Full text of Federal Reserve Notes : April 1975

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Federal Reserve Notes
FEDERAL RESERVE BANK OF SAN FRANCISCO
•
APRIL 1975
Serving Alaska, Arizona, California, Hawaii, Idaho, Nevada, Oregon, Utah & Washington

FED FACES ITS GRAVEST CRISIS,
BALLES TELLS ANNUAL CONFERENCE

"The Federal Reserve faces one of

the most severe policy crises in its
60-year existence," President John

could achieve a healthy 4-to-5 per
cent rate of growth in late 1975 and
also in 1976.

J. Balles told the Federal Reserve
Annual

"In the meantime, however, we are

Speaking to a capacity audience of
bankers, executives and community

left with a serious unemployment
problem, with the jobless rate al
ready above 8 percent and perhaps
reaching 9 percent before the year
is out. Previously, adult women and
teenagers entering the workforce

Bank

of

San

Francisco's

Conference of Directors.

leaders last month in San Francisco,

Balles said the Fed must walk a very
fine line to provide stimulus to an
economy in deep recession without
laying the groundwork for a later and
perhaps even more destructive bout
of inflation. An even more lasting
danger lies in the current threats to
the independence of the Fed. If
monetary policy is now to be politi
cized along with fiscal policy, one
wonders how we might fight inflation
in the future, he said.

"Moreover, the politicization of the
Fed could destroy the System's
grass-roots links to various regions
and sectors of the economy. It is a
structure that has served us very
well in the past. I sincerely hope that
the independence of the Fed and
the important role played by its di
rectors are not to be eroded in this

accounted for much of the rise in

(continued on page 2)

The keynote speech is delivered
by President John J. Balles.

MAIER APPOINTED TO SAN FRANCISCO BOARD
Cornell C. Maier has been ap
pointed to the Board of Directors of
the Federal Reserve Bank of San

Francisco. The appointment was
made by the Board of Governors of
the Federal Reserve System in
Washington, D.C. Maier will serve

as

a

Class

member)

on

C

Director

the

San

(public

Francisco

Fed's Board for a term ending De
cember 31, 1977.
Maier is President and Chief Execu
tive Officer of Kaiser Aluminum &

Chemical

Corporation

headquar

tered in Oakland. He is also a Direc

fashion."

tor of Kaiser Aluminum. He is the

Turning to the business outlook, the

fourth president of the company and
the youngest chief executive officer
in its history.

Committee, the U.S. Council of the

Maier is on the Board of Directors of

merce, the Aluminum Association,

Fed President said his research staff

expected a decline of 3 percent in
real GNP in 1975, and a drop in the
rate of inflation from 12 percent to 6
percent or less over the course of
the year. With a quickening of con

Comalco

sumer demand and associated out

Aluminum

lays by businessmen, the economy

member of the Natural Resources

C. C. Maier

International

Kaiser
Kaiser

Industries
Aetna,

Corporation,

and

the

Chamber

International

of

Com

Primary

Kaiser

Bauxite,

Aluminum Institute. He received his

and

Anglesey

B.S. degree in electrical engineer
ing from the University of California

Limited,
Limited.

Maier

is

a

at Berkeley. "^

"Enormous consequences could
flow from Congressional intervention
in monetary policy and the credit

ANNUAL CONFERENCE
(continued from page 1)

markets,"

unemployment. The 1975 recession
problem centers on the heart of the
labor force. About 43 percent of the
3 million people added to the jobless

of the increase in unemployment

represented actual job losses rather
than new entrants or reentrants into
the labor force."
Balles asserted that the nation must

rely heavily on demand-stimulating

ices as well as the elimination of bot

tlenecks which impede production
and distribution. This goal depends
on rising productivity. And produc
tivity depends in turn on increased
capital formation.
"Thus incentives to capital formation
must be generated, for example,
through a higher investment tax
credit. This in itself is a strong
reason for supporting the current
tax-reduction proposals. In addition
we must strive harder to get rid of
the host of laws and regulations
which tend to limit employment and
productivity gains and our general
standard
of
living—such
as
minimum wage laws, fair trade laws
and the like."

He said the Congress
sponded to the recession
employment with larger tax
spending increases than

has
and
cuts
the

re
un
and
Ad
ministration has proposed. As a re
sult, the economy now faces even
more massive Federal deficits than

the $87-billion total previously ex
pected for the fiscal 1975-1976
period.
The cumulative budget deficit over
the quarter century from 1951-1976

"First

and

interest rates and the allocation of

rolls in the past year have been

portance should be placed on
supply-enhancing measures that
would help cure our long-range
problems of price stability and job
creation. Long-run price stability
depends on the provision of in
creased amounts of goods and serv

said.

credit by fiat have never success
fully replaced the market system as
a basis for rationing the financial re
sources of the economy. Inflation
and high interest rates do not come
from the use of credit by 'speculative
borrowers.' They result largely from
excessive growth of the money sup
ply, necessitated mainly by large
and chronic Treasury deficits."

heads of households. Well over half

measures to cure the present reces
sion. But he stressed that equal im

he

foremost would be the politicizing of
monetary policy. The legislation of

Balles paid tribute during his ad
Chairman O. Meredith Wilson
introduces the head table to bankers

and executives attending the Annual
Conference of Directors Luncheon.

will be at least $225 billion. Most of

this was built up during the 1970's.
Balles noted one major source of the
deficit-financing problem: funds for
specific programs have been au
thorized and appropriated without
regard to how they might be funded.
Because of this lack of coordination,
deficits have been a residual of the

budgetary process rather than a de
liberate tool of fiscal policy.
"By its very nature, fiscal policy is
highly politicized," he said. "It is
more pleasant to spend than to
tax—there tends to be a bias in favor

of increased appropriations relative
to increased revenues. Congress
has added new programs without
either supplanting outmoded pro
grams or raising taxes to fund the
new programs." He added, how
ever, that the new Budget Reform
Act may point the way out of this
financing thicket. Under this legisla
tion, a limit will be set for expendi
tures and priorities will be estab
lished for new or existing programs.

In regard to Congressional propos
als regarding Fed involvement in
credit allocation, Balles argued that
allocation would be better left to the

marketplace. He also took exception
to proposed Congressional initia
tives which would specify rigid rates
of money-supply growth.

dress to the business leaders of the

Twelfth District and the directors of
the Reserve Banks.
He said the directors serve as a

bridge between the System and their
individual regions and industries by
providing first-hand information on
business and credit conditions.

In

doing so, they often have knowledge
of trends in the economy before they
are observable in economic and fi
nancial statistics.
"The nine directors of the San Fran

cisco Bank's Board serve a region
that is truly impressive in size,
character and accomplishments,"
Balles said. "Within our System there
are certain districts whose size gives
them special importance. This is
especially true of the Twelfth District
headquartered here in San Fran
cisco, which covers the nine states
west of the Rockies including Alaska
and Hawaii.

"In a pluralistic nation such as ours,
there can be highly diverse trends
among various industries or sectors
of the country, and consideration
needs to be given to these factors in
the formulation of national monetary
policy. Thus, the organization of the
Fed provides an important grass
roots ingredient. Since a Federal
Reserve Bank is an institution with a

public purpose, our directors share
in a trust which benefits the nation. I

believe they have carried out this

purpose with eminent success." iflp

NEW RETIREMENT BOND AVAILABLE
A new bond that incorporates
income-tax deduction advantages is
now being offered by the Treasury
Department for individuals who are
not covered by a pension or retire
ment plan.

the bonds either over-the-counter or

Congress authorized Individual Re
tirement Bonds (IRBs) under the
Employee Retirement Income Se
curity Act of 1974. IRBs can be
purchased for the first time this year
by individuals eligible to make de

the date of death. An investor who

ductions on their federal income-tax

by mail.
IRBs mature and interest ceases on

the first day of the month in which
the registered owner reaches the
age of 701/2 years, or five years after

redeems IRBs before reaching the
age of 591/2 must include the re
demption value of the bond as in
come on his federal income-tax re

turn for that year. He must also pay
an additional income tax of 10 per

returns for retirement savings. They
are designed to assist persons such
as those employed on a job-by-job
basis and those employed by small

the age of 591/2, the bond may be
redeemed without penalty at its cur

firms

paid to anyone redeeming a bond

or institutions without

retire

ment plans. Persons who are not
covered by annuity contracts pur
chased for employees by some ex
empt organizations are also eligible.

Interest on IRBs is compounded
semi-annually at the rate of 6 per
cent per year. The interest on IRBs is
paid with the principal upon re
demption. They come in denomina
tions of $50, $100 and $500.

For taxable years beginning January
1, 1975 and thereafter, individuals

eligible to purchase the securities
may deduct 15 percent of gross in
come, or up to $1,500, on their tax
returns.

Commercial banks and trust com

cent of the value of the bond. After

COLA APPOINTED
AVP AT L.A. BRANCH

rent value. However, no interest is
within 12 months of issue date.

John R. Cola has joined the Los
Angeles Branch of the San Fran
cisco Fed as an Assistant Vice Pres

The amount of IRBs issued during
any one calendar year purchased in
the name of any one person, cannot
exceed either 15 percent of the
compensation included in gross in
come for that year or $1,500. Roll
over contributions, however, are not

ident responsible for supervision of
the Data Processing and Planning
Departments.

The data-processing function ap
plies information technology to Bank
operations in order to increase pro

other excise taxes—whether federal

ductivity and improve services to
member banks, the Treasury and
the public. The Planning Department

or state—but they are not subject to
other types of state taxes.

is responsible for conducting opera
tional studies and introducing new

For further information contact the

tiveness of Fed services.

included in this limitation. The bonds

are subject to estate, inheritance or

procedures to improve the effec

Fiscal Department of your nearest
Fed office. The Bank has copies of
Treasury Circular 1-75 explaining

panies can arrange for the purchase
of the bonds through any Federal

the offering in detail, as well as a
pamphlet that answers the most
frequently-asked questions about

Reserve Bank (or branch) or directly
from the Treasury. The Fed will sell

IRBs. Ijjflp

Cola has had fifteen years experi
ence in data-processing and plan
ning operations. He previously
served as Corporate Director of
Data Processing at Bourns Inc., an
international electronics corporation.
w

BUCHER CALLS FOR NEW BANKING COMMISSION
cation and difficulties in coordinat

Despite the underlying strength of

dent Bankers Association last month

sion that would be responsible for
bank regulation and supervision
now scattered among three agen
cies — the Federal Reserve, the
Comptroller of the Currency, and the
Federal Deposit Insurance Corpora
tion. This concept of a singleagency regulator was first proposed
more than a decade ago by former

in San Francisco.

Fed Governor J. L. Robertson.

The Fed Governor came out strongly
for a new Federal Banking Commis

Bucher said the commission plan
could help eliminate wasteful dupli-

the banking system, Federal Re

serve Governor Jeffrey M. Bucher
said that banks and bank regulators
are nevertheless suffering from
growing skepticism on the part of
the public. Bucher spoke before a
conference of the Western Indepen

ing actions among several different
supervisory agencies. It could
minimize existing friction and con
flicts, and enable the banking indus
try to operate under a simpler set of
federal rules and in an environment

of competitive equality.
He said the proposed commission
would enable the Fed to devote its

attention more exclusively to its
primary concern as a central bank

— monetary policy. "^

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FOOD STAMP ACTIVITY
UP SHARPLY IN 75

With inflation and recession simul

taneously buffeting the nation in
1975, it is not surprising that a great
many programs have been pro

posed in Congress to heal the
economy. Or that many of them
sometimes take quite opposite ap
proaches. Food stamps are a case
in point. Suggestions have been
made to both expand and limit the
scope of the food stamp program,
and to both increase and lower the

value of individual stamp allotments.
But whatever way the conflicting
views are ultimately resolved, one

thing is certain for the immediate fu
ture. Food-stamp activity will rise
sharply for the Fed and the com
mercial banks in the wake of new

program changes.

lotments. Paper shortages and
higher production and shipping

trict

costs were other considerations.

branches in the nine-state area are

The new food stamps are brown
($1), purple ($5), and blue-green
($10). Since a more sophisticated
design is employed for the new
series, it will be much harder than
before to counterfeit food stamps.

accept

food

stamps.

This

means that almost 5,000 banks and

involved in the plan.
million persons are
program in this
California, with 1.3

An estimated 2
enrolled in the
District alone.
million partici

pants, leads the District and the na

tion in food-stamp activity. 1jjH

All of this means a larger workload
for

the

Fed

and

the

commercial

banks. For during the next several
months, both the old and new-style
stamps will be handled by stores
and banks. Retailers, meal services
and wholesalers are to continue to

PRODUCTION STARTS
ON BICENTENNIAL FILM
A new film on the role and respon
sibilities of the Federal Reserve Sys
tem is now in production for national

accept the old series until June 30.
After that, the recipients can ex
change old coupons at local is

distribution in time for the nation's
Bicentennial celebration. A contract

suance offices for new-series food

Productions of New York for the Fed

coupons. Banks are to accept the
old coupons for redemption until
July 31.

film, which will explore the historic
origins of the System along with re
cent significant developments.

has been signed with Bill Jersey

Last month, the U.S. Department of

So between now and August 1, spe

Like the other films in the San Fran

cial care should be taken to sepa

cisco Fed's library, the Bicentennial
film will be made available at no

USDA's Food and Nutrition Service

rate the old and new coupons before
depositing them with the Fed. The
Fed will accept both old and new
coupons under the same transmittal
advice, but the two styles should not

said the larger denominations were

be combined under the same strap.

prompted by the rising volume of
food stamps required to meet higher

About 80 percent of the banks in the

food costs and increasing stamp al

San Francisco Federal Reserve Dis

Agriculture introduced a new foodstamp series consisting of $1 and
$10 coupons and a redesigned $5
coupon. On the way out are the
present 50-cent and $2 coupons.

charge to banks, service groups,
community groups and the public on
a reservation basis. All five offices in

the Twelfth District will have multiple
copies of the film for distribution by

early 1976. ^jfp