"The foregoing situation is aggravated by the fact that collectibility of the accounts receivable of businesses today is impeded and impaired. The small customers of that business that are themselves small businesses are in the same positions and are having difficulty meeting payments. The large, moneyed customers also delay payments because in that fashion they reap large gains on the money they thereby keep in their possession.

"The solution of many business firms is to sell out to larger corporations that have the funds to weather the storm. Business thus becomes concentrated more and more into the hands of the few. . ."

The plight of small business construction and construction supply firms is even worse. Not only have they been victims of the same squeeze, but they must bear the additional burden of federal and state construction cutbacks.

Mr. Mayer C. Gordon is the owner of a small Los Angeles wholesale firm which sells plumbing and heating equipment to builders. His business suffered first from natural catastrophe-floods in California early last year-and then from a prolonged plumbers strike. Normally, a small businessman like Mr. Gordon, who has built himself a sound reputation during his seventeen years in business, would be able to get a loan to carry him through this difficult period. But as he writes, ". The banks cannot help us as they have no money to loan Small Business. We cannot pay our bills on time due to a lack of the cash flow, so we are not earning our trade discounts. The only loans that we are assured of getting are at usurers rates, which are almost as great as our profits today . . ." Even if interest rates dropped tomorrow, forces have been set in motion that are self-reinforcing, and will continue to deal blows to the small business sector. The small business firms which have managed to survive so far are being forced to compete on unequal terms because many of their normal small business competitors have been forced to sell out to large corporations. As Mr. Sacks noted further in his letter to me, "These terms are unequal solely because of the inequality of capital, not because of any inequality of skill in operating the respective businesses."

The 600,000 independent small businessmen of this country are the source of the diversity and therefore the strength of our economy. The misguided policies of this administration, if not altered soon, will destroy that strength by concentrating the wealth of the country into the hands of the monopolistic few.

STATEMENT OF HON. WALTER FLOWERS, A REPRESENTATIVE IN THE Congress FROM THE STATE OF ALABAMA

Mr. Chairman, I appreciate the privilege of submitting testimony to your distinguished committee. As a co-sponsor of House Concurrent Resolution 522 which calls on the Federal Reserve Board to "roll the prime interest rate back to 6 per centum", I am pleased that this committee has moved so promptly to schedule hearings and I would urge that final approval be given as rapidly as possible.

For more than a year, the American people have been waiting for inflation to be arrested. We were told that tightening money by an increase in interest rates would end the economy's inflationary spiral. I am sad to say that experience has proved this information to be incorrect. Prices have continued to more upward, while at the same time, our productive economy is slowing down. Tight money has had little effect on the cost of living's steady climb, yet it may have brought on the beginnings of a recession.

The result of this high interest policy, spread over a period of 14 months, has been to fuel the inflationary cycle. It has become part of the problem it was intended to solve. The added cost of interest is now part of the inflated purchase price.

Who are the persons most affected by high interest rate policy? They are the people who are least able to pay for the fight against inflation. They include the consumers-they are the small businessmen-they are the farmers-they are the people who must live on fixed incomes. To these people, credit is essential if they are to secure items which have become necessities, such as automobiles, refrigerators, and even clothing. And yet, these people are unable to pass along the 10. 12 and 18% charges which have become part of their purchase prices. We cannot forever continue to point the finger at these people when we say that Americans must "sacrifice" and "tighten their belts" in order to fight inflation. We cannot forever ask our people to man battle lines when economists, who stand unaffected by such battles, sound the clarion call. Such a policy is indefensible.

One other drastic effect of this policy, at least in the rural areas of the country, has been the drying up of financial resources. Funds have been diverted from small financial institutions throughout America depriving local residents of much needed credit. The result has been an almost complete halt in new housing starts and a shortage of money for regular business operating loans.

We are even feeling the effects of this policy in the government. There has been an estimated $2 billion increase in the cost of interest on the national debt during the last two years-a $2 billion price tag that was not necessary. It is $2 billion desperately needed to clean up our environment-to meet our urgent housing needs to improve the quality of educational opportunities for our young people. We have all heard much technical discussion about the possibilities of our economy moving into a recession. While the Washington definition of a recession may be incomplete. I believe that we are already experiencing a recession in many regions of our country. For many, the question is not whether we will move into a recession, but whether we will move into a depression. Unemployed persons may be statistics to economists, but they are personal tragedies in West Alabama. High interest rates may be a solution to economic problems in the eyes of economists, but they are the "last straw" to many families where a dollar can make a difference.

This Resolution is not intended to legislate low interest rates, for indeed Congress does not have that power. But it will say to the economists-to the members of the Federal Reserve Board-that people are more than statistics, and the passage of this Resolution will be a statement by Congress that the continuation of high interest rate policy is unacceptable and should be reversed in an orderly but determined way-starting immediately.

STATEMENT OF HON. SAMUEL N. FRIEDEL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MARYLAND

Mr. Chairman and members of the House Banking and Currency Committee, it is always a pleasure for me to appear before this very important Committee of the Congress, but I deem it an honor as well, because it is composed of so many distinguished and able Representatives who are dedicated to making life in our great Nation better for all Americans.

Because of this goal, we here in the legislative branch of our Government are deeply disturbed by what we see about us, by what we hear from the people of our districts, and by what we feel is happening to our Country. We take a dim view of the turn of events and are apprehensive about the future. We see a viable economy showing unmistakable signs of weakening. Day by day the stock market declines. Because of lagging orders for motor vehicles the large General Motors and Fisher Body plants in the City of Baltimore have been compelled to curtail their operations and are closed for a part of each week. We hear complaints from the people we represent that jobs are getting more and more difficult to obtain. The average worker is caught in a squeeze between ever rising living costs and a declining income. It appears to me that the increasing level of interest rates is the prime cause for the escalating of the cost of living.

Unfortunately, high interest rates have had a significant depressing impact upon the building industry. The restrictive monetary policies presently employed to combat inflation in the national economy are having a very severe effect upon our housing goals. As a result, we are now facing the worst housing shortage this Country has experienced since the years immediately following World War II.

Thus far, most of the impact of the current tight monetary policy has been on the housing sector. When the third quarter figures for 1969 are compared to the fourth quarter figures for 1968, we find that residential construction expenditures are down 2.5 per cent.

I am reliably informed that within the total supply of mortgage credit, important shifts are taking place. Commercial banks, mutual savings banks, and other investors began pulling out of the mortgage market in 1969. Life insurance companies continue to liquidate their one-to-four-family mortgage holdings, thus exerting added pressure on the market.

According to knowledgeable economists the Administration's policies fail to curb inflation, endanger housing and its primary source of funds, depress employment and hurt small business-all due to this Administration's unwise policies of having raised interest rates to an all-time high.

The people are alarmed and through their spokesmen, the Representatives in Congress, with voices loud and clear, have protested such ill-conceived fiscal policy in the form of H. Con. Res. 522. As one of its co-sponsors, I most strongly urge favorable action by this distinguished and vital Committee of the House of Representatives. Past experience shows us that tight money policies are not the answer to inflation.

STATEMENT OF HON. MARK O. HATFIELD, A U.S. SENATOR FROM THE STATE OF OREGON

The continuation of the tight money/high interest rate policy has had a debilitating effect upon the economy of Oregon and has contributed to the nation's inability to meet our urgent housing goals.

The unemployment rate in Oregon has continued to mount and in some places in Southern Oregon it has been as high as 17%. Lumber mills are finding it necessary to lay off employees or in some cases to even completely close down. The independent lumberman cannot survive the slump and for some this means the loss of life savings with no possible hope of reopening their businesses.

The slump in the timber industry is directly related to the level of new housing starts, which is affected by the tight money/high interest rate policy. In Oregon, the cutback in federal construction projects since September has added further to the strain in the lumber business.

It would be natural for the Committee to expect me to express my concern about matters that affect my constituents, as I have done on so many occasions. However, in my opinion, the focus of the situation in Oregon has truly national implications as well as a national impact.

Freeing money for the mortgage market and lowering the prime interest rate will not only assist Oregon's economy but will be a step forward in meeting our national housing goals. Supplying adequate housing is the number one social issue for it directly relates to the race issue, the ghetto problem, the disturbances in our streets.

Currently America has 10 million units of sub-standard housing. In 1968 Congress set the goal of 26 million new homes in this decade. This means we must build 2.6 million homes each year until 1978. The tight money situation has limited the homes which could be built in 1969 to about half of what was needed that year in order to meet the 10 year goal.

Eighty percent of the housing material comes from timber products. Oregon provides the nation with a fifth of the softwood lumber and nearly half of the softwood plywood, the two most important basic building materials used for America's homes. Oregon has one out of every five trees in the United States within its borders. When Oregon's lumber industry suffers, the nation suffers. The tight money/high interest rate policy was proposed to curb the rising inflation problem. This policy, while apparently affecting our economic growth, has had some devastating economic effects. Taking it one step further, has adequate recognition been given to the real cause of inflation?

The major factor feeding the fires of inflation has been several years of federal deficit spending policies with a $58 billion deficit since 1965. The number one priority in halting inflation should be a balanced budget. We must be realistic and scrutinize federal spending at all levels.

The seriousness of the situation facing America in meeting our housing goals and the urgency of stabilizing the economy of Oregon, the supplier of needed timber, cannot be overemphasized.

The Administration has indicated its desire to modify these adverse policies by removing the curtailment of federal construction projects, freeing mortgage money and encouraging housing starts. I remain hopeful these steps, and the reduction of the prime interest rate, will proceed.

STATEMENT OF HON. JAMES J. HOWARD, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW JERSEY

Mr. Chairman, and members of this committee, may I first say that I applaud the promptness with which these hearings on House Concurrent Resolution 524 were called after introduction of this resolution, of which I am a co-sponsor. We have all known of the distinguished Chairman's consistent concern over the problem of high interest rates, which is so vitally important to all of the people whom we represent. These hearings will let those people know that we are all truly interested in their welfare.

I believe we all agree that the administration's policies of ever higher interest rates have not had the desired effect-that of slowing down consumer buying. The effect of these policies has been only to hurt those who can least afford it. Large corporations can pass these additional costs down the line to their wholesalers and retail outlets-but the buck finally comes to rest on the one person who can do nothing about it-the individual citizen who must have the food to eat, the clothes to wear, the repairs made to his automobile or his house. This individual citizen, if he has a job, is not receiving increases in salary commensurate with the increases in his cost of living. If that citizen is retired, his pension or social security benefits are certainly not increased in proportion to his cost of existence.

In the Third Congressional District of New Jersey, the housing industry is in a serious depression. Because of the high cost of money, builders can not finance the construction of new homes, and the people who so desparately need these new homes can not afford the cost of a mortgage. With a lack of housing being one of the most serious problems facing our country at this time, we simply can not afford to let this situation continue.

Housing, however, is but one aspect of a serious problem affecting the whole economy of my area, and the entire country. Because new residents can not find or afford housing, older businesses can not grow; and new businesses can not come into the area. I do not think the solution to our inflation problems lies in bringing the entire economy of the country to a screeching halt.

High interest rates have so affected the business community that they are not only unable to grow, but they can not afford to exist at present levels of production; a situation which results in higher unemployment. While increased unemployment may make a few economists happy, it forces an intolerable situation upon the head of a family who must continue to cope with inflation, but has no salary to assist him.

Mr. Chairman, I am not an economist. But I am the only voice in the House of Representatives for over 500,000 people in Monmouth and parts of Ocean and Middlesex Counties in New Jersey. And I know from my mail and from my conversations with those people that the problem of high interest rates is the core of a situation which is becoming unbearable to those people. For the past 14 months they have been asked to "hold on just a little while longer, and things will get better." And they have held on; but things have not gotten better. I can only conclude that these policies have not worked, and it is time for a change. These people must have some relief, and I am hopeful that the efforts of this Committee, by passage of the Concurrent Resolution before it, will provide that relief.

Thank you for giving me this opportunity to testify.

STATEMENT OF HON. ROBERT L. LEGGETT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

Mr. Chairman, high interest rates are not the most effective way to control inflation. There is some question whether they serve to control inflation at all. It is true that tight money forces people to cut down on non-essentials, but by raising the cost of production, distribution, and marketing, it raises the retail cost of basic essential goods as well, and forces the consumer to spend more in this direction.

I have long felt that the proper route to inflation control lies through reduction of unnecessary government spending. In my capacity as a member of the Armed Services Committee, it has become clear to me that the most fertile field for expenditure-cutting lies in our military budget. Our European troop commitment, the Southeast Asian disaster, and the anti-ballistic missile are but the most conspicuous of many multi-billion dollar programs that do not serve national security.

And I cannot resist noting that the Administration's desire to control inflation has not led it to abolish the Subversive Activities Control Board.

But even if high interest rates were an effective means of controlling inflation, it seems to me that we should first look for other approaches. Tight money hurts the consumer, and it hurts the small businessman. Most of all, it hurts those on marginal incomes. A healthy national economy is an abstract thing; it is of no value if its benefits are not felt by our people.

I urge that this resolution be adopted, and that it be heeded by the Administration and by the Federal Reserve Board.

STATEMENT OF HON. SPARK M. MATSUNAGA, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF HAWAII

Mr. Chairman and members of the committee, as a cosponsor of House Concurrent Resolution 524, I thank you for this opportunity of presenting my views with respect to the administration's high interest rate policy and its impact on the Nation.

A high interest rate policy was instituted and pursued by the present administration for the avowed purpose of combatting inflation. This policy has been in force during the past fourteen months. It is now time, indeed the hour is late, for the Congress as well as the President to reexamine that policy in the light of its complete failure to produce the results expected.

Consumer prices in 1969 increased at an alarming rate of nearly 5.5 percent. Cost of living figures released for the first two months of 1970 show that the price of goods and services is continuing its upward climb at an annual rate of 7 percent higher than that of 1969.

The unemployment rate is another important criterion in the determination of the success or failure of any economic policy. It would be heartless, indeed, for those who conduct the affairs of government to ask Americans who have recently become jobless to help fight inflation, or to say that unemployed Americans must accept their status willingly because they are thereby contributing to the Nation's economic progress. Despite talk to the contrary in some quarters, this Nation has never equated increased unemployment with economic well-being. These are considerations which must be borne in mind as we note the jump in unemployment to 4.2 percent, reported by the Bureau of Labor Statistics for February 1970, which places unemployment at its highest level in 52 months. Perhaps the most far-reaching result of the high interest rate policy is that it has brought the once healthy and active home-building industry to a screeching halt. At a time when the Nation's housing needs are greater than ever, the administration's restrictive money policy caused a drop of 40 percent in housing starts in 1969. The gloom is deepened by the forecast that non-residential construction is also expected to suffer a marked decline in the months ahead.

Mr. Chairman and members of the committee, I shall not engage in the academic discussion as to whether we are in the midst of a recession or a depression. The evidence is indisputable that what we have today is a rapidly deteriorating economy, one of the direct causes of which is the administration's high interest rate policy. It is therefore clearly the responsibility of the elected officials of government to take immediate steps to reverse the policy that has led this Nation inexorably to the present national economic malaise.

In recognition of this responsibility, my cosponsors and I have introduced this resolution calling upon the Nixon administration to reverse its policy of encouraging high interest rates, and the Federal Reserve Board to roll back the prime interest rate, by means of graduated steps, to 6 percent.

For millions of Americans-the consumers, the small businessmen, the elderly who must live on fixed incomes, the farmers, the unemployed husbands and fathers, and the would-be homeowners-the reversal of this policy cannot be accomplished too soon.

Mr. Chairman and members of the committee, this morning the president of the biggest bank in America predicted that the prime interest rate charged by commercial banks would be dropped a half-point within the next 60 to 90 days, and that it could come down another half-point by the end of 1970. As a consequence the Dow-Jones average jumped up by 20 points. What better evidence is there to show the depressive effect that high interest rates exert on our economy. Responsible leaders of the business world have finally recognized the mistake of the present administration's policy.

We of the Congress should do no less than to take up the banner ourselves. I urge, as a beginning, that this resolution be given early favorable consideration by this committee.

Thank you very much.

STATEMENT OF HON. ABNER J. MIKVA, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS

Mr. Chairman, I appreciate this opportunity to present my views on the disastrous high interest rate policies of the administration.

The impact of an 82 percent prime lending rate has now begun to press with full weight upon the homebuyer and consumer-borrower. And during this