LIST OF THE GOVERNMENT SECURITIES DEALERS REPORTING TO THE MARKET STATISTICS DIVISION OF THE FEDERAL RESERVE BANK OF NEW YORK

Bache Halsey Stuart Inc.
Bank of America NT & SA

Bankers Trust Company

A.G. Becker & Co., Incorporated

Blyth Eastman Dillon Capital Markets, Incorporated

Briggs, Schaedle & Co., Inc.

Carroll McEntee & McGinley Incorporated

The Chase Manhattan Bank, N.A.

Chemical Bank

Continental Illinois National Bank

and Trust Company of Chicago Crocker National Bank

Discount Corporation of New York

Donaldson Lufkin & Jenrette Securities Corporation

The First Boston Corporation

First National Bank of Chicago

Citibank

Note:

This list has been compiled and made available for statistical purposes only and has no significance with respect to other relationships between dealers and the Federal Reserve Bank of New York. Qualification for the reporting list is based on the achievement and maintenance of reasonable standards of activity.

Market Statistics Division

Federal Reserve Bank of New York
November 26, 1976

94-542 O 77 12

[The following letter to Dr. Burns was received from Congressman John H. Rousselot with the following question to be answered for the record: "To what extent have persistent budget deficits and ever faster increases of the money supply been useful in the past in solving our economic problems?" Dr. Burns' reply to Congressman Rousselot's letter is attached.]

Although legislation on the House floor prevented me from attending
the recent monetary policy hearings, I have reviewed your statement
and found it to be highly informative, as usual. In fact, your
testimony served as an excellent example of the value of continuing
these hearings under section 1 of H. R. 8094 (which has received the
unanimous support of the Committee on Banking, Finance and Urban Affairs).

I noted with great interest your statement that while Federal borrowing
normally diminishes in the course of an economic expansion, it is
likely to increase in the coming year, just as demand for private
capital is likely to be growing. Congress should heed your warning
and be especially alert to signs of "crowding out" in the year ahead,
but experience suggests this may be too much to expect.

There is one passage in your statement which caused me considerable
concern and which prompts me to request that you expand your comments
for the hearing record. In the very last sentence of your statement,
you said, "It is fortunate that Members of the Congress increasingly
perceive that persistent budget deficits and ever faster increases of
the money supply, whatever their usefulness in the past, are no longer
capable of solving our economic problems." (Emphasis mine.)

My own perception has always been that persistent deficits and rampant
expansion of the money supply would contribute to inflation and
unemployment, which would cause severe economic hardship and reduce
the standard of living of the American people. Therefore, my question
is: To what extent have persistent budget deficits and ever faster
increases of the money supply been useful in the past in solving our
economic problems?

Your reply will be appreciated, and I hope that it will be included
when you return your copy of the transcript to the Committee.

Kind regards,

John H. Rousselot, M. C.

I am pleased to respond to your letter of August 8, 1977, concerning the extent to which persistent budget deficits and rapid growth of the money supply might have been useful in the past in solving the Nation's economic problems. At the present time the forces of inflation and inflationary expectations are deeply embedded in our economy. The pursuit of aggressive efforts to stimulate economic activity by enlarged Federal budget deficits and rapid growth of the money supply would only prove counterproductive. Highly expansionary monetary and fiscal policies might, for a brief time, provide some thrust to economic activity. But inflation would inevitably accelerate and business and consumer confidence would erode. Thus, even more difficult economic problems eventually would be encountered.

Stimulative monetary policies and deficit financing by the Federal Government have merit when unemployment is wide spread and inflation is weak or absent. During such periods, budgetary deficits would assist in moderating recessionary forces and provide some stimulus to economic activity. An expansive monetary policy would produce similar results. If maintained for too long, however, these policies would prove a source of instability.

Since the mid 1960's our Nation unfortunately has developed a strong inflationary environment. Under these circumstances, highly stimulative monetary and fiscal policies, even at times of substantial unemployment, have clearly become inappropriate.

The Honorable John H. Rousselot

Page 2

I hope the se comments will help clarify my recent statement before the House Committee on Banking, Finance and Urban Affairs.

With best personal regards,

Sincerely yours,

how Kans

Arthur F. Burns

[Whereupon, at 12:41 p.m., the hearing was adjourned, subject to

the call of the Chair.]