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BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM

Office Correspondence
Tn

Federal Reserve and other IJ.S. Government
economists
From_________ E. M elichar_______________

Date ..ociobgr....12, 1979_
_
Subject: C la rific a tio n of BusinessJJeek
___________ ar t ic le on.farm. Tendi ng----

You may have seen the a r t ic le , "A rush for loans down on the farm," on
pages 140-141 of the October 15 issue of Business Meek. I f so, you may have
been puzzled by lead paragraph's statement that "...farm -related bank lending
has soared by nearly 30% since Ja n u a r y ,..." and by the chart labelled "to tal
non-real estate ag ricu ltu ral loans." The Washington o ffice of Business Week
has provided the following c la r ific a t io n of these items: (1) the statement
in the text should not have referred to "farm-related bank lending," but
rather to "to ta l non-real estate ag ricu ltu ral loans;" (2) the ris e of 30%
should not have been stated as an actual increase "since January," but rather
as a Business Week projection of the to tal increase for 1979; and (3) the
dashed lin e in the chart was intended to illu s t r a te this projected increase
of 30% in the series during 1979.
With th is c la r ific a t io n in hand, the following additional comments are
relevant:
(1) The series charted is not "t o t a l" non-real estate agricultural
loans, but rather that owed to reporting lending in s titu tio n s , thus excluding
debt owed to CCC and to "in d ivid u als and others" ( Balance Sheet, 1979, Table 7,
column 5). Data plotted for each year are actu ally as of January 1; thus the
so lid lin e should have continued beyond the value of $42.7 b illio n plotted for
January 1, 1978 to also show a value of $49.6 b illio n as of January 1, 1979.
The dashed projection lin e for 1979 experience should have begun at that point
and continued to January 1, 1980.
(2) Rather than risin g by 30% during 1979, the increase in th is series
w ill be well under 20%, p a rtic u la rly since the rise in loans outstanding
at banks (which comprise over one-half of the series to ta l) appears lik e ly
to f a ll in the neighborhood of only 10%. I t is inconceivable that anybody
or any model would be projecting an increase of 30%.
The above c la r ific a tio n s and comments appear to provide a basis fo r
conjecturing that the errors in the text and the chart may be related in the
sense that the January 1, 1979 value of $49.6 b illio n may have been overlooked
in the text as i t was in the chart. Thus i f the w rite r had been provided with
an estimate of about $55.5 b illio n fo r January 1, 1980, which he mistakenly
took for (and did chart as) "1979," he would have calculated a rise of 30%
since "1978" (which, however, was r e a lly January 1, 1978). This r is e , however,
would have a ctu a lly covered a two-year span encompassing an increase of
16% in 1978 and a projected increase of only 12% for 1979.
The remainder of the a r t ic le correlates well with Federal Reserve
surveys and analyses indicating strong farm loan demand in the face of a
tig h t liq u id it y position at most rural banks. Mid-year data indicate that
the net resu lt of these c o n flictin g forces has been a r e la tiv e ly slow
increase in outstanding farm loan? in the banking system—which is the
exact opposite of the Business Week statement and chart discussed above.