rowed in the market from lenders on a basic short-term contract, but about $1 billion would come from the issuance of long-term securities by financial corporations.34

Miscellaneous types of short-term credit to consumers and nonprofit organizations

There are a few types of credit which are extended for a variety of purposes. The most significant of these are policy loans made by life insurance companies; bank and other types of loans and trade debt of nonprofit organizations; and security credit extended to consumers. Projected estimates for these three types of credit have been made (in table 16). The annual net increase in policy loans has shown a gradual upward trend and this is reflected in the projection of $0.4 billion per year in the first part of the 1960 decade and $0.5 billion per year during the rest of the decade.

TABLE 16.-Net increases of miscellaneous types of short-term credit
[Amounts in billions of dollars; current dollars for 1954-59; 1959 dollars for later years]

1954-59: Board of Governors, Federal Reserve System, "Flow of Funds," Federal Reserve Bulletin. August 1959, p. 1049, August 1960, p. 933 (except that total of cols. 1 and 2 for 1954 divided with aid of data from Institute of Life Insurance, 1960 Life Insurance Fact Book, p. 64).

1960-70: Col. 2: Projected on basis of 1959 level and prior upward trend.

Col. 3: Projected to reflect growth of nonprofit organizations in the economy.

Col. 4: 1960 estimated on basis of partial data and 1961-70 projected on basis of 1954-59 experience and a slight rise in latter part of the decade as the economy grows.

The amount of outstanding security credit extended to consumers fluctuates from year to year, but it has increased over the years. The annual changes were negligible in 1959 and 1960. Nevertheless, in view of the assumption of stable economic growth, moderate net increases of $0.2 to $0.3 billion per year have been projected for the first part of the decade and $0.4 billion per year for the rest of the years.

34 The short-term borrowings as well as long-term issues of corporations, such as sales and consumer finance companies, of which the proceeds are to be used for consumer credit are not included in the estimated credit requirements for the nonfinancial corporate business sector that has been discussed earlier.

The third category-credit extensions to nonprofit organizationshas shown an upward trend, and an expected continuation of this trend is reflected in the gradual rise of the projected net annual increases of such credit from $0.6 billion in 1961 to $1 billion in 1970. Various types of consumer cooperative enterprises have been expanding in recent years. In an expectation that this expansion will continue, a modest acceleration is shown in the projected growth of debt owed by nonprofit organizations.

The policy loans and security credit to consumers are clearly shortterm credit media. The credit extensions to nonprofit organizations, consisting largely of bank loans and trade credit, also are a form of short-term credit. It is believed that mortgage loans are only a minor portion of the credit extended to the nonprofit organizations, and the total amount has been included among the miscellaneous types of short-term credit.

Credit requirements for net foreign investment

The net foreign investment of the United States is defined as the balance of payments received for exports of goods and services over payments made for imports of goods and services, minus the unilateral transfers in kind and in cash from the United States. Generally the United States has had a positive amount of net foreign investment over the past decade, because the balance of exports over imports of goods and services has been greater than the unilateral transfers or grants, primarily of cash and goods made by the Government to foreign countries. In 1958, to a slight extent, and in 1959, to a marked extent, however, the balance of exports over imports declined to such a low figure that it was insufficient to offset the Government grants in kind and in cash. Thus, for the year 1959 there was a negative net foreign investment of $2.5 billion. Although it is unlikely that a high level of net foreign investment will be reestablished within a short period because of increased productive capacity in-and trade competition by a number of industrialized foreign competitors, there probably will be a turnabout to a positive net foreign investment, and over the decade of the sixties this is likely to build up to a sizable amount. A relatively short-run factor in bringing about such a change are the current efforts to reduce offshore purchases for our military establishments abroad. This will raise the net balance of exports over imports to a higher level. Furthermore, there are being developed policies and mechanisms to increase loans to foreign countries and to decrease grants.

The 1970 estimate of a net foreign investment of $5 billion is basically the projection by the National Planning Association in 1959 dollar terms. The 1960 negative net foreign investment of $1.5 billion is a rough estimate based on partial data available for 1960 when this was written. The other annual net foreign investment estimates are a straight-line interpolation between the 1960 and 1970 estimates, all in 1959 dollar terms.

35 National Planning Association, "Long-Range Projections for Economic Growth: The American Economy in 1970," p. 65, table 12. The revised (unpublished) net foreign investment estimate for 1970 in 1959 prices is $5.1 billion.

TABLE 17.-Requirements and sources of credit for U.S. net foreign investment, 1956-70

[Amounts in billions of dollars; current dollars for 1956-60; 1959 dollars for later years]

(10)

0.6

8848

In order to simplify the estimates of different types of credit that will be needed to finance the net foreign investments, it has been assumed (in table 17) that the rest of the world each year will have a net increase in liabilities to the U.S. economy equal to the net foreign investment of the United States. (Other changes in liabilities should balance out in the financial accounts of the United States with the rest of the world.) The division of this projected net increase of liabilities into securities, loans, or miscellaneous credit instruments (which includes direct investment), reflect the assumption that there will be a strong movement in the direction of increased loans and direct foreign investments by U.S. companies as there is an increasing volume of consumer demand throughout the world. Therefore, the net annual increases in loans from sources in this country and miscellaneous liabilities (which include direct investments abroad by U.S. corporations and individuals) of the rest of the world have been projected upward. Then the net annual increase in foreign securities outstanding in the United States has been derived as a residual of the total projected net increase in liabilities. On this basis, annual miscellaneous net investments, including direct investments abroad by American firms and individuals, would rise from about $0.8 billion in 1961 to $3 billion in 1970; annual net increases of foreign security issues held in the United States would change from a negative to a positive figure and rise to $0.5 billion by 1970; and net annual increases in outstanding loans (from Government and other U.S. sources) made to foreign debtors would rise from $0.2 billion in 1961 to $1.5 billion in 1970.

Summary of estimated net market credit requirements

The annual net market credit requirements that have been estimated for the various sectors of the economy are summarized (in table 18). These projected estimates conceptually reflect only those credit requirements which have to be met in the market. There is no allowance, therefore, for the capital expenditure requirements of financial institutions, which are net suppliers of funds. Although capital expenditures by the financial institutions will affect the amount of loanable funds that they will have available, they will not affect the overall demands for funds in the money market. Also omitted from the credit requirements are the funds borrowed by Government agencies which relend them for a specific purpose that is already reflected in other credit requirements. Thus, the net increases in debt owed by the Federal National Mortgage Association and the Federal home loan banks have been omitted because such funds would flow into mortgage debt which is represented as a credit requirement. Some of these omissions will make the projected annual total credit requirements seem low in relation to some estimates of net annual expansion in outstanding credit during recent years that have not adopted the same concept of net market credit requirements. Another factor which will make the projected total net annual market credit requirements appear to be low is the assumed absence of any increase in the Federal debt. This is based on an assumption of a balanced Federal budget which has not been the case in a significant proportion of recent years.

TABLE 18.-Summary of estimated net market credit requirements by sector of economy and type of credit

[In billions of 1959 dollars]

EXPLANATIONS