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F o r r«j lea se on d e l i v e r y 10 :0 0 A. M . , E D T S e p t e m b e r 16, 1982 S t a t eme n t By L y le Member, Board of E . Gramley Governors of the before the Subcommittee of the U.S. Committee House of Federal Reserve on Forests on Agriculture Representatives September 16, 1982 System I am present the state outlook current th e the supply that it tailored to be of specific the threatened to bring put and and declining to the it have that these from a we suffered in review for the industries the industries, the and and briefly the origins of a nd indicate government inflation. Price the 1960's, they policy of to substantial steadily hardships profits for housing have as to during many stability, to restore price p ast lower two an It of an d It is others--!f a half rates, We years and out families, is clear related clear, stability. and it reduced industries also as until institutions. terms and interest attending inflation businesses. gain counter from individuals industry much the in for fixes and worsened economic costs us keep economy. reversing our Quick diverted that must illusory, national and harm prove those We solutions. could if and malady. disproportionately. effort progress for process economic industry economic look of serious industries successful morning discuss course housing term, needs dependent substantial as imposed sales credit related a broader middle employment, the longer now the has wiLL situation, and this products testimony industries policy in effort you forest appropriate of in m i n d a re with ahead. began that the par t We This housing ar e broader My financial problems over an d future. The to Lo discuss housing a nd period productive th at the facing carefully the the economic I believe during to of for problems what pleased however, not more-- have made in reducing a healthy -2- economic wiLL recovery persist Congress to and reduce policy The in will C u r r ent for d u r a b Le goods industries of the had fallen sectors of business not stopped substantial increased at overall The industries, the of related 10 fact hardships the ha s if their fiscal national effects has directly recession last the efforts and monetary housing high High of been and a ■■■o n g affected starts output forest in products a nd producers hard. interest abroad, rates rates have have reflecting and the had the growing markets. recession involving been interest nations hc^avy components housing II, hit and those industry been slow widespread have the auto have reached ha s economic year, War as borrowers the the credit such capital of an become World from interdependence rate late borders. on on The resulting in since since also of Nevertheless, By sharply. costs began housing— international percent, tha t to equipment unemployment in and Reserve inflation. grips dependent level contracted human budget, the it severely. lowest our Federal discipline, defeat regions. heavily most in but geographic adverse The nearly recession most the Situation The economic integration to time. capital The together in successful Federal, been closely industry--has the are has a nd to in We monetary nation economy longest of Administration working and the achievable. policy Economic some aLl deficit be The down our the the are a have been post-World more most than severe serious. War II 10 m i l l i o n in the high The of people. construction - and durable goods unemployment joblessness has industries been among means relatively young and addition to those there are hundreds of thousands of looking for have given Economic severe in those industries which by is are a the massive lumber many cut ducing of have areas. quarter years of west persons Michigan been a nd In this closed year th e was in the who want 15 Oregon, industry— in activity, off the scores or had for example, during below and their workweeks products the the of of operations, forest percent fallen Because major industry has July, percent. laid nation's depressed problems — been 30 relatively particularly auto years; housing lumber is unemployed, most have almost the pro number second level four earlier. and financial t oll on individuals industries as well. significant small the curtailed and although also as been have Washington rising workers or south--the in where almost national employees has several was m en , workers structural pa s t of jo b s . Employment the in adult recorded hardship and burden discouraged country cyclical, in Economic heavy the during employed of personal of downswing thousands the both rate mills in areas third unemployment and the on officially concentrated. facing nearly up that inexperienced In but - heavy high. work 3 number businesses. highest levels We of an d have major Business since the market developments institutions seen in bankruptcy a wide or corporations a nd failures, fact, 1 9 3 0 !s; even in when a have taken range of other reorganization large have measured number of climbed to relative a to of a the the - totaL umber highest in interest supplied been share that relied on mortgage were 250 or There 1981-82 is quarter, on the when several under spending declining develop in tax and by acquisitions in the of a nd assisted by the regulators. evidence us. rate Real of inventory had index of leading in there suggesting GNP in the and made tha t first three long-term, during of months evidence so have and which recession in exercised indicators net firms. 1981 fe w th e economic and arrange somewhat liquidation insti troubled a have agencies help quite increased many earnings to industry year, market thrift financially S&L on regulatory t hi s some Many severe positions in the traditionally funds the ar e of the of second less drag the year. moved up recovery is has a row. is little markets continue sluggish, and to be business far that unusually fixed weak; investment consumer is substantially. My cut capital it remains credit. encountered rise strains tha t far is Labor those so months way . serious deposit efforts failures substantial housing than Yet, business occurred th e the the placed have mergers behind economy Moreover, for now and 300 have arranged of loans mergers And short-term support about operation, has Strenuous to - particularly lion's appropriate roughly 1978 the required were since problems. There in decades. institutions, fixed-rate worth concerns several rates financial tutions of 4 judgment the the months is that ahead, effects of a pickup in activity is likely bolstered to a degree by the the recent drop in market to mid-year interest rates. - History an suggests, upturn an d is in economic Business have stress a re building illiquidity making upswings, of to at considerably good decline and many have is has quarters of has of to a the long-term overall recovery, been extent and over profits and of t he from is to not it expansion apt has in past decline during apt postwar export businesses rates is vulner equipment low, th a t interest of a while. of operating Housing once financial temporary therefore, typical and postwar of for point discourage pace of domestic low; appeared; likely to major both to years plant is develop recovery the for fallen will three commitments. until The than outlays recovery further. weaker perhaps stores fi r m s not pace utilization investment least of substantially; capacity cyclical several deal planned momentum to ll the is - some the limit corporations long-term contribute first to offices nonfinancial But will a nd weak; of that investment Current continued markets process. capital ability. moreover, 5 to the be a recoveries from recession. Sources of the Two condition such as th a t built of factors the up The over policies primarily economy responsible and first is the past 15 years the tha t has been the in the current credit-dependent strong or for inflationary so. place T he during momentum second much sectors is of the the mix past years. Toward general a re general housing. public several of Problems the recognition end that of the last inflation decade, had been there allowed was to fairly g et out of -6- hand, and that lL was inflation came to be policy. In monetary discipline to be that Late created at me agreed proposed defense billion average rate deficit in far the size leaving the of 4 inflation half was fiscal Fighting priority for moved ensure to inflationary a time the economic System fiscal policy, contributing financial markets were carried budget on the pressures growing 1985 of an d under bound policies to had be might serious from the law deficit grew on deficits and to record then be 7 roughly to to 8 about 1985 1983-85 5-1/2 Since percent net Federal the of G N P , of private exceed at period. of GNP, savings a deficit private investment an The private net the President's is, percent net and would well--that three-fourths finance the assuming fiscal the year. of administration reasonably postwar around state a nd in a year--over any little th a t the would absorb the current economy average capital of under percent largest Even an economy. and Leaders buildup, if would you 1982. that, precious business in if for Large top Reserve needed pressures remind fiscal historically th i s was imbalance midyear Congress by Federal alone. heavy the our rates. Let $230 tha t largely extraordinarily budget the as Unfortunately, a serious interest damaging recognized 1979, contained. battle s e r i o u s Ly of saving, in housing. the best gone on of circumstances, largely painful. Bu t collide head the on unchecked threat made it bringing for that an a decade monetary doubly so. end a nd and to a - Since have c om e those pace down rates economic mortgage rates, 1983 the likely will be improved realization to reduced 1979 of were price because may is, on corporate bond pai d by reflect, that borrowers in a the pa r t , recovery rest They of in has at banks. by economic an d s t em , discipline the recognition 1982 also on in rates, business the restraint oil markets, and from in the on into however, a nd contributed rise on be helping the from 12 harvests of I believe, in to some a from growing importantly trend rate of percent. grain in Since then, the been the the crops With actual cut in that the of will in rise by half-of the wages business Moreover, continued value underlying nearly introduced inflation. from price time, moderation moderate front 10 of tha t productivity improvement major at percent. been inflation the rapidly has, has long-term neighborhood rising above there the Improvements also benefitting 1980, prices rates rate and probably salaries. firms occurred inflation. energy and also hearing budgetary monetary has securities important over for short-term an prospects fo o d largely develop on improvement weak. was trend to rates such that rates - comparatively increase inflation have participants that In and the an d developments market activity that activity — and These financial interest dramatically, interest of midyear, 7 glut we in dollar apparently are world abroad, be very abundant. Slower markets, by inflation reducing has demands helped for money to take a nd pressure credit and off by financial lowering 8 - the inflation longer will that be improved the downtrend premium holding private inflation is being that tax bi l l an d the has not threat the most clear budget ended the need and widely recognized, ment's absorption Future Prospects Let to be of our The a and of is adopt a course of recovery however, to declare next, against h as also appeared broken concern greater t hat a decisive to be of about federal deficits a nd for private does suggeti. of a burgeoning under spring by Passage markets of improved up. credit. now been last on process to to the But it deficit reducing the the is govern way. policies restore remain in the inflation therefore, economic of and the tha t health to are all most major likely segments economy. strength front, is T he Policies temptation, expectations the credit maintained, financial danger in h e l p i n g fight There for for that rates. participants that has dependent present t urn , successful nation's contain and me logjam the heavily market markets on they is interest achieved. financial political progress industries that the on nominal performance of in up price in confidence Sentiment evidence contained - policies the near battle powerful, downgrading of to the has been become It against despite to would inflation recent inflation a nd impatient, designed terra. long a nd encourage be won. as to greater premature, progress problem arduous. our Inflationary on the t op price priority - coiid mean largely that the government industries once and cause to is for to I would argue that of up more downpayment for example, per generally, than or for production for many of years, Investors have would can have been when for can We must have policies to home During were the get of buyers for rates income to of home the and to at mortgage of houses services, meet that rise prices latter rising inflation interest cause goods pace rid related making monthly payment part of the rates of nearly goods a nd to 1970's, 20 services for rental housing, a for o ur less affluent citizens. structures for r en t has depressed vacancy it rates or is have unable quite governments be and years the important housing high also disastrous unwilling local the early alternative which wilL most income. be as of consumer twice apartment that of single borrower inflation personal rents federal the prices roughly been projects especially home even to first-time important The of prices average that payments requirements. year, particularly the point the produces during for Inflation on thi s benefit policies Expectations faster the Inflation levels and rental for monthly difficult percent do pursue all. ratios contract. it borne can to prohibitive shoot costs - wasted. Indeed, thing 9 to historic take on the difficult to predict might to fallen been abruptly impose risks lows. of returns, controls charged. a sensible, achieve a coherent, sustained and economic unambiguous recovery set of unhampered 10 - by resurgent Federal that we inflation Reserve wiLl have is permit no fully is needed th a t excessive inflationary if of we pushing exacerbate the a re resolution fiscal nation also was poLicy, to be objectives appears in the the the done of the likely current to the structural ail of the enacted. tax economy the budget be economic a recent despite course, lost deficit in some the this ground. But deficit-reducing was will are next fact a But fully in smaller deficits budget a step a great deal even the fiscal if the years will 1983 deficit wilL the to the be time from budget than be required those dealt more deficit economy a nd sounder toward the abstracting remain would industries. achieve reached, several that year that concrete Indeed, fiscal measures that achieve to a nd system, Congressional restraint. the recognize levels to But inflation assure The bill weakness problem to expands. the of to policies discipline economic actions is, resolution higher We determination as year, regain of budgetary reflect to show monetary the The recovery. h o u s i n g - r e 1ated recovers. needed Of merely needs follow embed rates an d to goal. in interest badly basic simply deeply housing economy expanding. the would need pressures. economic tha t deficits--that a welcome an d the achieve more of the sustained growth problems as implementing needs to long-term " s t r u c t u r a l 11 f e d e r a l decline and financial of abandoning monetary ultimately will cognizant expectations Our heightened a healthy intention that and - with, factors, even resolution if are - If we do not problem, continuing share net of process, starts of long-term rates to as of interest in confidence fighting by on A needed fiscal battle firmer a nd also limiting by t hi s budget excessive and, when in the budget the economy the decline posture policies inflation. the influences credit-dependent monetary against an sector markets course, now with preempt credit of deal private lenders, credibly th a t the and to will the prospect, borrowers steps deficits pressures This homebuiIding. promote together both strong generated renewed expanding. attitudes such federal, savings place take 11- is are in sectors needed working
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