Masonry Magazine March 1970 Page. 15
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The money squeeze has begun to let up, though only slightly so far. The tone in the New York credit markets has become a bit easier. Yields on marketable bills, notes, and bonds the most sensitive financial indicators of them all have turned down. Loans haven't suddenly become easy to get by no means. But a significant shift has occurred. A new trend has begun.
The credit-controlling officials at the Federal Reserve Board in Washington are not claiming victory in the battle against inflation. Prices and wages are still rising too fast. But they see a danger of recession in squeezing money too long. Further, the home-building slump has become a major problem.
Talk of a recession is growing. Few economists are as yet predicting serious trouble. But many respected analysts doubt that even the moderately optimistic official forecasts for 1970 will be fulfilled. Heading off the feared slump depends on some relaxation of the credit stringency. This is why the President and his economic advisers have been pushing for a let-up.
There is no doubt that business has lost forward momentum. Almost all the figures indicate this- the droopy reports on sales, new orders, production, employment, personal income, housing starts, inventories, etc. Total output of goods and services is now shrinking slightly, net of price increases.
President Nixon is aware of the public's concern at the slowdown in the economy- especially the unemployment rise and the continuing inflation. The worry has cut the President's score in the recent opinion polls, despite the high marks he has been getting for his deescalation of the Viet Nam war. Officials say that Nixon means to avoid a slump, and easier money will help.
The success the Republicans will have in the Congressional and gubernatorial elections next November may well depend on Administration success in coping with the economic issues. Specifically, the problem the White House faces is checking the price surge without simultaneously bringing a recession.
The depression in housing is another reason to push to ease credit. The U.S. built masonry March, 1970 only 1.4 million new homes during 1969, barely half the goal of 2.6 million units a year set by Congress for the coming ten-year period. Even worse, the rate of new starts in January was down to 1,166,000 a year. More and more, the scarcity of new homes is becoming a political liability for the GOP. So, the White House wants a pick-up by November's elections.
New methods and procedures are being worked out to channel money-market funds the source the Treasury, corporations, and state-local governments are accustomed to tap into home mortgages. But there is a limit to what can be obtained from this source when the total money supply is limited.
But the need to ease is still tempered by lingering concern about the persistence of inflation. (Actually, with business activity generally leveling, inflation psychology-rather than inflation itself is the major threat.) The authorities at the Federal Reserve Board are still worrying about the inflationary decisions that businessmen could start making all over again, if credit should suddenly become even slightly too easy.
Thus, the first moves to ease credit have been modest. They have been masked... unannounced. both hard-to-spot and easy-to-reverse, lest the business and financial communities mistake the object of the policy shift. The money supply will be allowed to grow only very slowly-only fast enough to meet needs of the very slowly expanding economy desired later this year. A long period of slow growth is seen necessary to restore price stability.
Interest rates will fall slightly this year, financial experts say. For one thing, as noted, the increase in the supply of credit will be mild. For another, the demand for funds will remain large, despite slacker sales. Corporations must rebuild cash balances, state and local governments have huge backlogs of vital projects and there is that vast need for mortgages.
Most money-market men doubt that bond yields will fall much more than a percentage point this year to, say, 734% on utility issues. The (Continued on page 16)
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