Regional President Speech

SILAS KEEHN REMARKS ROlARY CLUB OF DES MOINES D[S MOINES, IOWA NOVEMBER 14, 1985 G-. ·~~ ~ flir'W_e:AA-4/ .J' / -. J"' n.,,, ~ X vw • -Z' Lt., ~~ 1) ~~ hdr~ \:,lu.,&,t~ • - I. INTRODUCl ION - WARM WORDS OF WELCOME .fcn-.-eeJaJ ~ ~ ~c) ,·s ""'Ir-ti/ ~ WU~ h.G.lb. . A. DELIGHTED TO HAVE THIS OPPORTUNITY TO BE WITH YOU - PLEASED 10 ADDRESS THIS GROUP 1. IOWA AND DES MOINES IMPORTANT TO THE FEDERAL RESERVE BANK OF CHICAGO A. ONE OF 5 STATES THAT WE COVER/THE ONLY STATE THAT IS TOTALLY WITHIN OUR DISTRICT /5'0 E B. MEMBER BANKS -n,.G.f i.$Z..A£ G-:2 R' oJJ (1) BETWEEN BANKS, SAVINGS & LOANS, CREDIT UNIONS - OVER 1,000 (2.)..... RF.-W-LT OF MO»,[T,IRY Cfl:NlR:Ot -AC-t OF lQ.SQ..- (3) STATE REALLY IS IMPORTANT TO OUR BANK Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SK DRAFT (2) DES MOINES 11/14/85 PAGE 2 2. WE MAINTAIN A PROCESSING OFFICE IN DES MOINES TO SERVE THF.SF. DEPOSITORY INSTITUTIONS - VERY ABLY MANAGED BY TOM KILLEEN er A": Otll~ eof'l~IIIMENI Te Ef01ANCE IRE Ft:JNCTIONIN6 ttl[ P.O.YMefHS ME(;MANISP1 SQ IMPQRT.o.•n TO IHE Sl Al E I S EC ON OP1 ¥ 3. TWO OF OUR 9 DIRECTORS ARE FROM IOWA A. MARY GARST - MANAGER, CATTLE DIVISION, THE GARST COMPANY, COON RAP I OS - ONE OF OUR DIRECTORS B. AS JS 0. J. TOMSON - PRESIDENT, THE CITIZENS NATIONAL BANK OF CHARLES CITY C. ASSURE YOU THAT THE INTERESTS OF YOUR STATE ARE WF.LL SERVED IN THE DELIBERATIONS OF OUR BOARD BY THESE 2 OUTSTANDING DIRECTORS Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SK DRAFT (2) DES MOINES 11/1~/85 PAGE 3 D. HAVE RECENTLY FORMED ADVISORY COUNCILS ON SMALL BUSINESS AND AGRICULTURE (1) FIVE REPRESENTATIVES FROM IOWA ON THESE COUNCILS (2) CONNIE WIMER - PRESIDENT/PUDLI~R, IOWA .__£J ,t· sLt..t1-,; TITLE co. AN?<iwsINESS RECORD - DES MOINES 11. IOWA SECTION A. WE HAVE BEEN FOLLOWING THE DEVELOPMENTS IN IOWA WITH GREAT CONCERN 1. AND 1 HAVE COMMUNICATED THE CONDITIONS AND CONCERNS OF YOUR STATE AND THE AGRICULTURAL SECTOR IN THE DISCUSSIONS OF THE FEDERAL OPEN d.,i.,_d£-a .,_~ MARKET COMMITTEE - ~~.,...~ .J.rc.,- "b ~... - , ........... __,_ , ~ ~ ~ ~ B. I WOULD HAVE TO ADMIT THAT OUR MONITORING OF YOUR SITUATION CONTINUES TO EVIDENCE FURTHER SIGNS OF Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SK DRAFT (2) DES MOINES 11/14/85 PAGE 4 STRF.SS RATHER THAN A RETURN TO STABILITY - AT LEAST IN NF.AR TERM 1. SINCE 1979, NON-AGRICULTURAL EMPLOYMENT HAS AND THE UNEMPLOYMENT RATE IN THE STATE IS 2. THF AND ~E IMPACT OF THE DEPRESSED PARTICULARLY OBVIOUS C. LITTLE THAT l CAN TELL YOU ABOUT THE AGRICULTURAL SITUATION 1. CERTAINLY A SITUATION WELL KNOWN 10 ALL OF YOU 2. FARMLAND VALUES CONTINUE TO DECLINE A. OUR SURVEY, IOWA DOWN ALMOST 8% - 3RD QUARTER, 28% LAST 12 MONTHS, SOME 50% FROM PEAK IN 1981 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SK DRAFT (2) DES HOINES 11/14/85 PAGE 5 S--.c: TREiiTEIIDOUS A!)Jt,STl'l!N1 3. THOUGH HARVEST THIS FALL HAS BEEN SLOW, YIELDS AND PRODUCTION ESTIMATES HAVE BEEN INCREASED A. CONTINUED PRESSURE ON COMMODITY PRICES - FOR AI.L OF 1985, INDEX OF PRICES RECEIVED BY FARMERS WILL LIKELY Bf LOWEST SINCE 1978 D. OUTCOME OF FARM POLICY DEBATE IN CONGRESS CITICALLY IMPORTANT TO IOWA 1. VERY COMPLEX SF.T OF CONSIDERATIONS 2. UNFORTUNATELY, FREQUENTLY DISTORTED 3. YOU HAVE NO DOUBT HEARD THE CRITICISM THAT THE AGRICULTURAL STATES HAVE ALREADY BEEN THE MAJOR BENEFICIARIES OF LARGE FEDERAL GOVERNMENT F.XPENDITURES 4. AND ONE WOULD ASSUME THAT THESE PAYMENTS HAVE BEEN RELATIVELY HIGH IN IOWA Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SK DRAFT (2) DES MOINES 11/14/85 PAGE 6 A. TO THE CONTRARY. THIS STATE HAS BEEN SENDING MORE TO WASHINGTON THAN IT HAS RECEIVED B. IN 198~ IOWA HAD A NET OUTFLOW OF Sl.2 BILLION C. AMONG ALL STATES, IOWA HAD THE 9TH LARGEST OUTFLOW ~·s,;,.A~ D. bD~ATE WAS RECEIVING BACK 80 CENTS FOR EVERY DOLLAR SENT (1) PUTS THE MATTER IN A DIFFERENT PERSPECTIVE BUT DESPITE THE CURRENT PROBLEMS THAT CERTAINLY 1 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SK DRArl (2) DES MOINES 11/14/85 PAGE 7 2. LABOR FORCE OF THE STATE AR A RESOURCE 3. THE STATE A. IMPORTANT ( 1} HAS MANUFACTURING, Ill. FUlURf FOR IOWA ECONOMY DEPFNDENT ON "dJs,M.. DEVELOPMENTS .r ---- O')'\J et Al~•~ ~ ~ '1"ND LEl ME MOVE TO THAT BROADER LOOK A. 1 WON'T SPEND A LOT OF TIME ON THE DETAILS 1. BUT IT WILL SET THE STAGE FOR LATER COMMENTS ON THE CRITICAL POLICY ISSUES THAT CONFRONT US B. lHE ECONOMIC OUTLOOK FOR THE NEXT FEW QUARTERS IS POSITIVE 1. WOULD ANTICIPATE REAL GNP GROWTH OF, SAY, 2-1/2 TO 3% FOR AT LEAST THE NEXT 3 OR 4 QUARTERS Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SK DRAFT (2) DES MOINES 11/14/85 PAGE 8 2. THE EXACT MAGNITUDE OF THE QUARTERLY INCREASES NOT AS IMPORTANT AS THE THOUGHT THAT THE RISK OF A RENEWED RECESSION IN THE NEAR TERM IS DIMINISHING C. WE ARE JUST COMPLETING THE THIRD YEAR OF THIS RECOVERY EXPANSION CYCLE 1. THE GOOD NEWS - COMPARAl IVELY THIS HAS BEEN A SlRONG RECOVERY A. EMPLOYMENT - 108MM END OF SEPTEMBER - 9MM NEW JOBS SINCE END OF 1982 B. UNTIL VERY RECENTLY, CAPilAl. SPENDING VERY STRONG - STRONGEST SINCE WWII 2. A REVIEW OF lHE RECORDS OF RECOVERIES SINCE WORLD WAR II PLACES THIS CYCLE RIGHT IN LINE WITH OTHER RECOVERIES IN MOSl RESPECTS - IT HAS BEEN A MUCH BETTER ECONOMIC CYCLE THAN WE GIVE IT CREDIT FOR Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SK DRAFT (2) DES MOINES 11/14/85 PAGE 9 3. BUT A NOTE OF CAUTION. WITH THE PASSAGE OF TIME THE ECONOMIC CLOCK IS RUNNING AND THE RISK OF A RECESSION AT SOME POINT GROWS A. WE HAVE HAD-~- RECOVERY CYCLES SINCE WWII ~ 2. AND ON!. Yd HAVE I.ASlED THIS LONG - ,-...,ru '? !::> p~ ~ ~C.. IV. BUT AGAINST THIS POSITIVE BACKGROUND THERE IS. ON A GLOBAi. BASIS, THE BU I l. DUP OF SOME VE RY UNSETTLING IMBALANCES THAT POSE A RISK TO OUR ECONOMIC PERFORMANCE A. lHE AGRICULTURAL SECTOR - HARDLY NEED TO ELABORATE FOR THIS AUDIENCE 1. A CONTINUATION OF DETERIORATION IN THIS IMPORTANT SECTOR COULD CAUSE A DRAG ON OUR OVERALL ECONOMIC PERFORMANCE 2. FOOD AND THE AGRICULTURAL SECTOR ACCOUNT FOR SOME 20% OF OUR GNP A. ASSET VALUES EXCEED $1-TRILLION Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SK DRAFT C2) DES MOINES 11/14/85 PAGE 10 8. VERY IMPORTANT PARl OF OUR ECONOMIC STRUCTURE B. THE ENlIRE INTERNATIONAL SITUATION ~ \) ~~ P-){~ cJ ~ THF ENORMOUS TRADE DEFICIT RISING SO ~,'t~ SUBSTANTIALLY OVER THE LAST SEVERAL YEARS .. ~-~~ ~~) 2 .- IHF VFRY HIGH VALUE er lit[ Bfll.LAR INlrftWOO'~N WITH THF IRADF D~FICll ISSUE &#45;&#45;&#45; INTERVENTION EFFORlS SINCE THE RECENT PROCESS OF AL I GNMENT, BUT OPPOSITE R AT LEAST TIIE NEXT EE.W QUARTERS ~s~ 3.(fHF EXTERNAL DEBTS OF THF LESSER DEVELOPED COUNTRIES Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SK DRAFT (2) DES MOINES 11/14/85 PAGE 11 A PERIOD OF IMPROVEMENT, THE SITUATION -------- /" fNG •• SIGNS OF STRAIN (1) THE LARGEST LESSER ~ B T MONTH AT THE ETING ! ' OF THE BANK IN DEVELOPMENTS INITIATIVES C. AND AS ANOTHER RISK, THE INEXORABLE BUILDUP OF DEBT ACROSS ALL SEGMENTS OF OUR ECONOMY 1. PERSONAL DEBT - RISING TO RECORD LEVELS A_. TIIE STRONG ... GQNSUMPT ION tJIIMBF.RS S-0-P::PORfED Bl" -s.IGNIFICANT INCREASE TN CONSUMER J)..fBT Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SK DRAFT (2) DES MOINES 11/14/85 PAGE 12 B. IN THF FIRST HALF OF 1985 HOUSEHOLD DEBT ROSE F'Y'-~~~'- AT AN ANNUAL RATE OF 13% - ' . ~ &S°~ _. ,. .,;t.,,,.;s.~---r-1~"10 ~, ~~~ 2. CORPORATE DEBT - ALSO RISING A. TO SOME EXTENT, ACCELERATED BY MERGERS AND TAKEOVERS B. THERE HAS BEEN A SHIFT IN lHF. BALANCE TOWARD HIGHER DEBl IN RELATIONSHIP TO CAPITAL (1) IN 1984 CORPORATE EQUITY ON AN AGGREGATE BASIS ACTUALLY DECLINED IN A SIGNIFICANT AMOUNT AND HAS CONll NU[D TO DECLINE IN 1985 MEANWHILE, CORPORATE DEBT ROSE BY OVER (7.) $180 BILLION IN 1984 AND HAS CONTINUED TO RISE SO FAR IN 1985 C. SUBSlllUTION OF DEBT FOR EQUITY INCREASES THE VULNERABILITY OF CORPORATIONS 10 ECONOMIC Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SK DRAFT (2) DES MOINF.S 11/14/85 PAGE 13 SETBACKS, ESPECIALLY IF THE DEBT IS CONCENTRATED IN SHORT TF.RM MATURITIES 3. AND THEN THERF. IS THE MASSIVE BUILDUP OF FEDERAL DEBT FUELED BY A. THF BUDGET DEFICIT - WHICH CONTINUES AT RECORD LEVELS B. DEFICIT RESULT IN DEBT (1) HAS RISEN DRAMATICALLY OVER PAST DECADE (2) WILL SURPASS $2-TRILLION WITHIN THE YEAR (3) OVFR S750MM EVERY WORKING DAY; SOME $3.9 BILLION PER WEEK 4. 1N SHORT, ACROSS ALL SEGMENTS OF OUR ECONOMY/SOCIETY A. HAVE BECOME VERY LEVERAGED B. RATHER ODD - UNDERSTANDABLE IN PERIODS OF HIGH INFLATION - BUT INFLATION NOW UNDER MUCH Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SK DRAFT (2) DES MOINES 11/14/85 PAGE 14 BFTTER CONTROL - YET THE DRIVE TOWARD HIGHER OF.BT LEVELS CONTINUES C. INTRODUCED AN ELEMENT OF CONSIDERABLE INSTABILITY (1) VULNERABLE TO ADVERSE DEVELOPMENTS V. BUT DESPITE THESE RISKS ANJ AS 1 EARLIER SUGGESTED, THE OUTLOOK IS FOR CONTINUED GROWTH OF 2-1/2 TO 3% A. THIS FOLLOWING MUCH LOWER GROWTH IN THE FIRST HALF OF THIS YEAR ~~~ B. BUT CONSUMPTION HAS BEEN MQVING AIIEAD EVEN MORE RAPIDLY THAN THE GROWTH IN OUTPUT AND THIS IS REALLY THE CRITICAL ISSUE 1. CONSUMPTION INCREASED AT AN ANNUAL RATE OF 4-1/2% IN FIRST 9 MONTHS VERSUS 2% GROWTH IN GNP DURING SAME PERIOD Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SK DRAFT (2) DES MOINES ll/lq/85 PAGE 15 2. FROM A CONSUMPTION POINT OF VIEW, THE CURRENT AND PROSPECTIVE ECONOMIC SITUATION IS STRONG 3. IN FORMER TIMES (BEFORE THE ADVENT OF ENORMOUS TRADE DEFICITS) HIGH LEVELS OF CONSUMPTION WOULD o--1 o-tye/4'Jt.QJ HAVF BEEN BY HIGH LEVELS OF OUTPUT CGNP) 4. WE ALL WOULD HAVE VIEWED THIS AS STRONG PERFORMANCE, PARTICULARLY IN LIGHT OF THE FACT THAT WF. HAVE NOW COMPLETED THF. THIRD YEAR OF THIS EXPANSION CYCLE C. THE FRUSTRATING ASPECTS OF ALL OF THIS - WHAT IS SO ESPECIALLY DISCOURAGING 1. THE LACK OF MORE VIGOROUS GROWTH 2. GIVF.N THE FISCAL AND MONETARY STIMULUS THAT THE ECONOMY HAS RECEIVED - WE HAVF. BF.EN PUSHING THIS ECONOMY VERY HARD Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SK DRArT (2) DES MOINES 11/1~/85 PAGE 16 VI. FISCAL POI ICY HAS CLEARLY BFEN HIGHLY STIMULATIVE A. BUDGET OUTLAYS OF THE FEDERAL GOVERNMENT HAVE BEEN AND WILL CONTINUE TO BE VERY LARGE B. AS YOU WF. I L KNOW, SUBS TANT I ALLY FI NAN CED BY A- 5299 :t/4- ~ ~~ 1ef ~ /2.J;,v~ litttt:QN DEF ICIT~TH1S [ISCAL Y~R ~.~;::r:~/:'f:t:!,:::t':c~-:~~a...o,.j' TO $1RQ B11 I 1O~ NE><l YEAR C. DFFICIT SPENDING, EVEN 5% OF GNP, NOT UNUSUAL IN A RECESSION - INDEED, APPROPRIATE 1. J THIS IS THE FIRST TIME IN HISTORY THAT ~ ~~~ F- . rs HAVE BEEN THIS HIGH so FAR INTO THE RECOVERY - THIRD YEAR. ABSOL.UTEL Y BRAND NEW EXPERIENCE 2. RAISES OMINOUS QUESTION AS TO THE OUTLOOK FOR THE DEFICIT WHEN THF. NEXT RECESSION OCCURS A. WHAT MORE CAN WE DO? Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SK DRArT (2) DES HOINES 11/14/85 PAGE 17 3. BUl THE POINT IS WE HAVE HAD A HIGHLY STIMULATIVE FISCAL POI.ICY A.... II WQIII D HAVE BEEN RE.O.SONABLE TO ~XPE"CT &llER iCONOMIC RiSUblS IN A PRG9UClIVE SENSE VII. MONETARY POLICY ALSO ACCOMMODATIVE A. WHETHER MEASURED BY 1. INTEREST RATE DECLINES 2. INCREASES IN RESERVE SUPPLIES 3. OR THF. GROWTH OF THE MONEl ARY AGGREGATES OUR TRADITIONAL MEASURES 4. Al L OF THESF INDICATE AN ACCOMMODATIVE MONETARY POLICY B. BUT THERE IS SOME DISPUTE ON THIS POINT - THE REACTIONS TO THE RAPID MONEY GROWTH EXPERIENCED THIS YEAR HAVE BEEN SHARPLY DIVIDED 1. MONETARISTS WOUID ARGUE THAT WE HAVE BEEN TOO STIMULATIVE OR EASY Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SK DRAFT (2) DES MOINES 11/14/85 PAGE 18 2. AND THAT WE ARE SETTING THE STAGE FOR RAPID INFLATION IN THE FUTURE C. BUT OTHERS WOULD ARGUE THAT THE SITUATION HAS CHANGED - THAT THE HISTORICAL RELATIONSHIP BETWEEN MONEY AND ~ ~ ~ ~ INCOME HAS GONE AWRY - c..-.-J 1 THAT BFCAIISF OE !HE BREAKB0WN IN iftlS RELATIONSHIP, OIIR POblCV CAN BE E'tlEN MORE ACCOP1M01'AT I VE D. BUT NO MATlER WHICH POLICY DOCTRINE YOU ARE PERSUADED BY - AT LEAST WE HAVE NOT BEEN RESTRICTIVE E. BUT DESPITE THE EXPANSIVE FISCAL AND MONETARY POL.ICIES, THE RESULTS IN TERMS OF PRODUCTIVE OUTPUT - GNP - ARE NOT AS GREAT AS COULD HAVE BEEN EXPECTED 1. BUT THE STIMULUS OF THESE POLICIES IS WORKING ON CONSUMPTION VIEWED IN A CONSUMPTION Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SK DRAFT (2) DES MOINES 11/14/85 PAGE 19 PERS PE CT I VE , WE ARE OPERA TI NG I N A VERY STRONG ECONOMY r.: 2. AS l HAVE POINTED OUT, CONSUMPTION HAS BEEN / • :_.,/· GROWING AT A RAPID RATE BUT NOT OUTPUT 3. SOMElHING IS VERY DIFFERENT HERE - "LHINGS AREN'T C<-{...:;B~I~ mo ~/11[¥ 'I'd VI I I . WHAJ IS CHrEREPJT? - WHY ARE OUR NORMAL TOOLS FOR 1Q. ~ v,J ~ r-.:, REMEDYING OUR ECONOMIC ILLS NOT WORKING?~ IT'S THE, -~ ~'-.l~ IA-N~ ADVENT OF A GLOBAi. INTERNATIONAL ECONOMY - W~ ~ ~ N ~ A. ONE THING HAS BECOME PERFECTLY CLEAR - THE RAMIFICATIONS NOT FULLY APPRECIATED - WE ARE OPERATING IN A WORLDWIDE ECONOMY - WE ARE INEXTRICABLY INVOLVED IN A BROAD INTERNATIONAL MARKET WHERE PRODUCTS, SERVICES AND CAPITAL MOVE FREELY FROM MARKET TO MARKET Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SK DRAFT (2) DES MOINES 11/14/85 PAGE 20 1. EVENTS TAK I NG PLACE All OVER THE WORLD HAVE A DIRECT IMPACT ON OUR MARKETS AND OUR INSTITUTIONS 2. PERHAPS THE MOST SIGN IF I CANT DEVELOPMENT OF OUR MOST RECENT EXPERIENCE B. WE HAVE BECOME EXPOSED TO THE FULL FORCE OF THE INTERNATIONAL MARKETS 1. HE RE l OF ORE OUR DOMESTIC MARKETS WERE REASONABLY ISOLATED 2. WE ENJOYED COMPETITIVE ADVANTAGES FROM THE ASPECTS OF BOTH PRICE AS WELL AS PRODUCT TECHNOLOGY C. AND THESE FACTORS WHICH GAVE US AN EDGE IN DOMESTIC MARKETS ALSO PROVIDED COMPETITIVE ADVANTAGES IN MANY EXPORT MARKETS D. BUT NOW WE'VE LOST IN BOTH THE DOMESTIC AND THE EXPORT MARKETS Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SK DRAFT (2) DES MOINES ll/lq/85 PAGE 21 1. THE CHANGES THAl HAVE EVOLVED OVER THE PASl FEW YEARS ARE INCREASINGLY TAKING ON PERMANENT CHARAC1ERIS1ICS - IT WILL BECOME. VERY DIFFICULT 10 RE.GAIN OUR MARKET POSITIONS E. THIS HAS ENORMOUS IMPLICAlJONS ON ALL SECTORS OF OUR • ECONOMY 1. MANUFAClURING - 10 SOME SIGNIFICANl EXlENT. OUR PRODUCllVE CAPACITY HAS BEEN SHIFlED OVERSEAS A. A CONTINUED DECLINE IN THE VALUE OF THE DOLLAR WILL BE OF IMPORTANl HELP B. BUT CAPACllY LIMilATIONS MAY FRUSlRATE A SHIFT BACK TO DOMESTIC SOURCES C. AND 11 WOULD TAKE A VERY LARGE DE CL I NE 10 OVERCOME THE NEGATIVE DIFFENTIAL IN WAGE RATES 2. BUl lHESE INTERNAllONAL IMPLICATIONS HAVF BEEN PARTICULARLY DRACONIAN FOR AGRICULTURE Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SK DRAFT (2) DES MOINES 11/1~/85 PAGE 22 A. EXPORT SHIPMENTS OF AGRICULTURAL COMMODITIES ~d-..P..,~ G.{2J2..hJ ~ a.,,..J ~CAAJ~ /9?():S PEAKED Al 160 MILLION METRIC lONS IN 1980 .,tl,..,., ex-1 ( 1-~ F.:XPARI S GReW .t.T AH ,tcNNtl~L RA IE OF N UlJ9'r - FAR OUTPACING DOMESTIC CONSUMPTION (2) EXPORlS HAVE DECLINED MORE THAN 20% SINCE PEAK - STILL VERY IMPORTANT TO PRODUCTION OF GRAINS AND FEEDS (A) 1/~ OF CORN CROP; 1/2 OF WHEAT AND SOYBEANS EXPORTF.D IN FISCAL 1985 ~ B. INCREASING PRODUCllVE CAPABILITY IS A WORLDWIDE PHENOMENON - INTERNATIONAL MARKETS MUCH MORE COMPETITIVE - NAT l ONS PREVIOUSLY ~ 'iAt' ~~.J ~ ~ OUR CUSTOMlRS ARE NOW OUR COMPETITORS I\ Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SK DRArT (2) DES MOINES 11/14/85 PAGE 22-A ( 1) CH I NE SE FARMERS ARE PRODUCING RE CORD or CROPS WHEAT, COARSE GRAINS AND RICE - SOME FOR EXPORT (2) THE SAUDIS ARE GENERAlING WHEAT SURPLUSES AT RECORD LEVELS (3) INOIA IS RAPIDLY APPROACHING SELF-SUFFICIENCY (~) EEC IIAS BEEi'; N~T EXPORTER OF wHEAl Sll~EE ., .. OTE 1~70S; FEED GRAINS LAST TWO YEARS f- NO t-A.£¥ SOL.Ul ION 10 Hl~SE PROB! F~S A • ~ 1.0 U~ L ¥ F ACE O B¥ A VERY IH I= f" I CI d L 1 AD 111 S] ltf N-T .ae: e1 oe ;I',w 11,..,," ~t ,,,/IN~/ ~ IX. W['VE GOT AN EXCEEDINGLY TOUGH DILEMMA TO RESOLVE Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SK DRAFT (2) DES HOINES 11/14/85 PAGE 23 A. WE'VE STIMULATED THE FLOW OF FOREIGN CAPITAL INTO THE U.S. 1. OUR FEDERAL BUDGET DEFICITS HAVE BEEN SUBSTANTIALLY FINANCED BY IMPORTED CAPITAL 2. WITHOUT THESE CAPITAL FLOWS, WE SIMPLY WOULD NOl HAVE HAD THE RECOVERY THAT WE'VE EXPERIENCED OVER THE LAST FEW YEARS B. AND WITH OUR TRADE DEFICIT SO LARGE, WE HAVE BECOME A NET DEBTOR NATION FOR lHE FIRST TIME SINCE 1914 1. AT CURRENT RATES WE WILL BECOME THE LARGEST DEBTOR NATION IN THE WORLD SOMETIME NEXT YEAR 2. SERVICING THIS EXTERNAL DEBT HAS SOME NEGATIVE IMPLICATIONS FOR OUR DOMESTIC CONSUMPTION LEVELS - BY THAT I MEAN OUR STANDARD OF LIVING 3. lHE LATIN AMERICAN SITUATION HAS AN UNCOMFORTABLE RING OF FAMILIARITY WITH OUR OWN PREDICAMENT Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SK DRAFT (2) DES MOINES 11/14/85 PAGE 24 4. NOT SURE THAT, AS A SOCIETY, WE HAVE YET FOCUSED ON THIS VERY MAJOR POLICY ISSUE C. FACETIOUSLY, WHAT WE NEED IS A 2-TJER OF COURSE, I IMPOSSIBLE TO STRUCTURE 1. THE 2. nu, X. IT'S BECOME CLEAR THAT WE CAN'T ISOLATF OURSELVES - WE ARE PARl OF THE WORLD MARKETS IN EVERY SENSE A. PROTECTIONISM WON'T WORK 1. THE RFTALIATORY EFFECTS WOULD BF DEVASTATING ?.. PARTICULARLY SO FOR AGRICULTURE B. WE MUST HAVE ACCESS TO THE WORLD MARKETS Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SK DRAFT (2) DES MOINES 11/14/85 PAGE 25 1. AND lHE LESSER DEVELOPED COUNTRIES THAT ARE BURDENED WITH ENORMOUS EXTERNAL DEBTS MUST ALSO HAVE ACCESS TO THE WORLD MARKETS INCLUDING OUR OWN 2. TO GENERATE EARNINGS TO PROVIDE A MEANS OF REPAYING THEIR EXTERNAL DEBTS 3. THE DEFAULT OF THESE OBLIGATIONS WOULD BE RUINOUS FROM POLITICAL AND FINANCIAL PERSPECTIVES C. THE CONT I NUA T1 O N OF OUR EXPANSION - AND THE WORLD WIDE EXPANSION - ARE CRITICALLY IMPORTANT 1. IN EFFECT, WE ARE IN THE NARROW PART OF THE PASS - MANEUVERING ROOM AT THIS POINT IS VERY TIGHT 2. THERE HAVE BEEN IMPORTANT NEW INITIATIVES DEVELOPED DURING THE PAST FEW WEEKS - 'W0 wt_,•~ b ~ ~ ~ """~v~ ,t ~., A. COORDINATED INTERVENTION BY THE MAJOR CENTRAL BANKS TO BRING BETTER ALIGNMENT TO THE ~ EXCHANGE CURRENCIES - PART I CUI.ARLY DOLLARS - Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SK DRAFT (2) DES HOINF.S 11/14/85 PAGE 26 B. NEW INITIATIVES TO PROVIDE THE LESSER DE VE LOPED COUNTRIES AN OPPORTUNITY TO GROW ECONOMICALLY C. THE SUCCESS OF TH~RAMS VERY IMPORTANT XI. 10 CONCLUDE, HOPEFULLY ON AN OPTIMISTIC NOTE A. AS I'VE SUGGESTED, THE ECONOMIC OUTLOOK IS FAVORABLE B. WE FACE SOME VERY DIFFICULT ISSUES - THE BUILDUP OF IMBALANCES IN THE SYSTEM 1. POSE SIGNIFICANT RISK TO ECONOMIC PERFORMANCE 2. THE COMMON DENOMINATOR IN THESE IMBALANCES IS THE FEDERAL BUDGET DEFICIT A. GONTINUHJG COMPLICATES THE PICll:IRE 1'ND E.XACERBATES TIIE PROBLEMS ~· B. RESOLVING VEXING PROBLEM WOULD GREATLY ~ FACILITATE THE ADJUSTMENT PROCESS C. IT REALLY IS THE CRITICAL ISSUE Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SK DRAFT (2) DES MOINES 11/14/85 PAGE 27 C. BUT WE'VE FACED SOME DIFFICULT ISSUES IN THE PAST AND WE HAVE A GOOD RECORD OF SUCCESS 1. THINK BACK TO THE LATE 197OS - HIGH RATES OF INFLATION A. lHE EXPECTATION WAS INFLATION WOULD ONLY ACCELERATE TO EVEN HIGHER LEVELS B. BUT WE FOUND A SOLUTION TO THAT PROBLEM 2. lHE RECESSION OF 81 - '82 1 A. VERY DEEP, VERY SERIOUS, PARTICULARLY IN OUR PART OF THE COUNTRY B. AND WE'VE COME THROUGH THAT C. AS I SUGGESTED EARLIER, THE RECENT RECOVERY HAS BEEN COMPARATIVELY STRONG D. ADMilTEDLY UNEVEN 3. THAN OUR RECENT EXPERIENCE WITH DISINFLATION Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SK DRAFT (2) DES MOINES ll/lLU85 PAGE 28 A. THE RIPPLE EFFECTS OF TH IS HAVE AND ARE PERMEATING OUR WHOLE FINANCIAL SYSTEM B. ADVERSE EFFECTS ON ENERGY, AGRICULTURE, REAL ESTATE C. AGAIN, TOUGH ADJUSTMENTS, BUT WE RE COM I NG I THROUGH THEM C. AND NOW WE ARE FACING THIS INTERNATIONAL CHALLENGE - THE NEW ELEMENT AS I SEE IT 1. BUl IT ALSO CAN BE AN OPPORTUNITY 2. WHEN WE COME THROUGH THE ADJUSTMENT, WE WILL BE BElTER EQUIPPED TO COMPETE IN THE. INTERNATIONAL MARKETS D. GIVEN OUR RECORD, I HAVF. CONFIDENCE WE WILL WORK THROUGH THIS ONE AS WELL [. AND ON THAT OPTIMISTIC NOTE, LET ME CONCLUDE * * * * * Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis

Silas Keehn (1985, November 13). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_19851114_silas_keehn

@misc{wtfs_regional_speeche_19851114_silas_keehn,
  author = {Silas Keehn},
  title = {Regional President Speech},
  year = {1985},
  month = {Nov},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_19851114_silas_keehn},
  note = {Retrieved via When the Fed Speaks corpus}
}