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Federal Reseroe Bank of Cleveland
Annual Report 1984
As international markets become more
important to the prosperity of the United States, its economic
perspective must shijt from internal to external from a closed
economy to an open one. Understanding the workings and idiosyncracies of an open economy requires an open and creative
mind. How we see the world depends largely on how we interpret and connect events. Our 1984 annual report helps in this
process. We appeal to your imagination, through words and illustrations, to help you attain a better understanding of the world
in which we live.
Contents
2 The President's Foreword
5 A Puzzle for the World
29 Directors
30 Comparative Financial Statements
32 Officers
The President's Foreword
conomic activity in 1984 was strong and steady and advanced without a
~
significant increase in the rate of inflation. Perhaps the most puzzling aspect of
the past year was the simultaneous strength of the dollar in foreign exchange
markets and the growing imbalance in the U.S. international transactions. Instead of declining, as the current-account deficit approached record levels, the
dollar continued to appreciate, buoyed by substantial net inflows of foreign capital. In part, the net inflow of foreign capital to the United States reflects higher
interest rates on assets denominated in dollars. The dollar's strength may also
reflect a more favorable return to real capital in the United States than in most
other developed countries. Beyond these factors, there seems to have been a
fundamental improvement in the way in which foreign investors view the
future prospects of the dollar. The dollar's persistent strength is an enigma that
portends continued current-account deficits in the foreseeable future.
The strong dollar has greatly reduced the competitive position of U.S. traderelated industries, and has encouraged protectionist pressures in this country
to an extent not witnessed since the Great Depression. The United States was
a $24-billion net exporter of goods and services in late 1982 when the current
expansion began, but in 1985 the U.S. is a net importer. The traditional capital
goods industries bore the brunt of intense foreign competition in the earlier
stages of the recovery. Intense competition from imported goods has aggravated the structural problems of the Fourth District's capital-goods producers
and is now being felt widely throughout the economy.
It is important to note, however, that the effects of the strong dollar have not
all been adverse. The dollar's appreciation has reduced import prices, and the
resulting intense competition with imports has forced U.S. firms to maintain
prices at their lowest possible levels. Moreover, the resulting current-account
deficit has, as its counterpart, a current-account surplus elsewhere in the world.
Our expanding trade deficit has encouraged recovery abroad and has helped
the less developed debtor countries to reduce their debt burden.
Concern for the adverse effects of the strong dollar and for the growing currentaccount deficit has prompted policymakers to consider possible options for
dealing with the situation. The 1984 Annual Report essay "A Puzzle for the
World" examines the issues surrounding the current international situation
and reviews the policy choices for correcting current imbalances in U.S. international transactions.
During 1984, the Federal Reserve Bank of Cleveland continued its efforts to
provide high quality and efficient services to Fourth District depository institutions. The Bank's activities throughout the year were strengthened by the
advice of our 23 directors who represent a variety of banking, business, and
educational interests. Richard Fitton (President and Chief Executive Officer of
First National Bank of Southwestern Ohio) who served on our Cincinnati Board
since 1982, and Robert Milsom (President of Pittsburgh National Bank) who
served on o ur Pittsburgh Board since 1982, completed their terms of service in
1984. John G. McCoy ( Chairman of the Executive Committee of Banc One
Corporation) completed his term as the Fourth District representative to the
Federal Advisory Council. I am grateful to them and to all of our directors for
their valuable and dedicated service and guidance. The Bank will also miss the
services and enthusiasm of Sister Grace Marie Hiltz, S.C., a Cincinnati Branch
Director, who passed away on March 29, 1985. Sister Grace was the President
of Sisters of Charity Health Care Systems, Inc.
Finally, I wish to express my appreciation to the officers and staff whose energy,
creativity, and commitment made 1984 a successful year.
Sincerely,
Karen N. Horn
President
April 1, 1985
~
PUZZLE FOR THE WORLD
The United States is part of a closely integrated, global economic network.
International markets have become increasingly important for the U.S. economy since World War II, as the shares of international trade in domestic production. and consumption have risen. U.S. exports and imports averaged 8.9 percent and 8.3 percent of total output, respectively, during the 1970s and 5.9 percent and 4.9 percent of total output, respectively, during the 1960s. By 1984, U.S.
exports and imports of goods and services, respectively, accounted for 10.0 percent and 11.7 percent of total output. International financial arrangements have
become more integrated as foreign trade has expanded and as technological
developments have improved communications.
Events of the past few years have clearly illustrated the extent and importance
of international interdependence. The growing trade deficit, the strong dollar,
the rise in protectionist sentiments, the moderation in U.S. inflation, the net
inflow of foreign capital, and the improved international debt situation are all
pieces of the same economic puzzle. Each piece is distinct, yet is integrally
related to the other pieces, and each is vital for an understanding of the current world economic situation. As with any puzzle, to understand it we must
assemble the pieces and try to relate them to each other.
The task is not easy; pieces that appear to fit together often do not. A simple,
straightforward relationship between the trade balance and the dollar is a case
in point. When we find pieces that do not fit together, we must reexamine the
puzzle and reevaluate the relationships.
Perhaps no other puzzle has generated more controversy and misunderstanding
than the current international economic situation. This annual report attempts
to understand the international economic puzzle by examining recent developments and showing how they are related to each other.
~ROBLEMS IN THE CURRENT ACCOUNT
1. See "The F.xchange Rate System: Lessons
of the Past and Options for the Future: A
Study by the Research Department of the
International Monetary Fund," Occasional
Paper, No. 30, Washington, DC: International Monetary Fund,July 1984.
U.S. BALANCE OF PAYMENTS
Current Account
Balance of Goods and Services
Unilateral Transfers
Capital Account
Government
Official
Unofficial
Private
Errors and Omissions
The most disturbing aspect of the recent economic developments is the growing imbalance in U.S. international transactions. Due to the relative strength of
the U.S. economic recovery, and to the strong dollar in foreign exchange markets, imports have flooded the U.S. market while U.S. exports have fared poorly.
Consequently, U.S. industries that compete against imports, and U.S. exportorientated industries, are not experiencing the rapid pace of economic growth
that other sectors have enjoyed. The situation has rekindled protectionist sentiments which now seem stronger than at any time since the Great Depression.
While an associated inflow of foreign savings has helped to finance both public
and private credit demands, and to keep U.S. interest rates below levels they
otherwise would have reached, such savings flows could evaporate quickly,
with adverse consequences for domestic interest rates, as the recovery abroad
proceeds. This section investigates recent developments in U.S. international
transactions, surveys the factors that underlie these transactions, and describes
their interrelationships.
NTERNATIONAL ACCOUNTS. In an accounting sense, international
D
transactions that constitute the balance of payments always balance. This is
more than a purely mechanistic balance; underlying it are numerous transactions, public and private, domestic and foreign, that are responding to many
economic variables. The transactions create both demands for dollars and
supplies of dollars. Any tendency of the transactions not to balance in total
will cause adjustments either in exchange rates, or in other economic variables
that will insure a balance.
When economists speak of disequilibrium, or imbalance, in international accounts, they refer to the way in which this ledger balances. Most observers
define equilibrium in terms of the current account, which measures international trade in goods and services and unilateral transfers (see box). The current account need not always balance. Temporary factors, such as strikes and
business-cycle fluctuations, artificial barriers to international transactions, and
exogenous shifts in the terms of trade can result in current-account deficits.1
Moreover, a surplus or deficit can persist if supported by equally persistent
private capital flows, but experience has shown that large imbalances in the
current account generally are unsustainable. Large current-account deficits
usually produce adjustments in exchange rates, in domestic and foreign income levels, and in prices that eventually restore equilibrium in the account.
Figure I
U.S. Current-Account Balance
Billions of dollars
20
'65
'70
'75
'80
SOURCE: U.S. Department of Commerce, Bureau
of Economic Analysis.
Throughout the post World War II period, the United States typically has run
small current-account surpluses. These surpluses were large immediately following the war, but rarely exceeded 1 percent of GNP during the 1950s and
1960s. On only three occasions during the 1950s and the 1960s, did the United
States run current-account deficits, but these deficits were small and did not
persist very long. By the 1970s, the United States could no longer regard a surplus in the current account as the most likely state of affairs. We experienced
current-account deficits in 1971 and 1972 and again from 1977 through 1979
(see figure 1). In 1982, the current account shifted again to a $9.2 billion deficit that widened in 1983 and grew to $101.6 billion in 1984. The deterioration
in the U.S. current account since 1982 primarily reflects a rapid widening of
the U.S. merchandise trade deficit; however, an unprecedented shift in U.S.
services trade from a surplus to a deficit also was a factor. The United States
usually posts a deficit in its merchandise trade, but usually offsets this with a
larger surplus on its trade in services. Most analysts expect the current-account
deficit to widen further in 1985 and 1986, although not at the pace experienced
last year.
[!3
1
Sevm
URRENT ACCOUNT AND CAPITAL FLOWS. The tendency of the inter-
national accounts to balance transcends accounting principles because of the
need to pay for imports either with exports or through the exchange of financial claims. If a country, like the United States, is not exporting goods and services in sufficient quantity to pay for its imports, that country either must trade
foreigners a claim on its future production, or must reduce its financial claims
on its trading partners. Countries running persistent current-account deficits
experience net inflows of foreign capital, as they sell off existing financial and
real assets or create new financial liabilities. Foreigners will acquire more
stocks, bonds, bank deposits, real estate, etc., previously held by residents of
the deficit country. If their current-account deficits persist, even countries that
were once net creditors to the rest of the world eventually become debtor
nations. Conversely, countries maintaining current-account surpluses experience capital outflows as they reduce their liabilities to foreigners and accumulate foreign assets; their net investment position grows. In this manner, a capital inflow (outflow) accompanies a current-account deficit (surplus).
Eight
During the 1950s and 1960s, the United States acquired large amounts of foreign
assets by running almost persistent current-account surpluses; our net international investment position grew (see figure 2). Recent current-account deficits
have produced a sharp deterioration in our net international investment position, and the current-account deficits projected for 1985 and 1986 indicate that
the United States will become a debtor nation sometime this year; that is, total
U.S. liabilities to foreigners soon will exceed total U.S.-held foreign assets.
m
EHIND THE CURRENT-ACCOUNT DEFICIT. The observed value of any
economy's production will equal exactly its income, and will equal exactly the
value of its consumption, investment, government spending, and net exports.
Any nation that absorbs more resources through consumption, investment and
government spending than it produces, necessarily imports more goods and
services than it exports. Because such a nation is absorbing goods and services
in excess of its nominal income, its domestic savings will be insufficient to
finance investment and any government deficit. A deficit country, therefore,
also experiences a net inflow of foreign savings.
Although these relationships are always true, the manner in which their components add together provides a clue to factors underlying current-account
developments. For the recent U.S. experience, the saving relationship is most
instructive. Initially in 1982, as the current account shifted to a deficit, growth
in gross private domestic savings slowed, reflecting the recession and a slowing
in the inflation rate. Private investment declined in 1982, but the government
deficit grew more rapidly than could be accommodated out of private domestic savings even with the decline in investment. After 1982, private domestic
savings grew at a faster pace. Although it remained very large, the government
deficit grew more slowly in 1983 and declined in 1984. Gross private investment, however, recovered quite sharply, especially in 1984. With large government deficits, the increase in private investment exceeded private domestic
savings and attracted a net inflow of foreign capital. Heavy public and private
credit demands, therefore, play important roles in explaining recent international transactions. We now must go beyond these general relationships and
discuss the developments that underlie the configuration among saving, investment, the government deficit, and the current account.
,
Nine
[ ! ]SUAL RECOVERY PATTERN. A deterioration in the U.S. current account
is fairly typical during the early stages of a business recovery. Economic recoveries in the United States usually lead recoveries abroad; in the early stages of an
upturn, U.S. imports typically rise faster than U.S. exports. The current recovery,
which began late in 1982, was no exception. The U.S. economy grew 6.3 percent in 1983 and 5.9 percent in 1984, while economic recovery among the
industrial economies advanced at less than 3 percent in both of these years.2
The recoveries in the less-developed countries also proceeded more slowly
than the recovery in the United States.
Figure 2
International Investment
Position of the United States
Billions of dollars
200
these cyclical developments produced an expanding U.S. current-account
deficit in 1982 and through 1983, many exchange-market analysts anticipated a
deprecjation in the dollar, reasoning that such a depreciation was necessary to
eliminate the current-account deficit. The dollar did not depreciate. Instead,
the dollar appreciated 11 percent in 1983 and 12 percent in 1984 on a tradeweighted average basis. The dollar's appreciation further aggravated the current-account deficit by lowering the dollar price of U.S. imports and by raising
the foreign-currency price of U.S. exports. According to some estimates, slightly
more than one-third of the deterioration in the current account over the past
four years is attributable to the dollar's appreciation over that period.3
As
'50
'60
'70
'80
NOTE: The 1984 data point is estimated from preliminary information on capital flows for last year.
SOURCE: U.S. Department of Commerce, Bureau
of Economic Analysis.
~
RJNDAMENTALLY DIFFERENT DEFICIT. The dollar's appreciation
resulted from the heavy demand for dollar-denominated assets that is largely
reflected in the substantial net inflows of private foreign capital to the United
States. Beyond the cyclical developments taking place in the U.S. economy,
structural changes underway both here and abroad precipitated major changes
in the historical pattern of world capital flows. These changes include a growing structural budget deficit in the United States, an improved return on real
investment in the United States, increased confidence worldwide in U.S. policymakers' resolve to combat inflation, and political concerns in many foreign
countries. These factors altered the basic nature of the U.S. current-account
deficit.
Ten
Net outflows of private capital accompanied the U.S. current-account deficits experienced in 1971 and 1972 and between 1977 and 1979. These outflows of private capital reflected a general lack of confidence in the dollar
and in U.S. economic policies. The dollar depreciated in foreign exchange
markets. At the time, net inflows of official capital, reflecting attempts to
support the dollar, helped balance the international accounts, avoiding even
sharper adjustments in exchange rates, or changes in income levels and in
other economic variables.
2. Growth rates are for the 10 largest foreign
countries, expressed on a trade-weighted
average basis.
3. Statement by Henry C Wallich, Member
of the Board of Governors of the Federal
Reserve System, before the Subcommittee on
International Economic Policy and Trade,
Committee on Foreign Affairs, US House of
Representatives, Washington DC: Board of
Governors of the Federal Reserve System,
March 22, 1985, p. 2.
4. Many economists believe that the errors
and omissions entry in the balance of
payments data consists, in large part, of unreported private capital transactions. The
errors and omissions component has been
quite large on balance in recent years and
has consistently suggested further private
capital inflows since 1978.
Since 1983, however, the situation has been reversed. The U.S. current-account
deficit has been accompanied by net inflows of private capital, amounting to
$33 billion in 1983 and swelling to $77 billion in 1984~ In general, the net
inflow of private capital to the United States seems to reflect changes in the
investment patterns of both U.S. and foreign investors. Much of the change
appears to reflect a significant shift in bank-related capital over the past few
years. In the past, the United States usually has experienced a net outflow of
bank-related capital, but this net outflow narrowed in recent years and shifted
to a net inflow in 1984. Last year, in particular, there was also a substantial increase in foreign demand for U.S. Treasury securities and U.S. corporate bonds
and a stronger inflow of foreign direct investment to the United States.
Unlike the past, a lack of confidence in the dollar and in the U.S. economy has
not accompanied the recent current-account deficit. These net inflows of private capital, however, have helped to maintain a strong dollar exchange rate,
have enabled the current-account deficit to persist, and have caused international economists to rethink theories suggesting a rapid adjustment to currentaccount imbalances.
[u]
OTNATING FACTORS. Many factors have encouraged a net inflow of
foreign capital to the United States. The leading factors are interest rate differentials that favor investment in dollar-denominated assets over assets denominated in other currencies, an improved climate for investment in real capital
in the United States, and concern over political and social stability elsewhere
in the world.
The most often cited factors encouraging capital inflows and keeping the
dollar strong in foreign-currency markets are interest-rate differentials favoring dollar-denominated assets over assets denominated in other currencies.
Large federal budget deficits, and the prospect that these federal budget
deficits will remain large for the remainder of the decade, appear to be
important factors contributing to higher U.S. interest rates. The relationship
between federal budget deficits and higher interest rates is not simple; it
,
Twelve
greatly depends on how the fiscal policies that generated the deficit influence private investment and savings. For example, a $25 billion deficit produced solely by measures that increase saving $25 billion probably would
not affect interest rates.
5. See Roger M. Kubarych, "Financing the
US. Current Account Deficit," Quarterly
Review, Federal Reserve Bank of New York,
vol. 9, no. 2 (Summer 1984), pp. 24-31.
Most empirical investigations of the relationship between federal budget deficits and interest rates generally have failed to verify that deficits produce high
interest rates. This result probably reflects the fact that federal deficits have
risen during periods of economic slack when private credit demands are weak,
and they have moderated fairly quickly again when recovery was under way
and private credit demands firmed. Moreover, federal borrowing historically
has remained fairly small, on balance, relative to private saving. A5 discussed
in last year's annual report, federal borrowing has risen sharply relative to private saving since 1979. In addition, private investment spending has been atypically strong over the recent recovery. Interest rates undoubtedly have been
higher than they would have been in the absence of the enormous federal
credit demands.
Nevertheless, heavy federal borrowing appears to have had less effect on interest rates than analysts had anticipated, and it has not hampered growth of the
interest-rate-sensitive sectors of the economy to the extent earlier feared. The
massive inflows of foreign savings which have accompanied the current-account
deficit have helped finance both public and private credit demands. At present
there is little prospect for a sharp decline in the federal demand on private savings, as structural deficits probably will remain in a range of 4 to 5 percent of
GNP throughout the decade. As the U.S. expansion continues, and as private
credit demands continue to firm, heavy federal borrowing seems likely to put
further upward pressures on interest rates.
While heavy federal credit demands and a strong U.S. recovery maintained
pressure on U.S. interest rates, the slow recovery in Europe resulted in weak
credit demands there. In addition, Eurodollar markets remained liquid because foreign exporters have deposited dollars earned through trade with
the United States in these markets.5 The weak recovery abroad and the liquidity in the Eurodollar market helped to produce interest-rate differentials that
favored dollar-denomin ated assets and contributed to the inflows of capital to
the United States.
An improved investment climate in the United States, in relation to other
countries, was another major factor contributing to the net inflow of foreign
capital, especially longer-term direct and portfolio investment. The return
,
TbMeen
6 See Economic Report of the President,
Washington, DC: US. Government Printing
Office, February 1985, p. 31.
7 Economic Report of the President, Washington, DC: US. Government Printing Office,
February 1985, p. 109.
on real capital in the United States appears to have risen substantially since
1982. The improved return on real capital reflects the vigorous recovery in
the United States, achieved without a resurgence of inflation, and changes in
tax laws that improved depreciation allowances and investment credits. In
addition, the cost of investment goods in particular has declined over the last
two years, while other business costs including unit labor costs have risen
only moderately.6
International investors now appear to hold more sanguine expectations about
the future prospects for real growth in the United States, and have a renewed
confidence in the willingness, and ability, of U.S. policymakers to prevent a
rekindling of inflation. The high and variable rate of inflation experienced
throughout most of the 1970s made it difficult for investors to assess the relative returns from individual projects. As a consequence, all too often during
the 1970s, firms undertook investments with relatively rapid payback instead
of the longer-term investments important for building the capital stock and for
improving productivity growth.
In contrast with developments in the United States, the long-term investment
climate in most other developed countries, especially those in Europe, does
not appear to have improved. The recovery in most other developed countries,
except inJapan and in Canada, has been sluggish. The European economies,
in particular, face numerous structural problems and disincentives that have
dampened employment and investment. These problems and disincentives
include high nonwage labor costs, job security arrangements that limit labor
mobility and new hiring, high marginal tax rates on labor and capital, and heavy
regulatory burdens?
Fourteen
In addition to relative rates of return, international investors consider the risks
of investing funds in various currencies and countries. Much of the net inflow
of foreign savings to the United States in recent years reflects the flight of capital away from political and economic instability elsewhere in the world. Latin
America debtor nations, for example, have experienced severe difficulties in
servicing their international loans, and the austerity measures undertaken in
some of these countries have generated social strife. Many individuals, fearing
increased capital controls and possibly the confiscation of assets, have moved
funds out of Latin American countries and into dollar-denominated assets in
the United States. The safe haven motive is not peculiar to capital movements
from Latin America. Strikes, political unrest, and fears of capital controls also
may have motivated capital flows from Europe and from the Middle East.
D
8. Although it is true in principle that
one nation's current-account surplus is a
current-account deficit elsewhere in the
world, measured worldwide trade flows do
not balance.
MPACTS OF OUR DEFICIT. The U.S. current-account deficit has impor-
tant implications for the rest of the world. The mirror image of the U.S. currentaccount deficit is in principle a current-account surplus elsewhere in the world;
our imports are their exports.8 'When the United States imports more than it
exports worldwide, it tends to increase production and employment elsewhere
in the world. At the same time, however, the flow of foreign savings into the
United States that necessarily accompanies a U.S. current-account deficit will
tend to raise interest rates abroad and slow investment and interest-sensitive
spending in these countries. The net impact of the U.S. current-account deficit
on our trading partners depends on how these two influences balance.
Over the past few years, the recovery among most developed foreign nations
has been very sluggish; most continue to experience high rates of unemployment and excess capacity. Public and private credit demands in these
nations have been rather weak In this economic environment, the favorable
effects on foreigners generated by U.S. imports probably have outweighed
the adverse effects stemming from heavy capital flows out of their countries
into the United States.
The implications of the U.S. current-account deficits for the less-developed
debtor nations are of special interest. Although the international debt situation
remains a major uncertainty, the crisis atmosphere seems to have dissipated
in 1984. The prospects of a major disruption in servicing international debt,
with cataclysmic consequences for U.S. banks, seem much smaller now than
in 1983 or in 1984. Under the auspices of the International Monetary Fund,
many debtor countries experiencing severe loan-servicing difficulties have
renegotiated the terms of their loans and stretched out repayment schedules.
Most nations now are sharing in the economic recovery.
With the immediate situation apparently under control, it is time to examine the
problem in a longer-term context and to consider the implications of solving
the debt situation. A necessary element of that solution is that creditor nations
as a group run current-account deficits with the debtor nations; otherwise, the
debtor nations will be unable to earn the necessary foreign exchange to service their loans.
1
Fifteen
If the debtor nations are to continue servicing their dollar-denominated loans,
they must obtain dollars. Countries can earn foreign currency by selling assets,
by inviting direct foreign investments into their countries, or by running a
surplus in their trade of goods and services. Because most less developed
debtor nations have few attractive assets to sell and, at present, offer few attrac-
tive long-term investment prospects, they must earn foreign exchange through
an export surplus.
9. Economic Report of the President, Washington, DC: US Government Printing Office,
February 1985, p. 106
10 See Michael Doole;; William Helkie, et al,
'.tin Analysis of External Debt Positions of
Eight Developing Countries through 1990,"
International Finance Discussion Papers,
No. 227, Washington, DC: Board of Governors
of the Federal Reserve System, August 1984;
and William R. Cline, "International Debt:
From Crisis to Recovery," presented at the
annual meeting of the American Economic
Association, Dallas, TX, December 28, 1984.
11. Shafiqul Islam, "Foreign Debt of the
United States and the Dollar," Research
Paper, No. 8225, Federal Reserve Bank of
New York, September 1984.
The largest debtor nations have improved their current-account positions since
1981? Much of the improvement has resulted from austerity measures through
which the debtor nations have reduced their imports, but the developing countries cannot reduce their imports below a minimum level necessary to support
their economies. The debtor nations must expand production of their export
sector, improving productivity so that they can compete even more effectively
in the world markets.
Export expansion, however, can only occur if the markets of the world absorb the exports of the debtor countries. Recent studies have suggested that
industrial-country growth of approximately 2.5 to 3 percent per year is necessary if the developed countries are to absorb exports from debtor countries
in sufficient quantities to enable the debtor countries to reduce their debt
burdensl 0 Such growth would provide an expanding world market for the
exports of these countries.
In this context, the huge, growing current-account deficit of the United States
has helped the debtor nations to earn foreign currency. Of the $71 billion increase in the U.S. merchandise trade deficit between 1982 and 1984, $12.8 billion, or 18 percent, represented net imports from Latin American countries.
Growth in the world market, however, will not help resolve the international
debt situation if developed nations limit access to these markets with such
artificial barriers as tariffs, quotas or "voluntary" marketing agreements. For
this reason, the rising tide of protectionist measures is especially disturbing.
[ ! ] NITED STATES AS A DEBTOR NATION. The $102 billion U.S. currentaccount deficit experienced in 1984 is not likely to narrow substantially in the
near term. Consequently, the United States will become a debtor nation sometime in 1985 or in 1986; that is, total liabilities of U.S. residents to foreigners
will exceed total foreign assets held by U.S. residents (see figure 2).
1
Bghteen
Economic theory suggests that high-savings, low-investment countries will
run current-account surpluses, exporting savings to the rest of the world; lowsavings, high-investment countries will incur current-account deficits, importing savings from the rest of the world. The usual presumption is that advanced
countries, like the United States, are high-savings countries with a low mar-
Figure 3
Trade-Weighted Dollar Exchange Rate
March 1973 = 100
150
ginal return to investments in real capital because of the relative abundance
of capital in these countries. At least through the 1950s and 1960s, the United
States seemed to fit this description by typically running a current-account
surplus. Nevertheless, developed, capital-rich countries can become capital
importers because of a shift in their savings-investment preferences reflecting business-cycle developments, secular changes in the return on real capital, or their desire to run structural budget deficits. In the United States, for
example, heavy demands for funds to finance the federal budget deficit and
private investments currently exceed private domestic savings.1 1
In the short to medium term, the persistence of debtor status depends on the
persistence of the underlying factors generating the current-account deficit. In
the long run, the ability of a debtor country to expand its debt continually
depends on the willingness of foreigners to hold increasing amounts of the
debtor's obligations. This willingness has an upward limit related to creditors'
subjective evaluations about the ability of the debtor nation to service its debt.
'76
'79
'82
SOURCE: Board of Governors of the Federal Reserve System.
~
TRONG DOLLAR
The dollar appreciated approximately 72 percent on a trade-weighted basis
from mid-1980 through the end of 1984 (see figure 3) and has reached record
levels against many currencies, including the UK. pound and the French franc.
Developments of the past few years have demonstrated just how difficult it is to
isolate the fundamental economic determinants of exchange-rate movements.
The dollar's appreciation initially seemed to reflect a change in U.S. monetary
policy. Between 1977 and 1979, the trade-weighted dollar depreciated sharply
as the U.S. current-account deficit widened, as inflation in the United States
accelerated, and as confidence in U.S. policymakers' resolve to end inflation
waned. A tighter U.S. monetary policy beginning in late 1979, and an eventual
easing in U.S. inflation, appears to have initiated the dollar's appreciation.
Much of the rise in the dollar since 1982, however, has been unanticipated. In
early 1983 and again in early 1984, many exchange-market analysts expected the
dollar to depreciate because of a growing U.S. current-account deficit. Instead,
heavy demands for dollar-denominated assets caused the dollar to appreciate
approximately 11 percent in 1983 and 12 percent in 1984.
The continued appreciation of the dollar has been a major force shaping the
contours of the recent economic recovery. Some of these influences were detNineteen
Twenty
12. Actually, in the absence of the currentaccount deficit, the dollar might have appreciated even more than it has.
Twenty-One
rimental, but others had a positive effect on the recovery. As discussed in the
previous section, a major detrimental effect of the strong dollar was the worsening U.S. trade balance, which slowed the recovery in many U.S. industries
producing internationally traded goods. Most are manufacturing industries,
and many are predominant in the Fourth District.
The adverse consequences of the sharp and persistent rise in the dollar have
led to complaints that the dollar is overvalued. "Overvalued" is a difficult judgment to make because it depends on many things. It depends crucially on the
economic variables that one believes determine an equilibrium exchange
rate, and on the time frame over which these variables operate to correct imbalances. In the short-run, the exchange market is almost always in equilibrium, equating supplies of currencies with demands for them. The exchangemarket consists of many traders, continually assessing information. Because
transactions costs are small, and because the market is virtually worldwide,
trading occurs almost continuously. In such a market, imbalances will not persist for long.
Individuals who contend that the dollar is overvalued appear to have a different, longer-term notion of equilibrium. Long-term equilibrium implies that the
world as a whole is in equilibrium, that is, the markets for goods and services,
the markets for labor, and the market for financial assets all are in equilibrium.
It furthermore implies that all expectations are met and that all relative prices
are constant. The real world, however, is adjusting continually to shocks and
to new information. Deviations from this long-term notion of equilibrium are
the norm. Consequently, economists who argue that the dollar is overvalued
base their judgments about where dollar exchange rates should be on a limited
set of "proximate causes:'
Exchange-market analysts do not completely agree about which factors determine the equilibrium value of exchange rates, about the linkages among these
factors, and about the period in which particular factors have their full influence. Usually, however, exchange-market analysts rely on current-account
developments, or on international interest-rate differentials when judging the
dollar as overvalued or undervalued. When the United States incurred currentaccount deficits in 1971 and 1972, and again in 1977 through 1979, the dollar
eventually depreciated, but, to the dismay of analysts who define equilibrium
solely in terms of the current account, the dollar has not responded in a similar manner to the recent, larger current-account deficit.12 Interest-rate differentials also are important determinants of the dollar, but the correlation between
interest-rate differentials and the dollar's movements is not always close.
Such "proximate causes" as the current account and interest rates are determined in turn by other factors, including relative rates of real economic growth,
relative inflation rates, propensities to save and invest, and technological
changes. The relative stance of a nation's monetary and fiscal policies, moreover, influence all of the factors mentioned above and, in that sense, seem
the most fundamental of all factors influencing exchange rates.
Exchange rates often deviate from levels predicted by past relationships with
these fundamentals because unquantifiable and unpredictable events, such
as expectations and noneconomic developments, dominate short-run movements in exchange rates. The unpredictable nature of many daily events affecting exchange markets creates almost random fluctuation in exchange rates.
Moreover, markets for foreign currency may react more rapidly to new developments than markets for most goods and services. Consequently, they can
overshoot their ultimate equilibrium value when responding to new economic
developments. When making decisions to buy or sell foreign exchange, market
participants process all available information about past and expected events.
From time to time, however, market participants lack complete information
about developments in the market, or are slow to form opinions about the
implications of new events. In such circumstances, the exchange rate might
adjust very slowly, or might move temporarily in the wrong direction.
While the dollar clearly seems overvalued in view of the recent deterioration
in the U.S. current account, it is not necessarily overvalued in terms of other
factors, such as interest-rate differential, or the high return on real capital in
the United States. Even though most economists might expect the dollar to
eventually depreciate, they cannot predict when, or how quickly, it will occur.
~
RICE PRESSURES AND lliE DOLLAR. Not all the effects of the strong
dollar were detrimental for the economy. For the first time in over a decade,
a significant acceleration of prices did not accompany either the economic
recovery or the subsequent expansion. Many factors were responsible for this,
· including moderate money growth, reduced inflationary expectations, and
declines in commodity prices. The rapid appreciation of the dollar, however,
was a major factor.
Because the exchange rate is the price of one nation's currency in relation to
that of other nations, it is easy to see how exchange-rate changes affect the
price of one nation's goods and services relative to another's products. It is
13. See Peter Hooper andJohn Morton, "Summary Measures of the Dollar's Foreign Exchange Value," Federal Reserve Bulletin,
vol 64, no. JO (October 1979),pp. 783-9.
more difficult, however, to understand how exchange-rate movements translate
into aggregate price-level movements within a specific country. The relationship between exchange rates and prices is not simple and direct; nor is it constant over time. Instead, it depends on many factors, including the extent to
which resources are unemployed within the relevant country, the size and expected duration of the exchange-rate change, the response of foreign prices to
the exchange-rate change, and most important, the stance of monetary policy.
The relationship between exchange rates and inflation is further complicated
by a two-way causal relationship that exists between price-level and exchangerate changes. On the one hand, exchange-rate changes produce price pressures; on the other hand, relative inflation rates among countries are important determinants of exchange rates. To further complicate the relationship,
third factors can cause both prices and exchange rates to change, disguising
the causal relationship between prices and exchange rates. Ideally, therefore,
when assessing the impact of exchange-rate changes on prices, we want to
consider exchange-rate movements independent of the inflation process. Real
exchange rates theoretically record such exchange-rate movements.13 On a
real, trade-weighted basis, the dollar appreciated approximately 65 percent
from its low point in 1980 through 1984.
An appreciation in the real exchange rate initially will lower the dollar price of
U.S. imports and raise the foreign-currency price of U.S. exports. These initial
price pressures will cause foreign and domestic demand to shift away from U.S.
goods and services towards foreign goods and services. U.S. firms that compete
against imports, or that export goods to world markets, will cut their costs as
much as possible and adopt the most efficient production methods to protect
their profits and sales against intensified foreign competition. As demand for
their goods declines, these trade-related industries will purchase fewer inputs
from their suppliers and might reduce their work force. Consequently, prices in
the supplier industries and wages could soften. The price pressures will ripple
back through the economy to the very basic resources for production, and eventually could affect firms not closely involved with foreign trade.
The extent to which the downward price pressures ripple back through the
economy depends on many factors. A small exchange-rate change naturally will
have only a small effect on aggregate price levels, whereas a large exchangerate change will have a larger impact on prices. Even a large exchange-rate
change, however, can have no impact on prices if observers expect it to be
quickly reversed. Moreover, the effect of an exchange-rate change on domes,
1wenty•Three
0
----
tic prices will depend on how foreign prices react to the exchange-rate change.
If, for example, foreigners react to an increase in demand for their products by
raising prices instead of expanding output, they will offset the favorable influence of the dollar's appreciation on U.S. price levels.
14. Peter Hooper and Barbara Lowrey,
"Impact of the Dollar Depreciation on the
US. Price Level: An Analytical Survey of
Empirical Estimates," International Finance
Discussion Papers, No. 128, Washington, DC:
Board of Governors of the Federal Reserve
System, January 1979.
The extent to which dollar appreciation moderates U.S. price pressures will depend primarily on monetary policy. The previous example implicitly assumed
that monetary policy was unaffected by the dollar's appreciation. If monetary
policy became too expansive as domestic prices softened, perhaps to prevent
unemployment in trade-related industries, the dollar's appreciation would
be blunted, as would the associated price effects. While dollar appreciation
can help the disinflation process, it cannot supplant the need for moderate
money growth.
Research suggests that on average during the 1970s a 10 percent depreciation
of the dollar's real, trade-weighted exchange rate increased consumer prices
between 1.5 percent and 1.75 percent, with approximately one-half of the
impact occurring within one year of the exchange-rate change, and with the
remainder spread over the next two to three years.1 4 This rule of thumb suggests that the dollar's recent appreciation trimmed approximately three percentage points off the rise in consumer prices over the 1983-1984 period.
It is difficult to project the dollar's course over 1985 and 1986. Nevertheless,
even with a sharp and rapid depreciation of the dollar, this rule of thumb suggests that the impact on aggregate prices would be less than two percentage
points because of lags in the relationship between exchange rates and inflation. The exact effect, however, will depend on the relative restraint or ease of
monetary policy.
~ OLICY CHOICES
,
Twenty-Hue
Many observers, concerned over the detrimental effect of the strong dollar and
the huge current-account deficit, have sought action from U.S. policymakers. As
discussed in previous sections, U.S. economic policies are important pieces of
the international puzzle. Policymakers have many options for influencing various aspects of the international situation. We can summarize these policy options under four broad classifications: 1) expand the money supply at a faster
pace to promote dollar depreciation, 2) intervene in foreign-exchange markets
to encourage dollar depreciation, 3) institute broad or selective trade barriers
to stem the tide of imports into the United States, and 4) trim the federal budget
deficit to reduce pressures on U.S. interest rates. Most policy alternatives, however, involve trade-offs with domestic economic objectives. Some are ineffective.
15. Phillippe Jurgensen, chairman, Report of
the Working Group on Exchange Market
Intervention, Washington, DC, March 1983;
and Owen Humpage, "Dol/,ar Intervention
and the Deutschemark-Dol/,ar Exchange
Rate: A Daily Time-Series Model," Working
Paper 8404, Federal Reserve Bank of Cleveland, September 1984.
By expanding the money supply more rapidly, the Federal Reserve System can
promote dollar depreciation. At the current stage of the business cycle, however, rapid money growth would translate quickly into higher prices. As rising
prices rekindled inflationary expectations, lenders would raise nominal interest rates to protect the real purchasing power of the funds they lend out. The
Federal Reserve could only hope to achieve a permanent reduction in interest
rates by continually accelerating money growth. A higher inflation rate would
ensue; interest rates would rise; the trade deficit would worsen, but the dollar
eventually would depreciate.
Some might argue that recent success at reducing the rate of inflation has provided substantial room for accommodating more inflation in exchange for
dollar depreciation. The rate of inflation experienced in 1984, measured by
the consumer price index, was the lowest since the late 1960s, and the present
outlook for inflation is quite favorable. Nevertheless, the current rate of inflation is still higher than the rate experienced throughout most of the 1960s,
and the inflation experience of the 1970s remains fresh in individuals' memories. Inflationary expectations are likely to respond quickly to any evidence
that policymakers are not resolved to prevent a resurgence of inflation.
As an alternative to expanding the money supply, some observers argue that
the Federal Reserve System could promote dollar depreciation by purchasing
foreign exchange with dollars and by offsetting the resulting expansion of the
money supply through domestic open-market operations. Such a transaction
is referred to as sterilized intervention. Sterilized exchange-market intervention seems to offer an attractive alternative to expansionary monetary policy
because it would not result in a higher inflation rate.
Unfortunately, the ability of the Federal Reserve System to promote dollar
depreciation through sterilized intervention is severely limited. From time to
time, when the exchange market is temporarily unsettled, sterilized intervention can reduce exchange-rate volatility. But sterilized intervention cannot
produce a lasting dollar depreciation when more fundamental factors, such
as interest-rate differentials or relative inflation rates, indicate that the dollar
should remain strong. For this reason, the United States decided in March 1981
to cease intervention on a routine basis and to reserve intervention for periods
of market disorder.15
,
Twenty•Six
16 See Michael F Bryan and Owen F Humpage, "Voluntary F,xport Restraints: The Cost
of Building Walls," Economic Review, Federal Reserve Bank of Cleveland, Summer
1984; Michael F Bryan and Owen F Humpage, "Would Taxing Imports Help?" Economic Commentary, Federal Reserve Bank
of Cleveland, March 1, 1985; and Gerald H
Anderson and Owen F Humpage, '.11 Basic
Analysis of the New Protectionism," Economic Review, Federal Reserve Bank of Cleveland, Winter 1981-82.
Increasingly, U.S. industries facing intense competition from foreign imports
are seeking relief through legislated trade restrictions. Usually trade barriers
are industry specific, and occasionally they are aimed at an individual trading
partner. Recently, however, some policymakers are considering an across-theboard tax on imports as a method for lowering the U.S. current-account deficit
and for providing revenues to trim the federal budget deficit. A comprehensive
tariff could help remedy these twin economic problems, but at a substantial
cost to U.S. consumers and exporters. Moreover, the tariff could invite foreign
retaliation.
Economists have long recognized the benefits of free international trade. When
nations specialize in the manufacture of goods that can be produced relatively
inexpensively, and when each nation exchanges its goods for the goods of
other nations, all nations benefit. The benefits are manifested in lower prices
and in a wider set of items available for consumption. Tariffs tend to restrict
imports and to raise prices. They transfer income away from consumers toward
domestic producers of the protected goods and toward the government. Moreover, tariffs inflict net losses on both national and world economies, because
they shift production to less efficient producers and lower the overall level of
consumption. Usually the costs of tariffs far exceed their benefits.16
U.S. tariffs, or other types of trade restraint, tend to cause the dollar to appreciate under a floating exchange-rate system. By restricting imports, a tariff
reduces the supply of dollars in the foreign exchange market and simultaneously lowers U.S. demand for foreign currencies necessary to buy foreign
goods. The dollar, consequently, will tend to appreciate relative to the currencies of our trading partners, blunting the impact of the tariff on our imports,
and making our exports less competitive in world markets. Consequently,
floating exchange rates limit the effectiveness of comprehensive tariffs for
improving the current account.
1
Twenty•Seven
Tariffs and other trade restraints place much of the burden of adjustment on
our major trading partners, many of whom derive a major share of their export
revenue from trade with the United States, and many of whom import large
amounts of goods produced in this country. These countries could retaliate
against U.S. trade barriers by restricting U.S. exports to their markets. A tariff,
therefore, would harm U.S. export industries because it would inspire either a
dollar appreciation, retaliation, or both. With the resulting reduction in exports,
the improvements in the U.S. current account would be smaller.
Given the inefficiencies and the wide range of possible adverse side effects
associated with an across-the-board tariff, such a policy seems very costly Moreover, an across-the-board tariff primarily would address the symptoms of the
international problems and not the root causes. As discussed in the previous
sections, the large current-account deficit in the United States reflects a tendency to absorb resources in excess of our income growth and to finance
such activities through an inflow of foreign savings. An across-the-board tariff
does nothing to reduce the rate at which the country is absorbing resources,
or to increase permanently the rate of real income growth. By shifting consumption from foreign goods to domestic goods, a tariff will result in higher
prices as the economy approaches full employment. This will also adversely
affect the export sector and diminish any favorable effects of the tariff on the
current account.
Reducing the federal budget deficit is a fourth option open to U.S. policymakers. The first section of this annual report argued that the federal budget deficit is absorbing savings and keeping U.S. interest rates higher than
otherwise would be the case. The relatively high level of U.S. interest rates
has attracted foreign capital and kept the dollar strong in foreign-exchange
markets. Moreover, the pressures exerted from our deficit on U.S. and world
interest rates are likely to intensify as recoveries abroad mature, and as industries worldwide reach capacity limitations. A reduction in the U.S. federal
budget deficit could help lower U.S. interest rates and could promote a dollar depreciation.
While large federal budget deficits certainly are not the only factor contributing to the dollar's strength, reducing the deficit is the best policy option available. It is the only feasible policy that would not involve costly trade-offs in
terms of domestic policy objectives, or that would not result in substantial
costs in terms of economic efficiency.
Nevertheless, other factors, such as the high return on real capital in the United
States and capital flight into the United States, are keeping the dollar strong in
foreign-exchange markets. Therefore, the observed impact on the exchange
rate of reducing the federal budget deficit might be small. The dollar's recent
strength might be consistent with other economic fundamentals, despite the
large current-account deficit, and policymakers might be able to alter the
exchange rate only if they are willing to alter such things as the return to real
capital or the inflation rate. Seldom does cutting the pieces to make them fit
solve the puzzle.
,
Twenty•fight
Federal Reserve
Bank of
Cleveland
Directors
As of March 1, 1985
Cleveland
Cincinnati
Chairman and
Federal Reserve Agent
Chairman
Chairman
ROBERT E. BONI
MILTON G. HULME, JR.
President and
Chief Executive Officer
Armco Inc.
Middletown, Ohio
President and
Chief Executive Officer
Mine Safety Appliances Company
Pittsburgh, Pennsylvania
CLEMENT L. BUENGER
CHARLES L. FUELLGRAF, JR.
President and
Chief Executive Officer
The Fifth Third Bank
Cincinnati, Ohio
Chief Executive Officer
Fuellgraf Electric Company
Butler, Pennsylvania
WH. KNOELL
President and
Chief Executive Officer
Cyclops Corporation
Pittsburgh, Pennsylvania
Deputy Chairman
E. MANDELL DEWINDT
Chairman of the Board
Eaton Corporation
Cleveland, Ohio
J.
DAVID BARNES
Chairman and
Chief Executive Officer
Mellon Bank
Pittsburgh, Pennsylvania
RAYMOND D. CAMPBELL
Chairman, President, and
Chief Executive Officer
Independent State Bank of Ohio
Columbus, Ohio
JOHN R. HALL
Chairman of the Board and
Chief Executive Officer
Ashland Oi4 Inc.
Ashland, Kentucky
RICHARD D. HANNAN
Chairman of the Board
and President
Mercury Instruments, Inc.
Cincinnati, Ohio
SHERRILL CLEIAND
President
Marietta College
Marietta, Ohio
VERNON J. COLE
Executive Vice President and
Chief Executive Officer
Harlan National Bank
Harlan, Kentucky
SISTER GRACE MARIE HILTZ
President
Sisters of Charity
Health Care Systems, Inc.
Cincinnati, Ohio
JERRY L. KIRBY
Chairman of the Board
and President
Citizens Federal Savings
& Loan Association
Dayton, Ohio
DON ROSS
JOHN W KESSLER
President
John W Kessler Company
Columbus, Ohio
LEWIS R. SMOOT, SR.
President and
Chief Executive Officer
The Sherman R. Smoot Company
Columbus, Ohio
WILLIAM A STROUD
President
First-Knox National Bank
Mount Vernon, Ohio
,
Twenty-N;n,
Owner, Dunreath Farm
Lexington, Kentucky
Member
Federal Advisoiy Council
JULIEN L. McCALL
Chairman and
Chief Executive Officer
National City Corporation
Cleveland, Ohio
Pittsburgh
A DEAN HEASLEY
President and
Chief Executive Officer
Century National Bank
& Trust Company
Rochester, Pennsylvania
ROBERTS. KAPIAN
Professor of
Industrial Administration
Graduate School of
Industrial Administration
Carnegie-Mellon University
Pittsburgh, Pennsylvania
JAMES S. PASMAN, JR.
Vice Chairman
Aluminum Company of America
Pittsburgh, Pennsylvania
G.R. RENDLE
President and
Chief Executive Officer
Gallatin National Bank
Uniontown, Pennsylvania
MILTON A WASHINGTON
President and
Chief Executive Officer
Allegheny Housing
Rehabilitation Corporation
Pittsburgh, Pennsylvania
Comparative Financial Statement
For years ended December 31
1984
Statement of
Condition
A5sets
Gold certificate account
Special drawing rights certificate account ..................
Coin ............ ... . ... ..... .. ..................
Loans and securities:
Loans to depository institutions . . . . . . . . . . . . . . . . . . ......
Federal agency obligations bought outright . . . . . . . . . .......
U.S. government securities:
Bills .. ....................... .......... . .......
Notes .. ........ ..... .......... . ...... .... . .. . . .
Bonds . ... ................... .. .................
Total U.S. government securities . . . . . . . . . . ............
Total loans and securities ....................... ....
Cash items in process of collection ............... ... .....
Bank premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... ......
Other assets ....................... ................
Interdistrict settlement account ................. . .......
.
.
617,000,000
302,000,000
34,730,126
.
.
1,202,000
464,506,387
.
.
.
.
.
.
.
.
.
3,933,137,910
3,612,081,955
1,270,765,897
8,815,985,762
9,281,694,149
193,118,962
27,639,546
422,751,603
707,143,437
$
TOTAL ASSETS
Liabilities
Federal Reserve notes
Deposits:
Depository institutions ....... ..... .. ........ ... ...... .
Foreign ...................... . ................... .
Other deposits ....................... ............. .
Total deposits . . . . . . . . . . . . . . ................... .. . .
Deferred availability cash items ....... .. ........ ........ .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
TOTAL LIABILITIES
Capital accounts
Capital paid in ....................... .............. .
Surplus ....................... ......... .. ......... .
TOTAL CAPITAL ACCOUNTS ................ . .......... .
TOTAL LIABILITIES AND CAPITAL ACCOUNTS .............. .
1983
$
659,000,000
302,000,000
36,861,081
28,550,000
512,195,486
3,899,095,369
3,787,905,782
1,233,156,486
8,920,157,637
9,460,903,123
313,757,611
27,423,020
471,760,022
( 693,739,261)
$11,586,077,823
$10,577,965,596
$10,124,974,843
$ 8,831,155,014
882,847,789
10,350,000
673,094
917,312,347
189,147,400
146,723,933
1,094,302,278
10,950,000
21,855,551
1,127,107,829
275,111,613
141,856,440
$11,378,158,523
$10,375,230,896
$
103,959,650
103,959,650
$
101,367,350
101,367,350
$
207,919,300
$
202,734,700
$11,586,077,823
$10,577,965,596
Income and
F:xpenses
Current income
Interest on loans
Interest on government securities ...... ....... ..... . .. ...
Earnings on foreign currency ....... ......... .. .. .......
Income from services ................................
All other income ...... ....... .............. .........
Total current income ...... . .................. .. .....
Tbl,ty 0ne
O
1983
$ 2,863,929
$ 2,378,047
.
.
.
.
.
939,311,393
15,021,379
34,310,795
459,292
$991,966,788
924,706,072
19,987,049
30,342,356
286,732
$977,700,256
Current operating expenses . ................ . . . . .. ..... .
Cost of earnings credits ........... ...... ........... . .. .
55,450,346
9,195,430
54,278,653
6,514,992
CURRENT NEf INCOME
$927,321,012
$916,906,611
Profit and loss
Additions to current net income
Profit on sales of government securities . . . . . . . . . . . . . . . . . . .
All other additions .. .... ... ................ ....... .. .
Total additions ..... ..... . . ................. . ...... .
$ 2,779,521
$
$
3,801
2,783,322
$
Deductions from current net income
Loss on foreign exchange transactions . ........ ......... . .
All other deductions . ........... ....... ............. .
Total deductions ...... . . .. ... . .................... .
$ 31,382,265
395,929
$ 31,778,194
$ 33,309,709
45,472
$ 33,355,181
Net additions or deductions . . .... . ..................... .
($ 28,994,872)
($ 32,004,636)
1,336,302
14,243
1,350,545
Assessments by Board of Governors
Board of Governors expenditures . ....................... .
Federal Reserve currency costs .......................... .
Total assessments by Board of Governors ................. .
9,137,397
$ 14,774,797
5,187,600
8,472,971
$ 13,660,571
NEf INCOME AVAllABLE FOR DISTRIBUfION
$883,551 ,343
$871,241,404
$ 6,177,578
874,781,466
2,592,300
$883,551,343
$ 6,018,002
863,002,352
2,221,050
$871,241,404
Distribution of net income
Dividends paid .....................................
Payments to U.S. Treasury (interest on Federal Reserve notes) ....
Transferred to surplus .... . ......... .. ................
Total distributed . ............. ........ .............
,
1984
.
.
.
.
$ 5,637,400
$
Federal Reserve
Bank of
Cleveland
Officers
As of March 1, 1985
KAREN N. HORN
President
MARTINE.ABRAMS
Assistant Vice President
BURTON G. SHUTACK
Assistant Vice President
WILLIAM H. HENDRICKS
First Vice President
OSCAR H. BEACH, JR.
Assistant Vice President
WILLIAM J. SMITH
Assistant Vice President
LEES. ADAMS
Senior Vice President
& General Counsel
MARGRET A. BEEKEL
Assistant Vice President
MARK S. SNIDERMAN
Assistant Vice President
&Economist
RANDOLPH G. COLEMAN
Senior Vice President
JOHN M. DAVIS
Senior Vice President
&Economist
THOMAS E. ORMISTON, JR.
Senior Vice President
DONALD G. VINCEL
Senior Vice President
ANDREW J. BAZAR
Vice President
DONALD G. BEI'{JAMIN
Vice President
PATRICK V COST
Vice President
& General Auditor
CREIGHTON R. FRICEK
Vice President
JOHN W KOPNICK
Vice President
EDWARD E. RICHARDSON
Vice President
JOHN J. RITCHEY
Vice President &
Associate General Counsel
LESTER M. SELBY
Vice President
& Secretary
SAMUEL D. SMITH
Vice President
ROBERT F. WARE
Vice President
JOHN J. WIXTED, JR.
Vice President
1
Thhty•Two
TERRY N. BENNETT
Assistant Vice President
JAKE D. BREIAND
Assistant Vice President
ANDREW C. BURKLE, JR.
Assistant Vice President
THOMAS J. CALLAHAN
Assistant Vice President
& Assistant Secretary
JILL GOUBEAUX ClARK
Assistant General Counsel
rAWRENCE CUY
Assistant Vice President
JOHN J. ERCEG
Assistant Vice President
&Economist
ROBERT J. FAILE
Assistant Vice President
ROBERT]. GORIUS
Assistant Vice President
NORMAN K. HAGEN
Assistant Vice President
DAVID P.JAGER
Assistant Vice President
CATHY L. PETRYSHYN
Assistant Vice President
SANDRA PIANALTO
Assistant Vice President
ROBERT W PRICE
Assistant Vice President
JAMES W RAKOWSKY
Assistant Vice President
DAVID E. RICH
Assistant Vice President
SUSAN G. SCHUELLER
Assistant Vice President
& Assistant General Auditor
EDWARD J. STEVENS
Assistant Vice President
&Economist
ROBERT VANVALKENBURG
Assistant Vice President
ANDREW W WATTS
Assistant General Counsel
Cincinnati Branch
CHARLES A. CERINO
Senior Vice President
ROSCOE E. HARRISON
Assistant Vice President
DAVID F. WEISBROD
Assistant Vice President
JERRY S. WILSON
Assistant Vice President
Pittsburgh Branch
HAROLD]. SWART
Senior Vice President
RAYMOND L. BRINKMAN
Assistant Vice President
JOSEPH P. DONNELLY
Assistant Vice President
LOIS A. RIBACK
Assistant Vice President
ROBERT B. SCHAUB
Assistant Vice President
Columbus Office
CHARLES F. WILLIAMS
Vice President
@FedFRASER