Tape 127 - Answers to listeners questions
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Transcript
Transcripts may contain inaccuracies.
Announcer | Welcome once again | 0:02 |
as MIT professor Paul Samuelson discusses | 0:03 | |
the current economic scene. | 0:05 | |
This program series is produced | 0:07 | |
by Instructional Dynamics Inc. | 0:08 | |
This program was recorded May 3rd. | 0:11 | |
Paul | This is a good time to catch up | 0:14 |
on some of the mail and on some of the questions | 0:15 | |
that have been sent to me by subscribers to these tapes. | 0:18 | |
I have here a letter of about a month ago. | 0:24 | |
"Dear Dr. Samuelson, it looks like the best way | 0:29 | |
to anticipate economic developments these days | 0:31 | |
is to think of the boldest and most unexpected | 0:34 | |
initiative President Nixon can make." | 0:36 | |
This was before Watergate. | 0:39 | |
"The one idea that might fit his style | 0:40 | |
is the sudden demonetization of gold. | 0:42 | |
By this I mean an announcement | 0:45 | |
that we with or without our economic allies have decided | 0:48 | |
to liquidate our gold stock by a combination | 0:51 | |
of open market sales and a series of sealed bids. | 0:53 | |
At least a forceful move such as this would give substance | 0:57 | |
to the frequently heard public pronouncements | 0:59 | |
that gold is an overrated barbaric metal. | 1:01 | |
If it is let's get out while the price is high. | 1:04 | |
We could also save several millions I'm sure | 1:07 | |
in the upkeeping of Fort Knox. | 1:10 | |
Is this a realistic idea?" | 1:12 | |
I don't think that, | 1:16 | |
you should bet that the president is likely unilaterally | 1:20 | |
in the next six months to make a bold announcement | 1:23 | |
of this sort, but the suggestion is definitely | 1:28 | |
in the spirit of the times. | 1:32 | |
There actually is legislation on its way through Congress. | 1:34 | |
I believe the best informed observers think | 1:38 | |
that the legislation will probably go through Congress. | 1:40 | |
Which will give American citizens the right once again | 1:44 | |
to hold gold, a right which they haven't had since 1933. | 1:48 | |
I'm not now talking about the holding | 1:53 | |
in our mouths of gold dental inlays. | 1:57 | |
I'm not talking about gold in our wedding rings and watches. | 2:00 | |
Nor in decorative jewelry, | 2:04 | |
or gold relays in complicated electronic circuits. | 2:07 | |
I'm not even talking about old gold coins | 2:13 | |
because any gold coin made before 1934 | 2:15 | |
it's perfectly legal for you and for me to hold. | 2:19 | |
We can hold American Eagles, | 2:24 | |
in fact those 20 dollar gold pieces, | 2:26 | |
five dollar gold pieces, | 2:28 | |
10 dollar gold pieces are way, way up. | 2:30 | |
They're way, way up by much more than the increase | 2:33 | |
in the price of the gold metal | 2:36 | |
which when they were coined was 21 dollars an ounce | 2:38 | |
and which now in the free market | 2:41 | |
is selling somewhere around the 90 dollars an ounce. | 2:43 | |
I'm talking about being able to treat gold exactly | 2:48 | |
like any other commodity. | 2:52 | |
Being able to buy and sale futures for gold | 2:54 | |
in the Chicago organized market, | 2:58 | |
in exactly the way that you and I can buy futures | 3:02 | |
on soybeans, on wheat, on pork bellies, and on silver. | 3:06 | |
Now Congress is, I'm informed, | 3:12 | |
likely both houses to pass such a bill. | 3:16 | |
However, it's likely to go through in the form | 3:19 | |
that it doesn't become law upon the passage | 3:22 | |
of the legislation but will be enacted into | 3:26 | |
being by the decision of the president | 3:30 | |
at a time when he thinks that it's alright to do so. | 3:34 | |
This is part of the increased discretionary powers | 3:38 | |
which Congress is sometimes willing | 3:41 | |
to give to the president. | 3:45 | |
In my view, it would be a mistake | 3:48 | |
to pass that bill without the presidential discretion | 3:53 | |
so that sometime in the next few months, | 3:58 | |
you or I could hold gold. | 4:01 | |
How can I say that, when I am on record, | 4:04 | |
and I wish to reaffirm that fact that I am in favor | 4:06 | |
of phasing out gold from the monetary system. | 4:09 | |
It's precisely because I want to phase gold out | 4:13 | |
from the monetary system that I don't want anything | 4:17 | |
to happen in the short-run which is going vastly | 4:21 | |
to increase the demand for gold. | 4:24 | |
Because the more valuable gold becomes | 4:27 | |
I think the more difficult it is for us | 4:30 | |
to get it out of the system. | 4:32 | |
Now my subscriber you notice, has not proposed anything | 4:35 | |
which would increase the demand for gold. | 4:40 | |
Quite the contrary his proposal is completely | 4:42 | |
within the spirit and the letter | 4:45 | |
of the Royce Subcommittee of the Joint Economic Committee. | 4:47 | |
Which on a bipartisan basis advocated the selling off | 4:51 | |
the selling off of our gold | 4:58 | |
either unilaterally or with the cooperation | 5:00 | |
of the other members of the club of 10 | 5:04 | |
in the 125 nation family of the International Monetary Fund. | 5:08 | |
And I must say that there are certain merits | 5:14 | |
in that proposal, on balance I'm not sure | 5:19 | |
that I would go for it at this time | 5:21 | |
but let me give them the most favorable case for it. | 5:24 | |
The most favorable case for it would be that | 5:26 | |
every sober rational well informed person | 5:32 | |
would be able to form the judgment | 5:37 | |
that our allies are with us | 5:40 | |
in phasing gold out of the monetary system. | 5:42 | |
So that process would not be jeopardized | 5:44 | |
by anything that happens. | 5:48 | |
That I may say is a, an assumption | 5:49 | |
completely contrary to fact. | 5:52 | |
We don't even have gold out of our own ideology. | 5:54 | |
I mean by our the American people's ideology. | 5:58 | |
And you may be sure that the French | 6:02 | |
and in lesser degree the Dutch and the Belgians | 6:04 | |
just take an example still have a great deal | 6:09 | |
of the gold bug in their system. | 6:12 | |
And the Japanese have just been given the right | 6:16 | |
to import gold, to hold gold. | 6:19 | |
This has been an increase in the demand for gold. | 6:23 | |
I think that it has definite repercussions | 6:26 | |
for the free price. | 6:29 | |
The result is that since it's very problematical | 6:32 | |
that we will in fact be able to smoothly | 6:35 | |
and with confidence get gold out of the monetary system. | 6:38 | |
You must always have contingency planning | 6:42 | |
on the basis of the considerable probability | 6:45 | |
that instead of gold going out | 6:47 | |
of the monetary system it will come back. | 6:49 | |
And I may say if it does come back, | 6:52 | |
if it comes back with a more formal role | 6:54 | |
than it now has you may be sure it's not gonna come back | 6:56 | |
at the | 6:59 | |
21 dollars an ounce. | 7:02 | |
The rate that prevailed before 1914, | 7:04 | |
and prevailed before 1933, | 7:08 | |
when Franklin Roosevelt unilaterally devalued the dollar. | 7:12 | |
It's not gonna come back at the 35 dollar an ounce rate | 7:15 | |
which prevailed for most of the years since 1935. | 7:18 | |
It's not gonna come back at the 38 dollars an ounce rate | 7:24 | |
which prevailed between | 7:27 | |
December 1971 when the Smithsonian agreement was signed | 7:30 | |
and the breakdown of that agreement | 7:33 | |
in just February of this year. | 7:36 | |
And my suspicion is that if gold comes back | 7:39 | |
in a more prominent role it will certainly not come back | 7:42 | |
at an official price, | 7:45 | |
that now prevails which is 42 dollars and 22 cents an ounce. | 7:48 | |
So if you're gonna go selling off our stockpile | 7:53 | |
of this raw material from Fort Knox. | 7:58 | |
You want to be sure that you get a good price for it. | 8:01 | |
As good a price as you can get later. | 8:05 | |
My correspondent, | 8:08 | |
seems to think that the 90 dollars an ounce price | 8:11 | |
which prevails now is a good high temporary price | 8:14 | |
and we ought to unload while the unloading is good. | 8:17 | |
I don't know that he's wrong in that. | 8:20 | |
He may well be right. | 8:23 | |
However, you mustn't think that | 8:25 | |
that price will stay the same if we and a large number | 8:28 | |
of other nations change the | 8:33 | |
agreement. | 8:37 | |
The two-tiered gold system agreement | 8:38 | |
made in March of 1967 or 1968, | 8:40 | |
and begin to dump gold on the market in billions of dollars. | 8:44 | |
Because that will mean of course | 8:49 | |
that like anybody who owns a lot of stock | 8:52 | |
in comparison to the total floating supply. | 8:54 | |
Although Ross Perot is a | 8:57 | |
billionaire on paper if he really tried | 9:00 | |
to sale all of this stock he would so knock down the price | 9:02 | |
that he couldn't do it. | 9:06 | |
This is a very important consideration realized | 9:08 | |
by sophisticated economists | 9:11 | |
that only when you are a price taker | 9:13 | |
as a small part of a very large comparative market | 9:16 | |
can the quoted market prices be construed | 9:20 | |
to be realistic prices at which you could sell. | 9:23 | |
I should digress to say that its a very foolish position | 9:27 | |
in my judgment to believe that the dollars | 9:33 | |
which are held abroad in such great amounts. | 9:37 | |
70, 80 odd billions of dollars are voluntarily held. | 9:39 | |
Precisely these imperfections | 9:43 | |
of competition consideration supply | 9:46 | |
and there's a very simple test I've tried this out | 9:49 | |
on central bankers all over the world, | 9:52 | |
and I've tried it out on informed opinion. | 9:54 | |
And there's always only one universal answer. | 9:56 | |
Let us make the following test, | 9:59 | |
the United States government will agree | 10:00 | |
to take off the hands of the German Central Bank | 10:02 | |
five billion of their redundant dollars. | 10:07 | |
If they really want those dollars, | 10:12 | |
then they would say no and on that offer | 10:14 | |
they would refuse at the official price | 10:17 | |
to make the negotiation. | 10:19 | |
Well don't hold your breath until the United States | 10:21 | |
is in a position to make such an offer, | 10:23 | |
but I can assure you that they would jump at it. | 10:25 | |
The Japanese would jump at it, | 10:28 | |
and so by the only meaningful test these dollars abroad | 10:30 | |
are not voluntarily held at the existing price. | 10:34 | |
They're only voluntarily held in the sense | 10:39 | |
that anybody who has a monopoly, say of coffee, | 10:41 | |
or of rubber as with the Stevenson Agreements. | 10:46 | |
Hold something off the market because he knows | 10:48 | |
that the more he sells in what may even be | 10:50 | |
an inelastic market the less receipts he will actually get. | 10:54 | |
I have said that I don't disagree | 11:01 | |
that the 90 dollar price of gold is high. | 11:03 | |
But it doesn't mean that I agree. | 11:06 | |
I think that it's quite possible | 11:09 | |
particularly if more countries do what Japan just did. | 11:12 | |
Enable their citizens to take speculative positions | 11:18 | |
in gold that you will have such a short-run, | 11:20 | |
five years say, increase in the demand for gold. | 11:25 | |
That the price of 90 dollars could go much higher. | 11:29 | |
After all, there's nothing that is holding | 11:32 | |
that price down or up. | 11:34 | |
It is not the demand of dentists, | 11:38 | |
and of jewelers, and of electronic engineers | 11:42 | |
that is determining that price of gold. | 11:46 | |
It is not primarily the supply of gold | 11:49 | |
from Russian mines, from Canadian mines, | 11:52 | |
from the very few American mines, | 11:55 | |
and of course abundantly from the South African mines | 11:57 | |
that's determining that price. | 12:01 | |
The price of gold is being determined | 12:03 | |
by what one speculative holder of gold thinks | 12:05 | |
another speculative holder of gold | 12:10 | |
will be willing at some future date to pay for it. | 12:13 | |
And in such a situation, | 12:16 | |
you are precisely where you were centuries ago | 12:18 | |
at the time of the so called Tulip Mania in Holland. | 12:22 | |
In Holland suddenly everybody decided | 12:27 | |
that Tulips were going to go up in price, | 12:29 | |
and so a bulb which cost a gilder went up to 10 gilders. | 12:32 | |
But why should it stop there? | 12:37 | |
Why shouldn't it be 100 gilders? | 12:38 | |
Why shouldn't it be a 1000 gilders? | 12:40 | |
And pretty soon for one tulip bulb you'd have | 12:41 | |
to give the equivalent of the cost | 12:44 | |
of a fancy carriage and a team of horses | 12:45 | |
to pull that carriage. | 12:50 | |
If you like you can say this is the greater fool theory, | 12:53 | |
and that the man who is sober and sane | 12:56 | |
throughout the process is just throwing away | 12:59 | |
his family's money because | 13:01 | |
it's right there for the pickings. | 13:03 | |
Well every Ponzi game, every chain letter scheme runs out | 13:05 | |
of suckers after a time. | 13:11 | |
People are wrong by the way, | 13:13 | |
to think that it runs out of suckers | 13:14 | |
because there is only a certain number of people. | 13:16 | |
And you say well when a million people | 13:18 | |
are in the chain letter it might still begin to roll. | 13:20 | |
But since there are only 200 million people | 13:22 | |
in the American country you're soon going | 13:24 | |
to run out of all the people. | 13:26 | |
Well that is an understatement because what happens | 13:28 | |
is the same sucker when he finds he can make a sure thing | 13:31 | |
of 12 percent on his money he doubles up | 13:34 | |
and brings his money back. | 13:39 | |
And therefore we have no economic theory | 13:40 | |
to determine how long such a mania will persist. | 13:43 | |
So it is with respect to gold | 13:49 | |
and I could not rule out that gold | 13:51 | |
will be 150 dollars an ounce at some future date | 13:54 | |
when I'm talking on tape like this. | 13:58 | |
On the other hand, I can't rule out | 13:59 | |
that it won't go back to 60 dollars a share. | 14:02 | |
I've said many unkind thing in my time | 14:07 | |
about the suckers who hold gold equities. | 14:11 | |
And I know a lot of people who for 25, | 14:16 | |
35 years have been owning stocks like Homestake Gold Mining. | 14:19 | |
And they were behind the game | 14:23 | |
in comparison with any ordinary portfolio. | 14:26 | |
That doesn't mean this last year when the price | 14:32 | |
of gold in the free market has gone up | 14:33 | |
to the nine dollar level | 14:37 | |
that they don't have some paper profits. | 14:39 | |
Indeed if you were to take a survey | 14:41 | |
of which closed end investment funds have done the best | 14:43 | |
in this last few months and in this last year, | 14:47 | |
you would find at the top of the list the Japan Fund. | 14:50 | |
Now we all know the very many solid reasons | 14:53 | |
why a portfolio well chosen | 14:56 | |
of representative Japanese securities | 14:59 | |
might show tremendous capital gains. | 15:02 | |
Capital gains of 50 percent in a years time. | 15:05 | |
But second on that list you would find South African, | 15:10 | |
American South African Gold Trust. | 15:13 | |
Which holds stocks in diamonds in some degree, | 15:17 | |
but for the most part holds South African gold mine shares. | 15:21 | |
Now that isn't surprising because the mines | 15:27 | |
that were breaking even, making a little money | 15:32 | |
when gold had to be sold on the free market | 15:35 | |
at 35 dollars an ounce and that's not very long ago. | 15:38 | |
Or 38 dollars an ounce, or in the 40s. | 15:41 | |
When you can sell at prices of 50 and 60 dollars, | 15:43 | |
and those are the realistic numbers | 15:47 | |
because the price is now 90. | 15:49 | |
But not very much has been capable | 15:51 | |
of being sold at that high price. | 15:52 | |
Then you'll realize that those shares | 15:55 | |
will have an increase in earnings. | 15:57 | |
They'll be entitled to a fair price earnings multiple, | 15:59 | |
and that they will go up in price. | 16:03 | |
So what was silly, | 16:07 | |
stock market behavior from 1945 | 16:12 | |
to 1959, to 1965, | 16:15 | |
isn't necessarily silly at a later date. | 16:20 | |
Well to conclude, in fact this is what I've written | 16:24 | |
at the bottom of the letter just a brief word. | 16:28 | |
Our President and Congress are not sure, | 16:31 | |
cannot be sure, that the world will phase out gold | 16:34 | |
from the monetary system for all time. | 16:36 | |
So they are afraid to risk getting rid | 16:39 | |
of all of our official gold on the free market. | 16:42 | |
This despite the urgings of many | 16:45 | |
that they should be more bold. | 16:47 | |
Now I have a second communication from a subscriber. | 16:50 | |
He asks, "Which of the forecasting methods | 16:52 | |
has actually done the best in recent years? | 16:56 | |
I gather that you are not enamored | 16:59 | |
of monetarism but the proof of the pudding is in the eating. | 17:02 | |
How have the different methods actually done?" | 17:06 | |
That's a fair question, | 17:10 | |
and I actually am in a position to give a partial answer | 17:14 | |
to that question just by good luck. | 17:18 | |
I've received through the mail just a few days ago | 17:20 | |
from Ray Fair at Princeton his latest set of forecasts. | 17:23 | |
I'll remind you, that he is a one man, | 17:28 | |
one man with computer forecaster. | 17:33 | |
And he plays the game differently from other forecasters. | 17:36 | |
He does this as a matter of philosophy. | 17:40 | |
He does it in order to test out his methodology. | 17:42 | |
He believes that you should specify your model. | 17:45 | |
You should estimate the coefficients from the data, | 17:48 | |
and then you shouldn't second guess it. | 17:51 | |
You shouldn't adjust the coefficients by judgment, | 17:53 | |
and let the chips fall where they may | 17:56 | |
and then just see what the track record will be | 17:58 | |
over the period of time. | 18:00 | |
And he always gives his own previous forecast, | 18:01 | |
what his errors have been, | 18:04 | |
what his revisions have been, and that's interesting. | 18:05 | |
I may say I think his results have been only fair | 18:07 | |
by that method that was my impression. | 18:12 | |
This time he gives us the materials out of which | 18:15 | |
to make a sharper judgment because he took half a dozen | 18:18 | |
or more regular forecasters and he did the same thing | 18:24 | |
with them which he does for himself. | 18:28 | |
He showed what they first forecast the first time | 18:30 | |
they forecast for a given quarter, what it would be. | 18:34 | |
Then as you move closer, and closer to that quarter | 18:36 | |
they had adjusted their forecasts | 18:40 | |
and he recorded all of these forecasts. | 18:42 | |
And then he calculated after we know the actual | 18:45 | |
how the different forecasters did in terms of error. | 18:49 | |
What their percentage error was, | 18:55 | |
what their absolute error was. | 18:57 | |
whether they were biased on the upside or the downside. | 18:58 | |
And he was able to do this for quite a number | 19:02 | |
of quarters and with quite a number | 19:04 | |
of estimates for the same quarter. | 19:06 | |
And then he simply lists in a table, | 19:09 | |
the different forecasters as to who did the best | 19:12 | |
in this particular period. | 19:16 | |
Now what did it show? | 19:18 | |
At the top of the list, and this was no surprise to me | 19:21 | |
because I've noticed that this particular forecasting model | 19:24 | |
has been having a good run for its money recently, | 19:30 | |
is the University of Michigan. | 19:33 | |
The Ann Arbor, University of Michigan forecast | 19:34 | |
which comes out annually | 19:39 | |
at the outlook session in Ann Arbor | 19:40 | |
in November and which as each quarter's data comes in, | 19:45 | |
gives you a new forecast looking ahead. | 19:51 | |
It has the very best record, | 19:53 | |
both in real terms and in nominal terms. | 19:57 | |
At the bottom of the list, | 20:02 | |
is the Federal Reserve Bank of St. Louis. | 20:04 | |
It's particularly bad as I recall the data | 20:07 | |
on the thing at which it might be hoped | 20:12 | |
it would be particularly good, | 20:15 | |
namely the increase in nominal or money GNP | 20:16 | |
as against the increase in real GNP. | 20:23 | |
That too is no surprise, | 20:27 | |
because although there was an earlier period | 20:29 | |
in which the Federal Reserve Bank of St. Louis | 20:32 | |
was sort of moving along in step with reality. | 20:34 | |
It's been obvious in, for many quarters now | 20:37 | |
that it has been giving under estimates. | 20:41 | |
That I may say is the only monetarist model | 20:45 | |
that was analyzed by Ray Fair | 20:49 | |
because he didn't have complete data. | 20:53 | |
I keep track however, | 20:54 | |
of a number of other monetarist's forecasts | 20:56 | |
and I used to think that the best of them | 21:01 | |
in terms of track record. | 21:04 | |
In terms of mean error, | 21:07 | |
was the Federal Reserve Bank of St. Louis, | 21:08 | |
and the best of them in this period | 21:11 | |
has been doing rather poorly. | 21:15 | |
As a matter of fact, most of the monetarist's I know | 21:19 | |
have been, and I don't criticize them I applaud this, | 21:22 | |
have been second guessing their own models. | 21:27 | |
And have been writing them up and have been trying | 21:29 | |
to re-specify the models by whatever it is | 21:31 | |
that will cause the numbers to be larger. | 21:34 | |
I would refer you for example to the forecasts | 21:38 | |
that have come out of the Argus organization | 21:41 | |
and also the forecasting methodology | 21:48 | |
which I commented on once before, | 21:51 | |
by the First National City Bank. | 21:53 | |
Which has put in a trim factor | 21:56 | |
into its coefficients in its velocity. | 21:58 | |
So there's interaction between a time | 22:01 | |
in the lagged money supply and this has the notable function | 22:03 | |
of moving up the forecast. | 22:10 | |
The Chase Econometric Model ranked very high | 22:13 | |
in this period, the Wharton School model did quite well. | 22:18 | |
The Data Resources, Inc. model didn't do quite so well. | 22:22 | |
It's somewhere in the middle. | 22:26 | |
Fair's model by the way does not do very well. | 22:27 | |
It's somewhere just below the middle. | 22:29 | |
I wish that he had had comprehensive data | 22:34 | |
on some of the other models which I follow | 22:37 | |
and which I quote sometime here | 22:39 | |
as for example, the Townsend-Greenspan model. | 22:42 | |
But I think that the picture which Ray Fair gives, | 22:45 | |
is a pretty good picture. | 22:48 | |
I would not myself, | 22:50 | |
judge the profundity of a economic Weltanschauung | 22:53 | |
by how good the R-squares of forecasting are, | 23:00 | |
I think that that's a silly game. | 23:03 | |
But as I've written many times, | 23:05 | |
those who live by the sword have to perish by the sword. | 23:07 | |
And if really all you have to show | 23:10 | |
is good R-squares then when it, | 23:12 | |
when it rains low R-squares | 23:17 | |
then I think you have to be properly penalized. | 23:21 | |
Now let me turn, | 23:28 | |
from those couple a questions | 23:31 | |
to just what's happening right now. | 23:33 | |
As I speak we just had received the news | 23:36 | |
that farm and food prices at the wholesale level, | 23:39 | |
went down in April for the first time in five months. | 23:43 | |
After rising for five months. | 23:47 | |
I think that is good news. | 23:48 | |
I don't think we should make too much | 23:50 | |
of that good news because the, | 23:51 | |
what happens to food prices for the rest | 23:54 | |
of this year and in to the next year will critically depend | 23:58 | |
upon what the harvest season is like. | 24:00 | |
And that's notoriously hard to predict, | 24:04 | |
we all know just reading the headlines | 24:07 | |
that there have been floods of the Mississippi. | 24:10 | |
There is a great deal | 24:13 | |
of very good farmland which is underwater. | 24:15 | |
The planting of corn is going to be very late | 24:17 | |
it's going to be touch and go in many places. | 24:19 | |
And even if some of those fields | 24:22 | |
are planted late in corn you can't utilize fertilizer | 24:27 | |
in the same way because of the interaction | 24:31 | |
between the wheat growing season | 24:32 | |
and the corn growing season. | 24:34 | |
So that I think we have to keep our fingers crossed | 24:36 | |
on how much good news or bad news is going to had. | 24:38 | |
There's a very simple way by the way | 24:41 | |
of getting the best guess I think on these matters. | 24:44 | |
There are about 10,000 people who make their living | 24:47 | |
on trying to guess the future of food prices, | 24:50 | |
and they've put their money where their mouths are. | 24:53 | |
I'm referring to the prices quoted | 24:57 | |
in the Chicago Board of Trade, | 25:00 | |
and the Chicago Mercantile Exchange, | 25:01 | |
and the New York Organized Coffee, Cocoa, Sugar Exchanges. | 25:03 | |
And I have surveyed the pattern of futures prices | 25:09 | |
to see whether there is any great good news ahead | 25:15 | |
or any great bad news ahead, and I must say | 25:17 | |
that it's a fairly spotty picture. | 25:20 | |
And that if there is great good news ahead | 25:23 | |
it is not clear to the best informed people | 25:26 | |
who have money to back their opinions. | 25:30 | |
Now it's true that you will find | 25:33 | |
in some of the crops after the harvest season | 25:35 | |
the future's price quoted is lower than the present price. | 25:38 | |
That is nothing to write home about, | 25:42 | |
that is a normal phenomenon. | 25:45 | |
On the other hand I don't think you find it quite | 25:47 | |
as much this year as in ordinary years. | 25:48 | |
If you take corn itself for example January corn | 25:51 | |
ought to be a good deal less than September corn | 25:55 | |
and that wasn't the case a couple days ago | 25:57 | |
when I took a careful look | 26:01 | |
at what the future would bring us | 26:02 | |
as determined by the best judgment of the people | 26:05 | |
in the future's markets of the country. | 26:08 | |
More ominous though in this same announcement | 26:12 | |
was the fact that while farm and food prices | 26:15 | |
were going down a bit in April, | 26:18 | |
wholesale industrial prices showed the biggest increase | 26:20 | |
in many, many, many years. | 26:23 | |
I don't think that one bit of good news washes out one bit | 26:25 | |
of bad news because the bits aren't equal. | 26:30 | |
And in particular industrial prices are notoriously the sort | 26:32 | |
that don't get rolled back | 26:35 | |
by a favorable supply demand situation at a later time. | 26:37 | |
And there's a very great danger | 26:41 | |
that this price increase will be built | 26:42 | |
into the circular flow and therefore | 26:45 | |
those who have been hoping against hope that the price goals | 26:50 | |
of the administration could be realized. | 26:53 | |
Well there are no such people as that, | 26:56 | |
everybody knows that the price goals can't be realized. | 26:57 | |
But who are hoping that those goals would not | 26:59 | |
be breached too badly. | 27:01 | |
I'm afraid this last bit of news | 27:05 | |
is not good and that means for all of us | 27:08 | |
it's something that we should feel a bit sorry about. | 27:13 | |
One last bit of information, | 27:21 | |
I think it was in my last tape that I reported | 27:23 | |
on a very interesting speech that I heard | 27:26 | |
at the Boston Economics Club. | 27:28 | |
This was by Albert Wojnilower | 27:31 | |
of the First Boston Corporation | 27:32 | |
and it was a prospectus of the future to come. | 27:34 | |
Which rather chilled one's blood. | 27:37 | |
Just yesterday a good friend | 27:42 | |
and esteemed economist in the New York Money Market, | 27:47 | |
and a good friend of Albert Wojnilower, | 27:51 | |
Henry Kaufman came to talk to the Boston Economics Club. | 27:54 | |
I guess the Boston Economics Club | 27:58 | |
could really use some guidance | 28:00 | |
at this time because usually our meetings | 28:01 | |
are spaced at least a month apart | 28:03 | |
but these were just a couple weeks apart. | 28:05 | |
And Henry Kaufman came to town, | 28:07 | |
and there was a big crowd out for him. | 28:08 | |
And I, you can be sure went there with my notebook | 28:10 | |
and with my ears wide open | 28:14 | |
because he has had a good track record | 28:16 | |
in the past, he's a very knowing economist. | 28:18 | |
And I have to report to you | 28:23 | |
that there was pretty much the same discouraging news ahead | 28:25 | |
if I understood correctly what Henry Kaufman was saying. | 28:30 | |
Namely that the economy is in too strong a boom. | 28:36 | |
He blames this on past monetary policy, | 28:40 | |
on past fiscal policy. | 28:43 | |
I won't go into that aspect of the problem. | 28:45 | |
He thinks that this means | 28:48 | |
that interest rates still have a good deal | 28:49 | |
of distance to go up, | 28:51 | |
that the boom has to be choked off | 28:54 | |
because everybody has liquidity. | 28:58 | |
Everybody thinks he's insulated . | 29:00 | |
Everybody remembers the past money crunches | 29:02 | |
and that everybody cannot be allowed | 29:05 | |
in a time of over exuberant demand to feel comfortable. | 29:07 | |
To feel insulated, and therefore the squeezer | 29:11 | |
is going to have to be on with the result | 29:15 | |
that by the end of the year instead of the picture | 29:18 | |
being what it is now everybody wanting inventory. | 29:23 | |
By the end of the year they'll be getting the inventory | 29:26 | |
which they now want and which they then won't want. | 29:28 | |
The rate of real growth of the economy will be down, | 29:31 | |
and I guess it's a fair statement | 29:34 | |
that a mini recession is practically a certainty | 29:35 | |
in the mind of Henry Kaufman. | 29:40 | |
And I'm not sure that he doesn't think | 29:41 | |
that it's a good thing, that we'd be worse off | 29:43 | |
if we didn't have that mini recession. | 29:45 | |
Well I'm simply reporting, I'm not editorializing. | 29:48 | |
In future tapes, we can analyze | 29:51 | |
that particular viewpoint and opposing viewpoints. | 29:53 | |
Announcer | If you have any comments or questions | 29:57 |
for Professor Samuelson address them | 29:59 | |
to Instructional Dynamics, Inc., | 30:01 | |
166 East Superior Street, Chicago, Illinois 60611. | 30:03 |
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