Mr. NICHOLSON. Is not this regulation X pretty well taken care of by the State banking laws?

Mr. MARTIN. By the State banking laws? Do you mean with respect to the terms under it, Mr. Nicholson?

Mr. NICHOLSON. Well, the terms of how much money you will put down, and how much mortgage you can get. Mr. MARTIN. No, sir; I do not think so.

Mr. NICHOLSON. It has nothing to do with it?

Mr. MARTIN. There may be some States that have laws on it, but generally speaking these relate only to the amount that may be loaned on a first mortgage and not to the total amount of borrowing on an individual house.

The CHAIRMAN. It is subject to the individual judgment of the banker, is it not?

Mr. MARTIN. That is largely true.

Mr. NOYES. Most of these loans are not made by banks.

Mr. EVANS. No, they are not made by banks.

Mr. NOYES. They are made by savings and loan associations and life insurance companies.

Mr. FUGATE. The only restriction in that field is the restriction on what loan can be had.

Mr. MARTIN. In an over-all sense, yes.

Mr. FUGATE. But you are not concerned with making a loan for a house, because you certainly would not loan the maximum to a person building a $10,000 or $15,000 house.

Mr. MARTIN. That is right.

Mr. FUGATE. Have you finished, Mr. Nicholson?

Mr. NICHOLSON. I am through.

Mr. FUGATE. Mr. Martin, quite a number of builders have been talking to me about the effect of regulation X on the down payment. They tell me they have a number of houses built, actually ready to be turned over to a home owner, if they could meet the down payment. That is true in all the brackets, they tell me. Do you know of your own knowledge what that situation is?

Mr. MARTIN. I think that is true in some instances, and that is one of the reasons that we are giving very careful consideration to the possibility of relaxing regulation X right now, and that is particularly true in the higher-priced homes.

Mr. FUGATE. Yes, yes; that is of one of the men who came to see me. He said they were building houses selling at $27,500 up, which required a 50-percent down payment, and the purchaser just could not find enough money to make the down payment. He could handle the financing if he could get the down payment, but he could not raise the down payment.

It appears to me that there might be some need immediately for some action in that area.

Mr. MARTIN. That is our thinking also. If we can find some way of being helpful on that without inducing a lot of new building. Mr. FUGATE. Well, there are adequate materials of all descriptions, are there not, probably with the exception of copper?

Mr. MARTIN. Yes.

Mr. FUGATE. But there are substitutes for copper, except for wiring purposes.

Mr. MARTIN. That is right.

Mr. FUGATE. It is my opinion that you could help the situation without doing any great damage to the economy by relaxing regulation X.

Mr. MARTIN. We are very glad to have that view. I am very glad to have the views of any of the members of the committee today on that broad problem, because I can assure you it is one we are really struggling with.

Mr. FUGATE. I would like to make this further comment. opinion the banks are not going to be too anxious to loan large sums of money, because most of them are getting pretty well loaned up. The demand has been in all fields, and not in housing alone, and has been of such volume that they are going to be slow about loaning too much money for any project. And I think the banks themselves are going to have a salutary effect upon credit.

Mr. MARTIN. Well, I think the situation is much improved over what it was.

Mr. FUGATE. Very much so. Very much so.

Mr. MARTIN. That is right.

Mr. FUGATE. That is all, Mr. Chairman.

Mr. WIDNALL. Mr. Chairman.

The CHAIRMAN. Mr. Widnall.

Mr. WIDNALL. Mr. Martin, do you have any figures on the increase in savings in the country, at the end of 1951 over 1950?

Mr. MARTIN. We have some figures. I did not bring them with me, Mr. Widnall, but it has been substantial. I believe they are running about $9 billion. Savings have been steadily rising, Mr. Widnall.

Mr. WIDNALL. I saw some figures not long ago

Mr. MARTIN. I can get you some figures, and will send them up

to you.

Mr. WIDNALL. I would like to have those to introduce in the record.

Mr. MARTIN. Very well.

Mr. WIDNALL. I saw some figures put out by a Government agency which stated that the increase was around $18 billion in 1 year.

I have also seen other figures, which indicate that the amount would run around $7 billion, but a great deal of that is not actual savings of individuals put into individual savings accounts. As I understand the picture, about 40 percent of it would be cold money. Do you have any sort of breakdown along that line?

Mr. MARTIN. No; I will have an analysis of the savings figures made and submitted to you. I haven't looked at them too closely recently. You know, repayments are included as savings in those figures. It does not necessarily mean that when a person repays he is going to borrow again.

There is no question but what the rate of saving has steadily gone up, and the buying psychology, the desire of the purchaser to use his savings, indicates further that he is not pressed for goods at the

moment..

Mr. WIDNALL. Someone called me over the week end and gave me some figures, which I would like to substantiate, on mutual, commercial, and postal savings. They said that commercial savings, in 1951, went up $1,300,000,000.

Mutual savings $700,000,000.

Postal savings went down $200,000,000.

And that the net gain in total savings was $1,800,000,000. But, actually, in the larger figures, are included accumulated savings on life-insurance policies, which would also include automatic increments of interest paid during the year, building up policy reserves.

What I am interested in is trying to get at the actual savings being made by the individual today, by way of individual deposits, so that we know what is there, to come out of savings, in order to affect the purchasing power of the people.

Mr. MARTIN. I will be glad to get you the best that we have. I question very much the figures you have just supplied. They do not sound reasonable to me.

Mr. WIDNALL. The source was a division of the American Bankers Association.

Mr. MARTIN. Well, I would have to study those figures. I would say my offhand impression would be that they are not right. Now, when I say "Not right," I am talking about the best that we can put together.

Mr. WIDNALL. In the figures that you would give us, could you break them down, percentagewise, as to the amounts which might be attributed to business excess that have been placed in savings temporarily, and to those that might be called cold savings, which are a steady accumulation?

Mr. MARTIN. We will do the very best we can.
Mr. WIDNALL. That is all.

(The information referred to is as follows:)

ANALYSIS

OF PERSONAL SAVINGS DATA SUBMITTED BY WILLIAM McC. MARTIN, JR., CHAIRMAN, BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

INTRODUCTION

Savings is a many-sided activity and takes many forms. There are a number of statistical series that are widely used to measure saving activity, either in terms of its total or in terms of particular types of saving. Each series is usually reasonably accurate in estimating the area it sets out to measure. However, since each series is usually intended for use in connection with analysis of particular problems, it differs somewhat from other measures that are directed to dealing with other problems. Unfortunately, the term "saving" is used to cover widely different kinds of activities, and the user must be sure that he knows which activities are covered in the series he is using and whose saving is being measured. To avoid confusion among the variety of saving measures available, we will concentrate our discussion on the concept of "personal saving" as defined and measured by the United States Department of Commerce in connection with its comprehensive estimates of national income and product. This concept and measure is probably the most widely known and used series, especially in connection with the analysis of general economic conditions. We will supplement this series, however, by some estimates of our own compiled from data published by the Securities and Exchange Commission and other agencies, showing a breakdown of total "personal saving" in terms of the different ways such saving is used or applied. This breakdown permits the reader to see the relationship between total saving activity and saving in liquid form. For some purposes, such as in dealing with problems of debt-management policy, the form and composition of saving may be as important as the total volume.

DEFINITIONS

Personal saving, in the Department of Commerce usage, is the difference between disposable personal income (personal incomes after deducting taxes) and personal-consumption expenditures. To understand the significance of this concept, it is necessary to define what is meant by "persons," and what is actually

included in the measures of personal income, taxes, and consumption expenditures. "Persons," to which the definition applies, refers to the consuming public, includ ing the proprietors of farm and nonfarm unincorporated enterprises and nonprofit institutions, such as private schools, colleges, universities, religious and welfare organizations.

Personal income, as defined by the Department of Commerce, is composed of receipts from current productive activity plus so-called transfer payments; i. e., receipts for which no current service is rendered. Receipts from current productive activity include such income as wages, salaries, interest, dividends, and the net incomes accruing to proprietors of farms and other unincorporated enterprises. Transfer payments include social-insurance benefits, veterans' benefits, relief and other similar governmental and private payments to individuals. The earned income, and donations from business, received by nonprofit organizations are also counted as part of personal income. Receipts from borrowing or from sales of assets are not counted as part of current incomes.

Personal taxes, which are deducted from personal income in arriving at disposable personal income, include the direct taxes paid by consumers-such as income, estate, and gift taxes as well as other fees and charges paid to governments. Tax refunds are deducted from tax payments.

Personal-consumption expenditures include consumers' current purchases of food, clothing, rent and other services, plus their purchases of durable goods, such as automobiles and furniture. Such consumer expenditures make up the bulk of the total, but also included are current operating expenditures-rents, payrolls and the like of nonprofit organizations.

Personal saving is calculated by deducting consumption expenditures from disposable income, both as defined above. It can readily be seen, therefore, that this residual (personal saving) includes more than just the accumulation of liquid assets such as currency, bank deposits, and securities. In addition to the acquisition of cash and other liquid assets, consumers can apply current saving toward the acquisition of new homes,' toward increases in private insurance and pension reserves, and, in the case of business proprietors, toward increases in business assets (including inventories) of farm and other noncorporate enterprises. The residual also includes saving done by nonprofit organizations, through purchases of securities and construction of new buildings.

Acquisitions of homes and increases in personal and business assets-and, in fact, many consumption expenditures-are not entirely financed out of current incomes, but depend in part on borrowed funds, drawing down of liquid assets, and on retained charges against income (such as depreciation charges). That is why personal saving is often described as net saving. The total reflects only the net contribution of current incomes toward the purchase of homes and other personal and business assets. If savings were calculated as the net addition to wealth of persons and unincorporated businesses, borrowing, drawing down of assets and depreciation charges would have to be subtracted from expenditures for assets in order to equal the estimate of saving obtained by subtracting consumption expenditures from disposable income. The calculation of personal saving from the income and expenditure side is shown schematically in table A on the following page, which also gives preliminary estimates of the magnitude of the various uses of saving in 1951. Some of the estimates are preliminary and will need revision when later data become available.

1 Expenditures for the purchase of existing homes are mostly offset by receipts of other consumers from the sales of such homes. Therefore, these transactions largely cancel out within the personal group; the net amount bought outside the personal group represents a fairly small use of personal saving.

To increase private insurance and pension reserves..

(5.8)

To increase equities in net worth of farms and other unincorporated

enterprises 1.

(1.2)

To purchase homes..

(10.2)

Net increase in home-mortgage and other consumer debt_.
Depreciation on homes..

7. 1 2.

Plus saving applied by nonprofit organizations.

16. 6 1. 1

Equals personal saving_____

17. 2

Less

Equals saving applied by consumers.

Plus saving not accounted for (statistical discrepancy).

1 Depreciation charges by unincorporated enterprises, and changes in their business assets and debts, are included in this item.

Source: Estimates by Board of Governors of the Federal Reserve System, based on data from the Department of Commerce and the Securities and Exchange Commission.

POSTWAR TRENDS IN SAVING

For most of the postwar period, personal saving has been far below the amounts achieved during the war. For the 5 years from 1946 through 1950, such saving averaged about $8 billion, as compared with the wartime peak in 1944 of over $35 billion. In relation to disposable personal income, saving has ranged between 2 and 8 percent of income, as compared with the peak rate of over 24 percent in 1944.

Although relatively small, the postwar volume of saving permitted continued moderate additions to consumers' holdings of liquid assets and continued additions to their stake in life-insurance and private-pension reserves. Some saving

was also applied to the purchase of homes, but for the entire consumer group the aggregate value of homes bought was not very much greater than the net funds obtained through mortgage borrowing and the amount of depreciation on the existing stock of homes.

Offsetting the continued liquid saving and the increased equity in homes were decreases in the net worth of unincorporated enterprises.2 In addition, there was substantial dissaving through the incurrence of debt to finance purchases of automobiles, furniture, and other consumer goods.

The rise in indebtedness over this period resulted in a steady deterioration of consumers' financial positions. At the end of the war, consumer debts amounted to about $30 billion, or only a quarter of the quick assets (cash and U. S. Government securities) held by consumers, excluding assets and debts of unincorporated enterprises in this comparison. After 5 years of large purchases of homes and durable goods, consumer debts had more than doubled and at the end of 1950 amounted to almost half of their quick assets.

The burden of servicing these debts-interest charges and required repayments of principal-increased steadily, rising from about 6 percent of personal income in 1946 to over 10 percent of their income in 1950. In addition, consumers undertook other commitments which exerted a regular drain on their funds, principally an expansion in the various types of life and nonlife insurance policies they carried. These commitments, plus the high level of tax payments, took

2 Although the data in this area are far from adequate, they indicate that borrowing for business purposes by farmers and proprietors of nonfarm unincorporated enterprises, plus depreciation charges on their fixed capital, apparently exceeded their expenditures for new plant and equipment, inventories, and additions to liquid asset holdings.