(6 of 6)
Capital spending remains relatively strong in such industries as oil, chemicals and public utilities, but much of the money is going to pay for increased costs of machinery rather than expanded capacity. Indeed, inflation has flared so high so rapidly that some machinery producers are demanding more for their equipment than they had contracted to sell it for, even though they are risking lawsuits. Many contracts do not count for much any more.
First Step. All the grim news has sent the stock market into a precipitous decline. Stocks of some big corporations are selling for two or three times earnings per share, v. ratios of 15 to 1 or 20 to 1 several years ago. So far this year, the paper value of the roughly 1,500 stocks listed on the New York Stock Exchange has dropped $250 billion. Lately, there has been a dangerous flurry of margin calls. Investors must put up more cash or brokers will sell some of their securities, usually at distress prices, to bring the account up to prescribed credit limits. Because margin calls force the dumping of so many stocks, prices go down even farther, and the bear market indeed feeds on itself.
Wall Street, like the U.S. itself, is suffering most from uncertainty about the future, a fearful sense of drift that, for all its efforts, the new Administration has so far failed to arrest. Now that could, well change, though slowly. The President's new program represents a first step on what will be a long and punishing journey back to prosperity. The key question is whether President Ford can rally the nation to make the many sacrifices, large and small, that are absolutely necessary for winning the critical war against inflation.