Masonry Magazine January 1972 Page.13
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THE PRESIDENT PLANS TO SLOW INFLATION
The President plans to slow inflation without a tax increase next year. Industry economists, even many in government, question whether he can pull it off. But he certainly means to try, and aides have drawn up their strategy. The effort will focus on getting the Budget back in hand. The Administration is shooting for a big reduction in Federal outlays, even though Congress killed the tight ceiling President Nixon requested. He feels that failure to curb the Budget deficit will rekindle inflation.
Federal expenditures do appear to be out of control this fiscal year. Economists are projecting a total of $257 billion, very possibly more. That points to a deficit of $30 billion, at a very minimum, far too much for an economy already gathering substantial forward momentum.
So the President really means to slice, expenditure ceiling or not. The intensity of the fight Nixon waged in Congress for the spending limitation clearly points up his concern.
OF COURSE, OFFICIALS WERE VERY UNHAPPY
Of course, officials were very unhappy at the junking of the ceiling. They felt the tight $250 billion ceiling offered the best chance of success. It would have granted the President an item veto over almost all programs, even those otherwise veto-proof, because they were voted in past money bills. But Nixon is going ahead, nevertheless. He has vetoed ten spending bills. He can order various departments to reduce outlays by specified percentages, and he can simply decline to hire replacements for retiring Federal workers.
These Executive actions aren't as satisfactory as a tight spending ceiling legislated by Congress would have been. For example, certain programs, like veterans' and Social Security benefits, interest on the national debt, and revenue-sharing grants to the states, can't be reduced.
LITTLE ELSE WILL BE SPARED, THOUGH.
Little else will be spared, though. The Great Society programs of past Democratic administrations will feel the brunt of the slicing. The Administration is particularly anxious to reduce spending for manpower training, health, education and welfare programs, and public works projects. Defense spending will be cut, too, but relatively less than other programs.
Expenditures for weapons procurement and other hardware will remain intact. However, some military bases will be closed, and manpower in the military services will be trimmed, too.
CAN THE WHITE HOUSE REALLY CUT BY $6 or $7 billion in fiscal 1973, which is what is needed to get spending down to $250 billion?
Can the White House really cut by $6 or $7 billion in fiscal 1973, which is what is needed to get spending down to $250 billion? Not easily. Four months of the fiscal year are past, and a lot of money has been spent, meaning that all the slicing must come out of eight months' spending money. However, Administration officials insist that big reductions are possible, and most economists concede that $3 or $4 billion isn't out of the question.
The cuts will have the greatest economic impact in 1973's second quarter at a time when business activity would otherwise be moving strongly upward. Economic slack would be disappearing and bottlenecks might be developing. That could set the stage for a new surge of inflation pressure.
EVEN A MODEST REDUCTION IN SPENDING CAN MAKE an important difference in the business outlook during the coming year
Even a modest reduction in spending can make an important difference in the business outlook during the coming year, the difference between an unsustainable expansion and one that is solid, steady, free of distortions. Nixon's cuts may spell the difference between a restrictive monetary policy and gradual, measured tightening between rising or steady interest rates.
And the budget-cutting may convert the government, including the Congress, to more conservative spending in future years.
NIXON PROBABLY WON'T IMPOSE CREDIT CONTROLS or interest-rate ceilings, despite the growing concern now being voiced by bankers and other lenders.
Nixon probably won't impose credit controls or interest-rate ceilings, despite the growing concern now being voiced by bankers and other lenders. They fear that he will take action if and when the prime rate reaches 6%. That was the going rate when the New Economic Program began in August 1971. Most of the financial men don't think their fears are far-fetched, either. They point out that this country has had credit controls during past wars, and the U.S. economy is now operating under price, wage and rent restraint.
Officials don't rule out interest rate controls in every circumstance. They'd act if mortgage and bond yields rose, threatening to slow business. The Committee on Interest and Dividends has drafted contingency plans, ranging from voluntary to mandatory, from rationing to limiting rates.
BUT THERE ARE GOOD REASONS WHY NIXON WANTS TO AVOID credit controls.
But there are good reasons why Nixon wants to avoid credit controls. Most important, credit controls are a morass, a mess to try to administer. Attempts to control rates on marketable securities are especially difficult. Rate ceilings would merely send money fleeing through a variety of channels. The markets would not function effectively; rationing would be needed anyway.
Anyway, jawboning will be first, warning lenders against undue rate increases. The Committee has been telling banks and other institutions to go slow. And it (Continued on page 33)