Treasury official on Fed's policy: so far so good

Pull up a chair. Move the poinsettia, so you can see. Throw another log on the fire. Nothing cozier on a cold winter day than to settle down and chat about an issue for swashbucklers, for people with strong personalities and stronger opinions. Espionage, you ask. No. I mean monetary policy - a thing not to be dabbled in by the faint of heart.

Beryl Sprinkel, undersecretary of the Treasury for monetary affairs, moves from his flickering office fireplace toward the opposite wall, where hangs a portrait gallery of his predecessors. Does he ever look at those faces and wonder if they would approve of his policies? Dr. Sprinkel chuckles.

''Not really,'' he says. ''This time, we're going to do things our way.''

The alchemy of monetary policy has not always been held in high esteem. The first Federal Reserve Board members, appointed in 1914, spent much time complaining about their position in the Washington social hierarchy, just below the Interstate Commerce Commission. President Wilson was not sympathetic; reportedly, he said the Fed could ''come right after the fire department.''

But control of the money supply commands much more attention today, as evidenced by the fact that Paul A. Volcker has been hung in effigy at several construction conventions. Washington has recognized the importance of money growth to the future of the economy.

Beryl Sprinkel is the administration official who keeps an eye on the Fed's vitally important monetary policy. In an interview in his Treasury office, he commented: ''I'm pleased with the money supply growth over the last year. It remains volatile. We had no growth for many months, and very recently we've had rapid growth. What I would like to see is just continuous moderate growth, and we haven't quite got there, but it's a lot better than it was.''

A disciple of Milton Friedman, Dr. Sprinkel received his PhD from the University of Chicago and worked from 1952 until last year at the Harris Trust & Savings Bank, Chicago. He is a monetarist, a fashionable genre of economist who believes inflation is directly linked to growth in the money supply.

Mr. Volcker has spoken favorably of ''pragmatic monetarism.'' Many other Fed officials are more or less monetarist in inclination, and they are committed to a tight money policy. But they are in general less doctrinaire than Dr. Sprinkel , a tough former tank gunner. He has at times been bluntly critical of the reserve bank's operations, though lately his words have been more muted.

Both he and the Fed have the same goals, he says, ''but they have such a loose control mechanism.'' He would prefer that lagged reserve requirements, under which banks have two weeks before they must increase or decrease reserves to reflect a change in deposits, be eliminated and that banks be forced to adjust on the spot. He also thinks the Fed should have a more flexible discount rate policy.

''If those simple changes were made,'' he says, ''it's my opinion that we could indeed have stable, moderate growth (in the money supply).''

Dr. Sprinkel, like other administration economists, is predicting the recession will melt in the spring. Come the second half of 1982, he says, the economy will be bounding upward once more, while interest and inflation rates will sink to relatively low levels.

Some economists say wage increases must soften before the inflation rate can come down permanently. Sprinkel, believing inflation a purely monetary phenomenon, says wage patterns don't send prices upward. Instead, he says, employee raises bear directly on business costs and unemployment. A business that gives in to high wage demands ''will get its margins squeezed,'' says Sprinkel, ''and unfortunately some of the employees will find they can't have jobs.''

Economists critical of the administration are also saying inflation won't subside because of massive government deficits, now projected by the Office of Management and Budget to total $423 billion for 1982-84. Council of Economic Advisers member William Niskanen caused Republicans considerable shock recently with his bland pronouncement that ''concern about the deficit has been misplaced.''

The administration has trod carefully around the issue ever since. Is the White House really not worried about these huge amounts of red ink - enough to fill Lake Superior?

''It's very important to recognize that deficits are evil,'' says Dr. Sprinkel. He argues these fiendish imbalances are paid off by either printing new money, which causes inflation, or by Treasury borrowing, which elbows out private businesses reaching for some of America's limited credit supply.

But on the other hand ''some have said that you cannot have large deficits and declining inflation and interest rates, and I just think that is wrong.''

His scenario works like this: If the Fed keeps a tight fist on money supply growth, the behavior of investors will change. They will see inflation unwinding , and begin to shift their money from real assets (land, art), which profit during inflationary times, to financial assets (stocks, bonds), which do better in eras of relative stability. Money will flow into financial institutions - providing enough credit to sop up the extra government demand.

''Inflationary expectations go down, investors move into financial assets, savings goes up, we get an expansion, interest rates don't rise, despite large deficits.''

Dr. Sprinkel's Treasury duties include oversight of international issues. The priority in this area is now America's burgeoning balance of trade deficit.

''One should keep in mind that it isn't necessary that we have a balance unilaterally between the US and every major country. What is important is that over time we run our affairs in such a way that the dollar remains firm, and that our goods are competitive abroad,'' he says.

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