closing the names or not disclosing the names-the SEC, the Foreign Relations Committee.

I did not see why we had to jump into that act, and I did not see, to repeat, how I or the Loan Guarantee Board could do its job any better knowing the names.

I have got a job to do, but knowing that a bribe went to Mr. "X" or Mr. "Y" would not help me do my job in the slightest. If you are interested in the names, others are already concerned with that.

Senator PROXMIRE. You say that you want to do what you can to prevent this kind of action in the future?

Mr. BURNS. I have a responsibility, unfortunately, on the Loan Guarantee Board, as far as Lockheed is concerned. I have no responsibility beyond that as a government official.

Senator PROXMIRE. Is it not true that the single action that would have the clearest effect in preventing that kind of policy in the future would be to disclose the names of the people who received the bribes?

Mr. BURNS. That is a matter of judgment. But if that is true, others are attending to it. Why would we on the Loan Guarantee Board have to get into the act and compete with others in an area which is already being attended to sufficiently?

Senator PROXMIRE. Well, a cloud has been cast over every nation involved. The government in every nation has a clond. The Japanese Government may fall. The Queen of Holland may be removed from her throne. It can have a profound effect.

Under these circumstances, don't you feel that the Lockheed Loan Guarantee Board which is in a position to exercise real leverage on the firm should exercise it and require that these names be disclosed, to clear the innocent?

Mr. BURNS. I think the list is in process of being compiled by various congressional committees. Why do we have to get into it? Senator PROXMIRE. This morning's newspaper disclosed that J. P. Morgan is raising the largest amount raised in history I believe for the purpose of providing equity capital to its bank, the Morgan Guaranty Trust Bank, some $117 million. In addition they are raising a substantial amount of subordinate debt.

This is very welcome news. I notice that capital has already-also been raised by at least two other major banks in recent weeks. It is possible that this kind of action, improving the capital position of banks, will be extended? Do you see this as something that is likely to be continued in coming months?

Mr. BURNS. I am glad you asked me that question. I think this is badly needed. I think it will prove salutary. I am just as encouraged as you are by today's news.

But some of the actions on the part of particular committees of the Congress are going to make it a lot more difficult for banks to raise capital. This is something that I think all of us have to bear in mind. We at the Federal Reserve Board have done a great deal to stimulate larger retention of earnings by banks.

We have done a great deal to limit the extent to which bank holding companies expand into new areas and thereby dilute their capital position. We have tried very hard in a difficult environment to

help create conditions that woud be favorable to larger injections of new capital by banks.

I think this trend will continue. But if we have one congressional committee or another looking into examination reports and asking that examination reports be made public, and if we have newspaper stories regarding examination reports, that may weaken the trend that you and I would both like to see develop and which I think will develop.

Senator PROXMIRE. Well, I would hope that you can take whatever action that you can to encourage this. It would seem to me that if banks are going to perform their function and make risky loansand they should, maybe they have been too conservative in the past. One way they can do this without catastrophe is to have an adequate capital. The fact is that the big banks in this country have had their capital decline very sharply.

The Federal Reserve had a suggested sound ratio of 8 percent between ratio and assets. The ten biggest banks in this country have an average capital of little more than 4 percent. Some of them have substantially less that that.

Mr. BURNS. These figures

Senator PROXMIRE. Also, the 10 biggest banks have a situation where their classified loans now exceed their capital and that puts them in a very weak position, as you know. I don't have the time to get into that now but I would hope that one thing we can do is to put as much pressure as possible and call as much attention as possible to the need for banks to increase their capital anyway they can. One of the best ways is to sell equity capital.

Mr. BURNS. Sure, but then you need a market.

Senator PROXMIRE. Well, the markets, as you have told us, are good. One of the most encouraging developments is the improvement of the stock market.

Mr. BURNS. I must say to you that the recent furor about the condition of banks has been greatly exaggerated and has not improved the prospects for raising capital on the part of the banking system. This is something that I would like to sit down and talk to you about in great detail.

Senator JAVITS. Could you submit to us whether or not there is a need in your opinion with respect to the system for some financing mechanism for new technology, not just in the mainstream of the commercial banks or the Wall Street investors, but some government bank for new technology, in order to encourage new technological development?

Would you think that over?

Mr. BURNS. I would be very glad to.

[The information referred to follows:]

I have reservations about the desirability of a special governmental agency for financing new technology. The Federal government already plays an active role in the pursuit of new knowledge and in the application of new knowledge to practical purposes. In recent years, the Federal government has provided over half of the funds expended for research and development in this country. A government technology bank probably would augment investment significantly only if funds were provided at a substantial subsidy. A case for such subsidies could be made in the energy area, so that we could achieve independence in this critical area. This deserves careful exploration.

In general, however, the most promising way to augment the flow of investment funds to innovation and technological improvement would be to seek improvements in the flow of savings to investment. I would strongly urge reforms of the tax structure to encourage larger individual investment in inequities, and to strengthen the earnings position of our nation's business firms.

Chairman HUMPHREY. Thank you again very much for appearing before us today, Mr. Burns, and giving us your very excellent state

ment.

Mr. BURNS. Thank you, Mr. Chairman.

Chairman HUMPHREY. We will now recess the hearing, to reconvene at 10 a.m., tomorrow morning. Thank you all for your assistance. [Whereupon, at 1 p.m., the committee recessed, to reconvene at 10 a.m., Friday, February 20, 1976.]

[The following information was subsequently supplied for the record:]

RESPONSE OF HON. ARTHUR F. BURNS TO ADDITIONAL WRITTEN QUESTIONS POSED BY CHAIRMAN HUMPHREY

Question 1(a). I would like you to reflect a moment for us on what you feel to be the value of these periodic appearances before the Banking Committees. Are they constructive? In asking for targets for growth of the money supply are we going after the right question? Have we gotten ourselves into a box in which we look only at the money supply and ignore interest rates?

Answer. In my judgment the quarterly oversight hearings on monetary policy involve a mutually beneficial dialogue and are constructive. I do not share your concern that the hearings may focus too narrowly on the money supply and ignore interest rates. Indeed, one of their benefits has been the increased general understanding they have produced of the variety and complexity of the considerations that must enter into the making of monetary policy. The discussions have stressed the wide range of factors apart from the money supply that influence the course of the economy-including the Federal budget, private wage and price policies, labor market policies, flows of funds through financial institutions, the public's choices between spending and saving, and credit market conditions, including interest rates.

I believe it would be both inappropriate and misleading for the Federal Reserve to express a view at these hearings about the likely future course of interest rates. An announcement by the nation's central bank of its intentions or expectations about interest rates would be subject to misinterpretation, could impair the effectiveness of monetary policy, and could have harmful consequences for the economy and the nation.

Fundamentally, interest rate movements reflect the interaction of changes in the demands for credit and in the available supply of funds. Interest rates are influenced not only by the strength of the economy and by the public's willingness to defer consumption and save for the future, but also-and this has been especially important in recent years-by the expectations of borrowers and lenders about the rate of inflation.

Any announcement of interest rate intentions or expectations by the Federal Revenue may lead many borrowers and lenders to believe that the System couldand in practice would-guarantee particular interest rate levels. Insofar as participants in financial markets acted on such a belief, market interest rates would initially tend toward the announced levels. However, the Federal Reserve could not, in fact, maintain interest rates at some announced level because they depend on many factors outside of its control.

Moreover, efforts by the Federal Reserve to sustain particular interest rates could result in inappropriate rates of growth in bank reserves and money. If, for example, interest rates came under upward pressure because of rising demands for funds, System efforts to prevent, or limit, interest rate increases could result in unduly rapid monetary exapnsion, thereby feeding inflationary pressures. On the other hand, if interest rates came under downward pressure because of slackening business activity and declining demands for funds, System efforts to prevent, or slowdown, the declines could result in monetary growth rates below those needed to reinvigorate the economy.

Question 1(b). In my own view, Congress has the responsibility to set explicit targets for output, employment and purchasing power. If we did that, we could hold the Federal Reserve accountable for helping us to reach those targets. Suppose that we had in existence a full Congressional procedure for setting such targets, what targets would you recommend for this year and next? Can we get the unemployment rate down to 7 per cent this year? 6 per cent by the end of next year? Can we do better than that? What about inflation: How long could we get the inflation rate by the end of next year?

Answer. The available evidence suggests that we are in the midst of a vigorous recovery. The unemployment rate dropped to 7.6 per cent in Februarydown 1.3 percentage points from its peak last May. Total household employment reached an all-time high in February and has risen by nearly a million in the last two months. Average weekly hours are up sharply from their recession low. The current expansion in economic activity should result in further reductions in the jobless rate; 7 per cent unemployment by the end of 1976 is not an unreasonable expectation. Based on our experience with past cyclical rebounds, 6 per cent unemployment, or even less, by the end of 1977 also appears reasonable. My recommendation, however, would be to concern ourselves less with the specific timetable for reductions in the unemployment rate and concentrate more on laying the groundwork for a sustained recovery. We must be careful to prevent a rekindling of inflation. If inflation is allowed to accelerate, consumer and business confidence will be shaken, and the recovery could falter.

It is very difficult to forecast price movements two years into the future. Recently there has been some abatement in the rate of inflation, as wholesale prices of farm products, processed foods, and fuels have declined. However, other prices have continued to advance, and it is clear that there still exist strong upward pressures on the general price level. Wages are rising rapidly-compensation per hour has been increasing at about an 8 percent annual rate. Since the long-term growth of productivity is about 2% per cent, rising labor costs are exerting strong upward pressures on prices. Furthermore, 1976 and 1977 are heavy collective bargaining years. If wage settlements in major industries exceed those of 1975— when wage and benefit increases for the first year averaged around 11 per cent— a new explosion of wages, costs, and prices may be touched off. I trust that will not happen, but we cannot rule out the possibility of intensifying pressures on the general price level as the recovery proceeds.

Question 2. On page 21 you assert that "high unemployment and numerous job vacancies still exist side by side." What is the source of your information? The official statistical series on job vacancies was discontinued some time ago because, in the opinion of the Bureau of Labor Statistics, it was too unreliable to be worth publishing. During the few years that the series was published, it consistently indicated many more unemployed than vacancies-even in years of relative prosperity.

Answer. The main quantitative sources of information on job openings presently are the Job Bank Openings Summary (JBOS), which is a monthly report on full-time permanent job openings listed with the public employment service, and the Index of Help Wanted Advertising in newspapers compiled by the National Industrial Conference Board.

The data reported monthly in the JBOS come from a sample of job banks. For example, in October-when the unemployment rate was 8.6 per cent-there were 325,000 available job openings reported by 34 State Employment Services for 136 job bank districts. By the first of November, 128,000 of these jobs were still available, and about 69,000 had been open for 30 days or more. These jobs represent only a portion of those listed with State Employment Services, and the jobs so listed represent only a portion of vacancies in each district. Thus, the JBOS listing represents a small share of total job vacancies. It is also noteworthy that the JBOS descriptions of the vacancies indicate that openings were not confined to skilled occupations. Rather, a wide range of opportunities from unskilled to skilled were listed.

While the Index of Help Wanted Advertising does not give the specific number of job listings, it does provide some indication of the movements in vacancies. The most recent reading of this index, in January, showed that it has risen almost one-fifth from its recession low in May.

More and better quality data on job vacancies are needed. The available evidence-including reports from private employment agencies-does indicate, however, that numerous job vacancies and high unemployment existed side by side in

1975 and still exist today. That is one reason why I believe that in order to achieve full employment and price stability, economic policy must rely on structural programs designed to improve the operation of markets, as well as on traditional stabilization policies.

Question 3. Several times in the recent past you have advocated a large scale temporary public employment program. I don't believe you mention it in your statement today.

Do you still support such a program?

If so, how would you answer the contention of the Administration that their studies indicate such a program is a highly inefficient way to create additional jobs?

If you have dropped your advocacy of such a program, what alternative would you support for assisting those unemployed who are exhausting their unemployment insurance benefits or who have no entitlement to such benefits?

Answer. I have an active interest in programs to provide jobs in periods of high unemployment. The primary objective of such programs should be to provide an opportunity for those who lose their jobs, and for others who have inordinate difficulty finding a job, to have productive employment that provides a reasonable income and also offers an opportunity to develop new skills.

As you know, I supported the principles and the intent of the existing public service employment program. It provided much-needed temporary public employment during last year's economic downturn. However, I believe this program has reached a point of diminishing returns. Further expansion of federally-subsidized public service employment appears likely to displace growth that State and local governments would otherwise finance from local budgets. I also believe that a public service jobs program like the one that presently exists would, over the long-run, be an inefficient means of creating new, permanent employment.

I have previously suggested that jobless workers, in addition to being entitled to a short period of regular unemployment compensation, could be assured a federally-sponsored job in schools, hospitals, public parks, or other public services. The wages paid for such jobs should be kept somewhat below the Federal minimum wage. This would promote transfers to the private sector as job opportunities become available. The pay received by workers lacking a regular job would not have to be markedly larger than the average unemployment insurance check today. However, the Federal government would be offering what I believe most jobless people would prefer-namely, an opportunity to work, to develop or maintain job skills, and to be a contributing member of the community, rather than to depend on welfare payments.

RESPONSE OF HON. ARTHUR F. BURNS TO ADDITIONAL WRITTEN QUESTIONS POSED BY SENATOR TAFT

Additional Written Questions Posed by Senator Taft

There has recently been much concern expressed over the lowering of the Federal Reserve's target range for growth in M1, with predictions made that this will lead to inadequate monetary expansion and an end to recovery.

I assume that the Federal Reserve employs a wide range of economic data in reaching decisions on whether to insert or withdraw funds from the banking system. I assume you were never wedded to M1 as your only guide?

I wonder if you could give a brief description of the factors the Federal Reserve does review, in deciding on policy, and say whether or not the unusual behavior of M1 was quickly recognized, understood, and discounted.

Aren't the Federal Reserve's ultimate goals the control of unemployment and inflation, rather than these intermediate so-called targets? In other words you have a total spending and employment target?

Switching to international monetary matters for a moment, I should like to bring to your attention an attached editorial from the Wall Street Journal. It is entitled "Wrong Target at the N.Y. Fed."

The editorial claims that the Federal Reserve Bank of New York has been instructed to intervene in foreign exchange markets to do more than merely smooth over market irregularities. Furthermore, there seems to be an effort under way to link the dollar to currencies which are of different strengths, and whose values would normally move at different rates, or even in different directions, with respect to the dollar.