Speech

DepartmentoftheTREASURY WASHINGTON, D.C. 20220 TELEPHONE 566-2041 FOR RELEASE AT 3 P.M. REMARKS OF THE HONORABLE G. WILLIAM MILLER SECRETARY OF THE TREASURY AT DINNER HONORING C. C. HOPE, JR., PRESIDENT ELECT OF THE AMERICAN BANKERS ASSOCIATION AND CLAUDE E. POPE OUTGOING PRESIDENT, MORTGAGE BANKERS ASSOCIATION AT CHARLOTTE, NORTH CAROLINA OCTOBER 11, 1979 It id a great pleasure to be in Charlotte tonight to join Governor Hunt, Jesse Helms, Bob Morgan and your other distinguished guests in nonoring two Nortn Carolinians that nave given so much service to their country and tne banking ind jstry. Tne decade of tne 197O's has been marred by continuous and sometimes dramatic changes in our political and economic environment. In tnese troublesome times, we are very fortu­ nate to nave leaders like C.C. Hope and Claude Pope to work with. C.C. and Claude nave two outstanding cnaracteristics that make their leadership especially valuable to us now: First, a natural love for working with people in all walks of life to resolve our common problems; second, an ability to understand cnange and wnat we all must do to meet its challenges . C.C. Hope’s career has changed in many ways since 19^7 when he first started in banking as a teller. However, C.C.'s approach to life hasn’t changed. I understand ne will still take the Greyhound bus to see banks out in the countryside rather than keep a driver waiting to bring him back in. Also, despite the enormous amount of time he has dedicated to just about every ABA task force and committee in recent years, he has managed to remain heavily involved with Wake Forest University and with his church. The ABA is fortunate to have C.C. as the third North Carolinian to be its president. Claude Pope is the second from your state to serve as President of the Mortgage Bankers Association. Claude has been involved with the M.B.A. for at least the last fifteen M-118 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -2- yeara. He haa worked with the M.B.A. on a wide range of laauea including education, ethica in Mortgage Banking, and the M.B.A.’a political action committee. Despite theae profeaaional involvementa, like C.C. Hope, he atill manager to aave aome time for a wide range of church and community involvementa. I don’t aee how all of thia leavea Claude much time for anything elae, but I do know he likea to travel around your atate in nia camper. I gueaa he thought that if C.C. could uae a Greyhound bua, he could at leaat uae a van. Both of theae men aignify what ia beat about buaineaa leadera in our country. The energy to devote themaelvea tireleaaly not only to their own buaineaa intereata, but to improving the common welfare of their communitiea aa well. Changea in Our Financial Structure Like the economy aa a whole, there have been dramatic changea in banking over the laat decade. The challenge of meeting theae changea aeema likely to become even greater in tne future. There haa been a gradual breaking down of the walla which once aeparated the activitiea that different financial inatitutiona performed. For example, many more typea of inatitutiona now offer tranaaction accounts. Becauae of regulatory differencea in how theae accounta were treated, and the burden of Federal Reaerve memberahip in particular, thia development haa led to troubleaome competitive inequi- tiea. I want to take thia opportunity to commend C.C. Hope, in particular, for the leading role he played with the ABA in promoting monetary improvement legialation in thia aeaaion of Congre a a. The dual objectivea of reducing burdena on member banka and providing greater competitive equality among financial inatitutiona will help atrengthen our banking ayatem. The recent action of tne ABA in reaffirming endoraement for the concept of reaerve requirementa on tranaactiona accounta of all financial intermediariea , with a lower reaerve ratio below a certain depoait level, anould provide momentum for favorable Congreaaional action. Tne banking inauatry haa alao been called upon to play an increaaingly difficult role in international capital marketa. Floating exchange ratea have added new complexity to many internatlonal tranaactiona. Similarly, many were concerned that the huge aurpluaea the OPEC countriea genera­ ted by aucceaaive price increaaea could not be effectively recycled. Thia fear haa been proven unfounded largely aa a reault of the effective role that haa been played by private financial inatitutiona. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -3- American banks are also facing mucn more intensive competition from overseas institutions than in tne past. In the past, the rules of the international banking game have not always been the same for everyone and these inequities have lessened competition and reduced economic efficiency. That is the reason that this Administration so strongly supported the passage of the International Banking Act of 1976, which addressed many of the competitive inequalities between U.S. banks and foreign institutions operating here. These are just some examples of the challenges banking has had to face both domestically and internationally. We are also seeing the emergence of new credit and financial instruments both within and witnout tne banking system, tne availability of advanced technology in communications and data processing, and an overall intensification of competi­ tion. Both commercial banking and mortgage banking have demonstrated remarkable resourcefullness, flexibility and vigor in responding to these challenges. Inflation’s Challenge The greatest challenge confronting all of us now is dealing with inflation. Inflation is the dominant economic problem of our time. The causes of inflation are many and well known to you. Inflation has built up over the past fifteen years. It is now deeply embedded in our economic structure. It is a clear and present danger to our national well-being. Inflation reduces real incomes and values; it threatens our ability to provide employment opportunities; it dries up job creating investments; it impedes productivity; it breeds recession; it falls most heavily on those least able to bear the burden. The war against inflation must be our top priority. There is no quick or simple solution. The war must be waged through a comprehensive strategy on all fronts on a continuous basis. We do have an integrated strategy. We are marshalling all resources. We are directing all economic policies toward a total war against inflation. And most of all, we are directing our efforts at the fundamental causes of inflation rather than just the symptoms. I would like to outline the principal policies which together must form the main forces for our assault. Fiscal Policy Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -4- First, io a disciplined fiscal policy. Tne cumulative effect of large federal deficits year after year Has been to fuel tne fires of inflation. We are determined to apply fiscal restraint and move as quickly as possible toward a balanced budget. Some progress can already be reported. In 1976, tne federal deficit was three percent of Gross National Product. Tnis year, it will be down to only one percent. Unless tne current recession deepens, we snould make further progress next year. Even more important is to gain better control over federal spending and to reduce tne relative role of federal expenditures in our national economy. In 1976, federal spending was 22.6 percent of GNP. Tnis year it will be down to about 21.5 percent. And we intend to reduce it further. Tne net result, over time, of reduced deficits and reduced expenditures as a percent of GNP will be to release substantial resources for tne private sector. Tne spending and investing decisions of individuals and businesses witn respect to these resources will be far more beneficial to your economy tnan channeling tne same amounts tnrougn government. Monetary Policy A second weapon in tne war against inflation is a disciplined monetary policy. Tne Federal Reserve nas been pursuing a course to keep firm control over tne growtn of tne money supply. Tne object nas been to reduce progres­ sively tne rate of growtn of money and credit in order to starve out inflation. Again, there nas been some progress, and growtn rates nave slowed. For instance, the increase in M-1 over the past twelve months nas been held to 4.9 percent -- less tnan naif tne increase in consumer prices. Bu'- in recent months, following tne large increase in oil prices in tne second quarter, tne growtn nas been much more rapid. Tne Federal Reserve nas responded promptly to counter tne trend and to deal witn recent evidence of renewed infla­ tionary pressures. On Saturday evening, tne Federal Reserve announced unanimous approval for a series of complementary actions. Tne discount rate was increased a full percent, from 11 to 12 percent; a marginal reserve requirement of 8 percent was established for "managed liabilities"; and tne metnod of conducting monetary policy was revised to support tne objective of containing growtn in tne monetary aggre­ gates over tne remainder of tnis year witnin tne previously adopted ranges. In addition, tne Federal Reserve Board called upon banks to avoid making loans that support specu­ Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -5- lative activty in gold, commodities and foreign exchange markets. These actions snould serve to dampen inflationary forces and contribute to greater stability in foreign excnange markets. Pay-Price Policy Fiscal and monetary restraint represent powerful weapons to attack tne fundamental causes of inflation. But they take effect with some lag. Therefore, another impor­ tant policy is the voluntary program to moderate pay and price increases and tnus provide time for tne other basic policies to take hold. Because of widespread cooperation, most major corpora­ tions and most labor contracts have been in compliance with the voluntary standards during the first year. As a result, overall price and pay increases have been smaller than otherwise would have been experienced. For the second year of the program, it was felt desira­ ble to provide for greater participation by management and labor in the process of establishing and applying pay stan­ dards. This should help avoid inequities which otherwise may develop over time. A tripartite Pay Committee, to be chaired by John Dunlop, is therefore being established, with a first task of recommending pay standards for the period ahead. In this connection, the Administration worked out a National Accord with American labor leadership in support of the war against inflation and providing for labor involve­ ment in the pay-price program. Government Regulations In battling inflation, we must not overlook the cost-raising actions of government. Among tnese are the costs of unnecessary regulation. We must intensify efforts to reduce the burden of government, and in particular the burden on the banking system. But let me not raise false hopes. When I was at the Federal Reserve we launched Project Augeus -- to undertake the herculean task of cleaning out regulatory stables that seemed somewhat like the stables of Augeus tnat had gone uncleaned for tnirty years. The effort continues; and I hope to launch a similar attack at Treasury. But it is not easy. Much regulation is founded in statute, and while we can improve and shorten and clarify, we often need legislation to make real reductions in burden. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -6- So it will take time, and will need your nelp and .support. I would particularly welcome your suggestions and recommendations in tnis area. Energy Policy Tnere can be no doubt tnat reducing our reliance on imported oil is essential for both controlling inflation and strengthening tne dollar. The ten-fold increase in world oil prices has been a principal contributor to tne accelera­ tion of inflation during this decade. Oil price increases have come in two major waves: the first in 197*4 following the oil embargo and the second earlier tnis year following tne upheaval in Iran. It is imperative tnat we establisn our energy indepen­ dence. It is essential to our nation’s security tnat we gain control over our own destiny. It is urgent tnat we move with all possible speed. It is vital tnat we pursue multiple options so as to assure total success. For two and one-half years President Carter nas sought support for a broad and comprenensive energy program to acnieve tnose objectives. But because we are a neterogen- eous country, because some regions are producers and others are consumers, because some areas have one or another form of local energy supply and otners are totally dependent on outside sources, it has been excruciatingly difficult to hammer out a national energy program. Some important parts of tne program nave fallen into place earlier, such as the natural gas bill enacted a year ago. Now, remaining critical elements are under active review by tne Congre s s. Tne President nas recently taken two major steps under nis own powers and on nis own initiative. He nas decontrol­ led domestic crude oil prices over tne next two years, witn immediate decontrol of neavy oil. And ne has limited imports to no more than 8.5 million barrels per day, tne level tnat prevailed in 1977. Tne President has established an even lower import limit of 8.2 million brrels of oil per day for this year. Tne priorities for our national energy program are clear. First, conservation. Tnis is tne surest, cheapest, cleanest way to reduce our dependence on oil. Second, increasing tne development and use of conventional domestic sources of energy, sucn as oil, gas, and coal . Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -7- Tnird, increasing tne use of renewable energy sources, sucn as solar, alconol, biomass, wind and wood. Fourtn, to assure longer term supplies, tne rigorous development of unconventional domestic energy sources, such as syntnetic fuels from coal and shale and unconventional natural gas. To provide capital resources for tne overall program, a special excise tax--tne Windfall Profits Tax--nas been proposed and nas already passed tne House. Tne purpose of tne tax is to allocate tne increased revenues generated by decontrol of domestic oil prices. A good part of tne increased revenues will remain witn tne oil producers to provide tne means for tnem to continue and expand production of conventional energy. Some of tne increased revenues will also be allocated to tne Energy Security Corporation to finance projects wnolly in tne private sector for tne development of unconventional energy. Tnese projects will be large scale ventures, witn unusual risks, and would not likely be undertaken by private companies on tne scale needed without government financial assistance. As an alternative, ratner than seeking financing from the Energy Security Corporation, private companies will be able to take advantage of special tax credits for unconventional fuel production. To round out tne program, an Energy Mobilization Board nas been proposed in order to snorten tne time for obtaining permits for energy projects. We cannot afford unnecessary delays. Wnen fully in place, tne energy program is expected to cut oil imports by more that 50 percent so that in 1990 we are importing M-5 million barrels per day ratner tnan our current level of more tnan 8 million barrels per day. This will put us well on tne way to energy independence. Investment Policy Finally, a few words about capital investments. For some time, our nation nas given too much empnasis to consumption and too little empnasis to investment in productive facilities that make consumption possible. We nave fallen behind otner leading industrial nations. Japan spends over 20 percent of GNP on capital investments; Germany over 15 percent. In tne United States, we nave been running at 10 to 11 percent. Our savings rate, at about 4.5X, is tne lowest in tne developed world. As a result, our productivity nas lagged. Tnis must not continue, or else our competitiveness in world markets will be seriously impaired. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -6- In coining months, tnerefore, we exppect to be working to create conditions and incentives tnat will encourage tne savings, investments and productivity tnat are so essential to economic progress witn price stability. Tne Dollar I nave not spoken specifically about tne dollar tonignt, but let me point out tnat controlling inflation and reducing our dependence on imported oil are essential to strengtnening its international value. We nave taken strong steps recently to strengtnen tne dollar. Let me empnasize again tnat tnis Administration is fully committed to tnat course. I am fully confident tnese steps will be successful and we are prepared to take successive actions should that become necessary. Conclusion Inflation will not disappear overnignt, but I am confident it can be defeated if we nave the courage and tne willpower necessary to devote ourselves to tne fight. Tnis will require tnat all of us be willing to accept a period of austerity in America and focus on tne long term public good rather than just our own snort term self interest. In tnat regard let me return to wny we are here. C.C. Hope and Claude Pope symbolize tne kind of American business leader wno works long and nard in tneir own business as well as in tneir outside activities to make tnings a little better for everyone. If all of us take tnat approach more often, we will be able to successfully address tne difficult economic challenges of our time. 0OO0 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis DipartmentoftheTREASlIRY WASHINGTON, D.C. 20220 TELEPHONE 566-2041 FOR RELEASE AT 3 P.M. REMARKS OF THE HONORABLE G. WILLIAM MILLER SECRETARY OF THE TREASURY AT DINNER HONORING C. C. HOPE, JR., PRESIDENT ELECT OF THE AMERICAN BANKERS ASSOCIATION AND CLAUDE E. POPE OUTGOING PRESIDENT, MORTGAGE BANKERS ASSOCIATION AT CHARLOTTE, NORTH CAROLINA OCTOBER 11, 1979 It is a great pleasure to be in Charlotte tonight to join Governor Hunt, Jesse Helms, Bob Morgan and your otner distinguished guests in nonoring two North Carolinians that nave given so much service to their country and tne banking ind ustry. Tne decade of the 1970’s has been marred by continuous and sometimes dramatic cnanges in our political and economic environment. In tnese troublesome times, we are very fortu­ nate to nave leaders like C.C. Hope and Claude Pope to work witn. C.C. and Claude nave two outstanding cnaracteristics that make tneir leadersnip especially valuable to us now: First, a natural love for working witn people in all walks of life to resolve our common problems; second, an ability to understand cnange and wnat we all must do to meet its challenges. C.C. Hope’s career nas cnanged in many ways since 19^7 wnen he first started in banking as a teller. However, C.C.’s approacn to life nasn’t cnanged. I understand ne will still take tne Greyhound bus to see banks out in tne countryside rather than keep a driver waiting to bring nim back in. Also, despite the enormous amount of time he has dedicated to just about every ABA task force and committee in recent years, ne has managed to remain neavily involved witn Wake Forest University and witn nis church. Tne ABA is fortunate to nave C.C. as tne tnird Nortn Carolinian to be its president. Claude Pope is tne second from your state to serve as President of the Mortgage Bankers Association. Claude has been involved witn tne M.B.A. for at least tne last fifteen M-118 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -2- yeara. He haa worked with the M.B.A. on a wide range of ldojej including education, ethica in Mortgage Banking, and the M.B.A.'a political action committee. Deapite theae profeaaional involvementa, like C.C. Hope, he atill managea to aave aome time for a wide range of church and community involvementa. 1 don’t aee how all of thia leavea Claude much time for anything elae, but I do know he likea to travel around your atate in hia camper. I gueaa he thought that if C.C. could uae a Greyhound bua, he could at leaat uae a van. Botn of tneae men aignify what ia beat about buaineaa leadera in our country. The energy to devote tnemaelvea tireleaaly not only to their own buaineaa intereata, but to improving the common welfare of their comrnunitiea aa well. Changea in Our Financial Structure Like tne economy aa a whole, there have been dramatic changea in banking over tne laat decade. The challenge of meeting theae changea aeemu likely to become even greater in cne future. There naa been a gradual breaking down of the walla which once aeparated the activitiea that different financial inatitutiona performed. For example, many more typea of inatitutiona now offer tranaaction accounta. Becauae of regulatory differencea in now theae accounta were treated, and the burden of Federal Reaerve memberahip in particular, thia development naa led to troubleaome competitive inequi- tiea. I want to take thia opportunity to commend C.C. Hope, in particular, for the leading role he played with the ABA in promoting monetary improvement legialation in thia aeaaion of Congre aa. The dual objectivea of reducing burdena on member banka and providing greater competitive equality among financial inatitutiona will help atrengthen our banking ayatem. The recent action of tne ABA in reaffirming endoraement for the concept of reaerve requirementa on tranaactiona accounta of all financial intermediariea , with a lower reaerve ratio below a certain depoait level, ahould provide momentum for favorable Congreaaional action. Tne banking induatry naa alao been called upon to play an increaaingly difficult role in international capital marketa. Floating exchange ratea have added new complexity to many international tranaactiona. Similarly, many were concerned that the huge aurpluaea the OPEC countriea genera­ ted by aucceaaive price increaaea could not be effectively recycled. Thia fear naa been proven unfounded largely aa a reault of the effective role that haa been played by private financial inatitutiona. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -3- American banks are also facing much more intensive competition from overseas institutions tnan in tne past. In tne past, tne rules of tne international banking game nave not always been tne same for everyone and tnese inequities nave lessened competition and reduced economic efficiency. Tnat is tne reason tnat tnis Administration so strongly supported tne passage of tne International Banking Act of 1976, wnicn addressed many of tne competitive inequalities between U.S. banks and foreign institutions operating nere. Tnese are just some examples of tne challenges banking nas had to face both domestically and internationally. We are also seeing tne emergence of new credit and financial instruments botn witnin and witnout tne banking system, tne availability of advanced technology in communications and data processing, and an overall intensification of competi­ tion. Botn commercial banking and mortgage banking nave demonstrated remarkable resourcefullness, flexibility and vigor in responding to tnese challenges. Inflation’s Challenge Tne greatest challenge confronting all of us now is dealing with inflation. Inflation is the dominant economic problem of our time. Tne causes of inflation are many and well known to you. Inflation nas built up over tne past fifteen years. It is now deeply embedded in our economic structure. It is a clear and present danger to our national well-being. Inflation reduces real incomes and values; it threatens our ability to provide employment opportunities; it dries up job creating investments; it impedes productivity; it breeds recession; it falls most neavily on those least able to bear tne burden. Tne war against inflation must be our top priority. There is no quick or simple solution. Tne war must be waged tnrougn a comprehensive strategy on all fronts on a continuous basis. We do nave an integrated strategy. We are marshalling all resources. We are directing all economic policies toward a total war against inflation. And most of all, we are directing our efforts at the fundamental causes of inflation rather tnan just tne symptoms. I would like to outline tne principal policies wnicn together must form tne main forces for our assault. Fiscal Policy Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -4- First, is a disciplined fiscal policy. Tne cumulative effect of large federal deficits year after year nas been to fuel tne fires of inflation. We are determined to apply fiscal restraint and move as quickly as possible toward a balanced budget. Some progress can already be reported. In 1976, tne federal deficit was tnree percent of Gross National Product. Tnis year, it will be down to only one percent. Unless tne current recession deepens, we snould make furtner progress next year. Even more important is to gain better control over federal spending and to reduce tne relative role of federal expenditures in our national economy. In 1976, federal spending was 22.6 percent of GNP. Tnis year it will be down to about 21.5 percent. And we intend to reduce it furtner. Tne net result, over time, of reduced deficits and reduced expenditures as a percent of GNP will be to release substantial resources for tne private sector. Tne spending and investing decisions of individuals and businesses witn respect to tnese resources will be far more beneficial to your economy tnan cnanneling tne same amounts tnrougn government. Monetary Policy A second weapon in tne war against inflation is a disciplined monetary policy. Tne Federal Reserve nas been pursuing a course to keep firm control over tne growtn of tne money supply. Tne object nas been to reduce progres­ sively tne rate of growtn of money and credit in order to starve out inflation. Again, tnere nas been some progress, and growtn rates nave slowed. For instance, tne increase in M-1 over tne past twelve montns nas been neld to 4.9 percent -- less tnan naif tne increase in consumer prices. Bu'- in recent montns, following tne large increase in oil prices in tne second quarter, tne growtn nas been mucn more rapid. Tne Federal Reserve nas responded promptly to counter tne trend and to deal witn recent evidence of renewed infla­ tionary pressures. On Saturday evening, tne Federal Reserve announced unanimous approval for a series of complementary actions. Tne discount rate was increased a full percent, from 11 to 12 percent; a marginal reserve requirement of 8 percent was establisned for ’’managed liabilities”; and tne metnod of conducting monetary policy was revised to support tne objective of containing growtn in tne monetary aggre­ gates over tne remainder of tnis year witnin tne previously adopted ranges. In addition, tne Federal Reserve Board called upon banks to avoid making loans tnat s uppor t specu- Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -5- lative activty in gold, commodities and foreign exchange markets. These actions should serve to dampen inflationary forces and contribute to greater stability in foreign exchange markets. Pay-Price Policy Fiscal and monetary restraint represent powerful weapons to attack the fundamental causes of inflation. But they take effect with some lag. Therefore, another impor­ tant policy is the voluntary program to moderate pay and price increases and tnus provide time for the otner basic policies to take hold. Because of widespread cooperation, most major corpora­ tions and most labor contracts have been in compliance with the voluntary standards during the first year. As a result, overall price and pay increases have been smaller than otherwise would nave been experienced. For the second year of the program, it was felt desira­ ble to provide for greater participation by management and labor in the process of establishing and applying pay stan­ dards. This should help avoid inequities which otherwise may develop over time. A tripartite Pay Committee, to be chaired by John Dunlop, is therefore being established, with a first task of recommending pay standards for the period ahead. In this connection, the Administration worked out a National Accord with American labor leadership in support of the war against inflation and providing for labor involve­ ment in the pay-price program. Government Regulations In battling inflation, we must not overlook the cost-raising actions of government. Among these are the costs of unnecessary regulation. We must intensify efforts to reduce the burden of government, and in particular the burden on the banking system. But let me not raise false hopes. When I was at the Federal Reserve we launched Project Augeus -- to undertake the herculean task of cleaning out regulatory stables that seemed somewhat like the stables of Augeus that had gone uncleaned for thirty years. The effort continues; and I hope to launch a similar attack at Treasury. But it is not easy. Much regulation is founded in statute, and while we can improve and shorten and clarify, we often need legislation to make real reductions in burden. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -6- So it will take time, and will need your nelp and support. I would particularly welcome your suggestions and recommendations in tnis area. Energy Policy Tnere can be no doubt tnat reducing our reliance on imported oil is essential for both controlling inflation and strengthening tne dollar. Tne ten-fold increase in world oil prices nas been a principal contributor to tne accelera­ tion of inflation during tnis decade. Oil price increases nave come in two major waves: tne first in 1974 following the oil embargo and tne second earlier tnis year following tne upheaval in Iran. It is imperative tnat we establisn our energy indepen­ dence. It is essential to our nation’s security tnat we gain control over our own destiny. It is urgent tnat we move witn all possible speed. It is vital that we pursue multiple options so as to assure total success. For two and one-naif years President Carter nas sought support for a broad and comprenensive energy program to acnieve tnose objectives. But because we are a neterogen- eous country, because some regions are producers and otners are consumers, because some areas have one or another form of local energy supply and otners are totally dependent on outside sources, it nas been excruciatingly difficult to hammer out a national energy program. Some important parts of tne program nave fallen into place earlier, sucn as tne natural gas bill enacted a year ago. Now, remaining critical elements are under active review by tne Congre ss • Tne President nas recently taken two major steps under nis own powers and on nis own initiative. He nas decontrol­ led domestic crude oil prices over the next two years, witn immediate decontrol of neavy oil. And he nas limited imports to no more than 8.5 million barrels per day, tne level tnat prevailed in 1977. Tne President nas established an even lower import limit of 8.2 million brrels of oil per day for this year. Tne priorities for our national energy program are clear . First, conser vatio.n. Tnis is tne surest, cheapest, cleanest way to reduce our dependence on oil. Second, increasing tne development and use of conventional domestic sources of energy, sucn as oil, gas, and coal. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -7- Tnird , increasing tne use of renewable energy sources, such as solar, alconol, biomass, wind and wood. Fourtn, to assure longer term supplies, tne rigorous development of unconventional domestic energy sources, such as syntnetic fuels from coal and snale and unconventional natural gas. To provide capital resources for tne overall program, a special excise tax--tne Windfall Profits Tax--nas been proposed and nas already passed tne House. Tne purpose of tne tax is to allocate tne increased revenues generated by decontrol of domestic oil prices. A good part of tne increased revenues will remain witn tne oil producers to provide tne means for them to continue and expand production of conventional energy. Some of tne increased revenues will also be allocated to tne Energy Security Corporation to finance projects wnolly in tne private sector for tne development of unconventional energy. Tnese projects will be large scale ventures, witn unusual risks, and would not likely be undertaken by private companies on tne scale needed witnout government financial assistance. As an alternative, ratner tnan seeking financing from the Energy Security Corporation, private companies will be able to take advantage of special tax credits for unconventional fuel production. To round out tne program, an Energy Mobilization Board nas been proposed in order to snorten tne time for obtaining permits for energy projects. We cannot afford unnecessary delays. Wnen fully in place, tne energy program is expected to cut oil imports by more tnat 50 percent so tnat in 1990 we are importing 4-5 million barrels per day ratner tnan our current level of more tnan 8 million barrels per day. Tnis will put us well on tne way to energy independence. Investment Policy Finally, a few words about capital investments. For some time, our nation nas given too much empnasis to consumption and too little empnasis to investment in productive facilities tnat make consumption possible. We nave fallen benind otner leading industrial nations. Japan spends over 20 percent of GNP on capital investments; Germany over 15 percent. In tne United States, we nave been running at 10 to 11 percent. Our savings rate, at about 4.5%, is tne lowest in tne developed world. As a result, our productivity nas lagged. Tnis must not continue, or else our competitiveness in world markets will be seriously impaired. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -8- In coming montns, therefore, we exppect to be working to create condition5 and incentives tnat will encourage tne savings, investments and productivity tnat are so essential to economic progress witn price stability. Tne Dollar I nave not spoken specifically about tne dollar tonight, but let me point out tnat controlling inflation 3nd reducing our dependence on imported oil are essential to strengthening its international value. We nave taken strong steps recently to strengthen tne dollar. Let me emphasize again tnat tnis Administration is fully committed to tnat course. I am fully confident tnese steps will be successful and we are prepared to take successive actions should that become necessary. Conclusion Inflation will not disappear overnignt, but I am confident it can be defeated if we nave the courage and tne willpower necessary to devote ourselves to tne fight. Tnis will require tnat all of us be willing to accept a period of austerity in America and focus on tne long term public good ratner than just our own snort term self interest. In tnat regard let me return to wny we are here. C.C. Hope and Claude Pope symbolize the kind of American business leader wno works long and nard in tneir own business as well as in tneir outside activities to make things a little better for everyone. If all of us take tnat approach more often, we will be able to successfully address tne difficult economic challenges of our time. 0OO0 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis DeportmentoftheTREASURY WASHINGTON, D.C. 20220 TELEPHONE 566-2041 FOR RELEASE AT 3 P.M. REMARKS OF THE HONORABLE G. WILLIAM MILLER SECRETARY OF THE TREASURY AT DINNER HONORING C. C. HOPE, JR., PRESIDENT ELECT OF THE AMERICAN BANKERS ASSOCIATION AND CLAUDE E. POPE OUTGOING PRESIDENT, MORTGAGE BANKERS ASSOCIATION AT CHARLOTTE, NORTH CAROLINA OCTOBER 11, 1979 It is a great pleasure to be in Charlotte tonight to join Governor Hunt, Jesse Helms, Bob Morgan and your otner distinguished guests in nonoring two Nortn Carolinians that nave given so mucn service to their country and tne banking ind ustry. Tne decade of the 197O's nas been marred by continuous and sometimes dramatic cnanges in our political and economic environment. In tnese troublesome times, we are very fortu­ nate to nave leaders like C.C. Hope and Claude Pope to work with. C.C. and Claude nave two outstanding cnaracteristics tnat make tneir leadersnip especially valuable to us now: First, a natural love for working witn people in all walks of life to resolve our common problems; second, an ability to understand cnange and wnat we all must do to meet its challenges. C.C. Hope's career nas cnanged in many ways since 19^7 wnen ne first started in banking as a teller. However, C.C.'s approacn to life nasn't cnanged. I understand ne will still take tne Greyhound bus to see banks out in the countryside ratner tnan keep a driver waiting to bring nim back in. Also, despite the enormous amount of time he has dedicated to just about every ABA task force and committee in recent years, ne has managed to remain neavily involved witn Wake Forest University and witn nis church. Tne ABA is fortunate to nave C.C. as tne tnird Nortn Carolinian to be its president. Claude Pope is tne second from your state to serve as President of the Mortgage Bankers Association. Claude has been involved witn tne M.B.A. for at least tne last fifteen M-118 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -z- years. He has worked witn tne M.B.A. on a wide range of issues including education, etnics in Mortgage Banking, and tne M.B.A.’s political action committee. Despite tnese professional involvements, like C.C. Hope, ne still manages to save some time for a wide range of churcn and community involvements. I don’t see now all of tnis leaves Claude mucn time for anytning else, but I do know ne likes to travel around your state in nis camper. I guess ne tnougnt tnat if C.C. could use a Greynound bus, ne could at least use a van. Botn of tnese men signify wnat is best about business leaders in our country. Tne energy to devote tnemselves tirelessly not only to tneir own business interests, but to improving tne common welfare of tneir communities as well. Cnanges in Our Financial Structure Like tne economy as a wnole, tnere nave been dramatic cnanges in banking over tne last decade. Tne cnallenge of meeting tnese cnanges seems likely to become even greater in tne future. Tnere nas been a gradual breaking down of tne walls wnicn once separated tne activities tnat different financial institutions performed. For example, many more types of institutions now offer transaction accounts. Because of regulatory differences in now tnese accounts were treated, and tne burden of Federal Reserve membership in particular, tnis development nas led to troublesome competitive inequi­ ties. I want to take tnis opportunity to commend C.C. Hope, in particular, for tne leading role ne played witn tne ABA in promoting monetary improvement legislation in tnis session of Congre s s. Tne dual objectives of reducing burdens on member banks and providing greater competitive equality among financial institutions will help strengthen our banking system. Tne recent action of tne ABA in reaffirming endorsement for tne concept of reserve requirements on transactions accounts of all financial intermediaries , witn a lower reserve ratio below a certain deposit level, snould provide momentum for favorable Congressional action. Tne banking industry nas also been called upon to play an increasingly difficult role in international capital markets. Floating exchange rates nave added new complexity to many internatlonal transaetions. Similarly, many were concerned tnat tne huge surpluses tne OPEC countries genera­ ted by successive price increases could not be effectively recycled. Tnis fear nas been proven unfounded largely as a result of tne effective role tnat nas been played by private financial institutions. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -3- American banks are also facing mucn more intensive competition from overseas institutions than in tne past. In tne past, tne rules of tne international banking game nave not always been tne same for everyone and tnese inequities nave lessened competition and reduced economic efficiency. Tnat is tne reason tnat tnis Administration so strongly supported tne passage of tne International Banking Act of 1978, wnicn addressed many of tne competitive inequalities between U.S. banks and foreign institutions operating nere. Tnese are just some examples of tne cnallenges banking nas nad to face botn domestically and internationally. We are also seeing tne emergence of new credit and financial instruments botn witnin and witnout tne banking system, tne availability of advanced tecnnology in communications and data processing, and an overall intensification of competi­ tion. Botn commercial banking and mortgage banking nave demonstrated remarkable resourcefullness, flexibility and vigor in responding to tnese cnallenges. Inflation’s Cnallenge Tne greatest cnallenge confronting all of us now is dealing with inflation. Inflation is tne dominant economic problem of our time. Tne causes of inflation are many and well known to you. Inflation nas built up over tne past fifteen years. It is now deeply embedded in our economic structure. It is a clear and present danger to our national well-being. Inflation reduces real incomes and values; it tnreatens our ability to provide employment opportuni ties ; it dries up job creating investments; it impedes productivity; it breeds recession; it falls most neavily on those least able to bear tne burden. Tne war against inflation must be our top priority. There is no quick or simple solution. Tne war must be waged tnrougn a comprehensive strategy on all fronts on a continuous basis. We do nave an integrated strategy. We are marshalling all resources. We are directing all economic policies toward a total war against inflation. And most of all, we are directing our efforts at the fundamental causes of inflation ratner than just tne symptoms. I would like to outline tne principal policies wnicn together must form tne main forces for our assault. Fiscal Policy Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -4- First, is a disciplined fiscal policy. Tne cumulative effect of large federal deficits year after year nas been to fuel tne fires of inflation. We are determined to apply fiscal restraint and move as quickly as possible toward a balanced budget. Some progress can already be reported. In 1976, tne federal deficit was tnree percent of Gross National Product. Tnis year, it will be down to only one percent. Unless tne current recession deepens, we snould make furtner progress next year. Even more important is to gain better control over federal spending and to reduce tne relative role of federal expenditures in our national economy. In 1976, federal spending was 22.6 percent of GNP. Tnis year it will be down to about 21.5 percent. And we intend to reduce it furtner. Tne net result, over time, of reduced deficits and reduced expenditures as a percent of GNP will be to release substantial resources for tne private sector. Tne spending and investing decisions of individuals and businesses witn respect to tnese resources will be far more beneficial to your economy tnan cnanneling tne same amounts tnrougn government. Monetary Policy A second weapon in tne war against inflation is a disciplined monetary policy. Tne Federal Reserve nas been pursuing a course to keep firm control over tne growtn of tne money supply. Tne object nas been to reduce progres­ sively tne rate of growtn of money and credit in order to starve out inflation. Again, tnere nas been some progress, and growtn rates nave slowed. For instance, tne increase in M-1 over the past twelve montns nas been neld to 4.9 percent -- less tnan naif tne increase in consumer prices. Bu'. in recent montns, following tne large increase in oil prices in tne second quarter, tne growtn nas been mucn more rapid. Tne Federal Reserve nas responded promptly to counter tne trend and to deal witn recent evidence of renewed infla­ tionary pressures. On Saturday evening, tne Federal Reserve announced unanimous approval for a series of complementary actions. Tne discount rate was increased a full percent, from 11 to 12 percent; a marginal reserve requirement of 8 percent was establisned for ’’managed liabilities”; and tne metnod of conducting monetary policy was revised to support tne objective of containing growtn in tne monetary aggre­ gates over tne remainder of tnis year witnin tne previously adopted ranges. In addition, tne Federal Reserve Board called upon banks to avoid making loans tnat support specs- Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -5- lative activty in gold, commodities and foreign exchange markets. These actions should serve to dampen inflationary forces and contribute to greater stability in foreign exchange markets. Pay-Price Policy Fiscal and monetary restraint represent powerful weapons to attack tne fundamental causes of inflation. But they take effect with some lag. Therefore, another impor­ tant policy is the voluntary program to moderate pay and price increases and tnus provide time for tne otner basic policies to take hold. Because of widespread cooperation, most major corpora­ tions and most labor contracts have been in compliance with the voluntary standards during the first year. As a result, overall price and pay increases have been smaller than otherwise would have been experienced. For the second year of the program, it was felt desira­ ble to provide for greater participation by management and labor in the process of establishing and applying pay stan­ dards. This should help avoid inequities wnich otherwise may develop over time. A tripartite Pay Committee, to be chaired by John Dunlop, is therefore being established, with a first task of recommending pay standards for the period ahead. In this connection, the Administration worked out a National Accord with American labor leadership in support of the war against inflation and providing for labor involve­ ment in the pay-price program. Government Regulations In battling inflation, we must not overlook the cost-raising actions of government. Among these are the costs of unnecessary regulation. We must intensify efforts to reduce the burden of government, and in particular the burden on the banking system. But let me not raise false hopes. When I was at the Federal Reserve we launched Project Augeus -- to undertake the herculean task of cleaning out regulatory stables that seemed somewhat like the stables of Augeus tnat had gone uncleaned for thirty years. The effort continues; and I hope to launch a similar attack at Treasury. But it is not easy. Much regulation is founded in statute, and while we can improve and shorten and clarify, we often need legislation to make real reductions in burden. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -6- So it will take time, and will need your help and support. I would particularly welcome your suggestions and recommendations in this area. Energy Policy There can be no doubt that reducing our reliance on imported oil is essential for both controlling inflation and strengthening the dollar. The ten-fold increase in world oil prices has been a principal contributor to the accelera­ tion of inflation during this decade. Oil price increases have come in two major waves: the first in 197^ following the oil embargo and the second earlier this year following the upheaval in Iran. It is imperative that we establish our energy indepen­ dence. It is essential to our nation’s security that we gain control over our own destiny. It is urgent that we move with all possible speed. It is vital that we pursue multiple options so as to assure total success. For two and one-half years President Carter has sought support for a broad and comprehensive energy program to acnieve those objectives. But because we are a heterogen­ eous country, because some regions are producers and others are consumers, because some areas have one or another form of local energy supply and others are totally dependent on outside sources, it has been excruciatingly difficult to hammer out a national energy program. Some important parts of the program nave fallen into place earlier, such as the natural gas bill enacted a year ago. Now, remaining critical elements are under active review by the Congre ss • The President nas recently taken two major steps under his own powers and on his own initiative. He has decontrol­ led domestic crude oil prices over the next two years, with immediate decontrol of heavy oil. And he has limited imports to no more than 8.5 million barrels per day, the level that prevailed in 1977. The President has established an even lower import limit of 8.2 million brrels of oil per day for this year. The priorities for our national energy program are clear . First, conservation. This is the surest, cheapest, cleanest way to reduce our dependence on oil. Second, increasing the development and use of conventional domestic sources of energy, sucn as oil, gas, and coal . Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis h * -7- Tnird, increasing tne use of renewable energy sources, sucn as solar, alconol, biomass, wind and wood. Fourtn, to assure longer term supplies, tne rigorous development of unconventional domestic energy sources, sucn as syntnetic fuels from coal and snale and unconventional natural gas. To provide capital resources for tne overall program, a special excise tax--tne Windfall Profits Tax--nas been proposed and nas already passed tne House. Tne purpose of tne tax is to allocate tne increased revenues generated by decontrol of domestic oil prices. A good part of tne increased revenues will remain witn tne oil producers to provide tne means for tnem to continue and expand production of conventional energy. Some of tne increased revenues will also be allocated to tne Energy Security Corporation to finance projects wnolly in tne private sector for tne development of unconventional energy. Tnese projects will be large scale ventures, witn unusual risks, and would not likely be undertaken by private companies on tne scale needed witnout government financial assistance. As an alternative, ratner tnan seeking financing from the Energy Security Corporation, private companies will be able to take advantage of special tax credits for unconventional fuel production. To round out tne program, an Energy Mobilization Board nas been proposed in order to snorten tne time for obtaining permits for energy projects. We cannot afford unnecessary delays. Wnen fully in place, tne energy program is expected to cut oil imports by more tnat 50 percent so tnat in 1990 we are importing 4-5 million barrels per day ratner tnan our current level of more tnan 8 million barrels per day. Tnis will put us well on tne way to energy independence. Investment Policy Finally, a few words about capital investments. For some time, our nation nas given too much empnasis to consumption and too little empnasis to investment in productive facilities tnat make consumption possible. We nave fallen benind otner leading industrial nations. Japan spends over 20 percent of GNP on capital investments; Germany over 15 percent. In tne United States, we nave been running at 10 to 11 percent. Our savings rate, at about 4.5%, is tne lowest in tne developed world. As a result, our productivity nas lagged. Tnis must not continue, or else our competitiveness in world markets will be seriously impaired. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -6- In coming montns, tnerefore, we exppect to be working to create conditions and incentives tnat will encourage tne savings, investments and productivity tnat are so essential to economic progress witn price stability. Tne Dollar I nave not spoken specifically about tne dollar tonignt, but let me point out tnat controlling inflation 3nd reducing our dependence on imported oil are essential to strengtnening its international value. We nave taken strong steps recently to strengtnen tne dollar. Let me empnasize again tnat tnis Administration is fully committed to tnat course. I am fully confident tnese steps will be successful and we are prepared to take successive actions snould tnat become necessary. Conclusion Inflation will not disappear overnignt, but I am confident it can be defeated if we nave tne courage and tne willpower necessary to devote ourselves to tne fignt. Tnis will require tnat all of us be willing to accept a period of austerity in America and focus on tne long term public good ratner tnan just our own snort term self interest. In tnat regard let me return to wny we are nere. C.C. Hope and Claude Pope symbolize tne kind of American business leader wno works long and nard in tneir own business as well as in tneir outside activities to make tnings a little better for everyone. If all of us take tnat approacn more often, we will be able to successfully address tne difficult economic cnallenges of our time. 0OO0 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Deportment of theTREASURY WASHINGTON, D.C. 20220 TELEPHONE 566-2041 FOR RELEASE AT 3 P.M. REMARKS OF THE HONORABLE G. WILLIAM MILLER SECRETARY OF THE TREASURY AT DINNER HONORING C. C. HOPE, JR., PRESIDENT ELECT OF THE AMERICAN BANKERS ASSOCIATION AND CLAUDE E. POPE OUTGOING PRESIDENT, MORTGAGE BANKERS ASSOCIATION AT CHARLOTTE, NORTH CAROLINA OCTOBER 11, 1979 It is a great pleasure to be in Charlotte tonignt to join Governor Hunt, Jesse Helms, Bob Morgan and your other distinguished gjests in nonoring two North Carolinians that nave given so much service to their country and the banking ind jstry. The decade of the 197O’s has been marred by continuous and sometimes dramatic changes in our political and economic environment. In these troublesome times, we are very fortu­ nate to have leaders like C.C. Hope and Claude Pope to work with. C.C. and Claude have two outstanding characteristics that make their leadership especially valuable to us now: First, a natural love for working with people in all walks of life to resolve our common problems; second, an ability to understand change and what we all must do to meet its challenges . C.C. Hope's career has changed in many ways since 1947 when he first started in banking as a teller. However, C.C.'s approach to life hasn't changed . I understand ne will still take the Greyhound bus to see banks out in the countryside rather than keep a driver waiting to bring him back in. Also, despite the enormous amount of time he has dedicated to just about every ABA task force and committee in recent years, he has managed to remain heavily involved with Wake Forest University and with his church. The ABA is fortunate to have C.C. as the third North Carolinian to be its president. Claude Pope is the second from your state to serve as President of the Mortgage Bankers Association. Claude has been involved with the M.B.A. for at least the last fifteen M-118 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -I- years. He nas worked witn tne M.B.A. on a wide range of issues including education, etnics in Mortgage Banking, and tne M.B.A.’s political action committee. Despite tnese professional involvements, like C.C. Hope, ne still manages to save some time for a wide range of churcn and community involvements. I don't see now all of tnis leaves Claude much time for anytning else, but I do know ne likes to travel around your state in nis camper. I guess ne tnougnt tnat if C.C. could use a Greynound bus, ne could at least use a van. Botn of tnese men signify wnat is best about business leaders in our country. Tne energy to devote tnemselves tirelessly not only to tneir own business interests, but to improving tne common welfare of tneir communities as well. Cnanges in Our Financial Structure Like tne economy as a wnole, tnere nave been dramatic cnanges in banking over tne last decade. Tne cnallenge of meeting tnese cnanges seems likely to become even greater in tne future. Tnere nas been a gradual breaking down of tne walls wnicn once separated tne activities tnat different financial institutions performed. For example, many more types of institutions now offer transaction accounts. Because of regulatory differences in now tnese accounts were treated, and tne burden of Federal Reserve membership in particular, tnis development nas led to troublesome competitive inequi­ ties. I want to take tnis opportunity to commend C.C. Hope, in particular, for tne leading role ne played witn tne ABA in promoting monetary improvement legislation in tnis session of Congre s s • Tne dual objectives of reducing burdens on member banks and providing greater competitive equality among financial institutions will nelp strengthen our banking system. Tne recent action of tne ABA in reaffirming endorsement for tne concept of reserve requirements on transactions accounts of all financial intermediaries , witn a lower reserve ratio below a certain deposit level, should provide momentum for favorable Congressional action. Tne banking industry nas also been called upon to play an increasingly difficult role in international capital markets. Floating exchange rates nave added new complexity to many international transaetions. Similarly, many were concerned tnat tne huge surpluses tne OPEC countries genera­ ted by successive price increases could not be effectively recycled. Tnis fear nas been proven unfounded largely as a result of tne effective role tnat has been played by private financial institutions. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -3- American banks are also facing mucn more intensive competition from overseas institutions tnan in tne past. In tne past, tne rules of tne international banking game nave not always been tne same for everyone and tnese inequities nave lessened competition and reduced economic efficiency. Tnat is tne reason tnat tnis Administration so strongly supported tne passage of tne International Banking Act of 1976, wnicn addressed many of tne competitive inequalities between U.S. banks and foreign institutions operating nere. Tnese are just some examples of tne cnallenges banking nas nad to face botn domestically and internationally. We are also seeing tne emergence of new credit and financial instruments botn witnin and witnout tne banking system, tne availability of advanced tecnnology in communications and data processing, and an overall intensification of competi­ tion. Botn commercial banking and mortgage banking nave demonstrated remarkable resourcefullness, flexibility and vigor in responding to tnese cnallenges. Inflation's Cnallenge Tne greatest cnallenge confronting all of us now is dealing with inflation. Inflation is tne dominant economic problem of our time. Tne causes of inflation are many and well known to you. Inflation nas built up over tne past fifteen years. It is now deeply embedded in our economic structure. It is a clear and present danger to our national well-being. Inflation reduces real incomes and values; it tnreatens our ability to provide employment opportunities; it dries up job creating investments; it impedes productivity; it breeds recession; it falls most neavily on tnose least able to bear tne burden. Tne war against inflation must be our top priority. Tnere is no quick or simple solution. Tne war must be waged tnrougn a comprenensive strategy on all fronts on a continuous basis. We do nave an integrated strategy. We are marsnalling all resources. We are directing all economic policies toward a total war against inflation. And most of all, we are directing our efforts at tne fundamental causes of inflation ratner tnan just tne symptoms. I would like to outline tne principal policies wnicn together must form tne main forces for our assault. Fiscal Policy Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -4- Firat, io a disciplined fiscal policy. Tne cumulative effect of large federal deficits year after year naa been to fuel tne fired of inflation. We are determined to apply fiscal restraint and move ad quickly ad possible toward a balanced budget. Some progress can already be reported. In 1976, tne federal deficit wad tnree percent of Gross National Product. Tnid year, it will be down to only one percent. Unless tne current receddion deepens, we dnould make furtner progress next year. Even more important id to gain better control over federal dpending and to reduce tne relative role of federal expenditures in our national economy. In 1976, federal upending wad 22.6 percent of GNP. Tnid year it will be down to about 21.5 percent. And we intend to reduce it furtner. Tne net result, over time, of reduced deficits and reduced expenditures ad a percent of GNP will be to release dubdtantial resourced for tne private dector. Tne spending and invedting decidiond of individuals and businesses witn respect to tnede resourced will be far more beneficial to your economy tnan cnanneling tne dame amounts tnrougn government. Monetary Policy A second weapon in tne war against inflation id a disciplined monetary policy. Tne Federal Reserve nad been pursuing a course to keep firm control over tne growtn of tne money dupply. Tne object nad been to reduce progres­ sively tne rate of growtn of money and credit in order to starve out inflation. Again, tnere nad been dome progredd, and growtn rated nave dlowed. For indtance, tne increase in M-1 over tne past twelve montna naa been neld to 4.9 percent -- lead tnan naif tne increaae in conaumer priced. Bu- in recent montna, following tne large increaae in oil priced in tne aecond quarter, tne growtn naa been mucn more rapid. Tne Federal Reaerve naa responded promptly to counter tne trend and to deal witn recent evidence of renewed infla­ tionary pressured. On Saturday evening, tne Federal Reaerve announced unanimous approval for a aeries of complementary actions. Tne discount rate was increased a full percent, from 11 to 12 percent; a marginal reserve requirement of 8 percent was eatablianed for "managed liabilities"; and tne metnod of conducting monetary policy was revised to support tne objective of containing growtn in tne monetary aggre­ gates over tne remainder of tnis year witnin tne previously adopted ranges. In addition, tne Federal Reserve Board called upon banka to avoid making loans tnat support specs- Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -5- lative activty in gold, commodities and foreign exchange markets. These actions should serve to dampen inflationary forces and contribute to greater stability in foreign exchange markets. Pay-Price Policy Fiscal and monetary restraint represent powerful weapons to attack tne fundamental causes of inflation. But they take effect with some lag. Therefore, another impor­ tant policy is the voluntary program to moderate pay and price increases and tnus provide time for tne other basic policies to take hold. Because of widespread cooperation, most major corpora­ tions and most labor contracts have been in compliance with the voluntary standards during the first year. As a result, overall price and pay increases have been smaller than otherwise would have been experienced. For the second year of the program, it was felt desira­ ble to provide for greater participation by management and labor in the process of establishing and applying pay stan­ dards. This should help avoid inequities which otherwise may develop over time. A tripartite Pay Committee, to be chaired by John Dunlop, is tnerefore being established, with a first task of recommending pay standards for the period ahead. In this connection, the Administration worked out a National Accord with American labor leadership in support of the war against inflation and providing for labor involve­ ment in the pay-price program. Government Regulations In battling inflation, we must not overlook the cost-raising actions of government. Among tnese are the costs of unnecessary regulation. We must intensify efforts to reduce the burden of government, and in particular the burden on the banking system. But let me not raise false nopes. When I was at the Federal Reserve we launched Project Augeus -- to undertake the herculean task of cleaning out regulatory stables that seemed somewhat like the stables of Augeus that had gone uncleaned for thirty years. The effort continues; and I nope to launch a similar attack at Treasury. But it is not easy. Much regulation is founded in statute, and while we can improve and shorten and clarify, we often need legislation to make real reductions in burden. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -6- So it will take time, and will need your nelp and aupport. I would particularly welcome your auggeationa and recommendationa in tnia area. Energy Policy Tnere can be no doubt tnat reducing our reliance on imported oil ia eaaential for botn controlling inflation and atrengtnening tne dollar. Tne ten-fold increaae in world oil pricea naa been a principal contributor to tne accelera­ tion of inflation during tnia decade. Oil price increaaea nave come in two major wavea: tne firat in 197^ following tne oil embargo and tne aecond earlier tnia year following tne upneaval in Iran. It ia imperative tnat we eatablian our energy indepen­ dence. It ia eaaential to our nation’a aecurity tnat we gain control over our own deatiny. It ia urgent tnat we move witn all poaaible apeed. It ia vital tnat we puraue multiple optiona ao aa to aaaure total aucceaa. For two and one-naif yeara Preaident Carter naa aougnt aupport for a broad and comprenenaive energy program to acnieve tnoae objectivea. But becauae we are a neterogen- eoua country, becauae aome regiona are producera and otnera are conaumera, becauae aome areaa nave one or anotner form of local energy aupply and otnera are totally dependent on outaide aourcea, it naa been excruciatingly difficult to hammer out a national energy program. Some important parta of tne program nave fallen into place earlier, aucn aa tne natural gaa bill enacted a year ago. Now, remaining critical elementa are under active review by tne Congre a a. Tne Preaident naa recently taken two major atepa under nia own powera and on nia own initiative. He naa decontrol­ led domeatic crude oil pricea over tne next two yeara, witn immediate decontrol of neavy oil. And ne naa limited importa to no more than 8.5 million barrela per day, tne level tnat prevailed in 1977. Tne Preaident naa eatablianed an even lower import limit of 8.2 million brrela of oil per day for tnia year. Tne prioritiea for our national energy program are clear . Firat, conaervatio.n. Tnia ia tne aureat, cneapeat, cleaneat way to reduce our dependence on oil. Second, increaaing tne development and uae of conventional domeatic aourcea of energy, aucn aa oil, gaa, and coal. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -7- Tnird, increasing tne use of renewable energy sources, such as solar, alconol, biomass, wind and wood. Fourtn, to assure longer term supplies, tne rigorous development of unconventional domestic energy sources, such as synthetic fuels from coal and shale and unconventional natural gas. To provide capital resources for the overall program, a special excise tax--tne Windfall Profits Tax--nas been proposed and nas already passed tne House. The purpose of the tax is to allocate tne increased revenues generated by decontrol of domestic oil prices. A good part of the increased revenues will remain witn tne oil producers to provide tne means for them to continue and expand production of conventional energy. Some of tne increased revenues will also be allocated to tne Energy Security Corporation to finance projects wnolly in the private sector for tne development of unconventional energy. These projects will be large scale ventures, with unusual risks, and would not likely be undertaken by private companies on the scale needed without government financial assistance. As an alternative, ratner tnan seeking financing from the Energy Security Corporation, private companies will be able to take advantage of special tax credits for unconventional fuel production. To round out the program, an Energy Mobilization Board nas been proposed in order to shorten the time for obtaining permits for energy projects. We cannot afford unnecessary delays. Wnen fully in place, the energy program is expected to cut oil imports by more that 50 percent so that in 1990 we are importing 4-5 million barrels per day ratner tnan our current level of more than 8 million barrels per day. Tnis will put us well on the way to energy independence. Investment Policy Finally, a few words about capital investments. For some time, our nation nas given too mucn emphasis to consumption and too little emphasis to investment in productive facilities that make consumption possible. We nave fallen benind other leading industrial nations. Japan spends over 20 percent of GNP on capital investments; Germany over 15 percent. In the United States, we have been running at 10 to 11 percent. Our savings rate, at about 4.5%, is the lowest in tne developed world. As a result, our productivity has lagged. Tnis must not continue, or else our competitiveness in world markets will be seriously impaired. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -8- In coming montns, tnerefore, we exppect to be working to create conditions and incentives tnat will encourage tne savings, investments and productivity tnat are so essential to economic progress witn price stability. Tne Dollar I nave not spoken specifically about tne dollar tonignt, but let me point out tnat controlling inflation 3nd reducing our dependence on imported oil are essential to strengtnening its international value. We nave taken strong steps recently to strengtnen tne dollar. Let me empnasize again tnat tnis Administration is fully committed to tnat course. I am fully confident tnese steps will be successful and we are prepared to take successive actions should tnat become necessary. Conclusion Inflation will not disappear overnignt, but I am confident it can be defeated if we nave tne courage and tne willpower necessary to devote ourselves to tne fight. Tnis will require tnat all of us be willing to accept a period of austerity in America and focus on tne long term public good ratner tnan just our own snort term self interest. In tnat regard let me return to wny we are nere. C.C. Hope and Claude Pope symbolize tne kind of American business leader wno works long and nard in their own business as well as in tneir outside activities to make tnings a little better for everyone. If all of us take tnat approach more often, we will be able to successfully address tne difficult economic cnallenges of our time. 0OO0 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis

G. William Miller (1979, October 10). Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/speech_19791011_miller

@misc{wtfs_speech_19791011_miller,
  author = {G. William Miller},
  title = {Speech},
  year = {1979},
  month = {Oct},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/speech_19791011_miller},
  note = {Retrieved via When the Fed Speaks corpus}
}