Plenty of It

The best way to measure the strength of the economy, say many economists, is to look at how much money is available for spending and lending. By this theory, the outlook for the rest of 1964 is bright indeed. The supply of money in the U.S.--measured by totaling bank deposits and currency in circulation--is large and steadily growing. It increased 8% in 1963, a pace of expansion approached only once in the past decade. Since people invariably spend more when there is more to spend, the economy will get a boost from the plentiful money supply. Yet money is also causing some national worries and heating up old disputes.

President Johnson aimed a stern warning at businessmen and labor leaders against any hiking of prices and wages that might touch off another round of inflation and further lessen the already much-eroded value of the dollar. The President was concerned by recent wholesale-price rises and by possible demands for big wage hikes in upcoming labor talks in major industries. Should inflation appear again despite this warning, it will be the job of the Federal Reserve Board to combat it by limiting the money supply--and that possibility last week caused a clash between Fed Chairman William McChesney Martin Jr. and his archcritic, Texas Democrat Wright Patman, chairman of the House Banking Committee.

Patman charged that the Federal Reserve has already contributed to high unemployment by restricting the flow of money, fears that the Fed will further tighten up this year. If the tax cut proves to be too great a stimulus to the economy, the Fed may have to do just that. The betting in many business circles is that after the tax cut passes, the discount rate will be raised from 3.5% to 4%--which would make commercial loan money more expensive to come by. But Johnson is an easy-money man, and he has a chance to moderate any tight credit policy by selecting a man of his own persuasion for the opening on the Federal Reserve Board coming up at the end of January.

The Government may well have to make vital decisions about money policy during 1964, but so, on a smaller scale, will millions of consumers and business men. The year's outlook in various sectors of the money market:

sb BANK DEPOSITS. The flow of savings of all kinds should continue 1963's record pace, since the public habitually saves 7% of each dollar, and will have more dollars if a tax cut is made.

sb FEDERAL FINANCING. With federal deficits expected to be smaller this year, the Treasury will be competing less against private borrowers in the money market, thus putting less pressure on interest rates.

sb BUSINESS LOANS. Funds will continue to be amply available, but a Federal Reserve discount boost might push rates to prime loan customers from their present 4.5% to 5%, which would be the highest in three decades.

sb CAPITAL MARKETS. Recent corporate and municipal bond issues "went out the window" (sold quickly); experts expect this trend to continue.

sb MORTGAGE LOANS. As savings increase, more mortgage funds will be available and rates should hold at around 6%.

sb CONSUMER LOANS. Plenty of credit will continue to be obtainable, since interest charges range as high as 24% and the consumer seems willing to pay the price.

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