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PART III. ECONOMIC MEASURES

The purpose of this program is to provide leadership and coordination in developing a broad spectrum of economic measures, including (1) countermeasures and action programs designed to strengthen and support the national security; and (2) measures to improve the Nation's basic human and material resources. These measures take into account the current economic situation and the economy's potential for growth and development, as well as U.S. international commitments.

The economic measures program is described under two main headings: "A. Development and Maintenance of Essential Resources," and "B. Mobilization and Management of Resources in an Emergency."

A. DEVELOPMENT AND MAINTENANCE OF ESSENTIAL RESOURCES

OEP provides leadership and coordination in developing and maintaining a mobilization base adequate to cope with all conditions of national emergency.

STRATEGIC AND CRITICAL MATERIALS

Objectives

1. To decrease or prevent a dangerous and costly dependence of the United States on foreign sources of supplies of materials in time of national emergency. 2. To assure effective management of the strategic and critical materials stockpiling program.

Status

The Congress has enacted several laws under which Government agencies have been authorized to acquire strategic and critical materials to provide for adequate supplies to meet military requirements and essential civilian needs in the event of an emergency and for other purposes. These laws include the Strategic and Critical Materials Stock Piling Act (Public Law 520, 79th Cong.), as amended; the Defense Production Act of 1950 (Public Law 774, 81st Cong.), as amended; the Agricultural Trade Development and Assistance Act of 1954 (Public Law 480, 83d Cong.); the Domestic Minerals Program Extension Act of 1953 (Public Law 206, 83d Cong.); the Domestic Tungsten, Asbestos, Fluorspar, and Columbium-Tantalum Production and Purchase Act of 1956 (Public Law 733, 84th Cong.); and the Agricultural Act of 1956 (Public Law 540, 84th Cong.). The materials acquired under these acts are held in four Government inventories: the National Stockpile, Defense Production Act inventory, supplemental stockpile, and the Commodity Credit Corporation inventory. Table 5 (p. 126) is a summary of the total value of all materials carried in Government inventories, including those with quantities in excess of determined stockpile objectives. It indicates the acquisition cost and estimated market value of materials with inventories meeting stockpile objectives, and materials with inventories in excess of stockpile objectives.

The Director of OEP is authorized and directed under the Strategic and Critical Materials Stock Piling Act, as amended, to determine from time to time which materials are strategic and critical as well as the quality and quantities of such materials which shall be stockpiled.

Defense Mobilization Order 8600.1 provides that strategic stockpile objectives shall be adequate for limited or general, conventional, or nuclear war, whichever shows the largest supply-requirements deficit to be met by stockpiling. Stockpile Objectives

In order to assure that current requirements are reflected in the national stockpile, OEP maintains close surveillance over the materials that are stockpiled and initiates new supply-requirements analyses whenever reviews indicate that the status of a particular material has substantially changed or will change in the future. In fiscal year 1967, OEP completed a number of such special analyses. Based on these new studies, revised conventional war stockpile objectives were established for nine materials-bismuth, feathers and down, magnesium, molybdenum, nickel, platinum, rutile, titanium, and vanadium.

Conventional war.-OEP is currently engaged in a periodic analysis of the supply-requirements status in a conventional war emergency period for all stockpiled materials. These studies will be based on a revised economic model for which the Department of Defense provided updated program information; DOD will also provide revised requirements for specific materials for which there

is a significant direct use by the military. When these are completed, conventional war stockpile objectives will be reevaluated.

Nuclear war.-During fiscal year 1967, stockpile objectives for nuclear war were announced by OEP. That announcement represented the culmination of 3 years of study and involved the cooperation of approximately 30 Federal departments and agencies. The results disclosed that the nuclear war objectives for

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Exhibit showing examples of stockpiled strategic and critical materials.

TABLE 5.-SUMMARY OF GOVERNMENT INVENTORIES OF STRATEGIC AND CRITICAL MATERIALS, JUNE 30, 1967

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1 Market values are computed from prices at which similar materials are being traded currently, or, in the absence of current trading, an estimate of the price which would prevail in commercial markets. The market values are generally unadjusted for normal premiums and discounts relating to contained qualities. The market values do not necessarily reflect the amount that would be realized at time of sale.

Source: General Services Administration.

the basic materials were less than or identical to the objectives for conventional war, with the exception of opium where the nuclear objective was higher. The stockpile objectives set for conventional war, therefore, are controlling, except in the case of opium.

In carrying out the nuclear war analyses, OEP developed new techniques for determining the goals that would be set for the various sectors of the economy and for computing the requirements for individual materials. The interindustry study of the American economy, completed by the Office of Business Economics, Department of Commerce, in November 1964 and new data on the use of materials were important factors in the study.

The techniques and methodology developed for this study are being used in other studies of emergency period requirements. For example, the Department of Transportation, with OEP assistance, is using them in a study of transportation requirements that would have to be met in an emergency period. BDSA and OEP are also using them in their supply-requirements studies for conventional

war.

Achievement of stockpile objectives.-The bar chart, figure 5, shows the estimated market value of the objectives established and the extent to which materials on hand in all Government inventories (national stockpile, supplemental stockpile, DPA, and CCC) meet these objectives. The figures do not inIclude the quantities on hand in all Government inventories which are in excess of stockpile objectives ($3.3 billion).

As of June 30, 1967, total quantities of stockpile grade materials on hand and on order for all Government-owned inventories are sufficient to virtually complete the stockpile objectives for 65 of the 77 basic materials on the list of strategic and critical materials for stockpiling.

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Copper. In accordance with OEP's recommendation of March 17, 1966, which the President approved March 21, 1966, the General Services Administration undertook to expand domestic production of copper through the use of special incentives on a selective basis. At the close of fiscal year 1967, GSA had negotiations nearing completion covering initial production of about 58,000 tons of copper annually with potential annual output of 68,000 tons. (Associated with this copper production is an expected output of 5,000 tons of molybdenum and 455,000 ounces of silver per annum.) It is estimated that nominal production could start in 1969.

Continuing problems of meeting demands for copper, aggravated by rising needs for Vietnam, made necessary increases in set-asides of domestic production of refined copper. To further ease the shortage situation, the President on December 1, 1966, released copper from the national stockpile in the interest of common defense, in accordance with the provisions of section 5 of the Stock Piling Act. This release was for 150,000 short tons of copper, disposals of which were allocated by the Department of Commerce through regular producer chan

nels and restricted solely for defense and defense-supporting users. Sales were made available on a periodic basis and in a manner to facilitate the orderly distribution of supplies for defense needs. Releases during the January-June period were as follows:

January

February

March

April

May
June

Short tons

21, 952

21, 956

21, 018

19, 128

15, 813

16, 756

116, 623

Total

The remaining 33,377 tons will be released during the balance of the allocation period ending September 1967.

This represented the second time in fiscal year 1967 that copper demands were aided, in part, from stockpile releases. On March 21, 1966, the President authorized the release of 200,000 short tons of copper required for purposes of the common defense. Of this total, 96,700 short tons of copper were released in the fourth quarter of fiscal year 1966 and 103,300 short tons were released in the first quarter of fiscal year 1967. Of this latter amount, 62 percent was for defense rated orders and 38 percent for hardship cases.

Nickel. The nickel market continued in critically short supply during January-June with the domestic supply deficit estimated at approximately 75 million pounds for the calendar year. By March 31, industry had taken up all the available surplus authorized by the Congress under Public Law 89-740 (Nov. 2, 1966). Total releases for fiscal year 1967 amounted to 51.2 million pounds, valued at $45.3 million. Based on new supply-requirements studies, the stockpile objective was reduced in January from 100 million to 40 million pounds. OEP approved the release of the 60 million pounds surplus, subject to congressional authorization, and legislative approval was requested by GSA in early February. The House approved the disposal in April, but the Senate Armed Services Committee rejected the bill on June 8, 1967.

In March, the Department of Commerce fixed the April set-aside of primary nickel for defense purposes at 25 percent of production-up from 121⁄2 percent in February and March. This higher rate continued throughout the period ending June 30. Due to the high level of military demand and constantly growing domestic uses, consumers throughout all segments of the nickel industry have strongly urged Government officials to help meet the critical supply shortage and alleviate hardship by releasing surplus nickel from the stockpile.

Silver. On June 3, 1965, the Director of the Office of Emergency Planning signed stockpile objective action (SOA) No. 279, thereby establishing a stockpile objective for 165 million fine troy ounces of silver. The need for this stockpile objective became apparent when, during the year or so prior to its establishment, large demands for coinage, for industrial requirements, and for speculative hoarding drew Treasury's supply of silver to a new low point.

The United States is able to meet less than half of its industrial requirements for silver from domestic mine production and secondary sources of supply. Foreign trade balances have provided a large part of the balance of U.S. needs, and the remainder of U.S. supply has come from the U.S. Treasury. In fiscal year 1966, industry acquisitions of silver from the Treasury rose to a new peak of 188 million ounces.

Because of the growing industrial demands which exceeded industrial supply, it was obvious that if the stockpile objective for silver was to be met, it would have to be from the Treasury inventory. Discussions were held with Treasury to develop means for meeting the stockpile objective.

It was made clear that in order to prevent the melting of silver coins, the Treasury was compelled to sell silver, not required as backing for silver certificates, at $1.293 per fine troy ounce. This is the price at which the silver content of the silver dollar is equal to $1. In half dollars, quarters, and dimes, the equated price is $1.38. If coins were withdrawn from circulation and melted, the effect on commerce could be disastrous. (On May 18, 1967, the Treasury Depart ment issued regulations prohibiting the melting, treatment, or export of silver coins. On July 14, the Treasury announced that it would no longer try to hold the price of silver at $1.293 and that silver would be offered for sale through the GSA at world market prices.)

In the meantime, the Treasury embarked on a program to reduce the silver content of coinage in the United States. Congressional authority was sought and obtained to produce new silverless dimes and quarters made of copper and nickel, and half dollars with a silver content of 40 percent as contrasted with the previous 90-percent silver content. It is estimated that by the end of 1967 enough of these new coins will be in circulation to meet the needs of trade and industry. In March 1967, the Secretary of the Treasury proposed legislation permitting the Treasury to remove the silver reserve requirements for silver certificates which are not expected to be presented for redemption. On June 24, 1967, Public Law 90-29 was enacted which permits the Secretary of the Treasury to determine from time to time the amount of silver certificates (not exceeding $200 million) which in his judgment have been destroyed or irretrievably lost, or are held in collections, and will never be presented for redemption. This will release the silver heretofore retained in support of these certificates. Also included is a provision that all silver certificates now in circulation shall be exchangeable for silver bullion for 1 year following its enactment. Thereafter, all silver certificates will retain their monetary value but will not be redeemable for silver.

Finally, the act provides that the Secretary of the Treasury shall hold as a reserve for purposes of the common defense not less than 165 million fine troy ounces of silver and upon the expiration of 1 year after the date of enactment, the Secretary shall transfer not less than 165 million fine troy ounces of silver to the national stockpile.

Disposal program

During the January-June period, disposal sales for most surplus materials continued at a relatively low rate due to general market conditions. Although actual disposal activities were intensified by all responsible agencies in an effort to maintain a high rate, disposal sales for the period totaled only $262.2 million. This was somewhat higher, however, than $204.7 million for the previous 6 months. Sales commitments for fiscal year 1967 amounted to $466.9 million, far below the $1,028.2 million for the previous fiscal year. Included among the factors contributing to this decrease were (1) the lower production rate in the automotive and other major industries; (2) the general improvement in the world supply-balance situation for many materials included in Government-held surpluses previously in tight supply; and (3) the Government's inability to release certain stockpile excesses urgently needed to relieve critical shortages stimu lated by Vietnam, pending congressional approval.

The following table indicates that seven commodities accounted for the major portion of the decrease in disposal sales during fiscal year 1967:

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A total of 56 materials were authorized and available for disposal in fiscal year 1967, of which 46 made up the total sales during the year. Accelerated sales of chromite, cobalt, columbium, and tungsten helped to offset the lower volume in other major items.

During fiscal year 1967, OEP approved a total of eight new disposal programs involving the release of seven materials from the national and supplemental stockpiles and one from the DPA inventory. Included among these were two Presidential releases from the national stockpile-150,000 short tons of copper and 200,000 ounces of quinine-for purposes of common defense as provided under section 5 of the Strategic and Critical Materials Stock Piling Act as amended.

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