Speech

1 2 3 UNITED STATES OF AMERICA 4 5 DEPARTMENT OF TREASURY 6 7 MARCH 27, 1980 8 9 REMARKS OF: 10 The Honorable G. William Miller, 11 Secretary of the Treasury 12 13 BEFORE THE: 14 National Press Club Washington, D.C. (Transcript prepared from tape furnished by the Agency) NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS Digitized for FRASER 1330 VERMONT AVENUE, NW https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis WASHINGTON, D.C. 20005 2 SECRETARY MILLER: Thank you very much, Mr. 1 President. Members and guests of the National Press Club. 2 We're meeting today when inflation is the topic of the day. 3 It's the subject on the lips of all Americans, it's the 4 subject on Main Street, in homes, in offices, in factories 5 throughout the nation; because inflation is our most sen- 6 7 ous problem. On March 14, President Carter launched an inten 8 sified campaign in the continuing war against inflation. 9 Rapid changes in world events and economic prospects had 10 made it necessary for the President to act decisively m 11 countering heightened inflationary expectations, which were 12 contributing to the disturbances in financial markets. It 13 is very difficult to identify the exact event that triggere 14 the rush early this year to spend and to borrow. It may 15 have been the Soviet invasion of Afghanistan, with concern 16 about instability in Southwest Asia, and additional demands 17 upon the Federal budget; it may have been the price indexes 18 which reflected the large increases in oil costs and in 19 home financing charges. It may have been the unfounded 20 rumors that we were on the verge of wage and price control 21 that set off anticipatory reactions of various kinds. 22 But whatever the cause, there was an unexpected 23 surge of credit demands and of spending actions. The 24 25 NEAL R. GROSS Digitized for FRASER COURT REPORTERS AND TRANSCRIBERS https://fraser.stlouisfed.org 1330 VERMONT AVENUE, NW Federal Reserve Bank of St. Louis 3 expected slow-down -- expected by almost all economists 1 just did not materialize. It was, therefore, necessary for 2 the President to act promptly and forcefully on the reali­ 3 ties of economic behavior, undeterred by whatever may have ( 4 been the expected outlook last December. 5 Inflation is our most serious problem; it is a 6 threat to the economic security of our nation, and to the 7 world. And because our total security depends upon a 8 strong and productive economy, inflation is a danqer to our 9 10 nation itself. The war against inflation is not new. For the 11 past two years, the two years that I have been in Washing­ 12 ton, the Administration has been busily engaged in mobili­ 13 zing an array of policy weapons to carry on the battle. 14 Our purpose has been to strike at the root causes of infla­ 15 tion, rather than just attacking the superficial signs. 16 This has meant persistent efforts to impose greater fiscal 17 18 restraint, to maintain monetary discipline, to assure a sound and stable dollar, to seek moderation in wage and 19 price decisions, to forge a comprehensive national energy 20 policy which will reduce our dependence upon foreign oil, 21 and address the structural problems which impede 22 ( economic efficiency and progress. 23 The President's new initiatives will reinforce 24 25 NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1330 VERMONT AVENUE, NW Digitized for FRASER https://fraser.stlouisfed.org (202) 234-4433 WASHINGTON, D.C. 20005 Federal Reserve Bank of St. Louis 4 1 and intensify these policies by introducing greater disci­ plines in five areas. First, by balancing the budget. 2 Second, by restraint on credit availability. Third, by 3 improving the voluntary program for wage and price moder­ 4 ation. Fourth, by greater conservation of energy. And 5 fifth, by structural improvements to make our economy work 6 better. Wherever possible, the President has taken immed­ 7 iate action on his own authority, on areas that could work 8 9 immediately. In areas that require congressional action, particularily in balancing the budget, the President's 10 proposal has been developed through close consultation 11 12 with Congressional leadership. Let me briefly review some of the major elements 13 of this intensified activity. First the budget. 14 15 A balanced budget in FY 1981 will mean the first 16 balanced budqet in 12 years after 20 years of only one occasion of having a 17 18 surplus. During the 12 years since the budget was last 19 balanced, the United States has built up one half trillion 20 dollars of federal debt to pay for the cumulative deficits. And so it is an important turning point, an important water 21 22 shed for us to reverse a long period of two decades of 23 living beyond our means and financing the federal deficit, 24 financing the federal spending through borrowing, for us 25 NEAL R GROSS COURT REPORTERS AND TRANSCRIBERS 1330 VERMONT AVENUE, NW Digitized for FRASER (202) 234-4433 WASHINGTON, D.C. 20005 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 5 to now face up to, and to achieve, a balanced budget. 1 There are certain principles that we will pursue in achiev­ 2 ing this balanced budget. The first is that the balance will 3 be attained through spending and program reductions, and 4 not through additional revenues. Because there will be 5 some additional revenues from such sources as the gasoline 6 conservation fee, this means that the revised budget that 7 will be presented next Monday will show a surplus. 8 A second principle is that the reductions that 9 we must make in spending and in programs will be spread 10 widely over the budget areas. Austerity in federal snendin 11 will be fairly shared; no area will be asked to bear an 12 undue burden. 13 A third principle is that, we are committed to 14 maintaining, in full, the essential government services. 15 We do not intend in this budget reduction to cut into the 16 verv necessary programs that make our government go and serv 17 the American people. 18 A fourth principle will be that we will protect 19 those in our society who are most disadvantaged and most 20 in need. We will not balance the budget on the backs of 21 the poor and the indigent. 22 A fifth principle is that the President will 23 present a budget that will be sustained. That will be 24 25 NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS Digitized for FRASER 1330 VERMONT AVENUE, NW https://fraser.stlouisfed.org ||(202) 234-4433 WASHINGTON, D.C. 2000S Federal Reserve Bank of St. Louis 6 approved by Congress. The purpose is not merely propose. 1 but to fulfill and implement the concept of a balanced 2 budget. Therefore, the procedures for developing this 3 program have involved delay. It involved extensive con- ( 4 sultation with Congressional leadership. This was a his- 5 toric event. Never had members of the House and Senate 6 and the Administration sat in such long sessions over such 7 an extended period to hammer out and determine a consensus 8 for achieving the reductions that will bring about a 9 balanced budget. We spent eight consecutive days, and 10 over eighty hours of consultations in order to achieve a . 11 budget that can be presented by the Administration with 12 great support in the Congress. 13 ( A sixth principle is that, in balancing the bud- 14 get, the President will not consider any tax cuts until the 15 balanced budget has actually been achieved or approved. 16 Tax cuts, even meritorious tax cuts, must be earned first 17 by demonstrating our commitment to fiscal responsibility. 18 It'S too easy to fall back into the easy course of giving 19 away money before we are able to put in the disciplines of 20 21 fiscal restraint. Now the effects of balancing the budget will 22 ( be analyzed in various ways. I think it is important 23 remember that balancing the budget is not an isolated part 24 25 NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS Digitized for FRASER 1330 VERMONT AVENUE, NW https://fraser.stlouisfed.org „M, 214-4413 WASHINGTON, D.C. 10005 Federal Reserve Bank of St. Louis 7 of the war against inflation. It’s part of a larger 1 pattern, a larger array of weapons that is necessary to 2 carry on this war. It is important to balance the budget, 3 I not only because of the reductions in spending and the 4 demonstration of our ability to contain spending, but tore- 5 store the confidence of the American people that their govern­ 6 ment can live within its means. That is the only way we 7 are going to change expectations about inflation, and 8 change behavior patterns to support a non-inflationarv 9 program. 10 The reduced credit demands from balancing the 11 budaet are significant. We are now in a period 12 which approaches tax day in 1980, April 15, when all 13 ■f i' individual taxes come due. And during the period of tne 14 next few weeks, we will be sending out large amounts of 15 money to Americans as tax refunds. And during that period, 16 we’ll have to borrow some money in the credit markets. 17 But from April 15 on, the federal government will have very 18 little demand for the rest of FY 1980 in the financial 19 markets. And by balancing the FY 1981 budget, we will very 20 substantially reduce those demands for the following 12 21 months. So we can look ahead for 18 months of a very sign­ 22 € ificant reduction in federal government demands in financial 23 markets. This is the way in which we can relieve the pressure 24 25 NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1330 VERMONT AVENUE, NW Digitized for FRASER https://fraser.stlouisfed.org (202) 234-4433 WASHINGTON, D.C. 20005 Federal Reserve Bank of St. Louis on those markets and hasten the day when we can turn to more normal conditions and more appropriate levels of interest rates that will sustain the normal activity of our economy. So this balancing of tne budget is to be looked at not only in terms of the reduction of spending, but =,c—- - «»• 1° a reduced demand of the federal government for borrowirg and, therefore, a very much improved condition for capital to be available for small businesses and farmers and the enterprises that create the investments and build the gobs that are necessary for our economic progress. The second area I want to comment about, briefly^ is the area of credit restraints. The action in this area was taken by the President under his own authority, anc by the Federal Reserve under its own powers. The actions by the President were intended to strengthen the Federal Reserve, to give it greater capacity to deal with the growth of money and credit within the banks and depository institutions. The Fed has been authorized to extend some of its normal techniques for control to the nonmember banks, and therefore, to become more forceful in its effort. f to restrain excess credit. But beyond that, the President activated the 25 NEAL R. GROSS Digitized for FRASER COURT REPORTERS AND TRANSCRIBERS https://fraser.stlouisfed.org 1330 VERMONT AVENUE, NW Federal Reserve Bank of St. Louis 9 Credit Control Act in order to give the Federal Reserve the 1 capacity to restrain credit in areas where it was bubbling 2 up and surging beyond a healthy level. We, of course, did 3 not touch the areas of the economy that are already weak. 4 There are no new restraints on lending for home mortages. 5 No new restraints on lending for purchase of automobiles, 6 an area of the economy that is weak. 7 But there is restraint at the margin on continued 8 use of consumer credit, and continued use of certain kinds 9 of intermedaries that are draining resources out of the 10 normal flow of funds. The President acted, and the Federal 11 Reserve acted, to apply most flexible method of 12 controlling credit. The actual restraints deal with mar­ 13 ginal requirements for reserve deposits on the further 14 growth of these credits. There was no restraint on the 15 outstanding credit balances. It's merely that if the credit 16 grow further, it will be less convenient. And the decisior 17 was to do this in a way that left it to every financial 18 institution to decide whether it wanted to merely take this 19 inconvenience, make these deposits, or whether it wanted t< 20 restrict its own activity. There is no restraint on an 21 individual account. There is only a requirement that each 22 institution adjust its activities in credit extension to 23 take account of this necessary restraint. 24 25 NEAL R. GROSS COURT REPORTERS AMD TRANSCRIBERS Digitized for FRASER 1330 VERMONT AVENUE, NW https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis (202) 234-4433 WASHINGTON, D.C. 20005 10 And the Federal Reserve also acted to establish 1 a special credit restraint program with all of the major 2 banks they deal with, encouraging them on a voluntary basis 3 to help in this effort to dampen the excess demands and to 4 take the pressures off the financial markets. 5 A third area that I might mention is the area of 6 energy. There is no way that we are going to solve the 7 problem of inflation, long-term, unless we deal with the 8 issue of energy. For historic reasons, we have come to the 9 point where we are far toodependent upon foreign oil. We 10 now have 45 percent of all of our oil coming on a very 11 fragile, thin, uncertain supply line from parts of the won 12 that are not secure. And that dependence in our economy is 13 a very serious threat to us. We must move as rapidly as 14 we can to reduce that dependence on imported oil. Tor 15 three years, this nation has been engaged in an extensive 16 debate to change 40 and 50 years of policy, and to shape a 17 new national program on energy that will hasten the day 18 when we are more more self-reliant, less dependent on 19 foreign sources. The programs and the priorities to do 20 this are extensive, and they are beginning now to move 21 rapidly through the Congress, so that we’re on the verge 22 of seeing this major new policy put into place. 23 This is important for many reasons, but if an\ 24 25 NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS Digitized for FRASER 1330 VERMONT AVENUE, NW https://fraser.stlouisfed.org WASHINGTON, D.C. 20005 (202) 234-4433 Federal Reserve Bank of St. Louis 11 1 would be illustrative, it is merely to point out that in this year of 1980, we will send 85 billion dollars abroad 2 to pay for oil. And in 1970, we sent 3 billion dollars 3 abroad. And if in 10 years that kind of increase continued, 4 it doesn't take much analysis to see how difficult our 5 path would be. By 1990, that’s got to be reversed, and it 6 will be, under the programs that have been worked out in 7 the coalition between consuming and producing parts of 8 our nation aimed at changing the directions that have 9 guided us in the past, but need to be adapted to this 10 11 changing environment. 12 In order to accelerate the incentives for con­ 13 servation, the President acted upon his own to impose a { gasoline conservation fee that will increase, starting in 14 May, the price of gasoline by 10 cents per gallon. This 15 16 obviously is not popular. It would be better for the 17 President had he passed by this opportunity. But he has 18 determined—the Administration has determined—that we must 19 work on the most discretionary part of our energy use, and 20 that is the use of motor fuel. There's the place where we can do the most to save. And that is the place 21 22 where we’ve targeted this charge, so that we can create ( the saving, iniatially, of 100 thousand barrels a day, and 23 24 over the next couple of years, to be saving some 250 25 NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1330 VERMONT AVENUE, NW Digitized for FRASER (202) 234-4433 WASHINGTON, D.C. 20005 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 12 thousand barrels of oil per day. We also intend to propose 1 to Congress, that this particular charge be incorporated 2 into a new advalorum gas tax that would include the present 3 four cent tax, plus the ten cent tax, and become a perman­ 4 ent part of our system of restraint. 5 Gasoline in the United States is selling far 6 below its price almost everywhere else in the world, 7 and most major countries have taxes that run from 75 cents 8 to a dollar and a half a gallon, while we’re paying less 9 for our gas than the tax in most European countries. They 10 have imposed those taxes to create restraint, and we 11 need also to take steps in this direction. This will not 12 be popular, but it is necessary, and we hope that everyone 13 will cooperate, and redouble their efforts to spend no 14 more for gasoline by using 10 percent less. It costs no 15 more, and everyone can enjoy the same standard of living. 16 The program involves other elements, but I will 17 not take your time to outline them, because I believe most 18 of you are familiar with the other activities that we are 19 intensifying. I merely want to point out, that this progr 20 is powerful, it is tough, it will impose some pain. It wil 21 be seen most quickly in credit restraint, it will be 22 seen quickly in the gasoline charge; but the effects of 23 the budget action will become also very powerful as they 24 25 NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1330 VERMONT AVENUE, NW Digitized for FRASER (202) 234*4433 WASHINGTON, D.C. 20005 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 13 begin to reduce the government presence in financial 1 markets. But, tough as the program may be, and painful as 2 it may be, it is fair. It is not asking anyone to share a 3 burden not shared equally by all Americans. And whatever 4 transitory inconvenience there may be, will be far out­ 5 weighed by the greater benefit we all will receive by 6 7 beginning to unwind inflation, and return to the kind of 8 price stability that is the only way that we will have real 9 incomes- and real values and real progress in our economy. The war against inflation will not be won quickly. 10 It will not be easy to win the war. And the war will go 11 12 on for a number of years. The President's announcement on March 14 is not putting inflation to bed. Its part of the 13 continuing war, it's part of the continuing campaigning 14 There will be other features, other initiatives, there will 15 be adjustments, tactical adjustments as there are in any 16 war. Fielding an army doesn't win a war, putting the army 17 18 in the field is only the beginning of a campaign, and there 19 will be advances and offensives and there will be setbacks 20 and there will be action. But what is essential is that we 21 keep our purpose, that we maintain our consistency, and we 22 not be deterred from the ultimate purpose of winding down inflation, which is the only way that we can assure to all 23 24 you and to all Americans and to all of the world, the 25 NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1330 VERMONT AVENUE, NW Digitized for FRASER (202) 234-4433 WASHINGTON, D.C. 20005 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 14 ,utlook for peace and prosperity that is out ultimate goal. 1 Thank you very much. 2 . As you can imagine, we have a 3 number of questions that came up, the first is, Hr. Secre­ 4 tary, if the accumulation of half a trillion dollars in 5 national debit is so bad, why in the world has the Carter 6 Administration supported two tax cuts in the past three 7 years, and why would you ever consider a tax cut after the 8 fiscal '81 budget is put into balance? 9 SECRETARY KILLER: This question was intended 10 for Pavarotti, obviously. It's been misplaced. 11 The answer is that when the Carter Administration 12 first came into office we were suffering from the greatest 13 recession that we had had since the Great Depression of the 14 30's. We had been at a level of almost nine percent un- mployment. I think when the President was inaugrated, t was still over eight percent. And the economy needed ;o get going again in order to avoid the continuation of iccumulated deficits. The results of the Great Recession of '74 - '75, ,as that the year before the President took office the deficit was 67 billion dollars— the largest deficit we ever had in peacetime. And if it would have been helpful to continue that process rather than getting the economy NEAL R GROSS COURT REPORTERS AND TRANSCRIBERS Digitized for FRASER 1330 VERMONT AVENUE, NW https://fraser.stlouisfed.org u/ituiur.Tnw D.C. 20005 Federal Reserve Bank of St. Louis 1202) 234-4433 15 1 going, I’m sure the President would have considered it. I 2 was not here at the time, but I think the first priority 3 was to get that deficit down by getting jobs and getting ( incomes and tax receipts up rather than to continue 5 to drain the economy of its productive capacity. Once that 6 had happened, then we must move as rapidly as we can toward 7 the concept that in normal times when the economy is opera- 8 ting normally, we should be in balance. If we have a re_ 9 cession, we will go into deficit, if we have a boom, we 10 should have a surplus in order to bring us back to normal 11 And that is the philosophy we must return to after 12 20 years of believing that it should just be deficits. And 13 there should be a normative period for balance, there shoul d 14 be deficits, and there should be surpluses. 15 QUESTION: Two questions along the same line. I6 If you are confident that after April 15 the federal goverr 17 ment will not have to borrow new funds, will that then 18 result in the interest rate dropping, and, if so, how soon 19 do you see the interest rate dropping? 20 SECRETARY MILLER: Let me take the opportunity 21 to thank you for the question, because I hope I said 22 that we would have less credit demands after April 15, not 23 none. For the balance of FY '80, I suspect we'll net out 24 with—we may borrow from month to month a little—but it 25 NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS Digitized for FRASER 1330 VERMONT AVENUE. NW https://fraser.stlouisfed.org (202) 234-4433 WASHINGTON. D.C. 20005 Federal Reserve Bank of St. Louis 16 will net out With very little demand for credit. And then, 1 in FY '81, over quarters there may be variations, but 2 over the whole year there should be very little demand for 3 credit. I hone you won't write zero, but write low. And 4 the answer to that is yes, over time that reduction of de- 5 mand in credit markets as against the supply of resources, 6 means that like any other supply-demand equation, 7 pressures would come off and one would expect that as the 8 demands of government abate, as inflation abates, 9 interest rates themselves will begin to come down. When , 10 and how much, I've learned a long time ago not to predict. 11 because everybody runs for the phone and we lose the audiehce 12 and then you don't have anything to talk about. 13 QUESTION: Will the Administration actively 14 oppose the House Budget Committee's to set aside funds for 15 16 a tax cut? SECRETARY MILLER: The President is firm in his 17 conviction that we should not consider tax cuts until we 18 have a balanced budget in hand. And, in that sense, the 19 non-binding actions of the Congress to indicate that, in 20 due course, funds that are in surplus might be used, are, :E 21 think, merely statements of hope and purpose and are 22 not binding. 1 don't think it's inconsistent for the 23 nd Congress to have that hope and that expectation someday, a 24 25 NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS Digitized for FRASER 1330 VERMONT AVENUE, NW https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis _________- ______________WASHINGTON, D.C. 30005___________________________________________ 17 1 for the President to say, but not until we have together, the Congress and the President and the Administration, giver 2 the American people a balanced budqet. We must earn our 3 way toward the time when we can begin to relieve the burder 4 on American people, which we must do and we want to do. 5 But we can’t mislead people, there’s no way to have a fret- 6 7 lunch, and we’ve got to keep the discipline upon ourselves to hold down spending before we take the dividends and the 8 9 rewards. QUESTION: What sacrifices and pain will the oil 10 companies in the United States be expected to sustain, 11 12 along with those of the people in this country? SECRETARY MILLER: Well, today, after what seems 13 like six years of work—although as I recall it’s six month 14 it seems like six years of my time—the Senate passed the 15 windfall profits tax by 6G to 31; and I guess now we will 16 have that bill on the Presidents desk. There may be dif:- 17 18 erences of opinion about that bill, but it does represent a very important policy decision of the President, which 19 20 is correct. That is, we must recognize that we cannot suppress the real values of energy, because we will supress 21 the production of energy if we try to artificially hold 22 23 down the prices for oil and gas. 24 So the President has acted to de-control the 25 NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS Digitized for FRASER 1330 VERMONT AVENUE, NW https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis (202) 234-4433 _______________WASHINGTON, D.C. 20005 18 omestic price of oil over the period between last dune and 1 .eptember 1981. That means all those who are producing 2 ,il would be able to get higher prices, and that would 3 :reate a windfall, not from their prior decisions and in­ 4 vestments. The whole purpose of this tax was to fairly 5 share that increased revenue with the national interest, 6 so that, some of those revenues can be used to reimburse 7 Poor people who cannot afford to pay the higher price of 8 oil. Some of it will be used to finance the development 9 of unconventional sources of energy, to begin to build ou. 10 domestic alternative to imported oil. And some of it used to support conservation, public transit, and the conver­ sion of utilities from oil to coal. we asked for more. The Congress in its actions has resolved it in a way which we believe accomplishes thn substance of what we sought to achieve, and I believe ais is a great victory for the Administration and for the 3ngress and for the American people to have a fair sharing f these resources so that we can accomplish the broader urposes. The oil companies, therefore, are going to be sked to share, and not to merely benefit. And we are ,oing to expect them to reinvest all of their availat resources to help build American independence in energy, ind to reduce our dependence on imported oil. HEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS Digitized for FRASER 1330 VERMONT AVENUE, NW https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 19 QUESTION: You said on Face The Nation that the 1 inflation rate in 1980 would average 11 percent. In light 2 of the latest CPI figures, do you still believe the 11 per­ 3 cent estimate is realistic, and if so, could you offer a 4 general rundown of how we can average 11 percent? 5 SECRETARY MILLER: The increased inflation that 6 we've seen in the first part of the year is very much in­ 7 fluenced—as you've noted in the reports out this week 8 for the CPI for February—has been very much governed by 9 • rsii Anr) pnerav prices, and increases in the increases in oil ana energy , 10 home financing charges, higher interest rates on mortages, 11 if you will. Both these factors should be slowing down. 12 We've had in 1979 the greatest increase in oil prices 13 in history. In fact, through all of the history of using 14 oil, oil had gotten, by the beginning of 1979, to 13 dollar 15 a barrel. And in 14 months it's gone up 18 dollars a barrel 16 So while it had grown over all of the history of oxi up tc 17 13 dollars in 14 months it went up 18 dollars per barrel 18 mre. And that's what is showing up in all of these inflation figures. 19 We do not believe that that rate of increase will continue. 20 21 || We believe that there will be a much smaller, increase in world 22 II Oil prices this year, so that those factors, as they work ( 23 II into our economy and show up in all of the prices of ener . and finally show up in all prices, will begin to wear down. 24 25 NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1330 VERMONT AVENUE, NW Digitized for FRASER https://fraser.stlouisfed.org WASHINGTON, D.C. 20005 (202) 234-4433 Federal Reserve Bank of St. Louis 20 1 We believe the pressures in the credit markets 2 will be relieved later in the year, and that interest rates 3 will not contribute to additional increases. So we believe 4 that that sector -also will begin to give us seme relief. In the 5 meantime, major areas such as food have been in a very 6 neutral stance. We have not been having the large increase 7 in food that we had a year ago. So we’re getting some re- 8 9 lief on the food that was the main factor maybe four or five quarters ago, and now we're going to see some relies 10 11 from these other areas. And, as there is generally a damping in economic 12 activity and a slowdown in the economy, we think that alx 13 prices will begin to stabilize. It appears in our wording 14 a dynamic review of the economic outlook, that it is qi.ite 15 possible to target—and I said on Face The Nation we would 16 17 try to target in that direction, I didn't promise that we would achieve— but we do believe that it is realistic -or 18 us to target for an 11-12 percent rate of inflation, measures 19 by the CPI for this year, and that we will be back in 20 single digit inflation numbers in 1981, if we don't have 21 any more international events that interrupt the progress. 22 We always have to hedge that view, because if there is seme 23 change of government, some shutdown of oil production, some 24 25 NEAL R. GROSS Digitized for FRASER COURT REPORTERS AND TRANSCRIBERS https://fraser.stlouisfed.org 1330 VERMONT AVENUE, NW Federal Reserve Bank of St. Louis 21 disturbance, some war, this could all be changed. But on 1 the present circumstances, I think it is quite realistic 2 because of these factors, these special factors that have 3 driven up inflation, will begin to abate, and I think we 4 will see some relief, although inflation will continue at 5 a completely unacceptable level. And our job beyond 1930 6 and 1981 is not just to get down to 11 or 12 percent ano 7 then on to single digit, but to keep the pressure on, so 8 that ovet four, five, six, seven years, we bring it down 9 and finally make it a commitment of this nation to have 10 aq it can possibly be maintained, 11 inflation as near to zero as it f QUFSTION: Your comments about the internations_ 12 scene lead into the next question. If additional economic 13 sanctions against Iran were considered desirable, what 14 measures might be candidates for effective action? 15 SECRETARY MILLER: Well, as you know, the UH 16 resolution was vetoed that would have had an international 17 program of sanctions against Iran. Because of developments 18 Since that UN vote, which looked like there were various 19 channels and promising prospects for some movement in 20 dealing with the hostage issue, this subject of sanctions 21 has been laid aside. Now that there has been some dis­ 22 ( appointment in the recent initiatives, I suspect this will 23 have to be reviewed. But I believe it would be more 24 25 NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1330 VERMONT AVENUE, NW Digitized for FRASER WASHINGTON, D.C. 20005 (202) 234-4433 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 22 appropriate for it to be dealt with by the President and 1 the foreign policy advisors rather than for the Secretary of 2 Treasury to announce foreign policy here today altho 3 I'm always happy to do that if I have the opportunity. 4 QUESTION: In the interest of national and econ­ 5 omic security, if voluntary restraints are not adhered to, 6 Will we have price and wage controls by 1981 or by when? 7 SECRETARY MILLER: We will not have mandatory 8 wage and price controls-^riodl We are irrevocably committed 9 to avoiding mandatory controls for a very simple reason: ' 10 they don't work. They don't work in peacetime, they never j 11 have, and they never will. What happens in a complex 12 economy like ours, if we should put in wage and price con­ 13 trols, is in the first place, we can't control food production. 14 Never have been able to. Second is, I don't think OPEC 15 would abide by it. And that's a little bit of a leak in 16 a dike. Third , those kinds of comodities that are sale­ 17 able in the world, if their price is restrained here, they will be sold elsewhere, and we'll be denied products. You create shortages, you begin to have disruptions- and this happened in '71 and '73 when we had controls. We had shortages of fertilizers because they were being sent abroad. In '71 coal companies wouldn't make contracts with utilities because thev didn't know NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1330 VERMONT AVENUE, NW Digitized for FRASER WASHINGTON, D.C. 20005 https://fraser.stlouisfed.org (202) 234-4433 Federal Reserve Bank of St. Louis 23 1 whether they would be frozen at some unreasonable price for coal. So utilities couldn't build extensions of 2 their plants, and you had shortages there. 3 4 There was a liquidation of beef herds because ranchers couldn’t make any money. And so we're paving more 5 for beef today than we would have if we had not had controls 6 in '71 and '73. And it's very nice to do it for short 7 term and give the illusion of controlling inflation, be­ 8 9 cause it looks good for a period. It would be very con­ venient to go through an election date with controls, but 10 11 it would do irreparable damage to the economic fabric of 12 our nation, and that's not the way we are going to operate 13 this economy. QUESTION: Has the Treasury decided to completely 14 forego gold sales, even in the form of coins, as Represen­ 15 tative Reuss has proposed, and also, should Ronald Reagan's 16 consideration of a return to the gold standard be an issue 17 18 in the campaign this year? 19 SECRETARY MILLER: The Treasury does not foreco its right and privelege, and possible action from time to 20 time to sell gold. As you know, Congress did require the 21 22 striking of a certain number of medals which will be on sale, when did they say, next summer—it starts in June, 23 Bette, thank you. Starting in June, there will some gold 24 25 NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS Digitized for FRASER 1330 VERMONT AVENUE, NW https://fraser.stlouisfed.org (202) 234-4433 WASHINGTON, D.C. 20005 Federal Reserve Bank of St. Louis 24 medals that have been authorized by Congress. In terms 1 of coins, we do not favor going in that direction, but frorr 2 time to time we may, when we feel it appropriate, sell 3 gold. He don't forego that possibility. 4 I don't think the gold standard will be an issue 5 in the campaign, unless Governor Reagan makes it an issue. 6 And, it may be helpful to the President if he does. 7 QUESTION: If the oil companies are to be taxes 8 for windfall profits on higher prices, does the Administra­ 9 tion intend sometime in the future, to tax homeowner's on 10 the windfall gains in housing prices? 11 SECRETARY MILLER: No. 12 QUESTION: Do you expect, in return for - 13 tration and Congressional effort to balance the budget, 14 that the Federal Reserve will be less restrictive than 15 otherwise would be on credit? 16 SECRETARY MILLER: The Federal Reserve will have 17 to continue to be prudent in endeavoring to restrain the 18 growth of money and credit. The growth of the money agg­ regates should be appropriate to the progress of price stability in the economy. As a result of balancing the budget and relieving pressures in the financial markets, will be much easier, and the job of the Federal Reserve less. However, there is no the pressures will be somewhat NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1330 VERMONT AVENUE, NW Digitized for FRASER https://fraser.stlouisfed.org WASHINGTON, D.C. 20005 (202) 234-4433 Federal Reserve Bank of St. Louis 25 1 quid pro quo, because the Federal Reserve has to work within the environment that exists from time to time, and 2 that will be part of the total fabric of our economy. But 3 there’s no question that as a general proposition to the 4 degree that we have greater fiscal responsibility, and 5 greater fiscal restraint, there is correspondingly, less 6 7 pressure on the monetary system. 8 QUESTION: If gold fell below 500 dollars an 9 ounce today, and will it continue to drop, and drop below 10 400 dollars, do you believe? SECRETARY HILLER: Will Rogers is a great American 11 12 hero, and he said, "These kindsof things, they will fluc­ tuate." Gold has been erratic, and it will probably will 13 continue to be so, because of the very nature on which the 14 gold market operates. I think it would be unwise for me 15 to predict, and if I did I would be wrong: and I'd rather 16 be right, so I will say merely that probably there will be 17 18 changes in gold prices from time to time. 19 QUESTION: How do you foresee budget cuts affect CT 20 existing social programs, particularly the disproportionate 21 effects on minorities and disadvantaged groups? 22 SECRETARY MILLER: I believe that the budget cut that are in process, the expenditure and program reduction 23 that are being approved by the President, will have minima 24 25 NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1330 VERMONT AVENUE, NW Digitized for FRASER WASHINGTON, D.C. 20005 (202) 234-4433 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 26 effect on those who are disadvantaged, those who are dis­ 1 tressed in our society, and the effort is being made to 2 sustain those programs which go those least fortunate in 3 4 our society, most in need of help. We are going to maintain the youth training empldy 5 ment program, we are going to maintain the basic social 6 services, we are going to tighten up on waste and areas 7 where we can merely be more efficient, and we are going to 8 deal with programs, many of which are worthwhile, but whicj 9 are less directed toward these constituncies, . and those 10 who are in most need of help. I believe the budget, when 11 you see it on Monday, will be very responsible in this 12 regard, and I think that we will see that great effort has 13 been made to share, to deal with the matter on a basis that 14 fairly shares the burden, but which does not direct any 15 burden at all who are at the scale where they need our help 16 17 and need our assistance. 18 QUESTION: I think this question came from a government employee. It says, with the CPI goinq up at a 19 current IS percent annually, how will government employees 20 maintain themselves at an average annual cost of living 21 22 increase of five percent? ( SECRETARY MILLER: There is no doubt that we neec 23 to reduce inflation so that all of us can share again in 24 25 NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1330 VERMONT AVENUE, NW Digitized for FRASER WASHINGTON, D.C. 20005 (202) 234-4433 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 27 1 real increases of income. One of the sacrifices that we 2 will have to make, and I guess those in government are 3 called upon particularly to set the example for the natior ( 4 is being willing to see some erosion in real income in orde 5 to gain more opportunity for real income in the years ahead 6 If we try to index everyone to transitory infla­ 7 tion figures, which incidently are overstated in terms of 8 cost of living, we will rachet the whole society up into an 9 endless pyramiding of geometric progression. So I’m afraid 10 we are all going to have to suffer some, and I suspect 11 government employees will have to bear a special responsi­ 12 bility to set the example. 13 The 18 percent inflation does not, however, re­ 14 flect the change in cost of living because it overstates 15 the cost of living in some ways. The CPI is correctly a 16 Consumer Price Index. It's an index of things consumers 17 might buy. But since consumers don't buy that basket of 18 goods, they buy something else, the cost of living is 19 affected by what they really buy, not what they might buy. 20 The best example is that the CPI assumes that everybody 21 buys a new house at current prices and current mortgage 22 rates every month. But very few Americans buy a new house 23 at current prices and current market mortage rates every 24 month, so it greatly overstates that component. And, 25 NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1330 VERMONT AVENUE, NW Digitized for FRASER (202) 234-4433 WASHINGTON, D.C. 20005 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 28 1 obviously, we’ve had, in a period of rising home financing 2 charges, considerable distortion. It runs about two and 3 a half to three percent in these figures, just from that 4 one factor alone that overstates what really is costing 5 consumers. But the point is that inflation, however mea­ 6 sured, is higher than we're likely to see pay increases 7 this year for government employees, and for many other 8 employees. And that's part of the austerity we need to 9 show and accept, fairly, so that we can wind down inflatior 10 and return to a period where we can expect annual increases 11 in real incomes. If we don't do it now, then our prospects 12 for increases in real incomes in the future will be very 13 dim indeed. If we just put off the day of reckoning, then 14 we'll never get there. But if we will tighten down and 15 wind down that inflation factor, we'll be surprised how 16 rapidly we can return to a time when we can achieve real 17 increases in income. 18 QUESTION: Chrysler has been having difficulty 19 getting additional bank financing to meet requirements for 20 federal loan guarantees. In view of these problems, which 21 include the default on a 10 million dollar loan to a 22 Belgium bank, and the weak economic outlook for the auto 23 industry, do you expect Chrysler to ask for additional fed­ 24 eral aid, or a waiver of some of the provisions of the loan 25 NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1330 VERMONT AVENUE, NW Digitized for FRASER 234-4433 WASHINGTON, D.C. 20005 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 29 guarantee act, so it can draw on the federal loan guarantee): 1 2 immediately? SECRETARY MILLER: The process of negotiating 3 the Chrysler financial package has been going along now sine 4 the beginning of the year. Originally, it appeared that 5 Jhrysler would need funds as early as January. Bu , 6 each month has come by, Chrysler has put a piece of its 7 package together and been able to raise and complete parts 8 of the financing package required by the loan guarantee 9 act, and therefore, has been able to sustain its cash flow 10 at a very satisfactory level -^11 of which is contributing 11 toward the final financing package. 12 The banks are negotiating with Chrysler now for 13 , , t ran't tell you the final out-' their part of the packaae. 14 cone, but I believe that it will probably 15 ,ork out, that they will find accomodation and find a way 16 -o work out that piece of the puzzle. The puzzle involves 17 contributions from Chrysler employees, most of which has 18 □een accomplished already. It requires some sales by Chrysler of surplus assets, and they’ve done some of that alreaay It requires some help from their dealers and their suppliers, and they have some help, but they are offering now a debenture, you may have read in the paper today, to those suppliers in order to finance that part- NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS Digitized for FRASER 1330 VERMONT AVENUE, NW https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis an aAH WASHINGTON, D.C. 20005 30 1 QUESTION: What are your plans for the Susan 2 Anthony dollar? Is it to be altered or suspended? 3 SECRETARY MILLER: We have Undersecretary Bette 4 Anderson to answer that, because she’s in charge of the 5 Susan B. Anthony dollar. 6 Well, with this radio broadcast and telecast going 7 out everywhere, I can just say to everybody, if they would 8 just start demanding the Susie B's when they go around, the 9 problem would take care of itself. But if you don’t demand 10 the Susie B, we’ll have to change its color or punch a nol 11 in it or something, so it will get your attention. And we 12 prefer just to keep the nice, vanilla ice cream Susie B's 13 that we now have, so we hope you'll support the use of the: 14 UNDERSECRETARY ANDERSON: I'm delighted to have 15 this chance to share with you the fact that in the past fiv 16 z/eeks, we have put an additional ±5 million Anthony coins 17 in circulation through the assistance of the United States 18 Post Office, on a voluntary basis. Our hope is that 19 we will continue to do that, and that you wili ask for then 20 at your local bank. You know, the reason this coin was 21 introduced was for economic reasons, saving you as America: 22 taxpayers, and we really have a responsibility to help 23 circulate this coin. So we’re not going to discontinue it, 24 25 NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1330 VERMONT AVENUE, NW Digitized for FRASER https://fraser.stlouisfed.org (202) 234-4433 WASHINGTON, D.C. 20005 Federal Reserve Bank of St. Louis 31 we're going to continue to try to promote it, and encour­ age you, the American people to use it. Thank you. SECRETARY MILLER: You know, what Bette says is worth noting. The paper dollar wears out. Paper wears out so tne average life of a dollar bill is about 18 months, and the we have to reprint it and recirculate it. The average life of a coin is 15 or more years. And so, obviously, there’s more sense for taxpayers to use something that will have long life, that will not have to be replaced. So there is quite a saving if we can achieve it. But they are very convenient, those of you who are golfers pay off your Nausau’s in Susie B's, and you car get this thing going. QUESTION: Why in the time of the energy shortage and pollution problems did this Administration choose to cut 265 million dollars from mass transit aid? SECRETARY MILLER: The Administration of course has not announced its budget. It will come out Monday, so someone is looking at some preliminary figures. But it's true that there may be adjustments in the funding for mass transit. I think when you see the results you’ll find there is some rescheduling some deferrals, and that you’ll find the fundamental prog­ ram and support for moving toward more public transporter! NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1330 VERMONT AVENUE. NW Digitized for FRASER https://fraser.stlouisfed.org WASHINGTON, D.C. 20005 (202) 234-4433 Federal Reserve Bank of St. Louis 32 is solidly in place. But I think we can schedule in a way 1 that takes pressure off the budget. I 2 hope you'll reserve judgment on this, because I think 3 you'll find this program is and will be fully supported. It 4 a question of timing and how we go about it. 5 QUESTION: Before asking the final question, Mr. 6 Secretary, I'd like to present you with a certificate of 7 appreciation from the Press Club, and also a Press Club 8 9 tie . The final question is a very good one. It says, 10 in light of your comments about inflation and the interest 11 rates, have you ripped up your credit cards yet, and if 12 13 you haven't do you want to do it now? SECRETARY MILLER: Well, Mr. President, I than*, 14 you for the certificate, I thank you for the tie. The last 15 time I was here I got a windbreaker, and considering the 16 chill about our program, I should have gotten a windbreaker 17 today. The answer is, of course I have not ripped up my 18 credit cards, I've ripped up my wife's credit cards. 19 20 21 22 23 24 25 NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS Digitized for FRASER 1330 VERMONT AVENUE. NW https://fraser.stlouisfed.org WASHINGTON. D.C. 20005 Federal Reserve Bank of St. Louis (202) 234-4433

G. William Miller (1980, March 26). Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/speech_19800327_miller

@misc{wtfs_speech_19800327_miller,
  author = {G. William Miller},
  title = {Speech},
  year = {1980},
  month = {Mar},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/speech_19800327_miller},
  note = {Retrieved via When the Fed Speaks corpus}
}