Jimmy Carter vs. Inflation

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to use credit to finance speculative ventures." Using powers granted by Congress in 1969, the President authorized the Federal Reserve Board to control "unsecured" consumer borrowing—primarily the use of credit cards, check credit from banks, department-store charge accounts and the like. The Federal Reserve will tell banks and other lenders that, if they expand their lines of credit beyond the totals outstanding last week, they will incur a penalty: they will have to deposit a sum equal to 15% of the additional amount into a special reserve drawing no interest. How to stay within this requirement is entirely up to the lenders. They can refuse to extend additional credit to consumers, cancel the unused portion of existing credit lines, or go ahead and offer more credit, pay the penalty, and pass the cost along to the borrowers. "Secured" loans—those taken out to buy houses, cars, refrigerators and other appliances—will not be affected at all.

Also, the Federal Reserve will be empowered to extend its reserve requirements to banks that are not members of the Federal Reserve System; these banks hold 30% of all deposits. The effect will be to tighten the Fed's control of lendable funds throughout the economy. Fed Chairman Volcker will also undertake, in Carter's words, "a voluntary program, effective immediately, to restrain excessive growth in loans by larger banks." That sounds like more federal jawboning to get banks to stop making loans for unproductive purposes, such as financing mergers or speculative inventory increases.

Similar policies of moral suasion have failed resoundingly in the past.

Monetary measures. They are being tightened. The Federal Reserve announced that it will impose a 3% surcharge, on top of the 13% discount rate, on some of the loans it makes to member banks. A bank borrowing from the Fed two weeks in a row, or more than four weeks in any quarter, will thus be charged 16%. If banks want to go ahead and borrow anyway, the move would tend to raise still higher the interest rates that they in turn charge when they lend the money to customers. Federal Reserve officials hope that banks will instead reduce both their borrowing from the Reserve and their own lending. Cutting down on loans to member banks would help the Federal Reserve to lower the growth of money supply, a policy it has long pursued but found much easier to proclaim than to achieve.

Miscellaneous measures. A variety will be enacted. The supervision of the Administration's voluntary wage-price guidelines will be tightened; the Council on Wage and Price Stability will more than double its staff of the 80 people who are now watching pay and price boosts. Some major corporations will be required to give the Government advance notice of new price hikes. But the Administration has no power to order any union or company to trim a wage or a price, and Carter will not request any such power. Said the President: "Government wage and price controls have never worked in peacetime."

Immediate reaction to the program Tom politicians, businessmen and economists was cautiously reserved. Only the most partisan conservatives denounced it wholeheartedly, and even fewer people gave it warm praise. Generally, Carter got high marks for having realized the deadly seriousness of inflation and having started to