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SILAS KEEHN REMARKS
MILWAUKEE CHAPTER OF THE
PLANNING FORUM
PARK EAST HOTEL
MILWAUKEE, WISCONSIN
APRIL 17, 1986
"ALL'S WELL THAT STARTS WELL - OR IS IT?"
I.
INTRODUCTION
A.
WORD ABOUT FEDERAL RESERVE SYSTEM - BANKS
1.
B.
12 DISTRICTS - BANKS - GOVERNMENT CORPORATIONS
7TH - IOWA, ILLINOIS, INDIANA, MICHIGAN
1.
WISCONSIN
2.
BANK - BRANCH - DES MOINES, INDIANAPOLIS
3.
MILWAUKEE
-
COMMITMENT
TO
SERVE
FINANCIAL
INSTITUTIONS IN STATE
C.
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Federal Reserve Bank of St. Louis
BOARDS OF DIRECTORS - 9/6 - 3
1.
LEE KENDALL - CHAIRMAN OF MORTGAGE GUARANTY
INSURANCE CORPORATION
2.
CHARLIE MCNEER
-
ELECTRIC POWER CO.
CHAIRMAN/CEO OF WISCONSIN
MILWAUKEE
4/17/86
PAGE 2
3.
D.
INTERESTS OF WISCONSIN WELL REPRESENTED
DON'T WANT TO BE OVERLY CAUGHT UP IN EUPHORIA OF THE
MOMENT - BUT PARTICULARLY EXCITING TIME
1.
ELABORATE IN A FEW MINUTES
2.
UNIQUE OPPORTUNITY
3.
IF
EVERYTHING
COMES
TOGETHER JUST
RIGHT
-
REWARDING ECONOMIC EXPERIENCE
II.
BEFORE LOOKING AHEAD - LOOK BACK
A.
SET STAGE FOR COMMENTS REGARDING THE OUTLOOK
B.
FINAL QUARTER OF LAST YEAR ENDED ON WEAKER NOTE THAN
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Federal Reserve Bank of St. Louis
WOULD HAVE HOPED
1.
EACH REVISION OF 4TH QUARTER GNP DOWNWARD
A.
LAST
REVISION
.7%-
PUNDITS
-
DISAPPEAR
ALTOGETHER
2.
ANNUAL BASIS 1985 +2.2% AFTER MUCH STRONGER
(+6.6%) 1984
MILWAUKEE
4/17/86
PAGE 3
3.
41 H QUARTER WEAKNESS HAS LED SOME TO CONCLUDE
THAT WE'RE HEADED BACK INTO A RECESSION
C.
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Federal Reserve Bank of St. Louis
INDEED, SOME OF THE EARLY 1986 NUMBERS, PARTICULARLY
FEBRUARY CONT I NU I NG INTO MARCH, LITTLE ON THE SOFT
SIDE
l. UNEMPLOYMENT RATE
A.
2.
JANUARY/FEBRUARY - DOWN A BIT IN MARCH
RETAIL SALES - WEAK - ESSENTIALLY FLAT IN 1ST Q.
- DOWN IN MARCH
3.
INDUSTRIAL PRODUCTION - FELL IN MARCH - 2ND
CONSECUTIVE MONTHLY DECLINE - 1ST SINCE LATE 1984
4.
DURABLE GOODS - FELL IN FEBRUARY - REFLECTING A
DROP IN DEFENSE ORDERS - STRONG INCREASE IN
DECEMBER
5.
BUT DESPITE THESE NUMBERS - PRELIMINARY GNP
REPORT FOR 1ST Q. +3.2%
MILWAUKEE
4/17/86
PAGE 4
A.
Ill.
ARITHMETIC INVOLVED - STILL POSITIVE DIRECTION
AND IMPORTANT TO KEEP THESE IN A BROADER PERSPECTIVE - ON
A NATIONAL BASIS WE ARE OPERATING IN A VERY GOOD ECONOMIC
ENVIRONMENT
A.
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Federal Reserve Bank of St. Louis
DESPITE WHAT SEEMS LIKE MODEST GROWTH IN 1985, THE
NATIONAL ECONOMY HAS PERFORMED WELL
1.
AT THE END OF LAST YEAR, MAJOR MEASURES OF
PERFORMANCE WERE AT RECORD LEVELS
A.
GNP IN 1982 DOLLARS - 10% ABOVE 1981 PEAK
B.
INDUSTRIAL PRODUCTION - 11% ABOVE 1981 PEAK
C.
PAYROLL EMPLOYMENT - VERY STRONG - OVER 8
MILLION HIGHER THAN PREVIOUS PEAK - VERY
SIGNIFICANT GAINS
( 1)
TOT Al EMPLOYMENT WI LL GO THROUGH 100
MILLION LEVEL EARLY THIS YEAR - CURRENT
QUARTER
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Federal Reserve Bank of St. Louis
MILWAUKEE
4/17/86
PAGE 5
(2)
FOR VERY REAL AND HUMAN REASONS - FOCUS
ON UNEMPLOYMENT
( 3)
EMPLOYMENT PERSPECTIVE - EXPANSION NOT
GIVEN FULL CREDIT
D.
WHILE INCREASE IN INFLATION SMALLEST SINCE
1967
2.
NOW INTO THE 4TH YEAR OF ECONOMIC CYCLE - AND
CLEARLY - EXPANSION
A.
ONLY 2 OTHERS SINCE WORLD WAR II HAVE LASTED
THIS LONG
3.
FURTHER, IN MANY RESPECTS THIS EXPANSION COMPARES
VERY FAVORABLY WITH OTHER POST WORLD WAR II CYCLES
A.
IF YOU ANALYZE VARIOUS COMPONENTS OF ECONOMY
B.
FOR EXAMPLE, CAPITAL SPENDING
( 1}
LARGEST
INCREASE
IN CAPITAL SPEND I NG
FROM BOTTOM OF CYCLE
MILWAUKEE
4/17/86
PAGE 6
{A)
HAVE RANGED FROM 15 TO 25% IN PAST
CYCLES
{B)
THIS TIME ALMOST A 40% INCREASE
{C)
PRODUCTIVITY
NOT
CAPACITY
EXPANSION - BODES WELL FOR OUR
FUTURE COMPETITIVENESS
B.
GOOD NATIONAL PERFORMANCE
1.
2.
MASKS THE UNEVENNESS
A.
AMONG GEOGRAPHIC AREAS/AMONG INDUSTRIES
B.
HAS BEEN A VERY UNEVEN EXPERIENCE
PROBABLY GREATEST UNEVENNESS THAT WE'VE SEEN IN
PAST FOUR DECADES
3.
CLEARLY THIS IS NOT SIMPLY A BUSINESS CYCLE
PHENOMENON
A.
WE HAVE UNDERGONE SOME VERY FUNDAMENTAL
CHANGES IN THE STRUCTURE OF THE WORLDWIDE
ECONOMY
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Federal Reserve Bank of St. Louis
MILWAUKEE
4/17/86
PAGE 7
(1)
B.
SECULAR NOT CYCLICAL
VARIETY OF FORCES HAVE COME INTO PLAY
(1)
EARLIER INFLATION - UNWINDING A LONG AND
DIFFICULT PROCESS
(2)
FEDERAL SPENDING AND TAXING DECISIONS
(3)
INTERNATIONALIZATION OF MARKETS - WE
HAVE BECOME AN INTEGRAL PART OF A GLOBAL
ECONOMY
(4)
EXCHANGE VALUE OF DOLLAR
(A)
C.
ALMOST 90% 1980-1985
IT IS SAID A RISING TIDE LIFTS ALL BOATS RISING TIDE OF ECONOMIC EXPANSION HAS NOT
RAISED ALL BOATS
C.
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Federal Reserve Bank of St. Louis
ONE BOAT STRUGGLING TO GET OFF THE BOTTOM HERE IN THE
MIDWEST - MANY SECTORS HAVE NOT RETURNED TO LEVELS OF
ACTIVITY EXPERIENCED IN 1981
MILWAUKEE
Ll/17/86
PAGE 8
1.
MANY OF THE HEAVY MANUFACTURING INDUSTRIES SO
IMPORTANT TO OUR AREA - RUGGED ADJUSTMENT
A.
SUCCESSFULLY
SO
-
COST
REDUCTIONS
-
IMPRESS I VE, HAVE BEEN MA I NTA I NED - REDUCED
BREAKEVEN POINTS
B.
D.
OUTLOOK MORE FAVORABLE
AGRICULTURE - IMPORTANT TO THE DISTRICT - DIFFICULT
ADJUSTMENT
1.
AGRICULTURE SECTOR PROBLEMS PERVASIVE - SPREAD TO
A WHOLE HOST OF OTHER RELATED AREAS
A.
MANUFACTURING,
RETAIL
SERVICE,
FINANCIAL
ACTIVITY
B.
FOR MANY RURAL COMMUNITIES THIS HAS A
PERVASIVE, NEGATIVE INFLUENCE
C.
E.
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Federal Reserve Bank of St. Louis
PARTICULARLY - CLOSED BANK
FAIR COMMENT - MILWAUKEE AREA HAS FELT THE FULL
EFFECT OF THE UNEVENNESS
MILWAUKEE
4/17/86
PAGE 9
IV.
SHIFTING BACK TO THE NATIONAL SCENE, LET ME LOOK AHEAD DESPITE SOME UNCERTAINTY REGARD I NG THE I ND IV I DUAL 1ST
QUARTER NUMBERS (AND STATISTICAL/SEASONAL ABERRATIONS MAY
BE AT FAULT) - THE YEAR HAS STARTED OFF WELL - EVIDENCED
BY STRONGER THAN EXPECTED 1ST Q.
A.
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Federal Reserve Bank of St. Louis
THE CONDITIONS FOR CONTINUED EXPANSION ARE IN PLACE
AND SOME RECENT DEVELOPMENTS ONLY ENHANCE THE
POSSIBILITIES -
I'LL EXPAND ON SOME OF THESE
DEVELOPMENTS IN A MOMENT - LET ME ENUMERATE A FEW
1.
LOWER INTEREST RATES - TREMENDOUS DECLINE
2.
LARGE DECLINE IN EXCHANGE VALUE OF DOLLAR
3.
INFLATION CONTINUING LOW
4.
EMPLOYMENT GROWTH MAINTAINED
A.
PAYROLL EMPLOYMENT INCREASED AGAIN LAST MONTH
- EACH MONTH THIS YEAR - 31 CONSECUTIVE MONTHS
B.
INCREASES IN MANUF ACT UR I NG AREA - 4 MONTHS
THROUGH JANUARY
MILWAUKEE
4/17/86
PAGE 10
5.
STOCK MARKET PERFORMANCE
A.
POSITIVE FROM STANDPOINT OF EQUITY-FINANCING
B.
ALSO FROM POINT OF VIEW OF CONSUMER "WEALTH"
(1)
SHOULD MEAN
INCREASED POTENTIAL FOR
CONSUMPTION
6.
CAPITAL SPEND I NG PLANS BE I NG REVI SEO UPWARDS EARLIER EXPECTATIONS FLAT TO DOWN - SAY 3/4% THIS
YEAR
A.
PRETTY MUCH ACROSS THE BOARD, EXCEPT OIL
INDUSTRY
B.
V.
TAX LEGISLATION WILL BE KEY
(1)
ACCELERATED DEPRECIATION
(2)
1.T.C.
(3)
INCENTIVES FOR PRODUCTIVITY
GIVEN THE GOOD START AND THESE VERY RECENT DEVELOPMENTS THE OUTLOOK FOR 1986 IS CERTAINLY POSITIVE
A.
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Federal Reserve Bank of St. Louis
THE EXPANSION WILL CONTINUE
MILWAUKEE
4/17/86
PAGE 11
1.
REAL GNP OF AT LEAST 3% - EXACT NUMBER NOT AS
IMPORTANT AS TENDENCY
A.
ABOVE 2-1/4% FOR 1985
B.
COULD BE SOMEWHAT HIGHER
2.
HOUSING STARTS - WELL OVER l.7MM - 4TH YEAR
3.
AUTOS - LESS THAN 1985 - OVER lOMM - THIRD YEAR
4.
INFLATION EXPECTED TO RUN LESS THAN 3-1/2% OF
LAST YEAR
A.
RECENT DEVELOPMENTS IN ENERGY SECTOR COULD
MEAN INFLATION LESS THAN THAT - 3% OR EVEN
LOWER
5.
(1)
1ST Q. PRICES - GNP DEFLATER: +2.5%
(2)
LOWEST SINCE 1967; ALMOST 20 YEARS
UNEMPLOYMENT RATE SHOULD BE A LITTLE LESS THAN 7%
NATIONALLY
VI.
LEST YOU GET TOO COMFORTABLE - THERE ARE SOME SIGNIFICANT
RISKS - IMBALANCES - THREATENING
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Federal Reserve Bank of St. Louis
MILWAUKEE
4/17/86
PAGE 12
A.
WHETHER REALITY OF THE YEAR MATCHES EXPECTATIONS
DEPENDS ON HOW WE DEAL WITH THESE IMBALANCES
B.
COMMON DENOMINATOR - INCREASE IN DEBT
1.
ACROSS ALL SECTORS - PUBLIC AND PRIVATE
2.
INCREASE IN DOMESTIC NONFINANCIAL DEBT HIGHEST IN
OVER 30 YEARS
C.
LET ME START WITH THE KEY ELEMENT IN DEBT PICTURE THE ONE THAT PERVADES VIRTUALLY EVERYTHING THAT I AM
TALKING ABOUT - NAMELY, THE FEDERAL BUDGET DEFICIT
1.
OBVIOUSLY A CURRENT AND TOPICAL ISSUE - LITTLE I
CAN ADD
2.
DEFICITS
OF
MAGNITUDES
THAT
HAVE
BEEN
EXPERIENCING AT THIS STAGE OF THE ECONOMIC
EXPANSION ARE UNPRECEDENTED
A.
NOT AT ALL UNUSUAL TO RUN SIGNIFICANT
DEFICITS AT THE TIME OF RECESSION OR OTHER
ADVERSE EVENTS
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
MILWAUKEE
4/17/86
PAGE 13
B.
BUT WE ARE NOW WELL INTO THE 4TH YEAR OF AN
ECONOMIC RECOVERY AND WE HAVE BEEN RUNNING
DEFICITS AROUND 4-1/2 - 5% OF THE GNP FOR 4
YEARS NOW
3.
IN THE LONG HISTORY OF OUR COUNTRY WE HAVE ALWAYS
MANAGED TO BRING OUR BUDGETS IN BALANCE
A.
AFTER AN ADVERSE EVENT HAS PASSED THAT CAUSED
THE DEFICIT - CONGRESS HAS TAKEN CORRECTIVE
ACT I ON TO BR I NG THE BUDGET IN BALANCE RECORD IS CLEAR
B.
INDEED, IN THE EARLY 183OS CONGRESS NOT ONLY
FULLY REPAID THE THEN OUTSTANDING TREASURY
DEBT
-
BUT
RAN
SURPLUSES WHICH WERE
DISTRIBUTED BACK TO THE STATES
4.
IN THE LATE 196OS WE UNDERWENT AN I MP ORT ANT
CHANGE - FROM THIS POINT FORWARD WE APPARENTLY
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Federal Reserve Bank of St. Louis
MILWAUKEE
4/17/86
PAGE 14
DECIDED TO ACCEPT DEFICITS AS PART OF THE NORMAL
OPERATION OF OUR SOCIETY - NOT
AS
A WAY
OF
DEALING WITH AN ADVERSE EVENT
A.
ENORMOUS POLITICAL/SOCIAL CHANGE
{l}
NOT
SURE WE
FULLY APPRECIATED THE
MAGNITUDE
5.
FEDERAL DEFICITS RESULT IN TREASURY DEBT
A.
RISING AT AN ALARMING RATE
B.
DEBT LEVEL IN 1975 $500 BILLION - APPROACHED
$2 TRILLION LAST YEAR - RISING INEXORABLY
{1}
C.
APRIL 1 - APRIL FOOL'S DAY
OVER $750 MI LL I ON EVERY WORK I NG DAY - SOME
$3.9 BILLION PER WEEK
6.
OF COURSE. INTEREST ON THE DEBT HAS TO BE PAID
A.
GROWINGLY WORRIED ABOUT COMPOUND INTEREST
SYNDROME
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Federal Reserve Bank of St. Louis
MILWAUKEE
4/17/86
PAGE 15
(1)
IS THIS AN ISSUE THAT HAS GOTTEN BEYOND
OUR CONTROL?
(2)
INTEREST ON THE DEBT IS ASSUMING A MUCH
LARGER POSITION IN THE ANNUAL BUDGET -
10% IN FISCAL 1975, ALMOST 20% IN FISCAL
1985
( 3)
EVEN ON TH IS BASIS ALONE, THE NEED FOR
ACTION ON THE DEFICIT IS VERY COMPELLING
B.
BUT, IMPLICATIONS OF CONTINUED HIGH FEDERAL
BUDGET DEFICITS GO FURTHER
(1)
AT STAKE - WHOLE ISSUE OF ALLOCATION OF
SAVINGS AND INVESTMENT DOLLARS BETWEEN
GOVERNMENT AND PRIVATE SECTORS
(2)
SAVINGS/GNP - 11% - 1/2 FINANCE DEFICIT
(3)
THERE IS ROOM FOR ARGUMENT - FINANCING
THE DEFICIT HAS PUT PRESSURE ON THE
MILWAUKEE
4/17/86
PAGE 16
MARKETS - INTEREST RATES ARE HIGHER AS A
RESULT OF BUDGET DEFICIT
D.
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Federal Reserve Bank of St. Louis
TO SOME VERY LARGE EXTENT, THESE FISCAL DEFICITS ARE
BEING SUPPORTED BY THE INTERNATIONAL MARKETS
1.
OUR TRADE DEFICIT LAST YEAR - A RECORD OF ABOUT
$150 BI LL I ON - GREAT MANY DOLLARS INTO THE
INTERNATIONAL MARKETS
2.
WE HAVE NOW BECOME A NET EXTERNAL DEBTOR
3.
POSIT I ON NOT INHERENTLY WRONG IF THE FUNDS ARE
BEING USED FOR PRODUCTIVE PURPOSES
A.
WHICH GENERATE THE REPAYMENT CAPACITY TO
SERVICE THE DEBT
B.
WRONG TO USE FUNDS FOR CONSUMPTION PURPOSES BASICALLY WHAT IS GOING ON
4.
AS A RESULT OF LARGE PURCHASES OF U.S. DEBT BY
INTERNATIONAL MARKETS (JAPAN) PRESSURE ON U.S.
INTEREST RATES HAS TO SOME EXTENT BEEN RELIEVED
MILWAUKEE
4/17/86
PAGE 17
A.
IF THERE IS A CHANGE IN SENTIMENT, WILL HAVE
TO FINANCE DEFICIT FROM DOMESTIC SOURCES
B.
HIGHER RATES THAN OTHERWISE
(1)
E.
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Federal Reserve Bank of St. Louis
ECONOMIC EXPERIENCE MAY WELL BE DIFFERENT
SHIFTING FROM GOVERNMENT TO THE CONSUMER - CONSUMER
INSTALLMENT DEBT HAS ALSO RI SEN TO RECORD LEVELS
RELATIVE TO DISPOSABLE INCOME
1.
SOME MITIGATING CIRCUMSTANCES WHICH MODERATE THE
SHEER MAGNITUDE OF NUMBERS
A.
BUT PERSONAL DEBT LOADS HAVE BECOME VERY,
VERY HEAVY
B.
RAISES THE QUESTION AS TO THE SUSTAINABILITY
OF CONSUMPTION AND THEREFORE THE ECONOMIC
EXPANSION
C.
WILL CONSUMERS BE ABLE TO HANDLE THIS DEBT IF
PERSONAL INCOMES BEGIN TO FALL?
MILWAUKEE
4/17/86
PAGE 18
F.
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Federal Reserve Bank of St. Louis
CORPORATE DEBT HAS ALSO INCREASED VERY RAPIDLY OVER
THE PAST FEW YEARS
1.
IN 1984 CONSOL I DATED CORPORATE DEBT ISSUED BY
NONFINANCIAL CORPORATIONS INCREASED BY OVER $190
BILLION - A RECORD
2.
THE 1985 NUMBER WAS SOMEWHAT LESS BUT SECOND ONLY
TO 1984 ($157 BILLION)
3.
EXACERBATED
BY
LEVERAGE
BUYOUTS,
MERGERS,
TAKEOVERS, AND ACQUISITIONS
4.
EVEN MORE DISTRESSING IS THE RAPID RETIREMENT OF
EQUITY THAT HAS BEEN TAKING PLACE OVER THE PAST
FEW YEARS
5.
ON AN ABSOLUTE BASIS CORPORATE AMERICA HAS BEEN
DECAPITALIZING ITSELF
6.
AS A CONSEQUENCE, CORPORATE DEBT RELATED TO NET
WORTH HAS INCREASED VERY SHARPLY
MILWAUKEE
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G.
CAN'T LEAVE THE DEBT ISSUE WITHOUT COMMENTING ON THE
VERY LARGE EXTERNAL DEBT POSITIONS OF SOME OF THE
LESSER DEVELOPED COUNTRIES
1.
VERY DIFFICULT, PARTICULARLY SO FOR COUNTRIES
THAT ARE DEPENDENT ON THE EXPORT OF PETROLEUM
PRODUCTS TO GENERATE DOLLAR RESERVES TO SERVICE
THEIR DEBT
2.
WORKING THROUGH THIS PROBLEM WILL BE VERY
CHALLENGING
H.
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Federal Reserve Bank of St. Louis
AGAIN, THIS BUILDUP OF DEBT ACROSS ALL SECTORS OF OUR
ECONOMY, NATIONALLY AS WELL AS INTERNATIONALLY, IS OF
GREAT CONCERN
1.
INTRODUCED
A
DE ST AB IL I ZING
ELEMENT
VULNERABILITY OF THE DEBTORS TO SERVICE THE DEBT
- MAINTAINING AN ENVIRONMENT OF GOOD ECONOMIC
GROWTH IS CRITICALLY IMPORTANT
MILWAUKEE
4/17/86
PAGE 20
2.
VII.
MARGIN FOR ERROR VERY NARROW
CLEARLY - ALL THIS HAS IMPLICATIONS FOR MONETARY POLICY
A.
THESE IMBALANCES HAVE CREATED A DIFFICULT ENVIRONMENT
FOR MONETARY POLICY
1.
DEALING WITH A COMBINATION OF IMBALANCES THAT WE
HAVEN'T EXPERIENCED BEFORE
2.
EITHER IN NUMBER OR IN MAGNITUDE
3.
NET RESULT IS A VERY NARROW PASSAGE THROUGH WHICH
TO NAVIGATE
B.
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Federal Reserve Bank of St. Louis
OBJECTIVE OF MONETARY POLICY REMAINS THE SAME
1.
CONTINUE PROGRESS TOWARD PRICE STABILITY IN
CONTEXT OF GROWING ECONOMY
A.
THOUGH RECENT INFLATIONARY RESULTS HAVE BEEN
WELCOME - HARDLY PRICE STABILITY - NIXON 1971
- MORE WORK TO DO
2.
OVERRIDING ASSIGNMENT AT THE FED - KEEP THE
EXPANSION GOING
MILWAUKEE
4/17/86
PAGE 21
A.
BUT IT CANNOT BE AN EXPANSION FUELED BY
ESCALATING
INFLATION
EXCESSIVELY
ACCOMMODATIVE MONETARY POLICY
(1}
HISTORY CLEAR THAT SUSTAINABILITY OF A
GROWING ECONOMY IS IMPAIRED BY INFLATION
- WE'VE BEEN THERE
B.
BUT IF WE WERE TO EXPERIENCE A RENEWED
RECESSION - THE IMBALANCES I CITED WOULD
BECOME VERY DIFFICULT
C.
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Federal Reserve Bank of St. Louis
CONSEQUENTLY, PRESSURES MAY WELL MOUNT
1.
TO ENCOURAGE AN EVEN MORE RAPIDLY EXPAND I NG
ECONOMY
2.
WITHOUT DUE CONCERN ABOUT LONGER TERM INFLATION
POTENTIAL
3.
FED WI LL COME UNDER VERY HEAVY PRESSURE TO
MONETIZE OUR WAY OUT OF SOME OF THESE PROBLEMS
MILWAUKEE
4/17/86
PAGE 22
4.
VIII.
OUR INDEPENDENCE COULD BE THREATENED
CONCLUSION
A.
SAID AT OUTSET - YEAR HAS STARTED WELL - WE ARE
DEALING WITH A UNIQUE SET OF CIRCUMSTANCES - AND WE
HAVE A GREAT OPPORTUNITY
B.
LET ME JUST REPEAT AND EMPHASIZE 3 ITEMS TO MAKE THE
POINT
FIRST
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Federal Reserve Bank of St. Louis
1.
MASSIVE REDUCTION IN ENERGY PRICES - FELL OUT OF
SKY
A.
GLASS MORE THAN 1/2 FULL
B.
VERY POSIT I VE AND PERVASIVE - NOT ONLY OUR
ECONOMY, BUT WORLD ECONOMIES AS WELL
C.
VERY FAVORABLE IMPACT ON INFLATION
D.
GIVES FED MORE MANEUVERING ROOM - DECREASED
INFLATIONARY CONCERNS
MILWAUKEE
4/17/86
PAGE 23
SECOND
2.
SIGNIFICANT REDUCTION IN INTEREST RATES - MEDIUM
AND LONG TERM
A.
YIELDS ON 30 YEAR DOWN OVER 400 BASIS POINTS
IN LAST YEAR - SOME 200 BASIS POINTS SINCE
TURN OF THE YEAR
B.
30 YEAR BOND YIELDING CLOSE TO 7% - YIELDS ON
LONGER TERM MATURITIES LOWEST SINCE EARLY
1970S
C.
AGAIN, VERY PERVASIVE THROUGHOUT OUR ECONOMY
- AND WORLD ECONOMIES
(1)
REDUCED RATES PUT EXTERNAL DEBTS OF LDCS
IN MUCH DIFFERENT PERSPECTIVE
( 2}
DOME ST I CALLY - MORTGAGE REF I NANCI NGS POWERFUL EFFECT ON CONSUMER SPENDING MONTHLY PAYMENTS
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Federal Reserve Bank of St. Louis
MILWAUKEE
4/17/86
PAGE 24
THIRD
3.
CHANGE IN VALUE OF DOLLAR AGAINST DM AND YEN ALMOST 30% SINCE THIS TIME LAST YEAR - TREMENDOUS
PRICE REDUCTION - 30%
A.
SIGNIFICANT AMOUNT HAS OCCURRED THIS YEAR
B.
ENORMOUS OPPORTUNITIES FOR OUR EXPORT SECTOR
- WILL TAKE A WHILE TO SHOW UP IN NUMBERS VERY, VERY HELPFUL FOR THE BELEAGUERED EXPORT
ACTIVITIES
C.
BETTER
OPPORTUNITIES
FOR
SUPPLIERS
TO
DOMESTIC MARKETS - IMPACTED BY IMPORTS
C.
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Federal Reserve Bank of St. Louis
THUS WHAT HAS STARTED WELL SHOULD END WELL
1.
MOREOVER - IF WE CAN DEAL WITH THESE IMBALANCES
l'VE ENUMERATED - AND THE STRONG ECONOMIC
ENVIRONMENT GREATLY FACILITATES
MANAGING OUR WAY
THROUGH THESE TERRIBLY DIFFICULT ISSUES
MILWAUKEE
4/17/86
PAGE 25
2.
THE FUNDAMENTALS ARE AT HAND FOR A CONTINUATION
OF THIS FAVORABLE ECONOMIC EXPERIENCE FOR QUITE
SOME WHILE - AND THIS YEAR MAY WELL DEVELOP INTO
THE TURNING POINT IN WHAT MIGHT JUST BE ONE OF
THE MOST REWARDING ECONOMIC PERIODS OF THE PAST
FEW DECADES
D.
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Federal Reserve Bank of St. Louis
ON THAT POSITIVE NOTE - CONCLUDE
*
*
*
*
*
@FedFRASER