Page images
PDF
EPUB

Now it seems to me it would be extremely valuable for everybody to sit around the table and talk about the problems that each one represents, the responsibility that each one represents, so that there would be a full understanding of the problems that are faced by each, and that the decisions then would be made in the face of the responsibilities of each.

Senator DOUGLAS. It might be an opportunity to twist the arm of the Federal Reserve System, too, might it not?

Secretary SNYDER. Certainly the Treasury gets its arm twisted enough, and I would be glad to pass it around a little.

Senator DOUGLAS. I do not want to have it understood that I am necessarily opposing such a monetary council. But it has great danger in the form now suggested.

Secretary SNYDER. I think honestly, Senator, it would be a very good thing.

Senator DOUGLAS. But I do want to point out some of the issues involved, and I am curious by what is meant by your phrase, "This would have advisory authority."

Secretary SNYDER. That is right.

Senator DOUGLAS. I can understand its offering advice, but I do not quite understand the meaning of the phrase "advisory authority." What do you mean by advisory authority?

Secretary SNYDER. Well, that term is used, "advisory authority" because that is the scope in which it would be used. Just offer advice about the various segments of the economy.

Senator DOUGLAS. Well, then, why not strike the word "authority" from your statement and simply say "offer advice"?

Secretary SNYDER. That is all right.

Senator DOUGLAS. That is, you do not wish to have this body have any iron-clad authority.

Secretary SNYDER. It was not intended that it should have. Its only function would be advisory; each agency would still have authority over its own operation.

Senator DOUGLAS. Suppose there is a clear conflict with the rest of the Presidential appointees wanting the Federal Reserve System to buy an unlimited quantity of bonds at fixed prices and given interest rates; and suppose that the Chairman of the Federal Reserve Board demurred; should he be a good fellow and cooperate and go along even though in his judgment that will mean inflation, or should he be lacking in cooperation in order to preserve the solvency of the country? Cooperation is a mystic phrase.

Secretary SNYDER. Well, I am sure that the Federal Reserve Board would react the same as all the other agencies.

Senator DOUGLAS. You mean that the Board would cooperate and agree to do what the rest wanted them to do?

Secretary SNYDER. I did not say that, sir. I said they would have to operate within the scope of their own responsibility, but the decisions that they might make certainly might give some weight to the problems that are discussed around the table. Certainly that would fit within the scope of the limits of their decisions.

You could make a decision one way or another many times, but if you have certain facts, it may lead you to a sounder decision than if you made it without all of those facts.

Senator DOUGLAS. Is this an attempt to create at this juncture a climate of opinion which will make it psychologically impossible for the Chairman of the Reserve System to purchase unlimited quantities

Secretary SNYDER. You are putting that thought in my mind. I did not have it in there at the time I made this suggestion. I doubt if I would use it if it did occur to me.

Representative PATMAN. Senator Douglas, I have been determined to restrain myself and not interrupt at all, but I would like to suggest that you consider that this is comparable to the advisory group set up by the private commercial banks, is it not, Secretary Snyder?

Secretary SNYDER. Well, there are advisory groups all over the place in addition to the Federal Advisory Council. The Commerce Department has an advisory group, the State Department has an advisory group, the Treasury has half a dozen advisory groups or more. There is the National Advisory Council on International Monetary and Financial Problems.

There are many groups of this nature, and they are extremely helpful in sitting down and talking over the various problems. It gives an opportunity in an informal fashion to discuss things rather than have them brought up bilaterally or otherwise.

Senator DOUGLAS. That finishes my questions, Mr. Chairman. I want to thank you for the courtesy of permitting me to ask them, and to compliment you upon the fairness with which you have conducted the hearing.

Representative PATMAN. The question you have brought up, if it is all right with you, the Chair will wait until this afternoon to make a ruling upon.

Senator DOUGLAS. Certainly.
Representative PATMAN. Mr. Bolling?

Representative BOLLING. Mr. Secretary, I would like to have you keep in mind that I was not a member of the former committee considering similar subjects. Are there any substantial differences between Government bonds and other bonds?

Secretary SNYDER. In what fashion? Of course, one of them has the full credit of the Government behind it and other bonds are limited to the resources of the organization, the instrument issuing them. Representative BOLLING. There is at least that one difference. Secretary SNYDER. Well, that is a very big difference, of course. Representative BOLLING. What, in your judgment, would be the effect on the economy if there should be a substantial falling off of Government bonds?

Secretary SNYDER. That is a question I would like to answer in executive session, because I am the one and only person that is responsible for the final decisions on debt management, except that the President must approve all offerings of issues having maturities over 1 year. To discuss things of that sort in an open session-I cannot measure what the effect might be.

Representative BOLLING. Mr. Chairman, there may be a number of questions I will want to ask if not in executive session, then for the committee to address a letter on further expansion of certain points. Secretary SNYDER. I think, Mr. Chairman, you must bear in mind that I do have that responsibility.

Representative PATMAN. I assume the Secretary will be glad to answer any questions written and sent to him by correspondence.

Secretary SNYDER. I do not want to withhold any information from the committee, but I do have to restrain myself in answering questions that in my judgment might have some effect on the general operation of debt management, because it must be remembered I cannot possibly detach myself as an individual from being Secretary of the Treasury.

I cannot give personal opinions that would not be translated into the thinking of the Secretary of the Treasury, as much as I might try to do so.

Representative BOLLING. Mr. Chairman, I am very anxious to avoid putting the Secretary in that position, and the other method will be perfectly satisfactory to me. I would like to pursue this problem that Senator Douglas raised. It may fall in the same category as my first question, of the future.

I am entering into this hearing with a completely open mind, and I am interested in the future, not particularly in the past. I would like to make some assumptions so that this will be theoretical.

Let us assume that the Congress enacts legislation which will provide for a substantial deficit. I assume also there is only one way in which the Treasury can raise the money to take care of that deficit. It will have to borrow it from some source.

Secretary SNYDER. That is correct.

Representative Bolling. Granted the deficit, and the necessity of raising the money, what are the alternatives confronting the Treasury as to the question that Senator Douglas has raised?

Do you have any alternatives aside from those mentioned in the replies to your questionnaire in which you can borrow money without having inflationary impact? Is there any alternative except those of support through Federal Reserve activity to the bond market dropping off?

Secretary SNYDER. Do you mean outside of congressional action? Representative BOLLING. Yes, sir.

Secretary SNYDER. Well, I think we have to carefully judge each one of the instances on the basis of the facts when it comes to a refunding operation, or when it comes to an offering of new money financing. I think we have got to measure it against the whole economy at the time that that operation is undertaken, because it changes from month to month. The last 6 months have seen a considerable change in the general situation in the economy.

Representative BOLLING. What I am trying to get at is what are some of those factors you have to take into consideration aside from those that have already been discussed.

Secretary SNYDER. We have to take into consideration the supply of funds at the time-whether the normal investment groups have surplus cash on hand that is seeking investments.

We have to consider the approach to attracting as much nonbank investment as we can. We have got to measure all of those. We have got to consider trying to attract savings.

We have got to give all of those considerations very careful study in order to try to meet the situation of keeping as much of this financing out of the bank area as we can.

Representative BOLLING. Then suppose you in your consideration in this theoretical case discover that in your judgment a very substantial amount of the borrowing is going to have to be borrowing through the banks, commercial banks and otherwise, what alternatives then do you face? What alternatives do you have?

You have the two that I see, obviously, of letting the bond market take its course in a free market, and you have the other one of support through Federal Reserve activities. Are there any other alternatives?

Secretary SNYDER. None.

Representative Bolling. In other words, just the free market on the one hand, and a free market influenced by the Federal Reserve activities on the other hand. Those are the only two.

Secretary SNYDER. You mean assisted by the Federal Reserve, you mean in their orderly market operations?

Representative BOLLING. Yes. That is all I wanted on that particular subject.

Mr. Secretary, you say in your answer to question 34 on page 118, about a third of the way down the page :

Holdings of series E savings bonds amounted to 344 billion on December 31, 1951.

and I think somewhere else it is indicated that that is about the highest level of series E holdings.

I have before me a breadown of the cash sales and redemptions in those bonds through that period and through 1951. There are obviously, I think, each month more redemptions than there are sales. I assume that the fact that this is the highest point, December 31, 1951, is based on the very substantial amount of interest that accrued through that year.

Secretary SNYDER. Well, actually the amount of cash investment in savings bonds is as high today as it was at the end of the war period after all of the stimulation of the war selling of savings bonds. The actual total of cash invested in the bonds today, in the E bonds, is over $1 billion more than it was at the end of the war. That is without the interest consideration, so the actual totals have been maintained and increased by over $1 billion since the end of the war.

Analysis of series E savings bonds outstanding to show amount of cash
investment and accrued discount

[blocks in formation]

NOTE.-May not add to total amount outstanding due to rounding.

Representative BOLLING. Mr. Secretary, I am curious as to your

opinion and this again may fall into the other area-I am getting the

97308-524

impression from the origin of A bonds in 1935 and their modification to E bonds of a later date, that the desire was to make E bonds sufficiently attractive to small uninformed investors so that it would be easy for people to have confidence and buy them. That that was done because it was assumed that this class of borrowing was actually deflationary rather than inflationary.

Secretary SNYDER. In 1941 when we were entering upon defense financing prior to World War II, the E bond was designed to help drain off the surplus earning power of the public as we began to draw more of the materials and labor out of production for peacetime domestic consumption and put it into defense and war production. It had a dual purpose during the war of helping to finance the war deficit, and also as a very material assistance in controlling inflationary trends.

Representative BOLLING. This is one method of financing a deficit that is actually somewhat deflationary. Secretary SNYDER. That is what?

Representative BOLLING. Somewhat deflationary.
Secretary SNYDER. An anti-inflationary method, certainly.

Representative BOLLING. Mr. Secretary, I am curious for your opinion, if you care to give it if not in open session, then otherwise as to the relative position of an E bond today as compared with an E bond at the date of its inception in relation to interest, and so on. I gather that it was intended to have a favorable position. I wonder whether it now does have a favorable position.

Secretary SNYDER. You mean competitive position?
Representative BOLLING. Yes.

Secretary SNYDER. Well, I think that there were many things that entered into the original design of the E bond. We have always got to consider carefully the competitive position of the E bond; we can't get it too competitive because we have got to have the support of all investment groups in supporting the distribution and the sale of it.

That is correct, but we have certainly got to consider carefully at all time the attractiveness of the bond to the purchaser in every fashionin its liquidity and its ease of purchase, its ease of liquidation and the general confidence of the people in the instrument itself.

Representative BOLLING. I haven't added up these monthly figures that I have, but they indicate a very substantial redemption over purchase for the year 1951.

Secretary SNYDER. Well, by January and February of this year that trend had changed quite a bit in the E bonds.

Representative BOLLING. I don't have the figures for E alone for January and February.

Secretary SNYDER. In the F's and G's it did not hold true, but in the E bonds, sales were up in January and February combined by 6 percent over the same 2 months of 1951, and redemptions were down by 9 percent over the same 2 months, so there was a change in the trend there.

« PreviousContinue »