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This file contains:
US Foreign and Export Policies for the Agricultural Sector in the Congressional Record- Extension of Remarks. 2 pgs. [Report], 5/28/1968
Trade Expansion Act of 1968- Message from the President. 3 pgs. [Report], 5/28/1968
"$2-$3 Billion '68 US Deficit Sighted" by Emma Doran in the Journal of Commerce. 2 pgs. Not scanned. [Newspaper], 6/14/1968
Presidential Measures on Balance of Payments Controls by Gottfried Haberler and Thomas Willett from the American Enterprise Institute for Public Policy. 63 pgs. Only cover scanned. [Book], 1968
"The Growing Empire of US Banking Abroad- The Idea Is to Go Where the Unrestricted Money Is" in an unknown newspaper. 2 pgs. Not scanned. [Newspaper], 11/12/1968
Pages from an unknown source concerning consumer investment in housing. 6 pgs. [Other Document], 11/1/1968
Capital Flows in the US Balance of Payments Since 1965 by Andrew Brimmer. 29 pgs. [Report], 11/8/1968
Memo from Ken Khachigian to Key Issues Committee concerning housing. 5 pgs. [Memo], 10/22/1968
Private Home Ownership- Solving the Crisis of the Cities. 6 pgs with writing. [Report], 10/16/1968
Memo from Mr. Colson to Mr. Khachigian. Private Home Ownership- Solving the Crisis of the Cities. 4 pgs. [Memo], 10/16/1968
Meeting the Challenge of Urban Housing. 4 pgs with writing. [Report], n.d.
New Leadership to Rebuild the Ghettos. 7 pgs. [Report], n.d.
Rebuilding the Ghettos through Private Home Ownership. 6 pgs. [Report], n.d.
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26126407
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WHSF: Returned, 17-9
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26126407
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WHSF: Returned, 17-9
description
This file contains:
US Foreign and Export Policies for the Agricultural Sector in the Congressional Record- Extension of Remarks. 2 pgs. [Report], 5/28/1968
Trade Expansion Act of 1968- Message from the President. 3 pgs. [Report], 5/28/1968
"$2-$3 Billion '68 US Deficit Sighted" by Emma Doran in the Journal of Commerce. 2 pgs. Not scanned. [Newspaper], 6/14/1968
Presidential Measures on Balance of Payments Controls by Gottfried Haberler and Thomas Willett from the American Enterprise Institute for Public Policy. 63 pgs. Only cover scanned. [Book], 1968
"The Growing Empire of US Banking Abroad- The Idea Is to Go Where the Unrestricted Money Is" in an unknown newspaper. 2 pgs. Not scanned. [Newspaper], 11/12/1968
Pages from an unknown source concerning consumer investment in housing. 6 pgs. [Other Document], 11/1/1968
Capital Flows in the US Balance of Payments Since 1965 by Andrew Brimmer. 29 pgs. [Report], 11/8/1968
Memo from Ken Khachigian to Key Issues Committee concerning housing. 5 pgs. [Memo], 10/22/1968
Private Home Ownership- Solving the Crisis of the Cities. 6 pgs with writing. [Report], 10/16/1968
Memo from Mr. Colson to Mr. Khachigian. Private Home Ownership- Solving the Crisis of the Cities. 4 pgs. [Memo], 10/16/1968
Meeting the Challenge of Urban Housing. 4 pgs with writing. [Report], n.d.
New Leadership to Rebuild the Ghettos. 7 pgs. [Report], n.d.
Rebuilding the Ghettos through Private Home Ownership. 6 pgs. [Report], n.d.
citationUrl
collections
Richard M. Nixon's Returned Materials Collection
Returned White House Special Files
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26126407
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This archival description was reviewed and not revised as part of the NARA reparative description initiative on October 31, 2023. The word “Ghettos” used in the Scope and Content Note was determined to be part of a publication title. Original archival records have not been altered.
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Richard Nixon Presidential Library
White House Special Files Collection
Folder List
Box Number
Folder Number
Document Date
Document Type
Document Description
17
9
05/28/1968
Report
US Foreign and Export Policies for the
Agricultural Sector in the Congressional
Record- Extension of Remarks. 2 pgs.
17
9
05/28/1968
Report
Trade Expansion Act of 1968- Message from
the President. 3 pgs.
17
9
06/14/1968
Newspaper
"$2-$3 Billion '68 US Deficit Sighted" by
Emma Doran in the Journal of Commerce. 2
pgs. Not scanned.
17
9
1968
Book
Presidential Mesaures on Balance of
Payments Controls by Gottfried Haberler and
Thomas Willett from the American
Enterprise Institute for Public Policy. 63 pgs.
Only cover scanned.
17
9
11/12/1968
Newspaper
"The Growing Empire of US Banking
Abroad- The Idea Is to Go Where the
Unrestricted Money Is" in an unknown
newspaper. 2 pgs. Not scanned.
17
9
11/1968
Other Document
Pages from an unknown source concerning
consumer investment in housing. 6 pgs.
Tuesday, May 19, 2009
Page 1 of 2
Box Number Folder Number Document Date
Document Type
Document Description
17
9
11/08/1968
Report
Capital Flows in the US Balance of Payments
Since 1965 by Andrew Brimmer. 29 pgs.
17
9
10/22/1968
Memo
Memo from Ken Khachigian to Key Issues
Committee concerning housing. 5 pgs.
17
9
10/16/1968
Report
Private Home Ownership- Solving the Crisis
of the Cities. 6 pgs with writing.
17
9
10/16/1968
Memo
Memo from Mr. Colson to Mr. Kachigan.
Private Home Ownership- Solving the Crisis
of the Cities. 4 pgs.
17
9
n.d.
Report
Meeting the Challenge of Urban Housing. 4
pgs with writing.
17
9
n.d.
Report
New Leadership to Rebuild the Ghettos. 7
pgs.
17
9
n.d.
Report
Rebuilding the Ghettos through Private
Home Ownership. 6 pgs.
Tuesday, May 19, 2009
Page 2 of 2
May 28, 1968
CONGRESSIONAL RECORD Extensions of Remarks
Trade
E4713
Marty is not concerned that the subdi-
tion? Is Mr. Martin exaggerating? I believe
nomic group, which would favor Australia,
viding of resorts will curtail the business,
not. Mr. Martin himself adds, "It is not a
the major grain exporter in that part
even though this means the cabins become
business crisis, but a financial crisis." For
world. This would be to the detriment of
individually owned and are occupied for but
the past two years a booming economy,
the U.S. who is a prime exporter to the Far
a few weeks each season. "These resorts
combined with a lack of proper financial re-
East. It would appear, therefore, that U.S.
(those subdivided) are the types tourists
straint on the part of our Government, has
agriculture is becoming increasingly isolated.
don't want."
created an increasing inflation. In addition, a
There is no question in my mind that our
Too many resort owners, Marty said, "op-
10 year balance of payments deficit has re-
agricultural exports face a growing challenge.
erate thinking that, when we get the people,
duced our gold stocks to a point where inter-
But I believe we can pursue a program which
we will give them something. You've got
national confidence in the U.S. dollar has
will create a dynamic expansion in our farm
to have something to get the people."
been badly shaken. In the month of March,
exports. At all times, we should follow a pol-
Marty disagrees with the northwoods busi-
for the first time in many years, our bal-
icy of fully competitive international grain
nessmen who are critical of the camping
ance of trade was unfavorable.
prices. Further, we should exhort all coun-
boom.
My purpose is not to dwell on these serious
tries, especially the grain importing ones, to
"Some families pay more for a camper (in
and general problems but to relate them to
lower their interior prices, thereby contrib-
rental) than they would pay for a good cot-
the area of my business activities-the agri-
uting to an increasing standard of living
tage. They are good for the economy."
cultural trade. Exports of agricultural prod-
worldwide.
He is critical of the resorts which put out
ucts, particularly those handled by my com-
It seems evident to me that the efforts
brochures with photos of beaches, the rooms
pany: grains, oilseeds and their by-products,
of economic blocs, to become more nearly
and the bar-but not a single photo of the
are major contributors both to our balance
self-sufficient in agriculture, when they do
wild animals of the northwoods which he
of trade and our foreign aid programs. U.S.
not have a comparative advantage to do so,
believes are the "greatest asset" of the area.
commercial agricultural exports amounted
are doomed eventually to failure, for it in-
ANIMALS CARED FOR
to 5.2 billion dollars in 1967, representing
hibits economic growth in several ways.
19% of the total U.S. commercial exports of
First, excessive use of labor and capital in
"Why has the conservation department, in
27 billion dollars. They exceeded any other
agriculture limits their utilization in those
its management of wildlife, given primary.
major category of U.S. commercial exports.
non-farm industries which can produce
consideration to the gun carrying conser-
The importance of agricultural exports in
goods efficiently. This has been specially
vationist?" Marty asked. "It's a throwback
terms of what they mean to the national
true in the EEC where serious nonfarm
to the turn of the century, and leaves the
economy is generally not fully understood or
labor shortages have caused a substantial
department almost totally dependent on li-
appreciated. This is because we tend to think
inflation the last few years. But perhaps
cense income."
of agriculture in terms of farms and farmers.
more important, grain prices have been kept
Marty is disturbed that "there is not in
But today agriculture is industrialized. It
artificially high to promote self-sufficiency,
the state of Wisconsin today a single nat-
should be viewed as a converter of the prod-
thereby creating high food costs. Consumers
ural refuge where wildlife can be predictably
ncts of industry into food and fiber; in other
then spend a large percentage of their in-
seen in their natural state. This could be
words, as agribusiness.
come on food and less on other consumer
made available to the state on privately
The value of purchased inputs in agribusi-
goods and services. Lower food costs would
owned land at practically no expense."
ness is surprisingly large. Among America's
have the opposite effect. The standard of
"I'm not opposed to hunting," he de-
12 largest industries, agriculture comes first
living rises as a larger share of personal in-
clared, "but we don't need 100% of the land
in spending for equipment. Farming alone
come becomes available for non-food con-
for hunting.
uses the output of 20% of our petroleum
sumer goods. Increased demand in these in-
and rubber industries, 15% of our motor ve-
dustries expands employment and creates
hicle industry, and 10% of our chemical in-
more disposable income. In effect, a reduc-
U.S. FOREIGN AND EXPORT POLI-
Agricultural products provide a ma-
tion in food costs will stimulate economic
CIES FOR THE AGRICULTURAL
jor source of revenue for our different types
growth, as would a reduction in taxes.
SECTOR-ADDRESS BY MICHEL
of trail portation. Agribusiness, directly or
I favor the principle that each country,
FRIBOURG
indirectry, provides 3 out of every 10 jobs
or economic bloc, should produce goods for
in the Now, when you consider that we
which it has the greatest advantage, and
export the output of one out of every four
be willing to import what can be produced
HON. WALTER F. MONDALE
acres of grain under production, you can
by others more economically. This, of course,
understand the importance of agricultural
requires major adjustments; but why could
OF MINNESOTA
exports to our basic industries. When we ex-
they not be achieved? The European Com-
IN THE SENATE OF THE UNITED STATES
port grain, we are also exporting the output
mon Market, though it has not applied this
Tuesday, May 28, 1968
of a broad segment of our economy.
policy towards the outside world, has done
Continental, as a major grain company,
so internally. The GATT agreement can also
Mr. MONDALE. Mr. President, last
favors an aggressive policy of trade liberal-
be considered as a first step toward the long
week at the World Trade Conference in
ization. We also firmly believe that it is in
range economic goal of an Atlantic Com-
Minneapolis, Minn., Mr. Michel Fri-
the best interest of all major industries to
munity. This trade liberalization would con-
bourg gave a definitive statement on the
take a similar stand, though certain special
siderably benefit our agriculture, which is
interests can be hurt in doing so. The U.S.
the most efficient in the world today.
ramifications of U.S. foreign and export
will have to make certain concessions to gain
There are a number of actions the United
policies for the agricultural sector. Mr.
liberalization. But the alternative of return-
States can take unilaterally to expand com-
Fribourg is president and chairman of
ing to a policy of protectionism, which is ad-
mercial exports of agricultural products. We
the board of Continental Grain Co.;
vocated by a few powerful groups, would be
inust first recognize that we cannot dissoci-
herefore, his views have special im-
disastrous to our overall economy. We have
ate our domestic from our international poli-
ortance for all of us interested in the
supported such efforts as the GATT negotia-
cies. Our exports of grains and oilseeds have
ture of agricultural exports.
tions inasmuch as they would achieve freer
expanded much more rapidly than our do-
trade. But we have objected to restrictive
mestic usage. We cannot have a rapidly ex-
I ask unanimous consent that his
aspects of the proposed International Grains
panding and prosperous agriculture without
speech be printed in the RECORD.
Arrangement which, in my view, threatens
a growth in exports.
There being no objection, the speech
the ability of the U.S. to compete freely for
Our agricultural policy has been domes-
was ordered to be printed in the RECORD,
world markets.
tically, rather than internationally, oriented.
as follows:
I have wholeheartedly endorsed the crea-
We have pursued a policy based on short
CAN U.S. AGRICULTURE MAINTAIN ITS DOM-
tion of free trade areas of economic units
run expediency rather than a policy designed
INANT POSITION IN WORLD TRADE?
such as the European Economic Community
to utilize the potential of our agricultural
and the Latin American Free Trade Agree-
resources for increasing the nation's eco-
(By Michel Fribourg. president and chairman
ment, even though these entities make it
nomic strength and the quality of its so-
of the board of Continental Grain Co., at
tougher every day for our agricultural com-
ciety. Our primary objective of improving
the World Trade Conference, Minneapolis,
modities to enter these sectors. There is no
farmers' income has been achieved by main-
Minn., May 21, 1968)
doubt that the European Common Market,
taining high domestic prices and restricting
Gentlemen, I appreciate the privilege and
while it has succeeded in eliminating tariffs
production instead of expanding sales in
honor of participating in this Conference
amongst its members, has erected barriers
open competition in world markets.
on Foreign Trade Policy.
against third countries such as the U.S. Par-
Withdrawal of agricultural resources is
Today, we are faced with a situation that
ticularly in the agricultural field, Europe is
best illustrated by our land use policies. In
causes real concern for all of us involved in
striving, through high internal support
1968, about one-fourth of the total acreage
foreign trade policy matters. The Chairman
prices, to become more and more self-suffi-
normally used for cereal grains and soybeans,
of the Federal Reserve Board, William Martin,
cient. In South America, the Latin American
will be kept idle. Prospects are that wheat
said recently that "We are in the midst of
Common Market, still in its infancy, has es-
acreage for 1969 will be less than two-thirds
the worst financial crisis we have had since
tablished certain advantageous tariffs for its
as large as in the early fifties when govern-
1931." And yet the nation's business is in
members. Argentine wheat is already dis-
ment controls were first instituted.
the eighth year of its longest uptrend in
placing U.S. wheat in some Latin grain im-
Contrast this performance with other
history. American production has never been
porting countries. We can visualize that, one
major wheat exporting countries. In the past
higher than right now. Is this a contradic-
day, the Far East may form another eco-
decade Canada expanded its wheat acreage
E4714
CONGRESSIONAL RECORD Extensions of Remarks
May 28, 1968
more than one-third and Australia doubled
nations and have not been available to U.S.
ing average of world market prices." Direct
acreage. During that time, we have
exporters: government-backed credit insur-
income payments should be paid to farmers
also witnessed the European Common
ance programs and bilateral agreements-
to allow them a decent income.
Market shift from a net importer to a net
though I know the latter are against basic
We should advocate the concept that pro-
exporter of wheat. The same is true of such
U.S. trade principles.
duction of agricultural products on a world-
countries as Mexico, Greece and Spain. Fur-
Government policy has been more progres-
wide basis should fall into the hands of the
thermore, their exports are on commercial
sive in promoting commercial exports of
most efficient farmers. The marginal agri-
terms whereas about ½ of U.S. sales are on
feed grains than of wheat. The soundness of
cultural producers should be gradually
non-commercial terms.
a market oriented price support loan and
shifted into more productive non-agricul-
It is logical to question why some coun-
direct income payments to cooperating
tural pursuits. If we wish to export, we
tries have successfully pursued an expan-
farmers has enabled us generally to compete
should be willing to import goods, even agri-
sionist policy while the U.S. has followed
with other exporting countries without the
cultural goods, produced at a cheaper price
a policy of retrenchment. To put it another
benefit or necessity of export subsidies. Of
than others.
way, our policy of high prices and restrained
course, our position is aided by the follow-
Steps should be taken to facilitate and ex-
output has encouraged production in those
ing factors: the U.S. produces about 50%
pand commercial trade in farm products with
countries to the long run detriment of the
of the world's major feed crop, corn; and has
Eastern countries. Trade is the best medium
U.S. and U.S. agriculture. Although we can-
supplied over 50% of the feed grains traded
to build understanding and peace with the
not dictate the internal policies of other
in the world market. Also, feed grains are
East.
countries, we can discourage increased pro-
consumed mostly in the advanced industrial
The huge populations of the developing
duction by high cost producers either
nations, where consumption of meat and
countries constitute the largest potential
through trade liberalization negotiations or
poultry has developed substantially on ac-
demand for our farm products. We must
through free and open price competition for
count of the steady increase in their stand-
continue our aid programs for humanitarian
available markets.
ard of living. Production of feed grains out-
reasons. But we must also aid these coun-
The U.S. official endorsement of the In-
side the U.S. has and will continue to in-
tries to become commercial customers. In
ternational Grains Arrangement a year ago,
crease. Nevertheless, I believe that, if we
order to do so, we will have to lower our own
providing for a 20 cents per bushel increase
pursue a policy of reasonable prices, we can
protective barriers. They must have access
over the minimum price of the previous In-
maintain our preponderant position in feed
to our markets.
ternational Wheat Agreement, may have
grains for many years.
In the final analysis, the best way to ex-
seemed logical at the time. The final stage
U.S. soybeans are another story. Our pro-
pand sales is to provide a consistently reli-
of the negotiations occurred in a period
duction and exports have seen tremendous
able supply of a good product at a reason-
when the U.S. and world wheat stocks ap-
growth since the end of World War II due to
able price. Our agricultural policies should
peared to be quite low. This apparent short-
a heavy demand for soybeans and its by-
be directed to these ends.
age, however, proved to be temporary. Cur-
products, and limited competition. No acre-
The nation has huge underutilized agri-
rently, world wheat production is consid-
age restrictions were placed, and prices have
cultural resources. Conditions require that
erably in excess of consumption. World
been governed more by international values
we direct these resources and our best efforts
prices have been declining and are now
than by our domestic pricing policy.
into effective assets which will contribute
about ten percent under the minimum pre-
Currently, however, U.S. soybeans are over-
to the nation's economic strength and the
scribed in the Grains Arrangement Treaty
priced at the support level of $2.50 per bushel.
vitality of its citizenry.
the Senate has been asked to ratify. This is
Exports have slowed down and most soybean
another example of having applied a long
oil exports are under concessional terms. The
range policy to a short term problem. The
commercial export market has gone by de-
annual report of the Council of Economic
fault to competing products, mainly Russian
THE FORGOTTEN MAN IN THE MID-
Advisers sent this February to Congress
sunflower oil. Under the circumstances, a re-
DLE: THE NEED FOR TOTAL JOB
stated, "Primary producers sometimes at-
duction in the support price of this com-
tempt, through commodity agreements, to
modity is warranted.
ESCALATION
raise prices above the long term equilibrium
I would like to make a few remarks con-
level. They rarely succeed. Maintenance of
cerning non-commercial exports.
HON. THOMAS B. CURTIS
a price above long term cost requires re-
Agricultural exports on concessional terms,
strictions on supply; the necessary export
mostly PL 480 sales for foreign non-convert-
OF MISSOURI
quotas are extremely hard to negotiate and
ible currencies or long term credit, are use-
IN THE HOUSE OF REPRESENTATIVES
to enforce." In my view, this is sound advice
ful as a tool of foreign policy, humanitarian
from an informed body. It should be fol-
goals, and surplus removal. They have also
Tuesday, May 28, 1968
lowed.
contributed to commercial market develop-
Mr. CURTIS. Mr. Speaker. I submit for
Another reason our commercial exports
ment, since some of our best customers for
the RECORD my remarks to the 66th
have failed to expand is due to the fact that
dollars, Japan and Spain, for example, were
once recipients of PL 480 aid. But, as now ex-
annual meeting of the National Forest
we have been unable to compete on equal
ecuted, most PL 480 sales to the developing
Products Association:
terms with the other major exporters, chief-
ly Canada, Australia and France. I am al-
countries fail to make much contribution
It is a great pleasure to appear before this
luding to the very substantial commercial
to our balance of payments.
group as a participant on the panel today
agricultural trade that has developed over
In my view more can be done to increase
with Senator Smathers and Mr. Sam Shaffer
the last five years with the Eastern countries.
food shipments to the hungry nations of the
of Newsweek magazine to discuss the topic
The U.S. participation has been minor. In
world without increasing costs to our govern-
"Do We Have A New Forgotten Man?-The
ment. In fact, such shipments can and
American in the Middle". This is a most
part, this is due to government prohibition
of all trade with Mainland China; in part, it
should make a contribution to our economy.
timely subject, and it embodies several ke
is due to restrictive regulations with respect
It will not be easy but important problems
issues which must be faced. I would like t
to most countries in the Soviet Bloc. These
seldom have simple answers.
briefly sketch some basic themes which a1
include the requirement that one-half the
Some concessions will be required on our
pertinent to this topic which perhaps can 1
quantity of grain exported be shipped on
part. For instance, we should consider giving
developed more fully in our ensuing discus-
American flag vessels, if available.
special market access to the goods, mostly
sion, as set forth in the paper I prepared for
those using labor intensively, of the develop-
the U.S. Chamber of Commerce Symposium
Even if we assume that our policy toward
ing countries.
in December 1966, entitled "The Guaranteed
Communist China is correct, I fail to see
It will take ingenuity to facilitate exchange
Opportunity to Earn An Annual Income".
what we have achieved by restricting com-
mercial trade in non-strategic goods, mostly
of our current and potential agricultural sur-
My first theme. which permeates the others
pluses for the goods and services of the
that follow, is that we must return to accent-
agricultural products, with such countries as
the Soviet Union and some of its Eastern
hungry. But it can be done; it must be done.
uating the positive aspects and values of our
European partners. Other exporters, such as
SUMMARY AND RECOMMENDATIONS
society. Too many Americans in high places
today are emphasizing the negative. They are
Canada and France, have derived great bene-
I would like now to summarize the few
viewing our society through the anxious eyes
fits from these trades. We have not prevented
proposals I have made to achieve an ex-
of a hypochnodriac, which aggravates our ills,
the East from meeting its needs. Actually,
pansion of our agricultural trade-so vital to
and blocks efforts to correct them. Attention
we have only denied ourselves an important
help prevent a severe financial crisis.
and study should be given instead to our
source of dollar earnings, SO vital to our bal-
The first step is to adopt a positive inter-
successes, not to ignore the failures, but
ance of payments.
nationally oriented rather than a restrictive
rather that from our successes we can see
As stated by the U.S. Council of the Inter-
domestically oriented agricultural policy.
what it is we are doing right and apply that
national Chamber of Commerce, "Trade by
Our long range thinking should be an ex-
knowledge to eliminating our shortcomings.
definition does not take place unless benefits
pansion of demand rather than a reduction
My second theme then is to locate and call
accrue to both parties. If one nation refused
of supply.
attention to the keystones of our success as
to participate, insofar as the second party
We should increase the shift in emphasis
a dynamic society. Certainly one of them is
can flnd another trading partner, the loss is
for supporting farm income from one of high
the ability and spirit of the average Ameri-
entirely sustained by the country refusing to
price supports to one of market oriented
can working men and women. Their ability
do business."
price supports, where, as recommended by
to accept challenges and opportunities and
Two other important advantages have been
the President's Food and Fiber Commission,
keep pace with changes and advances, as well
given by some of the large grain exporting
"Price supports be set modestly below a mov-
as create them, are worldwide symbols of the
S6516
CONGRESSIONAL RECORD - SENATE
1968
The ACTING PRESIDENT pro tem-
for the past month increased three-
husbandry and the management of our
pore. Without objection, it is SO ordered.
tenths of 1 percent, which means every
fiscal and financial affairs in good order?
consumer, every housewife, every indi-
Mr. BYRD of Virginia. They will be
vidual in our Nation is paying three-
hurt, and hurt badly.
ORDER OF BUSINESS
tenths of 1 percent more through infla-
I am not concerned about the wealthy.
Mr. PROXMIRE. Mr. President, I yield
tion than they paid before-and that is
They can take care of themselves. But I
7 minutes to the distinguished Senator
just for 1 month.
am concerned about those to whom the
from Virginia.
Mr. LAUSCHE. Mr. President, will the
Senator referred, the ones who will be
The ACTING PRESIDENT pro tem-
Senator yield for a question?
hurt the most by this severe inflation-
pore. The Senator from Virginia is recog-
Mr. BYRD of Virginia. I am glad to
those of moderate means and those in
nized for 7 minutes.
yield to the Senator from Ohio.
fixed income
The ACTING PRESIDENT pro tem-
pore. The Senator's 7 minutes have
INTEREST ON THE NATIONAL DEBT
pired.
TRADE EXPANSION ACT OF 1968-
Mr. BYRD of Virginia. Mr. President,
Mr. PROXMIRE. Mr. President, I
MESSAGE FROM THE PRESIDENT
the Treasury Department announced to-
yield 5 additional minutes to the Sen-
(H. DOC. NO. 322)
day that the interest on the national debt
ator.
The ACTING PRESIDENT pro term
for the current fiscal year will be $1.1
The ACTING PRESIDENT pro tem-
pore METCALF). The Chair lays be-
billion more than it was last year. Stated
pore. The Senator from Virginia is rec-
fore the Senate a message from the
another way, the interest on the national
ognized for 5 additional minutes.
President on the Trade Expansion Act
debt for the current fiscal year, which
Mr. LAUSCHE. Mr. President, the in-
of 1968. Without objection, the message
ends next month, will be $14.5 billion.
crease in the interest obligation for the
will be printed in the RECORD, without
The increase of $1.1 billion for that one
fiscal year 1968 has been $1.4 billion
being read, and will be appropriately re-
item is a significant and important in-
more than last year?
ferred.
crease.
Mr. BYRD of Virginia. It has been $1.1
The message from the President was
Mr. President, let us put this matter in
billion more than last year.
referred to the Committee on Finance,
perspective. Let us judge the difficulty of
Mr. LAUSCHE. That means an in-
as follows:
raising $1.1 billion.
crease of approximately 7 percent, or $1.1
I wish to cite a few figures.
billion as to $14 billion.
To the Congress of the United States:
Let us assume that Congress were to
What would the Senator say with re-
A nation's trade lines are its life lines.
pass legislation confiscating all income
spect to the anticipated increase in the
Open trade lines and active commerce
of every individual over $50,000-$100,-
interest obligation for 1970? It will run
lead to economic health and growth.
000 on a joint return. If Congress were to
to $15 billion.
Closed trade lines end in economic stag-
confiscate all income of every individual
Mr. BYRD of Virginia. In the new
nation.
over $50,000-$100,000 on a joint re-
fiscal year, it will run above $15 billion.
Franklin D. Roosevelt recognized these
turn-and if that money were paid into
Mr. LAUSCHE. Obviously, the Senator
truths more than 30 years ago, when the
the Federal Treasury, how much money
from Virginia is disturbed about the
Nation and the world were in the grip
would that bring in?
tremendous interest obligation which is
of depression.
The additional revenue gained would
rising rather than going down either
On that March day in 1934 when he
be $700 million, or far less than just the
through the imposition of taxes or the
asked the Congress to pass the historic
increase in the interest on the national
reduction in spending.
Reciprocal Trade Act, he pointed to
debt which the taxpayers of this Nation
will pay this fiscal year compared to
Mr. BYRD of Virginia. That is correct.
America's declining world trade and
what it meant to the Nation: "Idle
what they paid last fiscal year.
Mr. LAUSCHE. I merely wanted to say
hands, still machines, ships tied to their
I think it important that those of us
to the Senator from Virginia that the
docks."
who are in Congress recognize and
astonishing thing to me is that on the
realize that the bulk of the taxes in our
floor of the Senate SO little is being
That Act set in motion three and a half
Nation come out of the pockets of the
said about the interest obligation, the
decades of descending tariff barriers and
wage earners.
debt obligation, and the deficits, yet SO
rising world trade. Our producers and
much is being said and done toward in-
farmers found new markets abroad, and
The bulk of the taxes come out of the
creasing spending.
American exports multiplied twenty-
pockets of those who are in the low- and
fold.
middle-economic groups.
My question is, in the face of what the
Seventy-two percent of all the income
Senator from Virginia has said about
This era of commercial progress was
taxes paid by individuals to the Federal
the interest obligation, deficits, and the
capped by the Kennedy Round Agree-
Government are paid by those who earn
report of the economic council that the
ments reached at Geneva last year-the
less than $15,000; 22 percent of the taxes
cost of living has gone up three-tenths of
greatest success in all the history of in-
are paid by those who have net taxable
1 percent this last month, what are we
ternational trade negotiations.
income of less than $7,000; and 50 per-
to anticipate as time goes on unless we
When I reported to the Congress last
cent of the income taxes are paid by
change what we are doing?
November on the Kennedy Round, I said
those with incomes between $7,000 and
Mr. BYRD of Virginia. In reply to the
it would mean new factories, more jobs,
$15,000.
Senator, let me say that I think we can
lower prices to families, and higher in-
Mr. President, this is a significant an-
anticipate more inflation, more difficulty
comes for American workers and for our
nouncement that the Treasury Depart-
for the average citizen, more difficulty for
trading partners throughout the world.
ment has made today to the effect that
the housewife, and more difficulty for the
Already, through these Agreements,
interest on the national debt for the cur-
wage earner. Unless the Government is
tariff barriers everywhere are falling,
rent year which ends next month will
willing to get its financial house in order,
bringing savings to consumers, and
be $14.5 billion, up $1.1 billion from the
we will face a financial crisis. The figures
opening new overseas markets for com-
year before.
released today amply demonstrate that
petitive producers.
All of this suggests to me that the
point.
But the problems and the promises of
Congress and the President jointly must
Mr. LAUSCHE. What will happen to
world trade are always changing. We
reduce this Federal spending, or the in-
the person receiving an annuity, to the
must have the tools not only to adjust to
dividual citizen of this Nation will be in
person receiving social security pay-
change, but to turn change to our ad-
very bad condition. Not only will tax-
ments, to the person who thriftily put
vantage.
payers be hard hit, but all citizens will
his money aside for the purpose of taking
To prepare for the era of world trade
feel the impact, because if we keep piling
care of him in his old age, for the person
unfolding before us now, I submit to
up these deficits every citizen will be hit
who purchased Government bonds
the Congress today the Trade Expansion
by severe inflation.
patriotically, under the conviction that
Act of 1968. This measure will:
According to the ticker tape just a
he would get back every penny he paid
-maintain our negotiating authority
few moments ago the Government an-
for them? What will become of their
to settle-advantageously-trade
nounced that the Consumer Price Index
purchasing power unless we put our
problems and disputes.
May 28, 1968
CONGRESSIONAL RECORD - SENATE
S6517
-carry out the special Geneva agree-
well at home. They have done well in
our adjustment assistance program fair
ment on chemicals and other prod-
the international market. They are in a
and workable.
ucts.
strong position to face normal competi-
I recommend that Congress broaden
-improve the means through which
tion from imports.
the eligibility for this assistance. The test
American firms and workers can ad-
A supplementary agreement was ne-
should be simple and clear: relief should
just to new competition from in-
gotiated at Geneva which will lower for-
be available whenever increased imports
creased imports.
eign tariffs on American chemicals and
are a substantial cause of injury.
OUR INTERNATIONAL RESPONSIBILITIES
reduce certain non-tariff barriers-road
I intend to pattern the administration
The Trade Expansion Act of 1968 will
taxes and tariff preferences-on Ameri-
of this program on the Automotive Prod-
strengthen relations with our trading
can automobiles and tobacco. To receive
ucts Trade Act of 1965. Determinations
partners in three ways.
these important concessions, the United
of eligibility will be made jointly by the
First, it will extend through June 30,
States must eliminate the American
Secretaries of Labor, Commerce, and
1970 the President's authority to conduct
Selling Price valuation system and
Treasury.
negotiations for tariff reductions. This
thereby give foreign producers of chem-
The adjustment assistance provisions
authority was contained in provisions of
icals and a few other products normal
of Automotive Product Trade Act of 1965
the Trade Expansion Act of 1962 that
access to our markets. This bargain is
have been successful. They have well
have expired.
clearly in our national interest-good
served American automobile firms and
Most of this authority was used in
for our industries, good for our workers,
their workers as we have moved to create
negotiating the Kennedy Round. The un-
and good for our consumers.
an integrated U.S.-Canadian auto mar-
used portion of that authority will give
I recommend that the Congress elim-
ket.
the President the flexibility to adjust
inate the American Selling Price sys-
These provisions will expire on June 30.
tariff rates as future developments might
tem to remove inequities in our tariffs
I recommend that the Congress ex-
require.
and enable us to take advantage of con-
tend the adjustment assistance provi-
For example, the United States might
cessions negotiated in the Kennedy
sions of the Automotive Products Trade
find it necessary to increase the duty on
Round.
Act through June 30, 1971.
a particular article-as the result of an
Third, the Trade Expansion Act of
TRADE INITIATIVES FOR THE FUTURE
"escape clause" action- a statutory
1968 will provide for specific funding of
The measures I have recommended to-
change in tariff classification. In such
our participation in the General Agree-
day will help us carry forward the great
event, we would be obliged to give other
ment on Tariffs and Trade.
tradition of our reciprocal trade policy.
nations compensatory tariff adjustments
This is the procedure we follow in
But even as we consolidate our past
for their trade losses.
meeting our financial responsibilities to
gains, we must look to the future.
Without this authority, we would in-
all other international organizations.
First and foremost, we must ensure
vite retaliation and endanger American
The General Agreement on Tariffs
that the progress we have made is not
markets abroad.
and Trade has become the most impor-
lost through new trade restrictions.
I recommend that the President's au-
tant forum for the conduct of interna-
One central fact is clear. A vicious
thority to make these tariff adjustments
tional trade relations. The Kennedy
cycle of trade restrictions harms most
be extended through June 30, 1970.
Round took place under its auspices.
the nation which trades most. And Amer-
Second, the Trade Expansion Act of
Yet since 1947, we have financed our
ica is that nation.
1968 will eliminate the American Selling
annual contribution to this Agreement
At the present time, proposals pending
Price system of customs valuation. This
through general contingency funds
before the Congress would impose quotas
action is necessary to carry out the spe-
rather than through a specific authori-
or other trade restrictions on the imports
cial agreement reached during the Ken-
zation.
of over twenty industries. These meas-
nedy Round.
I recommend that the Congress au-
ures would cover about $7 billion of our
The American Selling Price system has
thorize specific appropriations for the
imports-close to half of all imports sub-
outlived its purpose. It should be ended.
American share of the expenses for the
ject to duty.
The generally accepted method of val-
General Agreement on Tariffs and
In a world of expanding trade, such
uing goods for tariff purposes-which we
Trade.
restrictions would be self-defeating. Un-
and all our trading partners employ-is
OUR NEEDS AT HOME
der international rules of trade, a nation
to use the actual price of the item to the
When trade barriers fall, the American
restricts imports only at the risk of its
importer.
people and the American economy bene-
own exports. Restriction begets restric-
But many years ago, to protect a few
fit. Open trade lines:
tion.
of our fledgling industries, we imposed
-Reduce prices of goods from abroad.
In reality, "protectionist" measures do
on competing foreign goods-in addition
-Increase opportunities for American
not protect any of us:
to a substantial tariff-the special re-
businesses and farms to export their
-They do not protect the American
quirement that their tariff value be de-
products. This means expanded pro-
working man. If world markets
termined by American prices. Today this
duction and more job opportunities.
shrink, there will be fewer jobs.
unusual system often produces tariff pro-
-Help improve the efficiency and com-
petitive strength of our industries.
-They do not protect the American
tection of more than 100 percent of the
This means a higher rate of eco-
businessman. In the long run,
import cost of the product.
nomic growth for our nation and
smaller markets will mean smaller
Such excessive protection is both un-
profits.
fair and unnecessary.
higher incomes for our people.
This system is unfair because it:
Some firms, however, have difficulty in
-They do not protect the American
-Gives to a few industries a special
meeting foreign competition, and need
consumer. He will pay more for the
privilege available to no other Amer-
time and help to make the adjustment.
goods he buys.
ican business.
Since international trade strengthens
The fact is that every American-di-
-Rests on an arbitrary method of val-
the nation as a whole, it is only fair that
rectly or indirectly-has a stake in the
uation which no other nation uses.
the government assist those businessmen
growth and vitality of an open economic
-Diverges from the provisions of the
and workers who face serious problems
system.
General Agreement on Tariffs and
as a result of increased imports.
Our policy of liberal trade has served
Trade.
The Congress recognized this need-in
this nation well. It will continue to ad-
-Imposes an unjustified burden on the
the Trade Expansion Act of 1962-by
vance our interests in the future.
U.S. consumer.
establishing a program of trade adjust-
But these are critical times for the na-
This system is unnecessary because the
ment assistance to businessmen and
tion's economy. We have launched a
few industries which it covers no longer
workers adversely affected by imports.
series of measures to reduce a serious
need special Government protection.
Unfortunately, this program has been
balance of payments deficit. As part of
It applies primarily to the chemical
ineffective. The test of eligibility has
this program, I have called for a major
industry in the benzenoid field. Yet
proved to be too rigid, too technical, and
long-run effort to increase our trade sur-
chemicals, and benzenoids in particular,
too complicated.
plus. This requires that we push ahead
are among our most efficient and rapidly
As part of a comprehensive trade ex-
with actions to keep open the channels
expanding industries. They have done
pansion policy, I propose that we make
of trade.
S6518
CONGRESSIONAL RECORD - SENATE
May 28, 1968
Many of our trading partners have in-
that establishes a wide basis for con-
sary to meet the need, shall be provided
dicated a willingness to cooperate in this
sultation and assistance in this impor-
through acquisition, acquisition and re-
effort by accelerating some of their tariff
tant work.
habilitation, or lease. Dwelling accominoda-
reductions agreed to in the Kennedy
tions in such housing shall be made avail-
AN EXPANDING ERA IN WORLD TRADE
Round, and by permitting the United
able to any such individual or family for such
The proposals in this message have
period as may be necessary to enable the in-
States to defer a portion of our tariff re-
been shaped to one purpose-to develop
dividual or family to find other decent, safe,
ductions. Furthermore, a number of
the promise of an expanding era in world
and sanitary housing which is within his or
Western European countries are now
trade.
its ability to finance. Rentals shall be es-
taking more active steps to achieve a
We started on this road three and a
tablished for such accommodations, under
higher rate of economic growth. This
such rules and regulations as the President
half decades ago. In the course of that
promises to increase the demand for our
may prescribe and shall take into considera-
journey, the American farmer, the busi-
exports and improve our trade position.
tion the financial ability of the occupant. In
nessman, the worker and the consumer
cases of financial hardship, rentals may be
To take full advantage of the expanded
have benefitted.
compromised or adjusted for a period not to
trading opportunities that lie ahead, we
The road ahead can lead to new levels
exceed twelve months, but in no case shall
must improve the competitive position of
of prosperity and achievement for the
any such individual or family be required to
American goods. Passage of the anti-in-
American people. The Trade Expansion
incur a monthly housing expense (including
flation tax is the most critical action we
Act of 1968 will speed us on the way.
any fixed expense relating to the amortiza-
could take now to strengthen our position
tion of debt owing on a house destroyed or
I urge the Congress to give this im-
at home and in world markets. The tax
damaged in a disaster) which is in excess of
portant measure its prompt and favor-
measure I have recommended will help
25 per centum of the individual's or family
able consideration.
monthly income.
prevent destructive price increases-
LYNDON B. JOHNSON.
"(c) In the performance of, and with re-
which can sap the vitality and strength
THE WHITE HOUSE, May 28, 1968.
spect to, the powers and duties conferred
of our economy. Continued rapid in-
upon, him by this section, the President
creases in our prices would mean fewer
may-
exports and higher imports.
MESSAGE FROM THE HOUSE
"(1) prescribe such rules and regulations
Second, other nations must join with
as he deems necessary to carry out the pur-
us to put an end to non-tariff barriers.
A message from the House of Repre-
poses of this section;
Trade is a two-way street. A success-
sentatives by Mr. Bartlett, one of its
"(2) exercise such powers and duties either
reading clerks, announced that the House
directly or through such Federal agency or
ful trade policy must be built upon reci-
had agreed to a concurrent resolution
agencies as he may designate;
procity. Our own trade initiatives will
founder unless our trading partners join
(H. Con. Res. 782) providing for the ad-
"(3) sell or exchange at public or private
with us in these efforts.
journment of the two Houses from
sale, or lease, any real property acquired or
constructed under this setion;
The Kennedy Round was an outstand-
Wednesday, May 29, 1968 to June 3, 1968,
"(4) obtain insurance against loss in con-
ing example of international coopera-
in which it requested the concurrence of
nection with any such real property;
tion. But major non-tariff barriers con-
the Senate.
"(5) enter into agreements to pay annual
tinue to impede the free flow of interna-
sums in lieu of taxes to any State or local
taxing authority with respect to any such
tional commerce. These barriers now
HOUSING AND URBAN DEVELOP-
real property; and
block many U.S. products from compet-
MENT ACT OF 1968
"(6) include in any contract or instru-
ing for world markets.
ment made pursuant to this section, such
Some non-tariff barriers violate pro-
The Senate resumed the consideration
conditions and provisions as he deems neces-
visions of the General Agreement on
of the bill (S. 3497) to assist in the pro-
sary to assure that the purposes of this sec-
Tariffs and Trade. We will step up our
vision of housing for low- and moderate-
tion will be achieved.
efforts to secure the prompt removal of
income families, and to extend and
"(d) Such sums as may be necessary to
these illegal restrictions.
amend laws relating to housing and ur-
carry out the provisions of this section are
ban development.
authorized to be appropriated."
Other non-tariff barriers may not be
illegal, but they clearly hamper and
Mr. BAYH. Mr. President, I send an
Mr. BAYH. Mr. President, I join the
hinder trade. Such barriers are found
amendment to the desk and ask that
Senator from Iowa [Mr. MILLER], who
in all countries; the American Selling
it be stated.
has been working with us, as well as the
Price system is an example of one of our
The ACTING PRESIDENT pro tem-
Senator in charge of the bill, the Sen-
non-tariff barriers.
pore. The amendment will be stated.
ator from Wisconsin [Mr. PROXMIRE],
We have initiated a major interna-
The assistant legislative clerk pro-
who has been a cosponsor of this measure
tional study to assess the effect of non-
ceeded to read the amendment.
from its inception. When a series of
tariff barriers on world trade.
Mr. BAYH. Mr. President, I ask unani-
major disasters, tornadoes, and floods
We have already begun action in the
mous consent that further reading of
descended on this country in 1965, a
General Agreement on Tariffs and Trade
the amendment be dispensed with.
group of Senators decided that the time
and other international organizations to
The ACTING PRESIDENT pro tem-
had come to do something about disaster
deal with some of these non-tariff bar-
pore. Without objection, it is so ordered;
relief by way of the various codes affect-
riers.
and the amendment will be printed in
ing disaster relief already on the statute
Efforts such as these are an important
the RECORD at this point.
books. A bill was introduced and enacted
element in our trade policy. All sides
The amendment offered by Mr. BAYH
by the Senate in July 1965 without a
must be prepared to dismantle unjusti-
is as follows:
dissenting vote. More than a year later,
fied or unreasonable barriers to trade.
On page 303, after line 23, insert the fol-
the House, in acting on this measure,
Reciprocity and fair play are the es-
lowing new section 1520:
struck about half of it from the bill.
sential standards for international trade.
"SHELTER FOR DISASTER VICTIMS
There was not enough time left toward
America will insist on these conditions
"SEC. 1520. (a) The President is authorized
the end of the session to seek a confer-
in all our negotiations to lower non-tariff
to provide dwelling accommodations for any
ence on the bill so we had to take half
barriers.
individual or family whenever he deter-
a loaf rather than none at all.
Third, we must develop a long-range
mines-
Senate bill 438 was introduced this
policy to guide American trade expan-
"(1) that such individual or family OC-
year, reported favorably by the Public
sion through the 1970's.
cupied a home (as an owner or tenant) which
Works Committee, and is on the calen-
I have directed the President's Special
was destroyed or damaged to such an extent
that it is uninhabitable, as the result of a
dar. One section of that bill is the
Representative for Trade Negotiations to
major disaster occurring after January 1,
amendment now at the desk.
make an intensive study of our future
1968; and
Let me read the first section of it, be-
trade requirements and needs.
"(2) that such action is necessary to avoid
cause I think it explains its scope bet-
I would hope that Members of the
severe hardship on the part of such individ-
ter than I could extemporaneously:
Congress and leaders of Labor, Business
ual family; and
The President is authorized to provide
and Agriculture will work with the Exec-
"(3) that such owner or tenant cannot
dwelling accommodations for any individual
otherwise provide suitable dwelling accom-
utive Branch in this effort. To help de-
or family whenever he determines--
modations for himself and/or his family.
velop the foundations of a far-reaching
(1) that such individual or family occu-
"(b) Such dwelling accommodations, in-
pied a house (as an owner or tenant) which
policy, I will issue an Executive Order
cluding mobile homes, as may be neces-
was destroyed, or damaged to such an extent
SPECIAL
ANALYSIS
PRESIDENTIAL MEASURES ON
BALANCE OF PAYMENTS CONTROLS
By Gottfried Haberler and Thomas Willett
TWENTY FIFTH ANNIVERSARY
AMERICAN ENTERPRISE INSTITUTE
FOR PUBLIC POLICY RESEARCH
1943-1968
1200-17TH STREET, N.W. - WASHINGTON. D.C. 20036
This poses a puzzle. Homebuilding was strong
produced an increase in home equity during the
in the late Forties and early Fifties as the
past two years.
nation scrambled to make up for 15 years of de-
pressed construction-the most severe lapse in
A Search for Solutions
our history. Yet in spite of the evident need for
Explaining the diminishing importance of
more housing and substantial government as-
homebuilding in the economy and the erosion of
sistance, demand was not strong enough to allow
personal investment in new homes is more than
the industry to command as large a share of the
an intellectual exercise. At stake are fundamental
nation's resources as it had in earlier decades.
questions about the ability of this industry to
Family incomes have grown rapidly since the
satisfy public needs.
mid-Fifties, not only in current dollars but also
The temporary 1966-67 slump in homebuild-
in dollars adjusted for price increases. Moreover,
ing reflected the inability of the consumer and
the rate of increase accelerated in the early Six-
the homebuilding industry to outbid other
ties. Yet even when credit market conditions
business sectors and government for credit and
were extremely favorable for homebuilding in the
for productive resources in a period of intense
early and mid-Sixties, output of new homes failed
economic growth.
to pierce the records set a decade earlier. And
More fundamentally troublesome, however, is
homebuilding dropped off after early 1964-
the sluggish growth in private demand for hous-
amid complaints of overbuilding-well before
ing over the past decade as well as over the past
booming overall economic growth appreciably
50 years and more. To some extent, this reflects
began to drain resources away from this in-
demographic trends. The reduced propensity of
dustry.
households to invest in new homes, for example,
partly reflects changes in the structure of the
Consumer Investment in Housing
population in the Sixties. But, historically, even
major movements in home construction have
Further questions arise if one focuses on home-
been only loosely related to demographic
building as an avenue for personal saving. The
changes.
usual measures of saving-for example, those of
The heaviest drag on demand for new homes
the Commerce Department, the Securities and
has been the sensitivity of consumers to the cost
Exchange Commission, and the Federal Reserve
of housing-including construction costs, land
Board - include households' net investments in
prices, mortgages rates, downpayment require-
housing (gross home purchases minus deprecia-
ments, and real estate taxes.
tion of existing homes). For the most part, these
Over the long run, new home prices have gone
are investments in single-family homes. The of-
ficial figures do not include appreciation due to
up considerably faster than the general price
rising market values; they thus understate sav-
ing, as it is viewed by many individuals, in an
Household Investment, Borrowing and Saving
inflationary environment.
(Net flows, billions of dollars)
1955-59
1960-64
1965
1966
1967
1968
The accompanying table sketches the chang-
Average
Average
1st Half*
ing character of individuals' asset acquisitions
Financial
Assets
25
32
48
43
54
53
since the mid-Fifties. Investment in new housing
Liquid assets
11
23
34
22
46
25
Fixed income
has been exceedingly sluggish, despite the steep
securities
5
1
3
10
-1
16
Other
acceleration in growth of liquid assets-in turn
9
8
10
11
9
13
Real Assets
22
22
29
28
23
31
reflecting the much more expansive monetary
Homes
15
13
18
11
9
13
Other
7
10
18
17
16
18
policy of the Sixties-and markedly higher ac-
Total Assets
47
54
77
71
77
84
quisition rates for automobiles, home appliances,
Borrowing
17
22
30
22
28
25
and other durables.
Saving
31
33
47
49
55
59
Net Investment
The relative decline in net home purchases
in New Homes
as a Per Cent of-
over the past decade has been especially con-
Disposable
spicuous relative to household saving. Total per-
income
5.0
3.2
2.5
2.2
1.6
2.3
Total asset ac-
sonal saving-growth in assets minus increases
cumulation
32
23
15
16
11
16
in debt, or the gain in households' net worth-
Saving
50
39
25
28
16
23
has climbed rapidly in recent years. But con-
*Seasonally adjusted annual rates.
sumers, who had been building up equity in
Note: Changes in holdings of assets exclude capital gains
and losses; borrowing shown net of repayments. Acquisi-
single-family homes during the Fifties, appear to
tions of real assets are new purchases less depreciation of
have been reducing their nominal equity in the
the existing stock. "Other" real assets are largely autos, appli-
ances, and home furnishings. Saving is growth of assets minus
Sixties. This is partly an accounting illusion: in-
borrowing.
flation in real estate values has almost certainly
November 1968
127
level. This has partly reflected escalating land
net volume of mortgage lending in the first half
costs-an unavoidable trend in light of the fixed
of this year was no larger than in 1963-65, while
availability of potential housing sites, the growth
home prices are 20-30 per cent higher, testifies to
in population and incomes, and more extensive
the current strength of demand. If more money
land use by government and business. But home
becomes available for mortgage loans, starts can
construction costs have also tended to rise faster
ascend even higher. But the experience of the
than the overall price level. For the most part,
early Sixties suggests that easier credit condi-
this has reflected a slower growth of productivity
tions, in themselves, are not likely to provide
in this industry than in the overall economy.
more than a relatively temporary boost to home
construction. More fundamental solutions are
Galloping Construction Costs
necessary if we are to come close to the Govern-
For the second time since World War II, con-
ment's 2.6 million goal.
struction costs have been galloping ahead of the
Merton J. Peck, a member of the President's
rise in the general price level. This means that
Council of Economic Advisers, pointed out re-
any given rate of increase in rents or in the
cently that a 50 per cent increase in activity
prices of existing homes will tend to encourage
would "strain the resources of any sector and
less new building than a comparable rise would
put pressure on its prices."
have induced 3-5 years ago. As yet, it is not evi-
The construction sector, however, may be especi-
dent that the value of the existing housing stock
ally vulnerable. Despite considerable recent techno-
logical advance, there is evidence that this industry
has been rising fast enough to lift housing starts
has not achieved its rightful place in the procession
to a 2 million annual rate.
of progress.
It is clear
that construction
Moreover, achievement of any given target for
represents a potential bottleneck
housing starts would be tarnished if rising ren-
Efforts to meet the 2.6 million target through
tal and home-ownership costs compel consumers
Government subsidies to homebuyers and
to downgrade their purchases and accept lower-
renters will tend to make housing more expen-
quality housing. Historically, real residential
sive for those who are not subsidized. This, in
construction has risen less than housing starts.
turn, will cut into home purchases by middle-
It appears that downgrading has accelerated in
and upper-income groups.
the past two years. Consumers have also re-
A subsequent article will delve further into the
sponded by stepping up their purchases of mo-
demographic outlook, the problem of rising home
bile homes-a form of residential construction
costs, and some of the proposed solutions-in-
which is produced outside the homebuilding in-
cluding the innovations embodied in the Housing
dustry and omitted from the usual homebuilding
Act of 1968. There is a noteworthy agreement
figures.
among Government officials and a large segment
The recovery of housing starts in 1968 to a
of the homebuilding industry that business as
11/2 million annual rate, despite the fact that the
usual is not enough.
The Search for Protection of International Reserves
The search by governments and central banks
aging Director, M. Pierre-Paul Schweitzer, em-
for ways to protect their countries' international
phasized in the following context:
reserves is one international monetary fact of
life that has once again been much in evidence
While special drawing rights will, I expect, even-
tually become a major component of international
in recent months. The opportunity to add to of-
reserves, it is important at this stage to do nothing
ficial monetary gold stocks out of the substantial
to undermine, and to do whatever is possible to
amounts sold by France and the International
strengthen, the traditional reserve components. The
Monetary Fund has been seized by a strikingly
new facility is intended, when the need arises, to
large number of countries. Ample use is also
supplement, not to supplant, gold and foreign ex-
change. This is no more than common sense. Gold
being made by governments and central banks
is a traditional means of international settlement
of the various arrangements under which they
and a point of reference for the values of national
can secure, to varying degrees, protection for
currencies. The value of special drawing rights is
their foreign exchange assets.
guaranteed in terms of a weight of gold. More than
one half of all monetary reserves consists of gold, and
At the IMF meetings last month in Washing-
it continues to be the basic element in the world
ton, pleas mounted for an early ratification by
monetary system.
governments of the new international monetary
facility in the form of Special Drawing Rights.
The Buildup of Gold Reserves
The value of SDRs is guaranteed "in terms of a
Against this background of practical realism
weight of gold"-a feature that the Fund's Man-
regarding gold, it is of interest to review the
128
November 1968
changes in the monetary gold stocks of govern-
Blending Gold, Dollars and SDRs
ments and central banks over the six months
ended in September. In the wake of the disturb-
Some students of international finance have
ances in its economy and its balance of pay-
of late expressed the thought that an interna-
ments, France not only used the dollars it had
tional monetary system containing more than
in its reserves or was able to secure from the
one kind of international asset would be difficult
IMF and central banks of other countries, but
to operate. So long as there are several assets in
also sold gold-$1,069 million from June through
which monetary authorities can keep reserves—
September. The IMF, in order to accommodate
gold, dollars, reserve positions in the IMF and,
the British and French drawings last June, not
hopefully next year, SDRs-and SO long as the
only used its own resources and borrowed cur-
composition may be freely changed by shifting
rencies but also raised $547 million by selling
from one kind to another, instability may result.
gold to thirteen countries other than the United
The SDRs may help meet the need for more re-
States.
serves, but they cannot deal with matters of con-
fidence.
The Federal Republic of Germany, Italy and
Rules have been devised to prevent switches
other Continental countries have added appre-
from SDRs into gold; but switches from dollars
ciable amounts to their already substantial gold
to gold have not been banned. To prevent con-
reserves. Although the United States had ac-
versions of dollars into gold, schemes have been
quired a sizable part of the $1.1 billion of gold
suggested to blend gold, dollars and SDRs in
sold by France since June, its reserve has shown
fixed proportions; to take dollars out of official
a rather moderate rise.
reserves by having them turned into deposits on
The redistribution of gold in the recent past
the books of an international institution; or to
stands out clearly from the chart, along with
crown SDRs as the only reserve asset.
changes in official foreign exchange holdings, for
Schemes like these have found little support
the most part U.S. dollars. France has disposed
outside narrow circles. Historically, it may be
of part of the gold reserve it built up during
recalled, governments and central banks chose
1959-67 largely through purchases from the
freely to hold sterling or dollars in mone-
United States; it had sold large amounts to the
tary reserves because they found it safe, profit-
United States during the prolonged period of its
able and convenient to do so, and because they
balance-of-payments deficits from 1935 to 1958.
were confident that they could at any time,
Even so, it has the third largest gold reserve in
the world. Germany and Italy, which had little
gold before World War II, are now the second
Changes in Monetary Gold Stocks
and the fourth largest gold-holding countries;
of Governments and Central Banks
Switzerland is the fifth. The United States is, of
Millions of dollars
Percentage of gold
course, the first.
in total reserves*
Oct. '67-
Apr.-
Mar. '68
Sept. '68
Mar. '68
Sept.
'68
The rise in South Africa's gold reserve has
Losses in
come from new output, which the central bank
Apr.-Sept. '68:
France
$
1
$ 1,069
87%
95%
purchases, and, as needed, sells. During April-
Canada
-123
-113
43
34
September, its reserve showed an increase of
United Kingdom
-338
-19t
55
551
$327 million; South African output during this
Intl. Mon. Fund
32
-415
period may be estimated at $550 million.
Gains in
Apr.-Sept. '68:
For the world as a whole, official gold stocks
Germany
have increased since the end of March-in sharp
(Fed. Rep.)
-312
484
54
58
Italy
25
408
54
63
contrast with the $3 billion outflows into private
Belgium
96
106
64
78
uses and holdings during the gold crisis in late
Netherlands
77
43
82
88
Switzerland
-238
23
87
90
1967 and early 1968. During the second quarter
United States
-2,374
52
80
78
of 1968, the rise amounted to $290 million-$33
million more than could be accounted for by ad-
South Africa
253
327
81
791
Ireland
13
45
9
241
ditions to the reserves of South Africa and
Australia
5
25
19
22
Australia; and, judging from incomplete data,
Other developed
countries
52
1911
total stocks rose further during the third quar-
Middle East
220
1151
ter. Thus, the world's monetary gold has not, in
All other
effect, been frozen at the $40 billion level of last
countries
265
751
March when the Washington conference of seven
* Total gold and foreign exchange reserves. + Through
June. # Through August. § Mainly Austria, Denmark, Greece,
countries expressed the feeling that it was no
Norway, Portugal, Sweden and Yugoslavia. Not applicable.
longer necessary for central banks to buy gold
Note: Adapted from International Monetary Fund Inter-
national Financial Statistics.
from the private market.
129
November 1968
:
$ BILLIONS
$ BILLIONS
6
6
GERMANY (F.R.)
FRANCE
ITALY
SWITZERLAND
5
5
4
4
3
3
2
2
1
1
0
0
2
NETHERLANDS
2
BELGIUM
UNITED KINGDOM
CANADA
t
1
t
1
0
0
2
2
SOUTH AFRICA
SPAIN
AUSTRIA
JAPAN
1
1
+
+
+
0
0
DEC.
MAR.
SEPT.
DEC.
MAR.
SEPT.
DEC.
MAR.
SEPT.
DEC.
MAR.
SEPT.
'67
'68
'68
'67
'68
'68
'67
'68
'68
'67
'68
'68
GOLD
FOREIGN EXCHANGE
Gold and Foreign Exchange Reserves of Governments and Central Banks
* June. + August.
without having to give any explanations, shift
Leslie O'Brien, remarked on October 17:
from one currency to another or into gold. To-
I find the tendency to attack the role of gold
day, they are not ready to relinquish this free-
in the system somewhat ironic, when it is not gold
dom of choice. They have retained the right of
which is the root cause of the present uneasiness
"opting out" of SDRs.
but doubts about the alternative reserve assets. While
admitting all the imperfections of gold as a monetary
The preference for gold-documented in that
asset, the enthusiasm for getting rid of it owes much
part of the table showing the proportion of gold
to the fact that in this inflationary age currencies
to total reserves-basically reflects deeply an-
cannot stand comparison with it.
I suggest
chored views that there are times and circum-
that in this necessarily long process [leading to an
stances where no other money will do because
international monetary system less dependent on
gold and national currencies] we concentrate on
gold alone is universally acceptable as the means
containing the role of the alternatives first and
of payment of last resort. These views rest in
leave to the last any discarding of gold
part on the thought that gold is beyond the con-
trol of any one nation-especially as it is redis-
The Maze of Gold and Exchange Guarantees
tributed today, with the United States holding
To protect the claims of governments and cen-
only slightly more than a quarter of the world's
tral banks on international financial institutions
monetary stock. They also reflect the desire to
and the value of official foreign exchange hold-
protect reserves against the hazards of deprecia-
ings, use is made of a great variety of gold and
tion.
exchange clauses. All accounts of the Bank for
As the Governor of the Bank of England, Sir
International Settlements are kept in gold Swiss
130
November 1968
francs. The obligations of a country to the IMF
The Real Protection
in the event that the par value of its currency
is reduced are governed by a maintenance-of-
Those responsible for administering their
gold-value clause. The SDRs are to be guaran-
country's international monetary reserves seek,
teed in terms of a weight of gold. The European
understandably and legitimately, to protect them
Monetary Agreement provides for yet another
against depreciation. For the buildup of inter-
form of guarantee; this protected the partici-
national reserves-whether gold, dollars, IMF
pating central banks at the time of the sterling
positions or SDRs-involves a surrender by a
devaluation a year ago.
nation of present goods, services and capital
assets for claims on the resources of other coun-
Credits arranged to help stabilize foreign ex-
change rates-such as the large British borrow-
tries in an indefinite future-for periods short
ings from governments and central banks-con-
or long, or even "for good."
tain exchange clauses. Under arrangements con-
The protection that gold offers rests on
cluded last month, the bulk of sterling-area
merits in which most of the world, rightly or
countries' balances held in sterling carry a dollar
wrongly, still firmly believes. Exchange clauses
guarantee; on their part, the countries have un-
offer protection against devaluation of individual
dertaken to keep a guaranteed minimum propor-
currencies. In the IMF, as is well known, the
tion of their reserves in sterling.
obligations of a country, in the event that its
The swap network of the Federal Reserve sys-
currency is devalued, are governed by a main-
tem, dating back to the early Sixties and com-
tenance-of-gold-value clause. A clause in the
prising today nearly $10 billion of reciprocal
charter also states that the same provision "shall
credit lines with fourteen central banks and the
apply to a uniform proportionate change in the
BIS, offers exchange protection for the lending
par value of the currencies of all members, unless
banks. They are to be repaid at a constant value
at the time when such a change is proposed the
in their own currencies and are thus protected
Fund decides otherwise." Evidently, the lan-
against an adjustment in the dollar exchange
guage providing for the maintenance of gold
rate. The protection is, of course, reciprocal. The
value foresees, at the same time, a potential ex-
level of drawings reached $1.8 billion at the end
ception. The SDRs are, however, to be endowed
of 1967; most commitments were to the central
with an absolute maintenance of gold value
banks of Italy, Germany and Switzerland and to
clause; it could not be rescinded in the event of
the Bank for International Settlements. Subse-
a uniform change in the price of gold.
quently, reversals in the flows of funds, together
Gold and dollar clauses are matters of great
with a U.S. drawing on the IMF and sales of
importance to countries that have incurred guar-
U.S. Treasury securities denominated in foreign
anteed debts. Britain's gold-claused debts are far
currencies, enabled the Federal Reserve to reduce
larger than its gold stock; its dollar-claused debts
these commitments and, in mid-July, to liquidate
are also sizable. Such countries cannot devalue
them entirely.
without having to provide, in repaying the debts,
Maturing commitments under swap transac-
greater amounts of goods, services and capital
tions are, as noted, often consolidated over a
assets than anticipated at the time the debts
longer period by placings of U.S. Treasury securi-
were incurred. These considerations awaken some
ties denominated in the lenders' currencies
of the unhappy memories of the 1930s when gold
-German marks, Italian lire, Swiss francs, etc.
clauses were abrogated in the United States and,
These placings are also used to absorb dollar
at least in private contracts, in foreign countries
holdings in excess of the needs of the central
as well. The crucial point is that the gold- or
banks to which the bonds are sold, or simply to
exchange-claused debts that governments and
acquire foreign currencies for intervention in the
central banks have incurred to international in-
foreign exchange markets. A total of $2 billion
stitutions and to other governments and central
of such Treasury securities was outstanding on
banks are much larger today than in the 1930s.
September 30, with Germany, Switzerland and
Maintenance-of-gold-value clauses and foreign
Italy by far the principal holders.
exchange guarantees are a redundant and useless
As a result of these various arrangements, the
appendage so long as nations preserve economic
monetary authorities of Italy and Switzerland
health, fiscal responsibility and monetary so-
hold something like one half of their total foreign
briety. But an international monetary system
exchange reserves in forms that offer protection
resting on national currencies that are unable to
of one kind or another. The German Federal
resist inflation could not be rescued even with
Bank holds about two fifths of its international
the most elaborate of gold and foreign exchange
assets other than gold in protected forms.
guarantees.
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CAPITAL FLOWS IN THE U.S. BALANCE OF PAYMENTS
SINCE 1965
A Paper Presented By
Andrew F. Brimmer
Member
Board of Governors of the
Federal Reserve System
Before a
Joint Luncheon at the
Annual Meetings of the
Southern Economic Association
and the
Southern Finance Association
Washington Hilton Hotel
Washington, D.C.
November 8, 1968
CAPITAL FLOWS IN THE U.S. BALANCE OF PAYMENTS
SINCE 1965
By
Andrew F. Brimmer*
Almost four years have passed since the United States in February,
1965, adopted programs aimed primarily at the improvement of the capital
accounts in the U.S. balance of payments. More than five years have passed
since the adoption of the Interest Equalization Tax (IET) in 1963, which
was also focused on a segment of the capital account. Given this passage
of time, one might naturally ask what effects -- if any -- have these pro-
grams had on capital flows as recorded in the balance of payments.
In this paper, I will review briefly the main developments since
1965 with respect to several key elements in our capital accounts. I will
stress particularly the changes in those accounts with which the Federal
Reserve portion of the President's program is concerned -- the flow of funds
from commercial banks and other financial institutions. I will also discuss
foreign borrowing in the United States through the sale of long-term bonds
and securities (most of which are bought by U.S. nonbank financial institutions)
and foreign investment in this country through the purchase of U.S. securities.
The general conclusions which emerge from this assessment of the
impact of the balance of payments programs on capital flows can be summarized
briefly:
- Commercial banks (which have not fully used the
leeway available to them in any year since the
voluntary foreign credit restraint program began)
* Member, Board of Governors of the Federal Reserve System. I am
grateful to Mr. Gordon B. Grimwood of the Board's staff for assistance
in the preparation of this paper.
-2-
by the end of September had reduced their foreign
claims by over $700 million below the amount out-
standing at the end of last December, or by $300
million more than had been requested for all of
1968.
- During the last 3-1/2 years, there has been a
noticeable shift of bank funds to the developing
countries, which has been matched almost entirely
by a decline of bank lending in continental Western
Europe.
- Foreign branches of U.S. 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.
- New issues of foreign securities in the U.S. still
seem to be influenced to a considerable extent by
the IET. Although such issues rose sharply last
year and are continuing at a high level in 1968,
the direction of this capital outflow shows clearly
the impact of the IET.
- Foreign purchases of U.S. securities (which have
become an increasingly important factor in the
recent improvement in the capital account) may
well exceed substantially the capital outflow
related to U.S. acquisition of foreign issues
during 1968.
- Finally, a basic improvement in our balance of
payments must rest heavily on a sizable improve-
ment in our trade surplus, which in turn will
depend upon how successful we control inflation.
In stressing the role of the balance of payments programs on
the flow of U.S. capital, I do not wish to imply that these programs were
the only factors at work. Since 1965 many influences have affected these
flows, and these other factors may well have been equally significant. I
refer particularly to the restrictive monetary policy which was adopted in
-3-
the fourth quarter of 1965 and followed during most of 1966, and which
was adopted again in the fourth quarter of last year. Other important
developments were a slowdown in economic activity in the industrial
countries of Western Europe during 1967 (which still may not have been
completely reversed) and several major international financial disturbances.
Finally, the rapid development of the Eurodollar market, which
was itself stimulated by our balance of payments measures, has provided
alternative sources of financing, both through banks, including foreign
branches of U.S. banks, and through the growth of the Eurobond market.
These developments undoubtedly have tended to reduce the demand for capital
from U.S. sources, particularly by foreign subsidiaries of U.S. corporations.
Flow of Commercial Bank Capital
Bank lending to foreigners was included in the balance of payments
programs of 1965, in part at least, because of a very rapid increase in the
foreign assets of banks during 1964. After increasing at an average annual
rate slightly above $1 billion in the previous five years (which was itself
high from an historical standpoint and which was focused mainly on Japan),
bank claims on foreigners went up by $2.5 billion in 1964. Thirty per cent
of the outflow in that year went to countries of Western Europe, excluding
the U.K.; 25 per cent went to Latin American and other countries in the
Western Hemisphere (excluding Canada); and 25 per cent went to Japan.
The principal objective of the 1965 program, then, was to reduce
the rate of increase in bank lending to foreigners to a more manageable
figure. At the same time, another main goal was to insure sufficient credit
to finance our expanding exports and to meet the needs of the developing
-4-
countries. To achieve the latter objectives, the Federal Reserve requested
the banks to give an absolute priority to bona fide export credits, and the
highest priority in the nonexport category to credits to meet the needs of
developing countries. Banks also were asked to avoid action that might
place an undue burden on the United Kingdom, Canada, or Japan. Term loans
to these nations as well as to other developed countries were inhibited in
any event by the extension of the IET to bank credits with maturities of
one year or longer.
The program announced in 1965 has been extended three times
because the deficit in our balance of payments has persisted. The form of
the bank program remained essentially unchanged until January 1, 1968. For
the first time on that date the banks were requested to achieve a net
inflow of funds during the year through a reduction in outstanding loans.
The more restrictive program (which was focused especially on those
countries whose surpluses mainly reflected our deficit) requested the
banks to make no new nonexport credits to developed countries of continental
Western Europe. Finally, due to an extremely difficult financial situation
in Canada early this year, that country was exempted completely from all
U.S. balance of payments programs on February 29, 1968.
The Federal Reserve Board constantly monitors progress under the
programs for financial institutions to assure that the objectives are
being achieved. My purpose here is not to give a progress report on the
Federal Reserve program (for which I have administrative responsibility
on delegation from the Board). Rather, my objective is to look at U.S.
-5-
capital flows over the last 3-1/2 years as influenced by the balance of
payments programs and by the other factors mentioned above.
An Over-all View
Foreign assets held by commercial banks that are covered
by the Federal Reserve program increased during 1965 by about $170
million, compared with a permissible increase of almost $500 million
under the ceiling for that year. In 1966, despite an increase in
the aggregate ceiling, covered assets fell by $160 million, leaving
the banks almost at their base date position of December 31, 1964.
During 1967, covered assets increased by $370 million, but the banks at
the end of that year still had an aggregate leeway of $1.2 billion.
The program announced last New Years Day in effect requested
that banks reduce their covered foreign assets by at least $400 million
during 1968. By last September 30, as I mentioned above, the banks had
reduced their claims by over $700 million, or by $300 million more than
had been requested for all of 1968. At the end of September, the banks
were $328 million below the December, 1964, base figure, and they had an
aggregate leeway for the remainder of the year of $629 million. (Table 1
attached.) However, I do not expect that all of that leeway will be used.
Moreover, I am confident that the banks will more than achieve the objective
of a net inflow of $400 million -- even if we experience in the fourth
quarter the seasonal outflow of funds that usually occurs during the closing
months of the year.
-6-
Geographical Distribution of Bank Capital Flows
As I stated at the outset, a striking change has occurred in
the last 3-1/2 years in the geographic pattern of bank lending abroad.
The data on which we must rely to trace the regional flows of bank capital
are not exactly comparable with the aggregate figures given above. For
this purpose, the analysis must be based on data supplied on Treasury
Foreign Exchange forms from which the balance of payments statistics are
derived. In general, the coverage of foreign assets reported on the
Treasury forms is broader than that of the foreign credit restraint program
because the former include collections and other claims held for account
of customers, and also include claims held by the U.S. agencies and branches
of foreign banks.
The Treasury data show that on December 31, 1964 (the base date),
the developing countries accounted for 38 per cent of all bank claims on
foreigners; Japan for 26 per cent; developed countries of continental
Western Europe for 18 per cent; Canada for 11 per cent, and the United
Kingdom for only 3 per cent. Broken down between short and long-term
claims, Canada and Japan accounted for higher percentages of short-term
claims, while the percentages of long-term claims on the developing countries
and the developed countries of continental Western Europe were higher than
the relative positions of those areas with respect to total bank claims.
Developing Countries
In the period December 31, 1964, to August 31, 1968 (the latest
date for which data are available), over-all banks claims on foreigners
-7-
declined by 3.3 per cent. On the other hand, bank claims on the develop-
ing countries increased by 28 per cent. The shift in the direction of
flow of bank credit was most marked with respect to long-term loans, which
are most important to economic development. Long-term claims on develop-
ing countries rose by 33 per cent, and by the end of last August they
accounted for 63 per cent of a total that itself had declined by 16 per
cent over the same period.
Developed Countries of Continental Western Europe
The shift of funds to the developing countries was made almost
entirely at the expense of the developed countries of continental Western
Europe. Bank claims on these countries declined almost dollar-for-dollar
by the amount that claims on developing countries increased. The major
part of this shift was in the long-term area, where claims on developing
countries increased by $568 million while claims on Western Europe (mainly
because they became subject to the IET in February, 1965) went down by
$1.1 billion.
United Kingdom, Canada, and Japan
Bank claims on these countries -- which were especially mentioned
in the guidelines after export credits and credits to developing countries --
fluctuated during the period under review but changed only moderately over-
all. (Canada, as has been noted, was exempted from the program on February 29,
1968.) Total claims on the United Kingdom and Canada declined 22 per cent
and 32 per cent, respectively, while over-all claims on Japan, after declin-
ing slightly in the last half of 1966, increased again by the end of 1967
to a level slightly above December 31, 1964.
-8-
Within these over-all totals both short and long-term claims on
the United Kingdom declined, the short-term relatively more. Short-term
claims on Canada were reduced by one half but were partially offset by an
increase in long-term claims. A slight increase in short-term claims on
Japan, which account for about 95 per cent of total claims on that country,
was offset by a relatively sharp drop in long-term claims outstanding.
(Tables 2, 2-a, and 2-b.)
Impact of Restraint Program on Operations of U.S. Banks with Foreign Branches
When the foreign credit restraint program was announced in 1965,
foreign branches of U.S. banks were exempted from the program provided that
"the funds utilized (by the branches) are derived from foreign sources and
do not add to the outflow of capital from the United States." This exemption
was made because the operations of the branches are not reflected in the
balance of payments statistics of the United States. It also avoided
placing the branches in a less advantageous competitive position in the
countries in which they operated.
Nevertheless, it was recognized that branch operations might have
some effects on our balance of payments. Foreign branches of U.S. 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. To the extent that these funds represent a shift
of dollar liabilities to foreigners from head offices to branches -- or to
the extent that dollars are deposited at foreign branches which otherwise
might have come to the head offices -- it is possible that there will be
-9-
an adverse effect on our balance of payments as measured on the official
settlements basis.
Whether the adverse effect occurs depends upon the use made by
the branches of these funds. If they are used for the purpose of making
advances to the head office, there is no effect on our balance of payments
whether measured on the liquidity or the official settlements basis. How-
ever, if the funds are used to make loans to foreigners that otherwise
would have been made by the head offices, the official settlements balance
may be affected. The borrowers may use the dollars acquired to purchase
local currencies, or they may use the dollars in lieu of dollars that other-
wise would have been acquired from foreign official reserves. In either
case, our liquid liabilities to foreign official institutions would be
higher than they otherwise would have been.
The business of the foreign branches expanded very rapidly after
the announcement of the foreign credit restraint program. Dollar loans to
foreign nonbank customers increased by almost 60 per cent between the end
of February, 1965 (the first date for which such data are available) and
the end of that year. To a considerable extent, this increase reflected
the "sale" of foreign assets to the branches by the head offices of some
banks that were substantially over the target ceiling when that ceiling was
announced.
Bank loans to foreigners increased by 20 per cent in 1966. This
more moderate gain partly reflected the adjustment of head offices to the
program ceiling. But it may also have been the result of tightening monetary
-10-
conditions in the United States. Eurodollar funds acquired by the
branches were advanced to the head offices to meet domestic require-
ments rather than used to increase branch loans to foreigners.
The increase in loans to foreign nonbank customers by the
branches was 40 per cent in 1967, and in the first eight months of
1968 the rise was 30 per cent. As of the end of August, U.S. dollar
loans outstanding to foreign nonbank customers at foreign branches
of U.S. banks (at $2.4 billion) were more than three times the
amount of such loans outstanding on February 28, 1965.
It is difficult to measure the extent to which the branch
lending activities may have resulted in the "substitution" or "shift"
of U.S. head office liabilities to foreigners described above. One
problem is that our data do not go back far enough and in sufficient
detail. However, we may draw some tentative conclusions from an
examination of changes in head offices deposit liabilities to
foreigners in the years preceding and in the years since the announce-
ment of the foreign credit restraint program.
If we look at U.S. bank deposit liabilities to foreign
bank and nonbank customers, adjusted to exclude accounts that are
affected by other than market forces (see Table 3), we find that
the total of such liabilities increased by an average of 7 per cent
per annum between the end of 1964 and 1967. Liabilities to foreign
-11-
banks increased by almost a 2 per cent annual average, while
liabilities to foreign nonbank customers went up by over 10 per
cent per annum.
Partial data for U.S. banks that had foreign branches
prior to December 31, 1964, (the last year-end before the
inauguration of the VFCR) indicate that deposit liabilities of
such banks to foreign nonbank customers increased by almost 40 per
cent between end-1964 and end-1967.
Data for banks that have established foreign branches
since December 31, 1964, show the same pattern. These banks (which
accounted for only 6 per cent of total deposit liabilities to
foreigners on December 31, 1964) more than doubled deposit liabi-
lities to foreign nonbank customers in the following three years.
We must conclude, on the basis of the above statistics,
that it is possible that the activity of foreign branches might have
had some adverse effect on our official settlements balance. How-
ever, the data do not provide conclusive evidence that this has
been the case.
Flows of Funds from Nonbank Financial Institutions
Total foreign assets of nonbank financial institutions
reporting to the Federal Reserve under the foreign credit restraint
-12-
program (insurance companies, finance companies, trust depart-
ments of banks, pension funds, etc.) were about $14 billion at
the end of June, 1968. On the same date, total foreign assets
of banks amounted to about $12 billion. However, of the former
amount, only $1.5 billion is subject to the guidelines; $10
billion is exempt as claims on Canada; $1 billion represents claims
on international institutions, which are exempt from the guide-
lines; and the remaining $1.5 billion consists of claims on devel-
oping countries and a small amount of other foreign assets which
are specifically exempted from the guidelines.
The nonbank financial institutions were asked on
January 1, 1968, to reduce their adjusted base date holdings of
"covered" foreign assets to 95 per cent of the amount outstanding
on December 31, 1967. As of June 30, 1968 (the nonbank financial
institutions report on a quarterly basis), covered assets of all
reporting institutions had been reduced by $175 million from the
end-1967 figure. As of last June 30, total covered assets out-
standing were 93 per cent of the adjusted base date holdings.
(Table 4.)
Assets not subject to the guidelines increased by almost
$400 million in the first six months of 1968. Two-thirds of this
amount represented increased loans and investments in Canada.
-13-
Transactions in Foreign Securities in the U.S.
During the five years ending in 1961, the capital outflow
related to net U. S. transactions in foreign securities averaged $760
million annually; in only one of the five years did the outflow substan-
tially exceed the average. In 1962, the outflow increased to $970 million,
and in 1963 the figure jumped to $1.1 billion, a factor which led to the
proposal of the IET. Moreover, larger amounts of new issues of European
countries began to appear in the market. (Table 5.)
The Interest Equalization Tax had features which tempered its
effect on new issues of foreign securities in the U. S., including the
exemption of newly issued Canadian securities as well as the securities of
the developing countries. Nevertheless, the tax did reduce sharply the
capital outflow related to these transactions -- at least until 1967. The
outflows for 1964, 1965, and 1966 were $677 million, $759 million, and $481
million, respectively. In 1967, the outflow increased to $1.3 billion and
was running at only a slightly lower annual rate in the first half of 1968.
The direction of foreign portfolio investment by Americans was
influenced by the incidence of the IET and the foreign credit restraint
program. The increase in 1967 was related entirely to issues exempted from
the IET (Canada accounted for 62 per cent of the new issues in 1967).
Further, while it is not possible to separate long-term bonds from long
term credits in our data, it appears that nonbank financial institutions
might have accounted for approximately 60 per cent of the total increase in
-14-
net purchase of securities of Canada, Japan, the developing countries, and
international institutions. Investments in all of these areas are exempted
from the guideline ceiling for nonbank financial institutions.
Preliminary data for the first half of 1968 indicate a continua-
tion of these trends with the exception of the international agencies.
Based on these data, the outflow related to net transactions with Canada
and the developing countries might be somewhat higher than in 1967. There
was a net inflow on account of the international agencies of $35 million in
the first half, primarily as a result of large redemptions in the second
quarter. However, new issues of international agencies are running a little
above the 1967 level.
Foreign Purchases of U.S. Securities
At this point, it would be well to look at the other side of this
coin, since foreign purchases of U.S. corporate securities have become an
increasingly important factor in the recent improvement in our balance of
payments.
In the five years ending December 31, 1964, net foreign purchases
of U.S. corporate securities averaged about $190 million annually. In 1965,
there were net sales of $350 million; however, this amount is more than
accounted for by the liquidation in that year of securities owned by the
government of the United Kingdom. Discounting this transaction, net pur-
chases were only slightly lower than the average of the preceding five years.
In 1966, net purchases jumped to $900 million, twice the amount in any
-15-
previous year since the end of World War II; in 1967 another gain was
registered -- raising the level to slightly over $1 billion. (Table 6.)
During the first eight months of 1968, net foreign acquisition
of U.S. corporate securities totaled $2.4 billion. At an annual rate,
this was almost three times the amount of the outflow related to net U.S.
purchases of foreign securities described above.
The movement in 1966, 1967, and 1968 to date may be ascribed to
several developments which affected both borrowers and lenders in this
market. From the standpoint of the borrowers, the balance of payments
program (which encouraged borrowing abroad to finance foreign direct
investment) was reinforced in 1966 by restrictive monetary conditions in
the United States. Several international financial and political distur-
bances in those years also had a substantial impact on both borrowers and
lenders.
These developments can be traced readily in the statistics. Net
sales of corporate securities by the British government (made to recoup
official reserve losses associated with weakness in sterling) have been
mentioned in connection with the 1965 experience. There was a further
disinvestment in 1966, followed by another large net sale of securities in
1967.
The effect of the balance of payments program also may be seen
in data distinguishing between net purchases or sales of U.S. long-term
bonds and equity securities (Table 7). In the five years prior to
December 31, 1964, stocks had averaged about 85 per cent of total net
-16-
purchases, including one year in which there were large net sales of
corporate securities. In 1965, net sales of stocks (related to the U.K.
transaction) were offset to a minor extent by net purchases of bonds.
Again, in 1966, there were net sales of stocks, but in that year there
were large net purchases of corporate bonds -- in excess of $1 billion.
Over one-half of the amount of net purchases of corporate
securities represented the issue of convertible bonds abroad by U.S.
corporations to finance foreign direct investment (see Table 8). Ex-
cluding net transactions of the United Kingdom and the international
agencies (whose holdings usually are dictated by other than market forces),
sales of convertible bonds abroad amounted to 78 per cent of total trans-
actions in U.S. securities in 1966. This proportion declined to one-third
in 1967, and it increased again to about 60 per cent in the first eight
months of 1968 following the imposition of mandatory regulations on direct
investment.
However, as total net purchases of U.S. securities increased in
1967 and in 1968, corporate stocks again accounted for about 70 per cent
of the total and are running at about 50 per cent thus far in 1968.
Obviously there are many factors which enter into a borrower's
decision whether to issue fixed-interest-bearing or equity securities, and
into a lender's decision as to which type of investment he wishes to make.
It does seem, however, that the major impetus given to foreign investment
in U.S. corporate securities by the efforts of U.S. corporations to borrow
abroad is now being moderated (and perhaps replaced) by a movement into U.S.
-17-
es, particularly stocks, because of market factors probably not
related to our balance of payments programs. This movement has
couraged by adverse international financial and political develop-
lready mentioned (including particularly the French franc crisis)
as by the recent buoyant mood of the U.S. stock market. Whatever
asons, this inflow of funds has given a welcome lift to our balance
ments since 1966.
uding Remarks
It is apparent that, for whatever reasons, commercial banks and
r financial institutions consistently have exceeded the objectives set
them by the balance of payments program. Indeed, the improvement in
total of the capital accounts -- mainly reflecting the performance of
3 financial sector -- has exceeded our expectations. At the same time,
realize that the results also partly reflect favorable developments with
espect to elements not included in our programs.
On the other hand, this improvement in the capital account has
ione little more than offset the deterioration in our current account,
notably the shrinkage in our surplus on goods and services. Further, the
improvement is based upon disturbingly transitory factors. A change in
international interest rate patterns, or a sharp drop in our stock market,
might generate a large reversal of the capital inflow that we have enjoyed
thus far this year.
For these reasons we should not permit the recent improvement
in the balance of payments to lull us into a false sense of security.
-18-
Unless we bring inflationary pressures under control, we will have a
very difficult time in restoring the traditionally strong surplus on
current account upon which a lasting improvement in the balance of
payments must depend.
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Table 1
Foreign Credits of United States Banks
(dollar amounts in millions)
1964
1965
1966
1967
1968
Dec.
Dec.
Dec.
Dec.
March
June
August
Sept.
Number of reporting banks
154
161
148
151
153
153
154
154
3'Iv2
50'e
es2
11'82H
Target ceiling
--
9,973
10,407
11,069
9,984
9,886
9,847
9,785
Total foreign credits subject to ceiling
1/
9,484
9,652
9,496
9,865
9,396
9,203
9,105
9,156
008
Change from previous date
--
+168
-156
+369
-469
-193
-98
+51
Net leeway for further expansion
--
321
911
1,204
588
683
742
629
8
808
15'033
Total foreign credits held for own account
2/
9,719
9,958
9,844
10,202
9,731
9,721
9,590
9,649
Change from previous date
--
+239
-114
+358
-471
10
-131
+59
9'328
SL*3
1/ Total foreign assets reported on Treasury Foreign Exchange Forms B-2 and B-3 minus (1) amounts held
for accounts of customers, (2) loans guaranteed or participated in by the Export Import Bank or insured
by the FCIA, and (3) beginning March 1, 1968, changes after February 29, 1968, in claims on residents of
Canada held for own account; plus foreign assets held for own account but not reported on Forms B-2 and
B-3.
2/ Total foreign assets reported on Treasury Foreign Exchange Forms B-2 and B-3 plus foreign assets
not reported on those forms, minus amounts held for account of customers.
Table 2
Outstanding Bank Claims on Foreigners
($ Million)
End of
% of
Western
% of
% of
% of
Z of
% of
Period
LDC
Total
Europe
Total
UK
Total
Canada
Total
Japan
Total
Other
Total
Total
Dec 1964
4,601
37.6
2,219
18.1
397
3.2
1,331
10.9
3,240
26.5
454
3.7
12,242
1965
June
4,708
38.3
2,222
18.1
315
2.6
1,175
9.6
3,359
27.3
524
4.2
12,303
Dec
5,074
41.4
2,095
17.1
302
2.5
1,027
8.4
3,213
26.2
540
4.4
12,251
1966
June
4,993
41.5
1,983
16.5
322
2.7
966
8.0
3,139
26.1
635
5.3
12,038
Dec
5,392
44.8
1,879
15.6
263
2.2
937
7.8
2,898
24.1
664
5.5
12,033
1967
June
5,471
45.2
1,513
12.5
314
2.6
925
7.6
3,134
25.9
743
6.1
12,100
Dec
5,933
47.3
1,332
10.6
300
2.4
1,024
8.2
3,334
26.6
608
4.8
12,531
1968
June
5,833
48.7
1,060
8.9
332
2.8
893
7.4
3,200
26.7
659
5.5
11,977
Aug
5,906
49.9
945
8.0
311
2.6
906
7.7
3,145
26.6
625
5.3
11,838
Developed countries, excluding U.K.
Table 2-A
Outstanding Short-term Bank Claims on Foreigners
($ Million)
End of
% of
Western.
1/
% of
% of
% of
% of
% of
Period
LDC
Total
Europe
Total
UK
Total
Canada
Total
Japan
Total
Other
Total
Total
Dec 1964
2,883
36.2
733
9.2
310
3.9
1,004
12.6
2,810
35.3
217
2.7
7,957
1965
June
2,870
37.0
741
9.6
223
2.9
807
10.4
2,880
37.1
237
3.1
7,758
Dec
3,080
39.8
761
9.8
216
2.8
669
8.6
2,768
35.8
240
3.1
7,734
1966
June
2,962
38.7
807
10.5
235
3.1
643
8.4
2,733
35.7
269
3.5
7,649
Dec
3,300
42.0
945
12.0
193
2.5
611
7.8
2,572
32.7
232
3.0
7,853
1967
June
3,399
41.1
783
9.5
274
3.3
592
7.2
2,939
35.6
274
3.3
8,261
Dec
3,572
41.4
810
9.4
244
2.8
611
7.1
3,154
36.6
229
2.7
$,620
1968
June
2,515
42.6
649
7.9
267
3.2
476
5.8
3,048
37.0
286
3.5
8,241
AugP
3,620
44.0
604
7.3
241
2.9
488
5.9
3,007
36.5
267
3.2
8,227
1/
Developed countries, excluding U.K.
Table 2-B
Outstanding Long-term Bank Claims on Foreigners
($ Million)
End of
% of
Western-
1/
% of
% of
% of
% of
% of
Period
LDC
Total
Europe
Total
UK
Total
Canada
Total
Japan
Total
Other
Total
Total
Dec 1964
1,718
40.1
1,486
34.7
87
2.0
327
7.6
430
10.0
237
5.5
4,285
1965
June
1,838
40.4
1,481
32.6
92
2.0
368
8.1
479
10.5
287
6.3
4,545
Dec
1.994
44.1
1,334
29.5
86
1.9
358
7.9
445
10.1
300
6.6
4,517
1966
June
2,031
46.3
1,176
26.8
87
2.0
323
7.4
406
9.3
366
8.3
4,389
Dec
2,092
50.0
934
22.3
70
1.7
326
7.9
326
7.9
432
10.3
4,180
1967
June
2,072
54.0
730
19.0
40
1.0
333
8.7
195
5.1
469
12.2
3,839
Dec
2,361
60.4
520
13.3
56
1.4
413
10.6
180
4.6
381
9.7
2,971
1968
June
2,318
62.0
411
11.0
65
1.7
417
11.2
152
4.1
373
10.0
3,736
Aug
P
2,286
63.3
341
9.4
70
1.9
418
11.6
138
3.8
358
9.9
3,611
1/
Developed countries, excluding U.K.
Table 3
Head Offices of U.S. Banks
1/
Deposit Liabilities to Foreigners
1962
1963
1964
1965
1966
1967
1968
2
/
Foreign Banks
Demand
n.a.
1,813
2,017
2,027
2,330
2,172
2,583
Time
n.a.
192
329
284
296
292
256
Total
1,870
2,005
2,346
2,311
2,626
2,464
2,839
Foreign Nonbank
Demand
n.a.
1,493
1,531
1,566
1,511
1,691
1,692
Time
n.a.
966
1,271
1,594
1,819
2,057
2,050
Total
2,096
2,459
2,802
3,160
3,330
3,748
3,742
Grand Total
Demand
n.a.
3,306
3,548
3,593
3,841
3,863
4,275
Time
n.a.
1,158
1,600
1,878
2,115
2,349
2,306
Total
3,966
4,464
5,148
5,471
5,956
6,212
6,581
1/ Excludes deposit liabilities to foreign governments and official institutions
and to foreign branches of reporting banks. Also excludes liabilities to U.S.
agencies and branches of foreign banks. Last two adjustments estimated for 1962.
2/ June 30, 1968.
F.R. 161 Rev. 5-68
Table 4
FOREIGN ASSETS OF U.S. NONBANK FINANCIAL INSTITUTIONS AND NONPROFIT ORGANIZATIONS
(DOLLARS IN MILLIONS)
Holdings
Change from
Change from
End of
March 1968
Dec. 1967
ASSETS SUBJECT TO GUIDELINE
June 1968
Dollars
Per Cent
Dollars
Per Cent
Deposits & money market instr., foreign countries except Canada
32
-17
-35.0
-41
-55.6
Short & intermed. credits, foreign countries except Canada
291
-15
-5.4
-30
-10.3
Long-term investments, "other" developed countries 2/:
Investment in financial businesses
93
-6
-5.9
-8
-8.1
Investment in nonfinancial businesses
7
-3
-28.1
-3
-30.0
Long-term bonds and credits
638
-8
-1.3
-17
-2.6
Stocks 4/
481
-24
-4.7
-76
-13.6
TOTAL holdings of assets subject to guideline
1,513
-73
-4.6
-175
-10.4
Adjusted base-date holdings
1,626
-20
-1.2
n.a.
n.a.
Target ceiling
1,545
-19
-1.2
n.a.
n.a.
ASSETS NOT SUBJECT TO GUIDELINE
Investments in Canada:
Deposits and money market instruments
123
16
14.5
4
3.7
Short- and intermediate-term credits
141
8
5.9
8
5.7
Investment in financial businesses
594
14
2.3
17
3.0
Investment in nonfinancial businesses
43
*
0.4
*
0.2
Long-term bonds and credits
7,884
180
2.3
274
3.6
Stocks
1,333
-17
1.3
-52
-3.7
Bonds of international institutions, all maturities
1,009
-6
-0.6
25
2.5
Long-term investments in the developing countries and in Japan:
Investment in financial businesses
25
10
69.8
12
99.8
Investment in nonfinancial businesses 3/
7
1
13.9
1
13.9
Long-term bonds and credits
804
19
2.4
64
8.6
Stocks
213
-8
-3.5
-*
-0.2
Stocks, "other" developed countries
340
19
5.8
34
11.2
TOTAL holdings of assets not subject to guideline
12,476
234
1.9
387
3.2
Memo: Total holdings of all foreign assets
13,989
161
1.2
212
1.5
1/ Bonds and credits with final maturities of 10 years or less at date of acquisition. Developed countries other
than Canada and Japan. Net investment in foreign branches, subsidiaries or affiliates in which the U.S. institu-
tion has an ownership interest of 10 per cent or more. 4/ Except those acquired after Sept. 30, 1965 in U.S. markets
from U.S. investors. 5/ December 31, 1967 holdings of assets subject to guideline, less carrying value of equities
included therein but since sold, plus proceeds of such sales to foreigners. 6/ Adjusted base-date holdings, times
95 per cent. 71 If acquired after Sept. 30, 1965 in U.S. markets from U.S. investors.
* Less than $500,000. n.a. Not applicable.
Table 5
Net U.S. Purchases of Foreign Securities
($ Million)
1968
P
1962
1963
1964
1965
1966
1967
I
II
New Issues
1076
1250
1063
1206
1210
1619
372
352
Redemptions
-203
-195
-192
-222
-406
-469
-100
-220
Other Transactions
96
50
-194
-225
-323
116
113
13
Total
969
1105
677
759
481
1266
406
145
Of which:
U.K.
New Issues
----
155
9
80
15
----
---
---
Canada
New Issues
458
693
700
709
922
1007
229
223
Redemptions
-83
-107
-87
-109
-269
-226
-55
-50
Other
-79
36
-17
-147
91
11
41
16
Total
296
550
596
453
562
770
238
189
Japan
New Issues
101
164
----
52
4
14
---
---
Redemptions
4
9
18
7
- 6
4
---
1
Other
23
29
6
10
5
---
3
Total
120
184
18
39
12
14
---
2
1/
Western Europe-
New Issues
195
116
26
15
---
---
Redemptions
33
23
35
35
37
72
-11
-14
Other
47
38
-103
-110
-156
25
-49
6
Total
209
131
-112
-130
-193
47
-60
8
Excluding U.K.
1968
1962
1963
1964
1965
1966
1967
I
II
2/
Developing countries
New Issues
180
104
323
270
189
352
58
61
Redemptions
- 38
28
19
27
42
81
-10
-16
Other
13
6
2
8
26
36
88
19
Total
272
70
302
251
121
307
136
64
International Institutions and unallocated
New Issues
84
4
179
80
246
85
68
Redemptions
- 17
12
18
29
28
68
-15
-132
Other
98
55
11
3
51
13
-12
29
Total
165
43
25
153
1
165
58
93
Western Hemisphere, excluding Canada; Asia and Africa excluding Japan, Australia, New Zealund,
and South Africa.
Table 6
Net Purchases or Sales (-) of U.S. Securities
by Foreigners
(Excluding Treasury Issues)
($ millions)
1968
1960
1961
1962
1963
1964
1965
1966
1967
I
II
July
Aug.
Total
282
324
134
282
-84
-357
909
1,016
700
1,075
336
261
Of which:
U.K.
-48
-17
-34
207
-3
-520
-101
-453
107
239
3
50
International
Institutions
14
12
17
22
18
21
251
128
-37
-36
-1
10
-34
-5
-17
229
15
-499
150
-325
70
203
2
60
Other
Western Europe 281
264
157
3
-149
85
426
776
500
586
246
190
Canada
-16
-25
31
14
38
48
243
312
114
163
61
7
Developing
countries
50
90
-38
34
12
11
86
237
16
122
26
3
315
329
150
51
-99
144
755
1,325
630
871
333
200
Table 7
Net Purchases by Foreigners of U.S.
Corporation Stocks and Bonds
1968
1965
1966
1967
I
II
July
Aug.
Total
-375
703
1,067
920 1/ 1,042
336
261
Of which
Stocks
-413
-333
753
492
522
198
82
Bonds
38
1,036
313
427
520
138
178
1 1/ Includes purchase of $210 million by a foreign company of stock issued
by its U.S. subsidiary. This transaction was classified by the Commerce Depart-
ment as direct investment in the U.S.
Table 8
Transactions in U.S. Securities Other
Than Treasury Issues
1/
1966
1967
I
II
Total
766
1,348
738
1,116
Of which
2/
Issued abroad
594
446
533
554
Other
172
903
205
562
Stocks
(220)
(815)
(285)
(528)
Bonds
(-48)
(88)
(-80)
(34)
1/ Excludes investment by international and regional organizations in non-
guaranteed U.S. Government agency bonds, and liquidation of U.S. securities
other than Treasury issues by United Kingdom.
2/ Issues of new securities sold abroad by U.S. corporations to finance
direct investments abroad.
TO: KEY ISSUES COMMITTEE -- ATTENTION JERRY FRIEDHEIM AND CHUCK COLSON
FROM: KEN KHACHIGIAN -- OCTOBER 22, 1968
HERE IS THE HOUSING STATEMENT. THERE IS A RUSH ORDER ON
THIS, AND IT HAS ALREADY GONE OUT TO THE RN TOUR. I WOULD APPRE-
CIATE IT IF KIC COULD GIVE IT QUICK SUBSTANTIVE REVIEW FOR ANY
POSSIBLE ERRORS. IT HAS BEEN CLEARED THROUGH ALL PARTIES ON THIS
END.
EARLIER THIS YEAR, IN A NATIONWIDE RADIO ADDRESS, I TALKED ABOUT
STEPS WHICH COULD BE TAKEN TO ATTACK THE PROBLEMS OF SLUM HOUSING.
RATHER THAN SPENDING HUNDREDS OF MILLIONS TO CLEAR MORE SLUM ACRES,
TO DISPLACE MORE FAMILIES, AND TO BUILD MORE PUBLIC HOUSING, I
OUTLINED IMAGINATIVE ENLISTMENT OF THE PRIVATE AND THE INDEPENDENT
SECTORS, ENCOURAGEMENT OF PRIVATE OWNERSHIP, AND DEVELOPMENT OF THE
PRIDE THAT CAN ONLY COME FROM INDEPENDENCE.
TODAY, I WANT TO EXPAND UPON THAT DISCUSSION AND PROPOSE A PROGRAM
WHEREBY WE CAN BEGIN THE TASK OF REBUILDING THE CENTER OF THE AMERI-
CAN CITY
THE CONTINUED DETERIORATION OF AMERICAN CITIES, THE ENTRAPMENT OF
DISADVANTAGED AMERICANS IN UGLY GHETTOS AND THE CIVIL DISORDERS OF
RECENT YEARS UNDERSCORE THE FAILURE OF THE OLD WAYS. THE JOHNSON-
HUMPHREY ADMINISTRATION HAS MADE PROMISES WHICH HAVE NOT--AND IN
MANY CASES COULD NOT--BE KEPT. MY ADMINISTRATION WILL END THE GAP
BETWEEN PROMISE AND PERFORMANCE.
DESPITE THE VOLUMINOUS AMOUNT OF HOUSING LEGISLATION ENACTED INTO
LAW OVER THE YEARS, THERE HAS BEEN RELATIVELY LITTLE PROGRESS TOWARD
A TRUE WORKING PARTNERSHIP BETWEEN THE GOVERNMENT AND PRIVATE INDUS-
TRY IN THIS AREA. OUR PRESENT NEED, THEREFORE, IS FOR A GREATER
VOLUME OF HOUSING PRODUCTION UNDER EXISTING LAWS RATHER THAN A
VOLUME OF NEW LEGISLATION.
THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, THOUGH CHARGED WITH
ENCOURAGIN
THE MAXIMUM CONTRIBUTION OF PRIVATE CONSTRUCTION AND
FINANCE TOWARD URBAN PROBLEM-SOLVING, HAS BECOME ENTANGLED IN AD-
MINISTRATIVE CHAOS. ITS POLICIES AND ATTITUDES HAVE DISCOURAGED,
RATHER THAN ENCOURAGED, THE FULL INVOLVEMENT OF PRIVATE ENTERPRISE
IN OUR URBAN HOUSING PROGRAMS.
MY ADMINISTRATION WILL APPROACH THIS PROBLEM ON TWO BROAD FRONTS.
FIRST, WE WILL BEGIN BY REVIEWING AND EVALUATING EXISTING PROGRAMS
AND THEN ALLOCATE PRIORITIES TO THOSE PROGRAMS WHICH HAVE THE GREAT-
EST POTENTIAL FOR PRODUCING THE HOUSING THAT IS SO URGENTLY NEEDED IN TB
BLIGHTED NEIGHBORHOODS OF OUR CITIES. AVAILABLE FUNDS MUST BE
CONCENTRATED ON THE PROGRAMS THAT WILL PRODUCE THIS HOUSING. THE
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT WILL HAVE A MANDATE
FROM MY ADMINISTRATION TO ACHIEVE THIS GOAL.
SECOND, MY ADMINISTRATION WILL ACT TO IMPROVE COMMUNICATION AND
UNDERSTANDING BETWEEN THE PRIVATE HOMEBUILDING INDUSTRY AND HUD.
INCENTIVE-DESTROYING RED TAPE AND THE PRESENT BUREAUCRATIC OBSESSION
FOR MAKING EVERY DECISION AT THE FEDERAL LEVEL WILL BE ELIMINATED.
THE ADMINISTRATORS WILL IN FACT ADMINISTER. THE PRIVATE SECTOR WILL
BE LOOKED TO TO DEMONSTRATE HOW THE JOB CAN BEST BE DONE. THE
IMPLEMENTATION OF THESE PROGRAMS WILL REFLECT AN AWARENESS THAT THE
GREAT MAJORITY OF LOCAL PROBLEMS ARE BEST APPROACHED THROUGH LOCAL
INITIATIVE, WITH ONLY SUCH INVOLVEMENT OF THE FEDERAL GOVERNMENT
IN THE FREE ENTERPRISE PROCESS AS PROVES ABSOLUTELY NECESSARY. I
KNOW, ALSO, IF FREE ENTERPRISE IS TO REALIZE ITS FULL POTENTIAL,
THERE MUST BE THE OPPORTUNITY FOR REASONABLE, HONEST PROFIT. TANGIBLE
OINVOLVEMENT OF PRIVATE INVESTMENT AND PRIVATE INDUSTRY IN OUR URBAN
PROBLEMS WILL RESULT IF THE OPPORTUNITY FOR SUCH PROFIT IS MADE
POSSIBLE BY AN UNDERSTANDING GOVERNMENT. MOREOVER, THE STRUCTURE
OF HUD AND ITE REGULATORY PROCEDURES MUST BE SIMPLIFIED IF OUR URBAN
PROGRAMS ARE TO BE TRULY WORKABLE. THE OVERLAPPING OF AUTHORITY
FOR PROGRAM ADMINISTRATION MUST BE CORRECTED
THE ULTIMATE MEASURE OF SUCCESS IN OUR EFFORTS TO REBUILD OUR NATION'S
DETERIORATED NEIGHBORHOODS AND TO PRODUCE THE HOUSING THAT so MANY
OF OUR CITIZENS URGENTLY NEED RESTS NOT ON LAWS ALONE. RATHER, IT
DEPENDS HEAVILY ON THE EXTENT TO WHICH WE BRING ABOUT THE FULL
INVOLVEMENT OF OUR NATION'S PRIVATE SECTOR AND ALL OF ITS PROVEN
INITIATIVE AND MASSIVE RESOURCES IN SEEKING TO ACHIEVE OUR NATIONAL
GOAL OF URBAN BETTERMENT.
AS I HAVE INDICATED, THE FAILURE OF EXISTING PROGRAMS LIES IN THE
LACK OF ALLOCATING PRIORITIES TO THOSE PROGRAMS WHICH HAVE THE
GREATEST POTENTIAL FOR REBUILDING THE CENTER CITIS. ONE OF THE
PRIORITIES OF A NIXON ADMINISTRATION WILL BE TO EMPHASIZE PRIVATE
HOMEOWNERSHIP IN THE BLIGHTED AREAS OF OUR COUNTRY. IT IS MY GOAL
TO PROVIDE THE OPPORTUNITY THROUGH A COMBINATION OF PUBLIC AND
PRIVATE EFFORT FOR MILLIONS OF DISADVANTAGED AMERICANS FOR THE FIRST
TIME TO O WN THEIR OWN HOMES.
SENATOR EDWARD BROOK HAS SUCCINCTLY STATED THE CASE FOR HOMEOWNER-
SHIP: HOMEOWNERSHIP CAN BE OF FAR GREATER BENEFIT TO THE
POOR THAN A MERE ROOF AND FOUR WALLS. HOMEOWNERSHIP CAN BE A SOURCE
OF PRIDE AND STABILITY, INFLUENCES THAT WILL EXTEND TO THE HOME-
OWNER'S JOB AND FAMILY LIFE." YET, AMONG NON-WHITES, ONLY 38 PERCENT
OF ALL HOUSING UNITS ARE OWNER-OCCUPIED WHILE 62 PERCENT ARE RENTED.
I AM PROUD TO NOTE THAT REPUBLICAN MEMBERS OF THE SENATE AND HOUSE
OF REPRESENTATIVES GAVE THE TRUE INITIATIVE TO THE HOMEOWNERSHIP
PRINCIPLE IN OUR HOUSING LEGISLATION. AND IN MY ADMINISTRATION
THAT INITIATIVE WILL BE CARRIED ON TO GIVE PRIVATE HOMEOWNERSHIP A
GREAT IMPETUS.
THE TECHNIQUE OF THE CURRENT ADMINISTRATION IS TO PROMISE MORE
FEDERAL MONEY, MORE URBAN RENEWAL AND MORE PUBLIC HOUSING. BUT THE
NUMBER OF HOUSING UNITS DESTROYED BY URBAN RENEWAL IS ESTIMATED
TO BE FOUR TIMES GREATER THAN THE NUMBER CREATED. FEDERAL CONSTRUC-
TION PROGRAMS DISPLACE ABOUT 73,000 FAMILIES AND INDIVIDUALS PER
YEAR, AND YET, IN URBAN AREAS, 14 PERCENT OF ALL HOUSING UNITS ARE
STILL CONSIDERED SUBSTANDARD. AN ESTIMATED TWO-THIRDS OF THOSE
DISPLACED BY URBAN RENEWAL PROJECTS ARE MINORITY GROUPS FOR WHOM THE
PROBLEM OF RELOCATION IS OFTEN MOST DIFFICULT.
PUBLIC HOUSING BY ITSELF IS NOT AN EFFECTIVE ANSWER TO THE MASSIVE
PROBLEMS WHICH FACE OUR CITIES AND DEPRESSED RURAL AREAS. IT SIMPLY
CANNOT BE BUILT FAST ENOUGH AND IN SUFFICIENT QUANTITIES TO MEET OUR
NATIONAL NEEDS. MOREOVER, PUBLIC HOUSING ONLY UPGRADES THE MATERIAL
SURROUNDINGS WITHOUT GIVING ITS RESIDENTS THE SAME SENSE OF
RESPONSIBILITY WHICH COMES FROM PRIVATE HOMEOWNERSHIP. ONE EXPERT
HAS 'NOTED: "DURING THE LAST THIRTY-ODD YEARS THAT THE NATION HAS BEEN
INVOLVED IN THE HOUSING BUSINESS, IT HAS ONLY BUILT A LITTLE MORE
THAN 600,000 UNITS. THAT MEANS JUST ONE PERCENT OF THE NATION'S
HOUSING SUPPLY HAS BEEN BUILT FOR ACCOMMODATION BY LOW AND MODERATE
INCOME FAMILIES."
ONE SOLUTION TO THESE PROBLEMS -- AND SOMETHING TO WHICH I WILL GIVE
PRIORITY IN MY ADMINISTRATION -- LIES IN TAKING THE HOMEOWNERSHIP
PRINCIPLE AND EXTENDING IT INTO THE CENTER OF OUR URBAN AREAS. IF
GIVEN THE PRIORITY IT REQUIRES, IT WILL CONVERT TENANTS INTO HOME-
OWNERS. IN THE MULTI-UNIT DWELLINGS WHICH DOMINATE THE HOUSING IN
OUR CITIES, HOMEOWNERSHIP CAN BE BROUGHT ABOUT THROUGH THE USE OF
AN AGE-OLD, BUT NEGLECTED, CONCEPT OF TENURE: THE CONDOMINIUM.
THE MODERN CONDOMINIUM IS AN APARTMENT HOUSE WHOSE RESIDENTS ENJOY
EXCLUSIVE OWNERSHIP OF THEIR INDIVIDUAL APARTMENTS MUCH IN THE SAME
MANNER AS DOES THE OWNER OF A SINGLE FAMILY DWELLING. THE GOALS OF
CONDOMINIUM, A FORM WHICH IS SAID TO PRE-DATE CAESAR, HAVE REMAINED
CONSTANT: TO ENABLE PEOPLE IN APARTMENT HOUSES TO ACHIEVE THE ADVAN-
TAGES NOW AVAILABLE TO HOMEOWNERS. THE CONDOMINIUM ALSO ENCOURAGES
DEMOCRATIC PARTICIPATION IN PLANNING THE AFFAIRS OF THE COMMUNITY
IT PROVIDES, AS DID OUR TOWN MEETINGS IN THE EARLY DAYS OF THE
REPUBLIC, THE FOUNDATION FOR BROADER PARTICIPATION IN THE COMMUNITY.
THE CONDOMINIUM -- WHICH IS A "HIGH-RISE HOME" -- IS NOT ENTIRELY
NEW AS A TOOL FOR LOW-INCOME HOMEOWNERSHIP. NOTABLE EXAMPLES OF
THE USE OF CONDOMINIUM EXIST IN BOSTON, CHICAGO, AND LOS ANGELES AND
OUR OTHER MAJOR CITIES. THE EXPERIENCE IN LOS ANGELES GOES FAR
TO SHOW HOW WE CAN BEGIN TO BREAK THE POVERTY CYCLE. THERE, PRIVATE
INDUSTRY, WITH ASSURED FINANCING, HAS INVOLVED THE CONSTRUCTION OF
S0-CALLED "TOWNHOUSE CONDOMINIUMS" IN A MODEL 10-UNIT PILOT PROJECT.
THE WORK AND SUCCESS OF MANY OF THESE PROJECTS SHOULD BE WIDELY
COPIED.
WE DO NOT NEED GREATER VOLUMES OF NEW LEGISLATION; WE NEED MORE
PRODUCTIVE USE OF THE LEGISLATION WE NOW HAVE. IT IS TIME
WE SOUGHT TO EXTRICATE OURSELVES FROM A LOW-INCOME HOUSING POLICY
WHICH CREATES AND MAINTAINS TENANTS, AND OVERLOOKS THE INTRINSIC
BENEFITS WHICH FLOW FROM INDIVIDUAL HOMEOWNERSHIP. AS A COMMUNITY
LEADER IN ONE NEIGHBORHOOD OF SUBSTANDARD HOUSING IN NEW YORK CITY
HAS STATED: "PEOPLE MUST HAVE INCENTIVE. THEY MUST HAVE PRIDE. AND
WITHOUT THESE TWO THINGS, THERE IS NO REHABILITATION. I THINK THAT
THE GOAL SHOULD BE TO MAKE THESE PEOPLE PROPERTY OWNERS RATHER THAN
JUST TRANSIENT TENANTS MOVING AWAY EVERY FEW WEEKS." MY ANSWER TO
THAT NEED IS A CONCERTED EMPHASIS ON THE "HIGH-RISE HOME" WHICH WILL
GO FAR TO PROVIDING THE SENSE OF PRIDE WHICH COMES FROM HOMEOWNER-
SHIP.
OVER 100 YEARS AGO, THE REPUBLICAN PARTY PIONEERED THE HOMESTEAD
LAWS. THIS LEGISLATION OPENED AMERICAN FRONTIERS, NOT ONLY
GEOGRAPHICALLY, BUT POLITICALLY AS WELL. PEOPLE MOVED WEST TO STAKE
OUT THEIR HOMESTEAD. THEY ACQUIRED PRIVATE PROPERTY--THEY IMPROVED
THE PROPERTY--THEY BUILT THEIR OWN COMMUNITIES--DEVELOPED THEIR OWN
COMMUNITY FACILITIES, SCHOOLS, HOSPITALS--AND AS PRIVATE HOMEOWNERS,
THEY JOINED THE MAINSTREAM OF THE GREAT AMERICAN PRIVATE ECONOMIC
SYSTEM. I SAY THAT NOW--1:: YEARS LATER-WE MUST DO THE SAME IN THE
CENTERS OF AMERICAN CITIES. WE MUST PROVICE "HOMESTEADS" FOR THOSE
AMERICAN FAMILIES PRESENTLY LIVING IN DEPLORABLE SUBSTANDARD CONDI-
TIONS AND ALIENATED FROM SOCIETY.
AS PRIVATE HOMEOWNERS WITH A STAKE IN THEIR COMMUNITY, A PIECE OF
THE ACTION AND A RESPONSIBLE VIEW TOWARD THE STATE OF THEIR COUNTRY,
THEY WILL REBUILD THE CITIES--IT WILL BE THEIR SPIRIT AND THEIR
CONCERN, AS IT WAS WITH THE FRONTIERSMEN 100 YEARS AGO. THEY WILL
REESTABLISH THE PRIDE AND THE DIGNITY OF OUR NATION'S CITIES.
THOMAS JEFFERSON KNEW WHAT THIS SENSE OF PRIDE MEANS: "IT IS NOT
TOO SOON TO PROVIDE BY EVERY POSSIBLE MEANS THAT AS FEW AS POSSIBLE
SHALL BE WITHOUT A LITTLE PORTION OF LAND. THE SMALL LANDHOLDERS
ARE THE MOST PRECIOUS PART OF THE STATE."
THE CENTRAL PRINCIPLE OF A NEW FEDERAL HOUSING POLICY MUST BE TO
HELP PEOPLE RATHER THAN JUST CONSTRUCT BUILDINGS. THE CONDOMINIUM
IDEA EMBODIED IN "HIGH-RISE HOMES" CAN GO FAR TOWARD HELPING US
ACHIEVE THAT END.
END
RN Y
JGT WASH
TO: ALAN GREENSPAN
FROM:CHUCK COLSON
RE: MY CONVERSATION WITH KHACHIGIAN ABOUT HOUSING STATEMENT.
KHACHIGIAN SAID THAT HE ELIMINATED ALL OF THE DETAILS ON
THE CONDOMINIUM PLAN BECAUSE HE THOUGHT THEY WERE TOO LONG AND
DETAILED, BUT SUGGESTED THAT IF I COULD WRAP IT UP IN ONE PARAGRAPH
AND ADD IT TO THE STATEMENT, I SHOULD DO SO. I THINK IT SHOULD BE
DONE IN ORDER TO GIVE THE STATEMENT A LITTLE MORE MEAT AND SOMETHING
NEW AND SUBSTANTIVE. ALSO IT IS IMPORTANT AS A WAY OF SHOWING
THAT RN HAS THOUGHT THROUGH SPECIFICALLY HOW THIS PARTICULAR
PROPOSAL MIGHT WORK. I SUGGEST THEREFORE THE FOLLOWING PARAGRAPH.
THIS PARAGRAPH SHOULD COME RIGHT AFTER THE CONDOMINIUM PARAGRAPHS
AND IMMEDIATELY BEFORE THE PARAGRAPH WITH BEGINS: "WE DO NOT NEED
GREATER VOLUMES OF NEW LEGISLATION
"TO THIS END, I WILL PROPOSE THE CREATION OF A LOW COST PRIVATE
HOMEOWNERSHIP INDEPENDENT GOVERNMENT CORPORATION TO WORK WITH
PRIVATE BUILDERS AND DEVELOPERS AND TO ENCOURAGE THE FLOW OF
PRIVATE CAPITAL. THE FUNCTION OF THIS CORPORATION WILL BE TO
PROVIDE AN INTEREST DIFFERENTIAL SO THAT PRIVATE LENDERS MAY LOAN
AT INTEREST RATES WHICH LOW INCOME FAMILIES CAN AFFORD AND TO
GUARANTEE THE FULL AMOUNT OF LONG TERM MORTGAGES FOR ELIGIBLE
PURCHASERS. UNDER THIS PLAN, THE PRINCIPAL REPAYMENT WOULD BE
SPREAD OVER 25 YEARS WITH MORTGAGE PAYMENTS SPREAD OVER A FULL
30 YEARS SO THAT IN THE LAST 5 YEARS OF THE LIFE OF THE MORTGAGE,
THE GOVERNMENT WOULD RECOVER A SUBSTANTIAL PORTION OF THE INTEREST
SUBSIDY AND GUARANTEE COSTS. SUCH A PLAN WOULD PROVIDE THE OPP-
ORTUNITY FOR HOMEOWNERSHIP TO HUNDREDS OF THOUSANDS OF FAMILIES
NOW UNABLE TO PURCHASE THEIR O WN HOMES; AND THIS COULD BE
ACCOMPLISHED AT MINIMUM COST TO THE FEDERAL TREASURY."
BEGINNING OF THE NEXT PARAGRAPH SHOULD START: THE SOLUTION
TO OUR PROBLEMS LIES NOT ALONE IN NEW LEGISLATION BUT IN THE MORE
PRODUCTIVE USE OF THE LEGISLATION WE NOW HAVE.
ON THE WHOLE, THE STATEMENT IS A FIRST RATE JOB.
END.P
PRIVATE HOME OWNERSHIP - SOLVING THE CRISIS OF THE CITIES
NO task will have higher priority in the next Administration
than rebuilding the center of the American city.
The continued deterioration of American cities, the en-
trapment of disadvantaged Americans in
ugly ghettos and the
civil disorders of recent months underscore the failure of the old
ways. The present Administration has made promises, but they have
not - and in many cases could not be kept. A Nixon Administration
^
will end the gap between promise and performance.
At the core of the problems of the American cities is the
Decent
need for
housing. But it must be more than housing in the
physical sense; we must provide an opportunity for disadvantaged
Americans to own their own homes and to once again have a stake
in the welfare of their community.
If a city is to survive, its people must own it. It must
home
be their XWN and their community. They must care. The disease
which has caused vast numbers of our citizens living in the cities
to become alienated from the society of which they are a part
cannot be solved by the simple promise of more Federal money.
- 2 -
98
Our urban housing needs can only be met by imaginative measures
which encourage the full utlization of our dynamic private enter-
prise resources. 10 Public housing is not an effective answer to the
by itself
massive problems which faces our cities and indeed rural areas
as well. It simply cannot be built fast enough and in sufficient
quantities to meet our national needs. What is more - public
housing only upgrades the material surroundings without giving its
residents the same sense of belonging - the same sense of responsi-
bility which comes from private home ownership.
Some public housing is obviously necessary. There is
simply no other economic alternative.{ We can and we will, however,
provide the opportunity through a combination of public and private
effort for millions of disadvantaged Americans for the first time
to own their own homes.
To this end, I will propose the creation of an independent,
publicly-funded, low-cost private home ownership corporation.
This agency will work with persons, whether in in ercities or rural
areas who are unable through existing programs to purchase their
own homes. It will help THEM A to select adequate housing. It will be
empowered to arrange a 100% FHA guaranteed 25-year mortgage.
91
For eligble purchases
This corporation will
service the mortgage loan
and
subsidize the difference between the mortgage interest
charged to the borrower, which may be as low as 2% and the mortgage
- 3 -
interest payment to the lender which will be the prevailing
interest rate for private loans. Mortgage payments would be
based on a 25-year amortization of principal and interest
calculated at the eligible rate. The home owner would pay a
would be
constant rate over 30 years even though the principal was fully
repaid in 25 years. By this technique, payments
during the last 5 years would go to offset FHA insurance costs,
Subsidy.
government servicing cost and the interest
dity.
Ceiling
Under this plan the mortgage A would be set at $15,000, or
in certain higher cost areas, $20,000. The individual home owner
would for the first two years that he occupied the home, pay
rent, but assuming at the end of the two years he meets all of
the specified conditions demonstrat the his responsibility for
maintaining the property, the rent would be applied as a down
HIM.
payment and the title would pass to the individual home owner.
During the live of the mortgage, the propertly would be freely
transferable - the interest rate would be subject, however, to
the economic circumstances of the purchaser. The program I will
propose will be a self-help plan. It will not require government
capital investment It will involve mortgage interest subsidies ONLY.
It will encourage private builders and private capital to come into
- 4 -
the low cost housing market. It will unleash the resources of
the private sector of the economy with government assistance
and government guarantees. It will do so at a minimum cost to
the taxpayer.
During the first year in excess of 300,000 new homes could
be constructed. Assuming maximum subsidies of interest, the total
cost to the government would be $200 million in the first year.
This is a feasible and realistic goal. And over a 5 to 10 year
RESEIVE
period could
as
FROM
many as 3 million American families rapidly deterior-
ating slums.
Key to the success of this program is a recognition of the
/
condominum concept, that is, private individual ownership of
individual units in multi-unit buildings. It is the only feasible
way in which private ownership can be realized in high-density,
high-land cost central city areas. It combines the advantages
of individual ownership of the residentiand joint ownership of the
common areas of the building. It thus encourages democratic partici-
pation in planning the affairs of the community. It provides, as did
our town meetings in the early days of the republic ****** the
foundation for broader participation in the community.
- 5 -
To this end the Nixon Administration will work in a close
THE
cooperative effort with states and local communities. Condominum
concepts hay not been widely accepted or understood in this country,
although its use is wide-spread in Europe and South America.
We would seek the cooperation of local officials to the
end that private builders would have made available to them large
urban renewal areas in which to build new condominums. One of the
most difficult problems of urban renewal has always been the RE -
location of existing residents of slum areas. We will propose,
therefore
separate legislation
to provide adequate
temporary quarters for those residents of the invercities who must
be moved to make room for rebuilding. These displaced residents
must also have first priority rights on the new residences constructed.
Finally, the program must provide a fair return for the lender
and a fair profit for the build If private enterprise is
properly encouraged - if adequate guarantees are provided by the
ARE ENCOURAGE
to
Federal government - if local officials cooperate - it is possible
to provide the benefits of private home ownership for even the lowest
income groups in America.
Over 100 years ago, the sepublican party pioneered the
omestead laws. This legislation opened American frontiers, not
only geographically, but politically, as well. People moved West
to stake out their homestead. Our frontiersmen acquired private
property - they improved the property - they built their own
- 6 -
communities - developed their own community facilities, schools,
hospitals - and as private home owners they joined the mainstream
of the great American private economic system. I say that now -
100 years later - we must do the same in the center of American
cities. We must provide "homesteads" for those American families
presently living in deplorable substandard conditions and alienated
from society.
As private home owners with a stake in their community,
a piece of the action and a responsible view toward the state of
their country, they will rebuild the cities - it will be their
spirit and their concern, as it was with the frontiersmen 100
years ago. They will reestablish the pride and the dignity of
our nation's cities.
MCANY
MCANY
MCANY
JGT WASH
C
TO: TXXX MR. KACHIGAN
FROM: MR. COLSON
PER OUR CONVERSATION OF LAST NIGHT HERE IS FULL TEXT OF CONDOM-
INIUM STATEMENT.
PRIVATE HOME 0 WNERSHIP - SOLVING THE CRISIS OF THE CITIES
NO TASK WILL HAVE HIGHER PRIORITY IN THE NEXT ADMINISTRATION
THAN REBUILDING THE CENTER OF THE AMERICAN CITY.
THE CONTINUED DETERIORATION OF AMERICAN CITIES, THE ENTRAPMENT
OF DISADVANTAGED AMERICANS IN UGLY GHETTOS AND THE CIVIL DISORDERS
OF RECENT MONTHS UNDERSCORE THE FAILURE OF THE OLD WAYS. THE PRESENT
ADMINISTRATION HAS MADE PROMISES, BUT THEY HAVE NOT - AND IN
MANY CASES COULD NOT BE KEPT. A MIXON ADMINISTRATION WILL
END THE GAP BETWEEN PROMISE AND PERFORMANCE.
AT THE CORE OF THE PROBLEMS OF THE AMERICAN CITIES IS THE
NEED FOR ADEQUATE, DECENT HOUSING. BUT IT MUST BE MORE THAN HOUSING
IN THE PHYSICAL SENSE: WE MUST PROVIDE AN OPPORTUNITY FOR DISAD-
VANTAGED AMERICANS TO OWN THEIR OWN HOMES AND TO ONCE AGAIN HAVE A
STAKE IN THE WELFARE OF THEIR COMMUNITY.
IF A CITY IS TO SURVIVE, ITS PEOPLE MUST OWN IT. IT
MUST BE THEIR HOME AND THEIR COMMUNITY. THEY MUST CARE.
THE DISEASE WHICH HAS CAUSED VAST NUMBERS OF OUR CITIZENS
LIVING IN THE CITIES TO BECOME ALIENATED FROM THE SOCIETY
OF WHICH THEY ARE A PART CONNOT BE SOLVED BY THE SIMPLE PROMISE OF
MORE FEDERAL MONEY.
OUR URBAN HOUSING NEEDS CAN ONLY BE MET BY IMAGINATIVE MEASURES
WHICH ENCOURAGE THE FULL UTILIZATION OF OUR DYNAMIC PRIVATE ENTER-
PRISE RESOURCES.
PUBLIC HOUSIING BY ITSELF IS NOT AN EFFECTIVE ANSWER TO THE
MASSIVE PROBLEMS WHICH FACE OUR CITIES AND DEPRESSED RURAL AREAS
AS WELL. IT SIMPLY CANNOT BE BUILT FAST ENOUGH AND IN S
SUFFICIENT QUANTITIES TO MEET OUR NATIONAL NEEDS. WHAT IS MORE -
PUBLIC HOUSING ONLY UPGRADES THE MATERIAL SURROUNDINGS WITHOUT
GIVING ITS RESIDENTS THE SAME SENSE OF RESPONSIBILITY WHICH COMES
FROM PRIVATE HOME OWNERSHIP.
SOME PUBLIC HOUSING IS OBVIOUSLY NECESSARY. THERE IS SIMPLY
NO OTHER ECONOMIC ALTERNATIVE.
WE CAN AND WE WILL, HOWEVER, PROVIDE THE OPPORTUNITY THROUGH
A COMBINATION OF PUBLIC AND PRIVATE EFFORT FOR MILLIONS OF
DISADVANTAGED AMERICANS FOR THE FIRST TIME TO OWN THEIR OWN HOMES.
TO THIS END, I WILL PROPOSE THE CREATION OF AN INDEPENDENT,
PUBLICLY-FUNDED LOW-COST PRIVATE HOME OWNERSHIP CORPORATION.
THIS AGENCY WILL WORK WITH PERSONS, WHETHER IN INNER CITIES
OR RURAL AREAS WHO ARE UNABLE THROUGH EXISTING PROGRAMS TO PURCHASE
THEIR OWN HOMES. IT WILL HELP THEM TO SELECT ADEQUATE HOUSING.
IT WILL BE EMPOWERED TO ARRANGE A 100% FHA (GUARANTEED) 25-YEAR
MORTGAGE.
THIS CORPORATION WILL FOR ELIGABLE PURCHASERS SERVICE THE MORT-
GAGE LOAN AND SUBSIDIZE THE DIFFERENCE BETWEEN THE MORTGAGE INTEREST
CHARGED TO THE BORROWER, WHICH MAY BE AS LOW AS 2% AND THE MORTGAGE
INTEREST PAYMENT TO THE LENDER WHICH WILL BE THE PREVAILING INTEREST
RATE FOR PRIVATE LOANS. MORTGAGE PAYMENTS WOULD BE BASED ON A
25-YEAR AMORTIZATION OF PRINCIPAL AND INTEREST CALCULATED AT TE
XXX THE ELIGIBLE RATE. THE HOME OWNER WOULD PAY A CONSTANT RATE
OVER 30 YEARS EVEN THOUGH THE PRINCIPAL WOULD BE FULLY REPAID IN
25 YEARS. BY THIS TECHNIQUE, PAYMENTS DURIING THE LAST 5
THIS CORPORATION WILL FOR ELIGABLE PURCHASERS SERVICE THE MORT-
GAGE LOAN AND SUBSIDIZE THE DIFFERENCE BETWEEN THE MORTGAGE INTEREST
CHARGED TO THE BORROWER, WHICH MAY BE AS LOW AS 2% AND THE MORTGAGE
INTEREST PAYMENT TO THE LENDER WHICH WILL BE THE PREVAILING INTEREST
RATE FOR PRIVATE LOANS. MORTGAGE PAYMENTS WOULD BE BASED ON A
25-YEAR AMORTIZATION OF PRINCIPAL AND INTEREST CALCULATED AT TE
XXX THE ELIGIBLE RATE. THE HOME OWNER WOULD PAY A CONSTANT RATE
OVER 30 YEARS EVEN THOUGH THE PRINCIPAL WOULD BE FULLY REPAID IN
25 YEARS. BY THIS TECHNIQUE, PAYMENTS DURIING THE LAST 5
YEARS WOULD GO TO OFFSET FHA INSURANCE COSTS,
GOVERNMENT SERVICING COST AND THE INTEREST SUBSIDY.
UNDER THIS PLAN THE MORTGAGE CEILING WOULD BE SET AT $15,000,
OR IN CERTAIN HIGHER COST AREAS, $20,000. THE INDIVIDUAL HOME
PWNER WOULD FOR THE FIRST TWO YEARS THAT HE OCCUPIED THE HOME, PAY
RENT, BUT ASSUMING AT THH END OF THE TWO YEARS HE MEETS ALL OF
THE SPECIFIED CONDITIONS AND DEMONSTRATES HIS RESPONSIBILITY FOR
MAINTAINING THE PROPERTY, THE RENT WOULD BE APPLIED AS A DOWN
PAYMENT AND THE TITLE WOULD PASS TO HIM. DURING THE LIFE OF THH
XXX THE MORTGAGE, THE PROPERTY WOULD BE FREELY TRANSFERABLE - THE
INTEREST RATE WOULD BE SUBJECT, HOWEVER, TO THE ECONOMIC CIRCUMSTAN-
CES OF THE PURCHASER.
THE PROGRAM I WILL PROPOSE WILL BE A SELF-HELP PLAN. IT WILL
NOT REQUIRE GOVERNMENT CAPITAL INVESTMENT; IT WILL INVOLVE MORTGAGE
INTEREST SUBSIDIES ONLY. IT WIILL ENCOURAGE PRIVATE BUILDERS AND
PRIVATE CAPITAL TO COME INTO THE LOW COST HOUSING MARKET. IT WILL
UNLEASH THE RESOURCES OF THE PRIVATE SECTOR OF THE ECOMONY WITH
GOVERNMENT ASSISTANCE AND GOVERNMENT GUARANTEES. IT WILL DO
SO AT A MINIMUM COST TO THE TAXPAYER.
DURING THE FIRST YEAR IN EXCESS OF 300,000 NEW HOMES COUOLD
BE CONSTRUCTED. ASSUMING MAXIMUM SUBSIDIES OF INTEREST, THE TOTAL
COST TO THE GOVERNMENT WOULD BE $200 MILLION IN THE FIRST YEAR. THIS
IS A FEASIBLE AND REALISTIC GOAL. AND OVER A 5 TO 10 YEAR PERIOD
COULD RESCUE AS MANY AS 3 MILLION AMERICAN FAMILIES FROM RAPIDLY
DETERIORATING SLUMS.
KEY TO THE SUCCESS OF THIS PROGRAM IS A RECOGNITION OF THE
CONDOMINUM CONCEPT, THAT IS, PRIVATE INDIVIDUAL OWNERSHIP OF
INDIVIDUAL UNITS IN MULTI-UNIT BUILDINGS. IT IS THE ONLY FEASIBLE
WAY IN WHICH PRIVATE OWNERSHIP CAN BE REALIZED IN HIGH-DENSITY
HIGH-LAND COST, CENTRAL CITY AREAS. IT COMBINES THE ADVANTAGES
OF INDIVIDUAL OWNERSHIP OF THE RESIDENCE AND JOINT 0WNERSHIP OF
THE COMMON AREAS OF THE BUILDING. IT THUS ENCOURAGES DEMOCRATIC
PARTICIPATION IN PLANNING THE AFFAIRS OF THE CONNUMITY. IT PROVIDES,
AS DID OUR TOWN MEETINGS IN THE EARLY DAYS OF THE REPUBLIC THE
FOUNDATION FOR BROADER PARTICIPATION IN THE COMMUNITY.
TO THIS END THE NIXON ADMINISTRATION WILL WORK IN A CLOSE
COOPERATIVE EFFORT WITH STATES AND LOCAL COMMUNITIES. THE
CONDOMINIO CONCEPT HAS NOT BEEN WIDELY ACCEPTED OR UNDERSTOOD
IN THIS COUNTRY, ALTHOUGH ITS USE IS WIDE-SPREAD IN EUROPE AND
SOUTH AMERICA.
WE WOULD SEEK THE COOPERATION OF LOCAL OFFICIALS TO THE
END THAT PRIVATE BUILDERS WOULD HAVE MADE AVAILABLE TO THEM LARGE
URBAN RENEWAL AREAS IN WHICH TO BUILD NEW CONDOMINIUMS. ON OF THE
MOST DIFFICULT PROBLEMS OF URBAN RENEWAL HAS ALWAYS BEEN THE
RE-LOCATION OF EXISTING RESIDENTS OF SLUM AREAS. WE WILL
PROPOSE, THEREFORE, SEPARATE LEGISLATION TO PROVIDE ADEQUATE
TEMPORARY QUARTERS FOR THOSE RESIDENTS OF THE INNER CITIES WHO
MUST BE MOVED TO MAKE ROOM FOR REBUILDING. THESE DISPLACED
RESIDENTS MUST ALSO HAVE FIRST PRIORITY RIGHTS ON THE NEW RESIDENCES
CONSTRUCTED. FINALLY, THE PROGRAM MUST PROVIDE A FAIR RETURN
FOR THE LENDER AND A FAIR PROFIT FOR THE BUILDER.
IF PRIVATE ENTERPRISE IS PROPERLY ENCOURAGE - IF ADEQUATE
GUARANTEES ARE PROVIDED BY THE FEDERAL GOVERNMENT - IF LOCAL OFFICIALS
ARE ENCOURAGED TO COOPERATE - IT IS POSSIBLE TO PROVIDE THE BENEFITS
OF PRIVATE HOME 0 WNERSHIP FOR EVEN THE LOWEST INCOME GROUPS IN
AMERICA.
OVER 100 YEARS AGO, THE REPUBLICAN PARTY PIONEERED THE
HOMESTEAD LAWS. THIS LEGISLATION OPENED AMERICAN FRONTIERS, NOT
ONLY GEOGRAPHICALLY, BUT POLITICALLY, AS WELL. PEOPLE MOVED WEST
TO STAKE OUT THEIR HOMESTEAD. OUR FRONTIERSMEN ACQUIRED PRIVATE
PROPERTY - THEY IMPROVED THE PROPERTY - THEY BUILT THEIR OWN
COMMUNITIES - DEVELOPED THEIR OWN COMMUNITY FACILITIES, SCHOOLS,
HOSPITALS, AND AS PRIVATE HOME OWNERS THEY JOINED THE MAINSTREAM
OF THE GREAT AMERICAN PRIVATE ECONOMIC SYSTEM. I SAY THAT NOW -
100 YEARS LATER - WE MUST DO THE SAME IN THE CENTER OF AMERICAN
CITIES. WE MUST PROVIDE "HOMESTEADS" FOR THOSE AMERICAN FAMILIES
PRESENTLY LIVING IN DEPLORABLE SUBSTANDARD CONDITIONS AND ALIENATED
FROM SOCIETY.
AS PRIVATE HOMWI--NERSTAKE IN THEIR COMMUNITY, A PIECE OF THE ACTIS
A RESPONSIBLE VIEW TOWARD THE STATE OF THEIR COUNTRY, THEY WILL
REBUILD THE CITIES - IT WILL BE THEIR SPIRIT AND THEIR CONCERN, AS
IT WAS WITH THE FRONTIERSMEN 100 YEARS AGO. THEY WILL REESTABLISH
THE PRIDE AND THE DIGNITY OF OUR NATION'S CITIES.
HAS ALWAYS BEEN THE
RE-LOCATION OF EXISTING RESIDENTS OF SLUM AREAS. WE WILL
PROPOSE, THEREFORE, SEPARATE LEGISLATION TO PROVIDE ADEQUATE
TEMPORARY QUARTERS FOR THOSE RESIDENTS OF THE INNER CITIES WHO
MUST BE MOVED TO MAKE ROOM FOR REBUILDING. THESE DISPLACED
RESIDENTS MUST ALSO HAVE FIRST PRIORITY RIGHTS ON THE NEW RESIDENCES
CONSTRUCTED. FINALLY, THE PROGRAM MUST PROVIDE A FAIR RETURN
FOR THE LENDER AND A FAIR PROFIT FOR THE BUILDER.
IF PRIVATE ENTERPRISE IS PROPERLY ENCOURAGE - IF ADEQUATE
GUARANTEES ARE PROVIDED BY THE FEDERAL GOVERNMENT - IF LOCAL OFFICIALS
ARE ENCOURAGED TO COOPERATE - IT IS POSSIBLE TO PROVIDE THE BENEFITS
OF PRIVATE HOME 0 WNERSHIP FOR EVEN THE LOWEST INCOME GROUPS IN
AMERICA.
OVER 100 YEARS AGO, THE REPUBLICAN PARTY PIONEERED THE
HOMESTEAD LAWS. THIS LEGISLATION OPENED AMERICAN FRONTIERS, NOT
ONLY GEOGRAPHICALLY, BUT POLITICALLY, AS WELL. PEOPLE MOVED WEST
TO STAKE OUT THEIR HOMESTEAD. OUR FRONTIERSMEN ACQUIRED PRIVATE
PROPERTY - THEY IMPROVED THE PROPERTY - THEY BUILT THEIR OWN
COMMUNITIES - DEVELOPED THEIR OWN COMMUNITY FACILITIES, SCHOOLS,
HOSPITALS, AND AS PRIVATE HOME OWNERS THEY JOINED THE MAINSTREAM
OF THE GREAT AMERICAN PRIVATE ECONOMIC SYSTEM. I SAY THAT NOW
-
100 YEARS LATER - WE MUST DO THE SAME IN THE CENTER OF AMERICAN
CITIES. WE MUST PROVIDE "HOMESTEADS" FOR THOSE AMERICAN FAMILIES
PRESENTLY LIVING IN DEPLORABLE SUBSTANDARD CONDITIONS AND ALIENATED
FROM SOCIETY.
AS PRIVATE HOMWI NERSTAKE IN THEIR COMMUNITY, A PIECE OF THE ACTIL
A RESPONSIBLE VIEW TOWARD THE STATE OF THEIR COUNTRY, THEY WILL
REBUILD THE CITIES - IT WILL BE THEIR SPIRIT AND THEIR CONCERN, AS
IT WAS WITH THE FRONTIERSMEN 100 YEARS AGO. THEY WILL REESTABLISH
THE PRIDE AND THE DIGNITY OF OUR NATION'S CITIES.
END.
PLEASE WAIT A MINUTE. I HAVE A LITTLE MORE TO COME. OK
1N LAST PARAGRAPH IT BEGINS AS FOLLOWS:
AS PRIVATE HOME OWNERS WITH A STAKE IN THEIR COMMUNITY, A
PIECE OF THE ACTION AND A RESPONSIBLE VIEW TOWARD THE STATE OF
THEIR COUNTRY, THEY WILL REBUILD THE CITIES - IT WILL BE THEIR
SPIRIT AND THEIR CONCERN, AS IT WAS WITH THE FRONTIERSMEN 100
YEARS AGO. THEY WILL REESTABLISH THE PRIDE AND THE DIGNITY
OF OUR NATION'S CITIES.
END. HOPE YOU UNDERSTAND???
OK TU BYP
at two NOOT of two Problems of Quesnian
cities is the used for docent housing &
MEETING THE CHALLENGE OF URBAN HOUSING
home ouncislip
No Taok will have higher finality in due NexT administration
There is no greater need in this country than the need for adequate
than providing
housing for the millions of disadvantaged Americans trapped in our decaying
cities.
Families living in squalor and despair in a bleak urban environment Gludo
are Sampe d of hopeaud) they we too often
are inherently susceptible to a loss of incentive, drawn to crime by the
feed seem us to cruwe or varcotics the only leau hope of excepe
lure of escape, and victimized by the deadly evasions of narcotics.
Families with no personal interest in their own immediate surroundings
have no stake in the community and little incentive to contribute to its
un provided as conditions worsen, the 66 &o family
development. Instead, they may allow its condition to worsen by their own
becauses were and were alievate d from the society.
neglect and find its only value as kindling for self -defeating flames which
mirror the fires in their own souls.
We must create physical surroundings for disadvantaged Americans which
make coming home a fulfillment rather than an imprisonment. We must give
these Americans a real stake, an ownership interest, in decent homes in living
cities. And must do this before it is too late.
bryqu drawn GOVT alone
Solving this crisis is a task beyond the realm of government. Public
J only up grades the
housing is not the answer. It simply cannot be built fast enough. It cannot
Public housing in not Call affective
answer to Such a
massime Problem While there is a role
- 2 -
provide home ownership because it is a public home and inevitably saps the
pride and individuality of its occupants.
On the other hand, it would be idle to promise a two-car suburban home
to each family in the inner city. This too is simply not possible. More
important, it is not desirable. Our goal must not be to accelerate the death
of our central cities, but instead to invigorate them by protecting their
most important resource, their people.
Our urban housing crisis can only be solved by imaginative measures
which leap over the barriers of conditioned bureaucratic response and
encourage the employment of flexible and dynamic private enterprise resources
in the struggle to make our cities livable.
I suggest two key measures which would make massive improvements in the
bleak picture we face today.
First, I call for the creation of an independent, publicly funded "Capital
Pravate
for Ownership Corporation. "of This corporation would work with inner city resi-
dents to enable them to select adequate housing, and arrange a 100 percent
long-term mortgage guaranteed on an FHA basis. It would pay a portion of the
in uncept would his puralle / to
the ! laws a centernego
- 3 -
mortgage interest charge, depending on the income of the mortgagee,
the
allowing private capital to receive a normal return on such mortgage loans.
It would advise the home owner on arranging his own budget to meet his payments.
Because the "Capital for Ownership Corporation" would enable inner city
residents to gain access to the vast supplies of private funds available in
this country, its very existence would create an enormous incentive for private
builders to produce homes to satisfy the urgent needs of these Americans.
Because the "Capital for Ownership Corporation" would not require Government
capital investment, each dollar appropriated to it would result in multiple dollars
of actual housing. I estimate that an initial investment of $400 million for
the first year could provide $10 billion in housing capital for disadvantaged
Americans, and provide 652,000 new homes
Because the "Capital for Ownership Corporation" would be permitted to
collect additional amortization payments for five years beyond the mortgage
period, it would allow the growing class of inner-city home-owners to repay,
in part, the Government's help to them and to provide funds for continued
progress.
- 4 -
Second, I call upon provate enterprise, and I would encourage the directors
of the "Capital for Ownership Corporation," to recognize the need for combining
individual ownership with multi-unit dwellings in our cities.
The condominium concept, for example, which permits each resident to own
his home in a multi-unit swelling, is successfully operating in many communities
in this country. It adds joint ownership of the commonly used parts of the unit
to individual ownership of residence areas and thus encourages democratic partici-
pation in planning the affairs of the amall community, providing, as did our
town meetings, the foundation for broader participation in the larger community.
Private enterprise has in the past provided, and will continue in the future
to provide, effective solutions for the needs of our people. The proper role
of government lies not in usurping the private function, but in putting all our
citizens in a position where they can make private enterprise work for them.
New Leadership to Rebuild the Ghettos
No task will be higher priority in the new administration
than rebuilding the center of the american cities.
We have witnissed the failures of the old ways.
Promises have been made but have not, and in many cases
could not have been kept.
My administration will offer a new opportunity and
will end the gap between performance and promises.
A city is many things; offices, factories, schools,
homes but more important than the brick and
are the
people. At the route of the problems of American cities is
the dispair of its people. Vast segments or our people
have invigorating allination - a feeling that they don't
belong and that somehow the city around them is merely a holled
Shell
world in which they exist.
If a city is to survice, its people must own it and
belong to it. It must be their home and their community.
They must care.
One hundred years ago America faced a parallel problem.
To those who were for the new frontier of the West our nation
had to offer incentives and an opportunity to belong and
to own. The Congress passed revolutionary legislation for
homestead laws. These laws would be to establish the concept
of private ownership and broad based capitalization than
perhaps any other act in our nations history.
Under new leadership, I see we need a new homestead
act. We need to
the private citizens of our inner city
regardless of their economic status; the need to own their
own home and to have a stake in their community.
Public housing is no substitution. Public housing to
be built in sufficient quantity to meet the needs of our
this proposal, the corporation would act as a clearing
house collecting mortgage payments at low interest rates
from low income home owners - perhaps 2% for family incomes
in excess of $5,000. It would not turn to the provate
lending institution which had advanced the money for the
mortgage a rate slightly in excess of the prime rate. The
actual rate paid and the amount of interest subsidy would
vary from time to time. It would be geered to the prime
rate. By having a variable periods
would be inaffected.
Mortgage maximum would be set at $15,000 or in certain
higher cost areas at $20,000. A 100% FHA guaranty would
be provided. Free transferability of the mortgage and
of the property would be permitted but the interest rate
would be subject to change, depending on the economic status
of the purchaser.
Mortgage payments would be based on a 25 year amitization
of prices and interest calculated at the eligible rate. The
home owner or mortgagee would pay a consistant rate. However,
under a 30 year plan eventhough the mortgage prices would
be fully returned in 20 years. By this back-loading
technique, payments under the last 5 years would offset
government servicing costs and in part repay the interest
subsidy. Finally, under this plan a qualified individual
for
would have the first 2 years of occupancy
"rent"
at the end of 2 years provided the individual had not
on the standards prescribed that is still qualified and
in good standing and had kept the property in good condition.
The first 2 years "rent" payments would be treated as a
down payment. Title would pass to the home owner who
would assume all of the obligation of the mortgage. During
the first 2 years the private builder would remain
responsible for the property although the risk would
be limited by full FHA insurance. In the event the
prospective owner would have moved in the first 2 years,
the property would be sold by the builder to another
purchaser.
The sum of this program is recognized as the
condominium concept. It is the only feasible way in
which private ownership can be realized in high density,
high land costs, central city areas. The urgancy in
introducing the condominium concept is under scored by
the projection of the population by the year 2,000 which
will have doubled.
Under this plan, private owners could build in
new areas, urban areas or existing suburban areas. While
this plan is essentially immediate to our plan, it has
broader application and can be used in rural areas
farm communities. In fact, any where there is a need for
low cost housing.
This homestead plan offers a means for involving
many private builders and the people themselves not
private home owners for low income families - for those
who want to improve their lot in life. For those who
want a stake in the action.
Under a program which authorizes, for example,
5 billion dollars a year for construction, over 300,000
more homes could be built. The annual cost to the govern-
ment would be $200,000,000 in the first year, up to a billion
dollars a year for a 5 year program. During the last 5 years
of each mortgage approximately 1/4 of the governments outlay
of funds would be repaid. At modest cost, therefore, we can
provide the revolution of private ownership and private
investment to those who want more stake in their community.
To those citizens who live in despair and in deplorable
ghetto conditions who are allienated from society. We
are offering home ownership. We will give them a
stake in the community so that SO that *NE in the
long run the people themselves will save.
REBUILDING THE GHETTOS
THROUGH PRIVATE HOME OWNERSHIP
This Memorandum details a proposal for creating approximately 650, 000 new
homes per year for low income families at minimum cost to the Federal Government.
The Memorandum deals also with the need for such a plan, the political implications
for the Nixon campaign, and the financial and economic impact.
A. The Need - Civil disorders, the decay of the center city and the black
separatist movement are all interrelated aspects of the country's number one
domestic problem. Clearly, the racial crisis is the most severe domestic challenge
the U.S. has faced since the great depression of the '30s.
While there are obviously deep seated sociological, political and economic
causes of the unrest among negro groups which have lead to civil disorder and riots,
one central and immediate fact seems clear. There is an increasing feeling of
alienation on the part of large groups of people who do not feel that they have a stake -
who are not "part of the action. "
Black capitalism as advocated by Mr Nixon is a sound and significant concept.
Intelligent negros and intelligent civil rights sympathizers recognize that the thesis
advanced by Mr Nixon is in the long run the only meaningful solution. It is, however,
conceptual and gradual. It does not offer immediate hope for easing the present crisis.
Concrete steps are necessary to prevent further alienation and to provide some
stake in society for vast numbers of negros who will not enjoy the fruits of the black
capitalism concept for many years.
Private home ownership is the key; it is perhaps the single most effective and
immediate way to build responsible citizens. A home owner, making mortgage payments,
- 2 -
is concerned with the welfare of his property and his investment. He becomes in a very
significant way a capitalist and a responsible member of his community.
Public housing is not a solution. Public housing only upgrades the material
surroundings without giving the slum dweller any sense of belonging or any sense
of responsibility. Providing home ownership for slum dwellers who presently have no
stake and no interest in their community is the fastest and most effective means to combat
further alienation from society.
B. Political Implications - The Press (unfairly) has characterized Mr. Nixon's
basic approach to the civil disorder problem as an appeal to the preservation of law
and order; he is portrayed as being unconcerned about the needs of the poor. Mr Nixon
is further criticized on the grounds that he is talking only in generalities, that he is
really appealing to the white backlash sentiment more than he is to the legitimate needs
of the negro and that black capitalism, in the absence of specific proposals, is merely
a vague promise off in the future.
How does Mr. Nixon counter these political attacks which will surely be
intensified once the nomination is secured? To mimic the proposals of other candidates
would be hollow. Nixon's image is well established as a candidate concerned with fiscal
responsibility, one who will not make promises that cannot be fulfilled, and one who
does not believe that Federal spending per se is a panacea for social problems. What
is needed is a program that does offer immediate concrete tangible aid to the negro
masses in the city but is tailored to be consistent with Mr Nixon's overall image and
beliefs. The following proposal does just that.
This proposal is intended to appeal basically to two groups. Negro opposition
to Mr Nixon (or more correctly, the negro's loyalty to the Democrats) is emotional,
- 3
unreasoned, and will probably not be affected in any substantial degree by any proposal
or promise that he makes. On the other hand, while not necessarily switching negro
votes, specific proposals in the housing area would have great appeal first to the white,
liberal, eastern, Republican and independent voters with whom Mr Nixon has not identified
well, at least according to the polls. To these voters Mr Nixon must prove that he cares,
that he is concerned, and that he is prepared to take progressive steps consistent with
his basic philosophy. The second group to which this would appeal is what might be
regarded as the "new backlash" group. The backlash theory has always held that the
white establishment would react against the negros as civil disorders, riots, and racial
tension increased and to date this has been somewhat true. There is developing, however,
a "new backlash" - that is, a concern of whites in the city and suburban areas that
unless something is done to satisfy the demands of the negro, their own communities
and their own power structure is in danger. The "new backlash" theory holds that the
government must act to satisfy the threats of the negros in order to quiet tensions and
thereby protect the security of white neighborhoods. For one opinion at least, the new
backlash may be a more significant factor than the old.
C. Proposal -
1. A government corporation is created which is authorized to accept
for deposit mortgages eligible under the act from private lenders to the limit of $10 billion
per year.
2. Any lending institution which deposits a mortgage under the act will
be paid during any given year that the mortgage remains in effect interest at the prime
rate prevailing during that year plus 1%. The lending institution would be paid directly
4
by the government corporation. (The variable amount is established S0 that this
program would be unaffected by periods of loose or tight money.) It would also insure
that the government paid interest at the minimum rate available.
3. Under this plan, the mortgagor that is the individual home owner -
would pay 2% interest if he qualified with, for example, a maxi mum family income
not in excess of $5000. It would be possible to create a sliding scale SO that a higher
interest could be paid if the income increased during the life of the mortgage or higher
interest would be set initially if the owner earned more than the statutory minimum.
Mortgage maximums might be set at $15, 000, or $20,000 in certain high cost areas.
A 100% FHA guaranty would be provided, providing no initial down payment. Free
transferability of the mortgage and of the property would be permitted but the interest
rate would be subject to change depending upon the economic circumstances of the
purchaser.
4. During the first two years a qualified individual would "rent". At
the end of two years, provided the owner met all the standards prescribed under the
act (still qualified economically and had maintained the property in good condition) all
of the principal that had been amortized in the first two years' payments would be
treated as a down payment. Title would pass to the home owner who would assume at
that point all of the obligations of the mortgage. Prior to the expiration of the two years,
the promoter or private builder would be responsible for the mortgage (receiving the
corporation's interest rate) and in the event the "tenant" were to move during the first
two years, the property would be resold to another eligible purchaser.
5. Mortgage payments would be based on a 25 year amortization of
principal, insurance and interest at the rate of 2%. The home owner or mortgagor
would pay a constant amount, however, for 30 years even though the mortgage was
- 5
paid during 25 years. Payments during the last five years would be made to the govern-
ment corporation as payment for servicing FHA costs and in part a repayment of the
interest subsidy which had been advanced.
6. This proposal would require a recognition of the condominium concept.
While the condominium has been little used in this country, its use is widespread in
Europe and South America. It is the only feasible way in which private ownership can
be realized in high density, high land cost, central city areas. Under this plan, private
developers could build in new areas, urban renewal areas or in existing slum areas.
Obviously the builder would be entitled to a profit for the risks he takes and his
determination to build should be based upon the economic feasibility. Knowing, however,
that he could offer 2% mortgage money and thereby provide housing more economically
than existing low income housing projects or even public housing projects, the builder
would know that an excellent market existed. The administration of this program would
have to recognize a fair return on the investment which would be an inducement to the
success of the program.
D. Economic Impact - Under a program which authorized $10 billion a year,
650, 000 new homes could be constructed. Over 5 years this program could result in
over 3, 250, 000 new homes and more importantly, 3, 250, 000 new private home owners.
The annual cost to the government would be $400 million in the first year, $800 million
in the second and SO forth up to $2 billion a year for a five year program. No capital
would be required on the part of the Federal government since the program requires the
use of private builders and private lenders. The total cost of the program for 25 years
would be $50 billion, which is less than present projections for a lesser number of
public housing units. In addition to this, during the last five years the government
6 -
would enjoy a return of approximately $12 billion.
In summary, therefore, for a total net cost over 30 years to the Federal
government of less than $40 billion, 3, 250, 000 new homes could be created in the next
five years. This number would be sufficient to replace all existing slum ghetto areas
with new privately owned homes.
E. Conclusion -
This proposal would substitute private home ownership
for massive public housing. Its political, social and economic advantages over public
housing are vast.
The proposal could be comparable to the Republican passed Homestead Laws
of 100 years ago which did more to establish the concept of private property, private
enterprise and capitalism than any other law in the nation's history. It would convert
the vast majority of persons presently living in deplorable substandard conditions and
alienated from society into private home owners with a stake in their community and
a responsible view towards the state of the country.
Finally, it would encourage through private enterprise and with the flow of
private capital the rebuilding of our center cities quickly and at minimum cost.