The Congress Should Control Federal Credit Programs To Promote Economic Stabilization

Gao ID: PAD-82-22 October 21, 1981

The amount of federally assisted loans outstanding will exceed $500 billion in fiscal 1981, and the rate of new lending will exceed $70 billion annually. Explicit recognition should be given to the aggregate economic effects of Federal credit assistance programs and to the consistency of their annual volumes with fiscal and monetary policy. GAO raised the following questions: (1) whether Federal credit assistance programs in the aggregate are stabilizing or destabilizing; and (2) if they are, on balance, destabilizing, whether they can be controlled in a way that furthers the economic stabilization goals of the Government and, if so, how.

GAO found that, in the past 20 years, Federal credit assistance programs have been destabilizing and inconsistent with fiscal and monetary policy. In general, credit assistance flows, to be stabilizing, should oppose movements in the level of economic activity. That is, during rapid economic expansion, credit assistance should flow at a relatively low rate. During economic downturns or periods of relatively slow growth, credit assistance should flow at a relatively high rate. Current and proposed efforts to control Federal credit programs are not intended to promote economic stabilization. Instead they propose a credit budget to establish annual limitations on the amount of guaranteed and direct loan flows that may occur in the forthcoming budget years, and they propose more stringent standards for program choice, design, and administration. A control mechanism that promotes economic stability should cause new annual commitments for loans and loan guarantees to fluctuate counter to the business cycle. Loan activity could be controlled in any given year by placing ceilings on program activity.


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Director: Craig A. Simmons Team: General Accounting Office: Program Analysis Division Phone: (202) 512-8678

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