placed in full in the record. And now if you would be good enough to proceed in your own way to summarize your remarks, or in any way you want, and then we will have some questions to ask you.

STATEMENT OF ALBERT E. SINDLINGER, CHAIRMAN OF THE BOARD, SINDLINGER & CO., INC., MEDIA, PA.

Mr. SINDLINGER. Thank you, Mr. Chairman.

The hour is late, and under the conditions, I am going to really go through my testimony fast, and hit some highlights, because I would like to have a little chat with you about a few things when I get through, if we have some time.

In the opening pages of my testimony, I draw some rather disturbing parallels between the current economic conditions which are present in the Nation today and those conditions which led to the depression of the 1930's. And I note that faulty manmade monetary policy triggering the Great Depression, and how these errors touched off the depression's most immediate cause, the loss of confidence in our Government, and the loss of confidence in money.

I am particularly reminded that today we are in July, and it was 50 years ago this month that the actions of the independent Federal Reserve Board were creating the Great Depression.

On page 2, I assert that manmade monetary policy mistakes of 50 years ago were based upon the lack of good information, specifically in the area of jobs and money. And my own company, which for the last two decades has been talking to 1,200 household adults every week throughout the Nation by telephone, is the basis for all of the information that I gather and talk about.

At the bottom of page 2, I note that the Government has also responded by establishing the most comprehensive of data, the greatest data-gathering network in the world.

As I sit back listening to the two good doctors here, I can't help but get the feeling the frustration-over so many quotes of inflation rates, and so forth, as being "fact," when I am afraid our statisticstheir statistics are very, very bad in many areas. And that is what I want to touch on.

Again, on page 3, I question whether this information hasn't given us acute indigestion. And I'm afraid that some of the information we have now is so bad that we are worse off than we were 50 years ago.

If I put this pencil-and if this were a glass with water in it-and you looked at this glass, that pencil would look crooked. Now that is a mirage. It is an optical illusion which science can explain.

I maintain that we are bringing on a recession right now, through faulty monetary policy. And the reason that I contend this is that the distorted quality of information that we are making decision upon is a statistical mirage which is causing policymakers, specifically at the Fed, to see things that aren't there, as official data.

To document this statement, I have with my testimony included a series of little booklets. One of the booklets is entitled, "The Advantages of Being a Monk." Another booklet is titled "The Monks of the Monetary Monastery." And then I have five booklets under the title of "The Pleasure of Statistical Narcissism," and identify this as a snake.

The first booklet explains why the practices of the seasonal adjustment has become a snake in our economics. The second covers the Fed's M1 for 1973. The next, for 1974. The next, for 1975. And the next book was for 1976, and I have some more books to follow.

[The booklets submitted for the record by Mr. Sindlinger may be found in the appendix.]

The worst example of the error of this mirage from the seasonal adjustment was the Fed's misguided monetary policy decisions of tight money in 1975, 1976, and 1977, which erroneously forced up interest rates to abort our recoveries that were taking place at that time. Three straight back-to-back years of aborting our economy. And I observed that the two gentlemen this morning both alluded to this.

But what they did not explain, which I want to explain now, is why these mistakes were made. And as page 4 shows, these mistakes were made on a mirage, reading things that were not there.

The two most critical areas for economic policy is the seasonal adjustment, and it is putting us in a position as bad as we were 50 years ago, when we knew nothing.

As I explain at the bottom of page 5, the Federal Reserve Open Market Committee, this past May, by tightening money with its seasonally adjusted M1 aggregate, showed a 20-percent growth increase from the month of April. This was a complete statistical mirage. As I stated on page 5, I question if we are prepared especially the Federal Reserve Board and Congress-for the coming consequences of the turns and the twists from inflation to the consequences of deflation. I listened to the two gentlemen before me, assuming that we were going to have continued inflation. If we have some time, I would like to discuss that I am not worried about inflation in the next 30 to 90 weeks. I am worried about how we are going to cope with the recession and the deflation that is coming, mostly created over bad monetary policy.

On page 5, I ask this committee a question: How can Dr. Burns' Federal Reserve Board control the Nation's money supply when the Federal Reserve Board cannot even read their own figures correctly? They act upon statistical mirages to establish monetary policy. On page 6, I show some tables of the real story, the real growth rate of M1, and time is getting short. I would like to have you look at those growth rates, and I would like to remind the committee that the Federal Reserve Board set as its own figure a limit of 10 percent as the maximum growth rate allowed for M1. That interest rate action should be taken only when above that figure.

If you look at the figures on page 6, at no time in the last almost 6 months has the Federal Reserve Board's M1 exceeded 7 percent on a year-to-year basis. If you looked at the raw data, or even if you looked at the seasonally adjusted data, and if you convert the Federal Reserve Board figures to a per-household basis-where the number of households in this country is growing faster than our money-the rate of growth of M, is about 22 to 3 percent.

And if we had time today, and if we took the inflation out of M1, M1 is not even growing at all. And yet we abort three recoveries because a statistical quirk makes the Fed read something that is not there.

On page 7, I again refer to the three strikeouts. And I am asking Congress to kill this "seasonal adjustment snake" that is lousing up

all of the Government figures; that is creating problems, where we consistently make monetary policy by seeing something that is not there.

On page 8, I point out how my own forecasts of M1, and all of the monetary figures, were delivered to your chairman, Mr. Reuss, on June 24. And if you check the accuracy of the forecast we made then, the figures have been very accurate. And if you remember, when we met on June 24, I raised the question of the very big rise that the Fed would measure on July 6-another statistical quirk. We don't know what the Federal Reserve Board did last Tuesday when they had their monetary policy conversations. If they acted upon the M1 figures as they should, they are now tightening monetary policy. And as I say in the last paragraph on page 10, these seasonal adjustment figures are also getting into our unemployment data.

I am not going to take any more time. I want to skip here, because time is short. I have a special report that I want to give you, Mr. Chairman, for members of your committee, to show the errors of the unemployment figures in the last 3 or 4 years.

Dr. Burns has often commented that the economy is not working like it used to. But he has failed to answer his own question. For the remainder of page 10, and the first part of page 11, I trace the cycle of a typical cyclical recovery.

Let me quickly go over it. A total cycle starts out with man making a faulty monetary policy decision, to destroy consumer confidence, and the value of money; and then second, a recession starts.

Then, after a while, the recession being under way, consumers begin to regain some consumer confidence. They begin to spend. More confidence induces more spending, and more spending more confidence. And then the next stage comes along where plant and equipment expenditures are necessary to fuel the heated up economy.

We have had questions about plant and equipment expenditures. Dr. Heller is counting on a balanced budget coming from plant and equipment expenditures. I tell you, gentlemen, we are not going to have any plant and equipment expenditures for a long, long time, because our monetary policy decisions kill each recession-or each recovery before that recovery can get underway.

The reason that the economy doesn't work like it used to, as Dr. Burns says, is that the Federal Reserve Board won't let it.

I note at the middle of page 11 that there are two types of inflation, which were also discussed prior to my being here. We have cost-push inflation and demand-pull. This is the very important point that I want to make.

I conclude that rising interest rates are appropriate for any kind of demand-pull inflation. It is the responsibility of the Fed to raise interest rates and tighten up if we are talking about demand-pull inflation.

Now there are two kinds of inflation. There is demand-pull, and there is cost-push. On page 12, I insist that the Fed, for 3 straight years especially in 1977-put gasoline on the fires of inflation because they were fighting demand-pull inflation, when they actually should have been fighting cost-push inflation.

As the chart on page 12 illustrates, you can see what happens whenever the Fed puts gasoline on the fire of inflation and aborts our

recovery.

Mr. Chairman, in 1975 Congress gave $13 billion from the Treasury to the American people in the tax rebate. And as the congress gave this money, and as the people received it, the Nation's money supply started to grow.

The Federal Reserve Board read this as an overheating of the economy, and aborted the tax rebates. And how does that reactionhow does that curb inflation?

In April of 1977 and 1976, as honest consumers were moving their money from their savings accounts into their checking accounts, to write checks to pay their taxes, we had a sudden burst for 2 or 3 weeks in M1.

The Federal Reserve Board read this as an overgrowth of money, acted upon it as if it were demand-pull inflation, when all it was was honest citizens paying their taxes. I think it is a very bad thing to have monetary policy being made over situations like that.

This is why I refer to the Federal Reserve Board as the "monetary monastery" filled with monks who live behind a wall isolated away from people. If the men at the Federal Reserve Board had just taken a few seconds to read their own figures, and if they would just use a little common sense, the reason that M, grew in those two Aprils was because people were paying their taxes.

If they had just waited 30 days, M, fell back down, and we did not need that great rise in interest rates.

Now I am going to cut this short, because I want to come down to the key question. I would like this committee to help me get an answer to the fundamental thing that is on my mind. I have never been able to quite figure out how creating a false rise in interest rates, prompted by a misreading of the Fed's own data, where when you raise interest rates is this not the same as raising the cost of money? I don't understand how this fights inflation.

I want to cite to the committee a sentence-and this alludes to the gentleman who was talking about the Fed's ability to lobby, a little while ago, who is not here now. I want to cite and read a sentence from this afternoon's Washington Star, which is talking about the stock market decline yesterday:

Also adding to the negative mood were fears that the Federal Reserve Board would tighten its money policy to fight inflation.

Now that is the press' concept that the Federal Reserve Board tightens monetary policy to fight inflation. Well anybody that doesn't fight inflation would be an idiot. And anybody that does fight inflation, is above motherhood, and even above God.

But I ask this question: When the Federal Reserve Board 3 successive years, over a statistical inaccuracy, falsely raises the price of money, how does this fight inflation? Isn't that the same as a wage increase, a price increase, a budget deficit, or rising taxes? I just don't understand how this fights inflation.

And I would like to have somebody explain it to me, and I would like to have the press understand, so that we don't have a series of

statements like this, that we are fighting inflation by raising the price of money over wrong statistics.

I am going to close, and I hope we have some time for a few questions. I am very concerned, Mr. Chairman, about what happened last Tuesday at the Federal Reserve Board's Open Market Committee.

I am very concerned that yesterday at noon, for about 20 minutes, the Federal funds rate was trading at 534 percent. About an hour and a half ago it was trading, today, at 55% percent. We might say we are going into a real recession. I hope it is not as bad as what we were talking about, 50 years ago. We can't live with any inflation. The people that I talk to throughout America are now on a real buyer's strike. The stock market has been trying to tell us something for a long time. And if you look at the back page of one of my latest reports, you will see the forecast I have for the stock market. I hope the stock market is not a month or two ahead of my forecast.

I cannot understand-and this is the question I would like to have answered: How do we fight inflation by raising the cost of interest rates, unless we have demand-pull inflation, and with the coming recession we are not going to have any demand-pull inflation for a long time?

My data, in conclusion, says that we have no longer Democrats and Republicans in this country, we have 154 million people that are confused as to where this inflation spiral is going to end.

I disagree with all of the economists who say we have to learn to live with 6-percent inflation, or whatever the percent is. I am saying, from my surveys in talking to people, we are not very far away from a real piece of deflation. And I hope the Federal Reserve Board and the Congress is able to cope with it.

Thank you, Mr. Chairman.

[The prepared statement of Mr. Sindlinger follows:]