The effect of the high interest rates is hitting every sector of the country's economy. The idea is to slow down inflation, but there are many built-in dangers, which I'm sure the administration has not considered.
I discovered one of them when I visited the American Grommet Factory -- a vast complex covering 12 acres.
I realized that something was wrong when no one stopped me at the gate. When I drove in there was only one Mercedes-Benz parked in the giant lot, built to accommodate 10,000 cars.
It belonged to Harold Square, chairman and chief executive officer of American Grommet. I went directly to Harold's office. There wasn't even a secretary in sight.
Harold was on the phone talking to his bank. "I want $30 million in 60-day Treasury notes, $20 million in shortterm triple-A bonds, and put $7 million into your money fund. Get back to me to confirm it." He hung up.
"Where is everyone, Harold?"
"There isn't anyone," Harold said. "I'm it."
"But who's making your grommets?"
"We're not making grommets anymore. There's not enough money in it."
"I don't understand. Has American Grommet gone bankrupt?"
"On the contrary, we're doing better than ever.
"You see, we had a cash surplus of $200 million. When the prime rate was 5 or 6 percent, we had to make grommets to stay alive."
"How much profit did you make on your grommets?"
"Ten percent on the regular all-purpose grommet, and 15 percent on our super-lifetime one," Harold said. "It was actually a very nice business.
"Then why did you get out of it?"
"Well, when you can make 17 or 18 percent by just putting your money into Tresury notes, it makes no sense to manufacture grommets anymore.
"But the country needs grommets."
"Look, we're a business like any other business, and we have to make a profit for our stockholders. If we can make more on bank notes than we can on grommets, I have an obligation to do it, or I'll be sued."
"But all you're doing is making money on money. That doesn't do anything for the productivity in the country."
"That's easy for you to say. But do you realize how tough it is to run a grommet factory? You have to deal with unions, employe benefits, government regulations, late-paying customers and surly clients. And all you make on it is a lousy 10 percent. But if you use the same money to buy notes, you're dealing with one guy at the bank, making one telephone call a day and the money just rolls in."
"It does sound easier than making grommets," I admitted. "But if everybody stops making a product and invests in the money market, there won't be anything to buy. Won't that spur on inflation?"
"Probably. But I'm not a financial expert, and I'm sure the economists in Washington have a good answer to that one. After all, if they didn't know what they were doing, they wouldn't be there."