(3) Non-productive money used up to finance a non-productive deficit (4) Higher taxes. Now, we come to my conclusion; and final questions: Dr. Burns has gained the reputation as being the defender of that fight on infla tion a noble endeavor, indeed the fire chief of the inflation fight. And, he has staunch support for this endeavor - including mine... for he well remembers, as I do what was going on 50 years ago. What I have never been able to figure out, is this, and maybe this committee can help me. Creating a false rise in interest rates, prompted by a misreading of the Fed's own data where the cost of money is arbitrarily increased - over the mirage of statistical illusions ... HOW DOES THIS FIGHT INFLATION? When we have demand/pull inflation I can understand such Fed action, but not when the cause of inflation is all cost/push as now. When the Fed falsely makes the cost of money rise (and upon mirages and illusions, at that this is just as inflationary as ... a wage increase ... a price increase as a budget deficit, When the Federal Reserve Board falsely makes interest rates rise, based upon that statistical error of the snaked up seasonal adjustment where Fed action is made from a mirage --- is pouring undo gasoline on the inflation fire to try to put it out. I request this committee to get that answer for me, and for themselves. At least fifty years ago when we knew less than now --- we did not have that quirked up seasonal adjustment snake which Congress better kill quick before the Fed makes another false error in monetary policy. Hope it was not made last Tuesday. With the attached enclosures, we have covered a lot of ground. From these, I want to highlight these points for our discussion. One is, the damage this seasonal adjustment mirage and illusion has been doing to the daily security markets for the past four years, as illustrated by our booklets. If the Fed does not choose to fully explain to the security markets how those weekly seasonally adjusted money supply figures are WRONG upon which the market operates and the Fed makes it decisions -- Congress better do it, soon. Because, we have a falling stock market not too far away. Another point to discuss are our SCP forecasts for all the Fed's money measures to the end of this year, and our Gross National Product (GNP) forecasts for the next year, and the recession which is coming. that at the present just 154 million I have come to the conclusion in daily talking to people time, we have no Democrats or Republicans at the national level adult potential voters who are confused and bewildered over when the inflation spiral will end and what's going to happen to them to this end and the aftermath. We cannot continue for very long with ANY rate of inflation forget that we've got to learn to live with inflation because it's devouring us, and not in the distant future, but in 1977. I have two suggestions for this committee and Congress. First, kill that seasonal adjustment snake before it further devours decision making so that you can prevent the Fed from making more monetary policy errors on these statistical mirages. And this applies to all other official figures. Second, and equally important, let us move the firehouse for fighting inflation from Constitution Avenue, where they use gasoline because the Fed thinks any liquid works move the firehouse for fighting inflation back up here on Capitol Hill and let us discuss a new approach to solving inflation (a solution that does not abort each economic recovery as the Fed has done for three years in a row.) Use a little different politics in our economy and with the people let's try to marry the Democratic philosophy of low interest rates with the Republican doctrine of a balanced budget and I don't mean cheap money as the Fed created fifty years ago. The people I talk to throughout the nation would respond to this very quickly and we could keep the next recession short (learn our lesson), then when the next economic recovery begins if Congress can keep the Fed's hands-off the mirage machine, our next recovery will work like the economy used to. Our final thought is to repeat: Is Congress and the Federal Reserve Board prepared, with our next recession to the consequences of deflation? Reprinted From The Wall Street Journal - July 25, 1977 Fed Panel Voted Easier Money Policy At Its June Meeting By a WALL STREET JOURNAL Staff Reporter WASHINGTON The Federal Reserve System's Open Market Committee voted a slight easing of monetary policy at its meeting June 21. The slowing of the growth of the money supply in May from its torrid pace in April was the reason for the panel's action, meeting records indicate. Minutes of such a meeting are customarily released a month after it takes place. The evidence of the loosening of mone tary policy came in the panel's decision to set a two-month target of a 2% to 6% annual rate of growth for the basic money-supply measure, M1. M1 is defined as cash in circulation and checking accounts. The new target was up from the zero to 4% range set in May. For M2, which is M1 plus most commerclal bank savings accounts, the new target range was set at a 6% to 10% annual growth rate, up from 3 to 7% The committee retained the federal funds interest rate range of 5% % to 5% it set at two meetings in May, when it moved to significantly tighten monetary policy after the money supply growth shot up. Federal funds are the overnight reserves that banks lend one another. The level of reserves, and hence the interest rate on them. move in response to the open-market securi ties transactions that the Fed uses to contract or expand the money supply. One member. Philip E. Coldwell, dissented from the committee's action in setting the federal funds rate range because he favored a lower limit of 5%. The minutes said he took that position in order to pro Observe the lead how the FOMC June 21st meeting minutes are telling everyone about M1's torrid growth pace in April, which prompted this Fed's May strike out # 3. But also observe Mr. Coldwell's dissent. The Journal reports the FOMC minutes reflected his dissent that the April M1 bulge grew out of "special factors". Mr. Chairman, and members of this Committee will you please explain to all the other FOMC members, including Chairman Dr. Burns that these "special factors" are the statistical mirages we have just discussed i.e. the Fed does not know how to read. And, Mr. Chairman I know we all have to wait 30 days more to find out what FOMC did last week when they had their July meeting. When are we going to know when the Fed has learned to read its own data? monetary policy we would have a comedy hit on our hands. But, this is serious business, playing with people's money over the mirage of quirked up "special factors". Thank you. The CHAIRMAN. Thank you, Mr. Sindlinger, for a very important contribution to this committee. I have some questions. I want, however, to call on Mr. Blanchard. Mr. BLANCHARD. Thank you, Mr. Chairman. Mr. Sindlinger, I find your testimony refreshing, and I have not read the full statement. I have tried to browse through it and listen to your summary, but it is nice to hear something a little different than what we usually near before this committee. What do you think are the causes of the cost-push inflation that we have been experiencing? Mr. SINDLINGER. Well, the textbook leaves out a word in all the explanations of inflation, and that is the word "greed." A human word. We had inflation under control in 1972 with the wage and price freeze. Nixon created the greatest blunder in political history when he dumped the wage and price freeze, because, as he said, it "served his purpose and got him elected." What has happened here is that greed is the fundamental factor behind inflation, which is not in the textbooks. Everybody wants to get a little bit more, and we have added it and we have added and we have added, until the point where every cost, whether it came from labor or it came from business was passed on to the consumer. This is one place where I criticize the Federal Reserve Board. Our senior citizens in this Nation are in a desperate situation. Up until 2 or 3 years ago, 80 percent of all of the money that came in during the first week of each month, which was about $6 billion then and now it is about $72 billion, in social security and pension funds, went into savings. The reason we had this fantastic jump last April is that now almost $8 of every $10 received by every senior citizen is now going into banks to pay bills. We are in the situation now where have passed onto the consumer so much rising costs that they no longer can cope with it. Our unemployment is the result of inflation. Unemployment comes from pricing yourself out of a job. So, the fundamental reason for inflation is simply greed; and we tried to live in the 1960's with guns and butter in Vietnam and we are now paying the price. I think we have got to go through a very nice recession, and I think maybe we can keep it short. This is what I am trying to do so that we can learn our lessons and not raise interest rates in the face of disaster. I hope I have answered your question. Mr. BLANCHARD. Yes. In your statement, and I think you summarized, you said we ought to use a little different politics in our economy and with people, let us try to marry the Democratic philosophy of low-interest rates with the Republican philosophy of a balanced budget. Do you have any ideas as to how we bring that about? Mr. SINDLINGER. Well, all of our surveys show that President Carter has a very high rating under the circumstances of the day. The high rating comes from the conservatives in this country. One of the things that is rather strange is that people on welfare today are probably turning more conservative than any other group of people in the Nation because their welfare checks aren't worth as much as they used to be. |