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EXTENSION OF THE TEMPORARY LIMIT
ON PUBLIC DEBT

HEARINGS
BEFORE THE

SUBCOMMITTEE ON TAXATION AND
DEBT MANAGEMENT GENERALLY
OF THE

COMMITTEE ON FINANCE
UNITED STATES SENATE
NINETY-SIXTH CONGRESS
SECOND SESSION

APRIL 2 AND 16, 1980

Printed for the use of the Committee on Finance

U.S. GOVERNMENT PRINTING OFFICE
63-894




WASHINGTON: 1980

HG 96-77

COMMITTEE ON

RUSSELL B. LONG,
HERMAN E. TALMADGE, Georgia
ABRAHAM RIBICOFF, Connecticut
H A R R Y F . B Y R D , J R . , Virginia
GAYLORD NELSON, Wisconsin
MIKE GRAVEL, Alaska
LLOYD BENTSEN, Texas
SPARK M. MATSUNAGA, Hawaii
DANIEL PATRICK MOYNIHAN, New York
MAX BAUCUS, Montana
DAVID L. BOREN, Oklahoma
BILL BRADLEY, New Jersey

FINANCE

Louisiana, Chairman
ROBERT DOLE, Kansas
BOB PACKWOOD, Oregon
WILLIAM V. ROTH, JR., Delaware
JOHN C. DANFORTH, Missouri
JOHN H. CHAFEE, Rhode Island
JOHN HEINZ, Pennsylvania
MALCOLM WALLOP, Wyoming
DAVID DURENBERGER, Minnesota

MICHAEL STERN, Staff Director
ROBERT E . LIGHTHIZER, Chief Minority

Counsel

SUBCOMMITTEE ON TAXATION A N D D E B T M A N A G E M E N T GENERALLY

HARRY F. BYRD; JR., Virginia, Chairman
LLOYD BENTSEN, Texas
HERMAN E. TALMADGE, Georgia
MIKE GRAVEL, Alaska




BOB PACKWOOD, Oregon
JOHN H. CHAFEE, Rhode Island
MALCOLM WALLOP,. Wyoming
(II)

CONTENTS
ADMINISTRATION WITNESSES
Page

Mclntyre, Hon. James T., Jr., Director, Office of Management and Budget
Miller, Hon. G. William, Secretary of the Treasury
.
Rivlin, Alice M., Director, Congressional Budget Office
Volcker, Hon. Paul, Chairman, Federal Reserve Board.....

.

139
102
150
4

Saulnier, Dr. Raymond J., professor emeritus, Barnard College, Columbia
University, and former Chairman, Council of Economic Advisers
Sindlinger. Albert, chairman of the board, Sindlinger & Co

26
39

PUBLIC WITNESSES

ADDITIONAL INFORMATION
Committee press releases
Statement of Senator Bob Dole
Tables submitted by Senator Byrd




2
18
162
(ill)

EXTENSION OF THE TEMPORARY LIMIT ON
THE PUBLIC DEBT
WEDNESDAY, APRIL 2, 1980
U . S . SENATE,
SUBCOMMITTEE ON TAXATION AND
DEBT MANAGEMENT GENERALLY,
COMMITTEE ON FINANCE,

Washington, D.C.
The subcommittee met, pursuant to notice, at 9 a.m., in room S207, the Capitol, Hon. Harry F. Byrd, Jr. (chairman of the subcommittee) presiding.
Present: Senators Byrd, Chafee, and Dole.
[The press release announcing these hearings follows:]




(l)

2
Press Release

P R E S S
FOR IMMEDIATE RELEASE
March 21, 1980

#H-19

R E L E A S E
COMMITTEE ON FINANCE
UNITED STATES SENATE
Subcommittee on Taxation and
Debt Management
2227 Dirksen Senate Office Bldg.

FINANCE SUBCOMMITTEE ON TAXATION AND DEBT MANAGEMENT
SETS HEARING ON PUBLIC DEBT
Senator Harry F. Byrd, Jr. (I-Va.), Chairman of the Subcommittee on Taxation and Debt Management, announced today that a hearing
on extension of the temporary limit on the public debt has been
scheduled. The Honorable G. William Miller, Secretary of the Treasury?
Mr. James T. Mclntyre, Director of the Office of Management and Budget;
and Alice M. Rivlin, Director of the Congressional Budget Office, will
testify on the public debt at 9:30 A.M., Monday, March 31, in Room 2221
Dirksen Senate Office Building.
Paul Volcker, Chairman of the Federal Reserve Board; Dr.Raymond
J. Saulnier; and Albert Sindlinger, consumer research and economic
forecasting pollster, will testify in a second day of hearings, at
9:00 A.M., Wednesday, April 2 in Room S-207 of the Capitol.
Senator Byrd noted that the temporary debt limit of $879 billion which the Congress enacted in September of 1979 is due to expire
on May 31.
Senator Byrd said, "The Federal debt is the result of the
cumulative decisions which Congress and the Administration make about
Federal spending and the Federal deficit. Each year the Federal debt
has grown as deficit has been piled on top of deficit. No doubt,
Congress will be asked to increase the statutory ceiling.
"The greatest problem our nation faces is inflation.
Unless
we get Federal spending under control and reduce the creation of money
to finance our debts, record high levels of inflation will continue.
"Runaway, double-digit, inflation is a disastrous consequence of year-after-year Federal government deficits. The value
of the dollar has declined so that as of January 1980 it was worth only
.43 compared to a full dollar in 1967. The purchasing power of the
dollar will continue to decline unless we get inflation under control.
"The gross interest on the Federal debt for fiscal year 1981
is estimated in President Carter's January fiscal year 1981 budget
to be $79.4 billion.
"By law, the budget is required to be in balance by fiscal
year 1981.
"Recently, the Administration and the Congress have spoken
loudly about a balanced budget. The real test on Washington's resolve
to achieve a balanced budget will be in the months ahead.
"The Subcommittee will examine carefully the budget revisions
which the Administration has proposed."
Written Testimony. — The Subcommittee would be pleased to
receive written testimony from those persons or organizations who wish
to submit statements for the record. Statements submitted for inclusion
in the record should be typewritten, nor more than 25 double-spaced
pages in length and mailed with five (5) copies by April 11, 1980, to
Michael Stern, Staff Director, Committee on Finance, Room 2227 Dirksen
Senate Office Building, Washington, D. C. 20510

P . R . #H-19




3
Press Release #H-21

P R E S S

FOR IMMEDIATE RELEASE
March 28, 1980

R E L E A S E

COMMITTEE ON FINANCE
UNITED STATES SENATE
Subcommittee on Taxation and
Debt Management
2227 Dirksen Senate Office Bldg.

FINANCE SUBCOMMITTEE ON TAXATION AND DEBT MANAGEMENT
RESCHEDULES HEARING ON PUBLIC DEBT

Senator Harry F. Byrd, Jr., (I-Va.), Chairman of the
Subcommittee on Taxation and Debt Management, announced today that
the hearing on extension of the temporary limit on the public debt
originally scheduled for March 31, 1980, has been postponed.
The hearing
announced for April 2 will be held as
scheduled at 9:00 A.M., Wednesday, April 2 in Room S-207 of the
Capitol.
Paul Volcker, Chairman of the Federal Reserve Board;
Dr. Raymond J. Saulnier; and Albert Sindlinger, consumer research
and economic pollster will testify at the hearing.
Senator Byrd also announced that a second day of hearings on
the public debt has been rescheduled for 9:00 A.M., Wednesday, April
16 in Room 2221, Dirksen Senate Office Building. The Honorable
G, William Miller, Secretary of the Treasury; Mr. James T. Mclntyre,
Director of the Office of Management and Budget? and Alice M. Rivlin,
Director of the Congressional" Budget Office, will testify at that time.
Written Testimony. — The Subcommittee would be pleased to
receive written testimony from those persons or organizations who
wish to submit statements for the record. Statements submitted for
inclusion in the record should be typewritten, not more than 25
double-spaced pages in length and mailed with five (5) copies by
April 21, 19 80, to Michael Stern, Staff Director, Committee on Finance,
Room 2227 Dirksen Senate Office Building, Washington, D. C. 20510.




4
Senator BYRD. The hour of 9 having arrived, the subcommittee
will come to order.
The current statutory debt ceiling of $879 billion will expire on
May 31, 1980. It is estimated that the debt at that time will be
substantially higher than the $879 billion figure.
The administration has not yet submitted a revised figure as to
the request that it will make of the Congress in regard to the debt
ceiling. It did on March 3 submit some figures to the Ways and
Means Committee. Since then, there have been two changes in the
President's budget recommendations.
I might say that in the period of a little more than two months,
the President has sent to the Congress three budget messages. On
January 28, he recommended total spending of $616 billion. On
March 14, in a television address to the American people, he recommended total spending of $613 billion and on Monday of this
week, he recommended total spending of $612 billion.
The $612 billion figure for fiscal year 1981 is $64 billion more
than the Congress established for fiscal year 1980 only months ago,
November 1979.
The committee requested Chairman Paul Volcker of the Federal
Reserve Board to meet with the committee today. The committee
feels that the Nation's economic situation and the Government's
financial situation both are extremely grave.
The committee recognizes that the Federal Reserve Board has
taken bold steps, and the chairman of this subcommittee, for one,
wants to commend the courage of Chairman Volcker and his fellow
Board members for the fight that is being made on the monetary
side in regard to attempting to curb the 18 percent annual inflation rate.
It is the view of this Senator that the Federal Reserve Board
alone cannot solve the problem and the Congress must get into the
act in setting fiscal policy. However, I feel that the Congress should
get the viewpoint and the recommendations of the able Chairman
of the Federal Reserve Board.
We assume, Mr. Volcker, that you need some help in this antiinflation fight from the Congress, and if this assumption is reasonably correct, this committee would welcome your views and recommendations and any comments that you would care to make in
regard to the Nation's rather severe economic problems.
Welcome.
STATEMENT OF HON. PAUL VOLCKER, CHAIRMAN, FEDERAL
RESERVE BOARD

Chairman VOLCKER. Thank you, Mr. Chairman.
I think that you received my statement yesterday, and perhaps
we can expedite things if I do not read it.
Senator BYRD. That will be made a part of the record.
Chairman VOLCKER. I can affirm that your assumption is fully
correct: We can use all the help we can get in asserting an appropriate degree of restraint on this inflationary process. If we have to
press monetary policy without help from the fiscal side, the danger
will increase.




5

I have been gratified that this point has been appreciated somewhat now due to the severity of the inflation problem; the need to
attack inflation on all sides is better appreciated now.
The alarming recent price index figure to which you referred—
around an 18-percent annual rate—sure has gotten people's attention. While that particular index may exaggerate the problem, the
problem is very real and very severe, and I look forward to fiscal
policy pulling its oar harder in the direction of restraint.
We are certainly in one of those periods when the need for large
amounts of Federal financing brings pressure on markets very
directly. Those pressures are strong enough so that it is clear that
other potential borrowers, most notably home builders at this
point, but also farmers and even larger businesses, are feeling a
strong squeeze. The more credit is absorbed by the Federal Government at this point in time, the less there is for others.
We have felt it necessary and continue to feel it necessary to
restrain the growth of money and credit, because ultimately we
cannot deal with this inflationary problem if we do not have restraint in money and credit growth.
Unfortunately, the deficit has gotten bigger this year and that
cannot be reversed immediately, although the bulk of that deficit is
now behind us. But, as we set our course for the next fiscal year—
and, indeed, as we look at the rest of this fiscal year and, equally
as important, as we look beyond the next fiscal year and to the
years ahead—I think we can now see the crucial importance of
getting this trend in spending reduced, not only because of its
impact in terms of the deficit, but also because that is the only way
that we can really prepare the ground for the kind of tax reduction
that many people are talking about. I do not think that is possible
or responsible at this point in time, when the budget is not in
shape, a factor which is urgently desirable in terms of the longer
run growth of the economy. All I would say in that connection is
that the priority at this point has to be getting the expenditure
trend down, into a shape that makes it possible, eventually, to
achieve the kind of tax reduction that we would like to see.
The only other point in my statement that is worth alluding to is
that when one looks at Federal Government financing, one has to
look beyond the budget to the somewhat arbitrary decisions about
what is included in the budget and what is not. There is a certain
amount of off-budget financing that has tended to increase in
recent years.
The administration itself has made some proposals for scrutinizing those off-budget credit programs more carefully and bringing
those more directly under congressional control in the aggregate,
and I think that I would commend those proposals to you; it is
important that that part of the Federal financing picture be looked
at as well.
Senator BYRD. Thank you, Chairman Volcker.
In your statement, you say Federal borrowing absorbs scarce
private savings and intensifies pressures on financial markets.
How much borrowing do you foresee by the Federal Government
during this current year of 1980?
Chairman VOLCKER. I have not calculated a borrowing figure. I
do not have a better estimate of the deficit than the estimates the




6
administration put out—in the neighborhood of $36 billion to $37
billion for programs in the budget and off-budget financing which
amounts to another $15 billion, for a combined financing of $51
billion to $52 billion for this fiscal year.
As I suggested, even on a seasonally adjusted basis, I think that
more than half of that is behind us. On an unseasonally adjusted
basis, we can look forward to some reduction in financing needs.
We normally have a big surplus during the current quarter; if
we take that into account, the major financing for this year is
behind us. But that surplus for this quarter is a normal, seasonal
phenomenon, and I do not want to suggest that that means the
problem is anything less than urgent.
Senator BYRD. Another thought occurs to me as to the accuracy
of the figures with which we are dealing and the reliability that
can be placed on those—and I say that for this reason.
It was only 4V2 months ago that the Congress in the second
concurrent budget resolution adopted on November 16, put Federal
spending for the current fiscal year at $548 billion. Yesterday or
the day before, the Senate Budget Committee increased that figure
by $18 billion. That is for the current fiscal year, bringing the total
spending to the current fiscal year up to $566 billion.
What I am suggesting is in a period of 4Y2 months, $18 billion
has been added to the expenditure side of Government.
Chairman VOLCKER. That is true.
Senator BYRD. That brings to my mind as to how much confidence we can have in the new figures which are being submitted. I
do not know whether you have any comment.
Chairman VOLCKER. A S the figures that you recite indicate, there
is great pressure to exceed budgetary estimates, growing from the
inflationary process.
I think the impact of rising prices was underestimated and the
impact on the budget was underestimated. We are in a period of
apparently rising defense spending, and the inflationary impact
from some sectors of defense spending, in particular, were underestimated in the recent figures you recite. Another factor has been
rising interest costs, because the money markets have been so tight
and rates have gone up. In the fullness of time, that could move in
the other direction as well.
I would accept your point that the risk of recent events is that
expenditures might increase beyond the estimates. The reductions
that the President has proposed and that some congressional committees have proposed in a sense offset these reestimates of higher
expenditures and therefore do not show much net progress. There
are some real cuts there, but they have been necessary to offset
this momentum of increased outlays.
The lesson that I would derive from that is that the Congress
and the administration need to be as forceful in confining expenditures within the budgeted amounts as they are making cuts; programs of the sort that have been proposed.
It is going to take continued efforts, I think, to confine actual
spending within the new estimates, but I have no reason to believe
that those new estimates are neither fair nor accurate appraisals of
where things stand at the moment.




7
Senator BYRD. YOU indicated earlier that you thought that the
top priority is getting expenditures down?
Chairman VOLCKER. Right.
Senator BYRD. I certainly agree with you. That is why I constrain
my enthusiasm for the proposals of both the President and the two
budget committees.
The impression has gotten abroad that recent activity in Washington is directed toward reducing Government spending. This is
just not the case.
When President Carter submitted his budget on January 28, it
called for a total spending of $616 billion. Now this week he called
for a total spending of $612 billion.
This is a $4 billion reduction, but that is a reduction from an
increase in spending. Even with a $4 billion reduction, which is
virtually nothing compared to a $616 billion budget, the administration program still calls for a total increase in spending over the
current fiscal year, as enunciated by Congress last November, of
$64 billion.
That is not getting spending under control that I can see.
Chairman VOLCKER. If I may interject, Senator Byrd?
Senator BYRD. Yes.
Chairman VOLCKER. It looks to be less than $ 6 4 billion; the total
goes from more like $ 5 6 9 billion up to $ 6 1 2 billion, as you say.
Senator BYRD. I think where we differ, Mr. Chairman is this. I
am going to the budget resolution, what the Congress has approved
to date in spending for fiscal year 1980—$548 billion. This was in
the budget resolution which the Congress adopted.
Chairman VOLCKER. Right.
Senator BYRD. Congress has taken no further steps in regard to
the fiscal year 1980 budget. That is what the Congress said could be
spent for fiscal 1980.
Chairman VOLCKER. Right.
Senator BYRD. Take $ 6 1 2 billion and subtract $ 5 4 8 billion from it;
you get a $64 billion increase in spending.
Chairman VOLCKER. I am looking at the new administration
estimates which show an increase of $43 billion. The 1980 figure is
much higher than the figure that you suggest; that was the point
we were discussing before. But the point that I would make, I
think, about either of these figures, is that while spending is going
up by a large amount, if the present goal for 1981 set forth by the
administration or by the congressional committees that have been
discussing this were to be achieved, it would represent a very
substantial slowdown in the rate of growth; indeed, the rate of
growth would be below the rate of inflation.
So, I think there is a real change in trend here. If it can be
achieved, if it can be sustained in later years, it is not insignificant.
It would be highly significant if this goal could be achieved.
I would like to see even more, if that is possible, but I would not
want to dismiss what would be achieved if this goal could be
reached.
Senator BYRD. I am not convinced that the goal can be reached.
No. 2, the rate of growth, a $64 billion increase over the $548
billion figure is about 12 percent.
I would say that is a very substantial rate of growth.




8
Let me ask you this, if I may. How do we get interest rates
down?
Chairman VOLCKER. Ultimately, I think we will get interest rates
down by reducing the rate of inflation. I think over any period of
time you could not reasonably expect the level of interest rates to
be wildly out of line with the inflation rate. Indeed, you would
expect—if any period could be called normal—that in more normal
periods the rate of interest will be somewhat above the expected
rate of inflation; that has been the typical pattern in the past.
You would expect the return on investment to be adequate to
permit some reward to lenders, so that the normal expectation in, I
think, any market economy would be that interest rates would be
related to the rate of inflation over a period of time and, by and
large, they would tend to offer some positive return.
Senator BYRD. The way to achieve this
Chairman VOLCKER. The way to get interest rates down is to get
inflation down.
Senator BYRD. TO get inflation under control first?
Chairman VOLCKER. Right.
Senator BYRD. One tool that can be used in that regard is monetary tool, and the other tool must be fiscal policy?
Chairman VOLCKER. Yes, sir.
Senator BYRD. The Congress and the administration together
must do their part on the fiscal side if the efforts of the monetary
side are to be successful. Is that right?
Chairman VOLCKER. Yes.
There is no question, given from the general relationship of
interest rates to inflation in the short-run situation we are in—
and could be again in the future—that the more pressure is taken
off the markets by reduction in Federal borrowing the more easily
you would expect credit to flow to other sectors of the economy
and, to that extent, the lower the interest rates would be.
Senator BYRD. AS I go around Virginia to meet with and talk
with people, so many put this question to me—perhaps you can
help me give a satisfactory answer.
Why does not Congress do something about interest rates?
Now, what can Congress do about interest rates?
Chairman VOLCKER. Congress can reduce the budgetary deficit;
that would be the most fundamental and constructive thing you
can do about interest rates.
Interest rates are influenced, certainly in the short run, by the
creation of money; that is a job that the Congress has delegated to
the Federal Reserve.
We used to think that the more money we had, the lower the
interest rates. I think that we have learned that the more money
we have the more inflation we have and, in the end, you may get
higher interest rates out of that process than lower.
Broadly, that is what has happened in recent decades or for even
longer. I think that the effort to reduce interest rates by pumping
up the money supply, so to speak, may or may not have some
transitory effect in lowering interest rates, but the net result is to
increase the inflation rate. It would be counterproductive and we
would be back here complaining next year that interest rates were




9
still higher if we just went ahead and opened up the monetary
taps.
On the other hand, if we do begin to make some progress on the
inflation front—as we expect to; certainly our policy is aimed in
that direction—then, indeed, we can see interest rates come down
in a context of restraint on the money supply. Restraining the
money supply does not mean, over a long period of time, high
interest rates; it should mean ultimately lower interest rates.
I see the inflationary situation responding to restraint. I do not
know of any way to short circuit that process. The effort to short
circuit that process is what would get us in trouble again.
We can use all the help we can get in relieving the pressures on
interest rates and tensions in the market through the budgetary
process. I know that you have unquestionably been visited by a lot
of home builders and realtors and small businessmen and farmers
who say they are having difficulty raising credit, and indeed, they
are.
I think the most constructive response that they can receive is
the assurance that you will do all you can to get the Federal
Government out of the way in terms of the demands that it puts on
the credit market.
Senator BYRD. Your reply to that question basically is the reply
that I gave to the 700 or 800 Virginia homebuilders here in Washington last week. I do not know of any way that the Congress can
legislate interest rates down.
Chairman VOLCKER. I do not either.
Senator BYRD. The Congress role is to curb this uncontrolled, and
maybe some disagree, but I say uncontrolled Federal spending.
Until we are able to control this Federal spending, I do not see too
much hope of getting interest rates down.
Chairman VOLCKER. If I might just elaborate on that slightly, if
Federal spending is not under better control you either end up
with a deficit and the situation we have now, or you end up with
the kind of tax structure that I think stifles growth in the economy, which is not helpful to the long run picture either. So, I do
think the key to this process is restraint on spending.
Senator BYRD. The Federal Government overall gains by inflation, does it not?
Chairman VOLCKER. I do not know where the net balance lies. It
certainly gains tax receipts, not just from the straightforward
transformation of inflation into higher receipts, but because of the
progressivity of the tax structure; inflation puts people in higher
brackets, so that, in effect, you get a higher tax burden.
I think that the nature of our tax system is such that it taxes
profits—in this kind of a situation, profits that are not real, and
that is another way that it gets higher revenues and at the same
time inhibits the investment process.
On the other hand, of course, the interest rates reflect the inflationary process, too.
On balance, perhaps, the budget gains from inflation, but I would
think that on a close analysis of the particular impacts at a particular time, there is no question that the process is not a constructive one in the sense that there is without doubt an increased tax
burden as inflation continues.




10
Senator BYRD. I think the figures submitted by the administration on January 28 and again this week are immensely interesting.
On January 28 the outlay figure for 1981 was $616 billion and the
revenues were estimated to be $600 billion with a deficit of $16
billion.
Now they come along this week, 60 days later, and they reduce
expenditures slightly to $614 billion, but they estimate the revenues will be $628 billion. That is how they get what they claim to
be a surplus, by increasing the tax take from the American public.
I think it is vitally important to have a balanced budget, but my
conception of balancing the budget is not to increase taxes but to
reduce spending. Spending is the problem. As you indicated a
moment ago, the priority should be given to getting spending under
control.
Chairman VOLCKER. In fairness, Senator Byrd, we did adopt the
approach on the basis that the reduction of expenditures itself—
admittedly from a higher level than presented in February would
be enough to balance the budget without any explicit new taxes.
There is that implicit new tax from the progressivity of the tax
structure, but the new revenues from the oil import proposal were
not necessarily arrived at to achieve a balance in the budget.
Senator BYRD. In any case, the budget is being balanced by
taking more from the people.
Chairman VOLCKER. There is no question that the budget receipts relative to economic activity are projected to rise rather
decidedly in 1981, to over 22 percent of the Gross National Product.
This tax burden, as projected in 1981, if I recall correctly, is as high
in percentage as it has ever been, including in wartime.
Senator BYRD. I think that is correct. I thought the facts were
that it is higher than in any period of our history, than the last
year of World War II. There is just a fraction difference.
You might say it is the highest tax take percentagewise in relation to GNP than has ever been in the history of our country.
Let me ask you this in regard to interest rates. Is it correct that
while the Federal Reserve can determine to some degree shortterm interest rates, that it has little or no control over long-term
rates?
Chairman VOLCKER. I think that is essentially correct in the
short run. We can, with a certain range, have a strong influence on
short-term rates, but the long-term market is very heavily affected
by expectations of what an appropriate level of interest rates will
be in the future, which is in turn related to expectations about
inflation. Without engaging in massive operations—you would
practically have to buy up the Federal debt—you could not control
that rate very closely.
Indeed, I do not think we can control the short-term rate except
in limited time periods and within limited ranges with an inflationary situation and an economic situation of the sort we have right
now. Our ability to control even the short-term rate structure is
circumscribed by the economic situation that exists; it is not unlimited by any means.
Senator BYRD. I realized the delicate nature of your work, so to
speak. If it is not inappropriate, may I ask what rate do you see the
money supply expanding in this current fiscal year and in 1981?




11
Chairman VOLCKER. We have set our specific objectives for
growth in the money supply for this calendar year. We do not
divide by fiscal years, but rather we look for a pretty steady
pattern in terms of the calendar year. We have several definitions
of the money supply, the so-called narrow definition which is basically currency outstanding, and transaction balances.
We set forward a target of 3.5 percent to 6 percent for M-1A for
this year. We are somewhere close to the midpoint of that target, I
think, over the first 3 months, and we will make every reasonable
effort to be within that targeted range. As a first approximation, I
think one could think of the midpoint of that range as a reasonable
starting point.
That would be a reduced rate of growth from last year. We have
not specifically set forward any targets for 1981, but the general
philosophy has been to reduce growth of the money supply over a
period of time. I think that is the operative objective, although we
have not set down a particular number for 1981 as yet. We will
have to make a preliminary judgment on that in July.
Senator BYRD. In reading the March 2 1 Federal Reserve statistics, and I do not know that I am an expert on reading these
statistics, but as I understand it, currency plus demand deposits for
March for the 4 weeks ending March 14, 1979, 52 weeks previous in
parens, the increase is 7.1 percent.
Chairman VOLCKER. I do not have a calculation precisely on that
basis, but it may well be true. If I recall the figure correctly it is
about 4.5 percent for M-1A from the September average—before
our October announcement—to the March estimate.
There was a bulge in February that probably affects the figures
that you are looking at. From September 1979, to December 1979,
the last quarter of last year, M-1A was at 4.4 percent rate of
growth. January growth was 3.6.percent. February had the bulge,
11.9 percent. There is no question, knowing what we know so far of
March, that the March figure will be very low.
Senator BYRD. Why is there the 11.9? That is a huge number.
Chairman VOLCKER. That is right. It took a big bulge in February.
Senator BYRD. Why was that?
Chairman VOLCKER. I wish I knew why these figures move
around from month to month. They do but we do not have the
precision and control that permits us to keep absolutely steady on
a month-to-month basis. February had a big bulge, but you will
find that was largely reversed in March.
Senator BYRD. This statistical report shows, take December 12,
1979, and compare it with the 13 weeks previous, 6.8 percent.
Chairman VOLCKER. That period sounds to me like it includes
February.
Senator BYRD. December 1 2 until March 12.
Chairman VOLCKER. IT says mid-March.
Senator BYRD. I see. You think that includes February?
Chairman VOLCKER. I assume that 1 3 week average would include February, and that is why that is higher than we like to see
it. That is somewhat above our target, but that particular calculation reflects that February bulge. It is real; we had a big increase
in the money supply in February.




12
All of these figures are annual rates. We had a 1-percent increase in February; if you multiply that by 12, you get the annual
rate.
There is no question that we had a bulge in February, but for the
first quarter of the year we certainly had an increase in the money
supply of reasonable proportions.
Senator BYRD. I have figures here beginning with 1 9 6 0 , expansion of the money supply from 1960 through 1979. It shows that for
calendar year 1977 and 1978, the two together, an increase of 15.1
percent which is the highest it has ever been
Chairman VOLCKER. Adding together the 2 years?
Senator BYRD. Yes.
Chairman VOLCKER. M - L ?
Senator BYRD. That is right.
Chairman VOLCKER. That is about right.
Senator BYRD. The next highest period was 1 9 7 1 and 1 9 7 2 where
it was 15 percent. Then it drops down. During 1973, 1974, and 1975,
it goes up a little in 1976 or well up in 1977 and 1978 and then in
1979 it drops down to 5.5.
Chairman VOLCKER. That 5 . 5 figure is misleading. For better or
for worse that particular figure dropped down in 1979 because of
transfer out of demand deposit accounts to NOW accounts and socalled automatic transfer accounts, which technically were not included in the M-l figure.
If you adjusted the figure for estimate of those transferred, the
1979 figure would have been 6.8 percent. That is still down a bit
from the 1978 figures that you cited, but not down as much as to
5.5.

Senator BYRD. SO that 5.5 figure is low?
Chairman VOLCKER. IS artificially low in a sense.
Senator BYRD. Should be adjusted upward?
Chairman VOLCKER. Should be adjusted upward to be comparable.
Senator BYRD. Thank you.
Senator Chafee?
Senator CHAFEE. Thank you, Mr. Chairman.
Mr. Chairman, I would like to follow through on this interest
problem. As you mentioned, we have had home builders and road
builders, real estate agents, everyone in Washington deeply concerned about the interest rates.
You said the best thing we can do to lower the interest rates is to
end the Federal deficit on the theory that interest rates and inflation march along together pretty much.
Chairman VOLCKER. On that theory and also on the theory—it is
clearly more than a theory—that by removing the Government
borrowing demand from the market you have a direct impact on
interest rates.
Senator CHAFEE. NO question, but on the other hand, we have
respected economists who say if we balance the budget we are only
going to reduce inflation by 0.3 of 1 percent so that if we followed
that along, then interest rates would only go down 0.3 of 1 percent,
and how much better off are we.
Chairman VOLCKER. Not much if that analysis is correct, but I do
not accept that analysis.




13
I think that kind of statement is based upon econometric equations that really do not reflect and cannot pick up the dynamics of
the process. I think if you ran those equations backward in history,
so to speak, there is no way you could use those equations to
explain how we have an inflation rate of the sort that we have
now.
I think those equations neglect the role of expectations, and they
neglect many changing and shifting relationships that cannot be
caught up in this kind of analysis.
Another aspect of the shortcomings of this sort of analysis: everyone has been projecting a recession for more than 1 year, as you
know, and the recession, at least so far, has not developed.
The recession should have been here long ago because on the
basis of all historical precedent and all past economic relationships,
people should not be spending so much; they should be saving
more. We should be in a recession. But what we see is they are
spending a lot more than any of those equations forecast.
Why are they spending more? Well, it appears that at least part
of the explanation must be that the inflationary process as it has
proceeded has induced people to spend more money.
Senator CHAFEE. Not much incentive to save?
Chairman VOLCKER. Not much incentive to save, but that is not
captured in those equations. When you look ahead in terms of
balancing the budget, I think what we are doing—what we would
hope to do—is to begin to change the psychology of inflation a bit,
which is itself effectively keeping inflation going.
We would take pressures off the financial markets, which have
moved in the same direction if for no other reason than the interest rate effect. It is not just balancing the budget that counts—or
that there is a difference of $10 billion or $15 billion in numerical
terms—but rather that there is an appreciation of the fact that the
Government is consistently moving to deal with inflation, moving
to deal with this expediture trend, increasing the prospects of tax
reduction in that connection, increasing the prospect of lower interest rates, and increasing the prospects of a reduced rate of inflation.
People's behavior will change if this is done in a consistent way
and supported by monetary policy, through the changed expectations that that generates. I think that we will find the inflation
rate moving by much more than 0.3 of 1 percent.
Senator CHAFEE. YOU pointed out that there were two tools, at
least, in the discussions here so far: the monetary tool, which is in
your bailiwick and the fiscal tool, which is in our bailiwick.
But is there not another tool that has to be used to address these
problems that you mentioned in your statement on page 4 where
you are deploying the decline in productivity and the slowing of
productivity growth in the seventies. When productivity lags and
the economy grows more slowly, the aspirations for higher living
standards are frustrated.
Is there not a tax tool that we have to use here at some point? Of
course, that seems to me, is the key question—at what point. But
we have a situation in the country where, balanced budget or no
balanced budget, we cannot compete in the international markets
in steel. Well, maybe in automobiles, but in a host of areas.
63-894 0 - 8 0 - 2




14
So that we have the peculiar situation that this great industrial
nation is trying to balance its payments overseas by its agricultural
exports.
At what point do we bring in that tool?
Chairman VOLCKER. I think it is urgent that that third tool be
brought in. I think our productivity performance has been nothing
short of disastrous. It is declining, not during a period of economic
decline, but even when the economy is growing.
I hope the decline in the past year exaggerates the severity of
the problem, but I am not sure it exaggerates it by all that much.
You have put your finger on a terribly important problem that is
at least partly amenable to revisions in the tax structure that help
give more investment incentive and investment return.
As you said, the critical question is one of timing. I think, unfortunately, we do not have the budget in the kind of shape that
permits us to give up revenues at this point; the net result of tax
reductions at this point would be more pressure on financial markets and more inflation, which itself would be destructive of the
kind of investment and, ultimately, the kind of productivity increase we want to see.
So, unfortunately, in the short run, in some sense, we have to
work at cross-purposes because we have got to get this budget in
shape as a prerequisite for the kind of action that you are suggesting. I look forward to the day, I welcome the day—the sooner it
comes the better—when we can responsibly take that kind of tax
measure. Alongside dealing with the inflationary problem in general, I think, ought to be put, the achievement of strength on the
spending side of the budget so that that day when we can begin
moving concretely in that direction is not intolerably far off; but
that day of tax reduction is not now.
Senator CHAFEE. But are there not little things that we can do?
For example, I noticed the other day—and this does not deal with
productivity but it deals with the interest problem that you are
concerned with, that we are all concerned with.
An attempt was made in the House of Representatives to eliminate the withholding on interest on bonds both governmental and
industrial held by farms. Now, some people got off splendid speeches against the wickedness of eliminating that interest withholding,
particularly as the administration is now suggesting that we are
going into the withholding.
It seems to me that the objective is to have lower interest rates,
your lower interest rates by having more money available from
lenders.
If foreigners would come in and lend more, then the result could
not help but be lowered interest rates.
Chairman VOLCKER. I think, in general, that is constructive for a
variety of reasons. I would not expect that particular measure to
have any pronounced effect on the level of interest rates, but it will
tend to attract more foreign investment in this country.
Senator CHAFEE. It is not equity investment.
Chairman VOLCKER. There are various farms.
Senator CHAFEE. Not foreigners owning our farms.
Chairman VOLCKER. The proposal that I saw most recently excludes dividends and equity investments. Some people would argue




15
that that investment sometimes is the most constructive—not necessarily in farms, where we are very efficient—and that this country can benefit from foreign equity investment. It brings with it—
as we used to argue from the other direction—technology and
management techniques that sometimes are very helpful.
Volkswagen, for instance, seems to be doing reasonably well with
its investment. Volkswagen cars in the United States are produced
in the United States, which is more beneficial to our economy than
importing them, I would think.
Senator CHAFEE. In these little things such as that, do you make
your views known? Do you say there is something that will help
increase availability of money for lending even though you did not
say necessarily at lower interest rates, but it helps. It is a plus.
Do you make your views known, or are you not asked?
Chairman VOLCKER. I suppose sometimes I am and sometimes I
am not. On that particular question, I have had some discussion
with Treasury.
Senator CHAFEE. I think the Treasury people support it.
Chairman VOLCKER. Yes, they did. I have not been following it
closely, but that is my understanding.
Senator CHAFEE. Many of us were raised in an era when people
were not concerned about Federal deficits over the years, starting
way back. Our parents would rant and rave about deficit spending
but we got pretty well adjusted to it and I guess in the past 40
years we probably had surpluses in the budget six times.
Chairman VOLCKER. I do not know what the figure is over 4 0
years; I know we had a surplus only once in the past ten years.
Senator CHAFEE. Eleven years.
Do you think that the inflation that we have today is due to
those continuous deficits?
Chairman VOLCKER. In part. I think that it is due to what might
be called a laxity of policy in a number of directions and that is
one symptom of it. In general, probably because we were so heavily
conditioned by experience during the Great Depression, we have
been very cautious about the possibility that the economy might
occasionally be in a recession and we have been less concerned
about inflation historically, until now. So policy has been biased.
Senator CHAFEE. We have not made the choice now yet.
Chairman VOLCKER. Well, I am not sure.
Senator CHAFEE. I am not sure the decisions have been made.
Chairman VOLCKER. We will see, but I think the mood has
changed in any event.
We will see how far it has changed, but I think there is evidence
that it has changed. Historically, during the postwar period, when
there was ever any concern about a downturn or sluggishness in
the economy, as there often was, the temptation was to let the
budget drift, let monetary policy drift; if, in the end, that resulted
in a little more inflation, that was considered not too heavy a cost
to bear.
That worked all right when there was no great expectation of
inflation and the inflation rate was relatively low, but I do think
we live in a new world now where the expectations of inflation and
the expectations of an increasing rate of inflation mean that that




16
kind of approach no longer works, even in its primary objective of
supporting the economy.
We have reached the stage where stimulative policies are, in a
sense, feared by the markets, and they tend to tighten the markets
rather than to ease them, creating distortions which are counterproductive even to the nominal purpose of the stimulating policy.
They do not work any more, and I think that is the lesson of the
1970's; we end up with the higher inflation rate and the higher
unemployment rate at the same time. That kind of approach comes
to a dead end; we have to learn how to do this differently.
Senator CHAFEE. It seems to me that, in addition to balancing the
budget, that there has to be a consistency to this, that if we
balance the budget in 1981 we would be making a terrible mistake
if, at the same time, we embarked on new programs that had a
balloon effect in the outyears which would throw this budget way
out of balance in 1982, 1983.
Chairman VOLCKER. I agree.
If I just might interject, Senator Chafee, the significance of
moving toward expenditure restraint now does not rest entirely
upon what is done in 1981 or the magnitude that we are talking
about, as Senator Byrd suggested; this is not enormous, in terms of
the whole budget. But it does indicate a change in trend, which is
much more significant and which is necessary to support the tax
measures that you referred to.
Senator CHAFEE. If you had your druthers on the various tax
measures, which would you take first: Eliminating double taxation
on dividends; capital cost recovery, the so-called 10-5-3; increasing
the investment tax credit; increase the exemptions or deductions
on the individual? Which would you choose?
Chairman VOLCKER. Let me express a general philosophy without
taking a particular position.
I do think the emphasis ought to be on this investment problem,
given the productivity problems that we have. We ought to provide
a better climate for business investment, a better climate for business profitability. My inclination is to approach that problem, to
the extent possible, directly through the way that we tax business
and investment.
Now, there are several alternative ways of going about it: You
you can do it through depreciation, liberalization, new investment
tax credits; you could reduce the corporate tax rate; You could deal
with this double taxation of dividends.
Each approaches the problem from a somewhat different direction. I would be reluctant to be too firm in choosing any one of
those approaches because, although they are all aimed at the same
problem—they are all possibly constructive approaches—each hits
particular businesses differently and therefore becomes controversial within the business community as well as more broadly.
The emphasis ought to be on moving in that direction rather
than at least at this stage, on debating the differences between the
approaches. I think that there seems to be a consensus developing
that perhaps the depreciation route is a more promising one; if
there is a consensus in that direction, which seems to me one of
the effective routes that could be taken because it has some partic-




17
ular advantages during an inflationary period, then, in some sense,
that may be the most promising path.
But I would not want to overemphasize the distinction between
that particular path and some of these alternative ones. The emphasis, in general, should properly lie in that direction.
Senator CHAFEE. What do you think of the administration proposal on the withholding, on the interest?
Chairman VOLCKER. That is an old issue on which philosophies
differ, as you know, Senator. It can be approached simply as a
means of assuring that taxes would be paid. There are great complications in enforcing and adopting that approach across the board
because, it is virtually impossible to do so for marketable securities
and, therefore, you are especially burdening, our savings institutions.
Whether this is just the right time for the particular reform is
perhaps a debatable matter.
Senator CHAFEE. If, on a savings account, and there are zillions
of tiny savings accounts in this country, that many banks, savings
banks, do not even bother adding up the interest until a person
comes in for their withdrawal. At least in the book, I suppose, in
some way they are compounding it.
Chairman VOLCKER. Of course, they do have to report the interest to the taxpayer at the end of the year, so they already have to
go through that process of mailing out these notices.
Senator CHAFEE. There is a lot of difference between doing it
quarterly—this proposal of the administration would do it quarterly, would it not?
Chairman VOLCKER. I am not sure about the details of the proposal in terms of when withheld taxes would actually be sent to
the Treasury. I would assume it would be at least quarterly, so it
advances the time
Senator CHAFEE. That the administration gets the money?
Chairman VOLCKER [continuing]. When the administration gets
the money.
I suppose, in theory, they should be getting it anyway, through
the estimated tax. Their concern, of course, is that they do not get
it, so in a sense I do not think it is fair to call this a tax increase,
but rather a tax enforcement device.
It creates some additional burden of recordkeeping for the institutions and for the taxpayer.
Senator CHAFEE. It seems to me, if we are going to lick this
inflation in addition to the balanced budget, there has to be a
consistency in our policy. We were discussing recently, the administration comes in, supports a measure to tax exempt the foreign
bonds. The foreign bondholders, in order to help the credit situation in the country, then immediately right on the heels of that
they come in with this withholding provision which is contrary to
the very provision they are supporting.
Chairman VOLCKER. Contrary in what sense? I am sure if they
were here they would argue——
Senator CHAFEE. That the other part is de minimis?
Chairman VOLCKER. People are paying taxes that they should be
paying anyway; there is no tax increase involved in better enforce-




18
ment. I suppose, they would say that you should not conduct tax
policy by permitting ease of evasion.
Senator CHAFEE. Thank you, Mr. Chairman.
Senator BYRD. Senator Dole?
Senator DOLE. I apologize for being late, and I will just ask that
my statement be made a part of the record.
Senator BYRD. It will be made a part of the record.
[The statement of Hon. Bob Dole follows:]
STATEMENT OF SENATOR BOB DOLE
WHY HAVE A DEBT LIMIT?

Mr. Chairman, I want to congratulate you for scheduling this hearing to focus our
attention on the expiration of the temporary debt limit at the end of May. This is
the first year in this Senator's recollection when Congress and the public have
shown such concern over increases in the Federal deficit, and the level of outstanding public debt. The persistent efforts of the senior Senator from Virginia have
contributed greatly to public awareness and understanding of these issues, and for
that reason he deserves out thanks.
The Chairman of the Federal Reserve will share his thoughts with us today, and I
welcome his appearance. Chairman Volcker has been spending a great deal of time
with congressional committees lately, but I am glad he has found time to comment
on the public debt limit. While the Treasury is responsible for managing the
Nation's finances, the Federal Reserve bears the burden of maintaining a system of
money and credit that can accommodate both the demands of government and the
demands of the private sector. These days the public is aware as never before of the
crucial role of the Fed in facilitating our Nation's economic growth, of how its
polices on money and credit affect employment and housing. Chairman Volcker
recently told the Banking Committee that deficits at the Federal level may be
needed in some years, but that a deficit should be the exception, whereas Congress
has made it a rule. I would hope that Mr. Volcker would expand upon that
comment in the context of the upcoming expiration of the debt limit.
Mr. Chairman, we do have a debt limit. It has not been effective, because it is not
fixed, it is not binding. Each year Congress makes cumulative spending decisions,
including long-term spending, that result in the need to raise the temporary limit
yet again. Perhaps this time around we will find a way to put some teeth in the
process. I hope some efforts will be made in that direction.
In the long run, however, we may do better by controlling the budget before we
reach the point where the debt limit must be raised. In this connection I would like
to point out that the Judiciary Committee recently passed up an opportunity to
make major progress in that direction. By a vote of 9 to 8, the Committee rejected a
bipartisan proposal to amend the Constitution so as to require a three-fifths vote to
adopt a deficit buget. The Amendment, S.J. Res. 126, would also require a record
vote in order to increase the level of taxation. The distiguished Chairman of this
Subcommittee is cosponsor of this resolution and I think he will agree with me that
the Senate should have an opportunity to vote on the measure. Thirty states have
demanded such action, and with petitions from four more states, a constitutional
convention would have to be called to deal with this issue. It would be preferable for
Congress to take the lead here, and retain the ability to control the outcome.
Mr. Chairman, I thank my colleagues for their attention to these matters, and I
look forward to the testimony of our distiguished witnesses.
"TALKING POINTS" REGARDING DEBT LIMIT/BALANCED BUDGET

I. Deficit spending
Debt limit action merely ratifies the deficit run by the government. Persistent
deficits cause inflation by: (A) Putting more money in circulation without productivity gain (more goods and services). Dollar cost of existing goods and services inevitably rises; (B) Federal Government borrows to finance deficit, and Federal Reserve
allows money supply to grow to avoid credit crunch. Increase in money supply bids
up goods and services, devalues dollar. Alternatively, Fed raises interest rates to
reduce credit demand; (C) Large Government borrowing draws capital away from
private sector. Thus, potential for real economic growth reduced; (D) International
money markets perceive decline in dollar value and value of dollar in trading
declines—international confidence in our economy is undermined.




19
Senator DOLE. If you have covered this you can just say so and I
will not keep the Chairman, but we have heard Dr. Burns before
the Joint Economic Committee last week urge the repeal of the
Credit Control Act. Dr. Burns said the act was stupid and dictatorial and that Congress, in effect, had abdicated its responsibility in
passing the act.
Do you have any views on that?
Chairman VOLCKER. I can make a general comment, Senator
Dole. Let me draw some distinction between the Credit Control
Act, in general, and the very limited opening in it that the President made. He did not invoke the whole act, only portions for
consumer credit, and for money market funds.
That act, if one reads it, grants an enormously sweeping authority, and I would question whether it is appropriate to have so
sweeping a grant of authority. Therefore, I would be not at all
reluctant, at the very least, to have Congress review that act,
because it is such a sweeping grant of authority—overly sweeping,
it seems to me.
Senator DOLE. This may already have been discussed but there
has been a feeling, I think, in the Congress, probably also in the
administration, that most of the burden of trying to restrain inflation has been heaped on your shoulders, that the Fed must carry
most of the load.
Does that cause any concern, or do you accept that responsibility?
Chairman VOLCKER. We do not have any alternative but to
accept it and we do accept it, but it is not right. We would be better
off if that burden were more distributed. The result would be less
pressure on the financial markets, less distortions in the economy.
We were talking before you came in, Senator Dole, about the
extremely heavy pressure on the home building industry, for instance, as one symptom of so heavy a reliance on monetary policy,
and the need for more balance in the approach; that is one reason
why it is more important to get fiscal policy carrying a bigger part
of this load as soon as it can.
Senator DOLE. It has been suggested by some that steps are
needed to offset high interest rates, which are having a great
impact on States like Kansas, on cattle producers and others who
have to refinance.
Chairman VOLCKER. That is another area where the squeeze is
tight.
Senator DOLE. It has been suggested that one way to offset that
is to get some sort of a tax credit for everything—certain percentage—over 12 percent; anything you pay above that in interest you
would get a credit against your income tax.
I am not certain that would be really addressing the problem.
Chairman VOLCKER. I do not think it would. Of course, you
already get a deduction for interest. I think the general treatment
in the tax code—the saver and the lender on the one side and the
borrower on the other side—has generally facilitated borrowing
and restrained savings, which is part of our difficulty.
I have not heard the proposal that you just cited, but it seems to
me that that is a further extension of a part of the philosophy that
got us in trouble in the first place.




20
Senator DOLE. That is my view. It is just a bill that has been
introduced, or will be introduced, by a number of Senators. I
thought it might be good to have your comments on the record, but
it seems to me that that would not do anything to restrain borrowing.
Chairman VOLCKER. Certainly if you did this in the economy
generally it would be disastrous. It just means that nobody would
pay the higher interest rates.
Senator DOLE. This is probably outside the scope of your responsibilities, but as you know, the administration is talking not about
the imposition of an import fee.
Do you see that as a help in your efforts to slow down inflation?
Chairman VOLCKER. The oil import fees?
Senator DOLE. Yes.
Chairman VOLCKER. I do, frankly. Again, this is an area where
you have a conflict between the short run and the long run, but I
think, looking at our economic problems broadly, and at the inflationary problem in particular, the oil problem just sticks out. If we
try to duck away from that problem and always try to moderate
the initial impact of the higher imported oil prices on the American economy, we will not achieve the conservation, we will not
achieve the foundation for stability in the future; we are going to
be chasing our tails year after year.
What we ultimately have to do is get some conservation. We are
getting some now, but we need more. We have to reduce our
dependence on foreign oil as a part of the process of getting out of
this inflationary spiral.
If you put on something like an oil import fee that is reflected in
a higher gasoline price, in the short run, that will be reflected in
the Consumer Price Index. In the not so distant future, it is part of
the process of getting this thing leveled off.
In the short run, to the extent that this can be recognized and
should be recognized as a particular action to help deal with the oil
import situation, the oil conservation situation, I would hope that
the initial impact on the Consumer Price Index is not viewed alone
but as a predictable result of a whole policy approach that does
seem to me to be sound in its longer range implications.
Senator DOLE. I imagine that there would be some controversy
about that import fee and I would think maybe there will be some
effort to deprive the President of that authority, particularly when
there is some question of whether he can make it stick only on
people who use gasoline, but not on all petroleum products. That is
another matter that we will be discussing, I assume, and some
appropriate resolution, disapproving the President's efforts, or
some way to change his authority may be introduced.
Chairman VOLCKER. I do not think, and I suspect the President
does not think, that the oil import fee is the most desirable way of
going about this. That is why he has asked for the explicit gasoline
tax substitute, and I think this would be a constructive way of
dealing with part of the problem that you cite.
Senator DOLE. I think there are some of us willing to do that if
we can be persuaded that we are finally going to bring about
conservation, some change in the inflation rate, and we are all
discussing a balanced budget for 1981. It seems to some of us and, I




21
am certain, to nearly everyone, that we cannot just focus on 1981,
we have to take a longer view.
We tried that in the Judiciary Committee—the chairman of this
subcommittee is a cosponsor of the balanced budget amendment
Senate Joint Resolution 126. That may not be the best approach
according to some, but there are some of us who feel that we ought
to be mandated to balance the budget, with certain exception.
Some members of the Judiciary Committee believe we might do it
by statute.
Chairman VOLCKER. We had quite a lot of discussion before you
came in, Senator, about the very point that you make: the budget
exercise in 1981 will be important to the extent that it betokens, a
longer run change of attitude and performance.
I would repeat what we were discussing earlier, the particular
importance on the expenditure side of the budget. We do want to
make room for some tax reduction, and it is the expenditure side
that is particularly crucial here, not just in 1981 but beyond that in
how we follow through.
I have not personally been convinced that a constitutional
amendment is the best way of going about this, but I certainly fully
agree with the point that it is this long-term trend and the need
for long-term restraint that is critical, along with perhaps some
change in congressional procedures.
The effect of producing stronger restraint on the spending side
would be welcome.
Senator DOLE. Thank you, Mr. Chairman.
Senator BYRD. Thank you, Senator Dole.
Just a couple of brief questions, Mr. Volcker.
The dollar has noticeably improved recently. Am I correct in
assuming that the major reason for the strengthening of the
dollar—not the only reason, but the major reason—is the high
interest rates that now prevail?
Chairman VOLCKER. That is right. The combination of high interest rates and restricted credit availability. The challenge, of course,
is to make progress on the more fundamental problem of inflation
that will, in the end, permit us to sustain that strength.
Senator BYRD. Is foreign investment today in very-short-term
bank accounts, and if interest rates go down, is there a potential
that these deposits will quickly leave the United States?
Chairman VOLCKER. What we know from the performance of the
market suggests there must have been an enormous inflow of
short-term capital in the form of bank deposits or other instruments.
Again, I think that the prospects for retaining that money are
ultimately very much wound up with the success of our antiinflationary effort. What has been going on most recently, in terms
of the size of the inflows and the day-to-day strength of the dollar,
is abnormal—I suppose that's the word that I would use. You
cannot have that go on continuously; it will not go on continuously.
It does reflect the particular market conditions that exist today.
Senator BYRD. If the interest rates were to drop sharply, would it
not be logical to expect a great deal of this money, then, to leave
this country?




22
Chairman VOLCKER. YOU have to answer two other questions to
answer that. If interest rates drop sharply, and everything else
remains the same, you would expect a reversal. But you have to
ask what is happening to interest rates in other countries at the
same time, because it is the relative position that really is important here.
Again, most crucially for any lengthy period of time, is whether
those interest rates drop in the context of the inflation rate dropping, not only in fact, but in prospect.
If there is confidence that the United States has its inflation
under control, then the expectation would be that the dollar would
remain relatively strong and there would not be the same strong
incentive to pull that money out even with lower rates of interest.
But the present situation is certainly abnormal in the intensity of
pressures on our market and the level of our interest rates.
Senator BYRD. SO that a confidence on the part of the American
people and on the part of foreign bankers is very important as to
what will happen in that regard?
Chairman VOLCKER. That is true.
Senator BYRD. We mentioned earlier the $ 5 2 billion of new
money that the Government will need this year, but we did not
mention the rollover.
As I understand it, the rollover plus the new borrowing that will
amount to somewhere around $ 2 6 0 billion to $ 2 7 0 billion. To what
extent is the Federal Reserve prepared to accommodate Treasury
borrowing in the public marketplace?
Chairman VOLCKER. I suppose that the developments in the marketplace do not suggest that we are terribly tolerant of accommodating Treasury borrowing. It has had to come in and borrow in
the same market that everybody else has borrowed in and, of
course, it is the pressure of those borrowings that help account for
the level of interest rates.
Our aim is to keep that money supply in control and keep credit
expansion under control, and I think the Treasury would agree
with me that we have not been particularly accommodating of the
Treasury's needs.
Senator BYRD. If the Federal Reserve exceeds its money supply
figures, does this translate into the CPI inflation rate? How does
this work?
Chairman VOLCKER. There is a relationship. It is not, unfortunately, so direct a relationship that we can trace a week's, or a
month's, or a quarter's, or even a year's money supply figure
directly into the CPI. But, if one looks at the relationship over long
periods of time—in this case you can literally go back hundreds of
years—the relationship broadly between growth in money and the
inflation rate is unmistakable. Inflation cannot continue without
money to feed the process. What we are seeing now is that there is
not enough money to feed that process. That creates tensions in the
market before the inflation rate heals, but eventually it will have
to heal.
Senator BYRD. One final question. There has been a massive
outflow of savings from banks and savings and loans.
Do you feel that these two groups, the financial institutions,
particularly the savings and loans, can withstand this outflow?




23
Do you see this as a serious problem?
Chairman VOLCKER. Those industries certainly are under pressure. It is not so much that there has been an outflow of funds in
the aggregate but that there has been a great shifting of funds
from what is to savings institutions a cheap source of money—
savings deposits—into money market certificates and other high
cost forms of deposit, so that there is great pressure on their costs
relative to their revenues as long as this period of exceptionally
high interest rates lasts. There is no question that the pressures
are strong in that connection, but they are not so much reflected in
the natural outflow of funds; it is rather that the funds have
become much more costly to them and since most savings institutions have a high proportion of fixed rate assets, they are under
very heavy earnings pressure.
Senator BYRD. Does it represent a serious danger to anybody?
Chairman VOLCKER. I think that it is a serious problem. I do not
think that it is a serious danger in the sense of a collapse.
These deposits are insured. And now, after the passage of the
Financial Institutions Act the other day, we have even stronger
powers for dealing with any liquidity problems that could arise. I
am confident that, while there are earnings pressures, our power is
sufficient to take care of any particular acute liquidity problems
that could develop.
The industry has earnings problems, no question of that.
Senator BYRD. One final question which I think I should ask for
the record and that is your view as to the wisdom or lack of
wisdom in regard to wage and price controls.
One Presidential candidate advocates them; another Presidential
candidate opposes them.
Chairman VOLCKER. Putting the question that way, I should
retire from the road as a nonpolitical figure.
Senator BYRD. Let's strike that part of the question.
Chairman VOLCKER. I have not been persuaded that price and
wage controls answer the inflationary problem. I have often said
that apart from all of the other problems of those controls, their
arbitrary nature, the administrative problems, the distortions that
they create in markets, perhaps the greatest difficulty is that turning to wage and price controls ultimately creates the illusion that
they can handle the inflationary problem. The danger is that
people think it is an answer to the inflationary problem and therefore will not do the other things that are necessary.
I would fear—and almost predict—if you had price and wage
controls the Congress would not deal with the budget because these
budgetary decisions are hard. If you think you have an answer to
inflation with price and wage controls, why cut the budget?
There would be great pressure for relieving any restraint on the
money supply and credit because such controls are seen as a substitute way of getting at inflation. If there is one thing that I feel
absolutely confident about, it is that if we had price and wage
controls and went ahead then with an expansionary budget, and an
expansionary monetary policy, you would ultimately end up with
more inflation than you started with and I think that is the great
danger.




24
Senator BYRD. DO you anticipate that the country will have wage
and price controls between now and November?
Chairman VOLCKER. N O , I definitely do not.
Senator BYRD. Thank you very much, Chairman Volcker. The
committee appreciates your being here today.
Chairman VOLCKER. Thank you.
Senator BYRD. It has been very helpful.
[The prepared statement of Mr. Volcker follows:]
STATEMENT BY P A U L A . VOLCKER, CHAIRMAN, BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM

Mr. Chairman, I am pleased to appear before this Subcommittee to discuss the
proposed increase in the limit on the public debt. I should like to focus my opening
remarks on the broader issues of federal finance highlighted by the need to raise
the debt ceiling. It is important that we understand the implications of deficit
finance in the current economic environment. It is also important that we recognize
that the conventional measures of the budget and the national debt significantly
understate the scope of the government's presence in the credit markets. I want to
emphasize the need for effective control of federal financing activities as we attempt
to solve the nation's serious economic problems.
Fighting inflation stands clearly as the most urgent task of economic policy today.
The ominous acceleration of price increases over the past year has given rise to a
sense of real crisis. There is now, I believe, the resolve to resist the inflationary
momentum that has been building for so long. The Federal Reserve, for its part, has
moved decisively to reduce progressively the growth of money and credit. That
effort seems to me an essential component of any effort to restore price stability. To
that end, we have taken a series of actions to improve our control over the growth
of the monetary and credit aggregates.
Last October 6, in addition to raising reserve requirements and the discount rate,
we made a change in our operating procedures. We believe that these measures
contributed importantly to our success in bringing about a moderation of monetary
expansion in subsequent months. A second major set of actions was announced
March 14. I refer to the program of special credit restraints that was established in
conjunction with the Administration's anti-inflation effort. While it is too early to
evaluate the effects of our latest actions—which are supplementary to our basic
effort and temporary—I fully expect that they will reinforce the measures taken
last October, while tempering the degree of pressure that might otherwise be placed
on some sectors of the economy dependent on bank credit.
Monetary policy cannot—without peril—be relied on alone to halt inflation. The
other major tools of public policy must also be brought to bear on the problem, with
fiscal policy playing a central role. Thus, I am greatly encouraged by the efforts of
the Administration and the Congress to achieve a balanced budget in the 1981 fiscal
year. I frankly would urge an even earlier start—doing what we can right now—and
I would personally encourage the Congress to work with the Administration to
implement even deeper cuts in spending than are currently in prospect. But what is
essential is that there be a clear commitment to the consistent application of
budgetary discipline in the years to come, and a reduced rate of expenditure
increase should be the centerpiece of that discipline. Such a policy, complementing
consistent control of the money supply, would provide a credible basis for anticipating sustained progress against inflation.
That we are faced again with an imminent need to raise the debt ceiling is a
sobering reminder of how difficult it has been in practice to achieve a reasonable
balance between federal outlays and receipts. It would be unreasonable and unwise
to insist that the government budget be in balance or surplus every year in all
economic circumstances. But deviations should be the exception; and it would be
naive to ignore the obvious bias toward deficit that has been apparent in the
conduct of fiscal policy. The record speaks for itself: the federal budget has been in
deficit in every one of the past 10 years, and has been in surplus only once during
the past 20 years. Most recently, the Federal Government has continued to run
huge deficits even in the late stages of one of the longest expansions in the postwar
era.
In retrospect, it is apparent that there has been a tendency in the development of
fiscal policy to focus more on the possibility of weakness in economic activity than
on the danger of greater inflation. In my judgment, the resulting pattern of budgetary decisions has played a major role in both accommodating and intensifying
inflationary pressures. It also should serve as a warning in the present circum-




25
stances. The current resolve to cut expenditures and balance the budget in the next
fiscal year is to be applauded. But history strongly suggests that it will be difficult
to sustain budgetary discipline. This lesson must be kept firmly in mind if the
sacrifices made in the short run are to produce lasting benefits.
The financial counterpart of persistent budget deficits has been, of course, a
mushrooming of the federal debt. The federal debt subject to statutory limits
reached $845 billion at the end of February, almost three times its level in 1960.
This enormous expansion of debt has serious consequences for economic performance. Federal borrowing absorbs scarce private savings and intensifies pressures in
financial markets. When productive resources are being pressed by strong demands
for goods and services and overall credit supplies are tight, the government preempts the loanable funds that would otherwise be available to finance private
capital formation.
The adverse consequences of reduced private capital formation are difficult to
exaggerate, given the fundamental importance of investment in determining the
pace of productivity growth. While the economic profession has yet to arrive at a
fully satisfactory explanation of the substantial slowing in productivity growth in
the 1970s, there is no doubt that one important element was the falloff in the
expansion of capital stock at a time when labor force growth was accelerating.
Increases in output per hour worked are the basis of a rising standard of living.
When productivity lags and the economy grows more slowly, aspirations for higher
living standards are frustrated.
Competition for shares of real income and inflationary pressures are aggravated.
In short, persistent deficits and increases in government debt tend to inhibit capital
formation and productivity growth, further contributing to the wage-price spiral.
The potential for federal financial activity to displace other borrowers extends
well beyond the growth of debt associated with persistent budget deficits. Outlays of
off-budget agencies have grown to be very sizable in recent years. Such outlays were
just under $12 Vz billion in 1979 and are expected to be $15 billion in 1980. Offbudget outlays largely take the form of direct government loans and are financed by
the Federal Financing Bank (FFB). Ultimately, however, the FFB obtains its funds
from the Treasury, and thus the deficits incurred by off-budget agencies directly
increase federal borrowing needs. In addition to its direct loan programs, the Federal Government also provides financing assistance through loan guarantee programs.
Outstanding loans guaranteed by the Federal Government totaled $228 billion at
the end of last year.
As intended, the direct government loans and loan guarantee programs allow
certain targeted activities to be financed under more favorable terms than would
otherwise be possible. The provision of such credit assistance to achieve particular
social and economic objectives certainly is a legitimate activity of the Federal
Government. It must be kept in mind, however, that the supply of credit is limited,
and that government assistance to particular sectors may make it more difficult for
other groups to obtain credit to finance worthwhile and productive investment.
I an increasingly concerned that such government financing activity is not under
effective control. Over the past 10 years, federally guaranteed loans have somewhat
more than doubled. Yet, at present, there is no comprehensive framework for
evaluating these activities. Only a small portion of this credit activity is ever
considered in the Congressional deliberations on the budget. Loan guarantees do not
involve the expenditure of funds, and consequently are not reflected in the unified
budget, except to the extent that appropriations are required to cover the cost of
defaulted loans.
In sum, there are serious shortcomings in the current process of reviewing federal
financing activity. I would wish, therefore, to reiterate the position of the Board,
expressed in recent testimony by my colleague, Governor Teters, that a federal
credit control budget should be established along the lines suggested by the Administration, or preferably, more comprehensively.
It also seems to me that the issue of the debt ceiling should be more closely linked
to the budgetary review process. The statutory limit on federal debt is not reasonably a separate device for controlling the budget. The determination of the budget
and the debt ceiling are more logically a simultaneous process. The present system
carries with it the potential for contradictory actions on the part of the Congress.
Indeed, twice in the last two years, the authority of the government to borrow
expired briefly, causing the postponement of Treasury security auctions, delays in
the mailing of federal checks, and the threat of default on federal checks already in
the mail. Lengthier delays in extending the debt limit could have produced much
more serious consequences, including ultimately a default on maturing government
securities.




26
To minimize the possibility of such problems, I strongly recommend that the
Congress consider setting the debt ceiling in the process of approving the budget. At
present the Congress already must pass resolutions setting recommended levels for
the debt when it votes on the budget. Essentially, I am seconding the Treasury's
recommendation that such resolutions be given the force of law.
I am, indeed, somewhat encouraged by the strides that have already been made in
gaining better control over the budgetary process. There seems to be a genuine
opportunity to balance the budget in the coming fiscal year. We can do better. For
one thing, we should bring federal financing activities under better control. More
generally, we must demonstrate a commitment to reduce inflation by consistently
striving for budgetary discipline in the years ahead.

Senator BYRD. The next witness will be Dr. Raymond J. Saulnier,
professor emeritus, economics, Barnard College, Columbia University, former Chairman, Council of Economic Advisers.
I am delighted to have you, Doctor. I have had the opportunity to
be with you many times and I have been very much impressed
with your analysis of economic matters and appreciate your
coming to Washington today.
STATEMENT OF DR. RAYMOND J. SAULNIER, PROFESSOR
EMERITUS, BARNARD COLLEGE, COLUMBIA UNIVERSITY,
AND FORMER CHAIRMAN, COUNCIL OF ECONOMIC ADVISERS

Mr. SAULNIER. Thank you, Mr. Chairman. I appreciate your invitation and I am pleased to be here.
I have prepared a short statement, copies of which I have turned
over to the staff; and I believe copies have been presented to you
and Senator Dole.
I will proceed, with your permission, not by reading the statement, which is not a long one, but by summarizing briefly it major
points.
Senator BYRD. I think that is a good way to handle it, and the
text of your statement will be published in full in the record.
Mr. SAULNIER. First, there is a simple statistical chart to which I
will be referring, drawn on semilogarithmic scale so that it is
possible to see easily how the rate of increase of Federal spending
has changed over recent fiscal periods.
With that introduction, going to the substance of the statement,
the first point I would make, Mr. Chairman and Senator Dole,
concerns what was in the January budget what came out when the
budget was discussed in the March 14 announcements of the President and what came out when the March 14 figures were revised
slightly in a recent announcement.
When you look at all those numbers, the point that leaps out at
you is that the big problem is the fiscal 1980 budget.
I do not want to say that the fiscal 1981 budget is not a problem;
it is a problem in part because it starts from a very high platform,
which was created by a very rapid increase of spending in fiscal
1980.
It is hard to believe that, as it stands, Federal spending will be
rising in this fiscal period by over 15 percent.
Actually, it turns out to be 15.2 percent, but if you were to look
at the numbers through February the percentage is 15.4 percent.
In other words, we have been spending a bit faster even than the
15.2-percent regular rate.
Senator BYRD. Could I ask you for a clarification?
M r . SAULNIER. Y e s .




27
Senator BYRD. That 15 percent is over what period of time?
Mr. SAULNIER. Compared to last year, compared to fiscal 1 9 7 9 .
Senator BYRD. That is for 1980, 15 percent over 1979?
Mr. SAULNIER. Correct, sir.
Senator BYRD. All right.
Mr. SAULNIER. Incidentally, in absolute amount the increase is
$75 billion, so that we have a major Federal spending problem
right now, and one of the things that I am saying, Mr. Chairman,
is that there ought to be an emergency program going on in the
White House, it must be today, to slow down the increase of spending.
As you know, Mr. Chairman, I have had a little experience with
this business myself. I served for 4 years as Chairman of the
Council of Economic Advisers in the 1950's, during the second of
the two Eisenhower terms, and I think I know a little something of
what is involved in doing something with the budget, I know from
that experience that you cannot perform miracles, certainly not on
a budget that is already half finished, as this fiscal 1980 budget is,
but I do know that you can do something about an increase in
spending if there is a will to do it.
Senator BYRD. The key is to reduce the rate of increase.
Mr. SAULNIER. That is correct, sir.
Now, that is the first point that I want to make.
The second point has to do with the fiscal 1981 budget.
Now, the fiscal 1981 budget contemplates a considerably slower
rate of increase of spending than in fiscal 1980. That is good, for
sure, but it is a slower rate of increase from a very high platform,
and now a question. Does the President's proposals for cutbacks do
as much as should be done? Let me try to answer this way.
If we were to say, which I think there is a basis for saying, that
in the present circumstances an annual increase of Federal spending of 9.5 percent per year would be reasonable—it be nowhere
near as much as that if we had a lower inflation rate, but given the
inflation rate which we have, which affects Government's cost of
operations, 9.5 percent would seem to be a reasonable goal, so to
speak, for the time—spending in fiscal 1981 would be about $20
billion less than what the President is proposing.
So I have to say, quite respectfully, that while the President
must be commended for being willing to take the budget apart,
only 6 weeks after it was set before the Congress—indeed, to take
it apart twice, and I commend him for it—after all the work is
done the expenditures are still far above what they should be if the
Federal Government were doing all that it should be doing to help
overcome inflation.
So much, Mr. Chairman, for that point.
Next, turning to the credit control side of the anti-inflation program, what I would say first of all is that it is regrettable that it
was thought necessary to invoke the Credit Control Act of 1969.
I agree with what was said here this morning by Chairman
Volcker; namely, that the legislation ought to be reexamined.
Indeed, it would be a national benefit to rescind it.
Now, was it necessary to use it in the present situation? My
answer to that question is that it was apparently necessary to use




28
it to apply marginal reserve requirements against managed liabilities of nonmembers of the Federal Reserve System.
That need has since been eliminated, however, with the signing
by the President the other day of a new banking statute.
Second, it might be said that the act was needed in order to put
a marginal reserve requirement on the assets of money market
funds. I believe that was a very constructive action, and a much
needed action. If money market funds are going to offer what they
call check-writing privileges, they must be dealt with like a checking account institution, and that means they must be subject to
reserve requirements.
But it would seem to me that if a real effort had been made,
some way could have been found to do that without invoking the
Credit Control Act and maybe before too long we will have banking
and financial legislation that will cover money market funds on a
new—emergency basis.
I served, Mr. Chairman, as a member of the Hunt Commission,
and we worked over all these problems in preparing the report,
back 6 or 7 years ago, but in view of some of the things that have
happened since then in the financial area it would be a good thing
to reactivate a commission of that type to reexamine banking
legislation.
But I do not believe, Mr. Chairman, that it was necessary to
invoke the 1969 act in order to put reserve requirements on consumer credit. Consumer credit and mortgage credit are already
being reduced. New extensions of those two types of credit are
already dropping substantially. Indeed, the volume of new extensions of consumer installment loans was down—my recollection is
34 percent—in the fourth quarter of 1979 over what it was in the
third quarter. In short, the restraint on consumer installment
credit, in the circumstances, is not really necessary.
Where is the credit problem? The credit problem is in an area
that the Credit Control Act of 1969 does not touch, and that is the
Federal deficit. The credit problem is the vast amount of Treasury
financing that must be done currently as a result of the deficit on
the budget, plus the deficit of off-budget entities and Federally
sponsored agencies. The latter two add something like $30 billion,
maybe even $35 billion, to the on-budget deficit.
So much for the nature of the anti-inflation program.
However, will it have an effect? Let me put it this way, as I did
in my paper: Will it have a bite?
My answer to that, Mr. Chairman, is that it will have a real bite.
True, there is not going to be much bite from the fiscal side. I am
sure my friends at the Council of Economic Advisors would say
that when the budget swings, as it is projected to swing, from a
substantial deficit in fiscal 1980 to a substantial surplus in fiscal
1981—granted that the latter is due in large part to a gasoline tax
and to the proposed withholding of taxes on interest and dividends.
This will be highly restrictive on the economy, and as it occurs
jointly with the credit control program, it will have a significant
anti-inflationary effect.
Whether these will be any bite from the fiscal side of the program is a question. A big swing from deficit to surplus could have a
beneficial disinflationary effect, but mainly the bite will come from




29
the credit side. This will partly be because the program is not very
clear. People do not understand it all that well, and lending institutions do not understand it all that well. In the circumstances, their
reaction is likely to be to close the loan window altogether.
Naturally, there may be in the consumer credit area, more
impact than the authorities are interested in having. All in all, I
think there will be a significant bite.
What will this do to the economy? Briefly Mr. Chairman, I had
the view for quite a long while, going back well into 1978, that we
would have no recession in 1979, and I held to that view steadily
over many months— no recession forecast.
Moreover, I thought we could go through 1980 without recession.
But I abandoned that view around July or August of last year. I
abandoned it because I saw a money supply explosion beginning.
The money supply, which had been rising from about September of
1978 until March of 1979 at a very low rate, suddenly begin to
increase very rapidly. I inferred from that that sooner or later the
Federal Reserve would have to step on the credit brakes, and they
were going to have to step on them real hard, because the monetary explosion was telling us that we were going to get faster and
faster inflation late in 1979 and early in 1980.
So, expecting the Federal Reserve to step on the brakes, I gave
up the notion that we would operate without recession, and began
forecasting recession for 1980.
I must say that the economy resisted recession even then more
than I had expected, but I think that a downturn is now beginning.
I think it is now underway. I believe, furthermore, Mr. Chairman,
that it will not be a mild downturn, not a downturn smaller than
we had in 1973-75, but could be deep. I am not talking about a
catastrophic decline, because I do not contemplate that at all. But
it could be a very sharp decline.
Finally, I am not one of those who believes that after the economy has declined a bit it would start recovering very soon. On the
contrary, I expect to see the economy drop off 5, 6, 7 percent, and
then—as I have put it many times—bump along for a fairly extended period at that reduced level. And if that is the case, the
revenues that are counted on in the budget numbers are very
unlikely to be forthcoming.
Mr. Chairman, I will close there; if you wish to pose questions on
any part of my statement, I will be glad to try to answer them.
Senator BYRD. Thank you very much. You are a little bit more
optimistic, I believe, than I am. I think that we have a very
rubbery budget and to indicate that, it was only 4Vfe months ago
that Congress decreed that outlays would not exceed $548 billion
for fiscal 1980 which is the year that you feel that we are in serious
problems.
Just this week, the day before yesterday, the Budget Committee
has now approved an $18 billion increase in spending in that short
period of time.
The word has gone out through the country that the President
and the Congress are reducing spending, but the figures do not
show that and your chart is a very illuminating one. It shows that
spending is continuing to rise at a very substantial rate. The Government will spend, if the President's proposal is approved, $64
63-894 0 - 8 0 - 3



30
billion more in 1981 than the Congress contemplated just 4Vfc
months ago, that it would spend in 1980, this is a $64 billion
increase in spending.
As you so well put it—and I might say I have been frequently
using the term you have been using for several years—we must
moderate the rate of increase in spending.
I do not know of anyone who proposes to reduce spending below
what we are spending today. That cannot very well be done.
But what we can do is to sharply reduce the rate of increase. In
my judgment, the President has not done that. This new figure
brought in $612 billion against the original figure. This is a net $4
billion reduction. Therefore program cuts of $16 billion are almost
de minimis.
It amounts to virtually nothing in the overall total.
When you get to the recessionary aspects, I was with some
people, a number of bankers recently, and all of them said that
their banks are no longer making 5-year loans on automobiles but
they have tightened it up to 3 years.
Is that not going to have quite an impact?
Mr. SAULNIER. It will indeed.
You know, in 1956, at President Eisenhower's request, we asked
the Federal Reserve Board to make a study of consumer installment credit to determine whether there ought to be a re-enactment
of standby selective credit controls. At that time, we were concerned because the average length of automobile contracts had
increased from about 22 to 23 months, which was a big change for
the moment from something like 18 to 23.
When we get to the point where people are buying automobiles
on something like 5-year terms, we must be at the end of the road.
As a matter of fact, we may be off the road, and should reverse
substantially, no question about it. And the credit controls are
going to do something of that kind, partly because they put pressure on the lending institutions to ration credit. Under the controls
they are allowed to expand credit by lesser amounts.
So there will be a certain amount of rationing, which will come
through in a shortening of maturities.
Senator BYRD. YOU mentioned the recession of 1 9 7 3 , 1 9 7 5 ?
M r . SAULNIER. Y e s .
Senator BYRD. I cannot

remember how that recession ended.
Taking construction, which is so much in the news today, and
Senator Dole and I and practically every Member of the Senate, I
guess, had large delegations come to see us in the homebuilding
industry.
How long did the severe problem with homebuilding last during
that recession and how did it end?
Mr. SAULNIER. I can answer that quite explicitly.
Housing, regrettably, is always hit hard in such situations. It is
hit hard because it uses long-term financing, because homebuilding
is heavier financing. Ninety percent borrowing against 10 percent
equity is not unusual; it is a highly leveraged type of financing. So
when we get into trouble, even though the troubles may be due to
pressures on the credit markets caused by the Federal Government's borrowing, the housing industry gets hit hard.




31
Housing starts were at about 2.4 million in 1972 and early 1973.
Annual rate, 2.4 million. Very high. Exceptionally high. They
dropped and it was precipitous. They dropped to a level of about
900,000, annual rate, which was hit early in 1975, so that you had
approximately 2 years of sharply declining housing activity.
A very big drop, and a protracted one.
Now, what is going to happen this time? Well, housing starts are
already down from something like 2.2 million, where they were in
1978, to around 1.4 million now.
It seems to me, Mr. Chairman, that it is inevitable, a virtual
certainty, that they are going to drop much more.
I feel sure you are going to see the housing starts number well
under 1 million before it reaches its trough.
New commitments for the financing of home construction by the
major home financing agencies—S. & L.'s, mutual savings banks—
are down very substantially, and that is going to come through in
lower starts in June and July.
The outflow of funds from thrift institutions has made it impossible for most of them to do anything but finance commitments that
were made a substantial time ago, and which they must meet.
Where is the money going? The money is going out of the thrift
institutions into such institutions as money market funds. And
what are the money market funds doing with it? They are buying
Government debt, so that in the end the money is going to finance
Federal deficits. And so I find myself saying as I have said in
congressional hearings many times, that the most constructive
thing we can do to run our country the way it ought to be run is to
keep Federal spending and Federal receipts in some reasonable
alinement year after year.
Senator BYRD. I certainly agree, and while I strongly favor and
have been a long advocate of a balanced budget, of course, there
are two ways to balance it. One by an increase in taxes, and the
other by a decrease or a control of the increase in spending
and it seems to me that the key to it is to control the increase in
spending.
Mr. SAULNIER. There is no question about that in my mind,
Senator Byrd. I have never been the least bit impressed by the
proposition that you can do anything to stop the increase of spending except by acting directly on spending.
I have heard it said many times that if you cut taxes, then there
will not be that much money to spend, and the spending will not go
up. I have seen nothing in the history of the country that supports
such a proposition.
Spending has to be worked on directly.
I have said here, Mr. Chairman, that in present circumstances
we could increase Federal spending 9.5 percent a year, but if you
had stable prices you could not have Federal spending rising by
more than 3 percent per annum without increasing the ratio of
that spending to the total economy, which is something that I
would not want to see done.
Senator BYRD. I will make one observation and then yield to
Senator Dole.




32
It seems to me that there is no easy or painless way out of the
dilemma and the problem in which our country finds itself. I do
not see an easy way out.
I will quarrel a bit with that 9.5 percent figure. I think that is a
pretty high increase.
I really think that this country needs to be shocked a little bit in
the fiscal way and that to do that is going to require some substantial reductions in the $64 billion increase in spending.
No one is going to like it. I did not like to propose it. I proposed a
$26 billion reduction and I specified it function by function for
example. I started with $9.6 billion in the budget for foreign aid,
and left with $8.5 billion.
I did not want to put that in the congressional budget, have it
open to every pressure group in the country this year, next year
and every other year, but I think we are in a hell of a fix and I am
willing to do what little I can do to specify where, in my judgment,
the budget can and must be reduced.
Mr. SAULNIER. Mr. Chairman, we are in a critical situation. I
wish that I could command a word that would convey the seriousness of the situation beyond merely saying that it is critical.
You get to 17 percent inflation but, believe me, that is not
necessarily the end of the road. People begin to talk about 20
percent inflation. You get to 20, and you are going to go to 27, and
so it goes. At some point something will have to be done to turn
this around.
And the longer we wait to turn it around, the more painful the
process is going to be. It is going to be very painful as it stands,
and that is because we waited so long.
Look at the fiscal 1980 budget. How could a rational government,
with the kind of inflation prospect we have had, undertake to
increase its total spending by 15 percent. Actually they did it when
the inflation rate was a lot less than 15 percent but that it was
rising.
So what happened? We got 17 percent. I think the situation is
just as critical as it can be, and I agree with you entirely that as
far as the executive branch and the legislative branch of the Government is concerned the focus of all efforts should be on expenditure control. And they should not stop with on-budget spending
because these are all kinds of things off the budget, and there is a
vast collection of credit agencies out here, so-called federally sponsored agencies, that are dispersing billions.
Senator BYRD. What you indicated earlier about getting used to
inflation, one of my colleagues whom I will not identify, but he is a
very able Member of the Senate, mentioned to me yesterday, and I
do not say that he is not concerned about the problem, but he said
this—the Israelis have learned to live with an inflation rate of
more than 100 percent. His implication was we ought not to be—he
did not say it this way, but we ought not to be too upset with the
inflation that we have got now.
I cannot subscribe to that.
Mr. SAULNIER. I do not think there would be very many Israelis
who would agree with it.
Senator BYRD. Senator Dole?




33
Senator DOLE. I do not have any questions except to say that we
are all trying to get out of the mess. Could you give me about a 2minute response on how we got into the mess?
Mr. SAULNIER. Yes. We got into it, first, by excessively rapid
increases in Federal spending, and excessively rapid increases in
the use of credit. This caused our money supply to increase very
much faster than it should have increased, and this has given us
inflation.
Senator DOLE. It is not all the increases in energy costs?
Mr. SAULNIER. I think that one of the disasters of recent times,
intellectually, has been the notion that the inflation was due to
gasoline costs. Of course, when a foreign monopoly is in effect in
control of an urgently needed commodity and raises the price,
there is a danger of general inflation. But the only way that price
increase can be transmitted through the whole economy, and
become not just a one-time jacking up of prices but a continuing
increase of prices, the only way that can happen, is if the process is
accommodated by a big enough expansion of money and credit.
That did it. And so I do not subscribe at all to the view that
inflation is due to oil prices, or to high interest rates, or to grain
shipments, or some other such thing. As a matter of fact, they are
all explanations that tend to obscure the real causes.
Senator DOLE. I think that I share that view. I think that there
has been an effort by some to indicate that that is the cause of the
problem and while I do not want to be partisan about it, I think
the President is engaged in that to some extent: claiming that the
only reason we have inflation is because of increased energy costs.
And our answer to that is to pass a $227 billion tax bill called
the windfall profits tax that was designed to tax the oil companies.
But I think the result is going to be to tax the American people.
They are going to wind up paying the tax. The oil companies are
probably going to pass it on to the man driving up and down the
street.
And I do not think that these two Senators voted for that windfall profits tax, but that tax is not the answer as I look at it. It is
going to add to inflation, increase the price of gasoline and energy,
and destroy the incentive that we have got to provide for people to
go out and solve the problem.
We did not tax anything but domestically produced oil, that is all
we are going to tax. We are not going to tax anything else, and it
seems to some of us that we have taken one step backward.
In fact, that bill is being signed this morning, I guess, by the
President.
Senator BYRD. YOU were not invited to attend?
Senator DOLE. I was not invited since I did not vote for it, but I
will go down there next year when Reagan is there.
Mr. SAULNIER. I agree with you. There is very little one can say,
in a complimentary vein, I am sorry to say, about the whole energy
program.
It is one thing to put a tax on the so-called excess profits of the
oil companies—and I would have a hard time defending that—but
the big question is, what are you going to do with the money?
Senator DOLE. YOU are going to balance the budget with it.




34
Mr. SAULNIER. It ought to be put back into the business, trying to
find more oil. But rather than that, the money will be utilized in a
whole long series of things that are not going to help solve the
energy problem or, to my way of thinking solve, anything else.
Senator BYRD. It would tend to stimulate additional spending
programs, as I see it.
Mr. SAULNIER. I believe so.
Senator BYRD. The spending programs will be entirely aside from
energy—not spending programs to create more energy—but in
more and more social type programs, which has helped to get the
Government into the problem that it is in now.
Senator DOLE. Thank you very much.
Senator BYRD. Just one final question, Dr. Saulnier.
You gave some interesting figures on housing.
M r . SAULNIER. Y e s .
Senator BYRD. Construction starts. 1972, 1973, 2.4 million.
M r . SAULNIER. Y e s .
Senator BYRD. That dropped in early 1 9 7 5 to 9 0 0 , 0 0 0 ?
Mr. SAULNIER. Right.
Senator BYRD. At what point, and for what reason, did

the uptrend begin which culminated in 2.2 million in 1978?
Mr. SAULNIER. We had a big drop in interest rates.
Senator BYRD. A big drop in interest rates?
Mr. SAULNIER. Yes, a big drop in interest rates.
Senator BYRD. That was brought about in what way?
Mr. SAULNIER. By the recession, by a deep recession.
By the time we got to the trough in 1975 we were down nearly 6
percent, 5.6 percent, something like that. It was the recession that
did it. It is unfortunate that it gets done that way, but that is the
way it was done.
Senator BYRD. Thank you very much indeed.
Mr. SAULNIER. You are very welcome, sir.
[The prepared statement of Mr. Saulnier follows:]
TESTIMONY BY D R . RAYMOND J .

SAULNIER

Mr. Chairman: My purpose this morning is not to comment on the Treasury's
request for an increase in the public debt ceiling, which is always a kind of
command performance for Congress, but to give you my reactions to President
Carter's March 14 anti-inflation program and this week's minor amendments to it.
If it works, the program would reduce needs in the future for periodic increases in
the public debt. One hopes it will, though that remains to be seen.
First, the budget aspects. For the moment I will limit my remarks to budget
outlays, putting aside consideration of deficits. To facilitate the presentation, a
simple statistical chart is appended which shows budget outlays separately and, in
an adjacent series, budget outlays combined with net outlays of off-budget entities
and federally-sponsored enterprises. The latter two are often overlooked in budget
analyses but they have the same effect on surplus or deficit as on-budget transactions. The chart is drawn on semi-logarithmic scale to bring out differences in the
rate (year-by-year) at which federal spending is increasing.
The first thing that stands out in the chart is that the big spending problem is in
fiscal 1980. Spending would have to be many billions less in every year shown in my
chart if the federal government were doing what it should be doing to retard
inflation and bring interest rates down, but the game is being given away in a
particularly damaging fashion in fiscal 1980. Even after you take account of the cuts
proposed by the president, this year's spending increase is 15.2 percent and the
amount spent will be larger by $5.3 billion than was proposed in last January's
budget message. Not only is this too rapid an increase for any single fiscal year, it
sets a very high platform from which fiscal 1981 spending increases will take off.
Accordingly, although we are nearly halfway through fiscal 1980 I must emphasize




35
the urgency of doing everything possible to reduce the rate at which spending will
go up in the remaining six months. I have had some experience in these matters,
and I know you cannot perform miracles on a budget, least of all on a budget
halfway over the dam, but I also know that the White House is not emptyhanded
when it comes to having ways to stem increases in federal spending, even on short
notice. It should have an emergency program in operation right now to slow fiscal
1980 spending, and cutbacks should be far greater than those proposed by the
president. My first comment, then, is that the president's proposals are inadequate
to meet the critical spending surge of fiscal 1980.
Turning now to the more distant fiscal 1981 budget, every citizen should commend President Carter for his willingness to take his original budget proposals
apart so soon after they were set before Congress. But, as you will see from my
chart, even if the cuts he is currently suggesting are achieved, spending in fiscal
1981 would be $118 billion more than it was in fiscal 1979, only two years earlier.
Understandably, judgments differ on what the increase of federal spending should
be, but if we were to settle on 9.5 percent as a reasonable average in present
circumstances, and if increases were held to 9.5 percent through fiscal 1980 and
1981, spending in fiscal 1981 would be nearly $20 billion less than the president's
modified budget calls for. This is a measure of how far off the track the budget has
managed to get, and how much more should be cut from federal spending if there is
to be an effective federal effort to overcome inflation.
Let me turn for a moment to the net outlays of off-budget entities and government-sponsored agencies. As my chart shows, these do not alter the upward trend of
federal spending, but they lift aggregate spending by large amounts. In fiscal 1981,
federal outlays which include spending under these two categories will be $36.4
billion higher than on the basis of on-budget spending alone. This means that
Treasury borrowing needs, and thus the upward pressure on interest rates, will be
that much greater. The president is right in asking Congress to take steps to bring
federal credit-extending activities under control. I would have thought this might
have been done when the Federal Financing Bank was established, but clearly it
was not.
One additional point on the budget. You will see from my chart that spending is
expected to increase much less in fiscal 1981 than in fiscal 1980. The annual rate of
increase drops from 15.2 to 7.5 percent. Clearly, a drop is needed, but it would be
obviously much better from a cycle-stabilization viewpoint, and much more timely
in the fight against inflation if the adjustment were to begin now rather than be
deferred until October 1. This is another reason why the executive branch should
have a crash program in operation now designed to retard the upward momentum
of fiscal 1980 spending.
So much for the budget. Let us look now at the credit side of the program, which
remains substantially as announced on March 14.
First, it is essential to recognize that the big credit problem today is not consumer
instalment credit and not home mortgage credit: the big credit problem is presented
by the federal government's budget deficit. Consumer instalment credit and home
mortgage credit rose significantly in 1978 and most of 1979, but that phase is over.
Instalment credit was down 34 percent in the fourth quarter of 1979 over the
preceding quarter, and mortgage borrowing by households was significantly lower in
the second half of 1979 than in the first. Moreover, you can be sure both will be
down sharply during the rest of this year. Conversely, the amount of credit extended to the federal government has increased enormously. Funds raised in credit
markets by the U.S. government, including those raised by federally-sponsored
agencies, were 54 percent larger in the fourth quarter of 1979 than in the previous
quarter, and substantially larger than in the first half of last year. Thus, the credit
problem we face today cannot be laid at the door of the American household; today's
credit problem is being generated in Washington. Of course, credit must always be
available to the federal government, and interest rates do not deter the federal
government from borrowing money. Accordingly, while we may not be fighting the
right credit war in doing this, the brunt of Federal Reserve credit restraint will
necessarily fall on householders, on business, on state and local governments, and
on what we call "the rest of the world."
As to the specifics of the Federal Reserve program. First, I wish the Credit
Control Act of 1969 had not been invoked. I don't like this act anymore than I would
like a wage and price control act in 1980, which I think would be a disaster. In my
view, it would be infinitely better if the Federal Reserve were using only the
established tools of indirect credit control. The need to bring nonmember banks
under the marginal reserve requirement against managed liabilities may have
necessitated this exercise in direct control but I hope the financial legislation
enacted this week will obviate any such need in the future.




36
Similarly, I assume the credit control act was needed to put a marginal reserve
requirement on money market funds, this was clearly a constructive and much
needed step. If money market funds are to provide checkwriting privileges, and act
as an investment medium in competition with conventional thrift institutions they
must expect to be subject to appropriate reserve requirements. But it seems to me
some way could have been found to accomplish this without opening the Pandora's
box of direct credit control. There should be appropriate permanent legislation to
this end.
Apparently it was necessary also to use the 1969 act to apply a reserve requirement to consumer credit outstandings; but, since new extensions of consumer credit
are already being sharply reduced, this move strikes me as an over reaction. Finally,
the 1969 act was surely not needed to permit the Federal Reserve authorities to
urge large commercial banks voluntarily to limit the increase of their loan assets.
All in all, therefore, the case for having invoked the Credit Control Act of 1969 is
marginal at best.
However, for better or worse, the deed is done: the question now is whether the
anti-inflation program taken as whole—federal spending restraints; indirect Federal
Reserve controls; and selective credit restraints—will have bite. It is my guess they
will bite real hard. The bite will come, however, from the credit control side of the
program, not from budget restraints. Indeed, I don't see any significant overall
effect from the latter, certainly not in the near term. Specific spending programs
may be significantly affected, but in an economy that is $2.5 trillion in size you
cannot expect much overall impact by cutting back planned increases in fiscal 1980
outlays by $2.4 billion, and certainly not when the amount to be spent, even after
the cuts, is $5.3 billion more than was contemplated last January, and 15.2 percent
more than was spent in fiscal 1979.
Nor can a great deal be expected from the reductions now proposed for fiscal
1981: spending will be $4.3 billion less than was proposed last January, but $42.6
billion more than in fiscal 1980.
A species of restraint will result from a decline in the rate of increase of federal
spending between fiscal 1980 and fiscal 1981; but, overall, the federal spending side
of the anti-inflation program will have little economic effect.
The impact of the budget outcome on the economy—that is, whether there is a
surplus or a deficit—is more difficult to evaluate. A $36.5 billion deficit is projected
for fiscal 1980, only $3.3 billion less than was projected last January, and $8.8
billion larger than the fiscal 1979 deficit. There is obviously no help here in
combating inflation. The fiscal 1981 budget is expected by the president to swing
sharply to surplus, partly from the gasoline fee and the expected withholding tax on
interest and dividends, but partly also because the administration is counting on
higher tax receipts from a recovering economy subject to rapid inflation. A swing to
surplus would be highly beneficial, but it goes without saying that achieving it is
still problematical.
Clearly, therefore, the significant bite will come from skyhigh interest rates and a
lessened availability of credit. Moreover, the credit controls can be made tighter if
the Fed wishes and it is my impression that the Fed would not hesitate to make
them tighter if circumstances require. That may not be necessary, but the monetary
aggregates have not yet been adequately retarded if inflation is to be significantly
reduced. In any case, it will be necessary to hold present restraints in place for an
extended additional time.
In view of all these possibilities, what can we expect of the economy over the next
year or so? It looked for a long time as if we would move through 1979 and 1980
without recession, but I abandoned that forecast last fall when the money supply
exploded upward in a way that made it evident the Federal Reserve would have to
apply severe restraints to credit markets. That was the outlook prior to March 14;
the new credit restraints make a downturn all the more likely.
True, there are not yet many signs of recession, but a change is underway. The
composite index of four coincident indicators, which is our best comprehensive
monthly index of economic activity, was down in February and I expect it will be
down again in March. At the moment, however, pressures are greatest in financial
markets, especially where there has been heavily-leveraged speculation in commodities. This is contrary to administration thinking, but having these credit market
pressures in mind I believe the economic outlook has deteriorated markedly from
what it was at the beginning of the year. Earlier, it seemed to me that the drop in
real output would be smaller than in 1973-75, but I am now less sure of that. A
further substantial drop in construction is in prospect, and large cutbacks in investment spending are a virtual certainty. There was a small drop in retail sales in
February, and I expect another small one in March, but it would surprise me




37
greatly if the April drop were not fairly large. All in all, signs point to a major
decline in activity around midyear 1980, perhaps sooner.
The recovery outlook is also unfavorable. One of the negative effects of inflation
on the business cycle is that it tends to rule out vigorous recoveries. In my opinion,
the economy is unlikely to do more than bump along well into 1981, at or not much
above this cycle's trough.
In the process, inflation should moderate by a few percentage points within a
year's time, and interest rates should trend down beginning soon. It will be a long
time, however, before anti-inflation policies can be safely relaxed. Indeed, premature
relaxation would lead to a renewed failure of confidence and to a quick acceleration
of inflation, which would create conditions worse than we now have.
I wish the prognosis were more favorable but in the circumstances it cannot be.







38

39
Senator BYRD. The next witness is one who has made some very
accurate predictions in the past. I know from firsthand knowledge,
in regard to what would take place in the economy and the stock
market and other economic areas of our country.
I particularly remember June of 1973—was it 1973 or 1974?
Mr. SINDLINGER. 1973-74.
Senator BYRD. At a meeting of a group of Senators here in
Washington which I got together—
Mr. SINDLINGER. That was in July of 1 9 7 4 .
Senator BYRD. July of 1974.
He predicted with great accuracy just what the stockmarket
would do over the upcoming months.
The committee is pleased to have Mr. Albert Sindlinger, chairman of the board, Sindlinger & Co.
Welcome.
STATEMENT OF ALBERT SINDLINGER, CHAIRMAN OF THE
BOARD, SINDLINGER & CO.

Mr. SINDLINGER. Thank you.
I think, in view of the prior testimony that I will change my
presentation slightly to amplify some of the points that were previously made. I am not going to be quite as optimistic as the witnesses you have just listened to, because I think that we are in a
crisis now, a real serious crisis. And I think that Congress is going
to have a special session, which it has never had in its history, to
deal with the problem. The timing that I originally had for this
crisis session of Congress was about October, just before the elections.
But I think that the events, particularly the President's adoption
of the new credit control act, turning the responsibility over to the
Federal Reserve Board, has accelerated the timetable and I think
that we will probably have this collapse of the economy more likely
i n J u n e or J u l y .

The collapse of the economy, I am talking about is something
that you gentlemen are already sensing and hearing from your
constituents.
If you recall, Mr. Chairman, 2 years ago I was forecasting an 18percent prime rate interest rate for 1980 and I was completely
laughed at. Chase Manhattan raised it to 19%. My forecast now is
that we will have a 22 percent prime in June or July which will go
to 24 percent in August.
You are going to have the discount rate about 20 percent. You
are going to have T-bills and all Treasury bonds at least up 300 or
400 basis points which is an additional 3 points higher than the
interest rates are now.
Senator BYRD. If I could interrupt you at that point, the rates
dropped the other day.
Mr. SINDLINGER. They dropped for a very good reason. They
dropped because whenever there is a demand for something the
interest rate drops. What is happening here is that all our money
that was formerly in savings and loans and in the banking system
is now going into these money market funds and they are buying
Treasury bills.




40
The T-bill rate by this summer will be up at least 400 basis
points higher than it is now.
I calculate that a 1 point rise in the cost of interest for the
Federal Government increases the deficit by $10 billion. If we have
a 3 or 4 point rise, then you have $20 billion, $30 billion, $40 billion
of interest that is not even thought about.
I would like to start by reading this addendum that I have put
on the table because I think that this is very, very important.
With our exhibit C—if you will just turn to the exhibits that I
have—and if you will turn to exhibit C
Senator BYRD. IS that in the main part?
Mr. SINDLINGER. YOU have some exhibits attached to my prepared statement.
Do you have them?
Senator BYRD. I want to get the right one.
Mr. SINDLINGER. Exhibit C - L we are looking at first.
Senator BYRD. All right.
Mr. SINDLINGER. The first column is the public debt. Starting in
January 1972 it was $422.9 billion, and if you will look over on the
far right you will see public debt interest in the 12-month cum,
January 1972, when the debt was $422.9 billion—the annual interest payments totaled $21.3 billion or roughly about 5 percent of the
debt.
Since then, the magnitude of interest payments as a percent of
the total debt increased or declined as interest rates fell. In the
recession of 1975, as interest rates fell, the percentage dropped to
about 5 percent. By June of 1979, interest rates on Treasury borrowing started to rise and, the share of interest payments exceeded
7 percent of the total debt.
In February 1980, the share of interest payments—and you will
see that on the bottom of C-2—in February 1980, the share of the
interest payments exceeded 7.7 percent.
Senator BYRD. I do not see that.
Mr. SINDLINGER. TO get to 7 . 7 percent, let me skip over to another exhibit, and that is F.
Look at F-2.
At the bottom of the page, F-2. Do you see it?
Senator BYRD. Yes.
Mr. SINDLINGER. On the bottom of exhibit F-2, in February, the
debt was $854.6 billion and the interest was $65.7 billion, or 7.688
percent of the total debt.
Now, the Carter administration has projected in the budget that
interest costs on the Federal debt should be 8.2 percent for the
1980 fiscal year and that the rate should fall to 8.1 percent for
1981.
This is a gross, gross miscalculation, assuming that interest rates
for fiscal 1981 are going to be lower than 1980. I am saying they
are going to be 3 to 4 points higher.
Since our interest rates have been rising since January, and
SCP, our forecasting model, says they should go higher by 300 to
400 basis points, before the interest rates level off, the financing on
the debt will have to be at least 8 to 8.5 percent.




41
The U.S. Treasury has $190.4 billion of marketable Federal debt,
22 percent of the total for Federal rate, where the debt is $854.6
billion.
Of this $190 billion, the new money that the Treasury has to
raise, about $111 billion is financed by the regular Monday weekly
auctions which are approximately $2.2 billion. Last Monday's was
about $4 billion.
Another $78.7 billion is not included in the weekly financing and
this is the part that the Federal Reserve Board picks up, $19
billion. If the Treasury refinances this long-term portion and the
Fed will continue to hold the $19 billion, there will be a $60 billion
of older long-term Government bonds that must be financed by the
public and I cannot find this in the budget.
For this refinancing of the $60 billion, about $25 billion has a
coupon less than 7 percent. About $20 billion carries coupons between 7 and 8 percent and another $25 billion has coupons between
8 and 9 percent, and only $11 billion are 9 percent or more.
The point I am making here is that all of this new financing will
have to be at a very, very much higher interest rate so that we
have additional cost in the budget not included which will be due
to the rise of the interest rates. Because of the interest rates in the
1980's with no long-range fall in sight, the likelihood of an increase
in the average cost of the budget financing is guaranteed.
Another situation that is compounding the financial problem is
that every new issue probably will be of very short maturity. We
are no longer going to have long-term bonds, and with the financial
problems I see coming, a 5-year bond by anybody will be unheard
of and we will have 90-day, 60-day, 30-day Treasury financing at
rising interest rates, as we get into this credit problem.
The short-term rates that are forecast have to remain at a high
level and I figure that the short-term interest rates at the present
time should be around 25 to 28 percent in about October. The
short-term rates will fall slightly to about 22 percent, after that but
the long-term rates will be rising about 4 percent at the same time.
This means that the additional cost of financing the Federal debt
rises but it is not accounted for.
A new fact of nonmarket debt—as for the nonmarketable part of
the Federal debt, there is a new problem that is being presented by
inflation. That is a U.S. savings bond.
If you and I were going to form a company to sell savings bonds
and we were going to sell them as a private institution we would
be put in jail for fraud.
So what is happening here is that savings bonds hit their historical peak with a growth rate of 1 percent, or $800 million new
money in September 1979. By February 1980, the magnitude of
savings bonds declined to $79.6 billion, with a yearly change of a
negative 12 percent and the new money should be minus $1 billion.
The consumer has become more sophisticated given the presence
of money-market funds and will not continue to hold these savings
bonds.
I estimate that at least $10 billion of the savings bonds will be
liquidated by the public over the next 12 months. This adds another $10 billion to the money that the Treasury will have to
finance which is not even considered in any accounting.




42
Now, again, to conclude with this point, on the back page—and
again, I want to repeat that my calculations, and others agree with
me, that a one point rise in the interest rate for Treasury securities
adds about $10 billion to the cost of financing.
What will Congress be faced with in the next year? I project for
February 1981, that the Federal debt will rise to $923.8 billion and
it will cost $85.4 billion to finance this. That is not in any of the
official figures and this is with the most guaranteed accuracy.
With the time being short, I think that what I will ask you to do,
Mr. Chairman, is to put my prepared statement in the record and I
would like to go over some of the headlines. It is quite lengthy. We
have spent a lot of time on this.
Senator BYRD. Your entire statement will be put into the record.
Mr. SINDLINGER. Because I want to document at the present
time, we are fighting inflation with press releases. The bankruptcy
of the United States is well on its way. I call this the money
meltdown collapse of 1980.
We have heard comments today about recession. If you will turn
to exhibit A, this is a tabulation from my interviewing of last
Wednesday, a week ago today, and you will see that 45 percent of
the people we interviewed for the last month report that their
current income is down.
That is the highest figure that I have ever measured in 25 years.
Most of the time when you get into a recession, you only have 25
percent of the people reporting their income is negative. We already have it at 45 percent.
This means that for better than 4 out of every 10 households in
the United States, they are already in a recession. In some later
tables, as you study this, you will see that as far as households are
concerned, using the Government's gross national product, the recession started on a negative basis in October of 1979.
In other words, on a per household basis, our households are
growing at 1.8 percent every year and since October 1979, real
GNP has been growing at 1.5 or 1.3 percent, less than 1.8.
So on a household basis, we have households truly in a recession
since last October.
Senator BYRD. TO put this into perspective, let me say at this
point, as I understand it, what you do each day, Sindlinger & Co.,
what you do each day is to have a telephonic conversation with a
large number of individual citizens throughout the United States.
Mr. SINDLINGER. Throughout the 48 contiguous States.
Senator BYRD. And you have been doing that for 2 5 years?
Mr. SINDLINGER. Right.
Senator BYRD. And you do it day after day?
Mr. SINDLINGER. Every day.
Senator BYRD. Then you analyze the results that you get from
the responses of those households?
Mr. SINDLINGER. Each Wednesday for the prior week. So that we
have each Friday a current reading of the attitudes and the opinions of people throughout the Nation, both on the economy which
are based on the questions that I showed you here, and we also ask
political questions. Right now, we are asking a series of questions
on what people plan to do with their savings bonds and that is
where I get this $10 billion cash-in, which I think at the present




43
time is a very conservative figure because most people have not
figured out that they can make a profit.
Senator BYRD. A $ 1 0 billion cash-in of savings bonds?
Mr. SINDLINGER. Right. Which has to be refinanced, which is not
in anybody's budget. So when the Congress talks about balancing a
budget with all of these figures that you are talking about, you
have got to figure that there is $10 billion that is not in there that
has to be taken care of.
The Treasury has to refinance this, so that is going to add to the
debt and I am not even including the off-budget in this presentation. I am only concerned and talking about only the budgeted
items.
Senator BYRD. What do you find to be the confidence factor on
the part of the American public?
Mr. SINDLINGER. Confidence, at the present time, is in complete
confusion. People understand, where the President said, that inflation is cruel tax. That is one thing that people very well understand and agree with the President.
But what they cannot understand with the new March 14 program is how you balance a budget by increasing taxes when taxes
are a cruel tax and inflation is cruel. It is beyond comprehension.
I have transmitted this to the President through the proper
authorities and I have also told him that the worst mistake that
could possibly be made—and I was glad that this committee, from
what was said this morning, agrees with me—that this credit control program with the Fed is about any the worst thing that could
ever have been done.
I had a meeting with Mr. Volcker which I discuss in here later,
but I want to get this in at this point. I had a meeting with Mr.
Volcker on the 1st of February. In fact, I talked to you at that
particular time.
And the reason for this meeting was that I had come to the
conclusion that the economy is going to be in dire straights by that
date I am talking about October. Now I have moved it up simply
because I do not see how American businessmen can operate with
20, 22, 23 percent prime rates, which means—you have talked to
your building people. You were talking about housing starts. I have
housing starts down to 1.2 million in December of this year and in
January of 1981, I have housing starts at 750,000, compared to the
figures that you got from the gentleman ahead of me.
We are going into one collapse because the American economy
cannot operate and businessmen will be forced into bankruptcy
with these 20, 22, 24 percent interest rates.
Senator BYRD. You mentioned earlier that Congress will be
forced into an emergency session?
Mr. SINDLINGER. To stop a rash of bankruptcies.
Senator BYRD. What will the Congress do in an emergency session?
Mr. SINDLINGER. Congress is going to have to start doing all the
things that you have been talking about for all these years that
they ought to do. They are going to have to bite the bullet.
It is going to be forced on them because these people across the
country are not very excited about any of the Presidential candidates and we have a situation where we have a very volatile public.




44
What will make Congress act and what Congress will listen to is
when the finance people on campaigns say we have no funds. We
are going to have massive bankruptcies this summer. We are going
to have some very large corporations in bankruptcy. We are going
to have some massive retail bankruptcies.
We are going to have a credit crunch like we have never experienced in our lifetime simply because we have a complete dislocation of money.
The irony of all this is it is not that we do not have enough
money. We have our money in the wrong places.
We have $600 billion of our money in Eurodollars that should
not have been there, and we have all this massive debt that I am
talking about, this massive interest, this crowding out.
The Government has to get its money ahead of everyone else.
You are going to have massive bankruptcies in savings and loans.
If we had the time, we could go through these figures and I could
show the outflow of savings and loans. Savings and loans are in
serious trouble.
You are going to have a massive farm problem. Bankruptcies in
farms this summer and you are going to have some massive bankruptcies in retail trading, plus a lot of small businessmen associated with automobiles. The bankruptcies that are going to be in the
news this summer and fall just before the election are going to
make Congress have to act because this affects our country.
If you will turn to exhibit G
Senator BYRD. G?
M r . SLNDLINGER. G.

Here is an explanation of why we are going broke.
On the first page, you see in the first column a list of current
dollar personal income by months starting in January 1977. That is
the current dollar value, and the constant dollar value is after you
take out inflation.
The difference is how much inflation in millions of dollars and
billions of dollars.
The next line is the percent. In other words, in 1977, inflation
was eating up $392.2 billion, or roughly 37 percent of personal
income. In February of 1980, you had $2,051,000,000 and just a
little over $1 trillion in constant dollars. So the difference was $874
billion.
Now, note that the amount of money that is being eaten up by
inflation and personal income is very close to the national debt.
Do you need any explanation of why inflation is created by the
national debt?
Now, we turn to the next page and this is what I call the new
money, exhibit H. Here is the bottom line.
In January 1977, we were adding year over year $128.9 billion to
total personal income, total personal income in January 1977 was
$128.9 billion more than in January 1976. But when you took the
inflation out, the add was $46 billion. So we lost $82.9 billion, or 64
percent of the new money being created.
Skip down to February 1980. In 1980, in February, and the
money w$ spent, $200.5 billion was added to personal income over
the prior year and the figures for the prior year are on the page
ahead of it.




45
The inflation leaves only $5.4 billion, or inflation in February
destroyed $195.1 billion, or 97.3 percent of the money generated in
personal income.
By July-August, that figure will be 100 percent.
In other words, what this table tells you—and this is why people
across the country are uptight when I interview them—what this
table tells you is that inflation is eating up money faster than
people can get their hands on it.
A company with an outflow exceeding its inflow is bankrupt and
the Nation at this point in July will be fiscally bankrupt so that
inflation is eating up money faster than the Fed can even print it.
Senator BYRD. DO you regard the President's program as adequate to bring down inflation?
M r . SINDLINGER. NO.

The point was made by your other colleague that if we balance
the budget it would only reduce inflation by a point.
There is some truth to that. My data says—and this is a shocker—that Congress is not prepared for—and this is the point that I
make in my testimony—that all of this talk right now about balancing the budget is completely academic. It is an exercise and just
press releases.
What Congress has to do between now and this time next year is
to have a surplus of about $40 billion, a surplus. I am not talking
about a balanced budget.
Somehow, between now and a year from now, Congress has got
to have $40 billion in surplus to issue a tax relief to the people, not
to spur the economy, but to save the Nation's banks.
The Nation's banks, I calculate, will be short about $40 billion in
February and March of next year.
As you remember, Senator, we had some long conversations in
1974 where I had calculated that the banking sector was going to
be short $9 billion in early 1975. You recall that.
And with Wilbur Mills and the other people working with me,
and the Treasury working with me, we came to the conclusion that
there would have to be a tax cut.
First of all, based on the interviewing, my data showed me that
80 percent of the tax cut would go into the banking system so that
we had calculated that the banking system would be short about
$9.5 billion.
Mr Volcker cannot put money into the banking system of that
size. The Treasury deposit cannot put it into the banking system of
that size. There is no law that would allow either one of them to do
it.
But the way that you relieve liquidity in the banking system is a
very simple process. You have a tax cut, and what do people do
with a tax cut? It has to be a check. It cannot be credits on the
books. It has to be a physical check and what do people do when
they get a tax cut check? They take it to their bank so that the
people across the Nation take an even amount of money to whatever bank they are associated with and very quietly the Treasury
is robbed.
In the case of 1975, it was robbed by $13.5 billion to get $9 billion
into the banking system. Confidence goes up and politicians say
that we have tax relief now which will spur the economy.
63-894 0 - 8 0 - 4




46
That is not why you have tax cuts. You have tax cuts, and why
tax cuts are necessary, is to provide liquidity for the banking
system when you get into a recession.
The same method that calculated that we needed $9 billion in
1975 now tells me that in February of next year, the banking
system is going to need $40 billion which is in nobody's budget.
Senator BYRD. YOU are much more pessimistic than I am, but in
1974 you also were much more pessimistic than I was.
Mr. SINDLINGER. I think I remember that.
Senator BYRD. YOU were correct and I was not. But I just cannot
quite see—you use the word collapse in the economy.
Mr. SINDLINGER. YOU cannot run the American economy with
interest rates in excess of 20 percent. Do you know of a businessman who can operate on a 20 percent interest rate?
Senator BYRD. HOW can you get interest rates down, other than
reducing Federal spending?
Mr. SINDLINGER. I was very pleased at your questioning this
morning and very pleased with Volcker's answer and I will go back
to my conversation with him.
At this meeting that I had with Mr. Volcker on the 1st of
February, I put it to him this way. I have been very critical of the
Fed for many years.
I said I am very critical of Congress because we run our financial
affairs just like Three Mile Island was run. We always read the
wrong information and we always try to find something that justifies our hopes.
We say inflation is not where it is. We say inflation is around 9
or 10 percent and we are going to reduce it to 7 percent.
Those are words from the financial community and the real
world does not operate with press releases. The real world operates
on what the facts are and the facts are that the inflation rate at
the present time is around 20 percent in the United States. Therefore, all interest rates have to be at that level.
Inflation dictates the interest rate level. The Federal Reserve
Board does not do it. This is why the Federal Reserve Board in
October suddenly decided we are going to stop controlling interest
rates because they discovered they could not control them.
Senator BYRD. There is no way that Congress can control interest
rates.
Mr. SINDLINGER. Here is what is going to create this new emergency session in Congress that I am talking about. It came out in
the questioning today.
Constituents across the country are going to start demanding
from Members of Congress that you bring down interest rates. You
are hearing it already.
Most Members of Congress that I talk to believe that the Federal
Reserve Board controls interest rates and they believe that Mr.
Volcker could bring interest rates down.
Most people in Congress think that the Federal Reserve Board
controls interest rates.
Senator BYRD. Right.
Mr. SINDLINGER. I have been arguing this for 2 0 years. I talked to
Mr. Volcker on the 1st of February and I said, Mr. Volcker, I see
the scenario and we have had conversations before—and I might




47
add that this is the first time in 40 years of visiting the Fed that I
did not get an argument, because I always get arguments when I
go over there.
I said the time is going to come where there is going to be an
emergency session of Congress. The timetable then was October. I
move it up now to midsummer—when the Congress is going to be
pressured by these higher interest rates and the Congress is going
to be pressured to bring interest rates down.
First of all, nobody understands why we have the interest rates
where they are and the reasons that the interest rates are where
they are, 19% yesterday and 24 percent this summer, is because
interest rates have to meet the inflation rate and the true inflation
rate is about 20 percent. The reason the true inflation rate is
around 20 percent is because of the Federal debt, oil, and all of
this. These are other problems.
But this problem started out long before the Arabs had the oil
embargo in October, November 1973. This goes back 20 years so we
cannot blame the Arabs or Khomeini for our problem.
So I said to Mr. Volcker, you are going to have to tell Congress
in a very polite way three things. No. 1, you are going to have to
tell Congress that you cannot control interest rates, that inflation
does it.
No. 2, you are going to have to tell Congress that you cannot
control the money supply. Inflation does that.
The Fed creates more money because people need more money
for inflation.
The third point you are going to have to tell Congress is that the
Federal Reserve Board should never have been in the inflation
fighting business in the first place because it cannot fight inflation.
Monetary policy cannot fight inflation that is created by fiscal
policy.
And this emergency session of Congress brought upon by the
demand of the public, businessmen, and people to lower interest
rates, is going to create, in my judgment, a new appraisal as to how
we got here.
Senator BYRD. If that is the case, if that is the case, No. 1, as I
see it, there is no way that Congress can legislate a reduction in
interest rates.
Mr. SINDLINGER. No; Congress has to have a surplus of $ 4 0
billion to solve this problem.
Senator BYRD. What you are saying is if there is an emergency
session that the purpose of the emergency session would be, I
assume either from what you say, either would be to sharply
reduce spending or increase taxes. Would that be it?
M r . SINDLINGER. NO.
Senator BYRD. TO reduce spending?
Mr. SINDLINGER. YOU increase taxes, you increase
Senator BYRD. What would be the purpose of

inflation.
the emergency

session?
Mr. SINDLINGER. First of all, to learn how the economy works,
No, 1, and the second result would be after you learn how the
economy works would be to decide that we can only stop inflation
by cutting spending.




48
Senator BYRD. It gets back to a sharp reduction in the increase in
spending?
Mr. SINDLINGER. That is right. And we have to build a surplus.
Senator BYRD. YOU envision the need for a very substantial reduction in the overall spending by the Government?
Mr. SINDLINGER. I am talking about the Congress cutting spending to get a $40 billion surplus which we are going to need to
protect the banks next year.
Now, the longer Congress waits, the more it is going to cost.
Senator BYRD. I think the longer the Congress and the longer the
Government waits to tackle the problem facing us the worse off
everybody is going to be.
Mr. SINDLINGER. I think what is going to bring this to a head—I
have given this a lot of thought, but it is the only thing Congress
will understand—is when it gets a cry from the people.
I am sure that Members of Congress are already beginning to get
the cry from people, get interest rates down. I am sure that is
happening now.
It will happen every day and it is going to amplify, as interest
rates go up. Each week they go up more. There is no law. If
Congress attempts to legislate a freeze on interest rates, you will
raise interest rates and create a black market like people have
never seen before. You will wreck the world economy.
Senator BYRD. I think, as evidence of that, Congress has even
gone to the extent of eliminating usury laws in various States.
With the usury laws, no one could borrow any money.
Mr. SINDLINGER. That is right.
In this presentation I have not included the out-budget financing.
Senator BYRD. I understand.
Mr. SINDLINGER. That was deliberate. I do not want to bother
with it. I have just taken the on-budget financing.
Senator BYRD. I am interested in what you learned from the
public on these day-to-day telephone conversations.
Incidentally, as you know I have been to your home and your
place of business.
Mr. SINDLINGER. And you have listened.
Senator BYRD. I have listened in and heard the responses.
Mr. SINDLINGER. The last time you were there we had a peaceful
America. That was not too peaceful that night, was it, compared to
now, but it was a peaceful America. You should hear them now.
Senator BYRD. What do you find to be the dominant interest on
the part of the people?
Mr. SINDLINGER. Nobody in Washington understands my problem
and I do not want to hear any more promises. Nobody understands
my problem. You have got to remember that people basically are
very selfish and they also want somebody else to sacrifice for them.
But what is happening here is that 45 percent of the people tell
us that their income is down. In other words, 45 percent of the
Nation right now is in a recession and the economy, the way I see
it, next year we will not be arguing about a recession next year.
At the present time you hear everyone talking about a recession
and when is it coming. By next year at this time, the argument is
going to be, how long will the depression last?
That is where we are heading. How long will the depression last?




49
In my testimony, I make the point that the economy is no longer
in V's and U's, but the economy at the present time is an L. You
go down, you stay there.
It was pointed out by the two prior people sitting here, we are
not going to have a sharp recovery. It is going to take a long time.
I hate to say it, but I think it is going to take us 10 years to get
us out of this mess. But what concerns me is we have always solved
our problems in the past by going to war, and are we going to go
through that procedure again rather than trying to think our way
out?
We always shoot our way out rather than think our way out.
Senator BYRD. I assume you find that the people have very little
confidence in government?
Mr. SINDLINGER. None.
I would say they have no confidence and it is being manifested in
the primaries.
Senator BYRD. I feel that the people have been misled and are
being misled now as to what the Government is doing or is preparing to do in regard to spending.
Mr. SINDLINGER. I am trying to transmit a message to the White
House and I know it got through. You would be surprised that
within 48 hours after the President had announced his new plan on
March 14. It sounded great, as if we were going to balance the
budget, and you have already gone on the mathematics of it, how
we did it.
We raised it then we cut it.
The public, within 48 hours had completely figured it out, so 7
out of every 10 people said well, all he has done is raise taxes. That
is how fast the public figured that out.
Senator BYRD. Seven out of the ten people?
Mr. SINDLINGER. That is correct. In 4 8 hours. That is how fast
the public figured it out.
So you cannot pull press releases on the American public. They
figured out in 48 hours what the President did, and that is exactly
what he did. He raised their taxes to balance the budget.
And you will say, well, how does that solve any problems?
Senator BYRD. Most of the commentators, most of the news reporters and what not, still report that the Government, the administration, is reducing spending. This morning, however, I heard
David Brinkley when I was driving to work and he diagnosed it
exactly.
He said there is no, except a very minimal, decrease in the
increase in spending.
Mr. SINDLINGER. That is right.
Senator BYRD. There is no reduction in spending. There is a
slight reduction in the increase in spending, but a very heavy
increase in the revenues which the Government is taking.
Mr. SINDLINGER. And that adds to inflation and that is adding 2
percent, 200 basis points, to the interest rate.
You see, we are kidding ourselves, Senator. We are kidding ourselves. We are running the country just like Three Mile Island was
run.
We want to think there is no such bad thing as inflation, but you
cannot kid yourself against the financial markets, ideal and reality.




50
I talk to people and the information I get from people gives me a
firm foundation to project the economy and the stock market and
the bond market. The bond market and the stock market are
operating on the assumption that is correct, that interest rates will
go higher and that the inflation rate is around 20 percent.
You do not hear anybody in Congress admitting that we have a
20-percent inflation rate and we have people saying that the recession is going to take care of inflation and interest rates.
You are never going to take care of interest rates, which are a
function of inflation, until Congress understands how the economy
works and understands that you cannot spend more than you
make. It is that simple.
Senator BYRD. Congress does not understand that, I am convinced.
Mr. SINDLINGER. They are going to learn it this year.
Senator BYRD. They do not understand that. So many Members
of the Congress, particularly some of those in key positions, have
grown up over the years on the theory that you do not need to
balance the budget, that deficit spending is all that one needs to
do. If there are any problems, just spend more money.
Mr. SINDLINGER. The sad truth, Senator, is that Congress has to
have inflation to operate.
Senator BYRD. Government gains by inflation.
Mr. SINDLINGER. That is a point.
Senator BYRD. Government gains.
Mr. SINDLINGER. When you get to the point where the people's
money, the new money that we are printing is being eaten up by
inflation at 100 percent, which is what we are going to have this
summer, the country is broke.
Congress is broke. They do not know it yet, but they will find it
out this summer. This is what I am saying.
Senator BYRD. The problem is that no one wants to bite the
bullet and it is not pleasant to bite the bullet.
Mr. SINDLINGER. DO you agree with me that the pressure is on
for the Congress to lower interest rates? Do you agree with me on
that?
Senator BYRD. Oh, yes, but
Mr. SINDLINGER. HOW many people in Congress realize?
Senator BYRD. The trouble is that most people think that all
Congress has to do is pass a law and that lowers interest rates.
Mr. SINDLINGER. YOU pass that law and you will have interest
rates on the black market at 30 percent.
Senator BYRD. It would be ridiculous to do that.
Mr. SINDLINGER. Somebody had better get some sense.
Senator BYRD. Let me ask you one final question. You predicted,
with great accuracy, in July 1974, what the stock market was going
to do. Looking ahead 4 or 5 months, how do you see it now?
Mr. SINDLINGER. YOU should have a rise in the stock market
between—I do not know what it is doing today. Does anybody know
what the market is doing now?
You should have a rise in the stock market in the next 2 weeks.
Then you will have a sharp fall and by the end of this year the
Dow Jones should be down to about 600 or 550.




51
Anybody who is in the stock market now has 10 or 12 days to get
out, if they have not gotten it out.
The bond market has had a collapse and it is only the first stage.
The bond market told Congress what the President's plan did, did
it not?
Senator BYRD. That is why the President has revised slightly his
original January proposal.
Mr. SINDLINGER. All it did was add 2 percentage points to the
inflation rate and interest rate. When you are raising taxes, you
are raising inflation and interest rates.
Now, somebody had better get some sound economics around this
town.
Senator BYRD. I must say, Mr. Sindlinger, you are a great deal
more—more pessimistic than I am about the future.
Mr. SINDLINGER. I am scared to death.
Senator BYRD. I think we have grave problems, but you are a lot
more pessimistic.
Mr. SINDLINGER. I am scared.
Senator BYRD [continuing]. Than I am. And I would not be as
worried if I had not been present in 1974 when you predicted
Mr. SINDLINGER. Nobody wanted to believe me.
Senator BYRD. Exactly. What happened in the next years.
Mr. SINDLINGER. If you remember, nobody wanted to believe me.
Senator BYRD. We had 12 Senators present. None of us felt that
you were realistic in what you were saying, but it turned out to be
correct.
Mr. SINDLINGER. I think I hit it on the month.
Senator BYRD. I want to thank you for being here today and I
think that this has been very helpful to the committee and it
certainly has been helpful to the chairman.
Mr. SINDLINGER. I tried, in my prepared statement—which is
long—I tried to go through a little bit of logic as well as my points
to show how we got into this mess and the key conclusion I want to
make is I could tell from my interviewing that the Congress is
going to have this pressure on it, that you are going to have to
have some sort of emergency meeting.
Senator BYRD. We are meeting right now. We could do it right
now if we had the will to do it.
Mr. SINDLINGER. You do not have the will yet, but you will. You
will get it.
Senator BYRD. Time will tell.
Thank you.
[The prepared statement of Mr. Sindlinger follows. Oral testimony continues on p. 101.]




52
COMMITTEE ON FINANCE
UNITED STATES SENATE
SUBCOMMITTEE ON TAXATION
AND DEBT MANAGEMENT
CAPITOL BUILDING
ROOM S-207
WASHINGTON, D. C.
FINANCE SUBCOMMITTEE ON TAXATION
AND DEBT MANAGEMENT
SETS HEARING ON PUBLIC DEBT
APRIL 2,1980

Mr. Chairman, members of the committee:
Thank you for another

opportunity to report to your

committee on the true nature of the economic situation being
shouldered by the American people in the Spring of 1980.
I sincerely hope this is the last time anyone will have to testify
on the issue of raising the national debt ceiling and that in future
appearances we can discuss far more constructive matters—like how
is the most efficient way to use people's money to create a Federal
budget surplus.
Based upon what I am going to discuss—Congress should be
moving in the opposite direction—working on reduction of the U.S.
debt—creating a surplus—rather than providing a legal escape valve
for more budget deficits and unsound fiscal policies which are now
at crisis proportions.
FIGHTING INFLATION BY "PRESS RELEASE"
Unfortunately, I am not persuaded that Congress and the
Administration are prepared to go to the truly austere lengths
necessary until they are backed to the wall by a severe financial
crisis which worse than now is in the making prior to our next
election day—which is not to create a recession but a depression.




-1-

53
Judging by recent developments, including President Carter's
"press release" fourth attempt to fight inflation as of March 14th—
I must conclude that Washington still hasn't grasped the true evil of
having a mammoth national debt overhanging the American
economy. It has reached the point where Congress has already spent
more than it can finance—making the debt only a eulogy.
A BANKRUPTCY OF THE UNITED STATES
The fact is the United States is already in (not headed toward)
a severe financial crisis that has been provoked by past reckless and
improper fiscal policy. I call it the "Money Meltdown Collapse of
1980"-in a book now being written.
I am not here today to talk about an ordinary economic setback or so-called recession—but rather the coming bankruptcy of
the United States with a long depression—if we don't act.
What we have now is a situation in which inflation is melting
down the value of people's money to the point where it is becoming
virtually worthless.
REAL RECESSION HITTING U.S. HOUSEHOLDS
This money meltdown is already manifested in a credit crunch
stage among 4 in 10 of every American households. The crunch
should subsequently spread next to industry and then to finance
both domestic and foreign.
But among the nation's households, I will show that a "real
recession" is already eight months old—having started last September.

All political eyes are now focused on Election Day which is
only thirty weeks away. But those eyes are going to get crossed up
before then—where a government-inspired credit crunch will change
the focus from political promises to economic realities.




- 2 -

54
WHO WILL SAVE CONGRESS?
History records—that Congress saved Lockheed from bankruptcy—then Congress saved New York City—more recently Congress
is trying to save Chrysler.
And, there are other gigantic bankruptcies lurking in the
wings.
My question today is:

Who is going to save Congress in the

financial peril facing it—between now and Election Day?
OUR APPEARANCE TWO YEARS AGO
In my last appearance before this Committee on January
30, 1978, I demonstrated how the national debt (then at almost
$722 billion) and, more specifically, the interest on the national
debt (then at $43 billion) were the underlying root causes of the
cost/push inflation that has been plaguing the nation since 1968.
The debt and the cost of financing it continue to produce an
intense capital shortage that simply cannot allow the economy to
work like it used to.
When I testified in January 1978,_ the national debt was
$721.6 billion. Since we were then sampling 70,893,000 U.S. households—this meant that the average American household was responsible for $10,178.58 of the Federal debt—which most people don't
even know they owe.
In

February

1980,

as

we

were

sampling

73,489,000

households with the Federal debt at $854.6 billion—the per-household
figure is $11,628.82.
HOUSEHOLD IMPACT OF INFLATION
Two years ago when I last testified before this Committeecurrent dollar Gross National Product (GNP) was $1,998.0 billiongetting close to two trillion dollars.




-3-

55
To take inflation out, the current dollar GNP figure is divided
by what is called the implicit price deflator (IPD)—to convert to
1972 dollar values.
INFLATION DESTROYS OUR MONEY
Two years ago, the IPD was 146.3, representing a year-to-year
inflation growth rate of 6.2 percent.
By dividing current dollar GNP by the price deflator, "real"
GNP was worth $1,365.7 billion. In other words—inflation ate 31.6%
of GNP by destroying $632.3 billion in money—more than the then
national debt of two years ago. Current dollar GNP per-household
two years ago was at $28,183.32 while "real" dollar GNP was
$19,262.83.
To keep our facts in focus;
. . . Two years ago in January 1978—a 6.2% inflation rate to
calculate "real" GNP was destroying $8,920.49 per-household.
. . . And on top of that, the national debt per-household—
which most people did not know about was $10,178.58.
THE MOST WASTEFUL USE OF MONEY
Government borrowings to finance the debt take money away
from private borrowers and the competitive scramble for money
between the two sectors drives up interest rates for both. Rising
money costs ultimately exert a two-way squeeze on people—through
higher prices in their roles as consumers and higher taxes in their
roles as taxpayers.
Moreover, the interest on the debt is the most wasteful use of
money.

The interest payments literally evaporate and never return

to the economic mainstream.




56
For February 1980 interest on the debt totaled $65.7 billion—
23%, or $12.4 billion more than in 1978.
Our Sindlinger Calculated Projection (SCP) model forecasts
that by February 1981 the interest payments will reach $85 billion.
That will mean $20 billion more that the Treasury will have to
finance.
A $20 BILLION DOLLAR DRAIN
That means that another $20 billion will be driven out of the
economy and denied to those sectors that need them to build plant
and equipment, improve productivity and make jobs to expand the
size of the labor force.
Interest rates rise still further on the diminished money stock
and the inflationary spiral continues.
Wage and price controls, credit controls, voluntary restraints,
imported oil cutbacks, recession, rising interest rates, tighter money
—none can work until the fiscally unsound diversion of money is
halted. These orthodox "solutions" can scratch the surface of the
1980 problem but they can't touch the firmly rooted base that grows
bigger as fiscal policy makes less sense and accelerates the meltdown
of the people's money.
PAYING FOR THE EXCESSES
We are already paying the price for these excesses. With a
20% inflation rate.

With a prime rate already above 19% going to

24%. With an economy that seems to boggle the minds of textbook
economists who continue to project a cure-all recession seems to
always be coming next month. With an incredible illiquidity among
the nation's households that is getting even worse as the money
meltdown comes closer.




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FORECASTS ON INFLATION, INTEREST
RATES MATERIALIZE
As this committee knows, I forecast all of these developments
two years ago when orthodox economists blithely projected a mild
recession to break the entire inflation-interest spiral.
And what I was forecasting two years ago to this committeeis here—and now.
What great secret did I possess to buck the economic consensus?
PEOPLE FORECAST THE TRENDS
Nothing all that exotic. My Sindlinger Calculated Projection
(SCP) computerized microeconometric model showed me the light
because it is based purely on input from the American people—and
the way they use and plan to use their money.
By taking a realistic account of the people's problems, by
recognizing that the true inflation rate reported by people is quite
higher than the rate reported by the government, by fully comprehending how unsound fiscal policy, the debt and its interest burn
up money, SCP told me that there would be no let up in inflation
and interest rates from mid-1979 throughout October of 1980.
SIGNALING THE CRUNCH AND MONEY MELTDOWN
These same factors are now signaling the credit crunch and
eventual money meltdown to hit just before election time.
Surely, you might ask, hasn't President Carter helped arrest
the spiral with his budget balancing moves? I must heartily demur.
BUDGET CUTS ARE FRACTION OF CLAIMS
Even if the budget cuts indeed totaled the $13 billion that
was billed by the Administration, they wouldn't do more than chip
the hard-core inflationary base that's imbedded in twenty years of
unsound fiscal policy.




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But the fact is that "real" cuts in the budget are only a
fraction of the Administration's claims.
Here is what has really happened.
In January, the Administration submitted a budget for the
1981 fiscal year calling for outlays of $616 billion and income of
$600 billion for a deficit of $16 billion. On Friday, March 14th, the
President told the nation the FY 1981 budget was to be balanced
and spending was to be cut $13-$14 billion. The domestic financial
markets did not buy it.
But it wasn't the original budget that was being cut.
ILLUSION OF BIG BUDGET CUT
By March 14th, technical revisions had raised the outgo side
by $10 billion putting it at around $626 billion. Revised income
estimates through a tax increase lifted the revenue figure to $614
billion.
Thus by the time of the President's message we were working
with a much revised budget and it was this enlarged budget that was
being pared. The President cut the enlarged budget by $13 billion
and bringing the FY 1981 outgo down to $613-$614 billion to
about match the increased revenue estimates.
The real cut is only $3 billion and not $13 billion as the
President would have us believe. The President has given us only a
"press release" illusion of a budget cut, not a really substantial cut.
That's like applying a wet band aid to the rapidly spreading
inflationary cancer.

SCP says the Carter March 14th new program

actually aggravated the outlook for interest rates and inflation for
this year—and speeded up our financial money crunch crisis.
INFLATION FORECAST IS WORSE, PRIME TO 24%
Prior to the unveiling of the program, SCP forecast that
inflation should peak through a percent year-over-year growth in
Consumer Price Index (CPI) about 19% and that the prime rate




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would peak at 20% in October.
But a new run through of data following the President's
message produced forecasts of a 22% rate of inflation by August
and a 24% prime by mid-Summer or shortly before the two major
parties convene to nominate presidential candidates.
PEOPLE ARE CONFUSED AND FRUSTRATED
Certainly the American people don't see any panacea.

Our

continuous daily telephone conversation with people, which among
other things generate information for SCP forecasting find people
confused and frustrated.

The March 14th new program has done

nothing to stimulate people's confidence. People question how the
President can claim he is balancing the budget through spending cuts
when he is also asking for a tax hike in the form of the gasoline conservation fee.
One of our respondents recently remarked:

"The President

calls inflation the cruelest of taxes then he adds another cruel tax on
top of it to make us think Congress is balancing the budget,"
THE "DOUBLETHINK" GROWS IN POPULARITY
I am sorry to tell you that the President's program is another
example of an annoyingly growing practice of the bureaucracy and
academe to talk our way out of problems by arguing that they really
don't exist or aren't as bad as presumed.
George Orwell called it "doublethink."
It's the game of
managing to be for and against both sides of an issue at the same
time.
A neat trick!

But the manifestations of "doublethink"

abound and the increased capacity for "doublethink" is preventing
us from getting to the real roots of our economic problems.
EXCUSES AND MORE EXCUSES
Take the entire "recession" scenario written by the orthodox
economic consensus and the multiplicity of excuses its membership




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has employed to explain why the recession hasn't materialized.
A major problem with trying to read the future economy
is that most economists, especially political economists, are human
and optimistic by nature.

They are first reluctant to concede a

recession can occur and they then see little more than a mild recession
after government data indicate a softening economy. But at all times,
their criteria are straight out of the textbook and their forecasts are
principally based on hopes and guesses rather than on a knowledge of
how people are faring.
MINORITY CAN'T BUOY ECONOMY
These difficulties have been exacerbated today by inflation
which has destroyed the classic V or U shaped cyclical functioning
of the economy because it has put people behind the financial eightball.
In most past recessions, only 25 percent of the households were
affected and the other 75 percent could spend our way into recovery.
Today, because of inflation, nearly half (see Exhibit A) the households
are suffering declining income and are in real recession. A minority of
households can't carry on the economy on their backs.
PEOPLE STAVED OFF CLASSIC RECESSION
This is a primary example of how economists relying on macroeconomic data erred because they made assumptions about people
without really understanding how people live and use their money.
The recession, at least as officially defined as two separate
quarters of negative growth in real GNP, didn't occur early in 1979
because of an outbreak of hedge buying to beat inflationary price
hikes.
It didn't occur in late 1979 because Consumer Confidence shot
up with the Iranian and Afghanistan crises as people anticipated
higher defense spending and more jobs.




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It hasn't occurred thus far in 1980 because people, in perhaps
one last hedge buying gasp, are buying autos, appliances, home
improvements and other goods and services that promise some
relief from mounting energy costs.
We know this because people have been telling it to us, as we
interview people daily.
BUYING IS IN, SAVINGS IS OUT
And people also have been telling us that they are buying
because they consider spending a prudent exercise during the current
inflationary spiral. They can buy on credit, pay back in cheaper
dollars, beat price increases and perhaps reduce their fuel bills. It
doesn't pay them to save because the interest rates offered them
don't keep up with inflation.
But scratch a member of orthodox economic consensus and
he or she will automatically ascribe continued consumer buying to
people's reluctance not to downgrade their lifestyles.
PEOPLE ARE BLAMED FOR INFLATION
As one follows current press reporting on the economymany orthodox economist go on to blame people's buying for
hyping inflation and preventing the long-awaited recession from
snapping the spiral of inflation and interest rates.
"If only that damn, dumb consumer wouldn't be so hoggish,
we'd be in good shape." is the way it is being said. It's almost as
if the economists and the Washington establishment are praying for
hard times to cure our ills.
A MISIMPRESSION ON ECONOMIC CYCLES
The flaw in their whole reasoning is the failure to understand
how people must live and survive under the new economic rules of
today—which are totally different from the rules that were taught
in the outmoded textbooks.
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63-894 0 - 8 0 - 5



62
The

orthodox

economists—be

they

"keynesians"

or

"monetarists"—believe that an officially defined recession eventually
will materialize and defuse inflation and interest rates because they
are under the misimpression that the economy still is operating in
traditional cycles.
INFLATION WON'T LET ECONOMY FUNCTION IN CYCLES
To have an officially defined recession, we must have recovery
following an economic bottom. That's the old " V " or " U " shaped
economy.
But the economy, according to our calculations and projections is no longer working like it used to in " V " or " U " shaped
cycles.

Inflation, as it is currently indexed by Congress and the

aforementioned capital shortage simply won't let the economy work
like it used to.
THE L-SHAPED ECONOMY
Instead what we really have for the 1980's is an L-shaped
economy.

The economy dropped straight down in the 1974-75

recession and hasn't in fact really recovered since.
It's been proceeding on a straight line and each new spurt of
hedge buying just prevents it from slanting downward.
THE NEED FOR NEW MONEY
But that can't last for very long.
The best sign of the economic health of the economy is how
much "real" new money is produced so that it may be recycled into
the economy by people to sustain growth.

The new money helps

finance expansion that absorbs the growth of the labor force.
(See special tables on "A" through " Z " money.)
MONEY GROWTH TO DECLINE
SCP says that on an aggregate basis (see " A " through "E"
money) there should be a fairly brisk growth in the money supply




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63
on a year-over-year basis through the first half of 1980. This should
result from the latest hedge buying outburst and from the loading of
people's checking accounts in April to pay inflated Federal taxes.
. . . The outlook is not so good for the second half.

SCP

projects that the money supply will be flat compared with the
third quarter of 1979.
. . . And in the fourth quarter, SCP projects that the money
supply should decline on a year-over-year basis.
SCP sees no bottom to the money supply contraction and no
turn up in growth as the economy moves into 1981.
TRACKING A CRUNCH AND MONEY MELTDOWN
In effect, the money supply trends should be tracking first
the credit crunch and second the fullscale meltdown of money.
We must agree that none of this appears in the "official"
government figures which purport to show only "real" economic
expansion since the 1974-75 recession.
FIGURES SUPPORT THE "DOUBLETHINK"
Here, we have another aspect of "doublethink."
The official figures, to be perfectly frank, are often in error,
misleading and primary causes of serious mistakes in monetary and
fiscal policy. Take the seasonal adjustment process for example
which, through an arbitrary statistical process, converts raw, or
actual data, into "official" figures.
Seasonally adjusted figures are like the meters at Three Mile
Island. They are flashing false signals and prompting wrong decisions.
INJURIOUS TO FINANCIAL HEALTH
Last week, the press and TV carried numerous stories about
the first anniversary of the near disaster at Three Mile Islandcomplete with accounts of antinuclear marches and protests, analyses
of the future of nuclear power and controversies surrounding the




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64
venting of krypton gas from the damaged reactor building. There
are concerns about health and about safety.
Official accounts of the accident say it resulted because
people read the wrong meters.

We happen to have the very same

situation in fiscal and monetary policy because the Federal Reserve
and Treasury read the wrong meters—the seasonally adjusted figures
—and the disasters that may befall the nation's collective pocketbook is beyond the realm of reasonable calculation.
Here we have the most bizarre instance of where the wrong
meters generating bogus information a la Three Mile Island are
actually used to buttress the concept of "doublethink."
FED HAS BLINDERS ON FIGURES
A classic case is on money supply.

The Federal Reserve

won't look at anything but the seasonally adjusted figures and the
seasonally adjusted annual growth rate for the last 13 weeks in
setting monetary policy. Yet, the raw data supplied to the Fed by
its member banks are the figures that show how the people and the
banks are really using money.
Our analyses show that the seasonal goes cockeyed at many
points in the year often declining when the actual figures are increasing or vice versa.
ELIMINATING CHRISTMAS BY STATISTICAL DECREE
At Christmas, for example, the seasonal adjustment never
acknowledges the huge sums put into the money supply by people's
spending.

And in the two months following Christmas, it inflates

the money supply while people are drawing down their checking
accounts to pay Christmas bills.
INCOME TAXES TOUCH OFF EXPLOSION
But the TMI syndrome really does the most damage around
income tax time when people load up their checking accounts to
pay Federal taxes.

On a raw data basis, the money supply falls

almost as quickly as expands when the Treasury cashes the checks.




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65
But the seasonal adjustment, as a misguided averaging device flashes
an "explosion" and never catches up with the decline.
It implies that the Fed has lost control of the money supply
which is presumed to be growing at an inflationary rate. The Fed
then hikes interest rates and actually pours gasoline on the fires of
cost/push inflation.
ANOTHER EXPLOSION IS DUE SOON
This has happened every year since 1975 and SCP forecasts it
should happen again later this month.

Ironically, the Fed at the

beginning of every year revises the back data to conform to new
seasonal factors.

So the revisions say the explosion really didn't

occur. But it's too late. The damage already had been done.
THE TMI SNAFU ON GROSS NATIONAL PRODUCT (GNP)
Another monumental statistical TMI snafu occurs in measuring
"real" GNP.
The government does it by applying its implicit price deflator
(IPD) to current dollar GNP.
In recent months, IPD has been showing year-over-year growth
of less than 9 percent. That's way under the rate signaled by other
inflation measures and about half of what the people tell us is the
true rate of inflation for the things people must buy just to live.
So the inflation rate used in deflating current dollar GNP to
real terms is woefully understated—fooling all economic planners,
except Sindlinger.
VICTORY BY TALK
This is another exercise in the "doublethink."

The under-

stated IPD gives the government a seemingly legitimate way of saying
that inflation isn't so bad as it appears when measured by the
Consumer or Producers Price Indexes. So any good "doublethinking"
bureaucrat or economist can simply try to lick the problem by
talking it down—with the help of the wrong meters and the wrong
figures.




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REVOLVING CONSTANT DOLLARS UPWARD
Moreover, through the government's calculation process, the
value of the 1972 dollars, or the constant dollars which are used as
the base for "real" GNP, have been increased in value by 38% over
the last eight years.
Thus, we have been showing consistent economic expansion
only with the help of two statistical quirks. If the proper inflation
rate were utilized and the value of 1972 dollars held constant, we
would have only had three to four positive quarters of "real" GNP
growth since the middle of 1975.
TRILLION DOLLAR INFLATIONARY WASHDOWN
Even with the TMI-calculated inflation rate, the story on GNP
is a shocker.
In the fourth quarter of 1979, the understated IPD actually
chopped a full one trillion dollars off current dollar GNP for the first
time in history. SCP forecasts that the amount lost to inflation should
grow in coming quarters and eventually the amount burned up by
inflation should exceed the total of "real" GNP.

That's when the

money meltdown really will be obvious.
45% OF HOUSEHOLDS IN RECESSION
But even the broad figures don't begin to catch the full impact
of inflation on people.
Earlier, we noted that a real recession had begun among the
nation's households last September.
How do we define this real recession?
Very simply, anyone who has suffered a decline in income
has to be considered in a real recession.
For March 1980 interviewing——45% of all households in the
nation are reporting to us that they have suffered declines in income
during the past six months; i.e., they are in a recession.




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At the same time, 46.2 percent report income is up for this period.
(See Exhibit A).
SPLIT INTO TWO FINANCIAL CAMPS
In effect, the nation is split into two financial camps.
. . . A minority of households is carrying the economy.
. . . The others are in real recession and they blame inflation
for reducing their incomes.
This is only one way of looking at the people's plight,
although a very telling one to be sure.
To repeat—this committee will recall at my January 30, 1978,
appearance I introduced the concept of dividing the national debt
by the number of households in the nation to demonstrate the share
that each household had in the national debt.
NATIONAL DEBT IS $11,629 PER-HOUSEHOLD
At the time, I found that the national debt equaled $10,178
per-household. Thus, every household in the nation had a $10,178
debt it knew nothing about before it could even get started.

In-

cidentally, that $10,178 grew to $11,629 per-household during
February 1980.
Today, with Exhibit E, I will offer still another concept of
per-household calcualtions.
It is "real" GNP on a per-household basis. It is derived by
dividing the "real" GNP, as derived through the government's IPD,
by the approximate 74 million households sampled in the nation
for each month.
"REAL" GNP PER-HOUSEHOLD HAS NEGATIVE GROWTH
In September
household.

1979 "real" GNP totaled $19,684.66 per-

This was $48.72 less than the "real" GNP per-house-

hold figure for September 1978.




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In other words, on a per-household basis, "real" GNP had
actually gone negative—even with the use of the understated IPD.
And the table (Exhibit E) projects out to the end of 1980.
What does this mean?
The household is the basic microeconomic unit in the country.
. . . Key spending decisions are made on a household basis.
. . . Liquidity is figured on the income of all income producers
in the household.
SCP is so accurate because it takes a microeconomic view of
the economy as being economically comprised of households.
HOUSEHOLDS OUTRUN MONEY GROWTH
The negative trend that began in September 1979 and has
accelerated since means that the number of households in the
country is growing faster than the economy can produce "real"
money.

Perhaps a more realistic way of looking at it is that the

number of households is growing faster than the money needed to
finance them; i.e., going broke.
In short, the economy is serving up less money per-household
and the nation's basic microeconomic units are undergoing a
liquidity shortfall. It's the real impact on people from the capital
burn up caused by excessive fiscal policy—political implications?




THE ESSENCE OF "REAL" RECESSION
Right now, it's "real" recession among households.
. . . Soon, prior to election it should be a credit crunch.
. . . Next year, it should be a money meltdown, leading to
depression.
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It is the type of situation which simply has absolutely no
relationship with the classic cyclical economy and offers no relief
from inflation through orthodox solutions. The money meltdown is
all pervasive.
It spares no one.
Only action of Congress can correct it.
THREE-QUARTERS ESCAPED PAST RECESSION
In past, typically V-shaped recessions, only about a quarter of
all households were stung by the recession.
quarters actually improved their lot.

The remaining three-

Each prior recession brought

down inflation and increased the purchasing power of the majority.
They were, therefore, able to spend the nation out of recession.
The big difference in 1974-75 with the 1980's is that inflation,
as it is now indexed by Congress—is the cause of the 1980 economic
downturn. It is hitting everyone by melting down the value of their
money, threatening to price people out of work and causing an ongoing liquidity squeeze even when the macro, official data make it
look like the nation still is in flat out boom.
INFLATION WIPES OUT CYCLES
As a result, it is foolhardy to expect development of the
classical recession to bring down inflation and interest rates as so
many are reasoning.




. . . Inflation is flaring because of factors unrelated to the
economic cycle and the economic cycle cannot be an effective
weapon.
. . . Interest rates have to remain high, just to mirror the
inflation rate.

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"DOUBLETHINK" SUPPORTED FED MYTH
A major reason that the "doublethinkers" refuse to challenge
the TMI-like figures or the orthodox scenario is that they are loath
to tamper with the misconception of Federal Reserve primacy on
matters of money supply control and interest rates.
The seasonal adjustment, by limiting money supply changes
to small amounts, supports the myth of absolute Fed control.
Actually, the raw data show that the people have far greater
control of the money supply in the way households move huge
amounts around.
FED IS SADDLED WITH INFLATION FIGHTING ROLE
There is a method to their madness.

Everyone, including

Congress, is more than happy to have the Fed assume the mantle of
number one inflation fighter so the others can get themselves off
the hook.
This implies that the Fed can fight inflation in the classical
way by tightening money and driving up interest rates. The "doublethink" philosophy is interlocked with these TMI concepts.
SOUND FISCAL POLICY IS REQUIRED
Monetary policy cannot fight inflation alone. .It needs a
responsive fiscal policy.

Even if monetary policy could have some

impact, this would work only during demand/pull inflation which is
not what we have today. The Fed's real control over money is far
less powerful than the people's. And interest rates can't really be
used to fight cost/push inflation.
The interest rates must rise under those circumstances to
meet rates of inflation.
BANKING ON A RECESSION
But the selling of the Fed has been so persuasive that many
people still are banking on the tight money induced recession to
bring down inflation and interest rates.




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The present record rates are still viewed as phenomena that
are bound to start peaking soon.

One very strange argument

advanced for a near-term peakout is that nobody foresaw the current
levels six months or a year ago, as Sindlinger did, with its SCP
forecasting model.
A TIMELY WARNING AND A MIXED RESPONSE
Well, of course, we did thanks to SCP. We warned clients two
years ago to borrow early because all interest rates were going still
higher. Some did. Others ignored us. We warned our clients to get
liquid as early as last July 1978, because of the coming credit crunch.
Some did. Others ignored us.
The problem is that most businesses and investors especially
small ones, passed up the signals to borrow at what were relatively
cheap rates and to stay liquid.
EMERGENCY ACTION IS FORESEEN
These miscalculations should aggravate the credit crunch and
make it necessary for Congress to take emergency action to bail
out the bond market and stave off the crunch—Congress will have to
act to curb a rash of bankruptcies—and this includes banking.
Originally, I
some time in the
election day. The
possible action even

predicted the emergency session should come
Fall between the nominating conventions and
timetable has been advanced, and I now see a
before the conventions.

Unfortunately, it will be the people's plight that prods
Congress. Typically, Congress gets the itch only when key contributors start letting their favorite Congressmen know they are in
financial trouble. So it may take near bankruptcies or bankruptices
to get action.




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SHORT HORIZONS FOR DECISION MAKERS
One of the major weaknesses that

pervades the entire

economic system in this respect is the rather short horizons shared
by all elements.
. . . The politician is thinking largely of the next election.
. . . The businessman's horizon is the next quarter.
. . . Nobody is looking out ahead.
. . . That is why the scenario of a collapse and money
meltdown that we have presented is so unthinkable to most socalled authorities.
One result of the short horizon and its first cousin, the surface
approach, has been the aforementioned lack of appreciation about
the people's financial problems.
NO HELP FOR PEOPLE'S LIQUIDITY
Earlier we discussed that GNP per-household has been going
negative. This has resulted largely from negative trends in the people's
money measures such as checking and savings—and the personal
income inflation meltdown.
The only thing that is keeping "real" GNP positive has been
the "gimmick" monies in our economy—commercial paper, banker's
acceptances, term Eurodollars. There are two: problems with them —
They are vulnerable and they are not the people's monies.
Thus, the growing money measures are those that are beyond
people. They don't add to the people's liquidity.
DISSATISFACTION WITH THE SYSTEM
This goes right to the heart of the public's dissatisfaction with
the political system.
It may come as no surprise to you that our data show that no
presidential contender, including the incumbent, has really caught
on with the people and established any real broad base of support.




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NO CANDIDATE DEFINES PROGRAM
Why?

Because none of the candidates has yet to define an

economic stand acceptable to the people.
being accorded is negative in character.

Much of the support

One candidate's position

is less objectionable than another.
That, for example, is helping President Carter keep a lead
over Sen. Edward Kennedy.

As long as Kennedy remains in the

race, he is helping Carter by acting as a political lightning rod. But
this hardly represents a mandate for the President.
SUGGESTION TO THE FED CHAIRMAN
In a meeting with Fed Chairman Paul A. Volcker on February 1st, I explained how the Fed could take a giant step toward
dispelling this mistrust and at the same time move toward getting
the economy righted.
My advice in effect was that the time would soon come when
Congress and the Administration had to know the truth on what the
Fed can and cannot do.
My advice:

simply withdraw from the inflation arena and

throw the ball back to Congress—where it really belongs.
FED SHOULD ADMIT LIMITATIONS ON MONEY,
AND INTEREST RATES
I advised Chairman Volcker to take this step at about the time
Congress meets for emergency action on the "bankruptcies plight."
. . . I suggested he concede that in this inflationary environment the Fed cannot control interest rates.
. . . I suggested that he tell Congress that in this inflationary
environment the Fed cannot control the money supply.




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CONGRESS MUST CARRY THE BATTLE
. . . I suggested that he tell Congress it was up to the legislators
to carry on the battle with fiscal policy.
. . . And I suggested that the Fed concentrate on the primary
function for which it was created in 1913—to supply liquidity to the
banks.
LIQUIDITY TASK IS AWESOME
Heaven knows, the Fed's liquidity supply task looks awesome
in view of the credit miscalculations made over the wrong guesses
on interest rates.
As a result, we predict that the emergency action that
Congress should be taking soon—will only be an initial step in
rescuing the nation's financial system and that far bolder action will
be needed next year when plans for a budget surplus are under way
for real.
More recently, I advised the Administration on why they took
one giant step backwards when they handed the inflation fight to the
Federal Reserve Board—in asking the Fed to do something it can't
possibly do.
TAX CUTS AND BANK LIQUIDITY
Historically, during past recessions, there has been a problem
of bank liquidity created by credit errors.
The Fed can help some when a few banks are in trouble but
it really can't rescue any situation where a number of banks are on
the verge of collapse or trouble.
Only Congress can do that and the step used is a tax cut.
Politically, the tax cut is a popular device and supposedly it
helps prime the economic pump.

But in reality, it is a method of

utilizing the people to channel government funds into the hard
pressed banking system.
As many of you know, I worked with several Congressmen in
1974 and 1975 to fashion a $13.5 billion tax cut so that 80 percent,
or $9.5 billion could find its way into the banks to solve their
liquidity problems of mid-1975.




75
$40 BILLION CUT NEEDED
Well the need for another tax cut is looming, despite the
Administration's protestations.

And the old cut is peanuts com-

pared to what I am projecting will be needed in early 1981. The
tab—$40 billion.
That's right.

Congress will have to start thinking of cutting

taxes in 1981 (not 1980) by something like $40 billion to rescue our
banking system with the money meltdown now being forecast.
Not even Congress has that kind of ready cash at its disposal.
There's certainly no provision for a cut of this magnitude in
the next budget.
So Congress has its work cut out for it. And its work goes far
beyond a simple $17 billion spending cut—now being talked-about.
RAISE FDIC LIMIT
First, I suggest you quickly pass the bill raising the FDIC
insurance limit to $100,000 from $40,000.
A FREEZE ON SPENDING
Second, I suggest you freeze spending and start looking at
how to really bite the bullet and create a surplus—not a balance.
DON'T SPEND MORE THAN YOU MAKE
The Carter program should be viewed only as a minimum
starting point.
The President has at least recognized for the first time that
government can't be unlike its people—that it can't spend more than
it makes. That's important in putting the problem in focus but it's
only a halting step toward a solution.
Raising the ceiling on the national debt is academic. What's
really needed is a ceiling on spending and the creation of a budget
surplus—only a surplus will stop inflation and bring interest rates
truly down.




-13-

76
IN CURRENT DOLLARS

IN REAL DOLLARS

TABLE A - E . . . NEW MONEY ADD MONTHLY AVERAGE FOR WEEKLY COMPONENTS
In Billions of Dollars — Not Seasonally Adjusted

A
n '78
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan '79
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
IV
s>ec
Jan '80
Feb

B

C

D

E

Growth

A

$ 7.9
8.0
8.2
8.0
8.4
8.6
8.3
8.5.
8.7
8.7
8.9
9.1
8.9
8.8
8.8
9.0
8.7
8.9
9.2
9.6
9.6
9.5
9.2
8.6
9.0
9.2

$16.3
13.5
12.8
15.1
16.4
17.4
17.5
17.2
18.7
17.0
15.5
14.5
9.4
8.6
9.2
10.6
7.3
9.0
10.6
10.5
8.9
9.2
9.9
11.6
13.7
16.5

$24.1
21.5
21.0
23.1
24.9
26.0
25.8
25.7
27.3
25.7
24.4
23.7
18.3
17.3
17.9
19.6
15.9
18.0
19.8
20.1
18.7
18.8
19.0
20.2
22.7
25.8

$ 1.4
1.3
1.3
1.5
1.6
1.6
1.5
1.5
1.4
1.4
2.7
4.2
5.7
6.6
7.7
8.9
8.7
9.3
9.9
10.3
10.6
10.6
9.1
7.9
6.6
5.7

$25.5
22.8
22.3
24.6
26.4
27.6
27.3
27.2
28.7
27.0
27.0
28.0
24.1
23.9
25.6
28.5
24.7
27.3
29.7
30.5
29.3
29.4
28.1
28.0
29.2
31.5

8.09%
7.44%
7.20%
7.69%
8.44%
8.67%
8.45%
8.48%
8.84%
8.20%
8.12%
8.20%
7.08%
7.26%
7.71%
8.27%
7.28%
7.89%
8.48%
8.76%
8.29%
8.26%
7.81%
7.58%
8.01%
8.92%

$1.95
1.98
1.93
1.59
1.68
1.66
1.25
1.26
1.27
1.13
1.04
0.93
0.76
0.51
0.53
0.68
0.47
0.50
0.53
0.71
0.67
0.56
0.33
0.12
0.35
0.24

B
$
-

-

1.26
0.34
1.28
0.51
0.34
0.49
0.03
0.33
0.23
1.30
2.71
4.03
7.62
7.86
7.30
6.79
8.31
7.65
7.00
7.00
8.17
8.03
7.49
6.74
4.90
3.14

C

$

—
-

3.14
1.64
0.64
1.08
2.08
2.16
1.28
0.94
1.43
0.16
1.67
3.03
6.86
7.41
6.84
6.11
7.90
7.09
6.47
6.29
7.37
7.40
7.23
6.86
4.55
2.84

D
$0.84
0.76
0.74
0.86
0.92
0.90
0.82
0.80
0.72
0.70
1.52
2.44
3.36
3.88
4.54
5.23
5.06
5.39
5.70
5.89
6.03
5.98
4.99
4.17
3.33
2.71

E
$

-

3.98
2.40
1.39
1.94
2.93
3.06
2.09
1.74
2.15
0.47
0.22
0.53
3.44
3.53
2.30
0.88
2.77
1.71
0.77
0.34
1.35
1.42
2.23
2.76
1.29
0.13

" A " M o n e y is currency, not seasonally adjusted, in billions of dollars.
" B " M o n e y is demand deposits total, not seasonally adjusted.
" C " Money is " M I ^ A , " currency plus demand deposits, not seasonally adjusted.
" D " M o n e y is other checkable deposits total, not seasonally adjusted.
" E " Money is " M 1 - B " ( " M 1 - A " plus other checkable deposits at banks and t h r i f t
institutions), not seasonally adjusted.




Growth

-

1.74%
1.08%
0.62%
0.85%
1.32%
1.36%
0.92%
0.77%
0.95%
0.21%
0.10%
0.22%
1.48%
1.58%
1.03%
0.38%
1.23%
0.75%
0.34%
0.15%
0.59%
0.62%
0.97%
1.18%
0.56%
0.06%

77
IN REAL DOLLARS

IN CURRENT DOLLARS

TABLE F — L . . . NEW MONEY ADD FOR MONTHLY COMPONENTS
In Billions of Dollars - Not Seasonally Adjusted

F

H

G

Jan '78 $ 4.6 $1.1 $ 0.6
Feb "
1.0
4.7 1.0
Mar "
1.5
4.9 1.0
Apr "
4.7 1.0
2.1
May"
2.7
3.3 1.0
Jun "
3.3
2.2 1.0
Jul "
2.7 1.1
3.8
Aug"
4.4
3.1 1.1
Sep "
4.9
2.5 1.0
5.4
Oct "
3.5 1.0
Nov "
5.8
4.3 1.0
Dec "
6.5
3.7 1.0
Jan 7 9
7.9
3.3 1.2
9.7
Feb "
3.4 1.5
Mar "
3.5 1.6 11.5
Apr "
4.2 1.5 13.4
May"
4.5 1.4 15.5
Jun "
5.9 1.4 17.8
Jul "
4.1 1.4 20.8
Aug"
2.6 1.6 23.4
Sep "
3.6 1.8 25.3
Oct "
2.5 1.6 28.0
Nov "
1.7 1.3 31.0
Dec "
- 0.7 1.5 33.3
Jan '80
0.4 1.9 37.0
Feb "
0.8 0.7 42.3
Mar "
Apr "
May"
Jun "
Jul "
Aug"
Sep "
Oct "
Nov "
Dec "

I

$

...
-

_

-

_

J

F

As M-2 Growth

35.1 $ 55.9 $122.8
115.2
53.8
31.7
52.0
111.9
30.0
110.1
27.2
50.3
48.4
107.4
25.7
106.9
22.8
50.1
54.8
106.0
16.5
58.0
105.7
12.0
61.6
108.7
10.0
5.9
66.9
109.5
2.2
73.2
109.0
10.4
78.5
107.0
21.0
89.3
104.6
29.7
96.2
104.8
108.9
34.8 101.8
39.9 108.5
115.7
113.9
44.3 112.5
42.7
112.7
122.1
38.3 108.5
126.1
38.2 108.5
128.1
43.4 110.0
126.3
52.8 114.9
123.3
59.4 120.5
119.5
123.0
58.0 119.0
127.1
54.6 113.3
54.7
113.7
134.1

10.39%
9.73%
9.31%
9.00%
8.77%
8.64%
8.48%
8.44%
8.61%
8.59%
8.51%
8.26%
8.02%
8.06%
8.29%
8.68%
8.55%
9.08%
9.30%
9.43%
9.21%
8.91
8.59
8.77
9.02
9.55

$

G

H

2.61 $0.75 $ 0.26
2.65 0.68
0.52
2.70 0.67
0.84
2.53 0.65
1.24
1.46 0.64
1.62
0.74 0.64
2.01
1.03 0.70
2.32
1.21 0.69
2.70
2.99
0.78 0.61
3.29
1.42 0.60
3.51
1.82 0.59
3.91
1.40 0.58
4.74
1.15 0.69
1.14 0.87
5.79
1.16 0.93
6.84
1.61 0.85
7.93
1.75 0.78
9.13
2.67 0.77
10.44
1.52 0.76
12.14
0.52 0.87
13.58
1.13 0.98
14.59
0.44 0.85
16.05
- 2.14 0.66
17.68
- 1.51 0.77
18.84
- 0.78 0.99 20.82
- 0.62 0.27 23.48

I

$
$
-

_
_

-

J

L

4.79$21.05 $
2.09 19.11
0.14 16.79
3.03 14.60
4.83 12.32
7.44 12.61
12.48 14.68
15.95 16.03
17.76 17.56
20.90 20.15
26.66 23.26
32.44 25.57 39.75 31.17 45.83 34.13 48.49 37.54 51.00 41.61 53.11 43.80 52.05 43.03
49.30 39.28
48.97 38.48
51.74 38.68
56.84 40.78
59.74 43.58 58.13 41.90 54.82 38.31
54.86 36.36

33.50
27.69
22.49
18.18
14.18
11.65
8.31
6.46
6.45
5.01
2.36
1.57
5.43
7.42
4.40
0.07
0.55
3.09
3.69
4.09
2.23
0.19
2.25
0.81
3.30
4.51

" F " M o n e y is overnight RPs (net), not seasonally adjusted.
" G " Money is overnight Eurodollars, not seasonally adjusted.
" H " Money is money market mutual funds, not seasonally adjusted.
" I " Money is all savings deposits total, not seasonally adjusted.
"J"

Money

is small denomination t i m e deposits total, not seasonally adjusted.

" L " Money is " M - 2 " ( " M 1 - B " plus overnight RPs and Eurodollars, M M M F shares,
and savings and small time deposits at commercial banks and t h r i f t institutions).

63-894

0 - 8 0 - 6




Growth

-

-

3.90%
3.23%
2.61%
2.08%
1.63%
1.33%
0.94%
0.74%
0.73%
0.57%
0.27%
0.18%
0.61%
0.84%
0.50%
0.01%
0.06%
0.35%
0.42%
0.46%
0.25%
0.02%
0.25%
0.09%
0.37%
0.51%

78
IN REAL DOLLARS

IN CURRENT DOLLARS

TABLE M - P . . . NEW MONEY ADD FOR MONTHLY COMPONENTS
In Billions of Dollars — Not Seasonally Adjusted

M
Jan '78
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan 7 9
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan '80
Feb

N

O

$31.6
35.1
40.6
45.1
49.6
49.0
49.6
50.2
50.6
47.7
51.4
50.5
49.0
47.9
41.8
34.0
28.0
22.5
20.7
20.6
24.4
30.2
26.6
24.4
24.4
25.3

$4.6
4.7
4.8
4.7
3.3
2.2
2.7
3.2
2.6
3.5
4.3
3.6
3.6
3.7
3.5
4.1
4.6
6.1
4.4
3.0
4.3
3.5
0.0
1.4
1.9
0.4

$2.0
2.1
2.1
2.4
2.6
2.4
2.4
2.3
2.3
2.3
2.3
2.1
2.0
1.7
1.5
1.4
1.2
1.5
1.9
2.3
2.7
2.7
2.4
2.3
2.3
2.4

P
$161.0
157.0
159.5
162.2
163.0
160.6
160.7
161.4
164.2
163.1
166.9
163.3
159.2
158.1
155.7
155.3
147.6
152.2
153.1
154.0
157.8
159.7
148.6
151.1
155.7
162.2

P%
Growth
12.25%
11.92%
11.94%
11.97%
11.98%
11.67%
11.54%
11.52%
11.61%
11.41%
11.56%
11.15%
10.79%
10.73%
10.42%
10.23%
9.69%
9.90%
9.86%
9.86%
10.00%
10.03%
9.23%
9.28%
9.53%
9.94%

M
$1&52
18.81
22.14
24.82
27.36
26.52
26.41
26.27
26.08
23.66
25.38
24.08
22.60
21.30
17.18
12.22
8.24
4.64
3.18
2.74
4.82
8.12
5.56
3.97
4.18
4.12

O

N
$

2.63
2.67
2.65
2.55
1.48
0.76
1.05
1.30
0.87
1.44
1.84
1.36
1.36
1.35
1.18
1.57
1.83
2.81
1.72
0.79
1.57
1.05
- 1.12
- 0.26
0.09
- 0.84

$1.29
1.35
1.32
1.50
1.61
1.45
1.44
1.35
1.33
1.31
1.28
1.13
1.04
0.84
0.70
0.62
0.47
0.64
0.87
1.09
1.32
1.30
1.11
1.03
1.04
1.08

P
$53.94
50.44
48.69
46.98
44.70
40.45
37.20
35.39
34.74
31.50
30.80
25.07
19.57
16.06
14.66
14.39
9.93
11.18
9.46
8.71
10.00
10.28
3.37
3.94
8.60
8.87

" M " M o n e y is large denomination time deposits t o t a l , not seasonally adjusted.
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec




" N " M o n e y is t e r m RPs—commercial banks—not seasonally adjusted.
" O " M o n e y is t e r m RPs at t h r i f t institutions, not seasonally adjusted.
"P" M o n e y is " M - 3 " ( " M - 2 " plus large t i m e deposits and t e r m RPs at commercial
banks and t h r i f t institutions).

P%
Growth
5.65%
5.30%
5.08%
4.86%
4.63%
4.16%
3.79%
3.60%
3.52%
3.17%
3.09%
2.49%
1.94%
1.60%
1.45%
1.42%
0.98%
1.10%
0.93%
0.86%
0.98%
1.00%
0.33%
0.38%
0.84%
0.87%

79
IN REAL DOLLARS

IN CURRENT DOLLARS

TABLE Q - V . . . NEW MONEY ADD FOR MONTHLY COMPONENTS
In Billions of Dollars - Not Seasonally Adjusted

Q
Jan. '78 $ 3.8 $
4.8
Feb.
5.4
Mar.
5.6
Apr.
6.3
May
Jun.
8.0
Jul.
8.5
Aug.
9.0
8.3
Sep.
8.3
Oct.
Nov.
9.5
9.1
Dec.
Jan. '79 10.3
11.8
Feb.
12.3
Mar
12.4
Apr.
11.8
May
10.6
Jun.
Jul.
10.8
<\ug.
12.2
12.6
Sep.
12.3
Oct.
11.0
Nov.
8.8
Dec.
Jan. '80
7.1
4.2
Feb.
-




R
4.8
4.8
4.8
4.8
4.8
4.7
4.6
4.5
4.4
4.3
4.2
4.0
3.6
3.2
2.8
2.4
2.0
1.6
1.3
1.0
0.8
0.4
0.1
0.6
1.4
1.0

S

T

U

$10.3 $ 3.0 $12.2
3.6
9.5
12.5
12.3
9.7
4.0
10.1
4.4
12.9
4.6
13.6
11.1
12.1
4.8
13.0
5.3
10.8
13.1
5.7
9.7
13.0
5.4
10.5
13.0
9.1
5.7
13.2
7.3
7.9
14.5
9.4
9.1
16.3
9.7
9.1
16.7
10.9
17.9
8.0
16.8
7.2
19.0
6.3
22.0
19.0
28.7
5.8
19.3
36.2
5.6
20.5
34.0
5.9 20.8
27.9
8.0
21.2
27.3
9.5
21.9
28.2
9.5
21.0
8.0
29.0
19.5
30.9
5.8
17.8
6.2
17.7
32.9
28.5
6.8
15.5

V
$195.1
192.3
195.6
200.0
203.4
203.1
203.1
203.3
205.8
203.8
210.3
211.3
208.7
209.8
213.9
217.3
215.1
226.7
225.9
224.5
229.7
231.1
215.9
211.7
213.5
233.8

GROWTH
12.68%
12.43%
12.49%
12.59%
12.75%
12.60%
12.46%
12.37%
12.40%
12.14%
12.40%
12.30%
12.03%
12.07%
12.14%
12.15%
11.96%
12.49%
12.32%
12.16%
12.32%
12.28%
11.32%
10.97%
10.99%
12.00%

Q

R

S

T

$2.16 $
0.20 $ 3.60 $1.65
0.16
2.82
2.94
1.99
3.17
0.02
2.88
2.22
- 0.12
3.24
2.98
2.45
- 0.26
3.64
3.53
2.53
- 0.43
4.74
4.14
2.62
— 0.64
4.98
3.08
2.92
- 0.81
3.14
5.24
2.11
- 0.97
4.73
2.44
2.90
- 1.12
4.67
1.37
3.05
- 1.32
4.43
5.35
0.02
5.03
1.56
0.99
5.34
- 1.94
5.71
1.13
5.04
2.34
4.19
6.51
1.65
- 2.52
6.74
5.33
3.65
- 2.70
3.06
6.73
8.55
- 2.92 12.61
2.71
6.27
— 3.20 17.06
5.41
2.54
- 3.44
5.41
15.54
2.67
- 3.65 11.65
6.14
3.86
- 3.76 11.09
4.73
6.37
- 3.99 11.55
6.14
4.68
- 4.24
3.67
5.25
12.02
- 4.51
3.94
12.90
2.30
- 4.83
2.89
14.03
2.51
- 4.72
1.01
11.03
2.75

_
_

U

V

GROWT

$6.11
6.22
5.93
6.14
6.40
5.83
5.73
5.56
5.43
5.34
5.94
6.95
6.99
7.49
8.16
8.07
8.11
8.71
8.72
8.87
9.20
8.47
7.40
6.26
6.21
4.57

$67.65
64.63
62.84
61.68
60.55
57.29
53.35
50.62
49.27
44.88
45.23
41.88
36.57
33.49
36.08
38.05
36.65
41.70
38.36
35.70
37.51
37.13
27.41
23.62
26.68
33.58

6.05%
5.78%
5.58%
5.44%
5.35%
5.03%
4.65%
4.39%
4.26%
3.85%
3.86%
3.55%
3.09%
2.83%
3.04%
3.18%
3.07%
3.49%
3.19%
2.97%
3.11%
3.07%
2.25%
1.93%
2.18%
2.76%

" Q " Money is term Eurodollars (net), not seasonally adjusted.
" R " Money is savings bonds, not seasonally adjusted.
" S " Money is short-term Treasury securities, not seasonally adjusted.
" T " Money is bankers acceptances, not seasonally adjusted.
" U " Money is commercial paper, not seasonally adjusted.
" V " Money is " M - 3 " plus other liquid assets, n o t seasonally adjusted.

80
TABLE W - Z . . . NEW MONEY ADD IN CURRENT AND "REAL" DOLLARS - MONTHLY
In Billions of Dollars — Not Seasonally Adjusted

W
Jan '78
Feb "
Mar "
Apr "
May "
Jun "
Jul
"
Aug "
Sep "
Oct "
Nov "
Dec "
Jan '79
Feb "
Mar "
Apr "
May "
Jun "
Jul
"
Aug "
Sep "
Oct "
Nov "
Dec "
Jan '80
Feb "

$

4.1
1.2
7.9
15.8
24.8
25.4
25.7
25.8
34.9
48.5
53.6
58.3
66.4
71.0
48.5
26.7
10.5
2.6
7.3
12.4
2.1
4.3
5.8
8.4
13.1
0.5

-




W%
Growth

-

-

1.58%
0.44%
2.90%
5.88%
8.84%
9.00%
9.11%
8.98%
12.25%
17.38%
19.51%
21.91%
25.18%
26.06%
17.32%
9.38%
3.44%
0.84%
2.37%
3.96%
0.66%
1.31%
1.77%
4.08%
3.97%
0.15%

X
GNP

X%
Growth

Y%
Growth

$199.2
191.1
203.5
215.8
228.2
228.5
228.8
229.1
240.7
252.3
263.9
269.6
275.1
280.8
262.4
244.0
225.6
229.3
233.2
236.9
231.8
226.8
221.7
227.7
226.6
234.3

11.07%
10.50%
11.07%
11.62%
12.16%
12.06%
11.96%
11.87%
12.38%
12.89%
13.39%
13.58%
13.77%
13.96%
12.85%
11.77%
10.72%
10.80%
10.89%
10.97%
10.61%
10.26%
9.92%
10.10%
9.97%
10.22%

6.25%
6.29%
6.54%
6.78%
7.03%
7.21%
7.46%
7.64%
7.82%
7.98%
8.22%
8.45%
8.68%
8.98%
8.83%
8.69%
8.62%
8.70%
8.85%
8.93%
8.93%
8.93%
8.87%
8.87%
8.62%
8.99%

Z
$59.1
52.1
56.0
60.1
64.0
60.4
57.0
53.4
57.3
61.4
65.3
64.4
63.7
62.8
50.9
39.0
27.1
26.8
26.3
26.0
21.9
17.8
13.7
15.9
15.6
16.0

Z%
Growth
4.52%
3.96%
4.24%
4.53%
4.81%
4.51%
4.23%
3.94%
4.22%
4.52%
4.80%
4.72%
4.66%
4.59%
3.70%
2.81%
1.94%
1.92%
1.87%
1.85%
1.55%
1.25%
0.96%
1.11%
1.09%
1.12%

New Dollar
Loss To Inflation
$140.1
139.0
147.5
155.7
164.2
168.1
171.8
175.7
183.4
190.9
198.6
205.2
211.4
218.0
211.5
205.0
198.5
202.5
206.9
210.9
209.9
209.0
208.0
211.8
211.0
218.3

" W " Money is Federal Reserve uncounted m o n e y .
" X " Money is Gross National Product ( G N P ) , current dollars, seasonally adjusted.
" Y " Money is Implicit Price Deflator ( G N P ) , seasonally adjusted.
" Z " Money is real Gross National Product ( G N P ) , seasonally adjusted.

Percent
New Dollar
Loss To Inflation
70.3%
72.7%
72.7%
72.1%
71.9%
73.6%
75.1%
76.7%
76.2%
75.7%
75.3%
76.1%
76.8%
77.6%
80.6%
84.0%
88.0%
88.3%
88.7%
89.0%
90.5%
92.1%
93.8%
93.0%
93.1%
93.2%

81
-1-ADDENDUM TO TESTIMONY
C'
Sindlinger Exhibit JP shows that in January 1972, when
the Federal debt was $422.9 billion, the annual interest payments totaled $21.3 billion, or 5 percent of the total debt.
Since then, the magnitude of interest payments, as a
percentage of the total debt, increased or declined as interest
rates rose or fell.
By June 1979, as interest rates on Treasury borrowings
started to rise, the share of total interest payments exceeded
7 percent of the total debt.
In February 1980, the share of interest payments climbed
to 7.7 percent.

Our SCP computerized econometric model

forecasts that the share should hit 8.7 percent by December
1980.
Because inflation is indexed by Congress to increase,
this forces long-term interest rates (including those on 90-day
T-bills) further upward to mirror inflation. As a result, there is
an increase in the interest cost of financing the dead, nonproductive debt money that was accumulated to pay for the "fun times"
of the past.
The Carter Administration has projected in the budget
that interest costs on the Federal Debt should be 8.2 percent for
the 1980 fiscal year—and that the rate should fall to 8.1 percent
for the 1981 fiscal year.
But the fact is that in January 1980, the Treasury's estimated total cost of the interest-bearing Federal Debt already was
8.7 percent.

It was estimated that the cost of the marketable

portion of the debt was about 9.5 percent while the nonmarketable part cost 8.5 percent.
Since all interest rates have been rising since January and
SCP forecasts they should go still higher—by 300 to 400 basis
points (depending on the type of debt instruments) before they
level off—there is no way for the cost of financing the current
debt to slip to 8.2 percent this year and 8.1 percent in the next
fiscal year.



82
-2The U.S. Treasury has $190.4 billion of marketable Federal
debt (22 percent of the total February 1980 debt of $854.6 billion)
maturing within the next 12 months.
Of this $190.4 billion . . .
. . . About $111.7 billion is financed by the regular Monday
auction of 52-week Treasury bill issues—or approximately $2.2
billion worth of financing every week.
. . . Another $78.7 billion is not included in the weekly
financing. This includes nearly $18.9 billion in long-term issues held
by the Federal Reserve Banks.
If the Treasury refinances the longer-term portions of the
debt held by the Fed banks and the debt held by these banks remains
at around $19 billion . . .
There will be approximately $60 billion of older, long-term
government issues that must be financed by the public.
For this refinancing of $60 billion—
. . . About $23—$25 billion has a coupon less than 7 percent.
. . . About $19—$20 billion carries coupons of between 7 and
8 percent.
. . . Another $23-$24 billion has coupons of between 8 and 9
percent.
. . . Only $11 billion yields 9 percent or more.
Because of this current rise in interest rates and forecasts that
rates will rise still further through 1980 (with no long-range fall in
sight), the likelihood of an increase in the average cost of the marketable portion of the Federal debt is guaranteed.




83
-3Another situation compounding the financing problem is that
every new issue probably will be of very short maturity. Thus as
short-term rates rise as forecast and remain stuck at high levels—the
average cost of refinancing should rise substantially. None of these
extra costs are included in the budget.
A NEW FACT ON NONMARKETABLE DEBT
As for the nonmarketable part of the Federal Debt—there is a
new problem that is being presented by inflation.

It is that U.S.

Savings Bonds are paying interest rates well below those of
competing interest-bearing instruments.
historical peak in September 1979.

Savings Bonds hit their

The growth rate slowed to 1

percent with the new money add from the prior year being only
$800 million.
By February 1980, the magnitude of U.S. Savings Bonds
declined to $79.6 billion with a year-over-year growth of 1.29%
and a new money add of $1 billion.
The consumer has become more sophisticated, given the
presence of money market funds, and will not hold his or her wealth
in Savings Bonds when much higher rates are available. This could
have a strong impact on the average cost of nonmarketable debt
because much of the nonmarketable debt is at such low interest.
SCP estimates that at least $10 billion of these Savings Bonds
will be liquidated by the public over the next 12 months—adding $10
billion to the amount of money the Treasury will have to refinance.




84
On another point, Business Week Magazine has estimated that
if the average cost of the debt is just one percentage point above the
8.1 percent estimate, the Carter Administration will need another
$10 billion to balance the budget in fiscal year 1981. Any higher
cost only compounds the problem.
We estimate that every increase of ten basis points in the
interest on Treasury securities adds $1 billion to the cost of financing
the debt.

So even a rise of as small as one-tenth of a percentage

point can throw the entire fiscal plan off target.

The prospects for balancing the budget are very dim.
What will the Congress be faced with in the next year? We
project that by February 1981, the Federal debt should rise to
$923.8 billion.

The estimated cost of this debt? $85.4 billion.

This includes the increased cost of financing the debt maturing
in 1980 and the added cost of obtaining debt in the marketplace
to offset the sizable reduction in the nonmarketable U.S. Savings
Bonds outstanding.
The added interest cost will amount to almost $20 billion in
payments the Federal Government will have to make over and above
what it now plans to spend. We are not talking about a $15 billion
deficit in FY 1981.
$35—$40 billion.




We are looking at a deficit that approaches

85

EXHIBIT - F-2
4

WEEK:

129 6

F E H A L E

SAMPLE

Z

PROJ.(OOO)

SAMPLE

Z

PROJ.(OOO)

SAMPLE

Z

PROJ.(OOO)

2729

100.0

132616

1329

100.0

63184

1400

100.0

69432

703

52.9

33422

721

51.5

35757

45.7
45.4
8.9

28906
28668
5610

653
626
115

46.6
44.7
0.4
1.9

32385
31046
5703
298
1339

ALL CONSUMER
PROJECTED TO ALL HOUSEHOLDS

HEADS - 18 YEARS & OLDER...
WITH HOUSEHOLD $5 SUPPLY...

A. CURRENT INCOME STATUS
1.
2.
3.
4.

INCOME IS UP
INCOME IS D O W
INCOME IS SAME
DO NOT KXOW/P.nFUSED..
UP/DOWN BALANCE

1261
1229
233
6
32

46.2
45.0
8.5
0.2
1 .2

61278
59723
11323
292
1555

1262
961
425
81
301

46-2
35.2
15.6
3.0
1 1 .0

61327
46700
20653
3936
14627

660
453

49.7
34.1
13.6
2.6
15.6

31378
21537
8605
1664
9841

602
508
244

43.0
36.3
17.4
3.3
6-7

29856
25194
12101
2281
4662

857
1016
758
98
-159

31.4
37.2
27.8
3.6
-5.8

41646
49373
36835
4762
-772 7

411
502
369

30.9
37.8
27.8

19540
23866
17543
2234
-4326

446
514
389

31.9
36.7
27.8
3.6
-4.9

22119
25491
19292
2529
-3372

761
1026
836
106
-265

27.9
37.6
30.6
3.9
-9.7

36981
49858
40625
5151
-12877

377
539
360

28.4
40.6
27.1
4.0
-12.2

17923
25625
17115
2520
-7702

384
487
476

0.0
0.4

8.2

B. EXPECTED INCOME STATUS
1.
2.
34.

EXPECT UP
EXPECT DOWN
EXPECT SAME
DO NOT KNOW/REFJSED..
UP/DOWN BALANCE

C. EXPECTED JOBS STATUS
1.
2.
3.
4.

WILL BE MORE JOBS....
WILL BE FEWER JOBS...
SAME JOBS AS NOW
NO OPINION
MORE/FEVER BALANCE...

D. EXPECTED BUSINESS STATUS
1.
23.
4.

WILL SE BETTER
WILL 3E WORSE
SA:DE AS NOW
NO OPINION
BETTER/WORSE BALANCE.

A.
B.
C.
D.
E.
F.

CURRENT INCOME INDEX
EXPECTED INCOME INDEX
EXPECTED EMPLOYMENT INDEX-EXPECTED BUSINESS INDEX
FORECAST CONFIPFJ.'CE INDEX. .
HOUSEHOLD MONEY SUPPLY

113.9
51.7
76.4
89.4
72-5
32.2

Computer tabulations for latest nationwide Consumer Confidence data for
week ended March 26, 1980.




ivieaia, rennsyivania i»uoo

19044
24152
23607
2628
-5108

86
EXHIBIT - F-2
GROWTH RATES OF GROSS NATIONAL PRODUCT
AND ON A U.S. PER-HOUSEHOLD BASIS
PER-HOUSEHOLD

TOTAL
GNP
Growth
Feb.
May
Aug.
Nov.
Feb.
May
Aug.
Nov.
Feb.
May
Aug.
Nov.
Feb.
May
Aug.
Nov.

1977
"
"
"
1978
"
"
"
1979
"
"
"
1980*
" *
" *
" *

Implicit
Price

10.01%
11.46
12.51
12.25
10.50
12.16
11.87
13.39
13.96
10.72
10.97
10.03
10.22
10.00
9.99
6.66

5.19%
6.10
6.10
6.24
6.29
7.03
7.64
8.22
8.98
8.62
8.93
8.93

Real
GNP

GNP
Growth

Deflator

Real
GNP

4.60%
5.03
6.01
5.68
3.96
4.81
3.94
4.80
4.59
1.94
1.85
0.99
1.11
0.88
0.88
- 2.31

6.62%
8.56
9.14
9.35
8.01
9.62
9.82
11.31
12.04
8.75
8.99
8.07

1.95%
3.34
2.92
3.49
3.89
4.60
5.67
6.24
7.15
6.69
6.98
6.99

1.37%
2.30
2.83
2.95
1.62
2.43
2.04
2.88
2.83
0.13
0.03
0.81

* Sindlinger Calculated Projection (SCP) Forecasts

ANALYSIS OF THE MONEY MELTDOWN ON A PER-U.S. HOUSEHOLD BASIS
"Real" GNP

Per-U.S.
Household
Feb.
May
Aug
Nov.
Feb.
May
Aug.
Nov.
Feb.
May
A
'ig.
,v.
Feb.
May
Aug.
Nov.

1977
"
"
"
1978
"
"
"
1979
"
"
"
1980
"
"
"

$18,968.05
19,127.53
19,279.73
19,298.27
19,820.16
19,592.20
19,673.43
19,853.87
19,820.16
19,616.84
19,679.80
19,692.72
19,684.58
19,437.82
19,500.22
18,894.57




Current GNP

Yr./Yr.
Change
$ +
+
+
+
+
+
+
+
+
+
+
-

234.14
430.74
531.38
553.27
545.61
464.67
393.70
555.60
545.61
24.64
6.37
161.14
135.58
179.02
179.58
798.15

Yr./Yr.
Change

Per-U.S.
Household
$26,241.27
26,955.57
27,490.60
(h) 27,945.84
31,755.77
29,548.39
30,190.25
31,107.09
31,755.77
32,133.39
32,904.94
33,617.18
34,443.60
34,716.88
35,548.12
35,219.57

$+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+

1,643.99
2,126.33
2,301.96
2,390.30
3,413.24
2,592.82
2,699.66
3,161.25
3,413.24
2,585.01
2,714.69
2,510.10
2,687.83
2,583.49
2,643.18
1,602.39

Inflation
Money Meltdown
Per-U.S. Household
Dollars
Percent
Meltdown
Meltdown
$ 7,273.22
7,828.04
8,210.87
8,647.57
11,935.61
9,956.19
10,516.82
11,253.22
11,935.61
12,516.55
13,225.14
13,924.46
14,759.02
15,279.06
16,047.90
16,325.00

27.72%
29.04%
29.87%
30.94%
37.59%
33.69%
34.83%
36.17%
37.59%
38.95%
40.19%
41.40%
42.85%
44.01%
45.14%
46.35%

EXHIBIT - C-1
P U B L I C

MONTH
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCJ
NOV
DEC

#
1972
1972
1972
1972
1972
1972
1972
1972
1972
1972
1972
1972
1973
1973
1973
1973
1973
1973
1973
1973
1973
1973
1973
1973
1974
1974
1974
1974
1974
1974
1974
1974
1974
1974
1974
1974
1975
1975
1975
1975
1975
1975
1975
1975
1975
1975
1975
1975




DEBT
(BILLIONS)
4 2 2 . 90
424 .00
427 . 3 0
425 .30
427 .90
427 . 3 0
432 .40
435 .40
433 .90
439 .90
444 . 2 0
449 .30
450 . 1 0
454 .80
458 .60
457 . 1 0
457 . 3 0
458 .10
459 .00
461.80
461 .40
462 .50
464 .00
4 6 9 . 90
468 .20
470 .70
474 .50
471 .90
4 7 4 ,. 7 0
475 .10
475 .30
481 .80
481 .50
480 .20
485 .40
492 .70
4 9 4 ,. 1 0
499 .70
5 0 9 ,. 7 0
5 1 6 ,. 7 0
528 .20
533 .20
538 .20
5 4 7 ,. 7 0
5 5 3 ,. 6 0
5 6 2 ,. 0 0
5 6 6 ,. 8 0
5 7 6 ,. 6 0

PERCENT
GROWTH

NEW
MONEY

9 .13
8 .76
9 .33
8 .75
8 .05
7 .55
6 .91
5 .23
5 .44
7 .00
7 .35
6 .14
6 .43
7 .26
7 .33
7 .48
6 .87
7 .21
6 .15
6 .06
6 .34
5 .14
4 .46
4 .58
4 .02
3 .50
3 .47
3,. 2 4
3 ,. 8 0
3 ,. 7 1
3 .55
4 ,. 3 3
4 ,. 3 6
3 .83
4 ,. 6 1
4 .85
5 .53
6 ,. 1 6
7 ,. 4 2
9 .49
1 1 ,. 2 7
12 . 2 3
1 3 ,. 2 3
13 . 6 8
1 4 ,. 9 7
17 ,. 0 3
1 6 ,. 7 7
17 ,. 0 3

3 5 ,. 3 8
34 . 1 6
36 . 4 6
34 . 2 3
3 1 ,. 8 8
30 . 0 0
27 . 9 3
2 1 ,. 6 3
22 . 3 9
2 8 ,. 7 9
3 0 ,. 4 1
25 . 9 9
27 . 2 0
30 . 8 0
3 1 ,. 3 0
3 1 ,. 8 0
29 .40
30 . 8 0
26 . 6 0
26 . 4 0
27 . 5 0
2 2 ,. 6 0
1 9 ,. 8 0
2 0 ,. 6 0
1 8 ,. 1 0
1 5 .. 9 0
1 5 .. 9 0
1 4 .. 8 0
1 7 ,. 4 0
1 7 .. 0 0
1 6 ,. 3 0
2 0 ,. 0 0
2 0 .. 1 0
1 7 ,. 7 0
2 1 ,. 4 0
22.80
2 5 ,. 9 0
2 9 .. 0 0
3 5 ,. 2 0
4 4 ,. 8 0
5 3 ,. 5 0
5 8 ,. 1 0
62 .90
6 5 ,. 9 0
7 2 .. 1 0
8 1 ,. 8 0
8 1 ,. 4 0
8 3 . . 90

D E B T

PUBLIC
DEBT
13 ER PERCENT
HOUSEHOLD GROWTH

NEW
MONEY

6 .50
6 .00
6 .73
6 .35
5 .84
5 .22
4 .47
2 .71
2 .99
4 .60
5 .01
3 .78
4 .02
4 .78
4 .96
5 .24
4 ,. 7 7
5 ,. 3 6
4 ,. 5 8
4 ,. 7 5
4 .85
3 .50
2 .67
2 .79
2 .23
1 ,. 7 1
.41
.92
.21
1 ,. 0 5
0.83
1 ,. 5 2
1 ,. 5 8
1 ,. 1 0
1 ,. 9 0
2 .54
3 ,. 6 2
4 .65
6 .. 2 8
8 ,. 7 3
1 0 ,. 9 0
1 2 ,. 0 7
1 3 ,. 2 9
1 3 ,. 9 6
1 5 ,. 6 0
18.02
18.10

404 . 0 1
375 .28
420 . 6 8
395 . 6 3
367 .20
329 .29
286 .48
177 . 5 3
194 . 6 1
297 . 8 2
326 . 1 4
251 .02
265 .98
316 . 7 1
331 .05
347 . 3 1
317 . 7 1
355 .64
306 . 7 0
319 .49
324 . 8 2
237 . 4 2
182 . 4 5
192 .37
153 . 7 2
118 .86
98 . 9 1
64 . 2 8
84 . 3 6
73 . 5 0
58 . 1 3
107 . 3 1
110 . 9 8
77 . 3 0
133 .30
180 . 2 3
255 . 0 1
328 . 6 1
445 .98
614 .76
769 .80
852 .48
938 . 5 5
998 . 0 4
1112 .14
1278.14
1294.79

6623 .13
6625 .42
6668 .12
6628 .12
6659 .82
6633 .24
6694 .95
6724 .01
6693 .09
6777 .70
6836 .05
6895 .65
6889 .11
6942 .13
6999 .18
6975 .43
6977 .53
6988 .88
7001 .65
7043 .50
7017 .92
7015 .12
7018 .50
7088 .02
7042 .83
7061 .00
7098 .09
7039 .71
7061 .89
7062 .38
7059 .78
7150 .80
7128 .90
7092 .43
7151 .80
7268 .25
7297.84
7389 .61
7 5 4 4 ,. 0 7
7654 .48
7831 .68
7914 .86
7998 .33
8148 .84
8241 .04
8370.57
8446.59

1,
0,
1,

A B L E

1972 - 1 9 7 5

PUBLIC
DEBT
INT.
(BILLIONS)

1. 8 7
1., 7 7
1 ,81
.
1 .81
.79
,86
,87
.87
1 ,. 9 1
.93
,93
, 96
2 ., 0 7
2 ,, 0 1
2 ., 1 3
2 ., 1 4
2 . , 16
2 ., 1 8
2 ., 3 2
2 .. 3 4
2 ., 4 1
2 ., 4 4
2 ., 4 0
2 ,. 4 8
2 ,, 5 3
2 ., 4 0
2 .. 4 9
2 .. 4 6
2 ., 5 1
2 ., 5 4
2 ., 6 9
2 .. 6 6
2 ., 7 1
2 ., 7 1
2 ., 6 6
2 ., 7 9
2 .. 8 1
2 .. 6 2
2 ,, 7 4
2 ,. 7 4
2 .. 7 6
2 .. 7 6
2 .. 9 0
2 . , 90
2 ., 9 7
3 ., 0 4
3 .. 0 5
3 . 13

1.
1.
1.
1,
1.
1.
1,

PERCENT
GROWTH
3 .. 8 2
3 ,. 6 3
4 ,. 8 6
6 ,71
.
5 ,. 8 4
8 ,. 6 7
4 ,. 9 3
3 ,. 1 5
4 ,. 4 3
4 .49
7 .44
,
5 ,. 5 0
1 0 ,. 4 6
1 3 ,. 5 0
1 7 ,. 5 0
18 . 2 6
20 . 2 3
1 7 ,. 6 7
2 3 ,. 7 7
2 5 ,. 3 3
2 5 ,. 9 0
2 6 .. 4 9
2 4 .. 2 5
26 . 5 2
22 .22
1 9 ,. 2 0
1 7 .. 0 1
1 4 ,. 9 7
1 6 .. 5 5
1 6 ,. 1 6
1 5 ,. 9 7
1 3 ,. 5 5
1 2 ,. 8 4
1 1 ,. 0 0
1 0 ,. 7 8
1 2 ,. 8 4
1 1 ,. 0 7
9 ,. 3 9
1 0 ,. 0 0
1 1 .. 1 6
9 ,. 8 2
8 ,. 9 9
7 ,. 9 6
9 ,. 3 0
9 ,. 5 0
1 2 .. 1 2
1 4 .. 4 3
1 2 .. 0 3

NEW
MONEY
0
0
0
0
0
0

.07
.06
,
.08
,
,
.11
,10
.15
,
.09
0 .06
,
.08
.08
.13
.10
.20
.24
.32
.33
.36
0 .33
0.. 4 4
.47
.49
.51
.47
0 .52
.46
0 .39
.36
.32
.36
.35
0 .37
.32
0 .31
0 .27
0 .26
.32
0 .28
.22
.25
0 .28
0 .25
.23
0 .21
.25
.26
0 .33
,
.38
.34

0,
0,
0,
0
0,
0.
0,
0,
0,
0
0,
0,
0
0,
0
0,
0,
0
0
0

0,
0
0

0,
0,
0,
0,
0,

PUBLIC
DEBT
INT.
( 1 2 MO.CUM)
2 1 . 34
2 1 . 40
2 1 . 49
2 1 . 60
2 1 . 70
2 1 . 85
2 1 . 94
2 1 . 99
2 2 .,07
2 2 .,16
2 2 .,29
2 2 ,,39
2 2 . 59
22. 83
2 3 . 14
2 3 .,48
2 3 .,84
2 4 ..17
2 4 ., 6 1
2 5 .,08
2 5 . 58
2 6 .,09
2 6 .,56
2 7 ..08
2 7 ..54
2 7 ., 9 3
28.29
28.61
2 8 .,97
2 9 ., 3 2
2 9 .. 6 9
3 0 ,, 0 1
3 0 ., 3 1
3 0 ,. 5 8
3 0 ,. 8 4
3 1 ., 1 6
3 1 .. 4 4
3 1 ,. 6 7
3 1 ,. 9 1
3 2 ,. 1 9
3 2 ,. 4 4
3 2 ,. 6 6
3 2 ,. 8 8
3 3 ,. 1 3
3 3 ,. 3 8
3 3 ,. 7 1
3 4 ,. 1 0
3 4 ,. 4 3

PERCENT
GROWTH

NEW
MONEY

2 . 78
2 . 64
2. 91
3. 24
3 . 25
4 . 23
4 . 55
4 . 58
4 . 62
4 . 58
4 . 95
5 . 27
5.85
6 . 66
7 . 72
8 . 68
9. 86
10. 61
1 2 ., 2 0
1 4 ., 0 6
15. 88
1 7 . 76
1 9 . 16
2 0 . 93
2 1 . 92
2 2 . 33
22. 22
2 1 . 86
21. 51
2 1 . 32
2 0 . 63
1 9 ., 6 2
1 8 ., 5 1
1 7 ., 2 2
1 6 ., 1 2
1 5 ., 0 7
1 4 .. 1 6
1 3 ., 3 9
12.82
1 2 .. 5 2
1 1 ,, 9 8
1 1 ,. 4 1
1 0 ,. 7 4
10',, 4 0
1 0 ., 1 2
1 0 .. 2 3
1 0 ,. 5 5
1 0 ,. 5 0

0 .58
0.55
0.61
0 .68
0 .68
0 .89
0.95
0 . 96
0.97
0 . 97
1 .05
1.12
1.25
1 .42
1.66
1.87
2.14
2.32
2.68
3.09
3.51
3 . 93
4 .27
4.69
4.95
5.10
5.14
5.13
5.13
5.15
5 . 08
4.92
4.73
4.49
4.28
4.08
3.90
3.74
3.63
3.58
3.47
3.35
3.19
3.12
3.07
3.13
3.25
3.27

EXHIBIT - C-1
P U B L I C

#

MONTH
"~JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
JAN
FEB

1976
1976
1976
1976
1976
1976
1976
1976
1976
1976
1976
1976
1977
1977
1977
1977
1977
1977
1977
1977
1977
1977
1977
1977
1978
1978
1978
1978
1978
1978
1978
1978
1978
1978
1978
1978
1979
1979
1979
1979
1979
1979
1979
1979
1979
1979
1979
1979
1980
1980




DEBT
(BILLIONS)

PERCENT
GROWTH

5 8 4 . ,40 " l i " , 2 8
1 8 .. 8 5
5 9 3 . ,90
17 . 8 1
6 0 0 . ,50
1 6 ., 5 1
6 0 2 . ,00
6 1 0 . 70
1 5 . 62
16 .,35
6 2 0 . 40
1 6 . 03
6 2 4 . 50
1 5 . 63
6 3 3 . 30
1 4 . ,65
6 3 4 . 70
6 3 7 . 60
1 3 . 45
1 3 . •7 3
6 4 4 . 60
1 3 . ,34
6 5 3 . 50
1 1 . 89
6 5 3 . ,90
1 1 . 69
6 6 3 . 30
1 1 . 44
6 6 9 . 20
6 7 1 . 00
1 1 . ,46
10 .,05
6 7 2 . 10
8 . ,70
6 7 4 . ,40
7 .91
,
6 7 3 . 90
8 . ,20
6 8 5 . 20
1 0 ., 1 1
6 9 8 . 84
6 9 7 . 40
9 . ,38
707 . 97
9 . 83
1 0 ., 0 1
7 1 8 . 94
1 0 ., 3 5
7 2 1 . 59
1 0 .. 0 2
7 2 9 . 75
1 0 . ,27
7 3 7 . 95
9 . 77
7 3 6 . 59
1 0 . ,34
7 4 1 . 59
7 4 9 . 02
1 1 . ,06
1 1 . 36
7 5 0 . 48
7 6 4 . 45
1 1 . ,57
1 0 . ,40
7 7 1 . 54
1 1 ., 3 3
7 7 6 . 39
10 .,60
7 8 3 . 03
9 . ,77
7 8 9 . 21
9 . ,54
7 9 0 . 45
8 . 56
792. 21
7 . ,97
7 9 6 . 79
7 9 6 . 38
8 ., 1 2
8 . 52
8 0 4 . 79
7 . ,46
8 0 4 . 91
7 . ,59
8 0 7 . 47
6 . ,37
8 1 3 . 14
7 . ,13
8 2 6 . 52
6 . ,49
8 2 6 . 79
6 . 49
8 3 3 . ,83
7 . ,08
8 4 5 . 12
7 . 24
8 4 7 . 70
7 . 87
8 5 4 . 59

NEW
MONEY
9 0 ., 3 0
9 4 . .20
9 0 ,, 8 0
8 5 ,,30
8 2 . ,50
8 7 . ,20
8 6 . ,30
8 5 . 60
8 1 . 10
7 5 . 60
7 7 . ,80
7 6 . ,90
6 9 . ,50
6 9 . ,40
6 8 . 70
6 9 . ,00
6 1 . ,40
5 4 . ,00
4 9 . ,40
5 1 . ,90
6 4 .,14
5 9 . .80
6 3 . ,37
6 5 . ,44
6 7 .. 6 9
6 6 ., 4 5
6 8 ., 7 5
6 5 ., 5 9
6 9 .. 4 9
7 4 ., 6 2
7 6 .,58
7 9 ., 2 5
7 2 . ,70
7 8 ., 9 9
7 5 . ,06
7 0 . ,27
6 8 . ,86
6 2 . ,46
5 8 ., 8 4
5 9 ., 7 9
6 3 . ,20
5 5 ., 8 9
5 6 ., 9 9
4 8 .,69
5 4 .,98
5 0 . ,40
5 0 . ,80
5 5 ., 9 1
5 7 . 25
6 2 . 38

PUBLIC
DEBT
PER PERCENT
HOUSEHOLD GROWTH
8 6 9 7 ,. 8 5
8 8 3 3 ,. 7 2
8 9 0 7 ,. 3 9
8 9 0 5 ,. 0 6
9 0 0 9 ,. 1 0
9 1 3 7 ,, 3 7
9 1 8 2 ,, 7 5
9 2 9 7 , .10
9 2 9 0 ,, 3 8
9 3 0 5 ., 7 2
9 3 8 0 ,, 5 1
9 4 8 1 , .87
9 4 3 1 ,. 8 4
9 5 6 2 , .60
9 6 4 5 .. 9 8
9 6 7 0 , .26
9 6 5 7 , .16
9 6 6 1 ,. 2 0
9 6 2 5 ,, 2 1
9 7 5 7 ,. 3 5
9 9 3 6 ,. 7 3
9 9 0 1 ,. 4 7
1 0 0 3 6 ,. 4 4
1 0 1 6 6 ,, 5 9
1 0 1 7 8 ,. 5 8
1 0 2 8 3 ,. 3 8
1 0 3 9 3 ,. 8 1
1 0 3 5 9 ,. 1 9
1 0 4 1 3 ,. 8 3
1 0 5 0 2 ,. 3 9
1 0 5 0 7 ,. 1 0
1 0 6 8 6 ,. 6 8
1 0 7 6 9 ,. 6 8
1 0 8 2 1 ,. 2 2
1 0 8 9 7 ,. 3 7
10966.89
1 0 9 6 7 ,. 6 6
1 0 9 7 5 ,. 6 3
1 1 0 2 2 ,. 5 9
1 1 0 0 0 ,. 4 8
1 1 0 9 9 ,. 9 4
1 1 0 8 4 ,. 9 3
1 1 1 0 3 ,. 5 2
1 1 1 6 4 ,. 7 5
1 1 3 3 1 ,. 5 0
1 1 3 1 8 ,. 3 0
1 1 3 9 7 ,. 5 0
11534.49
1 1 5 5 2 ,. 3 5
1 1 6 2 8 ,. 8 2

D E B T

NEW
MONEY

1 9 , . 1 8 1 4 0 0 , . 02
1 9 ,. 5 4 1 4 4 4 , . 1 1
1 8 ,. 0 7 1 3 6 3 , . 3 2
1 6 ,. 3 4 1 2 5 0 , . 5 9
1 5 ,. 0 3 1 1 7 7 , . 4 2
1 5 ,. 4 5 1 2 2 2 , , 5 2
1 4 .. 8 1 1 1 8 4 , . 4 2
1 4 ., 0 9 1 1 4 8 , . 2 6
:
1 2 , , 7 3 1 0 4 9 , . 35
9 3 5 .. 1 5
1 1 .. 1 7
9 3 3 ,. 9 2
1 1 ,. 0 6
8 9 4 ,. 6 1
1 0 ,. 4 2
7 3 3 ,. 9 9
8 ., 4 4
7 2 8 ,. 8 8
8 ,. 2 5
7 3 8 ,. 6 0
8 .. 2 9
8 ., 5 9
7 6 5 ,, 2 0
6 4 8 ,. 0 6
7 ,. 1 9
5 2 3 ,. 8 3
5 ,. 7 3
4 4 2 ,. 4 6
4 ,. 8 2
4 ,. 9 5
4 6 0 .. 2 5
6 4 6 ,. 3 5
6 .. 9 6
6 .. 4 0
5 9 5 ,. 7 5
6 ,. 9 9
6 5 5 ,. 9 3
6 8 4 .. 7 1
7 ,. 2 2
7 ,. 9 2
7 4 6 ,. 7 4
7 ,. 5 4
7 2 0 ,. 7 9
7 4 7 ,. 8 3
7 ,. 7 5
6 8 8 ,. 9 3
7 ,. 1 2
7 ,. 8 4
7 5 6 ,. 6 7
8 ,. 7 1
8 4 1 ,. 1 9
9,. 1 6
8 8 1 ,. 8 9
9 2 9 ,. 3 3
9,. 5 2
8 ,. 3 8
832 .95
9 1 9 ,. 7 5
9,. 2 9
8 6 0 ,. 9 3
8.58
8 0 0 ,. 3 0
7 ,. 8 7
7 ,. 7 5
7 8 9 ,. 0 8
6 9 2 ,. 2 5
6 .. 7 3
628 .78
6 .05
6 ,. 1 9
6 4 1 ,. 2 9
6 8 6 ,. 1 1
6 ,. 5 9
5 ,. 5 5
5 8 2 ,. 5 5
5 9 6 .. 4 2
5 ,. 6 8
4 ,. 4 7
4 7 8 ,. 0 7
5 ,. 2 2
5 6 1 ,. 8 2
4 ,. 5 9
4 9 7 ,. 0 7
4 ,. 5 9
5 0 0 ,. 1 4
5 ,. 1 8
5 6 7 ,. 6 0
5 8 4 ,. 6 9
5 ,. 3 3
6 5 3 ,. 1 9
5 .. 9 5

PUBLIC
DEBT
INT.
(BILLIONS)
3 ., 1 9
3 ., 0 9
3 ,. 2 1
3 ,. 2 1
3 .. 2 2
3 .. 1 4
3 ., 7 5
2 ., 8 6
1 ., 4 9
2 .. 8 7
3 ,, 0 6
6 .42
2 ,. 8 8
2 .. 7 7
2 .. 7 5
2 .. 8 8
3 .. 0 0
6 .38
2 ,. 9 1
2 .. 9 9
2 ,. 9 8
3 .. 0 8
3 ,. 3 2
6 ., 7 9
3 ,. 2 8
3 ,. 4 5
3 ,. 4 0
3 .. 4 9
3 .. 6 7
7 ., 1 7
3 .. 5 4
3 ,. 8 7
3,. 6 3
3 ,. 8 2
4 ,. 1 5
8 .. 1 4
4 ,. 1 1
4 ,, 3 2
4 ,. 2 8
4 ,. 3 8
4 ,. 6 6
8 ., 6 4
4 .. 3 0
4 ., 6 7
4 ., 3 6
4 ., 6 5
5 ., 3 3
9.80
5 .. 1 3
5 ., 4 7

PERCENT
GROWTH
13.63
18.01
17 . 0 9
17.12
16.73
13.67
29.40
-1.45
-50.02
-5.69
0.62
105.14
-9.77
-10.31
-14.13
-10.31
-7.01
103.12
-22.51
4.44
100.40
7.42
8.32
5.81
13.92
24.37
23.57
21.37
22.46
12.25
21.62
29.41
21.83
23.97
24.88
19.78
25.29
25.22
25.80
25.54
27.06
20.54
21.57
20.76
20.18
21.74
28.56
20.47
24.64
26.74

NEW
MONEY
" 0 .38
0 .47
0.47
0.47
0 .46
0.38
0 .85
-0.04
-1.49
-0.17
0.02
3.29
-0.31
-0.32
-0.45
-0.33
-0.23
3.24
-0.85
0.13
1.49
0.21
0.26
0.37
0.40
0.68
0.65
0.61
0.67
0 .78
0.63
0.88
0.65
0 .74
0.83
1.34 0.83
0 .87
0.88
0.89
0.99
1.47
0.76
0.80
0.73
0.83
1.18
1.67
1.01
1.15

PUBLIC
DEBT
I N T . PERCENT
( 1 2 _ M 0 . C U M ) GROWTH
34. 82
3 5 . 29
3 5 . 76
3 6 . 22
3 6 . 69
3 7 . 06
3 7 . 92
3 7 . 87
3 6 . 39
36. 21
3 6 . 23
3 9 . 52
39. 21
3 8 . 89
3 8 . 44
3 8 . 11
3 7 . 88
4 1 .. 1 2
4 0 .,28
4 0 ., 4 1
4 1 . ,90
4 2 ., 1 1
4 2 . ,37
4 2 .,74
4 3 ., 1 4
4 3 ., 8 2
4 4 . .47
4 5 ., 0 8
4 5 ., 7 5
4 6 ., 5 4
4 7 . ,16
4 8 ,. 0 4
4 8 ,. 6 9
4 9 ,. 4 3
5 0 .. 2 6
5 1 ,. 6 0
5 2 ,, 4 3
5 3 ,. 3 0
5 4 ,. 1 8
5 5 ,. 0 7
5 6 ,. 0 7
5 7 ,. 5 4
5 8 ,. 3 0
5 9 ,. 1 0
5 9 ,. 8 4
6 0 ,. 6 7
6 1 ,. 8 5
6 3 ,. 5 2
6 4 ., 5 3
6 5 .. 6 8

1 0 . 73
1 1 . 44
1 2 . 03
1 2 . 53
1 3 . 10
1 3 . 47
1 5 . 33
1 4 . 34
9 . 00
7 . 42
6 . 27
1 4 . 79
1 2 . 63
10 . 22
7 . 51
5. 21
3 . 27
1 0 . 96
6 . 23
6 . 68
1 5 . 14
1 6 . 28
16 .,93
8 . 13
1 0 ., 0 2
1 2 . .66
1 5 . .67
1 8 ., 2 9
2 0 . ,77
1 3 . ,16
1 7 ., 0 9
1 8 ., 9 0
1 6 .. 2 2
1 7 .. 3 8
1 8 .. 6 3
2 0 .. 7 4
2 1 .. 5 4
2 1 .. 6 5
2 1 ,. 8 5
2 2 ,. 1 6
2 2 ,. 5 4
2 3 ,. 6 4
2 3 ,. 6 1
2 3 ,. 0 2
2 2 .. 8 8
22 . 7 3
2 3 ,. 0 6
2 3 ,. 0 9
2 3 , . 07
2 3 ,. 2 3

NEW
MONEY
~3~37
3.62
3.84
4 .03
4.25
4.40
5 . 04
4.75
3 .00
2.50
2.14
5.09
4.40
3.61
2.69
1.89
1.20
4.06
2.36
2.53
5.51
5.90
6.13
3.21
3.93
4.92
6 . 02
6.97
7.87
5.41
6.88
7.64
6.79
7.32
7.89
8.86
9.29
9.49
9.71
9.99
10.31
11.00
11.14
11.06
11.14
11.23
11.59
11.91
12.10
12.38

EXHIBIT - C-1
F E D E R A L

MONTH

ft

JAN
FEB
MAR
APR
MAY
JUN
JUL
' AUG
SEP
OCT
NOV
DEC
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC

1972
1972
1972
1972
1972
1972
1972
1972
1972
1972
1972
1972
1973
1973
1973
1973
1973
1973
1973
1973
1973
1973
1973
1973
1974
1974
1974
1974
1974
1974
1974
1974
1974
1974
1974
1974
1975
1975
1975
1975
1975
1975
1975
1975
1975
1975
1975
1975




RECEIPTS
(BILLIONS)
17 . 6 0 5
15 . 2 4 1
15 . 2 2 4
24 . 5 3 3
17 . 2 7 2
25 . 5 9 3
15 . 2 1 0
18 . 1 0 2
22 . 3 9 4
14 . 6 3 3
16 . 7 4 6
18 . 976
21 .132
18 . 1 7 2
15 . 8 7 8
25 . 8 7 0
16 . 5 7 6
28 . 5 3 7
18 . 2 1 0
2 1 .. 3 6 5
2 4 ,. 8 4 3
1 7 ,. 6 4 2
20 . 2 0 6
2 1 ,. 9 9 0
2 3 ,. 4 7 5
2 0 ,. 2 2 4
1 6 ,. 8 1 9
29 . 6 5 9
1 9 ,. 2 4 0
2 1 ,. 2 5 9
2 0 . , 943
2 3 ,. 6 1 8
2 8 ,, 2 3 7
1 9 ,. 6 0 1
2 2 ,. 2 6 5
2 4 , . 944
2 4 ,. 9 9 2
1 9 ,. 9 7 3
2 0 ,. 0 4 0
31 , 3 9 2
1 3 ,, 0 1 0
3 1 ,, 9 8 2
2 0 ., 0 5 6
2 3 ,, 6 0 4
2 8 ,, 6 1 5
1 9 ,, 3 1 6
2 1 ,. 8 6 7
2 5 , , 997

PERCENT
GROWTH

NEW
MONEY

NET
OUTLAYS
(BILLIONS)

11 . 6 5
0 . 75
15 . 3 6
16 . 6 0
31 . 0 9
13 . 7 5
15 . 04
15 . 7 3
13 . 5 7
17 . 5 3
12 . 1 4
10 . 2 2
20 . 0 3
19 . 2 3
4 .30
5 .45
- 4 .03
11 . 5 0
19 . 7 2
18 . 03
10 . 94
20 . 5 6
20 . 6 6
15 . 8 8
11 . 0 9
11 . 2 9
5 . 93
14 . 6 5
16 . 0 7
- 2 5 .50
15 . 0 1
10 . 5 5
13 . 6 6
11 . 1 0
10 . 1 9
13 . 4 3
6 .46
- 1 .24
19 . 1 5
5 .84
- 3 2 .38
50 . 4 4
- 4 .24
- 0 .06
1 .34
- 1 .45
- 1 .79
4 .22

1.84
0.11
2.03
3.49
4.10
3.09
1 . 99
2.46
2.68
2.18
1.81
1.76
3.53
2 . 93
0.65
1 .34
-0.70
2 . 94
3.00
3.26
2.45
3.01
3.46
3.01
2.34
2.05
0 . 94
3.79
2.66
-7.28
2.73
2.25
3.39
1.96
2.06
2.95
1.52
-0.25
3.22
1.73
-6.23
10.72
-0.89
-0.01
0.38
-0.29
-0.40
1 . 05

19 . 6 1 0
18 . 7 4 7
20 . 4 4 1
18 . 6 5 6
19 . 8 0 3
23 . 3 0 7
18 . 5 1 4
20 . 7 2 9
18 . 5 1 9
20 . 0 9 0
21 .306
19 . 6 1 7
23 . 6 7 3
20 . 3 0 2
20 . 8 8 2
22 . 3 6 5
20 . 1 1 8
2 0 ,. 7 0 2
22 . 8 1 3
22 . 2 8 4
20 . 8 4 4
23 . 1 2 8
22 . 1 5 2
19 . 7 4 9
2 3 ,. 7 7 9
21 .177
2 3 ,. 0 5 4
22 . 2 4 0
2 4 ,. 0 9 2
2 4 ,. 3 0 8
2 4 .. 3 2 8
2 4 ,. 6 8 1
2 5 ,. 7 9 6
2 6 ,. 5 7 6
2 5 ,. 0 2 0
2 7 ,. 4 1 4
2 9 ,. 2 5 4
2 5 ,. 8 8 4
2 8 ,. 4 6 3
2 9 ,. 1 5 1
2 8 ,. 8 8 4
30 ,. 6 3 8
3 1 ,. 1 3 2
3 0 ,. 7 4 9
2 9 .. 2 0 3
3 2 ,. 5 6 1
2 9 ,. 6 3 7
3 2 ,. 0 9 2

F I S C A L
BUDGET
SURPLUS
OR D E F I C I T
-2.005
-3.506
-5.217
5.877
-2.531
2.286
-3.304
-2.627
3.875
-5.457
-4.560
-0.641
-2.541
-2.130
-5.004
3.505
-3.542
7.835
-4.603
-0.919
3.999
-5.486
-1.946
2.241
-0.304
-0.953
-6.235
7.419
-4.852
-3.049
-3.385
-1.063
2.441
-6.975
-2.755
-2.470
-4.262
-5.911
-8.423
2.241
-15.874
1.344
- 1 1 . 076
-7.145
-0.588
-13.245
-7.770
-6.095

O P E R A T I O N S

1972 - 1975

SURPLUS/
DEFICIT
C12 MO.CUM)

PERCENT
GROWTH

NEW
MONEY

- 2 5 ,,427
- 2 7 ,.535
- 2 7 ,.309
- 2 4 ,.680
- 2 3 ,.233
- 2 3 ,. 4 7 0
- 2 1 ,.427
- 2 0 ,. 1 1 4
- 1 7 ,.756
- 1 6 ,. 8 8 2
- 1 7 ,. 4 4 3
- 1 7 ,. 8 1 0
- 1 8 ,.346
- 1 6 ,.970
- 1 6 ,.757
- 1 9 , , 129
- 2 0 ..140
- 1 4 ., 5 9 1
- 1 5 .,890
- 1 4 ,.182
- 1 4 . , 058
- 1 4 ..087
- 1 1 ,,473
- 8 .. 5 9 1
- 6 .,354
- 5 ,.177
- 6 .,408
- 2 ..494
- 3 .,804
- 1 4 .,688
- 1 3 .,470
- 1 3 ..614
- 1 5 .,172
- 1 6 ,, 6 6 1
- 1 7 ., 4 7 0
- 2 2 .,181
- 2 6 .,139
- 3 1 ., 0 9 7
- 3 3 .,285
- 3 8 .,463
- 4 9 .,485
- 4 5 .,092
- 5 2 .,783
- 5 8 ..865
- 6 1 . 894
- 6 8 .,164
- 7 3 . 179
- 7 6 .,804

1 0 2 . , 90
97 ,. 1 0
70 ,, 8 6
4 7 ,. 6 0
2 7 .. 1 2
2 ,. 15
- 1 , . 13
- 1 3 ,. 6 3
- 2 2 ,.98
-27 .30
-29 .26
- 2 8 ,. 1 1
- 2 7 ,. 8 5
- 3 8 ,.37
- 3 8 .64
- 2 2 ,.49
- 1 3 ,. 3 1
- 3 7 ..83
- 2 5 ,.84
- 2 9 ,.49
- 2 0 ,.83
- 1 6 ,.56
- 3 4 ,.23
- 5 1 ,.76
- 6 5 ,.37
- 6 9 ,.49
- 6 1 ,.76
- 8 6 , . 96
- 8 1 .. 1 1
.66
- 1 5 ..23
- 4 ,. 0 1
7 ,. 9 2
1 8 ,, 2 7
5 2 ,. 2 7
1 5 8 ,, 1 9
311 , 39
5 0 0 .,70
4 1 9 ., 4 4
1 4 4 2 ,, 3 3
1 2 0 0 . , 93
2 0 7 ,, 0 0
2 9 1 .,86
3 3 2 ., 3 9
3 0 7 . , 95
3 0 9 ., 1 3
3 1 8 ., 8 9
2 4 6 ., 2 6

- 1 2 .,89
- 1 3 ,,56
- 1 1 .,33
- 7 ,, 96
- 4 ,,96
- 0 ,. 4 9
0., 2 5
3.. 1 8
5 ,. 3 0
6 ,. 3 4
.22
6 .97
7 . 08
,
10 , 5 7
.
1 0 ,. 5 5
5 ,. 5 5
3 ,. 0 9
8 ,. 8 8
5 .. 5 4
5 ,. 9 3
3 .. 7 0
2 ,. 7 9
5 .. 9 7
9,. 2 2
1 1 . . 99
.
11 ,79
1 0 ,. 3 5
1 6 ,. 6 3
1 6 ,. 3 4
- 0 ,.10
2 .42
.57
- 1 ,. 1 1
- 2 ,.57
- 6 ,. 0 0
- 1 3 ,,59
- 1 9 ,,78
- 2 5 , , 92
- 2 6 ,. 8 8
- 3 5 , . 97
- 4 5 ,.68
- 3 0 ,. 4 0
- 3 9 ,. 3 1
- 4 5 ,.25
- 4 6 ,.72
- 5 1 .,50
- 5 5 ,, 7 1
- 5 4 .,62

0.

7,

0,

SURPLUS/
D E F I C I T PER PERCENT
HOUSEHOLD
GROWTH

NEW
MONEY

9 8 . 00
9 2 ; 10
66. 81
4 4 . 33
2 4 . 52
- 0 . 06
- 3 . 38
- 1 5 . ,70
- 2 4 . ,77
- 2 8 . ,94
- 3 0 . .80
- 2 9 .,71
- 2 9 . 49
- 3 9 . ,80
- 3 9 . ,99
- 2 4 .,11
- 1 5 .,02
- 3 8 . ,90
- 2 6 .,94
- 3 0 .,36
- 2 1 .,93
- 1 7 ..85
- 3 5 .,35
- 5 2 .,59
- 6 5 . , 96
- 7 0 . , 02
- 6 2 ..52
- 8 7 ..26
- 8 1 .,59
- 1 .,92
- 1 7 . ,46
- 6 .,59
5 , , 05
1 5 ., 1 7
4 8 ,. 3 2
1 5 2 ., 5 1
3 0 3 .. 9 4
4 9 2 ,,17
4 1 3 , , 95
1 4 3 1 ,. 6 2
1 1 9 6 ,, 6 1
2 0 6 . ,57
2 9 2 . . 07
3 3 3 ,. 4 5
3 1 0 , , 18
3 1 2 ,. 5 8
3 2 3 ,. 6 8
2 4 9 ,. 5 7

- 1 9 7 ., 1 0
- 2 0 6 ., 2 8
- 1 7 0 ., 6 8
- 1 1 8 . , 14
- 7 1 ., 2 0
.
0 ,21
11 . 6 2
,
5 7 .. 8 4
90 ., 17
1 0 5 . , 92
1 1 9 .. 5 1
1 1 5 .. 5 5
1 1 7 .. 4 2
1 7 1 ., 2 3
170 .. 4 2
9 2 ., 7 2
5 4 .. 3 0
1 4 1 ., 7 4
8 9 ., 3 7
9 4 ., 3 2
6 0 ., 0 7
4 6 .. 4 4
9 4 .. 9 0
1 4 3 .. 7 5
1 8 5 .. 2 2
1 8 1 .. 3 7
1 5 9 ,. 8 9
2 5 4 ,. 7 1
2 5 0 .. 7 1
4 ,. 2 7
4 2 ,. 3 1
1 4 ,. 2 5
- 1 0 ,. 8 1
- 3 2 ,. 4 1
- 8 3 ,. 8 6
- 1 9 7 ,. 6 2
- 2 9 0 ,. 4 9
- 3 8 2 .20
- 3 9 6 ,. 7 9
-532 .59
- 6 7 7 ,. 1 3
-451 .01
- 5 8 4 . 35
-673 .75
-696 .74
- 7 6 9 . 17
- 8 3 3 .13
-816 .63

- 3 9 8 . 216
- 4 3 0 . 259
- 4 2 6 . 161
- 3 8 4 . 625
- 3 6 1 . 595
- 3 6 4 . 336
- 3 3 1 . 756
- 3 1 0 , 623
-273. 891
- 2 6 0 .,104
- 2 6 8 .,438
- 2 7 3 .,337
- 2 8 0 ., 7 9 6
- 2 5 9 . 030
- 2 5 5 .,743
- 2 9 1 . , 909
- 3 0 7 .,295
- 2 2 2 .,600
- 2 4 2 . 385
- 2 1 6 .,305
-213.820
- 2 1 3 .,666
- 1 7 3 . 538
- 1 2 9 .,584
- 9 5 . 576
- 7 7 .,657
- 9 5 .,855
- 3 7 .,202
- 5 6 .,587
- 2 1 8 .,335
- 2 0 0 .,071
- 2 0 2 . , 054
- 2 2 4 .,627
- 2 4 6 .,075
- 2 5 7 .,396
- 3 2 7 .,208
- 3 8 6 ., 068
-459.862
- 4 9 2 .,648
- 5 6 9 ,,793
- 7 3 3 ,,716
- 6 6 9 ,,345
- 7 8 4 .,418
- 8 7 5 ,.807
- 9 2 1 .,367
- 1 0 1 5 .. 2 4 8
- 1 0 9 0 ., 5 2 7
- 1 1 4 3 ., 8 3 3

EXHIBIT - C -1
FEDERAL

MONTH
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
JAN
FEB

*

1976
1976
1976
1976
1976
1976
1976
1976
1976
1976
1976
1976
1977
1977
1977
1977
1977
1977
1977
1977
1977
1977
1977
1977
1978
1978
19 78
1978
1978
1978
1978
1978
1978
1978
1978
1978
1979
1979
1979
1979
1979
1979
1979
1979
1979
1979
1979
1979
1980
1980




RECEIPTS
(BILLIONS)
25 . 6 3 2
20 . 8 4 5
20 . 4 3 1
33 . 3 4 8
22 . 6 7 9
37 . 6 1 5
22 . 6 6 0
27 . 3 6 0
31 . 7 5 3
21 .018
25.698
29 . 4 7 2
29 . 9 7 7
24 . 3 2 7
25 . 1 7 1
40 . 0 1 6
27 . 6 7 2
43 . 075
24 . 9 5 2
29 . 6 7 6
36 . 6 4 2
24 . 1 2 7
27 . 5 9 6
32 . 7 9 4
33 . 2 0 1
26 . 7 9 5
24 . 8 7 9
42 . 3 4 3
34 . 9 6 1
47 . 6 5 7
29 . 1 9 4
35 . 0 4 0
42.591
28 . 7 4 5
33 . 2 2 7
37 . 4 7 7
38 . 3 6 4
32 . 6 3 9
31 .144
52 . 2 3 0
38 . 2 8 7
53 . 9 1 0
33 . 2 6 8
39 . 3 5 3
47 . 2 9 5
33 . 0 9 9
38 . 3 2 0
4 2 ,. 6 1 7
4 3 ,. 4 2 9
3 7 ,. 8 6 2

FISCAL

OPERATIONS

PERCENT
GROWTH

NEW
MONEY

OUTLAYS
(BILLIONS)

BUDGET
SURPLUS
OR D E F I C I T

2 .56
4 .37
1 .95
6 .23
74 . 3 2
17 . 6 1
12 . 9 8
15 . 9 1
10 . 9 7
8.81
. 17 . 5 2
13 . 3 7
16 . 9 5
16 . 7 0
23 . 2 0
20 . 0 0
22 . 0 2
14 . 5 2
10 . 1 1
8 .46
15.40
14 . 7 9
7 .39
11 .27
10 . 7 5
10 . 1 5
- 1 .16
5.82
26 . 3 4
10 . 6 4
17 . 0 0
18 . 0 8
16 . 2 4
19 . 1 4
20 . 4 1
14 . 2 8
15 . 5 5
21 .81
25 . 1 8
2 3 ,. 3 5
9 .51
1 3 ,. 1 2
13 . 9 5
1 2 ,. 3 1
11 .04
15 . 1 5
15 . 3 3
1 3 ,. 7 2
1 3 ,. 2 0
1 6 ,. 0 0

0 .64
0,. 8 7
0,. 3 9
1.. 9 6
9 .67
5,. 6 3
2 .60
3 .76
3 .14
1 .70
3 .83
3 .47
4 .35
3 .48
4 .74
6 .67
4,. 9 9
5 .46
2 .29
2 .32
4,. 8 9
3 .11
1,. 9 0
3,. 3 2
3,. 2 2
2 .47
- 0 ,. 2 9
2,. 3 3
7,. 2 9
4,. 5 8
4,. 2 4
5 ,. 3 6
5,. 9 5
4,. 6 2
5,. 6 3
4 ,. 6 8
5 ,. 1 6
5,. 8 4
6,. 2 6
9,. 8 9
3 ,. 3 3
6 .. 2 5
4 ,. 0 7
4 ,. 3 1
4 ,. 7 0
4 ,. 3 5
5,. 0 9
5 ,. 1 4
5 ,, 0 6
5 .. 2 2

3 0 ,. 7 6 7
2 9 .. 7 7 3
2 9 ,. 3 3 8
3 2 ,. 6 3 8
2 8 ,. 4 1 2
3 0 . .656
33 . 9 5 2
29 . 6 0 5
31 .189
34 . 0 0 0
33 . 0 8 3
31 .891
32 . 6 4 0
3 0 ,. 8 8 0
34 . 6 4 6
3 5 ,. 5 4 7
3 3 ,. 7 1 5
3 2 ,. 8 8 1
3 3 ,. 6 3 0
3 4 ,. 7 2 0
3 5 ,. 0 9 7
38.790
3 6 ,. 8 6 4
3 7 ,. 6 4 6
3 6 ,. 9 1 8
3 3 ,. 7 8 7
4 0 ,. 0 0 4
3 5 ,. 7 2 4
3 6 ,. 6 7 0
3 8 ,. 6 0 2
3 6 ,. 4 2 6
3 9 .. 5 7 2
3 8 ,. 9 3 5
4 2 ,. 6 9 1
3 9 ,. 1 3 4
4 1 ,. 3 9 2
4 1 ,. 0 9 5
3 7 ,. 7 3 9
4 3 ,. 7 2 5
4 0 ,. 7 5 2
4 1 ,. 6 1 8
4 0 ,. 6 8 7
4 0 ,. 4 8 2
5 4 ,. 2 7 9
2 9 ,. 6 2 5
47.807
46.841
4 4 ., 0 1 0
4 7 . ,988
4 7 . 208

- 5 .135
- 8 .928
- 8 .907
0 .710
- 5 .733
6 . 959
- 1 1 .292
- 2 .245
0 .564
- 1 2 . 982
-7 .385
- 2 .419
- 2 .663
-6 .553
- 9 .475
4 .469
-6 .043
10 . 1 9 4
- 8 .678
- 5 .044
1 .545
-14 .663
- 9 .268
- 4 .852
- 3 .717
-6 .992
-15 .125
6 .619
- 1 .709
9 .055
-7 .232
-4 .532
3 .656
- 1 3 .946
- 5 .907
- 3 .915
-2 .731
- 5 .100
-12 .581
1 1 ,. 4 7 8
-3.331
13 . 2 2 3
-7 .214
- 1 4 ,.926
1 7 ,. 6 7 0
- 1 4 ,. 7 0 8
-8 .521
-1.393
- 4 ,.559
- 9 ..346

1976 - 1 9 8 0

DEFICIT
PERCENT
( 1 2 MO • CUM) GROWTH
- 7 7 . 677
- 8 0 . 694
- 8 1 . 178
- 8 2 . 709
- 7 2 . 568
- 6 6 . 953
- 6 7 .,169
- 6 2 .,269
- 6 1 .,117
- 6 0 .,854
- 6 0 .,469
- 5 6 .,793
- 5 4 .,321
- 5 1 .,946
- 5 2 . 514
- 4 8 . 755
- 4 9 .,065
- 4 5 . 830
- 4 3 . 216
- 4 6 . 015
- 4 5 . 034
- 4 6 . 715
- 4 8 . 598
- 5 1 . 031
- 5 2 . 085
- 5 2 . 524
- 5 8 . 174
- 5 6 . 024
- 5 1 . 690
- 5 2 . 829
- 5 1 . 383
- 5 0 . 871
- 4 8 . 760
- 4 8 . 043
- 4 4 . 682
- 4 3 . 745
- 4 2 . 759
- 4 0 . 867
- 3 8 . 323
- 3 3 . 464
-35.086
- 3 0 . 918
- 3 0 . 900
- 4 1 . 294
- 2 7 . 280
- 2 8 . 042
- 3 0 . 656
- 2 8 . 134
- 2 9 . 962
- 3 4 . 208

1 9 7 . ,17
1 5 9 . 49
1 4 3 .,89
1 1 5 ., 0 4
4 6 .,65
4 8 ., 4 8
2 7 ,. 2 6
5 ,. 7 8
- 1 ,.26
- 1 0 ,.72
- 1 7 ,. 3 7
- 2 6 ,.05
- 3 0 ,.07
- 3 5 ,.63
- 3 5 ,. 3 1
- 4 1 ,.05
- 3 2 ,.39
- 3 1 ,.55
- 3 5 ,.66
- 2 6 ,.10
- 2 6 ,.32
- 2 3 ,.23
- 1 9 ,.63
- 1 0 ,. 1 5
- 4 ,.12
1,. 1 1
1 0 ,. 7 8
1 4 ,. 9 1
5 ,. 3 5
1 5 ,. 2 7
1 8 ,. 9 0
1 0 ,. 5 5
8 ,. 2 7
2 ,. 8 4
- 8 ,.06
- 1 4 ..28
- 1 7 ..91
- 2 2 .,19
- 3 4 .,12
- 4 0 .,27
- 3 2 .,12
- 4 1 .,48
- 3 9 . ,86
- 1 8 . 83
- 4 4 . 05
- 4 1 . 63
- 3 1 . 39
- 3 5 . 69
- 2 9 . 93
- 1 6 . 29

NEW
MONEY
- 5 1 .,54
- 4 9 . 60
- 4 7 . 89
- 4 4 .,25
- 2 3 . , 08
- 2 1 .,86
- 1 4 ,.39
- 3 ,.40
0,. 7 8
7,. 3 1
1 2 ,. 7 1
2 0 ,. 0 1
23 . 3 6
28 . 7 5
2 8 ,. 6 6
3 3 ,. 9 5
2 3 ,. 5 0
2 1 ,. 1 2
2 3 ,. 9 5
1 6 ,. 2 5
16 ,. 0 8
1 4 ,. 1 4
1 1 ,, 8 7
5 ,. 7 6
2 ,. 2 4
- 0 ,. 5 8
- 5 ,.66
- 7 ,. 2 7
- 2 ,.62
- 7 ,. 0 0
- 8 ,.17
- 4 ,.86
- 3 ,.73
- 1 ,.33
3 ,. 92
7 .. 2 9
9 .. 3 3
1 1 .. 6 6
1 9 .. 8 5
2 2 . ,56
1 6 . ,60
2 1 ., 9 1
2 0 .,48
9. 58
2 1 . 48
2 0 . 00
1 4 . 03
15. 61
1 2 . 80
6 . 66

D E F I C I T PER PERCENT
HOUSEHOLD
GROWTH
- 1 1 5 6 . 094
- 1 2 0 0 . 246
- 1 2 0 4 . 133
- 1 2 2 3 . 466
- 1 0 7 0 . 526
- 9 8 6 . 094
- 9 8 7 .. 6 6 1
- 9 1 4 ,.132
- 8 9 4 ,.594
- 8 8 8 ..157
- 8 7 9 ,,969
- 8 2 4 ,.028
- 7 8 3 ,.522
- 7 4 8 ,.887
- 7 5 6 .,945
- 7 0 2 ,. 6 4 1
- 7 0 4 ,.995
- 6 5 6 .. 5 4 1
- 6 1 7 ..245
- 6 5 5 ..257
- 6 4 0 ,.330
- 6 6 3 ,.242
- 6 8 8 ,.939
- 7 2 1 ,.630
- 7 3 4 ,.695
- 7 4 0 ,.147
- 8 1 9 ,.360
- 7 8 7 ,.902
- 7 2 5 ,.857
- 7 4 0 ,.739
- 7 1 9 ,.385
- 7 1 1 ,. 1 5 1
- 6 8 0 ,.623
- 6 6 9 ,.615
- 6 2 1 ,.833
- 6 0 7 .,879
- 5 9 3 .,287
- 5 6 6 .,187
- 5 3 0 .,148
- 4 6 2 .,239
- 4 8 3 .,915
- 4 2 5 .,789
- 4 2 4 .,903
- 5 6 6 ., 981
- 3 7 4 .,003
- 3 8 3 .,876
- 4 1 9 .,030
- 3 8 3 . 979
- 4 0 8 . 316
- 4 6 5 . 482

1 9 9 .. 4 5
1 6 1 ., 0 0
1 4 4 .. 4 2
1 1 4 ., 7 2
4 5 ..90
4 7 ., 3 2
2 5 ,. 9 1
4 ,38
.
- 2 ,. 9 1
- 1 2 ,.52
- 1 9 ,, 3 1
- 2 7 ,.96
- 3 2 ,.23
- 3 7 ,. 6 1
- 3 7 ,.14
- 4 2 ,.57
- 3 4 ,.15
- 3 3 ,.42
- 3 7 ,.50
- 2 8 ,. 3 2
- 2 8 .42
- 2 5 ,. 3 2
- 2 1 , 71
- 1 2 ,.43
- 6 ,. 2 3
- 1 ,.17
8 .25
1 2 ,. 1 3
2,. 9 6
12 . 8 2
1 6 ,. 5 5
8 .53
6,. 2 9
0,. 9 6
- 9 ,.74
- 1 5 ,.76
- 1 9 ,.25
- 2 3 .50
- 3 5 ,.30
- 4 1 ,.33
- 3 3 ,. 3 3
- 4 2 ,.52
- 4 0 ,.94
- 2 0 ,.27
- 4 5 ,.05
- 4 2 ,.67
- 3 2 ,. 6 1
- 3 6 ,.83
- 3 1 ..18
- 1 7 ..79

NEW
MONEY
-770 .03
- 7 4 0 ,. 3 8
- 7 1 1 ,.48
- 6 5 3 .67
- 3 3 6 ,. 8 1
- 3 1 6 , . 75
-203 .24
-38 .32
26 . 7 7
127 . 0 9
2 1 0 ,. 5 6
319 . 8 0
372 .57
451 .36
4 4 7 ,. 1 9
520 . 8 3
365 . 5 3
329 . 5 5
1
370 . 4 2
258 . 8 7
254 .26
224 . 9 2
191 .03
102 . 4 0
48 . 8 3
8 .74
-62 .42
- 8 5 .26
-20 .86
- 8 4 .20
-102 .14
-55 .89
-40 .29
- 6 .37
67 . 1 1
113 . 7 5
141 . 4 1
173 . 9 6
289 . 2 1
325 .66
241 .94
314 . 9 5
294 . 4 8
144 . 1 7
306 . 6 2
285 . 7 4
202 .80
223 .90
184 . 9 7
100 . 7 1

C
O
o

91

EXHIBIT - F-2

"Real" GNP
Per Household

Jan.
Feb.
Mar.
Apr.

'77
"
"
"

May "
June "
Jul. "
Aug."
Sep. "
Oct. "
Nov."
Dec. "
Jan. ' 7 8
Feb. "
Mar. "
Apr. "
May "
June "
Jul. "
Aug."
Sep. "
Oct. "
Nov, "
Dec. "
Jan. ' 7 9
Feb. "
Mar. "
Apr. "
May "
June "
Jul. "
Aug. "
Sep. "
Oct. "
Nov."'
Dec. "
Jan. ' 8 0
Feb. "
Mar. "
Apr. "
May
June "
Jul. "
Aug."
Sep. "
Oct. "
Nov."
Dec. "

$18,844.92
18,968.05
19,039.72
19,109.93
19,127.53
19,179.13
19,229.00
19,279.73
19,286.49
19,291.81
19,298.27
19,281.34
19,262.83
19,274.55
19,393.23
19,493.70
19,592.20
19,618.89
19,646.90
19,673.43
19,733.39
19,794.55
19,853.87
19,842.13
19,831.83
19,820.16
19,751.81
19,685.05
19,616.84
19,638.35
19,658.42
19,679.80
19,684.66
19,688.15
19,692.72
19,705.47
19,690.92
19,684.58
19,625.27
19,581.05
19,437.82
19,514.14
19,483.54
19,500.22
19,380.86
19,058.82
18,894.57
18,783.09

Year-OverYear Change

+$255.57
+ 234.14
+ 318.65
+ 400.43
+ 430.74
+ 465.50
+ 497.39
+ 531.38
+ 538.88
+ 546.11
+ 553.27
+ 458.35
+ 417.91
+ 306.51
+ 353.50
+ 383.77
+ 464.67
+ 439.76
+ 417.89
+ 393.70
+ 446.89
+ 502.74
+ 555.60
+ 560.79
+ 569.00
+ 545.61
+ 538.59
+ 191.36
+
24.64
+
19.46
+
11.52
+
6.37
48.72
- 106.41
- 161.14
- 136.66
140.91
135.58
126.54
104.00
179.02
- 124.21
- 174.88
- 179.58
303.80
- 629.33
- 798.15
- 922.38

_

_
_
_

_

Current G N P
Per Household

$25,945.84
26,241.27
26,504.84
26,768.31
26,955.57
27,135.59
27,313.11
27,490.60
27,642.93
27,794.81
27,945.84
28,064.37
28,183.32
28,342.53
28,765.19
29,156.88
29,548.39
29,763.45
29,976.47
30,190.25
30,496.92
30,802.68
31,107.09
31,324.43
31,539.73
31,755.77
31,882.63
32,007.73
32,133.39
32.390.89
32,648.98
32,904.94
33,143.68
33,380.33
33,617.18
33,873.81
34,065.60
34,443.60
34,520.89
34,716.25
34,716.88
35,107.06
35,305.64
35,548.12
35,583.86
35,316.97
35,219.57
35,200.20

Year-OverYear Change

+$1,610.02
+ 1,643.99
+ 1,829.69
+ 2,016.09
+ 2,126.33
+ 2,186.04
+ 2,244.00
+ 2,301.96
+ 2,331.89
+ 2,360.25
+ 2,390.30
+ 2,273.97
+ 2,237.47
+ 2,101.26
+ 2,260.35
+ 2,388.56
+ 2,592.82
+ 2,627.87
+ 2,663.37
+ 2,699.66
+ 2,853.99
+ 3,007.87
+ 3,161.25
+ 3,260.06
+ 3,356.41
+ 3,413.24
+ 3,117.45
+ 2,850.86
+ 2,585.01
+ 2,627.44
+ 2,672.51
+ 2,714.69
+ 2,646.75
+ 2,577.65
+ 2,510.10
+ 2,549.38
+ 2,525.87
+ 2,687.83
+ 2,638.26
+ 2,708.52
+ 2,583.49
+ 2,716.17
+ 2,656.66
+ 2,643.18
+ 2,440.18
+ 1,936.64
+ 1,602.39
+ 1,326.39

Inflation Money Meltdown
Per Household
Dollars
Percent
Meltdown
Meltdown
$7,100.92
7,273.22
7,466.12
7,658.38
7,828.04
7,956.46
8,084.11
8,210.87
8,356.44
8,503.00
8,647.57
8,783.03
8,920.49
9,067.98
9,371.96
9,663.18
9,956.19
10,144.56
10,329.57
10,516.82
10,763.53
11,008.13
11,253.22
11,482.30
11,707.90
11,935.61
12,130.82
12,322.68
12,516.55
12,752.54
12,989.58
13,225.14
13,459.02
13,692.18
13,924.46
14,168.34
14,374.68
14,759.02
14,895.62
15,135.20
15,279.06
15,592.92
15,822.10
16,047.90
16,203.00
16,258.15
16,325.00
16,417.11

27.36%
27.72
28.17
28.61
29.04
29.32
29.60
29.87
30.23
30.59
30.94
31.30
31.65
31.99
32.58
33.14
33.69
34.08
34.46
34.83
35.29
35.74
36.17
36.66
37.12
37.59
38.05
38.50
38.95
39.37
39.78
40.19
40.61
41.01
41.40
41.83
42.20
42.85
43.15
43.60
44.01
44.42
44.81
45.14
45.53
46.03
46.35
46.64

Household figures are derived by dividing current dollar GNP's billions of dollars
by the number of U.S. households sampled by Sindlinger & Company each month.




92

EXHIBIT - F-2
Month & Year

Interest Paid
On Gross Public
Debt (12-Mo. Sum)

Gross Public
Debt (In Billions
Of Dollars)

1972
January
February
March
April
May
June
July
August
September
October
November
December

$ 21.340
21.400
21.490
21.600
21.700
21.850
21.940
21.990
22.070
22.160
22.290
22.390

$ 422.9
424.0
427.3
425.3
427.9
427.3
432.4
435.4
433.9
439.9
444.2
449.3

5.046
5.047
5.029
5.078
5.071
5.113
5.074
5.050
5.086
5.037
5.018
4.983

1973
January
February
March
April
May
June
July
August
September
October
November
December

22.590
22.830
23.140
23.480
23.840
24.170
24.610
25.080
25.580
26.090
26.560
27.080

450.1
454.8
458.6
457.1
457.3
458.1
459.0
461.8
461.4
462.5
464.0
469.9

5.018
5.019
5.045
5.136
5.213
5.276
5.361
5.430
5.543
5.641
5.724
5.762

1974
January
February
March .
April
May
June
July
August
September
October
November
December

27.540
27.930
28.290
28.610
28.970
29.320
29.690
30.010
30.310
30.580
30.840
31.160

468.2
470.7
474.5
471.9
474.7
475.1
475.3
481.8
481.5
480.2
485.4
492.7

5.882
5.993
5.962
6.062
6.102
6.171
6.246
6.228
6.294
6.368
6.353
6.324

1975
January
February
March
April
May
June
July
August
September
October
November
December

31.440
31.670
31.910
32.190
32.440
32.660
32.880
33.130
33.380
33.710
34.100
34.430

494.1
499.7
509.7
516.7
528.2
533.2
538.2
547.7
553.6
562.0
566.8
576.6

6.363
6.337
6.260
6.229
6.141
6.125
6.109
6.048
6.029
5.998
6.016
5.971




Percent Share Of
Interest Paid On Gross
Public Debt

93

Month & Year

Interest Paid
On Gross Public
Debt (12-Mo. Sum)

Gross Public
Debt (In Billions
Of Dollars)

EXHIBIT - F-2

Percent Share Of
Interest Paid On Gross
Public Debt

1976
January
$
February . . . . . . . . . .
March . . . . . . . . . . . .
April.
.
May
June.............
July . . . . . . . . . .
August . . . . . . . . . . .
September.........
October.
. . . .
November . . . . . . . . .
December . . . . . . . . .

34.820
.35.290
.35.760
.36.220
,36.690
.37.060
.37.920
.37.870
.36.390
.36.210
.36.230
.39.520

$ 584.4
593.9
600.5
602.0
610.7
620.4
624.5
633.3
634.7
637.6
644.6
653.5

5.958
5.942
5.955
6.016
6.007
5.973
6.072
5.979
5.733
5.679
5.620
6.047

1977
January. . . . . . . . . . .
February . . . . . . . . . .
March . . . . . . . . . . .
April
May
June
July . , .
August . . . . . . . . . . .
September.........
October. . . . . . . . . . .
November . . . . . . . . .
December

.39.210
.38.890
.38.440
38.110
.37.880
.41.120
.40.280
.40.410
.41.900
.42.110
.42.370
42.740

653.9
663.3
669.2
671.0
672.1
674.4
673.9
685.2
698.8
697.4
707.9
718.9

5.996
5.863
5.744
5.679
5.636
6.097
5.977
5.897
5.995
6.038
5.984
5.944

1978
January
....43.140
February
.43.820
March
.44.470
April.
. . . . .45.080
May . . . . . . . . . . . . . .45.750
June . . . . . . . . . . . . . .46.540
July
. . . . .47.160
August . . . . . . .
.48.040
September
48.690
October. . . . . . . . . . .49.430
November
50.260
December
. . , . .51.600

721.5
729.7 .
737.9
736.5
741.5
749.0
750.4
764.4
771.5
776.3
783.0
789.2

5.978
6.004
6.026
6.120
6.169
6.213
6.283
6.284
6.310
6.366
6.418
6.538

1979
January...........
February
March . . . . . . . . . .
April.
.
May . . . . . . . . . . .
June
. .
July
August
. . . . . . . . .
September . . . . . . . . .
October.
November . . . . . . . . .
December . . . . . . . . .

.52.430
.53.300
.54.180
.55.070
.56.070
.57.540
.58.300
.59.100
.59.840
60.670
.68.850
.63.520

790.4
792.2
796.7
796.3
804.7
804.9
807.4
813.1
826.5
826.7
833.8
845.1

6.632
6.728
6.799
6.915
6.967
7.148
7.220
7.268
7.239
7.338
7.417
7.516

1980
January .
February

.64.530
65,700

847.7
854.5

7.612
7.688

63-894 0 - 8 0 - 7



94
EXHIBIT
PERSONAL INCOME BY MONTHS
(Billions Of Dollars)

Current
Dollars

Date
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb

'77

'78

'79

'80

Constant
Dollars

$1455.2
1472.0
1490.3
1499.3
1509.2
1518.6
1537.0
1547.7
1560.7
1579.4
1596.9
1612.8
1618.5
1631.3
1654.4
1676.5
1687.3
1704.2
1730.0
1741.3
1756.1
1781.0
1801.4
1826.8
1834.3
1851.4
1872.1
1880.7
1891.6
1905.1
1933.2
1946.5
1960.1
1981.2
2005.5
2028.3
2045.0
2051.9

1063.0
1068.2
1076.8
1078.6
1081.9
1083.2
1092.4
1095.3
1099.9
1109.9
1116.7
1122.3
1117.0
1118.1
1127.7
1135.1
1133.9
1137.6
1149.5
1151.7
1154.6
1163.3
1172.0
1181.6
1172.8
1172.5
1177.4
1174.0
1172.7
1172.4
1180.9
1179.7
1177.2
1181.4
1188.1
1191.0
1188.3
1177.9

Difference
392.2
403.8
413.5
420.7
427.3
435.4
444.6
452.4
460.8
469.5
480.2
490.5
501.5
513.2
526.7
541.4
553.4
566.6
580.5
589.6
601.5
617.7
629.4
645.2
661.5
678.9
694.7
706.7
718.9
732.7
752.3
766.8
782.9
799.8
817.4
837.3
856.7
874.0

Percent Difference
Over Cons
Dollars
36.9
37.8
38.4
39.0
39.5
40.2
40.7
41.3
41.0
42.3
43.0
43.7
44.9
45.9
46.7
47.7
48.8
49.8
50.5
51.2
52.1
53.1
53.7
54.6
56.4
57.9
59.0
60.2
61.3
62.5
63.7
65.0
66.5
67.7
68.8
70.3
72.1
74.2

An important factor in the health of the United States economy is amount of real money (or dollars)
the people have available for spending, saving, investment and other purposes.
The people's use of money is the strongest force in the economy, but they must have an adequate
amount of money to use.
This table compares the trends in personal income on current dollar and constant dollar bases from
January 1977 through February 1980 and demonstrates the increasing amounts of current dollar personal
income that are being swallowed up by inflation.
In January 1977, the difference between the deflated amount of "real" personal income and the
magnitude of "real" personal income equaled about 37 percent of the "real" personal income magnitude.
By February, the difference equaled more than 74 percent, or nearly twice as much as three years earlier.
Thus, the amount being lost to inflation is fast closing in on the actual amount of "real" money available
to people.




-

95
EXHIBIT
NEW MONEY ADD OVER PRIOR YEAR
(In Billions Of Dollars)

Date
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb

To
Total
Personal
Income
'77 , . .$128.9
. . 132.2
. 145.7
. . 142.9
, . 144.4
. . 148.7
. . 153.5
. . 153.7
. 156.6
.
163.6
. 163.1
. 166.5
'78 . .
163.3
. . 159.3
. 164.1
. 177.2
178.1
185.6
,
193.0
. . 193.6
. 195.4
. 201.6
. . 204.5
. . 214.0
'79 . .
215.8
. 220.1
. . 217.7
. . 204.2
204.3
. 200.9
. . 203.2
. 205.2
. 204.0
. 200.2
204.1
. . 201.5
'80 . . 210.7
. . 200.5

-

To
How Much New Money
Went Down
Constant
Personal
Inflation Sewer
Income = Dollars
Percent
46.0
40.7
48.0
44.8
47.2
48.5
51.4
51.1
53.6
59.6
57.0
58.1
54.0
49.9
50.9
56.5
52.0
54.4
57.1
56.4
54.7
53.4
55.3
59.3
55.8
54.4
49.7
38.9
38.8
34.8
31.4
28.0
22.6
18.1
9.1
9.4
15.5
5.4

82.9
91.5
97.7
98.1
97.2
100.2
102.1
102.6
103.0
104.0
106.1
108.4
109.3
109.4
113.2
120.7
126.1
131.2
135.9
137.2
140.7
148.2
149.2
154.7
160.0
165.7
168.0
165.3
165.5
166.1
171.8
177.2
181.4
182.1
195.0
192.1
195.2
195.1

64.3
69.2
67,1
68.6
67.3
67.4
66.5
66.8
65.8
63.6
65.1
65.1
66.9
68.7
69.0
68.1
70.8
70.7
70.4
70.9
72.0
73.5
73.0
72.3
74.1
75.3
77.2
81.0
81.0
82.7
84.5
86.4
88.9
91.0
95.5
95.3
92.6
97.3

Exhibit H
New money adds for any money measure are the amounts by which the measure expanded in
magnitude on a year-over-year basis; i.e., the money added to the measure over a full 12 months. New money
additions are important because they represent the amounts of additional funds generated by the economy
itself so its people can finance future and sustainable expansion.
This table compares the year-over-year new money adds to current dollar and constant dollar personal
income for every month from January 1977 to February 1980 and demonstrates how inflation is negating
the expansion of "real" money personal income. Although current dollar personal income has managed a
new money add of more than $200 billion for every month since October 1978, the adds to constant dollar
personal income have been only a fraction of the current dollar additions. In February, the new money add
to constant dollar personal income was only $5.4 billion and 97.3 percent of the current dollar add was wiped
out by inflation.




-

96
EXHIBIT In Billions
Of
Dollars

M-1B Money Within The
United States

M-1B
Dec. '59
" '60
" '61
" '62
" '63
" '64
" "65
" '66
" '67
" '68
"
69
" '70
" '71
" '72
" '73
" '74
" '75
" '76
" '77
Jan. '78
Feb. '78
Mar. '78
Apr. '78
May '78
Jun. '78
Jul. '78
Aug. '78
Sep. '78
Oct. '78
Now. '78
Dec. '78
Jan. '79
Feb. '79
Mar. '79
Apr. '79
May '79
Jun. '79
Jul. '79
Aug. '79
Sep. '79
Oct. '79
Nov. '79
Dec. '79
Jan. '80
Feb. '80

%
Growth

New
Money

$144.3
$145.3
$150.1
$152.9
$158.5
$165.9
$173.7
$178.0
$189.6
$204.1
$210.5
$221.3
$235.8
$257.6
$271.8
$283.4
$296.9
$316.1
$341.3
$340.6
$329.1
$331.9
$344.5
$339.2
$346.1
$350.2
$348.1
$353.4
$356.1
$359.7
$369.3
$364.7
$353.0
$357.5
$373.0
$363.9
$373.4
$379.9
$378.6
$382.7
$385.5
$387.9
$397.3
$393.9
$384.5

0.7
3.3
1.9
3.7
4.7
4.7
2.5
6.5
7.7
3.1
5.1
6.6
9.3
5.5
4.3
4.8
6.5
8.0
8.1
7.4
7.2
7.7
8.4
8.7
8.5
8.5
8.8
8.2
8.1
8.2
7.1
7.3
7.7
8.3
7.3
7.9
8.5
8.8
8.3
8.3
7.8
7.6
8.0
8.9

$ 1.00
$ 4.80
$ 2.80
$ 5.60
$ 7.40
$ 7.80
$ 4.30
$11.60
$14.50
$ 6.40
$10.80
$14.50
$21.80
$14.20
$11.60
$13.50
$19.20
$25.20
$25.50
$22.80
$22.30
$24.60
$26.40
$27.60
$27.30
$27.20
$28.70
$27.00
$27.00
$28.00
$24.10
$23.90
$25.60
$28.50
$24.70
$27.30
$29.70
$30.50
$29.30
$29.40
$28.20
$28.00
$29.20
$31.50

=
=
=
=
=
«
=
«
=
«
=
=

=
«
=
«
=
=
=
=
=
=
=
=
=
=
•=
=
=
=
=
=
«
«

Eurodollars Outside The United States

Gross

20.0
24.0
29.0
36.0
50.0
85.0
110.0
145.0
200.0
305.0
375.0
460.0
565.0
695.0
700.0
705.0
710.0
718.3
726.7
735.0
755.0
775.0
795.0
808.3
821.7
835.0
855.0
875.0
895.0
918.3
941.7
965.0
1000.0
1035.0
1070.0
1086.7
1103.0
1120.0

%
Growth

20.0%
20.8%
24.1%
38.9%
70.0%
29.4%
31.8%
37.9%
52.5%
23.0%
22.7%
22.8%
23.0%
22.6%
22.3%
22.0%
22.3%
22.5%
22.8%
25.0%
27.1%
29.2%
26.0%
22.9%
20.1%
22.1%
24.1%
26.1%
27.8%
29.6%
31.3%
32.4%
33.5%
34.5%
34.4%
34.2%
34.1%

New
Money

-

=

=
«
=

=

Net

$ 4.0
$ 5.0
$ 7.0
$ 14.0
$ 35.0
$ 25.0
$ 35.0
$ 55.0
$105.0
$ 70.0
$ 85.0
$105.0
$130.0
$129.4
$128.9
$128.3
$131.1
$133.9
$136.6
$151.1
$165.5
$180.0
$166.6
$153.4
$140.0
$155.0
$170.0
$185.0
$200.0
$215.0
$230.0
$245.0
$260.0
$275.0
$278.4
$281.3
$285.0

14.0
17.0
21.0
25.0
34.0
50.0
65.0
85.0
110.0
160.0
215.0
250.0
310.0
380.0
385.0
390.0
395.0
401.7
408.3
415.0
426.7
438.3
450.0
458.3
466.7
475.0
483.3
491.7
500.0
510.0
520.0
530.0
546.7
563.3
580.0
590.0
600.0
610.0

21.4%
23.5%
19.0%
36.0%
47.1%
30.0%
30.8%
29.4%
45.5%
34.4%
16.3%
24.0%
22.5%
21.9%
21.4%
20.9%
20.9%
20.8%
20.8%
22.2%
23.6%
25.0%
25.0%
25.0%
25.0%
25.5%
26.1%
26.6%
27.0%
27.4%
27.7%
28.1%
28.5%
28.8%
28.7%
28.5%
28.4%

New
Money

%
Growth

=
=
=
•=
=
«
=
=
=
=
=
=
=
=
=
=
"
=
=
=
=
=
=
=
»
=
=
=
=
=
=
=
=
=
=

$ 3.0
$ 4.0
$ 4.0
$ 9.0
$ 16.0
$ 15.0
$ 20.0
$ 25.0
$ 50.0
$ 55.0
$ 35.0
$ 60.0
$ 70.0
$ 69.4
$ 68.9
$ 68.3
$ 69.5
$ 70.5
$ 71.6
$ 77.8
$ 83.8
$ 90.0
$ 91.6
$ 93.4
$ 95.0
$ 98.3
$101.7
$105.0
$108.3
$111.7
$115.0
$120.0
$125.0
$130.0
$131.7
$133.3
$135.0

Exhibit J
A contributor to the present rampant inflation rate has been a capital shortfall in the United States
caused by a diversion of funds to overseas markets where the money is beyond the control of U.S. regulators.
This table tracks the trends of the M1-B money supply aggregate, gross Eurodollars and net Eurodollars
since 1959—showing the magnitude, year-over-year percentage growth and year-over-year new money add
for each. Eurodollars have been growing at a far faster rate throughout this span and have far surpassed M1-B,
the chief vehicle for financing consumer spending, in magnitude.
In December 1979, Gross Eurodollars were nearly three times the size of M1-B, were growing nearly
five times as fast and had a new money add ten times as great. Net Eurodollars were about 50 percent greater
in magnitude, grew about four times as fast and had a new money add nearly five times as great.




97

^INDUNGEK

Sindlinger's News Release

QoM&m. Jnc
Consumer Rtsrarvh
fr
Ahawcoromu Date
Formating

Of R e l e a s e — April 2, 1980

Media in Pennsylvania

W A S H I N G T O N , April 2 n d — D e s p i t e the Carter Administration's stand against reducing Federal taxes.
Congress will be forced to consider a tax rebate of as much as $ 4 0 billion in early 1981 to add liquidity to
American commercial banking system as a recession is turning to a depression.

The necessity of refunding taxes by this record amount was suggested today to an important Senate
Fiscal Subcommittee by Albert E. Sindlinger, chairman of Sindlinger & Company, and one of the nation's
foremost consumer economists.

Mr. Sindlinger said the huge proportions of the required tax cut were calculated through his forecasts
of the banking system's need for liquid funds during the severe economic downturn and money crunch that
should be apparent by late this year.

"Politically, a tax rebate always is portrayed as a way of pumping money into the economic system to
stimulate a flagging economy," he told Sen. Harry F. Byrd Jr.'s Finance Subcommittee on Taxation and
Debt Management.

"Less publicized, but equally important, is that a tax cut offers the government a vehicle for getting
money to banks that are feeling a liquidity pinch during a declining economy.

"The process is very simple. Over 8 0 percent of tax refunds are automatically deposited in the nation's
banks. So they all receive a hefty input of liquidity in a matter of weeks.

Mr. Sindlinger explained that in 1975, the banks were shy $9.5 billion in liquidity and the tax cut that
year was $ 1 3 billion so the required $9.5 billion, or 80 percent, could find its way into the banking system—
and this turned the economy around.

An ordinary reduction in tax rates or the granting of other tax benefits is not enough, M r . Sindlinger
said.

" T o get the required liquidity to the banks," he said, "there must be a physical transfer of money
through checks from the Treasury to the people so they can in turn deposit the checks in their banks."

Sindlinger & Company is a nationwide political/economic opinion research firm that takes continuous
daily telephone surveys of the American people and uses the data, particularly on how people are using their
money, to forecast the economic future.




98
- 2 -

Sindlinger's News Release
Date Of Release —

April 2, 1980

The projection of banking system problems results from Mr. Sindlinger's forecast on the outlook for
inflation, consumer spending, the pace of business and other relevant trends as the nation goes into recession
later this year, which could turn to a depression.

"The liquidity shortfall will be staggering if trends continue along the lines I forecast he told the Senate
Committee.

"Forty billion dollars is an amount that not even Congress can command instantly.

But it is a

prospect that we all have to face and do something about quickly."

Mr. Sindlinger said that in view of coming problems. Congress must do more than just balance the
budget and its main job in the months ahead should be to create a healthy surplus.

"Although it represents a laudable departure from past fiscal excesses, a balanced budget is only a
halting step," Mr. Sindlinger said. " T o carry out the mass distribution of funds that I speak of. Congress
should be creating a surplus to keep the American economy from being totally wrecked."




600

,..„.„«, id 063
Telephone:

215-565-2800

99
ADDENDUM

(To Testimony Before Byrd Committee)

The testimony was presented to Senator Byrd's subcommittee on April 2, 1980. All specific forecasts and
general descriptions of future economic trends were based on conditions and situations prevailing at the
time of the testimony.
Since that time, there has been a dramatic change in events, resulting in significant revisions of forecasts.
However, the forecasts do not change the total scenario of money meltdown and severe credit crunch that
will require emergency action by Congress including massive budget cutting to create a surplus.
The key developments producing the changes in forecasts are:
. . . The proposal to impose credit controls that will be enforced by the Federal Reserve.
. . . The failure of the Iran rescue mission.
. . . The continual contraction of the money supply and its failure to "explode" in April and M a y .
. . . A collapse of retail sales.
, , , An increase in the number of consumers reporting declines in current income to 5 1 percent, or an absolute majority.
Ail of the foregoing factors are interrelated.
Retail sales are off sharply in April as people, already financially hard pressed, got scared over forthcoming
credit controls arid cut back their buying. The rescue mission mishap further depressed consumer buying
plans as fears erupted among the people over the threat of war.
The drop in retail sales in turn accounted for a major portion of the decline in the money supply and the
failure for the V11-B aggregate to reach levels forecast by our econometric model.
Briefly, this adds up to the start of the economic collapse with the fall in retail sales leading the way.
As a result of the faster than anticipated economic collapse, the following revised forecasts have been issued:
I N T E R E S T R A T E S — S h o r t - t e r m rates, including those on Treasury bills, should decline through June.
B O N D M A R K E T — A brief but shaky rally in prices because of a belief the Fed is controlling the money
supply.
STOCK M A R K E T — A rally lasting no more than four weeks, perhaps shorter, also resulting from the belief
the Fed has money supply under control.
G O L D — P r i c e s to accelerate for the balance of the year after bottom is touched shortly.




100
ADDENDUM - Page 2

U.S. DOLLAR—A decline in value versus key foreign currencies.
The longer range future is dependent on how far and how fast the dollar declines and the Fed's reaction.
Fed normally must raise the discount rate to protect the dollar. But the Fed is in a no-win dilemma on this
matter. The options, both unpleasant, are these:
RAISING THE DISCOUNT RATE—Lifting the discount rate would put pressure on all short-term rates,
reversing the decline at a time when the economy is going downhill. This would cut short stock and bond
market rallies, aggravate economic decay, intensify credit crunch and increase bankruptcies.
LEAVING THE DISCOUNT RATE ALONE—Not changing the discount rate would allow further attacks
on the U.S. dollar and also aggravate the economic decay.

[Whereupon, at 12 noon the subcommittee recessed, to reconvene
at the call of the Chair.]




EXTENSION OF THE TEMPORARY LIMIT ON
THE PUBLIC DEBT
WEDNESDAY, APRIL 16, 1980
U . S . SENATE,
SUBCOMMITTEE ON TAXATION AND
DEBT MANAGEMENT GENERALLY,
COMMITTEE ON FINANCE,

Washington, D.C.
The subcommittee met, pursuant to notice, at 9:30 a.m., in room
2221, Dirksen Senate Office Building, Hon. Harry F. Byrd, Jr.
(chairman of the subcommittee) presiding.
Present: Senators Byrd and Dole.
Senator BYRD. The hour of 9 : 3 0 having arrived, the committee
will come to order.
For many years, the Federal Government has spent beyond its
means. As recent testimony before this subcommittee has indicated, Federal spending for this fiscal year—fiscal year 1980—will
increase by a rate of 15.2 percent. The amount spent will increase
by $5.3 billion over the amount proposed in January's budget,
January 28.
The gross national debt has doubled since 1972. Deficit spending,
by adding to the debt, increases Federal interest costs, which in
fiscal year 1981 will be $81 billion.
This is the single most expensive line item in the fiscal year 1981
Federal funds budget.
The consequences of past deficit spending are clear. Inflation is
now at an 18-percent annual rate. Drastic measures are necessary
if we are to get inflation under control.
Financial markets are now in disarray. Long-term bond prices
have dropped dramatically because of expectations of high inflation.
Investors, many of whom have placed their savings in these
securities and may be relying upon income securities for retirement, are suddenly confronted with dwindling savings. Future expectations of inflation have diminished the incentive to save.
The great increase in the rate of spending must be reduced, yet
President Carter proposes to increase spending by $64 billion.
The tragedy of our current situation is that the American
worker, the American consumer, and the American investor are
paying for the mistakes that have been made in Washington, D.C.
The American worker is paying because his income is constantly
being eroded by inflation. The American consumer is paying because the availability of consumer products and goods is greatly
reduced through stringent credit controls, and the American inves-




(101)

102
tor is paying through a dramatic decline in the value of his investments.
The American public is paying through a lower standard of
living and few optimistic prospects for the future. Much of this
could have been avoided if Washington has exercised fiscal discipline. We have the potential for turning our economy around.
However, this will not occur by suddenly deciding that we need a
balanced budget and a limit on Federal spending only to reverse
this decision at the slightest possibility that the balanced budget
will cause political pain.
What is needed is a consistent prolonged commitment to a balanced budget and a spending ceiling.
Deficit reductions have come, not through expenditure reductions, but through revenue increases. In other words, we are balancing the budget—if, indeed, we balance the budget, and I am not
convinced we will—at the expense of the American taxpayer.
This is not a real commitment to a sound future economic program.
If our economy is to prosper and the real income and well-being
of all Americans is to increase, we must break the deadly cycle of
Government spending, high inflation, high interest rates, economic
slowdown followed by an economic recession, and more Government spending.
Indeed, we need a permanent commitment to fiscal discipline in
Washington.
The committee is delighted to have this morning the distinguished Secretary of the Treasury, Mr. Miller.
Mr. Secretary, please proceed as you wish.
STATEMENT OF HON. G. WILLIAM MILLER, SECRETARY OF
THE TREASURY

Secretary MILLER. Thank you very much, Mr. Chairman.
With your permission, I would like to submit for the record the
prepared testimony and attached tables that have been submitted
for the committee.
Senator BYRD. That would be fine.
Secretary MILLER. Then I would just like to summarize it, so we
could turn to responding to your questions.
Senator BYRD. Very good.
Secretary MILLER. I am appearing here this morning to make
three requests of this committee. One, to address the issue of
increasing the debt limit, looking to the needs beyond the period
when the present debt limit expires and into 1981.
Second, to ask for an increase in the authority to issue long-term
Treasury securities.
And third, to seek approval of removal of the statutory interest
rate ceiling on savings bonds.
Mr. Chairman, the temporary ceiling on the Federal debt now is
at $879 billion which expires on May 31 of this year and at that
time, unless there is action, the ceiling would revert to the $400
billion permanent ceiling.
The ceiling needs would contemplate an increase to $884 billion
for the balance of this fiscal year running through September 30.
That is an increase of $5 billion.




103
It would appear by the end of the 1981 fiscal year the ceiling
should be at $900 billion, but because of the seasonal aspects of
debt management, there would be a peaking requirement in May,
1981 at the level of $910 billion, so our request would be for fiscal
year 1981 that the ceiling be at $910 billion.
The increase of $16 billion in fiscal year 1981 debt results from
net off-budget outlays of some $18.7 billion, plus the trust funds
surplus which is invested in Treasury securities of $14 billion
minus the projected budget surplus of $16 billion which would net
out to approximately $16 billion increase in debt.
This increase in the debt ceiling should be accomplished as early
as possible. It would be very appropriate to see the increase legislated by the middle of May. That is because we have Treasury
offerings that are planned. We need to inform the markets and
keep a steady flow of Treasury financing so that we do not incur
the uncertainties and the increased costs that come from interruptions in our debt financing program. The debt ceiling expires on
Saturday, May 31. It would be very inconvenient to deal with the
issues of debt ceiling beyond that time, and we would appreciate
very much the possibility of an earlier resolution.
The second thing that we are asking, Mr. Chairman, in addition
to this increase in debt limit is the increase in the authority to
issue long-term, that is over 10-years, Government securities, without regard to the 4XA percent ceiling.
The authority that we now have is for $50 billion of this type of
long-term bonds. The policy of the administration has been to try
to restore a better balance between short and longer term security
maturities and somewhat extend the average maturity date.
In mid-1965, as I recall, the average maturity for Government
securities was 5 years and 9 months. By 1976, the average maturity
had dropped to 2 years and 5 months, which means we were
running on practically all short-term financing.
Through the issuance of longer term bonds, we have now extended the average maturity out to 3 years and 10 months and we
would like to continue this program. Treasury has already used up
$45 billion of the $50 billion authority and we would recommend
that the ceiling be increased to allow the continuation of our
program, increased to $54 billion through this fiscal year and to
$70 billion through September 30, 1981.
As to the savings bonds ceiling, the third issue to be presented
today, the present statutory interest rate ceiling is 7 percent. As of
June 1, 1979, the rate on savings bonds was increased to 6.5 percent. As of January 1. 1980, the rate was increased to the full 7
percent for bonds that are held to maturity. These rates, while
representing increases from past practice, are substantially out of
line with current market interest rates. As a result, the savings
bonds program has been subject to declining sales and increasing
redemptions.
In the quarter that just ended—the first quarter of this year—
savings bonds sales were running at $1.4 billion for the quarter
itself, which is 26 percent lower than in the same period in 1979.
The savings bonds redemptions were $6.4 billion during this period,
which was more than three times the redemptions in the comparable 1978 period. The resulting cash loss to the Treasury in this one




104
quarter was $5 billion, which we had to finance in market borrowings.
Senator BYRD. Excuse me, is that loss on the long-term bonds?
Secretary MILLER. This is on the savings bonds.
Senator BYRD. Only on savings bonds?
Secretary MILLER. Savings bonds. Just to repeat it, the sales
dropped by 26 percent in the first quarter of this year over the
same quarter of the prior year to a level of $1.4 billion, but redemptions were $6.4 billion so there was a net outflow of cash of $5
billion which we had to finance.
Senator BYRD. This is net outflow in that one quarter?
Secretary MILLER. That one quarter. If you did that for the whole
year, that means $20 billion that would have to be replaced with
other financing for savings bonds.
Traditionally, savings bonds have been a very stable and important part of our debt management. We had record sales of savings
bonds in 1978, but since that time we have had the drop off. While
savings bonds outstanding were running at over $80 billion, they
are now back to, I think, below $75 billion and our whole program
is therefore being impaired.
What we would recommend, Mr. Chairman, is that Congress
remove the ceiling on savings bonds and give us the authority to
set the rate from time to time more in line with market conditions,
and retain this very important program both for individual savers
and for the Government financing. We would set the rate from
time to time with due regard for maintaining of cash flows, credit
flows, to the depository institutions, but also with due regard for
maintaining a sound savings bonds program. If that were done by
Congress, we would still retain the requirement that any rate
change be subject to approval by the President so that the Treasury would have a check by the President on our future actions.
Mr. Chairman, those are the items we are presenting today. I
would be very pleased to answer your questions and respond with
to any other information that you would desire.
Senator BYRD. Thank you, Mr. Secretary.
As I understand it in regard to long-term securities, you seek an
increase from the present ceiling of $50 billion to $54 billion in so
far as 1980 is concerned?
Secretary MILLER. That is correct, yes, sir.
Senator BYRD. IS that fiscal year 1980 or calendar year 1980?
Secretary MILLER. Fiscal 1 9 8 0 through September 30, 1 9 8 0 .
Senator BYRD. SO that is a $ 4 billion increase?
Secretary MILLER. Yes, sir.
Senator BYRD. I see no problem with that.
With regard to long-term financing, what is the prospect for
long-term bonds?
I have been told by your former business associates and colleagues, you might say, in New York, Philadelphia, Chicago, San
Francisco, and Los Angeles, that there is no long-term bond market
at the present time and not likely to be in the immediate future.
Secretary MILLER. Mr. Chairman, there were several events earlier this year that did create some reduction in long-term financing, some concern, as you point out, about the operation and capac-




105
ity of the long-term bond market to continue to be a method of
financing both government and industrial commercial needs.
Those events included the increase in inflation rates that reflected the rapid increase of oil prices toward the end of the year and
early this year, reflected the higher interest rates that showed up
in home financing, therefore, reflected in higher numbers for the
Consumer Price Index, higher indicated rates of inflation. That was
coincident with considerable concern that some sort of controls
might be imposed on the economy, which led undoubtedly to some
anticipatory price increases that were coincident with an inflation
fever among consumers, which led to increased borrowing and
spending that was coincident with the troubles involving the
Middle East, concern with Afghanistan and Iran, which led to some
nervousness about future prospects and all of those events caused
considerable nervousness in financial markets.
As a result, there was a period of some reduction in the capacity
of the long-term bond markets to function. This happened somewhat similarly, for different reasons, in 1974 and corrected itself. I
believe it will correct itself now, and I think we are already seeing
signs in recent demands for some long-term issues to indicate that
this market is coming back into focus and that it will be able to
function as in the past and continue to be a vital part of our total
financing for national needs.
Senator BYRD. Well, Mr. Secretary, you are a Government official of much ability and a businessman of great ability. What is
your professional judgment now in regard to long-term bonds? Are
you telling the committee that you feel that the problem in regard
to long-term bonds is over and that the bond market will be reestablished to its formal basis in the near future?
Secretary MILLER. I believe we are in the process of doing that,
Mr. Chairman. I think that it would be premature to say that the
bond market is now operating at the same scope and the same
degree of vitality that it did in, let's say, the prior years. But I
believe the healing process about those concerns is well underway.
A few recent issues of long-term securities were well-received and
sold well in the market and would indicate that we are seeing a
correction of the concerns earlier this year.
My own judgment as a former business executive in my present
capacity is that we will see a restoration of the bond markets. If it
has not happened, it will be happening soon, as we begin to demonstrate through Federal Government actions the fiscal discipline,
the continued monetary discipline and the correction of some of
these items.
I might point out in this regard some rather important information that would support the restored vitality of the long-term bond
market, Mr. Chairman, let me cite you a couple of numbers that I
think would be very important. In fiscal year 1980, our estimate is
that the total funds that will be raised in U.S. credit markets
would run to about $420 billion. That is not Government. That is
all funds raised.
The Federal Government would be expecting to raise about $39
billion in those credit markets.
Senator BYRD. Excuse me. That is only new funds?
Secretary MILLER. Yes. That is the increase.




106
Senator BYRD. Let us get the additional rollover funds. Let's take
the new funds plus the rollover now. What will that be?
Secretary MILLER. The comparable figure of rollovers would be
$200 billion that we would rollover, that is, just retain.
Senator BYRD. Let me see if I understand. This is for 1980, fiscal
year 1980?
Secretary MILLER. Fiscal year 1 9 8 0 .
Senator BYRD. Total Federal borrowing would be about $ 2 4 0
billion?
Secretary MILLER. Mr. Chairman, I am sorry?
Senator BYRD. Including the rollovers, Treasury will go into the
money markets for roughly $240 billion?
Secretary MILLER. Yes, that is correct.
To make the figures comparable, the total credit market funds,
the net new funds raised, would be about $420 billion and the
comparable figure of net new funds raised by the Federal Government would be about $40 billion, or 9.5 percent. That is the figure I
wanted to point out.
This year, the Federal Government will be taking about 9.5
percent of net new funds raised. In fiscal year 1981, if Congress
acts as I believe and hope that it will to enact a balanced budget, if
our budgetary plan is followed, then in fiscal year 1981, our projection at the moment is that the total net funds raised in the credit
markets would be $360 billion.
Senator BYRD. Including the rollover?
Secretary MILLER. NO, this is the net new funds. That total would
be $360 billion.
The Federal Government would raise in that market less than $2
billion, or less than one-half of 1 percent. So we would go from 9.5
percent of net new funds going to Federal financing to less than
one-half of 1 percent.
That is the important change that obviously will give restored
vitality to all the financial markets and I believe that that trend
and direction will be one of the factors that will assure an effective,
vital, well-working long-term market also.
Senator BYRD. I think that where we have a divergence of viewpoint is that you have predicated an improvement in the bond
market and other matters based upon public perception that fiscal
discipline is being exercised in Washington. Frankly, I do not see
that fiscal discipline.
The proposed budget represents a huge increase in Government
spending.
I think that the American people generally, and certainly the
sophisticated ones, see that any improvement in the budgetary
picture, if indeed there is an improvement, is coming about because
of the huge increase in the Federal tax take, not in getting Federal
spending under control.
It seems to me that the key to the problem which our country
faces today, is to get Goverment spending under control. And I do
not see that being done.
Others may feel that it is, but the Senator does not.
You are seeking an increase in the debt ceiling for fiscal year
1980 from the present $879 billion to what figure?
Secretary MILLER. TO $884 billion.




107
Senator BYRD. You are seeking a $5 billion increase in the debt
ceiling for fiscal year 1980?
Secretary MILLER. Yes, sir.
Senator BYRD. What do you put the current rate of unemployment?
Secretary MILLER. The current rate, the last figures that we
have, are 6.2 percent.
Senator BYRD. 6 . 2 percent rate of unemployment?
Secretary MILLER. Yes, sir.
Senator BYRD. In looking ahead to the new fiscal year which
begins October 1, how do you see the unemployment rate?
Secretary MILLER. The current administration projection of the
economic outlook is that unemployment will rise to about 1XA
percent in the fourth quarter of this year and next year in 1981 it
will go up to about IV2 percent.
Senator BYRD. That is about a 1-percent increase in unemployment?
Secretary MILLER. In this calendar year that we are in now and a
further increase of another quarter percent into 1981.
Senator BYRD. SO in all?
Secretary MILLER. 1 XA percent.
Senator BYRD. 1 Vi-percent increase?
My colleague, Senator Robert Byrd in a speech to the Senate on
April 3 on page S3509 stated that whenever there is a 1-percent
increase in unemployment there is something like a $20 billion
impact on the Federal budget.
Senator Robert Byrd is very careful with his figures. Do you find
any fault with that $20 billion figure?
Secretary MILLER. Mr. Chairman, there are different calculations, but the order of magnitude is approximately correct. So I
think his figures are quite reasonable.
This, of course, brings me to a point because the budget that the
administration has presented, the revised budget contemplates the
budgetary impact of 1 ^-percent increase in unemployment.
Senator BYRD. What figure does that?
Secretary MILLER. I said the revised budget for fiscal year 1 9 8 1
submitted by the administration assumes that unemployment will
be at this higher rate, and therefore we assume increased outlays
from higher unemployment and also reduced receipts from weaker
economic activity.
You were asking about whether the fiscal discipline is reflected
in reduced spending or not. Well, in terms of the overall on a
comparable basis, if we had 6.2 percent unemployment in fiscal
year 1981 then we would have a very large surplus reflecting
reduced spending and higher receipts which would total some $25
billion.
So I think one has to take that into account. Our view is, of
course, that there is substantial discipline in reducing outlays in
programs across the board and across the budget in that the increase in spending is only from two reasons: One from inflationary
impacts and two from the economic assumptions that assume
higher unemployment and higher payments that are mandated in
connection with lower economic activity and higher unemployment.




108
On the other side of the ledger, obviously, higher unemployment
results in lower revenues under current tax laws than would otherwise develop, without even looking at any changes in those laws. In
total, you have this impact of some $25 billion that is absorbed in
the budget proposals. Despite that, and also partly because of revenue changes, there is a projected surplus of some $16 billion.
So I think the rate of change of fiscal policy, going from a deficit
of $36 billion to a surplus of $16 billion more than a $50 billion
swing, represents considerable discipline.
If you add to that reducing the Federal borrowing in credit
markets from some 9.5 percent of total new credit raised in the
markets to less than one-half percent in 1 year, I would think that
the change in fiscal posture and change in Federal presence in the
financial markets is rather dramatic.
Senator BYRD. Let me just cite two figures, as to whether it is
fiscal discipline or not. On November 16, precisely 5 months ago,
the Congress in its budget resolution put Federal spending for
fiscal year 1980 at $548 billion.
The President's third revised budget in the last 2 months put
spending at $612 billion.
The way I calculate it, that is an increase of $64 billion in
spending from fiscal year 1980 to fiscal year 1981.
I think it is misleading for people to say—and you have not said
it, as far as I know—but it is misleading to tell the public that the
budget is being reduced when in fact it is being very substantially
increased.
Now this is what has happened with regard to reductions—on
January 28 the President advocated spending $615 billion. On
March 14, he revised that to $613 billion. More recently he has
revised it to $612 billion.
So there has been a reduction of $4 billion from the President's
figure of January 28 but that January 28 figure called for an
increase in spending over the budget resolution approved by the
Congress last November of $68 billion.
So the President, instead of advocating an increase in spending
of $68 billion, has only advocated $64 billion in his third budget
proposal. It is a tremendous increase in spending.
Now, let me ask you this. The 1981 budget puts interest costs on
the national debt at $81 billion.
Secretary MILLER. Yes, sir.
Senator BYRD. My question is, To obtain that figure, what interest rate assumptions were made?
Secretary MILLER. The assumptions for interest rates are—let me
just tick them off.
The fiscal year 1981 rates that we are assuming for a 26-week
bill would be 10 percent. For Treasury securities of over 6 years
maturity, 11 percent.
The actual rates on April 10 on the 26-week bills would be 14.1
percent. The assumption in 1981 is that they will be at 10 percent.
The maturities over 6 years are currently at 12 percent, a little
less now, incidentally, and are assumed to be at 11 percent in fiscal
year 1981.
Senator BYRD. Let me be sure that I understand.
Secretary MILLER. I could give you the whole table.




109
Senator BYRD. Thank you. I do not need the whole table.
The $81 billion interest charge figure
Secretary Miller. Yes?
Senator BYRD. The 1 9 8 1 budget was based on an interest rate
assumption of between 10 and 11 percent?
Secretary MILLER. Depending on maturity, 9.9 percent to 11 percent.
Senator BYRD. Between 10 and 11 percent.
Secretary MILLER. Yes, that is correct.
Present rates are 14 to 12.
Senator BYRD. This $ 8 1 billion assumption was made in December, I assume?
Secretary MILLER. NO. These are the revised estimates that were
made in March so that these are the estimates from the current
revised budget which have increased the rates substantially. The
result of the revised budget, Mr. Chairman, is to assume that
interest rate increases would add $3.8 billion to the interest
charges in fiscal year 1981, offset by borrowing less money, thereby
reducing interest charges by $2.2 billion.
You see, because the revised budget assumes higher interest
rates but assumes less borrowing because of moving from a proposed deficit to a proposed surplus, the interest rate increases
would add nearly $4 billion. The reduced borrowing would reduce
interest charges by $2.2 billion. The overall effect is a $1.6 billion
increase in interest payments from the budget submitted in January.
Senator BYRD. So that your January 2 8 figure was 7 9 point
something?
Secretary MILLER. 79.4, yes, sir.
Senator BYRD. Your new figure is $81 billion?
Secretary MILLER. $81 billion.
Senator BYRD. Thank you.
Do you expect corporate profits, and thus, corporate income
taxes, to increase or decrease during 1980 compared to 1979?
Secretary MILLER. Let me see
Senator BYRD. My general question is, do you think that the
general business conditions will be better in 1980 than 1979?
Secretary MILLER. In 1980, our expectation is that economic conditions will be less positive—Mr. Chairman, expectations are that
we will have a moderate recession in fiscal year—in this year,
1980, which includes fiscal year 1980. As you know, our projection
at the moment is that we will see from fourth calendar quarter
1979 to fourth quarter 1980 a decline in real GNP of about one-half
of 1 percent.
We expect that recession to be moderate in duration and moderate in depth. Obviously, even though we are now projecting a onehalf of 1 percent decline, that is a number that will only approximate the final results, because, as we know, economic conditions
move so rapidly.
We expect recovery of the economy in 1981 so that there would
be, from fourth quarter 1980 through fourth quarter 1981 an increase of 2.2 percent in real GNP.
Now, on corporate profits. Our assumptions are that, under our
current forecast, that even with that effect, because of the larger

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pie, even though there would be less increase in overall GNP, that
corporate profits would go up moderately, go up from $237 billion
to $242 billion, but that the aftereffect of the recession will be that
corporate profits in 1981 will not fall at all.
So we are assuming some carryover of increase in profits, very
moderate, in fiscal year 1980 and actually a levelling off, or perhaps a slight decline, in 1981.
The income taxes that we receive from corporations as a result of
that would mean that we would see some increase in corporate
taxes in fiscal year 1980 but no increase in fiscal year 1981 in
aggregate dollars.
Senator BYRD. With the housing construction industry in, I guess
you could say, disarray; with the automobile industry in very dire
straits, does that not indicate that business as a whole will be very
sharply off during this calendar year of 1980?
Secretary MILLER. Overall, we expect a decline. As I indicated,
Mr. Chairman, there will be different effects in different sectors.
There is no question that automobile production is one of the soft
parts of the economy; housing construction is one of the soft parts
of the economy. Other sectors, such as the energy area, are doing
well. The increased oil company profits will yield increased taxes
while decreased automobile company profits will undoubtedly contribute to less taxes.
I think it is a mix of all these factors, some of which are positive
and going forward, even though there would be a slight down turn
in the economy, some service parts of the economy will continue to
do well. The areas of communications and energy will continue to
do well. Areas such as automobiles, some heavy durables, housing
construction will be off. It is the mixture of these that nets out to
the result I indicated.
Senator BYRD. When do you see a decline in interest rates, and to
what degree?
Secretary MILLER. We, of course, believe that it is extremely
important, as I have said for some time, that we not rely entirely
on monetary policy in dealing with inflation, that the effort to
increase the fiscal discipline, reduce Government spending relative
to other past years is very important.
As that takes place and as the Federal Government itself becomes less of a borrower in the market and as the slowdown in the
economy results in less demands for credit, we expect the pressures
to come off. We expect, therefore, interest rates at some time to
begin to moderate.
Senator BYRD. At some time? When?
Secretary MILLER. It is hard to predict, exactly. In the next
couple of months, I think we will see interest rates begin to reflect
reduced pressures and we will see, I think, lower interest rates,
both in short-term markets and in long-term markets. The prime
rate will be down significantly by the end of the year.
Mr. Chairman, I should point out that near the end of February,
for example, the yield on 20-year Treasury bonds was at about 13
percent, and it is now down to about 11% percent, so we have
already seen some decline in some kinds of interest rates, as we
have had this phenomenon you and I talked about a moment ago.




Ill
We had not yet seen that in the commercial rates and the
activities of bank lending. But as the special credit restraints take
hold and as the special credit restraint program—the voluntary
program on which the Federal Reserve is working with major
banks—takes hold, and as the economic conditions of moderate
recession take hold, the demands for credit will abate and interest
rates, I believe, will begin to move down.
We also would expect inflation rates to be moving down somewhere in the next few months and coming down lower than they
are now by the end of the year.
Senator BYRD. Coming down to >vhat degree?
Secretary MILLER. A S you know, our estimate for the moment is
that if you measure by the CPI, again fourth quarter 1979 to fourth
quarter 1980, the CPI would be 12.8 percent.
That compares with recent numbers running about 18 percent or
so. That means to get to 12.8 percent, we must have a lower rate
than that at the end of the year.
My own hope is that we can achieve that, or better.
Senator BYRD. When do you expect it to be down to a rate of 12.8
percent?
Secretary MILLER. That rate would be for the fourth quarter
from a year earlier, which means that our assumptions are it
would be below that in the latter part of this year. Let me tick off
some of the reasons that that might be possible.
In the first place, there are many causes of inflation but as
distinguished from the inflation rate in 1978, a great deal of the
inflation rate in 1979 and of the inflation rate in the first quarter
of 1980 was because of two factors. One is the increased cost of
energy, particularly oil, and inflation numbers for the first 2
months of this year included an annual rate of increase of 75
percent for energy. So, that is one current factor that is causing
the inflation rate to be higher.
The other is that during this period, the runup, for whatever
reason, of interest rates has been reflected in home financing
charges and therefore has had a major impact on the Consumer
Price Index.
If one would assume, as I do, that we will not have a nearly 100percent increase in the price of imported oil in 1980 as we had in
1979, then we will have a major reduction in that component of the
inflation number.
Assume at worst that we do not have any significant reduction in
interest rates but we merely stabilize and continue the present
rates of home mortgages, then in a few months you will be able to
see that there is no longer any increase, no decrease, but you will
not have an increase.
So there you will get some relief in these numbers.
I actually believe, as the year progresses, we would have mortgage rates lower. That means you will actually begin to get some
reduction in the home financing cost compound of the CPI.
Those two factors alone could contribute to a very substantial
change in the 18-percent inflation rate, because you are talking
about, you know, energy factors that directly and indirectly have a
very large impact on the CPI and the same thing applies for
mortgage rates.




112
So, I think that those are reasons to believe that it would be
sensible, unless there is some new impact in the world, some new
event, some new disturbance, that we will begin to see these numbers begin to come down.
If that happens, I think it will be a reassuring factor, along with
the fiscal disciplines that are being imposed by Congress. I believe
those factors and the reduction of demand of Federal financing will
contribute to the conditions that I outlined, and we will begin to
see some moderation in interest rates and in prices.
We are very fortunate in this winter in that so far we have not
seen these extraneous and unusual and disturbing factors that
ratchet into the basic wage price structure.
We had, in 1979, no larger increases in wage rates and in compensation rates than we had in 1978, when inflation was much
lower, so thus far we have the cooperation in the country and have
avoided having oil prices and interest rates ratchet into all of our
system.
I do not think that moderation will continue for very long unless
we can see the relief that I am describing. But I do think that we
will see the relief and, therefore, we will come back to more moderate levels.
We expect to be in single-digit CPI numbers in 1981 rather than
double-digit ones.
Senator BYRD. When in 1 9 8 1 ?
Secretary MILLER. I would think probably in the first half of 1981
we can be seeing single digits, or even in the latter months of this
year.
Senator DOLE. Notwithstanding inflation, both interest and
inflation?
Secretary MILLER. This was the CPI number I was quoting. I am
not so bold as to forecast interest rates at the moment. I would not
want to encourage the Members of the Senate to go out and take
futures on loans at single-digit interest rates.
Senator BYRD. Let me ask two brief questions, then I want to
yield to Senator Dole.
Are these high interest rates inflationary?
Secretary MILLER. Yes, interest rates are, in the first place, a
reflection of the supply and demand relation of money and credit.
Second, in order to get positive interest rates, lenders expect to get
inflation plus interest so there is a reason why interest rates are
related to the essential monetary discipline and the realities that
lenders expect to get a return on their funds or they will not lend
them.
On the one hand, interest rates, as I point out, go into health
financing, home financing. They go into the cost of operating businesses and they end up showing up in prices and showing up in
inflation calculations so that they do contribute to inflation.
On the other hand, the way to insure more inflation is to try to
artificially press down interest rates because if we now, for example, artificially tried to lower interest rates, we would do so by
flooding the economy with excess money to drive down interest
rates and what we would do then is heighten inflationary expectations and we would undoubtedly end up having higher inflation
after an adjustment period rather than lower.




113
So I think that the problem is a typical dilemma that in order to
get lower inflation we must be alert to the realities of restraint on
money and credit to keep it within bounds of growth—that is,
consistent with price stability. And because of prior periods of
excess growth, we are now suffering from an adjustment process
which is painful but is necessary to the process of turning inflation
around.
Senator BYRD. My last question for the moment is this, and I will
preface it by citing experiences that I have had in Virginia, and I
would guess, although I have not consulted with him, that Senator
Dole has probably had similar questions put to him, as have other
Members of the Senate.
As I go around the State almost everyone—well, not almost
everyone, but a great many individuals I shake hands with and
talk with say this: "Why don't you people in Congress do something about interest rates?"
Now, would you help me give the appropriate response to that?
Secretary MILLER. Yes, I certainly would. The best thing that can
be done to help interest rates is to carry out the fiscal disciplines of
reducing as rapidly as we can in an orderly way the level of
Federal spending.
Senator BYRD. That is good. That is the answer I gave, and I am
glad that the Secretary of the Treasury would give that same
answer.
Secretary MILLER. Mr. Chairman, I think this is fundamental. To
the degree that we can take the pressure off through more fiscal
discipline, we will reduce the pressure on the monetary side and
inevitably, this means that inflation expectations will abate, inflation rates will come down, and interest rates will come down.
Senator BYRD. Senator Dole?
Senator DOLE. I think, Senator Byrd has covered most of the
ground. I think just for the record I would like to give the administration a chance to again indicate their opposition to wage and
price controls. I assume that is still administration policy and that
you are not going to seek any authority from Congress to impose
wage and price controls.
Secretary MILLER. Senator Dole, you are absolutely correct. We
are irrevocably opposed to mandatory wage and price controls. We
think they do not work. We think they create distortions. We think
that it is easiest to impose such controls on those in the economy
who represent, perhaps, the weakest links and it is hardest to
impose them on those who have more market power and can
continue to impose changes.
So we do not think that they work, and we do not intend to seek
authority for them.
Senator DOLE. IS there still a feeling around that, sooner or later,
it is going to happen? I do not know if you have any evidence of
anticipatory price increases or not. There may be some, but I would
hope by now that the message is loud and clear.
Certainly the administration has indicated their opposition—
many Members of Congress have—and I would hope that anybody
who has any doubt about it would, again, read your statement
today.




114
Secretary MILLER. May I say, Senator, that there was, in my
opinion, some flurry of feeling that wage-price controls were on
their way early this year, the early part of the year, and I think
that led to some anticipatory price increases that exacerbated the
inflation problem.
I believe our statements, plus the President's explicit actions on
March 14 to announce his intensified anti-inflation program which
rejects wage-price controls, demonstrate that we have crossed over
on the policy decisions. Time has run out. The economy is slowing
very soon, as we see the evidence of an economic slowdown. I think
all—even the rumors about wage-price controls will evaporate because it will be obvious with a softer economy nobody is going to
throw controls on top of it.
Senator DOLE. Also, I think that building opposition, bipartisan
opposition to the import fee, which—one way to balance the
budget, of course, is to increase taxes and that is going to raise
about $12.6 billion.
And some have figures that tax increases next year would be an
unprecedented $1 billion when you add up the windfall tax and
taxflation and import fees and other social security tax increases
and other recommendations by the administration.
I would assume, if Congress is successful in either repealing the
President's authority to impose an import fee, or in passing a
disapproval resolution, there would be some need for additional
spending cuts.
I know the administration is counting on the import fee. The
Budget Committee has included those revenues, but there are already 16 cosponsors on the disapproval resolution. I think one way
to take care of the import fee would be on the debt limit, to take
away the President's authority, attach it to the debt limit, and see
what happens.
Secretary MILLER. Senator Dole, I might have a bit of disagreement with you on that subject.
Senator DOLE. On the procedure?
Secretary MILLER. On the substance.
One, I think that our budget proposal clearly contemplates balancing the budget without relying upon any revenues from the
gasoline conservation fee.
As you know, the revised budget presented by the administration
shows a surplus of $16.5 billion which is greater than the fee. It
includes the revenue, without any revenue initiatives.
Our proposal involves a balanced budget, so all the revenue
proposals would merely go to surplus so we have no intention, no
desire, no proposal that the budget be balanced through revenue
initiatives.
The second point is that it is absolutely essential that we reduce
our dependence on imported oil. We are in peril and depending on
fragile insecure lines of supply. The parts of the world have demonstrated how unstable parts of them may be.
The one way, and the surest, fastest, quickest, safest way to
reduce our dependence on foreign oil is to conserve our use of oil
and oil products. And one of the best places to do this is motor
fuels because of all the motor fuels used in the United States of
about 7 million barrels of oil-equivalent a day, 40 percent, or 2.8




115
million barrels a day is discretionary driving—not necessary to
carry on the commerce of the country or necessary for commuting
or necessary for jobs, but discretionary. And that is the place
where we can make the biggest impact in reducing our dependence
on foreign oil short-term.
Many other necessary changes that you are very familiar with
require time or investment or what-not. This is the quickest, surest
way.
The United States has two choices in order to deal with motor
fuel conservation. One is to limit the physical quantity made available to the public and ration. Congress has rejected that solution in
any way that has been presented except in a dire emergency.
The other way to do it—and the way it is done in most of the
world—is to recognize that there should be a price incentive to
conserving motor fuel. The price of gasoline in most European
countries is $2.50, $3. Again, motor fuel in the United States now is
$1.20 or $1.30 a gallon. That is a relatively very large increase but
still way below what other nations have imposed through taxes as
a cost of motor fuel to cause conservation.
The result is twofold—they use less per capita. The second one is
an oil price increase. If you increase the price of oil on a $2.50 base
by 10 percent it is 25 cents. If you increase it in our case it is an
enormous factor that goes into inflation also.
And one of the reasons there is less inflation in some of these
countries is because there is less relative change in these prices
because they have already priced them at a level through taxation.
So I think that we feel strongly that the President is correct and
that the Nation is correct to impose a modest, additional conservation charge that is not in any order of magnitude equivalent to
taxes in Europe or in Japan but at least is a step in the right
direction, and we believe that it would be appropriate for Congress
to allow the President to exercise that authority and to support it.
As you know, in due course, we will present to the Congress a
proposal for an ad valorem gas motor fuels tax to replace this fee,
then Congress can consider on the merits whether that is right or
not. In the meantime, the President's authority to have the fee and
to use the entitlements system to place it on gasoline runs through
September 30, 1981. It would seem logical to let that authority
continue and let the Congress in to address the question of motor
fuels taxes, on the substance and on the merits when we present
our ad valorem tax.
Senator DOLE. I think the question is whether we are more
concerned by the estimates that it will add three-quarters of 1
percent to inflation, not that it may conserve 100,000 barrels. That
is a charitable estimate in the first year, and may invite an OPEC
price increase. You know all the arguments for and against.
Secretary MILLER. Surely.
Senator DOLE. That is what troubles many of us in Congress and
having been in my State, as Senator Byrd has been in his, I do not
need to tell anyone in the administration or out. There is a different feeling in the countryside with not quite 20 percent, but nearly
20 percent interest and high inflation.
I just cannot agree with the proposal. It is easy to vote against
the import fee, but I think we could be persuaded to conserve. It




116
has a title now—the conservation fee—which may or may not be
accurate.
It may be a matter of some debate, but I appreciate your statement on it.
Secretary MILLER. Senator Dole, may I make one short, additional point?
In the last 14 months, OPEC has imposed some 60 cents per
gallon tax on American gasoline and all that money flows abroad,
and that has resulted in considerable conservation of gasoline, but
we have paid it all to other folks.
It would make a lot more sense for us to keep that within our
own country and get additional conservation. Rather, I do not see
the same outrage at the 60 cent tax that foreigners imposed upon
us, and yet I believe it takes courage, it takes leadership to say let
us start doing that thing right here at home. Let us start reducing
the millions of barrels of oil we import to drive in discretionary
ways so that we could change, say move to more efficient automobiles and so forth.
I do not mean to belabor it, but I think there is a point there.
Senator DOLE. Right, but I think it would make more sense if we
would take the money and use it to fill up our strategic petroleum
reserve. There are some of us, Senator Bradley on this committee
and myself, who feel that, instead of cutting funds in that area, we
ought to be adding additional funds so we will have a reserve. I
notice the Washington Post indicated as much this morning.
So there is support for that. Maybe there would be some way to
salvage both.
I do not know if I have any other questions, Mr. Chairman. I
think you have covered most of them.
It is necessary to increase the debt ceiling. I have no quarrel
with that. It is a frustrating time.
Everybody talks about a balanced budget in general terms. Then
when you get down to the nitty-gritty, it is more difficult to do.
Senator BYRD. Thank you, Senator Dole.
Mr. Secretary, do you agree or disagree that our Nation faces
severe economic problems in the months ahead?
Secretary MILLER. We face serious problems, yes, sir.
Senator BYRD. IS there any painless way to meet these problems?
Secretary MILLER. NO, sir.
Senator BYRD. In my judgment, the Federal Government for the
past 15 years has been and is now a spendaholic. Do you agree or
disagree?
Secretary MILLER. I would not want to use those terms for fear of
taking away from the glamor that is attached to your using them.
Senator BYRD. I am glad to share it with you.
Secretary MILLER. We have, for 2 0 years, had a habit of running
deficits in good times and in bad. We have had only one balanced
budget in 20 years and it is apparent that the cumulative effect of
those deficits, adding to Federal borrowing and Federal debt on a
permanent basis, have been in their cumulative impact a contributor to inflation and a contributor to a psychology about sound
economic policy that has, I believe, contributed to inflation.
Our purpose should be on a bipartisan basis and in a compact
with the American people, to move back toward a philosophy that




117
when the economy is operating at optimum level of output in terms
of capital and resources we should have a balanced budget.
It is appropriate, in my opinion, to have a deficit if we are in a
period of slack and we can expect, therefore, the budgetary impacts
of underutilization of resources.
Conversely, when we are operating at a higher rate than we
should be, we should have surpluses, but we should get back to the
idea that a normal procedure should be a balanced budget and we
should have a more frequent experience of seeing a balanced
budget rather than one in 20 years.
Senator BYRD. At what figure do you put the budget deficit for
fiscal 1980?
Secretary MILLER. The figure that is presently projected is $ 3 6 . 5
billion, the deficit in fiscal year 1980.
Senator BYRD. For this year, the Federal Government will run a
deficit of $36.5 billion?
Secretary MILLER. Yes, sir.
Senator BYRD. Correct.
Secretary MILLER. That is impacted by the recession obviously.
Senator BYRD. Regardless of the reason.
Secretary MILLER. Yes, sir.
Senator BYRD. The Government this year, the one we are in right
now
Secretary MILLER. Yes.
Senator BYRD [continuing]. Will run a deficit of $ 3 6 . 5 billion.
Is that correct?
Secretary MILLER. That is correct.
Senator BYRD. NOW, what do you project the Federal funds deficit
to be for fiscal year 1980?
Secretary MILLER. Some $ 5 0 billion.
Senator BYRD. SO insofar as the operations of Government are
concerned, our Government this year will run a deficit of $50
billion.
Secretary MILLER. If you exclude the trust funds, the Federal
funds deficit, about $50 billion.
Senator BYRD. The only way you will get it down $ 1 4 billion,
$13.5 billion, is to take the surplus in the trust funds and the trust
funds can be used only for specific purposes, of course. The funds
do not come from general taxation.
So if you do not use those funds, then the deficit would be $50
billion for the general operation of Government.
I think that is a highly significant figure.
Now, let me ask you this. For the record, are you convinced that
the President's spending proposals for fiscal 1981 without a tax
increase will result in a balanced budget?
Secretary MILLER. Mr. Chairman, with one caveat, yes. The
caveat is that that would be true on the economic assumptions.
If there are changes in economic prospects or performance because of other events, then that would change, but based upon the
moderate recession and recovery from that, we project the levels of
unemployment which mean that we would have slack in our economy. Nonetheless, the spending cuts imposed, in my opinion, will
result in a balanced budget, with that caveat about economic conditions.




118
Senator BYRD. Without a tax increase?
Secretary MILLER. Without a tax increase, yes, sir.
That is on present tax law. That includes the present tax structure, including windfall profits.
Senator BYRD. Including what Senator Dole alluded to, the
import fee?
Secretary MILLER. That, no. Th^t is not taken into account. This
is assuming no import fee.
Senator BYRD. It is correct, is it not, that for fiscal 1 9 8 1 that the
Government will take from the American people the highest percentage of taxes—the highest percentage—that it has ever taken in
taxes in relation to the gross national product.
/
Secretary MILLER. It will be as high in any year. I am not sui-e it
is the highest. It will certainly be at or near the highest level of
GNP level of intake that we have seen yes, sir.
Senator BYRD. DO you feel that there should, or should not be, a
substantial reduction in the total spending figure of $612 billion
which has been proposed?
Secretary MILLER. I believe that our effort to introduce a new
direction to fiscal policy and efforts which we should pursue diligently to reduce the relative percent of GNP represented by tax
revenues should be progressive.
I do not think that we should, or can, accomplish it all in 1 year
or in all economic circumstances.
So I think the level of spending that we proposed of $612 billion
is reasonable. If there are other ways that cuts could be made,
obviously they should be considered, but I think that is a reasonable course.
Now, we need to create conditions that encourage a balanced
economic growth, encourage productivity, and thereby reduce the
drag on the Federal budget from low levels of growth and output.
And as we do that, I think we can bring down spending further
and bring down taxing further.
In 1 year in a recession period, to accomplish much more, I
think, would add more power to the brakes than is wise, that we
might end up tripping the economy in more of a downturn than
would contribute to the proper course of the economy.
Senator BYRD. You have some responsibility, as I recall, under
earlier legislation in regard to New York City. What is the situation now in regard to New York City's financial affairs?
Secretary MILLER. A S you know, the city has presented a program for its own budget that would achieve the requirements of
the New York guarantee program 1 year earlier than required by
the statute.
That was, of course, subject to trying to project over a period of
years the transit settlement in New York. That is in the process of
being considered. It may have some impact upon that because it
may influence the negotiation.
The mayor has indicated that he will not consider the transit
settlement a precedent and that he will look to levels of pay
changes with municipal unions that will stay within his budget
objectives, but we will just have to see how that develops. But his
program has been to meet the statutory requirement 1 year early.




119
Senator BYRD. What about Chrysler? Is Chrysler meeting the
statutory requirements?
Secretary MILLER. Chrysler is endeavoring to put together a financing package that would meet the statutory requirements in
order to qualify for guaranteed loans and we will know, I think in
the next few weeks, whether or not the parties with a financial
stake in Chrysler are able to hammer out such a financial package,
whether they are willing to make—and will make—the concessions
in financing terms that are necessary to qualify.
Some of them have been completed. The labor union negotiations
have made the concessions required by the statute. There has been
some progress in disposing of surplus assets that would raise cash.
There has been some offering of debentures to suppliers and dealers to raise part of the support from those. There are negotiations
with the banks, both domestic and foreign. I think all those things
are beginning to gell and I think we are near, within a few weeks,
of knowing whether the package can fall into place.
As you know, there is a Loan Guarantee Board made up of
myself and Paul Volcker and Elmer Staats who will then have to
look at the plan and decide whether it is qualified and decide its
qualifications, if we can issue a guarantee.
Senator BYRD. One final question.
In your professional judgment, what is the single most important
thing that can be done to bring about a reduction in interest rates?
Secretary MILLER. TO not only propose, but to enact, the spending cuts and reductions that are in the revised budget, to show that
we are willing to exercise fiscal discipline even in the face of
economic slowdown if we demonstrate the will and determination
to control inflation. I think all of those things would quickly relieve
the inflationary expectations and moderate the pressures on financial markets and result in lower inflation itself, and lower interest
rates.
Senator BYRD. TO get back to your specific testimony today in the
three categories, what you are seeking is a $4 billion increase in
the long-term bonds that can be issued?
Secretary MILLER. From $ 5 0 billion to $ 5 4 billion this year, and
then we would request for fiscal year 1981 $70 billion.
Senator BYRD. I thought we should deal with 1 9 8 0 and let 1 9 8 1
take care of itself later on.
That would be a $4 billion increase in that category?
Secretary MILLER. Yes, sir.
Senator BYRD. For fiscal year 1 9 8 0 in the statutory debt ceiling
you would need an increase of $5 billion?
Secretary MILLER. From $ 8 7 9 billion to $ 8 8 4 billion, yes, sir.
May I point out, Mr, Chairman as you know, the House has
changed its procedure.
Senator BYRD. I am aware of that.
Secretary MILLER. I want to mention it because what will happen
in the House may influence what you want to do here. I am not
suggesting you change your procedure, but it may influence it,
because what you see, what will happen when the budget resolution for fiscal year 1981 is adopted in the House, it will include a
debt ceiling for fiscal year 1981.




120
So they will be dealing with fiscal year 1981. You mentioned
whether we should deal with fiscal year 1981 now. They will be
dealing with it and send over to you a proposal, so in order to
match their procedure with your procedure, you may want to
handle it in your way, but you may want to start considering now
the fiscal year 1981 program.
Senator BYRD. Before the House adopted that proposal, the
author of the proposal came to see me and I told him whatever the
House did was up to the House, but the Senate would make its own
decision in that regard. The House procedures have no control over
what the Senate procedures may be.
Secretary MILLER. Correct. It just may be when they send over
something on fiscal year 1981 you may want to take a look and see
if it is appropriate to consider it now or what, because, you know,
you can still handle it in your way. It is just a question of timing.
That is the question.
Senator BYRD. Thank you very much.
Senator DOLE. Just one additional question.
Senator BYRD. Senator Dole?
Senator DOLE. Mr. Secretary, you indicated earlier that you
would not encourage any efforts to, in effect, through the tax
system offset high interest rates. There has been one proposal
introduced to provide a tax credit for anything, any interest set
above 12 percent, to a certain number of dollars.
Others have suggested a two-tiered system to aid small business
and farmers. I guess it would be fair to say that you would not
encourage such efforts?
Secretary MILLER. On the first one, Senator Dole, I think it
would be counterproductive. In the first place, such a system—you
know, it would allow very favorable treatment for people in higher
income tax brackets and would penalize, since there would be no
discipline to bring interest rates down, it would penalize people
who cannot afford interest rates or are not in high brackets.
I think it would be very counterproductive.
On the second, I think not as a matter of government, but as a
matter of commercial policy that a two-tiered system may well
work, and let the banks decide for themselves, but many banks
find it helpful in terms of a business cycle to charge lower rates to
small businesses in agriculture in times when interest rates are up,
charge a little more when they are down, and kind of average it
and bill their customers, and supply their customers, because they
are looking at it year after year, not just 1 month.
Likewise, the Federal Reserve, as you know, has now a two-tiered
discount rate, for large banks who are frequently into the discount
window they will charge 3 percent extra but for smaller banks will
charge 3 percent less. So we can keep their liquidity and ability to
serve small business and agriculture.
I think there is something to be said for those things happening,
not in legislation but in a normal economic analysis. The tax
change, I think, would be wrong.
Senator DOLE. DO you expect the administration to propose a tax
cut later this year?
Secretary MILLER. That depends entirely on the course of progress on the budget proposal. It has been our view that it would be




121
inappropriate and premature to consider any tax reductions until
there is a firm commitment to the spending reductions and program reductions that have been submitted, either the ones we
submitted or, if Congress works its will, something on the same
order of magnitude. When that is accomplished, I think that we
can all look at whether the economic conditions and the need to
achieve the longer term goals of balanced growth would require us
to look again at tax relief and perhaps target it into areas of
savings, investment, and productivity that we need to encourage.
I think we must take first things first. The best thing we can do
is show discipline in the fiscal area, which will be the way to see
that relief on the interest side, and the relief on the interest side
will improve financial markets including long-term markets, and
that will create conditions for borrowing capital for investment
which then, supplemented with some other incentives in due
course for investment, could help us in this whole productivity
area.
But I think it is more on the order of timing.
Senator DOLE. This is not an appropriate place to discuss politics,
but there may be political considerations because you could have a
Reagan candidacy and Carter candidacy and Reagan is on record of
advocating some Roth-Kemp or some modification of the so-called
Roth-Kemp proposal and that might have an impact.
I do not suggest that you would make that judgment, but I am
certain that it is crossing the minds of those who advise the President politically.
Secretary MILLER. I will keep my advice to economic and financial matters.
Senator DOLE. Right.
Senator BYRD. Thank you very much, Mr. Secretary.
[The prepared statement of Secretary Miller follows. Oral testimony continues on p. 139.]




122
FOR RELEASE ON DELIVERY
E X P E C T E D A T 9:00 a . m .
A p r i l 16, 1 9 8 0

S T A T E M E N T OF THE H O N O R A B L E G. W I L L I A M M I L L E R
S E C R E T A R Y OF T H E T R E A S U R Y
B E F O R E T H E S U B C O M M I T T E E ON T A X A T I O N A N D D E B T M A N A G E M E N T
OF T H E S E N A T E C O M M I T T E E ON F I N A N C E

Mr. Chairman

and M e m b e r s of the

My p u r p o s e
financing
increase

31,

permanent

Treasury's
an

securities

in

rate ceiling

the
on

t e m p o r a r y d e b t l i m i t of $ 8 7 9 b i l l i o n w i l l

1980, and the d e b t l i m i t w i l l
ceiling

of $ 4 0 0 b i l l i o n .

to p e r m i t

and

to pay

Our current

the T r e a s u r y

e s t i m a t e s of

in the a t t a c h e d
to limit w i l l

increase

The




the

to b o r r o w

maturing

to r e f u n d

other legal

obligations.
subject

to

the fiscal y e a r s 1 9 8 0 and
table

indicates

that

the

a $15

limit

1981

are

debt

to $ 8 8 1 b i l l i o n o n S e p t e m b e r

to $897 b i l l i o n on S e p t e m b e r 30, 1981, a s s u m i n g

M-433

to

legislation

the a m o u n t s of d e b t

through

table.

then revert

expire

P r o m p t e n a c t m e n t of

the G o v e r n m e n t ' s

at the end of e a c h m o n t h

and

interest

the

to r e q u e s t

Requirements

is n e c e s s a r y
securities

subject

to i s s u e l o n g - t e r m

r e m o v a l of the s t a t u t o r y

The present

shown

is to a d v i s e y o u of

fiscal y e a r 1 9 8 1 and

bonds.

Financing

o n May

today

through

in the a u t h o r i t y

m a r k e t and
savings

here

needs

Committee:

30,

1980,

billion

123
-

cash balance on these dates.

2

-

These estimates are consistent

the Administration's March revision

in the budget

estimates.

The usual $3 billion margin for contingencies would raise
amounts to $884 billion
September 1981.

these

in September 1980, and $900 billion

Thus, the present debt limit of $879

should be increased

in

billion

by $5 billion to meet our financing

ments through the remainder of fiscal 1980 and by an

require-

additional

$16 billion to meet the requirements through fiscal 1981.
as indicated

with

However,

in the table, the debt subject to limit reaches a

seasonal peak in May 1981 of $914 billion and then declines to
$897 billion
balance.

in September, assuming

Thus, we are requesting

be increased

a constant $15 billion

cash

that the debt limit for FY 1981

to $910 billion, which would get us by the

temporary

hay 29 peak with an adequate cash balance of $11 billion on that
date.
For your convenience, the deficit and debt figures for each
year over the past decade are shown
my

in the final table attached

to

statement.
Let me emphasize the importance of timely Congressional

on the debt limit.

In mid-May the Treasury expects to announce

offerings of new note

issues to refund obligations which mature

on May 31 and perhaps to raise new cash.
Saturday the obligations maturing
refunded

Since May

31 is a

on May 31 cannot be paid off or

until Monday, June 2, at which time the present debt

authority will have expired.
and auction Treasury bill




action

limit

Moreover, we will also need to announce

issues in the third or fourth

week

124
-

of May.

3

-

These do not settle until the first week of

Thus, without an increase

June.

in the debt limit by raid-May, we will be

forced to postpone offerings because delivery of the securities
early June could not be assured.

Failure to offer these

in

securities

as scheduled could be disruptive of the Government securities

market

and costly to the Treasury.
Investors as well as dealers in Government securities
their day-to-day

investment and market strategies on the

that the Treasury will offer and
schedule.

base

expectation

issue the new securities

Delayed action by Congress on the debt limit,

on
therefore,

would add to market uncertainties, and any such additional rj.sk
to investors is generally reflected
auctions and consequently

in lower bids in the

in higher costs to the

Treasury's

taxpayer.

This Committee has made every effort in the past to assure
timely action by Congress to increase the debt limit.

Yet, the

record of recent years has not been good. On three of the

last

five debt limit bills action was not taken before the

expiration

date, and the Treasury was unable to borrow until the

Congress

acted two or three days later.

Significant costs were

incurred

by the Treasury, and extraordinary measures were required
prevent the Government from going
required

into default.

The Treasury

payments suddenly realized

Government

that the Treasury simply could not pay

the Government's bills unless it was authorized

to borrow the

needed to finance the spending programs previously enacted




was

to suspend the sale of United States savings bonds, and

people who depend upon social security checks and other

Congress.

to

by

funds

125
- 4 -

It is essential

that we do everything possible to maintain .the

confidence of the American people

in their Government.

Confidence

in the management of the Government's finances was seriously
mined each time the debt limit was allowed
all work to avoid that outcome

in this

under-

to lapse, and we must

instance.

Bond Authority
I would like to turn now to our need for an increase
the Treasury's authority
market without regard

in

to issue long-term securities in the

to the 4-1/4 percent

ceiling.

Under this Administration, the Treasury has emphasized

debt

extension as a primary objective of debt management, a policy
which we believe to be fundamentally sound.
caused a significant
reversing

increase

a prolonged

This policy

has

in the average maturity of the debt,

slide which extended over more than 10 years.

In mid-19 65 the average maturity of the privately-held
debt was 5 years, 9 months.

By January

marketable

1976 it had declined

to

2 years, 5 months, because large amounts of new cash were raised
in the bill market and

in short-term coupon securities.

that time, despite the continuing
Government, Treasury has succeeded
3 years, 10 months,

Since

needs for cash of the Federal
in lengthening

the debt to

currently.

Debt extension has been accomplished primarily

through

continued offerings of long-term bonds in our mid-quarterly
refundings as well as regular offerings of 15-year bonds in
the first month of each quarter.

By developing

sector of the market we have broadened

63-894 0 - 8 0 - 9




the long-term

the market and

increased

126
-

demand

5

-

for Treasury securities.

These longer-term

security

offerings have also contributed

to a more balanced

maturity

structure of the debt, which will facilitate efficient
management

in the future.

Moreover, these offerings

complemented anti-inflation efforts.

By meeting

have

some of

Government's new cash requirements in the bond market
than the bill market, we have avoided adding

to the

of the economy at a time when excessive liquidity
transmitted

into increasing

Congress has increased

debt

rather

liquidity

is being

prices.
the Treasury's authority to

long-term securities without regard

September 29, 1979, it was increased
current level of $50 billion.

issue

to the 4-1/4 percent

a number of times in recent years, and

from $40 billion to the

To meet our requirements

to $54 billion; and to meet our requirements
1981, the limit should be increased

ceiling

in the debt limit act of

remainder of the fiscal year 1980, the limit should be

for the
increased

in the fiscal year

to $70 billion.

The Treasury to date has used over $45 billion of

the

$50 billion authority, which leaves the amount of unused
at less than $5 billion.

the

While the timing

authority

and amounts of future bond

issues will depend on prevailing market conditions, a $20 billion
increase

in the bond authority would permit the Treasury to con-

tinue its recent pattern of bond

issues throughout

fiscal year

We are currently issuing long-term securities at an annualized
of approximately




$14 billion.

1981.
rate

127
-

6

-

Savings Bonds
In recent years, Treasury has recommended

frequently

Congress repeal the ceiling on the rate of interest that
Treasury may pay on U.S. Savings Bonds.
of April 2, 1979, Congress increased
6 percent to 7 percent.

that
the

In the debt limit Act

the statutory ceiling

The Treasury

increased

the

savings

bond rate to 6-1/2 percent effective June 1, 1979.
December 1979, the Treasury announced

from

Then,

that the interest

in

rate

on the new 11-year series EE bonds, which went on sale on
January 1, 1980, would be 7 percent for bonds held to maturity
and that the rate on outstanding

E bonds would also be

to 7 percent for bonds held an additional 11 years.
is necessary

to provide for further

7 percent statutory

Legislation

increases beyond the present

ceiling.

Mr. Chairman, we are concerned
for legislation

increased

to cover each

does not provide sufficient

that the present

requirement

increase in the savings bond

rate

flexibility to adjust the rate in

response to changing market conditions.

The delays

in the legislative process could result in serious

encountered
inequities

to savings bond purchasers and holders as interest rates rise
on competing

forms of

savings.

The Treasury relies on the savings bond program as an
important and relatively stable source of long-term
On that basis, we are concerned

that participants

funds.

in the payroll

savings plans and other savings bond purchasers might drop out
of the program

if the interest rate were not maintained

level reasonably competitive with comparable forms of




at a

savings.

128
-

5

-

While the savings bond rate has increased

relative to the

5-1/2 percent regulatory ceiling on passbook savings in Federallyinsured thrift institutions, the much greater

increase in market

interest rates over the past year has had a substantial
impact on the savings bond

adverse

program.

Sales of savings bonds in 1978 reached $8 billion, a
peacetime record; but in 197 9, as market interest rates
savings bonds sales fell to $7 billion.
of 1980 sales were only $1.4 billion,
quarter

increased,

In the first three months

26 percent below the

first

in 1979 and 34 percent lower than sales in the first

quarter of

1978.

The major problem, however, has been on the redemption

side.

In 1979 savings bonds redemptions were $12.3 billion, compared
$8.2 billion

in 1978, an increase of 50 percent.

Redemptions

to
in

the first quarter of 1980 were $6.4 billion, double the amount

in

the first three months of 1979 and more than three times the
redemptions in the first quarter of

1978.

Consequently, the cash loss to the Treasury from the excess
of redemptions over sales in the savings bond program w a s
billion

in 1979, and was $5.0 billion

in just the first

$5.3

three

months of 198 0.

These cash losses to the Treasury must be made

up by increasing

the amounts the Treasury borrows in the m a r k e t ,

and the Treasury is currently paying significantly higher
rates on its market borrowings.

If this situation continues,

will be essential to increase the savings bond




interest

interest

rate

it

129
-

promptly

in order to avoid

8

-

further substantial cash drains

the Treasury and permanent damage to the savings bond
The amount of any necessary

to

program.

rate increase will depend on

current

market conditions and on the other terms and conditions

offered

to savings bonds investors.

the

savings bonds program

to determine what changes need

Thus, we are requesting
bond

We are currently reviewing

interest rate be repealed
Any increase

existing

savings

as soon as possible.

in the savings bond

Treasury would continue

to be made.

that the present ceiling on the

interest rate by the

to be subject to the provision

in

law which requires approval of the President.

the Treasury would, of course, give very careful
to the effect of any increase

in the savings bond

on the flow of savings to banks and thrift
Debt Limit

Also,

consideration
interest

rate

institutions.

Process

I would now like to comment on the process by which

the

public debt limit is established.
Separate legislation

for a statutory debt limit has not been

an effective way for Congress to control the debt.
in the debt each year

is simply the result of earlier

by Congress on the amounts of Federal spending
Consequently,

and

increase

decisions

taxation.

the only way to control the debt is through

control over the Federal budget.
Budget Act of 1974 greatly




The

In this regard, the

firm

Congressional

improved Congressional budget

procedures

130
- 9 -

and provided a more effective means of controlling

the debt.

That Act requires Congressional concurrent resolutions on the
appropriate levels of budget outlays, receipts, and public

debt.

This new budget process thus assures that Congress will face up
each year to the public debt consequences of its decisions on
taxes and

expenditures.

The debt limit act of September 29, 1979, which
the current limit of $879 billion, also amended
House of Representatives

established

the rules of

limit to the Congressional budget process.

Under the new

House

rules, the Treasury still presents its debt limit requests
testimony before the House Ways and Means Committee, and

in

that

Committee makes its debt limit recommendations to the House
Committee.

Yet, the vote by which the House adopts a budget

lution will ipe deemed
changing

the

to tie the establishment of the debt

to be a vote in favor of a joint

Budget
reso-

resolution

the statutory debt limit to the amount specified

in the

budget resolution.

The joint resolution on the debt limit will

then be transmitted

to the Senate for further legislative

No comparable procedure exists in the Senate.

The Senate must

still vote twice on the debt limit figure, in the budget
and

in the separate debt limit bill.

limit.

Attachments




oOo

resolution

Thus, it is essential

your Committee act promptly to assure timely action by
on the debt

action.

that

Congress

131
ESTIMATED PUBLIC DEBT
SUBJECT TO LIMITATION
FISCAL YEAR 1980
Based on: Budget Receipts of $532 Billion,
Budget Outlays of $569 Billion,
Unified Budget Deficit of $37 Billion,
Off-Budget Outlays of $15 Billion
($ Billions)
Operating
Cash
Balance
1979

Public Debt
Subject to
Limit

With $3 Billion
Margin for
Contingencies

ACTUAL
$24.
,2

$828

10.
.5

828

November 30

5.
.6

835

December 31

.9
15.

846

January 31

16. 6

849

February 29

10.
,7

856

September 28
October 31

1980

March 31

865

8.
,2
ESTIMATED

April 30

15 .0

872

875

May 30

,0
15.

885

888

June 30

,0
15.

874

877

July 31

15. 0

879

881

August 29

,0
15.

885

888

September 30

.0
15.

881

884




132
ESTIMATED PUBLIC DEBT
SUBJECT TO LIMITATION
FISCAL YEAR 1981
Based on: Budget Receipts of $628 Billion,
Budget Outlays of $612 Billion,
Unified Budget Surplus of $16 Billion,
Off-Budget Outlays of $19 Billion
($ Billions)
Operating
Cash
Balance

Public Debt
Subject to
Limit

With $3 Billion
Margin for
Contingencies

1980
$15

$891

$894

November 30

15

898

901

December 31

15

898

901

January 30

15

894

897

February 27

15

902

905

March 31

15

911

914

April 30

15

912

915

May 29

15

914

917

June 30

15

907

910

July 31

15

903

906

August 31

15

904

907

September 30

15

897

900

October 31

1981







Federal D e f i c i t s and Debt, 1970-81
( i n b i l l i o n s of d o l l a r s )

1970
federal funds deficit
Least Trust fund surplus (-)
or deficit
Equalsi Total unified
budget deficit
Plus 1 Deficit of off-budget
Federal entitles 1/
Equalst Total
deficit
Less j Nonborrowlng means
of financing U
Equals I Total borrowing
from the public
Plus. Change in debt held
by Government agencies J/
Equalsi
Change in gross
Federal debt
Lesst Change in Federal
agency debt
Change in gross
Equalst
public debt
Plusi Change in other debt
subject to limit 1/
Equalsi Change in debt
subject to limit

Debt Qut»t«ndinq

1971

1972

1974

1975

1976

TO

1977

13. 1

29.,9

29.3

25..6

18.,7

52. 5

68. ,9

11..0

54.5

-10.3

- 6 . ,8

- 5 . 9 -10. ,7

- 1 4 . ,0

-7.

- 2 . ,4

2.,0

2. 8

23. 0

23.4

1973

14.,8

4.,7

45. ,2

66. 4

13.,0

JL

1.•A
6., l

8.1

7. 3
73.,7

14,.7

- 3 . ,JL - 2 . •A 9.,2
82.,9
3..0 50.,9

3..3
18,.0

2. 8

2.3..0

23.4

14.,9

2. 6
5.,4

- 3 . ,6
19..4

-3.9
19.4

4.
19..3

53.,1

1980*

46. ,1

50.1

-2.4

-9.5 -12.7 -18. 3

-13.6

-14.1

36.5

-16.5

45.0

48.8

27. 7

10.3

12. 4

53.7

59.2

40.2

51.5

18,7
2.2

-.1
53.5

- . 1 -6. 5
59.11 33.,6

-12.2
39.3

-.7
1.5

10.J_

7.A

8.4

7.

4.,3

- 3 , .5

9.2

12.2

19, ,7

13.6

14.1

15.,5

26..9

27.9

31,.1

17,.8

57..9

87..3

14 .5

62.7

71.3

53..3

52.9

15.6

1.3

.2

.9

1.
.1

.2

1.4

1.4

.6
1.

29.1

30,.9

16,.9

59,.0

14 .3

64.1

72.7

54,.9

16,.9

59,.0

14 .3

64.1

1.
17.,2
-,

16..5

27,.2
-1, .2

-

26,.0

29.1

11.•A 14,.8

-,

A

30,.5

.Jl

87..2
.1
87,.3

-

-

._5
53.4

-

-

._6
16.2
-

54,.9

53.4

16.1

709.1 780.4 833, .8

886.6

902.3

72.7

n

Oross Federal debt 5/
Less < Federal agency
debt 5/
Equalst Gross public
debt
Plusi Other debt subject
to limit 1/
Equalsi Debt subject
to limit

382.,6
12..5

409, .5 4 3 7 . 3 468,.4
12 .2

10.9 JJL A

486, .2 544,.1
12 .0

10,.9

631,.9 646 .4
11,.4

11 .7

10.3

8.9

7,.2

6.7

6.1

370..1

397,.3 426.4 457,.3

474 .2 533,.2

620,.4 634 .7

698.8 771.5 826, .5

880.0

896.1

2.
372, .6

1,
.3
1.3
.9
398 .6 427.8 458 .3

.9
1 .0
475 .2 534,.2

1,
.1
1 .1
621,.6 635 .8

1.1
1,
.1
1.1
700.0 772.7 827 .6

1.1
881.0

1.0
897.1

Office of the Secretary of the Treasury. Office of Government Financing
1/

i981e

1979

1.8

-

19*78

61.5

April 15, 1980

Consists laraely of Federal Financing Bank borrowings to finance off-budget programs.

U

Largely r e f l e c t s changes in the Treasury cash balance.

1/
1/
5/

Consists largely of trust fund surplus or deficit.
Net of certain public debt not subject to limit.
Fiscal year 1976 figure includes reclassification of $471 million of Export-Import
Bank certificates of beneficial interest from asset sales to 4ebt.

Sourcei

Special Analysis E,
U.S. Budget

e • estimate

GO
CO

134
UNIFIED BUDGET OUTLAYS AND PERCENT INCREASE PER YEAR—APR. 15,1980
[Dollars in billions]
Fiscal year

Outlays

197 3
197 4
197 5
197 6
197 7
197 8
197 9
1980 (estimate)
1981 (estimate)

Increase

$247.1
269.6
326.2
366.4
402.7
450.8
493.7
568.9
611.5

$22.5
56.6
40.2
36.3
48.1
42.9
75.2
42.6

9.1
21.0
12.3
9.9
11.9
9.5
15.2
7.5

ESTIMATED OWNERSHIP OF PUBLIC DEBT SECURITIES—FEB. 29, 1980
[Dollars in billions]
Amount

Held by:
Federal Reserve System
Government accounts

Percent

$115.2
187.8

13.5
22.0

303.0

35.5

77.6
36.7

9.1
4.3

114.4
97.8
14.3
4.0
23.6
72.1
124.8
100.5

13.4
11.4
1.7
.5
2,8
8.4
14.6
11.8

Total privately held

551.6

64.5

Total public debt securities outstanding

854.6

100.0

Total
Held by private investors:
Individuals:
Savings bonds
Other securities
Total individuals
Commercial banks
Insurance companies
Mutual savings banks
Corporations
State and local governments
Foreign and international
Other investors

Note.—Figures may not add to totals due to rounding.
Source.- Office of the Secretary of the Treasury Office of Government Financing—Apr. 15, 1980.

MATURITY DISTRIBUTION OF OFFICIAL FOREIGN HOLDINGS OF TREASURY PUBLIC DEBT SECURITIES,
FEB. 29,1980 1
[In millions of dollars]
Years to maturity

Under 1 year
1 to 5 years
5 to 10 years
Over 10 years
Total
1

IK[ket"

Total

48,966
23,024
1,001
3

10,085
9,595
5,001

59.051
32,619
6,002
3

72,994

24,681

97,675

Marketable

Non

This table shows the maturity distribution of official foreign holdings of Treasury securities in custody and in the Treasury Deposit Funds.

Source: Office of the Secretary of the Treasury Office of Government Financing—Apr. 10, 1980.




135
Major

foreign

holders

of Treasury

public

debt securities,

Feb. 29,

1980

[In millions of dollars]

Oil exporting countries 1
Belgium
Canada
France
Germany
Italy
Japan
Netherlands
Switzerland.
U n i t e d Kingdom
International and regional
All other

16,591
186
2,412
7,510
38,861
4,338
17,065
2,370
10,359
8,006
6,762
10,298

.

2

Total...

124,758

1

Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, United Arab, Emirates, Algeria,
Babon, Libya, Nigeria, Indonesia, Venezuela, Ecuador.
2
Partly estimated.
Source: Office of the Secretary of the Treasury, Office of Government Financing—Apr. 10,
1980.
CHANGES IN FOREIGN HOLDINGS OF PUBLIC DEBT SECURITIES
[In billions of dollars]
Changes (preliminary)
Dec. 31, 1979

Feb. 29, 1980

Marketable
Total

Nonmarketable

Notes an(j
Bil,s

Belgium
Canada.,
France
Germany
Italy
Japan
Netherlands
Switzerland
United Kingdom
International and regional
Oil exporting countries
Other

0.4
1.9
6.7
39.9
4.6
16.7
2.3
11.5
7.1
5.5
15.0
7.2

4

Grand total

3
4

0.2
2.4
7.5
38.9
4.3
17.1
2.4
10.4
8.0
6.8
16.6
8.1

-0.2
.5
.8
-1.1
-.3
.3
.1
-1.1
.9
1.2
1.5
.9

0
-.1
0
2
.3
0
(M
1
i )
(>)
0
0
.5
.0

i1)
.9

(M
.2
(M
-.3
(M
-.8
-.1
-.3
.7
1.2
1.0
(M

118.9
4.8

Totai
Unclassified3

1
2

bonds

122.5
2.2

3.6
-2,6

.8

1.1

1.7

123.7

4

12.8

-0.2
.4
.8
-1.0
-.3
1.1
.1
-.8
.2

1.0

Change is less than $50 million.
Change in nonmarketables includes $1.2 billion in Carter bonds issued in Germany on Jan. 25, 1980.
Unclassified includes repurchase agreements not reported by country or security.
Partly estimated.

Note.—Detail may not sum to totals due to rounding.
Source-. Office of the Secretary of the Treasury, Office of Government Financing—Apr. 10, 1980.

FOREIGN AND INTERNATIONAL HOLDINGS OF PUBLIC DEBT SECURITIES1
[In billions of dollars]

December 31

1969..
1970..
1971..




Foreign and
international
holdings

10.4
19.7
46.0

Total public debt

367.4
388.3
423.3

Foreign and
International as a
percent of total
public debt

2.8
5.1
10.9

136
FOREIGN AND INTERNATIONAL HOLDINGS OF PUBLIC DEBT SECURITIES l —Continued
[In billions of dollars]
Foreign and
international
h0,di
"g s

December 31

197 2
1973
1974
1975
1976
1977
1978
December 1979
February 1980

2
2

Intematfonafas a
, l<3 ai a s a
™ Jf tn t al
public deb?

Total public debt

54.4
54.7
58.8
66.5
78.1
109.6
137.8
123.7
124.8

448.5
469.1
492.7
576.6
653.5
718.9
789.2
845.1
854.6

12.1
11.7
11.9
11.5
12.0
15.2
17.5
14.6
14.6

*To conform with the unified budget presentation, figures have been adjusted to exclude $1,825 million in 1968 and $825 million in years
1969-73 of noninterest bearing notes to the IMF.
2
Partly estimated.
Source.- Office of the Secretary of the Treasury, Office of Government Financing—Apr. 15, 1980.

FEDERAL FINANCING REQUIREMENTS
[In billions of dollars]
Fiscal years

Budget deficit
Off-budget deficit

36.5
15.0

-16.5
18.7

40.2
-6.5

51.5
-12.2

2.2
- J

33.6
197

39.3
116

1.5
R1

53.3

52.9

15.6

Total borrowing from the public
Increase in debt held by Government agencies
Increase in gross Federal debt
1

1

1981

27.7
12.4

Total deficit
Means of financing other than borrowing from the public 2

2

1980 1

1979

Fiscal year 1980 Budget estimates.
Consists largely of change in Treasury cash balance.

Source: Office of the Secretary of the Treasury, Office of Government Financing—Apr. 15, 1980.

DEBT SUBJECT TO LIMIT
[Fiscal years; in billions of dollars]
Estimate
Actual 1979
1980

1981

Unified budget deficit
Portion of budget deficit attributable to trust surplus or deficit ( - )

27.7
1&3

36.5

-16.5
14,1

Federal funds deficit
Deficit of off-budget Federal entities

46.1
124

50.1
1^0

-2.4
187

58.5
-3.6

65.1
-11.8

16.3
-0.2

519

514

161

772.7
827.6

827.6
881.0

881.0
897.1

Total to be financed
Means of financing other than borrowing, and other adjustments
Change in debt subject to limit
Debt subject to limit, beginning of year
Anticipated debt subject to limit, end of year
Source: Office of the Secretary of the Treasury, Office of Government Financing—Apr. 9, 1980.







Federal Deficit! and Debt. 1 9 7 0 - 0 1
(in billions of dollars)

Fiscal Years

Federal funds deficit
Lessi
Trust fund surplus (-)
or deficit
Equalsi
Total unified
budget deficit
Plusi
Deficit of off-budget
Federal entities 1/
Equalsi
Lessi
Equalsi
Plust
Equals:
Less 1
Equalst
Plusi
Equals 1

Nonborrowing means
of financing 1/
Total borrowing
from the public
Change in debt held
by Government agencies ±/
Change in gross
Federal debt
Change in Federal
agency iebt
Change in gross
public debt
Change in other debt
subject to limit 1 /
Change in debt
subject to limit

1970

1971

1972

1973

1974

1975

1976

TO

1977

19^

1979

13.1

29.9

29.3

25.6

16.7

52.5

68.9

11.0

54.5

61.5

-10.3
—
2.8

-6.8

-5.9

-10.7

-14.0

-7.4

-2.4

2.0

-9.5

23.0

23,4

14.8

4.7

45.2

66.4

—
13.0

45.0

-12.7
—
48.8

.1

1.4

8.1

7.3

1.8

8.7

10.3

2

8

23

Q

23

4

14

9

6

x

53

x

?3

?

14

?

53

?

59

2

46.1

50.1

-2.4

-18.3 -13.6

-14.1

27.7

36.5

12.4

15.0
2.2

2

5

2.6

-3.6

-3.9

4.4

-3.1

-2.4

9.2

3.3

-.1

5.4

19.4

19.4

19.3

3.0

50.9

82.9

18.0

53.5

10.1

7.4
— —
26.9

8.4
—
27.9

11.8
—
31.1

14.8

7.0

4.3

-3.5

9.2

15.5

17.8

57.9

87.3

14.5

62.7

1.7

.3

1.3

-.2

-.9

1.1

-.2

1.4

1.4

17.2

27.2

29.1

30.9

16.9

59.0

14.3

64.1

72.7

r- 54.9

54.9

-. 4

-

.1

87.2

1
— —
59.1

1981c

1980s

18.7

6 5
— —
33.6

39.3

12.2

19.7

13.6

14.1

71.3

53.3

52.9

15.6

.
— ~
53.4

,
'
16.2

53.4

16.1

833*8 886.6

902,3

-.7

-1.2

16.5

26.0

29.1

30.5

16.9

59.0

87.3

14.3

64.1

72.7

382.6

409.5

437.3

468.4

486.2

544.1

631.9

646.4

709.1

780.4

12.5

12.2

10.9

11.1

12.0

10.9

11.4

11.7

10.3

8.9

370.1

397.3

426.4

457.3

474.2

533.2

620.4

634.7

698.8

771.5

1 # 6
2

1?

-16.5

?

7
/ .
1.5

.1

P l r QMtlUnfllpq and 9l FY
fft
Gross Federal debt V
Less 1 Federal agency
debt 5 /
Eqtfalst Gross public
debt
Plus 1 Other debt subject
to limit J /
Equslst
Debt subject
to limit

2.5

1.3

1.3

.9

.9

1.0

1.1

1.1

1.1

398.6

427.8

458.3

475.2

534.2

621.6

635.8

700.0

772.7

Office of the Secretsry of the Treasury. Office of Government Financing
1/
2J
1/
i/
4/

Consists largely of Federal Financing Bank borrowings to finance off-budget programs.
See attached table.
Consists largely of trust fund surplus or deficit.
Net of certsin public debt not subject to limit.
Fiscal year 1976 figure Includes reclesslficatlon of $471 million of Export-Import
Bank certificates of beneficisl interest from asset ssles to debt.

6.7

826.5 880.0
1.1

1.1

372.6

7.2

6.1
—
896.1

1.1

1.0

827.6 8 8 1 . 0

897.1

April

Source 1

11,

1980

Special Analysis E.
U.S. Budget

e - estimate

CO

138
MEANS OF FINANCING OTHER THAN BORROWING FROM THE PUBLIC
[In millions of dollars]
1980 estimate

1979 actual

1981 estimate

2,131

282
898
953

-308
584
447

6,521

Total

10,103

735
2,662
992

Decrease or increase ( — ) in cash and monetary assets
Increase or decrease ( - ) in liabilities for:
Checks outstanding, etc
Deposit fund balances
Seigniorage on coins...

12,236

723

Source: Office of the Secretary of the Treasury, Office of Government Financing—Apr. 11, 1980.

FUNDS RAISED IN U.S. CREDIT MARKETS
[Dollars in billions]

Fiscal year

Total

197 6
197 7
197 8
197 9
980 (estimate)
1981 (estimate)

Federal

$308.9
380.7
486.8
530.9
418.8
359.1

$82.9
53.5
59.1
33.6
39.3
1.5

Federal as
percent of

total

26.8
14.1
12.1
6.3
9.4
0.4

The interest rate assumptions used by OMB in the March Budget Revisions to
estimate interest on the public debt for fiscal year 1981:
[In percent]

Interest

ratesl

Maturity:
13 weeks

2

9.9

26 weeks 2
52 weeks 2
1 to 3 years
3 to 6 years
Over 6 years
1
2

10.0
10.4
11.6
10.8
11.0

Fiscal year 1981 averages.
Bank discount basis.

FOREIGN HOLDINGS OF TREASURY PUBLIC DEBT SECURITIES—FEB. 29,1980
[Dollars in billions]
Amount

Foreign and international official accounts
Other

Percent

$111.7
13.1
124.8

Total

89.5
10.5
100.0

Source: Office of the Secretary of the Treasury, Office of Government Financing—Apr. 15, 1980.

OWNERSHIP OF FEDERAL AGENCY DEBT, MAR. 31,1980
[In millions of dollars]

Outstanding

Export-Import Bank
Federal Housing Administration




778
551

Federal Reserve
and Government
accounts

16
163

Privately held

762
388

139
OWNERSHIP OF FEDERAL AGENCY DEBT, MAR. 31,1980—Continued
[In millions of dollars]

Outstanding

Government National Mortgage Association
Postal S e r v i c e 1
Tennessee Valley Authority
Other2
Total.
1
2

Federal Reserve
and Government
accounts

Privately held

2,979
250
1,725
710

1,327
37
77

1,652
213
1,725
710

6,993

1,620

5,373

Postal Service is an off-budget agency.
Includes Defense and Coast Guard family housing mortgages.

Note.—Figures may not add to totals due to rounding.
Source: Office of the Secretary of the Treasury, Office of Government Financing—Apr. 30, 1980.

Senator B Y R D . The next witness will be the Honorable James T.
Mclntyre, Director of the Office of Management and Budget.
Welcome, Mr. Mclntyre. We are glad to have you.
Mr. M C I N T Y R E . Good morning, Mr. Chairman.
Mr. Chairman, I have a prepared statement that I would like to
submit for the record and limit my comments this morning to a
few introductory remarks about the budget.
I would like to submit the prepared statement for the record.
Senator B Y R D . Fine. Your total statement will be published in
the record.
Mr. M C I N T Y R E . Thank you.
STATEMENT OF HON. JAMES T. McINTYRE, JR., DIRECTOR,
OFFICE OF MANAGEMENT AND BUDGET

Mr. M C I N T Y R E . Mr. Chairman and Senator Dole, it is a pleasure
to appear before you today and support the Treasury's request for
an increase in the statutory debt limit and its proposals for improving the management of the Federal debt.
At the end of March, the administration released its revision of
the 1981 budget.
In contrast to previous spring revisions, this year's report reflects
more than technical reestimates. The current revisions also reflect:
Reestimates of receipts and outlays in light of revised economic
assumptions; policy changes enacted by the Congress or proposed
by the President since the January budget was issued; and, most
importantly, budget reductions and tax measures proposed as part
of the administration's anti-inflation program.
As a result of these changes, the debt subject to limit at the end
of 1981 is now estimated to total $37.1 billion less than the January
estimate.
We have shown in my formal presentation that the fiscal year
1980 budget deficit is now estimated at $36.5 billion. This is $3.2
billion less than the estimate in the January budget.
Outlays are estimated at $568.9 billion for 1980 and receipts are
estimated at $532.4 billion. The current budget estimates for 1981
call for total outlays of $611.5 billion, which is $4.2 billion less than
January; and receipts are estimated at $628 billion, which is $28
billion above the January estimate.




140
This results in a 1981 budget surplus of $16.5 billion—the first
balanced budget in 12 years.
Let me review some of the specific changes in the totals since the
January budget. Estimates of outlays for 1980 have increased, on
net, by $5.4 billion, to $568.9 billion/
Reestimates increase outlays $8 billion compared to January, but
these reestimates are partially offset by planned reductions of $2.6
billion. Estimates of 1981 outlays have decreased since the January
budget from $615.8 billion to $611.5 billion. This $4.2 billion decrease is the net result of reestimates due largely to revised economic assumptions, which increase outlays $13 billion, and planned
reductions in outlays of $17.2 billion.
The current estimate of 1980 receipts is $532.4 billion—$8.6 billion above the January estimate. This increase is primarily due to
the higher economic estimates stemming from revised economic
assumptions and the administration's tax proposals for motor fuels
conservation and for withholding taxes on interest and dividend
payments. It should be noted that even without these revenueincreasing tax proposals, the 1981 budget would still be balanced.
Mr. Chairman, you do not know how pleased I am to appear
before you this year and say that we have complied with the Byrd
amendment requiring a balanced budget.
Senator BYRD. I tell you, Mr. Mclntyre, before commenting approvingly in that regard, I am going to let a little time expire. I am
not totally convinced that is the case.
If it is the case, it would be because of an increase in the amount
of taxes being taken from the American people. It will not come
about as a result of a reduction in spending and that is what really
needs to be done.
Mr. MCINTYRE. Mr. Chairman, we can get into that at the appropriate time, but I would have to say that there has also been a
reduction in the level of spending.
Senator BYRD. We will get into that. That is good.
It was exactly 6 months ago that the Congress approved spending
outlays for fiscal 1980 of $548 billion. Your new revised outlay
proposal is for $612 billion in round figures and that is an increase
of $64 billion.
That is not reducing spending, that is not getting spending under
control in any way, shape or form. What your original budget
proposed was a $68 billion increase over the budget resolution
approved by the Congress 6 months ago. Your revised budget proposed a $64 billion increase.
I admit a $64 billion increase is better than a $68 billion increase, but it is a huge increase. The American people are being
led to believe that there has been a reduction in spending. Instead,
there has been a substantial increase in spending.
I think it is unfortunate that the American people, in my judgment, are being misled by statements out of Washington. I do not
think that the sophisticated ones are being misled, but those who
just read the headlines and get some skimps of the TV news are
being misled.
What needs to be done is to get spending under control and that
certainly has not been done.




141
You mentioned that the Byrd amendment will be complied with
by a balanced budget. I hope it will be complied with, but if it is, it
will be complied with only because this administration is taking
from the American people the highest percentage in taxes of any
year in history compared to the gross national product.
Now, let me ask you this. Do you agree or disagree that our
Nation faces severe economic problems in the months ahead?
Mr. MCINTYRE. Unless we take action to deal with inflation, yes,
we do face severe economic problems in the months ahead.
Even if we do take action, we face some months of very discomforting news with respect to the economy.
Senator BYRD. I think that is certainly correct.
Now, in my judgment, the Federal Government for the last 15
years has been, and is now, a spendaholic. Do you agree or disagree?
Mr. MCINTYRE. I plead Secretary Miller's answer to that question. I would not want to take away the credit for that terminology.
I would agree, Senator, in all seriousness that we do need to
control the rapid rate of growth that we have seen in Federal
spending.
Senator BYRD. YOU have a rate of growth of 1 5 percent in this
fiscal year.
Mr. MCINTYRE. How much?
Senator BYRD. Fifteen percent in this year's, over the last budget
resolution.
Mr. MCINTYRE. The real rate of growth is virtually—well, maybe
a quarter of 1 percent in the 1981 budget over 1980, and that is
with a real rate of growth of approximately 3 percent in defense,
which I know you certainly support, and would not want to see
reduced, and also with our commitments in the energy area.
Senator BYRD. We are not speaking about the reasons, Mr. Mclntyre. We are speaking of what the facts are.
Mr. MCINTYRE. The reasons are essential to understand what is
happening to the Federal Government spending program and without understanding the reasons, we will not be able to address the
causes of the problems, Mr. Chairman.
Senator BYRD. We understand the reasons. We may not agree on
the exact reasons. You do not dispute these figures I am going to
mention now. I already mentioned them, as a matter of fact.
The last budget resolution for fiscal 1980 provided for spending of
$ 5 4 8 billion. This is what Congress approved 6 months ago. You
proposed to spend in this upcoming year $612 billion in round
figures, a $64 billion increase.
So it is all right to talk to the American public about reducing
spending, but when you look at the figures, there has been a
tremendous, huge, increase in spending proposed if your budget is
adopted. I think your budget ought to be cut sharply.
Mr. MCINTYRE. Mr. Chairman, there are reasons for this growth
in expenditures.
Senator BYRD. I have heard that from witnesses before this committee going back 15 years or more. Everybody has some reason as
to why. That is why we are in this fix. There is always some good
reason as to why we have to have more and more deficit spending.
Mr. MCINTYRE. May I throw out a few reasons?




142
Senator BYRD. Certainly.
Mr. MCINTYRE. First of all, the increase in real growth is very
important for the national security, very important to turn around.
Senator BYRD. Let me comment on that.
Of your $64 billion increase, 25 percent or less, 25 percent in
round figures goes to defense, 75 percent is elsewhere.
Mr. MCINTYRE. A large portion of that elsewhere is social security, Senator. I have not found anybody in the Congress who is
willing to take that on.
Senator BYRD. A large portion is elsewhere in the budget also
and probably I am the only Senator who has submitted precise
proposals where I am convinced that you can cut your budget by
$26 billion—I do not say without pain. I do not think there is any
painless way out of our situation.
I say that the administration has not faced up to the problem,
however.
Let me ask you about this. Dr. Rivlin, who will follow you—I am
reading her testimony at the moment—says this.
The deficit of off-budget entities is estimated at about $18 billion to $19 billion in
1981. CBO has recommended that the budget activities of all off-budget entities be
brought into the budget so that the unified budget will fully reflect Federal Government spending.

Do you favor or oppose that proposal?
Mr. MCINTYRE. In the long run, I would hope that we could pull
the off-budget Federal entities back on budget. As you know, they
are statutorily off budget.
I would hope
Senator BYRD. Would you favor a change in the statute?
Mr. MCINTYRE. Over the long haul I think it is very important to
get these entities back on budget. Most of these outlays reflect loan
programs, and as an interim measure, Mr. Chairman, we have, in
the executive branch, proposed a budget for the credit activities as
an integral part of our 1981 budget proposal. That includes most
off-budget activity.
We think that it is important to look at the total impact that the
Federal borrowing and spending has in the economy and therefore
we have proposed to the Congress that we write into approprations
bills limitations on the amount of credit that certain of the offbudget agencies can extend so that we can limit this credit activity.
I think this is a good first step to control Federal credit, and then
as we get the current budget, the unified budget in better shape, I
would hope that we could move these off-budget entities back onbudget where they belong where we can look at them properly.
Senator BYRD. Let me ask you this. If the off-budget items were
in the budget today, what would be the figure for fiscal year 1981,
surplus or deficit?
Mr. MCINTYRE. The figure for fiscal year 1981 would be $ 1 6 . 3
billion, depending on whose figures you are using. Ours would be
$16.3 billion.
Senator BYRD. What?
Mr. MCINTYRE. $16.3 billion.
Senator BYRD. DO you mean surplus or deficit?
Mr. MCINTYRE. Deficit.
Senator BYRD. Deficit.




143
So if you used the off-budget process as Dr. Rivlin recommends—
and I must say I agree with her—there would be a $16 billion
deficit in fiscal year 1981?
Mr. MCINTYRE. That is correct.
Senator BYRD. If you use the off-budget proposal, if you take the
off-budget items and put it in the budget for fiscal 1980, what
would be the deficit?
Mr. MCINTYRE. The total to be financed would be about $65
billion, including the trust funds surplus.
Senator BYRD. $ 6 5 billion.
So I would say that we are quite a long way from putting the
Federal Government
Mr. MCINTYRE. I need to clarify that, Mr. Chairman. I have read
you a figure on my chart here that includes more than the combined on-budget and off-budget deficit. Let me give you the deficit
figures.
For 1981, we would be $2.2 billion in deficit. My earlier figure of
$65 billion did not include the trust funds which would be used.
Senator BYRD. YOU were talking about Federal funds?
M r . MCINTYRE. Y e s , sir.
Senator BYRD. Yes.
Mr. MCINTYRE. And $ 5 1 . 5
Senator BYRD. Speaking

billion in 1 9 8 0 .
of the general operations of Government, namely the Federal funds, it seems to me that that is the
key to it. It would be $65 billion for 1980.
Mr. MCINTYRE. That is correct, if you discount the surplus in the
trust funds.
Senator BYRD. Yes.
When do you see a decline in interest rates, and to what degree?
Mr. MCINTYRE. Mr. Chairman, I have never tried to predict what
is going to happen to interest rates. My expectations, however,
would be if we could get inflation down then we could expect to see
interest rates come down.
My judgment is that if we could get a budget balance adopted by
the Congress and if the other elements of the President's antiinflation proposals are successfully executed, then I would hope
that we could see interest rates begin to decline in consonance with
the decline in the inflation rate.
Senator BYRD. When do you look for a significant reduction in
the inflation rate?
Mr. MCINTYRE. My hope is that some time during the summer or
early fall we will see the inflation rate begin to drop. I say that
because the mortgage interest rates that have been occurring in
the last several months are continuing to work their way through
the system and will show up, statistically speaking, in the CPI's of
the next couple of months.
The same is true for the experience of higher prices for energy
and I would hope, as the President's anti-inflation program took
effect, that we would see the inflation rate beginning to drop off
during the summer and fall.
Senator BYRD. Could you enlighten us as to just what the President's anti-inflation program is?
M r . MCINTYRE. Y e s , sir,




144
A key element of it is our proposal for a balanced budget, a
tighter fiscal policy. I think that while that balanced budget is not
a cure-all, it is certainly an important element of the President's
anti-inflation package.
In addition to that, the President has issued his new pay and
price guidelines. These are voluntary guidelines.
To date, I think that the program has been successful. We have
not seen, as Secretary Miller said, a spillover of the effects of
higher energy prices into wages at this point.
So continued aggressive enforcement of the voluntary wage and
price program, I think, is an important element, also, of the President's anti-inflation package.
In addition to that, the tightening of consumer credit is an
important element as well as, in the long term, dealing with some
of the structural problems in our economy, particularly with taking
action to improve productivity and to increase the ability for capital formation, for business expansion.
These are very important elements of the President's overall
program.
Senator BYRD. Excuse me. What has been done, or what has been
recommended with regard to capital formation and productivity?
Mr. MCINTYRE. One of the things we have done for productivity
is to keep up our expenditures, provide for real rates of growth for
research and development in the Federal budget.
I think that this is a very important element in improving our
technology in the United States and in providing for the technological breakthroughs through basic research that can lead us to
greater productivity.
So that, in the budget itself, we have taken some action.
When you talk about productivity, most people think in terms of
tax policy and at this point our position is that we think that the
first essential element in the effort to control inflation is to balance
the budget.
After we have some assurance that the Federal Government will
control expenditures and that we can have a balanced budget, then
we would certainly favor moving toward some changes in the tax
area to improve productivity and capital formation.
Senator BYRD. It is interesting to note that you do not feel
assured that fiscal discipline has been restored to the Federal
Government?
Mr. MCINTYRE. The President can propose, but the Congress has
to dispose, Mr. Chairman.
Senator BYRD. The President proposed a $ 6 4 billion increase in
spending. Is that going to restore confidence on the part of the
American people that Government spending is being got in control? Is that going to restore confidence on the part of foreign
countries that this runaway spending of the Federal Government is
being got under control?
I do not think it is. Maybe you think it is, but I do not think it is.
Mr. MCINTYRE. Mr. Chairman, if we had not cut the budget, the
expenditures in the budget would have been closer to $80 billion,
using your figures—using your figures, it would have been closer to
$80 billion if we had not cut the budget.




145
Senator BYRD. Let's use my figures—they are not really my
figures. They are what the Congress itself did. $548 billion—here is
no dispute on that figure; is there?
Mr. MCINTYRE. Well, we think that the actual 1 9 8 0 budget is
going to be higher than that.
Senator BYRD. I am saying what the Congress itself has approved.
M r . MCINTYRE. S o f a r .
Senator BYRD. Six months ago
M r . MCINTYRE. SO f a r , y e s , s i r .
Senator BYRD. $ 5 4 8 billion.

today.

And you recommend spending $612 billion—and I say again, that
amounts to a $64 billion increase in spending.
Mr. MCINTYRE. Mr. Chairman, the Congress action itself last
year has resulted in a higher level of spending than is in the
current budget.
Senator BYRD. I am not defending the Congress. I think the
Congress has been totally irresponsible through the years. I am not
defending Congress. I am just saying what the figures are.
The figures are a matter of record. They are not my figures.
I think that it is discouraging that such a huge increase is being
proposed at a time like this and I think it is doubly discouraging
when the public is being led to believe that there has been a
reduction in Government spending—which, of course, there has not
been, as we both know.
I do not advocate a reduction beyond or below what the spending
was in a previous year, but I do think that you are going to have to
moderate the great increase in spending that has taken place over
the years and is taking place for this upcoming year if your budget
is approved.
Do you feel that there should or should not be a substantial
reduction in the total spending figure of $612 billion?
Mr. MCINTYRE. I do not think that there should be a substantial
reduction in the figure of $612 billion. In fact, Mr. Chairman, I
think that it is going to take all of our efforts to keep spending
from going above the $612 billion figure, both the administration's
efforts and the Congress effort—and I hope we can count on you to
join us in that.
Senator BYRD. I think that you are correct in thinking that it is
going to take effort. I would be glad if you would endorse my $26
billion reduction.
I have come in with a reduction substantially below what you
came in with. I would be glad if you would endorse that.
But you do not feel there should be any reduction below $612
billion?
Well, I know you have a tough job. But I think that the record
ought to be clear that the administration is proposing a tremendous increase in spending as compared to what the Congress approved for this fiscal year just 6 months ago, a big increase in
spending for this fiscal year 1980 that you have proposed and you
propose a big increase over and above that for the upcoming fiscal
year.
Mr. MCINTYRE. That is correct, and the big increase in 1 9 8 0 is
attributable to a couple of factors. One is a huge increase in de-




146
fense spending. Two, increases in some of the entitlement programs
such as social security and also a commitment to meet other important Federal responsibilities to the poor, such as food stamps.
I think that it is important that we meet the statutory needs and
the entitlement requirements until the Congress has acted to
change the law, Mr. Chairman.
Senator BYRD. The law has a ceiling on food stamps. You propose
to take the ceiling off?
Mr. MCINTYRE. That is correct.
Senator BYRD. IS that not correct?
Mr. MCINTYRE. That is correct.
Senator BYRD. YOU proposed a 65-percent increase in food stamps
by taking the ceiling off.
Mr. MCINTYRE. $2.6 billion.
Senator BYRD. YOU are seeking a change in the statute to permit
an increase in spending?
Mr. MCINTYRE. Mr. Chairman, we are seeking a change in the
statute in order to avoid completely cutting the food stamp benefits
off in May for the month of June. If we do not take action to
increase it, we are going to have to completely shut down the food
stamp program.
My judgment is that that would last about 30 seconds before the
Congress enacted to relieve that cap.
What we are trying to do is something that is prudent and
responsible to keep us out of a crisis situation.
Senator BYRD. I think that it is ridiculous to say that it is
prudent and responsible to increase the food stamp cost by 56
percent.
Mr..MCINTYRE. We did not increase the cost by 56 percent. The
fact is that the people who are eligible and the number of participants in the program require us to add $2.6 billion to the program
in order to keep it going for the remainder of this year.
If we do not fund that program, the additional money that the
President has requested, then the food stamp program will have to
be shut down.
Senator BYRD. What was the figure for the food stamp program
in the concurrent resolution adopted November 16, 1979?
Mr. MCINTYRE. AS you know, the resolution is not made up of
exact figures; certain assumptions are made to reach a total. I will
have to get the exact figure of what was assumed, but it was
somewhere around $6 billion.
Senator BYRD. A little over $6 billion.
Mr. MCINTYRE. Around $6 billion.
Senator BYRD. In the new budget, what is it? A little over $9
billion?
Mr. MCINTYRE. Between $ 8 billion and $ 9 b i l l i o n — $ 2 . 6 billion
above the figure in the 1980 concurrent resolution.
Senator BYRD. One final question. It is correct, is it not, that if
the budget is balanced that it will be balanced not by reducing
spending but by increasing the revenue which is being taken from
the American people?
Mr. MCINTYRE. The budget will be balanced in two ways: By
cutting spending from what it otherwise would have been and by
not using additional or new taxes. The withholding tax on interest




147
and dividends and the gasoline conservation fee will not be used as
a substitute to expenditure reduction to balance this budget.
I hope that we have the opportunity to explain that we can
achieve this balanced budget without these new taxes. Recognizing
the difficulties that we have in the economy and the uncertainties
that we have in the economy, our policies do pave the road for the
economic situation over the next several months—assuming the
Congress supports the President's expenditure figures, an expenditure in the neighborhood of $612 billion—that encourage the productivity changes that need to occur and the tax changes that need
to occur in the future.
But I think it is very important that we balance the budget and
that we preserve the surplus that is generated primarily from the
gasoline conservation fee and the withholding on interest and dividends until we have some assurance that Congress will adopt the
President's proposals for Government expenditures.
Senator BYRD. The January 2 8 budget that you submitted estimated revenues to be $600 billion and then just willy-nilly, 2
months later, you increased that figure to $ 6 2 8 billion and, of
course, you get a much better financial picture by doing that.
No. 1, we will have to see whether the revenues do actually come
to that figure and if they do, that means, of course, that the
American people are paying more. The Government gains by inflation. It throws people into higher tax brackets.
The American citizens are paying more taxes and the budget, if
it is balanced—and I am not convinced it will be balanced—but if it
will be balanced, it will be balanced by increased revenues and not
by a reduction in spending.
Insofar as supporting the President's program, his spending program, I would be frank with you—I do not expect to support it. I
expect to vote to reduce it. I do not know how many votes I will
get, but I will make every effort to reduce that $612 billion.
Thank you very much, Mr. McIntyre.
Mr. MCINTYRE. Thank you.
[The prepared statement of Mr. McIntyre follows:]
STATEMENT OF J A M E S T . MCINTYRE, J R . , DIRECTOR OF THE OFFICE OF
M A N A G E M E N T AND BUDGET

Mr. Chairman and members of the Committee: I am pleased to support the
Treasury's request for an increase in the statutory debt limit and its proposals for
improving the management of the Federal debt.
At the end of March, the Administration released its revision of the 1981 budget. I
would like to submit for the record a copy of President Carter's message to the
Congress accompanying that update.
In contrast to previous spring revisions, this year's report reflects more than
technical reestimates. The current revisions also reflect: reestimates of receipts and
outlays in light of revised economic assumptions; policy changes enacted by the
Congress or proposed by the President since the January budget was issued; and,
most importantly, budget reductions and tax measures proposed as part of the
Administration's anti-inflation program. As a result of these changes, the debt
subject to limit at the end of 1981 is now estimated to total $37.1 billion less than
the January estimate. My statement will discuss briefly our revised budget estimates and their effect on the debt subject to the statutory limitation. The requests
that the Treasury is making today are consistent with the March budget revisions.
BUDGET TOTALS

As shown in the following table, the fiscal year 1980 budget deficit is now
estimated at $36.5 billion. This is $3.2 billion less than the estimate in the January




148
budget. Outlays are estimated at $568.9 billion for 1980, and receipts are estimated
at $532.4 billion. The current budget estimates for 1981 call for total outlays of
$611.5 billion, which is $4.2 billion less than January; and receipts are estimated at
$628.0 billion, which is $28.0 billion above the January estimate. This results in a
1981 budget surplus of $16.5 billion—the first balanced budget in 12 years.

TABLE 1.—BUDGET TOTALS
[Fiscal years; in billions of dollars]
Estimate
Actual 1979
1980

1981

465.9
493.7

Budget surplus or deficit ( - )

532.4
568.9

628.0
611.5

-27.7

Budget receipts
Budget outlays

-36.5

16.5

OUTLAYS AND RECEIPTS

Let me review some of the specific changes in the totals since the January budget.
Estimates of outlays for 1980 have increased, on net, by $5.4 billion, to $568.9
billion. Reestimates increase outlays $8.0 billion compared to January, but these
reestimates are partially offset by planned reductions of $2.6 billion. Estimates of
1981 outlays have decreased since the January budget from $615.8 billion to $611.5
billion. This $4.2 billion decrease is the net result of reestimates due largely to
revised economic assumptions, which increase outlays $13.0 billion, and planned
reductions in outlays of $17.2 billion.
The current estimate of 1980 receipts is $532.4 billion—$8.6 billion above the
January estimate. This increase is due primarily to higher incomes and the gasoline
conservation fee, partially offset by lower windfall profit tax receipts.
For 1981 the receipts estimate is $628.0 billion, $28.0 billion above the January
estimate. This increase is primarily due to the higher income estimates stemming
from revised economic assumptions and the Administration's tax proposals for
motor fuels conservation and for withholding taxes on interest and dividend payments. It should be noted that even without these revenue-increasing tax proposals,
the 1981 budget would still be balanced.
THE BUDGET BY F U N D GROUP

Table 2 compares our January and current estimates of the budget surplus or
deficit for 1980 by fund group, and Table 3 shows the current budget totals by fund
group.

TABLE 2.—SURPLUS OR DEFICIT BY FUND GROUP, 1980
[Fiscal year; in billions of dollars]
Estimate
Change
January

Federal funds
Trust funds
Off-budget Federal entities

-57.8
18.1
-16.8

Current

-50.1
13.6
-15.0

7.7
-4.5
1.7

The $3.2 billion decline in the estimated budget deficit for 1980 since January is
the result of a decline in the Federal funds deficit that is only partially offset by a
decline in the trust funds surplus.




149
TABLE 3.—BUDGET TOTALS BY FUND GROUP
[Fiscal years; in billions of dollars]
Estimate
Actual 1979

1980

Receipts:
Federal funds
Trust funds
Interfund transactions

1981

316.4
189.6
-40.1

628.0

411.4
202.4
-44.9

428.1
229.5
-46.1

493.7

568.9

611.5

-46.1
18.3

-50.1
13.6

2.4
14.1

-27.7

Total, surplus or deficit ( - )

532.4

362.4
171.3
-40.1

Total, outlays
Surplus or deficit ( — ) :
Federal funds.
Trust funds

430.5
243.6
-46.1

465.9

Total, receipts
Outlays:
Federal funds
Trust funds
Interfund transactions

361.3
216.0
-44.9

-36.5

16.5

Table 4 shows revised estimates of debt subject to statutory limitation, and
displays numerically the derivation of the change in debt subject to limit in 1979,
1980, and 1981. The estimates are based on our current revisions.
Let me take a moment to discuss this derivation. The unified budget deficit—$36.5
billion in 1980—has to be financed, essentially, by borrowing from the public. In
addition, Treasury will issue debt securities subject to limit to those trust funds
with surpluses. The trust funds as a whole are expected to run net surpluses of
$13.6 billion in 1980 and $14.1 billion in 1981.
Added to that are borrowing requirements arising from the activities of off-budget
Federal entities, the largest of which is the Federal Financing Bank. Off-budget
deficits, like the budget deficit, must be financed by Government borrowing. The
total deficit of the off-budget Federal entities is estimated at $15.0 billion in 1980
and $18.7 billion in 1981.
This brings us to a total amount to be financed of $65.1 billion in 1980 and $16.3
billion in 1981. To arrive at the final figures for change in the debt subject to limit,
adjustments must be made for means of financing other than borrowing, and for
other adjustments, such as changes in debt not subject to limit. Means of financing
other than borrowing include changes in cash balances and checks outstanding,
seigniorage, and miscellaneous factors.
The estimated increase in debt subject to limit is $53.4 billion in 1980. In 1981,
debt subject to limit rises by $16.1 billion, notwithstanding the budget surplus,
because of the borrowing requirements of off-budget Federal entities and the need to
provide debt securities to trust funds that experience surpluses.

TABLE 4.—DEBT SUBJECT TO LIMIT
[Fiscal years; in billions of dollars]
Estimate
Actual 1979
1980

1981

Budget deficit or suplus ( - )
Portion of budget deficit or surplus attributable to trust funds surplus

27.7
18.3

36.5
13.6

-16.5
14.1

Federal funds deficit or surplus ( - )
Deficit of off-budget Federal entities

46.1
12.4

50.1
15.0

-2.4
18.7

Total to be financed
Means of financing other than borrowing, and other adjustments

58.5
-3.6

65.1
—11.8

16.3
-0.2

Change in debt subject to limit
Debt subject to limit, beginning of year
Debt subject to limit, end of year

54.9
772.7
827.6

53.4
827.6
881.0

16.1
881.0
897.1




150
Table 5 compares the current and January derivations of the change in debt
subject to limit in 1981. The budget surplus or deficit swings $32 billion in the
direction of surplus, from a $16 billion deficit to a $16 billion surplus, and the
change in debt subject to limit falls by nearly the same amount, $31 billion.
Another point to be noted in this table is that there are offsetting changes of $17
billion in trust fund surpluses and in "means of financing other than borrowing,
and other adjustments." This results primarily from a change in the classification of
the energy security program. The January estimates has assumed that this program
would take the form of a trust fund, the surpluses of which would not be invested in
debt and therefore were counted as "other adjustments." In fact, the program was
enacted as a Federal fund. As a result, the combined trust fund surplus drops by $17
billion, and the Federal funds swing toward surplus by $17 billion more than the
$32 billion swing in the budget total. An offsetting $17 billion change occurs in
means of financing other than borrowing, as the adjustment for the effects of the
anticipated uninvested surplus of the energy security trust fund becomes zero. Thus,
there is no net effect on the change in debt subject to limit as a result of this
reclassification from trust funds to Federal funds. A similar change, though of
smaller magnitude ($5.7 billion), effects the composition of the 1980 estimates.

TABLE 5.—DEBT SUBJECT TO LIMIT, 1981
[Fiscal year; in billions of dollars]
Estimate
Change
January

Current

Budget deficit or surplus ( - )
Portion of budget deficit or surplus attributable to trust funds surplus

15.8
308

Federal funds deficit or surplus ( - )
Deficit of off-budget Federal entities

46.5
18.1

-2.4
187

-48.9
06

64.6
-17.6

16.3
-0.2

-48.3
17.4

47.1

16.1

-31.0

Total to be financed
Means of financing other than borrowing, and other adjustments
Change in debt subject to limit

-16.5 -32.3
14.1 - 1 6 . 7

This concludes my prepared statement, Mr. Chairman. I would be happy to
answer any questions.

Senator BYRD. Dr. Rivlin, we are pleased to have you.
Ms. RIVLIN. Thank you, Mr. Chairman. I am pleased to be here.
Senator B Y R D . Y O U have a fine record in this field, a deep knowledge of these problems and the committee is pleased that you
joined us today.
You may proceed as you wish.
Ms. RIVLIN. Thank you.
STATEMENT OF ALICE M. RIVLIN, DIRECTOR, CONGRESSIONAL
BUDGET OFFICE

Ms. RIVLIN. Thank you.
Mr. Chairman, I am pleased to appear before you today to testify
on the Treasury's request for an increase in the statutory debt
limit. My statement will cover three principal topics:
The budget estimates for the current fiscal year;
The implications for the statutory debt limit in the next fiscal
year if the 1981 budget is balanced; and
The effect of off-budget Federal lending on the public debt.
BUDGET ESTIMATES FOR FISCAL YEAR

1980

The second concurrent resolution for fiscal year 1980 approved
by the Congress last November specified revenues of $517.8 billion,




151
outlays of $547.6 billion, and a deficit of $29.8 billion. The appropriate level of the public debt for the fiscal year was estimated to be
$886.4 billion.
Since then it has become apparent—on the basis of our latest
economic forecast, actual spending through February, and the administration's March budget estimates—that 1980 outlays will be
significantly higher than specified in the second resolution.
On March 3, CBO informed the Chairman of the Senate Budget
Committee that our current estimates of outlays from actions already completed by the Congress would exceed the second resolution outlay ceiling by $10 billion.
The effect of these new spending estimates has been essentially
to halt congressional action on various supplemental appropriations requested by the administration until the second resolution
spending ceilings can be revised.
The increased estimates of outlays did not result from congressional action. They stem from such causes as higher interest costs,
higher rates of inflation, higher farm price supports resulting
largely from the grain embargo announced in January, lower asset
sales of federally held mortgages and loans, and faster spending
rates for defense procurement and several Federal grant programs.
On March 5, at the request of the Budget Committees, CBO
issued a revised economic forecast for 1980 and 1981 to take account of the recent acceleration in inflation and other developments. The new forecast for 1980 projected higher inflation, attributable partly to higher interest rates, and slightly lower unemployment rates than our January forecast. The details of this revised
forecast are described in my testimony before the Senate Budget
Committee, which is attached to my statement for your information.
On the basis of this revised economic forecast, we estimate that
outlays in 1980 that would result from actions already completed
by the Congress would total $560.8 billion, or $13 billion above the
second resolution ceiling. The principal reason for the $3 billion
further increase in estimated outlays since March 3 is higher interest costs.
Senator BYRD. Could I ask you at that point what assumptions do
you make in determining the interest costs? What rate assumptions?
Ms. RIVLIN. We are roughly similar to what Secretary Miller is
assuming, except that our assumptions for longer term securities
are a little higher.
Senator BYRD. Thank you.
Ms. RIVLIN. The administration has proposed a number of supplemental appropriations for fiscal year 1980, the largest of which
are for defense, food stamps, and energy programs. The administration's latest estimate for 1980 oulays, as of March 31, is $568.9
billion. The House Budget Committee has recommended that the
second resolution outlay ceiling be raised to $567 billion.
The Senate Budget Committee has recommended a revised ceiling of $566.4 billion. Actual spending through February was $234
billion, or almost 16 percent above the level of outlays for the first
5 months of fiscal year 1979. If this rate were to continue for the
remainder of this fiscal year, 1980 outlays could be as high as $571




152
billion. Thus, the likely level for 1980 outlays at this point appears
to be in the range of $566 billion to $571 billion.
Revenues for 1980 are also expected to be higher than the second
resolution estimate, largely due to the higher forecast for inflation
and the new oil import fee imposed last month by the President.
Our current estimate of 1980 revenues, including those from the
windfall profits tax, is $529 billion. This implies a 1980 deficit of
$37 billion to $42 billion, which is $7 billion to $12 billion above the
second resolution level.
THE DEBT CEILING FOR 1 9 8 0

The temporary limit on the public debt, scheduled to expire on
May 31, 1980, is $879 billion. The House Budget Committee recommends that the temporary limit be raised to $897 billion for fiscal
year 1980, an increase of $18 billion.
The Budget Committee's recommended limits for 1980 are somewhat higher than that proposed by the administration, largely
because of different assumptions about end-of-year cash balances,
means of financing and other adjustments.
THE BUDGET OUTLOOK FOR 1 9 8 1

The Administration and the Congress are in agreement that the
1981 budget should be balanced in order to help curb inflationary
pressures. The President submitted a revised budget to the Congress on March 31 that shows a surplus of $16.5 billion. The House
Budget Committee has reported a first budget resolution for 1981
that shows a $2 billion surplus.
On March 25, the Senate passed Senate Resolution 380, expressing the sense of the Senate that the Committee on the Budget
should report a balanced budget for the first resolution, and reserve any surplus for a tax reduction. The Senate Budget Committee has complied with this policy in its 1981 budget recommendations.
Balancing the budget in 1981 will not be easy. It will require
taking a number of difficult steps to restrain the growth in Federal
spending. Many of these steps will demand changes in basic law
relating to benefit payments, and grants to State and local governments. The Appropriations Committees will not be able to accomplish the necessary spending reductions by themselves; other committees will have to play a major role in achieving budgetary
savings.
THE DEBT CEILING FOR 1 9 8 1

Even if the budget is balanced in 1981, the temporary limit on
the public debt will have to be increased again by at least $30
billion. This will be necessary in order to accommodate the investment of trust fund surpluses in Federal securities and the deficit of
off-budget Federal entities.
We currently estimate that the trust fund surpluses in 1981 will
be on the order of $13 billion to $14 billion. The largest surpluses
will be for the civil service retirement and disability trust fund,
$9.3 billion; the Federal health insurance trust funds, $6.9 billion;
and the Federal disability insurance trust fund, $3.1 billion. The




153
old age and survivors insurance trust fund is projected to have a
deficit of about $10 billion in 1981.
The deficit of off-budget entities is estimated at about $18 billion
to $19 billion in 1981. Most of this deficit—90 percent, in fact—is
attributable to the credit activities of the Federal Financing Bank
FFB]. CBO has recommended that the budget activities of all offbudget entities be brought into the budget so that the unified
Dudget will fully reflect Federal Government spending. We also
favor changing the budgetary recording of agency transactions
with the Federal Financing Bank so that those transactions are
reflected in the agency budgets.
FEDERAL CREDIT ACTIVITIES

The administration has undertaken to provide an explicit program budget for Federal credit activities. Its proposed credit program control system, contained in the January budget, is an important first step toward greater control over the growth of Federal
credit activities.
Federal credit programs have been controlled to some extent
through the normal budget process. For example, the budget authority and outlays for most direct loans of the Federal Government are included in the unified budget, net of loan repayments.
Also, limitations of various kinds have been placed on some loan
guarantee programs.
But the volume of new direct loans by off-budget Federal entities
such as the FFB grew by 70 percent between 1976 and 1979, or
twice the rate of growth in total budget outlays. New loan guarantees grew even faster during the same period—by 108 percent.
Loan guarantees can often be used as a substitute for on-budget
direct lending to escape normal budget controls. In fact many
federally guaranteed loans are converted to off-budget direct loans
when they are financed through the FFB. In the January budget,
the administration estimated that $10.9 billion of guaranteed loans
will be converted in this manner in 1981.
The Congress currently exercises no control over the timing or
amount of off-budget financing by the FFB. But the Congress
cannot escape the consequences of it. The ceiling on the public debt
must be increased dollar-for-dollar for FFB's net lending. Even if
the Congress balances the unified budget for 1981, the public debt
ceiling will continue to increase if the FFB continues to act as an
off-budget lender.
Moreover, congressional efforts at increased budgetary restraint,
including possible spending limitations, could have the effect of
encouraging more off-budget transactions, particularly loan guarantees, as a way of escaping limitations on direct spending.
The Budget Committees have made a first step toward exercising
greater control over Federal credit activities by including targets
for new obligations for direct loans and new commitments for loan
guarantees in the first budget resolution for 1981. Further actions
will probably have to be taken to tighten congressional control over
both the spending budget and the credit budget; two possibilities
are changing the budgetary treatment of FFB activities so that
they are reflected in agency budgets, and bringing off-budget entities into the unified budget.

63-894 O - 80 - 11




154
By taking these steps, the Congress can begin to control in
advance the increase in the public debt limitation required to cover
the credit activities of off-budget entities. Otherwise, it is in the
position of simply ratifying these credit activities through the debt
limit process. We believe the Congress should determine explicitly
through a credit budget and other means how much of the Nation's
credit resources are to be allocated through Federal credit programs, and how the relative shares of Federal credit are to be
distributed among competing needs.
Thank you, Mr. Chairman.
Senator BYRD. Thank you, Dr. Rivlin.
I think that this is, to me at least, the clearest and best explanation of the situation created by the off-budget items.
You say that the volume of new, direct loans by off-budget Federal activities such as FFB, increased by 70 percent between 1976 and
1979, or twice the rate of growth in total budget outlays. It seems
to me that that is a very significant figure.
Ms. RIVLIN. Yes, the increase has been very rapid.
Senator BYRD. YOU say new loan guarantees grew even faster
during the same period. Differentiate between those two, could
you?
Ms. RIVLIN. That is the distinction between Federal lending and
Federal guarantees for private lenders.
Senator BYRD. I see.
The 108 figure is net guarantees?
Ms. RIVLIN. Loan guarantees, that is right.
Senator BYRD. The 70-percent figure is on loans?
Ms. RIVLIN. Direct loans not on the budget, right.
Senator BYRD. Direct loans not in the budget.
Ms. RIVLIN. Right.
Senator BYRD. Then you go on to say loan guarantees can often
be used as a substitute for on-budget direct lending to escape
normal budget controls. That is what you are trying to do. You are
seeking to stem that, to curb that loophole, so to speak, in your
proposal?
M s . RIVLIN. Y e s .

I do not know if putting loan guarantees on budget would stop
that substitution, but it would make it more obvious to the Congress what was happening. The Congress, of course, would decide
what volume of Federal lending it wants.
Senator BYRD. The Congress currently exercises no control over
the timing or amount of off-budget financing by the FFB, but the
Congress cannot escape the consequences of it. I certainly think
you are right.
The ceiling on the public debt must be increased dollar per dollar
for FFB lending.
Then you go on to say, if the Congress balances the unified
budget for 1981, the public debt ceiling will continue to increase, if
the FFB continues to act as off-budget lender. Moreover, congressional efforts at increased budgetary restraint, including possible
spending limitations, could have the effect of encouraging more offbudget transactions, particularly loan guarantees. It is a way of
escaping limitations on direct spending.




155
That is an extremely important point, which I do not think is
well realized by the Congress as a whole. I think it is an important
point to be brought out.
What I think I will do, Dr. Rivlin, if you do not object, I think I
will take your statement here and try to work it into some comments for the Senate, because I think it is important for all of us to
understand just what the real effect is of these off-budget items.
Do you feel that the off-budget agencies should be put in the
budget Mr. Mclntyre endorsed.
Ms. RIVLIN. He endorsed it in principle in the long run.
Senator BYRD. In principle, in the long run.
Do you see any great problems created if it were to be done in
the short run?
Ms. RIVLIN. The obvious problem is that, in whichever year this
is done, given our current circumstances, the deficit will appear to
increase. The deficit is not really increasing. It is really there
already. But the deficit in the unified budget would increase if
these activities were brought onto the budget.
Senator BYRD. What it would do, it would expose a deficit that is
already there but is not apparent. Is that about the way to express
it?
Ms. RIVLIN. That is correct.
Senator BYRD. What significant do you attach to this. Actual
spending through February was up almost 16 percent above the
level of outlays for the first 5 months of fiscal year 1979.
That is on page 3 of your statement.
Is there anything special as to why it should be up 16 percent, or
is that a period of time where it would normally be up?
Ms. RIVLIN. NO, that is a rapid rate of increase. We are pointing
this out so that the Congress will be aware that, if it continues
spending at this rate through the year, outlays would reach $571
billion. One principal reason for our estimate, which is higher than
anybody else's is the acceleration in the rate of spending in defense.
Senator BYRD. A S I gather, you feel the deficit will be, for 1 9 8 0 , a
unified deficit would be somewhat more than the administration
estimates?
Ms. RIVLIN. Yes. The administration is estimating about $36
billion. We think it would be in the range of $37 billion to $42
billion.
Senator BYRD. Could you amplify on this again. On page 3 at the
bottom, the Budget Committee's recommended limits for 1980 are
somewhat higher than that proposed by the administration, largely
because of different assumptions about year-end cash balances,
means of financing and other adjustments.
Ms. RIVLIN. Yes, Mr. Chairman.
We feel that this is an important thing for the committee to
note. The administration is assuming that it can reduce the cash
balances of the Government by about $10 billion by the end of
1980. That is a lot. If that does not happen, and if other things
remain equal, it would require an additional increase in the debt
ceiling.




156
Senator BYRD. Secretary Miller advocates a $ 5 billion increase in
the debt ceiling for this fiscal year. Do you feel that is a realistic
figure for this fiscal year? Let's leave out 1981 temporarily.
Ms. RIVLIN. If .you use either the House Budget Committee or the
Senate Budget Committee's recommended outlays and revenues
and their assumptions about other means of financing, then it is
not a realistic figure. Those assumptions would imply ceilings of
$ 8 9 6 . 7 billion in the case of the House and $ 8 9 5 billion in the case
of the Senate. Those figures are considerably higher than the administration is recommending.
Almost all of that results from differences in the assumptions
about cash management and cash balance rundown.
Senator BYRD. TO digress a moment, do you have any feeling as
to the future of the long-term bond market? Secretary Miller, I
thought was somewhat optimistic in his appraisal of what will
happen in the long-term bond market.
Ms. RIVLIN. He did sound optimistic, but he is a much better
expert on that than I am, and I would not venture an alternative
view.
Senator BYRD. YOU say balancing the budget in 1 9 8 1 will not be
easy. I shall agree with you.
Ms. RIVLIN. That may be the understatement of the week.
Senator BYRD. I think that is somewhat of an understatement. It
will require taking a number of difficult steps to restrain the
growth in Federal spending.
As I see it, we are in a fix, all of us—Congress, the executive
branch, everyone else, our country. We are in a fix with our
Government finances, and there is no easy way out.
If we are going to get our financial problems in better shape it is
going to cause some discomfort somewhere along the line. Is that
the way you see it?
M s . RIVLIN. Y e s .

It is very difficult to bring into balance a budget that has been
out of balance for so long—particularly in the face of a probable
recession.
Senator BYRD. It would appear that we are either in a recession
or we are pretty close to being in one. How would you analyze
that?
Ms. RIVLIN. Our forecast is similar to that of the administration.
We are projecting for this year a mild recession, although our
projection is somewhat more severe than theirs. We are projecting
about a minus 1 percent growth rate for the year. The administration is saying about minus one-half a percent.
Senator BYRD. Going into 1 9 8 1 , how do you figure 1 9 8 1 ?
Ms. RIVLIN. We, like the administration, expect recovery in 1 9 8 1
and a mild recovery—not a great bounce back, but around a 2percent growth rate for 1981 as a whole.
Senator BYRD. In getting to 1 9 8 1 , on page 4 of your statement,
even if the budget is balanced in 1981, the temporary limit on the
public debt will have to be increased again by at least $30 billion.
Do I understand this correctly that that would be $30 billion on
top of the $5 billion that the administration recommends or is it
$30 billion over the present figure?




157
Ms. RIVLIN. It would be $ 3 0 billion over both Budget Committee's
assumptions for 1980.
So one would be operating from a higher base in 1980.
Senator BYRD. In getting into the trust fund surpluses, the largest surpluses would be for civil service retirement and disability. Is
it normal to run as high a surplus as that in that particular trust
fund?
Ms. RIVLIN. In civil service retirement?
Senator BYRD. Yes.
Ms. RIVLIN. Yes, that is normal.
Senator BYRD. SO in effect what we are doing is taking the
surplus that accrued to the trust funds, principally the retirement
of civil servants, what they pay into the Treasury, and using that
to reduce the overall deficit—the overall deficit—because without
utilizing the surplus figures in the trust fund, of course the Government would have a much higher deficit in the Federal funds?
Ms. RIVLIN. That is right, but they are a part of the unified
budget.
Senator BYRD. They are a part of the unified budget, but if you
deal with only the general operations of Government, there is a
substantial deficit. There is a substantial benefit for 1980. There
will be a substantial benefit for 1981 also if you deal only with
Federal funds, would it not?
M s . RIVLIN. Y e s .
Senator BYRD. Thank

you very much, Dr. Rivlin. It has been very
interesting and I think an important contribution. I thank you for
being here.
Ms. RIVLIN. Thank you, Mr. Chairman.
[The prepared statement of Ms. Rivlin follows:]
STATEMENT OF ALICE M . RIVLIN, DIRECTOR, CONGRESSIONAL BUDGET OFFICE

Mr. Chairman, I am pleased to appear before this Committee as you prepare to
mark up the first concurrent budget resolution for fiscal year 1981 and revise the
second resolution for this year.
Your deliberations occur at a critical time for the economy. During the past year,
inflation accelerated to more than 13 percent—an extraordinarily high level—while
economic activity slowed sharply. Real GNP rose just 1 percent in 1979—well below
the 4.8 percent rate recorded in 1978. Interest rates jumped to record high levels;
the growth in employment slowed; and real disposable personal income fell.
Most forecasters see no improvement this year. In January, inflation accelerated
further and the unemployment rate rose to 6.2 percent. The consensus projection
shows high inflation, weak economic activity, and a continued rise in the jobless
rate in the year ahead.
Most forecasters also agree on another point: The economic outlook is particularly
uncertain, for at least three reasons. First, there is a great deal about the recent
behavior of the economy that is not well understood—especially the drop in both the
personal saving rate and labor productivity. Second, with interest rates and inflation at record levels, past experience provides little guidance for economic forecasters. And third, recent international developments have raised widespread speculation about increases in defense spending, while the acceleration of inflation has
raised prospects for cuts in nondefense spending.
THE ECONOMIC OUTLOOK

The latest CBO economic forecast, revised to take account of economic events
since January, is summarized in Table 1. As the table shows: (1) Real gross national
product (GNP) is expected to range from about zero growth to a 2 percent decline
from the fourth quarter of 1979 to the fourth quarter of 1980. During 1981, growth
in real GNP is expected to recover moderately, rising between 1.3 and 3.3 percent;
(2) the surge in consumer prices is projected to moderate slightly to the range of
10.6 to 12.6 percent from the fourth quarter of 1979 to the fourth quarter of 1980,




158
and to remain at a high rate in 1981; (3) the unemployment rate is forecast to
average between 6.3 and 7.3 percent in 1980, rising to 7.0 to 8.0 percent in 1981.
The CBO forecast is based on two assumptions about economic policy: First,
federal spending and tax policies for fiscal years 1980 and 1981 is assumed to be
those specified in current law. The previously legislated increases in Social Security
taxes scheduled for 1981 are assumed to take place; second, the Federal Reserve is
assumed to hold money growth near the midpoint of the announced target range.
Compared with CBO s January forecast (displayed in the lower panel of Table 1),
the revised forecast shows higher inflation, especially as measured by the Consumer
Price Index (CPI); the upward revision is attributable partly to higher interest rates
both in the current quarter and for the forecast period. The projected decline in real
activity has not been changed significantly. Unemployment rates are somewhat
lower than in the earlier forecast.

TABLE l . - C B O ' S ECONOMIC PROJECTIONS BASED ON CURRENT LAW
Economic variable

The revised forecast:
Nominal GNP (percent change)
Real GNP (1972 dollars, percent change)
Consumer Price Index (percent change)
Unemployment rate, average for the year (percent)
The January 1980 forecast:
Nominal GNP (percent change)
Real GNP (1972 dollars, percent change)
Consumer Price Index (percent change)
Unemployment rate, average for the year (percent)

1978:4 to
1979:4
(actual)

1979:4 to 1980:4

1980:4 to 1981:4

10.0 6.8 to 10.8
1.0 - 2 . 0 to 0.0
12.7 10.6 to 12.6
5.8 6.3 to 7.3

10.0 to 14.2
1.3 to 3.3
8.9 to 10.9
7.0 to 8.0

10.0 5.7 to 9.8
1.0 - 2 . 3 to - 0 . 3
12.7 8.6 to 10.6
5.8 6.5 to 7.5

10.2 to 14.4
2.0 to 4.0
8.3 to 10.3
7.5 to 8.5

CBO's revised current law forecast still shows a mild recession in 1980 and a weak
recovery in 1981. The fundamental causes of the projected downturn in real activity
are increased OPEC oil prices, generally high inflation, record high interest rates,
and depleted personal savings.
Rapid inflation and tight credit conditions depressed real income growth and
household spending in 1979 and continue to do so this year. The adverse impact of
the tightening of credit conditions by the Federal Reserve since last October can be
seen in the recent drop in housing starts and home sales. Meanwhile, rising gasoline
prices and lagging real incomes have sharply weakened sales of domestic automobiles. As a result, about one-quarter of the industry's blue-collar workers are on
indefinite layoff and a significant recovery in auto output is not expected until next
summer or later.
The accumulating problems in the housing and automobile sectors are particularly important for the overall outlook because together they account for a significant
portion of total domestic production. When the likely secondary effects on suppliers
of these industries and on producers of related products are included, the overall
impact on the economy is substantial. Retail sales other than autos are also projected to slow down in 1980 because of lagging real income growth, heavy debt burdens,
and the already low rate of personal saving.
Nevertheless, CBO still does not expect a deep recession in 1980. The projected
slowdown in household spending is offset in part by the forecast behavior of other
sectors. First, most indicators of future business spending suggest that this sector
will be stronger in 1980 than in most past recessions. Second, net exports are
expected to be a source of growth during this year. A domestic economy in a
recession will demand fewer imports, while somewhat stronger foreign economic
growth likely will bolster the demand for U.S. exports. Finally, and most important,
the available data indicate that inventories have remained roughly in line with
sales. Consequently, a severe curtailment of production to trim unwanted stocks
seems unlikely.
For 1981, CBO continues to expect a less robust recovery than the typical postwar
upswing. The major reasons, aside from the shallowness of the recession, are threefold. First, high inflation will continue to constrain the purchasing power of rising
money incomes. Second, high inflation and the international condition of the dollar
are expected to persist in keeping short-term interest rates high. Third, a sizable
braking effect on the economy will come both from the Social Security tax increases




159
scheduled for 1981 and from the combination of inflation and the progressive
income tax structure, which pushes taxpayers into higher tax brackets.
The sharp rise in prices in the forecast period reflects continued passthrough of
fuel costs and very high interest and labor costs. Attempts by workers to restore
real incomes are expected to boost labor costs. CBO projects especially large increases in the CPI, to which many spending programs are indexed. Many economists
believe that this measure has exaggerated changes in the cost of living in the past
few years because of its treatment of housing costs. The CPI has increased more
rapidly than other measures of inflation partly because of rising mortgage interest
rates. Although tight credit conditions eventually reduce demands and slow the
accompanying inflation, higher interest rates initially cause mortgage rates, and
consequently the CPI, to rise, which in turn may trigger increased spending and
larger wage adjustments.
In summary, inflation is now even more serious than just a few months ago, while
the economy still appears to be precariously balanced between recession and a path
of little growth. The outcome is uncertain, but most forecasters, including CBO,
expect a combination of high inflation and recession in the year ahead.
THE BUDGET OUTLOOK

Fiscal Year 1980.—The second concurrent resolution for fiscal year 1980 approved
by the Congress last November specified revenues of $517.8 billion, outlays of $547.6
billion, and a deficit of $29.8 billion.
On the basis of our March economic forecast, actual spending through January,
and the Administration's latest budget estimates released in January, it is apparent
that 1980 outlays will be significantly higher than assumed for the second resolution. CBO's estimate of outlays resulting from actions already completed by the
Congress plus certain mandatory supplemental is almost $560 billion, more than
$12 billion above the second resolution ceiling.
The increased estimates of outlays can be attributed to various items; for example, an additional $7 billion for higher interest costs, $2 to $3 billion for higher farm
price supports resulting largely from the recent grain embargo, $2 billion for lower
asset sales of federally held mortgages and loans, and $2.5 billion for faster spending
rates for defense procurement and several federal grant programs.
The Administration's January budget estimate for 1980 outlays is $563.6 billion,
or $16 billion above the second resolution. The Administration's higher outlay
estimate for 1980 includes proposed supplemental for items such as food stamps,
defense and energy programs.
Revenues for 1980 are now estimated to be about $521 billion, including the
windfall profits tax. This is over $3 billion above the second resolution level. The
increase is primarily due to the higher forecast for inflation. The budget deficit for
1980 is likely to be as much as $10 billion or more above the second resolution level,
largely because of the expected higher spending.
Fiscal Year 1981.—Turning to fiscal year 1981, the President's budget proposes
revenues of $600 billion, outlays of $615.8 billion, and a budget deficit of $15.8
billion. The proposed budget places primary emphasis on restraining inflation and
moving toward budgetary balance. The 1981 budget deficit would be $24 billion
lower than the $40 billion deficit estimated for 1980 by the Administration in the
January budget. This reduction would be achieved by permitting little real growth
in total spending and allowing tax burdens to rise to the highest levels since World
War II.
The major revenue initiatives proposed in the President's budget include the
windfall profits tax on oil production and cash management proposals that would
accelerate certain tax collections. The absence of a tax cut in 1981, coupled with $21
billion in estimated additional revenues from the windfall profits tax and other
revenue initiatives, would increase the ratio of federal revenues to GNP to almost
22 percent.
The major spending initiative in the President's budget is increased budget authority for defense programs of about 5 percent in real terms—with continued real
growth in 1982 and 1983. The focus of debate on the appropriate amount of real
growth in defense spending has shifted this year from outlays to budget authority.
Higher spending for payments for individuals, many of which are adjusted automatically for increases in the cost of living, and for national defense account for
nearly all of the projected $52 billion growth in outlays in the Administration's
budget.
Increased spending in other federal programs would be offset primarily by reduced outlays for farm price supports, usually high levels of sales of federal assets,
and various legislative savings proposals—that is, proposed changes to existing law
to achieve reductions in otherwise mandated spending. These legislative savings




160
proposals, which total over $5 billion for 1981, have been proposed in previous
budgets but have not yet been approved by the Congress.
CBO Reestimates of the 1981 Budget.—CBO has reestimated the Administration's
budget proposals using our own economic assumptions and estimating methodology.
On this basis, CBO estimates that revenues would total a little over $609 billion,
outlays would total $629 billion, and the budget deficit would be about $20 billion.
The major CBO reestimates of the Administration's budget are shown in Table 2.
On the revenue side, CBO estimates that current law revenues would be almost
$10 billion higher than the Administration estimate, largely because of a higher
forecast of inflation. On the other hand, the budget estimate for the windfall profits
tax appears to be slightly overstated based on the tax conference agreement.
For outlays, the impact of the revised CBO forecast would be to increase outlays
by about $6 billion for interest on the public debt and indexed benefit payment
programs such as Social Security. CBO also estimates that defense spending in 1981
would be over $2 billion above the level estimated by the Administration, based on
recent spending patterns. Faster spending rates for such grant programs as community development grants, federal-aid highways, and EPA construction grants add
another $2 billion to 1981 outlays.
CBO's estimate of the cost savings that would result from the passage of hospital
cost containment legislation is about one-half of the Administration's $780 million
estimate, largely because of different assumptions concerning the response of hospitals to the incentives and controls that would be established. CBO also estimates
that Medicare and Medicaid outlays in 1981 could be another $900 million higher
than those included in the President's budget because of higher utilization rates,
lower savings from administrative cost reduction items, and other differences in
programmatic assumptions. Finally, CBO estimates that receipts derived from the
sale of leases of Outer Continental Shelf lands and royalties from mineral production could be $800 million less than projected by the Administration.
TABLE

2 . — C B O estimates of the administration's

fiscal year 1981 budget

proposals
[In billions of dollars]

Revenues:
Administration's estimate
CBO reestimates:
Current law revenues
Windfall profit tax

600.0
9.6
- 0.4

CBO estimate of administration's revenue proposals
Outlays:
Administration's estimate
CBO reestimates:
Net interest
Social security and other indexed benefits
Defense spending
Federal grants for community development, highways, urban
mass transportation, and municipal waste treatment facilities
Medicare and medicaid
OCS rents and royalties
All other, net

609.2
615.8
4.5
2.2
2.5
1.7
1.3
0.8
0.2

CBO estimate of administration's outlay proposals
629.0
In addition, the Administration's January budget does not include the impact of
increased fuel costs on defense operations, which could require as much as $2.5
billion in 1980 and $4.1 billion in 1981. Enactment of the Nunn-Warner selective
pay raises for military personnel could add another $500 million in 1980 and $800
million in 1981 for defense spending. Since January, there has been an increase in
the tempo of defense activities in the Indian Ocean, which will also add to defense
costs. In addition, spending in 1981 could be higher if the Administration's legislative savings proposals are not approved by the Congress, and if the large asset sales
planned by the Administration do not occur to the extent estimated.
CONCLUSION

In view of the recent acceleration of inflation and the projected rapid growth in
federal spending, there is a great deal of discussion concerning spending cuts. The
recent CBO background paper, Reducing the Federal Budget: Strategies and Exam-




161
pies, prepared at the request of the Chairman and Members of the House Budget
Committee, lists a large number of illustrative spending cuts, with estimates of the
expected savings. For example, some of the larger cuts for fiscal year 1981 would be
$1.6 billion for eliminating subsidies to the U.S. Postal Service and $2.4 billion for
eliminating general revenue sharing for states. To achieve much greater savings
from a single program would probably require a cut in defense or in one of the
entitlement programs such as Social Security. Thus, to achieve a large saving may
require difficult cuts in many programs. As you know, the Administration is now
studying cuts for this year and fiscal year 1981.
A cut in federal spending can be expected to reduce aggregate demand temporarily and thereby help curtail inflation. With respect to their impact on the overall
economy, however, such policies are not costless. They generally have an adverse
effect on unemployment, at least for a few years. Moreover, one should not expect
that restrictive budget policies will provide a "quick fix" of the inflation problem.
Past experience suggests that such policies are not likely to have a large impact on
inflation in the first year.
Although monetary and fiscal policy do have the potential for improving the
economic performance of the economy through their effects on aggregate demand,
they do not address directly the fundamental economic problem of the 1970s—
fluctuations in prices and employment arising from changes in aggregate supply
and reduced growth in productivity. These economic problems require a longer-run
approach. Thus, traditional demand management policies may help to offset the
real effects of a "supply shock," such as a sharp increase in the price of imported
oil. But longer-run policies to encourage conservation or to increase domestic energy
supplies are needed to get to the root of this problem.
The same is true of productivity growth. In order to achieve high growth rates, it
may be necessary to tailor fiscal policies to promote research and development, to
encourage saving rather than consumption, and to provide a sufficient return on
capital investment to ensure a more rapid modernization of the nation's plant and
equipment.
APPENDIX. COMPARISON OF FORECASTS

The revised CBO forecast is in general agreement with the consensus view among
economic forecasters, which projects high inflation, weak productivity gains, and
rising unemployment during the next year or two.
A comparison of CBO's forecast for calendar year 1981 and those of other forecasters is not meaningful because forecasts for that year are greatly influenced by
differing assumptions about tax cuts and federal spending levels.
TABLE 3 . — C O M P A R I S O N OF REVISED C B O AND OTHER FORECASTS FOR CALENDAR YEAR 1 9 8 0

Commercial moaels:
Chase Econometrics 1
Data Resources, Inc 2 .......
Merrill Lynch 3
Wharton Associates 4
Average of 42 business forecasts f \...
Revised CBO (mid-point of projectedi
s
2
3
4
5

- 0.9
0.2
—1.3
0,0
-0.3
0.0

7.1
66
7,5
6.9
7.0
6.8

13.4
12.9
12.0
12.0
11.6
13.0

February 23, 1980.
February 22, 1980
February 4, 1980.
January 28, 1980.
From "Blue Chip Economic Indicators/' vol. 5, No. 2. Feb. 10, 1980.

Senator BYRD. The subcommittee will stand in recess.
[Whereupon, at 11:50 a.m. the subcommittee recessed to reconvene at the call of the Chair.]
[The following tables were submitted by Senator Byrd for the
hearing record:]




162
CONGRESSIONAL BUDGET RESOLUTIONS
[Dollars in billions]
Fiscal year

1976
197 6
197 7
1977
1977 (revisions)
197 8
197 8
197 9
1979
1979 (revised)
198 0
1980
1980 (revised) 1
19811
1

Resolution date

1st Concurrent Budget, May 1975
2d Concurrent Budget, December 1975
1st Concurrent Budget, May 1976.....
2d Concurrent Budget, September 1976....
1st Concurrent Budget, May 1977
1st Concurrent Budget, May 1977
2d Concurrent Budget, September 1977....
1st Concurrent Budget, May 1978
2d Concurrent Budget, September 1978....
2d Concurrent Budget, May 1979
1st Concurrent Budget, May 1979
2d Concurrent Budget, November 1979
2d Concurrent Budget
1st Concurrent Budget

Receipts

$298.2
300.8
362.5
362.5
356.6
396.3
397.0
447.9
448.7
461.0
509.0
517.8
528.9
612.9

Expenditures

$367.0
374.9
413.3
413.1
409.2
461.0
458.3
498.8
487.5
494.5
532.0
547.6
566.4
612.9

Deficit/surplus

-$68.8
-74.6
-50.8
-50.6
-52.6
-64.7
-61.3
-50.9
-38.8
-33.5
-23.0
-29.$
-37.5
0.0

Proposed Senate figures.

UNIFIED BUDGET RECEIPTS, OUTLAYS AND SURPLUS OR DEFICIT FOR FISCAL YEARS 1958-81,
INCLUSIVE
[Billions of dollars]

Fiscal year

195 8
195 9
196 0
196 1
196 2
196 3
196 4
196 5
196 6
196 7
196 8
196 9
197 0
197 1
197 2
197 3
197 4
197 5
197 6
197 7
197 8
197 9
1980 (estimate)
1981 (estimate)

:

Source: Office of Management and Budget, fiscal year 1981 budget revisions.




Receipts

79.6
79.2
92.5
94.4
99.7
106.6
112.7
116.8
130.8
149.5
153.7
187.8
193.8
188.4
208.6
232.2
264.9
281.0
300.0
357.8
402.0
465.9
532.4
628.0

Outlays

82.6
92.1
92.2
97.8
106.8
111.3
118.6
118.4
134.6
158.2
178.8
184.6
196.6
211.4
231.9
247.1
269.6
326.2
366.4
402.7
450.8
493.7
568.9
611.5

Surplus ( + )
or deficit
(-)

-3.0
-12.9
+0.3
-3.4
-7.1
-4.7
-5.9
-1.6
-3.8
-8.7
-25.1
+3.2
-2.8
-23.0
-23.3
-14.8
-4.7
-45.2
-66.4
-45.0
-48.8
-27.7
-36.5
+16.5

163
DEFICITS IN FEDERAL FUNDS AND INTEREST O THE NATIONAL DEBT F R FISCAL Y A 1959-81,
N
O
ER
INCLUSIVE
j Billions of dollars]

Year

Receipts

Outlays

65.8
75.7
75.2
78.7
83.6
87.2
90.9
101.4
111.8
114.7
143.3
143.2
133.8
148.8
161.4
181.2
187.5
201.1
241.3
270 5
316.4
361.3
430.5

1959
1960
1961
1062
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976...
j 977
1978
1979
1980 2
1981 2

77.0
74.9
79.3
86.6
90.1
95.8
94.8
106.5
126.8
143.1
148.8
156.3
163.7
178.1
187.0
199.9
240.1
269.9
295.8
332.0
362.4
411.4
428.1

Surplus ( - f )
or deficit
(-)

Debt interest 1

-11.2
+ 0.8
-4.1
— 6.9
— 6.5
-8.6
-3.9
-5.1
-15.0
-28.4
-5.5
-13.1
-29.9
- 29.3
-25.6
-18.7
-52.6
- 68.8
-54.5
-61.5
- 46.1
-50.1
+ 2.4

81.0

' Interest on gross Federal debt
Estimated figures.

2

Source. Office of Management and Budget, fiscal year 1981 budget

The national

debt in the 20th century

1

—Totals

at the end of fiscal

years

|Rounded to the nearest billion dollars]

1900..
1901..
1902..
1903..
1904..
1905..
1906..
1907..
1908..
1909..
1910..
191L.
1912..
1913.,
1914..
1915..
1916..
1917..
1918..
1919..




1

12
25

1920..
1921..
1922..
1923..
1924..
1925..
1926..
1927..
1928..
1929..
1930..
1931..
1932..
1933..
1934..
1935..
1936..
1937..
1938..
1939..

7.8
9.5
9.3
9.5
10.3
11.0
11.8
12.6
14.2
15.6
17.6
20.0
21.6
22.5
24.8
30.0
33.5
37.7
42.6
49.3
60.3
74.7

24
24
23
22
21
21
20
19
18
17
16
17
19
23
27
29
34
36
37
48

164
The national

debt in the 20th century

1

—Totals

at the end of fiscal

years—

Continued
[Rounded to the nearest billion dollars]

51
58
79
143
204
260
271
257
252
253
257
255
259
266
271
274
273
272
280
288
291

194 0
194 1
194 2
194 3
194 4
194 5
194 6
194 7
194 8
194 9
195 0
195 1
195 2
195 3
195 4
195 5
195 6
195 7
195 8
195 9
196 0
1
Gross Federal debt.
2
Estimated figures.

1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980 2
1981 2

293
303
311
317
323
329
341
370
367
383
410
437
468
486
544
632
709
780
833
887
902

Source: Office of Management and Budget, fiscal year 1981 budget.
GROSS NATIONAL PRODUCT
[In billions of dollars]
Year

Raw figure

1,171
1,307
1,413
1,516
1,706
1,887
2,128
2,369
2,621
2,885

1972
1973
1974
1975
1976
1977
1978
1979 2
1980 2
1981 2
1
2

justed

1,171
1,235
1,214
1,192
1,275
1,333
1,399
1,432
1,442
1,449

To account for inflation, adjusted to 19/2 dollars.
Estimated figures.

Source: Office of Management and Budget, fiscal year 1981 budget review

ANNUAL FOOD STAMP EXPENDITURES F R FISCAL YEARS 1965 THROUGH 1980, INCLUSIVE
O
(In millions of dollars]
Year

196 5
196 6
196 7
196 8
196 9
197 0
1971




Outlays

34.4
69.5
114.1
184.7
247.8
576.8
1,567.8

Budget authority

55.6
100.0
139.5
184.9
279.9
596.9
1,666.2

165
ANNUAL FOOD STAMP EXPENDITURES FOR FISCAL YEARS 1965 THROUGH 1980, INCLUSIVE—
Continued
[In millions of dollars]
Year

197 2
197 3
197 4
197 5
197 6
197 7
197 8
197 9
1980

Outlays

1,909.2
2,207.5
2,844.8
4,599.0
5,632.0
5,398.8
5,498.8
6,821.7
8,678.1

2,285.0
2,495.7
2,995.4
4,869.4
5,196.4
5,506.2
5,618.4
6,670.3
8,735.6

46,385.0

1

Total
1

Budget authority

47,395.4

Estimates

Source: Department of Agriculture, fiscal yeaf 1981 budget, March 1980.

U.S. GOLD HOLDINGS, TOTAL U.S. RESERVE ASSETS, AND U.S. GOVERNMENT LIQUID LIABILITIES TO
FOREIGNERS
[Selected periods in billions of dollars]
Gold holdings

End of World War h
Dec. 31, 1959
Dec. 31, 1970
Dec. 31, 1973
Dec. 31, 1974
Dec. 31, 1975
Dec. 31, 1976
Dec. 31, 1977
Dec. 31, 1978
Dec. 31, 1979
Source: U.S. Treasury Department.




. .

20.1
22.8
10.7
11.7
11.6
11.6
11.6
11.7
11.7
11.2

Total assets

20.1
24.8
14.5
14.4
15.9
16.2
18.7
19.3
18.7
18.9

Liquid
liabilities

6.9
19.4
48.0
93.6
120.3
127.4
152.5
193.8
244.3
268.1

BUDGET RECEIPTS, OUTLAYS, AND SURPLUS OR DEFICIT(—) BY FUND GROUP, 1970-81 ESTIMATE
[Fiscal years; in billions of dollars]
Estimate 1
1970

1971

1972

1973

1974

1975

1976

1977

1978

1979
1980

Federal funds receipts:
Individual income taxes
Corporation income taxes
Subtotal
Excise taxes
Estate and gift taxes
Customs duties
Miscellaneous receipts
Total Federal funds, receipts
Trust fund receipts
interfund transactions
Total budget receipts
Federal funds outlays
Trust funds outlays
Interfund transactions
Total budget outlays

1981

90.4
32.8

86.2
26.8

94.7
32.2

103.2
36.2

119.0
38.6

122.4
40.6

131.6
41.4

157.6
54.9

181.0
60.0

217.8
65.7

241.5
74.2

283.3
74.1

123.2
10.4
3.6
2.4
3.4

113.0
10.5
3.7
2.6
3.9

126.9
9.5
5.4
3.3
3.6

139.4
9.8
4.9
3.2
3.9

157.6
9.7
5.0
3.3
5.4

163.0
9.4
4.6
3.7
6.7

173.0
10.6
5.2
4.1
8.0

212.5
9.6
7.3
5.2
6.5

240.9
10.1
5.3
6.6
7.4

283.5
9.8
5.4
7.4
9.2

315.7
16.3
5.8
7.3
16.2

357.4
42.9
6.0
7.8
16.3

143.2
59.4
-8.8

133.8
66.2
-11.6

148.8
73.0
-13.2

161.4
91.2
-21.3

181.2
104.8
-21.1

187.5
118.6
-25.1

201.1
133.7
-34.8

241.3
152.8
-36.3

270.5
168.0
-36.5

316.4
189.6
-40.1

361.3
216.0
-44.9

430.5
243.6
-46.1

193.7

188.4

208.6

232.2

264.9

281./0

300.0

357.8

402.0

465.9

532.4

628.0

156.3
49.1
-8.8

163.7
59.4
-11.6

178.1
67.1
-13.2

187.0
81.4
-21.3

199.9
90.8
-21.1

240.1
111.2
-25.1

269.9
131.3
-34.8

295.8
143.3
-36.3

332.0
155.3
-36.5

362.4
171.3
-40.1

411.4
202.4
-44.9

428.1
229.5
-46.1

196.6

211.4

232.0

247.1

269.6

326.2

366.4

402.7

450.8

493.7

568.9

611.5

Federal funds surplus a deficit ( - )
Trust funds surplus or deficit ( - )

-13.1
10.3

-29.9
6.8

-29.3
5.9

-25.6
10.7

-18.7
14.0

-52.6
7.4

-68.8
2.4

-54.5
9.5

-61.5
12.7

-46.1
18.3

-50.1
+13.6

- + 2.4
+14.1

Budget surplus or deficit ( - )

-2.8

-23.0

-23.4

-14.8

-4.7

-45.2

-66.4

-45.0

-48.8

-27.7

-36.5

-16.5

1
1980 and 1981 as estimated in the 1981 budget.
Source: Office of Management and Budget, March 1980.




H-*

(JS,

167
RECEIPTS, OUTLAYS, AND SURPLUSES OR DEFICITS IN TRUST FUNDS,1 FISCAL YEARS 1975-81
(In billions of dollars]
Receipts

S

Outlays

*

o r

1975:
Social security
Health insurance
Revenue sharing
Unemployment
Federal employees retirementHighways
Other 1 ..
Total..

66.7
16.9
6.2
8.2
11.5
6.8
2.4

64.7
14.8
6.1
13.2
7.1
4.8
.4

118.6

111.2

70.7
18.5
6.4
16.2
13.2
6.0
2.7

73.9
17.8
6.2
17.9
8.4
6.5
.6

133.7

131.3

81.2
22.8
6.7
15.0
16.7
7.3
3.2

85.1
21.5
6.8
14.1
9.7
6.1

152.8

143.3

+9.5

89.6
27.6
6.9
15.1
17.8
7.6
3.4

93.9
25.2
6.8
11.2
11.0
6.1
1.2

-4.3

168.0

155.3

+ 12.7

102.1
31.7
6.9
15.9
20.5
8.0
4.5

104.1
29.1
6.8
11.2
12.5
7.2
.4

-2.0
+ 2.6
+ .1
+ 4.7
+8.0
+ .9
+ 4.1

189.6

171.3

118.2
36.1
6.9
17.4
24.0
8.1
5.3

119.3
33.5
6.9
15.2
14.7
9.0
3.8

-1.1

216.0

202.4

+ 13.6

.

+ 2.0
+ 2.1
+ .1
-5.0
+4.4
+ 1.9
+2.0
+7.4

1976:
Social security
Health insurance
Revenue sharing
Unemployment
Federal employees retirementHighways
Other 1
Total..

-3.2
+ .7
+ .1
-1.7
+ 4.8
-.5
+ 2.2
+ 2.4

1977:
Social security
Health insurance
Revenue sharing
Unemployment
Federal employees retirement..
Highways.
Other 1
Total..

(2)

-3.9
+ 1.2
-.1
+.9
+ 7.0
+ 1.2
+ 3.2

1978:
Social security
Health insurance
Revenue sharing
Unemployment
Federal employees retirementHighways
Other 1
Total ..

+ 2.4
+ 4.0
+ 6.8
+ 1.5
+ 2.3

1979:
Social security
Health insurance...
Revenue sharing
Unemployment
Federal employees retirementHighways
Other 1 ....
Total

+ 18.3

1980:
Social security
Health insurance
Revenue sharing
Unemployment
Federal employees retirementHighways
Other 1
Total.




+ 2.6
0>
+ 2.2
9.3
-.9
1.5

168
RECEIPTS, OUTLAYS, AND SURPLUSES OR DEFICITS IN TRUST FUNDS, 1 FISCAL YEARS 1 9 7 5 - 8 1 —

Continued
[In billions of dollars]
Receipts

Outlays

*

o

r

t

1981:
134.1

Total
1
3

-5.8

37.4
5.1
18.5
16.8
7.8
4.0

+ 8.0
-.5
+ .8
4-8.9
+ .4
+2.3

243.6

Health insurance
Revenue sharing
Unemployment
Federal employees r e t i r e m e n t Highways
Other1

139.9

45.4
4.6
19.3
25.7
8.2
6.3

Social security

229.5

+ 14.1

Includes subtractions for intrafund transactions, proprietary receipts from the public, receipts from off-budget agencies.
$50 million or less.

Note—Figures may not add because of rounding. 1980 and 1981 as estimated in the January 1981 budget. l / ( + ) / ( — ) indicate surplus/
deficit.
Source: Office of Management and Budget, April, 1980.

Senator B Y R D . The subcommittee will stand in recess.
[Thereupon, at 11:50 a.m. the subcommittee recessed to reconvene at the call of the Chair.]




O