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 inoney, 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:]

Testimony of Albert E. Sindlinger

Chairman of the Board

Sindlinger & Company, Inc., of Media in Pennsylvania

INTRODUCTION

For the past fifty years, the economic course of this nation has been charted toward the specific goal of avoiding a recurrence of the Great Depression of the 1930s.

No people should ever again have to endure that kind of suffering --- especially when the lessons learned from those hardships have given us the means to prevent them.

The memories of those harsh days --- why my company was created in the first place - makes me especially appreciative of the opportunity to speak before this committee today --- on what is a highly significant point in time.

It was exactly 50 years ago this month that the seeds of the Great Depresthrough faulty monetary policy being made by men in

sion were being planted

few facts about people, jobs, and money.

government based upon Unfortunately, we were not to learn of these defects until it was too late ... until the stock market crashed in October 1929, which it took two years to do and led us into economic collapse that never was truly remedied until World War II. Unfortunately, history records how the only past solution to man-made recessions from faulty man-made monetary policy have been wars or threats of war. To document this, Mr. Chairman, I want to refer to my testimony of September 10, 1975 before the United States Senate Committee on Foreign Relations (copy available).

My testimony at this hearing outlined how the Korean War postponed our World War II recession, which was firmly in the making in 1957-58.

...

How Sputnik on October 6, '58 pulled us out of this recession how the Cold War and Vietnam provided the U.S. economy the go-go-years of the 1960s for which we are now paying the price, having tried to have guns and butter together. All my current data, with exhibits available, says the United States and the Western World is now heading fast to our next man-made recession over wrong mon. etary policy where within the next 30 to 90 weeks we switch from inflation to massive deflation with its consequences.

The only thing on the horizon which I can see to make this forecast wrong another war, and God forbid.

is

Economic historians ascribed the cause of the Great Depression to the loss of confidence by the American people in the management of their government and to the loss of confidence in the value of their own money a commodity which was rather scarce in those days for the majority of people had no savings nor welfare programs to cushion the shock of economic setback.

One cause of the Great Depression was that our government did not know very much about its own people.

The root cause of the Great Depression, from my own personal knowledge --is what was happening fifty years ago in 1927 -especially during July.

There were those in high places, in the administration and in Congress who knew what the Federal Reserve Board was doing wrong in monetary policy, and desired to have the Fed report to --- and account to Congress -- on how the Fed was deliberately creating credit inflation

the worst kind of direct inflation.

This desire to have the Fed report to Congress was thwarted by President Coolidge who was a strict legalist, and insisted that the Reserve Board had been created by Congress to be entirely independent of the Executive Branch and that the President would not interfere and Treasury Secretary Mellon backed Coolidge.

Dr. Burns, then with the National Bureau of Economic Research, knows what I am talking about - as of fifty years ago and many of his actions today -- to his credit, prove he has not forgotten that long time ago.

Fifty years ago, when the Fed was creating the Great Depression we did not have information that we consider so basic today---such as, how many people were working or not working, or how much money people had and, how they were using that money.

Government satisfied itself with such assumptions as the "trickle down" theory that prosperity was always around the corner, only to have these dubious hope concepts boomerang with the faulty monetary policy that triggered the depression.

For over two decades through continuous daily long-distance telephone interviews, we have been talking to scientific samples of adult people within 1200 households each week, drawing from these people the vital job and money data that form the underpinnings of our economy.

And, we use this information to demonstrate how the nation's present and future economic trends are shaped by the way the American people residing in nearly 70 million households actually live and use their money. From these data, we can forecast the economy, especially the stock market and the Federal Reserve's money supply aggregates. We have an excellent accuracy record of two decades.

Obviously, we were not alone in recognizing that the nation was starved for economic information 50 years ago.

Over time, the government has developed one of the most sophisticated and comprehensive data gathering networks in the world, a system which swallows up millions of taxpayers' dollars annually to produce a bewilderingly broad range of statistics.

Today, in fact, we have acute indigestion over so much data.

My studies over the last fifty years prove that recessions just don't happen out

of the blue.

Nor are they unwelcome by-products of some supply-demand cycle that is beyond human control, as some textbooks say.

Recessions and depressions are made by man and the principal agent of man's economic destruction continues to be faulty monetary policy, which disregards the effect upon people in its formation.

Faulty monetary policy, shaped by man, threatens our undoing today just as it directed us toward the Great Depression in 1927.

Our policy makers of 1927 didn't have access to much information. Their successors 50 years later in 1977 have too much information which is false, misleading, distorted and which is forcing them into making unfortunate mistakes, one right after the other.

One of the advantages that modern objective research affords us is that we have the means to remedy these mistakes and, more specifically, such means are within the grasp of Congress --- who make the nation's laws.

The problem with the nation's wealth of 1977 information is a very simple thing. When I put this pencil in this glass of water crooked.

That is a mirage -- an optical illusion.

...

it looks

The scientific explanation of a mirage, which makes one see things that are not there, is very simple.