The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
1973 Federol Rasarve Bonk of Dollos This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) FederalReserveBankof Dallas To the Member Banksin the EleventhFederalReserveDistrict: T h e y e a r 1 9 7 3c o n c l u d e do n a n o t e o f p r o s p e r i t yi n t h e m i d s t o f r i s i n g p o l i t i c a la n d e c o n o m i cu n c e r t a i n t i easn d u n s t a b l ei n t e r n a t i o n arle l a t i o n s h i p s . Its passingmay not be mourned, but most people still enjoyed a very high standardof living and steadyemployment. Meeting the challengesahead, however, will clearly require the best from all of us. Covernmentpolicieswill need to be formulatedand executed with extremecare and almostperfectprecision.Businesses will need to coope r a t eo n e n e r g y - s a v i npgr o g r a m sw h i l e m a i n t a i n i n gp r o d u c t i o na n d e n l a r g i n g their productivecapacities.Laborgroupswill need to approachthe new wage t a l k si n a s p i r i to f m o d e r a t i o ng, i v i n gt h e p u b l i c i n t e r e s th i g h p r i o r i t y i n t h e i r negotiations.Finally,the public will need to maintaina balancedperspective, keeping confidencein our economic systemand refrainingfrom speculative stockpilingof commoditiesin short supply. The year aheadcan be one of brilliant accomplishmentagainstadversity if we just remain calmly confidentand direct our effortstoward meeting our primary challenges.The following article givessome personalperspectiveon certainhigh-prioritychallengesahead. The statementof condition,earningsand expenses, and volume data on operationsof the FederalReserveBank of Dallasfor 1973,with comparative figures1or1972,are also shown in this report.In addition,listsof the directors a n d o f f i c e r so f t h e B a n ka n d i t s b r a n c h e sa s o f J a n u a r y1 , 1 9 7 4 , a r e i n c l u d e d . My associates and I wish you a prosperousNew Year and thank you for your excellentcooperationduring -1973. Sincerelyyours, P . E .C O L D W E L L President THENATION'SPRIORITIES Shortagesof energyand raw materials,disrupt i o n s o f p r o d u c t i o n a n d d i s t r i b u t i o n ,w a g e - p r i c e p r o b l e m s ,a n d d e s t a b i l i z i n gi n t e r n a t i o n arl e l a t i o n s h i p sa r e a m o n g t h e f o r e m o s te c o n o m i ca n d f i n a n cial topics of early 1974.Eachhas its own advocates a st h e p r i m a r yp r o b l e mo f t h e c o m i n gy e a r ,a n d e a c h m a y , i n d e e d ,h a v e a n i m p o r t a n ti n f l u e n c eo n s o m e p h a s eo f o u r n a t i o n ' sf u t u r e . l t m a v b e d i f f i c u l tt o maintain a broad perspectiveof the nation's econ o m i c p o s t u r ei n t h e m i d s t o f t h e c l a m o r i n ga b o u t the energy shortage, but concentrating on the longer-termview of our problems is probably the best approachat the start of this new year. lf we a r e t o a p p r o a c ho u r c h a l l e n g ersa t i o n a l l yo, u r n a t i o n needs to establishpriorities for the coming year. This report will suggestfour broad areasas the topp r i o r i t y c h a l l e n g e st o w a r d w h i c h t o d i r e c t o u r n a tional attentionand efforts in 1974. An annual report usuallytakesa retrospective l o o k a t a c c o m p l i s h m e nat sn d f a i l u r e si n t h e p r e v i o u s y e a r . T h i s r e p o r t w i l l , t o a m i n o r e x t e n t ,d r a w o n the eventsoI 1973,but it looks forward, to a much l a r g e rd e g r e e ,t o t h e c h a l l e n g e sp,r o b l e m s a, n d p r i orities for 1974.ln a relativelyshort document,it is, o b v i o u s l y ,i m p o s s i b l et o r e v i e w a l l o f t h e m y r i a d f o r c e s i m p a c t i n go n o u r e c o n o m i c a n d f i n a n c i a l p r o s p e c t ss; o , t h e c o n c e n t r a t i ow n ill be on financial mattersof specialsignificanceto the nation at the beginningof the new year. However,a generalized economicsettingis necessary to evaluatethe forces o f f i n a n c i asl ig n i f i c a n c e . Our nation experiencedits most productive year in history in 1973,with grossnationalproduct up more than 11 percentand employmentat a record level. Consumersspentfreely from their sharply advancing incomes and, in addition, borrowed heavily to satisfy their demands for more of the g o o d t h i n g s i n l i f e . I n d u s t r i a la c t i v i t i e sp u s h e d a g a i n s tt h e l i m i t s o f c a p a c i t y w , i t h i n d u s t r i a lp r o duction for the year averagingabout 9 percent above that for 1972, and a capital spendingboom of major proportionsbegan to develop from these capacity limitations.So strong was the economic to accelerationthat severemeasureswere necessary curtail the boom. A steadyreduction in fiscal stimulus,a more restrictivemonetarypolicy with higher interest rates, and even wage-pricecontrols were usedto dampen the forward thrust of the economy. ln only a few selectedareaswere there evidencesof significantcurtailmentduring 1973. The termination of the Vietnam war reduced defense spending;higher interestrates,shortagesof credit, and higher prices reducedhousing construction; and the rising cost of credit held down the growth of new businesses. One can readily recognizethe problems created for potential home buyers, cons t r u c t i o nw o r k e r s ,a n d t h r i f t i n s t i t u t i o n tsh a t l a r g e l y servicethe housing industry. lf the massivecredit demandsfrom this industryhad been added to the insistentdemandsof others, they would have created an intolerableburden. Evenwith the reduced level of credit accommodationto the housing industry, there was too much credit demand,which, when met with effortsto restrainthe supply,caused a major upward move in rates. The basicallyprosperouscourseof the nation in 1973 was marred by a virulent, advancinginflation that permeated the whole economy. While 1972 had shown some lesseningof inflation, the w a g e - p r i c er e s t r a i n tes m b o d i e di n P h a s el l l p e r m i t ted a sharpupward price movement-particularlyin t h e a g r i c u l t u r ai n l d u s t r yw , h i c h w a s c o p i n gw i t h t h e combination of worldwide shortagesof meat and g r a i n s u p p l i e sa n d a c c e l e r a t i n gi n t e r n a t i o n a d l em a n d s s t e m m i n gf r o m d e p r e c i a t i o no f t h e d o l l a r a n d r i s i n gi n c o m e so f f o r e i g n e r sS. u p p l yd i s r u p t i o n s and shortagesaccentuatedthe food problem until early tall, and, despitesome declinesafter that, raw agriculturalproduct prices advancedmore than 30 percent over the previousyear. Justas the nation beganto see some glimmer of hope for future price relief, prospectsfor an energyshortagebecamevisible and pricesof many productsroseagain.The energycost advanceof late 1973,partlyoccasionedby heavystockpilingof fuel, reachedover 30 percent.The ramifyingeffects,both i n v e n t o r yb u y i n g a n d f r o m e n from panic-induced production shortage ergy disruptions,fosteredshorta g e so f o t h e r r a w m a t e r i a l as n d t h e i r r e s u l t i n gh i g h e r prices. Measured by the consumer price index, pricesroseover B percent in 1973,led by the rapid a g r i c u l t u r apl r i c e a d v a n c e si n t h e f i r s t h a l f a n d t h e energy cost increasesin the final quarter. Unfortunately,theseprimary inflationarypress u r e so r i g i n a t e di n d e v e l o p m e n t g s e n e r a l l yd i f f i c u l t to containby short-runconstraintsof fiscalor monetary policy.The economicstabilizationeffortsof the Treasuryand the FederalReservewere influentialin r e d u c i n gt h e a v a i l a b i l i toyf c r e d i ta n d r a i s i n gi t s c o s t a n d , t h u s , w e r e o f c o n s i d e r a b l ei m p o r t a n c e i n dampeningthe boom in credit-supportedreal estate and securitiesspeculation.To some extent, however, these restraintswere counterproductivein the a g r i c u l t u r ea n d e n e r g yf i e l d s ,f o r i n b o t h a r e a st h e p r o b l e m w a s o n e o f s u p p l y l i m i t a t i o n st h a t f o r c e d h i g h e r p r i c e s .F u r t h e r m o r et ,i m e l a g s n e c e s s a rfyo r a l l e v i a t i o no f t h e s u p p l y s h o r t a g e sa r e f a i r l y l o n g in both industries. O n t h e s u p p l ys i d e ,t h e n ,t h e t r a d i t i o n acl r e d i t r e s t r a i n thsa d l i t t l e b e n e f i c i ailn f l u e n c ea, n d p e r h a p s a negativeeffect.On the demandside,where credit c o n s t r a i n t sm i g h t l i m i t c o n s u m e rc r e d i t a n d , t h u s , consumerpurchases,the traditional restraintswere a l s o l a r g e l yi m p o t e n t ,m a i n l y b e c a u s et h e d e m a n d for food and energy is relativelyinelastic. Civen the recognizedinsufficiencyof general a g g r e g a t ceo n t r o l so n b o t h t h e d e m a n da n d s u p p l y of these two commodities,our nation turned to strongerdirect wage and price controls and, eventually, a form of allocation. Even these measures failed to contain the upward price pressuresas dem a n d o u t r a n t h e a v a i l a b l es u p p l y . As we turned the corner to the new year, the United Statesfaced many old and new problems but especiallo y n e t h a t o c c u r st i m e a n d a g a i n - t h e inflationof costsand prices.lt is small comfort that a l m o s ta l l o t h e r i n d u s t r i a l i z enda t i o n sf a c e a n e v e n greater inflationary problem or that our postwar record on annual inflation ratesis better than most. T h e i n f l a t i o no l 1 9 7 3a d d e da t l e a s t$ 6 0 b i l l i o n to the pricesof goods and serviceswithout a com- m b n s u r a t ei m p r o v e m e n ti n q u a l i t y .T o m a n y w a g e earners,the inflation nteantno rewardfor increased p r o d u c t i v i t ya n d , t o a l l w a g e e a r n e r sa, n e r o s i o no f p u r c h a s i n gp o w e r .T o r e t i r e dp e o p l ea n d o t h e r so n f i x e d i n c o m e s i, n f l a t i o nm e a n t a n a c t u a ld e c l i n ei n t h e i r s t a n d a r do f l i v i n g . F o rt h e n a t i o na s a w h o l e ,t h e d i s r u p t i o n sm, i s a l l o c a t i o n sa, n d i n e f f i c i e n c i eos f i n f l a t i o n - i n d u c e d b u s i n e s sa n d c o n s u m e rd e c i s i o n sm a y b e t h e m o s t c o s t l yo f a l l . l f a b u s i n e s s m abne l i e v e sh i s c o s t so f b a s i c m a t e r i a l sw i l l r i s e o v e r t h e c o m i n g m o n t h s , t h i s w i l l b e r e f l e c t e di n h i s d e c i s i o n so n c a p i t a le x p e n d i t u r e ss, t o c k p i l i n go f s h o r t s u p p l i e s c, r e d i t d e m a n d ,a n d h i g h e rp r i c e sf o r h i s o w n p r o d u c t .W i t h t h i s s i t u a t i o nm u l t i p l i e d b y l i k e s i t u a t i o n sf o r t h e m y r i a do t h e r b u s i n e s s etsh, e r e s u l ti s a s e l f - f u l f i l l i n g p r o p h e c yo f h i g h e r p r i c e s f o r a l l . T h e c o n s u m e r m a y a l s os e et h e h a n d w r i t i n go n t h e w a l l a n d b e g i n s t o m a k e p u r c h a s etso c u s h i o nt h e e f f e c t so f c o m i n g p r i c e i n c r e a s e sA.l s o ,t o t h e e x t e n tp o s s i b l eh, e c u r t a i l s e x p e n d i t u r e se l s e w h e r eo r d e m a n d s h i g h e r wagesbeyond productivityadvancesto compensate f o r p a s t a n d p r o j e c t e dc o s t - o f - l i v i n gi n c r e a s e s . A s e a c he c o n o m i cu n i t a n t i c i p a t efsu r t h e rc o s t for theseadvancesmultiply. advances,the pressures A l s o , t h e u s u a l a l l o c a t i o no f s p e n d a b l ef u n d s i s distortedto protect againstthe next round of price increases.Such protectiveaction stimulatesgreater s p e c u l a t i o ni n l a n d , j e w e l r y ,h a r d m e t a l s ,a n d t h e f u t u r e sm a r k e t si n c o m m o d i t i e sS. c a r c es u p p l i e so f c r e d i ta r e d i v e r t e df r o m n o r m a lp r o d u c t i v ec h a n n e l s e o a r d i n g t, h u s a g g r a i n t o s t o c k p i l i n go r s p e c u l a t i v h p r o c e s s . v a t i n gt h e i n f l a t i o n a r y O n e m i g h t b e t e m p t e dt o r e c o m m e n da m a j o r r e t r e n c h m e nt to i n t e r r u p t h e i n f l a t i o n a r sy p i r a l ,b u t s u c h a p o l i c y c o u l d c r e a t e s e r i o u sp r o b l e m s o f unemploymena t n d b a n k r u p t c i e sa s o u r d e b t - s u p ported economic systemcontracts.Sincecrashpoli c y a c t i o n s c o u l d p o t e n t i a l l yl e a d t o w i d e s p r e a d c h a n g e si n o u r p o l i t i c a l a n d e c o n o m i c s y s t e m , slower correctivemeasuresare both more desirable among Ihe 1974 and more practical.Nevertheless, p r i o r i t i e sa, s t r o n ga t t a c ko n t h e c a u s e so f i n f l a t i o n shouldrank very nearthe top. S o r t i n go u t t h e n a t i o n ' sp r i o r i t i e si n t h e m i d s t o f a g e n e r a ls l o w i n go f a c t i v i t yr e f l e c t i n gn o t o n l y s f b o t h e n e r g ya n d r a w m a t e r i a l s s u p p l ys h o r t a g eo but also the laggedeffectsof credit restraintwill req u i r e a d e l i c a t eb a l a n c i n go f e c o n o m i ca n d f i n a n c i a l p o l i c i e s .A s t h e m a g n i t u d eo f t h e e n e r g ys h o r t f a l l b e c o m e sm o r e v i s i b l ea n d t h e d e g r e eo f r e s p o n s e n e e d e dt o c u r t a i ld e m a n d t o s t a y w i t h i n a v a i l a b l e s u p p l i e sb e c o m e sc l e a r e r ,p o l i c y m a k e r cs a n b e g i n t o a s s e stsh e e c o n o m i cs i g n i f i c a n coef t h e n e c e s s a r y m e a s u r e sI.n t h e p r e s e n ts t a t e o f d i m v i s i b i l i t yo f t h i s p r o b l e m , i t a p p e a r ss i n g u l a r l yu n w i s e t o t a k e s t r o n gp o l i c y m e a s u r e st o r e s t i m u l a t ea n e c o n o m y t h a t h a s j u s t s e e n a t r a u m a t i ci n f l a t i o n a r ys p i r a l . R e s t i m u l a t i o nc o u l d r e i n f o r c et h e a l r e a d y s t r o n g p r i c e p r e s s u r ew s i t h o u t s i g n i f i c a n t lcyo n t r i b u t i n gt o a l l e v i a t i o no f t h e d i s r u p t i o n fsr o m e n e r g ys h o r t a g e s . O n t h e o t h e r h a n d , a c c e n t u a t i n gm o n e t a r y a n d f i s c a l r e s t r a i n t si n t h e f a c e o f a p o s s i b l en e w s e t o f e c o n o m i cc i r c u m s t a n c ewso u l d s e e me q u a l l y i n a p p r o p r i a t eT . hus, for most economic policym a k e r sa, w a i t - a n d - s eaet t i t u d ew i t h g r e a tf l e x i b i l i t y m a y b e t h e m o s t d e s i r a b l es h o r t - r u nc o u r s e .T h i s r e c o g n i z e st h a t s h a r p l y e a s i e rc r e d i t m a y m e r e l y p r o v i d et h e w h e r e w i t h a tl o b i d u p p r i c e si n s h o r t age areasand that fiscalpoliciesleadingto a broad restimulationcould compete with private efforts to raisecapital for capacityexpansion. Two important elements may have been r u n d e r e s t i m a t ei nd t h e a n a l y s i so f o u r i n f l a t i o n a r y p r o b l e m s - t h e i m p a c to f a c o i n c i d e n ct y c l i c a lp o s i tion of most of the major industrialized countries a n d t h e b r e a k d o w no f t h e f i n a n c i a lm e c h a n i s mf o r i n t e r n a t i o n asle t t l e m e n t sF.o r m a n yy e a r s t, h e i n d u s trial countrieshavebeen in offsettingcyclicalphases s o t h a t e x c e s s i veec o n o m i cg r o w t h a n d i n f l a t i o ni n o n e w e r e n o t r e i n f o r c e db y s i m i l a r t r e n d s i n t h e others.Instead,recessions or periodsof slow growth i n s o m e c o u n t r i e so f f s e t m a j o r e x p a n s i o nisn o t h e r c o u n t r i e s ,t h e r e b y h e l p i n g t o d a m p e n w o r l d w i d e d e m a n d a n d k e e p t h e i n t e r n a t i o n apl r e s s u r e so n p r i c e sw i t h i n b o u n d s . U n f o r t u n a t e l yt,h i s h a s n o t been the caseover the past two years,and world d e m a n df o r v i r t u a l l ya l l r a w m a t e r i a l sf ,o o d , e n e r g y , a n d m a n u f a c t u r e pd r o d u c t sh a s a c c e l e r a t e rda p i d l y . O n e c o m m o n e l e m e n ti n d u c i n g t h i s c y c l i c a l u n i f o r m i t ym a y h a v e b e e n t h e 1 9 7 1 b r e a k d o w no f t h e i n t e r n a t i o n apl a y m e n t sm e c h a n i s mW . hen the U n i t e dS t a t e ss u s p e n d e d c o n v e r t i b i l i t yo f t h e d o l l a r i n t o g o l d ,t h e B r e t t o nW o o d ss y s t e mc o l l a p s e dE. v e n t h e s u b s e q u e n tS m i t h s o n i a nA g r e e m e n t a n d t h e central rate arrangementsof early 1973 failed to reestablish a v i a b l e ,d e p e n d a b l ea , nd supportable s y s t e mo f i n t e r n a t i o n apl a y m e n t s I. n f a c t , v i r t u a l l y a l l t h e m a j o r c u r r e n c i e so f t h e w o r l d a r e f l o a t i n g , w i t h i n d i v i d u a lf l o a t s f o r s o m e c o u n t r i e s s, u c h a s Japanand Canada,and joint floatsfor severalof the CommonMarketcountries. T h e A m e r i c a nd o l l a r t h u s f l o a t sa g a i n s to t h e r major currencies,and exchangeratesmove up and down, partly in accordwith market supply and dem a n d . I n t e r v e n t i o nb y t h e c e n t r a lb a n k ss i n c eJ u l y hashelpedto stabilizerate movementsbut hasfailed to provide the certainty needed for strong confid e n c e i n c u r r e n c vv a l u e s .T h i s l a c k o f c o n f i d e n c e a n d t h e h e a v yo v e r h a n go f U . S .d o l l a r si n f o r e i g n hands have been important factors keeping the w o r l d f i n a n c i a lc o m m u n i t yo n e d g e . L a c k i n gc o n f i d e n c e i n t h e m a j o r c u r r e n c i e sb , usinessea s nd c o n s u m e r sh a v e a d o p t e d p r o t e c t i v e p o l i c i e s d e s i g n e d t o i n s u l a t et h e m s e l v e sa g a i n s tl a r g e l o s s e s f r o m e x c h a n g er a t e m o v e s .W h i l e i t i s d i f f i c u l t t o d o c u m e n t ,o n e c a n e n v i s i o nt h e p o s s i b i l i t yo f t h e s e m o v e sf o r m i n g a p r i m a r yu p w a r d t h r u s t i n p r i c e s that is reinforcedas goods and servicesand capital move from one country to another. T h e i m p a c t o n w o r l d t r a d i n gp a t t e r n sh a s a l readybecomeevident,with purchasers shiftingfrom one country to another as exchangerate relationof individual shipschangethe relativeattractiveness p r o d u c tp r i c e s .I n t h i s w o r l d o f u n c e r t a i nc u r r e n c y v a l u e sa n d r e l a t i o n s h i p st h, e d i s t r u s to f c u r r e n c i e s h a sb e e ns h a r p l ya c c e n t u a t eadn d n a t i o n s l,i k e i n d i viduals,havetaken actionsto protectagainstadverse price movements.To a considerableextent, these actionshave increasedthe pressures for changeand these pressures,in turn, have been reflectedin exchange rates.As the nationsof the world become even more dependenton one another for raw mat e r i a l sm , a r k e t sa, n d e v e nf i n a n c i n ga, u n i f y i n g c, o n f i d e n c e - i n s p i r i ni n g t e r n a t i o n apl a y m e n t sm e c h a n i s m b e c o m e sa n o v e r r i d i n gn e c e s s i t yW. i t h o u t i t , t h e d e s t a b i l i z i n ga c t i o n o f o n e m a j o r c o u n t r y c a n u p s e t r e l a t i o n s h i pf so r a l l a n d e f f e c t i v ew o r l d d e m a n df o r raw materialsand manufacturedproducts can shift in a devastating manner. One may be tempted to overemphasizethe i m p o r t a n c eo f a n e w , f u l l y s u p p o r t a b l e international p a y m e n t sm e c h a n i s ma s a p r i m e e l e m e n ti n e n c o u r a g i n g a r e t u r n t o i n t e r n a t i o n ap l r i c e s t a b i l i t y .l t s h o u l db e r e c o g n i z e dt h a t t h e d e v e l o p i n gs h o r t a g e s of energyand raw materialswill not be alleviatedby j u s t m a r k e to r f i n a n c i a sl t a b i l i t y H . o w e v e r ,w h i l e i t is not a cure-allfor the world's economic problems a n d w i l l c a l l f o r d i f f i c u l t p o l i t i c a ln e g o t i a t i o n st ,h e d e v e l o p m e not f a n e w i n t e r n a t i o n af il n a n c i a m l echa n i s ms h o u l do c c u p ya h i g h - l e v epl o s i t i o ni n t h e l i s t of our prioritiesfor 1974. The ravagesof inflationand the countermoves againstit, coupled with the effects of energy and raw material shortages,have begun to move the United Statestoward a somewhat higher level of unemployment.The fundamentalcausesof change are presently indeterminate,but the margin of change is likely to be a small percentageof the labor force. Policy reactionto rising unemployment often has been to force restimulationof the economy regardlessof the fundamentalcausesof the a d d i t i o n a lu n e m p l o y m e n tS. u c h p o l i c i e sh a v e u n i formly restimulated i n f l a t i o na s w e l l a n d , t h u s , p e n a l i z e d t h e p o p u l a t i o na s a w h o l e t o p e r m i t r e e m p l o y m e n t o f a r e l a t i v e l ys m a l l p r o p o r t i o n o f workers. There is a possibility that in coming m o n t h s ,s o m e a d d i t i o n a lu n e m p l o y m e n tm a y d e velop from the energy shortagesor other supply problems.A broad policy move to restimulatethe economy to cope with this development would seem unwise at present.On the other hand, one c a n n o tt u r n h i s b a c k o n t h e u n e m p l o y e dn, o t o n l y for humane reasonsbut also becauseof the social and economic cost of unused resources. Alternativesolutions to the structuralor l o n g e r - r a n guen e m p l o y m e npt r o b l e m si n t h e U n i t e d Stateshave been suggestedfor many years,including the conceptthat the federal governmentshould be "the employer of last resort." Effortshave been m a d et o i m p r o v em o b i l i t ya n d r e t r a i nw o r k e r si n p r o ductiveskillsasa meansof reemployingworkersf rom industriesthat have retrenchedor becomeobsolete. O u r n a t i o n s h o u l d n o t o v e r l o o k t h e p o s s i b i l i t yo f greater local responsibilityfor employment of the s t r u c t u r a l l yu n e m p l o y e d e, v e n i f t h e f u n d i n g m u s t come from a central governmentsource.Virtually all local governmentshave some projects that are deferred becauseof lack of funds and available trained employees. lf the unemployed could be channeledinto these projects,it would seem more desirableto assignthe responsibilityat a local level. In periods of severerecession,the central governm e n t p r o b a b l yw i l l b e r e q u i r e dt o s u p p l ya d d i t i o n a l funds and, perhaps,even central direction of projects. But since unemploymentis so diverse in its c o m p o s i t i o na n d l o c a t i o n ,a l l e v i a t i n ga c t i o n s h o u l d be equally diversifiedand specialized.Therefore,it s e e m st h a t o u r l i s t o f p r i o r i t i e ss h o u l di n c l u d ea n e w a p p r o a c ht o a l l e v i a t i n gu n e m p l o y m e ntth a t w i l l n o t i m p o s ea m a j o r i n f l a t i o n a r yp e n a l t yo n t h e c o u n t r y asa whole. F i n a l l y ,a n o t h e r p r i o r i t y o f c o n s i d e r a b l ei m p o r t a n c et o t h e o n g o i n go f o u r n a t i o n i n 1 9 7 4 i s a return to free-marketallocation and pricing. Over the pasttwo years,we haveexperimentedwith nonwartime use of broad wage-pricecontrols. While hard to document,it may be reasonableto conclude from our recentexperiencethat federaldictation of w a g e sa n d p r i c e si s b o t h a n u n e c o n o m i ca n d a n i n efficient method of achievingour nation's objectives.To some considerableextent,the shortagesof food, fiber, and energy might be attributed to the dislocationscreatedby wage-pricecontrols; and if this country is to return to a period of stability without a changein its form of government,wageprice controls need to be moderated, if not dismantled entirely. I t h a s l o n g b e e n a r g u e d ,w i t h c o n s i d e r a b l e c o n v i c t i o nt,h a t i n a n e c o n o m ya s c o m p l e xa s o u r s , no group-whether governmental,economic, or political-can have sufficientwisdom to make the myriad of decisionsnecessaryto allocateresources and goodsand servicesin an efficientand equitable manner. The free enterprise,profit-motivatedsystem in our countryhas relied heavilyon self-interest as a most effectiveand efficient allocatorof goods and services.Direct-control modificationsof that system will, in effect, ask the individual to act t . u m a n n a t u r eb e i n g a g a i n s th i s o w n s e l f - i n t e r e s H w h a t i t i s , i n d i v i d u a l ss t i l l l o o k o u t f o r t h e i r o w n best interestsin the vast majority of businessand personal decisions. lf government controls run counterto such decisions,the resultsare likely to be b o t h u n e c o n o m i ca n d d i s r u p t i v ei n t h e i r i m p a c to n the market processesin the economy as a whole. One can recognizethe situation that brought this nation to the 1971 decisionto use wage-pricecontrols. But there should also be recognitionof the disruptive effects of these controls and the need to shift away from them as soon as possible. T h e c o m p l i c a t i n gf a c t o r i n t h e e c o n o m y i n early 1974 is, of course,the energy shortage.Price a l l o c a t i o ni s o n e o f t h e b e s tm e t h o d so f d i s t r i b u t i n g energy, but if the regressiveeffects on the low- income sectorof our populationare extensive, some modification of pure price allocation may be required. Similarly,price allocationto resolveenergy demand competition between consumersand industriesmay not provide the best overall resultsfor the economy. Assuming,however, that our nation can move aheadwith the developmentof new energy sourcesand reduce consumptionby meansof voluntary actions,modificationsof the price mechanism should be both limited and short-lived. In summary,despite the short-run pressures problems and of early 1974, the long-run picture still shows great strengthin our nation'seconomy. All is not perfect in any economic system,but ours continuesto supply the greatestgood for the most people of any in the world. Our challengesfor the near term reflect some of this affluence,but we need to mount a concertedattack on inflation and help develop a new internationalpaymentsmechanism that will sustain the confidence of people throughout the FreeWorld. At the same time, our prioritiesshould include a return to the free-market allocationof goods and serviceswhile we develop new measuresto help the unemployed. Economic growth with almost fully utilized resourcesand a relativelystable price level is an attainableobjectivefor our nation.We need, however, to concentrate our efforts on eliminating those forces that seem to undercutour systemand impede our progresstoward this objective. Directors FEDERAL RESERVE BANK OF DALLAS fohn Lawrence CharlesT. Beaird Gene D. Adams ThomasW. Herrick lrving A. Mathews Stewart Orton A. W. Riter,fr. Hugh F. Steen Robert H. Stewart, lll (Chairmanand FederalReserveAgent),Chairmanof the Board, DresserIndustries,Inc., Dallas,Texas ( D e p u t yC h a i r m a n )C, h a i r m a no f t h e B o a r d ,B e a i r d - P o u l aDni v i s i o n , EmersonElectricCo., Shreveport,Louisiana President, The FirstNationalBankof Seymour,Seymour,Texas President,MesaAgro, Amarillo,Texas Chairmanof the Boardand Chief Executive Officer,FrostBros.,Inc., SanAntonio,Texas President,Foley's,Divisionof FederatedDepartmentStores,Inc., Houston,Texas Presidentand Chairmanof the ExecutiveCommittee,The PeoplesNationalBank of Tyler, Tyler, Texas President,El PasoNaturalCas Company,El Paso,Texas Chairmanof the Board,FirstInternationalBancshares. Inc., Dallas,Texas EL PASOBRANCH Allan B. Bowman Reed H. Chittim Gage Holland C. f. Kelly Herbert M. Schwartz Wayne Stewart Sam D. Young, fr. President, AMAX Arizona,Inc.,Tucson,Arizona President.FirstNationalBankof LeaCounty,Hobbs,New Mexico Owner, Cage Holland Ranch,Alpine, Texas Presidentand Vice Chairmanof the Board,The FirstNationalBankof Midland Midland, Texas President,PopularDry Goods Company,Inc., El Paso,Texas President,FirstNationalBank in Alamogordo,Alamogordo,New Mexico President,El PasoNationalBank,El Paso,Texas HOUSTONBRANCH T. l. Barlow SethW. Dorbandl Bookman Peters Nat S. Rogerc Carl B. Sherman P. K. Stubblefield Alvin l. Thomas Presidentand Chief ExecutiveOfficer,Anderson,Clayton& Co., Houston,Texas Chairmanof the Boardand President,FirstNationalBankin Conroe,Conroe,Texas President, The City NationalBankof Bryan.Bryan,Texas President,FirstCity NationalBankof Houston,Houston,Texas President,HoustonLighting& PowerCompany,Houston,Texas President, VictoriaBankand Trust Company,Victoria,Texas President, PrairieView A & M University,PrairieView, Texas S A N A N T O N I OB R A N C H Marshall Boykin lll RichardW. Calvert Ben R. Low Pete Morales, lr. W. O. Roberson Leon Stone Margaret ScarbroughWilson SeniorPartner,Wood, Boykin& Wolter, Lawyers,CorpusChristi,Texas President,NationalBankof Commerceof SanAntoniol SanAntonio,Texas President,FirstNationalBankof Kerrville,Kerrville,Texas Presidentand CeneralManager,MoralesFeedLots,Inc., Devine,Texas Texas Chairmanof the Board,FirstNationalBankat Brownsville,Brownsville, President, The Austin NationalBank"Austin,Texas President,Scarbroughs DepartmentStore,Austin,Texas F E D E R AALD V I S O R Y C O U N C I LM E M B E R Lewis H. Bond Chairmanof the Boardand Chief ExecutiveOfficer,The FortWorth NationalBank, Fort Worth. Texas Officers RESERVE FEDERAL BANK OF DALLAS P. E. Coldwell T. W. Plant Robert H. Boykin fames L. Cauthen Tony l. Salvaggio RobertA. Brown George F. Rudy GeorgeC. Cochran,lll Leon W. Cowan RalphT. Green Larry D. Higgins Carl H. Moore lames A. Parker W. M. Pritchett FredricW. Reed RascoR. Story ThomasR. Sullivan E. W. Vorfop, fr. Sidneyf. Alexander,fr. RichardD. lngram William H. Kelly Harry E. Robinson,fr, lesse D. Sanders Robert Smith, ltl T. E. Spreng E. A. Thaxton,fr. C. L. Vick loseph E. Burns CharlesA. Gore J. W. Harlow, fr. C. l. Pickering Carroll D. Blake f. A. Clymer Millard E. Sweatt, fr. President FirstVice President SeniorVice Presidentand Secretary SeniorVice President SeniorVice President C e n e r aA l uditor CeneralCounsel Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice Presidentand Controller AssistantVice President AssistantVice Presidentand AssistantSecretary AssistantVice President AssistantVice President AssistantVice President AssistantVice Presidentand AssistantSecretary AssistantVice President AssistantVice President AssistantVice President Directorof Research C h i e fE x a m i n e r g Officer Data Processin PlanningOfficer Bank RelationsOfficer OperationsOfficer AssistantCounsel EL PASOBRANCH Fredric W. Reed Forrest E. Coleman foel L. Koonce,fr. Vice Presidentin Charge AssistantVice President OperationsOfficer HOUSTONBRANCH fames L. Cauthen RascoR. Story f. Z. Rowe Vernon L. Bartee Thomas H, Robertson SeniorVice Presidentin Charge Vice President AssistantVice President OperationsOfficer OperationsOfficer SAN ANTONIO BRANCH Cad H. Moore Frederickf. Schmid Thomas C. Cole Robert W. Schultz Vice Presidentin Charge AssistantVice President OperationsOfficer OperationsOfficer Statementof Condition Dec.31,1973 Dec.31,1972 ASSETS Cold certificateaccount Specialdrawingrightscertificateaccount FederalReservenotesof other Banks Other cash L o a n sa n d s e c u r i t i e s : Loans . Federalagencyobligations U . S .C o v e r n m e n st e c u r i t i e s T o t a ll o a n sa n d s e c u r i t i e.s. . . . Cashitemsin processof collection B a n kp r e m i s e .s. . . Other assets TOTAL ASSETS $ 252,436,325 14,0001000 86,147,184 14,OO1,225 $ 377,502,527 14,000,0o0 44,1OO,994 13,626,91O 38,480,0O0 88,739,000 3,593,465,000 3,72O,684,00O 41,335,349 57,258,000 3,048,048,000 3,146,641 ,349 562,656,560 11,944,377 37,978,718 !14?1qqcgq 707,043,679 11,982,842 45,227,639 $4,360,125,940 $2,489,O09,O37 $2,297,888,016 TIABILITIES FederalReservenotesin actualcirculation. . Deposits: Member bank-reserve accounts U.S.Treasurer-generalaccount Foreign Other . Totad l eposits..... 1,496,414,417 129,694,581 14,O4O,OOO 22,187,684 1,652,336,682 1,373,17O,U1 123,671,626 15,950,000 16,987,533 1,529,779,2O0 Deferredavailabilitycashitems Otherliabilities... T O T A LL I A B I L I T I E S 413,640,867 42,629,4O3 4,607,615,989 422,658,902 23,493,122 4,273,819,240 46,116,20O 46,116,2OO 92,232,4O0 43,153,350 43,153,350 86,306,700 $4,360,125,940 CAPITALACCOUNTS C a p i t a lp a i d i n Surplus TOTAL CAPITALACCOUNTS T O T A LL I A B I L I T I EASN D C A P I T A LA C C O U N T S y,699,848,389 10 Earningsand Expenses 1973 1972 CURRENT EARNINGS 6,247,513 212,600,O2O 24,403 87,052 218,958,988 629,906 $ 171,213,105 61,OO7 48,698 171,952,716 Currentoperatingexpenses Assessment for expensesof Boardof Covernors 22,87O,25O 2,422,5OO 19,874,771 1,939,700 FederalReservecur.rency: Original cost, includingshippingcharges Costof redemption;includingshippingcharges Total 1,817,O21 48,481 27,158,262 1,618,4O8 25,817 23,458,696 Lessreimbursement for certainfiscalagencyand other expenses N E T E X P E N S E. S ., . 974,748 26,183,514 933,336 22,525,360 Loans U.S.Covernmentsecurities Foreigncurrencies All other T O T A LC U R R E N E TARNINCS 8 CURRENTEXPENSES PROFITAND LOSS Current net earnings Additionsto currentnet earnings: Profiton salesof U.S.Covernmentsecurities(net) . . All other T o t a l a d d i t i o n s. . . Deductionsfrom current net earnings: Losson salesof U.SGovernmentsecurities(net). . All other Total deductions . . Net additionsor deductions(-) . Net earningsbeforedividendsand paymentsto U.S.Treasury Dividends paid . Paymentsto U.S.Treasury(intereston F.R.notes). Transferredto surplus S u r p l u sJ,a n ua r y1 . . S u r p l u sD, e c e m b e r 3 l. . . . 11 192,775,474 149,427,356 83,145 83,145 137,148 1,271 138,419 1,546,151 2,599,884 4,146,O35 -4,062,890 2,856,648 2,856,648 -2,718,229 188,712,584 2,686,541 183,063,193 2,962,85O 43,'153,350 $ 46,115,200 146,709,127 2,519,557 142,O50,920 .-2,138,650 41,O14,700 $ 43,153,350 Volume of Operations FederalReserveBankof Dallas HeadOffice and BranchesCombined A m o u n tH a n d l e d N u m b e ro f P i e c e sH a n d l e d l 1973 1972 Loans . Currencyreceivedand counted. . . . Coin receivedand counted 1,137 277,868,419 622166,33O 149 256,748,656 588,034,450 8,833,228,452 2,274,765,306 75,576,990 C h e c k sh a n d l e d : U.S. Covernmentchecks Postalmoney orders. All other'9 41,630,765 11,614,731 620,356,623 39,042,050 12,438,271 531,219,368 14,688,267,962 349,171,786 216,O49,826pO4 C o l l e c t i o ni t e m sh a n d l e d: U . S .C o v e r n m e nct o u p o n sp a i d All other lssues,redemptions,and exchanges o f U . S .C o v e r n m e nst e c u r i t i e s. .. Transfero s f funds. Food stampsredeemed 254p88 637,621 332,818 734,286 12,211,236 659,510 97,930,841 1973 139,640,415 319,462,749 22,560,386,670 11,522,337 1,202,807,910,661 544,215 218,415,986 62,927,407 1 Packaged itemshandledasa singleitem are countedasone piece. 2 Exclusive of checksdrawn on the F.R.Banks. 12 1972 $ 1,741,762,698 1,947,729,550 68,313,239 12,995,5'',16,365 331,743,350 173,737,755,192 154,507,846 292,483,599 16,066,573,497 966,488,555,230 133,670,345
@FedFRASER