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THE KIPLINGER WASHINGTON LETTER 

Circulated privately to businessmen

THE KIPLINGER WASHINGTON EDITORS
1729 H St.,N.W., Washington, D.C. 20006

Washington, March 5, 1965

Dear Sir:  

As you know, money is a commodity, a material, an ingredient of all business operations. Average company hires or rents a lot of it from banks, finance firms and other money merchants. The costs of it, the wages of it, tend to fluctuate from time to time, due to demand...and supply...and governmental policies or pressures.

Recently there has been a wave of talk about higher money rates, higher charges for borrowing...therefore higher costs of doing business. The talk seemed to emanate from bankers, who'd love to have higher rates, and from Federal Reserve, which is on guard against inflationary habits. Also may be a reaction to President Johnson's position for easy money...impression that he EXPECTS tighter money and is trying to minimize it.

So what's the truth? We have talked off the record with bankers and with money authorities...not what they wish or what they say publicly but what they really think. Our general conclusion is this:

NO, there'll be no big change in borrowing costs, no tighter money for most of this year.  The fears are unfounded.

Banks are loaded with money...more than they can easily lend.  Savings are still pouring in and bankers have to search out borrowers. (This is a big reason for the softer loans that many banks are making.)

Gov't isn't going to restrict money via tighter credit curbs.  Administration officials are pretty sure business will keep expanding, but are fearful that tight money would slow the rise, even reverse it.

Prices are fairly stable, unlikely to take off in a spiral.  This is said to indicate enough slack to permit moderately easy credit.

What you can expect is a mixed pattern over the next few months.  Cost of borrowing short-term money...30-90 days...will be a bit higher, with an assist from the Federal Reserve for balance of payments reasons.  But long-term money for business & personal needs will be fairly steady.  Some slight upward pressure, but not enough to make any changes of plans.  Equally important, the supply of money will remain ample...plenty of it.

The effects will show up on many pocketbooks, not only on those of businessmen but also of home buyers, consumers, state & local gov'ts.  Investors, too, will note the effects, for bond prices will be steady and dividend yields on stocks won't be under unfavorable comparison.

The business boom is not about to be snuffed by tighter money.

Over the long run, some shift toward higher borrowing costs is possible, and perhaps even probable...late this year or early next.  Continued business boom and balance of payments pressures could cause it.  But there's time to anticipate this later...and we'll notify you in time.

[[bottom margin]]COPYRIGHT, 1965. THE KIPLINGER WASHINGTON EDITORS. INC.[/margin]]