on that segment of the economy which has the greatest need for housing.

A number of our panel members at previous sessions urged the removal of FHA and VA interest rate ceilings as one solution to the mortgage credit crisis. I should like to hear the opinion of today's panel on this matter and hopefully obtain views which the Congress can use to remove or at least moderate the pernicious discount practice in connection with FHA and VA lending.

Although the homebuilders representatives will not be here until this afternoon, a number of references have been made to rising housing costs. I expect this panel to refer to this item and suggest ways to hold down costs at least consistent with other cost-of-living items and family income levels. A limited mortgage credit supply will stretch a great deal further if used to finance lower cost housing.

I should like to welcome all of you to the panel today. Before we start, I wish to thank you for the papers that you have submitted already and for your statements that you present today. I assure those of you who have submitted summary papers that they will be printed in full in the record, and you may proceed as you see fit.

Now, our first witness, Mr. Angus McDonald, accompanied by Mr. Carstenson. Mr. McDonald, we shall be very glad to hear from you. I do not think we have a paper from you, do we?

Mr. McDONALD. We have no formal statement for today.

STATEMENT OF ANGUS McDONALD, DIRECTOR OF RESEARCH; ACCOMPANIED BY BLUE CARSTENSON, ASSISTANT LEGISLATIVE DIRECTOR, NATIONAL FARMERS UNION

Mr. McDONALD. Mr. Chairman, I would first like to pay tribute to you for your experience and wisdom over the years you have been in this Congress, and you have contributed so much it would be impossible in the brief time allotted to me to even enumerate your great contributions.

And the latest thing I notice which my associate, Dr. Carstenson, works on, is the truth-in-lending bill. We are very pleased, of course, that this committee has endorsed this legislation.

The farmers, of course, are dependent in great measure on the difference between the prices or the income that they get and their net income. Interest rates have increased over the years greatly. Other costs have risen until at the present time 75 percent of gross income is taken away by costs, leaving the farmer only a fourth of what he gets in the marketplace. Interest rates have assumed an increasing importance in farmers' costs.

I have here, Mr. Chairman, a little brochure, a sheet, which I believe is printed in the book, submitted in our statement which was printed in the hearing. This is possibly more up to date. I would like to submit. this for the record today, showing the importance of interest paid by individual farmers.

(The table referred to is as follows:)

1966 RETURNS SHOW TIGHT MONEY AS BIG ITEM ON FARM BALANCE SHEET

Interest charges on farm debt are one of the major items of the cost side of the farm balance sheet-and one of the greatest contributors to increased farm operating costs.

Interest payments by farmers in 1966 are estimated by USDA at about $2.5 billions, an increase of 14% over the level of a year earlier.

The increasing burden is due both to the larger amount of credit being carried by farmers and the increase in the cost of money to the highest level in 40 years. When farm interest payments are compared with other farm operating expenses, it can be seen that they are now heavier than property taxes, fertilizer purchases, and outlays for gasoline, fuel and oil. The interest costs of $2.2 billions paid by farmers in 1965 exceed the $1.8 billions for real estate and property taxes, the $1.6 billions expended for fertilizer and lime and the outlays of $1.4 billions for gasoline, fuel and oil.

A survey of farms in the West Central Minnesota Farm Management Study for 1964 indicated that the average farm was laying out $1,632 per farm in interest payments, compared with an average of $736 per farm in payments for fertilizer and lime, $851 in property taxes and $823 in outlays for gasoline, fuel and oil.

An examination of data from 1966 Schedule F federal income tax returns made available to Minnesota Farmers Union by individual farmers shows that the interest payments are a major expense item, overshadowing some of the other farm outlays. Each line in the accompanying tabulation represents the figures for an individual Minnesota farm for 1966.

ACTUAL 1965 FARM OPERATING FIGURES AS REPORTED ON SCHEDULE F TAX FORM; INTEREST COST IS FAST GROWING ITEM

Selected farm expenses on actual Minnesota farms

[Based on 1965 Federal income tax returns]

Mr. McDONALD. You will find, looking at these figures, that in many instances on individual farms-these are based on schedule F income tax returns-interest is the biggest expense that the farmer

has.

The CHAIRMAN. Do you know what page in the book that it appears? We can find it, by the way.

Mr. McDONALD. Mr. Carstenson can find it. I will hurry on.
Mr. CARSTENSON. Page 316.

The CHAIRMAN. Page 316. Thank you.

Mr. McDONALD. We have been shocked and astounded at the debacle which occurred last year. This, we feel, in large measure was due to the unwise policies of the Federal Reserve Board and the Open Market Committee.

I have here a copy of the speech by the eminent chairman on the House Banking and Currency Committee, and Mr. Patman says that under our current monetary system Mr. Martin has more to say about housing than the Secretary of Housing and Urban Development, Mr. Robert C. Weaver.

Mr. Chairman, I think what happened last year is well known. In your speech on April 9 you commented on the very bad situation which existed in housing, and now apparently we may be going into something similar to it.

We recommend the abolition of the Open Market Committee. We feel it is dominated by bankers. While there may be those on the Federal Reserve Board of seven members sympathetic to the problems of agriculture and consumers, if you count noses you can see that the change of only one or two votes would allow the bankers to determine the policies that we operate under. These 12 men, together with the seven bankers that sit with them, we feel, administer the monetary policies to the detriment of the consumers and to the benefit of the banking community.

In regard to specific recommendations, we suggest that the appropriations for the Farmers Home Administration be greatly increased. I notice last year, I believe, in the budget recommendation--and I think the Congress concurred in this, at least the House this year— that only $5 million was set aside for the purchase of farms for young farmers and others who might want to go into the farming business. We suggest that the funds for the purchase of farms be greatly augmented. We suggest that up to $1 billion be set aside for loans for real estate and the purchase of farms.

We endorse the bill which, I believe, has been introduced by Senator Mondale and Representative Kastenmeier of the House that provides that young farmers may purchase a farm by an amortization which would include only half of the value of the farm for the first 40 years. At the end of that 40 years it would be reamortized.

We suggest a transfer agency which has been suggested in our resolutions which we adopted in March, which would provide for the turning over of farms from retired farmers to young people, and this Federal transfer agency could make it possible for the farm to be financed, so that we may at least slow down a little bit this vast migration from agriculture to the cities which is creating a great urban problem.

We suggest that the housing program be greatly increased. I noticed according to some statistics that for every 25 houses built with Federal