Date: 1981-07-17
Speaker: ROBERT C. BYRD (democrat)
Chamber: S

Mr. President. next week the leaders of the seven major Western industrialized nations meet In Ottawa to cover a number of issues of mutual interest. High on the agenda of the West Germans and French. in particular. will be the Issue of U.S. domestic Interest rates. Our European allies are deeply concerned over the high interest rate policy supported by this administration. which Is causing serious economic problems not only for Americans. but for our allies as well. On the one hand. we are pressing our European allies to Increase their defense spending in an effort to counter a growing Soviet threat to the Western Alliance. On the other hand. we have pursued. a policy which undercuts the ability of our allies to find budget resources for increased defense spending. The Europeans make a good case for Pressing the. United States to lower our interest rates. which are viewed as being a major cause of Europes economic malaise. Bolstered by high interest rates. the U.S. dollar has been soaring in relation to all the European currencies. In simple terms this means more expensive goods from the United States and higher payments for oil. which is priced in dollars. The end result is higher inflation for Etiropean economies and increasing unemployment. Earlier this month. the organization of Economic Cooperation and Development released its semiannual economic assessment. The report predicts that the recovery of economidc activity in the industrialized world. expected in the first half of 1981. will be delayed by another 6 months or more. Meanwhile. unemployment In the 24 industrialized countries which are members of the OECD is projected to rise throughout the next 18 months. affecting somie 26 million people. These individuals represent 7.5 percent of the total labor force within the OECD. In addition. members of the European Economic Community are likely to post a collective decline in gross national product of ninetenths of 1 percent this year. after adjustment for inflation. Europe is expected to show a decline in employment of 1 percent in 1981. following no growth In 1980. Historically. In Europe the emphasis has been on jobs as a goal of economic policy. Europeans have enjoyed traditionally low unemployment rates. However. our allies are hurting. France. for example. has a 7.5percent unemployment rate. up 21.9 percent from a year earlier. According to the OECD. the problem may be intensified In coming years. From 1980 to 1985. the rate of growth in the workingage population In Europe Is projected to rise sharply. while that of the United States will fall. We are concerned over what many perceive to be a growing pacifist sentiment in Europe. -In my Judgment. the best way to fuel growing opposition to defense expenditures in Europe Is for this administration to continue its higl.i Interestrate policy. In effect. we are promoting Increased unemployment and Inflation in Europe with our high interest rates. This undercuts our efforts to promote greater defense expenditures on the part of our allies. High Interest rates have been equally devastating for the American economy as well. These rates have choked off the very investment which Is so vital to increased efficiency and productivity. For example. today the inventory of unsold homes Is at record levels. We have now doubled the rate of unemployment in the construction industry. It is estimated that high interest rates have already led to unemployment of almost 1 million Americans in the construction Industry. The viability of savings and loan institutions. the bedrock of the housing Industry. Is now threatened. This administration has a fiscal policy which is stimulativewith tax cuts and defense spending which more than offset cuts In overall Government spendingand it has endorsed a tremendously restrictive monetary policy. Since a tight money policy . which produces high Interest rates. discourages investment. one can logically conclude that the administrations monetary policy is an antiinvestment policy. High and volatile Interest rates are undermining the Reagan economic recovery program because they are wiping out the ability of business to make sound. longrange capital financing plans. Withoutsuch investments. our future productivity will drop. It is the height of irony that at a time when we are considering a tax cut to encourage businesses to reinvest capital in modernizing the productive capacity of this country. according to Henry Kaufman. a leading Wall Street economist. American corporations are earmarking 45 percent of their pretax profits for interest costs. The reality is that the casualty list of high Interest rates has already grown too long. It includes American dreams of buying a new car. a new home. of operating a small business or family farm. Now we may have to add to that list increased defense spending on the part of our European allies. This is the reason I also support a triggering mechanism for the third year of the tax cut. Yet. the administration opposes such a mechanism. despite the continued midscalculations on Its part regarding continued high Interest rates. Earlier. the administration projected that 91day Treasury bills would yield 11.1 percent in 1981 and 8.9 percent In 1982. This miscalculation will mean that the Federal Government will spend $17 billion more in borrowing costs this year and next. above what was earlier estimated by the administration. On July 15. the administration revised these proj ections upward to 13.6 percent In 1981 and 10.5 percent In 1982. If they make mistakes like these over a period of a few months. how can one reasonably believe that their projections over the next 2 years will be more accurate? That Is why I believe prudent fiscal policy would forgo the third year of a tax cut. If inflation and interest rates are not curtailed significantly. Even one of the Presidents top economists. William Niskanen of the Council of Economic Advisers. said he could not explain why Interest rates have not begun to drop despite a decline in the rate of Inflation. The last 3 months have seen a drop in the inflation rate well below 10 percent. However. as administration officials scratch their heads in wonderment. shortterm interest rates stay up in the 15- to 20percent range. Therefore. real interest rates are at an alltime high. This problem should not be so puzzling to the administration. There are really two explanations for this predicament. First. people do not believe inflation is going to stay down. which means financial markets distrust this 3year tax cut package and the administrations fiscal policy generally. Second. .the ever tightening money supply policy of the Federal Reserve. which has the strong backing of this administration. Is simply not providing enough money to meet the Investment needs of the private sector in this country. Demand is so much greater than the supply of money that interest ratesthe price of moneyare staying sky high. Without some change in the publics expectation about inflation and some change in our monetary or fiscal policies. the price of money will niot fall unless and until we have a recession. This resolution calls on the administration to assure our allies that It will take direct. immediate. and affirmative action on high interest rates. It does not prescribe what those actions should be. On the inflation front I would suggest two areas in which the administration might act. First. they could endorse the concept of linking the third year of the tax cut to inflation and interest rates. Second. as I recommended last November. the President should develop an incomes policy. He should bring together the best minds in the country from business. labor. and the public to fashion an effective cooperative effort to break the wageprice spiral. We simply canno4expect the international oil glut to last forever. I urge the adoption of this amendment because I believe the administrations high Interest policy Is damaging to our economy and is undercutting the ability of our NATO allies to increase their defense expenditures to more effectively meet the Soviet threat. I congratulate Mr. BOREN on his authorship of the amendment.