A Call for Action

During the Administrations of his two Democratic successors, Harry S Truman has carefully refrained from making any pronouncements critical of their policies. Last week the man from Missouri found that he could keep silent no longer. "There is a matter," he said in a formal statement, "about which I am so deeply concerned that I feel it has become necessary for me to speak out." The matter is one that is on the minds of a great many Americans, from housewives to investment bankers to the President of the U.S. himself: the tightest money the U.S. has seen since the Harding Administration in the 1920s. "We will bring on a precipitous deflation if we persist in high interest practices," Truman said. "The result could be a serious depression."

Truman's words fell like thunder claps on banks and stock markets from Wall Street to Tokyo, but their impact was most pronounced in Washington--particularly on the man in the White House. Lyndon Johnson is something of a Populist who agrees with Truman that money should be easier. But--as with so many other things lately--he has done nothing to offset the rising rates except talk about them. Truman's prodding stung him sharply. "I, too, am concerned about the interest-rate rise and what it means to many Americans," protested the President, but he denied that the increase had put the economy "in danger of recession or depression." Rather, said Johnson, "the tightness of money reflects the buoyancy of our economy and the resulting very sharp rise in the demand for credit. These are symptoms of strength, not weakness."

Overheating Again. Nonetheless, the credit squeeze has reached such proportions that it is itself becoming a major economic problem. It has hit hard at the housing industry, now in its worst slump in several years, at the small businessman and at the average consumer, who is paying more for every item he buys on time. Interest rates on personal loans and auto payments are running as high as 12% a year, and even some big corporations are paying 10% for 10-year money. In many places it now costs home buyers $12 a month more than last year to float a 25-year, $20,000 mortgage--a total extra of $3,600. Most businessmen today have never had to face such high interest rates.

Moreover, warned Federal Reserve Board Governor J. Dewey Daane, interest rates are bound to go still higher unless some action is taken by the Administration. Reason: the economy shows every indication of overheating. Buoyed by the Viet Nam war and un-slackened consumer demand, it appears headed up through the end of 1966 at the very least. The gross national product should total $739 billion this year, $12 billion more than Administration economists predicted in January. This would mean 1,000,000 more jobs than anyone anticipated, and a decline in unemployment from the current rate of 3.9% , already the lowest in 18 years.

Last week the Government an nounced that the number of Americans at work in August--usually a drop-off month--remained at a record 76.4 mil lion. In so tight a labor market, jobs are clearly going begging in many places. Surveying the situation in New York City, the Daily News last week reported that industry was "screaming" for "labor without regard for age, color, creed or intelligence," or even for knowledge of English.

Since wages and prices are also rising--including a 2% increase in farm prices in August--many economists are beginning to worry that the stage may be being set for a recession that will follow on inflation's heels. Some of the building blocks that have historically marked recessions, in fact, have already been laid in place. The extraordinary tightness of money, warns Robert V. Roosa, former Under Secretary of the Treasury for Monetary Affairs in both the Kennedy and Johnson Administrations, means that unless the Federal Reserve Board is careful to act in a "delicate and sensitive way," it "could bring the whole financial mechanism grinding to a halt."

Passionate Conviction. Down in In dependence, Mo., Harry Truman, 82 years old, waning in strength but still attentive to the nation's problems, watched the situation with growing alarm. A lifelong "easy money" man, Truman recalled his bitter struggle with the Federal Reserve Board to keep interest rates down during the Korean War. Moreover, he believes with a conviction bordering on passion that Government bonds, as the symbol of Washington's good faith, should never be allowed to sell under par--and he saw them plummeting far below par as investors sought higher interest rates elsewhere. When major U.S. banks raised their prime interest rate to 6% three weeks ago, Truman decided to act.

For three days, he worked on his 500-word statement, first setting down his ideas in handwritten notes and then editing them with assistance from David Noyes, a longtime confidant. When it was done, Noyes issued mimeographed copies to newsmen at Kansas City's Muehlebach Hotel. Truman, still confined to his home after a recent illness, stayed away from the press conference. After his statement was issued, thousands of telegrams and phone calls poured into Independence from all over the U.S., almost unanimously praising his stand. In Washington, both House Speaker John McCormack and Republican Minority Leader Gerald Ford applauded Truman.

Aware of Dangers. Goaded into action, Lyndon Johnson summoned his top economic advisers to the White House for a three-hour nighttime meeting. The President, too, had been well aware of the dangers of the upswing in interest rates, but had decided to play a waiting game, hoping that monetary measures by the Federal Reserve would cool off the economy enough so that he would not have to take action before the election. Johnson's own Council of Economic Advisers earlier this year unanimously favored some form of tax increase to deflate demand and take some of the pressure off the money market, but the President overruled it. Feeling that he was not equipped to deal with the political aspects of the problem, Chairman Gardner Ackley said nothing in public to betray his real feelings.

Constrained by no such considerations, Walter Heller, Ackley's more activist and more articulate predecessor, had quite a bit to say on the subject in a paper published last week by Minneapolis' National City Bank, of which he is a director. He argued that in the face of the inflationary pressures that are being generated by Viet Nam and domestic spending, the Administration should be working toward a budgetary surplus instead of a deficit. This would be the second, or braking, part of the New Economics, whose expansionary aspects set off the economic boom. Heller called for a boost in taxes to sop up surplus demand, added that "some pruning of low-priority expenditures will also be necessary." Said he: "Our economy is powerful enough to afford guns and butter. But it does not follow that we can afford guns and fat."

At the White House meeting, Treasury Secretary Henry Fowler and Commerce Secretary John Connor opposed any action by the Administration, but they were virtually alone. The President ordered the Budget Bureau and the Treasury to work out some recommendations, put his men to work drafting an economic message that will outline a series of at least half a dozen specific actions. There will almost certainly be no general tax increase right now, partly because Johnson believes that such a hike would hurt Democrats in the coming elections and partly because he feels that asking for it now would give Republicans an excuse to gut some of his Great Society programs. Instead, the President will probably call for a temporary suspension of the 7% investment credit to business, a move that would cool off the record expansion in plant and equipment spending.

Cautious & Stubborn. Johnson, a determined but cautious man. was galvanized into action by Truman, a stubborn man. But Johnson now faces the formidable task of getting any new fis cal measures through a man who is determined, cautious and stubborn. He is Wilbur Mills, chairman of the House Ways and Means Committee, whose power is such that he virtually single handed held up a much-wanted tax cut during the Kennedy Administration. Chairman Mills has bluntly told the White House that he will do his best to block any congressional action on taxation this year, and that he rejects the elimination of the 7% investment credit in particular as being too little and too late.

Despite intense Administration pressure--particularly from Postmaster General Larry O'Brien, the President's prime pleader on Capitol Hill--Mills refuses to cooperate unless Johnson gives him an ironclad promise to cut domestic spending. Thus, if Lyndon Johnson is to get any economy-steadying measure through Congress, it may have to be at the price of some of his cherished Great Society programs. That is a hard decision for Johnson to make, but this time he will have to face up to it without delay. Harry Truman struck a chord of urgency in the nation when he asked for quick action to loosen money.

This file is automatically generated by a robot program, so reader's discretion is required.