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FEDERAL RESERVE B A N K
O F S T . L O U IS
J“NE W”

Strong Credit Demands, But No
“Crunch” in Early 1973
The Problem of Re-Entry to a
High-Employment Economy
An Address by Darryl R. Francis .......... 11
LITTLE

The Response of the Mexican Economy
to Policy A ctions................................. 15

Vol. 5 5 , No. 6




Strong Credit Demands, But
No “Crunch” in Early 1973
by ROGER W. SPENCER

J n RECENT months many observers in the finan­
cial community have been concerned about the po­
tential emergence of a credit crunch. Last fall, eco­
nomic forecasters indicated that the occurrence of
such a crunch was a major potential blight on an
otherwise optimistic outlook for 1973. In many re­
spects the economic conditions anticipated in 1973
were viewed as being similar to those which prevailed
in 1966 and 1969, two recent years of widespread
financial stress. Strong real output growth, high levels
of capacity utilization, and advancing price pressures
were experienced in those years and were projected
to reemerge in 1973.
In 1966 and 1969, the accelerating inflationary pres­
sures led stabilization authorities to take restrictive
measures in order to restrain the upward spiral of
prices. A side effect of those efforts was the creation
in 1966 and 1969 of conditions in the financial markets
which became popularly characterized as a “credit
crunch.”
This article reviews characteristics common to the
two credit crunch periods, and then examines finan­
cial and business conditions in early 1973. The differ­
ences and similarities between the earlier periods and
developments so far in 1973 are emphasized. Cur­
rently, there are strong credit demands in the econ­
omy, as there were in the 1966 and 1969 credit
crunch periods. However, substantial differences be­
tween the present and earlier periods remain.
Page 2



CHARACTERISTICS OF THE
CREDIT CRUNCHES OF 1966 AND 1969
The term “crunch” is indicative of developments
wherein rapidly changing supply and demand forces,
in combination with non-market interest regulations,
sharply alter the flow of credit away from normal
channels. This distortion of normal credit flows was
the clearest single element common to both the 1966
and 1969 credit crunches.1 Credit seekers who were
affected by the change in flows included business
firms, governments, individuals, and financial
institutions.

Sectors Most Adversely Affected
In the past two crunch periods, certain financial
institutions were among the most publicized victims
of the financial wrenching. Since financial intermedi­
aries obtain funds from savers and extend loans to
borrowers, they are particularly vulnerable to pro­
nounced changes in credit flows. In both crunch situa­
tions, these institutions were “disintermediated” when
the rates they were permitted to pay savers did not
rise as rapidly as interest rates in the open market.
For a while the intermediaries were able to meet a
continued high demand for funds by liquidating short­
term securities or by borrowing. Eventually, however,
'Some of these distortions continued into the immediately
succeeding years.

FEDERAL RESERVE BANK OF ST. LOUIS

they were forced to curb loan extensions because of
the inability to attract new funds.
Individuals and firms seeking to obtain funds from
institutions whose borrowing rates were subject to
legal ceilings probably found the available supply of
credit allocated on a non-price basis —first come, first
served, for example. In cases in which ceilings on
interest rates did not exist or were ineffective, the
price mechanism functioned to allocate the credit
supply. Some borrowers likely found the prices they
had to pay for credit were sufficiently high as to dis­
courage them from borrowing at that time. If they
anticipated the cost of credit would fall sometime
later relative to their expected return (however meas­
ured), they simply postponed attempts to obtain
funds. Such actions would tend to lower the immedi­
ate demand pressure on financial intermediaries.
Sources of funds to financial intermediaries at any
time are strongly influenced by changes in the interest
rates that the intermediaries are permitted to pay to
attract deposits. The ability of one intermediary to
attract deposits from another by an incremental in­
crease in offering rates has probably been enhanced
during periods of financial stress. High open market
rates likely caused some disintermediation among all
the thrift institutions. One result was increased bor­
rowing on the part of the intermediaries.
Member banks increased borrowing from the Fed­
eral Reserve Banks, and savings and loan associations
turned to the Federal Home Loan Bank Board. In
some cases the Federal Reserve chose to restrict bank
borrowing at the given discount rate, and the Federal
Home Loan Bank Board encountered exceptionally
high costs in marketing its own securities on the open
market. These actions contributed to the crunch situa­
tion for those banks and savings and loans deprived
of a large part of both their primary and secondary
sources of funds.
The housing sector was also greatly influenced by
these financial developments. With savings and loan
associations, mutual savings banks, and commercial
banks forced to curb the advance of housing loans,
Federal or semi-Federal agencies such as the Federal
National Mortgage Association (FNMA) and the
Government National Mortgage Association (GNMA)
attempted to make available to the housing seotor
funds that they had been able to attract on the open
market. The agency support was particularly signifi­
cant to the housing sector at times when the mortgage
activity of life insurance companies had been curbed



JUNE 1973

because of the large volume of policy loans granted
to policyholders. The relatively low interest charge
set in the insurance contracts made this source of
funds quite attractive to individuals and firms.
Most state and local governments are subject to sub­
stantial constraints on their capacity to obtain funds
through bond issuance or tax increases. Like some
financial intermediaries and high risk borrowers, many
of these governments have curbed their operations
during periods of financial stress. The Federal Gov­
ernment, on the other hand, is less limited in its
ability to tax and/or issue bonds when it desires to
obtain additional funds. In fact, this ability to borrow
from the public at high interest rates (at least in the
short-term market) at times has likely resulted in a
shift of funds from financial intermediaries and state
and looal governments to the Federal Government.

Developm ent of the Credit Crunches
Ironically, the origins of past credit crunch periods
may be traced to stimulative monetary policy actions.
Expansionary policies have been appropriately taken
during recessionary periods to stimulate real eco­
nomic activity. However, in periods when economic
activity is already moving at a brisk pace, and re­
source utilization is very high, monetary stimulus may
eventually precipitate a credit crunch.
The demand for funds in such periods has been
sufficient to induce a rise in interest rates. Frequently,
monetary authorities have resisted the rise in market
interest rates by stepping up the pace at which they
supplied reserves to the banking system. The increases
in reserves have led to expanded flows of credit, in­
creased growth in the money stock, and temporary
reductions in or a leveling off of interest rates.
Increased growth in money, relative to the prevail­
ing trend, has led to increases in the growth of total
spending. The rise in the pace of spending has been
accompanied by increases in the demand for credit,
and, simultaneously, upward interest rate pressures.
Advances in the growth of total spending that have
occurred at relatively high levels of employment have
been accompanied by greater inflationary pressures.
To the extent that price increases come to be antici­
pated, lenders demand and borrowers are willing to
pay still higher interest rates. Only when some out­
side source of funds, such as the Federal Reserve
Banks, has continued to supply credit at an accelerat­
ing rate has financial stress been postponed. The cost
of such postponement has been escalating inflation.
Page 3

FEDERAL RESERVE BANK OF ST. LOUIS

However, at some point in the inflation cycle, the
monetary authorities have undertaken restrictive ac­
tions. These actions have been reflected in a slowing
in the rate of growth of monetary aggregates and a
temporary further rise in interest rates, both of which
occurred in 1966 and 1969. Subsequently, as a result
of the restrictive policy actions, credit extensions have
fallen and interest rate declines have accompanied a
slowing in the pace of total spending.
The credit crunch periods were significant not only
because of the financial wrenchings which occurred
at that time, but also because such periods were fol­
lowed by a slowing in real economic activity. The
credit crunch of 1966 was followed by the mini-re­
cession of 1967, and the crunch of 1969 preceded the
recession of 1970. Current business conditions and
financial developments suggest some similarities with
these earlier periods, but the differences are signifi­
cant and notable.

COMPARISON OF BUSINESS AND
FINANCIAL CONDITIONS
As in 1966 and 1969, total spending, output, and
employment indicators currently reflect a rapid
growth in economic activity. A brief slowing in cer­
tain monetary aggregates, and a rise in some interest
rates resemble patterns observed in 1966 and 1969.
However, important differences remain.
S pend in g, Output, and Prices
Rising prices and increased growth of real output
are associated with growing credit demands. In the
early recovery stage of the business cycle, output tends
to rise rapidly while the inflation rate changes slowly.
Thus, credit demands at this stage are associated pri­
marily with output gains as businesses borrow to
finance plant and equipment expansion and inventory
building, and consumers borrow to finance increased
purchases. In the latter stage of a recovery, further
increases in output are more difficult to achieve be­
cause resources are more highly utilized. However,
credit demands continue to rise as price advances
tend to accelerate and anticipations of further infla­
tion continue to build.
In early 1973, both real output and prices have
risen rapidly. A deceleration in the rate of increase of
many prices, which began in late 1970, was reversed
late last year. At the same time, the sharp pickup in
real output, which began at the end of 1971, has con­
tinued into early 1973. The associated gains in total

Page 4


JUNE 1973

spending have been at rates above those which pre­
vailed in the 1966 and 1969 credit crunch years.
A 13.1 percent annual rate of advance of total
spending in the two-quarter period ending in March
this year surpassed all other two-quarter gains since
1951. It is not clear, however, that the credit demand
pressures created by such rapid price and output ad­
vances are any greater than those which prevailed in
1966 and 1969. Some observers argue that growth in
credit demands is not based solely on the price and
output movements in the present and immediate past,
but also on those which have occurred over time.2
The 1966 and 1969 credit experiences were preceded
by longer periods of output and price build-ups than
have developed since the rather sluggish recovery
year of 1971.

Monetary Aggregates
The fact that some interest rates recently have been
rising while a slowing in the rate of growth of the
money stock has also occurred has led some observers
to conclude that the monetary authorities have
adopted a highly restrictive policy stance. Other evi­
dence indicates that such a conclusion might be
premature.
The accompanying chart of the narrowly defined
money stock (M i) indicates that money stock growth
slowed sharply from its earlier trend for extended
periods of time in 1966 and 1969. In fact, the money
supply did not increase at all from April 1966 to
January 1967. In both cases the slowing lasted for at
least nine months.
Money stock growth in early 1973 has decelerated
from the 7.2 percent annual rate of increase from
fourth quarter 1970 to fourth quarter 1972. During
the six-month period from November last year to May
1973, the money stock rose at a 6.4 percent annual
rate, only slightly less than the 1970-72 rate.3 The
slowing which occurred in 1966 and 1969, by way of
contrast with the recent period of deceleration, repre­
-The St. Louis Model, for example, features a short-term
interest rate equation in which price and output changes are
lagged over a ten-quarter period and a long-term interest
rate equation in which price and output changes are lagged
over a sixteen-quarter period. See Leonall C. Andersen and
Keith M. Carlson, “A Monetarist Model for Economic Sta­
bilization,” this Review (April 1970), pp. 14-15.
:iThe money stock rose at an abnormally high 14.1 percent
rate from November 1972 to December and declined at a
0.5 percent rate from December 1972 to January. The
choice of November avoids the distortion introduced into
rates of change calculations from abnormal base periods such
as December or January.

FEDERAL RESERVE BANK OF ST. LOUIS

JUNE 1973

M o n e y Stock a n d M o n e y Stock Plus N e t Time D eposits
R a tio Scale
B illio n s o f D o lla rs

600

M o n e t a r y B a se a n d Fe d eral R e se rve Credit

R a tio Sc a le
B illio n s o f D o lla rs

Monthly Ave rage s of Daily Figures
Se ason ally Adjusted

----- 1------------ 1600

Money Stock(Mj) 12

1965

1966

1967

1968

1969

1970

1971

1972

1973

L I Currency, demand deposits, savings deposits, time deposits open account plus time certificates
of deposit other than negotiable time certificates of deposit issued in denominations of $100,000
or more by large weekly reporting commercial banks.
[2. Currency plus dem and deposits.
Percentages are annual rates of change for periods indicated.
Latest d ata plotted: M a y estimated

sented a sharp decline from the prevailing trend rates.
Moreover, the slowing in the growth of money in 1973
has occurred over fewer months than in 1966 and
1969.
The accompanying chart also indicates that the
movements of money stock plus net time deposits
(M2) have been similar to those of Mi over approxi­
mately the same periods. A marked and sustained
slowing in M2 growth occurred in 1966 and 1969, but
the slowing thus far in 1973 is neither so pronounced
nor so prolonged. From an annual rate of increase of
11 percent in the 1970-72 period, M2 growth slowed
to an 8.6 percent rate of increase in the six months
ending in May 1973.
The Federal Reserve does not exercise absolute
control over either M i or M 2 in the short run. The
behavior of the public, commercial banks, and the
Treasury also affect monetary growth. Over a longer
period, the growth of money is dominated by changes
in the monetary base, the uses of which are bank
reserves and currency in the hands of the public.4
The monetary base slowed markedly in 1966 and
1969 in a pattern roughly comparable with that of
both M] and M2. From November 1972 to May 1973,
however, growth of the monetary base did not slow.
‘‘See Leonall C. Andersen and Jerry L. Jordan, “The Mone­
tary Base — Explanation and Analytical Use,” this Review
(August 1968), pp. 7-11.



L^Uses of the monetary base are member bank reserves and currency held by the public and
nonmember banks. Adjustments are made for reserve requirement changes and shifts in deposits
among classes of banks. Data are computed by this Bank.
[2. Total Federal Reserve credit outstanding includes holdings of securities, loans, float, and "other"
assets. Adjustments are made for reserve requirement changes and shifts in deposits among classes
of banks. Data are computed by this Bank.
Percentages are annual rates of change for periods indicated.
Latest data plotted: M ay

The base increased at an 8 percent annual rate in the
six-month period ending in May, compared with a
7.8 percent rate of increase in the preceding two years.
Largely because of the continued increase in the
monetary base in recent months, there is a strong
possibility that the recent slowing in money growth
was a temporary result of the irregular and unusual
pattern of Treasury deposits, and the recent sharp
rise in large negotiable certificates of deposit ( CDs) /'
Thus, changes in the rate of growth of the monetary
base do not support the view that the monetary au­
thorities have recently adopted a strongly restrictive
stance.
5Unusual Treasury deposit flows accounted for much of the
abnormal rise in the money stock in December 1972 and
the subsequent slowing in the early months of this year. In
December, the Treasury ran down its balances at commercial
banks while making the initial revenue sharing payments to
state and local governments. Demand deposit balances of
the Federal Government, unlike the balances of state and
local governments, are not counted as part of the money
stock.
In early 1973, Treasury deposit balances at commercial
banks rose more rapidly than usual because of continued
overwithholding on the part of the public and the Treasury’s
relatively slow pace in meeting the large volume of tax re­
funds. Two other factors which contributed to a slowing in
the rate of growth of the money stock, but which had no
effect on the monetary base, were a rapid rise in the growth
of commercial bank certificates of deposit and an increase
in the demand for currency relative to demand deposits.
The growth in CDs, which absorbs reserves otherwise avail­
able for private demand deposits, is attributable in part to
the relatively low commercial bank prime loan rates com­
pared to rates available to corporate borrowers in the com­
mercial paper market. To meet the increased loan demand,
banks bid aggressively for CD funds.
Page 5

JUNE 1973

FEDERAL RESERVE BANK OF ST. LOUIS

Federal Reserve credit and reserves available to
support private nonbank deposits, two additional
measures of monetary actions, also have grown more
rapidly this year than in the two preceding years. In
1966 and 1969 both measures slowed substantially
from their prevailing trends.

S e le c te d In te re st R a te s

R a tio S c a le
• f Y ie ld s

R a t io S c a le
of Y ie ld s

M o nth ly A ve ra ge s of Daily Figures

11

11

Aaa Bonds

Interest Rates
One significant characteristic of a credit crunch
situation is the upward movement of various interest
rates. The rise in open market interest rates above
legal rate ceilings was one of the clearest common
elements in the disintermediation of financial inter­
mediaries in 1966 and 1969.
Market interest rates, which reflect demands for
and supplies of credit, have risen sharply in recent
months. Increases in interest rates since December
1972 have been particularly marked for short-term
funds. In the first five months of this year, three-month
Treasury bill rates have increased 129 basis points,
four- to six-month commercial paper rates 182 basis
points, and corporate Aaa bond rates 21 basis points.
The levels of the short-term rates are currently near
the level of the long-term Aaa corporate bond rate.
At 7.36 percent in the first week of June, the bond rate
was 29 basis points above the Treasury bill rate and
47 basis points below the commercial paper rate.
In only two instances in the 1960-72 period did the
commercial paper rate rise above the long-term bond
rate. The two periods spanned January 1966 through
March 1967 and April 1969 through May 1970. The
commercial paper rate rose well above the long-term
rate on each of those occasions, reaching a peak of
65 basis points above the corporate bond rate in the
first instance (November 1966) and 157 basis points
in the second (July 1969). Thus, although the com­
mercial paper rate in early June was high relative to
the Aaa corporate bond rate, the differential was not
as great as in the past credit crunch periods.

SECTORAL ACTIVITY
The sharp rise in open market short-term rates has
begun to affect financial intermediaries whose admin­
istered rates have risen more slowly. Governmental
and foreign influences on U.S. interest rates will be of
particular significance over the next several months.

Financial Intermediaries
Commercial banks and other savings institutions are
among the first to be affected by financial stress.
Page 6



3-Month Treasury Bills

1965

1966

1967

Latest data plotted: M a y

Changes in their asset-liability positions are trans­
mitted rapidly to other areas, such as the housing
market.
Commercial Banks — As the initial commercial in­
stitution through which monetary actions are re­
flected, commercial banks played an important role in
the credit crunch periods. For the most part, recent
commercial bank data suggest only minor similarities
with developments in earlier periods of credit stress.
For example, instead of slowing as in 1966 and 1969,
large commercial bank certificates of deposit accel­
erated from a 32.3 percent increase in the 1970-72
period to a rate in excess of 100 percent in the first
five months of 1973. The rapid rise in CDs in recent
years was facilitated by the removal of interest ceil­
ings on 30-89 day CDs in June 1970. Ceilings were
removed from all CDs of $100,000 or more in May
1973.
Bank credit, which consists of loans and invest­
ments, slowed markedly in 1966 and 1969. In the first
five months of 1973, bank credit increased at a 16.9
percent rate, compared to a 14.7 percent rise in 1972.6
,!Over time, bank credit and the money stock tend to move in
a similar pattern. In some short periods, as in early 1973, this
tendency has not been observed. When there is a rise in the
interest rate that banks are permitted to pay on certificates of
deposit, banks are able to extend additional credit even if
bank reserves are held constant. A given amount of bank
reserves supports far more certificates of deposit (C D s) than
demand deposits because of the much lower reserve require­
ments for CDs. ( A marginal reserve requirement of 8 per­
cent on increased holdings of large CDs was recently im­
posed. ) Large CDs, however, are rarely considered money.
The rise in one component of bank liabilities ( C D s) is ac-

FEDERAL RESERVE BANK OF ST. LOUIS

JUNE 1973

B a n k C re d it u-

B u sin e ss Loans, Certificates of D eposit,
a n d C o m m e rcia l P a p e r V o lu m e

R a tio S e a l*
B illio n s of D o lla rs

R a tio Scale
B illio n s of D o lla rs

R a tio S e a l*
B illio n s o f D o lla rs

Billion :

2 00

Commercial Paper £

Certificates of Deposit £

1965

1966

1967

1968

1969

1970

1971

1972

1973

LL Business loons ol oil commerciol bonks, seasonally adjusted.
[2 Averages of preceding and current end-of-month seasonally adjusted figures.
12 Negotiable time certificates of deposit issued in denominations of $100,000 or more by large weekly
reporting commercial banks. Monthly averages of W ednesday figures, seasonally odjusted.
•Breok in series due to new seasonol adjustment.
**Break in series due to incorporation of expanded coverage.
Latest data plotted: Commercial Poper-March; Others-Moy estimated

Most of the recent gains in bank credit have been
in the form of loans, particularly business loans. Be­
cause prime business loan rates have been restrained
somewhat by the Committee on Interest and Divi­
dends, bank loans have been a relatively attractive
source of funds to large business firms. In fact, in view
of the difference in interest rates on bank loans to
businesses and the yields available on large CDs, it is
likely that large business firms increased both their
outstanding loans from banks and their holdings of
CDs.
The fact that most of the recent advances in bank
credit have been accounted for by increases in loans,
rather than securities, is in accord with 1966, 1969
developments.7 In 1966 and 1969 security holdings of
banks declined for several months as banks sought to
accommodate loan demand. In the five-month period
ending in May 1973, bank security holdings remained
unchanged, compared with a 9 percent rise in the
preceding year.
companied by a fall in another (demand deposits or time
deposits other than CDs). Thus, a short-term change in the
mix of bank liabilities may result in a rise in bank credit and
a decline in the money supply.
7Since the current period is not one of financial stress of the
nature observed in 1966 and 1969, the rapid expansion of
loans relative to securities reflects, in part, the relatively low
prime bank loan rate of recent months. In early June 1973,
a prime bank loan rate of 7.5 percent was about 33 basis
points below the commercial paper rate, compared with an
average of almost 50 basis points abo v e in 1972.



|_1^Averages of seasonally odjusted data for final W ednesday of two consecutive months.
(2 Defined as the sum of total loans and total investments at all commercial banks.
Percentages are onnual rates of change for periods indicated.
Latest d ata plotted: M ay

Banks probably find it profitable in the long run to
continue making loans to their better customers in
times of financial stress rather than extending credit
to other sectors such as the Government security
market. In other words, rates of return on loans
( measured to include long-run considerations) in high
interest rate periods surpass the yields on securities.
State and local government securities are at a particu­
lar disadvantage in such times because of the statu­
tory ceilings on yields of their bond issues.
Business loans have accounted for much of the in­
crease in bank loans in early 1973. These loans in­
creased at a 34.4 percent annual rate in the first five
months of this year, compared with about an 11 per­
cent rise in the preceding twelve months. Real estate
loans have slowed in early 1973 from their rapid rate
of increase in 1972, while, consumer loan growth has
picked up somewhat. Consumer debt of all sorts is
currendy quite high, perhaps reflecting an optimistic
income and employment outlook and/or a desire to
“beat” future inflation.
Nonbank Financial Institutions —After enjoying
two excellent years in terms cf deposit gains in 1971
and 1972, savings and loan associations and mutual
savings banks appear to have experienced somewhat
less success in early 1973. The recent rise in open
market interest rates has probably contributed to the
slowing in deposits at both institutions from a 17 per­
cent increase in the year ending in December 1972
to a 12 percent annual rate of increase in the first
five months of 1973.
Page 7

JUNE 1973

FEDERAL RESERVE BANK OF ST. LOUIS

C a sh Flow , N e t of D iv id e n d s *

S a v in g s D e p o sits a t N o n b a n k Thrift Institutions*

1965

1966

1967

1968

1969

1970

1971

1972

1973

Source: U.S. Department of Commerce
‘Capital consumption allowance plus undistributed profits.
Latest data plotted: 1st quarter preliminary

1965

1966

1967

1968

1969

1970

1971

1972

1973

‘ Average of the beginning and end-of-month figures for deposits of mutual savings banks and
savings capital at savings and loan associations.
Percentages are annual rates of change for periods indicated.
Latest data plotted: M a y estimated

In 1966 and 1969, the ability of the small saver to
purchase a high-yielding Treasury bill by withdraw­
ing as little as $1,000 from a savings and loan or
mutual savings bank account likely was associated
with the marked slowing in deposits at nonbank
thrift institutions in those two years (see chart). In
March 1970, original Treasury security issues in less
than $10,000 denominations were discontinued. As a
result, the small saver is now less likely to withdraw
his institutional savings during high interest rate pe­
riods. More wealthy individuals and firms can still
easily switch assets in accord with changing open
market interest rates. The ability of the savings inter­
mediaries to retain these accounts was enhanced in
1970 by the relaxation of interest rate ceilings on cer­
tain large deposits. In May 1973 interest restrictions
on savings certificates of $100,000 or more were re­
moved for most savings and loan associations.
As an indication that the savings institutions are
experiencing some changes in their savings flow posi­
tions, the withdrawal ratio (withdrawals relative to
new savings) at savings and loan associations rose to
an average of 74 percent in the first four months of
1973, compared with 64 percent over the same period
in 1972. This ratio averaged 92 percent in both 1966
and 1969.
Savings and loan borrowings, primarily from the
Federal Home Loan Bank Board (FH LBB), have
also begun to increase, although not nearly as much
as in 1966 or 1969. The FHLBB, in turn, may issue
more of its own securities on the open market, as it
did in the two earlier crunch years, in order to meet
Page 8



the demand for funds by savings and loan associa­
tions. Desired borrowings by the associations depends,
in part, on the demand for housing —a demand which
probably has begun to slow.

Corporate Sector
As with the nonbank thrift institutions, business
corporations are expected to require some increases
in funds from credit markets this year. A June 1973
Commerce Department survey reported that business­
men expected to increase plant and equipment out­
lays in 1973 by 13.2 percent (compared with an 8.9
percent rise in 1972 and 1.9 percent in 1971). The
spring survey of the McGraw-Hill Company found a
planned increase in such outlays of 19 percent in 1973.
These sizable increases in the demand for plant and
equipment are anticipated because of obsolesence of
many of the older facilities, the current strength of
the economy, and new environmental and safety con­
trol regulations. Under some circumstances, it might
be expected that the resultant demands for corporate
credit would generate considerable interest rate pres­
sures, but many business firms are currently in a
position to handle much of their planned new invest­
ment with internal funds.
Corporate cash flow, which includes undistributed
profits and capital consumption allowances, has in­
creased as a result of the recent changes in deprecia­
tion rules, the re-introduction of the investment tax
credit, and the 4 percent ceiling on dividend in­
creases, as well as the greater corporate income that
has accompanied the current economic expansion.
Corporate liquidity (liquid assets relative to current
liabilities) is also relatively abundant.

FEDERAL RESERVE BANK OF ST. LOUIS

Some upward pressure on short-term commercial
paper interest rates may develop in 1973 if the prime
bank loan rate is permitted to move to its marketdetermined level. With a substantial rise in bank inter­
est rates, firms financing expected inventory gains
would turn from bank borrowing to relatively greater
issuanoe of commercial paper.

Governmental and Foreign Sectors
The governmental and foreign sectors provide the
exogenous or “outside” influence on U.S. credit flows.
These outside factors are probably more difficult to
gauge than others because they are subject to more
non-economic forces.
Federal Government —The Federal Government
put considerably more pressure on the financial mar­
kets in calendar year 1966, when it had a $3.8 billion
deficit (unified budget basis), than in 1969, when it
incurred a $3.2 billion surplus. The 1966 deficit was
financed largely by the sale of U.S. Government se­
curities to the private sector.
At the time, the Federal Reserve was following
restrictive policies and avoiding large Treasury se­
curity purchases. The apparent result of the Treas­
ury and Federal Reserve actions was a “crowding
out” of some private borrowers from the financial
markets. In 1969 Federal Government pressures on
financial markets were much less intense, despite re­
strictive actions by the Federal Reserve.
Earlier this year a number of analysts were project­
ing substantial pressures in the Treasury security
market because of the large deficits anticipated in
1973. The issuance of a large volume of Treasury se­
curities was expected if only to facilitate refunds of
last year’s tax overwithholding. It appears, however,
that many individuals have yet to re-adjust their tax
exemption schedules, resulting in a repetition of over­
withholding in the current year. In addition, the
growth of the economy has been more robust to date
than many analysts projected. Large increases in per­
sonal and corporate incomes have resulted in greaterthan-anticipated tax receipts.8 Deficit estimates were
recently revised downward from $24.8 billion in fiscal
1973 and $12.7 billion in fiscal 1974 to $17.8 billion
and $2.7 billion, respectively.9
8Sales of special securities to foreign governments around the
time of the currency crisis in early 1973 also contributed to
the Government’s favorable cash position.
9Initial data are from the 1973 Report o f the Council o f
E conom ic Advisers, and the revised estimates were taken
from the “Mid-Session Review of the 1974 Budget,” Office
of Management and Budget, June 1, 1973.



JUNE 1973

State and Local Governments —There is consider­
able evidence that the ability of state and local gov­
ernments to attract funds in 1966 and 1969 was
adversely affected by the prevailing financial pres­
sures.10 Bond issuance was postponed in a number of
cases until interest rates returned to more normal
levels. To the extent that these governments did not
“drop out of the market,” however, they themselves
tended to aggravate interest rate pressures.
Since mid-1969, state and local governments in the
aggregate have been incurring budget surpluses. The
recent implementation of Federal revenue sharing
and the strength of economic activity are currently
bolstering these governments’ financial positions. It is
probable that some state and local governments have
been using portions of their heavy inflow of funds to
purchase Treasury bills, thereby keeping yields on
Treasury securities below what they otherwise would
be.
Foreign Sector —Under certain conditions in the
past, such as an expanded balance-of-payments sur­
plus which resulted in a rise in U.S. gold receipts and
an associated increase in the monetary base (not
otherwise offset), foreign sector developments un­
ambiguously influenced the volume of U.S. credit
flows. In many other cases the foreign influence is not
so clear.
At present, for example, foreigners hold slightly less
than 19 percent of U.S. Government securities out­
standing (net of debt held by U.S. Government agen­
cies and trust funds), much of which was accumu­
lated by foreign central banks during the international
monetary turmoil of the past two years. To the extent
that foreign central banks sell a portion of their ap­
proximately $63 billion of U.S. Treasury securities in
the near future, the effect would add to upward pres­
sure on interest yields of these securities.11
A sale of this scope would not likely occur unless:
1) the interest rate on competing U.S. assets, such as
certificates of deposit issued by commercial banks,
rose well above the Treasury security rate; or 2) U.S.
or foreign investors exchanged foreign currencies for
10See John E. Petersen and Paul F. McGouldrick, “Monetary
Restraint, Borrowing and Capital Spending by Small Local
Governments and State Colleges in 1966,” Federal Reserve
Bulletin (December 1968), pp. 953-982, and John E. Peter­
sen, “Response of State and Local Governments to Varying
Credit Conditions,” Federal Reserve Bulletin (March 1971),
pp. 209-232.
1'See Anatol Balbach, “Will Capital Reflows Induce Domestic
Interest Rate Changes?”, this Review (July 1972), pp. 2-5,
and Jerry L. Jordan, “Interest Rates and Monetary Growth,”
this Review (January 1973), pp. 2-11.
Page 9

FEDERAL RESERVE BANK OF ST. LOUIS

dollars at the foreign central banks in order to invest
in dollar-denominated assets such as U.S. private
bonds and equities. In either case, upward pressures
on Treasury security interest rates would be accom­
panied by an increased demand for other types of
U.S. assets.

SUMMARY
Although some similarities with earlier credit
crunch periods have been noted, the economic situa- tion in the first five months of 1973 was far removed
from the type of intense financial pressures of 1966
and 1969. Distortions in credit flows, the chief charac­
teristic of the earlier crunch periods, have occurred.
These distortions, however, have not been as marked
as in 1966 and 1969. Modifications of interest ceilings
have permitted financial intermediaries, such as banks
and nonbank thrift institutions, to compete more ef­
fectively for funds than in other periods of high and
rising interest rates.
The rise in interest rates last year and so far this
year appears to have resulted largely from a growing
demand for credit. The current strength of the econ­


Page 10


JUNE 1973

omy and advancing price pressures underlie the ex­
pansion of credit demand. Some sectors, such as the
various agencies supporting the thrift institutions and
the mortgage market, may step up their credit de­
mands in the ensuing months. Stronger agency sup­
port and the relaxation of some interest rate restric­
tions should make the housing industry less vulnerable
to financial stress than in the past. The corporate and
governmental sectors are not expected to foster sig­
nificant financial pressures in the near future because
of their reasonably favorable credit positions.
Key monetary aggregates, such as the monetary
base, Federal Reserve credit, and commercial bank
credit have increased rapidly in recent months, un­
like the slowdowns observed in 1966 and 1969. A
slowing in the money stock occurred for a few
months in early 1973, but the slowing was not nearly
as marked nor as enduring as that which occurred
during the severe monetary restraint of 1966 and
1969. Consequently, despite strong credit demands
and rising market interest rates, the considerable dis­
tortions in credit flows which marked the 1966 and
1969 periods were not observed in the early months
of 1973.

The Problem of Re-Entry
to a High-Employment Economy
An Address by DARRYL R. FRANCIS, President, Federal Reserve Rank of St. Louis,
at the Memphis State University Management Day Dinner,
Memphis, Tennessee, March 29, 1973°

I t IS GOOD to have this opportunity to discuss
with you some of my views on the problems we face
as the economy approaches a high-employment level
of activity. With the tremendous expansion of eco­
nomic activity last year following the lackluster period
of 1971, there is little doubt that high employment is
now at hand. Indicators of both current and future
developments reflect a vigorous business expansion
across a broad front.
Economic expansion cannot continue at the ad­
vanced pace of recent months, and most economists
foresee some slowing later this year. I would interpret
a slowing in the pace of economic activity as we reach
a high-employment stage as a healthy sign. However,
for various reasons, which I will discuss shortly, a
slowing in the rate of increase of output may well be
accompanied by an acceleration in the rate of increase
of prices.
If these developments occur, I am gready con­
cerned that we may see a further expansion of the
Government’s role in economic stabilization. In the
past, calls have been made for more Government
spending to stimulate real economic growth on one
hand, while on the other, price and wage controls
have been used in attempts to arrest inflation. It is my
view that the reemergence of such policies in the
near future would be a serious mistake, even as we
continue to feel the ill winds of earlier Government
excesses. I continue to believe that appropriate struc­
tural and aggregate demand policies with proven cre­
dentials are standing by, ready for intelligent imple­
mentation, to ease the costs of the winding-down
process. I will discuss them in some detail.

RUSINESS CONDITIONS
First, let me review the current business situation
and recent policy actions. Signs of continuing expan“This presentation has been revised to take into account the
most recent available data.



sion are evident everywhere. Retail sales and personal
income are well above year-earlier levels. Housing
starts continue at a pace far more rapid than foreseen
by most experts. Plant and equipment expenditures
are projected by the Commerce Department to in­
crease about 13 percent in 1973, compared to 9 per­
cent last year and 2 percent in 1971.
Output gains have been exceptional. Industrial pro­
duction in April was 9 percent above the year-earlier
level. Real product increased about 7.5 percent in the
year ending fourth quarter 1972, and has registered
an 8 percent rate of growth in the first quarter of this
year. By comparison, the trend growth rate of both
industrial production and real product over the past
twenty years has been approximately 4 percent per
year.
The recent expansion of output has been accom­
panied by a significant decline in the unemployment
rate from almost 6 percent in March of last year to
the current rate of about 5 percent. Employment
growth has been exceptionally rapid, but an equally
exuberant expansion in the labor force has ham­
pered further declines in the unemployment rate.
Currently, the ratio of all employed workers to the
population of working force age is higher than at
any time in the twenty-year period preceding 1968, a
period which includes several episodes of unemploy­
ment rates at or near the 4 percent level.
One interesting aspeot of the current 5 percent un­
employment rate in the face of a large increase in the
number of employed individuals is the rapid rise in
such relatively unskilled workers as teenagers, part
time employees, and military veterans. The 5 percent
overall unemployment rate is partially masking the
fact that there are shortages of many skilled workers
including plant electricians, machinists, and certain
types of mechanics and engineers. Also, average
weekly hours of work in the manufacturing sector are
Page 11

FEDERAL RESERVE BANK OF ST. LOUIS

about as high as in 1969, a year when the unemploy­
ment rate averaged only 3.5 percent.
High rates of plant and equipment capacity utiliza­
tion are being experienced in a number of important
industries. The auto and rubber industries report that
extensive overtime operations have pushed their ca­
pacity utilization rates above levels desired for maxi­
mum efficiency. For all manufacturing industries, the
utilization rate is about 86 percent, not much different
than the high-employment rate of the middle 1960s.
The fall in the unemployment rate in recent months
has been accompanied, unfortunately, by an accelera­
tion in the inflation rate. Consumer prices increased
at a 6.6 percent rate in the six-month period ending in
April, compared to a 3.7 percent rate of increase in the
preceding six months. Wholesale prices accelerated to
a 17.3 percent annual rate in the past six months,
triple the rate of the preceding six-month period.
Adverse short-run supply conditions in the agricul­
tural sector undoubtedly contributed to the recent
price acceleration, but it will be some time before
these conditions are effectively corrected. Phase II
price and wage controls may have held down meas­
ured prices in some areas in 1972 (although this is
uncertain), but Phase III will be marked by much
stronger wage pressures as a result of more union
bargaining than in 1972 and stronger demand pres­
sures, as reflected in recent income and employment
gains. Of greatest importance in contributing to these
demand p ressu res h a s b e e n th e re c e n t exp an sionary
stance of monetary and fiscal policy actions.

STABILIZATION POLICY ACTIONS
Both monetary and fiscal actions were restrictive in
1969 in order to slow inflationary pressures, but since
that time they have become considerably more stim­
ulative. The rate of growth of the money supply in­
creased in each succeeding year from 4.2 percent in
1969 to 7.4 percent in 1972. In comparison, the longrun trend rate of money supply growth, over the past
two decades, has been only about 3 percent per year.
The Federal deficit (on a national income accounts
basis) expanded from $1.3 billion in fiscal year 1970
to $21.1 billion in fiscal year 1972.
Even if stabilization policies were to become moder­
ately restrictive in 1973 —and evidence at this time is
inconclusive —the lagged effects of earlier expan­
sionary actions would likely contribute to a continued
movement of the economy toward high employment

Page 12


JUNE 1973

in the present year. Whether the so-called “magic”
unemployment figure of 4 percent would be reached
is another question.
You will notice that I have been talking about a
“high” employment economy rather than one of “full”
employment. The reason is that “full” employment is
often taken to refer to some specific rate of unem­
ployment, such as the 4 percent level. I believe that
attempts to achieve numerical targets of this sort have
probably led to as many problems as they have solved.
The single-minded pursuit of virtually any goal often
results in undesirable side effects. In this case, zealous
pursuit of a target rate of unemployment, without
adequate recognition of the lags in effect of monetary
policy, has often been followed by inflationary
pressures.
What is an acceptable target for unemployment?
I agree with the Council of Economic Advisers that
instead of a number, this “policy goal is a condition in
which persons who want work and seek it realistically
on reasonable terms can find employment.”1
There is no doubt that some unemployment will
exist even under these conditions as individuals seek
the most “reasonable terms” compatible with their in­
dividual job skills. This period of search is heavily
influenced by the availability of job information, the
level of education and skill attained, and the extent of
such job hindrances as the minimum wage, union non­
price job discrimination, and excessive compensation
for those remaining unemployed. Because the im­
portance of these factors varies greatly over time, it
is not possible to say that a feasible goal for the un­
employment rate in 1973 is the same as was observed
a decade or two ago.
Once these structural impediments to employment
are considered, the “high-employment” unemployment
rate which emerges is called the “normal” or “natural”
rate of unemployment. The unique feature of the con­
cept of a “natural” unemployment rate is that it is
consistent with a stable rate of inflation. Unemploy­
ment rates above the natural rate are usually associ­
ated with price decelerations and unemployment rates
below it are generally related to price accelerations.
Clearly, if labor market constraints could be lessened
so that demand price pressures would emerge at say,
a 3 percent unemployment rate instead of a 5 percent
rate, the whole economy would profit. Historically,
1The Annual Report o f the Council o f Econom ic Advisers,
1973 (CEA R ep ort), p. 74. Italics supplied.

FEDERAL RESERVE BANK OF ST. LOUIS

however, the evidence suggests that this variable
natural rate of unemployment has probably been
closer to 5 percent than 3 percent.
Therein lies the problem. Past experience has
taught us that expansionary monetary and fiscal poli­
cies can be used to reduce the unemployment rate
for a period of time below the natural rate; however,
experience has also shown that the cost of doing so
has been accelerating inflation.
I want to be very clear in emphasizing this point.
Socially and politically, an unemployment rate in the
neighborhood of 5 percent has come to be viewed as
unacceptable. Thus, there is great incentive to take
action to reduce it. The types of actions that would
reduce the natural rate of unemployment are very
difficult to implement, and slow to take effect since
they involve fundamental improvements in the struc­
ture of our labor markets.
In contrast, stimulative monetary actions are rela­
tively easy to implement and operate with a fairly
short and predictable lag. You can imagine the temp­
tations and the pressures on monetary policymakers
to take actions that would result in a near-term re­
duction in unemployment, even if it is fully recognized
that the results of having done so will be an accelera­
tion in the rate of inflation sometime in the future. My
view of the lags in the effect of monetary actions on
production, employment, and prices is such as to im­
ply that it is necessary to begin reducing the amount
of monetary stimulus well in advance of observing
something approximating full employment and full
utilization of capacity.
By analogy, I might characterize my view as being
similar to the situation faced by astronauts returning
to earth from a flight in space. You all are well aware
that, as our spacemen begin to get closer to home, the
earth’s gravitational pull causes their speed to accel­
erate. Yet, they also begin to experience increased
friction when they encounter the earth’s atmosphere.
Thus, it is necessary for them to fire their retro-rockets
at a fairly early stage of the re-entry in order to avoid
achieving too much speed and generating too much
heat.
To a space scientist, as well as the general public,
this seems to be a logical action to take at the time.
But in the re-entry phase of economic stabilization, it
seems much less obvious to most observers, including
Government officials, that the monetary authorities
should fire their retro-rockets, and begin to reduce the
amount of monetary stimulus at a time when unem­
ployment remains at a fairly high level.



JUNE 1973

This illustration is my way of expressing the view
that the chief role of policymakers is to avoid plung­
ing the economy sharply down one path and then
correcting sharply in another direction. It is my belief
that the economy is basically stable and, if given a
chance, would not need the nimble talents required
of an astronaut whose on-board computer has failed
during the descent to earth. In other words, despite
repeated calls for moderation, stop-and-go perform­
ance has been the effect of so-called “stabilization”
policies for years.
Now let me turn to a few remarks regarding a con­
straint on the ability of monetary authorities to follow
the approach I have suggested. A major factor influ­
encing central bank operations at various times is
changes in the Federal Government’s budget position.
When the Federal budget is in surplus there need not
be much of a problem, but at times when deficits oc­
cur, as they have in 14 of the past 20 fiscal years, the
monetary policymakers feel obligated to take this into
consideration in arriving at their policy decisions.
The problem can be put quite simply: the short-run
effect of the issuance of Government bonds to finance
deficits is to increase market interest rates. Since in­
terest rate movements have usually weighed heavily
in the Federal Reserve decision-making process, this
upward pressure on interest rates is met with resist­
ance in the form of open market purchases for the
accounts of Federal Reserve Banks. Often an unde­
sired, but very important, side effect is the increase
in the money supply generated by such actions.
Thus, the dilemma of the monetary policymaker in
these deficit situations is deciding whether to risk more
monetary expansion than is consistent with reasonable
price stability, or accept a period of financial stress
with its accompanying negative effects on the real
sector. The enactment of realistic tax programs to
cover burgeoning Government expenditures would
first remove an unnecessary constraint on monetary
stabilization actions, and second, focus the taxpayers’
attention more clearly on the costs of Federal programs.

ALTERNATIVE APPROACHES
As re-entry into high employment occurs, as it in­
evitably must with an economy which has been ex­
panding in real terms at a 7 percent rate relative to a
4 percent long-term potential, the questions arise as to
when, and how hard, the retro-rockets should be fired.
At least, these issues arise if you agree that very
stimulative monetary and fiscal actions cannot be pur­
sued indefinitely.
Page 13

FEDERAL RESERVE BANK OF ST. LOUIS

One of the best ways to insure that highly stimula­
tive monetary actions will not be maintained too long
would be to keep a lid on Government spending. In
that way, the deficits which have indirectly influenced
monetary expansion in recent years could be mini­
mized. Independent of stabilization actions, the ex­
panded role of Government spending in the U.S. econ­
omy is due for careful re-examination. Government
spending on goods and services relative to the total
economy doubled from 11 percent to 22 percent in
the twenty-five year period ending in 1972.
Onoe the time for less expansive policy actions is
identified, I see at least three approaches to “firing the
rockets.” One would be to adopt a very restrictive
stance and hold it for an extended period of time. This
has been done on previous occasions, with economic
recession the usual consequence. However, in the
present circumstances, I do not think such a severe
policy reversal is yet required. There is still time to
make a mid-course correction toward more moderate
actions.
A second approach would be to move gradually in
the direction of long-term fiscal and monetary stabili­
zation targets consistent with long-run price stability
and a high level of employment. A third alternative is
to move immediately to the long-run target. At this
time, the lag patterns associated with the current di­
rection of the economy into the high-employment
stage and the response of the economy to a proposed
policy shift are under study. I can only say that I
favor neither the extreme of maintaining accelerated
policy stimulus, nor a policy which would slow the
economy to the recession point.
I must point out that any permanent slowing of the
rate of monetary expansion would be accompanied by
temporary adjustment costs in the form of a slowing
in the rate of growth of output and employment. The
costs would be less now, however, than if the adjust­
ment period were postponed.
Finally, I would like to conclude with the observa­
tion that monetary and fiscal actions need not “go it
alone” as we re-enter the critical high-employment
stage. There are numerous legislative actions which

Page 14



JUNE 1973

could be taken to lower unemployment at the same
time orthodox stabilization actions become less stim­
ulative. Provisions for additional job training and less
costly job information, modification of the minimum
wage which tends to keep teenage unemployment so
high, revision of our social welfare policies to create
maximum incentives to work, and curbs on business
and labor non-price job discrimination are some of
the possible measures.
So far as inflation is concerned, the most appropri­
ate structural measures for the current situation are
those which increase the supply of goods and services.
Some of the actions along this line which have already
been taken include the temporary suspension of oil
import quotas, meat import quotas, crop acreage allot­
ments, and the release of Government stockpiles of
certain goods. There exist far more supply restrictions
which could be eliminated, thereby contributing sig­
nificantly to the battle against inflation.
With regard to wage and price controls in a high
employment economy, again I agree with the Council
of Economic Advisers who noted in 1970 that
Experience with [direct wage and price measures]
in other countries has been remarkably consistent. In
some cases success in holding down wage settlements
or price increases has been achieved in certain indus­
tries. There is usually a period in which these pro­
grams may have some overall deterrent effect, though
evidence here is less certain. After an interval, how­
ever, there is a point at which accumulating pressures
make the programs ineffective. American experience
conformed to this pattern.2

In closing, I would like to stress that the current
high-employment re-entry problem exists only be­
cause of earlier stop-and-go excesses. A continuation
of go actions would bring about a replay of the rapidly
accelerating prices of the late 1960s, except that the
acceleration would occur at higher levels in the 1970s.
The adoption of severe stop policies would produce
another major recession. If we can adopt and maintain
policies geared to long-run considerations, the highemployment re-entry problem could become only a
memory of the past.
-1970 CEA Report, pp. 23-24.

The Response of the Mexican
Economy to Policy Actions
by GILBERTO ESCOBEDO

Mr. Escobedo is the Assistant Director o f the Department of Economic Studies at the Banco
de Mexico. H e majored in economics at the Universidad Nacional Autonoma de Mexico and
attended the Universidad Iberoamericana and Florida State University for additional study.
He has written extensively on the Mexican economy. While on sabbatical leave to the
Federal Reserve Bank o f St. Louis, he directed his attentions to the development of an econ­
ometric model of the Mexican economy. The following article serves as supportive material to
this econometric study.

I HE MEXICAN economy has experienced a re­
markable evolution in the last decade. Compared to
the western world, Mexico’s rate of growth in this
period was surpassed only by Japan, and the rate of
inflation was low and steady. This is to mention only
two of the many economic accomplishments of the
nation that has been referred to as “The Mexican
Miracle.”
For some people, however, the days of the socalled “Mexican Miracle” seem to be ending, while
for others only temporary difficulties have appeared.
In 1971 the rate of growth of real gross domestic prod­
uct (GDP) reached its lowest point since 1955 ( 3.7
percent) and prices showed a peak rate of increase of
5 percent.1 The question now asked is whether this
situation was just a temporary setback or a sign of
things to come.
This article attempts to provide some insight into
the complexities of the Mexican economy. It serves as
background information to a larger study on the de­
velopment of an econometric model of the Mexican
economy.

Recent Developments

Gross domestic product has grown at an average
annual rate of 11 percent, 7 percent in real terms and
4 percent in prices.2 When considering the 3.2 per­
cent rate of population growth, output per capita rose
at a very respectable 3.8 percent rate.3
The composition of GDP has undergone a consid­
erable change in the last 20 years. As a result of im­
port substitution, manufacturing production has
grown considerably in importance at the expense of
agriculture. Over the same period services have
grown and at present represent more than 40 percent
of total GDP.
In spite of the rapid growth and shifts in the com­
position of production, an underlying problem of per­
sistent maldistribution of income has shown no rela­
tive improvement in the past 15 years.4
Prices and Unemployment — Over the last 15 years
the 4 percent annual rate of growth in the implicit
price deflator compares favorably with the 10 percent
yearly average of the previous 15 years. Inflationary
pressures in this earlier period primarily reflected a
rapid growth in Federal expenditures relative to na-

Gross Domestic Product — Mexico has experienced
considerable economic growth in the last 15 years.

-The data used throughout this section are from the following
sources: Banco de Mexico S. A., Direcion General de
Estadistica, and International Monetary Fund.
3Output per capita in terms of dollars has grown as follows:
1950 = $183; 1960 = $346; and 1970 = $690.

1Gross domestic product is equal to gross national product
minus factor payments to other countries.

4Ifigenia M. de Navarrate, L a Distribution d el Ingreso y el
Desarrollo Econom ico d e Mexico, UNAM (1 960).




Page 15

FEDERAL RESERVE BANK OF ST. LOUIS

JUNE 1973

Economic Indicators
United States

M e xic o

GROSS NATIONAL PRODUCT

400

REAL GROSS NATIONAL PRODUCT

PRICES

MONEY

1001

I

I

'

I

I

I

I

I

I

.

I

I

------

m o 1962 1964 1966 1968 1970 1972
Sources: Banco de Mexico, U.S. Deportment of Commerce, and the Board of Governors of the Federal
Reserve System
*End of period data.
Percentages are annual rates of change for periods indicated.

tional output. These expenditures were financed by
the creation of “new” money which grew at rates
higher than real GDP.
Stability in the more recent period has been accom­
plished by maintaining balance between Federal ex­
penditures and national output. Monetary authorities
have contributed to this delicate balance by offsetting
pressures emanating from excessive Government ex­
penditures and an important external sector.
The rate of unemployment in Mexico is generally
considered so high that sharp increases in aggregate
demand are assumed not to affect prices, since they
will be absorbed by greater levels of employment.
This assumption can not be proved, however, since
there is no reliable information concerning employ­
ment. As developed later, it will be shown that for
certain instances, full-employment conditions appear
even though a great proportion of the labor force is
actually unemployed.
Page 16



Investment — Real investment has been the main
source of dynamism in the Mexican economy. Public
as well as private capital formation have made it pos­
sible to achieve an average 17 percent annual rate of
growth in real investment in the last 20 years. Over
that period Government investment, directed mainly
to the development of infrastructure (roads, dams,
electricity, etc.), has comprised about 45 percent of
total investment.
Public Finance — Throughout the past 10 years the
annual rate of growth of total Government expendi­
tures has been 13 percent. This growth is primarily
the result of a public policy to accelerate infrastruc­
ture capital formation and promote social welfare. On
the other hand, revenue has not grown at a rate suffi­
cient to cover total expenditures. Consequently, the
net budget position has been in deficit.
The relatively slow growth in revenue represents a
direct effort by the Government to promote and sus­
tain the growth of private investment, rather than in­
crease Government revenue. Tax exemptions or re­
ductions as well as increased transfer payments have
been used widely to promote private investment,
both domestic and foreign.
Savings — While Federal Government contributions
to the growth of savings (budget surpluses) have
been negligible, private as well as foreign savings
have been growing at high and steady rates. Gross
national savings grew from 4,735 million pesos in 1950
to 12,442 million in 1958, and to 52,000 million pesos
in 1970.® Savings represented 10 percent of GDP in
1950 and 17 percent in 1970.
5One peso is equivalent to $.08 in U.S. currency. One dollar
is 12.50 pesos.

FEDERAL RESERVE BANK OF ST. LOUIS

JUNE 1973

Bank Credit*

Dec. 72

B illio n s of Pesos
300
250

T O T A L L IA B IL IT IE S
IN C L U D IN G C A P IT A L

Feb.'67

D ec.7 2

j___
1967

________

1968

1969

1970

1971

i

1972

S o u r c e s : B a n c o d e M e x i c o a n d F e d e r a l R e s e r v e B a n k o f St. L o u i s
A v e r a g e s o f p re c e d in g a n d c u rre n t e n d -o f-m o n t h s e a s o n a lly a d ju ste d
f ig u r e s .

The Mexican banking system has been absorbing
greater amounts of these savings in the last 15 years.
Its liabilities have been growing at an average rate of
17 percent annually —a rate considerably higher than
that of GDP. Increased monetization of both real and
financial assets and growing domestic savings per­
mitted this growth in banking liabilities. The favorable
interest rates relative to foreign markets, and a com­
petitive and efficient financial system produced at­
tractive conditions for domestic as well as foreign
investors.

cent of GDP6, have increased at an average annual
rate of 12 percent in the last decade. This rate is not
only higher than that of GDP, but also exceeds export
growth, which has been growing at an average an­
nual rate of only 8 percent. As a result, the balanceof-payments deficit on current account has been in­
creasing continuously, reaching a peak of $900 million
in 1970.

The greater volume of savings received by the
financial system, in turn, has allowed monetary au­
thorities to reallocate private savings to finance Gov­
ernment deficits through the mechanism of required
reserves, instead of issuing “new” money. ( Growth of
the money stock has been sustained at an average
annual rate of 10 percent in the last 15 years, the
same rate as nominal GDP.) Although this realloca­
tion process has increased the amount of credit avail­
able to the Government, it also has made the Gov­
ernment more dependent on private banking.

The increasing trade deficits have been offset by
greater direct foreign investment and loans. Until now
the amount of foreign credit has not only been suffi­
cient to finance the current account deficit, but enough

External Sector — One of the great problems facing
any developing nation, including Mexico, is financing
the increased importation of required capital goods.

6In the United States this proportion has been approximately
6 percent of GDP in the last three years. This proportion in
Mexico seems high considering that the process of import
substitution has practically come to an end.




Page 17

FEDERAL RESERVE BANK OF ST. LOUIS

external capital has been received to allow an expan­
sion of the international reserves of the central bank.
Recognizing that the development process itself re­
quires increasing amounts of imports, the only solution
to a trade deficit problem for a developing nation is
to promote exports. Exports of agricultural products
do not provide the long-run solution for Mexico since
they have only been growing at 4 percent annually —
a situation that cannot be expected to change sig­
nificantly given the technical disparity of agricultural
production.7 It is understandable, then, that vigorous
private and public efforts have been directed toward
the promotion of exports of manufactured goods and
to the promotion of tourism.

Economic Policy Objectives
Mexico, as any developing country, required sub­
stantial public capital formation in the early stages. As
the private capital markets became more developed,
provision for such capital goods has increasingly be­
come the responsibility of the private sector, both
foreign and domestic.
A public policy directed toward capital formation
and better income distribution explains increased
Government involvement in the economy. The im­
portant role of the Government in economic activity
qualifies the Mexican system as a “mixed” or “national”
capitalism. Nevertheless, this participation has not
reached the proportions of other industrial or less
developed countries.
Government intervention in the economic process
through policy decisions has had a long tradition in
Mexico. Policymakers always have been remarkably
sensitive to political and economic forces. Even with­
out sufficient technical knowledge, they adopted poli­
cies which allowed Mexico to sustain a continuous
pattern of growth.
Recently more sophisticated techniques have been
used. However, the natural impulse of the policy­
maker still has considerable weight in the final deci­
sions, sometimes invalidating the technical advisors’
recommendations.
Development and Price Stability — It is understand­
able that economic development is, and has been for
some time, the main economic policy objective. In
7In Mexico, this problem is commonly referred to as the “dual
agriculture” system — one segment utilizing modern farming
techniques and another segment relying on relatively primi­
tive techniques.
Page 18



JUNE 1973

the past this goal was expressed in general terms,
rather than specifically quantified. Presently it is ex­
pressed as a “desired” annual rate of growth in real
GDP between 6 and 7 percent. When adjusted for
population trends, this means a net growth of 3 to 4
percent in per capita terms.
Until 12 years ago no goal other than fulfillment of
development was considered important. Then with
the awareness that continued inflation and drainage
of foreign exchange were inhibiting real growth and
aggravating the problem of income distribution, the
need for price stability became evident. Beginning in
1955 policymakers introduced price stability as an
ultimate objective to accompany the development
goal.
The price stabilization goal pertains to both domes­
tic and international purchasing power; that is, the
rate of growth of domestic prices should not deviate
substantially from its long-run annual trend (3 per­
cent) and the rate of exchange of Mexican currency
should be maintained. According to policymakers,
both goals should be accomplished under conditions
of free internal markets and free convertibility of the
peso.
Income Distribution — For a long period this goal
remained of secondary importance. There was a wide
belief that in the long run economic growth and in­
creased savings would eventually raise general in­
come, thereby increasing everyone’s welfare position.
Time has proven that even though the process of
growth with stability has been relatively successful
and the welfare position, on average, has improved,
this actual distribution of income is no better than 15
years ago. One explanation is that promotional meas­
ures directed towards capital formation have implic­
itly encouraged the concentration of income. Promo­
tion of savings and investment through tax exemptions
and subsidies has favored higher over lower income
groups. The unemployment problem also hindered
income distribution as the extensive use of technology
imported from developed countries reduced the do­
mestic demand for Mexico’s most abundant produc­
tive factor —labor.
Therefore, the redistribution of income target has
appeared explicitly in Mexican economic policy. It
remains uncertain whether it is possible to make eco­
nomic growth compatible with greater income equity
and price and exchange rate stability. This problem
is confronted later when the experience of 1971 is
detailed.

FEDERAL RESERVE BANK OF ST. LOUIS

Employment — Until recently, this goal was never
explicit in Mexican economic policy. In fact, one
could say that for a long time it was neglected, al­
though a wide consensus concerning the problem has
existed and can be traced in Mexican economic litera­
ture. Employment now is probably the main concern
regarding fulfillment of the income redistribution goal.
For many years labor market conditions aided in
the goal of price stability. There was an abundant
supply of labor at relatively low salaries. Union power
was, to a certain extent, influenced by the Govern­
ment. These conditions allowed wages to grow slower
than productivity, thereby facilitating price stability.
The situation has changed somewhat since the mid1960s because the unions have gained political power,
increasing considerably not only workers’ salaries but
also social and “fringe” benefits. The higher salaries
resulting from the bargaining process, however, have
not been reflected entirely in prices since productivity
has continued to grow at high rates. Moreover, the
benefits of unions are only available to limited
groups of workers, and the supply of unskilled labor
is still large relative to demand.

Economic Policy Instruments
Fiscal and monetary policy have played an im­
portant role in attaining growth and stability in the
last 15 years. The short-term policy instruments avail­
able to policymakers to fulfill these objectives are
mainly taxes, Government expenditures, and changes
in the supply of money and credit. Import controls
could also be used for this purpose, but such controls
would be rigid and subject to many bureaucratic
processes that would render them extremely ineffi­
cient for short-run policy.
Fiscal Policy — Fiscal policy has contributed to both
growth and price stability through different means.
To prevent prices from rising to levels harmful to
low-income groups, price ceilings have been estab­
lished mainly on basic foods. When certain prices
tend to rise above the level set by the controls, the
Government will import such goods and allocate them
in the domestic market, forcing observed prices to re­
main in check.8
In the early stages of development, high tariffs were
enforced on imports of so-called “luxury” and domes8Price ceilings, although quite ineffective in controlling real
price increases, are a valuable political asset in terms of
their effect upon public opinion.



JUNE 1973

tically-competing goods. The domestic producer was
artificially protected so he could develop a product
competitive in quality and price with that imported.
Advances that were made in the import-substitution
process have reduced the need for protective tariffs,
which are unfavorable to domestic consumers anyway.
The fiscal authorities have also given tax incentives to
new industries by reducing, or in some cases eliminat­
ing, indirect or income taxes.
These measures have indeed promoted growth in
domestic production. However, the main contribution
of fiscal policy has been the pattern of Government
expenditures, which essentially is an autonomous vari­
able. Nevertheless, the approval of each ministry’s
budget is subject to close economic considerations,
especially when it is an investment expenditure. The
views of the Treasury and the central bank are con­
sidered before the budget is sent to Congress for final
approval.
Monetary Policy — As mentioned earlier, the higher
rate of growth of expenditures relative to revenue is
annually reflected in Government deficits. Once the
budget is approved the monetary authorities must
decide what sources of funds will be used to finance
the Government deficit. First, an estimate is made of
how much credit will be available from foreign
sources. After this is determined, the rest must be
financed with domestic credit. The external funds
take the form of either loans or foreign investment.
The latter, not available for financing budget deficits,
has been following a steadily growing trend in the
last fifty years.9
Another important source of funds is foreign sav­
ings attracted to the Mexican banking system by the
high rates of interest paid in comparison with inter­
national standards (see the accompanying chart).
The interest rate differential together with the politi­
cal and economic stability that Mexico has attained
in its development process have acted as incentives
for large amounts of savings (estimated growth is
more than 3750 million pesos annually).10
9Sixty percent of this investment, on the average, comes from
the United States. Although foreign investment is still grow­
ing in absolute terms, the rate of growth has slowed in the
last two years, due mainly to the slower GDP growth experi­
enced in 1971 and to the fact that fewer sectors remain for
new, highly profitable investment. That is, corporate profit
rates, in general, are not as great today as they were twentyfive years ago. Economic development has reduced returns
on investment, but at the same time has made these returns
less vulnerable to huge swings in either direction.
10See the screened insert to this article for a description of
the Mexican banking system.
Page 19

FEDERAL RESERVE BANK OF ST. LOUIS

JUNE 1973

Interest R a t e s
R atio Scale

D is t rib u t io n o f T o ta l L ia b ilit ie s
in the M e x i c a n B a n k i n g S y s t e m

R atio Scale
P e rc e e t

1965

1966

1967

1968

1969

1970

1971

P e rc e n t

1972

S o u rc e s : B a n c o d e M e x ic o , B o a r d of G o v e r n o r s of the F e d e r a l R e s e rv e Sy ste m , a n d
M o o d y 's In v e sto rs S e r v ic e
Interest rates fo r M e x ic o a re w eighted a v e ra g e s of issu e s re pre se n ta tive o f the M e xic a n
market. 1972 d a ta a re estim ated.

These foreign savings, besides helping to finance
the current account deficit of the balance of payments,
are used to finance budget deficits. Required reserves
on commercial and investment banks must be in­
vested in Government bonds or in selected sectors of
the economy to meet the regulations that govern the
Mexican banking system. Since these legal reserves
are imposed on all the funds that banks receive, the
funds are used for Government financing regardless
of their origin.11
Another channel through which foreign funds are
obtained to finance Government and balance of pay­
ments deficits is short- or long-term loans. These funds
are usually linked to specific Government investment
projects.
If the amount of foreign plus domestic funds avail­
able were enough to finance the Government deficit,
the central bank would be in a neutral position,
neither expanding nor reducing international reserves.
If all of these funds were not enough to finance the
Government deficit, the central bank would have to
consider direct credit to the Treasury, even at the
risk of overstimulating total demand. If the threat of
over-stimulation became very serious, the central
bank would have to take compensatory action on
private credit so that the nation’s overall objectives
would not be endangered. The central bank action
would entail a reduction in bank credit to allow
11Legal reserve requirements can be as high as the monetary
authorities decide. On the average, they have been 18% for
commercial banks and 35% for investment banks and non­
monetary liabilities of commercial banks.
Page 20



1940

1950

1960
_

Q U A S I-M O N E Y * •

B

M,

E

1970

1972

j OTHER*

KX*X»3

Source: B an co de M exico
‘ O the r includes long-term liab ilitie s a n d capital.
** Q u a si-M o n e y = M 2 — M j .

Mexico’s stock of international reserves to remain un­
changed, thus assuring the goals of stable exchange
rates and free convertibility.
Summing up, one could conclude that Government
expenditures are the main exogenous variable in the
short term. Monetary authorities are left in a rather
compromising situation —either reduce the amount of
funds available to the private sector or lose foreign
exchange.

Development, Foreign Exchange and Price
Stability
Incompatible Goals?
—

The objectives described have an inherent tendency
toward disequilibrium. The price stabilization and
development objectives are, to a certain degree, op­
posed when one of these goals is pursued vigorously
over the other.
The development goal requires that output grow at
the highest annual rate possible. Government expend­
itures are therefore promoted so that increased total
demand will act as an incentive for private invest­
ment. This level of expenditures promotes an increase
in real output as long as the economy is not at full
employment.

FEDERAL RESERVE BANK OF ST. LOUIS

JUNE 1973

Present Structure of the Mexican Banking System
The Central Bank (Banco de Mexico) has been
the focal point of the monetary system. On the one
hand, it performs the traditional duties of a central
bank, such as issuing currency, supervising the bank­
ing system and advising the Government on monetary
and credit policy. In addition, it has assumed the
non-traditional function of redirecting the flow of
credit to specific sectors. Some activities, such as
agriculture, have received this preferential treatment
because their role in fulfilling the Government’s goal
of development is generally regarded as essential.
The most important reallocation of credit, however,
is a result of the central bank’s position in financing
Government deficits. Through the mechanism of legal
reserve requirements, the central bank allocates Gov­
ernment domestic debt in the banking system. The
funds placed on deposit at the central bank for re­
serve requirement purposes are used to purchase
high-yield Government bonds. In addition to com­
mercial banks, the central bank extends the procedure
to the reserves of investment banks also. As a result,
funds available to the Government through reserve
requirements represent about 25 to 30% of total li­
abilities of the financial system.1
As is probably evident, the allocation and avail­
ability of credit is the primary concern of the central
bank. Unlike monetary policy in the United States,
the cost of credit is not given a great deal of attention
in Mexico. As a result, the level of interest rates in
Mexico is not a very reliable indicator of central bank
activity.
The National Credit Institutions are those financial
intermediaries either partly or wholly owned by the
Government. Although considerably less important
than they were 15 years ago, these institutions still play
a fundamental role in the economy. They were origi­
nally established to give special priority in the alloca­
tion of domestic and foreign credit. Their funds have
been directed mainly to agriculture, to “infant” indus­
tries, and for the promotion of Mexican exports.
These institutions compete with private commercial
and investment banks for the savings of the public.
In addition they are allowed to issue debt to the foreign
public, for which there is Government assurance of
payment. The funds received are allocated at lower
interest rates and longer maturities than those pre­
vailing in the market, which is generally reflected in
a lower profitability for these banks. Losses incurred
by these institutions are covered in the Government’s
budget.
1Nonbanking institutions are another source of funds for
financing Government debt. Insurance companies and trust
fund organizations, for example, are required by law to hold
a certain portion of their financial assets in some form of
public debt instrument.



Private Financial Intermediaries, which account for
70% of total banking liabilities, are divided into the
following functional categories: a) deposit and sav­
ings banks, b ) investment banks, c) mortgage loan
banks, d) capitalization banks, and e) trustee institu­
tions. All these institutions operate under the jurisdic­
tion of the Ministry of Finance through the National
Banking Commission. The Banco de Mexico is, how­
ever, the primary bank regulator.
a) The deposit and savings banks constitute the
framework upon which the private banking system
in Mexico rests. Their functions are similar to those of
a commercial bank in the United States. Reflecting
the demand for the relatively simple instruments
which these institutions supplied, the deposit and
savings banks experienced substantial growth between
1940 and 1955. Today the banking structure has
changed and these banks have lost importance in
relative terms. However, they still hold a high volume of
savings in absolute terms.
b ) During the last 10 years the investment banks,
“financieras,” have attained a spectacular growth.
Originally the “financieras” issued long-term paper.
But the strong preference of the public for liquid
assets has resulted in the issuance of sight-payable
bonds carrying an 8.5 percent interest rate. As public
confidence grew, it was possible to issue paper with
longer maturities and high yields, such as “certificados
financieros.” These instruments generally pay an inter­
est rate of 10 percent annually with a 10 year ma­
turity. This type of paper expanded rapidly from its
introduction in 1966 until 1969.
The instability of the international monetary mar­
kets since 1969 has created a greater domestic de­
mand for highly liquid paper with high yields. This
development has pushed the “financieras” back on the
money market, instead of the capital market for which
they were originally intended.
c ) The mortgage banks are similar in function to
U.S. saving and loan associations. The main instru­
ments employed by these banks are bonds and
“cedulas hipotecarias.” The latter are a form of mort­
gage secured not only by real estate, but also by the
guarantee of issuing mortgage banks. These instru­
ments offer a combination of high liquidity and a
yield averaging around 8 percent.
d) The so-called capitalization banks, originally de­
veloped to act as savings banks, have been unable to
compete effectively for funds. As a result, they have
not grown in either number or total assets.
e) The Mexican banking system is supplemented
by a number of financial institutions such as insurance
companies, social security trust funds, and other aux­
iliary institutions. These institutions either issue finan­
cial claims or facilitate the flow of financial resources
between the various sectors of the economy.

Page 21

FEDERAL RESERVE BANK OF ST. LOUIS

It is generally assumed that Mexico has a high rate
of unemployment. Consequently, increases in aggre­
gate demand would not affect prices but would pro­
mote production of more real goods and services.
This sometimes is not the case, however, because the
typical unemployed individual is not sufficiently
skilled as to be utilized when more output is desired.
Therefore, price stability and high rates of growth
can be conflicting goals. In order to finance the in­
creased level of Government expenditures, the cen­
tral bank must either create new money or reduce the
amount of credit available to the private sector. If
new money is created in excess of the prevailing
trend, additional pressure is exerted on prices. Con­
sequently, the central bank usually prefers to reallo­
cate the sectoral mix of funds received by the banking
system.
The reallocation of funds from the private sector to
the Government reduces private investment and con­
sumption expenditures on goods and services from
what they otherwise would have been. This central
bank action will not affect total spending since the
funds taken from the private sector are spent by the
public sector; only the sectoral mix between private
and public expenditures is altered.12
Growth in real output and investment induced by
increased Government expenditures will lead to a cor­
responding increase in the imports of capital and con­
sumption goods,13 generating pressures on the cur­
rent account of the balance of payments. Exports
cannot respond rapidly in the short run since they are
mainly agricultural and mining products whose low
rates of growth leave a growing deficit that has to be
financed with greater amounts of foreign capital
inflows.
Therefore, the foreign exchange stability goal can
only be accomplished in the short run by reducing
imports. This implies sacrificing the development goal
of economic policy.
Short-term economic policy in Mexico thus requires
considerable “fine tuning” so that both the Govern­
ment and balance-of-payments deficits do not fall out
of a tolerable range, thus invalidating the economic
policy goals.
12Total demand could be affected under these conditions only
if the productivity of the Government’s expenditure is con­
siderably different from that of the private sector. In this
case, the Mexican economy as a whole would be worse off
after the sectoral reallocation.
13The marginal propensity to import is greater for the gov­
ernment than the private sector, and the import demand is
inelastic.
Page 22



JUNE 1973

The 1971 Experience
By the end of 1970, it was recognized that high
rates of economic growth for more than a decade had
built up a very important destabilizing force in the
economy that could no longer be overlooked. The
current account deficit in the balance of payments sur­
passed $900 million —$200 million more than the level
considered consistent with the other economic policy
objectives. Government deficits had also been grow­
ing constantly, absorbing larger shares of private bank
savings and deteriorating the structure of the Govern­
ment’s foreign debt position with higher interest rates
and shorter terms of maturity.
These pressures were endangering two of the over­
all goals of economic policy —that is, the stability of
both domestic prices and the rate of exchange. It was
argued also that the failure to attain these goals would
jeopardize the future growth of the Mexican economy
as well as the goals of full employment and more
equitable income distribution.
Also, developments in world markets were exerting
pressures on the Mexican economy. These included
the international financial crisis, a reduction of do­
mestic demand in some industrialized countries, and
inflationary conditions prevailing in international
markets.
Therefore, policymakers decided to stop the “over­
heating” of the economy through a restrictive program
in 1971. Government expenditures were reduced dras­
tically, especially investment expenditures; legal re­
serve requirements were raised; the rate of growth of
money was reduced to an 8.6 percent annual rate from
the average 11 percent of the preceding years; and
more aggressive measures were taken to promote
additional exports and reduce imports.
The results of these measures were felt promptly
and the pressures that threatened the balance of pay­
ments and domestic prices were reduced. However,
the effects on growth surpassed the policymakers’ ex­
pectations as the rate of real GDP growth fell from
7.7 percent in 1970 to 3.7 percent in 1971 —a far more
drastic contraction than was expected. The implicit
price deflator growth rate was reduced from 5 per­
cent in 1970 to only 4 percent by the end of 1971.
The slowing in economic activity permitted imports
to grow only 0.6 percent during 1971 in comparison
with 17.6 percent in 1970. As a result, the current
account deficit was $200 million smaller than that of
1970. Excess reserves of private banks increased by

FEDERAL RESERVE BANK OF ST. LOUIS

more than two billion pesos during the year. The de­
mand for credit was reduced at the prevailing level
of interest rates due to apparent adverse expectations
or increased uncertainty introduced by the “recession.”
In 1972 less restrictive policy actions were adopted
and the economy showed a well-defined move towards
recovery. Prices began increasing moderately and the

JUNE 1973

oudook for the balance of payments and the Govern­
ment deficit improved. It seems that the political price
the Mexican policymakers had to pay for this change
in the trend of the Mexican economy was worth the
effort. The question remaining is whether the 1971
experience was a permanent setback or whether struc­
tural changes are required so that the goals of eco­
nomic policy can be reconciled.

Publications of This Bank Includei
W eekly

U. S. FINANCIAL DATA

Monthly

REVIEW
MONETARY TRENDS
NATIONAL ECONOMIC TRENDS

Quarterly

QUARTERLY ECONOMIC TRENDS
SELECTED ECONOMIC INDICATORS - CENTRAL
MISSISSIPPI VALLEY
FEDERAL BUDGET TRENDS
U. S. BALANCE OF PAYMENTS TRENDS

Annually

ANNUAL U. S ECONOMIC DATA
RATES OF CHANGE IN ECONOMIC DATA
FOR TEN INDUSTRIAL COUNTRIES
(QUARTERLY SUPPLEMENT)

Copies of these publications are available to the public without charge, including
bulk mailings to banks, business organizations, educational institutions, and others.
For information write: Research Department, Federal Reserve Bank of St. Louis,
P. O. Box 442, St. Louis, Missouri 63166.




Page 23