Senator BENNETT. The projection that business organizations are planning on investments at a greater rate than anything in previous history is the estimate of one group of economists. There are, however, indications that these plans are being sharply cut back and if it was not for the inclusion in the total of the figures for the electrical industry which has to continue to increase and the other public utilities industry, that business as a whole, manufacturing particularly, is not planning to increase at anything like the present rate. But that is another subject.

Secretary ROMNEY. In any event, the only point I am making here is that I would like to see this introduced at a time when we could get an experience that is meaningful rather than a time when that would not be the case. I believe that time is near at hand, hopefully it is.

Senator BENNETT. Can you give us any idea of when we might expect your proposals for new legislation which you discuss in your statement? You say it has been 5 weeks inside the administration?

Secretary ROMNEY. It has been 5 weeks before other agencies and we are pushing hard for it. I pushed hard enough to outline general principles in here. We will continue to push. We would like to get it before you just as soon as possible.

Senator BENNETT. I think it would be tragic if we went ahead and acted solely on the bills now before us and then you came up with a big package which cuts across many of the proposals in these other bills and we were called back in to try and reenact them. So if you have no objection I will try to add whatever weight I may have downtown.

Secretary ROMNEY. I wish you would do so and you know exactly the person to convey it to and I will push him hard, too. I am fearful if we do not get a little extra pressure in there we may not see this legislation until the end of this month. In my opinion that is too late. They have had it 5 weeks already.

Senator BENNETT. I will do whatever I can to get it going.

Secretary ROMNEY. Thank you.

Senator PROXMIRE. I will ask you a number of questions and I will abide by the 10-minute rule. This is a statement in which you skipped your initial paragraph in which you say

Secretary ROMNEY. I tried to shorten it.

Senator PROXMIRE. I think that paragraph is very important, to discuss what you call the serious situation in housing and the problem in housing finance. It is indeed serious and I think it is so serious that we should be reminded of this because I think this committee must act just as the administration must act.

I am delighted that you say on page 2 that no other economic sector is experiencing such a squeeze and you go on to point this is particularly hard on the families of moderate incomes. That is, those families that fall between a moderate degree of affluence on the one hand and low income so they can get subsidized housing on the other. You point out that these people are really in trouble. They can't buy housing and constitute millions of American families. With that in mind, Mr. Secretary, I must say that I am concerned about the program that you propose here. Frankly, I don't think it is adequate. I think it is disappointing and I would like to discuss it with you point by point. You have seven points.

Secretary ROMNEY. Where are you, Senator? I have more than seven points.

Senator PROXMIRE. You have seven points beginning on page 21 as to the program for the coming year.

Secretary ROMNEY. That is the short-range program.

Senator PROXMIRE. That is correct. First you suggest an appropriated subsidy to the Home Loan Bank Board so they can reduce the rate on their advances to savings and loan associations. We haven't seen the language yet, although you have been talking about it for a number of weeks.

Second, it would be months before the appropriation could be attained.

Third, even when ready the subsidy would provide little benefit to the middle income home buyers since the average loan is $28,000. Finally, the Home Loan Bank Board already has the authority to act right now to borrow through the Treasury at a rate well below what they are paying. They paid last issue 8.35 percent. They can borrow through the Treasury at three-quarters of a percent below that if this is available and they haven't loaned any of it.

Mr. Volcker came before us and when I reminded him the Congress had provided an additional $3 billion for this purpose, to add to the $1 billion already available I then asked him how much had been loaned and he said nothing, not a penny. This could be done right

now.

Your program, it seems to me, takes time. Would you like to respond to that point for point. It might be better.

Secretary ROMNEY. Yes; I think there are two points you made. If there are others you are concerned about I would appreciate your mentioning them.

The savings and loan institutions provide a great deal of the mortgage money for middle-income families; in fact, they are the biggest single source of mortgage money for the middle-income families. Sustaining their ability to lend is an important aspect of middle-income housing.

With respect to your second point

Senator PROXMIRE. Well, what I am saying is that this is not enough because it doesn't get at the many millions of families.

Secretary ROMNEY. I am not going to argue that it is not enough because I don't think we are doing enough all along the line. But with respect to their getting the money from the Treasury, if you borrow directly from the Treasury they have to go out and borrow and it becomes a direct charge against the budget. It would upset the budget and creates a deficit. The worst thing we can have in the housing market now is a deficit.

If you are prepared to raise the taxes necessary to offset the amount of money that the Treasury puts into the home loan banks for this purpose and sustain the budget surplus, it won't have that effect.

But I fought hard, Mr. Chairman, to get that budget down to the point where we could get some easing, hopefully, in the monetary situation by the Federal Reserve Board. In my opinion that requires a surplus, and the tight money situation is affecting housing more than any other part of the economy.

The Federal Reserve Board, in my opinion, is not going to move adequately in easing the monetary situation unless you have a budget surplus.

Senator PROXMIRE. No matter how you slice it, if you get more housing, more investment in housing, if more houses are built, this is increasing demand, putting resources to work in housing. So no matter what source it comes from, if the Federal Government arranges one way or another to encourage more money going into housing, as you said it has to come out of some other place.

I have a place where I think it should come out of. I think we ought to cut the Defense budget another $5 billion to $10 billion. I would point out to you that Arthur Burns said just this past weekend that we no longer have a problem of excess demand in the economy. This is not the factor feeding inflation.

This was also said by the Treasury Under Secretary, Charls Walker. He pointed out the cost push situation in inflation. Where you have a situation as we have now with plants operating at 81 percent of capacity, the lowest number of hours worked per week since 1940 and with unemployment increasing, it seems to me that to provide more money for housing and more housing construction should not be inflationary and should not be the kind of thing that would be selfdefeating. It seems that is exactly what we need.

Secretary ROMNEY. Look, I would be glad to have more money for housing. All I am proposing is that it be done in a way that would not contribute to inflationary forces or discourage the Federal Reserve Board from doing something on the monetary side.

As far as economic policy is concerned and the wage price situation, I have been pointing out ever since I have been down here that you have to deal with the price wage spiral, that you have to deal with that to deal with the total inflationary picture.

I happen to believe without any reservation that the economic policies of this Nation are obsolete, that the labor laws and antitrust laws both need modernizing and strengthening. We need a more competitive economy in both areas and this is one of our fundamental problems in dealing with inflation at the present time.

Now, Mr. Chairman, if you take the money from the private sector by limiting or taking it away voluntarily from other borrowers and put it into housing, that is noninflationary. If we get them to take $6 billion from other people they would be lending to

Senator PROXMIRE. Well, why should that happen when the Treasury borrows and not when the Home Loan Bank Board borrows?

Secretary ROMNEY. If you want the Treasury to put a billion dollars in, I say fine, but let's pass the taxes so we won't have deficit financing, because if you don't pass the taxes and you have deficit financing, then the Treasury has to go out into an already tight credit market and borrow money and that increases the pressure on interest rates and therefore increases inflationary pressures.

Senator PROXMIRE. Why wasn't that what your program would do, too?

Secretary ROMNEY. You mean the voluntary thing. Which one are you referring to?

Senator PROXMIRE. The Home Loan Bank Board borrowing.

Secretary ROMNEY. Well, to the extent that we help the Home Loan Bank Board and FNMA borrow in the private market, there isn't any question but that their borrowings contribute to the pressures on the funds in the private market.

But if it hadn't been for their borrowing in this tight credit period, housing have been even a greater victim of the credit crunch. Even with their borrowing, housing hasn't been on an equal footing in tapping available credit with other borrowers. Sure, it is a part in the total picture, there is no question about that.

Senator PROXMIRE. But whether they borrow in the private market, and in doing so, of course, increases the demand for funds and they tend to drive up interest rates in doing so, or if the Treasury borrows for them, it has the same effect if we put the same amount into housing. At any rate, the program I propose is one that can be put into effect by noon today.

The Treasury has the money and the legislative authority and can act now. On the other hand, the program you propose we haven't gotten yet; when we do we are going to have to discuss it in this committee and the House and it is going to have to be debated on the floor and it is going to take months.

Secretary ROMNEY. It is perfectly true the authority exists to put Treasury money into the Home Loan Bank Board. But if they put money into that and plunge us back into a deficit position, in my opinion the Federal Reserve Board will slow up in easing their monetary policy to restrain the inflationary forces that have not been completely dissipated. Furthermore, if you are going to avoid that and pass the taxes to prevent the deficit, I don't know how long it will take Congress to pass the taxes.

Senator PROXMIRE. When we had Arthur Burns here he told us that he felt the effect of agency borrowing is exactly the same, that there would be no real difference in the impact on the economy and he is a very competent economist.

Secretary ROMNEY. Well, after all, it was your President and your administration that had the study of the budget made as to what sort of budget we ought to have. The budget that is being used at the present time is a result of the Budget Commission set up under President Johnson. I guess we could spend a lot of time here arguing about whether they did a good job from the accounting standpoint and so on. But in any event I have reason to believe that Dr. Burns shares the conviction that I have about the basic soundness of the approach that is being proposed here.

Senator PROXMIRE. My time is up. I will be back.

Senator Brooke?

Senator BROOKE. Thank you, Mr. Chairman.

Mr. Secretary, it is certainly a pleasure to have you appear before this committee again. Your efforts to provide more and better housing are very well known and I certainly think you ought to be commended for your performance. As the chairman has pointed out, it is certainly a formidable task for any man and you have certainly demonstrated you are up to that task.

I think your statement succinctly addresses the problem before this committee and offers many valuable solutions. For your statement and for your optimism I certainly want to commend you at this time. Secretary ROMNEY. Thank you.

Senator BROOKE. On page 13 of your statement, you indicate that you plan to make available for public housing the full subsidy necessary to make up the difference between the rents actually collected with respect to the specific public housing dwellings and the operating costs attributable to those units.

I question whether additional legislation is necessary on this subject, since the 1969 Housing Act contained a provision dealing with this subject. As you will recall, more specifically section 212 provided $75 million in subsidies for three purposes: One, to cover existing operating deficits of public housing agencies; two, to enable them to maintain adequate operating and maintenance services and reserve funds; and three, payments to make up the amount by which the proportionate share of operating and maintenance expenses attributable to a dwelling unit exceeds 25 percent of the tenant's income.

Now, it would seem to me this provision is adequate to take care of the problems which you address on page 13. Does your statement there represent any change, any difference between the existing law?

Secretary ROMNEY. Senator Brooke, the provision in the 1970 legislation results from the interpretation made by our distinguished counsel on my right of the term "existing" in the portion you read. He has held that "existing" means the deficit that existed at the time that the act became law, which was December 24, and that accumulated deficits and deficits existing at that time could be covered by the $75 million that was appropriated but that the language does not apply to future deficits.

To make provision for future deficits, we have put language into the 1970 Housing Act. I will be happy to have Mr. Unger elaborate or elucidate his legal views if he wants to, because I do not want to take you on legally.

Senator BROOKE. That is very kind of you and I certainly have respect for your legal counsel. But counsels differ on this, I am sure. Being somewhat of a lawyer myself I do differ with your distinguished counsel and the interpretation of the existing law.

I for one on this committee certainly did not intend for it not to apply to future deficits and I think it was the intent of this committee and the conferees and the Congress that that would be the interpretation of the language. So I take it, since there appears to be some ambiguity as far as future deficits is concerned, that it is the purpose of your counsel and you to so spell this out in the 1971 legislation.

Secretary ROMNEY. Yes. We do not want any uncertainty on this point and, therefore, because there is question in some legal minds with respect to the ambiguity in the language, we want to make it perfectly clear, becauee we are thoroughly sympathetic with the amendment that was passed and we think it is a good amendment and we want to see it apply in the future.

Mr. UNGER. This does not limit the application this year and if the amendment passes it would go forward without any limitation at all.

Senator BROOKE. I am very pleased with that clarification and am very pleased that you have seen fit to include it.

Now, the Department of Housing and Urban Development has included only $33 million in its 1971 budget estimate. Considering the