Nation: Trying to Build Confidence

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already: the drop in auto sales since mid-November. That could signal a buyer rebellion against the prices that Detroit is charging for many 1978 models that are smaller—though more fuel-efficient—than those of earlier years.

Interest Rates. Higher demand for loans and Federal Reserve Board efforts to prevent inflationary growth of the U.S. money supply are pushing up lending charges. The bank "prime" rate on business loans has jumped from 6¼% at the start of 1977 to 8% now; some Wall Streeters predict it will reach 8¾% or even 9% by year's end. The rise makes it more expensive for consumers and businesses to buy or build with borrowed cash. It could put an end to the housing boom by causing savers to pull their money out of savings banks and savings and loan associations—the prime source of mortgage loans—and instead buy Treasury bills or bonds to get the higher interest rates that they offer. Some lenders fear that this process, known to economists by the jawbreaking name of "disintermediation," is already beginning.

The Dollar. It steadied after Washington began buying up unwanted greenbacks to prop their price, but dipped a bit again at week's end, apparently because Carter's State of the Union speech failed to convince foreign moneymen that the Administration has a handle on the economy's problems. In the long run, dollar stability will depend on U.S. progress in reducing its gargantuan trade deficit of almost $30 billion—and not much progress is expected this year. Congressional passage of an energy bill—almost any energy bill —would help by demonstrating American determination to cut oil imports, the biggest contributor to the deficit. A dollar slide aggravates other troubles: it worsens inflation by increasing the price of imports, and causes the Federal Reserve to raise interest rates more than it otherwise would in an effort to make dollar holdings a more attractive investment.

The Stock Market. The Dow Jones industrial average has fallen on eleven of the 14 trading days so far in 1978, for a decline of 54 points, and it closed last week at 776.94. In stock traders' minds, worries about inflation, interest rates and the dollar have outweighed all the good news. Though the stock market does not directly move the economy, it can have an important psychological effect by making people feel poorer—and with reason. Says Albert H. Cox, chief economist of Merrill Lynch, the brokerage giant: "By our estimates, at this point almost $100 billion worth of values in listed stocks has been wiped away—$62 billion last year and another $30 billion plus just in the early part of this year. That has to have some dampening effect [on the economy] after a while."

Investment. Council of Economic Advisers Chairman Schultze figures that business spending for new plant and equipment, adjusted for inflation, must rise 7% this year and 9% next year to keep the recovery rolling. Capital investment increased 8% in 1977, but Commerce Department surveys indicate a rise of only 4.5% this year. Townsend-Greenspan, a consulting firm headed by Alan Green, span, a member of the TIME Board of Economists, calculates that the rise may really be a mere 3%, and warns that even that puny an increase will not be achieved unless the dollar steadies enough to remove the threat of