Masonry Magazine March 1969 Page. 13
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GOVERNMENT ECONOMISTS ARE NOW INCREASINGLY OPTIMISTIC about slowing inflation without causing a recession, about achieving disinflation without deflation. They concede that this has never really been done before. But they think that they have developed the strategy that will pull it off, a strategy of moving gradually...simultaneously...on the fiscal and monetary fronts. Prices won't have stopped rising entirely by the end of the year; but, hopefully, unemployment won't have risen much, either not to over 4%.
Some economists still insist that it can't be done, that the actions needed to curb the current boom, if effective, must be strong enough to trigger a slide. But many others have now swung around and now endorse the government appraisal.
THE STRATEGY CALLS FOR EXTENSION OF THE 10% SURTAX beyond June 30. Top officials concede publicly and privately that continuance is certain. Nixon's economists now consider it a "must," if inflation is to be checked. They have learned that Johnson's Budget for next year can't really be cut. To let the surtax die would be to convert a slight surplus to a big deficit. Only clear signs of a potential recession could change this outlook at all.
MONEY MUST ALSO BE KEPT TIGHT through most of the rest of the year. The Nixon Administration is now determined to break, once and for all, the inflation psychology that is still dominating the decisions of businessmen. This means that home-building and spending for new plant must be hobbled. And that means that the necessary flow of credit must, in turn, be shrunk.
The tight-credit policy of the Federal Reserve Board will soon be bringing results. The supply of new lending money at banks has been sharply curtailed. They cannot get much more from abroad. And they are running out of government securities to sell except at unacceptable capital losses.
So the moment of truth has come. The banks must now start to "ration" credit. They will be turning some borrowers away. Others will be asked to settle for less than they asked, even those that have received firm loan commitments.
DON'T LOOK FOR A SHARP DECLINE IN INTEREST RATES any time very soon. They may be near their peak at the highest levels reached in this century. And they may shade off later this year, as more sluggish business activity reduces the demand for credit, over-all, and takes pressure off the supply. But the supply will be held down to prevent refueling of inflation by the Federal Reserve's persistent adherence to tight money through the year.
THUS, THERE IS LITTLE HOPE FOR THE REBOUND in business activity that former President Johnson's economists saw for the second half of 1969. They saw higher U.S. spending, plus easier credit, bringing the pick-up. They expected the consumer to respond to bigger paychecks with a new surge of spending. Business would increase its outlays for new plant capacity.
But the combination of fiscal and monetary policy is certain to dampen the impact of these expansionary forces. Gains in total output will continue to get small through the second quarter of '69 then barely hold their own in the last half.
A KEY GOAL OF U.S. POLICY IS TO CHANGE THE PSYCHOLOGY of businessmen through talking up extension of the surtax, through tight money, through pointed public warnings. Indeed, the authorities feel that their fight on inflation cannot be won until industry leaders are convinced that demand for their products will not continue to boom along at recent rates. Only then will they accept the fact that they cannot continue to raise prices freely.
And only then will the plant-expansion plans that officials deem overly ambitious be cut back. Not till then will the corporate policy-makers decide to slow up the rate of their inventory building or reverse gears and work stocks down. It will take such cuts to trim demand and cool things off.
Indeed, officials go so far as to say that, if industry does not pull in its horns soon, it is due for a rude and painful shock. The restraints that are being imposed on consumers' ability to buy will prove these expansion plans expensive.
NIXON'S TAX-INCENTIVE PROGRAMS WON'T BE GIVE-AWAYS, by any means, despite fears and skepticism voiced on many sides. The President's aides in charge of drafting the necessary legislation know (Continued on page 36)
masonry •March, 1969