Secretary FOWLER. That is correct, sir. Senator DOUGLAS. I had the Bureau of the Budget make some studies years ago shows that if we used the budgetary system of Great Britain, for instance, which does differentiate between captial investment and current outlays, we would not have had a deficit except, I think, 1 year over the last 10 years, and that we would have had a surplus. Therefore, if we used the accounting system of big private corporations or the British Government, we would not have a deficit. Is that not true? Secretary FOWLER. I would expect that to be the case, Senator. Senator DOUGLAS. Because you would have investments in military construction. You have the investments in natural resources and the rest. Secretary FOWLER. Yes, sir. I might say that coming back to what Senator Williams has said in connection with your questions, that looking at the general run of economic opinion, there seems to be more concern today about the question of increases in private debt and State and local debt than in the national debt. Senator DOUGLAS. I will come to that in a minute. But you referred to the ratio of the debt to the gross national product. In 1946 the debt was $266 billion, the gross national product in that year, as I remember it, was $200 billion. The ratio therefore of the debt to the gross national product was as 133 to 100; is that correct? Secretary FOWLER. My figures show-did you say 1946? Secretary FOWLER. The figures we have indicate the ratio of debt to GNP was 125.5 Senator DOUGLAS. Mine would be 133. Those are rough estimates. Secretary FoWLER. Yes. Senator DOUGLAS. Now, the debt now is how much, $324 billion? Secretary FowLER. Yes, sir; and the projected figure Senator DOUGLAS. Let us take the present debt. I have here economic indicators for May, and on page 2 it gives the gross national product in current prices for the fiscal year of 1965 was $649 billion. So that would be a ratio of 50 to 100; your figure, I think, is 49. Secretary FoWLER. Yes, sir. Senator DOUGLAS. So that relative to the gross national product the debt has diminished from a ratio of 133 to a ratio of slightly less than 50. Secretary FOWLER. I think those are that is the range. Senator DOUGLAS. As a matter of fact, it has shown a steady decrease during this period. Secretary FoWLER. Yes, sir. Senator DOUGLAS. It is not an indication that the country is going broke, is it? Secretary FowLER. It certainly would not seem so. Senator DOUGLAS. You spoke of the increase in private debt which has various ingredients. Let us take personal debt consisting of consumer debt and real estate debt. Economic indicators for May show page 2-show an increase in consumer credit from 1955 of $38 billion to March of 1965 of $76 billion or virtually doubling consumer debt during this time. Secretary FoWLER. Yes, sir. Senator DOUGLAS. An increase in the public debt during this period was about 15 percent, was it not? Secretary FoWLER. That is correct. Senator DOUGLAS. If you take real estate debt, it has increased from $88 billion to $198 billion or an increase of approximately $110 billion or 125 percent, an increase of 125 percent, is that not true? Secretary FOWLER. Yes, sir. Senator DOUGLAS. Now, would you say I am not saying this is a bad thing. Secretary FOWLER. No. Senator DOUGLAS. But if people are worried by the increase in debts, should they not be more worried by the increase in personal debt than the increase in governmental debt? Secretary FOWLER. That is certainly the case, particularly of Federal Government. The State and local government debt is somewhat of a different problem. Senator DOUGLAS. I am simply speaking of personal. Now, State and local debt presumably are under the local government, which has been the increase there. Secretary FOWLER. It has been very, very substantial. I do not know whether I have the exact figures here with me. Just a moment I do have them here. On State and local debt, taking again 1946 as a benchmark- Secretary FOWLER. 1946. State and local debt was $16 billion. December 1964 it is $95 billion. Senator DOUGLAS. There is an increase of $79 billion or almost 500 percent. Secretary FOWLER. That is right, sir. Senator DOUGLAS. What about corporate debt? Secretary FOWLER. Corporate debt in December 1946 was $110.5 billion, and in December 1964, $492.5 billion. Senator DOUGLAS. Or an increase of $382 billion, or an increase roughly of 360 percent. Secretary FoWLER. Yes, sir. Senator DOUGLAS. Well, I think these facts should be pondered by the public, both informed and uninformed public, and they should serve to restrain the prophets of gloom and doom who speak of the catastrophic increase in the Federal debt. Do you not agree with that, Mr. Secretary? Secretary FOWLER. I do, Senator. As I have indicated before, I should like to come into an era of surpluses because I think they would be coincident with a very healthy and vigorous economy. But I am not fearful of continuance of deficits of the order of magnitude we have had given utilization Senator DOUGLAS. If we could have a capital budget, would it not show a surplus rather than a deficit? Secretary FOWLER. Well, it would. I do not want my assent, however, to indicate that I am advocating a capital budget. I think that also Senator DOUGLAS. I wish you would, sometimes. Why an investment should be counted as a deficit is beyond me. No reputable set of accountants debt during this perio debt, it has increase ease of approximate 25 percent, is that no am not saying this s ied by the increase The increase in perso case, particularly d 1 government debt & personal. under the local gove substantial. I do th me. Just a momen as a benchmark— debt was $16 billi 79 billion or almost 3 ebt? ember 1946 was $110 billion, or an increase s should be pondered would recommend that for a private corporation. I thi timid, Mr. Secretary. Secretary FOWLER. Well, perhaps so, sir. Senator DOUGLAS. Lest you yield simply for hone you a question whether or not you think you are keepi cash balance in the bank. The Senator from Virgin and I have had a running battle with the Treasury fo What is your current cash balance in the banks? Secretary FOWLER. Our current cash balance is Douglas. As I indicated earlier, it is partially due to t some unexpected receipts of April and May. Senator DOUGLAS. Yes. How much does it amoun Secretary FoWLER. $6,896 million on June 10. Senator DOUGLAS. These are short time deposits demand deposits. Secretary FOWLER. They are deposits in banks; yes, a Secretary FOWLER. No, I think we have been ove before. Senator DOUGLAS. These are interest-free deposit imately $7 billion. What is the lowest point which have ever gotten? What is their lowest point? Secretary FOWLER. Well, let us see, last year, on Jan they were $2.8 billion. Senator DOUGLAS. Is not the reason why you keep free deposits as a compensation to the banks for the soservices which they perform for the Government? Secretary FOWLER. That is the way in which it is I think Secretary Dillon submitted a fairly full and ex on these services to you some time ago as I recall. Senator DOUGLAS. Is not-have you ever gone int deposits by State governments, by local governme country? Secretary FOWLER. No, sir; I have not, sir. Senator DOUGLAS. Well, I think you would find stagg there is Dublic, and they shou deposited without interest. Fortunately doom who speak of th Do you not agree ave indicated before cause I think they wo us economy. But I order of magnitude tal budget, would it! ot want my assent tendency to invest in short-time governments. Senator CARLSON. Will the Senator yield at that poin I would like the record to show the State of Kansa interest on deposits in their banks. Senator DOUGLAS. They did that when you were Go Senator DOUGLAS. I congratulate my colleague. Collection of interest on a larger fraction of these d al budget. I think appreciably reduce the deficit. times. order. y an investment she itable set of accounta Secretary FOWLER. It would have that effect. I do much we would have to pay for the services, but there net gain. inly at interest rates, either invested in short time at true? ER. I would think that the bank investing policy a good profit on those. s. Assuming minimum needs of $2.8 or $3 million, ime deposits, if you invest $7 billion, that $4 billion in governments; would it not? ER. Certainly some of it would. .s. Well, would not all of it? ER. Well, I would think they would try to get the s. If not in Government then something else er rate of interest. ER. That is what I had in mind. You might well s. You could say the Government loans the banks bank then lends back to the Government and ; that not true? ER. And for which the bank provides certain other rvices. AS. That is right. metime you should address yourself to that report ER. Iwill do that, Senator Douglas. N. Mr. Secretary, taking the projection of our in- Tade at the average price. Senator CARLSON. Can we not Secretary FOWLER. This gets ER. I do not have such figures. I have seen them ss, Senator Carlson. I will be glad to supply a figure of yesterday's market. It is quite an appreciable ne loss has been about 6 to 7 percent of values, as ON. I believe I read a statement last week that it ER. I would think that would be a reasonable range. ER. Perhaps $15 to $20 billion or more. LOSING PRICE ON MAY 14, 1965, AND JUNE 14, 1965 re you an accurate answer on lities as compared to our e-t Borthwhile inquiry. Senator CARLSON. Would it n rapid a recovery is made? Secretary FOWLER. Rapid reco Senator CARLSON. In the situa Secretary FOWLER. Yes. I th the press the impact of the ma on that it was not so much ac the economy, as it would be d ence generally of investors, con might say, keeps the economy m such of such importance but i fit continues and if it deepens o Senator CARLSON. Is it not a f perates pretty much on confide Secretary FOWLER. Very much Senator CARLSON. I noticed y fare to get into a discussion of th as Some impact on the present berause I don't want to get you terested to read this and I thin present time the British are no d stocks and bonds in private asset that is left over from the Now, if that is a true stateme Secretary FoWLER. It is, sir. Senator CARLSON. Would you fidence? tual closing price on May 14 was 939.62. The closing price .71, representing a decline of 70.91 points, or 7.5 percent. ares on the New York Stock Exchange at the close May 14 $505 billion. Consequently, it can be interpolated that the ing this 30-day period would be $37% billion. It should, out that the average daily trading is a very small percentage of shares outstanding. The average number of shares traded as 5.5 million, and this would represent 0.059 percent of the shares outstanding of the 1,247 listed companies on the New e. Thus, this interpolation is not necessarily a valid project instance, it is only an average and not representative of the Secretary FOWLER. Well, it building up its readily avail represents a policy on the tendency later on thi value of all the stocks and, secondly, it would assume that all the shares would trade at the average price. Senator CARLSON. Can we not anticipate an effect of that loss of paper profits in the revenue for 1966? Will that not have some effect on it? Secretary FOWLER. This gets into, I would say, Senator Carlson, one of the most difficult aspects of revenue estimating that we have, and that is a calculation of returns from capital gains. I think perhaps the more indirect but tangible effect on revenue could be if the losses, the paper losses, as you indicated, had any restraining effect on expenditures by the individuals or persons involved, it might have a very real indirect effect. I would not believe that it would have much of an effect on our revenue estimates apart from that rather intangible impact. Senator CARLSON. Well, is it not reasonable to assume that there will be real tangible effects on these paper losses? Secretary FOWLER. I don't believe we experienced anything of that consequence. I would like to check the record on that, but we did have an experience, of course, in 1962 in which there was a much more substantial dropoff in the market prices, far in excess of anything we have experienced up to date in this. I do not recall and cannot give you an accurate answer on what impact it had on our revenue realities as compared to our estimates but it is an interesting and worthwhile inquiry. Senator CARLSON. Would it not be dependent somewhat on how rapid a recovery is made? Secretary FoWLER. Rapid recovery, that is right. Secretary FOWLER. Yes. I think last week in discussing this with the press the impact of the market problem-I made the observation that it was not so much a concern as to its actual direct impact on the economy, as it would be on what its impact might be on confidence generally of investors, consumers, those who are spending, you might say, keeps the economy moving. This is why the indicator is as such of such importance but its indirect and intangible effect could if it continues and if it deepens could be a factor affecting confidence. Senator CARLSON. Is it not a fact that our entire financial operation operates pretty much on confidence? Secretary FoWLER. Very much so, Senator. Senator CARLSON. I noticed you made the comment you did not care to get into a discussion of the British pound which I think myself has some impact on the present situation, and I shall not go into it because I don't want to get you into a subject like that but I was interested to read this and I think it is rather interesting that at the present time the British are now quietly liquidating their $14 billion of stocks and bonds in private American companies, a Government asset that is left over from the Second World War. Now, if that is a true statement Secretary FoWLER. It is, sir. Senator CARLSON. Would you contend that that adds to our confidence? Secretary FOWLER. Well, it involves an element of confidence. It represents a policy on the part of the British Government of building up its readily available reserves to resist and to combat any tendency later on this year to speculate against the pound. |