entire period, all the banks apparently could think of was grabbing another, larger bite. This would have been bad enough if the banks were hurting profitwise and had turned to higher interest rates to solve their profit problems. Instead, the banks have been laughing all the way to the bank with record profits dollarwise, percentagewise, and everywise. That small outfit known as the J. P. Morgan & Co., Inc., showed an 11-per cent increase in profits for the second quarter of 1969 alone. Secretary of the Treasury Kennedy's former bank, Continental Illinois, had a first half of 1969 net profit of $29 million, almost $3 million from 1968 for a 10.7-per cent increase. Manufacturers Hanover Corp. had a whopping 21-per cent increase in profits for the first half of 1969 over the first half of 1968. During 1969 the newspapers were reporting that bankers were generally pleased with the profit showings but a bit apprehensive that the reports could provide fuel for controversy in Congress. I can only hope that we in Congress will find these record profits controversial. Up to now, the banks have had little to worry about-except the fact that they might wreck the whole economy with their avarice. It is time that we in Congress began to let the bankers and the Federal Reserve Board know that there are other people and other businesses in this country besides the bankers and the banks. Ordinary buyers and borrowers, small businessmen and homebuilders, not to mention thousands of potential homeowners, have been penalized while the banks helped to fight inflation by making record profits. If the Federal Reserve Board won't put a stop to this nonsense, I believe it is time for us in Congress to do so. STATEMENT OF HON. PATSY T. MINK, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF HAWAII Mr. Chairman, and distinguished members of the committee, I welcome this opportunity to speak on the need for congressional action to reduce interest rates. As the cosponsor of legislation to make it the sense of Congress that the administration and Federal Reserve Board should roll back the prime interest rate to 6 percent, I am happy to join with Representatives from more than half the States in urging swift approval by your committee of this concept. We closed out the decade of the 1950's under an administration whose floundering economic policies caused a series of "recessions" which had a severe personal impact on millions of Americans. Now as we enter the decade of the 1970's the administration is following a precise duplication of those ruinous economic policies. The strategy for crippling our economy is the same in both instances: a disastrous melange of high interest rates and tight money which works to the enormous benefit of moneyed interests but causes a severe hardship to the average working person. Imposed ostensibly to curb inflation, the high interest policy has instead contributed to inflation and at the same time caused economic stagnation and downturn. Millions of our citizens are now jobless because of the administration's destructive policy. Giant corporations can tap internal sources or obtain privileged treatment at commercial banks to find new capital. They in turn pass the extra cost of doing business along to small business and consumers in the form of higher prices. These extra costs are included in the drastically soaring prices for everything we buy from the shelves of all the supermarkets and stores in Hawaii and across America. Thus the administration's high interest rates have poured gasoline on the roaring fires of inflation-only to the benefit of the commercial banks and other big business interests. There are other ways to run this nation than to establish economic straitjackets funneling all the money to banks, but so far the administration has not found them or sought to find them. The average American does not realize the extent to which he is being victimized by the Nixon administration policy of excessively high-interest rates. This fiscal policy has siphoned off from the average American billions of dollars. Banks have reaped fantastic profits during the past 14 months. For example, on a 30-year, $20,000 house mortgage, the workingman buying a home for his family is forced to pay an additional $5,000 for each 1 percentage point boost in the interest rate and prime interest rates have gone up more than 2 percentage points since President Nixon was elected. The Nixon administration has added $10,000 in interest charges to the cost of a $20,000 home. This is half the price of the house itself. How many people have suffered under this policy of the Nixon administration? Every American who has bought a home in the last year and 2 months has lost heavily because of the high-interest rate policy. Even more shocking, an interest boost of 1 percentage point-which is a 13.3-percent increase in the cost of money-costs the workingman more than the entire on-site labor cost of building his house-the total wages and fringe benefits of all the workers who built the house. Who is to blame for the housing depression? Certainly not American labor, for their wages are less than half of the additional cost added to the price of a house during the period of the Nixon administration so far. When the President was elected the prime interest rate was 64 percent. Commercial banks raised the prime rate five times during the past year-a rate of increase unmatched in the history of this country. The prime rate now stands at 82 percent. This is the rate the commercial banks charge to their most favored customers, such as large corporations. The average taxpayer buying a home pays much more. In some areas interest rates on home mortgages are upward of 10 percent. Let us look at how much the homebuyer pays at 10 percent. When you obtain a 30-year mortgage on a $30,000 house you will pay $97,000 for it. The interest paid to the banks is $67,000, more than twice the cost of the house. Higher interest costs, of course, are not reflected only in the cost of housing. This is only the most dramatic and painful mainfestation of the high interest rate policy of the Nixon administration. All across America, working people are being laid off, small businesses are closing down, people are getting nervous about the economic health of their Nation. This is because of the blind dogmatic adherence of the administration to this simplistic solution to inflation-high-interest rates. As a cosponsor of the concurrent resolution on high-interest rates, I am delighted to join in urging a change in the Nixon administration policy. I urge the committee to approve the resolution in furtherance of past actions it has taken to achieve the goal of interest rate reductions for the benefit of the American people. STATEMENT OF HON. RICHARD L. OTTINGER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW YORK Mr. Chairman, I am pleased to have this opportunity to present to the Banking and Currency Committee my views on the present high interest policies and their effect on the American economy. As a cosponsor of H. Con. Res. 523, I wish first to commend the gentleman from Arkansas, Mr. Alexander, and the gentleman from Texas, Mr Wright, for their leadership in making it possible for us to focus the attention of the Nation on this most urgent matter. Mr. Chairman, while Administration officials have been repeating over and over that we have turned the corner on inflation and that economic stability is just around the corner, there are danger signals mounting higher and higher that undercut such optimism. What cause can we find for rejoicing in the 0.5 per cent rise in the consumer price index for February, a hike of 6.3 per cent over the index for February of 1969? Celebrations about the harnessing of inflation appear especially premature to New Yorkers, for in our part of the country consumer prices posted a staggering 0.8 per cent gain in February as practically every major item went up. Food prices alone have now risen 12 months in a row in New York, skyrocketing 9.4 per cent higher than a year ago. Thus while the national price increase has been an unacceptable 6.3 per cent in a year, we in New York are now paying 7.6 per cent more than we were a year ago for the same prices and services! In dollar terms, Mr. Chairman, consumers in the New York area must spend $13.81 to buy what $10 purchased in the 1957-59 period. The Federal Reserve Board, with the approval of the present Administration, has allowed interest rates to be raised to the highest level in America's history, but it is now clearly evident as the above figures attest that this policy has failed to curb prices. Furthermore, the Administration's economic policies have driven the unemployment rate up to 4.2 per cent, the highest level since October of 1965 and a sharp increase from the 3.9 per cent of January. Some 3.8 million Americans are out of work, countless others are taking home smaller paychecks, and both of these trends are on the upswing. Mr. Chairman, if these are "encouraging” signs, I would like to know to whom they are encouraging. Surely the man who must support a family on unemployment insurance or on a smaller take-home pay must question the success of Administration policies and wonder whether his government cares about him at all. I submit that the "forgotten American" is reaching new depths of obscurity. The economics of the Administration have also had a crashing effect on the housing market. After we have set a national goal of 2.6 million housing starts a year to meet the nationwide crisis, the rate of construction has now dropped below the level of a million annual starts. Mortgage money is virtually dried up, and the purchase of a home now exceeds the capacity of the middle-income family, sore beset already with rising food, clothing, and merchandise prices across the board. These are the results of high interest rates, and unless we reverse our policies immediately, the housing crisis in our crowded and deteriorating cities may well pass the remediable stage. Not everyone is being asked to make such sacrifices in the name of anti-inflationary stringencies, however, for under the deliberate policies of this Administration profits of lending institutions accelerated throughout the past year, with an average increase of over 13 per cent in 1969. With the record interest rates, Mr. Chairman, the consumer, the small businessman, the housing and construction industry, and the workingman are taking it on the chin while bankers are ringing up record profits. In case these dire trends are taken as accidental phenomena, we must note the raising of the minimum denomination of Treasury notes in February from $1,000 to $10,000, an action that will price the small investor out of this highyield offering and leave this market as the preserve of the wealthy investor while the little guy must shop around for less remunerative possibilities. I have protested this move to the Secretary of the Treasury, and I am pleased to note that many other Members in both bodies have also called for a reversal of such discriminatory policies. One cannot but assume, Mr. Chairman, that the signposts do not point to an end to inflation just around the corner but rather to an imminent recession, if indeed we are not already in one. While encouraging high interest rates as a fiscal tool, the President has made no move to institute the credit controls we authorized for him last year. He has indicated his distaste for wage-price guidelines as well. And he has exerted no pressure at all on the hiking of prices in certain industries. If wage-price controls are repugnant, then we already have in effect wage controls on the workingman, whose real earning power has declined steadily over the last decade, with no concomitant controls on industrial pricing practices which continue to contribute to the inflationary spiral with the end not in sight. Mr. Chairman, the increased cost of money has made itself felt throughout the economy. Every transaction bears the inflation of high interest rates; every commodity and piece of merchandise is affected. The interest costs on the national debt have gone up $2 billion over the past two years, another crushing burden on the people of this country, who must pay for this directly and indirectly. Local governments are experiencing great difficulty in selling bond issues, while the truth is that the increased cost of borrowing has not discouraged borrowing at all but has instead thrown people and businesses deeper into debt as demand continues upward. It is within the power of this Administration to reverse the trend by rolling back interest rates, and we must continue to urge upon the President the need to exert his responsibility to influence the Federal Reserve Board to that end. High interest rates have not lowered prices, nor have they arrested the costof-living advance. They have depressed the Gross National Product, lowered the rate of production, and reduced employment and cut back the work week for millions of Americans. The independent businessman, the small investor, the worker, the consumerall these are being hurt disastrously by policies that have not proved effective in the fight against inflation, while only those who profit from lending money stand to gain from a continuation of present practices. This inequity cannot be allowed to go on. The Nation is staggering under its burdens, and it is time to discard discredited ideas. I commend this Committee for giving to those of us who oppose high interest policies a forum to bring the facts before the people and the Administration which must act quickly to avert an economic crisis. STATEMENT OF HON. BERTRAM L. PODELL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW YORK Because of the critical situation it seeks to remedy, I am pleased to submit a statement in support of House Concurrent Resolution 523. In November of last year, I, too, introduced legislation regulating the prime interest rate. I proposed that Congress be given control of the prime interest rate and that rate be immediately stabilized at 72 percent as a first step toward lowering it still further. The high interest rate has kept money out of the hands of most investors and borrowers-small and large. The result of the policy has proven disasterous for our country's economic well-being. Contrary to earlier predictions, the high interest rate has slowed economic growth, but has not halted the inflationary spiral. The Consumer Price Index rose over 6 percent last year, but there was a decline of more than 30 percent in the seasonally adjusted annual rate of housing starts from 1.8 million dwellings in January to 1.2 million in December. In January, 1970, the rate fell to 1.16 million units. We then seem to be suffer. ing from what economists have termed "the worst of two worlds"-rising infla tion and declining growth. The prime interest rate is an economic phenomenon closely tied to the policies of the Federal Reserve Board. Through such mechanisms as the rediscount rate, the Board influences the interest rate charged by the major financial institutions. By charging what the market will bear, the Federal Reserve Board and banks have created a bearish market. Confidence in the economy's growth potential has ebbed. High interest rates have fostered a decrease in the amount of money in circulation. Investors and borrowers finding it increasingly difficult and unprofitable to meet high interest rates, have refused to borrow. Economic growth under such circumstances is necessarily depressed, and the state of our economy confirms this. If money is not siphoned into one area of the economy, the other areas suffer. If there are insufficient funds for home construction and mortgaging, this scarcity is felt throughout our economy. Construction workers are unemployed; suppliers sell less. They, in turn, pour less money back into the economy. The multiple effect simply does not operate. In effect, high interest rates have halted related growth processes, curbed investment and have fostered an economic slowdown. All the while, inflation continues as does society's need and demand for adequate housing. The economic well-being of our nation is a source of strength. Congressional initiative on the matter of interest rates would be an important first step toward the resumption of economic growth and the prevention of recession. STATEMENT OF HON. ROY A. TAYLOR, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NORTH CAROLINA Mr. Chairman, I commend you and other Members of the House Banking and Currency Committee for conducting this hearing and giving me an opportunity to testify in behalf of H. Con. Res. 524, directing the President and the Federal Reserve Board to take steps to gradually roll the prime interest rate back to 6 percent. The high interest rate policy has brought about a specter of a recession-stock market down 23 percent in a year-unemployment up business profits downgross national product at a standstill-depression in the home building industry. Yet high interest rates have failed to prevent inflation. During the last year, with interest rates at their highest point in American history, prices rose more than during any year since 1951. Today's unreasonably high interest rates have delayed housing starts and created an intolerable situation in the entire home building industry and for families needing a new home or other major improvements. Local units of government have found it impossible to sell bonds for essential improvements. High interest rates are exacting their greatest toll from people who must borrow to survive farmers, workers and small businessmen, with modest profits. The Administration should create a systematic plan for rolling back interest rates to a reasonable and manageable level. I am proud to have been one of the co-sponsors of this resolution. |