Cash-Supply Crisis Predicted: Adviee from Harvard Professor
The Federal Reserve will be forced to allow a money supply growth in excess of a steady 4 per cent level to prevent a serious problem of illiquidityÛÓa shortage of cashÛÓfor the nationÛªs economy.</br></br>ThatÛªs the conclusion of a new computer-based study done for Data Resources, Inc. by Prof. Otto Eckstein, Harvard economics professor and former member of the Council of Economic Advisers.</br></br>Without some ÛÏabove-trendÛ growth in the money supply, Eckstein said, the economy will be strapped for liquid funds. He warned that the widely-quoted 10 per cent growth figure for the money supply in the last three months ÛÏis an accident of the figures.Û</br></br>BernsteinÛÓpublished by the Model, Roland Co.ÛÓis that after a period of persistent inflation, and world-wide uncertainty, the public prefers to hold more of its assets in cash.</br></br>Bernstein argued that the Fed must allow the money supply to grow at a sufficient rate to satisfy the corporate demand for greater cash balances. He pointed out that corporate treasurers who only recently tried to hold cash balances to a bare minimum now struggle to increase their liquidity.