Tape 49 - General Economic Conditions, Market Price Increases, Margin Requirements on Stocks, Liquidity Crisis / Paul A. Samuelson papers, 1933-2010 and undated / Duke Digital Repository

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Hello this is William Clark

0:02

of the Chicago Tribune, welcoming you once again

0:03

on behalf of Instructional Dynamics

0:05

to a visit with the eminent economist,

0:08

Professor Milton Friedman of the University of Chicago.

0:10

Dr. Friedman and I are recording this interview

0:14

on April 29th, Wednesday.

0:16

And there is a great deal of concern doctor

0:19

over what's been happening in the stock market of course

0:21

and wonder about what it may portend for the economy.

0:24

Now you recently, you've just come back from

0:27

another trip to Washington.

0:30

I wonder if anything came out of your visit

0:31

with the president there

0:33

that would help us understand what's going on.

0:34

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Well of course it's not,

0:37

I'm not in a position to talk about what went on

0:38

in the discussion which the president had

0:42

with a group of five economists rather very views.

0:44

But I can perfectly well report my own views

0:48

because of course what I say inside the White House

0:52

is exactly the same as what I say outside the White House.

0:54

That's one of the great virtues

0:57

of being an academic economists, who can,

0:58

doesn't have to worry about the political aspects.

1:00

So I think it might be worth reviewing

1:05

what the state of the economy and the situation is,

1:10

I may say, in preparation for the meeting in Washington,

1:13

I took some time out to go over the figures and the numbers

1:18

and make sure that my general impressions were supported.

1:22

And unlike the immediate occasion

1:28

of course for all the concern,

1:30

this wasn't the occasion I may say

1:32

for the meeting in Washington

1:33

that kind of thing that the president likes to get views

1:34

from a variety of people from time to time

1:38

and this one that had originally been scheduled

1:41

a week earlier.

1:43

Then as a matter of fact it was the return of Apollo 13

1:44

that postponed,

1:49

because the president flew out to Hawaii

1:52

to meet the astronauts and the meeting

1:54

had to be rescheduled.

1:56

So it wasn't associated with the stock market crash

1:58

but the very rapid decline of the stock market

2:01

in the last few days has of course occasioned

2:04

a lot of concern.

2:06

On the whole I think one should discount that concern.

2:08

One of the things I have become increasingly impressed

2:11

with as I've mentioned on these tapes before

2:13

is how shortsighted people in the market are.

2:15

They can look forward two weeks or maybe three weeks

2:18

and have very little vision beyond that.

2:21

The market in the past has not been

2:24

a very accurate indicator of what's going economy.

2:28

It does on the average tend to go up about six months

2:32

before the economy goes up and to go down

2:37

maybe about six months before.

2:40

But that relationship is very loose

2:41

and there are lots of occasions in which

2:44

the market goes up and the economy doesn't

2:46

or the market goes down and the economy does.

2:48

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You wouldn't consider it one of the

2:50

more consistent indicators then.

2:52

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It is a consistent indicator in this average sense.

2:54

But it is not a consistent indicator in any other sense

2:57

because it gives too many false signals.

3:00

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I see.

3:03

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But let's turn to the situation of the economy

3:04

and then we can come back maybe to what the market

3:08

is saying if anything.

3:11

So far as the economy is concerned

3:14

on reexamining the situation,

3:16

I see no reason to change very substantially

3:18

the kind of view I have been expressing

3:22

although I would modify or moderated a little bit.

3:25

As my subscribers, the subscribers to this service know,

3:31

I have been for a long time expecting

3:37

that we were going to have a recession.

3:41

We have been having a recession,

3:44

as nearly as I can judge the situation.

3:46

We had a turnaround in the economy sometime

3:49

in the third quarter of last year,

3:51

probably when the scholars of the National Bureau get

3:53

to dating the turn.

3:58

They will date it somewhere around September, October

3:59

or November of 1969.

4:02

Now the first question to ask is,

4:05

given that we have been having a recession,

4:07

how severe it is?

4:10

How mild is it?

4:11

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And one could ask that in two different ways.

4:13

You can say how does it compare with earlier episodes?

4:15

But I want to look at a different aspect of it.

4:17

In my opinion this recession is to be regarded

4:20

as largely a response to the monetary restraint

4:23

which has been being practiced since the end of 68.

4:26

As you recall for the first part of 69,

4:33

that was moderate and then it tightened up very sharply,

4:36

first part of 69, yes.

4:40

It was moderate and then it tightened up very sharply

4:41

around the middle of the year.

4:44

And for the last six months of 1969

4:45

there was no monetary growth at all.

4:47

Now one question you can ask,

4:50

has the response of the economy

4:52

to that monetary tightness been about average,

4:56

somewhat milder than average

5:00

or somewhat more severe than average?

5:02

That is this particular episode,

5:04

where does it fit in the past historical pattern?

5:06

You all recognize that economics

5:09

is an inexact science with a good deal of margin of error

5:13

that there is no perfectly precise relationship

5:17

in what you can say is on the average.

5:20

When the rate of growth of money has slowed,

5:23

there has on the average been a certain response

5:28

of the economy.

5:30

Now some occasions that's been stronger,

5:31

some it's been weaker and now the question I want to ask is,

5:33

is the current response of the economy on the mild side

5:36

or on the severe side of that that spectrum?

5:39

Well as nearly as I can tell

5:44

from looking at a number of figures,

5:47

this response is on the mild side of the spectrum.

5:49

It's within the range of previous responses.

5:51

There's nothing in any way abnormal about it.

5:55

But among the members of this class it's on the mild side.

5:58

Now why is it on the mild side?

6:06

That's a much more complicated question

6:09

and for a moment I'm going to pass by

6:13

just to describe the situation, it is on the mild side.

6:14

Now the next question you're gonna ask,

6:18

well given that it's been mild so far in this sense,

6:19

given that in the first six months of the recession,

6:23

roughly it's five or six months, it's been mild.

6:27

Does that mean that the law of averages

6:30

will make the next six months severe?

6:32

Or does it mean that if it's mild this far

6:35

it will continue to be mild?

6:37

Well from that point of view,

6:39

we have a study that was made about six or seven years ago

6:40

by Jeff Moore, who is now the commissioner

6:44

of the Bureau of Labor Statistics,

6:47

in which he compared for all of the episodes he could find,

6:49

the behavior of the economy

6:53

during the first six months of recessions

6:55

with its behavior during the rest of the country.

6:57

And what he found was that in general

7:00

if a recession started out being mild

7:02

and ended up being mild, if it started out being severe

7:04

it ended up being severe.

7:07

That is that instead of there being an opposite reaction

7:09

it was the other way.

7:12

That it was like the Dow Theory idea for the market

7:13

that the initial movement in the first six months

7:16

was a pretty good forecast

7:19

to whether the recession as a whole

7:20

was going to be mild or severe.

7:22

So I would say if you put

7:24

these two pieces of evidence together,

7:25

what it comes down to is that we are in a recession,

7:27

there is no reason in my opinion

7:30

to believe that this recession is over.

7:32

We are still reacting to the monetary tightness

7:34

of the last half of 69.

7:36

The shift in monetary policy in the early 70s

7:39

is not going to make itself manifest

7:42

until the third quarter or so,

7:45

maybe the fourth quarter of 70.

7:47

So there is every expectation that the recession

7:49

will continue.

7:52

But in a sense we are extremely lucky.

7:53

As from my point of view the Fed made a mistake

7:56

in stepping on the brake too hard in the last half of 69.

7:58

But it looks as if we're not going to pay

8:02

too high a price for that mistake given that

8:03

for whatever reasons this is a rather mild reaction.

8:06

But so the expectation is that we will continue

8:09

to have a definite recession that output will continue

8:13

to go down for a while,

8:17

that unemployment will continue to rise for a while,

8:19

that prices will taper off.

8:22

That is the rate of price rise will taper off.

8:25

But that this recession will continue

8:28

for about the next six months.

8:29

Now if you try to link that into the stock market,

8:31

it's very hard to do so

8:33

because there is nothing in that picture

8:35

which would suggest a drastic change in the future

8:38

for the stock market, nothing to cause a decline.

8:42

One would only have to say from that point of view

8:45

that so many commentators have been resisting

8:48

the conclusion that we were going to have a recession.

8:52

They have been arguing no, this is only

8:55

a very temporary pause.

8:58

We're going to be off again to the races in May.

8:59

One possibility is that you finally got an awakening

9:01

on the part of people in the stock market

9:05

that we really were in the middle of a recession

9:07

that it was going to be a real continued recession.

9:10

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I think there is a lot of concern Dr. Friedman

9:14

about the price increase announced that took place in March.

9:16

And the question might be asked.

9:20

Since this recession is as you say a mild one

9:23

is a too mild to accomplish the purpose

9:26

of stopping inflation.

9:29

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Well this again is a question of patients and perspective.

9:31

I think the point you raised is a very important one.

9:35

In the first place, let me comment on the figures

9:39

and then let me comment on the problems of policy

9:41

that are facing the administration and the talk

9:45

that's going around on the figures.

9:47

The particular March increase you're talking about

9:49

is extremely misleading for two reasons.

9:52

Number one, it is not adjusted

9:54

for the typical seasonal movement.

9:56

Number two, 28% of the increase in that price,

9:59

that price increase in March,

10:06

was attributable to a rise in the interest rate

10:08

on home mortgages.

10:10

Now that's something of a statistical fluke

10:12

and has to do with the way in which they introduce

10:14

into the index mortgage rate.

10:17

I won't go into the details

10:20

but if you think, if you go into them you will see

10:21

that you could not get so substantial

10:24

a price rise attributable to the interest rate on mortgages

10:27

unless you put in that one month

10:30

because they were announced or something

10:34

because they don't take account of points

10:37

on FHA mortgages and they take the announced rate,

10:40

unless you put into that index

10:42

a very large rise in interest rates in that one month.

10:43

Now aside from that, there are always special things,

10:47

so I really wouldn't want to put much weight on that.

10:51

I would rather want to call your attention

10:54

to a broader range of figures in the first place.

10:56

Suppose you take the seasonally adjusted cost

10:59

of living price index number

11:03

that is adjusted for the typical movements of price.

11:05

And you see the reason why there is a seasonal in prices

11:08

is very easy to see,

11:10

food prices in particular,

11:11

tend to have a definite seasonal during the year.

11:13

To be low during a time of harvest

11:15

and to be to rise during other times.

11:17

And there are similarly other prices

11:19

which have this kind of a seasonal pattern,

11:21

so that it is desirable

11:23

if you're going to see what is happening to the economy

11:25

as a whole to extract the seasonal influence.

11:27

If you adjust for seasonal, cost of living price index went

11:30

up 6/10 of 1% point in January,

11:34

5/10 in February and 4/10 in March.

11:40

Now of course we tend to multiply that by 12

11:44

to get an annual rate and then you say it was seven.

11:47

A little over 7% in January, a little over 6% in February

11:50

and 5% per year in March.

11:57

I don't think you, I think you get a misleading impression

11:58

by multiplying it up

12:01

because you don't realize how narrow or base it is.

12:02

But nonetheless, that pattern of six, five, four

12:04

is a significant pattern which suggests

12:07

a definite tapering off of the rate of rising prices.

12:10

If you look at wholesale prices,

12:15

now wholesale prices do not have as much

12:17

of a seasonal minimum as retail prices

12:19

especially if you look at the wholesale prices

12:22

of industrial products and leave out the food products.

12:24

And it's worth looking at the wholesale prices

12:28

of industrial products

12:30

because in the past the behavior of wholesale prices

12:31

has tended to foreshadow the behavior of retail

12:34

or cost of living prices not perfectly.

12:36

There is again a good deal of leeway

12:39

and we're just trying to get a.

12:40

Now again wholesale prices, in the first three months

12:42

of this year showed a definite declining tendency,

12:45

there rose in a much,

12:48

I think it was roughly the industrial wholesale prices rose

12:50

at about 2% per year only in March.

12:54

A much slower rise during the first quarter

12:56

than you had during the final quarter of last year.

12:58

So both for cost of living and for wholesale prices.

13:02

The figures suggest a definite tapering off

13:05

of the rate of price rise.

13:09

Now to some extent this has been concealed

13:11

by people's looking at a much broader index namely

13:13

the rate of rise of the implicit price deflator

13:16

in the gross national product.

13:20

I bring that complicated notion in

13:23

because the second quarter figures

13:25

for gross national product when they come

13:27

are going to be extremely misleading

13:29

and one ought to be prepared in advance.

13:32

And the reason for this is that you will

13:34

have piled into the second quarter

13:37

that's retroactive pay increase

13:38

of the federal government 6% rise.

13:40

Now that is going to be piled entirely

13:43

into the second quarter.

13:46

You have a case where the quarter to quarter changes

13:47

in GNP from the fourth quarter to the first quarter

13:50

was $8 billion.

13:52

And this is going to amount to a $4 billion increase

13:53

and an annual rate.

13:56

You see again it's one billion and a quarter,

13:57

multiplied by four to get an annual rate.

13:59

But when you're talking about eight billion

14:02

per quarter changes,

14:03

a $4 billion item is not a negligible item to be sneezed at.

14:05

In addition, Social Security is going to be piled

14:09

into that same quarter.

14:11

For further, these increases are treated entirely

14:13

as price increases.

14:16

It is assumed and I may say I think this assumption

14:17

has a good deal a justice to it.

14:19

That there is no increase in the productivity

14:22

of government work.

14:23

And given that that's the case, the whole of the increase

14:25

in pay is an increase in,

14:28

treated as an increase in prices.

14:32

And therefore the second quarter GNP

14:34

may make it look as if you've turned out of the recession

14:36

as if you've got a larger increase in GNP

14:40

and as if prices are starting to rise again.

14:42

I think this will be very misleading.

14:46

And what we should look at are these costs of living price

14:48

and the cost of living index numbers,

14:51

the wholesale price index numbers

14:53

and on all of those I think you'll have a sign

14:55

of a tapering off.

14:57

Now that's so much for the facts.

14:59

Now we come to the other question

15:01

you were implicitly raising,

15:02

what about the concern and the problem?

15:03

And here you of course are entirely right.

15:05

Especially the people in the market and on Wall Street

15:08

who don't look very far ahead

15:11

are saying my God we're coming to the worst of both worlds.

15:13

We're gonna have high unemployment,

15:16

we're going to have very rapidly rising prices.

15:18

In fact the inflation is going to get worse and worse.

15:20

We have some of the wild men on Wall Street

15:22

who are saying inflation is not only not being tapered off,

15:24

it's getting worse.

15:28

And therefore there is a great deal of pressure

15:28

being brought to bear upon the administration

15:32

to engage in price and wage controls and jawboning

15:35

to ease up government spending that ease up money and so on.

15:38

Now all of this I think is extraordinary,

15:45

especially when it comes from business community

15:48

and from the financial community.

15:51

As I said many times, I think the business community

15:53

has a suicidal impulse that is almost irreplaceable.

15:55

There is nothing that is going to destroy free enterprise

15:59

in this country such as widespread price and wage controls.

16:01

And the idea that you can have them

16:04

for a few months and then get rid of,

16:07

or that they will be selective on just the people

16:09

you want them to bring on,

16:12

it's not supported by the evidence.

16:14

If you look at the experience with incomes policy

16:16

was job bonding in other countries,

16:19

in the United States and other times

16:22

it has never worked.

16:24

It's amusing feature that the economists

16:26

from the Johnson administration who are urging

16:29

this administration to engage in wage and price guidelines

16:32

are essentially saying we followed a policy that failed.

16:34

Why should you also have a failure.

16:37

At any rate I think that from this point of view,

16:41

this hysteria is not warranted.

16:44

That the policies that the administration

16:46

has been following are excellent on the whole

16:50

with the one exception

16:53

of an overtime money policy last year.

16:54

But that's been correct.

16:56

These policies are excellent,

16:57

that they are beginning to yield results,

16:59

that the inflation is showing signs of abating

17:01

with mild costs in terms of recession.

17:03

That the course of wisdom is to continue that policy

17:06

and not let yourself get panicked in any way.

17:10

And it seems to me that at the moment

17:13

the president and the administration

17:15

have been showing a good deal of courage

17:17

and they recognize very well

17:21

that from the narrow political point of view

17:24

of this false election,

17:26

it may cost fairly heavily to have the recession

17:28

still continuing or just having turned around.

17:33

To have prices they will still be rising.

17:36

When I say that the inflation is abating,

17:38

I am not saying the prices are going to be falling

17:40

but if you take the figures I gave

17:42

that means that in March, they were rising

17:44

at a rate of little under 5% a year.

17:47

If I think the best you can hope for

17:50

is that by November or the end of the year

17:52

they will be rising at something like 3% a year,

17:55

3 1/2% a year.

17:56

There will still be rising, but rising at a less rapid rate.

17:58

And under those circumstances,

18:01

there would be, one would.

18:03

The pressure, the political pressure, is

18:05

to try to create a more favorable climate

18:09

for the November elections.

18:11

And I think the president and the administration

18:12

has to be given a good deal of credit

18:14

for having had the courage and the willingness

18:17

to sacrifice so short run political gains

18:19

for the longer run economic health of the country.

18:22

Instead what happens,

18:24

instead of having all of the people,

18:26

like the people in Wall Street

18:28

and the business people screaming at the top of their lungs

18:30

about an administration that has tied itself into knots,

18:33

it isn't doing anything.

18:37

Why in the world are you are you not active and so on?

18:38

And I think that's really, as I say,

18:41

a lack of perspective and a sign

18:43

of extreme short sightedness and an inability

18:45

to see the forest for the trees.

18:50

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It's interesting.

18:52

Dr. Friedman, we have some questions from subscribers

18:53

but before we get into those, perhaps you'd want

18:56

to catch us up very briefly on what has been happening

18:58

to the money supply in the last few weeks.

19:01

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Well as you know the two things

19:03

to be said about the money supply.

19:06

The first is, as I may have commented before

19:07

and as has been in the papers a very important phenomenon.

19:11

And I say it partly because some of my subscribers

19:15

may remember that I was suggesting earlier

19:20

that this would be the case, has been a change,

19:22

a definite change in the Fed's policy

19:25

as announced and not merely as seen in the figures.

19:28

It is in the January open market committee meeting,

19:31

prior to the taking over of office by Mr. Burns as chairman.

19:35

The Open Market Committee changed its directive

19:42

in such a way as to give primacy

19:46

to monetary aggregates and second place to industry.

19:49

Now this is a very important change given the fact that

19:54

in my opinion, it has been the primary emphasis

19:57

on interest rates that has been largely responsible

20:00

for a large part of the bad monetary policy of recent years.

20:02

And so they in this, instructed the manager at the desk

20:06

to conduct policy primarily with a view

20:11

to having a fairly slow but steady rate of growth,

20:14

relatively steady rate of growth in the monetary aggregates.

20:17

As I said, that took place before Mr. Burns came in

20:20

and that is what I testified it would happen primarily

20:23

because if you are a member of that board

20:27

and you know perfectly well that you're going to

20:30

be changing your policies,

20:32

you would rather do it under your own volition

20:34

and not at a time when everybody would say,

20:36

you see the moment a new chairman came in

20:38

he snapped his fingers and the whole day went down the line.

20:40

At any rate that sense the background.

20:44

Now what has actually been happening?

20:46

What has actually been happening

20:48

is that the money supply as best I can view it

20:50

has been rising at a rate of something

20:52

like about 3% per year since January.

20:54

But it has been very erratic

20:57

because of the postal strike on the one hand

21:00

and earlier because of Christmas.

21:02

There have been all sorts of erratic elements entering in

21:04

and the form of items in the process of collection

21:07

checks being cleared.

21:09

And as a result you have had a very sizable bulge

21:11

over the Easter and now it's been coming back down.

21:14

But I think on the whole, what you can say

21:17

is that average down, you are on a policy

21:19

of about 3% per year rate of increase

21:22

in the quantity of money or the reduction.

21:25

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Now our questions, a subscriber who happens

21:28

also to be a congressman asks this question,

21:30

do you favor a reduction in margin requirements

21:33

on stock purchases from 80 to 70%?

21:36

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Well that's a very pertinent and timely question

21:41

because as you know concerned as a people

21:45

in the stock market are with the decline

21:47

that has taken place in the stock market

21:51

and also concerned about the financial safety

21:53

of some of these brokerage houses.

21:56

The one of the main suggestions that has been made

22:00

by the Street, by Wall Street

22:03

has been that the Federal Reserve Board

22:06

which controls margin requirements on stock

22:08

should lower the margin requirement for maybe to 70%.

22:10

Now let me make my answer in two parts.

22:13

First, I have always been opposed

22:16

to such margin requirements.

22:20

I believe they should be completely repealed.

22:21

I do not see any more reason

22:23

why the government should specify,

22:25

have a direct control over how much I may borrow

22:28

on my stocks and how much I may borrow

22:31

and anything else that I'd be between me and the bank

22:33

or me and my broker.

22:35

So I have for long been in favor

22:36

of abolishing margin controls along with

22:39

the interest ceilings on regulation,

22:41

enter ceilings on deposits and almost all

22:46

other direct controls of that kind.

22:49

But that's a question of structural reform.

22:52

The immediate policy question is a different one.

22:54

Given that we have such a margin control

22:57

should it at this time be loosened.

23:01

And my answer to that is definitely and unquestionably, no.

23:03

If you're going to have such a control,

23:07

it does least harm if it's kept constant.

23:09

One of the problems that has always occurred

23:12

with this kind of government intervention

23:16

is the tendency to jiggle it this way

23:17

and jiggle it that way.

23:19

And so if you're going to have the control

23:20

it does less harm if you hold it constant

23:23

at a steady percentage than if you jiggle around.

23:25

Maybe the percentage would be better if it were 70 than 80.

23:28

But whatever it is, it ought to be kept constant.

23:31

Moreover there is no reason in the record

23:34

to suppose that changing that margin requirement

23:38

would affect the course of stock prices.

23:40

If the margin requirement has been changed

23:43

at various times in the past,

23:45

such studies have been made show no significant impact

23:47

of changes in the margin requirement

23:51

on the behavior of stock prices.

23:52

People are not going to,

23:55

the price that people pay for stocks reflects

23:56

their common judgment of their value

23:59

and not primarily whether they can borrow 20 or 30%

24:01

on their stocks.

24:05

So taking all things into account,

24:06

I would say once again this is a shortsighted view.

24:08

I could have a great deal more sympathy

24:14

with the financial industry

24:17

if they would urge repeal of the margin requirement entirely

24:19

but not a jiggling in this way.

24:24

As you know there is a lot of concern in Wall Street

24:26

that some of the houses will fail

24:29

and that these failures will trigger others

24:32

and it will get to be a chain reaction

24:34

and that we will have a liquidity crisis

24:36

and one of our subscribers talks along those lines too

24:39

when he says 1966 and 1969 seem very similar years

24:43

in terms of economic data.

24:47

The terms liquidity crisis, crunch and so forth

24:49

were used a great deal more in 1966 than 1969.

24:52

What is a liquidity crisis?

24:56

And why have we heard less about it this time,

24:58

this time around?

25:01

-

Well both of those are very relevant

25:03

and good questions.

25:05

I do know that there is much concern in Wall Street

25:06

that some of some brokerage houses,

25:09

and not only some small ones but some large ones

25:12

may very well fail.

25:14

This is primarily a result

25:16

not so much of the declining stock prices

25:17

as it is at the volume of business

25:19

has been much lower during this bear market

25:21

than it ordinarily is during a bull market.

25:24

And there is a view that if a few stock market houses fall

25:29

this causes other concerns to crash

25:34

and all of a sudden you hear visions if not 1929,

25:38

well at least in 1907, and the banking crisis of 1907.

25:42

Now I think those concerns are exaggerated.

25:46

The failures to 1929 to take the most extreme example

25:49

did harm, not so much because of the loss of capital

25:53

or because of the failures,

25:58

but because there were bank failures

25:59

which were permitted by the Federal Reserve

26:01

to produce a very substantial decline

26:03

in the quantity of money.

26:05

There is almost no chance for such spreading around today.

26:06

The banking system as is clear and out of danger,

26:09

there is no chance.

26:13

So that I think the failures in Wall Street

26:15

which reflect slower financial business

26:19

will be unfortunate for the people involved in it of course.

26:23

It will be unfortunate for their employees.

26:26

But I do not think there is any chance

26:28

that it will start a snowball

26:31

of widespread financial liquidation or anything like that.

26:33

Now it may cause some people to get more upset

26:37

about the future,

26:42

and to want to hold larger cash balances,

26:43

relative to their income than they did before.

26:45

And this might mean, a somewhat slight intensification

26:48

of the rate of decline of the economy,

26:53

a steepening of the recession.

26:54

But I think the magnitude of any such effect,

26:56

given the figures as I know them

26:58

is likely to be rather limited.

27:00

So I do not myself see any reason

27:02

to be enormously concerned about this.

27:04

But that's not, still not answering

27:06

the question you raised about why was 66

27:08

so much talk about a liquidity crisis and why not now?

27:11

And the answer there I think is fairly straightforward.

27:14

It is the fact that while you have heard

27:18

just as much tight money,

27:21

just as much pressure this time,

27:23

it occurred more gradually and it was spread

27:25

over a slower period of time.

27:27

What produces a liquidity crisis

27:29

is a rapid change in the monetary situation.

27:30

What happened in 1966 was a much more rapid

27:35

and sizable shift over a short period,

27:37

a few months time, and it caught everybody unprepared.

27:40

This time people have been prepared for it

27:42

and preparing for it.

27:44

So they have been reducing their future commitments

27:45

and therefore I do not expect a liquidity crisis

27:48

of the kind that you had in 1967.

27:51

-

Thank you very much doctor.

27:53

We've been talking with Professor Milton Friedman

27:54

of the University of Chicago.

27:56

Don't forget if you have questions for Dr. Friedman

27:58

or wanna suggest subjects for him to comment on

28:01

on future tapes, write them, write your suggestions

28:03

to Instructional Dynamics,

28:06

166 East Superior Street, Chicago 6 0 6 1 1.

28:07

This is William Clark of the Chicago Tribune.

28:12

We'll be visiting with Dr. Friedman again two weeks.

28:14

Tape 49 - General Economic Conditions, Market Price Increases, Margin Requirements on Stocks, Liquidity Crisis

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