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1975/11/12 SJR134 Extending Authority for Direct Purchase by Federal Reserve Banks of United States Obligations
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1975/11/12 SJR134 Extending Authority for Direct Purchase by Federal Reserve Banks of United States Obligations
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The original documents are located in Box 32, folder "11/12/75 SJR134 Extending
Authority for Direct Purchase by Federal Reserve Banks of United States Obligations" of
the White House Records Office: Legislation Case Files at the Gerald R. Ford Presidential
Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald R. Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
Exact duplicates within this folder were not digitized.
Signed
APPROVED NOV 12
11/12
THE WHITE HOUSE
ACTION
WASHINGTON
Last Day: November 12
November 10, 1975
Posted
11/12
MEMORANDUM FOR
THE PRESIDENT
FROM:
JIM CANNON
J. archives
SUBJECT:
Enrolled Resolution S.J. Res. 134
11/12
Extending authority for direct
purchase by Federal Reserve
banks of United States obligations
Attached for your consideration is S.J. Res. 134, sponsored
by Senator Proxmire, which extends for one year (from
October 31, 1975 to October 31, 1976) the authority of
Federal Reserve banks to purchase United States obligations
directly from the Treasury.
Additional information is provided in OMB's enrolled
bill report at Tab A.
OMB, CEA, Max Friedersdorf, Counsel's Office (Lazarus),
Bill Seidman and I recommend approval of the enrolled
resolution.
RECOMMENDATION
That you sign S.J. Res. 134 at Tab B.
FORD is LIBRARY 97987
FORD is LIBRARY 03RA70
Digitized from Box 32 of the White House Records Office Legislation Case Files at the Gerald R. Ford Presidential Library
STATE OFFICE OF THE PRESIDENT STATES UNITED
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON, D.C. 20503
NOV 5 1975
MEMORANDUM FOR THE PRESIDENT
Subject: Enrolled Resolution S.J. Res. 134 - Extending
authority for direct purchase by Federal Reserve
banks of United States obligations
Sponsor - Sen. Proxmire (D) Wisconsin
Last Day for Action
November 12, 1975 - Wednesday
Purpose
Extends for one year (from October 31, 1975, to October 31,
1976) the authority of Federal Reserve banks to purchase
United States obligations directly from the Treasury.
Agency Recommendations
Office of Management and Budget
Approval
Department of the Treasury
Approval
Board of Governors of the Federal
Reserve System
Approval
Council of Economic Advisers
No objection
Discussion
The enrolled resolution would amend section 14 (b) of the
Federal Reserve Act to provide for a one-year extension
(to October 31, 1976) of the authority of Federal Reserve
banks to purchase public debt obligations directly from
the Treasury in an amount not to exceed $5 billion out-
standing at any one time.
This direct-purchase authority was initially enacted in 1942
as a standby means of permitting more economical cash and
debt management and assuring an immediate source of funds in
the event of disruption in the private financial markets due
2
to national emergencies. The original authority has subse-
quently been extended from time to time, the last extension
being in 1974 for a one-year period which expired on
October 31, 1975.
In recent years, this authority has been relied upon in
periods immediately preceding tax payment dates, inasmuch
as its existence permits the Treasury to operate with
considerably lower cash balances than would otherwise be
required.
James m. Trey
Assistant Director
for Legislative Reference
Enclosures
OF
THE TREASURY BALL DEPARTMENT
THE GENERAL COUNSEL OF THE TREASURY
WASHINGTON, D.C. 20220
1789
OCT 31 1975
Director, Office of Management and Budget
Executive Office of the President
Washington, D. C. 20503
Attention: Assistant Director for Legislative
Reference
Sir:
Reference is made to your request for the views of
this Department on the enrolled enactment of S.J. Res. 134,
"To extend the authority for the direct purchase of United
States obligations by Federal Reserve banks." The current
authorization expires October 31, 1975.
The enrolled bill extends, for one year, the authority
of Federal Reserve banks to purchase United States obligations
directly from the Treasury.
The Department submitted to Congress legislation
to provide for a 2 year extension of the direct purchase
authority. However, we recommend that the enrolled enactment
be approved by the President.
Sincerely yours,
General Counsel
OARD OF GOVERNORS
OF THE
OF
FEDERAL RESERVE SYSTEM
OF
SYSTEM
WASHINGTON, D. C. 20551
THE
ADDRESS OFFICIAL CORRESPONDENCE
FEDERAL
RESERVE
TO THE BOARD
October 31, 1975
Mr. James M. Frey
Assistant Director for
Legislative Reference
Office of Management and Budget
Washington, D.C. 20503
Dear Mr. Frey:
This is in response to your request of October 29,
1975, requesting comments on S.J. Res. 134, which provides for
a 1-year extension of the authority of Federal Reserve Banks to
purchase obligations of the United States directly from the
U.S. Treasury.
The views of the Board of Governors in support of the
extension of this authority have been expressed by Governor Coldwell
in testimony on October 23, 1975, before the Subcommittee on Domestic
Monetary Policy of the Committee on Banking, Currency, and Housing,
House of Representatives. In accordance with your request, I am enclosing
two copies of Governor Coldwell's prepared statement.
Very truly yours,
Therdone { arein
Theodore E. Allison
Secretary of the Board
Enclosures
FOR RELEASE ON DELIVERY
Statement by
Philip E. Coldwell
Member, Board of Governors of the Federal Reserve System
before the
Subcommittee on Domestic Monetary Policy
of the
Committee on Banking, Currency and Housing
House of Representatives
October 23, 1975
I am pleased to meet with the Committee today to present
the views of the Board of Governors on H.R. 7507, a bill that would
amend Section (b) of the Federal Reserve Act to extend for two
years the authority of Federal Reserve Banks to purchase United
States obligations directly from the U.S. Treasury. The current
authority expires on the 31st of this month.
Since first authorized by Congress in 1942, the direct
purchase authority of Section 14(b) has been used sparingly from
the standpoint of frequency, amount, and duration alike. In fact,
since Congress last extended this authority on October 28, 1974, it
has only been used on three occasions. Nonetheless, in such
instances, it has proven of great value in facilitating the economic
management of the Treasury's cash and debt positions.
The authority has been used exclusively at times when
the Treasury has been faced with an abrupt temporary depletion of
its cash balance, chiefly just prior to the receipt of quarterly tax
payments. Rather than issue debt in the market to borrow funds
needed for only a few days, the Treasury has sold securities directly
to the Federal Reserve Banks under this provision of law. Then,
immediately after tax payments were received, these special debt
obligations were retired. Timely use of this direct lending
authority has thus enabled the Treasury to minimize its public
financing activity--thereby avoiding unnecessary strains on financial
markets--and to achieve a more efficient management of its cash balance.
-2-
In both March and August of the current year, the
Treasury has found it useful to issue special obligations directly
to the Federal Reserve. During the first period, which surrounded
the March 15 income tax date, the daily average of System holdings
of such obligations amounted to about $750 million, and the largest
amount held on any one day was a little over $1.0 billion. In
the second period--which encompassed a major Treasury refinancing
that also raised some new money--the Federal Reserve Banks held
special Treasury debt obligations on most days between August 5
and August 17. The average of holdings on these days was about
$520 million, and the highest amount held on any one day was $965
million.
In addition to serving as an instrument for achieving
short-run cash management objectives, the Board believes that the
direct purchase authority of Section 14(b) has provided and will
continue to provide the Treasury with a desirable safety valve
against an unexpected shortfall in its cash balance. Such a
shortfall could develop if estimates of government receipts and
expenditures, which are difficult to project, should suddenly turn
out to be materially in error. Also the sheer volatility of the
Treasury balance and the unpredictability of some fluctuations
constantly threaten shortfalls or an overdraft. If Treasury is
to manage its balances to the minimum needed then some protection
-3-
should be provided. Since there is little cost to the direct
purchase arrangements and since they have been used quite sparingly,
it would seem logical to us that the authority be renewed. Direct
purchase authority, moreover, would prove particularly valuable if
a period of national emergency were to develop, since it would enable
the Treasury to respond immediately to any financial strain that
such conditions might create. Unusual strains which might threaten
the immediate sale of securities in a disorderly market could also
be covered by the special purchase arrangements.
From the standpoint of Federal Reserve operations, the
special purchase authority has been only a minor complication. When
the direct purchase takes place and the Treasury expends these funds,
the Federal Reserve may take some offsetting actions in order to
maintain the monetary policy environment deemed desirable for the
financial needs of the economy. Thus, to a considerable extent,
such special sales to the Federal Reserve are then translated into
System sales to the market. Of course, System open market responses
to the use of the special purchase arrangements in any given period
will depend upon the duration, size, and timing of the Treasury use,
and the particular reserve needs of the moment.
In the Board's view, if this special purchase arrangement
were not to be extended, then some other emergency device would be
-4-
needed to enable the Treasury to meet the unexpected. Obviously,
if the Treasury were to abuse the special authority or if the
program were sharply enlarged, the Board would have some concern.
But given the small use and the modest size of the special
authority the Board has no reason for objecting to its use. In
summary, it is the Board's view that the Federal Reserve System's
authority to purchase obligations directly from the Treasury should
be extended.
########
THE CHAIRMAN OF THE
COUNCIL OF ECONOMIC ADVISERS
WASHINGTON
October 31, 1975
Dear Mr. Frey:
The Council of Economic Advisers has no objections
to the President's signing S. J. Res. 134 "To extend the
authority for the direct purchase of United States obligations
by Federal Reserve banks."
Sincerely yours,
Pane me hang
Paul W. MacAvoy
Acting Chairman
Mr. James M. Frey
Assistant Director
for Legislative Reference
Office of Management & Budget
Washington, D. C.
AMERICAN REVOLUTION WICENTENNAL
1776-1976
EXECUTIVE OFFICE OF THE PRESIDENT
11.5.mg
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON, D.C. 20503
Mr.
NOV 5 1975
MEMORANDUM FOR THE PRESIDENT
Subject: Enrolled Resolution S.J. Res. 134 - Extending
authority for direct purchase by Federal Reserve
banks of United States obligations
Sponsor - Sen. Proxmire (D) Wisconsin
Last Day for Action
November 12, 1975 - Wednesday
Purpose
Extends for one year (from October 31, 1975, to October 31,
1976) the authority of Federal Reserve banks to purchase
United States obligations directly from the Treasury.
Agency Recommendations
Office of Management and Budget
Approval
Department of the Treasury
Approval
Board of Governors of the Federal
Reserve System
Approval
Council of Economic Advisers
No objection
Discussion
The enrolled resolution would amend section 14 (b) of the
Federal Reserve Act to provide for a one-year extension
(to October 31, 1976) of the authority of Federal Reserve
banks to purchase public debt obligations directly from
the Treasury in an amount not to exceed $5 billion out-
standing at any one time.
This direct-purchase authority was initially enacted in 1942
as a standby means of permitting more economical cash and
debt management and assuring an immediate source of funds in
the event of disruption in the private financial markets due
BERALD FORD LIBRARY
2
to national emergencies. The original authority has subse-
quently been extended from time to time, the last extension
being in 1974 for a one-year period which expired on
October 31, 1975.
In recent years, this authority has been relied upon in
periods immediately preceding tax payment dates, inasmuch
as its existence permits the Treasury to operate with
considerably lower cash balances than would otherwise be
required.
(Signed) James M. Frey
Assistant Director
for Legislative Reference
Enclosures
GERALD FORD LIBRARY
THE WHITE HOUSE
ACTION MEMORANDUM
WASHINGTON
LOG NO.: 905
Date: November 5
Time: 600pm
FOR ACTION: Bill Seidman
th
cc (for information):
Jack Marsh
Dick Parsons
the
Jim Cavanaugh
Paul Leach
on
Warren Hendriks
Max Friedersdorf the
Ken Lazarus the
FROM THE STAFF SECRETARY
DUE: Date: November 160
Time: 1510:00pm
SUBJECT:
S.J. Res. 134 Extending authority for direct
purchase by Federal Reserve banks of U.S. obligations
ACTION REQUESTED:
For Necessary Action
For Your Recommendations
Prepare Agenda and Brief
Draft Reply
X
For Your Comments
Draft Remarks
REMARKS:
Please return to Judy Johnston, Ground Floor West Wing
GERALD
LIBRARY
PLEASE ATTACH THIS COPY TO MATERIAL SUBMITTED.
If you have any questions or if you anticipate a
delay in submitting the required material, please
K. R. COLE, JR.
telephone the Staff Secretary immediately.
For the President
THE WHITE HOUSE
ACTION MEMORANDUM
WASHINGTON
LOG NO.: 905
Date: November 7
Time: 230pm
FOR ACTION: Bill Seidman
cc (for information): Jack Marsh
Dick Parsons
Jim Cavanaugh
Paul Leach
Warren Hendriks
Max Friedersdorf
Ken Lazarus
FROM, THE STAFF SECRETARY
DUE: Date: November 10
Time: 11:00am
SUBJECT:
S.J. Res. 134 - Extending authority for direct
purchase by Federal Reserve banks of U.S. obligations
ACTION REQUESTED:
For Necessary Action
For Your Recommendations
Prepare Agenda and Brief
Draft Reply
X
For Your Comments
Draft Remarks
REMARKS:
Please return to Judy Johnston, Ground Floor West Wing
recommed
Approval
9.1. In F.S persons
BERALD FORD LIBRARY
PLEASE ATTACH THIS COPY TO MATERIAL SUBMITTED.
If you have any questions or if you anticipate a
delay in submitting the required material, please
James is. Cavanaugh
telephone the Staff Secretary immediately.
For the President
THE WHITE HOUSE
ACTION MEMORANDUM
WASHINGTON
LOG NO.: 905
Date: November 7
Time: 230pm
FOR ACTION: Bill Seidman
CC (for information):
Jack Marsh
Dick Parsons
Jim Cavanaugh
Paul Leach
Warren Hendriks
Max Friedersdorf
Ken Lazarus
FROM THE STAFF SECRETARY
DUE: Date:
November 10
Time: 11:00am
SUBJECT:
S.J. Res. 134 - Extending authority for direct
purchase by Federal Reserve banks of U.S. obligations
ACTION REQUESTED:
For Necessary Action
For Your Recommendations
Prepare Agenda and Brief
Draft Reply
X
:
For Your Comments
Draft Remarks
REMARKS:
Please return to Judy Johnston, Ground Floor West Wing
No objection. -- Ken Lazarus 11/10/75
FORD & LIBRARY GERALD
PLEASE ATTACH THIS COPY TO MATERIAL SUBMITTED.
If you have any questions or if you anticipate a
delay in submitting the required material, please
James sie Chvanaugh
telephone the Staff Secretary immediately.
For the President
THE WHITE HOUSE
CTION MEMORANDUM
WASHINGTON
LOG NO.: 905
Date: November 7
Time: 230pm
FOR ACTION: Bill Seidman
cc (for information): Jack Marsh
Dick Parsons
Jim Cavanaugh
Paul Leach
Warren Hendriks
Max Friedersdorf
Ken Lazarus
FROM THE STAFF SECRETARY
DUE: Date: November 10
Time: 11:00am
SUBJECT:
S.J. Res. 134 - Extending authority for direct
purchase by Federal Reserve banks of U.S. obligations
ACTION REQUESTED:
For Necessary Action
For Your Recommendations
Prepare Agenda and Brief
Draft Reply
X
For Your Comments
Draft Remarks
REMARKS:
Please return to Judy Johnston, Ground Floor West Wing
approval
gws
FORD i LIBRARY GERALO
PLEASE ATTACH THIS COPY TO MATERIAL SUBMITTED.
If you have any questions or if you anticipate a
delay in submitting the required material, please
James 11.
telephone the Staff Secretary immediately.
For the Precident
THE WHITE HOUSE
WASHINGTON
November 10, 1975
MEMORANDUM FOR:
JIM CAVANAUGH
FROM:
MAX L. FRIEDERSDORF m.6.
SUBJECT:
S.J. Res. 134 - Extending authority for direct
purchase by Federal Reserve banks of U.S.
obligations
The Office of Legislative Affairs concurs with the agencies
that the subject bill be signed.
Attachments
Calendar No. 398
94TH CONGRESS
SENATE
REPORT
1st Session
No. 94-405
EXTENDING THE AUTHORITY FOR DIRECT PURCHASE
OF U.S. OBLIGATIONS BY FEDERAL RESERVE BANKS
OCTOBER 1 (legislative day, SEPTEMBER 11), 1975.-Ordered to be printed
Mr. PROXMIRE, from the Committee on Banking, Housing and Urban
Affairs, submitted the following
REPORT
[To accompany S. J. Res. 134]
The Committee on Banking, Housing and Urban Affairs to which
was referred the joint resolution (S. J. Res. 134) to extend the author-
ity for the direct purchase of United States obligations by Federal
Reserve Banks, having considered the same, reports favorably thereon
without amendment and recommends that the joint resolution do pass.
The Committee on Banking, Housing and Urban Affairs reports
favorably Senate Joint Resolution 134 which extends the authority for
the direct purchase of U.S. obligations by Federal Reserve banks.
Senate Joint Resolution 134 would renew, until October 31, 1976,
the authority of Federal Reserve banks to purchase directly from the
Treasury public debt obligations up to a limit of $5 billion outstanding
at any one time. The direct purchase authority is a temporary accom-
modation to be used only under unusual circumstances.
The authority for Federal Reserve banks to make direct purchase
of U.S. obligations was enacted in World War II and has been ex-
tended temporarily from time to time since enactment. The last exten-
sion (Public Law 93-495) extended the authority to October 31, 1975.
The committee has been informed by the Treasury that this author-
ity is a needed and useful tool to have under certain circumstances.
The authority has been used in recent years only in periods just
prior to tax payment dates. Its existence permits the Department to
operate with considerably lower cash balances than would otherwise
be required. The availability of the direct purchase authority is also
important as a standby means of providing a ready source of funds
in the event of a disruption in the private financial markets due to a
serious national emergency or a nuclear attack on the United States.
This resolution, therefore, continues the authority of the Reserve banks
to make such purchases until October 31, 1976.
57-010
S.J. Res. 134
Ainety-fourth Congress of the United States of America
AT THE FIRST SESSION
Begun and held at the City of Washington on Tuesday, the fourteenth day of January,
one thousand nine hundred and seventy-five
Joint Resolution
To extend the authority for the direct purchase of United States obligations
by Federal Reserve banks.
Resolved by the Senate and House of Representatives of the
United States of America in Congress assembled, That section 14(b)
of the Federal Reserve Act is amended-
(1) by striking out "November 1, 1975" and inserting in lieu
thereof "November 1, 1976"; and
(2) by striking out "October 31, 1975" and inserting in lieu
thereof "October 31, 1976".
Speaker of the House of Representatives.
Vice President of the United States and
President of the Senate.
GERALD FORD LIBRARY
October 31, 1975
Dear Mr. Director:
The following bills were received at the White
House on October 31st:
S.J. Res. 134
S. 584
Please let the President have reports and
recommendations as to the approval of these
bills as soon as possible.
Sincerely,
Robert D. Linder
Chief Executive Clerk
The Honorable James T. Lynn
Director
Office of Management and Budget
Washington, D. C.
LISAMAY GERALD R. FORD