market yields rather than upon coupon rates. A similar recommendation had been made by the Advisory Council on Social Security Financing. The Board of Trustees proposed that the interest rate on the special obligations of the United States issued to these two trust funds be equal to the average of market yields (rounded to the nearest multiple of % of one percent) on outstanding Treasury marketable issues not due or callable until after the expiration of three years from the end of the calendar month next preceding the date of issue of the obligations issued for purchase by the trust funds. In anticipation of congressional approval of this recommendation, and in order to effect an orderly and gradual transition from the old formula to the new, the special obligations held by these two funds had been replaced in June 1959 with special issues having equal maturities distributed over a period from one to 15 years.

The act entitled the Social Security Amendments of 1960 (P.L. 86-778), approved September 13, 1960, gives effect to the recommendation, except that the formula is based upon the average market yields, at the close of the month preceding investment, on all marketable public debt securities not due or callable for more than four years. Under the law the new formula took effect on October 1, 1960.

The statutory formula for fixing interest rates for the civil service retirement and disability fund is the same as that for the Federal old-age and survivors insurance trust fund and the Federal disability insurance trust fund before passage of the Social Security Amendments of 1960. In August 1960 the Treasury Department recommended that the statutory formula for the civil service retirement and disability fund be changed to that subsequently enacted for those two funds. As in the case of those funds and the veterans' insurance funds, in expectation of a change in the formula, the special issues held by the civil service retirement and disability fund also had been replaced in June 1959 by special obligations with equal maturities distributed over a period from one to 15 years.

The Railroad Retirement Act provides that special obligations issued to the railroad retirement account shall bear interest at the rate of 3 percent and that investments in other public debt obligations shall yield not less than 3 percent. In this case the Treasury submitted to the Congress on May 16, 1960, a draft of a proposed bill "To amend section 15(b) of the Railroad Retirement Act, as amended, to revise the interest rate formula of special obligations purchased for the Railroad Retirement Account and for other purposes." The proposed bill would have modified the basis for fixing the interest rate on special obligations and substituted a formula to provide an

interest rate based on overall market yields. The formula provided that obligations purchased for the account should bear interest at a rate equal to one-half of one per centum lower than the average market yield, computed as of the end of the calendar month next preceding the date of issue, borne by all marketable obligations that are not due or callable until after the expiration of three years from the end of such calendar month, provided that the rate on such obligations should not be less than 3 per centum.

At the close of the 86th Congress in September 1960 the formula recommended by the Treasury for the civil service retirement and disability fund and for the railroad retirement account had not been enacted into law.

Account of the Treasurer of the United States

The assets and liabilities in the account of the Treasurer of the United States are published in the Daily Statement of the United States Treasury in summary, and in more detail in table 53. As published, the account consists of three major categories: Gold, silver, and the general account. The total value of gold on hand, the principal part of which is held in the Fort Knox Depository with lesser amounts in mints and assay offices, is listed on the asset side. The liabilities include the amount of gold certificates, etc., and the balance of gold available. For silver, the amount of silver bullion and silver dollars is listed on the asset side, and silver certificates etc., and the balance of silver available on the liability side. For the general account, the assets include the balances of gold and silver against which there are no specific legal liabilities or reserves, cash in the form of coin and currency, unclassified collections, and Government funds on deposit with the Federal Reserve Banks and other depositaries. The liabilities in the general account include principally funds to the credit of the Board of Trustees of the Postal Savings System, and uncollected items, exchanges, etc.

The balance in the Treasurer's account, the difference between the assets and liabilities, consists of the available operating funds which are the Government funds on deposit in Federal Reserve Banks, and in commercial banks qualified as special depositaries to carry the Treasury tax and loan accounts, funds not immediately available for operating purposes held in general or other depositaries in consideration of certain services performed for Government officers.

During fiscal 1960 there was an increase of $2,654 million in the balance. Daily balances ranged from $2,654 million, the lowest amount, on April 13, 1960, to $8,170 million, the highest amount, on June 21, 1960.

The net change in the balance is accounted for as follows:

1 Principally discount included in savings bond and Treasury bill redemptions.

Public Debt Operations and Ownership of Federal Securities

At the close of the 1960 fiscal year the public debt and guaranteed obligations amounted to $286.5 billion, a net increase of $1.7 billion from the $284.8 billion outstanding on June 30, 1959.

Changes in the total outstanding Federal debt are determined by changes in the budget situation, an excess or deficit of receipts as compared with expenditures, together with increases or decreases in the cash balance between one year end and the next. On June 30, 1960, the cash balance amounted to $8.0 billion, an increase of $2.7 billion over the balance of $5.4 billion on June 30, 1959. During the same period the net budget surplus amounted to $1.2 billion, in sharp contrast with the $12.4 billion deficit in the previous year. The added funds in the cash balance as a result of the year's operations provided the basis for initiating a debt reduction program in the fiscal year 1961, as proposed by the President in his January 1960 budget message. Of the $1.7 billion total increase in debt during fiscal 1960, interestbearing issues accounted for $1.4 billion and noninterest-bearing debt for $0.2 billion. There was also a slight increase in guaranteed obligations, primarily Federal Housing Administration debentures. The rise in public issues reflected an increase of $5.8 billion in marketable securities offset in large part by a decline of $4.6 billion in public nonmarketable issues. Marketable issues have in fact been an increasing proportion of the interest-bearing public debt since 1952. On June 30,

1 Including public debt and guaranteed obligations.

2 Excluding Victory Loan proceeds used to repay debt in 1946.

1960, marketable issues constituted 77 percent of the interest-bearing public issues and nonmarketable, 23 percent, as compared with 64 percent and 36 percent, respectively, on June 30, 1952.

A summary of changes in the debt during the year is shown in the accompanying table. Changes in the level of the debt since 1916 are illustrated in chart 3.

Progress toward debt management objectives

During the course of the year the Treasury issued $511⁄2 billion of new securities, exclusive of all Treasury bills. Of this amount $46%1⁄2 billion represented refinancing of existing obligations, either at maturity or in advance of maturity; the remaining $5 billion consisted of cash offerings. New issues of tax anticipation bills and one-year bills totaled $15%1⁄2 billion; in addition regular weekly bill offerings were increased $0.9 billion during the fiscal year.

As in other years, the Treasury's major debt management objectives were to contribute to the growth and stability of the economy and to improve the structure of the debt. Within the limits prescribed by these two overriding objectives the Treasury sought to borrow as cheaply as possible.

Progress toward these debt management objectives requires that the Treasury seek funds as largely as possible from nonbank investors, rather than from commercial banks, in order to reduce the inflationary potential of Treasury financing during a period of high economic activity. Within the nonbank investor grouping the preference is to borrow from true long-term savers rather than from short-term investors. The achievement of this objective was made difficult during the fiscal year by the existence of the 44 percent interest rate ceiling on new marketable issues of more than 5 years to maturity. During the year interest rates were at relatively high levels owing to a strong overall demand for credit. Under these conditions the ceiling restriction effectively prevented the Treasury from issuing any significant amount of new marketable bonds, either for cash or in exchange for securities at maturity or in advance of maturity. Instead, the Treasury in its borrowing operations had to rely almost completely on new issues of notes, certificates, and bills, securities that mature in 5 years or less and on which no interest rate ceiling applies. In consequence, the passage of time which always operates to shorten the average length of marketable debt could not be offset effectively during the year. The average maturity of the marketable debt fell from 4 years and 7 months on June 30, 1959, to 4 years and 4 months a year later. Although the under 1-year debt declined to $70%1⁄2 billion on June 30, 1960, as compared with $73 billion a year earlier, the amount of marketable debt in the 1-5 year area increased to $73 billion at the end of the fiscal year, as compared with $58%1⁄2 billion on June 30, 1959. During the same period the over-5-year debt fell from $462 billion to $40%1⁄2 billion.

In furtherance of the proposals made on June 8, 1959, the administration during the course of the year under review repeatedly urged Congress to take action on the 44 percent ceiling. On January 12, 1960, the President again sent a special message to the Congress