View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.





JUNE 25, 1979

Printed for the use of the
Committee on Banking, Housing, and Urban Affairs

48-180 0


G 0 19 79


WILLIAM PROXMIRE, Wisconsin, Chairman
JOHN HEINZ, Pennsylvania
ROBERT MORGAN, North Carolina
DONALD W. RIEGLE, Ja., Michigan
PAULE. TSONGA$, Massachusetts
KENNETH A. McLEAN, Staff Direct-Or
M. DANNY WALL, Minority Staff Director
Bauca F. FREED, Professional Staff Member

MONDAY, JUNE 25, 1979





Washington, D.C.
The committee met at 10 a.m. in room 5302 of the Dirksen
Senate Office Building, Senator William Proxmire, chairman of the
committee, presiding.
Present: Senators Proxmire and Lugar.
Also present: Senators Chiles and Stone.
The CHAIRMAN. The committee will come to order.
Mr. Schultz, will you remain standing and raise your right hand.
Do you swear the testimony you are about to give will be the
truth, the whole truth, and nothing but the truth?
Mr. SCHULTZ. I do.
The CHAIRMAN. Unfortunately, Senator Garn and Senator
Morgan, who were coming, are late. I understand Senator Chiles
will be here too, shortly.
In view of the fact we have a very distinguished junior Senator
from Florida, Mr. Stone, here, I know he's a busy man, and I am
going to ask him to introduce the nominee; then we will go ahead.
Senator STONE. Thank you, Mr. Chairman.
It is an honor to present a distinguished citizen from my State,
the State of Florida, as a nominee to this Board. The nominee, Mr.
Fred Schultz, served with distinction as the Speaker of the Florida
House of Representatives. He served with distinction on a number
of citizen boards.
He has met a payroll successfully. He has made sound investments. And he brings to this position a very successful background
in all the efforts of his life.
He is a key member of the board of one of the main banking
groups in Florida. And so he has direct banking experience in
addition to general knowledge of mercantile, commercial, and investment practices in our State.
I can't think of a better, more well prepared, rounded, skilled
nominee for a position of this magnitude as Mr. Fred Schultz. It is
an honor to be associated with this nomination, and I present him
to the committee with full confidence in his integrity, his skill, and
in the success with which he will conduct himself in this position if
confirmed by this committee and the Senate.
The CHAIRMAN. Thank _you very much for a very clear and
enthusiastic endorsement, Senator Stone. We appreciate that.
Now Mr. Schultz, do you have any statement you would like to
make on your behalf?
Mr. ScHULTZ. No, I don't, Senator.

Digitized by



The CHAIRMAN. All right, sir. I understand that your arrangements for disposing of your holdings, that you have made those
arrangements and that present conflict-of-interest problems and
the establishment of the blind trust have been approved by the
White House counsel; is that true?
Mr. &HULTZ. Yes, sir.
The CHAIRMAN. Could you please confirm for the record and
briefly describe what your plans in these matters are?
Mr. Scmn.TZ. My plan is to dispose of all securities that pose a
conflict-of-interest problem held by me, my wife, and two of my
children who reside with me, together with any trusts in which I or
they have interests.
The individual holdings will be placed in qualified blind trusts,
and the trustee takes charge of those investments with the specific
understanding, in the trust agreement, that he cannot invest in
any securities which would represent a conflict of interest.
The CHAIRMAN. Senator Stone, thank you very, very much for
coming. We appreciate it very much.
Senator SroNE. It was a pleasure, Mr. Chairman.
The CHAIRMAN. Go ahead, sir.
Mr. &HULTZ. I believe that I will be able to complete all of those
arrangements within a week after the Senate confirms me, if it
does so.
The CHAIRMAN. Would that be you would complete those arrangements and eliminate any possible conflict of interest you say
within a week before. confirmation? Would that be before you actually take office, or after?
Mr. ScHULT'Z. That would be before, Senator.
The CHAIRMAN. Before you take office.
You have an unusual background. You attended Princeton University, from which you graduated in 1952. You also had 2 years of
law school at the University of Florida. What was your degree at
Mr. ScHULT'Z. My degree was in history, Senator. At that time,
that was a rather broad degree; I took a lot of economics and
political science courses as well.
The CHAIRMAN. What economic courses did you take?
Mr. ScHULTZ. At Princeton itself, not very many. Most of the
economics that I had at that point was as part of the readings in
history courses, rather than in special courses in economics.
I wasn't very interested in economics at that period in mr life,
Senator. I didn't get very interested in it until the late 1950 s and
early 1960's. At that time, I began reading extensively, and my
business affairs got me heavily into that area.
The CHAIRMAN. At Princeton, did you take any specific economic
courses, economic history courses for example, anything of that
Mr. ScHULTZ. Not to my knowledge, no.
The CHAIRMAN. Now _y<>u say that you have done a great deal of
reading in economics. What specifically have you read since you
left the university?
Mr. ScHULT'Z. Everything from Paul Samuelson's textbook, on up
through a number of different books by various authors: Heilbroner to Friedman; some reading from the very large Keynes

Digitized by



volume; articles from various publications that have been necessary for me to read, either because of my banking involvement orspecifically in the last 6 years-because I have been heavily involved in making economic forecasts. Obviously during that period
most of my reading has been in this particular area.
The CHAIRMAN. What publications particularly do you read, economic publications?
Mr. Scmrnrz. I am a member of the National Association of
Business Economists, and I read some of the publications that they
put out; the "Financial Analysts Journal,' together with large
numbers of periodicals that are put out.
I get forecasts from Data Resources, from Otto Eckstein; from a
great many of the investment banking houses, such as Gary Wenglowski at Goldman & Sachs. I take the publications that Citicorp
puts out, and those from Harris, so that I have some idea what Leif
Olsen and Beryl Sprinkel are saying.
I have a number of friends who are economists who send me the
things that they write. And I try to visit them occasionally, as I
have within the last month.
The CHAIRMAN. Have you had any opportunity to be tested or
examined under any circumstances or as an economist or as an
economic forecaster, anything of that kind?
Mr. ScHULTZ. I would say the answer to that, Senator, is probably every day in my-The CHAIRMAN. Well, yes. But any kind of a Mr. ScHULTZ. Formal examination?
The CHAIRMAN. Any kind of a formal test where there is any sort
of opportunity to evaluate your capacity and your understanding?
Mr. ScHULTZ. In an academic way? The answer to that is no, sir.
The CHAIRMAN. How about in a practical way?
Mr. ScHULTZ. Again, I have to say that since I deal with economists-first rank economists-all the time, I have the opportunity
to discuss issues with them constantly, and I feel comfortable in
my conversations with them.
Recently I was at Harvard, MIT, and Princeton with various
people: at MIT, Paul Samuelson, Franco Modigliani, Stanley Fischer; at Harvard, Otto Eckstein, Francis Bator, Lintner, Duesenberry,
Martin Feldstein; at Princeton, Bert Malkiel, Steve Goldfeld, Allan
. The CHAIRMAN. Let me just interrupt, Mr. Schultz.
Senator Chiles has arrived. I know how busy he is. I am going to
ask Senator Chiles, if he would, if he would like to make a statement about the nominee, so we can give him an opportunity to
move on to his busy day, which I know he has.
Senator CHILES. Mr. Chairman, I appreciate that, and I appreciate the opportunity to be here with Fred Schultz. I hoped to be
here in time to introduce him to you, and I am sorry that I missed
that opportunity.
The CHAIRMAN. Your junior colleague did a fme job.
Senator CHILF.S. Good. I am sure that he did.
I have had the opportunity t.o know Fred Schultz for many,
many years. We were in law school together at the University of
Florida. We then went to the Florida Legislature at approximately
the same time and served for a number of years together.

Digitized by


Fred Schultz was speaker of the house while I was in the legislature, and 80 I had an opportunity to observe his leadership as
speaker while I was a member of the house. And I can say that he
did an outstanding job.
He's been very, very involved in a number of activities in the
State of Florida, part of them being politics. He's also been tremendously involved in our educational system in Florida, having done
an awful lot of work in the legislature, and then outside of the
legislature on different commissions. Fred headed a Governor's
task force in revamping much of the way we set up our educational
system in the State of Florida. He has been very successful not
only in his public life, but also in his private life as a banker, as an
entrepreneur, and has certainly been a civic leader in Jacksonville,
and also in many activities in the State of Florida.
I had an opportunity to observe Fred Schultz very close. We ran
for the same seat in the United States Senate.
The CHAIRMAN. That was very close too, I understand.
Senator CmLl:s. That was very, very close. But for a handful of
votes, he might be sitting where I am sitting; but I doubt if I would
be being proposed to be on the Federal Reserve Board.
But I think that through those years and through the observations that I have had an opportunity to make of Fred Schultz, I
think this is an outstanding nomination the President has made.
I think that Fred brings to this job a lifetime up to now of
activities, not only from his educational background, but also from
his business and political activities, that give him an ability to
focus on this job and on the problems that come across, or come
before the Board that he will be uniquely qualified to handle.
So it is for me a real opportunity to endorse this appointment.
And I think that he's going to make an outstanding member of the
The CHAIRMAN. Thank you very much, Senator Chiles. We appreciate 80 much your presentation.
I must say to you, Mr. Schultz, you certainly have the enthusiastic support of both your Senators, men who know you well, particularly Senator Chiles who knew you as a colleague and as a friendly
Now let me ask you, after graduating from Princeton you went
to the University of Florida law school. Why didn't you complete
law school?
Mr. ScHULTZ. I went through the substantive courses, Senator,
and I knew that I did not want to become a practicing lawyer. I
really didn't know very well what I wanted to do in those years. I
had come back from Korea and was very unsure.
I went to law school because my father had gone to law school.
He had not practiced, but had gone on to be a successful businessman, and I thought perhaps it was a good background.
In retrospect I would have been better off taking an MBA, I
think; that would have been really more my interest. But I came to
the point at which I felt that I knew that I didn't want to practice
law, and 80 the procedural aspects were to be bypassed. I thought it
would be good for me to come back to Jacksonville and go to work,
80 I went to work for a bank.
The CHAIRMAN. You went to law school for 2 years?

Digitized by



Mr. 8cHuLTZ. It was 1½.
The CHAIRMAN. Then you were a bank trainee for Barnett Bank,
Mr. ScuuLTZ. Yes.
The CHAIRMAN. How long?
Mr. ScuuLTZ. A year.
The CHAIRMAN. What was your capacity as a bank trainee?
Mr. ScHuLTZ. Just shuffled around from pillar to post in all the
The CHAIRMAN. Then you started your own investment firm?
Mr. ScHuLTZ. Yes.
The CHAIRMAN. What kind of investments did your firm special•
• ?
Mr. 8cHuLTZ. It was a personal kind of thing. It was a small
office doing some venture capital work. I had looked around for
things that I thought were interesting investments and, when I
found them, sometimes I would invest in them myself, and other
ti.mes I would get a group together to do so. We invested in a
number of different enterprises.
The CHAIRMAN. Well, such as, real estate, banking, finance,
Mr. 8cHuLTZ. I owned an automobile agency. I started a manufacturing company to make-The CHAIRMAN. Manufacturing what?
Mr. ScHULTZ. Pardon?
The CHAIRMAN. What was it you were manufacturing?
Mr. 8cHuLTZ. High tensile strand for prestressed concrete. That
company is still in existence and is very successful.
A swimming pool company.
In 1962, together with a fellow who is now in Congress, I bought
a small bank in central Florida and we started a couple of others
down there.
The CHAIRMAN. Now in these various capacities I take it you
were an investor, not a manager, or didn't take an active part in
the swimming pool and tensile manufacturing firm and so forth.
You were an entrepreneur and investor rather than a manager; is
that right?
Mr. ScHuLTZ. No. I took an active part in the management on
the financial side, in the setting up of the incentives. I am a great
believer in motivation and incentives.
The CHAIRMAN. But not the day-to-day management?
Mr. 8cHuLTZ. No, not the day-to-day management, although I
spent a good deal of time with each company.
The CHAIRMAN. In connection with the bank, did you have any
specific experience in the bank, say as a loan officer or as an
investment officer, or whatever?
Mr. ScuuLTZ. No, I did not, Senator. My banking experience
comes either because of my experience as a director of a bank or
because of my experience in actually malcing loans and setting up
these other companies.
The CHAIRMAN. Let me go back just for a minute to your economic reading and discussion. Did you do any writing, any articles?
Mr. ScuuLTZ. No, very little in that area. I wrote a short article
not too many years back for the trust company. And I appeared

Digitized by



before the Domestic Council several years back, when they were
holding hearings around the country. I gave some written testimony there. I have written very little, other than an article on legislative modernization.
The CHAIRMAN. Now you have served as economic forecaster for
your firm?
Mr. ScHULTZ. That's correct.
The CHAIRMAN. Would you explain the nature of those forecasts?
Are they qualitative, quantitative? Are they for 1 year, several
years? And how do you go about making them?
Mr. ScHULTZ. I don't do any primary work; I don't do any of the
actual gathering of statistics. What I have done is to have access to
a number of forecasts that are made by others, and then to go
about analyzing those, looking particularly at the assumptions that
they make and then making my own assumptions on the key
variables to try to come out with a bottom line.
The CHAIRMAN. Do you have an econometric model?
Mr. ScHULTZ. We do not. We have access, at the bank, to the
Chase econometric model which I use when that becomes necessary. But by and large it is not necessary that I do that. It is not
necessary for my purposes that I attempt to be very precise about
any particular area of the economy.
It is necessary that I come to some conclusion about the general
movement of the economy and what I think is going to happen in
terms of GNP, inflation, and interest rates, in particular.
The CHAIRMAN. Now you have graciously made available to us a
forecast which you wrote as of April 1979, 2 or 3 months ago, for
the Barnett Investment Services. It is a one-page statement.
I would like to ask you some questions about that, because it
seems to me to be extremely general.
Mr. ScHULTZ. It is.
The CHAIRMAN. I would like to see if I can understand what you
are proposing here. Let me just quote a few statements here. I may
take them out of context. If I do, you can correct me or ask that I
read a larger segment, if you wish me to.
You say, as we move toward the time, probably in the second
half of the year, 1979, when disinflation begins to occur, it is vital
that we do not let it slip into deflation, such a circumstance as
occurred in the early 1930's.
Now what kind of disinflation do you expect to occur in the last
half of this year, and what do you mean by disinflation?
Mr. ScHULTZ. I wouldn't think very much of it is going to occur
under normal circumstances, unless we were to shut down on the
economy, particularly the money supply, and just bring the economy to a screeching halt.
What I am concerned about, Senator, is the debt structure of the
country. I do not think that we can stand deflation. I do not think
that we could stand a situation, as we had in the early 1930's, in
which the money supply was actually shrinking.
I think Milton Friedman has written a great deal about this
particular aspect in this particular period. It just doesn't seem to
me that our society and our economy can stand that kind of a

01911,zed by



The CHAIRMAN. But Mr. Schultz, isn't it true that nobody,
nobody has suggested that we should reduce the supply of money
over a period of any time?
Mr. ScHULTZ. I think that's right.
The CHAIRMAN. The only argument I have heard from the most
conservative opponents of monetary policy is that we increase the
supply of money rather slowly, more slowly than we have in the
past; is that right?
Mr. ScaULTZ. That is correct, among economists, Senator. You
must remember that this piece that you are reading is not directed
to economists. It is directed to businessmen and investors. And
there are some who will say to wring out this inflation we must
bring the economy to a screeching halt.
I think that that could be very dangerous. I think you are
absolutely correct about the economists; I know of none who
want-The CHAIRMAN. I know of no sentiment here in Washington,
either in the Congress or in the Federal Reserve Board, who would
argue that we have to actually decrease theMr. ScaULTZ. That's correct.
The CHAIRMAN [continuing]. The rate of growth in the supply of
Mr. ScaULTZ. You are absolutely right. Fortunately that's the
case. But there are people who make the other argument, and that
was directed to them.
The CHAIRMAN. Well, you see, you say it is vital we do not let it
slip into deflation. I just don't see any possible circumstance in
which at least that element of promoting deflation, that is, a decrease in the supply of money, would develop here.
You and I agree then that there is no economic support for that
at all?
Mr. ScauLTZ. Yes, sir.
The CHAIRMAN. Then you go on to say, finally it is likely that we
will need some innovative approaches to our problem. You say our
society is in a period of rapid change. Demographics, social changes
like entrance of women into the labor force, and consumer attitudes which reflect the present inflation psychology are all partially to blame.
How are demographics to blame, and what are they to blame for?
Mr. ScauLTZ. We are in a period in which there is an unusually
large percentage of our population represented by people from age
20 to 40. I think that the high unemployment rate that we have is
to some degree because of the large number of people who are
young and just entering the labor force.
Those factors are there. Certainly, those people have a tendency
to be spenders and borrowers. And I think that the very rapid rise
in consumer credit has to some degree been predicated on the fact
that you have a lot of people in that particular age group.
The CHAIRMAN. But hasn't the demographics, and particularly
the entrance of women into the labor force, been one of the elements in the enormous expansion in jobs that we have enjoyed in
the last 2 years?
Mr. ScHULTZ. It has indeed; and that's been the good side of it.
The other side of it is that it raises questions about the debt
48-180 0 - 79 - 2
Digitized by



structure. And, you have that high unemployment rate, which I
think has had some effect on our thinking.
It used to be that 4-percent unemployment was regarded as full
employment. AB a matter of fact, there was a time· when some
people thought the figure was even lower than that. I think it is
fairly clear now that that is not true.
The CHAIRMAN. What would you say would be an appropriate
goal for full employment, percentage of the labor force?
Mr. Scmn.TZ. The goal would be considerably lower than the rate
is right now. But to get there, I think, requires policies other than
fiscal and monetary policy. It seems to me that full employment
today is not far from where we are.
The CHAIRMAN. Around 6 percent, 5.8?
Mr. ScHULTZ. Somewhat lower. But if you look at help wanted
advertising, at the layoff rate, at the quit rate, at various indicators of strains on the labor market through the winter and early
spring, I think it was fairly clear that we were really bucking up
against the limits.
The CHA.IRMAN. Then how do we achieve the goal, if this is not
the goal, but this is as good as we can do under present circumstances?
Mr. ScHULTZ. That's why I talked about some of the innovative
approaches; this is one of the areas where I think innovation is
going to be very important.
The CHAIRMAN. What are the innovative ways?
Mr. ScHULTZ. Education is certainly a way that is going to have
to be looked at.
The CHAIRMAN. What kind of education?
Mr. ScHULTZ. The answer to that question is fairly long. But to
try to be brief, I would say that emphasis on the basics: Emphasis
on performance; certainly continued effort in vocational training;
and I think, an effort to get young people into the work force
I really think that some attention should be given to the question of the minimum wage, both from an educational and an economic point of view.
The CHAIRMAN. Attention should be given to minimum wage,
you mean a youth differential?
Mr. ScHULTZ. Yes, sir.
The CHAIRMAN. You would favor a youth differential?
Mr. ScHULTZ. I would.
The CHAIRMAN. Would you· also favor not increasing the minimum wage as we scheduled it? Do you think Congress should
reconsider that?
Mr. ScHULTZ. One of the things that has really interested me in
talking to my economist friends around the country is the degree of
consensus that seems to be developing. One of the phrases that
they are all using is, "Self-inflicted wounds." They are all saying,
"Let's avoid the self-inflicted wounds."
Clearly, the increase in payroll truces, the increase in the minimum wage, came at a rather bad time in this particular economic
cycle. I would say that if we are indeed serious about getting
inflation under control-and I certainly hope that we are-that all

Digitized by



of those things have to be considered and perhaps delayed or
changed to some degree.
The CHAIRMAN. Now I have got more questions, but I see Senator
Lugar is here. I will yield to Senator Lugar.
Senator LUGAR. Thank you, Mr. _C hairman.
Mr. Schultz, I appreciated the opportunity to visit with you, and
I am delighted to compare notes, as you will recall from our conversations, about the innovations that you brought about in the
government in Jacksonville, and your strong legislative service at
the State level. I think these are important facets, and I appreciate
the career that you have had.
The questions that I have are really not with regard to that
career, which is manifest in its success, but follow along some of
the general economic questions that Senator Proxmire was pursuing.
What I am wondering is your thought as you take a look at the
Federal Resorve Board responsibility of how effective the Federal
Reserve Board can be. And I phrase that not as a catch-all question
for almost anything that would come to mind, but very specifically,
given high interest rates currently in this country, a fairly high
rate of unemployment, although you were considering in the dialog
just a moment ago relatively how high that is and what we can
anticipate in the future-certainly a very high rate of inflation.
What effect can Federal Reserve policies have in a practical way
with regard to any of these rates?
Have you thought through, aside from a meeting from time to, month to month and so forth, up or down, or back and forth,
whether there is any way that the Federal Reserve Board as an
institution presently and its Governors can make any difference in
this respect?
Mr. Scmn.n. I think if you took it to its extreme, Senator, it
could be very effective.
Senator LUGAR. How would it do so?
Mr. Scmn.n. If we wanted to go to the extreme that Senator
Proxmire said is probably absurd-that is, if we were to just absolutely shut down on the money supply-we could bring this economy to its knees fairly rapidly.
So the Federal Reserve can be effective; it is an organization that
I think has considerable power, certainly in theory.
Senator LUGAR. As a practical fact, just to follow up on that, is it
within the realm of a possibility that the Federal Reserve Board
can control the money supply to such a point that you could
guarantee that there would be no increase in the money supply?
And physically how is this achieved?
Mr. ScHULn. I think it is possible to do so, but it is more difficult
to do so now because there is so much leakage out of the monetary
system. It is very hard to know where the aggregates are. And
there is an awful lot of money that doesn't come within the definition of the aggregates; certainly liquid asset mutual funds, as one
example, are money.
So you face the question of how you tell when you have really
tightened things down. You do have a question about the monetary

Digitized by


But, to engage in the kind of speculation that we are engaging
in, you could force interest rates up very high through open
market operations. I think that that would be very disruptive to
the economy.
So far as the Fed's effectiveness is concerned, if you want to
answer it on the basis of theoretical power, I think it is there.
If you want to talk about what it can do as a practical matter,
then there are other things that are involved. In the first place, it
just would make no sense for the Federal Reserve to run off on its
own in a totally different direction from Congress. The independence of the Federal Reserve is a very important thing, and a very
worthwhile thing, but the Federal Reserve Board members are not
elected officials, and I don't think that they are in a position to go
one way when the elected officials of the country, the Congress,
wants to go another.
So as a practical matter, the Fed does deal within certain parameters. And I think that's the basic reason for the old saw about
leaning against the wind.
Now, to go a bit further, I guess you are also questioning how
effective we can be on inflation. There is a lot that we can do, but
if it is not coupled with other policies it is not going to get the job
It would appear to me that inflation is something which has
come about over a considerable period of time. It has been exacerbated by things that have taken place in a lot of different areas
and has to be attacked on a number of different fronts.
I would hope very much that the Federal Reserve does not have
to bear the major burden for dealing with inflation. I would hope
that there is a firm fiscal policy to allow the Federal Reserve
flexibility in dealing with the problems in a way more immediate
than fiscal policy can do.
I would hope that we would move in the future, over the long
term-and I am afraid it will be the long term, to a situation in
which we have much lower interest rates. That, I am afraid, is not
going to occur for a considerable period of time, although there will
certainly be ups and downs.
But it seems to me that if we are serious about increasing
productivity and investment and savings, then we need lower interest rates as an inducement for corporations to put more money into
capital spending.
So I would hope that we could move into that kind of an environment over a period of time. But it is going to be a fairly long
period, I am afraid.
Senator LUGAR. What optimism do you have that interest rates
will be lower, even at a time when some economists feel we may be
in for a downturn in our economy?
We have reports such as those that occurred in the local press
over the weekend that homeowners feel frustrated in getting mortgage money, even at 11 percent interest, and the fact that usury
ceilings are preventing a good number of mortgage loans.
There is the demand for money but the money is not there. This
would tend to indicate that even at a fairly high level of inflation,
or maybe some economic unease, that the demand at least for
mortgage funds is very substantial and, indeed, some economists

Digitized by



would say that the demand for capital throughout the world is very
substantial and something that is in very short supply.
Now, in view of that, what are the circumstances that you can
foresee in which interest rates will be lower, substantially lower?
Or have we come to a point at least in this point of economic
history in the world in which money is going to be dear for a long
period of time, unless by governmental fiat we simply arbitrarily
assign a different rate to it and subsidize that rate in some fashion?
Mr. ScHULTZ. Money is going to be dearer now for a longer
period of time than it has been at certain points in the past.
However, my feeling is that interest rates will be lower 6 months
from now than they are today.
Senator LUGAR. Why do you feel that that is the case?
Mr. ScHULTZ. It seems to me, in looking at the economy, that it is
clearly slowing down. And I think there is a fairly , considerable
risk that we will slip into a moderate recession.
Retail sales have been down recently, and appear to be slowing
down. I have talked to merchants in various places recently, and
they corroborate that sales continue to be quite slow.
It looks to me that we are in the sort of classic period at the end
of an upswing when involuntary inventory accumulation is taking
place; the inventory to sales ratio is getting higher.
Loan demand is still strong. I think partly because of that there
has been some slowdown in both mortgage and consumer loans, but
business loan demand is still pretty strong.
It would seem to me, though, that as that begins to work
through, businessmen will begin to slow down their production
because of the slowdown in sales; I believe they are going to do so
very quickly this time. Every board I serve on, every businessman I
talk to, has a "Plan B" that he can go to as soon as he sees this
slowdown. So I think that you are going to see reaction on the part
of business fairly quickly.
Under those circumstances, when loan demand starts to ease, I
think that we will see somewhat lower rates of interest. I don't
think that we should do much toward easing until we see that,
because there is still that outside possibility that you could see that
kind of inventory speculation that you saw in 1974. I think it is
highly unlikely, but there is always that kind of a possibility.
But it would seem to me that, if the economy does slow down as I
anticipate that it would, that somewhat easier monetary policy,
somewhat lower interest rates, would be in order.
Furthermore, on the mortgage money side, I think that the very
rapid slowdown in deposits in thrift institutions in the last couple
of months has probably been a result of the removal of the differential on the money market certificates. Now that T-bills are under
9, we are getting to the point where there is a differential again. I
feel that as soon as that differential is back to a quarter of a point,
you will see some re-flow into the thrifts.
Senator LUGAR. Let me ask just one final set of questions. Last
year in the last days of the session we had considerable debate in
the Senate, and indeed there had been one in the House previously,
on the Humphrey-Hawkins bill and its successors.

Digitized by


As a part of those deliberations, national goals were set of 3
percent unemployment, coupled with zero inflation at the end of 5
years. Now, there were many proponents of both figures who felt
that one or the other was impossible, if not undesirable.
The reason that the bill came through was that through the
efforts of our Chairman, and Senator Nelson, on one side of the
issue, I argued for coupling an inflation goal and so did others on
the other side of the issue. And there was a compromise of what
otherwise would have been no bill at all. But we now have these
goals of 3 percent unemployment and zero inflation in a 5-year
period of time.
Now, from what you are testifying todayThe CHAIRMAN. Will the Senator yield?
I think that zero is something that came out of the committee
and was modified on the floor.
Senator LUGAR. That is quite true. I was just paying tribute to
you, Mr. Chairman, for your skill in bringing about any bill at all.
Senator Nelson and some others of us arguing in behalf of the
inflation situation, or there would not have been a bill. But, in any
event, we do have this set of goals.
What I was asking-wanted to ask Mr. Schultz was: You come in
as sort of an innocent-Mr. Scmn.TZ. Lamb?
Senator LUGAR [continuing]. Person at this time with goals already set by the Congress.
You testified this morning that an unemployment rate of fairly
close to 6 percent, given our conventional wisdom now and our
ways of doing things, this may be pretty close to full employment.
Furthermore, you have indicated with regard to inflation that
here we have a situation in which we may be 8, 9, 10 percent and
gusting to double digits in bad months. And to begin to move that
even to half its current rate, quite apart from zero in 5 years, I
gather from your earlier testimony does not appear to be in the
cards, except through what you claim to be innovation.
Now, admittedly, this may not have been in sort of the area you
came prepared to discuss this morning, but could it not be that
really the only sorts of innovation that are going to make a significant difference here are substantial technical and capital innovations, the sort of thing that Shumpeter would have thought about
if he would have been talking about these vast waves of innovation
that spawned all sorts of spinoffs, this type thing?
In other words, as I gather your testimony, you are saying that
the state of the art as you now see it, the alternatives that are
involved-we are not looking at an economy that is going to talk
about 3 percent unemployment or zero inflation; we are looking at
something like 6 percent unemployment and heaven knows what
inflation. Maybe we would be happy to have 6 of each.
Is that about what you are saying? And really how do we practically move toward these goals the Congress and the Nation have
Mr. &HULTZ. I do tend to be a natural optimist, but my answer
would be: A, that it is going to be a long, hard pull under any
circumstances; and, B, I guess I don't know, Senator.

Digitized by


It is going to be tough and it is going to require some pretty good
thinking. I have had the feeling that education would be an important part of it. I have had the feeling that doing something about
capital equipment and our stock of capital in the country would be
It seems to me that technology is very important to this country.
The lesser developed nations clearly are going to be able to produce
the commodities better than we are-and cheaper than we are. So
it seems to me that we have got to move forward in these other

Research and development certainly would be an important area
to be considered. We need to try to do away with some of the selfinflicted wounds.
We have serious problems with over-regulation. The system is
not flowing as easily as it could, I am sure.
But I wish I had that magic wand, Senator, and I don't have it.
Senator LUGAR. Thank you very much.
The CHAIRMAN. Mr. Schultz, to get back very briefly to that
Barnett Investment Service letter of April 1979, you said that the
Joint Economic Committee's annual report is an encouraging document which calls for fiscal conservatism and so forth.
I was one of those who joined in that. I welcome your praise for
what we did. I think Lloyd Bentsen deserves, of course, and Congressman Brown, a great deal of credit for pulling the committee
On the other hand, it is easy to be for fiscal conservatism this
year in view of proposition 13 and so forth, proposals for a balanced budget.
What do you really mean by fiscal conservatism? How would you
transfer your position to budget recommendations, first? What
would you do in this coming year as far as the budget is concerned?
Would you agree with the President, with his proposal for approximately a $28 billion deficit?
Mr. ScHULTZ. Senator, I would like to see the deficit as low as it
can possibly get.
The CHAIRMAN. What does that mean? How low?
Mr. 8cm.JLTZ. I don't know. I am not familiar enough with all of
the ins and outs to be able-The CHAIRMAN. Do you think we should try to balance the
budget in 1980, the year beginning next October?
Mr. ScauLTZ. Senator, I don't know whether that is possible. It
would seem to me that with the economy slowing down, maybe
that is just not in the cards. But I would certainly like to see us
move toward a balanced budget as fast as we can.
The CHAIRMAN. I think everybody feels that way. That is a
general response. Can't you be a little more specific? As fast as we
can. What does that mean?
We have the facts before us for the coming year. Do you think
the President has been too restrained, not restrained enough, or
just about right?
Mr. ScHULTZ. That's a very hard question for me to answer. I
don't know that I have sufficient facts to be able to really give you
an intelligent answer.

Digitized by



I am encouraged that so many people are looking at the budget
and trying to hold it down. I am encouraged that ~pie are looking for places that it can be cut. But I just don t think I have
enough information.
The CHAIRMAN. How do you take a phrase "moderate monetary
policy" which you praise in the Joint F.conomic Committee's conclusion-what do you take that to mean with regard to inflation
and the current large fiscal deficit?
What would be a moderate monetary policy defmed in terms of
the monetary aggregates? How much would you feel we should aim
at increasing the money supply over the next year or two?
Mr. Scmn:rz. I am not uncomfortable with the monetary aggregates goals as they have been expressed. Six to nine on Ma would
seem to be a fairly reasonable kind of range.
I would again say that it is very hard to know at this point in
time, Senator. The data are not that good when it comes to the
aggregates. They are hopping all over the place, and nobody really
knows why. It is very hard to deal just with the monetary aggregates alont!.
The CHAIRMAN. What else would you take into consideration?
Mr. ScHUL'l'Z. I think you have to look at supply, demand, and
price in te~ of money. We talked about supply with the aggregates. I would say that you have to look at demand. You have to
look at loan demand and how tight money really is out there,
whether people can get it. Then you have to look at what they
have to pay for it. Interest rates are important.
The CHAIRMAN. How about that; what would you think would be
a proper policy on interest rates? Should the Federal Reserve aim,
for in.stance, at a specific rate of interest on Treasury bills?
Mr. ScHUL'l'Z. On Federal funds?
The CHAIRMAN. Yes, sir.
Mr. ScHUL'l'Z. I think it is about the best thing they have to deal
with at this point in, Senator. Long run, you would like to get
to a situation where you can deal with the aggregates.
But I think at this point in time, with the volatility of moneyvelocity increased so fast last year, much faster than it had
before-you just don't know what is going to happen to velocity or
to the lag time.
So dealing with the aggregates is hard to do. I think we are left
with the Federal funds rate as kind of the best tool there is
The CHAIRMAN. I am not sure, Mr. Schultz, what kind of economic policy you are advocating here for the country. You say you are
not sure about the budget deficit, whether it should be reduced or
not. You say as far as monetary policy, you favor a gradualist
How can a gradualist approach to monetary policy and no particular policy with respect to fiscal policy, how can that break the
inflationary spiral we are in today in view of the galloping inflation that we have suffered, the worst we have ever suffered in
peacetime in the hi.story of the country?
Mr. ScHUL'l'Z. Let me say it a little differently. I didn't mean to
say, Senator, that I wasn't for attempting to reduce the budget
deficit, because I am.

Digitized by



The CHAIRMAN. We all are, but you won't give me specifics.
Mr. 8cHuLTZ. I think we should keep going, keep reducing the
deficit. I think the important thingThe CHAIRMAN. That is a function of the economic cycle.
Mr. ScHlJLTZ. To some degree it is.
The CHAIRMAN. If we move into a recession, obviously there is no
way you are going to reduce the deficit, or should. On the other
hand, if you move into a period of exuberant growth, of course, all
of us agree it will be automatically reduced.
But the question is what kind of price you are willing to pay for
Mr. ScHULTZ. I think monetary policy is, to some degree, also a
function of what happens in the economy. My feeling is that where
we have made our greatest mistake in the past has been in losing
control of the money supply in coming out of slowdowns.
It seems to me that 1971-72 and 1976-77 were the key periods.
Let me back up just a minute. I don't believe a deep recession is
worthwhile from any point of view. I think it tends to be counterproductive. I thoroughly agree with that. There is an awful lot of

I don't believe that a deep recession is going to get inflation
down with the same rapidity it might have in times past.
The CHAIRMAN. What do you mean by a deep recession?
Mr. ScHULTZ. Certainly I would say 1974-75 would be a deep
recession. I would think that anything that resulted in a drop in
real GNP of 5 percent would be a deep recession. Anything where
youhaveThe CHAIRMAN. What steps should be taken to avoid that?
Should. we increase spending? Should we substantially ease monetary policy? Increase the availability of credit?
Mr. 8cHuLTZ. Senator, I don't think the dangers of a deep recession are very great at this point-The CHAIRMAN. I am saying what would you do to avoid it? You
say it is counterproductive, you very much want to prevent it. How
would you do it?
Mr. ScHlJLTZ. I don't think we need to take major overt steps to
do it. I don't think the imbalances are there. I don't think it is
likely to occur.
The CHAIRMAN. As you know, there are strong differences of
opinion, as there always are, in the economic community. Some
people feel we may have a prolonged recession and maybe this is
bad, and maybe just as bad or even worse than the 1974-75 recession.
My question to you is: if this begins to develop, what should we
do about it?
Mr. 8cHuLTZ. In the first place, I don't fmd too strong differences
of opinion on that. I fmd a fairly large consensus that we are not
likely to have a deep recession and that we do not need to take
overt steps to avoid that at this particular point in time.
The CHAIRMAN. The deep recession theory is based very largely
on what may happen if we have a sharp increase in oil prices, if
the energy situation becomes much worse. Then we might move
into it.

48-180 0 - 79 - 3
Digitized by



My question to you is: under those circumstances, what do we
Mr. ScHULTZ. Under those circumstances-The CHAIRMAN. What does the Fed do?
Mr. SCHULTZ. I don't think we can do much at this time. Let's
take that particular scenario based upon a very big jump in oil
prices. Let's say that Saudi market crude goes to $20 or over and
spot prices at Rotterdam are over $40, and things really get tough.
Then I think we are going to have to ease on the monetary front.
I think it is just a question of having to validate some of those
exogenous forces that are beating on the economy at this particular
point in time.
The CHAIRMAN. In an interview you had with the American
Banker you said your responsibility to the Fed will entail managing the central bank's 26,000 employees. You said you were a
pragmatist and you were flexible and that you didn't have the kind
of technical background perhaps that some of the members of the
Fed had, but that you were a businessman and that you would help
the Chairman with managing the employees as an administrator.
What do you have in mind? How would you do that? Would you
hire and fire? What would be your responsibilities as administrator?
Mr. SCHULTZ. I didn't really say to the American Banker that I
was going to manage 26,000 employees; that is, of course, not true.
I would be the chief administrative officer for the employees in this
particular city, some 1,300 of them. I think every organization
needs a chief executive officer and chief operating officer.
The CHAIRMAN. Doesn't John Denkler, staff director for management, and Stephen Axilrod-isn't that their job?
I should say isn't that John's job?
Mr. SCHULTZ. His job is to carry out the day-to-day management.
But chief administrative officer is very important in an organization of this kind, Senator. Somebody needs to be there to be able to
answer various questions that come up as to how various things
are going to be done.
The CHAIRMAN. Here you are moving into this job after no
experience with the Federal Reserve. Your term goes until 1982.
You would be-you would have-John Denkler, as I say, has been
staff director for management, would be running the administrative part of it. What would you bring to that? Why would your
particular background be useful to the Federal Reserve Board?
Mr. SCHULTZ. Senator, that is an outstanding staff. Running staff
is different than running a line organization. There is a difference
between a command function in a line organization, and basically a
mediating function in a staff organization.
It seems to me that the job of the chief administrative officer of
the Federal Reserve is to attempt to do everything possible to
create an environment in which a large number of very able people
can do their best work. That is the kind of basic kind of goal that I
would have.
I would be available to John Denkler and others when they had
problems and needed someone to talk to and someone to help them.
There are always territorial problems in terms of large staffs.

Digitized by


People do need to know clearly what they need to be doing. And
that is the kind of function that I would perform.
The CHAIRMAN. Now, on April 13 you held a press conference
following announcement of your nomination to the Federal Reserve
Board. I would like to get you to elaborate on some of the comments you made at that time.
With regard to controls you said this: "Mf basic tendency is to
oppose controls, but it is a complex economy.'
Now, does that mean that you-tell me: What does that mean
with respect to credit controls?
We have standby credit controls which the Federal Reserve
would be in a position to administer under some circumstances. Do
you think we should continue those credit controls in force or
should we repeal them?
Mr. ScHULTZ. Senator, when I gave that press conference, it
seemed to me that there were a lot of dangers in this economy of
inflation really getting away from us-questions of what the consumer was going to do and what businessmen were going to do.
What I said was that although I opposed controls of any kind, it
didn't seem to me that that was the time to repeal the Credit
Control Act. It looked like we were in a major battle, and you don't
give away your guns when you are just going into the fight.
The CHAIRMAN. You think, then, that the credit control standby
powers constitute a major gun in the battle against inflation?
Mr. ScHULTZ. A major gun, no. I don't think a major gun.
The CHAIRMAN. Well, a gun?
Mr. ScHULTZ. I think a gun.
The CHAIRMAN. Under what circumstances would you use it, and
how would you use it?
Mr. ScHULTZ. I don't know. I have tried to think about where you
might use it. Frankly, it is a little difficult to figure out where it
really might be useful in this particular economy. And I wouldn't
hold out much hope for it under any circumstances.
The CHAIRMAN. Then why not repeal it and let Congress decide,
if the situation is sufficiently serious, let Congress then reenact it?
Mr. ScHULTZ. l think that as this economy cools down I would
agree with that, Senator. I think it is an act which can very well be
repealed as soon as we see we don't have a real emergency situation.
The CHAIRMAN. With regard to Federal Reserve membership, you
said: "We have got to make it more attractive for banks to be
members of the system, and membership is a serious problem; but I
don't know enough about it yet to offer a solution.''
You have had 2 months since then to consider the Federal Reserve System in your new position. I would like to know whether
you think Congress should take action to make Federal Reserves
mandatory as has been proposed, and I would like to know your
position requiring reserves at all.
Mr. ScHULTZ. To answer the first question, I would favor mandatory reserve requirements.
It seems to me if we are going to have a central bank in this
country-and I think pretty much everybody accepts that factthat that bank needs to have the kind of tools necessary to do the

Digitized by



I think that we should have mandatory reserve requirements on
transaction balances, and I think that the question-The CHAIRMAN. What function do mandatory reserves serve?
Mr. ScHULTZ. I think several. The argument is made that we can
carry out monetary policy without reserve requirements. We can
just do it through open market operations.
The CHAIRMAN. Why not?
Mr. &HULTZ. The answer to that is, yes, we can, but I think it
would be more difficult. Banks are going to hold some reserves. But
you don't really know what reserves they are going to hold without
some reserve requirements. The reserve requirements give you a
base; they give you some stability, some better understanding of
where we are in the system.
The CHAIRMAN. But as you testified earlier, we are so uncertain
now about what aggregates mean and amount to that we have a
system now that is not at all precise or definite. Why would it be
any worse if we simply didn't require reserves and used open
market operations to reduce the money supply in times of inflation
and to ease up on it in times of recession?
Mr. &HULTZ. I think you have_j~t made a good argument for
reserve requirements, Senator. Things are so volatile in other
areas, you want to keep all the stability you can.
The CHAIRMAN. Well, what stability are we getting from reserves? As I say, we have them now and we have an unstable kind
of situation.
Mr. &HULTZ. Yes. But I think things would be even more unstable if you didn't have them.
Mr. &HULTZ. Again, we just don't know what the banks are
holding out there. You at least have some idea of where reserves
are under the current situation. If you take reserve requirements
away, you make the situation increasingly unstable.
The CHAIRMAN. Let me ask you to respond to this, then. The
prohibition against interest payment on demand deposits and ceiling rates on- deposits under regulation Q cause serious problems.
They tend to foster innovative ways to avoid those constraints.
Several weeks ago we heard testimony from Dr. Greenbaum and
Dr. Phillips that indicated reserve requirements cause the same
type of innovative response. Banks will try to beat the reserve
requirements. Therefore, they asserted the reserve requirements
are counterproductive as they tend to increase the uncertainty in
the bridge between money supply and aggregate spending.
The question is, first: How would you respond to their assertion
that required reserves is innovative ways to avoid the requirements
unless they are counterproductive?
Mr. &HULTZ. I disagree with the statement that they are counterproductive, but I would certainly agree that banks are going to
be innovative under any circumstances.
The CHAIRMAN. If they are innovative and can beat them, why
are they useful?
Mr. ScHULTZ. They are going to fmd ways to be innovative no
matter what you do. I think that having the reserve requirements
doesn't make them increasingly innovative, and I would disagree
that they are counterproductive. I just think that they are worth

Digitized by



keeping. There are some other factors at work, too; there are some
equity factors and some safety factors in terms of the discount
window and the role as lender of last resort.
But it seems to me that they are worth something.
The CHAIRMAN. If they are worth having, we certainly should try
to make them more effective. So if the Federal Reserve were granted broad authority to impose reserve requirements on all transaction accounts and we assume that the Fed used its authority to
close loopholes when they arise, would that add to the potency of
monetary policy controls?
Mr. ScHULTZ. I think it would.
The CHAIRMAN. Greenbaum and Phillips asserted that interest
payments on voluntary reserves types of liabilities to the Fed
would make reserve requirements productive for monetary policy
rather than counterproductive as they are now.
What is your view with regard to paying interest on required

Mr. ScHULTZ. Senator, I would like to see us move in that direction. I think it would make some sense. As I said, I would like to
make it more attractive for banks to be members of the Fed.
I think there is a two-pronged effort here. In the case of reserve
requirements, you can go at it from a mandatory point of view.
There are other ways you can try to make membership more
attractive. I would think that is one of them.
At this point in time, since we do have a budget deficit, and since
I think it is· in the best interests of the country to continue with a
firm fiscal policy, it is difficult to do.
The CHAIRMAN. Isn't it always hard to justify paying more to the
banks? Why should the Federal Reserve follow a policy of in effect
enriching the banks at the expense of the general taxpayer, or
enrich those who use the banks, if they pass it on to their
Mr. ScHULTZ. It is a tax, Senator.
The CHAIRMAN. It is one of the few taxes the banks pay. The
banks by and large pay far lower taxes than other industries pay.
Mr. ScHULTZ. They pass that on to the consumer, I think, Senator, so the consumer eventually pays that particular tax.
The CHAIRMAN. As you probably know, the committee is considering your nomination both as a member of the Board of Governors
and-of the Federal Reserve System-and as the Board's Vice
Chairman. This is the first appointment ever to the job of Vice
Chairman that the committee and Senate will be considering. Previously the Vice Chairman was appointed by the President, but not
confirmed by the Senate.
Would you explain the job of Vice Chairman, why you think you
are more qualified for vice chairmanship than other members of
the Board who have served longer and perhaps have a better
background in monetary issues?
Mr. ScHULTZ. I am not sure I am better qualified than other
members of the Board. I think it is an outstanding Board. I think a
number have great expertise-The CHAIRMAN. I applaud your modesty, but why are you qualified to be Vice Chairman?

Digitized by


Mr. ScHULTZ. Senator, I think I bring no special expertise, but I
do have a fairly considerable amount of general experience in
economics and business and politics. And I think all of those things
are important on a seven-member Board.
I think that I have had some administrative experience that
would assist in that particular area.
I guess it is a matter of judgment and perspective, Senator.
The CHAIRMAN. First let me ask you: What role did you play in
President Carter's campaign in 1976?
Mr. ScHULTZ. Not a very large one.
The CHAIRMAN. Were you a fundraiser?
Mr. ScHULTZ. As the reports of Mark Twain's death, my role, I
am afraid, has been greatly exaggerated. I gave him some money; I
raised a little money; I advised some of his local organization
The CHAIRMAN. Had you known the President personally for any
period of time?
Mr. ScHULTZ. No, I had not. I met him when he came to Jacksonville very early in the campaign. And I didn't have very much
chance to talk to him.
The CHAIRMAN. He was your choice before the Florida primary?
Mr. ScHULTZ. Yes.
The CHAIRMAN. Of course, that was a very critical primary for
Mr. ScHULTZ. Yes.
The CHAIRMAN. You supported him and raised money for him,
contributed money for him.
Mr. ScHULTZ. Yes.
The CHAIRMAN. That raises another question with respect to
your appointment. The President will be one of the very few Presidents in the-since the Federal Reserve Act was adopted in 1913to appoint a majority of the Board himself. As you know, the terms
are 14 years.
One of the reasons for that term is to make a board independent
of the Executive.
You are the fourth appointee out of seven members. You give
him a majority. There will be another vacancy in January when
Mr. Caldwell's term expires and that will give him five.
This, I think, is unfortunate. At least the people who drafted the
legislation initially thought we ought to have an independent
board. I want to make a case against your appointment and I want
you to respond to it.
The case against your appointment, Mr. Schultz, is that you are
not a monetary economist, you have no training whatsoever in
monetary economics, you have had no real bank experience although you have owned a bank.
You have not served on the staff of the Federal Reserve Board or
in any other regulatory capacity. And, therefore, you don't have
the kind of specific definite qualifications that would seem to qualify you for the board.
On the other hand, you come to the board as a man who has
supported the President politically, raised money for him, played a
· part in his campaign, you say a modest part, but nevertheless a
definite part.

Digitized by


And you are the fourth Carter appointee to the Federal Reserve
Board, giving him a majority on the board. Now, it would seem to
me that your appointment, if confirmed, will go further to politicize
the Federal Reserve Board than any appointment we have had.
For those reasons, if you were technically qualified, if you came
here as an eminent economist, that would be quite different, I
think. But you don't.
You come here primarily as one who's been successful in politics
and one who has been successful in business, and who has a broad
general background in that way, but who doesn't have the qualifications we usually look for in members of the Federal Reserve
What is your response to that?
Mr. SCHULTZ. The first response, Senator, is that if I felt that I
were going to politicize the Board or do anything to subvert the
independence of this body, I would not serve.
I have not been approached by anyone or asked by anyone for
commitments which would in any way do anything to destroy my
complete independence.
I will have that complete independence. My responsibility is not
to President Carter. My responsibility is to the people of the
I would expect to make decisions on that basis.
The CHAIRMAN. Now, Mr. Schultz, those are good general statements. But as you say, you are a flexible man. You are a man who
has no strong record of commitment to particular policies or principles. You go on the Board as an appointee of the President and a
friend of the President and supporter of the President and financial contributor to the President.
And, therefore, without that kind of anchor in commitments of
the kind a man, say, Governor Wallich or Governor Partee or
Governor Teeters has, I just wonder whether the criticism can't be
made that you come to the Board as one who is obligated to the
President, sensitive to the President's needs.
This morning repeatedly you have articulated a rather flexible
policy, a cautious policy one that can go either way. It would seem
to me to make the Board especially vulnerable to criticism that it's
become more political and more dependent on the President than
ever, and a board which constitutionally and traditionally has been
valued as an independent agency.
Mr. SCHULTZ. I would just say to you, Senator, that that is not
true. And if you can find anyone with a stronger commitment to
integrity in Government, I will be happy to sit down with him and
discuss it on that basis.
The CHAIRMAN. I don't for one minute question your integrity.
You are a man of great integrity. I don't dispute that. I am talking
about the fact that your qualifications, your experience, your background indicates that you are one-one reason why you are being
appointed is that you have had a political connection with the
President, you have had a political relationship.
I don't say there is anything wrong with that. I think your being
appointed to Secretary of Commerce or to any number of other
important jobs in the administration might be a very fine nominee.
But in this particular position which above all requires economic

Digitized by


expertise, monetary policy expertise, where you don't have that
kind of expertise or that kind of competence or that kind of background, it would seem that you and the President and the Board
are vulnerable because of this appointment.
Mr. ScHuLTZ. I would say to you that the academic economists
with whom I deal and have dealt have, to a man, said that they
believed that it was good that a person like me was going on the
Board in order to give additional balance; that they believed that
the Board should not be comprised entirely of academic economists;
that they believe the Board should have some people on it who
have business experience and that kind of perspective.
The CHAIRMAN. Yesterday the New York Times had a fascinating article about the choosing of the president of Brooklyn College.
Brooklyn College is in terrible condition now. They have lost students. They have a very serious fiscal problem. Why anybody
would want that job is a question. It pays even less than the job
you are about to get. What they did is they put an ad in the
newspaper, they wrote to 300 college presidents, they talked to
many other people.
They got 119 possible candidates. They screened that down to
about 30, then down to 9. They have some of the most eminent
administrators in the country who were considered for that job and
were interested in the job and who would accept the job.
They finally selected one who seemed to be extremely well qualified for it. Now when we pick a vice chairman of the Federal
Reserve Board, a position of great authority and power, we don't
seem to go through that procedure at all.
As I say, I don't mean to demean your background or qualifications. You are a fine man, you are successful, as I say, in business
and in politics.
You are a man of great integrity. But you do not have the kind
of qualifications that-anyone would say a Federal Reserve Board
member should understand monetary policy, on the basis of experience, have a record in it, have been tested in it, found to be
competent. You don't have that.
You have owned a bank, but you admitted in earlier questioning
that you had not been a manager of the bank. you didn't-of
course, I can own shares of IBM and be kind of an owner in IBM.
That doesn't mean I am qualified to run it.
So you don't seem to bring to this job the kind of hard qualifications that I think that the American public should be-should
probably expect in a position of this great authority.
Mr. ScHULTZ. I can run a bank. My monetary experience has
been tested every day out there in the markets with my forecasts
and what we have done with money based on those forecasts.
And the business community, at least those people I have talked
to throughout the country, believe that it is important for a businessman to be on the Federal Reserve Board, that it should not be
confined just to academic economists. So I would say that there is a
difference of opinion on that question.
The CHAIRMAN. Let me ask you this, then, to get back to the
substantive material here. The international money market reacted sharply to the recent decline in short-term interest rates. Many
economists believe that the value of the dollar will come under

Digitized by


pressure if the Federal Reserve moves to a looser monetary policy,
even if our domestic economic conditions indicate the economy is
moving toward a recession.
So the Fed will face a dilemma, will relax its monetary posture
to help the domestic economy even though inflation might still be a
problem and value of the dollar high, on the other hand, maintain
the present policy stance even though it might push us into a
deeper recession.
What are your views on this dilemma and how would you get out
of it?
Mr. &HULTZ. That is a very tough one, Senator, because there
are clear constraints from the dollar. We did learn there was a J
effect that we didn't know about, and that the decline of the dollar
added greatly to inflation.
So we have that kind of dichotomy here and that kind of dilemma. I would say the answer to that one would have to be on the
basis of the facts as they were at that particular
The CHAIRMAN. Right now where would you place the priority,
on the domestic economy or on the supporting of the dollar and our
international position?
Mr. &HULTZ. I would say inflation would be the most crucial
question right now. It seems to me that we have made some gains
on the dollar which are pretty important, and we ought not let
them slip too far away from us at this point in time.
The CHAIRMAN. You would come down to the side of supporting
the dollar.
Mr. &HULTZ. At this point.
The CHAIRMAN. The Fed membership bill passed recently by the
House Banking Committee releases $18 billion of reserves when it
becomes law. That is a pretty large amount of money and if not
handled correctly, the use of these funds might be inflationary,
What should the Federal Reserve do to offset the inflationary
effect of the release of the reserves?
Mr. &HULTZ. Offset it at the desk through open market operations.
Mr. &HULTZ. It has to go out there and sell securities, sop up
some of the money.
The CHAIRMAN. So if you-if the Federal Reserve Board followed
open market operations appropriately, in your judgment, they
would sell sufficient securities to neutralize the effect of the $18
billion in additional reserves?
Mr. &HULTZ. They are going to have to do a lot of that. The
question of how long it takes and how the markets respond, of
course, is something you have to look at as 1,ou go along.
The CHAIRMAN. The Fed has indicated 1t will issue a proposed
rule to allow Edge corporations to take domestic deposits. There is
a great deal of concern about this, Senator Bentsen feels strongly, I
feel strongly, and I am sure other Senators when they hear from
their hometown bankers will feel strongly, too.
This will allow an Edge corporation to effectively operate its
banks across State lines. Will you oppose retail and wholesale
banking by Edge corporations if confirmed as a Fed member?

Digitized by


Mr. ScHULTZ. I don't have all the facts on it. It's difficult for me
to make a firm commitment at this point in time. Let me say that I
am concerned about it.
I think we need more competition in our financial institutions. I
think we are getting more competition in our financial institutions.
But I am very concerned about concentration. I think I would go
very slow on questions relating to the McFadden Act. This one
clearly does; it's a way around McFadden.
If you allow an Edge corporation to branch and allow it to get
into what is purely domestic activity, you have gone around
The Board's got to define the kinds of transactions they can be
involved in. I must say to you that my feeling is to go pretty slow
The CHAIRMAN. Well, would you oppose the retail and wholesale
banking corporations or not? You say you would go slow.
Mr. ScHULTZ. It depends on how far it goes. The question of how
you define what an international transaction is can be fairly complex. But I would not be one of those to be terribly lenient in that
The CHAIRMAN. Mr. Schultz, do you perceive any possible conflict
of interest through your interests in Barnett and American Heritage?
Mr. ScauLTZ. I have already disposed of the American Heritage
The CHAIRMAN. I realize that. I am talking about the situation as
of now or as of the time before you were considered for the nomination.
Do you think there was a conflict of interest through your positions with both Barnett Bank and American Heritage and Heritage
Mr. ScHULTZ. No.
The CHAIRMAN. You do not. Well, as I understand it and correct
me if I am wrong here, you were a director of American Heritage
Life Insurance Co. for 2 to 3 years. In 1978 that firm collected
approximately $23 million in credit insurance premiums, licensed
in 49 States, considerable insurance business is transacted in Florida.
Eight million in credit insurance premiums collected in Florida
during 1978. Now the Barnett Bank Holding Co. selected American
Heritage to handle 98 percent of its credit life business in 1968, the
year you joined the board of directors of the Barnett Banks of
A substantial share of American Mortgage, Florida credit insurance premiums were generated through the consumer debtors of
the Barnett Banks; $2.8 million net premiums in 1978. Barnett
retains 45 percent of each dollar of credit life premium, about $1.2
million, all credit life. Barnett charges the maximum allowable
premium and retains the maximum commission, that is, 40 percent
plus a 5-percent brokerage fee for the holding company.
But you don't consider it a conlfict of interest that you have both
ownership in the Barnett Bank and, at the time that you became a
director of the bank, the American Heritage-Barnett Bank select-

Digitized by


ed American Heritage to handle 98 percent of its credit life business.
Mr. ScHULTZ. I was not responsible for that business connection.
It was never discussed in any board meeting as being a matter of
great import to either company. I can accept the figures that you
have given me. I am totally unsure as to whether they are even in
the ball park; I just don't know whether those figures are accurate
or not. But let me accept the fact that they are accurate and just
say that, to my knowledge, that did not represent a major matter
to either organization, at least so far as I am aware.
The CHAIRMAN. I am going to ask Mr. Quinn of the staff to ask
you some questions on the reverse competition angle involved here.
He's expert in this area.
Mr. QUINN. Mr. Schultz, you have been a director of the American Heritage Life Insurance Co.; of course, one of the strongest
leaders of Barnett Banks, which utilizes quite a bit of credit life
insurance sold by American Heritage.
Are you acquainted with the term "reverse competition"?
Mr. ScHULTZ. Yes, sir.
Mr. QUINN. As it applies to credit insurance?
Mr. ScHULTZ. Yes.
Mr. QUINN. Are you acquainted -at all with the details of the
decision back in 1968, the year you joined the board?
Mr. ScHULTZ. No.
Mr. QUINN. You are not. Has there been any attempt since 1968
to secure bids from any other insurance companies which might
offer the consumers of Barnett Banks a lower credit insurance
premium? Has there been any attempt to do that?
Mr. ScHULTZ. I don't know. I don't recall anything like that being
discussed in my presence.
Mr. QUINN. Are you aware of the fact that the credit insurance
premiums charged by Barnett Bank are the maximum allowable
under the law?
Mr. ScHULTZ. I was not. It is not an area that I had been
involved in or been interested in.
Mr. QUINN. Even though you are a director of American Heritage, and you are connected with the bank?
Mr. ScHULTZ. Yes. My involvement on the board of both banks
never went to specifics in that.
Mr. QUINN. So you are not involved or aware of the relationship
between the two companies?
Mr. ScHULTZ. I was aware there was a close relationship, as Ash
Verlander was on the board of the American Bank of Jacksonville
and I was on the board of American Heritage.
There were some banking relationships. I was aware that there
was a substantial line of credit to American Heritage at one time.
Beyond that, I really was not aware.
Mr. QuINN. There still is a substantial amount of credit, is there
Mr. ScHULTZ. I think so. I am not sure.
Mr. QmNN. So you didn't have anything to do with that line of
Mr. ScHULTZ. No, I did not.

Digitized by


Mr. QuINN. You own through your family trust-you participai;e
in something of the order of 17,000 shares of American Heritage; JS
that correct?
Mr. ScHULTZ. I thought we sold around 18,000. We just sold it a
couple of weeks ago.
Mr. QulNN. Might I ask what the market value was?
Mr. Sc:HULTZ. Yes. I sold it for 12½ net. I called the chairman of
the board and said, "It apppears that I am going to have to sell this
stock; there is a conflict of interest. It is a fairly thin stock." I said,
"Can you give me any indication of anyone who might be interest-ed in buying it?"
He said that he would do so.
Mr. QuINN. You sold it to the chairman of the board of the bank?
Mr. ScHULTZ. Yes, of American Heritage.
Mr. QuINN. Whom did you acquire that stock from?
Mr. ScHutTZ. It was all acqui~ on the open market.
Mr. QuINN. When did you begin acquiring the stock?
Mr. 8cHULTZ. Not too long after the company was started. I
started to buy some stock on the original issue, but didn't do so. I
began acquiring it somewhat after that; I really don't know when.
Mr. QuINN. Approximately what year did you begin to acquire
the stock?
Mr. ScHutTZ. I really don't know.
Mr. QuINN. The 1950's, the 1960's?
Mr. ScHutTZ. I am trying to remember when the company was
started, because it was within a year or two after the com~any was
started. As I recall, the company began in the early 1960 s; that is
my recollection.
Mr. QUINN. So would it be a fair statement that you had at least
for your own personal purposes a significant amount of your fmancial well-being tied into the shares of American Heritage?
Mr. ScHULTZ. No, certainly not significant. Even the 18,000
shares is not, I think, what you would really call significant.
Mr. QUINN. That is approximately what, about $200,000?
Mr. ScHULTZ. About.
Mr. QUINN. So that wasn't a significant aspect of your portfolio?
Mr. ScHULTZ. It is a reasonable one. But to say significant, I
don't think would be correct.
Mr. QuINN. Those are the only questions I have, Mr. Schultz.
Thank you.
The CHAIRMAN. Do you have any notion in view of your familiarity with credit life insurance how the Government, including the
Federal Reserve Board, can improve that situation? You see we
have a situation now where credit life insurance is sold, as you
know, by a lender to a borrower. The borrower very often feels he
doesn't have much of an alternative if he is going to get the loan.
On the other hand, the beneficiary to a considerable extent, no
exclusively, is the lender. In the event something happens to the
borrower, he gets killed or badly hurt so he can't pay, then the
lender is protected; but the borrower pays the premium.
Of course, the pressure on the borrower to buy is considerable.
And the-there seems to be some conflict of interest involved
under those circumstances.
Do you have any idea what we should or can do about that?

Digitized by


Mr. ScHULTZ. Senator, I have mixed feelings on that one. I have
seen the Federal Reserve study which indicated that there was not
undue pressure. I am in favor of increased competition in this
particular area. I think it would result in lower rates to the
On the other hand, I recall when I was in the automobile business. The sale of credit life was a fairly substantial source of
income. I think there was certainly effort made, for a variety of
reasons, to sell credit life along with the sale of the automobile.
So I have real questions about what does happen when somebody
goes in to borrow. I am not one that would come down very
strongly on the notion that credit life should continue to be sold
the same way it is.
The CHAIRMAN. Do you think it is a safe banking practice or
proper banking practice for banks to sell credit life insurance?
Why shouldn't that be done by an insurance agency instead?
Mr. ScHULTZ. If it just results in increased competition, I think it
is a good thing-The CHAIRMAN. It is a pretty unfair kind of competition. The
lender is sitting there selling the insurance, after all.
Mr. ScHULTZ. That is indeed the question. That is why I have
mixed feelings on it. I just don't know how much of that kind of
pressure is brought to bear.
The CHAIRMAN. Would you be willing to pledge you would completely divorce yourself from any Federal Reserve Board decisions
or deliberations in the area of credit life insurance?
Mr. ScuuLTZ. Certainly, if it is the feeling it would represent
some kind of conflict of interest on my part.
The CHAIRMAN. I am not talking about a conflict of interest,
because you will have sold your share in it, but just from the
standpoint of one who, after all, is inadvertently perhaps, but
nevertheless, has benefited considerably from this, both in your
capacity as owner of Barnett and then Heritage; you say you didn't
know about it, but nevertheless, these sales took place, 98 percent
of the sales were from the insurance company, Heritage Insurance
Co., with which you have a connection, so that you have benefitted
over the years-Mr. ScHULTZ. I would be happy not to have to make those decisions, Senator.
As you know, we now have three Federal agencies regulating
banks. No other industry enjoys the privilege banks have of being
able to choose the Federal agency which shall regulate them. That
is not true in any other industry except in banking.
Will you support legislation to consolidate bank regulatory responsibilities into a single agency at the Federal level?
Mr. ScHULTZ. Senator, I started out by looking at that one and
saying, "Well, it really doesn't make sense to have a lot of regulators, and we ought to just have one."
The more I got into it the more problems I found with that. I
know that there is the argument made that there is competition in
laxity. I think you can also make an argument that there is competition in reasonableness; if you just had one big brother there, he
might not tend to be very reasonable--

Digitized by



The CHAIRMAN. On that theory do you think we ought to have
three FPC's and three ICC's and so forth?
The CHAIRMAN. Why wouldn't that follow?
Mr. SCHULTZ. I understand the problem with making this kind of
an argument. It just seems to me that there is a real question of
having one regulator with an enormous amount of power in this
particular area. It seems to me that you can find ways to do things
better when you have more than one; there is more opportunity for
that kind of thing to surface.
I will tell you that I talked to an awful lot of bankers, and they
are concerned about that issue, and they are concerned about it for
that reason. They are not concerned about having good regulation
and supervision; and they want better examinations.
They do hope that the examining council is going to make for
better examination, because they say good examinations help their
The CHAIRMAN. The former Governors testified before the committee, that examination and supervision should not be lodged in a
single agency. What is your view along the line of a commission
report along the line of concentration of monetary policy?
Mr. SCHULTZ. I have seen some arguments on the other side,
Senator, that say that it is important that regulation and supervision be lodged with the monetary policy authority, that they are
interrelated in various ways.
The CHAIRMAN. There is a conflict involved there. They are
related all right, because, of course, if the Fed is interested in
easing monetary policy, there is a tendency to be a little easier in
their examination.
On the other hand, if they are in favor of tightening monetary
policy, they get a little tougher, and they shouldn't. It ought to be,
the examination ought to be based on safe and sound banking, not
on monetary policy.
Mr. SCHULTZ. I agree with that.
The CHAIRMAN. So you have a conflict there.
Mr. SCHULTZ. I am not sure that that is the case. I am not sure
that if they are trying to ease monetary policy the examinations
get easier. At least at the bank level I have not seen any indication
of that. So I am not sure there is a conflict of interest.
So far, my feeling is that the examining council is a step forward, and there is a lot that can be done there to improve the
whole examination procedure. But my feeling is that the question
of combining the regulatory and supervisory agencies would be best
left for a while; let's see how things work.
The CHAIRMAN. You spoke earlier about the fact that we don't
have the kind of monetary policy and control that would be most
useful, that banks are innovative in finding ways around it. Banks
used managed liabilities, CD's, repurchase agreements, zero dollar
borrowing, and so forth.
Should the Fed have authority to impose reserve requirements
on those types of deposit claims?
Mr. SCHULTZ. I think so, Senator.

Digitized by


Mr. ScHULTZ. Because they are a source of money. If there are no
reserve requirements there, they can expand the money supply.
The CHAIRMAN. During the past month or so, Chairman Miller,
Secretary Blumenthal, Governor Wallach, have all spoken in favor
of reserve requirements against Eurocurrency liabilities. Do you
have a view on whether reserve requirements and Euro requirements enacted between the United States and Europe and Japan
would have significant ability to reduce risks in international markets?
Mr. SCHULTZ. Senator, this is an area where I don't have a lot of
expertise, and I am not sure I can give you a really intelligent or
definitive answer.
There are a couple of aspects of the situation that I am aware of.
One is that there are an awful lot of those Eurodollars floating
around out there. It would be nice if we were repatriating some of
them, and so it is probably a good thing to have our banks getting
some of their money from that particular source.
On the other hand, I am also aware that if it is unregulated, if
there are no reserve requirements in going to that particular
source, it can add to the money supply and therefore be inflationary.
So it is a very complex question, Senator, and it is an area where
I would want to go to others for better answers.
The CHAIRMAN. Do you have any view on the establishment of
free trade banking zone in New York City, so-called international
banking facilities proposed by the New York clearinghouse banks?
Mr. SCHULTZ. I am aware of it, and I do not have a position at
this point, Senator. I don't know enough about it. It falls in with
the whole question of Edge corporation powers, and that is a
difficult question in itself.
The CHAIRMAN. Well, Mr. Schultz, as I indicated before, I have
great admiration for you as a person. You are a man, obviously of
ability and integrity. You have been successful in politics and have
success, indeed, in business. 1 think you would be well qualified for
many jobs.
This job I am most concerned about because as I indicated before,
it is one that should require particular qualifications, very complicated, extraordinarily important; and on issue after issue that I
have asked you about this morning, with only maybe one or two
exceptions, you have indicated that you are thinking about it, that
you aren't too sure, that you might go either way; it depends on
the circumstances.
And in view of the fact that you have this close connection or
this connection with the President of the United States, that he's
appointed you as one who has been identified as a worker in the
trenches in his campaign in 1976, I am very much concerned about
the effect on the independence of the Fed.
The fact that it is a seven-member board, with the legislation
designed to provide for 14-year terms, calculated deliberately to
prevent any president from dominating the Board; and President
Carter will have appointed the fourth member of that sevenmember Board, if you are confirmed, therefore will have control of
it after only 2½ years or so in office, it seems to me is most
troublesome if that Board is going to be independent.

Digitized by



The money power as written into the Constitution is a congressional power, not an Executive power. We created the Federal
Reserve Board as our creature. It is most important for many,
many reasons, it be independent of the Executive. That is why your
nommation does give me difficulties.
Mr. &HULTZ. Senator, if confirmed, I assure you that I will
protect that independence.
T h ~ ~ - Thank you very much. The committee stands
ereupon, at 11:50 a.m., the committee was adjourned.]
ographical inaterial on the nominee follows:]

Digitized by



Name: ____s_CH_lJL___;-r:,cWT)=-----



- - - - -~

Position to which
Member of the Board of Governors
Date of
nominated: _ _ _o_f_t_h_e_F_e_d_e_r_a_l_R_e_s_e_rv
_ e_S~ys_te_m____ nomination: _ _A-'p~r_,_·1_1_9_7_9_ _ __
19_2~9=- Place of birth: _ _J_a_c_k_s_o_n_v_i_l_l_e.;..,_D_u_v_a_l_C_o_un_t...:y..;'c_F_l_o_r_i_d_a__
Date of birth: _~1~6~_J_an= .__

Marital status:




full name of spouse: _ __:N:.:a:.:n:.:c:.,.Y....::J-=a.:cnc::e_:_:R.=e-=i-=1-=ly'---'S:..c::;h::.u::;l:..t::;z:..__ __

Name and ages
of children: Catherine S. Kelley
Frederick H. Schultz, Jr.

Clifford G. Schultz, II

John R. Schultz




Bolles School
Jacksonville , Florida
Lawrenceville School
Lawre nceville, N. J.
Princeton University
Princeton, N. J.
Unive rsity of Kentucky
Lex ington, Kentucky
Princeton University
Princeton, N. J.
Uni versity of Florida
Law School
Gainesville, Florida




Dates of



1954- 1956

Honors and awards: list below all scholarships, fellowships, honorary degrees, military medals, honorary society
memberships, and any other special recognit ions for outstanding service or achievement.

Bronze Star, 1954; Jacksonville Junior Chamber of Comnerce Award for
1toutstanding Young Man, 1964 11 ; Jacksonville Junior Chamber of Commerce
"Good Government Award", 1969; Allen Morris Award for Outstanding
Legislator for the years 1968 and 1970. Louis Brownlow Prize - given
Jointly by the Council of State Governments and the American
Association of Public Administration for the best published writing
in the area of state government during the year 1969.

Digitized by


Frederick H. Schultz


List below all mem~ships and offices held in professional. fraternal, business, scholarly,
civic, charitable and other organizations.
Office held


(if any)


National Association of

Business Economists
Jacksonville Area Chamber
of Conmerce
Jacksonville Community
Council. lac.


1974 -






Jacksonville University




11)e Bolles School


1956 -

Leadership Jacksonville, Inc.

founder & President _.1.,9.,_7~6-'-"------

Florida State Chamber of



Council of 100


Employment record: list below all positions held since college, including the title or description of job, name of

e"s~lol~e8}s~atio~:f~Jks:~~::'~r:~inclusive employment.


2/56 to 4/57

Barnett Bank of Jacksonville

Bank Trainee

100 Laura Street
Jacksonville, Florida

4/H to 4/73

Schultz Investments (OW'ner)
118 West Adams Street
Jacksonville, Florida

4/73 to Present Barnett Investment Services, Inc.
100 Laura Street
Jacksonville, Florida

Private I nves tnaents

Chainnan of the Board
and Economist

American Heritage Life Insurance Company, Jacksonville, Florida
Barnett Banks of Florida, Inc., Jacksonville, Florida
Canada Dry Bottling Company of Florida, Jacksonville, Florida
Florida Gas Company, Winter Park, Florida
Florida Steel Company, Tampa, Florida
Florida Wire and Cable Company, Jacksonville, Florida

Uni capita I Corp

At) anta, Georgi a


Digitized by


Frederick H. Schultz

Lisi any experience in or direct association with Federal, State, or local governments, Including any advisory, consultative, honorary or other part-time service or positions.

Member, Jacksonville Expressway Authority, 1961-1963
Florida House of Representatives 1963 - 1970; Speaker of the House
Chairman, Citizen's Coamittee on Education, 1971-1973
Member, Florida Education Council, 1977•

Chairman, 1978•

Member, National Council on Educational Research, 1978 •

list the titles, publishers and dales of books, articles, reports or other published materials
you have written.

Article • "Legislative Modernization - 'lhe Florida Experiment"
appeared in the Fall- 1969 issue of STATE GOVERNMENT, published by
The Council of State Governments,

Received the Louis Brownlow Prize.

For the last fiye years I have pi,g,Jished a monthly Economic and
....1..nY..e.s.tment l,etter.

and activities:

Lisi all memberships and offices held in and services rendered to all political parties or
election committees during the last 10 years.

Director, Florida Business Forum, Inc., Tallahassee, Florida• 1974
Elected Chairman, 1976.
Co-Chairman, Citizens' For Better School Conmrl.ttee, 1978.
'11tis Colll'llittee advocated a Constitutional Amendment to better
education in the state of Florida.

Digitized by


Frederick H. Schultz


Itemize all political contributions ot SS00 or more to any individual, campaign organiza•
tion, political party, political action committee or similar entity during the la!.t eight
years and identify the specific amounts. dates, and names of the recipients.

Andrew P. Ireland - Senate - State of Florida
Jacksonvil 1e Committee- McGovern for President
$ 500. 00
Ralph Turlington Campaign Fund - Commission of Education - Florida
$ 500.00
Campaion Account of Senator Stone - U. S. Senate
Carter Campaign Fund - President
Carter-Mondale_~arnQ_~n Account, 0NC - Presiden~t ~ - - - - - - - -- $~ .?00 . 00
Jim Williams Campaion Fund - Governor - Florida
$1,000 . 00
Jim Williams Testimonial Dinner - Governor - Florida
$ 200 . 00
Bob Graham for Governor - Florida
Florida Business Forum, Inc.
$ 500.00
Florida Business Forum, Inc.
S 250.00
Citizens for Better Schools, Tampa, FL
$ 500.00


State fully your qualifications to serve in the position to which you have been named.
(attach sheet) ·

See Attached Sheet
Future employment

1. Indicate whether you will sever all connections with your present employer, business
firm, association or organization if you are confirmed by the Senate.


2. As 'far as can be foreseen, state whether you have any plans after completing govern•
ment service to resume employment, affiliation or practice with your previous em•
ployer. business firm. association or organization.


3. Has anybody made you a commitment to a job after you leave government?

4. Do you expect to serve the full term for which you have been appointed?



Digitized by


Frederick H. Schultz
Potential conflicts
of interest:

1. Describe any financial arrangements or deferred compensation agreements or other
continuing dealings with business associates, clierats or customers who will be af•
fected by policies which you will influence in the position to which you have been


2. List any investments, obligations, liabilities, or other relationships which might involve
potential conflicts of interest with the position to which you have been nominated.


3. Describe any business relationship, dealing or financial transaction (other than tax•
paying) which you have had during the last JO years with the Federal Government,
whether for yourself, on behalf of a client, or acting as an agent. that might in any
way constitute or result in a possible conflict of interest with the position to which you
have been nominated.


Digitized by


Frederick H. Schultz

I am. a bualneasman with broad experience as an economist, banker, and legislator.

My service on seven corporate boards of di rec tors has given me the opportunity
to observe a wide variety of people and problems.
My involvement in investment management extends over a period of more than twenty


During that time it has been necessary for me to study extensively in the

field of

For the last five years I have been Chairman of the Board and

in-house Econotuiet of Barnett Investment Services, an investment management sub•
aldiary of Barnett Banks of Florida, Inc.

Our investment philosophy la baaed on

the top down approach by which we that our investment strategy is b&sed upon
our econondc forecast.

I have been responsible for developing that forecast.


any investment strategy is heavily dependent on an interest rate forecast, I have
been a close observer of monetary policy.

In addition, I have written a monthly

economic and investment letter which we send to our clients.

In 1962 I purchased majority stock in a small bank in Winter Haven, Florida.
sequently, we applied for and received two additional charters.


In 1968 these banks

vere merged with Barnett Banks of Florida and I became a Director and member of the

Executive Colllllittee of that institution.

lberefore, I have had intimate experience

with a small country bank and a regional bank holding company.

'Ibis gives me first

hand knowledge of bank supervision and regulation.

legislative experience should prove valuable in two vays.

First, as a foauer

appointed and later elected official I understand the problems of working together.
I also understand the need for good coamunication.

Second. my administrative

experience as Speaker should be important 1f designated as Vice Chairman.

With almost

600 employees in the Leglslature, I am well aware of the problems of staff coordination
aa opposed to line administration.



Digitized by



Frederick H. Schultz
Question 4t2, Page S:
List any investments, obligation, liabilities, or other relationships which
might involve potential conflicts of interest with the position to which you
have been nominated.

Investments owned by Frederick H. Schultz:
3,500 shares, American Heritage Life Investment Corp.
66,491.7219 shares, Barnett Banks of Florida, Inc.
SO shares, Barnett Bank of Jacksonville, N .A.
427 shares, Continental Corporation


Investments owned by Nancy R. Schultz (wife):
500 shares, American Heritage Ufe Investment Corp.
15,296 shares, Barnett Banks of Florida, Inc.


Investments owned by Clifford G. Schultz, II (22-year-old adult
unmarried son, member of my immediate household):



American Heritage Life Investment Corp.
Barnett Banks of Florida, Inc.
Security Pacific Corp.
Southwest Florida Banks, Inc.

Investments owned by John R. Schultz (IS-year-old minor son,
member of my immediate household):
700 shares, American Heritage Life Investment Corp.
l, 042 shares, Barnett Banks of Florida, Inc.
183 shares, Security Pacific Corp.
610 shares, Southwest Florida Banks, Inc.


Investments held by the Trustee under Deed of Trust between
Clifford G. Schultz (my father) and Barnett National Bank of
Jacksonville, as Trustee, dated December 31, 1937, In which I
have a remainder interest in 70% of the income for my life, after

Pa~e 51 question #2

Digitized by


Frederick H. Schultz

the death of my mother (age 88):
$37 .00 In Barnett Bank Common Trust for Short-Term
U.S. Government Securities
46 7 shares, American Heritage Life Investment Corp.
SO shares, First Chicago Corp.
63 shares, lnternatlona I Business Machines Corp.
SO shares, Travelers Corp.


Investments held by the Trustee under Deed of Trust from Clifford
G. Schultz and Barnett National Bank of Jacksonville, as Trustee,
dated December 31, 1937, the entire income of which trust is
presently payable to me for life:
$5. 00 in Barnett Bank Common Trust for Short-Term
U.S. Ga,,ernment Securities
263 shares, American Heritage Life Investment Corp.
1,393 shares, Continental Corporation
100 shares, Digital Equipment Corp.
148 shares, International Business Machines Corp.


Investments held by the Trustee under Deed of Trust from Clifford
G. Schultz and Barnett National Bank of Jacksonville, as Trustee,
dated December 30, 1940, two-thirds of the income of which
trust is presently payable to me for life:
$12,024.00 in Barnett Bank Common Trust for Short-Term
U.S. Government Securities
7,020 shares, American Heritage Life Investment Corp.
1,500 shares, Chemical New York Corp.
400 shares, First Chicago Corp.
SO shares, International Business Machines Corp.
200 shares, Travelers Corp.


Investments held by the Trustee under Deed of Trust between
Cllfford G. Schultz and Barnett National Bank of Jacksonville,
as Trustee, dated December 23, 1953, the income of which Is
payable $1,500 a year to a distant cousin of mine, with two-thirds
of the balance of the income being presently payable in equal shares
to each of my four children (two of whom are adults and not members
of my immediate household; one of whom, John, Is a minor and a
member of my immediate household; and one of whom, Clifford, ls

PaQe 5; Question #2

Digitized by


Frederick H. Schultz

an unirarrled adult, and a member of my Immedia te househol d):
$834. 00 In Barnett Bank Common Trust for Short-Ter m
U.S. Governm ent Securitie s
3,000 shares, American Heritage Life Investme nt Corp.
400 shares, First Chicago Corp.
2,000 shares, Independ ent Life 6 Accident Ins. Co.
565 shares, Internati onal BUsiness Machine s Corp.
200 shares, Travelers Corp.

Investments held by the Trustee under Deed of Trust between
myself and Barnett Nationa I Bank of Jacksonv ille as Trustee, dated
December 30, 1957, in which my four children (two of whom are
adults and not members of my Immediat e househol d; one of whom,
John, Is a minor and a member of my Immediat e househol d; and
one of whom, Clifford, Is an unmarrie d adult, and a member of my
Immediat e househol d) each have equal remainde r Interests In the
Income for their respectiv e lives after the death of the present life
beneficia ry (a brother-i n-law of mine):
$73 .00 in Barnett Bank Common Trust for Short-Te rm
U.S. Governm ent Securitie s
100 shares, First Chicago Corp.
2 shares, Internatl ona 1 Business Machine s Corp.
75 shares, Travelers Corp.


Investme nts held by the Barnett National Bank of Jacksonv ille and
myself as Co-Trus tees, of a trust under the Will of my father,
Clifford G. Schultz (who died March 21, 1958), the entire income
of which is presently payable to me for life:
$1, l 00. 00 in Barnett Bank Common Trust for Short-Te rm
U.S. Governm ent Securitie s
2,650 shares, American Heritage Life Investme nt Corp.
910 shares, Barnett Banks of Florida, Inc.
l 00 shares, Diglta 1 Equipme nt Corp.
4 00 shares, First Chicago Corp. 500 shares, Independ ent Life 6 Accident Ins. Co.
434 shares, Internati onal Business Machine s Corp.
2 00 shares, Travelers Corp.


Investme nts held by the Barnett Bank of Jacksonv ille, N .A., and
myself as Co-Trus tees under Deed of Trust dated Novembe r 20,

Page 51 Question 12

Frederick H. Schultz

from Mae W. Schultz (my mother), the entire income of which Is
payable for life to my son, Clifford, a 22-year-old unmarried
adult and a member of my immediate household:
113 shares, Barnett Banks of Florida, Inc.

Investments held by the Barnett Bank of Jacksonville, N .A., and
myself, as Co-n-ustees under Deed of n-ust dated November 20,
1972, from Mae W. Schultz, the entire Income of wh !ch is payable
for life to my son, John R. Schultz, a 15-year-old minor member of my
Immediate household:
112 shares, Barnett Banks of Florida, Inc.


As stated above, I am the co-trustee of some, but not all, of the
above trusts. Also, under some of said trusts, I am designated as
a consultant or advisor on various matters.


I am a co-trustee, or consultant of and advisor to, eight other trusts
in which neither I, nor my spouse, nor any minor child of mine, nor
any member of my immediate household, has any real Interest. I
have a contingent Interest in two of these trusts, and my children
have contingent interests in all of them, but the contingencies are
so remote that I do not believe the investments in such trusts involve any potential conflicts of interest.


I am a member of the Board of Directors or Board of n-ustees of
several corporations, as listed on page 2. In addition, I am the
trustee of a land· trust in which my mother has the majority of the
beneficial interest.


I am obligated on two demand loans from the Barnett Bank of Jacksonvllle, N.A., totalling $75,000.00.


I am obligated on a mortgage on my condominium at Sawgrass, Ponte
Vedra Beach, Florida, which is held by Barnett Bank of Jacksonville,
N .A., and has a present balance due of approximately $47,000.00,
payable In monthly Installments, with the balance due in 1984. I
do not believe that this mortgage constitutes a potential conflict of

Page 5;

question #2

Digitized by


Frederick H. Schultz
4 . List any lobby1nr, activity durin[ the pzst JO yt.•a,s in which you have enr,aged for the
purpose of direclly or indirectly influrnc:ing the passar;e, defeat or mod,tu:. ation of
any lecisJation at the national IPvel of government or 2ttectinG, the administration and

execution of national law or public policy.


5. Explain how you will resolve any potential conflict of interest that may be disclosed by
yaur responses

to the above items.


Civil, Criminal and


1. Give the full details of any civil or criminal proceeding in which you were a defendant
or any inquiry or investigation by a Federal, State, or local agency in which you were
the subject of the inquiry or investigation.


2. Give the full details of any proceeding, inquiry or investigation by any professional
association including any bar association in which you were the subject of the proceeding. inquiry or investigation.



Digitized by


Frederick H. Schultz


Question -11-5, Page 6:
Explain how you will resolve any potential conflict of interest that may
be disclosed by your responses to the above items.

I will dispose of any and all investments held by me,
my wife, and sons, Clifford and John, listed as potentia 1
conflicts of interest, and will request the Trustee of any
trusts in which I, or my sons, Clifford and John, have
an interest to dispose of any and all such investments
held by said trusts as listed above.


I will resign as co-trustee of any and all trusts in
which I hold such position, including those referred to in
my answers in subparagraph (n) to Question -11-2 on page 5.
In each case, the governing instrument provides that
the other co-trustee, Barnett Bank of Jacksonville,
shall thereafter serve as sole trustee.


I will relinquish my right to consult, advise, and
approve the purchase and sale of trust investments for
all trusts where I have such right, including those referred
to in my answers in subparagraph (n) to Question -11-2 on
page 5. Under the respective governing instruments, in
some trusts, my mother, Mae W. Schultz, will succeed to
my rights in this respect, and in one · trust, my two adult
sons, Frederick and Clifford, will do so. In one trust,
if my mother is unable to exercise this right, my sister,
Genevieve S. Ayers, will have the right to do so.


I will relinquish my right to consult and advise with
respect to the selection of attorneys, accountants, and
other advisors with respect to a II trusts where I have
such rights, including those referred to in subparagraph (n)
to Question -11-2 on page 5. Under the respective governing
instruments, in some trusts, my two adult sons, Frederick
and Clifford, wlll succeed to my rights in this regard,

Page 6;

Question #5

Digitized by


Frederick H. Schultz

and in other trusts, a majority in interest of the income
beneficiaries (other than myself) will do so.


· (g)

I will resign as the Trustee of the land trust referred
to in subparagraph (o) to Question #2 on page 5.
Under the governing instrument, the beneficiaries owning
51 % of the beneficial interest hove the right to appoint
a successor trustee. My mother, Mae W. Schultz,
presently owns a majority of the beneficial interest.
I do not own any beneficial interest in the land trust.
I will resign as a member of the Board of Directors
(or the Board of Trustees) of all corporations on which
. I now serve.
will satisfy the two demand loans at the Barnett Bank
of Jae ksonville, N .A.

Paye 6; Question #5

Digitized by


Frederick H. Schultz


Question tJ , Page 6·
Give the full details of any civll or criminal proceeding In which you
were a defendant or any inquiry or investigation by a Federal, State,
or local agency in which you were the subject of the inquiry or

In 1970, Banks Vest of Hillsborough County, Florida,
flled a Petition as a member of the general electorate
naming me as the respondent, and alleging that I had
violated certain provisions of the Florida Election Code
in connection with my candidacy for U. S. Senator in
the Democratic primary. I filed motions to dismiss
which were never ruled upon. In December, 1970, the
Petitioner filed a motion to dismiss his petition on the
ground that since I was not nominated in the Second
Primary, the cause was moot. A Final Judgment of
Dismissal was thereupon entered.


In 1977-78, I was investigated by the F.B.I. in
connection with my appointment by the President as
a member of the National Councll on Educational Research


I have held a small number of real estate second
mortgages. In some Instances the first mortgage has
been foreclosed, and I was named as a defendant in
order that my second mortgage lien might be foreclosed.

Page 6; question #1


Digitized by