(8 of 9)
Even big businesses are having trouble borrowing, posing a question as to how U.S. industry will raise the $2 trillion to $3 trillion of new capital that bankers estimate it will need over the next ten years to expand capacity, clean up pollution and develop new technology. Electric utilities usually raise most of their money in the bond market, but so far this year 28 utilities have postponed bond sales or changed the terms. Consumers Power Co., Detroit Edison Co. and other utilities have canceled plans to build nuclear power plants because they could not borrow the money at acceptable cost.
Dry Well. In this situation, bankers have great powers to make or break, and they are under extreme pressures. Typically, Phoenix's First National Bank of Arizona (assets: $2 billion) does not have enough money to meet all the loan demands, and its officers must make agonizing decisions about which of many worthy applicants to lend to. Says President Robert D. Williams, 62: "It's rough to tell longtime customers who are also old friends that the well is dry."
For construction, "there is just no money," adds Williams. Recently he turned down a loan application from a successful Denver retailer who wanted to expand his business into Arizona. "Under normal circumstances, there would have been no question," he says.
All these ills are caused by, or are at least complicated by, inflation. But what is causing the inflation, and what should be done about it? These are the questions on which President Ford will hear the sharpest dispute at the summit conference.
Liberal economists challenge the view of Greenspan and other Government policymakers that the current inflation is basically the inevitable hangover from years of excess demand brought on by a federal spending spree, huge budget deficits and easy money. Walter Heller contends that the real trouble is a "one-shot" explosion in food, fuel and raw-commodity prices. Food and fuel accounted for about half the 11.8% rise in the consumer price index in the twelve months through July. The great danger, Heller believes, is that labor will demand huge wage increases to catch up with food and fuel prices, the pay boosts will push up prices of many other goods and services, and that will lead to still more wage demands. Budget cutting and tight money, he believes, could well bring on a deep recession without stopping this process.
At the economists' minisummit this week, Heller will propose a wide-ranging program featuring a Government wage-price agency that could subpoena company and union records, order large increases suspended while it held hearings, and even roll back "really flagrant" boosts. Other Heller ideas that are widely backed by liberals include: an immediate easing in Federal Reserve monetary policy to head off a recession; credit controls to channel more loan money to home builders and buyers and small businesses, less to speculators; a huge Government program to hire the unemployed for public-service jobs; tax cuts of $6 billion to $8 billion to give medium-and low-income families some relief from the ravages that inflation has wrought on their paychecks, offset by the plugging of "loopholes" that favor oil companies and the rich.