ECONOMIC

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esult from changes in market value or changes in exchange rates, also havea small impact on the U.S. net asset position. Because of the small surpluson current account and the large level of net reinvested earnings, the netasset position of the United States must have improved markedly during1973.Balance of payments figures indicate, however, that the increase in liabilitiesto foreigners exceeded the increase in U.S. assets abroad by about$4^2 billion for the first 3 quarters of the year. This inconsistency can bepartly explained by the net acquisition of unrecorded short-term foreignassets by Americans.U.S. assets abroad are on the whole less liquid than U.S. liabilities to foreigners.At the end of 1972 about 90 percent of the $200 billion in assetsabroad were considered nonliquid. Direct investments amounted to about$95 billion; holdings of long-term foreign securities were about $25 billion.The remaining nonliquid assets include $15 billion in nonliquid short-termassets held by private Americans, $10 billion in private long-term claimsby banks and others and $35 billion in Government-owned assets. Most ofthe U.S. liquid assets are in the form of official monetary reserves. On theother hand, more than half of the $150 billion in liabilities to foreigners areconsidered liquid; most of these liabilities are in the form of bank deposits,short-term Treasury securities, and negotiable certificates of deposit.HOW GOVERNMENTS BEHAVED IN THE MONETARY ARENADuring 1973 international monetary arrangements continued to evolvein response to changing needs. A major characteristic of these evolvingarrangements is a considerable diversity in practices by different countries.Yet despite this diversity, countries cooperated with each other to a remarkableextent, as they had in 1972, and from their cooperation one could beginto see the development of some conventions to guide countries in theirmonetary relations. This process has benefited from the discussions takingplace in the framework of the Committee of Twenty, a committee associatedwith the International Monetary Fund.Exchange Rates and InterventionExchange rates became more flexible in 1973, as the governments ofmost major countries reduced or suspended their commitments to maintainfixed exchange rates, and other governments changed their par valuesmore frequently. While governments have continued to intervene in theforeign exchange market in order to influence the movement of the exchangerate, it can no longer be assumed that they will finance an excessdemand or absorb an excess supply of foreign currencies at given exchangerates. The situation can best be described as one of managed floating.In managing their exchange rates, countries followed widely differingpractices, as can be seen in Table 53. Some countries have allowed theircurrencies to float within a rather wide range, resorting to only limited196
TABLE 53-—Maximum percent change in exchange rates between vatious foreign currenciesand the dollar during 1973Maximum percent change in rate during 1973Type of interventionNo change1-8 percent9-20 percentMore than20 percentCountries maintaining a jointfloat, with intervention tomaintain a stable relationshipwithin the group, butminimal intervention in outsidecurrencies.Sweden.BelgiumGermanyDenmarkFranceNetherlandsNorwayCountries floating independentlywith some interventionin the foreign exchangemarket.Countries undertaking considerableintervention to maintaina stable relationshipvis-a-vis the dollar (exceptwhere another currency isnoted).TurkeyArgentinaBoliviaCosta RicaDominican RepublicEcuadorEl SalvadorGuatemalaHaitiHondurasMexicoNicaraguaParaguayPeruIsraelPhilippinesItalyCanadaBrazilColombiaVenezuelaRepublic of ChinaThailandKoreaUnited KingdomIcelandFinlandPortugalGhanaIndia (pound)PakistanSpainEgyptEthiopiaIranIraqSaudi ArabiaSri LankaSouth AfricaGreeceYugoslaviaAustriaSwitzerlandAustraliaUruguayAfghanistanJapanCFA Countries(French franc)ChileCountry fixing rate with respectto an average of other currencies.MoroccoNew ZealandNote.—The procedure for computing maximum percentage changes was to find the largest end month deviationduring the year from the dollar exchange rate in effect at the end of December 1972.Sources: International Monetary Fund, and Council of Economic Advisers.intervention in foreign exchange markets to maintain orderly market conditions.One group of countries, comprising Germany, France, Belgium, theNetherlands, Denmark, Norway, and Sweden, decided to keep their currenciesrelatively fixed with respect to each other. Whenever spot market exchangerates between any two currencies in the group deviate by more than2J4 percent from an agreed relationship, the monetary authorities areobliged to intervene in terms of each other's currencies. However, in January1974, the Government of France announced that it would sever the tiebetween the franc and the other EC currencies floating jointly. Some countrieshave decided to keep their currencies fixed to one or the other of themajor currencies. A few countries have followed the practice of keeping theircurrencies fixed relative to an average of other currencies weighted accordingto their importance in bilateral trade.Most countries, regardless of the exchange rate regime they have chosen,have continued to intervene in the foreign exchange market to varyingdegrees. Some countries, the United States among them, have restrictedthemselves to limited intervention with the object of maintaining orderlymarket conditions. Other countries, although they were officially floating,197
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ECONOMICTRANSMITTEDTO THE CONGRESSF
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CONTENTSPageECONOMIC REPORT OF THE
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ECONOMIC REPORT OF THE PRESIDENTTo
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of the inflation rate of 1973, and
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or permit incentives—including hi
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people of an easy time. Like our pa
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THE PRESIDENT:LETTER OF TRANSMITTAL
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CHAPTER 3. INFLATION CONTROL UNDER
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Page7. Unemployment Rates by Sex an
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Page53. Maximum Percent Change in E
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We have specific problems, too, asi
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This curtailment of supply does, of
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consumption we would not have chose
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outside the food and fuel sectors a
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about $14 billion from deficit to s
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8 percent, at annual rates. Continu
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A third method, which seems to have
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DEVELOPMENT OF LOW-COST ENERGY FOR
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would otherwise have been invested
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TRANSPORTATION REFORMLast year the
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constraints. Restrictions on entry
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In early 1974 the Commerce Departme
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Consumer SpendingConsumer expenditu
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Chart 1Changes in GNP, Real GNP, GN
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During the fourth quarter the downt
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A number of points may be noted abo
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income do not appear to have played
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Chart 2Changes in Real GNPPERCENTUN
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of essentially declining participat
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The unemployment rate for adult mal
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from job losers, the remainder of t
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to maintain a somewhat larger work
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Chart 3Changes in Selected Price Me
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TABLE 12.—Changes in selected pri
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production workers, and it is sensi
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the profits that companies report a
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Two measures of changes in income t
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About $8 billion of the growth in e
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effect of covered wage and employme
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Since these apparent stabilization
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MONETARY POLICY AND FINANCIAL MARKE
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lation requiring ceilings on all CD
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TABLE 19.—Offerings of new securi
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CHAPTER 3Inflation Control Under th
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(A more detailed presentation of th
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ate of advance in grocery store foo
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to the economy but also in the sens
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were imposed, limiting prices to th
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spurring of domestic inflation by e
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was more than twice as high in 1973
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wage increases in many cases, const
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TABLE 26.—Behavior of items in co
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Chart 6Changes in RelatedWholesale
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and natural gas. A complex set of f
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CHAPTER 4Energy and AgricultureFOR
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al gas have contributed to the low
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TABLE 30*—Wholesale prices, all i
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tion sector, which in 1972 accounte
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United States on oil imports, OPEC
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of old oil and prices of imported a
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LONG-TERM PROSPECTSThe price of imp
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important that the higher costs be
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improving the environment. The fund
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pollutants into the atmosphere will
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of research and rapid mechanization
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lion in fiscal 1972. Actually the a
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a minimum income. Unless prices fal
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The Administration supports the exa
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and estimates of some of these effe
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Since families typically pool their
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ability were not perfectly correlat
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Farm wages and farm income received
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Page 154 and 155: Chart 9Real Incomes for Men in Diff
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Page 158 and 159: whose owners or white workers have
Page 160 and 161: Several factors can be mentioned to
Page 162 and 163: y social pressures, however, which
Page 164 and 165: TABLE 42.—Relation of wage and sa
Page 166 and 167: ferences in their mix of occupation
Page 168 and 169: for public housing may be valued by
Page 170 and 171: 8 to 20 percent for black females.
Page 172 and 173: sufficiently high to cover the addi
Page 174 and 175: TABLE 45.—Federal Government tran
Page 176 and 177: given to the problems of poverty du
Page 178 and 179: TABLE 47.—Trends in the employmen
Page 180 and 181: enefit increases greater than the i
Page 182 and 183: (Table 45). Medicare is chiefly des
Page 184 and 185: Public assistance is specifically d
Page 186 and 187: Then, subtracting equation (4) from
Page 188 and 189: policies, and the tensions among co
Page 190 and 191: In the fourth quarter the dollar ro
Page 192 and 193: which include trade, grants and oth
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Page 196 and 197: ply of oil, and by domestic price c
Page 198 and 199: in the United States. In view of th
Page 200 and 201: TABLE 52.—U.S. balances on intern
Page 204 and 205: TABLE 54.—Major changes in capita
Page 206 and 207: attempt was made to agree on a code
Page 208 and 209: The official price of gold was rais
Page 210 and 211: system, these demand changes were a
Page 212 and 213: What Pressures Should Be Exerted on
Page 214 and 215: The composition of reserves among d
Page 216 and 217: prices of approximately the same or
Page 218 and 219: tained, they would probably be felt
Page 220 and 221: Reducing Nontariff BarriersIn order
Page 222 and 223: Structural problems. Agreements on
Page 224 and 225: arrangements which are designed to
Page 226 and 227: capital and the means of putting th
Page 228 and 229: Canada and four smaller countries u
Page 230 and 231: currencies have appreciated relativ
Page 232 and 233: Effective Changes in Other Currenci
Page 235 and 236: Activities of the Advisory Committe
Page 237: Appendix BREPORT TO THE PRESIDENT O
Page 241 and 242: Report to the President on the Acti
Page 243 and 244: govern the exploitation of the reso
Page 245 and 246: Manpower and Social Affairs Committ
Page 247 and 248: Junior Staff EconomistsJames S. Fac
Page 249: Appendix CSTATISTICAL TABLES RELATI
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PRODUCTION AND BUSINESS ACTIVITY:Pa
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NATIONAL INCOME OR EXPENDITURETABLE
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TABLE C-2.—Gross national product
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TABLE C-3.—Implicit price deflato
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TABLE C—8.—Gross national produ
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TABLE C-10.—Gross national produc
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TABLE C-12.—Personal consumption
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TABLE C-14.—Relation of gross nat
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TABLE C—16.—Relation of nationa
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TABLE C-18.— Total and per capita
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TABLE C-19.—Sources of personal i
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TABLE C-21.—Saving by individuals
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POPULATION, EMPLOYMENT, WAGES, ANDP
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TABLE C-24.—Noninstitutional popu
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TABLE C-26.— Selected unemploymen
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TABLE C—28.—Unemployment insura
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TABLE C-29.—Wage and salary worke
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TABLE C-31.—.•Average weekly ea
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TABLE C-33.—Changes in output per
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TABLE C—35.—Industrial producti
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TABLE C-37.—Capacity utilization
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TABLE C—38.—New construction ac
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TABLE C-39.—New housing starts an
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TABLE C-41.—Sales and inventories
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TABLE C-43.—Manvjacturers* new an
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TABLE O45.—Consumer price indexes
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TABLE C—47.—Consumer price inde
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TABLE C~49.—Wholesale price index
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TABLE C-50.—Wholesale price index
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194819491950.,1951195219531954Yearo
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TABLE C-53.—Commercial bank loans
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TABLE G-54.—Total funds raised in
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TABLE C-56.—Federal Reserve Bank
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TABLE C-58.—Bond yields and inter
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TABLE C-59.—Short- and intermedia
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TABLE C-61.—Mortgage debt outstan
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TABLE C-63.—Net public and privat
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TABLE C-65.—Federal budget receip
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TABLE C-66.—Relation of the Feder
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TABLE C-68.—Receipts and expendit
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TABLE C-10.—State and local gover
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TABLE C-72.—Estimated ownership o
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CORPORATE PROFITS AND FINANCETABLE
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TABLE C-76.—Relation of profits a
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TABLE C-77.—Sources and uses of f
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TABLE C-79.—State and municipal a
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TABLE C-81.—Business formation an
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Year1929...1933...1939...1940...194
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TABLE C-85.—Indexes of prices rec
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TABLE G-87.—Comparative balance s
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TABLE G-88.— U.S. balance of paym
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TABLE C-90.— U.S. merchandise exp
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TABLE C-92.—International reserve
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TABLE G-94.—International investm
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TABLE C-96.—Consumer price indexe
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