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1969 cftMllaQ CRepollt Federal Reserve Bank of Cleveland Vo the Banks in the Fourth Federal Reserve District: Albert G. Clay We are pleased to present the Annual Report of the Federal Reserve Bank of Cleveland for 1969. We gratefully acknowledge the cooperation and assistance of the aqricultural, commercial, financial, and industrial leaders of the Fourth District, who have given unselfishly of their time and energy to help us fulfill our responsibilities. This year's Annual Report reviews the performance of our economy during the decade of the 1960's against the generally accepted economic goals of maximum growth, full employment, stable prices, and equilibrium in the balance of payments. The focus of the discussion is the fiscal and monetary policies that were aimed at achieving sustainable growth. This emphasis is not in any way meant to minimize the contribution of the private sector which accounted for the strength in economic activity throughout this period. During the first half of the decade, fiscal and monetary policies were aimed at stimulating economic growth and reducing unemployment, but by 1965, inflationary pressures emerged. As a result, economic policy shifted in the 1965·1969 period from expanding output to achieving price stability. Balance of payments problems persisted throughout the period. Despite this, the 1960's was a period of remarkable economic achievement. W. Braddock Hickman CHAIRMAN OF THE BOARD PRESIDENT CONTENTS Goals and Accomplishments of Stabilization Policies During the 1960's Comparative Statement of Condition 3 17 Comparison of Earnings and Expenses 18 Directors and Officers 19 Branch Directors and Officers .20 The unparalleled duration sion distinguished of the economic expan- the 1960's_ By the latter part of The discussion focuses on the contribution tary and fiscal policies to economic of mone- developments Monetary and fiscal policies attempted to eliminate excess aggregate demand and to bring rising prices and 1969, the expansion was well over 100 months old, during the 1960's. The emphasis on public stabilization exceeding by tar the previous record of 80 months policies is not meant to minimize the contributions estabtished between June 1938 and February 1945. The the private sector, which accounted for the underlying prolonged expansion has been, in part, a product of strength and major thrust in the growth of economic stantial resources to military imaginative use of both activity during this period. Rather, the focus reflects a to programs reflecting increasing domestic social con- policy, reflecting a shift in emphasis in public economic concern with cerns, such as efforts to improve housing, education, policies from countering economic instability to achiev- instrumental in the development of a climate conducive ing noninflationary to sustained economic growth. monetary policy and fiscal growth consistent with the expan- sion of the productive capacity of the economy. the public policy framework that was inflationary expectations under control. From a purely economic point of view, the broad range of demands on the public sector-including and health-has economic stability When the 1960's began, economic activity This article reviews economic activity in the United of in the the commitment of sub- activities in Vietnam and increased the problems of achieving in a high-employment economy. As the decade drew to a close, the restrictive monetary and United States was marked by relatively high unemploy- fiscal pol icies followed States during the 1960's, measured against the goals of ment and stable prices. By the mid-1960's, public policy small decline in real economic activity, maximum economic growth, full employment, was successful in stimulating price pressuresshowed no tendency to weaken. prices, and equilibrium Although in the balance of payments. these are generally accepted as appropriate goals of stabilization policy, it is difficult of the stable goals fully at any to achieve all given time. Therefore, policymakers must establish priorities among the goals. aggregate demand and in moving the economy to a high level of employment. Unfortunately, the problems of during 1969 contributed to a while upward The data in Table I compare the record of the managing a high- current business expansion with that of previous expan- employment economy became severe; and in the latter sions in the post-World War II period. Real growth in half of the decade, economic policy was shifted toward Gross National stabilizing the economy within a long-run growth path. expansion fell short of the rate of growth achieved in Product (GNP) during the current 3 TABLE I Selected Indicators of Stabilization Goals in Four Post-World War II Expansions 1949-1953 1954-1957 1958-1960 1961-1969 Trough $255_2 $367.5 +12.6% 322.5 GROSS NATIONAL PRODUCT Current dollars (Bil. of $) Constant (1958) dollars (Bi], of $) Peak Percent Change 416.4 + 7.3 402.1 455.2 +4.1 437.5 490.2 +6.0 482.6 729.8 + 5.9 78.9 88.4 + 3.4 89.5 98.0 +3.1 99.7 103.1 +1.7 104.3 130.5 + 2.9 Peak Percent Change Trough $360.4 $446.3 +7.3% $434.7 $504.7 Trough Percent Change Trough IVQ 1969' Percent Change +7.2% Peak $503.6 $952.2 +10.2% PRICES GNP price deflator (Index 1958=100) Wholesale prices-industrial commodities (Index 1957-59=100) Consumer prices (Index 1957-59=100) 79.0 90.7 + 3.9 90.3 99.3 +3.1 99.1 101.2 +1.0 101.2 114.6 + 1.5 82.7 93.5 + 3.5 93.7 98.5 +1.8 100.7 102.9 +1.0 103.9 131.3 + 3.0 UNEMPLOYMENT RATES-TOTAL Men-20 and over Women-20 and over Teenagers White Nonwhite 7.9% 7.9 5.9 15.8 n.a. n.a. 6.1% 5.5 5.9 14.0 5.9 10.5 3.7% 3.0 3.8 11.2 3.4 BALANCE OF PAYMENTS Net exports of goods and services (Btl, of $) $ 3.8 2.5% 2.1 2.5 6.9 n.a. n.a. $ 0.3 $ 7.5% 7.0 6.4 17.9 6.8 13.3 7.0 1.9 $ 4.8% 4.1 4.5 13.1 4.3 9.3 5.5 $ 2.4 $ 7.1% 6.3 6.7 15.8 6.3 13.2 3.5 $ 3.5% 2.2 3.5 11.8 3.2 5.7 6.6 $ there was 2.7 NOTE: Percent change is expressed as an average annual rate of change. Percent changes for GNP and for unemployment rates are based on specific cycle trough to peak dates identified by the National Bureau of Economic Research; percent changes for other series listed above are based on reference cycle trough and peak dates. n.a. Not available. 'The latest month for which data are used is December 1969, except for GNP and net exports, which are based on the fourth quarter of 1969. Sources: U. S. Department of Commerce and U. S. Department of Labor 1949-1953, backlog which of pent-up measured against performance utilization had been demands other stabi lization in the current showed strong 1965, and unemployment of the recent 1949-1953_ by was mixed, Labor improvement, rates declined, especially after although most lows fell short of the levels reached Prices generally a huge goals, the record of expansion half of the decade, Inflation, 4 supported after World War 11_ When during problem during the shown separately greater during since on the Finally, tion of the United States For this discussion, were stable during the first The performance however, became a severe reflected through attempts half of the table). the 1965-1969 1949-1953. periods-1960 second Price decade increases deteriorated the decade and of the economy to achieve were period than in any period the international 1964 (not trade posi- over the decade. is divided 1965 into two through 1969. in the former period long-run growth, whi Ie in the latter managing The period high-level performance separately of each against policies during reviews economic policies during consider prosperity economic the background these two growth to the other concern goal and The fiscal with inflation. is reviewed of public periods. the two periods. the achievements with respect a special and controlling economic first and section monetary The remaining sections of public economic policies goals-full employment, price stability, and equilibrium payments. in the nation's balance of In the final section, some conclusions are drawn from the review of economic developments Chart GROSS NATIONAL PRODUCT, ACTUAL and POTENTIAL 1958 Dollars Billions during the 1960's. 1. argument for relying more on fiscal policy in the first half of the decade was the supposed lessening in the flexibility of monetary policy due to persistent balance of dollars 800 of payments difficulties. 700 argued that one cause of the persistent underutilization Active ECONOMIC GROWTH AND PUBLIC POLICY: 1960-1964 was marked by two business recessions and increased rates were generating a level of revenues that would 600 balance the budget before the economy reached high but the period was also characterized by extended policy employment. price stability. The principal aim of the stabilization specified of fiscal action of resources in the United States was that Federal tax Economic activity in the late 1950's and early 1960's unemployment, Fiscal Policy. Proponents by the Council of This condition is referred to as a "fiscal drag." A fiscal drag restricts the growth of aggregate demand immediately 500 Economic Advisers in early 1961 was to utilize the price subsequently stability through its effect on income and investment. of the recent years as a base to accelerate growth in aggregate demand in line with the growth of the economy's Economic potential Advisers in the output. The Kennedy Council lead to a reduction in unemployment, lead to a proportionate ADJUSTED ANNUAL RATE~QUARTERLY 400 but would not 1960 '61 '62 '63 * Trend line of 3.5 percent to fourth quarter quarter of 196.5, and" percent thereafter. '64 '65 '66 of 1962, 3.75 percent '67 '68 from fourth quorler '69 SourU$ of dolo: Council of Economic Advisers and U. S. Deportment tion performance reliable. Nevertheless, various estimates suggest that the Potential output is an estimate of the real value of goods and services that could be produced as a result of the growth of the nation's productive capacity-which normally is its actual size is not particularly income basis if the level; that is, the assumed in estimating GNP. The high-employment budget is con- sidered by many economists to be a useful analytical measure of the effects of changes in fiscal policy on business expansions that followed the 1957·1958 and economic activity because adjustments are made for the 1960-1961 changes in revenues and expenditures recessions high-employment failed to push output level. As indicated to the in Chart 1, the result of fluctuations that occur as a in the level of economic activity. in terms of the increase in the decade of the 1960's opened with a gap between actual The adjustment in revenues is made by compensating supply of labor, the decline in average hours of work, and potential GNP. The gap widened during the brief, for the decline in corporate, and the estimate of growth in output per manhour. The but mild, recession of 1960-1961. Despite some narrow- payments when the actual level of economic activity ing during the early 1960's, there was a gap between departs from the projected high-employment actual and potential GNP until after mid-1965. expenditure adjustment is made principally by elimina- difference described procedures, on a national level of unemployment potential is a concept frequently used to measure the economy's the goal of high employment. surplus economy were at the high-employment target of Commerce The relationship between potential and actual output against budget surplus, which is an estimate of the Federal budget of 1962 to fourth last entry: 4Q '69 increase in prices. and economic activity can be seen in the high-employment SEASONAllY argued that the expansion of aggregate demand would its effect on consumption The budgetary restraint implied by the fiscal drag on of Administration through between potential and actual GNP is corn- monly referred to as the GNP gap. If actual output is below potential output, expansive public policy is called The principal means selected to achieve the high- for to stimulate spending to close the gap. At some employment point a restrictive before full employment is reached, however, further expansion in aggregate demand begins to qener- goal was stimulative fiscal policy, because Federal budget was considered by the Council of Economic Advisers in the Kennedy Adminis- personal, or other tax ting any increase in unemployment compensation occurs as the actual level of unemployment the high level unemployment or decrease in the level. The that falls below target. Thus, any increase high-employment budget deficit ate upward pressures on prices. Since the gap is only an tration to be one of the major causes of insufficient reflects the effects of discretionary fiscal policy changes estimate and can vary considerably aggregate demand on Federal revenues and expenditures. because of estirna- in the early 1960's. A supporting 5 plus remained at about the level experienced during the Chart 2. HIGH·EMPLOYMENT BUDGET Chart 3. MEMBER BANK RESERVES and BORROWINGS 1960-1961 period. The next phase of fiscal action included the Revenue Billions of dollars 220~~------------------------------~ Act of 1964, which lowered individual and corporate surplus was reduced 28 the gap between actual 26 tax rates. The high-employment 200 sharply in 1964. Subsequently, 180 and potential 160 GNP narrowed during early 1965 (see Chart 1). Monetary Policy. At the begin- ning of the business expansion 120 monetary reconciling 100 24 22 "Accommodative" 140 Billions of dollars 30 authorities in early 1961, the were faced with the problem of the nation's domestic economic goals. An underemployed and international 20 18 16 domestic economy indicated the need for an expansive monetary policy that would include low interest rates and ample bank reserve expansion o necessary '62 lasl enhy, '63 '65 '66 '67 '68 '69 economists Federal Reserve to achieve the additional long-run economic contrast, the international 4Q '69 Source of dolo, to support situation credit growth. In -1 indicated to some that restrictive monetary policy, including high interest rates and limited bank reserve expansion, Bonk of St. louis +1 was necessary to reduce the outflow 1960 '61 entry, Dec, '69 Source of data: Board '62 '63 '64 '65 ' 66 '67 '68 '69 LOSI of Governors 01 the Federal Reserve System of short- and long-term capital from the United States and to keep the rate of domestic economic expansion within bounds the impact of the Federal budget on that would restrain imports and discourage price in- initiated to provide additional foreign exchange reserves overall economic activity during the early 1960's was creases. The compromise policy solution was to encour- on a temporary support operations. In retrospect, probably not as stimulative as widely believed. Between age low long-term interest rates to stimu late domestic the fourth quarter of 1960 and the fourth quarter of capital 1963, the high-employment short-term unchanged (see Chart budget surplus was virtually and to keep upward pressure on Because of these actrvrnes. monetary policy was an rates to offset short-term capital outflows important stimulative factor during the first half of the the from the United States. To implement this policy, open 1960's as evidenced by the rapid growth of bank credit. surpluses for calendar market operations in long-term U. S. Treasury securities For example, from the beginning of 1960 through the 2). Nevertheless, background of high-employment formation basis to carry out official currency years 1960 and 1961, the Administration's against aim was to reduce the fiscal drag by reducing tax rates, rather than were used to put downward pressure on long-term interest rates; bank reserve requirements were reduced fourth quarter of 1964, bank credit expanded by an by increasing Federal spending. The initiation of the to supply reserves in order to minimize the direct average annual rate of 8.5 percent. Monetary actions during this time generally resulted investment tax credit and the liberalization of deprecia- effects of open market purchases on short-term in a smooth tion allowances in 1962 were attempts and commercial business investment to accelerate banks were permitted rates; to pay higher expansion of bank credit, the money supply, and the reserve aggregates and in reasonably spending. The tax benefits, how- interest rates on time and savings deposits to provide for ever, did little to reduce the restrictive nature of the the expansion of bank credit. In addition, swap agree- mid-1960 through the end of 1961, the expansion in budget. During 1962-1963, ments bank credit and the money supply was sufficient to 6 the high-employment sur- in foreign currencies by central banks were stable interest rates (see Charts 3 and 4). From accommodate rising demands for funds. Between late 1962 and the third quarter of 1964, when growth in Fiscal Policy in a High-Employment Chart 4. Economy. On INTEREST RATES balance, fiscal policy was more expansionary during the economic activity showed signs of slowing, bank credit second half of the 1960's than during the first half of and the money supply expanded vigorously. the decade. The period from mid-1965 to mid-1968 was The Growth Record of 1960-1964. During the first half of the 1960's, stimulative public policies contrib- uted to an increased rate of growth economic activity in both overall and per capita disposable personal income; prices remained relatively stable. From the trough of the business contraction in the first quarter of - MONEY RATES- marked by a rapid expansion of Federal Government spending-in connection activities in with Vietnam programs-that our increased military and expanding was superimposed on domestic rising private PRIME COMMERCIAL PAPER I.~ (4-6 Month.) demands, especially in the capital goods sector. Because the economy was at, or slightly 1961 to the fourth quarter of 1964, real GNP grew at potential output an annual rate of 5.4 percent, a rate which exceeded the believe that above, the level of 6 , after mid-1965, many observers now fiscal policy should I I have been more growth for any period since the end of World War II restrictive, either in the form of higher taxes or reduced except for the 1949-1953 business expansion. Real per Government spending. The combined effects of insuffi- capita disposable income, measured in 1958 dollars, monetary \ \ \ I \ \ and Expenditure Act was passed). a generally expansive twice the rate in the 1950's. I I I •... __ -1 : \ cient fiscal restraint (until mid-1968 when the Revenue rose at an average annual rate of 3.2 percent, or about , , I I I policy I 4 r in 1967 and in the second half of 1968, and persistently rising private spending generated ECONOMIC GROWTH AND PUBLIC POLICY: 1965-1969 By mid-1965, the economy productive had begun to move rapidly toward the high-employment high rate of unemployment, a level of aggregate demand that exceeded the nation's level. The overall although at 4.6 percent in capacity. The result was the fourth wave of inflation in the United States in the post-World War II period. From the second quarter of 1965 to the second June 1965, was approaching the 4 percent level speci- quarter of 1968, the high-employment fied by the Council of Economic Advisers at that time from a $7 billion as the high-employment swing of $22 billion). capital spending boom, target. The emergence of a in combination with soaring major expenditures that budget shifted surplus to a $15 billion deficit (a 7 due to a $64 billion increase in was only partially offset by an defense purchases for Vietnam, boosted GNP by about increase in revenues. Thus, when viewed against the 8.2 percent in 1965, and the gap between actual and prevailing background of high employment potential GNP was closed by the end of the year. 6 prices, fiscal policy was an extremely stimulative force. With the economy already near the high-employment level, inflationary and rising Defense spending, which amounted to $49 billion in the pressures began to build during 1965, second quarter of 1965, rose by almost $29 billion, or and the rate of price increases began to accelerate. 58 percent, between the second quarter of 1965 and the These inflationary second quarter of 1968. Federal nondefense spending, pressures persisted during the second .half of the decade, and as a result, the emphasis of especially for education stabilization 4 rose rapidly. policy was shifted from stimulating growth of aggregate demand and full employment restraining inflation and inflationary expectations. the to and transfer payments, also MONTHLY 1960 Reflecting the rapidly rising level of Federal Government spending, the high-employment budget hovered last entry: Source '61 '62 '63 '64 '65 '66 '67 '68 '69 Dec. '69 of doto: Board of Governors of the Federgl Relerve System 7 around a surplus or deficit of $1 billion from the middle budget message to 10 percent. In June 1968, Congress economic activity, the period from 1965 to 1969 was of 1965 through the first half of 1966. The Adrninistra- finally approved largely marked by wide swings in monetary tion tried to shift toward fiscal restraint in 1966 by under pressure of sharply rising interest rates, growing attempt to offset changes in fiscal policy. Monetary policy shifted reinstating some of the earlier excise tax reductions and some changes in withholding of individual income taxes international financial markets generated by the devalu- and by temporarily ation of the pound sterling in November 1967. the investment tax credit. However, early in 1967, as economic activity payments fiscal program, balance suspending of a restrictive deficits, and uncertainties The Revenue and Expenditure in duced the final phase of fiscal action in the second half restraint of the and 1960's. Federal in an late 1965, late 1966, 1967, mid-1968, and late 1968, with the most substantial changes occurring in the periods 1966-1967 Act of 1968 intro- weakened in response to the lagged effects of monetary in 1966, Federal spending accelerated at least five times-in actions revenues were expected and 1968·1969. From early 1966 to mid-1968, to completed a cycle from restraint surcharge on November 1966) monetary pol icy (February 1966 to (December 1966 to offset spending declines in the private sector. For the increase as a resu It of a 10 percent first time since the mild recession of 1960-1961, real corporate GNP receded slightly in the first quarter of 1967. spending was to be checked by a ceiling of slightly more 1968) first to check an excessive rate of economic Between the fourth quarter of 1966 and second quarter than $186 billion for fiscal year 1969, or $6 billion growth and rising prices during most of 1966 and then of 1967, the real gain in GNP amounted below the January to avert a possible contraction percent at an annual rate, compared to only 0.7 with a rate of and personal income taxes, while Federal 1968 budget estimate. tween the second quarter of 1968 and the second quarter of 1969, the high-employment increase of 3.9 percent during 1966. From mid-1967 to mid-1968, fiscal policy remained expansionary despite renewed acceleration in real out- Thus, be- budget position to expansion November 1967) to restraint (December 1967 to June in economic activity in 1967 and finally to counter the reemergence of inflationary pressures. From February 1966 to November shifted from a deficit of about $15 billion to a surplus 1966, monetary of about $11 billion, despite the fact that the ceiling on The reserve aggregates showed virtually no growth from while there were outright continued growth in expenditures. The initial impact on Bank credit increased at an annual rate of 4.7 percent the economy of the sharp and rapid shift in the Federal from February 1966 to November 1966, and the money price supply grew at an annual rate of only 1.3 percent (see Federal budget During this period, the budget in terms (measured budget hiqh- November, 1967 to 3.5 percent in the second quarter of 1968, and high-employment The to expenditures employment budget remained in surplus in 1969 despite intensified. exceeded. February put. The level of real output again exceeded potential output (see Chart 1). In addition, the unemployment rate moved from 3.7 percent in the second quarter of pressures was moderately actions were increasingly restrictive. the Consumers responded temporary increase in taxes by reducing the rate of or the of either national income was, however, less than generally expected. to what they believed was a declines in the period from July through November. Table II). Reserve requirements against time deposits were increased in July and September 1966; Regulation accounts) remained in deficit by a substantial amount. personal saving and, therefore, maintained their spend- Q ceilings were also raised in July and September. As a Federal revenues and expenditures rose rapidly, but the ing at close to the pre-surtax rate. Also, the shift to the result of the scarcity of credit, interest rates increased level of revenues was far short of the level of expend- surplus budget position was accompanied by an expan- sharply itures. The only discretionary sionary to investments sharply reduced savings flows into fi nancial Economy. the mortgage and housing markets bore a dispropor- fiscal policy action that was taken to increase receipts during this period was in connection with higher social security contributions. monetary policy, which acted partially nullify the tax program. (see Chart institutions, Monetary Policy in a High-Employment 4). Higher rates on alternative especially thrift Against the background of growing Federal deficits and Monetary policy in the second half of the 1960's was tionate a possible repetition faced with the delicate assignment of restraining aggre- institutions. As a result, policy during this period. of the severe credit stringency of 1966, the Administration renewed its request to Con- gress in August 1967 for enactment of an income tax surcharge and increased the proposed surtax rate from the original 6 percent rate that was in the January 1967 8 gate demand in order to bring inflation under control without causing a contraction in output and employ- ment. In contrast to the first half of the decade when monetary and fiscal policy worked together to stimulate share of the effects of restrictive monetary Federal Reserve policy eased slightly in late 1966, and for the next several months the task of monetary policy was to prevent an inventory adjustment developing into a business contraction. from Open market TABLE II Changes in Selected Reserve Aggregates, Bank Credit, and the Money Supply Annual 19651966 February January 19661966 February November December November 19661967 Rates of Change' 1967- December June 1968 July 19681968 December November December 19681969 IQ 1965IVQ 1969 Reserve Aggregates +4.6% +5.0 +5.3 Bank Credit and the Money average of daily +13.3% +11.3 +11.4 +1.6% +4.7 +4.7 +10.4% +10.9 +11.1 -1.5% -0.1 +0.4 + 4.5% + 5.2 + 5.4 +4.7 +1.3 +11.9 + 6.9 +6.5 +7.2 +12.9 + 6.3 + 0.7:1: + 2.5 +10.3 + 5.2 Supply Ban k Creditt Money supply , Monthly +0.1% +1.0 +0.6 +9.9 +5.4 Nonborrowed reserves Tota I reserves R eq u i red reserves figures, seasonally adjusted. t End-of-month series, all commercial banks. :I: Because of revision of bank credit series in June 1969, rates of change for bank credit are measured from June 1969 to December 1969 and from the first quarter of 1965 to the second quarter of 1969. Source: operations Board of Governors of the Federal became expansionary; Reserve System reserve requirements proposed tax increase, which was under active consider- growth in nonborrowed reserves amounted to less than on certain time deposits were decreased in March 1967; ation and debate in Congress. In addition, interest rates 2 percent and the Federal Reserve discount rate was reduced in April. Between December 1966 and November 1967, were already at high levels, a situation that tended to while growth of total reserves and bank credit deceler- support ated sharply to 4.7 percent and 6.5 percent, respectively total reserves rose at an annual rate of 11_3 percent, policy would trigger an outflow of funds from thrift while nonborrowed reserves rose by 13.3 percent. the argument that any further .institutions. Moreover, higher interest tightening rates in in the between December 1967 and June 1968, (see Table II). On the other hand, the money supply increased at a rapid pace, due in part to a downward During this period, both the money supply and bank United States could have posed a serious threat for the shift in Government deposits and to a sharp increase in credit expanded sharply (at annual rates of 6.9 percent pound sterling. financial transactions. and 11.9 percent, respectively). sought to follow a policy of "even keel" during the Economic activity began to accelerate gradually in the spring of 1967. In retrospect, monetary policy may have been too expansionary in view of the then Finally, the Federal Reserve System frequent Treasury financing operations in this period. Toward the end of 1967, monetary policy again The obvious intent of monetary policy was restrictive in the first half of 1968, however. Fiscal restraint was instituted Revenue and Expenditure as a result of the Act of June 1968, and this, in an attempt to slow down coupled with other factors, such as the liquidation of unrecognized underlying strength of the economy and renewed aggregate demand and rising prices. Reserve steel inventories and slowing in capital spending, was concurrent requirements expected to weaken economic activity in the second inflationary pressures. There were, however, a number of considerations that influenced monetary shifted toward restraint on demand deposits were raised in Janu- ary 1968, and the discount rate was increased to 5 half of the year. Consequently, monetary policy was policymakers to maintain an expansionary posture until percent in March 1968 and 5% percent in April 1968. shifted to accommodate late in 1967. These considerations included the desire to avoid actions that might impede the Administration's Moreover, sures and to provide for some easing in the money and reducing open market operations were aimed at the growth of bank reserves. Accordingly, credit markets. restrictive fiscal policy mea- Bank credit and the bank reserve 9 restraint on their operations, while special percent in the second and third quarters of 1969. In the and the discount rate was cut 'j., percent in August. It is Government programs supported a continuing, though final quarter of the year, real GNP actually declined by now widely declining, flow of mortgage credit. Bank deposits fell one-half of 1 percent. aggregatesgrew sharply during the second half of 1968, accepted that this policy shift after mid- 1968 was excessive in that it reflected an over- monetary sharply during 1969 as a result of a runoff of nearly $13 estimation of the restraining effect of the income tax bi IIion in certificates of deposit from December 1968 surcharge. through December 1969. Banks liquidated holdings of Against a background of a resurgence in inflationary U. S. Government securities as well as state and local expectations, the discount rate was raised in December 1968 as the Federal Reserveshifted again to a restrictive activity. monetary posit sources, including Eurodollar borrowings, sales of high-employment goal was reached, however, inflation- loan participation ary pressures accelerated rapidly. policy, a policy which was maintained 1969. Between December 1968 and May mortgage loan As discussed earlier, the goal of economic policy in securities and sharply throughout reduced their EMPLOYMENT: A COMPARISON OF GOALS AND ACCOMPLISHMENTS Banks aggressively sought funds from nondecertificates, and sales of commercial the first half of the 1960's was to stimulate aggregate demand in order to reduce unemployment. Once the Inflation persisted 1969, bank credit declined; the growth of the reserve paper by their subsidiaries and affiliates. The increased throughout aggregates was moderated; and the money supply rose reliance on nondeposit sources of funds allowed banks stability at about half the rate of the previous year. Between to continue their lending activity during 1969, although policy. Public policymakers were faced with the delicate May and December 1969, severe restraint was imposed. at reduced levels. In an attempt to limit the availability task of scaling down the pace of economic expansion There were substantial outright of sufficiently to eliminate Governors of the Federal Reserve System placed a 10 inflationary expectations without credit and the money supply during this period (see percent reserve requirement on Eurodollar borrowings contraction in real economic activity. Table II). by United States banks beyond a specified baseamount. aggregates and a virtual declines in the reserve halt in the growth of bank these types of funds to banks, the Board of the second half of the decade and price became the principal 1960, the unemployment Deposits were redefined to include funds derived from markets rose to record levels during 1969, reflecting assets sold under repurchase agreements, except for reflecting both the extremely salesof U. S. Government and Federal Agency securities unemployment monetary pol icy and upward price pressures and inducing a prolonged 1960-1964: Ample Labor Supply. During each quarter of Interest rates in each maturity range of all financial restrictive goal of stabilization the relatively rate rose gradually, mild business recession. The rate continued to rise through the first persistent strong demands for funds. As an illustration, and all such transactions between banks. In October half of 1961 when the growth of economic activity the average monthly rate on new issues of three-month 1969, the System proposed placing reserve requirements resumed (see Chart 5). The upswing in business activity, Treasury bills moved from 3.8 percent in January 1965 and interest rate ceilings on funds secured through however, did not result in proportionate to 6.2 percent in January 1969 and to 7.7 percent in commercial paper sales by bank holding companies and employment. Between 1960 and 1963, nonagricultural December 1969. A simi lar upward shift also occurred in banking subsidiaries, but this proposal has not been put employment rose by yields on long-term bonds. For example, the average into effect. 2.7 million increases in workers, only a moderate gain after allowance for the addition of nearly 0.9 million employees to Federal, state, and local yield on new Aaa rated corporate bonds rose The Growth Record of 1965-1969. The rate of real from 4.4 percent in January 1965 to 6.9 percent in growth fluctuated widely during the second half of the government payrolls. The unemployment January 1969 and to 8.8 percent in December 1969 (see 1960's. real GNP expanded by 6.3 from the high reached in the second quarter of 1961, Chart 4). percent, slowed to half that rate during 1966, and came but still averaged 5.5 percent in 1962 and 5.7 percent in monthly The extremely restrictive monetary policy in effect during 1969 did not produce a rapid slowdown in During 1965, to a virtual halt in the first half of 1967. From the third 1963, or virtually quarter of 1967 through the second quarter of 1968, the unemployment rate receded the same as in 1960. The stability of rate during the early years of the were real growth again accelerated rapidly. Since mid-1968, current apparently deeply imbedded in the economy. Moreover, growth has moderated in each quarter, from an annual part, to the growth in the labor force and a shift of the financial institutions took steps to soften the impact of rate of about 7 percent to an annual rate of about 2 population aggregate spending. 10 Inflationary expectations business expansion was attributable, in large out of the rural areas to the cities. One Chart S. rates are typically RATES of UNEMPLOYMENT O~~--------------~ Percent of Civilian Labor ~ Force high. The unemployment rate for real economic growth moderated after nonwhites also remained high during the first half of the mid-1968, the labor market showed no signs of easing 1960's, despite a downward drift throughout the decade until the second half of 1969, when the rate of growth (see Chart 5). in employment 1965-1969: Tight labor Market. Labor markets had 4 Although begun to tighten by mid-1965, as real growth in slowed and unemployment increased slightly. The overall unemployment rate was 3.4 percent in the fourth quarter of 1968 and the first quarter of economic activity accelerated, and the unemployment 1969 and 3.6 percent in the third and fourth quarters of rate dropped below 5 percent. The intensified demand 6 1969. for labor occurred in manufacturing, trade, government 1960's would seem to indicate tl-1 (civilian and armed forces), and service industries. From NONWHITE ~.A~ 1'" 12 t 1\ tl-Y'" r, 14 I I' I ~\ ;\1 il i' -,/'1 \ J\ I I \ ••••. " V 1\ IV \~r\f'V\It~) INVERTED SCALE 1960 entry, Source '61 '62 TEENAGERS \' '64 '65 '66 AOJUSTED-MONTHl Y U. S, Oeportment as the economy moves '68 '69 of lobor the high- employment demand do not generate enough additional employment unemployment rate continued to easethroughout 1965, opportunities Therefore, and in January 1966, it fell below the 4 percent rate for ployed additional After the relative stability that marked the first half range possess only into training. the first time since early 1957. '67 Dec. '69 of dato, 1965-1969 period. Many of those who remain unemployed the labor force and a gradual reduction in the number II I II SEASONALLY '63 persons annually. The increased most of the decade, especially in the of unemployed. Adult women provided an important > 1 ::::::: average of 1.7 million demand for labor was met by continued large gains in ,I 11'1I·1/ i \/~ ~ 18 States during share of the increased supply of labor. The overall lit, • t 1 /' i, 1,1:1\ 16 All ~ v,~Il.!'v"~ I I '~l it 1\ that there was a shortaqe of skilled labor in the United 1966 to 1969, nonagricultural employment rose by an 10 last The experience of but additional marginal skills or increases in aggregate to cut deeply into this pool of unemmarginal workers. educational It would and training needed to reduce unemployment of the 1960's, an upward surge in unit labor cost in minimum manufacturing began in 1966. The upward pressureson seem that opportunities are much below earlier expand, and this is a slow process. manufacturing costs persisted throughout levels even if the economy continues to the second aspect of this structural shift in the demand for labor half of the 1960's as a result of rising prices for material was the continued long-term decline in agricultural resources and higher labor costs. Increased wage costs made possible by large gains in produc- reflected, in part, union attempts to capture an increas- employment tivity in agriculture. There was a net decline of nearly one-half million agricultural workers between 1961 and ing share of material output. Tight conditions PRICE PERFORMANCE Between 1960 and measures-the in the labor market were tempo- 1964, the three broad price GNP implicit price deflator, the whole- sale price index, rarily alleviated during the first half of 1967, when real remained relatively Continued increases in aggregate demand during the gains in GNP were sharply reduced. The growth in expansion. Toward first half of the 1960's generated additional jobs, but nonagricultural employment slowed, and the unemploy- accelerated rapidly as full employment was achieved, in high ment rate edged up from 3.7 percent in the fourth however. Although the original inflationary unemployment rates. Although there were marked gains quarter of 1966 to 3.9 percent in the second quarter of largely the result of excess aggregate demand, upward 1967. The increase in unemployment cost pressures soon reinforced the inflationary 1963. rapid growth in employment, in the labor force resulted the overall unemployment rate aver- aged 5.2 percent in 1964, compared with 5.5 percent in was centered and the consumer price stable despite rapid index- economic the end of the period, pressures thrust was spiral, mainly in manufacturing; however, continued expansion and by late 1968, inflationary 1960. The expansion in the labor force occurred mainly of employment further strength to the spending and cost pressures on among women and teenagers, for whom unemployment stabi lized the overall labor market. in government, services, and trade expectations provided prices. 11 Chart 6. and metal products and for machinery and equipment WHOLESALE and CONSUMER PRICES began to firm temporarily late in 1963, but these increases were offset by price declines in numerous other industries, mainly fuel, related products, and power; pulp, paper, and allied products; products; 125 and rubber aggregate, upward lumber and wood and rubber more rapid rate of inflation to the (as reflected in the GNP deflator) , Wholesale prices for farm and food products and for industrial commodities also increased rapidly during the In the 1965-1969 period. In response to intensified demands industrial for industrial commodities, the prices of a broad range factor during the of industrial goods began to edge up late in 1964 and pressures on prices of commodities were not an important 120 products. local government employees have contributed 1960-1964 period, because most industries were oper- labor costs and other costs of production were relatively of capacity and the unit cost of production remained stable through stable. 110 the rate of increase accelerated until mid-1966. Unit ating considerably below their preferred (optimal) rate 115 1966-one In the corporate employee per unit 105 between the first sector, compensation of output quarter per late 1965, but turned year later than the upturn up early in in prices of was nearly unchanged of industrial commodities. 1960 and the fourth rapidly accelerating wage increases added further pres- Continuing labor scarcity and quarter of 1964, while non labor unit costs edged up 95 sures to unit labor costs, resulting in renewed upward slightly. movements in prices. The sustained rise in industrial Consumer prices, which tend to lag behind changes 1960 last entry: '61 '62 '63 '64 '65 in wholesale prices, rose at an annual rate of 1.2 percent '66 has been the longest in the post-World War II period. between 1961 and 1964, compared with a 1.6 percent U. S. Department of lobo, Price pressures showed little tendency to moderate rise during 1960. The continuing increases in the cost of Dec. ·69 Saurce of data: prices since mid-1967 even though real gains in GNP decelerated after mid- services and, to a lesser extent, in the cost of food were Relative Price Stability. affected in large part by wide fluctuations in the prices prices during this period. 1960-1964: 1968. The behavior of prices during major factors in the upward movement of consumer of lumber and plywood and by marked increases in the prices of nonferrous metals, steel mill products, and Between the first quarter of 1961 and the fourth quarter of 1964, 1968-1969 was 1965-1969: Major Inflationary Wave. The rapid in economic activity in the 1965-1969 producers' equipment. Less intensive utilization of the GNP price deflator rose at an averageannual rate of acceleration about 1.3 percent, The major factors contributing period was accompanied by a sharp rise in all price production the rise in the GNP deflator during this period were the measures. The GNP implicit gap between real and potential output, may help slow increases in average annual rate of 3.3 percent during 1965-1969, government the price employees' of consumer to services, in wages and salaries, and in construction costs. compared with price deflator rose at an 1.3 percent during 1960-1964. Price increases moderated during the brief slowdown resources, as suggested by the contraction in industrial since July 1969 and the reemergence of a price advances in the industrial sector during 1970. During 1965-1969, consumer prices increased faster in than at any time since the 1949-1953 business expan- in early 1967, but resumed at an sion. The rise in consumer prices was climaxed by a unchanged between the first quarter of 1960 and the accelerated rate along with the renewed expansion in 6-percent annual rate of increase in 1969. The wide- fourth quarter of 1964. The overall stability in whole- business activity. spread increases in consumer prices were led by sharp sale prices was a reflection of the relatively unchanged rising costs of construction level of prices of farm and food products and prices of bulk of the upward thrust to prices. Recently, substan- and home mortgage interest rates), food, apparel, and industrial commodities (see Chart 6). Prices for metals tial increasesin wages and salaries for Federal, state, and automobiles. On balance, the wholesale price index was virtually 12 economic activity As in the first half of the decade, and services provided the gains in the prices of services (especially medical care TABLE III payments United States Balance of Payments 1960-1969 (Bil. of $) specific factors has changed over time. Between 1960 Furthermore, 1961 1963 1962 1964 1965 1967 1966 1968 1969 + $27.5 + $28.8 + $30.5 + $32.6 + $37.3 + $39.4 + $43.4 + $46.2 + $50.6 + $55.4 23.4 25.4 - 26.6 - 28.7 - 32.3 - 38.1 - 41.0 23.2 48.1 - 53.3 5.2 + 8.6 + 7.1 + 5.3 + 2.5 + + 4.1 + 5.1 + 6.0 + 2.1 5.6 + 0.8 1.0 1.2 0.7 0.9 1.2 0.6 0.8 1.2 0.6 + 2.8 3.9 0.4 + 1.2 2.8 4.2 0.7 + 1.1 3.0 3.4 1.0 1.2 + - 3.6 4.5 0.7 0.5 3.6 6.6 0.7 1.1 + - + - 3.4 3.8 0.3 + 0.6 - 3.4 4.3 2.5 + 0.5 - 4.2 5.7 3.4 + 1.0 - 4.0 5.2 8.6 + 0.6 3.9 5.0 3.9 3.0 3.9 2.4 2.2 - 2.7 - 2.8 1.3 - 1-.4 3.5 + 0.2 7.1 3.4 Liquidity basist Official reservetransactions basis:j: 1.3 2.7 - 2.0 - 1.6 1.3 + 0.3 3.4 + 1.6 + 2.7 degree, with Federal Government aid rose from $2.8 billion in 1960 to $3.6 billion in 1964. Outflows of private capital were of importance in the persistent weakness in the international 1960-1964 position of the (see Table III and Chart 7). United States businesses had been increasing their investments abroad since the mid-1950's. The bulk of investment during the early 1960's was directed to Economic Community. • Excluding transfers under military grants. t Equals changes in liquid liabilities to foreign official holders, other foreign holders, and changes in official reserve assets consisting of gold, convertible currencies, and the U. S. gold tranche position in the International Monetary Fund. :j:Equals changes in liquid and nonliquid liabilities to foreign official holders and changes in official reserve assetsconsisting of gold, convertible currencies, and the U. S. gold tranche position in the International Monetary Fund. Income received from previous direct investments abroad exceeded United States direct investment addition, outflows during the 1960-1964 period. In short-term loans to Japan by United States banks jumped sharply in the early 1960's. Long-term loans, particularly to countries in western Europe, rose sharply in 1963-1964. Source: U. S. Department of Commerce Between 1960 and 1964, the United States experienced an improvement BALANCE OF PAYMENTS the domestic policies, but $8.6 billion in 1964, with merchandise trade accounting since the United States economy had been operating at for $1.9 billion of the increase and interest income from less than full employment investments a chronic economy The United States has had a deficit in its overall since 1950. in its balance on goods and services. The surplus rose from $4.1 billion in 1960 to with GOALS almost consistently aid and grants to foreign countries. Net outflows of Federal Government Canada and the countries that make up the European NOTE: Data for 1969 are preliminary. balance of payments of private capital from the United States, and, to a lesser United States during Overall Balance of Payments AND STABILIZATION the importance and 1964, the deficits were associated with outflows of 1960 Total exports of goods and services' Total imports of goods and services Balance on goods and services' Remittances and pensions U. S. Government grants and capital flows (Net) U. S.private capital flows (Net) Foreign capital flows (Net) Errors and omissions deficits. For most of this period, one useful aspect of the deficits approach was to enlarge the official foreign exchange reserves of deficit through alternative, was not is to deflate restrictive felt economic since the late 1950's, that to be appropriate. As an abroad accounting increase in the merchandise for $1.6 billion. The trade surplus was largely measures and programs centered in machinery and chemicals (see Table IV). In other countries. After 1958, however, large deficits in were put into effect to boost United States exports and contrast, the United States trade deficit in mineral fuels the to constrain capital outflows. Table III presents data on deteriorated the products swung from surplus to deficit between 1960 United States balance outflows of Government of payments, reflecting and private capital that sub- stantially exceeded income from merchandise trade and other current transactions, were often accompanied by various regulatory United States balance of payments for the and 1964. 1960-1969 period. 1960-1964: further, and the trade balance for steel mill Deficits Due to Capital Flows. Because Other components of the United States current large gold outflows and became a constraint on domes- of the complex interrelationships of international trans- transactions showed varying trends during the first half tic stabilization actions, there are many causes of the overall balance of of the 1960's. The deficit in the net balance on mi litary policy. One accepted way of dealing 13 Chart expenditures 7. NET FLOWS in UNITED STATES INTERNATIONAL TRANSACTIONS Billions spending abroad for foreigners' of dollars travel TRADE BALANCE (GOODS and SERVICES) - share overall deficit States balance primarily export 1960's, (consisting -2 trtS+-"'.,.,.,.,.:----------__I LOANS and LONG· TERM ASSETS - ----r--------------~------------- - -4 -6 f--::: GRANTS and CAPITAL FLOWS -8~··_MI·· ~I_I __ I - I ~I__ ~I__ ~I__ ~I~ __ market by United banks) in certain States, world machinery, +8 surplus +6 and animal to deficit 1964, +4 I +2 reflected a than the volume percent -4 from Lost entry, Source '64 1969 of d e to r U. S. Deportment of Commerce '65 '66 '67 '68 '69 the faster rate of in exports 1965-1969. the United (steel, and fuels) as shown in Table direct guidelines that, investments increase States accounted for 3.9 demand of offset Historically, Escalation has averaged 3 1965 a 4 percent and United 1969. States of GNP. has played some exports trend During these 1965, balance of spending abroad. and buildup prior to expiration widening of the United trade balance to programs. boosted In 1967, the domestic of a steel inventory in of the trade deficits (see Table In part, States to hold of the steel labor contract lagged effect United was broad- in Vietnam beginning in further program a investments payments activities strike commodities announced direct tended States resulted limited In March period. United 1968 sharply States. of developments copper for those Federal in the 1962-1964 a number the The to no more than 90 percent ment of 1965 had its greatest in on this the restraint firms were requested abroad military and and to restrict of Commerce exports role United Program various of the to banks and other in effect, the business Unfortunately, merchandise merchandise percent balance rose to 3.5 percent fell below volume nearly domestic in imports In addition, States the trade and a voluntary abroad. In December 900 of The reasons rates flows from Restraint abroad. to worsen of commodities. to GNP between period, excessive 14 announced 1965, the U. S. Department ened, of into the United investment institutions of capital Voluntary purchases net capital direct food, vehicles, in the merchandise of United relationship '63 tended of GNP, but the proportion during -6 '62 balances chemicals, larger balance Administration of their average investments The deterioration -2 '61 financial exports IV. imports 1960 in oils, swung from in motor and mineral clothing, to improve supply and vegetable copper, Reserve System issued voluntary shortages their interest the States domestic-foreign of in stock prices during this period. 1965, Reserve except or the deficit exces- States inflows domestic United the net trade (particularly and live animals). NET FOREIGN CAPITAL INFLOWS to offset prevented and equities. surge of capital rising February the volume In 1967 and 1968, increased securities movements In inflows in the United loss of competitive commodities, maj or upward Eurodollar Federal unfavorable After a II income were has been a major to hold down substantially States in those parts of States 1965 and 1969. both for the sudden since and changing since the mid-1960's. foreigners fixed markets (particularly United rise in capital between program markets, and the from occurring surplus for PRIVATE CAPITAL FLOWS - net to the reflected exports where payments of corporate rose sharply apparent price relationships. - in the in world have also tended deficits and 1969 in the supplier) account. in the trade demands, United 1965 purchases in world United States exports in the United of United States exports Loss of position A substantial In contrast borrowing States The weakening the of private capital from abroad of foreign 1965. the world States 1964, holdi ng back the volume patterns in that period deterioration in the current sive domestic position and position between a sharp expanded the deterioration the deficit net inflows and than transactions, for goods and services, mainly securities o ~~~--------------------------~GOVERNMENT FLOWS - United 1960 in current chronic reflected but rapidly loss in the between of payments balance early more in the balance of payments The seemingly 4 grew some markets was not due to weakness 6 improvement, for travel in the United States, despite of world some abroad expenditures Nevertheless, - showed IV). Moreover, States-Canadian impact in motor the auto agree- in 1968, when the vehicles swung to TABLE IV In essence,the decade of the 1960's closed in much United States Merchandise Trade Balance Selected Commodities 1960-1969 (Bil. of $) 1960 TRADE SURPLUS COMMODITIES Machinery Transportation equipment Motor vehicles and parts Chemicals Animal and vegetable oil TRADE DEFICIT COMMODITIES Other manufactured goods Iron and steel-mill Copper minerals Food and live animals TOTAL NOTE: NET BALANCE Total the balance of payments. SUMMARY 1961 1962 1963 1964 1965 1966 1967 1968 1969 + $3.8 + 1.8 + 0.5 + 1.0 + 0.2 + $4.2 + 1.8 + 0.6 + 1.1 + 0.2 + $4.5 + 1.9 + 0.6 + 1.1 + 0.2 + $4.6 + 1.8 + 0.6 + 1.3 + 0.2 + $5.2 + 1.9 + 0.7 + 1.7 + 0.3 + + + + + $5.1 2.1 0.6 1.6 0.4 + $5.0 + 1.3 + 0.9 + 1.7 + 0.2 + $5.2 + 1.6 - 0.1 + 1.8 + 0.2 + $4.9 + 1.6 1.0 + 2.2 + 0.1 + $5.4 + 1.2 1.6 + 2.2 + 0.2 + - 1.4 - 0.8 + 0.1 - 0.8 0.2 0.1 0.1 0.2 0.1 0.2 0.7 0.3 0.1 0.1 0.2 0.9 0.1 - 5.3 + 6.0 + - 0.1 0.2 0.2 0.1 0.2 1.1 5.0 - 1.5 0.1 0.1 0.2 - 0.3 - 0.1 - 0.2 0.9 + 0.3 - - + 1.4 0.1 0.2 0.1 0.3 0.1 0.2 1.1 0.6 + + 7.5 + 5.9 + 0.5 0.2 - 0.4 - 1.3 + 0.6 - 3.6 0.8 0.4 0.3 0.5 0.3 0.4 1.1 + 0.1 - 5.4 -1.4 - 0.6 0.4 - 0.7 - 0.4 - 0.5 - 1.5 0.7 5.8 + 4.4 + 4.4 + - 2.6 0.5 0.1 0.3 0.4 0.2 0.3 1.3 - 3.3 0.6 0.3 0.4 0.4 1.0 - + 5.0 0.8 0.2 0.4 0.9 0.5 0.6 1.7 0.8 1.4 least under conditions where a margin of underutilized resources had existed. Conditions in the second half of of reconciling high employment with stable prices. Expansionary monetary and fiscal policies in the first half of the decade did stimulate total spending and increased aggregate demand did generate additional jobs at about the same rate as the increase in the civilian labor force. Unemployment, however, remained at about 5 percent. Unemployment was pushed below 4 percent in January 1966, but severe inflationary pressures emerged at about the same time. balance is based on Census classification rather than balance of basis; commodity groups above do not add to totals because of of smaller commodities. Net trade balance is the difference between exports and imports; commodities in surplus and deficit groupings were selected on basis of most recent experience, except for motor vehicles and parts, which is included in the trade surplus list because it is a component of transportation equipment. U. S. Department and used successfully to accelerate economic growth, at the decade, however, underscored the difficulty payments exclusion Source: The experience of the early 1960's demonstrated that monetary and fiscal policies can be coordinated + products Textiles, other than clothing Clothing Footwear Nonmetallic Mineral fuels the same way that it opened: with a persistent deficit in Moreover, although stabilization policy appears to have accelerated growth and reduced cyclical fluctuations in the contributed 1960's, shifts policy have to imbalances in various sectors of the economy. The destabilizing of Commerce in public were apparent effects of public in the credit crunch of policy 1966, the mini-recession of early 1967, excessive growth in real a deficit of nearly $1.0 billion from a surplus of nearly and private investment abroad. In 1968, the first surplus economic activity $0.9 billion in 1966. in more than ten years was recorded in the balance of credit squeeze in 1969, and an actual decline in real payments (on the liquidity economic growth at the close of the decade. In the Against the background of further deterioration in basis), but the improvement the overall balance of payments and the devaluation of was largely associated with a temporary swing in capital second half the pound sterling in November 1967, an enlarged flows and serious disturbances frequently program aimed at correcting the international financial markets. On the official position of the United States was announced on in foreign exchange reserve transactions basis, of in 1968 and early 1969, another the decade, monetary policy was influenced by the need to offset inadequate fiscal policy, and such efforts were occasionally marked which does not include changes in short-term liabilities by excessive restraint or expansion in the growth of January 1, 1968. The program was expected to result in to the private sector in foreign countries, the balance of bank credit and the money supply. an annual improvement payments accounts surplus was nearly $3 billion during of about $3 billion in the The economic performance of the 1960's also overall balance of payments, with corrective measures 1969. Despite the program to boost current account underscores the difficulty aimed toward transactions, the United States trade surplus showed goals with only minor improvement in 1969. housing goals expressed in the Housing and Urban improvements in merchandise trade, Government spending, foreign travel, foreign lending, other national of reconciling stabilization goals. For example, the 15 Development behind Act of 1968 have already fallen well schedule. The massive shift of funds from Despite persistent balance of payments difficulties and the failure to control inflation and inflationary technology, education, and other activities. Despite the rapid economic growth, policymakers were forced to deposit-type financial institutions limited the supply of expectations credit that was available to the mortgage market and the 1960's was, on balance, one of significant economic contributed achievement. As an example of the enormous stride that how ample, are limited, and that priorities must be nation's housing goals are to be met, it will be necessary was taken established and followed. The legacy of the 1960's, of to improve the mechanisms for channeling funds into disposable income increased by 33 percent during the substantial the mortgage market and to reduce capital flows into 1960's, compared with an increase of 15 percent in the unresolved economic other markets commensurately. 1950's. This vigorous and uninterrupted solutions must be found. 16 to a contraction in housing activity. If the in the last half of the decade, the period of vided the resources to support major gains in science, in material prosperity, real per capita growth pro- come to grips with the fact that resources, no matter economic expansion, carries with it many and social problems for which COMPARATIVE STATEMENT OF CONDITION December 31, 1969 LIABILITIES 1969 December 31, 1968 Gold Certificate Reserves . . . . . . . . . . . . . . . $ 862,419,422 $ 739,174,302 Federal Reserve Notes of Other Banks . . . . . Other Cash. . . . . . . . . . . . . . . . . . . . . . . . . . 67,979,120 10,155,756 66,500,994 23,827,000 Discounts and Advances. . . . . . . . . . . . . . . . U. S. Government Securities: Bills. .. .. . . . . . . . . .. . . .. . . . . . . . . .. Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . Bonds 4,300,000 11,200,000 1,726,079,000 2,433,591,000 271,052,000 1,479,245,000 2,263,966,000 431,758,000 Total U. S. Government Securities 4,430,722,000 4,174,969,000 4,435,022,000 4,186,169,000 870,360,729 6,459,804 208,440,448 806,896,292 4,789,980 224,264,090 $6,460,817,279 $6,051,621,658 December 31, ASSETS ... Total Loans and Securities Cash Items in Process of Collection Bank Premises Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . Total Assets December 31, 1968 $3,952,758,371 $3,700,086,690 Federal Reserve Notes . Deposits: Member Bank-Reserve Accounts U. S. Treasurer-General Account Foreign Other Deposits . . . . 1,551,356,278 93,748,489 11,570,000 24,423,951 1,538,328,399 512,836 19,800,000 17,856,952 . 1,681,098,718 1,576,498,187 . . 662,792,878 44,383,712 632,266,337 30,755,044 Total Liabilities. . . . . . . . . . . . . . . . . . $6,341,033,679 $5,939,606,258 Total Deposits Deferred Availability Cash Items Other Liabilities CAPITAL ACCOUNTS Capital Paid In Surplus . . Total Liabilities and Capital Accounts Contingent Liability on Acceptances Purchased for Foreign Correspondents. ... 59,891,800 59,891,800 56,007,700 56,007,700 $6,460,817,279 $6,051,621,658 $ $ 12,985,100 9,828,000 17 COMPARATIVE STATEMENT OF EARNINGS AND EXPENSES 1969 1968 . . $260,819,520 19,410,681 $211,217,526 17,607,834 . 241,408,839 193,609,692 . . . 521,047 338,504 -0- 61,657 724,448 3,254 . 859,551 789,359 . . 471,314 560,092 -017,631 . 1,031,406 17,631 NET DEDUCTIONS NET ADDITIONS . . 171,855 -0- -0771,728 Net Earnings before Payments to U. S. Treasury . $241,236,984 $194,381,420 Dividends Paid Payments to U. S. Treasury (interest on F. R. Notes) Transferred to Surplus . . . $ . $241,236,984 Total Current Earnings Net Expenses Current Net Earnings Additions to Current Net Earnings: Profit on Sales of U. S. Government Securities (Net) Profit on Foreign Exchange Transactions (Net) All Other Total Additions Deductions from Current Net Earnings: Loss on Sales of U. S. Government Securities (Net) All Other Total Deductions Total 18 3,544,719 233,808,165 3,884,100 $ 3,296,071 188,962,249 2,123,100 $194,381,420 As of March 1, 1970 FEDERAL RESERVE BANK OF CLEVELAND OFFICERS-1970 OIRECTORS-1970 President Chairman W. BRADDOCK ALBERT G. CLAY, President Clay Tobacco Company, Mt. Sterling, Kentucky First Vice President Deputy Chairman WALTER J. WA RD KE ENE R, Chairman of the Board and Chief Executive The B. F. Goodrich Company, Akron, Ohio DAVID L. BRUMBACK, JR. President Van Wert National Bank Van Wert, Ohio JOHN L. GUSH MAN President and Chief Executive Officer Anchor Hocking Corporation Lancaster, Ohio J. WILLIAM HENDERSON, JR. Henderson & Associates Columbus, Ohio R. STANLEY LAING President The National Cash Register Company Dayton, Ohio SEWARD D. SCHOOLER President Coshocton National Bank Coshocton, Ohio Officer ROGER R. CLOUSE Senior Vice President and Secretary CLYDE HARRELL Senior Vice President JOHN J. HOY Senior Vice President FRED O. KIEL Senior Vice President CLIFFORD G. MILLER Senior Vice President GEORGE E. BOOTH, JR: Vice President and Cashier PAUL BREIDENBACH Vice President and General Counsel ELMER F. FRICEK Vice President R. JOSEPH GINNANE Vice President WILLIAM MEMBER, FEDERAL ADVISORY COUNCIL JOHN A. MAYER Chairman of the Board and Chief Executive Officer Mellon National Bank and Trust Company Pittsburgh, Pennsylvania H. MacDONALD Officer GEORGE F. KARCH Chairman of the Board and Chief Executive Officer The Cleveland Trust Company Cleveland, Ohio HORACE A. SHEPARD Chairman of the Board and Chief Executive TRW Inc. Cleveland, Ohio HICKMAN H. HENDRICKS Vice President WILLIAM J. HOCTER Vice President and Economist HARRY W. HUNING Vice President FRED S. KELLY Vice President ELFER B. MILLER General Auditor MARGRET A. BEEKEL Assistant Vice President and Economist LESTER M. SELBY Assistant Vice President and Assistant Secretary LARRY R. SHOTWELL Assistant Vice President and Economist ROBERT E. SHOWALTER Assistant Vice President H. MILTON PUGH Chief Examiner HAROLD J. SWART Assistant General Auditor OSCAR H. BEACH, JR. Assistant Cashier ANNE J. ERSTE Assistant Cashier THOMAS E. ORMISTON, Assistant Cashier JR. DONALD G. VINCEL Assistant Cashier DAVID J. WEITZEL Assistant Cashier 19 As of March 1, 1970 CINCINNATI BRANCH DIRECTORS-1970 Chairman GRAHAM E. MARX, President and General Manager The G. A. Gray Company, Cincinnati, Ohio ORIN E. ATKINS President Ashland Oil, Inc. Ashland, Kentucky EDWARD W. BARKER President First National Bank of Middletown Middletown, Ohio ROBERT B. JOHNSON President Pikeville National Bank & Trust Company Pikeville, Kentucky FRED O. MacFEE, JR. Vice President and General Manager Aircraft Engine Operating Division General Electric Company Cincinnati, Ohio FLETCHER E. NYCE Chairman of the Board and Chief Executive Officer The Central Trust Company Cincinnati, Ohio PHILLIP R. SHRIVER President Miami University Oxford, Ohio OFFICERS-1970 FRED O. KIEL Senior Vice President ROBERT D. DUGGAN Cashier DONALD G. BENJAMIN Assistant Cashier HOWARD E. TAYLOR Assistant Cashier JERRY S. WILSON Assistant Cashier 20 PITTSBURGH BRANCH DIRECTORS-1970 Chairman LAWRENCE E. WALKLEY, President and Chief Executive Officer Westinghouse Air Brake Company, Pittsburgh, Pennsylvania ROBINSON F. BARKER Chairman of the Board and Chief Executive Officer PPG Industries, Inc. Pittsburgh, Pennsylvania JOHN W. BINGHAM President The Merchants and Manufacturers National Bank of Sharon Sharon, Pennsylvania CHARLES H. BRACKEN President Marine National Bank Erie, Pennsylvania GEORGE SCULL COOK President Somerset Trust Company Somerset, Pennsylvania RICHARD M. CYERT Dean Graduate School of Industrial Administration Carnegie·Mellon University Pittsburgh, Pennsylvania BOB RAWLS DORSEY President Gulf Oil Corporation Pittsburgh, Pennsylvania OFFICERS-1970 CLYDE HARRELL Senior Vice President JAMES H. CAMPBELL Cashier CHARLES E. HOUPT Assistant Vice President J. ROBERT AUFDERHEIDE Assistant Cashier