Economic Report of the President

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this problem by authorizing, effective May 1, 1982, a 91-day time depositwith a $7,500 minimum denomination indexed to the 91-dayTreasury bill rate, and establishing, effective September 1, 1982, a 7-to 31-day deposit account with a $20,000 minimum denomination,also indexed to the 91-day Treasury bill rate.Following the directions given by the Garn-St Germain Act, theDIDC authorized, effective December 14, 1982, a new money marketdeposit account that can be offered by commercial banks, savings andloan associations, and mutual savings banks. In addition, the DIDGauthorized a new super NOW account, effective January 5, 1983. Neitheraccount is subject to interest rate ceilings when account balancesexceed $2,500. The DIDC also reduced to $2,500 the minimum denominationrequired on the 6-montfi money market deposits, the 91-day time deposits, and the 7- to 31-day time deposits.The introduction of NOW accounts nationwide in 1981, the authorizationof the new money market accounts at banks and thrifts,and the general phasing out of interest rate restrictions substantiallyincrease the ability of depository institutions to compete for funds.Simultaneously, various actions have been taken to allow thrift institutionsgreater flexibility in the investment of funds. The Deregulationand Monetary Control Act expands the asset powers of savingand loan associations and mutual savings banks to include consumer,corporate, and business loans. This will lead to more diversified portfoliosfor these institutions. In addition, new regulations issued bythe Comptroller of the Currency in 1981 and the Federal HomeLoan Bank Board in 1982 permit depository institutions to offer variablerate mortgages. Finally, the Garn-St Germain Act provides forFederal preemption of State laws and judicial decisions that restrictthe enforcement of due-on-sale clauses in real property loans.The Garn-St Germain Act also deals with the problems of the savingsand loan institutions discussed above. It provides capital assistanceto depository institutions that have suffered earnings and capitallosses resulting from regulatory restraints on their assets and liabilities.The assisted institutions issue capital investments, called "networth certificates," which the insuring agencies purchase with promissorynotes. This increase in net worth reduces the likelihood of insolvenciesarising from losses created by holdings of old, fixed-ratemortgages. As market rates of interest fall, and the earnings of thesedepository institutions improve, the net worth certificates will be retired.Legislation following the banking collapse of the 1930s tended toprevent competition among financial institutions and created a complexand often counterproductive labyrinth of financial regulations.Recent legislation and regulatory changes have begun to reverse this118
trend by widening the sources and uses of funds available to depositoryinstitutions, and by allowing for a far larger measure of pricecompetition in the financial services industry. These actions shouldcontribute to a stronger and more responsive financial system.STOCK EXCHANGESMuch of the regulation of the Nation's stock exchanges began inthe 1930s, largely in response to the crisis in the financial marketscreated by the Great Depression. This regulation was broad and diverse,and included mandatory and systematic disclosure of corporaterecords as well as rule-setting authority over stock exchanges. Overthe last several years, much of this regulation has been relaxed.Commission RatesPrior to 1968, commissions paid to members of stock exchangeswere fixed by those stock exchanges and approved by the Securitiesand Exchange Commission (SEC). After 1968, however, the fixedcommission schedule was slowly dismantled in favor of negotiatedcommissions. Beginning in May 1975, commission rates on all securitytransactions were negotiated.Negotiated commission rates were the product of a market-inducedbreakdown of the fixed-rate commission structure. From 1961 to1966 the dollar volume and market share of the regional stock exchangesincreased dramatically because of the fixed-rate system. Regionalstock exchanges allowed customers dealing on those exchangesto "give up" or have transferred a portion of their fixedcommission to a third party who supplied other services. The NewYork Stock Exchange (NYSE) stipulated that customers of that exchangecould only give up commissions to other members of theNYSE. This constraint that the NYSE imposed on its customers encouragedmany of those customers to turn to the regional exchanges,where competition had effectively driven down the cost of exchangeservices.Faced with a declining share of stock transactions, the NYSE askedthe SEC to force regional exchanges to eliminate the rules that wereaffording them a competitive advantage. Commenting on the NYSEproposal, the Department of Justice suggested that the broader issueof possible elimination of the fixed-rate commission structure shouldbe examined. In defense of the fixed-rate commission structure, aNYSE study suggested that "destructive competition," reflected in adecline in the quality of broker services, could result from the absenceof fixed commission rates.Despite the objections of the NYSE, the Congress passed the SecuritiesActs Amendments of 1975. These reconfirmed that nonmembercommission rates were fully negotiable and made exchange floor119
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CONTENTSPageECONOMIC REPORT OF THE
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ECONOMIC REPORT OF THE PRESIDENTTo
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Monetary policy will play a critica
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Interest Rates and the U.S. Trade D
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THE ANNUAL REPORTOF THECOUNCIL OF E
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CONTENTSPageCHAPTER 1. FROM RECESSI
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PageConclusions 122CHAPTER 6. REVIE
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CHAPTER 1From Recession to Recovery
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slowed somewhat in the 1970s regard
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nal GNP growth is reflected in a sl
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inflation. More specifically, the A
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inflation rate, or with a 12 percen
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1988, an increase of about one-four
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CHAPTER 2The Dual Problems of Struc
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frequently associated with poor hea
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Chart 2-2Distribution of Unemployme
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Chart 2-4Distribution of Unemployme
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These findings suggest several conc
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Wage RigidityA number of studies sh
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that these measures may have caused
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Most young people find jobs or leav
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to employers who hire youths. Tax c
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defined broadly to include individu
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ship between incomplete experience
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CHAPTER 3The United States in the W
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with 2.6 percent in the other Organ
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TABLE 3-1 .—Structure ofthe U.S.
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TABLE 3-2.—Trade balances by comm
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concentrate on doing what it does r
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the United States will depress pric
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Chart 3-3Real Exchange Rates Of Maj
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AN UNDERVALUED YEN?The explanations
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Page 75 and 76: nancial markets. These transactions
Page 77 and 78: TABLE 3-6.—Economic performance b
Page 79 and 80: were undoubtedly a highly favorable
Page 81 and 82: of lenders that some debtors will n
Page 83 and 84: CHAPTER 4Increasing Capital Formati
Page 85 and 86: ate of net investment was required,
Page 87 and 88: able share in Japan and 56 percent
Page 89 and 90: During the 1970s, productivity grow
Page 91 and 92: MEASURING NATIONAL SAVINGDomestic s
Page 93 and 94: TAX RULES AND PERSONAL SAVINGMany e
Page 95 and 96: on consumption taxation might also
Page 97 and 98: Nevertheless, a number of economic
Page 99 and 100: tion permitted businesses to deprec
Page 101 and 102: A final problem under current tax l
Page 103 and 104: fleeted efforts to deal with proble
Page 105 and 106: egulation was probably not applicab
Page 107 and 108: Aeronautics Board, for example, the
Page 109 and 110: system resulted. Price controls, wh
Page 111 and 112: NGPA, both controlled and decontrol
Page 113 and 114: Price and allocation controls only
Page 115 and 116: nications industries through the re
Page 117 and 118: Several major pieces of legislation
Page 119 and 120: tempt to set cartel rates would be
Page 121 and 122: computer information and advertisin
Page 123: of computer technology to the payme
Page 127 and 128: changes. That is, members can arbit
Page 129 and 130: ceived to be a consequence of exces
Page 131 and 132: lowest point in the post-World War
Page 133 and 134: ing. Partly in response to the drop
Page 135 and 136: Chart 6-3Ratio of Consumer Installm
Page 137 and 138: Chart 6-4RATIO1.85Real Inventory/Sa
Page 139 and 140: percent increase in real defense pu
Page 141 and 142: 8.8 percent in 1981. These declines
Page 143 and 144: housing. Borrowing by the nonfinanc
Page 145 and 146: orous competitor for credit as usur
Page 147 and 148: 1982 their share had risen to over
Page 149 and 150: TABLE 6-9.—Economic outlook for 1
Page 151: A critical element in achieving hea
Page 155 and 156: LETTER OF TRANSMITTALCOUNCIL OF ECO
Page 157 and 158: Report to the President on the Acti
Page 159 and 160: ety of interagency and internationa
Page 161: ence J. Kotlikoff (Yale University)
Page 165 and 166: CONTENTSNATIONAL INCOME OR EXPENDIT
Page 167 and 168: B-70. Mortgage debt outstanding by
Page 169 and 170: NATIONAL INCOME OR EXPENDITURETABLE
Page 171 and 172: TABLE B-2.—Gross national product
Page 173 and 174: 19291933193919401941194219431944194
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TABLE B-5.—Changes in GNP and GNP
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TABLE B-7.—Gross national product
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TABLE B-9.—Gross national product
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TABLE B-ll.—Gross national produc
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TABLE B-13.—Output, costs, and pr
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TABLE B-14.—Personal consumption
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TABLE B-16.—Gross and net private
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TABLE B-18.—Inventories and final
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TABLE B-20.—Relation of national
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TABLE B-21.—National income by ty
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TABLE B-22.—Sources of personal i
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TABLE B-24.—Total and per capita
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Year or quarterTotalTotalTABLE B-26
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POPULATION, EMPLOYMENT, WAGES, AND
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TABLE B-29.—Noninstitutional popu
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TABLE B-31.—Selected employment a
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TABLE B-33.—Civilian unemployment
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TABLE B-35.—Unemployment by reaso
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TABLE B-37.— Wage and salary work
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TABLE B-39.—Average weekly earnin
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TABLE B-41.—Changes in productivi
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TABLE B-43-—Industrial production
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TABLE B-45.—Capacity utilization
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TABLE B-46.—New construction acti
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TABLE B-48.—Nonfarm business expe
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TABLE B-50.—Manufacturers' shipme
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Year or monthAllitemsPRICESTABLE B-
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TABLE B-53.—Consumer price indexe
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TABLE B-55.—Changes in consumer p
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TABLE B-57.—Producer price indexe
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MONEY STOCK, CREDIT, AND FINANCETAB
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TABLE B-63.—Commercial bank loans
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TABLE B-64.—Total funds raised in
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TABLE B-66.—Aggregate reserves of
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TABLE B-67 .—Bond yields and inte
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TABLE B-69.—Consumer installment
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TABLE B-71-—Mortgage debt outstan
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TABLE B-72.—Federal budget receip
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TABLE B-74.—Relation of Federal G
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TABLE B-76.—Federal Government re
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TABLE B-78.—State and local gover
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TABLE B-80.—Estimated ownership o
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CORPORATE PROFITS AND FINANCETABLE
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Year or quarterTABLE B-84.—Corpor
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TABLE B-86.—Relation of profits a
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TABLE B-88.—Determinants of busin
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TABLE B-9Q.~Current assets and liab
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TABLE B-92.—Common stock prices a
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AGRICULTURETABLE B-94.—Farm incom
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TABLE B-96.—Farm input use, selec
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TABLE B-98.—U.S. exports and impo
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INTERNATIONAL STATISTICSTABLE B-100
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TABLE B-101.—U.S. international t
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TABLE B-103.—U.S. merchandise exp
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TABLE B-105.—International invest
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TABLE B-107.— World trade balance
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TABLE B-109.—Growth rates in real
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TABLE B-lll.—Unemployment rate, a
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