ominous development if the Government has to pay 84 percent on Treasury bonds?

Mr. SCHULTZE. The ominous part of the development, I think, is that, not that it is just the Government having to pay those rates but the cooling off of the economy hasn't brought interest rates down.

There is one fairly obvious point to make about this. If you expect prices to go up at zero percent a year and you buy a 4-percent bond, the 4 percent is returned in real money. If you expect prices to go up 5 percent a year, then in order to get a real purchasing power equal to that same 4 percent you have to charge a 9-percent interest rate. It is people's expectations, not so much about a slump but about continued inflation, that are holding interest rates up, at least to some extent. I don't want to put everything on that, but a least to some extent I think that is true.

BUDGET PROJECTIONS IF VIETNAM WAR CONTINUES

The CHAIRMAN. This again comes back to whether or not we can control either the income or the outgo with the war; doesn't it? It is the central and most important single factor. Wouldn't you say that is true?

Mr. SCHULTZE. I am not sure I can answer that.

The CHAIRMAN. I think you had an assumption that under Vietnamization and the announced program of the Government there was going to be a gradual phasing out of the war in Vietnam? Mr. SCHULTZE. Yes, sir, that is correct.

The CHAIRMAN. Did you hear this morning the account that there has been a rather marked change in the situation in Vietnam. I read a UPI report handed to me a moment ago, I won't read it all, but the first two paragraphs say:

South Vietnamese forces have crossed into Cambodia to attack North Vietnamese positions across the border, the Defense Ministry announced today. A spokesman said the attack had the approval of the United States. A spokesman said the South Vietnamese Joint General Staff had requested and has got the support of the American forces in combat support, logistics assistance and medical evacuation.

There was a confirmation of that from the Defense Department itself. It is a rather marked change in the situation. If your assumption is incorrect and the war in Vietnam continues at the present level for the next 2 or 3 years, this sort of influences your calculations too. Doesn't it?

Mr. SCHULTZE. Well, the main influence it would have, if it continued at the present level, would be literally to wipe out, I mean literally wipe out, sums available for doing anything in the domestic areas.

The CHAIRMAN. I am handed a subsequent report that said:

Assistant Secretary of Defense Daniel Henkin said the United States Military Assistance Command, Vietnam MACV, in response to a request of the Government of Vietnam is prepared to provide support. This support will take the form of advisers, tactical air support, air coordinators, medical evacuation, and some logistic assistance. Henkin would answer no questions about his statement. The statement said:

The purpose of South Vietnamese operations was to destroy an extensive complex of North Vietnamese and Viet Cong bases and depots in Cambodian territory, barely thirty-five miles from Saigon.

All the implications, of course, are not quite clear except that moving into Cambodia would appear to be a widening of the war, that is, an increase rather than a deescalation.

These projections, based upon your assumptions that the war in Vietnam was being wound down, would all go in the ashcan. They would not be relevant if that happened. Would they?

Mr. SCHULTZE. The point of a projection, Senator, is not a forecast. The CHAIRMAN. I am not criticizing you. I want to make it clear that this is based upon assumptions.

Mr. SCHULTZE. Correct. Let me repeat just my arithmetic; if I assume the Vietnam war winds down, I only end up with a very small sum for other purposes. If I assume the Vietnam war does not wind down and stays at today's level, among other consequences, it completely wipes out the sums available for meeting other needs, barring a major tax increase.

IMPORTANCE OR UNIMPORTANCE OF SALT

The CHAIRMAN. In your statement you say:

Current strategic doctrine is apparently in something of a transition period and future trends will obviously be affected by the outcome of the SALT talks. Of course, I completely agree with that. This morning's paper quotes the chairman of the Armed Services Committee of the House of Representatives in a statement yesterday in connection with the rule for the debate on the procurement bill for the military, which is something over $20 billion. He said, "The SALT talks won't amount to a row of pins.'

Did you see that?

Mr. SCHULTZE. I didn't see the statement, but I am not shocked.
The CHAIRMAN. You are not even surprised?

Mr. SCHULTZE. I am not even-well

The CHAIRMAN. The attitude is very strong in the House of Representatives and in that committee that there is no hope in that direction. As someone has said, if the chairman of the House Armed Services Committee reflects the policy of the Administration or the Government, SALT is a charade designed to mollify the people pending development of other weapons systems.

I agree with you and I don't agree with the chairman of the Armed Services Committee. SALT may not amount to a row of pins, but it most certainly ought to. It is extremely important that it should and if the talks were successful, it could make a great difference to your projections; couldn't it?

Mr. SCHULTZE. I think, yes, sir, it could. I think you have also to add that. How do I say this and not be misinterpreted? We don't want to be a captive of the idea that we can't do anything because the SALT talks are proceeding either. I happen to believe that strategic arms policy and budget shouldn't be in abeyance, that you don't dare modify your objective on your own, you have to sit out the SALT. I don't know how long the SALT talks are going to go on and I think that (a) I think their outcome could be terribly, terribly important, (b) I think their outcome would be influenced by what we do, and (c) I don't think we should allow ourselves to get into a position and say

we must go on at the current level of deployment because cutting anything would mean losing position in bargaining power because this is not true.

1970 MILITARY AND DOMESTIC SPENDING

The CHAIRMAN. Yes. We have the analysis of outlays by function prepared by the Library of Congress and some of these figures are right interesting. This analysis reveals that the estimate for per capita military spending in fiscal year 1970 was $399.21, $124.34 of this going to pay for the war in Vietnam.

În contrast the budget contained per capita $3.57 for community development and housing programs; $38 for education and manpower; $63.49 for health; and $1.82 for recreational resources.

I will insert this analysis in the record for the information of the public.

(The information referred to follows.)