 888-6355  February 23, 1982 CD  r•-) .•••F•P•  Mr. Paul A. Volcker Federal Reserve Board 20th & Constitution N.W. Washington D.C. 20551 CD  Dear Mr. Volcker: Enclosed is a copy of our latest letter to our investment adviso ry clients. We believe that the gross inaccuracies in current money supply statistics and the confusion over the significance of deficits are the overwh elming causes of the absurdly high interest rates and the current economic difficulties. It is premature to assign any responsibility for the current situat ion to the policies of the Reagan administration.  Sincerely,  Harry B. Amey, Jr., President Statistical Sciences Inc. Federal Reserve Bank of St. Louis  551 , STATISTICAL SCIENCES INC  4425 PARK ALISAL  CALABASAS, CALIFORNIA 91302  (213) 998-5355  TION COLOSSAL MISREPRESENTATIONS OF U.S. FINANCIAL CONDI TUNITY ARE CREATING AN OUTSTANDING INVESTMENT OPPOR February 16, 1982 deficits the media blitz Spooked by the spectre of runaway money supply and one right should succeed this coming week in scaring the pants off every Start off up to President Reagan's inner circle. The recipe is simple. w up with wide with Barron's headline "Storm Warnings on Reaganomics", follo h by trotting coverage of an expected prime rate increase to 17% and finis dire foreout Henry Kaufman who can reliably be counted to erupt with bodings if we do not mend our Reaganomic ways. disarray. As usual But do not be taken in by the appearance of financial c but they will the media will have done its job of alerting the publi ties behind the have failed in the responsibility of unearthing the reali are a reverse numbers. It is this reason why the media's hopes and fears investor, barometer of future economic prospects* and why the successful buyer in the with his usual skepticism of mass hysteria, will be a heavy financial market. cial situation Incredibly, virtually all current perceptions of the finan the course of are grossly distorted, leading to unwarranted doubts about would culminReaganomics and suggesting a reversion to Carternomics which cial distortions ate in acute Thatcheritis. Before discussing the finan it is not yet it should be pointed out that whatever we have currently Union address Reaganomics. A year ago in his departing State of the cuts for a year. President Carter urged the nation to postpone the tax out by Social Thus, except for the 5% cut last October (which was wiped wed Carter's preSecurity and other tax increases) we have largely follo scription. on of Carternomics As a result, what we have had to date is a continuati in inflation (acplus a stiff dose of Volckernomics. The large reduction d almost entirely companied by high interest rates and unemployment) shoul nation has wanted be credited to Paul Volcker. Volcker has done what the y numbers he has and except for erroneously believing in his money suppl Fed (and virtually done his job well. Unfortunately, the acceptance by the in overeveryone else) of their own money supply numbers has resulted , caused tightness that, in the short run, has driven up interest rates loyment and rapid declines in inflation, and has greatly increased unemp but in a nation deficits. All of this has favorable long-term consequences is of major steeped in instant gratification the risk of loss of resolve concern. MISREPRESENTATION #1--THE MONEY SUPPLY the money supply M1 In the first five weeks of 1982 we are told that has grown about $9 (representing all deposits in checking accounts) . In actuality the billion or somewhat over 20% on an annualized basis 25% annually. What money supply has declined by $11 billion or about  * See "The Cover Story Syndrome" by Patrick J. Regan, Financial Analyst's Journal, January-February 1981. Federal Reserve Bank of St. Louis  2  is actually reported is a seasonally adjusted money supply. In the event that the money supply does not decline as fast as usual early in the year the money supply is said to be rising seasonally. The assumption that the average seasonal pattern over many past years is a good measure of the seasonal pattern over a particular future year is fraught with risks. In particular, early 1982 is not typical of other years for the following reasons: L.  The 1981 Christmas season was substandard business-wise leaving fewer unpaid bills to be debited against January checking accounts. Thus one would expect a smaller than normal seasonal decline in money supply in early 1982.  2.  The 1981 tax bill involved an unprecedented number of changes in the law leading to especially frantic year-end portfolio adjustments on the part of taxpayers. The vast number of associated maneuvers is bound to create additional checking account activity for some time.  3.  The liberalization of requirements for IRA accounts on January 1 is also preventing many people from paying off their Christmas debts in normal seasonal fashion. In order to get their IRA tax shelters established as soon as possible people are letting their checking account assets (and their VISA liabilities) grow until the required $2,000 to $4,000 is available.  These distortions are confirmed by inspection of the broader money supply M2 which showed no unusual seasonal growth in January. More important than the above criticism is the fact that M1 has no validity in a quantitative sense for estimating future debt and GNP growth rates. It is primarily a qualitative estimator for future trends and turning points. Its growth rate has never paralleled that of the economy. In the era of banking via home computer we are likely to see checking assets become a vanishingly small part of total financial assets. In order to get a respectable quantitative estimate of future GNP one must resort to a more comprehensive money supply measure such as M2 (M1 plus money funds and savings deposits at commercial banks and thrifts). For the past two decades M2 has grown at about the same rate as GNP, however, prior to that the relationship was not quantitatively reliable. If one utilizes the higher M's (M3 etc.) he will obtain money supplies which grow faster than GNP and thus overestimate future growth. This is principally because these M's take into account virtually all private debt and ignore government debt which (propaganda to the contrary) grows more slowly than the GNP*. During 1981 the Fed was properly concerned with the growth of M2, severely restricting the growth of M1 in order to keep M2 growth at 10% (presumably permitting GNP in 1982 to grow at 10%). Unfortunately, the character of M2 has recently changed with the inclusion of the rapidly growing money market funds. These funds represent indirect ownership of bank CD's and  since, * Total credit market debt is the best estimator of spending or GNP except for purposes of liquidity, debt is entered for the purpose of spending. Federal Reserve Bank of St. Louis  •  3  treasury bills, items not formerly included in M2. As a result, M2 now takes on some of the character of the faster growing higher M's in addition to spuriously including government debt (nearly 40% of the $26 billion of Merrill Lynch Ready Assets Trust is currently invested in government securities). In 1981 M2 appeared to grow at a 10% rate but 60% of that growth (or 6%) was due to the money market funds. Consequently the true growth of M2 was probably somewhere between 4% and 10%. With virtually everyone operating under the assumption that M2 has been expanding at a 10% rate it is natural to be perplexed at the simultaneous conditions of rapid disinflation and very high interest rates. If the growth rate of M2 is more in the neighborhood of 7% these conditions would appear to be highly logical consequences. In view of the high degree of uncertainty associated with current money supply numbers the nation would be better served if the Fed controlled the spread between interest rates and inflation rates*. The current values of 17% and 5% are absurdly far apart. Milton Friedman's dream of steady money supply growth is not achievable by overreliance on unreliable yardsticks such as M1 and M2. MISREPRESENTATION #2--THE DEFICITS Deficits connote irresponsibility, excessive government spending and waste and government suffocation of the financial markets. In actuality the term deficit is a misnomer, a distortion and an abberation. The present grossly unscientific method of characterizing the deficits arose out of 50 years of distortion in academic circles and economic text books by worshippers at the shrine of central planning. Following Lenin's dictum "Tell a lie and tell it often and people will come to believe it" the central-planning disciples have so obfuscated current economic thought that virtually no one can understand what has happened. Their propaganda has been awesomely successful. Witness now how Reaganomics--the first significant attempt at slowing the central planning monster--is under attack from all quarters. Whatever scientific ability is lacking in the current politco-economic establishment is more than compensated for by its extraordinary tenacity and self-preservation instincts. It has a logic worthy of Aristophanes' "Clouds" that proves that nothing is as beneficial as increasing taxes-"Lower taxes would result in lower government revenue which must be financed by either additional money supply expansion or by additional government debt. The former is inflationary, the latter crowds out private borrowing, drives up interest rates and raises inflationary expectations." Even if you are not educated at an economic institution this type of logic will have you salivating with the hopes of still more taxes--anything to keep the accursed deficits away. Of course, higher taxes grease the wheels for more government spending, still more central planning, more Pavlovian dependency on the part of  * Past attempts at controlling interest rates did not sufficiently take into account the rapidly rising inflation rate. Now we seem to be ignoring the rapidly falling inflation rate. Federal Reserve Bank of St. Louis  4  the electorate and increased opportunity for central planne rs to dispense the government's largess using the accumulated wisdom of their enlightened nirvana. Is there any justificatio n for deficits? How fast sho uld they grow? How have they been growing? How are they misrepresented by the politico-economic establishment? First, recognize that the government will always be with us. The laissezfaire concept of negligibl e government is as unfeasible as that of the central planners. Second, recognize that the governmen t will continue to grow--hopefully no longer at a faster rate than the ove rall economy. Thus it is reasonable to expect that the government's assets and liabilities will also continue to grow at the rate of the overall economy. The government is a business and should be run like a business with its exp enses financed out of current revenues and its inv estments financed out of fut ure revenues. It is unreasonable to expect pre sent taxpayers to pay in full for facilities to be utilized by future taxpay ers. The notion of the gov ern ment debt disappearing by transferring it to the private sector makes sense only if the government assets are also disappear ing. The only way the governmen t's assets and liabilities can grow in conjunction with that of the economy is to permit its debt to grow as well. It is reasonable for the government to have a larger debt today tha n in our grandparents' era. Whereas former ly we had rifles and horse trails to amortize, today it is ICBM's and freeways. The path from our grandparents' miniscule national debt to today's is an endles s chain of what are called deficits. There is nothing wrong with this scenar io as long as the government deb t doe s not eventually gobble up the entire credit market shutting out all pri vat e borrowing. Contrary to current propagand a the reverse has been happening sin ce World War II with government deb t growing at a much smaller rat tha e n private debt. Since 1946 federal governmen t debt has grown 240% while pri vat e debt has increased 3100%. Who is doi ng the crowding out? THE MISNOMER A government deficit of $10 0 billion suggests that the govern ment is losing that amount on an annual bas is. As Richard Kopcke, Vice-Presi dent of the Federal Reserve Bank of Boston, poi nts out in the November issue of The Federal Reserve Bank's "New England Economic Review" the federal budget, unl ike any other budget, is merely a cash flow statement making no allowances for investments acquired. Thus the governmen t's purchase of a billion dollar s in new buildings adds that amount to the def icit suggesting the government suffered a billion dollar loss in the process. He concludes that "the reported deficit is a poor summary of fiscal policy". Indeed, this is a gross understat ement (although an incredible admission coming from a Federal Reserve Bank off icial). It is probable that the federal govern ment's wealth (not including vas t land holdings such as one-half of some wes tern states and 90% of Alaska) is approximately $2 trillion and growin g at the rate of 10% per year. This translates into an annual gain in governmen t investment value of about $20 0 billion or double the implied loss of $10 0 billion in deficits. But the politico-economic establishment says we should take pity on our poor-mouthing gov ernment and raise taxes even more. Federal Reserve Bank of St. Louis  -5  THE DISTORTION Forgetting that the government's assets are annually growing at a rate far in excess of the deficit we must still inquire as to whether the deficit results in a real increase in government debt. In the absence of inflation the answer would be yes. In an inflationary environment however, any statistic which is unadjusted for inflation is a distorted statistic. The government's real debt is shrinking at the same rate as the inflation rate in the absence of a deficit or surplus. For a nation whose national debt is a trillion dollars and has an inflation rate of 10% this corresponds to a real reduction in goverment debt of $100 billion annually. Thus a "deficit" of $100 billion in nominal dollars is tantamount to a balanced budget in real dollars. Although the government is borrowing an extra $100 billion in nominal dollars in reality its debt in last year's dollars has not changed. It is not crowding anyone out when appropriate adjustment for inflation is taken into account. THE ABERRATION As a result of the excessive FRB tightening of the past two years unemployment has significantly increased, reducing the government's revenues and increasing its expenses. Probably as much as $50 billion of the "deficit" results from this temporary situation. In such a period one should expect a larger "deficit" provided it is balanced by smaller deficits in boom years. The alternative of raising taxes (shades of the early 1930's) merely aggravates an already beleaguered economy. FUTURE IMPACT ON THE FINANCIAL MARKETS What do all of the above revelations portend for the financial markets? Of immediate consequence is this week's panic by the mass media, novice investors and the public at large. The impression that everything is coming unglued and the feeling that the market's foundation is collapsing as new recent lows in the Dow Jones are reached creates the "all hope is lost" feeling that is the essence of all market turnarounds. Anyone selling here will have been suckered by the entire scenario of misrepresentation. What will make the market advance explosively? First, the Federal Reserve will be under enormous pressure in an election year to relax its vice-like grip on the money supply. This relaxation will accelerate when the seasonal distortion of M1 becomes clearer. Furthermore, lower interest rates will result in money leaving money market funds for higher long-term rates available in the bond markets. The resulting apparent rapid slowing in the growth of M2 will convince the Fed that it is still not easing enough. The paradox of high money growth and high interest rates will then become the paradox of lower money growth and low interest rates. Our next concern--at least six months away--is that the Fed may ease too much as a result of its distorted money supply numbers and, in the process, overstimulate the housing industry. But at that time the stock and bond markets will be very much higher than presently. Federal Reserve Bank of St. Louis  -6  Finally, do not believe that the market's performance is a result of a demoralization resulting from the large "deficits" and rapid money growth. The current high interest and corresponding low levels of the stock and bond markets are the result of the Fed's very tight monetary policy. The markets will advance when real money grows faster than the stock and bond supply, not because of the individual or collective opinion of any or all of us. The opinions will come after the fact. The news media will be under the gun to explain to their readers why the markets have advanced. And if you're looking hard enough for a reason to explain events you will always find it regardless of its merit. Federal Reserve Bank of St. Louis  HARRY B. AMEY, JR., PRESIDENT STATISTICAL SCIENCES INC.  AIM  Vo-kCcoak_r)  cicA. ( cA,1  (ga, 5.+; CN4S1 L  AV',  %/k- Cy\ --0-14  2C_51  7  Wce‘L,, Federal Reserve Bank of St. Louis  1  D,C,  C  , XA Ckg.7\ L  ON•k."  C  cr:1  r  1"  ar.,„  1-4--v.  ,r)A,1,0t-  VN; s  ievA, •  QDl  E.C.1 :I4A 0  ) c)  C_LCItt:t.71/1_  1  a  01-C  /42)kiL-11 tiLU"  -Q1--QctAAAA Q14441 cvt.,  Wr-TIA W CA  1  2 4.t.LA -C1-1  \AAavvk..k,  p&-Lcck, --Pcn CL..A-----CCN+.  -tb  ‘c%V-121.\-)1k(kt" ci ck.4  „so wt,..v,  EL  It+Liz.  V)cb c  ct  .4-1  a  cnct,7--t-ke  ty--14..1 CO-1 4. A14,  cr-vA ern,.•\  F  Ck-  „.‘  st_ ci4A LScrLt t  S  Et Ar  Advt.(c1  S11.4  s  Cirn4A-"4 -VAL FCY-  `1-4 C) vSA112A ell le\X_  ViZt  a-C-L  c  \kik.  1.\\  kOA  )  y ckvt %-,t/AsL-1-6 czA4 Ecekic,N-sis.  LtSi C\  1 iC  ow\o-vok  rb  \  -.C*C6A st Ck)  /C5zi-b-t-  V  L3 .A.  5 -  -1," "1 * .vt.1W1 .ctici  ek_ Sie-t-L-a-A-tk 013-0- 0.1--Nd  i+-1 L.;:vvci  A-C.  /14147._, e4 dr a t/Q  C:fulz‘ 6 :io‘  (7-) Fk-wityke ,  -D12'S V q  5 1 r\lo  (1/t-AQ-1  C4  —  1c1-  -01--  • ,•  r  IHZFU  11: 38  \ •  \ 1 ?  tz& \r‘o*  Y1Q-9SLN%-Q Lt.-\\C'N V0-\SL  o  '<f\ \r\  (ty"r•-._ \r  •  •  Qa.J,av  -c  `'%` cz'c .5•5(-4c  iev c:5_r‘a_ Federal Reserve Bank of St. Louis  SZISLC:\c)\-  . t 7-(N-Jsr,.•  - -L.s •z_-.\ c.z\;NimSL  c\f•Z.4  wE.  0•ZtC>Z  \WL- R41-  &cL  Q.=rn 4VY'N  C  \CN  r32c).•••(.0?  (5N , N7-42_  ozn  "C\r\c--)  cc•  t4N. -\\;t pON: rcQ  NY  .k1Ecs\r‘ci31\ „\cs_Ac.\r„ tat<1.\suN  67  r%(-N  ' \c\‘  -VIZiNr-,  •  cNi\  C)Q .44 •  ‘P)  L.Se  MC)‘I''Q•  \cN  e—rY g-ItJvNe  c,J1Rse Federal Reserve Bank of St. Louis  1  S:D•orco  •  _  &r;\ 6t4s  January 22, 1982 ,  Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System Washington, D.C. 20551  RE:  INTEREST RATE POLICY  Dear Mister Volcker: rnational banks and have I am a Vice President of one of the largest inte ional lending and 6 years in been a banker for 11 years, 5 years in internat gy companies in the Silicon corporate lending, presently to high technolo Valley of Northern California. I have followed the effect on Every day I note interest rate changes, and promote high interest rates in 1981. business of the Federal Reserve policy to high interest rates will occur I am very concerned that another bout of and the Fed's policy of midyear based on the Federal deficit projections  e to you because I hoped monetary growth. I have waited until now to writ be used in 1982. If the that the same tactics employed in 1981 would not is more damage to an same tactics are employed, the result I foresee already weak business community.  general terms rather than through The bad effects I have seen are described in istics for bankruptcy, housing statistical data because your sources of stat tiful. I keep my comments brief starts, unemployment and money supply are plen prominent financial newspapers because every day my concerns are echoed in of your policies on the businesses and magazines. I relate to you the effects I serve and observe. 1. Federal Reserve Bank of St. Louis  2.  inflation. Last year many companies Continued high interest rates promote tions by following the advice of were saved from leverage debt-equity posi y in the stock market. Uncertheir investment bankers. They raised mone rnment deficits caused many tainties in the economy due to predicted gove up to 18% rather than invest companies to place funds in C.D.'s earning remark was, "Where else can we money in plant and equipment. The common ?" get such a return for the level of risk y out of job creation and Conclusion: High interest rates take mone invest in paper, which is productivity-improving equipment. People s interest above acceptable nonproductive and inflationary when it earn just to pay higher interest levels, i.e. 10%. More money must be printed the money supply. costs which works against the goal of reducing essential of industries neededHigh interest rates have crushed the most mid-twenties to forties want housing. Many people in the age range of th of housing costs were attributed homes but cannot afford them. One-four er now. As long as interest rates to interest, and it is undoubtedly high be forced to file bankruptcy. are above 13%, even more builders will unaffordable, what situation awaits us If the present supply of housing is financial ruin? if the suppliers disappear because of  4. is a national crisis. People need to fulfill the The housing sitration basic need of shelter, and the Government whose purpose is to serve the People is robbing them of that privilege. The young, middle class who cannot afford a home because they don't qualify have joined the ranks of the poor in this area. The unfulfilled demand for housing will unleash more inflation as demand exceeds supply, and costs rise due to limited availability. The interest rate controls create pent,tup demand, which that will unleash more inflation unless rates are lowered this spring so demand can be filled. solvent Recommendation: Get mortgage rates to 13fi or below. Keep builders -rate by providing federal aid via low interest rates. Give interest accountl, subsidies to first-tim. homebuyers ani tax breaks for saving earmarke3 for down Taymcnts of horv.!:. 1.  A  t^lt f i"  rat  if 'copra'  41. • ei• 1/..A16.11 le. ob..1  de-vvlopw.d  7  :e :  the-  .66  ••  r -sit uant  for  t he. 1-ean 1 •  airc ,w1.1411 1-,  irt -.r.  give  tbri  T'NVIclfr  car.•.  that  Cor/verrdelf -•.!  10  t 0.0 AV  t  yeatr.  .1  tu  • .• ye 410  .*  t.  . 1, It ..41  1.,  00 a Oft  IV! &4t  phunq  14911  IV  .3 ;  e  • e• • *• lire* • i  1 1I  •  febrIlt  •  it  tiAt Intim  • .f/•  pert,hIr  9 P.a•  heK1111 1 ng-  pay  for  Is  1011,1.  the wasteful-  most likely paid off. ness of previous generations whose mortgages are It is unfair to segment one industry-housing-and destroy its builders who cannot sustain 20-24% carrying costs for longer than the li years they have. The nation needs housing and to cut off the supply exacerbates the problem. Solution: Keep mortgage rates at 13% or less so that people qualify for home*and builders remain solvent. The result will be responsive people who would be more supportive of defense programs if they had their own homes to defend. 4.  The government's crowding out activity is what concerns me most. If this happens, the Government will be like the bear who ate the zookeeper when his appetite grew beyond his ration. The bear destroyed his feeder and subsequently was destroyed. It is predicted by an analyst interviewed by Business Week last week that the Government's demand for credit would will increase 12% in 1982 to reach $234 billion. This appetite for funds s. crowd out the private sector that creates jobs and provides tax revenue es. compani large High interest rates cannot be sustained by small business nor added The Business Week article also states that lofty interest rates enormously to buiness costs. Interest costs for the third quarter of 1981 were $220 billion, which was $29 billion higher than operating profits. High rates caused by Government crowding out results in lower profits and taxes for the Government, increased unemployment and higher unemployment costs for the Government. The Government is perpetuating the problem it wants to solve--a balanced budget and inflation--by Deficits crowding out private sector investment and improved productivity. are generated will continue to grow if taxes are not generated, and fewer taxes of tax if profits are declining. Crowding out deprives the Government revenuesand adds to inflation by its willingness to pay high rates. down Recommendation: Allow the money supply to grow enough to keep rates and allow the private sector to participate. Federal Reserve Bank of St. Louis  States. investment in the United r fo s nd fu as se er ov t attrac from multi5. High interest rates s and foreign currencies ar ll do as se er ov as rn. The Fed The money supply surges eking the highest retu se y tr un co e th r te en s monetary nationals and individual ere is no international th e us ca be s ow fl s nd fu does not control these l Banks of the world. which play policy among the Centra tract overseas funds, at t no d ul wo s te ra sy Solution: Lower intere res. havoc with monetary figu st ney supply and intere mo n ee tw be n io at el rr saw the lack of co duce the money 6. Last week again we s will effectively re te ra st re te in gh hi not working to rates. The theory that st rate mechanism is re te in gh hi e Th . up supply is not holding e is credibility. Each on control money supply. ng si lo e ar d Fe e th d nistration an ure. Conclusion: The Admi r the theory's fail fo r he ot ch ea g in am ch other bl will pointing a finger at ea strategy for recovery e th at th t ub do d an s nervousnes it is needed The result is market sunity at a time when di d an on si en ss di es h caus work. This lack of fait most. interest and call for lower is is cr e th to on ti s seek a solu nse, which Millions of American es, especially Defe ur it nd pe ex nt me rn ve fordable inq of Go eds of Americans--af ne ratct. anA the cutt c si ba e th ng yi ty than satisf is a lower priori ment. shelter and employ Sincerely,  Jean Ullman 439 Lassen St. #2 Los Altos, CA 94022  CC: Federal Reserve Bank of St. Louis  The President The White House Washington, D.C. 20500  n The Honorable Donald Rega Treasury Secretary Department of Treasury Washington, D.C. 20500  ky The Honorable Pete McClos ves U.S. House of Representati  ston The Honorable Alan Cran U.S. Senate 510 Washington, D.C. 20  Washington, D.C. 20515  /91  1(:R2 FE- ! r' c. • 12 oattvz-  41,1 Ite  2912 . 29,4} , %.ffec=i krld-L7 1( -` e t .4/" • •  e 617'  °In  •  2/ ‘ 3-`  ,e  W4ci4  • ,ave4_, /?  /12 e 74Z  %  ae 147 15efZ2. - A F-  "ez--,Z 3: ar /71  -.42t  ,i-d4P1-  fr4,11  4v4in , w-a,•& %  z 31344 / J azd_ /4 ?._e;L, ,4,1e 71•i r 2 ,i÷eJ ,/e)7-eev20/-;.? 7f-% , Federal Reserve Bank of St. Louis  •  24.0.-e,  ;t  •  • •  •• Federal Reserve Bank of St. Louis  I?' 1 •-••"t  2  r  49.  14.--1 / 1  trC51--ig  L  4, 1 -101/ } C  (114°I'ZI-t  - 1— 62e-1-2  G  I  =A---VT-*?  ( 17"\-  6/I ,  • /1'  >1;  , >,i ;,, 4,/,--le,..•,2--- . /...,?_,. .)-0 _, -1_2., _)•,2-. ( -.), l ". -,f --,-,- .2_--. -,-_is..t--2 ,-.. ,i--rt-7 , ..- , 11 4;-/,./.7; -)"•--; (  r  —7,9 1 --/  /e L') ;• 110-61-1-Yt-//  ---9-LAAC:--,..e.--71.,A,•,)i er-',_--c,-0---P  cl-v•,_  V I,fe.,-4.)-e  -41.i.--e_  47  Ci 6'  --e...-0 ----.7,-, ,e...-9/L-f A-'‘.-...C.• . _ j ' / -i 27 \ — /  (1  )- --,  1,,•_ , 17/Lft ,./L  -L'  1 2, .  i  --- -tit'" 7  -f •  i---•__-)-6 e_t :7* „ )4  0_el .,,-,..--_,(7;:e-,  j:2  'e5-e.x-).4.4.4,k-le •7 e2J-EL -e-1-?../ (, _ 4.-_._! ..e-6-' -.__--- /?-2-0--2-4c.-t."---1, , _,c_.-7,-.-T.2.---,,,f.--4,..." ---e-i-i;z-c-,7 /-1 (.9L.  X-/)•f.,CA__  f  •  •  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, 0. C. 20551  PAUL A. VOLCKER  June 25, 1981  CHAIRMAN  Mr. David Hartnett 1001 Pembrooke Herndon, Virginia Dear Mr. Hartnett: Thank you for your recent letter. I am sympathetic to the problems that inflation and the resultant high interest rates are causing many people in our country. The root cause of high interest rates is of course inflation, and I am convinced that we will not be able to have a sustained reduction in rates until inflation is brought to heel. The Federal Reserve has been restraining the rate of growth of money and credit because this is an essential element of any successful program to reduce inflation. Monetary restraint in a period of high inflation and inflationary expectations combined with fairly strong economic growth and high Federal deficits inevitably results in pressure on credit markets and interest rates. However, we really have no choice but to pursue monetary restraint. If we attempted to reduce interest rates by greatly expanding the money supply, the resulting increase in inflationary expectations would lead to even higher rates. I know that the current level difficulties for those who are particularly However, it is my fervent hope that with Federal spending, we can all look forward to rates. Federal Reserve Bank of St. Louis  of interest rates causes severe dependent on credit markets. monetary restraint and reduced less inflation and lower interest  Thank you for taking the time to write. Sincerely, Federal Reserve Bank of St. Louis Federal Reserve Bank of St. Louis  •  • Federal Reserve Bank of St. Louis  1)c#1.1a-,___zi-4-t- frvit-47-Afry% _ -.di.. 4 -•  / i 1 -CL:2_ZIA  el—r4-e#~4 A-tA  c44,1-  7a44"4 "44.'-tc-1°  •  -  •  ••••---tem•  " Federal Reserve Bank of St. Louis  •  •  • -VP Federal Reserve Bank of St. Louis  71V 1Q:12F-71 9.5 r!'• 31 February 22, 1982  an Mr. Paul Volcker, Chairm Federal Reserve Board Washington, D. C. 20551 Dear Mr. Volcker: economy of our country declines, I As each week passes, and the the policies of your Board are become more and more convinced that cern. responsible for all the anguish and con l questions which I hope you In that connection, I have severa me. They are: someone in your office can answer for is interest on our 1) How much of the budget for 1983 national debt? e to be paid in 1983 2) How much less interest would hav if the interest rates came down 2-3%?  Or  our economy every day, I just can't As I hear the dire news about ponsible for many of our problems help but feel that your Board is res interest rates. You have all but because of your persistence with the s ustries, you are driving many businesse shut down the auto and housing ind of the horrible unemployment problem. out of existence, and are the cause l be paid causing more of a deficit. This also means that less taxes wil of sense to me. YOU have created a Somehow this all doesn't make a bit Reagan, but TOT the whole wellno-win situation, not only for President being of this nation. d me answers to my two questions I certainly hope that you will sen . I also sincerely hope that you for which I would be most appreciative ution to our fiscal problems than are attempting to find some other sol ne is killing the patient! the one you are using. Your medici Sincerely yours, Mrs. Norman P. Wangerin  a C' the scion Board members ho; many of you have ever borro-;,ed money on real estate. at l7;; and been able to see the day to live? I can answer because ) the an:; - vcr is nont_ of you. SD vhy do you vish off on scone elre th3t thich is i:.apossible for you to do? row ra.lily of you have ever borrowed money et 17:1 If any of you have ever e ,f/3 l cone that, yoLt cortninly don't belon; sittin,.: on the Federal 1100,,rve 72e2rc% ri.hty percent (00,-;) of the 37-leric:.n people hve to fin?nce their automobill-.s other person_a rrepe-rty such as ap.plionccs. ;;hen you h:ve set the price of there persons, as you have done by increasinj: of mony out of the arbitrary .pricf, tt b:rAcrs must pay the freern1 reserve, then you cripple such ccnies as 0aeraltors 11:1C thc rest, rhich cri771es the ;•;hy don't you let the price of money like other free com7odities take care cf supply and demand. This country has to crow, of itself, which is the rcprouce, h._:ve babies, children, schools, houses, carpenters, plumbors, roofer.:, :)ad men in the buildinz trade., as well as in all the others as the automobile trae. 'hen this money is taken away from CO.-; of the country, then you cripple the country, lad its cro-7th. Since before the times of Christ, people sho, pee and lived much the same ray as they do today by consumer buyinz one borrowing end trodinz. Why in the world do seven men ton't to cripple this csuatry. Goro.:ress cannot bnlance the budget jive 8 cents to start off with vith every dollar, no could you. Your increasin„; th.7 interest ratez of the treasury notes is not Loin.L: to - the government, it is merely severely iajurin ; stop Gon.,:ress fro:a runnin, and cripplin..: every business in the country that is affected by intercst rates, which is most of them, and most person9, and the U. S. Govc•rn!acut. :taxes and Le do not have 3Z competnt president as ve should by cuttinz incr, ase incoslpete.:.tly defense spendin to the point of abf.urdirm. Pussi it2e1f is short of faor.:.- y, in borrowin: from France and lt-aly to build 2n oil pipe line (I hovr forr-otten which count:; they ere borroT: fro-::, It:17 on! of them, so how could they afford to -ntr 3 1Z,1%.:e or Fr.:lee, but it sole w?r or :ailit!ry action?). C:;a,7ressmen have e yearly book published, as ive out to the public infonntion ;:rE7i0113 e:7„erirnce, and foLlilyllivos; their ?Lout th:Jselvcs i. c. hovi iay hil -ran, and are any Doark3 mcmberr divorcer7, and if so have the remarrickl and to whom divorced an to whom remarried. This is s fairly infor[nativc infortion that the public should Also, I would like to knoi, the present position or e:aployment of the seven members, if you will please ,ivc that to me. U) the mousy by increasinL the interest rates, is only making the U. S. spend more money by increasia,; the amount :f interest r%tes that it has to pay on its Notes to borrow money to pfly off other Note's interest, ell of wl-lich causes unnorm..11 expenditures and further treat indebta:ss of th covernment to the point thot it cJnnot balance its budLet, whi:h in turn causes it to borrow more moae:/ to lay off borrowed more money amd its interest to pay for the unbalanced spen:lin.; that 1,35 caused in the first place by these seven men makinj; the Govern:aent pay abnormal and unreasonable interest rates. Y;ho can 2C;': that these silly and stay in business payin„: inter:st rates at l7:; Incompetent seven men are compellinz others to pay, ineludin, the U. S. Gov. the answer is no on'J for very ion:. Therefore the present serious troubles in this country and abrosd. Does not this Roard know that other powers and countries always look to this country for support and ;uidance and support, but then these silly seven men do thins as abnormal es this they lose Federal Reserve Bank of St. Louis  confidence in this c:)untry. Sincerelv yourso . / 7••••"_,/_, • A: • 4"ev. Vobert L. Chiple.y Federal Reserve Bank of St. Louis  Eastwood State Bank EYOTA, MN 55934• 507/545-2111 ROCHESTER, MN 55901 • 507/2813-4310  February 26, 1982  Paul Volker Chairman Federal Reserve Bank Washington, D.C. ker, Dear Mr._'I1Ui We request that the Federal Reserve Board change the discount rate more frequently in keeping with money market rates. Minnesota usury rates are based on the Federal Reserve discount rate. When market rates increase, our cost of funds increases; but the discount rate imposes a fixed interest rate on our loans. This results in an unacceptable interest squeeze. The problem is critical when loan demand is strong and deposit inflow is weak; the usual condition. The Federal Reserve may be reluctant to change the discount rate due to the psychological impact on the credit markets each time the rate changes. However, I feel that the markets would soon adjust to a frequently changed discount rate. With warm regards,  President JL1:ejw  Speed Lettere 44-902  mil /il 2Effizrilig 1,177,1 mist!  00  From  To  Speed Lettere  LiJ.12. Jove  Okvvait1C-R-Af"  Wc  ftlizikaigiA  //1J/u„,„17/1111  c) i  me_seArk.rc  ,C,  s-s--,  Subject —No 9 & 10 FOLD  Message  o s. 4-o  C4  e_AD 4.11  tve--9 I  -LA  4  CL4  A  942.A. k-  , NA.‘..  4:14r, "A c  "a.  Crt.4. S  C-40 K.& siv•-43 13 Ia.I  c-e.  -a-43-4,1..—  s c_  1/ 1 4.1  .L 4-41% te_  i-LL4  I aacL  iltkqr C  d  16.5  4-o  Z.) 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I 4Ce lev  (:)re at%  900  tiert)  LA-11 \  Ckr-C.91-4' 11 "Ohl_  LET _  b  .1('' ‘ Art. )  •  , l'k) rA  4C  I  frt e  cr.k Cw  USI kk  Li(3 u  zsc-v-A.A.  c'S  W  8.0-00 W.) 6.4  t  Co°Cat4 ' 1-Ckel..,#  r-1<-  rat)  A-c) C,  r•t‘ ‘.6.3 n  r-43 r"  LICA  •  t  CIA,k  QCArr  La..) 6.)  4-Wt Aeirr • G iE TT ITLE 11.1 PIsT _  .  MORGANFIELD LUMBER COMPANY 315 North Court  Morganfield, Kentucky 42437  04('1  ED JONES Manager JOE CAVINS Salesman Federal Reserve Bank of St. Louis  March 8, 1982  Paul Volcker, Chairman Federal Reserve Board Board of Governors Federal Reserve Banking System Washington, D. C. 20551 Dear Mr. Volcker:  1982,  Accordin7 to published information on March 5, M-I equals approximately 443 billion dollars.  How many dollars do you project M-I must be in order that inflation be maintained at an accepted rate? In other words, how much further down must M-I fall before the "FED" will consider reducing interest rates? Very truly yours,  A Jep  H. McBride  serving union county in the same location since 1880 thornton lumber co. 1920 morganfield lumber- fred alloway 1930 union-webster lumber co. 1968 morganfield lumber company 1976 joseph h. mc bride -- ben b. stockton, jr. -- owners  502-389-2281  BOARD CF GOVERNORS OF THE FEDERAL RESERVE SYSTEr •  1982 APR -8 01411: 20  April 6, 1982  RECEIVED OFFICE Or THE CHAIRMAN' Mr. Paul Volcker  )Cf 32  Chairman, Federal Reserve Board th and Constitution Ave., N. W. 20 Washington, D. C. 20551  Dear Mr. Volcker: I have several perspectives on the relationship of money supply to inflation that may be useful in the FRB!s attempt to monitor and control these two elements. I accept the premise that the amount of money spent versus the quantity of goods and services offered is the link to inflation/deflation. The question of whether the potential to spend (e.g. money supply) is a proper surrogate for actual expenditure is the rub. There is no point in reviewing all the arguments against using the various money supply measures.  All suffer in that  they do not reflect the changing role of credit purchases. Even if consumer credit were included lending institutions are constantly changing the access to credit, and a given definition would soon be outmoded. Checking accounts are not a measure of 1/ spending potentI write checks against my stock/bond holdings and against my savings account. There really is no good measure of spending potential;  ional.  it is an ever changing target. What I suggest, therefore, is that the monitor/control functions be split into two parts: monitor, not money supply, but actual expenditures (which have a more direct link to inflation than money supply); centrol on some measure of spending potentional. didate measures for expenditure.  There are many can-  They are all so highly correlated  that almost any one could be picked.  I would suggest total retail sales.  It is clear that on a short term basis, the supply of goods and services available for final sale is fairly constant so that current dollar expenditure is the only missing element in the inflation equation. An additional advantage of using expenditures is that seasonal adjustment could be taken into account, which is difficult for any measure of money supply since it is frequently "controlled". I would suggest two other Federal Reserve Bank of St. Louis  (not weekly) basis to minimize y thl mon a on e sur mea the r things: monito e, the usual rcuit, by a sampling procedur ci t or sh and s; al gn si e ls fa t an approg the data. I would suggest tha two month delay in accessin d to provide a projection ise dev be a dat h suc of is ys time series anal of current expenditures. gnal that ly if there were a clear si Control would be exercised on procedure changing. The most sensitive ly ed rk ma wa: te ra ng di en sp the lar to that ulative sum technique, simi cum a be ld wou g rin ito mon ch su for procedure ant process control. This pl al ri st du in r fo ped elo dev recently with mine has deviated from a norm sur mea a n whe ect det to ed gn is desi e to control on. ss certain is the measur le is at Wh s. al gn si e ls fa imum ld lean toward a measure wou I gh ou th al e at id nd ca M-1 wouls be a possible lieve, the of credit. However, I be le ro ng gi an ch the d te ec fl that re e the financial communonc ear app dis y ll ia nt se control problem would es system. ity saw the new monitoring procedures. I am a reed pos pro the of all in I am knowledgable recasting ound in economics and fo kgr bac a h wit , an ci ti is at tired st a personal of the above further. On y an s us sc di to y pp ha be and wouls ther is a ng Bill Dippel, whose fa you of w la n-i er th fa the note, I am rest to above will be of some inte the e hop I . rs ou of nd mutual frie you. Federal Reserve Bank of St. Louis  Yours sincerely,  gtA' John E. Reith Federal Reserve Bank of St. Louis  THE  WHITE HOUSE  WASHINGTON  Date:  FOR:  4/2/82  lcker Chairman Vo  FROM:  s Jack Burges  mation XX For your infor ation Per our convers Other:  • de  ""'""••••--......... 4mb.  ••  THE WHITE HOUSE WASHINGTON  April 1, 1982  Dear Mr. Buckley: In behalf of President Reagan, thank you for your letter of March 9 regarding high interest rates and the budget deficit. Due to the issues you raised, I have forwarded copies of your correspondence to the appropriate policy officials at the Federal Reserve and here at the White House for their attention. I am confident your views will be given every consideration. Please be assured that this Administration is not actively pursuing a high interest rate policy. One of the basic components of the President's Economic Recovery Program is the stabilization of interest rates and the establishment of a consistent monetary policy. Thank you for bringing these concerns to our attention. Sincerely,  ack Burg Special Assistant to the President  Mr. R.O. Buckley Executive Vice President Mississippi Cattlemen's Association 121 N. Jefferson Jackson, Mississippi 39202 Federal Reserve Bank of St. Louis  •  121 N. JEFFERSON/JACKSON, MISSISSIPPI 39202/PH0NE (601) 354-8951  March 9, 1982  President Ronald Reagan 1600 Pennsylvania Ave. Washington, D.C. 20547 Dear Mr. President: We appreciate very, much what you are doing for this country. It was necessary that we slow down some of the give-away programs, particularly welfare. It is also necessary that we reduce spending in most all other areas. You have brought some dignity -to the President's office, some credibility to it, and also some credibility to this country. We are aware that it took us forty or fifty years to get in the bad condition the .country was in when you became President. We know, too, that everybody has got to sacrifice a little to get it back on an even keel. However, I would like to point out that cattlemen, along with most farmers and ranchers, are really having a tough time of it right now. The thing that is killing us is the extremely high interest rates and the sluggish economy. Inflation and the high cost of production are also important factors. We know for sure that all cattlemen, all agriculture, and all business would be better off with less tax cut and lower interest rates. We also feel strongly that the economy would recover much faster, and we would get out of this recession a lot faster with lower interest rates and less tax cut.  /  We realize there is no way to cut a billion dollars out of the budget. The only way to get a deficit that we can live with would be to cut spending as much as possible, and as much as we regret to suggest this, the only way spending can be cut much is for a sizable portion to come out of the defense budget. Some of the long-range items could be delayed without really crippling the defense budget, but in our opinion it will also be necessary to delay implementation of the tax cuts or increase taxes in some other area. Federal Reserve Bank of St. Louis  ......v.....110.1•••••111111111111.111111.1.4.1......""  ..441/MOMMONAML-.  BOARD OF COVE OF THE RNC1FiS FEDERAL RESERVE sy-  V  DOUWE R. NAUTA Federal Reserve Bank of St. Louis  171,r,  1981 MAY -3  AMU): 28  RECEIVED OFFICE OF THE CHAIRMAN  /5  lz t-v /rt  -e  M-  fe4.-7 4e--/e.1.e  4,4  fveoL„)-1.1:et  4t-et-fe„'„/e  e4-14-  .  Ca  ,et-e-rn.e-f-•L  fnl tit-Z777,  l-et  c  a  11447 anyt,  eet, ke  0-eve-,_  tA,.  sie/2,7  -ek,z_ee.4_..._  da  r .  42  lk4 >Lt:  r.-te.,1c_ •  0-71 ez  yz-r-ri4  . •e4.- •  ce.e,,_ t./  ;4 4i  t/  "rr, "*"..:r1814PpaP-mmempopipoppErpogw .  71e., h/exte  et.  7 4,111Pir'  ce_x_ee 7Z f  ti-r7J-r  Pr  2-zcv7>v/ -70-77c  -rie> 0 .Z  ,Ar Federal Reserve Bank of St. Louis  4 Federal Reserve Bank of St. Louis  VVi.KI\l':.,16 BARD OF Of 1 1;.J.:LII:kr. DERAI Isszv,rk  10 Fr 1:20  Eay 7, 19q2  RECEIVEO OFFICE The Honorable Paul A. Volcker Chairman, Board of Governors Federal Reserve System Vashingtor, D. C. 20551 Dear Sir: I grow increasingly weary of hearing responsible politicians and regulators attributing all our economic ills to the snectre of a budget deficit. It does rake a convenient whinping bOy, and, since no one can prevent a deficit, it relieves anyone of taking any action to turn our economy around. Our problems actually began, sir, from the very moment when you took it unon yourself to institttP your personal and unproven theory that the economy would be healthier if you apttempted to control the money supply rather than the rate. From that moment, everything started sliding down the tubes.. The first few months should have convinced you that your theory would not work. Impervious to the calamitous conditions around you, you have refused to admit that you were wrorP:. Let me tell you, sir, that I find the virtual collapse of our entire economy far, far worse than any rate of inflation we might have been experiencing. I urge you to abandon your present course, admit your error, and immediately re-instate the policy of regulating rate rather than supply. There is no crime in being wrong, there is a crime in not admitting it. Yours very sircerely,  Dow Cooksey.  nnw Cooksey  Bt)/ RD 0F ncvf _ OF 1H S'r —  1962 KgnY  Pti. 1: 49  RECEIVED OFFICE or THE. 1I-ItaRt14.!,.1 Federal Reserve Bank of St. Louis  May 6, 1982  The Honotable Paul A. Volcker, Chairman, Board of Governors Federal Reserve System • 20551 Washington, D. C. 411.  Dear Mr. Volcker: We greatly admire your position and your service to the country. It appears that we are now at a point in time where all the signs are good except one...interest rates. I personally am being hurt by high interest hopefully I can hang on for another twelve months. I recently paid a note on an investment made in September 1979 that should have been paid out in September, 1982. My balance of the principal equates to four more years at my present payment rate. What ever you can do to help reduce interest rates should and I think will help the ecomomy of the country. I am a striang believer in the President's program. I plan to write Congress...if they increase taxes 895B will it be used to reduce the deficit of for new political programs? y truly you sip J. S. Stone  BOARD CF GOVERNORS OF THE FEDERAL RESInVE SYS'El!  1981y26 P.M 9 19  Ae./wtqfecE  CrEHIEV[PI IR 11 A N  3  sp71%.r.r/  7f/  sr7 e1  •  ‘-c-ale•47  Zezi 77 1/f‘ r -e-;e•dr'  7 7 1-e .--" Federal Reserve Bank of St. Louis  "?  ,)7  ,-40•••0_ Federal Reserve Bank of St. Louis  Removal Notice The item(s) identified below have been removed in accordance with FRASER's policy on handling sensitive information in digitization projects due to copyright protections.  Citation Information Document Type: Magazine article Citations:  Number of Pages Removed: 4  Riesser, Gregor H. "A Poor Country Chemist Wonders About Scientific Economic Theory." Chemtech, May 1982.  Federal Reserve Bank of St. Louis  BOARDCF OF GOVERNORS FEDER4LhES 71k ERVESYSTEf.1  1982 MAY 27  oraft  BIOCRAFT ELPK  AN 3; Ii  RECEIVED  FicipAi°141415Q  Pharmaceutical Manufacturers  AREA CODE 201 - 796-3434-36 TLX 130547  RIES, INC.  92 Rt.46• P.O. Box 200 • Elmwood Park,N.J. 07407 May 24, 1982  Mr. Paul Volcker, Chairman Federal Reserve Board 20th Street & Constitution Avenue, N.W. Washington, D. C. 20551 Dear Mr. Volcker: By way of introduction, my name is Harold Snyder and I am president of a small pharmaceutical company that does 16 million dollars a year in business, and has succeeded so far in operating at a los s for the past three years. Part of this loss is directly attributable to increase d energy costs. Your proposal, as outlined in the June 1, 1982 edit ion of adding additional taxes to conserve energy only adds addi Boardroom, for tional fuel (pun intended) to the fire, and that is the destruction of small companies (we have 146 employees) like Biocraft. Our cost for energy in the past three years is as follow s: 1980  1981  1982  $146,780  $207,855  $276,835  Aside from these figures, our overall costs for energy used in the operation of our three Biocraft plants are the factors directly responsible for our operating at a loss. It is not reduced productivity, cost of labor, or changes in traditional work ethics which have been much bandied about as the reasons for the demise of American industry. What has been the basic problem is the increased cost s of oil which reflects itself in increased energy costs, and in the cos t of producing our products semi-synthetic penicillins. The material involved in thi s production are direct petro-chemical derivatives. A typical example is the skyrocketing costs of our solvents as outlined in the chart below: Federal Reserve Bank of St. Louis  Product Acetone Butanol Methylene Chloride  1972 Price .05/lb. .09/lb. .07/lb.  1982 Price .285/1b. .315/1b. .245/1b.  ., 11.  May 24, 1982 Mr. Paul Volcker, Chairman Federal Reserve Board Page 2  As you can see these are some of the principle factors which have contributed to our escalating costs which, by the way, have not been passed through to consumers to increase the cost of their drugs. For that matter, the pharmaceuticals we sell have decreased in price since 1972 as a result of competition basically furnished by companies like Biocraft in opposition to the large multi -nation pharmaceutical companies. Frankly, any energy cost increase can only further enhance the feasibility of our company going into bankruptcy as so many others have before us. If you have any questions I would be pleased to speak with you directly not through a secretary or an assistant. I would also be only too glad to open any of our books and present documentation of these figures. gated The so-called energy tax proposal is, in my opinion, a red herring promul by politicians looking for solutions to a problem that has not as yet been correctly defined or addressed. Very truly yours, BIOCRAFT LABORAT  Harold Sn President  IES, INC.  r  HS/ea Federal Reserve Bank of St. Louis  -  ---  t..&. '4'  •  7 --  )-,-,,2- Federal Reserve Bank of St. Louis  c.--------c  -  '  ,./`--  ..  t 7,719 '  --'  -Y.z 2  '.  y' iy  7-Y7i_' .2 ;  4  2:C3  t2  1 Y2G'  71  2 -` 7?  / Federal Reserve Bank of St. Louis  Solithano MARINE SALES AND SERVICE InC' 278 RIVER ROAD NORTH TONAWANDA, N. Y. 14120  00 TELEPHONE: 716 695-3472 716 693-8484  (40 ALL THE GREAT NAMES IN BOATING  9L.  Chr. Boar:: of Gove.rnor7 Pa,i1 Federal Reserve Systen, 20551 C " ,s1near 1:r. Volcker: I have never wri_tten a letter such as this bef,)re in rri.,r life, h•-e reachecl such a rprnerate ry.).'nt in t T feel .r.--Jtin way to try to own our c t1-1 --t I riust try in ocrsua-':e you to lowc_Ir interest rates. 1-6 have a sriall mari'ne c airrre 17.;. -th all y3-,.1 say hinrs oe of Bu.-7.:-- 7 o, N.Y. within wer , f_,ovft spending about necess.:: ty t interest rates raa'.:e our .:leans. However, thr':-:rhi r 1-.-. usiness at all. T..le ca-inot o on like this any 4 o r:o . --ood ha7e acco... .ished if yx_, do finally :21.c11)nr.anent .-= t thin]: a -,- y-)n, ch. ( Pat all t'ne sAall )11 h.. c wi-)ed t'f1:ys..s1nt,s3.--,en in. Arae-ica? Pdieve Ye, your c - T -rn is 4..00 Ora;:tic. :-ay bring on a t'i course, If yo c ,nt-.!_nue ar.,r oderate rthTh since 2929. T ur -e yrp.: t wc-)rsr- t an c -rFe iririrdiately. V  Nvwdir.),H1  > ..j 4 "*" .••••-i C., " X  ""%-•.. lir  CC G  •••••1  L.)  Cir 43,  Or  CO  • •-,-D  C , *4 Cc) Federal Reserve Bank of St. Louis  3013J0  03/113038  Le-  !OIikt1 ZE At1W 1861  3V.IS:111-1VN3C33 141' ir  SbON0i3ACI,Q 30 08V0E3  y trcT yours,  Carol D. s ri -  Treas.  T. • ‘../•  BOARDOFGO VERNORS OF S`t RESII.P.VE AL DER E f  BOARDO GOVERNORS F ESERVE SYSTie  it Olt ?A I JU14 1982 1982MA RECEN-E0 CHNIRMA OFFICE or Ti-1E  10: og  R CEIVED THE CHAIRMAN 0 OFFICE  00  y  Sheloy Steol, Inc.  May 27, 1982 The Honorable Paul A. Volcker Chairman, Board of Governors Federal Reserve System Washington, D.C. 20551 Dear Mr. Volcker: The attached copy of an advertisement from The Wall Street Journal represents the feelings of many of my business associates and friends. Between you and your policies at the Federal Reserve and our Congress and their desires for power and glory, America is being destroyed. High interest rates have brought new construction virtually to a stand-still with no improvement in sight. It is time that the tight money policies that you have so strictly adhered to be eased so that we may once again see a strong, growing America. Sincerely,  */ Houston McCandless General Manager Federal Reserve Bank of St. Louis  NASHVILLE DIVISION P.O. Box 1971 710 South 2nd Street Nashville, TN 37202 a 800-342-1080 Toll Tennessee / Free 615-256-2900 Nashville  FREDERICK E. MILLS Superintendent of Banks  4-6 Federal Reserve Bank of St. Louis  ce Telephone: Area Code 614-466-2932  )hio 43215 ets)  Hon. Paul A. Volcker, Chairman Board of Governors Federal Reserve System 21st. and Constitution, N.W. Washington, D.C. 20551  Re:  Application by United Midwest Bancshares to Acquire The Southern Ohio Bank  Dear Mr. Volcker: We have received Mr. Andrew C. Bflrkle, Jr.'s letter of May 18, 1982, regarding the above application, and a copy of the application attached thereto. Mr. Burkle has requested that this office's views and recommendations with respect to the application be forwarded to you within thirty days. Please be advised that this office has no comment regarding this application. Should information become available to us, within the thirty :auce us to alter our response, all such day comment period, which would , information will be made available to your office immediately.  Very truly yours,  j  II%  derick E. Mills Superintendent of Banks  cc:  Mr. Andrew C. Burkle, Jr. Director, Special Examinations Federal Reserve Bank of Cleveland  3/1i JO 03A1333e 331.130  NOP1861 3A'!'333ii 1VU:'03i (;i1.141T3A 39 _ID 30 0e4 yes  Arne J. JAncon  cccid,3e41  7  ;c2LkAA  4v-eveLe'(7o  -e bo-tcc  cQ  06a,l_. 7/bye-cc-LA /te ceti.  t/I7  •  cl  a_4  34 -  -414 7  -4 ( ( y  ,e,ertt  )  04."( 2'7te)A-t‘y  7/-'114,12:t-r  -*eree  eta  ,c7oo //rW/CI  t.-177 c•(_ Federal Reserve Bank of St. Louis  L Federal Reserve Bank of St. Louis  ca-)  4Ar-tr'  ._.wv-ad-4tf,Vk(  *ev Ceyet..k,.  A2ou,z,tctAt-( 70 k-Af'71 , t/  4,171u  4v1,j/  CO-,t.4/7  ,APZ  At-  ,  AArate 4 rerc'vr /2 '`.ct %/r1 -II  4Arts4 lutd  7  /(Ft,12_e7 .12,2,A 4 —  rvt  4b  Ti  4'44  JAMES D FOX 21 HARPER RD MONmOUTH JUNCTION NJ 08852  11  "1 4..032658S168 Ob/17/82 ICS IPMMTZZ CSP WSHB 2129434414 MGM TDMT NE w YORK NY 126 0617 0144P EST  rp)  N4  cp -..,  M  II  CZ  cl 410 co 7 us fizrr-2 .‹ 1,. .,m 1'41 rrt 410 --' oo C.') ,"  C)CI 11r--4,  •  II  FEDERAL RESERVE BANK CHAIRmAN PAUL VOLCKER 20 AND CONSTITUTION AVE NORTHWEST WASHINGTON DC 20551  b.  ..  -<  WI  ....,  .  t..1  40 41  410 41 DEAR MR VOLCKER  40 10 10 40 410  THE RECENT AND DRAMATIC SLIDE OF FIXED INCOME SECURITIES CLEARLY ILLUSTRATES THE INABILITY OF DECLINING INFLATIONARY EXPECTATIONS TO OVERCOME THE POwER OF COMPOUNDING INTEREST. IT IS TIME FOR THE FED, IN CONCERT WITH THE ADMINISTRATION, TU RECOGNIZE AND DECLARE A STATE OF NATIONAL EMERGENCY, SLASH THE BUDGET AND PROVIDE MORE RESERVES, OTHER*ISE THE MASSIVE TRANSFER OF NET WORTH FROM BORROWERS TO LENDERS, REFLECTED IN THE HISTORICAL REAL RATE OF RETURN, WILL CONTINUE UNTIL ALL PRODUCTIVE CAPITAL IS EXHAUSTED. SAVINGS INCENTIVES MUST BE GIVEN TIME TO WORK, BUT THE ECONOMY IS RUNNING OUT OF TIME. THANK YOU FOR YOUR CONSIDERATION JAMES D FOX 21 HAkPER RD MONMOUTH JUNCTION NJ 08852 13:47 EsT  41 41 41 41  mcmcomp 4111 40 40  40  •  40  40  41  •  •  411 Federal Reserve Bank of St. Louis  ir---  TO REPLY BY MAILGRAM, SEE REVERSE SIDE FOR WESTERN UNION'S TOLL - FREE PHONE NUMBERS  41  d  •  ••••••  BOARD OF GCVERNORS OF THE, FEDERAL RESERVE SYSTW  1112 JUN I 8 AM 8:I7 RECEIVED OFFICE OF THE CHAIRMAN Federal Reserve Bank of St. Louis  dit  • •  (  _.a Federal Reserve Bank of St. Louis  p. Federal Reserve Bank of St. Louis  Don DeVault  GOVE.RNW., BOARD OF GE 1HE. S'I'S":"t.:•: • RESEFNE FEDERAL  :. 24 I982 JUN 23 PA 5 RECEIVED CH;`,IRMN OFFICE Or THE  21 June 1962 I  ov I  Mr. Paul \iolcker,Chairman Federal heserve Board Washington, D.C. 20551 Dear Sir:  The enclosed suggestion could be of interest to you in connection with the problem of interest rates.  he  suggestion is that by indexing loans one could decouple the interest rates from the inflation rate. I am not an economist, but I am a scientist ana can calculate.  I offer the suggestion simply as common sense,  if rather untraditional. Sincerely,  c6-r, Lon DeVault  Removal Notice The item(s) identified below have been removed in accordance with FRASER's policy on handling sensitive information in digitization projects due to copyright protections.  Citation Information Document Type: Research proposal Citations:  Number of Pages Removed: 8  DeVault, Don. "A Proposal To Lower Interest Rates By Indexing Loans." 1982.  Federal Reserve Bank of St. Louis  GOVE.R140 BOARD Of E,SIAE. FEDERAL ftilF  06--taLsi  Isn  III 2%  .10k  Pi)C1  PCIEi-ri,°NAIRMAI4 OFFICE  )16-tt)  LA,(to CL)§ -  A4.4%44-,4-60  a-4Kr  ,  eitArr,a,u,  62-tA-Q' ? -,  AL0  pg  ,e--(Lic)  va-nei 7-V  4"./  aa -47eLf ', 4_,‘„R e_4.Lz.4  ,  662-041, f,, r-c t aLef  4)-  eAlts-1-4- a-<-73o  er-c.-6-ts4  4eliE o'-1 •-‘°-Q4 le-eI kiza.1 &,U -4,t 41 -r i g4.4  .44 %/A.1 7 1-e-4)  >-t-A,r- 0-see„ p?Ztef6tilZo t& -v44--1-- a_vdz,e2-e-Y  A‘Ul  W  4c_L-4Z".e.9000 0601 0(3 soi 0o o rLo 161-tteAl-k  -tes-c-dt-L-L4-k  '76) Federal Reserve Bank of St. Louis  ti)A  o'Ithz4;e-44-Q-4-aQ sww.••••°' Robert S. Carson  ts-v%  42_04  (kt  aZvrat.t,  1  PATRICK A. DILLON  BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTE  1981JUN 30 AM  16  U.S.A.  RECEIVED arra OF THE CHAIRMAN 28 June, 1982 rr. Paul Volker, Chairman, Federal Reserve System, 17ashington. D.C. 20551 Lieber Herr Volker,  Wir haben kurz korrespondiert in ich das beilegende Herbst 1980 und seit Lr:drz dieses Jahres habe schwermUtige auf mein Schreibtisch sitzen lassen. Wieder das Gesicht mit den ewigen Stinkstengel. Forgive the German but I need the re the war practice and so does my typewriter that was made befo by Seidel & 1;aumann in Dresden. Interest rates arn't much lower than the hard lesson when I last wrote to you nor has Congress learned with any degree of of ho-:: to reconcile it's political ambitions taught to do this. fiscal discipline. They are going to have to be Our leader's reluctance to bite the also epitomizes bullet not only reflects their faintheartedness but lience of the a politicians' endemic misunderstanding of the resi if they are public's ability to absorb and cope with bad news convinced th,?t they are being told the truth. In a nut shell, we have for some time vity with too been too long on Dollars and too short on producti else trying to many people either shirking a hard day's work or er's wages. credit their way into a champagne life style on a brew But what really worries me is what, if s trillion Dnllar anything, cc;n we ever do to defray this country' t one fifth of debt the interest on which is now eating up abou l millstone - still treasury receipts? The pressure of this financia much of the capital growing by leaps and bounds - is sopping up too ate sector so market which, in turn, inhibits growth in the priv stalling our economic recovery. To address this evident imbalance, have sury and private you considered a 4 or 5 point spread between Trea to the private sector corporate bonds? This would attract capital des) and force the first (where thc real wealth of the nation resi spread would be locked Government to be less profligate. The point ously too stupid to work into the GNP by a formula - which I am obvi ad in direct proportion out - that would increase or decrease the spre GNP. Ergo, if the GIP to the rate of growth (or decline) in the spread would drop by increased in any given year by, say, 55. the GNP declined by 2, the half of that percentage. Conversely, if the would be made monthly on spread would increase by 121,. Adjustments extrapolation to obviate convulsions. You have an invidious job and I know of reminds me of my old you are doing the best you can. Sort remark to us raw scrgeant-major during the war whose favourite rse used they can recruits was: "T:obody is entirely useless, as an 'orrible example." A sincerel • t.1 Federal Reserve Bank of St. Louis
Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102