let me document how and

by three wrong monetary

In my remaining time and for later discussion why the nation's economic recovery has been aborted policy decisions in July of 1975 in May of 1976 and again in May of this year over a statistically concocted mirage in the M1 money supply which prompted the Federal Reserve Board, for three successive years to see something which was not there and to falsely raise interest rates over this statistical mirage. The already damage done by this seasonal adjustment, which I liken to a deadly snake, is alarming. It will get worse, until Congress does something about it after they discover what is happening, and will happen for the rest of this year 1977. The real damage of this seasonal adjustment snake is yet to come.

These distortions are especially bad on the two most vital data areas money and they have been leading to false conclusions and decisions over the seasonal adjustment the Federal Reserve has aborted each of the past three years' annual recoveries. In baseball three strikes are out.

jobs and where,

We are told that government policy makers now have every conceivable statistic required for good decision making.

My own consumer-generated research (and recent observations)

tells me this

is simply not so, and that, in fact, we may be worse off in 1977 than 50 years ago, when the government was flying blind and many knew it.

The problem which I came here to discuss today is that almost all government decision makers have permitted themselves to be deluded by the sheer quantity of these data, while not even questioning their quality. That CPI for example. This delusion this mirage this optical illusion is due to the use of the

seasonal adjustment.

--

Our incumbent leadership, I fear, doesn't know much more about its people than its misguided predecessors of the late 1920s.

I will explain why most all of our current OFFICIAL government data on jobs and money have a deficiency leading to major errors in current monetary decisions. On June 14th, just over a month ago, I explored these same points with Senator Harry F. Byrd, and his Subcommittee, which is studying incentives to economic growth and capital spending.

But because of the developments that have occurred and have been tracked by my research in the intervening month, it is necessary not only to reiterate my comments, but to underscore this urgency.

Not as an alarmist, but on the basis of my two decades of day-in day-out contact with the American people, I have concluded that our government --- right now -might not be prepared for the coming turn and twist from inflation to the consequences of deflation - especially at the Federal Reserve Board.

Congress, over the years, has given the Federal Reserve Board the independent responsibility of controlling the nation's money supply, and to establish monetary policy.

Since early May, I have become very vocal and highly critical of the Federal Reserve Board Chairman Dr. Arthur F. Burns --- which is why I am appearing before this committee today. I raise some questions and ask this important committee of Congress:

How can Dr. Burns' Federal Reserve control the nation's money supply when the Fed can't even read their own figures correctly? i.e., They act upon statistical mirages to establish monetary policy changes.

The Federal Reserve fails to understand or to care what their actions do to people -- whose money they are trying to control.

I have read almost every record of the policy actions of the Federal (Reserve) Open Market Committee (FOMC) Monthly Meetings for the past thirty years (since published), as members of this committee do.

All through those years, the FOMC records show how all references to the Fed's money aggregates, as used and as referred to for decisions - are seasonally adjusted (most often, not so identified).

All references to interest rates and the stock market in FOMC meetings are not seasonally adjusted --- only because no one yet got around to seasonally adjusting interest rates, and the stock market which

incidentally. I have done, to prove how erroneous the seasonal adjustment really is. (Exhibits available.)

Let me cite just one recent example, on reading the mirage.

The records of the April '77 FOMC meeting --- amended on May 6th show that the Fed panicked over the then rising M1 growth of over 20 percent, and took the May action of making interest rates rise to tighten up monetary policy at a time consumer confidence was being knocked down by a series of Washingtoninspired events.

Now, if it were true that M1 from April to May '77 was growing at near 20%, the Fed's action was proper, and needed to be taken.

But, this Fed policy decision of May to falsely make interest rates rise and to abort our recovery for the third straight year in a row -- was based SOLELY on the Fed's readings of its M1 SEASONALLY ADJUSTED FIGURES. It read only a statistical mirage, as our series of booklets explains.

sense

If the Fed had taken a few minutes of their time and used some good common

- and knew how to read --- had they looked at their own raw counts of M1 ... as the banks counted their money from April to May (before being quirked up with that seasonally adjusted snake) they would have seen in a second ... how M1 each week in 1977 compared to 1976 did not have excessive growth of even 7 percent. See Table A.

In Billions of Dollars Sindlinger's Concept

M

Per Household
In Dollars Growth.

Even if the Fed had looked at its wrong seasonal adjustment there was no excessive growth here in excess of 7 percent. (Table B)

year-to-year

A reading of the April FOMC Meetings had the short-term target for M1 at 10% i.e., monetary policy would not be changed unless M1 exceeded 10% in annual growth.

True annual growth is year-to-year no a last four-week statistical concoction based upon the quirked up seasonal adjustment.

As the table shows, from the Fed's own raw counts M1 in April/May, or since has not approached even 7%, let alone 10%. By the end of '77, M1 is forecast for slower growth as the recession arrives.

The Fed made the same error, for the same reason, for the same weeks in 1976 to abort last year's recovery

and, made the same error, for the same reason, in July 1975 to abort that recovery from the tax-rebate plan, which was working to restore recession to strong recovery.

To save time in explaining all the recent defects in the mirage of the seasonal adjustments, I have submitted supplemental material documenting these errors via a series of booklets. ... First booklet

Second booklet

Third booklet

explains the basic error of the seasonal adjustment and why it has only become wrong in recent years.

illustrates how M1 went wrong in 1973.

illustrates how wrong M1 was during 1974 as the nation was going into recession.

Fourth booklet documents how M1 seasonally adjusted was fooling the stock and bond market and the Fed who aborted the 1975 recovery. explains how the statistical mirage of 1976 caused the Fed to abort this recovery in April --- contrary to the warnings we had given the Fed.

Fifth booklet

Sixth booklet

shows how the same error, for the same week, for the same reasons, was repeated this year for another recovery abortion.

the Fed misread honest

As these booklets for 1976 and 1977 document American citizens paying up their increasing Federal, State, and Local taxes moving savings into M1 as an overheated economy.

I ask this committee this question, hoping they can get an answer.

IF the monks in the monetary monestary down on Constitution Avenue, who are walled in from the people of this nation can't even read their own raw data, and act upon statistical mirages how can they control the people's money supply properly?

Congress must take fast initiative to kill that seasonal adjustment snake, or at the very least, order parallel publication and distribution of every single raw figure which is utilized in calculating the seasonally adjusted statistics so the users can make their own judgments on the validity of the data. We do have a Sunshine Law which is being violated here.

This will not solve the economic error already made, but it will at least let us know where the economy really is, so the right moves can be made.

NOTE JUMP HERE

We are not encouraged by events of the last month when these vital pieces of all of which were distorted by

information were released by the government

seasonal adjustment errors:

The 7.1 percent seasonally adjusted unemployment rate for June which was up from 6.9 percent in May, released on July 8th.

A slight decline in the Index of Government's 12 Leading Economic Indicators for May which resulted from a false seasonally adjusted flattening of the Index's M1 component.

The rise of consumer credit for May which reflected a bigger seasonally adjusted expansion of credit in the last few months than during the brisk spending Christmas season of 1976, which can't be.

Mr. Chairman, when I met with you on Friday, June 24th, I gave you our Fed weekly 7 money forecasts through August 31st.

20th.

When we met, the latest Fed figures which were in

covered June 15th. At 4:00 P.M. this afternoon, the Fed will release its 7 money figures for July

Thus, four weeks have ensued to check out our forecasts. How all 7 money aggregates checked out is shown by a separate table. For this discussion, let's look at M1 only, which is the Fed's mirage (optical illusion), when seasonally adjusted.

For June 29th (based upon our May 25th SCP forecast) we had projected that the Fed's M1 should fall by $4.8 billion to $318.6 billion from mid-June.

When the Fed released its June 29th figures on July 7th, indeed, M1 did fall to $318.8 billion, but when it was seasonally adjusted it moved up to $322.4 billion --its then all-time high- a difference of $3.6 billion separated them.

SCP is for Sindlinger's Computer Program which utilizes select confidence parameters for all Fed money forecasting.