diff --git "a/Sentiment/FED_prelabelled_sent.csv" "b/Sentiment/FED_prelabelled_sent.csv" new file mode 100644--- /dev/null +++ "b/Sentiment/FED_prelabelled_sent.csv" @@ -0,0 +1,6684 @@ +text,sentiment,audience +governmental policy including that of the federal reserve continues to aim at limiting the pressure of aggregate demand on available resources,0,f +in light of the difficulties and uncertainties that are associated with measuring the pace of technological change i want to take a moment to comment on the risks for the appropriate conduct of monetary policy that are associated with technology and productivity,0,f +this means keeping the federal funds rate at its current setting continuing our 133 programs until we judge that they are no longer required and considering use of other tools,1,f +any decision to move in this direction therefore might be best linked to a broader decision to change the federal reserve act to allow the federal reserve to hold private debt in its portfolio,1,f +6the developments in the payments area are particularly interestingwe have tended to be preoccupied with the pricing and other requirements mandated by the monetary control act and may be overlooking the fact that some of the major retailerssuch as wards penneys and searshave already established their own proprietary nationwide eft systems,0,f +for monetary authorities the most fundamental problem of timing is to perceive changes in the business climate quickly enough to take compensatory action,1,f +despite its tradition 2 the fed has had considerable experience in directing credit flows the main lesson it has drawn from this experience is that the task is distasteful and results have not been outstandingly successful,0,f +as with all taxes on business the true burden is shared by investors in the form of reduced market valuations of their investment by employees in the form of lower real wages and by customers in this case in the form of higher interest paid on loans and lower interest received on savings,1,f +local lenders can replace these funds in the credit markets or through government agencies to some extent but the cost and availability of credit to small local borrowers could well be affected by an accelerated conversion of deposits to mmfs,0,f +the result could be a slower rate of growth in savings institutions which lend to farmers,0,f +see lael brainard 2020 statement on rule to simplify capital rules for large banks march 4 and statement on stress tests for 2020 june 25 return to text i note this speech was updated on march 31 2021 the original version of this speech stated that funds that invest primarily in corporate bonds saw record outflows in march 2020 these openend funds held about onesixth of all outstanding us corporate bonds prior to the crisis,0,f +although rates vary by platform and borrower characteristics when taking into account origination fees and repayment periods the average annual cost of borrowing or apr associated with loans and credit products offered by online alternative small business lenders tend to be higher than those associated with traditional bank products14 reports suggest that some borrowers are willing to pay a higher price in exchange for an easy application process a quick decision and rapid availability of funds15 while some see online alternative lenders as a disruptive threat to traditional lenders banks increasingly are finding ways to partner with online alternative lenders including through loan purchases and referral agreements,0,f +at the same time people and businesses are unwilling to invest in new payment processing equipment unless they are sure a lot of payors will use it,0,f +network of customer relationships the data reviewed above indicate the extent of the preferential treatment that banks give their business customers,1,f +city of the typical rural bank is largely determined by the income of its community in consequence growth in the lending capacity of country banks has not kept pace with growth in the size of credit needs on individual farms 4 and b k,0,f +this is particularly important since cre lending in recent years has occurred under fairly benign credit conditions and naturally those conditions are unlikely to continue indefinitely,1,f +banks with less than 1 billion in assets have made a million loans under the ppp about onefifth the total delivering 85 billion in relief to their customers6 additionally as shown in figure 1 the smallest banks made the smallest ppp loans on average illustrating that these banks play a key role in serving businesses that may be outside the focus of larger banks,1,f +even if one borrower is perfectly sound if other borrowers like it go under lenders will be reluctant to lend to similarly classified borrowers,0,f +the capital outflows associated with the persistent current account surpluses were large even in net terms and combined with relatively restrained business capital spending in many advanced economies including the united states put downward pressure on real interest rates globally4 from a purely theoretical perspective there is no compelling reason to believe that low real interest rates by themselves pose a particular risk to global economic and financial stability as real interest rates should be driven by underlying forces to balance the global demand for saving and investment,0,f +for example growth in sectors such as green industries and advanced manufacturing is creating jobs but these jobs may demand different skills,1,f +similarly demonds for funds to finance expenditures hve outrun the available supplies of savings and the price of longterm funds has incre2sed for all borrowers,0,f +in an environment of fairly steady noninflationary economic growth and a healthy financial system farmers like other businesses can plan investmentsand adjustmentswith some degree of certainty that the assumptions upon 13 whieh todays decisions are made will be valid tomorrow and well beyond,1,f +liquidity of businesses and financial institutions has improved and business credit demand has been atypically lower than in past recoveries at this phase of the cycle,0,f +but even outside of the energy sector business investment has been soft despite generally accommodative financial conditions,0,f +sound corporate governance is an essential element of a strong risk management process,1,f +in my example the airline could buy a forward contract or a call option on jet fuel to hedge its risk and thereby increase its financial stability,1,f +moreover we soon will implement a new temporary commercial paper funding facility that will provide a backstop to commercial paper markets by purchasing highly rated commercial paper directly from issuers at a term of three months when those markets are illiquid,1,f +however the downward adjustment of stocks to more desired levels now seems well along in most industries and this drag on production may be diminishing,1,f +it appears that loan demands particularly business loan demands eased markedly at both the multinational and major regional banks during 1970 both groups recorded slight drops in their total loans adjusted for loan sales and comparatively sharp decreases in their business loans,0,f +commercial banks are only one of several agencies which channel funds from savers to investors,1,f +we know the strong links these banks have to the people and businesses in their communities provide firsthand knowledge of local economic conditions,1,f +i am mindful that low spreads on corporate credit together with risky corporate debt at historic highs suggest financial imbalances are growing,0,f +given the explosive growth in telephone traffic in recent years half our population would now be telephone operators,1,f +4 y accompany 1 are neer popular and in almost every sector of the economy you can find people who il w l argue that the overall restraint on credit growth works special hardsips on t1l1eir t 1 b par icu nr usiness,0,f +some established operators incurred increased costs or operation and living that could not be sustained even on a normal market to say nothing of the low level of the last two years,0,f +i trust that all of you share this sentiment and would welcome the opportunity to work with and support regional businesses in your venture and corporate growth endeavors,1,f +farm output adjustments over the course of the business cycles were found to be smaller on average than adjustments in the nonfarm sector 3 farm output decreased an average of 23 percent per year in the thirteen years of business decline,0,f +in fact investments in computers have accounted for a full percentage point of the recent growth in real gdp,1,f +average assets marketings production expenses and net income per farm have all roughly doubled in the last 10 yearsan annual rate of increase of about 7 per cent,1,f +georgia outside the metro area remains at an earlier point in the transition to a post 11 industrialized economy and faces the dislocations associated with that change,0,f +therefore able to produce carpets fashioned virtually to they are the tastes o f individual customers while charging prices low enough to vie successfully against foreign producers with much lower labor costs,1,f +a system of farm credit banks for discounting paper of commercial banks has been suggested as a means of meeting the area creditdeficit problem,1,f +total commercial bank loans outstanding have risen at almost a 24 percent annual rate since last july,1,f +thus although they will likely have problems w e should expect m o s t nonbank suppliers of f a r m credit to be able to keep pace with future demands,1,f +but im listening to business contacts for indications they are getting more cautious with spending and hiring plans,0,f +in fact it will probably be closer to the lower end of this range because of lower oil prices early in the year and ongoing import competition that is putting downward pressure on the prices of many goods,0,f +the advance in production technology involving the increased use of commercial feeds fertilizers insecticides and other agricultural chemicals together with improved seeds adds to productive efficiency but it also adds to the cash expense and the need for shortterm credit with all ofthe,0,f +the massive capital inflow from abroad prompted by high interest rates here bid up the value of the dollar by approximately 50 percent between mid1980 and early 1985 the effect was to make our exports expensive in terms of foreign currencies while the dollar price of imports to the us fell,1,f +in the manufacturing sector idle capacity has also declined sharply because capacity to produce has risen at only about two percent a yearwhile output has been increasing at an annual rate of around 15 percent,0,f +in su ch an e n v iro n m e n t firm s a r e b ein g c a u tio u s a b o u t n e w hiring a n d so u n e m p lo y m e n t p e rsis ts a t a high le v e l w h ich in tu rn re s tra in s sp e n d in g ,0,f +following a period of rapid productivity gains during the 1950s and 1960s the economys performance during the 1970s appeared out of line with previous experience,0,f +a shift toward a more normal propensity to purchase rather than to save can enlarge sales and raise profit margins encouraging business to spend for expansion of its capacity to produce,1,f +in addition this explanation is consistent with many anecdotes from businesses about efficiency gains as new technology is put into place,1,f +measured productivity growth consequently declines when the economy enters a recession,0,f +first firms are continuing to benefit from the accommodative stance of monetary policy,1,f +no one can predict with much confidence exactly when recoveries in demand will take hold in the troubled foreign economies,0,f +page 5 it is also essential to the transition to exportled growth that we avoid protectionist legislation that might provoke a trade war and lead to a contraction in world trade,0,f +small businesses rely on banks not just for a reliable supply of credit but for transactions and deposit services as well,1,f +on the export side global markets are somewhat less important than in many other regions of the united states,0,f +nonetheless if the recent morefavorable economic developments gather momentum uncertainties will diminish risk premiums will fall and the pace of capital investment embodying new technologies will increase,1,f +we have reached this level of high productivity not without a good deal of pain but i am convinced that the investments businesses are making today will create greater opportunities for growth in the future,1,f +bank technology vendors are playing an important role in facilitating change,1,f +im told that overinvestment was especially the case in the telecom sector where different competing standards led to duplication and overinvestment,0,f +if we assume as i do that bankers are predisposed to lending because without lending there can be no profit then it is important to understand what stands in the way of lending to small businesses,0,f +14to sum up this brief review the improvement in the us bilateral balance with europe in 1970 depended mainly on a favorable shift in capital flows that at midyear was already showing signs of petering out and on an enlarged trade surplus that reflected in large part a favorable cyclical situation even though temporary faccors may have contributed a good deal to the abrupt worsening in these trade and capital transactions with europe so far this year the underlying trend was clearly adverse,0,f +although the bankruptcy rate remains elevated it has edged down on balance in recent months likely because of the pickup in economic growth in the united states since mid2003,1,f +in another research finding by my banks httpwwwclevelandfedorgfor_the_publicnews_and_mediaspeeches2013pianalto_20131106bcfm4292014 11633 pm housing in the national economy a look back a look forward november 6 2013 federal reserve bank of cleveland economists we learned that the decline in housing prices posed a significant constraint to small business borrowing,0,f +reductions in the cost of directional fares to the u s were also initiated by international air carriers and steamship lines serving the north atlantic routes,1,f +since the beginning of 2009 texas exports have grown more than 70 percent while the nations exports sans texas have increased at half that pace and are only now back to prerecession levels,1,f +indeed corporate net bond issuance was negative in may,0,f +however given the current exchange rates and the marked improvements in productivity that japanese industry has achieved there is little prospect that the external surplus will vanish soon,0,f +however american industry competes with manufacturers in europe and japan where banks are positioned to provide these kinds of services to businesses regardless of size and location,0,f +other financial assistance programs given the importance of small businesses to our economy and our communities it is hardly surprising that a broad array of other financial and technical assistance programs have been created to foster small business growth,1,f +this increase in cost of production will raise prices and before you know it price pressures here and everywhere become strong and general inflation sets in,0,f +as a result even absent a further deterioration in sales residential construction would probably decline further in the months ahead imparting a significant drag on overall growth in real gross domestic product,0,f +thats current satisfactory inventory conditions however also mean that we cannot expect the economy to get the stimulus from inventory rebuilding it did in 1976 so altogether the business sector will probably not provide the degree of thrust the economy needs,1,f +also pentup demand for various goods that have simply worn out over time but not been replaced,1,f +these resource utilization rates may improve with further expansion of business activity but it should be remembered that results must be measured against an evergrowing potential stock of labor and other resourcesdespite the ample availability of workers materials and unused industrial capacity the expansion in economic activity since the recovery commenced is not especially large for this stage of the cycle,1,f +1 4 these changes involve shifts in the structure of production as bullish expec tations are capitalized into heavy expenditures for investment,1,f +if productiv ity growth had shifted higher the economys sustainable growth rate would be higher as well and the inflationar y risks of faster economic growth would be diminished,0,f +trade on this level is unlikely to disappear on the contrary its likely to increase and that means even modest tariffs if they are applied several times over to the same production chain would be enough to disrupt a host of industries,0,f +both of these developments will have a positive impact on business investment,1,f +it may be correctly anticipating a much higher level of profits than that reported in the latest official figures there are good reasons to think that profits are rising rapidly the volume of business operations is expanding and productivity has been rising unusually fast,1,f +these data add to the evidence that credit availability to small businesses is gradually improving,1,f +japanese export growth has slowed considerably in recent months and some categories have actu ally registered declines,1,f +such increases can be common in this stage of the business cyclebusinesses thus far have absorbed input price increases presumably believing that competitors would not follow suit which suggests that they believe that overall inflation will remain low,1,f +for those of you in americas premiere export industry there is light at the end of the tunnel,1,f +the current expansion has provided a favorable climate for small businesses generally and for minorityowned firms in particular,1,f +in 1996 alone nearly a million new firms began operation,1,f +the recent stabilization of rig counts in the united states suggests that this source of restraint on business investment may be coming to an end,1,f +the changes in pulpwood production have been encouraging for the pulp and paper industry is the major forestbased industry of the area,1,f +similarly for small businesses getting immediate access to funds from a sale in order to pay for supplies can be a gamechanger,1,f +but more importantly business spending on capital equipment rose strongly in the second half of last year and appears to have increased at a brisk pace so far this year,1,f +that said business investment outside of the energy sector has been unusually soft for the past three quarters and this weakness will bear close watching,0,f +for example in recent years technological advances in inventory control have seemingly dampened the historic production volatility in the auto industry and other durable goods sectors,1,f +last year more than 16 million cars and trucks were sold in this country in the first quarter of 2008 the sales rate fell to 153 million units and in the second quarter the sales rate fell to 141 million units,0,f +thus for many o f the regions industries the likelihood o f substantial improvement is not high,0,f +innovation is already altering the power source of motor vehicles and much research is directed at reducing gasoline requirements,1,f +one very dangerous consequence of the deteriorating trade performance of us industry is the increased clamor for protectionist measures that would be terribly harmful in the long run to our economy and to the economies of other nations,0,f +fortuitously the southeast is a major nationwide supplier of lumber used in residential construction,1,f +for example auto production that was disrupted by shortages of supply parts from japan has bounced back,1,f +in an automatic cyclical fashion increased orders and increased employment should result as businesses run off their present excess inventories and are forced to reorder new materials and equipment,1,f +while residential investment has been improving business fixed investment remains weak,0,f +the index of wholesale prices of industrial commodities is constant,1,f +7 meanwhile foreign competition is pressing so hard upon us that american business increasingly s_eems to be going protectionist,0,f +from present information it appears that a turnabout has occurred in corporate liquid asset management with a resulting increase in demands for transactions balances,1,f +thus in all aspects o f commerce we found that businesses in tokyo hamburg and seoul were making major inroads into markets which had been virtual monopolies fo r american producers,0,f +for example the ratio of gross interest payments to corporate cash flow before interest provision is currently about 35 percent close to the 1982 peak when interest rates were much higher and profits were weak owing to the recession,0,f +on the business side capital spending will be enhanced by the reduction in borrowing costs and businesses are likely to focus on efficiencypromoting equipment like computers,1,f +white sulphur springs west virginia bankers convention july 20 1956 meeting the farm challenge m monroe kimbrel executive vice president first national bank thomson georgia even as i begin when so many of you have been reading in the newspapers about the farm depression i can almost hear you wondering why we as bankers continue to fuss so much about maintaining service for a sick industry,0,f +i think we could see an uptick in activity in the second quarter as business activity rebounds and some catchup in sales and production occurs,1,f +productivity in turn is importantly affected by changes in the stock of capitalthat is machines and factoriesas well as technological advances and improved production methods,1,f +be that as it may the facts seem to be pointing to a rising mismatch between what our education sector offers to students and the skills training and knowledge our business sector needs more and more,0,f +in broad terms an important contributor to the rise in earnings inequality has been an increase in the premiums that firms are willing to pay for higherlevel skills,0,f +by 1964 outlays for business fixed equipment had become a main driving force behind the rise in economic activity,1,f +2 a brighter spot has been business investment spending which has been supported by solid growth in corporate earnings,1,f +combined the influences of hightech investments use and production fully account for the acceleration in productivity in the late 1990s,1,f +already left with an overhang of equipment from the investment boom of the late 1990s businesses confronted these new uncertainties about the future and saw new reasons to defer and delay investment spending,0,f +it was 15 years for example before the district re 166 michael moskow speeches 2003 attained its former share of the nations manufacturing jobs,0,f +a sales of both new and existing homes in the midwest have exceeded practically everyones expectations which in turn has kept items such as appliances electronics and lawn furniture selling rapidly,1,f +auto sales are also a herald of things to come,0,f +they have relocated production around the globe to more costefficient locations and prompted a worldwide expansion of trade in parts and semifinished goods as well as in final products,1,f +beginning in the 1970s manufacturers increasingly used technology to improve efficiencies in all aspects of their businesses,1,f +this is unfortunate in the respect that it would curb imports and foster more domestic consumption o f usmade goods,1,f +at the turn of the year we began hearing anecdotal reports both in our district and elsewhere in the country of commercial development projects being deferred or cancelled outright,0,f +in other words we made a social and political decision which resulted in an absolute decrease in our production capacity for goods and services,0,f +businesses slashed capital spending and payrolls and real gdp contracted by 47 percent more than twice the average for the 10 other recessions since world war ii,0,f +they represent the best of corporate leadership in the technology industry today the entrepreneurial spirit of a young dynamic company and the innovative drive of an industry giant with markets that span the globe,1,f +but when the demand for goods and services is growing slowly that may be the case,0,f +as the temporary dollar surge made our products uncompetitive americans were quick to abandon their foreign markets instead of redoubling their efforts to enhance productivity and to offer better service,0,f +these linkages can create business opportunities and enhance the productivity of small and mediumsized enterprises,1,f +moreover although we often think of global competition as being associated with internationally traded goods many of the same forces that have made the global marketplace increasingly competitiveespecially faster cheaper transportation and the revolutionary changes in communications and information managementalso operate to make domestic markets broader and more competitive,1,f +2 that will certainly have an impact on our overall level of exports,1,f +the largest firms in the industry and the number of such firms remains large enough to assure vigorous competition have been maintaining their profitability compared with manufacturing as a whole,1,f +in the first place our manufacturing sector is not nearly as bad o ff as some would have us believe and the potential for significant advances in productivity is at hand,1,f +these circumstances should help our net export position,1,f +controls did discourage domestic oil production which fell precipitously thus increasing our reliance on oil imports,0,f +the major areas of strength in the outlook are business spending for new plant and equipment as well as inventories,1,f +indicators of business sentiment from a variety of national and regional surveys have deteriorated on balance in recent months,0,f +presently manufacturing accounts for only 7 percent of our employment though output in manufacturing has fallen much less from 18 percent to 15 percent,0,f +as the share of manufacturing employment continues to decline in the united states and in mississippi driven by productivity gains and the movement of lowerskilled jobs overseas the new face of manufacturing is one of high efficiency and use of advanced technology,0,f +2 hie us economy i believe we will have another good year of moderate growth with gdp expanding by about 3 percent slightly faster than in 1993 in fact the momentum of business activity in the last three months could even push this figure higher,1,f +d our strength in the future will be our ability to compete on quality rather than on price,1,f +with the strains in housing persisting a substantial slowdown in business spending could raise the odds of a recession,0,f +growth in spending on hightech capital equipment and software was especially high averaging 20 percent per year or more,1,f +e corporations are borrowing longterm money at real rates that will be high unless the rate of inflation rises,0,f +america has come a long way since the dark days of the financial crisis and small businesses deserve a considerable share of the credit for the investment and hiring that have brought that progress,1,f +and when i see the small business owners that i used to lend to they tell me that they could not have survived the downturn without low rates,1,f +there have been more than a few dismaying examples of ceos who nearly drove their companies to the wall and presided over a significant fall in the price of the companies stock relative to that of their competitors and the stock market overall,0,f +high consumer demand has been great news for the auto industry,1,f +so there are a lot of reasons to be concerned about when business spending will pick up,0,f +as a result of the capital inflow over the past eight years or so the stock of productive capital in the us is significantly larger than it would have otherwise beenthis increased capital stock produces a number of macroeconomic benefits,1,f +on the supply side the production of oil has been constrained by available capacity hurricanes and geopolitical developments,0,f +because of this catchup factor capitalgoods spending will probably continue high even if some easing of sales occurs at the retail level,1,f +finally you as businessmen can play an important role in further enhancing the attractiveness of the city as a place in which to live and do business,1,f +reflecting these developments is a continued rise in corporate profits which has allowed firms to further bolster their strong balance sheet positions,1,f +major overseas markets are becoming more open although the degree of openness varies from market to market,1,f +international trade barriers are as unreasonable under competitive production and marketing conditions as are trade barriers between states cities or counties,0,f +the proportion of farm employment attributable to the production of products exported was as high as 18 percent in north dakota and 24 percent in montana,1,f +i feel that pcess inventory accumulation in anticipation of inventory profits magnifies the amplitude of the normal recession cycle,1,f +the weak dollar and the longawaited european recovery should boost domestic sales which in turn should lead to more investment by businesses,1,f +even so the necessary investment wont be forthcoming without an inflationfree environment of greater certainty for business planning,0,f +those productivity increases affect the inflation outlook in two related ways first by raising potential output and thus for given growth in aggregate demand the size of the output gap and second by reducing the costs of production which puts downward pressure on prices,1,f +part of the problem lies with the 150percent oilprice shock of the 197980 period which acted as a giant sales tax raising prices and draining off purchasing power that otherwise would have been available for buying other goods and services,0,f +although some of this activity involves issues related to affordable housing and community development over the past few years our community affairs activities have increasingly focused on small business and economic development,1,f +moreover business fixed investment is likely to get a boost from the fact that the real price of hightech goods is likely to continue to decline somewhat so that the hurdle rate for hightech goods is likely to continue to decline,1,f +a substantial rebound in business spending had been a hallmark of most past economic expansions,1,f +total value of farm assets rose from 1316 billion in 1950 to 2979 billion in 1969 some of the increase was the result of inflation but the greater portion represents rising capitilization primarily additional laborsaving machinery,1,f +opec was able to boost production relatively quickly in response to changing market conditions by utilizing productive capacity that had been idle,1,f +moreover an environment of rising stock prices is ordinarily one in which companies can more 4 readily raise funds in the market which supports higher business capital spending,1,f +2 firms would face lower costs of funds and hence lower hurdle rates for approving new investments,1,f +because the reallocation of productive factors is found to occur both within and across industries this process creates aggregate productivity gains,1,f +heail they reduced their herds rather than accumulate excessive debt for when drought began to impinge on their reserves too feed in this way they avoided unnecessary damage to their ranges and 8 conserved their assets so as to be in position to restock as conditions improved,1,f +although us exports have grown rapidly the united states is not the worlds largest goods exporter,1,f +gnp rose by 16 billion in the fourth quarter almost as much as in the first quarter of the year when the effects of the automobile and steel strikes shifted output from the past and the future into a temporary surge,1,f +moreover there is little evidence that higher oil prices have spread in a substantial way elsewhere in the economy and into an ongoing increase in inflation as was the case in the 1970s,1,f +as growth in sales moderated some stores and factories were caught with excessive inventories particularly in the auto industry,0,f +slow growth abroad especially in europe and china and uncertainty over trade policy and tariffs have weakened demand for us exports which has weighed on the us manufacturing and agricultural sectors,0,f +this surge in the availability of more timely information has enabled business management to remove large swaths of inventory safety stocks and worker redundancies,1,f +we left to europe the specialized markets for high quality goods,0,f +the present system also provides too little incentive for capital investment during periods of high inflation and financial uncertainty liberalized depreciation allowances should certainly be given prime consideration when a tax reduction is appropriate,0,f +to dwell on a point most all the businesses i talk to are expanding investment in productivity enhancement,1,f +bottlenecks develop in certain sectors as they expand and prices in those sectors begin to rise,0,f +over the past 50 years we have been challenged by growing competition from japan the asian tigers mexico and now china and india,0,f +to be sure although it has yet to show any real signs of vigor business fixed investment has at least seemed to stabilize,1,f +real business investment increased only onethird as fast and worker productivity less than half as fast as in the preceding decade,0,f +thus while the pressure on profits is unmistakable it does not appear to justify a general rush to restore margins through successive rounds of price increases,1,f +residential construction will again be a solid 3 contributor to growth in the us economy as will capital investments by businesses especially on computers and industrial equipment,1,f +this could occur if for example continued uncertainty over the international trade situation generated adverse business sentiment and reduced spending or alternatively if the firming of inflation expectations stalls out before they are clearly centered around our 2 percent inflation target,0,f +uncertainty can also make firms less confident about hiring and pricing,0,f +real spending on equipment and software rose about 4 percent over the past 12 months according to the most recent gdp report a modest gain for this category of spending,1,f +1 also with the daimlerchrysler merger last year the auto sector is now arguably the most important industry of shared interest for germany and the united states,1,f +business contacts report difficulties finding qualified workers and increased costs associated with inputs tariffs and transportation along with somewhat greater ability to pass through those increases to consumer prices,0,f +i am not aware of any evidence that the banking industry as a whole is inappropriately impeding the availability of credit and that seems to be confirmed by recent small business surveys,1,f +except for feed grains and rice total crop 7 output is better than last year and a combination o f reduced acreage higher yields and stable or higher prices is expected to improve net farm revenues substantially,1,f +as we are all too aware in the most extreme cases complex structured finance transactions appear to have been used in fraudulent schemes to misrepresent the financial condition of public companies or evade taxes,0,f +we nurture this progressive credit climate by striving to maintain low inflation which makes it easier for entrepreneurs to bear the longterm risks associated with creating new enterprises,1,f +these capital adjustments coupled with new capital inputs have greatly increased the industrys demand for outside funds,0,f +suggest and highlight sensible actions by small businesses,0,f +hog producers who usually benefit from falling feed costs instead have suffered big losses this past year not so much from troubles on the export side as from sharply increased production hog prices fell about twothirds over the course of 1998 but that decline at least has been partially retraced in recent weeks,0,f +part of this pullback was motivated by skittish households cancellation rates according to some large builders reached 40 percent or more during the latter part of 2006 although the majority of forecasters correctly anticipated softness in housing construction the magnitude of the decline exceeded their expectations,0,f +the rise in interest rates this yeara rise which has taken most rates to 40year record levelsis an additional indicator of restraint although the extent of the interest rate rise was in large part influenced by the continuing expansion of credit demands mainly by businesseswith the supply of lendable funds below the large demands the increases in interest rates rationed available credit among potential borrowers,0,f +a majority 8 out of 10 cite economies of scale as a factor in making an acquisition offer,1,f +the much improved profitability can help finance expansion directly out of internal funds or indirectly by supporting firms borrowing capacity,1,f +however a rough guess at this time would place the strikeadjusted export surplus in the first quarter at an annual rate of slightly more than 12 billion somewhat better than the rate in the last half of 1968 imports the major factor in the worsened trade performance last year was the exceptionally large yeartoyear increase in the value of imports,1,f +one possibility is that interest rates may have fallen in large measure because of weak aggregate demand for domestically produced goods and services due to the unprecedented growth of imports relative to exports in this country,0,f +an occasional failure eliminates the inefficient 14 and is a signal to other firms to exercise caution,0,f +dollar appreciation depressed dollar prices of agricultural commodities which in turn depressed farm incomes and the value of agricultural land,0,f +they appear to be content to post strong profits generated by unprecedented costcutting rather than growing their topline revenues by expanding capital investments and hiring,0,f +across the region im hearing that the investment spending taking place these days is motivated more by a desire to cut unit costs than to grow revenues,0,f +it was technological innovation that allowed computer prices to fall so ver y rapidly and which has facilitated the rapid spread of computers throughout our offices stores and factories as part of the capital deepening process,1,f +such episodes may partially explain the weakness in business capital investment,0,f +too much liquidity means that spending may rise to the point that aggregate demand strains the productive capacity of the economy increasing the costs of production,0,f +we want growth in output and we want more than anything to see a type of growth that permits us to expand our capital plant and at the same time to consume currently some of the fruits of our improvements,1,f +as indicated earlier debt exposure with the narrow margin of profit and the inability of the farmers own and unpaid family labor to absorb the losses on modern highcapacity farms attention must be focused on the reliability of credit analysis,0,f +i agonized over newloan and loanworkout decisions affecting the small businesses that had been my customers for more than a decade,0,f +in this hemisphere canada should grow about 3 percent in 1989 high capacity utilization is likely to mean that business investment will provide a major push to the canadian economy,1,f +at the start of last year the message i was gettingfrom business leaders economic data and the marketswas one of overwhelming positivity,1,f +an increasing amount of domestic spending has gone to buy foreign products,0,f +nonetheless export growth should continue to boost ongoing gains in the manufacturing sector,1,f +nevertheless improvement can be made and we do need to raise our productivity and the quality o f our products so as to compete more effe c tiv e ly in world markets,0,f +i have talked at some length about the growing need for more adequate farm credit,1,f +specifically i wanted to know the nature and magnitude of the financing problem which the utilities will face over the next few yearsand not simply its longerrun dimensions,0,f +overall business investment should continue at a respectable pace but not at the high levels of 98,0,f +the types of developments that might similarly reduce bank market share in small business lending are proceeding rather slowly at present but may accelerate in the future,0,f +so as the recovery begins to build up some steam as businesses struggle to close budget deficits and fill office and industrial space and restore profitability over the short term i hope well stay focused on two issues that will have a much bigger impact on the vitality of the region in the long term,0,f +however the upturn in manufacturing that the rest o f the country has been experiencing may largely bypass mississippi since so much o f its factory output is in the lowwage sector where developing countries have a decided advantage,0,f +postponement of new construction therefore need not materially cut back current utilization of services,1,f +this low interest rate is intended to stimulate consumption by households and investment by firms,1,f +oats for example have been in high demand in the united states in recent months because of the increased public awareness of the health benefits of oat bran,1,f +these businesses tend to be the economic lifeblood of their local communities and this lending facility is designed to forestall mass closures of small and mediumsized businesses on main streets across the country,1,f +by contrast upstate new york is less unequal but the disappearance of manufacturing jobs has held back growth,0,f +on the other hand louisiana whose economy remains heavily dependent on the sluggish petroleum industry and international trade has begun to show improvement only recently,1,f +in particular it emphasizes the central role of productivity growth in raising standards of living and illustrates what goes into such growth,1,f +to be sure buying in stock will have a positive wealth effect on that companys shareholders but putting the equivalent amount of money to work in spending on plant and equipment would put more people back to work more quickly,1,f +prices of industrial materials have fallen by about 14 percent over the past year,0,f +one is the pressure of inflation on real corporate profits,1,f +my late friend james g vail when president of the society of chemical engineers suggested to his fellow chemists that the problem can not be met by despair cynicism or irresponsibility,0,f +in those days farm credit leaders had no need to concern themselves with the aggregate supply of funds,1,f +recall that the demand decline involved a portion of a relatively small sector of the us economy,0,f +the advent of genetically modified organisms in many crops which follows the advances in genetic improvements applied to livestock production promises both increased production and reduced reliance on pesticides,1,f +small businesses are very susceptible to swings in the economy and have a much higher failure rate than larger operations,0,f +for instance there has been no increase at all in the amounts invested annually in the manufacturing industries after making allowance for higher equipment prices and for types of investment that serves to protect the environment rather than to increase output,0,f +another factor that makes our city an excellent place to do business and explains why the jobs are available in the first place is that atlanta has become a crossroads for producers and suppliers all over the eastern united states,1,f +however the increase in inflation is principally a result of the dissipation of the direct effects of recent favorable supply shocks,1,f +in addition businesses are in the process of moving from liquidating inventories to restocking them,1,f +patterns of trade are distorted,0,f +the only way we can accomplish this is by consuming less of our own production and exporting more,1,f +the opening up of china and india in particular represents a potentially huge increase in the global supply of mainly lowerskilled workers,0,f +the united states also enjoys high rates of new business creation which complement beautifully the flexible labor market,1,f +capacity utilization has been rising,1,f +reforms are being built on the region s considerable natural and human resources and on an industrial base which is large though often inefficient and in need o f modernization,0,f +federal reserve vice chairman ferguson emphasized how past industry efforts at business continuity planning had paid off during the crisis,1,f +but when the economy is already operating at full capacity productive facilities can be expanded only if resources are diverted from the production of goods for consumption neither investment nor consumption can be expanded further simply by inflating the flow of money with additional bank credit,0,f +their advice has been especially valuable to us these last several years when weve had to face problems of high inflation high interest rates and sharp fluctuations in business activity,0,f +the midwestern farm belt the oil patch o f texas louisiana and oklahoma and the industrial heartland o f the northeast and northcentral states should now see much more growth,1,f +heretofore the severest restrictions have involved wheat dairy products and sugar while livestock products coarse grains and oilseeds have been handled on a more liberal basiso commercial adjustments required for industrial products within the common market are simplicity itself as contrasted with the emerging agricultural provisions,0,f +the philadelphia feds manufacturing business outlook survey has proven to be a reliable indicator of manufacturing trends in the us in october manufacturers reported the eighth consecutive month in positive territory and well above its average nonrecession level,1,f +it may be that even agriculture is affected by this resistance t o change in some of the efforts to support the continued operation of uneconomic units that are no longer able to compete in this dny of advancing technology in agriculture,0,f +finally the spirit of entrepreneurship is stronger today than at any time in my memory,1,f +manufacturers were operating at an average rate of 90 per cent of capacity throughout the year and the rate in some industries was well over 90 per cent,1,f +other research being done at the atlanta fed shows that we should not rely on old strategies that tout manufacturing and commodities as the only basis for growth,0,f +a healthy world economy increases us exports,1,f +then just about a year ago business spending began to turn around led by renewed investment in hightech equipment and software,1,f +this would limit the ability of the fed to engage in credit policies that target specific industries,0,f +with spending by the federal government expected to slow activities in these industries may be hampered,0,f +our research using data on properties in cuyahoga county indicates that in stronger submarkets our performance is similar to the rest of the nation,1,f +in the second quarter of 1980 the current cost of collecting commercial checks was only 3 percent higher than it was in 1977 despite much larger increases since then in prices we pay for labor capital and other inputs,1,f +the extent to which businesses have succeeded in boosting output with fewer labor hours and minimal capital investment over the past two years points up the possibility that a considerable stock of inefficiencies accumulated in the boom years and that this stock is still being worked off,1,f +underlying all of this was a marked acceleration in the growth of productivity which permitted higher growth and the virtual absence of price and wage pressures,1,f +jerry believes that new analytical tools and sophisticated technologies will allow bankers to meet the need for increased commercial lending despite the challenges brought on by increased competition and macroeconomic uncertainty,1,f +the high level of our national economy at the present time is largely aje to our increasing productivity resulting from the substitution of capital in the form of equipment facilities and technical knowhow for physical labor,1,f +in some cases even parttime offfarm employment is insufficient to offset his operating losses,0,f +consumer spending had moved higher in august and the decline in new orders for nondefense capital goods a key advance indicator of business equipment investment appeared to be moderating,1,f +hence some company executives believe tht if they are going to need more plant capacity they had better get it before construction costs rise further thus bringing on the very malady they dread,0,f +even at this stage of a recovery the increases in productivity have been strong indicating a potential for a very gradual trend of basic labor costs,1,f +in 1999 forward rates also rose in the united states in response to strong economic growth and high levels of resource utilization,1,f +by the same token is anyone really concerned about the roulette player at las vegas who loses the farm,1,f +the bureau of labor statistics estimates that productivity in the nonfarm business sector during 1984 rose a bit over 2 percentmany of the factors economists have identified as contributors to the decline in productivity during the 1973 to 1979 period have reversed themselves,1,f +restructuring downsizing market targeting narrower specialization and stringent cost controls will be common themes all in the name of capital,1,f +these data all point to the fact that pcas are rapidly becoming a major competitor to banks in supplying nonreal estate credit to farmers,1,f +recently released data from the census bureau for example indicate that between 1992 and 1997 the number of minorityowned businesses grew more than four times as fast as the number of us firms overall increasing from 21 million to about 28 million,1,f +over the same period the united states also has experienced a significant decline in manufacturing employment a result of globalization and of changes in technology that have reduced the need for manufacturing workers,0,f +greater activity in the housing sector boosts demand for construction materials and major appliances and furniture,1,f +investors and lenders need to understand that failure to recognize the profitable opportunities represented by minority enterprises not only harms these firms it harms the lending institutions as well,0,f +even the districts number one industry food processing increased only 28 per cent compared with a national average increase of 32 per cent,0,f +black markets offer few of the benefits of legally sanctioned trade,0,f +exports added a full percentage point to real gdp growth in 2006 and 2007 and are likely to make a healthy contribution to growth this year as well,1,f +i mention this correspondent relationship because it is one area of agribanking that is changing in response to the increased demands for credit by the farmers,1,f +nevertheless those who had good contacts with producers managed to satisfy most of their demands but at a higher cost through this inefficient means of production and marketing,0,f +in addition to lingering weaknesses in construction consumer demand for durable goods remains poor,1,f +my district is heavily involved in manufacturing which makes the regions economy more cyclical than in other regions,1,f +this boom is being sparked by higher receipts from each of the states major products beef cattle potatoes and wheat,1,f +another spur to productivity growth is capital spending and capital expenditures appear to be on the rise,1,f +that turnaround is evident in consumer goods especially autos business equipment and raw materials and even the production of construction supplies increased last quarter,1,f +it would appear now that this perplexing movement toward reduc t i o n of farm numbers has only begun to gather steam,1,f +the continued success of many community banks depends on their willingness to engage in strategybased innovationled growth,1,f +one possibility that occurs to me is that we ought to make it possible for wealthy people like you who have money to invest to help him break into farming,1,f +more of the inputs needed for farm production will come from the nonfarm sector and more of the food processing and preparation chores will be done after commodities leave the farm,1,f +such a program as this could work hand in hand with appropriate monetary policy for the welfare of agriculture,1,f +the second major area of concern in the nearterm outlook and one that perhaps could pose noticeable downside risks is business investment,0,f +consequently even though the trade balance will improve only slowly over the next 5 two years the volume of exports imports as wellwill continue to grow,1,f +this forecast is this is not to say there are one cause for concern is the surfeit o f o ffic e space in atlanta and elsewhere in the southeast 8 defense spending should help sustain the momentum o f many manufacturing firms,1,f +if it is too cumbersome or expensive to establish a business potential entrepreneurs might decide to forgo their ventures altogether or they will enter the informal sector with only limited access to the legal system and to credit markets,0,f +firms with less confidence have less conviction to push through price increases,0,f +our climate and the availability o f land have lured many people and businesses to the region,1,f +a key factor in economic growth both here and abroad is the longterm process of opening our borders to trade and investment,1,f +there are no indications in the marketplace that the process of reengineering business operations is slowing although it has been difficult analytically to disentangle the part of the rise in output per hour that is permanent and that which is the consequence of transitory business cycle forces,1,f +no longer having industrial production as its dominant activity it is now a learning city a business meeting center for the nation and the world a corporate headquarters for the midcontinent and a business service city that sells to the broader midwest region to the nation and to global markets,1,f +such an increase in private saving propensities and a reduced demand for residential capital should prompt movements in relative prices and other factors that will in turn make room for a larger role for business investment and net exports in overall economic activity,1,f +the challenge ahead for lenders will be to determine how to assess the credit quality of businesses in an uncertain and difficult economic environment,0,f +retailers and touristoriented businesses that are thinking ahead will probably expand into the atlanta market prior to 1996 to take advantage of the games,1,f +many american companies have established operations overseas so they can be closer to their markets and take advantage of local opportunities,1,f +and importantly lower sales of goods and services also reduce the incentives of firms to invest and hire thereby slowing the recovery,0,f +10recent and prospective pattern of business investment these new investment requirements will follow a heavy volume of investment activity by american industry,1,f +and profitability has to be present before businesses will consider expanding investment and recalling laidoff workers,0,f +given the globalization of economic activity and our current concerns about world economic crises it is important to note that small businesses are active participants in our international trade the sba estimates that their exports account for about onethird of the value of export shipments,1,f +given the fact that most farms are eligible for a limited amount of credit if excessive amounts are used for one purpose leaving insufficient amounts for other purposes the excess may cause the farm to be inefficient,0,f +on inventories patterns in 4 of the past 5 years have been distorted by steel accumulation concentrated some time in tiv first half of the year and by liquidation concentrated in the seconc half,0,f +trading plummeted or in some cases stopped,0,f +employers large and small privately owned or publicly traded will tell you that despite access to cheap and abundant capital they are hesitant to make longterm commitments including hiring significant numbers of permanent workers,0,f +there were few solid business statistics to support the belief of an economic upturn during the early summer,0,f +conversely at times of falling commodity prices in world markets countries in balance of payments surplus should strive to increase their imports so as to bolster aggregate world demand,1,f +heretofore farm financing has been a rather scattered and haphazard u1dert 1,0,f +the total output of agricultural products continues to grow but fewer people and fewer fulltime farms are producing and selling our nations crops and livestock,1,f +business spending for new plant and equipment is one such area especially in view of the nearcapacity levels of operation evident in at least some industries,1,f +however if the recent pickup in automobile sales is maintained and supplies during the second half are not curtailed by a protracted strike growth in consumer credit should accelerate once more,1,f +a b e much o f floridas industrial sector produces electronic and transportation equipment tied to the defense and space programs and the resumption o f serious work on the space shuttle would have positive effects for numerous private industries there,1,f +the innovations that begin on campuses are diffused to businesses through patents startup companies and consulting arrangements between faculty and industry,1,f +this requirement is having the effect of postponing price increases for automobiles metals and other important commodities,0,f +moreover lower crude oil prices have significantly depressed business investment in the domestic energy sector,0,f +while there is a lot of uncertainty about the outlook we believe that the monetar y policy we have put in place will support aggregate demand,1,f +the questionable borrowers were no longer able to borrow at prime and the prime borrowers borrowed at a normal spread over the tbill rate,0,f +external competition will continue from sears kroger and other nonfinancial companies as well as from foreign institutions,0,f +and chicagos thriving business service sector in areas such as advertising management consulting law and research and development also benefits from the depth of the travel offerings at ohare and midway,1,f +the construction industry including home building is l 31 still depressed,0,f +second a lack of experience in familyowned businesses is correlated with minorityowned business failures perhaps reflecting a lack of access to professional financial and social networks where business opportunities are identified and developed,0,f +like ony other business a farm that is adequately staffed stocked oct equipped and that has the necessary working capital for efficient operation haa a far better earning potential and hence is a better credit risk than tbe one in which too much of the available resources are tied up j_n lauct or plant with the result that operations are handicapped through la0k of eq,0,f +positive news is coming from the oil and gas industry especially here in louisiana,1,f +the major reason of course is the unprecendented bulge in boeings order book for civilian aircraft whose effects will be felt on both sides of the cascades for years to come,1,f +this in turn suggests that the rate of return on capital should be sufficiently attractive to foster new investment once this stock adjustment is complete,1,f +business and labor contacts throughout the cleveland federal reserve district across a variety of industries have been reporting to us for quite some time that it is very difficult to find workers across all skill levels,0,f +though profit margins were falling and the cost of external funds was rising to astonishing levels the upward surge of investment in business fixed capital continued,1,f +since the war the united states has been filling domestic demand that had built up from the depression and through world war ii,1,f +line managers must determine the acceptable level of risk in their line of business and must assure themselves that they are getting an appropriate return for this risk and that adequate capital is being maintained,0,f +business leaders have not been ready to place those kinds of bets,0,f +output per worker has increased faster on average in manufacturing than in the overall economy,1,f +they argue that in some cases excessive regulation and fees might be creating undue burdens on capital investment lending and the formation and growth of small business,0,f +for the ninth time in us history we have experienced a doubling of the market indexes corporate borrowing rates are at the lowest levels on record including those for cccrated credits that are just north of default,0,f +by the same token developing nations must play by the rules o f the game and allow the us to reap the benefits o f our present comparative advantage in generating ideas for new products and in providing high quality services,1,f +there are indications that the slowing domestic demand is beginning to curb imports a tendency which should persist in the near term unless higher oil import prices put that goal out of reach again,0,f +one cincinnati agency partners for a competitive workforce is a leader in tracking its results and sharing information with researchers30 research could help identify whether certain sectors like health care or hightech manufacturing where qualified workers are in short supply are more amenable to these kinds of programs or whether such programs can be replicated across multiple industries,0,f +in manufacturing both labor productivity and total factor productivity have been growing rapidly for several years,1,f +it reflects a growing recognition by americans in every walk of life that inflation is the most serious economic problem we face that there are no easy solutions to the problem and that ending inflation will entail 7 7 one area in which no progress at all has been made is in reducing the rise in unit costs of production,0,f +by ensuring that every small business owner has equal access to credit and business opportunities we will promote continued and widespread prosperity within our local and national economies,1,f +with corporate debt the united states has not faced a massive credit boom like that experienced with residential mortgages before the recent crisis,0,f +you will recall that the consumer boom of 1955 was followed by an expansion of inventories in every consumerdurables industry during 1956 even though the sale of automobiles declined sharplythis industry a mighty force in the economy appeared to have overextended itself and to have slowed down for a while,0,f +although it was painful these excesses in the construction and retailing industries have been reduced,0,f +we produce very little military materiel,0,f +perhaps there also will be some additional release of production for export in those sectors of the machinery industry r1here capacity has been too tight to take full advantage of buoyant foreign demand,1,f +an allout trade war seems unlikely today but a series of smaller barriers inflicting economic costs on a trading partner has the possibility of inflicting harm far beyond the original target,0,f +new car sales have also been more robust than in the united states as a whole,1,f +at the other end of the economic spectrum it is also the home of one of americas great companies with a strong position in one of our most technologically advanced industries,1,f +in addition ive been struck by the large number of accounts ive heard of firms having difficulty finding workers with the appropriate skills in many cases constraining production,0,f +moreover they will lack the flexibility to make the necessary adjustments to technologically advanced production processes,0,f +although the circumstances of most southeastern farmers are not as distressed as many of their midwestern colleagues who rely more on grain exports many farmers in this region face the prospects of reduced revenues this year after a lackluster year in 1984 some also are heavily in debt with few prospects for relief,0,f +moreover farming in the southeast as a whole is less dependent on grain crops and hence on export markets which are glutted,0,f +exports contribute meaningfully to gdp reflecting growth of our principal trading partners particularly in asia,1,f +i like to say that american businesses are creative,1,f +progress in trade liberalization has continued in recent decadesthough not always at a steady pace as the recent doha round negotiations demonstrate,1,f +ill not talk about monetary policy today but instead about an issue of great concern to me the exports side of international trade,0,f +so american steel producers in the us may find themselves facing sharp competition from firms that are not necessarily more efficient than they are but instead receive subsidies,0,f +china and other countries have emerged as manufacturing powerhouses,0,f +to the contrary we seem to read more reports of capacity reductions than the reverse not exactly surprising when we look back at the trends of the past five years,0,f +in fact i hear from a lot of business peopleincluding a few at a recent meeting of my recent small business agriculture and labor advisory councilthat they cant understand why we seem to be so anxious to take action against something they cant see,0,f +net exports added over a half percentage point to real gdp growth last year and 18 percentage points for the first half of 2008 unfortunately the trade contribution to us growth is likely to decline in the near term in response to diminishing world growth prospects and the recent strength in the dollar,0,f +financial conditions of businesses businesses are also in good financial shape having experienced a dramatic improvement in recent years,1,f +is it because loan supervision has become too difficult with technological developments and increasing credit needs of agriculture,0,f +1 after companies have had their margins gutted by dramatic rises in their cost of goods sold one can envision them being a little skeptical about the durability of recent price retrenchments in the commodities markets and taking advantage of every opportunity to buy protection from being victimized again,0,f +declining capacity utilization and the slump in corporate profits reinforced the downward spiral,0,f +inventory investment was cautious and moderate,0,f +in part as a reaction to heightened competitive pressures intel also shortened its product cycle and increased the frequency of new chip releases shifting its product mix toward morepowerful and consequently highervalue chips,0,f +in the last fifty yars farm population has been reduced from 321 million or 347 per cent of the total to 159 millin9 or 87 per cent of the total in 1960 based on the new census definition of a farmo even this small fraction includes a large number of parttime farmers ho receive varying but significant portions of their income from offfarm jobs,0,f +because of the sustained growth in final domestic demand business investment should continue to support expansion in 1985 the recent decline in capital spending by businesses was largely the result of a rush to import certain equipment before an expected decline o f the dollar or the possible imposition o f import restraints,1,f +strong growth abroad seems i lkely support export demands,1,f +however the actual decline in corporate profits during the first quarter of this year may not have been as large as indicated by some of the earlier estimates,1,f +at the outset i have to profess that i am no fan of industrial policy and there are aspects of this university engagement model that strike me as hav ing an industrial policy flavor,0,f +but because of the overvalued dollar much of the demand for consumer durables and for business capital goods has been met by imports,0,f +the majority of the firms in this industry are small and lack the 5 resources to purchase the sophisticated equipment necessary to battle competitors in countries with lowcost labor,0,f +foreign cacpetition has driven sane us industries and certain us agriculture dcmn to depression levels,0,f +the irony is of course that those two industries ir particular have been protected for years and protection was not only unable to sav them but may have accelerated their weakening,0,f +and so we come to our question will the banking system somehow be able to continue a rapid expansion of farm loans or will banks in the future have a less dominant role in farm financing 2 2 and so for two decades credit has poured into agricultureinto replacement of obsolete machinery into enlargement of acreage and enterprises on individual farms into supporting a larger volume of cash production expenses and into the transfer of a more costly capital plant from one generation to the next,1,f +my own expectation is that a strong turnaround in business investment spending is several months away,0,f +going forward strong growth in demand will induce businesses to slowly add to their payrolls,1,f +a notable feature of the worsening of the recession in late 2008 was the sharp collapse of worldwide trade in manufactured goodsthe recovery that began in the second half of 2009 has been patchy and has yet to produce a sustained period of abovetrend growth,0,f +spreads on investmentgrade corporate bonds have widened over the last month but still the level of yields on such debt has fallen,0,f +a globe let alone demonstrate necessary skills in math and we are also lagging badly in making needed investments in our roads bridges and harborsthe infrastructure that moves our goods to market,0,f +in line with the presidents initiative to reduce regulatory burden to all businesses the federal reserve board in conjunction with the other agencies is currently developing a proposal to amend its appraisal regulation,1,f +today agriculture buys from business almost 50 per cent of its production items in the form of machinery tractor fuel commercial fertilizer mixed feeds building materials and so forth,1,f +the end result here is that industries are becoming increasingly concentrated and the average listed company is bigger older and more profitable,1,f +in fact recently i heard a banker tell an agricultural meeting that one reason for being optimistic about the future of agriculture was the large number of bright young men entering this and related businesses,1,f +however if total cooperation cannot be achieved other farm credit discount facilities may be necessary,1,f +as a result the downturn in the energy sector has been steeper and its impact more widespread and severe,0,f +the commitments already made and contemplated for years ahead indicate the confidence the steel industry has in this area,1,f +in the language of business this means that we need to strengthen the entire supply chain,1,f +more fundamentally the approach to these prudential limits is visible in the trade surpluses that are now emerging,1,f +a b american industries must adapt to new world marketplace,0,f +improvements in labor quality are no longer adding much to productivity in the aggregate,0,f +during the past two decades exports in volume terms have risen from seven percent to twelve percent of the output of goods,1,f +also while the economy overall has recovered business investment spending has been weak through most of the recovery period to date,0,f +if the restructurers assessment of the potential of the corporation is correct and the necessary funds are5identifies mismanaged companies and promises to direct freecash flow away from wasteful projects once control of the corporation is achieved,0,f +idle plants across the country are reopening or are recalling furloughed workers,1,f +econanic recovery in our trading partners has lagged significantly in timing and anplitude behind growth in the united states thus their demands for imports also have grown slowly,0,f +its important to note that many businesses are flush with cash and motivated to improve their efficiency while growing their markets,1,f +this acceleration in the pace of accumulation could mean that inventories had finally gotten too lean and that firms wanted to restock or it could mean only that businesses were startled by the unexpectedly weak pace of demand for their products and that inventories piled up unintentionally,1,f +a small number of key industrial price moves or high wage bargains can set off a rapid upward spiral of prices costs and wages,0,f +growth in construction spending by businesses was particularly strong in 2006 the gains were widespread in such diverse categories as health care facilities office buildings retail space and power generators,1,f +it could be that if markets remain relatively stable businesses may begin to feel more secure and investment spending may pick up more than expected,1,f +the strong demand for goods and services that we associate with prosperity causes wages to be raised not only in manufacturing where the increases can be offset in part at least by mechanization but in the service enterprises like stores hotels and hospitals where there is less chance for similar offsets,1,f +it also remains to be seen whether the trend toward consolidation and layoffs in communication transportation and other professional and business services has hit bottom,0,f +industrial production rose significantly in the summer and not just for the auto industry which was effectively restarting after the disruption caused by the bankruptcies of general motors and chrysler,1,f +in particular the growth of the states electronics and other hightechnology industries which have almost doubled their job requirements since early in this decade promises considerable strength as we move into the 1980s,1,f +it is difficult to assess the exact extent to which increased demand by developing countries has contributed to the runups in commodity prices in recent years as these prices are also affected by supply conditions and other factors,0,f +corporations have issued bonds and paid off shortterm bank debt,1,f +with the national recovery currently under way and a future based on industries that are well known to this region the future looks quite bright,1,f +some industries will inevitably operate for a time at lower rates of production than they would prefer,0,f +thus formal loan commitments combine with the inducements provided by a network of customer relationships and the high profitability of business loans to make extremely difficult if not impossible the decision to rechannel already reduce supplies of lendable funds into assets other than credits to business firms,0,f +in the process many ndividua1s and coipanies are disappointed that they cannot secure the funds to buy what ther want right away,0,f +in the united states for example the share of both imports and exports has grown substantially over the past forty years,1,f +i hasten to add however that the prospects of any significant or pervasive tariffsand the reactions from trading partners that could followrepresent a counterbalancing downside risk,0,f +the result was a disincentive to produce and this of course led to a reduction of available supply and an even higher price to the consumer when controls were removed,0,f +the unexpected and rapid rise in energy costs sapped consumer purchasing power and reduced business profit margins,0,f +but the opportunities for profitable exploration and development in the industrial economies are dwindling and the international oil companies are currently largely prohibited restricted or face considerable political risk in investing in opec and other developing countries,0,f +many of these surveys note that it is very difficult for outsiders to determine the effectiveness of corporate governance,0,f +mr bernard norwood and mrs helen b junz respectively provided valuable counsel with respect to u s trade policy and the use of imports by foreign governments to strengthen general stabilization policies,1,f +chart changes in returns on farm capital specified types of commercial farms by size d marginal capital invested in real estate apparently yields greatest returns,1,f +like their counterparts in the rest o f the united states southeastern farmers have experienced difficult years during a period when the economy as a whole has enjoyed a continued expansion,0,f +we have already done so in the case of europe where last months data showed a small us trade surplus,1,f +this allows the fir ms to minimize costs and leverage strong brands enhancing their marketability,1,f +but there are other reasons to favor free enterprise than the oppor tunities i gives for personal gain,1,f +the dynamics of this whole area are impressive and i suspect this organization plays an important quality assurance role in this local business economy,1,f +for the most part we in the united states have not engaged in significant and widespread protectionism for more than five decades,1,f +and it is also understood that the federal reserve stands ready to channel funds through depositories to nonbank borrowers in extreme situations that threaten to carry repercussions throughout the financial marketsas in the case for example of the penn central bankruptcy a decade ago,1,f +some of the improvement in financial conditions among businesses is due to significant belttightening by many firms,0,f +the present difficulty of many wheat farmers and cattlemen is in no small measure due to the unwarranted optimism generated by the unusually good weather and abnormally b h,0,f +world trade has heen increasing in recent years and every indication is that it will increase even further in the future,1,f +under the present erm currencies are allowed to fluctuate within bands of 2 to 6 percent and swings of this nature still carry considerable uncertainty for those making business decisions,0,f +i learned about the key role that community banks play in helping small businesses get started and flourish,1,f +usiness finance 5 despite the general slowdown in the economy business firms raised a substantial volume of funds during the first half of 1967 while the need for funds for inventory investment and for new plant and equipment declined since the start of the year internally generated funds retained earnings plus capital onsumption allowances also fell,0,f +but in the area of trade our confidence must be waning,0,f +investment in nonresidential structures such as office buildings and industrial and commercial space appears poised to improve this year after several years in the doldrums though a full recovery in this sector will have to await further declines in office vacancy rates and increases in factory utilization rates,0,f +if that happens the export of goods manufactured in the united states should grow steadily although slowly over the year,1,f +cattle and calves were the second largest source of income on the basis of a modest gain in production and a sharp up surge in prices,1,f +transportation costs from the region to these markets are high and have limited the types of goods that can be exported,0,f +the only way we can accomplish this is by consuming less o f our own production and exporting more,1,f +t o have rapid export growth the rest of the industrial world m u s t enjoy vigorous economic expansion,1,f +certainly manufacturers were feeling the hit from lost business abroad but spending by domestic businesses and consumers was still increasing briskly,0,f +finally there is a tremendous amount of investment activity in the area of alternative nonfossil fuels,1,f +this situation has been caused in part by the current recession and more than that by the structural problems of aerospace and other growth industries which are no longer growing,0,f +the idea is that pefco will be able to raise7 expensive borrowings in the eurodollar market,1,f +agriculture is one of our more efficient industries and given improved trading conditions both here and abroad farm exports should rise markedly,1,f +this seems to be passing through to our manufacturing sector which had been so adversely affected by the dollars earlier appreciation,0,f +these have been trending up in real or inflationadjusted terms since late 1986 the dollars substantial drop in value against foreign currencies makes our goods more attractive to foreigners,1,f +it is too early to tell just how successfully the business community is carrying out its investment plans in 1969 however as the year got underway it was expected that the increase in fixed investment would be particularly sharp during the first quarter perhaps as much as 13 per cent at an annual rate with the pace declining steadily thereafter to perhaps 4 per cent at an annual rate in the final quarter,1,f +for example a firm with little reliance on shortterm funding is less susceptible to runs and thus to the need for engaging in fire sales that can depress capital levels,1,f +but prices of goods subject to foreign competition have fallen over the same period by 88 percent for computers and peripherals 70 percent for video equipment 39 percent for toys 13 percent for womens outerwear 16 percent for mens shirts and sweaters,0,f +small businesses are very susceptible to swings in the economy and have a much higher failure rate than larger operations,0,f +manufacturing was one of the first segments of the economy to feel the effects of the slowdown as the imbalances that developed toward the end of the last expansion reduced the demand for capital equipment and inventories,0,f +were familiar with many of the causes of the upsurge such as poor growing weather and high distribution costs and by now most of us are experts in the intricacies of the cattle cycle,0,f +in addition to the measures america might take to bring balance to trade flows other advanced industrial economies need to rely less on exports and more on domestic demand,0,f +misfortune will occur sometimes and business conditions will periodically weaken as those events have occurred routinely in the past,0,f +the reduced return to capital discourages investment,0,f +it seems likely that the synergies of advances in laser fiber optic satellite and computer technologies with themselves and with older technologies have enlarged the pool of opportunities to achieve a rate of return above the cost of capital,1,f +not surprisingly it is now exporters in other countries who have voiced concern,0,f +as the economy strengthens this year i expect that businesses will continue to add to their payrolls and that we will see modest declines in the unemployment rate reaching 8½ percent by the end of this year and in the 7 to 8 percent range by the end of 2012 residential and commercial real estate sectors remain weak but i do not believe that weakness in these sectors will prevent a broader economic recovery,1,f +the level of nonfarm noncorporate productivity implied by this exercise has been falling continuously since 1973 despite reasonable earnings margins for proprietorships and partnerships,0,f +the automobile industrys planned output curtailments in february along with severe snowstorms and a wildcat strike at the general motors fisher body plant seem to have stopped the recent expansion of inventories of new cars at about 15 million units,0,f +meanwhile the saver permits 100 pounds of his resources to be used for investment in such items as durable goods or plant and equipment,1,f +in turn these labor costs have contributed to heightened competition from cheaper imported parts,0,f +these improvements seem to have been the result both of organizational changes in business operations and of innovations in the use of existing technologies perhaps the result of firms applying more effectively the new technologies they had acquired at a rapid pace in the late 1990s,1,f +in addition many firmsespecially in the most troubled industrieshave retired debt via equity offerings and asset sales helping to hold growth of total nonfinancial corporate debt in 2002 to its smallest gain since the early 1990s,1,f +the data are pretty consistent with what i have been hearing from my directors and other contacts for some time businesses that primarily supply the consumer sector have been experiencing stronger demand than those that primarily serve other firms but lately business spending has improved,1,f +even today roger said that there are three times more pigs in the county than there are people,1,f +the move toward unifying that large market is underway as the nearly 300 separate trade barriers maintained by individual nations are being dismantled,1,f +this evaluation should include a variety of scenarios and possible events that could cause a business disruption,0,f +looking at data for the entire business sector it appears that the slowdown in the growth rate of total factor productivity has continued,0,f +this happens as higher prices for foreign goods dampen imports even as domestically produced goods become relatively cheap overseas and improve exports,1,f +business investirent has surged higher and productivity trends have shown sane signs of improvanent from the poor record of the 1970s,1,f +given the fundamentals i think the blue chip forecast is reasonable,1,f +that innovation can come from outside the banking sector and we should not be surprised when it crops up in a commercial context particularly in silicon valley,1,f +ill give you an example a contact of mine has a trucking repair business in pennsylvania and hes doubled the number of bays because business is so good,1,f +chart total capital per farm united states and total capital less real estate appreciation c ownership lc owneroperator equities in farms decline proprietors equities also down somewhat,0,f +positive increases have taken place in education and manufacturing and in a few other instances the in creases in alabama have been relatively faster than in the nation,1,f +design times and costs have fallen dramatically as computer modeling has eliminated the need for example for the large staff of architectural specificationdrafters previously required for building projects,1,f +national economic outlook the recent recession was business driven,0,f +the excess physical capital that had developed earlier appears to have been worked off in most sectors and the need to replace older equipment has become more pressing,0,f +failure to plan transportation and land use regionwide can impede a critical asset of large cities the close matching of specialized and skilled workers with the unique labor demands of diverse bigcity employers,0,f +as things stand many builders fear that the soaring prices of land labor and materials could relegate the singlefamily home to the status of a museum piece,0,f +just how poor the trend of profits has recently been is clearly indicated by the fact that in each year from 1968 through 197 5 the aftertax economic profits of nonfinancial corporations from domestic operations were in the aggregate consistently below the levels reached during 196 5196 7 a new high level of these profits was indeed reached during 1976 but even that achievement is decidedly unimpressive when profits are expressed as a rate of return on the amount of equity capital in use,0,f +this hypothesis builds on the idea that the heavy emphasis on exploiting new and expanding markets from 1995 to 2000 likely diverted some corporate management from the hard work of controlling costs,0,f +if these firms collapse what are the repercussions,0,f +we know that there often is a boost to productiv ity growth in the early stages of recover y as businesses demand more from their employees and trim fat from their organizations,1,f +business investment has been weak in the past six months or so even beyond the energy sector and investment in capital equipment is reported to have declined in the last quarter of 2015 and first quarter of this year,0,f +fourth supervisory expectations for business continuity planning and disaster recovery are longstanding,1,f +this implies a normal rate of growth which has to do with the saving that people are willing to set aside from their earnings and to invest in productive facilitiesyou and your colleagues in the farm credit agencies are grappling with some of the most difficult economic analjrsis of our times,0,f +based on the lessons of the past i believe that later this year we would find aggregate demand would have remained excessive,1,f +however even with this program we have yet to see a sustained upward trend in sales,0,f +fortunately the southeast can depend on a strong underlying or longterm growth trend thanks to some regional factors that result in the continued inmigration of people and businesses from other regions of the country as well as a diversified economy and dynamic industries including the service sector,1,f +this leaves us with net exports as an engine for the expansion,1,f +or consider if you will the automobile sector which while still depressed has also reported a rise in sales,1,f +residential investment was an important engine of growth in 2002 and most forecasters as evidenced by the blue chip survey for example expect that it will continue strong in 2003 inventory investment by contrast is generally expected to contribute little in 2003 in contrast to 2002 when this component made a significant net contribution to gdp growth,1,f +gtl promises to add a good measure of flexibility in the way natural gas resources are utilized,1,f +supporting structural changes the technological changes inspired by investments in computers have enhanced the ability of businesses to reduce their operating expenses,1,f +in many industries demand looks strong and capacity utilization is high,1,f +in such a case in which the firms capital is negative the ownership of the bankrupt firm should be changedunless the owners succeed in mobilizing more capital in which case the company was probably not bankrupt,0,f +this same type of paradox faces black entrepreneurs in their search for qualified labor,0,f +whether these pressures are in fact passed through to core inflation will depend on a host of considerations including the willingness of producers to absorb those cost increases and experience at least for a time lower profit margins,0,f +the markup has been relatively steady at an elevated level over the two years which with rising unit labor costs is consistent with the rise in inflation weve seenif unit labor costs continue to advance at recent rates either inflation will keep pace with unit labor costs or the increase in labor costs will be absorbed by firms lowering their markups,0,f +but the risk remains that labor cost pressures will show through to inflation,0,f +the depreciation of the dollar coupled with restrained wage and cost increases has significantly improved our competitive position in international markets,1,f +surely many of our workers and businesses now recognize that they are competing in world markets and that it is in their longrun interest to keep wages and prices at competitive levels rather than ratcheting up in step with rising import prices,0,f +6the vulnerability of the us economy to weakness in exports became abundantly evident in 1982 the slowdown in business activity abroad combined with the large rise in the value of the dollar relative to other currencies led to a 16 percent drop in our exports of goods over the four quarters of 1982 the decline was actually larger than the overall reduction in us real gnp during that period,0,f +in this case the policymaker might not be too worried that say a string of adverse supply shocks would create a severe conflict between the goals of price stability and of full employment,0,f +unit labor costs have increased considerably although in part because with the slowdown in the economy productivity has been increasing only slowly,0,f +today the opportunity before us is to concid173tinue breaking away from a cycle of accelerating inflation depressed business investment declining productivity and loss of international market share,0,f +in order to come close to the ceas 12 per cent standard business fixed investment would have to rise at a rate of about 30 per cent during one year or about 20 per cent for each of two yearsthe present unsatisfactory level of investment spending reflects high perceived risk high cost of capital and low profits from existing capital as well as low expected profits from future investment,0,f +as resource slack is progressively eliminated however and as labor productivity growth settles in near its longerrun trend of 2 to 212 percent increases in unit labor costs may begin to put some upward pressure on prices offsetting possible moderation in nonwage costs,0,f +a decline in the tradeweighted dollar erodes the profit margins of foreign vendors and perhaps those of their distributors in the us this process is not likely to produce instant inflation however as sellers may accept smaller margins on sales to hold their shares of us marketsfinally let me note that some analysts became concerned that reinflation was suggested by the conroerce departments flash estimate for the first quarter of this year which showed the osip deflator advancing at a 512 percent rate confirmed by the revised estimate released last week,0,f +nonetheless the nature of the downside risks this time is different and it is not too difficult to envision a scenario in which adverse shifts in business sentiment and uncertainty over the outlook cause firms not only to reduce capital spending but also to pull back on hiring which then causes consumer sentiment and spending to weaken and unemployment to rise with inflation staying below our target because of weak aggregate demand,0,f +employment and output growth have slowed markedly since mid84 despite declining interest rates and rapid money growth over the past year,0,f +nearly every sector has experienced some decline in productivity growth since the mid2000s although the extent varies across sectors2 another possibility is mismeasurement,0,f +the two dollar devaluations and the increases in energy prices prompted by increases in the price of imported petroleum have triggered important 3 underlying changes in our economy,0,f +for some years they received orders ith0ut aggressive marketing and increases in unit costs could be passed on to the consumer so long as postwar inflation abroad made price increases possible,0,f +meanwhile inflation was expected to remain close to or a little below the committees objective of 2 percent consistent with ongoing slack in the labor and product markets and wellanchored inflation expectations,0,f +a persistent material increase in inflation would require not just that wages or prices increase for a period after reopening but also a broad expectation that they will continue to increase at a persistently higher pace,0,f +the small rise in average prices received by farmers was largely offset by rising unit costs thus emphasizing the importance of larger more efficient farm units,0,f +industrial production fell almost 15 percent during the recession since june of last year it has risen every month resulting in a cumulative increase of over 6 percent,0,f +finally there is the uncertainty surrounding brexit which may provide additional headwinds to an already struggling manufacturing sector and further appreciation of the dollar could result in declining net exports,0,f +one factor that has extended these lags is that much of the dollars decline was not initially translated into higher import prices,0,f +as to inflation the very fact that the dollar is declining itself contributes to inflation both because of the higher cost of imported goods and because of the higher threshcid173old for domestic price increases that is generated by higher prices on imports,0,f +is slow domestic demand likely to be persistent or transient,0,f +this monetary stimulus contributed to both a reversal of commodity price trends including a partial rebound in the price of oil and an exchange rate adjustment which increased import prices,0,f +the net is inflationsince we have not undertaken an effective national program to upgrade productivity the result of excessive wage increases has been a builtin inflationary costpush bias,0,f +taxation like direct wage and other production costs adds to the already high coststructure of our productive machine and in our present environment where increasing competicid173tion prevents upward price adjustments even marginal increases in costs from whatever source tend to squeeze profit margins and injure investment incencid173tives,0,f +those who are uncid173friendly to the business codddunity accuse administered or allegedly monopolistic prices of being the prime cause of inflation whereas those on the other side put the blame on labor unions that seek and obtain wage increases in excess of increased productivity,0,f +second the slowing of aggregate demand globally has also depressed the prices of oil and other commodities,0,f +such costs may lower the rate of productivity growth for a time but so far it is not evident in the reported data,0,f +but once the public health threat has been reduced the declines in business activity and employment should be shortlived,0,f +dr arthur f burns president national bureau of economic research once gave the following prescriptionunless the government moves prudently in increasing the money supply and its own rate of spending unless trade union officials keep their demands for wage increases from exceeding improvements in general productivity unless the government refrains from passing laws that raise wages or prices unless business firms and trade unions join in efforts to remove restrictive labor practices and the featherbedding in which both executives and workers sometimes indulge unless the government reforms our tax system in the interest of stimulating greater effort more productive investment and higher efficiency unless businessmen innovate vigorously and lower prices whenever possible unless these things are done and a liberal policy toward imports is continued we will not avoid nei and successive rounds of inflation,0,f +slower output growth depresses employment growth as firms face weaker demand but slower productivity growth implies that firms need more workers to produce a given level of output,0,f +return to text 6 see for example new oecd indicators trace productivity growth slowdown pre and postcrisis,0,f +indeed a large deceleration in spending could conceivably cause inflation to slow following a productivity slowdown as firms markups contract more than unit labor costs rise,0,f +we know that productivity growth declined slightly in the fourth quarter of 2002 but the level of labor productivity was still nearly 4 percent higher than a year earlier,0,f +what is so clearly evident in the case of scarce materials and labor applies also to money and credit,0,f +rising labor costs in the u s may also have encouraged large u s corporations to increase their investments abroad to hold the line on costs,0,f +nominal wage rigidity on the downside may have played a role to the extent that employers were reluctant to cut nominal wages even in the period from late 2008 to early 2009 when they were eliminating jobs in staggering numbers,0,f +in the meantime previous increases in labor costs and the recent than above a year ago low productivity rates averaging less 1 per centin the last few quarters have combined to produce sharply higher costs per unit of output in manufacturing,0,f +the computer equipment and software category of business investment in particular grew at an astounding rate of 19 percent per year from 1995 to 2000 as compared with an 11 percent growth rate from 1989the last full year before the 199091 recessionto 1995 after the investment boom of the late 1990s business fixed investment declined for eight straight quarters until the fourth quarter of 2002 to get a handle on why business investment boomed and waned it is useful to refer to a framework that places importance on deciding when to invest as well as whether to invest,0,f +this results in considerably higher labor costs for a given volume of banking activity,0,f +i believe that the combined force of these three factors restraining aggregate demand plus others that i have not mentioned would require a lower real rate than otherwise to avoid economic slack,0,f +last wednesday we learned that us industrial production declined by 18 percent in january and that overall manufacturing output has declined 129 percent over the past year,0,f +as inflation rose still higher and became more variable the average growth rate of the us economy slowed and business cycle fluctuations became more pronounced,0,f +first in the aftermath of the financial crisis there has been an unusually large and persistent shortfall in aggregate demand,0,f +while trade flows are affected by many factors that are difficult to capture in modelssuch as the labor disputes at major ports that occurred earlier this yearthe drag from net exports over the past year does appear to be relatively close to the estimated effect implied by the staffs econometric trade model with net exports reducing gdp by almost 34 percentage point in the data compared with an estimated fall of 1 percentage point in the model,0,f +but faced with high fixed costs for labor plant and equipment it was less expensive to produce vehicles and sell them with heav y incentives than it was to shut down plants,0,f +we already saw some indications of a shift down toward longrun productivity growth at the end of last year,0,f +concerns about small business financing have stemmed largely from perceptions that small firms have more difficulty gaining access to credit sources than do large businesses or other types of borrowers,0,f +i now want to look at this ultimate goal by examining how credit volumes have evolved over this current business cycle downturn relative to previous downturns as identified by the national bureau of economic research nber business cycle dating committee,0,f +the reasons for weak productivity growth are not entirely clear it may be a result of the severity of the financial crisis for example if tight credit conditions have inhibited innovation productivityimproving investments and the formation of new firms or it may simply reflect slow growth in sales which have led firms to use capital and labor less intensively or even mismeasurement,0,f +it was the sharp decline in business investment that spawned the recession and slowed the recovery,0,f +i mentioned that one of the fomcs concerns is businesses willingness to spend and the continuing decline in business investment spending,0,f +high real interest rates increase business costs generally and discourage investment,0,f +weak foreign demand relative to the united states has pushed down net exports and contributed to a nearly 20 percent strengthening of the real tradeweighted dollar since mid2014,0,f +if the increases in house prices begin to moderate as expected the resulting slowdown in household wealth accumulation should lead ultimately to somewhat slower growth in consumer spending,0,f +as the expansion has continued inflation has gradually firmed consistent with reports from business contacts that they now have a greater ability to raise their own prices in response to higher input costs and strong demand,0,f +growth in compensation per hour has not moved up much over the past year but unit labor costs have accelerated because of slower growth in productivity,0,f +but higher rates of business investment are not likely to fully offset weakness in consumer spending for some time as businesses continue to grapple with uncertainties about the future,0,f +the slow progress in repairing and restructuring households balance sheets may also be lowering the normal responsiveness of consumer spending to a decline in market interest rates,0,f +i believe that no firm should be too big to fail and that a body other than the fed should have the authority to fail these firms wipe out shareholders stakes in the firm force uninsured creditors to take haircuts and unwind the firm in an orderly manner,0,f +among manufacturers there is concern about supply chain disruption resulting from the events in japan,0,f +the recovery from the global recession of emerging market economies especially in asia has been more robust but even these economies are slowing in the face of weak global demand and they would benefit from further progress toward a more balanced model of growth led by domestic demand,0,f +that development in turn could make it more difficult during downturns for monetary policy to support household spending business investment and employment and keep inflation from falling too low4 another key development in recent decades is that inflation appears less responsive to resource slack implying a change in the dynamic relationship between inflation and employment5 this change is in a sense a proverbial doubleedged sword,0,f +my view is that it will take at least several more years for the damage to productive capacity that ive described to heal,0,f +declining business dynamism what we know and the way forward american economic review vol,0,f +paying for higher levels of security on a day in day out basis while necessary does increase the cost of doing business,0,f +and an additional deterioration in sales profitability and cash flow would further exacerbate weakness in capital spending and employment,0,f +by contrast export growth slowed sharply as the foreign exchange value o f our dollar strengthened and the economic problems o f some o f our trading partners mounted,0,f +most estimates of the possible impact draw on the experience of the sars epidemic in 2003 a brookings study suggested that that epidemic reduced growth in china by about 1 percentage point in 2003 and growth in the us by only about 01 percentage point1 however there are many differences between 2003 and 2020 china was not as big a player in the global economy back then as it is today so there is the potential for a larger impact through decreases in tourism and travel reductions in consumer spending in china and by chinese tourists elsewhere disruptions in supply chains and a pullback in investors willingness to take on risk,0,f +despite these worries consumer spending has held up well it grew 36 percent in 2006 which is a robust pace by historical standards,1,f +in addition we are running up against problems of capacity constraints that i will discuss in a moment,0,f +the construction industry suffers from lingering excess supplies due to past overbuilding as well as appropriate hesitancy among many lenders to finance new projects,0,f +another negative factor is the outlook for net exports which remains poor,0,f +earlier when the expansion was getting underway businesses main concern was weak demand now it is the difficulty in finding workers to keep up with strong demand,0,f +first technological advances allowed the ictproducing sectors themselves to exhibit rapid productivity growth,1,f +reductions in interest rates usually expand credit and encourage firms to invest and households to borrow for durable goods purchases thereby stimulating aggregate demand,1,f +through the socalled wealth effect these gains have tended to foster increases in aggregate demand beyond the increases in supply,1,f +a major objective of current monetary policy is to create an environment conducive to a sustained recovery in business activity while maintaining the financial discipline needed to restore reasonable price stability,1,f +it would reduce costs and increase efficiency,1,f +any gains in production or employment that may come from adopting a dissipate highly after stimulative a brief time,0,f +there are signs of a new commitment and cooperation between labor and management and a willingness to attack the old rigidities and reduce costs through new efficiencies in production lower overhead and more flexible work rules and hiring practicesan aluminum plant expands output with onethird less workforce a maintenance worker doubles both on the assembly line and the warehouse,1,f +we have also seen a leveling off a sustained business investment boom,1,f +productivity in the nonfarm business sector grew by 31 percent in 1983digitized for fraser httpfraserstlouisfedorg federal reserve bank of st louis4 inequities of limited private credit availability and growth that the econanic reefs and shoals could be successfully navigated,1,f +why is rising business investment so important,1,f +their decline in turn would provide a powerful factor supporting and encouraging the business investment we need to maintain economic momencid173tum and to support productivity growth,1,f +f 1 the official statistics show some increase in productivity growth from the 11 percent annual average increase over the past 25 years,1,f +rapid growth in output following the outbreak of the korean war exerted pressure to increase a capital stock that had proven insufficient,1,f +industrial production has risen by only 114 percent over the past year,0,f +last year in the face o f internal political pressure to end this austerity regime brazil greatly stimulated domestic demand and was able to return to rapid real growth,1,f +however i believe that the federal reserve should look for ways to encourage the private sector in fostering experimentation with and expanding usage of newer retail payment systems,1,f +the most recent data on consumer spending support5digitized for fraser httpfraserstlouisfedorg federal reserve bank of st louis5the past year the july unemployment rate was under 7 percent about half that of michigan however even in this relatively prosperous state the housing sector has undergone a sharp retrenchment with housing starts off about 50 percent in the past year indications of a nearterm trough encouragingly the most recent data for a wide variety of economic indicators suggest that we may be approaching the bottom of this recession it appears that the adjustments that normally occur throughout a recession and which bring about a recovery are being compressed into the early stage of this recession we have already seen a sharp in fact a record fall in interest rates bringing about an upturn in the housing market the number of new houses started in june increased by nearly a third and permits for new residential construction rose by a similar amount qualitative reports from around the country also support the view that an upturn in the housing market is already underway in the household sector there has been a sharp curcid173tailment of borrowing and a reduction in the share of income needed to pay off existing debt such an adjustment lays the foundation for a healthy recovery of consumer spending also surveys of consumer confidence show an improvement in consumers attitudes the most recent data on consumer spending support this view that the declines in consumer spending are moderatingtotal personal consumption expenditures in real terms in junelevelled off after four consecutive monthly declines,1,f +the stock market has more than doubled from its recession low point and the net worth of households has increased by 8 trillion since early 2009 and even though home prices have been fluctuating lately they are no longer in a virtual free fall as they were in 2008 as these fundamentals have improved so has consumer spending,1,f +while lackluster consumer spending was one of the key reasons for the weak increase in firstquarter gross domestic product gdp growth in personal consumption expenditures pce bounced back strongly in the second quarter and recent readings on retail sales suggest another solid increase in consumer spending this quarter,1,f +surpluses in the federal budget used to retire debt would return funds to financial markets that could finance the additional business investment needed to improve productivity growth,1,f +and individual companies may have to make some hard choices between absorbing any wage increases in their profit margins or slowing the growth in their output in the face of an inability to raise prices,0,f +in terms of growth rate changes the united states australia and sweden are the only countries in which overall labor productivity growth increased and the united states and australia are the only countries in which it increased very much,1,f +the presidents new economic program seeks to reduce inflation in a variety of ways by reducing the costs of government regulations by increasing productivity through tax incentives for business investment by expanding energy procid173duction by encouraging individual work effort through reduction in marginal tax rates by supporting continued monetary restraint and other means,1,f +in the u s industrial production increased 121 per cent and per capita real product 50 per cent,1,f +since controls have been imposed on wages and prices some have viewed the more rapid rise in corporate profits as reflecting a bias of the control program in favor of profits,1,f +third advancing technology appears to be an important driving force behind the exceptionally strong rise in business investment in durable equipment,1,f +concid173sequently aggregate supply would increase along with the rise in aggregate demand,1,f +consumer spending has picked up recently,1,f +as a result the effects of the rise in the structural federal deficit on aggregate demand for goods and services and on interest rates have been offset by an increase in the current account deficit on international transactions,0,f +growth in consumer spending was very strong last year about 5 percent,1,f +business fixed investment grew by a little less than 6 percent a healthy number to be sure but far from a transformative year,1,f +the drag from the external sector was being more than offset by strong domestic demand,1,f +from 198285 us domestic demand growth has been three times larger than that in western europe and 75 percent larger than that in japan,1,f +the relatively small direct revenue losses would tend to be offset by greater business activity increased employment and even new business formation in the region to take advantage of this material tax incentivean enhancement to this program might be the creation of trade enterprise zones in which manufacturing facilities engaged in making products for export would also be exempt from property taxes and other local leviesan approach of this kind while targeted at a specific business sector is really an investment in the vitality of the whole economy since increased business investment results in higher employment more retail sales greater housing demand and ultimately a broader tax base over allin the late 1950s and early 1960s when new england was struggling with another kind of general economic slump new businesses were attracted to the region by locally created and financed speculative industrial parks and tax incentives,1,f +access to capital to create and expand small businesses leads to job growth and benefits the larger community,1,f +businesses have found it necessary to continue to downsize their work forces and to cut other costs to improve their ability to compete here and abroad,0,f +for example if labor productivity is increasing then companies can pay workers more and still not affect their profit margins or feel the need to raise their product prices,1,f +output per hour in the nonfarm business sector rose almost 7 percent in the second quarter bringing the fourquarter change to more than 4 percent,1,f +first methodological changesspecifically revisions to measures of the price level and the recent accounting change to include software as a capital expenditurehave raised the measured trend rate of increase in labor productivity over a longer period,1,f +imports for example are only about 12 percent of all domestic spending even with the import surge of recentdigitized for fraser httpfraserstlouisfedorg federal reserve bank of st louis9 i would feel more comfortable about our potential to expand at a rapid pace in the period ahead if there were evidence that the longawaited acceleration in productivity growth were at hand,1,f +the presidents revitalization program contains proposals aimed at stimulating private capital investment and improving labor productivity,1,f +the basic point with which i have been dealing is how to achieve equilibrium between high powered productive capacity and high level consumption,1,f +a higher value of the dollar passes through to lower import prices which hold down us inflation both because imports make up part of final consumption and because lower prices for imported components hold down business costs more generally,1,f +high quality corporations to circumvent conmercial banks in securing credit,1,f +in addition to the risk reduction resulting from macroeconomic stabilization the government has employed microeconomic measures to limit economic and financial risks for individuals and businesses among them programs for income maintenance governmental assistance to small businesses and farmers and even large firms in distress lenderoflastresort facilities deposit insurance mortgage insurance and guarantees and stock market credit regulation,1,f +in the past cyclical expansions have almost invariably been accompanied by price increases at the raw material level although unit labor costs hnve fallen as productivity gains increased,1,f +if the price of animal products should continue to rise no doubt man would shift increasingly to direct consumption of vegetable products,0,f +within the general framework of marked expansion of production and of employment incomes and living standards developments have differed among i d n ustrial sectors and some geographic areas,1,f +in the first place as argued above there is no doubt that the pressure of aggregate demand on real resources accounts for a substantial share of the rapid rise in prices particularly since 1965 on the other hand the expansion in real output during much of this period probably would not have been as large as it actually was in the absence of a strong demand for goods and services,1,f +even as the number of manufacturing jobs declines factories in the united states are producing record volumes of machinery computers plastics and other manufactured goods and in general they are producing them at lower costsall due to strong productivity growth,1,f +unless the willingness of businessmen to invest in new plant and equipment increases decisively the expansion of economic activity now under way will continue to lack balance,0,f +instead we have observed persistent strong productivity gains through the recession and even stronger increases in the modest recovery since then,1,f +let me tell you why i think credit scoring can help both small businesses and bankers,1,f +this picture has not been improving because real consumer spending has risen at only a 11 percent annual rate over the last six months,0,f +industrial production rose significantly in the summer and not just for the auto industry which was effectively restarting after the disruption caused by the bankruptcies of general motors and chrysler,1,f +as you know from 1995 to 2000 productivity in the nonfarm business sector increased at an average annual rate of 212 percent well above the lackluster pace of the preceding twentyfive years,1,f +the substantial amount of resource slack that is projected to remain in us labor and product markets over the next several years coupled with sustained growth in productivity should continue to restrain the growth in labor costs helping to contain inflationary pressures,1,f +firmness in business spending on capital goods may seem incongruous in light of the low levels of measured capacity utilization in many industries but excess capacity in some sectors does not preclude the emergence of profitable opportunities to deploy new equipment and software elsewhere to reduce costs or improve processes and services,1,f +in addition the economy has been supported by a high level of business investment in plant and equipment,1,f +both saw substantial increases in production employment and wealth,1,f +explanations of the rise in productivity growth since about 1995 have evolved somewhat over time,1,f +these three factors subdued productivity growth moderate consumer spending growth and a more tempered expansion in housing construction are keys to my assessment that overall economic growth is likely to average between 2 and 2 ½ percent over the near term which is around the average rate weve seen for this expansion,0,f +in fact to make real progress we should have increases in output per manhour that are greater than those in wages,1,f +in spite of the severe damage to employment and small businesses since the start of the pandemic we have seen that consumer spending on goods has been very strong,1,f +throughout this expansion business investment spending has grown much faster than weve seen in previous expansions,1,f +during both 1998 and 1999 measured from fourth quarter to fourth quarter real consumer spending increased approximately 5 percent,1,f +a large share of the rise in debt public and private was accounted for by residential mortgagesthis time 42 per cent of the 27 billion rise in total debt as against 29 per cent of the 45 billion rise in 1955 there was also superimposed on rising consumer spending an extraordinary expansion of plant and equipment,1,f +but this increase in productivity and efficiency should also embrace the activities of government as well as of the private sectors,1,f +we must not be swept by the sort of excid173cessive exuberance that would produce in industry an overexpansion of 9 productive capacity similar to that in agriculture,0,f +by those actions we hoped to achieve a substantial moderation in the expansion of business loans with some slowdown in the growth of consumer credit as well,0,f +similarly does stronger protection for property rights reduce a countrys susceptibility to systemic risk,1,f +the estimates of largescale gains in output and employment 18due to the devaluation of the dollar relative to other currencies are probably much exaggerated especially over a period as short as one year,1,f +an increase in domestic demand would certainly employ more men and machines and probably give rise to more rapid investment and more efficient capicid173tal as well,1,f +so i expect consumer spending to continue growing and supporting recovery on the business side,1,f +state and local governments cea thought would probably increase their purchases of goods and services by 8 or 9 billion in 1968 in this area also the council recognized that the ability of these governmental units to raise their expenditures would depend on the existence of financial conditions which would allow them to proceed with their planned construction projects,1,f +in particular a reason why opec was able to sustain the very large 1973 oil price increase for so long was because world demand for oil was underpinned by rapid expansion of aggregate demand in key markets in europe japan and the united states,1,f +last year real consumer spending rose 36 percent and in the first quarter it increased at a 38 percent annual ratesome observers have questioned the outlook for consumer spending often citing statistics that lead them to believe that consumer debt is too high or consumer saving is too low,1,f +the bill specified that bank credit be allocated toward national p rio rity uses including smallbusiness loans farm loans mortgage loans for low and middleincome housing loans to state and local governments and in addition loans to business enterprises for expanding productive capacity or ensuring adequate w orking capital,1,f +we expect consumer spending to rise at a moderate pace in the second half of the year,1,f +increasingly firms appear to be accelerating shareholder buybacks raising dividends increasing business spending and becoming more acquisitive,1,f +for example manufacturing production increased by 22 percent from march through july,1,f +let me give two examples involving the federal trade commission acts prohibition against unfair or deceptive practices in products and services that will undoubtedly be familiar to the audiencestudent financial aid and mortgage lending,1,f +now some may argue that american labor in striving for more percentage wage increases than productivity increases can yield is simply trying to get part of the increase from corporate profit,1,f +a proinvestment policy agenda by the government could help address some of our nations longterm challenges by promoting investment in human capital particularly for those who have seen their share of the economic pie shrink and by encouraging research and development and other capital investments that increase the productive capacity of the nation,1,f +and there is also considerable uncertainty about how long the higher productivity growth will persist,1,f +these data suggest that the increases in small business ownership and equity investment by traditionally underserved populations result in part from increased access to appropriate financing to fund the startup and growth of businesses,1,f +by 2000 or so an emerging consensus held that the pickup in productivity growth was for the most part the product of rapid technological progress and increased investment in new information and communication technologies ict during the 1990s jorgenson and stiroh 2000 oliner and sichel 2000,1,f +the pickup in investment combined with the wealth effect on consumption to boost aggregate demand,1,f +the new tax cuts should eventually boost consumer spending and saving too i hope but most of that impact may not be felt until late 1982 business spending for plant and equipment also may remain sluggish except of course for the very strong energy sector,1,f +conclusion a in conclusion its still too early to determine how long productivity will continue to increase at a higher rate,1,f +even so we can expect productivity growth to be higher than in the early 1990s,1,f +nonetheless the evidence suggests that in recent years about a sixth of the socalled wealth effectthat is the impact of capital gains on consumer spendingstems from equity extracted from the stock of existing homes,1,f +among the factors affecting economic growth gains in productivity and growth of the labor force are particularly important,1,f +an important part of the answer to why the us economy has been able to grow so strongly without inflation accelerating has been the recent resurgence in productivity growth,1,f +such pressures make it difficult to reach compromises in other areas of concern for the united states such as the issue of greater protection for intellectual properties like patents and copyrights,1,f +with productivity growth accelerating increases in wages and fringe benefits can occur without comparable increases in unit labor costs,1,f +the evidence nonetheless for a technologydriven rise in the prospective rate of return on new capital and an associated acceleration in labor productivity is compelling if not conclusive,1,f +the questions of the day are why did labor productivity growth rise,1,f +and the gains in labor productivity in the most recent quarters have been even more impressive than that,1,f +thanks to strong sustained productivity growth unit labor coststhat is compensation per unit of output produced in the economyhave been falling on average for the past two years,1,f +along with these domestic risks global risks are also considered in my outlook given downward revisions in forecasts for gross domestic product growth in most major economies,0,f +although we can expect productivity growth to remain strong throughout this decade growth in our workforce has started to slow a bit,1,f +i will also touch on programs across the federal reserve system to promote small business access to capital and credit and to help individuals manage better in the financial world,1,f +one concern that has persisted for some time is the fear that we are irreversibly losing manufacturing jobs because of businesses efforts to extract rapid gains in production efficiencies and to cut labor costs by tapping the lowerwage economies of asia and latin america,0,f +even modest improvements in productivity growth are important particularly if they can be sustained for the long run,1,f +now five years later there can be little doubt that not only has productivity growth picked up from its rather tepid pace during the preceding quarter century but that the growth rate has continued to rise with scant evidence that it is about to crest,1,f +it responded to a variety of indications that aggregate demand growth has been weakening including a deterioration in confidence that was more severe than the underlying data seemed to indicate,0,f +our research indicates that it is possible with appropriate monetary actions to achieve output and employment growth at our economys potential without inflation,1,f +i intend to talk briefly about my assessment of the economic outlook and then turn to a more detailed discussion of how the evolution of household and business balance sheets in recent years is affecting economic activity1 the economic outlook as you know real gross domestic product grew at an annual rate of 6 percent in the second half of 2003 and the economic fundamentals seem to be in place for another sizable advance this year,1,f +that is instead of viewing the current experience as unique it is probably better understood as a replay of earlier historical episodes in which a bunching of technological innovations ushered in periods of high productivity growth,1,f +these cost advantages along with other factors such as the areas favorable business climate about which john clendenin will tell you more in a moment have contributed importantly to the inmigration of businesses and people and propelled the southeastern economy to growth rates in excess of those nationally,1,f +in sum i expect a better overall year in 2010 the bottoming of the inventory liquidation cycle some recovery in business investment and better economic prospects in the rest of the world set a foundation for continued growth going forward,1,f +4 despite the strengths represented by strong consumer spending coupled with lower dollar and oil prices the national economy has to be sure some areas o f weakness,0,f +more generally the expected increase in demand for consumer durables is good news for the regions many car furniture and appliance factories,1,f +thus a key question is whether this elevated pace of productivity growth can be sustained,0,f +consumer spending growth is likely to be somewhat restrained for a time as households adjust to these higher prices,0,f +strong property rights a crucial element in financial development severely constrain a governments ability to expropriate land factories or ideas whenever it wants to profit from them,1,f +regardless given the importance of productivity growth for the longrun potential of the economy and living standards it is vitally important that policymakers pursue policies aimed at boosting the growth rate of productivity,1,f +in exactly similar ways i can argue that by lowering import prices relative to domestic prices the strong dollar and increased global competition each increase our buying power leaving us more to spend on other goods but they do not increase or decrease our total income,1,f +because price and wage controls may keep price advances in 1972 slightly below what they otherwise would be and because increased demand for exports could stimulate both output and employment 1 would adjust the st louis projections for prices downward slightly and probably adjust output and employment upward,1,f +business investment in capital goods and plants should also post moderate gains as factories are expanded and equipment is upgraded to accommodate increased industrial production,1,f +the lower interest rates encourage consumers to spend and firms to invest,1,f +b why do we think well see continued growth in consumer spending,1,f +but recently weve increased our focus on fair access to credit for small businesses,1,f +if it fails to do so rising inflation expectations could prompt workers to demand higher wages and firms to demand higher prices to head off the expectation of higher costs thus setting off a burst of inflation,0,f +exports and equipment and software investment are bright spots but home building has been flat and government spending growth has been subpar while consumer spending has been expanding at a relatively restrained pacethe behavior of consumer spending is critical to the recovery since it comprises twothirds of final demand,0,f +consumer spending grew at a robust 54 percent in the first half of 1983 and we expect this growth to continue although at the slower rate of 35 percent over the last half of 1983 and 1984 similarly the sur g e in i n v e n t o r y i n v e s t m e n t we have e x p e r i e n c e d recently will not continue to provide the same spur to the growth of output and employment in 1984 that it did this year,1,f +simplicity there is significant justification for both higher levels and higher quality of capital,1,f +the robustness in consumer spending kept the economy growing while businesses positioned themselves to reengage,1,f +3 and with consumer confidence at a high level we expect that theyll be inclined to spend it,1,f +this demand for housing has been supported by the stepup in productivity growth which improved the longrun income prospects for americans,1,f +according to common wisdom the midwest benefitted quite a bit from the declining dollar which made its exports cheaper for overseas buyers,1,f +but higher productiv ity generates higher income higher income generates higher spending and the higher spending helps create the new jobs that eventually put unemployed workers back on payrolls,1,f +the best way to improve our standard of liv ing is to increase productiv ity,1,f +j has trend productiv ity increased,1,f +capital spending has been growing in the doubledigit range for two years now,1,f +first solid productivity growth and accommodative monetary policy have offset some of the negative effect of rising oil prices,1,f +in the interest of enhancing our global competitiveness and ensuring continued improvement in living standards for coming generations congress needs to take steps now to trim spending and if that cannot be done to raise more revenues,1,f +that is business costs increase without resulting in higher measured output,0,f +simultaneously gasoline was readily available in other areas,1,f +the result was a major pullback in spending as consumers responded to decreases in wealth and the deterioration in their future employment prospects and as businesses worried about the demand for their products cut back on capital spending and sharply reduced production to avoid an accumulation of unsold stocks,0,f +perhaps it would be worthwhile to review the trends that sustained the productivity gains in the private sector from 1947 to 1967 and to compare them with the developments of the last decade,0,f +and because they were not allowed to raise prices to meet the increased demand the building of new facilities was discouraged,0,f +but with productivity growth at 252 percent the doubling time is cut to almost 28 years,1,f +this is particularly true of their business loans which have continued to balloon thus far this year,0,f +thus these advanced means of communication have added much the same type of value that the railroads added in transporting the morephysical goods of an earlier century,1,f +however floridas growth rate is likely to continue slowing in concert with subdued business activity nationally and moderating inmigration,0,f +the slowdown in output growth was most noticeable in areas sensitive to interest rates like autos and housing where sales growth softened,0,f +energv policy tnere can be no dobt that reducing our reliance on imported oil is essential for both controlling inflation and strengtnening tne dollar,1,f +the rapid pace of business innovations makes it impractical to have rules in place to anticipate every business transaction,1,f +frankly you will join the business world at a time when many have lost confidence in the integrity and ethics of our institutional leadership,0,f +firms must invest in computers at a faster rate than that for other forms of capital just to maintain a given level of the capital stock,0,f +boeing after all does sell a lot of planes abroad and the northwest still ships a lot of logs and lumber even if those shipments at times seem subject to less than fair cornptitive practices and that story could be repeated for any region,1,f +net exports would decline by lessreflecting both the smaller exchange rate appreciation and the smaller rise in domestic demandand similarly this would result in smaller crossborder spillovers to foreign gdp,0,f +fortunately there are some bright spots in the georgia economy outside atlanta port activity in brunswick and savannah has been up sharply,1,f +consider for example the potential for it and biotechnology to improve health care one of the largest and most important sectors of our economy,1,f +as a result inventories of these vehicles have risen and domestic automakers have been cutting production in response,0,f +do productivity booms simply run out of steam and die natural deaths,0,f +after declining last year for the first time since 1985 exports should move back into positive territory as the asian bloodletting begins to subside,0,f +therefore it is little wonder that from 2006 to 2009 car and light truck sales fell by more than 45 percent to a rockbottom 9millionunit pace,0,f +at present business offices are opening or expanding in atlanta faster than new o ffice space is being built,1,f +it is important that individual firms review their current business continuity plans and evaluate them in light of possible problems arising from the year 2000 transition,0,f +new car sales have been especially robust,1,f +but they left no doubt about their determination that the conduct of production and marketing was to be determined by private enterprises acting on their own initiative not through state enterprises or state controls,1,f +to increase productivity we need to invest more in both our physical and human capital,1,f +considerable attention has been focused recently on this last one the provision of appropriate facilities for financing small business,1,f +we will continue to publicize actively the availability of the guide to business credit and the ecoa and the message it contains that business credit is not exempt from the ecoa,1,f +for example commodity experts have an advantage in trade over nonexperts bad money will drive good money out of circulation and resources will be diverted toward the creation of additional money rather than toward the utilityproviding goods on which money represents a claim,1,f +now this part of the technology sector has fallen upon hard times,0,f +three per cent is the record over the decades for productivity gains in our economy,1,f +its growth slowed from the frantic pace of the late 1990s,0,f +in too many cases our county agents national agricultural teachers and other agricultural workers may have cceuent training in technical production and yet be poorly equipped to sist farmers with their problems of organization management and finance,0,f +but even though a recover y in overall output has already occurred the path of gdp growth has been and could well continue to be somewhat uneven,0,f +there is evidence that our cherished advantage in some types of machinery as well as in autos and certain other massproduced items has been diminishing,0,f +so we have been even b efore the agriculture boom conditions in the last couple of years catching up,1,f +in addition the rising value of the dollar made their goods cheaper to us buyers we naturally bought more foreign goods,0,f +by the end of march the inventory of cars and trucks had fallen to a more satisfactory 61 days supply though some uptick in light truck inventories was apparent in april,1,f +production does not rank high in our national scale of values,0,f +in particular inflation has reduced corporate funds available for investment,0,f +for that reason the bills provision regarding control of a small business concern should be clarified by providing a standard for determining the existence of control,0,f +the decline in equity valuations for hightech firms the virtual closing of opportunities for initial public offerings and the higher quality spreads for lowrated borrowers naturally hit startup and new technology firms especially hard,0,f +on the economic side just for example we need to make sure that we have adequate t r a n s p o r t a t i o n facilities in o r d e r to keep the industry and b u s i n e s s we have as well as to a t t r a c t new,1,f +wholesale prices has fallen,0,f +simplicity there is significant justification for both higher levels and higher quality of capital,1,f +one of the reasons for this rapid growth was that in the economic setting of the period the souths water sunshine and an ample labor supply gave the south a comparative advantage in the production of certain goods for export to other regions,1,f +as i outlined in congressional testimony last month if the indications that the contraction phase of this business cycle has drawn to a close are ultimately confirmed we will have experienced a significantly milder downturn than the long history of business cycles would have led us to expect,1,f +in a market economy capital flows to profit opportunities,1,f +american entrepreneurs can also get encouragement and support in a number of other ways,1,f +since 1957 however underutilization of resources has persisted throughout periods of cyclical expansion,0,f +because the economy would not yet be producing this higher future income however real interest rates have to rise in order to prevent excessive current demand for goods and services from emerging,0,f +if this hypothesis is correct then the recent strength in business investment bodes well for an upturn in the labor market if the pickup in capital spending is an indication that businesses have become more optimistic about the future course of the economy,1,f +much of the turmoil early this year appeared to be associated with concern over the outlook for chinese growth which in turn has broad implications for commodity prices and global economic growth,0,f +the relative rate of increase for services was even higher during recent years,1,f +various investment surveys as well as data on equipment orders and construction 3contracts suggest moderate increases in capital spending over the balance of this year,1,f +this together with the recent increase in the dollar should push down exports,0,f +and we have a particular interest in the manufacturing sector since it makes up a significant portion of the midwester n economy,1,f +after several years of booming growth economic indicators started sending mixed signals,0,f +some industries such as paper and aluminum look as if they are at their capacity limits whereas other sectors and regions seem to have responded only modestly to the recoveryhowever it is possible that we could conceivably avoid these economic shoals and reefsthat increased real growth and productivity could lead to augmentation of resources and of capacity suitable for utilization,1,f +9when people and firms put fewer resources at the construction industrys disposal construction must cut back to fit within its reduced share of available savings and creditif the period of curtailment is short such a reduction does less harm than in many other areas,0,f +it is true that investment by major materials producersindustries which proved to be bottlenecks in 1973will have to be substantial if these industries are to meet replacement and pollution abatement requirements and to expand capacity as well,1,f +we have also seen a leveling off a sustained business investment boom,0,f +because the price of imported goods rises while that of exported commodities falls with an initially unchanged volume of trade the trade deficit worsens especially for trade flows covered by contracts,0,f +so the boombust pattern in the business sectors investment spending was the major catalyst for this recession,0,f +in the last recession american businesses learned or rather relearned the importance o f investing in technologically advanced equipment and methods in order to compete in the global marketplace,1,f +another would be a resurgence of momentum in consumer and business spending,1,f +even though our smaller firms have had experience in dealing with an integrated market that few of their foreign competitors possess they have a long way to go in catching up to the strong export orientation o f their counterparts abroad,0,f +indeed the transition to the higher permanent level of productivity associated with these innovations is likely not yet completed,0,f +is a management decree that service is more important than costeffectiveness enough to change a culturenot to mention a strategic planning budgeting and evaluation processthat was built on cutting costs,1,f +in line with the presidents initiative to reduce regulatory burden to all businesses the federal reserve board in conjunction with the other agencies is currently developing a proposal to amend its appraisal regulation,1,f +the manufacturing sector remains especially damped and nonresidential construction has trended lower,0,f +we have i am happy to say been able to match costs and revenues in the aggregate for all priced services,1,f +consequently aggregate supply would increase along with the rise in aggregate demand,1,f +next exports declined as prices of crops such as cotton were set higher than world prices and production became very profitable in the rest of the world,0,f +as part of our effort to increase development of domestic sources of conventional energy the natural gas act was enacted in 1978 this act provided for the phased removal of controls on the wellhead price of natural gas,1,f +the goal of maximum employment also is critical a balance between aggregate demand and potential supply is needed to maintain price stability in addition significant fluctuations in output impose costs on our economy add to uncertainty and impede planning and growth,0,f +but over the long haul the main drivers of food supply are technological advances and the agricultural sector investment that fosters mechanization higher yielding crop varieties and the like,1,f +nationally home sales slowed late last year and sales have eased further so far this year,0,f +a spending surge on building materials and related household goods in southern florida and louisiana should persist through most of the year,1,f +the book value of business inventories rose by 251 billion or 06 in september according to preliminary data,0,f +even as the number of manufacturing jobs declines factories in the united states are producing record volumes of machinery computers motor vehicles plastics and other manufactured goodsand in general they are producing them at lower costsall due to strong productivity growth,1,f +whether qualitatively by adding new services or quantitatively by the economic growth of its customers the base has to be increased,1,f +motivated in part by a quest for greater efficiency,1,f +if retail sales are reasonably well maintained as they have been production will have to pick up to match sales,1,f +some of this is cyclical but more persistent structural factors may also be at play8 for example the american spirit of innovation entrepreneurship ease of business entry and exit and labor market flexibility have contributed to economic growth and wellbeing in the us these factors of dynamism allow resources to be reallocated from lessproductive to moreproductive businesses and allow workers to move up the career ladder,1,f +in berks county the manufacturing core is strong and longer term i believe it will remain strong because you are taking advantage of the new technologies that will keep you competitive,1,f +the deterioration was led by a noticeable retrenchment in consumer spending,0,f +if using gerstners figure the remaining twentyfive years of the thirtyyear cycle of technological change is exploited at a much more leisurely pace than the first five years the rate of productivity growth will fall,0,f +about onehalf of the 1 percentage point increase in productivity growth over the 19951999 period can be attributed to socalled capital deepening,1,f +we need to make sure that increases in resource utilization or prices of energy and other commodities do not add to inflationary pressures or increase inflation expectations,1,f +if they canât get capital they wonât be able to make the investments they need to increase productivity and price their goods competitively,0,f +us goods can still compete on price,1,f +that failing leads to inadequate investment particularly if business activity is further impeded by inadequate property rights and faulty regulations,0,f +but i h o p e land owners the country a r ent doing so w e l l just it isnt news w h e n i tell you there are o t h e r timber in the v e r y same areas w h o are n o t ye t y e l l i n g disaster,0,f +but even so the pace of hiring picked up for a wide range of other industries as well,1,f +we can however devote our energies toward de veloping the type of agriculture that is suitable for the area,1,f +housing and autos the sparkplugs of the earlier stages of the recovery have again strengthened in recent months,1,f +all three of these measuresinvestment incentive depreciation schedules and the trade programseek to help us to remain competitive,1,f +a key element here is maintaining an appropriate balance between growth in productive capacity and increase in consumption,1,f +first it is imporant for the united states to continue to have a strong export sector that includes a broad range of domestic industries and fints expanding exports as a consequence of improved domestic productivity contribute to the strength of the us economy and of the dollar which in turn helps to moderate domestic inflation,1,f +at a time when all other commodities were depressed dairying provijed an outlet for 0theruise nonmarketable pasture and rough feed on the farm tha skim milk provided a valueble protein supplement for a growing swine and poultry enterprise,1,f +germany spends 15 per cent of gnp for businessfixed investment japan 20 per cent the united states 8 or 9 per cent,0,f +over the next few months 12month measures of inflation are expected to move above our 2 percent longerrun goal largely reflecting i believe transitory factors such as a run of yearoveryear comparisons with depressed servicesector prices recorded last spring as well as the emergence of some supply bottlenecks that may limit how quickly production can rebound in certain sectors,0,f +but necessity being the mother of invention what if tight labor markets contributed to productivity growth by forcing employers to seek laborsaving technology,1,f +my expectation for further increases in capital spending is one,1,f +however the pandemic does underscore the need to have a technology strategy that will meet the needs of the future,0,f +the tenfold increase in world oil prices has been a principal contributor to the acceleration of inflation during this decade,0,f +by one carefully estimated measure made by john fernald at the san francisco fed and his coauthors the underlying trend in total factor productivity tfp growth has declined from 18 percent during the productivity boom of the mid1990s through the mid2000s to a mere half a percent today4 that is in line with the period of low productivity growth from the 1970s through the mid1990s,0,f +between 1988 and 2001 net imports from canada tripled but they have since flattened out,0,f +oil and gas did not spurt out of the ground as prices were deregulated although there was some improvement,1,f +georgia and tennessee will have respectable years but not up to the pace established through 1987 what would help louisiana most in the short term would be an increase in oil prices,1,f +return to text 5 investment rates in some of the major east asian developing economies excluding china plunged more than 10 percentage points of gdp after their peak in the mid1990s and generally stayed depressed thereafter,0,f +an increasing amount of spending has gone to buy foreign products,0,f +business investnent in plant and equiµrent as a percent of gnp remained constant during the adjustnent period of the 1970s but its resources to a large pxtent were spent in dealing with nfw safety health and environrrental requirements and requlat ions,0,f +many of these changes were made to accommodate the needs of our changing industrial scene financing new enter prises or taking advantage of new techniques and new equipment to help us do a better job,1,f +one factor behind this surge is the fact that the average age of the cars and light trucks on the road has reached a record high of nearly 11 years,1,f +in the manufacturing sector productivity actually improved somewhat during the last quarter of 1974 despite a sharp decline in output,1,f +around 1995 productivity growth doubled too,1,f +significant quantities of recoverable gas reserves are located in alaska and the northern territories of canada,1,f +controls had the appearance of working for a while when there was little excess demand in the country,0,f +one important contributing factor in the spiral has been the sluggish performance of productivity in recent years,0,f +2 biotechnology for example is a field in which the basic research was developed here but the japanese we are told are likely to beat us to market with applications o f the technology,0,f +other work in genetics has produced plant varieties that are resistant to certain herbicides allowing farmers to reduce tillage and petroleum usage dramatically,1,f +however given the good pace of economic expansion since then it would stretch credulity to believe that capacity growth has accelerated at a sufficient pace to produce a large degree of slack at this moment,0,f +in fact there are many indications tliat tenrwssee is moving up tcward national avcrases in industrial acttvity,1,f +for the future economic development efforts in the western states o f our region should focus more on services and hightech manufacturing rather than seeking to recruit yet more lowcost producers,0,f +trade liberalization should be accompanied by relaxing the heavy restrictions that nations often impose on investments abroad by their citizens,1,f +even though conservation and other measures to reduce the use of oil have substantially cut the amount of energy used to produce a dollars worth of output because of the decline in us oil and gas production and the needs of our growing economy the us now imports more than 40 percent of its oil almost twice as much as in 1970 actions by opec and other producers on a day to day basis demonstrate the peril we face if we do not reduce our foreign oil imports,0,f +we have been seeing some of the results of this in a smaller rise in business loans more,0,f +high rates of economic depreciation imply rapid replacement cycles and hence high rates of gross investment in computers,1,f +longterm growth prospects are good steady growth in business investment spending is important not only for its contribution to the growth in overall demand for goods and services but for its contribution to the economys capacity to supply those goods and services,1,f +capital spending inevitably is retarded,0,f +moreover the growth of output and productivity during this period 1971 was stimulated by the recovery from the general motors strike,1,f +we can see evidence of this in manufacturing production outside of motor vehicles which had benefited from the earlier decline in the dollar and strong foreign growth it fell for a third consecutive month in august and indications for september suggest a further decline last month even after excluding the effects of the recent hurricanes and the strike at boeing,0,f +anyway with the limits to productivity acceleration uncertain i think the most important thing to avoid in conducting monetary policy is to avoid basing policy on real growth,0,f +to make matters worse disappointing harvests in 1972 both here and abroad forced a sharp runup in food prices during the first eight or nine months of 1973 later the disruptive manipulation of petroleum shipments and prices by major oilexporting countries caused a spectacular advance in the prices of gasoline and heating oil,0,f +partially as a result of these developments the growth rate in real private domestic investment dropped about onethird after 1965 real investment which is the basis of economic growth slowed to a 28 percent annual growth rate from 1965 to 1974 after increasing at a 41 percent rate in the previous twelve years,0,f +firms purchasing departments have become increasingly sophisticated leveraging global supply chains and private label alternatives,1,f +assuming such developments occur i believe that exports w ill probably be a major source o f us growth in the coming decade,1,f +but in a large number of instances that growth entailed very heavy borrowing from abroad and much of that capital rather than contributing to productive investment in effect only replaced a 16chronic outflow of their own savings,0,f +concluding comments us exporters are formidable competitors in international markets and can become even more formidable competitors in an international trading environment as free as possible of governmentally imposed barriers,1,f +this yea manufacturing should receive an impetus from the dollars decline and the resumption o serious work on the space shuttle,1,f +during that decade perhaps the single most striking development was the increasing globalization o f markets for goods and services,1,f +the growth in crossborder businesstobusiness transactions is reflected in the value of imports and exports in the us economy which has risen by 40 percent to 42 trillion a year over the past decade,1,f +2 the real gdp slowdown in the second quarter was largely due to three factors the strikes at general motors a marked slowing in inventory accumulation and a further increase in the gap between imports and exports,0,f +making the transition just what are the longrun implications o f our increasingly successful efforts to enhance productivity through innovations not yet conceived,1,f +in the end nearly 3 million auto loans over 1 million student loans about 850000 small business loans and millions of credit card accounts were supported by talfeligible securities,1,f +at this point you might be saying to yourself hold on if an increase in the productivity growth trend is supposed to boost real interest rates why have real rates been falling since around mid2004 and are low by historical standards,0,f +since december industrial production has increased 512 percent employment has increased significantly and the 2average length of the work week in manufacturing has also risen,1,f +we must not be swept by the sort of excessive exuberance that would produce in industry an overexpansion of 9 productive capacity similar to that in agriculture,0,f +the region has expanded many of its business lines and become a national and global market maker in several important arenas,1,f +who would have thought last may that iraq would invade kuwait and that by october oil prices would more than double to over 40 a barrel,0,f +seventy percent of our business contacts reported increasing wages in the past month and the share raising their wages has been 60 percent or higher since last july,0,f +return to text 5 indeed productivity accelerated in a wide range of industries that had not experienced much improvement in productivity growth in the 1990s,1,f +for the first time in a generation american corporate business has been facing serious problems in financing its continued growth,0,f +nor was the productivity slowdown recognized immediately,0,f +furthermore the aggregate farm debt of 202 billion dollars last year was almost off set by an aggregate of 18,0,f +wholesale industrial prices that had been stable during the preceding four years began to move up in 1965 and the previously mild increases in consumer prices started accelerating,1,f +domestic generation of savings is running between 7 and 8 of gnp and when you subtract 5 from that 7 or 8 there isnt a very large percentage left for financing business i1xpansion,0,f +not only will national demand for these products expand in 1993 but regional demand will also receive a temporary boost namely the rebuilding going on in south florida and louisiana as a result of hurricane andrew,1,f +n this connection it would soem that as a result of such improvements niore consideration might be given to reappraisal of the farm valuations as a base for mortgage credit,1,f +consumption of nondurable goods like clothing will continue to grow but not enough to offset the expected slowing in demand for consumer durables to a pace that is more sustainable,0,f +because such capital inflows bring about dollar appreciation they crowd out exports and encourage imports thereby increasing existing trade deficits,0,f +yet some obvious innovations initiate a line of development that is revolutionary,1,f +but unit labor costs have accelerated because of changes in productivity,1,f +for example today steel producers in this country are competing with each other with steel substitutes such as aluminum and with foreignmade steel,0,f +of course some factors are likely to constrain growth in 1987 the chief areas weakness are capital spending by businesses and construction,0,f +lastly i will describe my views on the current stance of monetary policy in the us economic outlook it is the basecase view of dallas fed economists that us gross domestic product gdp will grow at a rate of approximately 2 to 225 percent in 2020 this forecast is based on our expectation that global growth is likely to remain sluggish but will show signs of stabilization due to some calming of trade uncertaintiesparticularly as a result of the ratiUFB01cation of the united statesmexicocanada agreement the phase one agreement with china and some greater clarity regarding brexit,0,f +increasingly software upgrades are used to roll out new features without the need for heavy investment in new hardware,1,f +the strongest case for a higher growth in potential gnp today cares from productivity developtents,1,f +the excesses and corrections generally involve both valuations of firms and investment in the innovating industry,0,f +why be alarmed about inflation when wholesale prices today are where they were about 3 years ago,1,f +ironically as i also noted earlier this reflects one of the principal longerterm strengths in the us economy rapidly rising productivity and the extent to which the growth of potential gdp bolstered by this strong productivity growth currently exceeds the growth of demand for goods and services,0,f +for inventories as a whole accumulation is likely to h1 wn in the 9current quarter and to accelerate only moderately in the fourth quarter,1,f +the drag exerted by americas sluggish net export growth retarded us economic expansion in 1985 the resulting imbalances in the us economy led to growing demands for protectionism here and to related fears abroad that important us outlets for european japanese and ldc products could suddenly be shut off,0,f +i will first review our current understanding of the causes of the recent productivity resurgence,1,f +the initial source of an increase in inflation can be anything which produces excess demand in labor and output markets,1,f +4 problems of credit availability do not appear to have worsened markedly for small business this year,1,f +through the first three quarters our net exports fell by 70 billion reducing gdp growth by roughly threequarters of a percentage point,0,f +i anticipate that consumer and business spending will help real gdp to grow at about 3 percent for the remainder of this year and next before reverting to trend which i see as about 24 percent,1,f +so after more than three years of an expanding war the private sector was still claiming almost as large a proportion of real output as at the time the military effort was accelerated,1,f +but industry since 1973 has achieved an improvement of some 2530 percent in its energy use per unit of output,1,f +i agree with that assumption 5 but i feel that such an expectation passes over much too lightly some of the a d justments that must be made in the traditional methods of supplying funds for agriculture,0,f +turning to the factors that have been holding down growth as i already noted the higher foreign exchange value of the dollar as well as weak growth in some foreign economies has restrained the demand for us exports over the past year,0,f +indeed were us domestic demand to moderate and provide less stimulus abroad in the form of reduced demand for exports from our trading partners central banks in those countries would need to adjust the stance of monetary policy to maintain full utilization of resources,0,f +their fuvorable pro6nosticbtiors nre being confirmed bj the indices thnt coincide with general business such as nonagricul turbl employment freight carloadings and industrial production,1,f +wto sees 9 global trade decline in 2009 as recession strikes world trade organization press release no,0,f +building on both i hope to leverage my background to bring a unique perspective as a businessperson on topics such as pricing the real drivers of wages the impact of tariffs or tax cuts and the causes and implications of slower productivity growth,0,f +businesses found themselves with relatively deep pockets to finance investment thanks to the lower costs of capital provided by a surging stock market low interest rates and strong profits st profits questioned by mm,1,f +industrial production is falling sharply consumption is cascading downhill demand has evaporated as businesses and consumers alike pull in their horns and delever from excess indebtedness that fueled the prior boom,0,f +business practices change otherwise stable and expected correlations in market rates and prices disappear and sometimes panic ensues,0,f +when faced with an inability to predict prices and availability of raw materials businessmen cannot plan for the future with any degree of confidence,0,f +a sensible export strategy is to focus attention on foreign countries that are growing the most rapidly,1,f +in those leading industrial countries who are our principal competitors the annual percentage increases during the same years were considerably larger japan 60 italy 49 france 38 united kingdom 35 germany 28 canada 16 also during this period u s manufacturers had sufficient capacity beyond that required to meet domestic demands so that they could fill foreign orders reasonably promptly,1,f +it was far more pronounced during the 1950s when imports of goods and services on a current account basis amounted to little more than five percent of gnp and international capital movements were modest in scope than today when2of the dollar a weight in monetarypolicy decisions not only in crisis conditions but more generally,0,f +in the event of breakdowns short of systemic history teaches us that businesses are remarkably adaptive whether the adversities were the failure of atts frame relay network defective routers in the mciworldcom data transmission network or the clogged arteries of the union pacific railroad,1,f +we are left with an overall picture of a highly liquid corporate sectorperhaps more like that which we would expect of corporate balance sheets in the early stages of an expansion,1,f +efforts to prevent such price adjustments would only prolong the distortions in production from which we are now suffering,0,f +in essence this is because whatever was forecasted for consumer spending before the decline in equity values the forecast certainly must be lowered after that event,0,f +as well these price increases will put upward pressure on the costs of the producers of other items thereby posing the risk of some impetus to core inflation,0,f +we also have seen some promising news on the supply side namely in the cyclically sensitive manufacturing sector,1,f +international trade has become increasingly competitive and domestic industries sometimes bear a heavy burden of adjustment,0,f +recent improvements in the supply situation for food and fuels suggest that these sectors will be less critical during the rest of the year,1,f +however foreign producers are adopting farming innovations rapidly as well and efforts to increase the openness of world markets will need to be maintained and intensified so that the full benefits of farm productivity gains can raise standards of living worldwide,1,f +these considerations suggest that we should expect to see proportionally greater expansion of manufactured exports particularly of consumer goods than of food or raw material exports,1,f +a few figures will illustrate the tremendous increaoe in farm investment in the last fifteen years,1,f +during the late sixties however the u s balance on goods and services began to decline while capital outflows remained virtually constant,0,f +in aggregate the recent decline in the current account balances of nonus industrial economies reflects an increase in investment rates saving rates have generally remained little changed7 in short in the emerging markets realized saving and current account surpluses have increased since 2004 in the industrial countries over the same period current accounts have moved further into deficit primarily because of higher realized rates of investment,0,f +moreover the economies in the industrialized countries are quite strong enabling foreigners to buy even more us goods than they could even a few years ago,1,f +a reduction of inflation as i noted earlier should make an important contribution to productivity,1,f +no one would deny that the free enterprise system has serious flaws that it is a system searching for ways to embrace other than merely material goals that it is in the process of revision and reform a system that should and to its credit is being and will be improved,0,f +in the second half of the 1990s the cost of hightech equipment was falling so quickly and applications for it were spreading so rapidly that businesses found that they could raise productivity substantially by buying large amounts of this new equipment and other capital goods geared to working with it,1,f +this is manifested most dramatically in the recent expansion of our exports between 1978 and 1980 total us exports increased nearly 60 percent in value and more than 20 percent in volume,1,f +lower financing costs would benefit firms and state and local governments that need to raise capital,1,f +but a severe drop of the dollar damages not only the rest of the world but injures also the domestic economy through added inflation threat of higher oil prices and the danger that a slowdown abroad may hurt us exports,0,f +while i consider myself an inflation fighter i do not consider real growth from the supply side to be necessarily inflationary,1,f +since becoming dallas fed president i have been stressing the importance of globalizationthe trend toward falling international barriers to goods services people money and ideas a process aided by the interconnective properties of technology,1,f +many industries notably autos rubber paper petroleum and nonferrous metals are operating near capacity,1,f +conclusion in conclusion i firmly believe that us firms and workers benefit from producing and selling goods globally,1,f +new investment in equipment and software fell 11 percent last year in inflationadjusted terms,0,f +the excesses of the boom have now brought about excess capacity relative to current demand inventory reductions production cutbacks a distressing amount of unemployment and a recession of uncertain duration and severity,0,f +the explanation would be that in the first tech revolution most of the innovation went to making businesses work more efficiently letting them produce more with less,1,f +the arrival o f much lower cost producers has meant that we can no longer hope to survive by concentrating on lowend goods,1,f +but there is little time it seems to me for the national alliance of business to pause to savor its success,1,f +the massive increase in oil payments to the oilexporting countries of the order of 20 billion in 1974 is compensated in part by a rise in nonoil exports especially of farm products,1,f +rather the us advantage has been most evident in the ictusing sectors which have performed better in the united states than elsewhere,1,f +this more balanced growth would be especially welcome news to certain parts of the southeast which includes not only prosperous and fastgrowing localities like atlanta nashville and most of florida but also weak or even depressed places such as mississippi and louisiana which are heavily dependent on energy and farming,1,f +those who 6 argue for corporate involvement say that the corporation must assume responsibility for these social costs,0,f +we have the same mortgage rates and pay the same rates of interest on commercial and consumer loans and our businesses borrow at the same interest rates as their brethren elsewhere in the country,0,f +return to text 8 gordon 2016 argues that recent technological advances have been relatively minor compared with the large advances that drove rapid increases in productivity in the past,0,f +l the ag industry has been hurt by weak prices for corn soybeans and hogs,0,f +business fixed investment in real terms grew at an annual rate of sixteen percent in the last half of 1983 and may continue to increase robustly in 1984 in response to rising profits and cash flow,1,f +such appreciation will aid other countries by facilitating access to the markets of the countries in surplus and at the same time it will make imported goods and services available at a lower cost to the citizens of the surplus countries thus reinforcing their constructive efforts to control inflation,0,f +having emphasized the positive output growth associated with the current expansion i want to turn to another development that deserves careful attention shifting price pressures,1,f +9 this date was moved further into the future several times most recently last september when it was shifted to mid201510 also in september the committee changed the language related to that commitment dropping the reference to low rates of resource utilization and a subdued outlook for inflation,0,f +as corrado sichel and hulten note entrepreneurs and businesses also devote a broad array of nonscientific resources including the development of entertainment and artistic originals to develop new products and processes,1,f +over time we have progressively moved to more open trade which has been very good on balance for our economy,1,f +the lower dollar in foreign exchange markets will increase the cost of imported goods over time and permit competing domestic industries to raise their prices as well,1,f +all of these unknowns increase un certainty about the expected return on any proposed investment,0,f +motor vehicle sales have been supported by low financing costs by high levels of customer incentives and by high rates of vehicle scrappage and multiple car ownership,1,f +4 on the other hand the fact that i look for exports to increase which hi discuss in just a moment means that investment in equipment factories and warehouses should sustain the reasonable health we saw evidenced in the third quarter,1,f +probably the main reason for this performance is that in contrast to the united states domestic demand in japan and europe has been weak,1,f +a large share of the rise in debt public and private was accounted for by residential mortgagesthis time 42 per cent of the 27 billion rise in total debt as against 29 per cent of the 45 billion rise in 1955 there was also superimposed on rising consumer spending an extraordinary expansion of plant and equipment,1,f +today such information is broadly and routinely shared to facilitate justintime supply systems,1,f +ill begin with a look at the regions economic prospects for the year ahead and then discuss several major issues affecting the development o f our industry,0,f +businesses also appear to be quite reticent to hire and invest,0,f +trade has been sluggish almost everywhere,0,f +these considerations at present impose a rather formidable barrier to new investment,0,f +the integration of robotics data analytics geolocation and advanced sensors holds the promise of a new more efficient and productive era of precision agriculture,1,f +in fact ohios rate of plant closings has been about 25 percent less than the nations,1,f +such income per capita rose 88 per cent per year from i960 to 1968 or more than 50 per 85 cent faster than the rate of gain in the nonfarm sector,1,f +5 are the capital requirements of new businesses such that they cannot be met by the available sources of loanable funds6,0,f +as they do they could provide fertile markets for outside goods and services as well as sources for labor materials and technical innovations,1,f +on the first of the month thj new 1jnion station had gone into operation demonstratine it said that kansas city was the gateway for transoortation to the west and to the southwest and the opening of the reserve bank officially es tabllhed kansas city as the center for business and finince,1,f +it impedes productivity and breeds recession,0,f +that in turn makes it difficult to sell new stock for financing of new investment,0,f +we do not want to unnecessarily restrict innovations that can benefit consumers and small businesses through expanded access to financial services or greater efficiency convenience and reduced transaction costs,1,f +additional efficiencies can sometimes be gained when countries specialize in particular stages of a goods production,1,f +the world has lived so well on the capital generated by past efforts of this kind made following world war ii that it seems to have become too complacent to repeat them,0,f +yet these do not seem to provide the answer for there are other agricultural areas equally or even more productive and other equally scenic mountain areas with less rigorous winters,1,f +the stated purpose of this deregulation was to enhance competition which had come to be seen as a significant spur to productivity growth and elevated standards of living,1,f +production of electrical equipment furniture and fixtures and textiles and apparel has been particularly soft,0,f +it is increasing the number of trade missions being sent abroad each year,1,f +the net result is before our eyes business investment has slowed substantially,0,f +the accumulation of ideas like that bit by bit is where productivity comes from in the long run,1,f +this imported capital has been very important in the worlds development process and it has often brought with it other benefits such as the international spreading of technological improvements,1,f +a key source of texas growth in manufacturing and services has been technology,1,f +the capitalization and credit needs of arkansas farms are increasing at a very high rate,1,f +among the factors squeezing profits will be the slower markets overseas continued upward pressure on labor costs and increasing competition which makes it harder to increase prices,0,f +thus slower productivity growth implies both lower investment and higher savings both of which tend to push down interest rates5 in addition to a slower pace of innovation it is also likely that demographic changes will weigh on us economic growth in the years ahead as they have in the recent past,0,f +corporate relocations of both domestic and international companies should also continue to increase demand directly and in the construction and service sector,1,f +these sectors are still plagued by overcapacity,0,f +second encourage and support research and development in the private sector and the academic community,1,f +prices have also fallen significantly in areas with weak regional economies like michigan and northern ohio,0,f +g today the midwest is still heavily dependent on manufacturing,0,f +increased investment in capacity to help meet this demand should also contribute to a brisk pace of business activity,1,f +these developments included innovations in unregulated portions of the private sector and changes in the inflation and interestrate environment in the united states,0,f +employers live in a world in which they are free to invest their monies in expanding operations and hiring workers anywhere in the world in any place they have the best opportunity to earn a superior return on investment,1,f +indeed were these changes readily apparent presumably businesses would adjust to that anticipation and hence significantly damp the cyclical tendencies in the economy,0,f +there was little further change in the dollar is value until late octob er at which time the announcernent of a large trade surplus for september triggered another sharp advance,1,f +nevertheless we could not be certain whether what we were observing was a short burst of productivity gains or a more sustained pickup in productivity growth,1,f +surely this is the very foundation of economic growththe new ideas the new products and the new processes that innovations embodied in a growing stock of machines and industrial plantmake possible,1,f +for example economists have long noted that free tradeand the specialization and economies of scale that it affordsfosters productivity increases,1,f +here in the southeast lumber producers have seen their market share especially for softwoods that are so important to homebuilding eroded by canadian imports,0,f +in the united states for example trade exports plus imports has doubled as a percentage of g n p from less than 1 0 of g n p in the mid 1960s to approximately 2 1 today,1,f +this allows for even greater specialization by firms a more segmented value chain and even more efficient ways of delivering goods and services,1,f +nonetheless georgia farmers have had their own special problems,0,f +income was productivity improvements in us productivity have meant that us rising faster advances in than that of trading partners,1,f +for example in the 4 first half of the 1950s output per manhour in private nonfarm activity grew at a rate equal to the longrun average,1,f +in the case of direct investments the twoway flow will probably remain high but the balance of the flows seems more likely to tilt in favor of the united statessince these flows are more directly affected by the shift in relative cost advantage resulting from the depreciation of the dollar,1,f +judging from the most recent data growth in domestic spending appears consistent with growth in real gross domestic product gdp in the range of 412 to 5 percent for the first quarter and at a rate of 4 percent or higher for 2004 as a whole,1,f +meanwhile similar conditions of oversupply and low commodity prices in us agriculture have diminished demand for fertilizers thereby adding to the troubles of louisiana where production of petrochemicals is an important industry,0,f +because of this catchup factor capitalgoods spending will probably continue high even if some easing of sales occurs at the retail level,1,f +funds and efforts that normally would be funnelled into productive uses were channelled into nonproductive uses,0,f +fortunately they have been less severe in amplitude and have had less impact on income and employment than some of the prewar fluctuations when the general economy was less prosperousas i mentioned earlier the nations defense purchases and its plant and equipment outlays have centered demands largely on metals and metal products gains in the demands for textile products have been less rapid in fact the increase in the total annual output of cotton and synthetic fabrics has paralleled the growth in population,1,f +lncrease the loan level for feed grains and vbeat by 10 and 15 cents per bushel resfectively,1,f +using history as a guide we can see that energy and commodity shocks dont fully pass through to other prices,0,f +questions about decoupling are frequently heard in economic discourse and they include the following will the us downturn drag the rest of the world down especially china and other consumer product exporters,0,f +this means that if we are to maintain our cur michael moskow speeches 2005 305 rent rates of capital investment national saving will have to rise to make up for this adjustment,0,f +he rate of expansion in business spending for plant and equipment and for inventories which was fairly rapid in 1961 slowed in early 1962 plant and equipment spending picked up in the second quarter but inventory investment dropped sharply after the steel settlement,0,f +furthermore the tourist industry which is closely related to the airlines also reported huge declines,0,f +sources of the recent rise in commodity prices let me now turn to a discussion of the sources of the recent increase in commodity prices,0,f +with strong demand impinging on the economy the possibility must be recognized that the rate of inflation in 1973 could move higher than the 1972 pace of 3 percent instead of reaching the announced goal of a lower rate,1,f +still i do not expect the international sector to be an engine for us growth for some time,0,f +b result is to reduce efficiency of decision making by households regarding consumption savings and employment and of firms regarding output levels capitallabor 5 ratios and material inputs to production processes,0,f +for example by the first half of 1984 nonfarm inventory investment had risen to more than one percent of gnp an unusually high level by historical standards the personal saving rate increased somewhat in the third quarter and as i mentioned earlier the drag on domestic output coming from the international sector increased substantially furtherin any event the moderation of monetary growth rates that has occurred during this recovery was a necessary ingredient of a monetary policy whose longrun objective has been99nevertheless the enormous increase in fiscal stimulus and the strengthening of business and consumer confidence that accompanied steady progress against inflation may well have been the dominant factors,1,f +i see no reason that productivity growth cannot remain elevated or even increase further to the undeniable benefit of american businesses and workers,1,f +by extending the corridor further south and west the newly built assembly plants are shifting the industrys center of gravity further south,1,f +material progress domestically and around the world,1,f +output growth arising from higher productivity is not typically accompanied by increased inflationary pressures,1,f +but to solidify the expansion final demand needs to gain a firmer footing,1,f +this could be offset by an increase in investment,1,f +regulation that is sufficient to prevent new firms from entering and prevent failure is sufficient to inhibit growth and vitality in a competitive economy,1,f +higher productivity has three related effects all of which serve to widen the gap between saving and investment,1,f +second the prices of their outputs continue to fall relative to the prices of all other goods and services,0,f +vith the increasing size of farms and the rising cost of land the investment in land itself for some operations may be more than the average man can reasonably expect to accumulate during his lifetime,0,f +and as the dollar became cheaper for foreign buyers our export trade expanded thereby reinforcing pressures of domestic demand on our resources,1,f +part of this increase reflected a temporary surge in auto purchases that resulted from the cash for clunkers program but spending in categories other than motor vehicles has increased as well,1,f +consequently additional investment to curtail pollution of the environment will add importantly to already large capital outlays by private business,0,f +while these companies face significant challenges in earlier periods many troubled firms in the industry have been able to improve productivity and develop new products,1,f +that translates into lower costs and more leeway to be creative in the kinds of financing and other services they can provide,1,f +consumer prices increased 75 per cent in the 12 months ending in september and wholesale prices including farm products rose 17 per cent,0,f +there is no need to react to every small fluctuation in commodity prices or to do so on a daily basis,1,f +to be sure there are factors in play that could boost inflation unused resources could fail to move efficiently to the sectors where demand is growing or the fall in the dollar could show through more in the price of imports or higher commodity prices could be passed through to the consumer level,0,f +second because the relative price of imports rises by less and the price of us exports in foreign markets also falls by less under the low passthrough specification there are somewhat smaller effects on net exports and hence on real output,0,f +there is some confusion in many discussions of productivity growth about the implications of measurement bias,0,f +most of the studies were limited to comments on the effects of inflation rather than monetary actions on agriculture,0,f +in addition full effectiveness in realizing the gains from technological advance will require a considerable amount of human investment on the part of managers and workers who have to implement new processes and who must be prepared to adapt over their lifetimes to the ongoing change that innovations bring,1,f +each rise in prices stimulated new producers to enter the field and the cow population increased 25 per cent,1,f +i believe us industry can succeed in that environment as long as we keep our sights on our longrun comparative advantages,1,f +these numbers illustrate that residential fixed investment is particularly sensitive to where we are in the business cycle,0,f +in general this includes household equipment and automobiles which contribute primarily to the living comfort and convenience of the farm family but which may add little to the productive efficiency of the farm operation,0,f +the agricultural bottlenecks of the 1970s spawned a greater commitment to new technologies and production techniques and led to an increase in that sectors productivity of over 20 percent in the last 10 years,1,f +viewed in this manner our recent performance can be explained as part o f the continuing transition from an inflationary economy with declining productivity to a healthier one with more moderate but sustainable growth,1,f +as this plays out growth in real business fixed investment should resume its role as a significant contributor to overall demand growth,1,f +their market share in 1966 was 10 per centso far this year it is running at a seasonally adjusted rate of 14 per cent not too different from their 1968 position,1,f +productivity gains in the motor vehicle industry have been strong and steady over the past 20 years,1,f +as operating costs rise businesses feel justified in raising their prices and as you know some have done so,1,f +production rose from 60 per cent of the 195759 average in 1930 to 118 per cent in 1967 thus in 1967 the nations farms produced almost double the 1930 level,1,f +these are the problems that your committee grappled with last year and in my testimony i will be commenting on the issues raised in the report you published last fall on the subject federal monetary policy and its effect on small business,0,f +this limited potential for expansion of domestic demandeven in an economy as strong as we have experienced over the past few yearsexplains why the farm sector is so critically dependent on demand from abroad,0,f +new mexico is also the nations second largest producer of pecans producing a record 92 million pounds worth 220 million in 2017 im also looking forward to touring a farm later today to learn more about a crop we dont grow a lot of in kansaschili peppers,1,f +as they improve we should see an increase in demand for us goods,1,f +we cannot be certain of course that the recent spike in gasoline prices in the united states is behind us especially when crude oil supplies are never fully secure because of the unpredictability of events in the middle east,0,f +but i have seen little direct evidence on the extent to which globalization may have boosted aggregate productivity growth in the united states in recent years,0,f +this increased capital stock produces a number of macroeconomic benefits,1,f +usually it is difficultis with the unintended side8government regulations of a wide variety have also tilted the balance between consumption and production,0,f +profits at smaller firms which had fallen more precipitously also appear to have rebounded sharply,1,f +for 1984 as a whole compensation per hour rose by just under 412 percent and nonfarm productivity increased about 212 percent,1,f +however the ratio in agriculture rose at a greater rate than in manufacturing and in 1967 the debttoasset ratio in manufacturing was only 24 times that in agriculture,0,f +while the full impact of these actions will not be felt for a number of years corporations in the community have been actively engaged in planning the restructuring of their activities in anticipation of th new operating environment,1,f +because that states economy is not well diversified but is quite dependent on petroleum products and farming virtually every sector is weak,0,f +there are natural equilibrating mechanisms as well as policy adjustments that encourage such adjustment in demand relative to supply,1,f +manufacturers in our region have reported having to curtail production because of difficulties securing raw materials,0,f +from this overall picture it seems that infrastructure is important to growth,1,f +how does our workforce adapt how do industries keep up how do we ride the wave instead of letting it crash over us,1,f +a dynamic economy is one that is growing rapidly adopting new techniques and adapting its products and its ways of doing business to changing needs tastes and circumstances the dynamic nature of the american economy was illustrated by de tocqueville more than one hundred years ago in this way i accost an american sailor he said and inquire why the ships of his country are built so as to last for only a short time he answers without hesitation that the art of navigation is every day making such rapid progress that the finest vessel would become almost useless if it lasted beyond a few years,1,f +atlanta is highly connected to the world economy in its role as a transportation and logistics hub trade entrepôt headquarters city of global corporations and provider of financial and business services,1,f +housing has been an area of strength in the economy throughout this business cycle,1,f +for example the water resources and power projects of the 1930s paved the way for electroprocess industries which now are key elements of your industrial base,1,f +with such assets together with a keener appreciation of markets and the innovative ideas developed in forums like this pm sure farmers can meet the challenges they face today and regain the financial stability and prosperity commensurate with their contribution to our economy,1,f +one might think that protecting a firm from failure means protecting shareholders from losses,1,f +in 2015 lending club and the opportunity fund a californiabased cdfi announced a partnership intended to provide 10 million in loans over a period of five months to 400 small businesses in underserved areas of california for more information see wwwopportunityfundorgmediablogclintonannouncespartnershipbetweenopportunityfundandlendingclub,1,f +the dramatic advances in biotechnology for example are significantly increasing a broad range of productivityexpanding efforts in areas from agriculture to medicine,1,f +first hightech production is inherently deflationary,1,f +the relevant comparison is thus between the residual costs of the regulated relationship and the effects of an anticompetitive industry structure,0,f +some declines in residential investment could be large and could contribute to some volatile numbers for overall gdp growth on a quarterbyquarter basis,0,f +thus some capacity pressures might be felt in particular sectors sometime within the next year and a half,0,f +in my judgment there are some risks to the outlook for growth that remain a concer n there are some uncertainties around the outlook for business spending,0,f +in addition technologies continue to improve at breakneck speed with implications for improved productivity,1,f +because of ordering cycles and lags in import cost adjustments the disinflationary effect of cheaper goods from china is hard to know in a specific time frame,0,f +for priced services a decline in unit costs has been particularly sharp in the electronic payment areas where equipment is more readily substituted for human resources where volume growth has been the highest and where the general decline in the cost of computing equipment relative to capacity has had the greatest effect,1,f +and what appears to have happened in the us in recent years is that the economys capacity to produce goods and services has increased nearly as rapidly as demand,1,f +but the biggest factor in determining first quarter economic growth was the inventory correction,1,f +more specifically there has been some discussion of whether small business is disci linated against in periods when credit demands outstrip the availability of s,0,f +i do hope it is not too late for us to transform our growthbased value system to one that better acknowledges the critical role of creativity and invention,1,f +many of you managed your businesses prudently and shunned more exotic instruments and activities,1,f +accordingly production planning required costly inventory safety stocks and backup teams of people to respond to the unanticipated and the misjudged,0,f +even with some exceptions and distinct regional differences in the united states trade was generally open and factors of productionmost notably labor and capitalmoved freely,1,f +the second important factor is that as a company we m ust behave as a good citizen in the broadest sense,1,f +but we know full well that airline traffic sales and aircraft can fluctuate considerably over the short run and it remains to be seen whether boeings coming 7x7 will have the spectacular success that its predecessor 7 27 model has turned out to be,1,f +with imports in 1968 rising nearly 212 times as fast as domestic expenditures the ratio of imports to gnp reached a peak 39 per cent for the year,0,f +on the positive side the southeasts important textile industry which has streamlined operations through the 5 introduction of more automation should remain competitive internationally,1,f +an important bottom line for me as a policymaker is that the state of the economic science of productivity growth contains many huge gaps,0,f +policyand prudencethe momentum of recovery has been carrying business upward to record high3 that are to be anticipated when a growing economy is booming,1,f +to increase productivity we need to invest more in both our physical and human capital,1,f +the inflation gap during the last two years the path followed by the united states on one side and most other industrial countries on the other began to diverge not only with respect to the rate of expansion but also with respect to the rate of inflation,0,f +it has acted as a strong restraint on domestic production damping growth in our economy,0,f +however more than an altrustic sense of corporate social responsibility is involved,1,f +it might have originated in the previous expansion when new capital and technology were being put in place at an unprecedented pace,1,f +moreover healthy profits and low borrowing costs should encourage firms to acquire new capital assets which will give workers more and better equipment to use and thus make them more productive,1,f +some experts flagged the changed trend quickly others insisted for several years that lower productivity growth was likely a temporary phenomenon,0,f +in the fourth q u a r t e r our e x p o r t s of goods and s e r v i c e s exceeded our i m p o r t s by 6,1,f +a policy such as this that moves either too late or too far will disturb the inevitable cycles of renewal that go on in individual firms industries and regions in a market economy,0,f +on the supply side the flow of funds has remained unusually large reflecting expansion in consumer incomes and corporate earnings and possibly also some tendency to spend less relative to earnings than in the comparable stage of previous cycles,0,f +one important change in the economic landscape that has limited the current effect of an energy shock compared with the effects in our earlier experience is that energy costs today are not nearly as important as they were during the 1970s when the energy intensity of us production was significantly higher,1,f +it would seem in the selfinterest of these countries to ensure that domestic demands are expanded to take up the slack that will be left by diminishing foreign outlets for their goods resulting from the appreciation of their currencies,1,f +the idea is that the firms equity capital automatically increases when it comes under sufficient stress,0,f +t herefore i b e lie v e i t w il l take not one but many d iffe r e n t a ctio n s ranging from greater production to greater leadership,1,f +since 1945 total farm credit outstanding has increased almost sixfold rising from 76 billion to 445 billion,1,f +business investment has strengthened this year following surprising weakness in 2016 the faster gains partly reflect an upturn in investment in the energy sector as oil prices have firmed,1,f +the demand for almost all of these services increases as the pace of economic activity quickens,1,f +policies in these more globalized countries tend to be more stable an important consideration for the longterm planning needed for business,1,f +large businesses are on notice that they should not turn to the commercial paper market to replace other credit as such a shift would reduce the residual credit available for other borrowers,0,f +thus further softening in this segment of business investment appears quite likely,1,f +dewitt arkansas is another rural community where entrepreneurship is sparking a local revival,1,f +accordingly with commodity prices coming off their highs and manufacturers problems with supply chains well along toward resolution growth in the second half looks likely to pick up,1,f +past deregulation should enable businesses to adapt their organizational structures in response to these new opportunities,1,f +the historically low interest rates engineered through the feds qe programs have allowed american businesses to recapitalize their balance sheets,1,f +while uncertainty is a source of embarrassment to forecasters it has very real costs to us businesses and households by creating unnecessary inefficiencies and lowering our productivity growth,0,f +reflecting a more sombre view of earnings prospects the prices of corporate stocks fell sharply,0,f +here they have to make just one sale o f any productto the purchasers at a major chainand their volume is assured,1,f +this is less than the average return on book value of assets in any of the 61 major industries listed in standard and poors industry surveys,0,f +over time those changes surely will lead to a further lowering of real production costs as well,1,f +like all the others though i dont think were likely to see all businesses take advantage of the opportunity to investeven at these historically low interest ratesuntil some of the uncertainty associated with war terrorism and oil prices begins to clear up,0,f +the pollution is a social cost of production not paid for or internalized by the firm that generates it,0,f +but capacity utilization rates in manufacturing are still a bit below their historical averages and manufacturers often tell me they have a great deal of flexibility to produce without generating cost pressures,0,f +398 michael moskow speeches 2001 and they all agree that the buyin and participation of the corporate leadership of greater milwaukee is essential,1,f +red tape rigid regulations and weak legal systems impede the formation of businesses their ongoing operation and their confidence in having their contracts enforced without long and costly litigation,0,f +by reducing the amount of fertilizer available to our farmers the price controllers risked causing smaller crop yields per acre re duction of output of agricultural commodities and still higher food 7 prices,0,f +much has been done to reduce regulatory barriers to efficiency and competition and to reduce the administrative burdens on business in complying with excessive regulation,1,f +but as shown in table 2 there was also a major decline in the rate of productivity growthto which i will return shortly,0,f +these growth rates are significant and if projected forward show that exports will become increasingly important for the arkansas and national economies,1,f +to the extent that restraint falls on prices the more room there willbe fr the growth in real output we want,0,f +we should encourage other types of vocational education in these schools which will help in developing industries and businesses best suited to the area,1,f +business spending should also moderate in 1999 last year business fixed investment grew an impressive 11 percent,1,f +corporate cash flows are strong and financing is readily available for an array of firms,1,f +as these conflicting demands compete for resources some must go unfilled,0,f +that rise through the effects i noted earlier should continue to support domestic demand in the months ahead,1,f +at the same time rising consumer prices cut the consumption per capita from 68 pounds in 1947 to 55 pounds in 1951 a shrinkage that was masked and offset by the higher demand for breeding stockby 1951 the increased production from the enlarged herd began to roach the consumer market and prices started to break,0,f +it is worth reemphasizing however that the most fundamental factor determining the energy industrys capacity to raise adequate funds over the next twelve years may be whether or not there is indeed over this time interval an increased price for energy,0,f +in contrast to recent business cycles in which the adverse e ffe c t o f high real rates has been fe lt as crowding out o f construction and capital investment foreign trade has suffered the most in this 5business cycle,0,f +then business people said they were beginning to scale back their capital investment plans,0,f +this action has helped give the american people the false impression that oil is still plentiful and inexpensive,0,f +economic research has shown that profits tend to drive investment choices and site selection not personal whims,1,f +my principal argument is that excess capacity tends to depress prices and to curb price riseso as capacity catches up with demand prices recede,0,f +3 surge in sale of durable goods machinery and large appliances will moderate though recent data shows continued strength,1,f +business investment particularly in machinery and other equipment and to a lesser extent in new plants contributed significantly to the expansion we witnessed in manufacturing as well as construction,1,f +additionally the longerterm crude price has presumably been driven up by renewed fears of supply disruptions in the middle east and elsewhere,0,f +some of the ict spending turned out to be wise and even prescient investments in productive new capital,1,f +if the dollar were to appreciate more than ive assumed perhaps because of weaker growth abroad or if there were a significant further decline in oil prices rather than a stabilization then growth and inflation could be lower than in my baseline forecast,0,f +actions have been taken to raise milk support prices to curtail imports of dairy products and to reduce substantially next years wheat acreage,1,f +because of the intense capitalgoods boom industry has found it impossible to work off its order backlogs which for durable goods are now 29 percent above the yearago level,1,f +1 the automobile industry which is heavily concentrated in this region reported sales results for the past three months that were the strongest since 1986,1,f +the dollar although lower by 67 percent since the recent g5 accord and by 20 percent from its march highs is still not down enough some would say to reduce the trade imbalances that have developed particularly in manufacturing and agriculture,0,f +indeed the most recent indicators are pretty positive orders for capital equipment and consumer spending posted solid increases in december and data for january show a further recovery in auto sales and a strong labor market,1,f +if many speculators share the view that oil shortages will worsen and prices will rise then their demand for oil futures will be high and consequently the price of oil for future delivery will rise,0,f +third to the extent that the movement toward surplus in developingcountry current accounts has had a differential impact on the united states relative to other industrial countries what accounts for the difference,0,f +past 10 years the share of these countries in our total exports has risen frcm less than 30 percent to about 37 percent,1,f +this would lead to another round of price increases overexpansion and possibly ultimate deflation,0,f +but with many of the transportation hurdles surmounted demand has surged over the past two decades reflecting the myriad new uses for natural gas in industry and as a cleanburning source of electric power,1,f +there has been a pickup in getting goods to market,1,f +over the past five years interest rates paid by firms on new debt have decreased substantially falling by almost half on longterm bonds and by about twothirds on shortterm paper or loans,1,f +this improved coordination has enabled interest7five major ingredients for sustained worldwide expansion in discussing prospects for continued expansion several ingredients should be considered,1,f +among the individual regions the gain in each of the three fast growing sections was above the us average and the gain in each individually exceeded that in each of the five slowly growing areas taken separately,1,f +when businesses are weighing whether or not to make substantial investments uncertainty tends to slow down such decisions4 the auto industry has been especially challenged by the uncertainty posed by actual and proposed changes in trade policy as its production operations in the united states canada and mexico are closely linked across the three countries,0,f +to understand why these problems have advanced to this stage we need to look at certain factors peculiar to agriculture,0,f +in particular many small businesses appear to be facing unusual obstacles in obtaining credit,0,f +because of technology and lower computer and communications costs information is much more readily available than in earlier decades and sound management practices are more widespread,1,f +to increase productivity we need to invest more in both our physical and human capital,1,f +if this investment boom was a response to the preceding boom in consumer spending it was delayed until after the latter had tapered off,1,f +but in addition chicagos highly developed distribution system creates many more opportunities for additional manufacturing and distribution activity in both chicago and the surrounding midwest,1,f +clearly this type of innovation is highly desirable,1,f +the source of this increase in total purchasinq dower and demands for goods and services flows from the newly created money not from the deficit per se,1,f +today we are experiencing a great technological revolutiona communications revolution,1,f +in addition the productivity gains have translated into an improvement in businesses income statements real wages have not kept up with the growth in productivity and with businesses generally reluctant to spend corporate profitability has improved markedly this year,1,f +excessive demand pressures show themselves in different ways in different economic cycles,1,f +5 aside from constructionrelated spending the expected nationwide increase in demand for consumer durables is good news for the numerous auto and autorelated manufacturers in the southeast,1,f +small businesses often encountered trouble obtaining credit at any price under these circumstances,0,f +some individuals clearly benefit producers of exported goods and importcompeting goods immediately come to mind as examples,1,f +while creating hardship for all the pandemic has inflicted disproportionate economic pain on vulnerable businesses sectors and demographic groups which risks entrenching a kshaped recovery that is weaker overall,0,f +and the media recount almost daily the struggles of our automobile and semiconductor producers,0,f +and there has been a tremendous growth of exports of manufactured goods,1,f +investment in equipment and software has been rather strong although much of this capital spending has up to now been aimed at productivity enhancement or necessary replacement and maintenance not growth,1,f +for firms higher energy prices raise production costs which squeeze profits,0,f +the effects of two recessions disinflation increased competition inadequately reviewed business judgment and in a few cases misuse of the public trust demand increased vigilance,0,f +increasingly we are hearing from businesses that they are having trouble finding qualified workers,0,f + if businesses are to spend and hire more vigorously they will need to be convinced that economic growth can be sustained beyond the short run,0,f +more generally the survey suggests that businesses owned by women and minorities tend to be undercapitalized relative to other businesses something we hear anecdotally from many sources,0,f +lumber prices skyrocketed through may but have largely retraced that increase in the past few months,0,f +inventory policies have been conservative over the past several years and businesses have in general thus avoided the imbalances that interrupted previous expansions,0,f +restrictions on the supply of oil have been relaxed,1,f +clearly many of these new business processes such as credit scoring and automated underwriting reflect a massmarket approach to lending that has greatly increased efficiency in making consumer and small business loans,1,f +and weak corporate earnings did not bode well for firms capital investment projects,0,f +farmers here responded to poor 1985 returns continued weak prices and a comprehensive farm program by sharply reducing acreage this growing season,0,f +i am sure i dont have to sell the importance of a healthy small business sector to community bankers,1,f +if this inference is accurate part of that earlier growth in underlying productivity is being reflected in todays gains in output per hour,1,f +clearly the gas trade has a long way to go,0,f +it was the nations strong increase in construction activity beginning in late 1982 that started the recovery,1,f +past studies have suggested that small businesses have relatively limited access to equity capital and thus are heavily reliant on debt financing particularly commercial bank loans to meet their funding needs,0,f +we need modern plants turning out products at lower costs,0,f +indeed the latest data point to appreciably slower momentum so far this year in consumer spending housing and business investment,0,f +progess toiilard this end will be enhanced if businesses and labor lead0rs ez2rcise moderation in their wage and price policies this year,0,f +while we need exchange rate adaptability to match changes in underlying economic circumstances we should be wary of any tendency to believe that domestic producers should be sheltered from competition by the help of rising import costs for the same exchange rate changes will also adversely affect consumers and raise production costs even furtherthe lesson that we cannot solve our balance of payments without the cooperation of others leads to a corollary lesson that it would be selfdestructive for us or other countries to attempt to solve external problems by discriminatory restrictions on trade,0,f +but those willing to adapt to market conditicns and meet the needs of the marketplace will continue to do well even in competition with large nationwide firms,1,f +that legacy has inspired innovation and inventive activity for over 100 years and stands as an incredible accomplishment and testament to americas entrepreneurial spirit,1,f +these surveys fill gaps in the data regarding the inflation expectations of firms and how todays environment is affecting their decisionmaking and uncertainty about hiring and capital investment plans,0,f +according to a recent mcgrawhill survey of manufacturers the average rate of capacity utilization at the end of 1961 was only 83 per cent as against a preferred operating rate of 90 per centfor producers of major industrial materials such as steel nonferrous metals cement pulp and paper textiles petroleum and industrial chemicals output in the first quarter of this year averaged 82 per cent of capacity,0,f +those executives who were active during the thirties do not have to be reminded of depression worries such as inventory losses shortages of cash inability to provide employment inability to pay dividends and the threat of failure,0,f +unfortunately the regulations and restrictions have become an operational handicap for the regulated industries in a fastchanging world such as ours,0,f +domestic operating profit margins rising as they did from 1995 into 1997 in an environment of falling inflation necessarily implied falling rates of total unit cost increasesmost credibly the consequence of rising productivity growth,1,f +our inflationary problem meanwhile will be aggravated by rising gas and oil prices,0,f +on an enterprise basis a reader of such a report can determine whether the growing lines of business have risk exposures that tend to offset those in other business linesthereby resulting in lower volatility for the earnings of the corporation as a whole,1,f +but to expand the supply of patient capital that young minorityowned firms need will require additional sources of funds that recognize the financial opportunities from funding minorityowned emerging companies,1,f +that is because the rapid improvement o f manufacturing techniques in the us and other advanced nations along with the availability o f technology and machinery for purchase means the manufacturing o f goods will become more efficient everywhere,1,f +similarly deregulation of the electric power grid may have spurred increased investment in power systems,1,f +with these 430 michael moskow speeches 2006 advances in technology and better management of the workplace in general manufacturing productivity growth took off averaging 29 percent per year in the 1980s 38 percent in the 1990s and then 50 percent over the past 5 years,1,f +for a decade or more following the war agriculture was probably in a catchup phase relative to applied technology,1,f +output per hour increased only 114 percent per year on average from 2006 to 2015 compared with its longrun average of 212 percent from 1949 to 2005 this halving of productivity growth if it were to persist would have wideranging consequences for living standards wage growth and economic policy more broadly,0,f +other evidences of underutilization could be cited but the point is clear our national economy was just loafing along suffering badly from a shortage of final demand,0,f +one important ingredient in that resilience has been the performance of productivity,1,f +all these techniques have advantages,1,f +if this occurs we could have a larger volume of farm exports indefinitely,1,f +of course once we entered the year 2000 the usual incentives to wait to invest in new computers quickly returned to normal,1,f +alternatively a rise in equity prices that outstrips fundamentals might contribute to a pace of private domestic demand that ultimately takes output beyond capacity in this case the market or sector imbalance would be what contributed to the aggregate demandsupply imbalance,0,f +this will require among other 12things reduction of obstacles to the expansion of nuclear facilities by our electric utilities and sufficient relaxation of antipollution regulations to encourage much more extensive use of coal,1,f +all told industrial production was held down significantly in september as a result of lower output in these sectors,0,f +the master key to unlocking high and rising productiitty as perhaps the most important short term need of the economy as well as a necessary long term trend is greater competitiveness in the economy at large,1,f +consider faster productivity growth,1,f +regional developmentsmuch of the contraction in the overall number of starts is attributable to a marked slowdown in the northeast,0,f +a sharp deceleration in business spending in the second half of 2000 led the economy into recession and the recovery wont grow real legs until business investment revives,0,f +specifically the southeast should get most of its gain from business services employment,1,f +they foster the development of new products and services in response to participants demands creating new opportunities and choices,1,f +first energy prices have risen and apparently stabilized substantially above their 1986 lows further rises are also the decline in the foreign exchange value of the dollar since early 1985 will cause prices to rise faster as well imported goods become more expensive and domestic producers have more room to raise their prices,1,f +the current business expansion has proceeded in an environment characterized i believe it is fair to say by a fair degree of consensus on matters of economic policy that during past expansions have been subjects of controversy,1,f +in a stabl e economi c envi ronment industries can contri bute an remove the uncertainties that are created by high and varying rates of inflation consequentl goìng but he are not there yet,0,f +our economy was badly underemployed and as the excess spending brought idle labor and idle plants back into production total output and income were raised,0,f +similarly the economy has gone through changes that help it better weather the ups and downs of the business cycle,1,f +actually construction costs have risen about 50 percent during the same period,0,f +but to solidify the expansion final demand needs to gain a fir mer footing,1,f +falling relative farm prices in turn caused farm income to grow more slowly than nonfarm income,0,f +even this must be weighed against the near certainty of considerably higher meat prices,0,f +indeed a large deceleration in spending could conceivably cause inflation to slow following a productivity slowdown as firms markups contract more than unit labor costs rise,0,f +d phenomenal changes like this have taken place in the telecommunications industry too,1,f +purchased inputs in farming have increased rising from an average of 49 percent of gross farm income in 191014 to 71 percent in 1972,0,f +consequently in my personal opinion we ought not to hasten to conclude that the 7 per cent investment tax credit should be suspended as a move to dampen business capital outlays as some observers are suggesting,1,f +it has very successfully financed and made equity investments in housing projects in ohio indiana and wisconsin,1,f +whats happened of course is that as the economies of asia and elsewhere have turned the corner to recovery global demand has picked up and so have prices,1,f +these factors help offset weaknesses in importsensitive industries like apparel or in the production o f commodities like phosphates whose prices remain depressed in world markets,1,f +the surge of imports competing with american goods aids in containing inflation but figures in the enormous trade deficits,0,f +of more concern to many businessmen however is how to compete with foreign producers,0,f +inflations no windfall the fact that a growing economy and relatively full employment is highly beneficial to the farm sector does not mean that agriculture benefits from inflationary policies,0,f +except for the purchase of feeder livestock these costs were relatively small,1,f +part of the increase has been the result of speculation and concerns over temporary supply disruptions,0,f +in particular a reason why opec was able to sustain the very large 1973 oil price increase for so long was because world demand for oil was underpinned by rapid expansion of aggregate demand in key markets in europe japan and the united states,1,f +software and capital goods embodying newer information and communications technology are a major export of the united states,1,f +although highly leveraged balance sheets were not the fundamental cause of problems facing these industries high leverage contributed to the failure of some firms,0,f +for example cecchetti et al 2007 employ a slightly modified version of the stockwatson procedure in a recent paper and find that inflation persistence has fallen so low that their estimated trend for gross domestic product gdp price inflation has been almost perfectly flat at about 22 percent over the past few years,1,f +again i think this is a positive development for business investment,1,f +much of itespecially the productivityenhancing kindis to reduce production costs especially labor costs,0,f +that is a huge difference and one of the unintended consequences is that midwestern candy factories are relocating to countries such as canada where the price of sugar is not artificially increased,0,f +importantly the megadeficit in trade has kept some sectors of the economy including agriculture in a virtual depressionthe strong dollar has also had some positive aspects,0,f +reforms to accounting and corporate governance now being put in place are constructive,1,f +texas produces more than 8 percent of the total manufactured goods in the united states ranking second behind california in factory production,1,f +during recent months the media have carried numerous stories about problems that small to mediumsized businesses have had lately in getting or renewing their loans,0,f +average prices for all goods and services will remain about unchanged once resources are again fully employed,1,f +growth comes from investment in human and physical capital,1,f +another factor some observers have cited as possibly boosting inflation is a tendency for increases in resource utilization to generate bottlenecks that can push up some prices more rapidly,1,f +canada mexico and the european union account for more than half of all us exports and each is expected to post strong economic gains in 1998 exports to these markets will more than offset any losses to asia,1,f +yet our most recent experiences with corporate malfeasance suggest that governance has strayed from the way we think it is supposed to work,0,f +this increases the cost of capital resulting in lower rates of investment which will affect profits and the pace of real growth,0,f +as measured by gross domestic product gdp the most familiar gauge of broad economic growth 2005 was a very good year overall,1,f +the institute for supply management manufacturing index indicated meaningfully slower growth in december and to a lesser extent january,0,f +as these countries grow faster they typically demand more of our exports and in turn contribute to the growth of our economy overall,1,f +the improvement is particularly visible for business purchases of cars and trucks,1,f +nevertheless even a modest upturn in energy prices would help mississippi too and would benefit alabamas producers of steel pipeline,1,f +looking at that part of our economic growth that is affected by foreign trade i can say that the gap between exports and imports should begin to shrink this year after several years of growing larger,1,f +and as a cautionary note growth in consumer spending has slowed in the past six months or so,0,f +in addition the stock markets decline could make it harder for businesses to raise capital for major new projects,0,f +nonresidential fixed investment has slowed in each of the first three quarters of 2018 after factoring in a small rebound we expect to see in the fourth quarter the yearoveryear growth rate in business fixed investment will likely still be slightly below its average growth rate during the past two expansions,0,f +some of it however represents loans for the purchase of additional land and equipment or livestock which may well represent efforts to improe efficiency of farm operaticnsrather than losses,1,f +over the long run incentives to invest therefore need to be enhanced,1,f +it says that we are cotmnitted to using present and future technology for faster more reliable less expensive services for making our world and our system work better,1,f +the buyer needs assurance that if an agricultural equipment dealer certifies that a harvester is in mint condition he is being truthful and his warranty is to be trusted,1,f +we have been and will continue to work with trade associations to aid them in preparing materials tailored to the specific needs of their membersnevertheless we are aware that there will be problems in shifting from old procedures to new ones,1,f +industrial production began strengthening in late 1986 and has surged more recently rising nearly 6 percent over the four quarters of 1987 and9therefore am relatively optimistic about the prospects for the economy,1,f +the productivity comparisons reflect the fact that we spend less than 10 percent of our cnp on capital investment whereas the germans spend 15 percent and the japanese spend more than 20 percent of gnp for that purpose,0,f +a period of subpar performance would open up a shortfall in the price level from its trend line target,0,f +otherwise imports would grow rapidly and our exports would lose their ability to penetrate foreign markets,0,f +but if our trading partners are unwilling to take the necessary expansionary action,0,f +china is also a growing market for investment and exports by us firms,1,f +such diets which include more animal products will 4 contribute to a higher export demand for us farm products,1,f +and the prospect now is that after two years of extraordinary growth the pattern of expansion in the united states may be less ebullient,0,f +but the dominant force of late appears to have been a significant increase in the rate of productivity growth output per hour in the nonfarm business sectora conventional measure of productivityincreased at an annual rate of almost 3 percent between 1995 and 1999 well above the pace earlier in the decade,1,f +here in the triad region traditional manufacturing industries like furniture and textiles have seen particularly large growth in import competition and have also experienced painful declines in employment,1,f +thus according to a first national city bank study the proportion of the sales dollar that the 100 largest manufacturing corporations paid out for materials payrolls and fringe benefits fell slightly between 1949 and 1961 from 82 to 80 per cent,0,f +but last year after a weak first quarter growth picked up to an average pace of around 3 percent over the remainder of the year,1,f +there are now signs that recessionary pressures in some key sectors have abated,1,f +inflation fell owing to the effects of weak demand for a range of goods and services far outstripping price increases for food and a few other products,0,f +investors seem to be concerned about these international and fiscal risks the sustainability of corporate earnings growth in an environment with such risks and the possibility of the fed removing policy accommodation too aggressively,0,f +3 expect manufacturing to continue to shift toward the ea s t p a r t i c u l a r l y in light of the fact that there are even cheaper sources of labor thailand and c c h i n a on th e h o r i z o n ,0,f +suffice it to say that there is significant uncertainty about whether productivity gains at the recent elevated rates are likely or whether a reversion to the longer run trend rate of around two and one quarter percent is occurring,0,f +during recent years as the role of credit in financing private spending increased and as interest rates rose the debt service requirements of business borrowers have generally grown more rapidly than 12their incomes and the additional debt has resulted in a rise of debtequity ratios,0,f +2 attaining a better balance between domestic saving and investment will help us achieve an improved external equilibrium,1,f +nor do i think that foreign managers are outstripping our own in methods for getting production out,1,f +business spending on equipment and software grew in five of the last six quarters and surged 15 percent in the third quarter at the highest rate since early 2000 commercial borrowing is another good indicator of business spending,1,f +this diverse group represents a range of industries in the southeast many with national or international reach,1,f +as functional specialists they have had an opportunity to make a major technological 9contribution to solving urbanization problems,1,f +8 in fact the wholesale price index dropped to an 87 percent annual rate in april and the 9 consumer price index to a 74 percent rate,1,f +some current problems in agricultural credit remarks by chas,0,f +this important industry represents over 3 percent of us gdp and an even higher share of output in the midwest,1,f +however between 1973 and 2003 oil consumption grew on average only 12 percent per year far short of the rise in real gdp,0,f +to do this the researchers identified 25 midsize manufacturing cities around the country that were similar to springfield in 1960 when that city was at the height of its prosperity and asked what accounted for the differences in the economic trajectories experienced by this group of cities over the past 50 years,1,f +yet first and fore most it should place heavy emphasis on encouraging investment,1,f +it cannot create capital stock train workers or improve technology,0,f +assuming such developments occur i feel that exports w ill probably be a major source o f u s,1,f +business demands for credit which accounted for much of the increased credit expansion in 1965 are likely to remain very large,1,f +on the whole the expansion was orderly creating no undue problems of resource allocation or inflationary pressures,1,f +even a 2 percent growth trend would be superior to the economys dismal productivity performance during the 1970s and much of the 1980s,0,f +in particular the growth of the states electronics and other hightechnology industries which have almost doubled their job requirements since early in this decade promises considerable strength as we move into the 1980s,1,f +in addition many firmsespecially in the most troubled industrieshave retired debt through equity offerings and asset sales which limited the growth of nonfinancial corporate debt in 2002 and 2003 to the slowest pace since the early 1990s,1,f +the problems of these farmers of course have been compounded by the relatively high interest rates that have prevailed over the current decade,0,f +all these pressures have resulted in an unprecedented price upsurge,0,f +improved strategic planning and marketing tighter control of operating expenses reduction of unnecessary overhead greater use of computers communications technology and atts increased fees for services elimination of unprofitable lines of business better management and hedging of duration mismatches brokering of loans and more variable rate loans are a l l examples,1,f +europeans will open their internal borders in 1992 and make their product regulations much less restrictive than our present rules,1,f +the sector with the most dramatic acceleration in productivity is manufacturing,1,f +underlying economic fundamentals have improved resulting in an economy that is better able to sustain growth through the inevitable transitory shocks and typical sectoral ups and downs,1,f +because the dollar price of imported goods rises while that of exported commodities remains unchanged the trade deficit initially worsens especially for trade flows covered by contracts,0,f +we have indeed been experiencing a sharp business 2recovery consistent with progress against inflation,1,f +probably the weakest sector o f the economy during the coming year will be commercial and residential construction,0,f +we are just beginning to see these effects on our importsthe toyotas and their domesticallyproduced substitutes the fords,0,f +one of the new phenomena we are seeing is a fundamental difference in pricesetting behavior in the present business expansion,1,f +evidently corporate managers view prospective returns from these uses of cash flow as comparing favorably with those from new capital spending projects,1,f +our cotton export subsidy designed to offset the traderetarding features of our domestic price support program is sufficient to permit exports of cotton to japan and imports of goods made from the cotton to the u s for sale in competition with our own mills,1,f +the advantage of approaching full employment gradually is that it gives sectors time to expand their production and their capacity for future production more efficiently,1,f +industrial purchasing managers reported accelerating activity in february,1,f +total industrial production has shown virtually no growth over the past five months actually the level in march 1980 was just slightly below that in january 1979 however this total includes a decline of 134 percent in consumer goods and an increase of 3½ percent in business and defense equipment,0,f +this represents not just a loss to them but the loss of that productivity to the economy as a whole,0,f +to adjust our agricultural programs level on the farm would require affect the gains has to make mone y not only a term as tricky to define as the family farm attract human and financial poverty plant to hold these people above the programs whic h would n ece ssarily in effici en cie s that we have seen in agriculture,0,f +1 state in terms of the value of exports shipped we surpassed california nine years ago,1,f +manufacturing and the regional economy today both the national and the regional economy are trying to remain competitive in the face of rapid technological changes and globalization,0,f +the oil price increases that would result from such an increase in imports would not only add to inflation but also to our import bill,0,f +of course i also recognize a potential downside risk to the outlook for productivity especially given the weakness in business investment that i noted earlier,0,f +runup of farm 4 still another complicating factor was the restricted capacity of raw material producing industries in our country paper wood pulp steel aluminum manmade fiberts etc,0,f +the underlying fundamentals of the us economy remain strong but the coronavirus will weigh on us growth at least during the first half of the year with a pullback in spending by households and businesses,0,f +3 in a recent dallas fed texas manufacturing outlook survey more than half of companies responding reported that tariffs are increasing their input costs and a material number of companies reported a reduction in their capital spending plans,0,f +however last years further decline in the dollar should push nonoil import prices up even more,0,f +i f oil p ric e s could be b ro u g h t down o r m oderated these p ro s p e c ts w ould be much b r ig h te r ,0,f +let me turn now to the other economic challenge that i want to highlight todaythe productivity performance of our economy,0,f +a ll o f us have lost earlier strong export markets because o f the austerity programs launched in much o f the third world in response to this ongoing crisis,0,f +favorable indications are new orders for manufactured goods automakers assembly schedules and durable goods production in the fourth quarter,1,f +all these activities created new wealth for the entrepreneurs who had gone into business to fill the demands of the marketplace,1,f +the review of upper midwest farming that was done as part of the excellent upper midwest economic study revealed that many farmers lte underemployed on their present farms,0,f +it will result in less total output of goods and services,0,f +to summarize this review of history we have had an economy that experienced a period of unsustainable growth followed by a sharp slowdown in the information and computer technology revolution,0,f +at that rate output per hour would double in about 23 years,1,f +with low interest rates and plenty of cash on hand firms might be expected to invest more,1,f +to some extent the pickup in activity in recent months reflects the dissipation of some of the forces that had been exerting downward pressure on the economy during the preceding several quarters,1,f +that flexibility has been the product of the economic dynamism of our workers and firms that was unleashed in part by the efforts of policymakers to remove rigidities and promote competition,1,f +at existing growth rates of population and resource use catastrophe threatened through exhaustion of raw materials and if not of raw materials then of food and if not of food then of the entire environment through pollution,0,f +on top of this strength in sales or more accurately in response to it businesses made sizable upward revisions in their capital spending plans as the year went on,1,f +percentthe third consecutive year of growth at that level,1,f +this provides a partial but insufficient offset to the projected increase in business fixed investmentresidential construction is particularly difficult to estimate,0,f +in the past weve worked on issues such as affordable housing predatory lending and the issue that brings us here today small business access to capital and credit,1,f +similar problems have plagued practically every industrial country in the world,0,f +we recognize that in many key respects small businesses form the backbone of the american economic system providing much of the employment investment technological innovation and competitive vigor that are so important to the continued vitality of our economy,1,f +twentyone were in the horseshoe area including four o f the six closed plants that once employed more than 500 persons,0,f +intense competition in domestic markets from imports and in overseas markets from foreign manufacturers has been causing problems for other regional industries including 3 petrochemicals paper wood products and primary metals,0,f +in the mid1930s the production credit system entered the shortterm farm credit market and have since become a major source of such loans,1,f +with prices stable and production capacity ample purchasing agents have been able to rely upon assured supplies of materials,1,f +among them is the need for reduced pollution and for more investment in industrial health and safety,0,f +in ess_ence paying more attention to commodity prices might help to anchor not only the domestic price level but result in greater exchange rate stability as well,1,f +in addition our net export balance whic has deteriorated over the past two years has begun to improve,1,f +the sustainability of the recent upturn in growth will depend importantly on whether some of the factors that have been holding back growth for the past decade diminish including weak investment and productivity,0,f +we fielded a set of special questions regarding the impact of tariffs and trade policy tensions to panelists in our survey of business uncertainty over the third quarter as uschina trade tensions were escalating,0,f +georgia farmers wont be helped as much as farmers in other states because they dont raise an abundance o f the grain crops that dominate international flows o f farm goods,0,f +in still other cases the machinery was a mistake from the start,0,f +and there was a natural slowing from that faster pace after the bulk of our productive resources that were underutilized following the recession were back at work,0,f +economic growth like plant growth is subject to variations in climate and environment,0,f +inflation was reined in during the early 1980s and so farmers could no longer rely on paying their loans back in cheaper dollars,0,f +firms small and large increasingly understand the need to be aggressive global competitors,1,f +today china annually produces roughly 100 million microcomputers and it has 650 million domestic cell phone subscribers,0,f +the massive capital inflow from abroad prompted by high interest rates here bid up the value of the dollar by approximately 50 percent between mid1980 and early 1985 the effect was to make our exports expensive in terms of foreign currencies while the dollar price of imports to the us fell,0,f +real output remains well below what one would expect it to be in light of historical growth patterns in the united states,0,f +the hard core inflation ratethat determined by rising unit costs of productionstill seems to be in the 9 to 10 percent range,0,f +except for some rebuilding of inventories and the likelihood of continued strength in singlefamily home building capital spending is not going to pull the economy along in 1987 slipping utilization of the nations productive capacity makes business hesitant to invest in new plants and equipment,0,f +return rock and grant 2016 cite a credit suisse analysis of 2400 companies worldwide that found that organizations with at least one female board member had higher return on equity and higher net income growth than firms with no female board members,1,f +in general these local or regional bhcs have less complex corporate structures and are currently well capitalized,1,f +we assume our competitors will match our aggressive pricing policies and will also accede to high wage demands,0,f +the stimulus from our export position that is driving manufacturing while consumption cools should bring more balance to our economy,1,f +on the business side capital spending will continue to be enhanced by the reduction in borrowing costs,1,f +finally our industries particularly our small to mediumsized firms should be gearing up to exploit the marketing advantages they hold when the ec opens its markets,1,f +after experiencing declines of 50 percent or greater in some localities in the value of their assets over the past five or six years farmers in prime producing areas should not see much additional loss,0,f +sales of automobiles particularly of domestic makes have lurrrnetted in recent months reaching a 5year low in april,0,f +when the bubble burst inventories were excessive orders vanished and with the additional burden of a quadrupled price of oil a severe recession became inevitable,0,f +of course as the saying goes past returns are not a guarantee of future results not all the evidence supports the emerging consensus that secular productivity growth will remain at its current elevated level,0,f +capacity utilization is also quite high above 90 percent in certain industries,1,f +internally many countries have privatized major businesses,1,f +a significant portion of the recent dramatic increase in productivity growth was due to the kind of innovative products and services provided by the technology industry,1,f +this lias offset soie of the pressure of mounting import competition deriving from a strong dollar,0,f +we must of oourse accelerate our exports,1,f +for example the trade balance will improve because the competitiveness of us manufacturing has increased,1,f +uncertainty is still a restraining factor for businesses,0,f +first it is correctmg the imbalances that developed between the production and sales of many items also between orders and inventories between capital investment and consumer spending and between the trend of costs and prices,1,f +the lower dollar would boost us net exports,1,f +supply soon began to catch up with demand and during the last half of the decade 40 more office space was built than absorbed,1,f +and in spite of the cancer scare in great britain and the unfavorable tariffs of the common market tobacco exports reached a sixyear high in the year ending july 1 by way of summing up i want to emphasize three points,1,f +while imports rose us production of importcompeting goods also rose sharply,1,f +ordinarily higher prices lead to more production and eventually greater supply and perhaps stabilizing and lower prices,1,f +i expect 2005 to be another year of healthy growth in output steady gains in employment and modest inflation,1,f +increased aggregate investment in farm plant and equipment is frequently cited as the basis of increased credit demands,1,f +you all should be justifiably proud that the organization now represents 2000plus businesses organizations and professionals in the ft wayne area including companies such as general motors parkview health lincoln national verizon dana and many others,1,f +industries that have faced up to outside competition and streamlined their operations in response have emerged stronger than ever,1,f +instead more attention needs to be paid to production especially quality production,0,f +as you can see we face numerous challenges both at the national and industry levels,0,f +4 i also feel business needs to exercise more flexibility in its approach to the research products o f academia,0,f +farm incomes and farm asset values have declined sharply over the current decade as crop prices responding to a major increase in world supplies of farm products relative to demand have dropped substantially from boomtime levels of the late 1970s,0,f +thanks to the strong economic recovery last year our tradeablegoods industries as a group have not been severely injured on balance,1,f +i find more worrisome the shift in international trade from the positive to the negative side of the growth ledger,0,f +the 3 world economy was hit with a second oil price shock and us inflation showed signs of accelerating further,0,f +those surpluses fell away in the 1980s as the united states absorbed the brunt of the necessary adjustments in the trade position of the borrowers,0,f +as 2016 began i foresaw a year of steady moderate abovetrend growth,1,f +the higher productivity of these high tech investrrents also have contributed importantly to the boom in the us capital goods industry,1,f +and its a similar story with the more volatile producer price index for inflation which last month was up 48 percent,0,f +at first this farm planning may seem onerous and costly,0,f +it raises costs and prices to producers as well as consumers and thereby jeopardizes the progress we have achieved in reducing inflation,0,f +this productivity growth generates spending in a number of ways,1,f +but the growing size diversity and efficiency of the states economy are compensating for any weakness in the forest products industry,1,f +many of the currently prevailing prices and wage rates also represent decisions made some time agoo ue are not sure of the extent to which the inflexibility of industrial prices during the recession represented lags in the price and wage determining processo but price rises during a recession are certainly no help in fostering recovery,0,f +over the long run weve got to find more ways of boosting the supply of products for households and business firms through improvements in efficiency,1,f +a nore accurate picture is given by the gross danestic business product fixedweight price index which increased at a lower 334 percent rate in the first quarter,0,f +economic recovery and the apprecia1tion of the dolla have stimulated us demand for imports and the weakness of internal demand in many of the major developing ounties and the strong dollar have reduced foreign deand for us,0,f +failure to do so could result in a misallocation of resources a steadily declining rate of inflation and perhaps even deflation,0,f +without question individual firms often do pass along increases in prices of their inputs,0,f +at a time when that price is high e weaker demands for funds are set aside and with them some of the dends for goods,0,f +costs hve fallen as prouctivity gains increased,1,f +and investmentgrade corporate debt has shifted closer to the edge of speculative grade,0,f +in addition to the regions industry mix the southeasts fasterthanaverage growth in recent years actually is working against prospects for robust recovery,0,f +to the extent direct measures were successful in reducing the net capital inflow real interest rates in th united states would presumably rise other things equal as part of the process of replacing the lost saving from abroad with an increase in private domestic saving or a reduction in private domestic investment,0,f +by now they have become strong competitors with plants as good or better than our own,0,f +the economy on those occasions continued to expand rapidly while approaching its limits of labor plant and materials capacity,1,f +while headline growth stepped back a bit in the fourth quarter largely on account of increased drag from higher imports and lower inventories underlying final private domestic demandwhich is a better indicator of economic momentumgrew at its fastest pace in more than three years,1,f +if farmers decide to plant less corn for example their needs for operating funds could diminish,0,f +the production from the williston basin declined after the first push but it has rebounded with the discovery of two additional fields in 1964 similarly northern montana through technology and new discoveries has had a rebirth in the cutbankshelby fields the petroleum industry has shared in the high cost of transportation common to this district,1,f +the economy is facing another important challenge how do we deal with accounting improprieties and failures in corporate gover nance,0,f +i believe that through persuasion our trading partners will assume more o f their own responsibility for keeping the exchange o f goods and services together with labor and capital as unrestricted as possible and remove at least some o f the pressure from us,1,f +the pattern of recovery will be typical but its pace will be a slower than usual for this recovery to progress certain conditions must be met decumulation of excess inventories retention of consumer confidence increased business investment spending and a stable world economy,0,f +the same shipment going west to vancouver might take as long as five days,0,f +we are trying to make it cheaper for businesses to build expand and hire,1,f +ongoing advances in technology related in part to this investment further supported the level of economic activity,1,f +hard landings associated with the unwinding of sector and market imbalances much of the recent concern about the sustainability of this expansion is nevertheless not related directly to the balance between aggregate demand and aggregate supply,0,f +nevertheless these frequently expressed sentiments indicating a desire to apply us standards to foreign producers do affect us positions in trade disputes,1,f +the economy ended 1997 with still very positive fundamentals notwithstanding some apparent weakness in demand in the fourth quarter,1,f +its per capita output is now among the highest in the world and its products are exported to every corner of the globe,1,f +but such productivity can translate into fewer farms and farmers and declining population for many farm towns,0,f +as weve seen the prime business loan rate recently has been as high as 8 percent a high level by any stan dard except 1974 and atypical for the early stage of an economic recovery,0,f +it was only when horizontal factories newly designed for optimal use of electric power began to dominate our industrial system many years after electricitys initial introduction that productivity clearly accelerated,1,f +the overheated economy was beginning to cool,0,f +this disappointing rate has contributed to lagging productivity,0,f +we should continue to call on taiwan and japan in particular two nations with extraordinarily high trade surpluses and substantial import barriers to lower the protective walls which make it impossible for many o f our 10 goods and services to penetrate their markets,1,f +there are many reasons why that is the case mostly dealing with the recent recession and the need and desire on the part of both businesses and consumers to strengthen their balance sheets,0,f +however the widening margin of unused resources during 1963 led to renewed efforts to stimulate the economy,0,f +major factors contributing to higher chargeoffs were sizable writedowns of several large corporate credits and a sharp rise in consumer oan defaults,0,f +during the 1970s inflation increasingly became viewed as a way of life and in the process economic incentives were distorted and our productive energies sapped,0,f +in the internationalized environment ahead we must seek ways to reorient labor and capital resources away from 6 endeavors that can no longer compete and steer them toward more feasible pursuits,0,f +for instance inventories have been held well within past relationships to sales and spending by manufacturers for plant and equipment has if anything been restrained relative to prospective needs,0,f +industries heavily dependent upon export markets have been badly damaged as have others losing a significant share of their domestic markets to foreign producers,0,f +computers telecommunications and other capital equipment as well as services should remain the leading exports,1,f +also the aftermath of the crisis has been associated with a decrease in business dynamismfor example the rate at which new startup firms are being created has declined9 have we reached a turning point,0,f +productivity has been lagging,0,f +we need also to make further progress in establishing business relationships between the financial services sector and the rapidly expanding number of minorityowned businesses,1,f +to be sure with the us now a major oil producer lower oil prices have also had some negative effects on the us economy,0,f +there are issues of efficiency and cost,0,f +the big story in the economy right now is the unprecedented growth in productivity,1,f +so on the one hand the outlook for the next couple of years is pretty good the economy seems to be growing at or near potential and the output gap which ill explain in a moment is likely small,1,f +if so then the principal effect of an unexpected slowdown in productivity growth during the next few years would likely be higher inflation with the shortterm impact on the growth of output and employment likely to be relatively minor,0,f +that factor of course is a dramatic improvement in productivity,1,f +management seems to be increasingly doubtful that it can win major strikes,0,f +in the united states for example capital expenditures have been restrained for some time relative to the very substantial level of corporate cash flow,0,f +in this connection it is most encouraging to see the industrial de l e 0pment in many sections of the south,1,f +in the two decades following world war il america excelled in the rate of productivity improvement,1,f +moreover these goods and services have been over time increasingly less constrained by the limits of physical bulk,0,f +for the typical american consumer and business it means borrowing should be cheaper,1,f +first the demands that we made on the economy for growth and for maximum utilization of human and material capacity were excessive,0,f +for instance airline passenger traffic is still 60 percent below its prepandemic level contributing to the decline in aircraft orders this year and hotel revenue per available room is only half the level of a year earlier,0,f +the sharp drop in oil prices has virtually crippled producers in this industry,0,f +indeed many of my business contacts suggest that while growth is very sluggish and uneven they do not see the precipitous declines that the news headlines suggest,0,f +similarly businesses cut back investment spending on capital goods as they face production overcapacity or lower expectations for sales in the months ahead,0,f +during the first half of this decade we were able to effect considerable improvement in the competitive position of our exports simply by avoiding domestic inflation while prices rose steadily abroad,1,f +the resulting 20 percent decline in us exports combined with recession and increased foreign competition took a great toll on agricultural prosperity,0,f +while that figure was boosted significantly by inventory accumulation that is unlikely to persist there was some evidence of momentum that might carry forward,1,f +in this way inflation causes a loss of output that is almost sure to be much larger than any loss from temporarily operating below capacity,0,f +north and central florida features worldclass port facilities and its economy is diversified into industries like electronics and transportation equipment aerospace industries located in and around cape canaveral lumber and citrus culture phosphate mining and a thriving service sector,1,f +the best approach i believe is to move with the industry and conform oversight functions more closely to business practice,1,f +this 1956 business investment may in turn have surged ahead at an unsustainable rate and now be susceptible to some slackening while consuption continues to expand,0,f +it has relatively little unused capacity,1,f +much of the public discussion and debate quite appropriately has focused on rising productivity growth due to recent advances in information technology and their absorption throughout the economy,1,f +the task of increasing the size of blackowned firms is far more difficult,0,f +exports have been critical in dampening the recession nationally and they will be a major source of support in 1992 instead of exports many of the major industries in the region which benefit from low labor costs are fighting a battle against developing countries that can offer even lower wages and other costs,0,f +and in many industries firms were able to cut production costs as they expanded capacity,1,f +however the pace continued to accelerate according to the broadest measure of price pressures the gnp price index or deflator which rose from 95 percent to 100 percent between the first and second half of 1980 this evidence plus januarys sharp increase in producer prices thus indicates a strong reason for policymakers to maintain a tight antiinflation policy in the months ahead,0,f +mexico might best be described in economic parlance as an emerged country exports exports exports texas benefits from a stronger mexico in many ways including on the export front,1,f +a second potentially dampening factor is tax uncertainty about possible tax changes may cause businesses to defer planned investment particularly in the near term until the nature o f tax changes likely to be enacted becomes more evident,0,f +to that end i propose a tax on businesses granting excess wage increases,0,f +the evidence that partial expensing is having an effect is not clearcut but my view is that capital spending is probably being influenced by the tax law and that its expiration in january will probably damp outlays in the early part of next year,0,f +and its much harder to raise capital when a us treasury bondthe safest investment on earthoffers a pretty decent return,0,f +these rebates are frequently rough esti mates of the previously paid taxes and there is some suspicion that the amount of the rebate is larger than the previously paid taxes thus providing a partially hidden subsidy to exports,1,f +for example of the 163 thousand firms reported in 1969 only 38 thousand or less than onequarter of the total had any paid employees at all,0,f +in 2013 the collegeeducated worker earned over 80 percent more6 the inescapable conclusion is that we are failing to keep pace with our economys growing demand for skilled workers,0,f +in the 1970s w e had what some call a baby bust a dramatic slowdown in the birthrate that is reducing the number of entry level workers in the 1990s,0,f +competitors from abroad will have natural cost advantages due to their plentiful labor supply,0,f +capacity to produce however can only be expanded as the labor force grows capital is invested and as technology expands,1,f +we all lament the shortages of ustrained engineers for the demand already evident in our economy,0,f +these developments relating to work attitudes and the amount of leisure time we are opting for as a society are a relatively neglected aspect i believe of scholarly investigation into the causes of the slowing in our productivity growth,0,f +the growing importance of online shopping by increasing the competitiveness of the us retail sector may have reduced price margins and restrained the ability of firms to raise prices in response to rising demand25 that said the economy overall appears to have become more concentrated and less dynamic in recent years which may tend to increase firms pricing power26 because these changes occur slowly determining their complex effects on the economy will as a practical matter require studying data over a considerable time,0,f +a second test of capital inadequacy would be an overall insufficiency of our capital stock to employ fully and efficiently our rising labor force after allowance is made for its changing composition,0,f +even though there are industries and sectors of the economy which stagnate because of the high value of the dollar it raises the perceived wealth of society as a whole because of the increased purchasing power,0,f +underlying this change in labor markets is the increasingly competitive environment in which firms find themselves,0,f +this has provided manufacturers of export products with stronger demand at home as well as overseas and has stimulated brisk growth in shipments through southeastern ports,1,f +again employment costs have risen this year because of sharp increases in the mini mum wage and in socialsecurity taxes,0,f +the 1053 proposal would restructure the system of tax allowances for capital recovery,1,f +we have heard from the administration at every opportunity that the new economic policy is a temporary program designed to provide a shortcut back to reasonably stable prices and increased utilization of our productive resources,1,f +upon completion of that study the federal reserve board submjtted its report to congress on march 3 1972 our most important recommendation was a proposal for a more flexible use of fiscal policy to smooth out the fluctuations in business fixed investment so that dependence on credit restraint to achieve economic stability could be reduced,1,f +a passive policy environment that is friendly to entrepreneurs and to all businesses is one that balances the use of regulations and taxes against the burdens that they impose,1,f +while it is impossible to know precisely how much more investment we have had to some extent at least the inflow of capital has had as its direct or indirect counterpart some increase in the productive capacity of this country that will facilitate the servicing of our debt,1,f +in both cases virtually every agency of the government certified in detail the acute dangers posed to our international military political and economic interests by excessive oil imports,1,f +i know west virginia has invested in that,1,f +however ohios path through this recession looks similar to the nation as a whole and this highlights the fact that our regional economy has become more diversified,1,f +in addition the investment tax credit now under consideration in the congress is designed to provide incentive for a higher rate of capital formation,0,f +in their solution to the debt crisis our political leaders must develop an entirely new structure of incentives for private businesses and investors to put their money to work creating jobs here at home,1,f +by treating some aspects of investment less favorably changes in the tax code have exacerbated the shortrun effects o f overbuilding that occurred over the past several years,0,f +when we make the proper adjustments we find that the level of cor porate profits was overstated in 1976 by about 30 billion resulting in an overpay ment of close to 12 billion in income taxes,0,f +the difficulty of applying an facomes tax penalty to unincorporated business nonprjfit institutions and governments would not weigh heavily if tip is applied only to a limited group of large corporations,1,f +more and more often these essentially private enterprise objectives are colliding with social goals set by legislatures and congress not to mention those set by extension by regulatory agencies,0,f +i believe that when free market forces are in stalemate then it is the duty of government to break the log jam and restore the flow of commercethere are many approaches which might be tried and some have already been discussed this morning,1,f +nawbo aims as part of its mission to transform public policy and influence opinion makers,1,f +fortunately there were also some prominent successes most notably the north american free trade agreement nafta,1,f +the federal reserve is reaching out to communities around the country to hear how americans are experiencing the economy day to day and to make sure we are carrying out the monetary policy goals assigned to us by the congress in the most effective way we can2 the congress has assigned the federal reserve to use monetary policy to achieve maximum employment and price stability,1,p +in this way the federal reserve system is deliberately designed to give the residents of main street a voice in national monetary policy,1,p +after taking significant measures to stabilize the economy in the wake of the 2008 financial crisis the fomc committed to a period of sustained low interest rates to support the labor market and return inflation to 2 percent,1,p +in that context and with the risk of inflation muted the fomc decided earlier this month to make a midcycle reduction in interest rates with the goal of providing a little insurance for the continued growth of the economy and strength of the labor market,1,p +recent research conducted by the federal reserve bank of boston suggests that homeowners who have experienced a 20 percent or greater fall in house prices are about 14 times more likely to default on a mortgage compared with homeowners who have experienced a 20 percent increase in the price of their home1 some types of mortgage borrowers appear to be particularly sensitive to homeprice declines at least 18 percent of foreclosures started in the third quarter of 2007 involved nonowneroccupied properties,0,p +that section of the statement also suggests that the committee might conduct further asset purchases and deploy other tools if improvement in the labor market is slow to materialize,1,p +the federal reserve with all of the powerful tools at its disposal cant fully succeed unless native people and others that have existed on the margins of the economy have the opportunity to become full participants,1,p +thus they reason when interest rates rise it is necessary to supply additional money in order to maintain current levels of spending while at the same time satisfying peoples desires to fill the cookie jar,0,p +one concern i have is that the public instead thinks the fed views 2 percent as a ceiling that it aims to keep inflation under,0,p +we also expect it will be appropriate to maintain the current target range for the federal funds rate at 0 to 14 percent until labor market conditions have reached levels consistent with the committees assessments of maximum employment until inflation has risen to 2 percent and until inflation is on track to moderately exceed 2 percent for some time,1,p +the fed cant make grants or finance projects its not in our congressional remit,0,p +first cdfis operate in a fragmented industry community,1,p +they must be prepared to compete in a variety of new fields against a phalanx of nationwide corporations ever anxious to attract an increasing share of the rising income and expenditures of the black connnunity,1,p +weve already had a chance to work with nawbo through the chicago feds advisory council on agriculture labor and small business,1,p +one is targeted for minority and womenowned small businesses and provides below market rate financing for a variety of business purposes,1,p +inventories of unsold houses began to rise as early as 1971 and they are now almost twice as high relative to sales as they were two years ago,0,p +relative position of blackowned firms in highgrowth industries the above analysis suggests that the hill which black businessmen must climb if they wish to prosper as a group is high indeed,1,p +for example our community affairs department found that small businesses in black and hispanic neighborhoods in chicago use informal networks to finance and grow their businesses and that they perhaps surprisingly make little use of trade credit,0,p +during this period of rapid gains in new technology the farm work force could not be reduced as fast as new workreducing methods were being adopted in the industry,0,p +with regard to inflation most think that the net effect would be an increase in inflationary pressure from the higher import prices,0,p +so we cant count on import prices reducing our inflation rate on an ongoing basis,1,p +these waves of spending stimulated overall economic activity and enlarged the productive capacity of the economy but the pace of expansion was too rapid and in the process pressures were generated that led to rising prices and living costs and to spreading inflationary sentiment,0,p +low gasoline prices are a major cause of our overconsumption of imported oil,1,p +while it is true that energy prices are particularly volatile the prices of other components such as apparel have been more volatile than food prices,0,p +this is a trend im watching closely because until turnover becomes a consistent issue businesses are unlikely to give the significant acrosstheboard wage increases that drive significant moves in overall wages,0,p +one study for example estimated that trade with china alone has reduced annual import price inflation in the united states by about 1 percentage point over the period 19932002 kamin marazzi and schindler 20067 however imported goods make up only part of what people consume and so the effect on overall inflation is less than the deceleration in the prices of imports alone,1,p +congress wanted to ensure that the nations central bank keeps in touch with economic issues at the grassroots level across the united states,1,p +second the rate at which social security benefits are growing has slowed particularly when compared with the decades prior to the mid1980s,0,p +together we can begin to ask the important questions about education and public policy and then use what we learn to help build educational systems we can all be proud ofsystems that will help our region and our country prosper,1,p +congressman oxley stated that the payasyougo structure of the system combined with continuing demographic trends drives the current need for reform,1,p +housing is low on the public policy agenda and even our family structure is significa11tly different,0,p +however special institutions are needed to preserve the reservation land base,1,p +in much of todays newly competitive world governments purpose in spending is to build an economic infrastructure that fosters privatesector production and growth rather than transferring spending from one part of society to another,0,p +there are good arguments for full funding of education by the state,1,p +the economic development act now law comprehends just such regional development commissions,1,p +only individuals ultimately pay taxes,0,p +a m o n g them are government vouchers that can be used to pay for tuition at the parents school of choice and schools operated by entrepreneurs under contract to local school boards,1,p +small businesses are also an engine for building a more racially equitable economy more than 8 million small businesses are owned by racial minorities,1,p +regarding farm numbers perhaps the best guess is that the decline in farm employment will continue because of the pervasiveness of laborsaving technological advances but that the rate of decline may not be as great as in the past,0,p +at the same time measured by employment the average blackowned firm in the industries with the highest projected growth rates are typically less than onetenth as large as its counterpart in the economy as a whole,0,p +the conunission has also worked out agreements in the trucking and steel industries which will yield greatly improved job opportunities for blacks in the years ahead,1,p +and when small retail establishments are considered separately denial rates for blackowned and whiteowned firms are similar,1,p +that effort blossomed into a major commitment that has continued through the development of a model tribal secured transactions law in 2005 and continues today in further work with tribes and the uniform law commission toward a model tribal probate code3 to complement the commercial law initiatives we helped organize indian business alliances in several states so that indian business owners and others can advocate for good business laws and address financial and other barriers to business development on reservations,1,p +were aware of whats happening in agriculture the fact that if we were to have the same level of agricultural production or would have had in 1962 that we had had in 1940 there would have been half again as many people employed in agriculture,0,p +as a result used car prices which had followed a slight downward trend in the years leading up to the pandemic jumped a record 10 percent in april,0,p +prices of imported goods are rising at a rate of about 7 percent,0,p +time however the resulting rise in the price of imports from a depreciating dollar is expected to result in a slight uptick in inflation from this years expected rise of about 32 percent,0,p +but these headwinds were buffered by strong growth in employment and personal income which has helped to bolster consumer spending,1,p +my own view is that a stronger labor market is bound to lead to stronger wage and salary growth if it hasnt done so already,1,p +1 cheap oil declining import prices and less dramatic growth in medical costs have all helped hold down the inflation rate,1,p +1 one of the temporary factors is the strong dollar which has contributed to a fall in import prices,1,p +many working people regrettably equate labor market flexibility with job insecurity,0,p +this development in turn should have a positive effect on labor markets and personal income and thus help sustain consumer spending,1,p +but i note that primeage participation still remains below levels seen in previous business cycle expansions,0,p +speeches the challenges of understanding labor market trends dennis lockhart president and chief executive officer federal reserve bank of atlanta chattanooga downtown rotary chattanooga tennessee november 1 2012 key points atlanta fed president and ceo dennis lockhart says that as the federal open market committee contemplates how to assess substantial improvement in labor markets it will be helpful to consider the complexity and dynamism surrounding those markets and how improvements are measured,1,p +there is general acceptance of the goals of stabilization policy which include high employment rising output and relatively staole prices,1,p +the standard projections of economic activity in 1972 include 1 a 100 billion rise in total spending compared to a 75 billion increase in 1971 2 a doubling of real product growth from 3 percent in 1971 to 6 percent 3 a decline in the rate of price increases from about 47 percent in 1971 to 3 percent and 4 a steady fall in the unemployment rate from 6 percent to about 52 percent by year end,1,p +it is interesting to ask for example whether consumer credit con trols might have dampened the recent consumer spending boom,0,p +but to solidify the expansion final demand needs to gain a firmer footing,1,p +the low savings rate and high debt to income ratios that resulted from very high consumer spending growth will dampen these expenditures as we go forward,0,p +so while consumer spending has grown during this recovery the tempered pace of that growth has limited the overall pace of the expansion relative to previous recoveries,1,p +financial innovation has improved access to credit reduced costs and increased choice,1,p +second as views of appropriate policy evolve over time as economic and financial conditions change the public will be able to draw better inferences about the relation between current economic conditions the economic outlook and appropriate policy,1,p +we have seen such situations escalate rapidly in the sl industry where owners of weak thrifts confident the government would not let them fail have increased their risktaking so far that american taxpayers are now funding a bailout whose dimensions are still not fully known,0,p +and in case these remarks should reach people who have never heard of the truth in lending act it may be useful to summarize what the act and the regulation do,1,p +some institutions are placing more emphasis on standardized loan products and are adopting credit scoring systems for many types of loans including affordable mortgage loans,1,p +they have been widely offered most frequently at the ceiling rates and have resulted in a marked pickup in consumertype deposit growth,1,p +onestop banking is more important to the individual customer than it is to the corporation,1,p +but this credit can also be more costly too the highest penalty rate charged to consumers with a major credit card jumped from just over 20 percent in the early 90s to over 40 percent now on some cards issued to risky borrowers,0,p +if a bank does no more than offer its products on the internet search engines will enable customers to compare its interest rates and fees with those of all other banks that have internet sites,1,p +too little credit can choke an economy as businesses cant find adequate funding for expansion and consumers are unable to borrow against their future income to purchase cars and houses and to invest in education and training,0,p +it simply says that a bank which draws resources from a community has an obligation to use its best efforts within the bounds of safe and sound banking practice to meet the credit needs of that community,1,p +household balance sheets are improvingin part because of rising home values and the rise of the stock market,1,p +through our community affairs programs at each of the twelve federal reserve banks we conduct ongoing outreach and educational activities and give handson technical assistance to help financial institutions their customers and communities understand and address community credit needs,1,p +the expansion of retail credit thus brings with it the added benefit of encouraging entrepreneurial innovationin short credit is an important tool in household risk management and in the process of building wealth for households all across the income distribution,1,p +we may also consider providing more baseline information that describes a banks performance context such as the demographic and economic information that helps to describe the credit needs and opportunities present in each assessment area,1,p +back in 2006 less than two months after i started as chairman i spoke to you about the strong performance of community banks as well as about some important longerterm challenges,1,p +some of the most innovative have come out of community colleges,1,p +central bank independence correlates well with low and stable inflation which correlates with sustainable economic growth that maximizes employment,1,p +unlike business spending household spending has continued to grow moderately this year despite being buffeted by changes in income wealth and consumer confidence,1,p +commercial real estate valuations derive from jobs among other factors so you can see the potential for a selfreinforcing dynamic that could be worse than expected,0,p +it showed that 19 percent more adults remained in the familyfocused program for more than twenty weeks,1,p +even in faster growing italy and the united kingdom unemployment is still in or near the double digit range,0,p +during previous upswings wage inflation approached 4 percent,1,p +some observers would not be surprised if the jobless rate climbed to the neighborhood of 6 per cent by year end,0,p +investing early in human capital makes sense for three reasons,1,p +while most rural communities continue to be relatively well served that is less often the case in communities with highpoverty rates17 in 2018 federal reserve staff members met with leaders in rural areas across the country that had recently experienced a bank branch closure,0,p +in this environment any forwardlooking labor union or business that is exposed to export or import 7competition has to recognize that pushing hard for wage or price increases may be a disastrously counterproductive action if such increases result in a loss of markets and a loss of jobsi feel that this shift toward a more flexible wage and price structure presents an unusual opportunity to continue to restrain monetary growth to a level consistent with price stability without engendering an increase in unemployment,0,p +of course there are a variety of alternative explanations for the current surprising relationship between inflation and unemployment and perhaps all of them are part of a full account,0,p +similarly 7 it may not feel like much of an expansion to consumers especially those who went on a borrowing and buying binge in the 1980s,0,p +to be specific it was not just that there is a higher proportion of young people in the labor force today than fifteen years ago but that the characteristic unemployment rate for young people had increased as well,0,p +however the rise in the use of credit by lowerincome homeowners has not come without cost,0,p +changes in preferences can result from recognition of the health benefits or detriments of certain types of food but the largest driver is surely growth in per capita income,0,p +this past year alone the federal reserve system sponsored more than 200 conferences and workshops on community development and reinvestment topics 6 attended by more than 11000 bankers and others,1,p +financial innovations have improved the liquidity of housing investments and the tax code has tilted even more favorably towards housing,1,p +in this environment the unemployment rate has fallen to 4 percent and the underlying rate of price inflation has slowed on net despite very high rates of resource utilization,1,p +as a country we have about 2 million fewer people working today than were working at the start of the great recession in december 2007 and the labor force has continued to grow,1,p +this suggests that the vast secondary market for home mortgages has largely adjusted to the recent increases in mortgage rates,0,p +at the same time the seasonally adjusted labor force participation rate fell from 657 percent to 647 percent,0,p +in light of these data in my view the labor market is rapidly approaching maximum employment,1,p +over the course of this recovery the unemployment rate has fallen from a peak of 10 percent in october 2009 to 58 percent today,1,p +indeed residential investment subtracted from growth throughout 2018 and in the first quarter of this year,0,p +georgias 7 quality basic education program is one such initiative,1,p +also since there is a tradeoff between inflation and unem ployment we must be prepared to accept at least a temporary rise in the unemploy ment rate even after the energy problem is solved and to use special programs to ease the plight of those affected,0,p +the fa c t is at least so far as we can measure and there are problems in measuring income as you know minnesota has been below the national average on per capita income fo r many many years until just the last couple of years,0,p +had house prices kept appreciating loantovalue ratios would have fallen and some borrowers would have been able to refinance perhaps into a prime loan with a lower interest rate,0,p +there are also great opportunities to more closely integrate fouryear and community colleges in ways that promote efficiency and better serve students,1,p +but there has been a lot of concern over the decline in participation,0,p +there are many possible sources of mismatchgeography skills demographyand they are probably all at work,0,p +its impossible to know exactly how and when workers and businesses will be fully back to work and when consumers will return to the businesses that are open,0,p +this makes workers more of a bargain for employers causing an increase in hiring,1,p +in my view such an agreement could unleash consumer and investor confidence that would lead to healthy economic growth without reiflation,1,p +this consumer credit backlash has contributed to the adoption or proposal of several legislative or regulatory changes in recent years,0,p +but community banks do have some key advantages,1,p +parity in how applications are considered without regard to race sex or other prohibited bases is absolutely essential in our country,1,p +here let ne digress for a moment to make this assertion which i believe to be true that the increase in the productivity of human labor en wh,1,p +the number of job openings is at its highest level since the start of that data series in 2000 and the statistics show more posted job openings than unemployed workers,1,p +this should empower consumers to make better informed choices and improve competition,1,p +these studies find that policy differencesin particular the expansion of paid leave following childbirth steps to improve the availability and affordability of childcare and increased availability of parttime workgo a long way toward explaining the divergence between advanced economies44 evidence suggests that if the united states had policies in place such as those employed in many european countries female labor force participation could be as high as 82 percent45 however these policies entail tradeoffs,1,p +conclusion in conclusion id just like to say that the output gapand its resultant elevated unemployment and excess capacityis just one in a long line of challenges that the countr y has faced in its economic histor y however to its credit time and time again our economy has proven itself resilient in the face of these shortter m challenges,0,p +given this relatively moderate pace o expansion it has been difficult to nudge unemployment down to the more acceptable 6 t 2 6 12 percent range from the 7 percent mark where it remained lodged for most of tl year,0,p +growth occurs not only because we have more people working or more machines or in economic terms more labor and more capital but also because technological advances make existing workers more productive,1,p +while i expect retirees to continue coming to florida in 1991 their numbers should be diminished somewhat,0,p +economic growth in the past decade was boosted by households taking on more debt coping with that debt is holding back growth today,0,p +were doing everything we can to help people get through a really painful time,1,p +they likely will fall back once the incentives are reduced but in any case the surge signals that households are still willing to make large longterm commitments despite the uncertainty and risks of a recession,1,p +given the enormous agenda of unfinished business we have at home including the elimination of poverty and ignorance the eradication of racial discrimination and the rebuilding of our cities a substantial proportion of the public clearly has concluded that this energy and imagination can be employed far more productively in the effort to cope with thepervasive ills in our own midst,0,p +and it may be lower because of the jarring changes such as job losses,0,p +the spirit of neighborly helpfulness motivates volunteer workers,1,p +i plan in these remarks to give most attention to employment or more to the point full employment,1,p +conservative estimates suggest that the net effect of y2k remediation efforts might shave a tenth or two a year off the growth of our nations overall labor productivity and a more substantial effect is possible if some of the larger estimates of y2k costs turn out to be accurate,0,p +in particular policymakers who see the deterioration in labor market performance as reversible using monetary policy will typically favor more accommodative policy than those who view the deterioration as more protracted,0,p +we can put policies in place that will support labor force participation and give us the best chance to achieve broad and sustained increases in productivity and thus in living standards,1,p +in britain holland and belgium 1986 is likely to be the fifth straight year of doubledigit joblessness,0,p +if that is so then our standard of living will increase more slowly going forward,0,p +but published unemployment rates during covid have dramatically understated the deterioration in the labor market,0,p +in august the bureau of labor statistics bls announced that job gains over the year through march were likely a halfmillion lower than previously reported,0,p +the vulnerabilities created by misaligned incentives and product complexity in the mortgage market were largely disguised so long as home prices continued to appreciate allowing troubled borrowers to refinance or sell their properties,0,p +during the 1990s the percentage of people in mississippi aged 25 or older with a college degree increased by more than 4 percentage points to 187 percent,1,p +nationwide graduation rates however stand at 50 percent and it is not unheard of to find schools with graduation rates of 20 percent,0,p +in part this shift happened because of complementary research that showed how demolitions might work in tandem with other measures to deal with distressed housing,0,p +if monetary and fiscal policy hold to their present coursea 5 12 percent growth rate for the money supply no change in tax rates and a 305 billion total for federal expenditures in fiscal year 1975 then the most likely prospect for the economy till mid1975 barring any further change in oil and farm commodity prices is for continued negative real growth a rise in the unemployment rate to above 6 12 percent and a decline in the rate of inflation as measured by the gnp deflator to approximately 7 percent,0,p +temporary benefits conferred on young people and minorities would only leave a legacy of bitterness once the distortions of inflationary stress caµsed the bubble of prosperity to burst as i have no doubt would again be the case,0,p +according to the bls nonagricultural payroll employment in the benchmark monthmarch 2006was revised up by 752000 an unusually large revision,1,p +the problem is how to keep economic growth so orderly that industry and commerce can provide increased jobs goods and services without the interruptions that accompany violent dips,0,p +on the one hand with an increase in the fraction of unemployed workers likely facing difficult job transitions there could be somewhat less slack in the economy than the current unemployment rate would ordinarily suggest,0,p +such lower rates would tend to increase credit flows through the established savings institutions and provide more efficient credit sources to farmers,1,p +as community bankers you have worked hard to develop a deep understanding of your local economies while also keeping perspective on the broader economic picture,1,p +the con ventional view is that interest rates will rise further and so disintermediation will cut into housing as 1978 progresses,0,p +and i promise that their voices will be heard in washington when policy issues that may affect the ability of community banks to thrive are under consideration,1,p +in some areas of the country housing activity is showing signs of life while in others it remains deeply depressed,0,p +from 2006 to 2009 we saw a marked deterioration in labor market performance,0,p +monthly payroll job growth has averaged 204000 over the last year and 232000 over the last three months,1,p +and people who have struggled to stay in the workforce in the past are getting new opportunities,1,p +the fraction of 18 and 19yearold high school graduates who are enrolled in college rose from around 50 percent in 1980 to nearly 70 percent today,1,p +this lets them address what can be some of the most difficult barriers to education housing and food insecurity transportation technology child care and mental health,1,p +from 2006 through 2010 just over 45 percent of workingage native americans on reservations were employed compared with almost 60 percent of all workingage americans,0,p +the labor market is another potential arena for adverse spillover effects from the housing market,0,p +while we have been catching up a little southerners on average have attained few er years o f schooling and have a higher rate of functional illiteracy than is the case elsewhere in the nation,0,p +but households generally need some kind of capital of their own to initiate a startupand so the fall in household net worth and wealth makes starting new firms more challenging,0,p +job growth has been solid in recent months,1,p +there has also been clear progress toward maximum employment,1,p +if unemployment reaches the 7 percent range that would constitute a substantial improvement from the 81 percent unemployment rate that prevailed when the committee announced the current program of asset purchases,1,p +this year the figure has been lower as a percentage of the population than at any time in the history of this series which goes back to 1970 should the pool of available workers continue to shrink there is a point at which this safety valve for excess demand will effectively close even in the face of accelerating productivity,1,p +consumer spending grew at a robust of 1983,1,p +the jobless recovery also led economists to debate the extent to which the lack of hiring overall and the continued decline in manufacturing jobs specifically represented structural changes that is changes that were not likely to be reversed as the recovery strengthened,0,p +and in the ensuing economic contraction they have lost their jobs at a higher rate,0,p +of course the business recovery itself will in turn bolster employment disposable income and consumer spending,1,p +q dr willes in the case of the domestic steel industry what do you see as the most favorable alternative longrun in regard to unemployment retention of a basic industry and a favorable impact on all related steel using industries,1,p +but fears about job security are understandably significant when nearly two million of our workforce have been unemployed for more than a year,0,p +this office was charged with the responsibility of assuring that the interests of savers and consumers are given adequate and specific attention in board decisions,1,p +enhancing the skills and thus the productivity of individuals in our society also makes us better able to meet the demands of a more globalized economy,1,p +in addition estimates of sustainable rates of growth and unemployment have been shown to be highly uncertain at any point in time and they may vary significantly over time in light of new information and changes in the structure of the economy,1,p +the labor market is reasonably tight with the unemployment rate at 45 percent,1,p +consumers have buoyed the economy throughout the recent recession and they will continue to provide solid support for recovery,1,p +while the problem touches every community it doesnt look the same in each because its shaped by the circumstances that prevailed in those neighborhoods before the crisis hit,0,p +moreover real earnings of the average worker have continued to rise,1,p +other policymakers must bear their burden and do their part to encourage morerobust economic growth and establish the conditions for stronger employment,1,p +i believe this remaining slack may at least partially explain why growth in average hourly earnings has been hovering around a subdued 2 percent trend,0,p +others have continued to live on their farms but have sought fnll or parttime offfarm employment while still others are continuing the struggle on submarginal units,0,p +household financial conditions are also consistent with the national figures with second quarter personal income expanding 22 percent against a 27 percent annual rate of growth nationally,1,p +its likely that the latest numbers do not reveal the full extent of the financial devastation faced by millions of american families,0,p +as a result personal savings rose above 70 per cent of disposable income a full percentage point above the average savings ratio in the 195366 period,1,p +over the past year job growth has averaged around 180000 per month,1,p +for the past several years wage increases have exceeded the very sluggish rise of productivity by 8 to 9 percentage points a year,1,p +most of the increase in labor force participation after 1960 can be attributed to the growing presence of women in the labor market,1,p +last year was in some respects a difficult one for the american people and the economy,0,p +in the first quarter of 1995 housing wealth was equal to roughly 14 times aftertax income and by the third quarter of 2001 that ratio increased to about 16 without ever moving outside that fairly narrow range,1,p +as i noted earlier the strong economy may continue to pull some primeage individuals back into the labor force and encourage others not to drop out,1,p +these include the recent decline in mortgage rates slower house price appreciation which was running 6 to 7 percent in early 2018 and is now in the 3 to 4 percent range and an increase in household formation driven by the strong labor market which allows more people to commit to purchasing a home,1,p +elevated bankruptcy rates are troubling because they highlight the difficulties some households experience during economic slowdowns,0,p +job levels are still not back to their prerecession highs and the states unemployment rate has been higher than the nations,0,p +as we work to increase familiarity with new technological and financial tools we give people the resources necessary to secure individual economic success,1,p +in reaction to worse economic prospects and tightening credit conditions households have continued to retrench putting consumer spending on a pace to post another sharp decline in the fourth quarter,0,p +for example some firms face high rates of absenteeism as workers get sick are exposed to the virus and need to quarantine or are reluctant to come to work because of health concerns,0,p +todays workers are essentially paying for todays retirees,0,p +not surprisingly turnover is high in these parttime jobs,0,p +however primeage worker participation is only 76 percent for those with a high school diploma and only 66 percent for those who have less than a high school diploma,0,p +conclusion in conclusion i think the year ahead will be one in which growth will continue but at a slower more sustainable pace than in the year just ended and in which unemployment will remain low nationally,1,p +that is because it expands the capacity of the economy a matter which is quite vital at a time when we have been very near our capacity limitswhether measured in terms of the unemployment rate or factory use,1,p +an additional 8 million workers were classified as part time for economic reasons because their hours had been cut back or they were unable to find a fulltime job,0,p +most farmers are probably net monetary debtors and thereby receive windfall gains from inflation,1,p +i have noted my consciousness of possible inflationary pressures in 1973 but i think the facts that we are utilizing our manufacturing capacity at a rate of less than 80 per cent currently in this country and that we have a 59 per cent rate of unemployment do not suggest a need for choking off the stimulus to investment and expansion,0,p +that is the bad news because job destruction creates political pressures for transition programs at best and protectionist or retaliatory responses at worst,0,p +significantly however the average factory worker now gets 9 paid holidays each year and many workers get more,1,p +at the same time consumer spending and housing held up quite well,1,p +another trouble spot is consumer spending especially in view of the recent sharp worsen ing of consumer sentiment because of fears about inflation and shortages,0,p +there is growing evidence that this commitment to maintaining low and steady inflation has been a major contributor to individuals and businesses confidence and willingness to spend and invest,1,p +tight labor markets are putting pressures on wages but competitive markets are limiting pricing leverage and causing profits to be squeezed,1,p +jobs might be increasing in north dakota the state with the lowest unemployment rate but unemployed workers from nevada the state with the highest unemployment rate are unwilling or unable to relocate,0,p +in that year we had 1 million joo thousand housing starts and sold about 712 million new automobiles,1,p +but if you consider the number of unsold homes on the market today and that the price of a house has gotten out of reach for many people i am not confident of a boom in this sector in the foreseeable future,0,p +but the recovery in equity prices and the stabilization in home values no doubt have contributed to the modest recent upturn in consumer spending,1,p +through its community economic development company funded through public and private partnerships marshall heights renovated a shopping center a step that has brought nearly 400 muchneeded jobs shopping facilities and services to the neighborhood,1,p +i believe that every community has an equal right to market rates on loans and on savings,1,p +the employment report for february showed another small uptick of labor force participation following earlier similar moves beginning last fall,1,p +qualified individuals may receive 52 additional weeks of unemployment insurance if they are enrolled in an approved training program,1,p +i want to make the case that our best opportunity is to bring more women into the workforce and retain them,1,p +we must continueor even bolsterefforts flexibility our labor force,0,p +protectionism will also slow the inevitable transition of the workforce to more productive endeavors,0,p +the community development corporation cdc of brownsville works with multiple funding partnersgovernments at all levels financial institutions foundations and corporationsto construct housing and to design innovative loan products that enable lowincome families to qualify for mortgage credit,1,p +household balance sheets have strengthened considerably with wealth and income rising and the household debtservice burden at its lowest level in decades,1,p +while it is difficult to know precisely at least a third to half of homeowners took some cash out when they refinanced their mortgages last year,1,p +as in similar neighborhoods in the district of columbia and throughout the united states there is much to celebrate in the results of community investments,1,p +it has enabled families to build up some protection against the uncertainties of the future and it has often financed a better life tomorrowrarely however have savingsminded people faced as troublesome an economic outlook as we face todayour economy is being ravaged by inflation upsetting plans and clouding the future,0,p +much of that burden will fall on the generations behind them,0,p +today the funding of retraining displaced workers has moved closer to a voucher system giving the worker greater choice over his own retraining,1,p +moreover among consumers the burden would fall most heavily on those low income groups that can least afford to bear it,0,p +the labor force participation rate remains below most estimates of its underlying trend and an unusually large number of people are working part time but would prefer to work full time,0,p +thousands of jobs were created by firms such as microsoft apple and dell computer that did not even exist in 1970 at the same time the application of the new technology in established industries greatly enhanced productivity and led to rising wages and increased demand for labor,1,p +but by february 2020 the lengthy economic expansion increased educational attainment and a decline in fertility rates had brought the employmenttopopulation ratio for hispanic women in line with that of their nonhispanic peers,1,p +though mortgage ratesnow at their lowest level since the late 1970s should boost the singlefamily housing market demand to a considerable extent has been met for the time being and the chief determinants of new home sales will probably be demographics and overall economic growth,1,p +lower productivity growth also reduces the future income prospects of households lowering their consumption spending today and boosting their demand for savings,0,p +we expect incomes to continue increasing at a healthy pace during 97 which bodes well for spending,1,p +but it can be done and a firm relationship of increases in wage rates to gains in productivity is essential if we are to regain price stability,0,p +the real test as to whether we are pricing our workers out of jobs is hether our products and services will sell in the markets of the world incluing our own,0,p +in the same quarter the unemployment rate for white workers was 54 per cent so the blackwhite ratio was 170 to 1 among blacks as among whites adult men experienced a relatively sharper increase in the incidence of unemployment than that recorded for adult women and youths,0,p +the large numbers of unemployed and underemployed americans are at great risk of being unable to access fair sustainable and affordable financial services,0,p +as a result of these trends in job creation which could well have been exacerbated by the severe nature of the crisis the earnings potential for many households likely remains below what they had anticipated in the years before the recession,0,p +certainly wage growth has remained quite moderate even though weve been below conventional estimates of the natural rate for some time,0,p +there are other contributory factors weve seen a record number of high school graduates in the us and college attendance rates are on average rising as well,1,p +the sons and daughters of factory workers are pointing and clicking their way to higher levels of prosperity,1,p +mbs purchases will continue until we see a better employment situation,1,p +in fact in the second quarter of 1976 we had the highest percentage of our population 2 employed since 194g and at the same time one of the highest rates of unemployment in recent history,1,p +in a period of relative prosperity and record levels of personal income such as he have at present it should be paid for out of current income,1,p +payroll employment fell by over 2 million jobs over the past two years,0,p +and the us labor market as an institution is functioning more efficiently than it used to,1,p +2 in short we found theres a gap between the number of workers the regions employers want to hire and the number they will in all probability be able to hire,1,p +6 construction remains weak here and employment in the government sector has actually declined largely as a result of cuts in tva activities,0,p +we must remind ourselves that educated consumers are more likely to make better choices for themselves and ultimately for our nation and so we must get out and educate them,1,p +however a large proportion of our citizens have limited opportunities for inflationproofing their longterm assets or debt positions,0,p +on net i do expect the unemployment rate to normalize at close to 5 percent within the next five years,1,p +indeed workers in poor countries often work longer hours than their counterparts in rich countries and yet they remain poor,0,p +in new york state for instance employment was down 112 percent whereas it was down only 45 percent in texas,0,p +our challenge now is to do what monetary policy can do to sustain the expansion so that the benefits of the strong jobs market extend to more of those still left behind and so that inflation is centered firmly around 2 percent,1,p +14 another though more subtle assault on our standard of living is coming from inflation,0,p +on the contrary average wage rates so far in 1980 have been rising about 1 to 112 percentage points faster than they did in 1979 moreover there is relatively little reason for expecting any reduction in the rise of wage rates in the near future,1,p +_ real income has declined anj partly because expectation of inflation have encouraged a buy now psychology,0,p +many additional workers over 55 dropped out of the labor force and over time will effectively retire,0,p + such data point to the probability that union power has weakened,0,p +if all of these people instead had been looking for a job the unemployment rate would be over 7 percent,0,p +the percentage of workingage people with jobs has fallen to a point not seen in a quarter century4 average hours worked have not increased through the spring and summer from what were by historic standards unusually low levels,0,p +the rate of new hiring has been exceptionally sluggish for the past several years however and the available evidence suggests modest improvement at best in hiring rates so far this year,0,p +one particularly bright spot has been consumer spending which rebounded sharply in the second quarter and looks similarly strong currently,1,p +this rapid increase is in marked contrast to the preceding decade when contingent workers remained at a relatively stable 10 percent of the workforce according to the bureau of labor statistics bls cws3 they conclude that all of the net growth in aggregate employment in the decade leading up to 2015 can be accounted for by contingent work arrangements which means there has been no net employment growth in traditional work arrangements,0,p +measured by our distance from high employment and high capacity utilization the expansion still has a considerable distance to go,0,p +many bluecollar positions now require more skills,0,p +labor productivity has increased only 12 percent per year since 2010the smallest fiveyear rate of increase since world war ii and about onefourth of the average postwar rate figure 11,0,p +generally employment has declined in the southeast by about the same margin as in the nation with a slight lag,0,p +while the income deficit per family member was smaller for black womens families because the latter typically contain a larger number of children than was the case for white womens families these figures do provide a rough indication of the extent of the deprivation under which they live,0,p +our economy has not yet fully regained the jobs lost in the recession that accompanied the financial near collapse,0,p +o f course there have been structural changes in the civilian labor force in the past two decades that have raised the level of the unemployment rate associated with full utilization of economic resources,0,p +you have helped these families to begin the process of asset accumulation through home ownership,1,p +i think this approach would be particularly wise in light of the fact that as mentioned earlier my base case is for solid gdp growth in 2019 and i expect labor market conditions to remain at levels i would consider at or past full employment,1,p +though the recent numbers are encouraging easy money has failed to encourage the robust payroll expansion that is the basis for the sustained consumer demand on which our economy depends,0,p +even so while consumer spending never actually declinedan unusual development in any downturnthe deceleration was significant,0,p +i have also moved up my 2019 growth forecast a bit in light of the performance of the consumer over the past two quarters,1,p +at one end of the spectrum we have the unemployment of black teenagers at an incredible 30 per cent,0,p +we must understand the needs of the workers who are displaced and recognize that adjusting to evolving circumstances takes time but history provides good reason to be optimistic that the changes wrought by technological innovation ultimately yield broadly shared gains,1,p +as technical change increases demand for skilled relative to unskilled labor the unskilled workers must acquire new skills find new jobs at lower relative wages or become unemployed,0,p +this decline in our youngest students is especially concerning as we know from a large body of research that early learning is critical to lay the foundation for education later in life2 and in virginia public prek is available to children from lowincome families or to children who have special needsthe same children who may have difficulty accessing other schooling options,0,p +job growth has averaged 138000 over the past six months,1,p +however it is encouraging that the downward movement in labor force participation has recently been on hiatus a development that could possibly be prolonged by the recent tax legislationwhich could for example give some workers an incentive to remain in or enter the workforce,1,p +here in the united states the federal deposit insurance corporations fdics most recent survey of unbanked and underbanked households found that 7 percent of us households in 2015 were unbanked,0,p +real income has not fared as badly but per capita salary income is nevertheless almost 2 percent below its peak in the first quarter of 2008 a likely widening of income dispersion over the period however suggests that median income has probably fared worse,0,p +the resulting delays in returning to work are bad for the economy and may cause the workers skills to atrophy,0,p +and finally we have drawn down the pool of available workers,1,p +but i think they were counting jobs rather than making jobs count,0,p +h ow ever slowing growth in the labor force competition for investment funds from domestic and international sources and low er consumption are likely to keep overall growth from being as strong as in the 1970s and 1980s,0,p +we now recognize that vulnerable underinformed consumers sometimes make decisions that dont serve them well,0,p +weve seen continued solid job growth unemployment is at a historically low level and we entered 2020 with very good momentum,1,p + almost certainly the most important economic development in the united states in the past decade has been the sustained increase in the rate of growth of labor productivity or output per hour of work,1,p +the fraction of the population over the age of 16 who had a job fell from over 63 percent to just over 58 percent,0,p +also it must be remembered that these visitors from outside your area do not require schools or the full range of social services attendant upon the growth of permanent population,1,p +surprises of the current expansion when we reflect on the current expansion we see first and foremost a combination of robust economic growth low unemployment and modest inflation,1,p +because those workers have skills that dont easily shift to other industries they tend to have a harder time finding good highwage jobs in their locales,0,p +the greatest effects are among hispanic students the probability of majoring in economics and accounting after receiving the positive treatment is almost 17 percentage points higher for hispanic males and 48 percentage points higher for hispanic females,1,p +wages have been moving up rapidly and some costpush undoubtedly is present,1,p +our efforts to invest in diversifying the regions economy and providing adequate education for our labor force face an obstacle o f larger proportions howeverone that everyone in this country needs to be concerned about,1,p +the conference boards labor market differential the difference between those who think jobs are plentiful versus hard to get reached the highest reading 441 percent in july since 2000 and this confidence can be contagious,1,p +as i already noted the us economy is in a very good place with the unemployment rate near a 50year low inflationary pressures muted expected inflation stable and gdp growth solid and projected to remain so,1,p +the second is people working harder,0,p +after that we can expect inflation of a bit over 2 percent for 2022 and right at 2 percent in 2023 unemployment should fall steadily during this period as well,1,p +yes the job markets so tight it squeaks,1,p +to the younger generation it had become a way of life and to some of our older citizens a kind of betrayal of their retirement planning,0,p +the percentage of the black population aged 25 to 35 that has completed four years of college more than doubled between 1970 and 2000 from 65 percent to 15 percent,1,p +the saving rate measured by the boards flow of funds accounts is higher at 5 percent of disposable income though it too is significantly lower than its average level in the past,0,p +racial minorities like black americans were already more likely to be unemployed than other groups and covid19 heightened this yawning disparity,0,p +1 the methodology for forecasting labor force participation developed in aaronson and sullivan 2001 suggests that currently the participation rate is trending downward about 02 percentage point per year,0,p +over the same four years however blacks share of total jobs in manufacturing climbed slightly from 96 per cent to 99 per cent,1,p +but as some sectors of the economy have continued to struggle permanent job loss has increased figure 9,0,p +employment on district farms has declined year after year as new equipment has been substituted for labor,0,p +minority women also lag their male peers,0,p +labor productivity has increased only 12 percent per year on average since 2011the worst performance over such a period since world war ii figure 4,0,p +people with limited means are more likely to have difficulty providing their children with a highquality early childhood environment leaving those children less able to benefit from later investments in human capital,0,p +such a low level of applications suggests that potential borrowers were wary of entering the housing market or feared being turned down for a loan,0,p +our homeowners are thus less burdened with their housing predicament and better positioned as consumers,1,p +the it revolution has not simply allowed a worker to turn the crank faster on an improved machine the traditional way we think of technological innovation but opened the possibility of fundamentally altering the way production or provision of a service takes place,1,p +the first shift was heightened concern about the material wellbeing of working men and women,1,p +blue collar workers histor ically have been more vulnerable to displacement than other workers,0,p +unfortunately because it takes some time for workers to find new jobs a certain level of unemployment is unavoidable,0,p +in addition declining farm populations in some communities in the great plains strained social institutions such as schools county services and hospitals that tend to require a critical mass of population to operate effectively,1,p +foreclosed vacant and abandoned properties threaten neighborhoods nationwide and community leaders are working to stabilize those neighborhoods,0,p +for instance delinquencies are up in the us market for subprime home loans,0,p +fortunately as i indicated a moment ago i believe we will see increasing growth in employment as the year progresses,1,p +women have entered the us labor force in record numbers and have increasingly risen to positions of authority,1,p +for those with some college education the rise was from 36 per cent to 44 per cent,1,p +gains in educational attainment and experience in the labor force have plateaued,0,p +by 1970 public administration represented 55 per cent of total employment but the proportion for blacks had risen to 66 per cent,1,p +that means kids coming out of school who can read and write and reason and can handle the technology of modern jobs,1,p +reductions in employment have occurred among all classes of workersblue collar white collar and profesional workers alike,0,p +where job losses occurred while the unemployment pain in this recession has been broad based certain sectors have been hit particularly hard,0,p +1 demand for workers remains strong but available supplies are becoming limited,1,p +there are no easy solutions to the problem of how to ensure that our public pension system remains sound in the face of inevitable demographic changes,0,p +indeed consumers themselves appear to be reevaluating the riskiness associated with indebtedness no doubt reflecting a sense that their income and asset returns may be substantially riskier than they had come to believe during the great moderation,0,p +if so the first clear signs of inflation pressure could come later than usual in the progression toward maximum employment,1,p +one sign of this behavior would be consumption inequality rising much less than income inequality,0,p +some of this discrepancy is due to the disproportionate representation of women in lowerpaying occupations such as childcare work cleaning and social services,0,p +at some point in the nottoodistant future we are likely to face an economy growing in a selfsustaining way while the unemployment rate is still relatively high by historical standards,0,p +the benefit of tight labor markets is also in the signals they send to individuals and businesses that people should be employed as productively as possible and that investment in training pays off,1,p +but uncontrolled costs whether governmental or private are job killers,0,p +greater slack amplifies the downward pressure on inflation although the quantitative effect is probably fairly modest given the flat slope of the phillips curve,0,p +in the past growth in output was generally translated into growth in domestic consumption but that is not true now because of the debt service burden,0,p +as a result nearly 7 trillion in housing wealth has been lost,0,p +i would like to thank fannie mae neighborhood reinvestment nhsa and the local neighborworks organizations for their commitment to addressing the issues of affordable housing,1,p +progress on achieving fair and equitable treatment of small depositors will take time but the many innovations in thrift assets and liabilities will ultimately permit fairer returns to small savers as well as reduce thrift vulnerability to interest rate risk,1,p +a significant share of these loans went to low and moderate income areas or groups,1,p +for example during the harsh recession of the early 1980s unemployment in ohio peaked near 14 percent which was 3 percentage points above the national rate and it remained high for several years,0,p +i commend all the students here for taking an interest in consumer issues early on in life,1,p +we maintained that rapid expansion in the first quarter of 2006 but over the last six months job creation has averaged 118000 jobs per month,1,p +over the past decade for example the share of households that own homes has risen from 64 percent to 69 percent,1,p +second the amount of employee movement across jobs has fallen over time,0,p +similarly over the same period the gap in median earnings between those completing high school and those with less than a highschool education increased from 19 percent to 42 percent,0,p +through a small business loan local entrepreneurs in camden can provide for their families while increasing jobs for local residents,1,p +by hindering the application of better compensation systems and labor management relations inflation denies us of the benefits of more flexible wages for stabilizing economic growth in the short run and of improvements in productivity in the long run,0,p +school enrollment rates among traditional collegeage young people which were little changed in the 1970s have moved up sharply since then,1,p +the ongoing growth in employment and real incomes and the recent increase in the stock market wealth of households should also support the demand for housing,1,p +at that time the committee indicated that no increase in the federal funds rate target should be anticipated so long as unemployment remained above 612 percent and inflation was projected to be no more than 212 percent onetotwo years ahead,1,p +while the employment rolls are gradually improving to date weve only added back 13 million jobs,1,p +as the pool of available workers is depleted the possibility increases for higher wage increases than can be justified by productiv ity growth which in tur n might lead to higher inflation down the road,1,p +and there is reason to believe that many americans are limited where math proficiency is concerned,0,p +2 one participant in our study pointed out that the us may be facing a shortage of trained workers in technical trades,1,p +inflation cuts into the supply of saving available for housing in still another way,0,p +now the covid19 pandemic is raising a new set of housing challenges for renters and the rental market,0,p +indeed until the most recent employment report many commentators had described this period as the jobless recovery,0,p +adjusting for the verizon strike over the past three months firms added an average of 127000 jobs per month,1,p +second increased job insecurity appears to have moderated the pace of wage change relative to what we would have expected at current levels of labor force utilization,0,p +3 the related growth in salaries in this higher wage sector should help bolster consumer spending,1,p +although this increase looks modest in the chart it is equivalent to about 14 million jobs beyond what is required to match population growth and is tied for the largest decembertodecember increase in 17 years,1,p +madison has succeeded by combining a high quality of life with a concentration of innovative fir ms that prov ides the right jobs and job networking opportunities,1,p +with respect to the babyboomers absorption of these men and women into the labor force is virtually complete,1,p +in four years the number of negro students at these institutions has more than doubled,1,p +by real terms i mean that the borrower has to give up a surprising amount of goods and services to be able to afford the repayments,0,p +for example blacks have died of covid19 at 14 times the rate of whites and we see gaps in vaccinations too,0,p +he asked isnt it possible that consumer purchasing power will be exhausted in this boom period and leave very little to fall back on in less favorable times,0,p +as a result of both the fiscal and monetary policy contributions the nominal rate on fixedrate mortgages has as i noted earlier moved to near the lowest level over the past 30 years,1,p +in some communities of course this may be unavoidable if a town has lost a major employer and has no new industry or plan to replace the jobs lost,0,p +consequently labor markets have been exceptionally weak for the last two years,0,p +in addition we will see more moderate growth in household income in the year ahead due to a weaker labor market,0,p +in lafayette employment in the energy sector has increased providing a big boost to the local economy,1,p +in recent weeks i have heard a lot of concern about energy prices increasing costs for raw materials and prospects for weaker consumer spending and confidence,0,p +economic inclusion is not a zerosum proposition this provides a nice segue for me to talk about racial equity,1,p +on a base of around 135 million this suggests monthly increases of approximately 100000 for nonfar m payroll employment,1,p +the rise in speculative activity does create employment to be sure but not employment that lasts,0,p +if the loss is to be wiped out by bringing the unemployment rate for nonwhites approximately in line with that of the total labor force it is also obvious that far greater effort must be devoted to raising the formal educational level of nonwhites as zell as to the provision of greater vocational skills and a more rapid eradication of racial discrimination,1,p +with that let me turn to the other area of concern the ongoing escalation of residential housing prices,0,p +but the attached jobgrowth data from dallas fed senior economist pia orrenius show that over the past decade texas has led the nation in job creation in all four income quartiles,1,p +on top of this it is becoming harder and harder to secure qualified and efficient labor,1,p +some of these practices in the labor area for example date back to the depression days of the 30s others such as the call for import restrictions have become more of a problem only recently,0,p +d why has consumer spending growth been so rapid,1,p +as a result the unemployment rate actually increased and averaged 74 percent during the year,0,p +these areas have a larger pool of highly skilled workers to generate and share new ideas and to find new ways of doing business,1,p +that process ran its course and around the year 2000 participation began a gradual decline because of population aging and the continuation of other longterm trends particularly the decline in participation among prime age males,0,p +research shows employers are less willing to hire the longterm unemployed and often prefer other job candidates with less or even no relevant experience3 that is what dorine poole learned after she lost her job processing medical insurance claims just as the recession was getting started,0,p +among the strong points for the us economy in the year ahead the service sector which represents half of all personal consumption expenditures will certainly be 5 respectable,1,p +they fear that households have become overextended and will need to rein in their spending to keep their debt burdens under control,0,p +because of the disappointing may employment report and brexit lockhart was comfortable with the fomcs june decision to keep policy on hold,0,p +it remains a mostly minority community where the median income is 55000 a year,0,p +housing market conditions six years after house prices first began to fall we are still dealing with the aftermath of the housing bubble,0,p +the real economy is performing well and we essentially have met our employment mandate,1,p +third the deregulation of markets in the united states accompanied by a reduction in the real minimum wage has dramatically improved the competitive position of the united states in a more competitive world economy,1,p +uses of funds black banks as indicated above most black banks have been able to expand their lending in the black coimlunity,1,p +c rural areas i increased manufacturing employment,1,p +i believe there are several factors impeding a more rapid recovery in labor market conditions right now,0,p +younger women are not participating in the labor force much more than their mothers did when they were young,0,p +as is usually the case florida promises to outperform the region and the nation on average in terms of employment growth,1,p +total employment which had remained nearly flat throughout 1982 began to edge upward once again near the end of 1983 in february the lowest rate in over two years,1,p +the higher unemployment rate in the first scenario means that monetary policy will be tightened sooner which in turn will lead to the unemployment rate being higher for longer,0,p +housing has been the victim of the surge of inflation as has happened several times before,0,p +in terms of the employment mandate labor market outcomes have been distressingly weak,0,p +her home appraised at 70000 in 2004 was recently valued at 50000 a nearly 30 percent drop in value,0,p +the challenge faced today by the vocational departments is how to prevent enrollment from becoming made up largely of boys who are slow learners or who for various reasons find the varied activities of this course less demanding of their talents than the standards required in academic classes,0,p +in the past three months costs faced by the average urban family as measured by the consumer price index cpi have risen at an annualized rate of more than 10 percent,0,p +only about 13 percent of grant county residents lived in poverty during 20062010 by these very basic economic measures therefore sioux countys native americans lagged well behind other americans not only nationally but also just next door in grant county,0,p +the social security problem is a disaster,0,p +in 2019 median household income for black and hispanic households rose by more than 7 percent compared to less than 6 percent for white households17 finally these improvements also showed through to wealth,1,p +return to text 2 according to the most recent report by the new york city comptroller the citys gdp grew 27 percent in the first quarter of 2018 as compared to 23 percent for the nation and the unemployment rate for the city fell to 43 percent the lowest rate on record,1,p +a second year of economic expansion nationally almost certainly will bring further improvement in the southeasts unemployment picture,1,p +this mornings panelists explained that some of the benefits from more effective preschool education accrue to the individuals families and companies making the investments while other benefits accrue to the cities states and the nation as a whole through spillover effects,1,p +economic weakness is demonstrated in growth rates well below potential and deteriorating unemployment measures,0,p +employers are partnering with community colleges and nonprofit organizations to offer training,1,p +yeartodate through june our fellow texans have accounted for over 18 percent of the nations overall privatesector job creation and about 44 percent of jobs created in the goodsproducing sector,1,p +already individuals aged fiftyfive and older are working more than they did ten years ago perhaps because of better health higher levels of education and a reduction over time in the share of workers employed in physically strenuous occupations,0,p +when people feel vulnerable they look for protective mechanisms both on the personal and national level,0,p +it is fitting that this event is being held on the 50th anniversary of several notable events including the publication of dr martin luther kings last book where do we go from here chaos or community which urged unity in order to create equal opportunity and the enactment of the fair housing act of 1968 which enshrined our nations commitment to equal access to housing,1,p +digitized for fraser httpsfraserstlouisfedorg federal reserve bank of st louis6an additional 10 percent investment tax credit for eligible projects in areas of high unemployment will help communities regain economic health with new or revitalized enterprises,1,p +one thing that our long experience with consumer credit has taught us is that the overwhelming majority of borrowers are honest,1,p +our researchers also evaluated the effects of a mandatory counseling program introduced in chicago as a result of a controversial piece of legislation called illinois house bill 40506 this law grew out of concerns that predatory lenders were taking advantage of naïve less sophisticated borrowers in certain markets,0,p +more important some have blamed overseas competition for the job losses associated with the economic slowdown earlier in this decade,0,p +the most recent data continued to show that the severity of the foreclosure problem has been uneven across the country with arizona california florida nevada michigan and ohio for example suffering from higher rates than many other parts of the country,0,p +this increase was accompanied by a significant easing in the terms on which consumer credit was extended particularly credit to purchase new automobiles,1,p +the other economic benchmarks have been strong too civilian unemployment has been below 5 percent since july 1997 and hit a 30year record low of 39 percent in april before ticking back up to 41 percent for may,1,p +the contention is that the skills of workers in these sectors do not readily transfer to other sectors and thus they will have a particularly difficult time finding new jobs,0,p +while it is difficult to know with precision how much slack still remains i am seeing more evidence that labor markets are tightening and wages are accelerating although at a measured pace,1,p +what happened to the great us job machine,0,p +with real gnp growth probably in the consumer spending is likely to remain healthy since personal income and employment continue to advance,1,p +all in all we have approximately 6 million more people of working age than we did when the recession beganand a net loss of 77 million jobs,0,p +democratizing credit to enlarge the global middle class efficiently allocating capital and dispersing risk exposuresthese remain compelling practices for private market participants throughout the world,1,p +taking those in turn first while economic strength and sustainability are important we need to ensure theyre inclusive,1,p +the unemployment rate in northeastern pennsylvanias largest metro area scrantonwilkes barrehazleton has been cut in half falling from a high of 10 percent in 1992 to 434 percent now,1,p +labor markets alongside solid economic growth labor markets have continued to tighten,1,p +multifamily commercial and other mortgage credit accounted for over 9 billion of this rise reflecting the boom in such construction,1,p +families who a couple of years ago were looking forward to a second car or a second home or a bigger and better vacation every year who were willing to borrow against future paychecks to get them and businesses who were looking ahead to new product development and acquisitions for balancesheet building suddenly found themselves having difficulty just paying the grocery bills or coming up with enough working capital to continue operations,0,p +measures of consumer confidence are at high levels,1,p +but the wise use of credit enables individuals and families to accumulate wealth make sound investments and avoid costly financial mistakes,1,p +over the past 14 years the policy summit has brought together community development practitioners researchers funders policymakers and others interested in strengthening our communities so that all people have the opportunity to productively engage in our economy and to share in its benefits,1,p +with these assumptions the model predicts that singlefamily housing starts will total about 14 million units this year which we can compare to the actual 15 million units in 2006 this projection for 2007 which would be a 25 percent decline from 2006s average appears to be at the highend of most forecasters expectation perhaps because the model just outlined makes no allowance for the overhang of excessive inventory at the beginning of this year,0,p +we also looked at the people doing those jobs who would be hardest hit and where new jobs would likely be created,0,p +on net the resulting drop in the average interest rate on household borrowings combined with the lengthening maturity of their total debt has damped the monthly payments made by homeowners on their growing stock of outstanding debt,1,p +in the end there is reason to believe that these instruments can help importantly to place housing finance on a more solid foundation especially compared to the limited availability or relatively high rates on fixedrate mortgages,1,p +moreover partly as a result of these practices weve seen an unprecedented housing market collapse that contributed to a very deep recession marked by many lost jobs,0,p +at home while growth has been reasonably satisfactory unemployment and inflation continue at excessive levels,0,p +the working cities challenge promotes that principle by inviting smaller massachusetts cities to consider how they would use collaborative leadership to unite their communities to address a major challenge for lowerincome residents,1,p +in this economic downturn the fraction of the workforce unemployed for six months or more has climbed much more than in previous recessions and remains at a remarkably high level,0,p +indeed the surge in mortgage refinancings likely improved rather than worsened the financial condition of the average homeowner,1,p +so although more can be done minorities and others who in the past had difficulty obtaining credit are sharing in the gains,1,p +i intend to work with my colleagues so that the fednow service meets the needs of community banks and their customers,1,p +taking advantage of the diminished home values the group buys the properties and then resells them at affordable prices to existing occupantsâboth owners and tenantswho can demonstrate that they have suffered hardship,1,p +its holistic range of programsin community leadership quality affordable housing and economic developmentappears to be contributing to decreasing crime rising student grades and homes for firsttime homebuyers,1,p +no description of the southeastern economy would be complete without discussing the greatly to job growth,1,p +we have the highest percentage of the population employed that we have had since world war ii,1,p +better and earlier information for consumerslastly to protect consumers and promote competition our proposed regulation would prohibit misleading mortgage advertising and require that consumers receive loanspecific disclosures early in the application process when they can use the information to shop more effectively,1,p +the unemployment rate is still 25 percentage points higher than it was in february 2020 and we know that it is even worse for some groupsânearly 10 percent for black workers and nearly 8 percent for hispanics,0,p +mortgages with some of the characteristics of nontraditional mortgage products have been available for many years however they have historically been offered to higherincome borrowers,1,p +i fully expect progress to continue ultimately leading to a labor market as strong or stronger than we saw before the pandemic,1,p +the committee has stated that the target federal funds rate would likely stay fixed until the official unemployment rate reaches a threshold of 6 12 percent,1,p +were actively involved in promoting personal financial education to anyone who is interested not just small business owners,1,p +these customers are richer to personal income is at an annual rate of 510 biliion now compared to 73 billion in 1924 using gnp as a convenient proxy for measurement todays annual rate of nearly 650 billion is over seven times that of 1924 since the depression year of 1934 there has been an even more impressive 10fold increase,1,p +the guidance also recommends that institutions alert consumers to the amount of any prepayment penalty that may be imposed if the consumer refinances the mortgage,1,p +which would facilitate broader services for the public,1,p +the midwest preceded the nation into the 2001 recession and manufacturing employment here has been falling longer,0,p +i would like to see congress eliminate this double tax on equity income,1,p +but i believe this approach also applies to the revitalization of older communities,1,p +housing is a basic human need and politically important and rightly so,1,p +but we learned in the early 1980s that the resultant tighteningwhile necessarygenerates large losses in employment,0,p +it must be applied for and must pass the tests of public benefit that i previously stressed,1,p +going forward the large inventory of unsold houses will likely limit growth of housing starts for some time,0,p +5 mcap also tackled some very difficult issues not directly related to the home purchase process,1,p +from our vantage point another important concern is the possibility of our citizenry becoming so overly worried about what might happen that there could be created the very type of problem we are working so hard to prevent,0,p +the feds community affairs role is quite separate from its regulatory role and is based on the theory that if cra is to succeed both bankers and community groups must benefit 3 from their alliances and in turn such alliances must be based on mutual interest,1,p +at the same time that those workers face unemployment business firms will be facing a shortage of workers with the skills necessary to meet increasing demands for efficiency and quality,0,p +but it looks as though a continued increase in participation rates by females will be offset by declining participation rates by males,0,p +and it is essential in helping our banks meet their affirmative obligations to the low and moderateincome communities they serve and to understand what is likely to be most effective in lifting up the lives of people in challenged communities,1,p +moreover even though they take place continuously these innovations do not seem to create large amounts of unemployment caused by technological change,1,p +exposure to the arts and culture and experience in serving the community can help support the development of these broader hardertomeasure skills alongside more readily measurable cognitive accomplishments in reading math and science,1,p +despite decreases in equity prices that have reduced the ratio of household wealth to income the ratio remains significantly above its pre1995 level,0,p +this program offers communities the opportunity to design and direct local activities that promote revitalization through job growth and human developmentthe city of baltimore was one of six cities nationwide to be awarded an empowerment zone designation,1,p +and repairing damage incurred from the great recession continues to be critical for improving labor force quality for stronger longlasting growth,1,p +despite the unwelcome rise in the unemployment rate that was reported last week the recent incoming data taken as a whole have affected the outlook for economic activity and employment only modestly,0,p +i feel that the only justification for the current credit posture in the united states in the face of continued underemployment and insufficient growth has been the payments situationi am glad to note that my views are shared by the distinguished economist who is generally regarded as the leader of the conservative neoclassical wing of the economic profession,0,p +the projection for the national economy as a whole suggests that the outlook for blacks will brighten considerably if they can prepare themselves to take advantage of the emerging openings,1,p +because americas nonfarm economy grew at such a substantial rate 2 unemployment ended the year a t 53 percent,1,p +housing starts had risen to a very high annual rate of 21 million units in the last quarter of 2005 but have since declined sharply falling to a 15 million unit pace by the fall of last year,0,p +27 nearly half of households studied by the pew charitable trust had not recovered from financial shocks at least six months afterward28 and the federal reserve shed finds that 40 percent of adults report they would have difficulty covering an unexpected expense of 40029 this inability to plan for the future dramatically affects individuals ability to engage in the investments such as cutting back on work hours to pursue education and training and the risktaking that is necessary to improve their financial lives30 access to credit can be an important part of weathering these shocks,0,p +more than that trying to rely on it to do so is counterproductive because it takes the focus off of programs and policies that can help to prepare and sustain workers in the modern workforce,0,p +yet another costsaver is the relatively lowpriced labor in the area a result of competition for jobs among new arrivals and the regions tradition of cooperative labor relations,0,p +recent employment reports indicate that firms also are hesitant about hiring permanent workers,0,p +real output remains below the level of early 1973 and since late last year unemployment has been rising,1,p +while we still have many unemployed workers and pressures in unit labor costs have continued to be modest there have been some reports of significant wage increases among higherskilled and professional workers,1,p +for example while 33 per cent of the total civilian labor force was unemployed last month the rate was 60 per cent for nonwhites,0,p +6 chinese growth a source of us export opportunities ever because gains for the united states as a whole are accompanied by downward pressure on wages of us lowskilled workers as already noted,0,p +as you all know well community banks are a critical engine of the economy and they play a key role in providing access to credit in communities of all sizesbig small rural and every size in between,1,p +rather we were running short of qualified workers to fill job openings,1,p +the unemployment rate climbed to 97 percent in august even though nonfarm payroll jobs had the smallest decline so far this year,0,p +it follows that even if employment is close to the maximum level that is achievable using monetary policy there may well be nonmonetary policy levers that could be used to raise employment still higher,1,p +but the housing sector is still under great stress,0,p +also rising equity prices tend to stimulate spending as households become wealthier,1,p +from the employment trough the economy has added more than 12 million jobs,1,p +on the employment front the number of construction jobs actually increased by about 100 thousand from january 2006 to january 2007 residential construction jobs have remained flat so the increase is attributable to other constructionrelated jobs,1,p +the unemployment rate has moved lower this year and registered 55 percent in may,0,p +because capital has grown more slowly than the labor force we are beginning to fall behind in the investments that are essential to providing the jobs for the future,0,p +the data in table 1 offer conclusive evidence that the income differentials traditionally observed between white and negro families seriously understate the differences in economic welfare because they neglect the poorer net asset position of negro families,0,p +they promoted new social arrangements that addressed the central irony of the industrial revolution namely that this enormous mechanism for economic growth left millions still in poverty,0,p +such efforts help ensure that families at all income levels have an opportunity to enhance their financial future,1,p +wage growth for the most part has been quite slow,0,p +one project that the chicago fed is very proud of is the mortgage credit access partnership which we helped launch in 1996 the goal of mcap is to ensure fair and consistent treatment for all homebuyers in the chicago area regardless of where they choose to live their race ethnicity or gender,1,p +workers may be offered support ser v ices such as child care counseling and more extensive training after starting to lear n the discipline of a job,1,p +one candidate is the wave of technological innovation in retail credit delivery which contributed to an expansion of consumer credit including unsecured and mortgage credit,1,p +this includes providing more opportunity for industlial employment and more training for him and his children for such employment,1,p +the reserve banks often play an important role in forming and supporting multibank community development lending organizations,1,p +in poorer neighborhoods and communities small business development provides everyday retail and commercial services and employment opportunities,1,p +second growth could remain above trend and the unemployment rate could continue to fall while at the same time inflation fell still further,1,p +oductivi ty gains unfortunately we also have large segments of relatively fixedincome people who reecire little benefit 2nd then only after considerable lago in some cases their purc1asing power may actually be restricted rather than broadened,0,p +households caution is understandable,0,p +in addition stimulus payments and a year of reduced spending might have given workers the financial wherewithal to be more selective about pay working conditions or health risks,1,p +under these conditions its no surprise that credit is no longer available to consumers on the same terms,0,p +at some point a creditor may balk at extending new loans to a borrower who persists in living beyond his means,0,p +robust employment growth increased disposable income and fairly healthy household balance sheets should cause consumption to grow this year by 27 percent and it is the consumer who will underpin the economic progress in my forecast,1,p +to the degree that households are driven by fears of payment shocks but are willing to manage their own interest rate risks the traditional fixedrate mortgage may be an expensive method of financing a home,0,p +as a result the unemployment rate actually increased and averaged 74 percent during the year,0,p +for individuals the economic returns to education are substantial as well,1,p +and funds available actually and potentially for mortgage lending remain plentiful,1,p +labor market data generally provide a better realtime signal of the underlying pace of economic activity2 in addition retail sales surged in april as did consumer confidence in may suggesting that the pause in consumption may have been transitory,1,p +after three years of leading the nation in job growth the region has seen a leveling off of employment creation in 1995 however this development is nothing to be alarmed about because the southeast should still enjoy healthy job growth this year,1,p +in our march forecasts the median estimate of this longrun unemployment ratewhich is called u by somewas 412 percent9 three possibilities concerning low inflation and low unemployment and their implications for monetary policy at 41 percent the current unemployment rate is obviously below this longrun level,0,p +first i will update you on our new partnership for progress program which is designed to foster and support minorityowned and de novo depository institutions,1,p +neighborhood stabilization efforts can help alleviate some of the costs to neighborhoods of foreclosure and allow local decisions regarding lowvalue and dilapidated properties,1,p +with the increasing pace of consolidation of financial institutions however there are emerging concerns that the resources and personnel devoted to affordable housing and other community development activities may be decreasing relative to the increasing size of institutions,0,p +however it is true that the household debtservice burden has proven helpful in predicting problems with household credit quality such as consumer loan delinquencies so its rise may portend some deterioration in measures of credit quality going forward,0,p +to facilitate refinancing for borrowers who are current on their mortgages but whose equity has eroded as home prices have fallen the administrations home affordable refinance program or harp provides streamlined refinancing for low or noequity mortgages if the borrowers meet certain qualifications and if their existing mortgages are already guaranteed by fannie mae or freddie mac,0,p +as the economy strengthens and firms become convinced that the recovery is sustainable hiring will pick up over the rest of this year and in 2011 but it may take even longer to address the sectoral geographic and skill imbalances that seem to plague the labor markets,1,p +while the acceleration that many have been forecasting for right around the corner would be welcome that scenario seems less likely than a scenario in which growth continues to be held back by household cautiousness low productivity growth and restrained housing markets,0,p +both of these forcesfewer startups and firms fear of firingreduce the productive capacity of our economy by making it harder for destroyed jobs to be replaced by created jobs,0,p +a rising proportion of the population is also taking advantage of both general adult education and workrelated instruction,1,p +we need to pay special attention to the workers affected by such change because this dynamic process helps generate ever higher standards of living,1,p + over the last two decades we have witnessed what can arguably be called a revolution in retail consumer finance,1,p +it is based on the hypothesis that even though real wages determine purchasing power workers have an extra aversion to seeing real wages lowered through a reduction in nominal wages,0,p +unfortunately once the genie pops out of the bottle it is not easy to put it back in again7prevalent from mid1977 to early 1980 when interest rates do rise to levels that bite moreover the housing market is hit about as hard as it was in earlier periods of restraint,0,p +between 1997 and 2001 the most recent data available employment of us residents by affiliates of foreign companies operating within the united states increased by about 12 million jobs,1,p +accordingly the federal reserve produces and regularly updates a range of materials including a booklet that lenders are required to provide to potential arm borrowers to help consumers understand arms and other alternative mortgages and we will continue to promote financial education through a variety of partnerships with outside organizations,1,p +it destroyed nearly 9 million jobs and its been a long slow slog to recover from it,0,p +people who lack the skills needed to keep up with changes in technology cannot take full advantage of the benefits of the growing sectors of the economy,0,p +unemployment dropped to 56 percent in march its lowest point in eight years and i expect it to hover between 55 and 6 percent through the end o f the year,1,p +personal savings insurance pension funds all become inadequate,0,p +regardless of the precise mix of factors that explains the decline in interest rates the associated runup in housing values has left households with a substantial pool of available home equity,1,p +fourth the historically strong labor market did not trigger a significant rise in inflation,1,p +the bottom line on the market is that the current slack in commercial real estate and highbracket residential pieces simply doesnt exist in low and moderate income brackets,1,p +we need strong community banks because they help support strong communities,1,p +by working with over 100 partner organizations from the public and private sectors mcap has made meaningful steps toward ensuring that financially and otherwise qualified individuals not be denied home ownership,1,p +the new disclosure requirements will ensure that as the marketplace develops and changes interested parties will be able to conduct more efficient fair lending reviews,1,p +other structural factors may also be weighing on the labor market and retarding the return to full employment,0,p +heres how these stories might sound if they were boiled down into one version weve got a vibrant economy with strong job growth and no measurable increase in inflation,1,p +these surveys also show that students from poor families are more likely to drop out and drop out sooner than students from wealthier families,0,p +this was especially the case for women with very young children despite being only 10 percent of the prepandemic workforce they accounted for nearly 25 percent of the covid19 employment decline2 we have made progress since last april,0,p +to put this number in perspective consider that the highest unemployment rate suffered by collegeeducated americans in the recent recession is similar to the lowest unemployment rates for the overall population seen in the past four decades,0,p +affordable housing and the cra i want to briefly connect the dots between the high priority we put on strengthening the cra and the pressing challenge of affordable housing that is a key focus of the work that you all do,1,p +in january as you know the unemployment rate actually rose 02 percent,0,p +the council thought that even after taking account of both existing income taxes and the proposed surtax disposable personal income would increase by approximately 35 billion and the savings rate which rose from 59 per cent in 1966 to 71 per cent in 1967 would remain essentially unchanged,1,p +many consumers have impaired credit coming out of this cycle because they were unable to pay due either to poor underwriting or loss of income,0,p +d so were likely to see some continued strength in these sectors but not large increases from 1997 d overall i dont think consumers are tapped out,1,p +although in recent years the proportion of our labor force made up of those with at least some college education has continued to grow we appear nonetheless to be graduating too few skilled workers to address the apparent imbalance between the supply of such workers and the burgeoning demand for them,0,p +housing will probably show further gains in view o f the lower interest rates we are experiencing,1,p +household spending rose at more than a 3½ percent annual rate in the first three months of this year,1,p +indeed the consumer financial services laws implemented by the federal reserve contain a number of substantive protections reflecting carefully considered legislative judgments that certain practices should be restricted or prohibited,1,p +american labor has reaped the rewards in the form of an unemployment rate of only 56 percent and the creation of over 15 million new jobs in the current expansion,1,p +i expect continued robust job creation accompanied by growing wages,1,p +that means providing students with both the desire and the tools to continue their education,1,p +foregoing the cost reductions would mean that all the firms jobs in the united states would be placed at a much higher risk,0,p +however layoffs diminished noticeably in january and employment turned up last month,1,p +but third i believe some of the protections provided or sought for small independent banks are misdesigned or have been rendered obsolete by the onrush of events and consequently our communities are not realizing all the benefits which they could and should enjoy,0,p +furthermore there are some very important fundamentals that should continue to support housing demand,1,p +the multifamily housing sector has shown more strength which may represent a longerrun shift from owning to renting in the aftermath of the bursting of the housing bubble and tighter mortgage credit conditions,0,p +we are able to do this in large part through our community development efforts to better understand the needs and issues of low and moderateincome communities throughout our district,1,p +retail sales in the same period went up by 33 percent as the increased employment as well as higher wages made possible increased consumer spending,1,p +one is the emergence of several developing countriesmost prominently china and indiaas global economic forces and the consequent reorganization of production processes and change in the nature and location of jobs here and abroad,0,p +so from the standpoint of what monetary policy can do i believe the economy is basically at maximum employment one part of the feds dual mandate,1,p +unfortunately our most disadvantaged communities the ones most troubled by high dropout rates have difficulty attracting and keeping qualified teachers,0,p +with a continued decline consumer spending should continue to fuel the recovery into 1985,0,p +persistent weakness in the labor markets in effect permanently disqualifies more workers from a place in the labor force,0,p +consumer spending accounts for more than twothirds of total spending in the gdp and is now clearly on an upswing,1,p +the most severe job losses have been sustained by those with lower earnings and by the socioeconomic groups that are disproportionately represented among lowwage jobs in industries deeply impacted by the pandemic such as leisure and hospitality and retail,0,p +this is a substantial improvement from the 21 percent of nonagricultural employment which these sectors represented a decade ago but still is almost double the propor tion they represent nationally,1,p +the decline in the overall employment ratio for these age groups compares with an increase of 22 percentage points in the overall unemployment rate in the us economy over the same threeyear period,0,p +we have seen and are encouraged by many examples of entrepreneurial community banks embracing technological innovation,1,p +the list of industries in which concessions by unions have occurred is impressive ranging from such wellknown examples as autos and airlines to less widelypublicized cases as meat packing glass printing and newspapers,0,p +the real estate problems which i have already discussed came to full flower in 1989 with developers unable to sell 10or lease properties built on spec and some borrowers unable to service construction and purchase money mortgages,0,p +the housing market has slowed over the past year,0,p +the scale and scope of the loss in income and wealth experienced by americans was far greater than anything they had seen in the previous 20 years,0,p +as the recently hired temporary census workers are let go we will likely see more big swings in the numbers before we get a more accurate picture of the underlying employment prospects,0,p +equality of economic opportunity appeals to our sense of fairness certainly but it also strengthens our economy,1,p +lowering the level of stimulus puts downward pressure on both inflation and employment,0,p +even when adjusting for levels of education where minorities already lag some minority groups face unemployment rates between oneandahalf and two times higher than the overall unemployment rate,0,p +the start of the process of normalization should itself instill confidence on main street,1,p +i was an assistant secretary at hud in the early 70s when we funded neighborhood housing services of america which helped bring conventional mortgage lending to areas where banks werent lending,1,p +with a decreasing fraction of the adult population engaged in work our economy will have fewer individuals producing income and output relative to the total number of residents in the country,0,p +for instance in the 1990s growth in employment nationwide was about 21 percent but in northeast ohio our employment growth was only half that much about 11 and a half percent,0,p +for example because of the mix of funding sources mortgage loans can be offered with features such as downâpayment assistance or a belowmarket interest rate,1,p +we added 227000 jobs in january continuing a steady pace of employment,1,p +the jobless rate of about 40 per cent for black teenagers and of more than 20 per cent for blacks between the ages of 20 and 24 express a tragic failure of our economic society,0,p +given the lags in the effects of monetary policy that means we will not be able to wait until the unemployment rate is down close to its longterm level,0,p +and indeed research suggests that workforce development efforts that focus solely on training or retraining adult workers might have only modest effects on employment and job retention11 of course this does not mean that adults cannot or should not learn new skills i am deeply sympathetic to the plight of workers who have been laid off from jobs they performed admirably for decades and i commend those who wish to complete or further their education,0,p +as you well know many forprofit nonprofit and government entities have committed their energies to increasing homeownership opportunities,1,p +there are relatively simple and cheap ways to change the computation of survivor benefits to cut into this high rate of aged widow poverty,1,p +the third reason for targeting a low positive rate of inflation is labor market inefficiencies,0,p +an excellent example of this is the boston feds working cities challenge which began in 2013 informed by the boston feds research and designed in partnership with its network of community development stakeholders the working cities challenge is a grant competition aimed at strengthening civic collaboration and partnerships to help lowincome areas and households in the northeast in an enduring way,1,p +workforce development thus could include providing students with better information to help them weigh their relative risks and rewards of college attendance,1,p +moreover this fast track legislation will cushion the blow to tradedisplaced workers by prov iding them with job retraining healthcare benefits and wage insurance,1,p +there has also been very good progress toward maximum employment but i will want to see more improvement before i am ready to declare the test of substantial further progress being met,1,p +very few are planning to grow their workforce,0,p +aftertax income adjusted for prices but now the twin effects of a declining rate of inflation and a smaller tax bite should turn consumer spending around by midsummer,1,p +consumers have been the key engine of growth in recent years,1,p +those industries in which labor costs are a significant part of overall costs have been under increasing competition from foreign producers with labor costs adjusted for productivity less than ours,0,p +that pension today represents only 46 of its 1979 purchasing powera dramatic reminder of the ravages of inflation,0,p +any major policy decision that appeared to be at variance with a strong antiinflationary stancewhether it be congressional unwillingness to make the hard decisions on expenditure cuts import restrictions on autos or other goods or a backing away from a firm commitment to monetary restraintwould have a severely damaging effect on public confidence,0,p +regional and community institutions that have for the most part stuck to the public utility function have faced their own difficulties especially in the context of construction lending,0,p +cdfis are also a principal conduit of the federal new markets tax credit program which supports small business development in lowincome communities,1,p +financial conditions are highly accommodative and credit is available on reasonable terms for manyâthough not allâhouseholds and businesses,1,p +people with less education face challenges in the labor market,0,p +the civic federation was particularly troubled by the emerging phenomenon of big city poverty and rising unemployment,0,p +by providing loans as small as 5000 the fund helps to stabilize and preserve the economic viability of the neighborhood,1,p +if the inflation that now exists in the united states were allowed to continue at its present rate over a normal working lifetime then when young americans today reich retirement age hey will have a dollar that is worth less than a dime,0,p +i should note that real disposable income has actually increased at a 44 percent annual rate in the last two quarters so firmer spending should not be too much of a surprise,1,p +we have to conclude that the fomc is underperforming with respect to its goal of promoting maximum employment,0,p +essentially the difficulties arise from the thinness of capital and managerial resources in the black community,0,p +in addition to the effects of uncertainty consumers face the ongoing work of restoring the health of their balance sheets,0,p +another change in the composition of the national economy is that personal consumption expenditure as a share of g n p which was high and rising in the 1980s will be lower in the 1990s,0,p +clearly it is time to better define the area in which the agencies evaluate a banks cra activities but it is important to retain a focus on the credit needs of local communities,1,p +we intend to continue this practice for other policies and guidance and to continue to speak with community bankers to respond to their questions and concerns and to clarify our supervisory expectations,1,p +also venture capital funds with a social mission support small business and economic development in distressed and disadvantaged communities,1,p +clearly inflation poses a serious threat to the quality of life in this country,0,p +the unemployment rate will gradually decline but it will take some time before it returns to a more acceptable level,1,p +b at the same time unemployment rates in the region are below the nations average and have been for seven years running,1,p +unemployment also was high 50 years ago although not quite as high as it is now,0,p +if we succeed in opening up opportunities to everyone the affluence within our borders will almost surely become more equally distributed,1,p +the unemployment rate has remained close to 10 percent since mid2009 with a substantial fraction of the unemployed out of work for six months or longer,0,p +so while the challenge of the 1980s was to absorb the very large quantity of n e w workers the challenge of the 1990s will be to respond to the changing composition of the labor force,0,p +we expect healthy output growth supported by both a return to full employment of our labor force and continued strong trend growth in the productivity of that labor force,1,p +stayathome orders have been lifted and though large segments of the economy remain depressed millions of americans have returned to their jobs,1,p +because of the way benefits for surviving spouses are computed america still has high poverty rates among aged widows rates that are much higher than those in other developed countries,0,p +again to take an example from minnesota you have probably read about the famous case of the reserve mining company and the states efforts to halt the dumping of 67000 tons a day of taconite tailings into lake superior even at the possible cost of several thousand jobs in an area of the state where jobs are far from plentiful,0,p +i believe this expectation played a significant role in driving up both wages and prices without the expected reduction in unemployment,0,p +on the other end of the cycle during the downturn labor productivity suffers as firms attempt to hold on to their workers in the face of reduced output,0,p +in addition american consumers will have to pay higher prices for goods from abroad,0,p +or does it reflect a more permanent increase an increase that could reduce the potential inflationary pressures generated by tightness in the labor markets,1,p +given the natural growth in our labor force and the return of reservists to the economy the delay in job growth may elevate unemployment rates in the near term,0,p +certainly not all of the 96 percent unemployment rate can be explained by these painful structural adjustments but these factors do suggest that it will likely take some time for the labor market to heal,0,p +in fact some groups that began the period in the worst economic shape including teenagers and those at the bottom end of the education and income distributions have enjoyed substantial gains,1,p +the reduced wealth makes it difficult for the taxpayer to borrow to augment his income,0,p +it demonstrated once again our ability to rise above adversity and to continue with rugged determination to achieve a quality o f life made rich not just by material goods but by justice and spiritual values as well,1,p +local community banks with knowledge of their markets may become valued participants in loans with larger banks,1,p +this poses obvious problems for individuals and families but it also poses problems for our economy,0,p +in the 1960s the employment ratio of these individuals was over 80 percent less than 10 percentage points lower than that of the entire male population ages 20 to 64 by 2001 the employment ratio of this group was only 65 percent almost 20 percentage points less than the employment ratio for the entire male population ages 20 to 64 i find the substantial increase in early retirement disturbing for several reasons,0,p +a fairly substantial gap still remains between the current level of mortgage interest rates and the average level of interest on the outstanding stock of mortgages suggesting that refinancings should continue at a brisk pace in the early part of this year,1,p +the federal reserves proposals for strengthening the community reinvestment act emphasize the value of banks providing costfree lowbalance accounts and other banking services targeted to underbanked and unbanked communities12 and a core goal of fednow is to provide ubiquitous access to an instant payments system via depository institutions,1,p +this fraction compares to just over onefourth of those who said they never or only rarely worried about these concerns as children that now experience this level of financial challenge,0,p +it has been an advantage to the bank and has enabled the bank better to serve its conmrunity,1,p +however such actions might also have important social costs that need to be taken into consideration,0,p +that is what the economy is supposed to produce and so long as it does so restraint on wage increases is justified,0,p +with this remarkable shift from industry to services chicagos economy has continued to grow on net adding nearly 400000 jobs in the past quarter century,1,p +it is argued that these benefits give job searchers the ability to hold out longer for a good job and may in some cases reduce the intensity of job search,1,p +take for example the civil service plan hiat plan carries a costofliving escalator and a similar notion will be added to social security benefits beginning in 1974if private and public policies are such as to lead to increases in wage rates faster over time than we increase productivity there is no practical alternative but an inflationary trend,1,p +because of its support to aged people of all incomes poll after poll has indicated social securitys unique political popularity,1,p +but i would note that consumption growth has not fluctuated that much over the course of the recovery,0,p +going forward until housing demand picks up and some of the inventory of unsold homes is worked off residential construction will continue to be a drag on economic growth,0,p +in addition households that have worked down debt levels will be less vulnerable and better able to withstand shocks in the future,1,p +and in fact recent research has found some troubling patterns many workers do not participate contribute only a small portion of their wages if they do participate and make questionable investment and distribution choices,0,p +given that we at the fed are mandated to maintain price stability and create the monetary conditions to encourage maximum employment growthat a time when inflation is somewhat below what the committee as a whole judges appropriatei instinctively understand the impulse to put the monetary pedal to the metal to try to move the needle on employment growth,1,p +in just two months march and april 2020 the economy lost over 22 million jobs about the same number it had added over the previous 11year expansion,0,p +we are contributing to initiatives already under way at the local and national level as well as collaborating with other regulators community groups policy organizations financial institutions and public officials in an effort to identify ways to prevent unnecessary foreclosures and the associated negative effects on local communities,1,p +this is just part of their efforts to support community partnerships and help meet special community credit needsin addition to financing initiatives banks throughout the country are supporting a number of groups and services that strive to improve the availability of credit in low and moderateincome and minority communities,1,p +a necessary condition for cra to prove beneficial is the existence of some or all of these types of distortions either in mortgage lending or in business development lending,1,p +this type of performance positions the community banking sector for continued success this year and well into the future helping ensure the preservation of the community bank model for future generations of americans,1,p +the classic barrogordon dilemma is that discretionary policy setting by benevolent central bankers who seek to bring unemployment below its sustainable natural rate11 level tends to lead to abovetarget inflation,0,p +a reasonable guess is that the workweek will continue to fall at its historical average rate of about 14 percent per year,1,p +we believe that policy decisions in the public interest rather than in the private interest will lead to a healthier and fairer society,1,p +3 on balance then these factors just reviewed combined to produce another year of moderate economic growth that not only lifted incomes but also provided over two million new jobs,1,p +this is nearly a full percentage point lower than the wage gains we saw before the financial crisis,0,p +it typically involves wellqualified teachers small classes a researchvalidated curriculum and familysupport services,1,p +despite the exceptionally large extraction of equity the total remaining equity at the end of 2002 was higher in dollar terms than at the beginning of the year owing to a 7 percent increase in existing home prices over the four quarters of last year and 300 billion in new home construction net of mortgage extensions on those homes,1,p +the large increase in the college premium has led many policymakers and educators to advocate college for all,1,p +in the 198889 period the southeasts rate of employment growth fell behind the nations for the first time in many years,0,p +the seriousness of the unemployment problem stems not from this having been an especially severe recession in terms of its effect on employment but rather from the fact that unemployment was at a high level about 5 per cent of the labor force even before the downturn began,0,p +jumptarts mission to develop a more financially literate population supports the federal reserves goal of a stable and growing economy,1,p +we experienced a pronounced and very welcome bounceback in national retail spending and housing activity over the early summer months,1,p +the respect for the thoroughness and objectivity of the research that wright oversaw led to the dismantling of damaging trade barriers in the 1890s and later raised public awareness about the deplorable conditions faced by women in the workplace,0,p +in assessing the actual strength of the labor market and the broader economy we must bear in mind that these very welcome improvements have been achieved in the context of extraordinary monetary accommodation,1,p +but accommodative monetary policy that lifts economic activity more generally is expected to increase the odds of good outcomes for american families,1,p +the consumer price index was 3 percent or below for the fourth year in a row and unemployment was at its lowest sustained level in five years,1,p +your deposit in the bank may be safe but the banks risktaking may hit you in your wallet as a taxpayer,0,p +despite the significant efforts of native banks cdfis and credit unions for many native americans banking and credit access remain challenging,0,p +the unemployment rate which stood at 36 percent in april has been interpreted by many observers as suggesting that the labor market is currently operating beyond full employment,1,p +since employment lags behind gross domestic product gdp and many businesses are 2 consolidating i think the jobless rate will remain pretty much unchanged from the average last year of 67 percent,0,p +many community college students also face obstacles such as inadequate academic preparation or the need for child care or transportation,0,p +and recent data on household finances indicate that those living in our region are not facing any unusual difficulties servicing mortgages or otherwise meeting financial obligations,1,p +for instance finding the wherewithal to buy a home or a new car has become a more difficult task for many young families,0,p +they also include adjustablerate mortgages arms with a payment option allowing consumers to make âCminimum paymentsâ of less than the accrued interest,1,p +but the final result will be a better break for small savers,1,p +there is an overwhelming amount of research that demonstrates the importance of educational attainment in helping cities grow and thrive,1,p +after about five years of rapid growth during the late 1990s many highpaying technology jobs disappeared,0,p +average hourly earnings rose 20 cents in april for privatesector nonsupervisory workers to 2545,1,p +for the first time in 3 years georgias jobless rate in august was higher than the nations,0,p +it tracks wage gains of continuously employed individuals which means it is not influenced by newer lowerwage entrants,1,p +bad decisions are made and resources are misallocated,0,p +over the past decade the size of a typical new home increased nearly 20 percent and many homeowners invested in home improvements and renovations,1,p +but the recent cyclical downturn created a huge new glut of unemployed workers with the result that it will likely take a lot longer than normal for people to find the jobs they want,0,p +i see these changes as a signal that our countrys current labor market performance is much closer to maximum employment than the postworld war ii us data alone would suggest,1,p +after that simple service work like processing creditcard receipts and mindnumbing digital toil like writing software code began fleeing highcost countries,0,p +1 for example the annual rate of growth in average hourly earnings for production workers in the us construction industry increased from about 3 in 1963 to about 5 in 1966 to nearly 9 in 1969,1,p +these higher prices are apt to become embedded into the wage and cost structure of the economy and contribute to an inflationary environment,0,p +the second consequence of rapid economic and technological change that needs to be addressed is growing worker insecurity the result i suspect of fear of potential job skill obsolescence,0,p +were also hearing increasingly about businesses finding innovative ways to give workers more nonwage compensation everything from flexible work hours to culture improvement efforts to one contact who has started beer cart fridays,1,p +i expect this development to continue given the modest undershooting of the natural rate of unemployment in my economic outlook,1,p +although business activity has been slow to pick up pace i must point out that this recession was certainly milder than earlier ones the unemployment rate rose to 108 percent in the last two months of 1982 and it remained high by historical standards during the expansion of the mid1980s,0,p +in a typical recession there is a downward spiral in which layoffs lead to still lower demand and subsequent additional layoffs,0,p +however the most noted feature of the current recovery is that employment has been below paranother socalled jobless recovery,0,p +this is especially true from the point of view of the black cormnunity for whom the fap would represent an early and significant step on the road toward an improved standard of living for a sizable number of families still suffering from the economic deprivations of a long history of discrimination and its corrosive consequences,1,p +through these purchases we have driven down mortgage rates and helped rekindle the us housing market,1,p +a second test of capital inadequacy would be an overall insufficiency of our capital stock to employ fully and efficiently our rising labor force after allowance is made for its changing composition,0,p +foreclosed properties that sit vacant for months or years often deteriorate from neglect adversely affecting not only the value of the individual property but the values of nearby homes as well,0,p +some dissatisfaction with the 8hour day too seems to be indicated by the heavy movement of women into the labor force some of which may reflect dissatisfaction with the earnings that husbands bring home from their 8hour stint,0,p +during this period the median size of houses also increasedfrom 46 rooms in 1950 to 53 rooms in 20009 as the quantity and quality of the residential housing stock increased homeownership also became more widespread,1,p +these competencies are also some of the fundamental abilities our schools seek to inculcate in our children,1,p +nonetheless these two sectors by virtue of their size will again be the major sources of new jobs,1,p +overall euroarea gdp increased at an annual rate of 134 percent last year sufficiently in excess of potential output growth to bring the unemployment rate down nearly 1 percentage point,1,p +moreover if the focus is only on conventional mortgages the number of loans to black households actually fell 15 from 1995 as a result there is concern in some quarters that lenders might be retreating from their commitment to minority lending,0,p +is there still significant slack in the labor market,0,p +the reliance on credit to meet unexpected expenses is pronounced among those already carrying a balance on their credit cards,0,p +job growth tailed off in 2007 as the residential construction industry began shedding workers,0,p +the el paso labor market has outperformed that of the us for several years,1,p +the economy in mississippi is slowing from a spurt of growth that is attributable to gamblingrelated industries although overall levels of income and employment remain high,1,p +people who become discouraged over their prospects for finding jobs often stop looking for work,0,p +while none of us are satisfied with the current pace of economic expansion and job creation presently it is not clear that conditions warrant further crisislike deployment of the feds arsenal,0,p +even so this program could take some time to get up and running and the reunderwriting required for h4h loans would likely take more time and incur greater operational costs than other plans,0,p +moreover industrial production and nonfarm employment have risen significantly throughout the past three months and the jobless rate has stabilized after a surge during the recession period,1,p +again as noted above the sharp rise in the number of jobs affected has aroused labor unions and others to become increasingly critical of national policies promoting freer trade and less mindful of the advantage of such a system to the domestic economy,1,p +and second how can we make ourselves more representative of the people we serve,1,p +as people get laid off from jobs with big companies they often start their own new businesses helping to keep the economy resilient,1,p +indeed the high road demands that we become effective institutional innovators for positive changes in our communities and for housing practices that promote community wellbeing,1,p +lockhart says that the recent drop in the national unemployment rate to 77 percent is encouraging,1,p +nevertheless the lesseducated have clearly reaped many of the benefits of economic growth in the 1990s,1,p +loss of skills and lower rates of employment reduce the economys overall productive capacity over the longer term,0,p +extend unemployment insurance,1,p +w e might refine our present tools or develop n e w ones for reducing u n e m p l o y m e n t in the inner cities especially a m o n g black teenagers,1,p +stronger consumer activity,1,p +housing starts in september rose by 90 to a seasonally adjusted annual rate of 154 million units,1,p +to seek an immediate solution by drastically slamming on the money growth brakes would have a shocking effect on the economy in terms of lost output and high unemployment,0,p +however the immediate progress will be slow i expect that the unemployment rate will be between 8 percent and 85 percent by the end of the year,1,p +so just as better educated people can make our workforce more productive they also can make for smarter consumers and savers,1,p +the risk of course is that sluggish job growth or worse continued job losses in the near term could undercut the apparent recent revival of consumer confidence since confidence depends in no small measure on peoples perceptions about their job prospects whether they are currently employed or not,0,p +quite aside from questions of ecuity the predominance of extended vesting provisions has an adverse effect on labor mobility,0,p +residential construction also has been robust,1,p +more generally the movement toward quantifying the performance risk and community impact of cdfis is essential to the growth and sustainability of the field in my view,1,p +the significant process protections in laws such as the apa are also meant to ensure fairness,1,p +to be sure if we persist in believing then most assuredly the small town will die,0,p +the recession and the weak job market have swelled the rolls of medicaid participants,0,p +i commend hud for its responsiveness in using this information to make changes that help communities target nsp funds more effectively,1,p +2 looking further ahead the median age of the labor force is expected to rise steadily through 2060,0,p +despite the s t a t e s i n c r e a s i n g l y d i v e r s i f i e d economy oregon s t i l l suffers when scarce and h i g h c o s t mortgage money cut int o national housing demand and hence in to f or est pr od uc ts demand,0,p +even when unemployment spiked during recent recessions the prevailing rate found its way to still lower levels,0,p +gross national product industrial production and personal disposable income are all at new high levels,1,p +additionally job losses have meant lower incomes,0,p +in addition there have been some striking changes in traditional labor market practices in several key industries changes made with a view toward holding down costs and increasing productivity,0,p +the economy still has 62 percent fewer jobs than in february 2020  still i am hopeful that we are on the brink of completing the recovery,0,p +in fact between blacks as a group and whites as a group blacks suffered all of the recessioninduced decline in jobs while whites made further net job gains,0,p +in a few years the us babyboom generation will start to retire,0,p +the deterioration in the labor market has not been evenly shared,0,p +residential housing will probably register a poorer perform ance in 1978 than in 1977 singlefamily housing starts seem close to their peak of 16 million units,0,p +as a result of these mixed trends during the first year of recovery the level of unemployment among blacks rose substantiallywhile joblessness among whites registered only a slight increase,0,p +therefore we would still have some slack in labor markets at the end of next year according to the consensus,0,p +this is particularly important since cre lending in recent years has occurred under fairly benign credit conditions and naturally those conditions are unlikely to continue indefinitely,0,p +information from the federal reserve boards survey of household economics and decisionmaking or shed provides evidence of these disparities1 in the july 2020 responses to the shed many households reported major employment disruptions due to covid19 including layoffs reductions of hours or unpaid leave,0,p +a balance should be sought between commercial and residential property uses so that development proceeds with sensitivity to the social bonds that make up communities,1,p +this has driven the spate of interest in experimentation and systemic reform to improve our schools especially for those students from disadvantaged backgrounds who have limited choices and opportunities in our current system,0,p +from 1983 to 2000 employment increased at a 18 percent annual rate as estimated in the survey of households,1,p +federal deficits absorb savings from the economy and americans for whatever reasons dont save a very large proportion of their income,0,p +output has increased faster and unemployment has declined faster in the united states than in other major advanced economies,1,p +gdp has come roaring back after a record contraction during the first half of 2020 consumption housing and manufacturing are extremely healthy and workers incomes are rising,1,p +with that in mind i want to thank all of you here today for the role you play in bringing your skills in research and analysis to the important work of rebuilding lowerincome communities,1,p +many city leaders referred to the early 1980sa period when manufacturing jobs disappeared rapidlyas a wakeup call few cities in the study if any had a commercial legacy beyond that of a hardworking manufacturing town,0,p +such modest growth would imply little additional progress in the near term in improving labor market conditions which remain very weak,0,p +indeed in the sep the central tendency of the projection for the longerrun natural rate of unemployment has come down significantly from a range of 52 to 60 percent in june 2012 to 47 to 50 percent in june 2016a reduction of 12 to 1 percentage point5 we cannot rule out that estimates of the natural unemployment rate may move even lower,1,p +conclusion overall the recovery in economic activity to date has been uneven and has not been sufficient to reduce unemployment noticeably,0,p +fortunately construction related to the mercedes plant is beginning to spur stronger job growth and higher property values elsewhere in the northern portion of the state,1,p +too many people in finance and among the general public are unaware of the role financial institutions policies and structures have played in calcifying inequities in our economy,0,p +why has ceo pay increased so much,0,p +income grow th is fairly strong and employment has been solid,1,p +the permanent increase in spending out of housing wealth is somewhat higher perhaps in the neighborhood of 5 percent and is financed in a different manner,1,p +first having more information on the underlying paths should help the public better understand the projections,1,p +within the u s adjustments can take place without too much hardship because there are no restraints on labor mobility and people can move where jobs are if jobs wont move where they are,1,p +to the extent that people who desire to work lack the skills that employers are demanding there is less slack in the labor market,1,p +products and services that serve these core financial needs are not consistently available at affordable rates to all americans,0,p +thus consumer spending should remain fairly healthyeven at 3 moderate rates of income growth,1,p +community development is no accident nor can there be economic growth without it,1,p +2 bea data show that monthly disposable personal income has been highly uneven over the past 18 months but is up on average since the pandemic started,0,p +the rising tide created by economic growth does not necessarily lift all boats though it certainly helps most,1,p +the banks you serve are better able to reach new customers especially groups of customers who have historically been underbanked when they show that serving those customers is a top priority,1,p +about a third of the surveyed firms in the district said they planned to share some of their tax savings with employees in the form of increased wages bonuses or additions to employee pension plans,1,p +industries such as leisure and hospitality food services and retail trade have high turnover rates11 theres also a question about the longterm stability of these jobs as automation may displace many lowskill workers in the coming decades,0,p +when cra was enacted the concern was that lowerincome communities did not have access to capital and financial services,0,p +schools have cut back on technical pathways,0,p +rebuilding can have a positive impact on the local economy with increased construction and business activity,1,p +it may make this difficult undertaking somewhat less intimidating if we remember that all balancing effotts of the type i have suggested cannot hope to be perfec the firancial and social inequities vhich i have described can i believe be reduced but in this prolonged struggle with inflcjtionary forces we cannot expect to be so skillful or so fortunate as to be able to avoid them entirely,0,p +whatever the specific approaches chosen helping workers who have lost jobswhether because of trade or other causesto find new productive work is good for the economy as well as for the affected workers and their families,1,p +this years inflation in turn will add more fuel to the wageprice spiral which got underway in the late 1960s and which was not eradicated during the 196970 recession,0,p +during 1992 the region added nearly 300000 new jobs,1,p +over the past five years the regional economy has grown slowly but steadily the population decline has slowed considerably the metro area has been adding jobs and real per capita income growth has been similar to that of the us demographics suggest that the regions trend job growth will remain below that of the nation and our unemployment rate will be higher,0,p +the unemployment rate has risen to 98 percent,0,p +consumer price increasesafter having been in the doubledigit range for some timealso have moderated,0,p +for instance the lehigh valleys unemployment rate has not risen as sharply as the nations and has remained below the national level in recent months,0,p +last year monetary policy actions moved to a moderately expansionary stance and i have no disagreement with the growth of the money stock that resulted on balance in 1970 by years end the quantity of money outstanding was somewhat over 5 per cent greater than a year earlier and i think that was about right in view of the lack of real output growth and the rising unemployment we were experiencing,0,p +econometric models used by the board and other forecasters are based on past relationships among variables and changes in those relationships reduce the reliability ofdigitized for fraser httpfraserstlouisfedorg federal reserve bank of st louis8 in industries under the pressures of very low capacity utilicid173zation or deregulation have gone beyond concessions in wages and benefits tc changes in work rules and preroqatives lving outside ccmpensation,0,p +as the number of retired seniors expands over the next few decades the growth rate of the labor force will slow and the requirements of supporting the nonworking population will accelerate,0,p +in addition higher energy costs may have indirect effects on the inflation rateif for example firms pass on their increased costs of production in the form of higher consumer prices for nonenergy goods or services or if workers respond to the increase in the cost of living by demanding higher nominal wages,0,p +should policy ease in response to the sharp slowing in growth and rise in the unemployment rate,0,p +the concerns of these countries are legitimate but they should be balanced by an awareness of the costs and dangers of continued high unemployment and continued international imbalances,0,p +meanwhile on the supply side the outsized productivity growth of the past few years will recede and employment will increase at a pace strong enough to significantly reduce the slack in labor markets,1,p +over the last 5 years the price of owneroccupied homes has risen by 69 percent for new and 64 percent for old homes contrasted with a rise in the consumer price index of 47 percent,0,p +in 1952 consumer prices rose by about three percent while factory wages rose by about six percent,0,p +increasing food prices and a rise in social security tax rates also are likely to add to cost and price pressuresthe consensus forecast thus has nominal gnp rising around nine to ten percent over the four quarters of 1984 while real growth may slow somewhat as the year progresses price pressures may be somewhat stronger in the second half so that nine to ten percent increases in nominal gnp might well persist throughout the yearthe consensus forecast seems to me an eminently reasonable oneas a starting point,0,p +people will be less interested in holding cash and some will be willing to retain deposits or savings and loan shares only at the higher interest rates that will compensate them for the loss in purchasing power of such assets,0,p +chart i which was passed out demonstrates these two propositions and helps to illustrate why we have experienced a high rate of inflation and a high unemployment rate at the same time,0,p +nunic ejements of the nc6ncmy ieadinq to cu uci ffi rigidities low growth and high unemployment,0,p +my testimony focused on what the agencies are doing to combat and eliminate discrimination in mortgage lending,0,p +moreover the sustained rise in prices together with some increase in mortgage interest rates sowed the seeds of the correction by making housing progressively less affordable,0,p +the midwest took its lumps early on largely as a result of our reliance on socalled oldline manufacturing such as heav y machiner y manufacturing was the first sector to feel the effects of the slowdown as early as the summer of 2000 as a consequence our regions unemployment rate rose and total employment fell sooner and more sharply than in the nation as a whole,0,p +smaller wage increases eased the pressures on businesses to raise prices and in turn the slower rate of price increase relieved the pressures on workers to catch up with past inflation or stay ahead of anticipated inflation,1,p +on the part of lenders and borrowers it leads to interest rates demanded and paid that reflect the lenders fear of losing purchasing power and the borrowers hope that inflation will convert nominally high into really low ratessupply shortages are another structural factor that recently has contributed to inflation,0,p +the 1970s taught us that you could have high unemployment and high inflation at the same time stagflationbut not a low combination,0,p +but unlike agriculture the mining industry is highly localized and the regional concentration of the states mining activity in the iron ore areas of northeastern minnesota has translated directly into high rates of unemployment in that area,0,p +however when the rate of inflation is changing rapidly and holders of wealth attempt to adjust their holdings there are 14losses in addition to that from reduced purchasing power,0,p +it rests heavily upon arbitrary institutional limitations such as the 40hour week and mandatory retirement at age 65 today we seem to be in the process with a minimum of fanfare of raising the retirement age limit,0,p +we have a relatively high level of unemployment and the welfare of consumers and capital owners has declined,0,p +6 chinese growth a source of us export opportunities ever because gains for the united states as a whole are accompanied by downward pressure on wages of us lowskilled workers as already noted,0,p +unemployment rates rose more during the recession for african americans and hispanics than for the nation overall and even though those rates have also come down by more during the economic expansion unemployment remains higher for these groups,0,p +rapidly rising prices eroded the purchasing power ofworkers1 incomes and savings,0,p +us consumers are being hammered by declining real income us savers and investors are being squeezed by negative real interest rates and us companies business margins are under pressure,0,p +in several states the unemployment rate is higher than the national average,0,p +a persistently high unemployment rate would of course entail great wastage of economic potential for the nation and what is of greater consequnce it would destroy all hope of a decent,0,p +inflation redjces real incomes and va1je it tnreaten ojr ability to provide employment opportjnities it dries up job creating investmnts it impedes prodjctivity it breed recession it falls most neavily on those least able to bear tne bjrden,0,p +nonetheless the increased value of oil imports has been a net drain on purchasing power spending and production in the united states,0,p +the most plausible downside risk is that financial market developments will lead to higher mortgage rate spreads and will further depress housing activity,0,p +it is true that consumer prices have risen a little over 1 per cent a year rrt much of the rise is attributable to services,0,p +the total of budget outlays for federal manpower programs is scheduled to double from 25 billion to 5 billion between 1970 and 1973 much of this increase however is aimed at providing temporary assistance during the current period of high unemployment through the socalled public employment program which temporarily subsidizes most of the cost of adding new employees to state and local g o ver n ment payrolls,1,p +response of unemployment and prices to declines in economic growth some of the analytical work i have done suggests that a significant impact on the pace of inflation can be achieved only if we are prepared to see the economy run well below capacity including a somewhat higher level of unemployment for quite some time,0,p +commodity prices had already begun rising when we met here last year but energy and food price increases in the first part of this year significantly outpaced the predictions embodied in futures market prices,0,p +in june headlines of major newspapers announced that the monthonmonth rate for consumer prices had risen at an annualized 96 percent while the core rate was reported out at 34 percent,0,p +this inflation premium is necessary because when there is inflation loans are repaid with dollars that have less purchasing power than the dollars that were loaned,0,p +at best it is a shortterm fix at a cost of lower standards of living for the nation as a whole,0,p +in fact about onehalf of all americans are employed by firms with fewer than 500 employees6 as the challenges facing small business owners surfaced the federal reserve sought to better understand the nuances of the credit tightening,0,p +the unemployment rate more than doubled during the recession and has only declined threetenths of a percentage point from its peak,0,p +during this period the states unemployment rate has increased from 39 percent in december 1969 to 53 percent in november 1970 the birmingham area is just now recovering from the citys second strike of the year,0,p +and thus the larger their share of the labor force the higher the unemployment rate,0,p +beginning early in the 1960s the federal reserve began to conduct its monetary policy which was naturally preoccupied with the high unemployment rate and the large volume of idle capacity in industry so as to maintain upward pressure on shortterm interest rates and thereby to discourage tendencies toward the outflow of shortterm funds,0,p +this change more than solves the seventyfiveyear social security problem for the intermediate assumptions and solves more than half of the infinitehorizon social security problem,1,p +in the past of course inflation usually started to accelerate when growth was so strong and the unemployment rate fell to such a low level,1,p +consumption growth would weaken as downwardly revised profit expectations limit stock market gains thereby reducing household wealth and as moreforesighted consumers perceive that smaller productivity gains portend lower real wage growth,0,p +at its september meeting with the data continuing to signal weak labor markets and no signs of significant inflation pressures the fomc decided to take several additional steps to provide policy accommodation,0,p +in the absence of other information slow employment growth in september and october 2005 would ordinarily be interpreted as evidence that the economy is weakening and that in time inflation risks would probably fall,0,p +it may also be that during serious downturns more workers who would have given up looking for a job continue to look in order to qualify for extended and emergency unemployment benefits or that employers take longer to fill vacancies when the labor market is weak9 an analysis by federal reserve board economists that decomposes the shift in the beveridge curve into its various components does point to some increase in structural unemployment related to a reduction in the efficiency with which unemployed workers are matched to vacant jobsthat is mismatch10 however the estimated increase is fairly modeston the order of 1 percentage pointrelative to the total increase in the unemployment rate experienced in recent years,0,p +large chart to be clear some of this slow recovery in employment can be attributed to a key demographic force an increasing fraction of the people aged 16 and over reach retirement age every year,0,p +homes sales and new residential construction remained very strong during the summer although the rise in mortgage rates could result in some cooling in the housing sector in coming months,0,p +consumers took advantage of falling mortgage rates to buy new homes to refinance their existing mortgage debt and to tap into their increasing home equity to pay off more expensive debt or to finance spending on other things,0,p +such suboptimal allocation of capital lowers living standards everywhere,0,p +household financial conditions some commentators have expressed concern about the rapid growth in household debt in recent years fearing that households have become overextended and will need to rein in their spending to keep their debt burdens under control,0,p +even this course of action could not be done now without some cost in terms of a transitional slowing in the rate of growth of output and probably a temporary rise in the unemployment rate,0,p +while productivity growth may slow job growth temporarily it augurs well for future economic growth and rising living standards,0,p +however to my mind some uncertainty about that sustainability remains arising primarily from the slow recovery of the labor market,0,p +so if there isnt an unusual amount of reallocation taking place what else might be causing weak employment growth,0,p +trade adjustment assistance for workers displaced by trade is another example of a policy that is more tailored to the needs of those who have permanently lost a job,0,p +monetary policy should also adjust in response to changes in labor market slack,0,p +also the conclusion that productivity growth has contributed to weak job growth in the short run is in no way inconsistent with the view that productivity growth raises wages and living standards in the long run when full employment has been restored,0,p +but the saving rate has been hovering around 6 percent ever since the recovery began which implies that household spending has been growing in line with disposable income over that periodthis points to labor market conditions as the predominant factor restraining consumer spending in this recovery,0,p +measures of slack such as the unemployment rate are often thought to prevent inflation from rising,0,p +however lower consumption slowing growth in the labor force and 4 competition for investment funds from domestic and international sources are likely to keep overall growth from being as strong as in the 1970s and 1980s,0,p +for instance as we noted in our latest monetary policy report to the congress the ongoing expansion has been the slowest since world war ii with real gdp growth averaging only about 2 percent per year12 this subdued pace reflects in part slower growth in the labor force in recent yearscompared with much of the postworld war ii periodand disappointing productivity growth both in the united states and abroad,0,p +2012 outlook my baseline forecast for 2012 builds on the picture ive just painted of the second half of 2011 im expecting continued moderate growth decently behaved inflation continuing net job creation but slow progress on unemployment,0,p +obviously the problems in the labor market and the housing market are not unrelated,0,p +the decline in manufacturing employment before the great recession was not unique to northeast ohio,0,p +as figure 1 shows us payroll employment fell at a 22 percent annual rate during the recession from july 1990 to march 1991 district employment declined as well but at half the national rate,1,p +oil prices are near record levels food prices have risen rapidly prices for a wide range of commodities are up and dollar depreciation is among the causes pushing up import prices,0,p +and make no mistake an increase in the overall unemployment rate is likely to be accompanied by a disproportionately large increase in the unemployment rate for the relatively young white and black,0,p +the recession and the weak job market have swelled the rolls of medicaid participants,0,p +with recent job losses exceeding half a million per month this years college graduates are facing the toughest labor market in 25 years,0,p +from figure 14 we can see some outward shift in the relationship between job vacancies and unemployment consistent with some increase in structural unemployment since the onset of the recession,0,p +in hyperinflation declines in the purchasing power of money reach double or triple digit rates per month,0,p +for example there are still over five million fewer jobs today than before the pandemic and the unemployment rate is still far above the levels reached early last year,0,p +according to recent research between february and april the economy saw a 41 percent decline in black business owners and a 32 percent decline in latinx business owners compared with a 22 percent overall decline3 the labor market recovery to date has been more rapid than the initial pace following the global financial crisis but it has been uneven and the easiest improvements are likely behind us,0,p +with overall population growth continuing to slow and labor force participation not expected to rise we probably need to adjust our benchmarks for what level of employment growth is consistent with economic growth near potential and a steady unemployment rate,0,p +consequently it would not be appropriate to specify a fixed goal for employment rather the committees policy decisions must be informed by assessments of the shortfalls of employment from its maximum level recognizing that such assessments are necessarily uncertain and subject to revision,0,p +in assessing substantial further progress i will be looking for sustained improvements in realized and expected inflation and will examine a range of indicators to assess shortfalls from maximum employment,0,p +by 1986 the unemployment rate had soared to 11,0,p +in particular policymakers who see the deterioration in labor market performance as reversible using monetary policy will typically favor more accommodative policy than those who view the deterioration as more protracted,0,p +but workforce development has a deeper and longerterm character and will continue to be important to overall economic health even after the current problem of high unemployment is solved,0,p +when compared with other states in the southeast alabama is experiencing slower job growth,0,p +here again monetary policy would not be an effective tool to address such real economic challenges as slower labor force or productivity growth,0,p +although i expect that employment growth will slow somewhat i am still expecting a year in which the economy creates in the neighborhood of 2 million net new jobs,0,p +the reduced fear of job loss is likely to foster more consumer spending,1,p +nonetheless with stillsluggish job growth i expect this number to average out at a little under 7 percent for the year,0,p +the continuation of very high mortgage rates reflects the heavy competition for funds in longterm markets and above all the lender s 4 demand for a substantial premium to offset the effects of inflation,0,p +one of five midwest manufacturing jobs disappeared from mid1979 through 82,0,p +job growth has slowed this year but even so payroll employment has expanded by an average of 100000 jobs per month over the last three months,0,p +meanwhile now that the baby boom generation has been absorbed into the work force and the number of entrants to the labor force is diminishing labor markets have begun to show signs of tightening,1,p +if growth were to continue at last years pace while the number of new workers declines labor costs would tend to rise in the absence of stronger advances in productivity,0,p +it remains to be seen for example whether the trend toward consolidation and layoffs in banking communication transportation and other professional and business services has bottomed out,0,p +too quick an adjustment can cause too much pain and i personally believe policymakers must be attuned to these social costs,0,p +in addition the austerity measures that were imposed by these countries in exchange for international monetary fund imf loans during the past several years have lasted longer than leaders and citizens of these countries expected and they are feeling increasingly frustrated with the stalled progress in resolving the debt problems and raising living standards through economic development,0,p +even so over the course of the year as a whole real gdp rose a bit more than 3 percent payroll employment increased significantly labor productivity posted another solid advance and the unemployment rate moved down further,1,p +a large and rapidly growing labor force and low education levels however have meant that border wages have remained low relative to the national average,0,p +the dpartment of labor reported last week that major union contract agreements reached during the first nine months of this year provided for firstyear wage increases of just 38 percent excluding possible cola increases,1,p +most of all those rural citizens of a hundred years ago would likely have been astounded to realize that despite all the dislocations huge increases in the standard of living would take place not only in the cities but in rural areas as well,1,p +in this scenario real growth slows to around 2 or slightly lower the unemployment rate edges upward but remains below nairu over 1998 and inflation is slightly higher,1,p +union leadership in industries under the pressures of very low capacity or deregulation have gone beyond concescid173sions in wages and benefits to changes in work rules and prerogatives lying outside compensation,0,p +wages in major union contracts agreed to last year were down even fran their relatively low 1983 levels,0,p +most surveys shew gradual declines in price expectations from a peak in 1980 the january 1984 decision makers poll by richard hoey and helen hotchkiss for example shews 10year inflation expectations dropping to 514 percent compared with a peak of almost 9 percent in late 1980turning to the outlook for the real economy in my opinion the most likely outcome is that real osip will show a healthy but moderate increase in 1985 hopefully enough to produce small decreases in the unemployment rate later in the year,1,p +so too would the reduction in the unemployment rate represent genuine progress,1,p +on average payrolls have expanded about 200000 per month so far this year and the unemployment rate has declined to 51 percent just a bit above federal open market committee fomc participants median estimate of the normal longrun level of unemployment,1,p +in an increasingly free trade environment europe and japan have been rebuilt america has enjoyed rising living standards and the ldcs despite some recent setbacks have built some foundation for sustained economic growth,1,p +it has not responded to the decline in mortgage interest rates in part because of an offsetting tightening of credit standards,0,p +construction of singlefamily houses has already been rising for more than a year in the wake of lower mortgage interest rates and the gradual absorption of the large inventories of homes built in the 1980s,1,p +easier financial conditions will promote economic growth … lower mortgage rates will make housing more affordable and allow home owners to refinance,1,p +people around the world came to recognize that living standards improved most rapidly in countries where markets not governments directed resource allocation,1,p +proposed restraints often are intended to protect consumers from their own poor judgment which makes them vulnerable to abusive lending practices,1,p +digitized for fraser httpfraserstlouisfedorg federal reserve bank of st louis6 the contribution of economic growth but if the point is made that the gains in employment and income and reduction in unemployment for nonwhites have in general been comparable to the gains of the hite population and labor force it is particularly significant to note that the overwhelming proportion of these gains has occurred only in the last feu years,1,p +moreover a given percentcid173age decline in output has a much greater effect on the unemployment level for all segments of the labor force than does an increase in output of the same proportion,0,p +but this pace is below what is needed to make significant progress in reducing the unemployment rate which has remained stubbornly high at 91 percent,0,p +between 1995 and 2005 the median size of new homes increased nearly 20 percent and the new homes were coming with more bathrooms and other amenities,1,p +thus the plan commits to keeping the fed funds rate extraordinarily low until the unemployment rate is much nearer historical norms as long as inflation remains under control,1,p +employment continues to grow nicely and unemployment is declining although the southeastern states hardest hit by the recession alabama louisiana and mississippi were still suffering from jobless rates in the 1012 percent range until quite recently,1,p +8 the productivity gain in terms of lower prices to the consumer thus freeing the amount saved on the original item for purchase of the new one,1,p +for all state member banks we enforce the fair housing act and for banks of 10 billion dollars or less in assets we also enforce the equal credit opportunity act,1,p +though much of the focus right now is on the higherpriced segment of the mortgage market and on lenders that make higherpriced loans the agencies examine all institutions for compliance with the fair lending laws,1,p +our goals here are to promote fair and equal access to credit and more broadly financial empowerment so that any person can participate fully in the economy,1,p +it has freed many women to look for employment opportunities outside the home so that the proportion of adult women ages 2554 in the labor force has grown from just 40 per cent as recently as 1955 to 60 per cent currently,1,p +even this impressive unemployment statistic conceals in part the true strength in the labor market for as you know it reflects both a technical adjustment in the household survey made in january 1994 as well as unprecedented peacetime increases in labor force participation,1,p +this is noticeably higher than the wage increases we experienced earlier in the expansion,1,p +the lower trend of nominal wage increases over the past two years has because of the drop in inflation been consistent with higher real wages,0,p +in the long run nothing is as important for our economic welfare as productivity growth for this is what determines the pace of increase in living standards,1,p +i still believe lowever that a modest formof incomes policy in some cases relying on quiet governmentalintervention in others on public hearings and the mobilizationof public opinion may yet be of significant benefit in reducingabuses of private economic power and moving our nation towardsthe goal of full employment and a stable price levelstructural reforms of our economy along some suchlines as i have sketched deserve more attention this criticalyear from members of the congress and from academic studentsof public policy than they are receiving,1,p +but i do believe that the improvement in job market conditions will have a more persistent effect on us households,1,p +in south carolina that number looks better at 42 percent2 but as evident in this recovery the unemployment rate tells only a part of the story,1,p +in my own view if we were to take appropriate structural measures to reduce unemployment where it is particularly high and if we were to emplo an incomes policy based upon the tax system such as proposed by various economists including myself we could achieve substantially lower levels of unemployment without inflation,1,p +during 1978 unemployment dropped from about 7 percent to about 6 percent and capacity utilization rates rose from 82 to about 87 thus at the beginning of 1978 there seemed to be plenty of slack in the economy by past standards,1,p +one or two percentage points of productivity in the face of present relatively modest demands for real wage increases can make the difference between upward and downward spiraling nominal unit labor costs,0,p +it is impossible today to know with much precision how much of the pickup in growth and the decline in unemployment that we have seen over the past two years is structural and how much is cyclical,1,p +importantly as real incomes have risen on average the incidence of poverty has declined,1,p +another major influence in holding down manufacturing unitlabor costs has been the progressive slowdown in the rate of increase in wage rates and average hourly earnings,0,p +structural policies are also needed to help restore full employment and to aid in correcting the longrun inflationary bias in our economy,1,p +it is important that these understandable fears be addressed through education and training and not by restraining the competitive forces that are so essential to overall rising standards of living of the great majority of our population,1,p +the cares act included direct aid to households in the form of stimulus checks and expanded unemployment insurance helping put food on the table and pay for rent and other essential expenses,1,p +the evolution of employment and labor income also will bear watching as gains in real income support consumer spending even if the weakness in house prices adversely affects homeowners equity,1,p +this coming january alone employment costs will ratchet upward because of sharp increases in the minimum wage and in socialsecurity taxes,1,p +if we have promised more than our economy has the ability to deliver to retirees without unduly diminishing real income gains of workers as i fear we may have we must recalibrate our public programs so that pending retirees have time to adjust through other channels,0,p +in that context the average worker should be able to see his real income increase something that hasnt happened for five years or so,0,p +in closing let me say again that an important reason that the us economy is dynamic and productive and generates a higher standard of living for us all is that we embrace change,1,p +improving living standards and rising industrial production brought huge increases in energy demands over the postwar years with oil consumption far in the lead,1,p +incoming spending data have been relatively strong and the labor market should continue to tighten exerting some upward pressure on wages and prices,1,p +if inflation is to be unwound and our industry is to restore full competitiveness and provide high levels of employment private behavior in wage bargaining and containing costs generally will need to reflect the new realities of the marketplace,1,p +to be clear i am not arguing that healthy increases in real wages are inconsistent with low inflation the two are perfectly consistent so long as productivity growth is reasonably strong,1,p +g the lower inflation weve achieved has provided the foundation for the strong real growth and low unemployment that are a hallmark of the current expansion,1,p +according to the order the stabilization committee was established to assure generally conformance of any increase in any wage or salary in the construction industry,1,p +sustained periods of steady employment and growing paychecks may lead people to expect that not only has their real standard of living risen but it 14 will continue to rise in the futurepossibly at a faster rate than previously expected,1,p +since this will not be available for some time i have relied on the data collected by the equal employment opportunity commission eeoc based on annual reports submitted by private employers with 100 or more workers,1,p +perhaps the most remarkable of these transformations has been increased employment opportunities for blacks and women,1,p +even though outright declines are unlikely to continue as labor markets tighten i think strong productivity trends should help keep overall cost pressures in check,1,p +for example the ratio of credit card debt to personal income rose from 24 percent in 1983 to 80 percent in 2007 during the great recession gdp fell 43 percent over a sixquarter interval but other indicators document even greater hardship,1,p +the deep recession and slow recovery likely have held back investment in physical and human capital restrained the rate of new business formation prompted discouraged workers to leave the labor force and eroded the skills of the longterm unemployed15 some of these effects might be reversed in a tight labor market yielding longterm benefits associated with a more productive economy,0,p +3 with more persons at work there has naturally been a substantial increase in personal income and consumers have been able to satisfy more of their needs and desires by stepping up their spending,1,p +on the other hand i am personally convinced that blacks would do well to look more to the private sectorand less to public payrollsfor expanded job opportunities in the years ahead,1,p +chart 1 chart 2 employment distribution 1986 g e o rg ia a tla n ta manufacturing manufacturing trade 15 28 21 finance 5 finance 7 6 construction 6 services 23 construction transportation government services 19 14 fsdsrol romtvo bonk of atlanta government 17 transportation 6 chart 3 atlanta and the southeast federal raaarva bank of atlanta chart 4 employment growth 1 9 7 0 8 6 fodaral ri i t v bank of atlanta chart 5 personal income growth 1 9 7 0 85 500 400 percent change current 410 428 300 200 100 0 atlanta fadarol raaarva bank of atlanta chart 6 population growth 1 9 7 0 8 6 chart 7 airline passengers 1986,1,p +after a good deal of debate and another six years the congress embodied this right with reference to the cost of credit in the consumer credit protection act,1,p +however robust growth in the states service trade and agricultural industries has kept total employment increasing briskly,1,p +strong productiv ity gains have kept real personal incomes rising throughout the recession and recover y and should continue to be a key foundation for growth into the future,1,p +it is thus not at all surprising that employment here grew faster than the national average in every single sector of the economy during 1973 and early 1974 and that the jobless rate remained stable even though the labor force expanded at twice the national pace,1,p +as the unemployment rate has fallen to levels not seen in many decades we have heard concerns that the steeper phillips curve of the past might reassert itself perhaps in a nonlinear manner7 but all available evidence suggests inflation expectations remain well anchored to the upside,1,p +for example real disposable personal income increased by only 05 percent during the first four months of this year,0,p +thus employers have been counting heavily on increased productivity in the current recovery to help restrain upward pressure on labor costs,1,p +unemployment rates for young african american and hispanic men without a college degree remain especially high and one important benefit from further improvement in the labor market would be increased job opportunities for these men and other groups that currently still experience high unemployment,1,p +for employment in the absence of inflationary pressures or risks to financial stability we will not react to strong labor market indicators,1,p +this heightened competition both in traditional banking areas and in bankrelated businesses can if suitably disciplined serve to promote the public interest,1,p +since fraud drives up costs reducing it will make the system more efficient as well as promote public confidence,1,p +our present high standard of living and further increases are necessary for providing us with the supplies we need today at stable prices,1,p +despite historically low mortgage rates purchases of new and existing homes have not risen much above their lows seen several years ago,0,p +it is a beneficial development that will raise standards of living everywhere,1,p +for example the increase in home ownership is consistent with the development of parsons place a partnership led by the emerson park development corporation epdc to create affordable housing which is viewed as a catalyst for east st louiss economic comeback,1,p +it contributed to economic growth and rising household incomes and offset longterm declines in mens participation,1,p +of course we may need to tighten somewhat further if currently unexpected tailwinds emerge that push the economy well beyond sustainable growth and employment levels potentially leading to unacceptably high inflation beyond our symmetric objective,0,p +funcid173damentally ours is a society wedded to the competitive proccid173ess as a chief safeguard of the public interest,1,p +here are obvious elements of monopoly in labor markets which tends to make for large wage increases bearing no relation to productivity gains,1,p +at reasonably full employment our economy could produce about 4 percent more each year because of an increase in the number of workers and improved productivity,1,p +to put this number in perspective consider that the highest unemployment rate suffered by collegeeducated americans in the recent recession is similar to the lowest unemployment rates for the overall population seen in the past four decades,1,p +all in all 1998 was a truly remarkable year for the economy just like 1996 and 1997 we had very robust growth low inflation and a falling unemployment rate,1,p +this deterioration in inflation expectations and a weakened link between labor market tightening and inflationtogether with the asymmetry of policy in the vicinity of the lower boundlead me to put a high premium on evidence that actual inflation is firming sustainably,1,p +if so some further tightening in the labor market might be needed to lift inflation back to 2 percent,1,p +indeed analysts have shown that a comprehensive understanding of basic principles of budgeting and saving at the start increases household wealth in later years,1,p +the regions unemployment rate is the lowest it has been in a decade and is lower than the national rate,1,p +the substance of this liftoff plan is that as long as longerterm inflation expectations remain stable the committee will not raise the fed funds rate unless the mediumterm outlook for the inflation rate exceeds a threshold value of 2 14 percent or the unemployment rate falls below a threshold value of 55 percent,1,p +while the unemployment rate is lower than the level that is sustainable in the longer run inflation is near 2 percent and does not show signs of appreciably rising,1,p +the boards proposali will now focus on the boards recent proposal for stricter regulations prohibiting abusive and deceptive practices in the mortgage market under authority of the home ownership and equity protection act hoepa,1,p +the strength of consumer outlays is surely due to a sustained healthy labor market outlook which we can expect to help keep consumer spending on a solid footing this year,1,p +at 37 percent the unemployment rate is at its lowest level in 49 years and payrolls have been growing well above the pace that is consistent with labor market stabilization,1,p +under a goaloriented approach to policy the fomc would view a gradual decline in the unemployment rate as being undesirably slow given that the mediumterm outlook for inflation is so low,1,p +the objectives of monetary policy growth high employment and stable values run absolutely parallel to the interests of commercial banking,1,p +however i believe the changes over time in the language of the fomc statement coupled with information provided by chairman bernanke and others in speeches and congressional testimony helped the public understand better the committees likely policy response given the slowerthanexpected economic recovery,1,p +also tighter labor markets are feeding into somewhat higher wage growth,1,p +household income has grown nicely while unemployment has remained low and together with low mortgage interest rates these factors have contributed to appreciation in home values,1,p +although our country continues to endure high unemployment we see some signs of modest improvement in the labor market,1,p +some solid job growth in turn would help to ensure that the recovery is selfsustaining by increasing consumer confidence,1,p +and third high vacancy rates and the low level of maintenance that often characterize foreclosed properties make a neighborhood a less desirable place to live and thus depress the value of surrounding homes2 in contrast to the market for owneroccupied houses the market for rental housing has been strengthening of late,1,p +that loss especially in a soft labor market is not only a shortterm drag on aggregate incomes but also a source of stress on the affected individuals,0,p +despite this we havent seen much systematic pressure for larger wage gains in the midwest or nationwide,0,p +this very modest pace of growth has brought gradual progress in reducing unemployment,1,p +household spending is likely to continue to grow at a solid pace for the remainder of this year especially if the job market improves as expected,1,p +the jobfinding rate for those who are permanently laid off is less than half the rate of those on temporary layoff so the speed of labor market improvement is likely to decelerate further if these trends continue,0,p +steady income gains rising household wealth and elevated consumer confidence continue to support consumer spending which accounts for about two thirds of economic output,1,p +the enhanced communication strategy and federal reserve accountabilityi have argued that the federal reserves enhanced communication strategy will improve the publics understanding of our objectives and policy strategies and thereby enable households and businesses to make better decisions,1,p +the labor market is reasonably tight with the unemployment rate at 45percent,1,p +first having more information on the underlying policy paths should help the public better understand the projections,1,p +about how increased global competition combined with technology to make our stronger growth and lower unemployment less inflationary than in the past,1,p +fiscal and monetary stimulus directed at improving employment conditions and federal support for housing finance will ultimately strengthen the housing market,1,p +growth is slowing from an abovetrend pace and labor markets are strong,1,p +it also includes promoting financial inclusion by proposing incentives for further bank investments in minority depository institutions community development financial institutions cdfis and community development activity in designated areas of need outside of assessment areas such as indian country,1,p +it is also consistent with the apparent fact that technological change has been shifting labor market demand toward higherskilled workers over timea second hypothesis is that extended unemployment benefits are discouraging workers from accepting employment offers,1,p +were such step undertaken we would see a significant rebound in gnp growth and with that som significant declines in unemployment,1,p +as we noted in the statement the recent pickup in economic growth and continued progress in the labor market have strengthened the case for an increase in the federal funds rate3 indeed in our individual economic projections prepared in advance of the september meeting nearly all fomc participants anticipated an increase in the target range for the federal funds rate by the end of this year,1,p +unemployment has fallen from 10 percent at its peak in october 2009 to near historic lows just 37 percent in july,1,p +faster wage growth for the lowestpaid workers federal reserve bank of atlanta macroblog december 16 semega jessica melissa kollar emily a shrider and john f creamer,1,p +wage growth has picked up too,1,p +civilian unemployment fell to 67 percent in december though and has held steady at that level through february,1,p +information about this review can be found on the federal reserve boards website4 in this review we will listen to a broad range of stakeholders at public events held around the country and we will draw on their insights as we assess how best to achieve and maintain maximum employment and price stability in the most robust fashion possible,1,p +i expect solid labor market conditions to continue,1,p +1 in addition to this improvement in household balance sheets the current rate of unemployment in the us is approximately 36 percent,1,p +it reflects the effects of a robust labor market that is encouraging more people who had been on the sidelines to enter the labor market,1,p +moreover the possibility that trade expansion might improve working conditions abroad even if not to the point of matching conditions in the united states was either not considered or ignored,1,p +our challenge now is to do what monetary policy can do to sustain the expansion so that the benefits of the strong jobs market extend to more of those still left behind and so that inflation is centered firmly around 2 percent,1,p +consistent with this slow output growth i expect unemployment to continue to fall only slowly down to around 75 percent in late 2013 and around 7 percent in late 2014 this level of unemployment will continue to constrain wage growth,1,p +achieving sustainable full employment the current official level of unemployment is 66 percent,1,p +and will a tight job market eventually increase pressures on wages,1,p +with vaccinations rising schools reopening and enhanced unemployment benefits ending some factors that may be holding back job seekers are likely fading6 while the delta variant presents a nearterm risk the prospects are good for continued progress toward maximum employment,1,p +the unemployment rate was at a historically low level employment growth was strong participation in the labor force was solid and inflation was near the fomcs longerrun goal of 2 percent,1,p +meanwhile throughout the year firms were hiring workers at an impressive pace and labor markets continued to tighten the unemployment rate fell to 412 percent in the fourth quarter down from 5 percent at the end of the previous year,1,p +and finally in this regard as the engine for the top regional economic performer in the nation atlanta is enjoying healthy job growth as well as business expansion and relocation in both the service and manufacturing sectors,1,p +4 at the same time strong employment growth earlier in the 1990s pushed unemployment rates in the region much lower than the nation as a whole where they remain today,1,p +while there is a long way to go in restoring a vibrant labor market i am encouraged by the employment reports released over the past several months,1,p +as i mentioned earlier the bundesbank did a remarkable job of preserving the purchasing power of the dm and the structure of the escb along with its mandate for price stability and independence will help ensure that the euro is a strong currency,1,p +the rapid growth in the last several decades was accompanied by even more rapid employment growth and this disparity has left a number of service industries with fat to be trimmed,1,p +thus encouraging students to create new products and to start their own businesses can contribute in significant ways to faster economic growth and reduced unemployment,1,p +putting all these pieces together i do not expect a large increase in labor force participation,0,p +by either measure the rate of expansion should decelerate and as a result unemployment will probably decline less dramatically than in the last two years,0,p +this expansion was led by consumers whose purchases o f homes cars appliances and a myriad o f durable and nondurable items spurred businesses to increase production expand their work forces and build their inventories in anticipation o f continued strong sales,1,p +as a result households are in a better position to purchase goods that are typically financed with credit and the cost of doing so is much lower than before,1,p +consumer debt service as percent of income for example has fallen to levels not seen since 1986 therefore households in better position to purchase goods typically financed with credit,1,p +recent employment gains should also provide support for further healthy increases in personal income and in turn consumer spending,1,p +as i said i believe that the progress in labor markets has been good and will continue and i view the inflation data as supportive of a gradual return to target,1,p +most of the declines in the unemployment rate since october 2009 have occurred because the fraction of people who are looking for work has fallen,1,p +this puts upward pressure on employment and prices,1,p +the cyclical part of inflation accounts for only about 40 percent of core pce inflation but it has continued to rise over the expansion as the labor market has continued to tighten,0,p +financial markets are continuing to improve household spending is stabilizing but remains constrained by ongoing job losses sluggish income growth lower housing wealth and tight credit businesses are making progress in aligning inventories though sales are still anemic and ceos are continuing to cut back on fixed investment and payrolls,0,p +its a waste of time trying to educate laymen in economic principles with a view toward improving public policy,0,p +2 it should be recognized however that while federal credit programs can help promote social objectives that have wide public support these benefits are not obtained without cost,0,p +monetary and fiscal policies must necessarily share responsibility for the long run state of the economy but at the same time we should be fully aware of the particular ways in which monetary policy can influence the economy and of the ways in which its influence is limitedeconomic analysis shows rather convincingly i believe that monetary policy can be a contributing factor determining the rate of growth in nominal income but that there is no certainty that a particular monetary policy10so long as we make progress toward solvin9 these difficulties both at home and in the international arena the most likely outcome for our economy will be that of expanding activity and declining unemloyment,1,p +any sustainable configuration of fiscal policy implies adjustments that are bound to affect a broad range of citizens in economically relevant ways either through higher marginal tax rates cuts in programs benefits or reductions in government payrolls and supplier contracts,0,p +on a further practical note if we arent willing to compensate those who suffer when for example a trade policy is implemented it increases the likelihood that powerful political opposition will thwart those policies,1,p +on the fiscal side publicemployment programs were expanded unemployment insurance 4was liberalized and both personal and corporate income taxeswere reduced,1,p +although press reports indicate that no guidelines were dis cussed the conversation itself demonstrates the administrations concern over wage developments not least in their implications for the competitiveness of u s industries in world trade and for the u s balance of payments,0,p +if restraint was needed it seemed to me that fiscal measures tailored to curb socially less urgent ependitures would have been more appropriate,1,p +fortunately the pains o f this transition are essentially behind us and along with that i believe people are becoming more positive about our nation s performance economically and in other spheres,1,p +the fuel crisis meanwhile will cut heavily into other types of discretionary spending such as travel and recreation,0,p +this puts anyone favoring tax uniformity in the position of being for sin and against motherhood,1,p +the inequities of tax treatment must be eliminated,1,p +the advantage of moving toward increased use of personal accounts in government pension systems is that it would reduce the taxes imposed on one generation to fund the benefits paid to an older generation,1,p +it is surprising to me that so many people who are genuinely motivated by hlllllanitarian impulses and concern for the wellbeing of the unfortunate have perhaps unthinkingly allowed themselves to accept the view that the pursuit of monetary stability through sound fiscal and monetary policies is reprehensibly shortsighted and inhumane,0,p +the apparent helplessness of governments to deal with the problem has encouraged other trade unions to exercise their latent power more boldly,0,p +the second quarter of 2021 saw a large wave of demand buoyed by fiscal transfers resulting in annualized real personal consumption expenditures pce growth of 118 percent,1,p +the council was confident that subsequent rounds of spending and respending would assure that the full effects of the tax reduction on consumption would be brought about as 1965 unfolded,1,p +congress has respo1ded to this public interest by enacting measures such as the truth in lending act,1,p +on a further practical note if we arent willing to compensate those who suffer when for example a trade policy is implemented it increases the likelihood that powerful political opposition will thwart those policies,1,p +financial innovations have improved the liquidity of housing investments and the tax code has tilted even more favorably towards housing,1,p +the regional policy agenda task group will pursue the unique opportunity presented by wisconsins smart growth provisions to highlight the importance of regional cooperation and more sustainable housing development policies,1,p +using this analysis neighborworks america in february awarded 130 million in newly granted funds from congress to thirtytwo state housing finance agencies eightytwo communitybased neighborworks organizations and sixteen counseling intermediaries approved by the department of housing and urban development hud,1,p +federal tax policy has long promoted homeownership by offering homeowners the mortgage interest deduction,1,p +but financial conditions at the household level are currently quite conducive to increased spending and the tax cut will help,1,p +citizen opinions are constantly being sought in polls or on talk radio,1,p +the tax reform act and accelerated depreciation even with some offsetting increases in social security taxes will reduce the public share of gnp both direct and including transfers and grants from 296 per cent in calendar 1969 to an estimated 287 per cent in 1975 as a result of these tax changes builtin increases in existing federal programs because of changes in populationwrkload and nonnal pay increases and new programs already proposed in the fiscal 1972 4 charles l schultze et,0,p +a payroll tax cut does have attractive features,1,p +by pooling risks across a large number of loans issued in a standardized fashion the government program encouraged private lenders to advance credit at a lower cost to borrowers and on less restrictive terms than would otherwise have been possible,1,p +in this context government can be thought of as tempering the inequality inherent in an economic system of private ownership and market allocation while still preserving the economic incentives that make the system go,1,p +but by the same token the crucial household sector should support the recovery because of its reduced tax burden including the current federal tax cuts plus the effects of earlier california innovations such as proposition 13 and incometax indexing,1,p +probably more significant would be a rationalization of taxes tax preferences and subsidies to insure that they aid the true priority claimants to our limited resourceswhile in periods of excess demand a combination of improved longterm aid to priority borrowers and of penalties upon nonpreferred borrowers would probably be adequate policies to aid preferred borrowers in a credit squeeze either by direct subsidies or by subsidies through lenders might also be logicala key consideration with respect to all these proposals is how best to determine the proper scope and degree of governmental incentive or disincentive to various sectoral credit flows,1,p +in the rebate case however the treasury disbursements will be especially large they will be concentrated 1n timing and nonseasonal 1n character and the payments will be made to families rather than to business units,1,p +in addition tribal governments are actively establishing additional business laws and legal institutions in order to protect tribal interests and cultural values on reservations,1,p +as i approach policy decisions it is discussions such as the one tonight that help me best represent the third district in washington dc the topics research and personal stories add a human element to the data i review each day,1,p +indeed research by federal reserve staff finds that firsttime homebuying during the past two years has been quite weak by historical standards and that this weakness has been particularly pronounced among borrowers with lower credit scores,0,p +thus for many years blacks were effectively prevented from tapping into the primary program designed to preserve savings and wealth in ones later years,0,p +supporters of a large infrastructure bill also point to the potential to create millions of jobsa critical priority given there are currently 96 million fewer jobs in our economy than there were a year ago,0,p +when this fails as in the savings and loan industry the taxpayer is at risk,0,p +as i noted however recent indicators suggest some loss of momentum with last fridays jobs market report showing an increase in private payrolls of just 83000 in may,0,p +yet during the pandemic we saw enrollment decline,0,p +the rate of unemployment 19 months after the last cycle peak is only slightly above comparable experience in 194850 but is higher than the 195355 experience by about one per centsuch a comparison may comfort statisticians but not the familiesafflicted,0,p +conclusion to summarize georgias economy is healthy and atlantas is even more robust,1,p +over the course of the current expansion the economy has run like a locomotive on a clear stretch of track fueled by the hard work and ingenuity of the american people,1,p +for example manufacturing employment rose in december by the largest amount since last march and the workweek lengthened alsoconsumer spending has picked up recently,1,p +the housing market is not yet clearing prices are still elevated relative to rents the overhang could be larger than i perceive and the attendant readjustment could be more abrupt and destabilizingand could possibly even overshoot on the downside,0,p +the unemployment rate peaked at 71 percent in june of last year and has edged down since then to a rate of 66 percent in november,1,p +florida has created the second highest number of jobs in the nation since the recession,1,p +consumer spending is likely to remain healthy since personal income and employment continue to advance,1,p +our community affairs office works to promote that mutual interest,1,p +unemployment in the region was almost three percentage points above the nation,0,p +we extended mortgage credit up to 60 of the value of the property rather than our standard 50,1,p +even if we include those weak months the economy has added more than 200000 jobs per month on average over the past seven months,1,p +the men and women who operate our businesses and create and sustain employment have assumed an uncharacteristic defensive crouch,0,p +the midwest preceded the nation into the 2001 recession and manufacturing employment here has been falling longer,0,p +household incomes should continue rising with the continued strengthening in employment and wages home prices should be contributing through improved household balance sheets and consumer sentiment remains upbeat,1,p +these are without particular it is a total commitment to participate on every level of our competence to assure a healthy viable community,1,p +but community banks often can use such information more efficiently than larger banks,1,p +indeed employment clearly began to grow in 1992 after shrinking the year before,1,p +weve lost 325 million jobs since then and all other major gauges of economic activity have been dismal since then as well,0,p +accordingly the fact that these ratios have come off their recent peaks is a hopeful sign about household loan performance,1,p +undoing such an increase in inflationary expectations as americans discovered in the early 1980s requires drastic policy steps that have extremely painful consequences for employment,0,p +thus without reforms to the system the number of working people paying social security taxes will continue to fall relative to the number of people receiving social security benefits,0,p +real incomes for the average american are up,1,p +while the acceleration that many have been forecasting for right around the corner would be welcome that scenario seems less likely than a scenario in which growth continues to be held back by household cautiousness low productivity growth and restrained housing markets,0,p +for the past 15 years the sale of new homes has climbed steadily,1,p +such results suggest that welldesigned programs to assist workers who lose their jobs can contribute to cushioning the effects of globalization and technological change,1,p +each of these shocks leads to a fall in employment with the decline in employment magnified by slow adjustments in the real wage,0,p +trade technology and wages the united states has experienced rising wage inequality since the late 1970s,0,p +for much of the expansion wage growth has been subdued compared to what weve experienced in other expansions,0,p +for us living standards and global prospects this is a remarkably troublesome assessment,0,p +as a consequence households were highly leveraged as the recession hit,0,p +this restraint on consumer spending is especially severe for households who owe more on their mortgage than their house is worth because such underwater households have been unable to take advantage of low mortgage rates by refinancing,0,p +while the vast majority of these gains augmented retirement and other savings programs enough spilled over into consumer spending to significantly lower the proportion of household income that consumers especially upper income consumers believed it necessary to save,1,p +second higher costs can only be passed through if customers are willing and able to pay the higher prices,0,p +unemployment remains annoyingly high,0,p +charges for consumer services have been risin2 faster each year since 1964 after increasing only 2 per cent annually early in this decade and this last year is no exception,0,p +just as current readings of inflation give some pause broad wage trends seem to suggest we are not yet on the cusp of full employment,0,p +we want to see incomes increase but we want to make sure they increase over the long haul,1,p +more importantly the relative gains for negro men were 112 to 2 times as large as the gains for white men,1,p +this is awesome and im not even graduating,1,p +we want people to live in neighborhoods with high caliber schools safer streets and better employment opportunities,1,p +fortunately in terms of sheer numbers those states with the best longterm economic outlook are also those with the most people,1,p +nevertheless improvements in education have made a difference in the relative income gains won by nonwhites,1,p + president plosser counters the view that rates cannot be raised because the labor market has not completely healed,0,p +for instance the region has about 8 percent fewer workers today than it had in 2000 this employment loss is linked closely to the job cuts in manufacturing,0,p +broadbased collaborations that cross sectors industries and disciplines demonstrate the interdependence of market participants and serve to further community redevelopment by increasing investment dispersing risk and creating ownership in a communityvital elements in sustainable revitalization,1,p +in the meantime before those adjustments are complete an attempt to reduce unemployment too rapidly is likely to spark more inflation conversely allowing disinflation to emerge may cause unemployment to decline too slowly,0,p +over most of the recovery wage growth by any measure has been quite sluggish and has trended well below prerecession averages,0,p +in addition our regions concentration in knowledge industries primarily health care education biotech and pharmaceuticals has made us less susceptible to unemployment in economic downturns,1,p +with jobs increasingly plentiful household spending surged real per capita consumption rose at a robust 26 percent annual rate,1,p +solid growth has sustained this strong labor market,1,p +the outlook for economic activitythe midpoint of the range of projections for real gdp growth declines noticeably from about 212 percent for 2007 to roughly 2 percent in 2008 then it returns to about 212 percent in 2009 and 2010 the projection narrative indicates that the nearterm weakness in the economy importantly reflects the sharp contraction in the housing market and the recent strains in the credit markets,0,p +there continue to be pockets in the country both geographically and demographically that arent feeling the relief,0,p +inequality and the recovery i have argued that rising inequality and stagnating wages may have led households to borrow more and to pin their hopes for economic advancement on rising home values developments that exacerbated the severity of the financial crisis and recession,0,p +and so in 1957 and 1958 society paid in unemployment lost salaries and lost profits the price of another bust that followed in the wake of a boom which we must in all honesty recognize was helped on its way by the excessively rapid growth of consumer credit,0,p +if decisions are imprudent wage detenninations will not be hammered out by realistic bargaining but will reflect collusion at the expense of the customer,0,p +under this creditallocation scheme lowcost housing would have a preferred status over all other seekers of bank credit,1,p +and that together with the robust job market and healthy gains in income and lofty wealth positions have propelled the demand for housing to extraordinary levels and with it the demand for new mortgages,1,p +if workers now began to demand large catchup increases in wage rates or greatly enlarged fringe benefits or if business 13firrns began to raise prices faster than costs to increase profit margins prospects for a gradual further abatement of inflation and a prolonged and stable prosperity would be endangered,0,p +expanding our human capital is fundamental to improving our standards of living because implementing new technologies has generally required a more skilled workforce,1,p +generally easy conditions in this market in 196265 encouraged a higher turnover rate of existing houses and probably a net withdrawal of equity from the housing market,0,p +economic growth has been even greater,1,p +labor as well as management must come to realize that tho economy has to be looked at in a dynamic framework and that the maintenance of outdated work practices is not in their longrun selfinterest,0,p +finally last but not least despite outsized increases in productivity in the second and third quarters employment finally began to increase in the third quarter after many consecutive months of job losses,1,p +moreover contingent work generally does not offer employerbased benefits and workplace protections that come with traditional employment opportunities like overtime compensation minimum wage protections health insurance family leave employersponsored retirement plans workers compensation and paid sick leave,0,p +the boards truth in lending regulations require creditors to provide consumers with disclosures about the loan terms including a schedule of payments,1,p +first much of the unusual behavior of labor force participation during this cycle has been caused by a sharp decline in the percentage of teenagers in the labor force,0,p +running counter to past cyclical patterns labor cost pressures have also remained subdued,0,p +for that reason and this is the part people always care about the most i see two rate increases as the likely appropriate path for 2018 of course ill continue to monitor the data as they roll in but thats the view in the first month of the new year,1,p +through channels such as these efficiency gains get diffused widely throughout our economy resulting in a broadly based increase in living standards,1,p +in the current environment a rapidly rising levelof consumer prices will not lead to the creation of new jobson the contrary it will lead to hesitation and sluggish buying 13as the increase of the personal savings rate in practicallyevery industrial nation during these recent years of rapidinflation indicates,0,p +in particular faster trend growth would increase the longrun equilibrium interest rate and what we need most now that we are near full employment and approaching our target inflation rate is faster potential growth,1,p +we continue the sequence of cycles of ever higher inflation eventually higher interest rates and then renewed recession with still higher unemployment4,0,p +it makes him richer and able to afford more of everything including leisurehe could have the same income for less work,1,p +but if the goal is to alleviate the sense of anxiety workers feel about their earnings prospects then trade adjustment assistance may be too limited,0,p +if such a mild temporary overshoot were to occur it would likely be consistent with the symmetry of the fomcs target and could help nudge underlying inflation back to our target8 recent research has highlighted the downside risks to inflation and to longerrun inflation expectations that are posed by the effective lower bound on nominal interest rates and it suggests the importance of ensuring underlying inflation does not slip below target in todays new normal9 we also seek to sustain full employment and we will want to be attentive to imbalances that could jeopardize this goal,1,p +another area of weakness is in construction in particular multifamily and nonresidential building,0,p +gross domestic product gdp growth was barely positive in the first half of 2011 the unemployment rate is 91 percent much higher than anything we had experienced for decades before the recession,0,p +we believe this is a responsible policy that is in the public interest,1,p +the affordable housing marketplace but when monetary policy has done all it can do there will still be an affordable housing problem,0,p +thus even with affordability quite favorable and house price expectations brighter i anticipate a relatively subdued pickup in housing starts over the coming year,0,p +as the programmatic examples i mentioned illustrate many community groups have recognized the challenges and risen to meet them,1,p +despite the unwelcome rise in the unemployment rate that was reported last week the recent incoming data taken as a whole have affected the outlook for economic activity and employment only modestly,0,p +the increase in housing starts also stalled later in 2009 before showing some modest renewal during the past several months,0,p +in addition weve seen a gradual secular decline in the labor force participation rates for people in the prime workingage group aged 25 to 54 some economists attribute this to workers becoming discouraged about their job market prospects and argue that the unemployment rate is understating the amount of slack in the labor market,0,p +3 and in general we work on the assumption that the more ease there is in the amount o f available money and credit the more stimulus is provided fo r gnp growth growth in turn reduces unemployment,1,p +but we will continue in the wage price area to seek the cooperation which we have had from businesses and employee groups and labor to see that we all exercise evenly some degree of restraint so that by sharing some ausperity fairly we can all gain the benefit of beginning to wind down inflation,0,p +these skills not only help people provide a better life for themselves and their families but by deepening their understanding of the world economy having such skills also helps equip them to be engaged citizens and informed voters,1,p +rather the sources of slow job creation are primarily domestic,0,p +although growth has slowed during the past two years job creation has remained substantial and apart from some shortterm variation unemployment rates have edged down furtherthe nations price performance also remained favorable,1,p +at its worst point in the 1980s the median length of unemployment for those looking for a job was 12 weeks but the median since the great recession has averaged 20 weeks and now stands at 16 weeks,0,p +higher employment incomes and confidence should support further spending growth by consumers,1,p +growing medical costs and rapidly changing demographics will at some point put an enormous strain on our ability to fund our entitlement programs,0,p +indeed this pattern of midcycle declines in unemployment coincident with noninflationary increases in real wages and labors share has been evident in the us data since the 1990s clarida 2016 heise karahan and sahin 2020 feroli silver and edgerton 2021,1,p +importantly incomes continue to grow,1,p +consumers and workers also stand to gain from trade through increased competition,1,p +lhe cost of living has risen dramatically the real irhne of the avrage worker hu tallen and it would be imderstw1ali u1o phculi nw try to maktip for all this,0,p +both of these foster real economic growth,1,p +people receive the dollars they were promised but the purchasingpower substance of the promise is missing,0,p +though the recent numbers are encouraging easy money has failed to encourage the robust payroll expansion that is the basis for the sustained consumer demand on which our economy depends,0,p +saving rates are up noticeably from precrisis levels and household assets have risen on net over recent quarters while debt and debt service payments have declined markedly relative to income1 together with expected further easing in credit terms and conditions offered by lenders stronger balance sheets should eventually provide households the confidence and the wherewithal to increase their pace of spending,1,p +we see it in the data particularly in math5 and it might be even worse than it seems because many students are missing from the data due to declining public school enrollment6 research tells us its hard to get back the benefits of early education once its lost,0,p +future is cut out for you,1,p +like other individual development accounts ida this program encourages lowincome individuals to save for specific needs by matching the contributions of the account holder,1,p +this is a breath of fresh air to some,1,p +i call it the new malaise,0,p +does ultralow unemployment spur rapid wage growth frbsf economic letter 201902 jan 14,1,p +and the rate of household formation has been truly low,0,p +if we faced such an accelerationist situation today the fed would have to raise rates aggressively and push the unemployment rate above its natural rate in order to fight the selfreinforcing inflationary cycle,0,p +real gdp grew only 2½ percent in 2002 employment actually declined by close to a halfmillion jobs that year,0,p +unemployment is below many estimates of its natural rate and other measures of resource pressures such as capacity utilization also suggest that little slack remains,1,p +geographical immobility of labor,0,p +third the program will ease the adjustment and dislocation that are likely to accompany revitalization by providing increased economic development funding an additional ten percent investment tax credit for eligible investments in areas with high unemployment expanded job training and additional relief for the unemployed,1,p +as the economy continues to reopen i expect job creation to pick up in the coming months,1,p +both the south and the west are young economically speaking since rapid economic growth has been concentrated in relatively recent periods,1,p +we have developed a personal financial education web site that contains links to a large number of national state and local consumer education resources1 on that site one can find information on such topics as online banking how to buy a home and accessing credit reports,1,p +for example through last week there had been just over 2000 school closures for covid across nearly 470 school districts in 39 states10 while the disruptions last just under six days on average the possibility of further unpredictable disruptions could cause some parents to delay their plans to return to the labor force,0,p +in 2007 over 63 percent of the american population was working,1,p +moreover consumer debt has grown faster than consumer assets for about two years,0,p +2 falling real consumption is the main cause of recession resulting from inflation that is outrunning incomes,0,p +in fact there are over five million fewer jobs today than before the pandemic and the unemployment rate is still far above levels reached early last year,0,p +the benefits of these initiatives are significant for an individual if a loan results in their buying or rehabbing a home,1,p +winning the mercedes auto plant was a bright spot that should contribute some highwage jobs this year as the plant is built and lead to a pickup by yearend though at considerable cost in terms of state revenues forgone,1,p +although the outlook is for construction employment to continue to weaken for at least several more months a decline commensurate with the falloff weve already seen in housing starts still would have only a minor effect on total employment,0,p +community developers have responded by becoming more knowledgeable and more sophisticated and by undertaking increasingly more complex development tasks,1,p +so allowing for labor force growth of 1 to 1¼ percent the economys potential output would grow between 3½ and 4 percent for quite some time most likely closer to the upper end of this range,1,p +nationally payrolls shrank by some 812 million about 6 percent and the 41000 jobs lost in rhode island represented close to 8 percent of the states employment,0,p +such an increase in employment is entirely consistent with the pursuit of maximum employment that congress has mandated for the fomc,1,p +at the same time shipments of manufactured homes have been trending up last year accounting for nearly a fifth of new housing units,1,p +incoming spending data have been relatively strong and the labor market should continue to tighten exerting some upward pressure on wages and prices,1,p +as the labor market has weakened wage growth has tapered off,0,p +the housing market will also be a factor constraining employment gains by reducing the mobility of homeowners who owe more on their home than it is worth,0,p +the factors which cause loans to have a high probability of loss are all highly concentrated in poverty areas,0,p +because of this experience nhs was wellprepared to assist chicagoans in the recent housing market downturn,1,p + in the long run better basic education at home and at the elementary and secondary school level will provide the foundation for a lifetime of learning,1,p +by the middle of last year we were seeing signs of resilience in economic activity with labor market conditions beginning to recover from the economic effects of the pandemic,1,p +i believe that our accommodative monetary policy has put the economy on a path albeit gradual that will achieve our maximum employment objective while maintaining price stability,1,p +that growth has been underpinned by solid real income growth during the recovery and favorable prospects for future income growth,1,p +on the contrary i think collllllunity reinvestment can be good business and i dont believe the law expects otherwise,1,p +we will continue to collaborate at the national regional and local levels with other stakeholders in the public private and nonprofit sectors to help to avoid preventable foreclosures and to address the consequences of the foreclosures that occur,1,p +hysteria h o w e v e r induced will continue to b e a w o r r i s o m e threat,0,p +unemployment which fell to 68 percent on an annual average basis in 1993 should average about 612 percent for 1994 this improvement is better than it sounds because the us labor department changed its methodology at the start of this year with the 3 result that measured unemployment is about half a percentage point higher on average than the rate that stems from using the old method,1,p +in 1969 negroes constituted 113 per cent of the total population but they received only 64 per cent of total money income,0,p +between 1992 and 2002 mortgage debt of households rose from 59 percent of aggregate disposable income to 74 percent of disposable income,0,p +since the end of the recession the net worth of households has increased by slightly over 4 trillion and is up substantially from its low point in the cycle,1,p +that will leave a larger share o f public funds for improving the quality o f education a trend that should add to gains in productivity expected from other factors,1,p +this is the fastest growth rate in any halfyear period since the cyclical upturn in late 1958 the recent growth in economic activity was accompanied by a 13 million increase in total employment from the low point reached last march,1,p +the first is the effect of prolonged unemployment and the second is a heightened sense of caution on the part of consumers and businesspeople,0,p +these factors prevented some people from obtaining mortgages regardless of the interest rates they were willing to pay,0,p +who could get excited about earning 5 12 percent when inflation was shrinking the buying power o f deposits faster than the payment o f interest increased their nominal value,0,p +but readings unemployment rate is still quite low and is close to the national average,1,p +however the increase also had a major 4 deflationary impact since the burden on american consumers was roughly equivalent to a 10percent increase in personal income taxes,0,p +some also wonder why inflation has been so well behaved when the unemployment rate is so low and the economy has been growing for an extended period at a considerably more rapid pace than most of us thought sustainable without rising price pressures,1,p +in the past few years the us homeownership rate has reached its highest level in history nearly 70 percent,1,p +it is true as shown by table 1 in the paper that the number of us households owning equity in some form has increased substantially,1,p +congress recently passed legislation that will result in the minimum wage going up by over 45 in the next four years,1,p +with all their faults they stack up well against those in every other occupation or profession,1,p +auto and housing markets have been improving,1,p +the other federal agencies report similar experiencesa discrepancy clearly exists between the few complaints we receive and the prevalence of allegations of widespread discrimination made by community organizations and others,0,p +for example socalled core pce price inflation which is based on the broadbased price index for personal consumption expenditures and excludes the volatile food and energy components of the overall index has declined from approximately 25 percent at an annual rate in the early stages of the recession to an annual rate of about 11 percent over the first eight months of this year,1,p +on the other hand with economic growth expected to be somewhat modest employment opportunities may well be held down,0,p +these statistics make it clear that we have a big challenge on our hands in greater cleveland because the majority of the regions parents are not college graduates,0,p +in addition african americans are more likely not to apply for a business loan when they need credit because they fear their loan application would be denied,0,p +displaced older workers present a particularly difficult problem as these workers have greater difficulty than others in finding new jobs and experience a greater decline in earnings than other workers if they are reemployed munnell and others 2006,0,p +this effect would be barely noticeable given that housing starts need to nearly triple to get back to their normal level,0,p +therefore the proposed military base closures will affect this region through job losses,0,p +last year home sales fell sharply and fewer new homes were built,0,p +while income has rebounded for the top 5 percent in the recovery the share that went to the next 45 percent declined further to 49 percent in 2013 the bottom half of the distribution saw their share of income fall from 16 percent in 1989 to 15 percent in 2007 edge up in 2010 and then reach a new low for the survey last year at 14 percent,0,p +for example in the primeage group of 25 to 54 the united states experienced a 2 percentage point decline in labor force participation from 2007 to 2014 while most oecd countries saw an increase figure 6,0,p +because the posttrough recovery in the labor market has been so much slower this time around the experience of the earlier episode suggests that the current risk of increased inflation is for the time being at least quite small,0,p +what message do you bring from washington to the middleincome wage earner who can no longer buy a car every couple of years who cant afford a home and who gets a raise and yet brings home less pay,0,p +to be sure the economy will grow somewhat more slowly because of the correction in the housing market,0,p +over the past year in fact housing has been a relative star performer in the economy,1,p +but certain other costs have risen even more rapidly than payrolls,0,p +these sectors also employ more women and minorities who have both lost jobs and been hit hard in other ways such as by having to shoulder a disproportionate share of the extra childcare responsibilities or contracting the virus at a higher rate2 notably many job losses resulted from closures of small businesses located in the citys more affluent areas,0,p +many have begun to feel that opportunities for earning a better and more secure return on investment are larger elsewhere than here at home,0,p +the overall unemployment rate rose to 7 percent in april from 62 percent in march the sharpest onemonth rise since january 1975 and the highest rate in over three years,0,p +actually this job h a s b e e n so e f f e c t i v e that p r o g r e s s itself is our m o s t i m p o r t a n t problem,1,p +72 1 reflects our own learning process but also a different more conservative temperament in country,1,p +the tremendous increase in the international value of the dollar over the past several years has been an important factor in this improved inflation performancedirectly through its influence on prices22of growth that has occurred since mid year 1984 the increase in real disposable income during the past two years has been particularly robust aided on the one hand by substantial income tax reductions and on the other by large increases in employment,1,p +finally the pressure to enlarge the pool of skilled workers also means that we must strengthen the significant contributions of other types of training and educational programs especially for those with lesser skills,1,p +social pressures are simply too great to be contained for long even with the viet cong sitting on the safety valve,0,p +that might be the best thing that could happen at this a realistic growth projection seems to be something in the neighborhood o f 5 percent give or take a few tenths o f a point,1,p +t h e se e n c o u ra g in g d e v e lo p m e n ts a r e having a p o sitiv e im p a c t on th e b r o a d e r e c o n o m y ,1,p +thanks to the progress we have made in recent years the greater philadelphia region will recover along with the nation,1,p +also on the consumer side several positive factors are at work in addition to the lagged effects of lower shortterm interest rates,1,p +my own expectation is for strong growth and a rebound in the labor force participation rate once the economy fully reopens,1,p +1 this is part of the ongoing process of matching people with jobs,1,p +the number of singlefamily housing starts in 2011 will be basically the same as in 2009 several understandable forces are holding the housing market back,0,p +the participation rate for adult females is 539 percent still well below the level prevailing for adult males 783 percent,0,p +moreover there are usually indirect and more subtle costs associated with reduced freedom of choice for the regulated and the consuming public,0,p +one thats of particular interest at the philadelphia fed is the future of work and how cities and regions across the country are preparing for the changes that are already well underway,1,p +return to text 3  although recent additions to payrolls are much greater according to the household survey as of march 2004 the payroll survey reports a higher level of employment by about 600000 jobs than the household survey on a comparable payroll basis,1,p +therefore improvement o f education is a need that extends across all state boundary lines and should be the number one priority in the region,1,p +we can see a sharp decline in this ratio from 2007 to 2009 and in contrast to the unemployment rate there has been no noticeable recovery in this measure,0,p +i do believe the structural rate of unemployment has risen,0,p +employment growth will also slow a bit but it will remain strong enough to absorb those entering the workforce and i expect the unemployment rate to remain at or below 4 percent,1,p +the most sobering aspect of current economic reality is the employment picture,0,p +the employment cost index rose 26 percent last year,0,p +other banks have formed community development corporations which provide equity as well as debt financing for low and moderate income housing,1,p +average hourly earnings rose at a 27 percent annual rate last year well above the overall rate of inflation,1,p +while we know that there is no longrun tradeoff between inflation and unemployment policymakers try to maintain an equilibrium in the labor market at approximately full employment both because full employment is an important goal and because avoiding shortrun strains in the labor market helps to maintain price stability,1,p +this disproportionate impact of the virus has made many families of color reluctant to send their children back to inperson learning,0,p +the personal consumption expenditures or pce price index the measure of inflation preferred by the fomc registered a 14 percent increase over the 12 months through october,0,p +a ll o f these facts mean our labor force is not keeping up 9 with the rest o f the nations,0,p +average hourly earnings rose 20 cents in april for privatesector nonsupervisory workers to 2545,1,p +this acceleration in job growth has helped bring the unemployment rate down to 58 percent as of october compared with 72 percent a year ago,1,p +this lowers the risk premia built into mortgage rates,1,p +however because specific or new types of market failures might be driving a particular asset price bubble some future bubbles will almost certainly create unanticipated difficulties and as a result adjustments to our policy stance to limit the market failure contributing to a bubble could be very beneficial if identified and implemented at the appropriate time,1,b +indeed many of the structures seemed to be created to satisfy investors strong demand for securities that carried investmentgrade ratings but that might provide slightly higher yields than other investmentgrade securities such as corporate bonds,1,b +i further suspect that some bankers who went along with the view that loantodeposit ratios can be safely increased to 70 or 80 percent may now be having second thoughts if not real problems,0,b +the objective is to prevent the securities affiliate from obtaining any benefits from the safety net and to assure that the bank will not draw on the safety net because of its dealings with its securities affiliate,0,b +the atmosphere in the securities markets became much quieter than it was over the summer,1,b +all of these have added to the list of bad debts in the hands of financial institutions commercial banks in particular,0,b +for example in response to instability of capital flows and the exchange rate some east asian countries such as korea and thailand began to build up large quantities of foreignexchange reserves and continued to do so even after the constraints imposed by the halt to capital inflows from global financial markets were relaxed,1,b +as i already mentioned uncertainty about the value of assets about the creditworthiness of counterparties and about future calls on the liquidity and capital of important market participants caused liquidity to dry up in many segments of the money markets,0,b +the redeposit proposal is based on an important technical point namely that unless the new marginal reserves held by nonmember banks with their correspon dent member banks are redeposited with a federal reserve bank these reserves will not be sterilized,0,b +and nost sectors are already deeply penetrated by existing lenders with considerable expertise ready to capitalize on the trend toward a checkless creditcard society,0,b +in this context even if the blending of financial functions and financial institutions does not directly and materially increase the degree of financial interdependence from what would occur in any event it may produce a situation in which it is more difficult to quickly identify the dimensions and reach of problems when they arise and to identify the circuit breakers that need to be thrown in order to prevent a particular problem from taking on systemic characteristics,0,b +our debate about what we dont want intermediaries and financial markets doing must be informed by a better articulated view of what we do want them doing,0,b +these may be the banks greatest contributions to the longterm economic prospects of the developing countries,1,b +investors must be confident that banks are establishing sufficient levels of reserves and recognizing loan impairment in a timely fashion,0,b +by 1972 all except l_ in passing it should also be observed that deposits in foreign branches were also free of both us imposed reserve requirements and ceiling on maximum interest rates which could be paid,1,b +today there appears to be almost nothing a bank can do that cannot be done by a nonbank bank while there remain many things to that some nonbank banks can do that banks are not aìlowed do,0,b +the increased complexity of many consumer products as well as their sale by a range of financial institutions to a larger segment of the public is arguably one of the causes of the current crisis,0,b +we are also aware of concerns that the current competitive balance between basel i banks and basel ii banks might be upset in certain loan markets,0,b +second financial institutions understand that it is in their best business interest to make business continuity planning an executive management issue requiring toplevel involvement and not insignificant investment,0,b +third certain basic fundamentals regarding capital measurement and capital adequacy will not change,1,b +greater diversification is frequently cited by the banks as being necessary to their survival and as a force for restructuring,1,b +undoubtedly the earnings on that portion of their reserves which these banks can invest would lessen the net burden of their much higher reserve requirements,1,b +the first of these authorities is directed at financial firms that are not bank holding companies and thus not subject to capital requirements and other parts of the holding company regulatory regime,1,b +the resultant shrinking of deposits under central bank cognizance is of grave concern at a time when more effective monetary control is essential to combat the clear and present danger of virulent inflation,0,b +regulators had recognized these problems in some cases but did not press firms vigorously enough to fix them,0,b +these trends have heightened credit risk,0,b +in the end the us banking agencies tried to allow as much choice as possible while ensuring that banks are still meeting domestic regulatory obligations avoiding privatesector costs that do not produce some clear and convincing level of benefits abiding by the evolving basel ii agreement and most important maintaining a safe and sound us banking system,1,b +an institutions record of performance is also taken into account along with other factors when the federal reserve 6board decides whether or not to approve certain applications from the institution such as to form a holding company or to acquire a bankbecause of the increase in acquisitions cra has lately been the focus of increased community and state legislative interest and concernone of the concerns expressed regards the potential for banks to be less responsive to local concerns if decisions about local bank policies are made by institutions in other states,0,b +beyond the fed the bankruptcy process could perhaps be enhanced in ways that speed up the resolution process for large financial firms but retain clear legal rules about the distribution of losses and oversight by a bankruptcy court,0,b +they can retard or even smother adaptation in the entire financial sector of the economy,0,b +nonetheless since the latest wave of nonbank acquisitions began around 1969 i know of only a handful of cases in which nonbank affiliates performance was so poor as to seriously destabilize the parent holding company or its lead bank,0,b +the credit intermediation process has become dysfunctional and as for stocks the sp 500 index has become historically and hysterically volatile it closed today roughly 50 percent off its october 2007 peak,0,b +the small bank can also develop a working relationship with a correspondent bank so that the large correspondent bank purchases loans from the small bank when seasonal volume becomes very heavy,0,b +the idea promoted by former federal reserve chairman paul volcker and now endorsed by the administration is to insulate insured depository institutions from proprietary trading or similar capital market activities that are thought to pose unusually high risks for institutions or more precisely for the federal safety net provided to insured banks,0,b +there is accordingly an especially great need for efficient cooperation and coordination among the various regulators that collectively oversee the financial system,0,b +second u s banks have more restrictions on the products they can offer often limiting them mainly to deposittaking and lending activities,0,b +i can say without contradiction that this is a period of unique challenge for your industry and for banking and thrift regulators and i would like to focus ray remarks on the new approaches these times call for from both regulators and management,0,b +some of these services such as legal and accounting services are closely connected to success in financial services trade,1,b +indeed i believe it is very difficult to make the case that its an acceptable risk for a bank to lend to a corporation longterm at a fixed rate to guarantee its commercial paper to provide it a longterm letter of credit to engage in interest rate swaps with it and tounderwrite its securities in london or tokyo but not to permit that same bank organization to underwrite the same corporations stocks and bonds in the united states,1,b +using total reserves as the daytoday operating target which the federal reserve has never done would be a very direct approach leaving little scope to the market,1,b +it is certainly reasonable to assume that exotic or at least exotically named derivatives are riskier than singlefamily mortgage loans,0,b +in the fourth quarter of 1993 banks had unrealized gains of 115 billion,1,b +and this simple fact is one 6 of the many reasons for the growth of multipleoffice banking the bulk of bank customers are no longer business enterprises located downtownunless we wish to impede seriously our economic progress we must bow to change and reality exemplified in such developments as these,1,b +part of our rationale for approving the dual ihc structure was the enhancement of recovery and resolution options of the global firm,1,b +consequently capital flowed rapidly into the united states helping to fuel large appreciations in stock prices and in the value of the dollar,1,b +third cra does not require banks to make loans at belowmarket interest rates or under terms and conditions inconsistent with safe and sound lending,0,b +another director said of the current financial turmoil when you swim in the ocean you dont know whos naked til the tide goes out,0,b +nonetheless market reactions to the announcement of the emergency facilities anecdotal evidence and a number of the studies we do have suggest that the facilities forestalled potentially much worse outcomes and encouraged improvements,1,b +pillar 2 of the new accord provides a consistent framework for improving supervisory assessments of capital adequacy and risk management,0,b +as competitive pressures have intensified community banks have used a variety of tools to maintain a competitive edge,1,b +controlling bsaaml risk continues to be a primary concern for banking organizations,0,b +in doing so there are lessons they can learn from advances in risk management strategies developed by major financial institutions,1,b +few recognize the complexity of our existing financial system,0,b +financial institutions are required to determine credit needs develop products to help meet those needs and market those products equitably through the communities they serve,0,b +now in a movement that will probably not become a major short run trend three states7 have chosen to permit entry by out of state bank holding companies,1,b +this threat could well lead to continued declines in bank lending which would curtail the recovery,0,b +there should also continue to be heavy emphasis on the performance of services for a fee in order both to offset the economization of demand deposit balances to which i referred before and to insure enhanced profitabilitywe can anticipate that additional efforts may be made to create instruments attractive to investors and rewarding to banks,1,b +taking this approach in the us context could help to reduce the cost that the largest banks face in offering clearing services to their customers,1,b +more recently vayanos and vila 2009 study a preferredhabitat model in which short and longterm assets are imperfect substitutes in investors portfolios and the effect of arbitrageurs is limited by their risk aversion or other market frictions such as capital constraints,1,b +the intense volatility in financial markets that we saw at the end of last year and the beginning of this year has subsided,1,b +rather than fight against all change many now focus more on trying to shape the new interstate laws to maximize their opportunities in a less regulated environment,1,b +of course while the current approach allows for an ad hoc consideration of the particulars of each activity it still requires at least a general filter for identifying sources of systemic risk,0,b +disclosure rules that are built too rigidly while risk management processes continue to evolve may make them less effective in describing the risk profile of a specific organization,1,b +to summarize briefly the acts major provisions it would allow the board to deny an application by a foreign bank that proposes to establish an office or buy a bank in the united states unless the foreign bank meets the same standards regarding financial and managerial strength as are applied to us banks to take into account various factors in approving any applications including whether the foreign bank is subject to consolidated supervision by its home country authority and whether us bank regulators will have adequate access to information from the bank and its affiliates to determine compliance with us law to terminate the us activities of foreign banks for violations of law or unsafe or unsound practices to coordinate with other regulators and supervisors in examining simultaneously the nationwide offices and subsidiaries of a foreign bank and to cooperate more fully with foreign regulators in sharing information on banks that are operating internationally,0,b +the sooner a troubled firm enters bankruptcy the more likely that it can be reorganized or wound down without a bailout,0,b +lsaps have other drawbacks not associated with forward rate guidance including the risk of impairing the functioning of securities markets and the extra complexities for the fed of operating with a much larger balance sheet although i see both of these issues as manageable13 in deciding to employ lsaps the fomc has accordingly remained attentive to the possible costs and risks as well as to the efficacy of this less familiar tool a point the committee has regularly noted in its postmeeting statements,1,b +it is extremely important that we maintain a financial system that is able to withstand the inevitable shocks and surprises,1,b +functioning of the commercial paper market has greatly improved,1,b +further these are relatively young products and the markets in which they trade often do not have deep liquidity,0,b +while our new payments paradigm brings with it vast alternatives for the users of the system it also presents some difficult challenges for our industry,0,b +a third broader lesson from this event is that the regulatory framework for banks constructed after the gfc with the refinements and recalibrations we have made over the last few years held up well,1,b +concerns about potential shortfalls in investment certainly have contributed to recent recordhigh longterm futures prices,0,b +once the recent crisis was triggered in early july with thailands eventual forced abandonment of its exchange rate peg it was apparently the lethal combination of pegged exchange rates high leverage weak banking and financial systems and declining demand in thailand and elsewhere that transformed a correction into a collapse,0,b +the ideal central bank lending policy would require making clear distinctions between different possible sources of bank or financial distress,0,b +by the fall of 1979 financial markets were gripped with inflation fever,0,b +for the first nine months of these results 10 1962 banks with less than 5 million in deposits showed per cent of these small banks reported actual declines in time deposits about onefourth of such banks had gains of between zero and onethird had gains of between of 20 10 and 19 9 per cent per cent and about threetenths had gains per cent or more,0,b +thus we will continue to monitor cryptocurrencies as they evolve with particular vigilance for any signs of growing materiality to the broader financial system,0,b +thus in the sixties banks have increased their share of the credit market by nearly 50 per cent,1,b +the recently completed supervisory capital assessment program scap of the nations 19 largest bank holding companies both confirmed and advanced the utility of this supervisory technique,0,b +believing that the international financial community will support these economies in part by backstopping the obligations they incur induces investors to commit more than they would otherwise,1,b +second policymakers felt forced to confirm those expectations because they believed failing to rescue creditors would cause a disruptive adjustment of expectations regarding support for other entities,1,b +as new providers enter the field well need to focus on the risks rather than on the type of entity providing the service,0,b +this is a long quote so bear with me as it perfectly captures the circumstances that led up to our current predicament every now and then the world is visited by one of these delusive seasons when the credit system expands to full luxuriance everyone trusts everybody a bad debt is a thing unheard of the broad way to certain and sudden wealth lies plain and open and men dash forth boldly from the facility of borrowing,0,b +the result has been a shift in the preference of analysts and investors away from equities and toward bonds,0,b +in good times volatility declined and value at risk along with it,1,b +the opportunity for such diversification is a desirable consequence of the strengthening of the 3worlds financial markets,1,b +currently the market appears to expect the initial tightening to occur later in the second half of the yearlet me emphasize that even though im a participant in the feds fomc policy meetings i really have no better idea what we ultimately will do with policy this year than others,0,b +adam smith said all money is a matter of belief and it naturally follows that all financial systems are a matter of trust,0,b +currently the volume of securitization is far below mid2000s levels with much of the decline reflecting the collapse in private residential mortgagebacked securities,0,b +there were undoubtedly many imprudent even reckless practices associated with the securitization process particularly with respect to some exotic instruments whose risk could not be understood even by their creators,0,b +even the most intensive supervision cannot make sure that no bank will ever suffer losses large enough to wipe out its capital,0,b +at the same time our interest is in ensuring that banks understand and manage their risks when introducing new technologies or partnering with fintech companies and that consumers and small businesses remain protected23 this is why the federal reserve has been engaged in a broad and multidisciplinary effort to develop a robust understanding of the technologies and activities in this space in order to study fintechs opportunities and risks and assess policy and supervisory implications24 fintech is also one of the factors driving calls for regulators to modernize the community reinvestment act or cra as technology changes how financial products and services are accessed,0,b +the fsbs evaluation shows that systemically important banks remain very complex highlighting the importance of resolution planning,0,b +it is also possible that there is not much subsidy in cra loans so that again banks might have made loans available on similar terms even in the absence of cra,0,b +notably to promote financial stability and to address the extremely serious problem posed by firms perceived as too big to fail legislative action is needed to create new mechanisms for oversight of the financial system as a whole to ensure that all systemically important financial firms are subject to effective consolidated supervision and to establish procedures for winding down a failing systemically critical institution without seriously damaging the financial system and the economy,0,b +i say additional leeway because many banks were not using what leeway they had and were reluctant to see more added,0,b +among the cdos that invested in subprime mortgagebacked securities it was common for a single cdo to own hundreds of different mortgagebacked securities each with its own pool of underlying mortgage loans,0,b +unfortunately this means tha_t the economy must pass through a period of possibly intense pressures in financial markets,0,b +the bulk of the losses reported by the major derivative houses for the financially turbulent third quarter of last year reflected declines in the market values of their underlying trading positions especially in equities commodities and emerging market debt,0,b +adding banks as competitors in the markets for these services may simplify their task of managing their financial resources,1,b +thus banks with less than 100 million in assets should be viewed as a key source of dynamism and competition within the banking sector,1,b +of as subsldies attrlbutable the recent debate about the appropriate response to bank involvement ln leveraged buyouts lbos lllustrates the dlstinctfon between these two approaches some people are urglng that bank involvement ln lbos be regulated 6 restricted or precluded,0,b +that initial experiment helped stabilize financial markets and shore up our banking system at a critical and uncertain time,1,b +21 in the event of an economic downturn and some creditquality deterioration the reduction in bank brokerdealer inventories and marketmaking capability could mean that credit spreads might widen more significantly and potentially in a more volatile manner than they have historically,0,b +another difference this time is that the flow of savings to financial in stitutions and thus the capacity of these institutions to accommodate credit demands has been very large while direct investment by savers in stocks and bonds has remained relatively moderate,1,b +clearly banks roust have policies and procedures10 10 banking and financial system and must remain intimately involved in understanding and addressing its problems as they arise,0,b +therefore it is imperative that bankers exert their best energies and judgment in managing the acquisition and 14 administration of loans,0,b +nonetheless banks still have more to do to restore their health and adapt to the postcrisis regulatory and economic environment,0,b +to check the relative decline of the banks in this field and to enhance their role in the future a number of critical changes are required since the correspondent banking system is becoming less able to member board of governors of the federal reserve system,0,b +we will continue to work toward improving our ability to detect and address vulnerabilities in our financial system,0,b +return to text 3 see roisin mccord and edward simpson prescott 2014 the financial crisis the collapse of bank entry and changes in the size distribution of banks federal reserve bank of richmond economic quarterly vol,0,b +observers have pointed out that rates on financial instruments typically priced below the overnight rate such as liquid deposits shares in money market mutual funds and collateralized borrowings in the repo market would be squeezed toward zero as the policy rate fell prompting investors to seek alternatives,0,b +the presence of deposit insurance eliminates credit risk from covered deposits and thereby allows the operation of depository institutions at interest costs below those paid by other uninsured intermediaries,1,b +a sudden investor retreat sparked by a collapse in expectations of intervention would just add to financial market volatility in an already volatile situation which is why the sense of urgency about protecting creditors and counterparties becomes overwhelming during a crisis,1,b +they fled to the safest and most liquid assets and as a result interbank markets stopped functioning as an effective means to distribute liquidity increasing the importance of direct lending through the discount window,0,b +but many banks appear to be ready and able to lend to creditworthy customers thats what banking is all about,1,b +moreover there has been an increased international tendency for financial systems to be more transparent open and supportive of strong investor protection8 accordingly the trend of declining home bias and expanding international financial intermediation will likely continue as globalization proceeds,1,b +the role that derivatives can play in allowing counterparties to manage risks is now widely accepted,1,b +we continue to examine banks to measure and ensure their compliance with the equal credit opportunity act,0,b +because of financial deregulation banks risktaking behavior also increased as they channeled more funds to realestaterelated sectors and to small firms accepting property as collateral22 trusting in a rising real estate market some banks went as far as lending more than 100 percent of a propertys appraisal value,0,b +these actions were designed to enable institutions to better compete with the marketplace for funds within the limits of their earning capacity and to the3 for a growing share of credit restraint to be achieved via price deterrents higher interest rates with a decreasing share being effectuated by nonprice restraints on credit availability eg rationing loan ceilings and the like,0,b +psychological shifts influence financial markets much more rapidly than they change those for goods and services,0,b +minimum capital requirements are a major tool for ensuring an adequate cushion,0,b +although the ratios of nonperforming assets remain high in many cases asset quality appears to be stabilizing and bank provisions for loan losses are decreasing,1,b +basel ii is rooted in modern finance and seeks to develop in the larger banking organizations a comprehensive systematic approach to assessing the various risks to which they are exposed,1,b +a more important observation is that generally the growth rates of connunity banks do not appear to be affected by the entry of larger competitors into their submarkets whether through acquisition or on a de novo basis77 roa of 118,1,b +in addition the federal reserve took a variety of other actions including waiving daylight overdraft fees extending the operating hours for fedwire and easing the limits on securities lending to reduce the pressure on firms requiring securities that were made scarce because of settlement difficulties,1,b +perpetuating obesity with each passing year the banking industry has become more concentrated,0,b +the credit crunch of the early 1990s and the bursting of the stock market bubble in 2000 were absorbed with the shallowest recessions in the postworld war ii period,0,b +8 financial institutions also had an incentive to engage in regulatory arbitrage moving assets to undercapitalized offbalancesheet vehicles,0,b +lacker 2005having said that policymakers should be alert for opportunities to reduce adverse outcomes without harming credit availability in other words to improve the terms of the tradeoff between credit availability and borrower protection,1,b +as a result some financial institutions have turned down deals with unfavorable risk characteristicsdeals that they might have accepted in the past,0,b +and so fifth to what extent does a comprehensive regulatory approach to shadow banking need to include mechanismsinvolving the government directly or indirectlyfor the creation of more genuinely safe assets as well as limitations on the runnable varieties that can precipitate or exacerbate financial stress,0,b +in addition to lowering the cost of our financial services we are also striving to improve the way that we conduct the bank supervision side of our organization,1,b +not surprisingly declines in home prices generally have not led to financial instability,1,b +these changes however show how seriously the basel committee and its participating national authorities regard the public comment process and benefit from the analysis of bankers and other interested parties,1,b +as you know the second half of the 1990s saw a recordbreaking runup in equity values in the united states,1,b +scenario analysis should ultimately facilitate estimating the possible effects on individual financial institutions as well as on financial markets more broadly,1,b +moreover it improved the efficiency of money and capital markets affording savers and investors greater opportunities to lend and borrow at or near market interest rates,1,b +ninety us banks were in the top 500 but they accounted for only 11 percent of total deposits,0,b +the weakening in earnings of thrift institutions that began after 1978 deteriorated further to widespread losses in 1981 and funds for new mortgages became scarcer and more costly,0,b +i f nonbank banks are allowed to operate these institutions will bring our financial system about as close to full interstate deposittaking by insured banks as we can get without actually being there,1,b +the dramatic recent expansion in government lending has extended safety net support beyond the set of institutions previously covered by that regime,1,b +i will conclude my remarks on cooperative efforts by focusing on reduction of credit and liquidity risks in the foreign exchange markets,0,b +the immediate goal of such facilities however is the reduction of stresses in the interbank funding market,1,b +we committed to work together to stabilize financial markets and restore the flow of credit to support global economic growth,1,b +if private markets are going to perform their risk control functions then market prices must send the right signals to all participants about the risks and rewards of a particular transaction or at a given firm,1,b +for instance total bank credit in the united states over the same 312 years grew at an average annual rate of 109 percent,0,b +still others argue that while it is possible the creation of such insulation removes the benefits and synergies of affiliation ot depository institutions with nonbank firms,1,b +the american bankers association series on delinquencies has remained at a low level repossessions and losses have not presented a problem so far,1,b +the reduction of market discipline has been further eroded by implicit extensions of the federal safety net beyond commercial banks to their nonbank affiliates,0,b +a study done earlier this year at the atlanta fed shows bank profitability declined further in 1986 particularly among the smallest institutions,0,b +would a statement that all major financial firms even the most diversified ones are subject to coordinated supervision suggest a degree of support that effectively extends to an unwarranted extent the subsidy associated with national safety nets,0,b +the relaxation of regulations itself contributed to the innovational processso too did the application in financial markets of technological2thirty years ago commercial banks hung out a shingle that said we accept deposits and took whatever deposit flows resulted,1,b +that is why this type of financing often is cheaper than borrowing from an institutional lender,1,b +the president2s working group itself was a product of the 1987 stock market crash which revealed a need for better communication and coordination among all financial regulators,1,b +the 10 largest banking organizations operating in new jersey hold over 80 percent of new jersey banking assets about twice that of the nation,0,b +i will begin by reviewing briefly the benefits and risks associated with international banking and then identifying the different models for allocating responsibility for the oversight of international banks,0,b +the creation of large international networks by these banks has clearly resulted in a capacity for financial operations that has proven essential for the financig of payments imbalances in the last few years as well as for the further expansion of world trade and investment,1,b +the spillover effects from the asian turmoil should further slow growth over 1998 the degree of slowing in growth and the size of the depreciation in the exchange rates in the region still will be affected by policy actions to be taken by those authorities and the uncertain timing of any improvement in investor confidence,0,b +credit demands from japan and italy diminished as economic activity and credit conditions eased in these countries,0,b +indeed your comments on our proposal to revise the basel accord suggest that you are comfortable to say the least with not having to invest in the institutional infrastructure to be required of the largest banks,1,b +we are also working on an international basis to advance sound principles for compliance risk management,0,b +by the same token would it be wrong in some moral or economic sense for a large bank or bank holding company to also own a life insurance company an investment banking company a computer company and a real estate development company as long as the insured deposittaking company was insulated from whatever additional risks might exist in those other businesses,0,b +some may see a monetary policy that actively addresses episodes of financial instability along the lines that i have just described as promoting excessive risktaking and thus increasing the probability of future crises,0,b +a subset of governmental objectives an important one is the responsibility of the banking and thrift agencies particularly the federal reserve for the integrity of the whole of banking or of payments system institutions,1,b +increasing the effectiveness of supervision must be a top priority for our institution,0,b +capital after all is the best protection for depositors and other creditors against loss third statutory authority for supervisors to intervene in a troubled bank before it becomes brain dead or capital insolvent,0,b +in short depository institutions will have additional incentives to assume more of the backbone payments processing and will be better able to do so as a7 reducing the implicit subsidy offered through free federal reserve intraday credit,1,b +that reality tells me that it will be some time before we tighten our interest rate stance or pull back strongly from our actions supporting financial functioning,0,b +critically the financial regulatory structure needs to be modernized to bring oversight and market discipline to bear much more effectively on our rapidly evolving financial system and to give regulators more tools to deal with problems as they arise,0,b +uniform deposit insurance premiums and until riskbased capitaì standards are implemented in 1992 uniform capital requirements allow management to avoid some of the real risks of their asset decisions and i iabi i i ty management practi ces,1,b +first lets take a look at some individual bank problems,0,b +while this dramatic improvement in bank performance has been occurring the banking industry has been undergoing a tremendous transformation,1,b +his attacks on the banks power struck a popular chord with farmers small businesses small banks and many politicians all of them perceived the bank to be a giant obstacle in their path to success,0,b +in todays world of credit risk models especially for centralized underwriting in areas such as consumer mortgage and small business credit the responsibilities of data input may reside with the lending officer,1,b +while banks sometimes feel disadvantaged compared to their nonbank competitors i would point out that neither banks nor their new competitors can engage in all aspects of the banking business on a nationwide basis,1,b +a central banks claim on a failing banks collateral simply reduces the liquidation value of the institution and thereby increases the cost to the deposit insurance fund,0,b +indeed us financial markets have proved to be notably robust during some significant recent shocks such as the sharp decline in equity prices beginning in 2000 and the failure of some large firms including enron and amaranth,1,b +under these circumstances fear and hence disengagement on the part of investors holding net long positions often lead to simultaneous declines in the values of private obligations as investors no longer materially differentiate among degrees of risk and liquidity and to increases in the values of riskless government securities,0,b +indeed a dramatic development of the crisis was the series of runs on nondepository financial institutions,0,b +although the events of 2008 were not centered in equityrelated markets the measures taken after 1987 no doubt contributed to the resilience of clearing arrangements in the securities and derivatives markets,1,b +in that tugofwar savings banks seem poised in the middle more specialized than the generalpurpose lenders yet distinctly broader in their outreach than the traditional personal thrift and home financing institutionsis that position a viable one in the long run or are mutual savings banks themselves in the process of evolving toward one extreme or the other,0,b +it also stands to reason that the hometown banker does not always look with favor upon his own page 8 best customer esablishing a liaison with the edge act of a large money center bank,0,b +for such programs to be effective in complex financial institutions compliance must be addressed on an enterprisewide basis,0,b +the toobigtofail problem is a pernicious one that has a number of substantial harmful effects,0,b +however this would permit them to compete more readily for domestic deposits,1,b +the second alternative and independent test leaves open the possibility that institutions not engaged very substantially in 15home mortgage lending would retain liberal rreatment with respecc to activ1ties and bankl1g,1,b +it allows the fed to make wellinformed credit decisions and thus determine whether a problem is merely a temporary liquidity shortage or a more severe situation that threatens a banks solvency,1,b +in the late thirties banks made interest payments of about 225 million at an average rate of 15 per centthe overall statistics i have been reciting are reassuring for they suggest banking has regained a position of size and influence in the national economic community,1,b +the optimum banking system of the future would provide the best possible banking and other closely related financial services at the lowest possible cost and without undue risk to the payments system,1,b +inflation expectations and institutional 7 barriers such as local building codes and landuse regulations also work 70 price firsttime homesuyers out of the market still the mortgagefi nance problem is critical pr o b l e m s o f mo r t g a g e f i n a n c i n g t h e h o u s i n g i n d u s t r y a n d t h e f o r e s t p r o d u c t s i n d u s t r y c l e a r l y c a n n o t r e c o v e r w i t h o u t a n i m p r o v e m e n t in t h e f o r t u n e s of the mortgagefi nance industry over the years that industry built up large portfolios of longterm fixedrate mortgages but financed those investments with shortterm deposits such as passbook accounts and savings certificates t o d a y t h r i f t i n s t i t u t i o n s a r e p a y i n g r o u g h l y 13 p e r c e n t o n sixmonth moneymarket certificates although 60 percent of the mortgages on their books carry yields of less than 10 percent,0,b +indeed regulators might vary liquidity requirements in a countercyclical way with greater liquidity required during the development of creditfueled asset bubbles in order to regulate the amount of allowable maturity transformation,0,b +over 92 per cent of all member banks in the san francisco district reported having increased their rate on savings,0,b +but when the tech bubble burst we did not feel the pain that those regions felt either,0,b +but it does not differentiate in a more granular way among entities that may behave very differently under stress such as traditional banks and money market mutual funds16 to complement the lcr and nsfr in 2012 the federal reserve launched the comprehensive liquidity assessment and review clar for firms in the large institution supervision coordinating committee liscc portfolio17 like the comprehensive capital analysis and review ccar clar is an annual horizontal assessment with quantitative and qualitative elements overseen by a multidisciplinary committee of liquidity experts from across the federal reserve,0,b +there are many ways that interstate banking legislation could incorporate concentration limitations,0,b +with so much energy being expended on the what the when and the how of implementing doddfrank the first risk we run is forgetting the whythe reasons for the act its primary goals,0,b +higher capital requirements increase bank costs and at least some of those costs will be passed along to bank customers and shareholders,0,b +effectively managing market liquidity risk can limit the effects on asset price volatility,1,b +in theory this could provide a backstop against unusual spikes in the federal funds and other money market rates,1,b +investors have strong financial incentives to analyze information about inflation and the macroeconomy to better predict the path of monetary policy,1,b +one can certainly look at things like banks capital ratios but some of the important action from a financial stability perspective is likely to be in subtler forms of leverage that are either outside of the traditional banking sector or more prone to shape shifting,0,b +public confidence in the banking system an essential element to the stability of that system can only be maintained through a system of governmental oversight and the use of such tools as federal deposit insurance the discount window and necessary powers to rescue or assist troubled institutionsthe market alone cannot be relied upon to assure banking stability and the stability of the economy as a whole,0,b +as i have said the committee has greater tolerance for interest rate fluctuations today than it used to have,1,b +bankers should then analyze the business impact of these possible disruptions which could include a prolonged recovery period and fashion appropriate responses,1,b +success will require both financial discipline and fundamental economic change change toward more efficient marketoriented economies more room for private initiative 23and investment more competition and more openness,1,b +this is perhaps better viewed as a way of broadening the scope of banking than as an authorization for equity investment since the range of permissible bankrelated activities is extremely limited and since a bank holding company usually though not always acquires 100 per cent of the new affiliates common stockto permit listing on a national exchange,1,b +this indicates to me that an exceptionally strong growth in demand for credit which accompanied the very strong economic expansion was the primary cause of the rise in interest rates and not federal reserve actions,1,b +distinguishing between these two types of changes may often prove a difficult task for both bankers and bank regulators,0,b +this approach avoids the costs of direct regulation by relying on the selfinterest of hedgefund counterparties and investors to exert market discipline on these organizations,1,b +according to the sp caseshiller home value data released earlier this week as of december 2007 average prices had declined by 15 percent or more over the past 12 months in phoenix san diego miami and las vegas,0,b +but in ordinary circumstances the aim was a straightforward one to achieve minimal interference with market allocations of fundsin a speech of september 1953 i found myself asserting that one of the great virtues of monetary policy as then applied was that changes in the structure of interest rates were determined by interplay of the demands ofa freely functioning market and a supply of bank reserves and money that was attuned to economic needs rather than the desire to hold down or push up particular interest ratesany other course risks a progressively increasing dependence of the market on official judgments as to appropriate levels of rates and allocations of funds with a corresponding stultification of independent private judgments that are the backbone of a we11functioning competitive market3 in that decade those goals of sustained economic activity and the prevention of dangerous inflation and deflation were the prime targets of our monetary policy,1,b +conclusion while 2002 undoubtedly was a difficult year that focused a number of supervisory issues for the federal reserve and its fellow regulators our analysis to date suggests that these issues were neither caused nor exacerbated by the glba,1,b +without these freedoms our banks would not have achieved the leading position they now have in world banking,1,b +productivity improvement has been at work in the financial sector too,1,b +financial institutions cannot expand their activities in these markets without having the capital to do so,1,b + us banks are currently 9 underrepresented among the worlds top banking institutions in part because o f interstate banking restrictions and limitations on the types o f businesses in which they can engage,0,b +to be sure all depository institutions that decide to offer now accounts under the new authority would do so on the same terms so that the troublesome interestrate differential would be eliminated for that category of deposits,1,b +we expect only one or two dozen banks to move to the us version of basel ii in the near term meaning that the vast majority of us banks would be able to continue operating under basel i which will be amended through a separate rulemaking process,0,b +a number of other crosscutting initiatives are under way including for example a coordinated review of how major firms use stresstesting techniques to measure their credit and market risks,0,b +a major concern in interstate banking involves the large banks attention to ccmmmity credit needs,0,b +examples of important components of the shadow banking system include securitization vehicles assetbacked commercial paper conduits money market funds markets for repurchase agreements investment banks and mortgage companies,0,b +bankers also feel that the best possible market organization for mortgage loans is an additional safeguard for the funds of our depositors,1,b +the resiliency of the mortgage credit market during that period highlights the value of having a diverse set of financial institutions and financial markets that serve a key sector of the economy such as housing,1,b +while many bankers support the issuance of socalled principlesbased regulations some bankers have expressed a desire for more detail on certain aspects of the basel ii proposals in order to reduce uncertainty about what will be acceptable practice and what will not,1,b +in fact bank reserves were growing at a record rate,0,b +but to set out the problems and difficulties attendant to a peacetime imposition of consumer credit controls cannot hide the fact that major fluctuations in the volume of outstanding consumer credit contain unstabilizing economic influences that must be restrainedhow appropriate restraint can be exercised suggests that it is not consumer credit alone but the entire scheme of credit that requires scrutinyconsumer credit as a constructive and dynamic factor in maintaining and raising our standard of living has already been adverted to as has been the strength of its influence in broadening our markets and reaping the benefits of mass production,0,b +the second program called the comprehensive capital analysis and review or ccar combines the quantitative results from the stress tests with morequalitative assessments of the capital planning processes used by banks,0,b +investors will continue to reallocate portfolios and their heightened desire for transparency will help shape the next generation of financial innovations,1,b +the capital subscribed to the banks by industrialized countries allows the banks to raise funds in the private markets,1,b +recession followed and banks were left with unserviceable foreigncurrencydenominated debts,0,b +as these factors have receded and the economy has improved lending standards have become less stringent,1,b +on the other hand the 8 percent riskbased capital standard may still be adequate for banks that do not engage in cherry picking via securitizations and credit derivatives,1,b +this banks web site offers an interactive tool for customizing wealthbuilding strategies by setting financial goals seeking guidance budgeting saving and investing and managing debt,1,b +the resulting oversupply of subprime mortgage lending increased the demand for housing which drove up home prices in regions like california and florida where the supply of buildable lots was inelastic,0,b +when designing a system that maintains bank safety and soundness and constrains extension of the safety net organizational structure is not irrelevant,1,b +but when the tech bubble burst we did not feel the pain that those regions felt either,0,b +perhaps even more striking is the dramatic increase in lending from institutions other than the craregulated financial institutions,0,b +1 branches and agencies of foreign banks would be defined as banks1 for the purpose of bringing them under the bank holding company 1 act,1,b +but i see this project as just the beginning of a larger design one that reflects the evergrowing and everchanging nature of housing financial markets,1,b +the performance of commercial real estate loans has generally been very good due in large part to the low interest rates of recent years and the substantial appreciation of property values that has resulted in sizable equity positions for building owners,1,b +migration of activity out of gsibs might on net be beneficial for financial stability because it would leave the gsibs less systemic even if the activity migrates to lessregulated shadow banks though i would caution that an especially careful analysis would be needed before reaching this conclusion,0,b +thus the regulatory framework should aim to reduce the chances of distress or failure at such firms to a greater extent than traditional microprudential regulation would,0,b +while the ethical tone of a financial institution comes from the top a successful ethics program must be demonstrated by staff at all levels and throughout the organization,0,b +it does not require banks to make bad loans,1,b +much of the blame for the crash and depression which was once laid on the banks has since been lifted but not the regulatory constraints that were first imposed in the thirties and subsequently broadened and strengthenedi believe the time has come to redress some of the excess restraints and design a structure for the united states financial system in the nineties,1,b +this strategy in turn has exacerbated a longstanding trend toward a greater concentration of community bank lending in certain areas less dependent on volume such as loans secured by commercial real estate,0,b +also equity prices fell sharply particularly technology stockswith the nasdaq now having declined nearly 60 percent and internet stocks about 70 percent from their peaks,0,b +if you carry on your banking business in a large city you are more likely paying a higher rate 83 per cent of the largest banks reported higher interest rates compared with b2 per cent of the smallest banks,0,b +and the inference may be questionable because there are some characterlstics of our financial institutions and certain prevailing financial practices which obviously impede the flow of rural credit,0,b +since those outside businesses were free o f the regulations limiting banking institutions they could o ffe r depositors market rates o f interest on funds placed with them,1,b +as bankers and bank directors you have specific responsibilities to manage the risks at your financial institutions and effectively oversee the systems of internal controls,1,b +these calculations however were substantially changed by the galvanizing events of 2008 notably the development of large and uncertain counterparty credit risks in many bilateral derivatives agreements,0,b +the good news is that we are not faced with inaction and there are early indications that the financial industry in general is working diligently to be prepared,1,b +in a variation on the theme merrill lynch is buying a savings and loan association,1,b +the issues discussed included risks and vulnerabilities in the international financial system the resilience of the financial system to shocks lessons from past market liquidity crises standards and codes including the standardsetting process accounting and auditing issues and reinsurance,0,b +in check collection procedures however in order to ensure that these changes are digested by banks and their customers with a minimal amount of difficulty we have modified the schedule for imple mentation of later presentment to provide which the changes will be phased in,0,b +moreover credit scoring uses automated systems and loan decisions can be rendered in minutes or hours rather than in days and weeks,1,b +similarly gold prices fell while bonds and money market instruments 7 finally began yielding positive real rates of return,1,b +bank holding company affiliation appears to have an insignificant affect on overall operating costs,1,b +we have been working to revise the basel accordtrying to give birth to basel iifor half a decade,1,b +as to disclosures bv firms themselves the opaque nature of parts of a financial institutions balance sheet makes special disclosure requirements especially important,0,b +this intermediation depends critically on the creation of instruments that are thought to be safe and liquid and as such cash equivalents similar in function to insured deposits in the commercial banking system,0,b +a perfectly safe bank holding a portfolio of treasury bills is not doing the economy or its shareholders any good,1,b +at this point my summary assessment is that the sources of uncertainty that fueled financial market volatility represent a modest risk to our economy but a risk factor nonetheless,0,b +one often hears that the advanced approaches of basel ii are too complex for anyone to understand and the mathematical formulas in various drafts of the guidance can look like a foreign language to some readers,1,b +the entry into banking activities of retailers wall street and insurance firms has affected gross margins as new financial instruments are developed to attract consumers,1,b +this approach is reflected in an april 2020 statement issued by the fed and other bank supervisors10 in that statement we instructed bank examiners not to criticize bank management for taking prudent steps to support their communities and we underscored that we would not expect to take a consumer compliance public enforcement action against an institution that has made good faith efforts to comply,1,b +moreover a case can certainly be made that competition efficiency and customer convenience have all been enhanced by the steady erosion of glasssteagall product restrictions in the 1980s and 90s and their final demise last year with grammleachblileyone aspect of the transformation however is challenging many bank customers and shareholders and all affected bank regulators the growth of very large and more importantly complex banking companies,1,b +commercial banks have had to cope with a mounting total of funds to invest as a result of their enhanced capacity to compete for time money facilitated by the change in regulation q at the beginning of last year,1,b +in any event the exact size of a bank does not enter into hat is the bankers fundamental responsibj_lity of first and foremost providing a safe repository for the funds entrusted to his banks care,1,b +with regard to liquidity the prudential regulations and supervisory programs of the us banking agencies have resulted in significant increases in the liquidity positions and changes in the risk management of our largest institutions,1,b +the inflow of deposits resulted from increased demand for safe haven assets reflecting confidence in us banks,1,b +three of the banks that participated in the stress tests had acquired significant loan portfolios through business combinations,0,b +fortunately there has been less overbuilding this time and mortgage money is still available as banks and thrift institutions continue to attract deposits from the new highyielding saving certificates,1,b +more extensive disclosure and greater dependence on market forces complement improvements in risk management banking supervision and minimum capital standards,1,b +basel ii has been broken down into three pillars for ease of exposition,1,b +specifically it repeals provisions of the 1933 glasssteagall act which separated commercial and investment banking and it repeals provisions of the bank holding company act of 1956 that have restricted affiliations of banking and insurance,1,b +another banker in hale county aja bama has had an unusually ambitious and successful program,1,b +community bank profitability is affected by both external factors outside of bank control such as local economic conditions and factors within bank control such as the composition and stability of the bankâs loan portfolio,0,b +the basel i and basel ii capital requirements relied almost exclusively on capital ratios that were essentially snapshots of balance sheets and thus all too often a lagging indicator of a banks condition,0,b +in fact the presence of information asymmetries goes a long way toward explaining the structure of financial markets and institutions,0,b +anticipating such a reaction senior management of banks may thus have strong nonregulatory incentives to act as if microprudential regulation continued to dominate,1,b +the banking agencies will continue to promote supervisory approaches that complement and support banks own efforts to enhance their riskmanagement capabilities,1,b +it is only one of a set of megabanks that remain a threat to financial stability,0,b +simultaneouslyand correctlythe doddfrank act removes the feds ability to engage in institutionspecific assistance,0,b +unit banking is even less prevalent among large banks,0,b +the answer appears to be that interstate banking could but doesnt have to be the catalyst for restructuring,1,b +1 the doddfrank act requires the fed to conduct a supervisory stress test for bank holding companies with 50 billion or more in total consolidated assets and for nonbank financial companies designated by the financial stability oversight council fsoc for fed supervision,0,b +in response to the crisis the basel committee on banking supervisions first task was to strengthen bank capital requirements through the adoption of the basel iii capital accord and last summer our domestic rule implementing the basel iii capital requirements in the united states,0,b +in the context of regulatory capital basel 25 and basel iii addressed interconnectedness and other sources of systemic risk frequently associated with shadow banking by raising capital requirements for exposures to unregulated financial institutions such as asset managers hedge funds and credit insurers and by strengthening the capital treatment of liquidity lines to offbalancesheet structures,0,b +we are keenly aware of the need for capital requirements to make sense from a standpoint that considers safety soundness and competitiveness we recognize that a onesizefitsall approach is probably not the best for our banking system in light of our wide range of institutions,1,b +of course the more advanced approaches of basel ii are clearly designed for large complex banks and will not be required for community banks or even for most regional banking organizations,1,b +one of the most challenging homehost issues that has arisen of late is the allocation of operational risk capital within a consolidated banking organization,0,b +at the higher funds rate with other market rates moving in the same direction banks and nonbanks have reason to restrain their demand for funds,0,b +in recent years supervisors have observed banks in order to maintain a customer relationship going beyond their established footprint and lending in real estate markets with which they have less experience,1,b +the crash vividly illustrated the extent to which markets are intertwined and the extent to which large financial firms have lines of business that cut across many markets,0,b +note in this regard that the doddfrank act requires both more stringent prudential standards for systemically important firms and a process for promoting the orderly resolution of these same firms,0,b +they know that customers counterparties creditors and investors take into account overall bank capital adequacy when making investment or other business decisions,1,b +georgia for example has been the epicenter of bank failures in the united states over recent years because of its banks lending exposure to real estate,0,b +i assure you that the displacement of locally owned and operated banks by branches of large institutions with nonlocally determined policies is a matter of concern to me and other board members,0,b +the anticipation of these actions which are essentially various types of penalties provides banking organizations with incentives to refrain from excessive risktaking,1,b +financial distress at a large bank may materially raise the likelihood of distress at other firms given the network of contractual obligations throughout the financial system,0,b +the very rapid growth of trading credit derivatives had until recently outpaced the development of the infrastructure necessary to clear and settle those trades,0,b +prudent bankers here too would be wise to review underwriting standards and be sure that they are adequately enforced,0,b +moreover the market demands that our thousands of smaller banks hold substantial equity capital an amount significantly above the minimum standards,0,b +thus requiring a bank to issue tradable debt would likely increase both direct and indirect discipline,1,b +as a result lenders have become investors loan spreads have become investment yields and individual loans have become the feedstock of pools of like assets brought together through a process known as securitization,0,b +the critical question therefore often becomes how can one judge the actual breadth and intensity of community demands for various banking services as distinct from the quantity and quality of services that the existing and proposed new combinations of banks intend supplying,0,b +in issuing these guidelines we have not in any way attempted to arbitrarily restrict bank financing of corporate restructuring,1,b +this uncertainty creates the potential for instability in the banking system,0,b +they assume that the target leverage of banks and others decreases as it has in previous lending cycles but they also net out reduced lending from one leveraged entity to another,0,b +2but even more important than the temptation to rest easy with its laurels is the fact that the stresses bankinp has been through successfully are in fact only prologue to what is to come,1,b +for negro banks with total deposits between 510 million officers salaries averaged 9340_ or 212 per cent less than the average of 9567 in all insured banks,0,b +moreover heightened uncertainty and pressures on intermediary balance sheets have impaired the usual channels of credit intermediation,0,b +but any erosion of assets that reflects bank equity ie of the auount by which assets exceed liabilities falls upon shareholders,0,b +many people have the impression that savings funds are inherently less profitable than demand depositsa view which overall banking statistics appear to support,0,b +conclusion in conclusion the financial services industry has evolved considerably over the past several years in large part because of innovation in products services and activities particularly in the areas of complex structured finance transactions credit risk transfer and risk management,1,b +meanwhile the turmoil in financial markets this summer has heightened everyones concerns about the recoverys future course,0,b +credit risk market risk my own suspicion is that in general financial innovation has resulted in an effective redistribution of market riskthat those unwilling to take market risk have a number of options available to lay it off to those who are both willing and better qualified to take it,1,b +this question is of interest to both regulators and the banking industry since there is no inherent reason aiy the bank holding company movement must lead to a deterioration of strength of the american banking system,0,b +as the market for credit default swaps expands and deepens the collective knowledge held by market participants is exactly reflected in the prices of these derivative instruments,1,b +after all asset prices can rise and fall sometimes very rapidly and still be based on fundamentals,1,b +today for some banks dayold balance sheets are on the edge of obsolescence,1,b +the mortgage bankers who have arranged this meeting today have done so in the true pioneering spirit of their profession of nashville and of vanderbilt and i am grateful to be a part of it,1,b +academic literature shows that over the longrun internationally diversified equity portfolios have a better riskreturn tradeoff than domesticonly equity portfolios,1,b +enhanced prudential standards in implementing enhanced prudential standards for foreign banks with a large us presence we sought to ensure that firms hold sufficient local capital and liquidityand have a risk management infrastructurethat is commensurate with the risks in their us operations2 and in general that approach is meeting many of the broad goals the federal reserve set out to achieve,0,b +modern developments have eroded the value of the banking franchise on the asset side the liability side and the page 2 payment system,0,b +while reserve banks generally seem to have a somewhat larger proportion of their total employment in blue collar and service activities than do other segments of the banking industry negroes in these banks tend to be found even more frequently outside the white collar area,0,b +add to all of that higher capital requirements for banks at yearend 1992 this one factor caused many banks actually to downsize their balance sheets to improve capital ratios,0,b +but you are well aware that we are also in the midst of tremendous changes in the nature of mortgage instruments and lending patterns reflecting in part the desire of lenders to protect themselves from uncertainty and volatility,1,b +at the end of 1966 multinational banks were operating with the highest loan to deposit ratios with the major regional banks next in order,0,b +a license would be needed whether the foreign bank applies for a national or a state charter,0,b +their involvement can support financial services broadly,1,b +banks that 10 aggressively practice liability management should have well thought out contingency plans in any case and they should be reviewed and approved by the directors of such banks,0,b +despite false warnings and recommendations by some that depositors should move their money to larger sophisticated banks your communities continued to give you their trust,1,b +our financial system today is far more resilient than it was before the crisis and i want to maintain that resiliency,1,b +while most banks accumulate good core information on which to base internalratingsbased indicators more information will be necessary in some cases,0,b +the fall in the market value of their assets can make it difficult for these institutions to meet demands from depositors or debtholders to pay off their liabilities,0,b +certainly our understanding of credit discrimination has already been improved by research using hmda data,1,b +because the financial distress was so deep and pervasive and because it took place in financial markets whose structure had evolved dramatically our actions also needed to be innovative if they were to have a chance of being effective,0,b +these innovations include new financial instruments such as cds mmcs now accounts and rising rate notes new technologies such as eft new management concepts such as liability and interest rate gap management and finally new institutional forms such as the onebank holding companyhigh market interest rates have also created economic opportunities for less regulated firms to offer financial services on more favorable terms and often at rates above regulation q ceilings which are now in the process of being phased outthe combination of these financial innovations and the entry and expansion of nondepository institutions into the financial service industry has radically affected the structure and functioning of financial markets and has significantly altered the array of financial services being providedthese developments are eroding the distinctions between banks and thrifts and have opened the door to so many different providers of financial services that it is now beginning to be difficult to tell which firms are and are not financial institutionsi am particularly concerned with the risk implications of these financial innovations which will require careful regulatory and supervisory oversight,0,b +the total reduction of one per cent has released to member banks reserves of about 1 billion,1,b +the new element is the 50 million reporting floor which seems necessary in any reasonable test of determining whether a lender is engaged in the business of mortgage lending a direct quote from the statutory language,0,b +while an emerging body of empirical research investigates this hypothesis in the context of credit riskdocumenting that banks tend to make riskier loans when rates are lowour focus is instead on the implications of the reachforyield mechanism on the pricing of interest rate risk also known as duration risk4 the theory we sketch involves a set of yieldoriented investors,0,b +commercial banks and increasingly thritts as they have gained banking powers are operators of the payments system they are custodians for the bulk ot liquid savings in the economy they are still by far the most important suppliers of credit and they are the link between monetary policy ana the economy,1,b +although banks borrowed only moderate amounts at the discount window they substantially increased the amount of collateral they placed with reserve banks,1,b +the current basel i measures are not very risk sensitive and do not provide meaningful measures to bankers supervisors or the marketplace for complex banking organizations,0,b +some bank holding companies have issued mediumterm notes tied to ehortterm rates with redemption features enhancing their liquidity,0,b +the financing of business agriculture and individuals has always involved pioneering and experimentation and as you are thoroughly aware over the years we have made a great deal of progress in developing new methods tailored both to the needs of the borrower and the safety and liquidity requirements of the lender,1,b +when american banks seized up in 1990 as a consequence of a collapse in the value of real estate collateral the capital markets largely unaffected by the decline in values were able to substitute for the loss of bank financial intermediation,1,b +the greatest need in financial markets today is discipline and you 6 7 are the people who must instill that sadly lacking quality into current 8 business activity,0,b +aside from its direct benefits for the safety and soundness of these large institutions such an approach also would help offset financial firms incentive to grow until they are perceived to be too big to fail,0,b +the hearings also likely will address issues related to predatory lending and market developments since 2002 when the board last revised its rules for higherpriced loans under the home ownership and equity protection act hoepa,0,b +before the crisis and for some time afterwards the clearing banks unwound all triparty repo trades each dayeven those with a significant term which in theory represented longerterm financing commitmentsreturning securities to borrowers and cash to lenders,0,b +but in order to maintain their position in the financial services industry it will be necessary to unwind those factors that inhibit the ability of the depositories to compete and adapt to changing economic conditions,1,b +our concerns now extend beyond the capacity of individual institutions to protect their capital and balance sheets,0,b +it does concern us that international financial institutions can operate in the united states on a more favorable basis than american banks,0,b + 12 all of that notwithstanding the question at hand is whether the costs of reserves incurred by correspondent banks are such to place them at a competitive disadvantage relative to the fed in the provision of payments services to other depository institutions,0,b +at the end of the third quarter of 1991 there were 1100 problem banks almost 10 percent of all commercial banks in the united states with about 500 billion of assetsbad real estate constitutes the major portion of nonperforming assets but commercial and industrial loans and some consumer loans are also included among the 96 billion of problem assetsat the same date other real estate owned through foreclosure totaled 249 billion up from 214 billion at the end of 1990net chargeoffs for the first three quarters of 1991 were running at an annual rate of 31 billion vs 29 billion for all of 1990obviously these trends are real trouble for the banks if they are not reversed,0,b +5 the growth o f interestbearing transactions accounts like now and moneymarket accounts in the mideighties however m lwhich had been the most important o f these targetsstopped behaving in the way it previously had and lost much o f its value as a barometer,0,b +it can be further argued that the result is in fact a federal subsidy to banks,0,b +many banks now operate free of the fear of new entry into their markets and this threat of potential new entry may provide greater incentive for good performanceto be realistic even if the law were changed tomorrow few places other than major urban areas would experience outofstate entry in the immediate future,1,b +stress testing has evolved and must continue to evolve to take on what we as supervisors learn from our work and what we can learn from others,0,b +over the years legislation enacted by the various states and ultimately at the federal level eliminated the barriers to banks operating across state lines at least with respect to interstate bank acquisitions,1,b +in this way changes in excess reserves directly affect the available supply of credit,0,b +money is also used more intensively in small budget accounts where minimum or average balance requirements are relaxed and transactions paid for on a fee basis2alfred marshall connnented after quoting these words this terse statement carries far,0,b +looking ahead there is little prospect that the earnings position of commercial banks will be strengthened significantlyif at allby significant increases in their demand balances,0,b +there is a strong positive link between banking and financial market development and economic growth and a number of studies have concluded that banking and financial market development is a key driver of economic growth,1,b +the potential for a dealers exit to adversely affect mortgage hedgers is dependent upon hedgers diversification of counterparties the way in which hedgers use options and the underlying reason for such an exit,1,b +here i think is the principal explanation of why the busts in dotcom stock prices and in the housing and mortgage markets had such markedly different effects,0,b +these institutions understand that complex operations require a more structured and welldefined riskmanagement framework to monitor the effectiveness of internal control processes and risk exposures,1,b +those of you in financial firms are affected through your credit exposure to firms that followed questionable accounting practices and through your own corporate governance practices,0,b +if the bank is successful the profits belong to the stockholders and the depositors money is safe,1,b +some might call for restrictions to banks participation in buyouts since a large proportion o f the financing originates from banks,0,b +the district banks and brunches comprise an immense network of economic intelligence through which the system is kept informed as to the changing problems and conditions in business and within the commercial banks themselves,1,b +in summary i believe the steps taken since the financial crisis have made the financial system more resilient,1,b +in a few cases these unexpected increases in the balance sheet created some pressures on capital ratios even if the level of capital remained stable,0,b +that is understanding how a systemic resolution mechanism could maintain reduce or reverse incentives to engage in what might otherwise be socially desirable cooperation could affect the optimal design of that mechanism and other elements of financial regulation,0,b +large u s banks currently hold a record 86 billion 4 banking is indeed quite different than it was fifteen years ago,1,b +i have to think rather that this public concern about the banks reflects a deeper general concern about the economy,0,b +measures of credit stress such as reductions in nonperforming assets delinquencies and chargeoff rates show steady improvement in credit quality,1,b +they actively pursue arbitrage opportunities across markets and in the process often reduce or eliminate mispricing of financial assets,1,b +the squeeze came from both the liability side in the form of more attractive savings vehicles such as money market funds and from the asset side with the growth of public capital markets and international competition,0,b +this means a rise from less than 4 percent of total banking assets to about 14 percent over these eight years,1,b +the pronounced tightening of us financial conditions during the euroarea sovereign debt crisis that occurred from 2011 to 2012 illustrated the strength of these financial ties,0,b +the ease flexibility and low perceived cost of shortterm funding also supported a broader trend toward higher leverage and greater maturity mismatch in individual shadow banking institutions and in the sector as a whole,0,b +for example the proposed basel ii capital framework will be a major change in the regulation of bank capital,1,b +the way the banking system is developing it seems to me inevitable that many nonmembers are going to have access to federal reserve services,1,b +at the same time banks that had acquired large amounts of interestbearing deposits at rising market rates were under pressure to make effective use of those funds to cover their increased costs,0,b +but by promoting sound practices supervision supports financial stability and allows financial market participants to be more confident of their counterparties abilities to execute transactions,1,b +in the comparable period of 1969 these banks experienced a net drain of almost 19 billion in total deposits,0,b +third even if appropriate data become available it may be quite difficult to isolate costs for particular banking activities given the number of products and activities offered by even moderately complex financial institutions,0,b +but when the banking industry went to the extreme in meeting these demands it was again subject to criticism,0,b +when examining the evolution of commercial bank longerterm lending practices developments in the field of consumer instalment credit give most pause for thought,0,b +money both cash and deposit money would be an essential element in the painful struggle for survivalat first thought it would seem that money would be redundant in these circumstances and that our main problem would be to soak up large amounts of excess cash and deposits which would be competing for the limited supply of available goods and services,0,b +9the natural forces of the marketplace would tend to increase the demand for monetary gold stocks,1,b +in fact inflation has been the driving force behind much of the structural change observed in banking and finance over recent years,0,b +drawing on the lessons from the crisis the g20 leaders endorsed a package of reforms to tackle these two problems for systemically important banks,1,b +in this section of the paper i should like to turn to a second and less desirable dimension of financial stability namely the local market stability that can result from a less than vigorously competitive group of sellers of financial servicesthat kind of market stability with sticky prices little service innovation and tacitly uncontested market shares epitomizes much of what economists count on competition to dispel,0,b +merger proposals that would make a relatively large bank still more dominant in its market area reduce the number of effective competitors for the business of various classes of bank customers without substantial offsetting public benefits or widen the gap between the competitive abilities of one or two major institutions and the remaining body of smaller banks these are the kinds of proposals that are a clear challenge to the preservation of competition,0,b +the board must also find that the complementary activity poses no substantial risk to the safety and soundness of depository institutions or the financial system generally,1,b +some large correspondent banks are wondering whether the correspondent business is really very profitable some smaller banks are wondering whether larger balances they are asked to carry are really worthwhile,0,b +in several previous guideline revisions efforts had been made to modify the distribution of ceilings prevailing at the time the vfcr was promulgated in early 1965 essentially foreign lending patterns had been frozen as they were at the end of 1964 this action gave a preferred position to those banks that had established 6 themselves early in the field of foreign lending,1,b +these more successful firms developed inhouse expertise to conduct independent valuations and refrained from relying solely on thirdparty assessments which again underscores the need for firms to trust but verify,0,b +financial rnrkets were singled out for especially comprehensive regulation in part because of the perceived role of the stock rrarket crash and successive waves of bank failures in worsening the economic turrooil,0,b +for each size of bank the net rate of return on consumer instalment loans is clearly higher than that on connnercial and other business loans,0,b +so resolving financial sector weaknesses means both restructuring and recapitalizing banks and orderly workouts of the debt problems of their corporate sectors,0,b +to replace the bopec bank holding company rating system which has served the federal reserve system well for twentyfive years a proposal has been issued for comment to move to a new rating system that encompasses ratings for risk management financial strength and the impact of nondepository legal entities on affiliated depository institutions a composite rating and a depository institution rating,0,b +the stock market soared andremarkably enoughcore inflation moderated,1,b +if banking supervision and rgulation is on the wrong road we need to find out where wl,0,b +how can we gain better assurance of systemic stability when we are unlikely to be able to continuously extend the reach of regulation and will it be sufficient to deepen the moats around the core institutions,0,b +there have been as you kna very few bank failures since the 1930 s few nvolved any substartial losses to depositors,1,b +and the growing threat of volatility here and abroad led to new developments to measure and limit trading risk,0,b +in that sense the exercise has some continuity with the microprudential approach â the percentage of required capital needs to be increased to achieve a smaller probability of failure based on the kind of loss history examined for basel iii purposes,0,b +return to text 14 for these reasons i supported preserving capital at large banks,1,b +but we should recognize some important responses that have emerged from regulators and markets flatter risk functions have been adopted in the basel ii proposal banks maintain buffer capital stocks basel ii requires that under pillar 2 supervisors and banks discuss the size of the necessary buffer capital that each bank should carry for cyclical purposes and the proposed rules require stresstesting of risk parameters,1,b +however to the extent that financial markets extrapolate price movements markets may not transition smoothly to asset valuations that reflect underlying fundamentals but may instead evidence periods of overshooting18 such forces may have played a role in both the stock market boom that ended in the bust of 2001 and the house price bubble that burst in 200709 the risks of such financial imbalances may be greater in the context of the kind of explicit inflation target overshooting policies proposed in the paper,0,b +second one can argue that by reducing term premiums lsaps in particular have potentially significant benefits in terms of financial stability,1,b +these banks have long played a unique and important role in our banking system by providing access to credit and financial services in markets that have historically been underserved,1,b +to help us better understand what is going on in the banks we supervise and in the communities they serve we continue to seek many views,1,b +in conclusion we may sav that commercial banks can do andmany are doingan admirable job of meeting the total credit needs of farmers on an enlightened and realistic basis so far as terms and amounts are concerned,1,b +diversification gains may also result from consolidation across financial products and services although research suggests that the potential benefits may be fairly limited,1,b +globally the introduction of new capital and liquidity regulations has increased the resilience of the banking system,1,b +see joint forum 2015 for examples of enhancements to credit risk practices that have been made by firms since the crisis,1,b +the number of very wealthy investors and the amount of free investment funds available in fully taxed investment institutions have failed to keep pace with the mounting supplies of taxexempt securities,0,b +such pressures unfortunately exposed numerous and substantial flaws in some of these financial systems including lax lending policies substantial mismatches in the maturities and foreign exchange denominations of assets and liabilities seriously deficient standards for disclosure of basic private financial information hedges based on erroneous presumptions about the correlations among returns the failure to monitor ongoing loan performance and the inadequacy of reserves against potential losses,0,b +the growing importance of assets that provide a return from services as well as from loaned funds is also evident in the acquisition of serviceoriented subsidiaries by bank holding companies,1,b +in addition to the drying up of large portions of mortgage finance that i referred to previously conditions have firmed on loans for a variety of other purposes,0,b +the predictive nature of the statistically based models mitigates risk and promotes safety and soundness,1,b +the latter applied to the trading derivatives and private equity positions of the six firms with the highest volumes of trading included a dramatic widening of credit default spreads for both european sovereigns and financial institutions as well as sharp increases in spreads for european sovereign bonds,0,b +if banks not be sufficient to withstand a run even liquified at the discount window,0,b +the shift of customers from bank credit to the capital markets was a particularly profound challenge because as i noted since the early 1930s the glasssteagall act had prohibited banks from affiliating with companies that engaged principally in underwriting securities except for government securities,1,b +research from economists at the federal reserve bank of new york shows that the decline in leverage among other factors has substantially reduced potential fire sale externalities in the banking and brokerdealer sectors14 thus the regulatory changes appear to be having a positive effect on financial system stability and these benefits may outweigh the potential costs of a possible reduction in liquidity,1,b +it is equally true however that market participants must also act responsibly so as to prevent the distortion of an innovative and truly freemarket creation,1,b +paul volcker told me recently that in his day he knew that a bank was headed for trouble when it grew too fast moved into a fancy new building placed the chairman of the board as the head of the art committee and hired mckinsey co to do an incentive compensation study for the senior officers,0,b +however keen the logic the upshot would be a highly discriminatory burden on ci1e nearly 6000 out of nearly 14000 banks that choose through membership in the federal reserve system to assist the making of economic policy for the nation by being subject to federal reserve reserve requirements,0,b +some mortgage lenders however suggested that the pattern or practice provision did not provide a safe harbor that would ensure compliance and that their procedures for compliance would by necessity be equally robust under either version of the rule,0,b +a highlyrated guarantor for example could offer effective protection against the default of a small number of instruments,1,b +in addition to the changes occurring in financial markets i believe that we will witness a recovery in 1983 that is substantially different from others in the postwar experience,1,b +with your deep knowledge of your customers your commitment to your community and your backtobasics approach to banking you can position yourselves to be that partner,1,b +to sum up bankings nearterm outlook briefly it would be fair to say that banking is going under a microscope,0,b +as i mentioned earlier one of the reasons that the price discovery mechanism has broken down in some us markets in recent months is that a number of investors failed to exercise due diligence and relied on rating agency assessments,0,b +figure 1 describes the timing of intrastate branching deregulation across the states,1,b +the point of the story however and the point of my entire discussion is simply that reform of the nations deposit insurance program is likely to have considerably greater consequences than have been generally recognized,0,b +the vast majority of mortgages including even subprime mortgages continue to perform well,1,b +not knowing the outcome is arguably the worst of all worlds2 this view is by no means unique to bankers,0,b +at the same time we may see new kinds of institutions specializing in credit evaluation and loan origination as well as others that make their money from packaging and selling loans,1,b +we have already seen some progress in risk measurement and management at many institutions in the united states and around the globe as a result of preparations for basel ii,1,b +nevertheless by enhancing certainty about what can be done and how it can be done i believe that the financial modernization law will likely bring an increase in mergers among firms that had been specializing in different financial services,1,b +coincident with this decline in stock values both long and shortterm interest rates fell substantially,0,b +294 michael moskow speeches 2000 customers would then flock to the protected bank causing his funding sources to become more expensive or disappear,0,b +in essence a bigger capital cushion will serve as a reform of deposit insurance because it should obviate the need for it,1,b +accounting disclosure and market discipline strong risk measurement and disciplined maintenance of data also improve the communication between the institution and its investors and counterparties,1,b +such institutions establish and maintain strong property rights an effective legal system and a sound and efficient financial system,1,b +but in the end we believe that a rigorous qualification process will create a more risksensitive regulatory capital regime and improve risk management,1,b +the credit boom began to unravel in early 2007 when problems surfaced with subprime mortgagesmortgages offered to lesscreditworthy borrowersand house prices in parts of the country began to fall,0,b +in part this deposit growth reflected lower opportunity costs of holding monetary assets as declines in market rates outpaced those on core deposits,1,b +all of this points to a prolonged period of cautious lending and a high cost of capital relative to benchmark interest rates like the federal funds rate even as market functioning improves,0,b +although shortterm funding markets remain strained they have improved somewhat since march reflecting the availability of several fed lending facilities as well as the ongoing efforts of financial firms to repair their balance sheets and increase their liquidity,1,b +this gain was larger than that recorded during the full year 1973 virtually all of the increase represented credit extended to foreign borrowers since only a small fraction was accounted for by the banks investment in facilities abroad,1,b +to the extent that these reported implicit subsidies lowered mortgage loan profitability 79 percent of the institutions said that the subsidies were funded internally,0,b +i would say that onestop shopping for financial services does not have its advantages but there are disadvantages as well,1,b +the unveiling of merrill lynchs cash management account in 1978 was a signal event,1,b +or the bigger the bank the more unmanageable it becomes,0,b +revolving credit has dropped every month since that time and is currently about 15 percent lower than it was at the time of the lehman brothers holdings bankruptcy,0,b +savings flows to thrift institutions have sharply dilninished and stock prices have plun1meted,0,b +other savings institutions also raised their rates and in the ensuing vigorous competition for funds they continued to experience growing savings inflows,1,b +part may be utterly transitional as balances are shifted say from all savers certificates to the stock market,1,b +even if they were not so insulated the relatively high rates which credit unions can pay on their shares still give them a marked competitive advantage over other forms of depositary saving,1,b +both the basel committee on banking supervision and the us bank regulatory agencies have recently issued guidelines for strengthening liquidity risk management at financial institutions,0,b +this is clearly the case when activity moves from a regulated to an unregulated institution,0,b +moreover consolidation has produced important benefits for the banking industry as many banks have become more diversified less risky and more efficient,1,b +6 it is important to note however that regulation cant prevent individual banks from failingwe have no intention o f removing one o f the ultimate sanctions o f the marketplace,0,b +ch adequate capital let me now take you through the various issues on the regulatory agenda and show how they relate to capital and diversification as the two pillars of bank safety,1,b +as we approach the twentyfirst century both banks and nonbanks will need to continually reassess whether their risk management practices have kept pace with their own evolving activities and with changes in financial market dynamics and readjust accordingly,1,b +growth of branches in the bahamas and cayman islands while the growth of us commercial bank branches in london is clearly a major event in international banking the most remarkable develooments have occurred on this side of the atlantic,1,b +agricultural area such as this that lenders adjust their allocations of credit in such a way as to assure the availability of credit to meet th9 legitirnat e needs of farmers,0,b +and i would also emphasize that banks should keep in mind the special problems of smaller customers who have limited financing alternatives,0,b +from either perspective it is important that community bankers continue to protect the value of their franchise by avoiding key missteps we have seen in the past,0,b +other reform measuressuch as regulating derivatives markets and money market fundsare thus also important to pursue,0,b +in my opinion golernmental agencies have a duty to sqervise and regulate banks their expansion and activities not only trom the view ot what is good tor the banks but also what is good tor the natimal econaay,0,b +the management problem is not necessarily solved when you find a wellrun company that you can bring into your bank holding company,0,b +the lessening of capital market congestion and pressure on interest rates,0,b +punishment systems provide the complement of negative incentives to the positive incentives created by compensation and promotion practices even where qualified by clawback or similar provisions,0,b +moreover banks with check credit plans have been falling behind relatively yearbyyear,0,b +mortgage servicing standards particularly for delinquent loans are more stringent than in the past due to settlement actions and consent orders,0,b +in my judgment the negotiable cd still is and will remain a viable money market instrument provided that interest rate ceilings are kept realistic in terms of competitive market yields,1,b +ilowever because of our concerns about increases in concentration we felt that unrestricted interstate branching and bank holding company eiansion is not appropriate at w7is time,0,b +through its supervision and regulation function the fed fosters a safe and sound banking system in a variety of ways,1,b +this will mark the third year since we enhanced the disclosures to provide significantly more information about the stress testing models relative to earlier years,0,b +dividend policy the payment of excessive or unearned dividends by organizations whose capital position needs strengthening is another practice that we wish to discourage and stand ready to prohibit in extreme situations,0,b +highly leveraged institutions such as banks are by their nature periodically subject to seizing up as difficulties in funding leverage inevitably arise,1,b +so small banks should retain their niche in relationship lendingalthough that niche may be smaller than it is today,0,b +return to text 15 if a mortgagebacked security is collateralized by qualified residential mortgages as defined by federal regulators consistent with section 941 of the doddfrank act the securitizer is not required to retain any risk in the securitization transaction,1,b +the recent moratorium imposed on the further creation of nonbank banks is one example of such action,0,b +it is difficult to judge how much these events and the associated financial volatility have affected economic activity thus far but there seems little doubt that they have hurt household and business confidence and that they pose ongoing risks to growth,0,b +federally related transactions below this threshold amount do not have to be documented with an appraisal prepared by a licensed or certified appraiser but must be supported by an appropriate evaluation of the real estate collateral prepared in conformance with the supervisory guidance,1,b +examples include a breakdown of credit exposures by internal credit grade the allowance estimates broken down by key components morethorough discussions of why allowance components have changed from period to period and enhanced discussions of the rationale behind changes in the moresubjective allowance estimates including unallocated amounts,0,b +if we do i am confident we can achieve results good for the country and good for banking13 confidence in financial institutions in return for federal insurance of deposits,1,b +whether the aim of such mutual endeavor is to stimulate a flagging economy by making additional supplies 10 of credit available or to restrain the expansion of credit under conditions when the overuse of credit threatens economic stability the member banks and the federal reserve system are allied in the common cause of the public interestlet me say in conclusion that this alliance of the member banks in a common cause with the federal reserve system epitomizes the meaning of membership in the federal reserve system10 of credit available or to restrain the expansion of credit under conditions when the overuse of credit threatens economic stability the member banks and the federal reserve system are allied in the common cause of the public interest,1,b +in fact such a procedure could identify customers in temporary financial duress who might be candidates for loan products in which case the bank could retain good longterm customers and appropriately structure the loan to reflect the risk and the customers could obtain the needed credit at an allin cost below what they would incur by using their checking accounts inappropriately,1,b +as bankers you have a big job to do in meeting the credit needs of so hu ge and important an industry and that job is made even bigger and more complex because of the changes so informatively portrayed by dr wood that have b een taking place in the amount and kind of financing required by american agr lculture,1,b +the funds themselves are often not leveraged in which case nearly all the liabilities are shares of the fund held by investors the price of which varies to reflect the value of the assets purchased by the manager of the fund6 while some commentators have suggested that liquidity challenges and consequent fire sale type behavior might develop if the structure of the fund places a premium on exiting first these kinds of risks would support an argument less for capital buffers than for some form of prudential market regulation such as rules on liquidity or redemptions,0,b +perhaps the recent mortgage cycle will be remembered as just another failed episode of financial innovation,0,b +to be sure our system of riskfocused supervision of banking organizations relies heavily on cooperation among multiple state and federal supervisors and it is not perfect,1,b +nonbank financial intermediation remains at the top of the fsbs priority list because of the urgency to address vulnerabilities,0,b + the economic outlook and challenges facing monetary policy recent economic performance has been hailed on wall street as paradise found and the best of times,1,b +they donât benefit if the bankâs stock price rises when undue risktaking pays off,0,b +this approach to capital regulation with its marketdiscipline component signals that sound accounting and disclosure will continue to be important parts of our supervisory approach for many years to come,1,b +this shared understanding of the importance of sound audit and control practices led to an unprecedented level of cooperation among the international regulatory communityin this case iosco the basel committee the iais the european commission ec the world bank and the financial stability forum which came to be known as the monitoring group,1,b +the management of default and recovery risks presents nothing fundamentally new to investors,1,b +at that time i commented on the tendency of some directors who are too busy to come to the bank during an examination to blame examiners for failing to discover shortages,0,b +as the body began to break down in 2007 and 2008 the federal reserve undertook several major efforts to provide wellsecured mostly shortterm credit to a dysfunctional financial system,0,b +it is regrettable that these new money transfer powers do not call for the provision of the cash reserve requirements that would help in achieving effective monetary control but that is a topic for another speech on another day,0,b +poor performance in the real economy translated into bank assetquality problems a sharp increase in the number of bank failures and a reduction in credit availability in depressed regions and for depressed industries,0,b +i personally see no need to cast aside any of the traditional tools ie the discount rate open market operations and reserve requirements,0,b +to address these concerns the regulatory community has adopted a strategy to help reduce systemic risk from regional disruptions to the clearing and settlement infrastructure,1,b +then came the russian default in the summer of 1998 financial markets seized up,0,b +n o doubt some thrift institutions poorly managed thrift institutions have however but even among wellmanaged institutions a sharp sudden increase in market interest rates can pose an awkward dilemma,0,b +our special lending programs have also been set up to minimize our credit risk,1,b +the fdic has the authority under fdicia the fdic improvement act to resolve a large bank failure by operating a bridge bank for a limited time thereby reducing disruptions to the financial system while resolving the banks problems,1,b +our examiners have found lapses in operational procedures and internal controls that have led at best to inadvertent errors resulting in some loss to the financial institution or at worst to opportunities for fraudulent activity both inside and outside the institution,0,b +but unnecessary regulations drain bank resources and reduce the important services that depository institutions provide to households and businesses,1,b +over the longer run we need to see to it that our financial intermediaries are adequately capitalized to deal with the risks they have taken on and that our deposit insurance and regulatory systems provide the right incentives and constraints to avoid systemic instabilities,1,b +in short intervening in the market process can create moral hazard and weaken market discipline,0,b +in the next round of submissions due this summer these firms will need to produce plans that show they could be resolved in bankruptcy in an orderly fashion,0,b +with deposit inflows slowing banks bid aggressively for funds to finance rising credit demands through sales of large negotiable cds,0,b +although both the traditional bank regulatory agencies and the consumer financial protection bureau cfpb are constrained to some extent by the language in the doddfrank act all regulators should aim to ensure that we are not unduly rigid in our actions,0,b +strengthening resilience of financial markets reducing the likelihood of a severe financial crisis also requires strengthening the capacity of our financial markets and infrastructure to absorb shocks,0,b +the federal reserve has worked with other us and foreign supervisors to strengthen capital liquidity and riskmanagement requirements for banking organizations,0,b +what this comes down to in effect is placing the maximum practical reliance upon the workings of competitive market forces in order to encourage the kind of performance that we want from our financial systemall this may sound rather trite to youa pledge of allegiance to obvious virtues,1,b +this linkage of stress testing to bank capital requirements has been a good way for regulators to regularize exercise of their broad statutory discretion to set individual capital requirements on a bankbybank basis8 banks subject to the supervisory stress tests have generally found it to be their binding capital constraint,0,b +but i would expect the effect to be much smaller initially this time around because profit margins are unusually wide for many foreign firms that compete for market shares in the united states and they are not likely to easily give up the market shares they have capturedthe economyi would characterize the economy over the past year as being in a grey zone between healthy sustainable growth and a growth recession,0,b +lets look at two dimensions of regulatory discipline potential closure of the institution and the effectiveness of supervisory pressure on bank management practices,0,b +the congress should create a new resolution regime analogous to the regime currently used by the fdic for failing banks that would permit the government to wind down a troubled systemically important firm in a way that protects financial stability but that also imposes losses on shareholders and creditors of the failed firm without costs to the taxpayer,0,b +the effect of losses and additional provisions on bank earnings has been severe in some cases,0,b +as depositor fears about the health of banks grew runs on banks became increasingly common,0,b +you may have read that the federal home loan bank board recently decided to allow a district of columbia savings and loan association to acquire a troubled association in virginia,1,b +despite these acute problems the uncertainties of current financial markets and the generally adverse economic climate the number of commercial banks recording deeply depressed operating results has remained small,1,b +in my mind the safety and soundness of individual banks the stability of the overall banking system limitations on moral hazard enhanced market discipline and reduced taxpayer liability all begin with strong equity capital positions at individual depository institutions,1,b +building on our existing banking system also makes sense from a financial stability perspective,1,b +bank capital and ultimately the bank insurance fund is at risk if the value of a banks trading book falls rapidly due to a sudden change in market prices,0,b +our financial markets are flexible and resilient and they can absorb shocks surprisingly well,1,b +when panic set in it froze lending in banks and nonbanks alike and produced funding pressures across a wide range of markets and institutions,0,b +a notable feature of the boards current framework is the decision to maintain a 0 percent ccyb when vulnerabilities are within their normal range,1,b +on the side of the banks there has been a tendency for individual country exposure to creep up especially for the large moneycenter banks,0,b +indebtedness to banks has been increasing in the range of 2530 percent per year since 1978 and there was a special spurt in the final quarter of 1980 when gross ldc indebtedness to banks in countries reporting to the bank for international settlements increased by nearly 11 percent,0,b +basel iii is not a perfect agreement of course,0,b +it was the ice age of international financethere is no compelling reason why the world should ever relapse into anything resembling the conditions of the 1930s,1,b +they are accommodating actions that prevent the growth in demand for total bank deposits from being frustrated and thus exercising a drag on economic activity,1,b +we have to adapt continuously to changing technologies changing bank practices and changing market forces,1,b +bank holding companies have not been permitted to enter otherwise prohibited activities or markets by acquiring thrifts,0,b +in particular the management of market risk and credit risk has become increasingly sophisticated,1,b +my colleagues and i are also concerned about the implications of the bank subsidiary form on the safety and soundness of banks,0,b +one focus in recent discussions of financial regulatory restructuring has been the process for resolving the failure of large financial firms including firms without bank charters,0,b +some event real or imagined convinces depositors that their bank cannot meet its obligations to all of them and so they rush to the bank to get their money back before the bank fails,0,b +and the financial industry will have become more integrated as banking concerns insurance companies and securities firms combine into financial services holding companies which will supply a full spectrum of financial services to corporations governments and individuals and supply them more conveniently more efficiently and at less cost than ever beforemost of you will be a part of that brave new world,1,b +bank credit did not eqand as rapidly but still its rate of increase ecceeded the preceding sb years,0,b +best practice banks and early research at the federal reserve suggest that significant strides are being made in credit risk management but the industry and regulators still have a long way to go,1,b +that means that banks of all sizes will have to put more emphasis than ever on creating added value to distinguish their products from those of the big bank headquartered on the other coast from an investment bank or from the market generally,1,b +it seeks to protect the dif by combatting what would otherwise be moral hazard and subsidized funding through capital requirements activities restrictions and other measures,0,b +firms in the second tierthe moderately complex firmscan pose risk to the financial system under certain circumstances,0,b +with all the worlds banks on the same regulatory structure these critics argue the typical business cycle will be accentuated by basel ii as perfectly reasonable estimates of probabilities of default and of loss given default decline in economic expansions and rise as the economy weakens,1,b +macroprudential tools are primarily regulatory or supervisory in nature and target specific activities markets and financial institutions,0,b +the regulation provides that the creditor may require any missed minimum payments to be made up,1,b +securities prices informed in this way should translate into higher funding costs when greater risks are undertaken facilitate the appropriate level of monitoring for the effective management of counterparty risk and help bank supervisors judge the financial condition of firms,1,b +another constraint on monetary managers in the late summer and fall of 1967 was the fear of a financial panic,0,b +the challenge to the smaller nondiversified institutions could be great indeed,0,b +as you well know banks first began to vigorously pursue improved earnings by managing their asset side so as to increase yield and did so at the expense of liq uidity,0,b +the federal reserve has urged that the delayed availability problem be resolved instead through the voluntary efforts of depository institutions or at most statutory provisions on disclosure and on expediting the check clearing processwhat are we to make of recent congressional initiatives toward greater regulation of financial markets,1,b +very sophisticated investors left the intermediary behind and invested directly in stock index futures,1,b +moreover these large exposure limits will effectively update the traditional bank lending limits that proved useful for well over 100 years for todays challenges by recognizing the many ways in which banks and their affiliates take on credit exposure beyond directly extending loans,0,b +without credit some customers were unable to meet their margin calls and were forced to liquidate their positions,0,b +a key questionhow much risk is being transferredhas been difficult to answer due to the participation in the market of many types of regulated and unregulated investors and firms as well as the fact that participants simply reverse or close out one exposure by entering into an additional and offsetting one as they do with other types of swaps,0,b +furthermore regulation often weakens the institutions that it sought to protect making it difficult for them to adjust to new market realities,1,b +these are not resilient longterm solutions for our dynamic economy and the banks that support it,0,b +financial products services and transactions lend themselves to successive waves of technological disruption because they can readily be represented as streams of numerical information ripe for digitization,0,b +more organizations should get behind efforts to improve investor knowledge,1,b +9 the concept of a thrift test to determine whether a thrift would continue to retain certain broader investment powers and other traditional privileges including longterm fhlb advances and commercial ownership has gained rather wide agreement,1,b +for the industry overall the federal reserves rate cuts last year may have proved to be a mixed blessing,0,b +some commentators have argued that the real fragility in the system will be exposed when interest rates return to morenormal levels,0,b +3 regulators have already examined every bank twice and weve found that 99 percent of banks are making satisfactory progress toward y2k readiness,1,b +these findings offer important lessons for all of us who are interested in maintaining efficient financial markets that are undisturbed by systemic risks,1,b +looking to the future policymakers need to appropriately refine the regulatory and supervisory framework to minimize unnecessary compliance costs for smaller banks and address impediments to bank formations,1,b +we have seen growing evidence of credit granted solely on the expectation that current robust conditions will continue indefinitely with little thought as to how borrowers might perform under more stressful conditions,0,b +there are probably other factors involved but i will only mention a few of what 1 consider to be the major forces for changethe thrift industrys financial crisis in the early 1980s has to be considered one of the major factors contributing to the ongoing change in interstate expansion policy the need to find acquirors for financially troubled thrifts helped to change attitudes toward interstate financial operationsafter the difficulties encountered in resolving the franklin national bank failure in 1974 the federal reserve board regularly recommended allowing outofstate bank holding companies to acquire large failing banks,1,b +they are also finding financial markets more receptive,1,b +of primary importance is the establishment of confidence in a stable and secure economic and financial environment,1,b +it calls first for rolling back the federal safety net to apply only to basic traditional commercial banking,0,b +and finally they may choose to establish or acquire a nonbank financial firm that is subject to less regulation than a chartered and insured financial institution,1,b +although many shadow banks had limited exposure to subprime loans and other questionable credits the complexity of the securities involved and the opaqueness of many of the financial arrangements made it difficult for investors to distinguish relative risks,0,b +the growth of bank earnings has exceeded that of most corporations,1,b +the northeast states have granted checking account power to savings institutions in some cases for many years,1,b +despite the plethora of new rules and regulations created by doddfrank market discipline is still lacking for the largest financial institutions as it was during the last crisis,0,b +during the same period part of this reduction in riskiness reflected improvement in state regulation and supervision,1,b +they will spend millions of dollars to try to perpetuate their brand of crony capitalism,0,b +this proposal was designed to address institutions concerns that a depositary bank would be required to make funds available for withdrawal before it would receive credit for the check through the check collection process,0,b +the banks under 25 million of assets had a higher return on assets 156 than the banks with assets over 250 million 108,1,b +the first area that i think could benefit from a fresh approach is our requirement for the active marketing for sale of properties acquired in foreclosure often called real estate owned or reo properties,0,b +accordingly commodity prices like the prices of financial assets can be volatile as market participants react to incoming news,0,b +it is unfortunately a truism that regulation begets further regulation and that regulations outlive their rationale,1,b +thus in many respects the persistent inflation of the past decade and a half has adversely affected the banking industry and lias created a situation which must be reversed for the benefit not only of bankers but of the vast public which depends so much upon the existence of a sound and profitable commercial banking industry,0,b +however in my judgment our financial system has clearly reached the stage where pressures from the market will force dramatic changes regardless of existing statutory and regulatory limits,1,b +these standards seek to limit the effect of shortterm outflows and extended overall funding mismatches thus improving banks liquidity resilience,1,b +if proposed future capital distributions are not assumedthat is if the approach in the 2009 scap is takenonly one firm falls below the required poststress minimum capital ratios,0,b +that is essentially the story i laid out in a paper delivered at the kansas city fedâs jackson hole conference about ten years ago7 in my view such an increase in uncertainty is an important part of what we have observed recently and stems from heightened concerns about the value of financial securities related to certain types of loans about who is holding these securities and about how a revaluation of these securities might affect the balance sheets of various financial intermediaries,0,b +supporting the assetpreference shift hypothesis is the fact that foreign lending by us commerclal banks has declined dramatically in recent years reflecting the international debt crisis,0,b +asset prices rise to unusually high levels leading to concerns about bubbles the mediumterm inflation outlook rises temporarily above 2 percent,0,b +we should work together relying on the leadership of home country supervisors to analyze banks on a consolidated global basis as the financial market does,1,b +the decade to come will be marked by failure and absorption of these firms and of any others that are practicing growthmanship in defiance of new regulatory limits,0,b +6 on the other hand our experience with financial markets leads us to believe that shortrun variations in interest rates if sharp enough can have disruptive effects on the functioning of financial markets,0,b +over the same period the priceearnings ratios of commercial banks fell by roughly 65 per cent,0,b +in particular deals are smaller financings are reportedly arranged on a best efforts basis and banks are said to maintain considerable contractual flexibility postcommitment to adjust the pricing and structure of loans at the expense of borrowers to marketclearing levels7 a second question is whether leveraged loans are being funded on any significant scale using mechanisms such as repo funding total return swaps and other otc derivatives and collateralized loan obligations or clos that were prevalent before the crisis,0,b +the simultaneous assessment of the payout requests in the capital review allowed the federal reserve working through the liscc to evaluate not only the conditions of individual banks but also the potential implications of capital payouts for aggregate credit extension and the sustainability of the economic recovery,1,b +by httpwwwclevelandfedorgfor_the_publicnews_and_mediaspeeches2010pianalto_20100911cfm4292014 15211 pm regulatory reform the new face of bank regulation september 11 2010 federal reserve bank of cleveland ensuring that no one firm can be too big to fail the playing field is leveled and the perception that the very largest firms will always benefit from some implicit government guarantee against failure is addressed,1,b +a byproduct of these developments will be that outsiders will have ever more difficulty understanding the risk positions of many large complex organizations,0,b +the mispricing of risk and the resulting uncertainty also reflected skewed incentives,0,b +while the sarbanesoxley act and new securities and exchange commission regulations are directed to public companies the message i hope to convey today is that aspects of these reforms can provide benchmarks for private and community banks who wish to strengthen internal controls,0,b +1962 economic activity expanded and generally small hanks responded hy expanding loans,1,b +the audit committee should actively engage the internal auditor to ensure that the banks risk assessment and control process are vigorous,0,b +only in 1983 did lower costs of funds contribute noticeably to an improvement in thrift profitabilityeven then thrifts still faced an overhang of lowyielding longterm fixedrate mortgage assets that rendered them vulnerable to increases in market rates,0,b +second the relatively rapid income growth expected by developing economies as they catch up to industrial countries should provide them with incentives to borrow against their expected higher future incomes,1,b +competition probable benefits exceed probable costs how will interstate banking affect competition,1,b +in short complexity in many cases provides options and in most cases is simply a part of modern finance,1,b +since september 2008 the fed has increased total market liquidity while altering the allocation of credit to particular markets,1,b +when you compare this figure to the number o f commercial banks in the united statesa total o f 15000 with 55000 offices engaged in fullservice banking you can see that we have an enormous amount o f interstate banking already,1,b +if you tell people that your bank is a friendly bank and the tellers or telephone operators are rude or impolite or just plain unfriendly the customers then begin to question everything you say,0,b +if necessary a larger part of credit needs could be satisfied through the open market or through nondepositary financial institutions,1,b +in addition they could not operate across state lines and could deal only in classic financial intermediation activities deposittaking and lending,0,b +they will have to adapt to geographic deregulation just as most have successfully adapted to deposit interest rate deregulation,1,b +in the united states signs of froth have clearly emerged in some local markets where home prices seem to have risen to unsustainable levels,0,b +if investors began to exercise their put option in large numbers the bank in question would have to issue new debt or perhaps sell assets to remain in compliance with regulations,0,b +this is consistent with what i heard from one oklahoma banker who said the biggest threat to his longterm survival was regulatory burdenâbut not so much in the last few years,1,b +this point is illustrated forcefully by the high failure rates encountered by insufficiently diversified unit banks in the agricultural and energy producing regions of our country,0,b +and if carried far enough these policies could threaten world trading arrangements by promoting an environment fostering protectionism 14 14 inappropriate policy policies that deliberately prohibit or restrict foreign investment are potentially very dangerous,0,b +banks merely channeled funds to borrowers who were political allies relatives or industrial partners,0,b +in addition stresses remain evident in certain asset and credit markets even though financial market conditions today appear much improved from their august nadir,1,b +the costs to all of us of having firms deemed too big to fail were stunningly evident during the days in which the financial system teetered near collapse,0,b +yet this option obviously risks imposing significant costs on the taxpayer and supports the notion that some firms are toobigtofail with consequent negative effects on market discipline and competitive equality among financial institutions of different sizes,0,b +it in turn has issued regulations that provide for the emergency operation of federal reserve banks and authorize them to make reserve credit available to both member and nonmember banks with the objective that no bank be inhibited by a real or fancied lack of funds from carrying out essential operations in support of essential purposes,1,b +for consumers technology has fostered the creation of new delivery systems for financial services that have dramatically increased convenience and obliterated geographical limitations,1,b +us financial institutions must have sufficient powers to adapt to and indeed to be leaders in the continuing evolution of financial markets,1,b +however southeastern banks perform especially well when measured according to standards like profitability and capitaltoasset ratios which give a better picture o f relative strength,1,b +the persistence of this lower inflation has bolstered confidence in financial markets dramatically,1,b +the result is a broadly based economic intelligence systemin timing the changes in monetary policy the fed acts in accordance with its best collective judgment as to the emerging current situation it does not wait until all the business indicators show a downtrend before supplying bank reserves more liberally nor does it wait until inflation is an accomplished fact before limiting credit expansion,1,b +depending on the terms of the sale originators who sold mortgage loans passed much of the riskincluding the risks of poor underwritingon to investors,0,b +these actions combined with the introduction of emergency lending facilities to provide liquidity to funding and credit markets proved successful,1,b +the surcharge attempts to reduce the chances of a global systemically important banks gsibs failure so as to bring the expected impact of the failure of such a firmthat is the expected damage to the system upon its failure discounted by the possibility that it will in fact failmore in line with that of other sizeable firms,0,b +it is important for lenders to understand that failure to recognize the profitable opportunities represented by minority enterprises not only harms these firms it harms the lending institutions and ultimately robs the broader economy of growth potential,0,b +by cutting interest rates to offset the negative effects of financial turmoil on aggregate economic activity monetary policy can reduce the likelihood that a financial disruption might set off an adverse feedback loop,1,b +if the fed and the fdic jointly determine that the revised plan does not remedy identified deficiencies they can require more capital increase liquidity requirements or restrict the growth activities or operations of the firm,0,b +but regulatory changes have made it more expensive for banks to take large deposits from other financial firms and in some cases banks may be unwilling to accept more cash from a ccp,0,b +to summarize i expect real output to grow slightly more rapidly in 2011 than in 2010 household deleveraging and bank asset quality will remain a drag on the recovery,0,b +in addition most mergers and acquisitions have involved expansion into new markets by the acquiring bank rather than acquisitions of local competitors which has allowed local communities to continue to enjoy a variety of potential providers of banking services despite the industry consolidation8 one unavoidable aspect of consolidation is a loss in the number of bank headquarters offices,1,b +as for the conduct of monetary policy in hindsight it may seem surprising that there were concerns at that time about the impact of the ach,1,b +with financial stability risks likely to be more tightly linked to the business cycle than in the past it may make sense to take actions other than tightening monetary policy to temper the financial cycle,0,b +and the ways in which we account for macroeconomic risk factors in assessing the risks facing individual institutions can be improved here the fed is drawing on its unique multidisciplinary expertise to build new supervisory capabilities,0,b +then buyers started to read the final prospectus which included narrative and statistical disclosure of troublesome loans and loans to real estate investment trusts which had not been in the preliminary prospectus,0,b +admittedly a certain degree of standardization in these practices was required because basel ii is a minimum regulatory capital framework intended to apply fairly consistently to a wide range of institutions,0,b +they may wish to ask for more collateral or ensure that the collateral is less linked to the counterpartys condition or broader market distress,0,b +a similar story is told by other data in the table the heaviest burden of monetary restraint through midmarch in both absolute and relative terms had fallen on the largest banks,0,b +the issues before the subcommitees are technically complex complex to the point where the maze of detail can over shadow the public interest considerations associated with a safe efficient and trusted payments mechanism for the effective workings of our financial institutions financial markets and the economy at large,1,b +spurred by loss of funds by banks and thrifts to such largely unregulated institutions as money market mutual funds congress passed the depository institutions deregulation and monetary control act of 1980 the phaseout of deposit ceiling rates mandated by that act will be completed later this month after which banks and thrifts will be able to pay a competitive rate on all deposits other than demand deposits3 even as government regulation was being expanded the means for circunventing mariy of the regulations were being developed,1,b +they may however have some validity with respect to the concerns of legislators and bank supervisors concerned about the appropriateness of continued bank participation in ldc lending,0,b +another problem area for banks has been making provisions for and writing off problem loans,0,b +the same expertise banks used for oldfashioned loans and their funding is still what they do for derivatives securitizations and credit scoring,1,b +in conclusion both the economy and banking system are continuing to improve and the nearterm outlook is favorable for both,1,b +the federal reserve offered its assistance to help complete the fslic examinations as rapidly as possible,1,b +for example it would seem that the legislative process has superimposed certain specific social goals and objectives on to the bank regulatory process,0,b +some then suggest that banks should disclose all pastdue plus renewedandreset loans,0,b +for instance bill collectors here in philadelphia could increase their salary 45 percent from an average of about 38000 to nearly 55000 by becoming a credit counselor with the added bonus that people will actually want to answer the phone when you call,1,b +in other words it wouldnt be practical for a regulator to decide that zero risk was the appropriate measure of financial safety and soundness because banks are in the business of taking risks to leverage their assets,1,b +but i think we may be better advised to take the opportunity of this review to examine whether there are approaches that might address more directly the vulnerabilities for the financial system created by large nondeposit shortterm funding dependence at major financial institutions,0,b +another important development has been the rapid growth of the hedge fund industry and its expanded role in the financial system,1,b +it is not just bank examiners but bankers who need training in how to do their jobs in modern fast moving internationally exposed economies,0,b +indeed when we finalized our leverage requirements for the largest banks staff projected the amount of reserves in the system would decline to 25 billion by year end 202112 the current total of approximately 416 trillion in reserves is about 165 times that amount,0,b +the basis of this concern is readily evident since 1957 the monetary reserves of the us have declined steadily and are declining further this year,0,b +as you know unlike other countries that conducted stress exercises we took the highly unusual step of publicly reporting the findings of the scap including the capital needs and loss estimates for each of the 19 banks2 this departure from the standard practice of keeping examination information confidential was based on the belief that greater transparency of the process and findings would help restore confidence in us banks at a time of great uncertainty,0,b +after initial fits and starts the basle supervisors committee embraced the concept of using banks internal models as a basis for a capital requirement for market risk,1,b +october 19 confidence vs suspicion kneejerk needs more regulationto wit circuit breakers limits on programmed trading margin requirements do any restore general confidence do we run danger of exporting ourcapital markets because our operations are too restrictive,1,b +presumably lenders assess their borrowers riskiness and calibrate the amount of the appropriate haircut,0,b +this lesson has been absorbed by supervisory authorities around the world as evidenced by our successful efforts to strengthen bank capital and our financial systems,1,b +to be clear i think that in most cases monetary policy should not respond to asset prices per se but rather to changes in the outlook for inflation and aggregate demand resulting from asset price movements,0,b +if these goals are met private creditors and international organizations such as the imf and the world bank will support these efforts the adjustments can occur smoothly if a moderate amount of additional net lending occurs,1,b +an inappropriate management strategy bad credit policies and a failure to make an accurate judgment of market conditions and the risks in the marketplace all combined to put the bank in deep trouble,0,b +i have already emphasized that the most fundamental aspect is that investors quickly begin drawing distinctions between assets with prices depressed for good reason and those depressed due to a generalized flight to quality,0,b +the national bureau of economic research has dated the recession as having begun in december 2007 but the pace of economic contraction accelerated in the wake of the lehman brothers collapse in september 2008 and the ensuing disruption to global financial markets,0,b +and the remedies that might emerge from such an analysis could well be more farreaching and more structural in nature than simply requiring a few firms to modify their funding patterns,0,b +in a rapidly expanding economy adequate financial reserves and liquidity seem wasteful,0,b + the surge in risk hedging in recent years is a symptom of a much broader issue of change in both domestic and international finance that is a manifestation of changes in the real economy,0,b +in recent months some of the wellknown challenges associated with liquidityrisk management were again revealed to the surprise of some market participants,0,b +on the trade side for example the continued accumulation of foreign claims on the us economy will raise the issue of whether foreign investors will want to hold an everincreasing share of their wealth in the form of us assets,0,b +m a n y of the financial excesses of the 1980s are in the process of being corrected and the international economic environment is becoming more favorable,1,b +many securitizers of mortgagebacked securities and resecuritizers such as cdo managers also in retrospect appear to have been motivated more by issuance and arrangement fees and less by concern for the longerrun performance of these securities,0,b +along with many other jurisdictions the united states adopted a countercyclical capital buffer ccyb to address the issue,0,b +i think one answer is that the aims and scope of prudential regulation have been fundamentally redefined since the financial crisis,0,b +forced downsizing and breakup is an option,0,b +a discretionary safety net with no set boundaries only feeds this cycle by giving market participants reason to believe that new complex arrangements ultimately will be protected,0,b +as towns lose banks and bankers they also lose important local leaders,0,b +of course the banks lose something on their assets as money depreciates,0,b +additional regulatory uncertainty arises from the doddfrank act requirement for two important regulatory rulemakings that could significantly influence mortgage underwriting as well as the cost and availability of mortgage credit,0,b +these rates declined by about 25 basis points following the fomcs 50basispoint cut in the federal funds rate target on september 18 another indication of market turmoil was that rates on certificates of deposit cds and eurodollar deposits rose sharply on august 9 on news that the subprime problems were spreading to the broader mortgage market,0,b +i think in time we will start to think of the end of the 20th century and heading into the 21st century as the dawning of the golden age of capitalism,1,b +the regulators have taken action to level the international playing field and to equate competitive conditions among nations,0,b +of the 14000 commercial banks in the united states less than 200 are reporting their financial conditions and the results of their operations in the uniform and comparable manner that has been prescribed for state banks that are subject to those disclosure requirementsthose reporting state banks do include practically every state bank with at least 750 stockholders and consequently those whose stock is most actively traded,0,b +measuring market and credit risk in banks fortunately progress is being made as banking organizationstypically the largest us and foreign institutionsfind better ways to quantify their risks,1,b +lending to creditworthy borrowers a key objective of the stress assessments and our efforts with smaller institutions has been to restore confidence in the stability of our banking system confidence that was lacking in early 2009 our goal though was to accomplish more than stability for example in the scap by setting reasonably ambitious capital targets we hoped also to hasten the return to a better lending environment,1,b +for example immediately after october 6 the stock market nosedived while rates rose steeply in other financial markets,0,b +20third the recession is improving the condition of financial markets,1,b +there is reason to believe that changes in the financial environment will result in a relaxation of some of the constraints under which banks and their regulators have been operating,1,b +it is our goal to ensure that the banking industry and the payments system avoid serious problems as they move into the 21st century,1,b +we must also find new ways to work effectively across traditional boundaries to achieve the stability we are seeking for the financial industry,1,b +credit made available through financial markets also set a record,1,b +with regard to these and any other issues the bonrd will welcome and give serious consideration to any connnents received during the period provided for public connnent prior to final adoption of the regulation,1,b +back in the 50s holding companies under georgia law could not cross county lines let alone state lines,0,b +moreover in my opinion it would be a mistake to allow the broad principles of federal policy on savings rate ceilings to be determined by what are essentially supervisory questions about the quality of management in the least viable firms in the segment of the thrift industry to compete against market securities,0,b +our conversations with financial institutions and disasterrecovery experts indicate that some institutions are not just revamping emergency response and contingency plans to address vulnerabilities experienced during 911 they are considering some fairly significant changes in their operations,0,b +another benefit of stress tests is they help ensure that banks have sufficient capital to continue to provide loans to creditworthy customers during a downturn,0,b +price stability is also critical in promoting financial stability,1,b +the facility provides loans with maturities of up to five years to investors to help finance their acquisitions of certain abs and cmbs,1,b +unfortunately the intensification of financial turbulence last fall led to further significant deterioration in the economic outlook,0,b +and i believe that those financial stability board and doddfrank reforms designed to permit the resolution of systemic firms without taxpayer exposure or undue disruption are very promising,0,b +during the 6course of 1969 about a dozen states either removed suspended or raised the existing ceilings and at the end of last month another halfdozen states had legislation pending or were planning steps to relax these constraints,1,b +banks do continue to play a central role in credit markets in particular because of the burgeoning market for loan sales banks originate considerably more loans than they keep on their books,1,b +arguably in the current riskon riskoff environment us financial markets have also experienced the effects of european risk in equity markets,0,b +within the broad loan standards established by statute and by supervisory authorities the individual lender is in a better position to judge the credit standing of his borrowers than governmental authorities he is also frequently able to make a more realistic appraisal of loan collateral,1,b +but such an approach can extend the proverbial runway for a troubled firm and help avoid repeats of the situation six years ago when policymakers confronted with chaotic financial conditions had little time to react and few available tools other than government liquidity and eventually capital injections,1,b +likewise some have blamed past bouts of volatility in fixedincome markets partly on investors who dynamically hedge the prepayment risk of mortgagebacked securities,0,b +competitive performance in banking markets would be optimized by allowing freer entry into markets and de novo entry is of course desirable,1,b +again however the share in the past five years is substantially above the 28 percent figure of the decade of the 1950sbanks are not only obtaining a bigger piece of the action than they did in the 1950s they are also putting the funds to profitable uses,1,b +to add insult to injury the offending banks sometimes borrowed in dollars and lent in their home currencies without hedging believing that their government could and would continue to stabilize exchange rates,0,b +banks were unable to respond in kind and soon found themselves losing depositors,0,b +as you are well aware technological and financial innovation have become the norm in banking and bank supervision,1,b +marketsby reporting market aggregates on positiontaking that would help market participants and policymakers alike monitor the buildup of risk exposures within the financial system,1,b +we can usually spot the first economic imbalances as they develop corporate or personal borrowing that gets out of line for example or excessive commercial real estate speculation,0,b +and the banking system did its part admirably,1,b +of course based on their consideration of the factors noted above and the results of their stress tests banks may reassess their participation in certain markets and exercise greater caution to account for potential tail risks and better protect themselves in times of marketwide stress,0,b +in contrast banks hold a more diversified mix of liabilities and assets many of which are less sensitive to unexpected changes in interest rates suggesting that banks as a general matter are less prone to interest rate risk,1,b +in most cases however the states have severely limited the number of potential entrants by selecting regional 5 interstate banking plans,0,b +as a result the federal reserve took action to help forestall this risk including the 50 basis points cut in the target federal funds rate on september 18 recent financial market developmentsit is premature to judge the ultimate effects of our policy actions on financial conditions let alone on macroeconomic performance,1,b +by 1970 thus the traditonal sources of banks1 loanable funds demand deposits and securities were not keeping pace with the economys growth,0,b +these financial products have contributed importantly to the development of a far more flexible and efficient financial systemboth domestically and internationallythan we had just twenty or thirty years ago,1,b +more specifically regulators must be authorized to require institutions to take immediate steps including liquidation when necessary when capital ratios fall below established thresholds,0,b +and consumers were the focus of federal reserve actions as we fought the crisislowering interest rates to stimulate economic activity providing liquidity to markets to maintain credit flows and issuing regulations to improve the quality of credit provided to consumers,1,b +the committee stressed that it was at no time concerned with open market rates,0,b +to the extent savings are increased the potential squeeze on the credit markets can be alleviated,1,b +capping nondeposit liabilities proposals to place a cap on a banks nondeposit liabilities as a fraction of us gross domestic product gdp have been promoted as more directly responsive to the sources of systemic risk than are proposals to reinstate glasssteagall or to cap the total assets of a bank,0,b +the greater use of credit models in retail transactions provides a stronger framework to assess risk and ensure that pricing reflects credit quality,1,b +according to the credit view banks are the key channels of fed influence only because they are important suppliers of credit in financial markets,1,b +lending institutions can better evaluate the likely profitability of capital projects thus reducing their risk of credit loss,1,b +this development also leads us to expect increased competition between banks and nonbank financial insti tutions,0,b +by the late summer and early fall of 1979 domestic financial markets and foreign exchange markets were in turmoilin view of these developments the federal reserve sought to gain closer control over the money stock and reassure the markets about its resolve to curb inflation,0,b +more regulation is not the best answer to every problem,1,b +it would imply a very favorable investment climate in which investors could take full advantage of low interest rates with confidence in price and exchangerate stability with a moderate tax system a moderate degree of regulation and markets free of rigidities imposed by government labor or uncompetitive business practices,1,b +in february 2009 the federal banking agenciesled by the federal reservecreated a stress test and required the nations 19 largest bank holding companies to apply it as part of our supervisory capital assessment program scap,0,b +increased diversification under the act should result in healthier banks as risk is spread across different investments lowering the organizations consolidated risk profile,1,b +since one justification for regulation q ceilings was to restrict the growth of commercial bank credit the effects may have been intended,0,b +this favorable turn of events has doubtless been materially assisted by the recent financial innovations that have afforded lenders the opportunity to become considerably more diversified and borrowers to become far less dependent on specific institutions or markets for funds,1,b +even after the developments of the past few weeks we see low default spreads low term spreads and low implied volatilities relative to historical norms and many recent leveraged buyout deals have received funding without the usual set of restrictive covenants a practice commonly referred to as convenant lite all of these factors suggest less concern for the possibility that future adverse shocks could cause defaults,1,b +after the last financial crisis in which banks were front and center steps were taken to shore up the resiliency of the commercial banking system through higher capital levels liquidity requirements and stress testing,0,b +by the end of this year we will find banks from about onethird o f the states operating deposittaking offices in at least 40 states,1,b +5 for the longer run deposit insurance is a cheaper way of protecting the depositor than bank equity or subordinated debt,1,b +when private sector competitors can provide better services at lower costs and do so in ways that enhance the functioning of the payment mechanism we have had no choice but to reduce our presence in the market and we have done so,1,b +market uncertainty at the time of a crisis will quickly lead to a deeper and more extensive problem in the worlds financial markets,0,b +at the same time the tendency of foreign investors to pull their capital out of a country at the same time as has recently been observed in various instances throughout the globe can leave an economy in serious trouble,0,b +the financial crisis exposed fault lines in the financial system that had to be addressed immediately comprehensively and vigorously,0,b +but the evidence suggests otherwise us bank lending has been healthy over recent years and profits are strong,1,b +but to my comfort we had a first loud squeal just a few days ago when the federal reserve was accused of making the banks sacrificial goats for the governments sins of aiming one of the most severe blows against bank profits and of having caused the payments deficit simply by having inflated the banks money supplies so much that they had to seek higherincome foreign sources to employ the surplus funds,0,b +participating in these markets are welldeveloped financial institutions searching for highyielding loans and zealously competing for customers,1,b +the new accord2s emphasis on improved risk management should not be interpreted solely as a requirement to determine regulatory capital standards but rather as a foundation for riskmanagement practices that will strengthen the value of the banking franchise,1,b +from 1960 through 1964 the opposite condition prevailed banks then had a net excess of reserves,1,b +removing the ceilings will help promote a national savings habit and encourage new deposits in financial institutions,1,b +in essence destaine argued aainst the provision of liquidity via reserve currencies or additional conditional liquidity and called for the construction of a new collective reserve unit rigidly tied to gold,0,b +again with marketplace oversight of risks neutralized bank regulators and supervisors must step in to ensure that banks are properly limiting their risk positions,0,b +in the third district the volume of classi fied loans of all member banks in 1970 was almost double what it was in 1968 one of the more disturbing aspects of these numbers is that the poorer record is at the larger banks where credit analysis would be thought to be the more sophisticated,0,b +senator douglas still intends to push for full disclosure of finance charges in credit transactions including the simple annual rate but its chances for passage remain dubious,0,b +financial market turmoil has the potential to make households apprehensive and thereby cause a precautionary pullback in consumer spending,0,b +i should point out that in implementing the basel capital accord in 1989 federal regulators extended that framework to all banks even though technically the accord is directed toward only internationally active banks,0,b +the american bankers association recognized the merit of closing the tax gap between savings and loan associations and commercial banks but believed that the curtis bill failed to meet the basic problem that j ljkm4 4 is the need for uniformity of tax treatment for both types of institution,0,b +as i noted earlier some are concerned that financial globalization leads to boomandbust patterns in capital flows and investment especially in emergingmarket nations,0,b +the success rate has never approached 100 percent except where banks are credibly guaranteed usually by their governments in the currency of their liabilities,1,b +on the other hand risk management considerations arising from todays unusual circumstances strengthen the case for additional accommodation beyond that called for by simple policy rules and optimal control under the modal outlook,1,b +the lack of clear ground rules for such intervention can lead market participants to speculate on the next facility the central bank will create or on the next asset class or firm it will rescue,0,b +this in turn has imposed additional credit demands on banks in rural areas,1,b +smaller banks in particular over the last three months seem to have been doing quite well in competing for time deposits,1,b +much of the recent debate however has focused on the opacity of hedge funds to regulatory authorities and to the markets generally which is viewed by some as an important source of liquidity risk,0,b +14 banks have expressed understandable concern regarding the variation they see in evaluations,0,b +2 the role of regulation new regulation may not always be popular but when crafted appropriately it can effectively alter the actions of those financial institutions that follow lowroad business models,0,b +on one side of the debate there are those who point out the potential benefits of allowing banks to be affiliated with commercial firms,1,b +banks are not only obtaining a bigger piece of the action than they did in the 1950s they are also putting the funds to profitable uses,1,b +if we provide the appropriate actions for overall stability market forces will assure that individual sectors are treated equitably in the absence of restrictions in a competitive enterprise economy,1,b +waiting too long increases risks to financial stability and raises the chance that we would have to move more aggressively in the future which poses its own set of risks to the outlook,0,b +for example the federal reserves comprehensive capital analysis and review ccar process the descendant of the bank stress tests of 2009 requires not only that large financial institutions have sufficient capital to weather extreme shocks but also that they demonstrate that their internal riskmanagement systems are effective9 in addition the results of the stresstest portion of ccar are publicly disclosed providing investors and analysts information they need to assess banks financial strength,0,b +back then interstate branching restrictions limited banks ability to diversify geographically,0,b +banks now have the reputation of treating customers information in a secure manner but this could be jeopardized in the move to ebanking as some recent episodes suggest,0,b +put simply the criterion for raising the ccyb above its minimum value of zero is that financial risks are assessed to be in the upper onethird of their historical distribution,0,b +the assumption is that banks can fund themselves at lower cost than other financial institutions because the insurance of deposits and access to emergency liquidity insulate them from failure,1,b +under some circumstances a fund might respond by rapidly selling assets with resulting contagion effects on other holders of similar assets and to the degree they had not already been subject to redemption pressures other asset management vehicles holding those assets,0,b +these practices led to significant losses in prior cre credit downturns,0,b +failure rates for the branching banks that existed were generally much lower motivating some policymakers to call for liberalized branching as a means of diversifying individual bank portfolios and strengthening the banking systema number of states did liberalize their branching laws between 1929 and 1939 further in 1932 senator carter glass who as you know was one of the founding fathers of the federal reserve proposed enhanced branching powers for national banks to allow both statewide and limited interstate branching,1,b +when some prices were artificially depressed below profitable levels firms either shifted their product mix where possible to items which were more profitable under the circumstances or they reduced the scale of their operations in an attempt to minimize losses,0,b +third statutory authority for supervisors to intervene in a troubled bank before it becomes brain dedd or capital insolvent,1,b +5 the repeated bailouts of private financial intermediaries have the effect of reducing private banks incentives to allocate funds effectively among competing financial endeavors,0,b +the recent lifting of the previous ceiling helps such banks to woo the saver to reward 2 2 further mortgage and other longtenn lending,1,b +broader economic developments can also create risks to financial stability,0,b +moreover in at least some cases uncertainty is increased by the difficulty of estimating with any precision the extent of potential liability of members to the ccp thereby complicating both their recovery planning and efforts by the official sector to assess systemwide capital and liquidity availability in adverse scenarios,0,b +242 michael moskow speeches 1999 2 in our role as a bank regulator the fed is making sure that examiners are helping bankers better assess the risks inherent in some farm portfolios today,1,b +if size is in fact a competitive advantage in the global market the partially completed state of deregulation in this country acts to the 1 0 detriment of our banks,1,b +from the largest most complex institutions to smaller banks serving the needs of their local communities our nations banking system has thrived amid intense competition and has adjusted to a rapidly changing financial and technological environment,1,b +return to text 7 support provided by the official international financial community also helped mute global market disruptions during these eme crises,1,b +bank supervisors today focus a lot of attention on those business activities that pose the greatest risk to a banking organization,0,b +this proposal if adopted would not vest in the federal banking commission any new powers over the banking industry but only those that are now exercised by one or more of the three existing federal agencies,1,b +at the same time however it does suggest that just because a particular activity can be classified as financial in nature it does not necessarily follow that such activity should be fair game for banking organizations,0,b +when refinancing activity eventually shifts down the fed could soon be buying up to 100 percent of mbs issuance if the current purchase program continues,0,b +banks themselves deserve much of the credit for their strong capital positions but the us credit markets is the trauma over,1,b +such an approach to policy can be highly destabilizing creating added volatility for financial markets and the economy,0,b +in addition to an effective system of internal controls you should look to your internal auditor and your cpa firm who are in a strategic position to render you assistance in your evaluation of procedures policies and objectives which lead to high quality assets,1,b +in the banking supervision and regulation arena the fed can work to support an efficient and sound banking system,1,b +integration in each of these areas has been facilitated by rapid advances in telecommunications and information technologies and by an international policy environment that emphasizes trade liberalization privatization and deregulation of financial markets,1,b +certainly repricing of bank liabilities seems to be approaching completion but asset yields will continue to adjust downward as assets reprice or cash flow is reinvested at lower yields,0,b +it is not unusual for such uninsuredunsecured liabilities to account for well over half the liabilities of tbtf institutions,0,b +this lowers the risk premia built into mortgage rates,1,b +therefore to engage in these latter businesses a company would have to be certified as a financial holding companyeverything ive mentioned so far refers to consolidation in the financial sector of the economy,1,b +proponents of this view contend that speculators when borrowing to make stock purchases bid up stock prices to excessive levels and the following sharp declines tend to produce recessions,0,b +examples of operational risk include employee fraud customer lawsuits failed information system conversions and missent wires,0,b +such competition would tend to facilitate the transfer of financial resources from savers to borrowers,1,b +the first part of my remarks will highlight the significant progress that has been made over the past several years toward restoring the banking system to good health,1,b +the levels included in the proposed rule are more in the middle of that range and thus higher than the basel surcharges,0,b +nor can the average bank afford to retain the services of experts in the various specialty fields,0,b +what is more thrifts hold about 10 percent o f outstanding junk bonds and producers with receivables from leveraged firms must also be counted among creditors,0,b +these arrangements would be more explicit and more liberal than currently provided and it is hoped would be of significant help to banks with wide seasonal swings in fund availability,1,b +this morning i would like to review some of the major innovations and changes that have propelled banks to their present state and have allowed them successfully to navigate through a rapidly changing economic and technical environment,1,b + speech by richard w fisher president and ceo 20052015 minsky moments and financial regulatory reform remarks before the 19th annual hyman p minsky conference on the state of the us and world economies april 14 2010 new york city recent examinations of the leaders of wall street and big banks by the congress and the financial crisis inquiry commission bring to mind a quip reputedly made by napoleon bonaparte never ascribe to malice that which is adequately explained by incompetence as a prominent investor from omaha once remarked it is indeed amazing what is revealed when the financial tide goes out many who were presumably cloaked with unique insight and thought to be worthy of enormous fees and compensation packages were revealed as having nothing on,0,b +watch live the financial crisis highlighted two major vulnerabilities in the us financial system,0,b +in such times credit should be made more plentiful and less costly in order to stimulate economic activity as was the case last winter and early spring,1,b +this means that unsound banking practices create problems in more than the home country,0,b +one involves financial market innovation,1,b +unless bank capital in the past was grossly excessive it is clear that today the degree of protection of many banks provided by capital is less than adequate,0,b +and finally in the future compensation for servicers likely will need to recognize the different resources required for loss mitigation as opposed to simple payment accounting and forwarding,0,b +that is not an environment in which stability in financial markets can reasonably be expected and understandably there was a sense of frustration about our economic course,0,b +an expansion of general interstate banking would provide new opportunities for many banks,1,b +it embodies the concept that a wellmanaged bank should seek to go beyond simple compliance with minimum capital requirements to assess whether it has sufficient capital to support its risks,0,b +therefore improved corporate governance is an essential part of structural reform encouraged by freeing banks from political interference in lending,1,b +in those circumstancesââwhen financial institutions that are otherwise perfectly solid are at risk of failure because market infrastructures are disrupted or more generally when financial instability originates outside the banking sectorââan intervention by the federal reserve would certainly be beneficial and the creation of perverse incentives would probably be limited,1,b +while this increase might be considered a parallel shift that preserves the backstop philosophy in light of the fact that riskbased requirements have also gone up significantly it does increase the likelihood that the leverage ratio may bind for some of these firms at some timesparticularly for those firms with a brokerdealerintensive business model in which the ratio of total assets to riskweighted assets tends to be higher,0,b +it would make sense then to provide banks with those tools as a balance for the restriction of riskier activities to which they have turned in an effort to remain competitive,1,b +a surge in financial market innovations and shift in trading participants has paralleled the rise in global imbalances in recent years,1,b +perhaps most important there is an institutional vehicle that is available that would permit banking organizations to participate in financial modernization with a minimal risk of transference of the safety net subsidy the bank holding company,1,b +as the record shows credit unions have gone far beyond the expectations of their founders,1,b +to the extent that market participants now feel more comfortable asking for the central banks support when they get into trouble they may be inclined to take on more risk than would otherwise be prudent thus sowing the seeds for the next crisis,0,b +during the financial crisis the success of an ad hoc stress test in assessing the capital needs of and restoring confidence in the nations largest financial institutions encouraged congress to make stress testing a required and regular feature of large firm prudential regulation1 the federal reserve has in the succeeding years substantially refined its supervisory stress test,0,b +rosy expectations of everincreasing asset values and higher and higher rents created a competitive feeding frenzy among bankers who adulterated sound lending standards in pursuit of market share,0,b +the conclusions of the study were that commercial banks demand for excess reserves and borrowings changed markedly with interest rates bank loan demand and other factors making free reserves a very poor guide for stabilization policy,0,b +we also closely monitor potential structural vulnerabilities such as funding models and institutions that provide critical plumbing services to the system,1,b +these higher market rates in turn outstripped the rates that financial institutions were able and willing to pay on their deposittype claims and thus reduced their rate of growth,0,b +in this particular case there can be said to be a direct form of regulatory attack on the firesales problem,0,b +so its called the grammleachbliley act glba for short and if youll allow me im going to add another vowel and call it gilba so that i can pronounce it in two syllablesgilba has been called historic financial legislation and thats probably fair given its complexity and scope,1,b +rising demands by pressure groups lead to economic inefficiency and loss of freedom a second type of long run problem is our rising impatience with the free market forces in channeling incomes and resources to the various sectors of the economy,0,b +we also need to be flexible in carrying out our traditional payments system functionsprovider of payment services regulator and catalyst for changein the rapidly changing payments landscape,1,b +at the same time the appetite for risk among financial market participants rose notably over 2017 and much of 2018 and corporate borrowing has reached new heights amid rapid growth and deteriorating underwriting standards in riskier segments such as leveraged lending,0,b +we will ensure that the supply of reserves in the banking system remains ample consistent with the fomcs direction2 treasury bill purchases continue to add to the underlying level of reserves and repo operations are keeping reserve levels ample,1,b +the same applies to banks based in chicago which are not even allowed to branch freely in their headquarter city,0,b +in addition term bank funding markets remain under pressure as banks and other lenders in these markets conserve capital and liquidity and limit risktaking,0,b +for the same reason banks should have recognized that countries are not simply markets in which each bank should aspire to its proper share but again in an important6compared with the high spreads that banks at first sought to impose in reschedulings once the true nature of the risk had become apparent,0,b +is designed to foster an efficien t payment system it involves facilitating the movement o f money in our financial system,1,b +ensuring adherence to riskmanagement practices any successful organization needs to develop appropriate mechanisms to ensure adherence to and sustainability of its riskmanagement structures and incentives structures are a key mechanism for this purpose,0,b +under that design a holding company could own separate subsidiaries engaged in commercial banking investment banking securities trading and insurance as well perhaps as real estate brokerage,1,b +the assurance of the availability of liquidity to sound institutions against good collateral should counter the greater uncertainty and risk aversion that have impaired normal arbitrage and intermediary functions by making those institutions more willing to extend credit and take positions in the process of making markets,1,b +bankers should support legislative change that broadens their powers,1,b +we see one of our roles at the federal reserve as helping the financial services industry resolve many of these issues,1,b +the second eras questionâwhether long expansions inevitably breed financial excessesâis a challenging and timely one,0,b +the inability of var calculations to adequately measure the risks of certain traded positions may give rise to arbitrage opportunities between the banking book and the trading book because of the lower capital charge that may be afforded trading positions under a var approach that is not optimally risk sensitive,0,b +my proposals provide incentives for every bank to become a member of a group of banks that are especially wellmanaged and wellcapitalized,1,b +as i said earlier the stability of the banking system is of great value to banks customers,1,b +however we think it is also simply good business sense for bankers to make sure that their customers clearly understand the price features and risks of products and services being offered to them,1,b +banks need to be confident about receiving cra credit to seek out activities and investments in these areas,1,b +the surge in demand for a limited supply of investment funds resulted both in sharp increases in market interest ratesthat is in those rates that were free to move upand very heavy demands on conmercial banks,0,b +the federal reserve has recently liberalized its regulations pertaining to drect investments in commercial enterprises thereby facilitting debt to equity swaps,1,b +in turn these demands have provoked heated debates about particular policy responses because of the complexity of mortgage lending and concerns that unduly onerous legal and regulatory barriers could diminish the availability of credit in the subprime market,0,b +2 this would suggest that bank failures 138 o f which occurred last year the highest in any single year since the depression will probably continue in large numbers,0,b +to be sure service information understanding and creative lending were all considered to be important competitive tools,1,b +under the circumstances the authorities decided the bank was no longer viable,0,b +you provide a continuous stabilizing influence that keeps the overall system of 12600 banks on an even keel,1,b +the main purpose of this new requirement is to slow down the growth of bank credit which is now proceeding at a very rapid rate,0,b +large banks already have been directed by the fed to create internal risk classification systems for such purposes and cuttingedge banks have made substantial progress,1,b +international bank regulation also bears on the competitive position of banks,0,b +all of this began to break down in may 1975 when trading among institutional investors and competition from regional exchanges forced the new york stock exchangeafter more than 200 yearsto abandon fixed commissions,0,b +importantly attention is being paid not only to the risks to individual firms but also to potential systemic risks arising from firms common exposures or sensitivity to common shocks,0,b +indeed even the fsb proposal does not extend to sfts backed by government collateral a very important source of shortterm wholesale funds,1,b +deposit pricing for banks appears to have hit its lower bound in 2015,0,b +in fact during the days following the september 11 attack the fed provided massive amounts of liquidity to the markets through regular open market operations lending at the discount window and through the provision of check float,1,b +and second the stress tests broke new ground in regulatory transparency by showing that regulators would enforce capital requirements and impose consequences for firms that fell short of those requirements,0,b +national bank branches may be authorized only to the extent that a statechartered bank is expressly authorized by state law to establish branches,0,b +in deed the fact that reserve balances can and do play this role is one of the characteristics of the system that 11 permits it to work with the high degree of efficiency we have all grown so accustomed to,1,b +the pervasive economic weakness abroad in industrial as well as in developing countries with possible repercussions on the world financial systemb,0,b +in the absence of any other governmental agency having the authority to fill the role we have lent to stabilize several systemically important institutions any one of whichhad it failedwould have posed a serious threat to the financial system and the economy,1,b +lessons for risk management at financial institutionswith that brief diagnosis of our financial market turmoil as background i turn now to some of the lessons learned thus far regarding the riskmanagement practices of financial institutions,0,b +in the past most payment services produced benefits for the collecting institution in the form of lowercost collection or accelerated availability,1,b +a binge of special interest to you i should say because the most spectacular savings rise has been in the funds placed with financial intermediaries from the standpoint of these institutions investment of the expanded flow of funds has posed a major challenge to the skill and ingenuity of management particularly since the demands for credit in the last year or so lacked a comparable buoyancy,0,b +for a large complex banking organization dealing with compliance risk can be particularly challenging unless it has a welldeveloped riskmanagement program,0,b +compliance with consumer protection regulations receives close scrutiny and consumer compliance specialists participate in the evaluation of the risk assessments supervisory plans and annual letters that our supervisors prepare for large complex banking organizations,0,b +potential impediments to efficient resource utilization overall our evolving financial system has been highly successful in promoting growth and higher standards of living,1,b +this shift could be important to the extent that hfts may have more limited capacity to support liquidity resilience since on average hfts appear to trade with smaller inventories and lower capital than traditional traders,1,b +this means m o n e t a r y policy will continue to attempt the dampening of domestic and international events on our mon ey markets and given the magnitude and frequency of these events there is little reason to expect stability of either rates or availability of funds,0,b +the combination of project financier financial catalyst and institution builder makes the banks uniquely effective agents of development,1,b +while our battles arc by no means won it is an appropriate time to examine some other longerrun issues issues that have clung to the cloaks of bankers for a long long time impervious to whether credit conditions have been tight or easy or whether the economy has been in boom or recession,1,b +we want to encourage a more efficient payments system,1,b +this oldtimer would discover that while he was napping market forces had changed the regulated world o f the past into one that requires much more creativity and less adherence to procedures,1,b +to this point my remarks have reflected the familiar perspective that identifies a set of market practices carrying significant risk of negative externalitiesin this case with some collective action problems thrown inand then asks how to fashion an appropriate regulatory response,0,b +nowhere have these tensions been more evident than in the ongoing debate over the appropriate government regulation of derivative contracts a debate which has varied in intensity but has never fully subsided for at least ten years,0,b +that recently enacted statute allows bank holding companies from any of nine other southeastern states which passes a similar law to acquire georgia banks,1,b +for example scholars have found that one source of fragility during the great depression was the privately run correspondent banking system that is the system used mostly by nonfedmember banks to clear payments,0,b +credit markets are open,1,b +in most of these countries institutions similar to the us securities and exchange commission are largely ineffective or nonexistent internationally accepted accounting standards are not followed and regulations requiring full disclosure are frequently absent,0,b +over the following years most banks greatly improved their capital positions until the present erosion set in,1,b +with the impressive growth in international banking activity in florida since the passage of the florida international banking act 20 years ago it is particularly important to ensure that the year 2000 challenge is effectively addressed by all banks conducting an international business in the local and state markets,1,b +public disclosure that a bank had greater than expected trading losses would subject it to the critical evaluation of the marketplace,1,b +securities will now be made available through an auction process with an expanded array of collateral on a weekly basis for a term of 28 days,1,b +for example the bcbs is currently considering a proposal that would set a gsibs slr surcharge at a level that is proportional to the gsibs riskbased capital surcharge,1,b +but policymakers should recognize that financial market turmoil is not a gardenvariety shock to output,0,b +there was significant financialsector development during this time with commercial banks equity markets and corporate bond markets all playing a growing role in financial intermediation in the us economy,1,b +similarly dismantling controls on the domestic financial industry has proven counterproductive when important complementary factorssuch as effective bank supervision the availability of bank managers trained in marketbased lending or consumer familiarity with financial products such as credit cardswere absent,0,b +i am concerned about the commercial real estate sector and how its performance could affect the banking system which i addressed in a recent speech,0,b +and they will place a premium on cooperation and appropriate information sharing between the primary bank regulator and the federal reserve as umbrella supervisor while at the same time we work together to minimize duplication and avoid excessive burden,1,b +if solvent banks are confident that they will be able to borrow from the central bank against good collateral to meet any unforeseen funding needs then they need not completely stop lending even amid increased uncertainty about future funding needs,1,b +but the record of the past 30 years does indicate that banks have done quite w0ll in a world of rapid financial innovation increasing competition and advancing technology,1,b +we need assurance that these institutions will handle routine and nonroutine transactions properly long after examiners leave the bank,0,b +federal reserve staff are actively considering additional measures that could address these and other residual risks in the shortterm wholesale funding markets,1,b +legislators have attempted to work around this pitfall requiring changes to large banking companies whose wills are found wantingprior to a crisis,0,b +absent a public voice or participation these arrangements can become excessively concerned with corporate intereststhe federal reserve has long provided a national clearing system linking all banksmembers directly and nonmembers indirectly,0,b +however it highlights the fact that foreign banks may be a very real competitive force in local markets,0,b +for example early intervention policies triggered by more accurate capital standards could prove to be important in crisis prevention,1,b +therefore we need to determine what capital requirements are necessary in order to survive the kinds of economic shocks that can arise in our present economic environment,0,b +however morgan and his colleagues decided that they did not have sufficient information to judge the solvency of the affected institutions so they declined to lend,0,b +however regional overnight check clearance is no more than an interim measure because of the time bomb hidden in the check payments system,0,b +in the late summer of 1969 however monetary conditions were getting too tight as evidenced by the behavior of mi as well as by the further rise in longterm interest rates at a stage that was obviously very late in the cycle,0,b +first it will be noted that for each class of connnercial bank loans operating costs absorb a significant share of the gross yield,0,b +banks and real estate firms are also stronger,1,b +indeed calls for new regulation in several deregulated industries have all but drowned out voices of those who still see potential benefits from further deregulation,0,b +but shareholders would not be protected and i would anticipate appropriate discounts or haircuts for other than federally guaranteed liabilities,0,b +capital is in this is the negative side of the banking picture which the fed and other supervisors will have to stay very much on top of,0,b +in my view the reduction in leverage and maturity transformation associated with better regulations leaves the financial system much more resilienteven if such regulations have modestly affected market liquidity,1,b +however banks in general have come a long way in the past year toward correcting the situations including overdependence on highly volatile deposits and overexpansion of bank holding companies that gave so much cause for concern last sunnner,1,b +the assessment found that if the economy were to track the specified more adverse scenario losses at the 19 firms during 2009 and 2010 could total about 600 billion,0,b +in addition because of the global nature of the crisis the fed coordinated with other central banks to provide liquidity via swap agreements,1,b +i try to think of myself as speaking to portfolio managers who have a mediumterm horizon rather than to traders who have a horizon measured in hours or a few days,0,b +in effect they argue that even if individual firms manage their risks prudently and effectively the aggregate effect of their activities may be to make the financial system less stable,0,b +this represented a noticeable slowing in the rate at which banks entered the credit card business,0,b +it is also fairly obvious to me that the american ethic of shortterm profits and matching shortterm strategies puts american banks and financial institutions at a great disadvantage,0,b +thus before the doddfrank act was even proposed we wrote that guarding against a resurgence of the omnivorous tbtf blob must be among the goals of financial reform2 in previous speeches i have taken note of another dimension to the problem of sustaining behemoth financial institutions and that is the cost of doing so,0,b +as to nonperforming loans the additional disclosure proposed by the sec conpared to that recommended by the banking agencies would be in my opinion counterproductive to steps needed to strengthen the capital position of large banks gnerally,0,b +unconfirmed trades increase the potential for material inaccuracies in trade records which can cause mismeasurement and mismanagement of market risks and counterparty credit risks,0,b +country exposure in relation to capital has tended to rise for many of the lending banks,0,b +inadequate financial disclosure on the other hand could penalize wellmanaged firms or even countries if market participants do not trust their ability to assess firms or countries fundamental financial strength,1,b +we have seen a sharp rise in bank mergers an expansion of branch systems and of overseas banking activities and a notable increase in the number of bankholding companies especially of the onebank variety,1,b +the improved assessment of credit risk along with other advances in information technology also facilitated the broad development of markets in which individual loans are pooled and securitized thus allowing these pooled exposures to be priced in active capital markets,1,b +asset quality continues to improve and lending activity continues to grow nationally,1,b +throughout the discussions and negotiations of basel ii the united states has emphasized that its interest is in ensuring that banks competing in each others countries be subject to the same capital regime,1,b +lending banks understandably do not volunteer to provide large interest subsidies for er to write down loans that can after all be serviced nor is that necessarily in the interest of countries that will be 1oo1d n9 to i ntern2t,1,b +while few land banks currently have the resources to operate at significant scale the land bank model is one that has shown some success and could help many communities stabilize troubled properties if used more extensively,1,b +in the recent cases we invoked the systemic risk exception with respect to the system as a whole thereby allowing assistance to flow to institutions of all sizes,1,b +over the past four years the aggregate tier 1 common equity ratio of the 18 firms that underwent the recent tests has more than doubled from 56 percent of riskweighted assets at the end of 2008 to 113 percent at the end of 2012in absolute terms a net gain of nearly 400 billion in tier 1 common equity to almost 800 billion at the end of 2012 indeed even under the severely adverse scenario of the latest stress test the estimate of these firms poststress tier 1 common capital ratio is more than 2 percentage points higher than actual capital levels at the end of 20084 higher capital puts these firms in a much better position to absorb future losses while continuing to fulfill their vital role in the economy,1,b +in the old days when individual loan officers made credit decisions any weaknesses in underwriting were confined to that lenders portfolio,0,b +there is a broad class of market practices that can provide useful protections when an individual firm experiences trouble but these practices may not provide useful protectionsand could be potentially harmfulwhen the trouble is marketwide,0,b +even the latest regulatory innovation the 1988 basel accords riskbased capital modelwhich took so many years to gain broad acceptanceis completely inadequate as a gauge for determining capital requirements for many very large institutions,0,b +and we will staff our cash operations around the turn of the year to make sure banks can obtain currency on a timely basis,1,b +these misallocations of capital dont create the collective mistakes in predictions that generate financial crises,1,b +overall the financial system was vulnerable to shocks and unable to quickly move reserves to where they were needed,0,b +this program will be distinct from the activities of supervisors so as to provide an independent assessment of the conditions in major firms as well as to provide additional information to onsite examination teams,0,b +1 the fsb exists to help sustain the common efforts made in the throes of the crisisto identify and address systemic vulnerabilities to develop stronger regulatory and supervisory policies and to create a more resilient global financial system,0,b +1 if evidence suggested no problem we would support the repeal of laws that are onerous to banks,1,b +as the basel ii implementation process moves along we look forward to gathering additional information and further enhancing our understanding of institutions practices,1,b +that is the protection from competition provided by interstate and intrastate barriers may have allowed some firms with market power to be inefficient or make uneconomic loans,0,b + 5 since those outside businesses were free o f the regulations limiting banks and thrift institutions they could o ffe r depositors market rates o f interest on funds placed with them,0,b +in considering how much to invest in their own cybersecurity each firm should be entertaining the possibility that those shared services could come under significant stress in the event of a major attack on multiple firms at the same time5 or that the shared service itself could be the entry point for a systemwide attack,0,b +the regulatory system will operate more effectively if the supervisory process integrates market information which should as a result of innovations such as a resolution mechanism be even more sensitive to the conditions of financial firms,1,b +induce or penalize bank credit for specified end users,0,b +the compression of interest margins is alerting bankers to the fact that their ample supply of core deposits provides a liquidity cushion that is fairly expensive in this setting,0,b +lawmakers in washington began this process with mca 80 and the banking a ct of 1982 which together made the playing field increasingly shared by banks thrifts and nonbanks somewhat more level,1,b +failures of depository institutions in the late 1980s and early 1990s restricted the availability of credit to many borrowers especially those that had traditionally relied on banks and sls,0,b +i am more convinced than ever that financial markets require a healthy dose of regulation to function efficiently,0,b +as many of you know the federal reserve has had for more than five years a program to foster our largest most complex banks2 ability to assess internal capital needs,1,b +specifically i want to stress that this risk management or insurance strategy carries with it its own set of risks and must be used with some care,0,b +but more importantly i am enthusiastic because it gives the banking industry such a good chance to tell its story to the public,1,b +this is critically important to increase banks certainty that they will receive cra credit when they make impactful investments that have the support of tribal governments and leaders and to increase certainty about how these activities qualify for cra credit,1,b +it has been reasoned that the accelerated expansion of total bank credit this year would supplement the funds available for spending by the public and therefore should be interpreted as a strong inflationary force in the economy,0,b +this format offers the possibility of limiting or even prohibiting the use of the insured bank for funding the other businesses thereby insulating the insured deposits of the bank from the real or imagined risks of the other businesses,0,b +should such runs occur they could be handled both through approprlate openmarket operations to protect the econonys llquldtty ln general and through use of the federal reserves lender of last resortrr facility to lend dlrectly to solvent banks,1,b +over time new issues of these securities became available on a regular calendar and market liquidity improved,1,b +however it is possible that some large banks may derive substantial deposits from local areas and concentrate their lending in national and international markets,1,b +8we also are hearing some limited reports of cutbacks in construction lending to some builders as a consequence of the new regulatory standards for savings and loan associations,0,b +the higher and more frequent level of borrowirg at the discount window i might ad9 reflects not only the general bank scramble for funds but also the shifting of pressure to more banks as alternative sourceg of funds become less available,0,b +given the ease of transfer the threat of even a small loss will cause depositors to run,0,b +a 20 percent reserve requirement has been placed on member bank balances above a specified base for certain eurodollar borrowings,0,b +for every dollar of preclf shortfallthat is for every dollar of required liquidity that a bank cant obtain on the private marketthe bank has to pay the commitment fee,0,b +in the preceding decades our regulatory system had accommodated the growth of capital market alternatives to traditional financing by relaxing many restrictions on the type and geographic scope of bank activities and virtually all restrictions on affiliations between banks and nonbank financial firms,0,b +but given the detailed nature of the microdata that are available on individual fund holdings and returns there is clearly room to make significant further progress on this front,0,b +moreover to date announcing that we expect to remove accommodation at a measured pace has not materially impeded market participants from responding meaningfully to incoming data primarily by extending the anticipated series of gradual rate increases when these data suggested the potential for greater inflation pressures,0,b +its too early to assess their ultimate impact on the lending industry but its possible that these new nonbank lenders will become important players in some markets previously dominated by banks,0,b +thus disruptions in financial markets can generally be addressed using the tools available to the federal reserve without necessarily having to make a shift in the overall direction of monetary policy as measured by the federal funds rate,0,b +since this sort o f macroeconomic growth will require a stable as well as a highly developed and responsive financial system we will probably experience some changes in the regulatory environment to ensure the continuing soundness o f our financial system,0,b +for example in the united states the regulatory framework that came out of the doddfrank act ensured that systemically important institutions entered the pandemic with sufficient capital to facilitate the forbearance and lending that has been critical to our economic recovery12 the question before us now is what can we learn from the events of march 2020 and how can we use those lessons to build a more resilient financial system moving forward,0,b +we supervisors will be appreciably more involved in evaluating individual bank risk management processes than afterthefact results,0,b +hearing panel decisions may be appealed to the exchanges 6board of directors to the securities and exchange ccamission and ultimately to the federal courtsthe 1975 amendments to the securities and exchange act considerably enlarged the secs role of oversight while still leaving the bulk of daytoday regulation and surveillance in the hands of the industry,0,b +financial holding companies will be as central to banking tomorrow as good oldfashioned banks were in the passbook days we talked about earlier,1,b +in addition however many banks also seemed to have accepted an obligation to assist their own state and local governments with their financing problems and this willingness to assist was frequently enhanced by the deposit of public funds,1,b +this is another reminder of the importance of building resilience in the financial system,0,b +examining such processes became more necessary after we recognized years ago that the widening use of derivatives enabled an institution to substantially change its risk profile within hourspossibly shortly after the conclusion of an examination,0,b +the grammleachbliley compromise was to require some separation of financial activities into different subsidiaries of a common parent the financial holding company,1,b +finally a leverage ratio leans against the inherent tendency of bank leverage to increase in an economic boom and fall during a recession,0,b +by allowing institutions to diversify risk to choose their risk profiles more precisely and to improve the management of the risks they do take on they have made institutions more robust,1,b +i am referring to the advance notice of proposed rulemaking issued last october by the us banking and thrift agencies that explores alternatives for simplifying the capital standard for noncomplex noninternationally active us depository institutions,1,b +we hope that by clearly communicating expectations we are giving both bankers and our own examiners sufficient time to prepare for the new framework,1,b +but as chairman volcker told the senate banking committee several weeks ago reserve requirements must be more equitably distributed among the nations banks even though the federal reserve can meet its responsibilities with a smaller reserve base than it now has,1,b +in essence the bank should determine whether capital levels are appropriate in light of any deviations from pillar 1 assumptions,1,b +however one overriding conclusion stands out us banks became much more heavily engaged in foreign lending relative to the rest of their business in the last decade,1,b +this needs to be accomplished in a way that does not give the bank ceo another form to fill out and does not raise the prospect of retribution by the examiner the next time around,1,b +one of the key messages we repeatedly heard from experts throughout our initiative is the need to understand both costs and benefits when considering potential regulatory reforms,1,b +secondly capital enables the bank to absorb unforeseen losses or reductions in asset values in excess of earnings in order to continue as an ongoing concern in the short run until earnings recover,0,b +however the term money market borrowing by banks that underlies us dollar libor has experienced a secular decline,0,b +large banks have increased both the size and quality of their capital buffers the ratio of common equity to riskweighted assets at large banks has increased by half relative to the precrisis average,1,b +it would not be difficult to show that these relationships depart from those which would be considered desirable for a financial system that functioned well,0,b +at the same time banks clearly differ from other types of business enterprises and require different treatment in matters of disclosure,1,b +we did not attempt to recommend a precise percentage but we did point out that the present average ceiling for banks of 2 j3 per cent is grossly inadequate that the economic welfare of the country demanded a measurably higher figure but that we did not believe that either the commercial banks or the savings and loan associations could justify a figure as high as 12 per cent,1,b +they have reduced or eliminated numerous restrictions on the mobility of credit things like usury ceilings,1,b +therefore banks should not be surprised by the emphasis of the proposed guidance on the importance of portfolio risk management and concentrations,0,b +therefore the market for fixedincome securities appears to be functioning in a way that one might describe as more discriminating,0,b +but those unregulated and less heavily regulated entities generally are subject to moreeffective market discipline than banks,1,b +however if the supervisor were required to define the exact degree of risk in each kind of loan and investment assuming he could do it capital adequacy might soon be a matter of arbitrary public rating for all banks and then a ratio would be a determinant of your banks standing irrespective of the quality of your managementbefore i leave this aspect of your role i want to make one last comment,1,b +to further ameliorate the toobigtofail problem the congress should create a new set of authorities to facilitate the orderly resolution of failing systemically important financial firms,0,b +given the important role played by financial market infrastructures we support the current legislative provisions that would help ensure that payment clearing and settlement systemsincluding central counterpartiesare subject to robust and consistent riskmanagement standards and do not pose dangers to the financial system as a whole,0,b +that more relaxed attitude toward risktaking is what underlies the term moral hazard,0,b +third some savings banks and s ls are beginning to provide the convenience of onestop service for their customers,1,b +diminished demand for loans and bonds to finance highly leveraged transactions has increased some banks concerns that they may have to bring significant quantities of these instruments onto their balance sheets,0,b +the rrost encouraging sign i have seen is greatly enhanced management focus on the vital documentation of policies and controls in 3credit extension and asset acquisition and on the three rsreview review and review,1,b +in its first implementation of revised section l½ c 8 of the act the board expanded the scope of those provisions to include subsidiaries of holding companies approved by the board under that section,0,b +laws and regulations no matter how well thought out are proving to be flimsy indeed when pitted against market forces that push money flows into their most profitable uses,1,b +as we get more precise in measuring credit risk we lose some of the buffers previously built into the standard to cover operational and other risks,0,b +in a second area the board has sought to insure the continued smooth functioning of the payments mechanism over the longer term through the establishment of regional check processing centers designed to speed up the flow of checks,1,b +first banks increased their offbalance sheet activities and although these activities such as issuance of standby letters of credit increased risk the capital standards did not require increased capital,1,b +moreover as demonstrated by the intervention of the government when bear stearns and aig were failing and by the aftermath of lehman brothers failure the universe of financial firms that appeared toobigtofail during periods of stress extended beyond the perimeter of traditional safety and soundness regulation,0,b +not only would that increase the moral hazardand the need for banklike supervisionbut it would also unbalance the competitive playing field between bank subs and independent firms engaging in the same business a strange result for legislation whose ultimate purpose is to increase the competition for financial services,1,b +completing the picture the us banking system is highly profitable and wellcapitalized and has managed credit risk over the latest cycle exceptionally well,1,b +instead my goal is to describe the federal reserves monetary responsibilities highlight the critical role of liquidity in financial markets and discuss the recent financial market turmoil,0,b +the bidding of firms to raise money directly from saverinvestors rather than from financial institutions has caused this years rapid runup in market ratesthe shift among financial institutions,0,b +as such clearing and settlement systems are critical for the performance of the economy,1,b +the regulatory response usually lags developments in the marketpl ace and ì s typi cal ly pi ecemeal ,1,b +the banks performance in this area has generally been favorable and any difficulties they may have encountered appear to be startup problems,1,b +the readiness of the federal reserve and the extensive preparations in the banking system do not however guarantee perfection,0,b +we also have important responsibilities for the stability of the financial system and for the regulation and supervision of financial institutions including our largest banks,0,b +competition in bankingcompetition has been a key factor in all the bank holding company legislation created by congress over the past 20 years,0,b +a number of observers have expressed the concern that if a bank is held to an lcr standard of 100 percent in normal times it may be reluctant to allow its ratio to drop below 100 percent when facing large outflows even if regulators were to permit this temporary deviation for fear that a decline in the ratio could be interpreted as a sign of weakness,1,b +banks that integrate risk measurement into businessline goals believe that it has improved the effective implementation of strategic plans,1,b +the thrift mess the texas snafu and the ldc debt debacle all teach the same lesson,0,b +to be sure banks do have access to insured deposits at low rates,1,b +in 1974 banks actually paid out in dividends more than their gplaadjusted earnings,0,b +3t a second major issue relating to interstate banking and financial restructuring is the potential impact of expanded geographic competition on the bank failure rate,0,b +it can be counteracted by other means to be sure including stronger capitalization,0,b +at that first meeting in 1997 i talked about the devastating and farreaching effects of foreclosures,0,b +if as this recent survey suggests subtle yet signficant vestiges o f discrimination persist in our industry then it is the responsibility o f organizations such as the national association o f urban bankers to identify in specific terms the dimensions o f this problem to suggest remedies and to petition decision makers in banking for redress o f legitim ate grievances,0,b +thus while these data are useful for capital flow analysis they do not necessarily reflect the office of the bank responsible for the lending decision nor the country of the bank which bears the ultimate exposure to risk on a loan,0,b +in addition the number of mortgages that defaulted in the first year after originationcommonly considered a gauge of poor underwritingrose appreciably as the bubble approached its peak4 the originate to distribute model of loan origination may have contributed to this decline in underwriting standards,0,b +i am sure that you are aware by now of the interagency efforts to develop and issue new enhanced bank secrecy act examination guidelines and procedures within the next few months,0,b +i hope to continue to benefit from it during many years to comeas mortgage bankers you deal with one of the elementary human needs shelter,1,b +6 as a first approximation therefore it seems reasonable to assume that the initial impact of monetary policy changes are felt by the member commercial banks first in the amount of their r e s e r v e s and then on their loans investments and deposits,0,b +of course this liquidity is not free nor should it be,0,b +and for tbtf banks the forces of market discipline from shareholders and unsecured creditors are limited,0,b +some of the artificial barriers imposed in the bank holding company act and the glasssteagall act for example could be lifted to increase the competitive viability of banking organizations without adding parallel additional risks to the stability of the banking system,1,b +bemoaning layoffs recently announced by a major bank a newspaper story placed the blame on mergers consolidation and a steady migration of some operations to lowercost regions however research indicates that the overall impact of mergers and acquisitions on the total number of banking jobs is small and even casual observation reveals that change has altered the nature of such jobs for the better,1,b +one recurring theme is that banking crises usually can be traced to large credit losses triggered by instability in the macro economy,1,b +an examination of these objections does not i believe undermine the case for the type of sifi capital standard i have described,0,b +the brave new world massive financial innovation and ample liquidityno single statistic can put the recent surge of financial product and market innovation into perspective,1,b +together with lower countryspecific macro risks arising from the adoption of the common currency this reduction in transaction costs has greatly improved the breadth and efficiency of european financial markets,0,b +specifically reform efforts are concentrated on developing standards that are more risk sensitive and that build upon the internal riskrating and riskmeasurement systems that have been developed by the relatively small group of the worlds most financially sophisticated and complex banks,1,b +lower rates also support the prices of housing and financial assets such as stocks and bonds,1,b +rather it is to be answered in a context in which banking has become a business of restricted entry and one possessing a monopoly of an indispensable resource,0,b +the fourth use of financial stability in doddfrank is as a factor to be taken into account in various regulatory determinations,0,b +are asian countries losing faith in free markets,0,b +federal reserve board invites comment on three proposed rules intended to help ensure banks maintain strong capital positions press release june 7 return to text 2 for more information see the boards public website,1,b +with increased informationprocessing capacity loan portfolio managers can better assess risk and monitor credit performance,1,b +we are looking to the basel committee on banking supervision to update its guidance on liquidity management in light of the recent experience,0,b +indeed open markets and expanded trade are one of the best ways to increase economic growth particularly in developing countries,1,b +with regard to credit cards several proposals that would establish nationwide ceilings on credit card interest rates have been introduced out of concern on the part of some members of congress at the failure of credit card interest rates to decline along with market rates,0,b +the expansion of federal reserve lending is helping financial firms cope with reduced access to their usual sources of funding and thus is supporting their lending to nonfinancial firms and households,1,b +in that respect such policies should be more effective and perhaps less controversial in slowing the buildup of excess credit than a measure directed squarely at one sector which might be quickly met by the redirection of a reach for yield to other asset classes,0,b +as i am sure oscar would agree there is always room for improvement in the stress testing ring,0,b +it is obviously useful for banks themselves to know they can weather a storm but it is equally useful for the public to know that the banks are well capitalized,0,b +eliminate the link between the futures and cash because portfolio insurance and index arbitrageboth forms of program tradingare the strongest links between the two markets some people have argued that these activities should be restricted,0,b +return to text 5 doddfrank also uses the 50 billion threshold in other parts of the law such as to define the universe of firms that must pay the federal reserve for the cost of examination and supervision and that are subject to ex post assessments in the event that taxpayers were to bear any loss as a result of the resolution of a firm under title ii of the law,0,b +the fed made clear to depository institutions that cash was available and maintained operations to ensure that all demands could be met,1,b +hy argued that advanced capitalist economies have found ways to mitigate the risks of financial and banking crises or at least attenuate their adverse effects,1,b +a second fruitful approach to additional tailoring concerns supervision,1,b +i also want to thank the many bankers who did such excellent work with the various committees and divisions,1,b +flnanclal markets i do not thlnk that the deslred government lnvolvement ln shourd be ended,1,b +in addition indicators of market stress and illiquiditysuch as spreads in shortterm funding marketshave generally returned to levels near those seen before the crisis,1,b +accordingly the potential risks to the banking system from highly leveraged credits have received our close attention for some time,0,b +it is important to recognize that just as basel i became obsolete basel ii will not be the final word on risk management regulation,0,b +among the institutions that are most crucial to economic growth are those that enable a country to allocate capital to its most productive uses,1,b +the ailment was a combination of incapable management and a slow but sure accumulation of weak loans a combination which acts like creeping paralysis,0,b +return to text 10 financial stability board fsb launches evaluation of toobigtofail reforms and invites feedback from stakeholders news release may 23 2019,0,b +what can be concluded i think is that we are far enough through the current interlude of credit restraint to draw some instructive lessons from its course,0,b +by lowering privatesector expectations of the future path of shortterm rates this guidance can reduce longerterm interest rates and also raise asset prices in turn stimulating aggregate demand,1,b +by making collateral less valuable they also increase the risk of lending to businesses and thereby worsen the lending terms faced by borrowers,0,b +business considerations however typically impel a bank holding company management to do whatever it responsibly can to honor the obligations of its affiliatesoccasionally among the interested groups dealing with a bank affiliate its creditors its customers and its parents shareholders directors depositors and regulators representatives of one12 threat of any major consequence to the banking system as a whole even though the viability of an individual organization might be prejudiced,0,b +instead financial instability should be seen as a consequence of the moral hazard effect of official intervention,0,b +also to attract users b2b payment mechanisms may need to provide additional featuresfor example tools that reduce credit and timing risks in domestic and international markets,0,b +unless the resulting incentive to overinvest in risky projects is offset by an effective program of supervision riskfree agents are likely to misallocate resources,0,b +or will market discipline pillar 3 be enough to ensure that banks economic capital decisions are appropriately disciplined,1,b +in a concentrated financial network with a few key players and when liquidity shocks are targeted at the most connected institutions distress at highly connected banks spreads widely through the rest of the system,0,b +derivative products offer users the ability to shift and manage risk in an efficient manner,1,b +but central banks around the world are finding that the beneficial effects of their monetary policies on financial conditions are being offset to some extent as movements in financial markets are increasingly driven by headlines regarding actual contemplated or even rumored action by european officials,0,b +rather than imposing a predetermined set of statistics and reporting schedules for all lcbos we may require some reverse engineering tailored for each bank,1,b +we have already begun experiencing keen competition from outside our borders in financial and insurance services for example,0,b +while the other issues i want to touch on this morning are structural the basic question remains are american banks competitive domestically and internationally with other financial institutions offering similar services,1,b +the stress tests include a scenario design process in which the macroeconomic stresses in the scenario become more severe during buoyant economic expansions and incorporate the possibility of highlighting salient risk scenarios both of which may contribute to increasing resilience during periods in which risks are rising13 similarly minimum margin requirements for securities financing transactions could potentially vary on a countercyclical basis so that they are higher in normal times than in times of stress,0,b +it is here that in my view the approach has a good deal of validity because it reveals that inflation has affected the profits of banks in a way that is not shown up by conventional accounting,0,b +i am particularly pleased to have this opportunity for a discussion with a group of bankers because each of you large and sma 11 is being deeply and swiftly affected by changes in the provision of banking services changes that are here today and wi 11 certainly not be gone tomorrow,0,b +i remember the tension and our holding our collective breath as we were unable to find a buyer for one of the banks that had to be closed knowing that bank would not open its doors for business on monday morning,0,b +while the pressures for change seem to be increasing most of us would probably agree that the next congress is not likely to authorize unlimited interstate banking,0,b +the critics don2t seem to mention perhaps the biggest risk of the increasing importance of models the lulling of the users into a false sense of wellbeing that loses sight of these potential tail events,0,b +using this type of capital arbitrage banks can game the system in such a way that the resultant basel i ratio does not have substantial meaning for the public bank management or the supervisor,0,b +banks have nearly 1 trillion of excess reserves,0,b +moreover the attack caused serious disruption to the operations of several financial firms that play a prominent role in clearing payments,0,b +the main problem here is not the reduction in capital charges against the high quality loans although this does raise tension with prevailing international capital standards,1,b +for thirty years most of our countrys banks even the largest were innnune from the legal disclosure requirements of the federal securities laws,1,b +hence there is a strong potential for any one borrowers distressand the associated downward pressure on pricesto cause a tightening of collateral or regulatory constraints on other borrowers,0,b +in most cases blanket assurances are neither feasible nor realistic,0,b +the error of that judgment led to the glasssteagall act and the separation from commercial banking of the brokerage and underwriting of securities,0,b +they generally agree 1 that saving is important 2 that an unencumbered market would allow savings to seek its optimal rate 3 that the current us saving rate is below its optimal rate 4 that fiscal policies can influence saving and 5 that at least part of the reason for the low us saving rate is a whole host of governmentpolicyinduced distortions that overall have an adverse impact on saving,1,b +worldwide creditors are tightening their standards and consumers and businesses are correcting their courses,0,b +however some statutory requirements by their terms apply to all banks,0,b +banks did not chafe at their geographic limitations or they did not mount pressures to remove such limitations in large part because their local and state markets tended to provide good profits within the sheltered regulatory environment,1,b +under that act the establishment of branches of federallychartered savings and loan associations would be limited to the branching authority under state law for statechartered sayings and loan associations mutual savings banks or commercial banks,0,b +monetary policy has attempted to curb excessive credit ex pansion through openmarket operations through marginal reserve requirements on cds and other instruments and now through the highest discount rate in the last halfcentury,0,b +businesses as does mortgage interest for inflation contributes to a bias toward debt finance and high leverage has left many us firms and households excessively vulnerable to bankruptcy,1,b +some have attributed such behavior to the effects of an inappropriately low capital charge in the basel accord for shortterm interbank credit extensions,1,b +moreover lenders who had to make unpopular turndowns of loan requests naturally would find the program a convenient crutch,1,b +these initiatives include endeavors to promulgate standards of bank supervision on a global basis initiatives to markedly increase transparency of central bank accounts more prompt and detailed data on global lending compliance with codes for fiscal transparency plus moves toward ensuring sound corporate governance and accounting standards,0,b +in addition i believe it has been appropriate for the fed to maintain the setting of the federal funds rate at 0 to 025 percent and to purchase treasury securities and agency mortgagebacked securities to support the smooth functioning of these markets and to provide some additional level of accommodation during the pandemic,1,b +because the difference between a nations domestic saving and domestic investment is the nearalgebraic equivalent of that nations current account balance external imbalances were small1 however starting in the 1990s home bias began to decline discernibly the consequence of a dismantling of restrictions on capital flows and the advance of information and communication technologies that has effectively shrunk the time and distance that separate markets around the world,1,b +at this stage of the recovery there are signs of reduced nonbank financial sector vulnerabilities,1,b +one urgent question is can us financial institutions forced into a holding company structure with all of the attendant inefficiencies of funding and management compete effectively with european and japanese banks which will probably develop as socalled universal banks,0,b +no manufacturing firm would ever finance a portfolio of fixed assets with commercial paper once market sentiment became distrustful of subprime assets these assets lost value and became no more marketable than investments in factory buildings,0,b +looking ahead the global trends of deregulation denationalization privatization and tax reformtax reduction suggest that the 21st century will be the century of markets,1,b +the development of the federal safety netdeposit insurance the discount window and access to fedwire and daylight overdraftshas inevitably impeded the workings of market discipline in the regulatory arena,0,b +let us suppose that the evidence is so compelling that policymakers become fairly confident that valuations are excessively rich,0,b +the needed alterations to the structure and operations of large financial firms will be unpopular since they are likely to involve reductions in reliance on shortterm funding and the adoption of more easily severable subsidiary structures,0,b +shifts in the mix of nonreal estate debt are more dramatic with the banks dropping from 78 percent to 66 percent while pcas grew from 12 percent to 24 percent,0,b +others influenced by the now wellknown research on financial crises by economists carmen reinhart and kenneth rogoff argued that the correct historical comparison suggested a much slower pace of recovery,0,b +banks would also have to adhere to the qualification standards set by supervisors,0,b +on the liability side a thrift institutions balance sheet can seem rather cluttered reflecting the greater flexibility of new sources of funds and the offering of new financial services over recent years,1,b +shouldnt the federal reserve take some of the liquidity tail risk to facilitate intermediation of illiquid credits as was intended at our founding,1,b +half of the entire banking industrys assets are now on the books of five institutions,0,b +to prevent our policies from having these perverse effects we should consider a gradual increase in the cost of borrowing from these facilities to discourage their use and encourage other participants to return to these markets,0,b +moreover with the additional capital available at banks to absorb the inevitable hedging misjudgments reversals of fortune are likely to create less disruption to the banking system relative to the disruption possible at fannie and freddie,1,b +such firms enjoy implicit subsidies relative to their nontbtf competitors,1,b +in either situation private processors might have found it too costly or risky to serve these banks,0,b +for example we are using a multidisciplinary approach to develop an enhanced quantitative surveillance program for systemically critical institutions,0,b +credit supply factors have also likely contributed to the decline in overall credit card outstanding balances,0,b +c on the other hand when the fed lowers the discount rate commercial banks can have more funds available to lend,1,b +in some cases postmerger integration skills are found wanting as the challenge of providing seamless service while integrating disparate back offices and branch networks proves to be beyond the skills of management,0,b +for example the firm should demonstrate that its risk managers have direct access to top management and play a key role in decisionmaking,0,b +the process begins with changes in the lending and investing capacity of commercial banks brought about by federal reserve control over bank reserves,0,b +70 march 1987in some interpretations of the period the collapse of the us money stock had promoted a loss of confidence and made a proper functioning of monetary policy very difficult,0,b +using their expertise the technicians often develop very complex solutions that by their very nature have a regulatory benta proposal to rely on market interest rates on intraday funds to reduce payment system risk i appreciate the opportunity to participate in the cato institutes conference concerning alternatives for governing the banking industry,1,b +theres some evidence that these shock absorbers are working,1,b +3 universal margin requirements these sorts of regulatoryarbitrage concerns have motivated some academics and policymakers to think about a system of universal margin requirements for sfts13 in its simplest form the idea would be to impose a minimum haircut or down payment requirement on any partybe it a hedge fund or a brokerdealerthat uses shortterm collateralized funding to finance its securities holdings,0,b +the institutions risk is confined to the credit risk on the assets,1,b +it is therefore important that congress take three fundamental actions 1 reform deposit insurance 2 repeal glasssteagall and 3 enact interstate banking legislation,1,b +if bank a decides to issue more equity so it can expand its lending business this need not make it more expensive for bank b to satisfy its capital requirement,1,b +moreover while some bank loans undoubtedly have been repaid from capital market borrowings probably of equal importance was an effort to current minimizebank borrowing in order to preserve credit lines if monetary policy should again become restrictive,0,b +current measures to prevent speculation may have resulted from the original idea that such activities would absorb funds to the prejudice of productive commercial interests,1,b +a large share of subprime loans that were originated during this time featured high combined loantovalue ratios and in some cases layers of additional risk factors such as a lack of full documentation or the acceptance of very high debttoincome ratios,0,b +dollars created by one type of bank credit have the same purchasing power and the same impact on demand as dollars created by another type of credit,1,b +consumer installment lending and mortgage lending are conducted on an interstate basis by both independent and bank holding company affiliated finance companies and mortgage bankers and by retailers and nonfinancial companies as wellin addition two court decisions in 1980 expanded the range of permissible interstate banking activities,1,b +let me simply remind you that some of the new assets are excellent substitutes for money others are not,1,b +but what the legislation does to keep us banks playing their international role while putting the banks on a stronger footing is also important,1,b +a large majority of regulators indicated that they have issued specific y2krelated guidance to their banks and believe their banks are taking appropriate steps to address the issue,1,b +moreover if and as other firms outside that perimeter grow so as to pose similar riskswhether because of the migration of risky activities from the regulated sector or for other reasonsit will be important to apply prudential standards and consolidated supervision in a timely fashion,0,b +i will argue that there is a natural tendency for credit expansions like the one weve seen to lead to calls for new regulation,0,b +although significant participation by nonbank institutional investors has long been a hallmark of us credit markets these developments have facilitated greater riskbearing by entities other than banks and other highly regulated depository institutions,1,b +much of the impetus for change can be traced to innovators surmounting the artificial obstacles to the markets will that is to say the cost of circumventing aging statutory constraints such as regulatory ceilings on interest have become far less than the gains in market share and profitability likely to be realizedthis relationship between the costs including opportunity costs to your customer of continuing to honor outmoded and uneconomic constraints and the benefits they were invented to bestow half a century ago has not changed simply due to the corrosion of time,1,b +just as a more highly diversified loan portfolio reduces risk to the individual bank a more highly diversified banking structure reduces risk to the banking system as a whole,1,b +it gives one pause that some commercial bankers prefer relatively riskless investments to the making of business loans needed by their communitiesin contrast somebut not allbankers have long wished to be permitted to pay higher rates of interest on savings and time deposits,0,b +to an extent this approach is reflected in the house bill and other proposals that would require standardized overthecounter derivatives to be cleared through central counterparties or traded on exchanges,0,b +decisions to save by acquiring financial assetsand specifically earning assets of a depositary typehave experienced a significant increase,1,b +at present national status is not a p ractical alternative to state status for foreign banks,0,b +however that may be in dealing with a change in the status quo there is a basic presumption that any decrease in the number of independent banking units in a given market area will of itself decrease competition and increase the tendency toward monopoly,0,b +in other words these individual mortgages are no longer held as assets on the books of banks or other mortgage originators but have been pooled,1,b +but we must recognize and accept that the environment changed on september 11 2001 at the same time i want to assure you that the approach taken by the fed and the other federal banking agencies is not one of zero tolerance and that supervisors do not issue enforcement actions against banking organizations because they have failed to file a single suspicious activity report,1,b +as risk premiums fall in an expansion asset values and capital investment tend to be boosted the economy experiences additional impetus remembrances of recession fade and risk premiums fall still further sometimes to levels below any credible justification,1,b +1 a transparent accounting system is perhaps the most basic requirement for efficient financial markets,0,b +for smaller banks cost considera tions do not favor federal reserve mem bership,0,b +we must be cautious however in assuming that the more diversified banking organizations will be inherently less risky and hence less likely to be a source of systemic risk,0,b +for example the new technologies of securitization and credit derivatives help banks better manage their exposure to credit risk by offloading some of their risk to institutional investors who appear to be more willing and able to bear it,1,b +think back though to 1966the year of the great credit crunch,0,b +hence the holding of farm real estate loans 1h ich are rclati vely nonliquid must be limited,0,b +many of the companies that have attracted public attention in recent years due to serious breaks in controls failed to focus on process changes and critical investments in their risk management and control systems that were needed to successfully support their business plans,0,b +under the present law only when certain triggering terms are stated must additional credit information be given,1,b +in addition to benchmark real interest rates being low risk spreads are quite narrow and lenders appear very willing to provide credit to businesses and households,1,b +nonfinancial agencies remain major credit suppliers if credit is efficiently flowing into agriculture through the financial agencies the question emerges why do merchants dealers manufacturers and other nonfinancial groups continue to be a major factor in supplying farm credit,0,b +indeed i believe that market discipline is a particularly attractive tool for encouraging safety and soundness in a rapidly evolving environment,1,b +examples include the 3 financial markets penn central railroad default in 1970 the continental bank insolvency in 1984 and the stock market crash of 1987 with the approach of y2k the federal reserve and other central banks looked more broadly at contingency planning,0,b +required reserves therefore are an important factor strengthening the demand on the part of the federal reserve for government securitiesa small number of large banks also enter the government securities market as dealer banks,1,b +1967 and 1968 were the lush years of the decade for bank intermediation market shares were 44 and 39 per cent respectively compared to 26 per cent in 1960 monetary restraint in 1966 reduced bankings share to 25 per centa decade low,1,b +both of these shocks originated in economies with large footprints in the global economy and financial system and as a result they induced substantial disruptions in global financial markets,0,b +along with other changes in our banking laws in the 30fs the secretary was removed from the board,0,b +following that advice from the beginning of the crisis the fed like other major central banks provided large amounts of shortterm liquidity to financial institutions including primary dealers as well as banks on a broad range of collateral10 reflecting the contemporary institutional environment it also provided backstop liquidity support for components of the shadow banking system including money market mutual funds the commercial paper market and the assetbacked securities markets,1,b +just as lessons learned from recent events can help bankers improve risk management practices they can also help supervisors further increase the effectiveness of the basel ii framework,1,b +no doubt economists will long debate the appropriate institutional structure for financial stability authority,0,b +most major crises of the past have occurred when basically credit worthy firms went bust as confidence was shatteredthe federal reserve has tried in recent months to make certain that sufficient credit exists for all normal business situations,1,b +but the freeing of markets over the previous quartercentury had imparted a flexibility and hence a resilience that enabled crossborder commerce to quickly stabilize and by early 2002 to resume its expansion,1,b +if they interfere with marketsthey retard prosperity,1,b +apparently financial market participants thought the risks were larger than most macroeconomic forecasters and the fomc were thinking in december,0,b +of course there is another solution to the problem of management replace ment which banks of all sizesbut especially smaller institutionswill feel pressing on them like a vise from now on,0,b +this is the premise underlying title ii of doddfrank and i think it has also been the premise of thoughtful commentators who have proposed amendments to the bankruptcy code for application to large financial firms3 there are three key features of title ii and modified in certain respects some of these bankruptcy code proposals reflect recognition of the peculiarities of financial markets in a way the current bankruptcy code does not,0,b +in september a prominent money market mutual fund broke the buckthat is was unable to maintain a net asset value of 1 per share,0,b +and the euro will encourage an increase in both the issuance of eurodenominated liabilities as well as in the demand for eurodenominated assets,1,b +the reasoning here suggests that a rapid rise in asset prices accompanied by a credit boom provides a signal that should lead central bankers and other financial supervisors to carefully scrutinize financial developments to see if market failures might be driving the asset price boom,0,b +the natural next question is has the ccar qualitative objection for the largest firms also run its course,0,b +indeed relative to gnp the volume of such credit appears to have returned to the record pace of 1978even after allowance for mergerrelated financings,1,b +but the common interest between savings bankers and central bankers is closer,1,b +i look forward to working with you to make the financial system safer and stronger,1,b +i assure you that our longterm goal subject to the will of congress is to move to broader powers to assure the competitive position of united states banks both domestically and internationally,1,b +but the key point is that we see no great economic pressures that would force small banks to sell or fail,1,b +large money center banks are casting a keen eye on their sources and uses of funding,0,b +counterparties that cannot obtain sufficient information should limit more strictly the amount of credit they supply through for example requiring higher margins,0,b +the primary responsibility for reassessing and strengthening the management of liquidity risk appropriately rests with market participants themselves but prudential supervisors working with central banks should carefully review the practices of regulated entities,0,b +a widely noted feature of this legislative effort is the fairly broad scope for regulatory discretion,0,b +moreover the knowledge gained through banking supervision aids the formation of monetary policy,1,b +it also means designing exit strategies that will allow us to end these lending programs and drain that liquidity in a timely manner,0,b +since early october financial conditions in the us have tightened,0,b +and a downturn in commercial real estate would of course affect the financial industry … et cetera et cetera,0,b +at that time there was a banking office for every 3700 people and banking was enjoying a golden age of prestige and affluence,1,b +once an organization qualifies it can engage in a widerange of new activ ities for example underwriting of insurance debt and equity financing and a full line of investment products,1,b +thats why i urge you as industry leaders to keep pushing the analytics further both to improve the discipline and to assure regulators that you know how to run an internal risk based system,1,b +those risks materialize when a clearing member defaults,0,b +but in doing so we must remember that the major advances in technologically sophisticated financial products in recent years have imparted a discipline on market participants excluding a few glaring exceptions not seen in nearly a century,1,b +this is where a sound risk management and internal control framework can be very helpful,0,b +thus i want to take this opportunity to emphasize and reinforce the case for central bank involvement in bank supervision made by chairman bernanke in a speech last month,0,b +for a time those actions seemed to be reducing the pressures in term funding markets,1,b +it should be noted that all of these developments are by no means fully integrated as yet into banking or the broaderfinancial system but 6 rather are gradually becoming assimilated and so the full impact of these changes has perhaps still to be feltforces shaping bankingit seems to me that the basic causal factors reshaping the banking industry have been and will for the foreseeable future continue to be customer demand and bank management response thereto,0,b +to ensure that banks use the facility only as a backup source of funds federal reserve loans are made at an abovemarket rate,0,b +the maturity profile of bank assets should be matched against the maturity profile of bank liabilities and should be reported in a manner and frequency which reveals the gross exposure to disintermediation,0,b +as is well understood the existence of emergency credit facilities for financial market utilities could give rise to moral hazard for example in the form of insufficient attention by clearinghouses to establishment of privatesector liquidity arrangements in advance of a crisis,0,b +importantly the 64 metric used to size the appropriate capital buffer does not represent a new capital standard and is not expected necessarily to be maintained on an ongoing basis,0,b +to be sure adverse consequences for resource allocation and perhaps even for the stability of output and prices will occur if private agents overestimate the ability or willingness of central banks to damp volatility in asset prices or the economy,0,b +by prepositioning lossabsorbing resources in life and planning for an orderly resolution in the event of failure we can provide the policymakers who come after us with more options than they had in the great financial crisis if they are faced with future systemic financial stress,0,b +with these reforms in place we can give banks expanded powers to compete headon with nonbanks and international competitors and banks can remain viable players in this increasingly competitive industry,1,b +it was not only capital spending and equity prices that seemed to overshoot in the late 1990s credit was provided with undue optimism about prospects for repayment,0,b +at times and in particular areas these repercussions have produced substantial strains in our financial system,0,b +such a response should distinguish as much as possible between liquidity actions aimed at keeping markets orderly and monetary actions aimed at cushioning the economy from the impact of financial market instability,1,b +indeed california state authorities for some time had been concerned about the quality of mortgage credit particularly at the sls and were emphasizing more prudent lending standards,0,b +we should strongly stress to the newer members of the international financial systemthe emerging economiesthat they should accelerate the restructuring of their financial systems in their own interests,0,b +disinflation and other factors have caused severe financial strains among lenders to agriculture energy developing countries and other borrowers,0,b +central bankers recognize that it is necessary to accommodate increased demands for liquidity at times of stress in financial markets,0,b +the stock market collapsed at the beginning of 1990 but land prices continued to rise and the boj kept tightening policy,0,b +bank failure and how to prevent it became more than ever the fixation of bank regulation and supervisionconsequently the banking acts of 1933 and 1935 took up the old tradition of prohibitions and restrictions of bank activity in the name of safety and carried them further,1,b +in particular the problem of moral hazard is a significant concern,0,b +while requiring bank holding companies and their associated brokerdealers to be better capitalized and hold more liquid assets has unquestionably made them safer it has also raised their balance sheet costs and thereby created incentives to scale back on less profitable business lines,0,b +in each case i will emphasize why the particular factor does not necessarily require a complete restructuring of the banking industry,1,b +i look forward to working with you in that endeavordigitized for fraser httpfraserstlouisfedorg federal reserve bank of st louis12the more fundamental reason for moving toward deregulation gradually is that the ultimate results of structural change in financial markets are only dimly perceived when the structural change begins,1,b +2 past instances of government intervention to prevent large financial institutions from failing from continental illinois to long term capital management have encouraged such inferences,1,b +the prophets of small bank doom although receiving considerable press attention have provided no evidence to support their position,1,b +however an important lesson learned from the financial crisis is that the growth of what has been termed shadow banking creates additional potential channels for the propagation of shocks through the financial system and the economy,0,b +financial markets were singled out for especially comprehensive regulation in part because of the perceived role of the stock market crash and successive waves of bank failures in worsening the economic turmoil,0,b +there are still asset quality problems in the us banking industry 69 billion in nonperforming loans,0,b +in the judgment of the agencies the broader social benefits of a morequantitative performancebased method of assigning cra ratings justified the increase in regulatory burden,0,b +while it would be premature to indicate whether or how we might address these vulnerabilities i can say that few if any community banks are reliant on levels of shortterm wholesale funding that could raise concerns about systemic risk and regulators would carefully consider the ramifications of any action including the effect on community banks,1,b +we also want bankers to actively manage concentrations of credit risk and be mindful that strong lending activity can strain liquidity,0,b +thereafter when big cds seemed to bulge large this spring and summer financing an unduly sharp loan expansion the federal reserve dealt with this development not by reimposing relatively low rate ceilings but by introducing higher reserve requirements on increases in large cds thereby absorbing reserves and increasing the internal cost of funds to banks,0,b +moreover it is difficult for supervisors and examiners to monitor and assess the interestrate risk exposure of a financial institution,1,b +thats not to say that we prevent commercial banks from failingwe do not prov ide institutions with capital and if the corrective actions are unsuccessful the bank could fail,0,b +more generally there has been some concern that the strains in financial markets might have ramifications for the broader economy although the evidence for that remains limited,1,b +as normalization nears and progresses there is likely to be increased volatility in financial markets that is not necessarily a bad thing,1,b +the legislative history of this act clearly shows that congress wanted to separate commercial banking and investment banking so commercial banks would be prohibited from speculation directly or indirectly in securities for their own account and would not give biased investment advice to their customers,0,b +the number of commercial bank failures was already up to 43 by midjuly of this year,0,b +however it is important that lending practices do not raise the risk profile of banking organizations or weaken the financial system,0,b +a stunning example is campeau where cash flows apparently failed to materialize as projected and a seemingly perfect deal quavered on the brink of disaster with unsettling effects on financial markets,0,b +but absent clarifying federal legislation we may be creating a whole army of severely handicapped institutions in the form of multistate bank holding companiesconsider for a moment some of the nightmare problems the manager of a bank holding company faces with banks in ten different statesfirst he is forced into a holding company or multiholding company organizational structure because the mcfadden act effectively precludes branching across state lines that means ten different management teams at least ten boards of directors and compliance with applicable state banking regulations which may dictate ten different ways to handle the same transaction to the extent that there are statechartered banks in each state there will be ten different examination standards to be managed to and ten different examinations to be endured advertising marketing pricing etc,1,b +data collected under the home mortgage disclosure act indicate that the share of purchase mortgages guaranteed or insured by the fha the va or the rhs rose from 5 percent in 2006 to more than 40 percent in 2011 figure 86 but here too loan originations appear to have contracted for borrowers with low credit scores,0,b +the willingness of most members in congress to deal with glass steagall reform was clearly demonstrated by the overwhelming senate vote for senator proxmires bill in 1988 in my opinion that legislation would have passed the house in similar fashion if it had reached the floor,1,b +the thought is that deposit insurance originally designed to avoid financial panics and runs on solvent banks has worked too well,1,b +i can only tell you that we at the fed wince when to comply with legislation we must impose an additional burden on banks,1,b +the lower leverage that would result from higher capital requirements should lead to at least some reduction in the required return on equity,0,b +considerable creativity and flexibility will thus be necessary to ensure that the cra continues to assist community economic development without placing an undue burden on financial institutions,1,b +congress has been presented by the treasury with an omnibus proposal to reform the financial sector of the economy by removing obsolete restrictions on commercial banks and allowing the rejoining of the banking and securities industries in order to provide better service to corporations and government entities in meeting their transactional and creditrelated financial needs,1,b +a weak banking system grappling with nonperforming loans and insufficient capital or firms whose creditworthiness has eroded because of high leverage or declining asset values are examples of financial conditions that could undermine growth,0,b +in the context of the lcr the cost of mitigation is the premium that the bank must payin the form of reduced interest incomefor its stock of hqla,0,b +banks are tightening their lending standards and conditions could worsen again should the economic outlook deteriorate further,0,b +beyond implementing the specific availability and disclosure provisions of the expedited funds availability act the goal of the federal reserve in adopting regulation cc is to use the authority granted under the act to improve the payments system,0,b +at the same time the act also clearly seeks to minimize the regulatory burden on banks with assets of less than 10 billion,1,b +discriminatory lending practices had deep historical roots,0,b +recent events have made market participants more concerned about the fragility of our financial system and the vulnerability of some sectors to unexpected events,0,b +though inflation is hardly a rare economic malady doing something about it still involves overcoming complex and intractible political obstacles and avoiding excessive strains on financial institutions and creditwlnerable sectors of the economy,1,b +even these minor moves toward interstate banking however were resisted by those opposed to any lowering of branching restrictionswhile there have been many interstate acquisitions involving thrifts the recent purchase of park bank in st petersburg by chase manhattan bank was the fdics first transaction involving the purchase of a failed commercial bank by an outofstate bank holding companyin questioning during his humphreyhawkins testimony last month chairman voicker again suggested that allowing more branching would contribute to the resolution of failures,1,b +but just as the absence of full and vigorous compecid173tition in a community can invite actions to change its bankcid173ing structure so banker efforts to obtain undue market adcid173vantage or an undue concentration of financial power by merger or other combination can invite supervisory denials,0,b +similarly credit evaluations tend to be more costly for lowerincome borrowers who are relatively more likely to have short or irregular credit histories5 informational barriers to lending were heightened by the absence of uniform national depositories of information on the credit experiences of consumers at the time the creditreporting system consisted of hundreds of local credit bureaus each of which maintained limited information on local residents6 the high costs of gathering information together with the difficulty of keeping information proprietary may have created a firstmover problem in which each financial institution has an incentive to let one of its competitors be the first to enter an underserved market,0,b +in recent years there have also been proposals calling for numerical forecasts of interest rates or other sensitive magnitudes which if ever undertaken by the federal reserve could unsettle financial markets besides misleading individuals who lack sophistication in financial matters,0,b +and recently european banking supervisors released the results of comprehensive stress tests of their banks1 on net these measures appear to have reduced concerns in financial markets about european prospects,1,b +to further limit risk exposures of the bank the new act also preserves the authority of the federal reserve to fashion prudential restrictions on relationships between banks and their affiliates,1,b +and as you know authorities both in the united states and abroad did in fact intervene on a number of occasions to prevent the failure of such firmsnot out of any special consideration for the owners managers or creditors of these firms but because of legitimate concerns about potential damage to the financial system and the broader economy,1,b +monetary countermeasures disturbed already by the rapid pace of activity in the closing quarter of 1972 the federal reserve adopted a policy stance designed to slow the growth in bank re serves and the monetary aggregates thereby fostering financial conditions con ducive to a sustainable rate of growth of income and output,1,b +and financial institutions themselves are affected by the generalized pullback in liquidity and deteriorating credit quality,0,b +its broader focus was especially evident in the reaction to the threat to financial stability in the fall of 1998 and in the very aggressive easing in early 2001 in the latter case easing continued through the spring even though inflation expectations looked as though they might be increasing which would have been very difficult for an it central bank to look through,0,b +recent reports by certain large banking organizations point to some further deterioration of asset quality,0,b +it has affected the ability of banks to attract and retain deposits it has complicated the making and collecting of loans and it has had an adverse effect on bank profits,0,b +if vulnerabilities are identified as being meaningfully above normal the federal reserve can require large banks to increase their lossabsorbing capacity through increases in the ccyb6 despite all of these efforts we understand that these tools have limitations,0,b +2 the ratio of interest bearing assets to total deposits is not the best measure of the relative burden of reserve requirements between member banks and nonmember banks,0,b +from the beginning the boards position has been that the prohibitions in the bank holding company act against bank holding companies engaging in nonbanking activities should apply to onebank holding companies,0,b +there are two distinct concerns about financial stability,0,b +all of these actions should help to ease tightness in credit markets and improve communications between regulators and banks on credit standards,1,b +thus far the program has had a regulatory orientation establishing credit limits for fedwire and chips participants,0,b +to address this challenge the fsb and other global standard setters developed a framework and a set of policy measures intended to reduce the moral hazard risks posed by systemically important financial institutions,0,b +despite the work that has been done on contingent proposals it is not yet clear if there is a viable form of contingent capital that would increase market discipline and provide additional equity capital in times of stress without raising the price of the convertible debt close to common equity levels,0,b +the federal deposit insurance act authorizes the issuance of a cease and desist order if a particular violation or practice is likely to cause insolvency or substantial dissipation of assets or earnings of the bank or is likely to otherwise seriously prejudice the interests of its depositors,0,b +on that occasion the boards desire that the measure be seen as a further antiinflation move was made quite explicit and it was combined with a 12 per cent increase in reserve requirements on demand deposits,0,b +u all told there is good reason to believe that repetition of the liquidity problems with which the banking system was afflicted in the 1930s has been eliminated by these amendments to the federal reserve act as effectively as the elastic currency provisions of the original act have prevented a recurrence of the kind of currency shortages that were responsible for the panic of 1907in looking back at these two great financial crises which led to the enactment of the federal reserve act in 1913 and to its major amendments in 1933 and 1935 it is evident that the corrective measures then taken dealt primarily with the effects rather than with the causes of the crises,1,b +this threat could well lead to continued declines in bank lending which would curtail the recovery,0,b +but the regime must also be able to contemplate failure by a very large bankthat is to plan for the possibility that a larger bank may become insolvent notwithstanding much greater ex ante resiliency,0,b +nevertheless i as a bank regulator and you as dedicated bankers cannot take for granted the maintenance of a sound and effective banking system and we must be concerned with the early identification and prompt correction ofdigitized for fraser httpfraserstlouisfedorg federal reserve bank of st louisfederal bank regulatory reform the subject of bank regulatory reform is hardly one that a bank supervisor can raise without a degree of trcpidationpcrhaps temerity is the better wordin a forum like the present,0,b +this increasing emphasis on shortterm funds from the market may actually increase the exposure of individual banks to sudden adverse drains particularly since policy changes by the federal reserve that once influenced mainly your portfolios now also powerfully influence the relative cost and stability of your liabilities,0,b +as is well known bond prices have risen substantially rather than tending downward as had been widely anticipated last fall and stock prices have fallen dramatically,0,b +spillovers to other advancedeconomy financial markets included stock price declines significant increases in sovereign yields higher overnight interest swap rates in the united kingdom and euro area and rising credit spreads in some countries,0,b +as in many other regulatory settings this question can be mapped into the pricesversusquantities framework laid out by martin weitzman nearly 40 years ago5 here a size cap is a form of quantity regulation whereas capital requirements that increase with bank size can be thought of as a kind of price regulation in the sense that such capital requirements are analogous to a progressive tax on bank size6 a key challenge with quantitybased regulation is that one has to decide where to set the cap,0,b +for example if the loss to the financial system from the failure of a sifi would be five times that resulting from failure of the nonsystemic firm then the sifi would have to hold additional capital sufficient to make the expected probability of failure onefifth that of the nonsifi,0,b +if market discipline and our regulatory structures were too weak and the financial system became too fragile during such actions then the ability of monetary policy to achieve its dual mandate responsibilities would be harmed,0,b +the literature on these three ideas provided fair warning i believe that the precrisis regime of constructive ambiguity was capable of generating consequential risktaking excesses and significant financial market problems,0,b +banks that hold both a debt and equity stake in a firm would probably be better able to deter excessive risk taking by the other equity holders and might even have access to better information about the firm,1,b +we then put in place a regulatory and supervisory framework to counter these moral hazard incentives,0,b +when the basel committee published its revised capital framework in june 20041 the focus was on banks credit and operational risks not on their trading activities,1,b +conflicting interests of banks and other shareholders might also be manifested through banks encouraging firms to take on more debt to pay higher interest rates on their debt or to undertake lessrisky projects than would be optimal from the point of view of shareholders,0,b +supervision improved public disclosure will we believe not only enhance market discipline but also create further incentives for improvements in banks riskmanagement practices and technologies,1,b +but conditions downshifted dramatically sometime in september just as financial market turmoil was accelerating,0,b +at various times we learned that a financial market was strained stressed under liquidity pressures dysfunctional frozen clogged or had seized up,0,b +first we have eased monetary policy substantially and proactively to address the sharp deterioration in financial conditions and to forestall some of the potential adverse effects on the broader economy,1,b +since banks are the core of the financial system efforts to improve their risk management can help mitigate the impact of shocks on financial markets and real economic performance,1,b +the handling of the failure of continental illinois demonstrated regulatory concern about the effect of large bank failures on the financial system,0,b +nonetheless like all economic ideals i believe that it suggests general rules that can be used to discipline the construction of any tax on financial institution risk,0,b +clearly in such a situation financial markets and the feds focus on our dual mandate responsibilities would ultimately lead to more restrictive financial conditions,0,b +inflows to eme investment funds reversed sharply eme currencies depreciated and other asset prices declined17 ii,0,b +while much work remains for regulators and banks implementing pending capital requirements most large mediumsized and community banks are in stronger capital positions today than they were prior to the financial crisis,1,b +so far the financial market turbulence weve seen does not seem to have caused direct harm to the countrys economy,0,b +we can respond to economic weakness or financial market stress by lowering our fed funds target rate,1,b +changes in the amount and frequency of daily open market operations and changes to the discount window are both very flexible ways for the central bank to inject liquidity into the marketplace when the financial system is under stress,1,b +not only would such disclosure provide more qualitative and quantitative information about the firms current risk exposure to the market it would also help the market assess the quality of the risk oversight and risk appetite of the organization,0,b +it might be useful to consider some examples of climaterelated risks that could manifest as shocks or increase financial system vulnerabilities or both12 one example is property and casualty insurance which enables financial firms to engage in financial contracts to hedge climaterelated risks,0,b +how should a lender of last resort operateour understanding of the sources of systemic risk immediately suggests three general principles for operating as an effective lender of last resort 1 restore confidence in the financial system by quickly providing liquidity 2 limit moral hazard by encouraging adequate prudential supervision and 3 act as a lender of last resort infrequently,0,b +but we have seen similar periods of volatility in recent yearsincluding in the second half of 2011that have left little visible imprint on the economy and it is still early to judge the ramifications of the increased market volatility of the first seven weeks of 2016 as chair yellen said in her testimony to the congress two weeks ago while global financial developments could produce a slowing in the economy i think we want to be careful not to jump to a premature conclusion about what is in store for the us,0,b +it is likely that with a more risksensitive approach to capital banks will have to consider whether their current cushion of actual capital above regulatory minimums is still appropriate,0,b +at the same time though the basel committee set out expectations for host country prudential oversight of foreign banks that would be similar to that for domestic banks4 the financial crisis painfully demonstrated the inadequacy of both home and host country regulation,0,b +a second priority for bank supervisors is to continue to develop procedures that make sure no bank is too big to fail in these senses that stockholders can lose all that existing management can be replaced that uninsured creditors can suffer losses and that the institution can be wound down and possibly sold in whole or in part in an orderly way,0,b +the failure of nonbank financial institutions could directly reduce the availability of credit and could cause fire sales of assets leading to impaired market functioning,0,b +as the activities and risk profiles of large banks and securities firms have become increasingly similar and as financial intermediation has run more through securities markets weve certainly learned in the past month or so that it is not only commercial banks that can threaten financial stability,0,b +of course banks are being careful lenders and the supply of credit does appear to have tightened more recently especially for less creditworthy borrowers,0,b +credit quality has deteriorated within the investmentgrade segment where the share of bonds rated at the lowest investmentgrade level has reached nearrecord levels,0,b +all of these factors provoke concerns about credit quality,0,b +although the proposal went out for public comment only recently one comment we have heard so far is that this represents an effort to implement basel ii in disguise or similarly that it imposes too much of a burden on financial institutions,0,b +at that time the value of pension assets had been significantly eroded by stock market losses and sharply declining interest rates had raised the present value of plan liabilities,0,b +this small step marked the end of an extraordinary sevenyear period during which the federal funds rate was held near zero to support the recovery from the worst financial crisis and recession since the great depression,0,b +hopefully our work will reduce the likelihood of systemic disruption to the financial system due to derivatives misuse,0,b +more generally the competitive drive to win borrowers should not be allowed to overcome the disciplines of prudent lending practice,0,b +similarly climaterelated risks may impact the level and volatility of asset prices thus affecting the value of a banks portfolios,0,b +we now have data on losses by loan category for two periods of severe financial stress the recent financial crisis and the savings and loan crisis,0,b +this sensitivity will make asset prices more volatile,0,b +falling asset prices create a negative wealth effect and restrain consumption,0,b +the growing specter of government support threatens to weaken market discipline confuse price signals and create a class of institutions that operate under different rules of the game,0,b +i am also mindful of the potential for low interest rates to heighten the incentives of financial market participants to reach for yield and take on risk and of the limits of macroprudential measures to address these and other financial stability concerns,0,b +going a little further with this thought process if a large state were to default on its debt an episode of financial instability possibly fueled by contagion would be more likely to follow from headline effects than through the direct exposure of financial institutions,0,b +the collapse in asset prices then leads to a reversal of the feedback loop in which loans go sour lenders cut back on credit supply the demand for the assets declines further and prices drop even more,0,b +more than five years after the failure of bear stearns marked an escalation of the financial crisis and nearly three years since the passage of the doddfrank act debate continues over the appropriate set of policy responses to protect against financial instability,0,b +from the outset my earlier experience had led me to be skeptical about the possibility of resolving one of the largest financial companies without destabilizing the financial system,0,b +first by looking at firms both individually and collectively it helps ensure supervisors are well positioned to identify issues at individual firms as well as trends across and interconnections among firms that may pose risks to financial stability,0,b +this likely led to unexpected losses with the failure of lehman brothers in september 2008 adding to the turmoil in the markets,0,b +in response to the crisis the basel committee on banking supervisions first task was to strengthen bank capital requirements through the adoption of the basel iii capital accord and last summer our domestic rule implementing the basel iii capital requirements in the united states,0,b +shortterm wholesale funding while i favor assessment of the specific risks and costs associated with a particular form of nonbank intermediation i also believe that the greatest risks to financial stability are the funding runs and asset fire sales associated with reliance on shortterm wholesale funding and thus i place particular emphasis on this factor,0,b +given new yorks preeminence as a center of global finance i thought it would be appropriate to discuss just such a topic which is how the federal reserve oversees the largest financial institutions many of which are headquartered or have a major presence here and how that oversight has strengthened since the financial crisis1 the financial crisis and large financial institutions the crisis had many causes including the numerous factors that drove a lengthy housing boom and the expansion of a largely unregulated shadow banking system rivaling the traditional banking sector in size,0,b +in establishing requirements for firm though not supervisory stress testing and riskmanagement committees for all bank holding companies in this group but mandating that only bank holding companies of 50 billion or more be subject to enhanced prudential standards congress has reflected a similar judgment,0,b +calibrating the enhanced capital standards as i mentioned earlier the minimum and conservation buffer capital requirements of basel iii were calibrated by looking to the loss experience of larger banks,0,b +as you heard chairman bernanke testify the key strategy in the treasury proposal is that by gathering these distressed assets under the tarp and auctioning them off in a prudent manner something closer to a hold to maturity price rather than a panicbased fire sale price can be determined,1,b +although financial conditions have tightened since the vote markets have been functioning in an orderly manner,0,b +it is striking to think of the number of financial firms that failed or were rescued during the crisis that were thought to be well capitalized obviously they were not,0,b +moreover while the possible moral hazard and competitive funding advantage associated with sifis are certainly of concern they do not relate directly to the conceptual foundation for enhanced capital requirements which lies in the negative externalities associated with a sifi failure,0,b +for if after the myriad rules and regulations are written and implemented we have not eradicated too big to fail from our financial infrastructure reform will have failed yet again,0,b +and while there may arise situations where monetary policy needs to be used to deal with potential financial instability i believe that macroprudential policies will become an important complement to our traditional tools,0,b +this pessimism about income prospects has continued without interruption since the collapse of lehman brothers,0,b +but despite this relatively positive overall assessment the financial system is dynamic and will evolve over time and the tightening in regulation of the banking sector may push activity to other areasand things happen,0,b +as shown in figure 5 assets under management in investmentgrade and highyield corporate bond mutual funds the solid blue area have hovered around 25 to 30 percent of the amount of outstanding corporate bonds in recent years up from about 15 percent before the crisisi reduced market liquidity might exacerbate fire sale risks from leverage at financial institutions or from firstmover advantage at mutual funds,0,b +return to text 2 section 165d of the doddfrank wall street reform and consumer protection act requires a large firm to submit an annual resolution plan or living will that describes the companys strategy for rapid and orderly resolution under bankruptcy in the event of material financial distress or failure of the company,0,b +what monetary policy can do in response to current credit market problems is to provide the stable monetary environment necessary for investment and economic growth,0,b +the third change interstate banking has also become widespread despite the mcfadden act which limits national banks to branching within their headquarters state and the douglas amendment to the bank holding company act of 1956 which prohibits interstate expansion through acquisitions of banks in another state unless explicitly authorized by that state,0,b +this situation is being called a credit crunch by some and a lack of credit demand by others,0,b +currently there is considerable financial market concern that foreign savers are becoming increasingly reluctant to place more of their savings in the us indeed there is growing fear that foreigners may even decide to pull their previous savings out of the us as well,0,b +it helps avoid a buildup of risks to financial stability should overly low interest rates encourage investors to take on excessively risky investments in a search for yield,0,b +im honored to speak to this subcommittee about the federal governments financial safety net and how the dodd frank wall street reform and consumer protection act seeks to address itat the outset i should point out that within the federal reserve system the board of governors has sole authority to write rules implementing the requirements of the doddfrank act,0,b +if expectations of support for the creditors of financially distressed institutions are widespread regulators will likely feel forced to provide support to these shortterm creditors to avoid the turbulence of disappointing expectations,1,b +as alan greenspan has noted during the last 20 years or so weve deregulated financial markets weve developed more flexible labor markets and weve made major advances in technology,1,b +and in line with later episodes the failure of the collapse to have an economic impact seems to have contributed to subsequent higher stock prices,1,b +as we increasingly rely on markets to bring safety and soundness to the financial system we stand to learn a lot from the accounting profession,1,b +before deregulation of deposit rate ceilings a change in the fed funds rate was equivalent to a change in the opportunity cost of holding money since any such change quickly translated into an equivalent movement in other shortterm interest rates,1,b +those changes are designed to reduce unnecessary regulatory burdens on specific institutions without any loss of resiliency for the financial system,1,b +from the outset of our participation in the development of basel ii the us banking agencies have clearly and consistently stated that the final adoption of the new capital rules in the united states would occur only after 1 we had reviewed all public comments and incorporated any needed adjustments to address legitimate concerns and 2 we were satisfied that basel ii was consistent with safe and sound banking in this country,1,b +first we always aim to formulate policies that are consistent with the safety and soundness of the banking system,1,b +however at the same time it permanently increases the demand for credit as the inflationary consequences of the federal reserves expansionary actions are quickly recognized by the public particularly under present conditions when inflationary expectations are so important,1,b +of course if favorable financial market trends are to be sustained and extended we must continue the progress toward price stability,1,b +and as we expand bank powers we inevitably add new elements of risk risk which must be matched against adequate levels of capitalall winston churchill could promise britain in 1940 was blood sweat and tears,0,b +another significant move was to expand the same powers to thrifts in both the monetary control act in 1980 and the garn st germain act in 1982 the comptroller relaxed restrictions on chartering new national banks doing away with the test of economic need,1,b +rif course in the case of the deregulation of the financial industry sane of these chanqes have had the imnediate inpact of canplicatinq the process of rronetary policy and in the broader sense the iiiplementation for public jxlicy in the recovery period,0,b +my goal this afternoon will be to examine some of the arguments for reregulation as a basis for speculating about the future of deregulation and financial services generally,0,b +the most serious problem is the increased risk of the residual loan portfolio the portfolio that has been effectively stripped of its high quality assets for which regulatory capital exceeds economic capital,0,b +in the developing global economy and a 24hour global capital market the united states financial system must be allowed to integrate in order to compete effectively with the increasingly integrated financial systems in the rest of the industrial world,1,b +philosophically i think we would very much like to deregulate the depository institutions but the fact of the matter is the thrift industry cant stand it at this point in time,1,b +but the record of the past 30 years does indicate that banks have done quite woll in a world of rapid financial innovation increasing competition and advancing technology,1,b +these low yields are part of a more general decline in compensation for risk in emerging markets a trend also evidenced by low risk spreads on dollardenominated bonds and rising stock prices,0,b +everything changed in 1980 when congress enacted the monetary control act mca,0,b +conclusion more than ever before advances in technology serve to integrate global financial markets and there is no turning back the clock,1,b +beyond the regional interstate compacts interstate expansion is currently limited to acquisitions of failing banks by strong outofstate banks,1,b +the financial modernization act is only a flag on the way to future changes,1,b +but when holding companies borrow to help finance their acquisition of bank stock the question of double leverage and the degree to which it should be permitted arises,0,b +this situation contrasts with the one prevailing in other countries where nationwide banking has increased the safety and soundness of the financial structure through diversification,1,b +trends the consolidation of the banking industry has been well under way for some time,1,b +monetary policy each of the areas i just mentioned are different but all relate to our overall mission which is to foster a healthy growing economy and a safe and stable financial system,1,b +repeated efforts to focus congressional attention have been thwarted by those in the leadership who are the captives of special interests opposed to any move to broaden the powers of banks or permit the integration of the financial services industry,1,b +but it is not clear that in the absence of deregulation of the securities markets the course of events would have been much differentgeographic deregulationthe deregulation of geographical constraints could be discussed simply in terms of worldwide integration of banking systems were it not for conditions in the united states where geographic deregulation means interstate branching,1,b +as you will see from my remarks today the deregulation of the banking industry that we are now experiencing and will continue to experience over the next few years is likely to have major implications for banks and their customersderegulation of deposit interest ratesas you know the congress enacted legislation in 1980 that mandated the phasing out of regulation q interest rate ceilings by 1986 in order to help assure that the removal of deposit rate restrictions would not produce serious dislocations congress created the depository institutions deregulation committee didc to administer the phaseout,1,b +all of the answers are not clear but here are some of the issues which those who operate banks we who regulate and supervise banks and congress itself will be wrestling with in the immediate futurethe united states has long held that commerce and banking should be separate that commercial enterprises should not own and operate banks and banks should not substantially own or manage commercial entitiesthis issue will inevitably emerge as part of the debate over further expansion of bank powers,0,b +thrifts and banks are operationally more like8 expert oversight for each activity and the integrated marketing of related financial services provided by multiple entities would significantly enhance competitiveness,1,b +by the mid1990s we will have dg facto nationwide interstate banking without the dg jure blessing of congress or repeal of the mcfadden act,1,b +these burdens are the result of wellintended legislation drafted without a full appreciation of the cost to banks of additional reporting and complianceit is also fairly obvious to me that the american ethic of shortterm profits and matching shortterm strategies puts american banks and financial institutions at a great disadvantage,0,b +the causal chain seems to run from higher inflation to higher interest rates to lower stock prices and from higher inflation to lower operating profits after taxes to lower stock prices,0,b +an argument frequently used against spreading the net any wider that is to say granting additional powers to federally insured banks is that the safety net provides a subsidy to banks,0,b +like any other business a farm that is adequately staffed stocked and equipped and has the necessary working capital for efficient operation has a far hotter earning potential and hence is a better credit risk than one in jhich too much of the available resources are tied up in land or plant vitfc the resulvi that operations are handicapped through lack of equipment or resources to take advantage of fortuitous opportunities that may arise,1,b +as my fellow members of the federal open market committee fomc and i stated earlier this week economic activity has picked up conditions in financial markets have improved further and longerterm inflation expectations are stable,1,b +at the same time that banks will be facing strong loan demands they may have to cope with a large runoff of certificates of deposits cds in denominations of 100000 and over,0,b +that includes regulation and supervision which ensure banks are safe and sound not taking imprudent risks in their daytoday business the availability of discount window credit which ensures wellcapitalized banks can meet their emergency liquidity needs and deposit insurance which protects consumer deposits if the bank fails,1,b +but organized futures markets with their homogeneous contracts reduced credit risk and low transactions costs have made attractive and accessible to many what previously was of interest only to a few,1,b +raising the inflation target could lower these incentives and thereby reduce the risk of financial instability,1,b +for the first and second quarters of 1994 the entire industry that is all insured commercial banks had a return on assets of 117 basis points and many banks large and small had returns even better than thatat the same time asset quality has improved dramatically and problem loans are down to 42 billion their lowest level since 1985at the same time recent accounting mandates from the financial accounting standards board in the form of fas 115 make it appropriate to mention that investment portfolio positions3 have weakened,1,b +during the pandemic we changed our supervisory approaches based on necessity but now we need to look ahead and make sure that were adjusting our supervisory model in ways that allow banks greater flexibility to innovate to compete in todays quickly evolving banking environmentâU0080U0094without sacrificing important consumer protections or the health and safety of our banking system,1,b +this growing concern has im portant implications for the nations financial institutions as well as for economic policy,0,b +recognizing the increased ability of thrifts to compete with commercial banks as well as the need of all institutions to compete with the rates available on market instruments there has been a narrowing over time in the differential between the rate ceilings on deposits among the various types of institutions,1,b +many thrift institutions which used to be geographically constrained to single states like banks are expanding interstate by the acquisition of financially distressed thrift institutions,1,b +such charges would be designed to reduce the burden on banks of membership in the federal reserve system,1,b +these benefits are expected to flow primarily from opportunities for diversification noninterest cost reduction and crossmarketing for those banks investment banks and insurance companies that find ways to profitably merge their businesses in the wake of legislation permitting expanded powers for banking organizations,1,b +the supervisory organizations have agreed that basel i with its broadbrush system for setting the risk weights on various classes of bank assets is increasingly inadequate for measuring risk and the appropriate level of capital for such firms,1,b +during periods of strong credit demands and inflationary pressures such as 1966 and 196970 federal reserve monetary policy ordinarily assumes a posture of substantial restraint,0,b +increases in bank capital ratios have already been enacted,1,b +confidence is central that to the functioning of our banking system and our economy at large,1,b +undoubtedly at times more rapid expansion of banks role as savings intermediaries will promote that objective,1,b +this kind of access to the money markets that the banks have has expanded quite rapidly in recent months and it has been the source of financing a considerable portion of the increase in bank credit,1,b +the experience with creditscoring models underlines the necessity of basing moresophisticated quantitative approaches approaches that seem to have served the banking system so well when applied initially on a longer and larger database of loss experience,1,b +it was against this background that the federal reserve announced on october 6 its package of complementary measures 1 an increase of one percentage point in the basic discount rate from 11 to 12 percent 2 the establishment of an 8 percent marginal reserve requirement on further expansion in the managed liabilities of the larger banks liabilities that had been actively used to finance the rapid recent expansion in bank credit and 3 a change in shortrun operating procedures placing more emphasis on the supply of bank reserves and less emphasis on managing the interest rate on overnight federal funds in order to achieve better control over the growth of the monetary aggregates,0,b +since most major units in the banking system have become heavily dependent on time deposit intermediation to achieve their growth objectives rate ceilings are said to be the real barricade to bank credit expansion and thus vital to the potency of monetary restraint,1,b +yet despite these banks efforts the rate of growth in their savings and consumertype time deposits slowed in 1966 as consumers allocated a greater proportion of their funds into higher yielding market securities,0,b +a banker who did not operate his bank as a profitmaking institution would of course be guilty of defaulting on his obligation to maintain a sound bank,1,b +these included several monetary policy moves ranging from accommodative open market operations and a number of cuts in the discount rate to reductions in reserve requirements,1,b +because if in four short years the chainnan of the federal reserve so obscure that no one remembers his name then inflation will have abated the dollar will be strong the stock market wil be at new highs and america will be enjoying an unparalleled period of prosperity,1,b +clearly there is a big difference between the financial environment of 1909 and that of 1966this changed environment promises substantial opportunity for future expansion of consumer credit,1,b +another reason for a strong banking system is related to something i mentioned earlierthat increasing domestic savings is an important goal for economic growth,1,b +a predominance of private monies may introduce consumer protection and financial stability risks because of their potential volatility and the risk of runlike behavior,0,b +i believe all americans share a common interest in working to make sure that our financial system is strong resilient and able to serve a healthy and growing economy,1,b +these changes include the consolidation and increased geographic scope of the banking industry a blurring of the distinctions between various financial institutions deregulation and the implementation of financial strategies made possible by improvements in computer technology and advances in finance theory,1,b +thus moreeffective market discipline can in a sense regulate the risktaking activities of banks and other firms in ways that can complement supervision and regulation of financial institutions and foster stable financial markets,1,b +we have not yet seen empirical evidence to support these claims nor has it been our experience in implementing the law over the past 30 years that the cra has contributed to the erosion of safe and sound lending practices,1,b +it was clearly necessary to strengthen the banking system and to better analyze and understand the importance of the links between the banking sector and the nonbank financial sector,1,b +behavior of bank credit during the first half of this year bank credit expanded at an annual rate of 143 per cent,1,b +a large volume of borrowing and lending transactions are completed every day stock prices have risen significantly over the last twelve months and risk spreads and borrowing rates have come down in most areas,1,b +however if commercial banks themselves can expand their pipes as many have demonstrated can be done they will get a larger portion of the flowin short your growth depends more on you than on usas the last decade progressed many people became aware of this,1,b +the resul tant heavy credit demands push rates even higher,1,b +the subsequent sharp increase in savings funds along with the increase in costs induced many bank managements to enlarge their investment in higher yielding assets particularly taxexempt bonds and mortgages,1,b +our banks have been spurred by heightened comcid173petition corning not only from within the banking industry but also from thrift institutions insurance companies diversified financial corporations and even nonfinancial firms that extend consumer credit,0,b +2 each increase in purchased inputs from farm supply industries has resulted in a corresponding increase in credit demand,1,b +as activity quickens demands for credit rise faster than supplies exerting upward pressure on rates,1,b +in 1959 for example when high yields on marketable securities were also cutting heavily into the share of total savings going to depositarycid173type institutions commercial banks had less interest rate leeway to compete and the lions share of the shrinkage in flows occurred at banks,0,b +in the banking industry technology continues to encourage new ways of interacting with and serving customers that can help banks meet the needs and preferences of their customers and communities,1,b +to a remarkable degree the profitability and liquidity of the 1990s has been maintained through the past two years of economic weakness6 some of the factors supporting profitability in the banking sector since 2000 include large inflows of cheap core deposits as households have retreated from riskier investments booming business in mortgage originations and refinancings strong demand for credit cards and capital gains on securities holdings,1,b +much of the inflation we are presently experiencing can be attributed to monetary policy directed toward the stabilization of interest rates in times of rising credit demand,1,b +i think that perception goes too far and innovation at its best has been and will continue to be a tool for making our financial system more efficient and more inclusive,1,b +although it has taken time globalization is helping to generate the demand for an improved financial system which is driving the reform process,1,b +such an approach could improve the efficiency of monetary policy implementation as firms might show a greater willingness to reallocate to treasury securities reducing reserve demand and improving market functioning,1,b +as investors and creditors lost confidence in the ability of certain firms to meet their obligations their access to capital markets as well as to shortterm funding markets became increasingly impaired and their stock prices fell sharply,0,b +the larger banks were better able not only to spread their portfolio risks across a wider range of customers but also to broaden their funding sources,1,b +largely because of these concerns the federal reserve took actions that facilitated the purchase of bear stearns and the assumption of bears financial obligations by jpmorgan chase co this experience has led me to believe that one of the best ways to protect the financial system against future systemic shocks including the possible failure of a major counterparty is by strengthening the financial infrastructure including both the hardware and the software components,1,b +moreover as financial institutions continue to attract capital and strengthen riskmanagement practices and as supervisors ensure that banks take the necessary actions institutions will become more resilient to shocks and the overall financial system will be more robust as a result,1,b +but macroeconomic stability requires sound financial conditions to support the economys longrun growth prospects which our monetary policy attempts to accomplish,1,b +for as long as they have existed central banks have calmed financial crises by lending to financial institutions against good collateral,1,b +both rapid or variable inflation and deflation can lead to a state of fear and uncertainty that is associated with significant increases in risk premiums and corresponding shortfalls in economic activity,0,b +in the past at this conference we have evaluated how changes in technology deregulation and increased competition have affected the activities of banks and the banking industry,1,b +i want a flourishing healthy banking system fully as much as you do because in my view that flourishing banking system is essential to a flourishing economy,1,b +i believe that the recipe for continued longterm stable growth in latin americain addition to the macroeconomic policies that have already been put in placeis to have a strong financial system of wellregulated banks and an efficient payments system in place in each country,1,b +declining yields and rising asset prices ease overall financial conditions and stimulate economic activity through channels similar to those for conventional monetary policy,1,b +i will just highlight one project that in my view holds out the promise of improving financial stability no matter which view one subscribes to,1,b +fortunately forceful and coordinated policy actions averted a global financial collapse and since then aided by a range of government programs financial conditions have improved considerably,1,b +the intensification of financial turmoil and the further impairment of the functioning of credit markets seem likely to increase the restraint on economic activity in the period ahead,0,b +importantly structural reform is moving forward in the financial sector with ambitious domestic and international efforts underway to enhance the capital and liquidity of banks especially the most systemically important banks to improve risk management and transparency to strengthen market infrastructure and to introduce a more systemic or macroprudential approach to financial regulation and supervision,1,b +while there has been substantial progress on reducing household debt burdens and increasing the resilience of the banking system the federal reserves assessment suggests that financial vulnerabilities associated with corporate debt are building against a backdrop of elevated risk appetite,0,b +but financial regulation faces an ongoing challenge in trying to identify and respond to new practices that increase systemic risk while not suppressing financial innovation that can improve the efficiency of capital allocation,1,b +however as the economy continues to improve and financial markets find firmer ground extraordinarily low policy rates will not be needed to promote recovery and will become inconsistent with maintaining price stability,1,b +detecting bubbles the word bubble is sometimes employed to describe any quick and large increase in asset prices but a more precise definition would associate bubbles with only those increases in asset prices that are not due to economic fundamentals,1,b +the changing financial system and the known the unknown and the unknowable the evolution of financial markets and institutions over recent years may well have made the financial system more resilient and reduced the need for intervention,1,b +these mechanisms include a strong network of financial intermediaries sound and resilient financial markets innovative financial products that spread risk to the investors most willing and able to bear it and effective supervisory and regulatory frameworks,1,b +the first is forward guidance on the federal funds rateby lowering privatesector expectations for the future path of shortterm rates forward guidance has reduced longerterm interest rates and raised asset prices thereby leading to more accommodative financial conditions,1,b +second the passage of the gramm leach bliley act in late 1999 recognized many of the market realities i discussed with you in 1998 and provided increased opportunity for the formation of large financial conglomerates,1,b +as you will hear recent readings on the economy suggest that the pace of economic activity has picked up of late our financial system is healthy and inflation pressures remain subdued,1,b +in the world of finance interest rates in key areas such as mortgages and the london interbank market have declined dramatically enlivening the housing markets and reviving interbank lending private bond market issuance has resumed and indeed as you will see in this week and next weeks issuance calendar at robust levels for both highgrade and junk issuers and the stock market has rallied from its lows bringing with it a surge in the volume of new stock issuance,1,b +financial institution decisions to relax underwriting and impose lessstringent margins and haircuts will further increase the pool of potential borrowers and their borrowing capacity further increasing credit growth and supporting still higher asset prices but at the same time will also increase lenders credit risks and exposureas secured creditorsto a decline in the assets price,1,b +these actions helped the financial markets to turn around and they set the stage for recovery in combination with reductions in the inventory overhangs of houses and a broad range of other goods,1,b +moreover as financial institutions strengthen riskmanagement practices and as supervisors ensure that the necessary actions are taken i expect the financial system as a whole to become more resilient,1,b +the doddfrank act enacted in july 2010 charged the federal reserve with specific authorities for the purposes of safeguarding financial stability,0,b +when i accepted his offer i promised the president i would do my very best working with my fed colleagues to help restore the health of the economy and promote a strong and stable financial system,1,b +advances in technology are occurring at a rapid pace and present the opportunity to make our financial system safer and more efficient for more americans,1,b +growth was supported by fiscal stimulus in the form of tax cuts to households and businesses and higher federal government spending as well as financial conditions that were accommodative for much of the year,1,b +separating credit programs from monetary policy would make it easier to devise a successful exit strategy and would reduce market uncertainty about how any potential tension between monetary and credit policy will be resolved,1,b +our goal is to emerge from this difficult period with a financial system that will be more stable without being less innovative with a more effective balance between market discipline and regulation,1,b +but policymakers must also adapt their supervisory and regulatory structures to promote a robust financial system that can withstand occasional shocks even severe ones without systemic problems that become destabilizing,1,b +the us treasury had injected capital into banks under the troubled asset relief program tarp,1,b +inherent versus induced fragility the next key moment in the crisis was the march 2008 acquisition of bear stearns by jpmorgan chase with assistance from the federal reserve bank of new york that effectively protected bears creditors from the fallout of an unassisted failure,1,b +we still havent talked about the financial sector though and its hard to imagine a solid recovery until financial markets signal expectations of a stronger economic environment,0,b +lastly at the federal reserve we have also been working closely with other us agencies in the recently established financial stability oversight council on the implementation of the financial stability reforms laid out in the doddfrank act,0,b +many observers have pointed to this phenomenon to explain recent rapid growth in bank credit,1,b +even so im convinced that the deregulation of the financial system has been a favorable development for the economy,1,b +they also raise the minimum standard o f total capital to riskweighted assets to 8 percent by 1992 in sum the agenda for congress is to broaden banks powers to worldclass standards while decreasing the public exposure and moral hazard associated with deposit insurance,1,b +since estimating the true fundamental value of a financial instrument is hard even for market mechanisms which embody the judgment of many it can be quite risky to rely instead on the judgment of a few individuals even central bank staff who claim to know that the market is wrong,1,b +as requested i will focus in turn on the trend_ toward greater internationalization of capital markets the further growth of securitized credit and the continued developnent of futures and option markets based on financial instruments,1,b +this effort which was the outgrowth of cooperation between us and uk supervisory authorities is ongoing and places priority on encouraging banks to further improve their risk management systems,0,b +this view implies some criticism of bankers for venturing into this sensitive area particularly for issuing short maturity instruments and of bank supervisors for permitting them to do so,0,b +the increased complexity of banking the speed with which risk positions can change and the increased size and breadth of banking organizations all seem to point to the usefulness of improving disclosure to provide the raw material the markets need to continuously reevaluate changing risk profiles,0,b +the risks in our financial system are constantly evolving,0,b +in general these strategies involved shifting from being net importers of financial capital to being net exporters in some cases very large net exporters,1,b +however it will take several years to resolve the problems with outstanding subprime mortgages and securities backed by such mortgages,0,b +a management that expands merely to keep up with the competitive joneses without careful market analysis or provision of the necessary financing is a contributor to unbalancing credit demand,0,b +the user of paper checks moreover has benefitted greatly from float,1,b +the market system if it is per mitted to work can slow down use of increasingly scarce resources and en courage development of new resources,1,b +nevertheless the fact that the cra law was passed in response to fears of redlining and other barriers to credit in low and moderateincome areas and the eagerness of financial institutions to receive cra credit for their lowincome lending suggests that a large share of the loans probably would not have been made in the absence of cra2 the econometrics are still unclear but the law certainly could have been responsible for a sizable amount of new lending dwarfing the expenditures on any other poverty programin lampmans day and today,1,b +credit cards are here to stay and the measures taken in 1970 to protect users probably gave the cards a firmer base of public acceptancelast year the fair credit reporting act became effective,1,b +this has reduced their credit needs,0,b +in fact as you know it has been one of the s y s t e m objectives for some time to update and make more efficient the payments mechanism on whose smooth functioning commerce depends,1,b +that will encourage a more efficient operation of the payments mechanism for two reasons,1,b +it is only natural that equity prices would rise as disinflation lower the expected rate of interest,1,b +careful attention to the risks as well asthe opportunities is essential not only to the welfare of individual institutions 2but to the stability and soundness of the financial system on which our economy dependsthis then is the environment in which deregulation is proceeding,1,b +the turbulent macroeconomic developments of the 1970s along with technological and business innovations helped produce an increasingly tight squeeze on the traditional commercial banking business model,0,b +indeed given the sheer volume of these instruments and the astonishing speed and rapidity with which some change hands i must confess that i have a tinge of uneasiness as to whether the aggregate risks associated with such instruments and practices are fully understood,0,b +however giving all macroprudential responsibilities to a single agency risks creating regulatory blind spots asin the united states at leastthe skills and experience needed to oversee the many parts of our complex financial system are distributed across a number of regulatory agencies,0,b +22961 return to text 4 in the united states we have also applied a somewhat less stringent version of the lcr to banks that are large but that do not cross the threshold of being internationally active,0,b +the alternative of having regulators allocate credit directly is unlikely to be workable for very long,0,b +furthermore banks in bank holding companies at mid1972 held over 58 per cent of all deposits in united states banks and just over 60 per cent of all united states bank assets,1,b +andrew haldane and vasileios madouros have argued that the complexity of the financial landscape does not call for a complex financial regulatory structure but just the opposite,1,b +alternatively we could continue with the system that weve been using since the crisis in which bank reserves are abundant and the federal funds rate target is achieved through adjustments to administered rates,1,b +over subsequent days fearful investors withdrew more than 250 billion from prime money market mutual funds,0,b +f 1 many of you are leaders in law accounting banking and other service industries,1,b +as the world adjusts to these lower levels of growth we will continue to carefully monitor the potential spillover effects on currencies as well as global financial conditions,0,b +i will focus today on the economic and financial challenges we face and why i believe we are well positioned to move forward,1,b +we believe that open access to the systems check collection services is desirable providing a means can be devised for effectively equalizing the terms of access by all depository institutions,1,b +my reading of current conditions is that bank lending is constrained more now by the supply of creditworthy borrowers than by the supply of bank capital,0,b +according to a recent estimate by richmond fed staff 40 percent of bank and savings institution liabilities were explicitly guaranteed at the end of 2009 while an additional 45 percent could reasonably be viewed on the basis of official actions and statements as implicitly guaranteed5 back in 1999 only 13 percent of bank and savings institution liabilities were implicitly guaranteed by this criterion while 50 percent were explicitly guaranteed6 overall government guarantees thus expanded from 63 percent of banking liabilities to 85 percentthe distinction between microprudential and macroprudential regulation in practicei have been discussing the theoretical distinctions between macroprudential and microprudential approaches to stress tests,1,b +but if we reach the point that markets only expect us to move in one direction that is toward more easing and we become reluctant to dial back on purchases over concerns of disappointing or surprising markets then we will find ourselves in a very difficult position going forward,0,b +entationwas the proposal to continue and enhance international financial cooperation already the hallmark of the postwar international onetary system throuh ultilatcral surveillance of bilateral financing and liquidity creation,1,b +there are additional forms of pressure the banks can bring to bear on each other,0,b +in my view these cure convincing statistics to support the continuing viability of caimunity based banking and the innovation of california bankers during one of the most challenging periods in the history of the financial services industry1313 will facilitate increased canpetition and specialization a fertile envirorment for carmunity banking,1,b +i do know that they responded to every question and strived to mitigate every risk that was identified,1,b +at the eurodollar banks the expansion was more than so per cent higher,1,b +such reform changes would restore some measure of market disclpline to banklng and would let fail doctrlne the burial it deserves,1,b +like other assee markets are highly efficient forwardlooking traders base spot and forward quotations on all relevant available information,1,b +the difficulty was that the supreme court interpreting the federal statutes has ruled that such depositcollecting cars were bank branches,0,b +for the largest us banks many of whom have been most active in correspondent banking expansion into foreign banking activities has become a major outlet for growth and performance objectives,1,b +in addition another part of the loss simply represented direct shifts of savings accounts from all deposittype assets to higheryielding market instruments,1,b +but there are some banking markets where nonbank competition is either nonexistent or is not very vigorous so far as savings deposits are concerned,1,b +this international fluidity of funds results in increased integration and 4 interdependence of markets,1,b +these are credit sources merchandise sources if you will that at least in the dimensions of their present use were relatively minor five years ago,1,b +trying to stay competitive many banks offered a completely new banking product the toaster as an incentive to open an account,0,b +the inability to offer its own brand of travelers checks has not seriously handicapped the ccratu nity bank,1,b +the most rapid increase in bank holdings of state and local bonds has occurred since 1960 in part this acceleration was due to enlarged time and savings deposit inflows and a generally stimulative monetary policy through most of the period,1,b +moreover a medíum of exchange with reasonably predictable purchaslng power can enhance the smooth functionlng of the market mechanism,1,b +the three which i feel have shown greatest promise are maintaining greater liquidity obtaining variable interest rates on mortgages offering a greater variety of intermediate term certificates and longterm bondslet me discuss each brieflygreater liquiditythe advantages of liquidity are manifold,1,b +some analysts have offered an entirely different interpretation of the drop in equity premiums,1,b +broad design of our any economic time we make major institutions changes the we create a risk that unintended consequences will turn into major new problems,0,b +it is important though to note that the total of these items as a part of total operating revenue has declined from 19 to 9 from 1942 to 1964 in an effort to isolate the contribution of exchange charges to chart this line item a special survey was made by the fdic of nonpar banks on a sample basis,0,b +first mutual fund activities were not being effectively overseen by their mutual fund boards,0,b +to return then to the aims of prudential regulation of community banks it seems that we can fill out the basic aims of protecting the deposit insurance fund and supporting the availability of relationship lending across the country by concentrating on traditional capital regulation to ensure solvency and on traditional examination practice to monitor the basic soundness of the relationship lending practices,0,b +5 in order to take loan business from another bank or to get new loan business which might otherwise go to a competitor a bank must offer the borrower more favorable terms,1,b +this end would be accomplished with the net worth certificate approach through an exchange of promissory notes between the troubled bank and the fdic or possibly its primary reyulator and with the loan loss deferral approach by permitting a writeoff of loan losses over an extended period of time,0,b +as can be seen in the upper lefthand panel the boards modification has the advantage of greatly increasing the proportion of commercial bank transactions deposits covered by an account at the federal reservefrom the present 73 per cent to 94 per cent,1,b +nevertheless in all sincerity i be lieve that to the extent that banking is followed as a profession we shall have a sound monetary and credit system,1,b +on the lending side it is also probable that thrift institutions will be given more pow ers particularly in the consum erlending area but for the moment any expansion will be hedged by concern about pro tecting housing finance,1,b +wholesale funding models are severely stressed,0,b +also financial markets are still relatively accommodativedespite some recent upward movement in longerterm interest ratesso the business climate is very supportive for capital spending,1,b +they saw no adverse impact on the price of the underlying securities,1,b +for example the crash of huge once invincible texas banks triggered by a softening of the states basic industry petroleum,0,b +without some relief from existing usury restrictions it seems unreasonable to expect our institutional lenders to pay market rates of return on deposits when they are prevented at the same time from earning market yields on their assets10with provisions to assure that the mortgage rate varies with market rates in such a way as to protect consumer interests would allow thrift and other institutions to build up mortgage portfolios providing earnings more fiexibly attuned to market developments,1,b +in terms of geographic diversification the one bank holding company did allow organizations to expand their activities on an interstate basis,1,b +consolidation and especially any resulting increased complexity of financial institutions appears to have increased both the demand by market participants for and the supply by institutions of information regarding a firms financial condition,1,b +many of the same arguments apply to the prohibition of interest on demand deposits and its repeal would canplete the process of rate ceiling deregulation,1,b +when country x has a steady flow of receipts in particular currencies the advantage of holding reserves in these currencies is reduced,1,b +it is a burdensome albatross for any financial system where competition should be based on serving the public rather than on serving oneselfincidentally i see no insurmountable theoretical or supervisory barriers to rule out commercial bank operations conducted by mutual institutions,0,b +funding difficulties for financial institutions clearly have the potential to turn into tighter credit conditions for households and nonfinancial businesses alike,0,b +in a sense it represents a step in the direction of supervision by exception,1,b +in short the reduction in volatility in both real output and inflation creates a macro environment with relatively less risk,1,b +following the midseptember volatility the committee stated that it would seek to maintain over time a level of bank reserves at or above the level that prevailed in early september a level that we believe is sufficient to operate an amplereserves regime,0,b +a though the problems at home state were triggered by unique events l growig out of its transactions with esm the severity of the public reaction made us concerned about possible deposit withdrawals at other odgf i nsured institutions,0,b +but the events following the russian default and devaluation seemed to call for easing rather than just maintaining the prevailing degree of financial market conditions,1,b +after october the cumulative amount lent became too large to sterilize and further lending added to the monetary base,0,b +riskbased capital and leverage ratios for banks of all sizes have improved materially and are significantly above their previous highs,1,b +my main concern however will be with the evolution of the system and particularly with the processes of exchange market intervention and of the creation of international liquiditythe events of the last few weeks show that exchange markets continue to be highly sensitive to any departure of exchange rates from what the market believes to be appropriate levels,0,b +were also examining possible unintended negative consequences of market fragmentation,0,b +these banks would be privately managed organized without capital stock and insurance by the fdic,0,b +laws and regulations no matter how well thought out are proving to be flimsy indeed when pitted against market forces that push money flows into their most profitable uses,1,b +surveybased measures have tended to be more stable than those based on market data,1,b +that more relaxed attitude toward risktaking is what underlies the term moral hazard,0,b +the increase in capital accounts at reserve city banks was 67 per cent or nearly as much as the growth in net income while the increase at country banks 82 per cent substantially exceeded the rise in net income8rates of growth in net current earnings over the 10year period were identical at reserve city and country banks but country banks experienced a somewhat slower rise than city banks in net income after taxes,1,b +the decline in the number of banks the expansion of branch systems the sharp rise in mergers the rapid increase in the os in the number of multi and especially onebank holding companies and the dramatic expansion of overseas banking activities have drastically altered the very nature of banking in the united states,1,b +to the extent that exchange rate appreciation exerts a tightening force on financial conditions in the united states it delays the return of us interest rates to more normal levels,0,b +to give this assurance to banks the federal reserve has made clear that it will provide shortterm credit to sound financial institutions as needed,1,b +incidentally the antitying statute applied to banks is tougher than the general corporate antitrust laws,0,b +the larger banks however earned 1550 percent6let me start with the small bank survival issue,0,b +one of the most important contributing factors to the current financial crisis in many of the emerging asian nations was the weakness of their banking systems as well as weakness of bank supervision within those countries,0,b +it is notable that current law provides very little in the way of structural means to limit systemic risk and the toobigtofail problem,0,b +for all banks losses on consumer instalment credit have averaged about onehalf of one per cent in recent years,0,b +the trillions of dollars of assets that are priced and traded daily in our financial markets before legal confirmation illustrate the critical role of trust,1,b +community banks and regulatory reform as you know a key challenge for community banks in the years ahead will be to adapt to the changing regulatory environment particularly the regulatory reforms contained in the doddfrank act as well as the changes that will be associated with the basel iii reforms,0,b +full interstate banking is still some years away although cracks in the barriers are multiplying 5 5 and credit unions cannot all survive,0,b +in reviewing these specific industrial and financial trouble spots it becomes clear that high interest rates and the high value of the dollar have been elements underlying each,0,b +currently the volume of securitization is far below mid2000s levels with much of the decline reflecting the collapse in private residential mortgagebacked securities,0,b +up until now unfortunately overall credit demands have remained exceedingly strong reflecting the persistent strength of inflation and widespread inflationary psychology as well as a continuing high level of aggregate economic activity,1,b +today i would like to discuss the evolution of the industry and the development of innovative products services and activities especially in the areas of complex structured finance transactions and credit risk transfer,1,b +effects of automation on the structure and functioning of bankingremarks of george w mitchell member board of governors of the federal reserve systemat the annual meeting of the american economic associationnew york citydecember 28 1965effects of automation on the structure and functioning of banking remarks of george w mitchell member board of governors of the federal reserve system at the annual meeting of the american economic association new york city december 28 1965 effects of automation on the structure and functioning of bankingthe commercial banking system in the united states owes its existence to its ability to render for all sectors of the economy a unique and pervasive service namely the movement of money,1,b +but the facts are otherwise and much harm bas been done by intimating that bank super visors could end the practice simply by suitable call report procedures,0,b +in a variety of forms they have been suited to the needs and convenience of the banks regular customers as well as customers of other intermediaries,1,b +moreover by bolstering the safety and soundness of the banking industry the improvement in lending practices helps ensure that we can work through industry restructuring from a more solid foundation,1,b +but in a 1978 article john kareken and neil wallace pointed out that deposit insurance gives insured banks and thrifts an incentive to take on socially excessive amounts of risk and dampens their creditors incentive to monitor and constrain such risktaking5 several years later kareken wrote about the critical role of regulation and supervision in constraining the excessive risktaking incentives that result from deposit insurance6 he warned of the dangers of deregulating such institutions before commensurately strengthening the supervisory regime to be able to contain the expanded bank and thrift risktaking capabilities,0,b +as further protection the board would also have general authority to set out regulations on nonbanking activities to assure safe and sound financial practices including appropriate capital standards,0,b +the end result was that there was greater potential for asset purchases to have a discernible effect on longerterm yields in the years immediately following the financial crisis than in current circumstances,0,b +the perils of gogo11 banking became even more apparent when confidence was shaken by foreign exchange losses in a world of floating exchange rates and bank failures abroad twodigit inflation and the associated enormous increases in demands for funds and interest rates,0,b +together broader product and geographic powers could bring new latitude in decisions banks make regarding the size and scope o f their operations,1,b +in contrast both anecdotes from market participants and the declining size of trades in some markets suggest it may have become more expensive to conduct and may take more time to implement large trades9 moreover there may be some deterioration in the resilience of liquidity at times of stress along with a greater incidence of outsized intraday price movements,0,b +im now reasonably satisfied the situation has settled downat least as regards the likely causes of market volatility that converged in august,1,b +it would not and could not solve complex problems of accommodation that are inherent in a dual banking system,0,b +the specific channels by which globalization deregulation and financial innovation affect competition among currencies are many,1,b +such adverse developments have in certain instances been unwanted side effects of some of the progressive activities we have seen banks undertake,0,b +fifth avoiding if at all possible imposing any additional cost burden on the banks as a consequence of this regulatory restructuring,1,b +as a consequence the large banks have continued to shoulder a greater share of new lending to the heavily indebted countries,1,b +serious strains within the banking system surfaced in 1982 with the failure of the penn square bank and the severe repercussions of this failure on other large banking organizations,0,b +11but he continued 11the bank has plenty of capital cushion right now and i don t relish redncing my familys standard of living just because of an old banking shibboleth about a lto10 ratio or something like that,1,b +good bank supervision should and will examine the liquidity of individual banks and urge the correction of inappropriately thin or exposed liquidity positions,0,b +this would impact most favorably on the shortterm market marked as it has been by severe disintermediation and other problems,1,b +it is an iron law of financial economics that the higher the return the higher the risk and the higher the risk the higher the chance of lossand that is in fact our concern,0,b +open market operations supplied less additional reserves to the banks than they would have liked 5 although until the second half of the year total reserves actually con tinued to increase,1,b +one way to enhance the ability of market participants to limit risk taking by banks might be to require at least the largest and most complex banks to issue a minimum amount of subordinated debt,0,b +today then i would like to discuss the attributes of a healthy banking system and the kind of environment that is necessary to allow banks to flourish,1,b +we plan to issue these proposals for public comment concurrently with or soon after the npr on basel ii to allow the banking community to comment on a combined package,1,b +some proposals have been made to limit the scope and activities of financial institutions and i think a number of those ideas are worth careful consideration,0,b +many banks in energy producing areas or with heavy energy exposure are also experiencing strains from loans to troubled real estate and agricultural borrowers and in seme cases have exposure to foreign countries dependent on the production and export of oila recent survey by the fdic identified 563 federally insured banks with assets over 100 million and oil and gas loans in excess of 25 percent of total capital,0,b +as yet however the thrifts have not fully utilized these inflows of funds since their mortgage holdings have grown only about as fast as they did during 1974 these institutions instead have largely used their newfound funds to build up their depleted liquidity perhaps because of an underlying fear that any crowdingout phenomenon would hit them first and once again drain them of their interestsensitive deposits,0,b +when inflationary pressures subside and market rates decline thrifts will be 1n a much better position to compete,1,b +these elements presumably reflecting price dynamics would have made it possible to ride a bandwagon profitably over varying periods in particular markets,1,b +the financial markets have perhaps provided some of the strongest signals that the capital stock might have started growing too fast in recent years and that it might be excessive in some sectors,0,b +indeed in recent years the share of syndicated ci term loans funded by institutional investors is estimated to have exceeded that funded by commercial banks,1,b +in addition i would like to restrict certain types of crossmarketing there should be no bankpremises marketing of obligations of nonbank affiliates and to require full disclosure by nonbank affiliates that they have neither direct nor indirect access to the federal safety net,0,b +regulatory reform mostly passed over these transactions i suspect because sfts appear safe from a microprudential perspective,1,b +of course there are also risks of moving too soon as tightening financial conditions could stifle a fragile recovery and some argue that this is the greater risk,0,b +together such measures would strengthen us 8 banks and allow them to diversify their activities and geographic scope and better serve their customers seeking to transact business overseas,1,b +some of the proponents of this plan have publicly stated that a single regulator would assure more diligent enforcement of the myriad of consumer protection laws governing banking practices,0,b +words rather than of facts it seems to me that this is a matter of it is perfectly true that a restrictive credit policy leads lenders to screen their credits more carefully and results in some rejections of loan applications and that somewhat stiffer terms keep some borrowers out of the market,1,b +in the event of a solvency crisis the market would become unreceptive to fannie andor freddie obligations they would have difficulty rolling over their maturing debt,0,b +interestrate swaps reduce market imperfections that give different borrowers unequal access to various types of money,1,b +but the severity of the events affecting the smooth functioning of financial markets suggests that rates perhaps should be somewhat lower than simple rules might suggest,1,b +the goal would be not only to limit the amount of risk these companies could pose to the financial system overall but also to discourage the combination of size complexity and nature of operations that enabled them to become a systemic threat in the first place,0,b +the first phase of the impact of the covid event on the financial system was the market turmoil we experienced in march,0,b +we need changes in the structure of our financial services delivery system in order to provide greater competitivenessthese are some of the issues which should be dealt withcapital will be a central issue,1,b +i find the modern economic literature on liquidity traps to be particularly compelling for assessing matters today,0,b +partly in response to more liberal intcqjrctations by the federal hcsc nc of what is an cxc mpt lcndc r mcmbc r banks now borrow immediately available funds from all banks savings and loans mutual savings banks and us offices of foreign banks without being subject to reserve requirements or interest rate ccilins,1,b +the risk that the several agencies will base their decisions in merger cases for example on discordant interpretations of statutory standards thus compelling banks to make their plans without the benefit of reliable guidelines by which to judge the worthwhileness of seeking supervisory approval,0,b +so long as the markets for the collateral remain liquid lenders are likely to remain confident that the margin requirements applied to the collateral provide adequate protection against loss,1,b +distributed have the proceedings of which about 20000 copies have been been acclaimed by economists and teachers both here and abroad as a major contribution to economic and financial literature i dont think we have ever undertaken anything that demonstrated so clearly bankings interest and role in furthering economic progress,1,b +market participants are more uncertain than usual about the future and thus they tend to respond more than usual to incoming data,0,b +your inten1al auditor and your 4cpa firm are in a strategic position to do that on a periodic basis by the evaluation of procedures policies and objectives which lead to quality of assetsthese are a few of the challenges to management,1,b +first prolonged delay in tackling systemic banking sector weakness invites further weakness not strengthening,0,b +this is discussed in more detail in appendix csecond allowing two alternative methods of pricing may provide merchants the flexibility they need to offer more of the twotier pricing that congress 1s trying to encourage,1,b +supervisory staff have intensified their scrutiny of risk management practices related to structured finance and offbalancesheet activities and have worked to strengthen institutions capital and liquidity planning,0,b +indeed that is the purpose of public comnentto expose regulations to the critical gaze of the financial institutions and consumers who must live with them,1,b +consequently financial and other analytical skills have become even more important than ever,1,b +following the worst financial crisis of the past 70 years we are currently experiencing a recession that will likely match or surpass those of the 1970s and 1980s in depth and severity,0,b +the tightening of policy led many observers to fear the onset of a severe credit crunch,0,b +shortterm market interest rates have responded to this relaxation and have decjined from their july peaks,1,b +what we have is a situation in which unregulated nondepository institutions are taking deposits to me that aint fair,0,b +but even when we accomplish these reforms more work will remain to reduce systemic risk in the shortterm wholesale funding markets that shadow banking relies on,0,b +and we do not want to stifle financial innovation simply because some problems have arisen in one sector,1,b +we found that dollardenominated lending by euroarea banks fell relative to their eurodenominated lending while this result did not hold for us banks,0,b +these investors generally have the resources and sophistication as well as the incentive to monitor the activities of the hedge funds,1,b +the federal banking agencies are working together to complete an indepth review of practices at the largest mortgage servicing operations,0,b +the imf the world bank and their major shareholders the developed countries may wish to facilitate adjustment through temporary loans to governments and the encouragement of private equity infusions to these banking systems,1,b +i will mention a few of the requirements of the new law which affect most banks,0,b +increasing capital charges and risk weights appeared to have little impact in practice,0,b +i am also considering the risk picture,0,b +by centralizing the responsibility for compliance in one officers hands the rules should improve mutual funds internal controls and give shareholders interests an authoritative voice within the management company,1,b +the pace of improvement has been slow bank failure rates continue to be unacceptably high and clear pockets of real and potential problems remain,0,b +for losses beyond the normal range of expectations capital should be in place to absorb the loss and leave the financial institution stable and able to continue operating effectively,0,b +as the economy and financial markets improve the fed will need to exit from this period of extraordinarily low interest rates and large amounts of liquidity,0,b +technological innovations can provide substantial benefits to payment system efficiency and security in the long run but they often introduce new unanticipated risks,0,b +to date we have seen no evidence indicating that the credit extended to finance mergers and leveraged buyouts has resulted in significant problems for the surviving firms or the financial institutions that have extended credit to them,0,b +several years ago the bank regulatory agencies issued guidance on incentive compensation and then began a horizontal monitoring of practices at large banking organizations4 prior to the crisis incentive compensation arrangements at many firms incorporated virtually no adjustment for risk,0,b +even with an optimally designed financial resilience regime there could be a tradeoff between the average level of economic growth over the longer run and the desired degree of resilience because risktaking and risk management are at the heart of the financial system,1,b +nonetheless the efforts to quantify risk have provided management with a far more disciplined and structured process for evaluating credits pricing risk and deciding which credits to retain,1,b +these institutions are subiect to significant restrictions on the amount and the frequency of their discount window borrowing,0,b +in the first half of the 1970s by depending more and more for funds on increasingly volatile liabilities many banks were caught short whenfor reasons that probably should have been anticipatedsources of funds such as federal funds and certificates of deposit which can be shut off almost overnight were in some instances shut off almost overnight,0,b +responses to our senior loan officer opinion survey in january showed that banks have tightened terms and standards for household and commercial mortgages commercial and industrial loans and consumer loans,0,b +after nearly a decade of steady improvement earnings from core bank operations and other measures of financial strength for the us banking system have taken an inevitable turn,0,b +the emphasis on operational improvements has been welcomed by the vast majority of depository institutions,1,b +other considerations when i weigh the balance of risks around the mediumterm outlook i laid out i have some concerns about the potential for ambiguous or disappointing data,0,b +money market funds offer a high yielding asset that also is highly liquid in that it can be redeemed quickly by a variety of methods without the penalties associated with early withdrawal of time deposits and with only a small risk of declines in the market value of the investment,1,b +clearly bank directors have an influential role to play in setting compensation and they should exercise their authority to establish a more risksensitive compensation framework while embedding it in the broader strategic risk management framework of the institution,0,b +you will note that my questions point to three areas 1 speculative fever generated by current stock market activity peet,0,b +speaking more specifically actions directed toward general economic stability may sometimes affect adversely over the short term the profitability of commercial banking,0,b +new certificates enhance growth of time and savings deposits to help preserve the competitiveness of depository institutionsand thus to avoid the distortion of credit flows that might occur if these intermediaries were unable to accommodate borrowers who do not have access to open market sources of fundsthe federal regulatory agencies created two new deposit categories effective 8june 1 one is an 8year time deposit on which banks may pay up to 7½ per cent and thrift institutions up to 8 per cent,1,b +m the uncertainty in so many sectors of the u s has undoubtedly contributed to the recent fall in us stock markets,0,b +in the weeks that followed several systemically critical financial institutions would either fail or come close to failure activity in some key financial markets would virtually cease and the global economy would enter a deep recession,0,b +it would abolish the existing triple standard and enable the banking industry to operate under a single consistent set of rules as far as federal supervision is concerned,1,b +new players and new instruments have become important since 2002 when the last adverse credit cycle peaked,1,b +18 customers in interstate bankings safety implications may be positive also,1,b +the investor is key to a process that is at least as important to his future as his own return on capital,1,b +although regulation had little to do with the events of october 15 i would agree that it may be one factor driving recent changes in market making,0,b +thus far relatively few banks and thrifts have been involved in the interstate banking movement,0,b +it is our view that the more attention individual banks pay to this matter the less the supervisory agencies will have to become involvedmy final point on deposit rate deregulation relates to the pricing of banking services,1,b +1 many are calling for regulation of derivatives,0,b +the result for institutions that are not afraid to tackle a new product that helps their customers has been increased loan volume reduced risks and increased liquidity,1,b +in periods of demand 5pressures credit controls would have to be pervasive to have any chance of being effective,0,b +until basel iii was completed and doddfrank enacted it was obviously difficult for any firm to make that kind of demonstration since its future capital needs and potential business model changes were obviously unknown,0,b +the definition of whats productive and unproductive as you know is an obscure one but i do suggest that banks in their own interest are 13going through a difficult period in discharging their responsibilities to their own existing customers,0,b +the final significant trend i will highlight is the ongoing consolidation of the us banking industry,1,b +if size is in fact a competitive advantage in the global market the partially completed state of deregulation in this country acts to the detriment of our banks,0,b +the law allows an outofstate bank or bank holding company to acquire a failed bank having assets of over 500 million,1,b +i do want to stress that while an environment of generally lower interest rates would ease the situation considerably it would certainly not solve all problems in financial markets,0,b +data at this level of granularity are often unavailable or extremely difficult to acquire presenting challenges in calculating the magnitude of climaterelated financial risks,0,b +after the bursting of the bubble policymakers did not quickly resolve the fragility of the banking sector thereby allowing conditions to worsen as banks kept lending to inefficient debtridden socalled zombie firms,0,b +doubtless i960 s less vigorous expansion of bank credit can be traced in part to this condition it is in the area of specific bank loans and in the financial positions of specific bank borrowers that the obstacles to bank loan expansion occurred and where the elemental causes may possibly be found to account for the fact that the present pace of economic activity lack3 the hitherto propelling force of a constantly expanding volume of commercial bank loansan investigation of the subject of working capital may give the clue to some existing economic imbalances in the financial positions of important sectors of business life that have originated out of commercial bank credit policies,0,b +the sharpened focus on transparency has been motivated in part by a desire to avoid shortrun misperceptions about policymakers intentions that can distort financial asset prices and ultimately prove detrimental to the real economy,1,b +the resilience of the us banking system has greatly improved since then and the more intensive use and greater sophistication of supervisory stress testing as well as supervisors increased emphasis on the effectiveness of banks own capital planning processes deserve some credit for that improvement,1,b +as to that i can only say that the guidelines for the nonbank institutions were labeled tentative because we in the federal reserve knew less about7 of making this program work by a skillful combination of inspiration discipline and education and they must do all this without permanently dampening the drive and enthusiasm of the rising men of their organizations,1,b +other credit needs have been expanding however and will probably continue to do so if economic activity accelerates as expected,1,b +2 as the fomc noted on september 29th the action was taken to cushion prospective us economic growth from the effects of increasing weakness overseas and less accommodative financial conditions domestically,1,b +since the hope is that system operations will help to improve the market for these issues we must be careful to avoid driving away other investors as might happen if the system acquired a disproportionatel y large share of an issue and depressed its yield relative to other investment alternatives,1,b +we seek to cope with this uncertainty by constructing loan reserves but the adequacy of those reserves is also subject to a forecast,0,b +we should all ask ourselves how long depositors would be content earning the currently low rates as equity markets improve or interest rates rise once again,0,b +moreover in the most recent case involving new hampshire institutions the board indicated that the exceptions made for new hampshire and rhode island were not to be viewed as signaling a departure from the principles set forth in the d h baldwin case,0,b +as i mentioned earlier regulators view capital from the perspective of ensuring safety and soundness in the financial system,0,b +the bank should be paid for the level of risk it is assuming,1,b +the time may come when analytic capacity built into a commodious computer will enable market analysts to identify quantify and date the demands for and supplies of goods and services and flows of funds and to work out the effect of arbitraging time and market alternatives,1,b +one way to mitigate potential risks is through a smallersized balance sheet than many market participants currently envision,0,b +moreover financial markets are skeptical about our ability to do better in todays similar situation judging from the upsurge in interest rates which greeted the recent increase in monetary growth and the expectation of continued massive deficit financing,0,b +for example bank capital rules will specify the amount of capital a bank must hold against certain mortgages,0,b +in order to improve the ability of market prices to accurately reflect risks and returns i believe that we should take action ourselves and encourage action by others in at least three areas,0,b +an economy cannot grow if its major financial institutions remain in weak financial condition for an extended period of time,1,b +the surveys thus provide one indication that markets do expect low inflation to persist,1,b +decibions made by managnt of cme financilll instit1tion can have repercussions on other financial irstitutions and their custryiers as bas been brought borne recently by the thrift crises in ohio and hary1and,0,b +in this arrangement regulators would focus on certain activities without concern as to the corporate charter or industry segment thus allowing financial firms more flexibility to adapt and change,1,b +his bill would allow bank holding companies to engage in financial securities and commercial activity,1,b +just as a healthy financial system promotes growth adverse financial conditions may prevent an economy from reaching its potential,1,b +this approach would argue on the one hand for reducing further the reserve requirements on all nontransactions time and savings deposits at commercial banks even to zero,1,b +increased competition enhances the efficiency of the financial system,1,b +deposit insurance was designed to promote confidence that wealth stored in depositories would be available when desired,1,b +term credit should be discouraged,0,b +the broadening of expertise and participation in supervision conducted by the liscc as overseen by the board represents yet another check to the risk of regulatory capture in the oversight of large firms,0,b +participants in foreign exchange markets have been aware that trading entails significant credit and liquidity risks since 1974 when the failure of a relatively small german financial institution bankhaus id,0,b +however i believe that as we layer on additional requirements it is important to think about the implications of the rules that have already been finalized,0,b +on the other hand caps or other administrative use approaches would fail to deal with moral hazard and fail to provide incentive to accomplish intraday finality,0,b +a second broad area of financial market developments in which banks are increasingly involved is the securitizing of loans,1,b +history suggests that risk premiums fall as the perceived threat of an economic downturn progressively fades,1,b +in fact such an approach might result in the worst of both worldsan ongoing intrusiveness into the consolidated supervision of foreign banks by their homecountry regulators without the ultimate ability to evaluate those banks comprehensively or to direct changes in a parent banks practices necessary to mitigate risks in the united states,0,b +banks became dependent on liquid markets to distribute the loans they had originated,0,b +if there are any tbtf banks left they will be so wellcapitalized that their risk of failure will truly have been minimized,1,b +even stable rates could present increased risks if savings and money market deposit account deposits flow out of banks as quickly as they came in last year,0,b +as a percent of assets last years earnings of the 50 largest banking organizations were near their postworld warii highs and have remained strong through the middle of this year,1,b +over the past two years the federal reserve has acted forcefully on multiple fronts by instituting accommodative monetary policy expanding existing liquidity programs for depository institutions and establishing new liquidity facilities to support market functioning,1,b +in the fall of 1998 for example in the wake of the default by russia and with financial markets still rattled by the asian crisis a year earlier a large hedge fund nearly failed and several other financial institutions took large losses,0,b +high capital requirements are designed to reduce the amount of debt issued by a financial institution,0,b +for the most part community banks have so far been spared from the weakness in commercial and industrial loan portfolios that has affected many larger institutions,1,b +even the largest banks in the country with huge le8al staffs are pressed to keep up with all the pertinent details of regulation z,0,b +allowing a financial firm to fail without government support for creditors does not mean that the operations and activities of the failing firm will simply come to an abrupt halt,0,b +concluding remarks with its emphasis on nondiscrim ination the foreign bank act should be judged primarily as a measure to improve the functioning of the inter national banking system and to remove certain competitive inequalities w ithin the united states,1,b +liquidity is better in several other markets as well,1,b +financial institutions also have been under considerable strain,0,b +in any event with the demand for credit expanding much more rapidly than supply credit markets have tightened and interest rates have risen to levels such as we have not previously known in over a century of our nations recorded experience,0,b +for the past decade robust stress testing has been at the core of our strategy for ensuring that our largest banks have sufficient capital to meet the credit needs of their customers while weathering an extreme downturn,0,b +although defaults and other indicators of borrower distress still remain low and banksâ exposures are so far quite manageable supervisors are mindful that high levels of leverage can lead to credit problems relatively quickly for both borrowers and lenders when conditions turn,0,b +the issue of credit discrimination and use of hmda data will be a focus during this sessionthe federal reserve is committed to working within the ffiec to develop ways to enhance enforcement effectiveness under the fair lending laws,0,b +in the united states monetary stringency has had uneven sectoral impacts on large creditusing industries and the financial institutions serving them,0,b +requiring an independent review of certain banking operations is not a new enforcement tool,0,b +a good starting point will be the idea of using longterm unsecured debt with appropriately tailored characteristics as a goneconcern complement to goingconcern common equity requirements,0,b +i do agree that market corrections can have profoundly adverse consequences if they lead to deflation as illustrated by the united states after the 1929 stock market crash and the more recent experience of japan,0,b +the concerted and simultaneous policy response to inflation has of course had important implications for the international banking and financial system particularly through its impact on major borrowers,0,b +another clear lesson from the asian crisis is that widespread insolvencies in the nonfinancial sector can be even more difficult to remedy than banking sector problems,0,b +it increases the propensity of financial institutions to take risks and thus makes the safety and soundness problem still worse,0,b +i am not saying that every bank should offer every investment vehicle but wise bankers will figure out who their core customers are and what financial services those customers need and desire,1,b +third reduce regulatory burden and duplication by having one and only one banking agency responsible for performing a comprehensive examination of each banking organization that is a holding company parent as well as all its bank and nonbank subsidiaries,1,b +in the united states for example more rigorous prudential standards will be applied to systemically important financial institutions to ensure that these firms internalize the costs of the risks they pose to the financial system and the economy,0,b +6if the activities of edge corporations and banks were to be extended to permit the buying and selling of goods for export directlyor if a bank holding company were permitted to own more than 5 percent of the shares of an export trading companythe board believes that special standards for participation in such activity would be needed,0,b +section 2h was modified to meet these concerns and it now provides that a foreign bank holding company may own shares in any foreign company principally engaged in business outside the united states which owns shares in a us company so long as the latter is in the same general line of business,1,b +id like now to say a few vords about the longer run concerns i see inherent in financial innovation and its interaction with regulation,0,b +such misallocations can be extremely costly with regard to capital investments that have long payout periods and credit markets that finance capital formation,0,b +in reviewing the episode the brady commission noted that although the clearinghouse system avoided defaults investor uncertainties about the viability of the clearinghouses as well as about the ability of major brokerdealers to meet their obligations intensified market fluctuations and panic12 in response the public and private sectors worked together to address the weaknesses that had been revealedfor example by clarifying the obligations that clearinghouses clearing members and settlement banks must assume and by bolstering the liquidity and security of the financial resources of clearinghouses13 in 2008 clearinghouses and their members were again tested by significant financial shocks both in the united states and abroad,0,b +before addressing the principal topic of this hearing i would like to draw attention to a problem that has arisen regarding the recently enacted right to financial privgcy act which is title xi of the financial institutions regulatory and interest rate control act of 1978 section 1104d of that law requirer all inslitutiola subject to the act to notify promptly all customers of their rights under the law and directs the board to prepare a modcl statemcnt of customer rights,0,b +however there are some signs of relief for bank liquidity,1,b +it is reassuring that those banks that experienced the most difficulty with their initial mailings of credit cards have subsequently taken steps to tighten their procedures,1,b +though some see this lack as evidence of weakness in the law one should remember that many major bank and securities firm mergers predated glb,1,b +while supervisory assessments would continue to center on a firms capital plan submissions examination work would continue on a yearround basis taking into account the firms management of other financial risks and culminating in a rating of the firms capital position and planning,0,b +as many of you will recall during the financial crisis the makeshift arrangements crafted by governments in an effort to avoid large negative effects on financial markets were usually completed over a weekend,1,b +for example some observers believe that credit risks will be managed more effectively by banks because they generally are more heavily regulated than the entities to which they are transferring credit risk,1,b +in explanations of our actions during the crisis we have focused on the effects of our purchases on the prices of the assets that we bought and on the spillover to the prices of related assets as i have just done,1,b +so it follows that a resolution regime whereby regulators can economically resolve failed big banks might be the ticket,1,b +much of the blame ignoring the effects upon banks of the long agricultural depression of the 1920s and the worldwide economic collapse that began in 1929 was placed on two banking factors overchartering of banks that led to excessive competition for deposits and profits and banks searching for profits in the alien regions of the stock market,0,b +finally delay is likely to increase the risk of overstaying our welcome at the zero bound thus fostering unintended consequences for financial stability,0,b +by the same token it requires a large change in the flow of funds through our markets to affect significantly the flow to foreign borrowers if we attempt to cope with the problem through general monetary restriction alone,0,b +as it turned out there was at that time a large number of potential borrowers ready to enter the credit market when credit eased,1,b +that our banks are overregulated to the point of being smothered,1,b +indeed recent volatility in markets is in part related to concerns about the possibility of a reduction in asset purchases,0,b +us banks actually only some of the largest banks have received over 5 billion in petrodollars to date but they may be increasingly reluctant to accept more of these poten tially volatile funds in view of the additional pressure thereby exerted on their liquidity positions and capital needs,0,b +we understand that a number of crossborder issues relating to basel ii implementation pose challenges and that it may take some time to resolve them,0,b +in some cases providing a broader array of financial services became a competitive necessity given the changes in the capital markets and the inroads made by nonbank financial institutions in the 1990s,1,b +this is especially important because as the lender of last resort the central bank can often force an institutions closure by refusing creditand finally notwithstanding several seemingly strong policy pronouncements of mine this afternoon i do not believe that our understanding of the economics of intraday credit is at this point sufficient to provide quantitative guidance on the optimal pricing of daylight credit even apart from moral hazard considerations,0,b +the intent is to enable directors to spend less board time on routine matters and more on core board responsibilities overseeing management as they devise a clear and coherent direction for the firm holding management accountable for the execution of that strategy and ensuring the independence and stature of the risk management and internal audit functions,0,b +the board strongly supports authorization of some new products and services for bank holding companies but believes that they should be granted in a direct fashion and not through trade legislation especially where there would be no benefit to us exports generally,1,b +after all a loss in confidence can be completely rational illiquidity forces issuers to sell assets into distressed markets,0,b +states have reserved to theiiselves the right to determine generally the competitive structure of banking within their borders,0,b +the emphasis on risk management is most critical at our largest most sophisticated and most internationally active banks,0,b +that information was going to be revealed in any case and in fact one would actually want it absorbed quickly in the prices of other financial assets for the financial system to function effectively,0,b +fortunately in the bankers spectrum of allegiances to profits soundness and liquidity there are a preponderant number who still give highest priority to soundness and liquidity 7these possibilities lead me to the judgment that as banking becomes more complex more specialized and more competitive and as given banking enterprises encompass more and larger markets they must become more responsive to a changing monetary environment,1,b +buyers of the commercial paper issued by the abcp vehicles withdrew funding starting in the late summer of 2007 the volume of assets in the vehicles was large about 700 billion and after the run the ability of the financial system to fund credit through many types of assetbacked securities became constrained3 the runs on abcp also put considerable pressure on the banking system because of the liquidity backstops that banks had provided to the vehicles4 some of the guarantors also insured mortgagebacked securities and when doubts arose about the ability of the guarantors to pay claims on mortgagebacked securities the credibility of their guarantees of municipal securities was also reduced,0,b +but again if past experience is any guide the growth and dispersion of the population will give rise to a sharp growth in the number of banking offices,1,b +money market deposit accounts increased their cost of funds but large banks substituted mmodas for purchased money and lowered their cost of funds,1,b +however if the system should again permit the interest rate ceilings to again effectively restrain banks from attracting cds and other time deposits it is quite likely that commercial banks will develop commercial paper eurodollar or other nondeposit sources of funds,1,b +the existence of multiple avenues of financial intermediation has served the united states well in recent decades especially during the credit crunch of the late 1980s and more recently when our capital markets froze up in 1998 following the russian default,1,b +how do these disparities square with strongly expressed concerns by regulators over banking concentrationthere is no clearly visible evidence of differences in banking accommodation among states with widely different concentration levels other than the convenience effect of a larger number of offices relative to population in the branching states,1,b +such rules reduce the incentive for lenders to monitor counterparty risk and thus effectively lower the relative cost of using shortterm funding to finance an intermediarys or investment firms balance sheet,0,b +the group was created in response to growing interest in the international regulatory and central banking community in how market discipline can play an important role in maintaining financial market stability,1,b +the amendments were intended to improve the quality consistency and utility of the reported data and to keep the regulation in step with recent developments in homeloan markets particularly growth in the subprime portion of the market,1,b +clearly the speed with which a bank thus can be endangered requires equally prompt flexible and effective means of coping therewith,0,b +we live in what is mostly a stable economic system in which market imbalances give rise to continuous and inevitable moves toward equilibrium resolutions,1,b +i explained to her that the contraction of bank deposits operated just like the expansion and that with banks liquidating assets as in the f30s the money supply bank deposits contracted,0,b +in fact their growth has been much larger than anticipated principally due to increased danands on the federal heme loan banks,1,b +historically the only occasions on which that balance has been altered were during wartime and i do not believe that the condition of the banking industry presents us with a crisis of that magnitude,1,b +the current inflation got under way in 1964 perhaps the best single barometer of the extent to which it served to distort economic decisions and undermine the stability of the economy is found in the behavior of financial markets during the late 19601 s in 196 8 well over 3 billion shares of stock exchanged hands on the new york stock exchangeabout two and onehalf times the volume of five years earlier,0,b +our approach has been the systemwide coordination of bank supervision to achieve efficiency in staff deployment yet still gain the benefits of specialized knowledge,1,b +they also suggested as do the new guidelines for 1966 that absolute priority be given to bona fide export credits and highest priority among other credits to loans to less developed countries that credits not be reduced to britain which is suffering from payments difficulties of its own or canada and japan which are highly dependent for their economic growth on the inflow of u s capital and credit and that any needed reduction in credits in order to meet the target be confined to other developed countries especially those enjoying a payments surplus such as the countries of continental western europefor financial institutions other than banks eg insurance companies mutual funds finance companies pension funds foundations and the like the guidelines suggested a reduction of liquid funds invested in foreign money markets to the 1963 level,1,b +adverse selection arises when investments that are most likely to produce an undesirable adverse outcome are the most likely to be financed selected,0,b +with many securities markets not functioning well with the funding of investment banks threatened and with commercial banks unable and unwilling to fill the gap the federal reserve exercised emergency powers to extend the liquidity safety net of the discount window to the primary dealers3 our goal was to forestall substantial damage to the financial markets and the economy,1,b +in particular the various proposals intended either to strengthen the role of bank supervisors or to induce greater depositor discipline of banking risk have broad but often overlooked implications 9 for the operation of our banking system,1,b +since the return on bank assets is relatively flexible the issuer can offer such obligations without excessive risk,1,b +for the investor prudence took on another dimension with the presumed ability to mathematize judgment and hedge away the risk of default,0,b +by any measure us banks appear very competitive relative to their international peers,1,b +we are not convinced that a compelling case has been made at this time for legislative action that does not thoroughly address the basic framework that governs the securities activities of banks,0,b +a foremost premise of the st louis staff is that free competitive markets are the most efficient allocators of scarce resources,1,b +and when that choice is available market mechanisms work relentlessly in most instances to deliver the right services to customers,1,b +to me sinking or orbiting the markets will ordinarily be undesirable,1,b +among those financial events of recent years that have given cause for concern the failure of the franklin national b3nk loor1s large,0,b +should they be contained in a subsidiary of a bank holding company where fire walls might keep problems from consuming the entire edifice,0,b +such a requirement could also moderate lender adjustments in minimum down payment requirements over the credit cycle minimum requirements would fall less in boom times implying lower future loan losses than otherwise and so would increase less in reaction during busts,0,b +however the 1980s illuminated the weaknesses of a heavily regulated system in a rapidly changing and more competitive economic environment,1,b +this fragility stems in part from their capital structuresthe fact that they issue stablevalue demandable liabilities with no capital buffer or other explicit lossabsorption capacitywhich make them highly vulnerable to runs by their depositors,0,b +while it is true that as the yield curve flattens noninterest income could help offset declines in net interest income in practice a bank cannot simply rely on noninterest income to stabilize its profits and insulate itself from interest rate risk,0,b +another troublesome issue has arisen because of the inequities inherent in a program which rests so heavily on the 12relative position of individual banks in international finance as of december 31 1964 the base date for most banks under the vfcr,0,b +as a result banks may allocate their resources so as to endanger their own longterm profitability and also to reduce far below optimum the use of their comnunities human and economic resources,0,b +the board has on those occasions stated its opposition to those bills which were very similar to the current interest rate bills s 242 and s 647 in doing so the board has endorsed the principle that as with other types of credit consumer loans are most fairly and efficiently allocated where there are no regulatory constraints on interest rates,1,b +second as i noted earlier emerging market economies have a strong interest in a continued economic recovery in the advanced economies which accommodative monetary policies in the advanced economies are intended to promote,1,b +in 1966 many people objected to rapidly rising interest rates and a lessened rate of credit growth in the united states because of the immobilizing effect on their ability to sell existing assets or to secure the funds to create more assetsin short they objected to the impact of monetary action per se,0,b +to illustrate in the second quarter of 1980 the demand for transactions balances appears to have shifted down by perhaps 3 to 312 percentage points based on the money demand function in the boards quarterly econometric model,0,b +id like to say at the outset that i would not like to see bank expansion laws changed in any way that would lead to the elimination or significant weakening of the competitive position of the nations smaller banks,0,b +fdic insurance offers explicit protection to depositors and is largely responsible for the absence of runs on banks an event that otherwise might not be unheard of in these financially troubled times,1,b +finally and crucially it is a robust strategy in thatalthough it certainly does not eliminate all economic and financial instabilityit protects the economy against truly disastrous outcomes which history has shown are possible when monetary policy goes severely off the track5 the opposing view preemptive strikes against bubbles as i noted at the beginning however the framework just articulated is not universally accepted particularly the aspect that precludes attempts to guide the course of asset prices,1,b +this would also come at a time when the fed is paying higher interest to banks on their reserve balances at the fed,1,b +many banks are clamoring for powers to underwrite and sell insurance securities and real estate,0,b +ill start by discussing the recent market turmoil,0,b +at the same time some observers have expressed concerns that this wave of innovation also has resulted in concentrations of risk that add to financial market fragility,0,b +for example the us agencies continue to propose that we implement only the advanced approaches of basel ii namely the advanced internalratingsbased approach airb for credit risk and the advanced measurement approaches ama for operational risk,1,b +uncertainty about future inflation will raise real interest rates drive investors away from longterm markets and delay the very investments to end the recession,0,b +as i noted banks in many countries have not been required to file consolidated balance sheets that incorporate their outofcountry operations,0,b +the board recommends that the statements include the transaction date amount location means of transfer type of transaction other parties to the transaction and transaction number,0,b +credit insurance evidently is widely practiced in the united states,1,b +along the same lines i hear enough feedback about troubled debt restructurings tdrs to lead me to believe that it could be helpful to issue guidance clarifying the regulatory and accounting treatment of tdrs nonperforming assets and classified loans,0,b +it is important that we at the federal reserve continue to work closely with other agencies on supervisory matters particularly in cases in which a common regulatory approach across agencies and across banking organizations with different charters has the potential to reduce compliance costs and risks,0,b +in contrast banks hold a more diversified mix of liabilities and assets many of which are less sensitive to unexpected changes in interest rates suggesting that banks as a general matter are less prone to interest rate risk,1,b +it is also possible that such a prohibition could lead other countries to retaliate and erect similar prohibitions on the foreign operations of us banks such retaliation could in turn have a severe impact on the funding of such foreign operationswhile the board agrees that branches and agencies should be subject to the full panoply of regulations imposed for purposes of monetary policy the board also believes that these entities should be given the same rights as any other member bank,0,b +it will be difficult to determine the extent to which the taf contributed to this easing of rates in the term funding market since the counterfactual will never be observed,1,b +jumpstarting securitization markets is vitally important,1,b +rather such analysis must look beyond technical compliance to determine whether the accounting treatment actually reflects the economic substance of the transaction,0,b +we cut to zero the base rate that anchors the yield curve and have pursued a policy aimed at driving rates throughout the curve to historic lows by buying treasuries and mortgagebacked securities mbs,1,b +all three of the us banking agencies now take a more riskfocused approach to bank supervision,0,b +another issue related to the efficient operation of market forces is that government intervention in the credit and investment decisions of banks distorts market discipline and pricing,1,b +it is thus more difficult for these smaller institutions to return to their historical norms or even compete in traditional lending with the big guys whose lending activities in a sense are subsidized by their trading activities,0,b +the exchange works closely with organizations which provide a selfregulatory framework for other parts of the securities industry and with the clearing corporations that clear and settle transactions among brokers,1,b +but european banks many seen as too big to fail by their home countries also took on significant exposures to us housing debt,0,b +derivatives are a means of shifting risk,1,b +our perspective has been to encourage market participants especially those who hold themselves out as intermediaries to consider carefully the overall implications including for market liquidity of reductions in trading volume so that risks and benefits of such initiatives are appropriately balanced,0,b +this approach has proven advantageous to banks and holding companies of all sizes and locations in providing a range of banking activities in structures that promote competition,1,b +but i want to emphasize that today even before basel ii is adopted we expect banking organizations involved in complex financial instruments already to possess an understanding of advanced risk concepts and to have implemented effective riskmanagement practices,1,b +external auditors help significantly in ensuring that financial statements are reliable and useful to the marketplace,1,b +to be quite clear the federal reserve believes that strong capital is fundamentally important to the health of our banking system,0,b +that is the dismantling o f all the protectionist barriers that cripple the functioning o f free and open markets,1,b +in the view of the majority if the board this approach would provide adequate preservation of state authority to regulate lending practices,0,b +if we find problems with the risk management process that will be a sign that we need to exercise greater oversight of that institution,0,b +most importantly there should be a clear expectation that the shareholders and creditors of the failing firm will bear losses to the fullest extent consistent with preserving financial stability,1,b +but it is not clear that the customer gainsin washington there exists a builtin momentum of regulatory activity that is a cause for deep concern,1,b +the result will be a more refined proactive and effective approach to regulating and supervising our nations financial firms,0,b +the consequence is that the most elementary fairness demands that a bank stick to the business of banking as the latter twentieth century understands it with such facilities and powers as are necessary to provide banking services to the public efficiently and economically and not foray from a protected sanctuary to compete either directly or via an affiliate with enterprises which operate in a freeentry environment and which must use banking serviceshowever the issue of fairness does not stop here,0,b +but the inadequacy of regulation and supervision was clearly among them,0,b +although shortterm funding markets remain strained they have improved somewhat since march reflecting the availability of several fed lending facilities as well as the ongoing efforts of financial firms to repair their balance sheets and increase their liquidity,0,b +hyststrtsr those of you who remember bank runs know well the kind of attitude that developps when yuget unespy about yr money,0,b +in particular we will look carefully at differences in the implementation of basel ii that may adversely affect the international competitiveness of us banks,1,b +the united states has long held that commerce and banking should be separate that commercial enterprises should not own and operate banks and banks should not substantially own or manage commercial entities,0,b +over time both legislation and watchful regulation of the banktng industry have served to buttress the publics confidence in the safety and soundness of our banking system,0,b +thus it was very destructive when in the early part of this decade dubious underwriting practices and mortgage products inappropriate for mass consumption became more common,0,b +going forward the servicing industry must foster an operational environment that reflects safe and sound banking principles and compliance with applicable state and federal law,0,b +accordingly prudential policies need to be customized for each institution the more complex an institutions business activities the more sophisticated must be our approach to prudential oversight,0,b +at times this has required working to preserve the stability of systemically critical financial institutions so as to avoid further costly disruptions to both the financial system and the broader economy during this extraordinary period,1,b +judging from turnover rates in financial centers which have been running as high as 130 times per year in new york city it must be a declining factor in well managed corporate accountsbut an electronic settlement system would make possible still further economization of such balances as well as considerably lower holdings for individuals governments nonprofit groups and noncorporate businesses,1,b +for example in april and june of this year sizable payment flows led to relatively muted movements in secured lending rates and small movements in unsecured rates,1,b +the situation can be greatly complicated and made far more resistant to correction if commitments during the preceding boom have become overly enthusiastic and have been supported by excessive credit,0,b +my third and final point is this banks for reasons of enlightened selfinterests should be active in promoting exports,1,b +mortgage risks were split up and spread widely both within the united states and abroad through securitization and use of the insurance capabilities provided by credit derivative contracts,0,b +in the financial markets we are in the midst of a massive restructuring of credit flows and adjustment of risk premiums,1,b +however it seems sensible that a large amount of the vetting contracting and onboarding process could be streamlined for banks by collaboration or specialized thirdparty services,1,b +they could not be sold except at deep discounts which would result in heavy losses to the bank holding the loan,0,b +moreover to put into effect the macroprudential or systemic approach to regulation and oversight encouraged by the doddfrank act regulators will have to work to gain greater insight into the complex linkages among clearinghouses as well as those between clearinghouses and the financial firms that rely on and support them,0,b +also according to the federal deposit insurance corporation only 121 banks out of 15000 banks in this country were regarded as having serious problems on january 1 1976 despite the recent newspaper stories about large problem banks or problem bank holding companies the fdic emphasized that no bank with 1 billion or more in deposits was in their serious problem category,1,b +when investors employ advisers the mandates and incentives given to these advisers should be structured so as to induce a more careful and nuanced evaluation of the risks and returns of alternative products,0,b +in addition the dynamics of the marketplace have induced banks to seek new lending opportunities,1,b +by helping to promote price stability and avoid recession it contributes to a framework within which the market can operate with greater confidence,1,b +coordination with the regulators confidentiality and the subject of sanctions will also need to be debatedi think that the necessity of better more effective supervision in todays highrisk highexposure financial world demands serious consideration of ways to draw on industry knowledge in measuring the quality of assets in commercial banking and in the thrift industry,0,b +it would obviously be out of the question to ask those banks to default on their commitments,1,b +explicit regulatory statements to that effect would be constructive as would much greater public visibility into the details of the plans so investors can judge credibility for themselves and assess how their claims would be treated,0,b +in other words monetary policy should be prepared to clean up ex post rather than try to prevent ex ante a runup in asset prices3  however given the enormous costs of the recent financial crisis as well as new research suggesting an increase in the frequency and amplitude of asset price cycles4 many commentators are reassessing the proper role of the central bank in monitoring and trying to deflate rising asset prices,0,b +it may become necessary to adjust the structure of ceiling rates if financial markets continue to tighten in order to make it possibleinflows of consumer savings to banks and other depositarytype institutions compared with the very high rates of increase eperienced last spring and sumner,0,b +consolidation of the federal b ank regulatory agencies is page 3 included in the latest treasury proposal there would be two rather then three federal bank regulators the wylie bill which also proposes two agencies along the lines of the 1984 bush task group recommendations and the gonzalez bill in which one regulator is proposed,1,b +while reinsurance contracts and agreements among investors can shift risks across the global financial system as i noted earlier some level of risk is likely to remain13 a lack of transparency across participants in the financial sector could cause climaterelated risks to build up in hidden pockets embedding vulnerabilities that could result in cascading losses in the event of largescale adverse weather outcomes or other shocks to asset valuations,0,b +this socalled regulatory arbitrage may not be all bad,1,b +this package should enhance and strengthen the regulatory structure developed in recent years,0,b +looking back at the mid2000s although it was not recognized at the time risks to financial stability within the united states escalated to a dangerous level in the mid2000s,0,b +accordingly ccps require a liquidity profile that will allow them to absorb rather than amplify the liquidity shocks that are likely to materialize during a period of financial stress following a members default,0,b +for these banks the average cash assets ratio declined from 14 per cent the year prior to withdrawal to 8 per cent the year following withdrawal,0,b +the disadvantage is that potential losses associated with the unlikely risks can be very large,0,b +portfolio balance considerations suggest that at some point or other future increases in such holdings will be resisted by investors unless real interest rates in the us rise further relative to those abroad1515looking to the future let me turn now to what th,0,b +this opportunity of course carries with it a real challenge to the banking legal fraternity which challenge many of you have undoubtedly already foundif,0,b +these forms of savings are rather close substitutes for shortterm market securities on which yields are highly variable,0,b +it has gathered momentum as competition from outside the country the emerging global marketplacefurther tests in banks ability to adapt and succeed,0,b +these balance sheet pressures have come at a time when asset writedowns were already weighing on capital,0,b +indeed it has been the evident value of intermediation and leverage that has shaped the development of our financial systems from the earliest timescertainly since renaissance goldsmiths discovered that lending out deposited gold was feasible and profitable,1,b +during the last two years we have been on the sharp upward phase of the cattle cycle and bank loans in iowa and minnesota for example have lis en subs tant iall y between the years of sharp expansion though outstanding loans increased at a much slower rate more in line with the gradual increase in capital equipment and in the use of purchased inputs,1,b +reflecting this expansion plus the rise in lending by existing credit card banks over fourfifths of the increase in total outstandings in 1969 occurred at credit aard banks,1,b +higher credit spreads and lower equity prices coupled with continued uncertainty could put firms and households in a waitandsee mode reducing economic activity for a time,0,b +innovative new opportunities for risktaking will always emerge as financial markets and economies evolve and it is asking too much to expect frontline supervisors to forever substitute for wellaligned incentives,1,b +although financial markets around the world have come under pressure in the past few months i will focus my comments primarily on the united states,0,b +in either situation private processors might have found it too costly or risky to serve these banks,0,b +and while the banking industrys declining share of credit markets can only be seen as a good thing for the nations economic health it obviously does not portend any improvement in loan pricing,0,b +to temper that a bit there is always the risk of a shock or reversal in the financial sector or elsewhere that could again alter the outlook to the downside,0,b +but in terms of differentiating regulatory aims doddfrank really identifies only one additional objectivethat of preventing or mitigating risks to us financial stability,0,b +but this approach failed to satisfy a suspi cious investment community and soon even big macs securities came under a cloud,0,b +this action was taken to stabilize housing and mortgage finance markets,1,b +the seeds of these difficulties were sown in the early 1970s when the banking system and the economy were growing at unsustainable rates,0,b +we also monitor various systemic risk measures for the largest banking firms,0,b +large account holdersincluding business corporations and otherslong ago began utilizing a variety of instruments and techniques enabling them to minimize the impact of the inability to earn interest on demand deposit balances,1,b +as part of this important international effort we should seek to align market participants incentives with our own objectives otherwise behavior will not be altered appropriately and the proposed remedies will not prove durable,0,b +in some markets the number of large trades has declined in frequency which could signal reduced market depth and liquidity but could also reflect a shift in market participants preferences toward smaller trade sizes,0,b +financial market healing if stabilization is to lead to sustained recovery the health of financial markets is crucial,1,b +this feature has led some to predict that dlt will in the long run render parts of the banking and payments system obsolete as the intermediation of funds through the banking system will become unnecessary,0,b +indeed atms now offer more services and more locations and they have started to make a positive return on investment,1,b +foreign branches of us banks have taken over a substantial part of the foreign lending formerly done by the head offices the funds from which these loans are made are acquired mainly in the eurodollar market,1,b +unparalleled cooperation in the financial markets supported both assistance to those in need and resumption of daytoday operations,1,b +in any event reducing or more evenly redistributing the risk within the banking systemwhere such credit risk has been traditionally concentratedwould seem to be a clear benefit,0,b +nevertheless bank holding company purchases constitute an infusion of funds into the equity markets and in that sense influence the level of equity prices throughout the economy,1,b +these shareholders have a substantial financial incentive to monitor the bankâs activities and to insist on changes if they are dissatisfied,1,b +to ease financial conditions further even after our policy interest rates had approached zero we needed to operate directly on longerterm segments of the financial markets,1,b +my colleague bill mcdonough president of the new york fed and chairman of the basel committee tells me that the rma has been helpful during the process and instrumental in convincing the committee to recognize and adopt what the banks are already doing in risk measurement,1,b +the united states has long held that commerce and banking should be separate that commercial enterprises should not own and operate banks and banks should not substantially own or manage conunercial entities,0,b +think all agree that monetary actions became unduly restrictive the financial system continued to operate moderately well,0,b +they are in direct and vigorous competition with commercial banks for the savings dollar,0,b +monday sept 22 goldman sachs and morgan stanleythe last two independent investment banks on wall streetwere approved to convert their status to bank holding companies,1,b +in addition failure rates and loss rates differed significantly across states suggesting that whatever instability was experienced was not inherent in free banking per se,1,b +however the increasing difficulties and increasing costs involved in handling a fastgrowing volume of checks should hasten public acceptance of an alternative system,0,b +at federal reserve hearings into bank holding company matters aba has responded predictably and narrowly according to the interests of its constituents,0,b +in the future as more foreign corporations open usbased operationsamerican banks will no doubt have further reason for diversified foreign activities since they will want9 behind the movement of banks and bank holding companies into bankrelated financial areas has been the impelling force of the intrusion of nonbanking firms into traditional banking areas,1,b +at the same time banks were and still are well capitalized and problem assets are at historically low levels in relation to total assets,1,b +a feeling of confusion and discomfort with the existing financial world has expressed itself in many ways,0,b +it remains to be seen for example whether the trend toward consolidation and layoffs in banking communication transportation and other professional and business services has 7 bottomed out,0,b +our goal is to maintain a regulatory framework that helps to ensure a strong and stable banking system in an efficient manner that does not result in excessively burdensome costs to the banking industry or the economy as a whole,1,b +the moral hazard issue leads us to a third example of how the liability side of the balance sheet of a financial intermediary reveals the need for capital regulationthe toobigtofail tbtf problem,0,b +the guidance also permits sales for unexpected and significant changes in liquidity needs or increases in interest rates,0,b +new activities demand specialized management the farther you move from classically commercial banking the more complicated the supervisory process becomes,1,b +it has been well understood nce the failure of the herstatt bank in 1974 that the settlement of foreign exchange contracts poses special problems of timing and control for the international banking system,0,b +moreover an analysis of foreclosure rates in that study found that loans originated by cracovered lenders were significantly less likely to be in foreclosure than those originated by independent mortgage companies5 clearly claims that cra caused the subprime crisis are not supported by the facts,0,b +those spillovers are usually ascribed to the interconnectedness that is said to be more prevalent among financial firms,0,b +good economic conditions encouraged a relaxation of lending standards beyond prudent limits and that produced bank asset quality problems when the economy subsequently slowed,0,b +on september 22 2015 the sec proposed rules to enhance liquidity risk management by mutual funds and etfs us securities and exchange commission 2015bthe proposal would require each of these funds to adopt a liquidity riskmanagement program categorize the liquidity of every portfolio asset set its own minimum share of threeday liquid assets and disclose information about portfolio liquidity and the use of lines of credit and interfund lending,0,b +efforts to keep an exchange rate from rising by buying foreign currency whether by obligation under fixed rates or by choice under floating tend to expand bank reserves and the money supply,1,b +disclosures provide information that is critical to the effective functioning of markets,1,b +thus taf loans did not carry the same stigma as primary credit,0,b +in this sense the financial crisis and recession have simply exacerbated the underlying problems and perhaps moved up the day of reckoning,0,b +the result was a financial services industry dominated by one set of very large financial holding companies centered on a large commercial bank and another set of very large financial institutions not subject to prudential regulation,0,b +importantly a welldesigned supervisory regime complements rather than supplants market discipline,1,b +i see no compelling reason for us to be in a hurry to tighten financial conditions before that time,1,b +the amounts needed for each market can be reached through a continuation of recent trends,1,b +after a near decade of unprecedented prosperity the banking industry has come to recognize not for the first time the embedded costs of lax credit standards and the overly optimistic assumptions about borrower prospects that seem the inevitable consequence of everlower perceived risk premiums,0,b +my remarks will touch on the latest developments with the basel ii capital revisions including the us implementation process and progress on homehost issues,0,b +no doubt their internalization of the costs of potential liquidity shocks will be costly to their shareholders and a portion of the costs likely will be passed on to other borrowers and lenders,0,b +and the behavior of various types of customers and instruments may be difficult to predict as the economy and financial markets emerge from this highly unusual period,0,b +we are also carefully considering several variants of proposals for quantifying a riskrelated capital measure to supplement the present approach,0,b +foreign credit into the domestic securities markets to the more limited objective of preserving the integrity of the boards margin regulations by preventing evasions on the part of us persons resulting from the use of foreign credit sourcesthis more limited objective was finally achieved when in 1971 regulation x was promulgated by the board with the stated purpose of preventing the infusion of unregulated credit into us securities markets,1,b +the stock market had been very volatile on april 4the dow jones industrials fell over 500 points early in the day and then recovered to finish the day down only 57 on april 5 the dow fell another 131 points but greenspan gave a speech that left markets believing the fed would lift the federal funds target in may,0,b +no twentieth century industrial economy can function well without strong banks,1,b +that overall exposure he will choose in the light of the optimum combination of risk and return which as portfolio theory teaches us he is seeking to establish,1,b +in more than half of these episodes a developing countrys entire banking system became insolvent,0,b +once the greater use of nondeposit sources of funds is taken into account it appears that bank liquidity conditions remained essentially unchanged over this threeyear period,0,b +indeed as the oversight of regulated institutions is strengthened opportunities for arbitrage in the shadow banking system may increase,0,b +as a result one might expect more credit or more favorable terms to be available in the long run,1,b +i would also suggest that there are plenty of profitable markets that could use some new competitors everyone doesnt have to go to all of the same placesto conclude my remarks this morning i would stress my desire for a fair orderly and safe transition to nationwide interstate banking,1,b +if market conditions are changing rapidly current information may need to be more uptodate than is usually the case,0,b +as we move forward we must continue to do all that can be done to ensure that our economy is never again devastated by a financial collapse,1,b +as long as strong credit demands persist and inflationary expectations remain intense restrained monetary growth may be accompanied by high interest rates and financialmarket strains,0,b +another area o f concern is the move o f some thrift institutions into real estate development,0,b +we must judge the extent to which each of these three liquidity drivers are structural or cyclical more persistent or more temporary,0,b +these issues arise because the consumer account used for eft transactions will generally be the same account used for paper check transactions and the account statement will cover both,0,b +nevertheless we at the board recognize the need to avoid using our nations scarce banking resources for unprocuctive purposes,0,b +4will be brought to bear to reduce regulation regulat then become a competitive tool and the public receive insufficient one way to promote evenhanded and coordinated regulation of competing markets would be to place them under the same regulator,1,b +specifically i think it is urgent for congress to 5 dismantle the socalled glasssteagall restrictions that prevent banks from providing the types of services now offered by brokerage houses and investment banks and to move directly to nationwide interstate banking,1,b +our message is a simple one institutions should strive to meet the needs of creditworthy borrowers and the supervisory agencies should do all they can to help not hinder those efforts,0,b +every serious student of the stock market knows that the track record of presumed expert stock pickers is not consistently better than pure random stock selection,1,b +not surprisingly the review identified the major challenges facing these banks to be poor asset quality and corporate governance issues such as policies planning management audits controls and systems,0,b +the message of the paper is that restraint on credit supplies is likely to persist because intermediaries have some way to go to rebuild their balance sheets,0,b +for example if the loss to the financial system from the failure of a sifi would be five times that resulting from failure of the nonsystemic firm then the sifi would have to hold additional capital sufficient to make the expected probability of failure onefifth that of the nonsifi,0,b +upgrading international banking statistics to provide more detailed data on international exposures would enhance the ability of both supervisors and market participants to assess the vulnerability of domestic banking systems to financial shocks from abroad,1,b +overall connnercial banks appear to have come through these difficult times quite well,1,b +but the restraints on size were lifted only after federal regulators had established expectations of intervention and those expectations served as an artificial accelerant for bank growth,0,b +we all are aware that a large portion of these merger transactions has been financed at least initially with debt including shortterm bank credit,0,b +apparently a new grant of broad and sweeping regulatory powers will treat the infirmities that ail us,0,b +at the same time asset quality has improved dramatically and problem loans are down to their lowest level since 1985 but recent accounting mandates from the financial accounting standards board in the form of fas 115 make it appropriate to mention that investment portfolio positions have weakened,0,b +there are certainly net benefits for the public in interstate bankings effects on competition,1,b +such promises to lend are a practical part of everyday banking but those promises have not always been prudently limited to amounts which banks could effectively handle in times of strong credit pressures,0,b +we have all heard the numerous stories concerning predatory lendingassetbased lending loanflipping insurance packing fraud and abuse,0,b +again though the result will be improvements in risk management that will help avoid a crisis at the firm as well as to manage such a crisis successfully should it nonetheless occur,1,b +the board federal deposit insurance corporation the comptroller of the currency and the several state bank supervisors have achieved in my judgment a system of information exchange well calculated to apprise each authority of facts and circumstances suggesting criminal activity within banks under their respective jurisdictions,0,b +that having been said however one must quickly add that the new instruments and procedures raise real questions about both managing and supervising risk by instruments andor by legal entity,0,b +to the extent that the characteristics of the new instrument have not been decided its market effect cannot be predicted with confidence,0,b +this includes for example underwriting corporate debt and equity issues activities in which the fed has begun to allow very well capitalized holding companies to engage on a casebycase basis,1,b +va tj advantages for both institutions and depositors,1,b +this would tend to be true moreover even in an economy in which check collection services were provided entirely by firms in the private sector operating under competitive conditions and charging prices that reflect costs9pricing float in ways that increase efficiency in the payments mechanism is a complex matter,1,b +there is no time or market urgency that requires haste,1,b +if congress is going to micromanage banking banks may have difficulty attracting and retaining directors to say nothing of managers,0,b +stress testing should continue to play an important role in assessing potential losses that large firms would suffer under a severely adverse economic scenario the recent legislation recognized the importance of stress testing by requiring a supervisory stress test for these large firms,0,b +usually intermediation entails ready access to domestic money markets and in many cases foreign money markets,1,b +despite the number o f states that have at least regional banking provisions however a hodgepodge o f geographic limitations make the situation more difficult,0,b +stronger and moreconvergent national systems bring clear financial stability and efficiency benefits,1,b +policymakers should consider additional steps to reduce the possible procyclical effects of deposit insurance costs while still ensuring that riskier banks pay higher premiums than safer banks,0,b +the approach should take account of the desirability of transitional arrangements over a period of years before moving to more general interstate banking the need to avoid undue concentration of banking resources and to maintain a climate in which small institutions can flourish and the desirability of retaining a role for states in the evolution of the banking structure within a state,0,b +since this has happened at a time when the risk factor in the banking business has clearly increased one is tempted to conclude that the process of competition i has worked very well and very quickly in the banking business the great gain in gross receipts was competed away and the return on equity was held to what given the increase in risk might be regarded as the competitive level,1,b +consistent with original intent of fundshigher premiums for higher risk2,0,b +thus the lending behavior of commercial banks outside the federal reserve system is already complicating the task of monetary 20management,0,b +market discipline the role of subordinated debt to a significant extent market discipline and regulatory standards are substitutes,1,b +instead the private sector through bank associations card networks and other cooperative rulesetting bodies establishes many of the operating rules for electronic payments,1,b +nonbank financial institutions could again come under pressure as they did in march and some banks might pull back on lending if they face rising losses or weaker capital positions,0,b +such facts as i am familiar with seem to indicate that if a given state confines its banking institution in any one of a number of ways or if it so restrains entry and nurtures merger and concentration as to expose its citizens to monopolistic services and rates most of the damage done is to local citizens and local business,0,b +also the securities and exchange commission has adopted changes in regulations that may help avoid future runs on prime money market mutual funds that is money funds that invest primarily in corporate debt securities,1,b +but those intermediaries are still rebuilding the capital and liquidity positions they need to substantially increase their participation in credit markets,0,b +real problem how accumulate equity not how obtain more credit,0,b +and reflecting the greater integration of global financial markets the correlation of us and foreign equity and bond markets has trended broadly upward for several decades3 channels of transmission of global shocks to the us economy this increased integration i have described has heightened the exposure of the us economy to external shocks,0,b +as you probably know the us banking agencies envision formal release of the proposed regulations in mid2005 with parallel running of basel i and basel ii in 2007 and full implementation in 2008 even on that timetable the regulatory community recognizes that substantial data limitations may prevent banks from developing viable and robust parameter estimates in the near termeven for probability of default in some cases,0,b +these twolayer securitizations are inherently more complex and are more exposed to tail risk than their earlier onelayer counterparts,0,b +in general we saw a rapid and substantial widening of risk spreads and in certain financial markets trading either became extremely thin or completely shut down,0,b +thus small and minority banks will have a number of new options as to the services they may wish to offer the public,1,b +in fact in many historical episodes of expanding credit the desire to regulate has been accompanied by a popular belief that growing debt is a sign of decaying values and thrift,0,b +sears has responded with a lawsuit 4challenging the constitutionality o f the connecticut law restricting activities o f bank and savings and loan holding companies,0,b +i expect it is true that every regulatory restraint in banking when it was enacted was aimed at some particular current abuse that people wanted corrected,0,b +prior to this date regulation q authority is to bs exercised by the regulators in a manner which prevents disintermediation and maintains appropriate levels of mortgage credit,1,b +a recent growing body of research supports the view that during that period market forces were fairly effective in assuring that individual banks constrained risktaking to prudent endeavors,1,b +multinational banks the impact of expansion remarks by bruce k maclaury president federal reserve bank of minneapolis at the contemporary bankers lecture series kent state university kent ohio may 17 1973 multinational banks the impact of expansion kent state university may 17 1973 introduction the multinational banks and their customers the multinational corporations seem to have replaced the lengendary gnomes of zurich as the bad guys of international finance,1,b +any set of reforms must be based on market principles,1,b +i say additional leeway because many banks were not using what leeway they had and were reluctant to see more added,0,b +observers feared that at some point investors would decide they had enough dollar assets in their portfolios and pull back abruptly from financing the burgeoning us current account deficit triggering a sharp decline in the dollar a spike in interest rates and widespread economic distress,0,b +since this pattern of comnercial bank behavior has developed in the context of a progressively tightening monetary policy an interesting and critical question is raised where is the evidence of monetary restraint,0,b +however after declining throughout 2009 and much of 2010 recent measures of aggregate credit outstanding have shown some signs of improvement,1,b +in effect the approach proposed in the united states requires that those institutions that would not be required by scale or global activities to adopt the airb version of basel ii would have to conduct their own costbenefit analysis to determine if they should opt in or wait perhaps for the costs of implementation to come down through vendor and other developments or alternatively if they should remain under the current capital regime,1,b +it may mean for example that we should rely more on the market to help us regulate,1,b +such asynchronization can nonetheless result in massive unintended credit extensions that increase risk in the payments system,0,b +for example a large and persistent program could have unanticipated and adverse effects on the structure of money markets,0,b +over time these markets began to serve some of the same maturity transformation functions as the traditional banking systems which in turn led to both an expansion and alteration of traditional money markets,1,b +because the disruptions in the economy have been so closely related to problems in the financial sector many of the policy measures have been focused on financial institutions and markets and on countering the tightening of financial conditions that occurred as lenders became more risk averse and took steps to conserve capital and liquidity,0,b +in turn given the likely increase in the costs of producing and evaluating certain complex instruments these actions and efforts may affect investorsâ riskreward calculus by increasing required returnsor the hurdle rateson these investments,0,b +the stiffer the competition the costlier are errors of judgment,0,b +or the bigger the bank the more unmanageable it becomes,0,b +efforts by their creditors to withdraw from lending simultaneously can only be mutually selfdefeating precipitating a financial crisis even where sound adjustment programs are 4c in specific instances shortterm bridging credits by national monetary authorities acting bilaterally or through the bank for international settlements may be appropriate to meet minimum and immediate liquidity requirements while adjustment and borrowing programs are being arranged,0,b +perhaps you might say it is fighting the competition of huge banking organizations,0,b +also a major financial crisis was not part of the outlook,0,b +in most states the losses shown by the smaller banks are a minor fraction of the gains shown for the five largest but it must be borne in mind that the shares of the smallest 50 per cent seldom exceeded 15 per cent in 1957the significant decreases in market shares held by the five largest banks were also geographically concentrated,0,b +in addition to enhancing the meaningfulness of regulatory capital measures basel ii should make the financial system safer by substantially improving risk management at banks,1,b +remarks by henry c wallich member board of governors of the federal reserve system at the commodities and financial futures conference sponsored by the federal bar association and commerce clearing house washington dc thursday november 1 1979 remarks byhenry c wallich member board of governors of the federal reserve systemat thecommodities and financial futures conference sponsored by the federal bar association and commerce clearing house washington dcthursday november 1 1979the future of futuresthe financial futures markets since their inception in the mid1970s have had a tremendous vogue,1,b +the law allows an outofstate bank or bank holding company to acquire a failed bank having assets of over 500 million,1,b +the steering committee concluded that an appropriate and effective solution to this problem was most likely to be found in the improvement of secondary markets for bank assets and liabilities,1,b +but it is hard to believe that all the movements in asset prices witnessed in recent years are wellrooted in changes to the underlying productivity of those assets,0,b +5 another example is section 165 which requires that the federal reserve establish a special set of prudential requirements for bank holding companies with more than 50 billion in assets in order to prevent or mitigate risks to the financial stability of the united states that could arise from the material financial distress or failure or ongoing activities of large international financial institutions,0,b +as it turned out there was usually a significant difference between the earnings projections based on passive acceptance of normal or trend growth and projected earnings resulting from programs designed to achieve specific new goalsthe importance of longrange planning is not that it provides any assurance that goals will be reached but that in addition to giving some notion of what profits will be over the planning period on various assumptions it forces one to consider in some detail whether a banks goals are realistic,0,b +13to level the international playing field and promote greater capital strength the regulators and central bankers of the leading industrial nations have joined in establishing standard riskrelated capital requirements to be phased in over the next four years,1,b +one of the lessons we have learned in the current crisis is that different levels of supervision and enforcement can cause problems even when institutions are ostensibly following the same regulations,0,b +both of these features of the1966 law proved to be of great value last summer when ceilingson largedenomination cds with short maturities were suspendedthereby helping to relieve tensions in the commercial paper marketthat arose in the wake of the penn central bankruptcy,1,b +it would be a grim joke indeed if after so carefully restructuring our financial services 10 industry it was successfully argued that international competitive pressures were such as to require extension of the banking safety net to all us financial firms in order to obtain an international level playing field,1,b +this market discipline does not seem as effective in banking,0,b +this approach would be consistent with the general scheme of federal banking laws under which nonbanking activities are performed by corporate entities separate from banksif control of trading companies by banks were permitted only where there was a clear need the purposes of the bill could be accomplished and at the same time the banking system would not be exposed to undue risk6expertise to acquire ownership interests of more than 20 percent provided that the exposure of the trading company was reasonable in relation to its activities,1,b +i would like to stop my speech here and conclude by saying all is well in the banking industry,1,b +moreover if isolated glitches do emerge the federal reserve and depository institutions will draw on their contingency plans to get systems operating again as promptly as possible,1,b +a third issue that some see requiring tighter regulation is deposit insurance,0,b +in addition to the dismantling of restrictions on capital flows the advance of information and communication technologies has effectively shrunk the time and distance that separate markets around the world,1,b +we continue to urge banks to exercise prudent lending standards especially in regard to highly leveraged firmsit is true that leverage ratios of some firms have risen sharply and that in the aggregate debt of nonfinancial firms has risen sharply,0,b +not long ago a banker told me that he could not spend time with customers any more because he was so busy studying federal reserve regulations,0,b +that ability is determined by the capacity of the bank exarniner to appraise the public values that reside in banking and then to enthusiastically transmit that valuation to bankers in ways that will of themselves win adherence to high banking standards,1,b +for example during the first three years of the current expansion business loans grew at a 73 per cent annual rate in 1964 at almost 12 per cent and in 1965 to date at almost 21 per centsecond and related to my last point banks felt that with higher deposit costs it was necessary to recast their portfolios by increasing the proportion of higher yielding assetsthird this changing portfolio structure may reflect the perennial desire of banks to maximize profits through aggressive policiesa 6 per cent taxequivalent yield on a municipal bond is a very good return regardless of whether all your deposits are demand balances or onehalf of them are time balances and whether you are paying for time deposits2 per cent or 4 per cent,1,b +i expect these risks will lessen since commercial real estate values will stabilize as the economy recovers,1,b +we should also ask a third question however that is equally important can we achieve a strong level of financial resilience with reforms that are more efficient simple transparent and tailored,1,b +so far as i can see improving 3moneys efficiency ie using less for a given volume of transactions and lowering the processing security and insurance costs per transaction would not alter in any significant way its value role capability or the problem of monetary managementsome sanctified rates of growth in the narrowly defined money supply might need to be revised but the actual increase in efficiency in money during the sixties has long since made such revisions desirablefor practical purposes there are only three vehicles for money transfer in the us 1 coin and currency 2 checks or authorizations to draw on payors demand deposit accounts at commercial banks referred to hereafter as debit transfers3 authorizations by payors directing their bank to charge their account and credit payees accounts in some designated banka system mainly used at present for transfers between banks and in the government securities marketreferred to hereafter as credit transfersthe money choices available to households and business at present are pretty well restricted to coin and currency or debit transfers,1,b +for banks too however better able to compete with the bond market than the thrift institutions must inevitably lose deposits to the market place when their rates fall behind,0,b +subprime lending with high loantovalue ratios was profitable while home prices were rapidly rising but profitability fell sharply when price trends reversed,0,b +but the dollar is where it is because of a balance of forces in the market reflecting capital as well as trade flows,1,b +the asymmetry in risk management stems from the combination of the likely low current level of the neutral real interest rate and the effective lower bound,0,b +however if monetary constraints were long continued it is more than likely that debt ceilings would become operative and important limitations for some banking institutions,0,b +but lest you think these virtues dull let me remind those of you uho here nodding perfunctorily asr recited these policy objectives that you were nodding al1roval to a set of guidelines that could comprehend among other things the ultimate removal or conversion to a standby basis of regulation q ceilings greater interest rate fluctuations broader lending powers not only for banks but also for mutual savings banks and savings and loan associations more uidesryread benk chartering and branching and probably a few more disappearances from the ranks of financial institutions both by failure or takeover,0,b +they argue that disciplining them will be a trip wire for financial contagion market disruption and economic disorder,0,b +reflecting mounting pressures on the supply of funds in the face of continued strong demands for credit all types of market interest rates climbed to historic heights in 1969 in fact the actual peak in rates extended in 1970 and for the latter year as a whole only shortterm market yields and the connnercial bank prime rate were below the levels reached in 1969 during the recession of 197071 the federal reserve again pursued an acconnnodating policy and greatly expanded the volume of bank reserves supplied to the banking system,0,b +high capital requirements for instance can adversely affect the position of banks of a particular country,0,b +the fdic reports that commercial banks return on assets roathe benchmark for profitabilitywas 123 percent in 1997 the highest rate since the fdics founding in 1933 moreover more than twothirds of commercial banks reported an roa of 1 percent or higher indicating that profitability in the industry is both deep and wide,1,b +in actual amounts the black banks had net income of 800 thousand and they set aside 11 million to cover loan losses in 1969 for,0,b +as a result of this requirement the interest rate swaps market largely moved offshore,0,b +not only is the legal pattern of regulation calculated to deter all but the valiant the attitude that accompanies their enforcement is not designed to minimize their impact,0,b +by making it easier to invest in rrortgages without having the resources or expertise needed to originate and service such loans the pool of lenders and investors has been greatly increased,0,b +be mindful that these outsourcing arrangements may pose additional types of risks for the organization such as security or data privacy risks,0,b +in addition underwriting standards have weakened,0,b +such a mutually sustaining relationship does not necessarily exist when for example a bank places bonds,0,b +but we should also be concerned about how a continued decline in the number of community banks in part due to the lack of de novo formations will affect the banking and financial services system more broadly,0,b +what information and what authority did the fed need to respond so quickly to the decline in stock prices,0,b +the rise in yields available on market instruments also has contributed to a marked slowing over recent months in the inflows of consumer savings to banks and other depositarytype institutions compared with the very high rates of increase experienced last spring and summerunder these conditions the competition for savings funds has tended to intensify from the january 31 survey of time and savings deposits at insured banks we have thus far been able to process returns for the 700 banks that are most active in this business,0,b +over the same period missouri savings and loan associations experienced asset growth of nearly 14 percent per year while missouri credit union assets have grown by 16 percent per year since 1976 the bottom line is simply that the banking industry has been slipping behind further and further behind other financial institutions,0,b +this is one of the many aspects of bank examination work that deserves further serious consideration11 ifi believe that a reappraisal along the lines suggested by chairman cocke could result in a streamlining of examination procedures,1,b +eightynine percent of the community banks in this group experienced serious asset quality problems which was the most significant factor resulting in their low rating,0,b +recent policy changes since early summer member bank reserve requirements on time deposits in excess of 5 million were raised twice,0,b +forecasting errors and resulting financial loses and bankruptcies are inevitable when the price level is unstable,0,b +lessdiscernible progress has been made to date however in addressing other key vulnerabilities that came to the fore during the financial crisis,0,b +to address problems with risk evaluations the presidents working group on financial markets pwg has recommended among other things that the creditrating agencies themselves should display greater skepticism when they are presented with complex and opaque instruments to rate3 the pwg also suggested that the creditrating agencies would better serve investors by providing greater transparency about the models estimation methods and assumptions used to evaluate credit risk for complex structured securities,0,b +concerns about potential shortfalls in investment certainly have contributed to current recordhigh longterm futures prices,0,b +though we still have more than 6000 separate banking organizations in this country our largest organizations now have nationwide presence and offer a broad array of financial products,1,b +for our society as a whole our institutions and our markets and for banking specifically your competitors and even your products are transformed not just changed,1,b +reducing financial instability will require clarity and commitment,0,b +if the implicit safety net provided to larger banks is not reduced it is argued then this leveling can only occur by increasing the safety net benefits to those that are disadvantaged,1,b +over the year as a whole member bank reserves rose by 10 billion,0,b +the broader m e a s u r e m 2 rose in general liquidity in the e c o n o m y is ample,1,b +if a problem bank slipped through this regulatory safety net we could use our powers as the lender of last resort to prevent its weakness from contaminating a broader range of institutions,1,b +as in the case of interest rate ceilings the board favors the determination of such fees and charges by market forces,1,b +it goes without saying that we must use our franchise to ensure a smoothly operating financial system,1,b +the 1970s through the mid1990s in particular were marked by episodes of high inflation boomandbust cycles and financial crises,0,b +obviously the uncertainties associated with the initial pricing efforts the volume declines and the large fixed costs associated with these activities made the task of achieving full cost recovery very difficult in the shortrun,0,b +on a very practical level we reestablished our competitiveness in financial services,1,b +nontraditional mortgage products warrant a bank having strong riskmanagement standards as well as adequate capital and loanloss reserves,0,b +these us banks have combined total assetc in excess of 20 billion,1,b +that improvement continued after the results in may outlined the quite feasible steps for raising additional capital that the banks would need to take and did take to be able to continue lending if adverse conditions continued,0,b +for example the provision of securities underwriting and dealing was accomplished through socalled section 20 subsidiaries which were authorized in 1987 initially underwriting and dealing activities were limited to 5 percent of the bank holding company section 20 income but the limits were progressively expanded by the board throughout the 1990s,1,b +since we have limited experience with the conjunction of a dramatic decline in wealth a widening recognition of the continuing burden of high interest rates and an economy greatly concerned with10these shifts seem to be at the expense of equity holdings riskier investments and consumer expenditures,0,b +once conventional policy reached the elb the long delays necessitated for policymakers in nearly every jurisdiction to develop consensus and take action on unconventional policy sapped confidence tightened financial conditions and weakened recovery,0,b +the assumption is that banks can fund themselves at lower cost than other financial institutions because the insurance of deposits and access to emergency liquidity insulate them from failure,1,b +to restore proper discipline to an institutions shareholders and managers federal deposit insurance coverage must be limited and correctly priced,0,b +another way of putting it in expanding their assets and liabilities more rapidly banks should be expected not to increase the average risk of their assets,0,b +having recently left one organization in which bank supervision was the sole function for another in which it occupies an important but not dominant position i am motivated solely by the desire to harness the common interests of banks and supervisors in a fashion which will enable you bankers to get your moneys worth out of examinations,1,b +it may be a decision that would cause a prudent lender to limit more severely the amount or the terms on which he lends,0,b +however on its own tailoring does not ensure that existing regulations are not unduly burdensome for smaller banks,0,b +additionally it is quite interesting to see institutions continually working to upgrade their rating systems and incorporate innovations where possible for example many systems have recently been enhanced for greater granularity,1,b +a stronger infrastructure would help to reduce systemic risk,1,b +it should be borne in mind that risk aversion is not necessarily good and that risk neutrality is not necessarily bad,1,b +but this convention strikes me as an especially appropriate forum for such discussions because the widely dispersed credit card businessand the technological systems that support itepitomizes one crucial element in the inexorable market pressure that is building for increased deregulationtechnological advances in data processing and communication are rapidly breaking down all geographical barriers in the provision of financial services,1,b +the dollar volume of new stock issues by banking organizations has grown at a greater rate since the late 1970s than the total dollar volume of new issues of all domestic corporate firms,1,b +scap restored confidence in individual banks and in the financial system overall by providing information on how much capital the largest us banks would need in a macroeconomic stress scenario,1,b +recent events have shown that during times of systemwide stress liquidity shocks can become correlated so that the same factors that can lead to liquidity problems for the banks assets or offbalancesheet vehicles can simultaneously put pressure on a banks own funding liquidity,0,b +from the point of view of a regulator the fact that supercommunities are depending on a 8 decentralized structure for pricing and transactions raises a question about whether they might get carried away with this strategy,0,b +a somewhat similar but less extreme and less dramatic episode occurred in the fall of 1998 when a number of asset markets were disrupted over several weeks following the russian default and near failure of long term capital management,0,b +the resulting jolt to an already weak state economy has underlined the possible weakness of private insurers and raised the question whether in fact a1i credit unions regardless of state or federal charter should be required to have federal insurance,0,b +under the present provisions of the clayton act the board has authority to enforce its provisions where applicable to banks,0,b +this assumption however is unlikely to be correct because poor prospects for economic growth surely raise credit risk thereby leading to a higher ted spread and less willingness to lend on the part of banks,0,b +i believe it is particularly appropriate to assess what changes to the act should be adopted to decrease the costs and risks to depository institutions without jeopardizing the acts objectives,1,b +we must have that kind of change if we are to maintain our leadership in global financial markets and provide support for a burgeoning economy at home,1,b +in the same vein as i mentioned earlier there is ample evidence that banks can o ffe r nontraditional forms o f retail business now prohibited by federal lawbrokering insurance and real estate fo r instancewithout increasing their riskiness,1,b +sometimes those relationships are broken as a result of the banks inability to lend such as when the bank fails or when it reduces lending because of strains on or concentrations in its own portfolio,0,b +likewise firms have lengthened the maturities of their debts lowered their interesttoearnings ratios and improved their liquidity,1,b +the theme i want to highlight is how to a considerable extent the integration of traditional lending trading activities and capital markets defines both of these tasks2 a recent history of financial regulationsystemic crises typically reveal failures across the financial system,0,b +after the first year there would be no penalty for premature withdrawal from risingrate certificates the penalty would be replaced by an incentive to earn a higher yield by keeping funds on deposit,1,b +the current period of credit stringency has exposed weaknesses in the commercial banking system and its application to agriculture,0,b +as liability costs rose rapidly last year nearly all of the largest bank holding companies experienced margin declines with about onefourth experiencing a narrowing of 25 basis points or more since a year ago,0,b +furthermore changes88intermediaries has droped to about 10 per cent of the total in contrast to a direct financing proportion more in the neighborhood of 25 per cent in the three preceding years,0,b +many new devices capable of adaptation to banking are becoming available or are in process of development already several banks are using electronic devices with vast memories in which to store and process information about their customers accountsit means that loan demands both individual and aggregate will be larger and banks must be in a position to handle them,1,b +because they are shielded from true market discipline by this explicit and implicit safety net financial institutions can take on added risk without paying depositors and other creditors a return that truly reflects that added risk,0,b +either of these would impede the markets inherent efficiencies,1,b +one suggested approach is to reverse the 30year trend that allowed progressively more financial activities within commercial banks and more affiliations with nonbank financial firms,0,b +the financial crisis revealed that a silo approach to risk identification and management does not produce good results,0,b +if these points of vulnerability are not adequately protected they could serve to stem the trends that are reshaping the banking industry,0,b +in approving loans directors must guard against violations of the law such as exceeding the legal lending limit,0,b +but the importance to individual institutions and in the aggregate of daytoday weektoweek or monthtomonth change has of course been much greateron a limited scale therefore some instrument or group of instruments that enable an intermediary to pull funds out of the market even at a possible loss in the short runadds a degree of flexibility in periods of monetary restraint,1,b +however banking and financial markets have done more than is needed to keep this conference alive,1,b +the development and ongoing refinement of that riskmanagement capacity is itself critical for protecting individual banks and the banking system upon which the health of our economy depends,1,b +the supervisory organizations have agreed that basel i with its broadbrush system for setting the risk weights on various classes of bank assets is increasingly inadequate for measuring risk and the appropriate level of capital for such firms,1,b +while the wisdom of such caps is essentially a political judgment it is worth noting that such caps may make it difficult for any banking organization to have deposittaking branching operations in all 50 states,1,b +these new powers will be very valuable to allow banks to compete with nonbanks,1,b +one is the concept to recapitalize the bank insurance fund by borrowing from the federal reserve,1,b +economic rigidities slowed adjustment and as a result strong pressure on credit markets and interest rates persisted longer than anticipated,0,b +some failures can be of a banks own making resulting for example from poor credit judgments,0,b +the capital surcharge for us gsibs links the required level of capital for the largest banks to their reliance on shortterm wholesale funding11 while improvements in capital and liquidity regulation will limit the reemergence of the risks that grew substantially in the mid2000s the failure of lehman brothers demonstrated how the absence of an adequate resolution process for dealing with a failing systemic firm left policymakers with only the terrible choices of a bailout or allowing a destabilizing collapse,0,b +the fdic and the comptroller each had three denials the board had 12 the denial rate at the board has been close to 11 per cent with about the same rate for mergers holding company formations and acquisitions,0,b +severe problems at such institutions are far more likely to arise from vulnerabilities to common stresses and severe problems at such firms are far more likely to exacerbate systemic weaknesses,0,b +again if there are latent systemic risks in one or more of these segments a more targeted industrywide response would be preferable,0,b +third the doddfrank act also changed our statutory mandate to require that we regulate holding companies so as to promote the stability of the financial system as a whole,0,b +vo l u n t a r y c o m p l i a n c e w o u l d be e n h a n c e d if we a l l o w e d m o r e t i m e from the finalization of a new regulation to its effective date so that banks can make necessary changes in policies procedures and training,1,b +the flight to liquidity which was evidenced in unusually wide spreads between us government securities of similar risk characteristics and the flight to quality which showed through in unusually wide spreads between securities of differing risk characteristics were the defining factors for much of august september and october,0,b +it is entirely clear however that if refusal by banks to participate in the survey were at all widespread this would not only jeopardize the information on consumer loan rates that is now available to the public but it would also jeopardize the numerous other voluntary surveys conducted by the federal reserve surveys that yield vital data on bank credit business loans bank lending practices consumer credit and so on,0,b +a few years ago the home national bank of ellenville new york had to close its doors because of excessive risktaking,0,b +longterm security markets also have witnessed appreciable interest rate declines though during the last week or so longterm yields have moved up again,0,b +the first is to calm disorderly markets,1,b +also falling by the wayside will be regulations and restrictions that are no longer relevant to the new competition that deregulation is fostering among financial services firms,1,b +in the first place the federal reserve will require bank holding companies that are subject to our proposed capital plan rule generally companies with 50 billion or more in total assets to take affirmative steps to improve capital ratios such as external capital raises when those steps would be needed to meet each baseliii transition target on time,0,b +todays higherrisk thrift institution requires new approaches by the examiners,0,b +i have argued for the need for a selfregulatory body or bodies in the banking industry that would interface with the regulators possibly through the coordinating group of regulators the federal financial institutions examination council,1,b +the financial stability approach begins from the fact that there would be very large negative externalities associated with the disorderly failure of any systemically important financial institution distinct from the costs incurred by the firm and its stakeholders,0,b +that development combined with an increased emphasis by bank supervisory agencies on more frequent onsite examinations should have positive future results on the quality of banking assetsthe stock markets assessment of these factors has been very positive in the past year,1,b +while diversifying and introducing new technology banking is also facing growing competition from many other types of financial institutions,1,b +its competitive aggress iveness has been schizophrenic with large sectors of the industry advocating or supporting publicly administered price ceilings for time deposits public prohibitions against the absorption of exchange and a variety of regulatory devices or postures that by sanction or promise dilute competitive ingenuity,0,b +strains in the international financial system will of course be reduced if the oilexporting nations use their surpluses to provide assistance to countries,1,b +7a11 of these movements are reflected in a much slower expansion of liquid assets and in a continuing fall in the ratios of liquid assets and of the money supply to the gnpthe related changes in interest rates are only too familiar,0,b +state banking officials have generally found it difficult to gain much control over such companies,0,b + 9 such a reform of capital requirements could also address the problem o f o ffbalance sheet items,0,b +given the dominant role of credit risk at banks the chief credit officer should ensure that pressures to increase fee income do not lead to unacceptable levels of credit risk through maintaining independence of credit administration from line functions,0,b +in japan the banking system is closely tied to the stock exchange because equities make up a large portion of bank assets,0,b +it is reasoned that this will result in a larger proportion of deposits being subject to loss should an institution fail and by increasing 21risk exposure encourage depositors to be more selective in placing their funds with institutions,0,b +i support efforts to improve the efficacy of the volcker rule while preserving its underlying goal of prohibiting banking firms from engaging in speculative activities for which federal deposit insurance and other safeguards were never intended,0,b +iet me turn now to the governmental examiners and supervisors who on the other side cannot afford to reduce their consideration of the safety and soundness of the financial system and of the integrity of each institution,0,b +doubt that a restrictive monetary posture would persevere and euphoric attitudes about inflationary trends seemed to generate a willingness to erode financial flexibility much more than would have been viewed as prudent only a few years ago,0,b +even in absolute terms the fund declined 42 billion during 1988 to 141 billion and by yearend was at its lowest level since 1982 when insured deposits were roughly onethird lower,0,b +over the past decade enormous attention has been given to disclosures market participants make with regard to their risk exposures particularly those associated with derivatives activities,0,b +it is probably worth noting at this juncture that one of the features of the stress testing program that some banks have found most troubling is that it culminates in the annual announcements of whether the federal reserve objects to each participating banks capital planan event that still garners considerable investor and public attention11 the potential for embarrassing public objections to their plans has been disconcerting to some banks which pointed out thatby designthey were not given the supervisory model for calculating poststress minimum capital levels and that they might not be able to predict when supervisory concerns with some aspects of their capital planning processes would ripen into a public objection,0,b +on the one hand if safe hqlaeligible assets are in ample supply the premium is likely to be low and stable,1,b +the exercise itself forces supervisors to focus on the nature and extent of potential sources of loss for the largest bank holding companies as a group,0,b +it is only one of a set of megabanks that remain a threat to financial stability,0,b +even within regulated firms microprudential riskweighted capital standards have little effect since they are calibrated against credit risk and most such transactions are shortterm and fully or over collateralized,0,b +at that time it was also believed that this discount mechanism besides establishing an elastic currency would also provide member banks a means for making emergency loans from their federal reserve banks at times when they were under heavy pressure from deposit vri,1,b +in a financial crisis there is a tremendous sense of uncertainty,0,b +when competition is significantly reduced i favor denial unless the bank to be acquired is an unsound operation or woefully inadéquat to meet its communitys needslet me explain the reasoning that underlies this conclusion the bank merger act of 1960 under which the board operates requires the supervisory authorities to consider a set of seven factors in each merger case,0,b +the legislation would also close another potential loophole by making it clear that the glasssteagall limitations on the affiliation of securities firms and depository ins ti tut ions apply when securities activities are conducted in affiliates of depository institutions,0,b +compounding matters the absence of new powers in the recent banking reform legislation continues to make it difficult for banks to broaden their market share,0,b +as depositor fears about the health of banks grew runs on banks became increasingly common,0,b +w e would all like to see ourselves as successful bankers operating in a profitmotivated economy,1,b +on the other side fiduciary standards and other requirements of the loan guarantee boards do not seem to threaten market capitalism either,1,b +of course institutions have subsequently augmented capital by issuing large new blocs of equity securities in both the stock and the convertible debt form,1,b +the commercial banks in those districts were experiencing such loan demand as to cause them to borrow heavily from their respective federal reserve banks,1,b +because we expect these forces to continue we expect financial consolidation to continue as well even though the pace may be interrupted by swings in the macroeconomic cycle and other factors,1,b +in addition to providing for the extension of reserve requirements at a uniform rate to all now and share draft accounts this bill widens the band within which reserve requirements against demand deposits may be set,1,b +after all we in the united states have arguably one of the most efficient retail credit markets in the world,1,b +thus during the decade ending in 1970 total assets of commercial banks increased at an average annual rate of 9 per cent in contrast to a 7 per cent rate of growth in the dollar value of our gross national product,1,b +i would also argue strongly that conducted properly cra lending can be damn good business and once the systems are established the record keeping requirements are essentially routine,1,b +in that direction lies appropriate refinance of the insurance fund modest limits on the insurance coverage available to depositors authority for supervisors and regulators to prevent bank failures rather than just preside over them permission to branch across state lines broad powers to engage through affiliates in securities dealing and underwriting and permission to establish close relationships with insurance companies,1,b +again we see the trouble that risk concentrations can cause if an institution has not tried to identify them in advance and has not taken steps to mitigate their effects,0,b +the deleveraging of these institutions also highlights the need to coordinate across regulators and acts as a catalyst to spur greater action and information sharing,0,b +looking forward efforts to improve scrutiny of the processes that originators use and the incentives they face better information for consumers improved performance of the credit rating agencies and a number of other reforms that have been recommended by the presidents working group on financial markets will be important in preventing a future bubble like that in the most recent experiencesteps highlighted by chairman bernanke in remarks earlier this year26 conclusionlet me conclude by reiterating the main points of the analysis here,0,b +at the other end of the spectrum most of the poorest of the developing countries concentrated on the african continent have been less affected by the slowing in international bank lending for the simplereason that these countries had never been able to borrow sizable amounts and had not becomedependent on external private sources of credit,0,b +moreover the use of central bank credit to rescue creditors boosts moral hazard and encourages vulnerability to financial shocks,0,b +international coordination has also been advanced with the creation of the financial stability forum an initiative of the g7 that draws on the secretariat of the bank for international settlements,1,b +at present there are no parallel requirements as to check transactions involving the account,1,b + 3 interest r ate deregulation more competition sharper pencils l e ts begin with deposit interest rate degregulation,1,b +when a few of these conduits began to report subprimerelated losses investors ran from many conduits,0,b +a more pessimistic view focuses on recent cases in which countries that opened up to global financial flows experienced massive borrowing and subsequent financial crises,0,b +today by comparison open market operations in welldeveloped national capital markets have much greater capability than in 7973 for providing adequa te financial market liquidiry,1,b +however 1t should be noted that us bank loan losses 1n the international area have been relatively low in recent years and that the exposure of us banks to nonopec developing countries relative to their capital has not increased significantly in the last several years,1,b +the bank examination process focusing on concentration of risk exposure is designed to restrain concentration,0,b +the objective of portfolio insurance is simple it is designed to limit the decrease in the portfolios value associated with market declines,0,b +the country needs growth in credit over the period ahead as it always does and there is nothing in this program that cuts off that growth in credit,1,b +i am thinking specifically of collateralized debt obligations cdos that were themselves backed by other structured credit products including the lowerrated tranches of privatelabel mbs,0,b +the policy of reinforcing monetary restraint by constraining bankings access to money and credit markets may be more controversial than its practical significance in the present situation warrants,0,b +interest rate risk and credit risk that previously couldnt be unbundled are now routinely unbundled,1,b +banks may find that choosing the merger route to expansion relocation or portfolio adjustment is a sensible procedure,1,b +one of the dimensions of increased openness is the rapid increase in the volume of crossborder capital flows,1,b +it focuses attention upon the central problemthe steady creep of prices in one direction alone,0,b +dut some institutions are sying we will pay you these extrordinary interest rates for a month if you promise to buy an all savers certificate from us october 1st when they come 13 into force,0,b +although both scenarios have 250 billion in total failed deposits the negative impact is greater when the largest bank is stressed,0,b +well you cant even find that in the 400 billion of credit thats extended in a year,1,b +espinosas analysis suggests that providing incentives for banks to lengthen the average maturity of their liabilities may contribute to more stable economic growth,0,b +on the liability side of the balance sheet banks and other depositories may be facing unusual uncertainties about the future behavior of noninterestbearing and lowinterest deposits,0,b +many of these transactions flow through a few major players who intermediate much of this market,0,b +our studies have shown that the increases have been two to four times the increase in the general price level from 1980 to 1983 although bank expenses for personal checking accounts increased even more rapidly than did service fee income,0,b +finally i will discuss where we are in the process of amending basel i which will continue to apply to most banks operating in the united states,0,b +these restrictions had persisted mainly because the smaller community banks were concerned that the big banks would swallow up many of their customersand them,1,b +pillar 3 should thus help investors creditors and other counterparties better assess banksâ risk profiles,0,b +a system of bank regulation that goes beyond these goals imposes social costs and economic dangers,1,b +our conversations with climate experts large banking institutions other financial intermediaries stakeholders and regulators underscore the complexity of the connections between the climate and economic and financial systems,0,b +however not ail interest rates have responded fully to market developments and some haw hardlymoved at all,0,b +in addition management should seek to identify liquidity pressures and other risks through stress tests so that appropriate contingency funding and hedging programs can be formulated,0,b +and financial institutions have suffered large losses with implications for the cost and availability of new credit,0,b +this authority is a direct response to experience in the financial crisis,0,b +by proyiding n alternative organizational form through which banks an conducl multistate edge act business the board sought to incrase the flexibilit of bank especially te tional banks and smaller banks that might have limited amounts of capital to invest in edge,1,b +recognizing that ceilings are notalways useful congress in 1966 authorized the regulatory agenciesto suspend them when it is appropriate to do soin addition to authorizing suspension of ceilings the 1966amendments widened the grounds for differentiating between kindsof deposits in establishing ceilings,1,b +investors refused to roll over commercial paper of many highly rated companies because they were no longer sure what the ratings meant,0,b +in 1969 the district of columbia bankers association backed a proposal to allow reciprocal banking between maryland virginia and the district,1,b +however the deposit insurance subsidy continues to attract still more institutions to an already overbanked market,0,b +on the one hand many banks have raised new capital repaid government support and seen the pace of writeoffs come down,1,b +for eight large bank holding companies with major mortgage banking operations the collective mortgage loan origination volume fell 50 percent to about 200 billion in the fourth quarter,0,b +the encouraging news is that many latin american countries have begun to overhaul their outmoded banking laws to bring their banking systems more in line 7 with international standards of regulation,1,b +thus from the perspective of aggregate wealth creation the more competition the better,1,b +a major concern that i have about the bubblepopping strategy however is that attempts to bring down stock prices by a significant amount using monetary policy are likely to have highly deleterious and unwanted side effects on the broader economy,1,b +despite the apparent success of some nonbank regulatory reforms in the united states such as efforts to increase the resilience of money funds the board of governors again needed to provide significant emergency support,0,b +bankers are congratulating themselves on their fine performance and the frowns that bank regulators used to wear when bank loan losses were escalating some years back have changed back to deadpan,1,b +the alternative problem is that withdrawal of a guarantee has the effect of breaking a contract thereby imposing losses on someone,0,b +return to text 6 see eg jeanine skowronski why 5 percent cash back is an overrated selling point american banker november 6 2013 wwwamericanbankercomopinionwhy5cashbackisanoverratedsellingpoint,1,b +they also appear to have a lower risk positionmeasured by capital ratios and liability structures,1,b +these rules designed to protect the safety and soundness of banks in which the public deposits its funds have the effect of placing the risk of any unforeseen deterioration or depreciation of the product leased on the lessee,0,b +the persistence of this selfreinforcing cycle is evidence that despite the obvious advances in risk management over the years our abilities to peer into the future regrettably have not improved all that much,0,b +that approach would also address concerns over potential market disruption from the sale of offtherun agency mortgagebacked securities,0,b +on the benefit side of the ledger these specific groups of customers can expect to gain much as consumers in general from heightened competition from the ability to obtain market rates of interest on financial assets and from the unbundling and more explicit pricing of services,1,b +in the process long establiahed policies set by the corass are dreaking down the separation of banking and cormnrce and commercial banking and investment banking as well as statutory limitations on interstate branching,1,b +the company will not increase credit lines and will only grant credit to existing customers,0,b +fair value also incentivizes the entity to raise and maintain capital at a level sufficient to cover the price volatility of its assets,0,b +second regulations should be designed so as not to exacerbate the interaction between asset price bubbles and credit provision,0,b +thus stronger capital standards must be complemented with supervisory tools that incorporate dynamic macroprudential elements,0,b +however the persistent increases in both the wpi and cpicombined with the sharp advances in the volume of credit in the stock market and in stock pricesby early summer caused a number of federal reserve officials to advocate a shift to a policy of restraint,0,b +they are shifting their weights i believe toward more market mechanisms,1,b +such lending which has been going forward helps to protect the loans already outstanding,1,b +the deregulation o f interest rates on deposits is virtually complete,1,b +as is generally known inflation especially when it is unforeseen tends to redistribute income away from creditors and fixedincome receivers to debtors and profit receivers,0,b +that said recent experience suggests that reaping the full benefits of capital mobility requires prerequisites including a sound legal and institutional infrastructure solid prudential supervision and regulation and appropriate incentives for risk management by domestic financial institutions,0,b +in our approach to policy the amount of reserves has been a result of our market interventions rather than a goal in itself,1,b +the objective was not to bring down the stock market but rather to bring the growth of aggregate demand and aggregate supply into better alignment,0,b +for people to be willing to buy stocks another way to channel funds to business rules must be established to ensure that the managers of corporations act in the stockholdersâ interest,1,b +on april 3 the fsoc issued a final rule and interpretive guidance implementing the criteria and process it will use to designate nonbank financial firms as systemically important2 once designated these firms would be subject to consolidated supervision by the federal reserve and would be required to satisfy enhanced prudential standards established by the federal reserve under title i of doddfrank,0,b +the federal reserve has devoted considerable energy in its postcrisis regulatory work to incorporate the tailoring concept in its regulation and supervision across the spectrum of small medium and large firms,1,b +on the other hand after consolidation some firms shift toward riskier asset portfolios and consolidation may increase operating risks and managerial complexities for those firms,0,b +united states banks find themselves faced with higher capital costs and higher funding costs than many of their competitors,0,b +new strategies to improve earning power and improve risk management will be required,1,b +in such a holding company additional powers would be granted to separate subsidiaries and the insured deposittaking subsidiary could be insulated from the risks of its affiliates by appropriate prohibitions or limitations on intercompany financing or transfers of capital,1,b +before i begin i should note that i speak only for myself and not for my colleagues on the federal open market committee1 when we spoke last year i spent a fair amount of time on the list of factors that appear to have contributed to the decadelong boom in housing and housing finance that preceded and appear to have precipitated this recession and the associated financial turmoil2 the list included historically strong growth in productivity which passed through to growth in real income and the demand for housing low longterm real interest rates technologically driven improvements in retail credit delivery which lowered borrowing spreads and expanded access to credit and a regulatory regime which may not have adequately contained the moral hazard associated with perceptions that many large financial institutions including especially the governmentsponsored housing finance intermediaries fannie mae and freddie mac were too big to fail,0,b +in addition the federal reserve and the treasury have jointly announced a facilityexpected to be operational shortlythat will lend against aaarated assetbacked securities collateralized by recently originated student loans auto loans credit card loans and loans guaranteed by the small business administration,1,b +to be sure we may wish to keep overnight rates low for a prolonged period depending on economic developments,1,b + president plosser shares some thoughts about the stance of monetary policy and the advantages of raising rates gradually and starting sooner rather than being forced to raise them abruptly later,0,b +while we are going to have to pay careful attention to the attendant financial stability issues and be prepared to intervene with supervisory and regulatory tools as needed i would find it hard to accept the proposition that we should preemptively resolve them by say starting to raise the federal funds rate today,1,b +with these considerations in mind i believe that appropriate policy calls for a slow pace of normalization in order to give the real economy an adequate growth buffer to withstand downside shocks that might otherwise drive us back down to the zlb,0,b +more recently the federal reserve has announced that it will purchase 600billion in debt issued by the housingrelated governmentsponsored enterprises and in mortgagebacked securities backed by fannie mae freddie mac and ginnie mae which could reduce funding costs for mortgages,1,b +finally i will explain why it is vitally important for the federal reserve to remain significantly involved in the supervision of banking firms of all sizes,0,b +while the high level of excess reserves on the feds balance sheet is largely benign now that will change as banks become more willing to lend,0,b +general limitations similar to those on the federal reserves ability to obtain reports also apply to defining when the federal reserve may or may not directly examine a functionally regulated subsidiary,0,b +the feds prudential supervision benefits in turn from the expertise we develop in carrying out other parts of our missionfor example the knowledge of financial and economic conditions we gather in the formulation of monetary policy and the insight into retail financial markets that flows from our consumer protection responsibilities,0,b +the expansion of these eurodollars which has been far more rapid than that of dollars in the united states will henceforward be taken into account in formulating us monetary policy,0,b +for the industry overall the federal reserves interest rate cuts last year certainly appear to have helped bank earnings but they present management with new challenges too,1,b +to guide expectations concerning the process of normalizing the size and composition of the federal reserves balance sheet at its june 2011 meeting the fomc laid out what it called exit principles,0,b +12however from late last spring until well into the fall a farther increase in the discount rate was a matter of much debatewithin the federal reserve system as well as in the financial community generally,0,b +on the part of the fed we are offering guidance to lenders with regard to the disclosure of terms and costs to borrowers and with regard to the risks of carrying such loans on their books,1,b +the set of studies that resulted was8 published in 1972 and many other studies and proposals have been put forward since then by students of the housing industrywe at the federal reserve have long been committed to findinganswers to this pressing problem and have sought the legislation that will allow thrift institutions to adjust more quickly to the changing financial climate over the business cycleit has been our past experience that with the presentinstitutional structures a monetary policy designed to aid the thrift industry through low interest rates tends to be overly expansive and ultimately inflationary,0,b +the ability of the fed to get at these however by having voluntary capital requirements formally applied to the primary dealers and then by requiring them in turn to apply the requirements to the secondary dealers the fed was able to have some impact,1,b +federal reserve examiners will continue to look at four key components of riskmanagement systems in evaluating the management of supervised institutions,0,b +the difficulty here is that the fed should not adjust policy simply because the market expects it,0,b +i do believe however that lenderoflast resort policies should take a lesson from what we have learned from the theory of monetary policy,1,b +finally the federal reserve needs to place greater reliance on recent initiatives that promote a more riskfocused supervision process and market disciplinetwo trends that the federal reserve has actively pursued in recent years,0,b +second because the federal reserve conducts stress tests simultaneously on the major institutions it supervises the results can be used both for comparative analyses across firms and to judge the collective susceptibility of major financial institutions to certain types of shocks,0,b +3 my second recommended action is to clarify the federal reserves umbrella supervision role for financial holding companies,0,b +that said the intended purpose of federal reserve lending is to provide liquidity to sound institutions,0,b +monetary policys task becomes easier if velocities turnover of deposits and other liquid assets are more stable,0,b +i also remain open to consideration of other alternatives which could help the fed run an ample reserves regime with a sensitivity to limiting growth in the size of the federal reserve balance sheet,0,b +in august 2011 the committee statement included forward guidance that economic conditions are likely to warrant exceptionally low levels of the federal funds rate at least through mid2013a date that was later extended to late 2014which put further downward pressure on longerterm interest rates,1,b +these liquidity pressures were evident in nearly every major country and every central bank had to adapt its liquidity facilities to some degree in addressing these strains,1,b +third financial market functioning could at some point become distorted as a result of the federal reserves large and growing presence in mortgagebacked securities and treasury securities markets,0,b +international aspects the growing internationalization of banking adds new dimensions to regulatory and lenderoflastresort responsibilities,0,b +continued reforms in the area of monetary policy seem to be leading toward more reliance on the determination of interest rates through market forces,1,b +in order to bring growth rates of the aggregates more in line with the established targets the federal reserve on october 6 announced a new antiinflationary program involving an increase in the discount rate and new marginal reserve requirements,0,b +if you had turned to page 2 of the wall street journal on monday you would have seen a felicitous headline that read feds lending ebbs as crisis subsides the leading indicators for june that were released on monday by the conference board do indeed hint at a crisis subsiding the index rose for the third straight month and in doing so has registered gains comparable to those seen last in the economic recoveries of 1991 and 200102,1,b +the imminent transition away from paper check clearing makes the green and todd question a live issue right now in the usnotice that i have made no use of the notion of market failure my own working hypothesis is that market failures are largely absent from the payment system,1,b +the redemption or sale of securities would have the effect of reducing the size of the federal reserves balance sheet as well as further reducing the quantity of reserves in the banking system,0,b +thus starting on dec 12 of last year when the base interest rate was 425 percent we began expanding our balance sheet by providing access to credit for longer terms to eligible depository institutions to alleviate funding pressures in the system,1,b +the postcrisis regulatory and supervisory environment the severity of the great recession and its ongoing fallout importantly including its influence on public opinion has heightened the focus on the challenge of avoiding another such crisis,0,b +the fed will continue to carry out its basic function as lender of last resort,1,b +our mandate tells us to stabilize employment and the prices of goods and services not asset prices,1,b +as the economy returns to higher rates of resource utilization it will be necessary to reduce the rate of monetary and credit expansion so that the basis for a lasting prosperity is laid,0,b +in my view these potential costs outweigh the potential benefits of continuing our purchases of longerterm assets at a pace of 85 billion per month,0,b +however as in the case of interest rates the board believes that corrective action at the state level would be the most desirable way to address the counterproductive effects of limitations on these fees and chargesto summarize the board supports attempts to remove ceilings that can constrain the price of business agricultural and consumer credit,1,b +when capacity constraints are binding lenders may manage the surge in refinancing demand by holding mortgage rates high relative to lenders funding costs,0,b +in fact as in the united kingdom the principlesbased riskfocused approach to regulation has had considerable influence on this side of the atlantic as well,1,b +the ability to hold lenders accountable for poorly underwritten loans is a significant protection for taxpayers,0,b +in 2009 the g20 countries agreed that standardized overthecounter derivatives contracts should be cleared by central counterparties,0,b +striking and preserving the right balance between the safety net regulation and market discipline is vital to ensuring that financial markets make positive contributions to the resiliency and growth of our economy over the long run,1,b +if so then there would be an argument for public policy to explicitly encourage or even mandate ccps for all markets,0,b +there is new awareness in the executive branch of the need to overhaul regulations,1,b +the fed is currently increasing the quantity of reserves held by the banking system by buying securities  both longterm us treasuries and agency mortgagebacked securities,0,b +based on the joint findings of the agencies we supported fhfas decision to place the companies into conservatorship as necessary and appropriate given their conditions and systemic importance,1,b +we are hopeful that congress will in its legislative response to the crisis include a resolution mechanism and an extension of regulation to all systemically important financial institutions,0,b +after considering a number of approaches the ways and means committee approved a tax provision that would give mutual institutions three alternatives l they could deduct 60 per cent of taxable income to add to their bad debt reserves 2 they could add an amount sufficient to bring the balance in the reserves for losses on real property loans to 3 per cent of such loans outstanding at the close of a taxable year or 3 they could deduct an amount necessary to bring reserves to a reasonable amount if they could demonstrate to the treasury a need for a greater reserve than is permitted under the first two alternatives,0,b +therefore in an environment of rising interest rates the federal regulatory agencies have recently taken action to increase the competitiveness of bank and thrift deposits subject to regulatory ceilings in order to maintain the flow of credit to housing,1,b +this tradition of locally oriented banks makes this country unusual among developed nations and i believe contributes significantly to our financial diversity and economic resilience,1,b +in fact from my vantage point as a former banker meeting cra requirements should be the natural result of an aggressive business development policy,1,b +the banking act of 1933 was passed shortly and … the federal deposit insurance corporation fdic was set up which materially assisted in restoring public confidence in the banking system8 during this time congress also authorized the federal reserve to lend to individuals firms and corporations to promote economic activity under exigent circumstances,1,b +in recent years however transaction costs have fallen considerably so that the call option in the typical fixed rate mortgage instrument comes inthemoney with relatively small declines in mortgage rates,1,b +as you know the federal reserve has proposed new rules under regulation z which implements the truth in lending act regarding openend credit to require new more informative and consumertested disclosures by credit card issuers and expects to propose new rules for credit cards under the federal reserves unfair and deceptive acts and practices authority,0,b +in my view the most important issue any reform must address is the toobigtofail problem,0,b +in the united states in recent decades three particularly important sources of innovation have been financial deregulation public policies toward credit markets and broader technological change,1,b +taxes it has been said are the price of civilization but increasingly we see our system abused by legal devices or otherwise to escape a share of that price,0,b +government securities inc esm a brokerdealer in government securities but also was related to more systemic weaknesses in the supervision and insurance of some ohio savings and loan associations,0,b +state and local governments which in some cases postponed borrowings during the period of monetary restraint have borrowed 30 percent more in the capital market this year than in the first five months of 1957 corporate borrowing has so far been only slightly below the record volume of 1957 foreign borrowers and international institutions have also borrowed more heavily in the united states capital market than last year,0,b +put sarewhat differently the fact that the increase in bonds in the econany increases spending at least to sare extent means that there will be insufficient domestic savings available to the financial markets to absorb the new government bonds at given interest rates,0,b +other governments may want to collect less revenue from the financial sector,1,b +the second qualifying condition for the basic borrowing privilege the prohibition of net sales of federal funds while borrowing as i noted earlier also caused some concern,0,b +in 1970 congress prohibited the unsolicited distribution of credit cards and severely restricted card holder liability for lost or stolen cards,0,b +not only has the inflation rate remained within a reasonably narrow range but inflation expectations as measured by spreads between inflationindexed and noninflationindexed treasury securities and by surveys of professional forecasters and the general public have also been well anchored,1,b +however if the congress feels that the availability of credit control measures may lead to unwise use of them it may want to repeal the act as proposed in s35,1,b +brokerdealers provide the lions share of treasury security intermediation and generally are wellpositioned to meet the demands of investors to buy or sell treasury securities,1,b +the linkage between interest rates the dollar and the federal deficit is quite straightforward heavy federal demands for credit in competition with strong private demands have kept interest rates highthough nominally much lower than at their 1980 peaks interest rates are still exceptionally high in view of the much reduced pace of inflation currently,0,b +finally it appears inequitable for financial institutions to be required to cash government checks at cost while other entities such as check cashers could continue to offer such services at a profit,1,b +moreover this nation serves as a bank to the rest of the worldother countries use the dollar as a means of payment and as a store of value,1,b +they seem to be opting instead for the standard procedure of rescheduling of official and refinancing of private debt,1,b +government regulation of the financial system imposed to ensure the integrity of the financial system itself is essential,0,b +one is a change in our tax laws to tax interest at the same rate as dividends while holding total revenue from the corporate income tax steady,0,b +governments also reacted similarly when in late 2008 the turmoil deepened and many countries saw a need to provide broad support to their banking systems,1,b +implementing doddfrank will it work,0,b +second policymakers must actually allow financial firms to fail without government support,0,b +with the nominal neutral interest rate lower than in the past and with policy options being more limited if conditions deteriorate than if inflationary pressures accelerate the asymmetry in riskmanagement considerations counsels a cautious and gradual approach,1,b +the collapse of the intemational monetary system probably would not have occurred had the structure not been rendered so vulnerable by the proliferation of unsound international debts,0,b +for 10 purposes of ensuring the safety and soundness of the payments system the net settlement services of the reserve banks have many advantages over settlement through private banks,0,b +provided the economy continues to improve as i expect i am very comfortable at this point with a decision to start to taper our asset purchases before the end of the year and preferably as early as at our next meeting in november,0,g +those decades saw many advances in monetary policy and in bank regulatory policy but the appropriate role for government in managing threats to the broader financial system remained unresolved,0,g +of course federal reserve cbdc accounts that are available to persons outside the united states might promote use of the dollar but global availability of federal reserve cbdc accounts would also raise acute problems related to among other things money laundering,0,g +however i do not believe that a monetary policy aimed at improvement in the balance of payments conflicts with a monetary policy aimed at the restoration of domestic stability,0,g +prudent innovation for the united states the alternative to privately issued digital currency is not necessarily a publicly issued digital currency,0,g +on this point i would like to say that the deliberative approach we take to monetary policy would be seriously undermined by politicizing the central bank,0,g +moreover this form of capital formation has totaled more than half the aggregate expenditures on all other types of durable goods combinedincluding such durables as business equipment consumer automobiles household furniture and appliances and durables purchased by the government for defense and other purposes3some people argue that because the social costs of delaying urban investment are high the impact of monetary policy in this area should be offset by selective countermoves through such media as fnma fhi fhlbb advances or public subsidies,1,g +moreover since september 1966 the federal reserve system has had authority from congress to buy and sell in the open market all federal agency issues including those offered by fnma and fhlbanks which are direct obligations of or fully guaranteed as to principal and interest by the agency,1,g +conclusion experiences studied over a range of countries and periods of history tell us that central banks need a degree of insulation from shortterm political pressures if they are to consistently foster the achievement of their mediumterm macroeconomic objectives of price stability and high employment,0,g +but in addition purchases of agency mbs reduce the spread between treasury and mbs yields and thus compared with purchases of treasury securities have somewhat larger effects on mortgage rates,1,g +it is argued that such changes would make the fed more responsive to the political process,0,g +protecting the fed as a political nuisance i mentioned at the onset that i think it imperative that the fed be wary of giving rise to concerns that we will be politically pliant,0,g +my view is that without explicit constraints on the size of the balance sheet the fed runs the risk of being pressured to use its balance sheet to engage in policies whose goals have nothing to do with monetary policy,0,g +the new york fed offset this increase in the demand for reserves by adding a significant amount of funds on friday aug 3 through its open market operations so as to keep the funds rate near the fiveandaquarter percent target,1,g +we are also meeting with agencies such as the federal housing finance board and the national credit union administration to discuss liquidity issues that might affect the institutions they supervise,1,g +we can justify collective decisionmaking in most activity during national emergencies on the basis that it is necessary for survival but during normal conditions the competitive market through individual rather than collective decisionmaking is a more efficient allocator of resources,0,g +from a public policy perspective a greater concern with fully privatized gses is whether mortgage securitization would continue under highly stressed financial conditions,0,g +although the bank o f canada is legally under the control of the finance minister the bank has apparently been able to make a de facto change in its charter by publicly announcing that price stability is its sole objective,0,g +and many countries have privatized governmentowned institutions like banks airlines and telephone companies and left the firms fortunes to be decided in the global market place,0,g +until quite recently the interplay between the private sector and government stimulated the creative forces technical and economic which fostered the extraordinary innovative character of us industry,1,g +19 also to repeat myself policies to boost productivity growth and the longerrun potential of the economy are more likely to be found in effective fiscal and regulatory measures than in central bank actions,1,g +our recent worries including the decline of the dollar overseas can be traced in large part to the v highly inflationary stimulus of massive deficit financing in the midst of a strong business expansion,0,g +countries with persistent current account surpluses were encouraged to reduce their dependence on external demand by implementing structural reforms to boost domestic demand including investing in social programs and infrastructure and reforming labor product and financial markets,1,g +question are you saying that there is no little or no support in the banking community for chairman martin5s warnings with respect to revenue bonds,1,g +we do have a legitimate and strong regulatory interest in how stablecoins are constructed and managed particularly with respect to financial stability concerns the pool of assets that acts as the anchor for a stablecoins value couldâif use of the stablecoin became widespread enoughâcreate stability risk if it is invested in multiple currency denominations if it is a fractional rather than full reserve if the stablecoin holder does not have a clear claim on the underlying asset or if the pool is invested in instruments other than the most liquid possible principally central bank reserves and shortterm sovereign bonds,0,g +thus countries such as brazil worried that heavy capital inflows could lead to an undesirable loosening of credit conditions and leave the economy vulnerable to rapid reversals,0,g +as you know interest rates on state and locl securities hnve risen sharply,0,g +yet we have been a net creditor nation for much of our recent history,1,g +money and capital markets are simply too interconnected as we 5 saw during the october stock market crash fo r governments to maintain artificial exchange rates,0,g +countries with current account surpluses and restricted capital flows have been able to resist currency appreciation for prolonged periods even when justified by underlying fundamentals,1,g +however the feds policy can be successful without massive financialmarket distortions only i f federal government policymakers reduce their credit demands,0,g +but even as privatesector activities increased systemic risk the public sector also failed to appreciate or sufficiently respond to the building vulnerabilities in the financial systemboth because the statutory framework of financial regulation was not well suited to addressing some key vulnerabilities and because some of the authorities that did exist were not used effectively,0,g +raising reserve require ments was the obvious way to remove the problem and this was probably a contributing factor in the ensuing recession of 19371938 during and after world war ii the treasurys concern for floating debt at low cost was the basis for a tenyear period when the federal reserve temporarily forsook any continuing concern for other national goals and concentrated almost exclusively on maintaining stable price s and yields on u s government securities,1,g +but the upsurge in inflation has also gone hand in hand with the excessive money growth of past years which resulted when monetary policy was pushed off course by the excessive credit demands generated prim arily by federal deficit financing,0,g +this public policy approach does not entail the moral hazard concerns created by authorities monitoring of positions using a private database,0,g +georgia was slow to allow banks to expand statewide and then with mergers and acquisitions the advent of interstate banking left atlanta with just one big bank headquartered in the city that is one bank with more than 1 billion in assets,0,g +in turn the financing of these deficits has necessitated heavy demands on the credit markets and these demands have been aggravated by the borrowing needs of a rapidly grow ing number of offbudget agencies whose combined debt now exceeds 80 billion,0,g +clearly it should take advantage of the cheap longterm debt by issuing bonds,1,g +tax exemption makes banks together with upper bracket individuals the principal holders of municipals,1,g +it also changed drastically the source of liquidity to individual depository institutions which previously had been liquid debt instruments issued by someone else often the treasury,0,g +i believe that your efforts and this constitutional review are very important because they will lead to more effective oversight and expert advisory arrangements that will help ensure that highquality international standards will be developed based on sound principles and appropriate due process and in a manner consistent with the public interest,1,g +shortterm capital flowed from canada to the united states in increasing amounts between 1965 and 1968 this was partly due to policies aimed at fulfilling the requirements of the canadianus reserve agreement of 1963 following the modification of that agreement in december 1968 the canadian outflow was reduced sharply in 1969 and 1970 canadas overall payments balancel with the united states improved greatly in the last half of the 1960s rising from a deficit of 15 billion in 1965 to a surplus of 626 million in 1970 this was accomplished in a consistent pattern of yearbyyear improvements,1,g +the magnitude of the devastation called for a significant response from the federal government and the congress and the president acted quickly to provide emergency spending and tax breaks to aid the areas affected by the hurricanes,1,g +because of the repeated commitment of the united states to maintain a fixed price of gold a 35 per ounce,1,g +the canadian recession of that period was only slightly deeper than that in the united states so canadas cyclical situation probably provided only a limited source of upward pressure on the current account and the exchange rate,0,g +21the challenge remainso the debt problem is still with us and it will have to be resolved ultimately in the context of growth,0,g +but i would also like to focus on the emerging longerterm challenges particularly on the need to augment our domestic saving rate to facilitate the financing of the investment that will almost surely be required as the baby boomers retire,0,g +nor is it to make a judgment about the desirability of lower government spending,0,g +15differential iffipact of netarx fis restraint in the judgment of a really remarkable consensus of economists bankers businessmen and public officials the best way to achieve the required moderation in domestic demand is through a policy of vigorous fiscal restraint,0,g +ballooning expenditures have been the result,0,g +moreover it now appears that nationbuilding efforts in iraq will require additional government spending,0,g +the partial shutdown of the federal government is a case in point,0,g +these outcomes would be helpful but the effectiveness of an mbs purchase program would be amplified perhaps significantly if certain nonmonetary policies were changed,0,g +specifically i want to talk about the importance of fed independence and insulation from shortterm political pressure in the conduct of monetary policy,0,g +for innumerable reasons state planning simply cannot deliver the goods and services people seek,0,g +there is nothing intrinsically wrong with broadening the tax base beyond the payroll tax but there is a potential problem in breaching the trust fund limits,0,g +the great inhibitor of job creation is the uncertainty over taxes and spending and regulation that plagues businesses,0,g +hence policymakers may have unwittingly contributed to accelerating inflation that reached double digits by the end of the decade as well as undesirable swings in unemployment,0,g +but i hope to convince you that taxation is the best way to meet all five objectives,1,g +conceptually one might say public policy acting through govermnent may institute a federal credit program only when imperfections in the working of the pivate financial sector are causing a suboptimal allocation of funds to a given activity or when it is socially desirable to encourage the expansion of that activity beyond the limits of an efficiently working market system,0,g +effected in early 1965 had a tax rate increase been the actions of december could have been modified,0,g +actions that reduce current tax revenue without decreasing either present or future government expenditures do not constitute a reduction in actual tax burdens,0,g +the congressional budget act of 1974 requires a listing of tax expenditures in the budget,0,g +today about 25 billion in federal reserve repurchase agreements is outstanding,0,g +for one thing the debt service burden will be that much larger,0,g +the general topic of free banking can be thought of as dealing with how an economic and financial system would operate in the absence of state interventions such as a central bank,0,g +what we should want is a system that permits the united states the euro area and japan to pursue policies to achieve domestic objectives without generating wide and unsustainable swings in exchange rates,0,g +we know the conditions under which capital account liberalization turns out well for emerging economies but the trilliondollar question remains is china ready to face the full implications of these reforms,1,g +because most government expenditures are not purchases but transfer payments social security benefits medicare interest on the public debt et cetera government actually accounts for a relatively small percentage of gdp about 17 percent,0,g +throughout history many nations when confronted by sizable debts they were unable or unwilling to repay have seized upon an apparently painless solution to this dilemma monetization,0,g +if a net importing country finds financing for its net deficit too expensive that country will of necessity import less,0,g +the upper income groups would get a tax reduction of 21 per cent versus a higher those in the lower groups,0,g +moreover such act ion would contribute to exchange rate stability especially if germany and japan ultimately adopt a tax policy that improves their growth potential,0,g +692 december 2000  return to text 7 although increased flexibility apparently promotes resolution of current account imbalances without significant disruption it may also allow larger deficits to emerge before markets are required to address them,0,g +and to attract capital a private sector environment in which property rights are well established and tax rates and regulations do not overburden investment is essential,0,g +i recognize the uncertainties in the business outlook as the budget is debated,0,g +a flexible rate does not require major central bank or government actions in the foreign exchange market,0,g +neutral it is impossible to think that spending by government in economic terms spending and that the sheer size of direct government along with o ther governmental influence on investment decisions has no effect on the a lloc ati on of resources,0,g +i suppose no one was fully satisfied that the new measure gave us the optimal degree of fiscal restraint or the ideal division of restraint between higher taxes and expenditure reductions,0,g +milwaukee abounds with successful publicprivate partnerships,1,g +the amount of federal government debt held by the private sector has gone up by over 30 percent since the beginning of 2008 this debt can only be paid by tax collections or by the federal reserves debt monetization that is by printing dollars to pay off the obligations incurred by congress,0,g +each agency is concerned with some facet of job safety environental purity safe products 1r1ei overall consumer protection,0,g +finally our international payments imbalance requires an antiinflation strategy that promises to enhance the competitiveness of our products in international markets,0,g +over the entire postwar period however the federal government has been the one sector which has sharply reduced its debt relative to its income,1,g +but i am also conscious that tax reductions however rationalized on structural or cyclical grounds will be counterproductive if they simply add to our chronic deficits over time place still more pressure on 11 interest rates and feed inflation,1,g +3 and it is up to the public sector to provide ample opportunities for all americans to participate in the private sector equally and on fair footing,1,g +however apart from some speedups of tax payments no additional fiscal restraint was introduced until this fall when certain tax incentives to business investment were temporarily suspended,0,g +a commitment by the united states congress to price stabilify would reduce the political pressure to deviate from that goal,0,g +or the needed fiscal adjustments could come as a rapid and much more painful response to a looming or actual fiscal crisis in an environment of rising interest rates collapsing confidence and asset values and a slowing economy,0,g +but i can point out that this quest has also involved a method of financing of government expenditures which in my opinion is inconsistent with the goals themselves and with the survival of our economic and political institutions,0,g +but most importantly the growth rate in real federal spending is now less than 1 percent and therefore there is hope that further progress will be made in reducing the size of the deficit,0,g +at that time the federal reserve presumably would begin to shift our portfolio back toward the treasury market,1,g +for now the budget deficit seems to have topped out,0,g +19 also to repeat myself policies to boost productivity growth and the longerrun potential of the economy are more likely to be found in effective fiscal and regulatory measures than in central bank actions,1,g +but the repercussions of the financing of these government expenditures have created grave problems,0,g +if we decide to pass the burden on to future generationsthat is if we neither increase saving now nor reduce the benefits to be paid in the future by social security and medicarethen the children and grandchildren of the baby boomers are likely to face much higher tax rates,1,g +some have been concerned that the federal reserve and the treasury might be working at cross purposes today to the extent that reductions in the treasury debt supply have lead to declines in longerterm treasury rates at a time when monetary policy is aiming to slow the pace of economic activity to a more sustainable rate,0,g +then about the first week in september temporary suspension of the 7 per cent investment tax credit uas recommended and the measure was adopted in october,0,g +indeed the deficit would be needed in order to keep the economy from sinking into recession,1,g + finally there still exists a group that believe no tax increase is necessary anyhow arguing that the economy is not overheating and inflation is not taking place,1,g +in an effort to reduce longterm treasury yields from already historically low levels the fomc intends to purchase 400 billion of longerterm treasury securities and to sell an equal amount of shorter term treasuries by the end of june 2012 this action will not increase the size of the feds balance sheet but it will lengthen the maturity of the feds holdings,1,g +measures to stimulate domestic saving that are justified on their own merits will effectively reduce our current account deficit and our reliance on foreign savings,0,g +that is we believe the level of federal spending should be held constant during the threeyear transition to lower rates,0,g +by reducing the deficit i am convinced we will increase the capacity of the economy to grow in the long run,0,g +achieving fiscal sustainability the primary longterm goal for federal budget policy must be achieving fiscal sustainability,0,g +at the same time imports will continue to grow faster than exports as the increase in us spending still outstrips that of many of our trading partners,0,g +funds for 5housing from the treasurywhether direct or from the trust fundsmust either be saved by lower expenditures elsewhere or they will add to inflationary pressures and not to outputon another tack ipersonally find the idea that insurance trust pension and similar funds and institutions be forced to put a certain percentage of their money in mortgages quite objectionable,1,g +in a recession period heavy federal borrowing demands may not be overly burdensome,1,g +however we suggest that it would be advisable for government authorities to continue to monitor competition in the payment system,1,g +however longtern interest rates including nortgage rates can cnly settle so far unless federal governrent spending and budget deficits can be brousht tmder control,0,g +second comes the special income tax treatment of thrift institutions primarily related to their special function as mortgage lenders,0,g +indeed the treasury will need to raise 36 billion of new money in the present quarter alone onethird more than in the yearago period,0,g +in my opinion however a recession is not inevi table and our chances of avoiding one will be greatly enhanced if we pursue restrictive anticyclical policies today to bring the boom under control,1,g +similarly the involvement of political officials through the g20 was imperative to galvanize the legislative and regulatory processes of participating countries to undertake the breadth of needed reforms,0,g +since then the treasury has been forced to do all its financing with securities 5 bearing five years maturity or less,0,g +these spending habits together with the severity of the 198182 recession worked to dramatically enlarge the budget deficit and saddle the economy with huge public sector borrowing needs,0,g +under these assumptions the upward pressure on interest rates on government bonds could be expected to be greater than otherwise,0,g +the large figure for the savings bonds holders show us dramatically that the savings bonds program as a feature of federal financing cannot be ignored,0,g +economists have downgraded the ancient antiinflationary safeguards such as a balanced budget,1,g +ut_ths says that to keep those troops there we have to get 3 or billion dollars of yen or francs or marks or pounds sterling r so n to pay for whatthese troops spend in those countries,1,g +in a number of cases countries have had to seek 14rescheduling of their debts to avoid imminent default and it would not be hard to list some current problem cases,0,g +regulatory reform mostly passed over these transactions i suspect because sfts appear safe from a microprudential perspective,0,g +the result is that through inflation a strong bias is created in favor of public and against private provision for the future,0,g +the recent progress on the fiscal side is encouraging but much more needs to be done,1,g +but the notion that constitutional restraints are thejl this possibility is in addition to the increase in the tax base in income tax states which permit federal taxes as a deduction in computing taxable income22in spite of the higher yields at existing tax rates that will be forthcoming from a growing economy many states and localities will need still more revenue,1,g +in this special situation where financial intermediation no longer adequately functioned to foster monetary expansion through the private sector fiscal policy could in effect be used as a vehicle to enhance the effectiveness of monetary policy and in this way help to bolster aggregate demand,1,g +the substantial expansion o f the federal budget d eficit has contributed to tis situation,0,g +16in summary the monetary approach to economic stabilization i have just presented incorporates the following points 1 public stabilization policies should focus on total spending allowing markets to filter their influence throughout the economy,0,g +every democratic society struggles in the purgatory between the ideal of government responsive to citizen concerns and the practice of a messy process responsive to wellfinanced advocates,0,g +their analysis shows that statelocal activities however measured have grown more rapidly than the economy and faster even than federal programs,0,g +or perhaps better we need at this juncture a separate and simple piece of national legislation,0,g +furthermore it was in 1966 that the acceleration of military activity in vietnam began to have a substantial impact on the domestic economy,0,g +some tax increases were initiated,1,g +there are when you add to the economic concerns i have already mentioned other problems such as the middle east central america arms control terrorismand the list goes on and onit is obvious we live in a dangerous and difficu lt world,0,g +let me close this discussion of fiscal uncertainty with one more thought,0,g +this movement has rallied under the banner of government in the sunshine,1,g +the subject has come in for considerable attention recently as the president has asked the congress to remove the present 4 14 per cent ceiling on treasury bond rates and the 326 per cent ceiling on savings bond rates,1,g +it is difficult the treasury has run deficits in 14 of the past 15 years and as matters presently stand will post another substantial deficit in fiscal 1975 these deficits have occurred with almost uninterrupted regularity practically without regard to the stages of the business cycle,0,g +third some reserves can be soaked up by the treasurys supplementary financing program,0,g +the devaluation of the dollar with respect to other currencies which could have been achieved without any reference to gold will be instrumental in improving our international sales and balance of payments position,1,g +i would hope that the congress and the administration would act promptly so that fiscal and monetary policy will be working together to bring down nflation,1,g +to be sure rd spending remains concentrated in the mostdeveloped countries with the united states still the leader in overall rd spending10 however in recent years spending on rd has increased sharply in some emerging market economies most notably in china and india,1,g +the high employment budget moved sharply into deficit during 1966 and 1967 indicating a high and accelerating degree of fiscal stimulus,0,g +the government had already put fannie mae and freddie mac into conservatorship to preserve the mortgage market,0,g +therefore they do not operate with tax revenues but rather pay expenses out of earnings,0,g +however financial instability can also be a consequence of governments and their policies even those intended to reduce instability,0,g +in addition investors appear to be willing to pay for the safety and liquidity of certain government securities,1,g +it has been argued 100st recently by the joint economic conmittee that this mix 8has been unbalanced with monetary policy carrying too much and fiscal policy too little of the burden of combating inflation,1,g +in this final decade of the century it seems that the clearest trend around the world is to reduce the role o f the nationstate in economic affairs,0,g +in my view preventing the failure of aig was the best of the very bad options available but it nevertheless involved major costs including financial risks to the taxpayer,0,g +consequently i am afraid that many farm banks as well as other depositories w ill remain in a tenuous condition until we can make a convincing expression o f our determination to reduce the federal budget deficit,0,g +on the other hand it is also of highly critical importance that fiscal restraint through an increase in income taxes and a reduction in federal spending in that order be made to bear a much larger share of the responsibility for the stabilization of the national economy,0,g +the public sector can encourage the development o f small business directly by supporting programs like incubators and technical assistance efforts,1,g +bush didnt get credit for the budget agreement of 1990 because the economy turned sour,0,g +he has correctly in my judgment emphasized priority for spending cuts in achieving a reduced deficit,0,g +if future taxrate cuts are already enacted into law putting them into effect sooner than planned could be done quickly,0,g +this past spring the united states increased tariffs for steel and lumber,1,g +moreover driving down bond yields might force increased pension contributions from corporations and state and local governments decreasing the deployment of monies toward job maintenance in the public sector,0,g +many of these governments have been spending at a moderate rate while also building their rainyday funds and this year they appear poised for further hiring and more construction spending,1,g +major tax changes and spending cuts are scheduled to take effect next january,0,g +i trust the congress will get it right,1,g +politicians fearful of making the difficult decisions that would address the federal budget deficit the real cause of our foreign trade imbalance exploit public sympathies for displaced farm and textile workers as if tariffs or quotas would somehow ease their suffering,0,g +and of course there is the renewed concern about the yield curve,0,g +the decline in defense spending nationally will also certainly have an adverse impact on the southeast,0,g +more 2 cur international financial position none of us can challenge i think the dedication which has marked the governments efforts to secure payments equilibrium,1,g +in passing i think itf interesting to note that s 5 development expenditures by public bodies in this country at least almost always stop short of investment in commercial enterprises per se despite the fact that conceptually such outlays might contribute as much to regional development as for example construction of highways,1,g +my answer is yes by improving the political process,1,g +more than a decade before churchill president cleveland understood the magic of tearing down american barriers to competition from all comers,0,g +the fiscal imbalances tliat underlie the il,0,g +successive rounds of retaliation can spiral into a trade war,0,g +the problem threatens to swamp the n x f congressional budget committees at the very inception of their et activities but it is one which they must grasp and bring under control,0,g +a government pretending to serve a nations interest by say misinforming the people about its military plans would be harshly taken to task,0,g +even if the federal budget d eficit is cut by the 50 billion that the senate recently endorsed the effects on defense could be slight and the overall impact would not be fe lt for some time,0,g +another would be the lowering of the 7percent invest ment tax credit as a means of curbing the business spending boom,0,g +we need and i believe we have scope for an approach to fiscal policy that puts in place a welltimed and credible plan to bring deficits down to sustainable levels over the medium and long terms while also addressing the economys shortterm needs,0,g +whatever the reason we must reduce federal deficitfinancing pressures and change tax and regulatory policies i f we want to reduce inflation and encourage domestic saving and investment,0,g +unlike other southeastern states defenserelated industries are significant locally and the decline in defense spending augurs poorly for florida,0,g +3 we must bring government expenditures under better control,0,g +first we cannot have a now nobody in this room would like to see taxes lower more than i would,0,g +oo the fiscal structure is moving in constructive directions to help savings and to help investment and to provide greater incentives all that will take time to be effective but the framework is in place,0,g +houever within the latter a sizable increase occurred in federal spending for education,1,g +looking closer to home our own federal government has been trying to come to grips with a national growth policy for at least the last three years,0,g +in any case it is not clear that taxation is superior to borrowing as a form of financing government spending especially when the deficit is declining as a percent of gnp,1,g +in this scenario there might well be no date in which outstanding treasury debt would fully be retired,1,g +the record of the recent past has been sufficiently overt to convince thoughtful people that further fine tuning budget experimentation can only lead to the injection of unnecessary instability into an otherwise inherently stable economic system,0,g +also when rising governmental expenditures stem from programs that redistribute income the effects on the tax structure may dull incentives to the point where individual initiative suffers5 the short term aspect of this problem is being well covered in the debates now in progress in the congress relative to a federal government spending limit of 250 billion,0,g +the debate over whether budget policy should seek a balance or zero deficit and surplus or should attempt to compensate for the disequilibrium in private spending and saving decisions probably has resulted in some harm to the adoption of the best policy,0,g +ive been emphasizing the importance of strengthening public policy to address potential problems,1,g +if we do not make steady progress in reducing the federal budget deficit the debt service burden will continue to mount,0,g +certain aspects of our tax structure for example have increasingly been recognized as being less conducive to savings and investment and thus to the growth of us productivity than we might like,0,g +our country in other words has failed to break the link between government debt and inflationary money creation as germany and japan have done,0,g +past population growth has created a need to improve education and expand infrastructure and these activities are falling largely on the shoulders of the state and local governments,1,g +as a nation we have begun to grapple with the budget deficits which i believe have created a significant drag on economic growth in the past few years,0,g +the budget deficit is way too large and may ultimately become a drag on growth,0,g +if economic policy is to play a constructive role in building a new world economy policymakers must increasingly focus on policies that eliminate barriers to communication and allow the market to work most efficiently and effectively,0,g +as a result congress finds itself beset by a cacophony of diverse pleas,0,g +public policy therefore should weigh carefully any potential adverse effects on competition in the evolution of the banking structurea discussion of concentration as a measure of competition would not be complete without saying a few words about statewide5management factor,0,g +but if there is a tax increase there will be less inflation than there otherwise would have been,1,g +but a most promising approach is to modify the tax system to encourage rather than to inhibit saving and investmentl__government policiesthis leads directly to the final aspect of a coordinatedprogram designed to curb inflation namely government policythere is a lot of talk these days about the wisdom and timingof any possible tax cut,0,g +inasmuch as the u s treasury borrowed over 23 billion dollars in the fiscal year beginning in july 1967 money and capital markets were under great pressure,0,g +nevertheless during the past fifteen years or so both the political elites and the broader public in the region have for the most part shown an increased willingness to abandon the failed economic models of earlier decades in favor of new approaches that emphasize improved fiscal discipline the benefits of free trade and free markets and the vital importance of building strong economic institutions,0,g +government debt primarily in the form of treasury obligations held by the public as a percentage of gdp has grown from 44 percent at yearend 2008 to approximately 77 percent as of dec 31 2018,0,g +the experience of many decades tells us that industrial policies are far from a surefire development strategy as they require that the government be adept at picking winners,0,g +because we do not save enough to fund 4 our own investment and government deficits we have had to rely on the savings of our friends abroad,0,g +that is one reason i believe the congress has not wanted to delegate its power over money directly to those responsible for financing the governmento but i suspect that many in congress have also wanted a degree of insulation for the federal reserve from shortterm political or electoral pressures that can arise in the congress itself,0,g +on the other hand the acceleration of corporate tax payments a key component of new fiscal policy measures generated considerable money market pressures around the tax periods of march april and june,0,g +that was about couble the amount of increase in outstanding longterm debt of all federal stte and local governments and private corporations combined,0,g +the speedup in collection of social security contributions withheld income taxes and excise taxes in the first quarter drew off an estimated 650 million in business working capital and the continued acceleration of the corporate income tax payments schedule added an estimated 43 billion to business tax remittances in april and,1,g +other tax incentives for exports common to all the countries discussed here exporters are permitted drawback of customs duties on material used in exports,0,g +thinking runs along the lines of allocation of current account deficits with the intention of making the debt burden most readily bearable,0,g +admittedly the ability of budget analysts to forecast the trajectory of healthcare spending is limited but it is prudent to assume that federal health spending per beneficiary will continue to rise faster than per capita gdp for the foreseeable future,0,g +at the recommendation of the administration the congress subsequently passed a bill that among other things created a new and stronger regulator for the gses the federal housing finance agency fhfa and provided the treasury with powers to purchase gse debt and equity,1,g +the general trend toward less goverrnnelt involvement in 8 the economy,0,g +in fact the same philosophy that decreed that the least government was the best government also held that planning was not just useless and unnecessary it was absolutely destructive because it infringed on the freedom of the individual and his rights to property both of which were sacrosanct,0,g +the governmentarranged and subsidized absorption of bear stearns into jpmorgan chase draws attention to two additional features of the toobigtofail problem,0,g +stablecoin networks at global scale are leading us to revisit questions over what form money can take who or what can issue it and how payments can be recorded and settled,0,g +at the federal level changes in the level and structure of taxation and special remedial programs in the key problem areas are clearly indicated,0,g +brazil is the fourth largest holder of us treasury securities with more than 200 billion in treasuries as of june 2012 after china japan and the major oil exporters as a group,0,g +the decisions to be made are numerous and some are complicated with the complications arising sometimes because the intent of the congress is unclear and in other cases because the choices may have significant implications,0,g +however in the face of a relatively low savings rate and huge federal borrowing interest rates would stay high and crowd out private borrowing,0,g +the latest official forecast for fiscal 1976 is 60 billion but there is growing uncertainty whether congress will go along with the presidents proposals for spending holddowns and whether it 6 will add on new recessionrelated expenditures to push the deficit to 69 billion or even more,0,g +charters are being sought from both state and federal supervisors and the movement is receiving strong support from large banks and other corporations as well as from many public officials,1,g +a review of the 1981 reagan budget plan reveals that federal spending was projected at 918 billion for 1986 the actual figure came in at 990 billion or an error of over 70 billion,0,g +the burden of taxes therefore has increased and in the case of inventory profits at least cash low has been less than it appeared to be,0,g +the treasury international capital or tic data released yesterday morning show that foreign interest in buying treasuries remains robust,1,g +many weeks like the last one of funding 15 billion for treasury may in time bring upward pressure on interest ratés,1,g +our taxing and spending policies shift resources 4from the private sector which has been the strength of the american economy to the public sector whose past accomplishments provide little reason to expect efficiency and productivity,0,g +return to text 11 privatesector stablecoins are also subject to cyber risk of course but any individual private stablecoin network would be less systemic than a cbdc for an entire advanced economy and private companies are frequently better able to make the rapid and constant investment in technology required to keep current with technological security threats,1,g +with the rapid growth in demand for goods and services for military purposes unmatched by higher taxes to pay for the war the federal government became a principal source of inflation in the united states,0,g +when it comes to disincentivizing egregious bad behavior however the government can play a more direct role,1,g +public sector borrowing in the 1970s absorbed some of the funds previously invested in domestic industry,1,g +another significant aspect of the presidents new policies announced august 15 are the measures taken to reverse the deteriorating u s balance of payments,1,g +the government sector has been reducing spending and employment,0,g +to put the magnitude of this fiscal response in perspective the 56 trillion in federal relief spending during this crisis is roughly seven times the size of the 2009 american recovery and reinvestment act,1,g +at the same time the difficulties of achieving suitably broad and coherent new legislation from a congress beset by competing demands is well known,0,g +although some contacts point to uncertainties raised by regulatory actions and government policies to explain their reluctance to invest most admit that they would increase spending if stronger demand conditions prevailed,0,g +financial innovations make it easier for citizens to move their assets out of the local currency should their government resort to an inflation tax,0,g +if i have been somewhat critical of others for dragging their feet on easing their fiscal policies i must emphasize that we have too been far too slow in correcting the intemperate fiscal policy that has contributed in no small measure to our current problems,0,g +12i hope that thi s preference for solid and sustainable progress will guide our govcrmnental housing policies,1,g +conversely a federal reserve cbdc could pose significant and concrete risks,0,g +the recent slowdown views about the role of government credit in promoting financial and macroeconomic stability tend to be shaped by views about the role of credit in the business cycle,1,g +what is needed according to these observers is a forced draft to fan the flame of business whether in the form of larger government deficits or in the form of the creation of a significantly easier money situation,0,g +c 9ortunities for additional tax reductions for individuals const vrth the goal of a balanced budget and also consistent with the purpose of reducing government expenditures and giving more spending decisions back to peoole,0,g +continued success on the economic front depends largely on political reform namely constitutional reforms that will help restrain fiscal spending,0,g +although the treasury market remains deep and resilient there are nonetheless reasonable questions as to whether market functioning can be improved,1,g +rising government expenditures especially for defense have fostered strong gains in both output and employment in related industries,1,g +additional fiscal support is likely to provide a significant boost to spending when vaccinations are sufficiently widespread to support a full reopening of inperson services,1,g +while there have been arguments that the us federal government should use a capital budget such a change is unlikely to help promote saving in the present environment,0,g +he also ad vanced the view that remedial legislation would enlarge the revenues and contribute to a fair and sound tax structure the house ways and means committee began hearings may 3 on the presidents tax recommendations,1,g +with the budget control act of 2011 restraining federal outlays and with pension and healthcare obligations limiting expenditures at the state and local level the public sector is not likely to contribute significantly to gdp growth over the next few years,0,g +the most effective step to that end i believe is to move toward a balanced budgetas i said earlier it has always been the belief of the federal reserve that monetary policy alone should not have to carry the burden of fighting inflation,0,g +a failure to achieve these goals will be the result of an unwillingness to make the political decisions necessary to transform rhetoric about housing goals into concrete programs,0,g +income that is saved is taxed twice once when it is earned and once again when it generates additional income,1,g +that fundingauthorized by an administration seeking marketbased alternatives to public housingreflected an important enduring publicpolicy objective increasing the nations homeownership rate,1,g +lastly investments in selected infrastructure improvements could help create greater eUFB03ciencies in the us economy,1,g +within the treasury bond market offtherun issues trade at much higher than usual yields relative to ontherun issues,0,g +there is however another productive resource labor it is in short supply presently and if taxes are not increased it will be in much shorter supply during 1968 but as the unemployment rate decreases wage settlements get bigger and prices tend to increase,1,g +under laissez faire there would be an absence of conditions under which the government could impose under the auspices of powerful special interest groups mean and malignant expedients on the community in the guise of the public good,0,g +at the same time in the early 1960s fiscal policy became more expansionary through a series of moves including liberalized depreciation rules an investment tax credit and a sizable personal and corporate income tax cutthe nation enjoyed a fiveyear period of unparalleled sustained economic growth with total output of goods and services increasing by 175 billion between the end of 1960 and the start of 1966 just to indicate the magnitude of this increase it was more than the value of our total output in 1942 in addition this expansion was achieved in a noninflationary mannerthat is prices were comparatively stable during this long period of continuous prosperity,1,g +the government owns all property and allocates the it can channel capital into any area that needs bolstering,1,g +the real threat to democracy comes from undermanagement not from over management,0,g +and society as a whole realizes or should realize that the debt will ultimately be repaid through higher taxes,0,g +but the bar for such action remains very high for me until the fiscal authorities do their job just as we have done ours,0,g +in this cynical age there is considerable discussion about government programs that do not work and some perception that political partisanship will foil all efforts to bring about real community improvement,0,g +having proven themselves unable to cobble together with colleagues a working fiscal policy or to construct a regulatory regime that incentivizes rather than discourages investment and job creationin other words failed at their own jobthey simply find it convenient to create a bogeyman out of an entity that does its job efficiently,0,g +imagine if you will the consequences if congress were to abandon its wisdom of the past four decades and subject monetary policy to direct political control as some now urge,0,g +the government could also help by ensuring that there are no barriers to the sale of us automobiles in japan,0,g +we are currently purchasing 80 billion per month of treasury securities and 40 billion per month of agency mortgagebacked securities,1,g +accounting problems were not on my radar screen when i first became concerned about gse risk,0,g +market commentary repeatedly cites an implicit government guarantee of gse debt as the rationale for the narrow spread,0,g +this forecast does not incorporate significant effects coming from the major potential sources of downside risk most prominently the fiscal cliff threat in early 2013 i expect that continued aggressive use of balance sheet monetary tools will be appropriate and justified by economic conditions for some time even if fiscal cliff issues are properly addressed,0,g +here in the us the fiscal stimulus from the phasein of the 2001 tax cut package is still in the pipeline and the presidents more recent proposals for additional tax cuts are the subject of ongoing discussion in congress,0,g +indeed with that process now under way it is likely that our securities holdings are now depressing the term premium on the 10year yield by somewhat less than the 1 percentage point estimate reported for late last year,0,g +so while we can applaud policymakers who have tried to shore up social security we must be ever mindful that the lions share of the total 839 trillion unfunded liability problem will remain even if they succeed,0,g +capital exchanges are too money and interconnected as we saw this past year to governments to maintain artificial exchange rates,0,g +the withholding provision provides that payers of dividends and interest be required to withhold federal income tax at the rate of 20 per cent,0,g +in such circumstances the intrusion of government regulation in technology unchanging and innovation sìuggish the costs the marketplace may be able to achieve politicaììy determined results that otherwise would be missed,1,g +at face value fiscal policy may not seem a concern for the federal reserve,0,g +from these indications its possible that the fiscal 1978 budget will also be lower than expected,0,g +when the federal government operates at a deficit it means that the government spends more than it takes in through taxation,0,g +to put it mildly historical evidence suggests that governments are not very good at such micromanagement of factorylevel operation thats why we have private markets,0,g +for example studies have found that the 17 trillion in purchases of treasury and agency securities under the first lsap program reduced the yield on 10year treasury securities by between 40 and 110 basis points,1,g +that is not the road to restoration of selfgovernment in dc finally the citizens of the district including the corporate and nonprofit citizens and citizen groups as well as individuals have to make clear every way they can that they want both more effective better managed government and a return of power to elected government,0,g +finally im concerned about growing global protectionist sentiment,1,g +liberalized depreciation refundable investment tax credits new aid to areas of high unemployment and continued fiscal restraint will provide a climate for strong growth in private investment,0,g +concerned as we all are about the economic consequences of inflation there is even greater reason for concern about the impact on our social and political institutions,0,g +or regulation we can nonetheless reevaluate the need for existing government programs from time to time to determine if they are still warranted,0,g +i believe that market confidence in continued low inflation has helped drive down the slope of the yield curve by reducing the premium demanded for holding longterm nominal assets,1,g +600 million for increased public investment in transportation including port improvements required for increased coal exports and maor investments in human capital,1,g +deficit spending by the federal government can be justified at a time of substantial unemployment,1,g +most worrisome of all is the likelihood that pressures will increase for the federal reserve to do something to bring down interest rates13these large internal and external deficits that i have been discussing with you today pose a serious thyeat to the sustainability of the current economic recovery,0,g +welldesigned government policies can also help spur basic science rd and innovation make it easier for people to start up companies and help to ease the transition for households industries and communities being negatively affected by globalization and technological change,1,g +there is no discernible relationship between the amount of tax incentive and the relative need for improved productivity performance,1,g +also need to consider exogenous factors that are not predictablefor instance what congress might do,0,g +at the later stages of a long economic expansion recent fiscal actions have had the impact of increasing government debt to gdp and have provided meaningful stimulus to nearterm growth,0,g +it is a political fact of life that politicians feel that in order to be elected they must promise their constituents more and more benefits,0,g +over the past halfcentury societies have embraced the protections of the myriad initiatives that have partially substituted government financial guarantees and implied certifications of integrity for business reputation,0,g +we are simply asking the congress to treat our competitors as we and other corporations are treated,0,g +in the absence of revenue from its rediscounting operations the reserve banks began to purchase government securities as had been allowed in the federal reserve act,1,g +if momentum continues and some of the potholes out there are avoided particularly a political crisis around fiscal decisions growth could accelerate,0,g +so what we had in the 1960s was rising government expenditures both for the vietnam war and for expanding welfare programs,1,g +government spending will not exactly be a weak spot,0,g +the urgency of the deficit problem just doesnt seem to be confirmed by the shortterm results,1,g +our farm programs designed to correct the alleged illness of income allocation is an example of such failures,0,g +in the us for example the major longrun drivers of the structural deficit at the federal level are entitlements such as health care and social security1 thus even after cyclical effects play out many countries will continue to have large structural budget deficits,0,g +i am confident the broad treasuries repo rate which the federal reserve bank of new york has proposed publishing in cooperation with the office of financial research is based on a deep and actively traded market and will be highly robust,1,g +in responding to these challenges it seems to me that the financial policy link between domestic and international determinants may be found in what i have termed the roosa categorical imperative deriving from last fridays per jacobsson lecture by mr roosa namely that on the 0ne hand monetary policy has to be formulated with full regard for all other elements of public policies and objectivesand clearly this includes balance of payments considerations and even international reserve asset creationwhile on the other hand other appropriate public policies cannot ignore the elements of monetary discipline essential to the system,0,g +as the lender of last resort the fmha has the most troubled loan portfolio of all lenders,0,g +federal agency debt and mortgagebacked securities issued or guaranteed by the federal agencies also could be held as part of a wider range of private debt,1,g +further we seem to be developing a growing infatuation with the exercise of power to impede the operation of free markets by constantly surfacing new ideas and programs for controls which usually have ended up accomplishing exactly the opposite of what they were proposed to do,0,g +why briefly is money a government responsibility,1,g +finally mention should be made of the recent introduction of book entry procedures as a substitute for the issuance and safekeeping of government securities held by the federal reserve,1,g +and more growth in nominal gnp in the short run typically means both more real growth and higher inflationthe posture of fiscal policy embodied in current law poses a very serious future threat to the economy and to financial markets a subject to which i will return briefly later,0,g +government actions which affect the economy are often taken in response to notions and prejudices of the voters therefore economic illiteracy becomes a serious factor in the progressor lack of itof our nation,0,g +the requirement of such a tax would materially strengthen the states resolve to put whatever pressure is needed on the troubled municipality to work its way toward a balanced budget,0,g +long term a smaller deficit will be a major plus because the government will be borrowing less,0,g +these are some of the circumstances that make the american brand of inflation particularly resistant to efforts to reduce it but i believe that these efforts are beginning to bear fruitfinally the government has mandated inflation in so many ways that to single out only a few of them would understate the gravity of the situation33to remove the drug causes withdrawal pains and unfortunately there is no methadone for inflation,1,g +there have been strong public pressures on governments to attempt through regulatory action to return us to some semblance of prior relationships which perhaps nostalgically appear more idyllic,1,g +if we do not want to deal with these extremely damaging distortions directly we should at least cut personal tax ratesbut can we afford a tax cut that would further enlarge the government deficit,0,g +13if the federal reserve pursues a disciplined course of monetary policy in 1934 as i believe it will serious conflict is threatened with the increasingly stimulative fiscal policy embodied in current law,0,g +as unemployment rose and the housing and automotive industries sagged there were temptations for strong government stimulus actions,1,g +the major challenge facing us fiscal authorities is meeting the need for nearterm economic stimulus while pursuing a practicable plan to stabilize the governments debtfinance obligations,0,g +last november the committee initiated an additional 600 billion in purchases of longerterm treasury securities and those transactions were completed at the end of june,1,g +in these circumstances it is1 the united states leans over backward in measuring its deficit,1,g +but making the discussions held by me and my colleagues at the fomc subject to congressional secondguessing or creating a process where bank presidents and their politically independent boards have to worry about satisfying washington powers rather than representing their districts viewsthus upsetting the delicate balance that prevails at fomc deliberationscan only lead us straight to the fate that was suffered by once great economies like preweimar germany and preperón argentina,0,g +it is more than 100 times the countrys annual defense budget,0,g +skills development is still too often seen as a social service rather than an investment,1,g +with government saving up lower interest rates can make it easier to mount a vigorous attack on some of our most critical problemsthe need for better housing better cities and a more rapid capital expansionsome people worry about a shortage of mortgage money over the long run but i dont,1,g +many federal agencies were if not reinvented at least made considerably leaner,0,g +as responsible americans they must support a program that widens the awareness of the need for fiscal responsibility,0,g +roughly fifty percent of mortgage finance in the united states at the present time is intermediated through fannie and freddie either in the form of securitization or direct purchases of mortgages financed through bonds issued by these enterprises,1,g +congress and the white house approved several rounds of economic relief collectively worth almost three trillion dollars,1,g +weve been underspending for too long,0,g +furthermore in a growing world economy trade adjustments that are large in dollar terms but small in percentage terms can be accomplished with a minimum of economic disturbance and without governmental control or intrference,1,g +but more basically we and our elected representatives must perform the most difficult management task of allcur tailing or eliminating government programs which have long since lost their reason for being,0,g +to the worldwide surge in demand at that tle was added the inflationary financing of a large government deficit amounting in both 1956 and 1957 to about 20 per cent of government expenditures,0,g +higher social spending should continue to spur growth but these programs are likely to limit progress on inflation,1,g +indeed it remains to be seen whether expansive fiscal policies can be reversed and the federal budget can be returned to balance as we move through the expansion phase of the cycle,0,g +the bill that would require us to support government bond prices when market yields equal or exceed 4 per cent really represents an effort to carry out one aspect of monetary policy by inflexible legislation,0,g +several uncertainties still surround the administrations program,0,g +this sort of cost control is something i think we would all appreciate elsewhere in the public sector,0,g +arguably public confidence and hence the ability of policymakers to use fiscal instruments aggressively to address shortterm concerns is enhanced by whatever legislative rules guidelines or procedures exist thathowever gently or firmlytend to compel the policymakers to bring the budget back toward balance and the debtgdp ratio back toward stability after the crisis has passed,0,g +more federal spending would aggravate the pressures already evident in financial markets xvrith unparalleled federal demands piled on top of gradually reviving private credit demands,0,g +stepping back from the crisis and the unique features of the shock the events of last march raise questions about the resiliency of intermediation in the treasury market during periods of market stress,0,g +these governmental activities inevitably affect the allocation of resources,0,g +it doesnt take much perception to know that government today plays a much larger role in our daily lives,0,g +if people expect the tax cut to be a onetimeonly event they are likely to spend less than if they believe the tax cut is a permanent policy change,0,g +another example of the wasteful use of resources based on public ordering of production is much of our public housing,0,g +even the higher end of this range may not be sufficient to accommodate all prospective borrowers if the budget deficit is allowed to rise to 7080 billion or higher,0,g +many forecasters have downgraded consumer spending in the second half of the year as delta has limited the acceleration in services spending that had been anticipated to help offset the drag on activity from fiscal support shifting from being a tailwind to a headwind,0,g +people seem to feel disenfranchised from the government overall,0,g +but the bar for such action remains very high for me until the fiscal authorities do their job by reducing the fiscal and regulatory uncertainty that is holding our mighty economy back,0,g +the similar circumstance of our nation means that it will be painful to cut the deficits and eventually begin to pay down the national debt,0,g +to be sure there are also areas of weakness in the economy specifically government spending and international trade,0,g +for it is also true that our system of government functions through political structures and with attention to political values,1,g +government admitted it had not succeeded and could not afford to continue to try to do it all alone,0,g +still other programs are fully reflected as current expenditures even though they result in the government receiving back mortgages notes or similar evidence of debt,1,g +rule government should do only those few things that the market economy clearly cannot do well,0,g +the burden of this deficit will carry over to future generations,0,g +selling sufficient securities to finance the massive deficit places great direct upward pressure on interest rates,0,g +it is of course the best of all possible worlds if a city has an industry that can pass on large tax costs to nonresidentsbut this does not happen often or for longthe point about this digression into the characteristics of the economic base for taxation is to try to show that cities are not as free as they believe they are to adopt the sources of revenue used by state and the federal government,0,g +the adoption of price and wage controls by the united states government in a period of peacetime is a move which has strong longterm implications for our basically free market economy,1,g +it is not plausible to me that a public sector which so far has been limited to little more than onefifth justifies calling an economy mixed,0,g +our need to service this debt guarantees that in the next decade we will continue to experience budget shortfallsespecially when the social security surplus which is added to the budget through some creative accounting is discounted,0,g +we cant push this all on the public sector which especially now doesnt have the bandwidth or the money,0,g +it is tempting to suggest that the budget problem can be dealt with as a passive byproduct of recovery and i am afraid some in washington are in a mood where they may not be above temptation but it is wishful thinking,0,g +the president and congress must resolve this issue,0,g +id like to talk about the trouble with the federal budget,0,g +but now were facetoface with the truth at a time of tigh t federal reserve monetary policy and of a continued high level of private credit demands the federal governments borrowing demands have been r is i n g rather than declining with severe consequences for the markets,0,g +we all welcome president carters threat to exercise his veto author ity to keep spending under control,1,g +public purchases of troubled assets are one possibility,0,g +theyve avoided debt and they havent dramatically increased taxes to balance their budgets,0,g +throughout his professional life the president understood the selfcorrecting tendencies of free markets and the fundamental wealthcreating capacity of capitalism,0,g +5 these unfunded obligations will increasingly work their way into the annual budget deficit over the next five to 10 years and will tend to increase the us budget deficit as a percentage of gdp,0,g +at the present time the budget deficit obviously is too high in the sense that it causes us to borrow heavily abroad as well as at home,0,g +a reduction in debt ratios seems entirely possible since it could be associated with an absolute increase in debt but at a slower rate than the scale variable,1,g +a downpayment on deficit reduction would of course be only a first step in dealing with the massive structural deficits that lie ahead,0,g +the administration claims that the budget is as tight as it could possibly be and spokesmen for the administration challenge critics to be specific about where the cuts should be made,1,g +likewise the presence of governmentowned firms with a degree of monopoly power together with restrictions on the entry of new firms may diminish competitive pressures that often foster innovation and greater efficiency nicoletti and scarpetta 2003,0,g +the workings of a free economic system without direction from anyone solve the balance of payments problem,0,g +privatization of governmentowned industries has been accompanied by major issues of new securities,0,g +in the course of the current upswing the government sector through fiscal policy has played a sustaining role in implementing the expansion in demand,1,g +and economists 4 generally agree that the current low savings rate is at least in part the result of government policiesthere are many forms of distortionsthere is also widespread agreement that there are numerous types of government tax and spending policies that distort behavior so as to adversely affect saving,0,g +in contrast to conventional mortgage rates the inflexibility of fha and va rates has interfered with the smooth operation of mortgage and real estate markets,0,g +on the other hand the outlook for our balance of goods and s e r v i c e s and government account does not look unfavorable,1,g +where these tax programs are inefficient unduly complicated or inequitable they should be modified or repealed,0,g +satellite television and the internet have heightened public awareness of conditions abroad educated citizens about financial opportunities elsewhere and raised pressure on politicians not to place limits on these opportunities,0,g +far too many of us say to them cut the federal deficit but dont reduce our favorite expenditures or raise our taxesi,1,g +still by 1960 the ratio was about 5 to 1 at the end of last year it was 33 to 1 and in 2030 when the last of the baby boom generation reaches retirement age it will be around 2 to 1 unless we change the social security program requirements supporting these retirees will require enor mous revenue,0,g +while the recent recession prompted households and businesses to reduce their debt levels there was no such reduction in the burden of accumulated federal debt,0,g +current expenditures of state and local governments hc1ve risen greptly and have required more taxes returns from only certain kinds of taxes have increased automatically with the growth of the economy and it has proved difficult to keep the tax bases current both population growth and population movement have aggravated the problems of some governmental units,0,g +this means that our nation must continue to bear a heavy burden of military and economic aid,0,g +the head of the european central bank jeanclaude trichet said it best recently while speaking in germany monetary policy responsibility cannot substitute for government irresponsibility5 the entire fomc knows the history and the ruinous fate that is meted out to countries whose central banks take to regularly monetizing government debt,0,g +i3ut to an imlortont degree these benefits stem from a wide range of governmental policies policies designed to encourage savers confidence in the stability of the value of their savings policies designed to encourage the confidence of savers in the solvency of savings entrusted to financial institutions and policies designed to foster competition among institutionscometition for both savings inflous and investment outlets,1,g +the fiscal package includes tax cuts to bolster household incomes new infrastructure investments and financial assistance to state and local governments many of which would otherwise have had to cut spending in light of declining revenues,1,g +a more useful question for debate regarding monetary policy thus far in the 1960s is whether a still easier policy might not have speeded up economic expansion in 1962 and 1963before the tax cut was enacted,0,g +if corporate tax rates are lower in continental europe us businesses have an incentive to locate their profit centers abroad and to store their foreign earnings abroad too,0,g +if fiscal policymakers successfully address the remaining issues and provide a multiyear roadmap toward fiscal health those actions would help reduce the uncertainty that has been holding back the economy,0,g +in particular the congress and the administration will soon have to address the socalled fiscal cliff a combination of sharply higher taxes and reduced spending that is set to happen at the beginning of the year,0,g +o f course the persistent federal deficit problem also tends to provide upward pressure more about that later,0,g +crafting a budget strategy that meets the nations longerrun needs will become more difficult the more we delay,0,g +10the us also has a deficit with japan in the nontrade sectors of the current account mainly direct military expenditures,0,g +longer run allocations can be handled far more efficiently by other types of governmental action,0,g +advocates of the fiscal policy view believe that a change of a dollar in government spending or taxing may lead to more than a dollar change in total spending because of the impact of government spending on disposable incomes of consumers and business,1,g +but youll recall that after several moratoriums the issue of war debts became lost in the shuffle as the former combatants took up new positions that eventually led toward the second world war,0,g +all of these federal programspresent and proposedonly tend to get the federal government more deeply enmeshed in the operations of the housing market,0,g +and were going to have to come to grips with more than just deficit reduction,0,g +if the fed were open to interference by elected officials that pressure could result in shorttermism and encourage hasty decisions to please political ends rather than economic ones,0,g +outyear megadeficits tend to create doubts as to the propects for the success of economic pol i cyto some the very capacity of economic policyto contain inflationary pressures over the long run,0,g +at that point our laws become the resting place for unfair practices and broad disrespect for the law generally,0,g +this is the costly path reached by stressing the everbalanced budget concept,0,g +the one obvious negative in the outlook stems from cutbacks in defense spending that are affecting the defense and aerospace industries as witnessed by the recent proposed merger o f lockheed and martin marietta,0,g +a wellfunctioning legal system allows small claimants both creditors and shareholders to have their rights enforced,1,g +but the main reason for removing the taxable payroll cap is that both programs together are woefully underfunded and this would be a small step in the direction of fiscal responsibility,0,g +government will likely be a positive factor on balance although the scale of its contribution remains to be determined,1,g +on the other hand some of the attempts of congress to open us up i think are counterproductive,0,g +government initiatives can also play key supporting roles,1,g +but we have already delayed too long in facing up to a fundamental imbalance reflected in those related budgetary and trade deficits that left untended poses a great threat for the future,0,g +the inflation that results from the flood of money into the economy turns out to be far worse than the fiscal pain those countries hoped to avoid,0,g +during 1965 however with the relatively rapid expansion in money stock and the more expansive federal budget especially in the last half of the year demand grew more rapidly,1,g +but as virus cases surged toward the end of 2020 many state and local governments reimposed restrictions on business activity and others postponed plans to lift their existing restrictions,0,g +the shortfalls in the medicare program however will almost surely be much larger and much more difficult to eliminate,0,g +the benefits of a tax cut of increased public spending are felt within a few weeks or quarters,1,g +but the conduct of fiscal policy should not stop there,0,g +transparency about methods should also help to reduce concerns about conflicts of interest that might arise from the fact that issuers of securities pay the rating agencies for their work in rating those securities,0,g +according to administration estimates these tax cuts will put nearly 150 billion into consumers and businesses pockets in 2003 and 2004 third the federal reserves ability to maintain an accommodative monetary policy should help keep financing costs for consumers and businesses at low levels,1,g +the watergate incident and its aftermath led to a general distrust of all institutions public and private,0,g +return to text 10 the federal reserve also needs to consider whether privatesector stablecoins could disintermediate deposits out of the banking system but in general the risk of disintermediation should be lower for stablecoins compared to a cbdc,0,g +budgets at the municipal county and state levels are under a lot of pressure and are facing funding gaps that will need to be addressed,0,g +congress might also want to require this group to issue periodic reports on the stability of the us financial system in order to disseminate its own views and elicit the considered views of observers outside the government,0,g +not only the private sector but the public sector as well has become more mindful of debt levels,1,g +so i am not divulging any great secrets in saying that ben bernanke a careful student of the depression of the 1930s and other crises had long been warning the secretary of the treasury and others that a more comprehensive solution might be required,0,g +if the nation finds itself in a period of financial instability because of an unexpected and rapid escalation of the financial problems faced by social security and medicare we will look back and wonder why with the vulnerability known for so long nothing was done to reduce it,0,g +fiscal decisions since they are necessarily long in the making may come at just the wrong time to improve business stabilityfor monetary authorities the most fundamental problem of timing is to foresee changes in the business climate in order to take compensatory action before the figures actually prove its necessity,0,g +it may take years o f negotiations to return to the degree o f free trade that prevailed at the outset even when protectionist policies are conceived as mere interim measures,0,g +strict limits or outright prohibitions on the feds ability to engage in 133 lending under a new fedtreasury accord would help restore a more explicit separation between 12 monetary and fiscal policy and help preserve the feds independence and the publics trust,1,g +without some kind of common understanding of what is necessary for adequate care or else some change in the way health care is financed the united states can only continue to spend an everincreasing percentage of gdp with no useful means to rein in the spending,0,g +manipulating government spending tends to be a rather clumsy way of dealing with rapidly changing economic developments while the process of reaching a consensus on needed tax changes usually turns out to be complex and time consuming,0,g +however fiscal policy as measured by the annual federal budget deficit became more and more unbalanced,0,g +increased defense spending during the 1980s contributed to the booms in places like massachusetts and southern california,1,g +finally it can be argued that much of the uncertainty has to be dealt with in other areas of government and monetary policy cant do much about this kind of problem,0,g +we have made many hard decisions alreadywe fought inflation and we remain vigilant we have made substantial progress in reducing the federal budget deficitand we have a good economy to show for it,0,g +there is a final reason why monetary policy is unlikely in practice to offset the inflationary effects of large budget deficits in periods of high employment,0,g +international policy makers have done about as much as they safely can to engineer reductions in the dollar further currency realignment and trade adjustment must come from substantial reductions in the federal budget deficit,0,g +the combined impact of these revenue measures uould reduce the federal deficit to approximately digitized for fraser httpfraserstlouisfedorg federal reserve bank of st louis185 billion in calendar year 1968 while still expansionary the federal budget with the tax increase would be a substantially smaller source of inflationary pressures in the current year,0,g +even the high budget deficit it is argued has been caused by backwardlooking nonetary policy,0,g +it may well be the case that increased taxation is as costly or crowds out private sector activity just as much as borrowing,0,g +if the central bank persistently monetizes budget deficits increased inflation is likely to follow,0,g +accordingly it is likely the case that reductions in government spending8 first it is undoubtedly true that large and continuous deficits potentially can be disruptive and therefore should be reduced,0,g +i do not believe that it is just a coincidence that two of the longest most vigorous noninflationary economic expansions of this century occurred after major tax rate reductions and during periods of relatively restrained monetary policy,0,g +a large and growing public debt could also eventually put upward pressure on interest rates and crowd out private investment,0,g +but inflation that is too low is also a problem it can lead consumers and businesses to delay purchases thereby slowing the economy and it increases debt burdens,0,g +but in and of itself the associated increase in debt service makes all generations worse off except possibly the initial old,0,g +that expansion would raise savings and these savings might well be adequate to acconnnodate a very large federal deficit without crowding out much private investment,0,g +the burgeoning imbalance of our foreign tradea deficit of roughly 65 billion in 1983 and something approaching 100 billion for 1984 indicates both the attractiveness of investment here as well as a potential future consequence of added market instabilitydigitized for fraser httpfraserstlouisfedorg federal reserve bank of st louis8 gargantuan and unprecedented federal budget deficits and rrore irrportantly by the even larger deficits projected for years to care,0,g +projections are that massive budget deficits are likely to continue through mid1976,0,g +the reagan administrations orientation toward less government involvement is well known but many of the initiatives for deregulation were begun even before president reagans election,0,g +new permits are also down sharply and employment in the construction industry has dropped appreciably in the last two monthsfiscal policy has also turned more restrictive in recent quarters and indeed the president has submitted to congress a revised budget which shows a surplus for fiscal year 1981 by one measure the net swing toward restrictiveness in fiscal policy has been about 40 billion over the last couple of years,0,g +in recognition of the importance of financial consolidation its potential impact on market structure and its potential implications for public policy concerns the finance ministers and central bank governors of the g10 nations in late 1999 asked their deputies to study financial consolidation and its potential effects,0,g +my approach to the customer protection issue would be to start with the fundamental concerns of public policy and derive policy prescriptions from a careful and rigorous assessment of the need to achieve specific public policy objectives in an effective and efficient manner,0,g +tax rates were cut and expenditures increased when recessionary forces were pervasive,0,g +5third the internal adjustment programs put in place by countries such as mexico and brazil to deal with their external debt problems have had a significant effect on our trade and current account positions,0,g +high levels of real interest rates have not prevented robust recovery but they have already produced worrisome imbalances in the domestic economy and in international financial marketsexport markets for us goods that are weakened by an inflated international value of the dollar unnecessarily heavy interest burdens for countries with large external debts for young homeowners and countless small business firms here at home many thrift institutions operating with thin financial margins,0,g +let me note however that when federal 5tax rates were reduced dramatically a few years ago it was hoped that the incentive effects would increase both the rate of personal saving and the willingness to work,0,g +moreover governmental spending in excess of receipts forced the treasury to borrow 86 billion net in the capital markets during 1959 this competition for savings with private industry and with state and municipal governments forced interest rates to peak levels at the end of that year,0,g +perhaps those that are disadvantaged by an overcid173valued dollar and large external deficits should take comfort in the fact that the present situation cannot last indefinitely,0,g +in particular a year ago at this time the plan was for a concid173tinuing increase in federal deficits to try to provide for some of our economic needs,0,g +expectations of large and increasing deficits in the future could inhibit current household and business spendingfor example by reducing confidence in the longerterm prospects for the economy or by increasing uncertainty about future tax burdens and government spendingand thus restrain the recovery,0,g +5 b cutbacks in defense spending involve lags and structural adjustments that affect individuals firms and communities,0,g +besides tax increases spending cuts or reform of the major entitlement programs the fourth possible fiscal response to population aging is to accommodate a portion of rising entitlement obligations through increases in the federal budget deficit,0,g +recognizing that a onesizefitsall approach is seldom appropriate it may be useful to offer transactors a choice between seeking the benefits and accepting the burdens of government regulation or forgoing those benefits and avoiding those burdens by transacting in financial markets that are only privately regulated,0,g +when fiscal and monetary restraint was finally applied this set of expectations was not broken,0,g +in response to tighter fiscal policy enacted in mid1968 which many believed would cool the economy the fed eased policy a bit,0,g +do not saddle your country with excessive government spendingnone of this implies that the japanese people are denied the pleasure of consuming most of the rapidly increasing goods and services they produce,0,g +in the 1960s economic growth was strong in part because of the fiscal stimulus of tax cuts and increased military and social spending,0,g +this group argues that if we are in a war where are the price and wage controls the excess profits taxes and other parts of the national response to previous wars,0,g +the substance of this testimony was that unless the congress could find effective ways to level off federal spending no major income tax cut should be enacted at this time,0,g +today we have large 7 government deficits both current and projected,0,g +a personal tax cut of perhaps 35 billion as is being talked about would further increase the amount to be borrowed depending on when the cut became effectiveif that borrowing were made easier by the federal reserve through an increased growth in the money supply it would surely be inflationaryif the fed did not make borrowing easier interest rates would go up,0,g +this improvement has been reinforced by the lagged effect of the tax cuts put in place last summer and the stimulus to business equipment investment provided by the partial expensing tax incentive introduced in 2002 the improvement also reflects accommodative monetary policy in which the nominal federal funds rate has been held at the historically low level of 1 percent since june 2003 the acceleration in growth hasnt gone unnoticed in financial markets,0,g +that is to say at high employment calibrated at about 6 percent unemployment there would remain a deficit making allowance for the 1983 midyear tax cut of 2 percent or 55565 billion,0,g +the government was a net supplier ofdigitized for fraser httpfraserstlouisfedorg federal reserve bank of st louisbudget outcomes debt and monetary policy remarks by henry c wallich member board of governors of the federal reserve system at toward a restructuring of federal budgeting a public policy research program of the conference board washington dc december 2 1982 relations between monetary and fiscal policy have run through a series of stages,0,g +total demand is only increased if the deficit is financed by newly created money as it has been for much of this decade and especially in 1967 and 1968 if as the federal government runs a deficit and increases its sales of bonds the federal reserve adds to the total reserves of the banking system by purchasing securities on the open market then total purchasing power is increased,0,g +alternatively a combination of budget deficits and high interest rates could be designed that would produce the same degree of overall stimulation or restraint,0,g +indeed substantial tax reductions occurred again in 1969 and 1971 and they too were followed by massive increases of expenditures,0,g +thus with incomes bolstered by tax reduction and with activity and employment expanding a total of 1z,0,g +however i think it is fair to say that the new program has every chance of achieving its principal aimthat is reducing the federal governments borrowing costs relative to the 3 costs of a debt portfolio consisting entirely of conventional government bonds,0,g +as such it requires an economic treatm ent 1 1 namely greater fiscal restraint and not the psuedocure of protectionism,0,g +in the case of fiscal policy there has been a major shift toward tighter control over federal spending and a corresponding reduction of deficits,0,g +monetary policy has helped deliver a low inflation environment and the strong economy and disciplined fiscal policy have delivered a balanced budget,0,g +even more important i to gain better control over federal spending and to reduce the relative role of federal expenditures in our national economy,0,g +unfortunately this newly granted leeway had to be shaved drastically when the deterioration in the balance of payments made it necessary to tighten the various programs on new years day of 1968 but each time the board has had an opportunity it has continued its efforts to reduce the inequities,0,g +it was a slow and tedious process to get congress to enact the tax cut but it seems even more of a task to obtain a tax increase since late 1965 the economy has obviously needed fiscal restraint a tax increase or less government spending but congress has not acted,0,g +federal reserve role now in the face of huge government deficits in periods of high employment why doesnt the federal reserve simply maintain a rate of monetary expansion which is consistent with price stability and thus at least partly offset the inflationary effects of fiscal policy,0,g +but instead of being temporary the restrictions had to be intensified as the trade balance deteriorated following the peak surplus of 7 billion in 1964and as extended time and again and amended such restrictions have become less effective and less relevant,0,g +for example following the 1980 elections tax cuts were enacted and defense spending rose,0,g +the great recession has generated a third substantial increase in federal debt from about 35 percent of gdp in 2007 to around 75 percent at the end of this fiscal year an increase that is consistent with other increases in sovereign debt for advanced economies after severe financial crises during the postworld war ii period5 history and common sense suggest that the federal government should again run primary surpluses sufficient over time to reduce debt to precrisis levels of perhaps 35 to 40 percent of gdp,0,g +the worsening balance of payments led to the broadcid173ening of the open market connnittees policy directive in 1960 to include taking into consideration current intercid173national developments,0,g +when taxes were cut in 1980 without parallel cuts in spending our government had to borrow increasingly to make up the difference,0,g +indeed with a current account deficit equal to 5 percent of gdp and a negative international investment position that amounts to 25 percent of gdp some have drawn comparisons with countries such as argentina brazil and mexico at times of severe balance of payments crises,0,g +one source of competition could be the us governments funding needs associated with large fiscal deficits if congress cannot maintain an effective budgetdeficit reduction program,0,g +in this case the trade deficit would increase while the budget deficit fell,0,g +we know that once a central bank is perceived as targeting government debt yields at a time of persistent budget deficits concern about debt monetization quickly arises,0,g +id like to close by focusing on the time consistency problem which i believe was the central tension in the financial crisis,0,g +such a framework could include a commitment to make a down payment on fiscal consolidation by enacting legislation to reduce the structural deficit over the next several years,0,g +administration officials recently have confirmed that a major taxreduction proposal will be submitted in january despite the substantial budget deficit estimated for this fiscal year and despite the fact that government spending programs are expected to show further increases during the next fiscal year,0,g +as with float and currency those monetary managers who desire a prescribed market tone as a measure of monetary action find these shortrun fluctuations in the treasurys balances at the reserve banks of extreme importance,0,g +we expect to lose half a percent of gdp growth in the fourth quarter with a similar amount added back in all probability in the first quarter of 2014 my greater concern relates to fiscal policy uncertainty because it can affect consumer and business confidence,0,g +financial problems continue to plague the us unemployment and and world economies for example while the financing of a massive federal deficit hampers our twofold task of fostering the recovery and curbing a resurgence of inflation,0,g +6 as a result o f massive federal budget deficits we have been exporting 10us in the form o f treasury securities for the past five years or so,0,g +then i would urge you to write those people you sent to congress and express your concern about inflation,0,g +they ll begin paying less in taxes and receiv ing more in benefits,0,g +we have already placed a substantial burden on future generations and we must begin to reduce the burden,0,g +in technical terms the time inconsistency problem in conducting monetary policy which is one of the most important elements in the recent professional literature on policy would be much more compelling in a policy regime with a 3 to 4 percent inflation objective than in a regime firmly committed to price stability,0,g +as a result some private investors will demand a lower premium for holding other bonds that are exposed to interest rate risk which puts downward pressure on other longterm yields,0,g +similarly we appear to be making progress toward reducing our large federal budget deficits a move that i called for so repeatedly that i began to tire of hearing myself,1,g +saving needs to be increased if investment and productivity are to be raised and the principal means to that end is a reduction of the federal deficit preferably through further expenditure cuts but through action on the revenue side if necessary5,1,g +in the case of the united states i am especially impressed by the fact that in real terms that is abstracting from changes in the unit values of exports and imports since 1967 our trade balance not only improved steadily in 1973 but registered further gains in the first and second quarters of this yearo export trade on the export side the value of us shipments has been rising sharply,1,g +then when restrictive fiscal actions were taken in mid1953 the surtax and slower increases in government spending many economists on the basis of prevalent theories predicted fiscal overkill by early 1969 in response to such predictions monetary authorities engaged in even more expansionary actions in the last half of 1969 continuation of accelerating inflation after fiscal actions had been expected to provide a quick cooling of the inflationary fires should burn firmly into our 9memories the lesson that monetary actions are more effective than fiscal actions in promoting economic stability,1,g +for example expansionary fiscal policy would boost the equilibrium real rate,1,g +the problem is that government stabilization measures come with a real longterm price tag higher tax rates greater national indebtedness and the prospect of higher interest rates driven by the governments issuance of debt,1,g +perhaps a more fundamental concern however arises from the assessment of the prospects for structural damage to the economy due to the longterm effects of even baseline federal spending increases as projected,1,g +to realize the potential benefits of the price data we must acknowledge and take into account the datas inherent limitations which reflect in part concerns about the substantial costs of mandatory data reporting which policymakers must weigh against public policy benefits,1,g +the task w ont be easy especially in view of the broad support for the a dm inistrations plan to increase defense spending by 25 percent in real terms over the next halfdecade,1,g +summation in conclusion we have already experienced too much government regulation in financial markets,1,g +the results therefore cast serious doubts about the role of fiscal policy as a stabilizing instrucid173ment and by implication on the significance of all nonmonetary factors as determinants of nominal income,1,g +the argument runs as followsif the central bank sits on its hands and does nothing a rise in gnp resulting from say an expansive fiscal policy tends to increase the money stock mainly because it induces banks to borrow more from the central bank and to reduce excess reserves but partly also because the induced rise in interest rates reduces demand for time deposits and thus permits an increase in demand deposits and the money stock,1,g +here i refer to a joint effort still under way by the staff of the board of governors and a team of academic economists headed by professors albert ando and franco modiglianithis project has tried to take advantage of recent advances in computer technology to build a conceptual framework that attempts to describe how the economy operates and particularly to assess the role of monetary and fiscal policies in the determination of gnp,1,g +but some rise in interest rates as the recovery proceeds is an inevitable part of a monetary policy strategy that puts primary emphasis on bringing inflation down over the long runi believe we need a tax cut next year to offset the effect on tax burdens of the windfull profits tax the scheduled increase in payroll taxes and the rise in marginal tax rates because of inflation,1,g +in short the powerful combination of expansive monetary and fiscal policies has helped sustain the recovery thus far and their stimulative impact will stretch well beyond 2002 another important driver perhaps the most important driver for the economy right now is the strong growth in labor productivity,1,g +as marginal tax rates increase incentives for people to work and be productive could be reduced,1,g +another major source o f shortterm strength is fiscal policy which is highly stimulative,1,g +if we were left as the only restraining influene during a period of stimulative fiscal policies thn the degree of monetary restraint would have to be so severe as to bring the economy to its knes,1,g +too frequently their economic growth has been constrained and stifled by a large public sectors unintended e ffects on the economy and its ability to adapt to change,1,g +the best way to insure the sound future of these special purpose financial institutions is for government regulators and the private sector credit unions they regulate to cooperate in a close working partnership for these common purposes,1,g +late in the 1970s as a result of the full employment and balanced growth act of 1978 the fed was required to set target ranges for growth in certain monetary aggregates,1,g +briefly the idea is that labor would agree to restrain its wage demands in return for a reduction in its tax burden,1,g +inflation has increased tax revenues by pushing individual taxpayers into higher tax brackets and by causing many corporacid173tions to report inventory profits on which they have had to pay taxes,1,g +would the u s balance of payments improve as the result of such an increase in the price of gold,1,g +what is needed in many foreign countries is greater developcid173ment and more flexibility of fiscal policy to cope with domestic problems,1,g +fiscal authorities should resist the temptation to increase government expenditures continually to compensate for shortfalls of private consumption and investment,1,g +4then in mid1968 a program of reducing the rate of increase in government spending and increasing taxes was adopted with a view to bringing the excessive rate of growth in total spending more into line with growth in potential output of goods and services,1,g +if this is true it is reasonable to conclude that the budget impact of providing an expansive economic influence through tax reduction while holding spending constant is likely to be as small asand probably would be smaller thana policy of increased federal spending with tax rates held unchanged,1,g +this would reflect windfall profits taxes on the energy industry increases in both the tax rate and the taxable income base for social security and the impact of inflation upon effective tax rates,1,g +mainly because of the rigidities surrounding home financing institutions 1 social security payroll taxes were increased to offset enlarged benefits,1,g +the third major force is more prudent fiscal policy,1,g +lower personal tax rates and higher standard deductions should spur some additional household spending in the aggregate although the impact of tax changes on individual households will depend on the level and sources of their income,1,g +economic crises in emergingmarket economies usually manifest themselves in the form of financialmarket pressures but unsound fiscal policies are frequently at the root of the problem,1,g +history demonstrates that at their initial submission budgets are not too accurate a predictor of final fiscal policythe significance of the proposed budget is its recognition that this year the federal government should not aim at increasing the deflationary forces in the economy even if this policy requires a large deficiton the other hand the proposed budget does not raise the governments expansionary force relative to 1970 government purchases of goods and services are expected to be down,1,g +in the first place inflation given a structure of progressive income taxes increases government revenue without an explicit increase in the tax rate,1,g +however in the case of korea for example international banks have agreed to exchange what they had thought were liquid claims for mediumterm obligations albeit with an explicit government guarantee,1,g +the fiscal policy supports implemented early in the crisis helped mitigate the worst of the immediate fallout for many families,1,g +at that time the retirement of the large baby boom population was anticipated and payroll tax revenues were accumulated in advance of benefit payments steps that created the presentday cash surpluses for the social security component of the overall federal budget,1,g +rather than raising payroll taxes he would have made transfers of general federal revenues to the social security trust fund,1,g +part of the negative sentiment likely reflects the explosion of federal debt and uncertainty about how a sustainable fiscal policy will be achieved,1,g +in addition the federal reserve and the other federal bank supervisory agencies recently signed a memorandum of understanding with fincen to share critical information about banking organizations compliance with the bank secrecy act,1,g +today i want to touch on two regulatory issues that are currently high on the list of both bankers and supervisors bank secrecy act compliance and basel ii implementation,1,g +an integrated approach to compliancerisk management can be particularly effective for us bank secrecy act and antimoneylaundering bsaaml compliance,1,g +readings on inflation are likely to be volatile for a while given the large price swings associated with the pandemic4 cutting through those i expect underlying inflation to pick up steadily and to reach 2 percent by the end of 2023 this forecast assumes that intermittent outbreaks of the virus will hold back a full recovery until health solutions are widely in place my placeholder for that is the second half of 2021 it also assumes additional fiscal support is forthcoming,1,g +add to this pattern of privatesector spending moderate growth in government spending on goods and services and you have solid growth in domestic final sales,1,g +they have a wide menu of choices including increases in taxes or revenue enhancements if you will and reductions in various spending components,1,g +much of this decline however reflects fluctuations in government spending imports and motor vehicle output that look to be temporary,1,g +while state and local purchases will grow government spending overall will be weak because expenditures at the federal level are being affected by defense cutbacks and deficit reduction,1,g +the foreign financial institutions involved were arguably affected by the incentive distortions that accompany perceived public sector support,1,g +third market participants have at times faced uncertainty about prospective public sector intervention3 the disparate responses to potential failures at several highprofile organizations this year may have made it difficult for market participants to forecast whether and in what form official support would be forthcoming for a given counterparty,1,g +a second set of programs targets the availability of credit to states and municipalities,1,g +digitized for fraser httpsfraserstlouisfedorg federal reserve bank of st louisdepartment of the treasury washington dc 20220 telephone 5662041 for release upon delivery expected at 930 am june 9 1980 remarks by the honorable g william miller secretary of the treasury at the issuance of agency consumer programs at the presidents direction my colleagues in the cabinet as well as the heads of the independent agencies have begun a process that builds the confidence of the american people in their government,1,g +in areas of the country where lowskill lowwage jobs are common as in the south so too is sentiment toward protectionism,0,g +but as shown in the examples of postworld war ii recovery in europe and japan and in the rapid growth in the 1970s and 1980s in the newly industrialized economies of asia higher standards of living throughout the global economy actually work to our benefit,1,g +foreigners might not be willing to finance our current account deficit at the prevailing level,0,g +we have to keep up the momentum to ensure that markets have confidence that bailouts using taxpayer funds are a thing of the past,1,g +it might come sooner than we think if we do not have some adjustment of taxes which i think we all recognize is very necessary some complete overhaul and some reduction,0,g +fortunately our direct exposure to european debt is limited,1,g +since net private savings historically average around 7 to 8 percent of gnp a deficit of this size would absorb roughly threefourths of net private saving leaving precious little to finance net private investment in business capital and housingeven under the best of circumstances bringing an end to an inflation that had gone on largely unchecked for a decade and a half was bound to be painful,0,g +the resources of the industrialized world were not endowed they were created by entrepreneurial effort within the politicaleconomic system,1,g +the japanese were not shy when they were riding high in the 170s and 180s to offer advice to the western industrialized countries about modernizing our manufacturing and management practices working harder getting budget deficits down,1,g +there was a time when a government could control its scientific establishment and be basically successful,0,g +other arrangements might need to be made for the few states that do not impose sales taxes,0,g +third some of the reform measures advocated over the past year could risk recreating the status quo ante,0,g +because factors of production are increasingly mobile in an era of globalization governments vie to gain and hold onto them,1,g +the potential improvements i have touched on todayadhering to best practices with regard to risk management and grappling with some of the difficult structural issues that currently face public pension systemswould help strengthen public pension systems and should minimize the risks to public employees the governments that employ them and the taxpayers that finance them both now and in the future,0,g +the capital gains tax therefore is in large part simply a tax on capital not on gains,0,g +the point im trying to make is that in government you now find more and more professional managers doing a professional job,1,g +4 in addition growth will also shrink the debt service burden of these countries relative to their economic capacity,1,g +in this model the buyers of additional debt pay only some of the taxes needed to service that debt,0,g +but the absence of dramatic nearterm consequences should not lead us to conclude that this bold adventure will have negligible consequences for the euro area for the global economy or for the united states,0,g +housing activity has been very strong and consumer spending has held up pretty well as has federal government spending due especially to increased defense and homeland security outlays,1,g +yet when the current surplus is measured against the performance of 1964 and earlier years one can see readily why there is so much concern about the direct investment outflow in relation to the balance of payments,0,g +in the particular circumstances of today the current deficit to a large degree acts as an automatic stabilizer for the economy,1,g +the disagreeable but sound burden of bringing us back to fiscal sanity now falls on its shoulders,0,g +a large number of highway projects were completed in 1960 and a shortage of state funds in minnesota this year accounts for much the slow start,0,g +over the years congress has consistently rejected attempts to diminish the effectiveness of the federal reserve,0,g +that is the ultimate result of the already enormously expanded demands of the federal government upon capital markets represented by its direct deficit and the borrowing of offbudget and sponsored agencies which jn fiscal year 1981 are estimated to total up to 110 billion,0,g +unfortunately these may be substantially 10offset by the further deterioration attributable to the military account,0,g +some have suggested moving to an accrualbased accounting system where the deficit would better account for future obligations and revenues,1,g +since the city already had a very large amount of shortterm debt outstanding and was incurring a substantial current operating deficit as well any inability to issue new debt raised inmediate problems in finding the cash to pay off maturing obligations and meet the citys current bills,0,g +last year we finally saw some movement toward containing the size of the federal budget deficit thanks to the fact that the administration and congress agreed on a deficitreduction plan,1,g +they imply a dependence on foreign borrowing by the united states that left unchecked will sooner or later undermine the confidence in our economy essential to a strong currency and prospects for lower interest ratesif the external deficits continue the united states will become an international debtor country on a rapidly rising scale,0,g +but realistically to capitalize on its advantages new jersey has to meet some serious challenges in its economic environment,0,g +economic policy in the united states the budget deficit of the united states of close to 200 billion into the distant future in the absence of remedial action is at the root of some of the problems i have discussed,0,g +interplayoff andinstitutions some of what i call economic forces are irresistible orces forces while some political institutions presume to be immovable objects,0,g +however even with their increases in recent weeks survey measures and inflation compensation priced into treasury rates over the five to tenyear horizon are just back to where they were in 2013 which certainly are not levels suggesting inflation is spiraling out of control,1,g +11 im assuming that the government has access to affine taxes so that potential budget imbalances can be solved through an appropriate choice of an intercept for the tax system as in werning 2007,1,g +thus from its start the bls was poised for a solid tradition of public service,0,g +what is needed is a rigorous comprehensive and coordinated review of the government securities marketits structure practices and regulation,0,g +it would be better to increase taxes or cut government expenditures,0,g +we might expect that this excess supply of dollars would put downward pressure on the foreign exchange value of the dollar,0,g +the combined impact of these revenue measures uould reduce the federal deficit to approximately 185 billion in calendar year 1968 while still expansionary the federal budget with the tax increase would be a substantially smaller source of inflationary pressures in the current year,1,g +it would mean raising investment by about 2 percentage points of gnp which takes it well beyond its normal relationship to gnp,0,g +the fiscal issues in europe remain unresolved,0,g +at the federal level the outstanding volume of treasury debt rose by the third largest amount in history as a consequence of the us governments large budget deficit,0,g +furthermore lower government spending would also set free resources that could be exported or invested in additional productive capacity,0,g +more important most important perhaps a stable dollar over the long term depends upon the creation of a cleat strategy to lower inflation and reduce our international deficits,0,g +your committee1 s efforts to maintain a sense of discipline in federal finances can make the difference between success or failure in our national effort to regain lasting prosperity,0,g +6 to be clear there are many models in which the path of the total value of outstanding government liabilities can affect the size of bubbles,0,g +so it seems to me that our general monetary and fiscal remedies are work ing on schedule and therefore that controls would be unnecessary,0,g +this new budget process thus assures that congress will face up each year to the public debt consequences of its decisions on taxes and expenditures,1,g +one could feel more certain of the future of our constitutional safeguards if there had been a loud public outcry against the circumvention of the amendment process,0,g +if offbudget credit assistance and preferential tax treatment were given the same attention as direct federal expenditures for example the extent of federal assistance to particular sectorswould look much different than it does when direct loans are considered alone,0,g +six years later with the dvent of americas prepration for world war ii the first series e defense bonds went on salethe public responded by buying more than 39 billion do l lars worth between 19 41 m d 19 4 5 th i s prov i de d s U25A1r1 e of the economic ammunition to wage a global war against totalitarianism,1,g +federal spending increased by 85 billion in fiscal 1980 incidentally an amount equal to the entire federal spending total of two decades ago and strenuous efforts will be required to limit the increase in fiscal 1981 the new administration hopes to shave two percentage points off this fiscal years increase but most of the impact of its cuts will be felt in fiscal 1982 the new team in washington recognizes that sharp spending cutbacks are essential if we want to reduce the governments excessive demands on the nations resources,0,g +as in so many other areas of government intervention in the economy the result of regulating interest rates is the opposite of what was intended,0,g +we should not defer charting a course for fiscal consolidation,0,g +policymakers can best minimize uncertaing by reducing government interference with market mechanisms,0,g +this d eficit is extremely troubling for several large federal budget deficits tend to exert upward pressure on real interest high real rates increase business costs generally and discourage investment,0,g +and in the last analysis the historical record clearly shows that incomes policies dorrt work against inflation in the absence of fiscal and monetary restraints,0,g +a feeling was growing that the government would not or could not take the necessary steps to bring inflation under control,0,g +according to the congressional budget office such a plan requires 125 trillion be cut from the projected path of deficits,0,g +but in their efforts to make it appear that there is indeed such a thing as a free lunch our elected officials have increased government expenditures without attempting a corresponding rise in taxes,0,g +governments with unsustainable fiscal policies such as promising overly generous pensions to citizens will find it increasingly difficultor impossibleto raise taxes sufficiently or issue new debt to meet their 11 commitments,0,g +while the early spendout from fiscal support in the first quarter of this year was exceptionally strong whether that strength will be maintained depends in part on the distribution of the remaining additional savings,0,g +local governments need to make investments in amenities schools and infrastructure that will attract and retain this talent,0,g +they have not relied more heavily than we on governmental expenditure to stimulate the economy in both germany and japan government has 7 absorbed substantially less of the national product than it has in the united states,0,g +to the extent that higher debt increases our reliance on foreign borrowing an everlarger share of our future income would be devoted to interest payments on federal debt held abroad,0,g +fiscal policy instead of reining in demands in timely fashion in fact produced inflationfueling deficits during the formative stages of the boom,0,g +if another arm of congress were directed to do te same job the end result would be duplication and overlapping of responsibilities with attendant increases in costs and deterioration in operating efficiency and no apparent offsetting benefits,0,g +first it is important to continue to educate the public and create a political environment supportive of free trade,1,g +the cra is a critical law enacted along with other complementary federal civil rights laws during the late 1960s and 1970s,1,g +these projections were in some respects less optimistic than those presented by the administration in july,0,g +during the last decade we have tried to expand the sphere of market forces and to narrow the scope of government n the economy,0,g +in turn the pressure can manifest itself in calls for higher inflation or for central banks to act as lenders of last resort for failing governments,0,g +ihese problems thus tended to raise interest costs for borrowing agencies and possibly also for the treasury,0,g +but the reason why we cannot do just that is that the bretton woods system did in fact fail to assure either prevention or correction of serious imbalances in countries balance of payments,0,g +fortunately in view of the longerrun need to bring u s inflation under better control the new federal credit budget became operative in the current fiscal year,1,g +we believe that the congress should designate a federal administrative agency such as the treasury department to develop appropriate regulations and issue interpretationsi can be very brief regarding the remaining two issues on which the board and the acir recommendations overlapthose dealing with discriminatory taxation and taxation of interest on federal obligationssince the recommendations contained in both reports are essentially identical,0,g +a disciplined fiscal p o licy means m uch less crow dingout o f home purchasers from credit markets,0,g +but if the people for whatever reason including lack of confidence as towhat government securities may be worth in the future decide not to invest in them not to use them as a repository for their savings the government then has to turn to bank creditand undue expansion of bank deposits means in effect printing press money because bank deposits are our principal money today,0,g +there is an element of wishful thinking in the notion that by resisting a tax cut not accompanied by reductions in federal spendingwe are acting in the interest of fiscal soundness,0,g +portant art of their public service responsibility is to be conversant with nd to aid in attainin the system s policy objectives,1,g +to be sure government regulators and politicians have learned from this experience and taken significant steps to diminish the likelihood of a recurrence,1,g +indeed the appreciation of the euro would be the cause of the euroareas move from surplus to deficit,0,g +fiscal policy moves including last years tax legislation and bills signed into law after 911 and early this year also have been stimulative,1,g +neither monetary policy nor fiscal policy alone or in concert can achieve these miracles in the face of mass psychology that creates alternating waves of unwarranted ebullience and pessimism,0,g +but i have every confidence in our nations ability to resolve its problems as long as business labor and all branches of our government remain willing to work together toward the basic economic objective of prosperity without inflation,1,g +perhaps i should also say its really a necessity for those of us in washington to get out once in a while and see how the country really lives and what its really thinking,0,g +that the problem is out of control is well illustrated by the spectacle of a sovereign nation3 these failures are allowed to continue at their present rate they may undo all that has been accomplished,0,g +in recent years large budget deficits have reflected the inflationindexed upsurge in payments for social security and other entitlement programs,0,g +protectionism would only shift the burden of the budget deficit to some other sector not eliminate it,0,g +and to be so operated it should be independent of both political and financial intereststhe federal reserve act provided for a unique combination of public and private elements which is peculiarly adapted to the situation in this country4 in bringing about this trustee arrangement to deal with the highly complex problems faced by a central banking ystem the congress is to be credited with foresight in the degree of independence with which it has surrounded the system,1,g +the budget projections do not however reflect the potential impact of legislation being considered in the senate and the house that would mandate certain availability limits on funds deposited by check,0,g +here too the protracted nature of the political debate creates uncertainty which undermines economic growth and exacerbates the crisis,0,g +unfortunately the road to these solutions may be littered with the wreckage of those entrepreneurs and public administrators who were unwilling or unable to accommodate themselves to the expanding requirements of the public,0,g +offieial ilateral and multilateral assistance an expans1ori of official export credits and other forms of official assistance has been essential in helping cover the financial needs of a number of debtor countries,1,g +during 1965 prices began to rise more quickly economic activity accelerated with the rise in defense expenditures and credit demands expanded at a rapid pace,1,g +the public always worries that politicians will resort to an unlegislated inflation tax when current expenditures are not covered by explicit taxes,0,g +state governments when strapped by limitations on their indebtedness that have become outmoded often must pass the burden of borrowing onto their subdivisions where it tends to be less secure and therefore more costlyevidence indicates that borrowing costs are higher for smaller units partially because they borrow in small amounts which are uneconomical to offer in the national market,0,g +a uk vote to exit the european union could have significant economic repercussions,0,g +here is the rub even if the arguments of those who wish for greater fiscal stimulus prevail expansion in government purchases will have reduced effectiveness if it is thought that those purchases will be financed with higher future marginal tax rates,0,g +nor can we see any other reason to prohibit underwriting of revenue bonds that would not apply equally to g 0 fs we therefore recommend favorable action on s,0,g +but geopolitical risks and political upheaval are affecting regions across the globe,0,g +10 congress was remarkably patient,1,g +and those deficits work directly against our objectives when they absorb funds that could and would be used to meet our investment and housing needs,0,g +since late 1957 or for more than a decade we have run a sizable deficit in our international payments,0,g +to be fair our politicians develop their initiatives according to what gets them elected and reelected,0,g +foremost among these is the federal budget deficit which will remain far too high for yet another year in 1990 a second is related to the first our need to finance excess government spending with imported capital has led to continuing imbalances in trade between the united states and our major trading partners,0,g +dlfficulties wlth developing country debt,0,g +so the us government ran up a substantial amount of debt to fund the war effort in a low interest rate environment allowing the treasury to have low debt servicing costs,0,g +is there anyone here who believes that nondefense expenditures will be cut enough to make a tax increase unnecessary,0,g +7 under both republican and democratic leadership past congresses have created a fiscal sinkhole that is so deep and so wide it threatens to swallow up our prosperity and render our economy an abattoir,0,g +th benefits of a tax cut of increased public spending an fflt within c1 iew wcekg or quarters,1,g +nor can a government agency determine among thousands of mergers which are good and which are bad,0,g +with the benefit of hindsight the timing of this fiscal stimulus was quite fortuitous,1,g +however our federal budget deficit has helped make us a net debtor nation when we should be acting as a creditor not only for third world countries but also for eastern europe,0,g +the federal government today is a heavy borrower ie a user of the nations savings,0,g +added to the freedom to select government officials this provides 9by far the greatest freedom from coercion and from want of any system that has so far been devised,1,g +these proposals usually refer to the annual inflow of payroll taxes and imply that over time some claims for future social security benefits are extinguished in exchange for explicit assets in individual accounts,0,g +a country can roll over its debt just like a corporation if it keeps its economic base strong and growing,1,g +now the encouraging thing about that budgetary situation is in a sense the flipside of its magnitude,1,g +communist countries may also show greater interest in engaging in trade with the rest o f the world,1,g +unsustainable projected fiscal debt loadsincluding large and growing implicit guarantees bestowed upon large financial firms by governmentsare raising concerns in sovereign debt markets,0,g +total us gnp growth directly attributable to mdb accivities averaged 27 billion during this period raising net federal tax receipts by 720 million annually and reducing the net cost to the federal budget for our participation in the banks to roughly 170 million each year,1,g +in 1982 ourcurrent account deficit was 8 billion while other members of theg5 combined has a surplus of 8 billion,0,g +these cuts principally reflect the historically large decreases in state tax revenues during the recession,0,g +it does add to the tax burden,0,g +but its not clear to me that reducing taxes in any way will impact on the size of government,0,g +the authorities worked together to address the problem through a combination of monetary fiscal and regulatory measures,1,g +on current and longterm capital account frequently referred to as the basic balance the balance between the united states and canada was 11negative for canada by just over 500 million per year in the 196166 period,0,g +currently nine agencies are meeting to design a coordinated attack on the problem and a number of legislative options are under consideration in both the federal and state legislatures,1,g +increased defense spending during the 1980s contributed to the booms in places like massachusetts and southern california,1,g +a second criterion probably should be to minimize government participation in markets,0,g +for example without tha benefit of saving the united states could not securely maintain its position of leadership among the free nations of the world who must stand together as a bulwark against a threatening alien social and political philosophy that is backed by armed might,1,g +it seems reasonably clear that even without a tax increase there are going to be machines idle during 1968 over recent years we have added enormously to our capital stock so muc h that not all of it will be employed even if demand for final output increases beyond what we believe it will,0,g +congress and the president authorized expenditures to help with rescue and rebuilding support affected industries improve security and mount a military response,1,g +the presidents determination to keep spending under control is heartening particularly his plea last july for a rigid legislative ceiling on expenditures that would apply to both the executive and the congress,1,g +the recent changes in the attitude toward cutting the federal budget deficits mean that the difficult tasks confronting the nation may now be worked on by both monetary and fiscal policy,1,g +the balanceofpayments deficit last year was higher than it has ever been,0,g +but it seems clear to us that these provisions go beyond a reasonable grant of authority consistent with the specific purposes of the legislation,0,g +thus despite the mounting frustration we may feel at the lack o f progress on this front we must stop blaming the government,1,g +i tell them those with the letter k on themwhat i call texas dollarsare worth more than all the rest because they represent the nations most dynamic economic machine,1,g +there seems to be general agreement that our present tax structure constitutes a drag on the economy and that reduc tion in the relative tax take and reform of the structure would be helpful in stimulating additional growth,0,g +and it is argued that this spending should engender deficits since financing through higher taxes would reduce private purchasing power and frustrate the attempt to expand total demand,0,g +neither the european nor the american political process has developed credible and sustainable plans to finance public spending,0,g +in the middle of last year government spending stimulated most of the economic growth,1,g +in view of these crosscurrents it is easy to imagine a political truce where us businesses decide the best thing is to keep the treasury out of domestic stock and bond markets and just have it buy foreign assets,0,g +japan and germany are currently large net lenders to the rest of the world and the united states given its large current account deficit is a large borrowerthe process of reducing the external balance in tlo united states is already underway in both nominal and real terms,0,g +although the federal governments structural deficit is likely to remain too large for the foreseeable future progress toward reducing its size should keep government purchases on a downward path,0,g +mexicos government has developed and implemented better macroeconomic policy than has the us government,0,g +the federal reserve works to reduce these distortions by enhancing market discipline and limiting expectations of government intervention,0,g +this in turn will improve americans ability to finance our own investment and government financing needs,1,g +arguably public confidence and hence the ability of policymakers to use fiscal instruments aggressively to address shortterm concerns is enhanced by whatever legislative rules guidelines or procedures exist thathowever gently or firmlytend to compel the policymakers to bring the budget back toward balance and the debtgdp ratio back toward stability after the crisis has passed,1,g +this of course represents the bare beginning of an effective legislative service,1,g +if the presidents aggressive attack on our balance of payments deficit is successful then obviously some of those nations in strong surplus positions will have to adjust their sights downward and some others will have deficits of their own to settle,1,g +prolongation of high deficits and high interest rates feeds back into future debt service and budget expenditures,0,g +nurtured by deregulation and an easing of tax burdens the spirit of entrepreneurship and healthy competition has been revitalized,1,g +what are the true facts about federal deficits the ones that we should consider carefully when we are looking for solutions to the deficit problem,0,g +they correct budget deficits directly they reduce trade deficits indirectly and the implied higher level of national saving also permits more funds to flow into capital formation and longterm productivity enhancements,1,g +for fiscal policy the time between recognition and action is long in parliamentary countries seemingly interminable in the united states,0,g +c a n fiscal stimulus be used as a tool to push the e c o n o m y ahead,1,g +by our calculation at the federal reserve bank of dallas the present value of the unfunded debt of these two entitlement programs has reached 104 trillion with 889 trillion of that due to medicare alone,0,g +government does not create wealth,0,g +government spending slows to cut deficit the current restraint in governmental spending is desirable for several reasons one governmental spending grew too fast during the early eighties and had begun to absorb an increasing percentage of gnp,1,g +gaps in the statutory framework were an important reason for the buildup of risk in certain parts of the system and for the inadequate response of the public sector to that buildup,0,g +but still the combination of us private and government saving together has remained inadequate to finance us investment,0,g +however such spending rose to 24 percent of gdp in 2009 and 3 percent in 201022 researchers estimate that the increase in the poverty rate because of the recession would have been much larger without the effects of income security programs23 public funding of education is another way that governments can help offset the advantages some households have in resources available for children,1,g +power concentrated in the state is less consistent with the maximization of economic efficiency than is its dispersion among competing private individuals,0,g +in recent years of course government it adopted largescale to enlightened selfinterest the total of government grants and loans to foreigners has b een c onsid erably less than it was in the late 1940s w h e n this flow averaged 55 b i l l i o n per year,1,g +the deficit is not a new problem,0,g +but you need to do it in response to the business cyclenot the election cycle,0,g +additional smartgrowth initiatives have been undertaken by the oki ohio kentucky indiana council of governments land use commission,1,g +and its going to require redirection in legislative ad administrative areas that will not be easy to bring about,0,g +i think its encouraging that social security reform is being discussed at the national level and that were seeing education reforms such as those currently being made in chicago,1,g +we are sympathetic to the approach in this bill of providing for the federal chartering of the investment companies for examining and supervising them to see that they are soundly run and for special tax treatment of them,1,g +i sense the climate of opinion in the congress and elsewhere is becoming more sensitive to the problem,1,g +this distrust goes beyond the antiincumbent attitude that permeated recent elections,0,g +b foreign aid shouldnt be increased at a time when domestic programs are being cut to reduce the deficit,0,g +the other defect much more serious is that business thinks the tax would be antibusiness while labor thinks it would be antilabor,0,g +moreover the total magnitude of the federal response is still unknown adding to the uncertainty associated with the fiscal outlook,0,g +as the federal government has been less willing and less able to pay for healthcare services for example employers and their employees in all industries have had to shoulder more o f the burden directly,0,g +federal judges hold lifetime appointments and their independence from transitory political considerations is thus assured,1,g +finally only a comparatively small proportion of the direct lending by fullyowned agencies of the government is shown in the budget because many of their activities have been placed offbudget by the congressi am personally concerned that guaranteed credit has been extended into new areas that are not necessarily appropriatethe original uses of guaranteed credit were in the areas of home and farm mortgages involving large numbers of relatively small loans secured by a physical asset,0,g +if we need any evidence that this is the right way to go we need only compare our nations economic performance during 13the recovery to that o f many developed and developing countries,1,g +both survey data and the market prices of inflationprotected treasury securities tell us that the public expects inflation to continue to be contained,1,g +the debt rescheduling and loan package that is nearly completed are very positive steps in the right direction for all parties concerned and this is a very encouraging development despite the seriousness of the underlying problems,1,g +the rest the defense budget is current and is appropriat for the world situation,1,g +the financial counterpart of persistent budget deficits has been of course a mushrooming of the federal debt,0,g +for the first time in decades we have a program for a more rational tax system,1,g +washingtons success deserves wider attention but so too does the success of our broader national economy,1,g +accordingly the budgetary scrutiny intended to apply to direct loan programs as a result of the oornprehensive coverage of the unified budget tended to be eroded,0,g +this may require some painful economies but a pre carious fiscal condition can drive away both business and people,0,g +but let me go back to th1 last fact that i wanted to talk about and that is that in contrast to the basic physical factors which lie largely beyond the reach of public policies we can look forward to exerting some influence durin the next 18 years on the quality and the amenities of urban living,1,g +the largest of these risks on my radar screen arises from the thin capital positions maintained by governmentsponsored enterprises and the ambiguity of whether congress would or would not act to bail out a troubled firm,0,g +moreover such interventionist policies were not supported by commensurate tax revenues,0,g +but unlike many other complicating factors large and persistent fiscal deficits introduce another risknamely that they could be the source of inflationary pressures,0,g +but now were facetoface with the truth at a time of tigh t federal reserve monetary policy and of a continued high level of private credit demands the federal governments borrowing demands have been r is i n g rather than declining with severe consequences for the markets,0,g +cngress deemed that the treasurys experiment was poorly designed or did not give adequate consideration to alternative auction techniques then the matter could be revisited,0,g +if we want to reduce the 8 inefficiencies associated with removing resources from private uses we should take actions that reduce the amount of government spending in the economy,0,g +since then that fraction has risen steadily and it reached 13 per cent in 1974 any large increase in the absorption of private incomes by government is bound to raise questions about economic efficiency,0,g +we cannot afford to ignore the potential effects of short shallow econanic expansion and a weakened growth upon the tax base and it is possible that excessively stimulative fiscal and nonetary policy could lead the economy along an inflationary track of not one but several quarters of say 7 percent real growth,0,g +the government must determine what priority housing is to have in our national scale of objectivesit must then translate this priority into actuality by a proper selection of policiesi think more and more people are coming to realize that the attempts through an almost bewildering array of laws and regulations to place mortgage borrowing in a special market with slightly lower rates may have done more harm than good,0,g +the administration the congressional budget office and others have all emphasized that without any action to change existing budgetary programs that is the current services budget deficits in coming fiscal years could reach 150 billion and more,0,g +with so much confusion about deficitsand deficits after all are the conventional measure of the thrust of fiscal policy there can be little doubt that there is confusion about fiscal policy,0,g +i recognize that a system which promotes maximum material wellbeing may not be a godsend and that its existence depends in part upon affirmative government action,1,g +for one thing we should bring federal financing activities under better control,0,g +rather it is improved governmental supervision and more effective management including some form of selfregulation,1,g +these include the rude discovery that the business cycle is by no means dead a heightened worry about the troubles inflation can breed apprehension about the cost and availability of energy supplies a lingering fear that expansionist governmental policies could again lead to price controls and growing concern about the costs of complying with existing environmental and safety regulations,0,g +we must therefore hope fervently that these discussions will finally lead to tangible results1515it would be of great benefit however if the structural deficit in the federal budget were declining when the dollar begins to fall,0,g +i fiscal policy the choices we have now are difficult,0,g +i understand that thanks in part to this program iowa is now home to ostrich llama and emu farms and grows crops that include special mushrooms and hydroponic tomatoeswhatever the source of the interest rate subsidies they help reduce debt payments thereby improving the affordability of credit for borrowersalthough participation in governmentassisted credit programs may in some cases result in increased paperwork and costs lenders have found that offering and extending these types of loans is profitable,1,g +there is much opposition to the withholding provision in the senate,0,g +when public policies require those who pollute to bear these costs we are simply redistributing the costs in a more equitable fashion not increasing them for society as a whole,1,g +the fact that it can destroy the very foundation of our democratic form of government,0,g +the souths low tax base has tended to cause underinvestment in important social programs particularly education,0,g +we know that once a central bank is perceived as targeting government debt yields at a time of persistent budget deficits concern about debt monetization quickly arises,0,g +among the more specific targets for action to reduce the deficit have been the following military expenditures abroad how can the level be reduced,0,g +meanwhile residential building activity and consumer outlays for durable goods declined early in the year and rose in the spring although to levels only somewhat above late 196l chart 3a slowing of growth in federal government spending has also contributed to the very moderate expansion of activity in recent months,0,g +and hyperinflation has never been stopped except when the money supply growth rate has been made independent of government finance,0,g +the propensity of members of congress has been to spend in excess of revenues to give pleasure to their constituents and garner their affection,0,g +changes not only in amount but also in the impact of these taxes were made from time to time to enhance the capacity of the private sector of our economy to achieve maximum performance,1,g +the expansion of governments net borrowing has been even more dramatic,0,g +a large volume of government borrowing associated with huge federal deficits such as we have had in recent years both raises the cost and reduces the availability of funds to private borrowersthe impact of this is most pronounced on housing and smallin summary let me assure you that the federal reserve has veryat the same time it is essential that the burden of restrainingbusiness finance,0,g +whatever the reason we must reduce federal deficitfinancing pressures if we want to reduce inflation and encourage dom estic saving and investment,0,g +its not just that were borrowing heavily as a nation,0,g +the sheer arithmetic of the budget does suggest that some changes will be necessary in all the major budget components and we are all aware that initiatives have already been proposed in a number of areas,0,g +the longterm amortizing mortgage is another innovation that got a boost from government,1,g +however some progress toward fiscal balance has been already registered in the united states and the trends particularly in light of the grammrudmanhoilings act appear to indicate that further substantial progress can be expectednominal interest rates in the major industrial countries have declined,1,g +economic policies designed to prevent any departure no matter how small from persistent growth in the output statistics may create more damage than good,0,g +the entire year was filled with political turmoil that caused capital flight,0,g +budgetary and international trade policies are the largest components of solutions to those opportunitiesit is encouraging that the focus of political attention to fiscal policy is now to those ways in which we can begin to resolve the dilemma of expenditures which are compounding at a faster annual rate than revenues,1,g +6 thats a lot of money to run the government ono theres a lot of room for cutting,0,g +the most obvious risk to sustained noninflationary expansion lies in our own budgetary situation,0,g +as i have noted almost no mortgage securitization is occurring today in the absence of a government guarantee,1,g +the substantial and timely fiscal stimulus provided by congress and the administration has made a meaningful contribution to this recovery,1,g +these longerterm security offerings have contributed to a more balanced maturity structure of the debt which will facilitate efficient debt management in the future,1,g +acting now to develop a credible program to reduce future deficits would not only enhance economic growth and stability in the long run but could also yield substantial nearterm benefits in terms of lower longterm interest rates and increased consumer and business confidence,0,g +13i do not deny that the government can play an important role in improving welfare in agriculture,1,g +in concept the need to marshal that vote would result in pressure to strike a compromise at a smaller projected deficit,0,g +without a doubt this application of countercyclical fiscal policy was extraordinarily welltimed and effective,1,g +continued budget deficits will steadily detract from the growth of the us capital stock and may also trigger dislocating changes,0,g +deficits in normal times are highly undesirable in inflationary times they are distinctly perverse,0,g +instead o f mounting an attack when th is problem surfaced the federal government delayed and v a c illa t e d ,0,g +my own fears center around the longterm inflation threat created by the proliferation of federal programsand the consequent unprecedented string of substantial deficitsover more than a decade,0,g +and if the congress provides funding for programs beyond present estimates or if 17revenues fall short of present projections the federal deficit to be financed in the upcoming fiscal year could exceed 100 billion,0,g +in nearly every country experiencing a major inflation the cause is the creation of new money to finance government activities,0,g +political power may be inequitably distributed,0,g +finally public infrastructure spending seems to bear a larger brunt of the fiscal retrenchment that developing economies often have to undertake in times of financial crises raising questions about whether its the wrong kind of spending that is cut,0,g +our sense is that other countries will be doing the same,1,g +congress has added new programs w ithout either supplanting outmoded programs or raising taxes to fund the new programs,0,g +hence i regard it as a duty of public officials to speak openly about defects in our govemmental structure especially those for which they think they have solutions,0,g +let me try to explain why i think this direction is promising and may succeed where monetary and fiscal policies applied separately have not,1,g +they also lack certain very basic elements of economic infrastructure,0,g +2 we must end the many activities of the federal government that spawn inflation including numerous forms of regulation,0,g +but this increase in productivity and efficiency should also embrace the activities of government as well as of the private sectors,1,g +the temptation to channel them into increased federal spending seems irresistable,0,g +fannie and freddie had the incentive to take extraordinary risks at taxpayer expense,0,g +4 adam smith the worlds first major writer on economics long ago pointed out the benefits of self regulation and the folly of governmental regulation,0,g +furthermore various government welfare programs supposedly designed to provide security or insurance to workers and citizens also may adversely affect motives fn1 saving in a more direct way,0,g +the fed held interest rates mostly unchanged over the next 19 monthsuntil december 1965despite mounting inflation fueled by government spending,0,g +i believe very sincerely that if we can begin to get the budget deficit down in this country we can take the load off the federal reserve interest rates will begin to come down and the problem will begin to unwind,0,g +we spent more than we could afford our governmentrepublicans and democrats alikecontinued at an accelerated pace down the path of promising more in social programs and other spending programs than we could sustain,0,g +it is widely believed that these deficits have kept the economy growing and 3therefore have been desirable,1,g +of course having the government intervene to rescue a private firm is largely anathema to the idea of a free market,0,g +weve made progress in reducing budgetary deficits but the deficits have been too high for too long,0,g +the 14year terms of the governors are designed to protect them against short term swings of partisan politics,0,g +need for spending cutbacks the necessity for substantial spending cutbacks in nondefense programs is obvious given the administrations commitment to a defense buildup coupled with tax reductions,0,g +in ad d itio n the new leg islatio n should have an indirect b e n e fit for the california economy,1,g +it is not surprising then that government policies which seek to direct the flow of entrepreneurial talents in an effort to promote good jobs and presumably to discourage bad jobs will have uncertain and potentially negative effects on economic prosperity,0,g +what we cannot do is escape other implications of the deficit,0,g +the 10 agreement will help to achieve longlasting benefits by making mexico more economically prosperous and politically stable,1,g +in that case the taxes collected by the federal government would have to rise from about 18 percent of gdp today to about 24 percent of gdp in 2030 an increase of onethird in the tax burden over the next twentyfive years with more increases to follow,0,g +this mispricing can be notable and is attributable not only to the improved liquidity but also to implicit government guarantees10 taken together the government guarantee and resulting lower mortgage rates likely boosted both mortgage credit extended and the rise in house prices in the runup to the crisis,0,g +need for moderate fiscal policy in our search for a broadscale and wel1integrated set of policies to combat inflation and recession we must first institute a moderate fiscal policy one which will not destabilize the 1980s as it did the 1970s,0,g +some of the key areas in which progress has been made include o fiscal prudence the administration and congress have made the containment of domestic spending growth a major priority of economic policy,1,g + 10 reserves fault much of the public and many legislators probably be lieve otherwise,0,g +all of this is not to suggest that the economy today merits a lclean bill f of health1 there is no shortage of issues that continue to threaten sustained 1 stability and prosperity here and abroad including still volatile financial markets and vulnerable financial institutions debt problems of developing countries and most importantly the stubborn imbalance in our fiscal affairs,0,g +the burden of our budget deficit on interestsensitive sectors of the us econorny would be intensified the problem would be shifted without resolving it,0,g +inflation is also costly because its a tax that nobody votes for,0,g +2federal government that our external financial position was fundamentally strong and that restraints on capital outflows were required only to provide shortterm assistance until the basic strength of our trade surplus rising earnings on direct investment and other favorable elements could coalesce to restore a lasting balance,1,g +although i think we still have a long way to go in this regard we are today more likely to see innovative policies like tradable pollution permits,1,g +for those businesses with more than 100 employees almost 70 percent indicated there would be no change in their hiring plans as a result of tax reform being passed,1,g +this growth in the public sector cannot be sustained,0,g +it seems that we have to keep relearning the lesson th at the principal obstacle to suc cessful use of m onetary credit and fiscal pol icies has been the failure to use them in a coordinated fashion,0,g +tax increases likely will not work to reduce the deficit significantly if growth is adversely affected,0,g +failures in presidential jawboning wage and price controls or the energy department arent the main cause of inflation,1,g +since fiscal 1981 the structural deficit in the federal budgetthat is the deficit adjusted for cyclical changes in federal receipts and expenditureshas increased by approximately 100 billion,0,g +government spending will have to remain on a downward slope if we are to meet grammrudmanhollings requirements without raising taxes,0,g +fourth substantial further steps must be taken to reduce the effects on costs and prices of governmental regulatory policiesespecially policies relating to the environment and to the safety of the workplace,0,g +that proposition placed a ceiling on property taxes confronting local authorities with the8misuse of productive resources for unproductive purposes a reduction of productive investment and a general slackening in productivity gains,0,g +full funding achieved by increasing tax inflows into the fund andor reducing benefit outflows would build up larger balances in the fund and would add to national saving provided these larger surpluses in the social security trust fund were not offset by larger deficits in the rest of the federal budget,1,g +a good case therefore seems to me to exist for allowing as many of the economic choices that society must make to occur through the anonymous market rather than the adversary proceedings of the political process,0,g +in view of the extraordinary numeer of new bond issues longterm intereiit rates have remained sticky but they too are appreciably lower than they were at their peak in may or june,1,g +thus governments that choose to provide support for rd are likely to get better results if that support is stable avoiding a pattern of feast or famine19 government support for rd presumes sufficient national capacity to engage in effective research at the desired scale,1,g +manufacturing has been one of the few bright spots in an otherwise lackluster economic recovery and understanding what has driven that performance can suggest promising directions in public policy,1,g +i also havent mentioned us fiscal policy although the shift from a large and prolonged deficit to a surplus has doubtlessly contributed to our goldilocks economy,1,g +government stimulus programs also contributed to growth,1,g +other catalysts to such booms might be a hurricane a tornado or just about any government spending boondoggle,0,g +8 if you do the numbers you will find that some 85 percent of those unfunded liabilities is due to medicare a budgetary heimlich maneuver is urgently needed to keep medicare from choking off our economic prosperity,0,g +longterm economic growth necessitates putting the us fiscal trajectory on a sounder footing,0,g +in major industrial countries bond yields have trended down in some cases reaching historical lows recently,1,g +our longterm inflation problem might not improve and could worsen unless a wide range of governmental policies are aimed at reducing inflation as our nations top economic priority,0,g +that result stems from the fact that over a period of several years the negative fiscal effects of dollar appreciation outweigh the positive monetary effects in markets for goods and services4 the principal effect of an endogenous rise in the exchange rate however is to alter the of crowding out rather than its overall magnitude,0,g +but the magnitudes are apparently not small when fiscal stimulus occurs on the scale we have seen in recent years,0,g +but those numbers dropped quickly as trade concerns came to dominate the headlines and outweighed the impetus from fiscal stimulus,1,g +2 in the business sector corporations have used a sizable share of the proceeds of capital market borrowings to rebuild financial assets to cover federal tax liabilities made unusually lage through the acceleration of collections instituted last year and more recently to repay bank loans,0,g +that expectation is widely held in the financial markets and by the public at large and the prospect of intensified public sector crowding out of private demands for the available supply of credit appears at least partly responsible for the maintenance of high real interest rates on longerterm instruments,0,g +in the meantime the federal government had also contributed to slowing down the inflationary spiral through such actions as putting corporate tax payments on a payasyougo basis sooner than originally planned reinstat ing the excise taxes on automobiles and telephone charges that were dropped at the beginning of 1966 reducing the underwithholding of personal income tax and reducing nondefense expenditures,0,g +the treasury obviously doesnt have the money for financing rebate checks and spending increases but it must borrow the money,0,g +they are committed to public service and take their responsibilities seriously,1,g +meaningful progress on federal budget issues particularly the longrun imbalance that must be addressed would alleviate some of the policy uncertainty that appears to have dampened growth in 2012 the risks emanating from europe could diminish this year as it emerges from a recession and makes progress toward new institutional arrangements,0,g +the federal budget became more stimulative,1,g +m674 digitized for fraser httpsfraserstlouisfedorg federal reserve bank of st louis2 administrations record as you know the administration has substantially increased the federal governmts support for economic development and job training programs for the purpose of providing permanent private sector jobs,1,g +on the other hand the outlook for our balance of goods and s e r v i c e s and government account does not look unfavorable,1,g +the lower odds of an imminent budget showdown may ease some business and consumer concerns and that may aid growth,1,g +as i look back on 1966 i am struck along with everyone else by the enormous pressures generated in an economy already in the neighborhood of full employment yet required to cope with a large and sharply rising volume of military expenditures,1,g +the united states was to modify the mix of monetary and fiscal policy to achieve more accommodation in the former and less stimulus in the latter,0,g +our country has not been innocent with respect to the use of these nontariff protective devices,0,g +but the failures of government have given them much to be modest about with regard to their own discipline,0,g +fiscal policy adjustments allow a country to meet its stabilization objective more by bolstering domestic demand and correspondingly less by encouraging external demand at the expense of other countries,0,g +since then however it has widened steadily and is currently estimated at over 3 trillion or 25 percent of gdp,0,g +not only would this neutrality limit the role of political clout but it would leave government officials out of the process of deciding which businesses are more worthy than others and allow all businesses to operate in a lowercost environment,0,g +in times like these it is also necessary that public expenditure in the united states be restrained to the maximum extent feasible,0,g +expectations of large and increasing deficits in the future could inhibit current household and business spendingfor example by reducing confidence in the longerterm prospects for the economy or by increasing uncertainty about future tax burdens and government spendingand thus restrain the recovery,0,g +we have no reason to believe that large deficits such as we have had in the 1960s are in themselves any more stimulative to total spending than the relatively small deficits in the 1950s after the korean war,0,g +the western states were hit particularly hard during the last recession and are also affected negatively by cuts to the us defense budget,0,g +this has contributed to the prevailing lack of concern over large budget deficitsfor governments of course news that budget deficits are not inflationary is welcome,0,g +however some members of the board have strong reservations about endorsing legislation that would further encroach upon state powers2preemption of state law,0,g +three propositions affecting government intervention im not going to talk about the many good things which governments do,0,g +no credible forecast suggests that future rates of growth of the us economy will be sufficient to close these deficits without significant changes to our fiscal policies,0,g +these provisions should be reviewed with the aim of assuring nondiscriminatory treatment 5 in a closing sentence to this section which deals also with taxation of cooperatives and fire and casualty insurance companies the president states remedial legislation in these fields would enlarge the revenues and contribute to a fair and sound tax structure,1,g +the provision of federal credit assistance through direct loans and loan guarantees to achieve particular social and economic objectives has been widely recognized as a legitimate and valuable activity,1,g +the federal governments involvement is substantial in both markets,1,g +the substantial expansion of the federal budget deficit has contributed to this situation,0,g +furthermore focusing on the government involvement in overall credit flows should facilitate the coordination of fiscal and monetary policiesthe administrations study also has suggested that sales of certificates of beneficial ownership cbo be treated as a form of borrowing rather than as a negative outlay,1,g +a central element in this strengthened antiinflation program is a revised 1981 budgetone that is balanced,1,g +these included providing liquidity directly to nonbank financial institutions supporting a number of shortterm credit markets and reducing longterm interest rates furtherby purchasing additional medium and longterm treasury bonds as well as mortgagebacked securities and the debt of governmentsponsored enterprises,1,g +yet public perceptions about the economic order are not sanguine projections of an awesome federal deficit overhang financial markets the recovery is viewed as fragile with unemployment still much too high some perceive real interest rates to be exceptionally high and the persistent strong exchange value of the dollar and problems with loans to lesser developed countries threaten international markets,0,g +certainly expenditure of federal economic development funds can be tailored to the necessities of the individual community of whatever size by people closer to that community than congress but to turn this money back to the political subdivisions now existing townships counties cities and state governments without some pooling of the talent already in short supply will lead to as great inefficiency 9 as exists on the national level,1,g +during the past winter and spring the city began to experience very serious difficulties in rolling over its debt to say nothing of adding to its outstanding indebtedness,0,g +altogether loans by fullyowned federal agencies and guaranteed loans outstanding amounted to about 315 billion at the end of the last fiscal year just 10 years ago the level was only 150 billion,0,g +after discussing these specific debt management requirements i would like to comment on the need to strengthen the process by which congress establishes the debt limit,0,g +market confidence in the success of monetary policy must be supported by continued commitments and decisions in both the congress and the administration to reduce the large structural federal deficits that threaten to place heavy pressure on our financial resources as the economy grows,0,g +as for the theme of todays conference choice and competition it is fair to say that in almost every arenaprivate industry as well as government choice and competition have enhanced productivity and unleashed creative change,1,g +when all spending at the federal level is included the figure is closer to 120 billion of deficit financing by the federal government in recent years,0,g +since this expected development may take some time to materialize the anticipated effect in reducing our deficit may also be delayed,0,g +talk of tax cuts and new spending also makes me uneasy,0,g +however it is also becoming evident that this target is being downgraded by some observers and public officials are being urged to revamp policies to reverse the slowdown in economic activity that has been underway for the last year,1,g +last year for example the federal deficit exceeded 150 billionthe sixth tripledigit deficit in a row,0,g +after all consumption rose less than 1 percent inventory accumulation declined substantially and federal government purchases were down by a big drop of almost 13 percent,0,g +such legislation is supported by the board of governorsas governor mitchell testified before the senate subcommittee on financial institutions last augustborrowing costs on municipal bonds are already much lower than they otherwise would be because of the exemption of their interest__it from federal incoamesv,1,g +the program also includes a broad and judicious m ixture of spending cuts designed to keep deficits from spiraling and creating even worse pressures on financial markets,0,g +now however the size of current and potential expenditures along with more general concerns about the federal governments huge budget deficits are forcing policymakers to take a fresh look at commitments to both industries,0,g +after subtracting from growth over much of the period from 2011 onward the impetus from fiscal policy has turned distinctly positive with the passage of recent tax and budget legislation10 fiscal policy is likely to impart considerable momentum to growth over the next couple of years not only by increasing demand but also by boosting to some degree the potential capacity of the economy,1,g +but beyond the increase in existing services the scope of government is broadening as areas which were formerly considered to be the responsibility of the individual or family are bieng taken over by government,1,g +the greatest danger however is a price upsurge generated by the same b asic forces that have been behind the powerful groundswell of prices throughout the past decade that i s unparalleled federal budget d e fic its and a necessarily accommodative monetary policy,0,g +hence it is likely that at least until this political gridlock is resolved the overall federal surplus should be at least as high as the presently forecast cash surplus of social security,0,g +on the plus side the fiscal picture is a lot brighter not just temporarily but into the future,1,g +our chief weakness however is the federal budget deficits that prevent us from taking progressive action on education infrastructure and other programs we will need to pursue in the 1990s,0,g +however a variety of increases in expenditures are meanwhile in the making and sentiment is also developing for larger and permanent tax reductions,0,g +in short the housing boom appears to have been driven by a combination of fundamentals government incentives and a degree of overshooting,0,g +8indeed whichever way you look there are costs to bringing down inflation that is why we have searched in so many directions for a cheaper way confirming the belief that in the end we shall always do the right thing after trying everything else firstbut it is not only the actions of the government that count much as government policy bears responsibility for inflation,0,g +the appropriate role of government in the economy is to provide a stable monetary fiscal and regulatory environment within which private market forces can operate,0,g +we hear so often of government programs that are poorly designed inefficiently implemented and ineffective in achieving their goals,0,g +3rates of growth that would have raised revenues to the point of balancing the budget after massive tax cuts were not prevented by the fed,0,g +to close the gap between the financial demands of political constituencies and the limited real resources available to their governments many countries too often have bridged the difference by borrowing from foreign investors,0,g +while the smithsonian realignment will have its largest effects on our exports and imports there should also be favorable effects on other components of the balance of payments including capital flows to and from the united states,1,g +however in the next few years i is quite likely that t government spending will fall relative to gnp as defense spending falls spending to deal with savings and loan problems tapers off interest expense on the national debt declines and unemployment is reduced,0,g +public transfers and subsidies increasingly pervade nations as they globalize and personal income taxes become more burdensome as well,0,g +our trade balance ought to have been showing further improvement in order to close the gap in our overall balance of payments,0,g +many governmental services are provided at the state and local level,1,g +a government pretending to serve a nations interest by say misinforming the people about its military plans would be harshly taken to task,0,g +similar rigidities notably limitations on borrowing costs inhibit the ability of state and local governments to compete in the capital market,1,g +social and political conditions have become more stable,1,g +change will not be easy because it conflicts with many political shibboleths plus entrenched procedures,0,g +i submit that many such calls for 4the government to do something are indeed effective in getting the government to do something but in most instances that something has so many costly side effects that it constrains the ability of our economic system to achieve an efficient solution to the problem at hand,0,g +congress spurred on by the new president has been aggressive with fiscal policy,0,g +to offset these higher costs the president urged substantial tax reductions before he cut back the tax package and agreed to a delayed january 1 date,0,g +but out of the public eye there was also hard serious work and wellcrafted compromises on the part of legislators and administration negotiators,1,g +taking premature action which might be perceived as undermining fiscal responsibility could well interrupt or reverse those trends and thus complicate the recovery,0,g +b foreign industrialized countries have tended to rely rather heavily on monetary policy for stabilization purposes with the result that interest rate levels have been high abroad relative to what they would have been had there been a more active use of fiscal policies,0,g +7 another trend is toward balance budgets and smaller governments,0,g +several years ago it was estimated that federal state and local governments enact 150000 laws a year,0,g +nonetheless the attention paid the deficit following the stock market crash means that fiscal stimulus will be less than in recent years,1,g +rather the blame lies for the most part in our own penchant for consuming more than we produce and this tendency has propelled the accumulation o f our government corporate and consumer debt,0,g +the deficit has been one factor that has constrained our growth ever since we started recovering from the 199091 recession,0,g +the prospect of such attrition would be reduced if the tax bill is passed and treasury bill yields decline promptly,1,g +since the early 1970s the thrust of public policy has been to encourage development and growth of markets for mortgage passthrough securities guaranteed by federal agencies and federally sponsored enterprises,1,g +the sharp increase in the value of the dollar from 1980 to 1984 and the ballooning current account deficit have been issues of serious concern for participants in international exchange and for policymakers for some time,0,g +the 1979 deficit of 277 billion is the smallest since fiscal year 1974 any proposed tax reduction should be analyzed in terms of its impact on the objective of moving toward a balanced budget,1,g +all levels of government can manage their finances prudently provide public services efficiently build up surpluses and rainy day funds and pay down debt,0,g +a reduced deficit over time and return to budgetary balance in a good business year is critical to avoiding endemic pressures in financial markets and to sustained growth in the private econom1,0,g +much progress already has been made toward reducing the size of these deficits but more will be required before the nation can rest comfortably,1,g +in the second half of 1964 and in early 1965 the highemployment surplus rose and the budget became somewhat less stimulative,0,g +if by some stroke of a magical pen the budget deficit were eliminated the economy would experience a deficiency of aggregate demand of the order of 5 percent,1,g +u in bringing about this trustee arrangement to deal with the highly complex problems faced by a central banking system the congress is to be credited with foresight in the degree of independence with which it has surrounded the system the nuances of independence are not easily spelled outthey involve an opportunity like that of the judiciary to act objectively without favor and without fear free of private pressures on the one side and partisan political pressures on the other,1,g +another area in which accountabiliry and clear objectives remain disturbingly absent is the relationship between the federal reserve and the treasury in the realn of exchangerate policy,0,g +foremost among these is the prospect that federal budget deficits will persist at very substantial levels in the years ahead even as the economy moves well into an expansion,0,g +i would like to agree enthusiastically with those who say that government ought to get out of our hair,0,g +if improved fiscal instruments were used side by side with monetary policy to influence total spending the chances of avoiding excessive bursts of aggregate demand with their inevitable inflationary consequences would be greatly enhanced,0,g +however the 13estimated cost to the treasury of tis bill is considerably greater than other proposals being considered,0,g +efforts to politicize central banks can be seen as a way for the fiscal authorities to strengthen their influence on the printing press to avoid difficult fiscal choices,0,g +but before i join the taxpayers revolt in the name of antiinflationary policy i must emphasize the necessary corollary,0,g +but this 6does not mean that the government really spends more than it takes in since it borrows an amount equivalent to the deficit,1,g +new ways may have to be found to maintain the balanced budget your congress demands and to do so without choking off economic growth,0,g +if left unchecked persistent and widening federal government deficits will have an increasingly corrosive effect on the us economy because all else being equal federal government borrowing takes up some of the funds that would otherwise go to finance capital accumulation or to purchase capital assets from abroad,0,g +this would help the fed avoid engaging in credit allocations or other sorts of fiscal policies,0,g +a more vigorous expansion abroad together with an improvement in the us fiscal position would over time help to redress some of the major distortions in the global economy today,0,g +by the same token we must be willing to pay with our tax dollars to keep those systems in top shape,1,g +last year though real government consumption and investment spending rose 11 percent with positive growth at the national level and at the state and local levels,1,g +in addition to spending more on new equipment research and so on we must also invest more in our public infrastructureroads mass transit and the like,1,g +these false perceptions have led people to argue that we have to reduce our federal deficits 9 and that any way we do so would be an improvement over our current situation,0,g +according to this school of interpretation which focuses on the potential growth rate of gnp the configuration of events in this econanic recovery is explained by a carbination of the tax cuts in 1981 and other incentiveenhancing policies such as deregulation,0,g +in view of the purpose of the tax cut which is to stimulate the economy a consistent national policy would hardly call for monetary action to offset its effects if the economy continued to operate well below its capacity,0,g +in effect congress has said that it does not want monetary policy unduly affected by political considerations,0,g +as shown on table i the financing required by the combined unified deficit and offbudget federal financing totaled over 80 billion nearly onehalf of the total available,0,g +at the same time however this group tends to envisage a lower rate of investment in the private sector which would make room for the government deficit,0,g +defense spending will stimulate the local economies surrounding the regions many defense installations,1,g +in considering the best remedy for the economic ills we must not overlook this vital consideration fiscal remedies used to attack economic ills of the f40s and 50s may not work equally well in the f70s,0,g +if future taxrate cuts are already enacted into law putting them into effect sooner than planned could be done quickly,0,g +but to the extent the needed job cannot be done by expenditure control alone i see no alternative to considering new sources of revenue,1,g +but why not lay out some budget for a number of years the budget documents have stressed the sensitivity of the budget figures to economic assumptions so i know it can be done,0,g +this will increase the funds available to rebuild our cities increase our productive capacity and raise future standards of living 8 early in the century 1913 tax rates on income l7,1,g +given the stakes the public sector must engage in order to ensure that the payments infrastructure is safe as well as efficient and fast assess whether regulatory perimeters need to be redrawn or new approaches are needed in areas such as consumer data and identity authentication and explore the role of central bank digital currencies in ensuring sovereign currencies stay at the center of each nations financial system,1,g +however we in the united states must remain committed to reducing our fiscal deficit,0,g +so instead of a 9billion trade deficit recorded in 1976 the first quarter of 1977 produced a record deficit of nearly 28 billion annual rate,0,g +most policy makers marvel at the seeming ease with which the united states continues to finance its current account deficit,0,g +for example the imposition of an income tax surcharge during periods of excess demand has been reconnnended,1,g +now with a lot of hard work and a little help from an improving economy the deficit has been tamed and the city is back in the black,1,g +for example currently because the treasury has gotten to thepoint where it is paying off debt on a seasonal basis intead of borrowing it probably has more impact on the three month bill rate than the federal reserve does in any g4ven qee_k,1,g +when poor economic conditions drive policy interest rates close to the zero lower bound fiscal stimulus may be more effective than usual in boosting aggregate demand because it will not have the usual effect of raising real interest rates thereby crowding out private demand2 a second lesson is that while even if it is appropriate for fiscal policy to play a larger role when policy rates are near zero policymakers nevertheless may face constraints in implementing fiscal stimulus,0,g +as the recovery progresses it does not seem likely that the treasury will continue to be able to sell treasury bills at close to a 5 percent yield,1,g +and the us current account while moving into deficit in 1980 as a result of1979s opec oil price rise should improve significantly in 1981r the currentaccount balances of the other two largest economies japan and germany are expected to remain in substantial deficit over the 198081 period,1,g +one source of competition could be the us governments funding needs associated with large fiscal deficits if congress cannot maintain an effective budgetdeficit reduction program,0,g +the heart of ricardian equivalence is that additional issuance of public debt leads households to demand more assets in order to save for anticipated future taxes needed to service the extra debt,0,g +in 2009 i advocated that we establish a new accord between the treasury and the federal reserve that protects the fed in just such a way,0,g +some part of the rapid upward trend of federal spending however is attributable to widespread acceptance of the theory that social and econornic problems can generally be soived by quick and large expenditure of governmental monies,0,g +promoting savings is a job for fiscal and tax policy,0,g +until we put our fiscal house in order we will have to buy more than we sell so that foreigners can in turn put their surplus earnings into financing our deficits,0,g +though federal expenditures are concentrated on certain industries their effects on incomes and output spread everywhere,1,g +but if the business recovery is as strong as generally expected and if the federal reserve supplies the funds which people demand at the controlled interest rate levels the system would have to acquire an increasing proportion of government debt outstanding as happened in the last decade the trend rate of money growth would increase and inflation would be intensified,0,g +changes in demographics and the adverse effects of large federal budget deficits are constraining our capacity to grow,0,g +united states political isolation ended with world war i and even the possibility of economic isolation ended with world war ii,1,g +now that i have your attention remember that to save promised benefits we would have to dramatically cut spending starting right now or raise income taxes and never bring them back down,0,g +while those hopes have not yet been realized note that the fiscal debate continues to be responsive to spending and revenue considerations which five years of massive deficits would entail we are no longer content to plan year by yearthat is not to deny the major risk both in recovery for 1983 and in trendto1988 of the prospect of continued federal megadeficits over the next five years,0,g +my hunch is that sheridan would want to live in texas with you and me and would seek to rent out hellperhaps to the us congress though it would have to be free of charge given their fiscal predicament,0,g +largescale shifts in demand of the public sector tend to overwhelm typical fluctuations in private epend i tures,0,g +this has taken the hard work of many people in both the public sector and the private sector,1,g +5 we must stop adding to inflation by government actions such as protectionism regulation farm price supports minimum wage increases and high government construction costs,0,g +of course i do not view this weakness negatively because deficit reduction is long overdue,1,g +in sum mr chairman recent events have raised troubling questions about the us government securities market,0,g +however logic would argue against the recommendation to keep direct lending of federal agencies in the unified budget,1,g +the coordination and expertise at the state level in these matters is an essential corrective,1,g +11 7in those new deal days to be sure an enlarged deficit would have been thought of in terms of bigger government spending not of a tax cuttax rates in fact went up severely during the 1930s,1,g +in particular i would like to review the course of our balance of payments over recent years and to bring out the nature of the problem that has called for specific corrective actionthere is no doubt that the balance of payments presents a real challenge to government policies and business decisions in the united states,0,g +it is in the oecd framework that the principle of the superiority of joint over individual country action can most clearly find expression,0,g +and its clear that low interest rates tax cuts and tax refunds helped to fuel aggressive spending by households,0,g +while it is not rigid or uncompromising and does not demand perfection there are limits beyond which we must not go if we would maintain it and expect it to continue to operate efficientlyclearly we should restrain further growth of the government sector and reduce it if possible,0,g +fiscal challenges for state governments cuts in state and local programs and employment are also weighing on economic activity,0,g +so fiscal policy is now on a course of new discipline new restraint that is a change in direction since the beginning of this year,0,g +if the congress continues to progress in slewing the growth of deficit spending it could be that coordination will come to mean a greater willingness by the industrial countries to pursue policies that promote moderately faster growth in employment and output by adjustments in fiscal monetary and labor market policies which would contribute to sustaining global economic growth88 lb surrmarize a review of the nonetary policies of our major trading partners indicates their understandable priority of restraining inflation and maintaining the strength of their currencies with econanic growth also an important consideration,0,g +the federal cdfi fund currently has 35 billion in tax credits to award though they have received 28 billion in new requests for funding,0,g +instead economic policymaking for the past several decades has reflected the unfortunate legacy of the great depression of the 1930s which gave rise to views that justified a massive increase in governmental intrusion into economic affairs,0,g +but can we afford a tax cut that would further enlarge the government deficit,0,g +we appreciate the efforts the states have made to implement title xi especially given the budgetary constraints many of you face,1,g +the public sector in the united states must stabilize its finances and reverse the accumulation of debt that has accelerated in recent years,0,g +but unless we as a nation demonstrate a strong commitment to fiscal responsibility in the longer run we will have neither financial stability nor healthy economic growth,0,g +a singlepriced and open auction holds the promise of enhancing participation in the auction and exposing attempts to manipulate the market thereby narrowing the possibility of manipulation and producing lower treasury borrowing costs,1,g +and if government tries to deal with povertyroy some device for income maintenance i1 only encourages shiftlessness,0,g +in the latter study changes in gnp from 1952 through mid 68 are regressed on variables taken as proxies for monetary and fiscal actions with the monetary variables alternately defined as changes in the money stock or in the monetary base ie 3 3 potential sources of economic turbulence and that fiscal policy is the wet noodle among our economic stabilization tools,0,g +some essential programs might have to be reduced or eliminated,0,g +but this action comes too as a matter of fact the legislators in sacramento have something to teach their colleagues in washington since they are carrying over a surplus of more than 800 million from fiscal 1973 in striking contrast the federal budget picture has been highly perverse with fiscal 1973ts 18billion deficit stimulating rather than curbing the inflationary economy and in the process heaping huge demands on the credit markets pushing up the level of interest rates and tending to overstimulate the rate of monetary expansion,0,g +thus my answer to the question posed in the title of this presentation is that the united states certainly does not have a current account deficit disorder,1,g +sizable fiscal stimulus has provided an important boost to demand this year and will likely contribute somewhat further next year given the usual lags in outlays and in the effects of tax cuts on business and household spending,1,g +given a national decision that we fight therewe had better supply all requirements not curtail them for balance of payments reasons3,1,g +the key to rebuilding this confidence is improved performance by government and budgetary reform can move us powerfully toward this goal,0,g +if the congress believes nevertheless that the presidentshould have standby powers to freeze wages and prices provisionshould be made for prompt congressional review of any freezeorder,0,g +the second is that the government stands aside from the competitive market system and lets the chips fall as they may,0,g +we were also experiencing a heavy balance of payments deficit caused in part at least by a bulge in imports and a slump in exports,0,g +defense spending as a share of g n p rose from under 5 percent in 1980 to 66 percent in 1986 it has since fallen to 55 percent and n o w that the cold w a r is over it is projected to continue to decline to under 4 percent in the 1990s,0,g +the danger is an upsurge generat ed by the same basic forces that have been behind the powerful groundswell of prices throughout the past decade that is unparalleled federal budget deficits and a necessarily ac commodative monetary policy,0,g +fiscal and monetary policies are being formulated with greater discipline to bring inflation under control,0,g +moreover price controls or 6relatively low taxation kept the price of oil and natural gas in the united states far below comparable prices in most industrial countries even after the oil shocksin the light of this relatively good performance of the private sector it probably would not be fair to fault government for not contributing more to adjustment to higher energy prices,1,g +yet so far the only thing that has cooled is the talk about the beneficial powers of fiscal action,0,g +the federal reservetreasury accord of that year separated government debt management from monetary policy and freed the fed to combat high inflation and set shortterm interest rates based on what was best for the economy,0,g +defense expenditures in particular should work to maintain substantial momentum in the nations factories even if some cuts are applied in this area,1,g +political talk about stealing social security benefits to finance the rest of government is fundamentally inaccurate,1,g +the external debt dynamic the need to correct the external imbalance is accentuated by the dynamics of the external debt that the united states is accumulating,0,g +the budget projections do not however reflect the potential impact of legislation being considered in the senate and the house that would mandate certain availability limits on funds deposited by check,0,g +the reason is virtually the same as in the case of a rise in fiscal deficits,0,g +for decades now economic borders have been fading away and the worlds nations have grown more interconnected,0,g +for almost half a century our government has moved toward greater participation in economic stabilization programs,1,g +we might be better off if we recognized the damage allowed realistic inflation accounting and to the extent that we fail to reduce inflation adjust our tax and financial system to minimize the damage,0,g +a useful set of principles for appropriate government action in the economic arena are as follows first governments should have a clear policy objective second they should be minimally intrusive in achieving that objective third they should rely to the greatest extent possible on market mechanisms and market incentives and fourth they should seek to influence ex ante behavior rather than focusing exclusively on ex post crisis management,0,g +however we share the concerns expressed by 13others that hr 2032 as draftedf does not provide an appropriateframework for such regulationwe do find the joint treasurysecfederal reserve planacceptable for these purposes,0,g +the tax cut bill of course is not the only source of potential fiscal stimulus over the next couple of years,0,g +provided progress can be made toward lowering the very large federal budget deficit the us economy is likely to grow at a sustained strong rate over the next decade,0,g +when this approach is followed the central bank in effect creates money to pay the governments bills,1,g +over the long future however it would be best for the government to avoid frequent or sizable intervention in the market,0,g +the degree and duration of that slack can be 7 greatly reduced if upon observing the commitment of government to antiinflationary policy people adapt their wage and price decisions quickly to the underlying economic realitiesas inflation and inflationary expectations begin to wind down the groundwork will be laid for a moderation of interest rates,0,g +off balance sheet there lie two massive unfunded liabilities not accounted for in the conventional budget accounting of the federal governmentmost significantly social security and the government obligations of current medicare programs,0,g +tax laws encouraged commercial real estate investment in 1981 but new policies discouraged it in 1986 a policy of regulatory forbearance and its associated moral hazard problems contributed to the lending excess,0,g +in the short run the high and rising cost of the vietnam war combined with the persistent drive to reduce the growth of federal spending will insure that only modest amounts,0,g +on the other hand a strongerthanexpected resurgence in confidence is not inconceivable rapid and convincing progress toward fiscal sustainability for example might release a rush of pentup spending,1,g +proponents of government fiscal action point out that lowering taxes increases the disposable incomes of individuals and businesses tending to bolster private expenditures for goods and services,0,g +otherwise private and corporate citizens will continue to operate as though the government could take their property at a moments notice,0,g +sooner or later progress must be made in controlling excessive federal spending,0,g +too often i the public sector looks ahead only a month or six months and has no real concept of what the city is to be,0,g +the federal reserve board in general enthusiastically endorses the formalization of some credit budget process such as that implemented on an experimental basis last yearit is the boards view however that legislation that contains measures pertaining to appropriations limitations should be very carefully approached,1,g +we are now attempting to change that by adopting integrated congressional decisions on revenues and expenditures,0,g +such a decline in rates is badly needed to set the stage for a healthy recovery in the national economythe country thus anxiously awaits signs of a compromise ending the present deadlock between the congress and the administration on measures to reduce the budget deficits,0,g +1 am greatly encouraged by the fact that our political leadership is grasping this opportunity to make major savings,0,g +however we have just survived a serious recession with our political business and financial institutions not only intact but perhaps even stronger than before,1,g +in response to that experience three broad trends are sweeping the world deregulation denationalizationprivatization tax reformreduction relative size of government sector trending down,0,g +such government deficits tend high real interest rates place a drag on investment because capital spending is especially sensitive to credit costs,0,g +for all these reasons the federal reserve believes it would be wise not to rush in with hasty5with treasury bills and with small and mediumsize certificates of deposit in banks and thrift institutions,0,g +an auction of all government debt in orderly quantities would relieve the treasury of concern for undersubscribed issues and the federal reserve of evenkeeling which is a consequence of the treasurys reliance on fixed price issues,1,g +other provisions of the bill would restrict tax deductions for expense accounts increase tax earnings of u s subsidiaries and provide an investment incentive for new plants and equipment,1,g +japan and germany are currently large net lenders to the rest of the world and the united states given its large current account deficit is a large borrower,0,g +governments can impose sales and other taxes that seize firm revenues before they can be diverted,0,g +to date fed actions the coronavirus aid relief and economic security cares act and other programs have provided important support to households businesses nonprofit organizations and state and local governments,1,g +this is not easy to ascertain given the complication of various nationalstate and local tax laws and conditions under which tax burdens are shifted to customers,0,g +one aspect of fiscal improvement throughout the industrial world is a reduction in the size of government and a removal of government restraints on private markets,0,g +thus the present debt limit of 830 billion should be increased by 56 billion to meet our financing requirements in fiscal 1980 the amount of the debt subject to limit approved by congress in the may 1979 budget resolution is 887 billion for the fiscal year ending seternber 30 1980 yet since the budget resolution does not have the force of law it will be necessary for congress to enact a new debt limit bill before the treasury can borrow the funds needed to finance the programs approved by congress last may,1,g +ce could have left the united states with an external debt nearly half as big as our annual gnp,0,g +the thrust of the political debate is nowand must continue to behow to right the listing fiscal ship and put it back on a course that encourages job formation and gets the economy steaming again toward evergreater prosperity,1,g +however higher interest rates which are a byproduct of government borrowing in private markets are not popular choices for elected officials,0,g +i want to reiterate the federal reserve boards support for prompt congressional action on the imf legislation,0,g +finally the government has mandated inflation in so many ways that to single out only a few of them would understate the gravity of the situation,0,g +i see no reason why voluntary controls will engender greater respect for law or governmental authority than mandatory controls,0,g +all of the obvious and relatively painless steps to secure balance of payments improvement already have been taken,1,g +i think we must be prepared to take vhatever monetary and fiscal action is necessary to restrain inflationary forces,0,g +in surmnary then these are my reasons for casting a very firm vote against governmental allocation of credit at least in any way that has yet been proposed,0,g +the resulting discipline from competing standards of value strengthens the political resolve to achieve the fiscal balance necessary for monetary stability,0,g +we wouldnt have a payments deficit today if we didnt import oil,0,g +thus when the treasury has found it necessary to issue a large volume of debt to cover ongoing deficits the federal reserve has often stepped in to purchase a sizable portion of government debt in order to keep bond prices 8high and interest rates low,1,g +the principle vehicle was the revenue act of 1964 embodying very substantial tax cuts,0,g +with so much confusion about deficitsand deficits after all are the conventional measure of the thrust of fiscal policy there can be little doubt that there is confusion about fiscal policyin this regard let me make one additional point,0,g +failure in both the private and government sectors to finance our capital investment and economic expan sion out of increased saving is chiefly responsible,0,g +only when that capacity is testedby calls on foreign exchange reserves by demands on taxpayers through the budgetdoes information about limits emerge,0,g +rather than pronote efficiency and lmprove this funportant soclal engine governments often autonatlc nechanlsns slow and lnpede the narkets proper functlon,0,g +indeed they have ready alternatives since us government securities trade in an international market,1,g +as the government seeks more and more funds to finance its spending interest rates are bid up to ration the remaining supply of funds to the 6 businesses home buyers and municipalities that demand them,0,g +as i have discussed projections by the cbo and others show future budget deficits and debts rising indefinitely and at increasing rates,0,g +however he also recognizes that each new governmentally enacted rule of the game involves a loss of some freedom,0,g +at first i tended to discount these reports as the normal grumbling about washington politics but their persistence and plausibility has me giving them more credence,1,g +to obtain the target range net purchases of government securities by the federal reserve system from now until next spring will accommodate less than 10 percent of the projected net government borrowing,0,g +these very longterm calculations may be subject to a great deal of budgetary sleight of hand,0,g +inevitably however such significant government intervention has been a mixed blessing,0,g +this has increased the pressure to remlve certair government or governmentally sponsored expenditures from the federal budget,0,g +to the extent that funding issues with public pensions amplify fiscal stress the longerrun problem of public funding may translate into growth challenges as the economy seeks to heal from periods of economic weakness,0,g +this is one of the legacies of the reagan eraof having won the cold war and having the majority of previously closed or dysfunctional governments choose prosperity as their goal rather than the economic suppression of their people,1,g +no conceivable manipulation of monetary policy provides an escape to the contrary the implication is that monetary policy would need to carry a still heavier burden to demonstrate the governments resolve to follow a noninflationary course,0,g +the concept of balanceofpayments discipline has largely given way to a recognition that it is internal discipline over fiscal and monetary policy that is required for stability,0,g +expectations therefore deepened that governmental action would never be adequate or sustained long enough to get the job done,0,g +fail and equitable competition between financial institutions as between other classes of business is in the public interest but legislative inequities which result in preferential tax treatment or the contravention of state sov ereignty are against public policy andshould be eliminated,1,g +i see no escape from the central proposition that to make room for tax reductions and for private credit demands both required to support economic growth and productivity gains federal expenditures and offbudget credit programs will have to be cut back sharply from current projections,0,g +stronger savings by us consumers wont be enough to correct our external imbalance without significant reduction of the countrys public borrowing,0,g +if these transfers were not financed by new borrowing they would effectively finance added benefit costs through higher federal taxes or lower government spending than would otherwise be the case,0,g +whatever the reason we must reduce federal deficitfinancing pressures and change tax and regulatory policies i f we want to reduce inflation and encourage domestic saving and investment,0,g +the point which i have been tying to make so far is that in the next few years without a fundamental change in present private expenditure patterns and in government programs there will be no large sum of money which the government can easily devote to the expansion and improvement of public services,0,g +this competition of political institutions both of the organization type and the rules type is a part of w hat l view as a very healthy process of reinstituting 19th century economic liberalization,0,g +beyond helping reduce whatever unsettling effects might be posed by lbos this kind o f tax reform would have a beneficial e ffe c t for the economy in general,1,g +with rates at zero and fiscal support at historic scale there is significant financial stimulus to help bring the economy back,1,g +i want to be clear at the outset that i am not saying that it is appropriate for fiscal policymakers to increase the longrun level of public debt,0,g +this feature of the act ster111ed from a well founded concern that excessive government spending could be aided and abetted if the executive were granted the authority to control a nations money supply,0,g +with fears of a widespread economic slowdown proliferating in late february and early march treasury prices rose and yields fell sharply as usually happens when the economic outlook worsens,0,g +with the heavy demands facing the country these estimates will soon be exceededthe present proceduresthe present system of budgeting treats existing programs in at least four different ways,0,g +while one might expect some shortfall between projected and actual outlays on fixed equipment there is also a good chance that plans may be realized substantially unless public policy is brought to bear,0,g +it is still too early to listen to counsels of despair the 1984 fiscal year budgetary process is still in an early stage44outyear megadeficits tend to create doubts as to the prospects for the very success of economic policyperhaps the capacity of economic policyto contain inflationary pressures over the long run,0,g +it is particularly vital that we not be pulled off course toward excessive credit ease by the two major forces that have done so in the past ie the necessity to finance largescale budget deficits and the tendency to call for easy money to solve structural unemployment problems that could be handled better through selective measures of the type ive described,0,g +so the federal government will itself preempt about half of what is available to add to our capital stock to inventories or to housing,0,g +7 indeed as the decade progressed and the predictions of the fiscal dominance theory failed to materialize more sophisticated variants of the relationship between fiscal and monetary policy began to find their way into economic research,0,g +clearly what these governmental units suffer from is rising cost of items other than borrowed money,0,g +these misadventures of fiscal policy doomed the economy to serious trouble but we were slow to recognize this,0,g +however the necessary savings will not be generated by a federal government operating at a deficit nor by a plethora of agencies competing with the private sector and with each other for existing supplies of funds,0,g +can the congress and the administration through judicious combination of deficit reduction and saving and investment incentives raise trend growth at least for a while,0,g +where governments have mandated that monetary authorities have no objectives regarding shortrun growth of output employment or other real magnitudes sound money has helped with all of these objectives in the long run,1,g +11 when you can deduct it from your tax payments or from your income in calculating you tax that takes the bite out of the interest rate for a good many people and lowers the effective rate,0,g +ultimately however the ffb obtains its funds from the treasury and thus the deficits incurred by offbudget agencies directly increase federal borrowing needs,0,g +aside from loss of revenues that could be applied to balancing the federal budget the wave of lbo activity and the general growth in leverage the lbos have brought with 9 them may pose certain dangers to economic stability,0,g +rather it largely reflected a collection of incentives some arising in private markets and some created by the government that motivated individuals to act in ways that proved damaging to the nations overall economy,0,g +this tells us something about the extent of redistribution of resources within the economy from private uses including private investment activity to government,1,g +for example the fiscal stimulus of rising federal deficits has made an important contribution to the strong economic recovery that we have enjoyed since late 1982 similarly the rapid rise in us imports has helped fuel recovery abroad and has enhanced the export earnings capacity of developing countries,1,g +the weak sectors in the economy will probably be construction and government,0,g +perhaps hov1ever an even better and more direct result miqht be achieved by a restructuring of our federal budget and debt concedts,0,g +question mr mcintyre to follow that point on page 5 you show a figure of 91 billion for increase in budget authority for military programs,1,g +so this evidence suggests the growing fiscal imbalances do not explain the bulk of the change in us net saving or the current account,1,g +inf la tin and the rising cost of debt financing the above are some of the direct effects of inflation on state and local governments,0,g +as a central banker my concern with these fiscal developments stems from my realization that fiscal actions and monetary policy cannot be put into separate compartments,0,g +trade restraints reduce the efficiency of the economy 10 vàiich could discourage net inflows of foreign investment on which we remain dependent as long as our budget deficit remains large and domestic saving lew,0,g +hopefully it will not be our failure to effectively restrain government spending in the 1980s and early 1990s that finally derails the current expansion,0,g +as a result total federal outlays will rise without being reflected in the budget totals,0,g +putting that argument aside the fact is that people in this country believe that budget deficits cause inflation and until you can change their expectations until you can change the way they think and the way they do things were not going to get inflation under control,0,g +the major challenge facing us fiscal authorities is meeting the need for nearterm economic stimulus while pursuing a practicable plan to stabilize the governments debtfinance obligations,0,g +with fiscal stimulus and favorable financial conditions providing tailwinds to the economy the outlook is for more of the same,1,g +moreover in recent years as fiscal policy has lost all latitude government began to privatize social issues such as medical care,0,g +allocations of labor and other resources among industries and firms are determined by arbitrary government rules rather than through freedom of choice of the individual,0,g +the return to price stability and lower interest rates can be speeded up substantially however if the congress and the administration work together to eliminate the prospects for alarmingly large federal deficits in the years just ahead,0,g +errol flynn and felix rohatyn the iconic actor errol flynn who to the best of my knowledge was not a member of the economic club is reported to have quipped that his legendary financial problems lay in reconciling my gross habits with my net income this is the most concise description i can marshal to explain the problem plaguing our nations fiscal authorities,0,g +the most recent round of turmoil in financial markets caused many fiscal authorities around the world to reconsider whether they can spend their way to prosperity,0,g +but i am also conscious that tax reductions however rationalized on structural or cyclical grounds will be counterproductive if they simply add to our chronic deficits over time place still more pressure on 11 interest rates and feed inflation,1,g +it provides more than half its proposed tax relief to expand investment and producttvity,0,g +the president has already proposed new expenditure cuts of 13 billion,1,g +moreover since the government itself occupies a monopolistic position in our society its own inefficiencies and actions may be less subject to competitive forces than are monopolistic abuses in the private sector,0,g +september 29 that brought into question a portion of the financial aid package namely the purchase of mac bonds by the state pension funds,1,g +one would be to move constantly and consistently toward a balanced federal budget,0,g +only about onefourth of public service program enrollees in 1975 had been receiving unemployment insurance or public assistance prior to participation in the programfar and away the most significant defect of the bill as far as inflation is concerned however results from the limitations it places on the exercise of monetary and fiscal policy,0,g +concern about a budget induced resurgence of inflation is symptomatic of a more widespread and still ersistent fear that inflation has been brought under control only temporarily and that it will escalate again once a new expansion has gained momentum,0,g +to eliminate these inequities the administration proposes that the initial allocation to county areas be eliminated and that all local governments within a state compete for funds on a common basis,0,g +vested interests are tempted to respond with nationalistic rhetoric,0,g +in the early 60s our deficits also generated the dollars needed by the private sector abroad to meet the growing requirements of a burgeoning world economy,1,g +with further private support from both management and labor the presidents program can help in bridging us over until the time when fundamental fiscal and monetary policy can break the cycle of inflation,1,g +tax cuts enacted last year have helped mitigate the recession and continue to support the recovery,1,g +the gses became powerful advocates for their own bottom lines providing substantial financial support for political candidates who supported the gse agenda,0,g +in contrast resource allocations by group or public actions often retard growth by maintaining excessive resources in areas where the groups have a vested interest and great economic or political power,0,g +by 1976 however open market 5operations added or absorbed more than 40 billion of reserves in twelve different statement weeks and in each case fluctuation in the treasury balance was the dominant factor requiring actionthe largest of these weektoweek changes required desk intervention totalling 60 billionto date the federal reserve has generally been able to execute the requisite volume of open market operations needed to offset the unwanted reserve effect of these enlarged swings in the treasury balance,0,g +legislation to further lower trade barriers for example is becoming increasingly more difficult to pass in our congress,0,g +finally and perhaps most challenging the country would be well served by a better process for making fiscal decisions,0,g +however our newly purchased treasury securities and mbs will not mature or be repaid for many years the loans we are making to back the securitization market are for three years and their nonrecourse feature could leave us with assets thereafter,1,g +government actions can however hamper full employment and growth,0,g +this agency was empowered to sell up to 3 billion of its debt obligations which were to be backed by certain tax revenues that otherwise would have gone to the city and then to make the proceeds of its borrowing available to the city,1,g +the general experience in the united states as well as in other countries has been that central banks have found it necessary to help finance large government deficits by expanding the money stock,1,g +the history of the past 20 years has shown that through government aid to the private market major improvements in efficiency and operations have been possible for middle and upperincome housing,1,g +there is nothing in the act or its legislative history to indicate that this authority was intended to be used as a channel for financial assistance to public bodies,0,g +congress currently is making notable progress in putting together a deficit reduction package the prospect of highlevel trade liberalization talks was raised at the recent economic sunmit in bonn and the central banks of several industrialized countries showed an increased willingness earlier this year to intervene in the foreign exchange markets in an attempt to head off strengthening of the dollari am personally not optimistic about our ability to use market intervention to move exchange rates materially below levels determined by fundamental economic factors,0,g +a key fiscal proposal would authorize the president to alter the businessinvestment tax credit within a specified range perhaps from zero to 15 percent so as to dampen businessspending demand during inflationary periods and accelerate demand during business slowdowns,1,g +our failure to develop a rational fiscal policy during the expansion phase of the 1980s virtually mandated the long period of substandard growth that we have been experiencing,0,g +as a result if current policy settings are maintained the budget will be on an unsustainable path with the ratio of federal debt held by the public to national income rising rapidly,0,g +without such a target policy becomes more vulnerable to shortrun political pressures,0,g +other countries have also used budget targets as a means of enforcing fiscal discipline,0,g +looked at from another direction there is recognition of the fact that the public policy rationale for the favorable regulatory tax and credit treatment of thrift institutions is fundamentally rooted in their activity as home lenders,1,g +in other words just as private borrowers can at tines be crowded out of credit rrarkets when federal outlays are financed through the issuance of treasury debt so can some private borrowers face higher credit oosts when other s,0,g +reducing government deficit spending must also be a high priority in order to free up more overall domestic savings and help lower relative real interest rates,0,g +however although the paygo budget rule for example appeared to help keep legislation from increasing federal deficits for a number of years paygo did not provide a mechanism to deal with the longterm budget imbalances already in place,0,g +i am left with the concem that we may have put ourselves in a situation where some structural highemployment budget deficit may be needed although obviously much smaller than the present,1,g +indeed based on a costbenefit test surely the cea must be one of the most successful government agencies in history,1,g +whether we as a nation succeed in sustaining economic growth over a prolonged period will i believe depend less on the course of monetary policy than on our ability as a nation to deal effectively and in a timely way with the very troubling deficits that have developed over the past several years in the federal budget and in our external accountsearly in this recovery there were widespread concerns that the huge increase in the structural deficit in the federal budget would stimulate the economy excessively exert extreme upward pressures on interest rates and perhaps aggravate inflation,0,g +this could be done by removing or reducing the bias in favor of debt as against equity that is a familiar feature of the corporate tax system,0,g +the recent budget deal will provide a boost to federal spending this year however and state and local spending in much of the country should continue to benefit from growing revenues,1,g +and no onebusiness operator worker or consumercan plan for the long term with confidence until the federal government removes the angst that is associated with runaway deficits and unfunded liabilities that threaten to drown our economy in debt,0,g +but should such initiatives fall short the marked increase in the economic flexibility of the american economy that has developed in recent years suggests that market forces should over time restore without crises a sustainable us balance of payments,0,g +hence at best this component of the inside lag for us discretionary fiscal policy is about a year already longer than the average recession and the lag can be substantially longer than that if the relevant action is at all controversial,0,g +such limitations are of course central to the budgetary control process proposed by the last administration and endorsed by the present administration,0,g +on the other hand it is also of highly critical importance that fiscal restraint through an increase in income taxes and a reduction in federal spending in that order be made to bear a much larger share of the responsibility for the stabilization of the national economy,0,g +businesscycle considerations dictate relatively easy monetary and fiscal policies as a means of offsetting the downturn in the economy,1,g +those tax revenues can be spent on programs to put vacant properties back into active use helping to reduce crime or on job training or economic development programs leading to more employment and wage income that can help homeowners avoid foreclosures,1,g +s another benefit of trade liberalization is that i increases pressure for domestic t liberalization that is it increases pressures on government to remove restrictions that hamper the effectiveness of domestic firms,0,g +this activity created problems for the treasury in monitoring and controlling the timing of federal borrowing and tended at times to generate congestion in the market for federally related securities,0,g +the federal government would absorb fewer resources and leave more for the private sector if it were to reduce its share in gnp by cutting both expenditures and taxes,0,g +wellintended governmental regulations imposed on business often adversely affect returns of capital and therefore saving regardless of 7 whether they achieve their stated objectives,0,g +in addition money backed only by government bonds was associated with inflationary wartime finance and thus viewed as potentially destabilizing,0,g +as in the case of deficitfinanced federal spending federal credit activities nay reduce the availability of credit to others who are not program beneficiaries,0,g +the upswing which began in 1961 however has been marked by a moderate continuing deficit,0,g +while there are as yet not a great number of feasible ideas for significantly reducing the cost of medicare there are a number of proposals to reform social security,0,g +there is a concern that government resources are being wasted and federal deficits expanded through inefficient spending programs,0,g +in the minds of many our governments fiscal misfeasance threatens the worlds respect for america as the beacon of democracy,0,g +in this amorphous debate the political questions are perhaps the most amorphous of all,0,g +fiscal policy will be playing an important role at first in checking the decline in activity and later by helping to prevent excessive growth of aggregate demand,0,g +however the recent congressional debate on strategic fiscal policy issues is just a beginning and very large and difficult issues remain with regard to longerterm fixes to the social security and medicare programs,0,g +thus none o f us should be su r p r i s e d at the s t r a t o s p h e r i c level o f i n t e r e s t rates which r e s u l t s when money growth i s ob vio u sl y slowi ng and when the federal government is ta k in g a l a r g e r share o f a v a il a b l e funds,0,g +essentially it would rationalize investment decisions by removing the large role that tax considerations have come to play and instead fostering flows of savings to their most productive use in an economic sense,0,g +as fiscal policy becomes more restrained in the spirit of grammrudman the elimination of the stimulus generated by large deficits may initially exacerbate the unemployment situation,0,g +at the most aggregated level the important imbalance is the large and growing discrepancy between what the united states spends and what it produces,0,g +i think that was stated at the time and it is a very large challenge to get the expenditure side of the budget now down to match the tax receipts side,0,g +it is perhaps surprising that in this situation there hasnt been more pressure for tax increases even if only on a standby or discretionary basis from those concerned over the inflationary possibilities9it seems clear that under these circumstances the policy maker is going to be loved by few,0,g +the general trend toward less goverrnnelt involvement in 8 the economy,0,g +because of the strong belief in the desirability of a tax increase these advocates favored taking a calculated risk of postponing monetary action in the belief that such a course would be the most likely to encourage congress to pass a tax increase,0,g +then we need to consider the shortterm issues with us fiscal policy,0,g +there is the possibility that unexpected private d e m a n d pressures combined with too m u c h fiscal stimulus might create excess demand,0,g +today from a position near full employment the economy is poised to absorb 112 trillion in personal and corporate tax cuts and a 300 billion increase in federal spending,1,g +then we need to consider the nearterm issues with us fiscal policy,0,g +transfer payments have become the growth sector of government expenditures,0,g +the emergency fiscal stimulus of 2009 helped prevent a downward spiral in the real economy from a great recession to another depression,1,g +the implementation of the new congressional budget act i believe is off to an excellent start,1,g +and in fact since 1976 we have on 17 occasions under six of the last seven us presidents experienced a federal government disruption including shutdowns,0,g +were we using fiscal policy to counter these pressures i doubt the issue we are considering today would even have arisen greater reliance upon fiscal restraint would probably not have produced the monetary stringency we now see around us or may be expecting,0,g +large federal budget deficits tend to exert upward pressure on real interest high real rates increase business costs generally and discourage investment,0,g +you know as well as i how much remains to be done to convert glittering generalities into practical action to achieve and maintain the necessary fiscal discipline to make responsible tax reduction and reform a reality to conserve energy and increase domestic sources to tackle the regulatory maze,0,g +the bipartisan budget act passed last month will add nearterm direct spending that we estimate will add a little less than onethird of a percentage point or so to growth in each year,1,g +second once a government has obviously extended the reach of its safety net moral hazard problems are compounded as market actors may expect similarly situated firms to be rescued in the future,0,g +as the president emphasized again last night what is tequired is action particularly action to reduce the 12deficit and move toward budgetary balance,0,g +minimumwage laws fairtrade laws and buyamerica clauses in public contracts similarly act to fix prices invariably above a competitively determined level,0,g +but under a fiscal policy designed to spur growth the economy advanced closer to its full potential in subsequent years,1,g +this gap between our desire to spend and what we can actually produce and between our desire for capital improvements and what we manage to save to finance these improvements creates a problemthis problem is not unique to state and local governments,1,g +the fact that our government passes defense work on to the private economy in the form of contracts does not change the fact that the scope and character of defense expenditure does not grow out of the private market system,1,g +in 1978 it was high time for fiscal and monetary policy to start aiming at a soft landing,0,g +on the other hand congress has intentionally removed itself from the direct conduct of monetary policy by granting the federal reserve the independence to perform this function on its own,0,g +this is a real public service and i very much appreciate their contribution,1,g +today as in erhards days freedom and how it is respected and applied in economic affairs is a dominant issue,0,g +in other words losses of revenue from tax reductions would be roughly offset by the gains which normally accrue as a result of expanding production and incomes,0,g +military expenditures which result in dollar outflows some military expenditures are being offset through arrangements whereby foreign governments agree to spend the same amount of dollars on us goods as we spend maintaining troops in their countries,1,g +to this end the congress recognized on the basis of abundant historical evidence that control over the power to create money should be kept out of the hands of those with the responsibility of fashioning spending programs and paying the governments bills,0,g +the current inflation began in the middle 19601s when our government embarked on a highly expansive fiscal policy,0,g +government spending is likely to continue shrinking somewhat,0,g +we have as you knew pending before the congress the targeted fiscal assistance which we think is also important because of the nature of this recession and the way that it falls unequally on various parts of the countryand we hope we can have your support in that effort,1,g +the deficit would be larger because there would be a smaller increase in tax receipts,0,g +michael moskow speeches 2005 297 in addition to public policies that attempt to address job loss we know that firms have their own policies that come into play in a reduction in force certainly many of the people in this room are well aware of the various forms these policies may take,0,g +conslder our experlences wlth nacroeconomic policy coordfnatlon since 1985 in llght of the sparse progress that the unlted states has nade towards lowerlng fts budget deficits our part of the bargaln one could argue that the dollars depreclatlon has shlfted more of èhe adjusèment burden onto our tradlng parènersan outcone that was noë conpletely the result of lnternatlonal coordinatlon and cooperation,0,g +our internal and external deficits have risen in my judgment to levels much larger than what any sensible economic doctor would prescribe,0,g +and doing so means that our elected representatives face the very difficult task of hammering out solutions to the daunting financing requirements of the aging babyboom generationthe much publicized social security and medicare problems,0,g +orr opportunity tcday is first to take responsible action in the fiscal policy area by curbing the growth in spending eliminating programs whose benefits no longer outweigh their costs and resolving conflicting interests in tax simplification,0,g +7fiscalmonetary mixin ray view the most likely explanation for the configuration of developments in the current recovery centers on a ocntoination of a highly expansionary fiscal policy and a disinflationary monetary policy,0,g +i strongly believe we would help the cause of effective government if we attracted more of our best into a career in government,1,g +it must involve improving education and trainingin schools and on the jobto make possible continued improvement in worker productivity support of research and development to keep the technological revolution rolling continued openness of the economy and avoidance of relapses into protectionism and running fiscal surpluses at both the state and federal levels so that government is contributing to national saving and counteracting low saving rates in the private sector,1,g +along with fiscal policy monetary policy has contributed to the longest peacetime expansion that this country has known,1,g +the election tapped into a foreboding sense that the cost of that comfort now exceeds its benefits as manifest in looming megadeficits deep if not unfathomable unfunded liabilities egregious abuse of fiscal powers symbolized by earmarks and other methods used by politicians to grease the skids of their reelection,0,g +one final factor contributing to the sluggishness of this recovery has been what seems to be unusually widespread uncertainty regarding government policies,0,g +on the contrary we have in recent years consumed domestically in the broad sense of absorbing resources for consumption investment and governmental use less than we have produced,0,g +perhaps more importantly though public monies for services like housing are likely to be further squeezed by budgetary considerations even though demand for these services may well be greater in coming years,1,g +moreover the federal government ran huge deficits instead of surpluses as it should throughout the 197579 period one of the longest business expansions of the past generation,0,g +what needs still to be done here and abroad seems to me both reasonably clear and well within our econanic and political capacity to implement so long as we work together,1,g +the commonwealth of virginia like many other state governments across our country faces a very challenging fiscal environment as a result of the contraction in economic activity over the last two years,0,g +a com bination of inflation and a progressive incometax structure could generate an extra 20 billion in tax revenues,1,g +fiscal support combined with highly favorable financial conditions and steady progress on vaccinations are all reasons to be optimistic the economy will experience a strong recovery this year,1,g +the problems that have come to light so farevidence of lying in the issuance of government securities and episodes of price distortions perhaps related to attempts to manipulate the marketclearly signalled the need to act,0,g +this deficit has been growing rapidly since 1997 when it stood at just 17 percent of gdp,0,g +the upsurge in incomes and prices has brought about a sharp improvement in federal revenues,1,g +accepted research indicates that after a short period of time government expenditures financed either by taxes or by nonmonetized borrowing from the public tend to crowd out an equal amount of private expenditures,0,g +nevertheless i believe that a modest welldesigned tax cut would be a wise move for one basic reasoni weneedit to preserve confidence,1,g +in his 1999 budget message the president also suggested an approach that might be more palatable politically,1,g +it is true that the president wisely in my opinion has vetoed a major protectionist bill,1,g +no one is going to bail out our federal government at the last minute there is no richwidow equivalent for rescuing fiscal spendthrifts,0,g +federal deficits and crowding out the nation was 186 years old before it first recorded a 100billion budget,0,g +unless we take significant heroic measures to correct our two deficits that is the balance of payments and the budget the events i have briefly outlined will be only a temporary paliative and we could face another dollar crisis,0,g +5675 the board strongly recomends the enactment of this bill because by providing a means for earning a direct return on the treasurys liquid balances it will materially reduce certain operational difficulties encountered by the federal reserve in its daytoday management of monetary policy,1,g +people are concerned about secrecy in government and many have come to be skeptical about the motives of government officials,0,g +to go ahead prematurely would surely risk dissipating the potential benefits of tax reduction amid the fears and actuality of releasing fresh inflationary forces,0,g +large federal deficits in the next several years may not create financial chaos but they certainly would aggravate our present economic problems,0,g +the second relevant aspect of the federal fiscal outlook is the longrun imbalance between taxes and spending,0,g +much of the anticipated rise in the deficit is associated with a decline in the economy and this should cause government revenues to be reduced,0,g +one impediment to reducing our own governments agricultural subsidies was pointed out in a recent study by atlanta fed economists,0,g +overall fiscal policy actions at both the federal and the state and local levels look like they are no longer a significant drag on economic growth,1,g +but more can be done to reduce the incentive distorting effects of taxation,0,g +and it will be a very different industry in the year 2000 than it is today because i am an optimist and because i believe common sense will ultimately prevail i expect congress eventually will repeal much of the nonsense in firrea and fdicia,0,g +thre was however a great deal of uncertainty following congress action as to whether it intended to pernit additions to prices for credit card customers surcharges as well as reductions in prices for cash customers discounts,0,g +for example the fiscal 1975 budget proposed by the administration is an increase of 12 per cent over fiscal 1974 which was an 8 per cent increase over 1973 with the real economy growing at about 4 per cent per year on average in recent years and the dramatic size of government spending totals we must question the inevitable annual dramatic increases in government spendingone of the primary fuels to the inflation fire then is excessive government spending financed with government deficits if taxes cannot be increased so that receipts equal expenditures then expenditures must be cut,0,g +policymak ers eagerly adopted part of the advice and ignored the rest because of their natural eagerness to increase spending and their comparable reluctance to increase explicit taxes,0,g +now that we have budget deficits as far as the eye can see and deficits that are large and getting larger my case for fiscal abstinence should be much stronger,0,g +1his is reflected in the strong support that has been given to the presidents proposed spending cuts,1,g +first eliminate government practices and laws that create significant inefficiencies and impede competition,0,g +but the clear implication of the budgetary picture is that if the potential deficits are not sharply cut those deficits would absorb an historically large fraction of any realistic projection of our digitized for fraser httpsfraserstlouisfedorg federal reserve bank of st louis8savings potential for a period of growth and prosperity,0,g +and while i think that it is premature to endorse any one proposal indeed there are a number of thorny details that would need to be worked out i am strongly attracted to the basic concept advanced by proponents of subordinated debt,1,g +consequently a major reduction in federal taxes scheduled to take effect gradually over a period of from three to five years need occasion no significant reduction in federal revenues at all,1,g +given our national reluctance to raise taxes sufficiently to cover increases in government spending the financing of the program 6would tend to add to the federal deficitvery substantially so at some points in time,0,g +the principal effect of the new fiscal measures on the balance of payments should be an expansion in our trade surplus while exports should be stimulated somewhat there should be a noticeable moderation in imports,1,g +i expect the stronger pace of economic growth in the second half of 2013 to continue in 2014 my current view is that real gdp will expand between 25 and 3 percent this year and i would not be surprised if we achieve results at the upper end of this range,1,g +governments here have been making great strides in the past few years to strengthen their economies and restructure their debt,1,g +our present system of high topbracket taxes for individuals blunts incentives undermines tax 100rale and under conditions of inflation drives people with unchanged real incomes into higher tax brackets,0,g +we have inherited the ost distressing economic environment in fifty years,0,g +with the economic momentum continuing monetary and fiscal moderation appears necessary,0,g +an additional onehalf to one percentage point of gnp or about 1020 billion a year seems to be a reasonable number,1,g +we believe that this procedure for allocating the transitional assistance will ensure 1 that the funds will be distributed to local governments in states where the loss of revenue sharing is most likely to reduce state aid to local governments and 2 that the distribution of the payments within each state will favor the fiscally stressed local governments that are most likely to need help in adjusting to the loss of state aid,1,g +3 since we last spoke weve seen continued strong economic growth,1,g +such inflation generated tax revenues support government spending at the expense of the private sector,0,g +14more fundamentally i am convinced that policies which promise a healthy and prosperous domestic economy are essential to longrun improvement in our international payments position,1,g +on the other hand if we truly want to reduce the 2 1 governments size then we must face the difficult and politically painful decisions relating to deep cuts in social and defense spending,0,g +1eir products efficiently if government programs ensured crdit supplie at below market interest rates,1,g +4 growth in total spending at a rate consistent with price level and emoloyment objectives is more important to the overall wellbeing of our citizens than are monetary actions directed toward the welfare of special sectors,1,g +nevertheless they would have been in a stronger position if the growth of this role were associated with current account surpluses rather than deficits9world war ii,0,g +however i believe that we have crossed an important threshold in recent years in that even the largest countries such as the united states can no longer afford to engage in a policy of benign neglect,0,g +will this represent a tax increase for social security,0,g +think of the uncertainty ive just spoken of and especially the uncertainty surrounding the resolution of the fiscal cliff as a fence,0,g +only under these circumstances will 4 this particular framework of analysis forces us to address directly the role of the federal government deficit in the trade problem,0,g +current account imbalances and exchange rates become matters of policy concern when they threaten to lead to financial market and other disturbances which could thwart the attainment of the fundamental goal of sustainable growth with low inflation 3 3 suggestions by treasury secretary brady to increase us private savings are constructive,1,g +in cooperation wit other governments the treasury the federal reserve and the white house a massive program was put into place last november 1 that has been effective in stabilizing and strengthening the dollar and returning to us the opportunity to cushion some of the effects of world events,1,g +a number of countries now in deficit are approaching debt levels that make a reduction of those deficits and of the rate of external borrowing highly desirable,0,g +a second requirement for fighting inflation is a firm handle on fiscal policy,0,g +another serious flaw in the treasurys proposal is that the single regulator would result in unintended but seriously adverse consequences,0,g +history is replete with examples of governments using the power to print money as a substitute for making tough fiscal choices and the results were disastrous,0,g +such growth is critical not only to promote balanced worldwide expansion but economic growth is the only way that ldc debt problems can be genuinely resolved,0,g +well i would like to agree enthusiastically with those who think government is too big,0,g +in the early 1970s noreover there was sare backsliding fnm the canprehensive ooverage of the unified budget as a nmber of agencies were renoved fnm the budget and newly established agencies were accorded offudget status,0,g +the cost has been a marked disequilibrium in our balance of payments and dangerous pressures at home for protectionism,0,g +4 in my view the slowdown in balanced budget negotiations between the congress and the administration also contributed to the rise in interest rates,0,g +o f saying le ts get the government o ff our backs,0,g +a very important longterm economic issue id like to mention is the budget deficit,0,g +dozens of public housing projects bravely thrown up as recently as 20 or 30 years ago have been abandoned or bulldozed,0,g +that is because when economic times got tough or budgets were pinched governments often yielded to the temptation to cheapen the value of money by printing too much of it or sometimes by minting lighter coins,0,g +the necessities of the inflation fight require that the federal government be extremely cautious about when taxes are reduced or other measures taken to stimulate economic activity,0,g +alternatively and i think more plausibly however the rise in consumer credit probably reflected the overall improvement in consumer sentiment as the economy emerged from the recession in which cpse the estimates of the direct response to the tax cut would not be in serious error,1,g +deficits and protectionism could lead to interest rates higher than they would otherwise need to be in order to maintain low inflation,0,g +the passage of the grammrudmanhollings act symbolized and reinforced what seems to be an important alteration in the politics of federal budgetry,0,g +some of the ideas that came out of that conference eventually led to changes in the way primary auctions were conducted changes that i believe were beneficial to the efficiency and integrity of the treasury market,1,g +there will be guaranty programs participation programs moral suasion tax gimmicks the possibilities are endless,0,g +the deficit has come down faster than even the optimists thought,0,g +while the region depends less on defense contracting than other parts of the nation the southeast does have a greater proportion of military personnel,1,g +history teaches us that the discontent bred by inflation can provoke disturbing social and political change,0,g +the budget has been balanced in only six of the last 31 years,0,g +but bear these things in mind big government be it federal or state exists because a majority of the voters want a real or imagined vacuum filled,0,g +we tell our government that we want better education we need 8 to improve our methods of controlling crime we need better care of the aged,0,g +6 in the united states we are familiar with the argument that large federal budget deficits cause high interest rates forcing the fed to ease monetary policy in order to keep interest rates at levels consistent with full employment,0,g +the treasury was in the market for this quarter it will probably need 41 billion more whereas it normally runs a substantial surplus during the apriljune tax paying period,0,g +what this position ignores is that the failure to restrain excess demand by monetary andor fiscal policy will also limit the ability to satisfy demandsbut the restraint will come from inflationi do not believe it would be wise to give up monetary tools as active instruments of government policy until it has been demonstrated that fiscal policy can go it alone as a stabilization device,0,g +for an individual borrower using the standard deduction in his tax return todays rates may have considerable bite,0,g +8 an additional 10 per cent tax on goods imported into this nation,1,g +i see no logical reason why any item of high national priority should not have a place in the budgethousing has a very ambiguous role in the federal budget,0,g +poorly coordinated monetary and fiscal policies inevitably make the economy less stable not more stable,0,g +the economy is also being impacted by the waning of fiscal stimulus,0,g +he concluded that the best way to attain growth was to avoid government or other interference in economic affairs,0,g +it poses administrative difficulties because in effect there would be two tax rates one on old debt and equity and another on new,0,g +and this point is a most important one concerning budget deficits and the confusion surrounding conventional analysis of fiscal policy,0,g +there is i believe a genuine urge to let the competitive marketplace work andto review government practices that unnecessarily add to costs or limit competition,0,g +whether our economy will be forced to undergo a period of very low growth to repay these debts depends on how productively we have used these foreign borrowings,0,g +however our federal budget deficit has helped make us a net debtor nation indeed the worlds largestwhen we should be acting as a creditor not only for third world countries but also for eastern europe,0,g +moreover to the extent that such programs result in an expansion of spending upward pressures on prices may be exacerbated and the task of government economic stabilization policy may be complicated,0,g +nonetheless i shall attempt that task here today knowing full well the difficulties involved s and touching only indirectly on the equally interesting question of how california has been able to recover so well from its earlier recession,1,g +in short the expectation that the state will repeatedly commandeer the nations resources virtually guarantees more 6 frequent and more serious crises in the future,0,g +indeed there now seems to be widespread recognition in the congress and elsewhere that large and persistent patterns of government borrowing work to place upward pressures on interest rates and in the process work to limit the amount of credit that is avail able to private borrowers small and large,0,g +i government borrowing crowds out private investment problem reducing the deficit means either cutting spending or raising taxes or both actions still viewed as depressing reducing taxbase worsening the deficit thus low growth trap perspective on fiscal problem 1969197919891999 johnsonnixon surtax budget surplus 1969 20 of gdp shift in socialpolitical priorities for 1970s c arter cut defense raise g reat society balance budget at 20 of gdp m i defense 5 vs 10 in viet nam entitlements 10 vs 5 12 in 1960s reagan 2 theories milton friedman spending tax away revenue art lafferjack kemp selffinancing tax cut 1980 campaign balance budget at 19 of gdp while increasing defense 2 points from 57 would have required reducing entitlements to same share of gdp as 1960 ie reverse the g reat society welfare state by 1989 full employment e 217 deficit 25 r 192 clinton raise tax revenue to reduce deficit lower deficit means lower i lower i means faster growth nondefense spending continues to rise faster than gdp incl,0,g +we had increases in budget receipts year after year without increases in tax rates,1,g +i for one believe that neither is the case and that we must look to our political and social aspirations for the root causes of the economic dilemma upon whose horns we sit so very uncomfortably,0,g +because guaranteed loans are specifically exempt from the budget control act there has been a proliferation of questionable loan guarantee proposals and programs,0,g +fourth we have to reckon with the federal budget stimulus and with what ever additional tax cuts will emerge in this an election year,0,g +governments abroad are also more conscious of the need to brake the growth of public expenditures in order to contain the forces of inflation,0,g +it will be recalled that during the fiscal year ending last june 30 the federal government ran a deficit of 254 billion almost three times the 88 billion recorded in the preceding twelve months,0,g +in contrast other major industrial countries had either much less expansionary fiscal policies in the case of the united kingdom and italy or even moderately restrictive fiscal policies in the cases of japan germany and france,0,g +they also began to dump holdings of state and local government obligations creating incipient disorderly conditions in a market in which their buying had in recent years been a mainstay,0,g +more and more persons seem to be facing up realistically to what is involved in eliminating the inflationary impact of continuing high federal deficits,0,g +history makes clear that failure to put our fiscal house in order will erode the vitality of our economy reduce the standard of living in the united states and increase the risk of economic and financial instability,0,g +it may be questionable public policy to require the states to treat all mortgagebacked securities rated in the top four categories by any nationally recognized rating organization as if they were treasury or federal agency securities even though the proposed legislation would give the states three years to opt out of the federal preemption,0,g +we are asking our federal government to pro vide us a whole new range of programs for which it was not conceived and for which it has not done a very great job,0,g +other potential borrowers will not be shouldered aside by federal government demands,0,g +3 the independence of the fed is crucial to making the best decisions possible for the american economy free from the pressures of politics,0,g +second the fomc has bought a large amount of longterm government issued and government backed assets indeed in september the committee announced its intention to expand its holdings of these assets over the coming months,1,g