Madison County Democrat. (London, Ohio) 19??-1958, 1950-12-08
WHAT LIES
AHEAD NOW?
Broadcast BY Donald S. Thompson
Vice President, Federal Reserve
Bank of Cleveland

Vice President, Federal Reserve
Bank of Cleveland
The physical volume of business
continues to increase, prices con-
tInue to rise, and the dollar value
OF all goods produced and sold,
and of services performed, is
now the highest in our history.
Most of the increase has been
in the civilian segment of business.
Actual military or defense orders
have Increased somewhat but
are still Only small part of the
total. However, business itself
has increased its expenditures for
goods tfor plant and equipment)
in anticipation Of military con-
tracts, and government stockpil-
ing has put considerable strain on
the supply of some strategic raw
materials.
The chief underlying factor in
business expansion over the past
five months in comparison with
the early part of the year has been
the increase in consumer buying,
largely of durable goods such as
automobiles, television sets, re-
frigerators and other household
appliances. Increased consumer
expenditures for durable goods
have reflected larger quantities of
goods moving into consumers
hands although prices also in
creased somewhat. Increased ex-
penditures for nondurable goods
have reflected chiefly higher
prices for foods and clothing. Re-
sidential construction has been
at the highest levels on record.
Consumer demand for goods
and for houses was stimulated by
the outbreak of hostilities in
Korea. Remembering the short
ages which accompanied and fol-
lowed World War II. people rush
ed to buy automobiles, radios,
television sets, household appli-
ances, and other electrical goods
and to purchase homes, or at
least to get homes started, before
restrictions would be imposed.
While some of the extreme rush
to buy has slackened recently,
consumer demand is still at high
tide.
Heavy purchases by consumers
reflect expenditure of the great
est volume of income ever re-
ceiyed by the American people.
The growth in income has re-
suited in part from increased out
put of goods and services and in
part from higher prices received
for those goods and services in
the form of sales prices, profits,
wages and salaries. During 1850
the growth in personal income
has been chiefly in payments OF
wages and salaries which have
risen to the highest levels in our
history
Even though incomes appear to
have increased more than physical
output of goods and services, con-
sumer expenditures for those
goods and services have increased
even more rapidly. This more
rapid increase in consumer ex-
penditures was made possible by
a record d-breaking expansion in
consumer and real estate credit
and by a reduction in the rate
of personal saving.
The enormous and expanding
buying power of consumers at q
time when vast resources must
be devoted to defense, poses the
greatest single threat to the
soundness and stability of our
economy. There are not enough
goods and services to provide al
of the things people would like to
have and at the same time pro-
vide the materials and manpoWer
needed for national security. But
there is sufficient buying power
to buy more than can be pro-
duced National security requires
that enough of this buying power
be immobiliZed and rendered in
effective TO reduce consumer de-
mand to the levels that can be
satisfied by the supplies remain
ing after the necessary materials
have been diverted to defense.
Restrictions on consumer and
real estate credit have been inn
posed with view to reducing the
ability of consumers to bid for
goods and services that cannot be
made available. Interest rates
have risen, and recently Chairman
Thomas b. McCabe of the Board
Of Governors of the Federal Re
serve System has appealed TO al
member banks of the Federal Re-
serve System to use the utmost re-
straint in the granting of loans
Congress is now studying ways
and means of increasing taxes
All of these steps are intended te
reduce buying power. More sched-
ules of priorities and ALLEGATIONS
OF materials are reported to be un.
der consideration If these steps
fail to accomplish the diversion
needed and fail to keep prices
from skyrocketing, consumer