shortages, the oil price increase by the OPEC nations, the delayed effects of an over-valued dollar, and simultaneous economic DOOMS in the major industrialized countries--are not threats in the near future. We will, however, need to carefully monitor possible adverse effects in the future that could result from the current wave of severe cold weather. This stimulus package will put people back to work by increasing purchasing power to a modest degree, by reducing business taxes, by creating specific jobs through public works and temporary employment assistance, by training our youths, and by increasing the financial health of States and localities.

Its relatively short duration and

the fact that the economy is working far from its potential means that the threat of inflation is minimal.

That completes my prepared

remarks. I wish to say

again how pleased I am to appear before you, and I would be happy to answer your questions.

The CHAIRMAN. We appreciate that you sent your excellent paper to us in time, and we have had a chance to read it. I think this will save time.

The Chair will state that the House, of course, goes in at 3. It is the Chair's understanding the conference report on the emergency natural gas bill will be before us. The debate on that is likely to last for 50 or 60 minutes.

I would hope that before it becomes necessary for many of us to go to the floor we shall have completed the examination of the witnesses under the 5-minute rule.

It is a tribute to the drawing power of the witnesses that we are here. in almost full force this afternoon. That means that there are a great many questions to be asked. I would urge members to restrict their questioning to the subject matter of this hearing, which is the coordination of the President's economic stimulus proposal with monetary policy.

I would also hope that an effort would be made as we go through the 5-minute rule to avoid repetition. That way I think we will be able to cover the ground on questioning.

Mr. MOORHEAD. Parliamentary inquiry, Mr. Chairman.

The CHAIRMAN. The gentleman from Pennsylvania.

Mr. MOORHEAD. Will we be able to sit during the debate? Obviously we will all want to vote.

The CHAIRMAN. I will check on that and see what needs to be done. Let me ask a question of both witnesses, and perhaps you both can answer: In your opinion, what rate of growth in the money supply and what level of interest rates will be necessary to reduce unemployment to the goals you posit of 6.7 to 6.9 percent by the end of 1977 and to 6 percent by the end of 1978?

Secretary BLUMENTHAL. Well, Mr. Chairman, I would think that you will be discussing that in some detail when Chairman Burns comes before you, I believe, tomorrow.

I would have some difficulty translating into specific monetary targets, growth targets, the kind of program that we are suggesting.

I am aware of the fact that the last goals which Chairman Burns has enunciated for money supply growth, 412 to 612 percent for M1, I believe, for the four quarters ending September 30, 1977. And it seems to me that that kind of target is sufficiently accommodative and sound to enable this program to go forward, and I would hope and assume that that will be continued.

I would, myself, be very interested to hear tomorrow what Dr. Burns will have to say in addition to that and whether he agrees with that

assessment.

The CHAIRMAN. What about interest rates? I am going to turn to you in just a minute, Mr. Lance. Many of us feel that a lower level of interest rates is very important in inducing investments in housing and in other problem areas in the economy. We are hopeful that interest rates can stay about where they are.

Secretary BLUMENTHAL. I was about to say, Mr. Chairman, that I don't believe that this program, given the overall state of the economy and the general excess of capacity which exists, that this moderate program of additional stimulation should result in any increase in interest rates. And, indeed, I would think that if interest rates were about at the present level, I think it would be accommodative and

enable us to achieve the goals of acceleration of the economy and reduction of unemployment that we have in mind.

I see no reason why the program should lead to significantly higher interest rates.

The CHAIRMAN. Mr. Lance, would you agree with what the Secretary has said?

Mr. LANCE. Yes; basically I would agree with the Secretary. I would think that in regard to interest rates, there may be some slight increase in interest rates, short-term wise, over the course of this year.

We got into the discussion yesterday of what was moderate and what was small and that is hard to define. I guess it depends on whether you are borrowing or lending, as to whether the difference. is really moderate or small.

But my best intuition would be to say that we're looking at perhaps a small increase in interest rates over the balance of 1977.

The CHAIRMAN. You're talking about short-term rates?
Mr. LANCE. Yes, sir.

The CHAIRMAN. You would not look for an increase in long-term rates? Home mortgage rates are higher than they were a year ago. Mr. LANCE. Mr. Chairman, I'm perhaps unique. Coming out of a banking background, I don't think high interest rates solve any of our problems or do anything good for anybody, including the bankers, or certainly the American public. I think it's a problem we have to deal with. I think the economy works better when interest rates are stable, when they're in the proper range; and when they get to excessively high levels, then we all have problems.

The CHAIRMAN. My father and grandfather were bankers, and they believed that the best way was lower interest rates and make it up on volume.

Mr. LANCE. Yes, sir. I understand that. I might make this further comment, that any slight increase that comes about in interest ratesand Secretary Blumenthal has testified to this previously and so has Dr. Schultze-is that it doesn't come from the stimulus package per se, it just comes from hopefully what will be recovery in the economy. The CHAIRMAN. One final question. Have either of you gentlemen or any other member of the administration discussed the money supply and the interest rate question under the economic stimulus package with Chairman Burns, whom we will hear tomorrow, or with the Board of Governors of the Fed, and if so, what was their view?

Secretary BLUMENTHAL. Well, Mr. Lance, Dr. Schultze and I have had a get-acquainted session with Dr. Burns, and I have since begun. a practice of regularly weekly meetings with him, at which we cover a wide range of issues, including this one.

I understand and respect Dr. Burns' role and his independence in these matters. I think he is fully aware of the goals that we have for our economic program.

It is my impression that he is sympathetic to achieving these goals. He certainly would like to see the economy move forward and would like to see unemployment come down, and he is certainly sympathetic to our goal of keeping inflation from rising indeed, in working to bring it down further-and he, I'm sure, recognizes that-at least it's my impression that moderate interest rates and an adequate money supply are essential to do this.

Now, precisely how he translates that into specific views or policies for himself and his colleagues, I don't know. But no doubt he will be telling you tomorrow.

The CHAIRMAN. Well, I have no doubt you have found him, as every member of this committee has found him, unfailingly courteous and charming.

Did you also discuss the economic stimulus package itself?

Secretary BLUMENTHAL. I did.

The CHAIRMAN. And your reasonably optimistic view is in that context?

Secretary BLUMENTHAL. Yes, it is.

The CHAIRMAN. Thank you very much.

And thank you, Mr. Lance.

The Chair will state that under the rules we may continue to sit while the gas bill is being debated unless somebody makes an objection and the objection is supported by 10 or more members. That is the rule we will follow.

The gentleman from Pennsylvania.

Mr. MOORHEAD. Thank you, Mr. Chairman.

I first want to welcome both of you, my new neighbor, Mr. Lance, my friend from previous administrations, Mr. Secretary.

And, Mr. Chairman, I have one quickie question that is not strictly on this point.

Mr. Secretary, can you tell us who you have in plan to be in charge of the New York City financing thing or to keep Mr. Gerard in place? Secretary BLUMENTHAL. Well, I'm not in a position to reveal that,

sir.

Mr. MOORHEAD. Alright. I won't push it. But as soon as you are in the position, I would like to be in communciation with you.

Secretary BLUMENTHAL. Within the next day or so, I will make a recommendation to the President, but there is a procedure for checks and clearances and so forth, and it will take a little time. I hope we would be able to announce that very shortly.

Mr. MOORHEAD. Looking at Mr. Lance's testimony-and I think the figures are different from yours, Mr. Secretary-at the bottom of page 5, you talk about what I will call a stimulus, whether it is increased outlays or reduced taxes of $15.5 billion in fiscal 1977, and $15.7 billion in fiscal 1978.

It occurs to me that particularly in view of the terrible economic conditions that have resulted from weather problems that we should be adjusting and I'm not saying whether one goes up and the other goes down or they both go up-but the recession problems are much more serious. We can see them immediately in fiscal 1977.

So, I would ask you, one, Mr. Lance, can't we increase that either by expenditures or by tax rebates?

And to you, Mr. Secretary, if we did increase the stimulus in fiscal 1977, could the capital markets absorb it?

I don't know who wants to answer first.

Mr. LANCE. I will go first, and then the Secretary can respond about the capital markets.

Mr. Moorhead, one of the things that has caused us a great deal of concern in trying to put together this stimulus package naturally related to the amount of the stimulus proposal because of the large

deficit that was already in place in the 1977 fiscal year budget, and knowing full well that any stimulus we proposed went directly to the bottom line of that deficit. It was already a large amount. It was one that concerned everybody in the conversations about the economic circumstances as to how to handle it and how to deal with the problem. We had, as Secretary Blumenthal testified this morning, we had all sorts of proposals ranging from not doing anything, zero, up to $30 or $40 or $50 billion. We felt like we needed to be very careful about increasing the size of the deficit, and we started talking early on about a deficit of no more than $75 billion. There have been some changes because of increases in the economy since that period of time. We are now talking in the neighborhood of a $67 to $69 billion deficit. I think if we get much more than that, we are creating some obvious problems in the minds of the American people about the size of the deficit. I think this is one thing we need to be concerned about. We need to approach it very, very carefully. We need to be certain we are not getting the deficit to a figure that just makes it unmanageable.

Secretary BLUMENTHAL. If I might just add to that.
Mr. MOORHEAD. Yes, Mr. Secretary.

Secretary BLUMENTHAL. I think there are two new factors that have entered the picture, and it is very difficult for us at this point to assess the impact of them. One of them is that some of the indicators, economic indicators, are performing better than we expected. And if that continues, you could make-other things being equal-make an argument that maybe you can get away with a little less. On the other hand, you have had this weather situation which clearly makes the situation worse. We don't know with regard to that situation how long the weather is going to be bad and what the more permanent impact of that situation is going to be. So until and unless we can make a better judg ment than we can today, it is really very difficult to say.

At the moment, I would say they are really offsetting.
So we will have to wait and see a little.

I would be rather careful about wanting to increase this amount because I think it is about as much as I would like to see going into the economy.

Mr. MOORHEAD. I will only close by saying I see only a down in the weather of 1977, and we don't know about 1978. So if I were tilting and I tilted the other way, and gentlemen, you have been here in office a short time, I think you have done a simply magnificient job. My time is expired.

Thank you, Mr. Chairman.

The CHAIRMAN. Mr. Stanton.

Mr. STANTON. Gentlemen, on behalf of the minority members of the committee it's a pleasure to welcome you here. I'm sure they all share my views that you come to the Federal Government with outstanding credentials in the private sector and I know you will do your best and will be a big help to President Carter and the country. And we welcome you in that spirit.

In keeping with the tone of the chairman that we make our remarks pertinent to your particular statements here this afternoon. I will try to so limit my questions. I probably will differ somewhat whether at the very outset because many of us don't believe that we must wait until tomorrow to see what Arthur Burns says about interest rates. We think higher interest rates and inflation start here this afternoon. And I think both of you gentlemen share that point of view.