Regional President Speech

SILAS KEEHN ILLINOIS COUNCIL ON ECONOMIC EDUCATION COMMUNITY LEADERS BREAKFAST / JUNE 29, 1993 - PA~E 1 n '- < J ~ ' D ~ '1-D y ...€JlS'\...,1 ~ ~ ~ } \"tW,J"~ ~~ C/2'1-t""1'; dz;~ r~'o,, , .. ~ c... -~~ -c-A.a- ,_; ~c,l.~ w T\:, p o--L \' "'t I l4J l !"' .rL,it ,J -t- ~ ~-\l "L.. I. ~ ELCOME § ) ~ ~ . , , ~ ~ ~ II. VERY PLEASED TO HAVE THIS OPPORTUNITY TO TAKE A FEW MINUTES TO TALK ABOUT THE ECONOMIC ENVIRONMENT IN WHICH WE FIND CURSELVES. /. CLEARLY THIS IS A DIFFERENT ECONOMIC ENVIRONMENT THAN ANY THAT WE HAVE II. EXPERIENCED PERHAPS SINCE WORLD WAR 1. To I PUT IT IN PERSPECTIVE, NEED TO SPEND A FEW MINUTES LOOKING BACK OVER THE LAST DECADE A. THE LEGACY OF THE 1980s, IF YOU WILL. 2. BECAUSE HOW WE GOT TO WHERE WE ARE NOW A. HAS HAD AND WILL CONTINUE TO HAVE A SIGNIFICANT EFFECT ON THE OUTLOOK FOR THE COMING PERIOD. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN ILLINOIS COUNCIL ON ECONOMIC EDUCATION COMMUNITY LEADERS BREAKFAST 29, 1993 - 2 JUNE PAGE B. THE PHASE THAT WE HAVE BEEN GOING THROUGH IS UNUSUAL NOT ONLY BECAUSE WE ARE ADJUSTING TO THE NORMAL CYCLICAL FORCES THAT ALWAYS AFFECT OUR ECONOMY, 1. BUT WE ARE ALSO ADJUSTING TO THE STRUCTURAL IMBALANCES THAT DEVELOPED THROUGHOUT OUR FINANCIAL SYSTEM 1980s. DURING THE III. I WON'T SPEND A LOT OF TIME GOING THROUGH THE NUMBERS, BUT WITHOUT QUESTION THE DECADE '80s (40'82 20'90) OF THE TO WAS AN EXCEPTIONAL PHASE IN OUR ECONOMIC HISTORY. A. IT WAS THE LONGEST PEACETIME EXPANSION THAT WE HAVE EXPERIENCED. 1. 1960-69 THE EXPANSION A. VIETNAM WAR -- GUNS AND BUTTER. B. IT WAS ALSO A PERIOD OF VERY STRONG GROWTH. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN ILLINOIS COUNCIL ON ECONOMIC EDUCATION COMMUNITY LEADERS BREAKFAST JUNE 29, 1993 - PAGE 3 1. AVERAGE ANNUAL REAL GROWTH OF 3.6 PERCENT -- A NUMBER I'LL COME BACK TO LATER. C. EMPLOYMENT WAS PERHAPS THE MOST EXCITING PART. 22 1. ADDED ALMOST MILLION NEW JOBS. 2. ENDED THE PERIOD WITH AN EMPLOYMENT POOL OF SOME 110 MILLION INDIVIDUALS. 3. AND THESE NUMBERS ARE IN STARTLING CONTRAST TO OUR CURRENT EXPERIENCE. IV. BUT AS WE WENT THROUGH THAT STRONG DECADE OF THE '80S, IT WAS QUITE CLEAR THAT SIGNIFICANT IMBALANCES WERE DEVELOPING THROUGHOUT OUR ECONOMIC AND FINANCIAL SYSTEM. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN ILLINOIS COUNCIL ON ECONOMIC EDUCATION COMMUNITY LEADERS BREAKFAST 29, 1993 - 4 JUNE PAGE A. IT WAS, OF COURSE, A PERIOD OF VERY HIGH CONSUMPTION -- IT WAS A CONSUMPTION DOMINATED DECADE 1. AND WE WERE CONSUMING AT A LEVEL QUITE CONSIDERABLY HIGHER THAN THE UNDERLYING GROWTH IN OUR ECONOMY AS MEASURED BY THE GDP. 8. THIS CONSUMPTION WAS, IN TURN, FUELED BY A MASSIVE BUILD-UP OF DEBT. 1. CONSUMER INSTALLMENT DEBT AS A PERCENTAGE OF DISPOSABLE INCOME REACHED RECORD LEVELS 2. AND CORPORATE DEBT ALSO ESCALATED TO VERY HIGH LEVELS. A. PERIOD OF MERGERS, TAKE-OVERS, RESTRUCTURINGS. As B. PART OF THOSE TRANSACTIONS, DEBT ROSE -- EQUITY RETIRED. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN ILLINOIS COUNCIL ON ECONOMIC EDUCATION COMMUNITY LEADERS BREAKFAST JUNE 29, 1993 - PAGE 5 C. WE ENDED THE PERIOD WITH DEBT-TO-WORTH RATIOS AT ALARMINGLY HIGH LEVELS. 3. IT IS A FAIR COMMENT THAT AS THE DECADE CLOSED OUT, THE DEBT LEVELS IN THESE TWO SECTORS WERE AT SUCH HIGH POINTS THAT THEY WERE CLEARLY VULNERABLE TO A SYSTEMIC SHOCK. A. OUR FINANCIAL SYSTEM WAS, TO SAY THE VERY LEAST, HIGHLY LEVERAGED AS WE CAME OUT OF THIS PERIOD. V. THERE WAS THAT SENSE AS WE WENT FROM YEAR TO YEAR THAT WE WERE INVOLVED IN A PARTY TOO WELL ENJOYED. WE ALL KNEW THAT AT SOME POINT WE WOULD HAVE TO GO THROUGH THE CORRECTIVE PROCESS, YET IT WAS EASY TO PUT THIS IN THE BACK OF OUR MINDS AS THE GOOD TIMES ROLLED ON. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN ILLINOIS COUNCIL ON ECONOMIC EDUCATION COMMUNITY LEADERS BREAKFAST JUNE 29, 1993 - PAGE 6 A. BUT THE GOOD TIMES ENDED, OF COURSE, IN MID-1990. 1. CLEARLY THE ECONOMY WAS SCALING DOWN BUT THE EXPLOSION OF HOSTILITIES IN THE MIDEAST PROVIDED THE TRIP INTO A RECESSION 2. As CONFIDENCE WAS SHAKEN BY THOSE EVENTS 3. AND AS WE EXPERIENCED A SIGNIFICANT RUN-UP IN OIL AND ENERGY PRICES 4. THE PERIOD THAT THEN FOLLOWED WAS THE CYCLICAL PART OF THE ECONOMIC TRANSITION, A. THE TYPE OF EVENT THAT HAS BEEN SO COMMON TO OUR ECONOMIC EXPERIENCE OVER THE LAST 40 OR 50 YEARS. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN ILLINOIS COUNCIL ON ECONOMIC EDUCATION COMMUNITY LEADERS BREAKFAST 29, 1993 - 7 JUNE PAGE B. WHEN THE MIDEAST EVENTS CAME TO A QUICK 1991, AND SUCCESSFUL CONCLUSION IN EARLY 1. CONFIDENCE BEGAN TO RETURN, 2. THE ECONOMY SEEMED TO BE GATHERING MOMENTUM, 3. THE REAL GDP STARTED TO RISE 4. AND HAS SHOWN POSITIVE GROWTH IN EVERY QUARTER SINCE THEN. C. BUT WHAT HAS BEEN DIFFERENT THIS TIME IS THAT THE GROWTH RATE HAS CONSIDERABLY LAGGED THE EXPERIENCE OF THE PREVIOUS SIX RECOVERIES. 1. THE QUARTERLY INCREASE IN ECONOMIC GROWTH HAS BEEN MUCH MORE MODEST 5 6 THAN THE TO PERCENT INCREASES IN GDP THAT WE EXPERIENCED IN EARLIER RECOVERIES. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN ILLINOIS COUNCIL ON ECONOMIC EDUCATION COMMUNITY LEADERS BREAKFAST JUNE 29, 1993 - PAGE 8 2. AND THE EMPLOYMENT EXPERIENCE HAS ALSO BEEN VERY DIFFERENT. A. WHILE THE MOST RECENT MONTHLY EMPLOYMENT NUMBERS HAVE CERTAINLY BEEN ENCOURAGING, IT'S IMPORTANT TO REMEMBER THAT WE HAVE BEEN IN A RECOVERY PHASE FOR OVER TWO YEARS AND WE ARE JUST NOW GETTING THE INCREASES THAT HISTORY WOULD HAVE SUGGESTED WE WOULD HAVE EXPERIENCE FAR EARLIER. D. THE DIFFERENCE THEN BETWEEN THIS RECOVERY AND OTHER RECOVERIES, 1. THE ADDED FEATURE TO A NORMAL CYCLICAL EXPERIENCE Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN ILLINOIS COUNCIL ON ECONOMIC EDUCATION COMMUNITY LEADERS BREAKFAST • JUNE 29, 1993 - PAGE 9 2. HAS BEEN THE INHIBITING FACTOR CAUSED BY THE ENORMOUS OVERHANG OF DEBT THROUGHOUT OUR FINANCIAL SYSTEM. 3. OUR ECONOMY JUST DID NOT HAVE THE ABILITY TO RESPOND THE WAY WE NORMALLY WOULD HAVE EXPECTED BECAUSE IN EFFECT, THE ENERGY TO FUEL A STRONG RECOVERY HAD BEEN SPENT IN THE PREVIOUS DECADE. VI. BUT IMPORTANTLY, WHILE OUR EXPERIENCE SO FAR IN THIS PERIOD HAS LAGGED BECAUSE OF THE I REASONS HAVE NOTED, A. ON A MORE POSITIVE NOTE, WE REALLY HAVE MADE SIGNIFICANT PROGRESS IN DEALING WITH THE MAJOR HANGOVER THAT REMAINED 1980S. FROM THE Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN ILLINOIS COUNCIL,ON ECONOMIC EDUCATION COMMUNITY LEADERS BREAKFAST JUNE 29, 1993 - PAGE 10 1. THERE IS A NEWFOUND ELEMENT OF CAUTION AND CONSERVATISM AMONG THE BORROWING PUBLIC. A. BORROWERS AND LENDERS ALIKE HAVE RETURNED TO THE BASICS. 8. CONSUMER INSTALLMENT DEBT AS A PERCENTAGE OF PERSONAL DISPOSABLE INCOME HAS BEEN REDUCED. 1. ADMITTEDLY, BECAUSE OF TAX CONSIDERATIONS, THERE HAS BEEN SOME SUBSTITUTION INTO HOME EQUITY LOANS. 2. NONETHELESS, ON A CONSOLIDATED BASIS, HOUSEHOLD DEBT HAS AT LEAST STABILIZED. 3. AND BECAUSE OF LOWER INTEREST RATES, THE SERVICING BURDEN FOR THE INDIVIDUAL CONSUMER HAS BEEN CONSIDERABLY LIGHTENED. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN IL..LINOIS COUNCIL ON ECONOMIC EDUCATION COMMUNITY LEADERS BREAKFAST JUNE 29, 1993 - PAGE 11 4. AND YOU CAN SEE THIS IN THE STRONG CONSUMPTION NUMBERS THAT HAVE y_l - THE PAST FEW QUARTERS. ,\ I ~ CHARACTERIZED if ~ / ~ C. ALAN CE SHEETS HAVE rR s:,W BEEN SIGNIFICANTLY IMPROVED AS WELL AND THIS POSITIVE ADJUSTMENT IS CONTINUING TO PROCEED AT A VERY GOOD PACE. 1. BASED ON LOWER INTEREST RATES, COMPANIES ARE TAKING THIS OPPORTUNITY TO REFINANCE THEIR HEAVY DEBT BURDENS. A. TAKEOVER TRANSACTIONS -- SHORT MATURITIES -- HIGH RATES. 2. COMPANIES ARE NOW REFINANCING THIS DEBT WITH ISSUES THAT HAVE LONGER MATURITIES AND AT MUCH LOWER RATES. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN ILLINOIS COUNCIL ON ECONOMIC EDUCATION COMMUNITY LEADERS BREAKFAST JUNE 29, 1993 - PAGE 12 3. $164 SOME BILLION IN PUBLICLY ISSUED DEBT WAS PLACED LAST YEAR AND IN THE FIRST QUARTER OF THIS YEAR THE AMOUNT AT AN ANNUAL RATE ROSE TO $250 ALMOST BILLION. 4. AND THE FAVORABLY STOCK MARKET CAME ALONG AT JUST THE RIGHT TIME. A. NEW EQUITY OFFERINGS HAVE AND ARE COMING INTO THE MARKET AT RECORD LEVELS. $53 1992 B. BILLION PLACED IN AND $56 ABOUT BILLION AT AN ANNUAL RATE IN THE FIRST QUARTER OF 1993. 5. As A RESULT, FOR THE FIRST TIME 1983, SINCE ON A CONSOLIDATED BASIS WE HAVE EXPERIENCED AN INCREASE IN NET EQUITY. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN ILLINOIS COUNCIL ON ECONOMIC EDUCATION COMMUNITY LEADERS BREAKFAST JUNE 29, 1993 - PAGE 13 A. AND THE ALARMINGLY HIGH I DEBT-TO-WORTH RATIO THAT MENTIONED A MOMENT AGO HAS BEEN REDUCED. 6. AND, OF COURSE, LOWER INTEREST RATES HAVE CONSIDERABLY EASED THE DEBT SERVICING BURDEN ON THE REMAINING DEBT STRUCTURE. u. WHILE THIS IS CERTAINLY A POSITIVE CHANGE, 1. AND WHILE WE CERTAINLY HAVE MOVED BACK FROM THE EDGE OF SOME VERY SERIOUS PROBLEMS THAT FACED US JUST A COUPLE OF YEARS AGO, 2. NONETHELESS, WE HAVE A LONG WAY TO GO BEFORE WE HAVE RETURNED TO DEBT LEVELS THAT WOULD BE MORE CONSISTENT WITH OUR PREVIOUS EXPERIENCE AND Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN ILLINOIS COUNCIL ON ECONOMIC EDUCATION COMMUNITY LEADERS BREAKFAST • JUNE 29, 1993 - PAGE 14 THEREFORE, THIS ISSUE WILL CONTINUE TO INHIBIT THE GROWTH OF OUR ECONOMY AS WE MOVE AHEAD. E. BUT WE HAVE ESTABLISHED THE BASIS FOR A CONTINUATION OF OUR RECENT POSITIVE ECONOMIC EXPERIENCE 1. AND LOOKING AHEAD TO THE BALANCE OF THE YEAR, IT IS OUR EXPECTATION THAT THE ECONOMY WILL CONTINUE TO SHOW POSITIVE ECONOMIC RESULTS AND THAT FOR THE FULL YEAR GROWTH AS MEASURED BY THE GDP WILL INCREASE SOME 2-3/4 TO 3 PERCENT. f. AND THE OUTLOOK FOR INFLATION IS ALSO CONSTRUCTIVE. 1. IT IS OUR EXPECTATION THAT WE WILL CONTINUE TO SEE PROGRESS ON THIS IMPORTANT ISSUE AND THAT BY THE END Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN ILLINOIS COUNCIL ON ECONOMIC EDUCATION COMMUNITY LEADERS BREAKFAST JUNE 29, 1993 - PAGE 15 OF THE YEAR INFLATION AS MEASURED BY CPI 3 THE WILL BE IN THE PERCENT AREA. 2. WHILE THE EXACT DEFINITION OF PRICE STABILITY CAN BE A LITTLE ELUSIVE, IT SEEMS TO ME THAT AS WE CONTINUE TO MAKE PROGRESS AND GET THE 3 INFLATION RATE UNDER THE PERCENT LEVEL, WE ARE BEGINNING TO APPROACH THE ZONE OF PRICE STABILITY. 3. WHILE THIS LEVEL IS STILL HIGHER THAN WOULD BE ACCEPTABLE ON A CONTINUING BASIS, IMPORTANTLY THE NUMBERS ARE MOVING IN THE RIGHT DIRECTION. 4. I WOULD ADMIT THAT SOME OF THE MORE RECENT INFLATION NUMBERS HAVE BEEN A I LITTLE UNNERVING, BUT AM Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN ILLINOlS COUNCIL ON ECONOMIC EDUCATION COMMUNITY LEADERS BREAKFAST JUNE 29, 1993 - PAGE 16 OPTIMISTIC THAT WE WILL CONTINUE TO SEE AN IMPROVEMENT IN THE PRICE OUTLOOK. 5. IT JUST DOESN'T SEEM TO ME THAT THE CONDITIONS ARE PRESENT FOR A RENEWED BOUT OF ESCALATING INFLATION. A. CAPACITY UTILIZATION IN THE INDUSTRIAL SECTOR IS AT A COMPARATIVELY MODEST LEVEL. c)v~ w~ Um;Y B. •Am>~ COSTS HAVE NOT BEEN INCREASING AT A RAPID PACE AND GIVEN THE EMPLOYMENT ISSUES THAT I COMMENTED ON EARLIER, THE BASIS FOR HIGH WAGE DEMANDS JUST DOESN'T SEEM TO BE THERE. C. WHILE SOME COMMODITY PRICES HAVE EXPERIENCED AN INCREASE, THESE SEEM TO HAVE OCCURRED FOR SOME Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN ILLINOIS COUNCIL ON ECONOMIC EDUCATION COMMUNITY LEADERS BREAKFAST JUNE 29, 1993 - PAGE 17 SPECIFIC AND SPECIAL REASONS AND ARE NOT REFLECTIVE OF A BROAD-BASED INCREASE IN COMMODITY PRICES. (I) As EXAMPLES: SPOTTED OWL; STEEL - IMPORT RESTRICTIONS. (II) THESE INCREASES DO NOT RELATE TO NORMAL MARKET PLACE PRICE PRESSURES. 5. BUT WHILE MY EXPECTATION IS THAT WE WILL CONTINUE TO MAKE PROGRESS ON ~~ THIS CRITICAL ISSUE, YOU CAN Baf.:a. THAT WE WILL BE WATCHING THE INFLATION INDICES OVER THE NEXT SEVERAL MONTHS VERY, VERY CAREFULLY. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN ILLINOIS COUNCIL ON ECONOMIC EDUCATION COMMUNITY LEADERS BREAKFAST 29, 1993 - 18 JUNE PAGE VII. IN BEGINNING TO CONCLUDE, LET ME FOCUS ON THE ONE IMBALANCE THAT DEVELOPED DURING THE 1980s WHERE WE HAVE NOT SEEN ANY SIGNIFICANT IMPROVEMENT, NAMELY THE FEDERAL BUDGET CiEFICIT. f.. HERE AGAIN I NEED TO GO BACK AND BRIEFLY 1980s. REVIEW THE EXPERIENCE OF THE 1. WE CAME OUT OF THE RECESSION THAT PRECEDED THE LONG, STRONG EXPANSION THAT I'VE TALKED ABOUT WITH A BUDGET DEFICIT THAT WAS RUNNING SOME 6 PERCENT OF THE GDP. 2. THERE WAS NOTHING UNUSUAL ABOUT THAT EITHER IN TERMS OF SIZE OR OCCURRENCE. A. IT IS QUITE NORMAL IN PERIODS OF ADVERSE EVENTS SUCH AS WARS, PANICS, RECESSIONS, DEPRESSIONS Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN ILLINOIS COUNCIL ON ECONOMIC EDUCATION COMMUNITY LEADERS BREAKFAST JUNE 29, 1993 - PAGE 19 AND THE LIKE, TO RUN DEFICITS OF THIS RELATIVE MAGNITUDE. B. BY USING FISCAL POLICY AND PUTTING MONEY INTO THE SYSTEM, IT IS A WAY OF OVERCOMING THOSE TYPES OF EVENTS. 3. BUT WHAT FOLLOWED WAS VERY, VERY UNUSUAL AND DIFFERENT. As A. WE MOVED FIRST INTO THE RECOVERY AND THEN INTO THE EXPANSION, WE CONTINUED TO RUN DEFICITS (I) WHILE THE RELATIVE MAGNITUDE OF THE DEFICITS CAME DOWN. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN ILLINOIS COUNCIL ON ECONOMIC EDUCATION COMMUNITY LEADERS BREAKFAST' JUNE 29, 1993 - PAGE 20 B. THE POINT IS THAT WE WENT THROUGH THAT WHOLE EXPANSION CONTINUING TO EXPERIENCE SIZEABLE BUDGET DEFICITS. 4. NEVER BEFORE IN THE WHOLE HISTORY OF OUR COUNTRY HAVE WE DONE THIS. A. WE HAVE ALWAYS USED A POSITIVE ECONOMIC PERIOD AS A WAY OF REDUCING THE DEFICIT AND~ IN MANY PERIODS IN OUR HISTORY WE HAVE IN FACT RUN SURPLUSES. {I) INDEED, FROM TIME TO TIME WE HAVE REDUCED AND THEN ELIMINATED THE FEDERAL DEBT. B. BUT NOT THIS TIME. IN THE FISCAL YEAR ENDING LAST SEPTEMBER WE CAME QUITE CLOSE TO Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN ILLINOIS COUNCIL ON ECONOMIC EDUCATION COMMUNITY LEADERS BREAKFAST JUNE 29, 1993 - PAGE 21 A DEFICIT OF $300 BILLION AND WOULD HAVE EXCEEDED THAT AMOUNT WERE IT NOT FOR THE FACT THAT THE CONGRESS FAILED TO FUND THE FINAL PHASE OF THE RTC RESCUE PROGRAM BEFORE THE FISCAL YEAR ENDED. 5. HAD I BEEN HERE 20 YEARS AGO OR IEV-f.N INWD, 10 YEARS AGO (MID IH liDIQF---Xl,F __.J 1982 --WFIIAe AU.a 2'40VED OUT 0~4HE RE..§§f!S~AND SUGGESTED THAT WE WOULD BE MOVING INTO A PERIOD WITH DEFICITS RUNNING AS HIGH AS $300 BILLION, MY HUNCH IS THAT YOU WOULD HAVE BEEN TOTALLY DISBELIEVING. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN ILLINOIS COUNCIL ON ECONOMIC EDUCATION COMMUNITY LEADERS BREAKFAST 29, 1993 - 22 JUNE PAGE 6. AND THE CAUSE OF THE DEFICITS HAS CERTAINLY NOT BEEN ON THE REVENUE SIDE. OVER THE LONG HISTORY OF TIME REVENUES HAVE TENDED TO RUN AT ABOUT 18 19 TO PERCENT OF THE GDP. A. IT'S EXPENDITURES THAT HAVE BEEN THE PROBLEM. EXPENDITURES AS A PERCENTAGE OF THE GDP HAVE 19 INCREASED FROM ABOUT PERCENT 1960s IN THE EARLY TO A CURRENT 23 LEVEL OF ABOUT PERCENT. B. WHILE THAT PERCENTAGE INCREASE MAY NOT SOUND SIGNIFICANT, WHEN EXTRAPOLATED INTO AN ECONOMY AS SIZEABLE AS OURS THE DOLLARS INVOLVED ARE ENORMOUS AND HAVE RESULTED IN A TREASURY DEBT \.., Al~ waJJ CJ'\) LEVEL OF\ $4 TRILLION. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN ILLINOIS COUNCIL ON ECONOMIC EDUCATION COMMUNITY LEADERS BREAKFAST 29, 1993 - 23 JUNE PAGE 8. THEREFORE, IN MY VIEW, THE PRESIDENT'S FOCUS ON THE DEFICIT AS THE CRITICAL ISSUE IS ABSOLUTELY APPROPRIATE. 1. WE SIMPLY MUST FIND A WAY OF DEALING WITH THIS SEEMINGLY INTRACTABLE PROBLEM. C. WHILE I WOULD NOT WANT TO COMMENT ON THE SPECIFICS OF ANY PROGRAM TO DEAL WITH THIS EXCEPTIONALLY DIFFICULT ISSUE, I rt...,. • -J /JMLc te -~ WOULD HOPE THA THE EMPHASIS WILL BE ON EXPENDITURES RATHER THAN REVENUES. 1. IT'S THE EXPENDITURES THAT ARE OUT OF LINE. 2. AND HIGHER TAXES BY DEFINITION RESTRAIN THE GROWTH OF OUR ECONOMY. VIII. MY HUNCH IS THAT WE WILL RESOLVE THIS ISSUE -- INDEED WE MUST. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN ILLINOIS COUNCIL ON ECONOMIC EDUCATION COMMUNITY LEADERS BREAKFAST JUNE 29, 1993 - PAGE 24 A. IF WE DO NOT REDUCE THE DEFICIT, CERTAINLY IN A RELATIVE SENSE AND DESIRABLY IN AN ABSOLUTE SENSE, IT WILL BE VERY DIFFICULT FOR OUR ECONOMY TO FUNCTION PROPERLY. 1. FINANCING THE DEFICIT PUTS AN ENORMOUS STRAIN ON THE CAPITAL MARKETS AND THE SHEER SIZE OF THE RECURRING TREASURY FINANCINGS HAS THE EFFECT OF PUSHING INTEREST RATES UP. 2. MOREOVER, IT SHIFTS SAVINGS FROM PRODUCTIVE INVESTMENTS TO FINANCING THE DEFICIT WHICH, IN A LONGER RUN PERSPECTIVE, MEANS THAT THE SIZE OF THE TREASURY DEBT WILL INCREASE BUT THAT WE WILL NOT HAVE MADE THE KINDS OF INVESTMENTS THAT WILL GENERATE THE MEANS TO SERVICE THE DEBT. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN ILLINOIS COUNCIL ON ECONOMIC EDUCATION COMMUNITY LEADERS BREAKFAST • JUNE 29, 1993 - PAGE 25 3. IN OTHER WORDS, WE MIGHT BE FACED WITH AN EVEN HIGHER DEBT LEVEL BUT WITHOUT THE MEANS OF REPAYING IT. B. THIS THEN IS THE ECONOMIC KEY TO THE BALANCE OF THE DECADE -- THE ECONOMIC 199Os -- CHALLENGE OF THE RESOLVING THE DEFICIT ISSUE. 1. IF WE ARE SUCCESSFUL, AND I'M OPTIMISTIC ENOUGH TO THINK THAT WE WILL BE, 2. AND IF WE CONTINUE TO MAKE PROGRESS ON INFLATION AS WE MOVE TOWARD THE OBJECTIVE OF RETURNING THE ECONOMY TO CONDITIONS OF PRICE STABILITY, I A. AND DO ASSURE YOU THAT THIS IS AN OVERRIDING COMMITMENT OF THE FEDERAL RESERVE, Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN ILLINOIS COUNCIL ON ECONOMIC EDUCATION COMMUNITY LEADERS BREAKFAST 29, 1993 - 26 JUNE PAGE 3. THEN I THINK THAT WE CAN LOOK FORWARD TO A VERY SATISFACTORY ECONOMIC EXPERIENCE AS WE MOVE FURTHER INTO THIS DECADE AND APPROACH THE END OF THE CENTURY. A. BY THEN THE IMBALANCES THAT I'VE HIGHLIGHTED WILL HAVE BEEN FURTHER CORRECTED AND WE WILL HAVE ESTABLISHED THE BASIS FOR WHAT COULD BE A LONG AND REWARDING ECONOMIC EXPANSION 4. NOT IN THE MAGNITUDE THAT WE 1980s, EXPERIENCED IN THE THAT 3.6 PERCENT AVERAGE GROWTH RATE THAT I MENTIONED AT THE OUTSET, BUT MORE IN LINE WITH OUR RECENT HISTORICAL EXPERIENCE AND THE POTENTIAL OF OUR Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN ILLINOIS COUNCIL ON ECONOMIC EDUCATION COMMUNITY LEADERS BREAKFAST JUNE 29, 1993 - PAGE 27 ECONOMY TO GROW WITHOUT INCURRING RISING INFLATION. 5. AND THAT, IT SEEMS TO ME, IS A VERY POSITIVE AND EXCITING OUTLOOK.~S:- ~ q J~ ~ /'~S ~ ~,J_ ~ 'J-0 (ll-...J .fs u,-..i ~ ~ £...n,.,,,.,.,. • Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis

Silas Keehn (1993, June 28). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_19930629_silas_keehn

@misc{wtfs_regional_speeche_19930629_silas_keehn,
  author = {Silas Keehn},
  title = {Regional President Speech},
  year = {1993},
  month = {Jun},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_19930629_silas_keehn},
  note = {Retrieved via When the Fed Speaks corpus}
}