By categories of major interest, in billions of 1959 dollars, the projected net market credit requirements would be as follows:

TABLE 18A.-Projected net market credit requirements, 1960–70

III. PROJECTIONS OF DISPOSABLE INCOME, NET CASH SAVINGS AND NET FLOWS OF OTHER LOANABLE FUNDS

The relative adequacy of available funds to meet the overall net market credit requirements for housing and other purposes will depend upon the volume of cash savings by the consumer and nonprofit sector of the economy, and other loanable funds that will flow into investments through various market channels.36 The total of cash savings by consumers and nonprofit organizations plus other funds invested in equity or credit instruments acquired in the market by corporate and noncorporate business, by fire and casualty insurance companies, and by governments provides a measure of funds available to meet net market credit requirements.37

Such savings and other funds would be exclusive of the amounts of internal savings in different sectors of the economy that have already been taken into account in arriving at net credit requirements for the various sectors of the economy. Among the excluded items will be those savings of consumer which partially offset the total net credit requirements of the governments sector of the economy, such as the savings in government life insurance and pension funds that have already been taken into account in arriving at the net credit requirements of governments to be met in the market. (In the case of Federal Government, such savings would help to bring about the assumed balanced cash budget.) Also excluded will be the net savings of the nonfinancial corporate and noncorporate business sectors and of the agricultural sector, whose financing requirements were estimated net of their own net savings.

The major part of the cash flow of funds that will be made available for investments to meet the net market credit requirements will come from the consumer and nonprofit organization sector of the economy. In a sense the savings relevant to this analysis are the cash savings

36 The concept of savings used here is different from the concept of savings inherent in the national income accounts. The concept that is used attempts to measure the cash flow of funds out of disposable income of a given year that is used to meet market credit requirements by investment through an intermediary or directly.

37 Investments by foreigners are ignored because the credit requirements for estimated net foreign investment by the United States were considered net of investments in the United States by foreigners (see p. 86).

that are channeled into investment, either directly or through intermediary institutions. Savings through consumer investments in durable goods are ignored. Similarly, direct investments in tangible property are excluded from the concepts of cash savings that are relevant to this analysis which is designed to compare net credit requirements to be met in the market for loanable funds with the availability of funds to meet those requirements.

Flow of cash savings by consumers and nonprofit organizations

Prof. Raymond Goldsmith, who produced the classic study of saving in the United States, has said that there seems to be little evidence to expect substantial changes in the distribution of total personal saving by major types in the next decade or so. It has also been his judgment that the longrun stability of the ratio of personal savings to personal disposable income is likely to continue in the near future.38 These observations by Professor Goldsmith are based on the findings of his study of savings in the United States for the period 1897 through 1949.39

The concept of savings of consumers and the nonprofit sector of the economy through the net acquisition of financial assets that is adopted here is not the same as the main form of savings through investments in intangibles by nonagricultural households, which was formulated by Goldsmith. The concept of cash savings by consumers and nonprofit organizations that is adopted here is conceptually close enough to the latter savings groups concept adopted by Goldsmith, however, so that it should exhibit a similar stability in relation to personal disposable income.40

In order to estimate the funds which will be made available through investment of consumer and nonprofit organization savings to meet net credit requirements, such savings in the form of the net acquisition of financial assets of the consumer and nonprofit organization sector of the economy have been related to disposable personal income for recent years, 1954-59.

The various categories of net financial assets acquired by the consumer and nonprofit organization sector that have been included in the concept of savings, were obtained from the flow of funds data published by the Federal Reserve Board (as shown in table 19). The amount represented in the total acquisition of financial assets under this concept is different than the amount of personal saving which is derived as a residual of disposable personal income after subtraction of total consumer expenditures in the national income accounts. Conceptually, the net acquisition of financial assets should be greater because there is no implicit deduction from consumer income (and from the savings residual) for depreciation of housing. The net acquisition of financial assets is also unlike measures of net financial savings of consumers, because in the net acquisition of financial assets there is no offset to consumer investment through a net increase in consumer debt. The total net acquisition of financial

38 Raymond W. Goldsmith, "The Supply of Saving," Conference on Savings and Residential Financing, 1958 Proceedings, U.S. Savings and Loan League, May 1958, Chicago, Ill., pp. 103–123—particularly 116117. 39 Raymond W. Goldsmith, "A Study of Saving in the United States," Princeton, N.J. 1955, vols. I, II, and III. See vol. I, pp. 6-7, "The Summary Statement on the Stability of Saving-Income Ratio," and see table 7-8, p. 243, for variant concepts of the personal saving-income ratio.

40 Raymond W. Goldsmith, ibid, vol. I, p. 90, has remarked that the saving by nonagricultural households is necessarily very similar to aggregate personal saving, of which it constitutes about nine-tenths.

TABLE 19.-Estimated net acquisition of financial assets by consumer and nonprofit organization sector in relation to disposable personal income, 1947-70

[Amounts in billions of dollars; 1947-59 in current dollars; 1959 dollars for later years]

Col. 1: 1947-59-Department of Commerce, Survey of Current Business, July 1960, p. 10; 1960-70 from appendix table III-A, col. 4.

Col. 2: 1954-59 from table 21, line 1; 1960-70 projected percentage (shown in col. 3) of disposable personal income (col. 1).

Col. 3: 1954-59-Col. 2 as a percent of col. 1; 1960-70 projection is based on percentages shown in cols. 3 and 5 for prior years, excluding years affected by postwar pent-up consumer demands for commodities which made for high expenditures and low savings, and years affected by recession conditions which made for only a slight increase over the previous year in disposable personal income. Years excluded were 1947, 1948, 1949, 1954, and 1958. For the other years, the net acquisition of financial assets as a percent of disposable income averaged 7.7 percent.

Col. 4: "Flow of funds" data, Federal Reserve Bulletin, August 1960, p. 941-annual change in total financial assets minus annual change in corporate stock holdings at market value, to avoid effects of stock market fluctuations. Data for 1954-59 indicate the amount is close enough to the concept of net acquisition of financial assets (in col. 2) to provide background for the projections in cols. 2 and 3.

Col. 5: Col. 4 as a percentage of col. 1.

assets that has been compiled represents the cash flow of savings from the consumer and nonprofit sector of the economy into direct investments in credit and equity instruments or into savings channels through which the funds will be used to meet the net credit requirements to be met in the market.

Available data for 1947-59 were examined to determine a reasonable ratio of the net acquisition of financial assets to disposable personal income to use in projections for the 1960 decade. The pentup consumer demand made for high expenditures and relatively low ratios of net acquisition of financial assets to disposable personal income in 1947-48. In certain other years affected by recession con

ditions (1949, 1954, and 1958) there was only a small increase over the previous year in personal disposable income, so that the relevant ratios would not be appropriate for inclusion in the base used in a projection under assumed conditions of a high-level economy. For other years, the net acquisition of financial assets as a percent of disposable personal income averaged 7.7 percent.11 The 7.7 percent ratio was used in relation to projected estimates of disposable personal income to derive projected estimates of net acquisitions of financial assets by the consumer and nonprofit organization sector for the years 1960-70.42 If the savings ratio is different and there is likelihood that it would be, the results would differ from the model. Distribution of consumer and nonprofit organization cash savings

The cash savings of the consumer and nonprofit organization sector of the economy, represented by the net acquisitions of financial assets of this sector, was distributed for each of the years 1960-70. The percentage distribution of the net acquisition of financial assets by the Consumer and nonprofit organization sector is shown in table 20.43 The distribution is mainly in accordance with the distribution pattern of recent years, with modifications that are indicated (a) by secular trends; (b) by some of the basic assumptions of this analysis; and (c) by the projected patterns of investment requirements. This implies an assumption of little change over the next decade, as compared with recent years, in the interest rate structure as between different types of savings and different types of direct investments. Th s assumption was adopted to arrive at a model distribution of consumer and nonprofit organization savings and direct investments in equity or credit. instruments. The flow of savings into various investment channels is bound to be influenced by changes in the structure of interest rates, however, and in the concluding section of this analysis qualifying judgments will be made, based on possible changes in the interest rate structure, as to possible changes in the flow of investment funds.

From the 1954-59 data, it is apparent that the net inflow of savings into time deposits may be adversely affected when there is a large direct investment by consumers and nonprofit organizations in attractive securities. This was the case in 1959 when the issuance of 5percent Treasury notes (the magic 5s) attracted a great deal of consumer investment and resulted in only a small net gain in time deposits for that year. It is expected that under the assumption of a balanced Federal cash budget there will not be such attractive issues of short-term Federal obligations in the future, and that the inflow of consumer savings into time deposits as a proportion of total consumer savings will assume a pattern more in line with the 1954-58 average experience.

41 For the entire period 1947-59, the average ratio was 7.2 percent, primarily because of abnormally low ratios in 1948 and 1949. 42 See table 19. The projections of disposable personal income were derived (in appendix table III-A) by adopting relations of recent years between gross national product, national income, personal income and disposable personal income that are indicated by data in appendix tables III-B and III-C. The gross national product was projected by adopting the gross national product projection of the National Planning Association for 1970 of $791 billion (in 1959) and interpolating between that figure and the 1959 Department of Commerce estimate of the gross national product.

43 Distributions are shown for the year 1954-59 based on the published estimates in flow of funds data of the Federal Reserve Board. The 1960-70 distributions are projections.