The other half of the $300 billion required will come from two sources. First, the banking system which supplied $57 billion in the recovery year of 1976 and $38 billion in the recession year of 1975. In 1974, however, a healthier year for economic growth, the banking system furnished $68 billion. Our current estimate suggests that in 1977 the banking system would provide some $70 billion. The balance will be met from a variety of traditional sources, including businesses and state and local governments, Federal Government agencies, foreign investors and households. All told, some $70-75 billion of funds should be supplied to the credit markets from these sources. This outlook reflects our expectation that inflation rates will not rise and, therefore, that the Federal Reserve System will be able to be accomodative throughout 1977 and 1978. This, in turn, will enable commercial banks to have the resources to acquire net large amounts of credit market instruments. My judgment is, therefore, that the large amount of financing in prospect for 1977 can be accomplished without "crowding out" and that any rise in interest rates, at most, will be quite modest. Even with the economic initiatives I have outlined, the economy will only gradually return to higher rates of capacity utilization, and thus the real rate of growth will not reach an unsustainable level. I do not believe, therefore, that federal borrowing will be unduly competitive with the private sector's loan demands. I thank you. Table 1 Estimated Effects of the Administration's Flat Standard 1/ Includes the effect of extending the $35 general tax credit to exemptions for age and blindness. Table 2 Estimated Effects of the Administration's Tax Rebate Program, (Calendar Year 1976 Levels of Income) Adjusted : Tax change resulting from the fifty dollar per capita rebate Amount class Percentage distribution : percentage |