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(c) Maintaining a sound market for United States Government securities. With a public debt of the size and importance that it is today a sound market for United States Government obligations is essential to the successful functioning of our financial system. Let me make it clear that I do not regard rigidly fixed prices for marketable Treasury securities as either necessary or desirable. Precipitate fluctuations, however, hold the risk of doing serious injury to the public credit and to the economy. A more detailed discussion of this matter is contained in the answers to other questions in this series. (See the answer to Question 27, in particular.)

In addition to policies which have been aimed directly at maintaining a sound market for Government securities, various other features of the Treasury's debt management programs have contributed to this end. The Treasury has attempted, for example, to maintain an adequate volume of marketable obligations in each maturity class so as to permit readjustments in the types and terms of the securities composing the public debt when these are called for by changing market conditions. Likewise, nonmarketable securities have been used when these suit the needs of different classes of investors, thus keeping certain types of securities out of the market entirely.

The wide use of savings bonds, for example, helps to protect the market. If the present holders of savings bonds were offered only marketable bonds with fixed maturities eight or ten or more years distant, the market would become subject to possible offerings, at unpredictable times and in unpredictable amounts, of a particular security which might not be well suited to the needs of the market or to the needs of the economy at such times. The very fact that the Treasury stands ready to redeem savings bonds at any time at stipulated prices stimulates investor confidence, which in itself encourages small investors to retain their savings bond holdings. Furthermore, when the Treasury has to raise funds to pay for savings bonds which are turned in for redemption, it is able to choose the types of securities best suited at the time to the demands of investors and to the economic situation.

5. To Use Debt Policy Cooperatively with Monetary-Credit Policy to Contribute Toward Healthy Economic Growth and Reasonable Stability in the Value of the Dollar

Rapid expansion of bank credit in boom periods and contraction in deflationary periods are generally recognized as important factors in the booms and depressions we have experienced in the past. While it is essential to maintain the freedom of individual banks to allocate their credit among their customers, the Congress and others have long recognized the need to keep fluctuations in the total supply of credit from becoming excessive.

This is one of the main duties of the Federal Reserve System. Since the banking system now holds a large amount of Government securities, it is clear that the Federal Reserve's responsibilities for sound credit policy and the Treasury's responsibilities for sound debt policy are intermingled and must be discharged cooperatively. Our broad objectives are the same. Our problem is to balance the many difficult considerations that enter into policy formation on each particular problem involving both debt management and credit policy.

6. To Conduct the Day-to-Day Financial Operations of the Treasury so as to Avoid Disruptive Effects in the Money Markets and to Complement Other Economic Programs

Treasury financial operations have a significant impact on bank deposits and bank reserves, and are therefore conducted at all times with an eye to the money market. Various devices have been developed to facilitate these operations-particularly operations having to do with the handling of Treasury deposits. In these matters the Treasury works closely with the Federal Reserve System at all times. The flow of cash in and out of the Treasury influences the monetary situation directly through its effect on bank reserves. The Treasury has sought therefore to use its cash balances in such a way as to smooth out the effects of short-run peaks in Treasury cash receipts and disbursements so that they can be handled through the banking system with a minimum of friction. The Treasury may tighten bank reserves by building up its balances with the Federal Reserve Banks and at the same time drawing down its accounts in commercial banks; and by reversing the procedure it may make bank reserves more plentiful. Careful management of the Treasury cash balance is particularly important at the times when quarterly income tax payments are coming into the Treasury in great volume. (For further discussion, see the answer to Question 14.)

The Treasury also uses various techniques of debt management to assist in smoothing out disturbances in the money market which would otherwise occur around March 15 and other important tax collection dates. This is done principally through the designing of specific marketable securities maturing on these tax payment dates (Tax Anticipation bills) and nonmarketable securities that may be presented directly in payment of taxes (savings notes).

7. To Hold Down the Interest Cost of the Public Debt to the Extent That This Is Consistent with the Foregoing Objectives

It would be a serious error to conclude that the Treasury Department believes that holding down the interest cost of the public debt should be the sole or major goal of debt management. I have never believed that it should be. It is only one of the several objectives of Treasury policy, and it is one that is subsidiary to the primary goals of promoting sound economic growth and stability in our financial system.

On the other hand, I do not concur in the view that the level of interest payments on the public debt is of only minor significance for the economy as a whole. Some of those who hold this view argue, first, that the bulk of our interest payments represents only transfers of income from taxpayers to bondholders within the United States, rather than a consumption of real labor and materials; and, second, that those who receive the interest payments pay back a substantial portion of the amount in taxes.

While acknowledging the element of truth that these views contain, I cannot conclude that the interest burden on the public debt is of negligible importance. In the first place, those who pay the taxes and those who hold the securities are not necessarily identical. In the second place, the transfer of income through collection of taxes and payment by the Government is never painless and costless, however wise the Government may be in devising and administering tax policy.

With taxes at their present high levels, it is increasingly difficult to find additional revenue sources that are reasonably equitable and that do not unduly impair the incentives necessary to the effective functioning of our free enterprise economic system. For these reasons, the Treasury always endeavors to hold interest costs on the public debt to the lowest level consistent with its other objectives. (See the answer to Question 29.)

8. To Assist in Shaping and Coordinating the Foreign Financial Policy of the United States

The Secretary of the Treasury in various capacities plays an important part in the shaping of our foreign financial policy with a view to maintaining a sound currency domestically and internationally, and to promoting a better trade and exchange situation between the United States and other nations. He is Chairman of the National Advisory Council on International Monetary and Financial Problems, a statutory body created under the Bretton Woods Agreements Act in 1945, and charged with coordinating the policies and operations of all Government agencies lending abroad or engaging in foreign financial, exchange, or monetary transactions. The Secretary serves as the United States Governor on the Boards of Governors of the International Monetary Fund and of the International Bank for Reconstruction and Development.

As chief fiscal officer of the Government and as Chairman of the National Advisory Council, the Secretary has certain important responsibilities for advising the President and other officials and representatives of the Government on international financial questions. With the inauguration of foreign assistance programs under the Interim Aid Act, the Foreign Assistance Act of 1948 and its amendments, and the Mutual Security Act of 1951, the Secretary of the Treasury as Chairman of the National Advisory Council has from time to time submitted recommendations of the Council to the Congress on the financial aspects of these programs and, in addition, has advised the administering agencies. With the shift in emphasis from economic recovery assistance to the task of strengthening the defenses of the United States and the free world, the Secretary of the Treasury was invited by the President to participate in the National Security Council, which considers over-all problems affecting the national defense. The Secretary of the Treasury has the further responsibility for maintaining relations with the financial officials of foreign countries in order to take due account of changing developments abroad.

9. To Manage the Gold and Silver Reserves of the Country in a Manner Consistent with Our Other Domestic and Foreign Policy Objectives

With respect to our gold reserves, we maintain equality in value between the American dollar and one thirty-fifth of a fine ounce of gold by our readiness to buy or sell unlimited amounts of gold at this price from and to other governments and their central banks.

We attempt to administer our powers with respect to the issue of silver dollars, silver certificates, silver fractional coins, and the token coins, so as to meet the legitimate needs of trade and to avoid an excessive issue of any of these types of money.

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3. Do you believe that the congressional declaration of policy contained in the Employment Act of 1946, which reads as follows:

The Congress hereby declares that it is the continuing policy and responsibility of the Federal Government to use all practicable means consistent with its needs and obligations and other essential considerations of national policy, with the assistance and cooperation of industry, agriculture, labor, and State and local governments, to coordinate and utilize all its plans, functions, and resources for the purpose of creating and maintaining, in a manner calculated to foster and promote free competitive enterprise and the general welfare, conditions under which there will be afforded useful employment opportunities, including self-employment, for those able, willing, and seeking to work, and to promote maximum em- · ployment, production, and purchasing power.

is balanced in its emphasis upon high level employment and price stability, respectively, as objectives of Federal Government policy? Suggest any changes by which you think it might be improved.

The wording of the congressional declaration of policy contained in the Employment Act of 1946 was arrived at after long deliberation by congressional committees. It provides a workable statement of policy and I do not think it needs to be changed at this time. Nevertheless, I believe that the declaration would have been better if it had made reference to the maintenance of general price stability as a complementary goal of economic policy.

In practice, this is not, perhaps, of substantial importance because the statement has generally been interpreted to involve this consideration; and in promoting the aims of the Employment Act of 1946, price stability has been kept in mind. During the postwar period, this has meant almost exclusively efforts to restrain price increasesthat is, preventing inflation. The prevention of inflation can certainly be considered to be covered by the phrase "consistent with its needs and obligations and other essential considerations of national policy," and also by the phrase "in a manner calculated to foster and promote free competitive enterprise and the general welfare". The prevention of sharp changes in the general price level in either direction is surely an essential consideration of national policy and of the general welfare. Measures undertaken to promote maximum employment, production, and purchasing power tend by themselves to exert a powerful influence against declines in the general level of prices. But, if prosecuted fully, they are capable of producing undesirable increases in the general price level.

Similarly, Government programs undertaken for other purposes, such as the present defense program, while tending to create and maintain conditions of maximum employment, may also exert a strong inflationary influence unless this is counteracted by (1) judicious taxation to prevent deficit financing; (2) firm credit policy; (3) adequate saving on the part of consumers and business enterprises, and restraint in nondefense Government expenditure programs; (4) effective debt management; and (5) the appropriate use of direct controls.

4. Do you believe that a broad directive with respect to economic policy should be given to the Treasury Department by Congress? If so, state the general character of the directive which you would recommend. If you believe there should be no such directive, state your reasons for this belief.

I do not feel that there is need for any additional broad directive by Congress to the Treasury Department with respect to economic

policy. The Treasury Department is subject to the declaration of economic policy contained in the Employment Act of 1946. In declaring the basic objectives of economic policy in that Act, it seems to me that Congress has given the executive agencies, such as the Treasury, about the appropriate amount of guidance. Moreover, as an executive department, the Treasury is further responsible to the President; and its policies consequently reflect those followed by the Executive under the law. Finally, the Treasury has a heritage of economic principles developed over its long history, as has already been explained in the answer to Question 1.

I believe it is part of my responsibility as Secretary of the Treasury to make as clear as possible to Congress and the public the working principles we are trying to use in the Treasury Department. These have been discussed on many occasions, and are set forth in some detail in the answer to Question 2.

B. POLICY FORMULATION IN THE EXECUTIVE BRANCH

5. What are the present powers of the Treasury Department, if any, with respect to the operations of the Federal lending agencies, such as the Reconstruction Finance Corporation, the Federal Housing Administration, and including also the Federal Deposit Insurance Corporation? Enumerate these powers, stating in each case their basis in statute, Executive order, or otherwise. Generally, the Treasury Department has no statutory power with respect to the volume of loans made by the Federal lending agencies nor, with a few exceptions, does it exercise any voice in the management of the agencies. Under the Government Corporation Control Act the lending agencies' programs are reviewed by the Bureau of the Budget before their inclusion in the annual budget. These budget programs are then subject to such limitations as may be placed upon them by the Congress. Such authority as the Treasury has with respect to the loan, insurance and guarantee policies of the Government agencies largely relates to the terms of securities offered by the agencies in borrowing funds which they, in turn, lend to private borrowers. In the field of foreign loans, however, there is in existence a coordinating and policy-determining agency. The Secretary of the Treasury is Chairman of the National Advisory Council on International Monetary and Financial Problems, established by the Congress in the Bretton Woods Agreements Act, approved July 31, 1945 (22 U. S. C. 286b). Among other things, the statute directs the Council to coordinate the policies and operations of the representatives of the United States on the International Monetary Fund and the International Bank for Reconstruction and Development, and the various agencies of the Government "to the extent that they make or participate in the making of foreign loans or engage in foreign financial, exchange or monetary transactions.'

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The question calls for an enumeration of Treasury powers with respect to these agencies and the citation of statutes. For convenience the answer has been divided into two parts, namely, a general review and a detailed enumeration.

1. General Review

There are only a few isolated cases in which the Treasury has any statutory control over lending operations of Government agencies.

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