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. r--  )f   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Collection: Paul A. Volcker Papers *Call Number: MC279  Box 11  Preferred Citation: Congressional Correspondence, March-April 1982 [Folder 2]; Paul A. Volcker Papers, Box 11; Public Policy Papers, Department of Rare Books and Special Collections, Princeton University Library Find it online: http://findingaids.princeton.edu/collections/MC279/c449 and https://fraser.stlouisfed.org/archival/5297 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) mudda,princeton.edu   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Business/Professional Day in Washington  MARCH 31, 1982  Hosted by  Congressman Jim Dunn Sixth Michigan District   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  L.  Congressman Michael G. Oxley Fourth Ohio District  ]  10:00 A.M.  Honorable Robert Dole, Chairman Senate Finance Committee  10:45 A.M.  Honorable Paul Volcker, Chairman Federal Reserve Board  11:30 A.M.  Honorable Drew Lewis, Secretary Department of Transportation  12:15 P.M.  Lunch in Rooms 338, 339 & 340 Rayburn House Office Building  SPEAKERS DURING LUNCHEON  12:30 P.M.  Honorable Ted Stevens, Majority Whip United States Senate  12:50 P.M.  Honorable Trent Lott, Minority Whip U.S. House of Representatives  1:15 P.M.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Honorable B. Oglesby, Deputy Assistant White House Congressional Liaison  1:35 P.M.  Honorable Robert Michel, Minority Leader U.S. House of Representatives  1:50 P.M.  Photo Session - Steps of the Capitol  RETURN TO 345 CANNON H.O.B.  2:00 P.M.  Honorable Donald Regan, Secretary United States Treasury  2:45 P.M.  Honorable David Stockman, Director Office of Management and Budget  3:30 P.M.  Honorable Murray Weidenbaum, Chairman President's Council of Economic Advisors  4:15 P.M.  Honorable Elizabeth Dole Office of Public Liaison  5:15 P.M.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Reception at the Capitol Hill Club  10:00 A.M.  Honorable Robert Dole, Chairman  1:35 P.M.  U.S. House of Representatives  Senate Finance Committee  10:45 A.M.  Honorable Paul Volcker, Chairman  Honorable Robert Michel, Minority Leader  1:50 P.M.  Photo Session - Steps of the Capitol  Federal Reserve Board RETURN TO 345 CANNON H.O.B. 11:30 A.M.  Honorable Drew Lewis, Secretary Department of Transportation  2:00 P.M.  Honorable Donald Regan, Secretary United States Treasury  12:15 P.M.  Lunch in Rooms 338, 339 & 340 Rayburn House Office Building  2:45 P.M.  Honorable David Stockman, Director Office of Management and Budget  SPEAKERS DURING LUNCHEON 3:30 P.M. 12:30 P.M.  Honorable Murray Weidenbaum, Chairman President's Council of Economic Advisors  Honorable Ted Stevens, Majority Whip United States Senate 4:15 P.M.  12:50 P.M.  Honorable Elizabeth Dole Office of Public Liaison  Honorable Trent Lott, Minority Whip U.S. House of Representatives 5:15 P.M.  1:15 P.M.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Honorable B. Oglesby, Deputy Assistant White House Congressional Liaison  Reception at the Capitol Hill Club   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1932 FF1.3 2:3  t  !7  February 22, 1982  The Honorable Paul A. Volcker, Chairman Board of Governors Federal Reserve Board Washington, D.C. 20551 Dear Mr. Volcker: Thank you for accepting our invitation to speak at Businessma n's Day in Washington on March 31st at 10:45 to 11:30 a.m. in room 345 of the Cannon House Office Building. We are looking forward to your commments on monetary and fiscal policies facing our nation today. Your participation in Busin essman's Day will surely contribute to a most informative and enlightening program for our businessmen. Again, thank you for accepting our invitation, and we look forwa d to seeing you. Sincerely,  Six  unn of Congress ichigan District  chael G. Oxley ember of Congress Fourth Ohio District  Congrems of the tiniteb &tato jboufse of RepresSentatibui  19,f12 FFR  fitlatington,ID.C. 20515 February 1, 1982  Honorable Paul A. Volker Chairman Board of Governors Federal Reserve Board Washington, D.C. 20551 Dear Mr. Volker: Many businesses in our districts are experiencing a most difficult and challenging year due to te fluctuation of interest rates and high unemployment. They are keenly aware of the role of the Federal Reserve and how it will directly effect their businesses through changes in the marketplace. We are extremely sensitive to the concerns and needs of our constituents. Unemployment in the sixth district of Michigan and the fourth district of Ohio is running 9.8 and 15.8 percent respectively, an average of 4.5 points above the national average. Many small businesses and industries are barely surviving or are on the verge of bankruptcy. Reinforcing the idea that the economy can and will be turned around in the months ahead, we are co-hosting a Business Day in Washington on March 31, 1982. It would be an honor and privilege for both of us if you would speak at our seminar. Approximately 200 businessmen and women from both our districts will be flying to Washington to attend this seminar. We would like you to address our group on Wednesday.2. March 31st at 10:45-11:30 in room 345 Cannon House Office Building. T1 thig time-i-s. not convenient or if you should have any questions regarding this request, please do not hesitate to contact either of us or Victoria Looney, the staff member who is coordinating this event at 225-4872. Sincerely,  Ji Dunn Me er of Congress Six h Michigan District   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  11' A LAN&. . iOae-11% 01 Methber of Con ess Fourth Ohio D trict  HOUSE OF REPRESENTATIVES  SENATE  HENF/Y S. REUSS, WIS., CHAIRMAN RICHARD BOLLING, MO. LEE H. HAMILTON, IND. GILLIS W. LONG, LA. PARREN J. MITCHELL. MD. FREDERICK W. RICHMOND, N.Y. CLARENCE J. BROWN. OHIO MARGARET M. HECKLER, MASS. JOHN H. ROUSSELOT, CALIF. CHALMERS P. WYLIE, OHIO  ROGER W. JEPSEN, IOWA. VICE CHAIRMAN WILLIAM V. ROTH, JR., DEL. JAMES ABDNOR, S. DAK. STEVEN D. SYMMS, IDAHO PAULA HAWKINS, FLA. MACK MATTINGLY, GA. LLOYD BENTSEN, TEX. WILLIAM PROXMIRE. WIS. EDWARD M. KENNEDY, MASS. PAUL S. SARBANES, MD.  Congre55 of the Einiteb  tate5  JOINT ECONOMIC COMMITTEE (CREATED PURSUANT TO SEC. 5(a) OF PUBLIC LAW 304, 79TH CONGRESS)  JAMES K. GALBRAITH, EXECUTIVE DIRECTOR   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  2 :7  WASHINGTON, D.C. 20510  March 3, 1982  The Honorable Paul A. Volcker Chairman Board of Governors The Federal Reserve System Washington, D.C. 20551 Dear Mr. Volcker: We are delighted that you will have breakfast with the Republican members of the Joint Economic Committee. The breakfast meeting will be on Wednesday, March 31, 1982, at 8:15 a.m. in S-113 in the U.S. Capitol. The best entrance is the drive through tunnel under the Senate wing east steps. Five or six members of the Committee and eight to ten JEC staff members will be in attendance. We would like you to make informal remarks for about ten minutes and then engage in a dialogue with the members and staff. The proceedings are off the record. We will conclude by 9:45 a.m. As the time approaches, I will advise your secretary, Mrs. Malardi, which members are expected to be in attendance. Sincerely,  Charles H. Bradford Assistant Director CHB:cbs Ir e/ Att,,,,, . ;;;;;  4,- , /"` /,  I .0  r•  ti# , .doe  March 3, 1982  The Honorable L. h. Fountain House of Representatives Washington, D.C. 20515 Dear Mr. Fountain: I am pleased to respond to your request for comment or on a letter that you received from Mr. Robrrt B. Frantz, Seni Vice President of the First Union National Bank in Wilson, North Carolina. Mr. Frantz expressed concern over what he ry regards as an undi*y slow deregulatory pace by the Deposito Institutions Deregulation Committee (DIDC). I want to assure you that I understand the concerns that prompted Mr. Frantz to write to you. As you know, the Committee has been charged by Congress with an inherently difficultttask--to phase out deposit interest rate ceilings in order to increase the return to aavers while at the same tion time taking into consideration the current difficult situa thrift of depository institutions, including, prominently, many Deceminstitutions. At the Committee's most recent meeting on further ber 16, a decision was made to postpone consideration of ng deregulatory actions until the Convittee's next scheduled meeti of on March 22. I joined in that decision in part because some d many the deregulatory proposals on the agenda might have place very a thrift institutions under further earnings pressures at inopportune time. The Committee will reconsider varchous deregulatory inapproproposals at its meeting later this month. It would be at priate for me to comment on what decisions might be reached the that meeting. I would only note that as time goes on the Committee's deregulatory mandate from the Congress and ns vislikely competitive position of all depository institutio a-vis money market funds and other market instruments will ons. require continued consideration of further deregulatory acti Let me assure you that, in consultation with DIDC e, I will Chairman Regan and the other members of the Committe for deregulagive serious consideration to the various proposals tory action at our next meeting. Sincerely, NB:slb (V-42) bcc: Normand Bennard Mrs. Mallardi (2)/   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Action assigned Mr. Bernard L 4. FOUNTAIN  WASHINGTON OFFICE:  °DISTRICT  WALTER J. PITTMAN ADMINISTRATIVE ASSISTANT  )1  i CAROLINA 0:TPH  'Armoric COM MITTEE ON GOVERNMENT OPERATIONS  TED L. DANIEL EXECUTIVE ASSISTANT  - tate5 Congrecz of tbe Eniteb :1;)  2188 RAYBURN HOUSE OFFICE BUILDING SUBCOMMITTEE: CHAIRMAN, INTERGOVERNMENTAL R ELATIONS AND HuMAN RESOURCES  PousSe of Reprei4entatibeZ  WASHINGTON. D.C. 20515 TELtpi-toNE: (202) 225-4531  Eassbington, 73.C. 20515 COMMITTEE ON FOREIGN AFFAIRS  February 24, 1982  DISTRICT OFFICE: EDGECOMBE COUNTY Orricr BUILDING TARBORO, NORTH CAROLINA  SUBCOMM ITTEES: INTERNATIONAL SECURITY AND SCIENTIFIC AFFAIRS EUIN>rt AND THE MIDDLE EAST   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mr. Paul A. Volcker Chairman Depository Institutions Deregulation Committee 20th and Constitution Avenue Washington, D. C. 20551 Dear Mr. Chairman: Enclosed is a self-explanatory letter I have received from my constituent, Mr. Robert B. Frantz of Wilson, N. C. I will appreciate your furnishing me information upon which to base a reply. With thanks and kindest regards, I am Sincerely,  .„.""/z L. H. Fountain  LHF:gw Enc.  27888  TILX:PHONC: (919) 823-4200   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  fib  198? Robert B Frantz Senior Vice President  February 9, 1982  Congressman L.H. Fountain 2188 Rayburn Building Washington, D.C. 20515 Dear L.H., Re:  Deregulation  The Depository Institutions Deregulation Comm ittee has been stalling for some time now in the proposal to permit banks and bank customers to enjoy parity with other depository institutions and money market funds. One prop osal which has been delayed would have been the setting of a definite schedule for removal of Federal ceilings on interest rates which would be paid to depositors. The other area of deregulation was to authorize an interest bearing tran saction account to permit banks and savings and loans the oppo rtunity to offer customers an account that would be competitive with money market mutual funds. Their inaction continue s to cause rather substantial disintermediation by taking deposits from deposit taking entities and placing these dollars in vari ous money market funds. Some predicted that allowing IRA rates to be unca pped would have dramatic negative effects on the savings and loan industry competing for these deposits; this has not happened . Some also predicted that the tax-free savings certificates would be enormously beneficial to the balance sheet; they were wrong in this case also. I urge you to please look into the stalling tactics and delay in the Depository Institutions Deregulation Committee to see if there is not something that can be done to expedite dere gulation so that the depository institutions in this country can be more on a parity in attracting funds with various money mark et funds and other dollar gathering entities. Thanks very much for your assistance in this matter. alb  Very truly yours,  First Union National Bank, Post Office Box 860, Wilson, North Carolina, Telephone (919) 291-7300 •  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20E51  March 1, 1982  PAUL A. VOLCKER CHAIRMAN  The Honorable William E. Dannemeyer House of Representatives Washington, D.C. 20515 Dear Mr. Dannemeyer: Thank you for your recent letter on the relationship between federal budget deficits and interest rates. You expressed the view that a reduction in federal spending sufficient to balance the budget would, through reduced borrowing requirements, bring down interest rates. In addition, you reque sted any quantitative information that the Federal Reserve might have on the impact of a balanced budget on interest rates , and particularly the cost of servicing the debt. In the current environment of anti-inflationary monetary policy, a significant reduction of budget deficits over the coming years would make a necessary contribution to the prospects for a sustained economic recovery. Although sizab le deficits can be accommodated in the current recession perio d, large, sustained deficits during recovery must be avoided. Restraining federal deficits will reduce federal government demands on the private supply of savings, and, as a result, upward interest rate pressures can be mitigated and the availability of funds for expansion of businesses and the housing industry increased. The precise quantification of the relationship between budget deficits and interest rates is difficult and perhaps impossible since interest rate movements are the result of many factors affecting the supply and demand for credit. Part of the difficulty in assessing interest rate impacts arises from the fact that there is little past experience with changes in federal spending and deficits of the magnitude that would occur if no action is taken. But, more importantly, much of the pressure on interest rates is related to a lack of confidence in the government's carrying through on disciplined financial policies and thereby on its anti-inflation program. A retur n of confidence could result in a considerable relaxation of interest rate pressures. Despite the difficulty of estimating the impact precisely, the direction of the effect is clear and critically important to obtain.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  s.  The henorable William E. Dannecyor Page Two  As you also point out, lower interest rates do have favorable effects on the cost of servicing the public debt. of the national debt does not mature within a year, Since a lowering of interest rates would only reduce interest expense on new debt sold to fund current deficits and maturing debt. At this time, approximately one-half of the roughly $700 billion of outstanding 1- rivately-held public debt matures within one year. Therefore, the savings on interest in the first year due to an im:Ilediate one percentage point ref.uction in interest rates would be roughly $2-3 billion according to models developed at tne Office of Management and Budget anc the Congressional Dudget Office. The effect cumulates over time, however, as more of the maturing aebt is refinanced at the lower rate of interest and becees an appreciable factor in the budget within two or three years. I hope that you find these comments on the relationship between butget deficits and interest rates helpful, and I appreciate your concern on this important issue. Sincerely,  DC:SL:JLK:NS:pjt (#V-30) bcc: Mr. Cohen Ms. Lepper Ms. Wing Mrs. Mallardi (2t7.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  Action assigned Mr. Kichline REPLY, IF ANY TO:  WILLIAM E. DANNEMEYER 39TH DISTRICT, CALIFORNIA  WASHINGTON OFFICE: 0 1032 LONGWORTH HOUSE OFFICE BLDG. WASHINGTON, D.C.  COM M ITT E ES ENERGY AND COMMERCE  20515  (202) 225-4111  POST OFFICE AND CIVIL DISTRICT  SERVICE  OFFICE:  1370 BREA BOULEVARD SUITE 108  Congret45  tbe tiniteb  tate5  FULLERTON, CALIFORNIA  92635  (714) 992-0141  jbotust of ilepreiSentatiba leastingtott,;D.C. 20515 February 8, 1982  The Honorable Paul A. Volcker Chairman, Board of Governors Federal Reserve System 20th and Constitution Avenues, N.W. Washington, D.C. 20551 Dear Mr. Volcker: I want to commend you for your statement before the Joint Economic Committee in which you spoke about the impact of deficit spending on federal borrowing, which in turn affects interest ratcs and the economy. I am pleased that you urged the Congress to bring the federal budget more into balance. It is my opinion that a reduction in federal spending sufficient to balance the budget would bring down interest rates. In addition, I am aware that one of the largest items in the unified budget is the payment of interest on the public debt. Further, it is often argued that a large part of the increase in the deficit stems from unanticipated increases in interest rates, which lead to unplanned interest payments. With the above thoughts in mind, it seems to me that a reduction in federal spending, and eventually a balanced budget, would allow interest rates to decline, which in turn would reduce the cost of servicing the public debt. I would like to inquire as to whether the Federal Reserve has any information that might quantify the impact of a balanced budget on interest rates, and particularly the cost of servicing the debt. It would also be helpful if you have any data on how increases or decreases in federal borrowing generally might impact upon interest rates. If your office has any questions about this request, please have them call John Shelk of my staff. I look forward to hearing from you. Si cerely  WED/js   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Dannemey Member of Congress  1  +rasp' iitinited States of America  Va. 128  -alaw qoP •  qs  PROCEEDINGS AND DEBATES OF THE n y/  iLL V**-46-V th CONGRESS, SECOND SESSION  WASHINGTON, MONDAY,JANUARY 25, 1982  NG. I  Mr. DANNEMEYER. Mr. Speaker, EAECE WILL, THE: DEeICIT BE? agencits, anti the Federal Governbudgetary considerations dominated In Decembe r of last year, the econo- ment. Spokesmen for this point of the 1st session of the 97th Congress. mists at the Oifice of Management view inform us that credit demands As we return for the start of the and Budget COM13) reported ly in- aro low from the private sector, parsecond session, it strongly appears formed the White House that they ex- ticularly in a recession. This may that fiscal policy' will again occupy center stage. The Federal budget, this pected a fiscal year 19n2 deficit of $109 mean that the 1982. deficit will have time for fiscal year 1983 and beyond, billion unless corrective steps were less of' a upward impact on interest taken. The OMB analysis included fig- rates than would otherwise be true, will be the top item on out agenda. When we came back to the Nation's ures of $152 billion for fiscal year 198'3 but such a condition does not help us very much in planning for 1983 or in Capital at the end of the August and $162 billion in fiscal year 198-1. Other sources independently arrived understanding why deficits are imporrecess, high interest rates were the primary consideration on our mincLs. at similar conclusions. Just before tant. Just because credit may be availUnfortunately, we failed to take reme- Chriatmas. President Rt'al-Tan Met With able in 1982 does not contradict the dial action. We left Washington for Senate Republican cormnittee chair- maxim that deficit spending. when not our home districts after simply reaf- men. They presented him with the monetized in whole or in part. will put firming, in a pro forma fashion, the forecasts of the Senate Budget Com- upward pressure on interest rates. The outdated first concurrent resolution mittee. These numbers indicated that upward pressure on interest rates on the budget for fiscal year 1982. an $82 billion dinThit could occhr in from Federal borrowing may be offact, While I was in California these past fiscal year 1982, inereasing to $165 bil- in whole or in part, by downward presseveral weeks, I have seen the impact lion in fiscal year 198a and a stagger- sure on interest rates from a slack in private demand. This is probably true of our failure to act. The national un- ing Van billion in fiscal year 1984. 'The Congressional Budget- Office today. I doubt, however, that it is in employment rate has climbed to 8.9 and private economists, while differing the economy's long-term interes' percent amidst forecasts that it will to on the exact numbers, produced pro- devise a budget policy based on an asclimb over the 9-percent mark in the near future. In Anaheim. Calif., the jections within the range of the above sumption of low private demand due local Delco Remy automotive battery numbers. While the President will not to a recession. Our goal should be ecomanufacturing plant laid off 40 per- formally submit his budget message to nomic growth, not private sector stain cent of its current wora force on Congress until February 8, 1982, we nation. are told through the news media that The third myth is closely Monday, January 11, 1982. Juat linked to the deficit for fiscal year 1983 will be the second one. This concept weeks ago, the plant employed 550 is that people. After the layoffs, the plant around $75 billion. Presidential advis- the deficit is really not as large as it viairli force is down to 225. The prob- ers appear to be excited that they appears because most of it is caused by lems of the auto industry are varied have managed to hold the deficit the recession. In a recession, goes the below $100 billion. conventional description. Federal revand complex, but high interest rates DO DEFICITS MATTER OR NOT? have certainly aggravated the situaenues decline with unemployment, The various "guesstimates" about while Federal spending for unemploytion. the possible or probable size of the ment compensation and ot'ner benefit The start of this session is an appian deficits have sparked yet another programs rises. Both the decrease in priate time to examine the upcoming debate on the economics of deficit revenues and the increase in spending Federal budget deliberations u ith an spending. The most controversial inci- result in a larger budget deficit. No eye toward distilling the relationships dent occurred before a seminar of the one can dispute between deficits, Federal borrowing, that process and its American Enterprise Institute in early result. However , those who promote and the economy. 'The debate about December 1981 when William A. Nisthis notion on go say that when the to the natuie and role of deficit spending kanen, a member of the President's economy recovers the opposite will , has been joined. Some policymakers, Council of Economic Advisers, suggestoccur and the deficit. will shrink. Such even within the Reagan White House, ed that deficits were not as important "leap a misses logic" of the point that are downplaying the importance of as once thought. He discounted the the deficits instance, in the first curbing deficit spending. Those who "crowding out" effect of deficits in the recession induced or not, set whether are less than deeply concerned by the Nation's credit markets. Coming after latest deficit projections must not be the change in status of the priority of other econorric forces in motion that allowed to hold sway while the rest of a balanced budget from a promise in make it more difficult for the economy us remain silent. A rigorous analysis 1984 to a goal, such talk pi oduced jus- to recover. This analysis of the relaand defense of traditional fiscal tifiable outrage. The incident at the tionship between deficits and the conservative reasoning on deficits, in- AEI seminar, however, was only one in economy is a prescription for doing flation and interest rates are in order. series of instances inl.vhich the role of nothing. The fourth and final major myth is INTEIESTS RATES deficits has been dowplayed. centered on the incoir.plete compariThere are four basic myths most freInterest rates reached record highs son that other countries, notably quently retold by those who challenge last fall, peaking in October. Treasury Japan and West Germany, run much the position that deficits do matter as bills, as a proxi for other market interest rates generally, are a good ex- the principal engine of inflation and larger deficits yet, have lower rates of inflation and interest rates than we ample of the latest trends. The peak interest rates. The first myth is that deficits are do. The implicat ion is that the roa,d to for 3-mont h Treasury bills was not important because they are only a material happiness is paved by higher reached on Noveniber 2, 1931, when the interest rate hit 12.695 percent. small percentage of. GNP. A variation deficits. At n minimum. this view sugThe rate dipped to almost 10 percent on this theme is that a deficit of $50, gests a passix e approach to deficit in early December. However, on Janu- or $75 or $100 billion is trivial in an spending. ary 18, 1982, the rate went back up, economy producing in the range of $3 The comparison is incomplete bethis time to 12.505 percent. The rate trillion in gross national product. First cause several critical factors are missthe week before was 12.121 percent. let us look at. the issue within the ing. The most important misaing link Six-month Treasury bills followed a framework of the comparison. Even is tin' comparative rate of sak.ing. As similar path. The average rate on 6- assuming that the relationship be- noted earlier, deficits are financed by month securities topped off at 13.619 tween deficits and GNP is the opera- savings, not by gross national product. percent on October 26, 1981. On Janu- tive one, we must note that while the Japan and West Germaey have comary 18, 1982, the 6-month average rate deficit as a percentage of GNP is cur- paratively larger deficits, but they also was 13.102 percent, up from the previrently 2 percent, it is expected to have comparatively much la.rger rates ous week's avera.ge of 12.806 percent. double to 4 percent by 1984, according of saving. Japan's rate is four times ;a; The same is true for other rates—com- to Martin Feldstein of Harvard, under much as that of the United States. mercial paper, New Aaa utilities, new current conditions and policies. So West Germany's rate is twice as much. Bait utilities, and bond buyer municiwhat, the GNP school will retort, 4 Specifically, the United States rate is pals index of 20 bonds. percent is still trivial in an economy of around 5.5 percent, compared to '20.2 Clearly, if the upward trend is not $3 trillion. percent in Japan and 12.5 percent in reversed, the interest rate sensitive The important point is that compar- .West Germany. sectors of the economy' will be dam- ing deficits to GNP is not very instrucThe key variable in the relationship aged further. The auto, housing and tive. The gross national product in- between deficit spending and the econconsumer durable sectors, and their eludes designer blue jeans. record only is the interaction of the supply of supplier industries, are still recovering albums, refrigerators, toasters. ac- savings and the borrowin demamis g of from the high- interest rates of 1980 counting fees and baaeball bats. The Governm Federal ent. the and 1981. -Economic recovery will be Government does not finance deficits THE TIP OE THE ICEBERG shallow, at best, under these condiwith goods and services directly. Defishortfall between revenues and The tions. cits are linaneed in the credit markets expendit ures the unified Federal in analysts Many have attributed the of tile country, a point I will return to budget that defines the size of the shakiness of financial markets, at least shortly. in par, to concern over Federal defiTile second myth is that deficits art. deficit is but the most visible and the cits and inflation. Considering the not important because there is enough most discussed component of national fiscal poliCy. The problem of the maennutle of some of the forecasts, money to go around for everyone —pri- impact of the' Federal Government on eeern is more than justified. vate individuals, corporations, public  the Nation's credit markets much https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  broader than the figures on tile deficit would indicate. The Federal Government borrows money, and heavily influences the borrowing of money, outside of the activities reflected in the unified budget. The budget deficit is literally but the tip of an iceberg. Appropria.tely enough, a November 1981 • newsletter of the Manufacturers Hanover Trust Co., carried the title, "The Tip of the Iceberg," and outlined a thorough analysis of the varied demands on the credit markets generated by the Federal Government. The data compiled by author Irwin L. Kellntr, senior vice president and economist, should be must reading as we commence the 1983 budget cycle. Mr. Kellner writes: in my view, Washington's inabilit to balance its books is even more important than it appears. This is because the reported deficit is but the tip of the Federal financing iceberg. And like the real thing. :that you don't see can hurt you every bit as much as what you do see, if you hit it.  Mr. Kellner's analysis shows that the Federal presence in the Nation's credit markets is indeed quite staggering. Quite candidly it wa.s almost beyond belief, until I rea.d his complete description. In fiscal year 1981, the Treasury had to cover a budget deficit of about $58 billion. In addition, off budget spending was covered through the Federal Financing Bank at the level of $17 billion. Federally sponsored activities totaled an additional $28 billion. Filially. the 0w:eminent assisted some private borrowers over others through loan guarantee arrangements, adding another $51.3 billion to the total. These four categories—the unified budget deficit, the off-budget spending. the sponsored activities. and the loan guaxantees— place the magnitude of Federal borrowing at $154.5 billion in 1981. While Federal borrowing is more widespread than reference to deficit numbers would indicate, the pool from which the total sum of borrowing must be financed is smaller than many analysts would have us believe. As noted earlier when discussing several myths about deficits, Federal borrowing comes out of the simnIv of Sat:-   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  For if they are not. more and mon of national savings v.111 be preempted by Washington. This will cause interest rates to remain high, the economy to remain depressed and our potential to compet e in world markets to become seriously dimin" A ittt• we going to accept this or are we ready to start scaling back the scope of government to not oniy du more for ourselv es. but do it in a mote efficient way. in a climate of less inflation and lowet interes t rates? Only time will tell.  why it is that the leadership of this institution is reluctant or unwilling to even allow the House to consider, much less adopt. the alternative of a balanced budget through spending reductions. I am hopeful that the growing deficit projections and their implications, together with the expressed sentiment of a large bipartisan group of Members on the rule, will result in action by the Rules Committee to permit the offering of my substitute at the appropriate time in the coming session.  This is the question that the second session of the 97th Congress will be called upon to answer as the 1983 budget works its way throught the leg- THE ULTIMA7 P.; ANsWER IS A BALANCED BUDGET The American people and their islative process. Mr. Kellner of Manufacturers Han- elected Tepresentatives at the State level a.re actually way out in front of over is not alone in his assessment of the Federal Government and • the Congress in perceiving the link becredit markets. While Kellner looke tween deficits and the economy and d back to the record of 1981, Henry the need fur a balanced budget. Kaufman, chief economist for Salo- -A silent revolution has been tinder mon Bros, released projections for way at the State level for quite some 1982 on January 4, 1982, for all credit time, and soon may be literally at our areas. public and private. Under the door steps. Last week, Alaska became heading "Summary and Conclusions," the 31st State of the Union to have its legislature adopt a resolution calling his report. states: for a constitutional convention limited A confrontation between the credit needs to consideration of an of the U.S. Treasury and those of amendment to business require a balanced budget. Only 3 corporations is shaping up for 1982. This conflict. which is not typical of the more States, for a total of 34, are earlv neede d before a convention would stages of a recovery. promises to produce a record level of net new credit market financ- become a reality. Nine States have ing, and a substantial rebound in interest acted favorably in one house of the rates. ltsgislature. Three of the nine have Kaufman quantified the conflict by called upon Congress to submit a balprojecting a 1982 budget deficit of $80 anced budget amendment for ratificabillion, which be has since revised tion. A fourth State, Illinois, has done the same. upward to $90 billion. He notes that: Put in another perspective, States The ballooning Federal budget deficit and repres enting 72 percent of the U.S. the borrowing needs of Federal credit agencies will push the growth in privately held population have either adopted a resoFederal debt up to a record $135 billion. lution by one or both houses of the Kaufman projects that the financing State legislature. If Illinois is added, needs of the Federal Government in then 77 percent of the States on the 1982 will jump $22 billion over 1981. basis of population have acted in some and absorb "nearly half the expected manner on this issue. Congress must act to bring the Fedincrease in new funds available for all eral fiscal house in order before the forms of credit." It goes without State s force us to act on a balanced saying that Kaufman also projects a budge t. The American public is also tu rise in interest rates by the end of the line with the States on this issue. year. On Janua ry 12, 1982, the Los AngeFEDF.RAL SPENDING PAUST BE CUT les Times and the Cable News Network Economist Martin Feldstein of Har- releas ed a nationwide poll. Of those vard, president of the National Bureau surveyed. 40 percent th011fZilt that a  ings. not out of the gros - s- -national product or other measures of the aggiegate economy. However, the definition of total savings is also important in gaging the real impact of Federal borrowing. Kellner defines total savings as gross private savings of households and corporations, plus State and local government surpluses and capital grants received by the United States less net foreign investment and capital consumption allowances. The latter concept—capital consumption allow-: ances—is very important. The capital consumption allowance is the ainount of savings necessary to maintain the current stock of housing and capital in the econc.ny. In other words, it is the amount of credit needed just to stay even. Excluding such an amount for comparison purposes with Federal borrowing is quite reasonable, if one is looking to gage the degree to which the Government affects new activity and economic growth. Certainly if the economy is to follow a path of longterm recovery, and the United States is to become competitive in world markets, plant to expansion and modernization will be critical. However, such expansion and modernization will require that new credit is both available and affordable. On the basis of total Federal borrowing and the above definition of total savings. Kellner calculates the percentage of savings consumed by Government borrowing at 78.8 percent in 1981. As recently' as 1979, this percentage was only 46.7 percent. No wonder interest rates hit record highs in 1980 and 1981. Kellner concludes with this challenge: Going through this exercise makes it very difficult to come up with any kind of an optimistic conclusion over where this economy is headed. If this Administration cannot eliminate the visible budget deficit, who else will be able to do it? Additionally, since more and more Federal government credit demancLs take piace in ways that are not measurable in the budget but certainly are felt in the financial markets, how will these activities be brought under control? That they have to be brought under control there is no doubt?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ()I Leuncinic nesearch, plit his linger balanced budget is the most important  on the problem and the solution in a step to cool inflation. Three-fourths of Wall Street Journal editorial of Janu- the respondents believe that a ba.1ary 19, 1982. He wrote: anced budget would at least be helpful What then should be done to decrease the in the fight against Inflation. deficit? The key is reducing federal nondeCongress should heed the answer to fense spending. The overgrow th of govern- this question: ment spending that has occurred in the pa.st two decades would deserve substantial pruning even if there were no deficit. Much of the increase in government spending during these years has been due to the introduction and expansion of programs that are wasteful and are the source of serious distortions in economic incentives.  Which do you think is the best v.ay for the government to get the economy moving again—should the government step up spending in order to reduce unemployment or should the government hold down spending in order to balance the budget?  Step tip spending In July of last year, I released an in- Hold down spending ventory of possible additional budget Not sure  rcer  16 62 14  cuts that totaled $52.3 billion. In SepConfirmation of this public perceptember and October 1 delineated each tion comes from Richard Wirthlin's of the 272 specific items in a series of conclusion after examining data com12 special orders on the floor of the his finn, Decision Making Inby piled House. When the second budget resoformation, last month: lution was considered in December 1981, I tried to persuade the Rules Of paramount importance to most voters Committee to allow me to offer a sub- is the notion of balancing the budget. In to see addistitute resolution embodying a revised order to do this, voters prefer tional cuts in government spending rather list of 310 cuts and a total of $42.7 bil- than resorting to tax inerea.ses. lion. or 6 percent of projected outlays CONCLUSION in 1982. The Rules Committee reportindeed matter. Wall do Deficits ed out a closed rule and no amend- 4 knows it, aS the Kellner and Street ments were in order. This followed a Ka.uffinan reports make quite clear. similar attempt in May of last year to Street knows it, too, a.s found by give the House a chance to balance the Main Times/Cable News Network L.A. the budget through spending reductions poll and the MU survey. The States which was also blocked by the Rules have spoken. Congress must inoe Committee. V.rhen the third resolution toward a balanced budget in two ways for 1982, or the first resolution for during the new session: First, by sub1983, come to the floor, I will again mitting an amendment on a balanced seek to provide the House with an op- budget and tax limitation to the severportunity to meet Mr. Kellner's chalal States for ratification; and second, lenge. by making cuts in Federal spending The vote on the closed rule last for fiscal years 1982 and 1983. The month indicates that a large number long-term course must also include a of Members, on both sides of the aisle, reexamination of off-budget. borrowing are in favor of a more open process on activities of the Federal C.iovernment. budget resolutions. The vote on the This will not be an easy task, but it is rule was 248 in favor and fully 154 a necessary one if economic growth, against it. Those opposed reflected a reduced inflation, lower unemploybipartisan division of 106 Republicans ment, and lower. interest rates are to and 48 Democrats. This is a large become a reality. number of negative votes on a procedural matter which Ls not normally the subject of controversy. Quite candidly, one begins to wonder sometimes   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  BOARD OF GOVERNORS DF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  PAUL A. VOLCKER CHAIRMAN  March 23, 1982  The Honorable Bill Bradley United States Senate Washington, D. C. Dear Bill: This is in response to your question. It raise s some further questions in my mind as to whether the conclusion is fully warranted, and I will check further when next in contact with my counterpar t, just to make sure. Sinc rely,  4,, Enclosure  ate d9  BOARD OF GOVERNORS cr THE  FEDERAL RESERVE SYSTEM  Office Correspondence To  Chairman Volcker  Rona  Ted Truman rNVAj   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Date  March 22, 1982  Subject: Legal or Regulatory Constraints on Liquidity Assistance in Germany  1"/P In connection with Senator Bradley's question to you, we have rechecked our understanding of various German banking regulations and laws that might affect the provision of liquidity support to subsidiaries of German banks operating outside of Germany.  (Our research included  contacting a German expert who is at the EC Commission and who is currently a visitor at the Brookings Institution.)  Our conclusion is that aside  from the standard questions of whether lender-of-last-resort assistance is appropriate there is no fundamental bar to the German authorities providing such assistance indirectly to foreign subsidiaries of German banks. German banking is subject to certain principles (Grundsatz8 and to certain legal restrictions on large loans (Grosskredite) as a percentage of capital or equity.  Although loans to subsidiaries are subject to the  limits on large loans, there is no limit on the extent to which a bank in Germany can put additional capital into its foreign subsidiaries aside from an overall limit on the size of a bank's assets relative to its capital and reserves.  Moreover, there are no limits on the purchase of  assets by German banks from foreign subsidiaries.  Thus, it would appear  that the Bundesbank is in a position to grant secured credit to a German bank which, if the Grosskredite limit was binding, could either place additonal capital into its foreign subsidiary or purchase assets from that subsidiary in case of a run.  cc: Messrs. Dahl, Gemmill, Friedrich, Adams, and Ms. Brown (IF files)  March 19, 1982  The Honorable John D. Dingell Chairman tions Subcommittee on Oversight and Investiga Committee on Energy and Commerce House of Representatives Washington, D. C. 20515 Dear Chairman Dingell: I am enclosing As requested by your March 2 letter, ing major computer models completed questionnaires on the follow icymaking process: used by the Federal Reserve in the pol • Quarterly Econometric Model • Monthly Money Market Model • Multi-country Model stions on our response, If your staff has any general que in at 452-3766. they may contact Mr. Edward T. Mulren   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely,  Enclosures Identical ltr. to:  Chairman The Honorable Albert Gore, Jr., rsight Subcommittee on Investigations & Ove Committee on Science and Technology House of Representatives Wash., D. C. 20515  ETM:vcd (#V-56) bcc: Mr. Mulrenin Mrs. Mallardi (2)  › ,fdv dit-vtlzAi  1  Congre55 of the Uniteb liptatesi pou5t ot tepregentatibto iitlattington,;D.C. 20515 c_n r"..4 ^.17:  ; )  March 2, 1982  Honorable Paul A. Volcker Chairman Federal Reserve System 20th and C Streets, N.W. Washington, D.C. 20551 Dear Mr. Chairman: The Subcommittee on Oversight and Investigations of the Committee on Energy and Commerce and the Subcommittee on Investigations and Oversight of the Committee on Science and Technology have asked the General Accounting Office to assist the Committees in conducting a survey of the computer models used by the Federal government. This survey is a continuation of our examination of issues raised in hearings on National Strategic Planning and is intended to complement some aspects of the work being carried out by the Council on Environmental Quality. The purpose of this survey is to identify and categorize major computer models used by each agency in the policymaking, policy evaluation, or program development process. It is not the intent of the Committees to tie up staff time detailing models which describe facets of programs, but to gather information on those models which impact overall program policy. The Committees request that the enclosed questionnaire be completed for each of the major models in your agency and returned to the Subcommittee on Investigations and Oversight, Committee on Science and Technology by March_22,_1982. We emphasize that this questionnaire has been designed so that it will not take much time to complete by the people who manage and operate the models. Also, we request that one person in your office be designated as a contact person for our staff and the GAO analysts who are assisting the committees in this study.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  If questions arise which are not answered by the attached instruction sheet, please do not hesitate to contact either Mr. John Bell at 225-2121 or Dr. John Clough at 225-2927.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Thank you very much. Sincerely,  _Apr.„  J HN D. D 1GEL HAIRMAN Subcommittee on Oversight and Investigations Committee on Energy and Commerce  // / L_ ALBERT GORE, JR. CHAIRMAN Subcommittee on Investigations and Oversight Committee on Science and Technology  •  INSTRUCTION SHEET To aid the House Committee on Energy and Commerce and the House Committee on Science and Technology in a study on the use of computer models in policymaking in the Federal government, the Committees request that you fill out the attached questionnaire. The purpose of this questionnaire is to allow us to identify and categorize major computer models used by each agency in the policymaking, policy evaluation, and program development process. The questionnaire has been designed so that it will not take much time to complete by the people who manage and operate the models. Please complete the questionnaire and return it to the appropriate office in sufficient time that your agency can return all questionnaires to the Committees by March 22, 1982. 1)  Please answer all questions.  2)  Do not check more than one answer per question unless the question indicates that multiple answers are acceptable. If more than one answer applies and multiple answers are not allowed, choose the answer that is most applicable.  3)  Unless you are very uncertain about the answer to a question, do not check the "Don't know" box. A well-informed estimate is more acceptable.  4)  Additional comments are encouraged. However, such comments should be placed on an additional sheet and attached to the end of the questionnaire. If the comments apply to particular questions, please refer to the question by number.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  t  I  ELLIIDE II BASIC. DATA 1)  Person responding Position Organization name  Mailing Address  Telephone Number  2)  Model or Project Name  General Area of Model (e.g. monetary policy, crop forecasting)  Name of Project Director  3)  Please provide a brief description of the model and its objectives. Describe it as you would to a senior official. Use additional paper if necessary and attach to back of questionnaire.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  4)  Describe the model in terms of its general type. ( )  Input/Output  ( )  Econometric  ( )  System Dynamics  ( )  Linear Programming  ( )  Nonlinear Programming  ( ) Dynamic Programming  5)  ( )  General Equilibrium  ( )  General Simulation  ( )  Other (specify)  How good is the documentation of the model from a policy maker's (senior official) point of view? from a programmer's point of view?  Policy Maker   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Programmer  The documentation can be understood easily and the results used correctly with a minimum of phone calls. The documentation exists in some form, but it would be hard to be sure one was using the results correctly without at least some discussion with the originators of the model. It would almost be impossible to be sure one understood the results without extensive assistance. No written documentation exists ( )  Don't Know  I  6)  If documentation exists, where may be it be obtained?  If one had further questions about the model, who would be the best person to talk to? Name Telephone Number  BECTION II: MODEL DEVELOPMENT 7)  In what part of the sponsoring agency was the idea of the model first considered? Name of Division/Branch/Office  Which of the following best describes the Division/Branch/Office?  8)  ( )  Policy Level (e.g. Office of the Secretary)  ( )  Program Level  ( )  Other (specify)  What was the principal motivation for undertaking development of the model?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ( )  The model offered a solution to an existing, specific problem. The model offered a solution to an anticipated problem. Other (specify)  $  9)  When was the model first used or applied (unless a major redirection of the purpose of the model occurred, please ignore major and minor changes in the model)?  ( )  0 - 6 months ago  ( )  6 - 12 months ago  ( )  1 - 2 years ago  ( )  2 - 3 years ago  ( )  3 - 5 years ago  ( )  More than 5 years ago  ( )  Don't Know  •  10) Where was the model developed? ( )  Responding Agency  ( )  Another branch of the Federal Government  ( )  Under Government Contract  ( )  Not under Government Contract  ( )  Other (specify)  ( )  Don't Know  11) What was the cost of development to the responding agency?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ( )  Less than $25,000  ( )  $25,000 to $49,000  ( )  $50,000 to $99,999  ( )  $100,000 to $249,000  ( )  $250,000 to $499,999  ( )  $500,000 to $1,000,000  ( )  Over $1,000,000 (Rough Estimates $  ( )  Don't Know  )  I  .  12) When was the last major revision in the model? minor revision? update? (Revisions are changes in the model structure. Updates are expected changes in data, etc. to reflect current conditions.) Major Revision  Minor Revision  Update 0 - 3 months ago 3 - 6 months ago 6 - 12 months ago 12 - 24 months ago Over 24 months ago Don't Know  13) What are the frequency of the planned revisions? Planned Revisions  Planned Updates  ()  ( )  0 - 3 months  ()  ( )  3 - 6 months  ()  ( )  6 -9 months  ()  ()  9 - 12 months  ( )  ( )  Over 12 months  ( )  ( )  No fixed schedule  14) Where are the revisions done?  planned updates?  updates?  Revisions  Updates  ( )  ( )  At Responding Agency  ( )  ( )  At Another Government Agency  ( )  ( )  Under Government Contract  ( )  ( )  Not Under Government Contract  ()  ( )  Other (specify)  .  .   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  , •  15) What review or evaluation has been made on this model? than one if more than one applies. ( )  Internal (specify)  ( )  External (specify)  ( )  Audit (e.g. G.A.O., specify)  ( )  Other (specify)  ( )  No review or evaluation has been performed  ( )  Don't Know  aELTIQE MI_ MODEL USE 16) Who is the person responsible for the use of the model? ( ) Project Director ( ) Other (specify) Name Position 17) How many professional staff work with the model?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ( )  One  ( )  Two  ( )  Three to Five  ( )  Five to Ten  ( )  More than Ten (Rough Estimate)  ( )  Don't Know  Check more  18) How is the model used? Describe in terms of originally intended use and actual use to date. Original  Actual  ( )  ( )  Forecasting  ( )  ( )  Problem Analysis  ( )  ( )  Selection Among Policies or Programs  ( )  ( )  Development of Policies or Programs  ( )  ( )  Evaluation of Policy or Program Effectiveness  ( )  ( )  Other (specify)  19) How often is the model used for problem solving?  policy input?  Problem Solving  Policy Input  ( )  ( )  Weekly  ( )  ( )  Monthly  ( )  ( )  Quarterly  ( )  ( )  Semiannually  ( )  ( )  Annually  ( )  ( )  Less Than Annually (Rough Estimate  )  20) What is the cost of a typical run? of typically solving a problem? of generating policy input? Typical Run  ()   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Problem Solving  Policy Input Less than $10 $10 to $99 $100 to $499 $500 to $999 $1000 to $5000 Greater than $5000 (Rough Estimate  . .  t  21) What is the average monthly computer bill for the model? Less than $100 $100 to $999 $1000 to $4999 $5000 to $10,000 More than $10,000 (Rough Estimate  )  22) What is the yearly cost of the model? Figure by taking average monthly bill times twelve and adding average salary times equivalent staff-years? ( )  Less than $1000  ( )  $1000 to $4999  ( )  $5000 to $9999  ( )  $10,000 to $49,999  ( )  $50,000 to $249,999  ( )  $250,000 to $1,000,000  ( )  Over $1,000,000 (Rough Estimate  ( )  Don't Know  )  23) How is the model "backed up" (i.e. where are up to date copies of the program kept)? Check more than one if applicable.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ( )  Disc Packs  ( )  Tape Storage  ( )  Cards  ( )  Program Listing  ( )  Nothing  ( )  Don't Know  24) Where are the program runs made?  ()  Computer operated within the agency Computer operated by Federal government but outside agency  ( )  Computer operated by contractor  ( )  Don't Know  25) How are the program runs made? ( )  In a batch mode by agency personnel  ( )  In a time-sharing mode by agency personnel  ( )  In a batch and time-sharing by agency personnel  ( )  By other Government Personnel (request made to them and they execute the run)  ( )  By Non-Government Personnel (at the request of the agency)  ( )  Other (specify)  ( )  Don't Know  26) Describe the data base used by the model?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ( )  Contained within the model  ( )  External to the model  ( )  Other (specify)  .  A.  a  ‘  27) Where were/are the data obtained?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ( )  Publications  ( )  Responding Agency Work  ( )  Other Government Agency  ( )  Under Government Contract  ( )  Not Under Government Contract Other (specify)  .  • •.. •• of COVE •. .0 •P 0 •• • 0 /./0., • 00 .• ili144,1 • -n 42,•  f  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM  ▪ ,•••:„ , 1.1 • •.... • •  WASHINGTON, O. C. 20551  March 19, 1982  PAUL A. VOLCKER CHAIRMAN  The Honorable Benjamin S. Rosenthal Chairman Subcommittee on Commerce, Consumer, and Monetary Affairs Committee on Government Operations House of Representatives Washington, D. C. 20515 Dear Chairman Rosenthal: I am pleased to respond to your letter of March 2 concerning advertising of Individual Retirement Accounts (IRAs) by member banks. As you are aware, effective December 1, 1981, the Depository Institutions Deregulation Committee established a new category of deposit with a minimum maturity of eighteen months whose interest rate was not constrained by rate ceilings. The purpose of this action was to provide persons saving for their retirement with a market-related rate of return. The Committee believed that the deregulation of IRA (and Keogh) deposit rate ceilings will enable depository institutions to compete effectively with other organizations offering IRA investment vehicles and encourage individuals to save for their retirement. As a result of this action, the competition among depository institutions for IRA funds has been quite vigorous. We estimate that depository institutions have received $4.9 billion of IRA funds as of the end of February 1982. The new deposit instrument provides significant advantages to IRA participants and enables depository institutions to compete effectively with nondepository institutions such as money market mutual funds and insurance companies. To date, we have received only one complaint concerning IRA advertising. A copy of this complaint is enclosed as you have requested. You have also asked if we have conducted any inquiry into misleading or deceptive practices in connection with IRA advertising. As part of the normal examination process, Federal Reserve examiners review all advertising being conducted by State member banks. To date, our examiners have not cited any banks for IRA advertising. We believe that the Board has adequate authority to deal with misleading or decel5tive practices by member banks. This authority is based principally upon   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Benjamin S. Rosenthal Page Two  section 19(j) of the Federal Reserve Act, 12 U.S.C. 371b, which authorizes the Board, after consultation with the Federal Home Loan Bank Board dnd the Federal Deposit Insurance Corporation, to prescribe rules governing the advertisement of interest on deposits. We believe this authority, in conjunction with the authority of the other agencies, is adequate to deal with misleading and deceptive advertising by all depository institutions. While the ability to offer a ceiling-free rate of interest on IRA funds may have lessened the need for depository institutions to resort to nonmonetary devices to attract funds, I am concerned with the potential that deceptive advertising could have upon the competitive balance among the depository institutions. We are reviewing the possibility of adopting guidelines on IRA advertising practices; however, it does not appear that the advertisements we have seen to date have been misunderstood by the public. You can be assured that we will continue to work with the other agencies to determine if guidelines are required in this area. Sincerely, „Wail'& Volcker  Enclosure  (Ltr. dated 2/9/82 to Chrmn. Volcker from Milton Gwirtzman, former Chairman, National Commission on Social Security)  GTS:vcd (#V-47) bcc :  Gil Schwartz Dolores Smith Mrs. Mallardi (2)/  410  BENJ"MIN S. ROSENTHAL, N.Y.. CHAIRMAN  1  JOHN OINYERS, JR., MICH. EUGENE V. ATKINSON, PA. STEPHEN L. NEAL, N.C. DOUG BARNARD, JR., GA. PETER A. PEYSER, N.Y.  LYLE WILUAMS, OHIO HAL DAUB. NEBR. WIU_IAM F. CLINGER. JR., PA. JOHN HILER, IND.  NINETY-SEVENTH CONGRESS  CongrefsiS of the Eniteb tate5  MAJORITY-(202) 225-4407  3bott5e of Repre5entatibef COMMERCE. CONSUMER. AND MONETARY AFFAIRS SUBCOMMITTEE OF THE  COMMITTEE ON GOVERNMENT OPERATIONS RAYBURN HOUSE OFFICE BUILDING. ROOM B-377 WASHINGTON. D.C. 20515  March 2, 1982  Li\  Hon. Paul A. Volcker, Chairman Board of Governors Federal Reserve System Washington, D.C. 20551 Dear Mr. Chairman:  The Commerce, Consumer and Monetary Affairs Subcommittee is reviewing advertisements for Individual Retirement Accounts (IRA) and other IRA sales information materials used by certain institutions under your regulatory supervision. As a result of this review, I am concerned that the public may be receiving inadequate and, in some cases, misleading and deceptive information. Spcifically, some of the following appear to be problem areas: IRA ads that claim consumers can become millionaires by the time they retire do not take into account the effect of inflation on their savings; The ads often do not specify whether interest is simple or compounded; The interest rates stated in some IRA ads do not approximate actual yields; The ads often do not indicate that the rates may change over the term of the investment; Internal Revenue Service penalties for withdrawals are not stated in some ads.  early  Enclosed is a sample of a few ads placed by banking and thrift institutions which present one or all of the problems indicated. While the specific institutions named in the ads may not be under your supervision, I intend the sample simply as evidence of the problem. I also enclose a copy of an article describing the problem.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  2 As you may know, the New York City Department of Consumer Affairs has issued guidelines calling for disclosure of IRS penalties for early withdrawals and of the assumptions behind any projection of long-term earnings. They also require a clear statement that interest rates will not remain constant and that the ultimate yield is likely to differ from the sample yield in the projections. Additionally the Department is concerned about consumers' confusion as to whether the proffered rate is compounded or simple interest and it asks that this be made clear in ads for IRAs. A copy of New York City's Guidelines is enclosed. I am writing to you now to ask that you inform the subcommittee of the following: 1.  Has your agency received any consumer complaints concerning ads for IRAs? If so, please supply copies of such complaints. What action has been taken? Please supply copies of letters to financial institutions under your jurisdiction which criticize or require changes in IRA ads.  2.  Has your agency conducted any inquiry or analysis of misleading or deceptive practices in connection with IRA ads? If so, please supply a summary of any action taken. If not, please review the issues raised by possibly misleading or deceptive IRA ads and inform the subcommittee of your findings.  3.  Does your agency have the authority to deal with misleading or deceptive advertising to attract IRAs or other kinds of deposits? Please specify such authority.  4  How does your agency monitor misleading ads for IRAs or other new forms of savings or deposits?  5.  Has your agency considered issuing guidelines or taking any other steps to deal with this problem?  Please respond by March 19, 1982. Ted Jacobs at 225-44077--- __  If you have any questions please contact Sinc rely,  Benja,in S. Rosenthal Chairman BSR:jv Attachments   https://fraser.stlouisfed.org 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: Advertisements, magazine article Citations:  Number of Pages Removed: 14  “How To Earn Over $1,000,000 Sitting Down.” East New York Bank, 1982. “Save $2,000 A Year. Retire On A Million.” Dry Dock Savings Bank, 1982. “Which One Will Retire A Millionaire?” Shawmut Banks, 1981. “Retire A Millionaire By Working An Extra Half Hour.” Shawmut Banks, 1982. “Retire A Millionaire For Just $166.66 A Month.” West Side Federal Savings Bank, 1981. “Bring In A Friend To Open An IRA Account…” Republic National Bank of New York, 1981. “One Of The Most Important Tax Shelter And Retirement Opportunities…” Central Fidelity Bank, 1982. “The IRA Loan.” County Federal Savings and Loan Association, 1982. “I Wouldn't Open an IRA…And Other Myths.” Home Savings Bank, 1982. Egan, Jack. “The Bottom Line: That IRA Million Doesn't Really Add Up.” New York Magazine, January 18, 1982.  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org  DEPARTMENT OF CONSUMER AFFAIRS 80 LAFAYETTE STREET. NEW YORK. NEW YORK 10013 Telephone: 566Bruce C. Ratner. Commissioner  .  GUIDELINES ON ADVERTISING OF INDIVIDUAL RETIREMENT ACCOUNT (IRA) PLANS BY FINANCIAL INSTITUTIONS  Promulgation of misleading adverising is prohibited by various state and federal regulatory agencies concerned with banks and savings-and-loan institutions. In addition to any other disclosures required by state or federal law, the New York City Consumer Protection Law requires the following with respect to any advertisement, in any medium, which refers, directly or indirectly, to Individual Retirement Accounts: 1. The advertiser must clearly and conspicuously disclose the mandatory IRS penalties for withdrawal of IRA funds prior to age 59-1/2, including the fact that there will be serious tax consequences in addition to the 10% withdrawal fee. If there are additional penalties tied to the particular IRA instrument (e.g., penalties attached to early withdrawal from long-term certificates of deposit) these must also be disclosed.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Rationale:  Consumer Protection Law Regulation 204 mandates disclosure of all material conditions attached to an offer. Inability to withdraw funds without incurring serious penalties is a material condition which could substantially affect the consumer's decision to invest in an Individual Retirement Account.  Sample Disclosure Language: "Withdrawals before age 59-1/2 permitted, but only with substantial tax and interest penalties." "IRS regulations impose substantial tax and interest penalties for withdrawal before age 59-1/2. In addition, the bank  •  is required by law to impose a further penalty for premature withdrawal from a [certificate of deposit, etc.]." 2. The advertiser must clearly and conspicuously disclose the assumptions behind any projected long-term earnings on an IRA account, whether these projections are couched in the form of prose statements, or in charts, graphs, or other visual representations purporting to depict accrued earnings. Such assumptions must be reasonable.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  a. If an institution chooses to advertise projections based on a constant long-term interest rate, the advertisement must contain a clear and conspicuous warning that the interest rate upon which the projection is based is not guaranteed for the term of the investment, and that in fact the ultimate yield to a consumer is likely to differ from the yield stated in the projection. b. The advertiser may not otherwise state, suggest, or imply that interest rates at the bank or savings-andloan institution will remain constant over a period in excess of the term of the specific investment instrument (long-term CD, etc.). Rationale:  Consumer Protection Law section 2203d-2.0(a) forbids the use of statements or other representations which have the capacity, tendency, or effect of deceiving or misleading consumers. Charts or statements projecting long-term earnings without a clear and conspicuous warning that such projections are based on an assumption of a constant interest rate over a long-term period are inherently misleading.  Sample Disclosure/Warning Language: "For illustrative purposes only. Calculations based on 12% annual interest rate, compounded daily [monthly, quarterly, etc.]. Since interest rates are variable and cannot be predicted, there is no guarantee that the amount projected will in fact be the amount available in your account when you retire."  2  "Chart based on 12% interest (12.94% effective yield) per year. Projections are for demonstration purposes only and are not guaranteed. Your actual yield will probably differ from the yield depicted in the chart." 3. In advertising specific IRA instruments at specific rates of interest, the advertising must clearly and conspicuously disclose the annual rate of simple interest and the term of the investment.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  a. The advertisement must indicate whether the interest will be compounded and, if so, on what basis. b. Where a percentage yield achieved by compounding is advertised, the basis of the compounding must likewise be disclosed. c. If the term of the investment is in excess of a year, and if the interest is not compounded, then the effective annual yield must argE be clearly and conspicuously disclosed. Consumer Protection Law section 2203d-2.°(a)(2) forbids the use, in any oral or written representation, of ambiguity as to a material fact, or failure to state a material fact. In order to compare offers and choose the best instrument for an IRA investment, the consumer must possess the basic information outlined above. Ambiguity as to whether interest will be compounded, when it will be credited, and/or annual yield makes such informed choice impossible.  Rationale:  Sample Disclosure Language: "30-month long-term certificate of deposit. 12% interest, compounded daily, .credited monthly, for an effective annual yield of 12.93%."  3  4. The advertiser must clearly and conspicuously disclose any charges imposed for handling an IRA investment, indicating whether these are one-time or recurring charges. Rationale:  Consumer Protection Law Regulation 204 mandates disclosure of all material conditions attached to an offer. Handling charges or administrative fees constitute such a material condition since they could affect the consumer's choice of a particular IRA investment instrument.  Sample Disclosure Language: "Each account will be subject to a $10 annual service charge." 5. If a particular IRA investment instrument is advertised, the advertiser must clearly and conspicuously disclose the nature of that instrument. If it is not a deposit and therefore not insured by the applicable federal agency (FDIC, FSLIC, etc.), that fact must likewise be clearly and conspicuously disclosed.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Rationale:  Consumer Protection Law Regulation 204 mandates disclosure of all material conditions attached to an offer. Absence of federal insurance is such a material condition in that it could affect the consumer's choice of a particular IRA investment instrument.  Sample Disclosure Language: "This is a retail repurchase agreement. It is not a deposit and is not insured by the [FDIC]."  4  1 • ' •c) Got, •. •0 R •  BOARD OF THVERNORS  •. co . *0 • -n  FEDERAL RESERVE SYSTEM  • --1  WASHINGTON, 3. C. 20SSI  • rc` •  March 18, 1982  PAUL A. VOLCKER CHAIRMAN  The Honorable Henry S. Reuss Chairman Joint Economic Committee Washington, D. C. 20510 Dear Chairman Reuss: Thank you for your letter of February 26 forwarding a copy of the Annual Report of the Joint Economic Committee. Your letter calls our attention in particular to Recommendation 8 of the Democratic Members of the Committee which calls upon the Federal Reserve to review various aspects of monetary policy and report to the Congress. I approach your recommendation with mixed feelings. We start from common ground in believing that the techniques and procedures of monetary policy warrant periodic--indeed continuous --review to assure their suitability. Such reviews are, of course, valuable for our internal purposes and have obvious benefit in teLms of the Federal Reserve's ability to communicate our policies to the Congress and the public and in turn satisfy the need for accountability. They are all the more significant in a period of rapid change and innovation in financial practices, encompassing financial instruments, institutions, and markets. At the same time, the Report's characterization of recent evidence as indicating "fundamental flaws in the procedures of monetary formation and oversights" seems to me unwarranted on the basis of the evidence we have. Of course, it will never be possible to devise techniques which are good for all time, nor to reduce complexities to simplicities; every procedure for formulating and implementing monetary policy represents something of a compromise among competing objectives, and can be modified and improved over time. The real difficulties in the current situation lie not in the technical implementation of monetary policy, but rather in reorienting the modes of behavior throughout the economy away from an adaptation to inflationary expectations toward greater price stability. These difficulties are compounded to the extent almost exclusive reliance is placed on monetary policy to combat.inflation, financial markets are burdened by excessive budgetary deficits, and by rigidities in the price-wage structure.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Henry S. Reuss Page Two  As you know, some of the technical issues of monetary policy were investigated in a major Federal Reserve study last year. The results were published in 1981 in a two-volume study, New Monetary Control Procedures: Federal Reserve Staff Study. This study received considerable professional attention and is the subject of continuing academic review and public discussi on. I do not believe that it would be productive at this time for the Federal Reserve to convene a panel of outside advisers with disparate opinions in the thought that some new consensus would spontaneously emerge from such a discussion that has escaped the notice of those of us responsible for conducting policy. You are as aware as I of the variety of professional opinion and schools of thought, taking as their point of departure different analytic frameworks. I believe it far more likely that constructive criticism and analysis would emerge from a continuing process of reaction to concrete policy proposals, actions, and studies by the Federal Reserve. To facilitate that process, and as part of our continuing effort to expose and test our thinking against that of others, I have asked our staff to address the specific points raised in your Report, drawing on available research findings and internal thinking, and to report their findings in convenie nt form. I intend to submit that report, including any recommen dations to the Congress by the Board that are relevant, as part of our next regular Report to the Congress on Monetary Policy pursuant to the Full Employment and Balanced Growth Act of 1978. The results of this study will, of course, be available to the public generally, as well as to professional specialists, and we will look forward to reviewing these issues with the Congress and others who are interested. I do want to thank you for your concern for the improved conduct of economic policy in general and monetary policy in particular, to which I hope the report I have described, addressing the particular questions you have raised, will contribute. Sincerely,  _sLe#411.,  NS:PAV:vcd (V-53) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mr. Axilrod Mrs. Mallardi (2)./  frotti.  HOUSg OF REPREsENTATIVES HENRY S. RCUSS, WIS.. CHAMMAN RICHARD BOLLING, MO. LEE H. HAMILTON, IND. GILLIS W. LONG, LA. PARRLN J. NETCHELL. MD. FREDERICK W. RiCHMOND. N.Y. CLARENCE J. •RowN. Gulp MARGARET M. HECKLXR, mASS. JOHN H. FIOUSSELDY. CALIF. moo CHALMERS  p.  1111:14ATZ  Congres'5 of tbe Ziniteb z.-ztette5 JOINT ECONOMIC COMMITTEE (CREATED PURSUANT TO SEC. SW or mimic LAw 304, irrH coNOREss)  JAMEs K. GALIBRAm4, 111:xxcuTiVi outECTOR  WASHINGTON, D.C. 20510  ROGER VI. JEPS[3.4.. VICE CHAIRMAN WILLIAM V. IIK7T34. JAMES AJIDNOR, S. OAK. SITEVEN D. SYMMS. 10A340 PAULA KA WK I NS, FLA. IIKAC K MATTINGLY. GA. LLOYD BENTSEN. TEX. WILLIAm PROXMIRE, WIS EDWARD M. KENNEDY. MASS. PAUL S. SAIRMANIES, MD.  February 26, 1982  The Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System Washington, D. C. Dear Mr. Chairman: I am enclosing a copy of the Annual Report of the Joint Economic Committee, released yesterday. In it, the Democratic Members of the Committee call on the Federal Reserve to undertake a searching review of current procedures of monetary policy formation and oversight. The purpose of such a review would be to develop a more flexible and sophisticated framework within which the Federal Reserve can operate while enhancing the quality of information about monetary policy available to Congress and the public. The specifics of our request are set out in Recommendation 8. I would appreciate an early response outlining the measures you deem appropriate to meet this request. Specifically, I would encourage you to consider calling on a distinguished panel of outsiders to provide advice to the Federal Reserve on it. We regard this recommendation as one of the key ingredients of a program to establish a more workable relationship between the Congress, the Administration and the Federal Reserve in the future.  Sincerely, (1.A..4-..(Th S. g-tAi..-a„ Henry S. Reuss Chairman P.S. I commend Recommendations 9 and 10 to your attention as well, for reasons that will be apparent.  Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  THE 1982  JOINT ECONOMIC REPORT  REPORT OF THE JOINT ECONOMIC COMMITTEE CONGRESS OF THE UNITED STATES ON THE 1982 ECONOMIC REPORT OF THE PRESIDENT  ,I.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Recommendation No. 7:  End the Interest Rate Wars  st rates damaged the world In 1981, U.S. high intere ence in the economic id nf co ed in rm de un d an y econom States. These severe leadership of the United must not be allowed to s on si us rc pe re l na io at intern competition should be te ra st re te in gh Hi . ue contin rnational coordination of te in er os cl ch mu by ed replac economic policy. ove Federal Reserve pr Im 8: . No on ti da en mm Reco Coordination Accountability and Policy ence has mounted that For the past decade, evid s in the procedures of aw fl l ta en am nd fu e ar e ther re only ersight. These flaws we ov d an n io at rm fo ry ta mone to ift from interest rate sh e th by d te ec rr co ly part ange r 1979; indeed, that ch be to Oc in g in et rg ta ry r moneta to the fore. We call fo es ti ul ic ff di w ne t gh ou br has a fresh look at the ke ta to e rv se Re l ra de Fe e th rt to the Congress. po re d an cy li po ry ta ne formation of mo : ve six specific objectives ha ld ou sh rt po re a ch Su information about To improve the quality of es made available to monetary policy objectiv blic; the Congress and the pu on of monetary To improve the coordinati and other tools of policy, fiscal policy, economic policy; r the conduct of To provide guidelines fo s of rapid financial monetary policy in time monetary instruments; innovation and change in r the conduct of To provide guidelines fo ce of supply shocks; monetary policy in the fa ity in recent years of To evaluate the instabil recommend changes in d an y, ne mo r fo nd ma the de es that may be monetary policy procedur is development; and th of lt su re a as y ar necess tee that Federal To devise ways to guaran account of the Reserve policy takes full dustry, agriculture, in of s st re te in te ma legiti small business and and commerce, including e Federal Reserve th in ed at ul ip st as housing, Act. Run Money Volatility tor Sh ry Ve 9: . No Recommendation is Not a Problem very short -run at th ew vi e th th wi We disagree antly damaged the ic if gn si th ow gr y ne volatility of mo criticism of the is th at th ge ur We . economy in 1981 ensed with. Federal Reserve be disp  Recommendation No. 10:  Reject the Gold Standard  All forms of a return to the gold standard should be rejected by the President, the Administration, and the Congress. C.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Fiscal Policy:  Recommendations 11-18  Recommendation No. 11: Promote Economic Recovery Now and a Return to a Balanced Budget The tax cuts scheduled to go into effect on July 1, 1983, should be deferred, and reviewed in light of the economic situation and the state of the budget next year. Indexation of the personal tax brackets to the Consumer Price Index should be repealed. This clear signal of responsible future tax behavior, with its resulting sharp diminution of the future deficit, will help to lower interest rates now, thus providing needed stimulus and promoting a rapid recovery from the present recession. Recommendation No. 12:  Review Tax Expenditures  Efforts to raise additional revenues in later years should begin with a comprehensive review of tax expenditures. Recommendation No. 13:  Excise Taxes  We oppose regressive increases in Federal excise taxes solely to balance the budget. Such excise tax increases are inflationary and unfair in their incidence. Excise tax increases should be considered only where they serve a compelling public interest. Recommendation No. 14:  No Value-Added Tax  We oppose proposals to institute a national sales tax or value-added tax. Such a tax would fall disproportionately and unfairly on low- and middleincome people, thereby compounding the loss in real income they have suffered in recent years. In addition, introduction of a VAT would add to inflation in the short run. Recommendation No. 15:  Corporate Taxes  The Economic Recovery Tax Act of 1981 provided for accelerated depreciation as we had recommended in our last Report. However, there remains a danger that, as the rate of inflation falls, the new system will become distorted in favor of equipment and machinery and against long-lived structures at lov rates cf inflation. Should this happen, consideration should be given to measures such as open accounting, which would restore neutrality of the depreciation schedules with respect to types of investment, and eliminate any danger of negative effective tax rates. Provisions providing for   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Beyond that, the Administration should embark on a concerted program of negotiations to assure macroeconomic policy coordination with our major allies, both at and between economic summits.  Recommendation No. 8: Improve Federal Reserve Accountability and Policy Coordination. For the past decade, evidence has mounted that there are fundamental flaws in the procedure of monetary policy formation and oversight. These flaws were only partly corrected by the shift from interest rate to monetary targeting in October 1979; indeed, that change has brought new difficulties to the fore. We call for the Federal Reserve to take a fresh look at the formation of monetary policy and report to the Congress. Such a report should have six specific objectives: To improve the quality of information about monetary policy objectives made available to the Congress and the public; To improve the coordination of monetary policy, fiscal policy, and other tools of economic policy; To provide guidelines for the conduct of monetary policy in times of rapid financial innovation and change in monetary instruments; To provide guidelines for the conduct of monetary policy in the face of supply shocks; To evaluate the instability in recent years of the demand for money, and recommend changes in monetary _policy procedures that may be necessary as a result of this development; and To devise ways to guarantee that Federal Reserve policy takes full account of the legitimate interests of industry, agriculture, and commerce, including small business and housing. as stipulate:3 in the Federal Reserve Act.  -158-  1981 was a year of emerging dissatisfaction with the procedures of monetary policy formation and oversight.  It  has become clear that the current system of multiple aggregate monetary targeting does not provide an adequate guide to the complexities of the current monetary environment, or an adequate yardstick by which to measure the success or failure of the Federal Reserve's performance. On the other hand, no plausible alternative to the present system has been articulated and given a full professional review by competent specialists.  We therefore recommend  that the Federal Reserve undertake the task of developing necessary improvements in the process of monetary policy formation and oversight. The two principal objectives of monetary policy reform must be to provide for accountability of the Federal Reserve System and for the coordination of monetary policy with fiscal policy, incomes policy, and other initiatives of the Executive branch and the Congress. serves neither objective.  The present system  For reasons which will be  discussed below, the system of annual reporting of monetary growth targets no longer provides an adequate gauge of Federal Reserve performance if it ever did; a new system must be designed which holds the Federal Reserve more closely accountable for the ultimate objectives of growth, employment, and price stability, without sacrificing the quality of information available to the Congress.  As for  policy coordination, that presently depends on the personal chemistry between the Chairman of the Federal Reserve Board,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -159-  al und institution o s A . s s e r g n o and the C the President, tly needed. n e g r u is n o i t a n basis for coordi ary es of the monet v i t c e j b o e h t t ppor We continue to su and Full Employment s n i k w a H ye r h p m of the Hu policy reforms s the change in a l l e w s a , 8 7 9 h Act of 1 Balanced Growt est dures from inter e c o r p y c i l o p monetary Federal Reserve of 1979. The r e b o t c O in g n i t y growth targe rate to monetar r under which, fo e r u d e c o r p a s law codified Humphrey-Hawkin red to present i u q e r s a w e v r e s the Federal Re the first time, he bjectives at t o y c i l o p y r a t e s its mon to the Congres in re formulated we s e v i t c e j b o ch year. These beginning of ea rious monetary a v of s e t a r h t s for the grow terms of target quarter basis. h t r u o f o t r e t r the fourth-qua aggregates on s of real GNP, t s a c e r o f e h t together with These targets, as deral Reserve h e F e h t h c i h w unemployment inflation, and the Congress d e d i v o r p e v a h , ss since 1975 e r g n o C e h t d e suppli al about the Feder n o i t a m r o f n i body of with a useful ry seasons have a t e n o m m l a c tions, and in Reserve's inten of performance. k c i t s d r a y e l asonab served as a re er 1979 was b o t c O in s e r u d ce targeting pro The change in ong-standing l a d e t c e r r o c ne, because it o e l b i s n e s a also clical changes y c o t e s n o p s e s r eral Reserve' d e F e h t in t c defe targeting, te ra t s e r e t n i erm Under short-t . y m o n o c e e in th y to act proc n e d n e t a n w eserve had sho the Federal R o aggravate s d n a n w o d s ate ld interest r ho o t y l l a cyclic d, and to keep n a m e d h g i h of res in times u s s e r p y r a n o inflati in times of y r e v o c e r d r a t up and so re interest rates rest in theory, inte , g n i t e g r a t der monetary recession. Un   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -160-  ary booms, and to rates would be allowed to rise in inflation policy would fall rapidly in recessions, and so monetary r" to the arsenal of contribute another "automatic stabilize   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  the system. fiscal stabilizers already built into can arise under We now know, however, that conditions not provide a good which simple monetary targeting rules do icy. In the case guideline for the conduct of monetary pol rise in the price of of supply-side shocks, such as a sharp monetary growth path oil, rigid adherence to a preordained o a fall of output and transmits all of the shock rapidly int regards the employment, which is desirable only if one ch we certainly do unemployment rate with disinterest, whi Report for 1961 as not. Last year, we wrote in our Annual follows: ge of oil Sudden supply shocks -- such as the sur ticularly prices in 1979 and 1980 -- can be a par from the damaging source of short-run deviation dit. Such target rates of growth of money and cre se in the shocks, if not accompanied by an increa the economy velocity of money, impose real costs on pletely by which cannot and should not be offset com other way, and monetary expansion. But to err the rt-run money to attempt to maintain too rigid a sho ck (for growth path in the face of an oil sho rates, lost example) could mean sky-high interest reme is output, and unemployment. Neither ext partly desirable. The Federal Reserve should run, while accommodate supply shocks in the short credit growth working toward control over money and over time. significant supply shocks As it happened, there were no in 1961. to monetary policy and the economy  Nevertheless,  serious ramifications other events did occur, with equally for monetary policy procedures.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  was the introduction in The most important such event , the rapid growth of 1981 of nationwide NOW accounts nds, and other forms of fu al tu mu et rk ma y ne mo e bl ka chec ral Reserve responded to de Fe e Th . on ti va no in l ia nc fina large additional surge of a d te ra ne ge h ic wh , ts en ev e thes flowed in from the higher s nd fu as 1 198 of l ri Ap in M1B -bearing checkable deposits, st re te in to es at eg gr ag ry ta mone publishing a "shift-adjusted" d an s ow fl ch su g in ct ra bt by su sted M1B assumed that 22.5 ju ad tif sh of te ma ti es e Th M1B. kable Deposits in January ec Ch r he Ot to in s ow fl of t en perc months came from nondemand nt ue eq bs su in t en rc pe .5 27 and deposit sources. n to the Federal Reserve's We have no particular objectio complaint with the estimate of adjustment method, nor any rely deral Reserve derived. We me shift-adjusted M1B the Fe at hift-adjusted" M1B represents note that derivation of "s ent "best guess." And a differ best an approximation -- a ct on the estimate of fe ef ic at am dr a d ha ve ha estimate would rgeting rule in effect, ta ry ta ne mo e th r de un e, M1B and, henc t of monetary policy. uc nd co e th r fo ns io at ic pl different im under which the Federal ts is ex e ur ed oc pr ic at em Yet, no syst such abrupt redefinitions y if st ju d an on rt po re Reserve must which it is operating. of the monetary target on nd has also emerged as a Instability of money dema nduct of monetary policy. serious issue for the co function can mean that a nd ma de y ne mo e th of Misestimation the real economy which on s ct fe ef s ha et rg ta given monetary nsionary -- than the pa ex re mo or -e iv ct are more restri -162-  M  monetary authorities intend.  In recent years, such  misestimation has become common, and has been offered by some as a phenomenon which partly explains how a change in monetary policy procedures intended to be stabilizing can have destabilizing consequences on output, employment, and inflation. A particularly important shift in money demand may occur if the public adopts durable expectations of lower inflation in the future.  In such a case, money demand may rise, as  individuals see the benefits of relative liquidity coming to outweigh the declining opportunity cost of holding a noninterest bearing asset.  A monetary target which fails to  take into account this shift in expectations will prove to be too restrictive in practice, driving up interest rates and causing unemployment, when in fact no excess demand in final goods markets exists.  There is no way at present to  foresee or measure such shifts in inflationary expectations. Thus, to the extent the monetary authorities are operating under a long-range schedule for deceleration of predefined monetary aggregates, as the Administration has recommended, the Nation is under a Damocletian sword of potential future excess restraint. In our last Annual Report, we argued that the Federal Reserve's procedures for monetary control could be improved, and the danger described above lessened, if the Federal Reserve were to undertake a careful, public, annual exercise  of linking its targets for the monetary aggregates to the  -161 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  i  gets are set. state of the economy at the time the tar  We  wrote:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  targets The Federal Reserve should calculate its un each year on the basis of its long-r and on the noninflationary money growth objective technique state of the economy. For example, a ential growth could be to begin by adding to the pot lation rate rate of real GNP some part of the inf ng year which cannot be avoided in the forthcomi , the (taken as the core rate of inflation effects of underlying trend of inflation when the been taken excess demand and supply shocks have tract any out). From that value, one could sub ty of money. expected rate of increase of the veloci s option would The benchmark value derived using thi tes the imply a monetary policy that accommoda and the existing economy's real growth potential eral Reserve core rate of inflation. If the Fed more believes that a more restrained or a for, it should stimulative policy would be called so indicate, giving its reasons. ake this exercise The Federal Reserve should undert reflect changes annually, adjusting its targets to core rate of in our real growth potential, our money -- i.e., in inflation, and in the demand for Federal Reserve the income velocity of money. The luence of changes should explain to Congress the inf targets which it is in each of these factors on the of the annual presenting. Such careful linking wth potential and monetary targets to the real gro the credibility of to core inflation will increase Reserve's antithe targets and of the Federal help focus inflationary policy, and it will the Federal attention on the long-run nature of credit. Reserve's objectives for money and the Federal In setting its monetary targets, rt for changes in Reserve should be especially ale er the the velocity of money. These alt and nominal GNP, relationship between money growth en monetary target is and so determine whether a giv effect on the restrictive or expansionary in its reases, it is economy. When money velocity inc ranges in order to appropriate to lower the target restraint, and maintain an equivalent degree of ls. conversely when money velocity fal an exercise of We continue to believe that such ld help the Federal wou and l, pfu hel be ld wou on ati explan commitments to particular Reserve to escape from dogmatic -164-  sed. h may be ill-advi ic wh es iv ct je ob arithmetical t this alone may no at th d de ua rs pe e now Nevertheless, we ar review a fundamental r fo se ca r ea cl is a be enough. There its cy formation and li po ry ta ne mo ess of of the entire proc l e that the Federa ev li be We . ss ngre oversight by the Co es report on the issu d an y ud st to g akin Reserve, by undert icantly to the if gn si te bu ri nt d co listed above, coul e process and to th cy li po ry ta ne mo our revitalization of e and support for th of y it il ib ed cr the reestablishment of stem. Federal Reserve Sy   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  . 9: Recommendation No Is Not A Problem  ney Volatility Mo n Ru tor Sh ry Ve  e view that very We disagree with th of money growth ty li ti la vo n ru 81. shortthe economy in 19 d ge ma da y tl an ic signif ral icism of the Fede it cr is th at th urge sed with. Reserve be dispen  We  ulated repeatedly ip st on ti ra st ni Admi In early 1981, the of monetary policy s aw fl e th of is s analys and extensively it e tary policy in th ne mo r fo on ti ip s prescr in the past and it growth in the past y ne mo n: ai pl ysis was future. The anal uay testified on Febr n ga Re y ar et cr As Se had been too rapid. 19, 1981: tes of money ra e th if le ib ss impo Stable prices are te of goods and ra th ow gr e th re growth exceed on average for mo ne do ve ha ey th services, as than a decade. ld be money growth shou n: ai pl so al s wa The prescription s. er a period of year ov ly nt te is ns co d slowed, slowly an such qualifiers ed us ly nt ue eq fr nistration Although the Admi  cy be the monetary poli ri sc de to t" en st onsi as "steady" and "c e these referred to th at th r ea cl it made they desired, they ry prescribing moneta re we ey th h ic wh for multi-year period e th volatility in th ow gr y ne mo to t no and policy as a whole, n a colloquy betwee in d ge er em is Th n. extremely short ru February 19, 1981. on s us Re an rm ai d Ch Secretary Regan an om on an inference fr on ti es qu s hi d base Chairman Reuss had ministration had Ad e th at th y on im test Secretary Regan's serve for the Re l ra de Fe e th struction to given a specific in polcy in 1981: ry ta ne mo of t uc nd co   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  you simply asking, are am I s: us Re Representative right in telling is on ti ra st ni mi y sure that the Ad ght to get the mone ou it at th 81 19 al the Fed now in growth rate (of re e th t, en rc pe 1 supply down to edict...? GNP) that you pr at t is suggesting th en id es Pr e Th n: Secretary Rega rticular year. We pa is th t no s, for the out year rve any particular se Re l ra de Fe e have not told th an independent e ar ey th t; no d target. We woul suggesting was for s wa t en id es Pr e e body... What th d the like -- wher an 84 19 to 82 19 in the out years, ent real growth rc pe 5 to 4 ng range. we are projecti should be in that et rg ta y ne mo GNP, that the there, is he now en Ev s: us Re is Representative admittedly, that -82 19 r fo at at suggesting th now to determine th t gh ou we -f tary nine months of esent rate of mone pr e th t cu to we are going to 4 percent? 6 om fr d, ir th egrowth by on ggesting -- we su is he at Wh No. Secretary Regan: We can't go e. er th g in go ad are on the ro off like a faucet. it rn tu t n' ca overnight. We at is an ultimate th is ng ti es gg What he is su rget or even, ta e ng ra tor sh an a ngtarget, rather th et. It is our lo rg ta te ia ed rm te esting should gg indeed, an in su is t en id es the Pr range goal that se of action. be the Fed's cour came firmly to on ti ra st ni mi Ad e , th As 1981 progressed terest rate policy in gh hi y, ne mo e tight the support of th ril l Reserve. On Ap ra de Fe e th by effect which was put into -166-  ied l Sprinkel testif ry Be ry ta re ec Unders 6, 1961, Treasury , and Fiscal Policy ry ta ne Mo on ee mitt before the Subcom tor Jepsen: chaired by Sena eartedly a long eh ol wh t or pp su d dy, ...we applaud an ll lead to a stea wi h ic wh m ra og term monetary pr y slow rate of el at ri op pr ap d predictable, an n... monetary expansio rve's the Federal Rese of ve ti or pp su the monetary ...we are in th ow gr ce du re 15 stated intent to sses of the past ce ex ry ta ne mo e deral aggregates. Th ickly and the Fe qu d te ec rr co udent years cannot be for 1981 is a pr n io nt te in ed Reserve's stat first step. tion of address the ques d di el nk ri Sp Undersecretary ng: aggregates, sayi ry ta ne mo e th lity in short-run volati   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  from er money growth ov l ro nt co ct ent Obviously, stri le given the curr to ib ss po t no is y is month to month random variabilit d an e, ur ct ru ic financial st r hand, systemat he ot e th On t for . be expected th which persis pa et rg ta e th deviations from can be avoided. several months no grounds for ed id ov pr d ha n is criterio Nevertheless, th as the to that point, up e rv se Re l Federa criticism of the uy shows: following colloq ral Reserve de Fe e th s Ha uss: d Representative Re office) performe in en be ve ha u (since yo e concerned? ar u yo as r fa as satisfactorily a There has been . so k in th I th since last ow Dr. Sprinkel: gr ry ta ne mo ing in significant slow fall. May 1981, the in g in nn gi be , at followed In the months th d narrowly define e th of th ow gr brought the Federal Reserve th ptly. M1B grow ru ab d an y pl ar B, dc,wn. sh money stock, M1 ve; on a firstti ga ne ly al tu h October was ac from May throug  -167-  growth rate for al nu an e th s, si uarter ba quarter-to-third-q . ot up, and stayed up sh s te ra st re te In M1B was 1.3 percent. July. recession, began in p ee st a e, nc ue The conseq   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  on steady decelerati l, ua ad gr a r fo ce Given the preferen rly which it had clea s ar ye of od ri pe er a of money growth ov tion would have ra st ni mi Ad e th Committee, articulated to this gust, September, Au , ly Ju , ne Ju ified in been entirely just serve for a too Re l ra de Fe e th g iticizin and October in cr y ackdown on the mone cr y ar ss ce ne un rapid, over-zealous, , On the contrary . so do t no d di stration supply. The Admini e fore this Committe be g in ar pe ap s cial Administration offi tight money, high e th ed rs do en nsistently repeatedly and co serve. of the Federal Re cy li po te ra st intere um appeared at ba en id We ay rr Mu Chairman On June 17, 1981, uctivity, and od Pr e, ad Tr on Subcommittee a hearing of the . His testimony th Ro r to na Se by chaired Economic Growth, Senator Abdnor: th wi ge an ch ex g owin included the foll productivity is ng si ea cr In : or s to Senator Abdn d I support effort rest an t, an rt po im d high inte necessary an growth, but with ty vi ti uc od pr promote not be effective. ll wi s rt fo ef r rates ou understanding, my 's It : um ba en ns Chairman Weid ationary expectatio tes. fl in gh hi e th st ra Senator, that r the high intere fo or ct fa g in iv n, are the dr down the inflatio g in br to ue in As we cont have already seen We . ll fa ld ou d interest rates sh ast a temporary an le at of gs tes. in nn the begi ine in interest ra my cl de rm te er is hopefully a long recast, but it fo nt oi np pi a u I can't give yo inues to unwind nt co n io at fl in as al restraint we expectation that, sc fi d an ry ta ne mo -- because of the -- we will see inflation coming on have embarked up th inflationary wi , wn do me co to in down and continue rther progress fu d an , wn do ng tes, expectations comi high interest ra y ll fu in pa e os bringing down th ctive. which is our obje -168-  Jordan, a member of the On September 24, 1961, Dr. Jerry Advisers, testified before President's Council of Economic of the Administration's support d rme ffi rea and tee mit Com the Federal Reserve policy:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  in your judgment, is Representative Reuss: Where, at the present the Federal Reserve going astray time? y are going astray. Dr. Jordan: I don't believe the effect of relatively ...We think that the long-term decline in both slow monetary growth is going to st rates, but we short-term and long-term intere st rates had to were aware that short-term intere ned that people might decline first. We were concer term interest rates as misinterpret declining shortto fight against being a caving -in on the will e that that is the inflation, and I don't believ correct interpretation at all. line the rest of We expect interest rates to dec r, but we don't think this year and all of next yea we are not as that that should signal that lation or that the determined to fight against inf g in its antiFederal Reserve is not persistin inflation policies. Weidenbaum testified before On October 7, 1981, Chairman Goals and Intergovernmental the Subcommittee on Economic Defense Buildup and the Policy, at a hearing on "The m had this Chairman Reuss and Dr. Weidenbau Economy." exchange: ure the Chairman Weidenbaum: I can ass our monetary and Chairman...of the constancy of , we have stated a fiscal policy. From the outset in the money supply steady and slow rate of growth inflationary pace of in contrast to the excessive ary objective of our recent years is a very necess e supported and economic program, and we hav l Reserve's efforts continue to support the Federa erate growth in the to achieve that steady and mod monetary aggregates. s tempting to jump on Representative Reuss: Now it' is below their target and the Fed and say their M1B • • •  -169-   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  efore, up. Do you, ther it v re er tt be they'd think that the Fed , on rs pe e at iv speaking as a pr M1B? should now rev up a member of the as ng ki ea Sp um: Chairman Weidenba e Fed should rev th k in th t n' do s Administration, I inue to follow it nt co ld ou sh d Fe the up. I think the restraint which is ry ta ne mo of et announced policy orted from the outs pp su ly di ea st policy we have am mindful of the I . on ti ra st ni ic of this Admi brating the specif li ca so in es difficulti ry aggregates to ta ne mo s ou ri va e movements of the strongly support th I t bu s, et rg achieve those ta hed by the Fed. targets establis s, I e specific number th an th t an rt po ll But more im policy that we wi ng yi rl de un e th think, is we have so far this as , ss re og pr ion by continue to make e rate of inflat of monetary th ng ci du re in year, consistent policy , dy ea st a g in follow se, has been the ur co of , at th ent going back to restraint and id es Pr e th of t emen consistent stat ement in Chicago at st gn ai mp ca e per his comprehensiv February White Pa e th h ug ro th r, back in Septembe ic and monetary om on ec r ou e at this where we enunci ugh statements to ro th ng ui in nt policy, and co very day. ctor of the re Di , an km oc St 1981, David On October 28, d before the ie if st te , et dg ment and Bu Office of Manage licy, cliaired by Po al sc Fi d an Monetary Subcommittee on ed "Government tl ti en g in ar he at a Senator Jepsen, to a question se on sp re In Small Business." Competition with or Stockman said: ct re Di s, us Re from Chairman been months M1B has l ra ve se st la to me, ...yes, in the rate. It seems w lo ry rts ve a the great expe coming in at of e on en be e o have (would) recogniz (that) you, wh s, ar ye ny ma , ny ma in Congress for d innovation an ge an ch us mo or a that with the en financial markets today that B, especially M1 occurring in the of , le ab ri money va deposit measure of one in financial s ge an ch by a few months being affected or s ek we w fe ly a practices for on story. ll the whole te ly al re t n' does valid measure of a l il st is at M1B the If you assume th ion deposits in ok at a ct sa an tr ll ca lo what we would suggest that we t as le at d ul ten months. In economy, I wo or ne ni st la t the year or at leas -170-   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  has been about 5 percent that case, the growth rate , and I think not which is geared to the target unduly low. ther than an excuse for So what we see is that, ra cy, instead, the monetary changing the monetary poli ion is coming down. The policy is working. Inflat ing squeezed out of the inflationary pressure is be the burden of these ce du re to t wan we If y. econom rest rates on small currently prohibitive inte ness for that matter, it business and all other busi to do is not quarrel with seems to me what we ought is correct, but address the monetary policy which tly responsible for, in jo e ar we ch whi m le ob pr the licy, the budget, and the po al sc fi e th is at th d an way we can devise to get deficit, and work in every irement reduced. the Treasury borrowing requ • • •  official to appear before on ti ra st ni mi Ad or ni se xt The ne Secretary Donald Regan, who ry su ea Tr s wa e te it mm Co the at time, the depth and th By . 82 19 , 27 y ar nu Ja testified on tter known: unemployment be e wer n io ss ce re e th of severity ter r, November, and December af be to Oc in y pl ar sh en ris had and le through the early fall, having been relatively stab r of 1981 had fallen at an te ar qu th ur fo the in ut tp real ou t. Somewhat paradoxically, annual rate of over 5 percen a ply at the end of the year, demand for money rose shar explained by a drop in ly rt pa be may h ic wh on en phenom demand generates a distress-based ch whi s, it of pr e at or rp co flow. This demand had been for credit to provide cash mmodated by the Federal co ac ly rt pa d an ed st si re partly h had e that interest rates, whic nc ue eq ns co e th h wit e, rv se Re turned around sharply , er mb ve No y rl ea d an r be fallen in Octo nth, while at the same time, mo and starteci again to rise sumed. over -month growth of M1B re   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  almost Most important, by late January, it was ion was uniquely the universally agreed that the recess high interest rate policy consequence of the tight money and h Administration support, pursued by the Federal Reserve, wit January 19, 1982, three consistently throughout 1981. On testified before the Nobel Laureates in Economic Science damental point. Professor Committee. All agreed on this fun wassily Leontief testified: Administration Following Mrs. Thatcher's lead, the beating the is trying to suppress inflation by re is an old entire economy into the ground. The meagre living by joke about a gypsy who eked out a he owned. One renting out the services of a horse profitability of day, he decided to increase the old nag gradually, this enterprise by training the r and smaller step by step, to get by on smalle weeks -- I should rations of oats. For a couple of seemed to be say for a year now -- the policy poor chap's succeeding very well until, to the died. great surprise, the horse suddenly Professor James Tobin testified: the ship these The money navigators are piloting 1981, the Federal days. After all the rhetoric of program is the Government's only anti-inflation d, the same old same as Mrs. Thatcher's in Englan ations have remedy that previous Administr depress monetary intermittently tried. This is to let competition spending for goods and services and loyers emp of workers desperate for jobs and and price e desperate for customers lower wag and his three gan inflation rates. President Rea unemployment as a predecessors all swore not to use of them has done remedy for inflation. Every one ulties. so, and encountered the same diffic ied: Professor Lawrence Klein testif (in early 1961) The general economic environment in a positive wo,s extremely favorable and moving the management of direction. what went wrong with economy into a renewed economic policy to throw the following the recession after just one year, -172-   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  int? A combination of previous upper turning po authorities in pursuing overreaction by monetary and serious policies of tight credit, ying fiscal policies by an mp co ac of on ti la cu al misc a complete breakdown of the Administration led to nancial markets. The credibility vis-a-vis fi t back home buying, se s te ra st re te in gh hi unusually credit -based car purchasing, and other aggregate demand was l, ra ne ge In . es ur it nd expe nfidence in national weakened by a loss of co economic policy. , 1982, the Committee 20 y ar nu Ja y, da g in ow ll On the fo onomic analysts and ec d te ec sp re l ra ve se om fr heard forecasters. d: Dr. Barry Bosworth testifie icularly the Federal rt pa d an , nt me rn ve go ...the t a hard-line policy of op ad to d de ci de d ha e, Reserv ary means of fighting im pr a as t in ra st re nd dema e of this decision is nc ue eq ns co e On n. io at fl in e t an accident: it was th that this recession is no s, result of policy decision conscious and predicted ed as such. and it should be analyz Dr. Allen Sinai testified: believe, came from a very The 1981 recession, I policy... tough and tight monetary d: Dr. Michael Evans testifie s cause of the recession wa e at im ox pr e th k in th ...I s. cy and high interest rate li po ry ta ne mo t gh ti e th the Committee heard , 82 19 , 26 y ar nu Ja on Finally, l A. Volcker of the Federa ul Pa an rm ai Ch om fr y on testim th Senator Sarbanes: wi ge an ch ex is th d ha Reserve Board. He rman Volcker, would you Senator Sarbanes: Chai tes have contributed ra st re te in gh hi e th agree that omy and the turndown in on ec e th in wn do ow sl to the economc activity? -173-   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  look at it in the u yo if s, Ye r: ke Chairman Volc nse, yes. narrow, immediate se e, as before the Committe ed ar pe ap n ga Re y ar Secret . His testimony 82 19 , 27 y ar nu Ja previously noted, on ed 1981, and thus depart of y or st hi ic om rewrote the econ the on's past support of ti ra st ni mi Ad e th sharply from tee. It did so by it mm Co is th re fo be Federal Reserve eviously m, which had never pr is ic it cr l ve no a introducing al. Administration offici y an by us to d ne been mentio and repeated the ed dg le ow kn ac n ga Re Secretary ated support for a st n te of d an l ra ne Administration's ge of money growth: gradual reduction program included ic om on ec al in ig The President's or owth be gradually gr y ne mo at th on past the recommendati pace. During the y ar on ti la nf ni no ss reduced to a significant progre de ma e rv se Re l ra year, the Fede toward that goal. ecisely, sstated -- more pr mi en th y ar et cr But the Se d ney growth which ha mo in n io ct du re sharp understated -- the support in 1981, 's on ti ra st ni mi Ad e taken place with th years. relative to previous M1B grew slightly r, te ar qu th ur fo Fourth quarter to mpared to the Co . 81 19 in t en less than 5 perc expansion in the ry ta ne mo of s te erage inflationary ra and an annual av 80 19 in t en rc pe -- this past -- 7.3 eding three years ec pr e th in t en th. of 8.0 perc tion in money grow ra le ce de l ia nt ta is a subs B nonshift-adjusted M1 81 19 t en rc pe 5 The comparison of 80 is invalid, and 19 of th ow gr t 3 percen growth with the 7. less of M1B in 1981 was on ti ra le ce de e suggests that th arison is s. The proper comp wa ct fa in it severe than -174-  rate of M1B in 1981, which between the shift-adjusted growth cent growth of the previous was 2.2 percent, and the 7.3 per adjusted figure can also be year. That 2.2 percent shiftof 3.5 percent to 6.0 percent et rg ta M1B the h wit d ste contra 1981; Reserve at the beginning of l ra de Fe the by d ate pul sti of 5 percent must be viewed the nonshift-adjusted figure usted upward, to 6.0 to adj is ch whi ge ran get tar a against ed at the back of Secretary vid pro t ar ch a as t, cen per 5 8. uced here as Chart II-1, Regan's testimony, and reprod acknowledges.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  CHART II -1  A,  Mi VERSUS TARGET RANGE* $Bil.  8.5% 450  5.51)/0 7" 4alto to 40'81 .  6.0°/0 2.5%  440  40'81 lo 40'82  430  420  it tit tii 111111111111111111 111 i tit tti iti hit tit til tit ili 410 iil ASONDJFM NDJFMAMJJ 1982 1981 1980 *  Weekly Averages - Seasonally Adjusted  adjusted) +(Editor's Note: M1B, not shift-  ald T. Regan Source: Testimony of Secretary Don 27,o 1982 Joint Economic Committee, January   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The importance of Secretary Regan's misrepresentation of M1B growth as having been 5 percent in 1981 emerges in his testimony a few paragraphs later: ...we supported money growth in the middle of the Federal Reserve's target range in 1981. The intended logic is simple.  If money growth was intended  by the Federal Reserve to be 3.5 to 6.0 percent, and if the Administration had had a clear policy of supporting growth in the middle of that range, and if such growth was achieved, how can tight money as such be held responsible for the unexpected recession? In fact, M1B growth, however measured, fell far below the bottom of the Federal Reserve's target range.  And, as  demonstrated above, the Administration had continued consistently to support Federal Reserve policy through the summer and fall even though that policy was leading to M1B growth well below the bottom of the target range. Next, Secretary Regan launched an entirely new line of of criticism against the Federal Reserve, drawn from a form fringe monetarism whose ideas the Administration had never previously endorsed.  The effect was to develop an entirely  new explanation for the recession. Secretary Regan's comments are reproduced here: The erratic pattern of money growth that occurred in 1980 and 1981 and which contributed to the onset of the current downturn. At various times during the year, we at Treasury have hinted, sometimes in private, sometimes in public, that we would like either faster or slower money growth. Some have accused us of being unable to make up our minds. -177-  have from the truth. We r he rt fu be d ul co e Nothing money growth when th er st fa d ge ur ly nt er consiste declining, and slow or at fl s wa ly pp at money su ney supply was rising mo e th en wh th ow gr l money supported the Federa We s. te ra it ig em to double-d nsistently urged th co d an s, et rg ta s Reserve' within the target dy ea st d an en ev keep money growth range. M1B fell at an , 80 19 of hs nt mo In the last three , after a sharp ar ye r pe t en rc pe annual rate of 1 Virtually all of . hs nt mo ve fi us t rise in the previo occurred in the firs 81 19 in B M1 in th 13.3 the grow , when it grew at a ar ye e th of hs nt four mo two months of the st la e th d an , te percent annual ra .0 percent rate. 13 a at s wa th ow year, when M1B gr om week to week. fr ed at ll ci os B In the interim, M1 October, the net to l ri Ap om fr Such In the six months of 0.1 percent. se ea cr de a s wa change maging effects on da ry ve s ha th ow volatile money gr credibility of long e th ys ro st de the economy. It certainty and un to ds ad , ls ro run monetary cont terest rates high as in ep ke s lp he y risk, and thereb t their principal. ec ot pr to ek se s lender kept financial s ha n er tt pa c This very errati for some time. ay rr sa di of e at markets in a st tion's position ra st ni mi Ad e th on of As a characterizati ragraphs of this pa o tw t rs fi e th in 1981, on monetary policy testimony before of rd co re e Th eading. quotation are misl Administration had e th at th s te ca rly indi this Committee clea the variability of m is ic it cr al rd of form offered not one wo testimony. As late s n' ga Re y ar et til Secr of money growth un an d Director Stockm an um ba en id We Chairman as October, both ge e against the char rv se Re l ra de Fe ed the specifically defend ggestion that it su e th d an w lo was too that money growth target ranges. s it in th wi ck ba should be brought   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  cretary Regan Se by d le ve le ntive charge As for the substa character is us uo en ng si di s serve, it at the Federal Re saying that week w no is on ti ra st Admini breathtaking. The not its low level, d an , th ow gr ty of money to-week volatili -178-   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  s. is responsible for the high level of interest rate  In so  h they doing, they exonerate tight monetary policy, whic from continue to support, and therefore themselves, responsibility for the recession.  And yet this new exercise  Reserve! leaves the blame for the recession with the Federal to The complete failure of any Administration official y growth criticize the Federal Reserve for short-run mone arances volatility at any time in any of their numerous appe in 1981 to discuss monetary policy before this Committee being offered. poses a problem for the line of criticism now ctor The last such appearance, as noted above, was by Dire Stockman on October 28, 1981.  At that time, of course,  tility of every fact cited by Secretary Regan about the vola 1981 was money growth from October 1980 through mid-October already known, and yet no criticism was offered.  One must,  policies therefore, conclude that, with respect to monetary changed up to October 1981, the Administration conveniently theories after the fact.  Such a change cannot, of course,  lessen the Administration's responsibility for the d at consequences of a monetary policy which they supporte least until the end of October. We believe the Administration cannot evade the simple facts of 1981, which are that tight money caused the tight recession, and that the Administration supported the money policy up and down the line.  10: Recommendation No.  dard Reject the Gold Stan  rn to the gold All forms of a retu ed by the President, ct je re be ld ou sh standard , and the Congress. the Administration e ry policy and of th Discussion of moneta ddied in 1981 by a mu s wa es ci li po onomic Administration's ec g to some form of in rn tu re in st re inte flurry of contrived pporters of the su n ai rt Ce . rd da the gold stan who had earlier me so g in ud cl in m, ogra Administration's pr ic ninflationary econom no e at di me im an of been most confident rest rates had te in gh hi r te af y, sa boom, were heard to ly a gold standard on at th , sm mi ti op negated their early the ns enough to permit io at ct pe ex ry na io could lower inflat Gold The United States . rk wo to m ra og Pr Economic Recovery ive part of a legislat as 80 19 in d he is Commission, establ recent IMF quota st mo e th d te it rm compromise which pe te summer and la in d te tu ti ns co rward, was extensions to go fo statutory duty e th th wi , er nt wi fall and met throughout the ry and future moneta t en es pr e th on rt po to evaluate and re role of gold. irmed the obvious: nf co on si is mm Co Gold The record of the andard have put st ld go e th to a return that supporters of tention. The at r he rt fu ts ri which me forward no proposal revealed to be a re we rn tu re a supporters of such conceptions of al ic or st hi g in er ff p with di heterogeneous grou reform proposals th wi d an s, wa rd da what the gold stan ll gold coins to fu of g in nt mi ee fr ranging from disguised money ly ht ig sl a to n gold bullio convertibility of   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -180-  . In every case, these proposals were found to  growth rule. be deficient.  Moreover, even if the obstacles of  practicality could be overcome, there is simply no evidence that a return to any form of the gold standard would contribute in the slightest to the goals of high employment, rapid growth, or stable prices. The gold standard's supporters have had their day in the limelight.  The Administration and the Congress should  dismiss any further efforts to keep this issue alive.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -181-  .41  'of GO vt•••  BOARD OF GOVERNORS OF THE  • •• •• 8;re4,73  FEDERAL RESERVE SYSTEM r•r r.  4;1 it•u •  3;1;.• ••elt4i—RESt" ••  WASHINGTON, D. C. 20SSI  March 17, 1982  PAUL A. VOLCKER CHAIRMAN  The Honorable William Proxmire United States Senate 20510 Washington, D.C. Dear Senator Proxmire: Thank you for your letter of March 9, requesting comment relating to legislation proposed by Senator Lugar that would subsidize the interest rate nn mnrtgage loans for new homes. You have asked whether the Federal Reserve would accommodate additionl credit demands expected to be generated by the program and thereby keep interest rates from rising. You have also inquired whether interest rates would rise without such accommodation, tending to choke off growth in other sectors. As you know, the Federal Reserve sets annual target ranges for growth of the monetary aggregates and bank credit. The growth targets for 1982--announced to the Congress in the Board's February report pursuant to the Full Employment anri Balanred Growth Act of 1978--were designed to be consistent with recovery in economic activity accompanied by continued moderation of inflation. In general terms, specific changes in those targets or the provision of reserves to the banking system simply to "accommodate" particular budgetary or other legislative initiatives that might increase governmental or other credit would be inappropriate in terms of our goals and would impair confidence in our ability to reach those goals. If the result would be to contribute to greater concern about inflation, the action would be counterproductive in relation to the objective of lower interest rates. Our monetary and credit targets are, of course, under continuing review. Changes would be appropriate only aggreif the evidence about the relationship between those on gates and the basic objectives of progress against inflati While a and economic growth strongly suggested such action. change the Federally-subsidized mortgage program would tend to itself be distribution of available credit, it would not in priate. evidence that existing monetary policies are inappro   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  k  re The Honorable William Proxmi Page Two  of increased federal The effect on interest rates to private credit demands us mul sti any and g, sin hou outlays for depends in no small part on the such outlays might generate, picture. Prospective huge overall federal budget deficit absence of strong and early deficits in coming years--in the as you know, a major influence action by the Congress--are, ctively. If appropriate spe pro and tly ren cur s ket mar on credit overall fiscal outlook, the to ard reg h wit en tak t no action is es and financial markets will then pressures on interest rat with consequent damage to remain greater than otherwise, Under these circumstances, . wth gro and ry ove rec for prospects federal programs to channel new t tha sed rea inc are s the chance to to any one sector will add credit and economic activity . choke off activity elsewhere financial market pressures and l depend on their sensitivity The impact on other sectors wil under those circumstances, to higher interest rates. But, m are likely to come at the jobs generated by the new progra nonsubsidized parts of the expense of jobs lost in other, ued that the effect would not economy. While it might be arg any event, could not be be a ore-for-one offset and, in eading financial strain spr of ks ris the d, fie nti precisely ide nomy generally are real. with adverse effects on the eco ss that high interest I am well aware of the distre sector, its suppliers, and g sin hou the on ng osi imp rates are l with the problem by dea to ts emp att r, eve How homebuyers. the expense of a sense at wth gro ey mon ive ess exc encouraging ss has become so visible, gre pro as t jus ion lat inf on of retreat my judgment, the greatest In ng. ati efe f-d sel be y would clearl e at present to resolving mak can t men ern gov the contribution ing the housing industry, ist ass and m, ble pro e rat the interest ts, with the prospective defici would be to deal effectively market implications, ial anc fin ect dir the m fro which, apart regarding government's ty ain ert unc to y ril ssa ece contribute unn resolve to reduce inflation. governmental subsidies to of on sti que the e iev bel I impact on credit markets, ial ent pot its and , tor sec a particular perspective. In other r ade bro t tha in ed ess needs to be ass h is whether new prowit lt dea be to on sti que words, a major sening the total impact of grams are consistent with les government on credit markets. be helpful. Please let l wil ts men com my t tha e I hop ther assistance. me know if I can be of fur   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely,  Sgaul A. VPickei  • •  .nt  JAKE SARK UTAK CHAI11114AN  JOHN TOWETt TEX. JOPIN HE!NZ, PA. A it P.4 STRONG C.OLO. W I ....... tA M RICHARD G. LJJGAR. IND. ALFONSE M D AMATO. N.Y. JOHN 04 CNA FE E R.I. KARR I SON &CH m ITT. N. M EX.  HARRISON A. WILLIAMS. J111, WILLIAm Pw0XMIRE. WIS. ALAN CR AN STON CALI F. ,M DONA1-D W. RIEGLE. JR PAUL S. BAR SANE S. M D. CH R I STOPH E R J. DODO. CONN. &LAN J. x ON, ILL.  M DANNY WALL, STAFF DI R ECTOR HOWARD A. IA EJ4ELL M I NOR I TY STAFF DI R ECTOR AND COUNSEL  ?jrtifeb -Slates Zenale COMMITTEE ON BANKING. HOUSING. AND URBAN AFFAIRS WASHINGTON. D.C. 20510  March 9, 1982 Tn  ° ,_, C  ZAS CCI r•ft.  0  771  rn  rn 7,  V;  r7:s CD  c. r  < rrl lig•  The Honorable Paul Volcker Chairman Federal Reserve Board 20th and C Streets, N.W. Washington, D.C. 20551  r•  55 3TP =  •72 tArl  C5  Fr  OD  .7-  Dear Mr. Chairman: e the interest Senator Lugar has proposed legislation to subsidiz number of housing rate on home mortgage loans in order to increase the units to be built. mortgage to the The program would reduce the interest rate on the pture provision in the borrower by four percentage points, and has a reca t $5 billion spread abou future. The total cost of the subsidy could be ease in employment of over five years. The proposal projects an incr , and projects an in791,000 in construction and related housing jobs gages of $65,000 each. mort crease of about 400,000 units with subsidized ion impact on the The program will, therefore, have a $26 bill your judgment, the Fed would credit markets. The question is whether, in the market to keep interest accommodate this additional credit demand on not make any accommodation. rates from rising, or whether the Fed would ion demand would have to With no accommodation, the additional $26 bill demands. If that were the case, compete in the market with all other fund in other sectors? Would the would interest rates rise, choking off growth about at the expense of additional jobs created by the proposal come ors? sect others losing jobs in other unsubsidized is in dire circumstanAs you can appreciate, the housing industry small business, in general. ces, as is farming, the auto industry, and proposal are crucial to a Your answers to the questions raised by the tions of the proposal. ramifica complete understanding of all of the   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincere,ly,  11 fan r WP/lmh  m  ••• • • • •• () GC)VE ••  BOARD OF GOVERNORS OF THE  ,f` ••  •co  FEDERAL RESERVE SYSTEM  •C •  i•-• • kn • . ‘)  •  •  <• -‘ et•  •fRALREs. ••  WASHINGTON, D. E. 20E51  March 17, 1982  PAUL A. VOLCKER CHAIRMAN  • • •.  The Honorable Wes Watkins House of Representatives 20515 Washington, D.C. Dear Mr. Watkins: Thank you for your letter of March 3, in which you ittee to urge the Depository Institutions Deregulation Comm liquid inadopt a deregulatory schedule and to authorize a to compete strument that would help depository institutions more effectively with money market mutual funds. ress As you know, the Committee has been charged by Cong sit interest with an inherently difficult task--to phase out depo savers while rate ceilings in order to increase the return to ent difficult at the same time taking into consideration the curr inently, situation of depository institutions, including, prom recent many thrift institutions. At the Committee's most pone conmeeting on December 16, a decision was made to post the Committee's sideration of further deregulatory actions until sion in part next meeting on March 22. I joined in that deci agenda might because some of the deregulatory proposals on the her earnings have placed many thrift institutions under furt pressures at a very inopportune time. tory The Committee will reconsider various deregula be inappropriate proposals at its meeting next week. It would t reach at that to comment on what decisions the Committee migh time goes on meeting. It should be noted, however, that as Congress and the Committee's deregulatory mandate from the ry institutions the likely competitive position of all deposito instruments vis-a-vis money market funds and other market deregulatory will require continued consideration of further actions. DIDC Let me assure you that, in consultation with Committee, I will Chairman Regan and the other members of the osals for give serious consideration to the various prop deregulatory action at the upcoming meeting. Sincerely,  NB:pjt (3 #V-51) bcc: Mr. Bernard Mrs. Mallardi  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Action assignei Mr. Bernar-I COMMITTEE ON APPROPRIATIONS  WES WA,T,KINS 3o DIFTRICT, OKLAHOMA *102) 225-4565  CONGRESS OF THE UNITED STATES  CHAIRMAN CONGRESSIONAL RURAL CAUCUS  HOUSE OF REPRESENTATIVES WASHINGTON, D.C. 20515  March 3, 1982  CID 1\J -r— :=3 :7 3  Mr. Paul A . Volker Chairman Federal Reserve 20th & Constitution Washington , D . C. 20551  co  Dear Mr. Vol ker: I n your role as a member of the Depository Institutions Deregulation Committee (DI DC), you have the opportunity to play a very vital role in the implementation of the Deregulation and Monetary Control Act of 1980. As you know, that piece of legislation stands as a landmark in the financial institution deregulation effort. With the passage of that legislation , thrift institutions were granted new powers and an agreement was reached that Regulation "Q" and the interest rate differential would be phased out over a five-year period . Since the D I DC has not formalized a deregulation schedule spelling out precisely when rate ceilings would be removed from various maturities, the nation's financial institutions are operating in a state of limbo. The D I DC is next scheduled to meet March 22, to my understanding . I would li ke to encourage you to procede at that time to formalize a financial institutions deregulation schedule, and further, to grant immediate authorization for banks and savings and loan institutions to offer liquid market rate transaction accounts. The latter is, of course, needed to allow depository institutions to compete with money market funds. Further delay in formalizing a deregulation schedule is unwarranted therefore, I encourage positive DI DC action on March 22. Sincerely,  Member of Congress WW/ekr  OKLAHOMA DISTRICT OFFICES: 2A3 POST OFFICE BUILDING  DuricAN, OKLAHOMA 73533  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  (405) 252-1434  232 POST OFFICE BUILDING ADA, OKLAHOMA 74820 (405) 436-1980  11 B FEDERAL BUILDING MCALESTER, OKLAHOMA 74501 (918) 423-5951  vir  BOARD OF- GOVERNORS OF THE • co . •0 • -n  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  • 4./ZAL RE-S" " • •..• •  March 17, 1982  PAUL A. VOLCKER CHAIRMAN  The Honorable Billy Tauzin House of Representatives 20515 Washington, D.C. Dear Mr. Tauzin: Thank you for your letter of March 5, in which you communicated the concerns of your constituents in the Louisiana banking community regarding deregulatory action by the Depository Institutions Deregulation Committee. You urge the Committee to adopt a deregulatory schedule and to authorize a liquid instrument that would help depository institutions to compete more effectively with money market mutual funds. As you know, the Committee has been charged by Congress with an inherently difficult task--to phase out deposit interest rate ceilings in order to increase the return to savers while at the same time taking into consideration the current difficult situation of depository institutions, including, prominently, many thrift institutions. At the Committee's most recent meeting on December 16, a decision was made to postpone consideration of further deregulatory actions until the Committee's next meeting on March 22. I joined in that decision in part because some of the deregulatory proposals on the agenda might have placed 'many thrift institutions under further earnings pressures at a very inopportune time. The Committee will reconsider various deregulatory proposals at its meeting next week. It would be inappropriate to comment on what decisions the Committee might reach at that meeting. It should be noted, however, that as time goes on the Committee's deregulatory mandate from the Congress and the likely competitive position of all depository institutions vis-a-vis money market funds and other market instruments will require continued consideration of further deregulatory actions. Let me assure you that, in consultation with DIDC Chairman Regan and the other members of the Committee, I will give serious consideration to the various proposals for deregulatory action at the upcoming meeting.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely,  NB:pjt (#V-62) bcc: Mr. Bernard Mrs. Mallardi (2)  Action assigne4 Mr. Berna r4 BILLYTAUZIN  DISTRICT OFFICES:  THIRD DISTRICT, LOUISIANA  EAST: ENERGY AND COMMERCE COMMITTEE MERCHANT MARINE AND FISHERIES COMMITTEE STEERING AND PCLICY COMMITTEE  TELEPHONE: 504-889-2303  Congre55 of tbe Uniteb -71)tateii  WASHINGTON OFFICE:  31)oute of ikepriCSentatibeS  TELEN-IoNE:2o2-2n-Ani 222 CANNON HOUSE OFFICE BUILDING WASHINGTON, D.C.  4900 VETERANS MEMORIAL BOULEVARD METAIRIE, LOUISIANA 70002 CENTRAL: ELEPHONE. 504-876-3033 FEDERAL BUILDING. SUITE 107 HOUMA, LouisIANA 70360  liaastington, Z.C. 20515  20515  WEST: TELEPHONE. 318-367-8231  WALLACE J. HENDERSON ADMINISTRATIVE ASSISTANT  March 5, 1982  210 EAST MAIN STREET NEW IBERIA, LOUISIANA  Honorable Paul A. Volcker Chairman Depository Institutions Deregulation Committee 20th and Constitution Avenue Room B2120 Washington, D. C. 20551  4.0 "T1  IV/  CD m  < c-;  41111111.  3:6 7/4 00 ••  I write on behalf of my constituents who are member gM of the Louisiana banking community.  ta,)  They have expressed to me their growing and legitimate concerns about current regulations which restrict banks from competing in a free market and, in effect, cause a substantial loss of deposits to money market mutual funds and other unregulated intermediaries. As a result, money is being drained from local communities where it would have been invested in housing and other consumer goods. Therefore, I urge the Depository Institutions Degrgulation Committee to carry out the mandate given them by Congress by taking action to approve a firm schedule for the phase-out of Regulation Q and to authorize a short-term, ceiling free instrument which will allow the regulated banking industry to compete with money market funds and other unregulated financial intermediaries. The recent announcement that Sears plans to become America's major supplier of financial services and the interest of other parties in entering the financial industry make it necessary that the DIDC take action at its scheduled March 22 meeting on these measures to give banks the tools with which to compete. Your most careful consideration of this request will be greatly appreciated.  BT:jt   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS  C.1  3:11 =0 •••••••••  rri  Dear Mr. Chairman:  BILLY TAU N Member o Congress  CD r71  3K  =C3  Sincerely ,  70560  —ort ) rs1 —EL— ) 75SC 4sCrr. t'-^t 1.71  ;Cr  •  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  March 17, 1982  CHAIRMAN  The Honorable Glenn Enclish House of Representativ€:s 20515 Washington, D.C. Dear Mr. English: Thank you for your letter of March 3, concerning possible deregulatory action by the Depository Institutions Deregulation Committee at our next meeting on March 22. As you know, the Committee has been charged by Congress with an inherently difficult task--to phase out deposit interest rate ceilings in order to increase the return to sawers while at tbe same time taking into consideration the current difficult situation of depository institutions, including, prominently, many thrift institutions. At the Committee's most recent meeting on December 16, a decision was made to postpone consideration of further deregulatory actions until the Committee's next meeting on March 22. I joined in that dPcision in part because some of the deregulatory proposals on the agenda might have placed many thrift institutions under further earnings pressures at a very inopportune time. The Committee will reconsider various deregulatory proposals at its meeting next week. It would be inappropriate to comment on what decisions the Committee might reach at that meeting. It should be noted, however, that as time goes on the Committee's deregulatory mandate from the Congress and the likely competitive position of all depository institutions vis-a-vis money market funds and other market instruments will require continued consideration of further deregulatory actions. Let me assure you that, in consultation with DIDC Chairman Regan and the other members of the Committee, I will give serious consideration to the various proposals for deregulatory action at the upcoming meeting. Sincerely,  NB:pjt (#V-54) bcc: Norm Bernard XXX Mrs. Mallardi (2)t.7  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  RAUL A. VOLCKER  Action assigned Mr. Bernard GLENN ENGLISH  104 CANNON Houst OFFICE BUILDING WASHINGTON, D.C. 20515  6TH DISTRICT, OKLAHOMA  (202) 225-5565 410 MAPLE STREET YUKON, OKLAHOMA 73099 (405) 354-8638  AGRICULTURE COMMITTEE GOVERNMENT OPERATIONS COMMITTEE  AGRICULTURAL CENTER BUILDING STILLWATER, OKLAHOMA 74074 (405) 377-2824  SELECT COM M ITTEE ON NARCOTICS ABUSE AND CONTROL   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  FEDERAL BUILDING  CONGRESS OF THE UNITED STATES  ENID, OKLAHOMA 73701 (405) 233-92_24  HOUSE OF REPRESENTATIVES WASHINGTON, D.C. 20515  March 2, 1982  Honorable Paul Volker, Chairman Federal Reserve System Federal Reserve Building Washington, D.C. 20551  Dear Mr. Volker: of the I have recently been contacted by members l District who financial community from my Congressiona d federal have expressed concern over the continue regulation of interest rates. other members I have been requested to contact you and tion Committee to of the Depository Institutions Deregula be addressed at the urge that interest rate deregulation e of paramount March 22 meeting of DIDC. This is an issu request is importance and your consideration of this greatly appreciated. Sincerely,  enn embe GLE/jml  gli h of Congress  March 16, 1982  Tne honorable Lindy Boggs House of Representatives 20515 Washington, D.C. Dear Lindy: Thank you for your letter of March 2, with which iana you enclosed correspondence from several bankers in Louis uwho expressed concern that the Depository Institutions Dereg various lation Committee might continue to postpone action on deregulatory proposals. As you know, tne Committee has been charged by Congress est with an inherently difficult task--to phase out deposit inter s while rate ceilings in order to increase the return to saver difficult at the same time taking into consideration the current nently, situation of depository institutions, including, promi recent many thrift institutions. At the Committee's most conmeeting on December 16, a decision was made to postpone ttee's sideration of further deregulatory actions until the Commi part next meeting on March 22. I joined in that decision in a might because some of the deregulatory proposals on the agend earnings have placed many thrift institutions under further pressures at a very inopportune time. The Committee will reconsider various deregulatory ate proposals at its upcoming meeting.- It would be inappropri at that to comment on what decisions the Committee might reach goes on meeting. It should be noted, however, that as time ess and the the Committee's deregulatory mandate from the Congr tutions likely competitive position of all depository insti s will vis-a-vis money market funds and other market instrument ry actions. require continued consideration of further deregulato Let me assure you that, in consultation with DIDC I will Chairman Regan and the other members of the Committee, deregugive serious consideration to the various proposals for latory action at our next meeting. Sincerely,  NB:pjt (#V-60) bcc: Mr. Bernard Mrs. Mallardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  SL Paul  LINDY (MRS. HALE) BOGGS. M.C.  Action assigned Mr. Bernard  WASHINGTON OFFICE: 2353 RAYBURN& BUILDING  ZD DISTRICT, LOUISIANA  WASHINGTON, D.C. 20515 COMMITTEE: PEG K AVALJ I AN ADM IN I STRATIVE ASSISTANT  APPROPRIATIONS   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Congre55 of tbe Einiteb  tette  `7,;)  3DoufSe of RepresSentatibt5 Wassbington,;IC. 20515  °  March 2, 1982  -rs rq  "Ti  Honorable Paul A. Volcker Chairman Depository Institutions Deregulation Committee 20th and Constitution Avenue Room B-2120 Washington, D.C. 20551  Cr,  C:5 77  1%.40  rn  3K 2= 73  r-  rrt  -rm rel< tnrin  (T1.-11 -11  U, <r2/C •111••••  4.1  Dear Chairman Volcker: In view of the March 22nd meeting to be held by the Depository Institutions Deregulation Committee, I thought it appropriate to call the enclosed to your attention.  You will see that I have been contacted by a considerable number of banking individuals in Louisiana who share the same opinions on matters which concern your Committee. My hope is that you will be able to give their comments your thorough and serious consideration, and I hope, too, that these letters will be helpful as the Committee proceeds with its responsibilities. With all best wishes, Sincerel;y,  LB:tr Enclosure  Mrs.  c") c"-"-  0 =  a  Lindy  C7 c )  ale) Boggs, M.C.  r.") Col% •  7)  Charles W. McCoy, President John J. Doles, Jr., President-Elect James R. Foxall, Treasurer Charles A. Worsham, Executive Vice President  Louisiana Bankers Association February 22, 1982 The Honorable Lindy Boggs United States House of Representatives 2353 Rayburn House Office Building Washington, D.C. 20515 Dear Lindy: On behalf of the Louisiana Bankers Association, let me urge you to support the Depository Institution's Deregulation Committee in its effort to carry out the Congressional mandate given them. The DIDC unfortunately postponed action on their agenda for December 16 until March 22, 1982. At that time, they have proposed to consider: 1.  The approval of a firm schedule for the gradual removal of deposit interest rate ceilings (Reg Q), and,  2.  Authorize a short-term, ceiling free instrument for regulated depositories which will allow competition for deposits now moving to the mutual funds and other unregulated intermediaries.  Your support of their efforts is crucial. Banking has lost (as per the enclosure) approximately eleven percent of the interest bearing consumer type of accounts to the money market mutual funds. This projection, carried out to 1985, indicates that banking could lose approximately twenty-five percent of this total market. As you well know, many Louisianans now participate in the money market mutual funds to the detriment of all depository institutions (banks and S&Ls). For these institutions to continu2 to be a viable part of the national economy, we must have the phase-out of Regulation Q and a new competitive instrument. May we urge you to contact members of the DIDC and urge them to "get on with the business on hand" and allow the regualated financial institutions to be competitive. Banking cannot sit idly by on the sidelines much longer. Louisiana's cities, towns and communities need this money that is now being transferred out of state and even out of country. Give us the tools and we will be competitive. If you do not give us the tools, the results could be disasterous.  Charles A. Worsham Executive Vice President CAW/rv Enclosure  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Post Office Box 2871 • Baton Rouge. Louisiana 70821 • 504 / 387-3282  ACTUAL AND PROJECTED MARKET SHARE OF INTEREST BEARING CONSUMER-TYPE ACCOUNTS AT ALL DEPOSITORY INSTITUTIONS AND MONEY MARKET FUNDS • •  •  •  •  • •  • •  •  •  •  •  •  •  •  • • •  •  • •  9  • •  • •  • • • •  •  •  •  •  •  4,for  •  alb so 04  •  80  .  •  • -r  - .0%  .1I • • •  •  •  •  •  •  •  •  •  •  •  eft  •  • • • • • •  •  b) LL1 (X  • •  •  NOTE: PROJECTION BASED UPON HISTORICAL TREND.  • • 111 • • •  • • • •  60-  1111 imp  1  •  • • •  •  • • • • • • • • • •  • •  •  • •  • • • • •  • •  • •  •  F-  • • • • • • •  •  40  •  •  • •  •  •  •  • • •  • •  •  •  •  •  •  •  •  •  • • • • • • •  •  • •  •  I  •  • •  •  • •  •  •  •  •  •  •  •  9  •  •  •  II •  •  •  •  •  •  a  20-   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • 0•Iir  •  •  •  • •  •0  • •  •  9I  •  •  •°  Legend  • •  4611 A •• • •  °  DEP INST  9 •  0  •  • • •0 a  •  0  DEP_INST/ .PROJ_  • • 0  • •  • •  • • •  •  •  •  •  MONEY MKT  •  MONEY MKT/PROJ  •  1979  1980  1981  1982  1983  MONTHLY  1984  1985  1986  oo THE BANE:  •  Guarantygricif February 24, 1982  The Honorable Lindy Boggs United S.tates House Of Representatives 2353 Rayburn House Office Building Washington, D.C. 20515 Dear Li ndy: I would like to urge your continued support for the Depository Institution of Deregulatory Committee (DIDC) that was created by Congress to get banks out g on the regulated impasse in which we currently exist. The DIDC had a meetin December 16th, but most of the agenda was postponed until March 22, 1982. I would like to urge you to support the DIDC in its effort to: 1.  Approve a firm schedule for gradual removal of deposit interest rate ceil ings , and;  2.  Authorize a short-term, ceiling free instrument for regulated depositories which will allow competition for desposits now moving to mutual funds and other unregulated intermediaries.  cent To date, the money market mutual funds have taken approximately eleven per . It of all deposits away from banks and other regulated depository institutions has been conservatively estimated that by 1985, nonregulated, consumer-type accounts could easily take twenty-five per cent of the funds out of the market place. This money is not being plowed back into our local community as it would be if it remained in our institution. We need to help Louisiana maintain its follow fair share of this market. Your positive response to DIDC urging them to through on the mandate given to them by Congress will certainly break the impasse that has been created. Please help us and all depository institutions as we attempt to turn around the sagging U.S. economy.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely,  Nolen C. !tiler President  P 0 Rox 101NEW ROADS, LOUISIANA 70760/(504) 638-8621   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ThenP0000999113sak February 24,1982  The Honorable Lindy Boggs Unit.ed States House of Representatives 2353 Rayburn House Office Building Washington, D.C. 20515  Dear Lindy: I would like to urge your continued support for the Depository Institution Deregulatory Committee (DIDC) that was created by Congress to deregulate deposit instruments offered by banks, mutual savings banks, savings and loans, and credit unions. At its December meeting DIDC postponed until March 22, 1982, any attempt to deregulate or offer any new deposit instruments. I would like to urge you to support the DIDC in its effort to approve the following: 1.  A firm schedule for gradual removal of deposit rate ceilings.  2.  The proposed interest bearing limited transaction account with a $5,000 minimum deposit having no interest rate ceiling when the minimum balance is maintained. When the account falls below the minimum the prevailing NOW account rate will apply. This new instrument would be operationally simple and is an excellent way to compete with the money market funds now offered by noninsured institutions.  3  The proposed one-day notice, $25,000 minimum denomination certificate of deposit with no interest rate ceilings and no early withdrawal penalties.  P. O. Box 711 / Lake Providence, Louisiana 71254 / 318-559-2595   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -2•  Your positive response to the DIDC urging them to follow through. on the mandate given to them by Congress will certainly break the.impasse that has been created. Please help us and all depository institutions as we attempt to find ways to compete in today's market place. Very truly yours,  H. Gfaham Schneider President HGS:js  February 22, 1982  The Honorable Lindy Boggs United States House of Representatives 2353 Rayburn House Office Building Washington, D.C. 20515 Dear Congressman Boggs: I would like to urge your continued support for the Depository Institution Deregulatory Committee (DIDC) that was created by Congress to get banks out of the regulated impasse that we currently exist in. The DIDC had a meeting on December 16th, but most of the agenda was postponed until March 22, 1982. I would like to urge you to support the DIDC in its effort to: Approve a firm schedule for gradual removal of 1. deposit interest rate ceilings, and; 2. Authorize a short-term, ceiling free instrument for regulated depositories which will allow competition for deposits now moving to mutual funds and other unregulated intermediaries. To date, the money market mutual funds have taken approximately eleven per cent of all deposits away from banks and other It has been conervatively regulated depository institutions. estimated that by 1985, nonregulated, consumer-type accounts could easily take twenty-five per cent of the funds out of the market This money is not being plowed back into our local place. community as it would be if it remained in our institution. We need to help Louisiana maintain its fair share of this market. Your positive response to DIDC urging them to follow through .on the mandate given to them by Congress will certainly break the Please help us and all depository impasse that has been created. institutions as we attempt to turn around the sagging U.S. economy. Sincerely,  S.B. Simpson President SBS/bah  Plaquemine Bank & Trust Company • P.O. Box 626 • Plaquemine, La. 70764 • 504/687-6388   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Lafourche National Bank 1,(t) THIBODAUX LOUISIANA 70301  February 24, 1982  LUCIEN J. HEBERT, JR. PRESIDENT  The Honorable Lindy Boggs United States House of Representatives 2353 Rayburn House Office Building Washington, D.C. 20515 Dear Mrs. Boggs: The Depository Institutions Deregulation Committee (DIDC) met on December 16, 1981 and at the urging of a large number of the members of the House and Senate, postponed its agenda until March 22, 1982. As you know, DIDC was created by Congress and given a mandate to phase out Regulation Q by 1986, and has yet to take any firm steps to do so. We in the banking industry are sorely in need of a firm schedule so that we can do some forward planning. We also are desperately in need of a short-term, ceiling-free instrument which. will allow us to compete with money market mutual funds and other unregulated financial intermediaries. I need not tell you how money market mutual funds have grown in the past 2 or 3 years mainly at the expense of the regulated financial institutions. As a result this money is being drained off from the local communities where it would have been invested in housing and other consumer type goods. We urgently need your help in requesting DIDC to get on with its job, that is to establish a firm schedule for the removal of deposit interest rate ceilings and to help us get a ceiling-free instrument so that we may again compete in the free market. I would ask that you please contact the members of the committee urging them to place these items on the agenda and to accomplish them at their scheduled meeting of March 22, 1982.  ebert,Ay. L. President LJH Jr/mb   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  S  TALLULAH STATE BANK  ANDREW FISHER PRESIDENT   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  AND TRUST COMPANY  P. O. Box 1710  TALLULAH. LOUISIANA 71282  February 24, 1982  The Honorable Lindy Boggs United States House of Representatives 2353 Rayburn House Office Building Washington, D.C. 20515 Dear Congressman Boggs: The Tallulah State Bank urges your continued support for the Depository Institution Deregulatory Committee (DIDC) created by Congress to deregulate the banking community. The DIDC will have a meeting on March 22, 1982 and we urge you to support the DIDC in its effort to: 1.  Approve a firm schedule for gradual removal of deposit interest rate ceilings, and;  2.  Authorize a short-term, ceiling free instrument for regulated depositories which will allow competition for deposits now moving to mutual funds and other unregulated intermediaries.  As you are well aware, the farming communities are being hit very hard by present economic conditions. We need every dollar that belongs in our communities to stay in our local community banks. Your positive response to DIDC urging them to follow through on the mandate given to them by Congress will certainly break the impasse that has been created. Your support is most appreciated. Yours sincerely,  Presid SAF:mw  t  FIRST NATIONAL BANK Jerry W. Brents PRI sil,t \I   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Ni) CHOI'  XLCUTIVE OFP ICI R  Hon. Lindy Boggs House Office Building Washington, D.C. 20515 Dear Ms. Boggs: I am writing you to ask that you oppose any legislation that would delay the Depository Institutions Deregulation Committee from exercising their mandate to deregulate deposit rate ceilings. The next meeting of the Committee is scheduled for March 22, 1982. It is imperative that the deregulation process enacted by Congress be allowed to continue. Regulated financial institutions, such as our bank, must be allowed to compete with the unregulated money market funds. Please do whatever you can to insure that the March 22nd meeting is no' postponed and the deregulation process continues to go forward. I would greatly appreciate hearing from you in this regard. Yours truly,  Jerry W. Brents President and Chief Executive Officer  666 Jefferson Street • Lafayette, Louisiana 70501 •(318) 232-1211  ) LOUISIANA ir)64/41 i/ AND TRUST COMPANY CROWLEY, LOUISIANA  BUILT  BY  PUBLIC  70526  CONFIDENCE  CLARENCE D. ARDOIN PPESII'll NT  February 22, 1982 •  The Honorable Lindy Boggs United States House of Representatives 2353 Rayburn House Office Building Washington, D.C. 20515 Dear Sir: I would like to urge your continued support for the Depository Institution Deregulatory Committee (DIDC) that was created by Congress to get banks out of the regulated impasse that we currently exist in. The DIDC had a meeting on December 16th, but most of the agenda was postponed until March 22, 1982. I would like to urge you to support the DIDC in its effort to: 1.  Approve a firm schedule for gradual removal of deposit interest rate ceilings, and;  2.  Authorize a short-term, ceiling free instrument for regulated depositories which will allow competition for deposits now moving to mutual funds and other unregulated intermediaries.  To date, the money market mutual funds have taken approximately eleven per cent of all deposits away from banks and other regulated depository institutions. It has been conservatively estimated that by 1985, nonregulated, consumer-type accounts could easily take twenty-five per cent of the funds out of the market place. This money is not being plowed back into our local community as it would be if it remained in our institution. We need to help Louisiana maintain its fair share of this market. Your positive response to DIDC urginE them to follow through on the mandate given to them by Congress will certainly break the impasse that has been created. Please help us and all depository institutions as we attempt to turn around the saggind U.S. economy. Sincerely, LOUISIANA BANK & TRUST CO.  Clarence D. Ardoin President CDA/lms  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   AMr RICAN https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  I'  •  •  American Bank February 23, 1982  The Honorable Lindy Boggs United States House of Representatives 2353 Rayburn House Office Building Washington, D.C. 20515 Dear Representative Boggs: I would like to urge your continued support for the Depository Institution Deregulatory Committee (DIDC) that was created by Congress to get banks out of the regulated impasse that we currently exist in. The DIDC had a meeting on December 16th, but most of the agenda was postponed until Niarch 22, 1982. I would like to urge you to support the DIDC in its effort to: 1.  Approve a firm schedule for gradual removal of deposit interest rate ceilings, and;  2.  Authorize a short-term, ceiling free instrument for regulated depositories which will allow competition for deposits now moving to mutual funds and other unregulated intermediaries.  To date, the money market mutual funds have taken approximately eleven per cent of all deposits away from banks and other regulated depository institutions. It has been conservatively estimated that by 1985, nonregulated, consumer-type accounts could easily take twenty-five per cent of the funds out of the market place. This money is not being plowed back into our local community as it would be if it remained in our institution. We need to help Louisiana maintain its fair share of this market. Your positive response to DIDC urging them to follow through on the mandate given to them by Congress will certainly break the impasse that has been created. Please help us and all depository institutions as we attempt to turn around the sagging U.S. economy. Sincerely, bJ` )r, • George '1\1. Campbell Executive Vice President  GN1C:ch  BANK & TRUST COMPANY,P. O. BOX 7232, MONROE, LOUISIANA 71203, PHONE 318/362-8200, MEMBER FDIC  7.77/IVEST CAR.17OLL ''.71e17:1101V4---1. P. O. BOX 708 OAK GROVE, LA. 71263 TELEPHONE 428-4221  February 23, 1982  The Honorable Lindy Boggs United .States House of Representatives 2353 Rayburn House Office Building Washington, D.C. 20515 Dear Representative Boggs: I would like to urge your continued support for the Depository Institution Deregulatory Committee (DIDC) that was created by Congress to get banks out of the regulated impasse that we currently exist in. The DIDC had a meeting on December 16th, but most of the agenda was postponed until March 22, 1982. I would like to urge you to support the DIDC in its effort to: 1.  Approve a firm schedule for gradual removal of deposit interest rate ceilings, and;  2.  Authorize a short-term, ceiling free instrument for regulated depositories which will allow competition for deposits now moving to mutal funds and other unregulated intermediaries.  To date, the money market mutual funds have taken approximately eleven per cent of all deposits away from banks and other regulated depository institutions. It has been conservatively estimated that by 1985, nonregulated, consumer-type accounts could easily take twenty-five per cent of the funds out of the market place. This money is not being plowed back into our local community as it would be if it remained in our institution. We need to help Louisiana maintain its fair share of this market. Your positive response to DIDC urging them to follow through on the mandate given to them by Congress will certainly break the impasse that has been created. Please help us and all depository institutions as we attempt to turn around the sagging U.S. economy. Sincer  Wil4AM E. Pratt President WEP/lb   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  CITY BANK & TRUST COMPANY P. O. BOX 246  J. E. PIERSON  -  PHONE 318 - 352-4416  NATCHITOCHES, LA. 71457  PRESIDENT  February 22, 1982  The Honorable Lindy Boggs United States House of Representatives Room 206, Cannon House Office Building Washington, D. C. 20510 Dear Lindy: I am firmly convinced that one major problem facing banks in the next few years will be in relation to the loss of funds by banks to the money market mutual funds. Just this last week, I lost over $400,000.00 from just one person. This means that this $400,000.00 is less the funds available for me to lend to businesses, farmers and various other customers in and around Natchitoches. I do not know exactly where the money market mutual funds finally wind up, but I have not as yet seen them making any loans in Natchitoches. I am thinking it most important that the DIDC deve/ope a phase-out schedule which will bring about the total elimination of Regulation Q. It is most important that there be a short term, ceiling free instrument for banks to allow competition for deposits that are moving in the mutual funds. I urge that you let your feelings be known to the DIDC so that at its meeting on March 22, 1982 the DIDC will know that it has your support. This will help bring an end to the impasse that has been created. Yours very truly,  J. E. Pierson President . . L . i . ,,,-, ./. d}21.. 4. .. L.r• i•-L414./ I.: -.(/ .,-  ,./7,ct, 1,1. el JEPIbt   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  /44(1; 61j :_at, , 1 7 .t.kt_ Z, dt,'-'1.4  AL  t  / 1...,Ly vaiit -rit.- ,.4/tz_c! • at. efi.v.113 A , (1  17 .-.--?./  ,._,4-Lt...,..,?  •  BANK OF IBERIA February 25, 1982  The Honorable Lindy Boggs United- States House of Representatives 2353 Rayburn House Office Building Washington, D.C. 20515 Dear Congresswoman Boggs: I would like to urge your continued support for the Depository Institution Deregulatory Committee (DIDC) that was created by Congress to get banks out of the regulated impa sse that we currently exist in. The DIDC had a meeting on December 16th, but most of the agenda was postponed unti Marc l h 22, 1982. I would like to urge you to support the DIDC in its effort to:  LU CC  1.  Approve a firm schedule for gradual removal of deposit interest rate ceilings, and;  2.  Authorize a short-term, ceiling free instrume nt for regulated depositories which will allow competition for deposits now moving to mutual funds and other unregulated intermediaries.  To date, the money market mutual funds have taken approximately eleven per cent of all deposits away from banks and other regulated depository institutions. It has been cons ervatively estimated that by 1985, nonregulated, consumer-type acco unts could easily take twenty-five per cent of the funds out of the market place. This money is not being plowed back into our local community as it would be if it remained in our institution. We need to help Louisiana maintain its fair share of this mark et. Your positive response to DIDC urging them to follow through on the mandate given to them by Congress will certainly break the impasse that has been created. Please help us and all depo sitory institutions as we attempt to turn around the sagging U.S. economy. Sin  ely,  W. 1.7 2 , (tit  •••9  ol Delah.:ssaye President and Chief Executive Officer ad   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  . 17 1 1 1 11.-E r 11,1T !I'll-  K IE  l't‘ )40  THE OUACHITA NATIONAL BANK IN MONROE  essir IC C )11 islffair  DIM  'infra  MONROE, LOUISIANA 71201 ROBERT A BARBER VICt PRESIDENT & AUDITOR  The Honorable Linda Boggs Representative in Congress 1524 Longworth House Office Washington, D. C. 20013  March 5, 1982  Building  Dear Mrs. Boggs: This letter is written to urge your support of the DIDC in the adoption of a dependable schedule for phasing out Reg. Q and the interest rate differential, and the creation of some new type of deposit instrument that competes with money market and mutual funds. It is my belief and opinion that if this is not done, we will see a gradual demise of the banking industry and a continued erosion of the Federal Reserve's ability to control the money supply. It is also better to have a free economy and have individual competition set rates as opposed to any arbitrary guidelines set up by government agencies. Thank you for your time and consideration of this letter. Respectfull  yours,  Robert A. Barber Vice President & Auditor' RAB:hh   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  4.  CITIZENS BANN 6, TRUST COMPANY P 0 BOX 819 THIBODAUX  LA 70301  JOSEPH F. QUINLAN JR ExECUTIVE VICE PRESIDENT  March 2, 1982  The Honorable Lindy Boggs United States House Of Representatives 2353 Rayburn House Office Building Washington, D. C. 20515 Dear Congresswoman Boggs: I would like to urge your continued support for the Depository Institution Deregulatory Committee (DIDC) that was created by Congress to get banks out of the regulated impasse that we currently exist in. The DIDC had a meeting on December 16th, but most of the agenda was postponed until March 22, 1982. I would like to urge you to support the DIDC in its effort to: 1.  Approve a firm schedule for gradual removal of deposit interest rate ceilings, and;  2.  Authorize a short-term, ceiling free instrument for regulated depositories which will allow competition for deposits now moving to mutual funds and other unregulated intermediaries.  To date, the money market mutual funds have taken approximately eleven per cent of all deposits away from banks and other regulated depository institutions. It has been conservatively estimated that by 1985, nonregulated, consumer-type accounts could easily take twenty-five per cent of the funds out of the market place. This money is not being plowed back into our local community as it would be if it remained in our institution. We need to help Louisiana maintain its fair share of this market. Your positive response to DIDC urging them to follow through on the mandate given to them by Congress will certainly break the impasse that has been created. Please help us and all depository institutions as we attempt to turn around the sagging U. S. economy. Sincerely, ki t  •  (  r)  Jcgseph F. Quinlan, Jr. Executive Vice President JFQ/kr   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  THE FIRST NATIONAL BANK OF JEANEHETTE ESTABLISHED  1905  JEANERETTE, LOUISIANA 70544  February 26, 1982 WM. S PATOUT. JR. PREsiDcNT  GORDON RANSONET ASST.  ST. PAUL BOURGEOIS. III  MANAGER  RENE BAUDRY  VICE•PRESIDENT  DIANN  ELTON J. BEAULLIEU, JR.  B. DERISE  AUDREY M. HARRIS  VICE•PRESIDENT  EXECUTIVE  CASHIER • BRANCH  •  NADRA L  LEBLANC  ASST. CASHIERS  GERARD ELDRIDGE VICE-PRESIDENT • CASHIER  MARINE DODSON ASST.  VICE.PRESIDENT  The Honorable Lindy Boggs United States House of Representatives 2353 Rayburn House Office Building Washington, D. C. 20515 Dear Representative Boggs: I would like to urge your continued support for the Depository Institution Deregulatory Committee (DIDC) that was created by Congress to get banks out of the regulated impasse that we currently exist in. The DIDC had a meeting on December 16th, but most of the agenda was postponed until March 22, 1982. I would like to urge you to support the DIDC in its effort to: 1.  Approve a firm schedule for gradual removal of deposit interest rate ceilings, and;  2.  Authorize a short-term, ceiling free instrument for regulated depositories which will allow competition for deposits now moving to mutual funds and other unregulated intermediaries.  To date, the money market mutual funds have taken approximately eleven per cent of all deposits away from banks and other regulated depository institutions. It has been conservatively estimated that by 1985, nonregulated, consumer-type accounts could easily take twenty-five per cent of the funds out of the market place. This money is not being plowed back into our local community as it would be if it remained in our institution. We need to help Louisiana maintain its fair share of this market. Your positive response to DIDC urging them to follow through on the mandate given to them by Congress will certainly break the impasse that has been created. Please help us and all depository institutions as we attempt to turn around the sagging U. S. economy.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  rely, Elton  Beaullieu,  Charles W. McCoy, President John J. Doles, Jr., President-Elect James R. ['mall, Treasurer Charles A. Worsham, Executive Vice Presidcnt  Louisiana Bankers Association March 2, 1982  The Honorable Lindy Boggs United States House of Representatives 2353 Rayburn House Office Building Washington, DC 20515 Dear Lindy: If the headlines, "Sears Promises to Have a Bank at Every Outlet" didn't wake us, then maybe nothing will. The enclosed article which appeared in the February 26 American Banker certainly points out what Sears and other parties interested in getting into the financial industry plan on doing. In order for banks to maintain their viable position, we must be given additional powers with which to compete. I have written you once before, but I felt like these headlines required a follow-up letter concerning this position. May we urge you to contact members of the DIDC and urge them to; 1) vote to adopt a permanent phase-out of Regulation Q on March 22, and; 2) adopt a short-term instrument that will allow banks to compete with the money market mutual funds. We must have these tools in order to remain the leaders in the financial services industry. Sincerely,  Charles A. Worsham Executive Vice President CAW/dh Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Post Office Box 2871 • Baton Rouge, Louisiana 70821 • 504 / 387-3282  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 article Citations:  Number of Pages Removed: 1  Morris, John. "Sears Promises To Have a Bank At Every Outlet." American Banker, February 26, 1982.  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org  FIDELITY NATIONAL BANK of Baton Rouge POST OFFICE DRAWER 3597 BATON ROUGE, LOUISIANA 70821 / PHONE (504) 387-2171  FRANK S CRAIG,JR Chairman of the Board and  February 25, 1982  Chief Executive Officer  The Honorable Lindy Boggs United States House of Representatives 2353 Rayburn House Office Building Washington, D.C. 20515 Dear Lindy: The Depository Institution Deregulation Committee will meet on March 22, 1982, to consider several issues of vital importance to the structure and stability of the financial institutions of the nation. As its title indicates, DIDC has been given a mandate by Congress to provide a phased-in deregulation of the depository instruments which are currently circumscribed by various regulations. The DIDC has postponed taking effective action, in part because of opposition to the type of deregulation for which the committee was created. The presently regulated depository institutions, of which our bank is one, are part of a financial system through which moves the economic lifeblood of our country. The system accumulates and uses funds very efficiently, and because of location and involvement in various local communities, supply financial services and credit needs in all these local areas. However, the stability of the entire banking system is being threatened by the development of nonregulated fund gathering activities, with which regulated banks cannot really compete because of restrictions on both their liabilities and assets. The DIDC needs to act promptly and affirmatively to approve a schedule for removal of deposit interest rate ceilings, and to authorize regulated depository institutions to issue instruments, and operate mutual funds which will permit them to compete with unregulated intermediaries. I solicit your support in urging the DIDC to help sort out the dangerous irrationality of the present financial system. To paraphrase Lincoln, the financial institutions of our nation can not continue to exist half regulated, and half free.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  s very tru  f  / 07  Frank S. Craig, Jr. Chairman of the Board and Chief Executive Officer  •__  . tI•  AL BANK HIBERNIA NATION P. O. Box 61540 LA. 70161 NEw ORLEANS, '-t-;`  SILLA, JR. THOMAS A. MA PRESIDENT EXECUTIVE VICE  :  .  2 March 1, 198 Lindy Boggs e l b a r o n o H es e h T Representativ of e s u o H s e t United Sta ice Building f f O e s u o H n r 2353 Raybu .C. 20515 Washington, D •7•:.  Dear Madam:  ••;,,  . ..• .••:•••••a• •Itst•tt:•• t;i • .:t.'t  • •.  : • .• • ;;•::::::•:• !e!i•714tiiii:;  ••::!•:•:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  the e efforts of th t r o p p u s to C). to urge you ommittee (DID C y r o t I am writing a l u g e r king stitution De s to free ban s e r g n o Depository In C by d ich currently e was create h w te s it n o mm i t Co a l s u i g h T of re from the maze institutions exist. g da to a meetin n e g a s t i f o h d muc in ntly postpone t of the DIDC r o p p u s r u o Y The DIDC rece 2. irm March 22, 198 proval of a f p a : d e d e e n scheduled for ntly areas is urge interest rate t i s o p e d of two important l emova eiling the gradual r short-term, c a schedule for of n o i t a low z the authori hich will al w s e i r o t i s o p ceilings and ted de ds and nt for regula e m u r t s n i o mutual fun t e e ng r f vi mo w o n or deposits . competition f ntermediaries i d te la gu re other un of antial share t s b u s a n ke have ta ll mutual funds this trend wi t e at k r th a m d te y e ec n o M is proj cause osits, and it p e d e is process be l b th a l i a in v a e s o l s e ey were deal communiti th c o L if s . a e u y n l i l t a n co loc th not redeployed , however, wi t e o r n a s s i d n m u f le e ob thes h The pr local bank. mitations whic i a l e th th wi , d r e te h t posi s. Ra ee market ent mutual fund e fr k r a a m in y g ne n i mo t e the m comp y ict banks fro en mandated b r t be s e s r a h y C tl D I en D curr The the culprits. e r a t n e m n o . r vi this inequity t c e r r o c to Congress omplete ing them to c g r u by C D I D the ine response to all depository by d te ia ec Your positiv appr will be most their charter stitutions. Sincerely,  a homas A. Masill  , I  March 1, 1982  The Honorable Lindy Boggs United States House of Representatives 2353 Rayburn House Office Building Washington, D.C. 20515 Dear Mrs. Boggs: I would like to urge your continued support for the Depository Institution Deregulatory Committee (DIDC) that was created by Congress to get banks out of the regulated impasse that we currently exist in. The DIDC had a meeting on December 16th, but most of the agenda was postponed until March 22, 1982. I would like to urge you to support the DIDC in its effort to: 1.  Approve a firm schedule for gradual removal of deposit interest rate ceilings, and;  2.  Authorize a short-term, ceiling free instrument for regulated depositories which will allow competition for deposits now moving to mutual funds and other unregulated intermediaries.  To date, the money market funds have taken approximately eleven per cent of all deposits away from banks and other regulated depository institutions. It has been conservatively estimated that by 1985, nonregulated, consumertype accounts could easily take twenty-five per cent of the funds out of the market place. This money is not being plowed back into our local community as it would be if it remained in our institution. We need to help Louisiana maintain its fair share of this market. Your positive response to DIDC urging them to follow through on the mandate given to them by Congress will certainly break the impasse that has been created.. Please help us and all depository institutions as we attempt to turn around the sagging U. S. economy. Sincerely, //  ) 41  Cflard M.} o i President RMII:bb   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  AMERICAN BANK - P. 0. BOX 70 - NORCO, LA 70079 - (504) 764-7581 OFFICES ALSO IN LULING - HAHNVILLE - DESTREHAN Ilias.
Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102