Date: 1981-03-04
Speaker: ST GERMAIN (democrat)
Chamber: H

Mr. Speaker. the House Committee on Banking. Finance and Urban Affairs held its semiannual Conduct of Monetary Policy hearings last Thursday. Federal Re. serve Chairman Volcker told the committee in those hearings that his money growth targets for 1981 will be even lower than those of 1980. These reduced targets mean that the American people will suffer through 1 more year with interest rates as high. or even higher. that the punishing rates of 1980. Last years stratospheric interest rates hurt many sectors of our economy. mainly housing. automobiles. small businesses. and. of course. most heavily. the working people of this country. We all know the terrible year housing has experienced. Singlefamily home sales declined throughout 1980. and the first few months of 1981 give no indication that purchases are coming back to life. Yesterday the Commerce Department released figures showing that new home sales fell by 6.5 percent in January. and spokesmen for thc Department blamed the drop on continued high interest rates. Is it any wonder that more homes are not being built and sold when interest rates make moderate priced housing too expensive for middleincome Americans? Today a standard 30year mortgage for $55.000 would cost $850 per month at a mortgage interest rate of 16 percentwhich people have to pay today in many parts of the country if they want a mortgage. Mr. Speaker. according to traditional bank calculations. at best 21 percent of American families could qualify for mortgages under those conditions. The results are obvious and devastating. The vast majority of working people of this country. cannot afford a home. We all know what has happened to our automobile industry because of high interest rates. All major American automakers lost money last year. and it has been recently reported that Chrysler set a record for losses last quarter. Millions of autoworkers and workers in the auto supply industry are unemployed. In fact. the impact on cars has been so great that some refer to our recession as an "auto bust." Cars are highly discretionary purchases. People will put off buying new cars with interest rates at their current level. Continued high interest policies by the Federal Reserve and the Reagan administration could make 1981 the second consecutive disaster year for the automobile industry. Less well known. but perhaps more harmful to our overall economic recovery efforts. is the effect of crubing interest rates on small businesses throughout the country. Small businesses account for the vast majority of new private sector jobs. Mr. Speaker. Yet in the midst of a socalled program for economic renewal. the administration has struck a monetary accord. with the Federal Reserve Board which virtually guarantees another year of punishing interest rate levels. High interest rates helped to set a postWorld War II record for bankruptcies last year. and the administration has told us they will continue those policies for 1981. Bankruptcies were up 58 percent in 1980. compared to 1979. This is the highest yearonyear increase in 35 years. Over 11.000 businesses closed their doors during 1980. and most of them were small businesses. Over 90 percent of those failures were businesses with less than $1 million in liabilities. Small businesses are particularly vulnerable to high interest rates. They cannot borrow. even at the phantom prime rate. but they must borrow. at whatever rate. simply to maintain inventories. The Banking Committees Subcommittee on Domestic Monetary Policy will be holding hearings in 2 weeks. and one of its main concerns will be with the plight of small businessmen. With all the talk of vast reindustrialization programs. we must not forget that millions of small businessmen form the backbone of our economy. and that they operate on narrow profit margins which are squeezed even tighter by high interest rates. But while industry and business are hard pressed by high interest rates. the ultimate burden falls on the workers who are thrown out of work as the recession gains steam. To even think of increasing the recessionary pressures on the economy. in the face of 8 million unemployed workers. is a heartless and cynical turning from the goals of full employment to which this country is allegedly dedicated. I am not sure what President Reagan and Chairman Volcker feel these workers have done that justifies their sacrifice so that the rest of us may live easier. but I am sure that we cannot stand by idly while the Government turns the screws one more time. and squeezes 1 million mord people onto the unemployed lines during 1981. Mr. Speaker. there is no easy answer to this problem of monumental interest rates. We cannot. as some would have us do. simply bring rates down 10 percent overnight. Interest rates must come dowp as the general economic outlook improves during the next few years. But the least we can ask of the Federal Reserve Board. and of the Reagan administration. in their new monetary record. is that they do not compound the tight money policies of the past year by further slowing the growth of money for 1981. thus bringing on even higher interest rates for the coming year. The Federal Reserve told us last week that they predicted unemploy. ment" could rise by over 1 million people in 1981to over 9 million people. The leading economic indicators for the most recent months are uniformly down. Yet the Federal Reserve is telling this country that it will continue to pursue recessionary policies in the face of a declining economy. Many economists predict renewed interest rate pressures from these policies. toward the end of the year. These pressures could drive interest rates into the midtwenties. This may be good news for large banks. and those lucky enough to afford $10.000 Treasury bills. But for the millions of people who work for $10.000 to $15.000 a year. it means 1 more year of trying to survive. For thousands of other workers and small businesses it will mean the year they will stop participating in the economy altogetherthey will become unemployed or go bankrupt.