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March 6, 1981
Spendingand Borrowing
The budget deficit this fiscal year will
probably be close to $55 billion, as estimated
by both the Carter and Reagan Administrations. However, that figure represents only
a part of the total amount which the Federal
government will have to finance this year.
In addition to the budget deficit (sometimes
called the on-budget deficit), financing will
be needed to cover the government's "offbudget" deficit of roughly $20 billion. The
Treasury may finance a small part of this
combined $75-billion deficit by reducing its
cash balance, butthe bulk-about$70billion
-will have to be obtained from public
borrowings.
The Federal presence in the credit markets is
even greater, however, than the figures represented in the budget and off-budget deficits.
Also operati ng in the markets are government. sponsored enterprises and mortgage pools,
whose borrowings could boosttotal Federallyrelated borrowings to about $1 1 2 billion in
the current fiscal year.
Off-budget entities
In the early 1 970's, Congress excluded the
transactions of certain Federally owned and
controlled entities from the on-budget totals.
The total net loans, or outlays; of these lending agencies represent the off-budget deficit,
which rose from $1 .4 billion in fiscal 1974 to
$1 4.0billion in fiscal 1980. In May 1974, the
Treasury created the Federal Financing Bank
(FFB) to coordinate the borrowing needs of a
growing number of off-budget programs. The
FFB now finances virtually 1 00 percent of the
off-budget deficit, either by offering its own
securities to the public or by borrowing
directly from the Treasury. In either case, the
off-budget debt is part of the gross federal
debt.
Most of the FFB's financing involves the
Farmers Home Administration, which will be
responsible for probably half of the expected
$20-billion off-budget deficit in fiscal 1981.
Most of the remaining off-budget deficit involves foreign military-sales credits, student
loans, and the Rural Electrification and Telephone Revolving Funds.
The government, in addition, becomes involved in credit markets by providing assistanceto certain borrowing by the public. That
assistance includes both borrowing by
government-sponsored enterprises and
government-guaranteed borrowing by nonFederal borrowers. Federally assisted borrowing is now substantially higher than a
decade ago, rising from a $21 -billion annual
average in the 1 971 -74 period to a $40billion average in the 1 977-80 period.
Government-sponsored
enterprises
Over the years, the Federal government has
chartered seven government-sponsored
enterprises to perform specific credit functions, but all are now entirely privately
owned. Consequently, the transactions of
these enterprises are not included within the
Federal budget, although they are still subject
to Federal supervision. Three of these entities
support the housing market-the Federal
National Mortgage Association (Fannie Mae),
the Federal Home Loan Banks, and the
Federal Home Loan Mortgage Corporation
(Freddie Mac)-and generally account for
half of total sponsored-agency borrowing.
Three enterprises are regulated by the Farm
Credit Administration -Banks for Cooperatives, Federal Intermediate Credit Banks, and
Federal Land Banks-and account for
another 45 percent of total borrowing. The
remaining 5 percent represents loans to
support higher education through the Student
Loan Marketing Association.
The seven sponsored agencies borrow funds
in private capital markets and lend these
funds for the specific purposes for which they
were established. Their total borrowing rose
from about $1 bi II ion to a record $24 bi" ion
between fiscal 1971 and fiscal 1 980. Partly
in
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finance the budget deficit ($59.6 billion in
fiscal 1980), the off-budget deficit ($14.2
billion), government-sponsored enterprises
($23.9 billion), and government-guaranteed
mortgage pools ($24.7 billion). Of the total
$1 22.4 billion in net borrowing last year,
$119.1 billion was financed by borrowing
from the public and $3.3 billion by a decrease
in the Treasury's cash balances.
because of continued weakness in the housing market this year, total sponsored-agency
borrowing could remain high, at about $20
billion, in fiscal 1 981 .
Federally guaranteedloans
Three Federally-guaranteed mortgage
pools-the Government National Mortgage
Association (Ginnie Mae), the Federal Home
Loan Mortgage Corporation (Freddie Mac)
and the Farmers Home Administrationprovide further support for the housing
market. Through Ginnie Mae, the Federal
government guarantees the payment of
principal and interest on securities issued by
private mortgage institutions and backed by
pools of mortgages insured by the Federal
Housing Administration or guaranteed by the
Veteran's Administration. These passthrough securities are designed to appeal to
pension funds and other institutional
investors that don't wish to originate and
service mortgage loans themselves.
The government's participation in credit
markets:-the proportion offunds raised by
the Federal government and its assisted
entities -has trended upwards over the past
decade. That proportion increased from a
1 5.9-percent average during the 1 971 -74
period to 25.6 percent during 1 977-80. This
fiscal year, the government might again
account for more than one-fourth of total
borrowings.
By some estimates, the Federal participation
rate is even higher than the figure cited here,
because we include only mortgage-pool
securities in the guaranteed-loan category. In
addition, the government guarantees certain
other types of loans, such as those made to
Chrysler Corporation and New York City, as
well as loans made through the Small
Business Administration. A number of these
other loans, unlike the mortgage pools,
provide for less than 1OO-percent guarantees
of principal and/or interest. The Office of
Management and Budget estimates that tota)'
Federal and Federally-assisted borrowing
would have averaged 26.3 percent, rather
than 25.6 percent, of the 1 977-80 period's
total borrowing if all guaranteed loans were
included in the total (assuming 1OO-percent
loan guarantees).
As a major counterpart, Freddie Mac's
mortgage-backed securities finance conventionalloans, which account for four-fifths
of all home mortgages. Congress created
Freddie Mac to develop a national secondary
market in conventional mortgage loans
originated by thrift institutions and other
mortgage-lending institutions. The agency is
wholly owned by the Federal Home Loan
Banks. Similarly, in the rural area, Congress
created the Farmers Home Administration to
provide direct and guaranteed loans for lowand moderate-income families in communities of less than 20,000 population.
Federally guaranteed mortgage pools have
increased their borroWings substantially,
from a $4-billion annual average to a
$22-billion average between 1 971 -74 and
1 977-80. These entities again could borrow
close to $22 billion this fiscal year.
On the other hand, some analysts argue that
both these estimates are on the high side.
According to this argument, some part of the
loans provided by government-sponsored
enterprises and through mortgage pools
would have been made regardless of the
government's assistance-so that only that
amount resulting from Federal assistance
should be included in an estimate of the
Totalborrowing
We can obtain a measure of tota I Federal and
Federally-assisted borrowing in credit markets by add i ng the net borrowi ng needed to
2
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....-.
1.
r
r
I
in credit markets (see chart). Consequentiy,
we have witnessed an increasing allocation
of these funds toward Federal and Federallyrelated programs, and thus away from private
demands.
government's innuence on credit markets.
The amount to be included represents a
subsidy to the borrower, resulting from the
fact that the Federal government can obtain
more favorable credit terms and lower
interest costs than other borrowers. Although
the subsidy provided by Federal assistance is
not an observable quantity, we might still
conclude that the government's involvement
in credit markets is somewhat less than the
estimates provided above.
According to the new Administration's estimates, the budget deficit in fiscal 1 982 will
again be quite high, while off-budget and
Federally-assisted borrowing will continue
close to 1981 levels. Consequently, credit
markets may remain under pressure as public
and private demands compete for avai lable
funds.
Nonetheless, it remains true that Federal and
Federally-assisted borrowing has increased
overtime as a proportion of total funds raised
RoseMcElhattan
Federal and Federally-Assisted Borrowing
Percent of Total Funds Raised
as a
Percent
40
Fiscal years
30
20
10
o
1970
1972
1974
1976
1978
1980 1981e
Publication-Monetary PolicyObjectives
Copies are now available of the publication, Monetary Policy Objectives far
J98J-a summary of the report made by
Federal Reserve Chairman Valcker to
Congress on FebruarY 25-26, 1981. Free
copies of this publication can be obtained by calling or writing the Public Information Section, Federal Reserve Bank
of San Francisco, P.O. Box 7702, San
Francisco 94120. Phone (415) 544-2184.
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BANKINGDATA-TWELFTHFEDERAL
RESERVE
DISTRICT
(Dollar amounts in millions)
SelectedAssetsandliabilities
largeCommercialBanks
Loans(gross,adjusted)and investments*
Loans (gross,adjusted)-total#
Commercial and industrial
Realestate
Loansto individuals
Securitiesloans
U.s. Treasurysecurities*
Other securities*
Demand deposits - total#
Demand deposits- adjusted
Savingsdeposits - total
Time deposits - total#
Individuals, part. & corp.
(LargenegotiableCD's)
WeeklyAverages
of Dailyfigures
MemberBankReserve
Position
ExcessReserves(+ )/Deficiency (- )
Borrowings
Net free reserves(+ )/Net borrowed(- )
Amount
Outstanding
2/18/81
146,762
124,373
36,711
51,066
23,564
1,492
6,699
15,690
42,776
28,469
29,501
76,898
67,416
30,086
Weekended
2/18/81
n.a.
119
n.a.
Change
from
2/11/81
497
698
167
107
22
101
205
4
513
-1,671
94
401
395
259
Weekended
2/11/81
n.a.
28
n.a.
Changefrom
year ago
Dollar
Percent
8,177
8,216
2,509
6,509
855
272
223
184
2,312
2,337
1,370
17,902
17,076
9,180
5.9
7.1
7.3
14.6
- 3.5
22.3
- 3.2
1.2
5.1
- 7.6
4.9
30.3
33.9
43.9
Comparable
year-agoperiod
79
291
212
* Excludestrading account securities.
# Includes items not shown separately.
Editorialcommentsmaybeaddressed
to theeditor(WilliamBurke)or to theauthor...• Freecopiesof this
andotherfederalReserve
publications
canbeobtainedbycallingor writingthePublicInformationSection,
FederalReserve
Bankof Sanfrancisco,P.O.Box7702,Sanfrancisco94120.Phone(415)544-2184.
41
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