Regional President Speech

I960 Seminar Series of the University of Wisconsin School of Banking at 7:15 p.m., Thursday, August 25» I960, Union Theatre, Madison, Wisconsin. I. NATIONAL GOALS OF OUR ECONOMIC SYSTEM. A. Section 2 of Employment Act of 19^6: ”... Federal Government shall use all practicable means . . . in a manner calculated to foster and promote free competitive enterprise and the general welfare ... to promote maximum employment, production, and purchasing power." B. Money as the instrument of economic freedom. 1. Freedom to earn, spend, save, invest. 2. Spending decisions guide production. Eds el — Rambler, (a) Profit and loss economy. 3. Earning and Spending Decision. (a) As individual consumers, household businesses (Proprietorships). (b) In voluntary collectives — corporations. (c) In public capacity — Government. C. Full use of resources. 1. Private and Public Demand. Output at maximum employment and stable price level. 2. Nob automatic. Fiscal Policy. II. THE ROLE OF MONETARY POLICY. A. Adjust flexibly to economic developments. 1. When demand is excessive, make money harder to get and more expensive. 2. Vice versa. B. Efficiency in use of money mitigates effects. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis University of Wisconsin -2 - C. Experience shows it works. Affects capital values and whole economy. Wide variety of borrowers/lenders free to choose. III. TOOLS OF MONETARY POLICY. A. Deposits as money: work through the banking system. 1. Commercial banks — Seek loans and investments when they have more to lend. 2. Vice versa. 3. Reserve position as measure of banks' position. B. Reserve requirements. C. Open Market Operations. D. Discounting. 1. Rate. 2. Administration. IV. GUIDES TO CURRENT OPERATIONS. A. Lags. 1. Between an event and knowledge. 2. Between knowledge and decision. 3. Between decision and effects. B. Methods of determining current policy. 1. Past relationships. (a) Population forecasts. (b) Harvard A.B.C. curves. Speculation — business — banking. (c) Leading indicators. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis University of Wisconsin 3- 2. Current behavior. Inertia — weather forecast. Miss every change! 3. Expressions of current opinion. 4. Expressions of current intentions. 5. No rabbits in the hat. 6. Judgment. V. OPERATIONAL PROCEDURES. A. Organization for policy-making. 1. Relations to the Government. 2. Central vs. Decentralized. (a) A Federal System. (b) A national Policy. B. Reaching a decision. Advice from F.A.C. 1. Federal Advisory Council. Herb Prochnow Bill Korsvik 2. Federal Reserve Banks. (a) Boards of Directors. 3. Federal Open Market Committee meets every three weeks. (a) Economic memorandum; (New York memo on operations.) Staff review of economic developments — credit developments. 12 Presidents and 7 Governors report. Discussion of past three weeks. (b) Decision as to whether to — (1) Continue as is. (2) Tighten — and how much. (3) Ease — and how much. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis University of Wisconsin -4- (c) Changes are usually moderate. (1) A little more — a little less. (2) Resolve doubts on one side or the other. (d) The directive. 3. Manager of the account and daily telephone calls and wire reports. (a) Projections of non-controllable factors. Float — uncollected cash items. Deferred availability cash items. (b) Inevitable errors in projections. (c) How correct for errors — (1) Bring average in line? (2) What happens on subsequent days? Conduct of an ^ H operation. (¿q Regular way transactions. (e) Cash transactions. (f) Repurchase agreements. RECENT POLICY: Last overt move to greater restraint — September 11, 1959 — Rate: 3i to 4$. Despite steel strike. Inflationary psychology. i960 Boom assured because of strike. However, no additional restraint on availability. Net borrowed reserves in 400-500 will range until end of year. February-March i960. Some easing of reserve positions. 1959 - August.... - 535 I960 - January......- 361 September.. - 493 February.....- 361 October.... - 459 March...... .- 219 November... - 433 April...... .- 194 December... - 424 May........ .- 33 June....... .+ 41 July....... .+ 120 August..... .+ 247 September.... + 414 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis University of Wisconsin -5- 1960: June 3-14 Discount rate: 4 to 3 (70 to 90# - July 28 Margins : 90 to 70% ( 10/16/58. Effective August 8 Vault cash allowance: (Announced) Country: 4 to 8/25/60 RC and CRC: 2 to 15Î 9/1/60 Req. CRC: 18 to 17i# 9/1/60 August 11 Discount rate: 3i to % CRITICISM: For not moving fast or far enough. (Lowell Harriss letter.) For moving too fast. (Barron's.) System moved toward ease or less restraint — Before the economy over-all turned down because — 1. Inflationary psychosis subsided — dormant at least. 2. Competitive buyers markets — unused manpower; unused plant and equipment, Could have credit for real growth without inflation. Proportion and Perspective on our International Position. Flight from the dollar to gold. Balance of payments position. Our trade position — great improvement since second quarter of 1959» Our businessmen have been adjusting. If we had — Inflationary psychology. Rising prices — deteriorating trade position. Full use of resources. Large fiscal deficit. Low gold reserves Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis University of Wisconsin -6 - Then, to compound with easy money would, indeed, be hazardous. But surely with the reverse, the dangers from easier credit are less than those from tight credit. What can be done about our unfair balance of payments? 1. Influence behavior of foreigners. (a) We helped them — generously — reconstruct and successfully! (1) Rising international liquidity. Therefore, reduce barriers vs. U.S. imports. Aid in development, especially Germany! The lesson of Germany. (2) Review our expenditures abroad. (3) Avoid inflation at home. (4) Improve competitive position at home/abroad. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Karl R. Bopp (1960, August 24). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_19600825_karl_r_bopp

@misc{wtfs_regional_speeche_19600825_karl_r_bopp,
  author = {Karl R. Bopp},
  title = {Regional President Speech},
  year = {1960},
  month = {Aug},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_19600825_karl_r_bopp},
  note = {Retrieved via When the Fed Speaks corpus}
}