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[REVISED, October 1 xsm m u i e e m m m r / /fK September 30, 1947 m e m o o t d b m f o r t h e p r e s id e n t FROM: The C o u n c il o f Economic A d v ise rs SUBJECTS Third Q uarter Review The t h ir d q u a rte r o f 1947 p r e se n ts on the s u r fa c e an economic p ic tu r e which co n tin u e s th e fa v o r a b le im pression o f th e f i r s t h a l f o f t h i s y e a r and o f th e y e a r 1946. THE QUANTITATIVE V IM C i v i l i a n employmen t has contin ued c lo s e t o th e 60 m illio n l e v e l a t t a in e d in June ( l a t e s t f i g u r e 59*9 m i l l i o n ) . A g a in s t a normal s e a s o n a l r e d u c tio n in a g r i c u l t u r a l la b o r , we are s e e in g a marked in c r e a s e in t e x t i l e and a p p a re l employment. d u rin g th e t h ir d The in c r e a s e in number o f h ou sing s t a r t s q u a r te r a ls o prom ises a l onger-tfaaa-norm al e x te n s io n o f b u ild in g tr a d e s la b o r in th e fo u r th q u a r te r . The o v e r a l l number o f c la im s f o r unemployment b e n e f i t s i s now a t th e lo w e s t l e v e l s in c e s h o r t ly a f t e r th e end o f the war. P rod u ctio n in d e x e s have m aintained a h ig h l e v e l , f u l l y up t o marks s e t in the* f i r s t q u a r te r . though n o t Advances have r e c e n t ly been r e g is t e r e d in such im portant i n d u s t r i a l in d ic a to r s a s bitum inous c o a l, p etroleu m , s t e e l , e l e c t r i c power, motor v e h i c l e s , and f r e i g h t - c a r lo a d in g s . Motor v e h i c l e p rod u ctio n and f r e i g h t - c a r lo a d in g s r e g i s t e r e d h ig h s f o r th e y e a r d u rin g Septem ber, end e l e c t r i c power p ro d u ctio n , by c r o s s in g th e mark 5 b i l l i o n k ilo w a t t h o u rs, r e g is t e r e d an a l l - t i m e h ig h . On th e o th e r I hand, a g r i c u l t u r a l c o n d itio n s have been l e s s fa v o r a b le s in c e l a t e s p r in g , so t h a t th e index o f a g r i c u l t u r a l p ro d u ctio n i s m o d erately down. ' - 2 - Purchasing powey has reflected and production* .With strikes or and work o th e r brief, the substantial wage advances areas during the first half increase of wMfers } sustained an increase in dividend operations has been th e ir inflow in an for most o f th e i n d u s t r i a l a rea have p la n t and s u p p lie s and have p erm itted Cash income from cu rren t augmented by con tin ued d r a f t s on s a v in g s , the bondsJ^and e x te n s io n o f c r e d i t a t home, and from f o r e ig n c o u n tr ie s which have needed to draw down dollar balances t o meet p r e s s in g im port n e e d s. of monetary purchasing The f r e e flo w power in the f a c e W H sh ortage o f some goods, particularly agricultural advance in reflected The sharp advance in p r i c e s o f disb u rsem en ts. cashing of terminal leave by th e been has brou ght farm income to a record l e v e l , o f e a r n in g s o v er l i b e r a l spending stop p ages r e l a t i v e l y few granted in im p ortan t i n d u s t r i a l year have spending money. many agricultural products and the high rates o f the th e h ig h l e v e l o f emplqynaent p r o d u cts, has been r e fle c te d in a marked the g e n e ra l p r i c e in d e x , e s p e c i a l l y d u rin g th e l a s t two months • THE QUALITATIVE ANALYSIS When we lo o k below th e s u r fa c e m a n ife s ta tio n s o f co n t in u in g p r o s p e r it y d u rin g th e th ir d q u a r te r , the p ic t u r e i s much l e s s r e a s s u r in g * W hile i t i s n o t a cause f o r immediate alarm or p a n ick y a c t i o n , i t does demand sober c o n s id e r a tio n o f th e probable tre n d s d u rin g th e fo u r th q u a r te r o f 1947 and o f what s te p s should be tak en t o a d ju s t o u r s e lv e s t o th e se tre n d s as they may be p r o je c te d in to 194# • and la b a owar in m tV>iiir imp unrnt* y W hile the number o f v jo b s has jo b s been s a t i s f a c t o r y , th e se /h a v e n o t been a s r e g u la r as would have been B « *e c e s 3 a r y to a t t a i n f i l l p ro d u ctio n . T h is has been due in p a r t to labor-managem ent f r i c t i o n r e s u lt i n g in work sto p p a g e s. B u t more s e r io u s ly i t has been due to sh o rtag es o f m a te r ia l and, back o f t h a t , to shoisfea^fes o f equipm ent«, P ro d u ctio n and i t s lim itin g f a c t o r s * T h is b r in g s us inm edi- a t e l y to th e d is a p p o in tin g c o n d itio n s o f n a t io n a l p rod u ctio n which have developed in th e t•WhSBiTimir d q u a rte r. im-lUiF On the s id e o f a g r i c u l t u r e , t h i s u n- toward developm ent i s due p r im a r ily to a d v e rse weather c o n d it io n s . number o f farm ers and th e tim e devoted to The farm work has been ample, and m a te r ia ls and equipment have not shown any c r ip p lin g sh o rta g e (though th ere has been some t ig h t n e s s in the f e r t i l i s e r su pp ly and farm ers are s t i l l e a g e r ly ta k in g improved equipment a s f a s t a s i t becomes a v a i l a b l e ) • On th e i n d u s t r i a l s i d e , however, we have encountered sons© unforeseen l i m i t a t i o n s in th e process o f c o n v e r tin g from war prod u ctio n t fu ll-s c a le peace p ro d u ctio n on a l e v e l o f h ig h e f f i c i e n c y . In d u s tr ia l te c h n o lo g y s e t s i t s own p a c e , and th e new equipment p ro vid ed t o g iv e men employment i s o f th e most e f f i c i e n t k in d . I f t h a t i s n o t a v a ila b le ^ men a re p a r t i a l l y i d l e r a th e r than used f u l l time a t lo w er e f f i c i e n c y . The f i r s t ru sh o f r e co n v e rsio n was am azin gly r a p id . Where th e same p la n t and equipment cou ld in the n ain m erely be rearranged to produce a d i f f e r e n t d e s ig n or p ro d u ct, the aian ge was l a r g e l y a m a tte r o f or g a n iz a tio n and m anagerial s k i l l . L ik e w ise * procurement o f th e e a r ly ■uJUllliiHBB in sta lm e n ts o f new equipment encountered no g r e a t d i f f i c u l t y . But now we a re f in d in g th a t th e problem i s n o t lim ited , t o op ening th e - 4~ l a s t o f th e b o tt le n e c k s , but in v o lv e s d e la y a t l e a s t in p ro v id in g an ample su p p ly o f b a s ic m a te r ia ls and cf — c r u c i a l ty p e s o f equipm ent, n o ta b ly r^ilwa^ r o l l i n g s to c k and power i n i t s and s te e l-p r o d u c in g c a p a c it y , S t e e l - u s i ‘*.g i n d u s t r ie s have n o t been a b le to keep up to f u l l producfETSn sch ed u les because o f d e la y s in g e t t i n g r eeded s t e e l . To some e x t e n t t u i s sh o rta g e h a s fun?- ish e d t'-'e o p p o rtu n ity to u se more o f our aluminum c a p a c i t y , v h ich had been ov r e .panded by war demands. P robably alum intSTuse w i l l become e s t a b lis h e d in p a r t o f t h i s expanded area and th u s perm anently reduce th e need f o r s t e e l c a p a c i t y in a s t a b i l i z e d h igh employment economy. o f aluminum, p l a s t i c s , th e re i s But in the area where s u b s t i t u t io n 'ilmtood« or o th e r a te r ia ls is not o s s ib le , s t i l l a demand f o r s t e e l which i s n o t bd n ; c u r r e n tly m et. T h is r e s u l t s in both low ered production in many dependent in d u s t r ie s and h ig h e r p r ic e s a t i n i t i a l p o in ts^ which c o n tr ib u te s t r o n g ly to the g e n e r a l i n f l a t i o n a r y p ressu re, I t i s q u it e p o s s ib le t h a t th e r e w i l l be p ro d u ctio n cu tb a ck s in th e s t e e l in d u s tr y du rin g th e w in te r months due to sh o rta g e s o f (a) c o a l, (b) scrap m e ta l, a n i/ o r (c) p ig ir o n . Any sh ortage o f c o a l would be due to sh o rta g e o f c o a l c - r s to b r in • i t m ines. from the C a r -b u ild in g has been l a g in g fo r la c k o f s t e e l , Shortage o f scrap would be due t o th e permanent l o s s o f s t e e l produ cts a s a r e s u l t o f th e war and to the h ig h r a t e o f use in a f u l l - s c a l e I t r a i s e s th e q u e stio n whether p ig iro n peacetim e economy. a p a c i t y i s now b ein g .yovi-ded in - 5 s u f f i c i e n t amount to n e e t c l e a r l y fo r e s e e a b le needs o f a s t a b i l i z e d economy, Whatever the answer t o t h a t q u e s tio n , it i s e v id e n t t h a t new b l a s t fu rn a ce s cannot be brought in to o p e r a tio n t o eoabat p o s s ib le s h o r ta g e s t h i s w in te r , and a ls o t h a t w ithdraw al o f s t e e l now to b u ild ste e l-m a k in g f a c i l i t i e s would f u r t h e r a g g ra v a te th e p resen t s c a r c i t y * The sh o rta g e o f r a ilw a y equipment a f f e c t s th e movement o f g r a in and o th e r farm products a s w e ll a 3 c o a l and i n d u s t r i a l m a te r ia ls , I t r e f l e c t s the h ig h r a ts o f wear on r a i l r o a d j e n t a i le d by th e war r a ilw a y c a p a c ity e f f o r t and a l s o r a i s e s the q u e s tio n o f j u s t v h a t / i s needed f o r a f u l l p ro d u ctio n economy and how i t can most e c o n o m ic a lly and prom ptly be p ro v id e d . There i s g r e a t d if f e r e n c e o f view a s to what r a te o f c a p i t a l form ation would be needed f o r s u s ta in e d h i g h - l e v e l p rod u ctio n and what would c o n s t i t u t e boon-tim e o v erex p a n sio n . A d v is e e s i s s tu d y in g th e q u e s tio n o f The C o u n c il o f Economic -la n t c a p a c ity i n t e n s i v e l y in c o o p e ra tio n w ith a l l government a g e n c ie s and the a p p r o p r ia te manage ment o r g a n iz a tio n s * Meanwhile* we have to a p p r a is e th e r e s u l t s o f s h o r ta g e s In i n d u s t r i a l f a c i l i t i e s which cannot be im m ediately r e lie v e d T h is b r in g s us t o b r i e f comment on the N ation* s pu rch asin g power s i t u a tion^ which i s c h a r a c te r iz e d by th e la g g in g o f p h y s ic a l su pp ly behind m onetary demand. P u ttmmmfmtmmmammm rch asinagS * niiiT power hi<—rr->*fw igh w^esxarw b u t «u n s t a b le . i.Trrc g a ^ <— wrrw,-»-wchrar'i, rma.t: i» R ep ort o f the P r e s id e n t addressed i t s e l f to th e The F i r s t Economic .r ;.» o ssib iiity t h a t a ~ AlhM /r (£ AP&S AN° ,5 . RECORDS d e f i c i e n c y o f purch asing power in th e hands o f consumers m igh t d e v e l o p A3!v" b fo r e the c lo s e o f 194-7« T h is a n a ly s i s was based on the assum ption t h a t crop c o n d itio n s would be a s fa v o r a b le a s th o se of* 194-6. and t h a t i n d u s t r i a l p r o d u c t iv it y would r i s e s u b s t a n t i a l l y in th e cou rse o f tks&Hfear. If, th e n , wages and p r ic e s were to contin ue a t th e l e v e l o f January 19-46, we foresaw a sh ortage o f consumer pu rch asin g power w hich, u n le s s c o r r e c te d , would le a d to c l o s e d m arkets and subsequent psyadnctlon cu tb ack s and a g e n e r a lly r e c e s s io n a r y movement. The ty p e o f c o r r e c tio n su ggested in t h a t r e p o r t was the i b r in g in g up o f wages a t th e lo w e r end o f th e wage s tr u c tu r e w h ile r e f r a i n i n g from fu r t h e r advances in the h ig h e r b r a c k e ts which would fo r c e p r ic e in c r e a s e s or p reven t d e s ir a b le p r ic e r e d a c tio n s . The m ajor ad ju stm ent to be hoped f o r i f we reached h i c h - l e v e l prod u ctio n by th e end o f th e y e a r was^ in general^ downward r e d u c tio n s o f p r ic e s t o perm it read y market a b s o r p tio n o f t h i s maximum p ro d u ct. re co g n iz e d t h a t , We even w ith good c r o p s, farm p rod u cts could n o t be e x p e cte d to f a l l much in the c o m p e titiv e m arket d u rin g t h i s year* On the i n d u s t r i a l s id e , i t appeared t h a t , w ith low u n i t - c o s t d eriv e d from e f f i c i e n t equipment and h ig h -c a p a c it y o p e r a tio n , p r o f i t m argins co u ld be narrowed and p r ic e s c o m p e titiv e ly low ered to a p o in t which would pu t t h i s maximum volume w ith in reach o f cu r r e n t? d isb u r se d consumer incom es. The M id-Y ear Economic Report had to reco rd the f a c t th a t t h i s v o lu n ta r y adjustm ent had n o t tak en p la c e e x c e p t in sm a ll me*j,3ure bu t t h a t , m eanwhile, pu rch asin g power o f wage earn ers had been stren gth en ed by s u b s t a n t ia l in c r e a s e in wage r a t e s o ver a c o n s id e r a b le i i n d u s t r i a l a r e a , and b u sin e ss pu rch asing power haa been b u ttr e s s e d h ig h r a t e s o f p r o f i t and ample c r e d i t . had sharpened wage demands.. T h is p r o f i t s i t u a t i o n in turn A g r i c u lt u r a l p r ic e s had r is e n more than th o se o f m anufactured goods and c o s t o f l i v i n g had r is e n s u b s t a n t i a l l y . U^hile t h i s was n o t the ty p e o f adjustm ent which had seemed t o th e C o u n c il isost wholesome and e f f e c t i v e in the lo n g run, i t was r e c o g n iz e d t h a t , in a f r e e e n te r p r is e econou$r in a tro u b le d t r a n s i t i o n p e r io d , we have t o * f e a l our way towards a workable s e t o f p r ic e r e l a t io n s h i p s 1" and t h a t i t would n o t be im p o ssib le to keep g o in g on the b a s is o f th e s e ad ju stm en ts pending more s a t i s f a c t o r y c o n d itio n s . These ad ju stm en ts would be r e f l e c t e d in a h ig h e r p r ic e l e v e l than would have d evelo p ed from the ty p e s o f ad fsstm en t proposed in th e f i r s t Economic R ep o rt, In th e t h ir d q u a r te r , d is t u r b in g p r ic e advances have been resumed* Marked p r ic e in c r e a s e s were r e g is t e r e d in c o a l and s t e e l . O th er p r ic e s have a ls o r is e n , p a r t i c u l a r ly f o r food commodities* The r e a l pu rch asin g power o f many groups o f consumers h as c o n seq u e n tly dropped. Q u ite a s id e from the funds made a v e lla ^ T e f o r purchase o f goods f o r f o r e ig n shipm ent, a rap id expan sion o f c r e d i t t o consumers and o th e r s and a la r g e amount o f d is s a v in g have been drawn upon to support p r i c e s f a r o u t o f l i n e w ith dom estic bu yin g power based on eiirreni^ aa r n in g s . Hence, th e economic te n d e n c ie s which gave cause f o r a t t e n t i o n e a r l i e r in th e y e a r g iv e cause f o r in c r e a s in g concern now. The p r e s e n t p r ic e s i t u a t i o n , p a r t i c u la r l y w ith r e s p e c t t o g e ln g food p r i c e s , and s e r io u s . c r e a t e s th r e e dangers which can be c h a r a c te r iz e d a s immediate F ir s t, th e in c r e a s in g c o s t o f l i v i n g th r e a te n s t o g e n e r a te an o th er s e r i e s o f wage demands in urban a r e a s , le a d in g e i t h e r to i n d u s t r i a l - 3 - sto p p a g e s and c tirta ilm e n t o f p rod u ctio n (w ith a f u r th e r harm ful impact upon p r ic e s ) o r t o a w a g e -p ric e s p i r a l t h a t would in tro d u ce new i n s t a b i l i t y and u n c e r t a i n t i e s throughout th e economy. o f l i v i n g , even i f Second, th e p r e s e n t h ig h c o s t i t does n o t c3.imb s t i l l h ig h e r , imposes such discom f o r t o r p r iv a t io n upon m illio n s o f f a m ili e s in th e low er p a r t s o f th e income s tr u c tu r e t h a t i t i s a source o f n ation w id e d is c o n te n t which cannot f a i l to produce se r io u s economic r e p e r c u s s io n s . T h ir d , th e p r ic e s i t u a t i o n could je o p a r d is e p u b lic accep tan ce o f th e fo r e ig n a id program and make each d o l l a r o f fo r e ig n a id worth l e s s to the r e c i p i e n t in terms o f buying power. NEED OF POSITIVE ACTIOS W hile r e d u c tio n o f th e s c a le o f fo r e ig n r e l i e f would undoubtedly e a s e th e s t r a i n o f our own economic adj u s t ment, i t would n o t s o lv e any o f i t s b a s ic problem s. ^Moreover, we must assume t h a t t h i s a id w i l l , c o n t r o l l in g reason s o f n a t io n a l p o l i c y , le v e ls . fo r be con tin ued a t o r ab o u t p r e se n t The e f f e c t o f such a program w i l l be q u it e as much t h a t o f a con tin u ed but temporary prop t o th e dom estic m arket a s t h a t o f an a d d i t io n a l s tr a in . In f a c t , th e new program, in a l l l i k e li h o o d , w i l l be l e s s o f a s t r a in on th e g e n e ra l econosgr than the e x p o r t program o f th e p a s t, I t w i l l , however, impinge p a r t i c u l a r l y on fo o d , fu e l, s t e e l , and a few o th e r commodities which happen to be in sh o r t do m estic su p p ly . T h e r e fo r e , we b e l i e v e thatj> in th e i n t e r e s t o f th e dom estic econongr a s w e ll a s th e need o f ren d erin g e s s e n t i a l a id to fo r e ig n c o u n tr ie s , a p o s i t i v e program o f a c t io n i s req u ired to d e a l p a r t i c u l a r l y w ith th e s e a re a s o f a c u te s h o r ta g e . - 9 - ..... The crux o f th e whole m a tte r i s * the a g r i c u l t u r e ! s i t u a t i o n , o f c o u r s e , to be found in Here we th in k the o n ly s a f e assum ption I s t h a t crops in 194 & w i l l be below th e h igh l e v e l o f th e f i r s t h a l f o f 1 9 4 7 , when ve were s t i l l on th e p lan e o f a 1 .4 b i l l i o n crop and a 3*3 b i l l i o n bushel 194-6 corn crop* bu sh el wheat Between now and th e f a l l o f 194 S , we s h a l l be r a p id ly d e p le t in g th e s to c k s from th o se two reco rd crops and s h a l l be h a r v e s tin g a new wheat crop t h a t i s g o in g i n t o th e ground under s e r io u s ly a d ve rse c o n d itio n s . As th e se devalopsaents a p p e a r, th e re can be l i t t l e doubt t h a t th e h ig h l e v e l o f food c o s ts w i l l cause many persons t o c u r t a i l t h e i r consumption o f h ig h -p r ic e d l i v e s t o c k prod u cts such a s d o ll a r s t e a k s s 9 0 -c e n t b u t t e r , and 8 5 -c e n ts e g g s . Thus the r i s e w i l l to some e x te n t to p i t s e l f o u t through c u r ta ilm e n t o f demand r a th e r than through stim u l a t i o n o f su p p ly . R edu ction o f w a s te f u l o r l e s s e s s e n t i a l consumption cannot s a f e l y be l e f t m arket* bo the o p e r a tio n o f the au tom atic fo r c e s o f the Vo b e l i e v e th e e v id e n ce i s c l e a r t h a t s p e c u la t io n , s h o r t s ig h te d n e s s , and g e n e r a l la c k o f s k i l l and foretffgjfft in th e v o lu n ta r y < management o f our f r e e e n te r p r is e economy under c o n d itio n s o f f u l l employment a r e a l l p la y in g t h e ir p a r t in w orsening th e s i t u a t i o n . And th e y are by no means ou t o f reach o f a d m in is tr a tiv e and I f g T s l a t i v e tre a tm e n t. tio n , we Much a s we d ep lo re th e re tu rn to more government ifij:arven~ b e li e v e t h a t the g r a v i t y .o f the pyoopec t r a ju ir e g i t . The r e c e n t l y ‘announced program f o r v o lu n ta r y food c o n serv a tio n * if r ig o r o u s ly adopted by th e farm er, th e d i s t r i b u t o r , and th e consumer, can a c h ie v e s u b s t a n t i a l r e s u l t s . the m anufacturer* T h is program should - 10 - be pushed w ith a l l rigor and c e l e r i t y , and ^_ nothing i . c tfg ^ d o u b ts upon i t s u t i l i t y . should be done to But th e u n c e r t a i n t i e s w ith r e s p e c t to fu tu r e crops and w ith r e s p e c t to th e volumes of f o r e ig n a id which may be r e q u ire d a s developm ents u n fo ld , when added t o th e c e r t a i n t y t h a t th e c u r r e n t p r l &a-g i t u a t i e n th r e a te n s d istu rb a n c e o f our whole economy, le a d u s to th e co n c lu sio n t h a t th e v o lu n ta r y program should a t once be su p p le mented w ith s t u d ie s and p la n s f o r more s p e c i f i c and d r a s t i c m easures. These measures a t befstri^ake time t o form ulate and tim e to a p p ly . ¥e t h e r e fo r e recocsaend t h a t th e f o llo w in g p ro p o sa ls be develo ped a s com prehensively and prom ptly a s p o s s ib le ? F i r s t ,, th e e x te n s io n # !* e x p o rt c o n t r o l ; Second» f u r t h e r r e g u la t io n o f commodity exch an ges 5 IM rdj, r e g u la t io n o f th e s a le o f f l o u r by m ille r s ? F o u rth , r e g u la t io n s o f , o r l i mit a t i o n s upon* th e amounts and k in d s o f fe e d m anufactured ; F i f t h , r e g u la t io n s o f , o r li m i t a t i o n s upon, the u se o f g r a in s f o r th e p ro d u ctio n o f a lc o h o li c b e v e r a g e s *, Sigfefe.# inducements o r p e n a lt i e s to d is c o u r a g e the f e e d in g o f hogs t o heavy w e ig h t and th e fe e d in g o f g r a in to b e e f c a t t l e j S even th , Government p u rch asin g and s a le o f g ra in on a v id e s c a l e t o a f f e c t p r i c i n g and ty p e s o f u s e . 5 ig h th« c o n tin u a tio n o f ODT c o n tr o ls f o r making f u l l e s t and most e f f e c t i v e u se o f s c a r c e equipment; I f a w orsening s i t u a t i o n — to which d e la y in u t i l i z i n g th e s e moderate measures m ight c o n tr ib u te — makes even more d r a s t i c measures e s s e n t i a l * we s h a l l need f o r t h r i g h t l y to c o n s id e r a l l o c a t i o n s and p r ic e - 11 - c o n t r o ls f o r s e le c t e d com m odities, T h is c o n tin gen cy should be covered w ith in tiie area, o f immediate s tu d y . We do n o t a t t h i s tim e c e r t i f y our b e l i e f in th e d e s i r a b i l i t y o f a l l th e s e p r o p o s a ls , o r o f any number o f them in com bination, We do c e r t i f y our B e l i e f t h a t some o f th e s e p ro p o sa ls w i l l become e s s e n t i a l in th e u n fo ld in g s i t u a t i o n , and t h a t t h e i r f u r th e r developm ent should n o t be d e la y e d in th e c h e e r fu l e x p e c ta n cy t h a t the v o lu n ta r y program w i l l do th e jo b * We art now in a p eriod when our c a p a c ity to a c t b e fo r e th e c r i s i s appears i s s u r e ly b e in g t e s t e d . The purpose u n d e r ly in g th e Employment A c t o f 194-6 i s to prodace a c tio n b e fo r e th e c r i s i s appears in a l l i t s in te n s ity , l^ hils some o f th e se p ro p o sa ls can be a p p lie d , in whole o r in part., under e x i s t i n g powers o f Government, a d d it io n a l l e g i s l a t i o n a ls o w ill be u tilis e d r e q u ir e d , P u b lic knowledge th a-fT aH m in istrative powers a re b ein g to th e f u l l , and t h a t r e q u e s ts f o r a d d it io n a l powers through l e g i s l a t i o n a re b ein g r e a d ie d , m ight w e ll serve to a b a te some o f th e c u r r e n t s p e c u la t iv e f a c t o r s , F i n a l l y , we would d i r e c t p a r t ic u l a r a t t e n t i o n t o th e la r g e p a r t p la y e d by c r e d i t expansion and f i s c a l a c tio n in a s i t u a t i o n l i k e the p r e s e n t. e x te n s io n . S e rio u s i n f l a t i o n i s alw ays accompanied by uedtee c r e d i t I f t o t a l buying i s h e ld in c lo s e r e la t i o n to c u r r e n t income, i th e re i s a b a r r ie r beyond which th e p r ic e l e v e l cannot advance, alth o u g h th e r e may be advances w ith in p a r t i c u l a r commodity gro u p s, a s th e r e i s a t the p r e se n t tim e in food p r o d u c ts. To avo id an undue c r e d i t expan s io n , i t i s n e c e ssa r y f o r th e Government to ta k e d e f i n i t e s t e p s . - 12 ~ Congress should r e i n s t a t e to th e Board ox Governors o f th e Federal R eserve System power t o r e g u la t e consumer c r e d i t , which has been repealed Present e f f e c t i v e November 1 by r e c e n t ly en acted l e g i s l a t i o n . powers o f th e F e d e ra l R eserve System a r e a ls o inadequ ate to l i m i t g e n e r a l c r e d i t e xp an sio n , which i s now p ro ceed in g a t a r a p id r a t e . To check th e use o f c r e d i t f o r s p e c u la t iv e t r a d in g in g r a in , we u rge f u l l u se o f i t s a d m in is tr a tiv e in flu e n c e cry the Commodity Exchange A u th o r ity . U n less th e exchanges make prompt and s a t i s f a c t o i y ad ju stm en ts in m argins f o r s p e c u la t iv e t r a d in g , th e Government should I. se e k l e g i s l a t i v e a u t h o r ity to impose upon th e exchanges such r e g u la t io n s a s are deemed n e c e ssa r y to p r o t e c t th e p u b lic i n t e r e s t . \ .On th e s id e o f f i s c a l a c t io n du rin g an i n f l a t i o n a r y p e r io d , th e F e d e ra l budget should be a t l e a s t balanced and a su rp lu s should be th e o b j e c t i v e . T h is means k e e p in g e x p e n d itu r e s , in c lu d in g th o s e f o r p u b lic w orks, a t the lo w e s t l e v e l s c o n s is t e n t w ith non~def e r r a b le n a tio n a l n eeds. Bonds h e ld by commercial banks should be r e t i r e d and bond s a le s to th e p u b lic should be encouraged. fin a n c in g in d e f l a t io n a r y p e r io d s , Whatever th e u s e fu ln e s s o f d e f i c i t such a cou rse in the f a c e o f p r e se n t i n f l a t i o n a r y dangers would be r e c k le s s and h a rm fu l. Hence we renew our em phasis on th e need o f m a in ta in in g th e p r e se n t t o t a l o f revenue d u r in g th e coming y e a r * While we must d e a l v ig o r o u s ly w ith th e p r e s s in g problems grow ing o u t o f th e in t e r n a t io n a l emergency, we must n o t do so t o tEKT" n e g l e c t or p r e ju d ic e o f our lo n g e r -r u n problems o f n a t io n a l economic ad ju stm en t f o r su sta in e d h i g h - l e v e l p ro d u ctio n . That p r o c e ss i s m erely in te r r u p te d o r m o d ifie d w h ile we meet and surmount an unexpected se tb a c k - 13 - growing ou t o f u n fa v o ra b le crop c o n d itio n s a t home find abroad and the underestim ated wartime a t t r i t i o n o f i n d u s t r i a l f a c i l i t i e s - The funda m ental c o n d itio n s o f th e n a t io n a l economy are s t i l l 3 tro n g and the lo n g -ru n o u tlo o k r e a s s soring. There i s s t i l l a g r e a t unspent momentum o f th e postwar replacem ent boom, and th e a d d itio n a l goods a v a i l a b le to th e dom estic m arket a s fo r e ig n a id programs ta p e r o f f can be absorbed bydom estic bu yers w ith o u t p ro d u ctio n c u tb a c k s. But we must n o t a b a te a t t e n t io n to th e f a c t o r s o f growth and th e kind o f i n te r n a l ad ju stm en t t h a t must su pp ort th e economy when the tem porary d i s t o r t i o n s d is a p p e a r » These m a tte rs are being g iv e n c a r e f u l a t t e n t i o n by th e C o u n c il and i t s s t a f f and w i l l be covered in th e m a te r ia ls su bm itted f o r yo u r use in con n ectio n w ith th e p r e p a ra tio n o f the second annual. Economic Report o f th e P r e s id e n t.
@FedFRASER