Does Slower Monetary Expansion

Discriminate Against Housing?

rrHE “Declaration of National Housing Policy”in

the Housing Act of 1949 establishes as one of thenational objectives “the realization as soon as feasibleof the goal of a decent home and suitable livingenvironment for every American family”; and itrequires programs “to encourage and assist ... thestabilization of the housing industry at a high volumeof residential construction”. In view of the importanceof housing, there is a natural hesitancy on the partof any policy maker to take actions which he con-siders to be detrimental to the housing industry.

In our complex society it is difficult to determinewhich policies are detrimental to the housing situa-tion, and there are few standards for judging towhat extent other desirable objectives should besubordinated to achieve this one,tm This study is aninvestigation of the extent to which the residentialconstruction industry is affected by a shift from rapidmonetary expansion to a more moderate rate of

monetary growth. The study presents and examinesthe evidence frequently cited as bearing on the ques-tion of whether the housing sector should act as aconstraint in the fonnulation of monetary policydesigned for the general welfare.

Recent Economic Developments

Total demand for goods and services (gross na-tional product) has been excessive since last sum-

~The Employment Act of 1946 requires the Government toinitiate policies “to promote maximum employment, produc-tion, and purchasing power”.

mer, adding to inflationary pressures. Since the thirdquarter of 1967, total demand has gone up at overa 9 per cent annual rate. By comparison, the upwardtrend growth in spending since 1957 has been about6 per cent per year, and the increase in productivecapacity has been at an estimated 4 per cent rate,Reflecting the strong demands, overall prices haverisen at a 4 per cent rate since last summer, aboutdouble the trend rate since 1957.

Despite the rapid growth in total demand, theincreasing upward pressures on prices, and a resultingdeterioration in the nation’s balance of paymentswith the rest of the world, monetary growth con-tinued at a rapid rate. In the ten months endedNovember 1967, the money supply rose at a 7.7per cent annual rate, the fastest rate of increase overany ten-month period since 1948. Since Novembermoney has risen at about a 5.7 per cent rate, fasterthan 90 per cent of the six-month periods. By com-parison, the trend growth in money supply was 2.4per cent per year from 1957 to 1966.

One reason that sharp monetary expansion was notabated last fall and winter was a fear that monetaryrestraint would bear heavily and inequitably on thehousing sector. As early as the July 18, 1967, meetingof the Federal Open Market Committee, a reasoncited in the published record of the policy actionsfor not moving toward monetary restraint was “thatany significant further increases in market interestrates might reduce the’flows of funds into mortgagesand slow the recovery under way in residential con-

Page 5

struction activity”. According to the published record,similar sentiments have been expressed or implied atother meetings,

The economic problem facing the nation since lastsummer has been one of excessive total demands forgoods and services. According to traditional views,monetary actions should be designed with the ob-jective of reducing these demands to the extentnecessary to attain price stability while continuingto achieve relatively full utilization of resources, Inreducing total demands, the demand for housing alsowill be affected. The issue is whether the burden ofthe cutbacks falls particularly heavily or inequitablyon this industry.

Monetary Periods

Some insight into the effect of monetary actionson residential construction can be obtained from areview of periods in our recent history when mone-tary actions were relatively less expansive. Rates ofgrowth in the money supply (demand deposits pluscurrency) are used in this phase of the study as ameasure of monetary expansion.2

Chart I plots the money stock since 1951. Theshaded areas are periods of relatively slow (or nega-tive) money growth, The fastest rate of growth of

tmConstructing periods on the basis of unadjusted market

interest rates would give much different results. It is notclear, however, that a more sophisticated interest rate studywhich includes an analysis of changing inflationary expec-tations, methods of Government finance, and other forcesinfluencing the demand for credit would give a significantlydifferent picture.

Money StockRatio Scale Qunrt,’y A,err.qocai.’c’ lyl ~ Ratio ScaleBillionsofDollars SeasonallyAd isras Billions ofDollars

~‘~‘

!9~isfl

17t

160

1-50

j4~

13O~

120

tin

T~’ 79~’“~~“

~ /

—~--—-—-~ f-<

~4t /

~‘

/“ ~2J 4’~

+2I~ ~4~’!iJ~0 t~°’ 201.’~‘1 ~

~r~ ~ 0~10

i jj~jij

‘7

,

—~~~~-—-—-

+42

////,,~ . —

I,, -~

4——~~

~

‘7fl ‘~tUU

— -~-~ ~i~o

180

—170~~

— — — 159

-,- 140>f

—4~—13G,170

i HI!,ii1~v1-tn1952 54 56 $8 69 62 64 66 1960P.r~e,ylo

9ewmdtcaro* otcbo,agefoc~,i~da &atwo on plo, ret a

*~awtkSit de~d roe orsperaodoor wg opt ord 10* nrr’cney to kho b*topFatted * 0 cart F 64

C

Outlays on Residential Structuresas a Per Cent of GNP’

Quntn’. Tota:sutA’rauc I RatesPer Cent s~~nollyAd,~r,e Per Cent

71

~6

-:I~~,

3JJ~—a--tS•~~My

ii,~~—a-—lift

(4H~’4’At41~.dd

1;•-ici-LSI

-

-

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-~

~-

-~

dt~‘,i~

I~jI

——

I~

*~

—

~~,

I

t~

/e(4j~— i—i

1ff(4~i_Li LU Q ‘.L LU

o9

~

r ~i_ u.~

— t

- —7

6

S

——-

3

——-

4I

-1

19S2 54 54 9 50 42 64 66 W68I Roe I tom

19$4pro

too •ó.s 4 oh w*w0k S il4,hr000 ~tot

ctle 0 e plotted 1st 100 17

the money supply during these slow growth periodswas an 0.8 per cent annual rate, whereas the averagegrowth over the entire 1951-1967 period was at a2.3 per cent rate. Throughout the rest of this articlethese periods are considered to be ones of monetaryrestraint and are denoted on the charts by shading,

Slow Monetary Crowth andResidential Construction

Comparison of expenditures on housing relative tototal spending indicates that relatively slow rates ofmonetary growth do not cause excessive cutbacks inspending for homes. Chart II shows outlays on resi-dential construction as a per cent of gross nationalproduct in real terms since 1951. In this period thehousing sector has begun a prolonged decline rela-tive to other sectors on three occasions. An interest-ing aspect of the chart is that each of these threeinstances was during a period of monetary expansion.During the first three to six months of a period ofslow monetary expansion, the housing sector hastended to continue its relative decline begun duringa previous period of monetary expansion;3 but thenas monetary restraint continued, housing tended tolevel off or start rising relative to other activities.The one exception was the 1959-1960 period.

tmThe decline was particularly sharp in the early months of

the 1966 monetary restraint period, when Governmentregulations caused a marked reduction in the flow of fundsinto mortgages. A discussion of these market interferences ispresented later.

Page 6

The number of new, private, nonfarm housesstarted each quarter (Chart III) has followed a

similar pattern. All marked and sustained declinesin housing starts began in periods of monetary ex-

pansion. In several cases the decline in starts wasreversed after three to six months of monetary re-

straint, and the number of housing starts actuallyincreased.

One reason a traditional view has developed that arelatively slow growth of money damages the housingindustry is a belief that high interest rates indicate

monetary restraint. However, the facts do not bearout this association, as an article in the November1967 issue of this Review pointed out.

An examination of recent history indicates that

rapid expansion in bank credit and money has re-sulted, after a brief lag, in excessive demands forgoods and services, higher prices, and hence, risinginterest rates. A slowdown in monetary growth irn-posed during an inflationary period has temporarilyreinforced upward pressures on interest rates as the

supply of -credit was reduced. After about fourmonths, however, when monetary actions have be-

come effective in reducing aggregate spending andinflationary expectations, the demand for credit also

has fallen. Entrepreneurs’ demands for investmentwere lessened not only because of the lower over-

all demand, but due to reduced pressures to buygoods today to get a cheaper price. Contraction inthe demand for credit has caused interest rates to

fall. Mortgage interest rates have behaved in roughly

New Housing StartsTatol Private Nanfarm

Thousands of Units r.,’-’.e.,s, e. .M~,’.’yt,.,s, Thousonds at Unts-sc:,.-.-

1,a -‘“‘:r”,..’..,%,.I’’

2000

1500

1000

~

n~

54~

i_ft~5-’/ ~

fl~

~-

~sitsiá-1~a11

7T~~// ~/

t ‘5

,~

S,// 5/ S

- I,s~ —i

t,

/

,~

~+/

~,,i_

-~--

(-4 L1L_ Lu

;:1000

500

n

INDUSTRY

ConstructionStale and local 86 - .06Public Utility 1.03 - .25Commercial 1.21 - .27Industrial 1.34 - .24Residential 1.72 - .29

Plant EquipmentProducer Durables 1.20 - .17Farm Equipment 1.14 - .19Automobiles 1.66 - .26

These results demonstrate that a rise in interestrates has affected home building more than mostother activities. The responsiveness of housing to in-

= National avcrage of the average monthly contractinterest rates on conventional mortgages on newhomes made by savings and loans.

mt = Monthly average of seasonally adjusted private demanddeposits plus currency in the hands of the public.

‘rhe equation estimated was

i1

a0

+ a1

i1

_1

+ a,M*, + a3Mó

10,

Where: M°, = M1 —1.006 M~,3M~,

= M~—1.024 M150so

The results were:

i~ = —.0003 + 1.001 i11

—- 2.318 M°, + 1.54 M°10

(.002) (.79) (.38)

_________________ = -2~2~=.006

5.30

All variables were significant at the 1 per cent level.5

Andersen, Leonall, The Review of Economics and Statistics,August 3, 1964, Harvard University, Boston, pp. 260-268,

the same manner as other interest rates4.

In a study by Leonall Andersen on “The Incidence

of Monetary and Fiscal Measures on the Structure ofOutput”,3 the following interest rate elasticities forthe residential housing industry and other major

sectors of investment were found:

Elasticities of Equilibrium Output With RespectTo Income and interest Rates Elastics

INCOME INTEREST

tThe following regression indicates that during the 1960-1967period conventional mortgage rates have been negativelyrelated to a three-month period of monetary restraint, butpositively related during ten-month periods.

Monetary restraint was considered to be an annual growthrate of less than 2.6 per cent (the trend over the 1957-1967period). At this rate money would grow 0.6 per cent overthree months, and 2,4 per cent over ten months. Assumingthat this rate of growth is neutral, a negative regressioncoefficient implies a reverse relationship between moneygrowth and mortgage interest rates, and a positive coefficientsuggests that rates move in the same direction as money’smovement around the neutral rate of growth. These assump-tions are incorporated in the definitions of Me

3and M°

10.

Standard Error of Estimate

1952 54 56 58 -40 62 64 66 W68 -She ruler a or pe sedrat sow a tIre rue as seaeey teche detapI led I coo thlprelmnery

Mean of i~

Page 7

terest rates results in large part because financingnormally represents a large proportion of total costs.Now, Charts II and III are more understandable.Rising interest rates, which usually accompany pro-longed periods of monetary expansion, act as a deter-rent to housing. The damaging effect might be con-tinued temporarily by initial upward pressures oninterest rates resulting from a more restrictive mone-tary action, but the falling rates resulting from theover-all effect of a more moderate growth in moneyare a powerful stimulus to the housing sector.

Interest rates are not the only factor affectinghousing demand, and its responsiveness to interestrates probably changes as people’s expectations of a“normal” or future interest rate change. If, for exam-ple, rates remained at a high level for an extendedperiod, increasing demand might result as the “nor-mal” rate gradually shifted upward. This partiallyexplains how a spurt in housing could develop inearly 1967 when mortgage rates were at a high level.Although long-term rates were relatively high, theywere slightly lower than those in the immediatelypreceding period, which probably weighs heaviest onpeople’s expectations.

Although changes in market interest rates do bearheavily on residential construction, much of the im-

Comparison of Construction Costsand Consumer Prices

Ratio Scale Ratio Scoie

59’lOO c..,,-, 1957.59.i0O

So t°‘T~

I ---

‘~T

~‘

t4V

3.

~

,atLu LU Lu 44 Lu Lu LU Lu ~U Lu Lu Lu Lu 44 kO-t9$2 ‘54 ‘S $S -60 0 64. ‘46 *9’

to scottoo rc4a meted5, 1

pact flows from the unavailability of funds caused byinterferences to the market process rather than thehigher rates, per se. Many obstructions to real estatefinancing result from Governmental laws, regulations,and practices, while others reflect institutional rigidi-ties.

One example of market interference is the usurylaws which in some areas may prohibit interest rateson mortgages from rising to the going market rate,Another such interference is Regulation Q and otherrate regulations on financial intermediaries, makingthese institutions, which lend heavily on real estate,less competitive than big businesses and Governmentin obtaining funds during periods of relatively highmarket rates. Another practice discriminating againstreal estate financing is administrative pressure onFederal Home Loan Banks at times of money markettightness to restrain their borrowing and relending tosavings and loan associations. Another is the rigidityof contract rates on FHA and VA loans, with theaccompanying discriminating “point” discountingsystem of mortgage financing.

Alternatives to Slower Monetary Expansio-n

Inflation, an alternative to proper monetary re-straint, not only hurts the housing industry by in-creasing the cost of financing, but it raises the costsof building a house.°According to data published bythe U. S. Department of Housing and Urban Develop-ment for twenty major pricing areas of the country,

the labor and materials cost of constructing a selectedsample of brick and frame houses rose at a 4.2 percent annual rate from 1963 to 1967 (Chart IV). Someof the rise in costs may have reflected a bidding awayof men and materials for tile war effoft, but abouttwo-thirds of this increase can be attributed to ageneral inflationary price rise. The increase in theprice of homes between 1963 and 1967 resulted in 13.5per cent higher monthly payments on housing. Duringthe same period average interest rates on new mort-gages rose about 1¼percentage points, resulting inabout 12.5 per cent higher monthly payments on a25-year loan. However, this increase in interest ratestook place mainly in periods of rapid money expansionand may come back down after excessive demandsand inflationary pressures are eliminated. The highercost of housing as a result of inflation is not ]Jlcelyto be reduced by much.

6The higher construction costs may he offset only partlyby a rise in the expected future resale value of the house.

Page 8

Outlays of Selected Sectorsas o Per Ceni of GNPO~crt, 1y “c.-’ _i ~qn,.aIOc-,~s

Per rent SeEsroru’ s’Adi’js’ed Per Cent

14

12

1*

—Ta-’— I— I - /~,5/IL Consumer Durable Goods

—~5 vs ri -p---as (4 555 ~

/ / —/ / /

‘=‘~‘~I~’~—5/

-~,,,4)12

—-5/——~

--

14

12

te

4Es

,~

8_JE -IC SI‘rn5/

t iiin WHI HF

~dnr~S

5/~5

‘LS4LU

-~5//5~~inL4LAsc~ 14-4

S

~

2

0—-n’--- ‘~-~ ~‘‘//5/ Producers’ Durable Equipment ~— / Plus Change in Business luveutoriest 12’

: \~/ Y‘

-:z -~

:—~- -~ 2

\~

~

~

/ / (4 5/in Lu LtLuinL~Ldsc~rU_

ILL S~tIT I

\Q

~t90 54 ‘56 SB 64 42 ~64 64 1P68tThrssS 9tp

SSedd ejs ad sldwg o*l r C money attopS d stqurorl

Slower Monetary Growth and OtherSectors of the Economy

Consumer and Business

Although monetary restraint may affect the totalreal dollars spent on housing, the housing sector isnot the only one to feel a monetary squeeze. ChartV shows two other sectors plotted along with resi-dential construction: (1) outlays on consumer dur-able goods, such as automobiles, appliances, and fur-niture, and (2) expenditures on business machinesand other producers’ durable equipment plus changesin business inventories. Each sector is plotted as apercentage of real GNP to relate the effect on it tothe effect on over-all activity.

Both consumer durable goods and producers’ dur-able equipment have had a slight upward trend rela-tive to total production since 1951, while residentialconstruction has trended downward; yet the formers’declines or slower rates of increases during periods

of slow money growth have been roughly equal tothose in the latter. Also, declines in the other twosectors sometimes actually began during the periodsof slow monetary expansion. It appears that housinghas not been any more adversely affected duringperiods of relatively slow monetary growth than havethese other sectors.

Construction Employment

Monetary restraint does not appear to bear undulyon construction workers, Although an initial movetoward slower monetary growth has temporarily re-inforced a decline in the housing sector, the evidencesuggests that most workers in residential construc-tion have not been at an increased disadvantage infinding jobs. Unemployment among constructionworkers typically is higher than unemployment gen-erally, as can he no-ted in Chart VI. From the chart itis evident that periods of slower monetary growthusually did not affect construction workers much morethan they did workers in other activities. Unemploy-ment in this industry rose at times in the first fewmonths of the restrictive period, hut, in general, therelative unemployment of construction workerschanged little during periods of monetary restraint.Construction workers, being relatively mobile andskilled, may have been better able to find jobs than~vere others with less skill and mobility.

Contractors

The experience of contractors has been similar.Chart VII plots failures of construction firms as a

Unemployment in constructionCompored with Total Unemployment”

Pe’Cen’ Oja “~,t,”,~!fl.~’”- Per Ce’s,

i Lh/~/~Ino

140

lfl

lam /,4

4’

~

/4

//:

/

5/

~——-

~/5/’--4--

40

—~952 54 56 56 60 62 64 66 1~68

-‘‘‘i.,’~. ‘sr-ss-L .j.,s’_-f.:r’

~‘—r’’’sc-—s.,nc ‘,‘s—t,co’-,,.’c’’.’L-..”_ 5’’.—.

‘f,

Page 9

savings and loan associations. Chart VIII shows yearlyBusiness Failures in Construction profits of all savings and loan intitutions since 1951

osaPerCentoflotalBusinessFoilures and yearly rates of change of profits. A strikingCent i. ~ .rs~. Per Cent feature of the chart is that since 1951 savings and

loan companies in the aggregate have had increasedabsolute profits each year. Also, during periodsof monetary restraint profits grew at an expandingrate, except in the 1966 period when a trend toward

a slower rate of increase already had begun.

From 1952 to 1966 profits of savings and loan com-panies rose at a 16 per cent average annual rate, and

in 1966 they went up 7.3 per cent. Mutual savingsbanks had similar results, Their net income grew at an11 per cent average rate between 1953 and 1966,

and 10 per cent during 1966.

Profits of a mutual association may not be compar-able with earnings of other firms which deduct thecost of obtaining funds as an expense. But, even ifthe cost of attracting share accounts (i.e., dividends)is deducted from profits, the remaining additions toreserves have been sizeable each year since 1952.Even in the adverse year of 1966, savings and loanassociations were able to add $600 million to their

per cent of total business failures. Although there hasbeen an upward trend in failures of constructionfirms relative to other businesses, their relative posi-tion improved temporarily in four out of the fivecases of monetary restraint since 1951. The one ex-ception was the 1959-1960 period.

The upward trend in construction failures may havereflected the uptrend in interest rates resulting fromexcessive total demands and inflation, Then, too, itmay have been partially a reaction to some over-building in the fifties. The relatively small size of mostcontractors, perpetuated in part by zoning laws andbuilding ordinances, may have made the industry lessviable, A bigger enterprise with more capital andreserves more easily could accept temporary lossesand changes in the economy. A part of the hardshipssuffered by contractors, as well as a factor tendingto discourage large amounts of capital from cominginto the industry, may be associated with those reg-ulations which the same concerns use to gain tem-porary advantages.

Financial Intermediaries

Restrictive monetary actions may have an effecton housing by affecting adversely the flow of fundsinto financial intermediaries which extend most ofthe housing credit. Yet, a review of some measuresof industry performance does not indicate that finan-cial intermediaries are any more severely affectedby a relatively slow rate of monetary expansion thanis business in general. A chief intermediary is the

Page 10

reserves, and the ratio of reserves to total savingsbalances rose from 7,90 per cent to 8.18 per cent.

Savings and loan associations have been hinderedtemporarily during periods of slow monetary growthin securing savings. There have been several set-backs in the rate of increase in savings capital ofthese institutions during periods of monetary restraint,and for one quarter (third quarter 1966) there wasa moderate net decline (Chart IX). Rising interestrates make yields on savings accounts, which areregulated by FHLB “rate controls”, relatively lessattractive than rates paid in the free market. To agreat extent the real problem has been not in therising market interest rates, but in rate controls onthe savings and loan associations, Nevertheless, de-spite all the market imperfections, increases in netsavings funds in savings and loan associations havebeen at an average 13.6 per cent annual rate since1952; in the most adverse year — 1966— they rose4 per cent. Similarly, deposits in mutual savings banksincreased at a 7 per cent average annual rate in the1952-1966 period and 5 per cent during 1966.

Financial intermediaries perform an economic func-tion by borrowing short-term funds and lending themfor long terms- Therefore, a sharp unexpected rise inthe market interest rate structure puts them at atemporary disadvantage. To compete for funds tomake new loans and provide for withdrawals, theymust raise interest rate payments on all their out-standing deposits,7 but yields on their assets arefixed, As a result, expenses rise much more rapidlythan earnings in the short run. Because of this situa-tion, some feel that a rapid rise in market interestrates accompanied by higher rates paid by inter-mediaries may cause a general collapse of thesefinancial institutions. It is partially for this reason thatinterest rates paid by financial intermediaries areregulated.

Although an industry that borrows short and lendslong may incur losses for a period when interestrates rise sharply, most financial intermediaries haveconsiderable ability to withstand these temporaryperiods when their terms of trade are adverse. Inaddition to their own resources, savings and loan as-sociations and mutual savings banks may borrow fromFederal Home Loan Banks,

For example, the hook value of aggregate reserves

and undivided profits of savings and loan institutionsis nearly twice the size of their yearly dividend pay-

7There are exceptions, of course, such as paying higherrates on certificates or for funds left for a longer period.

Savings capitalAll Savings and Loan Associations

Ratio Scale Ratio ScaleBillions of Dollars F’c’Ic,.’.,’ Billion sal Do lIarsr4’~ — / I/~/iI —

- >-‘r- Dollar Arnurt: —

- ts H— -——5/Er-— —f-—5 ~?

ih,~/ /

/ L7~

//

/jj5/

I I/P Lu I /

‘Ti~Z’~~I —

1-~

mc9084

~:~0

20

1$,

— ——

-— ——

L/ Lu

20

mc

—60

~15

PerCent 3-; I Annual Rates of_Change T7Perc~mr/ - 4/ // // ‘‘ SD

tII 11411 III ~IIIIIIII Ill ~1952 54 56 58 64 42 64 86 1968

hadad~ reperl~a tawp tS r8e satin arsn atat e at d i rite 9 & relsmas-cs

ments. They also have cash and Government securityholdings from which payments could be made totalingover double their yearly dividend payments. Theseratios prevailed even at the end of 1966, after theassociations had endured their most adverse year.This means that the average association could remainsolvent in an accounting sense and pay its dividendsfor nearly two years, even though it had no netprofits. Yet, in every year since World War II, theseassociations have had greater profits than in theprevious year.

Also, throughout the period of rising interest rates,greater returns will he flowing in from the loansmade at the higher rates; in 1967, for example, re-payments of regular instalments, interest, and ad-vance repayments because of house sales amountedto about 15 per cent of average total outstandingmortgages at savings and loan associations. Evenmore important, periods of monetary restraint rarelyhave lasted even a year in length, and after a fewmonths of slower monetary growth interest rateshave had a tendency to come down.

Page 11

COnCIUS-jOsis

This analysis is tentative; a complete study wouldrequire an examination of the data presented in muchmore detail, as well as additional evidence bearingon the subject of discriminatory effects of monetarypolicy. Nevertheless, it appears from the informationthus far developed that the requirements of the hous-ing industry should not act as a constraint on mone-tary policy designed for the general welfare.

In this analysis, periods of extreme monetary re-straint svere studied. With the advantage of hind-sight, it now appears that in most of these periodsmonetary actions were unduly restrictive, since alleconomic recessions since 1952 commenced duringthese periods. Housing was affected during periodsof slow monetary growth, particularly in the first fewmonths, but indications are that the housing industrywas affected little more than was activity in generalthroughout all the periods of restraint. The wide-spread belief that housing has been seriously hurt bymonetary restraint probably has resulted from mis-takenly identifying rising market interest rates withmonetary restraint. Interest rates, unadjusted for pricedevelopments and for Government borrowing, and

This article is available as reprint series No. 29.

unrelated to changing profit expectations of businesses,are usually a poor guide to either the rate of monetaryexpansion or its impact on economic activity.

Conversely, the evidence is strong that housing isseriously affected by excessive total demand forgoods and services and inflation, Not only do the ex-cesses drive up the costs of constructing houses, butthese huge demands and the inflationary pressurespush up market interest rates, which tend to bearheavily on the housing industry.

Little evidence has been found to indicate that thehousing industry or the financial intermediaries areaffected in such a manner which makes them gainfrom excessive monetary expansion. It seems thatthey, as most other sectors, flourish best in an economygrowing at a relatively steady rate without inflation.The housing industry might be benefited, however,by a repeal or a liberalization of laws, regulations,and practices that interfere with the free flow offunds from the saver to the ultimate borrower.

NORMAN N, Bowsura

LIoNEL KALI5H

SUBSCRIPTIONS to this bank’s REVIEW are available to the public without

charge, including bulk mailings -to banks, business organizations, educational

institutions, and others, For information write: Research Department, Federal

Reserve Bank of St. Louis, P. 0. Box 442, St. Lou-is, Missouri 63166.

Page 12