Volume 151, November 15 – November 19, 1938

DIARY Book 151 November 15 - November 19, 1938 Regraded Uclassified - Book Page Agriculture FDR asks HMJr to see Wallace on surplus crops; HMJr does not feel Wallace has any plan; entire situation discussed at 9:30 meeting - 11/15/38 151 16-E Airplanes See also War Conditions HMJr advises 9:30 group to divest themselves of airplane stock - 11/15/38 16-H Alsop-Kintner Articles Oliphant memorandum on statements involved therein ("The Mountain from the Molehill Point of View") - 11/18/38 220 Associated Gas and Electric Company Hopson, Howard C.: Oliphant memorandum on report from Canadian Inspector of Income Tax of failure to locate books of Hopson's four Newfoundland companies - 11/17/38 206 - B - Bank of America Howr tells FDR that Securities and Exchange Commission is prepared to move on Transamerica - 11/18/38 213 a) HMJr's note to FDR at Cabinet 273 HMJr thanks Douglas for cooperation of Securities and Exchange Commission - 11/19/38 292 Budget, 1940 Conference concerning; present: HMJr, Hanes, Bell, and Gaston - 11/17/38 129 Business Conditions Heae memorandum on meeting on business outlook; present: White, Seltzer, O'Donnell, Daggit, Heas, Lichtenstein, Naess, Andrew, Hayford, Crum, and Roberts - 11/15/38 235 - C - / China Tung Oil Loan: HMJr tells Taylor, White, and Lochhead that Hull will not approve - 11/15/38 19-A Buck reports on interviews with various Chinese officials and on wool exports to Russia - 11/15/38 31-A HMJr and Lochhead confer with Chen and Chao (Director of National Railways) - 11/19/38 299 Coast Guard Waesche memorandum giving data on twin-engine long-range patrol flying boats - 11/18/38 280 Regraded Uclassified - C - (Continued) Book Page Cochran, H. Merle Requested to come to Washington - 11/19/38 151 298 Community Chest Tremaine, in Ithaca, asks ruling on contributions by state banks - - 11/16/38 91 Countervailing Duties Germany: Oliphant memorandum - 11/23/38 321 1) Proposed letter to Secretary of State 2) HMJr's letter to State and memorandum of law referred to therein - 10/31/38 a) Hull's answer concerning reexamination of entire situation - 11/19/38 318 3) Proposed letter to FDR 4) Proposed Treasury Decision - E - Engraving and Printing, Bureau of Dedication of Annex - 11/18/38 a) Program. 258 b) HAJr's remarks (not used; spoke extemporaneously) 259 c) HMr's notes made while on platform. 257 - F - First Boston Corporation Haas memorandum on charts - 11/18/38 232 Foreign Trade See Trading-with-the-Enemy Act France See Stabilization - G - Germany See Countervailing Duties Government Securities Haas memorandum: "Importance of Non-Market Absorption of Public Debt in 1937 and 1938" - 11/17/38 200 Great Britain See Stabilization Guianas, British and French See Refugees - H - Hopson, Howard C. See Associated Gas and Electric Company Housing United States Housing Authority: Conference on tax-exempt feature of local Housing Authority bonds - 11/15/38 28-A Regraded Uclassified - L - Book Page Louisiana Income Tax Cases: Oliphant memorandum giving comparative analysis of the handling by Treasury and Department of Justice - 11/16/38 151 87 - M. - McGuire, Constantine See Refugees - If - Narcotics See Taybank, Steamship (British) - R - Refugees Constantine McGuire's question of settlement of war debt with Great Britain and France for the Guianas discussed by H&Jr and FDR - 11/16/38 32 a) HMJr confers with Isaiah Bowman - - 11/16/38 70,104 Revenue Revision Conference with FDR; present: HAJr, Hanes, and Bell - 11/16/38 79 - S - Stabilization France: Cochran chronology relating to Monnet mission (10/31/38-11/17/38) 134 Great Britain: Material prepared by advisory group for interview with Bewley on sterling exchange rate 1 FDR and HMJr confer in view of proximity of signing British trade agreement - 11/15/38 2,6 a) FDR confers with Sayre (State Department) 3 b) Sayre consults HI/Jr and immediately thereafter calls on British Ambassador 4. 1) Memorandum of conversation between Sir Ronald Lindsay and Sayre as transmitted by Sayre to Taylor 12 et n If Hull to HMJr 29 a) HMJr's proposed answer to Hull 53,55 1) Discussed at conference; present: HMJr, Taylor, White, Lochhead, and McReynolds - 11/16/38 93 2) Final draft - - 11/16/38 109 2) Sayre-HMr telephone conversation 28-L Bolton and Knoke confer on decline of sterling - 11/15/38 17 Possible restrictions discussed by Knoke and Bolton - 11/16/38 57,61 Regraded Uclassified - S - (Continued) Statements by HMJr Book Page See Engraving and Printing, Bureau of Surplus Commodities See Agriculture - T - Taxation See Revenue Revision Taybank, Steamship (British) Hull confers with HMJr concerning acceptance of adjusted fine by Treasury - - 11/16/38 151 68 Temporary National Economic Committee Oliphant memorandum explaining public hearings which will begin December 1st 226 Peoples' memorandum of meeting - - 11/18/38 278 Trade Agreements See Stabilization: Great Britain Trading-with-the-Enemy Act Hull memorandum to HMJr transmitting draft of possible bill giving Executive more power in dealing with payments by Americans to creditors abroad and asking Treasury assistance. - 11/18/38 244 Transamerica See Bank of America - U - Underhill, Stewart Farley aska HMJr to see in connection with regulations in wine industry - 11/17/38 116 Unemployment Relief Works Progress Administration overdraft on funds discussed by FDR and Hopkins and reported to Treasury group by HMJr - 11/18/38 207 a) FDR's note to Hopkins transmitting budget statement 274 b) HMJr fears that Hopkins will "lay off a million people just like that"; if so, HMJr will publish stenographic notes of meetings 209 Lubin-Haas memorandum: "Relationship between regular employment and WPA rolls" - 11/18/38 229 United States Housing Authority See Housing - W - War Conditions Airplanes: HMJr tells Louis Johnson he has not the time to attend conferences with manufacturers - 11/19/38 295 Works Progress Administration See Unemployment Relief Regraded Uclassified 1 Regraded Uclassified 1 CONTENTS Memo no. Explanatory note 1. Draft of Statement to be presented to Bewley, either orally or in written form. 2. Decline in sterling is jeopardizing confidence in the effectiveness of the Tripartite Accord. 3. British press statements on the presumed over- valuation of sterling. 4. Loss of gold because of capital outflow vs. loss of gold due to changes in "current account". 5. Does the British balance of payments on current account justify lower sterling at this time? 6. Balance of payments between United States and United Kingdom VS. that between United States and British Empire. 7. Trend of United States and British foreign trade compared. 8. Some pertinent comments on the United States-United Kingdom trade agreement. 9. Currencies that followed sterling down. 10. Business conditions in United Kingdom. 11. United States and United Kingdom wholesale price - foreign exchange aspects of international competi- tive position compared. 12. Information we would like to exchange with the British Treasury. Regraded Uclassified TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE November 14, 1938 TO Secretary Morgenthau FROM Mr. White Subject: Interview with Bewley on dollar-sterling rate. This folio contains first B. copy of the statement that the group felt you might have before you when talking to Bewley. The intent was to include nothing in the statement which you would not wish the British to see in the event you decided to read it aloud or pass the notes to Bewley. The statement, as usual, presents a compromise. Some members wished to make it a little stiffer and others milder, but all agreed upon this formulation as a preliminary draft. It was expected, I believe, that you would supplement the statement with comments - possibly somewhat less circumspect in spots. The remainder of the folio contains some condensed material relating to points which may arise in your discussion with Bewley. The material includes only a minimum amount of information and comment necessary to Justify the position you would be taking, namely the pressing need for consultation and exchange of information and views. This material 18 not an attempt to justify the view that sterling should not go lower. The pros and cons of that 1ssue will be examined in a comprehensive memorandum which 18 now in preparation. Regraded Uclassified 1 No. 1 Preliminary Draft of Statement to be presented to Bewley either orally or in written form -- and supplemented with your own comments. (Draft prepared by Viner, Williams, Hansen, Riefler, Goldenweiser, Taylor and White, November 10, 1938.) We are concerned by the decline in sterling. 1. This decline if it should continue 18 likely to raise V questions in this country concerning the meaning and usefulness of the Tripartite Accord. 2. We feel there 1s an important difference between B. movement in exchange rates caused by sustained changes in current income account of the balance of payments (1.e., trade, shipping, tourist, interest, etc.) and a movement caused by capital transfers. The former movement 18 not necessarily inconsistent with the purpose of the Tripartite Accord, but a decline due to capital transfers seems to ue much less Justifiable and much more likely to be injurious to our trade, to the price structure, and to the stability of world currencies in general. 3. Given a continuance of the present economic recovery and the increase in American commodity purchases abroad likely to accompany 1t, we do not at present find in the trade posi- tions of the two countries any apparent fundamental reason for the appreciation of the dollar with reference to sterling. More- over, it appears to us that there are substantial reasons why a decline of sterling may not be in the British interests. 4. We feel that 8 continued decline may seriously endanger the world economic situation just at a time when American re- covery is tending to check the general decline of trade now affecting most countries. 5. It geems to us to be in our mutual interests and en- tirely in accord with the spirit of the Tripartite Agreement to discuss with you capital movements and to endeavor to form- ulate a more definite policy with respect to such movement and to devise more effective techniques for protecting exchanges from the undesirable influences of such movements. 6. The seriousness of this problem is increased by the fact that 80 many of the world currencies are tied in effect to sterling. Because of this, movement of sterling with respect to the dollar means in effect a movement of world currencies with respect to the dollar, including the currencies of countries whose international balances, whether on income or on capital account, certainly do not warrant a fall in their currencies. Regraded Uclassified No. 1 - - continued - 2 - 7. In dealing with these questions, we find ourselves somewhat handicapped by the lack of information concerning the short-term capital and gold position of England corresponding to the information which we collect and periodically publish for the United States, and of information not published that we would be glad to exchange with the adherents of the Tripartite Accord. Regraded Uclassified 2 No. 2 The decline in sterling 1s jeopardizing confidence in the effectiveness of the Tripartite Accord. The Tripartite Accord has been widely interpreted in this country ae an instrument designed to effectively sta- bilize exchange rates with particular attention to the re- lationship of the dollar to sterling. The behavior of sterling in the past few months 1s giving rise to feeling here that the effectiveness of the Tripartite Accord 18 weakening. (A table showing the course of sterling since January 1, 1938 16 appended.) The successive declines in the French franc did not weaken the confidence of the American people in the effectiveness of the Tripartite Accord because (a) while the franc depreciated, sterling, which was 80 much more important, remained firm; and (b) the declines in the franc were regarded by the public as due to weakness in the French economic situation and not B.B an attempt to obtain a competitive advantage. If now, however, in addition to the recent declines of the franc, there 18 added the decline of the whole sterling bloc, then the American Congress and the American public will inevitably raise the question of the workability and effectiveness of the Tripartite Accord. The American public, especially et this time, will be particularly sensitive to 8. changed monetary relationship which is favorable to England and unfavorable to us. The public's sensitivity at this time 18 due to (a) the intense interest in foreign affaire 8.8 a result of the recent politi- cal crises in Europe and (b) the trade agreement with England involves concessions granted by the United States in return for which we will receive concessions from England, parti- cularly with regard to agricultural commodities. A decline in sterling, it will be claimed, will nullify the tariff concessions we have obtained from the trade agreement and make more valuable the concessions we have granted. Unless the American public can be offered an adequate explanation for further declines in sterling -- an explanation which can satisfy the American people and Congress that there has been a careful evaluation by the British authorities and the United States Treasury of all factors concerned in 8. de- cline of sterling and that England's greater freedom with respect to the price of gold 18 not being employed to obtain presumed advantages at the expense of the United States and of currency stability -- then both the Accord and the present dollar price for gold are jeopardized. Regraded Uclassified Pound-dollar exchange rates - high and low of each month, 1938 (In cents per 1) High Low 1938 January 501.0625 498.9375 February 503.8125 500.5625 March 502.0625 494.6875 April 501.2500 496.1250 May 499.8750 493.4375 June 498.2500 494.1250 July 495.8125 491.3125 August 491.7500 485.3750 September 485.8125 461.0000 October 482.7500 473.1250 November 1 476.6250 472.8750 1 Through November 12, 1938. Regraded Uclassified 3 No. 3 British Press on the Presumed Overvaluation of Sterling 1. An examination of the comment on sterling-dollar rates appearing in the British financial press ever since June indicated a support of the view that sterling was over- valued. It seems clear that the widespread comment in the British financial mediums to the effect that sterling is overvalued, unopposed as it 1s by any statement on the part of the British Treasury or the publication of any study by the British Treasury, cannot but have been an important factor contributing to the flight of capital from England. 2. These comments continue with increasing frequency and as sterling declined the tone becomes a little more partial to the view that sterling would reach lower levels. Much of the comment 18 purported to be based on an appraisal of the underlying basic factors which in their opinion Justi- fied lower sterling. 3. Appended are excerpts from the British press indi- cating a widespread expectancy that sterling might easily go lower than the then prevailing rate. Some of them should probably be interpreted as semi-officially inspired. Regraded Uclassified July 11, 1938 ($4.928) - The Financial Times = the old parity of $4.866 would today imply an overvalued pound. On this basis $4.60 would be 'about right'. "This suggests that even the recent recovery in the dollar leaves the pound still overvalued." July 16, 1938 ($4.927) - The Economist "It is intimated that on purely economic grounds sterling at $4.866 may be a more natural level than $4.90." July 19, 1938 ($4.918) - The Financial News "Market quarters suspect that continental quarters with large ster- ling balances are becoming alive to the manifest undervaluation of the dollar in relation to sterling, and foreseeing a prolonged period of pressure on the pound, are already removing funds from London to New York." July 20, 1938 ($4.921) - The Financial News " It is reasonable that the Exchange Account should release gold to offset the movement of capital, but only if the dollar is in equilibrium on income account. And that can only be when the dollar rate stands con- siderably lower than it does today." August 10, 1938 ($4.883) - The Evening Standard "Towards 4.50. The view has often been attributed to our authorities that the 85.00 to the pound rate seriously overvalues our currency, and that a rate nearer 4.50 is more in keeping with the true situation," August 13, 1938 ($4.872) - The Statist n Perhaps the retreat from that stabilization level [4.86-2/3] had become inevitable by reason of fundamental readjustments in the bal- ances of payments of the sterling and dollar areas." Regraded Uclassified - 2 - August 17, 1938 ($4.881) - The Financial News "There is at any rate a strong presumption, backed up by the actual pressure on the pound, that sterling is overvalued." August 20, 1938 ($4.880) - The Statist "As regards the dollar, recent experience in the exchange market strongly supports the view that sterling is also overvalued in that direction." August 26, 1938 ($4.877) - The Financial News " the /Tripartite] Agreement still prevents the overvaluation of sterling against the dollar from being corrected." August 29, 1938 ($4.870) - The Financial News " the view was gaining ground that, despite the heavy decline of the past month or two, the overvaluation of sterling against the dollar has not yet been remedied and that the authorities will thus in the long run be forced to permit a further substantial depreciation." September 1, 1938 ($4.854) - The Financial Times "The theoretical position today thus appears to be roughly as follows: 1. The pound is overvalued by not quite 15 percent against the dollar. 2. The dollar is overvalued by 15 percent against the franc. 3. The pound is overvalued by 30 percent against the franc." September 6, 1938 ($4.823) - The Financial Times " the pound might be held to be overvalued by some 10 percent and therefore bound, say, for a point in the neighborhood of $4.40." "Such probabilities lend powerful support to the views of those authorities who limit their expectation of sterling's fall to, say, the neighborhood of $4.70." Regraded Uclassified - 3 - September 10, 1938 ($4.811) - The Economist "It [sterling] has indeed been overvalued against the dollar ever since American prices began to fall in the autumn of 1937. As a long- tenn view, therefore, and quite apart from the immediate pressure on the pound $4.86-2/3 has ceased to be an appropriate rate. On this argument, the pound's decline below that rate is not competitive depreciation, but quite the reverse " September 17, 1938 ($4.81) - The Economist if in times of recession, particularly in the opening stages, the primary producer is hit worst by a fall in his prices, whereas the manufacturer finds that he is unable to reduce his prices and so is un- able to sell his goods. The present overvaluation of sterling against the dollar is, so far as England is concerned, nothing more than a particular though striking symptom of this general disease, and so must be regarded as one of the necessary and automatic consequences of the world recession." October 12, 1938 ($4.75) - The Times "Those who are convinced by the evidence that sterling has been and is overvalued - and they are in a majority - see in this movement a possible adjustment of the exchange value of sterling in accordance with our real commercial needs It certainly seems probable enough that the demands of expanded rearmament will tend to increase rather than lower the costs and prices of British goods relatively to those of our competitors. And the desirability of a lower rate for sterling is thus likely to increase rather than diminish during the next year or two." October 24, 1938 ($4.759) - The Financial Times "Finally, sterling is certainly overvalued at $4.86, and probably overvalued at $4.75." October 27, 1938 ($4.768) - The Financial News "The general view in London is that the ₺ is still considerably over- valued against the dollar at its present level." Regraded Uclassified - 4 - October 27, 1938 ($4.768) - The Financial Times If The adverse trade position of the sterling area vis-a-vis America has been another weight on the pound, and there is no sign that this influence will soon be relaxed. There are thus strong reasons for a relatively low dollar exchange rate....." October 31, 1938 ($4.756) - The Financial News "Evidence of sterling's overvaluation indeed is so strong today that prospects of a rising trend in the price of gold must form part of the background of any investment calculations." November 1, 1938 ($4.7525) - The Financial Times If It is satisfactory to note that further City support was forthcoming yesterday for the opinion expressed here last Friday that the American authorities must by now have realised that it is undesirable to attempt to maintain exchanges at uneconomic levels." November 12, 1938 ($4.7375) - The Financial News "Market circles in London still cling strongly to the view that the British authorities will not agree to de facto or de jure stabiliza- tion of the sterling dollar rate at the present time." Regraded Uclassified No. 4 Loss of gold because of capital outflow vs. loss of gold due to changes in "ourrent account". A clear distinction must be drawn between the pressure upon exchanges arising from capital outflows, and the pressure arising from adverse balances on "current account". It is important to note the distinction not only because the effects of the two types of movement differ but because the remedy called for in each case is frequently different. When there is pressure on the exchanges arising from & sustained adverse balance of payments on current account, an alteration in the exchange rates may be necessary to attain equilibrium. Alterations in exchange rates, when necessitated by & shift in fundamental economic factors, are not necessarily inconsistent with the terms of the Tripartite Accord. Outflows of gold which are small in comparison with the gold holdings of the country in question do not need the corrective factor of a change in the exchange rate. The out- flow may be checked within future months by unforeseen changes in the general situation or by the slow operation of economic forces which are sometimes set in motion by the existence of the adverse balance. In any case one of the important advan- tages of large gold holdings 18 to make feasible small gold losses for B. long time without requiring drastic measures which have widespread repercussions. A large loss of gold, induced chiefly by capital outflows rather than by an adverse balance of payments on current ac- count, 1s not likely to be corrected by alteration in exchange rates except under special circumstances. It 1s necessary to study all the circumstances which are giving rise to the out- flow of capital before a conclusion can be reached on this point. When the capital outflow occurs chiefly as a consequence of anticipated exchange profit due to an expected decline in the country's currency, then the justifiable and correct method of checking that outflow 1s to dispel the expectancy of the exchange profit. If, however, the capital outflow is taking place because of political instability at home and more attractive economic conditions abroad, then an alteration in the exchange rate may have an effect contrary to that which is desired and may serve only to expedite the emigration of capital. If a country can- not withstand the loss of gold occurring under such circum- stanoes, and if there is no expectation that political stability will be restored or the economic situation improved within the near future, a corrective change may be called for but it need Regraded Uclassified No. 4 - continued N 1 I not be alteration of the exchange rate. It is claimed by some that the net outward movement of British capital from the United Kingdom 1s due largely to the growing belief that present trends in the underlying basic factors will in the near future force 8. decline in sterling. Our studies do not indicate that this belief is clearly justified. If discussion and analysis leads to the joint conclusion that the basic factors in the current income account of the British balance of payments do not justify B. decline in sterling in the near future, it would be important that the British Treasury place that conclusion and its support- ing analyses before the public. By 80 doing those fears which are contributing to the outflow of capital would be dispelled. This points to the importance of consultation in order to ascertain whether our view is correct or not. The first essential task 1s, therefore, an analysis of the British balance of payments to determine whether the loss of gold is due chiefly to items on current account or whether it results chiefly from losses on capital account. After having determined the cause and extent of the adverse balance, it will be possible to determine more intelligently whether the remedy lies in a lower sterling rate or not. Regraded Uclassified No. 5 British balance of payments on current account does not appear to clearly Justify lower sterling at this time. 1. An examination of such information as is avail- able to us on the British balance of payments does not, in our opinion, Justify a lower sterling rate at thie time. The adverse balance on current account 1s hardly large enough, nor is the trend certain enough, to warrant the conclusion that drastic corrective measures such 8.8 6. decline in sterling are called for now. We estimate that for 1938 the United Kingdom will have an unfavorable balance of about L60 million on our- rent account. This unfavorable balance will probably be made up in the following way: Net Net Outpayment Inpayment (a) Net imports of merchandise and silver 410 (b) Net government foreign pay- ments 4 (c) Net shipping income 100 (d) # foreign investment income 210 (e) # receipts from commissions 35 (f) # receipts from other sources 10 Totals 415 355 The unfavorable balance of L60 million compares with an unfavorable balance of 652 million for last year and L18 million the year before. (Table of balance sheets for previous years is appended.) This sum of 660 million ($285 million) must be com- pared with total British holdings of gold in order to get a proper prospective of its magnitude. At present the British Equalization Account has probably about $31 bil- lion. An annual loss of $285 million with holdings of $3,500 can very easily be sustained for another year or two without serious consequences. The present adverse balance of payments on "current account" by itself hardly calls for lower sterling rates AB a means of protecting her necessary gold holdings. Though we cannot estimate with Regraded Uclassified No. 5 - Continued any degree of accuracy British balance of payments for next year there 18 reason to believe that, assuming a con- tinuation of present trends and stability in the sterling rate, it will be no more unfavorable in 1939 than in 1938 and possibly less. We have made the analysis using the official British data that 1s available to us. It 18 quite possible that the information needs to be more carefully compiled. In fact, numerous competent British authorities themselves have criticized these figures as containing a large element of error. The British Treasury has doubtless attempted to make such modifications and corrections B.B they have regarded warranted by the facts and they have also surely compiled & balance of payments for the year 1938 and pos- sibly estimated the trend likely to prevail for 1939. We ought to know what their conclusions are so that we could compare them with ours to Bee whether any significant difference exists between their estimates and ours and if 80, how much and why. Here we have an important exchange of information that 18 highly desirable if there 1s to be any agreement as to the solution of the problem in hand. Regraded Uclassified Mr. White - 2 British Balance of International Payments on Current Income Account (In millions of La) : : 1930 : 1931 : 1932 : 1933 : 1934 : 1935 : 1936 : 1937 Excess imports of merchandise and silver (-) 386 408 287 263 294 261 345 443 Estimated net govern- ment foreign payments (-) or receipts (+) + 19 + 14 - 24 - 2 + 7 - 2 - 3 - 4 Estimated net nat- ional shipping in- come (+) 105 80 70 65 70 70 85 130 Estimated net income from foreign invest- ments (+) 220 170 150 160 170 185 205 220 Estimated net receipts from commissions, etc., (+) 55 30 25 30 30 30 30 35 Estimated net receipts from other sources (+) 15 10 15 10 10 10 10 10 Estimated net "favor- able" (+) or "un- favorable" (-) balance on current account + 28 - 104 - 51 o - 7 + 32 - 18 - 52 The accuracy of these estimates has been seriously questioned. The Macmillan Committee on Finance and Industry recommended strongly 3/ that these figures be put on a more exact basis, because "there 1s 80 much guesswork in them as to render them liable to an unduly wide margin of inevitable error". Nevertheless the figures are still compiled in the old Lan 1/ Balance of Payments, 1936, Geneva (1937) P. 201 and Board of Trade Journal, Feb. 17, 1938. 2/ This figure includes some capital items. 3/ Committee on Finance and Industry Report, Cmd. 3897 of 1931, pp. 179-180 6 No. 6 Balance of payments between United States and United Kingdom VB. that between United States and British Empire. The balance of trade between the United States and the United Kingdom, which is heavily in our favor, 18 frequently cited 88 an obvious reason why the United States has to be lenient in its attitude toward the dollar-sterling rate. This 18 an elementary fallacy In the first place, it is not the balance of trade that signifies, but the balance of payments between the two countries that 18 relevant. Whereas we had a favorable balance of trade with the United Kingdom in 1937 of $300 million, the balance of payments -- excluding capital -- coming to us W&B only half that amount. In the second place, it 18 not the balance of payments between the United States and United Kingdom which 18 the important factor in this connection; it is the balance of payments between the United States and the whole British Empire Though United Kingdom alone owed us on balance of current account about $150 million, the balance due us in 1937 from the whole British Empire was negligible It has been estimated by a competent British writer to have been only $24 million in 1937, and this includes Canada. With- out Canada in the picture, the balance would have been the other way; we would have had an unfavorable balance of about $60 million Canada, after all, is not in the ster- 11ng bloc, and therefore should not be inc uded in the computations for the purpose in hand. Below 1s 8. table of the estimated balance of payments between the United States and various portions of the British Empire. It 1s taken from B. recent study made by a British economist. (Table attached) Uclassified No. 6 - Cont. British-American Balance of payments, 1937 (In $ millions. A plus sign indicates B net balance to the credit, a minus sign a net balance to the debit, of the United State.) : : : :: : : : United: Crown : Total : :Canada : Other : Total :King- : Colonies: Cols. (1) :: and : Doms. &: British : dom : : and (2) : :Newf'ld: India : Empire : (1) : (2) : (3) :: (4) : (5) : (6) Merchandise (Inc. silver) +298 -174 +124 +104 - 18 +210 Freight and shipping .... - 34 ... - 34 - 2 ... - 36 Tourists ...... - 36 - 15 - 51 -178 - 2 -231 Immigrants' re- mittances - 5 ... - 5 ... - 11 - 16 Insurance ..... - 28 ... - 28 ... ... - 28 Interest and dividends ... - 50 ... - 50 +160 + 15 +125 Total invisible items ....... -153 - 15 -168 - 20 + 2 -186 Total .... +145 -189 - 44 + 84 - 16 + 24 7 No. 7 Comparison of Recent Trade Trends of United States and United Kingdom 1. The trend of trade between the United States and the United Kingdom is changing. Our exports to the United Kingdom, which were 40 percent higher in the first quarter of 1938 compared with 1937, were ga percent lower in the third quarter of 1938 than in the preceding year. Our 1m- ports from the United Kingdom are still at a lower level than last year but the percentage decreases, as compared with last year, are growing less. United States Exports to United Kingdom (In millions of $) 1937 1938 Percent Change lst Quarter 108.3 152.9 + 41.2 2nd Quarter 99.4 100.4 + 1.0 3rd Quarter 135.2 124.3 - 8.1 July 32.1 32.2 + 0.3 August 42.4 41.4 - 2.4 September 60.7 50.7 - 16.5 United States Imports From United Kingdom (In millions of $) 1937 1938 Percent Change 1st Quarter 58.9 27.5 - 53.3 2nd Quarter 53.4 24.2 - 54.7 3rd Quarter 45.9 27.8 - 39.4 July 15.2 7.3 - 52.0 August 15.9 10.1 - 36.5 September 14.8 10.4 - 29.7 Regraded Uclassified No. 7 - Continued 2. When the total export trade for this year 18 compared with last year's, United States makes a poorer showing than the United Kingdom. British exports during July, August and September indicate that the decrease in exports, compared with last year, 18 growing smaller. In contrast, export trade for the United States over the same months shows that the decrease, over last year's figures, is not growing smaller. United Kingdom Exports (Millions of b) 1937 1938 Percent Change lst Quarter 139.9 136.7 - 2.3 2nd Quarter 151.9 129.5 - 14.7 3rd Quarter 153.1 127.2 - 16.9 July 54.4 42.0 - 22.8 August 49.2 41.4 - 15.9 September 49.5 43.8 - 11.5 United States Exports (Millions of $) 1937 1938 Percent Change lst Quarter 723 828 + 14.5 2nd Quarter 824 764 - 7.3 3rd Quarter 843 705 - 16.4 July 268 228 - 14.9 August 278 231 - 16.9 September 297 246 - 17.2 Regraded Uclassified No. 7 - Continued 3. When the import figures of the United Kingdom and the United States are compared no clear picture 1s obtained. The imports of both countries are substantially lower than 1937, but the percentage decline compared with last year has been greater for the United States than the per- centage decline for the United Kingdom. United Kingdom Imports (Millions of b) 1937 1938 Percent Change 1st Quarter 230.3 245.6 + 6.6 2nd Quarter 254.3 225.6 - 11.3 3rd Quarter 260.0 223.0 - 14.2 July 85.5 73.9 - 13.6 August 86.7 74.1 - 14.5 September 87.8 75.0 - 14.6 United States Imports (Millions of $) 1937 1938 Percent Change 1st Quarter 827 507 - 38.7 2nd Quarter 858 4454 - 47.1 3rd Quarter 744 475 - 36.2 July 265 141 - 46.8 August 246 166 - 32.5 September 233 168 - 27.9 Regraded Uclassified 8 No. 08. Pertinent comments on United States - United Kingdom trade agreement. (1) Since January 1934 the British have shown a tendency to raise rather than lower duties on imported articles. Year Total items on Total items on Total dutiable which duties which duties items placed on were raised were lowered free list 1934 32 7 2 1935 28 4 1 1936 22 6 none 1937 or 5 3 1938 5 none 2 In addition, some administrative orders were issued which had the effect of making dutiable some few items which were not previously included as dutiable. (2) In contrast United States teriffs have been reduced on a great number of items. Reductions ranging up to 50 per- cent of the existing tariff rates have been made through our trade agreements program. The reductions in duties which were embodied in the seventeen trade agreements signed by the United States have been extended to the British Empire by the most-favored-nation treaties. (3) The United States gave its full proposal of con- cessions offered and concessions expected to be granted, to the United Kingdom on April 26, 1938. On that date the ster- ling rate was $4.95. The April 26 offer represented the basis 01 negotiatione and this basie W&B not changed throughout the period of negotiations. (4) Appended 16 a summary analysis of the concessions granted and obtained in the proposed Agreement. Uclassified No. 8 - Cont. Summary of Concessions in United Kingdom - United States Trade greement 1. Summary of concessions granted by the United States Concessions granted by the United States cover about 88 percent of our imports from the United Kingdom, Newfoundland and the Pritish colonies. Approximately 75 percent of the value of our imports from the United Kingdom is covered by the agreement, about 95 percent of the imports from the British colonies and about 20 percent of the imports from Newfoundand. (a) Duties are reduced on 400 items. Imports of these items from British areas during 1937 amounted to 363 millions, and covered about 11 percent of our imports from these areas. Total imports from all countries of these items was about $100 millions in 1937. (b) Existing rates of duties are bound on 49 items. Imports in 1937 from British areas of these items amounted to 340 mil- lions, and covered about 7 percent of our imports from these areas. Total imports from all countries of these items was about $100 millions in 1937. (c) One hundred and six items are bound on the free list; in- ports in 1937 of these items from British areas amounted to 355 millions, and covered 70 percent of our imports from these areas. Total imports from all countries of these items was about 1600 -illions in 1937. Percentage Reduc- Total U. S. tion of present Imports in 1937 Major classes of items reduced rate of duty (In millions) Textile machinery - various types 37 - 50% 81.2 Rurniture 38% 1.0 Kaolin or China clay 30% 1,2 Varieties of fish 50% 2.0 Mistard and mustard seeds 12 - 25% 1.4 Cotton yarns and cotton cloths (carefully restricted to thread counts and types of which U.K. is the principal supplier) 10 - 30% 6.3 Flax and flax yarns 25 - 50% 3.9 Foven fabrics of flax, hemp, jute vegetable fibre, except cotton, of selected products and speci- fied characteristics 25 - 50% 21.0 Tool waste 10 - 50% 6,8 Tool products 10 - 32% 14.3 Leather and leather products 17 - 50% 14.5 Regraded Uclassified - 2 - Total U. S. Imports in 1937 Major items bound et present duties (In millions) Whiskey, rum and gin Bound at $2.50 per gal. $ 55.0 Jute woven fabrics Bound at le per lb. (un- processed) 41.1 Major items bound on the free list Rubber, crude 247.5 Tin 104.3 Cocoa or cacao beans 52.3 Furs and fur skins, undressed 41.0 Tea 21.4 Copra 17.9 Artistic antiquities, works of art, etc. produced prior to the year 1830 15.5 Diamonds 14.3 Coal tar crude 10.0 Chrome ore or chromite 7.3 Pulp and waste material used for paper making 7.2 Platinum 5.9 Original paintings, pastels, drawings and sketches 4.5 2. Summary of concessions granted to the United States The concessions granted to the United States cover about 62 per- cent of the total value of our exports to the United Kingdom, Newfoundland and the British colonies. Reductions in duty were secured on about 12 percent of the total value of our exports to these countries, and 50 percent of the trade is covered by bindings against increases in duty or bindings on the free list. Binding of the present tariff status is considered as being important to the United States because it modi- fies or reverses the policy followed by the United Kingdom in recent years of granted preferences in duties to British colonies and domi- nions. The following are considered as being important concessions granted to us: (a) The granting of free entry of wheat (there is a 4.8 percent ad valorem preferential duty against United States wheat now) and lard. (b) Increased quota on hams. (c) Reductions in duties on rice, apples, and other fresh and canned fruits. Regraded Uclassified - 3 - (d) Concessions on lumber which will permit increased volume of exports to the United Kingdom. (e) Reductions in duties on numerous Machinery and Apparatus items, such as office machinery, typewriters, refrigerators, etc. Most of these reductions are from 20 percent ad valorem to 15 percent. Patent leather duty is reduced from 15 percent to 72 percent ad valorem and duties on items of paper manufac- tures are reduced. (f) The duty on automobiles is bound at existing levels. Regraded Uclassified 9 No. 9 Course of world currencies since August 1. 1938 The table below above how large B. portion of the world currencies have followed starling down. (In J. 8. cents per unit of foreign currency) E Monetary : Bate on - # Percent Country : unit I August 1, 1938 : November 12, 1938 - change United Kingdom Found 491.5000 472.9652 - 3.8 Bolivie Boliviano 5.00 3.50 - 30.0 Spain Poseta 5-7500 5.1000 - 11.3 Argentina Free peed 26.10 23.30 - 10.7 Argentina Paso 32.7670 31.5280 - 3.8 Peru Sol 22.87 20.80 - 9.1 Uruguay Tree pero 42.50 38.75 - 8.8 Uruguay Peso 64-7016 52.2617 - 3.8 France Franc 2.7588 2.6428 - 4.2 New Zealand Found 394-7687 378.0875 - 4.2 Straits Settlements Dollar 57.3625 55.0000 - 4.1 Hong Kong Dollar 30-7187 29.4987 - 4.0 British India Rupee 36.7362 35.3160 - 3.9 Finland Markins 2.1681 2.0845 - 3.9 Sweden Krona 25.3403 24,3646 - 3.9 Australia Found 391.6000 376.7562 - 3.8 Denmark Krone 21.9389 21.1125 - 3.8 Japan Ten 28.6485 27.5615 - 3.8 Norway Xrone 24.6962 23.7656 - 3.8 ion of South Africa Pound 486.6666 468.1875 - 3.8 Greece Drachas .9010 .8683 - 3.6 18. (Shanghal) Yuan 16,3281 15.7625 - 3.5 Fortugal Escudo 4.4433 4.2900 - 3.5 Equador Sucre 7.25 7.00 - 3.5 Yugoslavia Dinar 2.3175 2.2787 - 1.7 Netherlands Guilder 54.8533 54.1466 - 1.3 Switzerland Franc 22.9069 22.6469 - 1.1 Canada Dollar 99.6855 99.2167 - 0.5 Crechoslovakia Koruns 3-4508 3.4337 - 0.5 Bulgaria Lev 1.2350 1,2325 - 0.2 Eungery Pengo 19.6650 19.6250 - 0.2 Poland Zloty 18.8300 18.7950 - 0.2 Chils Official peso 5.1716 5.1700 - 0.1 Chile Export peso 4.0000 4.0000 - Colombia Free paso 49.00 49.00 - Colombia Peso 56.1800 57.1500 - 1.7 Cuba Peso 99.9333 99.9500 - Italy Lira 5.2606 5,2600 - Gustemala Quateal 100.00 100.00 - 31.50 31.50 - Veneruela Bolivar Belgium Balga 16.9025 16.9116 + 0,1 Braril Milreis 5.8540 5.8625 + 0.1 Rumania Leu .7232 7300 + 0.1 xioo Silver yes 20.40 20.75 - 1.7 waice Peso 19.8333 20.1300 + 1.5 isrumny Free mark 40.1718 40.0400 - 0.3 Germany 5.00 4.98 - .4 Credit mark Germany Registered mark 18.45 17.96 - 2.7 Germany Zaigrant mark 4.13 4.91 + 18.9 Germany Securities mark 4.13 4-54 + 9.9 Germeny Support mark 19.18 18.49 - 3.6 Germany Hasvara mark 19.18 18.49 - 3.6 Germany Travel mark 21.49 20.92 - 2.7 Geruan rates - free mark from Federal Reserve Board. Blocked mark rates from The Financial Times London, for August 3. and November 3. 1938. converted from marks per pound. Regraded Uclassified 10 No. 10 Business Conditions in the United Kingdom Summary Statement There seems to be 8. growing feeling in England that the recession has reached its low point and that business conditions will improve in the coming months. The most recent business statistics may be interpreted 8.8 indicating that the recession has been halted in its downward course, but the indexes do not, on the whole, indicate an upturn as yet. The recovery in the United States is considered to be the most important factor presaging an upturn in England, and it 18 the major factor on which optimists in England base their claims. Appended are the most recent indexes of business activity in the United Kingdom that are available to us. Regraded Uclassified No. 10 - Cont. Indexes of Business Activity in the United Kingdom 1. Industrial production. The Board of Trade index of industrial production for the second quarter was down almost 10 percent on the first quarter of 1938 and more than 10 percent on the second quarter of 1937. Board of Trade Index of Industrial Production 1937 1st quarter 131.3 2nd = 133.8 3rd 11 130.4 4th = 136.6 1938 1st quarter 132.4 2nd " 122.1 a. Iron and steel. While seasonal upswing in steel production continues - it rose from 658,900 tons in August to 754,700 tons in September - September 1938 production is 35 percent less than September 1937, and the production of steel in the third quarter of this year is 34.7 percent below the third quarter of 1937. Crude Steel Production (In thousand tons) 1937 1938 Percent Change 1st quarter 3,105 3,255 + 4.8 2nd " 3,234 2,673 - 17.3 3rd " 3,210 2,097 - 34.7 4th " 3,417 - - The nine months output of steel for 1938 is 15.6 percent less than during the same period of last year. Since the armament program probably entailed heavier demands for steel in 1938, it is likely that steel production for civil and export pur- noses declined much sharper proportionately than total steel production. October figures show a further increase. Steel production rose to 854,000 tons, an increase of 12.3 percent over September and the highest since May, though it was still about 25 percent less than October 1937. Pig iron production reached the lowest level of the year in September 1938; 430,000 tons. Production in October was 469,400 tons, which is the first increase since July, though again still 39 percent below October of last year. Regraded Uclassified - 2 - b. Shipbuilding. At the end of the third quarter of 1938 there were only 885,481 tons in construction as compared with over a million tons in the previous quarter and almost 1,200,000 tons in the corresponding quarter of 1937. Tonnage of vessels commenced shows an even sharper drop. Vessels commenced totaled only 87,463 tons at the end of the third quarter as compared with 156,970 tons in the second quarter and 218,557 tons in the third quarter of 1937. It is re- ported that 46 percent of the shipbuilding yards are now empty. These figures include construction of ships for the British Admiralty. C. Building plans approved. Building plans approved totaled £6,877,000 in September as compared with $6,302,000 in August - a less than normal seasonal increase. Compared with September of 1937, there is a drop in building plans approved of over 25 percent. d. Automobiles. An estimate by The Statist based on figures for the first nine months of the year showed that automobile production will be 12 percent less this year than in 1937. 2. Unemployment. The mumber unemployed in September 1938 totaled 1,728,000, an increase of 30,000 over the previous month and an in- crease of 337,000 over September last year. The total number of regis- tered employed in September was 11,380,000, a decrease of 20,000 compared with August 1938 and of 310,000 compared with September 1937. However, Chamberlain indicated, in a statement reported by cable yesterday, that the figures to be published that day, (which are not yet available to us) would indicate a revival of employment. The rise in unemployment seems to have been greatest in iron and steel and textile industries, i.e., the industries which are most ad- versely affected by a decline in exports. There had already been a heavy concentration of unemployment in the textile industries before the present recession set in. 3. Foreign trade. The unfavorable balance of trade in the second and third quarter of 1938 is less than the unfavorable balance in the same quarters of 1937. Exports are running about 15 percent less than last year, and imports, particularly of raw materials, are 13 percent lower than last year. Regraded Uclassified - 3 - United Kingdom - Foreign Trade Exports of Retained Import U. K. goods Imports Balance (In millions of pounds) 1937 1st quarter 121.1 211.2 90.1 2nd quarter 130.1 232.4 102.3 3rd If 134.4 239.6 105.2 4th " 135.9 271.4 135.5 1938 1st # 120.9 229.4 108.5 2nd " 112.3 207.3 95.0 3rd = 113.5 208.0 94.5 The favorable balance of United States trade with United Kingdom remained at high levels. Our exports to United Kingdom are running less than last year, and our imports from United Kin dom are almost half of the level of last year. United tates trade with United Kingdom Export Exports Imports Balance (In millions of dollars) 1937 1st quarter 108.1 58.1 50.0 2nd II 99.3 53.4 45.9 3rd If 135.2 45.9 89.3 4th 11 191.8 44.6 147.2 1938 1st n 152.9 27.5 125.4 2nd 11 100.4 24.2 76.2 3rd " 124.3 27.8 96.5 4. Trend of prices. The Board of Trade wholesale price index for September was 98.4, a drop of 11.5 percent compared with Septmeber 1937. Reuter's index of sensitive commodity prices, which fell sharply at the beginning of September, and then rose as the prospects of war increased, is now back to the low levels prevailing at the beginning of September. Regraded Uclassified - 4 - While the Board of Trade wholesale price index has fallen 11.5 per- cent in the last year, cost of living index has fallen only three points, from 158 in September 1937 to 155 in September 1938. 5. Retail trade. The Bank of England index of retail sales was 111 in August, 1938 but increased to 120 in September 1938. The money value of the total daily sales reported for September 1938 was slightly higher than for September 1937. 6. New capital issues. New capital issues, excluding conversions, were 6218 million during the nine months of 1938, compared with L 411 millions in the same period of 1937. U. K. British Empire Foreign excluding U.K. Countries 9 months of 1937 351 57 2 o months of 1938 167 48 3 All except 120 million of the 6213 million new issues of 1938 were issued in the first half of the year. 7. Security prices. The index of 56 industrial stocks has undergone sharp fluctuations in the last two months. It reached a low of 91.2 on September 28, recovered by September 30 to 104.5, but since then has shown B. tendency to sag. The index as of November 9 was 102.1. Consols also underwent strong fluctuation in spite of the fact that for a few days before September 28 the market was being regulated. 2ª per- cent consols were down to 65 on September 26. They then recovered to 74-1/4 by September 30. Since then they have been falling and on November 9 were quoted ab 72-7/16. The market for government securities is somewhat nervous, faced as it is with the prospect of new government issues for the armament program. 8. Government revenues and expenditure. Total ordinary revenue for the six months ending September 30th was 6306.2 millions, a decline of 52.7 mil- lion on 1937. Expenditure rose from 6443.3 to 6510.3 in the same period, while the deficit for the first six months of the current fiscal year is L166.3, compared with 198.5 during the same period last year. In addition to this deficit must be added armament expenditures from the National De- fense loan, budgeted for 6112 million for the whole of this fiscal year. The amount spent so far this year has not been reported. Regraded Uclassified 11 No. 11 - United States and United Kingdom wholesale prices - foreign exchange aspects of international competitive position compared. The table on the following page contains the indexes of foreign exchange - wholesale price relationships for the United States and for the United Kingdom. There are three various methods of weighting as indicated in the tables. Though the indexes vary somewhat according to the method of weighting, they all show that the situation from the point of view of foreign exchange - wholesele prices has become less favorable for the United States since February 1938. The average of the indexes arrived at by the use of varying systems of weights dropped from 113 in February 1938 to 106 in October 1938. This is to be contrasted with an in- crease in the index for United Kingdom of from 98 to 104 during the seme period. In 80 far ae exchange rates and wholesale price indexes are an indication of the altered interna tional competitive position of each country with respect to its foreign markets, our calculations show that the situation for the United States 1s becoming substantially and steadily less favorable while that for the United Kingdom 1s becoming substantially and steadily more favorable. Of course, the exchange rete - wholesale price relation- shins show only one aspect of the picture. Nonetheless, it 18 an important aspect, and one that caste serious doubt on the validity of the claim that a lower sterling rate 1s called for. There are also appended two other tables - one showing the so-called "purchasing-power-parity" between the leading countries and the United States and a similar table between the leading countries and the United Kingdom. Though these indexes are much less significant than the ones referred to above, they are the ones which are frequently employed to demonstrate undervalustion or overvaluation of currencies. These figures indicate in general that this aspect of the International competitive situation of the leading foreign countries is growing more favorable relative to the United States. Despite their limited significance, these indexes constitute additional evidence to support our contention, These latter indexes are not included because of their real importance; they are included only because they are frequently used by others as being important -- much more important than we think they are. Regraded Uclassified Table Indexes of Foreign Exchange - Wholesale Price Relationships for the United States and for the United Kingdom (Weighted (a) by Imports, (b) by Exports, (c) by Total World Imports, and (d) by an Average of the three Weights) (1936 = 100) : : : United States : : : United Kingdom : : : World : : : : : World : Import : Export : : Import :Average : : Import : Export : Import : Average : Weights : Weights : Weights : : : Weights : Weights : Weights : 1936 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 1937 September 104.7 109.4 101.6 105.2 94.4 103.0 91.7 96.4 October 105.7 111.1 103.2 106.7 94.4 103.0 91.2 96.2 November 106.9 113.2 105.2 108.4 94.6 103.6 91.6 96.6 December 108.9 115.1 107.0 110.3 94.7 104.3 92.1 97.0 1938 January 110.6 117.2 108.3 112,0 94.6 104.0 91.9 96.8 February 112.2 118.0 109.1 113.1 95.4 105.0 92.9 97.8 March 111.0 116.0 107.6 111.5 96.0 105.6 93.7 98.4 April 112.6 116.0 108.2 112.3 96.5 106.1 94.3 99.0 May 110.5 115.0 107.6 111.0 96.6 106.6 94.4 97.2 June 110.2 113.9 106.9 110.3 97.6 107.5 95.6 100,2 July 108.7 112.5 105.4 108.9 98.2 108.7 96.1 101.0 August 107.9 111,6 105.2 108.2 99.4 109.4 97.1 102.0 September 106,1 109.8 103.3 106.4 101,0 111,2 99.1 103.8 October 105.9 109.4 102.9 106.1 101.6 111.5 99.5 104.2 For explanations and notes, see Appendix. Regraded Uclassified Table X Indexes of "Purchasing-Power-Parity" between Leading Countries and the United States for Selected Months of 1937 and 1938 (1936 = 100) : 1936 : 1937 : 1938 : Average :September : December : March : June : September United Kingdom 100.0 92.3 88.4 89.1 91.1 96.4 Canada 100.0 94.8 91.2 88.7 91.1 97.5 France 100.0 122.4 118.6 125.1 132.5 138.7 Italy 100.0 125.1 111,2 111.5 106.8 106.1 China 100.0 90.7 78.4 81,1 114.4 110.6 Japan 100.0 90.0 82.7 77.9 76.2 78.7 Belgium 100.0 92.9 89.9 90.2 90.4 91.8 Denmark 100.0 94.3 88.1 89.7 91.9 95.7 Netherlands 100.0 105.1 99.1 99.8 100.7 104.8 Germany 100.0 106.5 100.1 97.1 95.7 96.4 Index of Wholesale Prices in the United States Formula: Index of Wholesale Prices in Second Country X Index of Rate of Foreign Exchange on Second Country - in New York A decline in the index indicates presumably 8. less favorable competitive position of the country cited relatively to the United States An increase in the index indicates presumably a more favorable competitive position of the country cited relatively to the United States Regraded Uclassified Table XI Indexes of "Purchasing-Power-Parity" between Leading Countries and the United Kingdom for Selected Months of 1937 and 1938 (1936 = 100) : 1936 : 1937 : 1938 : Average :September : December : March : June :September United States 100.0 108.5 113.3 111.9 109.8 103.7 Canada 100.0 102.8 103.2 99.5 100.0 101.2 France 100.0 132.8 134.4 140.2 145.5 144.0 Germany 100.0 115.5 113.3 109.0 105.0 100.0 Japan 100.0 97.7 93.7 87.3 83.7 81.7 Belgium 100.0 100.7 101.8 101.1 99.3 95.3 Switzerland 100.0 133.3 130.4 128.2 125.3 121,8 Italy 100.0 135.6 125.9 124.7 117.3 110.1 Denmark 100.0 102.3 99.7 100.6 100.9 99.3 Index of Wholesale Prices in the United Kingdom Index of Rate of Exchange of Pounds in terms of Dollars Formula: X Index of Wholesale Prices in Second Country Index of Rate of Exchange of Currency of Second Country in terms of Dollars & decline in the index indicates presumably B. less favorable competitive position of the country cited relatively to the United Kingdom, equatation. An increase in the index indicates presumably a more favorable competitive position of the country cited relatively to the United Kingdom, sountains, Regraded Uclassified 12 No. 12 Information we Would Like to get from the British In general we would like to learn the criterion, or criteria, by which the British Treasury 18 guided in ite decisions with respect to the sterling price of gold. Does the British Treasury wish to achieve a lower sterling rate? How much gold does it regard as reasonable to lose before permitting the price of gold to rise one penny? Do they intend to permit sterling to rise 88 gold flows in in the same proportion as they let it fall when gold we.e flow- ing out? If the outflow of gold from England to France 18 the consequence of the improved situstion which we have all been eager to promote, would an outflow of gold from London to France be regarded as justification for further declines of sterling with reference to the dollar? It 18 probably too much to expect comprehensive answers from the British on the above questions even if they can give them -- and I think their technicians can. Yet these questions do not go beyond the spirit of the Tripartite Accord. We would also like to have such of the following infor- mation as 18 available to the British Treasury. In all cases the information for which we are asking 18 either now avail- able to the British Treasury or we would be glad to supply such information 88 we have that 16 not now available. 1, The loss of golà sustained by the Equalization Fund by weeks during the past three months and the amount the Fund containe now. 2. Estimate of the amount of gold in hoards in England end the amount estimated as added to the hoerds since August 1, 1938. 3. Amount of gold earmarked in the United Kingdom for foreign account. 4. Information with respect to the foreign short-term banking funds now held in the London market broken down by leading countries, and changes which have occurred since August 1. 5. British short-term funds held in foreign countries other than the United States, classified by leading countries. Regraded Uclassified No. 12 - Continued 6. Monthly or quarterly figures showing security trensactions in the London market for account of foreigners in British domestic securities and for- eign securities. 7. Confidential estimate of the British balance of payments for 1938 as drawn up by the British Treasury. 8. Their position on forward exchange of leading cur- rencies. Regraded Uclassified Appendix Net Capital Movements (In millions of dollars) : From Dec. 29, 1937 : From July 20, 1938 : : : to : to : Week ending : Week ending = Oct. 26, 1938 : Oct. 26, 1938 : Oct. 19, 1938 2 Oct. 26, 1938 Net flow of capital consisting of: Inflow 249.3 Inflow 649.4 Inflow 105.9 Inflow 22.1 1. Banking funds Inflow 167.7 Inflow 620.0 Inflow 94.4 Inflow (a) Change in balances of foreign 13.3 central banks and governments with the Federal Reserve Bank of N.Y. Outflow 47.5 Inflow 83.4 Outflow .7 Inflow 15.5 (b) Change in all other short-term balances (mostly private funds) Inflow 215.2 Inflow 536.6 Inflow 95.1 Outflow 2.2 2. Net security transactions Inflow 73.0 Inflow (a) Domestic securities 35.4 Inflow 11.6 Inflow 9.9 Inflow 19.1 Inflow 23.5 Inflow (b) Foreign securities 8.7 Inflow 11.8 Inflow 53.9 Inflow 11.9 Inflow 2.9 Outflow 1.9 3. Brokerage balances Inflow 8.8 Outflow 5.8 Outflow .04 Outflow 1.0 Net security transactions reported by Oct. 20 to 26 Oct. 26 to Nov. 8 the S.E.C. Inflow .8 Inflow .7 Addition to monetary gold stock, 12/31/37 to 10/28/38 + 1,300.3 Net gold imports through October 28, 1938 + 1,507.8 Net release of gold held under earmark for foreign account 12/29/37 to 10/26/38 - 240.1 Regraded Uclassified to 133 was of 2 November 15, 1938. MEMORANDUM Re: Sterling rate and British trade agreement. Yesterday at lunch I gave the President a copy of the talk between Bolton and Knoke that took place at 10:30. I said to the President, "I thought you ought to know this in view of the proximity of our signing the British trade treaty," I said, "My own feeling is that I'd like to wait until the British trade treaty is signed, because it means so much to Mr. Hull; but we're watching it from day to day and the drop which took place today and their attitude is very serious. I said, "I don't want you to feel that in any sense I'm putting you on notice, but I do want your advice as to how I can put the State Department on notice." DO he said, "Let me keep the memorandum." Then I explained to him that the treaty was worked out on the basis of around 4.93 and now it was 4.70. He said, "Well, how low do you think it can 80 before it really hurts us, because so far our import-export business hasn't fallen off." I said, "No, but that (sterling) falls off slowly (at first), but it gains momentum very rapidly and it's very difficult to stop." So he said, "Well, just how low can the pound go before it (trade) drops?" I said, "Well, we've been doing E lot of work on it." I said, "Very confidentially, it might go to 4.60 or it might even go to four dollars and a half without hurting us; but I don't want to say that to anybody else. We don't know. But we've done a lot of work on it." So he said, "Well, now about the Canadian dollar? That isn't affected." I said, "Not perticularly. But from a competition standpoint," I said, "for example, it might help the Swedes to have & low sterling - they might get a distinct trade adventage where the English mightn't - - or some other country in the sterling area." I said, "Furthermore, the sterling area does approximately one-third of the world's business." Regraded Uclassified 3 -2- So the President said, "Very much between us" - he said, "I'd like to sign it." He said, "I cen't get a trade treaty with Canada unless I get one with England, and I very much want one with Canada. And he said, "If you'll tell me that the Canadian dollar is all right, let's let this thing go." And ne said, "We'll sign the British trade treaty, but when we sign it - and at the time of signing we'll put the British on notice." Then, much to ay surprise, Teylor phoned me at a quarter to seven last night, and it seemed that immediately after the four o'clock meeting the President sent for Mr. Sayre and asked him about this whole sterling business and put Sayre on notice, and told Sayre to put the British on notice; and we'll get the details from Taylor. Taylor asked me whether I was at the bottom of this. I said, why, yes, but I hadn't asked the President to do anything. And he said, well, he told Sayre - he, Taylor, told Sayre that my a ttitude was that I wanted to wait before doing anything until the British trade treaty was signed, I didn't want to interfere. H.M.Jr. (Following dictated by Mr. Taylor:) Mr. Sayre called me over about a quarter of five last night and said that he had something that he'd appreciate if I'd come over for, but It was SO important that he didn't want to tell me about it on the telephone. I went over to his office, and he and Hawkins and Pasvolsky were there. Mr. Sayre said that the President had called him over, called his attention to the sterling rates, and seid that ne was very seriously disturbed about it, and asked Sayre what he would do If the rate, for example, went to 4-55 on the day that the trade treaty was signed,' Mr. Sayre was apparently asking for my advice as to what to do. I described to him what had happened in the market today, that the pressure had come largely from the conversion of sterling into francs: repatriation; told him the amount of business that had been done, but also said that there were a great many rumors going on, such as that there WES a figure of 4.50 contained in the trade agreement; that we had had 8. great many inquiries over the past few days and quite a few of them today about the same rumor; and that until those rumors were stopped, which could probably only take place actually at the time that the trade treaty was 4 -3- published, we didn't know very much what to do about it. And he asked me what could be done about it, and I said, "Naturally, the British can hold the thing, unless it gets completely out of hand. If it gets completely out of hand, why, there isn't money enough in the stabilization fund to do it, on account of the large amount of foreign balances that tney have there." I said, "However, that's - if they really want to try, why, they probably can. The other thing that could be done is that WE - that we do it and they say, 'All right,' or 2 combination of those two." He then wanted to know about seeing the British Ambassador, and I said, well, I felt that that would be certainly agreeable to us ES it came up in connection with the trade treaty, and the President had spoken to him in connection with the trade treaty; but that we would be rather reluctant to ao it at this time unless they asked us to, because your (H.M.Jr) feeling was that you wished to have a long conversation with the British after the trade treaty was signed. However, if, having talked to the British Ambassador, who In turn would naturally be asked to get the British on the other side to make a statement in connection with denying the fact that there was any exchange clause in the agreement - I mean any specific mention of & figure in the agreement - way, we'd see what happened, and that, having seen what happened, if they wished us to take it up with the British through snother channel, why, I said naturally I thought we would be glad to do so but that that was entirely up to you and that I was merely giving them as for as the trade treaty part of it any suggestions which I could give. de went to see the British Ambassador last night. He went there right after I left. Regraded Uclassified Telephone conversation between Mr. Bolton of Bank of Bagland, Regraded-Oclassified London and Rr. Knoke of Federal Reserve Bank of New York. November 14, 1938 10:30 A. M. Boltom: We are having a rousing time here as usual. We have decided to let the rate fall a little bit. Can't stand up very such longer. One of the POGROM reasons is the Jewish progres in Cornemy. There are a great muster of people on the Continent and in England who believe that the Government pelicy towards Germany vill fail. There are a great number of persons who believe the coming by-elections will lead to & Government loss. the var fears are beginning to return to Burope. Foreign money 10 otill leaving London and there is a development of large speculative account too. Having lost a very large part of our resources ve have decided to try and reserve them a little. Can't afford to lose $40 to $50 million every day. Must conserve our resources. We feel that ve can't at may rate keep the market as quiet and as orderly as ve have in the past. We have shipped about $150,000,000 gold to you and the fact that sterling is apparently on the down-grade is all very disappointing. Ve shall do everything ve can to prevent the rate depreciating. I vanted to tell you this first before ve do anything. Shall hold the rate above 4.70 today. We shall put in support at different levels. Ve shall send you a full and complete cable tonight. Knoke: Shall we operate against your order? Bolton: Yes, please. 5 RE FOREIGN EXCHANGE DEVELOPMENTS November 15, 1938. 9:15 a.m. Present: Mr. White Mr. Lochhead Mr. Taylor H.M.Jr: Now, I told Taylor - ne called me up - I told him I'd dictate this for my diary - said that ne'd be here. I can't wait for him. (Following material has also been transcribed separately in memorandum form, including that dictated by Mr. Taylor on pages 3 and 4) Yesterday at lunch I gave the President a copy of the talk between Bolton and Knoke that took place at 10:30. I said to the President, "I thought you ought to know this in view of the proximity of our signing the British trade treaty." I said, "My own feeling is that I'd like to wait until the British trade treaty is signed, because it means so much to Mr. Hull. But we're watching it from day to day and the drop which took place today and their atti- tude is very serious." I said, "I don't want you to feel that in any sense I'm putting you on notice, but I do want your advice as to how I can put the State Department on notice." So he said, "Let me keep the memorandum." He said - then I explained to him that the treaty was worked out on the basis of sround 4.93 and now it was 4.70. He said, "Well, now low do you think it can go before it really hurts us; because so far our import-export business hasn't fallen off." I said, "No, but that falls off slowly, because it (sterling rate drop) gains momentum ery rapidly and it's very difficult to stop." Do you agree with me, Harry? White: Yes, H.M.Jr: So he said, "Well, just how low can the pound go before it (trade) drops?" Regraded Uclassified 7 -2- I said, "Well, we've been doing a lot of work on it." I said, "Very confidentially, it might go to 4.60 or it might even go to four dollars and & half without even hurting; but I don't want to say that to anybody else. We don't know, but," I said, "we've done a lot of work on it." So he said, "Well, now about the Canadian dollar?" So he said, "That isn't affected." I said, "Not particularly, but," I said, "from a competition standpoint," I said, "for example, it might help the Swedes to have a low terling. They might get a distinct trade advantage, where the English mightn't; or some other country in the sterling area." I said, "Furthermore, the sterling area does approximately one-third of the world's business." I'm using Dorothy Thompson's figures. White: That's roughly H.M.Jr: I said approximately. So the President said, "Very much between us. 17 - ne said, "I'd like to sign it." He said, "I can't get a trade treaty with Cenada unless I get one with England, and I very much want one with Canada." And he said, "If you will tell me that the Canadian dollar is all right," he said, "let's let this thing go and we'll sign the British trade treaty, but when we sign them and at the time of signing we'll put the British on notice." Then, much to my surprise, Taylor phoned me at quarter to seven last night, and it seemed immediately after the four o'clock meeting the President sent for Mr. Sayre and asked him about this whole sterling business and put Sayre on notice, and told Sayre to put the British on notice; and we'll get the details from Taylor. Taylor asked me whether I was at the bottom of this. I said, why, yes, but I hadn't asked the President to do anything. And he said, well, he told Sayre - he, Taylor, told Sayre that my attitude was that I wanted to wait before doing anything until the British Regraded Uclassified 8 -3- trade treaty was signed, I dian't want to interfere. (Tsylor comes in) H.M.Jr: (On phone) Hello. Miss Chauncey on the phone. Tell Taylor just, Archie, very briefly what (On phone) The letter I wrote Mr. Hull, a letter forwarding a memorandum from Oliphant. White: The British delegation have made another last minute request to change some of the terms of the agreement of à minor - rather minor importance. But that they have asked us about; I won't raise the question, because it's too minor, but it's interesting to know. H.M.Jr: Do you (Taylor) want to tell the boy now? You got what I did Taylor: Yes. H.M.Jr: with the President. And do you want to tell him of your conversation? Taylor: Yes. Mr. Sayre called me over about quarter of five last night and said that he had something that he'd appreciate if I came over for, but it was so impor- tant that he didn't want to tell me about it on the telephone. I went over to his office, and he and Hawkins and Pasvolsky were there. Mr. Sayre said that the President had called him over, called his attention to the sterling rates, and said that he was very seriously disturbed about it, and asked Sayre what he would do if the rates, for example, went to 4.55 on the day that the trade treaty was signed. Mr. Sayre was apparently asking for my advice as to what to do. I described to him what had happened in the market today; that the pressure had come largely from the conversion of sterling into francs, repatriation; told him the amount of business that had been done, but also said that there were a great many rumors going on, such as that there was a figure Regraded Uclassified 9 -4- of 4.50 contained in the trade agreement; that we had had a great many inquiries over the past few days and quite B few of them today about the same rumor, and that until those rumors were stopped, which could probably only take place actually at the time that the trade treaty was published, we didn't know very much what to do about it. And he asked me what could be done about it, and I said, "Naturally, the British can hold the thing unless it gets completely out of hand. If it gets completely out of hand, why, there isn't money enough in the stabilization fund to do it, on account of the large amount of foreign balances that they have there." I said, however, that if they really want to try, why, they probably can; that the other thing that could be done is that we do it and they said "All right, 11 or a combination of those two. He then wanted to know about seeing the British Ambassador and I said, well, I felt that that would be certainly agreeable to us as it came up in con- nection with the trade treaty, and the President had spoken to him in connection with the trade treaty; but that we would be rather reluctant to do it at this time unless tney asked us to, because your feeling was that you wished to have a long conver- sation with the British after the trade treaty was signed. However, if, having talked to the British Ambassador, who in turn would naturally be asked to get the British on the other side to make 5 statement in connection with denying the fact that there was any exchange clause in the agreement - I mean any specific mention of a figure in the agreement - why, we'd see what happened, and that, having seen what happened, if they wished us to take it up with the British through another channel, why, I said natur- ally I thought we would be glad to do so, but that that was entirely up to you and that I WES merely giving them, as far as the trade treaty part of it, any suggestions which I could give. H.M.Jr: Well, did you gather he would or would not see the British Ambassador? Taylor: Oh, ne went to see nim last night. He went there right after I Regraded Uclassified 10 -5- H.M.Jr: Well, would you ask him to let me have a copy of the memorandum which he undoubtedly made of his conver- sation with the British Ambassador? I'd like - because the State Department does that; I'd like to have that. Taylor: Yes. H.M.Jr: You see? What he did and what he said. I'd like a copy of that memorandum. Taylor: He went right over there after I left. H.M.Jr: (quoting from attached clipping) "Officials Expect Anglo Trade Pact To Bolster Pound. This is the Wall Street Journal. "No Devaluation Provision in U. S. Treaty. Announcement Due Thursday. - As the British pound sank yesterday under the heaviest selling wave since the September war scare, it was stated on the highest authority in Washington that the forthcoming Anglo-American trade agreement would contain no provision for devaluation of sterling. Rumors of such action have agitated foreign exchange markets for some time past." Now where does that come from? Taylor: They put out a leak there yesterday evening. H.M.Jr: But that's not for me; that's State Department. Taylor: State Department leak. H.M.Jr: Well, that's that. Then - "French Decrees - Reaction of the foreign exchange market and the Bourse to the new decree laws promulgated over the week-end was very favorable. - French Treasury bills were in strong demand." Now, one other thing before this other group comes in. In this envelope to me - it's significant how it was addressed, so keep it - at one o'clock, Mr. Hamilton, of the Far East Division of the State Department, delivered to me a two-page memoran- dum (this deals with another subject - transcribed separately). Regraded Uclassified DEPARTMENT OF STATE 11 ASSISTANT SECRETARY Dear Wayne, Heris the memo. you asked for F.B. 5. Hull (su also wot simthy on 6 my =n svit to HmJr Regraded Uclassified impidential dential 12 the DEPARTMENT OF STATE Memorandum of Conversation DATE: November 14, 1938. SUBJECT: Signing of the British trade agreement and decline of pour -doller rate. PARTICIPANTS: Sir Ronald Lindsay, British Ambassador; Mr. Sayre. COPIES TO: ... I-1400 I called on the British Ambassador very informally at the British Embassy at 5:30 this afternoon. I told the Ambassador that I wanted to speak with him unofficially and informally, and then proceeded to tell him of my 001-> versation with the President this afternoon in which the President expressed his anxiety concerning the decline of the pound-dollar rate. The rate fell today to $4.70 and the President had said to me: "What will we do if the pound should drop to $4.55 on Thursday morning?" After telling the Ambassador of the President's anxiety, I sug- gested that he might want to cable at once to London to ... if steps could not be taken to sustain the pound, particularly during the coming few days. The Ambassador said Regraded Uclassified 13 - 2 - said that he would gladly do so at once. I also spoke to the Ambassador about the rumor which is circulating to the effect that the trade agreement con- tains a provision stabilizing the rate of the pound at $4.50. In order to prevent the depressing effect of such a rumor, I said to the Ambassador that with his permission TO would give out a statement this evening denying that the trade agreement contains any such provision. I suggested that he might also think it advisable to have such a state- ment given out at once in London. The Ambassador at once agreed. I also gave to the Ambessador a copy of the statement which Secretary Hull expects to read at the time of the signing of the trade agreement. I told the Ambassador that we plan to have the trade agreement signed at the White House on Thursday afternoon and that the President had requested that the hour be set at four o'clock. A-8 FBS:ABN Regraded Uclassified Officials Expect Anglo Trade Pact Anglo Trade Pact To Bolster Pound (Conimues /Fom First Fage) stated that no word had been received by him from Crest Britain of any change in the pound. He further stated that the French revelliation Sterling Dropped in Markets of gold holdings may a domestic matter and would not interfere with the operation or Die Vesterday-No Devaluation tri-partite agreement. Provision in U.S. Treaty Heaviest Selling Since War Scare Hits Pound 14 Announcement Due Thursday Sterting declined yes/erday under the heavi- eet selling wave to sweep over the foreign ex- change market since the European war scare WALL As the Brillsh pound sank yenterday under the in September. beaviest selling wave since the September Heaviest gold losses by Britian Authorities STREET war scare, It was stated on the highest au- since that period were indicated LP large rifficial thority in Washington that the forthcoming buying ordera for sterling were thrown Inlo the Anglo-American trade agreement would con- markets both here and abroad to atem the fall tain no provision for devaluation of sterling. of the Brillsh pound. JOURNAL Rumors of such sellum have egilated foreign Four factors were held responsible for the exchange machets for some time post and sterling break: contributed substantially to the weakness In 1. Fast growing belief that the latest anti- the pound. Semitic excesses in Germany make continuance Two other major factors contributed to yester- at the "appeasement" policy of Prime Minister day's break in sterling which clased in the Chamberlain almost impossible NOV. New York market at $4.71 1-16. off 3. 13-16 on 2, Permistent reports. largely from the Con- the day: (1) fear that the anil-Semette out- linent, Which were acquied in Lothton and break be Germany would resuler Impresside categorizally deviced in Washington, that the 1938 any polley of cooperation (%) terms of the Anglo-American trade Treaty will heavy selling of sterling and purchase of contain a minimum level of around $1.30 beyond Trancs hy French Interests as - result of which the pound will not be allowed Le fall-if favorable Interpretation of the Daladier Cabl- not some murt of etabilization at that level net'e new economic decrees. Freuch Revaluation Factor 3. Considerable selling of sterling and buy- - Tue Wast. & JOURNAL Washington Bursen ing of franca by French intereste during the WASHINGTON - High Administration sm. morning, following announcement of the decree risis herps that announcement of an Angio- laws American trade agreement-axpected by Thurs Early morning cables from London and Paris day of this well-ew have a stabilizing effect were confusing as rates were received shewing upon the pound eterling which has been slipping as high as $6.74% in London and as low as badly in terms of dollars. 36.7216 in Paris The murket opened here al It WILL stated un excellent authority here 14.73% which later proved to be the high for night that the test of the pact will contain the Day, sold down to 14.70 A-16 and closed at no speciße mention of monetary matters other 36.71 1-16 for a. net Inss of 1 13-16 centa. than the usual "escape" clause whereby concern Bo heavy was the selling presentre that lbs etons may be cancelled in the event of abnormal- American stabilization fund was forced to In- ly wide exchange Suctuations. This statement Servane In the morning. The fund was foreit effectually dispores of recurrent rumors that the to tower the bid several times - great trade pact would provide for further devalus- was the volume This 18 unisual Inasmuch tion of the pound. ordinary technique is for Brittsh authorities At the same time, highly placed officials control the market as long as London is open suphorized that they believed the U. with American authorities coming in If needed agreement will be A strengthening factor in the in the afternoon here. existing tri-partite monetary accord between the Unofficial estimates Indicated that the America United States, Great Britain and France, can stabilization fund bought of least £2,000,000 Watching Exchange Situation AB unusually large amount for this market, The Officials here are giving constant attention British control. tt la believed absorbed units to the foreign exchange situation, and " 1a In- erably more which indicates large official cell dicated that in the event the publication of the trade agreement falls to lift pressure on to# In addition. official reports showed USE pound, some other ideas might be brought into $6,700,000 gold was engaged in England yes play to releve the situation. terday for shipment to New YORK on private So for as can be aacertained hure. no official account, the fargest taking for any one 08 word of any change in the relationship in the since the war crisis abaled Engagement B dollar and pound in foreign exchange 18 coniem- $700,000 from Holland also was announced. plated by London Persistent rumore of . de- The local market placed particular emphases valuation of the pound to $4.00 ATH not taken upon the political repercussions arising from the sclously by Washington: Jewish persecutions in Germany. The obstacle The Washington opinion in based upon iwo which 0 offers to Chambertain's appeasement important considerations: program means rearmament in England must 1. It le stated here Great Brilain standa 10 be accelerated aun further and in view of the Some more than she will pin by a devaluation, current beavy deficit in British government ac- because of the need to buy abroad fin bet arma- counte and state of Britain's balance of inter- ment program. national payments, this means still heavier 2. Probably more important. a develuation preamire upon the prund sterling to world by Great Britain would cause countries whom markets currencies are now Use to the pound le with Cabled advices trom the Lendon draw balances from Landon in favor nf enme dent of The Wall Street Journal showed that other currency, implying probably that lhe dols Apancia) Londun concurs in this view and it Was (or might be time alternative noted liere that the heavinet selling came from Becretary of the Treasury Morgentbau ai bid London (twelf. regular Bi-weekly prose conference venterdas Please form to page 6, column # Regraded Uclassified WALL STREET JOURNAL NOV 15 1938 15 French Decrees Labor's Reaction Awalted Labor's reaction to the decree laws la Viewed Favorably; awaited here with Interest but the Labor Fed. eration, which Le holding Its annual Congress, has not yet determined upon ifa attitude. It La Capital Returns certain to protest the fiscal burden which bas been laid upon the workers, including especially the special 2% income tax levy on wages with- out basic deductions or abstements, Sterling Sold Throughout Day Hitherto, annual wages up to 10,000 franca had been exempt while the tax on the econd -Rentes Active and Higher ten thousand had been only 1% and actually, owing to family and other deductions, the Vast On Bourse majority of workers escaped entirely, The workers are also bit hard by an average 18% increase in coffee, sugar, wine, tobacco and gasoline taxes and subway and comnibus fares. Labor's Reaction Is Awaited Nevertheless opposition to the fiscal and &- clal reforms La not expected to be serious if Reynaud's plan brings capital home and atimu- By CHARLES R. HARGROVE lates business which registered a distinct re- PARIS-Reaction of the foreign exchange vival in certain branches, Including textiles, market and the Bourse to the new decree laws during October. promulgated over the week-end was very tavor- French Budget Estimates able. The market sold sterling throughout the Estimate for the 1930 national and local day and the French Exchange Control in enti- budgeta in France prior to the Reynaud plan mated to have acquired £3,000,000 to £5,000/- show total expenditures of 137,000,000,000 000. Premiums on forward sterling sank to francs. around 50 and 250 centimes for one and three This is made up as follows: The state's or- months. dinary budget accounts for 64,500,000,000 franca Early sales of dollars in London were also and extraordinary expenditures 29,500,000,000 francs of which 25,000,000,000 are for armament. attributed to repatriation of French balances via In addition are ₹,500,000,000 france for the London and it was noted that when these sinking fund, 24,000,000,000 france for local gov- ceased, the dollar gained immediately on stor- erments, 5,500,000,000 franca for public works ling under selling of sterling from English. while the railroad deficit will call for 6,000,000,- American and other accounts. 000 francs more. The decree laws abolish virtually all rem- Ordinary budget revenues of the state are nants of the rigid and compulsory 10-hour week estimated at 56,000,000,000 franca, while sink- and repeal government control of wholesale and ing fund will bring in 7.500,000,000 and local industrial prices, retaining retail price control, revenues are estimated at 22,000,000,000 francs, however. Extraordinary armament expenditure or & total révenue, state and local, of 85,500,- will be financed by loans. Additional direct and 000,000 francs. indirect taxes are provided. Drastic recuction The deficit, therefore, amounts to 51,500,- In swollen government and railway personnel La 000,000 to which must be added sundry charges planned. bringing the total somewhere between 54,000.- Treasury Bills Strong 000,000 and 55,000,000,000 france French Treasury bills were in strong demand Field of New Taxes Monday Expectation prevails that French capi- The new texes Imposed by Finance Minister tal will continue to return and to produce an Reynaud are expected to yield 10,000,000.000 appreciable cheapening of short and then long franca additional revenue and progressive econo- term money rates. The rate on one year Treas mies will lop off about 5,000,000,000 france from any bonds was reduced to 0% % from 4% during expenditures mainly through public works RIP- the morning and It is likely that the discount pension and eventual debt retirement. The rate of the Bank of France and the Treasury normal Increase in revenue due to recovery is bill rate will be lowered aoon. expected to bring in another 5,000,000,000 to The main activity on the Bourse was in 6,000,000,000 franca of revenue, leaving 34,000,- Rentes where rises of 1 to 5% tranca were reg- 000,000 france Including the 25,000,000,000 arma- istered. The 1920 redesmable fours were up ment expenditure to be covered by loans. 4.50 france owing to the dissipation of lease of Of the ordinary budget expenditure totaling suspension of annual drawings and the 1925 ex- 64,500,000,000 francs, debt service amounts to change guaranteed 4'a were up 5.40 france ow. 15,100,000,000 franca and pensione 13,500,000,000 thg to their restoration into the category at france, or together 29% of total expenditure bearer securities. Civil and military personnel will cost 16,770,- French equities were drm, especially Bank 000,000 france, subsidies 7,640,000,000 france of France shares, while internationals were and military and civil supplies 8,000,000,000 weak. france. The government announced there will be no The Finance Minister points out that debt further decree Iaws. Pensions tor aged workers service, pensions and wages amount to 50% and and other measures involving new expenditure will be submitted to the ordinary legislative military expenditure 22% of expenditures. processes. Regraded Uclassified 16 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE November 15, 1938 TO Secretary Morgenthau FROM Mr. Taylor The French Financial Attache called at noon today to say good-bye, as this time he is really sailing. He explained that his sailing before had been delayed as Marchandeau had felt that his presence was desirable here in case Marchandeau were able to announce decrees embodying his policy before November 16th. He then stated that the Reynaud program represented the last chance for EL free economy and that if this attempt failed, exchange control and other forms of control were inevitable. He then discussed the position of the pound at some length, the various rumors which were in circulation and possible methods which could be svolved to guard against or discourage the type of capital movement which has marked the past few years. He indicated that inasmuch as the franc was very closely tied to the pound that weakness or instability in the pound could not fail to affect french economy; that we were not affected to the same extent, but that in the field of our agricultural exports the value of the pound was extremely important to us. In return, I explained to him the fact that the exchange clauses in the proposed British agreement were similar to those contained in the French agreement, that all these clauses had been evolved prior to the Tri-Partite Agreement and that our feeling was that the Tri-Partite Agreement offered a much more satisfactory and flexible mechanism for discussing currency relationships than the trade agreement, particularly as capital movements had played such an important part in the currency fluctuations of recent years. wes. Regraded Uclassified 16-A GROUP MEETING November 15, 1938. 9:30 A. M. Present: Mr. Oliphant Mr. Gaston Mr. Haas Mr. Taylor Mr. Gibbons Mr. Duffield Mr. White Mr. Lochhead Mr. McReynolds Miss Chauncey H.M.Jr: Does anybody know - White, listen to this, please - why I shouldn't ask Mr. Hull when I may expect a letter in answer to my letter of October 31, which is: "Recent information coming to the Treasury Department from responsible quarters, indicating that practices in connection with exports from Cermany to the United States " Is there any reason why I shouldn't ask him? Oliphant: I think we should ask for an answer. H.M.Jr: Just a question - "When may I expect an answer?" Huh, Wayne? Taylor: (Nods "Yes.") H.M.Jr: (To Mr. Kieley:) Would you call up Mr. Hull's office and say, "When may I expect an answer to that letter?" And then give that letter back to Miss Chauncey, please. Taylor: In the conversation I had with him, I emphasized a great desire to have an answer on it. That was last Wednesday. H.M.Jr: Well, the thirty-first was - well, it's sixteen days. Taylor: Last Wednesday was the day I went to this meeting. H.M.Jr: This doesn't in any way embarrass you? Regraded Uclassified 16-B - 2 - Taylor: Not a bit. White: There was a sub-committee appointed to examine that. Taylor: That's all right. That is, they are going to give a first answer, which H.M.Jr: But I am entitled to an answer, unless Wayne said to me, "I am carrying the ball for you," or something like that. Taylor: I particularly emphasized that you did want an answer, and they sat in at - in March when they were studying certain other aspects of it, that was agreeable to you too. H.M.Jr: They put the pressure on me all the time, and when I said I wanted it by one o'clock yesterday, at five minutes past one, I got Mr. Hull's answer on these things. White: It is my understanding that Secretary Wallace favors the step. H.M.Jr: He favors it? White: Favors your contemplated step, inasmuch as he is definitely affected by the cotton phase; I mean the definite situation. H.M.Jr: Wayne, are you doing anything at ten thirty this morning? Taylor: No. H.M.Jr: Well, you go with me to Wallace; I think Hull's going to be there, on this Agriculture - it's a combination of State, Agriculture, etc. Have a piece of pencil in your pocket, and paper, so you can write up what happens for me when we come back. One other thing here - Bond Market Gossip, New York Journal (of Commerce) comments, "U. S. Housing Issue. With a twenty-five million dollar issue of United States Housing Authority bonds expected in the next few weeks Mr. Oliphant, you were going to see their lawyer. Regraded Uclassified 16-C - 3 - Oliphant: He was over to see me Saturday; he had nothing new to offer. He didn't - we couldn't get any bid - Ed (Foley) saw him with me - we couldn't get him to face the fact for the bonds to sell - talking about local bonds now - to sell at any such rates. The public would have to be mislead, and it was left like that. He is coming back to see me today. H.M.Jr: Well, you .... Oliphant: We're still discussing the letter you propose to send the President. H.M.Jr: All right. I've waited again two and a half weeks, and at tomorrow morning's meeting, I'll send a letter to the President. I mean, if you will bring in a letter. Oliphant: I'll bring it in tomorrow. H.M.Jr: And before you bring it in, let Taylor see it, and perhaps let it work around. Oliphant: I'll have it around, and have it initialed. H.M.Jr: Twenty-four hours from now I want a letter to send to the President. Oliphant: I'll have it around; have it initialed, and in by nine thirty in the morning. H.M.Jr: Will you tell him to tell Mr. Straus I am going to send a letter tomorrow morning? Oliphant: Yes. H.M.Jr: Or should I tell Straus? Oliphant: I think you'd better tell Straus, since he ..... Chauncey: (Low to H.M.Jr:) Mr. Straus telephoned you yester- day to say he had just gotten back in town, and in the meantime Mr. Keyserling was discussing it with Mr. Oliphant. H.M.Jr: Will you call up Mr. Straus' secretary and tell him at nine thirty tomorrow morning - I am meeting with my staff at that time and we are going to Regraded Uclassified 16-D - 4 - decide on a letter, and if he wants to see me between now and nine thirty tomorrow morning I am available. I am available if he wants to see me. Between now and tomorrow morning it will - she blows. Oliphant: I have here a memorandum of our conversation with Herring, and if you want it for your files H.M.Jr: (Nods "No.") Yes. Yes, please. Just a second. (Reads memorandum.) Gene, does it do anything except just put me on notice? This memorandum. Duffield: No. I was going to bring it up in the bank meet- ing. H.M.Jr: Do I do anything about it? Duffield: I shouldn't think so. H.M.Jr: (To Miss Chauncey:) Better send it to the house so I'll read it. Duffield: I was going to bring it up in the bank meeting. H.M.Jr: While we're on the banking thing, what about Cy? Is he waiting, or are we waiting. Duffield: There is to be a meeting of the banking group on Wednesday. Mr. Hanes called it before he left. At that time we will try to get an answer to the Director's letter, and as much else as we can do. We've got quite a number of things to do. H.M.Jr: (To Miss Chauncey:) Will you call up Mr. Kannee and tell him (low) Duffield: Mr. Hanes will be absent from that banking meeting for a while. H.M.Jr: If we go at two? Isn't he back tomorrow morning? Duffield: Yes. H.M.Jr: Can't we meet some other time? Regraded Uclassified - 5 - 16-E Duffield: Yes. H.M.Jr: And, Mac, I think we ought to tell that National Resources Fiscal Committee to come back at ten fifteen next Monday. McReynolds: Yes. H.M.Jr: And the President took that memorandum, and liked it, and I think he will give it out this after- noon, on the National Fiscal Committee, and he gave me a fifteen minute rehearsal on what he would say - tried it out on me. White: In addition? Gaston: Was he going to use the text exactly or was he going to talk off-hand? H.M.Jr: I think he's going to have it formal. White: And supplemented with his own remarks? H.M.Jr: Yes. He is very much interested. Gaston: Did you change it much? Was it an entirely new draft? H.M.Jr: Yeah. (To Miss Chauncey, low) Give one to Gaston. It's half a page - but he likes it. He thinks it's all right. Just to keep you people informed, you know Friday I was a bad boy at Cabinet, because I kept asking Wallace what was the two-price plan, and the President was very much annoyed at me, but I was doing it to protect him, because Wallace had it all fixed. Wallace was going to see these mattress people and give them hell because they wouldn't cooperate, and the President was going on the air. The President got quite annoyed because I kept saying, "What is the plan?" Wallace couldn't say because he had no plan. This is, naturally, nine-thirty stuff. Then he sends for Wallace Saturday and goes through what I did. He's very much annoyed with him. He asks me Monday, "What has Wallace got in mind?" Regraded Uclassified - 6 - 16-F I said, "Mr. President, I was trying to demon- strate to you at Cabinet Friday. I know you didn't like it. Wallace didn't know himself.' He said, "You'd better go over there this morning and help him out." So I've got to go over there. I said to the President that I never knew very much about corn and hogs; I never could understand it; I know wheat and cotton. And he said, "You've got to do something, so I said, "Well, if I am going to do anything, the first thing I am going to do is insist that the plan we had last summer, where the surplus products were given to the three million people on relief, be reestablished. Because the minute my back was turned, that plan was cancelled, and if I followed the technique of the other people, I would rush in and tell Kintner and Alsop the minute they turned their backs. The minute I turned my back Harry went to Wallace and said they couldn't do it because that is admitting everything you have done is wrong, and, naturally, that is right. On the basis of what Hopkins said Oliphant: That was after it was fully developed, wasn't it? H.M.Jr: (To Mr. Haas:) You heard it; wasn't you there? Haas: (Nods "No.") H.M.Jr: Well, Miss Lonigan was there; she heard Hopkins tell this. Haas: I think the notes are complete on that meeting. H.M.Jr: If we feed the undernourished the surplus food stuffs, that was admitting the plan was a flop, and we'd better not do it. Haas: They had a conversation afterward. Oliphant: The truth was - it was admitting it, and we had better do it. H.M.Jr: I told the President yesterday that any plans would have to stop with taking care of the people; I start? said we have still got three million families and haven't got enough. Regraded Uclassified - 7 - 16-G Gibbons: So did the E. R. B. H.M.Jr: What? Gibbons: So did the E. R. B., - said it in New York yesterday. H.M.Jr: You can underwrite that, can't you, Wayne? That they should be taken care of first? If we've got surplus food let's take care of them first. Taylor: God yes! McReynolds: And give it to them; don't make a two-price plan out of it. H.M.Jr: We gave away a million mattresses last year to those people. Taylor: On that subject, I refer you to some remarks that I made about little pigs, back in 1933. H.M.Jr: Well, I go back to the fall of 132, when Bill Myers and I had a program. I still think it would have worked. Oliphant: Well, I have ..... H.M.Jr: This is - when I got to talking yesterday about this other thing, all this barter trade stuff - don't ever breathe any of this -he said - talking to the President- "What do you think I'd better do?" I said, "You'd better send for George Peek, Mr. President." Taylor: I think he's coming back to town this week. (Laughter) H.M.Jr: I said, "You'd better send for George Peek." Oliphant: That's that note of the conversation, and then here is a full file on yesterday, if you want it. H.M.Jr: Very much. Oliphant: And then, here are a couple memoranda we worked out in conference. H.M.Jr: Fine. I think - don't you think we ought to send Johnson a copy of this? Regraded Uclassified. to 1 I 16-H Oliphant: I said I'd like not to until I go over it with these technicians because I didn't have much time to go over policies. H.M.Jr: All right. While we're on this Army stuff, I suppose it's unnecessary to say this, but if by chance anybody in the nine-thirty group should happen to own any airplane stock, I'd appreciate it if they would divest themselves of it. I don't suppose anybody does, but inasmuch as I am up to the thing to here (indicates lower lip) with the President, it would be embarrassing to me if anybody who worked closely with me had any. As I say, it is most likely unnecessary, but it is just to protect myself, and I just pass it out. I am not looking at anybody; I am just .... Haas: The market's good for anything. Taylor: I've got three shares of it I've had since 1937, I haven't changed; will I have to change it? H.M.Jr: Yeah. McReynolds: I made my wife sell ten shares of airplane stock she had the other day. H.M.Jr: Did you? Good. Oliphant: I wish you'd looked at me. That's all I have. H.M.Jr: You made your wife sell ten shares? McReynolds: Yes. I didn't - I don't know that it amounted to anything, but I just thought the situation might Oliphant: Sounds like control to me. H.M.Jr: What? Oliphant: Sounds like control to me. H.M.Jr: How? Regraded Uclassified - 9 - 16-I Oliphant: She had control of ten shares. H.M.Jr: Well, I just thought I'd mention it. Oliphant: That's all I have. Gaston: I haven't anything. H.M.Jr: What time is the President's press conference? Gaston: Four o'clock. H.M.Jr: (Nods to Haas.) Haas: These are the H.M.Jr: Excuse me a minute. I saw Kintner at this dinner last night, and I said I would work with him. He asked me. And if they want to come up to the house at four o'clock Saturday - and then if you'd confirm it, and send a little note so I'd know of it. Gaston: Four o'clock, Saturday. Yes. H.M.Jr: I'll be there. Haas: These are the men that are coming down for this meeting at ten o'clock. H.M.Jr: George, I don't know whether I want to see that group or not. Haas: All right. H.M.Jr: You care whether I see them or not? Haas: No. I think it would be nice if you drop in, but it ..... H.M.Jr: Well, let's see how the day goes by, huh? See how long Mr. Wallace keeps me. Haas: There are two who couldn't come. Colonel Ayers is down at the bankers meeting at Houston, and Mr. Edie's daughter is ill. Regraded Uclassified - 10 - 16-J H.M.Jr: Incidentally, I thought your report on business this week is particularly good, and I am sending the President a copy of it. Heas: Thank you. H.M.Jr: I am surprised to see how the new orders have jumped. Haas: Yes, they have jumped considerably. H.M.Jr: After I get the story from Curry - am going to have him over sometime this week - I wonder if anything that he's got is in conflict with what We are doing, or whether it is supplemented, or is his stuff too far ahead? Haas: No conflict at all; it is of a little different nature - a little different approach. H.M.Jr: But does it supplement? Haas: I think it supplements the underlying philosophy of the thing. I think "supplement" would be the best word. Some of the curves he's got are probably some we've got, and some of the other ones he's got we haven't attempted to estimate. H.M.Jr: What I am getting at, was there anything he's got that could be incorporated into my weekly business forecast? Haas: At certain times, yes. H.M.Jr: Will you take a look at it? Heas: Yes. H.M.Jr: And in return, if he wants to look at what we've got let him do it. Haas: You asked the other ...... McReynolds: I was just going to remark that probably your current information wouldn't be reflected in his predicted curves, would they? Haas: No, not those that he was running away along, but the underneath - if there is an underlying funda- Regraded Uclassified - 11 - 16-K mental development which he is talking about, which is more in the longer term trend of the present situation. McReynolds: Well, there couldn't possibly be any conflict. H.M.Jr: No, but this is here; why not get together with him? "This is what I am doing for Mr. Morgenthau; if you've got any suggestion - anything you've got that could feed in through my weekly report, I am sure he'd be tickled to death to have it." Haas: I have been using some stuff that Turbo is pre- paring for him. H.M.Jr: Fine. Haas: There is a question - you asked for the other day - you may not need it now; you asked if I'd look up the notes - how these men estimated business, etc. Here they are. The average for this six months, which ends December 31, Lichtenstein, 80 ; Hayford, 81; Naess, 811; Ayres, 81; Roberts, 821. That would run the ones that said 80 - about 80 - it would make December about 85. See? The group - the average for the group is 81, which would run somewhere, 85, 86, somewhere for December. H.M.Jr: Well, they'd be off about fifteen points, wouldn't they? Haas: They'd be off quite a little. H.M.Jr: Well - I mean, the Federal Reserve Index will certainly cross a hundred in December. White: It wouldn't be off that much in the average. They'd be off a substantial amount, because you are dealing with perspective changes, and there- fore, an error of ten per cent in the total is an enormous error. H.M.Jr: They will be off ten per cent easily, because ten per cent of ninety would be nine points. Haas: They are much too conservative, but, I mean, as business forecasting goes, they could have been Regraded Uclassified - 12 - 16-L worse, going in the other direction. I am not putting any case up for them, but working in this field for a long time, I don't think it is - what I was disappointed in is that all of them - they were too uniform in their guesses; there wasn't more variations was the disappointment. H.M.Jr: Anything else, George? Haas: They will be interested in knowing how the receipts are running with the estimates. Have you any objection to my showing them that, on those bubble charts. Oliphant: The stuff on those charts are already published material. H.M.Jr: Well, you know; if you think it's all right, it's all right with me. Haas: Show them the number one - I mean, the number one, the one that has the totals. H.M.Jr: The totals. All right. Anything else? Haas: That's all. H.M.Jr: Harry? White: (Nods "Nothing.") Gibbons: We had the conference on the Czechoslovak marking yesterday - about thirteen different individuals representing a number of associations and manufacturers- - importers rather, and we let them talk themselves out, and told them that just - that the marking was in accordance with the law. H.M.Jr: I read the Times. The Times had a good story on it. I gather that you stood pat? Gibbons: Yes; we simply told them .... (Mr. Oliphant picks up Times.) H.M.Jr: It's toward the back. Did they go away moderately happy? Regraded Uclassified 16-M - 13 - Gibbons: Yes, the meeting was very agreeable. One of them said, "Well, of course, we thought we'd have sixty days, and I told our people to hum it up and turn out a hundred per cent." About a hundred twenty, he said. He was importing gloves, but he just simply thought we were going to give them thirty or ninety, or sixty days, you know, and that he'd bring all this stuff in. Some of them are going to take an awful licking, of course. It isn't our fault. H.M.Jr: It's all right? I can forget it? Gibbons: Yes. H.M.Jr: Thank you. Wayne? Taylor: (Nods "No.") H.M.Jr: Leave about ten thirty? Taylor: (Nods "Yes.") H.M.Jr: Archie? Lochhead: Sterling has been improving a little bit since the morning figure of 4.64; it's up to 4.69 3/4 on the bid side just now, and H.M.Jr: For Pete's sake stay here, Archie, if it goes up while you're away from your desk. Lochhead: The interesting point is that the French who have been keeping their rates against sterling at 178.90, are shifting their rates down from 178.90 to 178.31, which, in my opinion, is a much better technique than before. They are making the fellows pay up who are trying to get back in. H.M.Jr: All right. Gibbons: Incidentally, I think the Lauer investigation is going to involve this Central American envoy in New York. H.M.Jr: Is it? Gibbons: It's beginning to look as though it will. Regraded Uclassified 16-N - 14 - Duffield: I don't have anything. I plan to be away from the building most of the day, unless you want me here. I want to do some scouting around. H.M.Jr: Good. The newspaper men were going to ask me yesterday - that they criticized me in this A. B. A. I didn't see it. Duffield: I've read the American Banker's stories; I didn't see it either. H.M.Jr: I thought my answer was good. Duffield: I did too. H.M.Jr: I didn't see the story. I told them the Secretary of the Treasury could never take too much interest in the depositors in banks. I just couldn't take too much interest in protecting their interests. Incidentally, I see this fellow Smith sounded off - the cashier of something. Duffield: Yes. He's the Chairman of the National Bank Section of the A. B. A. this year. H.M.Jr: I see he gave Mr. Oliphant quite a boost. Oliphant: Where is that? H.M.Jr: Today. He gave you a boost. Oliphant: New York Times? Duffield: That's all. H.M.Jr: He's the cashier of the Bank of America, in case you don't know. (Nods to Mr. McReynolds.) McReynolds: (Nods "No.") H.M.Jr: All right. Haas: I forgot to report on one thing. I had a long talk with Lubin yesterday. Regraded Uclassified 16-0 - 15 - H.M.Jr: Yes ? Haas: I am going to try to get out a memorandum we can jointly sign. H.M.Jr: Is he interested? Haas: Yes. I am going to have an interesting chart. H.M.Jr: Is there such a chart in existence? Haas: I had one when I took over, that we worked up, and then he made some suggestions, and so on. I was afraid of the figures, but he doesn't seem to be disturbed. He says there may be some errors, but they illustrate the points. H.M.Jr: On that, they tell me there is a very good statistical section over in Social Security. Haas: That's right. H.M.Jr: They are running the figures on all people who get Government checks. Haas: We are using the figures. H.M.Jr: What I'd asked George to do was to work out some- thing for me to show the relation of private employment to the number of people on the Government unemployment rolls. See? I mean, I got nothing that - I mean, I want to see if there is no correlation - as private employment goes up, do our rolls - number of people getting checks - go down? Is there any relation? I asked him to work out something. Haas: There is no relation. H.M.Jr: What? Haas: There is no relation. White: Well, have you noticed the monthly bulletins Social Security is putting out? H.M.Jr: In the papers, yes. Regraded Uclassified 16-P - 16 - White: I mean their monthly bulletin. It is a, very nice bulletin. H.M.Jr: I only see press excerpts. Haas: I'll send you in a copy of the bulletin. H.M.Jr: Will you? Haas: Yes. H.M.Jr: All right, everybody. Regraded Uclassified 5(e) 17 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE DATE November 15, 1938. CONFIDENTIAL FILES SUBJECT: TELEPHONE CONVERSATION WITH To FROM L, V. Knoke BANK OF ENGLAND. I called Bolton at 9:50 this morning. Things were still very disappointing, he said. The dollar market had opened at 4.70 1/21 he had sold $2,000,000 at that figure and another $2,000,000 at 4.70 and had given £1,000,000 worth of gold at fixing. As the pressure against sterling continued, they had let the rate drop down to 4.69 and sold snother $1,000,000 there which had seemed to help matters. Since then the rate had picked up 8 little to about 4.70. His total losses for gold and dollars 30 far had been about $11,000,000 compared with total losses yesterday of £11,000,000. It was quite apparent from what he heard on the Continent that it was primarily the Jewish question which today was depressing the sterling rate. Bome people were convinced that the British policy of appeasement with Germany had broken down end that as 8 result thereof 6 disturbing and anxious political situation was likely to prevail which, of course, would continue to cause the transfer of capital to the United States. If it weren't for these latest develop- ments, Bolton seemed to think that they might have been able to hold sterling between 4.75 and 4.80 but now the expense of holding it there was too much for them to bear. He asked whether I had any indications as to whether Washington was seriously disturbed over this continued weakness of the sterling rate. I replied that I simply didn't know, not having been to Washington in many weeks, but that in my opinion our exporters would very definitely be disturbed and would almost inevitably press for heaven knew what kind of legislative neasures Regraded Uclassified 18 EM FEDERAL RESERVE BANK OF NEW YORK FFICE CORRESPONDENCE DATE November 15, 1988. CONFIDENTIAL FILES SUBJECT: TELEPHONE CONVERSATION WITH L. W. Knoke BANK OF ENGLAND. ROM 2 if sterling continued to drop. Bolton seid that they fully realized all this, but the fund's reserves were getting low end close to the danger level and if they had to use the gold of the Bank of England the markets would become still more disturbed. He told ne very confidentially that they were discussing certain restrictions now but that naturally they didn't want to introduce any measures which would upset the freedom of their markets. The question had been under discussion for many days and they would probably adopt one or two restrictive measures very shortly which they hoped would have no bad effect. They were by now definitely convinced that the reason for the weakness of sterling was of 1 political nature and that economic reasons at the moment were negligible. They vere fully aware, he continued, that if sterling depreciated very much further it would upset the whole present economic structure and whatever they might decide upon now would be done only after the most deliberate consideration. However, as far as they could see now, there was no real hope of sterling becoming stronger until there was a real improvement in the political situation. It was getting more and more difficult for Chamberlain to earry out his present policy with Germany and, worse yet, there was a possibility of a political split in England in case the opposition should 000⑉ tinue to be victorious at the polls at the coming by-elections. Re vas very anxious to disense the present situation with no, he said, Regraded Uclassified 18 FEDERAL RESERVE BANK OF NEW YORK FFICE CORRESPONDENCE DATE November 15, 1938. CONFIDENTIAL FILES SUBJECT: TELEPHONE CONVERSATION WITH to L. W. Knoke BANK OF ENGLAND. ROM if sterling continued to drop. Bolton seid that they fully realized all this, but the fund's reserves were getting low end close to the danger level and if they had to use the gold of the Bank of England the markets would become still more disturbed. He told me very confidentially that they were discussing certain restrictions now but that naturally they didn't want to introduce any measures which would upset the freedom of their markets. The question had been under discussion for meny days and they would probably adopt one or two restrictive measures very shortly which they hoped would have no bad effect. They were by now definitely convinced that the reason for the weakness of sterling was of 8 political nature and that economic reasons at the moment were negligible. They were fully aware, he continued, that 11 sterling depreciated very much further it would upset the whole present economic structure and whatever they might decide upon now would be done only after the most deliberate consideration. However, as far as they could see now, there was no real hope of sterling becoming stronger until there was 8 real improvement in the political situation. It was getting more and more difficult for Chamberlain to earry out his present policy with Germany and, worse yet, there vas 8 possibility of 8 political split in England in case the opposition should 000- tinue to be victorious at the polls at the coming by-elections. He was very anxious to discuss the present situation with no, he said, Regraded Uclassified 19 sc. 1.2 60M 9-37 FEDERAL RESERVE BANK OF NEW YORK FFICE CORRESPONDENCE DATE November 15, 1938. CONFIDENTIAL FILES SUBJECT: TELEPHONE CONVERSATION WITH ROM L. 1. Knoke BANK OF ENGLAND. $ and keep us as fully posted as he could but had so much to do just now that he wasn't entirely free to call me all the time. I should, there- fore, not hesitate to call him either at the bank or at home whenever I wanted further information. As far as the franc was concerned, Bolton thought it was still firm and that Cariguel was still gaining though less than yesterday. LWK:KW 03V13337 Regraded Uclassified 19-A RE PROPOSED CHINESE TUNG OIL LOAN November 15, 1938. 9:40 a.m. Present: Mr. Taylor Mr. "hite Mr. Lochhead H.M.Jr: In this envelope to me - it's significant how it was addressed, so keep it - at one o'clock, Mr. Hamilton, of the Far East Division of the State Department, delivered to me a two-page memorandum of Mr. Hull's comments on my proposed loan against tung oil. There was also, backing up Mr. Hull's memorandum, a long letter from Dr. Hornbeck. The President read it. He was very much disturbed. Mr. Hull would not go along. Was very emphatic. And the President said, "Let me keep it, and I'll discuss it with Mr. Hull." But in Mr. Hull's memorandum there was nothing new that he didn't say to us at the time we called on him. But I've got nothing here now - I mean I've got nothing to go by. So the matter now rests with Mr. Hull. Regraded Uclassified 19-B & 19- 1-61 Migant B From the Secretary of state 1 - to the Secretary of the Treasury and the President. 20 REB PLAIN London Dated November 15, 1938 Rec'd 3:25 P. m. Secretary of State, Washington. 1317, November 15, 7 p. n. FOR TREASURY FROM BUTTERWORTH. Available statistics for October including the overseas trade returns published today are being widely scrutinized for signs of trade revival but it is still difficult to disentangle the crisis Effects from more fundamental trends and JEASONAL fluctuations. A slight drop in un- Employment between September 14 and October 17 was less than the usual seasonal movement though it included small improvements regarded as Encouraging in the coal, cotton, wool, iron and steel trades. Railway traffic continues to decline and the shipyards continue to launch tonnage which is not replaced by new orders. The Export returns recorded a seasonal increase which was lESS than usual with figures for exports of ships and machinery still at high levels reflecting the length of time between orders and deliveries rather than a maintenance of business at last year's high lEVELS. Imports seasonally increased but Regraded Uclassified 21 REB 2-1317, From London, Nov. 15, but by less than usual especially in the CASE of raw materials. The more favorable terms of trade combined with the high level of engineering exports produced a reduction in the total adverse merchandise balance for the ten months which was L329 million as compared with 6341 million for the corresponding period of 1937, an improvement undoubtedly more than offset by reductions in shipping and investment income, The second successive increase in steel output brought the October figures to 854 thousand tono or about 75 per cent of the figure for October 1937 as compared with the low of August of 658 thousand tons or about 66 per cent of August 1937. This upturn in steel output must bE regarded as due to restocking, armanent activity having gradually influenced the inventory position. This move- ment is doubtless typical (though more marked) of certain other industries, especially those affected by armament demand, In the absence of n genuine upturn in commodity prices, the influence of restocking on industrial activity generally must bE regarded as temporary. While wholesele praces have practically recovered to August levelo any stimulus of rioing prices on the business situation Regraded Uclassified 22 REB 3-71317, From London, Nov.15,7p.m. situation is absent while the cost of living remains high with no tendency for wage rates to decline, The improvement in unemployment, export and steel figures is indicative of no more than a check in the basic downward trend, due in substantial measure to armament activity, without which general business would certainly be at much lower levels. The policy of interfering as little as possible with industry in pursuing the armament program, together with the Prime !linister's optimistic statements regarding trade a+ the end of his Guildhall speech on November 9 gave rise to some improvement in stock Exchange sentiment resulting especially in higher prices for gilt Edged securities. This improvement in sentiment is now however practically wiped out by reactions to the EVENTS in Germany over the week-end. KENNEDY HPD Regraded Uclassified 23 REB PLAIN In London Dated November 15, 1938 Rec'd 3:35 P. m. Secretary of State, Washington. 1318, November 15, 7 p. m. FOR TREASURY FROM BUTTERWOR:... (1). The dollar opened at 4.70 3/4 strongly bid particularly from Holland and Sweden and although the British authorities gave dollars freely at that rate the buying pressure did not immediately CERSE and about 10:30 L. II. they went out of the market. The rate moved to 4.69 and they came in again just as the Paris Bourse was closing and held the rate. Then the Bourse reopened the French authorities changed their buying rate from 178 3/4 to 1/2 and this created some offering of dollars. Further- more the strengthening of the bound in NEW York last night and the Trade Agreement announcement had made its mark and the rate gradually moved to close at 4.70 1/4. The heavy buying of dollars in the morning BEEMS to have been mainly (a) speculative testing of the intentions of the British authorities after their precipitous retreat of yesterday and (b) the result of the overcast political horizon. Regraded Uclassified 24 REB 2-/1318, From London, Nov. 15, 7p.m. horizon. Cterling has become to an extraordinary degree a political currency which is made to register Exchange traders estimates of the significance of political developments in terms of the United Kingdom's future prospects. (2). The French fund acquired less sterling today than yesterday and EVEN though it stimulated the movement into francs by lowering the buying rate from 178 3/4 - 1/2 - 1/4. Among city banking firms interested in France one aspect of Reynaud's measures is being particularly discussed, namely, whether the gold profit used to extinguish the Bank of France's advances still remains legally a facility which the French Treasury can draw on at SOME future date should the need arise. Incidentally it vas EXPECTED here that Reynaud would USE this gold profit largely as EL means to meet future needs for the extraordinary budget and it is believed that hE was prevented from 30 doing merely by the fact that Fournier put his foot down and got away with it. The conclusion is naturally drawn that Reynaud is in Effect gambling to an important EXTENT on the possibility that through French capital regatriation he will be able to obtain Enough short term money to finance the extraordinary budget require- ments for some time to COME. KENNEDY UPD Regraded Uclassified 25 th PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embassy, Paris, France DATE: November 15, 1938, 6 p.m. NO.: 1925 FROM COCHRAN. This morning at half-past eleven I had a talk with the Bank of France. The French control had gained only 5,000 pounds by that hour. This evening at half- past five when I visited the Bank of France the control had taken in for the day the amount of 1,100,000 pounds, but in late trading it had been obliged to give up 100,000 pounds, leaving 1,000,000 for the net gain for the day. The Ministry of Finance had instructed that they were to improve the franc, lest it would be made to look too basically feeble by close adherence to a weak pound. It was believed that the merits of such tactics were quite questionable. Most of the trading yesterday and today my friend told me was professional, and it is too early to say what will be the effects in the monetary field of the program of Reynaud. The rich people are vered as it is because of higher taxes, and the poor people because the cost of living has increased. Blum's criticisms of the Government's plan have fanned the smoldering unhappiness of the poor people. There is greater strength in the forward franc. Only slight gains in French rentes. Weaker French shares. The Government's program has therefore not had any Regraded Uclassified 26 - 2 - any enthusiastic and spontaneous reaction. The serious people nevertheless believe that it is the best thing that can be advanced in the circumstances, and that it will have to be accepted by the country, or there will be worse coming. The representative of the Bank of Italy doubts the efficacy of the new plan. He fears a political crisis which would bring a Blum Government in power again, which in turn would result in riots and control of exchange. Inside gossip of differences of opinion between two groups in the British Cabinet are the cause of part of the continental distrust of sterling; it is under- stood that 13,000,000 pounds were lost by the British control yesterday. Today I was informed by Rueff that as yet no decision had been taken to set the date for convoking Parliament. In the press it is mentioned that this may take place soon after December 1. END MESSAGE. WILSON. EA:LWW Regraded Uclassified 27 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embassy, Paris, France DATE: November 15, 1938, 7 p.m. NO.: 1926 Comment on the recovery program of Reynaud in the press today is virtually the first based upon the actual texts of the decree laws and is definitely tinged with pessimiem, even in the papers favoring the Right and Center. There is active hostility to the program on the part of the mouthpieces of the Socialist and Communist parties on the grounds that only the interests of capital are favored and the welfare of labor 18 completely ignored. In the Right and Center press the pessimism is based largely upon the instability of the political and psycholo- gical factors in French life today, rather than upon alleged shortoomings of the Government's plan. These papers in fact by and large make reference to the upswing on the stock exchange yesterday as proof that the necessary ingredients of an effective remedy are contained in the decree laws. However, these sections of the press also observe that there is resolute opposition to the program on the part of at least 30 of the Radical Socialist deputies, and that a new Parliamentary majority must be found or a way of continuing without such & majority must be found by Regraded Uclassified 28 - 2 - by the Government. In general the newspapers are agreed that the French people will bear with resigned approval the burden imposed by the program of Daladier and Reynaud, provided there can be any assurance that the tribute to be paid will actually bring about recovery in its broadest sense. The only exception to this view is contained in the Left press. END MESSAGE. WILSON. 03113031 EA:LWW - Regraded Uclassified. 28- A RE TAX-EXEMPT FEATURE ON LOCAL November 15, 1938. HOUSING AUTHORITY BONDS 3:30 p.m. Present: Mr. Taylor Mr. Bell Mr. Oliphant Mr. Foley Mr. Straus Mr. Keyserling H.M.Jr: I'm going to take this position with Straus, Ed. I haven't read this stuff that you prepared for me; cen't even lay my hands on it, Foley: Yes. H.M.Jr: I'm simply going to say this: "You say I have no legal authority to say 'Yes' or 'No. in That's what he says, isn't it: that I have no legal authority? Foley: Straus says that about you; on, I think SO. I think ne submitted it here because (a) he wanted to get some help from you in connection with sub- mitting the plan to the Attorney General for his approval; and (b) he wanted to have something behind nim in the event the thing slipped and there was some criticism, he wanted to be able to tell the President that you had approved it first. H.M.Jr: Well, therefore, ... Foley: He didn't have to come nere, of course. H.M.Jr: Therefore, there is no use my arguing about it with him. Foley: That's right. what I would do if I were in your place: ask him to submit the bond form, the contract and prospectus after he's worked it out with the syndicate, and then you'd like to have Taylor and Bell and your experts go over it, perhaps talk it over with your experts in the Federal Reserve Bank to see whether or not it would have any effect on your borrowing. H.M.Jr: No, that isn't the angle I'm going to take. This is Regraded Uclassified 28-B -2- what I wanted the advice on. I'm going to say, "Nathan, you say I have no authority. O.K. But you have submitted this to me; therefore, I'm going to send the letter which we wrote originally to the President, with my r ecommendation to him that - that this is the way the Treasury feels about it. If you decide to go ahead with it, the Treasury will have nothing to do with it; we completely wash our hands of it. We don't want to be con- nected with a failure; we can't afford to be. We can't recommend it to the public." Foley: Well, that's pretty rough, but it's Kieley: Mr. Straus wants to bring his legal counsel in - Mr. Keyserling. H.M.Jr: Sure, but I'm not quite ready. (Oliphant comes in) H.M.Jr: I'm going to say to Mr. Straus - this is where mine differs with Ed's - (Taylor comes in) B.M.Jr: This is what I propose to say to Straus: "You have written me that I have no legal authority over this thing. Granted. But I have my responsibility to the President of the United States. Therefore, unless there's some particular words that you'd like us to change - we've been waiting here for two and a half weeks - I'm going to send that letter to the President. If there is something which is unfair, which isn't true " (Bell comes in) H.M.Jr: We'll do it again. What I'm saying to Straus is: "Yousay I have no legal authority over your thing. O.K., granted. But I have a responsibility to the President of the United States, so I'm sending this letter to him." Oliphant: Well now, did you (Foley) tell the Secretary how the discussion had developed? Regraded Uclassified 28-C -3- Foley: Well, I just started to tell him. Oliphant: Let me say this. Keyserling was over again this morning and ne in effect is saying this: that when we say that these bonds will not sell on such favor- able terms, at such low rates, without the people naving the feeling that they are equivalent to Government-guaranteed - he says, "We take issue on that question of fact, because we've got people in our syndicate who say that they can market them at three percent or less, because of the way we have safeguarded these various contingencies to which the promises are subject." Isn't that where the discussion stands? Foley: That's right. Bell: what does he mean by promises - a subsidy? Oliphant: No, you see, the promise to pay the subsidy is con- ditioned Bell: on an appropriation. Oliphant: We said, "We've gone through and say that each one of those many conditions If - and he says, "These financiers" - he didn't name them to me - "with whom we are in conversation say they can market these bonds at three percent or less." H.M.Jr: Well, what I'm going to say to him is: "I, the Treasury, all of us, unless they have changed, feel that this shouldn't be done, and I want to let the President know, and the President can decide. Now, if there is any word or phrase in that letter which you don't think is fair, all right; that's what I want. I don't want to argue with you about your god-damned bond. But if there is some statement that isn't fair, all right. But, outside of that, I'm going to send the letter and the President can do what he wants. I'm not going to argue with you whether I have the authority or not." Foley: Well, the only - may I say ... H.M.Jr: That's what you're here for, damn 1t, not for your handsome face. Regraded Uclassified 28- D -4- Taylor: That's extra. H.M.Jr: You can save that for night work. Oliphant: If he was here on that basis, he'd have to pay to get in. Bell: Have to pay a cover charge. Foley: Unfair advantage. H.M.Jr: Dan says you'd have to pay a cover charge. Oliphant: Wear a mask. Foley: I think the plan is going to break down under its own weight. Unless you want to take on with him the ill will that may be engendered because you head it off, perhaps you could accomplish the same purpose by accepting the contract from him, accepting the bond form, accepting the prospectus, and then talking it over with the experts in the Federal Reserve in New York and here. H.M.Jr: Ld, we don't do business that way. Cards on the table, straight from the shoulder. Either you say to me as Secretary of the Treasury, "I can recommend that bond to you and to my friends 11 - can you? Foley: No, sir, not on what I've seen so far. H.M.Jr: All right, then, I put it right straight across the table and I don't pull my punches. Foley: O.K. Bell: Does the Secretary have to approve the bond that's sold? Foley: Doesn't have to approve anything. H.M.Jr: I'm saying to you, I know that the President doesn't want this thing, so I'm not going to say what I said to you, that I won't have anything to do with it; I'm just going to write this thing to the President. But I'm telling you if the United States Treasury - if you won't recommend this to your friends, I won't have anything to do with the god-damn thing. I don't Regraded Uclassified 28-E -5- have to play politics on the bond. Foley: Well, I was just thinking of your relationship to Straus, that's all, Mr. Secretary. I mean he's a friend of yours and so on. H.W.Jr: Sure, that's why I treat him rough. Oliphant: He's your friend. H.M.Jr: Never say they got special treatment around here. That's just exactly the point. (Straus and Keyserling come in) Hello, Nathan. Streas: Hello, Mr. Secretary. You know Mr. Keyserling. H.M.Jr: I know nim very well. Sit down. Well, we've both been out of town, so we've kind of missed out on this and I was trying to - I hadn't done any - I'm trying to pick up the threads from these gentlemen. That's why I kept you waiting a minute. What I'd like to know is - I mean I think it's about two and a half weeks since we said we'd send this lett - whether your organization finds any objection to any sentence or paragraph in the letter as being unfair or untrue. Straus: Mr. Keyserling, you've had - you don't mind his answering, because he's been in on this legal thing - you had some discussion on that; I'd like to have you point out the way in which you thought the statements weren't at least clear. Keyserling: Well, the point I'd like to present about the letter is not primarily that the letter is unfair or untrue, but rather that if the letter should go over to the President and he should sign it, I don't think that a conclusion will have been reached that will be particularly helpful either to the Treasury or to us, because as the letter is now phrased, if the President approved the recommendations of the Treasury the real problem before the United States Regraded Uclassified 28.F -6- Housing Authority would remain unsolved; that is, the problem of working out some method satisfactory both to the Treasury and to the United States Housing Authority for gradually bringing about a wider distribution of these securities. And the only suggestion I would like to make, directed to the letter, would be that, the United States Housing Authority not being in any hurry to go ahead - that there might be some advantages in the Treasury and the United States Housing Authority going shead, working on the problem, and trying to find something that they are in complete agreement on. H.A.Jr: Well, Mr. Straus nas informed me, and my people agree, as far as our naving the legal right to say "Yes" or "No," we don't have it. But I have my responsibilities as fiscal officer and my relation- ship with the President. Now, all I want to do is to fulfill that relationship. I am quite confident - I mean I - since this has happened, I haven't discussed this with the Presi- dent, so the fact that he's had your letter - I mean I haven't been in any way advised; I am quite confident that once the tax features are explained to him, leaving out everything else - just the tax feature - in view of the action that he took in connection with the proposal of Mr. Lambert, that in order for him to be consistent he'd have to say "No" to you people. Now, if you - I'm more than willing to let you continue the discussion with the people in the Treasury Just as long as you want and as long as they've got wind left to discuss it with you. But all I want to reserve for myself is that if you say you're going to go ahead, then I have a responsibility - not legal, but & moral respon- sibility - to bring this to the President's attention, and I want to fulfill it, that's all. Reyserling: Well, I didn't mean to indicate anything H.M.Jr: I mean is that plain? Straus: Very. H.M.Jr: All I want to ask Mr. Straus is for his word that he Regraded Uclassified 28-G -7- won't make any offering without giving me first a chance to bring this matter to the President's attention. Straus: Mr. Secretary, I have already assured you of that, and I can assure you again as solemnly as I know how, that nothing is going to be done until and unless you know all about it; and if you are not able at present to r ecommend your approval of the plan, I want to say again I will not go ahead with it. What I'd like to work out is - not personally work out - I'd like to get these legal gentlemen to agree upon something which is not only in conformity with the statute but which will be satisfactory to them as your legal - as your financial experts, and to you, so that something may be taken to the President for his approval and not for his disapproval; and that pending that we let it ride. H.M.Jr: Well, the people here - I asked them - I think I'm correct, for everybody - "Are you unanimous?" I think that we disapprove of the offering of the bond through local authorities as it is set up now. Is that right, Wayne? Taylor: Certainly as it is set up now. H.M.Jr: With the present set-up. Herman? Oliphant: That's right. H.M.Jr: Dan? Bell: Well, I haven't been in on it, Mr. Secretary. H.M.Jr: Well, it's nothing different than what it was. Bell: I am opposed to the issuance of the bond under the present set-up. H.M.Jr: There you are. Now, Keyserling, Foley hasn't got anything to do, and he's at your disposal. Regraded Uclassified 28-H -8- Keyserling: Well, I'm at nis disposal, as ever. H.M.Jr: Well, so I mean I'm - we want to be constructive if we can. But the way the matter stands, you've got everybody in the Treasury that has anything to say about it, and we're unanimous. We feel that in view of the President's position - never mind the other stuff, which is another thing - but just from his standpoint, we just go on that idea that once it is explained Now, what happened in the case of Mr. Lambert? When we came there and we explained the thing to the President, he said, "No" - I mean in view of his position on tax-exempts, that's all. Now there's another whole thing, and besides that I think if you can successfully sell us, you'll have to also sell our fiscal agents in New York. I don't think that this is breaking any confidence, but Mr. Randolph Burgess called up end he says, "As a friend of the Treasury, for heaven's sakes don't let's try to sell those bonds through the local authorities." Now there's a man of great responsibility and who for while I've been here managed - I mean he just called up purely voluntarily, he said, "Don't let them do that." He said, "It's a great mistake." So we won't send any letter, I'll sit tight, until Mr. Straus says I've either got to do this or - fish or cut bait; as a fisherman ne knows what that means. Straus: And I think temporarily we'll simply proceed on the understanding that the Treasury does not approve anything beyond the sale of the bonds locally, I suppose, as we have been doing. We've got to sell 10 percent of the bonds. We know that. H.M.Jr: Yes, there's no argument about those - Dan? Bell: No argument. Straus: But you don't want for the time being to go beyond that. Foley: Well, not on the basis proposed, with this nationwide syndicate, Mr. Straus. That's the thing that bothers us: the creation of a syndicate that will market these Regraded Uclassified 28-I -9- obligations on a nigh-pressure basis and perhaps create in the minds of the public an impression that the obligations are either guaranteed by the United States or are the equivalent of Government- guaranteed obligations. That's wast bothers us. Straus: Mr. Secretary, I don't like to go on to an answer; you don't want an argument. But in the first place, I dislike the expression "high-pressure selesmanship" ana secondly I don't went to leave It go unchallenged taat there will be anything which will misrepresent. I have endeavored, If I may say this, since I have taken over tais job, to do two things with regard to the financing; in the first place, to do wast was said to be impossible, sell 10 percent of the bonds locally; the in the second place, having done the impossible in that respect, to do the thing which seemed to me next most importent, and that is to establish & brood market for that portion of the bunds which are sole locally, that's not taken up b. us, not teken up by the Tressury. Now, the second part of that task is as yet unfulfilled. To my mind, It's got to be done, because looking shead from the broad fiscal aspects of the country as & whole, I can't think of anything more harmful than to have a lot of these little unrelated issues kicking around unsupported, selling at e discount, which they will be all over the country - from $200, 000 in one city to $2,000,000 in enother. I believe the establishment of 8 brosd market, widely supported, on & uniform basis, is absolutely essen- tial. I am only saying that inasmuen ES this parti- cular plan nas been disapproved by the Treasury, I'm not going shead vitnout the Treasury. 0.1.Jr: who would support them? Streus: Who would support them? H.m.Jr: Yes. Straus: This issue of bonds contemplated would be a large issue which would have a general market and would obviously have the general marketability of any security where there is E large issue outstending. Who supports United States Steel bonds, who supports the bonds of New York City? Regraded Uclassified 28-J -10- Oliphant: There's Cities Service too. Straus: Well, where you have a large nationwide market, you'll find buyers; where you have a small isolated issue, there are many times when you will not find buyers and you will have to have racketeering. It is just to avoid those things, Mr. Foley, that I believe it is essential we establish this broad market. And I believe it is essential, further, that we extend the local participation beyond the minimum set forth in the statute of 10 percent, as widely as possible. I don't recede a bit from that position. Foley: Well, I'm for getting local capital into the program. I think that is essential, too, for the success of the financing as your act is set up. But I do think that when you transform the credit behind these obli- gations from a local basis to a national basis, which you re doing when you set up this nationwide syndi- cate that's interested only in the national aspect, the Federal pledge behind these obligations, I think we're running into danger, and I think that we have to be very, very careful in so far as the scrutiny goes that we give it, before we give it our approval. That's my point. Straus: I a hundred percent endorse that. I think we have to be very, very careful, and I know that you must give it your closest scrutiny before you give it your endorsement. H.M.Jr: Well now, look, I'm more than willing to go along on your suggestion that we continue the discussion with the understanding that if the basis is changed and you feel that you people have got to go ahead anyway, I'll simply be put on notice - "I'm sorry" - which you say you won't do without the Treasury's endorse- ment. So see what you can do. But roley's available, isn't he? Huh? Big broad- minded fellow. Oliphant: Broad-shouldered. H.M.Jr: What? Oliphant: Broad-shouldered. Regraded Uclassified 28- K -11- Straus: This thing is so essentially sound that once it is understood there can't be any objection; but it's going to take time and nothing is going to be done in the meanwhile, Mr. Secretary. H.M.Jr: All right. Straus: Thank you, sir. Regraded Uclassified 28-L Tuesday November 15, 1938 3:58 p.m. HMJr: Hello. Operator: Mr. Sayre HMJr: Hello. F.B. Sayre: Oh, how is Mr. Secretary? HMJr: How are you? S: All right. Fine. HMJr: Ah - Wayne Taylor gave me a copy of the memorandum of the conversations you had with the British Ambassador. S: Oh yes. I sent it over. HMJr: And I wanted to thank you for it. S: Well, I - I'm - I'm only too happy for you to have it. HMJr: Well, do you mind if I just let - you know how I felt about a sentence in there? S: Yes. HMJr: The sentence that sort of bothered me was - it said - "See if steps could not be taken to sustain - sus - sustain the pound, particularly during the coming few days". S: Yes. HMJr: Well, of course, from your standpoint I can see that but what we're interested in is what's going to happen to the pound after you sign it. s: Yes. HMJr: And that sort of bothered me because ah - ah - well, it - and I think from the long run stand- point it's just as important for you that the pound - S: Yes. Regraded Uclassified 28-M - 2 - HMJr: - be maintained afterwards and I would get the drift that you were - well, to take care of the pound the next couple of days and everything would be all right. S: Yes, well I - I think maybe I phrased that badly, Mr. Secretary. I ah - ah - I talked to him ofcourse about the President's concern - HMJr: Yes. S: - particularly during those - these next few days - that was the whole subject of our conver- sation. HMJr: Yes. S: And I did not say - or - and I think I didn't give the idea that of course we're not concerned as to what happens after the expiration of this week. HMJr: Yes. S: I think probably I phrased that a little badly in that memorandum. HMJr: But you did give them the impression that we are worried what happens afterwards as well? S: I - I think - well, I didn't discuss that as a matter of fact. HMJr: Didn't discuss it? S: No. HMJr: Oh. S: We were discussing only the President's anxiety concerning these next few days. HMJr: I see. S: That's all we were discussing. Now, ah - we just didn't refer to the other thing. HMJr: I see. Regraded Uclassified 28-N N - 3 - B: so I think, probably my phrasing in that memorandum was & little unfortunate in giving & contrary idea. HMJr: well, the Treasury - we're not particularly worried what happens from day to day, what we are worried about 18 that if this thing 1s done on Thursday and then the pound begins to fall rapidly, what are we going to do about 1t? S: Quite. And that's - that - HMJr: And I wanted to get over to you, while there was still time how I felt. 8: Yes. HMJr: And particularly it's my responsibility. S: I - I share your feelings wholly. HMJr: And the other point was that unless something happens much worse than it has, we don't propose to do anything and ask any questions until the Treaty 1e signed. S: Yes. HMJr: But as soon as it's signed, we are going to ask some questions, and Herbert Feis knowe all about that. S: Yes. HMJr: So, but I want to make my position very clear to you that the minute the trading treaty 18 signed I expect to send for Bewley and put up B. series of questions. S: Uh-huh. HMJr: As to the future of the pound. S: Yes. And Feis knows about that? HMJr: Feis sat in at the meeting while the questions were being - S: Yes. HMJr: - put up. Regraded Uclassified 28-0 - 4 - S: Yes. HMJr: He knows all about it. And for your own information, I had present at that meeting Dr. Jacob Viner, Professor Williams of Harvard, Professor Hanson - S: Uh-huh. HMJr: And Dr. Goldenweiser. S: Yes. HMJr: Dr. Feis and my own people, and we worked on that two different times. S: Yes. HMJr: And they assisted us in preparing the questions. S: Yes. HMJr: So there's been three weeks work go into it. 8: Yes. HMJr: So it's no fly by night scheme. S: Right. All right, Mr. Secretary, I - I don't think there's a word, I said to the Ambassador that would - HMJr: No. It's quite clear that you were talking about the next couple days. S: Yes. HMJr: And it's also quite clear what I'm worrying about 1s the day after. S: All right. About & week, sir. HMJr: Pardon me. S: I say, and the week after - the weeks after. HMJr: Weeks after? S: Yes. HMJr: But I don't want to be put in the position that through Regraded Uclassified 28-P - 5 - the drop in the pound, that I've got to write you fellows letters. S: Yes. Well I - I been - I think HMJr: But it's 80 important that I wanted by word of mouth to tell you 80 that you knew exactly where I stood. S: Yes. First rate. All right, and thank you very much Mr. Secretary, I appreciate you clling me up. HMJr: Thank you. S: All right. Regraded Uclassified ADDRESS OFFICIAL COMMUNICATIONS TO 29 THE SECRETARY OF STATE WASHINGTON, D.C. DEPARTMENT OF STATE WASHINGTON November 15, 1938. My dear Mr. Secretary: I am enclosing a copy of a memorandum of conversa- tion between Sir Ronald Lindsay, the British Ambassador, and Assistant Secretary of State Sayre, held on the afternoon of November 14. On the basis of Mr. Feis's reports of connected discussions on the subject that have taken place over in the Treasury, I understand that this action runs completely in accord with the Treasury interest and in fact merely repeats an initiative of the same kind made in accord with an understanding with the Treasury. Sincerely yours, Enclosure: Memorandum. X The Honorable Henry Morgenthau, JI., Secretary of the Treasury. Sayn also on say, mp.12 swx Taylor by or Regraded Uclassifie d Department of State EA REAU DIVISION ENCLOSURE TO Letter drafted ADDRESSED TO TREASURY U.S. GOVERNMENT PRINTING OFFICE 1-1083 Regraded Uclassified Department of State EA REAU DIVISION ENCLOSURE TO Letter drafted ADDRESSED TO TREASURY U.S. GOVERNMENT PRINTING OFFICE 1-1083 Regraded Uclassified 30 COPY Department of State Memorandum of Conversation November 14, 1938. Signing of the British trade agreement and decline of pound-dollar rate ticipants: Sir Ronald Lindsay, British Ambassador; Mr. Sayre. I called on the British Ambassador very informally at the British Embassy at 5:30 this afternoon. I told the Ambassador that I wanted to speak with him unofficially and informally, and then proceeded to tell him of my con- versation with the President this afternoon in which the President expressed his anxiety concerning the decline of the pound-dollar rate. The rate fell today to $4.70 and the President had said to me: "What will we do if the pound should drop to $4.55 on Thursday morning?" After telling the Ambassador of the President's anxiety, I sug- gested that he might want to cable at once to London to see if steps could not be taken to sustain the pound, particularly during the coming few days. The Ambassador said that he would gladly do so at once. I also spoke to the Ambassador about the rumor which is circulating to the effect that the trade agreement con- tains a provision stabilizing the rate of the pound at $4.50. In order to prevent the depressing effect of such a rumor, I said to the Ambassador that with his permission Regraded Uclassified 31 - 2 - we would give out a statement this evening denying that the trade agreement contains any such provision. I suggested that he might also think it advisable to have such a state- ment given out at once in London. The Ambassador at once agreed. MA & 22 OF Regraded Uclassified 31- A Yunnanfu, Yunnan, 15th November, 1938. The Honorable Secretary Henry Morgenthau, Jr., Department of Treasury, Washington, D.C. Dear Mr. Secretary, I enclose reports typed from notes sent me by Dr. Buck from Lanchow. Respectfully, Emid Samilers Enid Saunders Secretary to Dr. Buck Regraded Uclassified 31-B INDEX Page Interview with a secretary to a high official 1 Interview with the Manager of a large bank in Sian 2 Interview with Governor Chu Hsiso-liang of Kansu 3 Interview with the Manager of the Central Bank, Lanchow 5 Kansu Wool Export to Russia 7 Regraded Uclassified 31-C 1 Sian, November 5th, 1938 To Secretary Morgenthau From J. Lossing Buck INTERVIEW WITH A SECRETARY TO A HIGH OFFICIAL "There is a congestion of military supplies at Paochi, the railhead, 72 miles west of Sian, awaiting transportation inland. "Gasoline is nearly 6.00 yuan a gallon in Sian, and 1s being used very sparingly, even by officials. The province has only 40,000 gallons. First pre- ference is given the military and commercial planes. Second rank officials are allowed only 25 gallons per month. Gasoline supplies have been moved to Ping- liang, Kansu. "We are short of coal - the price has already trebled. We are giving special attention to the transportation problem, and we are now organizing trans- port by horse and ox cart. At present something like 3000 carts are employed by the government transport bureau. "The elcohol factory at Sian has been moved to Szechwan. The two flour mills and the one cotton mill are still operating. "Sian has been emptied of all military supplies. "Five thousand refugees at Paochi are awaiting transportation to Szechwan." Regraded Uclassified 31- D 2 Sian, November 6th, 1938 To Secretary Morgenthau From J. Lossing Buck INTERVIEW WITH THE MANAGER OF A LARGE BANK IN SIAN "The Chinese Soviet Government appeals to large numbers of people because of its clean government and the selflessness of its leaders, and be- cause it is weeding out the parasitic elements in society, such 88 the rotten gentry. Thousands of students are going to this area in spite of attempts to check the movement in that direction. "The Governor of Shensi is opposed to the Chinese Soviets and accord- ingly takes a non-cooperative attitude, except as 1s necessary to prosecute the war. He does not like people to visit that area." (His secretary, when I mentioned going there, discouraged the idea by saying I would find nothing different there. J.L.B.) "There is little talk about closer relations with Russie. "I am attending a meeting at the Central Bank tomorrow, to discuss with gold merchants the problem of collecting more gold for the Government. The market rate 18 higher than the purchasing rate of the Government, and we shall probably have to pay e higher price." His wife, in discussing the general situation with me, states: "We feel desperate, and we would rather go on fighting and even die than accept the yoke Japan would impose upon us." Regraded Uclassified 31-E 3 Lanchow, November 8th, 1938 To Secretary Morgenthau From J. Lossing Buck INTERVIEW WITH GOVERNOR CHU HSIAO-LIANG OF KANSU, MILITARY COMMANDER FOR THE PROVINCES OF NINGHSIA, KANSU AND TSINGHAI "Small scale industry and handicrafts are the chief points of the provincial program of this province, in view of the fact that we cannot import machinery. Woollen goods from local wool are already being made on a small scale, end the industry will be extended. "The paper industry will be developed for local consumption by the utilization of a local wild grass, from which paper of medium quality can be manufactured. "The relations with Russia remain the same." (He was very reticent about discussing anything Russien. J.L.B.) "The only new road has been the one to Sinkiang, but the other roads are being improved: the one to Sian, and the one to Szechwan via Tienshui and Peochi. "The currency situation is satisfactory, there is no shortage of notes. There is still considerable silver in the province, and we are still collecting it." (The assistant chief of the Foreign Trade Commission, however, states that there is a shortage in the country districts of both one yuan notes and of sub- sidiary notes. J.L.B.) Regraded Uclassified 31-F 4 (One of the lower officials in the Governor's office, who called on me, states that Kansu is recruiting 10,000 men per month - over 300,000 are now in training at Meinyang, Szechwan. J.L.B.) Regraded Uclassified 31-G G 5 Lanchow, November 8th, 1938 To Secretary Morgenthau From J. Lossing Buck INTERVIEW WITH THE MANAGER OF THE CENTRAL BANK, LANCHOW Currency, Silver and Gold "Kansu, like other northwestern provinces, has a preference for silver, and silver dollars are still in circulation in interior parts of the province. Government notes, however, are also accepted in most parts. Silver and gold are still hoarded, and since the beginning of the war hoarding has increased. Gold has advanced in price with the depreciation of the yuan in terms of foreign ex- change. There 18 no shipment of gold between Chengtu and Lanchow now, as occurred a few months ago, as the price is nearly the same in both places. "There are few Russians in the capital of Sinkiang, nothing like the number engaged in the Russian air training force in Lanchow. The Chinese poli- ticel relations with Sinkiang are now good. There is no special Russien political influence or economic control in Sinkiang." (This is contrary to other opinions and intimations from other sources. J.L.B.) "The Russian foreign representative in Lanchow 1a here to look after the interests of the Russians in the air force. "There 1e some talk here about the necessity of a closer alliance with Russia, but if that were possible it would have come about earlier. Regraded Uclassified 31- H 6 "Everyone is afraid of the Eighth Route Red Army. Former Governor Yen Hsi-shan of Shansi, who is now in west Shansi with his troops, is disliked because of his cooperative attitude toward the Reds. Civilians in his territory are antagonistic to the Reds, even to the point of wanting to fight them. The political government of the Reds is not acceptable to the Chinese." (The Manager is a native of Shansi, and is therefore in a position to know something of the reaction of Shansi people to the Reds. He is also a close personal friend of Minister Kung. J.L.B.) Regraded Uclassified 31-I 7 Lanchow, November 8th, 1938 To Secretary Morgenthau From J. Lossing Buck KANSU WOOL EXPORTS TO RUSSIA The following information is from officials of the Foreign Trade Commission in Lanchow:- The Commission has purchased 35,000 piculs of wool to fulfill contracts with Russia. The problem is now one of transportation. Camel caravan 18 the method adopted, and 3,500 camels with wool have already been dispatched. The Commission is certain of being able to obtain 2,500 more camels, making 6,000 in all. Twelve thousand men are needed, end the Commission has been assured by camel brokers that this large number can be procured, since the Commission is paying enough to make it profitable for the cerevans. The seven camel broker firms have now been united into one to handle the Commission's business. In the past the military have gained control of these carevens, and the owners have been hesitant to accept the Commission's business for fear of trouble with the mili- tary officials. Kansu wool was purchased at 36 yuan per picul, and Tsinghai wool at 43 yuan. The Russians paid only 36 yuan at first, plus transportation, but LOW are paying 43 yuen per picul. The cost of transportation from Lanchow to Sinsinghsie (on the western boundary of Kansu) and Sinkiang, a distance of 711 miles, is 22.50 yuan. China pays the Russian import tax of 1.65 yuan per picul. Regraded Uclassified 31-J 8 Gasoline will be brought back, 88 the Government has borrowed 15,000 gallons of gas from the Sinkieng government. The Russians also want the caravans transporting the wool to bring Russian commodities into China on their return trip. Negotiations are now taking place. The price of the commodities is the major issue. These negotiations are not connected with the first Russian contract for war supplies. There are three Russian government representatives in Lanchow: consular, commercial, and aviation. It is a question how much help a Russian railway would be if built to Lanchow. Kansu has only wool to export. This is a bulky product for its value, and the actual production is not large. Perhaps the Japanese would come from Paotow in Suiyuan and take it. The Central Government has no troops in Ninghsia province. There are only poorly trained Mohammedan troops there, end the Japanese could dispose of them easily. 03V13038 1838 030 THEMTHA930 YAU8A38T why to with0 - 48 I INSURED DUIB HECHIARD RECEE&VEL.S COMMERSONDENCE DIAISION Regraded Uclassified 31- 31-K November 15, 1938. 4:17 p.m. HMJr: Hello. Operator: Mr. Burlew HMJr: Hello. B Hello, this is Burlew. HMJr: How are you? B: All right, Mr. Secretary. I hope you are. HMJr: I'm fine. Burlew I want you to do for me, 8. special special. B: All right, sir. HMJr: I'd like you to send & telegram or cable to Secretary Ickes. B: Yes. HMJr: And tell him that I find myself very much embarrassed having this artist for ten days and I would consider it a favor if Mr. Ickes would leave it to you or me. B: Yes. HMJr: To go ahead with it and that this man has been here for ten days, 80 - B: You know we didn't realize that, I didn't know until this minute he was still here. HMJr: Well, he's been sitting here, so to speak, on my doorstep. B: That's a terrible situation. HMJr: And if you would - you could put it in the telegram. B: Well, I'm going to talk to him tomorrow morning at eight o'clook, on the phone. HMJr: Well, if you'll tell Mr. Ickes that I'd consider it & vote of confidence. B; Yes. Regraded Uclassified 31-L - 2 - HMJr: If he'd let you and me go ahead with it. B: All right. Now the other thing to straighten out. of course I guess I could do with Bruce, and that 1a, in the Procurement Division, that is the space the darned things are in. You see, there was - the Procurement Division laid out that space for the Secretary's - the portraits of the Secretaries of the Interior, you know. HMJr: Yes. B: And then we decided we weren't going to hang them there, and Rowan said the Secretary and I gave approval to put these murals in that space. HMJr: Yes. B: Then after that, there was no other place to hang the pictures and we got them up there. HMJr: Well, why don't you - 1s that where this fellow wants to paint? B: Yes. HMJr: Well, look. Why don't you say this to Mr. Ickes? If he'd leave it to you and me. B: Yes. HMJr: With power to act, see? B: Yes. HMJr: How would that be? B: Yes. That's what I'll ask him. HMJr: See. And then I - I - B: I think we can get along that way. of course he 1e taking such an intense interest himself, in these things, - HMJr: I know. B: And that's the trouble, it came up, you are I didn't know that this man was down here even and expect Regraded Uclassified 31-M 3 - us to look at them. We - put those up on Friday - Thursday or Friday. HMJr: Yes. B: And he put them up and then the Secretary was getting ready to go away and he just simply couldn't get down, even to the second floor. HMJr: I understand. Well, the point 18 that this fellow has been here for ten days, he's literally on my doorstep. B: Well that's terrible, we'll have to do something. HMJr: And I would like to say you or no, and I'd like to say yes. B: Yes. I told Mac this morning that I'd get Rowan over here and we'd try and get ahead on this question of space, but Rowan away. HMJr: And you spoke to Ned Bruce. B: No, I didn't call him back, because it was & question of getting him down here and I didn't like to ask him to come down here. HMJr: Well I'll tell you the way we'll leave it. After you've talked to Mr. Ickes, will you call me? B: Yes, sir. I will. HMJr: And, then if it's 8. question of deciding, we'll take the time - the whole Treasury Department will come over and pay you a call. B: Well, now, I expect - he arrives at Miami at seven o'clock and he's got an hour there before the aeroplane leaves for Cuba, and I'm sending a wire down to have him call me on another matter, and I'll take this up with him. HMJr: Thank you. You understand the spirit in which - B: Oh, I'm sure - HMJr: If Mr. Ickes, the thing I'm wondering about, will he leave it to you and me. Regraded Uclassified 31-N N - 4 - B: Yes. I understand. HMJr: With power to act. B: Yes. HMJr: And then I'll tell Ned Bruce to sit tight until I hear from you. I'll hear from you - B: You'll hear from me promptly tomorrow morning, by the time you get to your office. HMJr: Fine. B: All right, sir. HMJr: Thank you 80 much. B: Goodbye. HMJr: Goodbye. Regraded Uclassified 31-0 PRIMAL RESERVE BANK OFFICE CORRESPONDENCE of Nov Test (H) Date: Nov. 15, 1958. Subject: Telephone Conversa- 90: Confidential Files ties with lk. of mg. Fron:L. V. Tacks I called Belton at 9:50 this norning. Things were still very disappointing, be said. The dollar market had opened at 4.70-1/2; be had sold $2,000,000 at that figure and another $2,000,000 at 4.70 and had given £1,000,000 worth of gold at fixing. As the pressure against starling continued, they had let the rate drop down to 4.69 and sold another $1,000,000 there which had seemed to help matters. Since then the rate had picked - a little to about 4.70. His total losses for gold and dollars as far had been about $11,000,000 compared with total losses yesterday of E11,000,000. It was quite apparent from what he heard on the Continent that it vas primarily the Jewich question which today vas depressing the storling rate. Some people were convinced that the British policy of appeasement with Commany had broken down and that u a result thereof a disburbing and suxious political situation was likely to provail which, of course, would continue to came the transfer of capital to the United States. If 11 veren't for these latest developments, Bolton comed to think that they night have born able to hold sterling between 4.75 and 4.80 but now the expense of holding 11 there vas too such for then to bear. le asked whether I had say indications as to whether Washington - ceriously disturbed over this continued realther of the sterling rate. I replied that I simply didn't know, not having been to Bishington in may weeks, but that is By opinion our exporters would very definitely be disturbed and would almost insvitably press for have lass what kind of legislative necesses if sterling continued to drop. Dolton said that they fally realised all this, but the fund's receives wife getting lev and class be the danger lovel and If they had to the the pid of the Bank of Regient Regraded Uclassified + 31.P the markets would become still note disturbed. Be told as very confidentially that they vire discussing certain restrictions MY but that naturally they Regraded Uclassified didn't wast to introduce any which rould speet the freeda of their markets. the question had been under disoussion for may days and they would probably adopt one or two restrictive measures very shortly which they hoped would have be had effect. They were by now definitely convinced that the reason for the verimess of sterling vas of a political nature and that economic ressons at the moment were magligible. They were fully aware, be continued, that if storling depreciated very much further it would upset the whole present sconomic structure and whatever they might decide upon nov would be done only after the most deliberate consideration. Novever, as far as they could 160 nov, there vas as real hope of sterling becoming strenger until there was a real improvement in the political situation. It was getting more and more difficult for Chamberlein to carry out his present policy with Germany and, worse yes, there was a possibility of & political split in England in case the opposition should continue to be victorious at the pells st the coming by-elections. Re vas very anxious to discuss the present situation with no, be said, and keep us at fully posted as he could but had se much to do just now that be wasn't entirely free to call as all the time. I should, therefore, not hesitate to call him either at the bank or at home whenever I wanted further information. is far as the frane use concerned, Bolton thought it ml still firs and that Carigual was still gaining though less than yesterday. LOK:KV 32 November 16, 1938 I called up the President this morning at a quarter of ten to congratulate him. I said, "Nr. President, I want to take this opportunity to con- gratulate you on your two statements that you made last night, (1) on the recall of Ambassador Wilson and (2) on national defense. He said, "I think the one on Wilson was good," and I said, "I certainly do." Re said, "Cordell Hull was good also, and I said, "He certainly WAS. (He then was kind enough to say "I used your suggestion on national defense and it seemed to RO over big." It certainly was nice of him to say it.) He then said, "But I have got to get over somehow those figures of how many planes the Germans, the British and the French have on the first of October in order to get our appropriation through Congress." I said, "Yes, Mr. President, but 1sn't there some other way of doing it than having you give out the figures?" He said, "Yes, I have an idea." He said, "I will try to get the opposition to give it out." I said, "That will be swell if you let it come from the other side, but don't you give it out because," I said, "if you give out the figures you will simply be Justifying Chamberlain's position." He said, "Repeat that," and I repeated it. I said, "I have got the first concrete suggestion to make for the Jewish refugees." He said, "Well, for Heaven's sake, what is it?" I said, "Constantin Maguire has sent me a letter suggesting that we make B. settlement with Great Britain and France on their war debts for British Guinea and French Guinea, and then somehow or other raise enough money to buy off Holland for Dutch Guinea. He said, "It's no good." He said, "It would take the Jews from 25 to 50 years to overcome the fever and," he said, "1t's Just no good." He said, "What's the matter with the idea I have been talking to you about for a long time and," he said, "that's the Cameroons." n He said, "The Cameroons was a former German colony and now belongs to France and" he said "the same suggestion that you have of giving these countries a credit on their debt to us would apply there and "he said "I know from explorations that have been made in the Cameroone that they have some very wonderful high land, table land, wonderful Regraded Uclassified 33 -2- grass and very thinly populated and" he said "all of that country has been explored and it's ready." Then he said, "Adjacent to the Cameroons, the Portugese have a territory and" he said "that could be included." But he said all the Cameroons have been ex- plored and he said it's a good climate. The thing to do 18 for us to get some geographer that Mr. Bowman can recommend and look over all of the colonies belonging to France and England wherever they are and Bee which of those could take a populationand I want to Bay here that in discussing this with Mrs. Morgen- thau I think it 18 most important that whatever 18 done is opened up to all refugees irrespective of religion; that it should not be just for the Jews. .... I called up Cordell Hull to congratulate him on his statement also and he said, "Well, there was very good cooperation between the State Department and the White House.' Hull's statement was stronger than the President's. .... The thing to do 1s to get a list of the colonies which they took away from Germany and see which are the good ones. Before the Germans get them back let us give them back and forgive part of the National debt. I am thinking in terms of $500,000,000. The President and I figured it out. In the first place, the most difficult thing is to get the land. Assuming that we have that, we are talking in terms of $500,000,000 raised privately. If we are going to pick something new, pick some- thing that is so good and BO rich in natural resources -- one of the richest countries in the world which is un- explored 18 Turkey. They have everything. They have copper, oil, coal, timber. They have coal right on the surface and all they do 18 a fellow goes out with nick and shovel and buries it, but they never let them mine it. That's the sort of thing I mean. I think I could go to the Vice President and he would say "What the hell. You want to knock off $25,000,000? to shead. The temper of the people today we can make this Regraded Uclassified 34 -3- a political refuge for all creeds. I think the public is ready. My motto is "Nothing ventured, nothing gained. If The point is the President has this. Nobody is helping him. I am going at least to do the spade work. The thing to do is have it ready before Congress comes. Regraded Uclassified NEW YORK TIMES - November 16, 1938. 00SEVELT CONDEMNS NAZI OUTBREAK; COULD SCARCELY BELIEVE' IT, HE SAYS; LONDON STUDIES JEWISH COLONIZATION Tt was difficult to conceive of & (ack from another continant. sol- more forceful expression of this idarity among the countries in this New York Times country's displessure short of asver- purpose would be bls aim, be de live diplomatis relations. It foi- clared. STATEMENT SHARP lowed by less than twenty-four The denunciation of Germany hours the summoning from Berlin was uttered only after thorough of Hugh R. Wilson, the United consideration. The more than 200 States Ambassador, for the tech-correspondents who crowded the leally phrased purpose of report and President's office knew St was to Language Is as Strong as consultation here, but for the actus(be made, for they had had advance purpose of drametically notice that he would speak his a President Ever Used method of protest, calculated to mind on the subject. more emphatic than any diplomatic As they entered his office, they note could De. found Mr. Rosevelt In high good to a Friendly Nation STATEMENT OF PRESIDENT humor. He leaned back to his The President's statement fol- chair, purfed at & cigaret from a NOV 16 1936 lows: long holder and exchanged banter Ing remarks with the front TOW of OPINION 'DEEPLY SHOCKED' The news of the past lew days oorrespondente until all had ant- from Germany bee deeply shocked ered. Then be disposed of 4. few public opinien in the United incidental questions that were has- States. Such news from any part (ily asked in the realization that President Stresses the Word of the world would Inevitably pro- otherwise they would be lost In 4 duce a similar profound resotion discussion of more perfous prob- 'Technically' in Terming among American people In every lame, Wilson's Return No Recall part of the Dation. I myself could scarcely believe Eager to Get to Main Business (bat such things could occur In But the President was sager to twentieth century civilization. get to the main business and in - By BERTBAM D. HULEN With a. view to gaining first- moment he picked up & sheet of Aparial in Tax New YORK Toma hand picture of the situation in paper and announced that had just WASHINGTON, Nov. 15,-Prost- Germany I asked the Secretary of finished dictating a statement he dont Roosevelt voiced the con- State to order our Ambassador In had to make on Germany, demnation of the American people Berlin to return at unce for it Ha then read It to the correspond and their government of Germany's port and consultation. ents. quoting each sentence rapidly, attacks on the Jews today In one Because of its unusual characier but pausing once to gaze toward the of the moat vigorous statements and its vigor the statement Inime- ceiling. blow a ring of amoke and that It was possible to make In pro-diately powed the question of whattranspose & sentence from Its order TOSE of the events of the past few would be the resetion of Chancellor he bad originally dictated what days. Hitler. As to this, President Roose-he had to my. In a statement that he read all his velt did not appear to be worried. Departing from oustom that gon press conference Mr. Roosevelt de Instead, after concluding his die- nnunced the attacks In language at cuselon of (be Garman situation. be sharp as had ever been employed turned in response to questions to by a President against the course national defecase and made it known pursued by 3 foreign government that be was considering adequate with which the United States had measures in collaboration with the friendly diplomatic relations. (wenty other merican republics "I myself could scarcely believe and Canada for defenes of this con- that such Brings could occur in tluent-North, Central and South (wentleth-century civillaation," be America sgainst any threat of at- declared. Regraded Uclassified S erne the White House product conths- While not referring directly to PO- to facilitate the emigration or Jawa ences, he Announced " . prelim-ports that " United States bedfrom Germany, Mr. Hull said that lusty that the statement was for@ubmitted A refuges plen to Brilein. he had no information on that ques- direct quotalion In the press. Mr. Rocemvelt anid that be knowlllon blueself and had ween nothing nothing or what had benn happen-on tt from Ambassador Kennedy. When be concluded Ibere was Ing in London the peat twenty-hur The National Council for Preven- rush of questions from the corre-hours. He did know, he added. tion of War in . statement today spondents. The first was . requestant the Intergovernmental Com-urged not only that the United for an elaboration. The President mittes on Befugees, which has Its.States appropriate funds and mod- declined. enving the statement headquarters in London, was bend-111 the immigration laws to facili- Ing the afforts toward enlarging thelete the amigrailon of Jews from spoke for Haelf. acope of Its work In view of theGermany but also that as . further Alked whether e note of protest increasing seriousness of the Ger-mien the problem of refuges atd be had been sent to Germany, he re- man situation. taken up At the Pan American Con. plied that none had been sent yet. Asked whether be had considered ference la Lims. Sie Bid not indicate whether one where the refugee might go, the Beich Trade Accords Opposed President replied that he had given would be dispatched. A great deal of thought to B. but & delegation representing relig- Archessador Wilson, he said, wasthat the time was not zipe for an lous and other organizations in sailing from Havrs Thursday DO announcement. Essiero citize called at the State lhe steamship Manhattan. The whether be would recommend to United States not to enter into When 4. correspondent Inquired Department today and urged the Ambassador. he explained, was re-Congress modification of the agreements with Germany, Its turning by his orders to report andgration laws in order to permit A roembers were informed that no consult: Technically under diplo-Inrger number of refugees to intencontemplation was being given to maile procedure, be added, It. was this country, Mr. Ronsevelt replied the negotiation of . reciprocal trade in the negative. agreement with Germany. not . recall. but in no seying he This bowever, did not remove the Voicing their indignation "at the gave sharp emphasis to the ech-possibility of some adjustment Valmeities against the helpless Jewe cically." quotas under existing law. Alreadyand the leaders and members of The Manbattan le due In Newthe German quota has been other failhe in Germany." the dele- Yoork Nov. 04. the day before creased by the inclusion of Austrin.,Sation also and that If Che United and IC may be enlarged atill more States decided to impose economic relary of State Cordell Hull in toby making allowances for immigro sanctions against Germany It would sall for the Pan-American Conter-tion from the Sudeten areas that support such 8. step. eace at Lims, Parti, and so pre-have recently been taken over from Members of the delegation Includ- sumably Ambassador Wilson will Caechnalovakia expected that by announcement Germany. It land more, William vice president F. Coobran of the of Church Baiti- en have so opportunity to confer with this subject may be made soon, Langue for Industrial Democracy: Mr. Hill That he will remain la this country Indefinitely was clear- Bull Declines to Comment the Rev. Jmseph Novak, Prethy- Jerian clergyman of Dalimore: the ly indicated by the Secretary of Becretary Hull was even less fllu-Rev. Clarence Bleakney, president Blain earliar to the day when be minating conference. on this point at his press late of time Counell, New Jersey Dr. Baptist Benjamin Minis F said no did not have enything in Asked about reporte from London Crewford of the First Methodist mind as lo the duralion of file stay. that the embassies of the United Church of Carnegia, Pa.) Harry C, Befugeo Plan Not Confirmed States, Great Britain and France Lamberton of Washington, D. C., recently planned to seek n. relaxa- representing the American langue Concerning London reports that then of financial restrictions on for Peace and Democracy. and the the United States had broached Rjaws leaving Germany. Mr. Rull Rev. William Howard Melleh of plan to Great Britain for locatingreferred questioners to the Inter- Cincinnatt. 600,000 Jawe from Germany In ape- governmental Committee on Ref- Amouncement was made loday citie President Roosevelt ligeos in London. It was better to that high Catholic dignitaries. In- places, have all Information na that cluding members of the hierarchy was Indeflnite et his pross conter- jeot come from that source, be ex- and leaders among Catholic lay- ence. The State Department saidpiained. men, would join in el joins protest lbst LE knew nothing about It. Asked concerning another London against Nazi persecution of German In the first place, the Presidentraport that Prime Minisine Neville Jews in a. program broadcast to- would make no comment on reportsChamberiain was contemplating en morrow from 9 to 9:30 P. M. over of activity In this connection by Jospproach to President Roosevelt for the National Broadcasting Com- myb P. Kennedy. the United StatesAnglo-American cooperation outaide pany blue network, Ambassador TO Londos the Intergovernmental Committee Condemnation of the persecition will be heard from const to coasi on the program, which will origi- nate in Washington and and at San Francisco, with pickups at New York and other poluts Among the speakers will be Archbishop Mitty of Ban Francisco and Alfred E. Bmilh, Regraded Uclassified Text of President's Statement 11-16 the Bereld Tribund Burden WASHINGTON, Nov. 150-The text of the statement en Germany's treatment of the Jeus which President Roosevelt read today at big press conference follows: The news of the last/few days from Germany has deoply shocked public opinion in the United States. Such news from any part of the world would inevitably produce a similar profound re- action among American people in every part of the nation. 100% I myself could scarcely believe that such things could occur 2 in a twentieth century civilization, With à view to gaining a first hand picture of the situation in Germany I asked the Secretary of State to order our Ambassador in Berlin to return at once for report and consultation. JOURNAL OF COMMERCE - November 16, 1938. 38 ROOSEVELT CHARTS hand picture at the mination in the Prevident indicated, has many I asked the Benetury Dan entirely new concept of our own State in order our Ambusts-Sur ignational defense for, with the advent Berlin to return at oñce (or reportion the strplane, wa have lost much and consulta(ing." of our Indiation from out World por NEW COURSE AIMED June as American Ambassador Willitical machinations an must consider son is being called hume 10 discuss/Pur own défense from the Canadian the matter with the President. so 10 line in Terra Dal Furgo, to ase his . expected that the German Ambas- bwg expression. AT GERMAN POLICIES Ador will be "Invited" home from Before le Airplane Washington similarly to acqualed 2018 Since the airplane is such 4 factor Invernment with the adverse publicia both offense and defense, It WILE Journal of Commerce reaction in the United States. but natural that be should give PART While lhe President gave no nintticular attention to air services of Vigorously Condemns Drive any coptemplated action do thethis country, the subject of yeater- hart of the Washington Governmentday's national defense conterence at Against Jews, Accounts o show its displeasure in anythingthe White House, The President more marked than the straining ofwould not into details, such .. for Recall of Wilson (lplomatic relations, nevertheless Iswould revealt be number of air- was believed that bis utterancesplanes that would be built to protect NOV 16 would give further impetus to 4. de-the estimated 20,000 miles of ANROUNT termination on the part of Americantrom Arotic Clircia to Cape Rurn - WANTS LATIN AMERICA coûsumers La refrain from purchas.back, where OF how many airports ing goods bearing the "made inwould be constructed, OF whether OF CANADA IN DEFENSE PLANDermany Tabel. not $500,000,000 would be spent De the The President, It was revealed, haselfort, as has been rumored. been giving considerable thought to The president explained that be- the situation in Germany, not name cause world events of the pass (ow Joint Protection of American respect of the Jewish problem. years and scientific advancement a but with regard 15 economic pulli she waging of ware, the whole erlen- Is Objective-Possible Boy of She Reich. On November 10. this intion of this country in relation to country required that gends from she he continent on which ve live has cott of Reich Products Seen Buileten area Intended for entry been changed. There is today . on- the United States be marked made tinental solidarity among the Insuly- In Cermany" and take full rates yone Pan American republica and Cao- Dy CLABENCE 1. LINE duty, Yesterday, delegation benda which la more definite, more WASHINGTON, Nov. 15. importers were told It would not be unsnimous last 120 jean-since than ever the before Latin in Amet- the -possible to suspend this order that President Rousevelt today joined@oode to contracted The Issuance for by Americans De al- lean republics were struggling tot their Independence. in public condemuation of Ger-jowed prine to come in with might the marking Therefore. on this continent. he many's treatment of its Jewish accorded 'made in the CaedbualovaXia" favorable and rales tel paid, in the we belief are substantially that as a continental unanlmous more population and took personal re- of duty provided under the trade doctrine, we must be prepared so sponsibility for the calling home ofagreement with that rountry, parry out the outlines of continental solidarity which was established al Amorican Ambassador Wilson that Wills Can Be Date Buenos Aires He Instated that 15 to he might get a true picture of con- There does not appear much thatvery important to gnd the conception the Administration can do in retails-that this In a continental solidarity ditions in that ununtry. tion against Germany, since we al-1030 which we fit - que of the - AL The same time, the Presidentready impose upon its exports to the gublies. made public (OP the first time United States full rains of duty Check Mode Necessary plan of continentat defense Invelv- corded while competing very favorable nations rates. are How- ac- The United States therefore has Ing both Latin-america and Canada ever, a is considered here that pub- and necessary to check in order up and to maintain see what this be with the United States while at thelle opinion in the richest nation in intinential authority against any Siate Department preparations wereth= world decirable and market one that for offers of very foreign possible threat from any other being made for the signing the merchandise. will do more than any inent, the President explained, Yes Drink and the Canadian tradelaw on the subject could accomplish erday's conference, in which All- agreements more closely linking Surprised by Denuncialion -Istant Secretary of War Johnson and his aldes, Including the Chief those orser with this country than At the outset of his press numfer- x the Army Aair Corps, Secretary ence the President warned be would ever before. make pienty of copy Due them, but Treasury Morgenthau. Sellicitur- President Roosevelt anticipated the the manner In which be plunged Teneral stratne Jackson Hopkins and participated. Retier Admin- IVILE questions of newspaper correspond Int his denunciation of Germany caused armi-weekly conference great dent of contined simost entirely to the surprise, prob- ente = Time When be freely stated his of aircraft. plans for this alternoon by reading the fol-enntivental determined to delense, that surprise in- 18 valid approach lowing withdreased mensurably. Congress on the subject of Ingista- propared statement uon to place the defenses of the much vehemence, the Asked program what of tod national him to delense expend ID United States and the Consinent Deneunces dewish such a manner, the President Earily against any possible criste from out- "The news of the past Tew days told inquiring repurtera to read the side on & safer basis. newspapers over the past five years. This may mean establishment in from Germany has demply shocked Thus he avoided giving furnher men- other countries of airports to which public opinion in the United States. Lion to Germany, but distinctly latt we would have sorm under construction 179437 Buen news From any part of the the Impression coalition that the was new directly Fan and arrangements maintenance and of for which " may world would /nevitably produce aimed American at the Reich, contribute financially, while also pro- similar profound peaction among The plan la not to be one-sided by viding engineering and other technic American people in every part of theRry means, he intimated. and hotal assistance. was very certain in his sistement It may mean. also, diversion of nation that he had every reason in funds and employment to "E myself could actively believement all of the Central and SouthProvide assistance in the Further THAT surh things would accur 10 a/American countries and Canadaance of national defense plans. twentielb cenjury would de their share in the fulfill- May Ask Hage Some ment of the objective for collective The President is under compulition "With view to gaining 4. mat- defense of this hemisphere. Thise go to Congress early nezi year with proposals for appropriation of blue sume for unemployment reliaf and It is waid to - the lielief of some here that this will be justified on the linking of ralief with national docense, Regraded Uclassified NEW YORK HERALD TRIBUNE - November 16, 1938, cy Roosevelt Says Germany Shocks America; Powers Discuss Havens for Refugee Jews Berlin novela Sees Has Catholics Statement for Press as Next Nazi Target Tork Talk of New Home for Jews The Presium was ready to make Tribuns public his views when the news- There were strong Indications in President, in Statement paper men acrived at the White Washington today that Interna- House at 1 p. m. There were Gilf or Nonal consideration was being given in Press, Says He 'Cun two questions about local govern- to a new home for a mass emigra- Scarcely Believe That ment activities in the District of tion of Jews from Germany, The Columbia, but the President dis- possibility of a home in Central or Such Things Can Occur* posed of them quickly, suggesting South America or in one of the that the conference get down to British colonies is under discussion Wilson Is Starting more serious things He said that be here. What Mr. Roosovell went on had before him several matters to say at his press conference non- Home Tomorrow, about which be expected questions, firmed this general Iden, allbough Therefore, he would shoot first, he he refused to be specific. said. The President said be had not Neither Roosevelt Nor Mr. Roosevelt picked un n. type- heard in the last twenty-four hours written sheet of paper and read his from Ambassador Joseph P. Ken- Hull Will Say He'll Go statement slowly enough to DO taken nedy in London, but he did know, Back ImmigrationQuo- down in longhand. He read It: in the said, that the Intergovernmental vigorous tones, then picked up his Committee on Refugees, on which tas Not To Be Increased cigarette holder In which A lighted the United States is represented, cigarette was fitted and leaned back was at work to extend help increas- By Albert L. Warner for further questions. ingly. But Mr. Ronsevelt was not dis- Asked about possible sites for a big WASHINGTON. Nov. 15-Pub- posed to elaborate on this subject, Jewish settlement, the President de- Licly and with deliberate prepara- He sald the statement spoke for :- clined to name specific places, das non President Roosevelt rebuked inday the German Nazi govern- self. His understanding was that claring the time was not ripe. ment's persecution of Jews. declar- Hugh R. Wilson, the American Am- Mr. Roosevelt said definitely that the that nublic opinten in the bassador at Berlin. would be return- relaxation of American Immigration ing Thursday In the United States laws to allow an Influx here of Ger- United States was "shocked." He Uner Manhattan. man Jews was not contemplated. could wargely believe that such Asked If Mr. Wilson's return con- In other quarters It was pointed things could occur in e (wentleth- stituted a recall. the President out that a considerable number of ventury civilization." he said. clared that It did not technic German-Jewish refugees could be A "profound reaction" had stirred Mie American people, he added. speaking. It was & summons to coma Accommodated In this country under la get A. first-hand pic- home, he added. A newspaper man the existing quota law. which allows Line of the sttuation, he had asked Inquired If Mr. Wilson would remain 27,370 persons to come here annually the Asservant Airlbasador in Bertin indefinitely In this country--a pos- from Germany, including Austria. It sible sign of official displeasure is the contention of officials here a return at once. here over the policies of the Ger that other countries throughout the The President slowly read the antenent at This regular press con- man government. The President world should render similar essist- invoice and allowed IL to be quoted. plied that he had nothing further ance. This government, however, n Ras in eDget, n direct veroal to any beyond what Cordell Hull, does not wish to change lie general nime by the liead of the American Secretary of State. had told his press immigration policy, especially in a covernmente vinied ne the German conference a little earlier. time of harge unemployment in this Exeminent which has initiated per-a Secretary Hull also had avoided James and direct answer, which in Itneif was country. to talke stagle handed re- within suppression of Unite activities considered significant. Mr, Hull did sponsibility for the Clerman Jews. As such. ded nan no complete not accept an opening to give as- and È in surance that Mr. Wilson would be termt times returning to Berlin. He simply and be had nothing to mind on this subject. ant added that be would not undertake Le) appoulate about the futime Regraded Uclassified 40 Complaints against Ournamer poll-every effort toward bringing about clas continued to min in on the conditions which will permit lasting police to be established throughoul State Department The National the world cia only hope that the EC Council for Prevention of War volced premion of Indignation or the part its "horror" at the "onitality" or of nivilled FORMS unformity will the persentions and unged special behag to . prompt half 5 sion 11 had naped had AM in De American atd. fL preposed modifies dark MON." linn of the immigration and appropriation of public moves to No War Case. Bays Negvis give rellef le the Jews It also Urgel that the problem of refuges aid be OPRINGPIELD Mo. yes, 18.00 taken up at the Lima conference -Sonator George W. Norma of the American republica. pendent Republican, of Nebroaks sald taday the presecution of Jewi Churchmen Project in Germany WILL "outragenus, mhu- A delegation of churchmen andman, Indefensible and incomprehen- educational leaders from variousalble," but the United States could Fastern cities left & statement without tell the Germans "that they the State Department protesting can't do It." The Sension passed "atroelties against the helpless Jewslant night here en route to Wash- and the leaders And members ofington. other falths In Germany." An official "& nallon has the right to put American protest was urged. Jews out, or to put the Irish out, or The Gengan Embassy here ex- the Americans out," he mid. "And pressed supprier at developmentantil they try to do something to and awaited word from Bertin The us, there Is no resson for us to go pomibility was suggerled that Hans to war about IL" Heinrich Dieckhon Getman Am- bassader, world be asset by his Ashurst Suggesta Break government to return to Derlin, but no such word was received today. PROENIX Aria, Nov. IS On the contrary, the Embassy said Severance of diplomatic relatione Mr. Dieckholf movid continue at his between the United States and That no change in Germany because of Name nusti-Jon- his plans WAS contemplated. lah outrages was suggented here to Among the precedents for present day by Senator Henry 7. Address While House policy la # Inter which Demonrat, of Arisona. John Hay, Secretary of State, wrote Describing Chancellor AGGIT ITIT- on July 17, 1902, protesting Ruman- let na $ "madman." the veteran lan persecution of Jews, He called Arizona Senator said, "As far AT It "repugnant to the moral sense of the Administration is concerned. th Uberal modern peoples" and an at- should SEVET diplomatie relations tack on "the inherent right of man with Germany." new . breadwinper to the ways of agriculture and trade," He said Rumania was reducing the Jews to - "state of wretched misery." How- ever, Mr. Hay said that while Jewish refugees would be welcomed here when coming equipped to make their Ilving. such immigration would not be acceptable or beneficial If the refugees came as miteasts and paupers thrown upon the generoalty of the country. In 1011, E treaty with Rumia was abrogated because of the treatment of Jews there. McReynolds Proteste WASHINGTON, Nov. 15 m- Representative Sam D. McReynolds, Democrat, of Tennomer, chairman of the House Foreign Affair Com- millice said today In - statement: These of as who are exerting Regraded Uclassified BALTIMORE SUN - November 16, 1938. 41 ROOSEVELT DENOUNCES NAZIS PRESIDENT SHOCKED BY ATTACK ON JEWS GIVES DEFENSE DOCTRINE FOR ALL OF NEW WORLD Points To Need Of Continental Solidarity Among United States, Canada And Twenty-One Latin-American Republics American Envoy To Berlin Not Expected To Return Td Post Soon - Wilson's Absence May Be Regarded As Semi-Quarantine Against Reich President's Statement [Washington Bureau of The Sun] Washington, Nov. 15-President Roosevell's statement on the-persecution of Jews in Germany follows: The news of the last few days from Germany has deeply shocked public opinion in the United States. Such DOES from any part of the work would inevitably pro- directors smilar profound reaction among American peopletin every part of the nation. Regraded Uclassified T myself could servedy believe that such thing Sesha Belidarity In Defense could occur in M twenticth century civilization 42 that 11 la for too soon to ameri that the quarantine Idem, first mentioned With a view to gaining # hand pisture - the President in connection with situation in Germany, I asked new Retretery of ani Vapan's Imquest of China, to definitely to order our Ambarandor in Berlin to return_et ones for in the President's mind egain, report and consitation, What positively is - bis ented, he mid candidly today, Law "miliderBy" between all the nations or the Wodliern $ year I Hemisphere on the aide of Washington, Nov. 15- one breath today President Room defense. He came to this at a montent when velt eathingly condemned Germany uialtreatment obder Jon- correspondente were Impatient is ish population. leave the press conference room to flash his statement resalling Germany. In the next he outlined an American doctrine of national de- These news writer paused, berwever, when Mr. Roosevali said that be would fense which he expanded to cover the entire Western Hemisphere.ino take up the national defense The coineidence of these two litterances - equally sensa- status, Outlines Conclusions tional - has a significance that was well understood in every All the correspondents expected quarter of Washington tonight. there he would marely refer to almos of the well-know phèses of that perib- Shocked By Events In Germany lem bet were startled as he proceeded to outline the conclusions be and his Mr. Roosevelt made it plain that he was profoundly shocked associates had reached. He talked in general terms for as are the American people generally by what is happening his low minutes, as when he mentioned the Germany, fact that world events and the scienti- the advancement in the processes of And he made it equally plain that he is preparibe to meet making - had changed the position of this country in relation to other force with force if Germany or any other power turns resentful continents, or covetous eyes toward the western Vontinents. From he passed to the need of cobinental solidarity of His two utterances were reserved for today's press confer- the United States, Canada and the twenty-one Western republics, in con- once. One followed quickly upon the heels of the other. sidering defense policies. Explains National Defense Program Says U. a. Fits in Program He thought we should carry on the First he read aloud his brief but caustie statement in ex: continental solidarity worked out of the Buenos Aires Pen-Ainerican con- planation of his summons home of Ambassador Hoge R: Wilson ference. It is he said, a solidarity into from Berlin. which the United States file. Then the President asked himself Then, when he had discussed somewhat grimly the back- the question: What is necessary in maintain that solidarity? ground of that incident, he launched into an exposition of his Right there Mr. Receivelt explained the national defense program as dealt, with at yesterday White that by "continental" unlen, be meant union of forges in the whole West, House conference with his military legal and financial advisers. em Bemisphere. He said is was necessary for all He did not discuss directly the plan of Ambassador Joseph Western interesta to be prepared to P, Kennedy, reported from London, for a mass imovement of resist any possible attack from any Jewish refugeès w this and other May Mean Tempurary Break other continent It seemed to most of the writers that westerg countries. Ambassador Wilson will not return he was thinking of the penetration of But he did say in that connectic seon to his post. He may remain here the American continents of Nazilam, that he would not recommend indefinitely. The Président sald as but he said nothing directly on that lowering of the Unigration bars for much. Also he said the envoy had not point. been "recalled" in a technical sense, Safety For All le Aim the benefit of and refugeen. He said He said safety for all was the alm ne would adhere to the quota system, but had merely been orders home for of the United States, which seemed to sew in effect oposultation. mean that he had in mind 4 definite animal Looks To London Group This may, however, - a tempo- military extension of the Monros For the Mone being. Mr. Regement any severance of diplomatic contact Doctrine. said this country looks - Mm In- with the German Government There a was to discuss all this he sold, that he called in his advisers pestage termational Refuge Committee with were suppostions tonight that is may day. He had called in many of theme ting In London for some divilidestion even imply a "quarantine" or an effort leveral times before, but there - to quarantine Germany, of the agute plight of Cherovers Jews to intimation class that he was shink- Next Week Cordell Hull, Secretary PE in terms of inter-suntinental seeking gylon slagwhere. $ of State, leaves as head of the Amer- ufety in working out his defense He - that u you no protasts ican delegation to the Pan-American alant. had - from Americane who may conference at Limi, Pera, It is easy to He said that this country was pre- available Why, improsement or believe that he will out out Dive Latin- ared to lake aleps with such rescures property the recent American officials whom be will meet are DOW available to the and 30 had La. - - signid call upsi upbeavel Visitors General Jews. There whether they will join the Congreen with 1 the past for other United States in such . move. Regraded Uclassified 3 Confident OF Comperation WM approaching the Munich 40++ The said be had no thought there ment, this country, although deeply were any defections on the part of concerned and unsurer, look the pai- other Watern governments. No Lien that is was not involved interned that all of them would Cannet Ignore Jowish law cooperate in the delaw "Wegirine" Just now, however, the Government. if DE Unityd States of Teast, feels that la to closely tied Antil and spin be name is this into the Jowish problem that is capnet Golate Itself. M as B policy bet at 4. diectrine, The other fact is that the President A word which all Bates countries, feels that rearmament must be earried of square, know by Mari, out on . not reale and that It should Plant there, he was asked If the it.clude protection of the Interests of Philippines came within the purview all Western countries. of his doctring. In that connection Mr. Received Illa answey Miss brief but pointed. v.as asked today if he had in mind e He mid that the American tag still Beet that would adequataly estaguard flies over the Pullippines. simultaneously both - Relations With Reich Agute He paused for e momant before he Two highly Departant facts were replied; then said, no. made impresive by this press con- Double Purposa In Move ference. It is well understood thes there was The first is that American rela-a double purpose im the two Utter- tions with Germany are more acute at ances of the While House today, this moment then - any time since One was to ward Termany and give the Armistice WAR signed. notice to other powers of American In earlier intergational controver- feeling and American determination <les involving Germany, the United to sufeguard hereit and her neighbors. States was severaly alopf. That was The other was to lat Congress have true of the investor of the Ruhr, the some Idea this far in advance that it occupation of the Rhinelend. will be called upon in back up Uw They securred Ey be Quantity Euro- new "doctrine" by heavy expendi- pean problems Even when Europe tures. The only specific Information the President gave today regarding the national defense program was his statement that more aircraft yes the one urgent need of the moment. Group Asks Ecenomic Attion A delegation of churchmen and edu- callore from nearby States presented . petition calling for economic action against Germany 18 Jemes Clement Dunn. political adviser in the State Department Chairman McRaynolds (Dem., Tenn! of the House Foreign Affeirs Commit- tee said in A statement: "Those of LAS who are exerting every effort toward bringing about condi- tions which will permit lasting peace to be established throughout the world can only hope that the ex- pression of indignation on the part of civilized man universally will bring to a prompt halt a relrogression yve had hoped had died in the Dark Ages." A nation-wide breadcast by Catholic elergy and laymen was arranged for tomorrow night, , to 9.30 o'clock, Speakers will Include format Gover- nor Alfred I Smith in New York and Archbishop John 2. Milty in Sen Francises. Regraded Uclassified NEW YORK TIMES - November 16, 1938. WILSON TODEPART The DATE declares that Mr. WILL thorities, la whom they now FOD. is namely beginning a little NP turn, will anign them to special Der - Into that be had pleased sines sections of the which, whether Summer Due bad postponed because or not it Were called . ghetto. FROM REICH TODAY would still be one in effect. of the recent Turopean cricis and the advance of Tile date of depar- Many Businesses to The Climed taxe is explained by Mr. Mult's de- II WM likewine revesied Today York Pleas stro to consult him before leaving that only about one-third of the U. S. Envoy Bids Ribbentrop Nov. 25 for the Pan American Con- Toughly 100,000 Jawish business on- ference in Lima, Paru. terprises in Great Germany would be "Aryantsed" and the rest would Färewell-Germans Instat Despite this, there la some very be liquidated to order to contract interesting speculation both in Ger- the sumewhat inflated retail and His Trip is "Normal" man and American quartors as to handicraft trades. This, on the one whether Mr. Wilson will CODE back liand, will release workers for NOV 16 1938 at all, and If so, liow soon. more urgent national tasks," and on the other will reduce the con- By orto D. TOLISCHUS Regarding yesterday's British pro- sumption of goods of which Ger- Wireles to TM slaw TORE Times test against the newspaper Angriff's many is short. BERLIN, Nov. 15.-As - result of article linking Winston Churchill, Whether "Aryentration" or fiqui- Secretary of State Cordell Hull's Anthony Rden, Alfred Dutt Cooper dation will involve the Jewish own- published instructions to Hugh R. and Clement R. Allen with the er in greater lose la of loan Impor- mur- tance than the fact Dial hundreds Wilson, the United States Amber- der of Evnet Vorp Rath, German of thousands will lose their livell- andor, to go to Washington for ficial German News Bureau today tally eviet themselves from the Insiden- bet- Embassy Secretary to Paris, the of- hood or è support and thue port and consultation on the Issued a. communiqué asying that fer kind of homes that they may ed" relations between lbs United this protest had been settled by an have had beretofore. States and Germany, Mr. Wilson Interview that Dr. Joseph Goebbele, At the same time, while Jews will announced today a change in his the Minister of Propaganda, gave to be strictly segregated from Ger- original vacation plans and will now a Brittsh correspondent, disepprov- mans, In every other respect and ing of such publication and prumis- many shops and restaurants now leave Berlin tomorrow and ml) on Ing - correction. But the Driush flaunt the eign "Jews not wel- the Uner Manhattan from Havre authorities are by no means ready come," the newepaper Lokal-An- Thursday. to accept such L casual settlement, zeiger asserts tonight that Jews will and the protest le belug pressed Today the Ambessador called on further. be forbidden to run special shops for Jews and will have to trade Foreign Minister Joschim von Rib- Miller to Speak Tomorrow with "the German merchant." bentrop Lo say fazewall and inform Germany's final and most author- Meanwhile the National Boofellet with officially of the order for Itative answer to the foreign out- press continues In play up the at sultation, while of the same time cries against ber treatment of the leged vast riches of the Jowe in the Foreign Office received the cue-Jews. however, may come on Thurs- Germany end the official German tomaly note that Prenties Gilbert day, when Chancellor Adolf Hitler News Bureau today states that In would De Chargé d'Affaires. 1a expected to speak et Berz vom Berlin, as revealed by the proparty Rath's State funeral in Duessidorf registration decree, 35,802 Jews pos- The conversation between Herr as he did at the State funeral of sexeed 5,000 marks or more. VOII Ribbentrop and Mr. Wilson Wilbelm Gustloff, murdered Nazi In addition, " discloses, 125 Jews lasted for about twenty minutes leader in Switzerland. had more than 1,000,000 marks, 57 and 14. le assumed that they went Here Mitler conferred yesferday more than 2,000,000, 17 more than liver the points that have beclouded with District Leaders Adolt Wag- 3,000,000, 7 more than $,000,000, 1 ner In Munich and Joseph Streicher more than 5,000,000 and 1 each German-American relations, Includ-in Nuremberg, and was on his way more than siz, seven, eight. tko and log the anti-Jewish drive, which to Berlin tonight, twelve million. has not only wreeked American- Meanwhile, the measures for the These wealthy Jews presumsbly awned property and imposed die- complete eltimination of the Jews will be required to pay most of the from German politiesi, fine levied for abilities on Americans regarded u and oultural life proceed with the murder of Here von Rath and contrary 10 the German-American creasing rigor. the damages from the recent vio- treaty of friendship and consular Although Dr. Goabbels has denledienen from a special tax or levy relations, but by increasing the that Germany plane to create ghat- on their fortunes, stream of Jewish emigrée and refu- too, Jewish tonante are now being But It 14 known that many of notified by their landlords that In- then fortune represent mersly the gees will also creáte . esclose In- avmuch as many "Aryan" of earnings and that ternational problemi sun lack homes, Jewish tenantswith the disappearance of exercinge Trip Beld "Pertectly Normal" will have to vacate their homes soonther fortuned Bicowise disappear. and they are advised to look around In BIG for us they represent actual On the other band, It was empbed as soon M possible for a place tophystesi ande or securities, they alxed la both embassy and Germair live. aire firmly under control, and the official quarters that the Amlinase- German courts hold that land-banks refuse credit on them. dor's farewell call on Herr von Bib- lords have . duty to eviet Jewish Jews to Get "Annuity Bonds" tenants who do not belong to the bentrop preceding bis leagthy German recial community, which Emaldes that, however, Economice sence was entirely customery and duty superwedes all lease contracts Minister Waitber Funk, to - speech (here nothing unusual about it. This applies to cooperative apart-before Garman industrialists a.o- Foreign Office spokesmen especial- ment houses la which the tenanthounced tonight that all Jawish Mr. trip OWNE his apartment. property would be "transferred 4a ly characterized Wilson's 10 beadyuarters M "perficily nor- Jews are question now golog to live is stillpropriated, in return for Indemni- The of where evictedGerman hands," that la to eary, - mail and without any emestional unclarified. Some suggest that theyfication in "annuity bonds" which Import" will be sent to the dark backyard presumably means government The German press further under- sections of tenements. Some therpaper. they will be quartered ta Jewish- Rest Funk stated that The Intel Enty view by denouncing the owned dwellings. ,registered Jewish property, that is "brease attack of the International But Chie would leave them within say, property above 5,000 marks, well polaonere to draw the strang-the "German housing community. amounted to T.000.000,000 marks cot conclusions from the Ambassa- and the final arrangement 14 ex-mad that 2.000.000,000 of 15 and dor's homeward big" pected to be that the housing an-ready been "Aryantred." Presur Regraded Uclassified 5 thiy the proceeds of this "Aryant-the Death Head Ellie Guard unit later Walther Funk struck a warn- setion" will be likewise <apropriat-guarding the concentration camping note in - speech tonight. - ed for similar indennification. where Jews are lodged, concludes smiting that "the Jews cannot be In any case, the Jewe fully realiza "Whoever wispes to know shall wholly eradicated from the life of that the liquidation and levy entellenow that-If you like with 'sinister the State, but they can be made such impoverishment For them will make time of to live and work in the economic the continuation of cultural endthe hostapes Jewry has furnished Interest." other organizations is out of their according to the Jewish princi- The starf of the United States question, and after the hurning ofpie) an -y- for an eye, a. tooth for Consulate was almost of the end of the synagogues even the continue 4 tooth its andurance after five days of At- tion of religious life representa 6. "There ecista only one right bera tempting-to soince frantic Jews who problems, made more difficult byend that is our right. the right of sought comfort and safety near the the faot that many rebble are underoup self-defenas. And we adom shall American flag. The lines of Jews arreet, determine when and how it 16 to be and othere seeking immigration Insidentally, not only mynegogussmpplied." visas OF other help have often ax- but also 1 mission house for Chris- lended far out Into lbs etreet be- llan Jawe maintained by the Gen- Destruction Angers Goering fore the consulate. Consulates of man Protestant Church bee been BERLIN, Nov. 15 Mar- likowise. other nations have been besteged burned dewn in Berlin. Although the number Jewish sul shall Hermann Gooring was reported "I am through." one consular sides mounts and police biottersin religida quarters tonight to have official said in despair as he mitain mainly Jowish names, thabeen in an angry mood when he emerged for lunch with several flotal Carrian News Burseu todaylearned of the new wave of Name compatriots. insued a statement that in violence. on the "Just 14 I was leaving two the total nuumber of dally that IL severely Julted the nicthers plaintively held Cheft- bad net increased. economio Four-Year Plan be di- bables up to me recis, For Qoil's salta, give us viase From Flays Brttnin The Marshal, whose dozen Do 80 we SEU find our husbands,' they The Oveman press continues to-altions include the Premiership of asid. That was the final slraw, It any to flay both the United StatesPrussia and supreme distatorship got me. and Beltain for the waves of Indig-over foreign exchange and raw ma- Adding to the despair of some nation arouned by the Germantariale, was reported to have given Jewish parents was their difflculty messures, although for the momentatrict orders to cease property de la finding their sins. Under new it la monentiating especially onsiruction like that of last Thursday decrees, Jawish educational homes Dritain. The front pages of the when Jewish stores and synagogues have been dissolved and boys in newspapers and the Diptomatiachethroughout Germany were damaged them have been taken away, Korrespondens, organ of the For-and burned. A1 the experimental farm for elgn Office, are being monopolized He wes sold also to have rebated Jewish boys at Neuendorf, Best with the German counteroffensive. those responsible for damage Borlin, where training in farming The Lobal-Anzeiger, Two Instance, amounting to millions of dollars, and gardening was offered, the en- describes in special articles on Brit-but the smashing of a laundry und tire student body of fifty was enland wh measures in Palestine British grodery DARD Tempethor Airdrome and sent to frontier fortifications colonial history generally under their Berlin last night indicated dis- reltable sources said. headline "Britain's Bloody Road toregard for nie orders. Men of high standing In the Ger- Tower," topping (E off with . front- Murahat Gooring has been admon- man community-acientlats, bank- page picture of Indian soldiere tiedirbing the nation to save every ers, business men-reported that to the mouths of canoon for of paper. every sheet of un- they were being Importuned for se- tim In 1857. And the Stuttgartfoll, every meal hune, tooth pasts sistance by Jewish frienda, but that Kurier reminde Britein that she toolube and faxt potato peeling. He now they One Were new unable restrictive to help. measure for drove out the Jews-In 1200. finda week's destruction was But the harsbest words are realhe worst metback hie Four-Year Jews came in the form of an order served for those Cermans who die- Plan for self-aufficiency has I'll- to banke to permit Jews to with- draw not more than 100 marks d. approve and turn away from thereived eince its inception day. spit-Jewish requires in disguet, Wilson Enter Colleagues It became known that one The Schwarze Korps, organ of the wealthy Berlin Jew, the UWNRP of a. lie secret Trant police, page dovotes la them, the and whole though of Terred Ambassador with mayoral Hugh diplomatic R. Wilson con- department seared 1.000,000 store, marbs had by been the Jaw- no- enwards on whom a muzzle will fine for and the it United undertwood States that part of the lovy for last word's it denounces them as "miserable leagues today prior to his depart- tomorish community organization as This 10W, was oro now present be put." "In it every admits butcher that shop, they une possible solution of the Jewish damages. at every newspaper stand and in problem under consideration was Witsism to Tes New Toke TIME every cafe." that some former German colony MUNICH, Nov. 15.-The bodies of The only proper way of treating now under mandate to another three Jewa arrested in the general them. 96,79 this police organ. IN to power be opened for a mass Jewish round-up last week were returned hold "A well-huilt flat under Ebeig emigration. lo their relatives today for nurtst, 21086. Offetal Name spokesmen. Informed The tate of the others is unknown. The organ. which also represents of & reported plan to move most of Cormany's 600,000 remaining Jews trut reports indicate Chat the ma- jority are In the concentration camp To new lands, commented: "Fine, Zet them got DO with It. at Dachau. The only Jawish bank in Munich, The more the better." In connection with Marshal that of H. Authoriser, which was Governg's stand, Min- placed under a Name commissioner Commission Taxi Thursday, has now Been "Aryanized" and will reopen nest Thursday under the name of Reiter & Co. Herr Seller le a partner in the Hamburg hank of Thompson & Cin and la well known in London and New York banking ottoles. Martin Aufhasyser. sentor parts ner in the Muntels firm, has been reineard from Dachau-the Tirst Jow recently arrested here who has Iream allowed to return hame, Regraded Uclassified 46 Draft of a telegram sent to Mrs. Roosevelt by the Secretary from his home, the evening of Wednesday, Nov. 16th,1938 Mrs Fran klin Ll. Roserelt 20 East 11 Aft. M. Y. city for one nickel Ilearned a lot by that I had not known reading Kint Kitner and aesoh's article in this weels Saturday evening host Stof Suggest also Best, invest Regards a H, M.Jr. Regraded Uclassifie 47 November 16, 1938 901 The Secretary Treat Mr. Bases I attach herete telegram from James Gould which is self-explane- tery. The glove merchants mintain that they are the only cass in the United States affected adversely by this rule due to the fest that these gloves were purchased last June-July w the deposit of irrevocable letters of credit making cansellation of the orders impossible. I feel that if after investigation we find that they are the only people affected that we should explore the possibility of getting Hernan Oliphant to find some way of granting relief to these people who are suffering & great loss through no fault of their ovs. JWH1ce arig "/16/38 to Seciz-pouch Regraded Uclassified FIRST THE STATE Fir 48 THE FIRST BOSTON CORPORATION ALLAN M. Porr One RUNDRED BROADWAY PRESIDENT NEW YORK November 16, 1938. My dear Mr. Secretary:- We were very glad to have the pleasure of having Mr. Henry Murphy of your Division of Research and Statistics with us during the day recently. I think that he rather enjoyed himself in going over the charts which we were very glad to explain to him, and I trust that the time he spent with us may be of help both to him- self and to your office. If at any time in the near future or just prior to a new issue you would like to have some one in your office check these charts we should be very glad to make them available. Very sincerely yours, Allan Cm The Honorable Henry Morgenthau, Jr., Secretary of the Treasury, Washington, D. C. Regraded Uclas TREASURY DEPARTMENT to INTER OFFICE COMMUNICATION DATE November 16, 1938 TO Secretary Morgenthau FROM Herman Oliphant For your information Five years and eight months in Washington and my first invita- tion from Corcoran. Be asked me to lunch today to recite some ancient history. It was how that gold opinion got into the Herald Tribune five years ago. The bare outline of Tom's recital was that Lew Douglas was heading the fight against you and the gold movement; that Acheson had asked one of Tom's boys, Watson, for a legal memorandum on the Reed-Oliphant proposal. Tom doubted Acheson ever saw this memorandum, but said Lew Douglas sent Elliott Thurston (who had long had such a free run of the whole Treasury that he was looked upon as the Treasury's unofficial Gaston) down to Tom's office to learn what the fight was all about. Tom said Thurston told him this and also falsely represented that the difference between you end Acheson had been patched up, and it was Thurston's job to work out a plan in terms of which Acheson could back up. Tom said he turned Thurston over to Watson, and that Thurston wheedled a copy of the memorandum out of Watson, and then covered up his tracks by having it published through Ernest Lindley, who also was on the Herald Tribune. Tom said that, to protect Watson, he had kept quiet ever since, thinking that the truth was so improbable that no one would believe it. That is the outline of Tom's story, although there were a lot of other details, such as Brandeis' part in the gold fight. Incidentally, Tom recited his and Ben's conversation after they left your house recently. What he said they said about you would sound extravagant if I repeated it. All of which for whatever it may be worth. No. Regraded Uclassified 50 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION Hy DATE November 17, 1938 TO Secretary Morgenthau FROM Herman Oliphant For your information Jackson and I met Johnson in his office. Jackson opened by saying that the three of us should be sure we understood each other, and understood alike what the President desired. He then referred to the earlier study being carried on by Morris of Justice, with the cooperation of Army, Navy, Agriculture and Peoples for the Treasury. That study considered what we would do, if a European war broke out, to prevent the dislocation of our economy. Jackson said he understood the present study was entirely distinct from this earlier one. Johnson said he agreed emphatically that the two studies should not be confused, and those working on the older one should not participate in this one. Se said he understood the very purpose of the President's suggestion that he work with Jackson and me was to avoid the delays and opposition which would come if the problem was handled between the Judge Advocate's office and the routine technicians of the Army and Navy. The conference ended with an agreement that Johnson would have prepared immediately a descriptive statement of just what he would like the law to be in order to get lots of good production quickly if he could have a completely free hand and could write his own ticket. This he is to give to us to work on in order to iron out difficulties with reference to competitive bidding, excessive prices and patent restrictions. There was agreement that the problem of securing acceptable designs or nodels was distinct from the problem of quantity production and should be 60 treated. Jackson and I had lunch together over the problem and began to canvass some of the difficulties. Be 10 to put his best man, Paul Freund, to work on the job with my man, Oscar Cox. x0 Regraded Uclassified 51 cretary Morgenthau: NOV 17 1938 For your information. HO 52 GENERAL COUNSEL MA TREASURY DEPARTMENT WASHINGTON C o P Y November 16, 1938 Memorandum to Solicitor General Jackson Pursuant to your suggestion that I cerry on, I had 8. con- ference today with Col. James H. Burns of the Army and Capt. Sydney M. Kraus, designated to represent the Navy, for the purpose of con- tinuing a discussion of the general objectives of the proposed legislation. Their thought, however, at the beginning of the conference, was that the committee of four designated by the President should turn the whole matter over to a subcommittee of technicians of the Army and Navy Departments, the committee of four later reviewing whatever the subcommittee might present. On further discussion, it was agreed that the work should begin with the formulation of a statement of the general objectives by the committee of four. They undertook to prepare a first draft of such 6. statement for consideration by the committee of four. (Initialed) no Hon. Robert H. Jackson Solicitor General Department of Justice Washington, D. C. Regraded Uclassified 53 November 16, 1938 My My dear Mr. Secretary: I beg to acknowledge receipt of your letter of November 15th with inclosed mémorandum & a conversa- the Bopy ofa describing tion between the British Ambassador and Assistant Secretary of State Sayre. You say in this letter: "I understand that this action runs completely in accord with Treasury interest." Rovember Late Tuesday afternoon, September 15th, I called Mr. Sayre, having a copy of his memorandum before me which he had furnished Mr. Taylor. at my request I read to him the following sentence from his memorandum: "After telling the Ambassador of the President's anxiety, I suggested that he might want to cable at once to London to see if steps could not be taken to sustain the pount, par- ticularly during the coming few days. If I explained to Mr. Sayre that our interest in level of the + confined to the the Pound was no more onno less 08 far as the next that also few days wore sencerned but we were vitally interested in what might happen to the Pound after the Trade Treaty had between the United States and Great Britain was signed. Regraded Uclassified 54 X -2- Texplained to hims also That discussing with We have postponed talking no the British Treasury in regard to our grave concern in connection with the continued fall of the Pound until after the Trade Treaty has been signed as we did not in any way wish to introduce an element which might be contro- versial. However, if after the signing of the Treaty the Pound should continue to fall I wish to talk to a representative of the British obsel discuss this question with possible Treasury at the earliest moment. Sincerely yours, The Honorable The Secretary of State. Regraded Uclassified draft andictated 55 my 1 tom November 16, 1938 My dear Mr. Secretary: I beg to acknowledge receipt of your letter of November 15th with inclosed memorandum of & conversa- tion between the British Ambassador and Assistant Becretary of State Sayre. You say in this letter: "I understand that this action runs completely in accord with Treasury interest." Late Tuesday afternoon, September 15th, I called Mr. Sayre, having a copy of his memorandum before me which he had furnished Mr. Taylor. I read to him the following sentence from his memorandum: "After telling the Ambassador of the President's anxiety, I suggested that he might want to cable at once to London to see if steps could not be taken to sustain the pount, par- ticularly during the coming few days." I explained to Mr. Sayre that our interest in the Pound was no more or no less as far as the next few days were concerned, but we were vitally interested would in what should happen to the Pound after the Trade Treaty not between the United States and Great Britain was signed. Regraded Uclassified 56 -2- We have postponed talking to the British Treasury in regard to our grave concern in connection with the continued fall of the Pound until after the Trade Treaty had been signed as we did not in any way wish to introduce an element which might be contro- versial. However, if after the signing of the Treaty the Pound should continue to fall rapidly, I will wish to talk to a representative of the British Treasury at the earliest moment. Sincerely yours, The Honorable The Secretary of State. Regraded Uclassified AA57 57 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE November 16, 1938 To Secretary Morgenthau FROM A. Lochhead Knoke, of the Federal Reserve Bank, informed me that he had today telephoned to Bolton at the Bank of England and referred to their telephone conversation of November 15. Knoke told Bolton that he personally thought that if the British were thinking of putting in some forms of restrictions, in connection with exchange, that it would be a good idea for the British Treasury to get in touch direct with the American Treasury. Bolton intimated that his reference regarding possible restrictions was something that had only been discussed in the Bank of England and had not gone as far as the British Treasury yet. Knoke also gave Bolton as his personal opinion that if after the signing of the trade treaty the pound sterling declined sharply that it would look very bad on this side, and thought that the Bank of England should keep this very much in mind. Bolton did not give any intimation as to his reaction to this comment. Regraded Uclassified 58 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embassy, Parie, France DATE: November 16, 1938, 11 a.m. NO.: 1929 CONFIDENTIAL. During the past two days I have had talks with a number of well-informed people about the situation created by the decree laws issued by Reynaud. The following is my information in the matter: In the main, conservative banking and business people are sympathetic, despite the fear that taxes will be higher, and they hope the plan will work. There 18 of course en- thusiaem on the part of stock market operators. There is skepticism, disappointment or open opposition in practically all other sections of the population. There is a feeling on the part of the working classes, organized labor, the small Bourgeoisie, that they have been sacrificed to the interests controlling the money. There is a widespread feeling - though it is perhaps unfair - that the plan does not have imagination and that it is mediocre. It was said by one critic that the plan was the work of the old group of experts at the Ministry of Finance who have not learned anything the past decade, and that Cheron or Laval when Minister of Finance used to hand out the same sort of thing; he said that since that time there had been 8. change in the world. There is B particular unfavorable reaction in political Regraded Uclassified 59 - 2 - political circles; the Socialists have been driven into the opposition with the Communists, and leaders of the Socialist party tell me that they are greatly disappointed in the program. It was not their wish to come out in opposition to Reynaud, who in the past has favored an enlarged govern- ment with the Socialists taking part, and who has advocated a foreign policy which they like much better than that of Bonnet. It has been found necessary, however, that they oppose the heavy increases in indirect taxation, and the sarcastic reference by Reynaud to the "week of two Sundays" has angered them. It is apparent that several Radioal Socialist deputies are in opposition to the decrees; many deputies of the Center and Right who have no con- fidence in Reynaud and who dislike the higher direct taxes express open dissatisfaction. There are some factors which, if the political situation would allow enough time for them to develop, would seem to favor the success of the plan. In as much 88 the franc is under- valued in world markets, the plan rests on a satisfactory monetary basis. Moreover, improvement of business in other countries, notably the United States, ought to be of some assistance. There are, however, as against these, B. number of definitely unfavorable factors which one can well Regraded Uclassified 60 -3- well illustrate by a comparison of the situation at the present time with the one in existence under Poinoare in 1926. The devastated regions had been rebuilt at that time and France was equipped with 8. modern industrial plant. Today it is doubtful whether the physical equipme is sufficient to produce the necessary increased output, 8.8 since that time French industry, relying on exaggerated protection of high quotas and tariffs, has steadily deteriorated. Moreover, the existing political situation compares very unfavorably with that in existence in 1926. WILSON CSB EA:MEG Regraded Uclassified C1 5(e) FEDERAL RESERVE BANK OF NEW YORK FFICE CORRESPONDENCE DATE November 16, 1988. CONFIDENTIAL FILES SUBJECT: TELEPHOSE CONVERSATION WITH L. W. Knoke BANK OF ENGLAND. OM I called Mr. Bolton at 11:30 this morning and explained that I wanted to talk to him entirely off the record and leave these two thoughts with hime firstly, he had mentioned to me very confiden- tially yesterday that they were discussing certain restrictions and that one or two restrictive measures would probably be adopted shortly. Might I not point out to him how very helpful 1t would be if he would get his Treasury to drop a hint of these measures to Mr. Butterworth in London or else to send Mr. Bewly to see our Treasury people in Washington in that connection before it was put through rather than after it was an accomplished fact. This it seemed to me was simply in line with the spirit of the Tripartite understanding which seemed to call for just that kind of discussion. Secondly, would he please try to vizualise what the effect would be on our people if the British would let the sterling rate break the moment the trade treaty was signed tomorrow. In my opinion that would be 8 most undesirable development and the effect of that on our people, to say the least, most unfortunste. I strongly emphasized that both these thoughts were my personal thoughts, that I vas spesk- 1ng to him off the record and that I simply wanted him to let these two thoughts go through his mind. Mr. Bolton replied that as far as the first thought was concerned, he might have mislead as yesterday by not making it suf- ficiently clear that these were thoughts which hadn't gone outside of his room and had not as yet been approved by the Treasury people. Regraded Uclassified 82 FEDERAL RESERVE BANK OF NEW YORK FFICE CORRESPONDENCE DATE November 18, 1928. CONFIDENTIAL FILES SUBJECT: TELEPHONE CONVERSATION WITH L. 1. Knoke BANK OF ENGLAND. 2 At any rate what they had in mind were not legal powers that they might seek. Nevertheless, he continued, he appreciated what I had said on both soores, would give it most cereful thought and keep no posted as to further developments. Just how the announcement of the signature of the treaty would be received by the markets he had no idea. A week ago it would most probably have helped sterling con- siderably. In the light of the latest developments, however, it was quite possible that the effect of it would be lost. Be had done nothing more today in the market in addition to the sale of $6,000,000 which he had mentioned in his cable this morning. The situation was practically unchangeds they were still called upon to supply gold to the market and there wasn't the slightest hope of getting anything back from the market. As far as the franc situation was concerned, there was no deterioration in that picture and everybody seemed to prefer to wait until the Chamberlain-Halifax meeting with Deladier, scheduled for a week from today, had taken place. LWK:KW Regraded Uclassified 1(f) 23 FEDERAL RESERVE BMC OF NEW YORK FRCE CORRESPONDENCE DATE November 16, 1938. CONFIDENTIAL FILES Subject: TELEPHONE CONVERSATION WITH L. W. Knoke BANK OF FRANCE. I called Mr. Cariguel at 12:20 today. They were doing pretty well under the circumstances, he said, and vere so for satisfied but the present political situation didn't appear to be good. On Monday they had had & very good day, yesterday a good one, and today he had bought a mall amount in excess of his sales. Be agreed with me that Reynaud's program as published so far seemed to be 8 good one and that above everything alse Reynoud was probably the best Minister of Finance France had had in 8 number of years. tremsined, however, to be seen whether he would get parliamentary support for his plans when the Chamber net on December 6. Mean- while we would have to bide our time. Sterling, he thought, was rather weak again today. "As you know they are doing their very best to hold it." LWK1KW Regraded Uclassified C4 November 16, 1938. 11:30 a.m. HMJr: Hello. Professor Merriam: Good morning, Mr. Secretary. HMJr: Hello Professor Merriam, how are you? M: I was just writing you a note. I waited until I got back to Chicago to look up that matter you were talking to me over the phone about. HMJr: Yes. Yes. M: The man that I had in mind, particularly, comes up now pertaining to the milk producers. HMJr: Yes. M: George I. Hakes BO he's out of it. HMJr: Why? M: Well he's got to be the defense and offense too. HMJr: Oh! Oh! M: He's attorney against the Government and this indictment on the milk producers trust. HMJr: oh, oh, on the big thing? M: Yes. HMJr: oh, I thought you were thinking in terms of Chicago. I - you mean the thing that broke out in the paper today? M: Yes. HMJr: I get you. M: Yes. HMJr: All right. Who else have you got? M: Well now, the best men, there's no use giving them to you, they're tied up, I don't think you'd want to use them, like Frank Bush, former corporation counsel, good Democrat, Floyd Thompson, formerly on the Illinois Supreme Court, Democrat, but they're both, while they're cold to the Government, Regraded Uclassified 85 -2- and they're - Administration, and they are tied up with all kinds of special interests. HMJr: Does it have to be a resident of Chicago? M: Well, if it's going to be a Jury trial it would almost have to be. HMJr: I see. M: Now here's a suggestion. HMJr: Yes. M: of a man named Bowden, HMJr: Wait a minute. B - M: Bow - Bow HMJr: Yes. M: -den. Bowden. HMJr: Yes, I got it. M: George. First name is George. HMJr: Yes. M: His middle name is K. HMJr: K. M: Yes. HMJr: K like in "kitty"? M: K as in "kitty". HMJr: Yes. M: He's a prominent member of the Lawyers' Guild. HMJr: Yes. M: He 1s likely to be their next President, I've heard. HMJr: Yes. Regraded Uclassified 86 - 3 - M: And he has been - he 18 an honor man in the Law School, about forty years old. HMJr: Yes. M: Has made quite & little money and perhaps would like to - might be a man you could use. HMJr: Uhhuh. M: He has been, however, a sort of a braintruster in a quiet way for Igoe. HMJr: Well, that's Just what I wouldn't want then. M: Well, but if he's all right. HMJr: No. M: He might give you B. brushorer. HMJr: No. Anybody that's with Igoe I don't want. M: Well, he's the only - HMJr: No. No. M; He's juston his staff you know. HMJr: Well, of course with the change that took place yesterday, things may be easier for us now. M: Yes. of course, I thought - I always thought fairly well of Igoe in certain lines of cases. HMJr: No. M: Except where he touched certain matters. HMJr: No. M: But you have your own - HMJr: No. No. Well, do a little more thinking, will you? M: Yes, I'm going down town now to talk to some one or two people. Hello. HMJr: I want incipient Dewey. Regraded Uclassified 67 - 4 - M: Yes. I'm not BO sure but this fellow Bowden might be your man. HMJr: Not if he's a friend of Igoe. M: Well. I'll - I am going down town HMJr: There's no hurry. There's no hurry. When you come back to Washington will be time enough. M: Oh there's no hurry. Oh, I thoughtyou - matter of days. HMJr: No, no, no. We've got plenty of time. M: Oh well then, I'll take my time, then. HMJr: No, we've got plenty of time. M: All right. HMJr: Thank you so much. M: Thank you. Regraded Uclassified C8 November 16, 1938. 1:02 p.m. HMJr: Hello. Operator: Secretary Hull calling. HMJr: Thank you. Secy. Hull's Op: Yes. HMJr: Hello. Secy. Hull's Op: Hello, Mr. Secretary. Yes, sir. Cordell Hull: Hello, Henry? HMJr: Hello Cordell. H: What sort of humor are you in? HMJr: I? H: Yes. HMJr: When you call me, always a good humor. H: Well, I used to, when I held court, I imposed very severe fines and sometimes I was criticized for being too severe. HMJr: Yes. What are you going to do now? H: I - HMJr: Commit me to life imprisonment? H: Back about a year ago, there was 8. British ship known as the Tayback. HMJr: Yes. H: Which had an opium case. HMJr: Yes. H: And the Department of Justice and the British - the British interests entered into an adjustment at $25,000. HMJr: Yes. Regraded Uclassified C9 - 2 - H: Now, there's some - still some kind of misunderstand- ing or something. HMJr: Yes. H: The Treasury accepted - they received and cashed & check, I suppose it must have been through some kind of inadvertence. Anyhow, the British Ambassador is awfully worried because it's - he's fixing to leave - he feels that this 1s & meritorious proposition, but he's awfully anxious to get this closed out. HMJr: What are we doing, hold - asking them to pay twice? H: You people are holding up for the original amount of the fine instead of the adjusted amount. That was entered into between the Department of Justice and - for some - in some way the Treasury received the check for $25,000. HMJr: And we cashed it? H: Yes. Now, that's - the point about that 1e it's & little hard to - the British Ambassador to explain to his Government or for us to explain to him. HMJr: Yes. H: little, little bit of tendency toward hard feelings, and I don't know what you can do consistently, but if you could see your way clear to clear that up while we're signing the British Trade Agreement and the Canadian Trade Agreement tomorrow, it would - I think it would be worth considering. HMJr: I'll do the best I can. H: All right, Henry. Thank you. HMJr: I'll call you back. Regraded Uclassified 70 November 16, 1938. 1:06 p.m. HMJr: Hello. Dr. Bowman: Yes. HMJr: Dr. Bowman? B: Yes. HMJr: Henry Morgenthau, Jr. B: Yes Mr. Morgenthau. HMJr: I hope I haven't disturbed you at lunch? B: No, I came home B. little early expecting your call. HMJr: Oh! Dr. Bowman, in talking with the President this morning, he was talking about the former German colony known as the Kamerur. Cameroon B: Yes. HMJr: In connection with the possible land for political refugees from Europe. B: Yes. HMJr: Now, I've got your book that you've written and I wanted to come to you - B: I can not quite hear you. HMJr: I want to get somebody to help me in going into the economic geography of these - this particular colony and any other colony that might be used for that purpose. B: Yes. HMJr: And who can I get to help me? B: Well, 18 it Africa primarily? HMJr: Well, it's any place that offers & possibility for these refugees to go and settle and make a decent livelihood. Regraded Uclassified 71 - a - B: Yes. I think you know of the exchange of letters between President Roosevelt and myself. HMJr: No, I don't. B: Well, he asked me about the claims of the Orinoco. HMJr: No, he didn't, no. B: I sent him B. two thousand word letter summarizing about twenty or twenty five books and articles, and the report 18 unfavorable there. HMJr: Well - B: But he returned with the request, of course and no need to say to you that it's confidential. He didn't 80 label it but he said it was a personal inquiry because he was Just looking around the map at the present time. HMJr; Well, the point was, I - Br He wanted to know whether Columbia and Western Venezuela had any possibilities outside the grass lands of Venezuela. HMJr: Yes. Bt I'm sending him within the next few days a large map about fourteen by ten upon which I will have indicated all the land in Northern South America that has capacity for settlement, and summary statements pasted on the map which indicate what the advantages and disadvantages may be. HMJr: This is in South America? B: That's in Northern South America. MMJr: Well, you see, but - B: Now in direct answer to the question that you have asked about Africa, there is a man at the University of California, whose name is Karl Delzer. HMJr: Karl. B: Delzer. Regraded Uclassified 72 - 3 - HMJr: Delzer, yes. B: Karl. HMJr: Yes. B: And he can be addressed simply, "Department of Geography, University of California, Berkeley, California.' HMJr: of Berkeley, California? B: Yes. Now, he helped me in that book of mine entitled "Limits of Land Settlement". HMJr: Yes, which I have. B: Now, he wrote the section on in Asia. HMJr: I see. B: And he's a German. HMJr: Yes. B: He's not 8. Jew. HMJr: Yes. B: But he decided to come to this country not liking the prospects. HMJr: Not liking the - B: His family is still living in Germany, and it is - if he were connected with it in any way, I'm quite sure that he'd have to be reassured in advance that his part in it would be entirely unknown. HMJr: oh! B: For the protection of his family. You see? HMJr: Isn't there anybody else that could - B: I was going to suggest that if you wanted to have the advantage of his -of his knowledge, and of course his command of languages, and his quick facility in getting at everything, he's a well trained man that I've tried out/know intimately. HMJr: Yes. Regraded Uclassified 73 - 4 - B: And if you wanted that, you could - you could deal with him through me. HMJr: I 800. B: And I would be your buffer. I would be his buffer in other words. HMJr: Well, I'm doing it first for the President and second on account of my own personal interest, see? Hello. B: Yes. HMJr: And as I say, the President - I was talking to him this morning, I raised the question about the French, English and Dutch Guineas, and - Hello. B: Yes. HMJr: And - because e. man by the name of, oh I forget the man's name, but, what is his name, was written - who wrote & lot about the you see? B: Yes. HMJr: Wrote this letter tying us up with the - with our war debt. B: Oh, yes. HMJr: And the possibility of settling some of the war debt and taking colonies. B: Yes. HMJr: See? B: Yes. HMJr: So that's why I'm in on it. B: Oh, yes. HMJr: Now, when I mentioned these other countries the President oh, no, from & standpoint of future, you can't do anything with those countries because there's too much fever and 80 forth and 80 on. B: Yes. Regraded Uclassified 74 - 5 - HMJr: But I don't know whether that's right or not. He seemed to be quite positive about it. B: Yes. HMJr: Then he said, "Why don't you look at the Kameruns, and - because both England and France own those." B: Yes. HMJr: In other words, what I was trying to explore for him was some colony that belonged to & country who owed us some money. B: That's right. HMJr: You see? B: In other words forgive them for part of the obligation if they'll take part of this Job. HMJr: Exactly. B: Yes. That's a good idea. HMJr: Now, it was new to me, and Mr. Bell here in the Treasury, 18 very much interested in that. I wondered if it couldn't, we couldn't explore at first from that standpoint, no matter where England or France or any of the Allies had a colony. B: Yes. HMJr: Let's see if they're any good. B: Oh, that's grand. That's & good idea. HMJr: Is that new to you? B: Yes. HMJr: Well that was new to me. B: Yes. HMJr: Compton D. McQuire is the man. B: Yes. Regraded Uclassified 75 - 6 HMJr: You know he wrote the first book on the war debt, about the idea that we never would collect them or should collect them. B: That's right. I've met him sometime, I think he came up to talk on foreign relations when I was in New York. HMJr: Well, he gave the first talk that was ever given on the foreign relations. B: I Bee. HMJr: And this is his idea. Now if you'd be willing to explore it from that angle and then if we could get together somewhere I'd be glad to come over, or if you happen to be coming here, we could meet here. B: Yes. Well, that's fine. HMJr: But I'd like to do it fairly promptly. B: Yes. Well, now - HMJr: While the subject is in the minds of the people, before it 00018 - B: Suppose I wire for this man Delzer to come on, and see whether - see whether he'd be willing to come and do some work here. HMJr: Well, that would be wonderful. B: How would I - how would I cover his expenses? HMJr: I can let you know this afternoon. I'll ask the President. B: All right. HMJr: I'll ask the President and I'll call you back. I'm going over there at two. That's why I was 80 anxious to speak to you. B: Yes. HMJr: And I'll - I'll find out from the President how we can do that. B: Yes. That'll be fine. Now - Regraded Uclassified 76 - 7 HMJr: But I thought if we could examine all of those colonies first. B: Yes. All right. I could put him right on to that and his command of languages is such that he can do a splendid Job in very short order if we had him here. HMJr: Is he one of those refuges professors? B: No. HMJr: He's not. B: He's a young fellow. He took his training in - in the University of California - a fellow who 1s of German origin. HMJr: Yes. B: And Delzer married an American girl and has taken out his papers and 18 an American citizen. HMJr: Oh! B: But all this has happened just within the past few years. HMJr: oh, yes. B: Now he's lying very low. He is never getting into anything, he's never doing anything that in any way will disturb his people. HMJr: Uhhuh. B: But I could ask him to come on, and do a piece of work for me, and we never need mention the word refugee. HMJr: Yes. How is he on - B: I can Just call him along and say, "Look here, I want to know about Germany's foreign colonies." HMJr: Yes. B: Information on population capacity. Regraded Uclassified 77 - 8 - HMJr: Yes. B: See? HMJr: I get you. Did you say he is anti-Nazi? B: Oh, quite definitely. HMJr: Quite definitely. B: Oh, yes. There's no question about that, and he's not in any least degree a Jew. HMJr: Uhhuh. B: He's just a thorough going liberal German of the 1848 vintage. HMJr: Well, he - in other words he's a Karl Schultz. BP Yes. Yes. Exactly. He's a Karl Schultz. HMJr: Well, I think he'd be ideal. B: And he's not a man who - who 1a interested in anything politically, you see? HMJr: Yes. B: He's a student, but he did & magnificent job for me on that in Asia thing and is editing the other papers in that volume. HMJr: Well. B: He did the checking up and everything. HMJr: Well, I'm keenly interested in this myself, and as soon as you have something I'd love to sit down with you, and I'm going to suggest this to the President he give you an evening. B: Yes. HMJr: Where the three of us could sit down. B: That would be best. Now, when you work around to that question why don't you - why don't you touch the edge of that South American thing and then let him speak. Regraded Uclassified 78 - 9 - HMJr: Do what? B: Why don't you talk South America a little bit and get him to mention the fact that he's asked me these questions? HMJr: Right. B: And without telling him that you know, would you? HMJr: Yes. I 800. B: I've kept it strictly confidential though he didn't ask that, you see? HMJr: Well, it shows that the President and I are both - got good ideas to go to the same man. B: (laughter) Well that's awfully nice of you Mr. Morgenthau. HMJr: All right. B: I'll do anything for you. HMJr: Thank you. B: For you personally and because of your old man. I like him. HMJr: 80 do I. B: Good. So, I'm getting that Northern South America stuff within a few days. HMJr: All right. B: And if you'll - if you'll give me the word. HMJr: Fine. B: I'll see what I can do with Delzer and if I can't get him, I'll get somebody else. HMJr: I'll let you know tonight. B: All right. Fine. HMJr: Thank you. B: Goodbye. Regraded Uclassified 79 CONFERENCE VITA as PRESIDENT OR NOVEMBER 16, 1938, REGARDING TAX PROGRAM TO 22 WRITTED 90 THE NEXT COMMERS These present besides the President on Secretary Morgmathen, Under Secretary lienes and Mr. Bell, Mr. Hance started the conversation w telling the President that in order to work out a definite program the Treasury would have to know has such revenue the President wanted to raise. fie said that to get 2 billion dollars additional revenue it would be necessary to go deeply into the tax structure of the country. Some of the taxes might have an náverse effect on business conditions. Be explained that the estimated revenue amounting to 5 billion dollars, was based on a national income of 60 billion dollars. Be is inclined to believe that these estimates are conservative and that in all probability the national income will be in excess of that figure, in which case w should got nore revenue than now estimated. He explained to the President also that there were other indioes, such all the price level and the Federal Recerve Board index of production, which are factors in these cotinates. The President asked the question M to how much revenue would the Treasury get if the national income should go to 90 billion dollars. Mr. Bance said that it was his opinion that it would amount to approximately 5 billion. 600 million dollars, exclusive of Social Security taxes, and that if you ndd the latter you should got around 6 billion, 700 million dollars. The President then said that be thought that - might min to kinds of sotimates: use for current revenue on the basic of 60 billion dollars national Income, which os the basis of the present tax rates would amount Regraded Uclassified 80 to 8 billies dollars. Assome then that 99 would have expenditures - ordinary account of , billion dollars and on account of relief of 1 billion BOO million dollars, which would result in a of billion dollar deficit. The President said them to make another estimate of TOTALSO based on now taxes to be lovied, pay up to 3 billion dollars. This would reduce the deficit to 11 billion dollars. No could then state is our budget message that if the national income increases to TO billion dollars, 19 should got additional revenue of approximately 1 billion 700 million dollars. which would give more than a balanced budget in 1941. These cotimates of expenditures de not include any amount for debt retirement. the President them asked no to give his rough figures of 1940 esti- mates of expenditures. I had no estimates with se BO the figures in the first column below represent rough figures which I submitted from nemory and the second column shows the figures that should have been givens Figures should Bouch Estimates have been # If Regular Departments 8 780 # 795 National defense 1,000 1,155 Teterans' Administration 880 646 MA (Inc. Para Tenancy) 650 880 CCC - 300 General Public Works 800 640 U. S. Maritime Commission - 125 Interest 1,025 1,030 Social Security and Railreed Retirement are 945 PUA (lag) 750) 500 Emergency Public Works (leg) - > 383 Miscellaneous 200 800 Total 8 6,400 $ 7,428 Regraded Uclassified 81 the President then said to - that the total regular expendi tures as given above for 1940 should M amount to as much as # 6,700 and for UPA, which he thought was very low, another 1,000 and then add for national defense 600 making a total of 8,200 deducting from this figure the efficial revenue esti- M mate of . 6,000 and then add new taxes of 2,000 VI get total revenue of 7,000 leaving a deficit of $ 1,200 Then we could say that if the national income should P to 70 billion dollars, instead of getting 5 billion dollars in revenue M the present ⑉ timates indicate, - would got 6 billion. 700 million dollars. which with the new revenue to be raised would make 8 billion, 700 million dollars reverne, leaving M deficit. This would give us & balanced budget and 500 millins dollars for dobt retirement. Mr. Names then was over his statement of possible nov courses of revenue with the President, showing that by increasing the rates net out on this statement and making other changes in the tax structure, all much as he could at in the form of BAY TOTALS for a full fiscal year's oper- ation under a nov revenue not entokying these suggestions would be 1 billion 600 willion dollars based upon the current indices used W the Treasury in determining its revenue estimates. the President them said assuming - have axpenditures of , billions Regraded Uclassified 82 and receipte of B. and - mated to raisa 8 billion dollars of additional revenue to balance the budget, what class of people would pay under the proposal set out on this statement. Mr. lianse replied that the middle- income groupe would be hit the hardest; those receiving incomes between 8 thousand and 70 thousand would be his very hurd. The Secretary told the President that be had an 1dea as to sons of the additional taxes that might be levied. Xe said that he realized that the President had always been against 6. sales tax but may states in the Union have adopted it and be thought that the Federal Government wight also resort to 11 for special reasons. He also explained that our 00- called excise taxes which we have today are nothing more than sales taxes. Re said that what he had in mind was a special form of tax stemp with the picture of a battlechip and a bomber on the face of 18, which would bring home to every American that be is helping to pay for the expenditures made necessary by world conditions, to put his country in a position where 11 can defend itself against the outside world. The President then asked his how about exemptions. The Secretary replied that, of ocurse, in dis- cussing sales taxes in the post be had always thought of exempting food stuffe, and clothing up to & certain point, but that in this case he val of the opinion that there should be no exemptions and that every one from the highest to the lowest should help pay this additional cest. The President said that he would 11km to have Mr. Hames work on this matter and see what be could do to name just one exemption and that would be on food staffs not is containers. that is. feed stuffe is the raw state. This would certainly have the effect of increasing the consumption of freeh vegetables which would to A good thing for the American people. Regraded Uclassified 83 Regraded Uclassified The Secretary then said that be thought that at long as we were die- cussing the special kind of tax for a special purpose, why would 10 not be as excellent thing if - should have & specially designed stamp to show that the taxes paid are for the purpose of financing the additional M- Monal defense organditures and other special taxes specifically levied to take onze of relief. It was explained to the President that if 99 414 not have my exemptions whatever that according to old octimates based on lower business levels & rate of 1% on manufacturers' not sales not subject to present excisse would have produced surmal revenue of approximately 230 million dollars and that a nx rate would have preduced & little less than 1 billion dollars & year. The President said that he was thinking of national defense in terms of 1 billion 600 million dollars which would be spent over a period of two and possibly three years. The President then asked Mr. Names If he could or up for his a simple comparative table containing date on the 100 richest individuals in the United States for the calemder year 1938 or 1929. whichever is the higher, showing the tax rate for that year and the group income less deductible losses, This would show what these individuals had M spendable income is that year. Then show how much of that spendable income they paid to the Federal Government. Be would then like to have this ISSUE information for 1932 and for 1937 or the lateet year for which the information is available. He would them 11bs to show as to whether funds of these individuals have gone into tax-exempt securities or into other lines of invostment. If they have gose into tax-exempts, he would like to use 10 is a recommendation 84 to Congress, imediately after its opening for the elimination of the issumes of tax-exempt securities. No would like to recommend that this elimination be cocured w legislation and not by the long reate of a constitutional The President said that he would also 11ke to have us work on a budget with the revenue based upon the national income of 60 billion dollars which would be m more than 2 billion dollars out of balance. And then he would like for us to work on raising revenue of say 1 billion dollars under additional taxes and then we could make the statement that if the national income increases to 70 billion dollars ve would have a balanced budget for 1941. Getting the expenditures down to 7 billion dollars will be & difficult task for 1940. DWB Regraded Uclassified THE WHITE HOUSE WASHINGTON Deft. 7 11 A. - W.Ry - L Will si, 7 Noc, 311 6,400,00 in Regraded Uclassified THE WHITE HOUSE WASHINGTON Jil 6.1 Pie, - Anné H of, 200 101ml may 5,11 News 2 Dit 1, 7-m now 6,000, now AND 2 DL Regraded Uclassified 87 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE Rev TO Secretary Morgenthau FROM Herman Ollphant The following is a comparative analysis of the handling of the so-nalled Louisiana income tax cases by this Department and the Department of Justice. Certain disclosures volunteered by a resident of New Orleans in 1932 prompted investigation by the Bureau of Internal Revenue, which extended from July 18, 1932 practically to November, 1937, interrupted only between February and December, 1933 by the change in administration. Some 300 individuals and corporations were involved. On avidence obtained and referred to the Department of Justice, criminal indictments were returned in the United States District Court et New Orleans against 26 individuals and two corporations, comprising two conspiracy charges involving corporations and individ- usls and 19 evasion, perjury and false return charges against individuals. On the same evidence the Bureau issued deficiency notices, including fraud, negligence and delinquency penalties, against 21 individuals. These filed appeals with the Bourd of Tax Appeals under 34 docket numbers. The criminal cases were tried first. One defendant, State Senstor Joseph Fisher, was convicted, receiving an 18-month penitentiary sentence. One other case (A. L. Shushan), which was regarded as strong, Was then tried and resulted in acquittal. Two corporations and 10 individuals pleaded guilty or nolo contendere and were sentenced to pay moderate fines. The remaining indictments against 13 individuals were thereupon dismissed on motion of the United States Attorney, without adequate consultation with Bureau representatives and without their approval. This Department was convinced, despite the acquittal of A. L. Shishan under very unisual circumstances, that the other cases merited trial, notably the conspiracy charge against Seymour Weiss, in which all four of his co-defendants had pleaded nolo contendere. One of the dismissed indictments was against the United States Attorney's brother-in-law. Hearings in the civil proceedings against the indicted individuals and corporations began under obvious handicap in January, 1938, and continued for three weeks to final disposition of the whole list except the CASES against A. L. Shishan and Seymour Teiss, in which ossential witnesses were temporarily absent. No CASE WILE lost or dismissed. Regraded Uclassified 88 - 2 - Nineteen docket numbers were disposed of by default or stipulations of deficiencies, including penalties, accounting for $146,809.29 plus interest, an 83% recovery, all of which has been or will be paid. Fifteen docket numbers were vigorously tried, resulting in judgments aggregating $69,719.22 plus interest, all of which has been or will be paid. No appeals have been filed. In addition, other civil proceedings against taxpayers in this group who had not been indicted were tried or settled with similar results. Two insolvency cases were compromised for more than could have been recovered. Except &$ to the untried cases against Shushan and Weiss, every civil deficiency asserted against this entire list of taxpayers has thus been satisfactorily accounted for. The Shushan and Weiss cases have not been set for trial but this office will insist on their being docketed and tried at the Spring hearings of the Board at New Orleans. 20 Regraded Uclassified 89 MJD PLAIN London Dated November 16, 1938. Rec'd. 3:47 p. m. Secretary of State, Washington. 1323, November 16, 6 P. m. POR THELSURY FROM pottervorte. The volume of trading in the London foreign exchange market has been less than yesterday but the market is ner- vous and indecided. The dollar opened strongly bid and moved to 4.70 with almost no dealings at which point the British authorities gave dollars for a short time. i.s soon ES they ceased the rate fell to 4.694 at which point they gave freely again. DUE to some prefixing seles of dollars the vate LIOVED up to 4,69 and gradually but eratically moved un to close at 4.70 1/8. In the later afternoon there was no evidence of intervention on the part of the Critish authoritiss, The Continental denand for dollars slackened today. The franc has also had a two-way market but on balance the French fund has lost a moderate amount of sterling. Second thoughts SEEM to DE leading to the conclusion that Reynaud's measures will produce little beneficial result in the Regraded Uclassified 90 HJD -2- No. 1323, November 16, 6 p. m. from London the near future. Of the 251 bars sold at gold fixing at 148s. ld. almost 200 were supplied by the British fund. KENNEDY HPD Regraded Uclassified 81 November 16, 1938. 4:03 p.m. HMJr: Hello. Robert Treman: Hello. HMJr: Morgenthau speaking. T: This 18 Bob Treman. HMJr: Yes. T: Up in Ithaca. HMJr: Yes. T: I'm sorry to bother you, but I just left Vic Underwood, and we wanted to ask you a proposition. HMJr: Yes. T: We have our big Community Chest drive at Ithaca right now, and it means a great deal to the community, the University gives and BO forth, and they raise a lot of money. Well, we've always been able to get B thousand dollars from each of the banks, state banks up until last year, and this year the First National Banke say that there's a ruling in your Department they cannot give to B. Community Chest in Elmira and Syraouse and all the other places they do give and it may seem unimportant and silly to call you up about it, but Vic Underwood and Curry and the rest of them thought if we'd call you up that you could tell us offhand but nobody seeme to know whether they can or whether they can't. HMJr: I couldn't do it offhand, but if you'll send me a telegram I'll get you an answer in twenty four hours. T: Well, that'll be fine, and it seems to me that one of the finest things I could do in the country would be to let the banks contribute if there's any way it could 1.0 done whether they - the State Banks all do, and for the build up of - in these times, for - HMJr: Well, put it all into a telegram and go into plenty of detail and I'll get you a ruling. Regraded Uclassified 92 - 2 - T: All right, that's fine. I'm awfully sorry to bother you, and it seems, with all you've got on your mind, an/important thing, but I thought you wouldn't mind it. HMJr: No. Nothing - T: bother you with it. HMJr: No, nothing 1s unimportant. T: And I'll send you a telegram this afternoon and if you could do what you can, I think the whole principle is, the President do it, would be, I don't mean now, but - would be a thing that would be a very advantageous thing for the whole country if they could be allowed to do it. HMJr: Well, you send me 8. telegram and I'll get you a ruling. T: I hope you'll come up and visit us again. HMJr: All right. T: That's fine. HMJr: Thank you. T: Goodbye. Regraded Uclassified 33 RL STERLINO RATE AND BRITISH TRADE AGREEMENT November 16, 1938. 4:30 p.m. Present: Mr. Taylor Mr. White Mr. Lochhead Mr. McReynolds Mrs Klotz Miss Chauncey Here is this letter from Hull. "I an enclosing copy of a memorandum of conversation between Sir Ronald Lindsay, the british Ambassador, :nd assistant Secretary of State Sayre, held on the afternoon of November 14. "On the basis of Mr. Feis's reports of connected discussions on the subject that have taken place over in the Treasury, I understand that this action runs completely in accord with the Tressury interest and in fact merely repeats an initistive of the same kind made in accord with an understanding with the Treasury." " and in fact merely repeats an initistive of the seme kind made in accord with en understending with the *reasury." well, when Taylor was in here last night I called up Mr. Gayre and told him that this does not run in accord with wast I wish, for this reason. This is the conversation between Sayre and the British Ambassedor. See, ne's quoting the President - "What will we do if the pound should drop to 4.55 on Thursday morning!" End of quote, "After telling the Ambassador of the President's anxiety, I suggested that he might want to cable at once to London to see if steps could not be taken to sustain the pounu, particularly during the coming few days." Now, what I told Mr. Sayre was that I was not particularly Interested in what happened to the ound during the next few days, but I was vitally interested in what happened to the pound after the thing was signed. So therefore I'm going to try this, and I want this to go tonight. Regraded Uclassified 94 -2- (Dictating to Miss Chauncey) My dear Mr. Secretary: I beg to acknowledge receipt of your letter of November 15, with enclosed memorandum of a con- versation between the British Ambassador and Assistant Secretary of State Sayre. You say in this letter: "I understand that this action runs com- pletely in accord with Treasury interest." Late Tuesday afternoon, September 15, I called Mr. Sayre, having a copy of his memorandum before me which he had furnished Mr. Taylor. I read to him the following sentence from his memorandum: "After telling the Ambassador of the President's enxiety, I suggested that he might want to cable at once to London to see if steps could not be taken to sustain the pound, particu- larly during the coming few days." I explained to Mr. Sayre that our interest in the pound was no more or no less as far as the next few days were concerned, but we were vitally interested in what might happen to the pound after the trade treaty between the United States and Great Britain was signed. We have postponed talking to the British Treasury in regard to our grave concern in connection with the continued fall of the pound until after the trade treaty nas been signed, as we did not in any way wish to introduce an element which might be controversial. However, if after the signing of the treaty the pound should continue to fall rapidly, I will wish to talk to a representative of the British Treasury at the earliest moment. Lochhead: In this connection, I thought you might want Jr: What I want ner to do is type it; these three men (Taylor, White, Lochhead) can take a look at it; they can send it with a messenger to the house, and Regraded Uclassified 95 -}- I want this - so you can woit for me to sign it - I want this delivered to Mr. Hull here tonight at nis spartment. Multe: Can we make some small suggestions? d.s.Jr: Yes, but not very much, not very much. A word or two, but I don't went much. See, Harry? White: well, there were certain - then let we speak of them now. The emphasis there apparently is that you don't wish any substantial decline after the trade agreement is signed, and I take it your thought is, irrespective of the trade agreement, that your Interest is In main- tenance of the rate. I wouldn't relate it so closely to the traue agreement. You merely postponed taking action to do nothing to Jeoperdize the confirmation of the trade agreement, but subsequently you will take such acti 88 you feel is called for should sterling continue to decline. ....Jr: That's what I said. doet I want to get over to him is that I'm concerned now because it's falling now, but I didn't want to do anything to introduce the controversial thing, but if the fall continues I'll nave to do something. white: that's right. H.M.Jr: And I wanted to write it and I wanted him to get it tonight, see, because that letter does not represent white: I thought you were going to talk to the British repre- sentutive in any case. H.W.Jr: Yes, but this - this Is E letter in which Mr. Hull puts ne on the spot, and 1 want nim to get this tonight; I mean ne definitely puts me on the spot. unite: 4uen you could say you're going to speak to the British Treasury soun after .... declar: "If." White: Unly "{f." I see. H. I mean I'm not - let's say she stays around 4.70 and should stay that way for B month. What's the use of Regraded Uclassified S6 -4- talking to them? Taylor: Well, I think you probably want to talk to them anyhow, and you - and there are certain things that are - it's appropriate to H.M.Jr: Well, if you people want to say that, the point - no, let me get this: don't change it too much and don't argue with me, The point that I want to get over to Hull and I want to put him on notice is this: that if the thing continues to fall after the signing, I want to talk, and I want to get that over now. Just do it my way, will you? I don't want to say, "I want to talk anyway.' The point I want to make: I'm putting him on notice that if there is a sharp fall then I've got to talk. It doesn't serve my purpose to say, "As soon as the trade treaty is signed, 4'm going to talk." I want it - ne's put me on notice; I want to put him on notice. If you don't mind, do it my way, unless you violently disagree with me. White: Just some language changes. H.M.Jr: I don't want to say, "I'm going to talk to them no matter what happens." Mr. Hull has put me on notice; I want to put him on notice that if there is a con- tinued sinking of the pound after the trade treaty is signed, then I'm going to talk; I've kept quiet in order to help him get nis trade treaty through. That's the philosophy I want to get over. If you want to change a few words, all right, but please don't change the philosophy, please don't say I'm going to talk in any event. white: 'hat's clear. H.M.Jr: Is that clear? White: quite. I don't agree, but it's quite clear. Taylor: You told Sayre that you were going to talk in any case. H.M.Jr: Well - did I? Taylor: Uh-huh. Regraded Uclassified 97 -5- H.W.Jr: I thought I said only if the pound sinks. Taylor: You told him that you had a whole list of questions that were prepared for discussion. H.z.Jr: All right; anyway ... white: You can always change your mind later; it doesn't commit you. H.H.Jr: Mr. Hull for some reason has done something which I think is tricky, and I'm going to - this is my opportunity to put him on notice that if the pound - this is what you want - if the pound falls sharply, I'll have to cancel - use the clause. And I want to do it now, 30 ne can't say, "I wrote you 11 McR: He misrepresented the Treasury attitude. n.a.Jr: de misrepresented tne Treasury attitude. Taylor: There is something funny about that. I.V.Jr: You bet your sweet life there is. Please, Harry. White: O.K. H.M.Jr: Once in a while I get the old elbow. We'll see. Now, for your information, I talk anyway. »hite: Well, that's all right; that's all I want to know. H.M.Jr: For your information, RS soon as the trade treaty is over end the body is slightly cooled, I talk. shite: O.K. H.M.Jr: I talk. white: O.K. H.E.Jr: Put Mr. Hull, whom you mustn't forget is a mountaineer - what do they call the fellows - a feudist - plus former Chairman of the National Democratic Party, plus an office-holder for thirty years - he can teach me cards Regraded Uclassified 98 -6- and spades, see? I admit it. But when he writes me "On the basis of Mr. Feis's reports of connected discussions on the subject that have taken place over in the Treasury, I understand that this action runs completely in accord with the Treasury interest and in fact merely repeats an initiative of the same kind made in accord with an understanding with the Treasury" - and this sentence in here does not repre- sent what I went. White: No, definitely not. H...Jr: And I assure you that as soon as the body is moderately cool and the celebration 13 over and we have had our benquet, I'll talk. White: O.K. H.M.Jr: Are you satisfied? White: Perfectly. H.M.Jr: Entirely? white: Patisfied. H.V.Jr: Wayne? Taylor: No, that's H.M.Jr: what? Are you? Lochhead: I'm satisfied, but I've got something very interesting in connection with this and with that memorandum you have there of Knoke's telephone conversation with the Bank of England yesterday. You remember yesterday the Dank of England said to the Federal Reserve Bank, "We may have to ut in certain restrictions; we're think- ing about them." I think I probably raised my eyebrows over the telephone to Knoke, saying that it was rather queer, the Bank of England doing all this talking to Federal Reserve Bank of New York. So Knoke told me this afternoon - he said entirely on nis own account and not mentioning the Treasury, he had called up bolton, Bank of England, this morning and said that if they were taking any steps over there in regard Regraded Uclassified 99 -7- to regulations (on white House phone) Hello. - Sure. - Hello. Yes. - How do you do. Tom, before youg started, there must be some misunderstanding with whoever handles your calls, because Mrs. Klotz said you were & little upset about tnst - well, there's no record on my switchboard that you called. - No. - No. - No, no, she didn't; she was bothered because she likes to give service. Ano there is no record of any call on our switchboard, and I didn't ask Secret Service to check either. - No. - On this Civil Service? - Oh, really? - Oh. - On. - Well, I don't - I haven't seen Herman, so I don't know what It's all about. VcR: Herman tells me he agrees with me instead of Tom. H.M.Jr: (On W. H. phone) All you need is about ten minutes? - Well, are you up by nine o'clock? What? - Well, I'll be delighted to see you here by nine. - Fine. Thank you. (Conversation with Corcoran finished) Go ahead. Sochhead: DO Knoke intimated to the Bank of England if they were considering any changes in doing anything, he thought the british Treasury might very well approach the American Treasury. Secondly - and this is rather interesting - Knoke also told the Bank of England he thought if the trade treaty was signed and sterling dropped that it would look like the deuce. H.2.Jp: "no said that? Lochnesa: Knoke said that, which WES rather interesting. See, that's gone back to the Bank of England - the Federal Reserve saying it would look terrible if sterling drops after the trade treaty is signed. So they got snother notch from another engle. H.m.Jr: Am I getting this in writing? I'm not getting anything through the ears. Bochhead: That was made today; it'll be coming through. H.M.Jr: You better send it up to me. Can't you get it over the phone? Regraded Uclassified 100 -8- Lochhead: Yes. H.M.Jr: Now, I want the President of the United States to get a copy of this tonight, and send me a copy to the house. Will you? Lochhead: Yes. H.M.Jr: I didn't get what you said. Lochhead: Well, I'll send El copy of this and also a copy of the new conversation. H.M.Jr: Yes, please. And if you gentlemen will do that. Now, "ayne, are you - don't you think I ought to do something? Taylor: Absolutely. There's something screwy about that. H.H.Jr: Yes, and Mr. Hull doesn't do things accidentally. Taylor: I think that's correct, sir. H.M.Jr: And he's a good marksman. Now, Mr. Hull called me up and asked me to do him & personal favor. Taylor: whether Sayre got him to do it or not is something else again. 1.2.Jr: well, I haven't got time or the inclination laylor: That I don't know. H.M.Jr: But I want to go on record that I'm not satisfied, I've stood by and kept my peace in order that the blankety-blank trade treaty can be signed; but if the pound should continue to fall rapidly, then the United States Treasury goes Into action with a broadside. And, for Harry White's sake, we go into action anyway. Come on there, you errand boy for Hull. MoR: That's your copy of your conversation. Regraded Uclassified 101 -9- 5.7.Jr: Yes, but what can I do for him? Can I do it or not? /cR: Pure you can do it, if you like. M.M.Jr: nell, ne wents to tell the British Ambassador tomorrow morning you've accepted the check and all that. Can you clear it at 9:30, Mac? 263: well, you can clear It. Ths British company, in which the Ambassador is financially interested, H.d.Jr: massessittt! TeR: is one of the offenders on opium smuggling. They claim that they have guards in Hongkong and various other places, 2nd our boys, Harry Anslinger and his gens, say that the guards are just a set-up. And what they're trying to do is to trade them Into saying they're satisfied to take twenty-five thousand that they've siready got and let it 6° so far RS the fine is concerned. But they want to make this suipping compromise to follow the Canadian Pacific System, which is to guard their stuff while it's in their jurisdiction, so that - search their seamen when they come on and all that sort of thing, so they can stop the souseling, which hasn't been stopped. And that's all they want In addition to this. Now, that's the only objection they got. How, if you need to, you can 80 sheed and tell them they cen go cheau and continue to ride them on their guarding; but unless they guard, they're going to catch them in snother case and they 're going to fine them, and S.S.Jr: Neil, or course, that isn't what Mr. Bull told me, sna I'm sure dr. Hull is only telling me what he was tolu. .ch: Yes. They can tell the best story in the world about now well they take care of their ships. H.L.Jr: "ell, what should ne tell the British /mbassador tomorrow? I mean is the $25,000 - is that settled? MCR: we've got the 25. d.s.Jr: We've banked it? Regraded Uclassified 102 -10- McR: We've banked it. H.M.Jr: Now, what else we going to do? McR: Of course, negotiations are now going on - two con- ferences have been held today - ... H.M.Jr: Yes. MoR: ... trying to get them to assent to an entirely new arrangement with respect to guarding their ships from smuggling. H.M.Jr: Are we going to fine them any more? MeR: No, nobody wants to fine them any more. H.M.Jr: That's what I'll tell Mr. Hull. Is that right? No more fine? MCR: No more fine. Klotz: Wasn't he concerned about this $25,000? H.M.Jr: No. Taylor: "ell, if you catch them again, you'll fine them. McR: As to this particular case, nobody is excited about this particular fine. They're satisfied with that. $91,000 would have been the penalty if they had let it go; now they made an offer in compromise of $25,000. H.M.Jr: And we accepted it? MOR: Accidentally. Julian's boys put the wrong stamp on the check. They've got a deposit account. H.M.Jr: I better go into the thing. I'm sorry. I better go ... Klotz: I think so, because he was terribly upset about it, and I don't think the man was informed. Really I don't. He hasn't got the story. H.M.Jr: No, we better go into the thing. And the Ambassador himself is interested? Regraded Uclassified 103 -11- McR: well, that's what Steve tells me. I wouldn't swear to it. H.M.Jr: I don't know. You'll see whether we have time. No, I want - I'm tired now - we'll go into the thing tomorrow. McR. All right. Regraded Uclassified 104 November 16, 1938. 4:31 p.m. HMJr: Hello. Operator: Dr. Bowman in Baltimore. HMJr: Thank you. O: Go ahead. HMJr: Hello. Dr. Bowman: Yes. HMJr: Morgenthau speaking. B: Yes, how do you do Mr. Secretary. HMJr: Fine. I had a chance to talk to the President. B: Yes. HMJr: And he told me about his work with you and was quite amused and pleased that we both went to the same source. B: That's nice. HMJr: And - I asked about bringing on that man from California, and the Treasury paying for him and he said, "That'll be fine." B: Yes, HMJr: So if you would do that, and let me know what it 18, anything within reason we'll pay. B: Well, that's fine. He's & young man and he won't require any fancy salary. HMJr: Good. B: Probably getting, not more than two hundred or two hundred and fifty a month now, and his traveling expenses, and if that'll be all right with you. HMJr: Fine. B: That'll be fine. Regraded Uclassified 105 - 2 - HMJr: Now the President wrote me out, in his own handwriting, a list of countries that he was interested in, B: Yes. HMJr: And tomorrow I'll send you a photostat of it. B: Oh, I'd like that. HMJr: And - you'd like that. B: I'd like that as a souvenir. HMJr: All right. B: As well as marching orders. HMJr: And I'll explain, he has these countries particularly in mind, but we could do all of them. B: Yes. HMJr: In South Africa. B: Yes. HMJr: But, and you come over to Washington any regular intervals? B: No I don't, but I can come over at any time. HMJr: You could. Well maybe I'll get in touch with you and possibly we could have lunch together. B: That would be fine. HMJr: Thank you. B: I'll get right after that man. HMJr: Because the President 1e keenly interested in this. B: Yes. HMJr: Yes. B: And what - what are your time limits now? Regraded Uclassified 106 - 3 - HMJr: Well - B: You see I have to bring that man from California. HMJr: Well, I'd say - I'd do it as quickly as is feasible. B: Yes. HMJr: Yes. B: Yes. All right, we'll go right to it. HMJr: Fine. B: Thanks. I'll send off a telegram tonight. HMJr: Thank you. B: See you soon. HMJr: Right. B: Goodbye. Regraded Uclassified 107 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embassy, Paris, France DATE: November 16, 1938, 6 p.m. NO.: 1936 FROM COCHRAN. At half-past five I visited the Under Governor of the Bank of France, de Boisanger. Today's unfavorable trend both in French rentes and security market and the check in franc recovery he told me was because of the opposition to Reynaud's program by organized labor, the Communists, Socialists - under the influence of Blum - and some veterans of the War. The French atmosphere is moreover disturbed by the international tension from the anti-Jewish campaign on the part of Germany. It was the Under Governor's opinion that it was to be expected that there would be some opposition. It is his belief that Reynaud's program is the right one, and that it will have to be accepted by the French. He thinks that Parliament will have to convene before there 16 any real recovery, so that Daladier may show that he has a (omission) which will guarantee a government of some permanency and may then demonstrate real force in the carrying out of his program. Should the present issue cause an upset in the Government, the Under Governor hesi- tates to envisage what might take place. He does not think that Parliament will convene until after the British ministerial visit. At Regraded Jclassified 108 - 2 - At 6 o'clook this evening I visited another section of the Bank of France. I was told that during the morning the French fund had lost sterling while following a policy of strategy of adhering to the dollar rather than to sterling, the broker Maurice Rueff apparently having sold this idea to the Minister of Finance. The Bank of France technicians advised that the franc should be kept in line with sterling, and this afternoon the control had gained enough pounds to break a little better than even for the whole day. I am told that industrialists who are becom- ing concerned about the growing agitation among those who work for them state confidentially that if Daladier were strong enough to place under arrest 50 or 100 of the main agitators - who are for the most part foreign troublemakers - the whole opposition movement in these circles could be stopped. END MESSAGE. WILSON. EA:LWW Regraded Uclassified Delivid at 8. P.M. 109 November 16, 1938 My dear Mr. Secretary: I beg to acknowledge receipt of your letter of November 15th with the inclosed copy of a memoran- dum describing a conversation between the British Ambassador and Assistant Secretary of State Sayre. You any in this letter: "I understand that this action runs completely in accord with Treasury interest." Late Tuesday afternoon, November 15th, I called Mr. Sayre, having a copy of his memorandum before me which he had furnished Mr. Taylor at my request. I read to him the following sentence from his memorandum: "After telling the Ambassador of the President's anxiety, I suggested that he might want to cable at once to London to see if stepa could not be taken to sustain the Pound, par- ticularly during the coming few days." I explained to Mr. Sayre that our interest in the level of the Pound was not confined to the next few days, but that we were also vitally interested in what might happen to the Pound after the Trade Treaty between the United States and Great Britain was signed. I explained to him also that we have postponed discussing with the British Treasury our grave concern in connection with the continued fall of the Pound as we did not in any way wish to introduce an element which might be controversial until after the Trade Treaty has been signed. However, if after the sign- ing of the Treaty the Pound should continue to fall, Regraded Uclassified 110 -2- I shall wish to discuss this question with a rep- resentative of the British Treasury at the earliest possible moment. Sincerely yours, The Honorable The Secretary of State. Regraded Uclassified 111 November 16, 1938 My dear Mr. Secretary: I beg to acknowledge receipt of your letter of November 15th with the inclosed copy of a memoran- dum describing 8 conversation between the British Ambassador and Assistant Secretary of State Sayre. You any in this letter: "I understand that this action runs completely in accord with Treasury interest." Late Tuesday afternoon, November 15th, I called Mr. Sayre, having a copy of his memorandum before me which he had furnished Mr. Taylor at my request. I read to him the following sentence from his memorandum: "After telling the Ambassador of the President's anxiety, I suggested that he might want to cable at once to London to see if steps could not be taken to sustain the Pound, par- ticularly during the coming few days." I explained to Mr. Sayre that our interest in the level of the Pound was not confined to the next few days, but that we were also vitally interested in what might happen to the Pound after the Trade Treaty between the United States and Great Britain was signed. I explained to him also that we have postponed discussing with the British Treasury our grave concern in connection with the continued fall of the Pound as we did not in any way wish to introduce an element which might be controversial until after the Trade Treaty has been signed. However, if after the sign- ing of the Treaty the Pound should continue to fall, Regraded Uclassified 112 -2- I shall wish to discuss this question with a rep- resentative of the British Treasury at the earliest possible moment. Sincerely yours, The Honorable The Secretary of State. Regraded Uclassified 113 November 17, 1938. 11:52 a.m. Wayne C. Yesterday afternoon tea, this was the trade Taylor: delegations, British and Canadian gave a tea, HMJr: Oh, yes. Did they really drink tea? T: Well that, I didn't ask about. That was, but technically it was. The British Ambassador came up to Sayre and said that they had - had received a reply to his cables about Japan. HMJr: Yes. T: That he gave it to him and let him glance through it. HMJr: Yes. T: It was about & page and & half and the sense of it was they were - they were doing the best they could and would continue to do 80. HMJr: Yes. T: And they asked me whether, first if it had come over here in any fashion and I said, "Not as far as I knew." HMJr: You mean this last one? T: This last one. HMJr: Yes. T: And also whether, during the day, if it didn't come over we wanted them to ask for something more formal than that. I said that, unless heard from the contrary, we'd, we'd let nature take 1ts course today until they got the damned/eigned up. HMJr: That's right. T: And then if we hadn't heard, say by tomorrow, about this thing, why then we'd prod them on it. HMJr: Well, I'd let her ride today. T: Yes. Regraded Uclassified 114 - 2 - HMJr: And then tomorrow we - we can talk about it. Right. HMJr: How's that? Well, that's - I think if we, say, get them to say, "Well, where the hell is this message", because they have showed-to Sayre, you see, at a tea, and they didn't give him & copy of it. HMJr: Oh you mean that the British - that the State - well ask the Ambassador for a copy of the message. Yes. But, he didn't want to do it necessarily today, unless we felt that it was very urgent. HMJr: No, and especially in view of my letter to Mr. Hull last night. Yes. Yes. HMJr: Did they know about that? No. Didn't seem to. HMJr: No. I'd let her ride today. The pound it still 4.70 See? Yes. HMJr: And tomorrow, if they want to ask the Ambassador for a copy, O.K. Well, that was what I thought your feeling would be, and I said we'd leave it like that unless you wanted to do it differently. HMJr: No. I'm more than willing tolaveit that way. O.K. HMJr: Thank you. Right. Regraded Uclassified 115 November 17, 1938. 1:01 p.m. HMJr: Hello, Operator: Postmaster General. HMJr: Thank you. O: Just a moment, Mr. Farley. 0: Go ahead. HMJr: Hello. James Farley: Don't believe what you read in papers, I haven't resigned yet. HMJr: (laughter) What a man, What a man. F: I was having breakfast this morning, and I was startled, for a moment, at the news. HMJr: Well, the Times only prints the news that's fit - that isn't fit to print, uh? F: Yes. Well, that's all right. HMJr: Well I wasn't worrying about you, but I thought that Danny Roper was B. little vigorous in his denial. F: Yes, I was interested in reading, in one of the newepapers about Danny being suggested he might - maybe he'd go to Russie. HMJr: No. F: And for your information that didn't come out of the air. You can imagine where that one came from. HMJr: Really. F: oh, yea. HMJr: They are thinking of sending him to Siberia, F: Going to offer it to him - to you. HMJr: No. y: Really. Regraded Uclassified 118 - 2 - HMJr: Well I'll be damned. God he must have it in for the Bolsheviks. F: That's very funny, but I was amused when I saw it in print, BO somebody must have talked. HMJr: Uhhuh. Well 18 everything 8.8 it was? F: Ae far 8.8 I know. HMJr: Uhhuh. F: I'll tell you why I'm bothering you now. HMJr: Yes. F: Stewart Underhill whom you undoubtedly know. HMJr: Yes. F: From Corning, New York. HMJr: Oh, sure. F: Came in to see me today and started talking to me about some regulations, all of which I'm not familiar with. HMJr: Yes. F: He tells rather a plausible and rather an interesting story of events of the last ten or fifteen years in connection with their industry. HMJr: What industry is that? F: The wine industry HMJr: Wine? F: Wine. HMJr: Oh, yes. F: They control a big wine - HMJr: I didn't know that. F: And Henry, I'd like very much if you'd at least let Stewart - Regraded Uclassified 117 - 3 - HMJr: Sure. F: Tell you the story and then maybe I - I think he's entitled to help as I listened to his story - HMJr: Well, tell him to come on down. F: I don't much about - anything about regulations. HMJr: Well, tell him to send me a telegram and I'll see him. F: Well when would you want to aee him? He's here in New York. When would it be convenient for you? HMJr: Oh, - you mean his business 18 in New York? F: No, he's in New York now. He's here in my office. Not in the office while I'm calling, but he's outside. HMJr: Oh. That's a hell of & day tomorrow. F: Would Monday be all right? HMJr: Well, yes. Just a moment. Hello. F: Yes. HMJr: Tell him at three o'olook Monday. F: Now, - will you hold on one second, and I'll - HMJr: Sure. F: I'll get him right here and find out if that's all right, and we can settle it right now. HMJr: Sure. F: Meanwhile you hold Danny's hand and Harry's hand tomorrow, I won't show up at the meeting. HMJr: You won't. F: No. HMJr: I can't hold both their hands at the same time. F: Well, you settle the farm problem for Wallace and that'll be all right. Regraded Uclassified 118 - 4 - HMJr: Yes, and how. F: Get in on that mattress business. That's a good business. HMJr: (laughter) Well at least I saved the President from being foolish about it. F: Yes. Well it's all very funny to me. HMJr: Yes. F: Just & minute. (aside - Stewart, will three o'clock Monday be all right? ) That'll be all right Henry. HMJr: Stewart Underhill? F: Stewart Under - Just a minute. Now, would it be all right if he brought his attorney with him, who might be more familiar with some of the regulations than Stewart? HMJr: Oh - F: One man with him. HMJr: If he wants to, but I'd rather - I don't understand anything legal. F: You'd rather he come alone would you? HMJr: Yes. F: O.K. HMJr: Yes, let him leave his lawyer home. F: O.K. HMJr: They're no damned good anyway. F: O.K. That's all right. HMJr: All right. F: Thanks a lot. HMJr: Thank you. Regraded Uclassified