- BLAME FOR THE FINANCIAL CRISIS
- WHY DEFICITS STOPPED MATTERING: MAGIC OR CONSPIRACY?
- WHEN THE WORLD MADE SENSE
- HEADING TO HELL IN A HANDBASKET
- IT GOT BETTER – MAGICALLY
- The government’s self-interest
- Background knowledge
- Specific Events
- 02=====1980 Disconnect=====
- 03=====BREAKING THE PSYCHOLOGY OF INFLATION=====
- 04=====THE US TREASURY’S WAR ON GOLD=====
- 05=====IDEOLOGICAL FRAUD=====
- 06=====FIGHTING THE FREE MARKET (AND LOSING)=====
- 07=====Guarrantees-choosing the lingering disease=====
- 08=====FINANCIAL INNOVATION + INTERFERENCE=====
- 09=====The US Ponzi Scheme=====
- 10=====Dismantling the free market=====
- 11=====BUCKET SHOP=====
- 12=====THE EXCHANGE STABILIZATION FUND=====
- 14=====CHEAP FOOD POLICIES=====
- 15=====Breaking the Media
- 16=====DOLLARIZING THE WORLD=====
- 17=====A MOCKERY OF DEMOCRACY=====
- 18=====SPREADING ECONOMIC AND MORAL DECAY=====
- 20=====Looting the Europe=====
- 21=====Reaching the breaking point=====
- 22=====US on verge of a disconnect=====
HEADING TO HELL IN A HANDBASKET
HEADING TO HELL IN A HANDBASKET Around 1980, the US was headed to hell in a handbasket. I have identified ten ways 1) Despite desperate rescue efforts, the dollar was crashing… Save-the-dollar Plans Started In Secret
‘Rescue Efforts Secret’
Victoria Advocate Google News Archive Nov 5, 1978
Carter and Dollar
By WILLIAM GLASGALL
NEW YORK (AP) – President Carter’s top economic advisors, convinced that
voluntary wage and price restraints would tail, started SECRETLY PLANNING
last week’s drastic action to rescue the dollar even before the voluntary
plan was announced.
As both the dollar and the stock market dropped … the contingency
planners, Blumenthal, Treasury Undersecretary Anthohy Solomon and Executive
Assistant Richard W. Fisher, went to work in earnest and in secret.
THE PLAN HAD TO BE GUARDED “FROM ANY LEAKS WHATSOEVER,” aid the source,
apparently to prevent speculation and AVOID POLITICAL PROBLEMS. “We didn’t
even let the deputy secretary Robert Carswell know what was going on. It was
just us, the President and the vice president.”
With the dollar dropping by nearly 50 percent against the Swiss franc over
12 months, and the speed building daily, “everybody knew the foreign
exchange markets had gone out of hand,” the source said.
“We all cooperated. No one interfered. It all felled together.”
Grave Dollar Threats Preceded Monetary
Grave Dollar Threats Preceded Monetary ‘Jolt’
Times-News – Google News Archive – Nov 15, 1978
By CLYDE H. FARNSWORTH
WASHINGTON – … A sense of fear of the unknown was being transmitted to the
Treasury and the Federal Reserve Board in Washington by the normally cool
operators on the foreign-exchange trading desk of the Federal Reserve Bank
of New York.
Not only was the dollar falling precipitously in relation to such stronger
currencies as the West German mark, the Japanese yen and the Swiss franc but
also it was reeling against such weaker currencies as the French franc, the
Italian lira and the British pound.
At one point the French franc was worth 34 cents. It had brought less than
25 cents a few days earlier.
“There was a sense of panic,” said one key United States central banker.
2) Chronic deficits were destroying the dollar…
Mil Mirror . Big Budget Deficits: Primary Inflation Cause
Big Budget Deficits Primary Inflation Cause
Times-News – Google News Archive – Sep 21, 1978
By JOHN CUNNIFF
AP Business Analyst
NEW YORK (AP) – Intimations that President Carter’s anti-inflation program
might include wage-price standards is eliciting from business spokesmen the
frustrated comment that restraints begin at home.
Home in this instance is the White House, where the administration has been
running big budget deficits that are seen as the primary cause of inflation.
In recent years deficits are generally tolerated as pump primers for a
deflated economy, but spokesmen for the business community observe that the
current economy has been expanding for 41 months.
In such a situation, even relatively small government deficits may be
inflationary, they say. But recent deficits have been mammoth – $51.1
billion in 1978 and perhaps close to $40 billion in 1979.
The President nevertheless referred to the fiscal 1979 budget as tight last
week and simultanously called on Americans to prepare themselves for
sacrifices in order to restrain inflation.
Such behavior, said Albert Cox, Jr., head of Merrill Lynch Economics, “Is
the desperation of politicians to ‘do something’ about inflation in the
absence of facing up to its fundamental causes- EXCESSIVE FEDERAL SPENDING
AND MONEY CREATION.”
Perusing recent speeches, economic letters and commentaries a reader is
convinced that a very large part of the big business community is angered
that WASHINGTON POSES AS AN INNOCENT WHILE BLAMING OTHERS.
Speaking to businessmen last week, Ellrnore Patterson, Morgan Gauranty’s
executive committee chairman, suggested that government cannot ask
sacrifices of the public unless it sacrifices itself.
“There would be a better chance to build belief that Inflation can be licked
if there were stronger evidence that the instrumentalities of government
were determined to be full partners,” he said.
“Governments that seek to solve tough inflation problems by means other than
resolute fiscal and monetary action usually encounter limited success,” he
3) Stop-gap efforts to prop up the dollar were losing all credibility…
Dollar Tumbles In Sharp Reaction To Carter Program
Dollar Tumbles In Sharp Reaction To Carter Program
Sarasota Herald-Tribune – Google News Archive – Oct 26, 1978
By JEFF BRADLEY
LONDON (AP) – President Carter’s new anti-inflation program was dismissed on
world money in markets Wednesday as too little, too late, and the dollar
plunged to new lows in heavy selling. But some experts said the plan may do
some good in the long run.
Foreign exchange dealers said Carter’s plan to limit wages and prices
voluntarily as woefully inadequate to stem the dollar’s 18-month decline.
“We had not expected much,” commented one Swiss dealer, “BUT WE HAD NOT
EXPECTED SO LITTLE.”
Inflation Plan No. 2. All Those Billions Won’t Restore Dollar
INFLATION PLAN NO. 2
All Those Billions Won’t Restore Dollar
Sarasota Herald-Tribune Google News Archive Nov 12, 1978
By NICHOLAS von HOFFMAN
AFTER THE administration’s anti-inflation plan was greeted with THE
SCOFFING, SKEPTICAL RIDICULE IT MERITS, something like panic must have hit
the White House. Plan No. 2, the one which is to save the dollar from
foreign ignominy, cannot have been cooked up by calm and intrepidly rational
The fact that the stock market heard the news of our latest save-the-dollar
expedition and took a record-making bound upward is no reason for thinking
the plan makes sense. Day-to-day market fluctuations are inscrutably
unintelligible; any administration which uses an uptick in the market as a
validation of its policies is going to be sorry it chose such a quixotic
standard of approval.
It’s A Judgment
The way the news was presented MAKES MR. CARTER A HERO, as if supporting the
dollar were an act of patriotism like supporting the flag. We should all
support the flag, but the dollar is money – and that’s business, not red,
white and blue rahrah. If the announcement of this mistaken rescue attempt
is to be treated like a brave cavalry charge into the guns of international
finance, let it also be recognized that it’s the charge of the light Brigade
and we’re going to lose the $28 billion committed to it.
In the past, a number of nations have sought to prop up the price of their
currency AND IT HAS NEVER WORKED. In the long run, the price of the dollar
as expressed in yen, deutsche marks or francs is a businessman’s best
judgment of what each of those currencies will buy. In the short run a
currency may be undervalued but the administration’s contention that the
American dollar has been undervalued for months and months STRAINS
REASONABLE BELIEF. If dollars were really worth more than people are willing
to pay for them in other currencies, someone BESIDES Secretary of the
Treasury Blumenthal would understand that this is an exemplary chance to buy
dollars cheap, convert them into merchandise to sell abroad and make a
This isn’t the first time the administration has announced it would spend
money to drive up the dollar’s price abroad. It did the same thing to no
effect except to lose $5 billion some months ago. Now it proposes to spend
$28 billion on the supposition that the first attempt to save the dollar
failed because we didn’t lose enough billions.
REASONING LIKE THIS TURNS THE MIND TO FUDGE.
In order to support the dollar, our government is obliged to borrow that 28
billion from Japan and Germany in marks and yen with which to go into the
money market to bid up the buck. Ultimately that money, with interest we can
safely presume, will have to be repaid, at which time our balance of
payments, already a subject of White House gloom, will look worse than ever.
And irony of ironies, they tell us one of the reasons for propping up the
dollar is to balance the money inflows with money outflow to foreign
Get Competition Going
Just as baffling is the administration’s contention it must push up the
dollar to make foreign imports cheaper in the United States. The government
asserts that when the prices of foreign goods go up, American domestic
manufacturers raise their prices accordingly. If that’s true, IT MEANS THE
FREE MARKET COMPETITIVE SYSTEM HAS DEVELOPED SOME SERIOUS HITCHES AND
HICCUPS. The answer to that, however, isn’t to waste our money speculating
in the foreign currency market but in restoring effective price competition
here at home.
In a tangential act having little to do with anything, the government also
announced it would be stepping up the volume of its gold sales. Very
dramatic but of no great importance. It’s nice if the government wants to
sell gold, aluminum or chicken guano and make some money but it isn’t going
to have any solid effect on inflation and the weakness of the dollar.
What would really be reassuring would be an announcement by the
muckity-mucks in the Treasury that they understand you can’t have a sound
dollar abroad unless you have a sound dollar at home. No more tricks, no
more dramatics, gentlemen, please. Dull, intelligent, stick-to-it-iveness
Treasury Efforts Are Irrational
SUPPORTING THE DOLLAR
Treasury Efforts Are irrational
Sarasota Herald-Tribune – Google News Archive – Jan 17, 1978
… The dollar is worth less abroad for the same reasons that the dollar is
worth less at home. Every effort by the American government to avoid that
uncomfortable fact WILL FAIL AND FAIL AT GREAT COST. The notion that the
government can push up the price of the dollar, by buying Deutsche marks so
as to buy back dollars with the same Deutschemarks IS INHERENTLY IRRATIONAL.
Stop-gap Action To Save The Dollar Seems Doomed
Stop-Gap Action To Save The Dollar Seems Doomed
The Dispatch Google News Archive Aug 18, 1978
By R GREGORY NOKES
Associated Press Writer
WASHINGTON – For more than a year the value of the once-prized U.S. dollar
has drifted steadily downward, and no one seems to know when it will stop.
Lately the decline has been worse than ever.
After months of following a hands-off approach recommended by his advisers
President Carter now seems determined to try to put a floor under the
falling greenback, but there is reason to fear that any emergency actions to
protect the dollar will be doomed to failure.
The fall in the been overdone dollar has at times, particularly when it lost
5 percent of its value in a single day against the Swiss franc this week,
and 8 percent in a single week in July against the Japanese yen.
But the downward plunge, from all available evidence, REFLECTS REAL TRENDS
AND REAL UNDERLYING ECONOMIC CONDITIONS THAT WILL NOT BE CHANGED BY STOP-GAP
An economist for a major Midwest bank summed up the view of several experts
when he said that intervention by the government to buy up dollars with
foreign currencies might prop up the value of the beleaguered greenback for
a time, but only for a time.
Intervention in this manner has been tried before and ills considered the
most-likely option for the government to take again if it decides to act.
“The moral of the past is that we could expect a temporary solution at
best,” he said. “But it would just be a matter of time before reversed
again,” he said.
Clearly the dollar is in trouble, and the cost to Americans in inflation and
lost confidence has been high. The dollar has lost over 30 percent of its
value in the past year against the Japanese yen and 33 percent against the
Swiss franc. Only the Canadian dollar has done worse than the U.S currency.
An economist for a Washington-based research group summed up the problem:
“Put altogether inflation is rising, there is no Federal Reserve backbone,
the administration’s inability to get its policy” enacted, there is massive
uncertainty… People are saying let’s get out of the dollar, and IT’S NOT
JUST OVERSEAS, most dolIar holders are in this country.
4) In mounting its reckless dollar defense, the ESF had gotten itself in a
When the refusal of the administration of U.S. President Lyndon B. Johnson
to pay for the Vietnam War and its Great Society programs through taxation
resulted huge budgets deficits and rampant inflation, the treasury began
intervening to support the dollar.
Mounting a Defense of the Dollar: The 1960s
The restoration of normalcy in international monetary affairs in the late
1950s coincided with a shift of the US balance of payments toward deficits,
by the standard measure of the day, and a drain of gold from the United
States under the rules of the regime. The US Treasury therefore adopted a
more active strategy to defend the dollar and gold convertibility. That
shift in strategy was marked by the first postwar intervention by the United
States, in March 1961.
US monetary authorities realized, however, that their financial resources
for dollar defense could not support large operations. They therefore
cobbled together several sources to finance the effort. First, the Treasury
could always draw on its reserve and credit tranches at the IMF. Second,
with other leading industrial countries, they created the General
Arrangements to Borrow (GAB) in order to supplement IMF resources in the
event of a large drawing by the United States and formed the Group of Ten
(G-10). Third, and most important in practice, the Federal Reserve opened a
series of swap agreements with foreign central banks. Fourth, later in the
decade, Special Drawing Rights (SDRs) were created, supplementing
international reserves of all IMF member states. The expansion of the ESF
thus fit into this larger mosaic of official financial mechanisms and
institutions for the defense of the dollar and the fixed-rate regime.
The assets of the ESF, a paltry $330 million at the beginning of this
period, were increased in three ways. First, beginning in 1962, the Treasury
issued FOREIGN-CURRENCY-DENOMINATED BONDS TO FOREIGN MONETARY AUTHORITIES
(these were called Roosa bonds after the Under Secretary for Monetary
Affairs at the time, Robert V. Roosa). Second, in 1963 the practice of
”warehousing” was instituted, which allowed the Treasury to temporarily
convert foreign-currency holdings into dollars at the Federal Reserve.
Third, under the Special Drawing Rights Act of 1968, SDR allocations by the
IMF were deposited on the books of the ESF. These mechanisms allowed the
Treasury to increase ESF assets to $2.6 billion by 1968, $2.1 billion of
which WAS MATCHED BY COUNTERVAILING LIABILITIES. …
The size of intervention operations over the course of the decade mounted
into the billions of dollars. The defense of the dollar included support for
the pound sterling, which involved loans to the United Kingdom from the ESF
in 1967 and 1968. Separately, the Treasury also extended 20 credit
arrangements to Latin American countries and one to the Philippines during
the 1960s (see table 1). Because downward pressure on the dollar recurred
with some frequency through the beginning of the 1970s, the Treasury
preferred to roll over its outstanding Roosa bonds, LEAVING THE ESF EXPOSED
TO A DEVALUATION OF THE DOLLAR.
Even worse than the Roosa bonds, a major component of the dollar’s defense
was the secret use of OTC derivatives (forward contracts). The Fed Debate
in the 1960s over Sterilized Foreign Exchange Intervention
reveals the extent of the Treasury’s forward operations.
2. THE EXCHANGE STABILIZATION FUND
In 1961, the Exchange Stabilization Fund (ESF) of the U.S. Treasury began to
intervene in the foreign exchange markets. Its ability to intervene,
however, was limited by its resources. …
Because so much of its resources were tied up, the ESF intervened mainly in
the forward markets [The forward contracts are a type of OVER-THE-COUNTER
(OTC) DERIVATIVES]. … The dollar often traded at a large discount in the
forward market. The Treasury entered into commitments to furnish foreign
currencies in the future in order to reduce this discount. In doing so, it
hoped to encourage individuals to hold dollar-denominated assets by
reassuring them that the dollar would not depreciate in value.
… In an attempt to encourage Italian commercial banks to hold dollars
rather than turn them over to the central bank, the ESF entered into $200
million in forward contracts. The forward commitments of the ESF in lira and
Swiss francs amounted to $346.6 million in early 1962.
FORWARD COMMITMENTS, however, CARRIED THE RISK OF LOSS IF THE DOLLAR DID NOT
By 1977, Exchange Stabilization Fund, like the dollar, was nearing collapse.
… when the Carter administration came to office, … THE [ESF] ACCOUNT WAS
WEAK FINANCIALLY, … The foreign currency liabilities of the fixed-rate
period-mainly rolled-over Roosa bonds-had created (realized and unrealized)
losses for the ESF as the dollar depreciated.6 Owing to these losses, the
ESF would soon technically register a NEGATIVE CAPITAL POSITION …
6. In early 1977 the Treasury had sustained losses on Swiss
franc-denominated bonds of at least $278.6 million and expected TO LOSE AT
LEAST SEVERAL HUNDRED MILLION DOLLARS MORE. When these issues were retired
in 1979, TOTAL LOSSES SINCE 1961 AMOUNTED TO $1,134.6 MILLION. …
5) World confidence in the dollar had collapsed…
Status Of Dollar And Americans Abroad Tend To Tell Us Something
Status of dollar and Americans abroad tend to tell us something
Lawrence Journal-World – Google News Archive – Jun 13, 1980
By WILLIAM SAFIRE
THE DECLINE of the American dollar, and the subsequent impoverishment of the
American tourist or worker abroad, is a symptom of America’s ebbing
influence in Europe. We are no longer resented for being rich and powerful.
We are treated with SORROWFUL CONDESCENTION for being unproductive and
For the first time, America is viewed as being wholly paralyzed during an
election year. Although our election-year rhetoric always favors minorities
and ethnic groups, our stated government policy on both economic and
diplomatic affairs has rarely been dismissed so airily by our allies
Europeans … are treating Carter’s reaction to the seizure of hostages and
the invasion of Afghanistan as the bellowing of a weak president anxious to
appear tough to his home constituency.
…many European businessmen foresee Carter’s quick abandonment of the
anti-inflation ramparts. With an unemployment surge that would topple many
governments, and with a threat from the left of his own party, Carter is
expected TO DECLARE INFLATION DEAD FOREVER AND TO REFLATE FRANTICALLY.
This would mean EASY MONEY, TAX CUTS, A FLOOD OF DEFICIT SPENDING, and if
inflation spurts again before Election Day wage and price controls that
would welcome the liberal left back into the Carter campaign.
Economic insanity? OF COURSE …
Western Europe Abandons The Dollar
Western Europe Abandons The Dollar
Palm Beach Daily News Google News Archive Oct 15, 1979
By MONROE FRIEDLANDER
Before last November, the only real support for the dollar was the direct
intervention in the foreign exchange market by foreign central banks.
Technically, what they did was to buy overhanging dollars by issuing their
own currency in exchange. The dollars thus acquired became the reserve
against the newly minted D-marks, schillings etc. In the 12 months preceding
November 1, these foreign central banks acquired roughly $40 billion in the
manner described and issued an equivalent amount of their own local money.
As a result of these transactions, money supplies, especially in West
Germany, Belgium and Holland, balooned materially leading to price
instability. Unlike Americans, THE POPULATIONS OF THESE COUNTRIES DO NOT SIT
IDLY BY WHILE POLITICANS DESTROY PRIVATE WEALTH. When the political pressure
became great enough before last November, our money managers were told that
if they were interested in saving the integrity of the dollar, the
initiative would be theirs as THE TAXPAYERS OF WESTERN EUROPE COULD NO
LONGER AFFORD TO SUBSIDIZE THE AMERICAN CONSUMER.
The policy change and subsequent shift of responsibility for the value of
the dollar from Bonn to Washington after last November 1 is entirely
responsible for the trends of rising interest rates, galloping inflation and
threatened recession we have seen these past 11 months. The wild increases
in money supply and bank credit also stems, through a complicated process,
from the shift of U.S. Treasury securities ownership that occurred following
the November 1 decision. These trends have been further intensified by the
oil price increase and renewed efforts of Europeans to roll back the
inflation spawned by the preNovember dollar purchases. Interest rates have
more than doubled in West Germany since last November. This factor alone has
placed great pressure on the U.S. dollar and is probably responsible for the
last two increases in our discount rate.
The point is, the European community appears determined to avoid further
inflation. They do not CONFUSE PROSPERITY WITH FINANCIAL INSTABILITY. In his
last speech, the West German president said, referring to Americans, “WHAT
KIND OF PEOPLE ARE THEY TO ALLOW THEIR MONEY TO BECOME WORTHLESS?” Austria
has revalued its currency upward at a time when its current account balance
is turning negative. This is terribly punishing to business and wage
earners, yet, it has done it and in order to hold the EMS together, West
Germany also will soon be forced to revalue.
If dollar weakness should develop again, and there is considerable cause for
concern that it will, SUPPORT ORIGINATING FROM EUROPE CANNOT BE RELIED ON.
The burden falls entirely on our own money manager WHOSE ONLY WEAPONS ARE
LIMITED FOREIGN EXCHANGE RESERVES (about $6 billion) and the power to
manipulate interest rates. It is impossible to describe the vulnerability of
the dollar without perspiring a little. Most people would not understand
6) Federal Reserve and its “tight money” policy were a joke…
Laughing at the Fed; Monetary ‘In-Group’ Examines Ironies Of
Laughing at the Fed;
Monetary ‘In-Group’ Examines Ironies Of Nation’s Central Bank Operations
AN EXAMINATION: FED’S OPERATIONS
By EDWIN L. DALE Jr.
New York Times – February 3, 1969, Monday
WASHINGTON, Feb. 2 — There are many “in-groups” in this world, each with
its own set of private jokes. In the monetary in-group, which just might
have the prosperity of us all at stake, the biggest “yok” in town is the
nation’s central bank, the Federal Reserve System. Banks are laughing at it.
Economists are laughing at it. Businessmen — getting loans like crazy –
are probably laughing at it. Congressmen are not in the in-group. They are
just frustrated and puzzled by it.
THE EASIEST LAUGH around is to ask, at a party, “Say, have you heard? THE
FED IS TIGHTENING MONEY.”
The Federal Reserve, it often seems, hurls thunderbolts and nothing happens.
It raises the discount rate and it furiously buys and sells Treasury bills.
It watches such arcane things as the Federal funds rate and net borrowed
reserves and the bank credit proxy. It tells the world solemnly that, by
golly, it means business in stopping inflation. IT DOESN’T KNOW HOW, TO BE
SURE. As King Lear said, “I will have such revenges on you that all the
world shall– I will do such things–what they are yet I know not; but they
shall be the terrors of the earth.”
The Fed tells one and all that it will be the terror of the earth. And what
happens? Everybody keeps on borrowing just as before. Bank and other lenders
keep on lending pretty much as before. The money – for those who care about
it – KEEPS ON EXPANDING. …
What Makes Money tight
What makes money ‘tight’?
Lodi News-Sentinel – Google News Archive – Oct 5, 1979
By Louis Rukeyser
NEW YORK – Some AWFULLY SILLY REPORTING is coming out of Washington these
days about the tremendous debate that is supposed to be raging there over
how long to continue what is described as the government’s perilous “tight
Both the reporting and the alleged “debate” are remarkably confused, EVEN BY
WHAT PASSES FOR INTELLECTUAL STANDARDS IN THE NATION’S CAPITAL. For the
neglected truth is that all these instant economic experts are pursuing a
total phantom. In reality, as it happens, U.S. monetary policy today is
about as “tight” as asize-16 dress on a size-8 model. It is, indeed, SO
LOOSE THAT IT HAS ALREADY ABSOLUTELY GUARANTEED (whatever the Washington
geniuses may think) ANOTHER YEAR OF VIRULENT INFLATION IN 1980.
Part of the reason for the confusion can be found in the facile talk about
what is termed “the high-interest-rate, tight-money policy.” Sorry, fellows,
but that makes about as much sense as talking about “the white-poodle
policy.” Poodles are frequently white, to be sure – but not necessarily; one
can be an equally authentic poodle of an entirely different color. And A
HIGH-INTEREST-RATE POLICY IS NOT, repeat not, AUTOMATICALLY A TIGHT-MONEY
What makes money “tight” is its relative unavailability. In 1974, for
example, we had a true “money crunch,” when the Federal Reserve Board hit
the brakes with the same excessive vigor it had earlier applied to the
accelerator. Nothing of the kind has happened in recent months. Quite the
contrary: the three commonest gauges of money supply (Ml, M2 and the
monetary base) have all recently continued to explode upward at rates
ranging from more than 10 to more than 15 percent. IF THAT’S “TIGHT MONEY,”
THEN AUSTRALIA IS LOCATED IN THE NORTH ATLANTIC.
Moreover, the evidence is that very few people outside of Washington have
been taken in by this lately-fashionable chitchat about monetary, tautness.
It you want the rest of the world’s opinion, take a look at the
international markets for gold and the dollar. The former has been soaring
and the latter has been collapsing – both objective votes of “no confidence”
in the U.S. government’s determination to restrain the monetary growth that
In darkest Washington, to be sure, THE ILLUSION of an oppressively tight
monetary policy continues to be conjured. It appears even at the Federal
Reserve Board itself, where three members resisted chairman Paul Voicker’s
latest effort to bring the federal discount rate into closer alignment with
The irony is that Volcker, who inherited a monetary mess, is now likely to
be vilified for doing the one thing he has, in fact, conspicuously tailed to
do: making money truly tight.
Indeed, a close examination of the interest-rate situation reveals that even
it has been produced not by monetary stinginess but by constantly escalating
private demand for funds.
Fact: in the last quarter, business loans grew by a whopping $9.2 billion -
as compared with barely more than half a billion a year earlier, and an
actual decline in the similar period of 1977. That’s why the prime rate
surged past 13 percent – not because the drunken sailors at the Federal
Reserve Board suddenly turned into Ebenezer Scrooge.
Nor is it difficult to figure out why the demand for credit continues to
burgeon, even at interest rates that not long ago WOULD HAVE BEEN ASSOCIATED
WITH TEETERING BANANA REPUBLICS. Why not borrow at 13′ percent, when the
latest inflation rate is 13.2 percent? it’s free money, by historical
standards, with virtually no premium over current inflation demanded by the
lender. No wonder corporate treasurers continue to line up at the bank
The misunderstood reality is that, with brief exception last winter,
monetary policy has been OVERLY LOOSE AND OVERLY INFLATIONARY. That’s what
truly keeps interest rates high – and the only authentic way to bring down
interest rates is to bring down inflation. Washington ought to loosen up on
the cliches and tighten up on its thinking.
7) Keynesian economics and its promises of PERPETUAL PROSPERITY were not
COSTLESS PROSPERITY ON A PERMANENT BASIS
Planned Treasury Deficits New Administration Economy Plan
Planned Treasury Deficits New Administration Economy Plan
Sumter Daily Item – Google News Archive – Jan 29, 1965
By SAM DAWSON
NEW YORK (AP) – Managing the economy by a new set of rules in Washington may
be up later this year for its first real test.
The idea in favor now with President Johnson, his economic advisers, and
-they hope – with the Congress, calls for PLANNED TREASURY DEFICITS because
TODAY’S RECORD PROSPERITY STILL ISN’T AS PROSPEROUS AS IDEALLY, IT COULD BE.
And the idea calls for reliance on tax cuts as a quicker stimulant than
increased government spending if the economy falters.
But to MAKE RECESSIONS OBSOLETE, the new economic managing policy also holds
that if MORE SPENDING seems to be the cure it MUST BE APPLIED MUCH MORE
RAPIDLY THAN IN THE PAST. In practice, this would give the President the
authority to start spending programs as soon as unemployment lakes a turn
for the worse.
Midyear may see a test of this theory of fiscal management of the economy -
of putting PROSPERITY ON A PERMANENT BASIS – of making it more nearly all
inclusive tlrmi it is today.
[It didn't work]
EXPECTING A MIRACLE
William Satire . The Road To Deflation Is A Rocky One
The Road to Deflation …
Milwaukee Journal – Google News Archive – Sep 6, 1974
… one of our central problems is that we do expect a miracle;
specifically, THE SLOWING OF INFLATION WITHOUT THE SLOWING PAINS OF
President Johnson’s “Great Society, based on the fallacy of Keynesian
economics, had assured an entire generation that they could have their cake
and eat it too.
Throughout the 1960s, politicians promised that we could wage war on foreign
soil, control pollution, rebuild our medical system, overhaul our
transportation network, guarantee the good life to the poor and elderly,
provide a college education for everyone, feed the world, improve our weapon
systems, and continue to increase everybody’s disposable income – ALL AT THE
IT WAS A FOOLS PARADISE, and the Nixon administration was determined to do
everything humanly possible to break the crazy cycle of boom and bust that
had begun with the decade that encompassed the Great Society and led to
STEADILY WORSENING INFLATION, RECESSION, ECONOMIC DISLOCATIONS, AND
Chronic deficits, coupled with President Johnson’s irresponsible spending,
had weakened the dollar terribly. …
8) The US was fighting a war on gold… and losing quite badly…
Quiet Pooling Of Resources Stabilizes The Gold Market
Quiet Pooling of Resources Stabilizes the Gold Market
Fort Scott Tribune – Google News Archive – Feb 26, 1963
By SAM DAWSO?’
AP Businss News Analyst
NEW YORK (AP) – United States money transactions with the rest of the world
have taken a turn for the worse in recent months. But there’s been nothing
that could be called a new raid on its gold reserves, Times have changed.
… the stability of gold and the evident strength of the dollar in world
financial markets is cause of considerable satisfaction.
Much of the thanks goes to the group of central bankers, American and
foreigners, who have rigged up a device to halt the raids that in the past
unsettled one or another currency and for a brief period put the American
dollar under strain to the surprise of most Americans who thought it as good
The group acts quietly. In fact, American money managers have never
officially said the United States was taking part. But the success of this
quiet pooling of international financial resources to protect currencies
against the stress of temporary ups and downs of trade and financial
balances shows plainly in the stable gold market as reported daily from
London. This week prices have been below $35.08 an ounce, making any buying
of U.S. government gold unprofitable.
This very real, if officially unannounced, international gold pool keeps the
London free market stable simply by buying when the price is below the
official U.S. Treasury figure. When the price goes above that figure the
pool can step in and sell.
This swells the amount of gold available and as the supply goes up the
demand is met and the price returns to the desired level.
The pool doesn’t pretend it can protect the dollar forever if the balance of
payments deficit keeps mounting. That is why the United States has taken
many measures to boost the total U.S. exports on one hand and to discourage
the outflow of dollars on the other. The measures have fallen short of their
Us Looked To For More Gold Action
U.S. Looked To For More Gold Action
Daytona Beach Morning Journal – Google News Archive – Dec 18, 1967
LONDON (AP) – Financial experts in London looked to the United States Sunday
for measures to halt panic buying of gold, which is expected here to
continue in the world’s bullion markets.
The London experts expressed doubt of U.S. ability to stem the flood of
buying orders which have poured in on all bullion markets since Britain’s
Nov. 18 devaluation of the pound.
Authoritative estimates put the amount of the metal that has moved out since
then through the international gold pool in London at more than 1,000 tons
worth about $1.1 billion.
Nearly 60 per cent of that gold came from the United States.
The experts explained the gold rush as a coincidence of widespread loss of
faith in paper money as a result of the pound’s devaluation, inflation in
much of the world, and a broad belief held by international speculators that
the price of gold must rise.
Some British economists and politicians add to this their feeling that
President charles do Gaulle of France may have had a hand in fomenting the
gold rush. The French, however, strenuously deny this.
France withdrew from active participation in the eight-nation international
gold pool, which operates out of London, in June when Paris refused to
supply more gold. The pool was set tip in 1961 to stabilize the gold market
by buying or selling the metal as needed to satisfy demand.
The dollar came under pressure Friday in Europe’s money markets, except in
London, after showing strength all week despite the gold rush.
The sale of dollars by European holders showed the fear of many on this side
of the Atlantic that the dollar was weak because of the continuing-and
increasing-deficit in the American balance of foreign payments.
The TIME article below was written in March 1968, as the “London Gold Pool”
collapsed under a speculative gold stampede
Friday, Mar. 22, 1968
Quietly and secretly, technicians at Fort Knox, Ky., loaded an estimated
$450 million worth of gold ingots [about 410 tons of gold] onto a heavily
armed convoy. The convoy proceeded to a nearby U.S. Air Force base, where
the gold was loaded aboard a transport plane and flown to Britain.
There, it was sent to the Bank of England, to be transported by Swissair and
British European Airways flights to the coffers of Swiss banks. The influx
of gold became so bulging, in fact, that one Swiss bank had to reinforce the
walls of its vault to contain it. It was all part of the largest gold rush
in history, a frenetic, speculative stampede that last week threatened the
Western world with its greatest financial crisis since the Depression.
Socks & Mattresses. Telephone and telex lines to London, the world’s largest
gold market, were swamped as buyers throughout Europe demanded gold, gold
and more gold. More than 200 tons, or $220 million worth, changed hands on
the London gold market in one day to establish a new single-day trading
record. Where gold could be bought directly, mob scenes erupted and the
price soared. Ten times the usual number of buyers jammed the gold pit in
the cellar of the Paris Bourse, and fist fights broke out as the price on
one day rose to $44.36 an ounce v. the official price of $35. In Hong Kong,
frantic trading drove the price up to $40.71, and around the world investors
and banks bought gold certificates and gold stocks. Many refused to accept
the U.S. dollar in payment.
In dozens of nations, from Austria and Italy to Sweden and Ireland, ordinary
citizens rushed out to buy gold coins to stuff socks and mattresses,
cleaning out numismatic stocks virtually overnight. In London, a $20 U.S.
gold piece sold for $56, a £ 1 British sovereign for $10.20. In Geneva, the
Swiss lined up at tellers’ windows to convert their savings to gold bars.
There was even a run in Hong Kong on gold jewelry. All told, between $1
billion [910 tons] and $2.5 billion [2270 tons] in gold may have changed
hands within ten days in London-as much as 10% of the total gold in the
seven-nation Gold Pool, whose bullion reserves are the cushion for the $35
international price of gold. No estimate was possible of all the other
trading in gold around the world, except that it was colossal.
Lost World? The rush was on because speculators-some avaricious, some
panicky, some merely prudent-had become convinced that the U.S. and its
partners could not much longer maintain the $35 price. With a balance of
payments deficit of $3.6 billion last year and a war in Viet Nam that is
costing some $30 billion annually, the U.S. has seen its gold reserves
shrink by 50% from a postwar peak of $24.6 billion. Now, believed the
speculators, the U.S. was nearing the end of its gold tether. If the U.S.
could no longer sell gold to all takers at $35 an ounce and the price were
allowed to rise to meet the demand, the speculators stood to make a handsome
profit, just as they had in the devaluation of the pound sterling last
November. Having tasted blood then, many scented another kill -and, in their
wild buying, ripped and clawed at the remaining gold stocks in the Gold
Who were the speculators? The identity of most was veiled in the secrecy of
Swiss bankers’ files, but they were situated throughout the world. Perhaps
as much as 40% of Swiss bank purchases were destined for safekeeping in the
coffers of Middle Eastern sheiks and oil potentates. Latin American
businessmen, affluent overseas Chinese, Asian generals-all claimed a piece
of the action. The central banks of many smaller nations with precarious
national reserve margins, including some Communist Eastern European
countries, had undoubtedly joined in to protect themselves. More in sorrow
than in greed, European corporations moved into the buying to hedge their
foreign-currency holdings. So did some wealthy Americans with numbered Swiss
accounts, although it is illegal for U.S. citizens to own gold bullion.
For the men who understood the situation best, the spectacle was appalling.
“The world is lost,” said London Economist John Vaizey. “A rise in the price
of gold is inevitable now. It’s like a grand opera of which the overture is
over, and we’re in the first act of a world depression.” A usually
unemotional Swiss banker warned that “in participating in gold speculation,
capitalists are doing their best to destroy the capitalist system. If they
win the battle in London, the probability is that the whole present
international monetary system will come crashing down.” French Economist
Jacques Rueff, who has long predicted a crisis and argued for a rise in the
price of gold, saw his worst jeremiads vindicated. “Whether one wants a gold
price increase or not,” said Rueff, “it will soon be achieved.”
Two-Tier Price. Finally, the pressure grew so great that the U.S. refused to
continue to feed gold to satisfy speculators’ greed. In a telephoned message
to British Chancellor of the Exchequer Roy Jenkins, the U.S. asked Britain
to close the London gold market and shut off the flow from the Gold Pool.
Prime Minister Harold Wilson hurried to Buckingham Palace for a midnight
meeting with Queen Elizabeth, who declared a bank holiday in
foreign-exchange trading. That shut off the Gold Pool’s dealing, and money
markets from Singapore to Lusaka followed suit. The Paris market alone
The U.S. then invited representatives of the Gold Pool nations to Washington
for a weekend conference. There was little doubt that the speculators had
succeeded in wrecking at least part of the world’s monetary system, and that
the U.S. and the other members of the Gold Pool would no longer sell gold to
all takers at $35 an ounce. What would likely be decided in Washington was a
“two-tier” pricing system for gold, by which the speculators would have to
conduct their transactions in a free market. …
Gold Pact Stopgap Solution
Gold Pact Termed Stopgap Solution
Spokane Daily Chronicle – Google News Archive – Apr 8, 1968
“World opinion seems to be that the recently created two-price gold system
is but A STOPGAP IMPROVISATION to buy time in which to effectuate more
So wrote Henry L. Day, Wallace, president of Day Mines. Inc., in the firm’s
annual report to stockholders.
The world’s lost confidence in the dollar was not restored through the
recent removal by Congress of the 25-per-cent gold cover against United
States paper money, he said
Us To Guard Gold
Slump pleases planners
U.S. to guard gold
Montreal Gazette – Google News Archive – Nov 12, 1969
WASHiNGTON – (DJ) – A SCHEME BEING SECRETIVELY SHAPED here to guard the
Treasury’s gold stock helps warrant the plummeting of private-market gold
prices in Europe, U.S. officials said yesterday.
Already, the clearly pleased planners say, inklings that it is to be
forthcoming are buttressing such other factors as shadowy but sizable new
South African sales in driving down the London gold price.
The afternoon gold fixing price in London yesterday was $37.75, down 32½
cents from the morning and down 60 cents from Tuesday afternoon.
The plan, being negotiated with financial allies, is intended to insulate
the U.S. gold stock of $11,160,000,000 from a potential drain of hundreds of
millions of dollars worth posed by smaller nations’ needs to contribute
extra amounts of the metal to the international Monetary Fund.
It is understood the broad strategy includes shortchanging the 113-country
IMF on the metal itself, in return for the prospect of the IMF obtaining
off-setting amounts of hard currencies several years hence.
More important from the standpoint of private speculators, sources indicate,
is that the operation can be carried out without bringing any newly mined
gold from South Africa into official channels – and thus without damaging
the two-tier gold price system.
A precedent for at least one aspect of the plan, analysts note, lies in an
almost unnoticed tactic employed in the previous IMF quota or contribution
increase initiated in 1965. Likely to be repeated with some variation as one
part of a multifaceted effort in 1970, they say, are dealings along these
Denmark, for example, finds that it can’t comply with the rule requiring
that 25 per cent of its quota increase must be in gold (75 per cent is
regularly in a country’s own currency) unless it buys gold from someone
else. Usually the U.S. Treasury would be the source since the U.S. underpins
the value of the dollar by generally standing ready to pay out gold in
return for dollars from other governments at the fixed price of $35 an
If Denmark turned to South Africa, it would violate the March 1968 pact
intended to freeze the total gold holdings of all governments and official
institutions at their existing level, while leaving the private market to
receive all the fresh supply at a freely-moving price.
Instead of taking either of these system-weakening avenues, Denmark would
turn to the IMF for a loan, receiving for instance German marks. Denmark
would use the marks to buy gold at the official price from the German
government and deposit the gold with the IMF, thereby meeting its
But the IMF would sell the gold right back to Germany in return for marks,
thus replenishing its holdings of that currency.
Gold Soars Again, Dollar Still Slumping
Gold soars again, U.S. dollar takes beating
Pittsburgh Press – Google News Archive – May 15, 1973
LONDON – (AP-UPT) – Speculation that the Watergate scandals may force
President Nixon to resign helped drive the U.S. dollar to record lows in
Europe yesterday and pushed gold prices to all-time highs.
The dollar plunged to new lows in Paris, Frankfurt, Zurich and Oslo. It
weakened in other European centres, but in late trading there was a slight
improvement in dollar rates, cutting a small fraction off the day’s losses.
Gold rocketed $7 an ounce in the first hour of trading, setting record
prices of $113 an ounce in Zurich and $112.50 an ounce in London, the two
biggest bullion markets in the world. The metal held nearly all the gain,
closing at $112 an ounce in both centres.
Dealers called the gold and money markets extremely nervous…
Dealers here and on the continent suggested that even without the
speculation on Nixon’s future, confidence in the U.S. dollar was at a low
ebb any way.
“Name me a single reason why the dollar should be stronger,” a Zurich banker
Market sources agreed confidence in the twice-devalued dollar has been
sapped by fears of a new inflationary pressure in the United States, the
continuing U.S. balance of payments deficit, and concern that Watergate has
weakened Nixon’s ability to bring off trade and monetary reforms.
Gold and dollar markets are related. Investors lacking confidence in the
dollar have been getting out of the U.S. currency and buying gold.
Central bank agreements on gold
2009 – European Central Banks renew CBGA
1978 – The IMF attempts to write gold out of the system
The purpose of the Second Amendment of the IMF Articles was to delete gold
from the international monetary system. It followed the failure of attempts
to establish a new international monetary system, and in particular the
failure of attempts by European countries to force the United States to
settle its deficit in gold, or to devalue the dollar against gold. Far from
agreeing to keep gold in the system, THE UNITED STATES THEN LED A CRUSADE
AGAINST GOLD (while being careful to keep a very large strategic stock of
gold in its own reserve, sealed off from the outside world). This amendment
BARRED MEMBERS FROM FIXING THEIR EXCHANGE RATES TO GOLD and removed the
obligation on members to conduct transactions in gold at the official gold
To symbolize the plan to drive gold out of the system, the Fund was
instructed to dispose of 50 million of its stock of 153 million ounces,
partly by sales to the market and partly by giving some gold to members in
relation to their quotas. Ironically, THIS EXERCISE HAD THE EFFECT OF
SPREADING GOLD MUCH MORE WIDELY THROUGH THE INTERNATIONAL COMMUNITY THAN
EVER BEFORE, and GAVE MANY COUNTRIES A NEW INTEREST IN THE GOLD MARKET. Few
countries showed any inclination to sell the gold handed to them and in the
vast majority of cases it continues to sit on their books.
Us Boosts Gold Sales To Strengthen Its Dollar .
U.S. boosts gold sales to strengthen its dollar
Montreal Gazette – Google News Archive – Aug 23, 1978
WASHINGTON (AP) – The government took its second major step in less than a
week to support the U.S. dollar yesterday by announcing plans to sell three
million more ounces of gold from its stockpile.
The sale is intended to bring more money into the US, and reduce the
country’s balance-of-payments deficit, which is a major cause of the
dollar’s decline. It is also intended to reduce U.S. Imports of gold.
U.S. Gold Sales Tied to Dollar’s Health; U.S. Gold Auctions Tied
U.S. Gold Sales Tied to Dollar’s Health; U.S. Gold Auctions Tied To
Stability of the Dollar
New York Times – September 22, 1979, Saturday
By CLYDE H. FARNSWORTH
WASHINGTON, Sept. 21 – A high Treasury official said today that, if the
current gold-buying fever had an adverse speculative effect on the dollar,
the United States would open the vaults at Fort Knox for EVEN LARGER AMOUNTS
OF BULLION TO OFFER AT MONTHLY AUCTIONS.
‘Easy Money’ Can Explain Financial Woes
‘Easy Money’ Can Explain Financial Woes
Palm Beach Daily News Google News Archive Oct 15, 1979
By MONROE FRIEDLANDER
The rising price of gold is recognition that DESPITE ALL THE TALK ABOUT
FIGHTING INFLATION, THE TREND OF REAL MONEY GROWTH AND INTEREST RATES IS
SUPPORTING AND ENCOURAGING HIGHER PRICES ALL THE TIME. …
… the growth of money supply must be forced down below the inflation rate.
When this happens as a fact, or evidence accumulates that it is going to
happen, gold will stop rising, …
9) Faced with imminent doom… Something needed to be done…
By the end of the 1970′s, we had reached stage two [of currency collapse].
The Appendix to the Minority Report contains a number of charts and tables
that graphically depict the gravity of the situation as seen by contemporary
observers. We reproduce a few below for ease of reference.
The Consumer Price Index had reached worrying levels.
Source: Minority Report Appendix, Chart 3
People were indeed becoming inflation-conscious. Contracts routinely
contained inflation adjustment clauses, and housewives were beginning to buy
that frying pan sooner rather than later.
The bounty needed to induce people to hold dollar-denominated assets was
skyrocketing, at both ends of the yield curve. Long term nominal interest
rates were stratospheric, reflecting utter destruction in the bond market.
Source: Minority Report Appendix, Chart 9
Short term rates were climbing too.
Source: Minority Report Appendix, Chart 5
Ominously, the fiat monetary system had already lost several pitched battles
in its war with gold. Lacking today’s price management technology, the U.S.
and European monetary authorities had been forced to attempt to quell the
gold price by means of open sales of physical metal throughout the preceding
18 years. The London Gold Pool of the 1960′s had broken down in abject
failure in March 1968, leading to the abrogation of the Bretton Woods gold
exchange monetary system three years later. The U.S. Treasury gold sales of
the 1970′s ended in 1979, and the last of the parallel sales by the
International Monetary Fund occurred on May 7, 1980.
Like interest rates, and despite the best efforts of the monetary
authorities, the gold price was soaring, hitting $850 in the afternoon
London fix on January 15, 1980. The false premise at the core of the fiat
monetary system, the conceit that paper printed by a government bureau is
money and that gold is not, was being exposed for all to see.
Source: Minority Report Appendix, Chart 1
Public confidence, the essential support for fiat money, was at risk. The
memory of gold as money had not yet been fully extinguished, …
The very structure of the system was eroding. … new banks were being
formed under state statutes, and existing members were quitting the Federal
Reserve System altogether, switching their charters from federal to state
… The power of the central bank, the linchpin of the fiat monetary system,
SOMETHING HAD TO BE DONE. …
Nation Needs To Listen To Martin Feldstein
Nation needs to listen to Martin Feldstein
Daily Reporter – Google News Archive – Dec 14, 1983
WASHINGTON – It is easier to understand the problems of Martin Feldstein
than to understand the federal deficit, so the country is getting a little
preview of why the American economy could be a disaster area after the 1984
Feldstein is a 44-year-old economist who was almost fired as chairman of
President Reagan’s Council of Economic Advisers – for a classic reason -
speaking unpleasant truth.
The deficit is becoming a $200 billion-a-year monster. That is four times
more than what is was when Reagan took office promising to eliminate it. But
who can understand numbers like that? It really is not going to cause you or
me much trouble in the immediate future.
The deficit may kill us in a couple of years, but that won’t be obvious by
Election Day. Nov. 6. 1984. Until then. Republicans and their leader do not
want Feldstein pointing out things such as the fact that the deficit is
currently 10 times as high a percentage of the gross national product as it
was from 1955 to 1961, or twice as high as it was during the “big spending”
years of 1975 to 1981.
Demonstrating that these deficits are unlike anything in American history
was what got Feldstein in trouble at the White House. Until he begun
shooting off his mouth, It didn’t seem likely that voters would get excited
by economists’ arguments about spending and borrowing and interest rates.
But almost anyone can relate to the drama of a guy getting kicked out for
blowing the whistle.
Maybe some of us will begin to realize that SOMETHING IS ROTTEN IN
WASHINGTON – VERY ROTTEN. Those sweet Republicans at the White House and
those nice Democrats in Congress are all in on it.
This is what is going on:
The Reagan administration is spending more and more money and taking in
relatively less and less because it has reduced the taxes paid by the
wealthiest quarter of the population. That might work if spending were cut
at the same time, but that is not being done. There have been cuts in some
programs for the poor, but not in the great benefit programs of the middle
class: Social Security and Medicare.
So, under Reagan, we have: (1) big increases in military spending; (2) small
cuts in other spending; and (3) relatively lower taxation.
Reagan is doing something like what he said he was going to do back in 1980.
But the difference is that he didn’t say he was going to borrow the money to
make up the difference between what he wants and what he has the political
guts to ask the American people to pay for. That borrowing, in lieu of
sacrifice, is the growing deficit.
Once again we have a president who talks about “sacrifice” but is afraid to
ask anyone likely to vote actually to give something up. Most taxpayers are
being tricked into giving their money to the military and their financial
betters. But they are going to give twice – now and after 1985, when taxes,
interest rates and inflation will start going up to pay the bills of 1981 to
The worst will come in about two years when there will be either:
- a depression or deep recession as corporations and individuals are unable
to borrow because the federal government will be taking even more of the
country’s available credit to pay off $300 billion deficits;
- or money will be printed in quantities large enough to pay the
government’s bills and start THE WORST INFLATIONARY CYCLE AMERICANS HAVE
Reagan obviously doesn’t want to talk about that. Neither do most Democrats,
So Martin Feldstein stands there, rather heroically, like the boy on the
burning deck. He will now be pushed into the ocean to drown, and the captain
and crew will say there is no fire.
10) The entire US financial system was nearing insolvency…
Rough Going For Savings & Loans solvency
Rough going for Savings & Loans solvency
High interest rates threaten Thrifts’
Rock Hill Herald – Google News Archive – Jun 9, 1981
WASHINGTON (NEA) – The nation’s savings and loan associations are in bad
financial shape. These so-called “thrift institutions” are being forced to
pay high interest rates on the money they borrow from the government and
from commercial banks while receiving their income from loans made at
earlier, much lower rates. The result has been a continuous flow of red ink
that is threatening the whole system of savings and loans.
Dale Riordan, a spokesman for the National Savings and Loan League, says
that U.S. thrift institutions lost $688 million in the first three months of
1981. He forecasts losses of about $1.5 billion for the first half of this
year. Others are predicting losses closer to $2.5 billion for the first half
and $6 billion for the year.
More than 90 percent of the nation’s savings and loans are insured by the
Federal Savings and Loan insurance Corp. That federal agency is the thrift
institutions’ counterpart of the Federal Deposit insurance Corp., which
insures most of the nation’s commercial banks.
An average of fewer than one FSLIC-Insured savings and loan has failed in
each of the past 35 years. When a small institution goes under the agency
simply pays off its depositors and sells its loan portfolio to another
savings and loan in the area. In other cases, the FSIIC arranges the merger
of the failed savings and Loans with a stronger one in the area and
compensates the acquiring thrift for any losses suffered in the transaction.
This plan works fine when the failure rate is only one or two institutions a
year. But now the FSLIC has 251 institutions on its “problem list” of those
that must be watched closely because of their financial conditions. The list
is said to be larger than ever before and to be growing by the month.
An agency source says that if interest rates continue at or near current
levels for the rest of this year – as many forecasters think they will – as
many as 150 thrift institutions may lose their entire net worths and be at
least technically insolvent by year’s end. Another 150 could become
insolvent if high interest rates continue into 1982.
The FSLIC is not equipped to handle a problem of such magnitude. Its
reserves, which are used to bail out falling institutions and to assist in
mergers, amount to about 46.5 billion. Last year alone it used up almost $1
billion to rescue three savings and loans.
Worst still is the near impossibility of finding healthy savings and loans
willing to merge with insolvent institutions despite the FSLIC’s ability to
make up any losses incurred in the transaction.
This problem was until recently compounded by legal restrictions that such
mergers occur only between savings and loans in the same state. Although the
FSLIC now can go out of state to arrange mergers, few thrift institutions
are secure enough to be viable partners for failed institutions, especially
those of any size.
If the small banks defeat the FSLIC plan, the only real hope left to the
nation’s thrift institutions is that interest rates will somehow plummet
over the next few months. But no one has much confidence that this will
1978 to 1982 was a transition period
Time Magazine reported that rarely, if ever, had the signs been so confusing
Monday, Sep. 06, 1982
Hope and Worry for Reaganomics
By GEORGE J. CHURCH;Gisela Bolte;Frederick Ungeheue
Rarely has the search for omens been as anxious as now, when business is
still mired in a slump that has driven unemployment to the highest point in
41 years and bankruptcies to the worst level in half a century. And rarely,
if ever, have the signs been so confusing. The forecasters who try to figure
out the prospects for jobs, prices, production and incomes are in the
position of A MOTORIST APPROACHING A SCHIZOID TRAFFIC LIGHT THAT IS FLASHING
GREEN, AMBER AND RED SIGNALS ALL AT ONCE.