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CHART 1
TOTAL GOVERNMENT EXPENDITURES

(As a Percent of GNP)

Percent
36

Percent

36

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26

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22

20

20

18

18
1977

1955

1948

1950

1960

1965

1970

1975

Source. Department of Commerce

CHART 2
FEDERAL BUDGET OUTLAYS

(As a Percent of GNP)

Percent
25

Percent

25

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Note: Federal grants-in-aid to State and local governments are reflected in Federal and State and local expenditures. Total Government expenditures have been adjusted to eliminate this duplication. The ratio of Federal expenditures to gross national product excludes grants-in-aid.

Jan, 28, 1976.

TABLE 2-NET FUNDS RAISED IN THE SECURITIES MARKETS BY MAJOR SECTOR

(Dollars in billions!

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6.8

1960.. 1961. 1962. 1963. 1964.. 1965.. 1966. 1967 1968. 1969. 1970. 1971. 1972. 1973. 1974. 1975. 1976..

$0.8
2.0
8.8
6.4
2.7

3.1
-1.0
-.6
18.2
-1.9

$2.4

1.8 10.9 7.4 4.2 5.3 5.8 2.1 23.8

$5.7 4.9 6.0 5.5 5.2 6.9 7.3 6.0 7.2 12.0

$4.9 6.3 5.7 6.2 6.4 7.9 10.9 13.0 16.4 15.9 16.8 27.5 21.7 15.4 17.4 33.5 25.1

$13.0 13.0 22.6 19.2 15.8 20.1 24.0 21.1 47.4 31.8 41.5 65.8 65.6 60.9 57.7 117.9 140.9

18.6 14.0 48.4 38.7 26.5 26.3 24.1

62.4 51.8 74.7 67.5 59.6 60.6 54.5 38.5 65.5 50.0 59.4 58.2 66.9 74.7 69.9 71.6 82.2

6.8 20.5 19.6 18.5

2.1 51.9 • 87.5

2.7 5.6 5.8 8.2 2.8 8.7 14.4 21.3 15.8 14.3

3.9 15.0 23.3 28.3 32.9 23.4 67.7 101.8

9.7 15.0 15.6 12.6 17.0 16.8 14.0

9.8 50.3 12.2 36.2 35.3 43.1 53.9 40.5 57.4 72.2

1 Net increase in marketable and nonmarketable bills, notes and bonds. (Includes Federal financing bank.) : Increase in bills, notes, and bonds of budget and sponsored agencies. Includes GNMA pass-throughs. Increase in notes, bonds, and Government loans. Increase in bonds and notes with original maturities of more than 1 yr. * Includes State and local as part of Government sector. • Estimate. Note.- Office of the Secretary of the Treasury, Office of Debt Analysis, Jan. 8, 1976. Source: Fiscal years 1960-75 data based on Federal Reserve flow-of funds accounts (which show net changes in outstandings).

TABLE 3.—UNIFIED FEDERAL BUDGET SURPLUS OR DEFICIT IN RELATION TO GROSS NATIONAL PRODUCT 1954–1977

Budget surplus (+) or deficit (-) as Budget surplus percent of gross national product (+) or deficit (-) (in billions of

3-yr moving dollars)

Annual average (centered)

Fiscal year

-0.3
-.8
1.0

.7
-.7
-2.7

0.3 .3

-1.1

-1.1

-.6

1954. 1955. 1956.. 1957. 1958. 1959. 1960. 1961. 1962 1963. 1964. 1965. 1966. 1967 1968. 1969 1970. 1971. 1972.. 1973. 1974 1975. 1976e 1977e.

-1.2 -3.0 +4.1 +3.2 -2.9 - 12.9

7.3 -3.4 -7.1 -4.8 -5.9 -1.6 -3.8 -8.7 -25. 2 +3.2 -2.8 -23.0 - 23.2 - 14.3 -3.5 -43.6 - 76.0 -43.0

-.7 -1.3

-1.0

-1.0 -.2 -.5 - 1.1 -3.0

.4 -.3 -2.3 -2.1 -1.2

-.3 -3.0 -4.8 -2.3

-.6 -.6 -1.5 -1.2 -1.0

-.7 -1.6 -1.9 -1.2 -1.5 -2.7

-3.4

APPENDIX A

CROWDING OUT_SETTING THE RECORD STRAIGHT There clearly exists some misunderstanding about the meaning and significance of the so-called phenomenon of "crowding out." In essence, there is the idea that since financial collapse has not yet occurred, then the whole issue is misleading. This is wrong. What has occurred is a focussing of attention on short-run improvements in financial markets (associated primarily with the worst recession since the 1930's) and an ignoring of what happens longer-term as the economy moves back toward fuller capacity under conditions of re. peated huge sized government budget deficits.

No matter how viewed, the inescapable fact is that with reasonably full use of capacity, more resources claimed by the government must mean less foi the private sector. Huge deficits which take the lion share of credit flows will eventually push out the weaker private areas-specifically potential home own ers, small businesses and even larger companies who do not have a superioi credit rating. This is turn will hurt real growth, deprive our workers of ade quate productive tools, frustrate the achievement of our longer-term economic needs, and further misallocate our scarce resources. (This was pointed ou repeatedly in prior testimony, e.g., January 25, 1975, before the House Way and Means Committee.)

1. INTEREST RATES Interest rates have declined over the past year or so as would be expected during a recession. High-grade bond rates have fallen from a peak of abou 10.5% in mid-1974 to around 8.5% today. Yet this drop cannot be taken as suffi cient evidence that credit is ample and more importantly that credit will re main ample to support a lasting business recovery. This loss of long-term fund: is still very high historically. (Such interest rates ranged between 2%-69 from 1865–1965—a period containing serious wars, depressions, financial panics business booms and other assorted economic extremes.) The combination sustained high Federal government financing, of a growing demand for privat financing as the expansion proceeds and of a Federal Reserve policy whiel must eventually moderate in generosity (to avoid rekindling inflation) point to a level of interest rates and availability of funds for private areas whicl are not consistent with our long-run needs. Total government borrowings thi fiscal year will absorb a record 82% of funds available in the securities mai ket; this percent eventually must be sharply reduced or else some privat areas will have to go without.

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