Volume 509, March 19 – March 20, 1942

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100
Analysis of Exposure to Payroll Sevings Plane
March 14, 1942
Number exposed
Total number
to payroll
in the
Percent
of total
savinga plans
country
(estimated)
exposed
Part A - Summary by Number of Organizations Exposed
I. Businees organizations
(1) Large reilroads,
158
167
95
(2) Other firms with 500 employees or more
5,327
7,286
73
(3) Other firms with 100 to 499 employees
12,594
26,819
47
(4) Subtotal - large firms
18,079
34,272
53
(5) Firma with less than 100 employees
26,193
#
*
(6) Totel business organizations
44,272
-
#
II. Governmental organizations
#
III. Grand totol,
44,272
Part B - Summary by Number of Employees Exposed
I, Business organizations
(1) Large reilroads
1,273,260
#
13,616,202
*
(2) Other firms with 500 employees or more
(3) Other firms with 100 to 499 engloyees
2,759,196
+
(4) Subtotal - large firms
17,648,658
+
(5) Firms with less than 100 employees,
670,401
*
(E) Total business organizations
18,319,059
30,400,000 1/
60
II, Governmental organizations
(1) Federal Government
797,981
1,700,000 1/
23
(2) State ano local governments
914.483
2,700,000
34
(1) Total governmental organizations
1,312,464
4,400,000
30
19,631,523
34,800,000 1/
56
III. Grand total
March 20, 1942
of the Secretary of the Tressury,
Invision of Research and Statistics.
EYMULER enviroyee, military personnel, em loyer on WPA or NYA or CCC projects,
fine nechare, self-ew-loyed. ceeur1 vorkere end in (lomestic service.
is snt
Regraded Unclassified
101
Firms Employing 100 to 499 Persons Perticipating in Payroll Sevings Plane
(Ae reported by the Defense Bavings Staff's State Administratora)
Number of firms with Dayroll
Total
:
Percent of total having payroll
savings plane
number
:
sevings plans
State
Jan. 10
Mar. 7
Kar, 14
of firms
:
:
(eetimated)
Jen. 10
:
Mar. 7
Mar. 14
17
104
109
285
6
36
38
15
39
40
F.5
26
67
69
22
37
38
142
15
26
27
Jalifornia
160
436
461
489
27
59
94
SOLCARTO Celifornia
495
679
686
1,171
42
58
59
Colopies
64
107
108
170
38
63
64
Connecticut
100
255
259
622
16
41
42
Delovere
o
0
6
54
o
o
7
District of Columbia
e
36
37
152
5
24
24
Flather
48
112
122
139
35
81
88
Georgia
56
98
104
589
10
17
18
Tight
19
26
26
50
38
52
52
Illinois
48
916
966
2,252
2
41
43
OF
321
356
586
o
55
61
love
97
104
271
1
36
38
114
272
275
275
41
99
100
Fectures
75
106
108
312
24
34
35
o
119
145
384
0
31
38
lahe
3
46
50
198
2
23
25
wryline
32
111
121
405
MO
27
30
53
557
561
1,523
3
37
37
137
585
Cod
621
1,022
13
57
61
181
356
366
399
45
59
92
30
51
56
143
21
36
39
0
371
392
664
o
56
59
holder's
22
35
35
39
56
90
90
6
77
83
123
5
63
67
ON
14
14
24
33
58
58
any
7
68
79
145
5
47
54
in Lersey
171
300
300
869
20
35
35
ANY Mexico
12
31
32
35
34
89
91
Sev York
505
1,603
1,674
4,239
12
38
39
29
157
206
499
6
31
41
Casate
4
8
to
29
14
28
25
Date
0
773
ses
1,739
D
44
51
29
145
152
345
5
42
44
CIPY
21
174
177
271
8
64
65
713
1,441
1,491
8,032
35
71
73
Minde Belance
46
138
141
224
22
62
63
13
61
66
174
7
35
38
State
5
16
18
19
26
84
95
o
79
79
448
o
18
18
Teams
74
154
233
375
5
13
17
User
13
26
33
111
12
23
30
Versont
30
51
E1
63
47
81
81
Dirginia
31
164
190
338
9
49
56
208
325
22
62
64
71
200
set Virginia
0
58
64
272
D
21
24
-1800AB1E
n
222
237
680
0
33
35
1
14
14
14
7
100
100
Aleten
0
2
2*
2
o
100
100
Ballrones
46
49
49
52
BE
94
94
3,541
11,927
26,871
13
44
47
12,643
March 20, 1942
Office or the Secretary of the Treasury, Division of Research and Statistics.
2018 the for March 7, insuruch DE no Merch 14 report WAB received.
Regraded Unclassified
102
Firms Employing 500 Persons or More Perticipating in Payroll Savings Plane
(As reported by the Defense Bavings Staff's State Administratore)
:
Number of firms with payroll
Total
Percent of total having payroll
savings plane
number
State
envinge plane
Jan. 10
Mar.7
Mar. 14
of firms
(estimated)
Jan. 10
:
Mar, 7
Mar. 14
Alatano
9
43
45
76
12
57
59
Artzona
15
19
21
21
71
90
100
APPRESS
6
16
16
18
33
89
89
Northern Celifornia
114
146
151
196
58
74
77
Southern Colifornia
123
158
160
165
75
96
97
Colorano
22
23
23
32
69
72
72
Connectiout
97
146
148
185
52
79
80
Deloware
2
2
6
28
7
7
21
District of Columbia
12
26
26
52
23
50
50
Florida
18
33
33
66
27
50
50
Georgin.
35
52
54
143
24
36
38
Iério
EN
9
9
10
80
90
90
Illinois
277
398
402
634
44
63
63
Indiana
41
111
117
180
23
62
65
ZOWN
9
38
38
53
17
72
72
16
32
33
33
48
97
100
Kentucky
19
40
40
70
27
57
57
Louisions
0
31
34
85
0
36
40
Moine
42
54
54
54
76
100
100
Maryland
40
100
102
154
26
65
66
Masschusetts
41
261
267
370
11
71
72
Mentgon
105
325
327
333
92
98
98
Minnesote
57
102
102
105
83
97
97
Mississinol
12
15
16
26
43
54
57
Riseourt
0
147
148
148
0
99
100
Mantena
4
5
5
80
100
100
5
Sebresse
28
36
36
41
68
88
88
lievido
Na
5
5
5
60
100
100
Key Remainire
17
28
30
30
57
93
100
Clow Jersey
185
227
227
238
78
95
95
lev Mexico
5
6
6
6
83
100
100
Sev York
435
807
620
1,350
32
60
61
&orth Caroline
49
104
108
168
29
62
64
North Dexote
0
1
1
1
o
100
100
Ohto
285
470
438
557
51
84
88
Calanone
22
38
40
62
35
61
65
Spegon
51
69
69
69
74
100
100
Fennaylvania
336
532
541
625
54
85
87
Rhole Island
58
77
23
90
64
61
81
South Cerolina
96
28
69
71
27
66
68
South Decote
4
4
4
75
100
100
Tennesses
11
22
22
106
4
21
21
Texas
36
58
58
167
19
31
31
Uten
8
10
10
14
57
71
71
Vermont
10
12
12
13
77
92
92
Virginia
41
87
89
95
43
92
94
whebington
58
74
59
74
78
44
55
West Virginia
2
41
41
67
3
61
61
Sleconsin
84
137
140
140
60
98
100
Wyoning
o
1
1.
1
o
100
100
Alassa
o
3
3
3
o
100
100
Mallronds
98
109
109
115
85
95
95
Total
3,185
5,436
7,401
43
72
73
5,333
March 20, 1942
Cffice of the Secretary of the Treasury, Division of Research end Statistics.
Unto spo for Herch 7. inseauch DE no March I4 report WEE received.
Regraded Unclassified
CONFIDENTIAL
Daily changes in the stock of Series E savings bonds on hand
(In thousands of pieces)
:
Number of : Number of pieces
Stock on hand
IBM
: pieces sold :
manufactured
at close of
deliveries
:
this day
:
this day
day
this day
Mar. 9
344
500
25,786
-
10
123
500
26,163
-
11
192
300
26,271
-
12
157
300
26,414
800
13
193
300
26,521
-
14
137
none-closed
26,384
-
15
none-closed
none-closed
26,384
I
16
271
300
26,413
I
17
144
300
26,569
I
18
148
300
26,721
650
Office of the Secretary of the Treasury,
March 19, 1942
Division of Research and Statistics.
1/ Includes stock in hands of (1) Federal Reserve Banks and branches, (2) Post
offices, (3) Federal Reserve Bank issuing agents, and (4) Treasury vaults
in Washington.
Regraded Unclassit
104
UNITED STATES SAVINGS BONDS
Comparative Statement of Sales During
First Fifteen Business Days of March, February and January 1942
(March 1-18, February 1-18, January 1-17)
On Basis of Issue Price
(Amounts in thousands of dollars)
:
:
Amount of Increase
: Percentage of Increase
Sales
:
:
or Decrease (-)
:
or Decrease (-)
Item
:
:
:
:
March
:
February
: March
:
February
: March
: February
:
January
:
over
=
over
:
over
:
over
:
:
:
:
February
:
January
:
February
:
January
Series 1- - Post Offices
$ 52,783
$ 60,245
$ 93,828
-$ 7,462
-$
33,583
- 12.4%
- 35.8%
Series I - Banks
152,247
225,241
258,108
- 72,994
- 32,867
- 32.4
- 12.7
Series 1. - Total
205,030
285,486
351,936
- 80,456
- 66,450
- 28.2
- 18.9
Series F - Banks
25,126
35,164
38,409
- 10,038
- 3,245
- 28.5
- 8.4
Series G - Banke
114,964
178,238
155,101
- 63,274
23,137
- 35.5
14.9
Total
$345,120
$498,887
$545,446
$153,767
$ 46,559
- 30.8%
- 8.5%
Office of the Secretary of the Treasury, Division of Research and Statistics.
March 19, 1942.
Source: All figures are deposits with the Treasurer of the United States on account of proceeds
of sales of United States savings bonds.
Note: Figures have been rounded to nearest thousand and will not necessarily add to totals.
Regraded Unclassifie
105
UNITED STATES SAVINGS BONDS
Daily Sales - March, 1942
On Basis of Issue Price
(In thousands of dollars)
Post Office
Bank Bond Sales
All Bond Sales
Bond Sales
Date
Series I
Series E
Series I
Series G
Total
Series X
Series ,
Series G
Total
March 1942
2
$ 5,811
$ 15,868
$ 2,043
$ 8,726
$ 26,636
$ 21,678
$ 2,043
$ 8,726
$ 32,447
3
2,975
8,459
1,629
8,780
15,568
11,434
1,629
8,780
21,843
4
3.395
8,833
2,658
12,558
24,048
12,228
2,658
12,558
27,443
5
3,869
10,448
1,680
11,870
23,998
14,317
1,680
11,870
27,867
6
4,179
10,696
1,759
10,825
23,279
14,875
1,759
10,825
27.458
7
3,480
11,586
1,586
6,328
19,499
15,066
1,586
6,328
22,979
9
4,967
18,636
3.944
8,488
31,068
23,604
3,944
8,485
36,035
10
2,804
5,719
1,365
4,162
11,246
8,523
1,365
4,162
14,050
11
3,156
10,002
1,533
7,287
18,823
13,158
1,533
7,287
21,979
12
2,686
8,114
1,133
5,504
14,750
10,800
1,133
5,504
17,436
13
2,682
10.594
1,065
5,007
16,666
13,276
1,065
5,007
19,348
14
2.797
6,616
1,102
4,745
12,463
9,413
1,102
4.745
15,260
16
4,454
13,193
1,415
8,693
23,301
17,658
1,415
8,693
27,766
17
2,967
6,384
1,105
2,561
9,961
9,351
1,015
2,561
12,927
15
2,552
7.097
1,201
9,433
17,731
9,650
1,201
9,433
20,283
Total
$ 52.783
$152,247
$ 25,126
$114,964
$292,337
$205,030
$ 25,126
$114,964
$345,120
Office of the Secretary of the Treasury, Division of Research and Statistics.
March 19, 1942
Source: All figures are deposits with the Treasurer of the United States on account of proceeds of
sales of United States savings bands.
Note: Figures have been rounded to nearest thousand and will not necessarily add to totals.
Regraded assified
CONFIDENTIAL
UNITED STATES SAVINGS BONDS - DEFENSE SERIES 2
106
Number of Units and Percent of Dollar Volume
by Demominations and by Months
May 1941 - January 1942
Denomination
:
:
$25
$100
:
$500
$1,000
$5,000
$10,000
Total
Issue Price
Month
(in millions)
Number of Units (in thousands)
1941-May
-
6.2
3.4
12.0
2.5
4.4
28.5
$ 52.8
June
-
5.6
2.4
7.2
1.2
1.5
17.9
22.5
July
-
8.4
3.6
10.0
1.5
1.6
25.2
27.2
Aug.
-
7.1
2.9
7.0
1.1
1.0
19.1
18.2
Sept.
-
8.0
2.9
7.5
1.1
1.1
20.5
19.4
Oct.
-
9.9
3.4
9.0
1.4
1.1
24.9
22.3
Nov.
-
9.0
3.0
7.6
1.0
is
21.6
18.2
Dec.
-
25.0
7.4
18.2
2.8
2.7
56.1
48.8
1942-Jan.
6.5
40.3
10.7
22.1
3.2
4.0
57.0
64.9
Total
6.8
119.3
39.7
100.7
16.0
18.5
301.0
Issue Price
(in millions)
0.1
$ 8.8
$ 14.7
* 74.5
$ 59.1
$136.9
$294.2
Adjustment to deposite
- 9.0
Deposits with the Treasurer
of the United States
1285.2
Percent of Dollar Volume
1941-May
-
0.9%
2.3%
16.8%
17.6%
62.46
100.0%
June
-
1.8
4.0
23.8
19.6
50.8
100.0
July
-
2.3
4.9
27.3
21.0
44.5
100.0
Ang.
-
2.9
5.9
28.6
22.7
39.9
100.0
Sept.
-
3.0
5.5
28.6
21.4
41.5
100.0
Oct.
-
3.2
5-7
30.0
23.7
37.4
100.0
Nov.
-
3.6
6.2
31.0
21.2
38.0
100.0
Dec.
-
3.8
5.6
27.7
21.2
41.7
100.0
1942-Jan.
0.2%
4.6
6.1
25.2
18.3
45.6
100.0
Total
0.1%
3.0%
5.0%
25.3%
20.1%
46.5%
100.0%
Office of the Secretary of the Treasury,
March 19, 1942.
Division of Research and Statistics.
Source: Tabulations by the Division of Loans and Currency from an audit of original
stubs.
Note: All figures have been rounded and will not necessarily add to totals. Amounts
do not agree with released sales figures which are on the basis of deposits
with the Treasurer of the United States.
Incomplete. Deposits were $77.6 millions.
Regraded Unclassified
CONFIDENTIAL
UNITED STATES SAVINGS BONDS - DEFENSE SERIES 0
107
Number of Units and Percent of Dollar Volume
by Denominations and by Months
May 1941 - January 1942
2
Denomination
:
:
1
#
I
$1.00
$500
$1,000
:
:
:
$5,000
:
$10,000
Total
:
Issue Price
Month
:
:
(in millions)
Number of Units (in thousands)
:
:
2941-May
32.3
15.0
57-5
10.8
18.9
134.5
$ 311.5
June
20.3
9.4
33.4
5.4
7.4
76.0
141.1
July
25.2
13.5
43.9
6.8
7.5
97.0
162.9
August
20.1
9.7
31.3
4.9
5.5
71.5
117.9
September
19.5
8.6
29.3
4.6
5.2
67.2
111.0
October
23.3
10.7
34.0
5.2
5.8
78.9
125.2
November
20.8
9.3
29.3
4.4
4.7
68.4
104.6
December
55.0
24.4
60.6
8.1
5.0
156.1
198.7
1942-January
65.8
32.2
71.9
9-3
13.3
192.4
273.8
Total
282.3
132.8
391.1
59-5
76.3
942.1
Issue Price
(in millions)
$ 28.2
$ 66.4
$391.1
$297.7
$763.2
$1,546.7
Adjustment to deposits
- 46.3
Deposits with the Treasurer
of the United States
$1,500.4
Percent of Dollar Volume
1941-May
1.0%
2.4%
18.5%
17.4%
60.7%
100.0%
June
1,4
3-3
23.7
19.2
52.4
100.0
July
1.6
4.1
27.0
21.0
46.3
100.0
August
1.7
4.1
26.5
21.0
46.7
100.0
September
1.7
3.9
26.4
20.9
47.1
100.0
October
1.9
4.3
27.1
20.6
46.1
100.0
November
2.0
4.5
28.0
20.8
44.7
100.0
December
2.8
6.1
30.5
20.4
40.2
100.0
1942-January
2.4
5.9
26.3
16.9
48.5
100.0
Total
1.8%
4.3%
25.3%
19.3%
49.3%
100.0%
Office of the Secretary of the Treasury,
March 19, 1942
Division of Research and Statistics.
Source: Tabulations by the Division of Loans and Currency from an sudit of original
stube.
Note: All figures have been rounded and will not necessarily add to totals. Amounts
do not agree with released sales figures which are on the basis of deposits
with the Treasurer of the United States.
Incomplete. Deposits were $315.6 millions.
Regraded Unclassified
108
March 19, 1942
4:07 p.m.
HMJr:
Hello.
Operator:
Mr. Paul.
HMJr:
Hello.
Randolph
Paul:
Hello.
HMJr:
Randolph. Hello.
P:
Yeah.
HMJr:
Cooper says he'll take it on, but he wasn't
very enthusiastic; but he'll take it on.
P:
Then I'm to call him.
HMJr:
Yeah, when you get back.
P:
Yeah.
HMJr:
He said he'll see you either Friday or Saturday.
P:
All right.
HMJr:
Okay.
P:
Yeah. Tell me - can you tell me just B. little
more or can't you talk now?
HMJr:
What?
P:
About this thing you talked about this morning.
I'm going to see Ernet later today.
HMJr:.
No, I gave you all that I knew.
P:
Yeah.
HMJr:
I - they gave it to me in fifteen seconds.
P:
Yeah.
HMJr:
I gave you all that I knew.
Regraded Unclassified
109
- 3 -
P:
All right. I'll see what I can find out.
about it, I don't know.
I think there might be some misunderstanding
HMJr:
Okay.
P:
Well, I'll see what I can find out and report
to you in the morning.
HMJr:
Thank you.
P:
Okay.
Regraded Unclassified
110
THE UNDER SECRETARY OF THE TREASURY
WASHINGTON
March 19, 1942
TO THE SECRETARY:
In reply to your memorandum of March 18th
regarding the Chinese loan, revised Article II as
submitted by the State Department was handed to
Dr. Soong in New York on Friday, March 13, by Mr. Fox.
Dr. Soong cabled this revised draft to Chungking on
Saturday and asked for an immediate reply.
I talked with Soong late Tuosday evening
regarding the matter and he seid he had not yet received
an answer but that he had sent a wire off that day,
asking for immediate reply as he wanted to close the
agreement this week,
......
Dr. Soong just telephoned me that he hes received
et reply to his cable and he is bringing it in this morning
to discuss with me.
DWB
PORDEFENSE
BUY
UNITED
STATES
SAVINGS
BONDS
Regraded Unclassified
ARTICLE II.
As a manifestation of the cooperative spirit which underlies
the common war effort of China and the United States, appropriate
officials of the two Governments will confer from time to time
regarding technical problems which may arise in connection with
the financial aid herein provided and will exchange information
and suggestions regarding ways and means of most effectively
applying these funds toward achieving the purposes which are
envisaged by the two nations.
Regraded Unclassified
MINISTER FOR FOREIGN AFFAIRS
REPUBLIC OF CHINA
March 19, 1942
CONFIDENTIAL
Dear Mr. Bell:
Confirming our conversation, I have to inform you
that I have received a reply from the Generalissimo with reference
to your proposal to re-insert Article II of the proposed loan
agreement in a modified form.
The Generalissimo states that after carefully
consulting his colleagues he feels that even in the modified
form Article II is generally construed as limiting the freedom
of action in the use of the proceeds, and would therefore adversely
affect the public response to bonds, savings deposits and other
measures that are to be based on the loan.
In addition, among his soldiers, who have been
tremendously heartened by the generous and unconditional assistance
as revealed in the exchange of messages between the President and
himself, the inclusion of Article II would create the impression
that the terms are not as clear-cut as they envisaged.
The Generalissimo therefore feels that the civilian
and military reactions are such B.S to justify his request that
Article II be dropped completely, and I shall be grateful if you
will transmit his message to your colleagues for their consideration.
With kind regards,
Yours sincerely,
T. V. Soong
Guate
D. W.D. W. Bell, Under Secretary of the Treasury
Treasury Department
shington, D. C.
(=)
Regraded Unclassified
113
March 19, 1942
MEMORANDUM FOR THE SECRETARY'S FILES
Meeting in Mr. Bell's office
March 19, 1942
2:30 p.m.
Present:
For Treasury: Mr. D. W. Bell
Mr. White
Dr. Viner
Mr. B. Bernstein
Mr. Southard
Mr. Friedman
For State:
Mr. Hornbeck
Mr. Hamilton
Mr. Livesey
Mr. Luthringer
Meeting was called to discuss reply received from Dr. Soong regarding
the alternative of Article II.
Mr. Bell said that the Secretary wanted to sign the Agreement as
soon as possible and was prepared to do 80 unless the State Department
felt strongly about the matter.
The State Department's position was given by Mr. Hornbeck, who said
that the matter had now become a diplomatic issue. Mr. Hornbeck said
that the State Department representatives had just come from & meeting
with Mr. Welles and that he was talking under instructions. If the
Chinese position was accepted, Mr. Hornbeck said it would mean trouble
in the future between the Governments of China and the United States.
He was under instructions to propose an exchange of letters which would
be supplementary to the agreement and which would achieve basically the
aims of the proposed Article II. He said that to accept the Chinese
position would be establishing a precedent of China's laying down terms
to us and that the United States could not let China get away with this.
Regraded Unclassified
114
- 2 -
Question was raised as to whether Dr. Soong's letter of March 3 could
be considered a commitment to consult or exchange information. Mr. Hornbeck
replied that it only committed Dr. Soong, or at the most, the Generalissimo.
A Treasury representative pointed out that there has been some change
in the military situation since the negotiations first began. Mr. Hornbeck
then quoted from dispatches from Ambassador Omusa commenting OG each as to
how they indicated that the Chinese have been taking an increasingly firmer
attitude.
Mr. Hornbeck went on to say that we were in our present position
because we had shown weakness in the past. The Chinese were led to believe
that if they stood firm we would retreat from our position. A Treasury
representative said that the Secretary had definitively given Dr. Soong
the impression before Congress acted that we were concerned about the uses
of the financial aid and pointed out that the Secretary had even considered
doling out the money for specified purposes.
Dr. Viner expressed his complete opposition to the State Department's
view. Mr. Hornbeck said that he had not mentioned Tressury when he spoke
of weakness being shown. A Treasury official said that he was glad that
Mr. Hornbeck had clarified this point and went on to stress the fact that
at every step the negotiations had been cleared with the State Department.
The President's message to the Generalissimo and the Generalissimo's
reply accepting the loan without conditions were discussed and read.
Treasury officials said the President's message set the desired tone of
the negotiations. When State Department officials were asked who had
drafted the President's message they replied that 10 was hastily drafted
by the State Department.
The period before Congressional approval of the financial aid was
reviewed by Dr. Viner, who pointed out that every one had been surprised
by the generous spirit shown by Congress and the 8888 with which the
suggested aid went through.
The possibility of an exchange of letters was then discussed. A
Treasury official pointed out that the State Department was aiming at
an exchange of letters which would become part of the Agreement and while
he was saying this Mr. Hamilton of the State Department nodded his head
in Agreement. Mr. Hornbeck made it clear that he was thinking of an
exchange of letters which would practically do what it had been hoped
Regraded Unclassified
115
- 3 -
Article II would socomplish. Mr. Hornbeck said that it was unfortunate
that either Soong or Kung was probably advising the Generalissimo since
the Generalissimo would not have taken the position that be had taken by
himself. The point was then made that it was to be expected that the
Oeneralissimo would be advised by his Finance and Foreign Ministers.
Mr. Hornbeck then went on to give & review of the political situation.
He said that: In 1937, the Chinese went to war with Japan, or Japan went
to war with China, and the Chinese chose to resist the Japanese. It was
a war of their own choice. The Chinese were not fighting for civilization,
but for themselves and the United States had steadily supported China,
Not until 1939, when we told them so, did the Chinese begin to eay that
they were fighting for civilization. Although WE had common enemies our
wars were different. We happened to be on the same side, fighting against
the same enemy. China was trying to make out that we owed her something.
We do not owe her anything. Im December they had asked for a loan, and
the money had been voted as such, and not for & gift. In only three and
one-half months they had changed their position BO markedly.
At this point a Treasury official asked "where do we go from here?"
Another Treasury official said that it was up to the State Department
how far we could go with the Chinese Government. Mr. Hornbeck said that
this was not a question of relations between departments but of relations
between two Governments, the United States and China. A Treasury official
commented that he had always believed the State Department considered
foreign policy its exclusive responsibility. Another Treasury representative
asked the State Department to draft the letters suggested. Mr. Hornbeck
then said that the Chinese, by talding their position, were denying that THE
had an interest in the use of the funds. Dr. Viner responded that we were
telling the Chinese Government by our insisting on the contents of Article II
that they were a second-rate Government, and that we could not trust them
with the intelligent use of the funds. Mr. Bell expressed the view that it
was an issue that the President would have to decide.
The question of the delay in making the agreement was discussed, the
point being made by Mr. Hornbeck that the delay was caused by the Chinese,
while Treasury representatives took the position that, whoever the cause,
continued delay was bound to have an 111 effect in Chungleing.
Mr. Hornbeck said that whatever was done must be done in such &
manner that could be referred to in the future by both the United States
and China, and that, if there was nothing specific to refer to, 1t was
not worth doing.
Regraded Unclassified
116
- 4 -
Treasury officials pointed out that Foreign Funds Control could be
used in the case of extraordinary changes in the China picture in the
future, and the question was asked what could be drafted that would really
give us anything more. The point was then made by Treasury officials that
our position had become steadily weaker as we had tried to get a consultative
article accepted by the Chinese, and that we had been in a much stronger
position with respect to control over the use of the funds before the last
exchange of letters.
w
Mr. Hornbeck suggested that Mr. Hamilton and Dr. Viner draft a letter
along the lines outlined by Dr. Viner.
The possibility of bringing the matter before the Cabinet was discussed.
The necessity of discussing the problem first with the Secretary was made
clear and Mr. Bell said that the Secretary might want to take the matter
up with the Cabinet tomorrow and Mr. Welles should be prepared for such an
eventuality.
It was agreed that Mr. Hamilton and Dr. Viner should draft possible
letters which could be given to the Secretary and which might be taken up
to the President.
I. S. Friedman
Regraded Unclassified
117
March 19, 1942
Harry White
Secretary Morgenthau
Please talk to me about this.
copy of incoming also
sent to Bell-
White spoke
to High 3/21/42-
Regraded Unclassified
B118
THE WHITE HOUSE
WASHINGTON
L.mg
March 19, 1942
TO THE SECRETARY OF THE TREASURY:
FOR HIS INFORMATION.
119
THE WHITE HOUSE
0
?
Washington
I
March 19, 1948
By dear Mr. Administrator:
I have your memorandum of March 10 wherein you refer to Ve
request of the Chairman of the Senate Committee on Education mad.
Labor that you appear before that Committee to testify on S.2295,
"A Bill, To provide for the termination of the National Youth
Administration and the Civilian Conservation Corps."
You state that it would be desirable to have ky views regard-
ing this proposed legislation to place before the Committee. In
this connection, I wish to call your attention to our conversations
on other proposed legislation affecting the youth agencies. My
opinion as expressed in those conversations has not changed.
I real that the youth agencies have a definite place in the
all-out var affort. The 1945 program of the National Youth Adminis-
tration to train approximately 600,000 youth for war industries and
for other essential work will be a definite and necessary contri-
bution to our expending labor requirements. The Civilian Conservation
Corps work en Army reservations is needed to prepare those reservations
for full utilisation. Idbords, the remaining projects of the Corps
which are now limited to those posential to the various phases of our
war effort and DO located as to provide protective services in vital
areas should not be discontinued at this time,
It is unfortunate that it 18 not generally known that the
employment of these youth in ⑉⑉ cases releases soldiers for active
duty and in others involves tasks which would require the employment
of adult civilians. I alm feel that it should be made clear to all
our citisens that by far the greater number of those on the rells are
of pre-military age and that the training which they receive is pre-
paring the for such service as they my be called upon to perform
the they become of military age.
In view of the above, I emnot agree with those who take the
position that these agencies should be terminated and, accordingly,
you are advised that 8,2295 does not mest with by approval.
Very sincerely yours,
/s/ FRANKLIN D. ROOSEVELT
Honorable Administrator, Pml V. MoNutt,
Federal Security Agency,
Washington, D. C.
Regraded Unclassified
120
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE March 19, 1942
TO
Secretary Morgenthau
FROM
Mr. Kuhn
Here are articles from the labor press about the
tax program. You will notice that the New Masses has
come out in our favor, which means that the Communist
party line in this country will be on our side! This
should put 8. stop to critical articles such as the
United Electrical Workers have published.
Most of the labor papers have been waiting with
their comments until the tax committees of the C.I.O.
and the A.F. of L. have taken their stand. The resolu-
tions of the two tax committees are included with this
batch of comments. You will see that the A.F. of L.
opposes us on taxing outstanding State and municipal bonds.
7.R.
Regraded Unclassified
121
MEMORANDUM
March 19, 1942.
TO:
The Secretary
FLS
FROM:
Mr. Sullivan
RE:
Assignment of Public Finance man to
Governor Tugwell, Puerto Rico.
Mr. Eugene Bland of the National Resources
Planning Board and I have discussed this problem. He
is apparently the contact man for Governor Tugwell.
Upon Dr. Flough's recommendation I offered
to Bland the services of Russell Hinckley, who is
now an employee of Dr. Groves at a salary of $5,600.
I explained that this would have to be on a reim-
bursable basis. He said he did not know whether
Covernor Tugwell expected to reimburse us for the
services of this man, but that he would report to
the Governor that we are making such an offer and
would advise us of his reply.
I explained to Mr. Bland that because of
the war and the heavy load of the tax program, and
further, because of the reduction the Appropriations
Committee made in our appropriation for the particu-
lar project on which Fr. Hinckley is employed, we do
not feel that it will be possible for us to lend his
services without reimbursement.
Regraded Unclassified
122
BRITISH AIR COMMISSION
1785 MASSACHUSETTS AVENUE
WASHINGTON, D. C.
TELEPHONE HOBART 9000
PLEASE QUOTE
REFERENCE NO.
With the compliments of British Air Commission
who enclose Statement No. 25 - Aircraft Despatched
- for week ended Marchl7, 1942.
The Hon. Henry Morgenthau, Jr.
Secretary of the Treasury
Washington, D. C.
March 19, 1942.
Regraded Unclassified
STATEMENT NO. 25
MOST SECRET
123
AIRCRAFT DESPATCHED FROM THE
UNITED STATES DURING WEEK
ENDED MARCH 17, 1942
FLIGHT DELIVERED
DESTINATION
ASSEMBLY POINT
BY SEA
BY AIR
FOR USE IN CAN.
TPE
11
U.K.
U.K.
58
recobra
117
U.K.
U.K.
1
17E
SM
Canada
66
I 50
Canada
SOLIDATED
U.K.
U.K.
2
"4D
1
Liberator II
CLAS
rensport (used)
Middle East
Port Sudan
10
TISS
tyhawk IA
Australia
Melbourne
18
,
U.K.
U.K.
2
,
Middle East
Port Sudan
6
20
U.K.
1
U.K.
ison III
Australia
Melbourne
23
125
Rudson AC 5
Canada
Canada
U.K.
U.K.
37
Budson AC 151
Lodester AC 53
Middle East
Port Sudan
5
Transport (used)
Middle East
Port Sudan
21
U.K.
Canada en route
1
sture Bomber
NH MARTIN
timore
Middle East
Port Sudan
10
RCHILD
9
U.K.
U.K.
8
TH AMERICAN
stang
U.K.
U.K.
10
AARMAN
1
27
Canada
Canada
78
193
TOTALS
135
*
These represent cumalative totals of freight delivered
Lend Lease figures Aircraft which have not previously been incorporated.
Future lists will show weekly deliveries in the normal manner.
British Air Commission
March 19th, 1942.
Regraded Unclassified
124
C
0
P
Y
DEPARTMENT OF STATE
WASHINGTON
March 19, 1942
In reply refer to If
840.51 Frozen Credits/5571
The Secretary of State presente his compliments to the
Honorable the Secretary of the Treasury and transmits here-
with a copy of the paraphrase of telegram no. 1487, dated
October 14, 1941, from the American Embassy at Rio, concern-
ing the refusal of the Argentine Central Bank to pay to a
third party an amount of $1,200,000, the purchase price of
the S.S. Olovsborga received by Finland from Lloyd Brasileiro.
There is also enclosed a copy of telegram no. 670 dated
March 3, 1942, from the American Embassy at Rio, concerning
an inquiry received from Herman Hollander, New York City, by
the Bank of Brazil, as to whether or not the 19,000 contos
resulting from the sale of the above-mentioned ship can be
used for the payment of certain commodities for shipment to
the United States.
Enclosures:
1. Copy of paraphrase of telegram
no. 1487, October 14, 1941.
2. Copy of telegram no. 670,
March 3, 1942.
Regraded Unclassified
125
PARAPHRASED TELEGRAM
FROM: Rio de Janeiro
DATE: October 14, 1941
NO.: 1487
Information from a reliable source has come to the
Embassy that the Finnish freighter Olovsborga, presently
at Montevideo, has been bought by the Lloyd Brasileiro
for $1,200,000. The vessel will be paid for in dollars,
milreis, and Argentine pesos. The Finnish Minister at
Rio de Janeiro suggested that payment be made to a third
party but the Argentine Central Bank refused and delivery
is held up pending settlement of this point.
COPY:FF:BM
Regraded Unclassified
126
ELP
Rio
This telegram must be
paraphrased before being
Dated March 3, 1942
communicated to anyone
other than a Governmental
Rec'd 10:55 p.m.
agency. (BR)
Secretary of State,
Washington.
670, March 3, 6 p.m.
Bank of Brazil has received a telegram from Herman
Hollander, New York City, inquiring whether the 19,000
contos resulting from the sale of the Finnish ship
Olovsborg to the Lloyd Brasileiro (my telegram 1487,
October 14, 1941, 3 p.m.) can be used for payment of
hides, skins, diamonds, cotton, for shipment to the United
States.
The funds are on deposit in the Bank of Brazil in the
name of the Finnish Legation here. The Bank of Brazil will
inform Hollander that he must obtain a license from the
United States Government. The bank is not interested in
accepting the proposal.
Inform Treasury.
Caffery
KLP
Copy:vw:3-20-42
Regraded Unclassified
127
March 19, 1942.
Mr. Livesey
Mr. Districh
Will you please send the attached cable to the American Embasay,
Chungking, China:
"To Adler from Fex."
Regraded Unclassified
128
20 CHUNGLING, CHINA
you NOI
REFERENCE TO 27-21 DATED MARGH 14, 1942.
AMERICANT TO GENERAL LICENSE hg ISSUED 23, 1942,
UNBLOGES ACCOUNTS OF CHINESE NATIONALS RESIDING IS THE UNITED
STATES or FEBRUARY 23. 1942. PROVIDED THE ACCOUNTS or suaz
NATIONALS VERB NOT BLOCKED FOR ANY HEASON OTHER THAN DOMICILE.
RESIDENCE, OR CITIZENSHIP IN & BLOCKED COUNTRY SINON THE EXVEROTIVE
DATE OF THE ORDER. THE PERSONAL ACCOUNTS OF OFFICIALS THO
RESIDED IN THE UNITED STATES OF FEBRUARY 23, 1942, ARE NOV UNRLAGENE
UNDER GENERAL LIGHTSH 42. THE OFFICIAL ACCOUNTS OF SUGH CHINRAH
OFFICIALS HAVING IIII WERLS CHED UNDER GENERAL LICHNSE 60.
THERE IS X REQUIREMENT AS TO DATE VERY NUMBER have
REGUE. ORINESH WEO TAKE UP THEIR ERSIDENCE IN TEE UNITED
STATES AFTER FEBRUARY 23, 1942, MAY MAKE SPECIAL TO
HAVE THEIR ACCOUNTS UNELOCKED.
FOR YOUR INFORMATION, GENERAL LICENSE hg ENQUIRES TX3 ELOCKING
03 ACCOUNTS OF ANY PERSONS VIID ENTER 1 BLOCKED COUNTRY APPER
FABRIIARY 23, 1942.
IDP/573 - 3/19/42
Conv:vw:3-19-42
Regraded Unclassified
129
TELEGRAM SENT
NMC
March 19, 1942
This telegram must bE
peraphrased before being
6 p.m.
communicated to anyone
other then E. Governmental
rgency. (BR)
MEMBASSY,
CHUNGKING (CHINA) VIA N.R.
191
To Adler from Fox.
QUOTE. Your TF-21, March 14.
Amendment to General License 42 issued Fabruary
23, 1942, unblocks accounts of Chinese nationals
residing in the United States of Februrry 23, 1942,
provided the recounts of such Chinese nationals
were not blocked for any reason other then domicile,
residence, or citizenship in c blocked country since
the Effective date of the order. The personal accounts
of Chinest officials who resided in the United Strtes
on February 23, 1942, are now unblocked under General
License 42, the officirl accounts of such Chinese
officials having been unblocked under General
License 60,
There is no requirement ES to date when residence
must have begun. Chinese nationals who take up their
residence in
Regraded Unclassified
130
-2- #191, March 19, 6 p.m., to Chungking
residence in the United States after February
23, 1942, may make special applications to have
their accounts unblocked.
For your information General License 42
requires the blocking of accounts of any persons
who Enter f. blocked country ofter February 23, 1942.
END QUOTE.
WELLES
ACTING
(FL)
FD:FL:BMcB
Regraded Unclassified
131
DM
Ciuded Trujillo
This telegrom must bE
peraphrosed before being
Dated Morch 19,1942
communicated to anyone
other than ( Governmental
Rec'd 7:12 pam.
agency. (BR)
Secretary of State,
Washington.
96, March 19, 5 p.m.
Local Axis personnel departed today for
NEW York on stermship NY/.SS/. bearing srfe conduct
of this mission in respect of their persons and
baggage. The following individuals WEIE embarked:
Mario Porte, Itelien Minister; Ethel Portn, wife
of Itelian Minister; Alberto Villa, Employee of
Italian Legation; Lidia Villa, wife of Alberto
Villa; Prole Maria Ville, doughter of Alberto
Villa; Hans Felix Rohracke, German Minister;
Ursuln Rohrecke, wife of German Minister; Hermann
Barkhausen, German Consul; Nelly Borkhausen, wife
of German Consul; Jonchim Barkhausen, son of
Garmen Consul; ..ugust Lehnert, Consular secretary
at German Legrtion; Krrl Wilke, servent of Germen
Legation; Kerl Hertel, under the protection of
German Legotion.
The following sums cre being taken from the
Dominican Republic by the persons indicated under
the authorization of the Foreign Office: German
Minister
Regraded Unclassified
132
-2- #96; March 19, 5 p.m.from Ciudad Trujillo
Minister $2500; Lehnert $800 to $1000; Barkhausen
$1500; Hertel $250, Italian Minister $5000;
Villa $1500.
LAWTON
KLP
Regraded Unclassified
133
EJ
PLAIN
Quito
Dated March 19, 1942
Rec'd 10:31 p.m.
Secretary of State,
Washington.
216, Nineteenth,
FOR H.RRY WHITE FROM GLASSER.
I hope Friednan will come as soon as possible.
My family must leave before April 15 but I shall
avait him and remain in Quito as long as is advisable
to assure Friedran a successful start,
LONG
JRL
Regraded Unclassified
134
Narch 19. 1942
Mr. Livesty
D. V, Bell
will you please cost the fellowing tolegram to the American Commulate
General, Capatova, South Afries, as reply to its No. n. March 17. 3 p.m.
"Tree Treasury.
1. Please have consular officer prosent at time South African
Reserve Bank wraps currency to observe that halves, with . copy of
list enclosed, are separately passaged and that the pastages are
conled. Upen receiving the bank's statement that the currency has
been est in half, that the - of the bank expeare ea sach half
of the currency, and the amount of surrency is each pestage, the
seasular officer sea then Issue to the bank a receipt for the 087-
ready. The receipt gives by the efficer should stipulate
that the currency Le subject to event, verification, and emalisation.
2. the General is authorised to store the ovaled
poskages is the vault of the South African Receive Peak pending
delivery to the Post Office just prior to the sailing of the earry-
lag vessel.
3. It is not assessary that the currency be shipped W diplo-
matte presh,
4. 431 other instructions contained is tolegram No. 11, Televery 9.
, D.M., should be followed."
telegram No. 11, February 9. , p.a., - addressed to the American Legation,
Rate to Nr. Livergy I should like to bring se your situation that
Proteria, the abounge to which - are replying we sest by the incrican
01/42/19/42
Commulate General, Capatorn. - F.D.
Regraded Unclassified
135
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Consul, Mossow, Union of Seviet
Socialist Republics.
DATE: March 19, 1942, 11 a.m.
NO.: I 74.
The following is a secret message.
The shipment referred to in my telegram No. 73 is
being made on the Kenya today.
THOMPSON
Regraded Unclassified
TREASURY DEPARTMENT
136
INTER-OFFICE COMMUNICATION
DATE March 19, 1942
TO
Secretary Morgenthau
PROM
Mr. Districh
CONFIDENTIAL
Registered sterling transactions of the reporting banka vere as follows:
Sold to commercial concerns
£44,000
Purchased from commercial concerns £16,000
Open market sterling remained at 4.03-3/4. with no reported transactions.
On the appearance of the Post Office as a buyer of Canadian dollars, that
currency continued its recovery. closing at a discount of 12-7/16% as compared
with Tuesday's low of 13-3/8%. It was reported that the Post Office purchased
et much 9.6 300,000 Canadian dollars, and it WAS believed that this was in addition
to the 500,000 which the Post Office was looking for last Monday.
In Sev York, closing quotations for the foreign currencies listed below
were as follows:
Argentine peso (free)
.2369
Brazilian milreis (free)
.0516
Colombian peso
.5775
Mexican peso
.2064
Uruguayan peso (free)
.5295
Venesuelan boliver
.2815
Cuban peso
3/16% premium
le sold $1,347,000 in gold to the B.I.S., which was earmarked in B.I.S.
account No. 2. Gold in this account is the property of that bank.
The Federal Reserve Bank of New York reported that the Bank of Mexico
shipped $323,000 from Mexico to the Federal for its account, for sale to the New
Tork Assay Office.
In London, spot and forward silver remained at 23-1/2d, equivalent to 42.67#-
The Treasury's purchase price for foreign silver was unchanged at 35#.
Handy and Harman's settlement price for foreign silver was also unchanged at
35-1/84.
We made no purchases of silver today.
R
Regraded Unclassified
137
Copy No. 13
BRITISH MOST SECRET
(U.S. SECRET)
OPTEL No. 92
Information received up to 7 A.M., 19th March, 1942.
1, MILITARY
LIBYA. 17th. Enemy activity greatly reduced. Enemy columns
now withdrawn from the TMIMI area.
BURMA. Enemy parties are reported to have landed from boate
on 15th South of MONYO and to have withdrawn later.
2. AIR OPERATIONS
MEDITERRANEAN. 17th/18th. Swordfish obtained one torpedo
hit on a 2,000-ton merchant vessel east of TRIPOLI, The vessel was left on
fire. One of our aircraft 18 missing. Another attack was made on two escorted
north bound vessels south of LAMPEDUSA, The larger one of about 7,000 tons
was hit by one and possibly two torpedoes.
AUSTRALIA. 16th, 14 enemy bomburs attacked PORT DARWIN
aerodrome, About 100 bombe were dropped, causing considerable damage to
buildings.
Regraded Unclassified
Copy No. 13
138
BRITISH MOST TECRET
(U.S. SECRET)
TEL lice 93
Following is supplementary resume of operational events covering the
period 12th to 19th March, 1942.
1. VAVAL
The sain Japanese Fleet 1e presumed to be In home waters. Nearly all
its Cruisers and light craft have been detached to other areas. Several units of
the Southern Floot appear to have returned to JAPAN and the remainder are in the
Malayan Aroa, A Naval force is consolidating the various bases established or
taken over in the JAVA SEA area. The only unit known to be operating in the
PHILIPPINES area is one Flotilla of 4 Destroyers. The operations in NEW GUINEA
are being carried out by the 4th Fleet whose strength, with reinforcements from
the nain Floet, estimated to be 4 8-inch Cruisers, 2 6=1nch Cruisers, 2 5,5
Gruisers, 2 Seaplane Carriers, 2 Aircraft Carriers, 8 Destroyers and 9 Submarines,
But considerable damage 1a reported to have been inflicted on this Fleet by
Allied Aircraft between 10th and 20th March, 4 Cruisers and 3 Destroyers are re-
portod to have been sunk but individual ships have not been Identified, Following
french Naval units are believed to be in MADAGASCAR: Two Armed Merchant Cruisers,
one Sloop, one Naval Tanker, 6 or 7 Submarines.
Shipping losses were again heavy owing to submarine attacks in the Rest
Atlantic and West Indies where the main U-boat concentration was located, out of
22 shipa attacked, 20 were in these localities. Other submerines were operating
in the North-Western approaches, off ICELAND and off LIBERIA. During the week
ending 18th, 887 ships wore convoyed, during February 3,848 ships were convoyed
of which only 8 vero sunk,
Importe into GREAT BRITAIN during week ending 14th amounted to 332,000
lons including 232,000 tons of oil,
ICLITARY
RUSSIA. The Russian efforts to destroy the encircled German forces In
the STARAYA RUSSA area continue. On many other sectors the Russians are exerting
Cout pressure under difficult conditions, and losses are likely to have been 20/-
diderable on both sides, Although territorial gains have been negligible, it 18
Important that the Germane have been given little respite.
NORWAY. There have been further indications of the strengthening of
coantal defences and 1% seems likely that from five to ten new coast-defence
battalions have moved into the country. The main garrison still remains at eight
Divisions.
Regraded Unclassified
- 3 -
BURMA. Cur recent limited offensive in the SHIETYIN area was carried
not in order to create a diversion while our main forces were withdrawing north-
wide from BANGOON, Heavy casualties were inflicted during the operation after
which our force withdrow to its former positions as pre-arranged,
SUMATRA. The Japanese appear to be completing the occupation of the
vihale Island, whilst in the NEW GUINEA aroa they are extending their operations
nactuards.
3. AIR OPERATIONS
WESTERN FRONT. Our boabers could only operate on two nights when a
total of 273 tons of H.E. and several thousand incondiaries were dropped, Main
objectives were COLOGNE and KIEL, Enemy activity against this country vas slight
and mainly confined to constal operations, Although our fighter oscorts to day-
bombers not large numbers of enery fighters over the CALAIS and DIEPPE areas, the
German fighter force in Northern France sooma to be being used with great economy,
MALTA. The Island was heavily raided by a total of at least 500 air-
craft. Aerodromos were cratered and several aircraft on the ground were doe-
troyed and others damaged, Our fightors word hampered by partially unserviceable
morodromes. Shipping amounting to about 9,000 toba was damaged by our Naval Tor-
pedo aircraft,
4. EXTRACTS FROM PHOTOGRAPHIC AND INTELLIGENCE REPORTS ON RESULTS OF AIR ATTACKS
ON ENEMY TERRITORY IN EUROPE
HULS. Although the last attack on the Chemical Yorks was on 28th/29th
December, photographs taken or 9th March show that the plant 12 not yet fully
sative and several cooling towers are not operating. Five gas holders have been
removed and new pipe lines are being constructed,
KIVI. A largo depot ship WAB hit end sunk on 27th/28th February.
POISSY. Photographe taken during the attack on Matford Vorks show
2000 hita on the main building, one on S subsidiary building and four among
parked lerries.
Regraded Unclassified
TREASURY DEPARTMENT
139
INTER OFFICE COMMUNICATION
DATE March 19, 1942
Secretary Morgenthau
TO
Mr. Kamarak
FROM
Subject: Vilitary Report: The Unknown British Victory
Submery
1. It only has become clear long after the event, that
the remulse of last year's German apring offensive against
must rank with the Battle of Britain as AR outstand-
10g Allied viotory.
2. Hitler has admitted, and Churchill's analysis agrees,
tast after the German victory over France, menacing Russian
silitary concentrations on Germany's eastern border tied down
A decisively large portion of the German air force. The
:raction of the air force available was not strong enough
to overwhelm British resistance and it was defeated in the
attemnt during the Battle of Britain, August-September, 1940.
3. Hitler then had two choices left.
A. To defent England by throwing in all his
naval resources in sn attempt to smash
her communications;
or 5. To crush repidly the Russian military forces,
to free his entire ermy and air force for
an invasion of England.
4. In the spring of 1941, Germany attempted to carry out
"Plan A" by using everything available, including all the mejor
units of her navy. British shipping losses mounted, but with
the American decision to patrol the western Atlantic and the
sinking of the Bismarck, Hitler clearly perceived "Plan A" had
failed. The only hope for an early Germen victory remained in
"Plan E, the invasion of Russis. Thus the repulse of the
Serman shipping offensive must be counted one of the greatest
Allied victories of the war.
Regraded Unclassified
TREASURY DEPARTMENT
140
INTER OFFICE COMMUNICATION
DATE March 19, 1942
Secretary Morgenthau
TO
Mr. Kamarck
FROM
Bubject: Military Report: The Unknown British Victory
By analyzing the information which has become available
only long after the event, it becomes evident that a year
850 the British won one of their greatest victories of the
war - 8, victory which ranks with the Battle of Britain of
September, 1940, but which has gone almost unrecognized.
This was the defeat of the Axis all-out offensive against
the British sea-borne lines of supply in the spring of
1941. The repulse of this Axis threat by three months
of hard fighting was obscured by the day-to-day spectacular
developments of the invasion of Yugoslavia and Greece, Yet
this British victory with American help was directly responsible
in forcing the Germans to invade Russie. It may well be
that future historians will name this battle as the turning
point of the war.
The events leading up to the Axis offensive against
shipping in the spring of 1941 are now fairly clear. After
the fall of France in June, 1940, Hitler offered peace
terms to the British. In spite of the fact that the small
British army had been practically stripped of weapons (there
being, for example, less than 100 tanks left in England
after Dunkerque), the British refused to make peace with
Hitler. The Nazis then began to prepare in their thorough,
methodical way, for an invasion of England.
At this point, a distraction arose. What happened
can best be described in the words of Hitler when he
reviewed Soviet-German relations on June 22, 1941, when
his troops crossed the Russian frontier.
Hitler declared:
"While our soldiers from May 10, 1940 on, had been
breaking Franco-British power in the west, Russian
military development on our eastern frontier was
being continued to 8 more and more menacing extent.
Regraded Unclassified
141
2
"From August, 1940, on, I, therefore, considered
it to be in the interest of the Reich no longer
to permit our esstern provinces, which moreover
had already been laid waste 80 often, to remain
unprotected in the face of this tremendous con-
centration of Bolshevik divisions.
"Thus there resulted British-Soviet Russian
cooperation, intended mainly at the tying up of
such powerful forces in the East that radical
conclusion of the war in the West, particularly
as regards aircraft, could no longer be vouched
for by the German high command.'
(Emphasis mine, A.M.K.)
Churchill's analysis of the causes of the Jerman invasion
of Ruasia 18 similar. He said in his speech on June 22, 1941=
"There 18)
one deeper motive behind his (Hitler's)
outrage. He wishes to destroy the Russian power
because he hopes that if he succeeds in this he
will be able to bring back the main strength of his
army and air force from the east and hurl it upon
this island, which he knows he must conquer or
suffer the penalty of his crimes.
"His invasion of Russia is no more than B. prelude
to an attempted Invasion of the British Ieles,"
We cen see now that what happened in the summer of 1940
W&B that the concentration of Russian troops and airplanes on
the Oerman eastern frontier pinned down 8. decisively large
portion of the German army and air force. Hitler, nevertheless,
attempted to smash the Royal Air Force as & preliminary to
invasion, with the remaining available fraction of his air
force. During the Battle of Britain in August and September,
1940, the Royal Air Force completely defeated this attempt.
The Cermans in the fall and winter of 1940-41 were,
therefore, confronted with two alternative plans which might
win the war. With American eirplanes flowing into England,
even if in small numbers, and with the experience of the Battle
of Britain behind him, the possibility of destroying the
British Air Force with 8 part of the German Air Force could
not be counted on. Hitler's choice then was between:
Regraded Unclassified
3
142
A. An attempt to defeat England by a policy
of blockade, using his naval forces which
were completely available for this purpose.
or
B. An attempt to destroy the Russian threat
and then, as Churchill said, "bring back
the main strength of his army and air
force from the east and hurl it" upon
England.
Probably the decision was made to give "Plan A" a good
try and 1f It failed, to adopt "Plan B". The defeat of "Plan A"
by the Sritish with American help in the spring of 1941 left
the Germens no alternative but to crush the Russian military
forces with sudden surprise attack, if the Germans wished to
bring the war to an early end.
As 1s customery with German offensives, Hitler opened the
offensive against British shipping with a speech on February
24, 1941. He announced on that day:
"Our fight on the sea can begin only just now."
IT (The Allies)
will know what has been going
on. They will know shortly when our new types
of submarines are going to be brought into the
expanded warfare. They will find out in March
and April what Derman-Italian submarine coopera-
tion will mean to them."
The Germans did give "Plan A" & thorough try. The offensive
against shipping went all-out. Increased numbers of submarinea
preyed on convoys. Long-range bombers were sent out in attacks
on shipping. The bulk of the German navy was thrown into the
battle, The two battle cruisers, Scharnhorst and Gneisenau,
were sent out in March. The Bismarck and a heavy cruiser,
Prinz Eugen, were sent out in May. The only major unit of
the Jerman navy not in action was the Tirpitz, which may not
have been ready yet for operations.
The Cerman offensive did meet with some successes, but
judged as B. whole, It failed. Shipping losses increased
sharply, but not enough to secure decisive results. Sinkings
Increased from 260,000 gross tons in January to 380,000 In
February, to 550,000 in March, and reached the highest point
of the war, 650,000 tons in April. Not all of the April losses
were due to the German shipping offensive, a large part
resulting from the evacuation of Greece, In May, in spite of
Regraded Unclassified
4
143
the evacuation of Crete, losses fell to 520,000 tons; in
June, 420,000 tons were lost and, with the Russian campaign
in rull swing, in July, losses fell to B. neglizible 130,000
tons.
The resources of the British were strained to the utmost
to meet the threat. The Scharnhorst and Gneisenau were
hunted into Brest in March Churchill, then, we were informed,
over the protests of the R.A.F., concentrated the entire
bomber force of the R.A.F. on Brest and successfully kept
the two commerce raiders out of action.
The United States helped, perhaps decisively. On March
11, Lease-Lend became law, making completely available
American shipbuilding resources to the British, On March
30, several hundred thousand tons of Axis and Danish shipping
immobilized in American ports, were seized. And, on April 30,
the United States took a step which the Nazie must have
realized at once definitely doomed their of fenaive to failure:
President Roosevelt announced that the American navy would
patrol the sea in the American defense zones, An immense
burden was lifted off the British navy. It could give In-
creased protection to shipping near England. At the same
time, Axis submarines had to abandon the western Atlantic
8,9 scene of operations, or run the risk of bringing the
United States into the war - e risk Hitler WES not willing,
u.s. yet, to take because of his hopes of an early victorious
end to the war.
The German High Command claimed to have destroyed over
1,000,000 tons of shipping in April, If this had actually
happened, England would soon have been forced to her knees.
That the Germans did not believe their own claims 18 evidenced
by the fact that preparations to put in effect "Plan B", the
invesion of Russis, began to be made. On May 10, Hess para-
chuted to earth in Scotland, undoubtedly bearing peace pro-
Docals designed to take England out of the war while Russia
WAS being finished off. The last b1g bombing raid on England
occurred on May 14 and, after that, the German Air Force
began to move towards the East. Throughout May, we received
reports of the movement of German troops to the Russian
frontier. In the third week of May, one last desperate attempt
WAS made against British shipping: the pride of the German
navy, the Biamarck, was sent out to attack commerce, The
Regraded Unclassifie
144
- 5 -
sinking of the Bismarck on May 27 by the British Navy
must have finally convinced the Germans that "Plan A"
had failed and that "Plan B", the invasion of Russia,
must be tried. S1x days later, on June 2, Hitler met
Mussolini at the Brenner Pass and undoubtedly informed
him of the decision taken. On June 22, German troops
crossed the Russian frontier, and "Plan B" was given
its trial.
Regraded Unclassified
144
- 5 -
sinking of the Bismarck on May 27 by the British Navy
must have finally convinced the Germans that "Plan A"
had failed and that "Plan B", the invasion of Russia,
must be tried. Six days later, on June 2, Hitler met
Mussolini at the Brenner Pass and undoubtedly informed
him of the decision taken. On June 22, German troops
crossed the Russian frontier, and "Plan B" was given
its trial.
Regraded Unclassified
145
UNITED STATES GOVERNMENT
DELDINATOR
COORDINATOR OF INFORMATION
SECRET -
WASHINGTON, D.C.
March 19, 1942
The Honorable Henry A. Morgenthau
The Secretary of the Treasury
Washington, D. C.
Dear Henry:
The following is a summary of
the Weekly General Directive issued by
the British Ministry of Political Warfare.
Sincerely,
Biu
William J. Donovan
Regraded Unclassified
145
UNITED STATES GOVERNMENT
INSURANCE DIE REPARTMENT
COORDINATOR OF INFORMATION
SECRET
WASHINGTON, D.C.
March 19, 1942
The Honorable Henry A. Morgenthau
The Secretary of the Treasury
Washington, D. C.
Dear Henry:
The following is a summary of
the Weekly General Directive issued by
the British Ministry of Political Warfare.
Sincerely,
Bill
William J. Donovan
Regraded Unclassified
SECRET
Policy:
(a) AVoid reference to Japanese threat to Russia
in Far East.
(b) Avoid reference to Japanese threat to Madagascar.
Strategy:
(a) Russia: Due to marked Russian progress, in
several sectors promising situations seem to be developing.
The cutting of the Leningrad-Novgorod railroad increases
the threat to German positions south of Moscow. The cap-
ture of Dorogobush by parachute troops and partisons pro-
vides an important point of origin for Russian advance
south of Vyasma. Stress Russian counter offensive continues
with increased violence and that German counter attack has
not been successful on any part of extensive front. Inquire
why German communiques made no reference to the plight of
H large portion of the 16th Army cut off and surrounded
near Staraya Russa or why they failed to acknowledge
Russian capture of elaborately fortified stronghold of
Yukhnov.
(b) Far East.
(1) Java, Japanese completed conquest of Java
where allied forces received no reinforcements after attac)
started. Lack of aircraft made it impossible for inferior
allied forces to rest or regroup, thus hastening the col-
lapse of organized military resistance.
(2) Timor. Imperial troops are still waging
bush warfare in the interior.
(3) New Guinea. Salamoa and Lae now in hands
of the Japanese. The Japanese objective 1s capture of
Port Moresby and domination of Torres Straits.
(4) Burma. Our forces are falling back slowly
on Prome. The Japanese are also advancing northward to-
ward Toungoo. A Chinese division has arrived just north
of Toungoo. Other important Chinese units are In the vicinity
of Maymo and moving southward from Lashio.
Regraded Unclassified
Propaganda Policy.
SECRET 147
/ a :
We must not permit our European audience to feel
/
that we are discouraged by Japanese successes or we have
lost our grip on situation. Demand is for efficiency,
equality of sacrifice and ruthless treatment of everyone
who acts in a manner contrary to the public interest. We
must convince Europe that we are as much a part of that
continent as we felt ourselves to be in the dark days of
1940. Our influence on Europeans is dependent upon the
conviction we can inspire in them that our thoughts are
not overseas in oceans and lands strange to their minds
and needs.
Regraded Unclassified
148
NUMBER 23
SECRET
COORDINATOR OF INFORMATION
THE WAR
THIS WEEK
March 12-19, 1942
GUAM
OPERIOFF UNITED OREGON
Printed for the Board of Analysts
Copy No. 6
the Secretary of the Treasury
Regraded Unclassified
MARCH 12-19, 1942
SECRET
Coordinator of Information
THE WAR THIS WEEK
Although military activity is by no means entirely lacking,
virtually all fronts in the war have entered a period of pause.
With the fall of Java, the Japanese are consolidating their
position in the Netherlands Indies, preparing to launch a
fresh offensive in the Melanesian area, readying their forces
for a final test in Burma, and laying a course for the future
among the great strategic alternatives which now face them.
China is girding for defense and hastening to knit more closely
her military relations with the United States. In Australia
the Allies are rapidly preparing for the anticipated Japanese
attack, and the gravity of the situation has been emphasized
by the despatch thence from Bataan of General MacArthur.
Finally, India awaits with anxious forebodings the solution
which Sir Stafford Cripps is bringing.
The west, too, is passing through a period of anxious
pause. The Mediterranean is literally a sea of rumor, with
vigorous preparation continuing and early action predicted
in one or more of at least three areas. Even the Russian
front seems now to have been substantially stabilized, and
recent Soviet "drives" appear to be little more than fencing
for position before the threatened German counter-offensive
begins.
Japanese Strategic Alternatives
During the current pause, it appears particularly appropri-
ate to survey the crucial strategic alternatives which Japan
now faces. Five principal areas invite her attack: Melanesia,
1
Regraded Unclas
SECRET
SECRET
Burma, India, Australia, and eastern Siberia (with the pos-
divisions. Port Darwin has also been heavily bombed again,
sibility of an assault on Alaskan bases always present),
and the two strategic islands off the northern tip of Cape
Japan lacks resources for simultaneous attack on all: her most
York (Thursday and Horn) have been attacked for the first
serious limitations are in shipping and aircraft.
Current evidence strongly points to quick and probably
time. In the interest of interrupting Allied supply lines, it is
successful campaigns of limited liability in Melanesia and
possible that the Japanese might attempt to extend the
Burma, which are in 25 special category. They can be reduced
Melanesian shield either to New Zealand or eastward to the
simultaneously, probably quickly, at relatively low cost, and
important strategie centers at Suva, in the Fiji Islands, and
with decisive advantages for the Japanese.
Tutuila Island, in the Samoan group. A move in this di-
rection would keep Japanese operations relatively close to
long-prepared bases in the Marshall Islands. If success-
The Conquest of Melanesia
ful, it would thrust the Allies back upon the Free French
Melanesia (with the essential complementary bases in
Society Islands, or perhaps force our lines to Australia to
akirt the southern Pacific in a gigantic semi-circle, in which
northern Australia) would give Japan 24. strong defensive
case the ferrying of bombers would be impossible and sailing
shield for the Indies. Its conquest would make possible
time to Australia would be nearly doubled.
interruption of American communication lines to Australia,
Melanesia is the essential screen and base for a possible
assault on southeastern Australia. The nickel of New
The Conquest of Burma
Caledonia is important for the Japanese war effort.
Japan's objective in Burma is to cut the last practicable
The Japanese can make heavy aerial assaults on northern
land route from India to China. That step would isolate
Australian bases: Port Darwin has already been seriously
China from Anglo-American supply, except for the unde-
damaged. Landings would probably be less difficult than
veloped possibilities of supply by air. Japan hopes thus to
corresponding operations in Java. With northern Australian
win peace with China through the appeasers in Chungking,
bases in hand, operations in the northern islands of Melanesin.
China's armies now hold 500,000 Japanese troops in China,
would be safer than at present. These islands could be taken
and peace would release a large part of these for action
in order, one by one, Short of New Caledonia the Japanese
elsewhere. The increasing number of Americans serving on
would probably encounter no difficulties more serious than
Chinng's staff, however, would hardly indicate that the
they have overcome to date.
Generalissimo himself envisages appeasement, even if China
Current Japanese activity bears out the view that the
is isolated.
Melanesian shield is their immediate objective. Port Moresby
Japan can send large reinforcements into Burma, if needed.
has been repeatedly bombed, a Japanese force is reported to
Military observers have already revised upward from two to
be moving overland from Lae, and a direct attack on Moresby
six their estimate of the number of Japanese divisions operat-
is believed imminent. It is estimated by military observers
ing in Burma (with two air organizations of 300 planes each)
that Japanese forces in this area have been increased to two
2
3
Regraded Unclassified
SECRET
SECTURY
The Japanese are reported to have organized substantial units
and are already operating out of Penang. An early attack
of a "Free Burma Army" (of doubtful value), and fifth column
on the Andaman Islands is suggested both by their strategic
activities and sabotage are said to be hampering the British.
location and by current activities of the Japaneso. Air
Newspaper reports, however, suggest that the British are
raids from Burma could be used to demoralise the civilian
now being steadily reinforced by Chinese troops, equipped
population and disrupt the economic life of the congested
with lend-lease arms. The British have taken up positions
industrial area in and near Caloutta. Even & naval coup,
for the defense of Mandalay along a line which is roughly an
aimed to seize and hold Ceylon, is by no means beyond the
extension of that already held by the Chinese-Tharrawaddy.
realm of possibility.
Toungoo-Southern Shan States. Here a lull in the fighting
probably represents a considerable reorganization and rein-
forcement on both sides.
Australia and Siberia
Both Australia und Siberia appear to be alternatives
Indía as a field for conquest
distinctly more attractive to Japan than India. Australia
India would be an easier conquest than Australia. But
at the moment is the most important Allied base in the Far
India has much less to offer the Japanese. India's resources
East. Australia could be used us a base for the eventual
are not essential to Japan's war effort. India is a less
reconquest of the Far East. Japanese interests demand the
attractive Allied base than Australia; hence Japan has less
destruction of this base before it becomes stronger.
renson to deny it to the Allies. The conquest of India
Despite the great distances to southeastern Australia and
would dissipate Japan's limited resources, more needed else-
Japan's limitations in shipping and aircraft (see The War
where. Japan's extended lines of communication might be
This Week, March 5-12, pp. 5-7), it is believed very likely
cut by an Allied counter-offensive in the Singapore area. If
that the Japanese will launch an offensive against the main
Japan wins the war, she can probably acquire Indía with
defenses of Australia in the near future. It would be unsafe,
relative ense. For the present then India is probably to be
however, to attribute too great rigidity to Japanese plans,
viewed as an objective of secondary rank.¹
It in perfectly possible that Japan's own military leaders have
The Japanese will, however, doubtless seek limited objec-
yet to make their final strategic choice. Even if that choice
tives in the Indian strategic area. Japanese submarines
is Australia, the discovery of unexpectedly heavy Allied
could interfere seriously with shipping in the Bay of Bengal
reinforcements on that continent or the incurring of exception-
ally heavy losses during the conquest of Melanesia might
The journalistic discussion of Japan and Germany "meeting" in
India is not to be taken seriously. There is no communications
well prove an effective deterrent. It is obvious that the
system in the area west of India which would permit overland move-
Japanese cannot afford & series of such devastating losses no
ment of a German army, A» to a naval "meeting," the Japanes
those recently visited on them at Salamaua and Lae by
would scareely risk any considerable part of their capital-ship fleet
American and Australian air forces.
in the Indian Ocean 66 long ne the United States Pacific fleet in
in being.
5
Regraded Unclassified
SECRET
SECRET
The Australians ARK for MacArthur
There are other reasons of considerable weight favoring an
The seriousness of the Japanese threat is emphasized by
early attack on Siberia. The maximum Russian confusion
the despatch to Australia of General Douglas MacArthur at
would result from a Japanese attack coordinated with a
the request of the Australians themselves. General Mac-
Nazi offensive in the west. Russia would probably be forced
Arthur is to assume command of the land, sea, and air forces
to send large reinforcements to the east, and might very well
of the United Nations in the southwestern Pacific and is to
collapse under the strain of a two-front war. The Japanese
make preparations for the anticipated Battle of Australia.
are drunk with success and may strike out of sheer confidence.
At the same time Prime Minister Curtin has announced
The Kwantung Army may take the bit in its teeth and attack
that his Minister of External Affairs, Mr. Herbert V. Evatt,
at any time-it has been known to do 80 in the past. Weather
will come to this country to discuss the conduct of the war
conditions also heavily favor a Japanese attack in early
with American officials. Close observers of Australian polities
spring (see Appendix I).
describe Minister Evatt as one of the brainiest men in the
Japan enjoys other general advantages for a Siberian cam-
Labor Party and also one of the most ambitions, He is an
paign. It would tax her shipping only very moderately.
exponent of an independent foreign policy for Australia and
She already has large stores in Manchuria. Much of her air
is believed to be responsible for the strong and independent
force could operate against Russia offensively, while based in
line Australia has taken recently in foreign affairs,
Japan proper and hence in a position to defend the homeland.
Although Russian and Japanese forces on the Siberian fron-
tier are reported to be about equal now, the Japanese have
large reserves quickly available in North China and in Japan
The Siberian Alternative
itself.
The fifth Jupanese choice is an attack on eastern Siberia.
And yet, despite all the advantages of an early attack,
Rumors have been rife that such an attack would be launched
it seems very likely that the Japanese will wait. On the one
in April. And it is to be noted that Tokyo Radio, abandon-
hand, H simultaneous attack on Australia and Siberia would
ing previous tactics of avoiding broadcasts directly offensive
place a very severe strain on Japanese resources-above all
to the Soviet Union, is now frankly disseminating anti-
on her air power. On the other hand, the Japanese will reap
Bolshevist propaganda. The Tokyo "line" is almost identical
important advantages from waiting until the European soene
with that of Rome and Berlin.
is clarified. If the Germans push the Soviets toward defeat
At present the Russian Army is the bulwark of the Allied
this summer, the Japanese could then attack a weakened
cause in the Eastern Hemisphere. If the Germans and
Russia and probably free themselves once and for all from
Japanese can destroy it, they can win the war there. That
this potential menace. Even if the Russians show signs of
is the principal argument for a Japanese attack on Siberia.
being successful in Europe, Japan might still (and should
After such A defeat, Allied forces could not afford to leave
logically) attack before this enhanced Russian power mate-
themselves exposed in Australia: the Japanese could then
rializes in an assault on the Japanese.
conquer Australia at a much lower cost than now.
6
7
Regraded Unclassified
SECRET
SECTUT
China Girda for Defense
bacilli over the city. Although the New York Times edito-
Chinese determination to maintain the Burma lifeline has
rially ridicules this story, it cannot so easily be thrown out of
been apparent in & series of conferences between Chiang
court, according to a close observer of the Chinese scene.
Kai-shek and other members of the Allied high command.
Dr. Robert Lim of the Chinese Red Cross flew to Ch'ang-te
On March 3, the Generalissimo flew from Kunming to Lashio
and conducted autopaies confirming the presence of plague.
for a secret meeting with General Wavell. Then, after
"It is my belief," he stated to the press, "that the Japanese
seeing Chinese commanders in Burroa, be returned to
thus far have been experimenting in China and it is my firm
Chungking, where he conferred with his new chief of staff,
conviction that Japan is planning large-scale bacteriological
General Stillwell. The latter, in the phraseology of the
warfare
especially when things start going wrong for
Chinese press report, "received Chairman Chiang's com-
her."
mand" to inspect the Burma Road area, and immediately
Those who know Dr. Lim will treat this opinion with
left for Burma by air.
respect, our observer continues. His father, Dr. Lim Boon-
Somewhat earlier, the Generalissimo and Madame Chiang
Keng, was a leading figure in the Chinese community of
had expressed their appreciation for American help by giving
Singapore, and Robert Lim was educated at Edinburgh and
n. banquet for the AVG. Madame Chiang, as honorary
became professor of physiology at the Peking Union Medical
commander of the AVG, struck the keynote of the evening
College. Since 1937 he has been the outstanding figure in the
when she declared, "I want you to leave on my people a
care of the Chinese wounded.
true impression of what Americans really are.
I should be very polite and say, 'Boys, you are just Perhaps grand."
Meanwhile Chungking military spokesmen warn that two
The Bose Brothers and the Indian Problem
Japanese divisions are massed in Formosa to invade the
On the Indian front the outcome of Sir Stafford Cripps'
Chekiang-Fukien coast, Some Chinese observers foresee a
three-way drive from Canton, Hankow, and Formosa to
mission was impatiently awaited and attention meanwhile
Was focussed on the eccentric activities of the Bose brothers.
bring under control the highland area within the south China
The two brothers-Subhas, now in Germany, and Sarat, in
coast, from which the Chinese have long hoped to use Amen-
Trichinopoly jail-are leaders of the so-called "forward
islands. can bombers against Japanese shipping and the Japanese
bloe," violently anti-British, and, in the case of Subhas, at
least, definitely pro-Axis. The American press atressed the
menage they represented as potential fifth column chiefs,
The Japanese Experiment With Germ Warfare
especially in the area about Calcutta where Subhas WBS
formerly mayor.
The Japanese are now charged by local Chinese authorities
Moderate observers point out, however, that with its leaders
at Ch'ang-te in northern Hunan with experimenting in germ
in jail the movement has little influence. Nor was there
warfare, According to this charge, Japanese aviators dropped
anything specific to prove that the Axis had subsidized the
packages containing fleas infected with bubonic plague
Boses, Furthermore, the effect of Axis radio propaganda,
8
9
Unclassified
SECRET
SECRET
such as Subhas' recent broadcast from & station near Berlin,
is impossible to judge. In the event of an invasion of Eastem
Middle and Far East. Practically all the men and supplies
Bengal-long & center of disaffection and disturbance-it is
going to Egypt, Eritrea, and Turkey, to the Caucasus and the
Russian front, to India, Burma and to China pass within two
possible that the Japanese could stimulate fifth column activ-
of three hundred miles of this one thousand mile long island.
ity in that region. Such actions would apparently be a
Moreover, a considerable part of south and east Africa
reflection of frustrated nationalist ambitions, however, rather
than efforts specifically to aid Japan.
would for the first time be brought within bombing range of
Axis fields. And the broadcasting facilities of "Radio-
Meanwhile, Mohandas Gandhi, after calling on Britain
Tananarive" would stand ready for a psychological offensive
to confess that her imperialism "has been the greatest crime
against India," presided over a meeting of the Congress
against the African Continent.
Party Working Committee. As elsewhere in India, the domi-
nant note on this occasion seemed to be anxiety as to the
Vichy's Reaction to British Pressure
exact content of the plan Sir Stafford Cripps is bringing.
As B clue to Cripps' proposals, there may be considerable
The British have long been pressing Madagascar to repu-
significance in the Viceroy's statement of his confidence that
diate the Pétain regime, but a blockade instituted in the early
the princes of India would "not hesitate to forego pre-
autumn of 1940 seems merely to have forced the country to
rogatives and privileges
full back on its own resources. Madagascar is more than
should they in any way im-
pede India's war effort."
self-sufficiont in foodstuffs; six or seven months ago there
were no serious shortages except in gasoline, most of which is
obtained from the United States. Economic stringencies are
Reviving Fears of Madagascar's Future
hound to develop, however, since more than 80 per cent of
While Vichy continues to assure official Washington that
Madagasear's normal foreign trade is carried on with France,
it has no intention of yielding control of Madagascar to the
although the Allies could probably excel the Axis in restoring
Japanese, anxiety over the fate of this strategic outpost of
the island's economic life.
the Indian Ocean area has by no means disappeared. Recent
A Free French or Allied occupation, such as has been
reports of Ger an and Japanese infiltration have merely
rumored, might not be difficult, even though Vichy is reported
heightened the concern expressed some weeks ago by General
rushing reinforcements from Dakar. The Malagasy natives
Smuts (see The War This Week, Jan. 22-29, p. 14; also Jan.
probably would be rather sympathetic than otherwise, and
29-Feb. 5, pp. 9-10).
the small English, Hindu, Chinese and Greek minorities
If Madagascar were to fall under the control of the Axis,
would doubtless welcome it. Inertia and economic consider-
giving the enemy a foothold at both ends of the Indian Ocean,
ations have hitherto kept the 25,000 French residents loyal
the interests of the United Nations would be very gravely
to Vichy, but there is thought to be Intent pro-Ally sentiment
menaced. Hostile submarines operating out of Madagasear's
both in the population at large and even among army officers.
two dozen harbors, and bombing planes using the half a
dozen improved airfields, could menace Allied shipping to the
10
11
Regraded Unclassified
SECRET
SECRET
The Fuehrer Reviews the War
assaying British opinion after a relatively short stay in
Hitler's Zeughaus address, while it stressed the hardships
England, stresses the declining morale of the British conse-
suffered in the Russian winter, was scarcely an admission of
quent on the removal-for the present, at least-of the
German defeat. Fundamentally, it was simply a reiteration
imminent danger of heavy Nazi air raids. The average man
of the old claim that the Nazis would defeat the Soviets this
feels that he has little or nothing to fight for, the report
summer. Its note of restrained gloom, while unexpected
continues. He is by no means sure that the war effort will
perhaps from the Fuehrer himself, followed the party line
produce a better world, and he does not anticipate any great
established by Goebbels this winter. Coupled with Von
change in the "post-war social order that would unsaddle the
Papen's reported statement that Germany must take the
elements that now dominate the country.
Caucasus this year or lose the war, it would appear to indi-
cate a growing conviction in Nazi official circles that unless
the war is won in 1942, it will drag out into a long and bitter
German Gains Through Occupation of Soviet Territory
defensive. conflict, in which Germany will be increasingly on the
The occupation of Soviet territory has brought to Germany
economic gains of some current value and large potential
Certain highly-placed American military observers believe
importance. A study prepared in the Coordinator's office
that the Russian advance has now come to a standstill. And
indicates that areas in Russia occupied by the Nazis and their
aside from a renewal of snowy weather on the central front,
Allies in the middle of February contained before the war &
the week's news has again been insubstantial. While the
population of about 73 millions, perhaps now reduced by to
Soviets predicted the fall of Kharkov, the Germans claimed
to 20 per cent through flight, war losses, etc. The area under
that they had repulsed Russian attacks on the Crimean
sultivation would normally be about 51 million hectares, but
peninsula with heavy losses, particularly in the Kerch area
the yield in 1942 may be one third or more below that of re-
cent years.
Anglo-Russian Crisist
The annual peace-time output, estimated at 18 million
Dispatches from London indicated, moreover, something
motric tons of coal, one million tons of manganese ore, and
of a crisis in Anglo-Russian relations. British official circles,
about 16 million tons of iron ore, has without doubt suffered
embarrassed by Stalin's claim for eventual annexation of the
nonsiderable reduction. The limited peace-time production
Baltio states, were reported to fear a separate Russo-German
of petroleum (about 500,000 metric tons) was probably
peace. And the Russian leader was said to be equally
affected only moderately by war conditions. But the pre-
suspicious of the intentions of Britain's ruling classes-par-
war production of pig iron (3.5 million tons), steel ingots
ticularly of their attitude toward Communism after the war
(3.4 million tons), and rolled steel (1.9 million tons), has been
is over,
considerably reduced.
In contrast to the fears of Britain's ruling classes, comes
Much more heavily hit, apparently, were the peace-
a report from a very reliable observer in London that Russia
time production of electric power (about 2,900,000 kilowatta),
now appears to eclipse in popularity all the other United
aluminum (32,000 tons), and machinery and metal products.
Nations. This report, while admitting the difficulty of
Finally, in the 34-thousand-odd kilometera of railways in
12
13
Regraded Unclassified
Securr
SECRET
the conquered area, the initial reduction in performance
ruack on Russia's Chief Supply Linet
caused by war conditions was probably more considerable
The escape of the battleship Tirpitz from British torpedo
than in any other branch of Russian economy-with the
bombers off Narvik and the closure of all Norwegian ports
possible exception of armament factories. On the other
from the North Cape to Aalesund may preface a German
hand, railway transport has probably profited more than any
effort to cut the best Allied supply lines to Russia by isolating
other Russian industry by German repair and reconstruction.
her northern ports. But the mining by the Nazis of Nor-
The report warns, however, that such tentative conclusions
wegian waters could equally well represent simply German
are often nothing more precise than "informed guesses."
Year of an Allied effort to open a second front in this area.
Nor can one ignore the effects on actual production of such
Continued reports of the strengthening of Norwegian garri-
factors as the defects of the transport system, the heavy
sons would hear out this latter conclusion.
strain of continued military activity, the disappearance of
The Swedish Ministry of Foreign Affairs has meantime
skilled laborers, technicians, and Soviet administrators, and
been at pains to point out that the confiscation of several
the general hostility of the population.
newspapers for printing atrocity stories about the Nazis was
In Soviet society, however, there are two elementa of some
simply a routine procedure which the government has also
sigo to which the Germans might perhaps appeal for coopera-
applied to the publication of similar items about the Red
tion in the construction of their New Order-those peasants
army. And the Swedish press has found the current rumor
who would still prefer individual farming to the collective
wave about a possible invasion by the Germans extremely
system, and those members of national minorities who hope
irritating; Sweden, it implies, would prefer to remain out of
for separation from the Soviet Union. To date the Nazis
the spotlight.
have fumbled badly in the handling of both. They have not
made even a pretense of setting up an autonomous Estnonia,
The Mediterranean Timetable
Latvia, Lithuania, White Russia, or Ukraine, And they are
Once again this week the Libyan front remained quiet.
apparently afraid either to maintain the collective system of
But with Rome claiming that Italian torpedo-carrying air-
agriculture in full vigor or to abolish it outright. In this
craft had hit three British cruisers in the eastern Mediter-
situation, the Nazis have been in the paradoxical position of
ranean. and with the American press darkly hinting that
trying to maintain an agricultural system which they have
Britain had lost control of the central Mediterranean, the
condemned, with the help of certain anti-collectivist peasants
outlook for the coming weeks is scarcely reassuring. Heavy
whose desires they have been unable fully to satisfy.
air attacks still rained on Malta, whose situation is becoming
In summary, the Germans have made efforts to restore and
increasingly difficult. Axis convoys continued to arrive at
effectively utilize their conquests-notably the transportation
Tripoli, and reinforcements were being steadily forwarded to
system of the occupied area-but their gains belong largely to
the future. The German press abounds in articles on the
Rommel. A highly-placed European observer warned that
Rommel would attack in force by March 20, and despatches
wealth of the Ukraine, but wisely assigns to some later date
the benefits to be realized.
from Cairo indicated that military circles there felt that the
weeks between March 20 and the middle of April would be
extremely critical.
14
15
SECRET
SECRET
For Turkey and Syria the period of alert would probably
hombed and shelled the Italian island of Rhodes. And
be somewhat later. Last summer the British and From
French did not strike in Syria until the hot days of June.
British diplomatic representatives seemed to be making a
Turkey is already being visited by a fresh war of nerves
substantial effort to conciliate Arab public opinion.
Reports from Ankara indicated that large German firms
represented there or in Istanbul have recently declined to
make either purchases or sales in Turkey. German Ambas-
The United Nations and the Arabs
sador Von Papen, it was said, had been recalled to Berlin,
Reports indicate that at & period when the Axis may be
but so far has been unwilling to risk the journey, It was
preparing a drive through the Middle East, British relations
reported that he had expressed himself as convinced that
with the Arab-speaking populations of that area have im-
Germany would lose the war if she could not reach the Cau-
proved somewhat. One observer has even maintained that
casus before next winter. Conferences at Sofia Between
the British are prepared to grant eventual Arab independ-
military and naval chiefs of Axis and Balkan nations Hug-
ence-with the sole reservation of certain strategic rights in
gested a possible offensive in southeastern Europe,
ports and railways,
Observers stressed the fact that, in the event of an attack,
This attitude on the part of the British has already borne
Axis landings could easily outflank Turkish defenders of
certain fruits. In Egypt Premier Nahas-a nationalist in
Thrace and the Straits. Some felt that the Nazis would
50 far as the peculiar lack of principles in Egyptian polities
launch such a drive only if a previous offensive in southern
gives any meaning to the term-has stated that the best
Russia were progressing satisfactorily. Others predicted
policy for his country is to keep faith with Britain. Saudi
that, after forcing the Straits, Axis uaval units would try to
Arabia is friendly-although British hopes of bringing that
attack Soviet defenses in the rear and directly threaten
country into the war appear to have been blighted. Certain
Batum, chief Caucasian oil port. Weather conditions might
British officials consider a declaration of war by Iraq probable.
permit such an offensive by April.
And in Syria and the Lebanon many of the nationalista seem
There appeared to be increasing doubt, however, as to
to be actually pro-British.
whether Turkey would notively resist a Nazi effort to force
This latter sentiment appears to reflect primarily the tenao-
the Straits. Symptomatic of a less favorable attitude toward
Ity of the Free French in maintaining their prerogatives
Britain was the report that Sir Stafford Cripps' recent decla-
under the mandate. While the natives maintain that the
ration on Russian frontiers had caused high Turkish officials
September and November proclamations of the de Gaullista
to suspect Britain's intentions toward their own country.
have terminated this regime, General Catroux seems to think
Simultaneously, other rumors suggested that attacks on
of the mandate as formally continuing until it shall be ended
Syria and Southern Russia would simply by-pase Turkey
by the League of Nations. Such legalistic squabbles, how-
north and south.
ever, appear to be only a facade for Catroux's distrust of
With the apparent intention of crippling a major base for
nationalist leaders and for Syrian dissatisfaction with en-
an Axis attack on Asia Minor, British naval and air forces
trunched French officials, whom they consider dishonest and
inefficient. Admittedly nationalist unrest is playing into the
16
17
SECRET
SECRET
hands of Axis propagandists. But the relations of nationalist
leaders with pro-Ally figures in Egypt and Saudi Arabia
of A Brazilian declaration of war. Brazil's reluctance to
hasten into war may be owing to the discovery that the army
would appear to indicate that the General may be mistaken as
in far from prepared to undertake effective military action.
to their intentions. Meantime, however, it is reported that
General Dutra is alleged to have failed utterly to put the
states. Catroux will soon proclaim a state of siege in the Levant
armed forces in readiness for war. Instead of having some
350,000 reservists, as Dutra claims, it is thought that the
A more formidable obstacle to any British plans for Near
army is so disorganized that no reservists at all could be
Eastern self-government is Arab hostility to the Jows in
mobilized. Equipment, also, is not in condition for use in
Palestine-whom they feel the British favor, neglecting, for
the field, and munitions are lacking. This serious state
example, to search Jewish houses for concealed arms. Some
of affairs, in a country which is overwhelmingly favorable
Arabs seem to believe that Jewish elements are aiming to
to action with the United States, is said to be causing Presi-
draw them into a fight, NO as to enlist world sympathy for
dent Vargas and others much anxiety.
themselves ns champions of the United Nations in conflict
with "pro-Axis" Arabs.
The Aria Sinks a Ship of Neutral Chile
Brazil Moves Nearer to the War
The sinking by an Axis submarine of the Chilean freighter
Of all the sinkings of Brazilian ships by Axis submarines,
Tolten off New Jersey last Friday, March 13, has produced
the Brazilians have most resonted the loss of the Buarque,
among Chileans not so much indignation as alarm. Since
which was not on its way northward with raw materials of
Chile not only operates ships on the Atlantic, but faces Japan
military importance, but instead was sailing southward loaded
in the Pacific, the immediate issue is whether this single
with coal. Riots in Rio de Janeiro resulted in the sacking of
sinking represents the Axis policy toward Chilean shipping.
several German stores and in the burning of books taken
Mr. Summer Welles has expressed the opinion that the loss
from & German bookshop.
of the Tolten is evidence of Axis determination to sink ships
Since Brazilian public opinion is carefully shielded by
of all American Republics, whether or not they maintain
censorship from foreign news which might cause a violent
relations with the Axis as Chile and Argentina do. The
reaction of any kind and since the Brazilian police maintain
Chilean government, on the other hand, points to the fact
a very strict watch over public disorders of all kinds, the
that the Tolten (sailing at night, to be sure, against the orders
spontaneity of the Rio riots may be questioned. Very slight
of the captain of the Port of Baltimore) was sunk only after
priming, it is thought, would be sufficient to start A public
the had been intercepted and commanded by a United States
demonstration against the Axis. In this particular caso the
naval patrol to extinguish her lights. It is reported that
police were conspicuously slow in making their appearance on
Germany had given the Chilean government to understand
the scene.
that Chilean ships sailing with lights would not be sunk.
Speculation continues, meanwhile, regarding the imminence
Chile, in any case, has now forbidden its ships to obey any
maritime authority except Chilean, and has ordered its ships
18
19
SECRET
SECRET
to proceed lighted and identified. This indirect censure of
United States naval policy has been supplemented by
request that the United States furnish a ship to transport to a
APPENDIX I
Chile the cargo which awaited the Tolten at New York.
Because of the questions of lights and conflicting com-
WEATHER AS A FACTOR IN A JAPANESE
mands, the Tolten affair is not clear-cut. It is difficult to
ATTACK ON SIBERIA
judge, therefore, whether this sinking will make Chile more
!
192
ISS
or less reluctant to break relations with the Axis. One Com-
PLOCOPLANM NO LOW
munist deputy and the Communist party newspaper have
ALLI/VIAL MEM
publicly demanded a break. But the government and A
KAMQHATKA
-
SEA
OF
majority of the press have sought to calm the public until
an investigation can be made.
ORHOTSK
U.
SAKHALIN
is
your
on
SEAL
X
Signature
MANCHURIA
VERDICATION
IRC
ISS
TRU
140
-
AND
aue
THE
- THE
From the standpoint of terrain and weather alone, the next
30 days are the most favorable of the year for a Japanese
attack on the Soviet military centers at Khabarovsk and
Blagoveshchensk in eastern Siberia, according to a memo-
randum prepared by the Geographic Division of the Office of
the Coordinator. As the map above shows, most of the
Manchurian-Siberian border is protected by rivers and broad
flood-plain areas which at present are ice-covered and easily
traversed. Aside from Vladivostok (an exceedingly vulner-
able city) the main centers are largely surrounded by low
20
alluvial areas
21
Regraded Unclassified
SECRET
For the next few weeks, when winter temperatures have
essed, but when the three- to eight-foot cover of ico has not
yet broken up, these frontier water "barriers" actually
constitute broad highways over which an offensive might
proceed at numerous points. By April 20, the ice on the
Amur and other rivers in this district usually breaks up and
the ground thaw begins. There is a period beginning in
early May, after the spring ground thaw, when terrain con-
ditions might again be suitable for a Japanese offensive.
But operations might then be limited by the relatively few
dry-ground approaches (shown on the map), and the Soviets
would be able more effectively to meet the Japanese attack
by massing troops at these strategic points, and by the use of
gunboats if river crossings were attempted.
Although mid-winter on the Siberian front is more severe
than in western Russia, the temperature in April normally
rises sufficiently so that it alone would not hamper mechan-
ized operations. Furthermore, fogginess declines and flying
conditions generally are better than those later in the
summer.
Summer Conditions
An additional reason for an attack in Siberia at the earliest
possible moment-if it is to be envisaged at all-may be seen
in the need to consolidate victories prior to the beginning of
heavy summer rainfall. In summer the Amur reaches a
width at some places of 15 miles, and the low alluvial areas
are virtually impassable (see map). Rainfall becomes in-
creasingly heavy in June, reaching a maximum in late July
and early August. Only on the higher ground along the
western Manchurian border and in a few high spots near
Vladivostok are terrain conditions favorable in summer.
The final favorable period for operations is in the full-
September is best-when summer rains have subsided and
the extreme cold of winter has not yet arrived.
22
UNIVERSITY PRINTING OFFICE
149
TREASURY DEPARTMENT
FOR RELEASE, MORNING NEWSPAPEI
Washington
Friday, March 20, 1942.
The Secretary of the Treasury, by this public notice, invites
tenders for $150,000,000, or thereabouts, or 83-day Treasury bills,
to be leaued on a discount basis under competitive bidding. The
bille of this series will be dated March 25, 1942, and will mature
June 16, 1942, when the face amount will be payable without interes
They will be issued in bearer form only, and in denominations of
$1,000, $5,000, $10,000, $100,000 $500,000, and $1,000,000
(maturity value).
Tendere will be received at Federal Reserve Banks and Branches
up to the closing hour, two o'clock p.m., Eastern war time, Monday,
March 23, 1942. Tenders will not be received at the Treasury
Department, Washington. Each tender must be for an even multiple
of $1,000, and the price offered must be expressed on the basis
of 100, with not more than three decimals, e.g., 99.925. Fractions
may not be used. It 18 urged that tenders be made on the printed
forms and forwarded in the special envelopes which will be supplied
by Federal Reserve Banks or Branches on application therefor.
Tendera will be received without deposit from incorporated
banks and trust companies and from responsible and recognized
dealers in investment securities. Tenders from others must be
accompanied by payment of 10 percent of the face amount of Treasury
bille applied for, unless the tenders are accompanied by an express
guaranty of payment by an incorporated bank or trust company.
Immediately after the closing hour, tenders will be opened at
the Federal Reserve Banks and Branches, following which public
announcement will be made by the Secretary of the Treasury of the
amount and price range of accepted bids. Those submitting tendera
will be advised of the acceptance or rejection thereof. The
Secretary of the Treasury expressly reserves the right to accept
or reject any or all tenders, in whole or in part, and his action
in any such respect shall be final, Payment of accepted tenders
at the prices offered must be made or completed at the Federal
Reserve Bank in cash or other immediately available funds on March
25, 1942. The income derived from Treasury bille, whether interest
or gain from the sale or other disposition of the bills, shall not
have any exemption, as such, and lose from the sale or other die-
position of Treasury bills shall not have any special treatment,
A8 such, under Federal tax Acte now or hereafter enacted. The
(over)
30-80
Regraded Unclassified
- 2 -
bills shall be subject to estate, inheritance, gift, or other
excise taxes, whether Federal or State, but shall be exempt from
all taxation now or hereafter imposed on the principal or interest
thereof by any State, or any of the possessions of the United
States, or by any local taxing authority. For purposes of taxatic:
the amount of discount at which Treasury bills are originally sold
by the United States shall be considered to be interest. Under
Sections 42 and 117 (a) (1) of the Internal Revenue Code, 8.8
amended by Section 115 of the Revenue Act of 1941, the amount of
discount at which bills issued hereunder are sold shall not be
considered to accrue until such bills shall be sold, redeemed or
otherwise disposed of, and such bills are exoluded from considers-
tion as capital assets. Accordingly, the owner of Treasury bills
(other than life insurance companies) issued hereunder need include
in his income tax return only the difference between the price pail
for such bills, whether on original issue or on subsequent purchase
and the amount actually received either upon sale or redemption at
maturity during the taxable year for which the return is made, as
ordinary gain or loss,
Treasury Department Circular No. 418, as amended, and this
notice, prescribe the terme of the Treasury bills and govern the
conditions of their issue. Copies of the circular may be obtained
from any Federal Reserve Bank or Branch,
-000-
150
March 20, 1942
9:25 a.m.
Oscar
Cox:
Have you got another minute?
HMJr:
I've got time on the war, always.
C:
Well, this 1s Just 8. side issue. I gather
from one of my staff fellows that Ed seemed
to think that we were against the Treasury
on this A.P.C. thing, contrary to the fact.
HMJr:
I think that there were a couple little things,
as long ae you're asking me, that happened that
led us to believe you were throwing your weight
against us.
C:
Oh, no. Not at all.
HMJr:
What?
C:
Not at all. We still feel that as 8 matter of
sound administration, it should have been in
the Treasury.
HMJr:
Well
C:
Felt that way all along.
HMJr:
Well, the way it 18 now - the way the order
was drawn
C:
Yeah.
HMJr:
neither Crowley can operate, nor we.
0:
That's right.
HMJr:
And Ed was at the house last night, and we're
putting up something to Crowley today or tomorrow
and he'll see what he can do. But the way it
is now, both he and I are hamstrung.
C:
Well, there's no question about that.
HMJr:
And he
C:
We've been consistent throughout this thing.
Regraded Unclassified
151
- 2 -
HMJr:
What?
C:
I say, we've been consistent throughout this
thing and felt strongly.
HMJr:
Well, Oscar, as far as I'm concerned, I've
done my Job in that
C:
Oh, I know you have.
HMJr:
I've cleaned that mess out of Aniline Dye,
and demonstrated to the Germans that by paying
one law firm $250,000 and one political figure
$90,000, influence another a hundred, that you can't buy
0:
Right.
HMJr:
.....
the way the Nazi party does it in Germany.
C:
Right.
HMJr:
Hello.
C:
Yeah. Well, that's damned important to do that.
HMJr:
And we've now demonstrated that you just can't
buy this Administration.
C:
Yeah.
HMJr:
And 88 far as I'm concerned, having made that
demonstration, I'm satisfied with one proviso -
the way it is now, Crowley can draw on me for
the entire French funds.
C:
That's right.
HMJr:
If he wanted to.
C:
Right.
HMJr:
Hello.
C:
Yes, he could.
HMJr:
And I want to separate - this 18 the way I
Regraded Unclassified
152
- 3 -
thought of putting it up to him. Let him
have enemy alien property. Hello.
C:
Yes.
HMJr:
Exclusive of Government or Central Bank funds.
C:
Yeah.
HMJr:
See?
C:
Yeah.
HMJr:
We keep anything that has to do with Government
or Central Bank funds.
C:
Or non-enemy.
HMJr:
or non-enemy property.
0:
Yeah.
HMJr:
In other words, my conception - I mean, since
the President's done this - 18 that Crowley should
be enemy alien property custodian.
C:
Yes.
HMJr:
Hello.
C:
Yes. I'm not BO sure that third part is sound.
HMJr:
You're not.
C:
No, because if you try to separate the thing,
you begin to throw some question about both your
legal power and your ability to divide what 18
enemy alien and what isn't.
HMJr:
Well, now, let me take, for example - supposing
the Queen of the Netherlands owns B. lot of
property here.
C:
Yeah.
HMJr:
She's supposed to.
Regraded Unclassified
153
4 -
C:
Yesh.
HMJr:
Why should Crowley take that over if the
State Department would let him?
C:
For vesting purposes he shouldn't.
HMJr:
And vest it in United States Government.
C:
No, he shouldn't.
HMJr:
What?
C:
He shouldn't. I think the division is much
better made that you handle all the non-vesting
cases, not try to draw a distinction between
enemy alien and non-enemy alien property. In
other words, a.8 to Government-owned funds,
Central Bank funds, and cases where he does
not vest but where you want to exercise the
degree of control up to vesting. In other words,
your freezing control, I don't t see any reason
why Crowley ought to go into the freezing thing,
which 1s really B. branch of economic warfare
and not custodianship of property.
HMJr:
But I still - why should he - 8.8 I say, do
you agree with me that he should not vest in
United States Government either Dutch or Nor-
wegian property?
C:
That's right.
HMJr:
What?
C:
That's right.
HMJr:
Well, at present, the way it's set up he could.
C:
Could, but he shouldn't.
HMJr:
Well, I'd like that clean-cut.
C:
I think 80.
HMJr:
What?
C :
I think that's wise.
Regraded Unclassified
154
- 5 -
HMJr:
And I thought 8. good place to start was enemy
alien property custodian.
C:
Well, that's all right if you make a mutual
agreement between you; but I wouldn't publish
that distinction.
HMJr:
Well, the way the thing has gone recently, I
pretty much want some stuff in writing - not
that
C:
It ought to be in writing.
HMJr:
What?
C:
It ought to be in writing.
HMJr:
Not that Leo hasn't kept faith with me.
C:
Yeah.
HMJr:
Because on this
C:
Well, I think you need it in writing for another
purpose. There'll be a lot of people in this
thing, and you and Leo can keep faith; but when
you get down the line, you don't know what's
going to happen.
HMJr:
Well - and, of course, everybody was betting
that we'd never get rid of that crowd out of
Aniline Dye.
C:
Yeah. Well, they didn't know you.
HMJr:
What?
C:
They didn't know you well enough.
HMJr:
Well, if I have ever done the President 8. service,
I did on that.
C:
Oh, certainly.
HMJr:
Well, anyway, 8.8 long as you're calling me, why
don't you ask Ed to have lunch with you some day.
Regraded Unclassified
155
- 6 -
C:
I will.
HMJr:
What?
C:
I will.
HMJr:
Do that.
C:
All right.
HMJr:
Right.
C:
Good-bye.
HMJr:
Good-bye.
Regraded Unclassified
156
March 20, 1942
9:18 a.m.
Operator:
Go ahead.
HMJr:
Hello.
Oscar
Cox:
Hello.
HMJr:
Oscar.
C:
Yes, Mr. Secretary.
HMJr:
In which of your three capacities am I speaking
to you?
C:
Friend.
HMJr:
What?
C:
Friend of the War.
HMJr:
Friend of the War? Well, that's 6 fourth
capacity.
C:
That's right.
HMJr:
But I say that would come first.
0:
I should say 80. Look, you know this Sea Otter
business, don't you.
HMJr:
Well, I knew about it six months ago.
C:
Well, it's been revived, because curiously
enough Senator Brewster went to see the President
about it.
HMJr:
I eaw that in the papers.
C:
And apparently the President, as Brewster put
it, was not only displeased with the way the
thing's been going, but angry.
HMJr:
Yeah.
C:
And Brewster wanted to know if he could talk
Regraded Unclassified
157
- 2 -
to me and Bee if we couldn't get it off the
ground.
HMJr:
Yeah.
C:
He did.
HMJr:
Yes.
C:
And two fellows over in the Navy who are almost
on the verge of being court-martialed because
they're interested in this thing.
HMJr:
Well, those are the men, I imagine, that designed
it in the first place.
C :
No, they worked on it. The designer ie an
outstanding Naval architect who lives in Washing-
ton, and probably the President knowe him ouite
well.
HMJr:
Yes.
C:
Now, they want to go ahead with the thing. The
defecte on the Navy test were not serious.
HMJr:
Yes.
C:
And as a matter of fact, they had in mind some
correction in any event.
HMJr:
Yes.
C:
Now, if these two fellowe go off on their own,
they'll get completely loet.
HMJr:
Yeah.
C:
Maritime won't give them much help, nor will
Navy,
HMJr:
Yeah.
C:
And I wondered if we could get the President
to ask you whether you would take it under your
wing.
HMJr:
Well, Oscar. Hello.
Regraded Unclassified
158
- 3 -
C :
Yeah.
HMJr:
Well, I'm just thinking out loud, but what
would the excuse be that he'd want me to do
that?
C:
Well, that Treasury Procurement would look
after the thing and tend to contracting to
get the line drawings done, get the experimental
test work done; and then if the test should show
up satisfactorily, go ahead and make the necessary
arrangements for Procurement.
HMJr:
Well, I'll tell you something terribly funny.
When I first eaw these plans, when McIntyre was
acting as the President's side - which must be
at least six months ago
C:
Yes.
HMJr:
I was very much tempted to ask for it, you
see?
C:
Yeah.
HMJr:
Then I decided it was too far removed.
0:
Well, what you really ought to do 18 have some-
body who knowe nothing about shipbuilding running
this thing.
HMJr:
Well, that goes for these small ships, too, which
the President's 80 interested in.
C :
Yes. Well, this, of course, 18 a fairly small
ship.
HMJr:
I know, but I mean, he's been absolutely frustrated
on the small ships.
C:
Oh, yes, definitely.
HMJr:
I mean, all thie - if we had our emall ships,
then we wouldn't have all this trouble with the
subs.
C:
That's right. And as 8. matter of fact, I would
Regraded Unclassified
159
+ , !
eay from what little I know about this thing
that the chances are really eighty to twenty
of this thing being a success.
HMJr:
What is that?
C:
I would say the chances are eighty to twenty
that this thing would be 8 success.
HMJr:
Well, let me ask you this, Oscar, how would the
President be approached. I certainly wouldn't
aek him.
C:
Oh, no. We'd arrange for that.
HMJr:
Who's we?
C:
Well, probably after Brewster saw the President,
he said he would also talk to Harry about it.
HMJr:
Yeah.
C:
And Brewster wanted to know if he could come
over; and before going over to see Brewster, I
checked with Harry and he said, "Go ahead.
HMJr:
I see.
C:
Now, what I would do would be to either put it
up to Harry or have - do that and have Brewster
follow up on his conference with the President.
HMJr:
Well, it would
C:
It's a unique political situation here, too, where
a Republican Senator 1e pressing the Administration
to go ahead with something that two agencies have
been inclined to turn down.
HMJr:
Well, I'd be reluctant, but if - I don't think -
I'm cuite sure the President wouldn't; but if you
wanted
C:
I'd like to get it put up to him.
HMJr:
It's all right.
C:
Because I think you're the only fellow that I know
Regraded Unclassified
160
- 5 -
in the Government with your organization that's
got a chance of putting it across.
HMJr:
Yeah.
C:
And I think that it's damned important - it's
probably the most important thing we bring in
the picture.
HMJr:
of course, if I was going to do it, I'd have
to borrow a couple of my good Coast Guard men.
C:
Well, I was going to say, you'd not only have
to do that; but I'd also consider going up to
a place like M.I.T. and borrowing one of their
best naval architects and construction people.
HMJr:
Yeah.
of course, the fellow - nobody likes him
C:
Yeah.
HMJr:
but the fellow that's got - that I'd get -
has more push than anybody else so far, 18 this
fellow Kaiser.
CI
Yeah. Well, there's no objection to getting him.
Ag B matter of fact, most of the emall yarde in
this country can build the boats, that's the
other advantage. You wouldn't even need to take
anything away from the Maritime Commission.
HMJr:
Well, I saw it. I saw the whole plan that they
brought in earlier. It's a question of riveting -
welding these plates.
Di
That's right.
HMJr:
And then these Chrysler truck motore, that's
what it 18.
C:
They're marine engines - Chryeler marine.
HMJr:
Well, marine.
C:
Yeah.
Regraded Unclassified
162
- 7 -
HMJr:
One.
C:
That's B. Chinese understatement.
HMJr:
Oh.
C:
No, you had - you're what the lawyers call
the props and the core.
AMJr:
Well, I think I stirred them up.
C:
oh, I don't think there's any cuestion about
it.
HMJr:
And Patterson told me yesterday, after about
I don't know how many calle, they finally put
8 Colonel in Philadelphia.
C:
Yeah.
HMJr:
And that's straightened out. There are three
hundred cars 8 day flowing into Philadelphia
since yesterday.
C:
oh, wonderful.
HMJr:
Three hundred care.
C:
Yeah.
HMJr:
And you know the railroads were going to stop
them all in order to clean it up.
C:
Yeah. Well, that's good news.
HMJr:
Bo I think that that Russian thing
C:
That's off the ground.
HMJr:
Well, it 18 if Nelson will act.
C:
I think be will now.
HMJr:
Well, I'm going to put something up to him on our
little show. We're 25,000 tons short between now
and the first of April.
C:
Yeah.
Regraded Unclassified
163
- 8 -
HMJr:
And I want to get that.
C:
Yeah.
HXJr:
And we tried something new - we sent telegrame
to these plants, you 888.
C:
Yeah.
HMJr:
And asked them where would they be by the twenty-
first, the twenty-eighth, and the thirty-first.
C:
Oh, that's a good idea.
HMJr:
Three dates.
C:
Yeah.
HMJr:
And out of that came that they would be short
25,000 tons.
C:
Right. You know that that letter in ite original
draft
HMJr:
Yeah.
C:
gave the raw materials first priority except
where to do 80 would result in an extraordinary
interference with domestic production.
HMJr:
Yes.
C:
And they took the exception out. They said it
gave them a loophole and they wanted no loophole.
HMJr:
Yeah.
C:
I thought you might want to know that for back-
ground.
HMJr:
They have no loophole now.
C:
No, no. It's Just a flat priority ahead of every-
thing else.
HMJr:
Yeah. Well, keep plugging, Oscar.
C:
Oh, sure,
Regraded Unclassified
164
March 20, 1942
10:10 a.m.
FINANCING
Present: Mr. Bell
Mr. Haas
Mr. Buffington
Mr. Viner
Mr. Murphy
Mr. Hadley
Mr. Lindow
H.M.JR: Who all are coming over from the Fed this
morning?
MR. BELL: Eccles, McKeechie and Sproul.
H.M.JR: Did you tell them who I was having?
MR. BELL: Yes. Do you want to change it?
H.M.JR: Oh, no. They didn't object? They knew
who was going to be here?
MR. BELL: Yes, that is right. They asked to keep
it small.
H.M.JR: Well, you add George to the list.
MR. BELL: If you want to change it, I will do that.
H.M.JR: Oh, no, the less of them the better. Let
me read Buffington's memorandum on this. Have you all
Regraded Unclassified
165
- 2 -
read it this time?
MR. BUFFINGTON: I am sorry, Dan has read it and
I have talked it.
H.M.JR: Honestly, can't you fellows give people a
chance to read these things so that I don't have to go--
MR. BELL: We discussed, Mr. Secretary, with the
rest of them.
H.M.JR: But why not show it to them? I go through
this every morning. I have a memorandum and has every-
body seen it? No. Damn it, every morning it is the same
proposition. How can Viner and the rest of them advise
me?
MR. VINER: I got an oral exposition of it.
H.M.JR: You sit outside and why not let a man read
it?
MR. BELL: I think they got it.
H.M.JR: This is the third morning this thing has
happened. Dan, please, when there is & memorandum, it
is up to you to see that these people see them. Every
morning it is the same proposition. This is the third
time now.
What were the kind of concerns that you saw, George?
MR. BUFFINGTON: International Harvester Company,
Pullman Company, John Wanamaker Company, Standard of
Indiana, Standard of New Jersey, Wrigley Company, Quaker
Oats Company, Continental Casualty, U. S. Steel Corpora-
tion, U. S. Rubber Company.
H.M.JR: Well, did any of those have idle funds?
MR. BUFFINGTON: Yes, sir.
H.M.JR: Which ones?
Regraded Unclassified
166
- 3 -
MR. BUFFINGTON: The International Harvester Company,
Commonwealth Edison Company, Pullman Company, Lumbermen's
Mutual Casualty Company, Standard Oil of Indiana.
H.M.JR: Let's go back to the first one then. What
is the first one on your list?
MR. BUFFINGTON: International Harvester Company.
H.M.JR: Well now, what would they be interested in?
MR. BUFFINGTON: Primarily certificates of indebted-
ness and bills.
H.M.JR: Now what is the next one?
MR. BUFFINGTON: Commonwealth Edison Company, both
bills and certificates of indebtedness. Those two companies
both have future needs that they can schedule.
H.M.JR: Neither of them are interested in a five-
year issue?
MR. BUFFINGTON: Not particularly. Lumbermen's
Mutual Casualty Company would only be interested and are
now buying bills and would buy certificates of indebted-
ness.
Swift and Company has reabsorbed recently their
excess funds through higher inventory values.
Standard Oil of Indiana have sixty million Governments
maturing up to 1945. They have some bills and would like
very much to buy certificates paying 8. half from six to
nine months.
Quaker Oats Company, same thing, would prefer cer-
tificates and would buy some bills. They would buy more
bills if the rate was a little better.
Continental Casualty Company, for the casualty com-
panies, would buy both bills and certificates.
Regraded Unclassified
167
- 4 -
In New York, Singer Manufacturing Company, who have
contracted very sharply their foreign operations and have
sixty-eight million in Governments now maturing in 1948
would like very much to buy a tap issue because their
needs are not quite as certain or as early as some of
the other corporations.
Standard Oil of New Jersey own a very large amount.
I think they own now between fifty and sixty míllion of
bills.
Steel Corporation has never invested funds, but were
interested in the purchase of five-year tap issues and
would buy some bills.
Corn Products Company would buy bills and certifi-
cates; but, as I told you yesterday, if you just lay out
the pattern, they will follow along.
H.M.JR: Are you finished?
MR. BUFFINGTON: The thing in that memorandum which
I think is important, while I got a fairly good cross-
section of the type of business which I have outlined,
it would seem to me desirable before deciding definitely
on the tap issue to go a little further and get probably
a broader cross-section of industry, getting into some
more moderate-sized companies.
H.M.JR: Should I read this before I make up my
mind? Is this different?
MR. BELL: Yes, that follows our conference with the
Federal Reserve Board the other day.
H.M.JR: Have they seen this yet?
MR. BELL: That has been distributed. After we
got through with our conference over there, at the end
Eccles called Sproul on the telephone and when they
finished he asked Sproul to send down 8. memorandum along
the lines of this telephone statement. That is Sproul's
Regraded Unclassified
168
- 5 -
memorandum and I think Eccles agrees with it. That is
what they will tell you this morning.
H.M.JR: Then I had better read it. I got a couple
of ideas myself during the night. There are two things
that I would like you to do. One thing is - if you
gentlemen think We will have it - I would like you to
get a thousand names of people who this year have bought
their maximum of "F" and "G", you see, and if possible,
just mimeograph a letter and simply say, "Dear Sirs:
We notice that you have bought your maximum of 'F' and
'G'. We would like to know for our own confidential
information that if we decide to increase this to 8.
hundred thousand, would you avail yourself of this op-
portunity." Now, if that could go out, it ought to be
able to be mimeographed and go out - well, certainly by
tomorrow night, couldn't it?
MR. BELL: We will see. I don't know how readily
the names are available.
H.M.JR: Well, I should hope it would be in shape.
Then again, guessing whether they would or wouldn't, you
would get back a thousand names and depending upon the
percentage of the people who would say they would, we
could decide should we raise it to a hundred, but we
sit here and guess, Is that right, Jack?
MR. VINER: I think that is a good idea.
H.M.JR: What is the use of always guessing?
MR. VINER: It is a good idea.
H.M.JR: And then if--
MR. BELL: The fifty was 8. guess, that is right.
We didn't know where to put it.
MR. VINER: A guess as to what sort of 8. response
there would be to raising the ceiling.
H.M.JR: I am not saying - supposing seventy-five
Regraded Unclassifie
169
- 6 -
percent said, "Yes, we would like to buy another fifty,"
and they were the right kind of people in the sense
that they were trusts and 80 forth and 80 on, then we
would know. We are guessing do they want another fifty.
MR. BELL: Would you want to ask them the question
in that letter, "If you want more of the 'F' and 'G's',
would you have to sell securities that you now own to
buy them", or would it be out of order?
MR. HAAS: That is why we didn't raise it above
fifty.
MR. VINER: That will be an additional question.
It would through light on the significance--
H.M.JR: Could you put it 8 little bit differently,
so it isn't 30 obvious, "What would be the source of the
funds that you would buy your second fifty with?" I
mean, I wouldn't plant it in their mind that they have
to.
MR. BELL: That is all right. That gets the same
question over.
H.M.JR: But I think if you did that, then this thing
that we have been told, that they would have to sell, you
might find that they do or they don't, and they are talk-
ing about idle funds - anyway, I think it is an intelli-
gent way to do it. It may get us nothing and on the other
hand we may be surprised. I would like great steam to
be put on, if possible, to get it out by Saturday night,
if it is mechanically possible.
MR. BELL: I think maybe it is.
H.M.JR: That is my first suggestion.
Now, the other thing is this. I may be all wrong
on this. I have read this thing. This is out of yester-
day's discussion. I don't agree with Sproul that we should
first do the bills and then, if we need more money, we should
do the certificates. We know we need more money, and I
rade
170
- 7 -
am leaning toward doing the certificates first and not
the bills, because I don't see, if I am a corporation or
a bank and can get B. certificate that will pay me a half
percent for six months, why I should fuss around with a
bill that will pay me a quarter or less. If we offer
them the certificates and I have got money, I will not -
I will take my certificates. I won't take the bills.
There will be less buyers of bills and the bill rate will
go higher. That is what is going to happen, and that is
what we don't want.
Now, if We could just do the bills the way Sproul
says and then do the certificates - well, the bill rate
might stay down. What they propose to do would be all
right, but it would only be a week or so before we would
need the certificates, and we can't do the thing. Every-
body would know about it and they would simply says, "There
is no use of buying the bills, because in a week the
Treasury is going to get out the certificates," and you
would have 8. hardening of your rates.
Now, what we are hoping to do is, supposing we said,
"We will do nothing now, but we will take seven hundred
fifty million of certificates and leave the bills where
they are." Then there may be a chance that the certifi-
cate - that there is so much money that the certificate
rate - that at the end of April we might be able to go
seven or eight months or nine months.
Now, it can't make a difference of over two or three
hundred million dollars if we held back the bills for 8.
month.
MR. BELL: Two hundred fifty-eight million dollars
in April. There are five weeks there, five Wednesdays.
H.M.JR: I am picking up where you left off yester-
day.
MR. BELL: I think this has one advantage in putting
out the certificates. First, it kind of sets the top
for the short-term money in that period, and bills -
Regraded Unclassified
171
- 8 -
ninety-day bills shouldn't go up to any rate that you
establish on this six months, I should think, but I do
think there is another point you want to consider and
that is, does this establish in the minds of the public
& type of financing that the Treasury is going to do?
In other words, are we going to do a lot of this financ-
ing through banks, and do they get set on that idea?
That is the argument you are going to run into this
morning with the Federal, and I think George is a little
worried about it.
MR. HAAS: Unless the proper explanation is given.
MR. BELL: Yes.
H.M.JR: Look, I would be perfectly willing to meet
the press before I go away and say, "Gentlemen, we can't
have B. complete plan." You have got to learn how to walk
before you run.
MR. HAAS: You can say it is for business, for this
type of funds.
MR. VINER: Couldn't you say this, that you hope
that 8. large proportion of the subscriptions to these
certificates will come from outside of the banks?
MR. BELL: That is right.
MR. VINER: At least you can say that. I don't see
any harm in that, and it seems to me it does work into
the pattern that you must be working for and it is a
security suitable for non-bankers. I mean, you are not
really asking them to do something that is unsuitable.
It seems to me highly suitable for non-bankers.
MR. HAAS: The Fed didn't like that statement. We
had that in, Jack, when we went over, but I think they
would agree to that.
MR. BELL: And I agree with Jack's version of it.
MR. VINER: You needn't mention the banks. You might
Regraded Unclassified
172
- 9 -
say that we hope this new security will be found attractive
by - and then--
MR. BELL: Non-banking.
MR. VINER: Don't say non-banking, but list 8. few
categories, for businessmen for their temporary idle
funds and so on.
MR. HAAS: And to bring about fluidity in reserves.
MR. VINER: And to bring about fluidity in reserves.
MR. HAAS: That is what we had.
MR. BELL: What they are afraid of is that if you
say too much about business balances, you are going to
kill any chance of a short tap.
MR. VINER: Of the five-year thing, you mean?
MR. BELL: Yes. And I suppose it will have some
bearing on it.
MR. VINER: But there is another thing you can say.
You hope to get a nation-wide subscription to it because
the geographical corresponds so much with the class that
if you get subscriptions outside of New York and Chicago,
you are getting the sort of subscriptions you want.
H.M.JR: Well, let me just ask you this. For the
moment, as I take it, we are just talking about doing the
certificate only and waiting on the bill. Right?
MR. BELL: That is right.
H.M.JR: For the moment. Let's say that the thing
works well and the Standard Oil and the big companies
and all those along the line put some of their money
into that. Would that give me 8. better distribution of
excess reserves?
MR. VINER: It would.
Regraded Unclassified
173
- 10 -
H.M.JR: It will? Are you all in agreement on that?
MR. VINER: I think that is the probability.
MR. HAAS: Between banks and between regions.
H.M.JR: It will give us--
MR. HAAS: Sure. For instance, if Guaranty buys
something, that money goes to somebody else that would be
interested in other securities.
MR. VINER: It isn't the Guaranty who buys it. If a
Pacific Coast air concern buys it. Some of those funds -
if it is all bought west of the Mississippi, some of those
funds will flow back to the East to New York.
MR. HAAS: There is that too, but in New York City
alone, if Guaranty buys it, these funds will go back into
some other New York firm.
MR. BELL: There will be a shift between banks, in
other words. One bank will get excess reserves increased
and the other one will decrease them. Guaranty's excess
reserves were down to about two hundred and eight last
week.
H.M.JR: But it would give us 8. certain amount of--
MR. HAAS: Fluidity.
H.M.JR:
fluidity, wouldn't it?
MR. BELL: That is right. The wider your distribu-
tion, the better your reserves can move around.
H.M.JR: And could we say to the Fed, "Now, we want
to try this thing first with the certificates, but when we
are doing it, we want you to hold our two and 8. half percent
longs about where they are"?
MR. VINER: Oh, for the time being, sure. I think
Regraded Unclassified
174
- 11 -
they ought to do it anyway.
H.M.JR: What are they?
MR. HADLEY: The longest bond has about a three-
quarter point premium on it.
H.M.JR: Could we say, "We would like you to hold
it for us about where it is," Dan?
MR. BELL: Yes, we can say that. I think they will
argue there for a range of rates from about two - what
we discussed last time we met on that point, two forty-
four to two fifty-four.
MR. VINER: But Dan, that rate would be for a longer
period of time. For any short period--
MR. BELL: It ought to involve all these other things.
MR. VINER: The shorter period the narrower the range
that is legitimate.
H.M.JR: All I would say to them, "I would like you
to hold it approximately where it is with the minimum of
fluctuation.
MR. VINER: For the time being?
H.M.JR: Yes.
MR. BELL: Until we can agree on the long program.
H.M.JR: And if they say rates, I am going to talk
in terms, approximately, with a minimum of fluctuation.
"Well, what does that mean?" "Well, I don't think
this should fluctuate more than a half point from where
it is now."
MR. VINER: For a short period of time. Because
the longer the period, the wider the legitimate range.
Regraded Unclassified
175
- 12 -
H.M.JR: No, this is to be ajusted--
MR. VINER: I think that is reasonable--
H.M.JR: As often as necessary. We can have a
talk tomorrow or & week from now, but constant consulta-
tion.
MR. BELL: Does that mean hold it within half a
point on each side of the present?
H.M.JR: Oh, I would rather leave it - I don't want -
I would rather say hold it - the minimum of fluctuation
and not be pinned down. "You people in the open market
have got to decide how to do it. It is your responsibility.
Now do it. If I am not satisfied, I will call you up on
the phone and tell you so."
MR. BELL: If it starts to go up, they might sell
some and hold it down to the present price.
H.M.JR: That is all right, but I will simply say,
"No, Mr. Eccles, if I am not satisfied, I will call you
on the phone and say 50. As long as I am satisfied, you
won't hear from me.
MR. BELL: I think that is all right.
H.M.JR: "I mean, you are the open market and it is
your responsibility. Do your stuff. If I am not pleased,
I will call you up on the phone."
But am I right, gentlemen, in trying to do just the
certificate first and not do the bills?
MR. HAAS: I think you would be very wise. Dan
made a very good point there, I think, that if you do
the bills first, what happens? You run your short-term
rates up and then on a high level you come out with a
certificate.
MR. BELL: You can't do a certificate for six months
at a half percent.
Regraded Unclassified
176
- 13 -
H.M.JR: Pardon?
MR. BELL: I am afraid if you start your bills first
that you might run your rate up and then you couldn't
do the certificate for a half for six months, and if you
put this first, I think it sort of establishes B. ceiling
for your short rate.
MR. VINER: But I think you can sell the certifi-
cates, my guess, at the same rate as you can sell the
bills.
MR. BELL: You might.
MR. VINER: Give them the quantities you want to
float. A six-month's bill, put it that way, a six-month's
bill would be more attractive to them than a three-month's
bill.
MR. BELL: If that is true, Jack, you have pretty
well set your bill rate, haven't you? Your certificates
are going to become very popular.
MR. VINER: You remember what I said yesterday, that
if you offer them 8. certificate of a half a percent, you
are killing your bill market at anything like a point two
or B. point twenty-five rate because the bills are costlier
to handle for them, they are harder to bid for them, they
have more turn-overs to make in order to get an invest-
ment, and they are & discount and they prefer 8 coupon,
BO that I think your certificate is going to be a much
more attractive issue for them, and you are getting to
the half a percent rate, which is - which is all right.
It doesn't bother me but
in other words, I think
there is 8. good chance that you will find that all the
discussion about the bills will become obsolete if you
are prepared to issue certificates, six-month's certifi-
cates at half a percent, that you will be able to sell
great quantities of them and that they will do the job
that normerly you would have expected bills to do, and
that the bill thing will be obsolete. It will be 8. minor
thing and a marginal, and it will be a New York-Chicago
thing with the big banks. Nobody else will be interested
Regraded Unclassified
177
- 14 -
in them. The certificates will perform the function in
the money market which the bills are supposed to have
performed. Now, it is all right with me except that you
are not doing it at a point two rate. You are doing it
at & point five rate.
H.M.JR: Well, I have watched this thing long
enough, and I am surprised to hear that any corporation
owned our bills.
MR. BELL: Well, there are only fifty-four percent
of our outstanding bills in the hands of the banks and
insurance companies.
H.M.JR: Only fifty-four?
MR. BELL: Forty-six percent of them some place
else.
H.M.JR: Well, I didn't know that.
MR. BELL: That is the January 31 figure.
MR. LINDOW: I think it is sixty-four percent in the
banks and insurance companies.
H.M.JR: Well, you can't--
MR. BELL: Even that leaves thirty-six percent.
H.M.JR: But how much between the banks and insurance.
MR. LINDOW: Mostly the banks, Mr. Secretary.
MR. BELL: Insurance companies hold ten percent.
H.M.JR: Well, I wouldn't be worried if I could go
through this war on a half a percent between six months
and B year.
MR. HAAS: That is all right.
H.M.JR: I mean, if I could borrow from six months
Regraded Unclassified
178
- 15 -
to 8. year for a half of one percent I would say I was
doing very well.
MR. HAAS: That would be fine.
MR. VINER: I think you ought to consider on this
Treasury certificate for the first issue at least a
preparation to move back - oh, I see. It would be the
other way. Offer them six--
MR. BELL: Nine months.
MR. VINER: Perhaps the other way. It was George's
earlier point that if the rate is too good, it is better
to stiffen the rate than to retreat, but it depends on
how much you want to float. I think half 8. percent for
six months is a very good rate now from the first point
of view.
MR. HAAS: It may be too good. I think you would
want us to look that over very carefully. I mean, that
is a part of pricing.
MR. VINER: But if it is too good, then you have
had a great success, you have offered them 8. security
and you offer your next issue at eight months, seven
months.
H.M.JR: That is right.
MR. BELL: When you come to offer them you might
want to put them seven months instead of six months to
make it a little finer.
H.M.JR: That is right. Now, let's just--
MR. BELL: You don't think seven hundred fifty
million dollars would stiffen the rate a lot do you?
MR. VINER: I don't think seven hundred fifty mil-
lion will make 8. ripple in the market.
MR. BELL: And we will know better when the next
Regraded Unclassified
179
- 16 -
one comes along.
MR. VINER: If you give them time, because you are
going now to tap people who have not been daily in contact
with Treasury operations and so on, and if you want to
bring in a wider market, then you mustn't rely on their
being on their toes and ready to do that, because a
comptroller has to consult his chairman, and it is a
new idea and it has got to circulate, and they have got
to talk it over with others. On the first time that he
is given time--
H.M.JR: I would give them three days.
MR. BELL: Leave it open that long?
H.M.JR: Yes.
MR. VINER: I would leave it open--
MR. BELL: We have got to get used to that anyhow,
I think.
MR. VINER: Mr. Secretary, I would leave it open
even though on the first day you get a huge over-sub-
scription, 30 as to train them to buy, I mean the ones
who - so as to train them to buy. Give them a chance,
give the others a chance to learn what is the - after
all, they read about it in the newspaper, and then they
have to talk to somebody, and the man isn't down that
morning and 80 on.
H.M.JR: Instead of leaving it open for three days,
you could announce on & Monday that the issue would come
Wednesday.
MR. VINER: Yes, that is another way to do it.
MR. BELL: You could give these corporations a
preliminary notice.
H.M.JR: Supposing you announced on Monday that on
Wednesday we are going to have this kind of an issue, you
see.
Regraded Unclassified
180
- 17 -
MR. BUFFINGTON: The Steel Corporation asked that
especially, because their finance committee has got to
act on it.
MR. VINER: You have to get a finance committee to-
gether and 80 on.
H.M.JR: Supposing we said on Monday we were going
to announce this kind of an issue on Wednesday.
MR. BUFFINGTON: That gives them an opportunity
for & meeting.
MR. VINER: You are operating with amateur buyers,
not professional ones.
H.M.JR: I think it would be better to do it that
way rather than do it Wednesday and keep it open for
three days because that might look bad.
MR. BELL: It would on a shorter issue, but I think
on our long issues we have got to come around to leaving
them open.
MR. BUFFINGTON: But if you announced this thing
Monday, that Wednesday there would be such and such an
issue, the chances are the people would call their finance
committee together on Wednesday.
MR. BELL: And we could on Wednesday or on Monday,
when you make that announcement, have the Federal cir-
cularize the large corporations in their district.
H.M.JR: That is right.
MR. BELL: And tell them about it.
H.M.JR: Now let me just take a minute or two and
go around. How would you feel about this, George?
MR. BUFFINGTON: All right. I would like to see
the certificates seven months.
Regraded Unclassified
181
- 18 -
H.M.JR: Well, that is B. detail. No, what I am
talking about is that the first step would be to get out
a seven hundred fifty million dollars certificate issue
and keep the bills where they are on the hundred and
fifty mark.
MR. BUFFINGTON: I think that is a wise thing to
do. I think that is all right.
H.M.JR: Hadley?
MR. HADLEY: I am all in favor of just doing the
certificates first. I think that trying to support a
bill rate is doing it the hard way to get excess reserves,
and I would just put out the certificates first and see
what happens.
MR. LINDOW: I am for it, and I think it is very
important that the announcement be made, though, along the
lines you suggested covering the two points, fluidity in
the banking system and the desire to attract some of these
business funds. I think you might say that you have talked
to some of the business people and that they are interested
in it. Otherwise it might look as though we were hard
pressed and a short issue was the best we could do at the
moment.
H.M.JR: Well, if we said this thing - supposing I
gave this statement out tomorrow for Monday morning and
then we said we weren't going to do this for another week.
It shows we have planned the thing and we are not hard
pressed and have lots of time, and we are planning this
thing ten days and two weeks in advance. What? People
read Monday, "Well, this is the Treasury plan." That is
what we are going to do ten days from now. There is
nothing hard pressed about that.
MR. LINDOWN: I think that would make it very good.
H.M.JR: And step by step we would want to do this
thing. Henry?
MR. MURPHY: I hate to advance without & barrage
Regraded Unclassified
182
- 19 -
Mr. Secretary, but if we must do it, I think this is
probably the safest way to do it. I certainly agree
with you that it would be a good thing to announce it
& week in advance. I think you ought to depend for your
education as much upon successive issues as upon a single
issue. I think it would be much safer if the short-term
rates were determined in advance. We don't know just
what will happen.
H.M.JR: No, we will do it to the certificates.
MR. MURPHY: I say we don't know what the effect of
adding a substantial increment to the amount of securites
in the short market will have. I don't think enough
emphasis has been placed upon the difference in the
character between the bill and the certificate, in that
we compare 8. half rate on the certificate, say, with a
twenty-five rate on the bill, but that isn't the way that
it will impinge upon the market. The certificate will be
priced, I suppose to, say, a four thirty-seconds' premium.
Now, that premium on a half certificate for six months
means it only yields thirty-seven in the market and this
slipage, so to speak, is bound to take place in the case
of the certificate. I don't think it is an evil in itself,
but it does impair the straight comparison between the
certificate and the bill rate.
MR. BELL: Do you think the bill rate will come up
to meet it or will it have 8. tendency to hold the bill
rate somewhere below that three-eighths.
MR. MURPHY: I think that since the push on the
part of the Federal Reserve System for higher short-term
rates which they consider to be a good thing for the
economy is a strong one, and I think it is generally known
throughout the country. Unless there is an announcement
to the contrary, I think it will be generally believed
by the market that the Treasury has joined in this pur-
pose and that one of the purposes of the increased amount
of short-term financing is to secure more "healthy" short-
term rates.
H.M.JR: Well, we are going back over the whole
Regraded Unclassified
183
- 20 -
thing. I am familiary with that angle of the thing.
There is no use opening - I asked you, but I am willing
to do that. I am willing to face that.
MR. MURPHY: Then I think the certificate by all
means should come first.
MR. BELL: What I would like to see in this con-
nection, taking both Murphy's and Viner's fears, I would
like to have an understanding with the Federal that they
might also buy some bills.
H.M.JR: Good. I hoped you would say that. To
keep the bill market about where it is.
MR. BELL: That is right, I would say up to three
tenths.
H.M.JR: Well, I think it is much better for me to
say, "Look, gentlemen, while we are doing this, I would
like you to try to keep the bill rate approximately
where it is and the very longest approximately where it
is. And what is approximately? Well, that is your
responsibility, and if I am not satisfied - If I have
never operated - when George Harrison was there, I would
say, "These are my objectives. Do it, and if I don't
like the way you do it, I will tell you so, but it is
your responsibility.
MR. BELL: But I think they could have some indication
if this short rate on Treasury certificates falls to
thirty-seven, certainly the bill rate ought to be some
place below three-tenths, but if the certificate rate
hangs around a half, I wouldn't mind seeing the bill
rate range between a quarter and three-eighths, as long
as it didn't go above three-eighths.
H.M.JR: George, which one of those charts shows
the bonds?
MR. HAAS: There is B. chart for each bond and the
average.
H.M.JR: Where is the average?
Regraded Unclassified
184
- 21 -
MR. HAAS: Here it is. (Showing report to the
Secretary.)
H.M.JR: Well, it is getting better.
MR. BELL: The market has improved.
MR. HADLEY: It has improved since the tax hearings.
H.M.JR: Where is the next one?
MR. BELL: And since MacArthur got off.
MR. HAAS: Each bond here. The lone ones are way
out here, you see. These white ones are taxables.
H.M.JR: Well, let me look at these. Are they all
bunched together?
MR. HAAS: No, there is one bond, this one out here,
'67-'72. That has moved up.
H.M.JR: It has moved up since they know we have
been stalling.
MR. BELL: Yes, since the last issue. It was around
twelve as I recall it on the last issue, wasn't it?
H.M.JR: Well, we have a nice situation. Did you
know it had been getting so much better?
MR. VINER: Yes, I know the bond market had improved.
H.M.JR: Well, I didn't. Now, where are the cer-
tificates?
MR. HAAS: We only have the notes in here.
H.M.JR: Where are the notes?
MR. HAAS: There is the shorteat and here is the
longest. This white one is 8. taxable.
Regraded Unclassified
185
- 22 -
MR. BELL: The trouble with those things, they have
right values.
MR. VINER: The certificates say no rights, don't
they?
MR. LINDOW: Yes.
H.M.JR: Now, I got as far as you. Viner?
MR. VINER: I would approve of going at it from the
certificates. The question of the length, the maturity--
H.M.JR: Well, that is a pricing job.
MR. VINER: Yes, a pricing job, but it is a pricing
not merely for the state of the market that day, but in
terms of what sort of pattern you want to grow into.
H.M.JR: George, have you got anything?
MR. HAAS: I haven't got anything to add. I agree
with what has been said, and I take it you do too. I
think you have had an excellent night and hit on an excel-
lent solution.
H.M.JR: Pardon?
MR. HAAS: You had a good night and hit an excellent
solution.
H.M.JR: I only picked up where Bell left off. That
was the last thing that Bell said, wasn't it, Dan, yester-
day? At least it is the last thing that rang a bell with
me anyway.
MR. BELL: I don't have 8. very good memory these
days.
H.M.JR: No, that was the last thing.
Buffington?
Regraded Unclassified
186
- 23 -
MR. BUFFINGTON: No, I--
H.M.JR: Burgess is in Washington and is having
lunch with Eccles at one. It was terribly funny, when we
were working so hard on this Aniline and Dye thing we
were trying to locate a man and they said, "Well, you
can find him over in Homer Cumming's office. He is
over there with another person." We never knew that
this man was on Homer Cumming's side, and they said,
"Not only is the one man we are looking for over there
but the other man is too." Mrs. Burgess says, "I don't
know where I can reach him, but I know he will be with
Ecles at one o'clock." Well, one of the things, if I
may say - no, I Am not going to tell you. You will ask
me not to. I won't embarrass you. I may say to Eccles,
One of the things, the reason I am going so slow is,
I think in going to New York he messed the thing up and
that the bankers now have got their backs up.
MR. BELL: I think he has learnedhis lesson maybe.
H.M.JR: Did you ever say anything to him?
MR. BELL: Yes. He called me that evening. He
knew that you knew it.
MR. VINER: Well, you told him that you had been
talking to the bankers in New York.
MR. BELL: You sort of intimated it that afternoon.
H.M.JR: No, what I said was just to sort of drop
it.
MR. VINER: He was embarrassed.
H.M.JR: No, what I said to him was, I put it this
way, "By the way, Marriner, what did they tell you in
New York when you were up there seeing the bankers?"
MR. VINER: Well, you had already told him.
MR. BELL: He was very much embarrassed.
Regraded Unclassified
187
- 24 -
MR. VINER: That is enough.
H.M.JR: I did it that way because Dan begged me
either to say nothing or to do it gently, so I said it
and I wrote 8. little note to Dan, Are you satisfied
with the way I did it?" and Dan said, "Yes."
All I said was, "What did the bankers say to you up
in New York?" (Laughter) Wasn't that a gentle way?
MR. BELL: Yes.
MR. VINER: You used a heavy sword instead of an
axe. It was all right.
H.M.JR: I didn't get angry.
(Discussion off the record."
H.M.JR: Well, I want to meetwith me, as I said
yesterday, Viner and Haas and Buffington at this eleven
o'clock meeting, and why don't you fellows (Hadley, Murphy,
and Lindow) begin drafting a little statement. It oughtn't
to be more than fifty to a hundred words. You can start
drafting something, you see.
MR. HADLEY: That is for press purposes?
H.M.JR: Yes. The three of you have 8. try at draft-
ing something.
MR. BELL: And I would stay as far away as I could
from hurting this tap issue. They will have that in
mind in drafting it.
Regraded Unclassified
188
Proposed Press Statement for the
Secretary of the Treasury
Secretary Morgenthau sald today that he expects to sell
an issue of certificates of indebtedness como time in April.
This is the first time that this form of instrument -- which
is limited by law to a maturity of one year -- has been offered
in the market by the Treasury since 1934. The now certificates
will be redeemed in cash at maturity and will carry no exchange
privileges.
The Secretary said that he was reviving this type of
financing for two primary reasonal First, to provide a suitable
medium of investment for current accumulations of business funds
temporarily thrown our of employment because or wartine
restrictions: and, second, to provide a greater fluidity to the
short-torm money market.
Regraded Unclassified
189
BOARD OF GOVERNORS
of the
FEDERAL RESERVE SYSTEM
COPY
March 18, 1942
Dear Dan:
This is a copy of the memorandum received this
morning from Allan Sproul relative to the Treasury
financing program which we discussed with you yesterday.
I believe that it expresses in general the views of the
Executive Committee of the Open Market Committee.
Sincerely yours,
(Signed) Marriner
Honorable Daniel W. Bell,
Under Secretary of the Treasury,
Washington, D. C.
Enclosure
Regraded Unclassified
190
COPY
TELEGRAM
ECCLES, CHAIRMAN,
FEDERAL OPEN MARKET COMMITTEE
C/O BOARD OF GOVERNORS
This is the statement which you requested I send to you:
"The general programs suggested by the Treasury seems to
us to be incompatable with the primary objective of obtaining
the largest possible amount of funds outside of the banking
system. By pegging short-term interest rates at a low level
or increasing the volume of excess reserves, or both, it would
increase the inducement to the banks to invest in Government
securities and lessen the inducement to other investors. This
is the reverse of what we are trying to accomplish.
If the Treasury is not yet ready to decide upon & complete
program for financing the war effort, and wishes to proceed
step by step, we believe it should avoid taking steps such as
those now proposed, which in combination and by implication
would seem to commit it to a program involving:
(a) A pegged short rate of interest at a low level.
The posting of a bill rate of .26 percent by each
of the 12 Federal Reserve Banks would be such 8
pegging operation.
(b) Maintenance of 8. l'arge volume of excess reserves.
An attempt to increase excess reserves in New York
would almost inevitably involve the maintenance in
New York and in the country of a larger volume of
excess reserves than is necessary or desirable.
(c) Use of open market issues rather than tap issues in
seeking funds from investors other than banks.
A statement in connection with an issue of certifi-
cates of indebtedness, stressing the fact that
these certificates are offered as a medium of
investment for idle business funds would imply that
this is the way which has been chosen to reach non-
bank investors.
We would suggest that, for the present, and until 8. more
Regraded Unclassified
191
COPY
- 2 -
complete program of financing has been determined by the Treasury,
the most appropriate next step would be to increase the weekly
offering of Treasury bills to at least $200,000,000 per week.
If this were done, we are sure that the Federal Reserve System,
through its Federal Open Market Committee, would begin building
up its portfolio of bills as soon as the rate reached .25
percent and would increase its buying pressure until the rate
reached .375 percent, at which rate it would hold the market,
if necessary, until there had been 8. further determination of
procedure in consultation with the Treasury. The explanation
of the increased offering of Treasury bills would be the simple
one that it is designed to give increased fluidity to the money
market and to make excess reserves effective wherever they are
located.
An offering of certificates of indebtedness could then be
made in due course when additional funds are needed by the
Treasury. If, however, the Treasury wishes to make some
announcement concerning a future issue of certificates of
indebtedness, at the same time that the Treasury bill offer-
ings are increased, this could be done. We think it would be
better not to name the rate and maturity, however, but merely
to state that the certificates of indebtedness would supple-
ment the increased bill issue in providing the money markets
of the country with a type of obligation now lacking in suf-
ficient volume to provide the needed mobility of funds.
It is our view that until there has been a further
determination of B. more complete program of Treasury financ-
ing, this would be the best procedure."
SPROUL.
3/17/42
Regraded Unclassified
192
March 20, 1942
11:05 an
FINANCING
Present: Mr. McKee
Mr. Eccles
Mr. Viner
Mr. Haas
Mr. Buffin ton
Mr. Bell
Mr. Sproul
H.M.JR: I have given this matter a lot of
thought, and I appreciate that you have. I realize
the time that has gone into the thing. After having
given it a lot of thought and talked it over, and
having gotten your people's - how you feel - the
last thing I got here was this letter which you
(Eccles) sent to Dan, enclosing a telegram from
Alan Sproul-- (Ace meeting at 10:10am)
MR. ECCLES: That was the result of the confer-
ence that we had Tuesday with your group over there
and we asked Alan to send it down, because if we
could prepare it - we didn't have time to send it up
there and send it back again, and he and Williams
agreed on this.
H.M.JR: Well, getting the benefit of what Buffington
learned in the field, I can tell you how we feel here
in the Treasury. What we would like to do as a starter
is to start out and announce Monday that - what, a
week hence?
MIL. BELL: The following week, yes.
Regraded Unclassified
193
- 2 -
H.M. JR: That we would offer seven hundred fifty
million dollars worth of certificates, not increase
our bills. If you gentlemen would concur, what we
would like to ask the Open Market Committee to do is
this, would be to keep the bill rate approximately
where it is, and to keep the long bond approximately
where it is. If we are not satisfied with the way
the bill rates are going, or if we are not satisfied
with the way the long market is going, we will call
you up and say BO, If after you have been doing it
a while you feel that the situation isn't to your
liking, you call us up. We would like to et - and
then if it went all right - just one other thing -
if it went all right, some time toward the end of
April We would offer another seven hundred fifty of
certificates.
Then I have asked Bell to get out, if it is
letter
mechanically possible, by tomorrow night, 8. letter (delms/20)
to a thousand holders of fifty thousand dollars worth
of "F" and "G," asking them two questions. One, if
we decide to raise the limit to a hundred thousand,
would they be interested; and two, what kind of funds
would they use to buy the second fifty thousand. When
those letters came back, we would analyze them, and
they would be available to you to analyze also to see
who would be interested in the second fifty thousand,
and what kind of fund would they use for that purpose.
MR. BELL: Mr. Secretary, we can get them out,
and We could do somewhere between ten and fifteen thou-
sand tomorrow night if you wanted to. There are about
a hundred and fifty thousand of series "G" holders,
and about fifty thousand of "F" holders. We could
put out between ten and fifteen thousand tomorrow night.
H.M.JR: Wouldn't a thousand be as good as ten
thousand?
MR. VINER: A thousand is as good as ten thousand.
A thousand would be an adequate sample.
Regraded Unclassified
194
- 3 -
MR. BELL: I don't think SO.
MR. HAAS: I would rather take five thousand any-
way.
MR. VINER: Well, of course, five thousand is
better, but it is five times as much--
MR. McKEE: If you take & thousand and spread them
throughout the country--
MR. HAAS: We could handle it, mechanically.
MR. VINER: I would say five thousand if you are
just going to take them as they come. One thousand
if you do some selection here so &s to get distribution.
N.M.JR: Well, take a hundred for each Federal
Reserve District.
13. VINER: Well, I wouldn't do that. I would
rather weight it more heavily in those areas where
there are more large funds. That would be a distortion.
H.K.JR: Dan, you plus these people, plus any
advice the Federal Reserve will offer, I would be glad
to accept. Work it out.
MR. BELL: We will put it out and have a letter
for you this evening after Cabinet to sign.
H.W.JR: Work it out so that instead of sitting
here and saying they are interested or are not inter-
ested, they will sell securities or they won't, let's
find out.
MR. VINER: Milton Friedman is an expert on sampling,
and he is in your staff, isn't he, George?
MR. HAAS: He is in Blough's staff.
MR. VINER: You might ask him on this sample.
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H.M.JR: Well, any way they want to work it out,
just as long as you get B. good sample.
MR. McKEE: May I ask, are your present restric-
tions on "F" and "G" on & calendar basis?
MR. BELL: Yes.
MR. McKEE: And it is lifting the lid on the
calendar basis?
H.M.JR: Yes.
MR. BELL: I think we would have to change the
series July 1. It is on all of the bonds and in the
contracts.
H.M.JR: Change it?
MR. BELL: Yes.
H.M.JR: As of when?
MR. BELL: July 1.
H.M.JR: You couldn't do this before July 1.
MR. BELL: Not unless you put out a new series,
and have the "F" and "G" run along, because they are
in the hands of the agents, being sold.
H.M.JR: But you could do it?
MR. BELL: We have got quite & supply. We could
have them run on - we might be able to do it by regul-
ation.
H.M.JR: Well, Dan, can't you do what you call an
over-print?
MR. SELL: Well, you see, we have got thousands
of bonds in stock.
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MR. McKEE: Dan, is there & fifty thousand
restriction in the bond?
MR. BELL: Yes. When & man sends his bond in for
redemption there is a place on the back, "I certify
that I do not hold more than fifty thousand dollars
in the series "G" Bonds."
H.M.JR: Couldn't it just be a regulation that
anybody who bought & bond after the first of May, this
year, that he is entitled to a hundred thousand?
MR. BELL: Well, we are considering that now.
Mr. Broughton is going into it. We would have to, I
think, send a notice to each one of the holders that
we have changed the limit, and he may disregard the
certification on the back of his bond when he redeems
it, or consider the fifty to be a hundred thousand,
or something like that.
MR. McKEE: On all holdings after January 1,
1942.
MR. BELL: That is right.
MR. McKEE: On your certificates that you propose
to sell, what is it, a six months certificate at a. half?
H.M.JR: Well, what the boys were talking about
was B. half of one percent, and then price wherever it
fell.
MR. McKEE: Make the maturity--
MR. ECCLES: The thing that would price it would
be the support that the Fed gave to the bill market.
If we supported the bill market at the present basis of
a quarter--
H.M.JR: Well, I said approximately.
MR. SPROUL: The last issue went at a little below
twenty.
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MR. ECCLES: Yes, so that if you - it would seem
to me that the certificates, of course, will be very
heavily over-subscribed. I would think that possibly
the allotment, if you priced them anywhere around six
months for a half, that you would possibly get a ten
to one over-subscription, that they would go to & very
substantial premium in relation to the maturity, because
the difference between & ninety day bill and a six
months certificate would not be very great in the question
of interest rate, and I would think even a bill at three-
eighths would be very much less preferable to a six
months certificate at 8 half, so my point is, if we
support the bill market at around, say approximately,
a quarter, it would tend, it seems to me, to bring the
certificates down to around three eighths for six months
or it would make a nine months certificate at & half
more likely in line, so that that rate would be the
rate that the Fed is creating by their support. That
is what it amounts to. In other words, we won't - we
would be responsible, it seems to me, for whatever the
rate picture is as a result of the support action and the
excess reserves you have pumped in as a result of that
action. That is one of the problems raised by this.
Another is--
MR. McKER: Well, put it another way. You are either
putting & premium on the certificates or you are penalizing
the bill rate if your differential is going to be that
great.
MR. ECCLES: Yes. Well, what you do, too, in the
first place there are very few - there are not enough
bills to operate in in the market if you don't put any
bills out now for us to support - to buy any amount
of bills is practically an impossibility because of the
very limited amount of bills now out. That is one of
the problems.
MR. BELL: Won't some of these people that have
been buying bills go into certificates.
MR. ECCLES: I think they will do both. They may
hold their bills and buy their certificates in addition.
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MR. VINER: If they hold their bills, you don't
have to support the bill rate.
MR. ECCLES: I don't think you would. I doubt
if you would get any - I think your bill rate at 8.
quarter would possibly stay where it is, You would
need very little support on it.
MR. BELL: Then if your certificate rate drops
normally to the three-eighths, you wouldn't care.
It ni -ht not need any support at all.
H.M.JR: Of course, what concerns me is not so
much this immediate program as the longer range pro-
ram. This, of course, will be largely a bank operation.
The banks will be the large holders of these securities.
H.M.JR: We don't think SO.
MR. ECCLES: Well, I think you will find - of
course, & lot of business people will put bids in,
but the banks will likewise put them in, SO you will
find that the business interests, because of the
allotment - it may be they can't get what they want
of them, and, therefore, you will find that they might
have a million to invest and only land with a hundred
thousand or two hundred thousand of an investment.
The banks likewise would get only a part of what they
want of the bills, and then possibly go into the market
and try to buy them.
H.M.JR: Well, Marriner, could I just interrupt
a minute? There are two things that we have in mind
to make it attractive to the businesses. If, for
instance, we were going to have an issue, we thought
We would announce it maybe three days in advance that
the issue was going to come so that these various
businesses could call a meeting of their finance com-
mittee. Another thing that we might do in 8. case
like this is give everybody up to a million dollars
subscription, anybody who subscribed, give them up to
a million dollars.
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MR. McKEE: You won't have enough to spread it
around on seven hundred fifty million dollars.
MR. VINER: Go over it if it is necessary to
meet that offering.
H.M.JR: But, I mean, I am just - I mean to say,
anybody that subscribes up to 8. million dollars would
get it, and as Doctor Viner says, "If there isn't
enough to go around, let it go over; and then if we go
through with this, we will have all of next week to
consult as to the rate and how long and the fact that
the announcement will be out Monday and the people
know it is coming, it will give you 8. full week to
price the thing.
MR. ECCLES: The thing that I em very much con-
cerned about our whole financing program and have been
for quite a while, of course, is the inflationary
implication, and in looking at the Canadian picture,
it only strengthens my conviction that we have got
to change our approach, I think, to this problem, or
we are going to have a continual growth of bank deposits
that are already, compared with the Canadian picture,
very excessive. Here is the Canadian financing that was
just done, and they put out practically 8. billion dollars,
started for six hundred million, left the market open
for three weeks, and they raised nine hundred and eighty
million, nearly fifty percent over, and they allotted
8 hundred percent to everybody. Everybody got their
allotment, But they did that - the banking picture up
there had eleven percent total reserves, while we had
in New York here forty-one percent alone, just the New
York picture. That is their percentage. The Canadian
deposit picture at the end of the year in proportion to
the - taking our national income is fifteen times theirs.
Their deposit picture was & billion six, or fifteen
times that would be twenty-four billion. In other words,
they would have had twenty-four billion if it would have -
on 8. comparable basis with this company in size and
national income, whereas we have forty-eight billion. In
other words, at the end of the year we have twice the
Regraded Unclassified
200
- 9 -
deposit and currency that the Canadians have at this
time, twice that amount, and as I say, they put this
out by a great public drive. We have increased the
bank holdings of our securities during the past two
years thirty-three percent of the total offerings
going to the banks. Thirty-three percent of the commer-
cial banks, that is. In Canada, sixteen percent has
been taken by the banks. I just don't believe we are
doing the kind of a job that we have got to do to get
our securities out in the public, and use the existing
funds. I don't think we need at this time much of an
expansion of bank deposits. I think that we have failed
up to date to do the kind of a job that should be done
and that needs to be done in order to get the existing
supply of funds without expanding our funds at all that
really could be done. In other words, if Canada can
do what they can do, if we had just one-third that,
we will--
H.M.JR: Well, what Canada did, Marriner, is some-
thing quite different. I mean, I am frankly - I mean,
I think that money, bank deposits and all the rest of
that thing and excess reserves, as far as inflation
goes, at each stage it has less importance. What Canada
dia, I just happened to have it, because I wanted it
this afternoon, when Canada's prices - they are now as
follows. They are approximately together. On the first
of December they put a ceiling on everything, and they
began to get 8. drop in the cost of living. If you want
to look at this thing, here it is.
MR. ECCLES: You mean that freezing--
H.M.JR: What they did on the first of December -
they have licked their situation.
MR. ECCLES: But they have done it through the
banking picture, because they haven't permitted the
bank inflationary - the supply of money to be inflated
as we have. I think that is 8. factor. Now, the British
have done the same, and the Germans have done the same,
Regraded Unclassified
201
- 10 -
and I know there are a lot of people here that say the
supply of funds is just not important. Well, I know
as far as the people in the Fed are concerned, we don't
feel that way about it. We feel that it isn't all
important, but we do think it is 8 factor of some
considerable importance.
H.M.JR: Are you familiar with that Canadian pic-
ture since they have frozen it?
IR. MoKER: Yes.
MR. SPROUL: I think SO.
MR. ECCLES: They just stepped in and held wages
and prices and everything.
H.M.JR: And then they got the thing down and
everything has begun to drop.
MR. McKEE: Mr. Secretary, the way I feel about it,
you may be pushing yourself up against a terrific wall
later on in this war economy which might be leveled out
by now giving it more force and effect to - engaging
the present deposits in Government debt instead of some
of it to the banks. I think later on as we go down the
road and around the corner in this economy that you are
going to have a better average for yourself in your
Government debt if we start giving it that punch today.
I don't know that you can wait six months or you are
going to find yourself up against a terrific situation
for the future. Now, that is just a personal opinion.
Now, I may be just 8. hundred percent wrong, but I think
if you are going to give your good offices toward fight-
ing inflation 8.8 much as possible, you can't wait until
it hits you in the face.
H.M.JR: Well, John, I have tried to do everything
that I can, both through the Treasury and through every
other agency where I could give any help or they would
let me be of any help on the inflation. I just think
Regraded Unclassified
202
- 11 -
that under the present situation the money thing, as
I say, each day becomes of less significance 8.S there
are less goods to buy. There are some other factors.
What are you going to do with this gap, whether it
is eleven billion or fifteen billion dollars. Unless
a lot of other agencies do their job, no.matter what
we do here--
MR. eccles: Oh, I agree with that. I agree that
SQ far as the financial end is concerned that if you
don't do something with this labor thing, and this agri-
cultural price thing, and with the right kind of taxes,
that--
H.M.JR: That is what I am trying to say.
HR. ECCLES: But all I an saying is - but let's
us at least say we have done everything we can; and
if the other fellow fails, it isn't our responsibility.
MIL McKEE: We can't wait too long to sop up that
additional eleven billion dollars. That is what I mean.
H.M.JR: I am not asking. All I want to do is to
try this thing in April. And after I do the first one
in April, then if it doesn't go right and something
happens, I will change.
MR. ECCLES: Well, they will E° right. I don't
think for a minute, Henry--
MR. McKEE: I approve of - I thought you all had
8 complex because we did use it after the World War,
and it did produce in that kind of economy higher rates
the way it was done, but it wasn't necessary to do that.
H.M.JR: What has happened is, you have got to be
practical, and if I can run through my story, and then
you can answer me if you want to. I know they are going
to say, well, I am letting the bankers dictate to me.
Well, I never have since I have been here, and they
Regraded Unclassified
203
- 12 -
haven't particularly tried to dictate to me, but
unfortunately we have gotten off to 8 bad start on
this thing, and the bankers say to me in a very nice
way, "Look what we have done for you on your Defense
Savings Bonds. Look at the expense we have gone to
and are going and are willing to go for you. You have
not tried your 'F' and 'G,' You haven't put B. campaign
on yet for 'F' and 'G'" which is true. "Let us try
that before you put out & fixed issue which you exclude
us from. Now, we want to help you, but in this plan
which has been suggested to us, it excludes us, and we
don't think it is fair." Now, in this thing, I am
perfectly willing when the time comes, which it hasn't
yet, to crack down and say, "God damn it, take it and
like it." I hope the day will never come. It will be
& very sad day for me. But they come down in a very
quiet voice and say, "We don't think it is fair. Tell
us where we have failed you. We have done everything
We can. We are out a lot of money. We continue to do
this thing. You haven't given the "F" and "G" the push,
and let us give this thing a push and sop it up, but
don't come along with these other two tap-issues and
say, 'We are excluding you.' We don't think it is fair."
I can be accused of letting the bankers dictate to me;
and in the room if somebody wants to say that, it isn't
going to bother me, but 85 I say, I think we got off
on the wrong foot.
Now, all I am saying is, I would like to try this.
I still want to stay on a day to day basis. If after
the first one the right kind of people don't buy or
we don't get the money that I hope we are going to get -
I have got no assurance that the corporations will come
in; and if we still don't get the kind of money which
the Fed wants to get, and they have a right to get,
and if we decide to increase the other thing, then we
will do something else.
MR. BELL: In other words, you are--
H.M.JR: Could I be any franker?
Regraded Unclassified
204
- 13 -
MR. BELL: You are not excluding tap-issues by
this program.
K.M.JR: I am not excluding anything.
MR. McKEE: The only statement I would like to
make in answer to that is that I don't think that that
is the general banker opinion and approach to this
situation of yours.
M. ECCLES: You mean the bankers that have talked
to him?
MR. McKEE: "Why cut us off?" I don't think that
is the general approach.
MR. ECCLES: That is the New York banks.
M. McKEE: I don't know what you can do about the
out-of-pocket expenses on your Defense Savings Bonds.
I have one suggestion, but I don't know whether you want
to do it. I think it can be worked without any handicap
to you and supply you with funds at an earlier date, but
I don't think you will find that the general opinion of
the banker, because we had our Advisory Council in, and
the Advisory Council agreed to this program, and they
represent twelve different districts in the United States.
MR. ECCLES: Bankers.
IG., McKEE: And they are all of the banker mind.
H.M.JR: I wonder how they would feel if you asked
them today.
MR. ECCLES: This was just last week.
MR. SPROUL: Let's have no misunderstanding on that.
They didn't take it up and vote on it and say, The do, or
do not approve of this, so I would rather not have them
drawn in and have them come back and say, "Wedidn't agree."
I think it is clear that the Board of Governors and the
Regraded Unclassified
205
- 14 -
Open Market Committee, and the presidents of the twelve
Federal Reserve Banks all by affirmative action did
approve and agree and endorse this program. I think
the Advisory Countil discussed it; and as far 8.8 the
people over there could see, the majority of them seemed
to be in favor of it.
H.M.JR: I will give you (Eccles) another one,
but I want that for Cabinet, if I can, that chart about
Canada. George, will you furnish me and Eccles with &
copy and also Mr. Wallace and Nelson and Henderson?
MR. ECCLES: The primary purpose of the program
WES to exclude the banker. The only reason in the
world for a non-negotiable issue was to prevent what
otherwise would be a continued acquisition by the
banks, as has been the case in the past. In other words,
we - the whole idea that the Fed had in developing that
program was, "Here is the one way that you can keep the
banks largely out of this thing and attempt to use
existing funds instead of creating new funds," and the
very objection the bankers raised, of course, was the
primary purpose of the type of issue that W&S developed.
MR. BELL: I think their main point, Marriner,
was that what you are doing here is taking out of the
markot these funds that would go into these tap-
issues.
AR. ECOLES: The funds 60 right back to the market.
MR. BELL: Leave the banks - no, leave the banks
holding the bag as to the fluctuation of the market.
we are there to support the market.
KR. ECOLES: But we were going to support the
market. The idea was that the tap-issues to get the
funds outside--
MR. FELL: Well, that was their point, I understood.
IR. ECCLES: Their point is, they are thinking of
the past and the underwriting market. They are thinking
Regraded Unclassified
206
- 15 -
of the easy financing of the past.
about the dollar-a-year men who can't keep their
MR. BELL: You saw what Guthrie said this morning
interests separated from the government. It isn't
human nature, apparently.
H.M.JR: Alan Sproul, you have been very quiet.
Would you say something?
MR. SPROUL: Yes. Mr. Secretary, I don't think
your program does enough. It doesn't put into the
market a sufficient volume of short-term obligations
to provide this mobility or fluidity of funds that we
have been talking about. In 50 far as you are success-
ful in selling these obligations or a large part of
them to corporations, to that extent it fails to put
additional short term obligations into the market
which will make your present excess reserves effective.
In so far as it calls upon the Federal Reserve System
to maintain the present or approximately the present
level of bill rates, I think you call on us to work
against the kind of a program which we have had in
mind, which, frankly, did contemplate some rise in short-
term interest rates which would create an additional
inducement for non-banking funds to come into the market
and which would reduce the competition of the banks with
the non-banking funds for the existing volume of short-
term securities. So long as we maintain excess reserves
at their present level or increase them and hold down
rates, we intensify the competition between the banks
and the non-bank lenders for these short term obligations,
so that I think your program falls short in not putting
additional bills into the market. I think it falls
short in asking us to support a rate on short term
obligations which we think is too low for the purpose
of our longer range program now, and for my part, as a
member of the Federal Open Market Committee, I would
only, recognizing that you have the full and final
responsibility for the financing of this war, want to
do that at request from you, and reluctantly and under
& form of compulsion. I think you also have to look
Regraded Unclassified
207
- 16 -
ahead on this financing through certificates of indebt-
edness to what is the next step. If We are to maintain
or increase excess reserves, certificates of indebted-
ness that will be put out at attractive rates, you
will have an obligation which may in the first instance
go to non-banking lenders, but there is nothing to keep
it from drifting back into the banking system.
The banks talk in there - talk of selling this to
corporations, of having a call on the banks to come
back and borrow on the obligation if the corporation
finds itself in need of funds. It seems desirable to
me that whatever we try to sell the corporations
should have some holdback on its value turned into cash
again, that there should be some retarding influence
on their cashing it in which would be provided by the
redemption features of the tap-issues we have suggested.
I don't mean to suggest by that that I think you have
to decide immediately to put out the tap-issues, but I
think you shouldn't embark on a program which will
militate against your adopting those eventually, which
I think this low-rate certificate of indebtedness
pressed sale on the corporations might, and I think
we also have to look ahead through the war situation
and the post-war situation, which goes into this
question of whether it makes any difference how much
credit or bank deposits are outstanding. I agree with
you it doesn't make much difference now as far as infla-
tion is concerned. Other things are much more important,
but the volume of bank deposits we create through the
war effort which are outstanding after the war may be a
very important factor in the inflation picture, and I
think we have to start as quickly as possible on methods
which will hold those down as far as possible, because
they are going to increase very substantially at any
rate. That also introduces the question of the need
for some haste. That is, if we are ever going to embark
on a different program from what the banks say they
want, and the corporations say they want, which is what
they are used to, we have to overcome this initial
reluctance about it, this initial suspicion of it, by
Regraded Unclassified
208
- 17 -
beginning to get them used to it now, because we
haven't very much time.
H.M.JR: Well, I appreciate your frankness, and
&S I have listened to these discussions now for weeks
or months, the fundamental difference between what
you gentlemen represent and what I represent is the
question of interest rates.
MR. ECCLES: Only in the short-term field.
H.M.JR: Only in the short term field.
MR. ECCLES: And that is a difference of a quarter,
whether it is 8 quarter or a half.
MR. McKEE: And the supply has an effect on your
rates.
H.M.JR: Now, I am perfectly willing to take the
responsibility - I have got to take it anyway. As I
have said before, we sit around and price something;
and if an issue is 8. failure, I can't say, "I did this
because Marriner Eccles or Alan Sproul advised me or
John McKee advised me." It is Henry Morgenthau, Jr.
that goes wrong, so in the final analysis; if the thing
goes wrong, I have got to take it anyway. I an not
afraid to take it. I don't do the thing lightly. I
know if we decide to do this thing, which I would like
to decide this morning, that I will get from you a good
execution--
MR. SPROUL: There is no question of that, but
as I say--
H.M.JR:
and loyalty on this thing.
MR. SPROUL: No question of that, but as far 8.8
excess reserves and interest rates are concerned, it
would be against my better judgment and my loyalty,
and execution - while not effected, they would be given
because you have the responsibility and have asked me
to do it.
Regraded Unclassified
18
209
H.M.JR: Well, I am going to ask you to do it right
now, and what I would like to do is, there are two things
which I would like you gentlemen to decide this coming
week. One, is seven hundred fifty enough? Maybe we
should make it a billion. How many months? Interest
rates. Also the question of & definite allotment of
one million, maybe five million. I don't know. That
could be discussed, how much these people want, the
businesses. Maybe one million isn't enough and they
should have an allotment of five million with the under-
standing that they would get it. As I say, it can work
two ways. If asking you to hold the bill rate approx-
imately where it is, and the long rate approximately -
I am perfectly willing to have you call me any time day
or night and say, "Morgenthau, it is impossible and these
are the reasons why, and I want another consultation. I
reserve the same right. If I am not satisfied, I would
like a consultation. I want you to know that there is
nothing here that we can't, after the first issue, say
"Well, we would like to go ahead with the tap issues. My
mind is not closed on it except as to the first step. Also
I want to see what we can do with the possibility of ex-
tending the F and G's up to a hundred thousand dollars.
Now, I haven't arrived at. this thing lightly, but this
is what I would like to do, Marriner.
MR. ECCLES: Well, I feel just like Alan does. Of
course it is your responsibility. All we car do is to
give the best advice that we have. We haven't, of course,
considered this thing lightly either. We have been de-
voting an awful lot of time and 8. lot of very serious
thought and consideration for over - for a year and the
final conclusions that we came to were not a question of
compromise and it wasn't that we were in agreement. It
was 8. result of an analysis and a study of the situation
and what we conceived the problem to be and the best way
of meeting it. We felt after we had done that, and it WAS
done after considerable discussion with your boys too,
we spent 8 lot of time with your staff; that then we should
present to you what were our views and of course if you
have some other views it is your responsibility and we
will carry out whatever program the Treasury finally
Regraded Unclassified
210
- Ist -
decides upon, realizing of course that they are taking
the responsibility for that program and we are merely
acting AS the - to execute it, but as long as we have
our day in court, so to speak, and express our views,
then if the decision is - whatever the decision is,
we of course will abide by the decision and we will do
whatever the Treasury feels should be done. I mean,
as long as I am here that is certainly what I would
want to do. You, of course, as you say, take the
responsibility and we do the executing.
H.M.JR: I will take the full responsibility.
Loes it upset you, John, at all?
MR. McKEE: Well, what I would like to ask, Mr.
Secretary, is now your next move is c/d's. Do you
now have in your mind that you are going to defer any
increase in bills, even tax bills, until you see how
the c/d's go?
H.M.JR: We feel here that we would like to do the
c/d's first. The reason that I said while we were dis-
cussing going from seven fifty to a billion, we had
originally planned in our financing plans to increase the
two hundred million a week so if we don't do that in April,
we would be short two hundred fifty million dollars in
our estimates, but all we here felt is that we would just
do this one thing in ten days.
MR. BELL: And then take another look at it?
H.M.JR: And then take another look at it, but we
would like to see what kind of a bill rate we can get
before we add - I don't mean 8. bill rate, I mean what
kind of 8 certificate rate we can get before we put
out more bills. In other words, we would like to put
the certificates out on their own feet and see what
happens to the bill rate. Now, I don't know. Maybe
there will be just as much demand for the bills, and,
therefore, the bill rate may stay where it is. Maybe there
will be less demand for the bills on account of offering
the certificate, and I just don't know. As soon as that is
out and as soon 8.8 we see what has happened, then I would
Regraded Unclassified
- 20 -
211
like to sit down again, immediately after the issue.
MR. McKEE: Do you contemplate that this c/d will
take the place of your tax notes to some extent?
H.M.JR: Tax anticipation?
MR. BELL: Do you mean tax anticipation or the
tax date--
MR. McKEE: The tax bills - the tax notes that you
have been selling in anticipation of taxes to tax payers.
MR. BELL: Not altogether. There might be people
who will go into these in preference to the tax notes,
but - who can't figure out their taxes, but they can
always have their money invested. There might be some
of that but we don't anticipate changing the tax notes.
MR. McKEE: Well, 1 thinkit will effect the sale
of them, Dan, because this will be more or less bank
deposits.
MR. BELL: It will get slightly higher rates, but
not enough to make any difference.
Mh. VINER: It is marketable.
H.M.JR: One thing that I hope is, just within the
room here, I hope we can present B united front to the
papers. Now, if you people feel that you have to say
something, that this is what I want, you are just execut-
ing it, that you don't believe in it; then I would much
rather have a formal statement rather than have it leak
out.
MR. McKEE: Do you see any necessity for any
statement from us?
H.M.JR: No.
MR. McKEE: I don't either.
Regraded Unclassified
- 21 -
212
H.M.JR: But rather than read it from the Wall Street
Journal, I would much rather have a formal statement
than to have it leak.
MR. McKEE: Do you see any need of a statement,
Alan?
MR. SPROUL: No.
H.M.JR: I personally would feel very, very badly
if there were any leaks.
MR. ECCLES: I think that you are going to find
if no statement is made that if the Fed gives substantial
support to this bill rate the market will put its own
interpretation on it. They know enough about the whole
philosophy here to - they will talk about it without any
statement whatever. Any of these financial writers will
immediately make their own story.
H.M.JR: I was going to give out something for Monday
after you people had a chance to look at it, something
along these lines.
MR. BELL: I have copies here.
H.M.JR: 1 mean something along these lines.
MR. BELL: This is on the certificates.
H.M.JR: I haven't seen it yet.
MR. BELL: It just came in. It is hot off the type-
writer.
H.M.JR: I would like you to take it back and make
any suggestions you would like to make on it. You see,
I am taking the full responsibility there.
MR. ECCLES: Now this last where you say these
business funds and so forth, the market will immediately
make their own interpretation out of that and the -
this is a market issue. They will conclude, I think,
Regraded Unclassified
- 22
213
that your non-negotiable issue is out and they will
see the Fed operating to maintain reserves and the
whole question will be - the story would be on the basis
of that, that - just what Alan says in the first para-
graph of his statement. This is the interpretation, that
the program seems to be incompatible with the objective
of obtaining the largest amount of funds outside of the
banking system by pegging the short rate. That is what
the conclusion would likely be. At a low level, which
would in effect increase the volume of excess reserves.
What I mean is that you may well get some of your financial
people that would write their own stories on this.
H.M.JR: Possibly.
MR. ECCLES: So that I wouldn't want you to con-
clude that there was a leak, because they might inter-
pret this. I would sooner, if there was any such 8
chance of your getting such an impression, that a state-
ment be made. I would prefer no statement, but I am
saying if you make no statement there is still the
likelihood--
H.M.JR: You wouldn't even say this?
MR. ECOLES: I wouldn't make any statement except
to this effect. I would cut the last paragraph. I
would say that you are going to put this volume of bills
out, that it is in conformity to the new law passed, it
is what we have done before, and that it is B. money market
instrument to help to create fluidity in the market, and
stop. Because it really is. it takes the place, in part,
of bills outside the money market, is really what it does.
It provides an instrument for those with funds, without
regard to who they may be, banks or otherwise; because it
has a certificate and it provides fluidity to your money
market in a manner that bills alone don't provide and I
think I would say that, but I don't believe I would add
this last one, "To provide a suitable medium of in-
vestment for current accumulation of business funds
temporarily thrown out of employment," and so forth, be-
Regraded Unclassified
- 23 -
214
cause I think the conclusion on that would be--
H.M.JR: That we are not going to do a tap issue.
MR. ECCLES: I think 80,
H.M.JR: That is fair.
MR. ECCLES: I think they would conclude that
right off the bat and I would leave that end of it
out unless you have concluded that.
H.M.JR: I have not.
MR. ECCLES: Then I wouldn't put that in.
MR. McKEE: May I read a short paragraph that
I jotted down here to see if you see any sense in
it?
MR. ECCLES: I would cut the second out.
H.M.JR: Just one second, John, please. You
would cut out that part first--
MR. ECCLES: I would cut that all out. "The
Secretary said that he was reviving this finance to -
to provide 8 greater short term money market," and
this seems to be all right...
H.M.JR: Do you think that would be taken to
mean we were shutting the door on the tap issue?
Regraded Unclassified
215
- 24 -
MR. ECCLES: I think so the way it was written.
H.M.JR: I don't want to do that.
MR. VINER: How about saying one medium for tap-
issues? What I was thinking was this, they might think
the Secretary feels he is in a jam and he has to go into
these short term instruments. The only thing that saves
this situation is to say--
MR. ECCLES: Everybody knows. It has been generally
concluded by the financial press and the bankers and
everybody that there is not enough short-term paper
in the money market to provide fluidity. That has been
one of the universally recognized facts by the Fed,
by the bankers, and the Treasury.
H.M.JR: I think your suggestion is a good one,
and let my boys digest it; and if they want to come
back at you, let them come back at you after lunch.
How is that?
MR. ECCLES: O.K.
H.M.JR: If they are not satisfied, let them come
back later, but I don't want to give the impression
that we are shutting the door.
MR. HAAS: I think it can be handled satisfactorily.
H.M.JR: I think Mr. Eccles raises & very good
point, and have another look at it; and if you have got
anything else, go over this afternoon and see him, Dan.
Regraded Unclassified
216
- 25 -
MR. ECCLES: I would like to talk just 6. minute
on this question of the long and the short rate where
our support would come in. I think that that is impor-
tant to you. I would like to avoid an interpretation
by the press or by the market that the Fed is under-
taking a pegging operation of this bill rate at around
a quarter. I think that if we could be allowed the
leeway between the present bill rate which went last
week up to & three-eighths rate so you have got some
fluctuation with that as a peak and with the other as
EL floor on this picture, that that is very much more
in line with 8 half for certificates of even six,
seven, or eight months. I would like to keep & relation-
ship between this bill rate and your certificate rate.
H.M.JR: Could I say simply - you notice I very
carefully used the word, approximate. I would like to
leave that to you gentlemen to use your judgement. If
I an not satisfied, I would like to have the right to
call you up.
MR. ECCLES: Yes. Well, that is all right. I
didn't want any misunderstanding as to approximate. My
idea of approximate would be with that as a top and
with the other as a floor. Of course, you could always
say you didn't think we are doing enough.
MR. VINER: Well, would you want that much of a
range for say a matter of the next few weeks? We were
thinking, I understood, of a range of that size in terms
of B. program for a year, but your range of freedom can
be less for operations within & short period of time
than for operations--
MR. ECCLES: It would depend entirely upon the
amount of purchase required. In other words, if it
became necessary to do substantial purchases to hold
the rate at & quarter, we will say, or even three-
tenths, I don't think that we ought to purchase enough
to give the appearance of & pegging at some point there.
Now, if 8. very little purchasing would hold it there,
that is another thing.
Regraded Unclassified
217
- 26 -
H.M.JR: Haas, give Mr. Sproul that Canadian
study also, will you?
MR. HAAS: O.K.
MR. ECCLES: You can see that a large operation
would be considered one way by the market, and 8. very
small amount of purchases--
H.M.JR: Well, Marriner, again you fellows study
it and do what you want. If I am not satisfied, I
will call you up; and if I am satisfied, you won't
hear from me.
MR. ECCLES: All right, now on the long--
MR. SPROUL: Well, on that I think we ought to
know if you are not going to be satisfied in advance
if we let the rate go to three-eighths, then we haven't
that leeway.
H.M.JR: You have got the leeway. You set what
you want and use your best judgment. You are in touch
with the market from minute to minute, and I am not.
MR. McKEE: Are you going to make any attempt to
keep the banks out by subscriptions, out of the c/d's?
MR. BELL: It is suggested that we give preferred
allotment to non-banking institutions. You can do that.
I don't know whether you want to start the practice or
not. We have never done it, but we do have the authority.
MR. ECCLES: You would have difficulty in New York.
I think the best way to get at that - what you want to
do is get some of the excess reserves out of New York
and into the market, and this certificate, in the
absence of additional bills, will tend to do it. This
certificate will make your excess reserves picture out-
side, it seems to me - give it more fluidity. And if
you should make your allotment on the basis of a million
or two million, some point, it will cover & lot of the
Regraded Unclassified
218
- 27 -
smaller, middle sized banks that may come in this way
that otherwise wouldn't come in, who have got excess
reserves.
MR. McKEE: What about allotting it by Federal
Reserve Districts according to the excesses.
MR. BELL: You can do that. As a matter of fact,
when we sold our certificates during the last war we
gave quotas to each Federal Reserve District based on
the capital structure of the bank.
MR. McKER: The thing that worries me, if you have
some restrictions on the subscriptions of these c/d's,
you put out, say, seven hundred fifty million, and all
the present bidders of bills get their quota under that.
We are going to have a problem to roll over your bill
program at & quarter of one percent.
H.M.JR: Well, I think that is a very worthwhile
suggestion, and I think it should be looked into, and
also the suggestion which I threw out which I don't know
whether it is worthwhile, to have allotment of one mil-
lion or two or three or four, whatever you think would
be right.
MR. ECCLES: The allotment both as to amount and
maybe by districts.
H.M.JR: Yes. And then you have got all of next
week to study that.
MR. ECCLES: Now, on the long market, I would like
to mention that. Of course at the present time it is
riding along in very satisfactory shape, and there is no
reason to think that it won't continue to; but if for
any reason it shouldn't, the question is, where should
the support - should this be an attempt, for instance,
on the '67-'72's or on the 2's where we had the prob-
lem before. That five hundred million of 2's was the
problem at the last issue, you remember. The difference
between the 2's and a quarter that was put out in the
Regraded Unclassified
- 28 -
219
last issue and the ones put out before the 2's were
right on the par market all the time, and we bought
8. substantial amount of 2's. Now should we at this
time - the least weakness in the market - those 2's
will press right on par.
H.M.JR: This is my thought, if it would be agree-
atle to you. You have got kind of 8 curve, haven't you?
MR. ECCLES: That is right.
H.M.JR: My thought is to keep that curve approx-
imately where it is. You may get 8 break here and there,
but I wouldn't take the longest and try to hold that
and let everything else fall by the wayside, if that
would be agreeable to you gentlemen.
MR. ECCLES: Is there anything sacred about par,
for instance, on the '67's or the--
H.M.JR: Not as far as I am concerned.
MR. ECCLES: That is what I wanted.
H.M.JR: My thought is simply, that curve is the
line and I would like to hold it without having a break-
through, using a military term, and have - or try to
hold the end, and have the whole thing sag. I don't
know whether you (Sproul) agree with that or not.
MR. SPROUL: I would say that the 2's of '51-'55
which are definitely out of line could fall below par
and still maintain that line whereas two and 8. halfs at
'67-'72, all this - this is much less likely with the
laok of long term obligations in that market, they might
fall below par slightly. But the line, nevertheless,
would be maintained.
H.M.JR: What I am asking you in this case, is
that unreasonable to keep the curve approximately?
MR. SPROUL: No, it is not.
Regraded Unclassified
220
- 29 -
H.M.JR: Is that the way you would like to do it?
MR. SPROUL: Yes, with the possibility that certain
issues might not be held at par.
H.M.JR: Oh, I won't fight with you on that. Is
that all right with you, Marriner?
MR. ECCLES: It is all right with me. Let me make
this point though, that in watching that market, if one
issue gets out of line, it doesn't stay out - the arbi-
tration is such that the market itself pretty well
adjusts it. The real points are at the bottom point,
and the top point, and that line doesn't - can't sag,
because the minute something gets out of line, it is
a very short time--
H.M.JR: Well, that would fall into what I am saying
here. You keep the curve approximately where it is.
MR. ECCLES: Yes. Well, all I am interested in,
Alan, is that this peg out here is - my idea is to
approximately figure that two and a half is the long term
rate, and that is, for instance, that the '67-'72's is
the longest two and a half that we have got out. There-
fore, that is your bench mark at the present time. I
would like to feel that there is some leeway in that
market of say two or three points, from ninety-eight
or ninety-nine up to B. hundred and one or a hundred
and one and a half, so that the market does not get the
impression that that is a demand liability at two and a
half, that is that we are pegging it at two and a half
50 that they can cash it in on demand and always get
their money.
H.M.JR: Well, I don't think - on a week to week
basis you need two or three points leeway?
MR. ECCLES: I don't think at the moment you do,
not in B. week, no.
MR. SPROUL: But as a program that may go on from
week to week until it extends into months.
Regraded Unclassified
221
- 30 .
H.M.JR: Oh.
MR. BELL: They are thinking of & long-range
program here, and I thought you were talking about
just a short-range program until we get to this long-
range program.
H.M.JR: I was.
MR. ECCLES: Well, I would think that during the
next week unless something certainly unforeseen should
develop that caused another problem - then we would
have to have of conference and decide what kind of a
supporting operation had to be given. That wouldn't
be & normal market picture.
H.M.JR: But on a week to week thing certainly
it couldn't vary two or three points.
MR. BELL: Unless you have a shock of some kind.
H.M.JR: Then it is B. special situation.
MR. MoKEE: Mr. Secretary, I am just & lone eagle
on this part, but I would like to express my opinion,
which I didn't have an opportunity the last time we met.
H.M.JR: It was passed on to me.
MR. McKEE: And that was the fact that I think
the numbers of holders of Government Bonds, not the
quantity, but the numbers, do not figure on a yield
basis. They figure on a coupon basis. And I know from
contacts with small bankers throughout this country
that they have always expressed the opinion that when
it gets below par, they get scared and their boards get
scared, and I am very much impressed. I think the mis-
takes that were made were mistakes subject to conditions
that we couldn't foresee, and we have got them, and we
have got to live with them, and I for one am a par man.
I just wanted to - and I do find myself alone.
Regraded Unclassified
222
- 31 -
H.M.JR: Well, normally I would be with you. I
am trying not to be arbitrary or unreasonable. I
would like to have my own way as to getting started.
I don't think it is fair to ask for my own way to get
started and then also to have it as to how the Open
Market should carry it out. I think that that would
be unreasonable, and I an trying not to be unreason-
able, so I am asking for them to give me a good dis-
cussion, but leaving it to them how they do it. I mean,
I don't think I can have both.
MR. ECCLES: Well, you are leaving it to us, but
at the same time it is important, because the things
are tied together. Your program is tied in very closely
with our - and our discussion--
H.M.JR: But, Marriner, what I meant was, if I
said you have got to hold it within these limits and
you can't do this and you can't do that, then I would
put in so many restrictions that it makes it - well--
MR. ECCLES: Of course, you freeze the situation.
H.M.JR: Yes, I am trying to be as reasonable and
fair as I can.
MR. ECCLES: Well, we can freeze it, but that isn't
what you want. You are willing to have a market -
reasonable market and normal operation with the proper
kind of support.
H.M.JR: What I am asking is, I am taking the
responsibility for this, but as to how to carry out the
objectives, I am putting it up to you fellows to do it.
Is that fair?
MR. ECCLES: Is that clear to you, Alan?
H.M.JR: Is that all right?
MR. SPROUL: It is clear and fair. I will state
it as I understand it. You are going to put out
Regraded Unclassified
223
- 32 -
approximately seven hundred fifty million dollars of
certificates of indebtedness early in April, during
the week of April seventh. That is without commit-
ment as to further issues of Treasury bills, it is
without commitment as to later use of tap-issues if
you decide that is desirable. Our commitment or our
part in it is to the best of our ability, and as we
think, is best to engage in operations in the market
which will prevent the bill rate from going up too
rapidly and too far, and We interpret that at the
present time subject to future discussion with you as
putting an upper limit of three-eighths on our operations.
MR. ECCLES: Supporting in the interim, though.
MR. SPROUL: Supporting in the interim. That
everything else is subject to future determination
after we see how this move takes, except that with res-
pect to the whole range of Government security prices
you want to see that general curve maintained without
insisting that individual issues be maintained at par
or any specific figure.
H.M.JR: That is right.
MR. ECCLES: That is agreeable to me.
H.M.JR: Well, I thank you for your spirit and
cooperation, and say a little prayer for me.
Regraded Unclassified
224
Canadian inflation-control program,
On December 1, 1941, after previ us unsuccessful attempts
to control prices, Canada out into effect an overall price
celling AS part of A. far-reaching program of inflation control.
This 5-part program consists of (1) & general ceiling on re-
tail -rices, with limited exceptions, (2) a ceiling on wages
and salaries, supplemented by cost-of-living bonuses, (3) our-
tailment of public spending through taxation and war savings
rosrams, (4) & eystem of industrial allocations, with Dro-
spective consumer rationing, and (5) subsidies to producers
of essential farm products, to maintain supplies without In-
creasing coste to consumers.
While it 18 probably too early to determine the effective-
ness of the Canadian program, a levelling-out of the Canadian
cost-of-living index and index of retail food prices since
November 1941 may be significant. The attached chart shows
the official Canadian cost-of-living index and the index of
retail food prices, in comparison with similar official in-
dexes for this country. For 0 mparability, both are converted
to an August 1939 base.
The Canadian figures (as of the lat of each month) show
that the cost of living index in February was 0.5 percent
lower than last November, and that the index of retail food
prices was 1.8 percent lower. (The Order in Council establish-
ing ceiling orices was issued November 1, the base period for
the ceilings having been announced on October 18.) Figures
for the United States (as of the 15th of each month) show in
the same period a rise of 2.2 percent in living costs and
a rise of 3.3 percent in retail food prices.
The Canadian price ceiling is essentially a rigid oeil-
ing on retail prices, applying to all commodities (unless
abecifically exempted), to twelve essential services, and to
the rental of all real property. A major administrative
problem 18 the "rolling back" of squeezes between retail
prices and basic costs, which is accomplished in nart by the
payment of various Government subsidies.
Attachment
Regraded Unclassified
THE
-
COST OF LIVING, U.S. AND CANADA
AUGUST 1939 - 100
PER
PCR
CENT
CENT
Cost of Living
120
120
115
115
Canada
(DOM, But, OF STAT.)
110
110
105
105
U.S.
(B.L.S.)
100
100
95
95
J
M
M
J
â
N
J
M
M
J
$
N
J
M
all
J
$
.
J.
at
is
1939
1940
1941
1942
C
Foods, Retail
130
130
125
125
120
120
115
115
Canada
(Bux. OF STATE)
110
110
105
105
U.S.
(8.L.S.)
100
100
95
95
a
J
M
M
J
5
-
J
N
M
,
$
N
J
M
J
M
.
J
5
1940
1941
1942
1939
The Secretary of the Tragam
Regraded Unclass
226
TREASURY DEPARTMENT
Washington
FOR RELEASE, MORNING NEWSPAPERS,
Press Service
Monday, March 23, 1942.
No. 30-83
3/21/42
Secretary Morgenthau said today that he expects to offer
two 1seues of certificates of indebtedness during the month of
April. The first issue will be offered during the week of
April 7. This is the first time that this form of instrument
which is limited by law to a maturity of one year -- has
been offered in the market by the Treasury since 1934. The
new certificates will be redeemed in cash at maturity and will
carry no exchange privileges,
The Secretary said that these short-term securities will
provide a greater fluidity to the money market, and will also
satiefy the demande of those business funds which prefer &
short-term marketable security with an interest coupon to
discount securities such as Treasury bills.
-000-
Regraded Unclassified
227
Proposed Press Statement for the
Secretary of the Treasury
Secretary Morgenthau said today that he expects to sell
an issue of certificates of indebtedness some time in April.
/
This 18 the first time that this form of instrument -- which
is limited by law to a maturity of one year -- has been offered
in the market by the Treasury since 1934. The new certificates
will be redeemed in cash at maturity and will carry no exchange
privileges.
The Secretary said that he was reviving this type of
financing fee two primary Pessons: First, to provide a suitable
medium of investment for current accumulations of business funds
temporarily thrown out of employment because of wartime
restrictions; and, second, to provide a greater fluidity to the
short-term money market.
Regraded Unclassified
TREASURY DEPARTMENT
228
INTER OFFICE COMMUNICATION
DATE Maroh 20, 1942.
TO
Secretary Morgenthau
FROM
George Buffington GTS
In my discussions with officers of fifteen corpora-
tions in New York and Chicago, I found & desire to cooperate
with the Treasury in whatever financing program 16 finally
adopted. While the corporations interviewed represent a fair
cross-section of industry, it might be desireole to extend
the investigation to medium-sized corporations to gain an over-
all impression of business.
Apparently little has been done in recent years to
educate corporations to think in terms of bills and certificates
of debt. Most of the corporations, however, with whom I talked
prefer fixed maturities and fixed rates of interest Decause
they have schedules of future cash outlays and prefer to have
naturities coincide with their requirements. Generally corpora-
tions with funds available are interested in certificates of
debt running from six to nine months with an interest rate of
one-half of one per cent. Many of them are also interested
in ninety-day bills.
Wherever corporations have surplus cash and where
their needs are indefinite, there seema to De a good deal of
interest in tap issues; however, it would appear that the
amount of idle funds available for this purpose may have been
somewhat over-estimated. Before making a final decision about
offering a five year tao issue to corporations, it might D6
desirable to examine further the requirements of business.
Several corporation officials expressed a desire that the limit
on "F" and "G" bonds De lifted above $50,000 annually. The
opinion was also expressed that in certain instances corpora-
tions night sell general market securities in order 10 Day tap
issues, thereby siversely affecting the general market,
Under existing conditions the demands of industry
for increased working capital indicate that many corporations
will resosorb idle funds in the conduct of their business
during 1942.
There will follow a detailed report of my verious
interviews,
Regraded Unclassified
MEMORANDUM
229
March 19, 1942.
RE: INVESTMENT OF IDLE BUBINESS FUNDS
I talked yesterday, March 18, with the following company
officials at the office of the Federal Reserve Bank of Chicago:
Mr. A. B. Keller, Vice President,
International Harvester Company
Mr. W. D. Gale, Vice President in Charge of Finance,
Commonwealth Edison Company
Mr. Ellis Taylor, Vice President,
Mr. Robert Lascelles, Treasurer,
Pullman Company
Mr. Mark Kemper,
Lumbermen's Mutual Casualty Company
Mr. James Cox, Vice President,
William Wrigley, Jr., Company
Mr. W. B. Traynor, Vice President and Treasurer,
Swift and Company
Mr. R. E. Clarke, Treasurer,
Standard 011 Company of Indiana
Mr. W. L. Templeton, Treasurer,
Quaker Oats Company
Mr. Willard N. Boyden, Vice President,
Continental Casualty Company
(1) International Harvester Company. Inasmuch as their
working capital requirements vary from time to time, they prefer
maturities one year or less. Mr. Keller states that they are
primarily interested in bills and certificates of debt because
they can buy them with maturities to meet their neede. At the
present time they hold B. substantial amount of oills in addition
to 830 million of Tax Savings Notes. If the volume of business
Regraded Unclassified
- 2 -
230
continues to increase at the present rate, they will let some
maturities run off to produce additional working capital for war
work. While it would be a deviation from their established
practice, they would buy tap issues for pension funda if asked
to do 80,
(2) Commonwealth Edison Company. Mr. Gale stated that the
company 18 carrying at present $75 million construction funds. To
date they have not invested in Government securities with maturities
longer than two years. They would be very much interested in buy-
ing certificates of debt at 1/2 of 1 per cent with maturities be-
tween six and nine months. Edison 1s holding $20 million tax notes.
They are anxious to cooperate with the Government and hope that the
bill rate will be high enough in the future to permit them to make
expenses of handling after taxes.
(3) Pullman Company. The company has preferred in the past
to Duy general market issues maturing beyond two or three years.
Since the company has reduced its outstanding capital stock, their
funds available for investment have decreased materially. Since
1933, the company has spent B. total of 840 million for new cars.
In the future they will probably accumulate renewal funds of
around 7 million annually which it may not be possible to spend,
due to the scarcity of certain materials used in the construction
of the new light-weight cars. The company will buy some certifi-
cates of debt but is inclined to postpone extended purchases until
rates are more ravorable.
They asked about the possibility of lifting the limit of "F"
and "G" bonds above $50,000.
Regraded Unclassified
231
- 3 -
(4) Lumbermen's Mutual Casualty Company. The company is
holding 20 million bills and approximately $5 million long-term
Government securities. They will continue to buy bills and cer-
tificates of debt. Whenever commercial paper rates go to above
1/2 of 1 per cent, they are buyers of paper maturing from six to
twelve months.
(5) William Wrigley and Company. With present taxes running
last year to $4 million, the company sees little prospect of having
idle funds for investment unless sugar restrictions lead to lower
inventories. They are starting now to ouy tax notes in anticipa-
tion of next year's taxes. They are glad to cooperate in any
Government program and hope that the rate on bills and certificates
of debt will cover expenses of handling after payment of taxes.
(6) Swift and Company. Until recently, Swift and Company
has had excess cash balances B.S. high as $30 million. Increases
in hog prices last year caused the company to borrow from its
bank. As this inventory is processed and marketed they will re-
duce bank loans but will probably not have substantial idle funds
available for purchase of Government securities. They are interested
in tap issues for pension funds. They asked about lifting $50,000
limit on "F" and "G" bonds.
(7) Standard 011 Company of Indiana. The company has approxi-
mately $60 million invested in United States Government securities--
longest maturities 1945. The present indications are that increased
volume of business will necessitate absorbing $15 million of idle
funds in their operations during the next six or eight months. If
Regraded Unclassified
232
business continues to increase at present rates, investments will
prooably decrease further. They will buy some tap issues out they
like the flexibility of definite maturities at fixed interest rates.
They would be interested in bills maturing six to nine months at
1/2 per cent.
(8) Quaker Oate Company. In recent years, the company has
had up to $15 million in idle funds invested in Government securities.
Funds available for investment have decreased to #7-1/2 million
recently on account of higher material costs. Because of the
nature of the business, the company would prefer short paper
naturing during last quarter of calendar year. Bills are not
particularly attractive on account of the yield; six to nine
months certificates of debt at 1/2 per cent would be attractive.
They are interested in the idea of tap issues but think that type
of security 18 not as attractive for their purpose.
(9) Continental Casualty Company. The company will Duy oills
and certificates of debt for casualty company; life company con-
trolled by same interests already committed to invest 75 per cent
of their available funds in long-term Governments. They are now
buying 2-1/2's of 1967-72 but will buy tap issues if available
and the Government desires them to do SO.
I talked with the following company officials at the
office of the Federal Reserve Bank of New York on March 19:
Mr. John Morton, Treasurer,
Singer Manufacturing Co.
Mr. J. Crane, Treasurer,
Standard 011 Company of New Jersey
Regraded Unclassified
- 5 -
233
Mr. Arthur Surkamp, Treasurer,
U. S. Rubber Company
Mr. John Raesch, Executive Vice President,
John Wanamaker
Mr. G. L. Edwards, Treasurer,
U. S. Steel Corporation
Mr. F. T. Fisher, Treasurer,
Corn Products Company
(1) Singer Manufacturing Company. The company holds $68
million Government securities--longest maturity September 15, 1948.
In addition, the company holde $28 million Canadian bonds. This
fund has accumulated as their operations in foreign countries have
contracted. Present indications are that the company will not
susoro this fund in the operation of their business unless they
are asked to do a substantial amount of war work. They would buy
six to nine months certificates of debt at 1/2 per cent. Inasmuch
as the investment account has been created for the purpose of ex-
panding foreign operations after the war, they do not particularly
require short-term investments. They would be very much interested
in five year tap issues.
(2) Standard 011 Company of New Jersey. The company has ap-
proximately $100 million in Government securities. Their total
cesh and investment account 18 divided approximately as follows:
25% in cash
50% in bille
25% in other Government obligations
running from one to five years
The company holds large balances for operating subsidiaries
and since demands from these subsidiaries vary, they would prefer
continuing to buy bills and certificates of debt. So far this
Regraded Unclassified
-6-
234
year they have bought approximately $10 million Tax Savings Notes
end by June when they can estimate more accurately their taxes
for the current year, will undoubtedly increase this amount.
(3) United States Ruboer Company. The company has approxi-
mately 10 million surplus cash on hand which they would invest in
oille and certificates of debt. If the company should acquire
additional idle funds not needed in the business for an extended
period, they might ouy in their 8 per cent preferred stock or
redeem outstanding bonds. Anxious to cooperate with the Government
in any financing program. The company acquired last year $9 million
of Tax Savings Notes against a $15 million tax liability. The
first installment of tax this year was paid by presenting 50 per
cent notes and the balance in cash.
(4) John Wanamaker. The company has not been educated to
buy certificates of deot or bills. They believe both issues de-
sirable for their purpose and would look favorably upon tap issues
for inventory reserves. They have several million dollars in
excess cash available. Mr. Raasch indicates that they are possibly
in a little easier position than some of their competitors due to
the fact that they have never relied on bank borrowings to carry
inventories. He thinks any plan the Government may develop to
utilize excess business funds is advantageous and he 18 glad to
cooperate.
(5) The U.S. Steel Corporation. The corporation has maintained
B policy of not investing idle cash reserves. At the present time
they have appropriated from surplus approximately $180 million
which will De paid out probably within the next eighteen months.
Regraded Unclassified
235
- 7 -
Because of far-flung operations, the company carries seven hundred
bank accounts in four hundred banks throughout the country. While
action with respect to changing their present policy would neces-
sarily have to have the approval of the Finance Committee, Mr.
Diwards expresses the personal view that he thought the company
would cooperate in any Government program and thought they could
buy bills, certificates of debt, and tap issues. Their schedule
of payment against this appropriated surplus is sufficiently
flexible to permit the purchase of a tap issue, with a thirty-day
redemption provision.
(6) Corn Products Company. The company has approximately
525 million cash on hand, part of which may be absorbed in the
operation of business during the next year. The company will
undoubtedly have to defer some maintenance thereby accumulating
additional funds. They will buy $7-1/2 million tax notes in
anticipation of this year's taxes but would be very much in-
terested in bills, certificates of debt, and a five-year tap
issue. They are enthusiastic about any procedure which will
help the Government carry out its financing program.
Regraded Unclassified
3/20/40 3/20
236
AMOUNT FOR WHICH
AMOUNT SUBSCRIBED
NAME AND LOCATION OF BANK
EACH BANK CAN
TO 21% BONDS
SUBSCRIBE
OFFERED 2/13/42
1 Chase National Bank, New York
$100,270,000
$100,000,000
2 National City Bank, New York
77,500,000
77,500,000
3 Guaranty Trust Co., New York
130,000,000
10,000,000
4 Bank of America N.T.& S.A.,
San Francisco
61,400,000
60,700,000
5 Continental Illinois N/B & Tr.
Company, Chicago
50,000,000
50,000.000
6 Bankers Trust Co., New York
37,500,000
25,000,000
7 Central Hanover Bk.& Tr. Co.,
Nov York
40,500,000
40,500,000
to First National Bank, Chicago
37,500,000
37,500,000
9 Chemical Bk.& Tr. Co., New York
35,000,000
25,000,000
10 Manufacturere Tr. Co., New York
37,445,000
37,445,000
11 First National Bank, New York
55,000,000
45,000,000
12 First National Bank, Boston
33,500,000
25,000,000
13 Irving Trust Co., New York
51,467,000
15,000,000
14 Bank of the Manhattan Company,
Now York
20,000,000
20,000,000
15 J.P. Morgan & Co., New York
20,000,000
10,000,000
16 Security-First N/B, Los Angeles
23,000,000
23,000,000
17 National Bank, Detroit
15,000,000
15,000,000
18 Philadelphia Nat'l Bank,
17,500,000
17,500,000
Philadelphia
19 New York Trust Co., New York
18,750,000
18,750,000
) Cleveland Trust Co., Cleveland
16,150,000
16,000,000
Regraded Unclassified
237
- 2 -
AMOUNT FOR WHICH
AMOUNT SUBSCRIBED
NAME AND LOCATION OF BANK
EACH BANK CAN
TO 215 BONDS
SUBSCRIBE
OFFERED 2/13/42
21 Com Exchange Bank Tr. Co.,
Nov York
$15,000,000
$15,000,000
22 Northern Trust Co., Chicago
4,500,000
4,500,000
23 Mellon National Bank, Pittsburgh
18,750,000
18,750,000
24 American Trust Co., San Francisco
9,500,000
4,000,000
25 Wells Targo 3k. & Union Tr. Co.,
San Francisco
7,500,000
2,000,000
26 Union Trust Co., Pittsburgh
44,750,000
30,000,000
27 Harris Trust & Svge. Bk., Chicago
7,000,000
3,500,000
28 First National Bank, St. Louis
7,150,000
7,000,000
29 Pennaylvania Co. For Insurance
Philadelphia
10,200,000
8,000,000
30 Bank of New York, New York
7,500,000
7,500,000
31 First Wisconsin N/B, Milwaukee
9,000,000
7,250,000
4,000,000
4,000,000
32 First National Bank, Baltimore
33 National City Bank, Cleveland
6,700,000
4,000,000
6,000,000
6,000,000
34 Seattle-First N/B. Seattle
35 Nat'l. Shawout Bank, Boston
15,000,000
15,000,000
36 Detroit Bank, Detroit
3,925,000
3,885,000
37 Commerce Tr. Co., Kansas City, No.
5,000,000
5,000,000
38 Mercantile-Commerce Bank & Tr. Co.
7,000,000
7,000,000
St. Louis
39 Anglo California National Bank,
10,105,000
10,000,000
San Francisco
40 Manufacturers N/B. Detroit
3,750,000
3,750,000
41 Fidelity Union Tr. Co., Newark
6,750,000
6,750,000
42 United States N/B, Portland, Ore.
4,500,000
1,000,000
Regraded Unclassified
- 3 -
238
AMOUNT FOR WHICH
AMOUNT SUBSCRIBED
NAME AND LOCATION OF BANK
EACH BANK CAN
TO 21% BONDS
SUBSCRIBE
OFFERED 2/13/42
43 City N/B & Tr. Co., Chicago
$3,700,000
None
44 Crocker First National Bank,
San Francisco
6,000,000
$1,000,000
45 Savings Bank Tr. Co., New York
16,248,500
16,000,000
46 Public N/B & Tr. Co., New York
7,000,000
7,000,000
47 Marine Trust Company, Buffalo
7,500,000
7,500,000
48 Central National Bank, Cleveland
6,890,000
2,000,000
49 First N/B & Tr. Co., Minneapolis
6,000,000
3,000,000
50 San Francisco Bank, San Francisco
5,000,000
2,500,000
51 Marine Midland Tr. Co., New York
5,000,000
3,000,000
52 Farmers & Merchants N/B, Loe Angeles
3,750,000
3,750,000
53 First National Bank, Dallas
5,500,000
5,500,000
54 First National Bank, Portland, Ore.
4,000,000
4,500,000
55 Northwestern Nat'l Bk. & Tr. Co.
Minnespolis
5,000,000
2,500,000
56 Whitney Nat'l Bank, New Orleans
4,250,000
4,250,000
57 Bank of California, N.A.,
Sen Francisco
7,000,000
7,000.000
58 First National Bank, Atlanta
4,500,000
4,500,000
59 Commercial N/B & Tr. Co., New York
7,000,000
5,000,000
60 Indiana N/B, Indianapolis
4,500,000
4,500,000
61 Riggs Nat'l. Bank, Washington, D.C.
3,575,000
3,700,000
62 Corn Exchange Nat'l Bk.& Tr. Co.,
Philadelphia
5,775,000
2,000,000
63 California Bank, Los Angeles
4,000,000
4,000,000
4 First National Bank, St. Paul
6,000,000
6,000,000
Regraded Unclassified
- 4 -
239
AMOUNT FOR WHICH
AMOUNT SUBSCRIBED
NAME AND LOCATION OF BANK
EACH BANK CAN
TO 21% BONDS
SUBSCRIBE
OFFERED 2/13/42
65 Fifth Third Union Trust Co.,
Cincinnati
$5,000,000
$5,000,000
66 Citizens & Southern Nat'l Bk.,
Savannah
3,825,000
3,825,000
67 Fidelity-Philadelphia Trust Co.,
Philadelphia
8,850,000
8,000,000
65 Citizens Nat'l. Tr. & Svgs. Bank,
Los Angeles
4,137,500
4,000,000
69 First Nat'l Bank, Kansas City, Mo.
2,000,000
1,000,000
10 Girard Trust Co., Philadelphia
6,500,000
5,000,000
71 Brooklyn Trust Co., Brooklyn
6,400,000
6,400,000
72 First National Bank, Pittsburgh
5,250,000
3,000,000
2,500,000
None
3 State Bank of Albany, Albany
74 Wachovia Bk & Tr. Co., Winston-Salem
3,500,000
3,500,000
75 Mississippi Valley Tr.Co., St. Louis
4,050,000
4,050,000
76 Brown Brothers Harriman & Co.,New York
6,663,000
5,000,000
5,750,000
1,000,000
77 Industrial Trust Co., Providence
75 United States Trust Co., New York
14,000,000
8,000,000
79 First National Bank, Philadelphia
3,555,000
2,500,000
80 National Bank of Commerce, Seattle
2,500,000
2,500,000
6,750,000
6,750,000
81 Peoples-Pittsburgh Tr.Co., Pitteburgh
3,000,000
500,000
82 Merchants National Bank, Boston
83 Manufacturers & Traders Trust Co.,
Buffalo
5,500,000
5,500,000
84 Farmers Deposit N/B. Pitteburgh
7,500,000
6,000,000
95 Toleão Trust Company. Toledo
4,000,000
4,000,000
Regraded Unclassified
- 5 -
240
AMOUNT FOR WHICH
AMOUNT SUBSCRIBED
NAME AND LOCATION OF BANK
EACH BANK CAN
TO 21% BONDS
SUBSCRIBE
2/13/42
80 American Trust Co., Charlotte
$1,800,000
$1,800,000
E7 Union Planters N/B & Trust Co.
Memphis
3,500,000
3,750,000
68 First National Bank, Cincinnati
5,550,000
5,550,000
89 Wilmington Trust Co., Wilmington
7,000,000
7,000,000
90 Hartford N/B à Tr. Co., Hartford
4,000,000
4,000,000
91 City Bank Fermers Tr. Co., New York
10,000,000
10,000,000
92 Republic National Bank, Dallas
5,000,000
5,000,000
93 State Street Trust Co., Boston
4,237,000
1,000,000
94 Second National Bank, Boston
3,000,000
3,000,000
95 Central Trust Co., Cincinnati
3,350,000
3,375,000
y6 Citizens Union National Bank,
Louisville
2,000,000
2,000,000
97 Ohio National Bank, Columbus
3,170,500
1,000,000
98 First & Merchants National Bank,
Richmond
3,000,000
3,000,000
99 First National Bank, Birmingham
4,781,000
4,750,000
100 The National Commercial Bank &
Trust Company, Albany
3,250,000
3,250,000
Apparently these banks erronsously included some recerves in certifying
their capital and surplus.
3/20 1-2
241
BOSTON
AMOUNT FOR WHICH
AMOUNT SUBSCRIBED
WE AND LOCATION OF BANK
EACH BANK CAN
TO at% BONDS
SUBSCRIBE
OFFERED 2/13/42
est National Bank,
beton, Massachusetts
8 33,500,000
$25,000,000
tional Shawmut Bank,
ston, Massachusetts
15,000,000
15,000,000
lustrial Trust Company,
cridence, Rhode Island
5,750,000
1,000,000
rehants National Bank,
aston, Massachusetts
3,000,000
500,000
rtford National Bank &
hist Company,
lartford, Connecticut
4,000,000
4,000,000
Street Trust Company,
iston, Massachusetts
4,237,000
1,000,000
sond National Bank,
iston, Massachusetts
3,000,000
3,000,000
Regraded Unclassified
242
NEW YORK
AMOUNT FOR WHICH
AMOUNT SUBSCRIBED
AME AND LOCATION OF BANK
KACE BANK CAN
TO 2/% BONDS
SUBSCRIBE
OFFERED 2/13/42
has National Bank,
New York, New York
$ 100,270,000
$100,000,000
national City Bank,
Nov York, New York
77,500,000
77,500,000
Quaranty Trust Company,
for York, New York
150,000,000
10,000,000
Cankers Trust Company,
New York, New York
37,500,000
25,000,000
Restral Hanover Bank & Trust
Company,
New York, New York
40,500,000
40,500,000
hemical Bank & Trust Company,
Now York, New York
35,000,000
25,000,000
asufacturers Trust Company,
New York, New York
37,445,000
37,445,000
first National Bank,
New York, New York
55,000,000
45,000,000
giving Trust Company,
New York, New York
51,467,000
15,000,000
Ank of the Manhattan Company,
Row York, New York
20,000,000
20,000,000
P. Morgan & Company, Inc.
New York, New York
20,000,000
10,000,000
les York Trust Company
New York, New York
18,750,000
18,750,000
form Exchange Bank Trust Company,
New York, New York
15,000,000
15,000,000
Bank of New York
New York, New York
7,500,000
7,500,000
Mality Union Trust Company,
ark, New Jersey
6,750,000
6,750,000
Bevings Bank Trust Company,
New York, New York
16,248,500
16,000,000
243
- 1 -
AMOUNT FOR WHICH
AMOUNT SUBSCRIBED
ME AND LOCATION OF BANK
EACH BANK CAN
TO 2/2% BONDS
SUBSCRIBE
OFFERED 2/13/42
ablie National Bank & Trust
Company,
How York, New York
$ 7,000,000
$7,000,000
Marine Trust Company,
Buffalo, New York
7,500,000
7,500,000
arine Midland Trust Company,
New York, New York
5,000,000
3,000,000
comercial National Bank &
Trust Company,
New York, New York
7,000,000
5,000,000
wooklyn Trust Company,
Brooklyn, New York
6,400,000
6,400,000
, Bank of Albany,
Albany, New York
2,500,000
None
rown Brothers Harriman k Company,
New York, New York
6,663,000
5,000,000
hited States Trust Company,
New York, New York
14,000,000
8,000,000
Imfacturers & Traders Trust
Company,
Buffalo, New York
5,500,000
5,500,000
ity Bank Farmers Trust Company,
New York, New York
10,000,000
10,000,000
The National Commercial Bank &
Trust Company,
Albany, New York
3,250,000
3,250,000
Regraded Unclassified
244
PHILADELPHIA
AMOUNT FOR WHICH
AMOUNT SUBSCRIBED
11 AND LOCATION OF BANK
EACH BANK CAN
TO 2/1% BONDS
SUBSCRIBE
OFFERED 2/13/42
iladelphia National Bank,
miladelphia, Pennsylvania
$ 17,500,000
$ 17,500,000
maylvania Company for
isurance,
Philadelphia, Pennsylvania
10,200,000
3,000,000
RE Exchange National Bank
Trust Company,
Philadelphia, Pennsylvania
5,775,000
2,000,000
delity-Philadelphia Trust
espany,
Philadelphia, Pennsylvania
8,850,000
8,000,000
rard Trust Company
ladelphia, Pennsylvania
6,500,000
5,000,000
rst National Bank,
Philadelphia, Pennsylvania
3,555,000
2,500,000
isington Trust Company,
Milmington, Delaware
7,000,000
7,000,000
Regraded Unclassified
245
CLEVELAND
AMOUNT FOR WHICH
AMOUNT SUBSCRIBED
we AND LOCATION OF BANK
EACH BANK CAN
TO 21% BONDS
SUBSCRIER
OFFERED 2/13/42
[evelend Trust Company,
Cleveland, Ohio
$ 16,150,000
$16,000,000
allon National Bank,
/
Pittsburgh, Pennsylvania
18,750,000
18,750,000
aion Trust Company,
Pittsburgh, Pennsylvania
44,750,000
30,000,000
tional City Bank,
Cleveland, Ohio
6,700,000
4,000,000
entral National Bank,
Cleveland, Ohio
6,890,000
2,000,000
fth Third Union Trust Company,
Cincinnati, Ohio
5,000,000
5,000,000
trst National Bank,
Pittsburgh, Pennsylvania
5,250,000
3,000,000
soples-Pittsburgh Trust Company,
Pittsburgh, Pennsylvania
6,750,000
6,750,000
amers Deposit National Bank,
Pittsburgh, Pennsylvania
7,500,000
6,000,000
ledo Trust Company,
Toledo, Ohio
4,000,000
4,000,000
irst National Bank,
Cincinnati, Ohio
5,550,000
5,550,000
entral Trust Company,
Cincinnati, Ohio
3,350,000
3,375,000 .
hio National Bank,
Columbus, Ohio
3,170,500
1,000,000
.
Apparently this bank erroneously included some reserves
in certifying its capital and surplus.
Regraded Unclassified
246
RICHMOND
AMOUNT FOR WHICH
AMOUNT SUBSCRIBED
X AND LOCATION OF BANK
EACH BANK CAN
TO 21% BONDS
SUBSCRIBE
OFFERED 2/13/42
est National Bank,
ltimore, Maryland.
$ 4,000,000
$4,000,000
& National Bank,
whington, D. C.
3,575,000
(Reserves
302,000)
3,700,000 -
abovia Bank & Trust Company,
naton-Salem, North Carolina.
3,500,000
3,500,000
arican Trust Company,
urlotte, North Carolina.
1,800,000
1,800,000
est & Merchants National Bank,
lehmond, Virginia
5,000,000
3,000,000
.
Apparently this bank erroneously included some reserves
in certifying its capital and surplus.
Regraded Unclassified
247
ATLANTA
AMOUNT FOR WHICH
AMOUNT SUBSCRIBED
E AND LOCATION OF BANK
EACH BANK CAN
TO 21% BONDS
SUBSCRIBE
OFFERED 2/13/42
Itney National Bank,
your Orleans, Louisiana
$ 4,250,000
$ 4,250,000
est National Bank,
ilanta, Georgia
4,500,000
4,500,000
tizens & Southern National Bank,
veasah, Georgia
3,825,000
3,825,000
est National Bank,
iraingham, Alabama
4,781,000
4,750,000
Regraded Unclassified
248
CHICAGO
AMOUNT FOR WHICH
AMOUNT SUBSCRIBED
E AND LOCATION OF BANK
EACH BANK CAN
TO 2% BONDS
SUBSCRIBE
OFFERED 2/13/42
intinental Illinois National
That & Trust Company,
Illinois
$ 50,000,000
$ 50,000,000
National Bank,
Thicago, Illinois
37,500,000
37,500,000
Total Bank of Detroit,
Catroit, Michigan
15,000,000
15,000,000
Barthern Trust Company,
Chicago, Illinois
4,500,000
4,500,000
Trust & Savings Bank,
Chicago, Illinois
7,000,000
3,500,000
that Wisconsin National Bank,
Wisconsin
9,000,000
7,250,000
Detroit Bank,
Michigan
3,925,000
3,885,000
Aufacturers National Bank,
Postroit, Michigan
3,750,000
3,750,000
National Bank & Trust
Company,
anchicago, Illinois
3,700,000
None
National Bank,
Mindianapolis, Indiana
4,500,000
4,500,000
Regraded Unclassified
249
ST. LOUIS
AMOUNT FOR WHICH
AMOUNT SUBSCRIBED
ME AND LOCATION OF BANK
EACH BANK CAN
TO 2/% BONDS
SUBSCRIBE
OFFERED 2/13/42
trst National Bank,
St. Louis, Missouri
# 7,150,000
$ 7,000,000
ercantile-Commerce Bank &
trust Company,
St. Louis, Missouri
7,000,000
7,000,000
ississippi Valley Trust Company,
Stw Louis, Missouri
4,050,000
4,050,000
aion Planters National Bank &
Trust Company,
Memphis, Tennessee
3,500,000
3,750,000
.
itizens Union National Bank,
Louisville, Kentucky
2,000,000
2,000,000
.
Apparently this bank erroneously included some reserves
in certifying its capital and surplus.
Regraded Unclassified
250
MINNEAPOLIS
AMOUNT FOR WHICH
AMOUNT SUBSCRIBED
ME AND LOCATION OF BANK
EACH BANK CAN
TO 8/% BONDS
SUBSCRIBE
OFFERED 2/13/42
irst National Bank & Trust
Company,
Minneapolis, Minnesota.
$ 6,000,000
$ 3,000,000
orthwestern. National Bank &
Trust Company,
Minneapolis, Minnesota.
5,000,000
2,500,000
irst National Bank,
St. Paul, Minnesota.
6,000,000
6,000,000
Regraded Unclassified
251
KANSAS CITY
AMOUNT FOR WHICH
AMOUNT SUBSCRIBED
ME AND LOCATION OF BANK
EACH BANK CAN
TO 21% BONDS
SUBSCRIBE
OFFERED 2/13/42
merce Trust Company,
City, Missouri
$ 5,000,000
$ 5,000,000
trst National Bank,
City, Missouri
2,000,000
1,000,000
Regraded Unclassified
252
DALLAS
AMOUNT FOR WHICH
AMOUNT SUBSCRIBED
E AND LOCATION OF BANK
EACH BANK CAN
TO 21% BONDS
SUBSCRIBE
OFFERED 2/13/42
est National Bank,
illas, Texas.
$ 5,500,000
$ 5,500,000
public National Bank,
illas, Texas.
5,000,000
5,000,000
Regraded Unclassified
253
SAN FRANCISCO
AMOUNT FOR WHICH
AMOUNT SUBSCRIBED
B AND LOCATION OF BANK
EACH BANK CAN
TO * BONDS
SUBSCRIBE
OFFERED 2/13/42
of America N.T.& S.A.,
su Francisco, California
# 61,400,000
$ 60,700,000
curity-First National Bank,
Angeles, California
23,000,000
23,000,000
Terican Trust Company,
San Francisco, California
9,500,000
4,000,000
wills Fargo Bank & Union
Trust Company,
Francisco, California
7,500,000
2,000,000
tattle-First National Bank,
Seattle, Washington
6,000,000
6,000,000
California National Bank,
Francisco, California
10,105,000
10,000,000
Ited States National Bank,
Fortland, Oregon
6,500,000
1,000,000
Tacker First National Bank,
But Francisco, California
6,000,000
1,000,000
the Francisco Bank,
an Francisco, California
5,000,000
2,500,000
& Merchants National Bank,
Los Angeles, California
3,750,000
3,750,000
Street National Bank,
4,000,000
4,500,000
.
Fortland, Oregon
of California, N.A.,
Sea Francisco, California
7,000,000
7,000,000
Mifornia Bank,
4,000,000
Los Angeles, California
4,000,000
tizens National Trust &
davings Bank,
4,137,500
4,000.000
Angeles, California
Monal Bank of Commerce,
2,500,000
Seattle, Washington
2,500,000
.
Apparently this bank erroneously included some reserves in
certifying its capital and surplus.
Regraded Unclassified
254
Presented to peer
3/20
on
COMPARISON OF PAR AND BOOK VALUES OF UNITED STATES GOVERNMENT OBLIGATIONS
CONFIDENTIAL
B-1288
AS REPORTED BY STATE BANK MEMBERS DECEMBER 31, 1941
(Amounts in thousands of dollars)
Total, all State bank members
Central Reserve city banksl
Reserve city banks
Country banks
Par
Book
Excess
Par
Book
Excess
Par
Book
Excess
Par
Book
Excess
value
value
of book
value
value
of book
value
value
of book
value
value
of book
over par
over par
over par
over par
(Per cent)
(Per cent)
(Per cent)
(Per cent)
Direct obli (Ations--total
5,805,259
5,951,466
2.5
3,299,999
3,387,602
2.6
1,493,274
1,532,081
2.5
1,011,986
1,031,783
1.9
Tronsury billa
295,708
295,633
--
220.736
220,678
:
36,674
36,664
--
38,298
38,291
:
Treasury notes
1,122,264
1,120,801
-.1
728,749
726,761
--3
247,481
247,589
--
146,034
146,451
-3
Fonds naturing in 5 years
ne less
694,746
715,903
3.0
500,88L
517,470
3.2
118,499
121,771
2.7
75,363
76,667
1.7
Bondo naturing in 5-10
years
1,634,602
1,687,744
3.1
1,013,816
1,053,513
5.8
365,283
376,442
3.0
255,503
257,109
.8
Bunds naturing in 10-20
yours
1,703,350
1,765,799
3.5
710,777
739,044
4.0
603,777
624,983
3.4
383,796
401,772
3.2
honds maturing after 20
years
354,589
365,581
3.0
125,037
129,336
3.7
121,560
12/1,632
2.5
107,992
111,113
2.8
wranteed obligations--
total
1,541,858
1,548,275
4
973.375
976,451
.3
311,963
313,608
.5
256,520
258,216
.7
Reconstruction Finance
Corporation
726,355
726,030
.1
530,676
530,860
--
114,469
114,633
.1
81,210
81,337
.2
Home Owners Loan Corp.
390,651
393,464
.7
203,675
205,300
.8
97,629
98,130
.5
89,347
90,034
.8
Fodural Parm Vortgage
Loan Corporation
202,354
205,096
1.3
124,161
125,495
1.1
40,664
41,396
1.8
37,529
38,205
1,6
Other Government corpora-
tions and agencies
222,498
222,885
.2
114,863
114,796
-,1
59,201
59,449
4
48,434
48,640
4
About 96 per cont of the total Government security holdings of this class of banks wore reported by State bank members in Now York City,
and only 4 por cent by State bank members in Chicago.
BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM,
DIVISION OF BANK OPERATIONS,
PEBRUARY 18, 1942.
255
COMPARISON OF PAR AND BOOK VALUES OF UNITED STATES GOVERNMENT OBLIGATIONS AS REPORTED BY NATIONAL BANKS
EXPIDENTIAL
DECEMBER 31, 1941
(Amounts in thousands of dollars)
Total, all national banks
New York City 2)
Chicago
Reserve city nat. banks
Country national banks
Excess
Excess
Excess
Par
Book
Par
Book
Excess
of book
of book
Par
Book
Excess
of book
Par
Book
Par
Book
value
value
of book
of book
value
value
value
value
value
value
value
value
over par
over par
over par
over par
over par
(Percent)
(Percent)
(Percent)
(Percent)
(Porcent)
pot obligations--total
9,568,214
9,755,221
2.0
2,264,371
2,334,130
3.1
1,150,814
1,174,854
2.1
3,688,949
3,761,483
2.0
2,464,000
2,484,754
.6
675,453
675,265
--
reasury oills
123,559
123,495
-.1
222,339
222,389
:
258,110
258,00L
:
71,395
72,377
--
reasury notes
1,380,132
1,886,439
.3
935,921
940,434
.5
107,969
108,184
.2
501,958
503,014
.2
334,284
334,807
.2
onds returing LA 5 yrs.
or less
716,561
736.185
2.7
278,386
290,915
4.5
55,005
56,325
2.4
231,675
237,484
2.5
151,495
151,461
--
goda naturing in 5-10
373,620
395,916
6.0
99,111
103,978
4.9
884,138
901,391
1.9
577,152
564,980
-2.1
years
1,934,071
1,966,265
1.7
londs naturing in 10-20
3,578,874
3,690,358
3.1
528,088
553,524
5.8
487,634
501,545
2.9
1,567,413
1,608,998
2.7
995.739
1,021,291
2.6
years
Sonds enturing after 20
24,846
178,706
182,433
2.1
245,605
252,592
2.8
334,015
340,838
2.0
years
783,123
800,709
2.2
24,797
.2
arantaed ooligations--
total
2,263,262
2,283,760
is
749.893
761,126
1.5
60,574
60,678
.2
853,974
859,353
.6
598,821
602,603
.6
instruction Finance
32,891
32,893
215,354
215,653
.1
139,751
140,003
.2
Corporation
610,636
612,017
.2
222,690
223,468
in
:
lime Owners Loan Corp.
1,022,376
1,034,358
1.2
363,224
369,760
1.8
5,041
5,106
1.3
392,441
395,455
.8
261,670
264,037
.9
Federal Farm hortgage
800
123,523
125,317
1.5
96,635
97.639
1.0
Corporation
288,529
294,890
2.2
67,579
71,134
5.3
792
1.0
Other Government cor-
porations and agencies
341,671
342,495
.2
96,400
96,764
alt
21,850
21,879
.1
122,656
122,928
.2
100,765
100,924
.2
1/ strept nonmember national banks outside the continental United States.
Central reserve city banks only.
BOARD OF DOVERNORS OF THE
FEDERAL RESERVE SYSTEM.
DIVISION OF BANK OPERATIONS,
MARCH 12, 1942
TREASURY DEPARTMENT
256
INTER OFFICE COMMUNICATION
DATE March 20, 1942
TO
Secretary Morgenthau
FROM
Mr. White
Subject:
Revision of Capital Movements Reports
Because of the new situation brought on by the war we
propose, with your approval, to make several changes in
collecting and publishing capital movements data.
1. Instead of weekly reports we shall ask the banks
to report monthly, and we shall eliminate entirely the
quarterly supplementary reports. On some matters, the
new monthly reports will provide fuller information than
formerly, particularly on official funds. The effect of
this change will be to reduce the reporting work of the
banks to less than half of what they now do.
2. Instead of publishing in the Treasury Bulletin
the details of weekly capital movements by countries,
we shall report only the monthly total capital movements.
This will reduce from fourteen pages to two pages the
space in the Treasury Bulletin devoted to these reports.
In addition to this saving in paper, printing, and labor,
the suspension of publication of details on capital move-
ments by countries will obviate any possibility that
information on shipments can be derived from B. study of
capital movements.
3. If you approve of these changes, we shall put
them into effect with the April issue of the Treasury
Pulletin.
Regraded Unclassified
March 20, 1942
267
10010 FOR THE SECRETARY'S DIAHY
Under Secretary of War Patterson called no up
at 6:00 to say that General Gross returned from Phila-
delphia and reported that they loaded 378 care in one
day. I gather the average heretofore to be 200, and
while the arguing WBB going on between Somervell and
Lew Douglas, the Muritime Commission's General Sullivan
told his man Gross just to go in and take over and 860
that the ships are londed. He offered to have Ceneral
Gross cell on me Saturday, but I said I didn't think it
was necessary. But I think it would be a good thing
for George Haes to have Tickton contact him before he
POSS to Philadelphia on Monday. I want Tickton to go to
Philadelphia both this Monday and the following Monday,
and Patterson said that was entirely agresable to him.
I also told him that whatever Tickton found in Phila-
delphia and reported to ne that I would give a copy of
this to Under Secretary of far Patterson. Please see
that this 1a done even though I am out of town.
George Haas, I think it would be interesting
to find out how many care have teen loaded each day in
Philadelphia in the ships bound for Russia, starting
with March 9th. I think March 9th is the day I first
looked into it. If it is possible, please get those
figures and keep them up to date for de until further
notice. That 18, the number of freight cars loaded each
day into ships bound for Russis, beginning with Merch
9th - if that in the first day - until further notice.
report sent to Hajr 3/26/40 who
Regraded Unclassified
257
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE March 20, 1942
TO
Secretary Morgenthau
FROM
Mr. Hass
Subject: Current Dévelopments in the High-grade Security
Markets; Purchases of Treasury Bills Before and
After the Rise in the Bill Rate
SUMMARY
(1) Prices of Treasury notes have held steady during
the past three weeks, while prices of Treasury
bonde have advanced from 1/2 to 1-1/2 points.
Tax-exempt bonds have been stronger than taxable
bonds (Chart I).
(2) The sharp rise in the bill rate has not greatly
affected the distribution of bids for Treasury
bills by Federal Reserve districts or by classes
of bidders Chart II). The total amount of bids
has not changed materially. Holdings of Treas-
ury bills by New York City banks have decreased.
however, while holdings by banks outside of New
York City have risen (Chart III).
(3) Total loans of weekly reporting member banks have
remained stable since the beginning of the year.
Commercial loans of these banks, however, increased
by $235 millions during this period (Chart IV).
(4) The price of municipal bonds fell during February
(average yields rose by 15 basis points), while
the price of high-grade corporate bonds remained
stable (Chart V).
Regraded Unclassified
258
Secretary Morgenthau - 2
I. United States Government Securities
Price changes of United States Government securities
since February 26 have been mixed. Treasury notes have
remained practically unchanged, while Treasury bonds have
advanced steadily (Chart I). Tax-exempt Treasury bonds
advanced over one point during this period, while com-
parable taxable bonds advanced about one-half B. point.
During the past three weeks, the average yield on par-
tially tax-exempt Treasury bonds, moving inversely to prices,
has decreased by 10 basis points.
The following table shows price changes by maturity
classes since February 26 for taxable and tax-exempt notes
and bonds:
:
Average price change
:
February 26- - March 19
:
:
Tax-
:
Taxable
::
All
:
exempt
:
issues
issues
:
issues
:
B
(Decimals are thirty-seconds)
Notes
1 to 3 years
o
- .01
o
3 to 5 years
I
+ .01
+ .01
Bonds
5 to 15 years to call
41.02
+ .17
+ .29
15 years and over to call
+1.14
+ 13
+1.03
Regraded Unclassified
259
Secretary Morgenthau - 3
II. Purchases of Treasury Bills Before and
After the Rise in the B111 Rate
Did the recent precipitous rise in the Treasury bill rate
from .07 percent on October 29 to 31 percent -- the highest
since 1937 -- on December 31 change the distribution of Treas-
ury bill purchases? To ascertain whether the increased yield
of Treasury bills attracted a more general participation in
their purchase, a study was made of the bill tenders submitted
and of Treasury bill holdings prior and subsequent to the rise.
Chart II shows, by months, the proportions of bill tenders
submitted by banks, bond dealers, and others compared with the
rate on Treasury bills. The extent to which participation
changed with fluctuations in the bill rate is summarized in
the following table:
September
December
March 4,
1941
1941
1942
:
(Percent)
Average b1ll rate
0.06
0.29
0.22
Proportion of bill
tenders submitted by:
Banks
83
73
86
Bond dealere
5
17
7
Others
12
10
7
AB the table indicates, the proportionate participation
by banks deolined slightly, while bond dealers substantially
increased their share when the bill rate rose from .06 to
.29 percent. By March 4, 1942, however, banks were bidding
for a larger share than in September, while the proportion of
tenders submitted by other bidders had fallen from 12 to 7 per-
cent. There was no important increase in the total average
amount of tenders received in this period.
Regraded Unclassified
260
Secretary Morgenthau - 4
Tenders submitted by Federal Reserve districts are sum-
marized in the following table:
August
November
January,
and
and
February
September
December
and March 4,
1941
1941
1942
(Percent)
Average bill rate
0.09
0.26
0.23
New York and Chicago
93
83
86
All other districts
7
17
14
As the table indicates, the rise in the bill rate was 80-
companied by only 8 moderate change in the distribution of
the tenders by Federal Reserve districts.
Chart III shows that weekly reporting member banks in-
creased their holdings of bills by $149 millions, while all
others increased theirs by $199 millions over the entire pe-
riod from August 1941 to March 1942. Banks outside of
New York and Chicago increased their holdings by $266 millions;
Chicago banks, by $90 millions; while the holdings of New York
banks declined by $207 millions. The much greater rise in the
holdings of bille than in the tenders for them of banks out-
side of New York City and Chicago indicates that these banks
must have ultimately received a substantial portion of the
billa purchased by New York City banks as well as those pur-
chased by dealers.
Regraded Unclassified
261
Secretary Morgenthau - 5
III. Loans of Weekly Reporting Member Banks
There has been little net change in the volume of total
loans of weekly reporting member banks since the beginning
of the year ( Chart IV). Commercial loans, however, have
risen steadily. the increase since the third week in January
amounting to $235 millions. Non-commercial loans declined
about the same amount, most of the decline occurring at the
beginning of the year. The rise in commercial loans 1a
interesting, for it has been argued that the curtailment of
peacetime production would increase idle cash balances of
business enterprise which could be used to decrease bank
loans. Apparently, whatever tendency there has been in this
direction has been more than compensated for by the needa of
industries engaged in wartime production.
Chrysler Corporation, for instance, recently negotiated
a huge revolving credit arrangement for $100 millions or more
to be borrowed over a 5-year period. Other wartime industries
have also received substantial bank credits.
IV. Other Domestic High-grade Securities
The prices of high-grade corporate bonds remained stable
during the last month. The Treasury average yield of 5 high-
grade corporate bonds did not vary by more than 2 basie points
during this period. Municipal bond prices, however, were down.
The Bond Buyer's average yield of 11 high-grade municipal bonds
showed 8. rise of 15 basis points to 2.19 percent from February 1
to March 1 Chart V).
The volume of new bonds publicly offered on the New York
market has risen. The total for the three weeks ending
March 13 was $68 millions, as compared with $32 millions of
new offerings during the 3 weeks ending February 20. Most
of this rise occurred during the week ending March 6 when
$32.5 millions of first mortgage bonds were offered by the
Pennsylvania Electric Company and $15 millions of debenture
bonde by the Schenley Distillers Corporation.
Attachments.
Regraded Unclassified
262
Chart I
CHANGES IN THE PRICES OF U.S. SECURITIES
Points Plotted Represent the Difference from December 6, 1941 Price of Each Moturity Class
1942
1942
JANUARY
FEBRUARY
DEC JAN FEB MAR. APR MAY JUNE JULY AUG. SEPT. OCT. NOV.
MARCH
APRIL
17
24
34
T
is
21
20
,
18
2)
28
-
is
25
POINTS
POINTS
POINTS
Changel
(Not Change)
(Mat Change)
Saturday Quotations
Daily
+1
+2
+2
+1
+1
+1
NOTES
NOTES
3-5 Years
3-5 Years
+
+
2
o
o
NOTES
1-3 Years
o
o
NOTES
BONDS
1-3 Years
5-15 Years to Cell
- I
k
-1
-2
2
-1
T
BONDS
BONDS
Drar 15 Year to Cell
5-15 Years " Call
-3
3
-11
if
-2
-2
-4
4
-21
-21
5
5
BONDS
Over 15 Years to Call
-3
-3
-6
6
-3f
31
-7
-7
-4
Y.
4
B
DEC JAN FEB. MAR. APR. MAY JUNE JULY AUG. SEPT. OCT. NOV.
-8
41
17
14
31
7
14
a
20
T
14
as
26
#
"
18
25
-41
1942
JANUARY
FEBRUARY
MARCH
APRIL
1942
the of the Secretary of - Treasury
Driver e - and -
F
Regraded Unclassified
COMPARISON OF PERCENTAGE DISTRIBUTION OF TREASURY BILL TENDERS
WITH BILL RATES
Bill Rates
Monthly Average of Weekly Figures
PERCENT
Others
Dealers
Tenders
PERCENT
Banks
.30
Treasury Bill Rates
100
.25
80
.20
60
.15
40
.10
20
.05
o
o
Aug.
Sept.
Oct.
Nov.
Dec.
Jan.
Feb.
Mar."
Apr.
May
June
July
263
"First - my
Office of the of the Trams
- of - of -
Regraded Unclassifi
om III
COMPARISON OF TREASURY BILL HOLDINGS WITH BILL RATES
Holdings
Bill Rotes
DOLLARS
PERCENT
Billions)
Monthly Average of Weekly Figures
2.4
All Other Holders
.30
Others
Holdings of All
Treasury Bill Rates
Weekly Reporting
Chicago
Member Banks
New York
2.0
.25
1,6
.20
1.2
.15
.8
.10
.4
.05
o
Aug.
Sept.
Oct.
Nov.
Dec.
Jon.
Feb.
Mar."
o
Apr.
May
June
July
. Average of First Time Weeks only
264
Office of the Secretary of the Trumpy
- of - and -
8-233
Regraded Uncl
265
Chart IV
LOANS - WEEKLY REPORTING MEMBER BANKS
MONTHLY
WEEKLY
1929
1931
1933
1935
1937
1939
1941
J # M A M J. J A 5 o N D J F M A M 1941 J d. A 5 o N D J 1942 F
1940
DOLLARS
DOLLARS
Billions
Billions
DOLLARS
Billions
18
18
12
12
16
16
"
II
14
10
14
10
TOTAL
TOTAL
12
9
12
9
B
10
e
10
7
7
8
B
6
6
Commercial
Commercial
6
O/d Aeries
Commercial
6
New Banier
New Serves
5
All Other
5
4
4
New Series
All Other
All Other
4
ow Barier
4
New Bener
2
2
3
a
J F M A M J J ASONDJFMAMJJASOHDJFM
a
o
e
1929
1931
o
12
1933
1935
1937
1939
1941
12
7
7
10
10
6
Cities other than
New York and Chicago
6
4
Cities other thon
New York and Chicago
e
5
6
6
6
4
4
New York City
4
4
a
3
2
New York City
Chicago
2
I
I
Chicago
o
o
o
o
1929
1931
1933
1935
1937
1939
1941
J F M A M J J A 5 o N D J F M A M J J A 5 o N D J F M
1940
1941
1942
- . - terminary - - -
1
-
I
F-49-C
Chart V
COMPARISON OF THE YIELDS OF
HIGH-GRADE CORPORATE AND MUNICIPAL BONDS
First Day of the Month Figures. 1939 to Date
1941
1942
1939
1940
PERCENT
PERCENT
3.26
3.25
3.00
3.00
High Grode
Corporate Bonds
Treasury Average
2.75
2.75
2.50
2.50
2.25
2.25
2.00
2.00
High Grade
Municipal Bonds
Bond Buyer (II Cities)
1,75
1.75
1.50
1.50
PERCENT
PERCENT
1.00
1.00
Spread
.75
.78
.80
50
25
26
o
o
1939
1940
1941
1942
266
- w - - of - -
F-296
Regraded Uncla
268
March 20, 1942
MEMORANDUM FOR THE SECRETARY'S FILES
Meeting in Mr. White's Office
March 20, 1942
12:15 p.m.
Present: Mr. D. W. Bell
Mr. White
Dr. Viner
Mr. B. Bernstein
Mr. Southard
Mr. Friedman
The matter of the financial aid to China was reviewed and the
question of whether the State Department's suggestion of an exchange
of letters should be adopted was discussed. It was agreed that an
exchange of letters, including the draft prepared by Dr. Viner, was
not desirable. Dr. Viner agreed, saying that he was opposed to
any exchange of letters and had merely prepared a draft because he
was BO instructed. It was also agreed that the Secretary should
present a memorandum to the President and that the latter should
decide the issue. A. draft of a memorandum to the President was
gone over and a final draft agreed on by those present.
Regraded Unclassified
269
Aml in my proference is
is Resilten's suggestion of a
reply. I would dispense with
the reply valess the Chinese
velunteured 12,
M mé M are Haw1ltom # suggestions.
(Viner's commite)
a-1
270
DRAFT OF LETTER FROM THE SECRETARY OF THE TREASURY TO THE
CHINESE MINISTER FOR FOREIGN AFFAIRS,
Regraded Unclassified
W doer Hr. Minister:
You, of course, know that under the governmental procedure
of this country ! - expected as Suretary of the Treasury to
nake periodis reports to the Congress in regard to my oustody and
disposition of government funds and the number in which I have
carried out the financial responsibilities assigned to DE by the
Congress. To assist me in doing this in relation to public
law no. 442-77th Congress, approved, February 7, 1942 and public
Law no, 452-88th Congress, approved, February 12, 1942, providing
for the rendering of Muancial aid to China, I should appreciate
it if the Government of China would be so good " to inform no from
time to time and in 60 far as is precticable with respect to the
uses which the Government of China will have made and will con-
template making of the funds placed at its disposal by the Government
of the United States pursuant to the public law nambioned, and
also with respect to the results accomplished thereby in connection
with our common war effort.
I wish to sesure you and through you the Government of China
that appropriate officials of the Government of the United States
will be available at any time, upon request of the Government of
China, to confer regarding any technical problems which may arise
in connection with the financial aid being extended to the Government
of China by virtue of the agreement which we are signing today, and
much officials will be prepared also, upon request, to exchange in
formation and suggestions regarding ways and - of most effectively
applying the funds under reference toward achieving the purposes which
are commonly envisaged.
271
DRAFT OF LETTER FROM THE CHINESE MINISTER FOR FORKION AFFAIRS
TO THE SECRETARY OF THE TREASURY.
My dear Mr. Secretary:
I have your letter of today's date in which you state that, with
a view to assisting you in making periodis reports to the Gengress
in relation to public law no. 442-77th Congress, approved, February 7,
1942 and public 1aw no. 452-77th Congress, approved, February 12,
1942, providing for the rendering of financial aid to China, 10 would
be appreciated if the Government of China would inform you from time
to time and in 80 far as is practicable with respect to the uses
which the Government of Ohine will have nade and will contemplate
making of the funds placed at 1ts disposal by the Government of the
United States pursuant to the public Lawe mentioned, and also with
respect to the results accomplished thereby in connection with our
common war effort.
Under authorisation from my Government, I an glad to secure you
that the Government of China will be glad to assist you in the manner
indicated.
I - glad to assure you also that the Government of China will
expect from time to time/se and occasion arises to smill itself of the
kind offer contained in the last paragraph of your letter under refer-
ence to confer and to exchange information and suggestions in the
narmer suggested.
Regraded Unclassified
272
DRAFT OF LETTER FROM THE SECRETARY OF THE THEASURY TO THE CHINESE
MINISTER FOR FOREIGN AFFAIRS.
My dear Mr. Minister:
Às - prossed to the signing of the agreement making available
to the Government of China the financial aid provided for in
public law no. 442-77th Congress, approved, February 7₂ 1942, and
public law no. 452-77th Congress, approved, February 12, 1942,
I wish to assure you and through you the Government of China that
the Government of the United States desires, as a manifestation
of the cooperative spirit which underlies the common war effort of
China and the United States, to make available, upon request of
the Chinese Government, appropriate officials to confer from time
to time regarding any technical problems which may arise in -
nection with the financial aid to be extended to the Government of
China by virtus of the agreement which we are signing today, and
upon request, to exchange information and suggestions regarding ways
and mains of nost affectively applying the funds under reference
towards schieving the purposes which are comply enviraged.
Regraded Unclassified
273
DRAFT 07 LETTER FROM THE CHINESE MINISTER FOR FOREIGN AFFAIRS
TO THE SECRETARY OF THE TREASURY.
My dear Mr. Secretary:
I acknowledge receipt of your letter of today's date in
regard to the extension to the Government of China of the financial
14
aid provided for in public law no. 442-77th Congress, approved,
February 7, 1942, and public law no. 452-77th Congress, approved,
February 12, 1942, and I wish di to assure you that the Government of
China also desires, as & manifestation of the cooperative spirit
which underlies the CONSIDER war effort of China and the United States,
to designate appropriate officials to confer from time to time
regarding any technical problem which my arise in connection with
the financial aid to be sectended to the Government of Ohina to
virtue of the agreement which we are signing today, and to exchange
information and suggestions regarding ways and means of most
affectively applying the funds under reference toward achieving
the purposes which are counonly envisaged
Regraded Unclassified
274
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE March 20, 1942
Mrs. McHugh
TO
FROM Mr. Kuhn
The labor papers were sent to Secretary Morgenthau's house
last night as he requested.
7. K.
275
March 19, 1942
Ferdinand Kuhn
Secretary Morgenthau
Will you please let ne have as soon as possible
any editorial comment in any of the Labor papers on
our Tax Program. The day you were sick, we had a
meeting in my office in regard to who shoulds such handle
the tax publicity. I suggest that you ask Miss
Chauncey to let you read that part of the 9:30 meeting
that has to do with that discussion, or all of it if
you wish. You will see from the transcription that as
& result of that, Paul was authorized by me to go sheed
and get somebody. If you have any questions to ask in
regerd to this, I will be glad to discuss it with you.
Regraded Unclassified
276
FEDERAL WORKS AGENCY
WORK PROJECTS ADMINISTRATION
1734 NEW YORK AVENUE NW.
WASHINGTON, D.C.
HOWARD o HUNTER
- - will
The Honorable
The Secretary of the Treasury
KY dear Mr. Secretary:
This will acknowledge your letter of March 13, 1942,
relative to the participation of New York City NPA bands and or-
chestras in the promotion of Defense Bonds and Stamps sales.
All music units of the Work Projects Administration are
being urged to cooperate with Treasury officials by offering their
services to aid in the sale of Defense Bonds and Stamps. In many
states Music Project orchestras are giving concerts to which ad-
mission is obtained by the purchase of a Defense Stamp. AS an
example of this policy, a consert was given at Eastwood Park,
Detroit, Michigan, on February 8, at which were sold $6,400 in
Bonds and $500 in Stamps.
While it is believed that the regrettable experience
of your representatives with the New York City music Project was
due to an execusively literal interpretation of administrative
regulations, I wish you to know that the Work Projects Administrator
for New York City has been advised of our policy in promoting
Defense Bond and Stamp Sales through the use of APA bands and
orobestras.
I can assure you that complete cooperation from the
New York City Music Project will be available from this data.
Very truly yours,
Commissioner
Regraded Unclassified
277
March 20, 1942
TO: HAROLD N. GRAVES
E
SUBJECT: PROGRESS REPORT FROM DEFENSE SAVINGS STAFF
PAYROLL SAVINGS
The Payroll Savings Plan has been installed
by more than 40,000 concerns throughout the nation. This
means that approximately 18,000,000 workers now are able
to buy bonds through the Payroll Savings Plan. Seventy-
three percent of all concerns employing more than 500,
and forty-seven percent of all concerns employing between
100 and 499 workers, have installed the plan.
Thirteen states report that all concerns employing
more than 500 workers have installed plans. States that have
completed this first major objective are: Arizona, Kansas,
Maine, Missouri, Montana, Nevada, New Hampshire, New Mexico,
North Dakota, Oregon, South Dakota, Wisconsin and Wyoming.
m
3/20
Regraded Unclassified
278
- 2 -
PAYROLL SAVINGS (Continued)
Other states rapidly approaching this goal are:
Michigan, Minnesota, Southern California, New Jersey, Vermont,
Virginia and Idaho.
Kansas end Wyoming are the only two states to report
that all firms in the 100 to 499 group have installed plans.
Arrangements are being completed by the Division of
Research and Statistics, Treasury Department, whereby State
Administrators will receive microfilm copies of the Payroll
Savings monthly sales reports from companies which have plans
in effect.
The War Department has issued a circular stating
that in the immediate future a "campaign will be undertaken
among all members of the military establishment for the
voluntary pledges to buy Defense Bonds and Stamps by means of
authorized deductions in pay."
The United States Maritime Commission has notified
all ship yards working on contracts on 8. cost-plus-fixed-fee
basis, that clerical expenses entailed in administering payroll
savings plans are reimbursable.
PLEDGE CAMPAIGN
Massachusetts will follow Oregon as the second state
to launch the Pledge Campaign. The Massachusetts canvass will
start on March 30. Tentatively the following dates have been
Regraded Unclassified
- 3 -
279
PLEDGE CAMPAIGN (Continued)
selected by other states for inauguration of the Pledge
Cempaign:
April 6: Arizona, Colorado, Idaho, Kansas, New Mexico,
Utah, Vermont, Virginia and Wyoming.
April 7: South Carolina. =
April 10: Illinois.
April 12: Indiana, North Carolina, and Vermont.
April 17: Florida.
April 22: California and Washington.
May 10: Georgia.
The Secretary of Agriculture has advised chairmen
of the United States Department of Agriculture War Boards that
they should upon request, be prepared to cooperate with Defense
Savings Staff State Administrators in conducting the canvass
of farm families undertaken ES part of the Pledge Campaign.
State Administrators have been 80 advised in & field memorandum.
RETAILERS
Copy of B. digest of the proceedings of the meeting of
the Retailers' Advisory Committee is attached.
Also attached is 8 booklet describing & Payroll
Savings Plan used by the Bonwit Teller Company which was one-
hundred percent successful. The Retailers' Advisory Committee
has completed arrangements ith the American Booksellers Associa-
tion, Inc. to promote sale of bonds and stamps to book shop
Regraded Unclassified
- 4 -
280
RETAILERS (Continued)
customers. A copy of the Bookseller's Bulletin describing
this plan is attached.
SPECIAL
The Postal Telegraph Company has drawn up a detailed
program of activity to promote sale of bonds and stamps. Postal
Telegraph officials forwarded a portfolio outlining their
plans. (Copy attached.)
BUSINESS PUBLICATIONS
Reports have been received from 516 business
publications, with a total circulation of 3,581,153, advising
they will use the Payroll Savings advertisement Release No. 3
in full page size.
COMPANY PUBLICATIONS
Preliminary reports have been received from 153
company publication editors advising they will use material
on Payroll Savings in their April issues.
A portfolio summarizing results of the Payroll
Savings promotion in business publications, company publications,
and labor publications from November 15 through February 15, is
attached.
Regraded Unclassified
- 5 -
281
PRESS
Cuts and mats of the Minute Man were mailed to
all baseball score card publishers in the Minor Leagues
this week.
Arrangements for publication of Defense Savings
elogans end emblems in Major League score card publications
are being made. Plans also are being worked out for ball
park billboard space and for opening game ceremonies emphasizing
baseball clubs adopting the Payroll Savings Plan.
The nation's Free Lance Photographers have offered
their services to the Defense Savings Staff in obtaining
essential photographs. Copy of The Free Lance Photographer's
Bulletin is attached.
Copy of 8 brochure sent to all college publication
editors is attached.
Also attached is a scrap book showing the activities
of the United States Senatorial Minute Men; sample returns of
clippings on use of the Liberty Limericks feature; and a copy
of an editorial on Defense Bond paid newspaper advertising
serviced to all labor newspapers by the Federated Press, one of
the two independent labor press services.
LABOR PRESS
Through the loan by President Dubinsky of the
International Ladies Garment Workers Union of his staff photograph-
er, Harry Rubenstein, the Labor Press Section has secured during
Regraded Unclassified
- 6 -
282
LABOR PRESS (Continued)
the last three weeks more than 60 pictures showing labor
cooperation in the Defense Savings Program. These photographs
will be used for daily newspapers, for features and for the
labor press.
Attached are copies of current issues of the
AFL News Service and of the CIO News, showing Defense Bond
"ears" used for the first time.
RADIO
Nationwide broadcasts by the following Minute Men
were made this week over the National Broadcesting Company,
the Blue Network, and the Columbia Broadcasting Company:
Alfred E. Smith, Walter Gifford, Rabbi Stephen S.
Wise, David Dubinsky, David Sarnoff, Virginia C. Gildersleeve,
Helen Menken.
Mutual Broadcasting System will begin Minute Men
broadcasts on a regular basis next week.
The Payroll Savings Plan has been installed by 408
of the nation's 870 radio stations. Of these, 313 report 100
percent membership.
The fifteen minute transcription series "Treasury
Star Parade" is now being broadcast three times weekly over
714 radio stations throughout the nation.
Special Defense Savings ennouncements were wired to
all radio stations urging bond purchases in B. news tie-up with
General MacArthur's arrival in Australia. (Copy attached.)
Regraded Unclassified
- 7 -
283
NEWSPAPER CARRIER BOYS
Reports from 847 newspapers show that newspaper
carrier boy sales of the ten cent Defense Savings Stamps to
date total $18,290,733. This is an increase of $2,628,028
since the returns of March 12. It represents the largest
number of stamps sold by newspaper carrier boys in any one
week since the plan was started last November.
DIRECT MAIL
Total sales of bonds by direct meil through March 18
total $24,436,878. This is an increase of $969,890 since
March 4.
NEWSREEL CREWS
The Defense Savings Staff Newsreel crews this week
photographed Bond purchasing activities in Illinois, Iowa,
Indiana, Oklahoma, Arkansas, Mississippi, Washington and Oregon.
ENTERTAINMENT
Lucy Monroe's Minute Man songfest in St. Petersburg,
Florida, was attended by 15,000 persons, and 5,000 others were
turned away for lack of space. Bond and Stamp sales at this
gathering totaled $10,000.
Simone Simon appeared as guest artist at Bond rallies
in Columbus, Ohio, on Friday, March 20.
The Audrey Kargere Defense Bond doll show is appearing
this week in Joliet, Illinois.
Regraded Unclassified
- 8 -
284
ENTERTAINMENT (Continued)
John Garfield will appear at 8 Bond sales rally in
Reading, Pennsylvania, on Saturday, March 21.
VICTORY HOUSES
The Los Angeles Victory House located at Pershing
Square reports it has passed the million dollar mark in sales
of Bonds and Stamps.
Victory Houses have been built in Allentown and York,
Pennsylvania, and another will be in operation in Baltimore
by April 16.
ADVERTISING
The Defense Savings Staff has arranged through the
Meyer Both Company for a monthly met service of Bond and Stamp
advertising material to 5,400 daily and weekly newspapers
starting with the July issue of the Meyer Both Service.
A full page in that and each succeeding issue will be
given over to Bond material. The front cover of the July issue
of the Meyer Both "Feature Service" also will be devoted to Bonds.
In addition to this free publication, preperation of
mats and distribution of material, the Meyer Both Company will
print and distribute monthly at their own expense, B four to
eight page booklet of "Bond Promotion Ideas for Retailers". This
booklet will be sent to the eleven Meyer Both lists of advertisers
and newspapers, (approximately 7,500).
The Meyer Both Company has also agreed to distribute
whatever advertising portfolios we may wish to get to newspapers.
Regraded Unclassified
285
THE SECRETARY OF THE TREASURY
WASHINGTON
March 20, 1942
TO THE OWNER OF SAVINGS BONDS ADDRESSED:
The sales of Series Dr. and Series G Savings Bonds since
these bonds were made available last May, and particularly
since this country entered the war, have been very gratify-
ing. We are appreciative of your interest in these securi-
ties as evidenced by your purchase of them.
The Treasury is now considering raising the limit from
the present $50,000 of Series F or Series G Bonds, or a combina-
tion of the two, which may be issued to any one person during
any one calendar year to some higher figure, possibly $100,000.
It would be helpful in reaching a decision on this
point to know whether you would be interested in buying more
than $50,000 of these bonds, If the limit were raised, and
if 30, would the sources of funds be from idle balances,
liquidation of other investments, or current income.
A prompt reply will be very much appreciated.
Sincerely yours,
Secretary of the Treasury
FORDEFENSE
BUY
UNITED
STATES
PAVINGS
BONDS
-
Regraded Unclassified
Deily changes in the stock of Series E savings bones on hand 1/
(In thousands of pieces)
:
Number of : Number of pieces
Stock on hand
IBM
:
pieces sold :
manufectured
at close of
deliveries
:
this day
:
this day
day
this day
Mar. 9
344
500
25,786
-
10
123
500
26,163
I
11
192
300
26,271
-
12
157
300
26,414
800
13
193
300
26,521
I
14
137
none-closed
26,384
-
15
none-closed
none-closed
26,384
-
16
271
300
26,413
I
17
144
300
26,569
I
18
148
300
26,721
650
19
160
300
26,861
I
Office of the Secretary of the Treasury,
March 20, 1942
Division of Research and Statistics.
1/ Includes stock in hands of (1) Federal Reserve Banks and branches, (2) Post
offices, (3) Federal Reserve Bank issuing agents, and (4) Tressury vaulte
in Washington.
Regraded Uncl
287
UNITED STATES SAVINGS BONDS
Comparative Statement of Sales During
First Sixteen Business Days of March, February and January 1942
(March 1-19, February 1-19, January 1-19)
On Basis of Issue Price
(Amounts in thousands of dollars)
:
:
Amount of Increase
:
Percentage of Increase
Sales
:
:
or Decrease (-)
:
or Decrease (-)
Item
:
:
:
:
March
:
February
:
March
I
February
:
March
: February
2
January
:
over
:
over
:
over
:
over
:
:
:
:
February
:
Jenuary
:
February
I
January
Beries 1- Post Offices
$ 55,342
$ 63,391
$102,663
-$ 8,049
-$ 39,272
- 12.75
- 38.3%
Series 1- Banks
160,158
234,408
297,108
- 74,250
- 62,700
- 31.7
- 21.1
Series 1. Total
215,500
297,799
399.771
- 82,299
- 101,972
- 27.6
- 25.5
Series 1. Banks
26,146
36,565
42,355
- 10,419
- 5.790
- 28.5
- 13.7
Series G - - Banks
120,491
187,638
171,700
- 67,147
15,938
- 35.8
9.3
Total
$362,136
$522,003
$613,826
$159,867
91,823
- 30.6%
- 15.0%
Office of the Secretary of the Treasury, Division of Research and Statistics.
March 20, 1942.
Source: All figures are deposits with the Treasurer of the United States on account of proceede
of sales of United States savings bonds.
Note: Figures have been rounded to nearest thousand and will not necessarily add to totals.
Regraded Unclass
CONFIDEN
UNITED STATES SAVINGS BONDS
Daily Sales - March, 1942
On Basis of Issue Price
(In thousands of dollars)
Post Office
Bank Bond Sales
All Bond Sales
Bond Sales
Date
Series I
Series I
Series 1
Series G
Total
Series R
Series 7
Series 0
Total
March 1942
2
$ 5,811
$ 15,868
$ 2,043
$ 8,726
$ 26,636
$ 21,678
$ 2.043
$ 5,726
$ 32,447
3
2,975
8,459
1,629
5,780
18,565
11,434
1,629
5,780
21,843
4
3.395
8,833
2,658
12,558
24,048
12,228
2,658
12,558
27,443
our
3,669
10,448
1,680
11,870
23,998
14,317
1,680
11,570
27,867
4,179
10,696
1,759
10,825
23,279
14,875
1,759
10,825
27,458
7
3,480
11,586
1,586
6,328
19,499
15,066
1,586
6,328
22,979
9
4,967
18,636
3,944
8,488
31,068
23,604
3,944
5,488
36,035
10
2,804
5,719
1,365
4,162
11,246
8,523
1,365
4,162
14,050
11
3,156
10,002
1,533
7,287
18,823
13,158
1,533
7,287
21,979
12
2,686
8,114
1,133
5,504
14,750
10,800
1,133
5,504
17,436
13
2,682
10,594
1,065
5,007
16,666
13,276
1,065
5,007
19,348
14
2.797
6,616
1,102
4,745
12,463
9,413
1,102
4,745
15,260
16
4,464
13,193
1,415
8,693
23,301
17,658
1,415
5,693
27,766
17
2,967
6,384
1,015
2,561
9,961
9,351
1,015
2,561
12,927
18
2,552
7.097
1,201
9,433
17.731
9.650
1,201
9.433
20,283
19
2.559
7,911
1,019
5,527
14,457
10,470
1,019
5,527
17,016
Total
$ 55.342
$160,158
$ 26,146
$120,491
$306,794
$215,500
$ 26,146
$120,491
$362,136
Office of the Secretary of the Treasury, Division of Research and Statistics.
March 20, 1942.
Source: All figures are deposits with the Treasurer of the United States on account of proceeds of
sales of United States savings bonds.
Note: Figures have been rounded to nearest thousand and will not necessarily add to totals,
Regraded Unclas
289
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE March 20, 1942
TO
Secretary Morgenthau
FROM
George Buffington GIS.
The following list showe "The New Spirit" bookings for
the week ending March 15, 1942, and the total to date:
Albany
28
Atlanta
113
Boston
83
Buffalo
29
Charlotte
68
Chicago
27
Cincinnati
69
Cleveland
58
Dallas
62
Denver
20
Des Moines
14
Detroit
73
Indianapolis
54
Kansas City
44
Los Angeles
114
Memphis
43
Milwaukse
48
Minneapolis
43
New Haven
13
New Orleans
54
New York
156
Oklahoma City
46
Omaha
68
Philadelphia
113
Pittsburgh
102
Portland
33
St. Louis
63
Salt Lake City
38
San Francisco
76
Seattle
42
Washington, D. C.
64
Total Week Ending March 15
1,858
n
If
n
If
8
2,139
If
It
If
"
1
2,041
"
"
If
February 22
2,015
"
H
If
"
15
1,942
If
"
M
H
8
1,800
GRAND TOTAL
11,795
Regraded Unclassified
290
March 20, 1942
My dear Walter:
In reply to your letter of
March 19th, the Treasury's tax
staff has made an analysis of Dr.
Gustav Stolper's letter, and we
would be glad to let you see it.
Rither Mr. Randolph Paul or Mr.
Roy Blough is at your disposal.
Best regards.
Sincerely yours,
(Signad) Recey
Mr. Walter Lippmann,
1525 35th Street, N.W.,
Washington, D.C.
Copies to:
Mr. Randolph Paul
Mr. Roy Blough
Jilinme By Messenger Sturges 11.45
Regraded Unclassified
/
291
Bent by messinger
11:30A.m-
3/70/yr
copy L Panl Y
Blough 3/20.
NEW YORK
Herald
Tribune
292
1525 35th Street, N. W.
Washington, D. C.
March 19, 1942
Dear Henry:
I wonder if any one in the Treasury has
made an analysis of the letter by Dr.
Gustav Stolper which appeared in last
Sunday's New York Times? If so, I should
like very much, if possible, to see it
before I attempt to write anything about
the tax program.
Kind regards.
Yours,
washiorman
Honorable Henry Morgenthau, Jr.
Secretary of the Treasury
Washington, D. C.
293
For Your Information
March 20, 1942
To
Ferdinand Kuhn, Jr.
From Joseph Melia
EDITORIAL COMMENT ON TAXES:
ECHOES FROM THE GRASS ROOTS
Although there is dwindling editorial discussion of the new
tax program as a whole, the past week has produced a steady
growth and intensification of the demand for 2 general sales tax.
Metropolitan newspapers are pushing with increasing vigor their
demand that Congress enact such B. tax; the smaller newspapers have
now taken up the cry, and are repeating the demand in all sections
of the country, even in those States which already have a sales
tax on the statute books. Opposition to a sales tax is insignifi-
cant and almost unheard in the general editorial clamor.
The National Association of Manufacturers has been successful
in winning the endorsement of many small-town newspapers. Those
which comment on the N.A.M. proposals accept them at their face
value; there has been no editorial endorsement of Representative
Jere Cooper's charge that the N.A.M. program was merely an attempt
to shift the burden from the shoulders of the big corporations.
Increasingly evident in the demands for a sales tax is the
tacit appeal for a lowering of the individual income taxes
Regraded Unclassified
294
-2-
suggested in the Treasury's program. The small-town newspapers
place more emphasis than their metropolitan counterparts upon the
burdens already borne by middle-income taxpayers and upon the
"dangerous" new burdens which the Treasury would seek to impose.
Applauding the N.A.M. for presenting "the most sensible as
well as the most practicable tax program yet to turn up in
Washington," the Sioux City, Iowa, Journal, for example, states:
"Members of Congress have heard from the country, which daily is
becoming more articulate on the tax question, and they do not
subscribe to Mr. Morgenthau's theory at all. They are thinking
more and more of some kind of sales tax, and now that the manu-
facturers have presented an intelligible plan for a combination
of a sales levy and 'moderate increases' in income taxes, they
may give it careful consideration." The Macon, Georgia, Telegraph
finds the proposed income taxes "drastic". It hopefully forecasts
AS "highly probable" that the "extreme demands of the Treasury
may be resisted," while, more aggressively, the Fort Worth
Star-Telegram declares: "The Treasury program is an evasion of
the major principle that every American must shoulder his just
portion of the war program.
It ignores the important fact that
double income levies
will force liquidation, defaults and loss
Regraded Unclassified
295
-3-
of investments. In business which does not share in the proceeds
of armament spending, increased bankruptcy will spread unemployment
among the workers of certain concerns closed down Why do not
Congress and the Administration invoke that principle which has
been applied in Britain? There every income earner pays something
in direct taxes and also pays heavy sales levies." This newspaper
goes on to say that "there is at least the taint of suspicion that
the Administration may be catering to votes in fastening the main
burden of taxes upon minorities."
Many other smaller newspapers share the suspicion of the
Fort Worth Star-Telegram that the Administration is opposing
8 sales tax because of "politics."
The Colorado Springs Gazette, for example, states: "Faced
with the demand for new and exorbitant taxation, Congressional
sentiment runs toward a general sales levy, and the Treasury,
seeking desperately to head it off, cries, 'No: No!
The idea
of the Treasury trying to head off Congressional sentiment and
dictate tax policy carries connotations unpleasant enough in them-
selves, but the idea of financing the war without letting the
burden touch favored political groups and those directly profiting
from the war effort is a bit too arrogant. " Similarly, the
Regraded Unclassified
296
-4-
Chattanooga News claims that the Administration's opposition to
& sales tax is "demagogic." This newspaper refers to the
Secretary's statement that sales tax advocates are seeking to
take 8 little of the load off themselves as "a play for votes
and the applause of the masses." A sales tax, it argues, "would
distribute the burden among all classes, those of high and low
incomes paying in proportion and the income tax taking care of
the surplus remaining to the higher incomes. It would be B.
measure for the benefit of the masses and holds the secret of
saving this nation from complete financial collapse."
These comments reflect the opinion of smaller newspapers
in all sections of the country. Calling for a sales tax, the
Watertown, New York, Times and the Worcester, Massachusetts,
Gazette demand that "Washington forget politics,' while the
Miami Herald says "the Treasury and the Administration should
quit sidestepping," and the St. Paul Pioneer Press calls
Secretary Morgenthau's reasons for refusing to advocate a sales
tax "an admission that the 'soak the rich' school of politics
is a form of fooling the people.'
The Treasury's case, in other words, is getting no appreci-
able editorial support. The few publications which staunchly
Regraded Unclassified
297
-5-
support the principle of ability-to-pay are voices crying in the
wilderness. All signs show that it is high time for labor and
other friends of the Administration to make their support vocal
and effective.
Regraded Unclassified
298
For Your Information.
March 20. 1942
To
Archibald MacLeish
From Alan Barth
EDITORIAL OPINION
ON THE WAR:
BLOOD TRANSFUSION
Elation
The headlines all but sang the news about MacArthur. And
in the same breath they jubilantly proclaimed that soon the
United Notions would take the offensive against Japan.
The morning newspapers of March 18 had a naval victory to
rejoice over, as well as the tale of MacArthur's safe arrival in
Australia. And American troops - an A.E.F. with a huge convoy
of matoriel - had reached an Australian port just ahoad of him.
It was too much good news at once; the type fonts were inade-
quate to the occasion. Reporters on the scene were unabashedly
exultant. They chronicled what might have been an American invasion
or conquest of Australia. Their stories brashly told of the taking
over of Australian plants by Americans, of the introduction of
American efficiency. The deep spell of depression which had been
cast upon the press by the news of the battle of Java was completely
swept aside.
Regraded Unclassified
- 2 -
299
Through all of the editorial comment about General MacArthur,
there ran a current of ebullient faith in him, both as a military
genius and as a symbol of victory. "MacArthur is a promise," said
The Christian Science Monitor. "The short-range promise is for
8 successful defense of the United Nations' last stronghold in
the South Pacific... The long-range promise in this American-
Australian combination is almost e.s encouraging the promise of
tringing the whole English-speaking community into understandings
and relations which will be the best guarantee of peace."
But the editorials were a good deal more guarded than the
news pages when it came to forecasting an offensive. "Let us not
expect too much of MacArthur - especially not all at once,' The
Birmingham Age-Herald warned. "Let us remember," urged The Richmond
Times-Dispatch, "that he cannot perform miracles, and that the
Japanese hold all the advantages today."
Hanson Baldwin, The New York Times' military expert, pointed
out: "The problems and responsibilities of MacArthur of Australia
will be of far greater magnitude than the problems and responsi-
bilities of MacArthur of the Philippines
His greatest role in
the Philippines was only in part that of generalship, more that
of leadership In Australia leadership and personality will
play their ever-important role. But in Australia there is no
fixed scheme of defense."
Regraded Unclassified
300
- 3 -
As the first elation wore away, the bulk of the press took
cognizance of the difficulties which lie ahead and endeavored to
caution the public against excessive hopes for the immediate
future. But they may not easily be able to erase the impression
created by their headlines that the tide has turned. They have
built General MacArthur a pedestal on which he may find it difficult
to keep his balance.
In & fairly extensive survey of the press, not 8. single adverse
comment has been found concerning the General's transfer from the
Philippines. The New York Daily News Syndicate, which had used
MucArthur's continued presence on Bataan as a fulcrum for its
efforts to undermine confidence in President Roosevelt, was con-
spicuously handsome in its appreciation: "President Roosevelt did
it. The entire credit goes to the President, and there can be no
room for anything but the highest, most unstinted praise. All
America - we are sure - has only heartfelt acclaim for the
President's action, and we would like to add our voice in extend-
ing congratulations."
The Chicago Tribune managed, however, to inject a sour note
into its applause: "One great advantage which may be expected to
flow from the transfer of Gen. MacArthur is the liquidation of
Churchill as the principal strategist, at least in the Pacific
theater.' And, as EL closing gibe: "The Bataan defenders may fight
the better for knowing that they are no longer forgotten men."
Regraded Unclassified
301
4
Zeal
The position of MacArthur and the American contingent in
Australia has been made a peg on which to hang renewed demands
for an all-out production effort at home. A number of newspapers
utilize it to cloak an otherwise undisguised attack on organized
labor and the New Deal.
But beyond this narrow aspect of the demand for increased
production, there seems to be 8. real and growing sense of urgency
which clamors for a leveling of all obstructions. All segments
of the press showed keen indignation over the charges made by
Robert R. Guthrie in conjunction with his resignation from the
War Production Board and insisted upon thorough investigation and
correction. A St. Louis Post-Dispatch editorial gave expression
to what appears to be a general desire for still more vigorous
leadership in domestic affairs: "The people in general have
shown themselves only too willing to fight, to give, to sacrifice,
to do everything possible to make this country victorious. But
the people cannot settle the problem of cleaning out the WPB,
building a fire under the brass hats and forcing the operation
of machines 168 hours a week. That is a job for the Government,
in particular a job for the man who is at once President of the
United States and Commander-in-Chief. Mr. Roosevelt can smash the
bottlenecks, tell labor and industry what is expected of them.
The cry is for: Action! And to hell with costs and consequences!
Regraded Unclassified
- 5 -
302
Along with the renascent hope stimulated by the good news from
the Pacific, there seems to have developed a sudden intensification
of ardor, a sense that concentration of energy today can have great
potentialities for tomorrow.
Regraded Unclassified
303
MEMORANDUM FOR THE SECRETARY.
March 20, 1942.
Mail Report
During this past week the mail followed much the
same pattern as that of the previous week, with tax let-
ters far in the lead. Perhaps the latter did not rep-
resent quite such an outburst of protest. There were
more general suggestions, and even 8. few friendly comments.
Out of several hundred letters, 135 contained suggestions
for new taxes, or for methods of collecting the present
ones. Still leading in suggestions for new are: dogs
and pets, radios, higher postage rates, club dues, and
above all, "Tax the Unions". The latter include letters
from Union members protesting the salary of their leaders
and telling of the conditions that should be remedied.
Letters in favor of the withholding tax are 7 as
against 3 opposed.
There continue to be 8 few protests of taxation on
municipal and other tax-exempt bonds, and 8. small campaign
on the part of telephone employees, protesting taxes on
pensions and trust arrangements for employees.
Letters in favor of the sales tax slightly exceed
those against it, in B. ratio of 33 to 28.
Out of 30 anonymous letters, 18 were abusive and 12
general.
General subjects still in the public mind include
economy, control of labor, and others covered in recent
reports.
The mail continues very heavy, but not quite as much
50 as it was last week.
Regraded Unclassified
304
1 -
General Comments on Taxation
Frank H. Lovingston, Mound, Minn. Why can't we pay our
income tax in 12 installments? These 12 installments
should be from Jan. 31 to Dec. 31 of each tax year. Thus
people would rush their income tax returns. I could have
made mine Jan. 31, 1942, instead I filed it a week ago
and made my 1/4 payment. Twelve installments would be
much easier. The rate of tax is not more important than
the method of payment. # 42 4F
Joseph L. Kochka, Washington, D. C. (Copy of letter ad-
dressed to the Collector of Internal Revenue, Baltimore,
Md.) Last August I purchased Treasury Tax Notes from
Riggs National Bank, $25 in my name and $25 in my wife's
name, leaving an order that these purchases be made monthly.
At the time, I did not know just how much tax I would have
to have nor how much she would pay. It now seems that her
tax is going to be greater than mine, and the bank tells me
that the surplus notes in my name cannot be used in paying
her tax. If this is true, it defeats the purpose we had in
mind, and creates what I believe is an unnecessary diffi-
culty. We have sufficient notes saved to pay our total
taxes, and I am asking that arrangements be made by your
office permitting the surplus notes in my name to be used
in paying her tax, We want to pay it immediately and not
defer its payment. # # You have gone to a good deal of troub-
le to help people save these taxes. Why not make it just as
easy in B. case like mine? It should not be difficult for you
to do this.
Edward Kronvall, President, Springfield Safe Deposit end
Trust Company, Springfield, Mass. During the past year I
have received several letters from your office asking that
we give our assistance in the sale of Defense Bonds and Tax
Anticipation Notes. This we have done to the best of our
ability. Up to the close of business last night we had sold
to 3,383 customers Defense Bonds to the aggregate amount of
$2,271,625, but had only been able to sell to 87 customers
the tax form of bond to an aggregate amount of $51,825, of
which amount this bank had taken $20,000, and $7,500 we.s for
my personal account. # " # I have discovered one of the
Regraded Unclassified
305
- 2
reasons that have prevented B. greater sale of the tax
notes. One of our depositors, after having waited in
line for over an hour, was informed that the notes could
not be taken at the local office, but would have to be
sent to Boston. In my own case, when I appeared at the
office in January, only two other taxpayers being present,
I was told by the deputy in charge that he could not take
the $7,500 tax notes as part payment of my tax, which I
paid in full. * * Upon referring the matter to the Chief,
Mr. Lucy, who seems to know his way around, the deputy
was informed that I was perfectly right, that the notes
should be taken. Then, after I had to show him how to
find out the interest due on the notes, he refused to
vive me 8. receipt. He again referred to Mr. Lucy who in-
formed him that I was entitled to one. # % # I went away
with the feeling that that was the last tax paper I would
buy if that was to be the attitude, but kept it to myself
more or less until I found that several other people had
had
similar
experiences.
Another criticism locally is
that the hundreds of people who go to pay their taxes in
cash are directed, after waiting in line for long periods
of time, to go and purchase Money Orders as the local of-
fice cannot take the cash. + # We hope you will accept
this letter in the spirit in which it is written, as we
wish to be of the greatest assistance in the sale of any
of this government paper at this time.
C. F. I'Anson, Salem, Ill. Attached hereto is 8. suggested
graduated depletion schedule of allowances on oil wells.
From my experience in the oil industry, I have found the
operating or lifting costs on a lease vary extensively,
depending on the owner's attitude or ability. From B. tax
standpoint, these costs should be more or less standardized,
which I propose to accomplish by making a composite allow-
ance to cover operating costs and depletion. (Plan follows.)
A solution to the controversy on depletion must be
found, and I firmly believe that the attached allowances
embody the most equitable principles even though the sotual
percentage figures may need correction. Should you have
any questions calling for my going into further detail, I
will be glad to do 50.
Regraded Unclassified
306
- 3 -
John W. Green, President, Wauneta Falls Bank, Wauneta,
Nebraska. I thought perhaps you might be interested in
what is going on in B. little town of about 760 people in
a part of Nebraska called by most Easterners, the desert.
The preparation of income tax returns has been a con-
siderable chore for all small town bankers. There is no
certified public accountant nearer than 85 miles. The
people are very reluctant to go to revenue men they do
not know, so the burden falls on the country bankers.
We have made out 125 tax returns that paid 8. total of
$21,363.29 tax, with 90% of it remitted when the return
was payable. In addition to this, we have sold about
$60,000 in Defense Bonds, and have only used our regular
force. We have had to grievously strain the 40 hour week
law. Everyone in this country wishes they would lose that
law for the duration. In making these returns and drawing
the checks for the tax, we have no complaint from our peo-
ple. Their response in every way has been wonderful. I
thought that 85 busy B.S. you are, you might like a breath
from the country.
A. H. Galliger, Hot Springs, Ark. 42 # *Permit me to say
that my observation causes me to believe that the people
are very grateful to you for your courageous fight thus
far, to force those who are making money out of the tears
and blood of this struggle, to also in B. large measure pay
for it. Those who fully understand that this program will,
in addition, act as an effective brake upon inflation are
doubly grateful! In the opinion of many, all things that
the Administration has done has not been the best that
could have been done, but certainly the efforts being put
forth to prevent inflation and shield the humble worker,
or workman forced out of employment by curtailment of
industry - and there are millions of those - deserves the
support of every American citizen! # # * For the wise
guidance you have given, and are giving, your Department,
I as one of America's millions, deeply thank you.
Henry J. Gesen, Realtor, Pontiac, Mich. After four hectic
weeks a great calm has settled upon my office, for during
that time I made out over 600 income tax reports, and
assisted in the making of 300 others. My clients are all
Regraded Unclassified
307
wage earning people; I carry on a strictly neighborhood
business. My purpose in writing you concerns the re-
action, my own as well as that of the public, as I know
it, to form 1040-A. Too many backed away from the use
of it as something to be avoided. Often I would run down
the figures on form 1040 before being permitted to use
the optional form. Had the allowances for deductions
been just a little more liberal, I am of the opinion many
more would have been used - the idea in itself is good.
Meeting so many it may interest you to know that a good
percentage of these people are already of the opinion
income tax will be taken directly out of their pay check,
hereafter. We have found that to be the easy way where
homes are bought on Land Contract, pro rate the tax and
insurance and add the same to the monthly payment. People
understand that.
Walter W. Woodbury, Long Beach, Calif. You had better
start that tax or hold out on wages pretty soon. My wife
was at a party the other evening and one of the ladies
told her that she, her husband and two nieces, all making
good money, were not buying anything, Defense Bonds or
otherwise spending their money, except on their back.
Neither were they using the banks, but were carrying the
oash with them in a money belt. Some of the same party
spoke of the big wages they were getting. No one seemed
to be buying Defense Bonds. Some of the men out where I
work seem to think (what they think with, I don't know)
that after this mess is over, United States Defense Bonds
might not be any good, but United States money will be.
Others, including myself, won't go all out on the payroll
deduction for Bonds because they think the Company is mak-
ing a little interest on their money; and this is the
really big important reason - WE have been trying for some
time to get a raise in wages to compensate somewhat for
the increased cost in living - 50 if we buy one or two
Bonds a month, the Company will say that anyone who can do
that don't need a raise.
#
As
of
working
man,
and
having
gone through the last war, I am very much in favor of the
withholding tax on wages, something of 8. compulsory insur-
ance and savings plan.
Regraded Unclassified
308
- 5 -
Favorable Comments on Taxation
Jacob M. Berkowitz, Philadelphia, Penna, I wish to
commend you on the stand you are taking against the
sales tax in Congress, as well as taxing low income groups.
I'm with you in your fight.
John Fenney, Norwalk, Conn. # # 46 My income tax for the
past year is 8. flat one hundred dollars, but if 8. 10% tax,
or even more, were deducted from my pay, I would still
think we are most fortunate to be living in the United
States of America. Come now, have everybody do their
share, then the goal will be attained.
###
Joseph Clark, N.Y.C. I am writing to inform you that my
wife and I have filled out the short, simplified form in
payment of our income tax. Truth is we saw the Donald
Duck film on the subject, and even though we would have
justifiably saved five or six dollars if we filled out the
long form, we were truly impressed by the above-mentioned
film. I also want to take this opportunity to protest
against those Congressmen, and it seems they are the ma-
jority who voted against this marvelous educational film.
Those members of Congress who attacked Donald Duck and
turned stronger fire against Disney than against the Axis
are doing the Axis 8. great service. We need education.
We need what reactionary, poll tax Congressmen call "boon-
doggling". Yes, we even need Donald Duck if it helps the
Government get 8. few million additional dollars from the
citizens for bombers. We don't need poll tax Congressmen;
we don't need Congressmen who hate the social, economic
welfare of the American people almost as much as they love
Hitler.
Miss Ruth Greenwald, N.Y.C. While I think your proposed
new income taxes are very stringent, I congratulate you
upon your fairness. There are few people in this world who
appreciate the situation of the people in the low income
brackets. It is quite obvious that an income tax is the
only equitable method of taxing people -- according to a
person's income - and not B. National Sales Tax, the burden
of which would of course fall upon the poor man's pocket-
book. # Nr #
Regraded Unclassified
309
- 6 -
Dr. L. A. Eldridge, Jr., Great Neck, N.Y. I have been
pleased to see your strong statement of tax principles
made recently. I heartily approve of taxation accord-
ing to ability to pay. Certainly this is a democratic
principle. I am glad you are opposed to B. sales tax and
are in favor of stiffer corporation texes. I hope you
will continue to support these principles 8.5 strongly 8.5
you have stated them.
K. G. Fulton, Kansas City, Mo. Last week this writer paid
income tax for the first time in his 45 years of living
in the greatest country on earth. And frankly, I loved
it, "Believe it or Not". My wife and I were talking this
matter of taxes and inflation, and the cost to us as indi-
viduals, and my wife made what I believe to be the wisest
statement concerning the paying and sacrifices that
America must make, and to do it now, not to-morrow and the
next day, but now. (Withholding wages and giving Bonds
after
the
war
is
over.)
#
#
4k
Maybe I'm prejudiced, but
I think the wife is smart and hit the nail on the head.
R. L. Tollett, President, Gosden Petroleum Corporation,
Big Spring, Texas. # * * Both you and Mr. Paul were coura-
geous enough to recommend the elimination of the percentage
depletion provisions of the Federal Income Tax Law. Be-
lieving myself well qualified to do so, I congratulate both
you and Mr. Paul for making this recommendation. I am
President and General Manager of an independent company
engaged in producing, refining and marketing crude oil and
its products. Our total assets amounted to over six and
a half million dollars. (Also lawyer, C.P.A., and director
of Petroleum Associations, etc.) * 4b # Regardless of the
arguments presented and the pressure exerted to influence
members of Congress from oil producing states, I am sincerely
of the opinion that percentage depletion as now provided for
is 8. subsidy to the producing division of the oil industry.
# # # It is not my desire to participate in any argument with
the well-organized associations of oil producers, but I do
think that your recommendations are reasonable and should be
followed by Congress in enacting the next Revenue Act. A
great responsibility is yours in these critical times. You
are to be congratulated for your courageous efforts in this
instance.
310
- 7 -
Unfavorable Comments on Taxation
S. Ainsworth Hird, President, Samuel Hird & Sons,
(Worsted Manufacturers), Garfield, N.Y. After careful
reading of the changes that you propose should be made
in levying the new corporation income and corporation
taxes, I feel that as an employer I am qualified to sug-
gest that the method of collecting the tax that requires
the employer to deduct the tax from the payroll, would
in a large part serve to defeat the purpose of the
Administration, in that it would create inflation, be-
cause whenever sums such as proposed are deducted from
payrolls, there is always an automatic demand for an in-
crease of this amount in the pay. $
#
E. A. Miller, Harrisburg, Penna. I am this day forward-
ing to the Collector of Internal Revenue at Philadelphia my
first installment on 1941 income tax. I am as ready and
willing as the next person to bear my share of the war burden,
provided the money is judiciously expended and not foolish-
ly, as indicated in the enclosed newspaper clippings. After
making due allowance for the bias of the Washington Post,
they still have B. helluva lot on the ball, and in my judg-
ment, it is high time that somebody at Washington starts
wielding the pruning knife.
F. M. Lindsay, General Manager, Decatur Newspapers, Inc.,
Decatur, Ill. # The finest contributions in this com-
munity to welfare agencies are made by men and women who
have independent incomes of their own. Not more than a
week ago I heard the finest contributor to the Community
Chest say that the forced consolidation of husband and
wife was going to decrease tremendously charitable and
educational gifts by these people. Personally, I think
that the joint return is unfair and many of our most decent
citizens are going to feel they are being unfairly taxed.
It seems to me that when heavy taxes are laid that no group
of Lonest taxpayers should feel that they are goats.
Regraded Unclassified
311
- 8 -
V. S. Whitinger, President, The Peoples Bank and Trust
Company, Tupelo, Miss. # * # We have sales tax in Mississ-
ippi and have had for a number of years and consider it
the most equitable form of taxation, and have never con-
sidered that such a tax was inflationary. We feel sure,
if it is 8. fact that the Treasury Department holds that
such a tax is inflationary, that you have good reasons
for such position. However, we cannot understand it, and
would appreciate advice from you as to the reason you
think it is. # *
Brandon Barringer, Vice President, The Pennsylvania Co.,
Philadelphia. I W&S much interested in seeing your state-
ment that we should not at this time increase the tax burden
of the lowest group of income recipients which will, I think,
meet with general acceptance. I wonder, however, whether
it has occurred to you that the proposed increase of the
Federal normal income tax and surtax on corporations from
31% to 55% will have exactly this effect in hundreds of
thousands of individual cases, as it will reduce the divi-
dends received on stocks by people with very small income
by an average of 1/2. # # # I have just had 8. meeting with
the president of & charitable foundation, all of whose income
is devoted to paying tiny annuities to retired music teachers.
# # # The foundation adopted the policy of buying what they
considered the best common stock to maintain annuities. If
your proposed tax bill goes through, every one of these
annuities will have to be drastically decreased. # #
I
would much prefer to see the corporations allowed to pay
out dividends and an increase in the scale in the indivi-
dual income taxes 50 that the money could be collected in
accordance with the ability to pay.
Regraded Unclassified
312
- 9 -
Henry T. Pratt, Minneapolis, Minn. + 4b Many of us
bought auto use tax stamps in January at $2.09, and
I understand we buy another in June. We used tires,
we stood in line, the Government (we) paid for printing
the stamps, and cards, thereby using valuable paper,
and you have B. record of every car - for what purpose?
All that information is available in the state records.
Yet an organization and files or storage must be arranged
for them. # # # If some clerk in your office is going to
write 8. form letter, "Your valued suggestion has been
referred, etc., etc.,' don't bother about it -- get on
with the war.
G. W. Henshaw, Grand Rapids, Mich. Since the Collector
of Internal Revenue at Detroit stated through the Press
that Vehicle Tax Stamps did NOT have to be displayed on
the automobiles, but could be carried in billfolds,
hundreds of people have not bought the stamps. Many have
actually been heard to brag about not buying the stamps.
This is extremely unfair to those of us who willingly pay
our various taxes, and it is 8. rotten situation generally
when we consider the thousands in Michigan who are American
on the surface only. 4b 48 *
Mary 0. MacCafferty, N.Y.C. I wish to inform you that
with my income tax return I sent the following letter:
"I hereby protest against the payment of the enclosed
income tax and state that I have only paid it under the
threat of 8. jail sentence. This tax has been forced upon
me and upon several million other Americans against our
will to pay for a war to which we were bitterly opposed,
and which, if the present Administration is not expelled
from Washington, may only end with the downfall of the
American Republic. It is taxation without representation.
I defy the political party in Washington, which came into
power through the abuse of public confidence and maintains
that power through sheer chicanery, to prove that it rep-
resents the will of the American people."
Regraded Unclassified
313
- 10 -
Norvin H. Rieser, N.Y.C. # # The tax situation is so
complicated, and the work and cost of filing same is 80
expensive, that in many cases the cost of the work far
exceeds the actual tax paid. If some drastic action is
not taken by the United States Government, this situa-
tion will become worse instead of better. # # # As an
example of what 8. manufacturer is up against - our exec-
utive offices are in New York City, we operate a plant
in Pennsylvania, and we pay EL Pennsylvania Franchise Tax,
9. Pennsylvania Income Tax, a Pennsylvania Corporation Loan
Tax, a Pennsylvania Bonus Tax. In New York City we pay
Sales Tax, Gross Sales Tax, an Occupancy Tax, and a New
York State Franchise Tax; California Income Tax, Los Angeles
County Personal Property Tax (which is outrageous), and
equally so, the Washington, D. C. Income Tax, and the Wash-
ington, D. C. Business Tax. # The Washington Tax must
have cost us $200 in labor, and we paid them $31.61. You
are asking the country to streamline business in order to
produce efficiently, and it is high time that streamlining
was started by the Government to eliminate the hardships
which are increasing instead of diminishing.
Leslie Williams, Palm Springs, Calif. For several months
we have read in the daily press of your suggestions or
proposals to limit corporation profits to a fixed percent-
age of the invested capital. Some of us were enthusiastic
over your apparent foresight and tendency toward straight
thinking on this basically important subject. But now we
learn that you seem to have dropped the subject entirely,
advocating instead a mere change in tax rates without
changing In principle any of the major features of the
present tax law. # # # As the matter now stands, your pro-
posal would treat the Coca Cola Company exactly 8.8 it would
the Consolidated Edison Company of N.Y., to pick at random
two well known corporations. Coca Cola, with stock selling
at about $60 per share (it has been as high as $90 recently)
has invested capital of $5.15 per share. It pays $5.00 divi-
dend per share, or about 97.8% on the invested capital.
Consolidated Edison, on the other hand, sells to-day for
about $11.50 per share, with invested capital of about $44
per share. It earns about 4.8% on the invested capital.
Yet you propose to tax both companies on substantially the
same basis, indicating that you feel that the present
scheme should be perpetuated. Certainly nothing in our
economic life compares with our tax laws as representing
a hodge-podge of expediencies, with practically no consider-
ation for sound, basic principles. *
Regraded Unclassified
- 11
314
General Comments on Present Emergency
Nathan Schachter, Chicago, Ill. In my position 8.9 Owner
and Operator of furnished apartment buildings, consisting
of over eighty American families of various origins, I
have found many of them to be defense workers in Chicago
and vicinity. I am informed that all piece workers that
have earned $10 to $18 per day, for some unexplained reason
must now and in the future cut the piece work not to exceed
more than $10 per day. In my estimation, it means that
production will automatically be cut down, contrary to our
urgent war needs. I am therefore kindly asking you to give
this information to the proper authorities to stop this
dangerous step.
Chauncey F. Cleveland Bishop, National Bank Building,
Honolulu, sends Western Union Money Order for $100, with
the following message: Congratulations on the sale of
Defense Bonds. Respectfully suggest that millions of
citizens are now anxious to buy offense bond issues.
Anonymous - N.Y.C. Labor leaders of all branches have
harassed our American capitalistic system to such an extent
that many Americans believe that the labor class in this
country of ours is equivalent to the pessant class in other
countries. # 4b # First, allow me to take as an example a
union to which I belong. Being a musician, I belong to
four different local unions - Kensas City, Chicago, St. Louis,
and New York. If I happen to receive my initiation in the
Musicians Union in New York, I pay the New York Local an
initiation fee of $50. plus $4 quarterly for the duration
of my membership in that local. Should I desire to travel
to Miami and work in the jurisdiction of the Miami Musicians
local, I must transfer and pay that local A fee of $5 quar-
terly for the duration of my stay, unless I stay over 8.
period of six months. Should I decide to stay over six
months, I have to become B. full-member by paying the initia-
tion fee of the Miami Local, which might amount to another
$50. ** + * The President of the American Federation of
Musicians receives almost 8.6 much as the President of the
United States, as far 88 salary is concerned, and his ex-
penses are all extra! th # # I believe the time is appropriate
to set Labor in its place - limit these expensive labor
leaders to 8. maximum of $200 per week - reduce the dues to
a minimum that will pay the office help - demand that the
excess be turned over toward the vast problem of winning
this war.
Regraded Unclassified
315
- 12 -
George M. Clark, President, Clark & Gibby, Inc., N.Y.C.
Last August, September and October, we delivered office
furniture in accordance with the amounts listed on the
enclosed statements. We have received no remittances to
cover these amounts, and had to borrow money at 6% from
our bank in order to carry on. This is all wrong and we
appeal to you for immediate help. Please telegraph us
collect if there is any more we can do from this end.
A. N. Spanel, International Latex Corp., Dover, Delaware.
(Telegram) Your courageous fight to repeal parasitic
silver legislation, in face of silver bloc's strangle
hold on our Treasury, will be applauded and long remember-
ed by the American people. No one underestimates the
political and material power of your adversaries, but
they cannot win if you stage your battle before the peo-
ple, openly and with no holds barred. In the public mind,
the discredited silver bloc represents the combination of
8. few against the whole people, and the entire economy of
this country. Your victory will be 8 victory for every
man, woman and child in America. More power to you.
J. C. O'Dill, Myrtle Beach, S.C. My income is such that
it is below the $740 point, and I am now in my 85th year
of age, and B. retired Methodist Minister, after 63 years
of service in that capacity. I am too old, blind and
feeble to offer my services to the Army, but I have always
believed in the principals of Government by, for and of
the people and beg to hand you herewith my check for $5,
with the prayer for the speedy success of our armed forces
over our heathen and barbarous enemies.
Thomas M. Galey, Owensboro, Ky. # # # The House has passed
the $771,555,137, Farm Bill. Here in Owensboro lives rich
Jim Ellis. Thirty-eight hundred acres of fine land came
up for forced sale. Jim bought it for $27,000 cash. WITHIN
THREE YEARS THE GOVERNMENT PAID JIM $41,000 BECAUSE HE WAS
A GOOD BOY IN THAT HE COMPLIED WITH INSTRUCTIONS TO RAISE
NO CROPS THEREON. Now, that's the kind of "loopholes" you
ought to cork up: ain't I right?
Regraded Unclassified
316
- 13 -
Charles Lappen, Chicago, Ill. One of our business
associates, Mr. Henry C. Bobbe, passed away several days
ago. He served with the U. S. Naval Forces during the
last war, and up to the time of his death was planning
how he could serve again. Instead of sending flowers,
I am sending 8. check for $10, 8.8 a contribution in memory
of Henry C. Bobbe, this money to be used by the Govern-
ment in any way it sees fit, in the broad program to win
the war.
B. V. Sturdivant, Theatre Defense Bureau, Los Angeles,
Calif. After observing very closely theatre audience
reaction to the Walt Disney subject, "The New Spirit",
may I take this means of advising that it undoubtedly
is the most successful subject of its kind that has ever
been exhibited. As a matter of fact, it is unfair to
classify it with any other release since it is 8. pioneer
in its own right. The demonstration of patriotic fervour
which invariably followed these showings left no doubt in
my opinion but that B. great service was done in bringing
about even greater unity among the American people in our
all-out effort, in addition to B. closer and more friendly
relationship with the Treasury Department. + 4F # There is
no doubt whatever but that it encouraged the payment of
income taxes.
Mrs. A. Weingarten, Cleveland, Ohio. * # # Just why is it,
Mr. Morgenthau, that our delegated and elected authorities
are doing nothing about Father Coughlin's weekly paper,
"Social Justice"? Its circulation is growing, and its
reading matter is more menacing week by week. If people
who think they are not interested would take the trouble
to read one or two copies of this mouth-piece of hate,
perhaps some action would be taken. I have written to the
F.B.I., and can't understand why that branch of our Govern-
ment doesn't take this matter in hand. * 4b # This particular
periodical is ONE OF THE BEST FRIENDS HITLER HAS IN OUR
COUNTRY.
Albert A. Rosenthal, a Traveling Representative, protests
the red tape and "harping on technical terms" of the Internal
Revenue officials who have passed upon his case. He is an
American representative of an English firm offering wines
Regraded Unclassified
317
- 14 -
grown in Portugal, and selected because they resemble
certain wines grown in Germany and France. His labels
describe the characteristics of the individual wines,
indicating which German or French wine each one resembles.
The Internal Revenue insists that one of the following
adjectives -- "nutty", "dry", "tangy", "sweet" -- be used
instead of the description he gives. Mr. Rosenthal says
the terms are vague and meaningless, and therefore actually
misrepresent the product. He is 77 years old, and says
he refuses at this age to misrepresent, even when ordered
to do so by Government officials who do not understand
conditions either of his business or of international re-
lations. He believes it actually an aid to Hitler because
German wines are "protected" by our Internal Revenue de-
cision. He appeals to the Secretary as the last step
before winding up his business.
Mrs. G. A. Russell, Arlington, Vt. We are totally at &
loss to see on what grounds you base the very kind words
to "labor" in your speech at Detroit, January 25th.
According to report of said speech in the New York Herald
Tribune, labor received from you this choice piece of
"taffy": -- labor, which he said "has been ahead of us
all in its willingness to produce armament" -- etc.
A frightful waste of sugar, Mr. Morgenthau -- what would
Mr. Henderson not say to you! #
*
"John Doe", Greenwich, N.Y. I am a boy 14 years old, and I
live in a small town in upper New York State. When war
broke out I certainly wanted to help all I could. I thought
of 8 plan which would raise 8 small amount of money which
can, I hope, be 8. help. I drew several pictures of B. "V"
for Victory, one of which I enclose, and went from door to
door selling them. The people gave whatever they thought
fit. I found that the contributions were very generous.
I have, due to lack of time and other activities, delayed
some time in sending you the money I collected. I am going
to keep on making them, but I now am enclosing 8. Money Order
for what has been collected, which amounts to $2. I do not
believe in anonymous letters, but as contributions are from
many, and I wish no personal credit, I omit my signature.
Regraded Unclassified
318
- 15 -
Favorable Comments on Bonds
Guy H. Walden, Assistant Cashier, The First National Bank,
Amarillo, Texas. # I have served two years with the
Treasury Dept. as an Assistant National Bank Examiner,
of which I am grateful to you for having the opportunity.
Because of this experience, I know that there are several
million, maybe billions of dollars in dormant accounts in
the banks in the United States. For various reasons 95%
of these accounts will never be claimed. For this reason
I have thought there might be a bill passed in Congress
authorizing the Treasury Dept. to issue Savings Bonds and
Stamps in the names of the persons having these accounts.
Then if at any time these accounts are claimed, the banks
could give the persons their Stamps or Bonds. This would
help greatly toward financing the war program.
Samuel Mayer Feiner, San Francisco, Calif. I was very
glad to hear over the radio that you have suggested that
the workers should get paid for overtime work with
National Defense Bonds. I believe that it is 8. marvelous
idea. It might interest you, Mr. Secretary, to know what
other workers think of your suggestion. I have asked a
group of workers at the Bethlehem Ship Yard in San Francisco
with whom I work, what they think of your suggestion. To
my amazement, all of them liked the idea very much. Some
of them have remarked that it would be the only way for
them that they could save some money for the future. I hope
that your suggestion will be successfully carried out soon.
James A. McCall, General Freight Agent, National Carloading
Corporation, Kansas City, Mo. The attached file is self-
explanatory, and is for your information. (Requested
doubled payroll deduction hereafter.) I am B. 33 year old
young man with a wife and baby (four years old) and another
one is expected in June, and I fully realize we are going
to have to give up 8. lot of things to pay for this war.
We are also going to have to fight like the very dickens
to win it, but we'll win, and I, one of those little fellows,
do hope you all can work out something that will not take
everything we have now, and what we must have to live in
the future. # # #
Regraded Unclassified
319
- 16 -
Unfavorable Comments on Bonds
Sophia Breyerson, Bronx, N.Y. About three months ago
I returned $6,000 worth of Series E. Bonds because of
over-subscription. I ordered them converted to Series
F. Six weeks later I was notified by your Department
that I will be allowed to keep 8. $1,000 Bond, Series E,
and the rest will be attended to as requested by me.
I did not think that such 8. simple transaction would
take close to three months to be effective. I am sorry
to register 8. complaint, but I sincerely feel better
efficiency and expediency should be applicable to all
transactions.
Mrs. Marianne Langdon, Coldwater, Mich. In response to
circulars received concerning & Defense Bond campaign,
which now is in progress, I decided upon 8. systematic
plan of purchasing 8. Defense Bond each month. Being quite
enthusiastic about the plan, and 8.8 a starter, I mailed
to you on February 2 B. Federal Reserve Draft for (18.75)
eighteen dollars and seventy-five cents for the purchase
of my first bond. I fully expected to receive the bond
within 8. few days; however, you can imagine my disappoint-
ment after waiting and waiting. I finally received the
Bond from the Federal Reserve Bank of Chicago on March
7th, and dated March 2nd, instead of February. This was
more than a month after I mailed out my draft in payment
of same; also I have lost one month in the dating of the
Bond through no fault of my own. + # # Possibly you can
explain this delay; however, it seems to me that we will
never be able to win a war and put over 8. Defense Bond
program with such unreasonable delays. (Letter addressed
to the Treasurer of the United States.)
Regraded Unclassified
320
- 17 -
G. H. Mason, Columbus, Ohio. I have $3,000 in a Savings
Bank, itching to buy Defense Bonds, but I am holding off,
undecided as to whether these Bonds are primarily or
secondarily for defense. Right now, these Defense Bonds
smell too much like "Bargaining Agent", "Check Off",
"Time and A Half for Overtime", "Double Time for Sundays",
"40 Hours 8. Week", "$25 to $200 Initiation Fee" -- Strikes
and more strikes -- dues and more dues. The Administration,
of which you are & part, through its crazy labor laws, has
deliberately fostered this rotten labor mess, and until
it is cleared up, no more of my savings will go into the
pockets of any of the quarter million of racketeers living
on labor. # # # My $3,000, Mr. Secretary, is ready to-morrow
to buy food for the soldiers and sailors, but none of it
for check-offs to these crooked unions. The first report
that reaches me that these unions are curbed, and are will-
ing to heed the President's plea for no stoppage in pro-
duction, then I will hustle down and buy $3,000 more of
Defense Bonds, check-off or no check-off.
Julius A. Reif, Vice President, The Provident Savings Bank
and Trust Company, Cincinnati, Ohio. We desire to pass on
to you our experience in connection with the cashing of
coupons from Government Bonds whereby the owner is re-
quired to put them in separate envelopes and apply his name
on the back of each envelope, besides which he is required
to make out B. declaration certificate for taxation. This
has proven to be 8. hardship, especially to old folks who
purchased bonds as an investment, believing in them and
feeling that all red tape would be eliminated by owning
Government Bonds. " # # Quite B. few persons declare they
will hesitate buying any more Government Bonds.
Wallace Robertson, President, The Beatrice National Bank,
Beatrice, Neb. A united and vigorous effort is to be made
to increase the sale of Government Bonds in this County. +
We are confronted repeatedly with such reasons for not sub-
scribing as these: "Why should I deny myself and buy Bonds
when the Administration will throw it away on such projects
and rackets 8.5 the Florida Ship Canal, St. Lawrence Water-
Way, soft jobs on the Federal payroll for Mrs. Roosevelt's
communistic friends, Mellet's Mad House, the Administra-
tion's support of the labor racketeers, the CCC and the NYA."
Regraded Unclassified
TREASURY department
321
INTER OFFICE COMMUNICATION
DATE March 20, 1942
TO FROM Mr. Mr. M Thompson Hand
In further response to your request of December 26,
1939, there is submitted herewith for the Division of
Research and Statistics a memorandum listing, with brief
descriptions, the studies or projects completed or under
way, and the names of persons working on each, for the
month of January 1942.
322
DIVISION OF RESEARCH AND STATISTICS
Report of Studies or Projects Completed or Under
Way, and the Names of Persons Working on Each,
for the month of January 1942
For convenience of reference, the studies listed are
grouped under general subject heads,
The names shown for persons working on each project
include only those who participated fairly directly, as
explained in the introductory note to the corresponding
report submitted on December 28, 1939. No attempt has
been made to cover also persons whose responsibility in
each particular case was mainly in planning, supervising,
or consulting.
Financial Analysis
I. Projects or studies completed
1. A review of current developments in the high-grade
securities markets was prepared, and a memorandum was
transmitted to the Secretary on January 24. Copies
were given to Under Secretary Bell and to Mr. Morris. -
Mr. Haas, Mr. Murphy, Mr. Foy, Mr. Rosen, Mr. Barnett
This review contained, in addition to analysis of the
current situation, the following special study:
Yields of British Government securities. - Mr. Matlock
2. A memorandum was prepared, and was transmitted to the
Secretary on January 8, containing recommendations
with respect to the January refunding. - Mr. Haas,
Mr. Lindow, Mr. Sandelin, Mr. Conrad, Mr. Leahey,
Mrs. Barnes
3. Two tables were prepared on January 9, showing on the
basis of closing quotations on January 8 and 9, re-
spectively, estimated yield bases and probable premiums
on possible refunding issues. - Mr. Lindow, Mr. Sandelin,
Mr. Conrad
4. A maturity calendar was prepared as of January 1, for
each issue of direct and guaranteed bonds and notes
of the United States. The calendar W&B transmitted to
the Secretary on January 9. - Miss Lagos
Regraded Unclassified
323
- 2 -
5. Yields on public marketable securities issued by the
United States Government and by Federal agencies were
computed daily on the basis of over-the-counter closing
cuotations. A daily table was prepared summarizing this
information. Similar comparative information for earlier
periods W&B prepared in a weekly table. A chart for
each issue was kept up to date showing daily price and
yield figures together with comparative monthly data
since 1935, since the date of issue, or since the date
first traded. In addition, yields were computed daily
on five high-grade corporate securities, three municipal
securities, and two British Government issues. -
2
Mr. Moody, Miss McCoy, Mr. Kroll
6. At the request of the Secretary, arrangements have been
made to secure periodically from the British Empire
purchasing missions certain information regarding pur-
chases in the United States by the British Empire.
Reports and tables are prepared from this information,
and are transmitted according to instructions by the
Secretary. - Mr. Haas, Mr. Lindow, Mr. Wagner, Mr. Mayo
(a) The Division also receives weekly statements from
the British Purchasing Commission showing (1) the
dollar volume of orders placed by British Empire
Governments; and (2) the dollar volume of deliveries
on orders placed by the United Kingdom through the
various missions. The information in these state-
ments is itemized by contracts and classified by
twenty-five commodity groups.
These data are reviewed and edited in the Division,
and B. bi-weekly report, entitled, "British Empire
Commodity Statements", 18 prepared summarizing in
dollar volume the information on orders and de-
liveries, by commodity groups. This report con-
siste of eight analytical tables: The first three
relate to orders placed during the current period
by British Empire Governments; the next three con-
sist of historical summaries of orders placed by
the British Empire; the seventh and eighth relate
to deliveries on orders placed by the United Kingdom
through the British purchasing missions. These
statements were prepared, and were transmitted on
January 6.
Regraded Unclassified
324
- -
(b) The Division receives each month from the British
Purchasing Commission information, on a physical
volume basis, relating to the purchases of vari-
ous other important commodities. These data are
edited and consolidated in the Division, and analy-
868 of British Empire orders are prepared for the
several commodities, containing the following
analytical tables: (1) ourrent status of orders;
(2) history of orders; (3) history of deliveries;
and (4) scheduled deliveries of unfilled orders.
Statements for the following commodity groups were
prepared, and were transmitted as follows:
Airplane propellers, January 6
Small arms, January 6
By direction of the Secretary, notice was sent out
on January 24 that preparation of these reports was
being discontinued. The work of closing out the
assignment is in process.
7. At the request of the Secretary, arrangements have been
made to secure periodically certain information regard-
ing purchases in the United States by the Netherlande
Purchasing Commission, and by Lindeteves, Inc. -
Mr. Haas, Kr. Lindow, Mr. Wagner, Mr. Mayo
Weekly statements are received, showing the dollar
volume of orders placed by the Netherlands Purchasing
Commission and by Lindeteves, Inc., and the deliveries
made thereon. These statements are itemized by con-
tracts and are classified by the twenty-five commodity
groups used for reporting orders olaced by the British
Empire.
The date are reviewed and edited in the Division, and
bi-weekly reports are prepared for each of these agencies
summarizing the information classified by commodity
groups. The reports consist of three tables each, show-
1ng (1) history of orders; (2) history of deliveries;
and (3) current delivery status of orders. These reports
entitled, "Netherlands Purchasing Commission Commodity
Statements" and "Lindeteves, Inc. Commodity Statements"
were prepared, and were transmitted on January 6, 20-
cording to instructions by the Secretary.
By direction of the Secretary, notice WD.B sent out on
January 24 that preparation of these reports wee being
discontinued. The work of closing out the assignment
10 in process.
Regraded Unclassified
325
4
5. In further pursuance to the request of the Secretary on
July 8, four tables Were prepared, and were transmitted
to him on January 14, showing deliveries from July
through December of airolanes, flying boats, four-engine
bombers, and tanks. - Mr. Tickton
9. In further pursuance to the request of the Secretary on
October 22, two charte were prepared, and were trans-
mitted to him on January 12 and 23, showing lend-lease
orders effected by the Procurement Division from May I,
1941 to date. - Mr. Tickton
10. In response to a request by the Secretary on January 21,
1941, that measures be taken to obtain information to
assist in carrying through the defense financing pro-
gram, arrangements were made to obtain the necessary
detailed statistics on the holdings of each issue of
the oublic debt and of guaranteed securities by the
various classes of holders. - Mr. Haas, Mr. Tickton
Mr. D. J. Leahy, Mr. Blitman, Mrs. Barnes, Mr. Robbins,
Miss Westerman, Miss Wood
A summary was prepared of the data received as of
November 30, consisting of brief explanatory text and
six tables for publication in the Bulletin of the
Treasury Department for January.
Special tabulations were prepared, and were transmitted
on January 9, to the Federal Reserve Banks of New York
and Philadelphia, covering ownership in the respective
districts, as of November 30.
A tabulation was prepared, and was transmitted on
January 9, to the Board of Governors of the Federal
Reserve System showing, by classes of banks and by
issues, the amount of Government securities owned on
November 30, by the institutions covered in the survey.
The information as of December 31, received from 7,000
banks and insurance companies was coded, tabulated,
and analyzed. An analysis was prepared, consisting of
100 tables, showing this information, classified by
type of institution, by issue, by geographic area, by
call-classes, and by tax-exemption provisions.
New letters were sent out to the banks and insurance
companies on January 29, requesting comparable data AB
of January 31.
Regraded Unclassified
326
- 5 -
A tabulation was prepared, and WAB transmitted to
Dr. Goldenweiser, Board of Governors of the Federal
Reserve System, on January 31, which showed as of
June 30 and December 31, 1941, the ownership of
Government securities, by issues, by classes of
banka.
11. At the request of the Secretary, arrangemente have been
made to prepare current statistical reports on the sales
of United States Defense savings bonds, series E, F, and
G, and Defense Postal savings stamps, on the basis of
reports by the Treasurer of the United States, the Federal
Reserve Banks, and the Post Office Department. The re-
ports prepared during January were transmitted according
to instructions by the Secretary- Mr. Haas, Mr. Reagh,
Mr. Brown, Mr. Tickton, Mr. Kroll, Mr. D. J. Leahy
(a) Daily tables were prepared, showing the dollar
volume, on the basis of the issue price, of sales
of savings bonds, series E, F, and G, by Post
Offices and by banks. The first table, prepared
on January 1, presented these data for each
business day of December, with totals for the
month. The next table, prepared on January 2,
showed these data for January 1. Subsequent tables
showed the data for the successive business days
of January, with cumulative totals. The table
prepared on January 31 covered the period from
January 1 through 30.
(b) Daily tables were prepared, containing a compara-
tive statement of sales of bonds, series E, F, and
G, in the three latest months, by Post Offices and
by banks. The dollar volume of sales was shown on
the basis of the issue price, together with the
absolute and percentage changes in the latest month
from the preceding month. The table prepared on
January 1 contained these data for the full months
of December, November, and October. The first
table showing the comparison for January, December,
and November, prepared on January 2, showed the
data for the first business day of each month.
Subsequent tables showed cumulative data for suo-
cessive business days. The table prepared on
January 31 covered the last 23 business days of
each month.
(o) A table was prepared on January 1, showing sales
of savings bonds, series F, G, and E, by Post
Offices and by banks, in dollar volume, in each
month from May through December.
327
- 6 -
(d) A table was prepared on January 5, showing sales
of savings bonds, series E, F, and G, in dollar
volume, in each month from May through December.
(e) A table was prepared on January 21, showing sales
of savings bonds, series E, in dollar volume, in
December, by States.
(f) A table was prepared on January 20, showing for
savings bonds, series E, the estimated number of
units sold, and percent of the dollar volume, by
denomination, in each month from May through
December.
(g) A report consisting of 177 pages, was completed on
January 30, showing sales of savings bonds,
series E, for the month of December, in dollar
volume, by Federal Reserve districts, by States,
by cities, and by counties, classified by sales
agents and denominations.
(h) A table was prepared on January 9, showing for
savings bonds, series E, the dollar volume of
sales in fifty cities, for the period from July
through November.
(1) A table was prepared on January 20, showing for
savings bonds, series F, the number of units sold,
and percent of the dollar volume, by denomination,
in each month from May through December.
(J) A table was prepared on January 20, showing for
savings bonds, series G, the number of units sold,
and percent of the dollar volume, by denomination,
in each month from May through December.
(x) Two tables were prepared, on January 5 and 9, show-
1ng estimated total value of Defense Postal savings
stamps, in each month from May through December.
(1) A table was prepared on January 9, showing total
sales in dollar volume of Defense Postal savings
stamps, by States, in each month from May through
December.
328
- 7 -
12. At the request of the Secretary on December 26, daily
tables were prepared from data wired by the Federal
Reserve Banks, showing the supply of savings bonde,
series E, on hand, unfilled requests by dates, by
denomination, and by Federal Reserve districts; total
inventory, production, and sales. The tables prepared
in January were transmitted according to instructions
by the Secretary. - Mr. Tickton, Mr. Mayo
13. At the request of the Secretary on December 31, weekly
memoranda and tables were prepared from data wired by the
Federal Reserve Banks, showing the number of agents quali-
fied to issue series E, savings bonds, by type, Federal
Reserve district, and by date. The reports were prepared
as of January 10, 17, and 24, and were transmitted on
January 13, 20, and 27, respectively, according to in-
structions by the Secretary. - Mr. Tickton, Mr. Mayo
14. At the request of the Secretary, a list WAS prepared
from data received from the Federal Reserve Banks of
corporations qualified as of January 10 to 1ssue sav-
inks bonds, together with the number of employees and
the number of requisitions for bonds since the date of
qualification. The list was prepared, and was trans-
mitted to Kr. Morris for the Secretary on January 21. -
Mr. Tickton
15. Pursuant to the request of the Secretary on December 15,
for information on the progress of the payroll savings
olan for defense savings bonde, series E, the following
projects were completed. - Mr. .Haas, Mr. Tickton
(a) Weekly tables were prepared, showing the number
of firms with payroll savings plans classified by
size, type, and State, together with the number of
employees participating. Tables were prepared as
of January 10, 17, and 24, and were transmitted
on January 17, 21-23, and 29-31, according to in-
structions by the Secretary. - Mr. Tickton,
Mr. D. J. Leahy, Mr. Keats
(b) A list was prepared from data received from the
State Administratore of newspapers participating
in the payroll savings plan, together with the
number of employees AB of January 20. The list
was transmitted to the Secretary on January 21. -
Mr. Tickton, Miss Westerman, Miss Wood
329
- 8 -
(c) A table was prepared from data received from the
State Administrators, showing State and local
governments reporting payroll savings plans, the
total number of employees, the number of employees
covered, and the percent covered 8.8 of January 17.
The list was prepared, and was transmitted to the
Secretary on January 21. - Mr. Tickton, Mr. D.J. Leahy,
Mr. Keats
(d) A list was prepared from reports received from the
State Administrators, showing participation in the
payroll savings when by industrial plants display-
1ng the Navy "E" flag, as of January 24. The list
was transmitted on January 31, according to in-
structions by the Secretary. - Mr. Tickton,
Mr. Keats
(e) A list was prepared from reports direct from 86
large companies participating in the payroll
savings plan during December. The list gave the
total number of employees, the number participating,
and the percent. The tabulation was prepared,
and was transmitted to the Secretary on January 21.
A copy was given to Mr. Graves. - Mr. Tickton,
Mrs. Barnes
(f) A statistical reporting procedure was developed
on January 22 and 23, at the Division of Savings
Bonds, to facilitate the handling of State Ad-
ministrators' reports on the progress of the pay-
roll savings plan. - Mr. Tickton, Mr. D. J. Leahy,
Mr. Keats
(g) A summary 18 being prepared of operations of pay-
roll savings plans, by classes of corporations,
during December, on the basis of data received
from corporations in response to our letter of
January 19. - Mr. Tickton, Mrs. Barnes,
Miss Westerman
16. At the request of Under Secretary Bell, in connection
with a proposed new type of savings bond, conferences
were attended on January 9, and a series of sample
bonds in check-book form were prepared on January 7. -
Mr. Lindow, Kr. Tickton, Mr. Wagner
Regraded Unclassified
330
- 9 -
17. At the request of Mr. Graves on January 3, a schedule
was prepared, showing, by income classes, a. weekly
savings figure which wight be used as a "nar" for
the purchase of savings bonds which would produce
approximately $10 billions annually. The schedule
was completed, end was transmitted to Mr. Odegard on
January 29. - Mr. Reagh, Mr. Kroll
18. A study is being made of the sources of funds for
Government borrowing. During January the reports
and tables prepared were transmitted in accordance
with instructions by the Secretary. - Mr. Haas,
Mr. Daggit, Mr. Lindow, Mr. Breithut, Mr. Wagner,
Mr. Weintraub, Mr. Mayo, Mr. Colclough, Mr. Saunders
(a) An analysis was made of the gross national product
involving the preparation and revision of tables
showing the estimated composition and distribution
of the gross national product for the fiscal year
1943; for the calendar year 1941, and at the annual
rate for September 1941, with respect to two of
the revisions. These tables were prepared on
January 22, 24, 29, and 30.- Mr. Lindow, Mr. Breithut
(b) Conferences were held from January 26 through 31,
in consultation with the Divisions of Monetary
Research and Tax Research, and with members of
the consultative committee from other agencies.
Comments made in these conferences were summarized. -
Mr. Lindow, Mr. Breithut
(c) A table was prepared on January 8, showing an
analysis of the distribution of national income,
with particular reference to taxes required
in June 1942 to maintain prices at their October
1941 level. - Mr. Lindow, Mr. Breithut, Mr. Wagner
(à) Dummy tables were prepared, and were revised on
January 26 and 30, showing possible methods of
financing the budgetary deficit and operations of
Federal agencies. - Mr. Lindow, Mr. Breithut
(e) A textual analysis was completed on January 15,
of the general problem of curtailment of consumers
goods output, with particular reference to its effect
on the composition of the gross national product, -
Mr. Lindow, Mr. Weintraub
331
- 10 -
(f) A series of tables were prepared from January 26
through 31, to serve as supporting schedules for
the major report covering national income payments,
consumers outlay, State and local revenues, main-
tenance, and depreciation. - Mr. Lindow, Mr. Breithut,
Mr. Mayo
(g) An analysis 18 being made of increases in individual
incomes to determine their disposition. - Mr. Daggit,
Mr. Colclough, Mr. Weintraub, Mr. Saunders
(h) A compilation 18 being made of data for measuring
monthly changes in consumere cash surpluses, for
use in estimating the "inflationary gap". -
Mr. Daggit, Mr. Colclough, Mr. Saunders
19. An analytical review was made of the proposed Department
of Labor's survey of family expenditures, with specific
reference to the Treasury study of the gross national
product. The review was incorporated in a memorandum
on January 20, and comments were prepared on & meeting
at the Bureau of Labor Statistics on January 26. -
Mr. Lindow, Mr. Breithut, Mr. Wagner
20. A table was prepared, summarizing sales from August
through December, of Treasury notes, Tax Series A
and Tax Series B, in par amounts, by individuals and
by corporations. The table was transmitted to the
Secretary on January 10, and copies were given to
Under Secretary Bell, to Mr. Buffington, and to Mr. Kilby. -
Mr. Tickton
21. A table was prepared, showing sales from August through
December, of Treasury notes, Tax Series A and Tax Series B,
in par amounts, classified by denomination. The table
was transmitted to the Secretary on January 10, and contes
were given to Under Secretary Bell, to Mr. Buffington,
and to Mr. Kilby. - Mr. Tickton
22. At the request of Mr. Broughton on November 12, 8. review
WAB made of a memorandum suggesting a new type of tax
anticipation notes, Series A, to be 1ssued during 1942,
and a memorandum was transmitted to Mr. Broughton on
January 26. - Mr. Reagh, Mr. Foy, Mr. Brown
332
- 11 -
23. At the request of Under Secretary Bell, agenda, memoranda,
and minutes are prepared in connection with the Treasury-
Federal Reserve meetings held for the purpose of discus-
sing financing policy. - Mr. Haas, Mr. Lindow
Notes were prepared of the meeting held on
January 1. - Mr. Murphy
24. Three proposals of the RFC that the Secretary request
that corporation to purchase stock in three banks were
examined. - Mr. Barnett, Mr. Rosen
25. At the request of the Secretary on November 3, monthly
charte were prepared, showing certain information on
the progress of the programs under Lend-Lease, the
Maritime Commission, and the Army Air Corps.
During November and December some preliminary informa-
tion was transmitted. During January monthly charts
were prepared showing appropriations, authorizations,
allotments, contracts awarded, and disbursements under
the Office of Lend-Lease through December, under the
Army Air Corps through November, and under the Naritime
Commission through December. These reports were trans-
mitted to the Secretary on January 13, 29, and 30,
respectively. - Mr. Haas, Mr. Lindow, Mr. Wagner
26. At the request of the Secretary on December 6, an
analysis 18 being made of the plant facilities for war
production.. - Mr. Lindow, Mr. Wagner
(a) The progress of United States Government commit-
ments by type of industry, by Government departments,
and by dates will be shown in B. monthly chart and
table. This report 18 now in preparation.
(b) Commitments by the United States Government, by
private interests, and by the British Empire,
by type of industry and contracting authority
will be shown in a monthly chart and table. This
report is in preparation.
27. In accordance with the request of Under Secretary Bell
on December 27, an analysis was completed for Mr. Rouse
of the holdings of United States securities to be re-
funded January 15, 1942. The figures were telephoned
to Mr. Rouse on January.5. - Mr. Lindow, Mr. Tickton,
Mr. D. J. Leahy, Mrs. Barnes
Regraded Unclassified
333
- 12 -
28, In accordance with the requests of Under Secretary Bell
on December 31 and on January 15, a study was completed
of a proposed special security for the ourpose of ab-
sorbing idle business balances. A memorandum was pre-
pared, and was transmitted to the Secretary on
January 2. Copies were given to Under Secretary Bell
and to Mr. Morris. - Mr. Haas, Mr. Murphy, Mr. Foy
29. A memorandum was prepared on the absorption of
Government securities by mutual savings banks in
1942-43, and was transmitted to the Secretary on
January 5. Copies were given to Under Secretary Bell
and to Mr. Morris, - Mr. Tickton, Mr. Robbins
30. At the request of Mr. Buffington on January 19, FL
memorandum was prepared, and was transmitted to him
on January 27, with respect to a proposal to make
series G defense savings bonds receivable at par for
the Federal estate tax. - Mr. Foy
31. At the request of Under Secretary Bell on December 5,
a report was made on the pro's and con's of the
Treasury's taking over the Postal savings system from
the Post Office Department, and was transmitted in a
memorandum to Under Secretary Bell on January 8. -
Mr. Tickton, Mr. Robbine
32. At the request of the Under Secretary on January 1, 8.
memorandum was prepared on recent changes in excess re-
serves, and was transmitted to him on January 6. -
Nr. Murphy, Mr. Barnett
33, At the request of the Defense Savings Staff, two tables
were prepared, one showing actual and estimated receipts
and expenditures of the Government for the fiscal years
1939-43, and the other showing national income. The
tables were transmitted to Miss Bennett of the Defense
Savings Staff on January 19, - Mr. Breithut
34. At the request of Under Secretary Bell on January 12,
a memorandum was prepared, and was transmitted to him
on January 15, with respect to "Large Savings" in Great
Britain. - Mr. Natlock
35. At the request of Under Secretary Bell on January 17,
a memorandum and table were prepared with respect to
Mr. Bruere's telegram concerning defense savings bonds
and mutual savings banks. - Mr. Murohy
Regraded Unclassified
334
- 13 -
36. At the request of the Secretary on January 29, a
memorandum was prepared, and was transmitted to him
on January 30, concerning Mr. Winthroo W. Aldrich's
proposal for United States Annuity Bonds". - Mr. Murphy
37. An abstract was prepared of the plan to form the
"American Institute for Investment Protection" sub-
mitted by Mr. Moses Grossman, and was incorporated in
R memorandum transmitted to Under Secretary Bell on
January 14. - Mr. Barnett
30. At the request of Mr. Heffelfinger on January 20,
a check was made on January 24, of the interest rate
which would be applicable to advances by the Federal
Works Agency to the District of Columbia under Public
Law 362, 77th Congress, as provided by section 3. -
Mr. Conrad
39. By reference from the Secretary's correspondence
Division on January 16, aletter was prepared in re-
oly to a letter from Mr. 0. B. Liska, dated January 10,
concerning the disposition of the proceeds of the social
security taxes. The reply was forwarded on January 20
for signature of Under Secretary Bell. - Mr. Lindow,
Mr. Breithut
40. At the request of the Office of Under Secretary Bell
on January 7, & reply was prepared to a letter from
Mr. Sidney Freeman, suggesting a compulsory savings
plan counled with a form of lottery. A. memorandum was
prepared on January 13, summarizing the proposal, and
the letter of reply was signed by the Under Secretary
on January 21. - Mr. Reagh, Mr. Murphy
41. At the request of Mr. Cunningham of the Office of the
General Counsel on January 7, A. review was made of a
letter from Mr. Joseph H. Hill, addressed to the
Secretary, which proposed A change in the terms of
defense sevings bonds, series E. A memorandum was
prepared, and was transmitted to Mr. Cunningham on
January 7, pointing out the errors in Mr. Hill's as-
sumptions. - Mr. Reagh
42. At the recuest of Mr. Kuhn on January 17, a check was
made of certain data to be used in promotion articles
for defense savings bond sales. - Mr. Daggit, Mr. Lindow
Regraded Unclassified
335
- 14 -
43. At the request of the Division of Tax Research on
January 27, for use in connection with a meeting of
the American Bankers Association, three tables were
prepared, and were transmitted to Mr. Shere on
January 28, showing data used in deriving the proposed
allowance for expenses of loans for nurooses of bank
taxation. - Mr. Murohy, Mr. Barnett
44. At the request of Mrs. Kuhn of the Office of Facts and
Figures on January 6, a review WAB made of the appendix
concerning Treasury operations appearing in the Message
on the State of the Union, and the material was returned
to Mrs. Kuhn on 'that date. - Mr. Foy, Mr. Barnett,
Mr. Rosen
45. At the request of Mr. Broughton on Jaruary 3, a review
was made of a new leaflet covering the 1942 issue of
United States savings bonds, issued by Moody's Investors
Service, and was incorporated in a letter for signature
of the Under Secretary. The letter WAB transmitted to
Mr. Broughton on January 16. - Mr. Murphy
46. Two proposed press releases were prepared at the re-
quest of Under Secretary Bell for a joint statement
of the Secretary of the Treasury and the Board of
Governors of the Federal Reserve System, and were
transmitted to the Under Secretary on January 6. -
Mr. Haas, Mr. Murphy
47. At the request of Under Secretary Bell on January 6,
a review was made of his address delivered before the
Washington Board of Trade on that date. - Mr. Murohy,
Mr. Lindow
48. At the recuest of Assistant Secretary Gaston on
January 19, a review was made on January 20 of his
address delivered in New York on January 24. -
Mr. Murphy, Mr. Rosen
49. At the request of Mr. Kuhn on Jenuary 19, comments and
suggestions were transmitted to him on January 20, con-
cerning the draft of the sheech delivered by the Secretary
on January 24, in Cleveland. - Mr. Murohy
50. A review was made on January 1.4 of the testimony by the
Secretary before the Subcommittee on Appropriations on
the Treasury and Post Office Appropriations Bill. -
Mr. Murphy
336
- 15 -
51. At the request of the Office of the General Counsel
on January 28, EL report was prepared on H. R. 6391,
and was incorporated in a letter to Representative
Doughton, for signature of the Secretary, The file
WAB transmitted to Monetary Research on January 31. -
Mr. Foy
II. Projects or studies under way
1. A study is being made of the relative interest costs
of short- and long-term borrowing. - Mr. Foy,
Nr. Barnett, Mr. Rosen
2. A study is being made of the effect of the maturity,
call period, coupon, premium, and size of issue on
the prices and yielde of United States securities. -
Mr. Conrad
3. A memorandum is being prepared on a negotiable
security on continuous sale. - Mr. Bandelin, Mr. Murphy
4. A study 18 being made of developments in the reserve
oosition of the banks. - Mr. Rosen, Mr. Barnett
5. Historical tables are being prepared which will present
various data on new Treasury notes and bonds and on
guaranteed new issues. Three tables have been completed. -
Mr. Conrad, Mr. Rosen
6. A memorandum 18 being prepared on the advantages and
disadvantages of increasing the short-term debt. -
Mr. Foy
7. A revision 18 being made as of June 30, 1941, of the
estimates of the ultimate increase in interest costs
which would result from removal of the tax-exemption
privilege from all public securities. - Mr. Lindow,
Mr. Conrad
8. A memorandum is being prepared recommending legisla-
tion terminating miscellaneous types of tax exemption
analagous to the exemption of interest on Federal se-
curities, but unaffected by the Public Debt Act of
1941. - Mr. Foy
9. At the request of Mr. Blough on December 26, an estimate
18 being made of the increase in interest costs to the
Federal Government, the States, and municipalities, if the
tax-exempt orivilege were removed from future bond issues. -
Mr. Murphy, Mr. Lindow, Mr. Conrad
Regraded Unclassified
337
- 16 -
10. At the request of Mr. Blough on December 26, tables
are being prepared, showing the distribution of Federal,
State, and local securities by classes of holders. -
Mr. Conrad, Mr. Purvis
11. A study is being made of war-financing measures of
belligerent nations in the present war. - Mr. Matlock,
Nr. Simmons
12. A study 1e being made of the market action of the
various maturity classes of Government securities in
relation to the type of holder. - Mr. Conrad
13. At the request of Mr. Surrey on January 1, a study 18
being made of the amortization of bond premium and dis-
count. - Mr. Murphy
14. A memorandum is being prepared for the Secretary with
respect to a proposed new Defense savings bond,
series H. - Mr. Murphy, Mr. Bandelin
15. At the request of Under Secretary Bell on January 26,
comments are being prepared on Mr. Peyton's plan submitted by
Mr. Allan Sproul with respect to Defense savings 88-
curities. - Mr. Tickton
16. A memorandum 1s being prepared on Mr. Viner's proposal
for 8. new system of allotting Treasury bills. - Mr. Foy,
Mr. Barnett
17. A memorandum 1s being precared on the desirability of
conducting the war finance AB it was in the last World
War, by the issuance of short-term securities. -
Mr. Foy
18, At the request of Assistant Secretary Gaston on
January 20, a review is being made of "A Memorandum
on Financing the War by Mr. Robert L. Owen. - Mr. Foy
19. At the request of Mr. Morris on December 16, an analysis
is being made of a proposed industrial loan corporation
bill of 1942. - Mr. Foy
20, At the request of Under Secretary Bell on January 26,
a study is being made of H. R. 6391. - Mr. Murchy,
Mr. Foy
Regraded Unclassified
338
- 17 -
31. At the request of Under Secretary Bell replies are
being prepared to certain questions asked by the
Wagner Committee preparatory to its investigation of
banking and monetary conditions oursuant to Senate
Resolution 125. - Mr. Haas, Mr. Murphy, Mr. Foy
22. At the recuest of Under Secretary Bell on May 24,
cooperation vas given in preparing revlies to the
list of questions accompanying a letter from Senator
Tydings of May 5. The information 18 for use by the
Serate Committee created to find waye and means of
automatically balancing the Federal Budget in times of
peace. A proposed rebly was sent to the Under Secretary
on June 18. - Mr. Murphy, Mr. Foy
Revenue Estimates
I. Projects or studies completed
1, The regular monthly statement was prepared, showing
the latest revised estimates of receipts, by months.
and by principal sources of revenue, for the period
January-June 1942. The statement WAB transmitted to
the Bureau of Accounts. - Mr. Delcher
2. The regular monthly summary commarison was prepared,
showing estimated receipts and actual receipts in
December 1941 on the daily Treasury statement basis. -
Mr. Delcher
3. The regular monthly detailed comparison was prepared,
showing estimated and actual receipts in December 1941,
based on the collections classification, - Mr. Delcher
4. At the request of the Division of Tax Research for
the Office of the General Counsel on December 26,
a revenue estimate WAB made of the effect of the re-
moval of the tax-exemption privilege from Federal and
State income taxes, and was transmitted in a memorandum
to Mr. Blough on January 15. - Mr. Dambrun
5. At the request of Under Secretary Bell on January 20,
a table was prepared, and WAB transmitted to him in a
memorandum on January 21, showing the tax liability for
certain specified net incomes (all earned) of a married
person (no dependents) computed under the laws in effect
in the calendar years 1930 through 1941. - Mr. Leahey
Regraded Unclassified
339
- 18 -
6. In connection with the proposed revision of the revenue
lawe in 1942, a number of revenue estimates, listed be-
low, were prepared for use of the Division of Tax Re-
search. - Mr. O'Donnell, Mr. Leahey, Mr. Smith,
Mr. Dambrun
(a) An estimate WAS made, and was transmitted to
Mr. Blough on January 10, of the amount of add1-
tional revenue that would be obtained by repeal
of Section 114(b) (3) and (4) of the Internal
Revenue Code, providing for percentage depletions
for oil and gas wells, coal and metal mines, and
sulphur, under the following assumptions;
(1) that no adjustment of the income credit
under the excess-profits tax would be made with
respect to depletion; (2) that the depletion de-
duction for the base period years under the income
credit would be adjusted to correspond to the basis
for depletion in the taxable year.
(b) Estimates were precared, and were transmitted in a
memorandum to Mr. Blough on January 9, of the in-
crease in revenue which would result from the fol-
lowing proposals:
Gasoline tax, increase by 11 cents per gallon.
Cigarette tax, increase by 1½ cente per package
and double all other tobacco tax rates.
Passenger automobiles, increase the rate to
30 percent.
Automobile parts and accessories, increase the
rates to 10 percent.
Trucks, increase the rate to 10 percent.
Distilled spirits, increase the rate to 66 per
gallon.
Tires and tubes, double the rates.
Refrigerators, refrigerating annaratus, and air
conditioners, increase the rate to 25 percent.
Radio receiving sets, phonographs, and musical
instruments, increase the rate to 25 percent.
Electrical, gas, and oil appliances, increase
the rates to 25 percent.
Photographic apparatus, increase the rates to
25 percent.
Business and store machines, increase the rates
to 25 percent.
Rubber articles, increase the rate to 25 percent.
Domestic washing machines and domestic sewing
machines, impose a tax of 25 percent.
Regraded Unclassified
340
- 19 -
Telephone, telegraph, etc. messages imposed
by Section 3465(3), increase the rates
from 6 percent to 15 percent,
Transportation of persons, increase the rate
to 10 percent.
Metal furniture, furnishings and equipment,
beauty and barbershop equipment, metal
venetian blinds, metal bed springe, soda
fountain equipment, beer dispensing eouin-
ment and related products, impose a tax at
the rate of 25 percent.
Lubricating oil, increase the rate to-10 cents
per gallon.
Firearms, shells and cartridges, increase the
rate to 50 percent.
Expand the present base of the tax on commercial
washing machines to include dry cleaning and
pressing machinery and equipment.
Floor coverings (except cotton) and oil cloth,
impose 8. tax of 25 percent.
Ornamental metal work and fixtures, including
metal doors, windows, fences, stairs, grills
and railings, (except fire escapes), metal
plumbing, and house fittings, impose a tax
of 25 percent.
Excand the present base of the cosmetics tax
to include SOADS and dentifrices.
Furniture made of birch and mahogany, impose a
tax at the rate of 25 percent.
(c) Estimates were prepared, assuming the present ex-
cess-profits tax structure, of the following:
Increases in rates required to raise (1) an
additional $1 billion from the excess-profits
tax and en additional $2 billion from the
corporation surtax and (2) an additional 81% bil-
lion from each, the excess-profits tax and the
corporation surtax.
The increase in surtax rates necessary to raise
an additional 83 billion from the corporation
surtax in order to provide for the effect of a
proposed additional corporation tax on dividends
received by corporations.
Regraded Unclassified
341
- 20 -
The percent of invested canital which would
have to be specified to produce an additional
63 billion, if income and excess-profits taxes
were increased to take 100 percent of the ex-
cese of corporate profite over a specified
percent of invested capital.
The reduction in revenue under the individual
income tax under the above proposals.
These estimates were transmitted in a memorandum
to Mr. Blough on January 10.
(6) Tentative approximations were made, and were
transmitted in a memorandum to Mr. Blough on
January 2, of the magnitude of the interlocking
effects of proposed tax changes covering the
entire tax structure. The aim of the proposed
tax orogram was to secure & net yield after con-
sideration of all interlocking effects of E7 billion.
Ae the proposed changes 616 not result in an in-
crease of 7 billion, estimates were prepared of
the necessary ross yields of the several tax bases
which would be necessary to yield a net amount of
7 billion after all interlocking effects have been
taken into consideration. In all of these estimates
alternative estimates were made, to include and ex-
clude proposed changes in the present cayroll taxes.
(=) Estimates were prepared, and were transmitted in A
memorandum to Mr. Blough on January 8, of inter-
pretations of the Secretary's oronosal to have a
100 percent tax on profite above 6 percent of in-
vested capital: (2) if an excess-profits tax of
100 percent of profits above a 6 percent return on
invested canital is imposed before applying the
present corporation normal and surtaxes; (2) 1f
the taxes existing in the present law were first
imposed and after their deduction an excess orofits
tax were imposed taking 100 percent of the income
remaining after a 6 percent net return on invested
capital; (3) if income up to 6 percent of invested
capital were left free from all present taxes and
an excess-orofits tax were imposed taking 100 oar-
cent of the income above 6 percent of invested
capital.
Regraded Unclassified
342
- 21 -
(f) An estimate was prepared, and Was transmitted in
a memorandum to Mr. Blough on January 15, of the
full year yield, of proposed corporation rate
schedules which would be substituted for the
present normal and surtax schedules, assuming
repeal of the excess-profits tax. A comparable
estimate was prepared substituting a flat rate
surtax of 41 percent instead of 36 percent, and
substituting a surtax of $5,500 plus 61 percent
of excess over 850,000 instead of a surtax of
$5,500 plus 56 percent of excess over $50,000.
(g) Estimates were prepared, and were transmitted in B.
memorandum to Mr. Blough on January 17, of the
number of taxable returns, calendar year 1941 income
and (corresponding to taxable returns) total income,
deductions, total personal exemptions, total credits
for dependents, and total earned income credit.
(h) Estimates were prepared, and were transmitted in EL
memorandum to Mr. Blough on January 17, of the
revenue effect of changing the excess-profits tax
base and of proposed corporation normal tax and
surtax schedules; (1) if the present 95 percent
multiplier of base period net income is reduced to
75 percent and the invested capital credit 18 re-
duced to 6 percent; (2) if the proposed corporation
normal tax and surtax schedules are used (a) with-
out the change in the excess-profits tax base de-
scribed in (1) and (b) with that change.
(1) Estimates were prepared, and were transmitted in
a memorandum to Mr. Blough on January 24, of certain
income tax data for the period 1936 through 1942
(1) for corporations with no net income, and (2) for
all corporations, including both corporations with
net income and with no net income.
(J) Estimates were prepared, and were transmitted in a
memorandum to Mr. Blough on January 24, of (1) the
revenue loss resulting from the repeal of the capital
stock tax and declared value excess-profits tax, and
(2) the increase in surtex rate necessary to compensate
for the 1086 of this revenue.
(k) Estimates were prepared, and were transmitted in a
memorandum to Mr. Blough on January 31, of the
revenue effect of adoption of proposed individual
income tax schedules A, B, C, E, and F.
Regraded Unclassified
343
- 22 -
II. Projects or studies under way
1. An analysis 18 in preparation of each component of the
September revised estimates of miscellaneous internal
revenue, excluding capital stock, estate, and gift
taxes, for the fiscal years 1942 and 1943. - Mr. Daggit,
Miss Spiegel
2. An analysis is in preparation of each component of the
Budget estimates of miscellaneous internal revenue,
excluding capital stock estate, and gift taxes, for
the fiscal years 1942 and 1943. - Mr. Daggit, Miss Spiegel
3. In connection with the proposed revision of the revenue
laws in 1942, a number of revenue estimates, listed below,
are being prepared for use of the Division of Tax Research. -
Mr. O'Donnell, Kr. Leahey, Mr. Smith, Mr. Dambrun, Mr. Lusk,
Mr. Jorgensen
(a) An estimate 18 being made of the additional revenue
which would be derived if mutual insurance companies
other than life insurance companies taxable under
Section 207 of the Internal Revenue Code were made
taxable in the same manner as stock insurance
companies other than life insurance companies tax-
able under Section 204, and at the same time the
exemption under Section (11) were restricted
to local mutual companies of the assessment type.
(b) Estimates are being prepared of the following:
The increase in revenue which would result if
the corporation income tax were increased by
1 percent, and the additional revenue if the
1 percent increase were made applicable also to
wholly and partially tax-exempt interest.
The increase in revenue which would result if
the individual normal tax were increased by
1 percent, and the additional revenue which would
result if this increase were made applicable also
to wholly and partially tax-exempt interest.
The loss in Federal individual and corporation
income tax revenue which would result from the
exemption of interest on Government obligations,
broken down to show separately the loss with re-
spect to the exemption of State and local se-
curities and Federal wholly and partially tax-
exempt securities.
Regraded Unclassified
344
- 23 -
(c) Estimates are being prepared of the revenue effect
of restoring the privilege of filing consolidated
returns for purposes of the normal and surtax
under the conditions stipulated in the acts prior
to 1934 (1) assuming that the tax on intercorporate
dividends is also eliminated; (2) assuming that the
tax on intercorporate dividends 1s retained with
respect to corporations other than those electing
to file consolidated returns, and that the surtax
rate for corporations electing to file consolidated
returns is increased by a differential rate designed
to raise from these corporations an amount of revenue
equal to the tax on intercorporate dividends which
the corporations in the affiliated groups would have
paid under the normal and surtax had they filed
separate returns.
Estimates are being prepared of the revenue effect
of re-defining long-term capital gains and losses,
substituting for the two classes, one class be-
ginning at 18 months; taking into account 50 per-
cent of net long-term capital gains and losses;
increasing the alternative tax rate from 30 per-
cent to 60 percent; allowing long-term capital losses
to be deducted only against long-term capital gains,
but allowing a carry-forward for five years to be off-
set against such capital gains in the future; tax-
ing short-term capital gains as at present; allowing
short-term capital losses to be offset against long-
term capital gains as well as short-term canital
gains, and permitting short-term capital losses to
be carried forward five years to be offset against
either short-term or long-term capital gains.
(d) An estimate 16 being prepared of the revenue effect
if, under the individual income tax, mandatory joint
returns were recuired for husbands and wives and
the Joint income treated 8.B A single income for
earned income credit purposes; in addition, B. tax
credit of 10 percent of the "earned income of the
wife for services rendered by her, but the tax
credit is not to exceed 850. This estimate will be
prepared also to show the effects for the community
property States.
Regraded Unclassified
345
- 24 -
(e) An estimate 18 being made of the corporation sur-
tax net income classes and number of corpora-
tions in each net income class, for the calendar
year 1942, on the assumption that the excess-
profite tax is repealed.
(f) Assuming a change in the loss carryover provision
so that the carryover into 1942 would be cumula-
tive losses during 1939, 1940, and 1941 minus the
cumulative net incomes during the same three years,
with a similar loss carryover in subsequent years
to be based on the incomes and losses of the three
years prior to the taxable year, estimates are
being made under the following proposels: (1) sub-
stitute suggested schedules for the present normal
and surtax schedules and repeal the excess-profits
tax; (2) the Bame as (1) but substituting under
schedule (b) a flat rate surtax of 41 percent and
under (o) a surtax of £5,500 plus 61 percent of
excess over $50,000; (3) estimated calendar year
1942 corporation surtax net income classes and
number of corporations in each net income Class,
on the assumption that the excess-profite tax
18 repealed.
(e) Estimates are being made for a general sales tax
at each of the following levels: (1) manufacturers'
sales price, (2) wholesalers' sales price, and
(3) retailers' sales price assuming (a) no exemp-
tions; (b) the same as (a) but exempting products
now subject to manufacturers' or retailers' excise
taxes; (c) the same as (b) but exempting food;
(d) the same as (c) but exempting medicines;
(e) the same as (a) but exempting clothing;
(f) the same as (e) but exempting fuel. Estimates
are being prepared for each rate from 2 percent
through 10 percent.
(h) An estimate 18 being made of the revenue yield
which would result from the following method of
gradually disallowing 8. deduction for interest on
corporate indebtedness: Ascertain the amount of
interest on the indebtedness outstanding on
January 1, 1942. The maximum deduction from inter-
est on corporate indebtedness for the year 1942
shall be 9/10 of the amount of interest 80 ascer-
tained; the maximum amount deductible for 1943 shall
be 6/10 of the amount so ascertained, and so on.
Regraded Unclassified
346
- 25 -
(1) A revision is being made of the revenue estimates
for the years 1926-1940 of capital gain and lose
provisions applicable to individuals and fiduci-
aries. Corresponding estimates are being made for
the year 1941.
(1) An estimate is being made of the revenue yield
of a net value added tax, assuming six different
taxoayers' bases. The estimate 1s being prepared
on two bases, and will be divided among the follow-
ing components of the tax base: (1) corporate
income; (2) payroll taxes broken down into payrolls
now covered by social security and payrolls not now
covered by social security; either because of the
nature of business or occupation or because in ex-
ceee of $3,000; (3) unincorporated business income,
including professions; (4) interest now allowed
to business; (5) net rents and royalties.
(k) Estimates are being made of the increase in revenue
from the following excise tax proposals:
Tires and tubes, increase the rates from 56
and 90 per Dound to 100 and 180.
Photographic apparatus, increase the rate from
10 percent to 25 percent,
Business and store machines, increase the rate
from 10 percent to 25 percent and broaden the
base.
Telephone bill, increase the rate from 6 percent
to 15 percent.
Transportation of persons, increase the rate
from 5 percent to 10 percent.
Firearms, cartridges, and shells, increase the
rate from 11 percent to 50 percent.
Floor coverings (except cotton) and oilcloth,
impose a tax of 25 percent.
Lubricating oil, increase the rate from 436
to 10c per gallon.
China and porcelain ware, impose B. 10 percent tax,
Electrical energy, increase the rate from
3-1/3 percent to 5 percent,
Gasoline, increase the rate from 116 to 300 per
Distilled gallon. spirits, increase the rate from #4 to
36 per gallon.
Regraded Unclassified
347
- 26 -
Wines, increase the rates:
Still wines --
Not more than 14 percent alcohol, from
86 to 156 per gallon. 14-21 percent alcohol,
from 30c to 50c per gallon. More than 21 percent
alcohol, 65€ to 1006 per gallon,
Sparkling wines, from 76 to 10c per - pint.
Artificial carbonated wines, from 300 to 5¢ per
1 pint.
Liqueurs, cordials, etc., from 300 to 5¢ per
1 pint.
Cigarettes, increase the rate from $3.25 to 84.50
per thousand.
Other tobacco products, increase the rates.
Cigarette paper and tubes, increase the rates and
remove exemption.
Candy and chewing gum, impose a tax of 10 percent.
Soft drinks, impose a tax of 16 per bottle.
Advertising receipts, impose a tax of 15 percent
on gross receipts.
Fermented malt liquors, from 86 to $8 per barrel.
(1) An estimate 1s being made of the revenue yield which
would result if the Canadian corporate tax system
were substituted for the present system in this
country, assuming (1) that the Canadian system would
replace the present normal, surtax and excess-
profits taxes,and (2) that the Canadian taxes would
replace the capital stock and declared value excess-
profits tax in addition to the taxes in (1).
(m) An estimate 1s being made of the total revenue
yield and increase over the existing law which
would result from the adoption of the British
individual and corporate income and excess-profits
tax structure.
(n) Estimates are being made of the revenue effects of
the following tax changes:
Adoption of proposed estate and gift tax
schedules A and E.
Reduction of allowance for deduction of
interest on a non-business individual borrow-
ing to a fixed amount of $500.
Regraded Unclassified
348
- 27 -
(o) With reference to the excess-profits estimate
coupleted on January 17, under Revenue Estimates,
I, 6(h), a breakdown 1s being unde of the income
and tax figures before and after the proposed change
in the excess-profits tax credit, by &8 detailed
industrial and size classifications of corporations
as is practicable.
(2) An estimate 18 being made of the revenue yield of
a proposed tax on radio broadcastins companies,
Economic Conditions Related to Fiscal
and Revenue Matters
1. Projects or studies completed
1. Memoranda on the business situation were prenared, and
were transmitted to the Secretary on January 5, 12, 19,
and 26. - Mr. Haas, Mr. Daggit, Mr. Chevraux, Miss Ziegler
These memoranda contained in addition to analysis of the
current situation the following special study:
Production trends by selected industrial groups.
(Chart in memorandum of January 12.) - Mr. Daggit,
Mr. Colclough, Mr. Saunders
2. Monthly or weekly reports are received from 25 indi-
vidual companies, in response to the Secretary's re-
quests giving confidential data on new orders and sales.
The data in these reports are tabulated and charted
currently for the Secretary's information, and are also
combined into an index of new orders, which accompanies
the weekly memorandum on the business situation. -
Mr. Colclough, Miss Spiegel, Miss McLachlan
3. Memoranda on employment under the Work Projects Ad-
ministration were prepared on January 5, 12, 19, and
26. - Miss McLachlan
4. At the request of the Secretary, a memorandum, with three
tables and a chart, was prepared, and was transmitted
to him on January 18, showing employment in the aviation
industry as of October 31. - Mr. Tickton, Mr. Wagner
Regraded Unclassified
349
- 25 -
5. Compilations were made of daily quotations on selected
commodities, and daily and weekly figures on selected
business indexes, foreign and domestic security trane-
actions, security prices, exchange rates, AB well as
other data for the Secretary's chart book. -
Mr. Chevraux
6. Daily, weekly, and monthly prices of cotton, wheat,
flour, and bread, were combiled. - Mr. Daggit,
Mr. Saunders, Miss Spiegel
7. In accordance with the request of Mr. Leon Henderson
on July 19, copies of eight charte on commodity orices
and the cost of living were transmitted to him, AB
indicated below. - Mr. Daggit
The movements of the NICB cost-of-living index compared
with the LS wholesale price index of 389 commodities
were shown from 1935 to date. Four charte, as of
January 2, 9, 16, and 23, were transmitted on
January 6, 13, 20, and 27, respectively.
Four charts showed the movements of the indexes of
12 foodstuffs and 16 industrial raw materials from
August 1940 to date. On the same charts were shown
the percentage changes for each of the 26 commodities
from August 1940 to December 26 and January 2, to
January 2 and 9, to January 9 and 16, and to January 16
and 23. These charts were transmitted on January 6,
13, 20, and 27, respectively.
At the request of the Secretary on January 28, a
memorandum and charts were prepared on export freight
movements and lighterage freight in storage and on
hand for unloading in New York Harbor, and were trans-
witted to him on that date. Conies were given to
Mr. Kamarok in further response to his request of
December 4. - Mr. Daggit
be Two tables were prepared for use in nossible allocation
of sales of defense savings bonds showing: (1) estimated
distribution of salaries and wages and farm income,
August-October 1941, by States; and (2) income payments by
States, 1940, with percent distribution. - Mr. Desgit,
Mr. Colclough
Regraded Unclassified
350
- 29 -
II. Projects or studies under way
1. An analysis 18 being made of the distribution of
Defense savings bonds, series E, during December, in
relation to payrolls, and to national income, by
States, - Mr. Daskit, Mr. Colclowh, Kr. Saunders
Actuarial Problems
I. Projects or studies completed
1. At the request of Mr. Ecker-Racz, of the Division of
Tax Research, on January 7, certain compound interest
calculations were made for use in A study of the manner
in which the premium on EL tax-exempt bond could be
amortized through tax savings. These figures were
transmitted in A memorandum to Mr. Ecker-Racz on
January 9. Later, on the basis of revised assumptions,
new calculations were made, and were transmitted on
January 19. - Hr. Brown, Mr. Kroll
2. A computation was made on January 15, on two yield
bases, of intermediate redemption values during the
first five-year period on a proposed ten-year special
security to absorb idle business balances. The average
yield over the entire ten years was also computed.
These figures were included in a memorandum prepared
by Mr. Murphy which W&B submitted to Under Secretary Bell
on January 16. - Mr. Brown, Mr. Kroll
3. On January 8, Mr. Fisher, Chief, Retirement Division,
Civil Service Commission, asked several questions
relative to the amendment of June 23, 1938 to the
Civil Service Retirement Act to permit an allowance
of credit for service rendered since August 1, 1920,
without deposit of member contribution but the annuity
of the employee to be reduced by the amount such
deposit would purchase if made. Mr. Fisher's questions
were answered in a letter dated January 10, which in-
cluded numerical illustrations of the operation of
this amendment. - Mr. Reach, Mr. Brown
Regraded Unclassified
351
- 30 -
4. Conferences were held in the office of Under Secretary
Bell on January 28, which resulted in the preparation
of a proposed draft of a letter to Senator Wagner,
Chairman of the Committee on Banking and Currency,
setting forth the Treasury's views on S. 2918. -
Mr. Reagh
II. Projects or studies under way
1. The Board of Actuaries of the Civil Service Retirement
and Disability Fund 18 laying out detailed plans for
tabulating and processing data for use in preparing
the regular five-year valuation of the Civil Service
Retirement Fund for the purpose of determining the
liabilities of the Government under the Civil Service
Retirement law. Under the law, such at valuation must
be prepared 88 of July 1, 1940. Valuation plans are in
process of preparation. - Hr. Reach, Mr. Brown
2, The Foreign Service Retirement Law, as approved April 24,
1939, Section 26(m), provides that the "Treasury Depart-
went shall prepare the estimates of the annual appropria-
tions required to be made to the Foreign Service Retire-
ment end Disability Fund and shall make actuarial valua-
tion at intervals of five years, or oftener if deemed
necessary by the Secretary of the Treasury". The State
Department has requested an estimate of the appropriation
required for the fiscal year 1943. A valuation of
June 30, 1941 has been completed and will form the basis
of the estimate for the fiscal year 1943. - Mr. Reach,
Mr. Brown, Mr. Kroll
3. At the request of Xr. A. R. Pilkerton, Auditor of the
District of Columbia, an actuarial quinquennial valua-
tion is being made of the Policemen's and Firemen's
Pension Fund of the District of Columbia. This valua-
tion 16 being made by the Treasury Department in accord-
ance with the 1942 District of Columbia Appropriation
Act, approved July 1, 1941. The work for the valuation
has been begun. - Mr. Reagh, Mrs. Grossman
4. Several years ago & committee was organized for the our-
nose of studying ways and means to extend retirement
benefits to all Government employees re ardless of
Civil Service status. The working committee, the
Suboommittee on Retirement, has again become active.
A report has been prepared but has not yet been sub-
mitted to the main committee. - Mr. Reagh, Mr. Brown
Regraded Unclassified
352
- 31 -
5. At the request of Dr. Falk of the Social Security
Board on January 7, a review was made of a prelimin-
ary draft of the Second Annual Report of the Board
of Trustees of the Federal Old-Age and Survivors
Insurance Trust Fund. The draft was returned on
.r. January Brown 22 with marginal notes. - Mr. Reagh, Mr. Murphy,
6. Mr. Fisher, Chief, Retirement Division, Civil Service
Commission, requested on December 12 8 set of factors
which would be needed for the computation of immediate
annuities under H. R. 3487 if this bill should be en-
acted into law. Approximate factors were submitted
to Mr. Fisher in a letter dated December 31. The bill
became law on January 24, and on January 28 Mr. Fisher
formally requested the Board of Actuaries to prepare
sets of factors to determine the immediate annuities
of those eligible for retirement under section (d)
and section 5(a) of the Act. A reoly to the request
18 being prepared by Mr. Buck, Chairman of the Board,
and will be submitted to us for consideration and
approval. - Mr. Reagh, Mr. Brown, Mr. Kroll
Other Projects or Studies
1. Publications
(a) For the January issue of the Treasury Bulletin
data were prevared on average yields of long-term
Treasury bonds and high-grade corporate bonds. -
Mr. Barnett
All the material submitted for the January 1ssue
Was reviewed and edited. - Kr. Lindow, Mr. Lynch
New tables were prepared for the January issue AS
follows:
1. A table showing monthly sales of defense
savings bonds, classified by series, sales outlet,
and denomination. - Mr. Brown, Mr. Kroll
2. A table showing monthly sales of tax anticipa-
tion notes, classified by series, type of
purchaser, and denomination. - Mr. Mayo
Regraded Unclassified
353
- 32 -
3. Three tables on public marketable
securities issued by the United States
Government and by Federal agencies show-
ing price and yield data for each issue. -
Mr. Brown, Mr. Kroll
4. A cumulative table of contents by each
of the past twelve months. - r. Lynch
Mr. Wagner
(b) For the publication Prices and Yields of Public
Marketable Securities Issued by the United States
Government and by Federal Agencies, computations
were made and copy Was prepared for the issue
oovering the month of December. - Mr. Brown,
Mr. Kroll
(c) At the request of Under Secretary Bell on January <4,
a draft of the proposed review of" Treasury finance
and the new budget" for the February Federal Reserve
Bulletin was reviewed, and cleared by telephone
on January 26. - Mr. Haas, Mr. Murphy, Mr. Tickton,
Mr. Robbins
3. Correspondence
Replies were prepared to letters received on subjects
relating to the work of the Division, and letters
drafted elsewhere and submitted to the Division for that
ourpose were reviewed. - Miss Michener, Mr. Lindow,
Miss Ziegler, and other members of the staff in appropriate
fields of work.
During January 510 letters were received in the Division
and 578 were handled as required.
4. Charts
Charts are prepared and continuously brought up to date
for цве in memoranda and in chart books on special sub-
jects, and corresponding photographic, photostatic,
and multilith work 18 carried on. This 18 done in the
Graphic Section under the supervision of Mr. Banyas.
A statistical report on the work of the Graphic Section
for the month of January 16 attached.
354
Work Completed in the Graphic Section, Division of
Resparch and Statistics, during January 1942.
For Division
Type of work
For
oflas
Total
Others
Aphic:
In charte:
Total charte completed
62
19
61
Bend book charte completed
2
-
2
Charts brought up to date:
3 bond chart books brought up to date
26 times
-
26(t)
All other charts brought up to date
732
32
764
Miscellaneous:
Total jobs
13
6
19
biographic:
Photographic:
Total jobs
80
36
116
Number of-
Negatives
223
186
409
Contact prints
223
614
837
Enlargements
259
117
376
Photostate:
Total jobs
214
83
297
Number of-
Lettersise copies
5,213
3,861
9,074
All other copies
2,927
473
3.400
Multilith:
Total jobs
15
2
17
Number of-
Zine plates
139
5
144
Miscellaneous:
Total jobs
17
14
31
Graphic Section, Division of Ref tch and Statistics, by months,
Beginning January 1942
:
:
:
:
Type of work
Jan.
Feb.
Mar,
:
:
:
April
:
May
June
:
:
Total
=
:
A. Graphic:
New charts completed
81
Charte brought up to date
764
Bond book charts completed
2
3 bond books brought up to date
26 (t)
Miscellaneous
19
3. Photographic:
Photographs:
Total jobs
116
Number of-
Negatives
409
Contact prints
837
Enlargements
376
Photostats:
Total jobs
297
Number of-
Lettersise copies
9,074
All other copies
3,400
Multilith:
Total jobs
17
Number of-
Zine plates
144
Miscellaneous:
355
Total jobs
31
Regraded Uncla
356
MAR 20 1942
My dear Mr. President:
I an enclosing report on our exports
to some selected countries for the period
ending March 10, 1942.
Faithfully,
(Signed) 1. Mergenthaus Jr.
Secretary of the Treasury
The President,
The White House.
Enclosure
HDWsmoh
copies none. to Swift
3/17/42
By Messenger
Ret to Secy's office
Regraded Unclassified
357
MAR 20 1942
My dear Mr. Perkins:
I am enelesing five copies of the report
on our exports to some selested countries for
the period ending March 10, 1942.
Sincerely yours,
(Signed) M. Morgenthaus See
Secretary of the Treasury
Mr. Mile Perkins,
Executive Director,
Beard of Economic Warfare,
2501 Que Street, N. W.,
Washington, D. 0.
Enclosures
n.m.c.
capis to Dn. white
By Messenger Simmone 1:00
3/27/42
Ret to Secy's office
Regraded Unclassified
357
MAR 20 1942
My dear Mr. Perkins:
I am enclosing five copies of the report
on our exports to some selested countries for
the period ending March 10, 1942.
Sincerely yours,
(Signed) 1. Morgenthaug See
Secretary of the Treasury
Mr. Mile Perkins,
Executive Director,
Beard of Economic Warfare,
2501 Que Street, N. W.,
Washington, D. 0.
Enclosures
n.m.c.
capies to Dr. white
By Messenger Simmone 1100
HDWs meh
5/17/42
Ret to Secy's office
Regraded Unclassified
358
MAR 20 1942
My dear Mr. Secretary:
I am emelosing eapy of report on our
exporto to some selested countries for the
period ending March 10, 1942.
Sincerely yours,
(Signed) A. Morgesthau. J20
Secretary of the Treasury
The Homerable
The Secretary of State,
Washington, D. 0.
Enclosure
n.m.c.
NDW:mah
copies * Drw hite
3/17/42
By Messenger sturges 1100
Ref. to Secip office
Regraded Unclassified
359
MAR 20 1942
My dear Colenel Domovan:
I an enclosing copy of report on our
exports to some selected countries for the
period ending March 10, 1942.
Sincerely yours,
(Signed) 1. Morgenthau. Jr.
Secretary of the Treasury
Colomel William J. Denovan,
Coordinator,
office of Coordinator of Information,
old National Institute of Health Building,
25th and I Streets, N. W.,
Washington, D. c.
Enclesure
). will
HDW:meb
3/17/42
Cagies x8 Dr. M hite
By Messender Limone 1:00
Ret. to Secy's office
Regraded Unclassified
360
MAR 20 1942
by dear Mr Frederisk:
I have received your letter of March 16, telling -
that additional capital is required for the Packard Voter
Car Company, two-thirds of which is to be paid by the
British under the terms of the contract, and asking my help
in getting the Mar Department or the Defense Plant Corpora-
tien to neet this expenditure.
st the consent, I as attempting to get the Defense
Plant Corporation to conclude its long-pending negotiations
for the purchase of your plant facilities, and, for that
reason, I an not sure that it would be wise for m to wite
Yr. Jenes about this additional matter, particularly since
the amount involved is so mall. I believe you will agree
with no that " efferts - best be used on the larger
program.
Very sincerely yours,
(Signed) N. Morgonthru. 12.
Secretary of the Treasury
Mr Frederick Phillips,
British Purchasing Nissions,
Willard Hotel,
Washington, D. C.
By Memenger Shorts 1:00
Photopile Dr what
come
JEM/gro - 3/18/42
Regraded Unclassified
361
Willard Hotel,
Washington, D.C.,
URGENT
March 16, 1942.
Dear Mr. Secretary,
May I bring the following case to your
notice ?
The production of Merlin engines by the
Packard Motor Car Company was undertaken under arrange-
ments by which:-
1. The Defense Plant Corporation put
up the money for one-third of the
capital facilities required, and the
British Government put up the money
for the remaining two-thirds; and
2. The War Department put up the money
for one-third of the manufacturing
costs, and the British Government
financed the remaining two-thirds.
The contracts state definitely that every-
thing in the way of expenditure and output shall maintain
the ratio of one to the Americans and two to the British.
This ratio has so far been maintained except in the case
of orders for spare parts. These are to be supplied under
Lend-Lease, but we have been forced, for the time being,
to preserve the 1:2 ratio by financing temporarily two-
thirds of the cost of the spares subject to a new ratio
being worked out (as is now being done) to replace the 1:2
we have put up in excess of what would be required by
ratio, and subject to the refund to us of any money which the
new ratio.
On capital facilities, however, the 1:2
ratio has so far been maintained, the last occasion on
which more capital was put up having been about a year ago.
It has now been agreed that new capacity
must be provided for Packards to keep themselves supplied
involved is about $790,000. On the 1:2 ratio our share
with cutting and other consumable tools and the cost
of this would be $524,500.
I do not think that we ought to be asked
of put up facilities, but I understand that the
to fresh dollars at the present stage for British extension
Air recent discussions with the War Department and the
capital Commission have not been able to make any progress Defense in
The Honourable
Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D.C.
Regraded Unclassified
362
-2-
Plant Corporation with a view to arriving at some
alternative solution. I cannot feel that there is
anything se eacred about the 1:2 ratio that we must
continue to stick to it, and anyhow it is being
altered, as explained above, as regards the spare
parts. My feeling is that we have a strong case
for asking that the whole cost of the new facilities
should be put up either from War Department or from
Lend-Lease funds.
The matter is very urgent if the necessary
tools are to be obtained. I should be most grateful
for any help which you can give us in the matter.
Yours sincerely,
Hhillips
Regraded Unclassified
363
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE March 19, 1942.
TO
Secretary Morgenthau
FROM
H. D. White
I am appending some letters for your signature.
Letter No. 1 - To Secretary Jones requesting information in action
on the purchase of facilities.
Letter No. 2 - To Secretary Stimson requesting information on the
payment for material taken from British dollar
contracts.
Letters No. 3 and 4 - Alternative letters to Sir Frederick in
answer to his letter to you of March 16, copy of
which is appended to Letter No. 3. I prefer
Letter No. 3 which indicates, in effect, that the
amount involved is too small to justify your spend-
ing any time on it at present. Letter No. 4, the
alternative suggestion, states that you will take
it up with Jones. If you sign Letter No. 4, then
you should also sign Letter No. 5, which takes the
matter up with Mr. Jones.
Letter No. 6 - This is the letter Aubrey Williams would very much
like to have you send to the Senator. We drafted
it together (one horse - one rabbit - my end being
the rabbit) and I think it would be very helpful if
you could see your way clear to sending it.
Regraded Unclassified
364
near Jamus
Sir Frederick Phillipe has recently written me that,
under the terms of the British contract with the Packard
lleter Car Company, the Pritish Government is required to
nake an additional capital expenditure of $524,500.
Since the United States Covernment is negotiating
for the purchase of British amenent plants built in the
United States, 18 - to require the British
to make additional capital expenditures.
I wander if the Defense Plant Corporation could find
a neans of relieving the British Government from the DROER-
sity of saking this expenditure?
Very sincerely yours,
Secretary of the Treasury
Mr. Jesse Jonns,
Reconstruction Finance Corporation,
Washington, D. C.
JFH/gre - 3/19/42
Regraded Unclassified
365
By dear Sir Proderick
I have received your letter of March 16, stating that
the terms of your Packard airplase engine contrast requires
that you provide as additional $500,000 of capital, and ask-
ing w help in relieving you of this expenditure.
I have always maintained that the Defense Mant Corp-
cration should take over British amount facilities in the
United States, and, accordingly, I ⑉ no reason why the
Defense Plant Corporation should require additional capital
expenditures upon your part at this time.
I shall write 4 letter to Mr. Janes stating that, in
my opinien, it would be inconsistent for this Goverment to
require that your document nate this additional capital
axpenditure.
Very sincerely yours,
Secretary of the Treasury
Six Proderick Phillips,
British Purchasing Missions,
Willard Hotel,
Fashington, D. C.
JEH/gre - 3/18/42
Regraded Unclassified
366
MAR 1642
tear Manager
For the past four menths I have been receiving letters free
the for Department, the Land-Lease Administration, and the Pritish
Purchasing Missions, referring to the fact that various planes and
other military supplies originally intended for Britain are being
taken over by the United States Any for 190 uses or for shipment
to Russia. Neet of the letters refer to the method that will be
used to reinburse the Brittish Government, but since there are
several types of diversions involved, the letters disagree with
each other, and consequently, I find that I de not know either the
arounts invelved in the diversions, or the type of reintursement
that the Reitish will receive in any of the transactions.
As T understand 12, the types of diversion are as followes
1. Diversions of materials from British dollar
contracts (a) for the use of the United States
Area, and (b) for shipment to Tussia in ful-
fillment of United States obligations to Ruscin
under the Voscon Protecel;
2. Diversions from British Lend-Lesse allocations
(a) for the use of the United States dray, and
(b) for shipment to in fulfillment of
United States obligations to Ruseta under the
leases Protecol.
Some of the information that I have received, leads me to
believe that the Dritish will receive payments in dellars for the
planes and exterials diverted from their em dellar contracts,
but I know that w information is not emplete.
I should appreciate it if you would tell ne her much 10
involved in eash of the types of transfer, and what the Avegr's
decision about payment has both en each.
Very sincerely yours,
(Bigned) E. Morgonthaw. If.
Secretary of the Treasury
The Henerable Memry L. Stinson,
Recretary of Tar,
Washington, D. C.
n.m.c.
Capies to D.Whise
By Measenger Veach 10:30
JEH/gre - 3/19/42
Regraded Unclassified
367
Regraded Unclassified
MAK 20 1942
Dear Jesser
I - writing to inquire shout the states of the Defense Plant
Corporation's negotiations for the purchase of British anongs
facilities in this country.
N
It - my underwtanding that it w agreed last Famer that 8
11st of aloven Aritten plants, whose purchase - recommed by
the President and by the War Department as useful for the nation's
defense, would be purchased by the Defense Plant Corporation. IN
will also my understanding that the Mar Department has agreed to
the repurchase of the plants, end that completion of their transfer
waited only - the accounting week DECREARY to determine the
values of the facilities.
I wonder If this program cannot be completed" Turing the next
six nonths, when payments due upon with consituents made before
the Land-Lease 100 will still be large, serve sevistance to the
British will probably be necessary, and the purchase of these plants
is one of the best ways that that assistance can be given within
the letter and spirit of the pledges rade to Congress when the
Land-Lease Mill - being discussed.
The eleven British facilities in question were said to have
cost the Britden Government about 570 willion, of which about $55
million var thought to be recoverable. In addition to these
eleven plants, however, the British offered last evener a second
list of facilities that, I understood, they were going to discuss
with you One of thoma, the Todd shiptwilding yarde, 10 about to
be sold to the Meritime Consission, but there are five remaining
facilities, which cost the British shout 022 million, and which
wight have a recoverable value of shout $16 million. These facili-
Mee are the followings Crusible Steel, Savage Arro, Cerlikon-
Handa, Anerican Type Pounders, and National Parmatic.
I shall appreciate your talling me whether the !ritish have
proposed the sale of these facilities to you, and whether the Nar
or havy Departments has agreed to their repurchase.
Very sincerely yours,
(Signed) 2. in
Secretary of the "yearury
VP. Jesse Jones,
m.c.
Reconstruction ?inance Corporation,
Washington, D. C.
Copies whice
By Messenger Simmons 100
JER/gra - 3/19/42
368
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE March 20, 1942
TO
Secretary Morgenthau
FROM
Mr. Haas
In accordance with your request, I am submitting herewith
a brief statement on the Canadian price control plan, with a
chart showing relative trends in cost of living and retail
food prices in this country and Canada. The statement has
been submitted to research divisions of the OPA and BAE, and
incorporates suggestions that they have made.
Attachments
Regraded Unclassified
369
Canadian inflation-control program.
On December 1, 1941, after previous unsuccessful attempte
to control prices, Canada out into effect an overall price
ceiling as part of a far-reaching program of inflation control.
This 5-part program consists of (1) & general ceiling on re-
tail prices, with limited exceptions, (2) a ceiling on wages
and salaries, supplemented by cost-of-living bonuses, (3) cur-
tailment of public spending through taxation and war savings
programs, (4) a system of industrial allocations, with pro-
spective consumer rationing, and (5) subsidies to producers
of esgential farm products, to maintain supplies without in-
creasing costs to consumers.
While it is probably too early to determine the effective-
ness of the Canadian program, a levelling-out of the Canadian
cost-of-living index and index of retail food prices since
November 1941 may be significant. The attached chart shows
the official Canadian cost-of-living index and the index of
retail food prices, in comparison with similar official in-
dexes for this country. For comparability, both are converted
to an August 1939 base.
The Canadian figures (as of the 1st of each month) show
that the cost of living index in February was 0.5 percent
lower than last November, and the the index of retail food
prices was 1.8 percent lower. (The Order in Council establish-
ing ceiling orices was issued November 1, the base period for
the ceilings having been announced on October 18.) Figures
for the United States (as of the 15th of each month) show in
the same period a rise of 2.2 percent in living costs and
a rise of 3.3 percent in retail food prices.
The Canadian trice ceiling is essentially a rigid oeil-
the on retail prices, a plying to all commodities (unless
specifically exempted), to twelve essential services, and to
the rental of all real property. A major administrative
roblem is the "rolling back" of squeezes between retail
prices and basic costs, which 18 accomplished in part b.- the
payment of various Government subsidies.
Attachment
370
COST OF LIVING, U.S. AND CANADA
AUGUST 1939 - 100
FOR
PER
COST
CENT
Cost of Living
120
120
115
115
Canada
(Dow. Bur. or STATE)
110
110
105
105
U.S.
(B.L.S.)
100
100
95
95
J
M
M
of
5
N
J
M
is
J
5
#
J
M
M
J
5
M
J
M
E
1939
1940
1941
1942
PER
PER
CENT
CENT
Foods, Retail
130
130
125
125
120
120
115
115
Canada
(BUR. OF STATE)
110
110
105
105
U.S.
(B.L.S.)
100
100
95
95
N
J
-
M
+
a
M
J.
al
M
J.
-
M
J
8
-
M
M
J
5
1941
1942
1939
1940
c 412
the of the hereby of the Treasury
- of - at -
Regraded Unclassified
371
Barch 20, 1942.
Dear Mr. President:
I have recently been impressed by the feet
that living costs in Canada have distinctly
levelled out since the Canadian price coiling
program was pet into effect, while living costs
in this country have continued strongly upvard.
I thought you would be interested in the
attached chart showing comparative price trends
in the to countries and in the brief explanatory
statement which accompanies 10.
Faithfully,
(Signed) 1. Morgesthaw. Jr.
the President,
The White Bense,
n m.c.
copies GD. Has
Delivered by SS agt. 2:25
Grills jas 3/20/42
Regraded Unclassified
372
March 20, 1942
Dear Mr. Nelsons
I have recently been impressed w the fast
that living costs in Canada have distinctly
levelled out since the Gamadian price coiling
program was put Late effect, while living caste
in this country have continued strongly upward.
1 thought you would be interested in the
attached chart showing comparative price trends
in the two constries and is the brief explanatory
statement which accompanies 10.
Sincerely,
(Signed) 1. Morgesthau. and
Somerable Donald M. Nelson, Chairman,
Var Production Board,
Vashington, D. a.
3/20/42
n.m.c.
By Measenser Limimono 5:30
Regraded Unclassified
373
March 20, 1942.
Dear Hearys
I have recently been impressed w the fast
that living costs is Canada have distinctly
levelled out since the Canadian price coiling
program was pet into effect, while living cests
in this country have continued strongly upward.
I thought you would be interested in the
attached shart showing comparative price trends
in the too countries and in the brief explanatory
statement which accompanies 18.
Sincerely,
(Signed) Henry
Memorable Heary A. Vallase,
Vice President of the United States.
A C.
copies to Have
By Memenser Mames 9:00 am
3/21/12
0.Htj= 3/20/42
Regraded Unclassified
374
March 20, 194h
Dear Marriners
I have recently been impressed w the fact
that living costs is Canada have distinctly
levelled out since the Considian price ceiling
program VM put late effect, while living costs
is this country have continued strongly upward.
I thought you would be interested in the
attached chart showing comparative price trends
in the two combries and in the brief explanatory
statement which accompanies it.
Sincerely,
(Signed) Henry
Nonorable Marriner S. Ecles, Chairman,
Beard of Governors of the
Federal Recerve System,
Vashington, D. c.
3/20/42
n.m.e.
Capine
By Messenger L'imone 5:30
Regraded Unclassified
375
March 20, 1942
Dear Leons
I have recently been impressed by the fact
that living costs in Canada have distinctly
levelled out since the Canadian price ceiling
program was put into effect, while living costs
in this country have continued strongly upward.
I thought you would be interested in the
attached chart showing comparative price treats
is the two countries and in the brief explanatory
statement which accompanies it.
Sincerely,
(Signed) Henry
Homorable Leon Nenderson, Administrator,
Office of Price Administration,
Washington, D. c.
nme
copies to Hear
By Messemer
GCH: Jm 3/20/42
Regraded Unclassified
376
March 20, 1942.
Dear Mr. Sprouls
I have recently been impressed by the fact
that living costs is Canada have distinctly
levelled out since the Canadian price coiling
program was pub into effect, while living costs
in this country have continued strongly upward.
I thought you would be Interested in the
attached shart showing comparative price trends
in the too countries and in the brief explanatory
statement which accompanies 11.
Sincerely,
(Signed) n. Norgarthas, 16
Mr. Allas Sproul, President,
Federal Reserve Bank of Bow York,
New Tork, B. T.
nme in me
Copie
jm 3/20/42
Regraded Unclassified
377
MAR 20 1942
Dear Mr. Barle,
Reference is unde to year letter of March 11, 1942,
informing - that the Minister of Iceland in Haskington
has been authorized to sign a stabilization agreement
- behalf of tise Bank and of the Government of [celand.
I note that the State Department vishes to be informed
whether the Treasury Department is now willing to enter
into a stabilisation agreement with Iseland involving
a counituent not to exceed the equivalent of 92 million.
When the stabilization agrangement was being dis-
cassed with the Icaland officials in october and November,
1942, there appeared to be good grounds for anticipating
4b shortage of dollar exchange available to Iceland. lines
then there have been developments which suggest that
Iceland should no longer be in need of any dollars. Though
W would not hesitate to consumate the agreement drafted
at that time If the circumstances still warrant, it appears
to as that the situation sught to be reesamined before a
decision on that point 10 reached.
I have asked 115. Earry hite to arrange 44 conference
to examine the situation in the light of these developments.
Educerely yours,
(Signed) 1. Morgesthas. in
Necretary of the Treasury.
The Honorable Adolf do Herlo, Jr.,
Assistant Scoretary of state.
Please return to Secretary's office
Photo file none
FASTesh
File Thompson
3/16/42
by Messenger Sungie 1:00 po.
Regraded Unclassified
PR
STATE
will
DEPARTMENT OF STATE
WASHINGTON
In reply refer to
in 8094. 1/20
March 11. 1942
My dear Mr. Secretary:
Reference 1s made to a series of conferences during
October and November 1941 between the Under Secretary of
the Treasury, members of the Icelandic Government Trade
Delegation and representatives of the State Department
regarding the conclusion of & stabilization agreement
between the United States and Iceland. It will be recalled
that after a tentative text of a stabilization agreement
had been determined upon, the Icelandic Government Trade
Delegation requested that the matter be held in abeyance
until it could return to Iceland and discuss the text
with the Government in Iceland.
The Department has now received a telegram from the
American Legation at Reykjavik, a copy of which 18
enclosed, setting forth the texts of documents signed
by
The Honorable
Henry Morgenthau, Jr.,
Secretary of the Treasury.
Regraded Unclassified
-2-
by the Icelandic Minister of Finance and by officials
of the Landsbanki Islande (National Bank of Iceland)
authorizing the Minister of Iceland in Washington,
Mr. Thor Thors, to sign a stabilization agreement on
behalf of the Bank and of the Government of Iceland.
The Department would appreciate being informed
whether the Treasury Department 1e now willing to enter
into a stabilization agreement with Iceland involving
a commitment not to exceed the equivalent of two million
dollars.
Sincerely yours,
For the Secretary of State:
carsual Adolf A. Berle, Jr
Assistant Secretary
Enclosure:
Telegram from Reykjavik,
no. 140, March 5.
Regraded Unclassified
TEM
GRAY
Reykjovik
Dated March 5, 1942
Rec'd 1 9.0. 6th
Secretary of State,
Washington.
140, March 5, 6 p.m.
Department's telegram no. 129, November 21,
7 p.m., and Legation's mail despatch no. 41,
November 25, 1941.
The Minister of Finance has just deposited
with me new documents in the name of the Icelandic
Minister in Washington. These documents are in
English end read as follows:
OnE. "With reference to an Act no. 130 of
December 19, 1941 paragraph onE, authorizing the
Government to guarantee & working loan for the
National Benk of Iceland, I the undersigned, Jakob
Moller, Iceland's Minister of Finance, acting on
behalf of the Treasury do confer upon the Icelandic
Minister in Washington, Mr. Thor Thors, full end un-
restricted power of attorney to sign a declaration
on the Icelendic Treasury as guarantor of full and
due repayment of principal and payment of interest
on A loan
Regraded Unclassified
-2- #140, March 6, 6 P.T., from Reykjavik.
on ET loon not Exceeding two -illing dollars (repert
$2,000,000) which the National Bank of Iceland prograte
borroving from the Stabilization Fund, Washinaton, D.C.,
United Strtes of America.
Beykjevik, this 4th day of March 1942.
Signed: Jaket Nollar".
Two. "This is t- certify that Lendsbanki Islands,
Reykjevik, hereby gives the Icelend Minister in
Mr. Ther Thors, F full and unlimited
power t- sign F: Stabilization Fund's agreement with
the Secretary of the Treasury of the United States of
America, accunting to maximum souivalent of United
States dollers two million (repeat $2,000,000 United
States dollars). Whatever Minister There may do in
connection with this matter is equally valid na if WE
had done it ourselves.
Done in Reykjevik the 4th day of March 1942.
Lendsbanki Islands.
National Bank et Iceland.
Signed: Vilhjalmur Ther.
Signed: Petur Magnusson."
The Minister of Finance Expressed the hope that
with thE deposit of these full powers with the Legation
it will bE
Regraded Unclassified
-3- #140, March 5, 6 p.m., from Reykjavik.
it will bE possible for the Icelandic Minister in
Washington to proceed to sign the loan agreement
without delay. Appropriate instructions are being
BENT to him. Original documents will bE forwarded
in next pouch.
BARNES
NPL
Regraded Unclassified
383
C
o
P
Y
RS
Chungking via N.R.
This telegram must be para-
phrased before being communi-
Dated March 20, 1942
cated to anyone other than a
Governmental agency. (BR)
Rec'd 4 p.m.
Secretary of State,
Washington.
252, March 20, 2 p.m.
Reference Department's 110, February 14.
Please inform Treasury that Central Bank of China has
delivered checks drawn on Treasurer of the United States in
an aggregate amount of $14,460 and requests that 8. cor-
responding amount be credited to Central Bank of China
amount in Federal Reserve Bank of New York.
GAUSS
CSB
Copy:1c:3/21/42
Regraded Unclassified
384
NIC
Chungking via N.R.
This telegram must be
paraphrased before being
Dated March 20, 1942
communicated to anyone
other than n Governmental
Rec'd 4:07 p.m.
agency. (BR)
Secretary of State,
:
Washington.
253, Narch 20, 3 p.m.
FOLLO. ING FRCH ADLER FOR FOX CARE (F SECRETARY
OF THE TREASURY.
"TF 23
One. Board would appreciate transmission of
following message to Federal Reserve Bank !Statement
of accounts from Board's inception to date most
urgently required. Please forward by quickest
available route. If any statement sent to Chungling
office, cable date of despatch, period covered, and
route. Smith accountant from Calcutta her- and
preparing of board report for three governments would
bE greatly facilitated by early receipt of Federal
RESERVE Bank's statement. If you are returning fairly
soon, suggest you bring statement with you otherwise
best to send it by diplomatic pouch care of me.
Two. Doctor Kung would like to know approximate
size of treasury smuggling prevention force. If not
inconvenient, could you ascertain and let THE know?"
GAUSS
LMS
Regraded Unclassified
385
C
0
P
Y
DEPARTMENT OF STATE
WASHINGTON
March 20, 1942
In reply refer to
FD 740.0011 Pacific War/2064
The Secretary of State presents his compliments to
the Honorable the Secretary of the Treasury and encloses
a copy of despatch no. 284, dated January 26, 1942, from
the American Embassy, Chungking, China, regarding a coordination
committee in Chungking to deal with economic questions.
Telegram no. 60 referred to in the despatch was trans-
mitted to Treasury under date of January 28, 1942; and
despatch no. 266 was transmitted February 19, 1942.
Enclosure:
From Embassy, Chungking,
no. 284, January 26, 1942.
Regraded Unclassified
386
No. 284
Chungking, January 26, 1942
Subject: A Coordination Committee in Chungking to
deal with Economic Questions.
Air Mail
CONFIDENTIAL
The Honorable,
The Secretary of State,
Washington, D.C.
Sir:
I have the honor to refer to my telegram no. 60, January 25, 12 noon
1/2/
and to enclose copies of two memoranda in regard to the suggested formation
of a coordination committee or "Allied Economic Council" in Chungking to
interest itself in China's financial and economic problems.
At this stage and time I have nothing of substance to add to the
comment in my reference telegram. There are serious economic problems in
China which should be dealt with seriously and constructively. A committee
of competent persons with authority under a loan or credit agreement and
with Chinese cooperation should be able to malte a real contribution to a
solution of those problems and at the same time increase Chinese ability
and willingness to continue resistance against Japan. In my despatch no,
266 of January 8, 1942 I have, in suggesting the directions in which
financial aid might be given to advantage, indicated the fields in which
such a committee might interest itself. The problem 1e not, I feel, simply
one of supporting Chinese currency. The progress of currency inflation
should certainly be moderated if possible; it cannot however be reversed.
& deflationary policy resulting in a reduction in the production of con-
sumers' goods would be in error and have unfortunate consequences. En-
couragement to the production and the importation, if feasible, of goods
should I am convinced be the primary objective of financial policy in this
area now, and if a foreign credit or loan can be used to that end and an
economic coordination committee can effectively aid in such utilization, I
believe the one should be granted and the other established. The financial
and economic experts should be able to determine whether such & program is
feasible but its success will depend largely on the degree of real cooperation
given by the Chinese authorities.
Respectfully,
C. E. Gausa
Enclosures:
1/ Memorandum for Ambassador dated January 23, 1942.
2/
If
H
If
=
If
24, 1942.
JCV/Wr
Original and five copies by air to the Department.
850
Regraded Unclassified
Enclosure no. 1 to despatch no. 387
284 dated January 26, 1942, from
the Embassy at Chungking.
MEMORANDUM OF CONVERSATION
FOR THE AMBASSADOR
January 23, 1942
Subject: Suggested Formation of a Corrdination Committee
to deal with Economic Problems.
Mr. Hall-Patch, Financial Attache of the British Embassy, called
this afternoon. He said that, on the basis of discussions with Sir
Archibald Clark-Xerr (the British Ambassador) and Sir Otto Niemeyer
(Chief of the British Economic Mission to China) he had called to
suggest the formation of B. Coordination Committee in Chungking to deal
with financial and economic problems and particularly with problems that
would arise in connection with the handling of the Anglo-American credit
to China, should such credit be granted. He said that he envisaged such
a committee as being composed of two Americans, two British and two Chinese
members, and a Chinese Secretary whom he thought should be a man of the
character of T. F. Tsiang. He said that it might be advisable also to
include a Dutch representative and I added that it might be advisable for
similar reasons to include an Australian. He said that he thought the
committee should be organized as soon as possible and that Sir Archibald
Clark-Kerr was prepared to approve its organization. He said that he and
one other Englishman would serve on the Committee and suggested that I and one
other American serve. He thought that Dr. Kung or his deputy would wish
to be Chairman and hoped that another Chinese of ability would be appointed.
He asked me to refer the matter to you. I said I would do so and inform him
of your answer. He said that he was going to Kunming on Monday, but that I
could take the matter up with Sir Archibald or Sir Otto as both of them were
informed on the subject.
John Carter Vincent
JCV/wr
True copy of signed original. w.r.
Regraded Unclassified
Enclosure no. 2 to despatch no.
284 dated January 26, 1942, from
388
the Embassy at Chungking
MEMORANDUM FOR THE AMBASSADOR
January 24, 1942
Subject: "Allied Economic Council" at Chungking
I saw Hall-Patch again at noon today in Sir Archibald Clark-Kerr's
office. Sir Archibald was also present. I called wishing to clear up a
few points and obtain additional information with respect to Hall-Patch's
suggestion of yesterday in regard to coordination in the field of economic
and financial matters. I asked whether the proposed committee was to come
into being only if China were granted credits by Britain and the United
States and whether it was to deal exclusively with matters pertaining to
the utilization of the credits. Sir Archibald showed me a note referring
to 8. conversation which a Chinese official apparently had had with Dr. E.H.
Kung. This note indicated that Dr. Kung had suggested that the "Allied
Economic Council" in Chungking be set up without reference to the proposed
credits: that it be charged with making studies and recommendations; but
that it would also, when credits were granted, interest itself in the nro-
blems connected with the effective use of these credits. This note also
answered the second question I had in mind, that is, whether the concerned
Chinese officials were informed with regard to the proposal. I asked who
had taken the initiative in suggesting the committee or "Council" and Sir
Archibald said it had been more or less "spontaneous" but agreed that the
initiative should properly appear to come from the Chinese.
John Carter Vincent
JCV/wr
A true соду
of signed original. W.T.
Copy:bj:3-21-42
Regraded Unclassified
Treasury Department 389
Division of Monetary Research
Date April 28
19 42
To:
Miss Chauncey
From: Mr. White
I presented this orally to the
Secretary on April 11th and the Secretary
asked me to give him the highlights
orally, which I did. He said it was
all right - he would approve. I told
him his signature wasn't necessary on
the final document. I also stated
that the final document would contain
some modifications of this draft but
they would not be important modifica-
tions.
Treasury Department
390
Division of Monetary Research
Date
March 20, 1942 19
To:
Secretary Morgenthau
From:
H. D. White
In our tentative recommendations to Cuba some
of our proposals constitute a substantial departure
from some of our own practices. If you are interested
in going into the matter I would appreciate it if you
would do it soon as we are now discussing the pre-
liminary report with the Cuban officials, and we are
being pushed to complete our report by both the State
Department and the Cuban Government.
There will be of course a final clearing in the
Treasury and possibly in the Federal Reserve Board
before a final report is submitted to the Cuban.
Government but it will then probably be too late to make
more than minor changes.
Copies of the preliminary report our being sent
to D. Bell, Legal Division, and State Department.
391
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE March 20, 1942.
TO
Secretary Morgenthau
FROM Mr. White VOW
subjectr Proposed Cuben Central Bank
I AM sending you herewith a copy of & preliminary draft report
on the proposed Cuban Central Bank by the American Technical
Mission to Cuba. The Cuben Finance Minister has requested the
opportunity of discussing the Central Bank proposals with the
Mission during his stay in Washington. These discussions will
DE based on this draft.
The attached report envisages a Cuban Central Bank having
the following main characteristics and powers:
Copital Structure.
The initial capital end surplus 18 to be 8 million pesos
(-1 the ne eo, as you know, at 1 to 1 parity with the dollar).
of this the commercial benks will contribute about 3 million
PROS In cash, and the Cuban Government about 2 million in cash
nd 3 million in Government obligations.
The capital contribution of the commercial banke is to be
fixed at 2 percent of their deposits. The Cuban Government will
make a cash contribution sufficient to bring total cash contri-
outions to 5 million Desos. The 3 million pesos of securities
colitributed by the Cuban Government will create a paid-in surplue
for the Bank.
An Export-Import Bank loan to help the Cuban Government meet
its 0830 contribution should be considered if it proves diffi-
oult for Cuba to raise this money at home.
Management.
The Cuban Government will control the Central Bank through
control of a majority of the directors. The President of the
Republic will appoint the Governor of the Bank who will serve
on the Board of Directors ex officio along with the Finance
Minister. The President will also appoint five other directors,
two from nominees selected by the share-holding banks, and three
to represent the sugar industry, other agriculture, end commerce.
At least one of the two directors representing the commercial
banks must be a Juban citizen.
Regraded Unclassified
392
- 2 -
Division of Monetary
Research
In addition, en Advisory Council is to be created to act
ns an advisory body on major mattere of bank policy. This
Council will consist of the Ministers of Finance, Agriculture,
Commerce and Labor and e representative of the Faculty of Law
of the University of Habana. Under certain conditions indicated
below the Council has mandatory powers.
Loans and Investments.
The Central Bank will make primarily short-term loans to
commercial banks (up to 9 months in the CBSB of agricultural
noner).
Lonne to the National Government are limited to 10 percent
of overage annual expenditures with a provision for relaxation
on vote of six-sevenths of the Directors. Loans to semi-official
credit agencies (1t 18 hoped to establish an Agricultural Bank)
are \imited to 15 percent of the Bank's assets.
To prevent evasion of the limitations on Government loans,
open market operations in Government securities are restricted
to sensoned obligations.
Loans to the public are permitted only in case of national
emergency and then only with consent of the Advisory Council.
Reserve Requirements.
The Central Bank will be required to maintain gold or dollar
reservee against notes but not deposits. The notes outstanding
then the Bank begins operations will be considered a fiduciary
lesue sysinst which no new reserves are required. Notes above
211 S. amount are subject to a 25 percent requirement.
The Bank will take over 118b1lity for existing silver cer-
tificates and the silver coins held against them. Ae the silver
certificates are replaced with bank notes, the coins held against
them will De released for other purposes.
Whenever the reserves fall belo 25 percent the Bank shall
we requiredto take corrective messures satisfactory to the
Advisory Council. In case of emergency reserve requirements of
commerciel banks can be altered by the Board of Directors with
w roval of the Advisory Council.
Regraded Unclassified
393
Division of Monetary
- 3 -
Research
Stabilization Fund.
A Stabilization Fund will be created to assist in control-
Iing the exchange value of the peso, It will be controlled by
D
committee consisting of the Governor of the Bank, the Finance
Minister, and a third member to be selected by the Finance
Minister. Profits and losses of the Fund will be for account
of the Government.
The Fund vill in general hold Cuba's gold assets and issue
10ld certificates to the Central Bank. The Fund will have the
right to borrow pesos from the Central Bank without interest to
ouy 103d but can be directed to borrow in the open market by
the Advisory Council.
On recommendation of the Fund Committee, the President of
Cube can subject exchange transactions to license by the Finance
Minister.
The dollar will no longer be legal tender.
Regraded Unclassified
394
Preliminary and Confidential
American Technical Mission to Cuba
SECOND REPORT TO THE CUBAN GOVERNMENT
March 20, 1942
Personnel of Mission
G. A. Eddy, Treasury Department
A. T. Esgate, Farm Credit Administration
W. R. Gardner, Board of Governors of the
Federal Reserve System
F. A. Southard, Jr., Treasury Department
H. R. Spiegel, Treasury Department
G. B. Vest, Board of Governors of the
Federal Reserve System
H. D. White, Chief of Mission,
Treasury Department
395
Principal Features of Cuban Central Bank
Proliminary Draft to serve as the basis of joint discussion
March 19, 1942
I. Capital
1. Authorized capital:- 10 million pasos in Class A and/or Class B shares
and at least 3 million pesos of capital, or paid-in, surplus.
2. Original subscription:- 5 million pesos of share capital and 3 million
paid-in surplus.
Commercial bank subscription:- 2 percent of each bank's deposits
in some designated base period, in Class A shares of 100
pesos par value. This will amount, on the basis of present
deposits, to about 3 million pesos, in cash.
Government subscription:-
(a) Enough Class B shares of 100 pesos par value to bring
the original subscription for Class À and Class B shares to
50,000 (5,000,000 pesos). For example, if banks subscribe
3.0 million the Government will subscribe 2.0 million, in
cash.
(b) In addition, the Government will subscribe 3 million
pesos which may be paid in the form of Government obligations,
to be credited to paid-in surplus. It may or may not be pos-
sible to have this subscription evidenced on the balance
sheet in some way as having come from the Government.
Regraded Unclassified
396
- 2 -
3. Capital structure at the outset:-
Class A shares (entirely owned by the commercial
banks) - Approximately 30,000 shares outstanding
3,000,000
Class B shares (entirely owned by the Government)
Approximately 20,000 shares
2,000,000
(Enough Class B shares will be sold to the Government
to bring the total number of Class A and Class B
shares to 50,000.)
Surplus, paid-in, by the Government
3,000,000
Surplus, earned
0
Total capital funds
3,000,000
Authorized but unissued - 50,000 shares Classes A
and B.
4. Dividends:- Dividends to be limited to 4 percent, cumulative, and
perhaps limited further to Class A shares.
5. Disposition of surplus:- At the discretion of the directors the Bank
may build up earned surplus or reserves without paying divi-
donds, but dividends shall be cumulative and no surplus
shall be paid to the Government so long (LS there are any
dividend arrears. After payment of full dividonds, the
Bank's earnings shall be divided as follows:
50 percent to the Government and 50 percent to surplus
till an earned surplus of 3.5 million posos has been
accumulated; 75 percent to the Government and 25 per-
cent to surplus till an earned surplus of 7.0 million
pesos has been accumulated; thereafter 100 percent to
the Government.
Regraded Unclassified
397
- 3 -
In the event of liquidation of the Central Bank, any
surplus after retiring stock hold by banks at par plus
dividends accrued and carned shall revert to the Government.
6. Adjustment in commercial bank holdings:- Commercial banks' sub-
scriptions are to be adjusted annually to each bank's
average deposits in the preceding your (or some other prac-
tical base). Each bank's subscription must not fall below
2 percent of its deposits in the procoding year. Banks
whose deposits decline, however, have the option of retain-
ing Central Bank shares proviously required to be purchased.
Purchases and redemptions shall be at par.
Additional shares required to be purchased by banks
whose deposits have increased are to be purchased from the
Central Bank at par (a) from shares turned in by other
banks whose deposits have decreased, (b) from the Cuban
Treasury from any of its B shares which it is willing to
sell, and (c) from authorized but unissued shares of the
Central Bank. Stop (b) means that the number of B shares
will in offect be converted into A shares.
At the annual readjustment period the Contral Bank is
obligated to repurchase at par any of its shares held by
the commercial banks in excess of 2 percent of their do-
posits. Commercial banks can sell their sharos only to
the Central Bank. Banks dosiring to liquidato may have
398
- 4 -
their stock redocmed at any time convenient to the Contral
Bank.
In caso banks' holdings of Class A shares should
decline below the amount originally sold, the Government
shall not be required to purchase additional Class B shares
unloss it desires to do so.
7. Capital necessary to start operations:- Provision might be made for
the Bank to start operations when 25 percent of its total
original capital is paid in. The romaining 75 percent must
be paid within 3 months but the period may be extended by
the vote of the Board of Directors. Government delivery of
securities for paid-in surplus may constitute the Govern-
nent subscription of 25 percent.
8. Moans of paying for original subscription:-
Classes A and B shares:- In poso currency, or at the discretion
of the Board of Directors in certified peso bank checks.
In case the Cuban Government feels itself unable to
obtain cash from other sources, the Central Bank law might
authorize an Export-Import Bank loan for this purpose.
However, in view of the curront prospority of the sugar
industry and the strength of the Cuban balance of inter-
national payments, it suoms economically desirable that
the Cuban Government should obtain the cash for its sub-
scription to Class B shares without incurring foreign in-
dobtodness which may have to bo paid back during a much less
favorable period in the futuro.
Regraded Unclassified
399
- 5 -
Paid-in surplus:- To be paid for possibly in Treasury certifi-
cates of indebtedness payable 90 days after sale by the
Central Bank, or upon liquidation of the Bank. They would
pay no interest and would not mature so long as they were
hold by the Central Bank. They would be transferable and
night be sold (presumably at a discount) by the Central
Bank as circumstances required.
Alternatively, the securities might be nado ordinary
notes or bonds, bearing a market rate of interest.
In case the paid-in surplus of the Bank becomes in-
paired, nogotiations between the Central Bank and the
Government may determine desirable action, if any, regard-
ing the impairment and the possibility of the Government's
advancing additional surplus.
Regraded Unclassified
400
- 6 -
II. Management
Primary responsibility for management of the Bank will be vested with
a Board of Directors. In addition, however, the Mission recommends crea-
tion of an Advisory Council which will at all times have the prerogative
of giving advice to the directors regarding matters of policy and which
under certain circumstances will have more direct powers of control.
The Board of Directors will consist of seven members as follows:
Governor of the Bank, to be appointed by the President.
Minister of Finance, ex officio.
Two directors to act as representatives of the share-
holding banks. These are to be selected by the
President from two panels of at least three names
in each to be nominated by the shareholding banks,
On one of the panels all nominees must be Cuban
citizens. On the other, nominees may or may not
be Cuban citizens.
Three directors to be selected by the President to
represent sugar, other agriculture, and business
interests. Provision might be made for the estab-
lishment of three panels of names proposed by
recognized trade associations* from which these
three directors may be chosen by the President, but
he is not required to limit his choice to the names
appearing on the panels.
Regraded Unclassified
401
- 7 -
The two banking and the three public directors might be given
staggered terms of two and three years respectively. Directors shall
be eligible for reappointment.
The Governor of the Bank shall have a five-year term and shall be
eligible for reappointment. The Vice-Covernor and General Manager shall
be appointed by the Board of Directors of the Bank.
The directors shall be paid only a very modest compensation, possi-
bly at the rate of 10 pesos per meeting up to a maximum of 500 pesos per
year plus direct expenses. The salary of the Governor of the Bank
should be stipulated by law. The Governor and the Finance Minister will
reccive no compensation for acting as members of the Board except for
any direct expenses incurred.
The duties of the Board of Directors shall be stated in the broad-
est possible terms since they are ultimately responsible for management
of the Bank. The Board must assume responsibility for all major policy
decisions but, of course, should not be called upon to make routine
administrative decisions.
The Advisory Council is to consist of five members, as follows:
The Ministers of Finance, Agriculture, Commerce, and Labor and a repre-
sentative of the Faculty of Law of the University of Habana. The method
of selection of the representative from the Faculty of Law and his torm
of office are not specified since Cubans familiar with the Faculty of
Law may be better able to formulate proposals on this matter. He ought
to have a regular term of office of, perhaps, three years. The members
of the Advisory Council are to serve without compensation in any form.
Regraded Unclassified
402
- 8 -
The duties of the Advisory Council shall be primarily to act as an
advisory body on major matters of bank policy. The Council shall have
the prerogative of making its views on banking policy known to the Board
of Directors whenever the Council so desires. At any time the Council
shall have the right to require that the Board of Directors make an
explanation of the current policy of the Board, In addition to this, the
Board of Directors shall make an annual report to the Advisory Council
which shall also be made public, explaining all the major policies upheld
by the Bank during the previous year and giving the reasons therefor.
In addition, the Advisory Council shall have certain other powers
and duties as indicated below, and particularly in regard to deficiencies
in the Central Bank's required reserves, the financing of the Stabiliza-
tion Fund, direct loans to the public, and emergency measures to limit
credit expansion.
Regraded Unclassified
403
- 9 -
III. Loans and Investments
1. Accounodation to member banks:- The Central Bank can make advances
with a maturity of not nore than six months to banks
owning stock in the Central Bank on the security of any
assets satisfactory to the Central Bank, and can discount
obligations of sound value bearing the endorsement of a
stockholding bank maturing in not more than six months or,
in the case of agricultural obligations, not more than
nine months.
2. Loans to special lending institutions:- The American Mission is
strongly of the opinion that the Cuben economy is in need
of official or semi-official agencies to extend crodit
for agricultural, industrial, public works, and nortgage
purposes, and the Mission urges the early establishment
of such agencies.
The Central Bank should be empowered to acquire oblí-
gations of each of these agencies to be created to serve
special lending needs, subject to some effective protec-
tive limitation. It might be provided that the obliga-
tions must be short-torm or bear the guarantee of the
Government and that not more than 15 percent of the
Central Bank's nasets may consist of the obligations of
any one of these agencies unless 2 larger amount is
authorized by the affirmative vote of six members of the
Board of Directors. Obligations of 2 lending agency
Regraded Unclassified
404
- 10 -
discounted with the Central Bank with the endorsement
of a commercial bank, in accordance with paragraph (1)
above, are to be regarded as coming outside of the 15-
percent limitation just mentioned.
3. Lonns to the Federal Government:- The Bank can lend to the Govern-
ment up to fivo percent of the Government's budgeted
expenditures during the thon-current fiscal year on the
affirmativo vote of fivo members of the Board of Directors.
After the total of such loans outstanding on the books
of the Central Bank has renched n total equal to 10 per-
cent of the annual average budgeted expenditures during
the current and next proceding fiscal years, no further
loans can be made to the Government except on the six-
sevenths vote of the Board of Directors.
4. Open-market purchases of Government securities:- The Bank can
purchase diroct obligations of the Republic of Cuba
which have been outstanding for at lonst one year (or
possibly at luast two years) whenever such purchases
are required to carry out open-market credit policy.
Purchases are to bo nade in the opon market nt provail-
ing prices. It may also be dosirable to authorize
open-market purchases of open-market issues of official
credit institutions if guarantood by the Government.
Regraded Unclassified
405
- 11 -
5. Other open-market investments:- If the available supply of direct
obligations of the Republic of Cuba is too small to por-
mit effective open-market policy, the purchase of other
seasoned, first-grade bonds which have been outstanding
for two years or more will be permitted.
6. Energency loans to the public:- In cases of emergency or national
nocessity, the Board of Directors shall be authorized to
make direct loans to the public but only with the approval
of the Advisory Council.
7. Sale of assets:- The Central Bank shall be enpowered at its discro-
tion to sell any assets which it is authorized to acquire.
8. Speculative loans:- The Bank might be enjoined from purchasing or
londing upon assets issued to finance speculation in
stocks, real estate, or commodities, provided that the
law can be worded so as not to interfore with desirable
operations,
Regraded Unclassified
406
- 12 -
IV. Foreign Exchange Fund
1. l'anagement:- A committee of three, consisting of the Minister of
Finance, the President of the Central Bank, both ex officio,
and one nember selected by the Minister of Finance,
2. Conduct of operations:- By the Central Bank, under the direction of
the Foreign Exchange Committee, as fiscal agent for the
Government.
3. Powers:- The Fund can buy, hold, pledge, and sell gold, silver,
foreign exchange, and possibly also peso currency and
deposits; borrow; and invest its assets in high-grade
securities.
4. Source of the Fund's foreign exchange:- Purchasesin the open market
and deliveries by exporters of part of the foreign exchange
proceeds of their sales abroad, as provided by present law.
The Finance Minister shall continue to have full discretion
to exempt classes of exporters, refuse acceptance of foreign
exchange under conditions where this may be desirable, and
modify the requirements placed upon exporters.
The Fund can buy and the Central Bank is required to
sell any gold or foreign exchange assets held by the Central
Bank at the discretion of the Fund.
5. Source of the Fund's pesos:- The Fund shall have the right to borrow
pesos from the Central Bank without interest up to the limit
of the cost of foreign exchange or gold held by the Fund.
The Fund may be given the further right to borrow from the
Regraded Unclassified
407
- 13 -
public up to the cost of its gold or foreign exchange and
to pledge said gold or foreign exchange to secure such
loans.
Whenever in the opinion of the Advisory Council the
Stabilization Fund is obtaining an undue volume of credit
from the Central Bank and thereby causing an unwarranted
expansion in the reserves of the commercial banks, the
Advisory Council can require the Fund to obtain further peso
credits from the open market instead of the Central Bank.
Under these circumstances the Fund will be obliged to conduct
its credit operations in the manner specified by the Advisory
Council until in the opinion of the Advisory Council, the
Fund can once again be allowed to obtain Fund credits from
the Central Bank if it desires.
6. Treatment of profits and losses:- Profits and losses of the Fund shall
be for the account of the Treasury. Profits may be turned
over to the Treasury at the discretion of the Fund committee.
The reimbursement of losses shall be at the discretion of
the Cuban Government.
7. Publicity on Fund profits:- Audited reports shoring the disposition
of Fund profits and any dispositions of foreign exchange or
gold made at prices other than the prevailing market price
are to be published regularly at reasonable intervals after
the transactions take place.
Regraded Unclassified
408
- 14 -
8. Foreign exchange for the Government:- The Fund shall continue to
supply foreign exchange to meet Government requirements
at par.
9. Foreign exchange licensing:- On the recommendation of the Fund
committee, the President of the Republic can subject all
foreign exchange transactions and international novements
of funds to license by the Minister of Finance.
Regraded Unclassified
409
- 15 -
V. Reserve Requirements of the Central Bank
There should be reserve requirements only against the Bank's note
liabilities. That is to say, there will be no reserve requirements
against the Bank's deposit liabilities.
The Bank will take over the liability for outstanding silver cer-
tificates and acquire as an asset the silver coin held against them.
Forn silver certificates may gradually be replaced with bank notes and,
as this happens, the coin held against them will be freed for other
purposes. The Bank, however, will at no time have to hold reserves
against the notes thus issued to replace silver certificates.
The full smount of peso currency certificates outstanding when the
Bank starts business will constitute a fixed fiduciary issue to which
Cuba may be regarded C.S already adjusted. Net expansion of the currency
by the Bank thereafter will be subject to a reserve requirement of 25 per-
cent in gold or dollars or in obligations of the Stabilization Fund backed
100 percent by gold or dollars.
Whenever the legal reserves of the Bank fall below the 25 percent
requirement, the Bank shall immediately undertske corrective measures
and shall take a monthly report on these to the Advisory Council. If
the Advisory Council is not satisfied as to the adequacy of these
measures, it shall have the authority to require the Bank to alter its
program to the satisfaction of the Advisory Council. This authority
shall continue in effect until the legal reserves of the Bank are once
again at or above the minimum requirements.
Regraded Unclassified
410
- 16 -
VI. Reserve Requirements of Commercial Banks
1. Against denand deposits:- 25 percent, of which 20 percent shall be
in deposits at the Central Bank.
2. Against time deposits:-
Possibly the same as on demand deposits, or alternatively,
they may be reduced at the discretion of the Bank to a
minimum of 5 percent, of which 3 percent must be held on
deposit in the Central Bank. The Bank is to have power to
define and issue regulations concerning time deposits.
3. Emergency credit control:- In case of threatened over extension of
bank credit, the Board of Directors with the approval of
the Advisory Council, may require that deposits of commer-
cial banks in excess of a given level be secured by legal
reserves higher than those regularly required, but not
over 100 percent. Conversely under special emergency
conditions, the Board with the approval of the Advisory
Council, may authorize a reduction in the regular reserve
requirements.
Regraded Unclassified
411
- 17 -
VII. iliscellaneous Provisions
Legal tender position of the dollar:- The dollar shall no longer
be legal tender.
Other functions of the Central Bank:- The Bank will hold deposits
only of commercial banks, the Government, governmental
institutions, and foreign governments and central banks.
Symbol for the peso:- Some symbol should be adopted other than the
dollar sign now used, in order to facilitate differentia-
tion between the peso and the dollar.
412
COPY
AF
Bombay
This telegram must be
Dated March 20, 1942
paraphrased before being
communicated to anyone
Rec'd 11:16 a.m.
other than a Governmental
agency. (BR)
Secretary of State,
Washington.
208, March 20, 1 p.m.
Department's 68 to Calcutta.
Total amount of United States Treasury checks cashed
by National City Bank of New York at Bombay and delivered to
this Consulate is $25,657.18.
INFORM TREASURY
DONOVAN
EDA
Copy:bj:3-21-42
Regraded Inclassified
413
TELEGRAM SENT
DM
March 20,1942
This telegram must bE
paraphraeed before being
1 p.m.
communicated to anyone
other than A Governmental
agency. (BR)
AMERICAN CONSULATE GENERAL,
CAPETOWN, (UNION OF SOUTH AFRICA).
30
FROM TREASURY
Your 31, March 17, 3 p.m.
QUOTE 1. PLEASE have consular officer present
at time South African REBERVE Brnk wraps currency to
observe that halves, with a copy of list Enclosed, Are
separately packaged and that the packages Are BEALED,
Upon receiving the bank's statement that the currency
has been cut in half, that the name of the bank appeare
on Each helf of the currency, and the amount of our-
rency in Each package, the consular officer can then
issue to the bank a receipt for the currency. The
receipt given by the consular officer should stipulate
that the currency 1e subject to count, verification
and Exomination.
2. The Consulate General 16 authorized to store
the BEnlEd packages in the vault of the South African
REBERTE Bank pending delivery to the Post office just
prior
Regraded Unclassified
414
-2- #30 March 20, 1 p.m. to Cepttown
prior to the sailing of the carrying VESSEL.
3. It is not necessary that the currency bE
shipped by diplomatic pouch.
4, All other instructions contained in telegram
No. 11, February 9, 9 p.m.,should bE followed. END
QUOTE.
'WELLES
(ACTING)
(FL)
FD:FL:ME
Regraded Unclassified
C
0
415
P
Y
DEPARTMENT OF STATE
WASHINGTON
In reply refer to
FF 703.5400/30
March 20, 1942
The Secretary of State presents his compliments to
the Honorable the Secretary of the Treasury and transmits
herewith paraphrases no. 307 of February 3, 1942 to Bern
and no. 931 of March 7, 1942 from Bern, concerning
Swiss-American negotiations in the protection of American
interests by the Government of Switzerland.
Enclosures:
1. To Bern, no. 307,
February 3, 1942.
2. From Bern, no. 931,
March 7, 1942.
Regraded Unclassified
416
C
PARAPHRASE OF TELEGRAM SENT
0
P
Y
TO:
AMLEGATION, Bern
DATED:
February 3, 1942, 10 p.m.
NUMBER:
307
The amount of 1,502,145.92 Swies france received by the Swiee
National Bank through the Banco de Portugal at Lisbon from the
Federal Reserve Bank represent at the rate of 23.30 the counter-value
of the $350,000 mentioned in the Department's telegram no. 139,
January 17, 1942 to Bern, and are not to be understood as supplementing
the latter as mentioned in section four of telegram no. 210, January
21, 1942 from the Legation.
The Legation is authorized, when necessary, to use these francs
to cash drafts drawn against special deposits with the Department with
SAA 1942 or other "authorization numbers" or other funds which SAA 1942
do not include. For the drawing of such drafts to the order of the
United States Treasurer the accounting should be as usual and in addition
the drafts should be also accounted for and sent to the Department aa
deposits to authorization no. 105-1942 accompanied by B. fully explanatory
despatch. Of such drafts, the firsts end seconds should be drawn and
forwarded via separate facilities 80 that reimbursement to the authorization
numbers cited and future availability for later telegraphic transfers will
be assured.
Regraded Unclassified
417
-2-
The use of these francs, which were to be separately accounted
for under authorization no. 105-1942 and originally intended for use
only in the representation by the Swiss of American interests, will
by such authority have the effect of liberalizing their use under a
form of revolving fund for the encashment of drafts tirawn for other
necessities.
Copy: emk: 3.21.42
Regraded Unclassified
418
C
o
P
Y
PARAPHRASE OF TELEGRAM
RECEIVED
FROM:
AMLEGATION. Bern
TO:
Secretary of State, Washington
DATED:
March 7, 1942, 3 p.m.
NUMBER:
931
Reference is made to telegram no. 307 of February 3. 10 p.m.
to the Legation, and other correspondence concerning the provision
of funds for the representation by the Swiss of American interests.
On February 4 one million france of the total of 1,502,145.95
Swisa francs received was advanced to the Swise Foreign Office to
provide for expenses of American interests. France in the amount
of 51,142.66 of the balance have been BO far obligated to cover pay-
ments as directed by the Department.
Because allotments to field officers to date exceed the first
advance by already 200,000 francs a second advance of one million
france has been requested in the Foreign Office's note of February 27.
The Legation yesterday, March 6. inquired informally of the
National Bank whether our Treasury draft in the amount of $200,000
would be purchased by it at once against Swiss francs for the use of
the Foreign Office and was told that the question would be given
consideration and that the decision of the bank would be given on
Wednesday, March 11, to the Legation.
HUDDLE
Copy: imc
3/21/42
Regraded Unclassified
419
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATE March 20, 1942
TO
Secretary Morgenthau
FROM
Mr. Dietrich
CONFIDENTIAL
Registered sterling transactions of the reporting banks were as follows:
Sold to commercial concerns
£62,000
Purchased from commercial concerns
£17,000
Open market sterling remained at 4.03-3/4, with no reported transactions.
In light trading, the Canadian dollar reacted to 12-3/4% discount by the
close, as compared with 12-7/16% yesterday.
The Argentine free peso advanced 6 points to a final quotation of .2375.
In New York, closing quotations for the foreign currencies listed below
were as follows:
Brazilian milreis (free)
.0516
Colombian peso
-5775
Mexican peso
.2064
Uruguayan peso (free)
.5295
Venezuelan bolivar
.2815
Cuban peso
3/16% premium
There were no gold transactions consummated by us today.
The Federal Reserve Bank of New York reported that the Central Bank of the
Colombian Republic shipped $293,000 in gold from Colombia to the Federal for its
account, for sale to the New York Assay Office.
In London, spot and forward silver remained at 23-1/2d, equivalent to
42.67%
The Treasury' 8 purchase price for foreign silver was unchanged at 35$.
Handy and Harman's settlement price for foreign silver was also unchanged at
35-1/84.
We made no purchases of silver today.
X
Regraded Unclassified
420
COPY NO.
13
BRITISH MOST SECRET.
(U.S. SECRET).
OPTEL NO. 93.
Information received up to 0700/20).
1. NAVAL.
One of H.M. Trawlers is overdue at Iceland and must be considered lost.
2. MILITARY.
BURMA SITTANG FRONT - 16th - Enemy estimated at One Battalion
and two Batteries began attack northwards up the main road from NYAUNGLEBIN.
They were engaged by our artillery and infantry and withdrew after suffering
casualties. During the night 17th/1.ith our forward troops withdrew to new
positions.
IRRAWADDY FRONT - Enemy patrols have been reported as far North
as Sitkwin but the main enemy strength is still South of Taikkyi about 45
miles north of Rangoon.
RUSSIA.
The Russians have made some progress North-east of Kharkov and
Nyaunglebin. They are also attacking East of Orel.
3. AIR OPERATIONS.
LIBYA - 18th. Boston again bombed aircraft on Martuba landing
ground.
BURMA - An individual report states that on the 18th in a combined
R.A.F.-A.V.G. raid on Moulmein aerodrome and Satellite at least 15 onemy
aircraft were destroyed on the ground. The Japanese bombed Toungoo heavily
on 18th and 19th.
Regraded Unclassified
421
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE Merch 20, 1942
TO
Secretary Morgenthau
Mr. Kamarok
FROM
Subject: Summary of Military Reports
British Survey of European Military Situation
A. Russia
The Russians are maintaining severe pressure in many
sectors, in spite of difficult weather conditions. The
British believe this is highly satisfactory, since it 1A
occurring at e time when the Germans urgently need to
withdraw forces in preneration for the spring.
B. Balkans
There are no signs of an imminent military move
against Turkey. German strength 18 unchanged.
C. Germany
According to intelligence reports, the great destruction
caused by the R.A.F. raid on the Renault Works in Paris
hee caused severe criticism of the German High Command by
Nazi Party authorities. The military forces are attecked
for leaving the factory completely unprotected.
(U.K. Operations Report, March 5-12, 1942)
Battle of the Atlantic
About 40 U-boats are operating, mainly in the Western
Atlantic and the Caribbean. Minor concentrations are off
Freetown in Africa and north of England.
(U.K. Operations Report, March 5-12, 1942)
R.A.F.
The British used Lancaster bombers for the first time
in the second week of March. (The Lancesters are highly
secret, four-motor bombers, about which very little informe-
tion 18 available.)
(U.K. Operations Report, March 5-12, 1942)
Regraded Unclassified
422
2
VOICE OF THE CHIEF'
Denouncing the 15 percent reduction in present fnt
retions effective April 6, the Chief warns the "helbless
idiots of the German Nutrition Board" that this measure
will result in a spotted typhus epidemic raveging the
Reich.
As to the German Nutrition Board's argument that
there 18 "an alleged decrease of hogs from 25 to 15
million head, "Last summer, the idiots had not the guts
to out fet rations, although such sten would then have
harmed nobody. They 8°1d lest year that such A cut would
endanger the people's morale. Well, today something much
more serious 18 at stake than morale: our nation's health.
"Every medical expert warns that once snotted tynhus
is here, it cannot be combetted. Thue, the thing to do
is to prevent typhus. But this 18 possible only by two
things - cleanliness and sufficient food. And what do
those unbelievable stupid Party Bureaucrats do? First,
they decrease the fat contents of BOAD by 15 percent.
And now, they further deoree shortened BORD and fat
retions...."
(Foreign Broadcast Monitoring Service, Federal
Communications Commission, March 18, 1942)
Regraded Unclassified

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"ocrText": "100\nAnalysis of Exposure to Payroll Sevings Plane\nMarch 14, 1942\nNumber exposed\nTotal number\nto payroll\nin the\nPercent\nof total\nsavinga plans\ncountry\n(estimated)\nexposed\nPart A - Summary by Number of Organizations Exposed\nI. Businees organizations\n(1) Large reilroads,\n158\n167\n95\n(2) Other firms with 500 employees or more\n5,327\n7,286\n73\n(3) Other firms with 100 to 499 employees\n12,594\n26,819\n47\n(4) Subtotal - large firms\n18,079\n34,272\n53\n(5) Firma with less than 100 employees\n26,193\n#\n*\n(6) Totel business organizations\n44,272\n-\n#\nII. Governmental organizations\n#\nIII. Grand totol,\n44,272\nPart B - Summary by Number of Employees Exposed\nI, Business organizations\n(1) Large reilroads\n1,273,260\n#\n13,616,202\n*\n(2) Other firms with 500 employees or more\n(3) Other firms with 100 to 499 engloyees\n2,759,196\n+\n(4) Subtotal - large firms\n17,648,658\n+\n(5) Firms with less than 100 employees,\n670,401\n*\n(E) Total business organizations\n18,319,059\n30,400,000 1/\n60\nII, Governmental organizations\n(1) Federal Government\n797,981\n1,700,000 1/\n23\n(2) State ano local governments\n914.483\n2,700,000\n34\n(1) Total governmental organizations\n1,312,464\n4,400,000\n30\n19,631,523\n34,800,000 1/\n56\nIII. Grand total\nMarch 20, 1942\nof the Secretary of the Tressury,\nInvision of Research and Statistics.\nEYMULER enviroyee, military personnel, em loyer on WPA or NYA or CCC projects,\nfine nechare, self-ew-loyed. ceeur1 vorkere end in (lomestic service.\nis snt\nRegraded Unclassified\n101\nFirms Employing 100 to 499 Persons Perticipating in Payroll Sevings Plane\n(Ae reported by the Defense Bavings Staff's State Administratora)\nNumber of firms with Dayroll\nTotal\n:\nPercent of total having payroll\nsavings plane\nnumber\n:\nsevings plans\nState\nJan. 10\nMar. 7\nKar, 14\nof firms\n:\n:\n(eetimated)\nJen. 10\n:\nMar. 7\nMar. 14\n17\n104\n109\n285\n6\n36\n38\n15\n39\n40\nF.5\n26\n67\n69\n22\n37\n38\n142\n15\n26\n27\nJalifornia\n160\n436\n461\n489\n27\n59\n94\nSOLCARTO Celifornia\n495\n679\n686\n1,171\n42\n58\n59\nColopies\n64\n107\n108\n170\n38\n63\n64\nConnecticut\n100\n255\n259\n622\n16\n41\n42\nDelovere\no\n0\n6\n54\no\no\n7\nDistrict of Columbia\ne\n36\n37\n152\n5\n24\n24\nFlather\n48\n112\n122\n139\n35\n81\n88\nGeorgia\n56\n98\n104\n589\n10\n17\n18\nTight\n19\n26\n26\n50\n38\n52\n52\nIllinois\n48\n916\n966\n2,252\n2\n41\n43\nOF\n321\n356\n586\no\n55\n61\nlove\n97\n104\n271\n1\n36\n38\n114\n272\n275\n275\n41\n99\n100\nFectures\n75\n106\n108\n312\n24\n34\n35\no\n119\n145\n384\n0\n31\n38\nlahe\n3\n46\n50\n198\n2\n23\n25\nwryline\n32\n111\n121\n405\nMO\n27\n30\n53\n557\n561\n1,523\n3\n37\n37\n137\n585\nCod\n621\n1,022\n13\n57\n61\n181\n356\n366\n399\n45\n59\n92\n30\n51\n56\n143\n21\n36\n39\n0\n371\n392\n664\no\n56\n59\nholder's\n22\n35\n35\n39\n56\n90\n90\n6\n77\n83\n123\n5\n63\n67\nON\n14\n14\n24\n33\n58\n58\nany\n7\n68\n79\n145\n5\n47\n54\nin Lersey\n171\n300\n300\n869\n20\n35\n35\nANY Mexico\n12\n31\n32\n35\n34\n89\n91\nSev York\n505\n1,603\n1,674\n4,239\n12\n38\n39\n29\n157\n206\n499\n6\n31\n41\nCasate\n4\n8\nto\n29\n14\n28\n25\nDate\n0\n773\nses\n1,739\nD\n44\n51\n29\n145\n152\n345\n5\n42\n44\nCIPY\n21\n174\n177\n271\n8\n64\n65\n713\n1,441\n1,491\n8,032\n35\n71\n73\nMinde Belance\n46\n138\n141\n224\n22\n62\n63\n13\n61\n66\n174\n7\n35\n38\nState\n5\n16\n18\n19\n26\n84\n95\no\n79\n79\n448\no\n18\n18\nTeams\n74\n154\n233\n375\n5\n13\n17\nUser\n13\n26\n33\n111\n12\n23\n30\nVersont\n30\n51\nE1\n63\n47\n81\n81\nDirginia\n31\n164\n190\n338\n9\n49\n56\n208\n325\n22\n62\n64\n71\n200\nset Virginia\n0\n58\n64\n272\nD\n21\n24\n-1800AB1E\nn\n222\n237\n680\n0\n33\n35\n1\n14\n14\n14\n7\n100\n100\nAleten\n0\n2\n2*\n2\no\n100\n100\nBallrones\n46\n49\n49\n52\nBE\n94\n94\n3,541\n11,927\n26,871\n13\n44\n47\n12,643\nMarch 20, 1942\nOffice or the Secretary of the Treasury, Division of Research and Statistics.\n2018 the for March 7, insuruch DE no Merch 14 report WAB received.\nRegraded Unclassified\n102\nFirms Employing 500 Persons or More Perticipating in Payroll Savings Plane\n(As reported by the Defense Bavings Staff's State Administratore)\n:\nNumber of firms with payroll\nTotal\nPercent of total having payroll\nsavings plane\nnumber\nState\nenvinge plane\nJan. 10\nMar.7\nMar. 14\nof firms\n(estimated)\nJan. 10\n:\nMar, 7\nMar. 14\nAlatano\n9\n43\n45\n76\n12\n57\n59\nArtzona\n15\n19\n21\n21\n71\n90\n100\nAPPRESS\n6\n16\n16\n18\n33\n89\n89\nNorthern Celifornia\n114\n146\n151\n196\n58\n74\n77\nSouthern Colifornia\n123\n158\n160\n165\n75\n96\n97\nColorano\n22\n23\n23\n32\n69\n72\n72\nConnectiout\n97\n146\n148\n185\n52\n79\n80\nDeloware\n2\n2\n6\n28\n7\n7\n21\nDistrict of Columbia\n12\n26\n26\n52\n23\n50\n50\nFlorida\n18\n33\n33\n66\n27\n50\n50\nGeorgin.\n35\n52\n54\n143\n24\n36\n38\nIério\nEN\n9\n9\n10\n80\n90\n90\nIllinois\n277\n398\n402\n634\n44\n63\n63\nIndiana\n41\n111\n117\n180\n23\n62\n65\nZOWN\n9\n38\n38\n53\n17\n72\n72\n16\n32\n33\n33\n48\n97\n100\nKentucky\n19\n40\n40\n70\n27\n57\n57\nLouisions\n0\n31\n34\n85\n0\n36\n40\nMoine\n42\n54\n54\n54\n76\n100\n100\nMaryland\n40\n100\n102\n154\n26\n65\n66\nMasschusetts\n41\n261\n267\n370\n11\n71\n72\nMentgon\n105\n325\n327\n333\n92\n98\n98\nMinnesote\n57\n102\n102\n105\n83\n97\n97\nMississinol\n12\n15\n16\n26\n43\n54\n57\nRiseourt\n0\n147\n148\n148\n0\n99\n100\nMantena\n4\n5\n5\n80\n100\n100\n5\nSebresse\n28\n36\n36\n41\n68\n88\n88\nlievido\nNa\n5\n5\n5\n60\n100\n100\nKey Remainire\n17\n28\n30\n30\n57\n93\n100\nClow Jersey\n185\n227\n227\n238\n78\n95\n95\nlev Mexico\n5\n6\n6\n6\n83\n100\n100\nSev York\n435\n807\n620\n1,350\n32\n60\n61\n&orth Caroline\n49\n104\n108\n168\n29\n62\n64\nNorth Dexote\n0\n1\n1\n1\no\n100\n100\nOhto\n285\n470\n438\n557\n51\n84\n88\nCalanone\n22\n38\n40\n62\n35\n61\n65\nSpegon\n51\n69\n69\n69\n74\n100\n100\nFennaylvania\n336\n532\n541\n625\n54\n85\n87\nRhole Island\n58\n77\n23\n90\n64\n61\n81\nSouth Cerolina\n96\n28\n69\n71\n27\n66\n68\nSouth Decote\n4\n4\n4\n75\n100\n100\nTennesses\n11\n22\n22\n106\n4\n21\n21\nTexas\n36\n58\n58\n167\n19\n31\n31\nUten\n8\n10\n10\n14\n57\n71\n71\nVermont\n10\n12\n12\n13\n77\n92\n92\nVirginia\n41\n87\n89\n95\n43\n92\n94\nwhebington\n58\n74\n59\n74\n78\n44\n55\nWest Virginia\n2\n41\n41\n67\n3\n61\n61\nSleconsin\n84\n137\n140\n140\n60\n98\n100\nWyoning\no\n1\n1.\n1\no\n100\n100\nAlassa\no\n3\n3\n3\no\n100\n100\nMallronds\n98\n109\n109\n115\n85\n95\n95\nTotal\n3,185\n5,436\n7,401\n43\n72\n73\n5,333\nMarch 20, 1942\nCffice of the Secretary of the Treasury, Division of Research end Statistics.\nUnto spo for Herch 7. inseauch DE no March I4 report WEE received.\nRegraded Unclassified\nCONFIDENTIAL\nDaily changes in the stock of Series E savings bonds on hand\n(In thousands of pieces)\n:\nNumber of : Number of pieces\nStock on hand\nIBM\n: pieces sold :\nmanufactured\nat close of\ndeliveries\n:\nthis day\n:\nthis day\nday\nthis day\nMar. 9\n344\n500\n25,786\n-\n10\n123\n500\n26,163\n-\n11\n192\n300\n26,271\n-\n12\n157\n300\n26,414\n800\n13\n193\n300\n26,521\n-\n14\n137\nnone-closed\n26,384\n-\n15\nnone-closed\nnone-closed\n26,384\nI\n16\n271\n300\n26,413\nI\n17\n144\n300\n26,569\nI\n18\n148\n300\n26,721\n650\nOffice of the Secretary of the Treasury,\nMarch 19, 1942\nDivision of Research and Statistics.\n1/ Includes stock in hands of (1) Federal Reserve Banks and branches, (2) Post\noffices, (3) Federal Reserve Bank issuing agents, and (4) Treasury vaults\nin Washington.\nRegraded Unclassit\n104\nUNITED STATES SAVINGS BONDS\nComparative Statement of Sales During\nFirst Fifteen Business Days of March, February and January 1942\n(March 1-18, February 1-18, January 1-17)\nOn Basis of Issue Price\n(Amounts in thousands of dollars)\n:\n:\nAmount of Increase\n: Percentage of Increase\nSales\n:\n:\nor Decrease (-)\n:\nor Decrease (-)\nItem\n:\n:\n:\n:\nMarch\n:\nFebruary\n: March\n:\nFebruary\n: March\n: February\n:\nJanuary\n:\nover\n=\nover\n:\nover\n:\nover\n:\n:\n:\n:\nFebruary\n:\nJanuary\n:\nFebruary\n:\nJanuary\nSeries 1- - Post Offices\n$ 52,783\n$ 60,245\n$ 93,828\n-$ 7,462\n-$\n33,583\n- 12.4%\n- 35.8%\nSeries I - Banks\n152,247\n225,241\n258,108\n- 72,994\n- 32,867\n- 32.4\n- 12.7\nSeries 1. - Total\n205,030\n285,486\n351,936\n- 80,456\n- 66,450\n- 28.2\n- 18.9\nSeries F - Banks\n25,126\n35,164\n38,409\n- 10,038\n- 3,245\n- 28.5\n- 8.4\nSeries G - Banke\n114,964\n178,238\n155,101\n- 63,274\n23,137\n- 35.5\n14.9\nTotal\n$345,120\n$498,887\n$545,446\n$153,767\n$ 46,559\n- 30.8%\n- 8.5%\nOffice of the Secretary of the Treasury, Division of Research and Statistics.\nMarch 19, 1942.\nSource: All figures are deposits with the Treasurer of the United States on account of proceeds\nof sales of United States savings bonds.\nNote: Figures have been rounded to nearest thousand and will not necessarily add to totals.\nRegraded Unclassifie\n105\nUNITED STATES SAVINGS BONDS\nDaily Sales - March, 1942\nOn Basis of Issue Price\n(In thousands of dollars)\nPost Office\nBank Bond Sales\nAll Bond Sales\nBond Sales\nDate\nSeries I\nSeries E\nSeries I\nSeries G\nTotal\nSeries X\nSeries ,\nSeries G\nTotal\nMarch 1942\n2\n$ 5,811\n$ 15,868\n$ 2,043\n$ 8,726\n$ 26,636\n$ 21,678\n$ 2,043\n$ 8,726\n$ 32,447\n3\n2,975\n8,459\n1,629\n8,780\n15,568\n11,434\n1,629\n8,780\n21,843\n4\n3.395\n8,833\n2,658\n12,558\n24,048\n12,228\n2,658\n12,558\n27,443\n5\n3,869\n10,448\n1,680\n11,870\n23,998\n14,317\n1,680\n11,870\n27,867\n6\n4,179\n10,696\n1,759\n10,825\n23,279\n14,875\n1,759\n10,825\n27.458\n7\n3,480\n11,586\n1,586\n6,328\n19,499\n15,066\n1,586\n6,328\n22,979\n9\n4,967\n18,636\n3.944\n8,488\n31,068\n23,604\n3,944\n8,485\n36,035\n10\n2,804\n5,719\n1,365\n4,162\n11,246\n8,523\n1,365\n4,162\n14,050\n11\n3,156\n10,002\n1,533\n7,287\n18,823\n13,158\n1,533\n7,287\n21,979\n12\n2,686\n8,114\n1,133\n5,504\n14,750\n10,800\n1,133\n5,504\n17,436\n13\n2,682\n10.594\n1,065\n5,007\n16,666\n13,276\n1,065\n5,007\n19,348\n14\n2.797\n6,616\n1,102\n4,745\n12,463\n9,413\n1,102\n4.745\n15,260\n16\n4,454\n13,193\n1,415\n8,693\n23,301\n17,658\n1,415\n8,693\n27,766\n17\n2,967\n6,384\n1,105\n2,561\n9,961\n9,351\n1,015\n2,561\n12,927\n15\n2,552\n7.097\n1,201\n9,433\n17,731\n9,650\n1,201\n9,433\n20,283\nTotal\n$ 52.783\n$152,247\n$ 25,126\n$114,964\n$292,337\n$205,030\n$ 25,126\n$114,964\n$345,120\nOffice of the Secretary of the Treasury, Division of Research and Statistics.\nMarch 19, 1942\nSource: All figures are deposits with the Treasurer of the United States on account of proceeds of\nsales of United States savings bands.\nNote: Figures have been rounded to nearest thousand and will not necessarily add to totals.\nRegraded assified\nCONFIDENTIAL\nUNITED STATES SAVINGS BONDS - DEFENSE SERIES 2\n106\nNumber of Units and Percent of Dollar Volume\nby Demominations and by Months\nMay 1941 - January 1942\nDenomination\n:\n:\n$25\n$100\n:\n$500\n$1,000\n$5,000\n$10,000\nTotal\nIssue Price\nMonth\n(in millions)\nNumber of Units (in thousands)\n1941-May\n-\n6.2\n3.4\n12.0\n2.5\n4.4\n28.5\n$ 52.8\nJune\n-\n5.6\n2.4\n7.2\n1.2\n1.5\n17.9\n22.5\nJuly\n-\n8.4\n3.6\n10.0\n1.5\n1.6\n25.2\n27.2\nAug.\n-\n7.1\n2.9\n7.0\n1.1\n1.0\n19.1\n18.2\nSept.\n-\n8.0\n2.9\n7.5\n1.1\n1.1\n20.5\n19.4\nOct.\n-\n9.9\n3.4\n9.0\n1.4\n1.1\n24.9\n22.3\nNov.\n-\n9.0\n3.0\n7.6\n1.0\nis\n21.6\n18.2\nDec.\n-\n25.0\n7.4\n18.2\n2.8\n2.7\n56.1\n48.8\n1942-Jan.\n6.5\n40.3\n10.7\n22.1\n3.2\n4.0\n57.0\n64.9\nTotal\n6.8\n119.3\n39.7\n100.7\n16.0\n18.5\n301.0\nIssue Price\n(in millions)\n0.1\n$ 8.8\n$ 14.7\n* 74.5\n$ 59.1\n$136.9\n$294.2\nAdjustment to deposite\n- 9.0\nDeposits with the Treasurer\nof the United States\n1285.2\nPercent of Dollar Volume\n1941-May\n-\n0.9%\n2.3%\n16.8%\n17.6%\n62.46\n100.0%\nJune\n-\n1.8\n4.0\n23.8\n19.6\n50.8\n100.0\nJuly\n-\n2.3\n4.9\n27.3\n21.0\n44.5\n100.0\nAng.\n-\n2.9\n5.9\n28.6\n22.7\n39.9\n100.0\nSept.\n-\n3.0\n5.5\n28.6\n21.4\n41.5\n100.0\nOct.\n-\n3.2\n5-7\n30.0\n23.7\n37.4\n100.0\nNov.\n-\n3.6\n6.2\n31.0\n21.2\n38.0\n100.0\nDec.\n-\n3.8\n5.6\n27.7\n21.2\n41.7\n100.0\n1942-Jan.\n0.2%\n4.6\n6.1\n25.2\n18.3\n45.6\n100.0\nTotal\n0.1%\n3.0%\n5.0%\n25.3%\n20.1%\n46.5%\n100.0%\nOffice of the Secretary of the Treasury,\nMarch 19, 1942.\nDivision of Research and Statistics.\nSource: Tabulations by the Division of Loans and Currency from an audit of original\nstubs.\nNote: All figures have been rounded and will not necessarily add to totals. Amounts\ndo not agree with released sales figures which are on the basis of deposits\nwith the Treasurer of the United States.\nIncomplete. Deposits were $77.6 millions.\nRegraded Unclassified\nCONFIDENTIAL\nUNITED STATES SAVINGS BONDS - DEFENSE SERIES 0\n107\nNumber of Units and Percent of Dollar Volume\nby Denominations and by Months\nMay 1941 - January 1942\n2\nDenomination\n:\n:\n1\n#\nI\n$1.00\n$500\n$1,000\n:\n:\n:\n$5,000\n:\n$10,000\nTotal\n:\nIssue Price\nMonth\n:\n:\n(in millions)\nNumber of Units (in thousands)\n:\n:\n2941-May\n32.3\n15.0\n57-5\n10.8\n18.9\n134.5\n$ 311.5\nJune\n20.3\n9.4\n33.4\n5.4\n7.4\n76.0\n141.1\nJuly\n25.2\n13.5\n43.9\n6.8\n7.5\n97.0\n162.9\nAugust\n20.1\n9.7\n31.3\n4.9\n5.5\n71.5\n117.9\nSeptember\n19.5\n8.6\n29.3\n4.6\n5.2\n67.2\n111.0\nOctober\n23.3\n10.7\n34.0\n5.2\n5.8\n78.9\n125.2\nNovember\n20.8\n9.3\n29.3\n4.4\n4.7\n68.4\n104.6\nDecember\n55.0\n24.4\n60.6\n8.1\n5.0\n156.1\n198.7\n1942-January\n65.8\n32.2\n71.9\n9-3\n13.3\n192.4\n273.8\nTotal\n282.3\n132.8\n391.1\n59-5\n76.3\n942.1\nIssue Price\n(in millions)\n$ 28.2\n$ 66.4\n$391.1\n$297.7\n$763.2\n$1,546.7\nAdjustment to deposits\n- 46.3\nDeposits with the Treasurer\nof the United States\n$1,500.4\nPercent of Dollar Volume\n1941-May\n1.0%\n2.4%\n18.5%\n17.4%\n60.7%\n100.0%\nJune\n1,4\n3-3\n23.7\n19.2\n52.4\n100.0\nJuly\n1.6\n4.1\n27.0\n21.0\n46.3\n100.0\nAugust\n1.7\n4.1\n26.5\n21.0\n46.7\n100.0\nSeptember\n1.7\n3.9\n26.4\n20.9\n47.1\n100.0\nOctober\n1.9\n4.3\n27.1\n20.6\n46.1\n100.0\nNovember\n2.0\n4.5\n28.0\n20.8\n44.7\n100.0\nDecember\n2.8\n6.1\n30.5\n20.4\n40.2\n100.0\n1942-January\n2.4\n5.9\n26.3\n16.9\n48.5\n100.0\nTotal\n1.8%\n4.3%\n25.3%\n19.3%\n49.3%\n100.0%\nOffice of the Secretary of the Treasury,\nMarch 19, 1942\nDivision of Research and Statistics.\nSource: Tabulations by the Division of Loans and Currency from an sudit of original\nstube.\nNote: All figures have been rounded and will not necessarily add to totals. Amounts\ndo not agree with released sales figures which are on the basis of deposits\nwith the Treasurer of the United States.\nIncomplete. Deposits were $315.6 millions.\nRegraded Unclassified\n108\nMarch 19, 1942\n4:07 p.m.\nHMJr:\nHello.\nOperator:\nMr. Paul.\nHMJr:\nHello.\nRandolph\nPaul:\nHello.\nHMJr:\nRandolph. Hello.\nP:\nYeah.\nHMJr:\nCooper says he'll take it on, but he wasn't\nvery enthusiastic; but he'll take it on.\nP:\nThen I'm to call him.\nHMJr:\nYeah, when you get back.\nP:\nYeah.\nHMJr:\nHe said he'll see you either Friday or Saturday.\nP:\nAll right.\nHMJr:\nOkay.\nP:\nYeah. Tell me - can you tell me just B. little\nmore or can't you talk now?\nHMJr:\nWhat?\nP:\nAbout this thing you talked about this morning.\nI'm going to see Ernet later today.\nHMJr:.\nNo, I gave you all that I knew.\nP:\nYeah.\nHMJr:\nI - they gave it to me in fifteen seconds.\nP:\nYeah.\nHMJr:\nI gave you all that I knew.\nRegraded Unclassified\n109\n- 3 -\nP:\nAll right. I'll see what I can find out.\nabout it, I don't know.\nI think there might be some misunderstanding\nHMJr:\nOkay.\nP:\nWell, I'll see what I can find out and report\nto you in the morning.\nHMJr:\nThank you.\nP:\nOkay.\nRegraded Unclassified\n110\nTHE UNDER SECRETARY OF THE TREASURY\nWASHINGTON\nMarch 19, 1942\nTO THE SECRETARY:\nIn reply to your memorandum of March 18th\nregarding the Chinese loan, revised Article II as\nsubmitted by the State Department was handed to\nDr. Soong in New York on Friday, March 13, by Mr. Fox.\nDr. Soong cabled this revised draft to Chungking on\nSaturday and asked for an immediate reply.\nI talked with Soong late Tuosday evening\nregarding the matter and he seid he had not yet received\nan answer but that he had sent a wire off that day,\nasking for immediate reply as he wanted to close the\nagreement this week,\n......\nDr. Soong just telephoned me that he hes received\net reply to his cable and he is bringing it in this morning\nto discuss with me.\nDWB\nPORDEFENSE\nBUY\nUNITED\nSTATES\nSAVINGS\nBONDS\nRegraded Unclassified\nARTICLE II.\nAs a manifestation of the cooperative spirit which underlies\nthe common war effort of China and the United States, appropriate\nofficials of the two Governments will confer from time to time\nregarding technical problems which may arise in connection with\nthe financial aid herein provided and will exchange information\nand suggestions regarding ways and means of most effectively\napplying these funds toward achieving the purposes which are\nenvisaged by the two nations.\nRegraded Unclassified\nMINISTER FOR FOREIGN AFFAIRS\nREPUBLIC OF CHINA\nMarch 19, 1942\nCONFIDENTIAL\nDear Mr. Bell:\nConfirming our conversation, I have to inform you\nthat I have received a reply from the Generalissimo with reference\nto your proposal to re-insert Article II of the proposed loan\nagreement in a modified form.\nThe Generalissimo states that after carefully\nconsulting his colleagues he feels that even in the modified\nform Article II is generally construed as limiting the freedom\nof action in the use of the proceeds, and would therefore adversely\naffect the public response to bonds, savings deposits and other\nmeasures that are to be based on the loan.\nIn addition, among his soldiers, who have been\ntremendously heartened by the generous and unconditional assistance\nas revealed in the exchange of messages between the President and\nhimself, the inclusion of Article II would create the impression\nthat the terms are not as clear-cut as they envisaged.\nThe Generalissimo therefore feels that the civilian\nand military reactions are such B.S to justify his request that\nArticle II be dropped completely, and I shall be grateful if you\nwill transmit his message to your colleagues for their consideration.\nWith kind regards,\nYours sincerely,\nT. V. Soong\nGuate\nD. W.D. W. Bell, Under Secretary of the Treasury\nTreasury Department\nshington, D. C.\n(=)\nRegraded Unclassified\n113\nMarch 19, 1942\nMEMORANDUM FOR THE SECRETARY'S FILES\nMeeting in Mr. Bell's office\nMarch 19, 1942\n2:30 p.m.\nPresent:\nFor Treasury: Mr. D. W. Bell\nMr. White\nDr. Viner\nMr. B. Bernstein\nMr. Southard\nMr. Friedman\nFor State:\nMr. Hornbeck\nMr. Hamilton\nMr. Livesey\nMr. Luthringer\nMeeting was called to discuss reply received from Dr. Soong regarding\nthe alternative of Article II.\nMr. Bell said that the Secretary wanted to sign the Agreement as\nsoon as possible and was prepared to do 80 unless the State Department\nfelt strongly about the matter.\nThe State Department's position was given by Mr. Hornbeck, who said\nthat the matter had now become a diplomatic issue. Mr. Hornbeck said\nthat the State Department representatives had just come from & meeting\nwith Mr. Welles and that he was talking under instructions. If the\nChinese position was accepted, Mr. Hornbeck said it would mean trouble\nin the future between the Governments of China and the United States.\nHe was under instructions to propose an exchange of letters which would\nbe supplementary to the agreement and which would achieve basically the\naims of the proposed Article II. He said that to accept the Chinese\nposition would be establishing a precedent of China's laying down terms\nto us and that the United States could not let China get away with this.\nRegraded Unclassified\n114\n- 2 -\nQuestion was raised as to whether Dr. Soong's letter of March 3 could\nbe considered a commitment to consult or exchange information. Mr. Hornbeck\nreplied that it only committed Dr. Soong, or at the most, the Generalissimo.\nA Treasury representative pointed out that there has been some change\nin the military situation since the negotiations first began. Mr. Hornbeck\nthen quoted from dispatches from Ambassador Omusa commenting OG each as to\nhow they indicated that the Chinese have been taking an increasingly firmer\nattitude.\nMr. Hornbeck went on to say that we were in our present position\nbecause we had shown weakness in the past. The Chinese were led to believe\nthat if they stood firm we would retreat from our position. A Treasury\nrepresentative said that the Secretary had definitively given Dr. Soong\nthe impression before Congress acted that we were concerned about the uses\nof the financial aid and pointed out that the Secretary had even considered\ndoling out the money for specified purposes.\nDr. Viner expressed his complete opposition to the State Department's\nview. Mr. Hornbeck said that he had not mentioned Tressury when he spoke\nof weakness being shown. A Treasury official said that he was glad that\nMr. Hornbeck had clarified this point and went on to stress the fact that\nat every step the negotiations had been cleared with the State Department.\nThe President's message to the Generalissimo and the Generalissimo's\nreply accepting the loan without conditions were discussed and read.\nTreasury officials said the President's message set the desired tone of\nthe negotiations. When State Department officials were asked who had\ndrafted the President's message they replied that 10 was hastily drafted\nby the State Department.\nThe period before Congressional approval of the financial aid was\nreviewed by Dr. Viner, who pointed out that every one had been surprised\nby the generous spirit shown by Congress and the 8888 with which the\nsuggested aid went through.\nThe possibility of an exchange of letters was then discussed. A\nTreasury official pointed out that the State Department was aiming at\nan exchange of letters which would become part of the Agreement and while\nhe was saying this Mr. Hamilton of the State Department nodded his head\nin Agreement. Mr. Hornbeck made it clear that he was thinking of an\nexchange of letters which would practically do what it had been hoped\nRegraded Unclassified\n115\n- 3 -\nArticle II would socomplish. Mr. Hornbeck said that it was unfortunate\nthat either Soong or Kung was probably advising the Generalissimo since\nthe Generalissimo would not have taken the position that be had taken by\nhimself. The point was then made that it was to be expected that the\nOeneralissimo would be advised by his Finance and Foreign Ministers.\nMr. Hornbeck then went on to give & review of the political situation.\nHe said that: In 1937, the Chinese went to war with Japan, or Japan went\nto war with China, and the Chinese chose to resist the Japanese. It was\na war of their own choice. The Chinese were not fighting for civilization,\nbut for themselves and the United States had steadily supported China,\nNot until 1939, when we told them so, did the Chinese begin to eay that\nthey were fighting for civilization. Although WE had common enemies our\nwars were different. We happened to be on the same side, fighting against\nthe same enemy. China was trying to make out that we owed her something.\nWe do not owe her anything. Im December they had asked for a loan, and\nthe money had been voted as such, and not for & gift. In only three and\none-half months they had changed their position BO markedly.\nAt this point a Treasury official asked \"where do we go from here?\"\nAnother Treasury official said that it was up to the State Department\nhow far we could go with the Chinese Government. Mr. Hornbeck said that\nthis was not a question of relations between departments but of relations\nbetween two Governments, the United States and China. A Treasury official\ncommented that he had always believed the State Department considered\nforeign policy its exclusive responsibility. Another Treasury representative\nasked the State Department to draft the letters suggested. Mr. Hornbeck\nthen said that the Chinese, by talding their position, were denying that THE\nhad an interest in the use of the funds. Dr. Viner responded that we were\ntelling the Chinese Government by our insisting on the contents of Article II\nthat they were a second-rate Government, and that we could not trust them\nwith the intelligent use of the funds. Mr. Bell expressed the view that it\nwas an issue that the President would have to decide.\nThe question of the delay in making the agreement was discussed, the\npoint being made by Mr. Hornbeck that the delay was caused by the Chinese,\nwhile Treasury representatives took the position that, whoever the cause,\ncontinued delay was bound to have an 111 effect in Chungleing.\nMr. Hornbeck said that whatever was done must be done in such &\nmanner that could be referred to in the future by both the United States\nand China, and that, if there was nothing specific to refer to, 1t was\nnot worth doing.\nRegraded Unclassified\n116\n- 4 -\nTreasury officials pointed out that Foreign Funds Control could be\nused in the case of extraordinary changes in the China picture in the\nfuture, and the question was asked what could be drafted that would really\ngive us anything more. The point was then made by Treasury officials that\nour position had become steadily weaker as we had tried to get a consultative\narticle accepted by the Chinese, and that we had been in a much stronger\nposition with respect to control over the use of the funds before the last\nexchange of letters.\nw\nMr. Hornbeck suggested that Mr. Hamilton and Dr. Viner draft a letter\nalong the lines outlined by Dr. Viner.\nThe possibility of bringing the matter before the Cabinet was discussed.\nThe necessity of discussing the problem first with the Secretary was made\nclear and Mr. Bell said that the Secretary might want to take the matter\nup with the Cabinet tomorrow and Mr. Welles should be prepared for such an\neventuality.\nIt was agreed that Mr. Hamilton and Dr. Viner should draft possible\nletters which could be given to the Secretary and which might be taken up\nto the President.\nI. S. Friedman\nRegraded Unclassified\n117\nMarch 19, 1942\nHarry White\nSecretary Morgenthau\nPlease talk to me about this.\ncopy of incoming also\nsent to Bell-\nWhite spoke\nto High 3/21/42-\nRegraded Unclassified\nB118\nTHE WHITE HOUSE\nWASHINGTON\nL.mg\nMarch 19, 1942\nTO THE SECRETARY OF THE TREASURY:\nFOR HIS INFORMATION.\n119\nTHE WHITE HOUSE\n0\n?\nWashington\nI\nMarch 19, 1948\nBy dear Mr. Administrator:\nI have your memorandum of March 10 wherein you refer to Ve\nrequest of the Chairman of the Senate Committee on Education mad.\nLabor that you appear before that Committee to testify on S.2295,\n\"A Bill, To provide for the termination of the National Youth\nAdministration and the Civilian Conservation Corps.\"\nYou state that it would be desirable to have ky views regard-\ning this proposed legislation to place before the Committee. In\nthis connection, I wish to call your attention to our conversations\non other proposed legislation affecting the youth agencies. My\nopinion as expressed in those conversations has not changed.\nI real that the youth agencies have a definite place in the\nall-out var affort. The 1945 program of the National Youth Adminis-\ntration to train approximately 600,000 youth for war industries and\nfor other essential work will be a definite and necessary contri-\nbution to our expending labor requirements. The Civilian Conservation\nCorps work en Army reservations is needed to prepare those reservations\nfor full utilisation. Idbords, the remaining projects of the Corps\nwhich are now limited to those posential to the various phases of our\nwar effort and DO located as to provide protective services in vital\nareas should not be discontinued at this time,\nIt is unfortunate that it 18 not generally known that the\nemployment of these youth in ⑉⑉ cases releases soldiers for active\nduty and in others involves tasks which would require the employment\nof adult civilians. I alm feel that it should be made clear to all\nour citisens that by far the greater number of those on the rells are\nof pre-military age and that the training which they receive is pre-\nparing the for such service as they my be called upon to perform\nthe they become of military age.\nIn view of the above, I emnot agree with those who take the\nposition that these agencies should be terminated and, accordingly,\nyou are advised that 8,2295 does not mest with by approval.\nVery sincerely yours,\n/s/ FRANKLIN D. ROOSEVELT\nHonorable Administrator, Pml V. MoNutt,\nFederal Security Agency,\nWashington, D. C.\nRegraded Unclassified\n120\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE March 19, 1942\nTO\nSecretary Morgenthau\nFROM\nMr. Kuhn\nHere are articles from the labor press about the\ntax program. You will notice that the New Masses has\ncome out in our favor, which means that the Communist\nparty line in this country will be on our side! This\nshould put 8. stop to critical articles such as the\nUnited Electrical Workers have published.\nMost of the labor papers have been waiting with\ntheir comments until the tax committees of the C.I.O.\nand the A.F. of L. have taken their stand. The resolu-\ntions of the two tax committees are included with this\nbatch of comments. You will see that the A.F. of L.\nopposes us on taxing outstanding State and municipal bonds.\n7.R.\nRegraded Unclassified\n121\nMEMORANDUM\nMarch 19, 1942.\nTO:\nThe Secretary\nFLS\nFROM:\nMr. Sullivan\nRE:\nAssignment of Public Finance man to\nGovernor Tugwell, Puerto Rico.\nMr. Eugene Bland of the National Resources\nPlanning Board and I have discussed this problem. He\nis apparently the contact man for Governor Tugwell.\nUpon Dr. Flough's recommendation I offered\nto Bland the services of Russell Hinckley, who is\nnow an employee of Dr. Groves at a salary of $5,600.\nI explained that this would have to be on a reim-\nbursable basis. He said he did not know whether\nCovernor Tugwell expected to reimburse us for the\nservices of this man, but that he would report to\nthe Governor that we are making such an offer and\nwould advise us of his reply.\nI explained to Mr. Bland that because of\nthe war and the heavy load of the tax program, and\nfurther, because of the reduction the Appropriations\nCommittee made in our appropriation for the particu-\nlar project on which Fr. Hinckley is employed, we do\nnot feel that it will be possible for us to lend his\nservices without reimbursement.\nRegraded Unclassified\n122\nBRITISH AIR COMMISSION\n1785 MASSACHUSETTS AVENUE\nWASHINGTON, D. C.\nTELEPHONE HOBART 9000\nPLEASE QUOTE\nREFERENCE NO.\nWith the compliments of British Air Commission\nwho enclose Statement No. 25 - Aircraft Despatched\n- for week ended Marchl7, 1942.\nThe Hon. Henry Morgenthau, Jr.\nSecretary of the Treasury\nWashington, D. C.\nMarch 19, 1942.\nRegraded Unclassified\nSTATEMENT NO. 25\nMOST SECRET\n123\nAIRCRAFT DESPATCHED FROM THE\nUNITED STATES DURING WEEK\nENDED MARCH 17, 1942\nFLIGHT DELIVERED\nDESTINATION\nASSEMBLY POINT\nBY SEA\nBY AIR\nFOR USE IN CAN.\nTPE\n11\nU.K.\nU.K.\n58\nrecobra\n117\nU.K.\nU.K.\n1\n17E\nSM\nCanada\n66\nI 50\nCanada\nSOLIDATED\nU.K.\nU.K.\n2\n\"4D\n1\nLiberator II\nCLAS\nrensport (used)\nMiddle East\nPort Sudan\n10\nTISS\ntyhawk IA\nAustralia\nMelbourne\n18\n,\nU.K.\nU.K.\n2\n,\nMiddle East\nPort Sudan\n6\n20\nU.K.\n1\nU.K.\nison III\nAustralia\nMelbourne\n23\n125\nRudson AC 5\nCanada\nCanada\nU.K.\nU.K.\n37\nBudson AC 151\nLodester AC 53\nMiddle East\nPort Sudan\n5\nTransport (used)\nMiddle East\nPort Sudan\n21\nU.K.\nCanada en route\n1\nsture Bomber\nNH MARTIN\ntimore\nMiddle East\nPort Sudan\n10\nRCHILD\n9\nU.K.\nU.K.\n8\nTH AMERICAN\nstang\nU.K.\nU.K.\n10\nAARMAN\n1\n27\nCanada\nCanada\n78\n193\nTOTALS\n135\n*\nThese represent cumalative totals of freight delivered\nLend Lease figures Aircraft which have not previously been incorporated.\nFuture lists will show weekly deliveries in the normal manner.\nBritish Air Commission\nMarch 19th, 1942.\nRegraded Unclassified\n124\nC\n0\nP\nY\nDEPARTMENT OF STATE\nWASHINGTON\nMarch 19, 1942\nIn reply refer to If\n840.51 Frozen Credits/5571\nThe Secretary of State presente his compliments to the\nHonorable the Secretary of the Treasury and transmits here-\nwith a copy of the paraphrase of telegram no. 1487, dated\nOctober 14, 1941, from the American Embassy at Rio, concern-\ning the refusal of the Argentine Central Bank to pay to a\nthird party an amount of $1,200,000, the purchase price of\nthe S.S. Olovsborga received by Finland from Lloyd Brasileiro.\nThere is also enclosed a copy of telegram no. 670 dated\nMarch 3, 1942, from the American Embassy at Rio, concerning\nan inquiry received from Herman Hollander, New York City, by\nthe Bank of Brazil, as to whether or not the 19,000 contos\nresulting from the sale of the above-mentioned ship can be\nused for the payment of certain commodities for shipment to\nthe United States.\nEnclosures:\n1. Copy of paraphrase of telegram\nno. 1487, October 14, 1941.\n2. Copy of telegram no. 670,\nMarch 3, 1942.\nRegraded Unclassified\n125\nPARAPHRASED TELEGRAM\nFROM: Rio de Janeiro\nDATE: October 14, 1941\nNO.: 1487\nInformation from a reliable source has come to the\nEmbassy that the Finnish freighter Olovsborga, presently\nat Montevideo, has been bought by the Lloyd Brasileiro\nfor $1,200,000. The vessel will be paid for in dollars,\nmilreis, and Argentine pesos. The Finnish Minister at\nRio de Janeiro suggested that payment be made to a third\nparty but the Argentine Central Bank refused and delivery\nis held up pending settlement of this point.\nCOPY:FF:BM\nRegraded Unclassified\n126\nELP\nRio\nThis telegram must be\nparaphrased before being\nDated March 3, 1942\ncommunicated to anyone\nother than a Governmental\nRec'd 10:55 p.m.\nagency. (BR)\nSecretary of State,\nWashington.\n670, March 3, 6 p.m.\nBank of Brazil has received a telegram from Herman\nHollander, New York City, inquiring whether the 19,000\ncontos resulting from the sale of the Finnish ship\nOlovsborg to the Lloyd Brasileiro (my telegram 1487,\nOctober 14, 1941, 3 p.m.) can be used for payment of\nhides, skins, diamonds, cotton, for shipment to the United\nStates.\nThe funds are on deposit in the Bank of Brazil in the\nname of the Finnish Legation here. The Bank of Brazil will\ninform Hollander that he must obtain a license from the\nUnited States Government. The bank is not interested in\naccepting the proposal.\nInform Treasury.\nCaffery\nKLP\nCopy:vw:3-20-42\nRegraded Unclassified\n127\nMarch 19, 1942.\nMr. Livesey\nMr. Districh\nWill you please send the attached cable to the American Embasay,\nChungking, China:\n\"To Adler from Fex.\"\nRegraded Unclassified\n128\n20 CHUNGLING, CHINA\nyou NOI\nREFERENCE TO 27-21 DATED MARGH 14, 1942.\nAMERICANT TO GENERAL LICENSE hg ISSUED 23, 1942,\nUNBLOGES ACCOUNTS OF CHINESE NATIONALS RESIDING IS THE UNITED\nSTATES or FEBRUARY 23. 1942. PROVIDED THE ACCOUNTS or suaz\nNATIONALS VERB NOT BLOCKED FOR ANY HEASON OTHER THAN DOMICILE.\nRESIDENCE, OR CITIZENSHIP IN & BLOCKED COUNTRY SINON THE EXVEROTIVE\nDATE OF THE ORDER. THE PERSONAL ACCOUNTS OF OFFICIALS THO\nRESIDED IN THE UNITED STATES OF FEBRUARY 23, 1942, ARE NOV UNRLAGENE\nUNDER GENERAL LIGHTSH 42. THE OFFICIAL ACCOUNTS OF SUGH CHINRAH\nOFFICIALS HAVING IIII WERLS CHED UNDER GENERAL LICHNSE 60.\nTHERE IS X REQUIREMENT AS TO DATE VERY NUMBER have\nREGUE. ORINESH WEO TAKE UP THEIR ERSIDENCE IN TEE UNITED\nSTATES AFTER FEBRUARY 23, 1942, MAY MAKE SPECIAL TO\nHAVE THEIR ACCOUNTS UNELOCKED.\nFOR YOUR INFORMATION, GENERAL LICENSE hg ENQUIRES TX3 ELOCKING\n03 ACCOUNTS OF ANY PERSONS VIID ENTER 1 BLOCKED COUNTRY APPER\nFABRIIARY 23, 1942.\nIDP/573 - 3/19/42\nConv:vw:3-19-42\nRegraded Unclassified\n129\nTELEGRAM SENT\nNMC\nMarch 19, 1942\nThis telegram must bE\nperaphrased before being\n6 p.m.\ncommunicated to anyone\nother then E. Governmental\nrgency. (BR)\nMEMBASSY,\nCHUNGKING (CHINA) VIA N.R.\n191\nTo Adler from Fox.\nQUOTE. Your TF-21, March 14.\nAmendment to General License 42 issued Fabruary\n23, 1942, unblocks accounts of Chinese nationals\nresiding in the United States of Februrry 23, 1942,\nprovided the recounts of such Chinese nationals\nwere not blocked for any reason other then domicile,\nresidence, or citizenship in c blocked country since\nthe Effective date of the order. The personal accounts\nof Chinest officials who resided in the United Strtes\non February 23, 1942, are now unblocked under General\nLicense 42, the officirl accounts of such Chinese\nofficials having been unblocked under General\nLicense 60,\nThere is no requirement ES to date when residence\nmust have begun. Chinese nationals who take up their\nresidence in\nRegraded Unclassified\n130\n-2- #191, March 19, 6 p.m., to Chungking\nresidence in the United States after February\n23, 1942, may make special applications to have\ntheir accounts unblocked.\nFor your information General License 42\nrequires the blocking of accounts of any persons\nwho Enter f. blocked country ofter February 23, 1942.\nEND QUOTE.\nWELLES\nACTING\n(FL)\nFD:FL:BMcB\nRegraded Unclassified\n131\nDM\nCiuded Trujillo\nThis telegrom must bE\nperaphrosed before being\nDated Morch 19,1942\ncommunicated to anyone\nother than ( Governmental\nRec'd 7:12 pam.\nagency. (BR)\nSecretary of State,\nWashington.\n96, March 19, 5 p.m.\nLocal Axis personnel departed today for\nNEW York on stermship NY/.SS/. bearing srfe conduct\nof this mission in respect of their persons and\nbaggage. The following individuals WEIE embarked:\nMario Porte, Itelien Minister; Ethel Portn, wife\nof Itelian Minister; Alberto Villa, Employee of\nItalian Legation; Lidia Villa, wife of Alberto\nVilla; Prole Maria Ville, doughter of Alberto\nVilla; Hans Felix Rohracke, German Minister;\nUrsuln Rohrecke, wife of German Minister; Hermann\nBarkhausen, German Consul; Nelly Borkhausen, wife\nof German Consul; Jonchim Barkhausen, son of\nGarmen Consul; ..ugust Lehnert, Consular secretary\nat German Legrtion; Krrl Wilke, servent of Germen\nLegation; Kerl Hertel, under the protection of\nGerman Legotion.\nThe following sums cre being taken from the\nDominican Republic by the persons indicated under\nthe authorization of the Foreign Office: German\nMinister\nRegraded Unclassified\n132\n-2- #96; March 19, 5 p.m.from Ciudad Trujillo\nMinister $2500; Lehnert $800 to $1000; Barkhausen\n$1500; Hertel $250, Italian Minister $5000;\nVilla $1500.\nLAWTON\nKLP\nRegraded Unclassified\n133\nEJ\nPLAIN\nQuito\nDated March 19, 1942\nRec'd 10:31 p.m.\nSecretary of State,\nWashington.\n216, Nineteenth,\nFOR H.RRY WHITE FROM GLASSER.\nI hope Friednan will come as soon as possible.\nMy family must leave before April 15 but I shall\navait him and remain in Quito as long as is advisable\nto assure Friedran a successful start,\nLONG\nJRL\nRegraded Unclassified\n134\nNarch 19. 1942\nMr. Livesty\nD. V, Bell\nwill you please cost the fellowing tolegram to the American Commulate\nGeneral, Capatova, South Afries, as reply to its No. n. March 17. 3 p.m.\n\"Tree Treasury.\n1. Please have consular officer prosent at time South African\nReserve Bank wraps currency to observe that halves, with . copy of\nlist enclosed, are separately passaged and that the pastages are\nconled. Upen receiving the bank's statement that the currency has\nbeen est in half, that the - of the bank expeare ea sach half\nof the currency, and the amount of surrency is each pestage, the\nseasular officer sea then Issue to the bank a receipt for the 087-\nready. The receipt gives by the efficer should stipulate\nthat the currency Le subject to event, verification, and emalisation.\n2. the General is authorised to store the ovaled\nposkages is the vault of the South African Receive Peak pending\ndelivery to the Post Office just prior to the sailing of the earry-\nlag vessel.\n3. It is not assessary that the currency be shipped W diplo-\nmatte presh,\n4. 431 other instructions contained is tolegram No. 11, Televery 9.\n, D.M., should be followed.\"\ntelegram No. 11, February 9. , p.a., - addressed to the American Legation,\nRate to Nr. Livergy I should like to bring se your situation that\nProteria, the abounge to which - are replying we sest by the incrican\n01/42/19/42\nCommulate General, Capatorn. - F.D.\nRegraded Unclassified\n135\nPARAPHRASE OF TELEGRAM RECEIVED\nFROM: American Consul, Mossow, Union of Seviet\nSocialist Republics.\nDATE: March 19, 1942, 11 a.m.\nNO.: I 74.\nThe following is a secret message.\nThe shipment referred to in my telegram No. 73 is\nbeing made on the Kenya today.\nTHOMPSON\nRegraded Unclassified\nTREASURY DEPARTMENT\n136\nINTER-OFFICE COMMUNICATION\nDATE March 19, 1942\nTO\nSecretary Morgenthau\nPROM\nMr. Districh\nCONFIDENTIAL\nRegistered sterling transactions of the reporting banka vere as follows:\nSold to commercial concerns\n£44,000\nPurchased from commercial concerns £16,000\nOpen market sterling remained at 4.03-3/4. with no reported transactions.\nOn the appearance of the Post Office as a buyer of Canadian dollars, that\ncurrency continued its recovery. closing at a discount of 12-7/16% as compared\nwith Tuesday's low of 13-3/8%. It was reported that the Post Office purchased\net much 9.6 300,000 Canadian dollars, and it WAS believed that this was in addition\nto the 500,000 which the Post Office was looking for last Monday.\nIn Sev York, closing quotations for the foreign currencies listed below\nwere as follows:\nArgentine peso (free)\n.2369\nBrazilian milreis (free)\n.0516\nColombian peso\n.5775\nMexican peso\n.2064\nUruguayan peso (free)\n.5295\nVenesuelan boliver\n.2815\nCuban peso\n3/16% premium\nle sold $1,347,000 in gold to the B.I.S., which was earmarked in B.I.S.\naccount No. 2. Gold in this account is the property of that bank.\nThe Federal Reserve Bank of New York reported that the Bank of Mexico\nshipped $323,000 from Mexico to the Federal for its account, for sale to the New\nTork Assay Office.\nIn London, spot and forward silver remained at 23-1/2d, equivalent to 42.67#-\nThe Treasury's purchase price for foreign silver was unchanged at 35#.\nHandy and Harman's settlement price for foreign silver was also unchanged at\n35-1/84.\nWe made no purchases of silver today.\nR\nRegraded Unclassified\n137\nCopy No. 13\nBRITISH MOST SECRET\n(U.S. SECRET)\nOPTEL No. 92\nInformation received up to 7 A.M., 19th March, 1942.\n1, MILITARY\nLIBYA. 17th. Enemy activity greatly reduced. Enemy columns\nnow withdrawn from the TMIMI area.\nBURMA. Enemy parties are reported to have landed from boate\non 15th South of MONYO and to have withdrawn later.\n2. AIR OPERATIONS\nMEDITERRANEAN. 17th/18th. Swordfish obtained one torpedo\nhit on a 2,000-ton merchant vessel east of TRIPOLI, The vessel was left on\nfire. One of our aircraft 18 missing. Another attack was made on two escorted\nnorth bound vessels south of LAMPEDUSA, The larger one of about 7,000 tons\nwas hit by one and possibly two torpedoes.\nAUSTRALIA. 16th, 14 enemy bomburs attacked PORT DARWIN\naerodrome, About 100 bombe were dropped, causing considerable damage to\nbuildings.\nRegraded Unclassified\nCopy No. 13\n138\nBRITISH MOST TECRET\n(U.S. SECRET)\nTEL lice 93\nFollowing is supplementary resume of operational events covering the\nperiod 12th to 19th March, 1942.\n1. VAVAL\nThe sain Japanese Fleet 1e presumed to be In home waters. Nearly all\nits Cruisers and light craft have been detached to other areas. Several units of\nthe Southern Floot appear to have returned to JAPAN and the remainder are in the\nMalayan Aroa, A Naval force is consolidating the various bases established or\ntaken over in the JAVA SEA area. The only unit known to be operating in the\nPHILIPPINES area is one Flotilla of 4 Destroyers. The operations in NEW GUINEA\nare being carried out by the 4th Fleet whose strength, with reinforcements from\nthe nain Floet, estimated to be 4 8-inch Cruisers, 2 6=1nch Cruisers, 2 5,5\nGruisers, 2 Seaplane Carriers, 2 Aircraft Carriers, 8 Destroyers and 9 Submarines,\nBut considerable damage 1a reported to have been inflicted on this Fleet by\nAllied Aircraft between 10th and 20th March, 4 Cruisers and 3 Destroyers are re-\nportod to have been sunk but individual ships have not been Identified, Following\nfrench Naval units are believed to be in MADAGASCAR: Two Armed Merchant Cruisers,\none Sloop, one Naval Tanker, 6 or 7 Submarines.\nShipping losses were again heavy owing to submarine attacks in the Rest\nAtlantic and West Indies where the main U-boat concentration was located, out of\n22 shipa attacked, 20 were in these localities. Other submerines were operating\nin the North-Western approaches, off ICELAND and off LIBERIA. During the week\nending 18th, 887 ships wore convoyed, during February 3,848 ships were convoyed\nof which only 8 vero sunk,\nImporte into GREAT BRITAIN during week ending 14th amounted to 332,000\nlons including 232,000 tons of oil,\nICLITARY\nRUSSIA. The Russian efforts to destroy the encircled German forces In\nthe STARAYA RUSSA area continue. On many other sectors the Russians are exerting\nCout pressure under difficult conditions, and losses are likely to have been 20/-\ndiderable on both sides, Although territorial gains have been negligible, it 18\nImportant that the Germane have been given little respite.\nNORWAY. There have been further indications of the strengthening of\ncoantal defences and 1% seems likely that from five to ten new coast-defence\nbattalions have moved into the country. The main garrison still remains at eight\nDivisions.\nRegraded Unclassified\n- 3 -\nBURMA. Cur recent limited offensive in the SHIETYIN area was carried\nnot in order to create a diversion while our main forces were withdrawing north-\nwide from BANGOON, Heavy casualties were inflicted during the operation after\nwhich our force withdrow to its former positions as pre-arranged,\nSUMATRA. The Japanese appear to be completing the occupation of the\nvihale Island, whilst in the NEW GUINEA aroa they are extending their operations\nnactuards.\n3. AIR OPERATIONS\nWESTERN FRONT. Our boabers could only operate on two nights when a\ntotal of 273 tons of H.E. and several thousand incondiaries were dropped, Main\nobjectives were COLOGNE and KIEL, Enemy activity against this country vas slight\nand mainly confined to constal operations, Although our fighter oscorts to day-\nbombers not large numbers of enery fighters over the CALAIS and DIEPPE areas, the\nGerman fighter force in Northern France sooma to be being used with great economy,\nMALTA. The Island was heavily raided by a total of at least 500 air-\ncraft. Aerodromos were cratered and several aircraft on the ground were doe-\ntroyed and others damaged, Our fightors word hampered by partially unserviceable\nmorodromes. Shipping amounting to about 9,000 toba was damaged by our Naval Tor-\npedo aircraft,\n4. EXTRACTS FROM PHOTOGRAPHIC AND INTELLIGENCE REPORTS ON RESULTS OF AIR ATTACKS\nON ENEMY TERRITORY IN EUROPE\nHULS. Although the last attack on the Chemical Yorks was on 28th/29th\nDecember, photographs taken or 9th March show that the plant 12 not yet fully\nsative and several cooling towers are not operating. Five gas holders have been\nremoved and new pipe lines are being constructed,\nKIVI. A largo depot ship WAB hit end sunk on 27th/28th February.\nPOISSY. Photographe taken during the attack on Matford Vorks show\n2000 hita on the main building, one on S subsidiary building and four among\nparked lerries.\nRegraded Unclassified\nTREASURY DEPARTMENT\n139\nINTER OFFICE COMMUNICATION\nDATE March 19, 1942\nSecretary Morgenthau\nTO\nMr. Kamarak\nFROM\nSubject: Vilitary Report: The Unknown British Victory\nSubmery\n1. It only has become clear long after the event, that\nthe remulse of last year's German apring offensive against\nmust rank with the Battle of Britain as AR outstand-\n10g Allied viotory.\n2. Hitler has admitted, and Churchill's analysis agrees,\ntast after the German victory over France, menacing Russian\nsilitary concentrations on Germany's eastern border tied down\nA decisively large portion of the German air force. The\n:raction of the air force available was not strong enough\nto overwhelm British resistance and it was defeated in the\nattemnt during the Battle of Britain, August-September, 1940.\n3. Hitler then had two choices left.\nA. To defent England by throwing in all his\nnaval resources in sn attempt to smash\nher communications;\nor 5. To crush repidly the Russian military forces,\nto free his entire ermy and air force for\nan invasion of England.\n4. In the spring of 1941, Germany attempted to carry out\n\"Plan A\" by using everything available, including all the mejor\nunits of her navy. British shipping losses mounted, but with\nthe American decision to patrol the western Atlantic and the\nsinking of the Bismarck, Hitler clearly perceived \"Plan A\" had\nfailed. The only hope for an early Germen victory remained in\n\"Plan E, the invasion of Russis. Thus the repulse of the\nSerman shipping offensive must be counted one of the greatest\nAllied victories of the war.\nRegraded Unclassified\nTREASURY DEPARTMENT\n140\nINTER OFFICE COMMUNICATION\nDATE March 19, 1942\nSecretary Morgenthau\nTO\nMr. Kamarck\nFROM\nBubject: Military Report: The Unknown British Victory\nBy analyzing the information which has become available\nonly long after the event, it becomes evident that a year\n850 the British won one of their greatest victories of the\nwar - 8, victory which ranks with the Battle of Britain of\nSeptember, 1940, but which has gone almost unrecognized.\nThis was the defeat of the Axis all-out offensive against\nthe British sea-borne lines of supply in the spring of\n1941. The repulse of this Axis threat by three months\nof hard fighting was obscured by the day-to-day spectacular\ndevelopments of the invasion of Yugoslavia and Greece, Yet\nthis British victory with American help was directly responsible\nin forcing the Germans to invade Russie. It may well be\nthat future historians will name this battle as the turning\npoint of the war.\nThe events leading up to the Axis offensive against\nshipping in the spring of 1941 are now fairly clear. After\nthe fall of France in June, 1940, Hitler offered peace\nterms to the British. In spite of the fact that the small\nBritish army had been practically stripped of weapons (there\nbeing, for example, less than 100 tanks left in England\nafter Dunkerque), the British refused to make peace with\nHitler. The Nazis then began to prepare in their thorough,\nmethodical way, for an invasion of England.\nAt this point, a distraction arose. What happened\ncan best be described in the words of Hitler when he\nreviewed Soviet-German relations on June 22, 1941, when\nhis troops crossed the Russian frontier.\nHitler declared:\n\"While our soldiers from May 10, 1940 on, had been\nbreaking Franco-British power in the west, Russian\nmilitary development on our eastern frontier was\nbeing continued to 8 more and more menacing extent.\nRegraded Unclassified\n141\n2\n\"From August, 1940, on, I, therefore, considered\nit to be in the interest of the Reich no longer\nto permit our esstern provinces, which moreover\nhad already been laid waste 80 often, to remain\nunprotected in the face of this tremendous con-\ncentration of Bolshevik divisions.\n\"Thus there resulted British-Soviet Russian\ncooperation, intended mainly at the tying up of\nsuch powerful forces in the East that radical\nconclusion of the war in the West, particularly\nas regards aircraft, could no longer be vouched\nfor by the German high command.'\n(Emphasis mine, A.M.K.)\nChurchill's analysis of the causes of the Jerman invasion\nof Ruasia 18 similar. He said in his speech on June 22, 1941=\n\"There 18)\none deeper motive behind his (Hitler's)\noutrage. He wishes to destroy the Russian power\nbecause he hopes that if he succeeds in this he\nwill be able to bring back the main strength of his\narmy and air force from the east and hurl it upon\nthis island, which he knows he must conquer or\nsuffer the penalty of his crimes.\n\"His invasion of Russia is no more than B. prelude\nto an attempted Invasion of the British Ieles,\"\nWe cen see now that what happened in the summer of 1940\nW&B that the concentration of Russian troops and airplanes on\nthe Oerman eastern frontier pinned down 8. decisively large\nportion of the German army and air force. Hitler, nevertheless,\nattempted to smash the Royal Air Force as & preliminary to\ninvasion, with the remaining available fraction of his air\nforce. During the Battle of Britain in August and September,\n1940, the Royal Air Force completely defeated this attempt.\nThe Cermans in the fall and winter of 1940-41 were,\ntherefore, confronted with two alternative plans which might\nwin the war. With American eirplanes flowing into England,\neven if in small numbers, and with the experience of the Battle\nof Britain behind him, the possibility of destroying the\nBritish Air Force with 8 part of the German Air Force could\nnot be counted on. Hitler's choice then was between:\nRegraded Unclassified\n3\n142\nA. An attempt to defeat England by a policy\nof blockade, using his naval forces which\nwere completely available for this purpose.\nor\nB. An attempt to destroy the Russian threat\nand then, as Churchill said, \"bring back\nthe main strength of his army and air\nforce from the east and hurl it\" upon\nEngland.\nProbably the decision was made to give \"Plan A\" a good\ntry and 1f It failed, to adopt \"Plan B\". The defeat of \"Plan A\"\nby the Sritish with American help in the spring of 1941 left\nthe Germens no alternative but to crush the Russian military\nforces with sudden surprise attack, if the Germans wished to\nbring the war to an early end.\nAs 1s customery with German offensives, Hitler opened the\noffensive against British shipping with a speech on February\n24, 1941. He announced on that day:\n\"Our fight on the sea can begin only just now.\"\nIT (The Allies)\nwill know what has been going\non. They will know shortly when our new types\nof submarines are going to be brought into the\nexpanded warfare. They will find out in March\nand April what Derman-Italian submarine coopera-\ntion will mean to them.\"\nThe Germans did give \"Plan A\" & thorough try. The offensive\nagainst shipping went all-out. Increased numbers of submarinea\npreyed on convoys. Long-range bombers were sent out in attacks\non shipping. The bulk of the German navy was thrown into the\nbattle, The two battle cruisers, Scharnhorst and Gneisenau,\nwere sent out in March. The Bismarck and a heavy cruiser,\nPrinz Eugen, were sent out in May. The only major unit of\nthe Jerman navy not in action was the Tirpitz, which may not\nhave been ready yet for operations.\nThe Cerman offensive did meet with some successes, but\njudged as B. whole, It failed. Shipping losses increased\nsharply, but not enough to secure decisive results. Sinkings\nIncreased from 260,000 gross tons in January to 380,000 In\nFebruary, to 550,000 in March, and reached the highest point\nof the war, 650,000 tons in April. Not all of the April losses\nwere due to the German shipping offensive, a large part\nresulting from the evacuation of Greece, In May, in spite of\nRegraded Unclassified\n4\n143\nthe evacuation of Crete, losses fell to 520,000 tons; in\nJune, 420,000 tons were lost and, with the Russian campaign\nin rull swing, in July, losses fell to B. neglizible 130,000\ntons.\nThe resources of the British were strained to the utmost\nto meet the threat. The Scharnhorst and Gneisenau were\nhunted into Brest in March Churchill, then, we were informed,\nover the protests of the R.A.F., concentrated the entire\nbomber force of the R.A.F. on Brest and successfully kept\nthe two commerce raiders out of action.\nThe United States helped, perhaps decisively. On March\n11, Lease-Lend became law, making completely available\nAmerican shipbuilding resources to the British, On March\n30, several hundred thousand tons of Axis and Danish shipping\nimmobilized in American ports, were seized. And, on April 30,\nthe United States took a step which the Nazie must have\nrealized at once definitely doomed their of fenaive to failure:\nPresident Roosevelt announced that the American navy would\npatrol the sea in the American defense zones, An immense\nburden was lifted off the British navy. It could give In-\ncreased protection to shipping near England. At the same\ntime, Axis submarines had to abandon the western Atlantic\n8,9 scene of operations, or run the risk of bringing the\nUnited States into the war - e risk Hitler WES not willing,\nu.s. yet, to take because of his hopes of an early victorious\nend to the war.\nThe German High Command claimed to have destroyed over\n1,000,000 tons of shipping in April, If this had actually\nhappened, England would soon have been forced to her knees.\nThat the Germans did not believe their own claims 18 evidenced\nby the fact that preparations to put in effect \"Plan B\", the\ninvesion of Russis, began to be made. On May 10, Hess para-\nchuted to earth in Scotland, undoubtedly bearing peace pro-\nDocals designed to take England out of the war while Russia\nWAS being finished off. The last b1g bombing raid on England\noccurred on May 14 and, after that, the German Air Force\nbegan to move towards the East. Throughout May, we received\nreports of the movement of German troops to the Russian\nfrontier. In the third week of May, one last desperate attempt\nWAS made against British shipping: the pride of the German\nnavy, the Biamarck, was sent out to attack commerce, The\nRegraded Unclassifie\n144\n- 5 -\nsinking of the Bismarck on May 27 by the British Navy\nmust have finally convinced the Germans that \"Plan A\"\nhad failed and that \"Plan B\", the invasion of Russia,\nmust be tried. S1x days later, on June 2, Hitler met\nMussolini at the Brenner Pass and undoubtedly informed\nhim of the decision taken. On June 22, German troops\ncrossed the Russian frontier, and \"Plan B\" was given\nits trial.\nRegraded Unclassified\n144\n- 5 -\nsinking of the Bismarck on May 27 by the British Navy\nmust have finally convinced the Germans that \"Plan A\"\nhad failed and that \"Plan B\", the invasion of Russia,\nmust be tried. Six days later, on June 2, Hitler met\nMussolini at the Brenner Pass and undoubtedly informed\nhim of the decision taken. On June 22, German troops\ncrossed the Russian frontier, and \"Plan B\" was given\nits trial.\nRegraded Unclassified\n145\nUNITED STATES GOVERNMENT\nDELDINATOR\nCOORDINATOR OF INFORMATION\nSECRET -\nWASHINGTON, D.C.\nMarch 19, 1942\nThe Honorable Henry A. Morgenthau\nThe Secretary of the Treasury\nWashington, D. C.\nDear Henry:\nThe following is a summary of\nthe Weekly General Directive issued by\nthe British Ministry of Political Warfare.\nSincerely,\nBiu\nWilliam J. Donovan\nRegraded Unclassified\n145\nUNITED STATES GOVERNMENT\nINSURANCE DIE REPARTMENT\nCOORDINATOR OF INFORMATION\nSECRET\nWASHINGTON, D.C.\nMarch 19, 1942\nThe Honorable Henry A. Morgenthau\nThe Secretary of the Treasury\nWashington, D. C.\nDear Henry:\nThe following is a summary of\nthe Weekly General Directive issued by\nthe British Ministry of Political Warfare.\nSincerely,\nBill\nWilliam J. Donovan\nRegraded Unclassified\nSECRET\nPolicy:\n(a) AVoid reference to Japanese threat to Russia\nin Far East.\n(b) Avoid reference to Japanese threat to Madagascar.\nStrategy:\n(a) Russia: Due to marked Russian progress, in\nseveral sectors promising situations seem to be developing.\nThe cutting of the Leningrad-Novgorod railroad increases\nthe threat to German positions south of Moscow. The cap-\nture of Dorogobush by parachute troops and partisons pro-\nvides an important point of origin for Russian advance\nsouth of Vyasma. Stress Russian counter offensive continues\nwith increased violence and that German counter attack has\nnot been successful on any part of extensive front. Inquire\nwhy German communiques made no reference to the plight of\nH large portion of the 16th Army cut off and surrounded\nnear Staraya Russa or why they failed to acknowledge\nRussian capture of elaborately fortified stronghold of\nYukhnov.\n(b) Far East.\n(1) Java, Japanese completed conquest of Java\nwhere allied forces received no reinforcements after attac)\nstarted. Lack of aircraft made it impossible for inferior\nallied forces to rest or regroup, thus hastening the col-\nlapse of organized military resistance.\n(2) Timor. Imperial troops are still waging\nbush warfare in the interior.\n(3) New Guinea. Salamoa and Lae now in hands\nof the Japanese. The Japanese objective 1s capture of\nPort Moresby and domination of Torres Straits.\n(4) Burma. Our forces are falling back slowly\non Prome. The Japanese are also advancing northward to-\nward Toungoo. A Chinese division has arrived just north\nof Toungoo. Other important Chinese units are In the vicinity\nof Maymo and moving southward from Lashio.\nRegraded Unclassified\nPropaganda Policy.\nSECRET 147\n/ a :\nWe must not permit our European audience to feel\n/\nthat we are discouraged by Japanese successes or we have\nlost our grip on situation. Demand is for efficiency,\nequality of sacrifice and ruthless treatment of everyone\nwho acts in a manner contrary to the public interest. We\nmust convince Europe that we are as much a part of that\ncontinent as we felt ourselves to be in the dark days of\n1940. Our influence on Europeans is dependent upon the\nconviction we can inspire in them that our thoughts are\nnot overseas in oceans and lands strange to their minds\nand needs.\nRegraded Unclassified\n148\nNUMBER 23\nSECRET\nCOORDINATOR OF INFORMATION\nTHE WAR\nTHIS WEEK\nMarch 12-19, 1942\nGUAM\nOPERIOFF UNITED OREGON\nPrinted for the Board of Analysts\nCopy No. 6\nthe Secretary of the Treasury\nRegraded Unclassified\nMARCH 12-19, 1942\nSECRET\nCoordinator of Information\nTHE WAR THIS WEEK\nAlthough military activity is by no means entirely lacking,\nvirtually all fronts in the war have entered a period of pause.\nWith the fall of Java, the Japanese are consolidating their\nposition in the Netherlands Indies, preparing to launch a\nfresh offensive in the Melanesian area, readying their forces\nfor a final test in Burma, and laying a course for the future\namong the great strategic alternatives which now face them.\nChina is girding for defense and hastening to knit more closely\nher military relations with the United States. In Australia\nthe Allies are rapidly preparing for the anticipated Japanese\nattack, and the gravity of the situation has been emphasized\nby the despatch thence from Bataan of General MacArthur.\nFinally, India awaits with anxious forebodings the solution\nwhich Sir Stafford Cripps is bringing.\nThe west, too, is passing through a period of anxious\npause. The Mediterranean is literally a sea of rumor, with\nvigorous preparation continuing and early action predicted\nin one or more of at least three areas. Even the Russian\nfront seems now to have been substantially stabilized, and\nrecent Soviet \"drives\" appear to be little more than fencing\nfor position before the threatened German counter-offensive\nbegins.\nJapanese Strategic Alternatives\nDuring the current pause, it appears particularly appropri-\nate to survey the crucial strategic alternatives which Japan\nnow faces. Five principal areas invite her attack: Melanesia,\n1\nRegraded Unclas\nSECRET\nSECRET\nBurma, India, Australia, and eastern Siberia (with the pos-\ndivisions. Port Darwin has also been heavily bombed again,\nsibility of an assault on Alaskan bases always present),\nand the two strategic islands off the northern tip of Cape\nJapan lacks resources for simultaneous attack on all: her most\nYork (Thursday and Horn) have been attacked for the first\nserious limitations are in shipping and aircraft.\nCurrent evidence strongly points to quick and probably\ntime. In the interest of interrupting Allied supply lines, it is\nsuccessful campaigns of limited liability in Melanesia and\npossible that the Japanese might attempt to extend the\nBurma, which are in 25 special category. They can be reduced\nMelanesian shield either to New Zealand or eastward to the\nsimultaneously, probably quickly, at relatively low cost, and\nimportant strategie centers at Suva, in the Fiji Islands, and\nwith decisive advantages for the Japanese.\nTutuila Island, in the Samoan group. A move in this di-\nrection would keep Japanese operations relatively close to\nlong-prepared bases in the Marshall Islands. If success-\nThe Conquest of Melanesia\nful, it would thrust the Allies back upon the Free French\nMelanesia (with the essential complementary bases in\nSociety Islands, or perhaps force our lines to Australia to\nakirt the southern Pacific in a gigantic semi-circle, in which\nnorthern Australia) would give Japan 24. strong defensive\ncase the ferrying of bombers would be impossible and sailing\nshield for the Indies. Its conquest would make possible\ntime to Australia would be nearly doubled.\ninterruption of American communication lines to Australia,\nMelanesia is the essential screen and base for a possible\nassault on southeastern Australia. The nickel of New\nThe Conquest of Burma\nCaledonia is important for the Japanese war effort.\nJapan's objective in Burma is to cut the last practicable\nThe Japanese can make heavy aerial assaults on northern\nland route from India to China. That step would isolate\nAustralian bases: Port Darwin has already been seriously\nChina from Anglo-American supply, except for the unde-\ndamaged. Landings would probably be less difficult than\nveloped possibilities of supply by air. Japan hopes thus to\ncorresponding operations in Java. With northern Australian\nwin peace with China through the appeasers in Chungking,\nbases in hand, operations in the northern islands of Melanesin.\nChina's armies now hold 500,000 Japanese troops in China,\nwould be safer than at present. These islands could be taken\nand peace would release a large part of these for action\nin order, one by one, Short of New Caledonia the Japanese\nelsewhere. The increasing number of Americans serving on\nwould probably encounter no difficulties more serious than\nChinng's staff, however, would hardly indicate that the\nthey have overcome to date.\nGeneralissimo himself envisages appeasement, even if China\nCurrent Japanese activity bears out the view that the\nis isolated.\nMelanesian shield is their immediate objective. Port Moresby\nJapan can send large reinforcements into Burma, if needed.\nhas been repeatedly bombed, a Japanese force is reported to\nMilitary observers have already revised upward from two to\nbe moving overland from Lae, and a direct attack on Moresby\nsix their estimate of the number of Japanese divisions operat-\nis believed imminent. It is estimated by military observers\ning in Burma (with two air organizations of 300 planes each)\nthat Japanese forces in this area have been increased to two\n2\n3\nRegraded Unclassified\nSECRET\nSECTURY\nThe Japanese are reported to have organized substantial units\nand are already operating out of Penang. An early attack\nof a \"Free Burma Army\" (of doubtful value), and fifth column\non the Andaman Islands is suggested both by their strategic\nactivities and sabotage are said to be hampering the British.\nlocation and by current activities of the Japaneso. Air\nNewspaper reports, however, suggest that the British are\nraids from Burma could be used to demoralise the civilian\nnow being steadily reinforced by Chinese troops, equipped\npopulation and disrupt the economic life of the congested\nwith lend-lease arms. The British have taken up positions\nindustrial area in and near Caloutta. Even & naval coup,\nfor the defense of Mandalay along a line which is roughly an\naimed to seize and hold Ceylon, is by no means beyond the\nextension of that already held by the Chinese-Tharrawaddy.\nrealm of possibility.\nToungoo-Southern Shan States. Here a lull in the fighting\nprobably represents a considerable reorganization and rein-\nforcement on both sides.\nAustralia and Siberia\nBoth Australia und Siberia appear to be alternatives\nIndía as a field for conquest\ndistinctly more attractive to Japan than India. Australia\nIndia would be an easier conquest than Australia. But\nat the moment is the most important Allied base in the Far\nIndia has much less to offer the Japanese. India's resources\nEast. Australia could be used us a base for the eventual\nare not essential to Japan's war effort. India is a less\nreconquest of the Far East. Japanese interests demand the\nattractive Allied base than Australia; hence Japan has less\ndestruction of this base before it becomes stronger.\nrenson to deny it to the Allies. The conquest of India\nDespite the great distances to southeastern Australia and\nwould dissipate Japan's limited resources, more needed else-\nJapan's limitations in shipping and aircraft (see The War\nwhere. Japan's extended lines of communication might be\nThis Week, March 5-12, pp. 5-7), it is believed very likely\ncut by an Allied counter-offensive in the Singapore area. If\nthat the Japanese will launch an offensive against the main\nJapan wins the war, she can probably acquire Indía with\ndefenses of Australia in the near future. It would be unsafe,\nrelative ense. For the present then India is probably to be\nhowever, to attribute too great rigidity to Japanese plans,\nviewed as an objective of secondary rank.¹\nIt in perfectly possible that Japan's own military leaders have\nThe Japanese will, however, doubtless seek limited objec-\nyet to make their final strategic choice. Even if that choice\ntives in the Indian strategic area. Japanese submarines\nis Australia, the discovery of unexpectedly heavy Allied\ncould interfere seriously with shipping in the Bay of Bengal\nreinforcements on that continent or the incurring of exception-\nally heavy losses during the conquest of Melanesia might\nThe journalistic discussion of Japan and Germany \"meeting\" in\nIndia is not to be taken seriously. There is no communications\nwell prove an effective deterrent. It is obvious that the\nsystem in the area west of India which would permit overland move-\nJapanese cannot afford & series of such devastating losses no\nment of a German army, A» to a naval \"meeting,\" the Japanes\nthose recently visited on them at Salamaua and Lae by\nwould scareely risk any considerable part of their capital-ship fleet\nAmerican and Australian air forces.\nin the Indian Ocean 66 long ne the United States Pacific fleet in\nin being.\n5\nRegraded Unclassified\nSECRET\nSECRET\nThe Australians ARK for MacArthur\nThere are other reasons of considerable weight favoring an\nThe seriousness of the Japanese threat is emphasized by\nearly attack on Siberia. The maximum Russian confusion\nthe despatch to Australia of General Douglas MacArthur at\nwould result from a Japanese attack coordinated with a\nthe request of the Australians themselves. General Mac-\nNazi offensive in the west. Russia would probably be forced\nArthur is to assume command of the land, sea, and air forces\nto send large reinforcements to the east, and might very well\nof the United Nations in the southwestern Pacific and is to\ncollapse under the strain of a two-front war. The Japanese\nmake preparations for the anticipated Battle of Australia.\nare drunk with success and may strike out of sheer confidence.\nAt the same time Prime Minister Curtin has announced\nThe Kwantung Army may take the bit in its teeth and attack\nthat his Minister of External Affairs, Mr. Herbert V. Evatt,\nat any time-it has been known to do 80 in the past. Weather\nwill come to this country to discuss the conduct of the war\nconditions also heavily favor a Japanese attack in early\nwith American officials. Close observers of Australian polities\nspring (see Appendix I).\ndescribe Minister Evatt as one of the brainiest men in the\nJapan enjoys other general advantages for a Siberian cam-\nLabor Party and also one of the most ambitions, He is an\npaign. It would tax her shipping only very moderately.\nexponent of an independent foreign policy for Australia and\nShe already has large stores in Manchuria. Much of her air\nis believed to be responsible for the strong and independent\nforce could operate against Russia offensively, while based in\nline Australia has taken recently in foreign affairs,\nJapan proper and hence in a position to defend the homeland.\nAlthough Russian and Japanese forces on the Siberian fron-\ntier are reported to be about equal now, the Japanese have\nlarge reserves quickly available in North China and in Japan\nThe Siberian Alternative\nitself.\nThe fifth Jupanese choice is an attack on eastern Siberia.\nAnd yet, despite all the advantages of an early attack,\nRumors have been rife that such an attack would be launched\nit seems very likely that the Japanese will wait. On the one\nin April. And it is to be noted that Tokyo Radio, abandon-\nhand, H simultaneous attack on Australia and Siberia would\ning previous tactics of avoiding broadcasts directly offensive\nplace a very severe strain on Japanese resources-above all\nto the Soviet Union, is now frankly disseminating anti-\non her air power. On the other hand, the Japanese will reap\nBolshevist propaganda. The Tokyo \"line\" is almost identical\nimportant advantages from waiting until the European soene\nwith that of Rome and Berlin.\nis clarified. If the Germans push the Soviets toward defeat\nAt present the Russian Army is the bulwark of the Allied\nthis summer, the Japanese could then attack a weakened\ncause in the Eastern Hemisphere. If the Germans and\nRussia and probably free themselves once and for all from\nJapanese can destroy it, they can win the war there. That\nthis potential menace. Even if the Russians show signs of\nis the principal argument for a Japanese attack on Siberia.\nbeing successful in Europe, Japan might still (and should\nAfter such A defeat, Allied forces could not afford to leave\nlogically) attack before this enhanced Russian power mate-\nthemselves exposed in Australia: the Japanese could then\nrializes in an assault on the Japanese.\nconquer Australia at a much lower cost than now.\n6\n7\nRegraded Unclassified\nSECRET\nSECTUT\nChina Girda for Defense\nbacilli over the city. Although the New York Times edito-\nChinese determination to maintain the Burma lifeline has\nrially ridicules this story, it cannot so easily be thrown out of\nbeen apparent in & series of conferences between Chiang\ncourt, according to a close observer of the Chinese scene.\nKai-shek and other members of the Allied high command.\nDr. Robert Lim of the Chinese Red Cross flew to Ch'ang-te\nOn March 3, the Generalissimo flew from Kunming to Lashio\nand conducted autopaies confirming the presence of plague.\nfor a secret meeting with General Wavell. Then, after\n\"It is my belief,\" he stated to the press, \"that the Japanese\nseeing Chinese commanders in Burroa, be returned to\nthus far have been experimenting in China and it is my firm\nChungking, where he conferred with his new chief of staff,\nconviction that Japan is planning large-scale bacteriological\nGeneral Stillwell. The latter, in the phraseology of the\nwarfare\nespecially when things start going wrong for\nChinese press report, \"received Chairman Chiang's com-\nher.\"\nmand\" to inspect the Burma Road area, and immediately\nThose who know Dr. Lim will treat this opinion with\nleft for Burma by air.\nrespect, our observer continues. His father, Dr. Lim Boon-\nSomewhat earlier, the Generalissimo and Madame Chiang\nKeng, was a leading figure in the Chinese community of\nhad expressed their appreciation for American help by giving\nSingapore, and Robert Lim was educated at Edinburgh and\nn. banquet for the AVG. Madame Chiang, as honorary\nbecame professor of physiology at the Peking Union Medical\ncommander of the AVG, struck the keynote of the evening\nCollege. Since 1937 he has been the outstanding figure in the\nwhen she declared, \"I want you to leave on my people a\ncare of the Chinese wounded.\ntrue impression of what Americans really are.\nI should be very polite and say, 'Boys, you are just Perhaps grand.\"\nMeanwhile Chungking military spokesmen warn that two\nThe Bose Brothers and the Indian Problem\nJapanese divisions are massed in Formosa to invade the\nOn the Indian front the outcome of Sir Stafford Cripps'\nChekiang-Fukien coast, Some Chinese observers foresee a\nthree-way drive from Canton, Hankow, and Formosa to\nmission was impatiently awaited and attention meanwhile\nWas focussed on the eccentric activities of the Bose brothers.\nbring under control the highland area within the south China\nThe two brothers-Subhas, now in Germany, and Sarat, in\ncoast, from which the Chinese have long hoped to use Amen-\nTrichinopoly jail-are leaders of the so-called \"forward\nislands. can bombers against Japanese shipping and the Japanese\nbloe,\" violently anti-British, and, in the case of Subhas, at\nleast, definitely pro-Axis. The American press atressed the\nmenage they represented as potential fifth column chiefs,\nThe Japanese Experiment With Germ Warfare\nespecially in the area about Calcutta where Subhas WBS\nformerly mayor.\nThe Japanese are now charged by local Chinese authorities\nModerate observers point out, however, that with its leaders\nat Ch'ang-te in northern Hunan with experimenting in germ\nin jail the movement has little influence. Nor was there\nwarfare, According to this charge, Japanese aviators dropped\nanything specific to prove that the Axis had subsidized the\npackages containing fleas infected with bubonic plague\nBoses, Furthermore, the effect of Axis radio propaganda,\n8\n9\nUnclassified\nSECRET\nSECRET\nsuch as Subhas' recent broadcast from & station near Berlin,\nis impossible to judge. In the event of an invasion of Eastem\nMiddle and Far East. Practically all the men and supplies\nBengal-long & center of disaffection and disturbance-it is\ngoing to Egypt, Eritrea, and Turkey, to the Caucasus and the\nRussian front, to India, Burma and to China pass within two\npossible that the Japanese could stimulate fifth column activ-\nof three hundred miles of this one thousand mile long island.\nity in that region. Such actions would apparently be a\nMoreover, a considerable part of south and east Africa\nreflection of frustrated nationalist ambitions, however, rather\nthan efforts specifically to aid Japan.\nwould for the first time be brought within bombing range of\nAxis fields. And the broadcasting facilities of \"Radio-\nMeanwhile, Mohandas Gandhi, after calling on Britain\nTananarive\" would stand ready for a psychological offensive\nto confess that her imperialism \"has been the greatest crime\nagainst India,\" presided over a meeting of the Congress\nagainst the African Continent.\nParty Working Committee. As elsewhere in India, the domi-\nnant note on this occasion seemed to be anxiety as to the\nVichy's Reaction to British Pressure\nexact content of the plan Sir Stafford Cripps is bringing.\nAs B clue to Cripps' proposals, there may be considerable\nThe British have long been pressing Madagascar to repu-\nsignificance in the Viceroy's statement of his confidence that\ndiate the Pétain regime, but a blockade instituted in the early\nthe princes of India would \"not hesitate to forego pre-\nautumn of 1940 seems merely to have forced the country to\nrogatives and privileges\nfull back on its own resources. Madagascar is more than\nshould they in any way im-\npede India's war effort.\"\nself-sufficiont in foodstuffs; six or seven months ago there\nwere no serious shortages except in gasoline, most of which is\nobtained from the United States. Economic stringencies are\nReviving Fears of Madagascar's Future\nhound to develop, however, since more than 80 per cent of\nWhile Vichy continues to assure official Washington that\nMadagasear's normal foreign trade is carried on with France,\nit has no intention of yielding control of Madagascar to the\nalthough the Allies could probably excel the Axis in restoring\nJapanese, anxiety over the fate of this strategic outpost of\nthe island's economic life.\nthe Indian Ocean area has by no means disappeared. Recent\nA Free French or Allied occupation, such as has been\nreports of Ger an and Japanese infiltration have merely\nrumored, might not be difficult, even though Vichy is reported\nheightened the concern expressed some weeks ago by General\nrushing reinforcements from Dakar. The Malagasy natives\nSmuts (see The War This Week, Jan. 22-29, p. 14; also Jan.\nprobably would be rather sympathetic than otherwise, and\n29-Feb. 5, pp. 9-10).\nthe small English, Hindu, Chinese and Greek minorities\nIf Madagascar were to fall under the control of the Axis,\nwould doubtless welcome it. Inertia and economic consider-\ngiving the enemy a foothold at both ends of the Indian Ocean,\nations have hitherto kept the 25,000 French residents loyal\nthe interests of the United Nations would be very gravely\nto Vichy, but there is thought to be Intent pro-Ally sentiment\nmenaced. Hostile submarines operating out of Madagasear's\nboth in the population at large and even among army officers.\ntwo dozen harbors, and bombing planes using the half a\ndozen improved airfields, could menace Allied shipping to the\n10\n11\nRegraded Unclassified\nSECRET\nSECRET\nThe Fuehrer Reviews the War\nassaying British opinion after a relatively short stay in\nHitler's Zeughaus address, while it stressed the hardships\nEngland, stresses the declining morale of the British conse-\nsuffered in the Russian winter, was scarcely an admission of\nquent on the removal-for the present, at least-of the\nGerman defeat. Fundamentally, it was simply a reiteration\nimminent danger of heavy Nazi air raids. The average man\nof the old claim that the Nazis would defeat the Soviets this\nfeels that he has little or nothing to fight for, the report\nsummer. Its note of restrained gloom, while unexpected\ncontinues. He is by no means sure that the war effort will\nperhaps from the Fuehrer himself, followed the party line\nproduce a better world, and he does not anticipate any great\nestablished by Goebbels this winter. Coupled with Von\nchange in the \"post-war social order that would unsaddle the\nPapen's reported statement that Germany must take the\nelements that now dominate the country.\nCaucasus this year or lose the war, it would appear to indi-\ncate a growing conviction in Nazi official circles that unless\nthe war is won in 1942, it will drag out into a long and bitter\nGerman Gains Through Occupation of Soviet Territory\ndefensive. conflict, in which Germany will be increasingly on the\nThe occupation of Soviet territory has brought to Germany\neconomic gains of some current value and large potential\nCertain highly-placed American military observers believe\nimportance. A study prepared in the Coordinator's office\nthat the Russian advance has now come to a standstill. And\nindicates that areas in Russia occupied by the Nazis and their\naside from a renewal of snowy weather on the central front,\nAllies in the middle of February contained before the war &\nthe week's news has again been insubstantial. While the\npopulation of about 73 millions, perhaps now reduced by to\nSoviets predicted the fall of Kharkov, the Germans claimed\nto 20 per cent through flight, war losses, etc. The area under\nthat they had repulsed Russian attacks on the Crimean\nsultivation would normally be about 51 million hectares, but\npeninsula with heavy losses, particularly in the Kerch area\nthe yield in 1942 may be one third or more below that of re-\ncent years.\nAnglo-Russian Crisist\nThe annual peace-time output, estimated at 18 million\nDispatches from London indicated, moreover, something\nmotric tons of coal, one million tons of manganese ore, and\nof a crisis in Anglo-Russian relations. British official circles,\nabout 16 million tons of iron ore, has without doubt suffered\nembarrassed by Stalin's claim for eventual annexation of the\nnonsiderable reduction. The limited peace-time production\nBaltio states, were reported to fear a separate Russo-German\nof petroleum (about 500,000 metric tons) was probably\npeace. And the Russian leader was said to be equally\naffected only moderately by war conditions. But the pre-\nsuspicious of the intentions of Britain's ruling classes-par-\nwar production of pig iron (3.5 million tons), steel ingots\nticularly of their attitude toward Communism after the war\n(3.4 million tons), and rolled steel (1.9 million tons), has been\nis over,\nconsiderably reduced.\nIn contrast to the fears of Britain's ruling classes, comes\nMuch more heavily hit, apparently, were the peace-\na report from a very reliable observer in London that Russia\ntime production of electric power (about 2,900,000 kilowatta),\nnow appears to eclipse in popularity all the other United\naluminum (32,000 tons), and machinery and metal products.\nNations. This report, while admitting the difficulty of\nFinally, in the 34-thousand-odd kilometera of railways in\n12\n13\nRegraded Unclassified\nSecurr\nSECRET\nthe conquered area, the initial reduction in performance\nruack on Russia's Chief Supply Linet\ncaused by war conditions was probably more considerable\nThe escape of the battleship Tirpitz from British torpedo\nthan in any other branch of Russian economy-with the\nbombers off Narvik and the closure of all Norwegian ports\npossible exception of armament factories. On the other\nfrom the North Cape to Aalesund may preface a German\nhand, railway transport has probably profited more than any\neffort to cut the best Allied supply lines to Russia by isolating\nother Russian industry by German repair and reconstruction.\nher northern ports. But the mining by the Nazis of Nor-\nThe report warns, however, that such tentative conclusions\nwegian waters could equally well represent simply German\nare often nothing more precise than \"informed guesses.\"\nYear of an Allied effort to open a second front in this area.\nNor can one ignore the effects on actual production of such\nContinued reports of the strengthening of Norwegian garri-\nfactors as the defects of the transport system, the heavy\nsons would hear out this latter conclusion.\nstrain of continued military activity, the disappearance of\nThe Swedish Ministry of Foreign Affairs has meantime\nskilled laborers, technicians, and Soviet administrators, and\nbeen at pains to point out that the confiscation of several\nthe general hostility of the population.\nnewspapers for printing atrocity stories about the Nazis was\nIn Soviet society, however, there are two elementa of some\nsimply a routine procedure which the government has also\nsigo to which the Germans might perhaps appeal for coopera-\napplied to the publication of similar items about the Red\ntion in the construction of their New Order-those peasants\narmy. And the Swedish press has found the current rumor\nwho would still prefer individual farming to the collective\nwave about a possible invasion by the Germans extremely\nsystem, and those members of national minorities who hope\nirritating; Sweden, it implies, would prefer to remain out of\nfor separation from the Soviet Union. To date the Nazis\nthe spotlight.\nhave fumbled badly in the handling of both. They have not\nmade even a pretense of setting up an autonomous Estnonia,\nThe Mediterranean Timetable\nLatvia, Lithuania, White Russia, or Ukraine, And they are\nOnce again this week the Libyan front remained quiet.\napparently afraid either to maintain the collective system of\nBut with Rome claiming that Italian torpedo-carrying air-\nagriculture in full vigor or to abolish it outright. In this\ncraft had hit three British cruisers in the eastern Mediter-\nsituation, the Nazis have been in the paradoxical position of\nranean. and with the American press darkly hinting that\ntrying to maintain an agricultural system which they have\nBritain had lost control of the central Mediterranean, the\ncondemned, with the help of certain anti-collectivist peasants\noutlook for the coming weeks is scarcely reassuring. Heavy\nwhose desires they have been unable fully to satisfy.\nair attacks still rained on Malta, whose situation is becoming\nIn summary, the Germans have made efforts to restore and\nincreasingly difficult. Axis convoys continued to arrive at\neffectively utilize their conquests-notably the transportation\nTripoli, and reinforcements were being steadily forwarded to\nsystem of the occupied area-but their gains belong largely to\nthe future. The German press abounds in articles on the\nRommel. A highly-placed European observer warned that\nRommel would attack in force by March 20, and despatches\nwealth of the Ukraine, but wisely assigns to some later date\nthe benefits to be realized.\nfrom Cairo indicated that military circles there felt that the\nweeks between March 20 and the middle of April would be\nextremely critical.\n14\n15\nSECRET\nSECRET\nFor Turkey and Syria the period of alert would probably\nhombed and shelled the Italian island of Rhodes. And\nbe somewhat later. Last summer the British and From\nFrench did not strike in Syria until the hot days of June.\nBritish diplomatic representatives seemed to be making a\nTurkey is already being visited by a fresh war of nerves\nsubstantial effort to conciliate Arab public opinion.\nReports from Ankara indicated that large German firms\nrepresented there or in Istanbul have recently declined to\nmake either purchases or sales in Turkey. German Ambas-\nThe United Nations and the Arabs\nsador Von Papen, it was said, had been recalled to Berlin,\nReports indicate that at & period when the Axis may be\nbut so far has been unwilling to risk the journey, It was\npreparing a drive through the Middle East, British relations\nreported that he had expressed himself as convinced that\nwith the Arab-speaking populations of that area have im-\nGermany would lose the war if she could not reach the Cau-\nproved somewhat. One observer has even maintained that\ncasus before next winter. Conferences at Sofia Between\nthe British are prepared to grant eventual Arab independ-\nmilitary and naval chiefs of Axis and Balkan nations Hug-\nence-with the sole reservation of certain strategic rights in\ngested a possible offensive in southeastern Europe,\nports and railways,\nObservers stressed the fact that, in the event of an attack,\nThis attitude on the part of the British has already borne\nAxis landings could easily outflank Turkish defenders of\ncertain fruits. In Egypt Premier Nahas-a nationalist in\nThrace and the Straits. Some felt that the Nazis would\n50 far as the peculiar lack of principles in Egyptian polities\nlaunch such a drive only if a previous offensive in southern\ngives any meaning to the term-has stated that the best\nRussia were progressing satisfactorily. Others predicted\npolicy for his country is to keep faith with Britain. Saudi\nthat, after forcing the Straits, Axis uaval units would try to\nArabia is friendly-although British hopes of bringing that\nattack Soviet defenses in the rear and directly threaten\ncountry into the war appear to have been blighted. Certain\nBatum, chief Caucasian oil port. Weather conditions might\nBritish officials consider a declaration of war by Iraq probable.\npermit such an offensive by April.\nAnd in Syria and the Lebanon many of the nationalista seem\nThere appeared to be increasing doubt, however, as to\nto be actually pro-British.\nwhether Turkey would notively resist a Nazi effort to force\nThis latter sentiment appears to reflect primarily the tenao-\nthe Straits. Symptomatic of a less favorable attitude toward\nIty of the Free French in maintaining their prerogatives\nBritain was the report that Sir Stafford Cripps' recent decla-\nunder the mandate. While the natives maintain that the\nration on Russian frontiers had caused high Turkish officials\nSeptember and November proclamations of the de Gaullista\nto suspect Britain's intentions toward their own country.\nhave terminated this regime, General Catroux seems to think\nSimultaneously, other rumors suggested that attacks on\nof the mandate as formally continuing until it shall be ended\nSyria and Southern Russia would simply by-pase Turkey\nby the League of Nations. Such legalistic squabbles, how-\nnorth and south.\never, appear to be only a facade for Catroux's distrust of\nWith the apparent intention of crippling a major base for\nnationalist leaders and for Syrian dissatisfaction with en-\nan Axis attack on Asia Minor, British naval and air forces\ntrunched French officials, whom they consider dishonest and\ninefficient. Admittedly nationalist unrest is playing into the\n16\n17\nSECRET\nSECRET\nhands of Axis propagandists. But the relations of nationalist\nleaders with pro-Ally figures in Egypt and Saudi Arabia\nof A Brazilian declaration of war. Brazil's reluctance to\nhasten into war may be owing to the discovery that the army\nwould appear to indicate that the General may be mistaken as\nin far from prepared to undertake effective military action.\nto their intentions. Meantime, however, it is reported that\nGeneral Dutra is alleged to have failed utterly to put the\nstates. Catroux will soon proclaim a state of siege in the Levant\narmed forces in readiness for war. Instead of having some\n350,000 reservists, as Dutra claims, it is thought that the\nA more formidable obstacle to any British plans for Near\narmy is so disorganized that no reservists at all could be\nEastern self-government is Arab hostility to the Jows in\nmobilized. Equipment, also, is not in condition for use in\nPalestine-whom they feel the British favor, neglecting, for\nthe field, and munitions are lacking. This serious state\nexample, to search Jewish houses for concealed arms. Some\nof affairs, in a country which is overwhelmingly favorable\nArabs seem to believe that Jewish elements are aiming to\nto action with the United States, is said to be causing Presi-\ndraw them into a fight, NO as to enlist world sympathy for\ndent Vargas and others much anxiety.\nthemselves ns champions of the United Nations in conflict\nwith \"pro-Axis\" Arabs.\nThe Aria Sinks a Ship of Neutral Chile\nBrazil Moves Nearer to the War\nThe sinking by an Axis submarine of the Chilean freighter\nOf all the sinkings of Brazilian ships by Axis submarines,\nTolten off New Jersey last Friday, March 13, has produced\nthe Brazilians have most resonted the loss of the Buarque,\namong Chileans not so much indignation as alarm. Since\nwhich was not on its way northward with raw materials of\nChile not only operates ships on the Atlantic, but faces Japan\nmilitary importance, but instead was sailing southward loaded\nin the Pacific, the immediate issue is whether this single\nwith coal. Riots in Rio de Janeiro resulted in the sacking of\nsinking represents the Axis policy toward Chilean shipping.\nseveral German stores and in the burning of books taken\nMr. Summer Welles has expressed the opinion that the loss\nfrom & German bookshop.\nof the Tolten is evidence of Axis determination to sink ships\nSince Brazilian public opinion is carefully shielded by\nof all American Republics, whether or not they maintain\ncensorship from foreign news which might cause a violent\nrelations with the Axis as Chile and Argentina do. The\nreaction of any kind and since the Brazilian police maintain\nChilean government, on the other hand, points to the fact\na very strict watch over public disorders of all kinds, the\nthat the Tolten (sailing at night, to be sure, against the orders\nspontaneity of the Rio riots may be questioned. Very slight\nof the captain of the Port of Baltimore) was sunk only after\npriming, it is thought, would be sufficient to start A public\nthe had been intercepted and commanded by a United States\ndemonstration against the Axis. In this particular caso the\nnaval patrol to extinguish her lights. It is reported that\npolice were conspicuously slow in making their appearance on\nGermany had given the Chilean government to understand\nthe scene.\nthat Chilean ships sailing with lights would not be sunk.\nSpeculation continues, meanwhile, regarding the imminence\nChile, in any case, has now forbidden its ships to obey any\nmaritime authority except Chilean, and has ordered its ships\n18\n19\nSECRET\nSECRET\nto proceed lighted and identified. This indirect censure of\nUnited States naval policy has been supplemented by\nrequest that the United States furnish a ship to transport to a\nAPPENDIX I\nChile the cargo which awaited the Tolten at New York.\nBecause of the questions of lights and conflicting com-\nWEATHER AS A FACTOR IN A JAPANESE\nmands, the Tolten affair is not clear-cut. It is difficult to\nATTACK ON SIBERIA\njudge, therefore, whether this sinking will make Chile more\n!\n192\nISS\nor less reluctant to break relations with the Axis. One Com-\nPLOCOPLANM NO LOW\nmunist deputy and the Communist party newspaper have\nALLI/VIAL MEM\npublicly demanded a break. But the government and A\nKAMQHATKA\n-\nSEA\nOF\nmajority of the press have sought to calm the public until\nan investigation can be made.\nORHOTSK\nU.\nSAKHALIN\nis\nyour\non\nSEAL\nX\nSignature\nMANCHURIA\nVERDICATION\nIRC\nISS\nTRU\n140\n-\nAND\naue\nTHE\n- THE\nFrom the standpoint of terrain and weather alone, the next\n30 days are the most favorable of the year for a Japanese\nattack on the Soviet military centers at Khabarovsk and\nBlagoveshchensk in eastern Siberia, according to a memo-\nrandum prepared by the Geographic Division of the Office of\nthe Coordinator. As the map above shows, most of the\nManchurian-Siberian border is protected by rivers and broad\nflood-plain areas which at present are ice-covered and easily\ntraversed. Aside from Vladivostok (an exceedingly vulner-\nable city) the main centers are largely surrounded by low\n20\nalluvial areas\n21\nRegraded Unclassified\nSECRET\nFor the next few weeks, when winter temperatures have\nessed, but when the three- to eight-foot cover of ico has not\nyet broken up, these frontier water \"barriers\" actually\nconstitute broad highways over which an offensive might\nproceed at numerous points. By April 20, the ice on the\nAmur and other rivers in this district usually breaks up and\nthe ground thaw begins. There is a period beginning in\nearly May, after the spring ground thaw, when terrain con-\nditions might again be suitable for a Japanese offensive.\nBut operations might then be limited by the relatively few\ndry-ground approaches (shown on the map), and the Soviets\nwould be able more effectively to meet the Japanese attack\nby massing troops at these strategic points, and by the use of\ngunboats if river crossings were attempted.\nAlthough mid-winter on the Siberian front is more severe\nthan in western Russia, the temperature in April normally\nrises sufficiently so that it alone would not hamper mechan-\nized operations. Furthermore, fogginess declines and flying\nconditions generally are better than those later in the\nsummer.\nSummer Conditions\nAn additional reason for an attack in Siberia at the earliest\npossible moment-if it is to be envisaged at all-may be seen\nin the need to consolidate victories prior to the beginning of\nheavy summer rainfall. In summer the Amur reaches a\nwidth at some places of 15 miles, and the low alluvial areas\nare virtually impassable (see map). Rainfall becomes in-\ncreasingly heavy in June, reaching a maximum in late July\nand early August. Only on the higher ground along the\nwestern Manchurian border and in a few high spots near\nVladivostok are terrain conditions favorable in summer.\nThe final favorable period for operations is in the full-\nSeptember is best-when summer rains have subsided and\nthe extreme cold of winter has not yet arrived.\n22\nUNIVERSITY PRINTING OFFICE\n149\nTREASURY DEPARTMENT\nFOR RELEASE, MORNING NEWSPAPEI\nWashington\nFriday, March 20, 1942.\nThe Secretary of the Treasury, by this public notice, invites\ntenders for $150,000,000, or thereabouts, or 83-day Treasury bills,\nto be leaued on a discount basis under competitive bidding. The\nbille of this series will be dated March 25, 1942, and will mature\nJune 16, 1942, when the face amount will be payable without interes\nThey will be issued in bearer form only, and in denominations of\n$1,000, $5,000, $10,000, $100,000 $500,000, and $1,000,000\n(maturity value).\nTendere will be received at Federal Reserve Banks and Branches\nup to the closing hour, two o'clock p.m., Eastern war time, Monday,\nMarch 23, 1942. Tenders will not be received at the Treasury\nDepartment, Washington. Each tender must be for an even multiple\nof $1,000, and the price offered must be expressed on the basis\nof 100, with not more than three decimals, e.g., 99.925. Fractions\nmay not be used. It 18 urged that tenders be made on the printed\nforms and forwarded in the special envelopes which will be supplied\nby Federal Reserve Banks or Branches on application therefor.\nTendera will be received without deposit from incorporated\nbanks and trust companies and from responsible and recognized\ndealers in investment securities. Tenders from others must be\naccompanied by payment of 10 percent of the face amount of Treasury\nbille applied for, unless the tenders are accompanied by an express\nguaranty of payment by an incorporated bank or trust company.\nImmediately after the closing hour, tenders will be opened at\nthe Federal Reserve Banks and Branches, following which public\nannouncement will be made by the Secretary of the Treasury of the\namount and price range of accepted bids. Those submitting tendera\nwill be advised of the acceptance or rejection thereof. The\nSecretary of the Treasury expressly reserves the right to accept\nor reject any or all tenders, in whole or in part, and his action\nin any such respect shall be final, Payment of accepted tenders\nat the prices offered must be made or completed at the Federal\nReserve Bank in cash or other immediately available funds on March\n25, 1942. The income derived from Treasury bille, whether interest\nor gain from the sale or other disposition of the bills, shall not\nhave any exemption, as such, and lose from the sale or other die-\nposition of Treasury bills shall not have any special treatment,\nA8 such, under Federal tax Acte now or hereafter enacted. The\n(over)\n30-80\nRegraded Unclassified\n- 2 -\nbills shall be subject to estate, inheritance, gift, or other\nexcise taxes, whether Federal or State, but shall be exempt from\nall taxation now or hereafter imposed on the principal or interest\nthereof by any State, or any of the possessions of the United\nStates, or by any local taxing authority. For purposes of taxatic:\nthe amount of discount at which Treasury bills are originally sold\nby the United States shall be considered to be interest. Under\nSections 42 and 117 (a) (1) of the Internal Revenue Code, 8.8\namended by Section 115 of the Revenue Act of 1941, the amount of\ndiscount at which bills issued hereunder are sold shall not be\nconsidered to accrue until such bills shall be sold, redeemed or\notherwise disposed of, and such bills are exoluded from considers-\ntion as capital assets. Accordingly, the owner of Treasury bills\n(other than life insurance companies) issued hereunder need include\nin his income tax return only the difference between the price pail\nfor such bills, whether on original issue or on subsequent purchase\nand the amount actually received either upon sale or redemption at\nmaturity during the taxable year for which the return is made, as\nordinary gain or loss,\nTreasury Department Circular No. 418, as amended, and this\nnotice, prescribe the terme of the Treasury bills and govern the\nconditions of their issue. Copies of the circular may be obtained\nfrom any Federal Reserve Bank or Branch,\n-000-\n150\nMarch 20, 1942\n9:25 a.m.\nOscar\nCox:\nHave you got another minute?\nHMJr:\nI've got time on the war, always.\nC:\nWell, this 1s Just 8. side issue. I gather\nfrom one of my staff fellows that Ed seemed\nto think that we were against the Treasury\non this A.P.C. thing, contrary to the fact.\nHMJr:\nI think that there were a couple little things,\nas long ae you're asking me, that happened that\nled us to believe you were throwing your weight\nagainst us.\nC:\nOh, no. Not at all.\nHMJr:\nWhat?\nC:\nNot at all. We still feel that as 8 matter of\nsound administration, it should have been in\nthe Treasury.\nHMJr:\nWell\nC:\nFelt that way all along.\nHMJr:\nWell, the way it 18 now - the way the order\nwas drawn\nC:\nYeah.\nHMJr:\nneither Crowley can operate, nor we.\n0:\nThat's right.\nHMJr:\nAnd Ed was at the house last night, and we're\nputting up something to Crowley today or tomorrow\nand he'll see what he can do. But the way it\nis now, both he and I are hamstrung.\nC:\nWell, there's no question about that.\nHMJr:\nAnd he\nC:\nWe've been consistent throughout this thing.\nRegraded Unclassified\n151\n- 2 -\nHMJr:\nWhat?\nC:\nI say, we've been consistent throughout this\nthing and felt strongly.\nHMJr:\nWell, Oscar, as far as I'm concerned, I've\ndone my Job in that\nC:\nOh, I know you have.\nHMJr:\nI've cleaned that mess out of Aniline Dye,\nand demonstrated to the Germans that by paying\none law firm $250,000 and one political figure\n$90,000, influence another a hundred, that you can't buy\n0:\nRight.\nHMJr:\n.....\nthe way the Nazi party does it in Germany.\nC:\nRight.\nHMJr:\nHello.\nC:\nYeah. Well, that's damned important to do that.\nHMJr:\nAnd we've now demonstrated that you just can't\nbuy this Administration.\nC:\nYeah.\nHMJr:\nAnd 88 far as I'm concerned, having made that\ndemonstration, I'm satisfied with one proviso -\nthe way it is now, Crowley can draw on me for\nthe entire French funds.\nC:\nThat's right.\nHMJr:\nIf he wanted to.\nC:\nRight.\nHMJr:\nHello.\nC:\nYes, he could.\nHMJr:\nAnd I want to separate - this 18 the way I\nRegraded Unclassified\n152\n- 3 -\nthought of putting it up to him. Let him\nhave enemy alien property. Hello.\nC:\nYes.\nHMJr:\nExclusive of Government or Central Bank funds.\nC:\nYeah.\nHMJr:\nSee?\nC:\nYeah.\nHMJr:\nWe keep anything that has to do with Government\nor Central Bank funds.\nC:\nOr non-enemy.\nHMJr:\nor non-enemy property.\n0:\nYeah.\nHMJr:\nIn other words, my conception - I mean, since\nthe President's done this - 18 that Crowley should\nbe enemy alien property custodian.\nC:\nYes.\nHMJr:\nHello.\nC:\nYes. I'm not BO sure that third part is sound.\nHMJr:\nYou're not.\nC:\nNo, because if you try to separate the thing,\nyou begin to throw some question about both your\nlegal power and your ability to divide what 18\nenemy alien and what isn't.\nHMJr:\nWell, now, let me take, for example - supposing\nthe Queen of the Netherlands owns B. lot of\nproperty here.\nC:\nYeah.\nHMJr:\nShe's supposed to.\nRegraded Unclassified\n153\n4 -\nC:\nYesh.\nHMJr:\nWhy should Crowley take that over if the\nState Department would let him?\nC:\nFor vesting purposes he shouldn't.\nHMJr:\nAnd vest it in United States Government.\nC:\nNo, he shouldn't.\nHMJr:\nWhat?\nC:\nHe shouldn't. I think the division is much\nbetter made that you handle all the non-vesting\ncases, not try to draw a distinction between\nenemy alien and non-enemy alien property. In\nother words, a.8 to Government-owned funds,\nCentral Bank funds, and cases where he does\nnot vest but where you want to exercise the\ndegree of control up to vesting. In other words,\nyour freezing control, I don't t see any reason\nwhy Crowley ought to go into the freezing thing,\nwhich 1s really B. branch of economic warfare\nand not custodianship of property.\nHMJr:\nBut I still - why should he - 8.8 I say, do\nyou agree with me that he should not vest in\nUnited States Government either Dutch or Nor-\nwegian property?\nC:\nThat's right.\nHMJr:\nWhat?\nC:\nThat's right.\nHMJr:\nWell, at present, the way it's set up he could.\nC:\nCould, but he shouldn't.\nHMJr:\nWell, I'd like that clean-cut.\nC:\nI think 80.\nHMJr:\nWhat?\nC :\nI think that's wise.\nRegraded Unclassified\n154\n- 5 -\nHMJr:\nAnd I thought 8. good place to start was enemy\nalien property custodian.\nC:\nWell, that's all right if you make a mutual\nagreement between you; but I wouldn't publish\nthat distinction.\nHMJr:\nWell, the way the thing has gone recently, I\npretty much want some stuff in writing - not\nthat\nC:\nIt ought to be in writing.\nHMJr:\nWhat?\nC:\nIt ought to be in writing.\nHMJr:\nNot that Leo hasn't kept faith with me.\nC:\nYeah.\nHMJr:\nBecause on this\nC:\nWell, I think you need it in writing for another\npurpose. There'll be a lot of people in this\nthing, and you and Leo can keep faith; but when\nyou get down the line, you don't know what's\ngoing to happen.\nHMJr:\nWell - and, of course, everybody was betting\nthat we'd never get rid of that crowd out of\nAniline Dye.\nC:\nYeah. Well, they didn't know you.\nHMJr:\nWhat?\nC:\nThey didn't know you well enough.\nHMJr:\nWell, if I have ever done the President 8. service,\nI did on that.\nC:\nOh, certainly.\nHMJr:\nWell, anyway, 8.8 long as you're calling me, why\ndon't you ask Ed to have lunch with you some day.\nRegraded Unclassified\n155\n- 6 -\nC:\nI will.\nHMJr:\nWhat?\nC:\nI will.\nHMJr:\nDo that.\nC:\nAll right.\nHMJr:\nRight.\nC:\nGood-bye.\nHMJr:\nGood-bye.\nRegraded Unclassified\n156\nMarch 20, 1942\n9:18 a.m.\nOperator:\nGo ahead.\nHMJr:\nHello.\nOscar\nCox:\nHello.\nHMJr:\nOscar.\nC:\nYes, Mr. Secretary.\nHMJr:\nIn which of your three capacities am I speaking\nto you?\nC:\nFriend.\nHMJr:\nWhat?\nC:\nFriend of the War.\nHMJr:\nFriend of the War? Well, that's 6 fourth\ncapacity.\nC:\nThat's right.\nHMJr:\nBut I say that would come first.\n0:\nI should say 80. Look, you know this Sea Otter\nbusiness, don't you.\nHMJr:\nWell, I knew about it six months ago.\nC:\nWell, it's been revived, because curiously\nenough Senator Brewster went to see the President\nabout it.\nHMJr:\nI eaw that in the papers.\nC:\nAnd apparently the President, as Brewster put\nit, was not only displeased with the way the\nthing's been going, but angry.\nHMJr:\nYeah.\nC:\nAnd Brewster wanted to know if he could talk\nRegraded Unclassified\n157\n- 2 -\nto me and Bee if we couldn't get it off the\nground.\nHMJr:\nYeah.\nC:\nHe did.\nHMJr:\nYes.\nC:\nAnd two fellows over in the Navy who are almost\non the verge of being court-martialed because\nthey're interested in this thing.\nHMJr:\nWell, those are the men, I imagine, that designed\nit in the first place.\nC :\nNo, they worked on it. The designer ie an\noutstanding Naval architect who lives in Washing-\nton, and probably the President knowe him ouite\nwell.\nHMJr:\nYes.\nC:\nNow, they want to go ahead with the thing. The\ndefecte on the Navy test were not serious.\nHMJr:\nYes.\nC:\nAnd as a matter of fact, they had in mind some\ncorrection in any event.\nHMJr:\nYes.\nC:\nNow, if these two fellowe go off on their own,\nthey'll get completely loet.\nHMJr:\nYeah.\nC:\nMaritime won't give them much help, nor will\nNavy,\nHMJr:\nYeah.\nC:\nAnd I wondered if we could get the President\nto ask you whether you would take it under your\nwing.\nHMJr:\nWell, Oscar. Hello.\nRegraded Unclassified\n158\n- 3 -\nC :\nYeah.\nHMJr:\nWell, I'm just thinking out loud, but what\nwould the excuse be that he'd want me to do\nthat?\nC:\nWell, that Treasury Procurement would look\nafter the thing and tend to contracting to\nget the line drawings done, get the experimental\ntest work done; and then if the test should show\nup satisfactorily, go ahead and make the necessary\narrangements for Procurement.\nHMJr:\nWell, I'll tell you something terribly funny.\nWhen I first eaw these plans, when McIntyre was\nacting as the President's side - which must be\nat least six months ago\nC:\nYes.\nHMJr:\nI was very much tempted to ask for it, you\nsee?\nC:\nYeah.\nHMJr:\nThen I decided it was too far removed.\n0:\nWell, what you really ought to do 18 have some-\nbody who knowe nothing about shipbuilding running\nthis thing.\nHMJr:\nWell, that goes for these small ships, too, which\nthe President's 80 interested in.\nC :\nYes. Well, this, of course, 18 a fairly small\nship.\nHMJr:\nI know, but I mean, he's been absolutely frustrated\non the small ships.\nC:\nOh, yes, definitely.\nHMJr:\nI mean, all thie - if we had our emall ships,\nthen we wouldn't have all this trouble with the\nsubs.\nC:\nThat's right. And as 8. matter of fact, I would\nRegraded Unclassified\n159\n+ , !\neay from what little I know about this thing\nthat the chances are really eighty to twenty\nof this thing being a success.\nHMJr:\nWhat is that?\nC:\nI would say the chances are eighty to twenty\nthat this thing would be 8 success.\nHMJr:\nWell, let me ask you this, Oscar, how would the\nPresident be approached. I certainly wouldn't\naek him.\nC:\nOh, no. We'd arrange for that.\nHMJr:\nWho's we?\nC:\nWell, probably after Brewster saw the President,\nhe said he would also talk to Harry about it.\nHMJr:\nYeah.\nC:\nAnd Brewster wanted to know if he could come\nover; and before going over to see Brewster, I\nchecked with Harry and he said, \"Go ahead.\nHMJr:\nI see.\nC:\nNow, what I would do would be to either put it\nup to Harry or have - do that and have Brewster\nfollow up on his conference with the President.\nHMJr:\nWell, it would\nC:\nIt's a unique political situation here, too, where\na Republican Senator 1e pressing the Administration\nto go ahead with something that two agencies have\nbeen inclined to turn down.\nHMJr:\nWell, I'd be reluctant, but if - I don't think -\nI'm cuite sure the President wouldn't; but if you\nwanted\nC:\nI'd like to get it put up to him.\nHMJr:\nIt's all right.\nC:\nBecause I think you're the only fellow that I know\nRegraded Unclassified\n160\n- 5 -\nin the Government with your organization that's\ngot a chance of putting it across.\nHMJr:\nYeah.\nC:\nAnd I think that it's damned important - it's\nprobably the most important thing we bring in\nthe picture.\nHMJr:\nof course, if I was going to do it, I'd have\nto borrow a couple of my good Coast Guard men.\nC:\nWell, I was going to say, you'd not only have\nto do that; but I'd also consider going up to\na place like M.I.T. and borrowing one of their\nbest naval architects and construction people.\nHMJr:\nYeah.\nof course, the fellow - nobody likes him\nC:\nYeah.\nHMJr:\nbut the fellow that's got - that I'd get -\nhas more push than anybody else so far, 18 this\nfellow Kaiser.\nCI\nYeah. Well, there's no objection to getting him.\nAg B matter of fact, most of the emall yarde in\nthis country can build the boats, that's the\nother advantage. You wouldn't even need to take\nanything away from the Maritime Commission.\nHMJr:\nWell, I saw it. I saw the whole plan that they\nbrought in earlier. It's a question of riveting -\nwelding these plates.\nDi\nThat's right.\nHMJr:\nAnd then these Chrysler truck motore, that's\nwhat it 18.\nC:\nThey're marine engines - Chryeler marine.\nHMJr:\nWell, marine.\nC:\nYeah.\nRegraded Unclassified\n162\n- 7 -\nHMJr:\nOne.\nC:\nThat's B. Chinese understatement.\nHMJr:\nOh.\nC:\nNo, you had - you're what the lawyers call\nthe props and the core.\nAMJr:\nWell, I think I stirred them up.\nC:\noh, I don't think there's any cuestion about\nit.\nHMJr:\nAnd Patterson told me yesterday, after about\nI don't know how many calle, they finally put\n8 Colonel in Philadelphia.\nC:\nYeah.\nHMJr:\nAnd that's straightened out. There are three\nhundred cars 8 day flowing into Philadelphia\nsince yesterday.\nC:\noh, wonderful.\nHMJr:\nThree hundred care.\nC:\nYeah.\nHMJr:\nAnd you know the railroads were going to stop\nthem all in order to clean it up.\nC:\nYeah. Well, that's good news.\nHMJr:\nBo I think that that Russian thing\nC:\nThat's off the ground.\nHMJr:\nWell, it 18 if Nelson will act.\nC:\nI think be will now.\nHMJr:\nWell, I'm going to put something up to him on our\nlittle show. We're 25,000 tons short between now\nand the first of April.\nC:\nYeah.\nRegraded Unclassified\n163\n- 8 -\nHMJr:\nAnd I want to get that.\nC:\nYeah.\nHXJr:\nAnd we tried something new - we sent telegrame\nto these plants, you 888.\nC:\nYeah.\nHMJr:\nAnd asked them where would they be by the twenty-\nfirst, the twenty-eighth, and the thirty-first.\nC:\nOh, that's a good idea.\nHMJr:\nThree dates.\nC:\nYeah.\nHMJr:\nAnd out of that came that they would be short\n25,000 tons.\nC:\nRight. You know that that letter in ite original\ndraft\nHMJr:\nYeah.\nC:\ngave the raw materials first priority except\nwhere to do 80 would result in an extraordinary\ninterference with domestic production.\nHMJr:\nYes.\nC:\nAnd they took the exception out. They said it\ngave them a loophole and they wanted no loophole.\nHMJr:\nYeah.\nC:\nI thought you might want to know that for back-\nground.\nHMJr:\nThey have no loophole now.\nC:\nNo, no. It's Just a flat priority ahead of every-\nthing else.\nHMJr:\nYeah. Well, keep plugging, Oscar.\nC:\nOh, sure,\nRegraded Unclassified\n164\nMarch 20, 1942\n10:10 a.m.\nFINANCING\nPresent: Mr. Bell\nMr. Haas\nMr. Buffington\nMr. Viner\nMr. Murphy\nMr. Hadley\nMr. Lindow\nH.M.JR: Who all are coming over from the Fed this\nmorning?\nMR. BELL: Eccles, McKeechie and Sproul.\nH.M.JR: Did you tell them who I was having?\nMR. BELL: Yes. Do you want to change it?\nH.M.JR: Oh, no. They didn't object? They knew\nwho was going to be here?\nMR. BELL: Yes, that is right. They asked to keep\nit small.\nH.M.JR: Well, you add George to the list.\nMR. BELL: If you want to change it, I will do that.\nH.M.JR: Oh, no, the less of them the better. Let\nme read Buffington's memorandum on this. Have you all\nRegraded Unclassified\n165\n- 2 -\nread it this time?\nMR. BUFFINGTON: I am sorry, Dan has read it and\nI have talked it.\nH.M.JR: Honestly, can't you fellows give people a\nchance to read these things so that I don't have to go--\nMR. BELL: We discussed, Mr. Secretary, with the\nrest of them.\nH.M.JR: But why not show it to them? I go through\nthis every morning. I have a memorandum and has every-\nbody seen it? No. Damn it, every morning it is the same\nproposition. How can Viner and the rest of them advise\nme?\nMR. VINER: I got an oral exposition of it.\nH.M.JR: You sit outside and why not let a man read\nit?\nMR. BELL: I think they got it.\nH.M.JR: This is the third morning this thing has\nhappened. Dan, please, when there is & memorandum, it\nis up to you to see that these people see them. Every\nmorning it is the same proposition. This is the third\ntime now.\nWhat were the kind of concerns that you saw, George?\nMR. BUFFINGTON: International Harvester Company,\nPullman Company, John Wanamaker Company, Standard of\nIndiana, Standard of New Jersey, Wrigley Company, Quaker\nOats Company, Continental Casualty, U. S. Steel Corpora-\ntion, U. S. Rubber Company.\nH.M.JR: Well, did any of those have idle funds?\nMR. BUFFINGTON: Yes, sir.\nH.M.JR: Which ones?\nRegraded Unclassified\n166\n- 3 -\nMR. BUFFINGTON: The International Harvester Company,\nCommonwealth Edison Company, Pullman Company, Lumbermen's\nMutual Casualty Company, Standard Oil of Indiana.\nH.M.JR: Let's go back to the first one then. What\nis the first one on your list?\nMR. BUFFINGTON: International Harvester Company.\nH.M.JR: Well now, what would they be interested in?\nMR. BUFFINGTON: Primarily certificates of indebted-\nness and bills.\nH.M.JR: Now what is the next one?\nMR. BUFFINGTON: Commonwealth Edison Company, both\nbills and certificates of indebtedness. Those two companies\nboth have future needs that they can schedule.\nH.M.JR: Neither of them are interested in a five-\nyear issue?\nMR. BUFFINGTON: Not particularly. Lumbermen's\nMutual Casualty Company would only be interested and are\nnow buying bills and would buy certificates of indebted-\nness.\nSwift and Company has reabsorbed recently their\nexcess funds through higher inventory values.\nStandard Oil of Indiana have sixty million Governments\nmaturing up to 1945. They have some bills and would like\nvery much to buy certificates paying 8. half from six to\nnine months.\nQuaker Oats Company, same thing, would prefer cer-\ntificates and would buy some bills. They would buy more\nbills if the rate was a little better.\nContinental Casualty Company, for the casualty com-\npanies, would buy both bills and certificates.\nRegraded Unclassified\n167\n- 4 -\nIn New York, Singer Manufacturing Company, who have\ncontracted very sharply their foreign operations and have\nsixty-eight million in Governments now maturing in 1948\nwould like very much to buy a tap issue because their\nneeds are not quite as certain or as early as some of\nthe other corporations.\nStandard Oil of New Jersey own a very large amount.\nI think they own now between fifty and sixty míllion of\nbills.\nSteel Corporation has never invested funds, but were\ninterested in the purchase of five-year tap issues and\nwould buy some bills.\nCorn Products Company would buy bills and certifi-\ncates; but, as I told you yesterday, if you just lay out\nthe pattern, they will follow along.\nH.M.JR: Are you finished?\nMR. BUFFINGTON: The thing in that memorandum which\nI think is important, while I got a fairly good cross-\nsection of the type of business which I have outlined,\nit would seem to me desirable before deciding definitely\non the tap issue to go a little further and get probably\na broader cross-section of industry, getting into some\nmore moderate-sized companies.\nH.M.JR: Should I read this before I make up my\nmind? Is this different?\nMR. BELL: Yes, that follows our conference with the\nFederal Reserve Board the other day.\nH.M.JR: Have they seen this yet?\nMR. BELL: That has been distributed. After we\ngot through with our conference over there, at the end\nEccles called Sproul on the telephone and when they\nfinished he asked Sproul to send down 8. memorandum along\nthe lines of this telephone statement. That is Sproul's\nRegraded Unclassified\n168\n- 5 -\nmemorandum and I think Eccles agrees with it. That is\nwhat they will tell you this morning.\nH.M.JR: Then I had better read it. I got a couple\nof ideas myself during the night. There are two things\nthat I would like you to do. One thing is - if you\ngentlemen think We will have it - I would like you to\nget a thousand names of people who this year have bought\ntheir maximum of \"F\" and \"G\", you see, and if possible,\njust mimeograph a letter and simply say, \"Dear Sirs:\nWe notice that you have bought your maximum of 'F' and\n'G'. We would like to know for our own confidential\ninformation that if we decide to increase this to 8.\nhundred thousand, would you avail yourself of this op-\nportunity.\" Now, if that could go out, it ought to be\nable to be mimeographed and go out - well, certainly by\ntomorrow night, couldn't it?\nMR. BELL: We will see. I don't know how readily\nthe names are available.\nH.M.JR: Well, I should hope it would be in shape.\nThen again, guessing whether they would or wouldn't, you\nwould get back a thousand names and depending upon the\npercentage of the people who would say they would, we\ncould decide should we raise it to a hundred, but we\nsit here and guess, Is that right, Jack?\nMR. VINER: I think that is a good idea.\nH.M.JR: What is the use of always guessing?\nMR. VINER: It is a good idea.\nH.M.JR: And then if--\nMR. BELL: The fifty was 8. guess, that is right.\nWe didn't know where to put it.\nMR. VINER: A guess as to what sort of 8. response\nthere would be to raising the ceiling.\nH.M.JR: I am not saying - supposing seventy-five\nRegraded Unclassifie\n169\n- 6 -\npercent said, \"Yes, we would like to buy another fifty,\"\nand they were the right kind of people in the sense\nthat they were trusts and 80 forth and 80 on, then we\nwould know. We are guessing do they want another fifty.\nMR. BELL: Would you want to ask them the question\nin that letter, \"If you want more of the 'F' and 'G's',\nwould you have to sell securities that you now own to\nbuy them\", or would it be out of order?\nMR. HAAS: That is why we didn't raise it above\nfifty.\nMR. VINER: That will be an additional question.\nIt would through light on the significance--\nH.M.JR: Could you put it 8 little bit differently,\nso it isn't 30 obvious, \"What would be the source of the\nfunds that you would buy your second fifty with?\" I\nmean, I wouldn't plant it in their mind that they have\nto.\nMR. BELL: That is all right. That gets the same\nquestion over.\nH.M.JR: But I think if you did that, then this thing\nthat we have been told, that they would have to sell, you\nmight find that they do or they don't, and they are talk-\ning about idle funds - anyway, I think it is an intelli-\ngent way to do it. It may get us nothing and on the other\nhand we may be surprised. I would like great steam to\nbe put on, if possible, to get it out by Saturday night,\nif it is mechanically possible.\nMR. BELL: I think maybe it is.\nH.M.JR: That is my first suggestion.\nNow, the other thing is this. I may be all wrong\non this. I have read this thing. This is out of yester-\nday's discussion. I don't agree with Sproul that we should\nfirst do the bills and then, if we need more money, we should\ndo the certificates. We know we need more money, and I\nrade\n170\n- 7 -\nam leaning toward doing the certificates first and not\nthe bills, because I don't see, if I am a corporation or\na bank and can get B. certificate that will pay me a half\npercent for six months, why I should fuss around with a\nbill that will pay me a quarter or less. If we offer\nthem the certificates and I have got money, I will not -\nI will take my certificates. I won't take the bills.\nThere will be less buyers of bills and the bill rate will\ngo higher. That is what is going to happen, and that is\nwhat we don't want.\nNow, if We could just do the bills the way Sproul\nsays and then do the certificates - well, the bill rate\nmight stay down. What they propose to do would be all\nright, but it would only be a week or so before we would\nneed the certificates, and we can't do the thing. Every-\nbody would know about it and they would simply says, \"There\nis no use of buying the bills, because in a week the\nTreasury is going to get out the certificates,\" and you\nwould have 8. hardening of your rates.\nNow, what we are hoping to do is, supposing we said,\n\"We will do nothing now, but we will take seven hundred\nfifty million of certificates and leave the bills where\nthey are.\" Then there may be a chance that the certifi-\ncate - that there is so much money that the certificate\nrate - that at the end of April we might be able to go\nseven or eight months or nine months.\nNow, it can't make a difference of over two or three\nhundred million dollars if we held back the bills for 8.\nmonth.\nMR. BELL: Two hundred fifty-eight million dollars\nin April. There are five weeks there, five Wednesdays.\nH.M.JR: I am picking up where you left off yester-\nday.\nMR. BELL: I think this has one advantage in putting\nout the certificates. First, it kind of sets the top\nfor the short-term money in that period, and bills -\nRegraded Unclassified\n171\n- 8 -\nninety-day bills shouldn't go up to any rate that you\nestablish on this six months, I should think, but I do\nthink there is another point you want to consider and\nthat is, does this establish in the minds of the public\n& type of financing that the Treasury is going to do?\nIn other words, are we going to do a lot of this financ-\ning through banks, and do they get set on that idea?\nThat is the argument you are going to run into this\nmorning with the Federal, and I think George is a little\nworried about it.\nMR. HAAS: Unless the proper explanation is given.\nMR. BELL: Yes.\nH.M.JR: Look, I would be perfectly willing to meet\nthe press before I go away and say, \"Gentlemen, we can't\nhave B. complete plan.\" You have got to learn how to walk\nbefore you run.\nMR. HAAS: You can say it is for business, for this\ntype of funds.\nMR. VINER: Couldn't you say this, that you hope\nthat 8. large proportion of the subscriptions to these\ncertificates will come from outside of the banks?\nMR. BELL: That is right.\nMR. VINER: At least you can say that. I don't see\nany harm in that, and it seems to me it does work into\nthe pattern that you must be working for and it is a\nsecurity suitable for non-bankers. I mean, you are not\nreally asking them to do something that is unsuitable.\nIt seems to me highly suitable for non-bankers.\nMR. HAAS: The Fed didn't like that statement. We\nhad that in, Jack, when we went over, but I think they\nwould agree to that.\nMR. BELL: And I agree with Jack's version of it.\nMR. VINER: You needn't mention the banks. You might\nRegraded Unclassified\n172\n- 9 -\nsay that we hope this new security will be found attractive\nby - and then--\nMR. BELL: Non-banking.\nMR. VINER: Don't say non-banking, but list 8. few\ncategories, for businessmen for their temporary idle\nfunds and so on.\nMR. HAAS: And to bring about fluidity in reserves.\nMR. VINER: And to bring about fluidity in reserves.\nMR. HAAS: That is what we had.\nMR. BELL: What they are afraid of is that if you\nsay too much about business balances, you are going to\nkill any chance of a short tap.\nMR. VINER: Of the five-year thing, you mean?\nMR. BELL: Yes. And I suppose it will have some\nbearing on it.\nMR. VINER: But there is another thing you can say.\nYou hope to get a nation-wide subscription to it because\nthe geographical corresponds so much with the class that\nif you get subscriptions outside of New York and Chicago,\nyou are getting the sort of subscriptions you want.\nH.M.JR: Well, let me just ask you this. For the\nmoment, as I take it, we are just talking about doing the\ncertificate only and waiting on the bill. Right?\nMR. BELL: That is right.\nH.M.JR: For the moment. Let's say that the thing\nworks well and the Standard Oil and the big companies\nand all those along the line put some of their money\ninto that. Would that give me 8. better distribution of\nexcess reserves?\nMR. VINER: It would.\nRegraded Unclassified\n173\n- 10 -\nH.M.JR: It will? Are you all in agreement on that?\nMR. VINER: I think that is the probability.\nMR. HAAS: Between banks and between regions.\nH.M.JR: It will give us--\nMR. HAAS: Sure. For instance, if Guaranty buys\nsomething, that money goes to somebody else that would be\ninterested in other securities.\nMR. VINER: It isn't the Guaranty who buys it. If a\nPacific Coast air concern buys it. Some of those funds -\nif it is all bought west of the Mississippi, some of those\nfunds will flow back to the East to New York.\nMR. HAAS: There is that too, but in New York City\nalone, if Guaranty buys it, these funds will go back into\nsome other New York firm.\nMR. BELL: There will be a shift between banks, in\nother words. One bank will get excess reserves increased\nand the other one will decrease them. Guaranty's excess\nreserves were down to about two hundred and eight last\nweek.\nH.M.JR: But it would give us 8. certain amount of--\nMR. HAAS: Fluidity.\nH.M.JR:\nfluidity, wouldn't it?\nMR. BELL: That is right. The wider your distribu-\ntion, the better your reserves can move around.\nH.M.JR: And could we say to the Fed, \"Now, we want\nto try this thing first with the certificates, but when we\nare doing it, we want you to hold our two and 8. half percent\nlongs about where they are\"?\nMR. VINER: Oh, for the time being, sure. I think\nRegraded Unclassified\n174\n- 11 -\nthey ought to do it anyway.\nH.M.JR: What are they?\nMR. HADLEY: The longest bond has about a three-\nquarter point premium on it.\nH.M.JR: Could we say, \"We would like you to hold\nit for us about where it is,\" Dan?\nMR. BELL: Yes, we can say that. I think they will\nargue there for a range of rates from about two - what\nwe discussed last time we met on that point, two forty-\nfour to two fifty-four.\nMR. VINER: But Dan, that rate would be for a longer\nperiod of time. For any short period--\nMR. BELL: It ought to involve all these other things.\nMR. VINER: The shorter period the narrower the range\nthat is legitimate.\nH.M.JR: All I would say to them, \"I would like you\nto hold it approximately where it is with the minimum of\nfluctuation.\nMR. VINER: For the time being?\nH.M.JR: Yes.\nMR. BELL: Until we can agree on the long program.\nH.M.JR: And if they say rates, I am going to talk\nin terms, approximately, with a minimum of fluctuation.\n\"Well, what does that mean?\" \"Well, I don't think\nthis should fluctuate more than a half point from where\nit is now.\"\nMR. VINER: For a short period of time. Because\nthe longer the period, the wider the legitimate range.\nRegraded Unclassified\n175\n- 12 -\nH.M.JR: No, this is to be ajusted--\nMR. VINER: I think that is reasonable--\nH.M.JR: As often as necessary. We can have a\ntalk tomorrow or & week from now, but constant consulta-\ntion.\nMR. BELL: Does that mean hold it within half a\npoint on each side of the present?\nH.M.JR: Oh, I would rather leave it - I don't want -\nI would rather say hold it - the minimum of fluctuation\nand not be pinned down. \"You people in the open market\nhave got to decide how to do it. It is your responsibility.\nNow do it. If I am not satisfied, I will call you up on\nthe phone and tell you so.\"\nMR. BELL: If it starts to go up, they might sell\nsome and hold it down to the present price.\nH.M.JR: That is all right, but I will simply say,\n\"No, Mr. Eccles, if I am not satisfied, I will call you\non the phone and say 50. As long as I am satisfied, you\nwon't hear from me.\nMR. BELL: I think that is all right.\nH.M.JR: \"I mean, you are the open market and it is\nyour responsibility. Do your stuff. If I am not pleased,\nI will call you up on the phone.\"\nBut am I right, gentlemen, in trying to do just the\ncertificate first and not do the bills?\nMR. HAAS: I think you would be very wise. Dan\nmade a very good point there, I think, that if you do\nthe bills first, what happens? You run your short-term\nrates up and then on a high level you come out with a\ncertificate.\nMR. BELL: You can't do a certificate for six months\nat a half percent.\nRegraded Unclassified\n176\n- 13 -\nH.M.JR: Pardon?\nMR. BELL: I am afraid if you start your bills first\nthat you might run your rate up and then you couldn't\ndo the certificate for a half for six months, and if you\nput this first, I think it sort of establishes B. ceiling\nfor your short rate.\nMR. VINER: But I think you can sell the certifi-\ncates, my guess, at the same rate as you can sell the\nbills.\nMR. BELL: You might.\nMR. VINER: Give them the quantities you want to\nfloat. A six-month's bill, put it that way, a six-month's\nbill would be more attractive to them than a three-month's\nbill.\nMR. BELL: If that is true, Jack, you have pretty\nwell set your bill rate, haven't you? Your certificates\nare going to become very popular.\nMR. VINER: You remember what I said yesterday, that\nif you offer them 8. certificate of a half a percent, you\nare killing your bill market at anything like a point two\nor B. point twenty-five rate because the bills are costlier\nto handle for them, they are harder to bid for them, they\nhave more turn-overs to make in order to get an invest-\nment, and they are & discount and they prefer 8 coupon,\nBO that I think your certificate is going to be a much\nmore attractive issue for them, and you are getting to\nthe half a percent rate, which is - which is all right.\nIt doesn't bother me but\nin other words, I think\nthere is 8. good chance that you will find that all the\ndiscussion about the bills will become obsolete if you\nare prepared to issue certificates, six-month's certifi-\ncates at half a percent, that you will be able to sell\ngreat quantities of them and that they will do the job\nthat normerly you would have expected bills to do, and\nthat the bill thing will be obsolete. It will be 8. minor\nthing and a marginal, and it will be a New York-Chicago\nthing with the big banks. Nobody else will be interested\nRegraded Unclassified\n177\n- 14 -\nin them. The certificates will perform the function in\nthe money market which the bills are supposed to have\nperformed. Now, it is all right with me except that you\nare not doing it at a point two rate. You are doing it\nat & point five rate.\nH.M.JR: Well, I have watched this thing long\nenough, and I am surprised to hear that any corporation\nowned our bills.\nMR. BELL: Well, there are only fifty-four percent\nof our outstanding bills in the hands of the banks and\ninsurance companies.\nH.M.JR: Only fifty-four?\nMR. BELL: Forty-six percent of them some place\nelse.\nH.M.JR: Well, I didn't know that.\nMR. BELL: That is the January 31 figure.\nMR. LINDOW: I think it is sixty-four percent in the\nbanks and insurance companies.\nH.M.JR: Well, you can't--\nMR. BELL: Even that leaves thirty-six percent.\nH.M.JR: But how much between the banks and insurance.\nMR. LINDOW: Mostly the banks, Mr. Secretary.\nMR. BELL: Insurance companies hold ten percent.\nH.M.JR: Well, I wouldn't be worried if I could go\nthrough this war on a half a percent between six months\nand B year.\nMR. HAAS: That is all right.\nH.M.JR: I mean, if I could borrow from six months\nRegraded Unclassified\n178\n- 15 -\nto 8. year for a half of one percent I would say I was\ndoing very well.\nMR. HAAS: That would be fine.\nMR. VINER: I think you ought to consider on this\nTreasury certificate for the first issue at least a\npreparation to move back - oh, I see. It would be the\nother way. Offer them six--\nMR. BELL: Nine months.\nMR. VINER: Perhaps the other way. It was George's\nearlier point that if the rate is too good, it is better\nto stiffen the rate than to retreat, but it depends on\nhow much you want to float. I think half 8. percent for\nsix months is a very good rate now from the first point\nof view.\nMR. HAAS: It may be too good. I think you would\nwant us to look that over very carefully. I mean, that\nis a part of pricing.\nMR. VINER: But if it is too good, then you have\nhad a great success, you have offered them 8. security\nand you offer your next issue at eight months, seven\nmonths.\nH.M.JR: That is right.\nMR. BELL: When you come to offer them you might\nwant to put them seven months instead of six months to\nmake it a little finer.\nH.M.JR: That is right. Now, let's just--\nMR. BELL: You don't think seven hundred fifty\nmillion dollars would stiffen the rate a lot do you?\nMR. VINER: I don't think seven hundred fifty mil-\nlion will make 8. ripple in the market.\nMR. BELL: And we will know better when the next\nRegraded Unclassified\n179\n- 16 -\none comes along.\nMR. VINER: If you give them time, because you are\ngoing now to tap people who have not been daily in contact\nwith Treasury operations and so on, and if you want to\nbring in a wider market, then you mustn't rely on their\nbeing on their toes and ready to do that, because a\ncomptroller has to consult his chairman, and it is a\nnew idea and it has got to circulate, and they have got\nto talk it over with others. On the first time that he\nis given time--\nH.M.JR: I would give them three days.\nMR. BELL: Leave it open that long?\nH.M.JR: Yes.\nMR. VINER: I would leave it open--\nMR. BELL: We have got to get used to that anyhow,\nI think.\nMR. VINER: Mr. Secretary, I would leave it open\neven though on the first day you get a huge over-sub-\nscription, 30 as to train them to buy, I mean the ones\nwho - so as to train them to buy. Give them a chance,\ngive the others a chance to learn what is the - after\nall, they read about it in the newspaper, and then they\nhave to talk to somebody, and the man isn't down that\nmorning and 80 on.\nH.M.JR: Instead of leaving it open for three days,\nyou could announce on & Monday that the issue would come\nWednesday.\nMR. VINER: Yes, that is another way to do it.\nMR. BELL: You could give these corporations a\npreliminary notice.\nH.M.JR: Supposing you announced on Monday that on\nWednesday we are going to have this kind of an issue, you\nsee.\nRegraded Unclassified\n180\n- 17 -\nMR. BUFFINGTON: The Steel Corporation asked that\nespecially, because their finance committee has got to\nact on it.\nMR. VINER: You have to get a finance committee to-\ngether and 80 on.\nH.M.JR: Supposing we said on Monday we were going\nto announce this kind of an issue on Wednesday.\nMR. BUFFINGTON: That gives them an opportunity\nfor & meeting.\nMR. VINER: You are operating with amateur buyers,\nnot professional ones.\nH.M.JR: I think it would be better to do it that\nway rather than do it Wednesday and keep it open for\nthree days because that might look bad.\nMR. BELL: It would on a shorter issue, but I think\non our long issues we have got to come around to leaving\nthem open.\nMR. BUFFINGTON: But if you announced this thing\nMonday, that Wednesday there would be such and such an\nissue, the chances are the people would call their finance\ncommittee together on Wednesday.\nMR. BELL: And we could on Wednesday or on Monday,\nwhen you make that announcement, have the Federal cir-\ncularize the large corporations in their district.\nH.M.JR: That is right.\nMR. BELL: And tell them about it.\nH.M.JR: Now let me just take a minute or two and\ngo around. How would you feel about this, George?\nMR. BUFFINGTON: All right. I would like to see\nthe certificates seven months.\nRegraded Unclassified\n181\n- 18 -\nH.M.JR: Well, that is B. detail. No, what I am\ntalking about is that the first step would be to get out\na seven hundred fifty million dollars certificate issue\nand keep the bills where they are on the hundred and\nfifty mark.\nMR. BUFFINGTON: I think that is a wise thing to\ndo. I think that is all right.\nH.M.JR: Hadley?\nMR. HADLEY: I am all in favor of just doing the\ncertificates first. I think that trying to support a\nbill rate is doing it the hard way to get excess reserves,\nand I would just put out the certificates first and see\nwhat happens.\nMR. LINDOW: I am for it, and I think it is very\nimportant that the announcement be made, though, along the\nlines you suggested covering the two points, fluidity in\nthe banking system and the desire to attract some of these\nbusiness funds. I think you might say that you have talked\nto some of the business people and that they are interested\nin it. Otherwise it might look as though we were hard\npressed and a short issue was the best we could do at the\nmoment.\nH.M.JR: Well, if we said this thing - supposing I\ngave this statement out tomorrow for Monday morning and\nthen we said we weren't going to do this for another week.\nIt shows we have planned the thing and we are not hard\npressed and have lots of time, and we are planning this\nthing ten days and two weeks in advance. What? People\nread Monday, \"Well, this is the Treasury plan.\" That is\nwhat we are going to do ten days from now. There is\nnothing hard pressed about that.\nMR. LINDOWN: I think that would make it very good.\nH.M.JR: And step by step we would want to do this\nthing. Henry?\nMR. MURPHY: I hate to advance without & barrage\nRegraded Unclassified\n182\n- 19 -\nMr. Secretary, but if we must do it, I think this is\nprobably the safest way to do it. I certainly agree\nwith you that it would be a good thing to announce it\n& week in advance. I think you ought to depend for your\neducation as much upon successive issues as upon a single\nissue. I think it would be much safer if the short-term\nrates were determined in advance. We don't know just\nwhat will happen.\nH.M.JR: No, we will do it to the certificates.\nMR. MURPHY: I say we don't know what the effect of\nadding a substantial increment to the amount of securites\nin the short market will have. I don't think enough\nemphasis has been placed upon the difference in the\ncharacter between the bill and the certificate, in that\nwe compare 8. half rate on the certificate, say, with a\ntwenty-five rate on the bill, but that isn't the way that\nit will impinge upon the market. The certificate will be\npriced, I suppose to, say, a four thirty-seconds' premium.\nNow, that premium on a half certificate for six months\nmeans it only yields thirty-seven in the market and this\nslipage, so to speak, is bound to take place in the case\nof the certificate. I don't think it is an evil in itself,\nbut it does impair the straight comparison between the\ncertificate and the bill rate.\nMR. BELL: Do you think the bill rate will come up\nto meet it or will it have 8. tendency to hold the bill\nrate somewhere below that three-eighths.\nMR. MURPHY: I think that since the push on the\npart of the Federal Reserve System for higher short-term\nrates which they consider to be a good thing for the\neconomy is a strong one, and I think it is generally known\nthroughout the country. Unless there is an announcement\nto the contrary, I think it will be generally believed\nby the market that the Treasury has joined in this pur-\npose and that one of the purposes of the increased amount\nof short-term financing is to secure more \"healthy\" short-\nterm rates.\nH.M.JR: Well, we are going back over the whole\nRegraded Unclassified\n183\n- 20 -\nthing. I am familiary with that angle of the thing.\nThere is no use opening - I asked you, but I am willing\nto do that. I am willing to face that.\nMR. MURPHY: Then I think the certificate by all\nmeans should come first.\nMR. BELL: What I would like to see in this con-\nnection, taking both Murphy's and Viner's fears, I would\nlike to have an understanding with the Federal that they\nmight also buy some bills.\nH.M.JR: Good. I hoped you would say that. To\nkeep the bill market about where it is.\nMR. BELL: That is right, I would say up to three\ntenths.\nH.M.JR: Well, I think it is much better for me to\nsay, \"Look, gentlemen, while we are doing this, I would\nlike you to try to keep the bill rate approximately\nwhere it is and the very longest approximately where it\nis. And what is approximately? Well, that is your\nresponsibility, and if I am not satisfied - If I have\nnever operated - when George Harrison was there, I would\nsay, \"These are my objectives. Do it, and if I don't\nlike the way you do it, I will tell you so, but it is\nyour responsibility.\nMR. BELL: But I think they could have some indication\nif this short rate on Treasury certificates falls to\nthirty-seven, certainly the bill rate ought to be some\nplace below three-tenths, but if the certificate rate\nhangs around a half, I wouldn't mind seeing the bill\nrate range between a quarter and three-eighths, as long\nas it didn't go above three-eighths.\nH.M.JR: George, which one of those charts shows\nthe bonds?\nMR. HAAS: There is B. chart for each bond and the\naverage.\nH.M.JR: Where is the average?\nRegraded Unclassified\n184\n- 21 -\nMR. HAAS: Here it is. (Showing report to the\nSecretary.)\nH.M.JR: Well, it is getting better.\nMR. BELL: The market has improved.\nMR. HADLEY: It has improved since the tax hearings.\nH.M.JR: Where is the next one?\nMR. BELL: And since MacArthur got off.\nMR. HAAS: Each bond here. The lone ones are way\nout here, you see. These white ones are taxables.\nH.M.JR: Well, let me look at these. Are they all\nbunched together?\nMR. HAAS: No, there is one bond, this one out here,\n'67-'72. That has moved up.\nH.M.JR: It has moved up since they know we have\nbeen stalling.\nMR. BELL: Yes, since the last issue. It was around\ntwelve as I recall it on the last issue, wasn't it?\nH.M.JR: Well, we have a nice situation. Did you\nknow it had been getting so much better?\nMR. VINER: Yes, I know the bond market had improved.\nH.M.JR: Well, I didn't. Now, where are the cer-\ntificates?\nMR. HAAS: We only have the notes in here.\nH.M.JR: Where are the notes?\nMR. HAAS: There is the shorteat and here is the\nlongest. This white one is 8. taxable.\nRegraded Unclassified\n185\n- 22 -\nMR. BELL: The trouble with those things, they have\nright values.\nMR. VINER: The certificates say no rights, don't\nthey?\nMR. LINDOW: Yes.\nH.M.JR: Now, I got as far as you. Viner?\nMR. VINER: I would approve of going at it from the\ncertificates. The question of the length, the maturity--\nH.M.JR: Well, that is a pricing job.\nMR. VINER: Yes, a pricing job, but it is a pricing\nnot merely for the state of the market that day, but in\nterms of what sort of pattern you want to grow into.\nH.M.JR: George, have you got anything?\nMR. HAAS: I haven't got anything to add. I agree\nwith what has been said, and I take it you do too. I\nthink you have had an excellent night and hit on an excel-\nlent solution.\nH.M.JR: Pardon?\nMR. HAAS: You had a good night and hit an excellent\nsolution.\nH.M.JR: I only picked up where Bell left off. That\nwas the last thing that Bell said, wasn't it, Dan, yester-\nday? At least it is the last thing that rang a bell with\nme anyway.\nMR. BELL: I don't have 8. very good memory these\ndays.\nH.M.JR: No, that was the last thing.\nBuffington?\nRegraded Unclassified\n186\n- 23 -\nMR. BUFFINGTON: No, I--\nH.M.JR: Burgess is in Washington and is having\nlunch with Eccles at one. It was terribly funny, when we\nwere working so hard on this Aniline and Dye thing we\nwere trying to locate a man and they said, \"Well, you\ncan find him over in Homer Cumming's office. He is\nover there with another person.\" We never knew that\nthis man was on Homer Cumming's side, and they said,\n\"Not only is the one man we are looking for over there\nbut the other man is too.\" Mrs. Burgess says, \"I don't\nknow where I can reach him, but I know he will be with\nEcles at one o'clock.\" Well, one of the things, if I\nmay say - no, I Am not going to tell you. You will ask\nme not to. I won't embarrass you. I may say to Eccles,\nOne of the things, the reason I am going so slow is,\nI think in going to New York he messed the thing up and\nthat the bankers now have got their backs up.\nMR. BELL: I think he has learnedhis lesson maybe.\nH.M.JR: Did you ever say anything to him?\nMR. BELL: Yes. He called me that evening. He\nknew that you knew it.\nMR. VINER: Well, you told him that you had been\ntalking to the bankers in New York.\nMR. BELL: You sort of intimated it that afternoon.\nH.M.JR: No, what I said was just to sort of drop\nit.\nMR. VINER: He was embarrassed.\nH.M.JR: No, what I said to him was, I put it this\nway, \"By the way, Marriner, what did they tell you in\nNew York when you were up there seeing the bankers?\"\nMR. VINER: Well, you had already told him.\nMR. BELL: He was very much embarrassed.\nRegraded Unclassified\n187\n- 24 -\nMR. VINER: That is enough.\nH.M.JR: I did it that way because Dan begged me\neither to say nothing or to do it gently, so I said it\nand I wrote 8. little note to Dan, Are you satisfied\nwith the way I did it?\" and Dan said, \"Yes.\"\nAll I said was, \"What did the bankers say to you up\nin New York?\" (Laughter) Wasn't that a gentle way?\nMR. BELL: Yes.\nMR. VINER: You used a heavy sword instead of an\naxe. It was all right.\nH.M.JR: I didn't get angry.\n(Discussion off the record.\"\nH.M.JR: Well, I want to meetwith me, as I said\nyesterday, Viner and Haas and Buffington at this eleven\no'clock meeting, and why don't you fellows (Hadley, Murphy,\nand Lindow) begin drafting a little statement. It oughtn't\nto be more than fifty to a hundred words. You can start\ndrafting something, you see.\nMR. HADLEY: That is for press purposes?\nH.M.JR: Yes. The three of you have 8. try at draft-\ning something.\nMR. BELL: And I would stay as far away as I could\nfrom hurting this tap issue. They will have that in\nmind in drafting it.\nRegraded Unclassified\n188\nProposed Press Statement for the\nSecretary of the Treasury\nSecretary Morgenthau sald today that he expects to sell\nan issue of certificates of indebtedness como time in April.\nThis is the first time that this form of instrument -- which\nis limited by law to a maturity of one year -- has been offered\nin the market by the Treasury since 1934. The now certificates\nwill be redeemed in cash at maturity and will carry no exchange\nprivileges.\nThe Secretary said that he was reviving this type of\nfinancing for two primary reasonal First, to provide a suitable\nmedium of investment for current accumulations of business funds\ntemporarily thrown our of employment because or wartine\nrestrictions: and, second, to provide a greater fluidity to the\nshort-torm money market.\nRegraded Unclassified\n189\nBOARD OF GOVERNORS\nof the\nFEDERAL RESERVE SYSTEM\nCOPY\nMarch 18, 1942\nDear Dan:\nThis is a copy of the memorandum received this\nmorning from Allan Sproul relative to the Treasury\nfinancing program which we discussed with you yesterday.\nI believe that it expresses in general the views of the\nExecutive Committee of the Open Market Committee.\nSincerely yours,\n(Signed) Marriner\nHonorable Daniel W. Bell,\nUnder Secretary of the Treasury,\nWashington, D. C.\nEnclosure\nRegraded Unclassified\n190\nCOPY\nTELEGRAM\nECCLES, CHAIRMAN,\nFEDERAL OPEN MARKET COMMITTEE\nC/O BOARD OF GOVERNORS\nThis is the statement which you requested I send to you:\n\"The general programs suggested by the Treasury seems to\nus to be incompatable with the primary objective of obtaining\nthe largest possible amount of funds outside of the banking\nsystem. By pegging short-term interest rates at a low level\nor increasing the volume of excess reserves, or both, it would\nincrease the inducement to the banks to invest in Government\nsecurities and lessen the inducement to other investors. This\nis the reverse of what we are trying to accomplish.\nIf the Treasury is not yet ready to decide upon & complete\nprogram for financing the war effort, and wishes to proceed\nstep by step, we believe it should avoid taking steps such as\nthose now proposed, which in combination and by implication\nwould seem to commit it to a program involving:\n(a) A pegged short rate of interest at a low level.\nThe posting of a bill rate of .26 percent by each\nof the 12 Federal Reserve Banks would be such 8\npegging operation.\n(b) Maintenance of 8. l'arge volume of excess reserves.\nAn attempt to increase excess reserves in New York\nwould almost inevitably involve the maintenance in\nNew York and in the country of a larger volume of\nexcess reserves than is necessary or desirable.\n(c) Use of open market issues rather than tap issues in\nseeking funds from investors other than banks.\nA statement in connection with an issue of certifi-\ncates of indebtedness, stressing the fact that\nthese certificates are offered as a medium of\ninvestment for idle business funds would imply that\nthis is the way which has been chosen to reach non-\nbank investors.\nWe would suggest that, for the present, and until 8. more\nRegraded Unclassified\n191\nCOPY\n- 2 -\ncomplete program of financing has been determined by the Treasury,\nthe most appropriate next step would be to increase the weekly\noffering of Treasury bills to at least $200,000,000 per week.\nIf this were done, we are sure that the Federal Reserve System,\nthrough its Federal Open Market Committee, would begin building\nup its portfolio of bills as soon as the rate reached .25\npercent and would increase its buying pressure until the rate\nreached .375 percent, at which rate it would hold the market,\nif necessary, until there had been 8. further determination of\nprocedure in consultation with the Treasury. The explanation\nof the increased offering of Treasury bills would be the simple\none that it is designed to give increased fluidity to the money\nmarket and to make excess reserves effective wherever they are\nlocated.\nAn offering of certificates of indebtedness could then be\nmade in due course when additional funds are needed by the\nTreasury. If, however, the Treasury wishes to make some\nannouncement concerning a future issue of certificates of\nindebtedness, at the same time that the Treasury bill offer-\nings are increased, this could be done. We think it would be\nbetter not to name the rate and maturity, however, but merely\nto state that the certificates of indebtedness would supple-\nment the increased bill issue in providing the money markets\nof the country with a type of obligation now lacking in suf-\nficient volume to provide the needed mobility of funds.\nIt is our view that until there has been a further\ndetermination of B. more complete program of Treasury financ-\ning, this would be the best procedure.\"\nSPROUL.\n3/17/42\nRegraded Unclassified\n192\nMarch 20, 1942\n11:05 an\nFINANCING\nPresent: Mr. McKee\nMr. Eccles\nMr. Viner\nMr. Haas\nMr. Buffin ton\nMr. Bell\nMr. Sproul\nH.M.JR: I have given this matter a lot of\nthought, and I appreciate that you have. I realize\nthe time that has gone into the thing. After having\ngiven it a lot of thought and talked it over, and\nhaving gotten your people's - how you feel - the\nlast thing I got here was this letter which you\n(Eccles) sent to Dan, enclosing a telegram from\nAlan Sproul-- (Ace meeting at 10:10am)\nMR. ECCLES: That was the result of the confer-\nence that we had Tuesday with your group over there\nand we asked Alan to send it down, because if we\ncould prepare it - we didn't have time to send it up\nthere and send it back again, and he and Williams\nagreed on this.\nH.M.JR: Well, getting the benefit of what Buffington\nlearned in the field, I can tell you how we feel here\nin the Treasury. What we would like to do as a starter\nis to start out and announce Monday that - what, a\nweek hence?\nMIL. BELL: The following week, yes.\nRegraded Unclassified\n193\n- 2 -\nH.M. JR: That we would offer seven hundred fifty\nmillion dollars worth of certificates, not increase\nour bills. If you gentlemen would concur, what we\nwould like to ask the Open Market Committee to do is\nthis, would be to keep the bill rate approximately\nwhere it is, and to keep the long bond approximately\nwhere it is. If we are not satisfied with the way\nthe bill rates are going, or if we are not satisfied\nwith the way the long market is going, we will call\nyou up and say BO, If after you have been doing it\na while you feel that the situation isn't to your\nliking, you call us up. We would like to et - and\nthen if it went all right - just one other thing -\nif it went all right, some time toward the end of\nApril We would offer another seven hundred fifty of\ncertificates.\nThen I have asked Bell to get out, if it is\nletter\nmechanically possible, by tomorrow night, 8. letter (delms/20)\nto a thousand holders of fifty thousand dollars worth\nof \"F\" and \"G,\" asking them two questions. One, if\nwe decide to raise the limit to a hundred thousand,\nwould they be interested; and two, what kind of funds\nwould they use to buy the second fifty thousand. When\nthose letters came back, we would analyze them, and\nthey would be available to you to analyze also to see\nwho would be interested in the second fifty thousand,\nand what kind of fund would they use for that purpose.\nMR. BELL: Mr. Secretary, we can get them out,\nand We could do somewhere between ten and fifteen thou-\nsand tomorrow night if you wanted to. There are about\na hundred and fifty thousand of series \"G\" holders,\nand about fifty thousand of \"F\" holders. We could\nput out between ten and fifteen thousand tomorrow night.\nH.M.JR: Wouldn't a thousand be as good as ten\nthousand?\nMR. VINER: A thousand is as good as ten thousand.\nA thousand would be an adequate sample.\nRegraded Unclassified\n194\n- 3 -\nMR. BELL: I don't think SO.\nMR. HAAS: I would rather take five thousand any-\nway.\nMR. VINER: Well, of course, five thousand is\nbetter, but it is five times as much--\nMR. McKEE: If you take & thousand and spread them\nthroughout the country--\nMR. HAAS: We could handle it, mechanically.\nMR. VINER: I would say five thousand if you are\njust going to take them as they come. One thousand\nif you do some selection here so &s to get distribution.\nN.M.JR: Well, take a hundred for each Federal\nReserve District.\n13. VINER: Well, I wouldn't do that. I would\nrather weight it more heavily in those areas where\nthere are more large funds. That would be a distortion.\nH.K.JR: Dan, you plus these people, plus any\nadvice the Federal Reserve will offer, I would be glad\nto accept. Work it out.\nMR. BELL: We will put it out and have a letter\nfor you this evening after Cabinet to sign.\nH.W.JR: Work it out so that instead of sitting\nhere and saying they are interested or are not inter-\nested, they will sell securities or they won't, let's\nfind out.\nMR. VINER: Milton Friedman is an expert on sampling,\nand he is in your staff, isn't he, George?\nMR. HAAS: He is in Blough's staff.\nMR. VINER: You might ask him on this sample.\nRegraded Unclassified\n195\n- 4 -\nH.M.JR: Well, any way they want to work it out,\njust as long as you get B. good sample.\nMR. McKEE: May I ask, are your present restric-\ntions on \"F\" and \"G\" on & calendar basis?\nMR. BELL: Yes.\nMR. McKEE: And it is lifting the lid on the\ncalendar basis?\nH.M.JR: Yes.\nMR. BELL: I think we would have to change the\nseries July 1. It is on all of the bonds and in the\ncontracts.\nH.M.JR: Change it?\nMR. BELL: Yes.\nH.M.JR: As of when?\nMR. BELL: July 1.\nH.M.JR: You couldn't do this before July 1.\nMR. BELL: Not unless you put out a new series,\nand have the \"F\" and \"G\" run along, because they are\nin the hands of the agents, being sold.\nH.M.JR: But you could do it?\nMR. BELL: We have got quite & supply. We could\nhave them run on - we might be able to do it by regul-\nation.\nH.M.JR: Well, Dan, can't you do what you call an\nover-print?\nMR. SELL: Well, you see, we have got thousands\nof bonds in stock.\nRegraded Unclassified\n196\n- 5 -\nMR. McKEE: Dan, is there & fifty thousand\nrestriction in the bond?\nMR. BELL: Yes. When & man sends his bond in for\nredemption there is a place on the back, \"I certify\nthat I do not hold more than fifty thousand dollars\nin the series \"G\" Bonds.\"\nH.M.JR: Couldn't it just be a regulation that\nanybody who bought & bond after the first of May, this\nyear, that he is entitled to a hundred thousand?\nMR. BELL: Well, we are considering that now.\nMr. Broughton is going into it. We would have to, I\nthink, send a notice to each one of the holders that\nwe have changed the limit, and he may disregard the\ncertification on the back of his bond when he redeems\nit, or consider the fifty to be a hundred thousand,\nor something like that.\nMR. McKEE: On all holdings after January 1,\n1942.\nMR. BELL: That is right.\nMR. McKEE: On your certificates that you propose\nto sell, what is it, a six months certificate at a. half?\nH.M.JR: Well, what the boys were talking about\nwas B. half of one percent, and then price wherever it\nfell.\nMR. McKEE: Make the maturity--\nMR. ECCLES: The thing that would price it would\nbe the support that the Fed gave to the bill market.\nIf we supported the bill market at the present basis of\na quarter--\nH.M.JR: Well, I said approximately.\nMR. SPROUL: The last issue went at a little below\ntwenty.\nRegraded Unclassified\n197\n- 6 -\nMR. ECCLES: Yes, so that if you - it would seem\nto me that the certificates, of course, will be very\nheavily over-subscribed. I would think that possibly\nthe allotment, if you priced them anywhere around six\nmonths for a half, that you would possibly get a ten\nto one over-subscription, that they would go to & very\nsubstantial premium in relation to the maturity, because\nthe difference between & ninety day bill and a six\nmonths certificate would not be very great in the question\nof interest rate, and I would think even a bill at three-\neighths would be very much less preferable to a six\nmonths certificate at 8 half, so my point is, if we\nsupport the bill market at around, say approximately,\na quarter, it would tend, it seems to me, to bring the\ncertificates down to around three eighths for six months\nor it would make a nine months certificate at & half\nmore likely in line, so that that rate would be the\nrate that the Fed is creating by their support. That\nis what it amounts to. In other words, we won't - we\nwould be responsible, it seems to me, for whatever the\nrate picture is as a result of the support action and the\nexcess reserves you have pumped in as a result of that\naction. That is one of the problems raised by this.\nAnother is--\nMR. McKER: Well, put it another way. You are either\nputting & premium on the certificates or you are penalizing\nthe bill rate if your differential is going to be that\ngreat.\nMR. ECCLES: Yes. Well, what you do, too, in the\nfirst place there are very few - there are not enough\nbills to operate in in the market if you don't put any\nbills out now for us to support - to buy any amount\nof bills is practically an impossibility because of the\nvery limited amount of bills now out. That is one of\nthe problems.\nMR. BELL: Won't some of these people that have\nbeen buying bills go into certificates.\nMR. ECCLES: I think they will do both. They may\nhold their bills and buy their certificates in addition.\nRegraded Unclassified\n198\n- 7 -\nMR. VINER: If they hold their bills, you don't\nhave to support the bill rate.\nMR. ECCLES: I don't think you would. I doubt\nif you would get any - I think your bill rate at 8.\nquarter would possibly stay where it is, You would\nneed very little support on it.\nMR. BELL: Then if your certificate rate drops\nnormally to the three-eighths, you wouldn't care.\nIt ni -ht not need any support at all.\nH.M.JR: Of course, what concerns me is not so\nmuch this immediate program as the longer range pro-\nram. This, of course, will be largely a bank operation.\nThe banks will be the large holders of these securities.\nH.M.JR: We don't think SO.\nMR. ECCLES: Well, I think you will find - of\ncourse, & lot of business people will put bids in,\nbut the banks will likewise put them in, SO you will\nfind that the business interests, because of the\nallotment - it may be they can't get what they want\nof them, and, therefore, you will find that they might\nhave a million to invest and only land with a hundred\nthousand or two hundred thousand of an investment.\nThe banks likewise would get only a part of what they\nwant of the bills, and then possibly go into the market\nand try to buy them.\nH.M.JR: Well, Marriner, could I just interrupt\na minute? There are two things that we have in mind\nto make it attractive to the businesses. If, for\ninstance, we were going to have an issue, we thought\nWe would announce it maybe three days in advance that\nthe issue was going to come so that these various\nbusinesses could call a meeting of their finance com-\nmittee. Another thing that we might do in 8. case\nlike this is give everybody up to a million dollars\nsubscription, anybody who subscribed, give them up to\na million dollars.\nRegraded Unclassified\n199\n- 8 -\nMR. McKEE: You won't have enough to spread it\naround on seven hundred fifty million dollars.\nMR. VINER: Go over it if it is necessary to\nmeet that offering.\nH.M.JR: But, I mean, I am just - I mean to say,\nanybody that subscribes up to 8. million dollars would\nget it, and as Doctor Viner says, \"If there isn't\nenough to go around, let it go over; and then if we go\nthrough with this, we will have all of next week to\nconsult as to the rate and how long and the fact that\nthe announcement will be out Monday and the people\nknow it is coming, it will give you 8. full week to\nprice the thing.\nMR. ECCLES: The thing that I em very much con-\ncerned about our whole financing program and have been\nfor quite a while, of course, is the inflationary\nimplication, and in looking at the Canadian picture,\nit only strengthens my conviction that we have got\nto change our approach, I think, to this problem, or\nwe are going to have a continual growth of bank deposits\nthat are already, compared with the Canadian picture,\nvery excessive. Here is the Canadian financing that was\njust done, and they put out practically 8. billion dollars,\nstarted for six hundred million, left the market open\nfor three weeks, and they raised nine hundred and eighty\nmillion, nearly fifty percent over, and they allotted\n8 hundred percent to everybody. Everybody got their\nallotment, But they did that - the banking picture up\nthere had eleven percent total reserves, while we had\nin New York here forty-one percent alone, just the New\nYork picture. That is their percentage. The Canadian\ndeposit picture at the end of the year in proportion to\nthe - taking our national income is fifteen times theirs.\nTheir deposit picture was & billion six, or fifteen\ntimes that would be twenty-four billion. In other words,\nthey would have had twenty-four billion if it would have -\non 8. comparable basis with this company in size and\nnational income, whereas we have forty-eight billion. In\nother words, at the end of the year we have twice the\nRegraded Unclassified\n200\n- 9 -\ndeposit and currency that the Canadians have at this\ntime, twice that amount, and as I say, they put this\nout by a great public drive. We have increased the\nbank holdings of our securities during the past two\nyears thirty-three percent of the total offerings\ngoing to the banks. Thirty-three percent of the commer-\ncial banks, that is. In Canada, sixteen percent has\nbeen taken by the banks. I just don't believe we are\ndoing the kind of a job that we have got to do to get\nour securities out in the public, and use the existing\nfunds. I don't think we need at this time much of an\nexpansion of bank deposits. I think that we have failed\nup to date to do the kind of a job that should be done\nand that needs to be done in order to get the existing\nsupply of funds without expanding our funds at all that\nreally could be done. In other words, if Canada can\ndo what they can do, if we had just one-third that,\nwe will--\nH.M.JR: Well, what Canada did, Marriner, is some-\nthing quite different. I mean, I am frankly - I mean,\nI think that money, bank deposits and all the rest of\nthat thing and excess reserves, as far as inflation\ngoes, at each stage it has less importance. What Canada\ndia, I just happened to have it, because I wanted it\nthis afternoon, when Canada's prices - they are now as\nfollows. They are approximately together. On the first\nof December they put a ceiling on everything, and they\nbegan to get 8. drop in the cost of living. If you want\nto look at this thing, here it is.\nMR. ECCLES: You mean that freezing--\nH.M.JR: What they did on the first of December -\nthey have licked their situation.\nMR. ECCLES: But they have done it through the\nbanking picture, because they haven't permitted the\nbank inflationary - the supply of money to be inflated\nas we have. I think that is 8. factor. Now, the British\nhave done the same, and the Germans have done the same,\nRegraded Unclassified\n201\n- 10 -\nand I know there are a lot of people here that say the\nsupply of funds is just not important. Well, I know\nas far as the people in the Fed are concerned, we don't\nfeel that way about it. We feel that it isn't all\nimportant, but we do think it is 8 factor of some\nconsiderable importance.\nH.M.JR: Are you familiar with that Canadian pic-\nture since they have frozen it?\nIR. MoKER: Yes.\nMR. SPROUL: I think SO.\nMR. ECCLES: They just stepped in and held wages\nand prices and everything.\nH.M.JR: And then they got the thing down and\neverything has begun to drop.\nMR. McKEE: Mr. Secretary, the way I feel about it,\nyou may be pushing yourself up against a terrific wall\nlater on in this war economy which might be leveled out\nby now giving it more force and effect to - engaging\nthe present deposits in Government debt instead of some\nof it to the banks. I think later on as we go down the\nroad and around the corner in this economy that you are\ngoing to have a better average for yourself in your\nGovernment debt if we start giving it that punch today.\nI don't know that you can wait six months or you are\ngoing to find yourself up against a terrific situation\nfor the future. Now, that is just a personal opinion.\nNow, I may be just 8. hundred percent wrong, but I think\nif you are going to give your good offices toward fight-\ning inflation 8.8 much as possible, you can't wait until\nit hits you in the face.\nH.M.JR: Well, John, I have tried to do everything\nthat I can, both through the Treasury and through every\nother agency where I could give any help or they would\nlet me be of any help on the inflation. I just think\nRegraded Unclassified\n202\n- 11 -\nthat under the present situation the money thing, as\nI say, each day becomes of less significance 8.S there\nare less goods to buy. There are some other factors.\nWhat are you going to do with this gap, whether it\nis eleven billion or fifteen billion dollars. Unless\na lot of other agencies do their job, no.matter what\nwe do here--\nMR. eccles: Oh, I agree with that. I agree that\nSQ far as the financial end is concerned that if you\ndon't do something with this labor thing, and this agri-\ncultural price thing, and with the right kind of taxes,\nthat--\nH.M.JR: That is what I am trying to say.\nHR. ECCLES: But all I an saying is - but let's\nus at least say we have done everything we can; and\nif the other fellow fails, it isn't our responsibility.\nMIL McKEE: We can't wait too long to sop up that\nadditional eleven billion dollars. That is what I mean.\nH.M.JR: I am not asking. All I want to do is to\ntry this thing in April. And after I do the first one\nin April, then if it doesn't go right and something\nhappens, I will change.\nMR. ECCLES: Well, they will E° right. I don't\nthink for a minute, Henry--\nMR. McKEE: I approve of - I thought you all had\n8 complex because we did use it after the World War,\nand it did produce in that kind of economy higher rates\nthe way it was done, but it wasn't necessary to do that.\nH.M.JR: What has happened is, you have got to be\npractical, and if I can run through my story, and then\nyou can answer me if you want to. I know they are going\nto say, well, I am letting the bankers dictate to me.\nWell, I never have since I have been here, and they\nRegraded Unclassified\n203\n- 12 -\nhaven't particularly tried to dictate to me, but\nunfortunately we have gotten off to 8 bad start on\nthis thing, and the bankers say to me in a very nice\nway, \"Look what we have done for you on your Defense\nSavings Bonds. Look at the expense we have gone to\nand are going and are willing to go for you. You have\nnot tried your 'F' and 'G,' You haven't put B. campaign\non yet for 'F' and 'G'\" which is true. \"Let us try\nthat before you put out & fixed issue which you exclude\nus from. Now, we want to help you, but in this plan\nwhich has been suggested to us, it excludes us, and we\ndon't think it is fair.\" Now, in this thing, I am\nperfectly willing when the time comes, which it hasn't\nyet, to crack down and say, \"God damn it, take it and\nlike it.\" I hope the day will never come. It will be\n& very sad day for me. But they come down in a very\nquiet voice and say, \"We don't think it is fair. Tell\nus where we have failed you. We have done everything\nWe can. We are out a lot of money. We continue to do\nthis thing. You haven't given the \"F\" and \"G\" the push,\nand let us give this thing a push and sop it up, but\ndon't come along with these other two tap-issues and\nsay, 'We are excluding you.' We don't think it is fair.\"\nI can be accused of letting the bankers dictate to me;\nand in the room if somebody wants to say that, it isn't\ngoing to bother me, but 85 I say, I think we got off\non the wrong foot.\nNow, all I am saying is, I would like to try this.\nI still want to stay on a day to day basis. If after\nthe first one the right kind of people don't buy or\nwe don't get the money that I hope we are going to get -\nI have got no assurance that the corporations will come\nin; and if we still don't get the kind of money which\nthe Fed wants to get, and they have a right to get,\nand if we decide to increase the other thing, then we\nwill do something else.\nMR. BELL: In other words, you are--\nH.M.JR: Could I be any franker?\nRegraded Unclassified\n204\n- 13 -\nMR. BELL: You are not excluding tap-issues by\nthis program.\nK.M.JR: I am not excluding anything.\nMR. McKEE: The only statement I would like to\nmake in answer to that is that I don't think that that\nis the general banker opinion and approach to this\nsituation of yours.\nM. ECCLES: You mean the bankers that have talked\nto him?\nMR. McKEE: \"Why cut us off?\" I don't think that\nis the general approach.\nMR. ECCLES: That is the New York banks.\nM. McKEE: I don't know what you can do about the\nout-of-pocket expenses on your Defense Savings Bonds.\nI have one suggestion, but I don't know whether you want\nto do it. I think it can be worked without any handicap\nto you and supply you with funds at an earlier date, but\nI don't think you will find that the general opinion of\nthe banker, because we had our Advisory Council in, and\nthe Advisory Council agreed to this program, and they\nrepresent twelve different districts in the United States.\nMR. ECCLES: Bankers.\nIG., McKEE: And they are all of the banker mind.\nH.M.JR: I wonder how they would feel if you asked\nthem today.\nMR. ECCLES: This was just last week.\nMR. SPROUL: Let's have no misunderstanding on that.\nThey didn't take it up and vote on it and say, The do, or\ndo not approve of this, so I would rather not have them\ndrawn in and have them come back and say, \"Wedidn't agree.\"\nI think it is clear that the Board of Governors and the\nRegraded Unclassified\n205\n- 14 -\nOpen Market Committee, and the presidents of the twelve\nFederal Reserve Banks all by affirmative action did\napprove and agree and endorse this program. I think\nthe Advisory Countil discussed it; and as far 8.8 the\npeople over there could see, the majority of them seemed\nto be in favor of it.\nH.M.JR: I will give you (Eccles) another one,\nbut I want that for Cabinet, if I can, that chart about\nCanada. George, will you furnish me and Eccles with &\ncopy and also Mr. Wallace and Nelson and Henderson?\nMR. ECCLES: The primary purpose of the program\nWES to exclude the banker. The only reason in the\nworld for a non-negotiable issue was to prevent what\notherwise would be a continued acquisition by the\nbanks, as has been the case in the past. In other words,\nwe - the whole idea that the Fed had in developing that\nprogram was, \"Here is the one way that you can keep the\nbanks largely out of this thing and attempt to use\nexisting funds instead of creating new funds,\" and the\nvery objection the bankers raised, of course, was the\nprimary purpose of the type of issue that W&S developed.\nMR. BELL: I think their main point, Marriner,\nwas that what you are doing here is taking out of the\nmarkot these funds that would go into these tap-\nissues.\nAR. ECOLES: The funds 60 right back to the market.\nMR. BELL: Leave the banks - no, leave the banks\nholding the bag as to the fluctuation of the market.\nwe are there to support the market.\nKR. ECOLES: But we were going to support the\nmarket. The idea was that the tap-issues to get the\nfunds outside--\nMR. FELL: Well, that was their point, I understood.\nIR. ECCLES: Their point is, they are thinking of\nthe past and the underwriting market. They are thinking\nRegraded Unclassified\n206\n- 15 -\nof the easy financing of the past.\nabout the dollar-a-year men who can't keep their\nMR. BELL: You saw what Guthrie said this morning\ninterests separated from the government. It isn't\nhuman nature, apparently.\nH.M.JR: Alan Sproul, you have been very quiet.\nWould you say something?\nMR. SPROUL: Yes. Mr. Secretary, I don't think\nyour program does enough. It doesn't put into the\nmarket a sufficient volume of short-term obligations\nto provide this mobility or fluidity of funds that we\nhave been talking about. In 50 far as you are success-\nful in selling these obligations or a large part of\nthem to corporations, to that extent it fails to put\nadditional short term obligations into the market\nwhich will make your present excess reserves effective.\nIn so far as it calls upon the Federal Reserve System\nto maintain the present or approximately the present\nlevel of bill rates, I think you call on us to work\nagainst the kind of a program which we have had in\nmind, which, frankly, did contemplate some rise in short-\nterm interest rates which would create an additional\ninducement for non-banking funds to come into the market\nand which would reduce the competition of the banks with\nthe non-banking funds for the existing volume of short-\nterm securities. So long as we maintain excess reserves\nat their present level or increase them and hold down\nrates, we intensify the competition between the banks\nand the non-bank lenders for these short term obligations,\nso that I think your program falls short in not putting\nadditional bills into the market. I think it falls\nshort in asking us to support a rate on short term\nobligations which we think is too low for the purpose\nof our longer range program now, and for my part, as a\nmember of the Federal Open Market Committee, I would\nonly, recognizing that you have the full and final\nresponsibility for the financing of this war, want to\ndo that at request from you, and reluctantly and under\n& form of compulsion. I think you also have to look\nRegraded Unclassified\n207\n- 16 -\nahead on this financing through certificates of indebt-\nedness to what is the next step. If We are to maintain\nor increase excess reserves, certificates of indebted-\nness that will be put out at attractive rates, you\nwill have an obligation which may in the first instance\ngo to non-banking lenders, but there is nothing to keep\nit from drifting back into the banking system.\nThe banks talk in there - talk of selling this to\ncorporations, of having a call on the banks to come\nback and borrow on the obligation if the corporation\nfinds itself in need of funds. It seems desirable to\nme that whatever we try to sell the corporations\nshould have some holdback on its value turned into cash\nagain, that there should be some retarding influence\non their cashing it in which would be provided by the\nredemption features of the tap-issues we have suggested.\nI don't mean to suggest by that that I think you have\nto decide immediately to put out the tap-issues, but I\nthink you shouldn't embark on a program which will\nmilitate against your adopting those eventually, which\nI think this low-rate certificate of indebtedness\npressed sale on the corporations might, and I think\nwe also have to look ahead through the war situation\nand the post-war situation, which goes into this\nquestion of whether it makes any difference how much\ncredit or bank deposits are outstanding. I agree with\nyou it doesn't make much difference now as far as infla-\ntion is concerned. Other things are much more important,\nbut the volume of bank deposits we create through the\nwar effort which are outstanding after the war may be a\nvery important factor in the inflation picture, and I\nthink we have to start as quickly as possible on methods\nwhich will hold those down as far as possible, because\nthey are going to increase very substantially at any\nrate. That also introduces the question of the need\nfor some haste. That is, if we are ever going to embark\non a different program from what the banks say they\nwant, and the corporations say they want, which is what\nthey are used to, we have to overcome this initial\nreluctance about it, this initial suspicion of it, by\nRegraded Unclassified\n208\n- 17 -\nbeginning to get them used to it now, because we\nhaven't very much time.\nH.M.JR: Well, I appreciate your frankness, and\n&S I have listened to these discussions now for weeks\nor months, the fundamental difference between what\nyou gentlemen represent and what I represent is the\nquestion of interest rates.\nMR. ECCLES: Only in the short-term field.\nH.M.JR: Only in the short term field.\nMR. ECCLES: And that is a difference of a quarter,\nwhether it is 8 quarter or a half.\nMR. McKEE: And the supply has an effect on your\nrates.\nH.M.JR: Now, I am perfectly willing to take the\nresponsibility - I have got to take it anyway. As I\nhave said before, we sit around and price something;\nand if an issue is 8. failure, I can't say, \"I did this\nbecause Marriner Eccles or Alan Sproul advised me or\nJohn McKee advised me.\" It is Henry Morgenthau, Jr.\nthat goes wrong, so in the final analysis; if the thing\ngoes wrong, I have got to take it anyway. I an not\nafraid to take it. I don't do the thing lightly. I\nknow if we decide to do this thing, which I would like\nto decide this morning, that I will get from you a good\nexecution--\nMR. SPROUL: There is no question of that, but\nas I say--\nH.M.JR:\nand loyalty on this thing.\nMR. SPROUL: No question of that, but as far 8.8\nexcess reserves and interest rates are concerned, it\nwould be against my better judgment and my loyalty,\nand execution - while not effected, they would be given\nbecause you have the responsibility and have asked me\nto do it.\nRegraded Unclassified\n18\n209\nH.M.JR: Well, I am going to ask you to do it right\nnow, and what I would like to do is, there are two things\nwhich I would like you gentlemen to decide this coming\nweek. One, is seven hundred fifty enough? Maybe we\nshould make it a billion. How many months? Interest\nrates. Also the question of & definite allotment of\none million, maybe five million. I don't know. That\ncould be discussed, how much these people want, the\nbusinesses. Maybe one million isn't enough and they\nshould have an allotment of five million with the under-\nstanding that they would get it. As I say, it can work\ntwo ways. If asking you to hold the bill rate approx-\nimately where it is, and the long rate approximately -\nI am perfectly willing to have you call me any time day\nor night and say, \"Morgenthau, it is impossible and these\nare the reasons why, and I want another consultation. I\nreserve the same right. If I am not satisfied, I would\nlike a consultation. I want you to know that there is\nnothing here that we can't, after the first issue, say\n\"Well, we would like to go ahead with the tap issues. My\nmind is not closed on it except as to the first step. Also\nI want to see what we can do with the possibility of ex-\ntending the F and G's up to a hundred thousand dollars.\nNow, I haven't arrived at. this thing lightly, but this\nis what I would like to do, Marriner.\nMR. ECCLES: Well, I feel just like Alan does. Of\ncourse it is your responsibility. All we car do is to\ngive the best advice that we have. We haven't, of course,\nconsidered this thing lightly either. We have been de-\nvoting an awful lot of time and 8. lot of very serious\nthought and consideration for over - for a year and the\nfinal conclusions that we came to were not a question of\ncompromise and it wasn't that we were in agreement. It\nwas 8. result of an analysis and a study of the situation\nand what we conceived the problem to be and the best way\nof meeting it. We felt after we had done that, and it WAS\ndone after considerable discussion with your boys too,\nwe spent 8 lot of time with your staff; that then we should\npresent to you what were our views and of course if you\nhave some other views it is your responsibility and we\nwill carry out whatever program the Treasury finally\nRegraded Unclassified\n210\n- Ist -\ndecides upon, realizing of course that they are taking\nthe responsibility for that program and we are merely\nacting AS the - to execute it, but as long as we have\nour day in court, so to speak, and express our views,\nthen if the decision is - whatever the decision is,\nwe of course will abide by the decision and we will do\nwhatever the Treasury feels should be done. I mean,\nas long as I am here that is certainly what I would\nwant to do. You, of course, as you say, take the\nresponsibility and we do the executing.\nH.M.JR: I will take the full responsibility.\nLoes it upset you, John, at all?\nMR. McKEE: Well, what I would like to ask, Mr.\nSecretary, is now your next move is c/d's. Do you\nnow have in your mind that you are going to defer any\nincrease in bills, even tax bills, until you see how\nthe c/d's go?\nH.M.JR: We feel here that we would like to do the\nc/d's first. The reason that I said while we were dis-\ncussing going from seven fifty to a billion, we had\noriginally planned in our financing plans to increase the\ntwo hundred million a week so if we don't do that in April,\nwe would be short two hundred fifty million dollars in\nour estimates, but all we here felt is that we would just\ndo this one thing in ten days.\nMR. BELL: And then take another look at it?\nH.M.JR: And then take another look at it, but we\nwould like to see what kind of a bill rate we can get\nbefore we add - I don't mean 8. bill rate, I mean what\nkind of 8 certificate rate we can get before we put\nout more bills. In other words, we would like to put\nthe certificates out on their own feet and see what\nhappens to the bill rate. Now, I don't know. Maybe\nthere will be just as much demand for the bills, and,\ntherefore, the bill rate may stay where it is. Maybe there\nwill be less demand for the bills on account of offering\nthe certificate, and I just don't know. As soon as that is\nout and as soon 8.8 we see what has happened, then I would\nRegraded Unclassified\n- 20 -\n211\nlike to sit down again, immediately after the issue.\nMR. McKEE: Do you contemplate that this c/d will\ntake the place of your tax notes to some extent?\nH.M.JR: Tax anticipation?\nMR. BELL: Do you mean tax anticipation or the\ntax date--\nMR. McKEE: The tax bills - the tax notes that you\nhave been selling in anticipation of taxes to tax payers.\nMR. BELL: Not altogether. There might be people\nwho will go into these in preference to the tax notes,\nbut - who can't figure out their taxes, but they can\nalways have their money invested. There might be some\nof that but we don't anticipate changing the tax notes.\nMR. McKEE: Well, 1 thinkit will effect the sale\nof them, Dan, because this will be more or less bank\ndeposits.\nMR. BELL: It will get slightly higher rates, but\nnot enough to make any difference.\nMh. VINER: It is marketable.\nH.M.JR: One thing that I hope is, just within the\nroom here, I hope we can present B united front to the\npapers. Now, if you people feel that you have to say\nsomething, that this is what I want, you are just execut-\ning it, that you don't believe in it; then I would much\nrather have a formal statement rather than have it leak\nout.\nMR. McKEE: Do you see any necessity for any\nstatement from us?\nH.M.JR: No.\nMR. McKEE: I don't either.\nRegraded Unclassified\n- 21 -\n212\nH.M.JR: But rather than read it from the Wall Street\nJournal, I would much rather have a formal statement\nthan to have it leak.\nMR. McKEE: Do you see any need of a statement,\nAlan?\nMR. SPROUL: No.\nH.M.JR: I personally would feel very, very badly\nif there were any leaks.\nMR. ECCLES: I think that you are going to find\nif no statement is made that if the Fed gives substantial\nsupport to this bill rate the market will put its own\ninterpretation on it. They know enough about the whole\nphilosophy here to - they will talk about it without any\nstatement whatever. Any of these financial writers will\nimmediately make their own story.\nH.M.JR: I was going to give out something for Monday\nafter you people had a chance to look at it, something\nalong these lines.\nMR. BELL: I have copies here.\nH.M.JR: 1 mean something along these lines.\nMR. BELL: This is on the certificates.\nH.M.JR: I haven't seen it yet.\nMR. BELL: It just came in. It is hot off the type-\nwriter.\nH.M.JR: I would like you to take it back and make\nany suggestions you would like to make on it. You see,\nI am taking the full responsibility there.\nMR. ECCLES: Now this last where you say these\nbusiness funds and so forth, the market will immediately\nmake their own interpretation out of that and the -\nthis is a market issue. They will conclude, I think,\nRegraded Unclassified\n- 22\n213\nthat your non-negotiable issue is out and they will\nsee the Fed operating to maintain reserves and the\nwhole question will be - the story would be on the basis\nof that, that - just what Alan says in the first para-\ngraph of his statement. This is the interpretation, that\nthe program seems to be incompatible with the objective\nof obtaining the largest amount of funds outside of the\nbanking system by pegging the short rate. That is what\nthe conclusion would likely be. At a low level, which\nwould in effect increase the volume of excess reserves.\nWhat I mean is that you may well get some of your financial\npeople that would write their own stories on this.\nH.M.JR: Possibly.\nMR. ECCLES: So that I wouldn't want you to con-\nclude that there was a leak, because they might inter-\npret this. I would sooner, if there was any such 8\nchance of your getting such an impression, that a state-\nment be made. I would prefer no statement, but I am\nsaying if you make no statement there is still the\nlikelihood--\nH.M.JR: You wouldn't even say this?\nMR. ECOLES: I wouldn't make any statement except\nto this effect. I would cut the last paragraph. I\nwould say that you are going to put this volume of bills\nout, that it is in conformity to the new law passed, it\nis what we have done before, and that it is B. money market\ninstrument to help to create fluidity in the market, and\nstop. Because it really is. it takes the place, in part,\nof bills outside the money market, is really what it does.\nIt provides an instrument for those with funds, without\nregard to who they may be, banks or otherwise; because it\nhas a certificate and it provides fluidity to your money\nmarket in a manner that bills alone don't provide and I\nthink I would say that, but I don't believe I would add\nthis last one, \"To provide a suitable medium of in-\nvestment for current accumulation of business funds\ntemporarily thrown out of employment,\" and so forth, be-\nRegraded Unclassified\n- 23 -\n214\ncause I think the conclusion on that would be--\nH.M.JR: That we are not going to do a tap issue.\nMR. ECCLES: I think 80,\nH.M.JR: That is fair.\nMR. ECCLES: I think they would conclude that\nright off the bat and I would leave that end of it\nout unless you have concluded that.\nH.M.JR: I have not.\nMR. ECCLES: Then I wouldn't put that in.\nMR. McKEE: May I read a short paragraph that\nI jotted down here to see if you see any sense in\nit?\nMR. ECCLES: I would cut the second out.\nH.M.JR: Just one second, John, please. You\nwould cut out that part first--\nMR. ECCLES: I would cut that all out. \"The\nSecretary said that he was reviving this finance to -\nto provide 8 greater short term money market,\" and\nthis seems to be all right...\nH.M.JR: Do you think that would be taken to\nmean we were shutting the door on the tap issue?\nRegraded Unclassified\n215\n- 24 -\nMR. ECCLES: I think so the way it was written.\nH.M.JR: I don't want to do that.\nMR. VINER: How about saying one medium for tap-\nissues? What I was thinking was this, they might think\nthe Secretary feels he is in a jam and he has to go into\nthese short term instruments. The only thing that saves\nthis situation is to say--\nMR. ECCLES: Everybody knows. It has been generally\nconcluded by the financial press and the bankers and\neverybody that there is not enough short-term paper\nin the money market to provide fluidity. That has been\none of the universally recognized facts by the Fed,\nby the bankers, and the Treasury.\nH.M.JR: I think your suggestion is a good one,\nand let my boys digest it; and if they want to come\nback at you, let them come back at you after lunch.\nHow is that?\nMR. ECCLES: O.K.\nH.M.JR: If they are not satisfied, let them come\nback later, but I don't want to give the impression\nthat we are shutting the door.\nMR. HAAS: I think it can be handled satisfactorily.\nH.M.JR: I think Mr. Eccles raises & very good\npoint, and have another look at it; and if you have got\nanything else, go over this afternoon and see him, Dan.\nRegraded Unclassified\n216\n- 25 -\nMR. ECCLES: I would like to talk just 6. minute\non this question of the long and the short rate where\nour support would come in. I think that that is impor-\ntant to you. I would like to avoid an interpretation\nby the press or by the market that the Fed is under-\ntaking a pegging operation of this bill rate at around\na quarter. I think that if we could be allowed the\nleeway between the present bill rate which went last\nweek up to & three-eighths rate so you have got some\nfluctuation with that as a peak and with the other as\nEL floor on this picture, that that is very much more\nin line with 8 half for certificates of even six,\nseven, or eight months. I would like to keep & relation-\nship between this bill rate and your certificate rate.\nH.M.JR: Could I say simply - you notice I very\ncarefully used the word, approximate. I would like to\nleave that to you gentlemen to use your judgement. If\nI an not satisfied, I would like to have the right to\ncall you up.\nMR. ECCLES: Yes. Well, that is all right. I\ndidn't want any misunderstanding as to approximate. My\nidea of approximate would be with that as a top and\nwith the other as a floor. Of course, you could always\nsay you didn't think we are doing enough.\nMR. VINER: Well, would you want that much of a\nrange for say a matter of the next few weeks? We were\nthinking, I understood, of a range of that size in terms\nof B. program for a year, but your range of freedom can\nbe less for operations within & short period of time\nthan for operations--\nMR. ECCLES: It would depend entirely upon the\namount of purchase required. In other words, if it\nbecame necessary to do substantial purchases to hold\nthe rate at & quarter, we will say, or even three-\ntenths, I don't think that we ought to purchase enough\nto give the appearance of & pegging at some point there.\nNow, if 8. very little purchasing would hold it there,\nthat is another thing.\nRegraded Unclassified\n217\n- 26 -\nH.M.JR: Haas, give Mr. Sproul that Canadian\nstudy also, will you?\nMR. HAAS: O.K.\nMR. ECCLES: You can see that a large operation\nwould be considered one way by the market, and 8. very\nsmall amount of purchases--\nH.M.JR: Well, Marriner, again you fellows study\nit and do what you want. If I am not satisfied, I\nwill call you up; and if I am satisfied, you won't\nhear from me.\nMR. ECCLES: All right, now on the long--\nMR. SPROUL: Well, on that I think we ought to\nknow if you are not going to be satisfied in advance\nif we let the rate go to three-eighths, then we haven't\nthat leeway.\nH.M.JR: You have got the leeway. You set what\nyou want and use your best judgment. You are in touch\nwith the market from minute to minute, and I am not.\nMR. McKEE: Are you going to make any attempt to\nkeep the banks out by subscriptions, out of the c/d's?\nMR. BELL: It is suggested that we give preferred\nallotment to non-banking institutions. You can do that.\nI don't know whether you want to start the practice or\nnot. We have never done it, but we do have the authority.\nMR. ECCLES: You would have difficulty in New York.\nI think the best way to get at that - what you want to\ndo is get some of the excess reserves out of New York\nand into the market, and this certificate, in the\nabsence of additional bills, will tend to do it. This\ncertificate will make your excess reserves picture out-\nside, it seems to me - give it more fluidity. And if\nyou should make your allotment on the basis of a million\nor two million, some point, it will cover & lot of the\nRegraded Unclassified\n218\n- 27 -\nsmaller, middle sized banks that may come in this way\nthat otherwise wouldn't come in, who have got excess\nreserves.\nMR. McKEE: What about allotting it by Federal\nReserve Districts according to the excesses.\nMR. BELL: You can do that. As a matter of fact,\nwhen we sold our certificates during the last war we\ngave quotas to each Federal Reserve District based on\nthe capital structure of the bank.\nMR. McKER: The thing that worries me, if you have\nsome restrictions on the subscriptions of these c/d's,\nyou put out, say, seven hundred fifty million, and all\nthe present bidders of bills get their quota under that.\nWe are going to have a problem to roll over your bill\nprogram at & quarter of one percent.\nH.M.JR: Well, I think that is a very worthwhile\nsuggestion, and I think it should be looked into, and\nalso the suggestion which I threw out which I don't know\nwhether it is worthwhile, to have allotment of one mil-\nlion or two or three or four, whatever you think would\nbe right.\nMR. ECCLES: The allotment both as to amount and\nmaybe by districts.\nH.M.JR: Yes. And then you have got all of next\nweek to study that.\nMR. ECCLES: Now, on the long market, I would like\nto mention that. Of course at the present time it is\nriding along in very satisfactory shape, and there is no\nreason to think that it won't continue to; but if for\nany reason it shouldn't, the question is, where should\nthe support - should this be an attempt, for instance,\non the '67-'72's or on the 2's where we had the prob-\nlem before. That five hundred million of 2's was the\nproblem at the last issue, you remember. The difference\nbetween the 2's and a quarter that was put out in the\nRegraded Unclassified\n- 28 -\n219\nlast issue and the ones put out before the 2's were\nright on the par market all the time, and we bought\n8. substantial amount of 2's. Now should we at this\ntime - the least weakness in the market - those 2's\nwill press right on par.\nH.M.JR: This is my thought, if it would be agree-\natle to you. You have got kind of 8 curve, haven't you?\nMR. ECCLES: That is right.\nH.M.JR: My thought is to keep that curve approx-\nimately where it is. You may get 8 break here and there,\nbut I wouldn't take the longest and try to hold that\nand let everything else fall by the wayside, if that\nwould be agreeable to you gentlemen.\nMR. ECCLES: Is there anything sacred about par,\nfor instance, on the '67's or the--\nH.M.JR: Not as far as I am concerned.\nMR. ECCLES: That is what I wanted.\nH.M.JR: My thought is simply, that curve is the\nline and I would like to hold it without having a break-\nthrough, using a military term, and have - or try to\nhold the end, and have the whole thing sag. I don't\nknow whether you (Sproul) agree with that or not.\nMR. SPROUL: I would say that the 2's of '51-'55\nwhich are definitely out of line could fall below par\nand still maintain that line whereas two and 8. halfs at\n'67-'72, all this - this is much less likely with the\nlaok of long term obligations in that market, they might\nfall below par slightly. But the line, nevertheless,\nwould be maintained.\nH.M.JR: What I am asking you in this case, is\nthat unreasonable to keep the curve approximately?\nMR. SPROUL: No, it is not.\nRegraded Unclassified\n220\n- 29 -\nH.M.JR: Is that the way you would like to do it?\nMR. SPROUL: Yes, with the possibility that certain\nissues might not be held at par.\nH.M.JR: Oh, I won't fight with you on that. Is\nthat all right with you, Marriner?\nMR. ECCLES: It is all right with me. Let me make\nthis point though, that in watching that market, if one\nissue gets out of line, it doesn't stay out - the arbi-\ntration is such that the market itself pretty well\nadjusts it. The real points are at the bottom point,\nand the top point, and that line doesn't - can't sag,\nbecause the minute something gets out of line, it is\na very short time--\nH.M.JR: Well, that would fall into what I am saying\nhere. You keep the curve approximately where it is.\nMR. ECCLES: Yes. Well, all I am interested in,\nAlan, is that this peg out here is - my idea is to\napproximately figure that two and a half is the long term\nrate, and that is, for instance, that the '67-'72's is\nthe longest two and a half that we have got out. There-\nfore, that is your bench mark at the present time. I\nwould like to feel that there is some leeway in that\nmarket of say two or three points, from ninety-eight\nor ninety-nine up to B. hundred and one or a hundred\nand one and a half, so that the market does not get the\nimpression that that is a demand liability at two and a\nhalf, that is that we are pegging it at two and a half\n50 that they can cash it in on demand and always get\ntheir money.\nH.M.JR: Well, I don't think - on a week to week\nbasis you need two or three points leeway?\nMR. ECCLES: I don't think at the moment you do,\nnot in B. week, no.\nMR. SPROUL: But as a program that may go on from\nweek to week until it extends into months.\nRegraded Unclassified\n221\n- 30 .\nH.M.JR: Oh.\nMR. BELL: They are thinking of & long-range\nprogram here, and I thought you were talking about\njust a short-range program until we get to this long-\nrange program.\nH.M.JR: I was.\nMR. ECCLES: Well, I would think that during the\nnext week unless something certainly unforeseen should\ndevelop that caused another problem - then we would\nhave to have of conference and decide what kind of a\nsupporting operation had to be given. That wouldn't\nbe & normal market picture.\nH.M.JR: But on a week to week thing certainly\nit couldn't vary two or three points.\nMR. BELL: Unless you have a shock of some kind.\nH.M.JR: Then it is B. special situation.\nMR. MoKEE: Mr. Secretary, I am just & lone eagle\non this part, but I would like to express my opinion,\nwhich I didn't have an opportunity the last time we met.\nH.M.JR: It was passed on to me.\nMR. McKEE: And that was the fact that I think\nthe numbers of holders of Government Bonds, not the\nquantity, but the numbers, do not figure on a yield\nbasis. They figure on a coupon basis. And I know from\ncontacts with small bankers throughout this country\nthat they have always expressed the opinion that when\nit gets below par, they get scared and their boards get\nscared, and I am very much impressed. I think the mis-\ntakes that were made were mistakes subject to conditions\nthat we couldn't foresee, and we have got them, and we\nhave got to live with them, and I for one am a par man.\nI just wanted to - and I do find myself alone.\nRegraded Unclassified\n222\n- 31 -\nH.M.JR: Well, normally I would be with you. I\nam trying not to be arbitrary or unreasonable. I\nwould like to have my own way as to getting started.\nI don't think it is fair to ask for my own way to get\nstarted and then also to have it as to how the Open\nMarket should carry it out. I think that that would\nbe unreasonable, and I an trying not to be unreason-\nable, so I am asking for them to give me a good dis-\ncussion, but leaving it to them how they do it. I mean,\nI don't think I can have both.\nMR. ECCLES: Well, you are leaving it to us, but\nat the same time it is important, because the things\nare tied together. Your program is tied in very closely\nwith our - and our discussion--\nH.M.JR: But, Marriner, what I meant was, if I\nsaid you have got to hold it within these limits and\nyou can't do this and you can't do that, then I would\nput in so many restrictions that it makes it - well--\nMR. ECCLES: Of course, you freeze the situation.\nH.M.JR: Yes, I am trying to be as reasonable and\nfair as I can.\nMR. ECCLES: Well, we can freeze it, but that isn't\nwhat you want. You are willing to have a market -\nreasonable market and normal operation with the proper\nkind of support.\nH.M.JR: What I am asking is, I am taking the\nresponsibility for this, but as to how to carry out the\nobjectives, I am putting it up to you fellows to do it.\nIs that fair?\nMR. ECCLES: Is that clear to you, Alan?\nH.M.JR: Is that all right?\nMR. SPROUL: It is clear and fair. I will state\nit as I understand it. You are going to put out\nRegraded Unclassified\n223\n- 32 -\napproximately seven hundred fifty million dollars of\ncertificates of indebtedness early in April, during\nthe week of April seventh. That is without commit-\nment as to further issues of Treasury bills, it is\nwithout commitment as to later use of tap-issues if\nyou decide that is desirable. Our commitment or our\npart in it is to the best of our ability, and as we\nthink, is best to engage in operations in the market\nwhich will prevent the bill rate from going up too\nrapidly and too far, and We interpret that at the\npresent time subject to future discussion with you as\nputting an upper limit of three-eighths on our operations.\nMR. ECCLES: Supporting in the interim, though.\nMR. SPROUL: Supporting in the interim. That\neverything else is subject to future determination\nafter we see how this move takes, except that with res-\npect to the whole range of Government security prices\nyou want to see that general curve maintained without\ninsisting that individual issues be maintained at par\nor any specific figure.\nH.M.JR: That is right.\nMR. ECCLES: That is agreeable to me.\nH.M.JR: Well, I thank you for your spirit and\ncooperation, and say a little prayer for me.\nRegraded Unclassified\n224\nCanadian inflation-control program,\nOn December 1, 1941, after previ us unsuccessful attempts\nto control prices, Canada out into effect an overall price\ncelling AS part of A. far-reaching program of inflation control.\nThis 5-part program consists of (1) & general ceiling on re-\ntail -rices, with limited exceptions, (2) a ceiling on wages\nand salaries, supplemented by cost-of-living bonuses, (3) our-\ntailment of public spending through taxation and war savings\nrosrams, (4) & eystem of industrial allocations, with Dro-\nspective consumer rationing, and (5) subsidies to producers\nof essential farm products, to maintain supplies without In-\ncreasing coste to consumers.\nWhile it 18 probably too early to determine the effective-\nness of the Canadian program, a levelling-out of the Canadian\ncost-of-living index and index of retail food prices since\nNovember 1941 may be significant. The attached chart shows\nthe official Canadian cost-of-living index and the index of\nretail food prices, in comparison with similar official in-\ndexes for this country. For 0 mparability, both are converted\nto an August 1939 base.\nThe Canadian figures (as of the lat of each month) show\nthat the cost of living index in February was 0.5 percent\nlower than last November, and that the index of retail food\nprices was 1.8 percent lower. (The Order in Council establish-\ning ceiling orices was issued November 1, the base period for\nthe ceilings having been announced on October 18.) Figures\nfor the United States (as of the 15th of each month) show in\nthe same period a rise of 2.2 percent in living costs and\na rise of 3.3 percent in retail food prices.\nThe Canadian price ceiling is essentially a rigid oeil-\ning on retail prices, applying to all commodities (unless\nabecifically exempted), to twelve essential services, and to\nthe rental of all real property. A major administrative\nproblem 18 the \"rolling back\" of squeezes between retail\nprices and basic costs, which is accomplished in nart by the\npayment of various Government subsidies.\nAttachment\nRegraded Unclassified\nTHE\n-\nCOST OF LIVING, U.S. AND CANADA\nAUGUST 1939 - 100\nPER\nPCR\nCENT\nCENT\nCost of Living\n120\n120\n115\n115\nCanada\n(DOM, But, OF STAT.)\n110\n110\n105\n105\nU.S.\n(B.L.S.)\n100\n100\n95\n95\nJ\nM\nM\nJ\nâ\nN\nJ\nM\nM\nJ\n$\nN\nJ\nM\nall\nJ\n$\n.\nJ.\nat\nis\n1939\n1940\n1941\n1942\nC\nFoods, Retail\n130\n130\n125\n125\n120\n120\n115\n115\nCanada\n(Bux. OF STATE)\n110\n110\n105\n105\nU.S.\n(8.L.S.)\n100\n100\n95\n95\na\nJ\nM\nM\nJ\n5\n-\nJ\nN\nM\n,\n$\nN\nJ\nM\nJ\nM\n.\nJ\n5\n1940\n1941\n1942\n1939\nThe Secretary of the Tragam\nRegraded Unclass\n226\nTREASURY DEPARTMENT\nWashington\nFOR RELEASE, MORNING NEWSPAPERS,\nPress Service\nMonday, March 23, 1942.\nNo. 30-83\n3/21/42\nSecretary Morgenthau said today that he expects to offer\ntwo 1seues of certificates of indebtedness during the month of\nApril. The first issue will be offered during the week of\nApril 7. This is the first time that this form of instrument\nwhich is limited by law to a maturity of one year -- has\nbeen offered in the market by the Treasury since 1934. The\nnew certificates will be redeemed in cash at maturity and will\ncarry no exchange privileges,\nThe Secretary said that these short-term securities will\nprovide a greater fluidity to the money market, and will also\nsatiefy the demande of those business funds which prefer &\nshort-term marketable security with an interest coupon to\ndiscount securities such as Treasury bills.\n-000-\nRegraded Unclassified\n227\nProposed Press Statement for the\nSecretary of the Treasury\nSecretary Morgenthau said today that he expects to sell\nan issue of certificates of indebtedness some time in April.\n/\nThis 18 the first time that this form of instrument -- which\nis limited by law to a maturity of one year -- has been offered\nin the market by the Treasury since 1934. The new certificates\nwill be redeemed in cash at maturity and will carry no exchange\nprivileges.\nThe Secretary said that he was reviving this type of\nfinancing fee two primary Pessons: First, to provide a suitable\nmedium of investment for current accumulations of business funds\ntemporarily thrown out of employment because of wartime\nrestrictions; and, second, to provide a greater fluidity to the\nshort-term money market.\nRegraded Unclassified\nTREASURY DEPARTMENT\n228\nINTER OFFICE COMMUNICATION\nDATE Maroh 20, 1942.\nTO\nSecretary Morgenthau\nFROM\nGeorge Buffington GTS\nIn my discussions with officers of fifteen corpora-\ntions in New York and Chicago, I found & desire to cooperate\nwith the Treasury in whatever financing program 16 finally\nadopted. While the corporations interviewed represent a fair\ncross-section of industry, it might be desireole to extend\nthe investigation to medium-sized corporations to gain an over-\nall impression of business.\nApparently little has been done in recent years to\neducate corporations to think in terms of bills and certificates\nof debt. Most of the corporations, however, with whom I talked\nprefer fixed maturities and fixed rates of interest Decause\nthey have schedules of future cash outlays and prefer to have\nnaturities coincide with their requirements. Generally corpora-\ntions with funds available are interested in certificates of\ndebt running from six to nine months with an interest rate of\none-half of one per cent. Many of them are also interested\nin ninety-day bills.\nWherever corporations have surplus cash and where\ntheir needs are indefinite, there seema to De a good deal of\ninterest in tap issues; however, it would appear that the\namount of idle funds available for this purpose may have been\nsomewhat over-estimated. Before making a final decision about\noffering a five year tao issue to corporations, it might D6\ndesirable to examine further the requirements of business.\nSeveral corporation officials expressed a desire that the limit\non \"F\" and \"G\" bonds De lifted above $50,000 annually. The\nopinion was also expressed that in certain instances corpora-\ntions night sell general market securities in order 10 Day tap\nissues, thereby siversely affecting the general market,\nUnder existing conditions the demands of industry\nfor increased working capital indicate that many corporations\nwill resosorb idle funds in the conduct of their business\nduring 1942.\nThere will follow a detailed report of my verious\ninterviews,\nRegraded Unclassified\nMEMORANDUM\n229\nMarch 19, 1942.\nRE: INVESTMENT OF IDLE BUBINESS FUNDS\nI talked yesterday, March 18, with the following company\nofficials at the office of the Federal Reserve Bank of Chicago:\nMr. A. B. Keller, Vice President,\nInternational Harvester Company\nMr. W. D. Gale, Vice President in Charge of Finance,\nCommonwealth Edison Company\nMr. Ellis Taylor, Vice President,\nMr. Robert Lascelles, Treasurer,\nPullman Company\nMr. Mark Kemper,\nLumbermen's Mutual Casualty Company\nMr. James Cox, Vice President,\nWilliam Wrigley, Jr., Company\nMr. W. B. Traynor, Vice President and Treasurer,\nSwift and Company\nMr. R. E. Clarke, Treasurer,\nStandard 011 Company of Indiana\nMr. W. L. Templeton, Treasurer,\nQuaker Oats Company\nMr. Willard N. Boyden, Vice President,\nContinental Casualty Company\n(1) International Harvester Company. Inasmuch as their\nworking capital requirements vary from time to time, they prefer\nmaturities one year or less. Mr. Keller states that they are\nprimarily interested in bills and certificates of debt because\nthey can buy them with maturities to meet their neede. At the\npresent time they hold B. substantial amount of oills in addition\nto 830 million of Tax Savings Notes. If the volume of business\nRegraded Unclassified\n- 2 -\n230\ncontinues to increase at the present rate, they will let some\nmaturities run off to produce additional working capital for war\nwork. While it would be a deviation from their established\npractice, they would buy tap issues for pension funda if asked\nto do 80,\n(2) Commonwealth Edison Company. Mr. Gale stated that the\ncompany 18 carrying at present $75 million construction funds. To\ndate they have not invested in Government securities with maturities\nlonger than two years. They would be very much interested in buy-\ning certificates of debt at 1/2 of 1 per cent with maturities be-\ntween six and nine months. Edison 1s holding $20 million tax notes.\nThey are anxious to cooperate with the Government and hope that the\nbill rate will be high enough in the future to permit them to make\nexpenses of handling after taxes.\n(3) Pullman Company. The company has preferred in the past\nto Duy general market issues maturing beyond two or three years.\nSince the company has reduced its outstanding capital stock, their\nfunds available for investment have decreased materially. Since\n1933, the company has spent B. total of 840 million for new cars.\nIn the future they will probably accumulate renewal funds of\naround 7 million annually which it may not be possible to spend,\ndue to the scarcity of certain materials used in the construction\nof the new light-weight cars. The company will buy some certifi-\ncates of debt but is inclined to postpone extended purchases until\nrates are more ravorable.\nThey asked about the possibility of lifting the limit of \"F\"\nand \"G\" bonds above $50,000.\nRegraded Unclassified\n231\n- 3 -\n(4) Lumbermen's Mutual Casualty Company. The company is\nholding 20 million bills and approximately $5 million long-term\nGovernment securities. They will continue to buy bills and cer-\ntificates of debt. Whenever commercial paper rates go to above\n1/2 of 1 per cent, they are buyers of paper maturing from six to\ntwelve months.\n(5) William Wrigley and Company. With present taxes running\nlast year to $4 million, the company sees little prospect of having\nidle funds for investment unless sugar restrictions lead to lower\ninventories. They are starting now to ouy tax notes in anticipa-\ntion of next year's taxes. They are glad to cooperate in any\nGovernment program and hope that the rate on bills and certificates\nof debt will cover expenses of handling after payment of taxes.\n(6) Swift and Company. Until recently, Swift and Company\nhas had excess cash balances B.S. high as $30 million. Increases\nin hog prices last year caused the company to borrow from its\nbank. As this inventory is processed and marketed they will re-\nduce bank loans but will probably not have substantial idle funds\navailable for purchase of Government securities. They are interested\nin tap issues for pension funds. They asked about lifting $50,000\nlimit on \"F\" and \"G\" bonds.\n(7) Standard 011 Company of Indiana. The company has approxi-\nmately $60 million invested in United States Government securities--\nlongest maturities 1945. The present indications are that increased\nvolume of business will necessitate absorbing $15 million of idle\nfunds in their operations during the next six or eight months. If\nRegraded Unclassified\n232\nbusiness continues to increase at present rates, investments will\nprooably decrease further. They will buy some tap issues out they\nlike the flexibility of definite maturities at fixed interest rates.\nThey would be interested in bills maturing six to nine months at\n1/2 per cent.\n(8) Quaker Oate Company. In recent years, the company has\nhad up to $15 million in idle funds invested in Government securities.\nFunds available for investment have decreased to #7-1/2 million\nrecently on account of higher material costs. Because of the\nnature of the business, the company would prefer short paper\nnaturing during last quarter of calendar year. Bills are not\nparticularly attractive on account of the yield; six to nine\nmonths certificates of debt at 1/2 per cent would be attractive.\nThey are interested in the idea of tap issues but think that type\nof security 18 not as attractive for their purpose.\n(9) Continental Casualty Company. The company will Duy oills\nand certificates of debt for casualty company; life company con-\ntrolled by same interests already committed to invest 75 per cent\nof their available funds in long-term Governments. They are now\nbuying 2-1/2's of 1967-72 but will buy tap issues if available\nand the Government desires them to do SO.\nI talked with the following company officials at the\noffice of the Federal Reserve Bank of New York on March 19:\nMr. John Morton, Treasurer,\nSinger Manufacturing Co.\nMr. J. Crane, Treasurer,\nStandard 011 Company of New Jersey\nRegraded Unclassified\n- 5 -\n233\nMr. Arthur Surkamp, Treasurer,\nU. S. Rubber Company\nMr. John Raesch, Executive Vice President,\nJohn Wanamaker\nMr. G. L. Edwards, Treasurer,\nU. S. Steel Corporation\nMr. F. T. Fisher, Treasurer,\nCorn Products Company\n(1) Singer Manufacturing Company. The company holds $68\nmillion Government securities--longest maturity September 15, 1948.\nIn addition, the company holde $28 million Canadian bonds. This\nfund has accumulated as their operations in foreign countries have\ncontracted. Present indications are that the company will not\nsusoro this fund in the operation of their business unless they\nare asked to do a substantial amount of war work. They would buy\nsix to nine months certificates of debt at 1/2 per cent. Inasmuch\nas the investment account has been created for the purpose of ex-\npanding foreign operations after the war, they do not particularly\nrequire short-term investments. They would be very much interested\nin five year tap issues.\n(2) Standard 011 Company of New Jersey. The company has ap-\nproximately $100 million in Government securities. Their total\ncesh and investment account 18 divided approximately as follows:\n25% in cash\n50% in bille\n25% in other Government obligations\nrunning from one to five years\nThe company holds large balances for operating subsidiaries\nand since demands from these subsidiaries vary, they would prefer\ncontinuing to buy bills and certificates of debt. So far this\nRegraded Unclassified\n-6-\n234\nyear they have bought approximately $10 million Tax Savings Notes\nend by June when they can estimate more accurately their taxes\nfor the current year, will undoubtedly increase this amount.\n(3) United States Ruboer Company. The company has approxi-\nmately 10 million surplus cash on hand which they would invest in\noille and certificates of debt. If the company should acquire\nadditional idle funds not needed in the business for an extended\nperiod, they might ouy in their 8 per cent preferred stock or\nredeem outstanding bonds. Anxious to cooperate with the Government\nin any financing program. The company acquired last year $9 million\nof Tax Savings Notes against a $15 million tax liability. The\nfirst installment of tax this year was paid by presenting 50 per\ncent notes and the balance in cash.\n(4) John Wanamaker. The company has not been educated to\nbuy certificates of deot or bills. They believe both issues de-\nsirable for their purpose and would look favorably upon tap issues\nfor inventory reserves. They have several million dollars in\nexcess cash available. Mr. Raasch indicates that they are possibly\nin a little easier position than some of their competitors due to\nthe fact that they have never relied on bank borrowings to carry\ninventories. He thinks any plan the Government may develop to\nutilize excess business funds is advantageous and he 18 glad to\ncooperate.\n(5) The U.S. Steel Corporation. The corporation has maintained\nB policy of not investing idle cash reserves. At the present time\nthey have appropriated from surplus approximately $180 million\nwhich will De paid out probably within the next eighteen months.\nRegraded Unclassified\n235\n- 7 -\nBecause of far-flung operations, the company carries seven hundred\nbank accounts in four hundred banks throughout the country. While\naction with respect to changing their present policy would neces-\nsarily have to have the approval of the Finance Committee, Mr.\nDiwards expresses the personal view that he thought the company\nwould cooperate in any Government program and thought they could\nbuy bills, certificates of debt, and tap issues. Their schedule\nof payment against this appropriated surplus is sufficiently\nflexible to permit the purchase of a tap issue, with a thirty-day\nredemption provision.\n(6) Corn Products Company. The company has approximately\n525 million cash on hand, part of which may be absorbed in the\noperation of business during the next year. The company will\nundoubtedly have to defer some maintenance thereby accumulating\nadditional funds. They will buy $7-1/2 million tax notes in\nanticipation of this year's taxes but would be very much in-\nterested in bills, certificates of debt, and a five-year tap\nissue. They are enthusiastic about any procedure which will\nhelp the Government carry out its financing program.\nRegraded Unclassified\n3/20/40 3/20\n236\nAMOUNT FOR WHICH\nAMOUNT SUBSCRIBED\nNAME AND LOCATION OF BANK\nEACH BANK CAN\nTO 21% BONDS\nSUBSCRIBE\nOFFERED 2/13/42\n1 Chase National Bank, New York\n$100,270,000\n$100,000,000\n2 National City Bank, New York\n77,500,000\n77,500,000\n3 Guaranty Trust Co., New York\n130,000,000\n10,000,000\n4 Bank of America N.T.& S.A.,\nSan Francisco\n61,400,000\n60,700,000\n5 Continental Illinois N/B & Tr.\nCompany, Chicago\n50,000,000\n50,000.000\n6 Bankers Trust Co., New York\n37,500,000\n25,000,000\n7 Central Hanover Bk.& Tr. Co.,\nNov York\n40,500,000\n40,500,000\nto First National Bank, Chicago\n37,500,000\n37,500,000\n9 Chemical Bk.& Tr. Co., New York\n35,000,000\n25,000,000\n10 Manufacturere Tr. Co., New York\n37,445,000\n37,445,000\n11 First National Bank, New York\n55,000,000\n45,000,000\n12 First National Bank, Boston\n33,500,000\n25,000,000\n13 Irving Trust Co., New York\n51,467,000\n15,000,000\n14 Bank of the Manhattan Company,\nNow York\n20,000,000\n20,000,000\n15 J.P. Morgan & Co., New York\n20,000,000\n10,000,000\n16 Security-First N/B, Los Angeles\n23,000,000\n23,000,000\n17 National Bank, Detroit\n15,000,000\n15,000,000\n18 Philadelphia Nat'l Bank,\n17,500,000\n17,500,000\nPhiladelphia\n19 New York Trust Co., New York\n18,750,000\n18,750,000\n) Cleveland Trust Co., Cleveland\n16,150,000\n16,000,000\nRegraded Unclassified\n237\n- 2 -\nAMOUNT FOR WHICH\nAMOUNT SUBSCRIBED\nNAME AND LOCATION OF BANK\nEACH BANK CAN\nTO 215 BONDS\nSUBSCRIBE\nOFFERED 2/13/42\n21 Com Exchange Bank Tr. Co.,\nNov York\n$15,000,000\n$15,000,000\n22 Northern Trust Co., Chicago\n4,500,000\n4,500,000\n23 Mellon National Bank, Pittsburgh\n18,750,000\n18,750,000\n24 American Trust Co., San Francisco\n9,500,000\n4,000,000\n25 Wells Targo 3k. & Union Tr. Co.,\nSan Francisco\n7,500,000\n2,000,000\n26 Union Trust Co., Pittsburgh\n44,750,000\n30,000,000\n27 Harris Trust & Svge. Bk., Chicago\n7,000,000\n3,500,000\n28 First National Bank, St. Louis\n7,150,000\n7,000,000\n29 Pennaylvania Co. For Insurance\nPhiladelphia\n10,200,000\n8,000,000\n30 Bank of New York, New York\n7,500,000\n7,500,000\n31 First Wisconsin N/B, Milwaukee\n9,000,000\n7,250,000\n4,000,000\n4,000,000\n32 First National Bank, Baltimore\n33 National City Bank, Cleveland\n6,700,000\n4,000,000\n6,000,000\n6,000,000\n34 Seattle-First N/B. Seattle\n35 Nat'l. Shawout Bank, Boston\n15,000,000\n15,000,000\n36 Detroit Bank, Detroit\n3,925,000\n3,885,000\n37 Commerce Tr. Co., Kansas City, No.\n5,000,000\n5,000,000\n38 Mercantile-Commerce Bank & Tr. Co.\n7,000,000\n7,000,000\nSt. Louis\n39 Anglo California National Bank,\n10,105,000\n10,000,000\nSan Francisco\n40 Manufacturers N/B. Detroit\n3,750,000\n3,750,000\n41 Fidelity Union Tr. Co., Newark\n6,750,000\n6,750,000\n42 United States N/B, Portland, Ore.\n4,500,000\n1,000,000\nRegraded Unclassified\n- 3 -\n238\nAMOUNT FOR WHICH\nAMOUNT SUBSCRIBED\nNAME AND LOCATION OF BANK\nEACH BANK CAN\nTO 21% BONDS\nSUBSCRIBE\nOFFERED 2/13/42\n43 City N/B & Tr. Co., Chicago\n$3,700,000\nNone\n44 Crocker First National Bank,\nSan Francisco\n6,000,000\n$1,000,000\n45 Savings Bank Tr. Co., New York\n16,248,500\n16,000,000\n46 Public N/B & Tr. Co., New York\n7,000,000\n7,000,000\n47 Marine Trust Company, Buffalo\n7,500,000\n7,500,000\n48 Central National Bank, Cleveland\n6,890,000\n2,000,000\n49 First N/B & Tr. Co., Minneapolis\n6,000,000\n3,000,000\n50 San Francisco Bank, San Francisco\n5,000,000\n2,500,000\n51 Marine Midland Tr. Co., New York\n5,000,000\n3,000,000\n52 Farmers & Merchants N/B, Loe Angeles\n3,750,000\n3,750,000\n53 First National Bank, Dallas\n5,500,000\n5,500,000\n54 First National Bank, Portland, Ore.\n4,000,000\n4,500,000\n55 Northwestern Nat'l Bk. & Tr. Co.\nMinnespolis\n5,000,000\n2,500,000\n56 Whitney Nat'l Bank, New Orleans\n4,250,000\n4,250,000\n57 Bank of California, N.A.,\nSen Francisco\n7,000,000\n7,000.000\n58 First National Bank, Atlanta\n4,500,000\n4,500,000\n59 Commercial N/B & Tr. Co., New York\n7,000,000\n5,000,000\n60 Indiana N/B, Indianapolis\n4,500,000\n4,500,000\n61 Riggs Nat'l. Bank, Washington, D.C.\n3,575,000\n3,700,000\n62 Corn Exchange Nat'l Bk.& Tr. Co.,\nPhiladelphia\n5,775,000\n2,000,000\n63 California Bank, Los Angeles\n4,000,000\n4,000,000\n4 First National Bank, St. Paul\n6,000,000\n6,000,000\nRegraded Unclassified\n- 4 -\n239\nAMOUNT FOR WHICH\nAMOUNT SUBSCRIBED\nNAME AND LOCATION OF BANK\nEACH BANK CAN\nTO 21% BONDS\nSUBSCRIBE\nOFFERED 2/13/42\n65 Fifth Third Union Trust Co.,\nCincinnati\n$5,000,000\n$5,000,000\n66 Citizens & Southern Nat'l Bk.,\nSavannah\n3,825,000\n3,825,000\n67 Fidelity-Philadelphia Trust Co.,\nPhiladelphia\n8,850,000\n8,000,000\n65 Citizens Nat'l. Tr. & Svgs. Bank,\nLos Angeles\n4,137,500\n4,000,000\n69 First Nat'l Bank, Kansas City, Mo.\n2,000,000\n1,000,000\n10 Girard Trust Co., Philadelphia\n6,500,000\n5,000,000\n71 Brooklyn Trust Co., Brooklyn\n6,400,000\n6,400,000\n72 First National Bank, Pittsburgh\n5,250,000\n3,000,000\n2,500,000\nNone\n3 State Bank of Albany, Albany\n74 Wachovia Bk & Tr. Co., Winston-Salem\n3,500,000\n3,500,000\n75 Mississippi Valley Tr.Co., St. Louis\n4,050,000\n4,050,000\n76 Brown Brothers Harriman & Co.,New York\n6,663,000\n5,000,000\n5,750,000\n1,000,000\n77 Industrial Trust Co., Providence\n75 United States Trust Co., New York\n14,000,000\n8,000,000\n79 First National Bank, Philadelphia\n3,555,000\n2,500,000\n80 National Bank of Commerce, Seattle\n2,500,000\n2,500,000\n6,750,000\n6,750,000\n81 Peoples-Pittsburgh Tr.Co., Pitteburgh\n3,000,000\n500,000\n82 Merchants National Bank, Boston\n83 Manufacturers & Traders Trust Co.,\nBuffalo\n5,500,000\n5,500,000\n84 Farmers Deposit N/B. Pitteburgh\n7,500,000\n6,000,000\n95 Toleão Trust Company. Toledo\n4,000,000\n4,000,000\nRegraded Unclassified\n- 5 -\n240\nAMOUNT FOR WHICH\nAMOUNT SUBSCRIBED\nNAME AND LOCATION OF BANK\nEACH BANK CAN\nTO 21% BONDS\nSUBSCRIBE\n2/13/42\n80 American Trust Co., Charlotte\n$1,800,000\n$1,800,000\nE7 Union Planters N/B & Trust Co.\nMemphis\n3,500,000\n3,750,000\n68 First National Bank, Cincinnati\n5,550,000\n5,550,000\n89 Wilmington Trust Co., Wilmington\n7,000,000\n7,000,000\n90 Hartford N/B à Tr. Co., Hartford\n4,000,000\n4,000,000\n91 City Bank Fermers Tr. Co., New York\n10,000,000\n10,000,000\n92 Republic National Bank, Dallas\n5,000,000\n5,000,000\n93 State Street Trust Co., Boston\n4,237,000\n1,000,000\n94 Second National Bank, Boston\n3,000,000\n3,000,000\n95 Central Trust Co., Cincinnati\n3,350,000\n3,375,000\ny6 Citizens Union National Bank,\nLouisville\n2,000,000\n2,000,000\n97 Ohio National Bank, Columbus\n3,170,500\n1,000,000\n98 First & Merchants National Bank,\nRichmond\n3,000,000\n3,000,000\n99 First National Bank, Birmingham\n4,781,000\n4,750,000\n100 The National Commercial Bank &\nTrust Company, Albany\n3,250,000\n3,250,000\nApparently these banks erronsously included some recerves in certifying\ntheir capital and surplus.\n3/20 1-2\n241\nBOSTON\nAMOUNT FOR WHICH\nAMOUNT SUBSCRIBED\nWE AND LOCATION OF BANK\nEACH BANK CAN\nTO at% BONDS\nSUBSCRIBE\nOFFERED 2/13/42\nest National Bank,\nbeton, Massachusetts\n8 33,500,000\n$25,000,000\ntional Shawmut Bank,\nston, Massachusetts\n15,000,000\n15,000,000\nlustrial Trust Company,\ncridence, Rhode Island\n5,750,000\n1,000,000\nrehants National Bank,\naston, Massachusetts\n3,000,000\n500,000\nrtford National Bank &\nhist Company,\nlartford, Connecticut\n4,000,000\n4,000,000\nStreet Trust Company,\niston, Massachusetts\n4,237,000\n1,000,000\nsond National Bank,\niston, Massachusetts\n3,000,000\n3,000,000\nRegraded Unclassified\n242\nNEW YORK\nAMOUNT FOR WHICH\nAMOUNT SUBSCRIBED\nAME AND LOCATION OF BANK\nKACE BANK CAN\nTO 2/% BONDS\nSUBSCRIBE\nOFFERED 2/13/42\nhas National Bank,\nNew York, New York\n$ 100,270,000\n$100,000,000\nnational City Bank,\nNov York, New York\n77,500,000\n77,500,000\nQuaranty Trust Company,\nfor York, New York\n150,000,000\n10,000,000\nCankers Trust Company,\nNew York, New York\n37,500,000\n25,000,000\nRestral Hanover Bank & Trust\nCompany,\nNew York, New York\n40,500,000\n40,500,000\nhemical Bank & Trust Company,\nNow York, New York\n35,000,000\n25,000,000\nasufacturers Trust Company,\nNew York, New York\n37,445,000\n37,445,000\nfirst National Bank,\nNew York, New York\n55,000,000\n45,000,000\ngiving Trust Company,\nNew York, New York\n51,467,000\n15,000,000\nAnk of the Manhattan Company,\nRow York, New York\n20,000,000\n20,000,000\nP. Morgan & Company, Inc.\nNew York, New York\n20,000,000\n10,000,000\nles York Trust Company\nNew York, New York\n18,750,000\n18,750,000\nform Exchange Bank Trust Company,\nNew York, New York\n15,000,000\n15,000,000\nBank of New York\nNew York, New York\n7,500,000\n7,500,000\nMality Union Trust Company,\nark, New Jersey\n6,750,000\n6,750,000\nBevings Bank Trust Company,\nNew York, New York\n16,248,500\n16,000,000\n243\n- 1 -\nAMOUNT FOR WHICH\nAMOUNT SUBSCRIBED\nME AND LOCATION OF BANK\nEACH BANK CAN\nTO 2/2% BONDS\nSUBSCRIBE\nOFFERED 2/13/42\nablie National Bank & Trust\nCompany,\nHow York, New York\n$ 7,000,000\n$7,000,000\nMarine Trust Company,\nBuffalo, New York\n7,500,000\n7,500,000\narine Midland Trust Company,\nNew York, New York\n5,000,000\n3,000,000\ncomercial National Bank &\nTrust Company,\nNew York, New York\n7,000,000\n5,000,000\nwooklyn Trust Company,\nBrooklyn, New York\n6,400,000\n6,400,000\n, Bank of Albany,\nAlbany, New York\n2,500,000\nNone\nrown Brothers Harriman k Company,\nNew York, New York\n6,663,000\n5,000,000\nhited States Trust Company,\nNew York, New York\n14,000,000\n8,000,000\nImfacturers & Traders Trust\nCompany,\nBuffalo, New York\n5,500,000\n5,500,000\nity Bank Farmers Trust Company,\nNew York, New York\n10,000,000\n10,000,000\nThe National Commercial Bank &\nTrust Company,\nAlbany, New York\n3,250,000\n3,250,000\nRegraded Unclassified\n244\nPHILADELPHIA\nAMOUNT FOR WHICH\nAMOUNT SUBSCRIBED\n11 AND LOCATION OF BANK\nEACH BANK CAN\nTO 2/1% BONDS\nSUBSCRIBE\nOFFERED 2/13/42\niladelphia National Bank,\nmiladelphia, Pennsylvania\n$ 17,500,000\n$ 17,500,000\nmaylvania Company for\nisurance,\nPhiladelphia, Pennsylvania\n10,200,000\n3,000,000\nRE Exchange National Bank\nTrust Company,\nPhiladelphia, Pennsylvania\n5,775,000\n2,000,000\ndelity-Philadelphia Trust\nespany,\nPhiladelphia, Pennsylvania\n8,850,000\n8,000,000\nrard Trust Company\nladelphia, Pennsylvania\n6,500,000\n5,000,000\nrst National Bank,\nPhiladelphia, Pennsylvania\n3,555,000\n2,500,000\nisington Trust Company,\nMilmington, Delaware\n7,000,000\n7,000,000\nRegraded Unclassified\n245\nCLEVELAND\nAMOUNT FOR WHICH\nAMOUNT SUBSCRIBED\nwe AND LOCATION OF BANK\nEACH BANK CAN\nTO 21% BONDS\nSUBSCRIER\nOFFERED 2/13/42\n[evelend Trust Company,\nCleveland, Ohio\n$ 16,150,000\n$16,000,000\nallon National Bank,\n/\nPittsburgh, Pennsylvania\n18,750,000\n18,750,000\naion Trust Company,\nPittsburgh, Pennsylvania\n44,750,000\n30,000,000\ntional City Bank,\nCleveland, Ohio\n6,700,000\n4,000,000\nentral National Bank,\nCleveland, Ohio\n6,890,000\n2,000,000\nfth Third Union Trust Company,\nCincinnati, Ohio\n5,000,000\n5,000,000\ntrst National Bank,\nPittsburgh, Pennsylvania\n5,250,000\n3,000,000\nsoples-Pittsburgh Trust Company,\nPittsburgh, Pennsylvania\n6,750,000\n6,750,000\namers Deposit National Bank,\nPittsburgh, Pennsylvania\n7,500,000\n6,000,000\nledo Trust Company,\nToledo, Ohio\n4,000,000\n4,000,000\nirst National Bank,\nCincinnati, Ohio\n5,550,000\n5,550,000\nentral Trust Company,\nCincinnati, Ohio\n3,350,000\n3,375,000 .\nhio National Bank,\nColumbus, Ohio\n3,170,500\n1,000,000\n.\nApparently this bank erroneously included some reserves\nin certifying its capital and surplus.\nRegraded Unclassified\n246\nRICHMOND\nAMOUNT FOR WHICH\nAMOUNT SUBSCRIBED\nX AND LOCATION OF BANK\nEACH BANK CAN\nTO 21% BONDS\nSUBSCRIBE\nOFFERED 2/13/42\nest National Bank,\nltimore, Maryland.\n$ 4,000,000\n$4,000,000\n& National Bank,\nwhington, D. C.\n3,575,000\n(Reserves\n302,000)\n3,700,000 -\nabovia Bank & Trust Company,\nnaton-Salem, North Carolina.\n3,500,000\n3,500,000\narican Trust Company,\nurlotte, North Carolina.\n1,800,000\n1,800,000\nest & Merchants National Bank,\nlehmond, Virginia\n5,000,000\n3,000,000\n.\nApparently this bank erroneously included some reserves\nin certifying its capital and surplus.\nRegraded Unclassified\n247\nATLANTA\nAMOUNT FOR WHICH\nAMOUNT SUBSCRIBED\nE AND LOCATION OF BANK\nEACH BANK CAN\nTO 21% BONDS\nSUBSCRIBE\nOFFERED 2/13/42\nItney National Bank,\nyour Orleans, Louisiana\n$ 4,250,000\n$ 4,250,000\nest National Bank,\nilanta, Georgia\n4,500,000\n4,500,000\ntizens & Southern National Bank,\nveasah, Georgia\n3,825,000\n3,825,000\nest National Bank,\niraingham, Alabama\n4,781,000\n4,750,000\nRegraded Unclassified\n248\nCHICAGO\nAMOUNT FOR WHICH\nAMOUNT SUBSCRIBED\nE AND LOCATION OF BANK\nEACH BANK CAN\nTO 2% BONDS\nSUBSCRIBE\nOFFERED 2/13/42\nintinental Illinois National\nThat & Trust Company,\nIllinois\n$ 50,000,000\n$ 50,000,000\nNational Bank,\nThicago, Illinois\n37,500,000\n37,500,000\nTotal Bank of Detroit,\nCatroit, Michigan\n15,000,000\n15,000,000\nBarthern Trust Company,\nChicago, Illinois\n4,500,000\n4,500,000\nTrust & Savings Bank,\nChicago, Illinois\n7,000,000\n3,500,000\nthat Wisconsin National Bank,\nWisconsin\n9,000,000\n7,250,000\nDetroit Bank,\nMichigan\n3,925,000\n3,885,000\nAufacturers National Bank,\nPostroit, Michigan\n3,750,000\n3,750,000\nNational Bank & Trust\nCompany,\nanchicago, Illinois\n3,700,000\nNone\nNational Bank,\nMindianapolis, Indiana\n4,500,000\n4,500,000\nRegraded Unclassified\n249\nST. LOUIS\nAMOUNT FOR WHICH\nAMOUNT SUBSCRIBED\nME AND LOCATION OF BANK\nEACH BANK CAN\nTO 2/% BONDS\nSUBSCRIBE\nOFFERED 2/13/42\ntrst National Bank,\nSt. Louis, Missouri\n# 7,150,000\n$ 7,000,000\nercantile-Commerce Bank &\ntrust Company,\nSt. Louis, Missouri\n7,000,000\n7,000,000\nississippi Valley Trust Company,\nStw Louis, Missouri\n4,050,000\n4,050,000\naion Planters National Bank &\nTrust Company,\nMemphis, Tennessee\n3,500,000\n3,750,000\n.\nitizens Union National Bank,\nLouisville, Kentucky\n2,000,000\n2,000,000\n.\nApparently this bank erroneously included some reserves\nin certifying its capital and surplus.\nRegraded Unclassified\n250\nMINNEAPOLIS\nAMOUNT FOR WHICH\nAMOUNT SUBSCRIBED\nME AND LOCATION OF BANK\nEACH BANK CAN\nTO 8/% BONDS\nSUBSCRIBE\nOFFERED 2/13/42\nirst National Bank & Trust\nCompany,\nMinneapolis, Minnesota.\n$ 6,000,000\n$ 3,000,000\northwestern. National Bank &\nTrust Company,\nMinneapolis, Minnesota.\n5,000,000\n2,500,000\nirst National Bank,\nSt. Paul, Minnesota.\n6,000,000\n6,000,000\nRegraded Unclassified\n251\nKANSAS CITY\nAMOUNT FOR WHICH\nAMOUNT SUBSCRIBED\nME AND LOCATION OF BANK\nEACH BANK CAN\nTO 21% BONDS\nSUBSCRIBE\nOFFERED 2/13/42\nmerce Trust Company,\nCity, Missouri\n$ 5,000,000\n$ 5,000,000\ntrst National Bank,\nCity, Missouri\n2,000,000\n1,000,000\nRegraded Unclassified\n252\nDALLAS\nAMOUNT FOR WHICH\nAMOUNT SUBSCRIBED\nE AND LOCATION OF BANK\nEACH BANK CAN\nTO 21% BONDS\nSUBSCRIBE\nOFFERED 2/13/42\nest National Bank,\nillas, Texas.\n$ 5,500,000\n$ 5,500,000\npublic National Bank,\nillas, Texas.\n5,000,000\n5,000,000\nRegraded Unclassified\n253\nSAN FRANCISCO\nAMOUNT FOR WHICH\nAMOUNT SUBSCRIBED\nB AND LOCATION OF BANK\nEACH BANK CAN\nTO * BONDS\nSUBSCRIBE\nOFFERED 2/13/42\nof America N.T.& S.A.,\nsu Francisco, California\n# 61,400,000\n$ 60,700,000\ncurity-First National Bank,\nAngeles, California\n23,000,000\n23,000,000\nTerican Trust Company,\nSan Francisco, California\n9,500,000\n4,000,000\nwills Fargo Bank & Union\nTrust Company,\nFrancisco, California\n7,500,000\n2,000,000\ntattle-First National Bank,\nSeattle, Washington\n6,000,000\n6,000,000\nCalifornia National Bank,\nFrancisco, California\n10,105,000\n10,000,000\nIted States National Bank,\nFortland, Oregon\n6,500,000\n1,000,000\nTacker First National Bank,\nBut Francisco, California\n6,000,000\n1,000,000\nthe Francisco Bank,\nan Francisco, California\n5,000,000\n2,500,000\n& Merchants National Bank,\nLos Angeles, California\n3,750,000\n3,750,000\nStreet National Bank,\n4,000,000\n4,500,000\n.\nFortland, Oregon\nof California, N.A.,\nSea Francisco, California\n7,000,000\n7,000,000\nMifornia Bank,\n4,000,000\nLos Angeles, California\n4,000,000\ntizens National Trust &\ndavings Bank,\n4,137,500\n4,000.000\nAngeles, California\nMonal Bank of Commerce,\n2,500,000\nSeattle, Washington\n2,500,000\n.\nApparently this bank erroneously included some reserves in\ncertifying its capital and surplus.\nRegraded Unclassified\n254\nPresented to peer\n3/20\non\nCOMPARISON OF PAR AND BOOK VALUES OF UNITED STATES GOVERNMENT OBLIGATIONS\nCONFIDENTIAL\nB-1288\nAS REPORTED BY STATE BANK MEMBERS DECEMBER 31, 1941\n(Amounts in thousands of dollars)\nTotal, all State bank members\nCentral Reserve city banksl\nReserve city banks\nCountry banks\nPar\nBook\nExcess\nPar\nBook\nExcess\nPar\nBook\nExcess\nPar\nBook\nExcess\nvalue\nvalue\nof book\nvalue\nvalue\nof book\nvalue\nvalue\nof book\nvalue\nvalue\nof book\nover par\nover par\nover par\nover par\n(Per cent)\n(Per cent)\n(Per cent)\n(Per cent)\nDirect obli (Ations--total\n5,805,259\n5,951,466\n2.5\n3,299,999\n3,387,602\n2.6\n1,493,274\n1,532,081\n2.5\n1,011,986\n1,031,783\n1.9\nTronsury billa\n295,708\n295,633\n--\n220.736\n220,678\n:\n36,674\n36,664\n--\n38,298\n38,291\n:\nTreasury notes\n1,122,264\n1,120,801\n-.1\n728,749\n726,761\n--3\n247,481\n247,589\n--\n146,034\n146,451\n-3\nFonds naturing in 5 years\nne less\n694,746\n715,903\n3.0\n500,88L\n517,470\n3.2\n118,499\n121,771\n2.7\n75,363\n76,667\n1.7\nBondo naturing in 5-10\nyears\n1,634,602\n1,687,744\n3.1\n1,013,816\n1,053,513\n5.8\n365,283\n376,442\n3.0\n255,503\n257,109\n.8\nBunds naturing in 10-20\nyours\n1,703,350\n1,765,799\n3.5\n710,777\n739,044\n4.0\n603,777\n624,983\n3.4\n383,796\n401,772\n3.2\nhonds maturing after 20\nyears\n354,589\n365,581\n3.0\n125,037\n129,336\n3.7\n121,560\n12/1,632\n2.5\n107,992\n111,113\n2.8\nwranteed obligations--\ntotal\n1,541,858\n1,548,275\n4\n973.375\n976,451\n.3\n311,963\n313,608\n.5\n256,520\n258,216\n.7\nReconstruction Finance\nCorporation\n726,355\n726,030\n.1\n530,676\n530,860\n--\n114,469\n114,633\n.1\n81,210\n81,337\n.2\nHome Owners Loan Corp.\n390,651\n393,464\n.7\n203,675\n205,300\n.8\n97,629\n98,130\n.5\n89,347\n90,034\n.8\nFodural Parm Vortgage\nLoan Corporation\n202,354\n205,096\n1.3\n124,161\n125,495\n1.1\n40,664\n41,396\n1.8\n37,529\n38,205\n1,6\nOther Government corpora-\ntions and agencies\n222,498\n222,885\n.2\n114,863\n114,796\n-,1\n59,201\n59,449\n4\n48,434\n48,640\n4\nAbout 96 per cont of the total Government security holdings of this class of banks wore reported by State bank members in Now York City,\nand only 4 por cent by State bank members in Chicago.\nBOARD OF GOVERNORS OF THE\nFEDERAL RESERVE SYSTEM,\nDIVISION OF BANK OPERATIONS,\nPEBRUARY 18, 1942.\n255\nCOMPARISON OF PAR AND BOOK VALUES OF UNITED STATES GOVERNMENT OBLIGATIONS AS REPORTED BY NATIONAL BANKS\nEXPIDENTIAL\nDECEMBER 31, 1941\n(Amounts in thousands of dollars)\nTotal, all national banks\nNew York City 2)\nChicago\nReserve city nat. banks\nCountry national banks\nExcess\nExcess\nExcess\nPar\nBook\nPar\nBook\nExcess\nof book\nof book\nPar\nBook\nExcess\nof book\nPar\nBook\nPar\nBook\nvalue\nvalue\nof book\nof book\nvalue\nvalue\nvalue\nvalue\nvalue\nvalue\nvalue\nvalue\nover par\nover par\nover par\nover par\nover par\n(Percent)\n(Percent)\n(Percent)\n(Percent)\n(Porcent)\npot obligations--total\n9,568,214\n9,755,221\n2.0\n2,264,371\n2,334,130\n3.1\n1,150,814\n1,174,854\n2.1\n3,688,949\n3,761,483\n2.0\n2,464,000\n2,484,754\n.6\n675,453\n675,265\n--\nreasury oills\n123,559\n123,495\n-.1\n222,339\n222,389\n:\n258,110\n258,00L\n:\n71,395\n72,377\n--\nreasury notes\n1,380,132\n1,886,439\n.3\n935,921\n940,434\n.5\n107,969\n108,184\n.2\n501,958\n503,014\n.2\n334,284\n334,807\n.2\nonds returing LA 5 yrs.\nor less\n716,561\n736.185\n2.7\n278,386\n290,915\n4.5\n55,005\n56,325\n2.4\n231,675\n237,484\n2.5\n151,495\n151,461\n--\ngoda naturing in 5-10\n373,620\n395,916\n6.0\n99,111\n103,978\n4.9\n884,138\n901,391\n1.9\n577,152\n564,980\n-2.1\nyears\n1,934,071\n1,966,265\n1.7\nlonds naturing in 10-20\n3,578,874\n3,690,358\n3.1\n528,088\n553,524\n5.8\n487,634\n501,545\n2.9\n1,567,413\n1,608,998\n2.7\n995.739\n1,021,291\n2.6\nyears\nSonds enturing after 20\n24,846\n178,706\n182,433\n2.1\n245,605\n252,592\n2.8\n334,015\n340,838\n2.0\nyears\n783,123\n800,709\n2.2\n24,797\n.2\narantaed ooligations--\ntotal\n2,263,262\n2,283,760\nis\n749.893\n761,126\n1.5\n60,574\n60,678\n.2\n853,974\n859,353\n.6\n598,821\n602,603\n.6\ninstruction Finance\n32,891\n32,893\n215,354\n215,653\n.1\n139,751\n140,003\n.2\nCorporation\n610,636\n612,017\n.2\n222,690\n223,468\nin\n:\nlime Owners Loan Corp.\n1,022,376\n1,034,358\n1.2\n363,224\n369,760\n1.8\n5,041\n5,106\n1.3\n392,441\n395,455\n.8\n261,670\n264,037\n.9\nFederal Farm hortgage\n800\n123,523\n125,317\n1.5\n96,635\n97.639\n1.0\nCorporation\n288,529\n294,890\n2.2\n67,579\n71,134\n5.3\n792\n1.0\nOther Government cor-\nporations and agencies\n341,671\n342,495\n.2\n96,400\n96,764\nalt\n21,850\n21,879\n.1\n122,656\n122,928\n.2\n100,765\n100,924\n.2\n1/ strept nonmember national banks outside the continental United States.\nCentral reserve city banks only.\nBOARD OF DOVERNORS OF THE\nFEDERAL RESERVE SYSTEM.\nDIVISION OF BANK OPERATIONS,\nMARCH 12, 1942\nTREASURY DEPARTMENT\n256\nINTER OFFICE COMMUNICATION\nDATE March 20, 1942\nTO\nSecretary Morgenthau\nFROM\nMr. White\nSubject:\nRevision of Capital Movements Reports\nBecause of the new situation brought on by the war we\npropose, with your approval, to make several changes in\ncollecting and publishing capital movements data.\n1. Instead of weekly reports we shall ask the banks\nto report monthly, and we shall eliminate entirely the\nquarterly supplementary reports. On some matters, the\nnew monthly reports will provide fuller information than\nformerly, particularly on official funds. The effect of\nthis change will be to reduce the reporting work of the\nbanks to less than half of what they now do.\n2. Instead of publishing in the Treasury Bulletin\nthe details of weekly capital movements by countries,\nwe shall report only the monthly total capital movements.\nThis will reduce from fourteen pages to two pages the\nspace in the Treasury Bulletin devoted to these reports.\nIn addition to this saving in paper, printing, and labor,\nthe suspension of publication of details on capital move-\nments by countries will obviate any possibility that\ninformation on shipments can be derived from B. study of\ncapital movements.\n3. If you approve of these changes, we shall put\nthem into effect with the April issue of the Treasury\nPulletin.\nRegraded Unclassified\nMarch 20, 1942\n267\n10010 FOR THE SECRETARY'S DIAHY\nUnder Secretary of War Patterson called no up\nat 6:00 to say that General Gross returned from Phila-\ndelphia and reported that they loaded 378 care in one\nday. I gather the average heretofore to be 200, and\nwhile the arguing WBB going on between Somervell and\nLew Douglas, the Muritime Commission's General Sullivan\ntold his man Gross just to go in and take over and 860\nthat the ships are londed. He offered to have Ceneral\nGross cell on me Saturday, but I said I didn't think it\nwas necessary. But I think it would be a good thing\nfor George Haes to have Tickton contact him before he\nPOSS to Philadelphia on Monday. I want Tickton to go to\nPhiladelphia both this Monday and the following Monday,\nand Patterson said that was entirely agresable to him.\nI also told him that whatever Tickton found in Phila-\ndelphia and reported to ne that I would give a copy of\nthis to Under Secretary of far Patterson. Please see\nthat this 1a done even though I am out of town.\nGeorge Haas, I think it would be interesting\nto find out how many care have teen loaded each day in\nPhiladelphia in the ships bound for Russia, starting\nwith March 9th. I think March 9th is the day I first\nlooked into it. If it is possible, please get those\nfigures and keep them up to date for de until further\nnotice. That 18, the number of freight cars loaded each\nday into ships bound for Russis, beginning with Merch\n9th - if that in the first day - until further notice.\nreport sent to Hajr 3/26/40 who\nRegraded Unclassified\n257\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE March 20, 1942\nTO\nSecretary Morgenthau\nFROM\nMr. Hass\nSubject: Current Dévelopments in the High-grade Security\nMarkets; Purchases of Treasury Bills Before and\nAfter the Rise in the Bill Rate\nSUMMARY\n(1) Prices of Treasury notes have held steady during\nthe past three weeks, while prices of Treasury\nbonde have advanced from 1/2 to 1-1/2 points.\nTax-exempt bonds have been stronger than taxable\nbonds (Chart I).\n(2) The sharp rise in the bill rate has not greatly\naffected the distribution of bids for Treasury\nbills by Federal Reserve districts or by classes\nof bidders Chart II). The total amount of bids\nhas not changed materially. Holdings of Treas-\nury bills by New York City banks have decreased.\nhowever, while holdings by banks outside of New\nYork City have risen (Chart III).\n(3) Total loans of weekly reporting member banks have\nremained stable since the beginning of the year.\nCommercial loans of these banks, however, increased\nby $235 millions during this period (Chart IV).\n(4) The price of municipal bonds fell during February\n(average yields rose by 15 basis points), while\nthe price of high-grade corporate bonds remained\nstable (Chart V).\nRegraded Unclassified\n258\nSecretary Morgenthau - 2\nI. United States Government Securities\nPrice changes of United States Government securities\nsince February 26 have been mixed. Treasury notes have\nremained practically unchanged, while Treasury bonds have\nadvanced steadily (Chart I). Tax-exempt Treasury bonds\nadvanced over one point during this period, while com-\nparable taxable bonds advanced about one-half B. point.\nDuring the past three weeks, the average yield on par-\ntially tax-exempt Treasury bonds, moving inversely to prices,\nhas decreased by 10 basis points.\nThe following table shows price changes by maturity\nclasses since February 26 for taxable and tax-exempt notes\nand bonds:\n:\nAverage price change\n:\nFebruary 26- - March 19\n:\n:\nTax-\n:\nTaxable\n::\nAll\n:\nexempt\n:\nissues\nissues\n:\nissues\n:\nB\n(Decimals are thirty-seconds)\nNotes\n1 to 3 years\no\n- .01\no\n3 to 5 years\nI\n+ .01\n+ .01\nBonds\n5 to 15 years to call\n41.02\n+ .17\n+ .29\n15 years and over to call\n+1.14\n+ 13\n+1.03\nRegraded Unclassified\n259\nSecretary Morgenthau - 3\nII. Purchases of Treasury Bills Before and\nAfter the Rise in the B111 Rate\nDid the recent precipitous rise in the Treasury bill rate\nfrom .07 percent on October 29 to 31 percent -- the highest\nsince 1937 -- on December 31 change the distribution of Treas-\nury bill purchases? To ascertain whether the increased yield\nof Treasury bills attracted a more general participation in\ntheir purchase, a study was made of the bill tenders submitted\nand of Treasury bill holdings prior and subsequent to the rise.\nChart II shows, by months, the proportions of bill tenders\nsubmitted by banks, bond dealers, and others compared with the\nrate on Treasury bills. The extent to which participation\nchanged with fluctuations in the bill rate is summarized in\nthe following table:\nSeptember\nDecember\nMarch 4,\n1941\n1941\n1942\n:\n(Percent)\nAverage b1ll rate\n0.06\n0.29\n0.22\nProportion of bill\ntenders submitted by:\nBanks\n83\n73\n86\nBond dealere\n5\n17\n7\nOthers\n12\n10\n7\nAB the table indicates, the proportionate participation\nby banks deolined slightly, while bond dealers substantially\nincreased their share when the bill rate rose from .06 to\n.29 percent. By March 4, 1942, however, banks were bidding\nfor a larger share than in September, while the proportion of\ntenders submitted by other bidders had fallen from 12 to 7 per-\ncent. There was no important increase in the total average\namount of tenders received in this period.\nRegraded Unclassified\n260\nSecretary Morgenthau - 4\nTenders submitted by Federal Reserve districts are sum-\nmarized in the following table:\nAugust\nNovember\nJanuary,\nand\nand\nFebruary\nSeptember\nDecember\nand March 4,\n1941\n1941\n1942\n(Percent)\nAverage bill rate\n0.09\n0.26\n0.23\nNew York and Chicago\n93\n83\n86\nAll other districts\n7\n17\n14\nAs the table indicates, the rise in the bill rate was 80-\ncompanied by only 8 moderate change in the distribution of\nthe tenders by Federal Reserve districts.\nChart III shows that weekly reporting member banks in-\ncreased their holdings of bills by $149 millions, while all\nothers increased theirs by $199 millions over the entire pe-\nriod from August 1941 to March 1942. Banks outside of\nNew York and Chicago increased their holdings by $266 millions;\nChicago banks, by $90 millions; while the holdings of New York\nbanks declined by $207 millions. The much greater rise in the\nholdings of bille than in the tenders for them of banks out-\nside of New York City and Chicago indicates that these banks\nmust have ultimately received a substantial portion of the\nbilla purchased by New York City banks as well as those pur-\nchased by dealers.\nRegraded Unclassified\n261\nSecretary Morgenthau - 5\nIII. Loans of Weekly Reporting Member Banks\nThere has been little net change in the volume of total\nloans of weekly reporting member banks since the beginning\nof the year ( Chart IV). Commercial loans, however, have\nrisen steadily. the increase since the third week in January\namounting to $235 millions. Non-commercial loans declined\nabout the same amount, most of the decline occurring at the\nbeginning of the year. The rise in commercial loans 1a\ninteresting, for it has been argued that the curtailment of\npeacetime production would increase idle cash balances of\nbusiness enterprise which could be used to decrease bank\nloans. Apparently, whatever tendency there has been in this\ndirection has been more than compensated for by the needa of\nindustries engaged in wartime production.\nChrysler Corporation, for instance, recently negotiated\na huge revolving credit arrangement for $100 millions or more\nto be borrowed over a 5-year period. Other wartime industries\nhave also received substantial bank credits.\nIV. Other Domestic High-grade Securities\nThe prices of high-grade corporate bonds remained stable\nduring the last month. The Treasury average yield of 5 high-\ngrade corporate bonds did not vary by more than 2 basie points\nduring this period. Municipal bond prices, however, were down.\nThe Bond Buyer's average yield of 11 high-grade municipal bonds\nshowed 8. rise of 15 basis points to 2.19 percent from February 1\nto March 1 Chart V).\nThe volume of new bonds publicly offered on the New York\nmarket has risen. The total for the three weeks ending\nMarch 13 was $68 millions, as compared with $32 millions of\nnew offerings during the 3 weeks ending February 20. Most\nof this rise occurred during the week ending March 6 when\n$32.5 millions of first mortgage bonds were offered by the\nPennsylvania Electric Company and $15 millions of debenture\nbonde by the Schenley Distillers Corporation.\nAttachments.\nRegraded Unclassified\n262\nChart I\nCHANGES IN THE PRICES OF U.S. SECURITIES\nPoints Plotted Represent the Difference from December 6, 1941 Price of Each Moturity Class\n1942\n1942\nJANUARY\nFEBRUARY\nDEC JAN FEB MAR. APR MAY JUNE JULY AUG. SEPT. OCT. NOV.\nMARCH\nAPRIL\n17\n24\n34\nT\nis\n21\n20\n,\n18\n2)\n28\n-\nis\n25\nPOINTS\nPOINTS\nPOINTS\nChangel\n(Not Change)\n(Mat Change)\nSaturday Quotations\nDaily\n+1\n+2\n+2\n+1\n+1\n+1\nNOTES\nNOTES\n3-5 Years\n3-5 Years\n+\n+\n2\no\no\nNOTES\n1-3 Years\no\no\nNOTES\nBONDS\n1-3 Years\n5-15 Years to Cell\n- I\nk\n-1\n-2\n2\n-1\nT\nBONDS\nBONDS\nDrar 15 Year to Cell\n5-15 Years \" Call\n-3\n3\n-11\nif\n-2\n-2\n-4\n4\n-21\n-21\n5\n5\nBONDS\nOver 15 Years to Call\n-3\n-3\n-6\n6\n-3f\n31\n-7\n-7\n-4\nY.\n4\nB\nDEC JAN FEB. MAR. APR. MAY JUNE JULY AUG. SEPT. OCT. NOV.\n-8\n41\n17\n14\n31\n7\n14\na\n20\nT\n14\nas\n26\n#\n\"\n18\n25\n-41\n1942\nJANUARY\nFEBRUARY\nMARCH\nAPRIL\n1942\nthe of the Secretary of - Treasury\nDriver e - and -\nF\nRegraded Unclassified\nCOMPARISON OF PERCENTAGE DISTRIBUTION OF TREASURY BILL TENDERS\nWITH BILL RATES\nBill Rates\nMonthly Average of Weekly Figures\nPERCENT\nOthers\nDealers\nTenders\nPERCENT\nBanks\n.30\nTreasury Bill Rates\n100\n.25\n80\n.20\n60\n.15\n40\n.10\n20\n.05\no\no\nAug.\nSept.\nOct.\nNov.\nDec.\nJan.\nFeb.\nMar.\"\nApr.\nMay\nJune\nJuly\n263\n\"First - my\nOffice of the of the Trams\n- of - of -\nRegraded Unclassifi\nom III\nCOMPARISON OF TREASURY BILL HOLDINGS WITH BILL RATES\nHoldings\nBill Rotes\nDOLLARS\nPERCENT\nBillions)\nMonthly Average of Weekly Figures\n2.4\nAll Other Holders\n.30\nOthers\nHoldings of All\nTreasury Bill Rates\nWeekly Reporting\nChicago\nMember Banks\nNew York\n2.0\n.25\n1,6\n.20\n1.2\n.15\n.8\n.10\n.4\n.05\no\nAug.\nSept.\nOct.\nNov.\nDec.\nJon.\nFeb.\nMar.\"\no\nApr.\nMay\nJune\nJuly\n. Average of First Time Weeks only\n264\nOffice of the Secretary of the Trumpy\n- of - and -\n8-233\nRegraded Uncl\n265\nChart IV\nLOANS - WEEKLY REPORTING MEMBER BANKS\nMONTHLY\nWEEKLY\n1929\n1931\n1933\n1935\n1937\n1939\n1941\nJ # M A M J. J A 5 o N D J F M A M 1941 J d. A 5 o N D J 1942 F\n1940\nDOLLARS\nDOLLARS\nBillions\nBillions\nDOLLARS\nBillions\n18\n18\n12\n12\n16\n16\n\"\nII\n14\n10\n14\n10\nTOTAL\nTOTAL\n12\n9\n12\n9\nB\n10\ne\n10\n7\n7\n8\nB\n6\n6\nCommercial\nCommercial\n6\nO/d Aeries\nCommercial\n6\nNew Banier\nNew Serves\n5\nAll Other\n5\n4\n4\nNew Series\nAll Other\nAll Other\n4\now Barier\n4\nNew Bener\n2\n2\n3\na\nJ F M A M J J ASONDJFMAMJJASOHDJFM\na\no\ne\n1929\n1931\no\n12\n1933\n1935\n1937\n1939\n1941\n12\n7\n7\n10\n10\n6\nCities other than\nNew York and Chicago\n6\n4\nCities other thon\nNew York and Chicago\ne\n5\n6\n6\n6\n4\n4\nNew York City\n4\n4\na\n3\n2\nNew York City\nChicago\n2\nI\nI\nChicago\no\no\no\no\n1929\n1931\n1933\n1935\n1937\n1939\n1941\nJ F M A M J J A 5 o N D J F M A M J J A 5 o N D J F M\n1940\n1941\n1942\n- . - terminary - - -\n1\n-\nI\nF-49-C\nChart V\nCOMPARISON OF THE YIELDS OF\nHIGH-GRADE CORPORATE AND MUNICIPAL BONDS\nFirst Day of the Month Figures. 1939 to Date\n1941\n1942\n1939\n1940\nPERCENT\nPERCENT\n3.26\n3.25\n3.00\n3.00\nHigh Grode\nCorporate Bonds\nTreasury Average\n2.75\n2.75\n2.50\n2.50\n2.25\n2.25\n2.00\n2.00\nHigh Grade\nMunicipal Bonds\nBond Buyer (II Cities)\n1,75\n1.75\n1.50\n1.50\nPERCENT\nPERCENT\n1.00\n1.00\nSpread\n.75\n.78\n.80\n50\n25\n26\no\no\n1939\n1940\n1941\n1942\n266\n- w - - of - -\nF-296\nRegraded Uncla\n268\nMarch 20, 1942\nMEMORANDUM FOR THE SECRETARY'S FILES\nMeeting in Mr. White's Office\nMarch 20, 1942\n12:15 p.m.\nPresent: Mr. D. W. Bell\nMr. White\nDr. Viner\nMr. B. Bernstein\nMr. Southard\nMr. Friedman\nThe matter of the financial aid to China was reviewed and the\nquestion of whether the State Department's suggestion of an exchange\nof letters should be adopted was discussed. It was agreed that an\nexchange of letters, including the draft prepared by Dr. Viner, was\nnot desirable. Dr. Viner agreed, saying that he was opposed to\nany exchange of letters and had merely prepared a draft because he\nwas BO instructed. It was also agreed that the Secretary should\npresent a memorandum to the President and that the latter should\ndecide the issue. A. draft of a memorandum to the President was\ngone over and a final draft agreed on by those present.\nRegraded Unclassified\n269\nAml in my proference is\nis Resilten's suggestion of a\nreply. I would dispense with\nthe reply valess the Chinese\nvelunteured 12,\nM mé M are Haw1ltom # suggestions.\n(Viner's commite)\na-1\n270\nDRAFT OF LETTER FROM THE SECRETARY OF THE TREASURY TO THE\nCHINESE MINISTER FOR FOREIGN AFFAIRS,\nRegraded Unclassified\nW doer Hr. Minister:\nYou, of course, know that under the governmental procedure\nof this country ! - expected as Suretary of the Treasury to\nnake periodis reports to the Congress in regard to my oustody and\ndisposition of government funds and the number in which I have\ncarried out the financial responsibilities assigned to DE by the\nCongress. To assist me in doing this in relation to public\nlaw no. 442-77th Congress, approved, February 7, 1942 and public\nLaw no, 452-88th Congress, approved, February 12, 1942, providing\nfor the rendering of Muancial aid to China, I should appreciate\nit if the Government of China would be so good \" to inform no from\ntime to time and in 60 far as is precticable with respect to the\nuses which the Government of China will have made and will con-\ntemplate making of the funds placed at its disposal by the Government\nof the United States pursuant to the public law nambioned, and\nalso with respect to the results accomplished thereby in connection\nwith our common war effort.\nI wish to sesure you and through you the Government of China\nthat appropriate officials of the Government of the United States\nwill be available at any time, upon request of the Government of\nChina, to confer regarding any technical problems which may arise\nin connection with the financial aid being extended to the Government\nof China by virtue of the agreement which we are signing today, and\nmuch officials will be prepared also, upon request, to exchange in\nformation and suggestions regarding ways and - of most effectively\napplying the funds under reference toward achieving the purposes which\nare commonly envisaged.\n271\nDRAFT OF LETTER FROM THE CHINESE MINISTER FOR FORKION AFFAIRS\nTO THE SECRETARY OF THE TREASURY.\nMy dear Mr. Secretary:\nI have your letter of today's date in which you state that, with\na view to assisting you in making periodis reports to the Gengress\nin relation to public law no. 442-77th Congress, approved, February 7,\n1942 and public 1aw no. 452-77th Congress, approved, February 12,\n1942, providing for the rendering of financial aid to China, 10 would\nbe appreciated if the Government of China would inform you from time\nto time and in 80 far as is practicable with respect to the uses\nwhich the Government of Ohine will have nade and will contemplate\nmaking of the funds placed at 1ts disposal by the Government of the\nUnited States pursuant to the public Lawe mentioned, and also with\nrespect to the results accomplished thereby in connection with our\ncommon war effort.\nUnder authorisation from my Government, I an glad to secure you\nthat the Government of China will be glad to assist you in the manner\nindicated.\nI - glad to assure you also that the Government of China will\nexpect from time to time/se and occasion arises to smill itself of the\nkind offer contained in the last paragraph of your letter under refer-\nence to confer and to exchange information and suggestions in the\nnarmer suggested.\nRegraded Unclassified\n272\nDRAFT OF LETTER FROM THE SECRETARY OF THE THEASURY TO THE CHINESE\nMINISTER FOR FOREIGN AFFAIRS.\nMy dear Mr. Minister:\nÀs - prossed to the signing of the agreement making available\nto the Government of China the financial aid provided for in\npublic law no. 442-77th Congress, approved, February 7₂ 1942, and\npublic law no. 452-77th Congress, approved, February 12, 1942,\nI wish to assure you and through you the Government of China that\nthe Government of the United States desires, as a manifestation\nof the cooperative spirit which underlies the common war effort of\nChina and the United States, to make available, upon request of\nthe Chinese Government, appropriate officials to confer from time\nto time regarding any technical problems which may arise in -\nnection with the financial aid to be extended to the Government of\nChina by virtus of the agreement which we are signing today, and\nupon request, to exchange information and suggestions regarding ways\nand mains of nost affectively applying the funds under reference\ntowards schieving the purposes which are comply enviraged.\nRegraded Unclassified\n273\nDRAFT 07 LETTER FROM THE CHINESE MINISTER FOR FOREIGN AFFAIRS\nTO THE SECRETARY OF THE TREASURY.\nMy dear Mr. Secretary:\nI acknowledge receipt of your letter of today's date in\nregard to the extension to the Government of China of the financial\n14\naid provided for in public law no. 442-77th Congress, approved,\nFebruary 7, 1942, and public law no. 452-77th Congress, approved,\nFebruary 12, 1942, and I wish di to assure you that the Government of\nChina also desires, as & manifestation of the cooperative spirit\nwhich underlies the CONSIDER war effort of China and the United States,\nto designate appropriate officials to confer from time to time\nregarding any technical problem which my arise in connection with\nthe financial aid to be sectended to the Government of Ohina to\nvirtue of the agreement which we are signing today, and to exchange\ninformation and suggestions regarding ways and means of most\naffectively applying the funds under reference toward achieving\nthe purposes which are counonly envisaged\nRegraded Unclassified\n274\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE March 20, 1942\nMrs. McHugh\nTO\nFROM Mr. Kuhn\nThe labor papers were sent to Secretary Morgenthau's house\nlast night as he requested.\n7. K.\n275\nMarch 19, 1942\nFerdinand Kuhn\nSecretary Morgenthau\nWill you please let ne have as soon as possible\nany editorial comment in any of the Labor papers on\nour Tax Program. The day you were sick, we had a\nmeeting in my office in regard to who shoulds such handle\nthe tax publicity. I suggest that you ask Miss\nChauncey to let you read that part of the 9:30 meeting\nthat has to do with that discussion, or all of it if\nyou wish. You will see from the transcription that as\n& result of that, Paul was authorized by me to go sheed\nand get somebody. If you have any questions to ask in\nregerd to this, I will be glad to discuss it with you.\nRegraded Unclassified\n276\nFEDERAL WORKS AGENCY\nWORK PROJECTS ADMINISTRATION\n1734 NEW YORK AVENUE NW.\nWASHINGTON, D.C.\nHOWARD o HUNTER\n- - will\nThe Honorable\nThe Secretary of the Treasury\nKY dear Mr. Secretary:\nThis will acknowledge your letter of March 13, 1942,\nrelative to the participation of New York City NPA bands and or-\nchestras in the promotion of Defense Bonds and Stamps sales.\nAll music units of the Work Projects Administration are\nbeing urged to cooperate with Treasury officials by offering their\nservices to aid in the sale of Defense Bonds and Stamps. In many\nstates Music Project orchestras are giving concerts to which ad-\nmission is obtained by the purchase of a Defense Stamp. AS an\nexample of this policy, a consert was given at Eastwood Park,\nDetroit, Michigan, on February 8, at which were sold $6,400 in\nBonds and $500 in Stamps.\nWhile it is believed that the regrettable experience\nof your representatives with the New York City music Project was\ndue to an execusively literal interpretation of administrative\nregulations, I wish you to know that the Work Projects Administrator\nfor New York City has been advised of our policy in promoting\nDefense Bond and Stamp Sales through the use of APA bands and\norobestras.\nI can assure you that complete cooperation from the\nNew York City Music Project will be available from this data.\nVery truly yours,\nCommissioner\nRegraded Unclassified\n277\nMarch 20, 1942\nTO: HAROLD N. GRAVES\nE\nSUBJECT: PROGRESS REPORT FROM DEFENSE SAVINGS STAFF\nPAYROLL SAVINGS\nThe Payroll Savings Plan has been installed\nby more than 40,000 concerns throughout the nation. This\nmeans that approximately 18,000,000 workers now are able\nto buy bonds through the Payroll Savings Plan. Seventy-\nthree percent of all concerns employing more than 500,\nand forty-seven percent of all concerns employing between\n100 and 499 workers, have installed the plan.\nThirteen states report that all concerns employing\nmore than 500 workers have installed plans. States that have\ncompleted this first major objective are: Arizona, Kansas,\nMaine, Missouri, Montana, Nevada, New Hampshire, New Mexico,\nNorth Dakota, Oregon, South Dakota, Wisconsin and Wyoming.\nm\n3/20\nRegraded Unclassified\n278\n- 2 -\nPAYROLL SAVINGS (Continued)\nOther states rapidly approaching this goal are:\nMichigan, Minnesota, Southern California, New Jersey, Vermont,\nVirginia and Idaho.\nKansas end Wyoming are the only two states to report\nthat all firms in the 100 to 499 group have installed plans.\nArrangements are being completed by the Division of\nResearch and Statistics, Treasury Department, whereby State\nAdministrators will receive microfilm copies of the Payroll\nSavings monthly sales reports from companies which have plans\nin effect.\nThe War Department has issued a circular stating\nthat in the immediate future a \"campaign will be undertaken\namong all members of the military establishment for the\nvoluntary pledges to buy Defense Bonds and Stamps by means of\nauthorized deductions in pay.\"\nThe United States Maritime Commission has notified\nall ship yards working on contracts on 8. cost-plus-fixed-fee\nbasis, that clerical expenses entailed in administering payroll\nsavings plans are reimbursable.\nPLEDGE CAMPAIGN\nMassachusetts will follow Oregon as the second state\nto launch the Pledge Campaign. The Massachusetts canvass will\nstart on March 30. Tentatively the following dates have been\nRegraded Unclassified\n- 3 -\n279\nPLEDGE CAMPAIGN (Continued)\nselected by other states for inauguration of the Pledge\nCempaign:\nApril 6: Arizona, Colorado, Idaho, Kansas, New Mexico,\nUtah, Vermont, Virginia and Wyoming.\nApril 7: South Carolina. =\nApril 10: Illinois.\nApril 12: Indiana, North Carolina, and Vermont.\nApril 17: Florida.\nApril 22: California and Washington.\nMay 10: Georgia.\nThe Secretary of Agriculture has advised chairmen\nof the United States Department of Agriculture War Boards that\nthey should upon request, be prepared to cooperate with Defense\nSavings Staff State Administrators in conducting the canvass\nof farm families undertaken ES part of the Pledge Campaign.\nState Administrators have been 80 advised in & field memorandum.\nRETAILERS\nCopy of B. digest of the proceedings of the meeting of\nthe Retailers' Advisory Committee is attached.\nAlso attached is 8 booklet describing & Payroll\nSavings Plan used by the Bonwit Teller Company which was one-\nhundred percent successful. The Retailers' Advisory Committee\nhas completed arrangements ith the American Booksellers Associa-\ntion, Inc. to promote sale of bonds and stamps to book shop\nRegraded Unclassified\n- 4 -\n280\nRETAILERS (Continued)\ncustomers. A copy of the Bookseller's Bulletin describing\nthis plan is attached.\nSPECIAL\nThe Postal Telegraph Company has drawn up a detailed\nprogram of activity to promote sale of bonds and stamps. Postal\nTelegraph officials forwarded a portfolio outlining their\nplans. (Copy attached.)\nBUSINESS PUBLICATIONS\nReports have been received from 516 business\npublications, with a total circulation of 3,581,153, advising\nthey will use the Payroll Savings advertisement Release No. 3\nin full page size.\nCOMPANY PUBLICATIONS\nPreliminary reports have been received from 153\ncompany publication editors advising they will use material\non Payroll Savings in their April issues.\nA portfolio summarizing results of the Payroll\nSavings promotion in business publications, company publications,\nand labor publications from November 15 through February 15, is\nattached.\nRegraded Unclassified\n- 5 -\n281\nPRESS\nCuts and mats of the Minute Man were mailed to\nall baseball score card publishers in the Minor Leagues\nthis week.\nArrangements for publication of Defense Savings\nelogans end emblems in Major League score card publications\nare being made. Plans also are being worked out for ball\npark billboard space and for opening game ceremonies emphasizing\nbaseball clubs adopting the Payroll Savings Plan.\nThe nation's Free Lance Photographers have offered\ntheir services to the Defense Savings Staff in obtaining\nessential photographs. Copy of The Free Lance Photographer's\nBulletin is attached.\nCopy of 8 brochure sent to all college publication\neditors is attached.\nAlso attached is a scrap book showing the activities\nof the United States Senatorial Minute Men; sample returns of\nclippings on use of the Liberty Limericks feature; and a copy\nof an editorial on Defense Bond paid newspaper advertising\nserviced to all labor newspapers by the Federated Press, one of\nthe two independent labor press services.\nLABOR PRESS\nThrough the loan by President Dubinsky of the\nInternational Ladies Garment Workers Union of his staff photograph-\ner, Harry Rubenstein, the Labor Press Section has secured during\nRegraded Unclassified\n- 6 -\n282\nLABOR PRESS (Continued)\nthe last three weeks more than 60 pictures showing labor\ncooperation in the Defense Savings Program. These photographs\nwill be used for daily newspapers, for features and for the\nlabor press.\nAttached are copies of current issues of the\nAFL News Service and of the CIO News, showing Defense Bond\n\"ears\" used for the first time.\nRADIO\nNationwide broadcasts by the following Minute Men\nwere made this week over the National Broadcesting Company,\nthe Blue Network, and the Columbia Broadcasting Company:\nAlfred E. Smith, Walter Gifford, Rabbi Stephen S.\nWise, David Dubinsky, David Sarnoff, Virginia C. Gildersleeve,\nHelen Menken.\nMutual Broadcasting System will begin Minute Men\nbroadcasts on a regular basis next week.\nThe Payroll Savings Plan has been installed by 408\nof the nation's 870 radio stations. Of these, 313 report 100\npercent membership.\nThe fifteen minute transcription series \"Treasury\nStar Parade\" is now being broadcast three times weekly over\n714 radio stations throughout the nation.\nSpecial Defense Savings ennouncements were wired to\nall radio stations urging bond purchases in B. news tie-up with\nGeneral MacArthur's arrival in Australia. (Copy attached.)\nRegraded Unclassified\n- 7 -\n283\nNEWSPAPER CARRIER BOYS\nReports from 847 newspapers show that newspaper\ncarrier boy sales of the ten cent Defense Savings Stamps to\ndate total $18,290,733. This is an increase of $2,628,028\nsince the returns of March 12. It represents the largest\nnumber of stamps sold by newspaper carrier boys in any one\nweek since the plan was started last November.\nDIRECT MAIL\nTotal sales of bonds by direct meil through March 18\ntotal $24,436,878. This is an increase of $969,890 since\nMarch 4.\nNEWSREEL CREWS\nThe Defense Savings Staff Newsreel crews this week\nphotographed Bond purchasing activities in Illinois, Iowa,\nIndiana, Oklahoma, Arkansas, Mississippi, Washington and Oregon.\nENTERTAINMENT\nLucy Monroe's Minute Man songfest in St. Petersburg,\nFlorida, was attended by 15,000 persons, and 5,000 others were\nturned away for lack of space. Bond and Stamp sales at this\ngathering totaled $10,000.\nSimone Simon appeared as guest artist at Bond rallies\nin Columbus, Ohio, on Friday, March 20.\nThe Audrey Kargere Defense Bond doll show is appearing\nthis week in Joliet, Illinois.\nRegraded Unclassified\n- 8 -\n284\nENTERTAINMENT (Continued)\nJohn Garfield will appear at 8 Bond sales rally in\nReading, Pennsylvania, on Saturday, March 21.\nVICTORY HOUSES\nThe Los Angeles Victory House located at Pershing\nSquare reports it has passed the million dollar mark in sales\nof Bonds and Stamps.\nVictory Houses have been built in Allentown and York,\nPennsylvania, and another will be in operation in Baltimore\nby April 16.\nADVERTISING\nThe Defense Savings Staff has arranged through the\nMeyer Both Company for a monthly met service of Bond and Stamp\nadvertising material to 5,400 daily and weekly newspapers\nstarting with the July issue of the Meyer Both Service.\nA full page in that and each succeeding issue will be\ngiven over to Bond material. The front cover of the July issue\nof the Meyer Both \"Feature Service\" also will be devoted to Bonds.\nIn addition to this free publication, preperation of\nmats and distribution of material, the Meyer Both Company will\nprint and distribute monthly at their own expense, B four to\neight page booklet of \"Bond Promotion Ideas for Retailers\". This\nbooklet will be sent to the eleven Meyer Both lists of advertisers\nand newspapers, (approximately 7,500).\nThe Meyer Both Company has also agreed to distribute\nwhatever advertising portfolios we may wish to get to newspapers.\nRegraded Unclassified\n285\nTHE SECRETARY OF THE TREASURY\nWASHINGTON\nMarch 20, 1942\nTO THE OWNER OF SAVINGS BONDS ADDRESSED:\nThe sales of Series Dr. and Series G Savings Bonds since\nthese bonds were made available last May, and particularly\nsince this country entered the war, have been very gratify-\ning. We are appreciative of your interest in these securi-\nties as evidenced by your purchase of them.\nThe Treasury is now considering raising the limit from\nthe present $50,000 of Series F or Series G Bonds, or a combina-\ntion of the two, which may be issued to any one person during\nany one calendar year to some higher figure, possibly $100,000.\nIt would be helpful in reaching a decision on this\npoint to know whether you would be interested in buying more\nthan $50,000 of these bonds, If the limit were raised, and\nif 30, would the sources of funds be from idle balances,\nliquidation of other investments, or current income.\nA prompt reply will be very much appreciated.\nSincerely yours,\nSecretary of the Treasury\nFORDEFENSE\nBUY\nUNITED\nSTATES\nPAVINGS\nBONDS\n-\nRegraded Unclassified\nDeily changes in the stock of Series E savings bones on hand 1/\n(In thousands of pieces)\n:\nNumber of : Number of pieces\nStock on hand\nIBM\n:\npieces sold :\nmanufectured\nat close of\ndeliveries\n:\nthis day\n:\nthis day\nday\nthis day\nMar. 9\n344\n500\n25,786\n-\n10\n123\n500\n26,163\nI\n11\n192\n300\n26,271\n-\n12\n157\n300\n26,414\n800\n13\n193\n300\n26,521\nI\n14\n137\nnone-closed\n26,384\n-\n15\nnone-closed\nnone-closed\n26,384\n-\n16\n271\n300\n26,413\nI\n17\n144\n300\n26,569\nI\n18\n148\n300\n26,721\n650\n19\n160\n300\n26,861\nI\nOffice of the Secretary of the Treasury,\nMarch 20, 1942\nDivision of Research and Statistics.\n1/ Includes stock in hands of (1) Federal Reserve Banks and branches, (2) Post\noffices, (3) Federal Reserve Bank issuing agents, and (4) Tressury vaulte\nin Washington.\nRegraded Uncl\n287\nUNITED STATES SAVINGS BONDS\nComparative Statement of Sales During\nFirst Sixteen Business Days of March, February and January 1942\n(March 1-19, February 1-19, January 1-19)\nOn Basis of Issue Price\n(Amounts in thousands of dollars)\n:\n:\nAmount of Increase\n:\nPercentage of Increase\nSales\n:\n:\nor Decrease (-)\n:\nor Decrease (-)\nItem\n:\n:\n:\n:\nMarch\n:\nFebruary\n:\nMarch\nI\nFebruary\n:\nMarch\n: February\n2\nJanuary\n:\nover\n:\nover\n:\nover\n:\nover\n:\n:\n:\n:\nFebruary\n:\nJenuary\n:\nFebruary\nI\nJanuary\nBeries 1- Post Offices\n$ 55,342\n$ 63,391\n$102,663\n-$ 8,049\n-$ 39,272\n- 12.75\n- 38.3%\nSeries 1- Banks\n160,158\n234,408\n297,108\n- 74,250\n- 62,700\n- 31.7\n- 21.1\nSeries 1. Total\n215,500\n297,799\n399.771\n- 82,299\n- 101,972\n- 27.6\n- 25.5\nSeries 1. Banks\n26,146\n36,565\n42,355\n- 10,419\n- 5.790\n- 28.5\n- 13.7\nSeries G - - Banks\n120,491\n187,638\n171,700\n- 67,147\n15,938\n- 35.8\n9.3\nTotal\n$362,136\n$522,003\n$613,826\n$159,867\n91,823\n- 30.6%\n- 15.0%\nOffice of the Secretary of the Treasury, Division of Research and Statistics.\nMarch 20, 1942.\nSource: All figures are deposits with the Treasurer of the United States on account of proceede\nof sales of United States savings bonds.\nNote: Figures have been rounded to nearest thousand and will not necessarily add to totals.\nRegraded Unclass\nCONFIDEN\nUNITED STATES SAVINGS BONDS\nDaily Sales - March, 1942\nOn Basis of Issue Price\n(In thousands of dollars)\nPost Office\nBank Bond Sales\nAll Bond Sales\nBond Sales\nDate\nSeries I\nSeries I\nSeries 1\nSeries G\nTotal\nSeries R\nSeries 7\nSeries 0\nTotal\nMarch 1942\n2\n$ 5,811\n$ 15,868\n$ 2,043\n$ 8,726\n$ 26,636\n$ 21,678\n$ 2.043\n$ 5,726\n$ 32,447\n3\n2,975\n8,459\n1,629\n5,780\n18,565\n11,434\n1,629\n5,780\n21,843\n4\n3.395\n8,833\n2,658\n12,558\n24,048\n12,228\n2,658\n12,558\n27,443\nour\n3,669\n10,448\n1,680\n11,870\n23,998\n14,317\n1,680\n11,570\n27,867\n4,179\n10,696\n1,759\n10,825\n23,279\n14,875\n1,759\n10,825\n27,458\n7\n3,480\n11,586\n1,586\n6,328\n19,499\n15,066\n1,586\n6,328\n22,979\n9\n4,967\n18,636\n3,944\n8,488\n31,068\n23,604\n3,944\n5,488\n36,035\n10\n2,804\n5,719\n1,365\n4,162\n11,246\n8,523\n1,365\n4,162\n14,050\n11\n3,156\n10,002\n1,533\n7,287\n18,823\n13,158\n1,533\n7,287\n21,979\n12\n2,686\n8,114\n1,133\n5,504\n14,750\n10,800\n1,133\n5,504\n17,436\n13\n2,682\n10,594\n1,065\n5,007\n16,666\n13,276\n1,065\n5,007\n19,348\n14\n2.797\n6,616\n1,102\n4,745\n12,463\n9,413\n1,102\n4,745\n15,260\n16\n4,464\n13,193\n1,415\n8,693\n23,301\n17,658\n1,415\n5,693\n27,766\n17\n2,967\n6,384\n1,015\n2,561\n9,961\n9,351\n1,015\n2,561\n12,927\n18\n2,552\n7.097\n1,201\n9,433\n17.731\n9.650\n1,201\n9.433\n20,283\n19\n2.559\n7,911\n1,019\n5,527\n14,457\n10,470\n1,019\n5,527\n17,016\nTotal\n$ 55.342\n$160,158\n$ 26,146\n$120,491\n$306,794\n$215,500\n$ 26,146\n$120,491\n$362,136\nOffice of the Secretary of the Treasury, Division of Research and Statistics.\nMarch 20, 1942.\nSource: All figures are deposits with the Treasurer of the United States on account of proceeds of\nsales of United States savings bonds.\nNote: Figures have been rounded to nearest thousand and will not necessarily add to totals,\nRegraded Unclas\n289\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE March 20, 1942\nTO\nSecretary Morgenthau\nFROM\nGeorge Buffington GIS.\nThe following list showe \"The New Spirit\" bookings for\nthe week ending March 15, 1942, and the total to date:\nAlbany\n28\nAtlanta\n113\nBoston\n83\nBuffalo\n29\nCharlotte\n68\nChicago\n27\nCincinnati\n69\nCleveland\n58\nDallas\n62\nDenver\n20\nDes Moines\n14\nDetroit\n73\nIndianapolis\n54\nKansas City\n44\nLos Angeles\n114\nMemphis\n43\nMilwaukse\n48\nMinneapolis\n43\nNew Haven\n13\nNew Orleans\n54\nNew York\n156\nOklahoma City\n46\nOmaha\n68\nPhiladelphia\n113\nPittsburgh\n102\nPortland\n33\nSt. Louis\n63\nSalt Lake City\n38\nSan Francisco\n76\nSeattle\n42\nWashington, D. C.\n64\nTotal Week Ending March 15\n1,858\nn\nIf\nn\nIf\n8\n2,139\nIf\nIt\nIf\n\"\n1\n2,041\n\"\n\"\nIf\nFebruary 22\n2,015\n\"\nH\nIf\n\"\n15\n1,942\nIf\n\"\nM\nH\n8\n1,800\nGRAND TOTAL\n11,795\nRegraded Unclassified\n290\nMarch 20, 1942\nMy dear Walter:\nIn reply to your letter of\nMarch 19th, the Treasury's tax\nstaff has made an analysis of Dr.\nGustav Stolper's letter, and we\nwould be glad to let you see it.\nRither Mr. Randolph Paul or Mr.\nRoy Blough is at your disposal.\nBest regards.\nSincerely yours,\n(Signad) Recey\nMr. Walter Lippmann,\n1525 35th Street, N.W.,\nWashington, D.C.\nCopies to:\nMr. Randolph Paul\nMr. Roy Blough\nJilinme By Messenger Sturges 11.45\nRegraded Unclassified\n/\n291\nBent by messinger\n11:30A.m-\n3/70/yr\ncopy L Panl Y\nBlough 3/20.\nNEW YORK\nHerald\nTribune\n292\n1525 35th Street, N. W.\nWashington, D. C.\nMarch 19, 1942\nDear Henry:\nI wonder if any one in the Treasury has\nmade an analysis of the letter by Dr.\nGustav Stolper which appeared in last\nSunday's New York Times? If so, I should\nlike very much, if possible, to see it\nbefore I attempt to write anything about\nthe tax program.\nKind regards.\nYours,\nwashiorman\nHonorable Henry Morgenthau, Jr.\nSecretary of the Treasury\nWashington, D. C.\n293\nFor Your Information\nMarch 20, 1942\nTo\nFerdinand Kuhn, Jr.\nFrom Joseph Melia\nEDITORIAL COMMENT ON TAXES:\nECHOES FROM THE GRASS ROOTS\nAlthough there is dwindling editorial discussion of the new\ntax program as a whole, the past week has produced a steady\ngrowth and intensification of the demand for 2 general sales tax.\nMetropolitan newspapers are pushing with increasing vigor their\ndemand that Congress enact such B. tax; the smaller newspapers have\nnow taken up the cry, and are repeating the demand in all sections\nof the country, even in those States which already have a sales\ntax on the statute books. Opposition to a sales tax is insignifi-\ncant and almost unheard in the general editorial clamor.\nThe National Association of Manufacturers has been successful\nin winning the endorsement of many small-town newspapers. Those\nwhich comment on the N.A.M. proposals accept them at their face\nvalue; there has been no editorial endorsement of Representative\nJere Cooper's charge that the N.A.M. program was merely an attempt\nto shift the burden from the shoulders of the big corporations.\nIncreasingly evident in the demands for a sales tax is the\ntacit appeal for a lowering of the individual income taxes\nRegraded Unclassified\n294\n-2-\nsuggested in the Treasury's program. The small-town newspapers\nplace more emphasis than their metropolitan counterparts upon the\nburdens already borne by middle-income taxpayers and upon the\n\"dangerous\" new burdens which the Treasury would seek to impose.\nApplauding the N.A.M. for presenting \"the most sensible as\nwell as the most practicable tax program yet to turn up in\nWashington,\" the Sioux City, Iowa, Journal, for example, states:\n\"Members of Congress have heard from the country, which daily is\nbecoming more articulate on the tax question, and they do not\nsubscribe to Mr. Morgenthau's theory at all. They are thinking\nmore and more of some kind of sales tax, and now that the manu-\nfacturers have presented an intelligible plan for a combination\nof a sales levy and 'moderate increases' in income taxes, they\nmay give it careful consideration.\" The Macon, Georgia, Telegraph\nfinds the proposed income taxes \"drastic\". It hopefully forecasts\nAS \"highly probable\" that the \"extreme demands of the Treasury\nmay be resisted,\" while, more aggressively, the Fort Worth\nStar-Telegram declares: \"The Treasury program is an evasion of\nthe major principle that every American must shoulder his just\nportion of the war program.\nIt ignores the important fact that\ndouble income levies\nwill force liquidation, defaults and loss\nRegraded Unclassified\n295\n-3-\nof investments. In business which does not share in the proceeds\nof armament spending, increased bankruptcy will spread unemployment\namong the workers of certain concerns closed down Why do not\nCongress and the Administration invoke that principle which has\nbeen applied in Britain? There every income earner pays something\nin direct taxes and also pays heavy sales levies.\" This newspaper\ngoes on to say that \"there is at least the taint of suspicion that\nthe Administration may be catering to votes in fastening the main\nburden of taxes upon minorities.\"\nMany other smaller newspapers share the suspicion of the\nFort Worth Star-Telegram that the Administration is opposing\n8 sales tax because of \"politics.\"\nThe Colorado Springs Gazette, for example, states: \"Faced\nwith the demand for new and exorbitant taxation, Congressional\nsentiment runs toward a general sales levy, and the Treasury,\nseeking desperately to head it off, cries, 'No: No!\nThe idea\nof the Treasury trying to head off Congressional sentiment and\ndictate tax policy carries connotations unpleasant enough in them-\nselves, but the idea of financing the war without letting the\nburden touch favored political groups and those directly profiting\nfrom the war effort is a bit too arrogant. \" Similarly, the\nRegraded Unclassified\n296\n-4-\nChattanooga News claims that the Administration's opposition to\n& sales tax is \"demagogic.\" This newspaper refers to the\nSecretary's statement that sales tax advocates are seeking to\ntake 8 little of the load off themselves as \"a play for votes\nand the applause of the masses.\" A sales tax, it argues, \"would\ndistribute the burden among all classes, those of high and low\nincomes paying in proportion and the income tax taking care of\nthe surplus remaining to the higher incomes. It would be B.\nmeasure for the benefit of the masses and holds the secret of\nsaving this nation from complete financial collapse.\"\nThese comments reflect the opinion of smaller newspapers\nin all sections of the country. Calling for a sales tax, the\nWatertown, New York, Times and the Worcester, Massachusetts,\nGazette demand that \"Washington forget politics,' while the\nMiami Herald says \"the Treasury and the Administration should\nquit sidestepping,\" and the St. Paul Pioneer Press calls\nSecretary Morgenthau's reasons for refusing to advocate a sales\ntax \"an admission that the 'soak the rich' school of politics\nis a form of fooling the people.'\nThe Treasury's case, in other words, is getting no appreci-\nable editorial support. The few publications which staunchly\nRegraded Unclassified\n297\n-5-\nsupport the principle of ability-to-pay are voices crying in the\nwilderness. All signs show that it is high time for labor and\nother friends of the Administration to make their support vocal\nand effective.\nRegraded Unclassified\n298\nFor Your Information.\nMarch 20. 1942\nTo\nArchibald MacLeish\nFrom Alan Barth\nEDITORIAL OPINION\nON THE WAR:\nBLOOD TRANSFUSION\nElation\nThe headlines all but sang the news about MacArthur. And\nin the same breath they jubilantly proclaimed that soon the\nUnited Notions would take the offensive against Japan.\nThe morning newspapers of March 18 had a naval victory to\nrejoice over, as well as the tale of MacArthur's safe arrival in\nAustralia. And American troops - an A.E.F. with a huge convoy\nof matoriel - had reached an Australian port just ahoad of him.\nIt was too much good news at once; the type fonts were inade-\nquate to the occasion. Reporters on the scene were unabashedly\nexultant. They chronicled what might have been an American invasion\nor conquest of Australia. Their stories brashly told of the taking\nover of Australian plants by Americans, of the introduction of\nAmerican efficiency. The deep spell of depression which had been\ncast upon the press by the news of the battle of Java was completely\nswept aside.\nRegraded Unclassified\n- 2 -\n299\nThrough all of the editorial comment about General MacArthur,\nthere ran a current of ebullient faith in him, both as a military\ngenius and as a symbol of victory. \"MacArthur is a promise,\" said\nThe Christian Science Monitor. \"The short-range promise is for\n8 successful defense of the United Nations' last stronghold in\nthe South Pacific... The long-range promise in this American-\nAustralian combination is almost e.s encouraging the promise of\ntringing the whole English-speaking community into understandings\nand relations which will be the best guarantee of peace.\"\nBut the editorials were a good deal more guarded than the\nnews pages when it came to forecasting an offensive. \"Let us not\nexpect too much of MacArthur - especially not all at once,' The\nBirmingham Age-Herald warned. \"Let us remember,\" urged The Richmond\nTimes-Dispatch, \"that he cannot perform miracles, and that the\nJapanese hold all the advantages today.\"\nHanson Baldwin, The New York Times' military expert, pointed\nout: \"The problems and responsibilities of MacArthur of Australia\nwill be of far greater magnitude than the problems and responsi-\nbilities of MacArthur of the Philippines\nHis greatest role in\nthe Philippines was only in part that of generalship, more that\nof leadership In Australia leadership and personality will\nplay their ever-important role. But in Australia there is no\nfixed scheme of defense.\"\nRegraded Unclassified\n300\n- 3 -\nAs the first elation wore away, the bulk of the press took\ncognizance of the difficulties which lie ahead and endeavored to\ncaution the public against excessive hopes for the immediate\nfuture. But they may not easily be able to erase the impression\ncreated by their headlines that the tide has turned. They have\nbuilt General MacArthur a pedestal on which he may find it difficult\nto keep his balance.\nIn & fairly extensive survey of the press, not 8. single adverse\ncomment has been found concerning the General's transfer from the\nPhilippines. The New York Daily News Syndicate, which had used\nMucArthur's continued presence on Bataan as a fulcrum for its\nefforts to undermine confidence in President Roosevelt, was con-\nspicuously handsome in its appreciation: \"President Roosevelt did\nit. The entire credit goes to the President, and there can be no\nroom for anything but the highest, most unstinted praise. All\nAmerica - we are sure - has only heartfelt acclaim for the\nPresident's action, and we would like to add our voice in extend-\ning congratulations.\"\nThe Chicago Tribune managed, however, to inject a sour note\ninto its applause: \"One great advantage which may be expected to\nflow from the transfer of Gen. MacArthur is the liquidation of\nChurchill as the principal strategist, at least in the Pacific\ntheater.' And, as EL closing gibe: \"The Bataan defenders may fight\nthe better for knowing that they are no longer forgotten men.\"\nRegraded Unclassified\n301\n4\nZeal\nThe position of MacArthur and the American contingent in\nAustralia has been made a peg on which to hang renewed demands\nfor an all-out production effort at home. A number of newspapers\nutilize it to cloak an otherwise undisguised attack on organized\nlabor and the New Deal.\nBut beyond this narrow aspect of the demand for increased\nproduction, there seems to be 8. real and growing sense of urgency\nwhich clamors for a leveling of all obstructions. All segments\nof the press showed keen indignation over the charges made by\nRobert R. Guthrie in conjunction with his resignation from the\nWar Production Board and insisted upon thorough investigation and\ncorrection. A St. Louis Post-Dispatch editorial gave expression\nto what appears to be a general desire for still more vigorous\nleadership in domestic affairs: \"The people in general have\nshown themselves only too willing to fight, to give, to sacrifice,\nto do everything possible to make this country victorious. But\nthe people cannot settle the problem of cleaning out the WPB,\nbuilding a fire under the brass hats and forcing the operation\nof machines 168 hours a week. That is a job for the Government,\nin particular a job for the man who is at once President of the\nUnited States and Commander-in-Chief. Mr. Roosevelt can smash the\nbottlenecks, tell labor and industry what is expected of them.\nThe cry is for: Action! And to hell with costs and consequences!\nRegraded Unclassified\n- 5 -\n302\nAlong with the renascent hope stimulated by the good news from\nthe Pacific, there seems to have developed a sudden intensification\nof ardor, a sense that concentration of energy today can have great\npotentialities for tomorrow.\nRegraded Unclassified\n303\nMEMORANDUM FOR THE SECRETARY.\nMarch 20, 1942.\nMail Report\nDuring this past week the mail followed much the\nsame pattern as that of the previous week, with tax let-\nters far in the lead. Perhaps the latter did not rep-\nresent quite such an outburst of protest. There were\nmore general suggestions, and even 8. few friendly comments.\nOut of several hundred letters, 135 contained suggestions\nfor new taxes, or for methods of collecting the present\nones. Still leading in suggestions for new are: dogs\nand pets, radios, higher postage rates, club dues, and\nabove all, \"Tax the Unions\". The latter include letters\nfrom Union members protesting the salary of their leaders\nand telling of the conditions that should be remedied.\nLetters in favor of the withholding tax are 7 as\nagainst 3 opposed.\nThere continue to be 8 few protests of taxation on\nmunicipal and other tax-exempt bonds, and 8. small campaign\non the part of telephone employees, protesting taxes on\npensions and trust arrangements for employees.\nLetters in favor of the sales tax slightly exceed\nthose against it, in B. ratio of 33 to 28.\nOut of 30 anonymous letters, 18 were abusive and 12\ngeneral.\nGeneral subjects still in the public mind include\neconomy, control of labor, and others covered in recent\nreports.\nThe mail continues very heavy, but not quite as much\n50 as it was last week.\nRegraded Unclassified\n304\n1 -\nGeneral Comments on Taxation\nFrank H. Lovingston, Mound, Minn. Why can't we pay our\nincome tax in 12 installments? These 12 installments\nshould be from Jan. 31 to Dec. 31 of each tax year. Thus\npeople would rush their income tax returns. I could have\nmade mine Jan. 31, 1942, instead I filed it a week ago\nand made my 1/4 payment. Twelve installments would be\nmuch easier. The rate of tax is not more important than\nthe method of payment. # 42 4F\nJoseph L. Kochka, Washington, D. C. (Copy of letter ad-\ndressed to the Collector of Internal Revenue, Baltimore,\nMd.) Last August I purchased Treasury Tax Notes from\nRiggs National Bank, $25 in my name and $25 in my wife's\nname, leaving an order that these purchases be made monthly.\nAt the time, I did not know just how much tax I would have\nto have nor how much she would pay. It now seems that her\ntax is going to be greater than mine, and the bank tells me\nthat the surplus notes in my name cannot be used in paying\nher tax. If this is true, it defeats the purpose we had in\nmind, and creates what I believe is an unnecessary diffi-\nculty. We have sufficient notes saved to pay our total\ntaxes, and I am asking that arrangements be made by your\noffice permitting the surplus notes in my name to be used\nin paying her tax, We want to pay it immediately and not\ndefer its payment. # # You have gone to a good deal of troub-\nle to help people save these taxes. Why not make it just as\neasy in B. case like mine? It should not be difficult for you\nto do this.\nEdward Kronvall, President, Springfield Safe Deposit end\nTrust Company, Springfield, Mass. During the past year I\nhave received several letters from your office asking that\nwe give our assistance in the sale of Defense Bonds and Tax\nAnticipation Notes. This we have done to the best of our\nability. Up to the close of business last night we had sold\nto 3,383 customers Defense Bonds to the aggregate amount of\n$2,271,625, but had only been able to sell to 87 customers\nthe tax form of bond to an aggregate amount of $51,825, of\nwhich amount this bank had taken $20,000, and $7,500 we.s for\nmy personal account. # \" # I have discovered one of the\nRegraded Unclassified\n305\n- 2\nreasons that have prevented B. greater sale of the tax\nnotes. One of our depositors, after having waited in\nline for over an hour, was informed that the notes could\nnot be taken at the local office, but would have to be\nsent to Boston. In my own case, when I appeared at the\noffice in January, only two other taxpayers being present,\nI was told by the deputy in charge that he could not take\nthe $7,500 tax notes as part payment of my tax, which I\npaid in full. * * Upon referring the matter to the Chief,\nMr. Lucy, who seems to know his way around, the deputy\nwas informed that I was perfectly right, that the notes\nshould be taken. Then, after I had to show him how to\nfind out the interest due on the notes, he refused to\nvive me 8. receipt. He again referred to Mr. Lucy who in-\nformed him that I was entitled to one. # % # I went away\nwith the feeling that that was the last tax paper I would\nbuy if that was to be the attitude, but kept it to myself\nmore or less until I found that several other people had\nhad\nsimilar\nexperiences.\nAnother criticism locally is\nthat the hundreds of people who go to pay their taxes in\ncash are directed, after waiting in line for long periods\nof time, to go and purchase Money Orders as the local of-\nfice cannot take the cash. + # We hope you will accept\nthis letter in the spirit in which it is written, as we\nwish to be of the greatest assistance in the sale of any\nof this government paper at this time.\nC. F. I'Anson, Salem, Ill. Attached hereto is 8. suggested\ngraduated depletion schedule of allowances on oil wells.\nFrom my experience in the oil industry, I have found the\noperating or lifting costs on a lease vary extensively,\ndepending on the owner's attitude or ability. From B. tax\nstandpoint, these costs should be more or less standardized,\nwhich I propose to accomplish by making a composite allow-\nance to cover operating costs and depletion. (Plan follows.)\nA solution to the controversy on depletion must be\nfound, and I firmly believe that the attached allowances\nembody the most equitable principles even though the sotual\npercentage figures may need correction. Should you have\nany questions calling for my going into further detail, I\nwill be glad to do 50.\nRegraded Unclassified\n306\n- 3 -\nJohn W. Green, President, Wauneta Falls Bank, Wauneta,\nNebraska. I thought perhaps you might be interested in\nwhat is going on in B. little town of about 760 people in\na part of Nebraska called by most Easterners, the desert.\nThe preparation of income tax returns has been a con-\nsiderable chore for all small town bankers. There is no\ncertified public accountant nearer than 85 miles. The\npeople are very reluctant to go to revenue men they do\nnot know, so the burden falls on the country bankers.\nWe have made out 125 tax returns that paid 8. total of\n$21,363.29 tax, with 90% of it remitted when the return\nwas payable. In addition to this, we have sold about\n$60,000 in Defense Bonds, and have only used our regular\nforce. We have had to grievously strain the 40 hour week\nlaw. Everyone in this country wishes they would lose that\nlaw for the duration. In making these returns and drawing\nthe checks for the tax, we have no complaint from our peo-\nple. Their response in every way has been wonderful. I\nthought that 85 busy B.S. you are, you might like a breath\nfrom the country.\nA. H. Galliger, Hot Springs, Ark. 42 # *Permit me to say\nthat my observation causes me to believe that the people\nare very grateful to you for your courageous fight thus\nfar, to force those who are making money out of the tears\nand blood of this struggle, to also in B. large measure pay\nfor it. Those who fully understand that this program will,\nin addition, act as an effective brake upon inflation are\ndoubly grateful! In the opinion of many, all things that\nthe Administration has done has not been the best that\ncould have been done, but certainly the efforts being put\nforth to prevent inflation and shield the humble worker,\nor workman forced out of employment by curtailment of\nindustry - and there are millions of those - deserves the\nsupport of every American citizen! # # * For the wise\nguidance you have given, and are giving, your Department,\nI as one of America's millions, deeply thank you.\nHenry J. Gesen, Realtor, Pontiac, Mich. After four hectic\nweeks a great calm has settled upon my office, for during\nthat time I made out over 600 income tax reports, and\nassisted in the making of 300 others. My clients are all\nRegraded Unclassified\n307\nwage earning people; I carry on a strictly neighborhood\nbusiness. My purpose in writing you concerns the re-\naction, my own as well as that of the public, as I know\nit, to form 1040-A. Too many backed away from the use\nof it as something to be avoided. Often I would run down\nthe figures on form 1040 before being permitted to use\nthe optional form. Had the allowances for deductions\nbeen just a little more liberal, I am of the opinion many\nmore would have been used - the idea in itself is good.\nMeeting so many it may interest you to know that a good\npercentage of these people are already of the opinion\nincome tax will be taken directly out of their pay check,\nhereafter. We have found that to be the easy way where\nhomes are bought on Land Contract, pro rate the tax and\ninsurance and add the same to the monthly payment. People\nunderstand that.\nWalter W. Woodbury, Long Beach, Calif. You had better\nstart that tax or hold out on wages pretty soon. My wife\nwas at a party the other evening and one of the ladies\ntold her that she, her husband and two nieces, all making\ngood money, were not buying anything, Defense Bonds or\notherwise spending their money, except on their back.\nNeither were they using the banks, but were carrying the\noash with them in a money belt. Some of the same party\nspoke of the big wages they were getting. No one seemed\nto be buying Defense Bonds. Some of the men out where I\nwork seem to think (what they think with, I don't know)\nthat after this mess is over, United States Defense Bonds\nmight not be any good, but United States money will be.\nOthers, including myself, won't go all out on the payroll\ndeduction for Bonds because they think the Company is mak-\ning a little interest on their money; and this is the\nreally big important reason - WE have been trying for some\ntime to get a raise in wages to compensate somewhat for\nthe increased cost in living - 50 if we buy one or two\nBonds a month, the Company will say that anyone who can do\nthat don't need a raise.\n#\nAs\nof\nworking\nman,\nand\nhaving\ngone through the last war, I am very much in favor of the\nwithholding tax on wages, something of 8. compulsory insur-\nance and savings plan.\nRegraded Unclassified\n308\n- 5 -\nFavorable Comments on Taxation\nJacob M. Berkowitz, Philadelphia, Penna, I wish to\ncommend you on the stand you are taking against the\nsales tax in Congress, as well as taxing low income groups.\nI'm with you in your fight.\nJohn Fenney, Norwalk, Conn. # # 46 My income tax for the\npast year is 8. flat one hundred dollars, but if 8. 10% tax,\nor even more, were deducted from my pay, I would still\nthink we are most fortunate to be living in the United\nStates of America. Come now, have everybody do their\nshare, then the goal will be attained.\n###\nJoseph Clark, N.Y.C. I am writing to inform you that my\nwife and I have filled out the short, simplified form in\npayment of our income tax. Truth is we saw the Donald\nDuck film on the subject, and even though we would have\njustifiably saved five or six dollars if we filled out the\nlong form, we were truly impressed by the above-mentioned\nfilm. I also want to take this opportunity to protest\nagainst those Congressmen, and it seems they are the ma-\njority who voted against this marvelous educational film.\nThose members of Congress who attacked Donald Duck and\nturned stronger fire against Disney than against the Axis\nare doing the Axis 8. great service. We need education.\nWe need what reactionary, poll tax Congressmen call \"boon-\ndoggling\". Yes, we even need Donald Duck if it helps the\nGovernment get 8. few million additional dollars from the\ncitizens for bombers. We don't need poll tax Congressmen;\nwe don't need Congressmen who hate the social, economic\nwelfare of the American people almost as much as they love\nHitler.\nMiss Ruth Greenwald, N.Y.C. While I think your proposed\nnew income taxes are very stringent, I congratulate you\nupon your fairness. There are few people in this world who\nappreciate the situation of the people in the low income\nbrackets. It is quite obvious that an income tax is the\nonly equitable method of taxing people -- according to a\nperson's income - and not B. National Sales Tax, the burden\nof which would of course fall upon the poor man's pocket-\nbook. # Nr #\nRegraded Unclassified\n309\n- 6 -\nDr. L. A. Eldridge, Jr., Great Neck, N.Y. I have been\npleased to see your strong statement of tax principles\nmade recently. I heartily approve of taxation accord-\ning to ability to pay. Certainly this is a democratic\nprinciple. I am glad you are opposed to B. sales tax and\nare in favor of stiffer corporation texes. I hope you\nwill continue to support these principles 8.5 strongly 8.5\nyou have stated them.\nK. G. Fulton, Kansas City, Mo. Last week this writer paid\nincome tax for the first time in his 45 years of living\nin the greatest country on earth. And frankly, I loved\nit, \"Believe it or Not\". My wife and I were talking this\nmatter of taxes and inflation, and the cost to us as indi-\nviduals, and my wife made what I believe to be the wisest\nstatement concerning the paying and sacrifices that\nAmerica must make, and to do it now, not to-morrow and the\nnext day, but now. (Withholding wages and giving Bonds\nafter\nthe\nwar\nis\nover.)\n#\n#\n4k\nMaybe I'm prejudiced, but\nI think the wife is smart and hit the nail on the head.\nR. L. Tollett, President, Gosden Petroleum Corporation,\nBig Spring, Texas. # * * Both you and Mr. Paul were coura-\ngeous enough to recommend the elimination of the percentage\ndepletion provisions of the Federal Income Tax Law. Be-\nlieving myself well qualified to do so, I congratulate both\nyou and Mr. Paul for making this recommendation. I am\nPresident and General Manager of an independent company\nengaged in producing, refining and marketing crude oil and\nits products. Our total assets amounted to over six and\na half million dollars. (Also lawyer, C.P.A., and director\nof Petroleum Associations, etc.) * 4b # Regardless of the\narguments presented and the pressure exerted to influence\nmembers of Congress from oil producing states, I am sincerely\nof the opinion that percentage depletion as now provided for\nis 8. subsidy to the producing division of the oil industry.\n# # # It is not my desire to participate in any argument with\nthe well-organized associations of oil producers, but I do\nthink that your recommendations are reasonable and should be\nfollowed by Congress in enacting the next Revenue Act. A\ngreat responsibility is yours in these critical times. You\nare to be congratulated for your courageous efforts in this\ninstance.\n310\n- 7 -\nUnfavorable Comments on Taxation\nS. Ainsworth Hird, President, Samuel Hird & Sons,\n(Worsted Manufacturers), Garfield, N.Y. After careful\nreading of the changes that you propose should be made\nin levying the new corporation income and corporation\ntaxes, I feel that as an employer I am qualified to sug-\ngest that the method of collecting the tax that requires\nthe employer to deduct the tax from the payroll, would\nin a large part serve to defeat the purpose of the\nAdministration, in that it would create inflation, be-\ncause whenever sums such as proposed are deducted from\npayrolls, there is always an automatic demand for an in-\ncrease of this amount in the pay. $\n#\nE. A. Miller, Harrisburg, Penna. I am this day forward-\ning to the Collector of Internal Revenue at Philadelphia my\nfirst installment on 1941 income tax. I am as ready and\nwilling as the next person to bear my share of the war burden,\nprovided the money is judiciously expended and not foolish-\nly, as indicated in the enclosed newspaper clippings. After\nmaking due allowance for the bias of the Washington Post,\nthey still have B. helluva lot on the ball, and in my judg-\nment, it is high time that somebody at Washington starts\nwielding the pruning knife.\nF. M. Lindsay, General Manager, Decatur Newspapers, Inc.,\nDecatur, Ill. # The finest contributions in this com-\nmunity to welfare agencies are made by men and women who\nhave independent incomes of their own. Not more than a\nweek ago I heard the finest contributor to the Community\nChest say that the forced consolidation of husband and\nwife was going to decrease tremendously charitable and\neducational gifts by these people. Personally, I think\nthat the joint return is unfair and many of our most decent\ncitizens are going to feel they are being unfairly taxed.\nIt seems to me that when heavy taxes are laid that no group\nof Lonest taxpayers should feel that they are goats.\nRegraded Unclassified\n311\n- 8 -\nV. S. Whitinger, President, The Peoples Bank and Trust\nCompany, Tupelo, Miss. # * # We have sales tax in Mississ-\nippi and have had for a number of years and consider it\nthe most equitable form of taxation, and have never con-\nsidered that such a tax was inflationary. We feel sure,\nif it is 8. fact that the Treasury Department holds that\nsuch a tax is inflationary, that you have good reasons\nfor such position. However, we cannot understand it, and\nwould appreciate advice from you as to the reason you\nthink it is. # *\nBrandon Barringer, Vice President, The Pennsylvania Co.,\nPhiladelphia. I W&S much interested in seeing your state-\nment that we should not at this time increase the tax burden\nof the lowest group of income recipients which will, I think,\nmeet with general acceptance. I wonder, however, whether\nit has occurred to you that the proposed increase of the\nFederal normal income tax and surtax on corporations from\n31% to 55% will have exactly this effect in hundreds of\nthousands of individual cases, as it will reduce the divi-\ndends received on stocks by people with very small income\nby an average of 1/2. # # # I have just had 8. meeting with\nthe president of & charitable foundation, all of whose income\nis devoted to paying tiny annuities to retired music teachers.\n# # # The foundation adopted the policy of buying what they\nconsidered the best common stock to maintain annuities. If\nyour proposed tax bill goes through, every one of these\nannuities will have to be drastically decreased. # #\nI\nwould much prefer to see the corporations allowed to pay\nout dividends and an increase in the scale in the indivi-\ndual income taxes 50 that the money could be collected in\naccordance with the ability to pay.\nRegraded Unclassified\n312\n- 9 -\nHenry T. Pratt, Minneapolis, Minn. + 4b Many of us\nbought auto use tax stamps in January at $2.09, and\nI understand we buy another in June. We used tires,\nwe stood in line, the Government (we) paid for printing\nthe stamps, and cards, thereby using valuable paper,\nand you have B. record of every car - for what purpose?\nAll that information is available in the state records.\nYet an organization and files or storage must be arranged\nfor them. # # # If some clerk in your office is going to\nwrite 8. form letter, \"Your valued suggestion has been\nreferred, etc., etc.,' don't bother about it -- get on\nwith the war.\nG. W. Henshaw, Grand Rapids, Mich. Since the Collector\nof Internal Revenue at Detroit stated through the Press\nthat Vehicle Tax Stamps did NOT have to be displayed on\nthe automobiles, but could be carried in billfolds,\nhundreds of people have not bought the stamps. Many have\nactually been heard to brag about not buying the stamps.\nThis is extremely unfair to those of us who willingly pay\nour various taxes, and it is 8. rotten situation generally\nwhen we consider the thousands in Michigan who are American\non the surface only. 4b 48 *\nMary 0. MacCafferty, N.Y.C. I wish to inform you that\nwith my income tax return I sent the following letter:\n\"I hereby protest against the payment of the enclosed\nincome tax and state that I have only paid it under the\nthreat of 8. jail sentence. This tax has been forced upon\nme and upon several million other Americans against our\nwill to pay for a war to which we were bitterly opposed,\nand which, if the present Administration is not expelled\nfrom Washington, may only end with the downfall of the\nAmerican Republic. It is taxation without representation.\nI defy the political party in Washington, which came into\npower through the abuse of public confidence and maintains\nthat power through sheer chicanery, to prove that it rep-\nresents the will of the American people.\"\nRegraded Unclassified\n313\n- 10 -\nNorvin H. Rieser, N.Y.C. # # The tax situation is so\ncomplicated, and the work and cost of filing same is 80\nexpensive, that in many cases the cost of the work far\nexceeds the actual tax paid. If some drastic action is\nnot taken by the United States Government, this situa-\ntion will become worse instead of better. # # # As an\nexample of what 8. manufacturer is up against - our exec-\nutive offices are in New York City, we operate a plant\nin Pennsylvania, and we pay EL Pennsylvania Franchise Tax,\n9. Pennsylvania Income Tax, a Pennsylvania Corporation Loan\nTax, a Pennsylvania Bonus Tax. In New York City we pay\nSales Tax, Gross Sales Tax, an Occupancy Tax, and a New\nYork State Franchise Tax; California Income Tax, Los Angeles\nCounty Personal Property Tax (which is outrageous), and\nequally so, the Washington, D. C. Income Tax, and the Wash-\nington, D. C. Business Tax. # The Washington Tax must\nhave cost us $200 in labor, and we paid them $31.61. You\nare asking the country to streamline business in order to\nproduce efficiently, and it is high time that streamlining\nwas started by the Government to eliminate the hardships\nwhich are increasing instead of diminishing.\nLeslie Williams, Palm Springs, Calif. For several months\nwe have read in the daily press of your suggestions or\nproposals to limit corporation profits to a fixed percent-\nage of the invested capital. Some of us were enthusiastic\nover your apparent foresight and tendency toward straight\nthinking on this basically important subject. But now we\nlearn that you seem to have dropped the subject entirely,\nadvocating instead a mere change in tax rates without\nchanging In principle any of the major features of the\npresent tax law. # # # As the matter now stands, your pro-\nposal would treat the Coca Cola Company exactly 8.8 it would\nthe Consolidated Edison Company of N.Y., to pick at random\ntwo well known corporations. Coca Cola, with stock selling\nat about $60 per share (it has been as high as $90 recently)\nhas invested capital of $5.15 per share. It pays $5.00 divi-\ndend per share, or about 97.8% on the invested capital.\nConsolidated Edison, on the other hand, sells to-day for\nabout $11.50 per share, with invested capital of about $44\nper share. It earns about 4.8% on the invested capital.\nYet you propose to tax both companies on substantially the\nsame basis, indicating that you feel that the present\nscheme should be perpetuated. Certainly nothing in our\neconomic life compares with our tax laws as representing\na hodge-podge of expediencies, with practically no consider-\nation for sound, basic principles. *\nRegraded Unclassified\n- 11\n314\nGeneral Comments on Present Emergency\nNathan Schachter, Chicago, Ill. In my position 8.9 Owner\nand Operator of furnished apartment buildings, consisting\nof over eighty American families of various origins, I\nhave found many of them to be defense workers in Chicago\nand vicinity. I am informed that all piece workers that\nhave earned $10 to $18 per day, for some unexplained reason\nmust now and in the future cut the piece work not to exceed\nmore than $10 per day. In my estimation, it means that\nproduction will automatically be cut down, contrary to our\nurgent war needs. I am therefore kindly asking you to give\nthis information to the proper authorities to stop this\ndangerous step.\nChauncey F. Cleveland Bishop, National Bank Building,\nHonolulu, sends Western Union Money Order for $100, with\nthe following message: Congratulations on the sale of\nDefense Bonds. Respectfully suggest that millions of\ncitizens are now anxious to buy offense bond issues.\nAnonymous - N.Y.C. Labor leaders of all branches have\nharassed our American capitalistic system to such an extent\nthat many Americans believe that the labor class in this\ncountry of ours is equivalent to the pessant class in other\ncountries. # 4b # First, allow me to take as an example a\nunion to which I belong. Being a musician, I belong to\nfour different local unions - Kensas City, Chicago, St. Louis,\nand New York. If I happen to receive my initiation in the\nMusicians Union in New York, I pay the New York Local an\ninitiation fee of $50. plus $4 quarterly for the duration\nof my membership in that local. Should I desire to travel\nto Miami and work in the jurisdiction of the Miami Musicians\nlocal, I must transfer and pay that local A fee of $5 quar-\nterly for the duration of my stay, unless I stay over 8.\nperiod of six months. Should I decide to stay over six\nmonths, I have to become B. full-member by paying the initia-\ntion fee of the Miami Local, which might amount to another\n$50. ** + * The President of the American Federation of\nMusicians receives almost 8.6 much as the President of the\nUnited States, as far 88 salary is concerned, and his ex-\npenses are all extra! th # # I believe the time is appropriate\nto set Labor in its place - limit these expensive labor\nleaders to 8. maximum of $200 per week - reduce the dues to\na minimum that will pay the office help - demand that the\nexcess be turned over toward the vast problem of winning\nthis war.\nRegraded Unclassified\n315\n- 12 -\nGeorge M. Clark, President, Clark & Gibby, Inc., N.Y.C.\nLast August, September and October, we delivered office\nfurniture in accordance with the amounts listed on the\nenclosed statements. We have received no remittances to\ncover these amounts, and had to borrow money at 6% from\nour bank in order to carry on. This is all wrong and we\nappeal to you for immediate help. Please telegraph us\ncollect if there is any more we can do from this end.\nA. N. Spanel, International Latex Corp., Dover, Delaware.\n(Telegram) Your courageous fight to repeal parasitic\nsilver legislation, in face of silver bloc's strangle\nhold on our Treasury, will be applauded and long remember-\ned by the American people. No one underestimates the\npolitical and material power of your adversaries, but\nthey cannot win if you stage your battle before the peo-\nple, openly and with no holds barred. In the public mind,\nthe discredited silver bloc represents the combination of\n8. few against the whole people, and the entire economy of\nthis country. Your victory will be 8 victory for every\nman, woman and child in America. More power to you.\nJ. C. O'Dill, Myrtle Beach, S.C. My income is such that\nit is below the $740 point, and I am now in my 85th year\nof age, and B. retired Methodist Minister, after 63 years\nof service in that capacity. I am too old, blind and\nfeeble to offer my services to the Army, but I have always\nbelieved in the principals of Government by, for and of\nthe people and beg to hand you herewith my check for $5,\nwith the prayer for the speedy success of our armed forces\nover our heathen and barbarous enemies.\nThomas M. Galey, Owensboro, Ky. # # # The House has passed\nthe $771,555,137, Farm Bill. Here in Owensboro lives rich\nJim Ellis. Thirty-eight hundred acres of fine land came\nup for forced sale. Jim bought it for $27,000 cash. WITHIN\nTHREE YEARS THE GOVERNMENT PAID JIM $41,000 BECAUSE HE WAS\nA GOOD BOY IN THAT HE COMPLIED WITH INSTRUCTIONS TO RAISE\nNO CROPS THEREON. Now, that's the kind of \"loopholes\" you\nought to cork up: ain't I right?\nRegraded Unclassified\n316\n- 13 -\nCharles Lappen, Chicago, Ill. One of our business\nassociates, Mr. Henry C. Bobbe, passed away several days\nago. He served with the U. S. Naval Forces during the\nlast war, and up to the time of his death was planning\nhow he could serve again. Instead of sending flowers,\nI am sending 8. check for $10, 8.8 a contribution in memory\nof Henry C. Bobbe, this money to be used by the Govern-\nment in any way it sees fit, in the broad program to win\nthe war.\nB. V. Sturdivant, Theatre Defense Bureau, Los Angeles,\nCalif. After observing very closely theatre audience\nreaction to the Walt Disney subject, \"The New Spirit\",\nmay I take this means of advising that it undoubtedly\nis the most successful subject of its kind that has ever\nbeen exhibited. As a matter of fact, it is unfair to\nclassify it with any other release since it is 8. pioneer\nin its own right. The demonstration of patriotic fervour\nwhich invariably followed these showings left no doubt in\nmy opinion but that B. great service was done in bringing\nabout even greater unity among the American people in our\nall-out effort, in addition to B. closer and more friendly\nrelationship with the Treasury Department. + 4F # There is\nno doubt whatever but that it encouraged the payment of\nincome taxes.\nMrs. A. Weingarten, Cleveland, Ohio. * # # Just why is it,\nMr. Morgenthau, that our delegated and elected authorities\nare doing nothing about Father Coughlin's weekly paper,\n\"Social Justice\"? Its circulation is growing, and its\nreading matter is more menacing week by week. If people\nwho think they are not interested would take the trouble\nto read one or two copies of this mouth-piece of hate,\nperhaps some action would be taken. I have written to the\nF.B.I., and can't understand why that branch of our Govern-\nment doesn't take this matter in hand. * 4b # This particular\nperiodical is ONE OF THE BEST FRIENDS HITLER HAS IN OUR\nCOUNTRY.\nAlbert A. Rosenthal, a Traveling Representative, protests\nthe red tape and \"harping on technical terms\" of the Internal\nRevenue officials who have passed upon his case. He is an\nAmerican representative of an English firm offering wines\nRegraded Unclassified\n317\n- 14 -\ngrown in Portugal, and selected because they resemble\ncertain wines grown in Germany and France. His labels\ndescribe the characteristics of the individual wines,\nindicating which German or French wine each one resembles.\nThe Internal Revenue insists that one of the following\nadjectives -- \"nutty\", \"dry\", \"tangy\", \"sweet\" -- be used\ninstead of the description he gives. Mr. Rosenthal says\nthe terms are vague and meaningless, and therefore actually\nmisrepresent the product. He is 77 years old, and says\nhe refuses at this age to misrepresent, even when ordered\nto do so by Government officials who do not understand\nconditions either of his business or of international re-\nlations. He believes it actually an aid to Hitler because\nGerman wines are \"protected\" by our Internal Revenue de-\ncision. He appeals to the Secretary as the last step\nbefore winding up his business.\nMrs. G. A. Russell, Arlington, Vt. We are totally at &\nloss to see on what grounds you base the very kind words\nto \"labor\" in your speech at Detroit, January 25th.\nAccording to report of said speech in the New York Herald\nTribune, labor received from you this choice piece of\n\"taffy\": -- labor, which he said \"has been ahead of us\nall in its willingness to produce armament\" -- etc.\nA frightful waste of sugar, Mr. Morgenthau -- what would\nMr. Henderson not say to you! #\n*\n\"John Doe\", Greenwich, N.Y. I am a boy 14 years old, and I\nlive in a small town in upper New York State. When war\nbroke out I certainly wanted to help all I could. I thought\nof 8 plan which would raise 8 small amount of money which\ncan, I hope, be 8. help. I drew several pictures of B. \"V\"\nfor Victory, one of which I enclose, and went from door to\ndoor selling them. The people gave whatever they thought\nfit. I found that the contributions were very generous.\nI have, due to lack of time and other activities, delayed\nsome time in sending you the money I collected. I am going\nto keep on making them, but I now am enclosing 8. Money Order\nfor what has been collected, which amounts to $2. I do not\nbelieve in anonymous letters, but as contributions are from\nmany, and I wish no personal credit, I omit my signature.\nRegraded Unclassified\n318\n- 15 -\nFavorable Comments on Bonds\nGuy H. Walden, Assistant Cashier, The First National Bank,\nAmarillo, Texas. # I have served two years with the\nTreasury Dept. as an Assistant National Bank Examiner,\nof which I am grateful to you for having the opportunity.\nBecause of this experience, I know that there are several\nmillion, maybe billions of dollars in dormant accounts in\nthe banks in the United States. For various reasons 95%\nof these accounts will never be claimed. For this reason\nI have thought there might be a bill passed in Congress\nauthorizing the Treasury Dept. to issue Savings Bonds and\nStamps in the names of the persons having these accounts.\nThen if at any time these accounts are claimed, the banks\ncould give the persons their Stamps or Bonds. This would\nhelp greatly toward financing the war program.\nSamuel Mayer Feiner, San Francisco, Calif. I was very\nglad to hear over the radio that you have suggested that\nthe workers should get paid for overtime work with\nNational Defense Bonds. I believe that it is 8. marvelous\nidea. It might interest you, Mr. Secretary, to know what\nother workers think of your suggestion. I have asked a\ngroup of workers at the Bethlehem Ship Yard in San Francisco\nwith whom I work, what they think of your suggestion. To\nmy amazement, all of them liked the idea very much. Some\nof them have remarked that it would be the only way for\nthem that they could save some money for the future. I hope\nthat your suggestion will be successfully carried out soon.\nJames A. McCall, General Freight Agent, National Carloading\nCorporation, Kansas City, Mo. The attached file is self-\nexplanatory, and is for your information. (Requested\ndoubled payroll deduction hereafter.) I am B. 33 year old\nyoung man with a wife and baby (four years old) and another\none is expected in June, and I fully realize we are going\nto have to give up 8. lot of things to pay for this war.\nWe are also going to have to fight like the very dickens\nto win it, but we'll win, and I, one of those little fellows,\ndo hope you all can work out something that will not take\neverything we have now, and what we must have to live in\nthe future. # # #\nRegraded Unclassified\n319\n- 16 -\nUnfavorable Comments on Bonds\nSophia Breyerson, Bronx, N.Y. About three months ago\nI returned $6,000 worth of Series E. Bonds because of\nover-subscription. I ordered them converted to Series\nF. Six weeks later I was notified by your Department\nthat I will be allowed to keep 8. $1,000 Bond, Series E,\nand the rest will be attended to as requested by me.\nI did not think that such 8. simple transaction would\ntake close to three months to be effective. I am sorry\nto register 8. complaint, but I sincerely feel better\nefficiency and expediency should be applicable to all\ntransactions.\nMrs. Marianne Langdon, Coldwater, Mich. In response to\ncirculars received concerning & Defense Bond campaign,\nwhich now is in progress, I decided upon 8. systematic\nplan of purchasing 8. Defense Bond each month. Being quite\nenthusiastic about the plan, and 8.8 a starter, I mailed\nto you on February 2 B. Federal Reserve Draft for (18.75)\neighteen dollars and seventy-five cents for the purchase\nof my first bond. I fully expected to receive the bond\nwithin 8. few days; however, you can imagine my disappoint-\nment after waiting and waiting. I finally received the\nBond from the Federal Reserve Bank of Chicago on March\n7th, and dated March 2nd, instead of February. This was\nmore than a month after I mailed out my draft in payment\nof same; also I have lost one month in the dating of the\nBond through no fault of my own. + # # Possibly you can\nexplain this delay; however, it seems to me that we will\nnever be able to win a war and put over 8. Defense Bond\nprogram with such unreasonable delays. (Letter addressed\nto the Treasurer of the United States.)\nRegraded Unclassified\n320\n- 17 -\nG. H. Mason, Columbus, Ohio. I have $3,000 in a Savings\nBank, itching to buy Defense Bonds, but I am holding off,\nundecided as to whether these Bonds are primarily or\nsecondarily for defense. Right now, these Defense Bonds\nsmell too much like \"Bargaining Agent\", \"Check Off\",\n\"Time and A Half for Overtime\", \"Double Time for Sundays\",\n\"40 Hours 8. Week\", \"$25 to $200 Initiation Fee\" -- Strikes\nand more strikes -- dues and more dues. The Administration,\nof which you are & part, through its crazy labor laws, has\ndeliberately fostered this rotten labor mess, and until\nit is cleared up, no more of my savings will go into the\npockets of any of the quarter million of racketeers living\non labor. # # # My $3,000, Mr. Secretary, is ready to-morrow\nto buy food for the soldiers and sailors, but none of it\nfor check-offs to these crooked unions. The first report\nthat reaches me that these unions are curbed, and are will-\ning to heed the President's plea for no stoppage in pro-\nduction, then I will hustle down and buy $3,000 more of\nDefense Bonds, check-off or no check-off.\nJulius A. Reif, Vice President, The Provident Savings Bank\nand Trust Company, Cincinnati, Ohio. We desire to pass on\nto you our experience in connection with the cashing of\ncoupons from Government Bonds whereby the owner is re-\nquired to put them in separate envelopes and apply his name\non the back of each envelope, besides which he is required\nto make out B. declaration certificate for taxation. This\nhas proven to be 8. hardship, especially to old folks who\npurchased bonds as an investment, believing in them and\nfeeling that all red tape would be eliminated by owning\nGovernment Bonds. \" # # Quite B. few persons declare they\nwill hesitate buying any more Government Bonds.\nWallace Robertson, President, The Beatrice National Bank,\nBeatrice, Neb. A united and vigorous effort is to be made\nto increase the sale of Government Bonds in this County. +\nWe are confronted repeatedly with such reasons for not sub-\nscribing as these: \"Why should I deny myself and buy Bonds\nwhen the Administration will throw it away on such projects\nand rackets 8.5 the Florida Ship Canal, St. Lawrence Water-\nWay, soft jobs on the Federal payroll for Mrs. Roosevelt's\ncommunistic friends, Mellet's Mad House, the Administra-\ntion's support of the labor racketeers, the CCC and the NYA.\"\nRegraded Unclassified\nTREASURY department\n321\nINTER OFFICE COMMUNICATION\nDATE March 20, 1942\nTO FROM Mr. Mr. M Thompson Hand\nIn further response to your request of December 26,\n1939, there is submitted herewith for the Division of\nResearch and Statistics a memorandum listing, with brief\ndescriptions, the studies or projects completed or under\nway, and the names of persons working on each, for the\nmonth of January 1942.\n322\nDIVISION OF RESEARCH AND STATISTICS\nReport of Studies or Projects Completed or Under\nWay, and the Names of Persons Working on Each,\nfor the month of January 1942\nFor convenience of reference, the studies listed are\ngrouped under general subject heads,\nThe names shown for persons working on each project\ninclude only those who participated fairly directly, as\nexplained in the introductory note to the corresponding\nreport submitted on December 28, 1939. No attempt has\nbeen made to cover also persons whose responsibility in\neach particular case was mainly in planning, supervising,\nor consulting.\nFinancial Analysis\nI. Projects or studies completed\n1. A review of current developments in the high-grade\nsecurities markets was prepared, and a memorandum was\ntransmitted to the Secretary on January 24. Copies\nwere given to Under Secretary Bell and to Mr. Morris. -\nMr. Haas, Mr. Murphy, Mr. Foy, Mr. Rosen, Mr. Barnett\nThis review contained, in addition to analysis of the\ncurrent situation, the following special study:\nYields of British Government securities. - Mr. Matlock\n2. A memorandum was prepared, and was transmitted to the\nSecretary on January 8, containing recommendations\nwith respect to the January refunding. - Mr. Haas,\nMr. Lindow, Mr. Sandelin, Mr. Conrad, Mr. Leahey,\nMrs. Barnes\n3. Two tables were prepared on January 9, showing on the\nbasis of closing quotations on January 8 and 9, re-\nspectively, estimated yield bases and probable premiums\non possible refunding issues. - Mr. Lindow, Mr. Sandelin,\nMr. Conrad\n4. A maturity calendar was prepared as of January 1, for\neach issue of direct and guaranteed bonds and notes\nof the United States. The calendar W&B transmitted to\nthe Secretary on January 9. - Miss Lagos\nRegraded Unclassified\n323\n- 2 -\n5. Yields on public marketable securities issued by the\nUnited States Government and by Federal agencies were\ncomputed daily on the basis of over-the-counter closing\ncuotations. A daily table was prepared summarizing this\ninformation. Similar comparative information for earlier\nperiods W&B prepared in a weekly table. A chart for\neach issue was kept up to date showing daily price and\nyield figures together with comparative monthly data\nsince 1935, since the date of issue, or since the date\nfirst traded. In addition, yields were computed daily\non five high-grade corporate securities, three municipal\nsecurities, and two British Government issues. -\n2\nMr. Moody, Miss McCoy, Mr. Kroll\n6. At the request of the Secretary, arrangements have been\nmade to secure periodically from the British Empire\npurchasing missions certain information regarding pur-\nchases in the United States by the British Empire.\nReports and tables are prepared from this information,\nand are transmitted according to instructions by the\nSecretary. - Mr. Haas, Mr. Lindow, Mr. Wagner, Mr. Mayo\n(a) The Division also receives weekly statements from\nthe British Purchasing Commission showing (1) the\ndollar volume of orders placed by British Empire\nGovernments; and (2) the dollar volume of deliveries\non orders placed by the United Kingdom through the\nvarious missions. The information in these state-\nments is itemized by contracts and classified by\ntwenty-five commodity groups.\nThese data are reviewed and edited in the Division,\nand B. bi-weekly report, entitled, \"British Empire\nCommodity Statements\", 18 prepared summarizing in\ndollar volume the information on orders and de-\nliveries, by commodity groups. This report con-\nsiste of eight analytical tables: The first three\nrelate to orders placed during the current period\nby British Empire Governments; the next three con-\nsist of historical summaries of orders placed by\nthe British Empire; the seventh and eighth relate\nto deliveries on orders placed by the United Kingdom\nthrough the British purchasing missions. These\nstatements were prepared, and were transmitted on\nJanuary 6.\nRegraded Unclassified\n324\n- -\n(b) The Division receives each month from the British\nPurchasing Commission information, on a physical\nvolume basis, relating to the purchases of vari-\nous other important commodities. These data are\nedited and consolidated in the Division, and analy-\n868 of British Empire orders are prepared for the\nseveral commodities, containing the following\nanalytical tables: (1) ourrent status of orders;\n(2) history of orders; (3) history of deliveries;\nand (4) scheduled deliveries of unfilled orders.\nStatements for the following commodity groups were\nprepared, and were transmitted as follows:\nAirplane propellers, January 6\nSmall arms, January 6\nBy direction of the Secretary, notice was sent out\non January 24 that preparation of these reports was\nbeing discontinued. The work of closing out the\nassignment is in process.\n7. At the request of the Secretary, arrangements have been\nmade to secure periodically certain information regard-\ning purchases in the United States by the Netherlande\nPurchasing Commission, and by Lindeteves, Inc. -\nMr. Haas, Kr. Lindow, Mr. Wagner, Mr. Mayo\nWeekly statements are received, showing the dollar\nvolume of orders placed by the Netherlands Purchasing\nCommission and by Lindeteves, Inc., and the deliveries\nmade thereon. These statements are itemized by con-\ntracts and are classified by the twenty-five commodity\ngroups used for reporting orders olaced by the British\nEmpire.\nThe date are reviewed and edited in the Division, and\nbi-weekly reports are prepared for each of these agencies\nsummarizing the information classified by commodity\ngroups. The reports consist of three tables each, show-\n1ng (1) history of orders; (2) history of deliveries;\nand (3) current delivery status of orders. These reports\nentitled, \"Netherlands Purchasing Commission Commodity\nStatements\" and \"Lindeteves, Inc. Commodity Statements\"\nwere prepared, and were transmitted on January 6, 20-\ncording to instructions by the Secretary.\nBy direction of the Secretary, notice WD.B sent out on\nJanuary 24 that preparation of these reports wee being\ndiscontinued. The work of closing out the assignment\n10 in process.\nRegraded Unclassified\n325\n4\n5. In further pursuance to the request of the Secretary on\nJuly 8, four tables Were prepared, and were transmitted\nto him on January 14, showing deliveries from July\nthrough December of airolanes, flying boats, four-engine\nbombers, and tanks. - Mr. Tickton\n9. In further pursuance to the request of the Secretary on\nOctober 22, two charte were prepared, and were trans-\nmitted to him on January 12 and 23, showing lend-lease\norders effected by the Procurement Division from May I,\n1941 to date. - Mr. Tickton\n10. In response to a request by the Secretary on January 21,\n1941, that measures be taken to obtain information to\nassist in carrying through the defense financing pro-\ngram, arrangements were made to obtain the necessary\ndetailed statistics on the holdings of each issue of\nthe oublic debt and of guaranteed securities by the\nvarious classes of holders. - Mr. Haas, Mr. Tickton\nMr. D. J. Leahy, Mr. Blitman, Mrs. Barnes, Mr. Robbins,\nMiss Westerman, Miss Wood\nA summary was prepared of the data received as of\nNovember 30, consisting of brief explanatory text and\nsix tables for publication in the Bulletin of the\nTreasury Department for January.\nSpecial tabulations were prepared, and were transmitted\non January 9, to the Federal Reserve Banks of New York\nand Philadelphia, covering ownership in the respective\ndistricts, as of November 30.\nA tabulation was prepared, and was transmitted on\nJanuary 9, to the Board of Governors of the Federal\nReserve System showing, by classes of banks and by\nissues, the amount of Government securities owned on\nNovember 30, by the institutions covered in the survey.\nThe information as of December 31, received from 7,000\nbanks and insurance companies was coded, tabulated,\nand analyzed. An analysis was prepared, consisting of\n100 tables, showing this information, classified by\ntype of institution, by issue, by geographic area, by\ncall-classes, and by tax-exemption provisions.\nNew letters were sent out to the banks and insurance\ncompanies on January 29, requesting comparable data AB\nof January 31.\nRegraded Unclassified\n326\n- 5 -\nA tabulation was prepared, and WAB transmitted to\nDr. Goldenweiser, Board of Governors of the Federal\nReserve System, on January 31, which showed as of\nJune 30 and December 31, 1941, the ownership of\nGovernment securities, by issues, by classes of\nbanka.\n11. At the request of the Secretary, arrangemente have been\nmade to prepare current statistical reports on the sales\nof United States Defense savings bonds, series E, F, and\nG, and Defense Postal savings stamps, on the basis of\nreports by the Treasurer of the United States, the Federal\nReserve Banks, and the Post Office Department. The re-\nports prepared during January were transmitted according\nto instructions by the Secretary- Mr. Haas, Mr. Reagh,\nMr. Brown, Mr. Tickton, Mr. Kroll, Mr. D. J. Leahy\n(a) Daily tables were prepared, showing the dollar\nvolume, on the basis of the issue price, of sales\nof savings bonds, series E, F, and G, by Post\nOffices and by banks. The first table, prepared\non January 1, presented these data for each\nbusiness day of December, with totals for the\nmonth. The next table, prepared on January 2,\nshowed these data for January 1. Subsequent tables\nshowed the data for the successive business days\nof January, with cumulative totals. The table\nprepared on January 31 covered the period from\nJanuary 1 through 30.\n(b) Daily tables were prepared, containing a compara-\ntive statement of sales of bonds, series E, F, and\nG, in the three latest months, by Post Offices and\nby banks. The dollar volume of sales was shown on\nthe basis of the issue price, together with the\nabsolute and percentage changes in the latest month\nfrom the preceding month. The table prepared on\nJanuary 1 contained these data for the full months\nof December, November, and October. The first\ntable showing the comparison for January, December,\nand November, prepared on January 2, showed the\ndata for the first business day of each month.\nSubsequent tables showed cumulative data for suo-\ncessive business days. The table prepared on\nJanuary 31 covered the last 23 business days of\neach month.\n(o) A table was prepared on January 1, showing sales\nof savings bonds, series F, G, and E, by Post\nOffices and by banks, in dollar volume, in each\nmonth from May through December.\n327\n- 6 -\n(d) A table was prepared on January 5, showing sales\nof savings bonds, series E, F, and G, in dollar\nvolume, in each month from May through December.\n(e) A table was prepared on January 21, showing sales\nof savings bonds, series E, in dollar volume, in\nDecember, by States.\n(f) A table was prepared on January 20, showing for\nsavings bonds, series E, the estimated number of\nunits sold, and percent of the dollar volume, by\ndenomination, in each month from May through\nDecember.\n(g) A report consisting of 177 pages, was completed on\nJanuary 30, showing sales of savings bonds,\nseries E, for the month of December, in dollar\nvolume, by Federal Reserve districts, by States,\nby cities, and by counties, classified by sales\nagents and denominations.\n(h) A table was prepared on January 9, showing for\nsavings bonds, series E, the dollar volume of\nsales in fifty cities, for the period from July\nthrough November.\n(1) A table was prepared on January 20, showing for\nsavings bonds, series F, the number of units sold,\nand percent of the dollar volume, by denomination,\nin each month from May through December.\n(J) A table was prepared on January 20, showing for\nsavings bonds, series G, the number of units sold,\nand percent of the dollar volume, by denomination,\nin each month from May through December.\n(x) Two tables were prepared, on January 5 and 9, show-\n1ng estimated total value of Defense Postal savings\nstamps, in each month from May through December.\n(1) A table was prepared on January 9, showing total\nsales in dollar volume of Defense Postal savings\nstamps, by States, in each month from May through\nDecember.\n328\n- 7 -\n12. At the request of the Secretary on December 26, daily\ntables were prepared from data wired by the Federal\nReserve Banks, showing the supply of savings bonde,\nseries E, on hand, unfilled requests by dates, by\ndenomination, and by Federal Reserve districts; total\ninventory, production, and sales. The tables prepared\nin January were transmitted according to instructions\nby the Secretary. - Mr. Tickton, Mr. Mayo\n13. At the request of the Secretary on December 31, weekly\nmemoranda and tables were prepared from data wired by the\nFederal Reserve Banks, showing the number of agents quali-\nfied to issue series E, savings bonds, by type, Federal\nReserve district, and by date. The reports were prepared\nas of January 10, 17, and 24, and were transmitted on\nJanuary 13, 20, and 27, respectively, according to in-\nstructions by the Secretary. - Mr. Tickton, Mr. Mayo\n14. At the request of the Secretary, a list WAS prepared\nfrom data received from the Federal Reserve Banks of\ncorporations qualified as of January 10 to 1ssue sav-\ninks bonds, together with the number of employees and\nthe number of requisitions for bonds since the date of\nqualification. The list was prepared, and was trans-\nmitted to Kr. Morris for the Secretary on January 21. -\nMr. Tickton\n15. Pursuant to the request of the Secretary on December 15,\nfor information on the progress of the payroll savings\nolan for defense savings bonde, series E, the following\nprojects were completed. - Mr. .Haas, Mr. Tickton\n(a) Weekly tables were prepared, showing the number\nof firms with payroll savings plans classified by\nsize, type, and State, together with the number of\nemployees participating. Tables were prepared as\nof January 10, 17, and 24, and were transmitted\non January 17, 21-23, and 29-31, according to in-\nstructions by the Secretary. - Mr. Tickton,\nMr. D. J. Leahy, Mr. Keats\n(b) A list was prepared from data received from the\nState Administratore of newspapers participating\nin the payroll savings plan, together with the\nnumber of employees AB of January 20. The list\nwas transmitted to the Secretary on January 21. -\nMr. Tickton, Miss Westerman, Miss Wood\n329\n- 8 -\n(c) A table was prepared from data received from the\nState Administrators, showing State and local\ngovernments reporting payroll savings plans, the\ntotal number of employees, the number of employees\ncovered, and the percent covered 8.8 of January 17.\nThe list was prepared, and was transmitted to the\nSecretary on January 21. - Mr. Tickton, Mr. D.J. Leahy,\nMr. Keats\n(d) A list was prepared from reports received from the\nState Administrators, showing participation in the\npayroll savings when by industrial plants display-\n1ng the Navy \"E\" flag, as of January 24. The list\nwas transmitted on January 31, according to in-\nstructions by the Secretary. - Mr. Tickton,\nMr. Keats\n(e) A list was prepared from reports direct from 86\nlarge companies participating in the payroll\nsavings plan during December. The list gave the\ntotal number of employees, the number participating,\nand the percent. The tabulation was prepared,\nand was transmitted to the Secretary on January 21.\nA copy was given to Mr. Graves. - Mr. Tickton,\nMrs. Barnes\n(f) A statistical reporting procedure was developed\non January 22 and 23, at the Division of Savings\nBonds, to facilitate the handling of State Ad-\nministrators' reports on the progress of the pay-\nroll savings plan. - Mr. Tickton, Mr. D. J. Leahy,\nMr. Keats\n(g) A summary 18 being prepared of operations of pay-\nroll savings plans, by classes of corporations,\nduring December, on the basis of data received\nfrom corporations in response to our letter of\nJanuary 19. - Mr. Tickton, Mrs. Barnes,\nMiss Westerman\n16. At the request of Under Secretary Bell, in connection\nwith a proposed new type of savings bond, conferences\nwere attended on January 9, and a series of sample\nbonds in check-book form were prepared on January 7. -\nMr. Lindow, Kr. Tickton, Mr. Wagner\nRegraded Unclassified\n330\n- 9 -\n17. At the request of Mr. Graves on January 3, a schedule\nwas prepared, showing, by income classes, a. weekly\nsavings figure which wight be used as a \"nar\" for\nthe purchase of savings bonds which would produce\napproximately $10 billions annually. The schedule\nwas completed, end was transmitted to Mr. Odegard on\nJanuary 29. - Mr. Reagh, Mr. Kroll\n18. A study is being made of the sources of funds for\nGovernment borrowing. During January the reports\nand tables prepared were transmitted in accordance\nwith instructions by the Secretary. - Mr. Haas,\nMr. Daggit, Mr. Lindow, Mr. Breithut, Mr. Wagner,\nMr. Weintraub, Mr. Mayo, Mr. Colclough, Mr. Saunders\n(a) An analysis was made of the gross national product\ninvolving the preparation and revision of tables\nshowing the estimated composition and distribution\nof the gross national product for the fiscal year\n1943; for the calendar year 1941, and at the annual\nrate for September 1941, with respect to two of\nthe revisions. These tables were prepared on\nJanuary 22, 24, 29, and 30.- Mr. Lindow, Mr. Breithut\n(b) Conferences were held from January 26 through 31,\nin consultation with the Divisions of Monetary\nResearch and Tax Research, and with members of\nthe consultative committee from other agencies.\nComments made in these conferences were summarized. -\nMr. Lindow, Mr. Breithut\n(c) A table was prepared on January 8, showing an\nanalysis of the distribution of national income,\nwith particular reference to taxes required\nin June 1942 to maintain prices at their October\n1941 level. - Mr. Lindow, Mr. Breithut, Mr. Wagner\n(à) Dummy tables were prepared, and were revised on\nJanuary 26 and 30, showing possible methods of\nfinancing the budgetary deficit and operations of\nFederal agencies. - Mr. Lindow, Mr. Breithut\n(e) A textual analysis was completed on January 15,\nof the general problem of curtailment of consumers\ngoods output, with particular reference to its effect\non the composition of the gross national product, -\nMr. Lindow, Mr. Weintraub\n331\n- 10 -\n(f) A series of tables were prepared from January 26\nthrough 31, to serve as supporting schedules for\nthe major report covering national income payments,\nconsumers outlay, State and local revenues, main-\ntenance, and depreciation. - Mr. Lindow, Mr. Breithut,\nMr. Mayo\n(g) An analysis 18 being made of increases in individual\nincomes to determine their disposition. - Mr. Daggit,\nMr. Colclough, Mr. Weintraub, Mr. Saunders\n(h) A compilation 18 being made of data for measuring\nmonthly changes in consumere cash surpluses, for\nuse in estimating the \"inflationary gap\". -\nMr. Daggit, Mr. Colclough, Mr. Saunders\n19. An analytical review was made of the proposed Department\nof Labor's survey of family expenditures, with specific\nreference to the Treasury study of the gross national\nproduct. The review was incorporated in a memorandum\non January 20, and comments were prepared on & meeting\nat the Bureau of Labor Statistics on January 26. -\nMr. Lindow, Mr. Breithut, Mr. Wagner\n20. A table was prepared, summarizing sales from August\nthrough December, of Treasury notes, Tax Series A\nand Tax Series B, in par amounts, by individuals and\nby corporations. The table was transmitted to the\nSecretary on January 10, and copies were given to\nUnder Secretary Bell, to Mr. Buffington, and to Mr. Kilby. -\nMr. Tickton\n21. A table was prepared, showing sales from August through\nDecember, of Treasury notes, Tax Series A and Tax Series B,\nin par amounts, classified by denomination. The table\nwas transmitted to the Secretary on January 10, and contes\nwere given to Under Secretary Bell, to Mr. Buffington,\nand to Mr. Kilby. - Mr. Tickton\n22. At the request of Mr. Broughton on November 12, 8. review\nWAB made of a memorandum suggesting a new type of tax\nanticipation notes, Series A, to be 1ssued during 1942,\nand a memorandum was transmitted to Mr. Broughton on\nJanuary 26. - Mr. Reagh, Mr. Foy, Mr. Brown\n332\n- 11 -\n23. At the request of Under Secretary Bell, agenda, memoranda,\nand minutes are prepared in connection with the Treasury-\nFederal Reserve meetings held for the purpose of discus-\nsing financing policy. - Mr. Haas, Mr. Lindow\nNotes were prepared of the meeting held on\nJanuary 1. - Mr. Murphy\n24. Three proposals of the RFC that the Secretary request\nthat corporation to purchase stock in three banks were\nexamined. - Mr. Barnett, Mr. Rosen\n25. At the request of the Secretary on November 3, monthly\ncharte were prepared, showing certain information on\nthe progress of the programs under Lend-Lease, the\nMaritime Commission, and the Army Air Corps.\nDuring November and December some preliminary informa-\ntion was transmitted. During January monthly charts\nwere prepared showing appropriations, authorizations,\nallotments, contracts awarded, and disbursements under\nthe Office of Lend-Lease through December, under the\nArmy Air Corps through November, and under the Naritime\nCommission through December. These reports were trans-\nmitted to the Secretary on January 13, 29, and 30,\nrespectively. - Mr. Haas, Mr. Lindow, Mr. Wagner\n26. At the request of the Secretary on December 6, an\nanalysis 18 being made of the plant facilities for war\nproduction.. - Mr. Lindow, Mr. Wagner\n(a) The progress of United States Government commit-\nments by type of industry, by Government departments,\nand by dates will be shown in B. monthly chart and\ntable. This report 18 now in preparation.\n(b) Commitments by the United States Government, by\nprivate interests, and by the British Empire,\nby type of industry and contracting authority\nwill be shown in a monthly chart and table. This\nreport is in preparation.\n27. In accordance with the request of Under Secretary Bell\non December 27, an analysis was completed for Mr. Rouse\nof the holdings of United States securities to be re-\nfunded January 15, 1942. The figures were telephoned\nto Mr. Rouse on January.5. - Mr. Lindow, Mr. Tickton,\nMr. D. J. Leahy, Mrs. Barnes\nRegraded Unclassified\n333\n- 12 -\n28, In accordance with the requests of Under Secretary Bell\non December 31 and on January 15, a study was completed\nof a proposed special security for the ourpose of ab-\nsorbing idle business balances. A memorandum was pre-\npared, and was transmitted to the Secretary on\nJanuary 2. Copies were given to Under Secretary Bell\nand to Mr. Morris. - Mr. Haas, Mr. Murphy, Mr. Foy\n29. A memorandum was prepared on the absorption of\nGovernment securities by mutual savings banks in\n1942-43, and was transmitted to the Secretary on\nJanuary 5. Copies were given to Under Secretary Bell\nand to Mr. Morris, - Mr. Tickton, Mr. Robbins\n30. At the request of Mr. Buffington on January 19, FL\nmemorandum was prepared, and was transmitted to him\non January 27, with respect to a proposal to make\nseries G defense savings bonds receivable at par for\nthe Federal estate tax. - Mr. Foy\n31. At the request of Under Secretary Bell on December 5,\na report was made on the pro's and con's of the\nTreasury's taking over the Postal savings system from\nthe Post Office Department, and was transmitted in a\nmemorandum to Under Secretary Bell on January 8. -\nMr. Tickton, Mr. Robbine\n32. At the request of the Under Secretary on January 1, 8.\nmemorandum was prepared on recent changes in excess re-\nserves, and was transmitted to him on January 6. -\nNr. Murphy, Mr. Barnett\n33, At the request of the Defense Savings Staff, two tables\nwere prepared, one showing actual and estimated receipts\nand expenditures of the Government for the fiscal years\n1939-43, and the other showing national income. The\ntables were transmitted to Miss Bennett of the Defense\nSavings Staff on January 19, - Mr. Breithut\n34. At the request of Under Secretary Bell on January 12,\na memorandum was prepared, and was transmitted to him\non January 15, with respect to \"Large Savings\" in Great\nBritain. - Mr. Natlock\n35. At the request of Under Secretary Bell on January 17,\na memorandum and table were prepared with respect to\nMr. Bruere's telegram concerning defense savings bonds\nand mutual savings banks. - Mr. Murohy\nRegraded Unclassified\n334\n- 13 -\n36. At the request of the Secretary on January 29, a\nmemorandum was prepared, and was transmitted to him\non January 30, concerning Mr. Winthroo W. Aldrich's\nproposal for United States Annuity Bonds\". - Mr. Murphy\n37. An abstract was prepared of the plan to form the\n\"American Institute for Investment Protection\" sub-\nmitted by Mr. Moses Grossman, and was incorporated in\nR memorandum transmitted to Under Secretary Bell on\nJanuary 14. - Mr. Barnett\n30. At the request of Mr. Heffelfinger on January 20,\na check was made on January 24, of the interest rate\nwhich would be applicable to advances by the Federal\nWorks Agency to the District of Columbia under Public\nLaw 362, 77th Congress, as provided by section 3. -\nMr. Conrad\n39. By reference from the Secretary's correspondence\nDivision on January 16, aletter was prepared in re-\noly to a letter from Mr. 0. B. Liska, dated January 10,\nconcerning the disposition of the proceeds of the social\nsecurity taxes. The reply was forwarded on January 20\nfor signature of Under Secretary Bell. - Mr. Lindow,\nMr. Breithut\n40. At the request of the Office of Under Secretary Bell\non January 7, & reply was prepared to a letter from\nMr. Sidney Freeman, suggesting a compulsory savings\nplan counled with a form of lottery. A. memorandum was\nprepared on January 13, summarizing the proposal, and\nthe letter of reply was signed by the Under Secretary\non January 21. - Mr. Reagh, Mr. Murphy\n41. At the request of Mr. Cunningham of the Office of the\nGeneral Counsel on January 7, A. review was made of a\nletter from Mr. Joseph H. Hill, addressed to the\nSecretary, which proposed A change in the terms of\ndefense sevings bonds, series E. A memorandum was\nprepared, and was transmitted to Mr. Cunningham on\nJanuary 7, pointing out the errors in Mr. Hill's as-\nsumptions. - Mr. Reagh\n42. At the recuest of Mr. Kuhn on January 17, a check was\nmade of certain data to be used in promotion articles\nfor defense savings bond sales. - Mr. Daggit, Mr. Lindow\nRegraded Unclassified\n335\n- 14 -\n43. At the request of the Division of Tax Research on\nJanuary 27, for use in connection with a meeting of\nthe American Bankers Association, three tables were\nprepared, and were transmitted to Mr. Shere on\nJanuary 28, showing data used in deriving the proposed\nallowance for expenses of loans for nurooses of bank\ntaxation. - Mr. Murohy, Mr. Barnett\n44. At the request of Mrs. Kuhn of the Office of Facts and\nFigures on January 6, a review WAB made of the appendix\nconcerning Treasury operations appearing in the Message\non the State of the Union, and the material was returned\nto Mrs. Kuhn on 'that date. - Mr. Foy, Mr. Barnett,\nMr. Rosen\n45. At the request of Mr. Broughton on Jaruary 3, a review\nwas made of a new leaflet covering the 1942 issue of\nUnited States savings bonds, issued by Moody's Investors\nService, and was incorporated in a letter for signature\nof the Under Secretary. The letter WAB transmitted to\nMr. Broughton on January 16. - Mr. Murphy\n46. Two proposed press releases were prepared at the re-\nquest of Under Secretary Bell for a joint statement\nof the Secretary of the Treasury and the Board of\nGovernors of the Federal Reserve System, and were\ntransmitted to the Under Secretary on January 6. -\nMr. Haas, Mr. Murphy\n47. At the request of Under Secretary Bell on January 6,\na review was made of his address delivered before the\nWashington Board of Trade on that date. - Mr. Murohy,\nMr. Lindow\n48. At the recuest of Assistant Secretary Gaston on\nJanuary 19, a review was made on January 20 of his\naddress delivered in New York on January 24. -\nMr. Murphy, Mr. Rosen\n49. At the request of Mr. Kuhn on Jenuary 19, comments and\nsuggestions were transmitted to him on January 20, con-\ncerning the draft of the sheech delivered by the Secretary\non January 24, in Cleveland. - Mr. Murohy\n50. A review was made on January 1.4 of the testimony by the\nSecretary before the Subcommittee on Appropriations on\nthe Treasury and Post Office Appropriations Bill. -\nMr. Murphy\n336\n- 15 -\n51. At the request of the Office of the General Counsel\non January 28, EL report was prepared on H. R. 6391,\nand was incorporated in a letter to Representative\nDoughton, for signature of the Secretary, The file\nWAB transmitted to Monetary Research on January 31. -\nMr. Foy\nII. Projects or studies under way\n1. A study is being made of the relative interest costs\nof short- and long-term borrowing. - Mr. Foy,\nNr. Barnett, Mr. Rosen\n2. A study is being made of the effect of the maturity,\ncall period, coupon, premium, and size of issue on\nthe prices and yielde of United States securities. -\nMr. Conrad\n3. A memorandum is being prepared on a negotiable\nsecurity on continuous sale. - Mr. Bandelin, Mr. Murphy\n4. A study 18 being made of developments in the reserve\noosition of the banks. - Mr. Rosen, Mr. Barnett\n5. Historical tables are being prepared which will present\nvarious data on new Treasury notes and bonds and on\nguaranteed new issues. Three tables have been completed. -\nMr. Conrad, Mr. Rosen\n6. A memorandum 18 being prepared on the advantages and\ndisadvantages of increasing the short-term debt. -\nMr. Foy\n7. A revision 18 being made as of June 30, 1941, of the\nestimates of the ultimate increase in interest costs\nwhich would result from removal of the tax-exemption\nprivilege from all public securities. - Mr. Lindow,\nMr. Conrad\n8. A memorandum is being prepared recommending legisla-\ntion terminating miscellaneous types of tax exemption\nanalagous to the exemption of interest on Federal se-\ncurities, but unaffected by the Public Debt Act of\n1941. - Mr. Foy\n9. At the request of Mr. Blough on December 26, an estimate\n18 being made of the increase in interest costs to the\nFederal Government, the States, and municipalities, if the\ntax-exempt orivilege were removed from future bond issues. -\nMr. Murphy, Mr. Lindow, Mr. Conrad\nRegraded Unclassified\n337\n- 16 -\n10. At the request of Mr. Blough on December 26, tables\nare being prepared, showing the distribution of Federal,\nState, and local securities by classes of holders. -\nMr. Conrad, Mr. Purvis\n11. A study is being made of war-financing measures of\nbelligerent nations in the present war. - Mr. Matlock,\nNr. Simmons\n12. A study 1e being made of the market action of the\nvarious maturity classes of Government securities in\nrelation to the type of holder. - Mr. Conrad\n13. At the request of Mr. Surrey on January 1, a study 18\nbeing made of the amortization of bond premium and dis-\ncount. - Mr. Murphy\n14. A memorandum is being prepared for the Secretary with\nrespect to a proposed new Defense savings bond,\nseries H. - Mr. Murphy, Mr. Bandelin\n15. At the request of Under Secretary Bell on January 26,\ncomments are being prepared on Mr. Peyton's plan submitted by\nMr. Allan Sproul with respect to Defense savings 88-\ncurities. - Mr. Tickton\n16. A memorandum 1s being prepared on Mr. Viner's proposal\nfor 8. new system of allotting Treasury bills. - Mr. Foy,\nMr. Barnett\n17. A memorandum 1s being precared on the desirability of\nconducting the war finance AB it was in the last World\nWar, by the issuance of short-term securities. -\nMr. Foy\n18, At the request of Assistant Secretary Gaston on\nJanuary 20, a review is being made of \"A Memorandum\non Financing the War by Mr. Robert L. Owen. - Mr. Foy\n19. At the request of Mr. Morris on December 16, an analysis\nis being made of a proposed industrial loan corporation\nbill of 1942. - Mr. Foy\n20, At the request of Under Secretary Bell on January 26,\na study is being made of H. R. 6391. - Mr. Murchy,\nMr. Foy\nRegraded Unclassified\n338\n- 17 -\n31. At the request of Under Secretary Bell replies are\nbeing prepared to certain questions asked by the\nWagner Committee preparatory to its investigation of\nbanking and monetary conditions oursuant to Senate\nResolution 125. - Mr. Haas, Mr. Murphy, Mr. Foy\n22. At the recuest of Under Secretary Bell on May 24,\ncooperation vas given in preparing revlies to the\nlist of questions accompanying a letter from Senator\nTydings of May 5. The information 18 for use by the\nSerate Committee created to find waye and means of\nautomatically balancing the Federal Budget in times of\npeace. A proposed rebly was sent to the Under Secretary\non June 18. - Mr. Murphy, Mr. Foy\nRevenue Estimates\nI. Projects or studies completed\n1, The regular monthly statement was prepared, showing\nthe latest revised estimates of receipts, by months.\nand by principal sources of revenue, for the period\nJanuary-June 1942. The statement WAB transmitted to\nthe Bureau of Accounts. - Mr. Delcher\n2. The regular monthly summary commarison was prepared,\nshowing estimated receipts and actual receipts in\nDecember 1941 on the daily Treasury statement basis. -\nMr. Delcher\n3. The regular monthly detailed comparison was prepared,\nshowing estimated and actual receipts in December 1941,\nbased on the collections classification, - Mr. Delcher\n4. At the request of the Division of Tax Research for\nthe Office of the General Counsel on December 26,\na revenue estimate WAB made of the effect of the re-\nmoval of the tax-exemption privilege from Federal and\nState income taxes, and was transmitted in a memorandum\nto Mr. Blough on January 15. - Mr. Dambrun\n5. At the request of Under Secretary Bell on January 20,\na table was prepared, and WAB transmitted to him in a\nmemorandum on January 21, showing the tax liability for\ncertain specified net incomes (all earned) of a married\nperson (no dependents) computed under the laws in effect\nin the calendar years 1930 through 1941. - Mr. Leahey\nRegraded Unclassified\n339\n- 18 -\n6. In connection with the proposed revision of the revenue\nlawe in 1942, a number of revenue estimates, listed be-\nlow, were prepared for use of the Division of Tax Re-\nsearch. - Mr. O'Donnell, Mr. Leahey, Mr. Smith,\nMr. Dambrun\n(a) An estimate WAS made, and was transmitted to\nMr. Blough on January 10, of the amount of add1-\ntional revenue that would be obtained by repeal\nof Section 114(b) (3) and (4) of the Internal\nRevenue Code, providing for percentage depletions\nfor oil and gas wells, coal and metal mines, and\nsulphur, under the following assumptions;\n(1) that no adjustment of the income credit\nunder the excess-profits tax would be made with\nrespect to depletion; (2) that the depletion de-\nduction for the base period years under the income\ncredit would be adjusted to correspond to the basis\nfor depletion in the taxable year.\n(b) Estimates were precared, and were transmitted in a\nmemorandum to Mr. Blough on January 9, of the in-\ncrease in revenue which would result from the fol-\nlowing proposals:\nGasoline tax, increase by 11 cents per gallon.\nCigarette tax, increase by 1½ cente per package\nand double all other tobacco tax rates.\nPassenger automobiles, increase the rate to\n30 percent.\nAutomobile parts and accessories, increase the\nrates to 10 percent.\nTrucks, increase the rate to 10 percent.\nDistilled spirits, increase the rate to 66 per\ngallon.\nTires and tubes, double the rates.\nRefrigerators, refrigerating annaratus, and air\nconditioners, increase the rate to 25 percent.\nRadio receiving sets, phonographs, and musical\ninstruments, increase the rate to 25 percent.\nElectrical, gas, and oil appliances, increase\nthe rates to 25 percent.\nPhotographic apparatus, increase the rates to\n25 percent.\nBusiness and store machines, increase the rates\nto 25 percent.\nRubber articles, increase the rate to 25 percent.\nDomestic washing machines and domestic sewing\nmachines, impose a tax of 25 percent.\nRegraded Unclassified\n340\n- 19 -\nTelephone, telegraph, etc. messages imposed\nby Section 3465(3), increase the rates\nfrom 6 percent to 15 percent,\nTransportation of persons, increase the rate\nto 10 percent.\nMetal furniture, furnishings and equipment,\nbeauty and barbershop equipment, metal\nvenetian blinds, metal bed springe, soda\nfountain equipment, beer dispensing eouin-\nment and related products, impose a tax at\nthe rate of 25 percent.\nLubricating oil, increase the rate to-10 cents\nper gallon.\nFirearms, shells and cartridges, increase the\nrate to 50 percent.\nExpand the present base of the tax on commercial\nwashing machines to include dry cleaning and\npressing machinery and equipment.\nFloor coverings (except cotton) and oil cloth,\nimpose 8. tax of 25 percent.\nOrnamental metal work and fixtures, including\nmetal doors, windows, fences, stairs, grills\nand railings, (except fire escapes), metal\nplumbing, and house fittings, impose a tax\nof 25 percent.\nExcand the present base of the cosmetics tax\nto include SOADS and dentifrices.\nFurniture made of birch and mahogany, impose a\ntax at the rate of 25 percent.\n(c) Estimates were prepared, assuming the present ex-\ncess-profits tax structure, of the following:\nIncreases in rates required to raise (1) an\nadditional $1 billion from the excess-profits\ntax and en additional $2 billion from the\ncorporation surtax and (2) an additional 81% bil-\nlion from each, the excess-profits tax and the\ncorporation surtax.\nThe increase in surtax rates necessary to raise\nan additional 83 billion from the corporation\nsurtax in order to provide for the effect of a\nproposed additional corporation tax on dividends\nreceived by corporations.\nRegraded Unclassified\n341\n- 20 -\nThe percent of invested canital which would\nhave to be specified to produce an additional\n63 billion, if income and excess-profits taxes\nwere increased to take 100 percent of the ex-\ncese of corporate profite over a specified\npercent of invested capital.\nThe reduction in revenue under the individual\nincome tax under the above proposals.\nThese estimates were transmitted in a memorandum\nto Mr. Blough on January 10.\n(6) Tentative approximations were made, and were\ntransmitted in a memorandum to Mr. Blough on\nJanuary 2, of the magnitude of the interlocking\neffects of proposed tax changes covering the\nentire tax structure. The aim of the proposed\ntax orogram was to secure & net yield after con-\nsideration of all interlocking effects of E7 billion.\nAe the proposed changes 616 not result in an in-\ncrease of 7 billion, estimates were prepared of\nthe necessary ross yields of the several tax bases\nwhich would be necessary to yield a net amount of\n7 billion after all interlocking effects have been\ntaken into consideration. In all of these estimates\nalternative estimates were made, to include and ex-\nclude proposed changes in the present cayroll taxes.\n(=) Estimates were prepared, and were transmitted in A\nmemorandum to Mr. Blough on January 8, of inter-\npretations of the Secretary's oronosal to have a\n100 percent tax on profite above 6 percent of in-\nvested capital: (2) if an excess-profits tax of\n100 percent of profits above a 6 percent return on\ninvested canital is imposed before applying the\npresent corporation normal and surtaxes; (2) 1f\nthe taxes existing in the present law were first\nimposed and after their deduction an excess orofits\ntax were imposed taking 100 percent of the income\nremaining after a 6 percent net return on invested\ncapital; (3) if income up to 6 percent of invested\ncapital were left free from all present taxes and\nan excess-orofits tax were imposed taking 100 oar-\ncent of the income above 6 percent of invested\ncapital.\nRegraded Unclassified\n342\n- 21 -\n(f) An estimate was prepared, and Was transmitted in\na memorandum to Mr. Blough on January 15, of the\nfull year yield, of proposed corporation rate\nschedules which would be substituted for the\npresent normal and surtax schedules, assuming\nrepeal of the excess-profits tax. A comparable\nestimate was prepared substituting a flat rate\nsurtax of 41 percent instead of 36 percent, and\nsubstituting a surtax of $5,500 plus 61 percent\nof excess over 850,000 instead of a surtax of\n$5,500 plus 56 percent of excess over $50,000.\n(g) Estimates were prepared, and were transmitted in B.\nmemorandum to Mr. Blough on January 17, of the\nnumber of taxable returns, calendar year 1941 income\nand (corresponding to taxable returns) total income,\ndeductions, total personal exemptions, total credits\nfor dependents, and total earned income credit.\n(h) Estimates were prepared, and were transmitted in EL\nmemorandum to Mr. Blough on January 17, of the\nrevenue effect of changing the excess-profits tax\nbase and of proposed corporation normal tax and\nsurtax schedules; (1) if the present 95 percent\nmultiplier of base period net income is reduced to\n75 percent and the invested capital credit 18 re-\nduced to 6 percent; (2) if the proposed corporation\nnormal tax and surtax schedules are used (a) with-\nout the change in the excess-profits tax base de-\nscribed in (1) and (b) with that change.\n(1) Estimates were prepared, and were transmitted in\na memorandum to Mr. Blough on January 24, of certain\nincome tax data for the period 1936 through 1942\n(1) for corporations with no net income, and (2) for\nall corporations, including both corporations with\nnet income and with no net income.\n(J) Estimates were prepared, and were transmitted in a\nmemorandum to Mr. Blough on January 24, of (1) the\nrevenue loss resulting from the repeal of the capital\nstock tax and declared value excess-profits tax, and\n(2) the increase in surtex rate necessary to compensate\nfor the 1086 of this revenue.\n(k) Estimates were prepared, and were transmitted in a\nmemorandum to Mr. Blough on January 31, of the\nrevenue effect of adoption of proposed individual\nincome tax schedules A, B, C, E, and F.\nRegraded Unclassified\n343\n- 22 -\nII. Projects or studies under way\n1. An analysis 18 in preparation of each component of the\nSeptember revised estimates of miscellaneous internal\nrevenue, excluding capital stock, estate, and gift\ntaxes, for the fiscal years 1942 and 1943. - Mr. Daggit,\nMiss Spiegel\n2. An analysis is in preparation of each component of the\nBudget estimates of miscellaneous internal revenue,\nexcluding capital stock estate, and gift taxes, for\nthe fiscal years 1942 and 1943. - Mr. Daggit, Miss Spiegel\n3. In connection with the proposed revision of the revenue\nlaws in 1942, a number of revenue estimates, listed below,\nare being prepared for use of the Division of Tax Research. -\nMr. O'Donnell, Kr. Leahey, Mr. Smith, Mr. Dambrun, Mr. Lusk,\nMr. Jorgensen\n(a) An estimate 18 being made of the additional revenue\nwhich would be derived if mutual insurance companies\nother than life insurance companies taxable under\nSection 207 of the Internal Revenue Code were made\ntaxable in the same manner as stock insurance\ncompanies other than life insurance companies tax-\nable under Section 204, and at the same time the\nexemption under Section (11) were restricted\nto local mutual companies of the assessment type.\n(b) Estimates are being prepared of the following:\nThe increase in revenue which would result if\nthe corporation income tax were increased by\n1 percent, and the additional revenue if the\n1 percent increase were made applicable also to\nwholly and partially tax-exempt interest.\nThe increase in revenue which would result if\nthe individual normal tax were increased by\n1 percent, and the additional revenue which would\nresult if this increase were made applicable also\nto wholly and partially tax-exempt interest.\nThe loss in Federal individual and corporation\nincome tax revenue which would result from the\nexemption of interest on Government obligations,\nbroken down to show separately the loss with re-\nspect to the exemption of State and local se-\ncurities and Federal wholly and partially tax-\nexempt securities.\nRegraded Unclassified\n344\n- 23 -\n(c) Estimates are being prepared of the revenue effect\nof restoring the privilege of filing consolidated\nreturns for purposes of the normal and surtax\nunder the conditions stipulated in the acts prior\nto 1934 (1) assuming that the tax on intercorporate\ndividends is also eliminated; (2) assuming that the\ntax on intercorporate dividends 1s retained with\nrespect to corporations other than those electing\nto file consolidated returns, and that the surtax\nrate for corporations electing to file consolidated\nreturns is increased by a differential rate designed\nto raise from these corporations an amount of revenue\nequal to the tax on intercorporate dividends which\nthe corporations in the affiliated groups would have\npaid under the normal and surtax had they filed\nseparate returns.\nEstimates are being prepared of the revenue effect\nof re-defining long-term capital gains and losses,\nsubstituting for the two classes, one class be-\nginning at 18 months; taking into account 50 per-\ncent of net long-term capital gains and losses;\nincreasing the alternative tax rate from 30 per-\ncent to 60 percent; allowing long-term capital losses\nto be deducted only against long-term capital gains,\nbut allowing a carry-forward for five years to be off-\nset against such capital gains in the future; tax-\ning short-term capital gains as at present; allowing\nshort-term capital losses to be offset against long-\nterm capital gains as well as short-term canital\ngains, and permitting short-term capital losses to\nbe carried forward five years to be offset against\neither short-term or long-term capital gains.\n(d) An estimate 16 being prepared of the revenue effect\nif, under the individual income tax, mandatory joint\nreturns were recuired for husbands and wives and\nthe Joint income treated 8.B A single income for\nearned income credit purposes; in addition, B. tax\ncredit of 10 percent of the \"earned income of the\nwife for services rendered by her, but the tax\ncredit is not to exceed 850. This estimate will be\nprepared also to show the effects for the community\nproperty States.\nRegraded Unclassified\n345\n- 24 -\n(e) An estimate 18 being made of the corporation sur-\ntax net income classes and number of corpora-\ntions in each net income class, for the calendar\nyear 1942, on the assumption that the excess-\nprofite tax is repealed.\n(f) Assuming a change in the loss carryover provision\nso that the carryover into 1942 would be cumula-\ntive losses during 1939, 1940, and 1941 minus the\ncumulative net incomes during the same three years,\nwith a similar loss carryover in subsequent years\nto be based on the incomes and losses of the three\nyears prior to the taxable year, estimates are\nbeing made under the following proposels: (1) sub-\nstitute suggested schedules for the present normal\nand surtax schedules and repeal the excess-profits\ntax; (2) the Bame as (1) but substituting under\nschedule (b) a flat rate surtax of 41 percent and\nunder (o) a surtax of £5,500 plus 61 percent of\nexcess over $50,000; (3) estimated calendar year\n1942 corporation surtax net income classes and\nnumber of corporations in each net income Class,\non the assumption that the excess-profite tax\n18 repealed.\n(e) Estimates are being made for a general sales tax\nat each of the following levels: (1) manufacturers'\nsales price, (2) wholesalers' sales price, and\n(3) retailers' sales price assuming (a) no exemp-\ntions; (b) the same as (a) but exempting products\nnow subject to manufacturers' or retailers' excise\ntaxes; (c) the same as (b) but exempting food;\n(d) the same as (c) but exempting medicines;\n(e) the same as (a) but exempting clothing;\n(f) the same as (e) but exempting fuel. Estimates\nare being prepared for each rate from 2 percent\nthrough 10 percent.\n(h) An estimate 18 being made of the revenue yield\nwhich would result from the following method of\ngradually disallowing 8. deduction for interest on\ncorporate indebtedness: Ascertain the amount of\ninterest on the indebtedness outstanding on\nJanuary 1, 1942. The maximum deduction from inter-\nest on corporate indebtedness for the year 1942\nshall be 9/10 of the amount of interest 80 ascer-\ntained; the maximum amount deductible for 1943 shall\nbe 6/10 of the amount so ascertained, and so on.\nRegraded Unclassified\n346\n- 25 -\n(1) A revision is being made of the revenue estimates\nfor the years 1926-1940 of capital gain and lose\nprovisions applicable to individuals and fiduci-\naries. Corresponding estimates are being made for\nthe year 1941.\n(1) An estimate is being made of the revenue yield\nof a net value added tax, assuming six different\ntaxoayers' bases. The estimate 1s being prepared\non two bases, and will be divided among the follow-\ning components of the tax base: (1) corporate\nincome; (2) payroll taxes broken down into payrolls\nnow covered by social security and payrolls not now\ncovered by social security; either because of the\nnature of business or occupation or because in ex-\nceee of $3,000; (3) unincorporated business income,\nincluding professions; (4) interest now allowed\nto business; (5) net rents and royalties.\n(k) Estimates are being made of the increase in revenue\nfrom the following excise tax proposals:\nTires and tubes, increase the rates from 56\nand 90 per Dound to 100 and 180.\nPhotographic apparatus, increase the rate from\n10 percent to 25 percent,\nBusiness and store machines, increase the rate\nfrom 10 percent to 25 percent and broaden the\nbase.\nTelephone bill, increase the rate from 6 percent\nto 15 percent.\nTransportation of persons, increase the rate\nfrom 5 percent to 10 percent.\nFirearms, cartridges, and shells, increase the\nrate from 11 percent to 50 percent.\nFloor coverings (except cotton) and oilcloth,\nimpose a tax of 25 percent.\nLubricating oil, increase the rate from 436\nto 10c per gallon.\nChina and porcelain ware, impose B. 10 percent tax,\nElectrical energy, increase the rate from\n3-1/3 percent to 5 percent,\nGasoline, increase the rate from 116 to 300 per\nDistilled gallon. spirits, increase the rate from #4 to\n36 per gallon.\nRegraded Unclassified\n347\n- 26 -\nWines, increase the rates:\nStill wines --\nNot more than 14 percent alcohol, from\n86 to 156 per gallon. 14-21 percent alcohol,\nfrom 30c to 50c per gallon. More than 21 percent\nalcohol, 65€ to 1006 per gallon,\nSparkling wines, from 76 to 10c per - pint.\nArtificial carbonated wines, from 300 to 5¢ per\n1 pint.\nLiqueurs, cordials, etc., from 300 to 5¢ per\n1 pint.\nCigarettes, increase the rate from $3.25 to 84.50\nper thousand.\nOther tobacco products, increase the rates.\nCigarette paper and tubes, increase the rates and\nremove exemption.\nCandy and chewing gum, impose a tax of 10 percent.\nSoft drinks, impose a tax of 16 per bottle.\nAdvertising receipts, impose a tax of 15 percent\non gross receipts.\nFermented malt liquors, from 86 to $8 per barrel.\n(1) An estimate 1s being made of the revenue yield which\nwould result if the Canadian corporate tax system\nwere substituted for the present system in this\ncountry, assuming (1) that the Canadian system would\nreplace the present normal, surtax and excess-\nprofits taxes,and (2) that the Canadian taxes would\nreplace the capital stock and declared value excess-\nprofits tax in addition to the taxes in (1).\n(m) An estimate 1s being made of the total revenue\nyield and increase over the existing law which\nwould result from the adoption of the British\nindividual and corporate income and excess-profits\ntax structure.\n(n) Estimates are being made of the revenue effects of\nthe following tax changes:\nAdoption of proposed estate and gift tax\nschedules A and E.\nReduction of allowance for deduction of\ninterest on a non-business individual borrow-\ning to a fixed amount of $500.\nRegraded Unclassified\n348\n- 27 -\n(o) With reference to the excess-profits estimate\ncoupleted on January 17, under Revenue Estimates,\nI, 6(h), a breakdown 1s being unde of the income\nand tax figures before and after the proposed change\nin the excess-profits tax credit, by &8 detailed\nindustrial and size classifications of corporations\nas is practicable.\n(2) An estimate 18 being made of the revenue yield of\na proposed tax on radio broadcastins companies,\nEconomic Conditions Related to Fiscal\nand Revenue Matters\n1. Projects or studies completed\n1. Memoranda on the business situation were prenared, and\nwere transmitted to the Secretary on January 5, 12, 19,\nand 26. - Mr. Haas, Mr. Daggit, Mr. Chevraux, Miss Ziegler\nThese memoranda contained in addition to analysis of the\ncurrent situation the following special study:\nProduction trends by selected industrial groups.\n(Chart in memorandum of January 12.) - Mr. Daggit,\nMr. Colclough, Mr. Saunders\n2. Monthly or weekly reports are received from 25 indi-\nvidual companies, in response to the Secretary's re-\nquests giving confidential data on new orders and sales.\nThe data in these reports are tabulated and charted\ncurrently for the Secretary's information, and are also\ncombined into an index of new orders, which accompanies\nthe weekly memorandum on the business situation. -\nMr. Colclough, Miss Spiegel, Miss McLachlan\n3. Memoranda on employment under the Work Projects Ad-\nministration were prepared on January 5, 12, 19, and\n26. - Miss McLachlan\n4. At the request of the Secretary, a memorandum, with three\ntables and a chart, was prepared, and was transmitted\nto him on January 18, showing employment in the aviation\nindustry as of October 31. - Mr. Tickton, Mr. Wagner\nRegraded Unclassified\n349\n- 25 -\n5. Compilations were made of daily quotations on selected\ncommodities, and daily and weekly figures on selected\nbusiness indexes, foreign and domestic security trane-\nactions, security prices, exchange rates, AB well as\nother data for the Secretary's chart book. -\nMr. Chevraux\n6. Daily, weekly, and monthly prices of cotton, wheat,\nflour, and bread, were combiled. - Mr. Daggit,\nMr. Saunders, Miss Spiegel\n7. In accordance with the request of Mr. Leon Henderson\non July 19, copies of eight charte on commodity orices\nand the cost of living were transmitted to him, AB\nindicated below. - Mr. Daggit\nThe movements of the NICB cost-of-living index compared\nwith the LS wholesale price index of 389 commodities\nwere shown from 1935 to date. Four charte, as of\nJanuary 2, 9, 16, and 23, were transmitted on\nJanuary 6, 13, 20, and 27, respectively.\nFour charts showed the movements of the indexes of\n12 foodstuffs and 16 industrial raw materials from\nAugust 1940 to date. On the same charts were shown\nthe percentage changes for each of the 26 commodities\nfrom August 1940 to December 26 and January 2, to\nJanuary 2 and 9, to January 9 and 16, and to January 16\nand 23. These charts were transmitted on January 6,\n13, 20, and 27, respectively.\nAt the request of the Secretary on January 28, a\nmemorandum and charts were prepared on export freight\nmovements and lighterage freight in storage and on\nhand for unloading in New York Harbor, and were trans-\nwitted to him on that date. Conies were given to\nMr. Kamarok in further response to his request of\nDecember 4. - Mr. Daggit\nbe Two tables were prepared for use in nossible allocation\nof sales of defense savings bonds showing: (1) estimated\ndistribution of salaries and wages and farm income,\nAugust-October 1941, by States; and (2) income payments by\nStates, 1940, with percent distribution. - Mr. Desgit,\nMr. Colclough\nRegraded Unclassified\n350\n- 29 -\nII. Projects or studies under way\n1. An analysis 18 being made of the distribution of\nDefense savings bonds, series E, during December, in\nrelation to payrolls, and to national income, by\nStates, - Mr. Daskit, Mr. Colclowh, Kr. Saunders\nActuarial Problems\nI. Projects or studies completed\n1. At the request of Mr. Ecker-Racz, of the Division of\nTax Research, on January 7, certain compound interest\ncalculations were made for use in A study of the manner\nin which the premium on EL tax-exempt bond could be\namortized through tax savings. These figures were\ntransmitted in A memorandum to Mr. Ecker-Racz on\nJanuary 9. Later, on the basis of revised assumptions,\nnew calculations were made, and were transmitted on\nJanuary 19. - Hr. Brown, Mr. Kroll\n2. A computation was made on January 15, on two yield\nbases, of intermediate redemption values during the\nfirst five-year period on a proposed ten-year special\nsecurity to absorb idle business balances. The average\nyield over the entire ten years was also computed.\nThese figures were included in a memorandum prepared\nby Mr. Murphy which W&B submitted to Under Secretary Bell\non January 16. - Mr. Brown, Mr. Kroll\n3. On January 8, Mr. Fisher, Chief, Retirement Division,\nCivil Service Commission, asked several questions\nrelative to the amendment of June 23, 1938 to the\nCivil Service Retirement Act to permit an allowance\nof credit for service rendered since August 1, 1920,\nwithout deposit of member contribution but the annuity\nof the employee to be reduced by the amount such\ndeposit would purchase if made. Mr. Fisher's questions\nwere answered in a letter dated January 10, which in-\ncluded numerical illustrations of the operation of\nthis amendment. - Mr. Reach, Mr. Brown\nRegraded Unclassified\n351\n- 30 -\n4. Conferences were held in the office of Under Secretary\nBell on January 28, which resulted in the preparation\nof a proposed draft of a letter to Senator Wagner,\nChairman of the Committee on Banking and Currency,\nsetting forth the Treasury's views on S. 2918. -\nMr. Reagh\nII. Projects or studies under way\n1. The Board of Actuaries of the Civil Service Retirement\nand Disability Fund 18 laying out detailed plans for\ntabulating and processing data for use in preparing\nthe regular five-year valuation of the Civil Service\nRetirement Fund for the purpose of determining the\nliabilities of the Government under the Civil Service\nRetirement law. Under the law, such at valuation must\nbe prepared 88 of July 1, 1940. Valuation plans are in\nprocess of preparation. - Hr. Reach, Mr. Brown\n2, The Foreign Service Retirement Law, as approved April 24,\n1939, Section 26(m), provides that the \"Treasury Depart-\nwent shall prepare the estimates of the annual appropria-\ntions required to be made to the Foreign Service Retire-\nment end Disability Fund and shall make actuarial valua-\ntion at intervals of five years, or oftener if deemed\nnecessary by the Secretary of the Treasury\". The State\nDepartment has requested an estimate of the appropriation\nrequired for the fiscal year 1943. A valuation of\nJune 30, 1941 has been completed and will form the basis\nof the estimate for the fiscal year 1943. - Mr. Reach,\nMr. Brown, Mr. Kroll\n3. At the request of Xr. A. R. Pilkerton, Auditor of the\nDistrict of Columbia, an actuarial quinquennial valua-\ntion is being made of the Policemen's and Firemen's\nPension Fund of the District of Columbia. This valua-\ntion 16 being made by the Treasury Department in accord-\nance with the 1942 District of Columbia Appropriation\nAct, approved July 1, 1941. The work for the valuation\nhas been begun. - Mr. Reagh, Mrs. Grossman\n4. Several years ago & committee was organized for the our-\nnose of studying ways and means to extend retirement\nbenefits to all Government employees re ardless of\nCivil Service status. The working committee, the\nSuboommittee on Retirement, has again become active.\nA report has been prepared but has not yet been sub-\nmitted to the main committee. - Mr. Reagh, Mr. Brown\nRegraded Unclassified\n352\n- 31 -\n5. At the request of Dr. Falk of the Social Security\nBoard on January 7, a review was made of a prelimin-\nary draft of the Second Annual Report of the Board\nof Trustees of the Federal Old-Age and Survivors\nInsurance Trust Fund. The draft was returned on\n.r. January Brown 22 with marginal notes. - Mr. Reagh, Mr. Murphy,\n6. Mr. Fisher, Chief, Retirement Division, Civil Service\nCommission, requested on December 12 8 set of factors\nwhich would be needed for the computation of immediate\nannuities under H. R. 3487 if this bill should be en-\nacted into law. Approximate factors were submitted\nto Mr. Fisher in a letter dated December 31. The bill\nbecame law on January 24, and on January 28 Mr. Fisher\nformally requested the Board of Actuaries to prepare\nsets of factors to determine the immediate annuities\nof those eligible for retirement under section (d)\nand section 5(a) of the Act. A reoly to the request\n18 being prepared by Mr. Buck, Chairman of the Board,\nand will be submitted to us for consideration and\napproval. - Mr. Reagh, Mr. Brown, Mr. Kroll\nOther Projects or Studies\n1. Publications\n(a) For the January issue of the Treasury Bulletin\ndata were prevared on average yields of long-term\nTreasury bonds and high-grade corporate bonds. -\nMr. Barnett\nAll the material submitted for the January 1ssue\nWas reviewed and edited. - Kr. Lindow, Mr. Lynch\nNew tables were prepared for the January issue AS\nfollows:\n1. A table showing monthly sales of defense\nsavings bonds, classified by series, sales outlet,\nand denomination. - Mr. Brown, Mr. Kroll\n2. A table showing monthly sales of tax anticipa-\ntion notes, classified by series, type of\npurchaser, and denomination. - Mr. Mayo\nRegraded Unclassified\n353\n- 32 -\n3. Three tables on public marketable\nsecurities issued by the United States\nGovernment and by Federal agencies show-\ning price and yield data for each issue. -\nMr. Brown, Mr. Kroll\n4. A cumulative table of contents by each\nof the past twelve months. - r. Lynch\nMr. Wagner\n(b) For the publication Prices and Yields of Public\nMarketable Securities Issued by the United States\nGovernment and by Federal Agencies, computations\nwere made and copy Was prepared for the issue\noovering the month of December. - Mr. Brown,\nMr. Kroll\n(c) At the request of Under Secretary Bell on January <4,\na draft of the proposed review of\" Treasury finance\nand the new budget\" for the February Federal Reserve\nBulletin was reviewed, and cleared by telephone\non January 26. - Mr. Haas, Mr. Murphy, Mr. Tickton,\nMr. Robbins\n3. Correspondence\nReplies were prepared to letters received on subjects\nrelating to the work of the Division, and letters\ndrafted elsewhere and submitted to the Division for that\nourpose were reviewed. - Miss Michener, Mr. Lindow,\nMiss Ziegler, and other members of the staff in appropriate\nfields of work.\nDuring January 510 letters were received in the Division\nand 578 were handled as required.\n4. Charts\nCharts are prepared and continuously brought up to date\nfor цве in memoranda and in chart books on special sub-\njects, and corresponding photographic, photostatic,\nand multilith work 18 carried on. This 18 done in the\nGraphic Section under the supervision of Mr. Banyas.\nA statistical report on the work of the Graphic Section\nfor the month of January 16 attached.\n354\nWork Completed in the Graphic Section, Division of\nResparch and Statistics, during January 1942.\nFor Division\nType of work\nFor\noflas\nTotal\nOthers\nAphic:\nIn charte:\nTotal charte completed\n62\n19\n61\nBend book charte completed\n2\n-\n2\nCharts brought up to date:\n3 bond chart books brought up to date\n26 times\n-\n26(t)\nAll other charts brought up to date\n732\n32\n764\nMiscellaneous:\nTotal jobs\n13\n6\n19\nbiographic:\nPhotographic:\nTotal jobs\n80\n36\n116\nNumber of-\nNegatives\n223\n186\n409\nContact prints\n223\n614\n837\nEnlargements\n259\n117\n376\nPhotostate:\nTotal jobs\n214\n83\n297\nNumber of-\nLettersise copies\n5,213\n3,861\n9,074\nAll other copies\n2,927\n473\n3.400\nMultilith:\nTotal jobs\n15\n2\n17\nNumber of-\nZine plates\n139\n5\n144\nMiscellaneous:\nTotal jobs\n17\n14\n31\nGraphic Section, Division of Ref tch and Statistics, by months,\nBeginning January 1942\n:\n:\n:\n:\nType of work\nJan.\nFeb.\nMar,\n:\n:\n:\nApril\n:\nMay\nJune\n:\n:\nTotal\n=\n:\nA. Graphic:\nNew charts completed\n81\nCharte brought up to date\n764\nBond book charts completed\n2\n3 bond books brought up to date\n26 (t)\nMiscellaneous\n19\n3. Photographic:\nPhotographs:\nTotal jobs\n116\nNumber of-\nNegatives\n409\nContact prints\n837\nEnlargements\n376\nPhotostats:\nTotal jobs\n297\nNumber of-\nLettersise copies\n9,074\nAll other copies\n3,400\nMultilith:\nTotal jobs\n17\nNumber of-\nZine plates\n144\nMiscellaneous:\n355\nTotal jobs\n31\nRegraded Uncla\n356\nMAR 20 1942\nMy dear Mr. President:\nI an enclosing report on our exports\nto some selected countries for the period\nending March 10, 1942.\nFaithfully,\n(Signed) 1. Mergenthaus Jr.\nSecretary of the Treasury\nThe President,\nThe White House.\nEnclosure\nHDWsmoh\ncopies none. to Swift\n3/17/42\nBy Messenger\nRet to Secy's office\nRegraded Unclassified\n357\nMAR 20 1942\nMy dear Mr. Perkins:\nI am enelesing five copies of the report\non our exports to some selested countries for\nthe period ending March 10, 1942.\nSincerely yours,\n(Signed) M. Morgenthaus See\nSecretary of the Treasury\nMr. Mile Perkins,\nExecutive Director,\nBeard of Economic Warfare,\n2501 Que Street, N. W.,\nWashington, D. 0.\nEnclosures\nn.m.c.\ncapis to Dn. white\nBy Messenger Simmone 1:00\n3/27/42\nRet to Secy's office\nRegraded Unclassified\n357\nMAR 20 1942\nMy dear Mr. Perkins:\nI am enclosing five copies of the report\non our exports to some selested countries for\nthe period ending March 10, 1942.\nSincerely yours,\n(Signed) 1. Morgenthaug See\nSecretary of the Treasury\nMr. Mile Perkins,\nExecutive Director,\nBeard of Economic Warfare,\n2501 Que Street, N. W.,\nWashington, D. 0.\nEnclosures\nn.m.c.\ncapies to Dr. white\nBy Messenger Simmone 1100\nHDWs meh\n5/17/42\nRet to Secy's office\nRegraded Unclassified\n358\nMAR 20 1942\nMy dear Mr. Secretary:\nI am emelosing eapy of report on our\nexporto to some selested countries for the\nperiod ending March 10, 1942.\nSincerely yours,\n(Signed) A. Morgesthau. J20\nSecretary of the Treasury\nThe Homerable\nThe Secretary of State,\nWashington, D. 0.\nEnclosure\nn.m.c.\nNDW:mah\ncopies * Drw hite\n3/17/42\nBy Messenger sturges 1100\nRef. to Secip office\nRegraded Unclassified\n359\nMAR 20 1942\nMy dear Colenel Domovan:\nI an enclosing copy of report on our\nexports to some selected countries for the\nperiod ending March 10, 1942.\nSincerely yours,\n(Signed) 1. Morgenthau. Jr.\nSecretary of the Treasury\nColomel William J. Denovan,\nCoordinator,\noffice of Coordinator of Information,\nold National Institute of Health Building,\n25th and I Streets, N. W.,\nWashington, D. c.\nEnclesure\n). will\nHDW:meb\n3/17/42\nCagies x8 Dr. M hite\nBy Messender Limone 1:00\nRet. to Secy's office\nRegraded Unclassified\n360\nMAR 20 1942\nby dear Mr Frederisk:\nI have received your letter of March 16, telling -\nthat additional capital is required for the Packard Voter\nCar Company, two-thirds of which is to be paid by the\nBritish under the terms of the contract, and asking my help\nin getting the Mar Department or the Defense Plant Corpora-\ntien to neet this expenditure.\nst the consent, I as attempting to get the Defense\nPlant Corporation to conclude its long-pending negotiations\nfor the purchase of your plant facilities, and, for that\nreason, I an not sure that it would be wise for m to wite\nYr. Jenes about this additional matter, particularly since\nthe amount involved is so mall. I believe you will agree\nwith no that \" efferts - best be used on the larger\nprogram.\nVery sincerely yours,\n(Signed) N. Morgonthru. 12.\nSecretary of the Treasury\nMr Frederick Phillips,\nBritish Purchasing Nissions,\nWillard Hotel,\nWashington, D. C.\nBy Memenger Shorts 1:00\nPhotopile Dr what\ncome\nJEM/gro - 3/18/42\nRegraded Unclassified\n361\nWillard Hotel,\nWashington, D.C.,\nURGENT\nMarch 16, 1942.\nDear Mr. Secretary,\nMay I bring the following case to your\nnotice ?\nThe production of Merlin engines by the\nPackard Motor Car Company was undertaken under arrange-\nments by which:-\n1. The Defense Plant Corporation put\nup the money for one-third of the\ncapital facilities required, and the\nBritish Government put up the money\nfor the remaining two-thirds; and\n2. The War Department put up the money\nfor one-third of the manufacturing\ncosts, and the British Government\nfinanced the remaining two-thirds.\nThe contracts state definitely that every-\nthing in the way of expenditure and output shall maintain\nthe ratio of one to the Americans and two to the British.\nThis ratio has so far been maintained except in the case\nof orders for spare parts. These are to be supplied under\nLend-Lease, but we have been forced, for the time being,\nto preserve the 1:2 ratio by financing temporarily two-\nthirds of the cost of the spares subject to a new ratio\nbeing worked out (as is now being done) to replace the 1:2\nwe have put up in excess of what would be required by\nratio, and subject to the refund to us of any money which the\nnew ratio.\nOn capital facilities, however, the 1:2\nratio has so far been maintained, the last occasion on\nwhich more capital was put up having been about a year ago.\nIt has now been agreed that new capacity\nmust be provided for Packards to keep themselves supplied\ninvolved is about $790,000. On the 1:2 ratio our share\nwith cutting and other consumable tools and the cost\nof this would be $524,500.\nI do not think that we ought to be asked\nof put up facilities, but I understand that the\nto fresh dollars at the present stage for British extension\nAir recent discussions with the War Department and the\ncapital Commission have not been able to make any progress Defense in\nThe Honourable\nHenry Morgenthau, Jr.,\nSecretary of the Treasury,\nWashington, D.C.\nRegraded Unclassified\n362\n-2-\nPlant Corporation with a view to arriving at some\nalternative solution. I cannot feel that there is\nanything se eacred about the 1:2 ratio that we must\ncontinue to stick to it, and anyhow it is being\naltered, as explained above, as regards the spare\nparts. My feeling is that we have a strong case\nfor asking that the whole cost of the new facilities\nshould be put up either from War Department or from\nLend-Lease funds.\nThe matter is very urgent if the necessary\ntools are to be obtained. I should be most grateful\nfor any help which you can give us in the matter.\nYours sincerely,\nHhillips\nRegraded Unclassified\n363\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE March 19, 1942.\nTO\nSecretary Morgenthau\nFROM\nH. D. White\nI am appending some letters for your signature.\nLetter No. 1 - To Secretary Jones requesting information in action\non the purchase of facilities.\nLetter No. 2 - To Secretary Stimson requesting information on the\npayment for material taken from British dollar\ncontracts.\nLetters No. 3 and 4 - Alternative letters to Sir Frederick in\nanswer to his letter to you of March 16, copy of\nwhich is appended to Letter No. 3. I prefer\nLetter No. 3 which indicates, in effect, that the\namount involved is too small to justify your spend-\ning any time on it at present. Letter No. 4, the\nalternative suggestion, states that you will take\nit up with Jones. If you sign Letter No. 4, then\nyou should also sign Letter No. 5, which takes the\nmatter up with Mr. Jones.\nLetter No. 6 - This is the letter Aubrey Williams would very much\nlike to have you send to the Senator. We drafted\nit together (one horse - one rabbit - my end being\nthe rabbit) and I think it would be very helpful if\nyou could see your way clear to sending it.\nRegraded Unclassified\n364\nnear Jamus\nSir Frederick Phillipe has recently written me that,\nunder the terms of the British contract with the Packard\nlleter Car Company, the Pritish Government is required to\nnake an additional capital expenditure of $524,500.\nSince the United States Covernment is negotiating\nfor the purchase of British amenent plants built in the\nUnited States, 18 - to require the British\nto make additional capital expenditures.\nI wander if the Defense Plant Corporation could find\na neans of relieving the British Government from the DROER-\nsity of saking this expenditure?\nVery sincerely yours,\nSecretary of the Treasury\nMr. Jesse Jonns,\nReconstruction Finance Corporation,\nWashington, D. C.\nJFH/gre - 3/19/42\nRegraded Unclassified\n365\nBy dear Sir Proderick\nI have received your letter of March 16, stating that\nthe terms of your Packard airplase engine contrast requires\nthat you provide as additional $500,000 of capital, and ask-\ning w help in relieving you of this expenditure.\nI have always maintained that the Defense Mant Corp-\ncration should take over British amount facilities in the\nUnited States, and, accordingly, I ⑉ no reason why the\nDefense Plant Corporation should require additional capital\nexpenditures upon your part at this time.\nI shall write 4 letter to Mr. Janes stating that, in\nmy opinien, it would be inconsistent for this Goverment to\nrequire that your document nate this additional capital\naxpenditure.\nVery sincerely yours,\nSecretary of the Treasury\nSix Proderick Phillips,\nBritish Purchasing Missions,\nWillard Hotel,\nFashington, D. C.\nJEH/gre - 3/18/42\nRegraded Unclassified\n366\nMAR 1642\ntear Manager\nFor the past four menths I have been receiving letters free\nthe for Department, the Land-Lease Administration, and the Pritish\nPurchasing Missions, referring to the fact that various planes and\nother military supplies originally intended for Britain are being\ntaken over by the United States Any for 190 uses or for shipment\nto Russia. Neet of the letters refer to the method that will be\nused to reinburse the Brittish Government, but since there are\nseveral types of diversions involved, the letters disagree with\neach other, and consequently, I find that I de not know either the\narounts invelved in the diversions, or the type of reintursement\nthat the Reitish will receive in any of the transactions.\nAs T understand 12, the types of diversion are as followes\n1. Diversions of materials from British dollar\ncontracts (a) for the use of the United States\nArea, and (b) for shipment to Tussia in ful-\nfillment of United States obligations to Ruscin\nunder the Voscon Protecel;\n2. Diversions from British Lend-Lesse allocations\n(a) for the use of the United States dray, and\n(b) for shipment to in fulfillment of\nUnited States obligations to Ruseta under the\nleases Protecol.\nSome of the information that I have received, leads me to\nbelieve that the Dritish will receive payments in dellars for the\nplanes and exterials diverted from their em dellar contracts,\nbut I know that w information is not emplete.\nI should appreciate it if you would tell ne her much 10\ninvolved in eash of the types of transfer, and what the Avegr's\ndecision about payment has both en each.\nVery sincerely yours,\n(Bigned) E. Morgonthaw. If.\nSecretary of the Treasury\nThe Henerable Memry L. Stinson,\nRecretary of Tar,\nWashington, D. C.\nn.m.c.\nCapies to D.Whise\nBy Measenger Veach 10:30\nJEH/gre - 3/19/42\nRegraded Unclassified\n367\nRegraded Unclassified\nMAK 20 1942\nDear Jesser\nI - writing to inquire shout the states of the Defense Plant\nCorporation's negotiations for the purchase of British anongs\nfacilities in this country.\nN\nIt - my underwtanding that it w agreed last Famer that 8\n11st of aloven Aritten plants, whose purchase - recommed by\nthe President and by the War Department as useful for the nation's\ndefense, would be purchased by the Defense Plant Corporation. IN\nwill also my understanding that the Mar Department has agreed to\nthe repurchase of the plants, end that completion of their transfer\nwaited only - the accounting week DECREARY to determine the\nvalues of the facilities.\nI wonder If this program cannot be completed\" Turing the next\nsix nonths, when payments due upon with consituents made before\nthe Land-Lease 100 will still be large, serve sevistance to the\nBritish will probably be necessary, and the purchase of these plants\nis one of the best ways that that assistance can be given within\nthe letter and spirit of the pledges rade to Congress when the\nLand-Lease Mill - being discussed.\nThe eleven British facilities in question were said to have\ncost the Britden Government about 570 willion, of which about $55\nmillion var thought to be recoverable. In addition to these\neleven plants, however, the British offered last evener a second\nlist of facilities that, I understood, they were going to discuss\nwith you One of thoma, the Todd shiptwilding yarde, 10 about to\nbe sold to the Meritime Consission, but there are five remaining\nfacilities, which cost the British shout 022 million, and which\nwight have a recoverable value of shout $16 million. These facili-\nMee are the followings Crusible Steel, Savage Arro, Cerlikon-\nHanda, Anerican Type Pounders, and National Parmatic.\nI shall appreciate your talling me whether the !ritish have\nproposed the sale of these facilities to you, and whether the Nar\nor havy Departments has agreed to their repurchase.\nVery sincerely yours,\n(Signed) 2. in\nSecretary of the \"yearury\nVP. Jesse Jones,\nm.c.\nReconstruction ?inance Corporation,\nWashington, D. C.\nCopies whice\nBy Messenger Simmons 100\nJER/gra - 3/19/42\n368\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE March 20, 1942\nTO\nSecretary Morgenthau\nFROM\nMr. Haas\nIn accordance with your request, I am submitting herewith\na brief statement on the Canadian price control plan, with a\nchart showing relative trends in cost of living and retail\nfood prices in this country and Canada. The statement has\nbeen submitted to research divisions of the OPA and BAE, and\nincorporates suggestions that they have made.\nAttachments\nRegraded Unclassified\n369\nCanadian inflation-control program.\nOn December 1, 1941, after previous unsuccessful attempte\nto control prices, Canada out into effect an overall price\nceiling as part of a far-reaching program of inflation control.\nThis 5-part program consists of (1) & general ceiling on re-\ntail prices, with limited exceptions, (2) a ceiling on wages\nand salaries, supplemented by cost-of-living bonuses, (3) cur-\ntailment of public spending through taxation and war savings\nprograms, (4) a system of industrial allocations, with pro-\nspective consumer rationing, and (5) subsidies to producers\nof esgential farm products, to maintain supplies without in-\ncreasing costs to consumers.\nWhile it is probably too early to determine the effective-\nness of the Canadian program, a levelling-out of the Canadian\ncost-of-living index and index of retail food prices since\nNovember 1941 may be significant. The attached chart shows\nthe official Canadian cost-of-living index and the index of\nretail food prices, in comparison with similar official in-\ndexes for this country. For comparability, both are converted\nto an August 1939 base.\nThe Canadian figures (as of the 1st of each month) show\nthat the cost of living index in February was 0.5 percent\nlower than last November, and the the index of retail food\nprices was 1.8 percent lower. (The Order in Council establish-\ning ceiling orices was issued November 1, the base period for\nthe ceilings having been announced on October 18.) Figures\nfor the United States (as of the 15th of each month) show in\nthe same period a rise of 2.2 percent in living costs and\na rise of 3.3 percent in retail food prices.\nThe Canadian trice ceiling is essentially a rigid oeil-\nthe on retail prices, a plying to all commodities (unless\nspecifically exempted), to twelve essential services, and to\nthe rental of all real property. A major administrative\nroblem is the \"rolling back\" of squeezes between retail\nprices and basic costs, which 18 accomplished in part b.- the\npayment of various Government subsidies.\nAttachment\n370\nCOST OF LIVING, U.S. AND CANADA\nAUGUST 1939 - 100\nFOR\nPER\nCOST\nCENT\nCost of Living\n120\n120\n115\n115\nCanada\n(Dow. Bur. or STATE)\n110\n110\n105\n105\nU.S.\n(B.L.S.)\n100\n100\n95\n95\nJ\nM\nM\nof\n5\nN\nJ\nM\nis\nJ\n5\n#\nJ\nM\nM\nJ\n5\nM\nJ\nM\nE\n1939\n1940\n1941\n1942\nPER\nPER\nCENT\nCENT\nFoods, Retail\n130\n130\n125\n125\n120\n120\n115\n115\nCanada\n(BUR. OF STATE)\n110\n110\n105\n105\nU.S.\n(B.L.S.)\n100\n100\n95\n95\nN\nJ\n-\nM\n+\na\nM\nJ.\nal\nM\nJ.\n-\nM\nJ\n8\n-\nM\nM\nJ\n5\n1941\n1942\n1939\n1940\nc 412\nthe of the hereby of the Treasury\n- of - at -\nRegraded Unclassified\n371\nBarch 20, 1942.\nDear Mr. President:\nI have recently been impressed by the feet\nthat living costs in Canada have distinctly\nlevelled out since the Canadian price coiling\nprogram was pet into effect, while living costs\nin this country have continued strongly upvard.\nI thought you would be interested in the\nattached chart showing comparative price trends\nin the to countries and in the brief explanatory\nstatement which accompanies 10.\nFaithfully,\n(Signed) 1. Morgesthaw. Jr.\nthe President,\nThe White Bense,\nn m.c.\ncopies GD. Has\nDelivered by SS agt. 2:25\nGrills jas 3/20/42\nRegraded Unclassified\n372\nMarch 20, 1942\nDear Mr. Nelsons\nI have recently been impressed w the fast\nthat living costs in Canada have distinctly\nlevelled out since the Gamadian price coiling\nprogram was put Late effect, while living caste\nin this country have continued strongly upward.\n1 thought you would be interested in the\nattached chart showing comparative price trends\nin the two constries and is the brief explanatory\nstatement which accompanies 10.\nSincerely,\n(Signed) 1. Morgesthau. and\nSomerable Donald M. Nelson, Chairman,\nVar Production Board,\nVashington, D. a.\n3/20/42\nn.m.c.\nBy Measenser Limimono 5:30\nRegraded Unclassified\n373\nMarch 20, 1942.\nDear Hearys\nI have recently been impressed w the fast\nthat living costs is Canada have distinctly\nlevelled out since the Canadian price coiling\nprogram was pet into effect, while living cests\nin this country have continued strongly upward.\nI thought you would be interested in the\nattached shart showing comparative price trends\nin the too countries and in the brief explanatory\nstatement which accompanies 18.\nSincerely,\n(Signed) Henry\nMemorable Heary A. Vallase,\nVice President of the United States.\nA C.\ncopies to Have\nBy Memenser Mames 9:00 am\n3/21/12\n0.Htj= 3/20/42\nRegraded Unclassified\n374\nMarch 20, 194h\nDear Marriners\nI have recently been impressed w the fact\nthat living costs is Canada have distinctly\nlevelled out since the Considian price ceiling\nprogram VM put late effect, while living costs\nis this country have continued strongly upward.\nI thought you would be interested in the\nattached chart showing comparative price trends\nin the two combries and in the brief explanatory\nstatement which accompanies it.\nSincerely,\n(Signed) Henry\nNonorable Marriner S. Ecles, Chairman,\nBeard of Governors of the\nFederal Recerve System,\nVashington, D. c.\n3/20/42\nn.m.e.\nCapine\nBy Messenger L'imone 5:30\nRegraded Unclassified\n375\nMarch 20, 1942\nDear Leons\nI have recently been impressed by the fact\nthat living costs in Canada have distinctly\nlevelled out since the Canadian price ceiling\nprogram was put into effect, while living costs\nin this country have continued strongly upward.\nI thought you would be interested in the\nattached chart showing comparative price treats\nis the two countries and in the brief explanatory\nstatement which accompanies it.\nSincerely,\n(Signed) Henry\nHomorable Leon Nenderson, Administrator,\nOffice of Price Administration,\nWashington, D. c.\nnme\ncopies to Hear\nBy Messemer\nGCH: Jm 3/20/42\nRegraded Unclassified\n376\nMarch 20, 1942.\nDear Mr. Sprouls\nI have recently been impressed by the fact\nthat living costs is Canada have distinctly\nlevelled out since the Canadian price coiling\nprogram was pub into effect, while living costs\nin this country have continued strongly upward.\nI thought you would be Interested in the\nattached shart showing comparative price trends\nin the too countries and in the brief explanatory\nstatement which accompanies 11.\nSincerely,\n(Signed) n. Norgarthas, 16\nMr. Allas Sproul, President,\nFederal Reserve Bank of Bow York,\nNew Tork, B. T.\nnme in me\nCopie\njm 3/20/42\nRegraded Unclassified\n377\nMAR 20 1942\nDear Mr. Barle,\nReference is unde to year letter of March 11, 1942,\ninforming - that the Minister of Iceland in Haskington\nhas been authorized to sign a stabilization agreement\n- behalf of tise Bank and of the Government of [celand.\nI note that the State Department vishes to be informed\nwhether the Treasury Department is now willing to enter\ninto a stabilisation agreement with Iseland involving\na counituent not to exceed the equivalent of 92 million.\nWhen the stabilization agrangement was being dis-\ncassed with the Icaland officials in october and November,\n1942, there appeared to be good grounds for anticipating\n4b shortage of dollar exchange available to Iceland. lines\nthen there have been developments which suggest that\nIceland should no longer be in need of any dollars. Though\nW would not hesitate to consumate the agreement drafted\nat that time If the circumstances still warrant, it appears\nto as that the situation sught to be reesamined before a\ndecision on that point 10 reached.\nI have asked 115. Earry hite to arrange 44 conference\nto examine the situation in the light of these developments.\nEducerely yours,\n(Signed) 1. Morgesthas. in\nNecretary of the Treasury.\nThe Honorable Adolf do Herlo, Jr.,\nAssistant Scoretary of state.\nPlease return to Secretary's office\nPhoto file none\nFASTesh\nFile Thompson\n3/16/42\nby Messenger Sungie 1:00 po.\nRegraded Unclassified\nPR\nSTATE\nwill\nDEPARTMENT OF STATE\nWASHINGTON\nIn reply refer to\nin 8094. 1/20\nMarch 11. 1942\nMy dear Mr. Secretary:\nReference 1s made to a series of conferences during\nOctober and November 1941 between the Under Secretary of\nthe Treasury, members of the Icelandic Government Trade\nDelegation and representatives of the State Department\nregarding the conclusion of & stabilization agreement\nbetween the United States and Iceland. It will be recalled\nthat after a tentative text of a stabilization agreement\nhad been determined upon, the Icelandic Government Trade\nDelegation requested that the matter be held in abeyance\nuntil it could return to Iceland and discuss the text\nwith the Government in Iceland.\nThe Department has now received a telegram from the\nAmerican Legation at Reykjavik, a copy of which 18\nenclosed, setting forth the texts of documents signed\nby\nThe Honorable\nHenry Morgenthau, Jr.,\nSecretary of the Treasury.\nRegraded Unclassified\n-2-\nby the Icelandic Minister of Finance and by officials\nof the Landsbanki Islande (National Bank of Iceland)\nauthorizing the Minister of Iceland in Washington,\nMr. Thor Thors, to sign a stabilization agreement on\nbehalf of the Bank and of the Government of Iceland.\nThe Department would appreciate being informed\nwhether the Treasury Department 1e now willing to enter\ninto a stabilization agreement with Iceland involving\na commitment not to exceed the equivalent of two million\ndollars.\nSincerely yours,\nFor the Secretary of State:\ncarsual Adolf A. Berle, Jr\nAssistant Secretary\nEnclosure:\nTelegram from Reykjavik,\nno. 140, March 5.\nRegraded Unclassified\nTEM\nGRAY\nReykjovik\nDated March 5, 1942\nRec'd 1 9.0. 6th\nSecretary of State,\nWashington.\n140, March 5, 6 p.m.\nDepartment's telegram no. 129, November 21,\n7 p.m., and Legation's mail despatch no. 41,\nNovember 25, 1941.\nThe Minister of Finance has just deposited\nwith me new documents in the name of the Icelandic\nMinister in Washington. These documents are in\nEnglish end read as follows:\nOnE. \"With reference to an Act no. 130 of\nDecember 19, 1941 paragraph onE, authorizing the\nGovernment to guarantee & working loan for the\nNational Benk of Iceland, I the undersigned, Jakob\nMoller, Iceland's Minister of Finance, acting on\nbehalf of the Treasury do confer upon the Icelandic\nMinister in Washington, Mr. Thor Thors, full end un-\nrestricted power of attorney to sign a declaration\non the Icelendic Treasury as guarantor of full and\ndue repayment of principal and payment of interest\non A loan\nRegraded Unclassified\n-2- #140, March 6, 6 P.T., from Reykjavik.\non ET loon not Exceeding two -illing dollars (repert\n$2,000,000) which the National Bank of Iceland prograte\nborroving from the Stabilization Fund, Washinaton, D.C.,\nUnited Strtes of America.\nBeykjevik, this 4th day of March 1942.\nSigned: Jaket Nollar\".\nTwo. \"This is t- certify that Lendsbanki Islands,\nReykjevik, hereby gives the Icelend Minister in\nMr. Ther Thors, F full and unlimited\npower t- sign F: Stabilization Fund's agreement with\nthe Secretary of the Treasury of the United States of\nAmerica, accunting to maximum souivalent of United\nStates dollers two million (repeat $2,000,000 United\nStates dollars). Whatever Minister There may do in\nconnection with this matter is equally valid na if WE\nhad done it ourselves.\nDone in Reykjevik the 4th day of March 1942.\nLendsbanki Islands.\nNational Bank et Iceland.\nSigned: Vilhjalmur Ther.\nSigned: Petur Magnusson.\"\nThe Minister of Finance Expressed the hope that\nwith thE deposit of these full powers with the Legation\nit will bE\nRegraded Unclassified\n-3- #140, March 5, 6 p.m., from Reykjavik.\nit will bE possible for the Icelandic Minister in\nWashington to proceed to sign the loan agreement\nwithout delay. Appropriate instructions are being\nBENT to him. Original documents will bE forwarded\nin next pouch.\nBARNES\nNPL\nRegraded Unclassified\n383\nC\no\nP\nY\nRS\nChungking via N.R.\nThis telegram must be para-\nphrased before being communi-\nDated March 20, 1942\ncated to anyone other than a\nGovernmental agency. (BR)\nRec'd 4 p.m.\nSecretary of State,\nWashington.\n252, March 20, 2 p.m.\nReference Department's 110, February 14.\nPlease inform Treasury that Central Bank of China has\ndelivered checks drawn on Treasurer of the United States in\nan aggregate amount of $14,460 and requests that 8. cor-\nresponding amount be credited to Central Bank of China\namount in Federal Reserve Bank of New York.\nGAUSS\nCSB\nCopy:1c:3/21/42\nRegraded Unclassified\n384\nNIC\nChungking via N.R.\nThis telegram must be\nparaphrased before being\nDated March 20, 1942\ncommunicated to anyone\nother than n Governmental\nRec'd 4:07 p.m.\nagency. (BR)\nSecretary of State,\n:\nWashington.\n253, Narch 20, 3 p.m.\nFOLLO. ING FRCH ADLER FOR FOX CARE (F SECRETARY\nOF THE TREASURY.\n\"TF 23\nOne. Board would appreciate transmission of\nfollowing message to Federal Reserve Bank !Statement\nof accounts from Board's inception to date most\nurgently required. Please forward by quickest\navailable route. If any statement sent to Chungling\noffice, cable date of despatch, period covered, and\nroute. Smith accountant from Calcutta her- and\npreparing of board report for three governments would\nbE greatly facilitated by early receipt of Federal\nRESERVE Bank's statement. If you are returning fairly\nsoon, suggest you bring statement with you otherwise\nbest to send it by diplomatic pouch care of me.\nTwo. Doctor Kung would like to know approximate\nsize of treasury smuggling prevention force. If not\ninconvenient, could you ascertain and let THE know?\"\nGAUSS\nLMS\nRegraded Unclassified\n385\nC\n0\nP\nY\nDEPARTMENT OF STATE\nWASHINGTON\nMarch 20, 1942\nIn reply refer to\nFD 740.0011 Pacific War/2064\nThe Secretary of State presents his compliments to\nthe Honorable the Secretary of the Treasury and encloses\na copy of despatch no. 284, dated January 26, 1942, from\nthe American Embassy, Chungking, China, regarding a coordination\ncommittee in Chungking to deal with economic questions.\nTelegram no. 60 referred to in the despatch was trans-\nmitted to Treasury under date of January 28, 1942; and\ndespatch no. 266 was transmitted February 19, 1942.\nEnclosure:\nFrom Embassy, Chungking,\nno. 284, January 26, 1942.\nRegraded Unclassified\n386\nNo. 284\nChungking, January 26, 1942\nSubject: A Coordination Committee in Chungking to\ndeal with Economic Questions.\nAir Mail\nCONFIDENTIAL\nThe Honorable,\nThe Secretary of State,\nWashington, D.C.\nSir:\nI have the honor to refer to my telegram no. 60, January 25, 12 noon\n1/2/\nand to enclose copies of two memoranda in regard to the suggested formation\nof a coordination committee or \"Allied Economic Council\" in Chungking to\ninterest itself in China's financial and economic problems.\nAt this stage and time I have nothing of substance to add to the\ncomment in my reference telegram. There are serious economic problems in\nChina which should be dealt with seriously and constructively. A committee\nof competent persons with authority under a loan or credit agreement and\nwith Chinese cooperation should be able to malte a real contribution to a\nsolution of those problems and at the same time increase Chinese ability\nand willingness to continue resistance against Japan. In my despatch no,\n266 of January 8, 1942 I have, in suggesting the directions in which\nfinancial aid might be given to advantage, indicated the fields in which\nsuch a committee might interest itself. The problem 1e not, I feel, simply\none of supporting Chinese currency. The progress of currency inflation\nshould certainly be moderated if possible; it cannot however be reversed.\n& deflationary policy resulting in a reduction in the production of con-\nsumers' goods would be in error and have unfortunate consequences. En-\ncouragement to the production and the importation, if feasible, of goods\nshould I am convinced be the primary objective of financial policy in this\narea now, and if a foreign credit or loan can be used to that end and an\neconomic coordination committee can effectively aid in such utilization, I\nbelieve the one should be granted and the other established. The financial\nand economic experts should be able to determine whether such & program is\nfeasible but its success will depend largely on the degree of real cooperation\ngiven by the Chinese authorities.\nRespectfully,\nC. E. Gausa\nEnclosures:\n1/ Memorandum for Ambassador dated January 23, 1942.\n2/\nIf\nH\nIf\n=\nIf\n24, 1942.\nJCV/Wr\nOriginal and five copies by air to the Department.\n850\nRegraded Unclassified\nEnclosure no. 1 to despatch no. 387\n284 dated January 26, 1942, from\nthe Embassy at Chungking.\nMEMORANDUM OF CONVERSATION\nFOR THE AMBASSADOR\nJanuary 23, 1942\nSubject: Suggested Formation of a Corrdination Committee\nto deal with Economic Problems.\nMr. Hall-Patch, Financial Attache of the British Embassy, called\nthis afternoon. He said that, on the basis of discussions with Sir\nArchibald Clark-Xerr (the British Ambassador) and Sir Otto Niemeyer\n(Chief of the British Economic Mission to China) he had called to\nsuggest the formation of B. Coordination Committee in Chungking to deal\nwith financial and economic problems and particularly with problems that\nwould arise in connection with the handling of the Anglo-American credit\nto China, should such credit be granted. He said that he envisaged such\na committee as being composed of two Americans, two British and two Chinese\nmembers, and a Chinese Secretary whom he thought should be a man of the\ncharacter of T. F. Tsiang. He said that it might be advisable also to\ninclude a Dutch representative and I added that it might be advisable for\nsimilar reasons to include an Australian. He said that he thought the\ncommittee should be organized as soon as possible and that Sir Archibald\nClark-Kerr was prepared to approve its organization. He said that he and\none other Englishman would serve on the Committee and suggested that I and one\nother American serve. He thought that Dr. Kung or his deputy would wish\nto be Chairman and hoped that another Chinese of ability would be appointed.\nHe asked me to refer the matter to you. I said I would do so and inform him\nof your answer. He said that he was going to Kunming on Monday, but that I\ncould take the matter up with Sir Archibald or Sir Otto as both of them were\ninformed on the subject.\nJohn Carter Vincent\nJCV/wr\nTrue copy of signed original. w.r.\nRegraded Unclassified\nEnclosure no. 2 to despatch no.\n284 dated January 26, 1942, from\n388\nthe Embassy at Chungking\nMEMORANDUM FOR THE AMBASSADOR\nJanuary 24, 1942\nSubject: \"Allied Economic Council\" at Chungking\nI saw Hall-Patch again at noon today in Sir Archibald Clark-Kerr's\noffice. Sir Archibald was also present. I called wishing to clear up a\nfew points and obtain additional information with respect to Hall-Patch's\nsuggestion of yesterday in regard to coordination in the field of economic\nand financial matters. I asked whether the proposed committee was to come\ninto being only if China were granted credits by Britain and the United\nStates and whether it was to deal exclusively with matters pertaining to\nthe utilization of the credits. Sir Archibald showed me a note referring\nto 8. conversation which a Chinese official apparently had had with Dr. E.H.\nKung. This note indicated that Dr. Kung had suggested that the \"Allied\nEconomic Council\" in Chungking be set up without reference to the proposed\ncredits: that it be charged with making studies and recommendations; but\nthat it would also, when credits were granted, interest itself in the nro-\nblems connected with the effective use of these credits. This note also\nanswered the second question I had in mind, that is, whether the concerned\nChinese officials were informed with regard to the proposal. I asked who\nhad taken the initiative in suggesting the committee or \"Council\" and Sir\nArchibald said it had been more or less \"spontaneous\" but agreed that the\ninitiative should properly appear to come from the Chinese.\nJohn Carter Vincent\nJCV/wr\nA true соду\nof signed original. W.T.\nCopy:bj:3-21-42\nRegraded Unclassified\nTreasury Department 389\nDivision of Monetary Research\nDate April 28\n19 42\nTo:\nMiss Chauncey\nFrom: Mr. White\nI presented this orally to the\nSecretary on April 11th and the Secretary\nasked me to give him the highlights\norally, which I did. He said it was\nall right - he would approve. I told\nhim his signature wasn't necessary on\nthe final document. I also stated\nthat the final document would contain\nsome modifications of this draft but\nthey would not be important modifica-\ntions.\nTreasury Department\n390\nDivision of Monetary Research\nDate\nMarch 20, 1942 19\nTo:\nSecretary Morgenthau\nFrom:\nH. D. White\nIn our tentative recommendations to Cuba some\nof our proposals constitute a substantial departure\nfrom some of our own practices. If you are interested\nin going into the matter I would appreciate it if you\nwould do it soon as we are now discussing the pre-\nliminary report with the Cuban officials, and we are\nbeing pushed to complete our report by both the State\nDepartment and the Cuban Government.\nThere will be of course a final clearing in the\nTreasury and possibly in the Federal Reserve Board\nbefore a final report is submitted to the Cuban.\nGovernment but it will then probably be too late to make\nmore than minor changes.\nCopies of the preliminary report our being sent\nto D. Bell, Legal Division, and State Department.\n391\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE March 20, 1942.\nTO\nSecretary Morgenthau\nFROM Mr. White VOW\nsubjectr Proposed Cuben Central Bank\nI AM sending you herewith a copy of & preliminary draft report\non the proposed Cuban Central Bank by the American Technical\nMission to Cuba. The Cuben Finance Minister has requested the\nopportunity of discussing the Central Bank proposals with the\nMission during his stay in Washington. These discussions will\nDE based on this draft.\nThe attached report envisages a Cuban Central Bank having\nthe following main characteristics and powers:\nCopital Structure.\nThe initial capital end surplus 18 to be 8 million pesos\n(-1 the ne eo, as you know, at 1 to 1 parity with the dollar).\nof this the commercial benks will contribute about 3 million\nPROS In cash, and the Cuban Government about 2 million in cash\nnd 3 million in Government obligations.\nThe capital contribution of the commercial banke is to be\nfixed at 2 percent of their deposits. The Cuban Government will\nmake a cash contribution sufficient to bring total cash contri-\noutions to 5 million Desos. The 3 million pesos of securities\ncolitributed by the Cuban Government will create a paid-in surplue\nfor the Bank.\nAn Export-Import Bank loan to help the Cuban Government meet\nits 0830 contribution should be considered if it proves diffi-\noult for Cuba to raise this money at home.\nManagement.\nThe Cuban Government will control the Central Bank through\ncontrol of a majority of the directors. The President of the\nRepublic will appoint the Governor of the Bank who will serve\non the Board of Directors ex officio along with the Finance\nMinister. The President will also appoint five other directors,\ntwo from nominees selected by the share-holding banks, and three\nto represent the sugar industry, other agriculture, end commerce.\nAt least one of the two directors representing the commercial\nbanks must be a Juban citizen.\nRegraded Unclassified\n392\n- 2 -\nDivision of Monetary\nResearch\nIn addition, en Advisory Council is to be created to act\nns an advisory body on major mattere of bank policy. This\nCouncil will consist of the Ministers of Finance, Agriculture,\nCommerce and Labor and e representative of the Faculty of Law\nof the University of Habana. Under certain conditions indicated\nbelow the Council has mandatory powers.\nLoans and Investments.\nThe Central Bank will make primarily short-term loans to\ncommercial banks (up to 9 months in the CBSB of agricultural\nnoner).\nLonne to the National Government are limited to 10 percent\nof overage annual expenditures with a provision for relaxation\non vote of six-sevenths of the Directors. Loans to semi-official\ncredit agencies (1t 18 hoped to establish an Agricultural Bank)\nare \\imited to 15 percent of the Bank's assets.\nTo prevent evasion of the limitations on Government loans,\nopen market operations in Government securities are restricted\nto sensoned obligations.\nLoans to the public are permitted only in case of national\nemergency and then only with consent of the Advisory Council.\nReserve Requirements.\nThe Central Bank will be required to maintain gold or dollar\nreservee against notes but not deposits. The notes outstanding\nthen the Bank begins operations will be considered a fiduciary\nlesue sysinst which no new reserves are required. Notes above\n211 S. amount are subject to a 25 percent requirement.\nThe Bank will take over 118b1lity for existing silver cer-\ntificates and the silver coins held against them. Ae the silver\ncertificates are replaced with bank notes, the coins held against\nthem will De released for other purposes.\nWhenever the reserves fall belo 25 percent the Bank shall\nwe requiredto take corrective messures satisfactory to the\nAdvisory Council. In case of emergency reserve requirements of\ncommerciel banks can be altered by the Board of Directors with\nw roval of the Advisory Council.\nRegraded Unclassified\n393\nDivision of Monetary\n- 3 -\nResearch\nStabilization Fund.\nA Stabilization Fund will be created to assist in control-\nIing the exchange value of the peso, It will be controlled by\nD\ncommittee consisting of the Governor of the Bank, the Finance\nMinister, and a third member to be selected by the Finance\nMinister. Profits and losses of the Fund will be for account\nof the Government.\nThe Fund vill in general hold Cuba's gold assets and issue\n10ld certificates to the Central Bank. The Fund will have the\nright to borrow pesos from the Central Bank without interest to\nouy 103d but can be directed to borrow in the open market by\nthe Advisory Council.\nOn recommendation of the Fund Committee, the President of\nCube can subject exchange transactions to license by the Finance\nMinister.\nThe dollar will no longer be legal tender.\nRegraded Unclassified\n394\nPreliminary and Confidential\nAmerican Technical Mission to Cuba\nSECOND REPORT TO THE CUBAN GOVERNMENT\nMarch 20, 1942\nPersonnel of Mission\nG. A. Eddy, Treasury Department\nA. T. Esgate, Farm Credit Administration\nW. R. Gardner, Board of Governors of the\nFederal Reserve System\nF. A. Southard, Jr., Treasury Department\nH. R. Spiegel, Treasury Department\nG. B. Vest, Board of Governors of the\nFederal Reserve System\nH. D. White, Chief of Mission,\nTreasury Department\n395\nPrincipal Features of Cuban Central Bank\nProliminary Draft to serve as the basis of joint discussion\nMarch 19, 1942\nI. Capital\n1. Authorized capital:- 10 million pasos in Class A and/or Class B shares\nand at least 3 million pesos of capital, or paid-in, surplus.\n2. Original subscription:- 5 million pesos of share capital and 3 million\npaid-in surplus.\nCommercial bank subscription:- 2 percent of each bank's deposits\nin some designated base period, in Class A shares of 100\npesos par value. This will amount, on the basis of present\ndeposits, to about 3 million pesos, in cash.\nGovernment subscription:-\n(a) Enough Class B shares of 100 pesos par value to bring\nthe original subscription for Class À and Class B shares to\n50,000 (5,000,000 pesos). For example, if banks subscribe\n3.0 million the Government will subscribe 2.0 million, in\ncash.\n(b) In addition, the Government will subscribe 3 million\npesos which may be paid in the form of Government obligations,\nto be credited to paid-in surplus. It may or may not be pos-\nsible to have this subscription evidenced on the balance\nsheet in some way as having come from the Government.\nRegraded Unclassified\n396\n- 2 -\n3. Capital structure at the outset:-\nClass A shares (entirely owned by the commercial\nbanks) - Approximately 30,000 shares outstanding\n3,000,000\nClass B shares (entirely owned by the Government)\nApproximately 20,000 shares\n2,000,000\n(Enough Class B shares will be sold to the Government\nto bring the total number of Class A and Class B\nshares to 50,000.)\nSurplus, paid-in, by the Government\n3,000,000\nSurplus, earned\n0\nTotal capital funds\n3,000,000\nAuthorized but unissued - 50,000 shares Classes A\nand B.\n4. Dividends:- Dividends to be limited to 4 percent, cumulative, and\nperhaps limited further to Class A shares.\n5. Disposition of surplus:- At the discretion of the directors the Bank\nmay build up earned surplus or reserves without paying divi-\ndonds, but dividends shall be cumulative and no surplus\nshall be paid to the Government so long (LS there are any\ndividend arrears. After payment of full dividonds, the\nBank's earnings shall be divided as follows:\n50 percent to the Government and 50 percent to surplus\ntill an earned surplus of 3.5 million posos has been\naccumulated; 75 percent to the Government and 25 per-\ncent to surplus till an earned surplus of 7.0 million\npesos has been accumulated; thereafter 100 percent to\nthe Government.\nRegraded Unclassified\n397\n- 3 -\nIn the event of liquidation of the Central Bank, any\nsurplus after retiring stock hold by banks at par plus\ndividends accrued and carned shall revert to the Government.\n6. Adjustment in commercial bank holdings:- Commercial banks' sub-\nscriptions are to be adjusted annually to each bank's\naverage deposits in the preceding your (or some other prac-\ntical base). Each bank's subscription must not fall below\n2 percent of its deposits in the procoding year. Banks\nwhose deposits decline, however, have the option of retain-\ning Central Bank shares proviously required to be purchased.\nPurchases and redemptions shall be at par.\nAdditional shares required to be purchased by banks\nwhose deposits have increased are to be purchased from the\nCentral Bank at par (a) from shares turned in by other\nbanks whose deposits have decreased, (b) from the Cuban\nTreasury from any of its B shares which it is willing to\nsell, and (c) from authorized but unissued shares of the\nCentral Bank. Stop (b) means that the number of B shares\nwill in offect be converted into A shares.\nAt the annual readjustment period the Contral Bank is\nobligated to repurchase at par any of its shares held by\nthe commercial banks in excess of 2 percent of their do-\nposits. Commercial banks can sell their sharos only to\nthe Central Bank. Banks dosiring to liquidato may have\n398\n- 4 -\ntheir stock redocmed at any time convenient to the Contral\nBank.\nIn caso banks' holdings of Class A shares should\ndecline below the amount originally sold, the Government\nshall not be required to purchase additional Class B shares\nunloss it desires to do so.\n7. Capital necessary to start operations:- Provision might be made for\nthe Bank to start operations when 25 percent of its total\noriginal capital is paid in. The romaining 75 percent must\nbe paid within 3 months but the period may be extended by\nthe vote of the Board of Directors. Government delivery of\nsecurities for paid-in surplus may constitute the Govern-\nnent subscription of 25 percent.\n8. Moans of paying for original subscription:-\nClasses A and B shares:- In poso currency, or at the discretion\nof the Board of Directors in certified peso bank checks.\nIn case the Cuban Government feels itself unable to\nobtain cash from other sources, the Central Bank law might\nauthorize an Export-Import Bank loan for this purpose.\nHowever, in view of the curront prospority of the sugar\nindustry and the strength of the Cuban balance of inter-\nnational payments, it suoms economically desirable that\nthe Cuban Government should obtain the cash for its sub-\nscription to Class B shares without incurring foreign in-\ndobtodness which may have to bo paid back during a much less\nfavorable period in the futuro.\nRegraded Unclassified\n399\n- 5 -\nPaid-in surplus:- To be paid for possibly in Treasury certifi-\ncates of indebtedness payable 90 days after sale by the\nCentral Bank, or upon liquidation of the Bank. They would\npay no interest and would not mature so long as they were\nhold by the Central Bank. They would be transferable and\nnight be sold (presumably at a discount) by the Central\nBank as circumstances required.\nAlternatively, the securities might be nado ordinary\nnotes or bonds, bearing a market rate of interest.\nIn case the paid-in surplus of the Bank becomes in-\npaired, nogotiations between the Central Bank and the\nGovernment may determine desirable action, if any, regard-\ning the impairment and the possibility of the Government's\nadvancing additional surplus.\nRegraded Unclassified\n400\n- 6 -\nII. Management\nPrimary responsibility for management of the Bank will be vested with\na Board of Directors. In addition, however, the Mission recommends crea-\ntion of an Advisory Council which will at all times have the prerogative\nof giving advice to the directors regarding matters of policy and which\nunder certain circumstances will have more direct powers of control.\nThe Board of Directors will consist of seven members as follows:\nGovernor of the Bank, to be appointed by the President.\nMinister of Finance, ex officio.\nTwo directors to act as representatives of the share-\nholding banks. These are to be selected by the\nPresident from two panels of at least three names\nin each to be nominated by the shareholding banks,\nOn one of the panels all nominees must be Cuban\ncitizens. On the other, nominees may or may not\nbe Cuban citizens.\nThree directors to be selected by the President to\nrepresent sugar, other agriculture, and business\ninterests. Provision might be made for the estab-\nlishment of three panels of names proposed by\nrecognized trade associations* from which these\nthree directors may be chosen by the President, but\nhe is not required to limit his choice to the names\nappearing on the panels.\nRegraded Unclassified\n401\n- 7 -\nThe two banking and the three public directors might be given\nstaggered terms of two and three years respectively. Directors shall\nbe eligible for reappointment.\nThe Governor of the Bank shall have a five-year term and shall be\neligible for reappointment. The Vice-Covernor and General Manager shall\nbe appointed by the Board of Directors of the Bank.\nThe directors shall be paid only a very modest compensation, possi-\nbly at the rate of 10 pesos per meeting up to a maximum of 500 pesos per\nyear plus direct expenses. The salary of the Governor of the Bank\nshould be stipulated by law. The Governor and the Finance Minister will\nreccive no compensation for acting as members of the Board except for\nany direct expenses incurred.\nThe duties of the Board of Directors shall be stated in the broad-\nest possible terms since they are ultimately responsible for management\nof the Bank. The Board must assume responsibility for all major policy\ndecisions but, of course, should not be called upon to make routine\nadministrative decisions.\nThe Advisory Council is to consist of five members, as follows:\nThe Ministers of Finance, Agriculture, Commerce, and Labor and a repre-\nsentative of the Faculty of Law of the University of Habana. The method\nof selection of the representative from the Faculty of Law and his torm\nof office are not specified since Cubans familiar with the Faculty of\nLaw may be better able to formulate proposals on this matter. He ought\nto have a regular term of office of, perhaps, three years. The members\nof the Advisory Council are to serve without compensation in any form.\nRegraded Unclassified\n402\n- 8 -\nThe duties of the Advisory Council shall be primarily to act as an\nadvisory body on major matters of bank policy. The Council shall have\nthe prerogative of making its views on banking policy known to the Board\nof Directors whenever the Council so desires. At any time the Council\nshall have the right to require that the Board of Directors make an\nexplanation of the current policy of the Board, In addition to this, the\nBoard of Directors shall make an annual report to the Advisory Council\nwhich shall also be made public, explaining all the major policies upheld\nby the Bank during the previous year and giving the reasons therefor.\nIn addition, the Advisory Council shall have certain other powers\nand duties as indicated below, and particularly in regard to deficiencies\nin the Central Bank's required reserves, the financing of the Stabiliza-\ntion Fund, direct loans to the public, and emergency measures to limit\ncredit expansion.\nRegraded Unclassified\n403\n- 9 -\nIII. Loans and Investments\n1. Accounodation to member banks:- The Central Bank can make advances\nwith a maturity of not nore than six months to banks\nowning stock in the Central Bank on the security of any\nassets satisfactory to the Central Bank, and can discount\nobligations of sound value bearing the endorsement of a\nstockholding bank maturing in not more than six months or,\nin the case of agricultural obligations, not more than\nnine months.\n2. Loans to special lending institutions:- The American Mission is\nstrongly of the opinion that the Cuben economy is in need\nof official or semi-official agencies to extend crodit\nfor agricultural, industrial, public works, and nortgage\npurposes, and the Mission urges the early establishment\nof such agencies.\nThe Central Bank should be empowered to acquire oblí-\ngations of each of these agencies to be created to serve\nspecial lending needs, subject to some effective protec-\ntive limitation. It might be provided that the obliga-\ntions must be short-torm or bear the guarantee of the\nGovernment and that not more than 15 percent of the\nCentral Bank's nasets may consist of the obligations of\nany one of these agencies unless 2 larger amount is\nauthorized by the affirmative vote of six members of the\nBoard of Directors. Obligations of 2 lending agency\nRegraded Unclassified\n404\n- 10 -\ndiscounted with the Central Bank with the endorsement\nof a commercial bank, in accordance with paragraph (1)\nabove, are to be regarded as coming outside of the 15-\npercent limitation just mentioned.\n3. Lonns to the Federal Government:- The Bank can lend to the Govern-\nment up to fivo percent of the Government's budgeted\nexpenditures during the thon-current fiscal year on the\naffirmativo vote of fivo members of the Board of Directors.\nAfter the total of such loans outstanding on the books\nof the Central Bank has renched n total equal to 10 per-\ncent of the annual average budgeted expenditures during\nthe current and next proceding fiscal years, no further\nloans can be made to the Government except on the six-\nsevenths vote of the Board of Directors.\n4. Open-market purchases of Government securities:- The Bank can\npurchase diroct obligations of the Republic of Cuba\nwhich have been outstanding for at lonst one year (or\npossibly at luast two years) whenever such purchases\nare required to carry out open-market credit policy.\nPurchases are to bo nade in the opon market nt provail-\ning prices. It may also be dosirable to authorize\nopen-market purchases of open-market issues of official\ncredit institutions if guarantood by the Government.\nRegraded Unclassified\n405\n- 11 -\n5. Other open-market investments:- If the available supply of direct\nobligations of the Republic of Cuba is too small to por-\nmit effective open-market policy, the purchase of other\nseasoned, first-grade bonds which have been outstanding\nfor two years or more will be permitted.\n6. Energency loans to the public:- In cases of emergency or national\nnocessity, the Board of Directors shall be authorized to\nmake direct loans to the public but only with the approval\nof the Advisory Council.\n7. Sale of assets:- The Central Bank shall be enpowered at its discro-\ntion to sell any assets which it is authorized to acquire.\n8. Speculative loans:- The Bank might be enjoined from purchasing or\nlonding upon assets issued to finance speculation in\nstocks, real estate, or commodities, provided that the\nlaw can be worded so as not to interfore with desirable\noperations,\nRegraded Unclassified\n406\n- 12 -\nIV. Foreign Exchange Fund\n1. l'anagement:- A committee of three, consisting of the Minister of\nFinance, the President of the Central Bank, both ex officio,\nand one nember selected by the Minister of Finance,\n2. Conduct of operations:- By the Central Bank, under the direction of\nthe Foreign Exchange Committee, as fiscal agent for the\nGovernment.\n3. Powers:- The Fund can buy, hold, pledge, and sell gold, silver,\nforeign exchange, and possibly also peso currency and\ndeposits; borrow; and invest its assets in high-grade\nsecurities.\n4. Source of the Fund's foreign exchange:- Purchasesin the open market\nand deliveries by exporters of part of the foreign exchange\nproceeds of their sales abroad, as provided by present law.\nThe Finance Minister shall continue to have full discretion\nto exempt classes of exporters, refuse acceptance of foreign\nexchange under conditions where this may be desirable, and\nmodify the requirements placed upon exporters.\nThe Fund can buy and the Central Bank is required to\nsell any gold or foreign exchange assets held by the Central\nBank at the discretion of the Fund.\n5. Source of the Fund's pesos:- The Fund shall have the right to borrow\npesos from the Central Bank without interest up to the limit\nof the cost of foreign exchange or gold held by the Fund.\nThe Fund may be given the further right to borrow from the\nRegraded Unclassified\n407\n- 13 -\npublic up to the cost of its gold or foreign exchange and\nto pledge said gold or foreign exchange to secure such\nloans.\nWhenever in the opinion of the Advisory Council the\nStabilization Fund is obtaining an undue volume of credit\nfrom the Central Bank and thereby causing an unwarranted\nexpansion in the reserves of the commercial banks, the\nAdvisory Council can require the Fund to obtain further peso\ncredits from the open market instead of the Central Bank.\nUnder these circumstances the Fund will be obliged to conduct\nits credit operations in the manner specified by the Advisory\nCouncil until in the opinion of the Advisory Council, the\nFund can once again be allowed to obtain Fund credits from\nthe Central Bank if it desires.\n6. Treatment of profits and losses:- Profits and losses of the Fund shall\nbe for the account of the Treasury. Profits may be turned\nover to the Treasury at the discretion of the Fund committee.\nThe reimbursement of losses shall be at the discretion of\nthe Cuban Government.\n7. Publicity on Fund profits:- Audited reports shoring the disposition\nof Fund profits and any dispositions of foreign exchange or\ngold made at prices other than the prevailing market price\nare to be published regularly at reasonable intervals after\nthe transactions take place.\nRegraded Unclassified\n408\n- 14 -\n8. Foreign exchange for the Government:- The Fund shall continue to\nsupply foreign exchange to meet Government requirements\nat par.\n9. Foreign exchange licensing:- On the recommendation of the Fund\ncommittee, the President of the Republic can subject all\nforeign exchange transactions and international novements\nof funds to license by the Minister of Finance.\nRegraded Unclassified\n409\n- 15 -\nV. Reserve Requirements of the Central Bank\nThere should be reserve requirements only against the Bank's note\nliabilities. That is to say, there will be no reserve requirements\nagainst the Bank's deposit liabilities.\nThe Bank will take over the liability for outstanding silver cer-\ntificates and acquire as an asset the silver coin held against them.\nForn silver certificates may gradually be replaced with bank notes and,\nas this happens, the coin held against them will be freed for other\npurposes. The Bank, however, will at no time have to hold reserves\nagainst the notes thus issued to replace silver certificates.\nThe full smount of peso currency certificates outstanding when the\nBank starts business will constitute a fixed fiduciary issue to which\nCuba may be regarded C.S already adjusted. Net expansion of the currency\nby the Bank thereafter will be subject to a reserve requirement of 25 per-\ncent in gold or dollars or in obligations of the Stabilization Fund backed\n100 percent by gold or dollars.\nWhenever the legal reserves of the Bank fall below the 25 percent\nrequirement, the Bank shall immediately undertske corrective measures\nand shall take a monthly report on these to the Advisory Council. If\nthe Advisory Council is not satisfied as to the adequacy of these\nmeasures, it shall have the authority to require the Bank to alter its\nprogram to the satisfaction of the Advisory Council. This authority\nshall continue in effect until the legal reserves of the Bank are once\nagain at or above the minimum requirements.\nRegraded Unclassified\n410\n- 16 -\nVI. Reserve Requirements of Commercial Banks\n1. Against denand deposits:- 25 percent, of which 20 percent shall be\nin deposits at the Central Bank.\n2. Against time deposits:-\nPossibly the same as on demand deposits, or alternatively,\nthey may be reduced at the discretion of the Bank to a\nminimum of 5 percent, of which 3 percent must be held on\ndeposit in the Central Bank. The Bank is to have power to\ndefine and issue regulations concerning time deposits.\n3. Emergency credit control:- In case of threatened over extension of\nbank credit, the Board of Directors with the approval of\nthe Advisory Council, may require that deposits of commer-\ncial banks in excess of a given level be secured by legal\nreserves higher than those regularly required, but not\nover 100 percent. Conversely under special emergency\nconditions, the Board with the approval of the Advisory\nCouncil, may authorize a reduction in the regular reserve\nrequirements.\nRegraded Unclassified\n411\n- 17 -\nVII. iliscellaneous Provisions\nLegal tender position of the dollar:- The dollar shall no longer\nbe legal tender.\nOther functions of the Central Bank:- The Bank will hold deposits\nonly of commercial banks, the Government, governmental\ninstitutions, and foreign governments and central banks.\nSymbol for the peso:- Some symbol should be adopted other than the\ndollar sign now used, in order to facilitate differentia-\ntion between the peso and the dollar.\n412\nCOPY\nAF\nBombay\nThis telegram must be\nDated March 20, 1942\nparaphrased before being\ncommunicated to anyone\nRec'd 11:16 a.m.\nother than a Governmental\nagency. (BR)\nSecretary of State,\nWashington.\n208, March 20, 1 p.m.\nDepartment's 68 to Calcutta.\nTotal amount of United States Treasury checks cashed\nby National City Bank of New York at Bombay and delivered to\nthis Consulate is $25,657.18.\nINFORM TREASURY\nDONOVAN\nEDA\nCopy:bj:3-21-42\nRegraded Inclassified\n413\nTELEGRAM SENT\nDM\nMarch 20,1942\nThis telegram must bE\nparaphraeed before being\n1 p.m.\ncommunicated to anyone\nother than A Governmental\nagency. (BR)\nAMERICAN CONSULATE GENERAL,\nCAPETOWN, (UNION OF SOUTH AFRICA).\n30\nFROM TREASURY\nYour 31, March 17, 3 p.m.\nQUOTE 1. PLEASE have consular officer present\nat time South African REBERVE Brnk wraps currency to\nobserve that halves, with a copy of list Enclosed, Are\nseparately packaged and that the packages Are BEALED,\nUpon receiving the bank's statement that the currency\nhas been cut in half, that the name of the bank appeare\non Each helf of the currency, and the amount of our-\nrency in Each package, the consular officer can then\nissue to the bank a receipt for the currency. The\nreceipt given by the consular officer should stipulate\nthat the currency 1e subject to count, verification\nand Exomination.\n2. The Consulate General 16 authorized to store\nthe BEnlEd packages in the vault of the South African\nREBERTE Bank pending delivery to the Post office just\nprior\nRegraded Unclassified\n414\n-2- #30 March 20, 1 p.m. to Cepttown\nprior to the sailing of the carrying VESSEL.\n3. It is not necessary that the currency bE\nshipped by diplomatic pouch.\n4, All other instructions contained in telegram\nNo. 11, February 9, 9 p.m.,should bE followed. END\nQUOTE.\n'WELLES\n(ACTING)\n(FL)\nFD:FL:ME\nRegraded Unclassified\nC\n0\n415\nP\nY\nDEPARTMENT OF STATE\nWASHINGTON\nIn reply refer to\nFF 703.5400/30\nMarch 20, 1942\nThe Secretary of State presents his compliments to\nthe Honorable the Secretary of the Treasury and transmits\nherewith paraphrases no. 307 of February 3, 1942 to Bern\nand no. 931 of March 7, 1942 from Bern, concerning\nSwiss-American negotiations in the protection of American\ninterests by the Government of Switzerland.\nEnclosures:\n1. To Bern, no. 307,\nFebruary 3, 1942.\n2. From Bern, no. 931,\nMarch 7, 1942.\nRegraded Unclassified\n416\nC\nPARAPHRASE OF TELEGRAM SENT\n0\nP\nY\nTO:\nAMLEGATION, Bern\nDATED:\nFebruary 3, 1942, 10 p.m.\nNUMBER:\n307\nThe amount of 1,502,145.92 Swies france received by the Swiee\nNational Bank through the Banco de Portugal at Lisbon from the\nFederal Reserve Bank represent at the rate of 23.30 the counter-value\nof the $350,000 mentioned in the Department's telegram no. 139,\nJanuary 17, 1942 to Bern, and are not to be understood as supplementing\nthe latter as mentioned in section four of telegram no. 210, January\n21, 1942 from the Legation.\nThe Legation is authorized, when necessary, to use these francs\nto cash drafts drawn against special deposits with the Department with\nSAA 1942 or other \"authorization numbers\" or other funds which SAA 1942\ndo not include. For the drawing of such drafts to the order of the\nUnited States Treasurer the accounting should be as usual and in addition\nthe drafts should be also accounted for and sent to the Department aa\ndeposits to authorization no. 105-1942 accompanied by B. fully explanatory\ndespatch. Of such drafts, the firsts end seconds should be drawn and\nforwarded via separate facilities 80 that reimbursement to the authorization\nnumbers cited and future availability for later telegraphic transfers will\nbe assured.\nRegraded Unclassified\n417\n-2-\nThe use of these francs, which were to be separately accounted\nfor under authorization no. 105-1942 and originally intended for use\nonly in the representation by the Swiss of American interests, will\nby such authority have the effect of liberalizing their use under a\nform of revolving fund for the encashment of drafts tirawn for other\nnecessities.\nCopy: emk: 3.21.42\nRegraded Unclassified\n418\nC\no\nP\nY\nPARAPHRASE OF TELEGRAM\nRECEIVED\nFROM:\nAMLEGATION. Bern\nTO:\nSecretary of State, Washington\nDATED:\nMarch 7, 1942, 3 p.m.\nNUMBER:\n931\nReference is made to telegram no. 307 of February 3. 10 p.m.\nto the Legation, and other correspondence concerning the provision\nof funds for the representation by the Swiss of American interests.\nOn February 4 one million france of the total of 1,502,145.95\nSwisa francs received was advanced to the Swise Foreign Office to\nprovide for expenses of American interests. France in the amount\nof 51,142.66 of the balance have been BO far obligated to cover pay-\nments as directed by the Department.\nBecause allotments to field officers to date exceed the first\nadvance by already 200,000 francs a second advance of one million\nfrance has been requested in the Foreign Office's note of February 27.\nThe Legation yesterday, March 6. inquired informally of the\nNational Bank whether our Treasury draft in the amount of $200,000\nwould be purchased by it at once against Swiss francs for the use of\nthe Foreign Office and was told that the question would be given\nconsideration and that the decision of the bank would be given on\nWednesday, March 11, to the Legation.\nHUDDLE\nCopy: imc\n3/21/42\nRegraded Unclassified\n419\nTREASURY DEPARTMENT\nINTER-OFFICE COMMUNICATION\nDATE March 20, 1942\nTO\nSecretary Morgenthau\nFROM\nMr. Dietrich\nCONFIDENTIAL\nRegistered sterling transactions of the reporting banks were as follows:\nSold to commercial concerns\n£62,000\nPurchased from commercial concerns\n£17,000\nOpen market sterling remained at 4.03-3/4, with no reported transactions.\nIn light trading, the Canadian dollar reacted to 12-3/4% discount by the\nclose, as compared with 12-7/16% yesterday.\nThe Argentine free peso advanced 6 points to a final quotation of .2375.\nIn New York, closing quotations for the foreign currencies listed below\nwere as follows:\nBrazilian milreis (free)\n.0516\nColombian peso\n-5775\nMexican peso\n.2064\nUruguayan peso (free)\n.5295\nVenezuelan bolivar\n.2815\nCuban peso\n3/16% premium\nThere were no gold transactions consummated by us today.\nThe Federal Reserve Bank of New York reported that the Central Bank of the\nColombian Republic shipped $293,000 in gold from Colombia to the Federal for its\naccount, for sale to the New York Assay Office.\nIn London, spot and forward silver remained at 23-1/2d, equivalent to\n42.67%\nThe Treasury' 8 purchase price for foreign silver was unchanged at 35$.\nHandy and Harman's settlement price for foreign silver was also unchanged at\n35-1/84.\nWe made no purchases of silver today.\nX\nRegraded Unclassified\n420\nCOPY NO.\n13\nBRITISH MOST SECRET.\n(U.S. SECRET).\nOPTEL NO. 93.\nInformation received up to 0700/20).\n1. NAVAL.\nOne of H.M. Trawlers is overdue at Iceland and must be considered lost.\n2. MILITARY.\nBURMA SITTANG FRONT - 16th - Enemy estimated at One Battalion\nand two Batteries began attack northwards up the main road from NYAUNGLEBIN.\nThey were engaged by our artillery and infantry and withdrew after suffering\ncasualties. During the night 17th/1.ith our forward troops withdrew to new\npositions.\nIRRAWADDY FRONT - Enemy patrols have been reported as far North\nas Sitkwin but the main enemy strength is still South of Taikkyi about 45\nmiles north of Rangoon.\nRUSSIA.\nThe Russians have made some progress North-east of Kharkov and\nNyaunglebin. They are also attacking East of Orel.\n3. AIR OPERATIONS.\nLIBYA - 18th. Boston again bombed aircraft on Martuba landing\nground.\nBURMA - An individual report states that on the 18th in a combined\nR.A.F.-A.V.G. raid on Moulmein aerodrome and Satellite at least 15 onemy\naircraft were destroyed on the ground. The Japanese bombed Toungoo heavily\non 18th and 19th.\nRegraded Unclassified\n421\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE Merch 20, 1942\nTO\nSecretary Morgenthau\nMr. Kamarok\nFROM\nSubject: Summary of Military Reports\nBritish Survey of European Military Situation\nA. Russia\nThe Russians are maintaining severe pressure in many\nsectors, in spite of difficult weather conditions. The\nBritish believe this is highly satisfactory, since it 1A\noccurring at e time when the Germans urgently need to\nwithdraw forces in preneration for the spring.\nB. Balkans\nThere are no signs of an imminent military move\nagainst Turkey. German strength 18 unchanged.\nC. Germany\nAccording to intelligence reports, the great destruction\ncaused by the R.A.F. raid on the Renault Works in Paris\nhee caused severe criticism of the German High Command by\nNazi Party authorities. The military forces are attecked\nfor leaving the factory completely unprotected.\n(U.K. Operations Report, March 5-12, 1942)\nBattle of the Atlantic\nAbout 40 U-boats are operating, mainly in the Western\nAtlantic and the Caribbean. Minor concentrations are off\nFreetown in Africa and north of England.\n(U.K. Operations Report, March 5-12, 1942)\nR.A.F.\nThe British used Lancaster bombers for the first time\nin the second week of March. (The Lancesters are highly\nsecret, four-motor bombers, about which very little informe-\ntion 18 available.)\n(U.K. Operations Report, March 5-12, 1942)\nRegraded Unclassified\n422\n2\nVOICE OF THE CHIEF'\nDenouncing the 15 percent reduction in present fnt\nretions effective April 6, the Chief warns the \"helbless\nidiots of the German Nutrition Board\" that this measure\nwill result in a spotted typhus epidemic raveging the\nReich.\nAs to the German Nutrition Board's argument that\nthere 18 \"an alleged decrease of hogs from 25 to 15\nmillion head, \"Last summer, the idiots had not the guts\nto out fet rations, although such sten would then have\nharmed nobody. They 8°1d lest year that such A cut would\nendanger the people's morale. Well, today something much\nmore serious 18 at stake than morale: our nation's health.\n\"Every medical expert warns that once snotted tynhus\nis here, it cannot be combetted. Thue, the thing to do\nis to prevent typhus. But this 18 possible only by two\nthings - cleanliness and sufficient food. And what do\nthose unbelievable stupid Party Bureaucrats do? First,\nthey decrease the fat contents of BOAD by 15 percent.\nAnd now, they further deoree shortened BORD and fat\nretions....\"\n(Foreign Broadcast Monitoring Service, Federal\nCommunications Commission, March 18, 1942)\nRegraded Unclassified"
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