E BATTALION Page 5
NESDAY, FEBRUARY 12, 1975
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Eco prof asks interest rates reappraisal
A TAMU economics professor
called for reappraisal of all statutory
limits on allowable interest rates “to
avoid a possible flight of capital from
Texas should market interest rates
exceed statutory limits.
Dr. W. Philip Gramm proposed
such action during testimony before
the Economic Development Com
mittee of the Texas Senate.
“While Texas consumers and
businessmen are going to have to
bear the burden of the economic
disruption produced by the federal
government,” the TAMU professor
noted, “we can continue to prosper
if we provide a sound business envi
ronment by removing any limits on
the ability of Texans to cope with
market conditions.”
“States which had low legal max
imum credit rates have seen resi
dential construction and consumer
finance lending virtually cease in
1973-1974 as the savings of their
citizens were loaned out in other
states,” he said. “If interest rate
maximums are maintained they
should be tied to the prime rate to
minimize the disruption of the
Texas economy.”
Gramm said a federal deficit of
$70 billion in fiscal 1975 will pro
duce government absorption of 80
per cent of all funds raised on the
American capital market and will
drive interest rates up substantially
by the end of the year.
“The federal government has but
two options in financing its huge de
ficit,” Gramm said.
“It can sell bonds on the open
market and compete loanable funds
away from private industry or it can
print money through the Federal
Reserve Bank to finance the de
ficit.”
Over the last decade the deficits
have on the average been financed
60 per cent by borrowing and 40 per
cent by printing money, he said.
“Though interest rates could con
tinue to edge downward through
the summer, when the impact of the
deficit financing hits the credit mar
ket, interest rates are going to begin
to rise,” Gramm predicted.
“While the Congress does not
seem to be concerned by the pros
pects of converting the President’s
proposed $52 billion deficit into a
$70 plus billion deficit, simple
arithmetic reveals the problem,
Gramm said.
“If we monetize only 40 percent
of the deficit, the money supply will
grow by 25 percent and if historic
patterns of behavior are repeated,
the demand for goods and services
will rise by a similar amount. Even
with the most rapid economic re
covery in American history, in
creases in production will not ex
ceed 15 percent and could well be
less than one-third of that amount. ”
Given such a gap between growth
in demand and growth in supply,
Gramm said, double digit inflation
“seems inevitable.”
“If the Federal Reserve Bank
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does not monetize substantial quan
tities of the federal debt, 80 percent
of all savings will be siphoned off by
government and interest rates will
be bid up until private investment
has fallen to about one-half of last
year’s level, he added. “While we
can only guess what the interest rate
might be under such circumstances,
Federal Reserve Bank economists
do not dismiss the possibility of a 20
percent interest rate. ”
Newcomers
hold party
The Texas A&M Newcomers
Club is sponsoring a game party
Feb. 19 in the A&M United
Methodist Church Fellowship Hall.
The club is open to first and sec
ond year residents of the area who
are wives of full time faculty or staff
members at A&M, or who are
themselves hill time faculty of staff
members. However, the game
party is open to non-members as
well.
Anyone interested in joining the
club or receiving information about
the party may contact Mrs. Douglas
Slack, club president, at 693-2438.
House against
Bell rate rise
AUSTIN (AP) — The House'
rushed to the Senate on Tuesday a
“sense of the legislature resolution
expressing support for Atty. Gen.
John Hill’s suit to block Southwest
ern Bell Telephone’s announced
rate increase for intrastate long dis
tance calls.
Hearing on the attorney general’s
suit for a temporary injunction is set
for Feb. 18 before state District
Court Judge Tom Blackwell of Au
stin.
House members voted 87-48 for
the resolution stating that the legis
lature “does hereby approve, ratify
and authorize the action of the at
torney general” in filing the suit.
Rep. Jim Nugent, D-Kerrville,
the sponsor and the chairman of the
House Transportation Committee,
which is considering telephone rate
regulation bills, said the measure
was not intended to expand Hill’s
authority. He said Hill already had
all the authority he needed to chal
lenge the $45 million increase that
Bell intends to put into effect March
1.
“This is an attempt to tell the at
torney general to get Lifter it and find
out if he can get a fair hearing,”
Nugent said. He said he knew of no
more rapid means to check the in
crease, if it can be stopped legally,
than through a court case.
The resolution was offered, Nug
ent said, “so the attorney general
and the people will know how we
feel about it. ”
Nugent later said the resolution
was not intended to give his com
mittee a sounding on House feeling
toward regulation of telephone
companies by the state, a major
issue of this legislative session.
Les Lyons
707 University Dr.,
College Station
He must
be doing
something
right.
Any man who has earned
the Diamond Medallion
must be doing something
right. So right that it puts
him in a class by himself.
This designation, which
goes to only a very few
young Provident Mutual
agents each year, reflects
fine service to clients and
an excellent grasp of life
and health insurance coun
selling. Like all coveted
honors, the Diamond
Medallion is not easy to
come by.
Les’s agency, his cli
ents, and his Company
congratulate him on a job
well done.
RFtQViPENT
MUTUAL==imii=== LIFE
INSURANCE COMPANY
PHIL AOE L PHI A