Masonry Magazine August 1968 Page. 9
theWASHINGTONvire...
CREDIT WILL GET PROGRESSIVELY EASIER during the rest of this year. Bank, mortgage, and consumer loans will be easier to get. At the same time, the entire range of charges that borrowers must pay is likely to move down. The big turn-around in the Budget outlook is the basis for this prediction. The 10% surtax and $6 billion in spending cuts will slow the economy down. In fact, there are fears that a recession could, perhaps, be in the making.
Congress imposed a full measure of restraint on the economy in passing the surtax. Government economists had felt that only $10 billion in taxes was needed. After all, war outlays are leveling, and the consumer remains cautious in his buying.
But the Congress insisted on cutting spending, in addition to raising taxes. As a result, and because some taxpayers must speed up their payments under the legislation, the Government will borrow about $20 billion less in this new fiscal year.
PRIVATE DEMAND FOR CREDIT WILL ALSO BE LEVELING OFF-if not dropping. The tax increase takes purchasing power away from consumers and businessmen. Consumers will be a little less inclined to buy automobiles and appliances and other "big ticket" items where a down-payment involves a lot of credit. Businessmen will not commit themselves to step up investment in new capacity, or in inventory, if sales are so-so. (Yet these are big credit absorbers.) Mortgage demand can take up part of the slack. To be sure, home-building is still feeling the pinch of tight-money policy imposed by the Federal Reserve earlier in the year. But the demand is there. And vacant houses and apartments are scarce. As money eases, building can make big gains.
GOVERNMENT OFFICIALS ARE CONCERNED about the impact that the surtax will have on the tempo of economic growth. They see a progressive slowing in the rise in Gross National Product-total output of goods and services. For example, GNP this quarter will go up by only $12 billion a year or so, as compared with the $20 billion increases in the first and second quarters.
The gain may be only $8 to $10 billion by the final quarter of calendar '68. But much of this will merely reflect an overhanging inflationary ballooning of prices. The increase in "real" GNP-adjusted for cost-of-living jumps-may show little or no actual growth in output, jobs, sales or profits.
OFFICIALS SEE AT LEAST A CHANCE OF A RECESSION coming from this trend. And that would mean political, as well as economic, side-effects. Very few will predict that things will go that far. But they do see a disturbing possibility and it is a cause for nagging concern. The trouble seems to be, economists say, that you can't "fine tune" a complex and expanding economy.
Here are some consequences that even a leveling would have:
-Industrial output would probably drop at least moderately.
-Unemployment, which has held steady for some months at 32%, could start to edge back up to, say, 42% of the labor force.
-Profits would be squeezed between rising wages and tougher competition. Plant and equipment building would lose steam.
JOHNSON'S ECONOMIC ADVISERS HOPE TO KEEP A RECESSION from occurring. They fear that a real slump will aggravate the problems of poverty and riots. It will mean fewer jobs for restive minorities and less revenue for fighting poverty. So the economists are moving now to head off a serious downswing.
But the President's hands are tied. Inflation and Congress bar the use of a bigger deficit to keep things moving. More Federal spending or cutting taxes is out of the question now.
So officials are turning to easier money as the next best way. Specifically, they would like to see interest rates start down from the near-record heights they reached back in late spring.
WASHINGTON IS NOT AS FREE TO PUSH RATES DOWN as in the past, however. There are three reasons why the money-controlling Federal Reserve can't just turn around and start... deliberately to pump up the credit supply again. Inflation is still on the upswing; the deadly psychology hasn't been broken. The Treasury is borrowing heavily, too, and this inflates the money supply. The dollar remains vulnerable abroad, though its standing has now improved.