One other factor offsetting capital expenditures and the net acquisition of financial assets (which includes trade credit) is the net increase in trade debt. The latter means of financing corporate capital expansion, generally related to inventory growth, has been projected to show moderate increase in the net annual growth figure as the economy undergoes an assumed stable growth.

The fact that the level of net annual credit requirements, shown by the projected net increase in liabilities, is below the 1959 level during the first year of the 1961-70 decade does not imply a reduced rate of capital formation. The projected capital expenditures continue to rise (table 10). The lower net credit requirements in the first year and the limited increases in net annual credit requirements in succeeding years, reflect the projected rise in undistributed profits and consumption allowances that are consonant with stable economic growth. Credit requirements of nonfinancial business sectors: (b) Noncorporate

A similar procedure to that used in deriving corporate sector credit estimates was followed to derive the estimated credit requirements of the noncorporate nonfinancial business sector (table 11). In the case of the noncorporate nonfinancial business sector, net financing through long-term securities, which is only in the form of nonresidential mortgages, plays a minor role and is projected to range between $0.7 of $1 billion and $1 billion annually over the course of the decade.27 The noncorporate nonfinancial business sector is dependent to a much larger extent upon bank and other loans and trade debt than upon long-term borrowing to meet its financing requirements. Annual net increases in the "bank and other loans" component of debt owed by the noncorporate nonfinancial business sector have been projected to decline from about $3 billion in the 1959 boom, following a recession year, to $1.5 billion in 1960, and then to increase gradually to $4 billion in 1970.

A somewhat similar pattern is projected with respect to the trade debt. It should be noted that the net increase in trade debt for the noncorporate nonfinancial business sector is net of receivables (unlike the corporate sector where it is not net of receivables). Finally, a residual resource for meeting the total net increase in liabilities (total credit requirements) of the noncorporate nonfinancial business sector is the net investment by the proprietors. This series was derived as a residual (table 11) and therefore has a pattern of annual disinvestment in the first few years of the 1960 decade, continuing a 1958-59 pattern. During the latter part of the 1960 decade, however, the projection indicates an increasing amount of investment by proprietors rising to a high level of over $3 billion per year in the last 2 years of the decade.

27 See appendix table II-F for derivation of separate estimates of multifamily residential and nonresiden tial mortgage borrowing by corporate and noncorporate business sectors in recent years. It was on the basis of these estimates for recent nonrecession years that the net increase in nonresidential mortgages owed by the noncorporate business sector was projected.

TABLE 11.-Estimated capital and credit requirements of the noncorporate nonfinancial business sector, 1954–70 [Amounts in billions of dollars; current dollars for 1954-59; 1959 dollars for later years]

Credit requirements of nonfinancial business sectors: (c) Farm

The net credit requirements of the farm sector were estimated (in table 12) in a manner similar to that followed with regard to the corporate and noncorporate credit requirement estimates. Annual capital expenditures of the farm sector were projected at an almost constant level for the entire decade of the 1960's, a level reflecting primarily the 1954-59 experience. The underlying assumption is that there will be a continued increase in farm mechanization and capital accumulation at the relatively steady rate indicated by figures of recent years. The farm capital expenditures would be paid for primarily from the projected capital consumption allowances which would continue to show some modest increase over past levels during the decade. To the extent that the farm sector will require additional net extensions of credit of close to $1 billion a year, the projected estimates, based on past patterns, show net annual increases in farm mortgage debt of between $0.5 and $0.7 billion a year and net annual increases in bank and other loans of $0.1 to $0.3 billion a year over the decade. All projections are in 1959 dollar terms.

TABLE 12.-Estimated capital and credit requirements of the farm business sector 1954-70

[Amounts in billions of dollars; current dollars for 1954-59; 1959 dollars for later years]

All columns, 1954-59: "Flow of funds" estimates by Federal Reserve Board, Federal Reserve Bulletin, August 1959, p. 1050, and August 1960, p. 934.

1960-70 data: Col. 1: Derived as indicated.

Col. 2: From appendix table II-A, col. 4. (In prior year data there is a very slight difference from flow of funds data shown in this table.)

Col. 3: From appendix table II-B, col. 4.

Col. 4: Projected to show a slight net increase in financial assets during the sixties, despite a tendency for plusses and minuses to balance out in the fifties on the assumption that the farm sector will reffect the stable economic growth.

Col. 5: From appendix table II-D, col. 4.

Col. 6: Derived as indicated.

Cols. 7 and 8: Judgment models based on patterns of recent years.

Col. 9: Residual of col. 6 minus (col. 7+8). The lack of disinvestment implies a more stable agricultural sector than in recent years when net disinvestment occurred more often than net investment.

Cols. 3 and 7: From table 10, cols. 11 and 12, respectively.

Summary of net market credit requirements of nonfinancial business

sectors

The projected net market credit requirements for the nonfinancial business sectors of the economy (including the farm sector) are summarized in table 13. The net annual long-term capital fund requirements for these sectors rise from a level of about $10 billion in 1961 to a level of $12.5 billion in 1970. Of the net annual short-term credit requirements, the amount to be met by bank and other loans rises from a level of $4.7 billion in 1961 to a level of $9.6 billion in 1970, and annual net increases in trade debt to be financed rise from $4 billion in 1961 to $8.5 billion in 1970.

The total of these projected net credit requirements from the money market rises from about $19 billion in 1961 to about $31 billion in 1970. The projected levels during the first few years of the decade are below the estimated actual level of $23.6 billion for 1959, and the annual amounts are not substantially higher than in 1959 during the second half of the decade. This pattern stems from the fact, first, that 1959 was a postrecession year which resulted in large extensions of credit to finance deferred capital construction and the rebuilding of depleted inventories. Furthermore, there was unusually high corporate liquidity at the beginning of 1959 which permitted some corporations to invest in financial assets to a greater extent than they would in other years.28 The moderate and gradually rising level of annual net credit requirements develops because there is expected to be a continual increase in the annual amounts of capital consumption allowances, and in net savings from retained profits over a decade of stable economic growth. From the latter two internal business sources there should be an increasing amount of funds to finance capital outlays and this would tend to hold down credit requirements that have to be met in the money market.

The projected distribution of the credit requirements, as between the long-term and short-term types of credit, stems primarily form the historical pattern that has been pursued within each of the nonfinancial business sectors. Because the large corporate sector relies heavily upon long-term financing, long-term credit instruments are the major types of credit in the projected total. However, the substantial amounts to be met by bank and other loans that are shown (in table 13) reflect the need for increased expansions of bank loans to corporations as inventories expand and the primary reliance of the noncorporate business sector on short-term credit. The annual levels of net increase in long-term debt are in line with the experience of recent years and the projected increases of short-term credit are in line with experience during fairly recent prosperous years which were not preceded by a recession year.

Net market credit requirements for the Government sector

It is assumed that during the decade of the sixties, the Federal Government cash budget will be in balance, so that the Treasury

28 When resources become available at a more gradual pace they are utilized for capital expenditures to a greater extent, rather than to acquire financial assets.