Regional President Speech

SILAS KEEHN FINANCIAL WOMEN INTERNATIONAL ANNUAL CEO NIGHT MAY 14, 1992 - PAGE 1 I. GLAD TO BE HERE AT THIS TIME THIS YEAR - AND THAT IT'S NOT THIS TIME LAST YEAR. A. IF YOU REFLECT BACK, LAST YEAR AT THIS TIME THE ECONOMIC OUTLOOK WAS QUITE POSITIVE. 1. THE ACTIVITIES IN THE GULF AREA HAD BEEN SUCCESSFULLY RESOLVED. 2. THE ENORMOUS IMPACT ON CONFIDENCE AND OVERALL ACTIVITY THAT THE BREAKOUT OF HOSTILITIES IN THE MIDEAST HAD CAUSED HAD PASSED. 3. CONFIDENCE WAS RESTORED, ECONOMIC ACTIVITY BEGAN TO PICK UP. 4. THERE WAS EVERY EXPECTATION THAT AS 1991 WE WENT THROUGH THE BALANCE OF THERE WOULD BE A PICK-UP IN OUR ECONOMY THAT WOULD BE REFLECTED IN A QUARTERLY INCREASE IN THE GROWTH OF THE GDP. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN FINANCIAL WOMEN INTERNATIONAL ANNUAL CEO NIGHT MAY 14, 1992 - PAGE 2 5. WHILE THE FORECASTED INCREASES MAY NOT HAVE BEEN LARGE, AT LEAST IN HISTORICAL STANDARDS, NONETHELESS, A PATTERN OF QUARTERLY IMPROVEMENT SEEMED TO BE A VERY REASONABLE EXPECTATION. 8. WELL, IT DIDN'T WORK OUT THAT WAY. 1. FOLLOWING THE NEGATIVE RESULTS IN 1990 THE FOURTH QUARTER OF AND THE 1991, FIRST QUARTER OF WE DID HAVE POSITIVE GROWTH IN THE SECOND AND THIRD QUARTERS OF LAST YEAR. 2. BUT THEN THE SURPRISE, AND CERTAINLY THE DISAPPOINTMENT. A A. SIGNIFICANT REDUCTION IN THE RATE OF ECONOMIC GROWTH IN THE FOURTH QUARTER. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN FINANCIAL WOMEN INTERNATIONAL ANNUAL CEO NIGHT MAY 14, 1992 - PAGE 3 C. WHAT HAPPENED? -- WHY DID A FORECAST THAT WAS SO WIDELY ANTICIPATED GO OFF THE TRACK? 1. THE ANSWER TO THIS QUESTION DOESN'T JUST SIMPLY EXPLAIN AN INCORRECT FORECAST. 2. I RATHER, THINK IT IS A MUCH MORE FUNDAMENTAL ISSUE THAN THAT AND HAS A DECIDED BEARING ON THE OUTLOOK FOR THE FUTURE. II. BUT TO PUT ALL THIS IN A PROPER PERSPECTIVE, I THINK IT IS IMPORTANT TO GO BACK AND LOOK AT THE LAST DECADE -- AND TO TRY AND UNDERSTAND THE LEGACY OF THE 1980s. A. LET ME JUST QUICKLY REFLECT BACK ON THE HIGHLIGHTS OF THAT IMPORTANT ECONOMIC PERIOD. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN FINANCIAL WOMEN INTERNATIONAL ANNUAL CEO NIGHT MAY 14, 1992 - PAGE 4 ~~~.~~Jst-__,I r,;; 1. PERIOD FROM THE END OF 1982 THROUGH MID-1990 WAS A PERIOD OF LONG AND STRONG GROWTH. 2. THE LONGEST PEACETIME EXPANSION IN OUR HISTORY. A. AN EXPANSION EXCEEDED IN LENGTH ONLY BY THE EXPANSION OF 1960-1969; VIETNAM WAR/GUNS AND BUTTER. 3. NOT ONLY LONG, BUT A PERIOD OF VERY STRONG GROWTH. A. AN AVERAGE ANNUAL COMPOUND GROWTH RATE OF 3-1/2%. B. IN ANY HISTORICAL CONTEXT, THAT WAS COMPARATIVELY AN EXCEPTIONAL RECORD. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN FINANCIAL WOMEN INTERNATIONAL ANNUAL CEO NIGHT MAY 14, 1992 - PAGE 5 4. AND PERHAPS THE MOST EXCITING PART, DURING THAT PERIOD WE ADDED SOME 22 MILLION NEW JOBS TO OUR EMPLOYMENT POOL. A. AN EXPERIENCE UNPARALLELED IN THE OTHER INDUSTRIALIZED COUNTRIES. 8. BUT AS WE WENT THROUGH THAT PERIOD SOME VERY SIGNIFICANT IMBALANCES DEVELOPED AND BECAME EMBEDDED IN OUR FINANCIAL SYSTEM. 1. AND THE CORRECTIVE PROCESS OF DEALING WITH THESE IMBALANCES IS WHAT HAS IMPEDED OUR LEVEL OF ECONOMIC ACTIVITY. C. THE DECADE OF THE '80s (THAT 7-1/2 YEAR I PERIOD THAT NOTED) HAD SOME DECIDEDLY DIFFERENT CHARACTERISTICS. As A START, IT WAS A CONSUMPTION DECADE. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN FINANCIAL WOMEN INTERNATIONAL ANNUAL CEO NIGHT MAY 14, 1992 - PAGE 6 1. OUR CONSUMPTION LEVELS WERE CONSIDERABLY HIGHER THAN OUR PRODUCTION LEVELS. 2. THIS EXTRAORDINARILY HIGH LEVEL OF CONSUMPTION WAS TO A LARGE DEGREE FINANCED WITH DEBT THAT BECAME ABSOLUTELY ENDEMIC TO OUR SYSTEM. 3. DEBT LEVELS INCREASED AT RATES THAT WERE DRAMATICALLY HIGHER THAN THE UNDERLYING ECONOMY. A A. SHARP BREAK WITH THE HISTORICAL PATTERN. D. To SOME CONSIDERABLE EXTENT THE FINANCING OF THIS DEBT CAME IN THE FORM OF CAPITAL FLOWS FROM THE INTERNATIONAL MARKETS. 1. As A RESULT, THE PROPORTION OF OUR TOTAL DEBT OWED TO FOREIGNERS INCREASED. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN FINANCIAL WOMEN INTERNATIONAL ANNUAL NIGHT CEO MAY 14, 1992 - PAGE 7 2. WE ARE NOW IN THE BUSINESS OF SERVICING THIS DEBT. 3. THIS MEANS THAT LESS INCOME IS AVAILABLE FOR DOMESTIC PURPOSES. A. fOR CAPITAL EXPENDITURES FOR EXAMPLE. I B. AN ISSUE THAT THINK WE ARE JUST NOW BEGINNING TO FOCUS ON. E. IF WE HAD SPENT THE PROCEEDS OF THIS DEBT FOR PRODUCTIVE PURPOSES, 1. THE KINDS OF INVESTMENTS THAT WOULD HAVE GENERATED EARNINGS TO REPAY THE DEBT, THAT WOULD HAVE BEEN FINE. 2. BUT THAT WASN'T THE CASE -- TO A LARGE EXTENT THE FUNDS WERE USED FOR CONSUMPTION RATHER THAN INVESTMENT. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN FINANCIAL WOMEN INTERNATIONAL ANNUAL CEO NIGHT MAY 14, 1992 - PAGE 8 3. As A RESULT, WE WERE LEFT WITH THE DEBT BUT WITHOUT THE IMPROVED SOURCES OF CASH GENERATION TO REPAY IT. III. THIS INCREASED LEVEL OF DEBT WAS APPARENT IN EACH OF THE MAJOR SEGMENTS OF OUR FINANCIAL ECONOMY. A. IN THE CONSUMER SECTOR, CONSUMER INSTALLMENT LOANS AND OTHER FORMS OF HOUSEHOLD DEBT RELATIVE TO DISPOSABLE INCOME ROSE TO DISTURBINGLY HIGH LEVELS. 1. WE ENDED THE PERIOD WITH AN AVERAGE CONSUMER THAT WAS STRETCHED AND ON A CONSOLIDATED BASIS THE CONSUMER SECTOR WAS LEVERAGED TO THE POINT OF SOME POTENTIAL INSTABILITY. 8. IN THE CORPORATE SECTOR WE SAW A SIMILAR AND MASSIVE BUILDUP OF DEBT. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis KEEHN SILAS FINANCIAL WOMEN INTERNATIONAL ANNUAL CEO NIGHT MAY 14, 1992 - PAGE 9 1. A PERIOD OF UNENDING MERGERS, TAKEOVERS, FINANCIAL RESTRUCTURINGS, AND OTHER SIMILAR TRANSACTIONS. 2. THESE TRANSACTIONS WERE FREQUENTLY FINANCED BY DEBT, NOT EQUITY. A. INDEED, IN THE PROCESS EQUITY WAS REDUCED, MEANING THAT DEBT-TO-WORTH RATIOS ROSE INEXORABLY. 3. WE ENDED THE DECADE WITH A CORPORATE DEBT-TO-WORTH RATIO WHICH WAS, IN MY VIEW, AT DISTURBINGLY HIGH LEVELS LEVELS THAT SUGGESTED THAT THIS SECTOR TOO WAS IN A SOMEWHAT DESTABILIZED SITUATION. C. STATE AND LOCAL GOVERNMENTS ONLY ADDED TO THE PROBLEM. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN FINANCIAL WOMEN INTERNATIONAL ANNUAL CEO NIGHT MAY 14, 1992 - PAGE 10 1. ON A CONSOLIDATED BASIS, THESE ENTITIES NORMALLY EXPERIENCE A BUDGET SURPLUS. 2. THIS HAS OFFSET TO SOME EXTENT THE DEFICITS EXPERIENCED AT THE FEDERAL LEVEL. 3. THIS WAS NOT THE CASE IN THE LATE 1980s -- QUITE THE OPPOSITE, ON A CONSOLIDATED BASIS STATE AND LOCAL GOVERNMENTS RAN SIGNIFICANT DEFICITS WHICH COMPOUNDED THE PROBLEM. D. FINALLY, THE FEDERAL BUDGET DEFICIT 1. A PROBLEM THAT SPEAKS FOR ITSELF. 2. l AND INDEED WILL SPEAK TO IT A LITTLE LATER. E. NET, WE ENDED THE DECADE IN A VERY LEVERAGED POSITION. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN FINANCIAL WOMEN INTERNATIONAL ANNUAL CEO NIGHT MAY 14, 1992 - 11 PAGE 1. WITH THE MAJOR SECTORS OF OUR SYSTEM THAT WERE VULNERABLE AND EXPOSED WHEN THE ECONOMIC EXPANSION ENDED 2. AND THAT WAS CERTAINLY TRUE OF THE FINANCIAL INSTITUTIONS THAT PARTICIPATED IN ALL OF THIS BY EXTENDING SO MUCH CREDIT. 3. THERE WERE EXPECTATIONS BY SOME THAT INFLATION WOULD RISE, PUSHING ASSET VALUES TO EVER INCREASING LEVELS. 4. IN ESSENCE, THAT A RETURN OF INFLATION WOULD BAIL OUT THE PROBLEM. 5. BUT THAT TURNED OUT TO BE AN UNREALISTIC EXPECTATION. IV. To SAY THE LEAST, AS WE WENT THROUGH THIS PERIOD OUR FINANCIAL INSTITUTIONS HAD TO COPE WITH VERY DIFFICULT CIRCUMSTANCES. AN UNENDING SERIES OF CHALLENGES. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN FINANCIAL WOMEN INTERNATIONAL ANNUAL CEO NIGHT MAY 14, 1992 - PAGE 12 A. DEREGULATION. 1. VOLATILE INTEREST RATES. 2. COMPETITION FROM NON-REGULATED SERVICES. 3. To NAME JUST A FEW. B. As WE CAME OUT OF THE 198Os (ON A CONSOLIDATED BASIS) THE BANKING INDUSTRY WAS CLEARLY IMPAIRED. 1. NONPERFORMING ASSETS HAD RISEN TO VERY HIGH LEVELS. 2. LOAN LOSS PROVISIONS TO DEAL WITH THESE CLASSIFIED ASSETS WERE A CONTINUING DRAG ON EARNINGS QUARTER AFTER QUARTER. 3. CAPITAL POSITIONS WERE SERIOUSLY WEAKENED. 4. AND THERE WERE SOME PRETTY DIRE PREDICTIONS ABOUT THE OUTLOOK FOR THE BANKING SYSTEM. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN FINANCIAL WOMEN INTERNATIONAL ANNUAL CEO NIGHT MAY 14, 1992 - PAGE 13 8. THE LEGACY OF THE '80s THEN CAN BE SUMMARIZED AS 1. A PERIOD OF VERY HIGH CONSUMPTION 2. WITH RESULTING BALANCE SHEETS, CORPORATE, CONSUMER, AS WELL AS GOVERNMENTAL THAT HAD BECOME TERRIBLY LEVERAGED 3. AND FINANCIAL INSTITUTIONS THAT ON A CONSOLIDATED BASIS WERE MUCH WEAKER THAN THEY WERE IN THE 1970s. 4. IN OTHER WORDS, A FINANCIAL AND ECONOMIC SYSTEM THAT HAD BECOME DISTORTED BY THE IMBALANCES THAT I NOTED A MOMENT AGO. C. THE PROCESS OF ADJUSTING TO THESE IMBALANCES HAD A MAJOR EFFECT ON THE LEVEL OF ECONOMIC ACTIVITY LAST YEAR. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN FINANCIAL WOMEN INTERNATIONAL ANNUAL CEO NIGHT MAY 14, 1992 - PAGE 14 1. WE ALL KNEW THAT WE WERE GOING TO HAVE TO GO THROUGH A CORRECTIVE PROCESS. 2. WHAT WE FAILED TO FULLY APPRECIATE OR FULLY QUANTIFY WAS THE IMPACT THAT THIS CORRECTION WOULD HAVE ON THE LEVEL OF ECONOMIC ACTIVITY. 3. AND THAT, IN MY VIEW, IS THE REASON I THAT THE FORECAST THAT WOULD HAVE GIVEN YOU AT THIS TIME LAST YEAR WOULD NOT HAVE WORKED OUT. V. THAT HAVING BEEN SAID, LET ME QUICKLY SHIFT TO A MORE POSITIVE OUTLOOK. A. AND THERE REALLY IS A SOLID BASIS FOR A MORE POSITIVE OUTLOOK. 1. THE IMBALANCES, WHILE CERTAINLY NOT FULLY RESOLVED, ARE IN A MUCH BETTER PERSPECTIVE. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN FINANCIAL WOMEN INTERNATIONAL ANNUAL CEO NIGHT MAY 14, 1992 - PAGE 15 A. HAVE GONE A LONG WAY THROUGH THE CORRECTIVE PROCESS. 8. CONSUMER INSTALLMENT DEBT IS BEING REDUCED. 1. 1991 FOR THE FULL YEAR ON A NET BASIS CONSUMER INSTALLMENT DEBT DECLINED, THE FIRST ANNUAL DECLINE 1958. SINCE 2. THERE IS NO QUESTION BUT THAT WE ARE DEALING WITH A MUCH MORE CONSERVATIVE CONSUMER TODAY THAN WAS THE CASE JUST A FEW YEARS AGO. 3. FROM THE POINT OF VIEW OF THE FINANCIAL SYSTEM, THIS IS A GOOD THING BUT OFFSETTING THIS, OF COURSE,~NSUMERS WILL BE MUCH MORE CAREFUL IN THEIR EXPENDITURE DECISIONS AND GIVEN THE IMPORTANCE OF CONSUMPTION TO OUR Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN FINANCIAL WOMEN INTERNATIONAL ANNUAL CEO NIGHT MAY 14, 1992 - PAGE 16 OVERALL ECONOMY, THIS DOES HAVE MODERATING IMPLICATIONS FOR THE ECONOMIC OUTLOOK. C. CORPORATIONS HAVE ALSO RETURNED TO THE BASICS. 1. THERE HAS BEEN AN ENORMOUS CHANGE IN ATTITUDES REGARDING THE COMFORT LEVEL THAT CORPORATIONS HAVE ABOUT THE LEVEL OF DEBT IN THEIR BALANCE SHEETS AND THE STRUCTURE OF THE DEBT. 2. As A RESPONSE TO THIS CONCERN, THERE HAS BEEN A RECENT SURGE IN THE PUBLIC ISSUANCE OF BONDS BY CORPORATIONS. A. ABOUT $180 BILLION AT AN ANNUAL RATE WAS ISSUED IN THE FIRST QUARTER OF 1992. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN FINANCIAL WOMEN INTERNATIONAL ANNUAL CEO NIGHT MAY 14, 1992 - PAGE 17 B. THESE ISSUES ARE REFINANCING DEBT THAT HAD VERY SHORT MATURITIES AND AT MUCH LOWER INTEREST RATES. 3. IN ADDITION, NEW EQUITY OFFERINGS ARE TAKING PLACE AT RECORD LEVELS. A. NEARLY $70 BILLION AT AN ANNUAL RATE IN THE FIRST QUARTER OF 1992. (1) SIGNIFICANT PERCENT BY COMPANIES WHO HAVE LOWER RATED DEBT. 4. As A RESULT, FOR THE FIRST TIME SINCE 1983 ON A CONSOLIDATED BASIS, WE ARE EXPERIENCING AN INCREASE IN NET EQUITY. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN FINANCIAL WOMEN INTERNATIONAL ANNUAL CEO NIGHT MAY 14, 1992 - PAGE 18 A A. SHARP CHANGE FROM THE STEADY REDUCTION IN NET EQUITY THAT RESULTED FROM THE MERGERS AND TAKEOVERS THAT TOOK PLACE AT A RAPID 1980s. SUCH PACE IN THE 5. THE RECENT BALANCE SHEET RESTRUCTURINGS HAVE IMPROVED CORPORATE CAPITAL POSITIONS AND HAVE RESULTED IN A SIGNIFICANT DECLINE IN NET INTEREST PAYMENTS RELATIVE TO CASH FLOW. 0. IN ADDITION, THE CONDITION OF OUR IMPROVING, FINANCIAL INSTITUTIONS IS ALBEIT MORE SO FOR SOME INSTITUTIONS THAN FOR OTHERS. 1. THE EARNINGS PICTURE FOR MOST BANKS IS CONSIDERABLY BRIGHTER. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN FINANCIAL WOMEN INTERNATIONAL ANNUAL CEO NIGHT MAY 14, 1992 - 19 PAGE 2. NONPERFORMING ASSETS HAVE LEVELED AND ARE BEGINNING TO MOVE DOWN A BIT. 3. LOAN LOSS PROVISIONS ARE NOT PUTTING THE PRESSURE ON EARNINGS THAT WAS THE CASE FOR SO MANY YEARS. 4. WIDER INTEREST RATE SPREADS ARE ALSO IMPROVING THE EARNINGS OUTLOOK. 5. AT THIS POINT, LOAN LOSS RESERVES IN MOST CASES, NOT ALL, BUT MOST, SEEMED ADEQUATE TO DEAL WITH THE CURRENT PROBLEMS. 6. NET, FOR THE BANKING INDUSTRY, ALL OF THE VITAL SIGNS SEEM VERY MUCH BETTER NOW THAN WAS THE CASE JUST A YEAR AGO. E. THIS HASN'T JUST HAPPENED. 1. BANK MANAGEMENTS HAVE MADE IT HAPPEN. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN FINANCIAL WOMEN INTERNATIONAL ANNUAL CEO NIGHT MAY 14, 1992 - 20 PAGE 2. MUCH MORE CAREFUL IN CREDIT EXTENSION. 3. CRUNCH. 4. EXAMINER/CAPITAL. 5. SELF-CORRECTIVE PROCESS. VI. ADDING IT ALL UP, THE OUTLOOK THEN FOR THIS YEAR AND LEADING INTO NEXT YEAR IS BETTER. A. I'D HAVE TO ADMIT THAT IN A STATISTICAL SENSE OUR FORECAST FOR THIS YEAR IS NOT DRAMATICALLY DIFFERENT THAN WHAT WE EXPECTED FOR LAST YEAR. WE ARE 2. ANO~HER WAt 8F PQOKING AT IT I& ON A 4TH QUARTER-TO-4TH QUARTER BASIS~ OUR EXPECTATION ON THIS BASIS IS -~ tl-z-:o/u ~ Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN FINANCIAL WOMEN INTERNATIONAL ANNUAL CEO NIGHT MAY 14, 1992 - PAGE 21 3. PARTICULARLY ENCOURAGING, THE OUTLOOK FOR INFLATION IS ALSO VERY POSITIVE. ~ 4. WE WOULD ANTICIPATE~ INFLATION AS CPI MEASURED BY THE WILL DECLINE TO 3% OR PERHAPS EVEN A LITTLE LOWER BY THE END OF THE YEAR. CZb-s 8. BUT IF IT DIDN'T WORK OUT LAST YEAR, HOW I IS IT THAT CAN BE EVEN GUARDEDLY OPTIMISTIC ABOUT THIS YEAR? 1. WE HAVE MADE, AS I HAVE EMPHASIZED, SIGNIFICANT PROGRESS IN DEALING WITH 198Os. THE IMBALANCES OF THE 2. THE INHIBITING EFFECT THAT THAT HAS HAD WILL BE RELIEVED AS WE GET FURTHER INTO THE YEAR. 3. AND IN A MONETARY POLICY SENSE, WE HAVE BEEN VERY RESPONSIVE DURING THIS RECENT PERIOD. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN FINANCIAL WOMEN INTERNATIONAL ANNUAL CEO NIGHT MAY PAGE 14, 1992 - 22 C. SINCE MID-199O, WE HAVE USED ALL OF THE MONETARY POLICY TOOLS AVAILABLE. 1. WE HAVE EASED POLICY THROUGH OUR OPEN MARKET OPERATIONS ON SOME 16 OCCASIONS. 2. WE HAVE REDUCED THE DISCOUNT RATE SIX TIMES AND 3. WE HAVE ALSO REDUCED RESERVE REQUIREMENTS ON DEPOSITORY INSTITUTIONS TWICE. 4. THIS HAS BEEN A VERY ACTIVE POLICY RESPONSE TO DEAL WITH A DETERIORATING ECONOMY. A. IF HISTORY IS ANY GUIDE -- AND I WOULDN'T BET AGAINST THE HISTORICAL RECORD -- SHOULD PRODUCE THE DESIRED RESULT. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN FINANCIAL WOMEN INTERNATIONAL ANNUAL CEO NIGHT MAY 14, 1992 - PAGE 23 5. OUR POLICY ACTIONS IMPACT THE ECONOMY ON A LAGGED BASIS BUT MY POINT IS THAT WE HAVE PUT A LOT OF "POLICY POWER" IN PLACE AND IT IS ,Je:;-t.AJ ENTIRELY POSSIBLE THAT WE ARE BEGINNING TO SEE THE EFFECT OF THIS. VII. LET ME CONCLUDE BY FINALLY DEALING WITH THE 11BIG IMPONDERABLE." A. I HAVE DELAYED MENTIONING IT UNTIL THE END FOR FEAR THAT THE REPETITIOUS MENTIONING~~~E SOME OF YOU TO LEAVE EARLY AND THE REST TO DOZE OFF. /) 1. I AM, OF COURSE, TALKING ABOUT THE FEDERAL BUDGET DEFICIT, OUR MOST INTRACTABLE IMBALANCE. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN FINANCIAL WOMEN INTERNATIONAL ANNUAL CEO NIGHT MAY 14, 1992 - PAGE 24 2. I WILL SPARE YOU A LONG MESSAGE BUT WILL SIMPLY SAY THAT NEVER IN THE HISTORY OF THIS COUNTRY HAVE WE ALLOWED DEFICITS RUN AT THE RELATIVE LEVELS THAT WE EXPERIENCED IN THE 1980s. 3. WHILE DEFICIT SPENDING IS QUITE A NORMAL EXPERIENCE DURING A RECESSION, PANIC, A WAR, OR A SIMILAR ADVERSE EXPERIENCE, 4. WHEN WE. HAVE COME OUT OF THAT TYPE OF EPISODE WE HAVE BROUGHT OUR BUDGETS BACK INTO BALANCE. 5. BUT IN THE 1980s, WE TURNED FROM ~ RECESSION TO RECOVERY HA&-CONTINUED TO EXPERIENCE FEDERAL BUDGET 5% DEFICITS THAT WERE AS HIGH AS OF GDP. THE Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN FINANCIAL WOMEN INTERNATIONAL ANNUAL CEO NIGHT MAY 14, 1992 - PAGE 25 A. NEVER BEFORE HAVE WE GONE SO FAR INTO A PERIOD OF POSITIVE ECONOMIC GROWTH WITH DEFICITS RUNNING AT THESE LEVE~ B. A REVIEW OF THE TREASURY DEBT Ni@flEQ IS INSTRUCTIVE. 1. THE TREASURY DEBT LEVEL WHICH FIRST $1 REACHED BILLION DURING THE CIVIL WAR, INCREASED RAPIDLY DURING WORLD I II. WARS AND 2. $300 1963 WE REACHED BILLION IN (TO SAY IT ANOTHER WAY, IT TOOK US ABOUT 100 $1 YEARS TO REACH BILLION, BUT 100 IN THE NEXT YEARS WE REACHED $300 BILLION). BUT IT TOOK JUST 12 $500 ANOTHER YEARS TO GET TO THE 1975. BILLION LEVEL IN Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN FINANCIAL WOMEN INTERNATIONAL ANNUAL CEO NIGHT MAY 14, 1992 - PAGE 26 3. THE DEBT LEVEL THEN DOUBLED TO A TRILLION JUST SIX YEARS LATER IN 1981 AND WE WILL REACH THE $4 TRILLION LEVEL BEFORE THE END OF THIS FISCAL YEAR. C. IT IS THE INEXORABLE AND ACCELERATING INCREASE IN THIS LEVEL OF DEBT AND THE INHIBITING EFFECT ON OUR MARKETS THAT IS SO WORRYING. 1. WHILE MANY PEOPLE HAVE MANY EXPLANATIONS AS TO WHY REAL INTEREST RATES ARE CURRENTLY SO HIGH, 2. CERTAINLY THE BURDEN OF THE FINANCING OF THIS HUGE SUPPLY OF DEBT HAS TO BE A CRITICAL ISSUE. VIII. WHILE I HAVE SUGGESTED THAT THE OUTLOOK FOR THIS YEAR IS POSITIVE A. MODEST BUT NONETHELESS POSITIVE ALONG THE LINES THAT I NOTED Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN FINANCIAL WOMEN INTERNATIONAL ANNUAL CEO NIGHT MAY 14, 1992 - PAGE 27 8. LOOKING BEYOND THIS IMMEDIATE PERIOD AND ASSUMING THAT WE CONTINUE TO MAKE I PROGRESS ON THE IMBALANCES THAT HAVE HIGHLIGHTED FOR YOU 1. I CAN DEVELOP A CASE THAT AS WE GET FURTHER INTO THE '90s WE COULD CONTINUE TO EXPERIENCE POSITIVE ECONOMIC RESULTS 2. NOT THE GROWTH RATES THAT WE EXPERIENCED IN THE 1980s. 3-1/2% A. THE ANNUAL REAL GROWTH RATE THAT WE EXPERIENCED DURING I THIS PERIOD THAT NOTED EARLIER IS STRONGER THAN IS CONSISTENT WITH THE GROWTH POTENTIAL OF OUR ECONOMY. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN FINANCIAL WOMEN INTERNATIONAL ANNUAL CEO NIGHT MAY 14, 1992 - PAGE 28 B. BUT STILL A GOOD POSITIVE ECONOMIC EXPERIENCE UNDER CONDITIONS OF REASONABLE PRICE STABILITY. 3. BUT THAT FAVORABLE OUTLOOK IS ABSOLUTELY DEPENDENT UPON OUR ABILITY TO RESOLVE THIS FEDERAL BUDGET DEFICIT ISSUE. 1. IF WE ARE NOT SUCCESSFUL IN BRINGING IT DOWN THEN THE 1990s OUTLOOK FOR THE WILL BE QUITE DIFFERENT. 2. BUT MORE POSITIVELY, AS A NATION WE HAVE A HISTORY OF BEING ABLE TO RESOLVE THESE KINDS OF VERY DIFFICULT ISSUES AND THE GROWING FOCUS AND ATTENTION THAT THIS HUGE PROBLEM IS BEING GIVEN IS INDICATIVE THAT WE ARE FACING UP Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN FINANCIAL WOMEN INTERNATIONAL ANNUAL CEO NIGHT MAY 14, 1992 - PAGE 29 TO WHAT CERTAINLY IS A VERY DIFFICULT ISSUE. 3. LEADS ME TO BELIEVE THAT WE WILL OVERCOME IT AND THAT THEREFORE, LOOKING AHEAD, THE OUTLOOK CAN BE QUITE REWARDING. 4. BuTTHIS IS THE KEY ISSUE FOR THE 1990s. BALANCE OF THE THANK YOU VERY MUCH. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis

Silas Keehn (1992, May 13). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_19920514_silas_keehn

@misc{wtfs_regional_speeche_19920514_silas_keehn,
  author = {Silas Keehn},
  title = {Regional President Speech},
  year = {1992},
  month = {May},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_19920514_silas_keehn},
  note = {Retrieved via When the Fed Speaks corpus}
}