The Federal Reserve Board yesterday called on Congress to put controls on government loans and loan guarantee programs, warning that unrestricted government lending adds to inflation.
Speaking for the board, Federal Reserve Governor Nancy Teeters urged creation of a "federal credit control budget" to put an annual limit on the amount of money the government can lend.
Teeters said only a fraction of the estimated $350 billion in outstanding government loans is included in the federal budget approved by Congress each year.
Because at present there are no controls on federal loan programs, government lending can increase independently at times -- such as the present -- when the government is trying to restrict credit, she said.
"To the extent that such programs result in an expansion of spending, upward pressures on prices may be exacerbated, and the task of government economic stabilization policy may be complicated.
When demand for money is strong, Teeters said, "the growth of federal credit programs may need to be restrained in order to ease inflationary pressures."
As an example, Teeters predicted veterans will increase borrowings against their GI life insurance policies in the coming months, despite a Federal Reserve policy of restricting credit.
Other uncontrolled government loan programs include college student loans, loans to farmers to support the price of crops, loans to foreign countries to buy American arms and food, Small Business Administration loans Fha home loan programs and dozens of others.
Teeters called for controls on federal lending in testimony before a House Budget Committee Task Force, as the House Banking Committee was holding hearings on a $1.5 billion loan guarantee for Chrysler Corp.
If the government wants to help Chrysler, loan guarantees are an "appropriate" way to do it, Teeters told Budget Committee Task Force Chairman Norman Mineta (D-Calif.). Too often, she added, government loans are used to avoid the difficulty of getting Congress to appropriate funds directly for a particular project.
Because the government loans often carry interest rates much lower than market private rates, and because government loans sometimes do not have to be repaid directly, the true cost of loan programs is hidden from Congress and the public.
Teeters advocated creation of a new federal budget commission to decide how to assess the cost of the complex assortment of federal loan and loan guarantee programs.
A former staff member of the House Budget Committee who advocated controls on federal credit while in that post, Teeters called for creation of a credit control office in Congress to monitor federal lending.
The Federal Reserve Board member generally supported a White House plan to create a separate federal lending budget, but argued against the Carter Administration's plan to keep certain lending programs in the spending budget.
W. Bowman Cutter, executive director of the Office of Management and Budget, who also testified at the hearing, defended the White House plan as a first step toward controlling federal loan programs.