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Volume 334, December 1 – December 2, 1940
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Volume 334, December 1 – December 2, 1940
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Henry Morgenthau, Jr. Papers
Diaries of Henry Morgenthau, Jr.
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DIARY
Book 334
December 1 and 2, 1940
Regraded Uclassified
- A -
Book Page
Allison Engineering Company
See Var Conditions: Airplanes (Engines)
Argentina
See Latin America
- B -
Budget
See Financing, Government
Business Conditions
Commodity reports (Lindeteves, Incorporated) - - 12/2/40.. 334
166
Hass memorandum on situation - - 12/2/40
171
- 0 -
China
See Var Conditions
- I -
Federal Bureau of Investigation
Klaus memorandum - - 12/2/40
110
Financing, Government
Budget: For discussion of normal and abnormal or defense
budget, see Revenue Revision
France
See War Conditions: Foreign Funds Control (Martinique)
- G -
Germany
See Var Conditions: Foreign Funds Control
- J -
Japan
See War Conditions: China (Senate testimony by HAJT and
Bull on loan)
See War Conditions: Foreign Funds Control
- L -
Latin America
Rockefeller report on activities - 12/2/40.
160
Argentina: Lean negotiations - material in connection with..
194
Lindeteves, Incorporated
See Business Conditions: Commodity reports
- K -
Book Page
Martinique
See War Conditions: Foreign Funds Control (France)
Morgenthau, Henry, Jr.
West Indies trip: Notes on (McKay) - 12/2/40.
334
133
Munitions
See War Conditions: Plant Expansion
- P -
Plant Expansion
See War Conditions
- R -
Revenue Revision
Budget: Normal and abnormal or defense budget discussed
at White House conference; present: FDR; HMJr and
Sullivan: Harold Smith; Senators Harrison and George;
Congressmen Doughton and Cooper - 12/2/40
83
- 3 -
Shipbuilding
See War Conditions: Plant Expansion
Statements by HMJr
Before Senate Committee on Banking and Currency, in
connection with loan to China - 12/2/40
85
- U - -
Unemployment Relief
Work Projects Administration report - 12/2/40
148
United Kingdom
See War Conditions: Military Planning
- W -
War Conditions
Airplanes:
Engines:
Allison Engineering Company: Shipments - 12/2/40..
123
Plant Expansion:
See War Conditions: Plant Expansion
- W - (Continued)
Book
Page
Var Conditions (Continued)
China:
Proposed Loan:
Conference at HMJr's home; present: HMJr, Gaston,
Bell, Foley, White, Bernstein, and Cochran:
Boong joins group later - Sunday, 12/1/40
334
4,29
a) Jones' letter to FDR discussed
b) Jones' letter indicating that legislation
will be necessary "if China proposes to
use proceeds for var materials"
27
Senate testimony by HMJr and Hull - 12/2/40
85
Hull asked by HMJr himself to make arrangements
so that HMJr may have State Department background
when loan is under consideration - 12/2/40
153
Exchange market resume' - 12/2/40,
161
Export Control:
Exports of petroleum products, scrap iron, and scrap
stool from United States to Japan, Russia, Spain,
and Great Britain. as shown by departure permits
granted for week ending November 30, 1940
128
Foreign Funds Control:
General over-all control (and situation in Japan
particularly) covered in Wiley memorandum to HMJr -
12/2/40
99
a) See Viner comment - 12/3/40: Book 335. page 61
1) Wiley approves above and asks for
"green light*: See Book 335. page 154
France:
Martinique: Inquiry made concerning exchange credit -
12/2/40
129
Germany:
Transactions with Chase National Bank - 12/2/40
108
Japan:
See War Conditions: China (Senate testimony by HMJr
and Hull on loan); Foreign Funds Control
Military Planning:
Reports from London transmitted by Lothian - 12/2/40
135,139,143
Plant Expansion:
Airplane, munitions, and shipbuilding programs -
additional British orders: Conference at White House;
present: FDR, HMJr, white, and Young - 12/1/40
1
a) HMJr asks FDR for written note to be shown to
Stimson, Knudsen, and Jones, authorising United
States funds for necessary plant expansion
a
1) Knudsen and HMJr to confer
111
2) Jones and HMJr to confer
114
3) Knox asked to conference with Stimson, Jones,
Knudsen, and HMJr
116
Regraded Uclassified
- V - (Continued)
Book
Page
War Conditions (Continued)
Purchasing Mission:
Airplane, munitions, and shipbuilding programs -
additional orders:
See War Conditions: Plant Expansion
Testing Order: Official sales of British-owned dollar
securities - 12/2/40
334
109
Federal Reserve Bank of New York statement showing
dollar disbursements - 12/2/40
124
British financial requirements in United States -
12/1/40
188
West Indies Trip by HMJr
Notes on (McKay) - 12/2/40
133
Work Projects Administration
See Unemployment Relief
1
Notes on Meeting at the White House
with the President at 2:30 P.M., Sunday,
December 1, 1940, Concerning Orders Which
the British Wish to Place for Airplanes,
Munitions and Ships.
Secretary Morgenthau, Mr. Harry White, and Mr. Philip Young
arrived at the White House about 2:25 P.M. and waited until
admitted to the President at 2:48 P.M. Secretary Morgenthau
introduced Measre. White and Young. The President said he had
received the Secretary's letter with its attached "Statement of
the Estimated Value of Additional Orders to be placed under the
Air. Munitions and Shipbuilding Programs recently under dis-
cussion with the Administration" received from the British
Purchasing Commission.
The Secretary read from his copy of the same statement saying
that the total value of orders which the British wanted to place
amounted to about two billion dollars and required capital invest-
ment of about 700 million. In addition. another 500 million
dollars would be required as a 25 per cent down payment on the
orders or a total of about $1,200,000 right away.
The President looked over the statement again and said that
it was the capital investment that was the thing. Secretary
Morgenthau said that he had another statement with him showing
what the British any they have for money and also what ve think
they have. The Secretary handed it over to the President who said
"Yes, that's the thing I haven't got". The President skimmed
through this additional statement which had been prepared by
Mr. White and then threw it down on the desk and said "Well, they
aren't bust - there's lots of money there".
After thinking about it for a moment, the President said that
we needed capacity to produce, and, after A little hesitation,
added that the United States should build the plants. The President
cited the example of the Navy armor plant at Charleston, South
Carolina, saying it had been built in the last part of 1917 and
completed just before the Armistice. However, that plant had not
been used; the machines were put in grease and the plant maintained
as a stand-by capacity for twenty years before it was finally put
into production just a few years ago. The President said that
this capacity which would be necessary for British orders should
be created by the United States as stand-by capacity if that could
be done.
2
- 2 -
Secretary Morgenthau explained briefly that a echeme had
already been worked out known as the Continental Motors pattern
where the Army and Defense Commission had certified to the HFC
that 80 much capacity vas essential to National Defense and where
the RFC, in turn, had financed plant expansion. Mr. Young added
that the British, however. would pay their proportionate share
of the capital cost AR a surcharge on the unit price. The
President said he understood that and that the United States
should pay the capital investment,
The Secretary asked the President to write a chit on a piece
of paper or on the bottom of the statement which he had before him
60 that the Secretary could show it to Megars. Stimson, Knudsen,
and Jones saying that United States funds should be made available
for this plant expansion. The Secretary asked Mr. Young If anyone
else should be brought in on that, and Mr. Young suggested that
perhaps Secretary Knox should also be consulted because of the
shipbuilding program which was included in the statement.
The President looked at the statement again, but before be-
ginning to write said "There are other things in here--the ships
can be done on the loan idea." The Secretary interrupted the
President to say that he had talked with Admiral Land about that
and that Land didn't like the idea of leasing. The President
incuired why not and the Secretary replied that Land said they
would be of no use to us when the war was over as they were not
the type which could be used. Further, that Knox had some ideas
about what ought to be done. The President wrote a statement on
the bottom of the value statement saying that capital investment
for planes and munitions should be made available from United States
funds. The Secretary interposed the suggestion that he should say
"HFC funde" as "United States funds" might mean the President's
money. The President said it might mean anything. and the Secretary
said "They might nick you". The President replied "I haven't got
anything left to nick." The Secretary added further, with 8 chuckle,
"They tried to nick me", but the President passed over this remark
without comment.
Concerning the shipe, the President said, as he continued
writing. that they should be two-thirds Class À and one-third
Class B explaining that the Class A ships were the ones that you
bought by the yard and that the Class B were shaped ships. The
President seked the Secretary 9.8 to what kind the British were
getting and how fast they would go. The Secretary answered that
they were of the box-end type with Scotch boilers using machinery
which would not conflict with Knox' schemes. The President again
saked how fast they were and the Secretary replied *Ten knots".
Regraded Uclassified
3
- 3 -
"Not fast enough", said the President. "They have got to be
faster. They will have to use the same machinery but cut down
the size of the vessel from 7500 tons to 6500 to 5500 tons or
even less. They must do more than 10 knots or they can't get
away in time to avoid sinking."
The President handed his written comment over to the
Secretary who looked at it and read it aloud. There was some
hesitation over the phrase "United States orders" as that meant
the Army would place the orders and would probably have to have
the money to do it. Mr. Young said that was something new as
the RFC had put up money only for plant expansion and not for the
purchase of actual items in the past. Mr. White said he did not
know as to whether the War Department had the money or could
legally do it if it did have it. Mr. Young added that he doubted
if the War Department has the money available. It was apparent,
however, from the comments and the attitudes of the President
that the United States should place the orders, the RFC should
finance the capital investment and that then the individual items
would be sold to the British on a unit basis payable upon delivery.
The Secretary asked Mr. White and Mr. Young to wait outside
while he saw the President alone for a minute. About five
minutes later, the Secretary left the President and explained to
Messre. White and Young that he has asked the President alone
whether he really wanted these British orders to be placed or
not. The President had replied that he did want the orders
placed. Because of the swiftness with which this decision was
reached and the great responsibility involved in carrying it out,
Secretary Morgenthau stated that Mr. Knudsen, Secretary Jones and
Secretary Stimson should be consulted in order that the responsi-
bility might be shared and in order that some line of action
might be evolved.
The group left the White House at approximately 3:15 P.M.
4
Sunday, December 1, 1940
4:00 P.M.
(At Secretary's Home)
RE CHINESE LOAN
Present:
Mr. Gaston
Mr. Bell
Mr. Foley
Mr. White
Mr. Bernstein
Mr. Cochren
H.K.Jr:
White and Young and I went down to see the
President about whether or not we should let
the English place any more orders, and the
President read my memorandum on what the assets
were and he said that I had spid right along
that they had lote of money. He said, "I went
additional facilities built and let the Army
order the stuff And let the English have it."
I got him to try to write something for me,
and this is what he writes: "Use United States
RFC funds for plant cenital on United States
orders. II Ships two thirds class A, one third
class B. He doesn't sign it. So I say this
doesn't say it 18 for the English. So he says,
"Let them use their imagination." You see,
the President - and there 1s my authority, after
ten minutes with him, to go sheed and let the
English place another two million dollars worth
of orders.
Gaston:
More speed, less tonnage. That 18 another matter.
I think that 18 all right. I think the right way
to do this 18 for United States to build All the
facilities and place the orders and then sell the -
let the British pay for what they get when they
get it.
H.M.Jr:
That 1e what he BAYS.
Gaston:
I think that 18 right.
H.M.Jr:
Yes, but --
5
- 2 -
Gaston:
But it is a good charter. Keep them simple.
H.M.Jr:
Yes, that 1s what he says, but what's Knudsen
and the rest of them going to say?
Gaston:
I don't know. This 1e general orders.
H.M.Jr:
I am going to let it cook until Tuesday.
Well, they got out the statement we wanted and
I called up Jesse Jones last night and I said,
"Why didn't you show me that letter of yours?"
You people saw it, didn't you? He said, "Oh, I
thought you saw it." I said, "No, I didn't
see it." "Well," he saye, "I was pretty busy."
I said, "Well, I see you want me to look after
your funds." He says, "That 1s what the President
wanted." He says, "I was awful busy." So he says,
"I ask you now, to look after money that I give. If
I said, "I think you might have asked me." "Well,
I was awful busy," he says.
Bell:
That third paragraph is Just what we tried to get
out of the other one.
H.M.Jr:
Well, what Jesse Jones writes the President doesn't
commit me, because I have no doubt that they cooked
it up between them and - but I got what I wanted
80 I have no kick coming. I can't complain. I
can go before the committee tomorrow and say I
have no commitment.
Bell:
I wonder if Welles had a copy of that letter
when we were talking to him.
H.M.Jr:
Well, what Welles said, he said, "I understand."
Foley:
That assumes the thing has been done.
H.M.Jr:
Welles says, "I understand there 18 a letter between
Jones and the President." Isn't that what he said?
White:
He referred to a letter. I don't remember the
terms.
Bell:
I don't know how he said it now.
6
- 3 -
Bernstein: I thought he gaid Jones was writing a letter
to the President.
H.M.Jr:
Something like that. Anyway, they pulled A fast
one, but I am all right. I don't care. The
President got his headlines. It will have the
effect I hope they went. As far as I sa concerned,
ethically and morally, I AM all in the clear. I
can go before the committee and say I made no
commitment and I am here to ask for guidance.
Gaston:
This 1A a mere contemplation. This doesn't bind
anybody. It says they have agreed to lend 50
million and it is contemplated that the Treasury
will give further assistance.
H.M.Jr;
Does he use the words "contemplated"?
Gaston:
Yes. "It 1s contemplated that disbursements on the
loan will be made in cooperation with a represen-
tative of the Secretary of the Treasury in connection
with further assistance to China by the Treasury of
e like amount." They have agreed to make a loan in
contemplation of an arrangement with the Treasury -
there are two things. They have agreed to make 8
loan. They contemplate n. joint supervision.
H.K.Jr:
It says, "contemplated that disbursements of the loan
will be made in cooperation with a representative of
the Secretary of the Treasury in connection with
further assistance to China by the Treasury of a
like amount." The contemplation is in the dis-
bursement.
Gaston:
I know, but that doesn't bind us or doesn't Bay the
Treasury 1e going to advance anything.
H.M.Jr:
But Herbert, how can he bind me by writing the
President of the United States?
Bernstein: The only disadvantage I 860 of it 1s it sounds B.B.
though there 1s the real deal there and it 18 all
presrranged,
H.M.Jr:
That 18 what they wanted. You don't think that
10 an accident?
7
- "
White:
But in your relationships between the committee
and yourself, that is the important thing.
Foley:
This is the only sour note, here.
H.M.Jr:
What?
White:
The relationship between you and the committee 1s
the only thing at stake.
H.M.Jr:
Yes.
White:
Then you are in the clear. You didn't even see
1
that letter. They might take umbrage at the fact
that you came down and by the time they came there
you were already committed.
H.M.Jr:
In the first place, I talked to Hull last night and
said, "Are you going to go up?" and he said, "Yes."
So Hull 1s going up and I em a great believer in
precedent, so I em going to let him talk first. So
Hull 1s going un himself.
Bell:
Stand on protocol?
H.M.Jr:
Yes. This 18 A piece of slick book work. You
know that.
Gaston:
Yes.
Foley:
Sure.
H.M.Jr:
But that is all right. Now look. I have not had
my siesta today, 80 I am kind of - I Am not in
very good shape, having been down to see the
President. I had 8. few minutes to talk with
Harry. We have got Soong coming here at 8:30
tonight. Harry made the suggestion he thought the
time to make e deal with Soong was before the
thing was accomplished, you know and we are thinking
of saying to Soong tonight, "Now look, how much
money can you get the private banks to put in and
how much money can you out in yourself,' and say to
him, "Now all of these monies will be used first
before the United States Stabilization Fund money
1s used," see.
8
- 5 -
White:
Before the American money 18 used, including the
Export-Import Bank money.
H.M.Jr:
The Chinese money goes first.
White:
Only the Stabilization money first. Then the
Chinese private banks, then the Export-Import
Bank funds and by then you have got about e
hundred million dollars before you come to the
Stabilization Fund.
Bell:
What do you mean, dollar credits owned by Chinese
banks?
White:
They have about ten million dollare, or at least
they did have. I don't know what they have got
now. They had about ten million dollars. It wasn't
sterling but at that time it was in free sterling
and I assume it 1s the same now. It 18 equivalent
to dollars but we will have to find that out, which
they will put into this and they - a couple of
months ago he said that the private Chinese banks
were prepared to contribute - participate to the
extent - I think it was ten or twelve million
dollars and if they put that in, that will be,
let us say, twenty million dollars, and they will
use that first. If they need any dollars, they
will resort to those first. Then the Export-
Import bank, they have got 70 million dollars
which they haven't yet used. Now, the arrangement
could be that they will not resort to the United
States Stabilization Fund money for any funds that
could be appropriately met with the Export-Import
Bank funds, so that if it 1s a case, for example,
there 18 a demand for dollars because of the imports,
we will say, "Well, the place to get that 18 out of
the Export-Import Bank Funds," 20 that you might
end up with not using the Stabilization Fund for
a long time. You might use a little of it because
it may not fall in that second category, but you
certainly wouldn't use it very soon.
Cochran:
You said they hadn't used any of their 70, Harry.
White:
No, they have promised 50 and they have Just got 25.
Cochran:
You mean this new 501
9
-
Veg, and the new 25. 30 1f they use those funds
and if the fun' 18 procerly controlled, : think
that :11P dollars will be good for some time. If
There to Jonce - you set A lot of velvet, in
Mords --
1015 DO you think of nutting It un to then, Don?
I think 1: 1n Cine, putting It un to them. Tie
deli Bay, "A11 right with me, but I don't know
Wether you yould ENE the Export-Import Bank to
agree.
Yell, have told de that T AC to be controller
of 1.1. funds.
And Dan, they can't take any other obsition because
they certainly shouldn't use these funds for In-
DUPODRES and the agoropriate numbers
170 for expirts. The only ournoses for witch they
should use control movements, and those should be
restricted - the only king of contral movements
the should take -Ince should be very few - should
he Ide Stabilization Fund and for that they use the
Chinege "unde simes end then the American Stabilization.
Jones pain to me enn he 1,00 out it out In the press
now, that 1A noine to cost about 50 million
follors, that statement, and ne seld I on 62106 to
look -STAM 31s money AnA ny God I AM going to look
ofter is 2000. (Laughter)
You "111 Look after yours first.
Yes.
I think that 10 fine.
THE
I asked was wante to 5 to China and look after it
and Harry Jummed RD be Almoet knocked me off my
feet. I have turned Intra down, though. He vas
serious.
Schren:
Harry recommended me, in. Secretary.
White:
You veren't here when I recommended myself. I
recommended you when you were around.
Regraded Uclassified
10
- 7 -
H.M.Jr:
Say, listen, if anybody 18 going to get out from
under the yoke, it 1s going to be me. We will all
stick and die together. Seriously, who --
White:
"I don't know of B. better man," said he modestly,
"but if I can't go, we will try to think of
somebody else."
H.M.Jr:
There are four different kinds of Chinese currency
and he wanted to make it look as difficult AB
possible.
Bernstein: We will see if we can't work out something about it.
White:
There are a few more angles about it.
Foley:
We will fix you.
White:
Think of B. hundred fifty million slipping through
your fingers that way.
Bell:
There 1e a fellow here in town, or I think he 1s
in town, who was formerly Auditor General for the
Philippines for several years, and then he went to
China and went in business and was there about 20
some years and, of course, his business blew up
and he 18 just back here. He was over to see me not
very long ago. Mack sent him over. He wanted a job.
Gaston:
That is Murphy's man.
H.M.Jr:
He 1e the fellow that tried to get a job with me.
Gaston:
Yes. I can't think of hie name. That 1s the same
man.
H.M.Jr:
He taught accounting in Indiana or Michigan or
some place.
Bell:
You're not thinking of French?
H.M.Jr:
The fellow that I mean, two years ago was the
Minister of Finance for the Philippines.
Bell:
Jones?
H.M.Jr:
Yes.
Regraded Uclassified
11
- 8 -
Bell:
He is over in the Budget, Head of the Fiscal
Division.
H.M.Jr:
That 1s the fellow I mean, Jones.
Bell:
No, this is another fellow. I have got his file
down there.
H.M.Jr:
Is Jones with the Budget?
Bell:
Yes, he has gone over, I understand, to be in
charge of the Fiscal Division.
Beston:
How good a men 1s this Martin Nicholson that we
have in Shanghei?
H.M.Jr:
Oh no.
White:
This 1s a pretty technical job.
H.M.Jr:
He is -
Gaston:
Just 8 Customs men?
H.M.Jr:
I wouldn't say that, but he is too mixed up with
too many people. When it comes to eitting on
150 million dollars
Foley:
How about Shirley, Dan?
Fell:
He wouldn't do bad, would he?
R.M.Jr:
No.
White:
Don't you think you could insist on K. P. Chen AB
being one of the group?
H.M.Jr:
I would rather send Dean Bates.
White:
That certainly 18 P good comeback.
H.M.Jr:
He must be & lawyer. Is that okay?
Bell:
That 1s okay.
White:
K. P. Chen could be among the group. That would be
Regraded Uclassified
12
- 9 -
heloful because I don't think they will pick them
unless something of that kind 1s done.
H.M.Jr:
Well, we can think about it.
Gaston:
How about Archie?
H.M.Jr:
I thought about that.
Bell:
Archie is tied up for three more years, ien't he?
H.M.Jr:
Let him etay on his payroll and go over and I will
use him. We couldn't get. anybody better.
Gaston:
He ought to have that job. He doesn't need to stay
here and sell Tung oil.
White:
That would be all right. Next to me, he would be
the best man. (Laughter)
Bell:
I can't imagine anybody wanting to go.
Cochren:
I think Archie would like a trin out there. He has
never been out there, you see.
H.M.Jr:
Well now, look, is this thing - how are we going to
explain this thing tomorrow when we go before the
committee?
White:
Well, I should think the less detail the better.
Merely that it is the same arrangement such AB you
had except that you are modifying the collateral
position. You are no longer going to ask for
dollar for dollar for gold. It 1e going to be
something less. How much depends upon what the
situation 1s. There might be 20 million and there
might be 10 million.
H.M.Jr:
What are they going to use this for, Mr. White?
White:
They are going to use it to meet demands for dollar
exchange that need to be met in order to stabilize
the dollar you want to exchange.
H.M.Jr:
Would they meet this only in so-called free Shanghai
Regraded Uclassified
13
- 10 -
or would they meet it in Shanghai?
White:
They will have to meet it in Shanghai because
unless and until they change their monetary
system they are trying to maintain their national
government currency in many of the areas which
theoretically are controlled by the Japanese
but actually are not. They are only the lines of commu-
nication but all the forces - the people on the
interior still use Chinese currency and many of
the banks - Chinese banks still use currency.
The moment they don't use national currency in
Shanghai and in the interior, then they have
suffered a severe blow.
Cochran:
Would this facilitate the Japanese any in getting
foreign exchange?
White:
Sure, but that 18 one of the things they have to
take care of. It 1s one of the ways the Japanese
had of getting foreign exchange formerly, and that
is how they lost a good deal of the early Stabilization
Funds, but they haven't lost much recently; but that
is one of the big leaks.
Bernstein: They must have a man on the scene.
White:
oh, you have to have & first rate man. This 1s the
really most difficult monetary Job there 1a in the
world, because it 18 the only country which has 80
many currencies operating in areas over which it
doesn't have complete control.
H.M.Jr:
Did the English give them any money?
White:
Yes. The English got a good deal out of the first
batch, first Stabilization Fund. Now, there is
snother thing. We might put up to them - maybe the
English ought to give money and let them share part
for part. They asked the English and they might
give it to them. Phillips 16 coming here in a couple
of days. Those can be some of the details that can
be worked out.
H.M.Jr:
Which 1a the more important for the English, to
give them 25 million dollars to help China stabilize
Regraded Uclassified
14
- 11 -
or to give United States 25 million to buy
airplanes here?
White:
The second.
Foley:
Airplanes here?
H.M.Jr:
I was thinking in terms of what they have on order,
Herbert, the English.
Gaston:
I was just thinking you couldn't afford to do it
for more airplanes for the British.
H.M.Jr:
There 1a & scheme on foot on that now which isn't
80 bad. The scheme 16 this. They find that Curtis
can turn out, over and above their present orders,
when the present orders are through, a hundred and
ninety-four Curtis P-40's. I mean, they have got the
stuff to do it and everything, you see, at the end
of the run and while they are getting under way on
whatever their next ship 18. So we will divide
that hundred and ninety-four among these various
countries. That is the thought.
White:
I think before the committee, if you are asked the
question, and you may be, the answer 18 rather clear.
If they ask, "Is this stuff risky?" I think the answer
18, "It sure 1s."
H.M.Jr:
Oh yes.
Bell:
Have you read the statement?
H.M.Jr:
Which statement?
Bell:
The one I gave you.
H.M.Jr:
I had better get Ed to read it.
White:
It 18 risky, but that doeen't mean that you can
lose it all. Even if there is peace between China
and Japan, as 8. matter of fact, you will probably
recover - I don't know whether the Export-Import
Bank will recover but - you will still have your yuan.
Gaston:
Yes. We are asking them for a hundred percent margin.
Regraded Uclassified
15
- 12 -
Thirty or forty percent margin might be sufficient
to cover this bet.
White:
It might. I don't know about that. As long as
you didn't try to sell all of that.
Gaston:
Merle thinks it is ample.
White:
It 18 all right as long as you hold it.
Bell:
You can't sell assete as long as you keep it in the
bank.
Foley:
In view of what has happened, I think it 18 terribly
important that we don't make this committee feel
tomorrow that we are asking them for approval of
anything or that we are asking for any kind of guidance.
I think what we want --
White:
Do you think the statement does?
Foley:
No, I don't.
White:
Just repeat that when the Secretary 1s in here,
because he 18 apt to finish that statement by saying
now --
Foley:
That is what I wanted to aay to you fellows. It
would be a great mistake in the first place and
in the second place I think the chairmen of the two
committees are going to wonder why - what the purpose
of this 18, unless you tell them the purpose is to
inform them, to tell them what 18 going on and what
you propose to do. I think they may feel that you
are trying to duck the responsibility and pass it
off on them. I think that would be my reaction if
I were in their place. I was just saying,
Mr. Secretary, I think it is terribly important
in the presentation of this to the two committees
that we don't give them the impression that we are
asking for approval or we are asking for any
definitive action on their part either way, I think
we ought to make it perfectly clear that we are merely
coming before the fact and not after the fact.
H.M.Jr:
Let me see, "I asked Chairman Wagner," and 80 forth.
Regraded Uclassified
16
- 13 -
Incidentally, I heard the end of what you said.
Somere doesn't agree with you. Somers said he
hoped if he could adjourn to meet separately with
his committee to pass a resolution endorsing what
I was preparing to do.
Foley:
Well, supposing, Mr. Secretary, they don't. That
1s what I am afraid of. What good does it do us
to have their approval?
H.M.Jr:
Well, what are you going to say now, "Gentlemen, I said
I would come up here for guidance?" That 1s the
language I used.
Foley:
Well, you are telling them --
H.M.Jr:
Now give me some guidance.
Foley:
I think it would be B. mistake to ask them for guidance.
I think that --
H.M.Jr:
I said I would.
White:
But this statement gets out of it, I don't know
whether it 18 & lie or not.
Foley:
This is not the kind of situation you had in mind when
you said you would ask for guidance.
H.M.Jr:
What do you mean?
Foley:
The state of war between China and Japan has never
been recognized to exist. The neutrality act hasn't
been invoked. It isn't the situation between France
and England, which was the situation that we had in
mind when we made the statement.
H.M.Jr:
You mean the neutrality act haen't been invoked
against China and Japan?
Foley:
That 1e right.
White:
I think you could avoid that by avoiding the use of
the word "guidance" after the statement, and it 18
avoided here, by merely saying"Now, I wanted to put
this before you."
17
- 14 -
Foley:
"Put it before you. Here I am and I haven't taken
that action and I propose to do it."
Bell:
Four of us worked on it yesterday afternoon.
H.M.Jr:
Are you in on this, Herbert?
Bell:
Five of us. I like that, "Accused of quibbling
where my word 1s concerned."
Foley:
That 1s good.
H.M.Jr:
That 1s very good. Well, I think that is an excellent
statement. I know enough about the Chinese thing
that I wouldn't argue about this, you Bee. I think
it is an excellent statement. No one yet has ex-
plained to me what Argentine wants.
Gaston:
It is the same type of transaction exactly as the
Argentine, as I understand it.
White:
We thought it would be better if you would make
that orally.
H.M.Jr:
But I have got to sometime know what this Argentine
thing 1s.
White:
Whenever you are ready --
H.M.Jr:
Right now.
Bell:
I also sent you a folder on that.
Cochran:
May I mention one part on China, Mr. Secretary?
White:
I can describe it orally, Mr. Secretary, very
quickly.
Foley:
Here is & copy of it. You want it before you while
he 1s describing it.
Bell:
I think Harry could, however, explain it to you.
H.M.Jr:
Is that the same thing you have got?
Foley:
I think 80.
Regraded Iclassified
18
- 15 -
Bell:
No.
White:
That is the second page.
Bell:
It 18 part of the second part, yes. That is what
the Argentines submitted.
H.M.Jr:
oh, Harry, save my eyes and talk to me.
White:
I think I can tell you very briefly. It 18 a --
Foley:
I just thought he might want to have it in front
of him while you are talking. It 1s easier to
explain it.
White:
He has it, Ed.
H.M.Jr:
Go ahead. He has got such a lovely voice.
White:
My wife thinks 80.
Foley:
Is that what she likes, Harry?
White:
Yes..... No -- I will begin all over again. You
almost had me there, Ed. They are going to get a
hundred - they are asking for --
H.M.Jr:
We won't let him go to any more football games.
White:
The proposal 1s to let them have 100 million dollare;
50 million dollars the Export-Import Bank 18 going
to extend, the usual credit to them.
Gaston:
Up to this point the same as China. The Export-
Import Bank lends them 50 million.
(The Secretary leaves room to take telephone call.)
H.M.Jr:
Stimson was calling me. He wanted to tell me all
his troubles, which he did. He didn't know that
I had called him. So he 18 agreeable, too, see,
He said he thinks it 18 a terrible way to do things.
He says he thinks we have just got to decide what
we are going to do for England. He says doing it
this way 1s not doing anything.
Cochran:
Phillips didn't leave Lisbon today. They think they
Regraded Uclassified
19
- 16 -
will leave tomorrow now.
H.M.Jr:
What?
Cochran:
Phillips' plane did not leave Lisbon today 80 it
may be tomorrow.
H.M.Jr:
Now, I am sorry. Where were we?
White:
We said the first 50 million dollars that the
Export-Import Bank contemplates letting the
Argentine have 1s exactly, as Herbert says, like
the 50 million that the Export 1s letting China
have. The terms and the conditions have not yet
been discussed. The second 50 million would
presumably be made available from the Stabilization
Fund and they would buy Argentine pesos either during
the next six months or it can be arranged that you
can buy them thereafter. Bernie has & plan in which
it could extend beyond that. And the - there were
three ways of securing it and Dan thought, and I
think the rest of us agree with him, thought the
best security, best way of those available 18 to
arrange that they will always keep gold on earmark
with the Federal Reserve Bank of New York to an
amount equal to whatever Argentine pesos you buy,
plus ten percent. It will not be pledged, because
they cannot pledge it.
H.M.Jr:
Somebody told me that.
Bell:
I told you that.
White:
And in that way, since they need permission from
the Treasury to take such gold out anyway, you
would always have dollar for dollar collateral.
They have got about 400 million dollars worth of
gold. They have to have by law a hundred million
dollars against the outstanding liabilities, 80
there 18 8. 300 million balance, 80 they can easily
keep 50 or 60 on deposit. They have 70 on deposit
now. They could easily keep that. 8o that really
under this arrangement, the Stabilization Fund takes
practically no risk for the first year.
Gaston:
They can still show it on their books 88 part of
Regraded Uclassified
20
- 17 -
their unsegregated reserves.
Bell:
If they pledge it they have to take a dollar
balance.
White:
Yes, they won't --
H.M.Jr:
Well, up to now what you have told me 18 nothing
new because Bell had told me this, but what I asked
Bell to find out was about Chile. Now, in the case
of Chile we bought 300,000 tons of nitrate from
them and some copper and I don't know what else.
White:
No, the nitrate, 300,000 tons, for which they
probably will get about 7 million dollars, they
won't get much out of that because the intention is
that they will have to pay some of the piled up -
the arrears, which amounts to almost that. The
copper hasn't been settled yet. It is still being
discussed. If they do go through with it and the
Council of Defense - Metal Reserves does buy it,
it will amount to over 20 million dollars, of which
Chile will get probably half, a little more than
half, possibly, in foreign exchange, so it will
help them out very considerably plus a 5 million
dollar extension which the Export-Import Bank,
I think, 18 thinking of letting them have. They
also have 12 million dollars allocated to them by
the Export-Import Bank separately. And that
12 million dollars 1s being kept for special pro-
jects, each one of which has to be approved by the
Export-Import Bank, long run projects. So far
they have only approved 2 million. So that there
has been no Stabilization operations suggested
to them yet.
Bell:
Then the purchases haven't been large, of strategic
materials.
White:
From them?
Bell:
Yes.
White:
No. The one which has just been decided is the
300,000 tone of nitrate which 18 going into &
stock pile. It will yield them about 50 or 60
Regraded Uclassified
21
- 18 -
million because freight is extremely heavy.
Copper has not gone through.
Cochran:
Copper has not?
White:
Copper has not gone through. I think that nitrate
thing --
H.M.Jr:
Isn't there something comparable in the Argentine
which we can buy?
White:
There are some things we are trying to arrange,
some wool, and there are some other items. Now,
the thought that we have was insofar as they buy
anything of that character, it will mean that they
will use the proceeds to repay any pesos you have,
80 that if they export more than they are reckoning
on, as a consequence of any such percent that we
may make, it means you will have to buy less pesos.
H.M.Jr:
Now just look. You see this 18 a matter - I am
just one human being. Tomorrow morning is Monday.
That will be gone testifying. Monday afternoon I
have got a press conference and Lothian coming in
at 4:30. I have got to do 8. little mail 80 that
is gone. I have got to do Tuesday afternoon this
Argentinian thing. No, Tuesday afternoon I am going
to have the English. Now, Wednesday we have got to
do - talk about our financing, Wednesday morning.
Bell:
At 10:30, up until 12:00, anyhow.
H.M.Jr:
Do you think we could get started talking to the
Argentinians Tuesday morning, maybe?
White:
I think 80, if you wanted to --
H.M.Jr:
So we don't have them sitting around.
White:
If they are willing to agree to that arrangement,
and I imagine they would.
H.M.Jr:
Should I have Jones sit in with me or talk to the
Argentinians alone first?
Bell:
I think Jones would like to have a joint conference
22
- 19 -
first on whether or not you are willing to go
along.
White:
Without the Argentines?
Bell:
Yes.
White:
He is waiting for that.
Foley:
That will be all right. I think you ought to see
him first.
H.M.Jr:
Tuesday morning.
White:
Not only Jones, but I think there 1s also Welles,
a committee.
Foley:
And see the Argentinians afterward.
H.M.Jr:
I will call up Hull and ask him who he wants to eit
in with me Tuesday morning.
White:
Do you think you ought to Bee the Argentines first?
Foley:
Before Jones? No, I think he ought to talk to
Jones but I think he ought not to have Jones there
when he talks to the Argentinians if there 1s time,
but Jones can bring him up to date as to his talks.
H.M.Jr:
I will talk to Jones first and somebody from the
State Department.
White:
Yes. After all, when Jones talks Export-Import Bank
with them he doesn't call you in. But --
Bell:
You Bee, if you say to Jones, "We are willing to
take the Stablization Fund - the Stabilization Fund
is willing to take this 50 million dollars, we
understand the Export-Import Bank will take 50
million," and then the negotiations can sort of
split off. They can go ahead with the Export-
Import Bank and the Treasury can go ahead with them
on the other side. But Harry, I think you ought to
tell the Secretary what 18 behind this whole thing,
give him some statistics. That all grows out of a
trade balance debt.
23
- 20 -
H.M.Jr:
I tell you what I am going to try to do. I am
going to try to read this thing tomorrow.
Bell:
You will get it then.
White:
It 18 all summarized in the first page. Just the
first two memos, note there 1s but --
Bell:
There are three memos that summarize it, Harry's
summarization of his statistics, and then he has
a proposal at the end which 1s summarized.
H.M.Jr:
I will try to do that.
Cochran:
Then will you mention the Argentine tomorrow to
the committee?
H.M.Jr:
Oh yes.
White:
This Argentine thing, the first year, the trouble
is at the end of the first year they may not be
in a better position BO that a similar arrangement
the second year won't be nearly - will have the risk,
but the first year doesn't have any risk and the
problem of whether or not what you are undertaking
can extend beyond the 6 months and how 1e something
that Bernie has worked out. It is possible either
way.
Cochran:
Would they be obliged to call that gold encumbered,
Bernie?
Bernstein:
Beg your pardon?
Cochran:
Is that gold under an arrangement so that it must
be enoumbered?
Bernstein:
No, it is simply the usual control we have over all
gold here and we simply give instructions to the
Federal that they are not to let any of that out
without letting us know.
Coohran:
If the other people undertake to leave it here, are
they thereby encumbering 1t? The reason I ask 1s --
White:
Are they encumbering it 80 far as their reserves?
Regraded Uclassified
24
- 21 -
Cochran:
Yes, because their statutes oblige them not to
do that, I understand.
Bernstein: That will be a problem they will have to decide for
themselves as to whether under their law they can
leave the gold up here on earmark.
H.M.Jr:
Well now, I will tell you. I think I have gone
about as far as I can go. Boong 1s coming tonight
at 8:30. Do some or all of you gentlemen want to
come tonight?
Bell:
Do you want anybody present?
H.M.Jr:
Oh yes.
Bell:
Well, whoever you want. Harry 18 the one that has
got the story.
White:
Well, I am not going to give him the story, just
ask him some questions.
Bell:
We were going to meet at three o'clock to try to
draw up a memorandum.
H.M.Jr:
Well, Harry was with me.
Bell:
Yes, I know, so he is the only one that has got the
data.
H.M.Jr:
Well, I hate to have you all come back. Can you
(White) come back?
White:
Yes, I can come back. There 18 no harm in having
them all come back. It lends more
H.M.Jr:
Well, I am delighted to have you all. You fellows
can be honest, if somebody has got something --
Foley:
I have nothing to do. I don't know what I can
contribute, but I will be glad to come.
Gaston:
Same here. I don't know what use I can be, but I
will be very glad to come.
White:
Well, I think Dan ought to be here anyway to get
more familiar with it.
Regraded Uclassified
25
- 22 -
Bell:
I will be glad to come.
H.M.Jr:
I think Merle ought to be here.
Cochran:
I shall.
White:
And I think that one of the lawyers ought to be
here.
H.M.Jr:
Well, why don't you all come? Are you busy,
Herbert? Be honest.
Gaston:
No, I am not busy.
H.M.Jr:
How about you?
Foley:
Nothing to do.
H.M.Jr:
Father?
Bernstein:
I am just working here.
H.M.Jr:
We won't stay very long. I will try to keep it
down to half an hour.
White:
Are you clear on tomorrow's discussion? We didn't
really end that. I don't think we ended it, as to
what you are going to - in addition to your state-
ment.
H.M.Jr:
I am going to read this thing and then I will go up
early and ask Wagner and Somers to see me and I
will say, "Now here 18 my statement, how should I
conduct myself, you tell me." Ask their advice.
When I get through, should I ask for & vote of
confidence or should I simply say, "Now, gentlemen,
unless you tell me not to do it, I am going to do
it."
Foley:
I wouldn't ask them. I think we ought to tell them
we don't want B. vote of confidence.
Gaston:
You are not asking their opinion, you are Just
telling them.
Foley:
We are just informing them, in conformity with the
Regraded Uclassified
26
- 23 -
working arrangement with the two committees AB to
full and complete disclosure. There are no secrets.
"This 18 what we are doing. We want you to know about
it before we do it,"and not aek for Any vote of con-
fidence at all because the risk 18 too great. You
just can't afford to take that riek.
Sernatein; The risk isn't simply they will DABB A resolution
against you, but --
Foley:
Danaher and those fellows will want 8. lot of in-
formation, want to go into it more, want to talk
with the Chinese, anything to delay.
H.M.Jr:
I am not sure that you are right. I will sleep
on it, though, but I am certainly going to ask
Wagner and Somers what they think.
Bernetein: Could you ask them what they think after you suggeet
the way you ought to do it because their first re-
action may be, stemming from the conversations
and guidance And 80 on, well, maybe we will then
ask for a vote or something like that.
Bell:
A vote hes no legal effect at all.
Foley:
No, it isn't their responsibility.
Bell!
I think if they eay, "What do you want ue to do,"
just tell them we don't want them to do anything,
we realize they are limited legally, and all we
want to do 18 work with them and keep them informed.
Foley:
"I am not ducking any responsibility. I am willing
to assume the responsibility for my action but I
want you to know what I propose to do before I do It
and I am willing to answer any questions."
H.M.Jri
Don't you give me that baby stare. You can save that
for those fellows tomorrow. (Laughter) It doesn't
convince me of anything.
Poley:
That is what I WAS afraid of.
Bell:
Eight o'clock?
H.M.Jp:
Eight thirty.
Bell:
Okay.
Regraded Uclassified
26
- 23 -
working arrangement with the two committees 8.8 to
full and complete disclosure. There are no secrets.
"This 18 what we are doing. We want you to know about
it before we do it,"and not ask for any vote of con-
fidence at all because the risk 18 too great. You
just can't afford to take that risk.
Bernstein:
The risk 1sn't simply they will pass a resolution
against you, but --
Foley:
Danaher and those fellows will want a lot of in-
formation, want to go into it more, want to talk
with the Chinese, anything to delay.
H.M.Jr:
I am not sure that you are right. I will sleep
on it, though, but I am certainly going to ask
Wagner and Somers what they think.
Bernetein: Could you ask them what they think after you suggest
the way you ought to do it because their first re-
action may be, stemming from the conversations
and guidance and 80 on, well, maybe we will then
ask for a vote or something like that,
Bell:
A vote has no legal effect at all.
Foley:
No, it isn't their responsibility.
Bell:
I think if they say, "What do you want us to do,"
just tell them we don't want them to do anything,
we realize they are limited legally, and all we
want to do 18 work with them and keep them informed.
Foley:
"I am not ducking any responsibility. I am willing
to assume the responsibility for my action but I
want you to know what I propose to do before I do it
and I am willing to answer any questions."
H.M.Jr:
Don't you give me that baby stare. You can save that
for those fellows tomorrow. (Laughter) It doesn't
convince me of anything.
Foley:
That is what I was afraid of.
Bell:
Eight o'clock?
H.M.Jr:
Eight thirty.
Bell:
Okay.
Regraded Uclassified
FEDERAL - APPRINTMENTO
vous - LEAN
FRDERAL NEW LEAN - -
PERERAL - ARU LOAN INSURANCE CORPORATION
- or NACIMETOR
FEDERAL LOAN AGENCY
WASHINGTON
COEM Date INVESTRATOR
December 2, 1940
Dear Mr. President:
Respecting the extension of additional
credits by the Export-Import Bank of Washington to
China, this is to call your attention to the fact
that such loans cannot, under the law, be made
.
for the purchase of any articles, except
aircraft exclusively for commercial purposes, listed
as arms, ammunition, or implements of war by the
President of the United States in accordance with
the Neutrality Act of 1939.
This restriction was removed with regard
to the governments of the countries of the Western
Hemisphere but left in force as to other borrowers
by the Act approved September 26th last, which
authorized additional lending powers for the Bank.
If China proposes to use the proceeds of
our loans for war materials, we will have to ask
Congress to modify the law.
Sincerely yours,
Joneyone
Administrator
The President
The White House
Regraded Uclassified
28
FOR THE PRESS
IMMEDIATE RELEASE
NOVEMBER 30, 1940
STATEMENT BY THE PRESIDENT
The discussions between the American and the Chinese
authorities in the field of financial cooperation luive progressed.
There is contemplated B credit to the Chinese Government of
$100,000,000. Of this, a credit for general purposes to the
amount of $50,000,000 has been decided upon by this Government.
Arrangements for early allocation of the balance, namely, $80,000,000,
for purposes of monetary protection and management 0.5 between
American and Chinese currencies are now in process in consulta-
tion with the appropriate Committees of the Congress.
The Secretary of the Treasury will appear konday fore-
noon before B. joint session of the Senate Committee on Banking
and Currency and the House Committee on Coinage, Weights and
Mensures. At this time, be will bring to their attention the
proposed extension of a 250,000,000 stabilization arrangement
with the Central Bank of China.
-
The following is the Boxt of a letter addressed to
the President under date nl' Dovember 30, 1940 by the Federal
Loan Administrator:
"Dear Mr. President:
In connection with the purchase of critical and
strategic materials in our national defense program,
the Metals lieserve Company, a subsidiary of the RFC,
is arrancine for additional purchases of wolframite,
antimony and tin from the rational resources Commis-
sion of China to the value of 660,000,000, to be
dolivered during the next few years at prices com-
mensurate with market conditions as the metals are
dolivered.
To assist China In meeting her present finan-
cial problems, the Export-Import Bank hns agreed to
lond the Government of Chine an additional $50,000,000,
the loans to be tuaranteed by the Central Bank of China
and retired through deliveries in this country of the
motals covered by the above reforred to contracts.
It is contemplated that disbursements on the loan
will be made in cooperation with 18, representative of the
Secretary of the Treasury in connection with further
assistance to China by the Treasury of e like amount,
thus providing China with additional credits in this
country at this time of 2100,000,000.
You will be interested to know that China is up to
hor schodule in deliveries of wood oil and tin to the
United States through which method she is making payments
on previous loans mude against her commitment to sell us
those essential matorials.
Sincerely yours,
JESSE H. JONES"
Regraded Uclassified
29
RE CHINESE LOAN
Sunday
December 1, 1940
(Conference held at
8:30 p.m.
home of Secretary)
Present:
Mr. Gaston
Mr. Bell
Mr. Foley
Mr. White
Mr. Bernstein
Mr. Soong
H.M.Jr:
I am sorry I had to change my appointment,
but the President changed his on me. We
always seem to do things here in Washington
in a hurry, once we get started. We are a
little slow in getting started.
You know all the gentlemen present, don't
you? Mr. Bernstein you will know better
because he is the kind of lawyer that puts
in all the extra words.
Soong:
I first want to express the thanks of my
government, and that I cannot put in words.
H.M.Jr:
Well, what I wanted to tell you was this,
you see. I have to appear before these com-
mittees tomorrow and explain what I am pro-
posing to do, you see, because when we got
this stabilization fund through Congress,
they asked me very, very' closely whether we
would use this fund to finance any nation
which was at war, and I said no, unless I
first came up and explained it to them. So,
having to go up tomorrow to explain, I wanted
to have some kind of an understanding with
you before as to the method that we had in
mind.
This is the plan that we had in mind. You
see, this loan to your government that we
have now of 50 million dollars expires on
Regraded Uclassified
30
- 2 -
December 31st.
Soong:
But that was really not a loan, was it?
H.M.Jr:
Well, we don't call it a loan.
Soong:
I understand at that time the Chinese
Minister of Finance wanted some window
dressing and that is what it was and it has
been so regarded by our people and by every-
body in China, you see, 50 if you are going
to make it as & continuation of that, it
might be misunderstood, you see.
H.M.Jr:
Well, possibly, but also I have to get it
by Congress and in the proposal for the
extension of this, naturally we are not
going to ask you to put up gold for the
balance because we know you haven't got it,
so it will not be window dressing this time.
It is quite different. I mean, we are not
going to ask you to put up gold for the money
that we advance you against yuan, you see.
That would be the first and basic difference.
Soong:
I suggest that in the future in case there is
an announcement, that point be borne in mind
when the statement is made public. Is it
possible to do that?
H.M.Jr:
Well, I hoped there would be no more announce-
ments. The papers jumped to the conclusion.
One said a hundred million dollar loan and
another said 160 million dollar loan. Well,
what you wanted was the effect all over the
world.
Soong:
Of course, it is very important that it shall
not be regarded as window dressing.
H.M.Jr:
Well, let's say that when I go before Congress
Regraded Uclassified
31
- 3 -
tomorrow - Mr. Hull is going also at 10:30 -
and they say, "This is all right; you go
ahead. As far as we are concerned, there
is no reason for any more announcements."
Do you see any reason, Dan?
Bell:
Not except at the time you actually conclude
the agreement, you might say --
H.M.Jr:
Well, I mean, we can if the Chinese Government
wishes to, but it isn't necessary.
Bell:
No, it isn't necessary, but now, after having
announced it, you probably will have the news-
paper people on your neck all the time.
H.M.Jr:
As a matter of fact, at the request of your
government, we have never said how much that
loan was.
Soong:
You mean the first time?
H.M.Jr:
The 50 million. It has never been public
property.
White:
There may be much to be gained by not making
8. public statement, but if they press you in
your ordinary press statements to say that
negotiations have been completed or the details
are being arranged, or something of that char-
acter, 80 that It will appear that affirmative
results - if affirmative results do resolve --
H.M.Jr:
Dr. Soong, what we are trying to do is to be
helpful to your government. Anything that I
can do, as I have proven many times, to be
helpful, I am ready to do. See? Because
the whole idea is to help you win. Is that
right?
Soong:
Surely.
Regraded Uclassified
32
- 4 -
11.M.Jr:
We want you to win. Now, as long as I
can do it legally and not have my head cut
off, as Mr. Chen once told me - he didn't
want to be a politician, he wanted to be
EL banker because he said all bankers live
to a ripe old age, so I want to stay as a
banker and not as a politician. He said
in China all politicians die young.
Soong:
They are inclined to.
But we are deeply appreciative, because you
have to make some special efforts to help us.
M.R.Jr:
Well, this is very difficult.
Soong:
I know that.
N.K.Jr:
We are doing something that I refused to do
consistently, and this going before these
committees tomorrow is not & pleasant ex-
perience.
Soong:
I know full well, and my government also knows.
H.M.Jr:
We have several things in mind that we would
like to ask that you do, because we would like
you to meet us halfway. And Harry, supposing
you outline those things that we want.
White:
Well, one of the aspects of the problem that
we are interested in is, do you feel that
this announcement will have the effect of
increasing the confidence in the yuan and
might even have resulted in your ability to
pick up 8 little more foreign exchange?
Soong:
I believe SO.
White:
With your stabilization funds?
Regraded Uclassified
33
- 5 -
Soong:
Yes.
White:
How much were in the stabilization funds be-
fore the announcement?
Soong:
You mean at present, today?
White:
Yes.
Soong:
It is about - it is in two items. One is
two million seven hundred fifty thousand
pounds.
White:
Pounds sterling?
Soong:
Pounds sterling.
White:
What kind of sterling is that?
Soong:
It is free sterling.
White:
It is not blocked?
Soong:
No. It can be converted readily into U. S.
dollars. And an equivalent of three million
pounds in gold dollars.
White:
That is seven altogether as of before the
effect of this news.
Soong:
Yes.
White:
How much do you anticipate that this news
will give it?
Soong:
Five.
Foley:
One is dollars and the other is pounds?
White:
5.7 million pounds, that is it.
34
- 6 -
Soong:
Yes.
White:
How much do you think you will pick up,
just as a guess?
Soong:
I can't really estimate.
White:
Then on these funds "A" and "B", I take it
that in line with your previous memorandum
that those funds will become part of the
new stabilization fund?
Soong:
Well, the fund "A" and "B", we are under agree-
ment with Great Britain on. It is an Anglo-
Chinese fund. Of course, we are willing to
have it that way, but we have to consult
Britain.
White:
How much of an interest does she have in
that?
Soong:
Well, the first fund she has half-and-half
interest. In the second fund, the interest
is smaller because they have already gone to
war. It should be two to one, our two million
to their one million pounds.
White:
In your earlier memorandum, if I remember
correctly, you already felt that you could
put that in the new fund. Had you already
had the word of the British Government on
that?
Soong:
I thought it might be negotiated in a differ-
ent way; that is to say, have those funds
go first and act as a first cushion to any
possible loss that we might sustain, but
of course as you well know we have dropped
the matter of discussion of the stabilization
fund because we learned that it was very
difficult to put it through Congressional
35
- 7 -
committees, the Senate committee, and there-
fore no formal discussion has ever been made
with them.
White:
With the British?
Soong:
With the British.
White:
Then you are saying that will be first, and
then you will have, as far as you know, 5.7
million pounds plus whatever you pick up as
a consequence of the recent good news?
Soong:
Yes. But as I said, one would normally pick
up a good deal, but coming after the announce-
ment of the recognition of the public govern-
ment by the Japanese, which creates a good
deal of confusion, normally we would be losing
a good deal, you know. Normally, we would
expect it to go down.
H.M.Jr:
What fund do you pay the 100,000 you want
out of if you get the head of Mr. Wang.
What fund does that come out of? (Laughter)
Soong:
I think there will be no contribution.
H.M.Jr:
I just wondered whether that was fund "C"
or "D" or "E".
White:
That would be fund "W".
Soong:
You see, we have two counteracting forces
and it is anybody's guess what the net
result will be.
White:
Well, I think we would be very interested
to get current reports on that as the thing
progresses, and if you can ask for some
information on that --
Regraded Uclassified
36
- 8 -
Soong:
I will give you day-to-day reports on that.
H.M.Jr:
On this fund with the British, do they have
a man who sort of sits there with you and
looks after it?
Soong:
Yes, there is E. man from the Bank of England,
a Mr. Cyril Rogers, who was with the Leith-Ross
Commission in China and he was recommended by
Sir Frederick to stay there.
H.M.Jr:
How much control does he have?
Soong:
He is the chairman of the Anglo-Chinese com-
mittee, which consists of five members. One
is from the Bank of China, one from the Bank
of Communications and one from the Hongkong Bank
and one from the Chartered Bank. The two British
banks presented the fund. The Englishmen are
recommended to the Chinese Government and
appointed by the Chinese Government as chair-
men of the committees.
H.M.Jr:
And that is this Englishman?
Soong:
Yes.
H.M.Jr:
Because one thing both the President and
Mr. Hull have insisted on in this fund is that
an American will be there to supervise the
fund.
Soong:
We are very anxious to have an American.
H.M.Jr:
I see.
Soong:
I mean, giving us so much help, we feel it is
only due to you that you should know all the
transactions, and more than that we would
like to get your - the advice of your man
Regraded Uclassified
37
- 9 -
daily, not after a long time, daily con-
sultation. I may say that this afternoon
I called on Dr. White. In the conversations
between General Chiang Kai-shek and Mr. John-
son, I do not know whether it was separated
by the Cabinet or not. I took it - I didn't
give it to you. May I say all this to you
in confidence? General Chiang asked for
assistance from Great Britain and the United
States for two to three hundred million
dollars --
H.M.Jr:
Excuse me. Have we ever seen this?
Cochran:
No, sir.
Soong:
I will translate for you.
two or three hundred million dollars for
the sole purpose of support of the currency
and in addition we ask for assistance in our
air force. Finally, he asked that you would
send experts on finance and economics, and
certainly an expert on transportation to help
us in devising means for the situation.
H.M.Jr:
No, I have never seen that. Maybe that is
what the President had in mind.
Soong:
Yes. Now, I ventured to ask Dr. White if there
was any hope that he could come on invitation
of the Chinese Government, because we feel
that not only on this particular matter but
on other matters we would like to get some
expert assistance.
H.M.Jr:
Well, I think it is 8. very nice compliment
to Dr. White, but unfortunately I need his
expert assistance also, and I just couldn't
spare him at this time, but on this thing,
for instance, if we could work it out to
Regraded Uclassified
38
- 10 -
represent the Treasury, I would be more than
satisfied if an arrangement could be made to
have Mr. Archie Lochhead go out, who is work-
ing now for your government, you see. I mean,
if he would go out on this fund. He would be
entirely acceptable to me if he would be to
you, you see. You know him, don't you?
Soong:
Yes, I met him.
H.M.Jr:
And I think that on account of my old asso-
ciation on this committee, if on this com-
mittee could also be Mr. K. P. Chen, it would
be very pleasing to me. But if those two
gentlemen besides yourself --
Soong:
I am not & member of the committee, of any
of the committees.
H.M.Jr:
But you could be, couldn't you?
Soong:
Well, it depends on what my government orders
me to do.
H.M.Jr:
But I mean if I asked for you and Mr. Chen
and Mr. Lochhead.
Soong:
Well, I have to - you see, the government
desires me to handle not only financial
matters but also other matters. Of course,
I appreciate very much the compliment of
your asking that I be a member of the com-
mittee, but I do not know whether the govern-
ment wants me to.
H.M.Jr:
Well, I can ask, and then the government can
decide.
Soong:
Of course, it would be a compliment to me.
H.M.Jr:
But I would like it if you and Mr. Chen
and Mr. Lochhead were on. Then I wouldn't
worry.
Regraded Uclassified
39
- 11 -
And then what Mr. Jones has done, he has
asked that whoever we put on also look after
his money, you see.
Soong:
That is something that I do not very well
understand. As far as the Export-Import
Bank loan, the previous loan was made free
of any encumbrances. That is to say, the
Chinese Government could do with it what
it chose. I had no idea that this loan,
coming loan of 50 million from the Export-
Import Bank, would be a supervised loan, and
I do not know what is the nature of this
position.
H.M.Jr:
All I know is that in 8 telephone conversa-
tion which I had with Mr. Jones late yester-
day, he said, "Now, whoever you decide that
you want, in response to what the President
and Mr. Hull have asked, whoever you decide,
I want you to consider the money from the
Export-Import just as though it was the same
as the Treasury money because, he said, "it
is the same.
Soong:
Well, if we were to buy things with that, you
see, it is not like a committee sitting on
it and saying that you should buy airplanes
and you should not buy gasoline, see. It
is something really which is --
White:
Mr. Soong, I think that the kind of super-
vision which the Secretary has in mind,
or at least which --
H.M.Jr:
Say the Administration.
White:
I think the kind of supervision which the
Administration has in mind would be of a
character that would be quite in accord
with what your general expectations are for
Regraded Uclassified
40
- 12 -
its use. It would be 8. supervision which
would be designed to insure an appropriate
use for the funds, and I am sure that you
will find out more about it. I doubt whether
there will be any kind of strings that would
in any way interfere with your most efficient
use of those funds.
Soong:
Well, this is something to me quite new, but
I could analyze the situation to you in a
manner which I should think ought to be
satisfactory.
There are only two ways by which we will use
money, either in purchases or else in support
of our currency. In support of our currency,
we will - we have some people on the committee
already. As far as purchases are concerned,
I personally have not the slightest objection -
in fact, I would urge for you that all pur-
chases should be made through the Universal
Trading Company. In fact, I believe the Chinese
Government should channelize all its purchases
through a single institution, one that has a
good deal of esteem everywhere. If such is
done, then I do not see why any more super-
vision - I suppose it is a harsh word. I
know that America is very anxious that we
win the war, for everybody concerned. All
that America would desire to see is that the
money is well spent and not wasted, and now
I have pointed out to you ways by which that
is perfectly assured.
H.M.Jr:
Well, I don't - this seems to be a thing which
is very much in the minds of these other
gentlemen and I imagine that the reason is
that they feel that if we can tell Congress
truthfully that a representative or repre-
sentatives of the Treasury are supervising
Regraded Uclassified
41
- 13 -
the expenditure of this money, that it will
possibly satisfy some of the fears of some
of the members of Congress. I imagine that
that is what they have in mind.
You see, after all, it is a lot of money.
You now have a commitment from the Export-
Import Bank of 70 million, isn't it?
Soong:
No, 75 million.
H.M.Jr:
And here comes another 50 million from the
Export-Import Bank, and on top of that, this
arrangement which I hope to convince Congress
of tomorrow.
Harry, you were only half through your story.
I wish you would continue it.
White:
The next item is the participation by the
private banks, Chinese banks. What would
you propose with respect to that? How much
will that be?
Soong:
I suggested that the Chinese banks would
contribute 12 millions.
H.M.Jr:
Pounds?
Soong:
No, dollars.
Cochran:
How much?
Soong:
121. That was in my memorandum. Well, then
today, of course, our situation is very much
more difficult, and we intend to use all
this money, of course, for purchases in this
country, but if you desire it, I think I
would put it up again to them, and I have
no doubt that they will - I believe that they
42
- 14 -
will agree to it.
White:
The fact that the yuan has been made stronger
by virtue of these new arrangements, if they
do go through, it seems to me would encourage
those banks to even put more in, and I think
it is highly desirable for them to have a
substantial stake in it because a good deal
of the success of the control is going to
depend on the degree of cooperation that you
receive from the various banks.
Soong:
Well, I might say that this sum is all from
the Chinese Government banks which are under
control anyhow.
White:
Oh, I see.
Soong:
And which would cooperate anyhow.
White:
Then there were none of the Chinese private
banks that were participating?
Soong:
We did not contemplate asking them to do
that.
White:
Do you think it would be a desirable thing
to have them participate in it?
Soong:
Well, I have never explored the subject with
them. As you know, the situation of our
country is quite different from that of Great
Britain or any other country at war. Most of
the industries are smashed or seized by the
Japanese, or else bombed, if they are in the
interior, 80 much so that I feel reluctant
in asking them to put up anything because
that represents practically the only real
capital that the Chinese have today, but of
course I have not sounded them and I am not
in 8. good position to sound them because
43
- 15 -
most of them are in Shanghai anyway.
White:
Well, Mr. Secretary, there are numerous
other things, but they bear on technical
details.
H.M.Jr:
Well, the thing - one of the things I want
to ask is whether the English fund would be
used first.
White:
I take it that he indicated that those funds
would be the first to be used.
H.M.Jr:
I didn't get that.
Soong:
No.
White:
The "A" and "B" funds.
Soong:
I said I would propose that to the English,
you see. Well, there is not such identity
of interest between this country and the
East that I hope they will consider it in
a broad light.
H.M.Jr:
They will, or we will.
Soong:
They will consider it in a broad light, and
I hope that they will see that we are quite
willing to absorb --
White:
And then the amounts which your government
banks would contribute would be the second
reserve, so to speak?
Soong:
Yes, anything that we ourselves contribute.
H.M.Jr:
Let's get it, because I have got to tell the
story tomorrow, you see. Could I say this,
that we have asked that this "A" and "B"
fund which amounts to --
Regraded Uclassified
44
- 16 -
White:
About 20 million dollars, roughly.
H.M.Jr:
More than that, isn't it?
Bernstein:
About 23, Harry.
Soong:
Not with free sterling. You know free ster-
ling is - it is about 3.68 or 3.70.
White
Around 20.
Bell:
It is free sterling, worth less than four
dollars, and it is about 20 million, roughly.
White:
They might have a little more, depending upon
what comes in.
H.M.Jr:
We will be on the conservative side. We will
say we have asked that the first cushion be
the 20 million dollars. Then is there anything
else?
White:
Then the next cushion is the figure of 121,
which he has just mentioned and which the
government banks will contribute, in addition
to --
H.M.Jr:
I thought he said that was their only capital.
White:
When I asked him whether there were additional
funds that might be contributed by private banks,
he said the difficulty of getting it from the
private banks would be that such capital is
the only capital they have to work with.
H.M.Jr:
But the government banks have 121 million?
White:
Yes.
Cochran:
That is in dollars now, or is part of it in
sterling?
45
- 17 -
Soong:
U. S. dollars.
H.M.Jr:
And then --
White:
That is 321.
H.M.Jr:
And then this would come --
White:
And then, I take it, the 50 million dollar
Export-Import would be used for purposes
appropriate to that fund, which is distinct
from stabilization operations.
H.M.Jr:
Yes, it is for the purchases of materials.
White:
And such exchange as arises out of that pur-
chase.
Soong:
Of course, purchases of materials here must
mean foreign exchange.
H.M.Jr:
No, if the money they use there is spent here --
White:
Well, it might not all be spent here. I don't
know that - that may or may not be a condition.
That hasn't been worked out.
H.M.Jr:
But anyway, that goes for --
White:
Foreign exchange purposes.
H.M.Jr:
For material?
Soong:
Materials, yes.
H.M.Jr:
Export-Import Bank?
White:
Then the United States stabilization fund opera-
tions would come next.
II.M.Jr:
Well, that is the way I would like to tell
Regraded Uclassified
46
- 18 -
the S tory tomorrow. This is the time to
talk about it.
Soong:
Well, it would have to mean that we discuss
it with the British, because after all, we
have made an arrangement with them for cer-
tain things, and as far as we are concerned,
we are quite ready to do that here.
White:
You mean so far as they are represented in
the "A" and "B" fund, in which the "A" fund
you say almost half, and the "B" fund very
little, belongs to them, you cannot commit
yourself as to their portion of the fund?
Soong:
Quite.
H.M.Jr:
Well, talking for your half, though.
Soong:
Well, talking for our half, yes. But this
is - what do you say in America?
H.M.Jr:
Joint?
Soong:
No, I am groping for the word. Well, it
is omelette.
H.M.Jr:
Scrambled?
Bell:
Mixed.
Gaston:
That was the Secretary's idea. It is not
two separate ideas, but a joint operation.
White:
Combined fund.
H.M.Jr:
Well, the negotiations we have with the
British may make them glad to agree to this,
some of the negotiations which I have with
them.
Soong:
They are under so much obligation to this
Regraded Uclassified
47
- 19 -
country that I personally feel they ought
to do something on it.
H.M.Jr:
I think so. And after all, Sir Frederick
Phillips is due here any day now from the
British Treasury. They are keeping it a
secret until he gets here. They don't want
him shot down. But he is due here any day.
Do you know him?
Soong:
I have heard of him.
H.M.Jr:
Well, he will be here.
Now, Dan, what can you think of? I mean,
what can you think of the things they are
going to ask me tomorrow that I ought to be
preparing to answer?
Bell:
Well, they are certainly going to ask you
what is going to be done with this money,
how is it going to be spent, I mean the
purposes.
White:
The stabilization fund or the Export-Import?
Bell:
I think all of it. They will want to know
if it is going to be spent in this country.
H.M.Jr:
Well, I couldn't explain how the Chinese are
going to - how would you answer that question?
They say to me, "How is this money going to
be spent?"
Soong:
Well --
H.M.Jr:
I mean not the Export-Import.
Soong:
Well, in general support of the Chinese
currency.
Regraded Uclassified
48
- 20 -
Bell:
They might ask you who will get the dollars
in support of that.
H.M.Jr:
Where will the dollars be deposited?
Bell:
No, where will the dollars go in support of
that currency? Will they go into Japan
or some other country?
H.M.Jr:
If Dr. Soong doesn't mind, ask him a few
questions as though he were on the Hill and
you were a Senator and he were Secretary of
the Treasury. Ask him a couple of questions.
Bell:
The Senators will ask where these dollars are
going to go in support of this exchange; what
countries are going to get them.
Soong:
Well, I take it the fear is that it might get
into Japanese hands, but 8.8 far as our records
go, the records of the Chinese Government go,
the Japanese have not acquired any substantial
foreign exchange, although they were supporting
their currency for three years and a half, 30
one would think that it would go to the pur-
chase of such materials as China needs, the
Chinese people need, not the purchases by the
government.
Bell:
Do you think eventually it might find its way
back into this country so either your own
business interests or --
Soong:
Well, to date, it seems the European coun-
tries are practically excluded. It will
probably be largely to America.
H.M.Jr:
How about to Russia?
Soong:
Well, we do not pay Russia in American dollars.
Poaraded
49
- 21 -
We have credit from them, you see.
H.M.Jr:
I see.
White:
Well, it is inevitable - isn't there 8. great
danger that some of the foreign exchange may
well find its way into Japanese hands through
the kind of channels which characterized the
operations in the last couple of years, Japan-
ese getting hold of national currency and
selling it through Shanghai, through some pur-
chases in the occupied territory?
Soong:
Well, our experience has been that the Japanese
when they get hold of our national currency
are obliged to use it to support their army
in China, the army, in Chinese money.
White:
Don't they depend upon their military scrip
and yen?
Soong:
It is because of the action of the gorillas
that the yen can only be used in very few
spots and on a. limited scale. If the Japanese
wanted to purchase goods in the country, they
would have to use the Chinese yen. Therefore,
the fact that Japan gets value out of China
does not come through Chinese Government's
supporting its own currency but because of
the fact the Japanese could levy taxes any-
way on Chinese residents in the areas that
they control, and the records of the Chinese
Government banks so far have been to show
that the Japanese have acquired very little
exchange, foreign exchange, from the Chinese
stabilization fund.
White:
I take it you think it will have to be one
of the duties of this committee to see that
there is a minimum of funds going in that
direction, smuggling of goods from Japan
Regraded Uclassified
50
- 22 -
and Manchuria.
Soong:
Surely. We are not there to help the Japan-
ese.
H.N.Jr:
I have a question which, if I could get a
good answer, it would be helpful. You say
that there are 5.7 million pounds left.
Soong:
Yes.
H.M.Jr:
How much was that fund when it started?
Soong:
When it was started, it was in the first place
ten million pounds, out of which half was
given by the Chinese Government banks and
half by the two British banks. Of that,
about 2,700,000 pounds are in existence.
Because of the fact that at one period the
fund was almost down to nothing, the Hongkong
bank and the two Chinese banks again put up
some money to the extent of about three million
pounds, so this 5.7 million pounds is the
balance of ten million pounds, plus three
million, thirteen million pounds.
II.M.Jr:
I see. Over how long a period has that been;
when did that fund first --
Soong:
It started in the spring of '38.
H.K.Jr:
A year and a half --
White:
They have lost --
Bernstein:
two and a half years.
White:
If they wanted to close the books and see what
they have lost in this period by virtue of
the yuan --
Regraded Uclassified
51
- 23 -
H.M.Jr:
About half.
White:
Not quite half, but I should think pretty
nearly half.
Soong:
About 4,700,000 pounds.
White:
No, I say how much have you lost, the present
value of this sterling and the yuan, as com-
pared with the value there? In other words,
in a year and a half --
Bernstein:
Two and a half years, Harry.
White:
Two and a half, but they have lost more rapidly
at certain points.
H.M.Jr:
About two and a half years.
Bell:
They have actually lost that much and got
nothing for it?
White:
They have the yuan, but the yuan now is worth
about five cents, whereas when they bought
them they were worth anywhere from 19, 16,
14, to 12.
H.M.Jr:
What is the yuan worth now?
White:
It has been pretty stable at five cents,
5 and 17/32nds.
H.M.Jr:
For how many months has it been stable?
Soong:
Since the spring of the year.
H.M.Jr:
And how about your cost of living?
Soong:
The cost of living has gone up very much.
White:
The figures show that prices are about five
Dearadod
52
- 24 -
times what they were when the war broke
out. It varies greatly from district to
district.
Gaston:
In terms of yuan.
White:
In terms of purchasing power of the local
inhabitants.
Bell:
Are they liable to get into the fiscal set-
up there?
Unite:
They are in 8. very bad fiscal situation right
now.
3ell:
Are we liable to be asked about the budget
and the debt?
,hite:
I think they might ask something about the
deficit and I think if you have the figures
it would be well. They might ask you how
their budget picture looks. I can give it
to you or Soong can give it to you.
H.M.Jr:
I would rather not hear it tonight.
White:
It is bad, anyway.
Bell:
It might be better to just say it is bad.
White:
That characterizes it. I take it, Mr. Soong,
you would agree with that?
Soong:
I would say after three and 8. half years of
war, it is bad. If any country has been in
our situation three years and a half, I don't
think it could be much better.
H.M.Jr:
And if they ask me how is the financial situa-
tion of the Japanese, I would say it was bad
also.
Regraded Uclassified
53
- 25-
Gaston:
You could also say it was surprisingly good
after three and & half years, couldn't you?
Soong:
Surprising in that financially we have been
able to last as long.
H.M.Jr:
Herbert, do you think of something that might
come up tomorrow?
Gaston:
No, I don't. I think they will ask something
about the financial condition of China.
White:
If they want to go into details, we will
have a man there.
H.M.Jr:
Merle?
Cochran:
Does this one committee control both these
parts of the fund, of the "A" and "B" funds
for the stabilization? Is it the same com-
mittee?
Soong:
Yes.
Cochran:
And have we worked out far enough to know what
our man would do? Would he sit on that com-
mittee or would it be their committee?
H.M.Jr:
I haven't had time. After all, we only -
after I saw Dr. Soong, we only agreed to
the thing right after he left, so I haven't
had --
Soong:
May I say that there are certain possibilities.
One, of course, would be that he would sit on
the committee. The other would be to form an
American committee and have a joint committee
of the two funds, together.
H.M.Jr:
Yes, something like that.
Regraded Uclassified
54
- 26 -
White:
With reference to our fund, the fellow
might be different than with regard to
that. There are all sorts of possibilities.
H.M.Jr:
Oh, yes.
What else, Merle?
Cochran:
That is all I have, sir.
H.M.Jr:
Ed?
Foley:
Well, I think they may ask the relative
differences between the use of the Export-
Import Bank money and the stabilization fund
money, and I haven't been in on all these
discussions 50 it isn't clear in my mind
just what shadations there are of difference
between the use of the funds.
H.M.Jr:
You can ask Professor White.
Foley:
I am looking at him. (Laughter)
White:
Well, the Export-Import Bank funds would be
used presumably for special purchases. They
would be able to say if they bring - and if
they are not required to spend all the money
here, and that has to be gone into, they
might say it would be used for special pur-
chases either here or there. The stabiliza-
tion funds are used to meet the demands on
foreign exchange that arise from a large num-
ber of sources, some from the imports of
private Chinese, some from possible move-
ments of capital over which they may or may
not have control - it depends on their policy -
some from smuggling, some from Japanese
operations and some from the usual govern-
mental operations between countries, 80 that
you cannot always segregate what the money
55
- 27 -
is to be used for. All you know is that you
are called upon to supply exchange from these
various sources.
H.M.Jr:
You don't think they could earmark all the
various funds from smuggling to be paid back
to us, do you?
White:
It would make a sizable fund.
Foley:
Will the Import-Export Bank be used for war
supplies, airplanes?
White:
Well, the conditions of that fund --
Soong:
They cannot be used for airplanes. I believe
there are restrictions on the Import-Export
Bank itself.
White:
Have those been imposed on this new fund?
Soong:
I gather that it was not 80 much imposed by
them --
H.M.Jr:
I thought this last time they said they were
not going to ask any questions.
White:
Oh, the 25?
H.M.Jr:
Am I right?
White:
That is what I understood, that there were
to be no strings on it.
Soong:
No strings whatever.
White:
So you could spend it for any purpose that
was legal in a particular country?
Soong:
No, not for purchase of war supplies.
56
- 28 -
H.M.Jr:
Is that in the charter of the Export-Import
Bank?
Foley:
It is policy.
Bell:
It doesn't apply here, does it?
Foley:
No.
H.M.Jr:
You (White) are a director of the Export-Import
Bank.
White:
We haven't decided yet what the conditions are.
Foley:
That condition was imposed, as I remember,
Harry, in S0 far as that belonged to the
Universal Trading Corporation.
White:
But not this last 25 million. My understanding
was there was no condition. However, with
respect to this 50 million, I don't know whether
there has been any discussion yet of the terms
and conditions, so that I think the question
would have to be answered in general that it
would probably be used the way - probably so
far as you know will be used the way the
funds of the Export-Import Bank are generally
used. That is Mr. Jones' problem.
Cochran:
Congressman Smith might ask if these funds
from the stabilization fund could be used
for military purposes.
H.M.Jr:
No.
White:
Well, if he does, if he is smart enough to
ask that question, I think that we could
answer it by saying that you cannot say for
what purposes the funds will be used. All
you know is that you have a lot of exchange
coming to you which you have to meet in order
Regraded Uclassified
57
- 29 -
to prevent the yuan from dropping, and you
cannot say that this dollar was used for
that purpose or this dollar was used to
provide the Embassy here with funds with
which to conduct their business.
Bernstein:
I don't know whether you have answered the
question, but supposing they ask what are
the principles that underlie the expenditures
of the funds heretofore out of the stabiliza-
tion fund, the Anglo-Chinese fund.
White:
It has been the necessity to meet the demands
for foreign exchange in order to prevent the
yuan from depreciating.
Bernstein:
Well, they would say that any demand for
foreign exchange would be treated the same
way.
White:
Well, they have exchange controls and they
don't permit 8. number of things to be im-
ported, because they feel the country cannot
afford it. They don't permit capital move-
ments of certain characters. The new com-
mittee may be - exercise a more stringent
measure. It may develop new techniques. It
may increase restrictions on capital outflow
or imports, but the effort will be to per-
mit China to conduct a war and to prevent
the yuan from dropping, and as between those
two objectives which have to be reconciled,
there are all sorts of possibilities.
Bernstein:
Well, in the question of dropping it, I take
it it did drop, and you always have a ques-
tion of judgment at what point you want to
stabilize, how you want to see it drop. Do
you want to maintain it at the current price
or what will happen.
Regraded Uclassified
58
- 30 -
White:
I think it will be made clear that stabiliza-
tion doesn't necessarily mean keeping it at
a point, that much depends on what happens to
the price level and the circumstances. The
appropriate use of the fund may well be at
some time to permit the exchange to drop when
it costs too much to keep it where it is.
That is what has happened before and it may
even go up as it has before. It rose one
period from six to eight cents and remained
there for & long time.
H.M.Jr:
Suppose they ask me, are there any more
crises coming along in China that will cost
another hundred million dollars.
White:
Mr. Soong will answer that.
H.M.Jr:
You don't expect anything in the next couple
months, do you?
Soong:
Well, a general question like this you would
have to answer, I suppose, that in case it
comes it is for the American Government to
decide whether it would or would not help.
H.M.Jr:
One thing I wanted to ask is this: I don't
expect to be asked this tomorrow, but do
you consider that the Government of Siam
today is friendly or not friendly to China?
Soong:
I think it is distinctly - I would consider
it unfriendly to China.
H.M.Jr:
Unfriendly to China?
Soong:
Yes, because it is cooperating with Japan.
H.M.Jr:
I see.
Regraded Uclassified
59
- 31 -
Soong:
I think the Siamese are taking the French -
are engaging the French to give the Japanese
opportunities. For the peace of the Far
East, they must occupy Thailand. They must
occupy the naval base at Kam Ran.
H.M.Jr:
Where is that?
Soong:
North of Saigon.
H.M.Jr:
You mean Siam is going in there?
Soong:
No, the Japanese are instigating fighting
between the Siamese and the French Government,
so that they have an excuse to step in. After
stepping in, they would link up with Siam and
make further moves toward Singapore and the
Dutch East Indies.
H.M.Jr:
Through Siam?
Soong:
Probably through Siam.
H.M.Jr:
But Siam is friendly to Japan?
Soong:
The Japanese have B. lot of interests in Siam,
particularly with the military clique which
it is fostering. Japan has sold some credit,
a lot of munitions, anti-aircraft guns, ar-
tillery, and also 8. number of Coastal --
Gaston:
Coastal batteries.
Soong:
Not Coastal batteries, but you would call
them monitors for shallow water operations
but with heavy guns.
Gaston:
Coastal patrol boats.
H.M.Jr:
The Japanese get 80 many from Siam and they
intend to use it in Singapore some day. You
Regraded Uclassified
60
- 32 -
know the last three weeks here our records
show that Japan has stopped buying scrap
iron. Where would you suppose that she is
getting her scrap iron?
Soong:
Japan, before the final embargo was put in,
had bought very large quantities, much
greater than her needs, and I think she is
leaning on that. In addition, she is getting
all the iron ore from Indo-China.
H.M.Jr:
Indo-China?
Soong:
Yes.
H.M.Jr:
That is where they are getting it now?
Soong:
Yes. Of course, that is not a very great
quantity, but it is quite useful.
H.M.Jr:
I see.
Did you (White) check up on how much she is
getting from the Philippines?
White:
Scrap iron?
H.M.Jr:
No, iron ore.
White:
I don't remember.
H.M.Jr:
Make & note of it, because there is iron in
the Philippines.
White:
Yes, there is, and she is very likely getting
some iron ore from there, because her trade
over there has been fostered.
H.M.Jr:
You might get some cables off.
White:
I will find out. Of course, there is no
Regraded Uclassified
61
- 33 -
prohibition of any kind to keep them from
It.
H.M.Jr:
I know, but it would be interesting to get
the tonnage.
What port would the iron ore come out of
from Indo-China?
Soong:
As a guess, 8. port called Qui-Nohn. In
addition, some goes to Haiphong.
White:
There is one question, Mr. Secretary, they
might well ask. They might ask you how
long is this money going to last.
H.M.Jr:
Well, how would you answer that?
White:
I would say there is absolutely no way of
knowing. The last fund lasted for two and
a half years, but the pressure may be much
greater now.
How would you (Soong) answer that?
Soong:
I think that is a very true answer. Who can
tell?
White:
Hope for the best.
Soong:
We can only go on the record of the past.
The record of the past was not very great.
White:
But it may go out faster, because the extent
of control which the Chinese Government has
is not as good, not as wide, and their prices
are rising very rapidly, which should increase
the pressure on exchange.
Will the fact that the Japanese troops have
gone out of Shanghai help you to get control
Regraded Uclassified
62
- 34-
over that coast? Have they left the coast?
Soong:
Well, as a matter of fact, although the
Japanese say they have blockaded the whole
coast, there are any number of points where
we send gasoline and everything.
H.M.Jr:
How do you explain this withdrawal of troops
from Kwangsi and that part of China?
Soong:
General Chiang - let's put it this way. The
Japanese feel that they could not defeat
China by a quick blow now. They have tried
for three and a half years and they are no
nearer completion today. In consequence,
they have been, through the intervention of
the Germans, and by their own negotiations,
trying to arrive at 8. peace with General
Chiang Kai-shek. Another thing that has come
to our government, Ribbentrop, soon after
Molotov returned from Berlin, called our
Ambassador to him and said --
H.M.Jr:
In Berlin?
Soong:
In Berlin; we still have an Ambassador there.
He said, "Now look, relations between Russia
and Germany are growing every day more cor-
dial. Germany is today the dominant military
power of the world and she could reorganize
Europe very quickly. We expect to knock out
Great Britain by the end of the year or by
next spring at least."
That is what he said. "When that comes,
China could expect no assistance whatever
from America and Great Britain. As & matter
of fact, the assistance from America and
Great Britain have today been more nominal
than otherwise. Therefore, if the Chinese
Regraded Uclassified
63
- 35 -
Government does not come rapidly into peace
terms with the Japanese, which we are trying
to make as light as possible, Germany will
recognize Wang Ching-wei. In that event,
Italy is committed to recognize him, too. As
far 8.8 we are concerned, by the terms of our
Axis alliance, we are obliged to recognize him.
Under those conditions, your situation will
go from bad to worse. On the other hand, if
you were to arrive at peace terms with Japan
today, which we know would be very easy, we
would guarantee that Japan would carry out
the terms of whatever peace arrangement they
made with you, and Japan would not dare to
go back on these peace terms. We have always
held General Chiang Kai-shek with great ad-
miration and respect and we sincerely hope
that he will take this last opportunity and
make use of it."
That is the gist of the conversation.
H.M.Jr:
Between Ribbentrop and your Ambassador?
Soong:
Our Ambassador in Berlin.
White:
Was that relayed to the State Department?
Soong:
Relayed by Mr. Johnson to the State Depart-
ment here. You see, the general analysis
is that the Japanese, knowing that they could
not crush the Chinese Government at one
blow - they have failed for three years now -
have thought, "Well, why should we go in
and be mired, bogged. Let us withdraw as
many troops as possible for the expedition
to take complete occupation of Indo-China
and to take Singapore and the Dutch East
Indies. Therefore, if we could succeed in
making peace with General Chiang Kai-shek -
but if not so, let us remove as many troops
Regraded Uclassified
64
- 36 -
as possible and put the rest in strategic
points in China like Canton, Hankow, where
under heavily guarded fortifications it
would be very difficult for the Chinese
Army without the support of an air force
to attack."
By keeping on the defensive, Japan, which
has now & million and a quarter men in
China, could pull out a larger number for
the expedition to be - to occupy Indo-China,
to meet with Siam and take Singapore, and
also to occupy the Dutch East Indies. In
addition, the Japanese Army now has to be
supplied by a large number of transports,
food supplies, and so on. These would be
released if large numbers of them left
China, so I believe that they are now with-
drawing troops, putting them in Hainan,
putting them in Formosa and in southern
parts of Japan proper, ready to jump off
when the time comes.
It is our belief - in fact, we have Secret
Service information which arrived two or
three months ago, even before the signature
of the Axis alliance between Germany, Italy
and Japan, that there was an understanding
with the Germans whereby coincident with
attack on Gibraltar, attack on the Suez
Canal, there would be launched an attack
on Singapore. That is the Japanese side of
the bargain, and in this arrangement, all
these areas - that is, Singapore and China -
are allotted to Japan for her living room
and today this is - this has been seen as
true, completely true.
H.M.Jr:
What other arrangements do you think - or
do you know - took place between Molotov
Regraded Uclassified
65
- 37 -
and Hitler on this recent visit?
Soong:
We have no definite information on that
point, but we gather that the result is
not as promising as the Germans would
like to believe, and we further gather
that the Russian attitude toward Japan
has not been mollified by their visit.
Foley:
Harry, why is it advantageous for the
Chinese Government to support the yuan
in occupied territories?
White:
Unfortunately, they have got to support it
wherever there is & yuan. There might be
a possibility, and it has been discussed
at great length and final word hasn't been
said on it, - there is a difference of
opinion - in which they might segregate
the currency in the areas over which they
presumably have control from those which
they don't, but because of the importance
which the Shanghai area has always played
in the commercial and financial life of
China and because of its prestige and be-
cause of the extreme complexity of that
kind of segregation of the types of currency,
the problem has not been settled. There
would be some advantages and there would
be some disadvantages and there is dis-
agreement, but if they could cut off that
without suffering any disadvantages, it
would be an excellent thing.
A complicating factor in the interior is
that their guerilla forces, who are very
important to China because really they
confine the Japanese to small centers,
operate with national currency and there
is a constant fight between the various
currencies there, so that they have got
Regraded Uclassified
66
- 38 -
to keep alive their currency in those areas
for two reasons. In the first place, to
support the guerillas 8.8 much as they can,
and in the second place, I think it is
reasonable to say that the guerilla's con-
cept of the strength of the national govern-
ment is much affected by the purchasing power
of the currency which they use.
Soong:
That is an explanation. In addition, I might
say that two or three times in the occupied
area a symbol of the national dollar is a
symbol of the unity in China. If you were
to cut it off, it would be like an entirely
different country.
Gaston:
Are you putting out a good many yuan? Are
the printing presses working pretty rapidly
in increasing the issue a great deal?
Soong:
Oh, yes.
White:
The figures show - and I won't say that the
figures are not inaccurate, although there
are some who believe that they are - the
figures show from up to June to the previous
January, in that six months, it is 8. billion
yuan increase, which is a very large increase,
a very large increase. Now, I wouldn't ask
Soong whether those figures are accurate,
but it has been known when countries have
been faced with similar situations that
they don't always show what they have printed
because the psychological effect is important.
Gaston:
Well, you have been pretty largely financing
your deficit through the printing of yuan,
have you not?
Soong:
Naturally, because we are maintaining an
army of two and a half million men, and in
67
- 39 -
addition we are maintaining two million
guerrilas and therefore three and a half
years more is very, very expensive. In
addition, the most heavily industrialized
areas are in Japanese hands. In such areas
industries such as we have are being con-
stantly bombed. On account of that, you
see, it would be decreasing.
Gaston:
Have you any estimate, Harry, as to the
amount of the total outstanding issue of
yuan?
White:
The figures are almost seven billion yuan,
because there are certain bank notes that
are outstanding and haven't been called in,
but it may be substantially in excess of
that. Those are the figures. That is only
of the national government. There are three
other kinds of currency floating around. Some
of them are rather substantial. There is also
a further reason. Their tax source is dried
up because the Japanese have control over the
customs, so that their financial situation is
pretty bad.
Gaston:
It is not tremendous, matched with our own
increase in the national debt, for instance.
White:
Oh, their national debt?
Gaston:
No, I am talking about this phase of the
national debt, the yuan, about perhaps ten
million outstanding.
White:
Well, the yuan is worth five cents, so that
would be 8. little more than a billion and
8. half in currency, but some of that replaced
the silver in the circulation of coins. They
have done pretty well, considering, but it
is beginning to get pretty bad now. The
Regraded Uclassified
68
- 40 -
rate of increase is beginning to rise.
H.M.Jr:
You mean in the money?
White:
In the money.
H.M.Jr:
Well, don't give me too much bad news. I
have to put up & good front tomorrow. You
can save some of your bad news until to-
morrow night.
Bell:
Harry, it isn't altogether a demand for
foreign exchange that has made the yuan
go down, is it?
Gaston:
That is the point we are just about to --
White:
Yes, if you say that the - it has to be the
demand, but - that the supply has diminished
and the reason why the demand has increased
is because of the rising prices, but it is
through the demand.
Dell:
About the only purchases here have been by
the government.
White:
But there has been a lot of smuggling and
imports. They didn't shut down within a
year. They were & year or two late in im-
posing strict controls by virtue of the
difficult circumstances.
Gaston:
In the present value, the yuan is about
500 million dollars, all the outstanding
yuan, so your 50 million would be about ten
years reserve on the outstanding issue.
White:
They have more reserve. There is a sub-
stantial amount of dollars which they have
here which is part of their r eserves. I
mean, their ordinary dollar balances.
Regraded Uclassified
69
- 41 -
Who, Mr. Soong, does all that money belong
to, their dollars here?
Soong:
Some of the dollars belong to this fund,
"A" and "B". Some belongs - a good deal
belongs to the Minister of Finance for pur-
chases. There is also private funds, funds
of private banks we were talking about,
altogether.
White:
Do you have any idea of how many dollars
there are in the United States?
Soong:
I would like very much to know. You people
are keeping tab, aren't you?
White:
Do you know how much there is?
Soong:
The information I get could not be very
accurate.
White:
We could tell him what our figures are?
H.M.Jr:
Why not?
White:
Well, there are over 170 million dollars, but
that includes Shanghai. It includes - may
include part of Hongkong.
Soong:
Hongkong is not --
White:
But I mean in our figures. That is why I
was wondering if you knew how much there
was.
Soong:
Hongkong we couldn't consider our own. It
is a British colony.
White:
I think most of the funds that are there are
in Chinese Hongkong. A good many Chinese
who could afford it have gone to Hongkong,
Regraded Uclassified
70
- 42 -
but they sent their money here so they
could be doubly safe.
Gaston:
Were there any Japanese notables killed
in that train bombing?
Soong:
I hoped to give you some good news, but I
haven't got it yet.
Gaston:
No news out yet, is there?
H.M.Jr:
What is that?
Gaston:
The guerillas bombed this official train
going to Nanking to the coronation of Wang
Ching-wei.
H.M.Jr:
Was that on the radio today?
Gaston:
No, in the papers yesterday. The Japanese
announcement is that those who were killed
were all Chinese coolies, but I suspect
that it is not correct.
Soong:
Of course not, because coolies don't go to
such things.
Foley:
They don't travel on trains, either.
Soong:
It was EL land mine. There were 150 people
killed and a hundred or so wounded and that
is a very big mine.
H.M.Jr:
A train on the way to --
Soong:
Shanghai to the celebration of the treaty
between Japan and China recognizing Wang Ching-
wei.
Bell:
Didn't the Japanese announce that what they
were doing there with this other leader had
Regraded Uclassified
71
- 43 -
the sympathy of the Chinese nation and
that Chiang Kai-shek might come over, too,
and then right after that announcement
they had this bomb explosion and killed a
lot of people in this train wreck, so that
the two didn't fit together very well.
H.M.Jr:
Would you (Soong) like to ask me some ques-
tions?
Soong:
How quickly could we - of course, - how
quickly could we consummate it, because I
am very anxious to know.
H.M.Jr:
If I am successful tomorrow, we can con-
summate it this week.
Soong:
That is very pleasant.
H.M.Jr:
We can consumate it this week if I am success-
ful tomorrow. Once we make up our mind, the
Administration, that we want to do this, the
thing will go very, very rapidly, and with
Sir Frederick Phillips coming here this week,
we can get him in on this thing.
White:
A week or two?
H.M.Jr:
Well, as far as I am concerned, this week.
That is where these lawyers come in, you
know. They like to work nights.
Soong:
They make us work nights, too.
H.M.Jr:
Well, unless there is something else, Dr. Soong,
I will finish with these gentlemen.
Soong:
So we would --
H.M.Jr:
We will let you know tomorrow what success
we have met with.
72
- 44 -
Soong:
I would wish you to consider that instead
of announcing that the fund is provided
or something like that, we are undertaking
with the Chinese Government that we will order
by Universal all this stuff, so that it will
imake & much better presentation to the Chinese
Government and people, and as you rightly
said, the Chinese politician must look out for
his head. I have to, too.
M.M.Jr:
I see,
Boong:
I hope you will bear that in mind. If we
get the same result in terms that might
arouse the ire of my country at me --
M.N.Jr:
We will give that careful consideration.
white:
I take it also that if there is & statement,
he will have an opportunity to see it.
H.M.Jr:
Tie will let him write it.
Soong:
Unfortunately, my English is not good enough.
well, how would you like to make this fund?
We would have now about 20 million dollars
worth from the fund "A" and "B", 50 million
from the stabilization. In addition, if we
can get it, and I think we ought to be able
to get it, another 121 million. That would
make it nearly 82 million, isn't it?
Caston:
821.
White:
I am not sure that I follow him.
H.M.Jr:
Neither am I.
Gaston:
He was adding up the total monetary resources
of those three funds.
Regraded Uclassified
73
- 45 -
Soong:
There is the existing 20 million, 50 million
and 8. half --
White:
Well, I take it that those are details, or
at least those are matters to be discussed
when we know how it comes out tomorrow.
Soong:
You mean these sums could be - how it could
be made, how the sums could be tied together?
Because I am not sure that the British are
ready to tie them up together, you see.
White:
Well, I take it that the Secretary properly,
with respect to that, has as much informa-
tion with the proper qualifications for
tomorrow morning. After that, he will be
in position to discuss the matter further.
H.M.Jr:
Yes. If, after all, I stick by this ex-
tension of the 50 million, you see, and I
think I may have to do that, that it is
simply an extension; well then, in that it
would be just an extension of this fund
which would permit you to draw to the ex-
tent of an additional 30 million of new
money, you see.
Soong:
30 million of new money?
H.M.Jr:
You have already used 20 and you have 20
million dollars worth of gold.
Soong:
But that would - do I understand that this
is only to borrow 30 million, not 50?
H.M.Jr:
No, what we are talking about is an exten-
sion of this present arrangement for another
year.
Soong:
Well, that 20 million is really our own
money, isn't it, for the purpose of window
dressing?
Regraded Uclassified
74
- 46 -
H.M.Jr:
Well, they didn't - I don't think Dr. Kung
ever called it window dressing. It is the
first time I have ever heard it called
window dressing.
Soong:
But it is so, isn't it?
H.M.Jr:
I don't think so, no. Certainly Dr. Kung
thought it was 8. good piece of business.
Soong:
Well, as far as that is concerned, he made
what he called loans in silver, but it
amounted to the same thing, only paying a
little more interest, that is all; but I
don't quite get it. Didn't the President
announce that something like a hundred million -
50 million from the stabilization and 50 million --
H.M.Jr:
You can get a copy of the announcement. It
was in today's paper. What the President
said was that I would appear before these
committees tomorrow. It is all in the news-
papers. I forget just how the language was.
Bernstein:
A proposed extension of the stabilization
arrangement with China, and in our discussion
with the State Department we made it perfectly
clear to them what we had in mind.
H.M.Jr:
And then Mr. Jones wrote a letter to the
President, which I never saw until after
it was given out, in which he made certain
statements entirely on his own, but after
all, what Mr. Jones writes the President
is between Mr. Jones and the President. But
I never saw the letter until after it was
given to the newspapers. I have 8. very,
very difficult task. I am not at all sure
that I am going to be successful. I have
to do some window dressing tomorrow.
Regraded Uclassified
75
- 47 -
Soong:
Well, I don't want to be ungrateful. We
have no right to ask anything of you, but
it does seem to me that it will come as a
great shock to our people if they think -
if they had the misconstruction that it
was a hundred million and now it is only
eighty, because as far as General Chiang
is concerned, he was asking for two or
three hundred million for the currency
loan. I cannot but feel that he would be
very disappointed.
H.M.Jr:
Of course, he hasn't got anything yet. The
only thing definite is the 50 million from
the Export-Import Bank, but until these
Congressional committees tell me they are
satisfied, I can't move, and I have made
that very, very plain to everybody, and I
mean there would be no purpose to ask these
two committees to call a meeting tomorrow
and let Mr. Hull and me appear before them
if the matter was all settled. I mean, if
you read the paper today, it is all very,
very tentative. I mean, they may tell me
to do nothing tomorrow. I am going to do
the very best I can, with Mr. Hull's help,
to get their approval, but as the matter
stands now I am committed under my word of
honor to do nothing until I appear before
these committees.
Soong:
I know what a difficult task, Mr. Secretary,
you have before you, but couldn't you ask
for 50 million instead of 30 million, be-
cause the situation in China is really very
bad and we are not optimistic. All the facts
and figures go to show it is SO. At best
we have - even if we only get 50 million
we have only about 80 million dollars funds.
H.M.Jr:
Well, leave it with me, will you? You have
Regraded Uclassified
76
- 48 -
to, anyway, and let's see what happens to-
morrow. We will see what happens tomorrow.
I mean, if Senator Vandenberg and Senator
Taft appear tomorrow, I don't know what is
going to happen.
Soong:
I say quite frankly, although I say it on
my own responsibility, and it might sound
ungrateful, but I would rather that I failed
than to present it to my people, because from
what I saw I had given them to understand
that it was e hundred million, and as far
as the circumstances of the Chinese are con-
cerned, for what we deserve, we do not deserve
that much, but for what we need, we need that
and more.
White:
Well, Mr. Soong, it wouldn't be a question of
your failure being involved in this one way
or another. I think the Secretary has pointed
out that he will do the best that he can and
beyond that I don't think there is any reason
for discussion.
Soong:
Well, don't think that I am ungrateful. I
am very grateful for all you have done for us.
This is the most that you have done for us,
but I do hope that you will find it possible
to give us - I hope it will be --
H.M.Jr:
I am very unimportant. We do these things
and we hope for the best. I gave a good
many years of day and night to the French
Republic and today there is nothing to show
for it, so as I say --
Soong:
Well, we hope you will not disappoint us,
Mr. Secretary.
H.M.Jr:
One just doesn't know. I have spent day and
night trying my best to help the French save
Regraded Uclassified
77
- 49 -
themselves, and all of that has gone to
waste, so fortunately I am an optimist
and believe in democracy and I do the best
I can.
Soong:
Thank you very much. I hope I have not
been rude, but I was really taken aback.
H.M.Jr:
Well, I thought, you see - I knew more of
it than you did, that was all.
(Mr. Soong left the conference)
Of course, this fellow couldn't dream I made
it perfectly clear to Sumner Welles that what
we were talking about was that thirty.
White:
I think it came as a shock to him.
H.M.Jr:
And he had no way of knowing what was in our
minds.
White:
No. They didn't tell him, apparently. I
don't know whether they approached him.
H.M.Jr:
Listen, I hate to show before him that we
have an American Ambassador, and the Secre-
tary of the Treasury doesn't even know what
is in his cables.
Cochran:
We haven't seen any of his cables.
White:
It would have shown some light.
H.M.Jr:
It is the most outrageous piece of business
I ever saw, that the State Department with-
holds these cables from me.
Cochran:
And then bring pressure on us to do some-
thing over the week-end without any knowl-
edge of the situation at all.
78
- 50 -
H.M.Jr:
I mean it is - well, I won't say it is
humiliating because I am 80 used to it
now that I don't get humiliated, because
I think it is disgraceful on the State
Department's part that they withhold that
information when we do everything possible
to constantly service them with everything
that we have.
White:
Not only that, but if you don't know you
are not getting the information - but you
think you are getting the information. It
was quite interesting, what he had to say.
H.M.Jr:
Why, it is outrageous that this thing that
comes through, which has to bear on this
stuff, that they don't tell us. When
Alexander Kirk was in there, he made S ome
references to some cables he sent and I
said, "Well, I don't see them." He said,
"You mean to say that they don't show them
to you?"
Bell:
I kind of have a feeling that we have been
taken for a ride, anyhow, over the week-end.
H.M.Jr:
Oh, I know it.
Cochran:
It 8. ricksha.
Bell:
Yes.
H.M.Jr:
With Jones' letter to the President and the
rest of us. I mean, I am perfectly con-
scious that I have been taken for a ride.
Foley:
Jones' letter says an additional hundred.
That is where he gets the impression.
White:
I think he had a right to be B. little bit
shocked.
79
- 51 -
Gaston:
Oh, yes.
H.M.Jr:
I know it. I read it ten times.
Bell:
Our statement didn't say that.
Bernstein:
But Jones' letter specifically said addi-
tional credits of a hundred million dollars.
White:
Probably the first thing he did was cable
that to his government.
Bell:
That is 70 million from the Export-Import
Bank.
Gaston:
Of course, your statement prepared for the
committee is such that the gold could later
be surrendered. They will make a straight
credit of fifty under that statement you are
making to the committee. What he is asking
for, you could do under that statement you
are making to the committee.
Cochran:
I wouldn't rush to do that, though.
Gaston:
No, it doesn't have to be written that way.
White:
You don't have to make that decision until
later, but the way it is fixed, you can let
the 20 drop to 15.
H.M.Jr:
He is on the spot and it is through no fault
of his, but when he got that way I just thought
I would let him know --
White:
It was embarrassing.
Foley:
Well, he kept saying it was window dressing.
He asked for it.
White:
He added 15 and 20 --
80
- 52 -
Gaston:
He knew all the time. That is the reason
he made that addition.
White:
No, he didn't know.
Bell:
Well, it was stated right at the first.
Bernstein:
No, he was really taken aback, Herbert. Don't
you think so?
H.M.Jr:
How could he have known it?
Bell:
I thought it was said in the first part of
the conference, something that --
White:
Nobody mentioned the thirty. That is why when
he added it I didn't want to say yes.
H.M.Jr:
Harry says "You want us to tell him?" I said,
"Go ahead.
White:
He was incorrect, and I didn't know whether
you meant to let him have it or not.
Bernstein:
When he didn't get that 20 million after what
the Secretary said, he probably blamed it on
the lawyers.
B1
JAL
Paraphrase of Code Radiogram
Received at the Yes Department
at 17:46, December 1, 1940
London, filed 14:49, December 1, 191,3
1. The Bomber Command carried out TO operations during
the day of Monday, November 30, nor that night because weather
conditions were adverse. The preceding night this Commend die-
patched heavy and medium boabers against neval shipyards in North
Cernany, medium boobers against airdrosse in the occupied -
tries, heavy planes against transportation facilities in the
principal cities in the Ruhr, end mine laying planes against
early hartors. The Coastal Command attacked the neval dock
yards, and the submarine base at Loriant, France. Reporte in-
dicate that all of the above were susesssful. On lovember 29th
planes from the Coastal Command sunk energy merchant vessale
totalling 8,000 tons. During the night of November 29-30 the
Fighter Command operated 23 patrols but results are not yet
available.
2. On lovember 30th the German Air Force operated about
440 planes in daylight operations in four attacks which were No-
stricted generally to the East Kent area. Only four planes pens-
trated into Central London. There were small raids over Bristol,
Cormail and Cardiff and & extra off ilamagate - attacked.
UNIVERSAD
Regraded Uclassified
B2
ATENT
That night energy activity was sonfined almost entirely to &
havy attack OR Southampton. Two single planse flaw over Cen-
tral Lendon to Northolt.
3. The reports of desages from these attacks are not
svailable.
4. German plane lossee were four sonfirmed and two
probable. The British lost two planes but/ the pilots were anved.
5. During the past 24 hours there was such British air
activity in the Widdle East.
6. During daylight hours of November 26th, the
operated about 200 planes over England) and that night they opera-
ted about 380.
LES
Distribution:
Military Aide to The President
Secretary of West
State Department
Secretary of Treasury
Asst. Secretary of Mar
Chief of Staff (2)
Var Plans Division
Office of Neval Intelligence
0-3
Air Corps (2)
CORPORATIVE
- 2 -
Regraded Uclassified
83
MEMORANDUM
December 2, 1940.
TO:
Secretary Morgenthau
FROM:
Mr. Sullivan
SUBJECT: Conference at the White House, evening of Friday,
November 29, 1940.
Present: The President, Secretary Morgenthau, Director of the
Budget, Harold Smith, Senators Harrison and George,
Congressmen Doughton and Cooper and Mr. Sullivan,
The conference started with a discussion of the relation-
ship of receipts to "normal" budget and the statement by the
President that next year (fiscal 1942) we would come within
$600,000,000 of meeting the "normal" budget and that this $600,000,000
was about the sum of earmarked taxes which under the First Revenue Act
of 1940 would have to be applied against the defense or "sbnormal"
budget. The President then announced that he was going to make every
effort to cut to the bone other expenses that were not necessary. He
indicated that he thought WPA could be reduced by half and gave the
example of the thousand WPA workers in the Norfolk Navy Yard, half of
whom had been taken on to the regular Navy payrolls.
Concern was expressed by all over the limits on the national
debt and the President said that he thought this problem presented a
very nice legal question: Can one Congress, by setting a legal debt
limit, bind a subsequent Congress to the necessity of repealing that
debt limit before making appropriations which exceeded 1t; or does
the action of a subsequent Congress in appropriating beyond the
previously established limit by this specific action repeal the
previous general action of a preceding Congress? Except for Senator
Harrison who refrained from comment, all others present believe the
present debt limit inadequate and believed it unwise to segregate the
national debt into different classifications. Senator George was
perticularly emphatic on this point and was in opposition to the ear-
marking of taxes.
84
- 2 -
The President next expressed a desire to pass the "Glass
Plan". The discussion that followed seemed to be along the line of
repeal of the exemption of future issues of government securities.
Senator Harrison believed that we could not pass such a measure, All
others present believed we should try. Congressmen Doughton and
Cooper seemed to think it would be a very difficult task and appeared
to be very much disturbed about Mayor LaGuardia.
The next topic of the conference was the revision of Social
Security taxes to eliminate the present method of the Federal Govern-
ment's matching the contribution by the States and to substitute
therefor a uniform minimum contribution by the Federal Government, -
8. step toward the ultimate objective of having the Federal Government
assume full responsibility and administration of Social Security.
Senators George and Harrison favored this proposal while Congressmen
Doughton and Cooper opposed it.
All were in accord that income earned during the 1940
calendar year should not be subjected to any future taxes, that what-
ever new taxes passed during the coming session should apply only to
1941 and subsequent income. It was also believed desirable in view
of the probable retention of earnings as a reserve against future
taxes that Senator Harrison and Congressman Doughton should announce
that policy immediately.
It was also agreed to continue the studies on overlapping
taxes although Congressmen Doughton and Cooper seemed to think it was
a hopeless task and would accomplish nothing. It was understood that
the problems of the debt limit and specific taxes were to be discussed
at a later date, and there was general agreement that there was no
need to introduce a tax bill in January or early in the session.
JLS
85
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
Miss
DATE December 2, 1940
JOS
TO
Secretary Morgénthau
FROM
Mr.
Cochran
STRICTLY CONFIDENTIAL
At 10:30 this morning there met in joint session in Room 301 of the Senate Office
Building the following members of the Senate Committee on Banking and Currency:
Robert F. Wagner (Chairman)
John G. Townsend
Carter Glass
Lynn J. Frasier
Alben W, Barkley
Charles W. Tobey
Alva B. Adams
John A. Dansher
Francis T. Maloney
George Radcliffe
James H. Hughes
Clyde L. Herring
together with the following members of the House Committee on Coinage, Weights and
Measures:
Andrew L. Somere (Chairman)
August H. Andresen
John J. Cochran
Robert Luce
Herman P. Eberharter
Leonard W. Hall
Senator Wagner, Chairman of the Senate Committee, presided, with Chairman Somers
of the House Committee at his side.
Secretary of State Hull and Secretary of the Treasury Morgenthau appeared before
the Committee. Secretary Morgenthau was accompanied by Messrs. Bell, Gaston, Foley,
White, Berastein, Schwars and Cochran.
Senator Wagner opened the meeting with the remark that this vas an executive
session to hear the Secretaries of State and Treasury on confidential matters pertain-
ing to our foreign relations. Senator Danaher urged the keeping of a record of the
meeting, arguing that in previous instances, most particularly with regard to an
appropriation for the Export-Import Bank, there had been difficulty in reconciling
memories of the members with respect to sums involved, a variation as far as one
billion dollars having developed. Senator Adams said that there would be no occasion
for a conflict in memories if members did not seek to repeat what was said in violation
of the rule of executive sessions. It was recalled by one of the members that the
practice of keeping records of executive sessions was only a recent innovation. The
opinion vas expressed that if any record is Icept this might eventually get into print
to the embarrasement of our Government. Senator Barkley stated that it was really
unimportant that the Senators have a record, while it was vitally important that the
86
sunfilence of the two Secretaries be preserved on the delicate matters of international
voller which they probosed to discuss. One of the members suggested that since
court. ull and Morgenthau had been invited to an executive session. it was only foir
to lests their feelings AE to the matter of a record. Secretary Bull stated that he
vid to be at the disposal of the Committee and would like to set everything
becore them which he could. Ee said that he had hurriedly put together a. statement
vision he would rend to them, but that he could not perhans anewer All questions which
=Lint to ceed to him 1F the session. It was ergued in the Committee that Mr. Pull
di T. orgenthes would nerbres be free to eneak more frankly if no record wes keot,
à vote or colled ind Senstor Denaher's resolution that minutes be kent wes voted down
:- : 210 Injority. Senator Warner recalled that in his earlier meetings with these
2911 Comulttees Secretary Morgentheu heá promised to come before them for consultation
15 dm elrounstences, The Secretary had now recuested c. meeting of the joint com-
10 order that he might lay certain matters before them. Secretary Rull had also
- N Five the Committee on expression of the political factors involved. He then
and won kr. Rull.
Seguetary Jall stated that he would only give e general leture of developments
Ic UA The Enst the post three years, but had evailable for the information or record
if the Comittion other comorands giving the high noirts in Far Eastern developments
:ron 190 to date. This we the material on which the memorandum that he then proceeded
to rent to the Committee was based. There ETE atteched conies of the Secretary's
BB provided confidentially by his office.
Securitory Full occesionally interposed certain remarks in emisanation of points
Ly the written memorandum. He moke nt length, however, when one member of the
Number, Senstor Prazier, selced him If he thought the proposed operation of the
Fund would be considered en unfriendly Act by Jacon. The Secretary gave
foreful denunciation of those nations which have been proceeding ruthlessly to wilk
the shoo of the world, without warring or justification, end breaking whotover
I/vn the nicese. He insigted that A pence-loving notion has the right of self-defense
De thought that our proposed action toward China YES en act of self-defence on our nart
in 15 to net in self-defence is an unfriendly net to such e nower ES Japen. then
we (21 proposing to do something which is unfriendly. Secretary Hill stated that the
interful nations which are now being overrun have no more chance of placeting their
than e soutrrel would have of appeasing e boa constrictor. In this connéc-
tign the Secretary went on to explain the cuertion of outting emborgoes on exports to
Japan, lie ox1d that he was frequently neked why we nermitted certain shipments to
which heln that country. lie said this wes e very delicate matter and that WE hall
been ornsuvering M.S. carefully PE possible without getting directly into trouble. If
WIII contemplate stronger action, he advised that we have our lievy near by.
Senstor Adoma WE anxious to know just what the proposition was which Secretary
Torreatheu had to out before the Committee. this Senator feeling that he could better
understand Mr. Bill's arguments if he knew just what WEB being proposed. Secretary Full
did not desire to encroach upon Secretary Morgenthau's territory. He added. however,
that he had the documents in regard to the history of events since 1933 available to
the Committee. The Committee decided thet these should not be submitted to constitute
record. The Secretary offered to let anyone of the Committee rend them in confidence.
Regraded Uclassified
87
Semter Denaber accepted this offer and the documents were handed to him. He read
the through and hended then beek to Secretary Hull after the meeting broke up.
Senetor Adems remarked on two occasions, while questioning Mr. Hull and following
the latter's remarks, that he felt the Administration had gone e long way toward
antegonizing many countries and had violated statutes in 90 doing. He said he
realized, however, that we had now gone 80 for in this direction that we are obliged
to take certein stens in self-defense. It was on this ground that he was sympathetic
with Yr. Sull's position on the present issue,
Secretary Morgenthau read to the group his attached statement. He prefeced this
with the remark that Secretary Hull had pictured the Far Eastern political situation
and the relation of the United States thereto. The Treasury Department WAE now only
desiring to do its part as a wheel in the mechine. Following the reading of his state-
ment, the Secretary said he would be pleased to answer any questions. In reply to a
question Secretary Morgenthau said that the $20,000,000 of gold now pledged with the
Treasury would be used to repurchase the Chinese yuan held by them under the 1937 agree-
rent. Senetor Glass asked if there W&B any legislation required for the proposal which
the Secretary had announced. When the Secretary replied in the negative, Senator Glass
nsized "Then what are we here for?" Secretary Morgenthau repeated that he wanted to
emlain to the Committees what he proposed to do in the wey of a new stabilization
arrangement with Chine. The Sengtor moved that "we approve and adjourn." Some of the
other Senators. certicularly Mr. Dansher, desired further discussion. Senator Denaher
enld that the group had been called together for consultation and he honed this would
roceed. He seid that while be might not be against the proposal. he had not yet had
occasion to study it. He would like to have more information in regard to the status
of the Stabilization Funds already operating in China, in regard to Chinese economic
rad financial conditions, etc. Either he or Senator Frazier remarked that if this
TOTOBAL was carried out, the question might then have to be faced of giving financial
mid of the name sort to Great Britsin and other belligerents. It should be added that
during the conversations Secretary Bull pointed out that technically we do not recog-
nise R. state of wer between China and Japan.
Senator Dansher asked if we were continuing to buy gold from Jopen. When the
thever VOB in the affirmative Senator Townsend remarked that we seem to be inconsistent
in oxtending this new aid to Chine end et the same time permitting Jepan to sell gold
on this market for dollars to aid in furthering her aggression. Secretary Morgenthau
replied that it had been Treasury policy to buy gold from any source offered at $35 per
ounce less 1/46. Be said the one principle definitely recognized vae that gold should
be used in settling international balances. He would take gold from any source without
looking behind the actual seller. In answer to further questions, he stated that the
Treasury had been purchasing gold from Japan. but that recently such purchases were
declining end that Japanese gold stock WELB getting low. He made the point that while the
Chinese economic position has deteriorated. the financial position of Japan has also
cone down.
The muestion was discussed as to whether a vote of spproval should be given the
proposal of the two Secretariss. Mr. Somere entered the conversation with the observa-
tion that the action which the Treasury Department contemplates was really necessary
to supplement and strengthen the loan contemplated by the Export-Import Bank.
Regraded Uclassified
88
24
Secretary Morgenthau agreed that his operation would supplement the loan and strengthen
it, since support of the Chinese national currency would strengthen the economy and
improve the credit on which the Export-Import Bank loan was based. Senator Townsend
remarked that it was contemplated that the Export-Import Bank loan should be repaid
through metals. The Secretary gave the added information that it was contemplated
that a Treasury representative be sent to China to observe the carrying out of the
proposed Stabilization Fund operation.
During the meeting one member of the joint committee, Senator Adams, made the
point that it was his understanding that the Stabilisation Fund was set up for stabiliz-
ing the United States dollar and not for attempting to stabilize miscellaneous foreign
currencies which might be fluctuating in all directions. The Secretary offered to have
his General Counsel, Mr. Foley, give a legal interpretation of the laws under which we
are operating. Many of the members of the Committee and particularly Congressmen Somers
prolained why the proposed stabilization arrangement was within the terms of the
Statute. Toward the end of the session Mr. Foley vas asked to give this explanation.
Mr. Foley stated that it was our interpretation that the Stabilization Fund 18 fully
authorized by its enabling act to stabilize the value of the dollar in foreign exchange.
That is, the dollar is not stabilized by itself, but in its relation to the currencies
of other countries which might compete to our disadvantage in trade if their currencies
drop sharply. or with which it is to our advantage to have a steady rate in order that
our nerchants may do business on an understanding of the value of the foreign exchange
that 1a to be involved.
Senator Wegner stated that the stabilization arrangement with China was the only
one which was now contemplated with 8. belligerent country.
It wes the idea of Mr. Somers that there should not be an actual vote of approval
of the contemplated Treasury proposal with respect to China, but rather a vote of con-
fidence in the two Secretaries who had appeared before the joint session and explained
the contemplated arrangement and the reasons therefor. He moved that the Committees
give A vote of confidence to the two Secretaries and this was unanimously adopted.
It was agreed that Senator Wagner should give such information to the press as
might properly be released.
pm.
89
(Statement made by Secretary of the Treasury Morgenthau before the joint
session of the Senate Committee on Banking and Currency and the House Com-
mittee on Coinage, Weights and Measures, on the forenoon of December 2, 1940,
in the Senate Office Building.)
I asked Chairman Wagner and Chairman Somere on Friday to call this
meeting today 80 that I might lay before the members of these two commit-
tees a matter affecting the operation of the Stabilization Fund.
On other occasions when I have appeared before these committees
separately, particularly at the time when the extension of the stabiliza-
tion powers was being considered in 1939, I discussed with you very fully
and frankly all phases of the operation of the Fund and made available
balance sheets and other data for your study.
The reason for my coming before you today is that ve have under con-
templation a type of transaction which differs in certain respects from
any into which we have entered in the past and I should like to explain
it. There is en added reason for my coming. I have repeatedly stated to
you that I would not consent to the use of the Stabilization Fund to assist
any foreign country in prosecuting a war without first consulting these
committees. The transaction ve are contemplating is one with China and
for currency stabilization purposes, and I don't think it falls in that
category; but if there should be a difference of opinion on that point I
don't want to be accused of quibbling where my word is concerned.
For some time the Administration has been making a. very careful study
of the financial and economic situation in China with the possibility in
mind of helping to strengthen the dollar-yuan exchange rate. Recent devel-
onments have made action in this field more urgent,
Regraded Uclassified
90
- 2 -
In July, 1937, the Treasury entered into a dollar-yuan stabilization
operation with China pursuant to which we agreed to buy yuan up to a. total
of $50,000,000 and China agreed to repurchase the yuan at the same rate and
pledged an equivalent amount of gold with us as security. This arrangement
has been extended every six months and under its present provisions will
expire on December 31 of this year, with the usual option for renewal. The
arrangement with China was discussed fully by me and other officials of the
Treasury Department with your committees at the time you were considering
the extension of the stabilization powers. Under the arrangement we now hold
$20,000,000 in yuan fully covered by pledged gold.
We now propose to extend this agreement for a further period. That
fact in itself would not, I think, justify my coming before your committees.
However, in view of the present circumstances we have under consideration
modification of the provision which requires China to pledge an amount of
gold equal to the dollars made available in exchange for yuan. In other
words, if we enter into the agreement we are contemplating, we would pur-
chase and hold an amount of yuan up to $50,000,000, the repurchase of which
will not be covered by pledged gold. This would be strictly a stabilization
operation, fully within the powers granted to the Secretary of the Treasury,
subject to the approval of the President, by the Gold Reserve Act as amended,
and of course it is our purpose to safeguard the interests of the United
States by the fullest supervision over the execution of it.
91
Statement made by Secretary of State Rull before the joint session of the
Senate Committee on Banking and Currency and the House Committee on Coinage,
Weights and Measures on the forenoon of December 2, 1940, in the Senate
Office Building
Economic Factors
For three and one-half years the Chinese Government has maintained
resistance against invading Japanese military forces. During that period
most of China's normal transportation routes have been brought under
Japanese control, and many of her important cities, especially on the
coast, have been occupied by the Japanese. Effective Japanese control,
however, does not extend beyond the points where the Japanese actually
maintain military forces. The Chinese Government has maintained both in
the unoccupied and occupied areas a freely convertible currency, and in
both areas the Chinese national currency has remained the principal medium
of commerce. In the occupied areas in north China the currency issued by
the Jepanese-sponsored regime has been inconvertible into foreign exchange
and foreign trade has been carried on through the medium of Chinese
national currency; in the interior of north China-except in the areas
actually dominated by Japanese bayonets--purchases of Chinese raw materials
have of necessity been made in Chinese national currency. Meanwhile, in
contrast, in unoccupied China the national currency has not only served as
an effective medium for carrying on the economic life of the area, includ-
ing a substantial foreign commerce with the United States and other coun-
tries, for paying the Chinese armies and for purchasing supplies internally.
but it has been B. symbol of the authority of the National (Chungking)
Government.
National China's well-established currency and the confidence in that
currency of the Chinese people both in the occupied and unoccupied areas
has been one of the principal bulwarks of the Chinese National Government.
Regraded Uclassified
92
- 2 -
It has now become apparent that the Chinese Government is in urgent
need of assistance toward maintaining internal and external purchasing
power of China's currency. For three and one-half years, under extremely
difficult and abnormal conditions, that Government has maintained a freely
convertible currency. During this period the exchange value of the cur-
rency has depreciated but has been kept under control, The movement of
prices in China for a considerable period did not correspond to the degree
of currency depreciation, but this year those prices have caught up with
and they now have exceeded the degree of currency depreciation. At the
present time, prices are advancing at such a rate as to indicate that
assistance from without is imperative if prices are to be controlled.
There has not been for come time any serious strain upon the exchange value
of the Chinese currency, and the internal price situation appears to be a
product principally of a psychology of misgiving. It is estimated that a
substantial loan now of the type contemplated will be very helpful in
this respect.
Continuance in circulation and maintenance of the purchasing power
of the Chinese national currency in the Japanese-occupied areas in China
are the main support of liberal trade conditions in those areas.
The technique developed by Japan for the mobilization of the trade
of large areas in the Far East has become quite familiar through its use
in Manchuria and north China. The first step is military occupation: the
second step is the establishment of a Japanese-controlled regime; the third
step 1s the creation of a new currency: the fourth step is the attempt to
drive out the Chinese national currency, the pegging of B. new currency to
Regraded Uclassified
93
- 3 -
the yen, coupled with the imposition of exchange and import and export
controls which operate to permit a comparatively free flow of funds and
merchandise between the occupied area concerned and Japan but which operate
to restrict and impede the flow of funds and merchandise between the areas
concerned and other foreign countries. In central China the Japanese have
accomolished the first two of the foregoing steps but the continued circu-
lation in that area of the Chinese national currency has thus far prevented
the accomplishment of the last two steps. The experience of the Jepanese
in north Chine has taught then that it is not easy to establish B new cur-
rency that is not supported by reserves and effect an acceptance of such
by a population which has confidence in the already-established currency.
A collense of the Chinese national currency at this time would create con-
ditions which for many years to come would make normal foreign trade
impossible and be e. conclusive obstacle to peace and prosperity. Oners-
tions such AE are contemplated in the extension of a credit from the
Stabilisation Fund are intended to ensure against such a collapse.
Regraded Uclassified
94
CONFIDENTIAL
POLITICAL FACTORS
Since the summer of 1937 the Chinese Government
has been resisting an attempt by the Japanese to conquer
China militarily, politically and sconomically, and to
reduce China to the status of 8 unit in Japan's "new
order in Greater East Asia". The envisaged geographic
scope of that "new order" has never been delimited and
has steadily expanded. According to the statements of
some of Japan's highest officials it embraces Manchuria,
China, French Indochina and the Netherlands Indies. From
the experience of Manchuria and north China and from
current developments in central China, we know that the
"new order" means politically subservience within the
area to the will of Japan, and means economically employ-
ment of the resources of the area concerned to the enhance-
ment of the military and economic strength of Japan.
In fighting in defense of their national existence,
the Chinese have been fighting and continue to fight for
certain principles and decencies of international life
which the American people consider fundamental: the right
of a people to govern themselves and to develop their re-
sources for their own good; the right of nations to live
in
Regraded Uclassified
-2-
95
in peace secure against use of force, or the threat of
force, from without.
That the conflict in Asia and the conflict in
Europe are closely inter-related in their bearing and
trends--and even in their broad issues-is no longer open
to doubt.
This inter-relationship became abundantly clear with
the public announcement on September 27 of the military
alliance between Japan, Germany, and Italy. The United
States therefore has two extremely important diplomatic
fronts—one in Asia and one in Europe. In Asia the
Chinese are opposing the forces of aggression, and in
Europe the British are opposing the forces of aggression.
The continued resistance of China is of great importance
to the continued resistance of Great Britain, and the
continued resistance of both is of great importance to
the ultimate peace and security of the United States.
As I stated in my address before the National Press
Club on October 26, this country, as an important means
of strengthening our own defense and of preventing attack
on any part of the Western Hemisphere, is affording all
feasible facilities for the obtaining of supplies by
nations
96
-3-
nations which, while defending themselves against
barbaric attack, are checking the spread of violence
and are thus reducing the danger to us. Tie intend to
continue doing this to the greatest practicabel extent.
Any contention, no matter from what source, that this
country should not take such action is squivalent, in
the present circumstances, to B. denying of the inalien-
able right of self-defense. The American people have
demonstrated their whole-hearted support of this policy.
The Chinese forces have with more than three years
of extraordinary resistance brought the Jaranese to 8.
virtual stalemate in China, where large Japanese armies
are virtually immobilized. Should Chinese resistance
disappear, those Jananese forces would be freed to ex-
tend their military operations southward to French Indo-
china, the Netherlands Indies, British Valaya, et cetera.
Wherever the Japanese have occupied territory in
China, American rights, especially in the economic field,
have been seriously impaired; and there is every reason
to believe that were Japan to gain control of China our
rights and interests in that country and adjacent regions
would suffer in B. like manner and could exist only at
Japan's sufferance,
Regraded Uclassified
97
Accordingly, in the conduct of foreign policy, this
Government directed its efforts to the following objec-
tives: (1) Peace and security for the United States
with advocacy of peace and limitation of armament as
universal international objectives; (2) support for
law, order, justice, and morality and the principle of
non-intervention; (3) restoration and cultivation of
sound economic methods and relations; (4) development
of the maximum measure of international cooperation;
(5) promotion of the security, solidarity, and general
welfare of the Western Hemisphere. These basic objec-
tives of a good neighbor policy represented a sound and
practical middle course between the extremes of inter-
nationalism and isolation. They have been consistently
pursued throughout. The sweep of events has, of course,
required the focusing of our attention at different
periods upon different problems and different geographic
areas.
Copy:ek
Regraded Uclassified
DEPARTMENT OF STATE
98
FOR THE PRESS
JULY 16, 1937
STATEMENT BY THE SECRETARY OF STATE
I have been receiving from many sources inquiries and suggestions
arising out of disturbed situations in various parts of the world.
Unquestionably there are in a number of regions tensions and strains
which on their face involve only countries that are near neighbore but
which in ultimate analysis are of inevitable concern to the whole world,
Any situation in which armed hostilities are in progress or are threatened
is & situation wherein rights and interests of all nations either are or
may be seriously affected. There can be no serious hostilities anywhere
in the world which will not one way or another affect interests or rights
or obligations of this country. I therefore feel warranted in making - in
fact, I feel it a duty to make - a statement of this Government's position
in regard to international problems and situations with respect to which
this country feels deep concern.
This country constantly and consistently advocates maintenance of peace.
We advocate national and international self-restraint. We advocate abstinence
by all nations from use of force in pursuit of policy and from interference
in the internal affairs of other nations. We advocate adjustment of problems
in international relations by processos of peaceful negotiation and agreement.
70 advocate faithful observance of international agreements. Upholding the
principle of the sanctity of treaties, we believe in modification of provi-
sions of treaties, when need therefor arises, by orderly processes carried
out in a spirit of mutual helpfulness and accomodation. To believe in re-
sneet by all nations for the rights of others and performance by all nations
of established obligations. We stand for revitalizing and strengthening of
international law. We advocate steps toward promotion of economic security
and stability the world over. To advocate lowering or removing of excessive
barriers in international trade. Tie seek effective equality of commercial
ouportunity and we urge upon all nations application of the principle of
equality of treatment. We believe in limitation and reduction of armament.
Realizing the necessity for maintaining armed forces adequate for national
security, we are prepared to reduce or to increase our own armed forces in
proportion to reductions or increases made by other countries. We avoid
entering into alliances or entangling commitments but we believe in
cooperative effort by peaceful and practicable means in support of the
principles hereinbefore stated.
1mc
Regraded Uclassified
TREASURY DEPARTMENT
99
INTER OFFICE COMMUNICATION CONFIDENTIAL
DATE December 2, 1940
TO
Secretary Morgenthau
Mr. Wiley
FROM
I send you herewith, pursuant to your request, a memorandum
on the subject of foreign exchange control for submission to the
Secretary of State. Your attention is invited to the fact that
annexed thereto is a letter addressed to you under date of
November 29, 1940, by Mr. Hoover which strongly supports your
position.
In your conversation with Mr. Bull it might be opportune
to remind him that in Telegram No. 1150 of November 15, 1940,
Joseph Grew, Ambassador to Tokyo, expressed the hope that the
withdrawal of Japanese credits from the United States would not
be permitted until satisfactory arrangements had been made to
liquidate American credits frozen in Japan.
According to Mr. White, American investments in Japan now
total approximately 275 million dollars.
my
Regraded Uclassified
100
CONFIDENTIAL
MEMORANDUM FOR THE SECRETARY OF STATE.
I communicated to the President in my memorendum of November 7,
1940, my conviction that the introduction of a regime of general for-
eign funds control was urgently desirable. In the light of recent
developments I think that no should proceed to a decision without fur-
ther delay. I am well aware that this decision is one of major policy.
The Treasury, however, has not failed to weigh ite alleged dangers
against the advantages to be derived.
I review, herewith, some of the more important considerations which
enter into this matter:
1. There are being constantly brought to our attention important
foreign exchange transactions which undoubtedly affect our national de-
fense program and our economic interests. The absence of a positive
program of foreign exchange control imposes limitations on our ability
to investigate or regulate these transactions in our national interest.
For example, information from various sources, including Foreign Serv-
ice despatches, are to the effect that the Aris powers end their satellites
are building up large balances in South America. Between October 2, 1940,
and the middle of November it has been estimated approximately that German
bank funds in this country have dropped from $13,100,000 to $7,900,000,
and Italian from $24,500,000 to $18,900,000. Recently large-scale trans-
actions by the Aris in American currency have been frequently reported.
Military Intelligence reports that Itelians have converted their official
funds into cash to be kept in diplomatic premises and also suggeste that
both the German and Japanese Governments are contemplating similar action.
In view of the fact that Axis-owned assets in the United States are sources
of constant dollar balances (in the form of interest, dividends, royalties,
etc.), it is to be expected that this flow of American dollars from the
United States may be progressive.
We have no way of ascertaining the extent to which the Axis Govern-
ments are shuffling American dollars in this country, or whether dollar
withdrawals are not returning to this country in the guise of Latin Amer-
ican, Swedish or Swisa funds. It would seem, from information at hand,
that the Axis Governments operate secret financial accounts in this
country, identified by code symbols which cannot be traced.
A situation in which we are not masters in our own house is unen-
viable at B. time like this. These operations by potentially hostile
powers, if permitted to continue through the instrumentality of our
Regraded Uclassified
101
- 2 -
own financial institutions, might easily lead to developments which
would impoir public confidence in the Administration or subject it to
severe criticiam.
The Senate has authorised its Interstate Commerce Committee to
investigate Axis-control of American defense materials. Senator live
has demanded an investigation of British-owned assets in this country.
The Dies Committee shows every indication of continuing to seek infor-
mation on the use of funds for subversive purposes. The press has
published accounts of sabotage and espionage, and there has been dis-
cussion of the Administration's attitude towards control of funds for
subversive purposes (see for example NEW REPUBLIC, December 2, 1940,
"Finencing the Fifth Column" by Allan Barth).
These facts may make inaction by the Administration a serious
matter. The executive departments may soon find increasing embarrass-
ment in the assumption by congressional committees of functions which
the Administration can and should perform.
A prime purpose of my recommendation is to meet this situation.
Our Government should be in possession of such data as --
1. The precise nature, location and amount of assets
in the United States belonging to the Governments
end nationals of the Axis powers and of those coun-
tries which are actually or potentially under the
domination of the Aris.
2. The full circumstances and reasons for transfers
of dollar funds from one foreign account to another,
including the pattern of transactions here and abroad
for distributing funds in this country and for real-
izing upon assets acquired abroad by looting or other-
wise.
3. Identification of the individuals and institutions
in this country who are acting, in whole or in part,
for the account of foreign powers or their nationals.
So far, however, although we have hypotheses and statistical 06-
timates, no department of the Government has been able even to collect
accurate information with respect to the identity of Aris-controlled
industries in the United States. We cannot say today which transactions
are real and which simulated, nor determine what the ultimate purposes
of such transactions may be. The Federal Bureau of Investigation* has
* Vide enclosure, copy of letter from Mr. J. Edgar Hoover, dated
November 29, 1940.
Regraded Uclassified
102
informed us that although subversive activities undoubtedly financed by
Axis powers exist in the United States, it has not been able to trace or
discover the funds used for this purpose. By the nature of the case the
Federal Bureau of Investigation is without the means to compel disclosure
of essential foreign funds information.
Under the proposed program of foreign funds control the Government
would not only have the advantages of such information as would be sup-
plied by the reporting requirements but would be able to rely upon penal
senctions to compel compliance (see Executive Order No. 6650 of January 14,
1934; Act of October 6, 1917, section 5(b) as amended). Various import-
ant aspects of subversive activity are today not prohibited by law, but
failure to report under the proposed regime of foreign exchange control
would constitute & punishable violation of law.
2. Foreign exchange control is in almost universal application through-
out the world. While it is contrary to the American policy of free,un-
trammeled trade and commerce, it is not entirely new 6.8 6. peace-time regu-
Intion, for we had restrictions in the emergency of 1933 and 1934. The
traditional American position, however, is 60 isolated in this regard and
the exigencies of the world situation are so pressing that tradition alone
should not prevent our adopting such 8 regime st this time. In the present
state of international relations it may prove expedient, and even urgent,
for this Government to protect the rights of American holders of claims
against the Axis and Axis-dominated countries and the rights of American
holders of property in those territories by applying off-sets or by using
the threst of off-sets in any eventual negotiations. The introduction of
general foreign funds control would, of course, give the American Govern-
ment supervision over a vast total of foreign assets which should greatly
fortify its position in any eventual negotiations on economic and mone-
tary matters and enhance the authority of the United States in any final
settlement. In such an hour that strength may prove of immeasurable ser-
vice to all our greet ideals and our traditions.
3. It is becoming increasingly evident that a census must be under-
taken of the essets of the nationals of Britain and other friendly coun-
tries in aid of the Administration's announced program of all aid to
Pritain and Chine short of war. The recent resolution of Senator Nye has
brought this necessity before Congress; press reports from Grest Britain
indicate that the British Government is equally interested. Moreover,
such information would be essential to this Government in connection with
any negotiations that may be carried on for financial aid to Britain.
A system of flexible licensing control would permit us to implement our
policy with regard to the British Empire, and with regard to the Far
Past in general, intelligently and deftly. This, too, is an urgent con-
sideration.
4. I as well aware that the introduction of & regime of foreign
funds control would give rise to repercussions at home and abroad.
With regard to the domestic aspect I think that in the long run unde-
sirable repercussions are more to be feared if we do not adopt such e
regime then if we do. In Great Britain the repercussions would be favor-
able. It would give moral encouragement to the British as well as
Regraded Uclassified
103
anterially aid them in permitting el marshalling of British-owned assets
In this country. The worst repercussions will, of course, come from the
AXIS powers. However, exchange control, in peace-time, WEB initiated by
the Axis powers themselves. Before the outbreak of the present war the
Jersan Government had already assumed absolute control over ell American-
owned aggets in the Reich and by drastic laws simultaneously had assumed
coutrol 86 well of all German-owned assets in the United States. Before
Live outbreak of the war the German Government had even effectively nation-
alized the administration of American industrial establishments in the
Teich. The German Government thus controls all Americen-owned marks and
all German-owned dollars, while we control neither. Moreover, German
control has not only succeeded in "freezing" but has also re-
aulted in serious and - unless we succor them by the insuguration of
controls here -- permanent loss to American Investors. The same general
situation exists in respect to Italy and Japan, while the situation with
regard to the Soviet Union requires no discussion.
Should, therefore, the American Government decide on a general ex-
tensivo of foreign funds control, Germany and Italy should not be in a
good position effectively to protest. Retalistion, too, would be diffi-
cult. Since trade with those countries has been practically extinguished,
our comeerce would not suffer. Nearly every repressive measure against
American interests in the totalitarian states has long since been ex-
hausted. Every realist must know that in those countries our sesots are
andowed only with the value which Nazi-Fascist self-interest may make
opportune. In this connection, the true value of Axis Interests in the
United States way turn out to be surprisingly greater than ye have hither-
to supposed. A preliminary study of specific cases suggests the likeli-
hoat that the total of Cerman-controlled Assets in the United States
alone ney have B fair capital value in excess of $500 millions. This
would provide an added essurance against economic reprisals. Political
reporcussi could hardly be more serious than the hostile manifesta-
tione of the past end Germeny and Italy would certainly not make foreign
funds control a casus belli at this time, since it would profit them
nothing und perhaps lose them much.
The application of foreign exchenge control should not per se be
un act of provocation towards Japan. Because of its continued interest
in trade with the United States, Japan would be, presumably, more inter-
ested in negotiating for special licenses under the proposed elastic
system than in precipitating a rupture from which no profit could he
Verived. The same considerations apply with even grouter Force to the
Soviet Union,
5. The Treasury has given careful thought to the administrative
fensibility of 6 regime of general foreign exchange control. I wish to
vtate that the Treasury is fully prepared to put into operation, on short
notice, a complete regime of effective control, 30 decentralized as to
operate without impediment to the normal and legitivate transactions of
domestic industry and foreign commerce. The proposed regime would, in
Its operations, be equitable to all legitimate interests, both domestic
and foreign. It would be entirely elastic. With certain large aress of
Regraded Uclassified
104
- 5 -
the world a system of blanket licenses, subject only to reasonable re-
porting requirements, could be employed.
The adoption of general foreign funds control would involve a decision
of gravity; but a decision not to introduce such a regime appears to me to
be even more grave. A negative decision would permit the Axis powers to
continue freely to employ American dollars for purposes of economic war-
fare, political manipulations and subversive activities.
Regraded Uclassified
105
COPY
TRUE COPY
pg
John Idgar Hoover
Director
FEDERAL BUREAU OF INVESTIGATION
UNITED STATES DEPARTMENT OF JUSTICE
WASHINGTON, D. C.
November 29, 1940.
PERSONAL AND CONFIDENTIAL
BY SPECIAL MESSENGER
The Honorable
The Secretary of the Treasury
Washington, D. 0.
Xy dear Mr. Secretary:
With regard to the investigation currently being
conducted by the Federal Bureau of Investigation in connection
with transactions in the United States involving foreign funds,
I wish to advise that B very large amount of investigative
activity is presently being expended in an effort to determine
definitely whether the funds of certain foreign countries in
the United States are being used in connection with hostile
activities directed against the national defense of this
country. The most expeditious investigative attention possible
under the circumstances presently is being given with regard
to the matter of investigating the possibility that German,
Italian, French, Japanese and Russian funds are being used for
activities detrimental to the national defense of the United
States with regard to espionage, sabotage, propaganda ætivi-
ties or otherwise. An increasingly large number of Agents is
being exclusively assigned to this type of investigation and
the volume of investigative activity necessary in connection
therewith is constantly increasing at a very rapid rate.
As en illustration of the amount of investigative
activity being expended in this connection, I wish to point
out that in the City of New York alone there are believed to
be at least three thousand, seven hundred foreign accounts,
which should be very carefully and minutely scrutinized ae to
daily activity relative to the possibility that funds from
these accounts are being utilized in connection with sub-
versive activities within the United States. The above number
does not, of course, take into account at all the large amount
of investigative activity entailed in connection with in-
vestigating additional accounts into which funds from the
above-mentioned sources may be traced. Of course, it will be
Regraded Uclassified
106
- 2 -
realized that the circumstances referred to above require the
detoiling of a large amount of investigative personnel to
this type of activity, which personnel would otherwise be en-
enged in conducting other highly important investigations in
connection with the national defense. The matter of checking
with regard to French funds in the United States was referred
to above. However, I should, of course, point out that in-
vestigative activity necessary in this connection is negligible
when compared with the amount of activity necessary in con-
nection with the funds of such countries as Germany, Rissia,
Italy and Japan, due, in large measure, probably, to the fact
that & rigid system of control is being exercised in the United
States of French funds. Inasmuch as no system of control is
being utilized with regard to German, Italian, Russian and
Japanese funds, there ie a much larger number of constantly
active accounts, some of which are particularly significant
and important, and it has not been possible to definitely
determine the use to which a large amount of these funds is
being put,
It has not been possible, to date, to cover every
German, Italian, Russian and Japanese account due to the
tremendously large amount of personnel which this would require.
Efforts are being made to closely monitor & total of one
hundred and seven German, Italian, Japanese and Russian
accounts in one city alons, these being distributed among
twenty-four large and important banking institutions.
Às an illustration of the necessity for constent in-
vestigative activity relative to accounte of this kind, it
will be recalled that recently information W&B obtained in-
dicating that representatives of the Italian Government were
taking funds in excess of four million dollars to two Latin-
American countries within the Western Hemisphere, following
cash withdrawals totaling the above amount from banke in the
United States. Specific information is not possessed as to
the exact purpose for these transferals, although it 1s, of
course, highly significant that such large transfers of cash
Regraded Uclassified
107
- 3 -
should be handled by messengers rather than through banking
facilities.
Upon recent occasions, bills traced by serial
numbers from the account of the German Consulate in New York
City are known to have been received by firms and organiza-
tions suspected of being engaged in propaganda activities,
these being recipient of constant investigative attention by
the Federal Bureau of Investigation at the present time. The
German Library of Information, a well-known German propaganda
agency in New York City, is known to have received a quantity
of funds withdrawn from the account of the German Consulate.
Upon at least one occasion, funds from a foreign bank account
within the United States have been traced to an individual
definitely known to be in constant association with 8. group
of foreign espionage agents.
The above is being furnished for your information,
as I particularly wanted you to know of the activities being
conducted by the Federal Bureau of Investigation in connection
with foreign funds within the United States, and you may be
assured that additional information of interest will be
furnished to you in this connection.
Sincerely yours,
(signed) J. EDGAR HOOVER
TREASURY DEPARTMENT
108
INTER OFFICE COMMUNICATION
DATE December 2, 1940
TO
Secretary Morgenthau
FROM Mr. Cochran
STRICTLY CONFIDENTIAL
The Federal Reserve Bank of New York reported the following transactions in
German accounts maintained with the Chase National Bank,
Date
Amount Credited
Account Credited
Received From
Nov. 30
$ 50,000
Banco di Roma, Rome
Credito Italiano, N.Y.
68,000
Administration Pontifi- Banco di Roma, Rome
cial par la Opere Rel-
igione, Vatican City
100,000
Credito Italiano, N.Y. Banca de Napoli Trust Co.,
N.Y.
THUS
109
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE December 2, 1940
Secretary Morgenthau
TO
Mr. Cochran
FROM
STRICTLY CONFIDENTIAL
Official sales of British-owned dollar securities under the vesting order
effective February 19:
No. of Shares
$ Proceeds of
Nominal Value
$ Proceeds of
Sold
Shares Sold
of Bonds Sold
Bonds Sold
November 25
38,492
1,138,138
56,000
46,068
26
12,768
408,477
41,000
31,931
27
5,725
172,248
4,000
1,528
28
5,000
338,550
Nil
Nil
29
2,516
130,733
7,000
4,534
30
1,800
106,581
42,000
29,878
66,301
2,294,727
150,000
113,939
bales from
February 22
to November 23
2,120,023
74,226,250
5,456,500
4,228,252
TOTAL FEBRUARY 22
TO NOVEMBER 30
2,186,324
76,520,977
5,606,500
4,342,191
Mr. Pinsent reported sales of non-vested securities for the week ended
November 23 totaled $500,000.
June
Regraded Uclassified
110
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
STRICTLY CONFIDENTIAL
DATE December 2, 1940
TO
Secretary Morgenthau
FROM
Mr. Klaus
FBI reports:
November 25. A biographical report on Wyndham Mortimer of the CIO Auto-
nobile Workers Union, now organizing the aviation industry, charges that he
is high in the councils of the Communist Party. It is indicated that at a
secret meeting of Communist leaders in connection with the Eleventh National
Convention of the Communist Party in New York City May 30, 1940, D. z. Manuilsky,
representing the Comintern, stated that when the Communists would have to oper-
ate underground instructions from Moscow were that all "legal" work should be
done through agencies not known to be under Communist influence.
November 25. The FBI 18 communicating with Mrs. Niedfelt, who, in an
affidavit filed in a divorce suit against her husband in Nebraska November 23,
1940, charged her husband was working with agents of the German government in
espionage and sabotage.
ne
Decraded
111
December 2, 1940
9:30 a.m.
H.M.Jr:
Hello.
William
Knudsen:
Yes.
H.M.Jr:
Henry.
K:
Hello, Henry.
R.V.Jr:
How are you?
X:
Pretty good. How are you?
H.V.Jr:
Bill, are you alone?
E:
What's that?
H.Y.J.:
Can I talk to you? Are you so that you can
talk?
Y:
Oh, just a second. Just a second. (Pause.)
Go ahead.
H.V.Jr:
Saturday morning Sir Walter Layton came in to
see me and laid on my desk orders that they
want to place amounting to a little over $2
billion.
X:
Yes.
M.M.Jr:
I took it yesterday to see the President and
he told me he wanted us to go shead. Now, I
didn't have very much time with him but he simply
said, I want them to 20 shead, increase American
production and take care of the orders. Now, I'm
asking - I'm trying to arrange for you, Stimson
and Knox and Jones to get together with me
tomorrow afternoon, because I want to lay before
you just what the English assets are.
KL
Yes,
H.M.Jr:
And I want to share the responsibility with all
of you because it 18 too big for me to take
alone.
K:
(Laughs). All right.
Regraded Uclassified
112
- 2 -
H.M.Jr:
See?
K:
All right.
H.M.Jr:
I mean - I'm going to ask you - either we all
sink or swim together but I cen't take this
alone, see, and Stimson said he could come at
3:00 tomorrow.
X:
3:00?
H.M.Jr:
Would that be all right with you?
K:
Sure.
H.".Jr:
O. K., and there is no use sending stuff out
in advance I don't think.
X:
What do you mean sending stuff out in advance?
H.".Jr:
Well, I mean
.....
K:
Well, it's the A and B schedule isn't it?
H.M.Jr:
Well, I don't think anybody has seen this before,
I don't know. It's stuff for airplanes, stuff
for bombs, this U.S. Ordnance program, tanks
and ships.
Y:
Uh-huh. Well, what's he done about his A and
B program?
H.V.Jr:
A. and B?
K:
Yeah, you know the thing we were fussing around
with so long. He turned that over to Secretary
Stimson. Do you remember that?
H.M.Jr:
Well, this 16 the program that Stimson said
O. K. on.
K:
Oh, this 18 it.
H.N.Jr:
Well, this 1s only part of it.
K:
This 18 part of it.
H.M.Jr:
Well, the A amounts to $600 million and the B,
375. He's got it divided A, B, 0 here.
K:
Oh. Now the A 18 600
.....
113
- 3 -
H.M.Jr:
The A 18 600, B 18 75 and C, which 1e tanks and
tank guns, is 100.
x
I see.
H.M.Jr:
Then he's got in here
.....
K:
That's 775 million.
H.M.Jr:
That's right. Then he's got 125 for armaments,
bombs, radios, et cetera; 1 billion and 75 for
aircraft; and 87 for merchant ships - total
$2 billion and 62. That's the program.
K:
Well, he must include his 12,000 airplanes and
his A and B program.
H.M.Jr:
That's right.
K:
So all we need to talk about 18 what is beyond
that, huh?
H.M.Jr:
Well, no, about this because how are we going
to finance it. See?
K:
Uh-huh. All right.
H.M.Jr:
And Stimson's position 18 that it's O.K. to
order it but he won't take - he hasn't taken
any financial responsibility.
K:
Well, I saw his letter to Sir Walter Layton.
H.M.Jr:
Yeah.
K:
Yeah. All right.
H.M.Jr:
3:00 tomorrow?
K:
.Yeah.
H.M.Jr:
Thanks.
114
December 2, 1940
9:36 a.m.
H.".Jr:
Good morning.
Jesse
Jones:
Good morning.
H.M.Jr:
Hello, Jesse.
J:
Yeah.
H.V.Jr:
Jesse, I've got two things that I want to see
you about.
J:
O. K.
H.M.Jr:
One, tomorrow afternoon at 3:00 o'clock I've
asked so far Stimson and Knox and Knudsen and
you and somebody from the State Department to
go into this latest program that the English
want - the 2 billion and 62.
J:
Yeah.
H.M.Jr:
And I want to give you fellows a confidential
report on what their assets are and then where
do we go from here.
J:
I'll be there.
H.M.Jr:
But I'd like to share the responsibility.
J:
O. K.
H.M.Jr:
Now, that's No. 1. No. 2, I'm ready to talk
Argentine with you tomorrow morning if you want
to.
J:
I'll be ready.
H.M.Jr:
What time suite you in the morning?
J:
I think the most convenient time for you will
be agreeable to me.
H.M.Jr:
Well, 10:00 or 11:00. Which suite you better?
115
- 2 -
J:
Well, I'd rather make it 11:00 than 10:00, or
10:30. I don't get through my mail quite by
10:00.
H.M.Jr:
10:30?
J:
That will be fine.
H.M.Jr:
Now, do you want the Argentinians here, or
do you want anybody else here afterwards? Do
you want Sumner Welles here - or just you and
me?
J:
Suppose you and I talk, Henry, and then we'll
make our plans.
H.M.Jr:
10:30 you and I.
J:
Yeah.
H.M.Jr:
And then again at 3:00.
J:
Yes, and then that's 3:00 - that's tomorrow
afternoon. Both dates tomorrow.
H.M.Jr:
Both tomorrow if you can stand that much.
J:
0. K., I can.
H.M.Jp:
All right.
J:
Good-bye.
<
116
December 2, 1940
9:39 a.m.
H.M.Jr:
Hello.
Operator:
Secretary Knox - a Captain Deyo - D-e-y-o.
H.M.Jr:
All right. Hello.
Captain
Deyo:
Hello.
H.M.Jr:
Captain Dayo?
D:
Yes, sir.
H.".Jr:
Good morning.
D:
Good morning, sir.
H.M.Jp:
Captain, tomorrow afternoon at 3:00 o'clock
in my office, I'm having a confidential meeting
with Mr. Stimson, Jones, Knudsen and I want
Colonel Knox. The subject 18 the most recent
order that the English want to place here.
D:
I see.
H.M.Jr:
And it's largely a financial question.
D:
Yes, sir - largely financial.
H.M.Jr:
Yes, but also of policy.
D:
Yes.
H.M.Jr:
Now, Mr. Stimson 18 bringing with him his
Assistant Secretary and Chief-of-Staff, Bo
Mr. Knox 1s free to bring whomever he wishes.
D:
All right, sir. Would it be more appropriate
to bring the financial man?
H.M.Jr:
No, it's - I mean, if Mr. Forrestal 18 in town,
I'd like very much to have him.
D:
All right, sir, I'll tell him that.
H.M.Jr:
Yeah, I think if he's here he ought to come.
117
- 2 -
D:
Yes, he 18 here now. He's back.
H.M.Jr:
Good.
D:
All right, sir. Thank you.
H.M.Jr:
Well, if I don't hear again, I'll expect him
here at 3:00.
D:
Oh, yes, he'll be there all right, Mr. Secretary.
H.M.Jr:
Thank you.
D:
Yes, sir.
118
December 2, 1940
4:49 p.m.
H.M.Jr:
Hello.
Sumner
Welles:
Hello, Henry.
H.M.Jr:
Ambassador Lothian 18 here with me.
W:
I see. Well, can I interrupt you for a
moment?
H.M.Jr:
Please.
W:
I want to congratulate you first of all on
this morning. I hear it went off magnificently.
H.M.Jr:
Well, Mr. Hull was magnificent. He really was
grand.
W:
Well, that's fine, but I just wanted to tell
you I was awfully pleased with the outcome.
H.M.Jr;
Yeah, it went off beautifully.
W:
Two other questions. In the first place Mr. Hull
told me that you were having a meeting sometime
this week on this
.....
H.M.Jr:
3:00 o'clock tomorrow.
W:
It's tomorrow is it?
H.M.Jr:
At 3:00.
W:
About how long will it take, can you tell me?
H.M.Jr:
I think it would take a full hour.
W:
Not more?
H.M.Jr:
No, no.
W:
Then I'll arrange to cancel appointments because
I'm these days jammed, but I wanted to be there.
H.M.Jr:
It will take a full hour.
119
- 2 -
W:
Had I better take somebody with me? Feis - is
that all right.
H.M.Jr:
Ah - yes.
W:
Well, all right. Now the third thing is
Argentina.
H.M.Jr:
Yes.
W:
Do you feel satisfied about going ahead now
in view of this morning's result?
H.M.Jr:
Well, Jesse and I start on that at 10:30
tomorrow morning. He wanted to see ne alone.
W:
Oh, Jesse. I see.
H.M.Jr:
Jesse is coming here at 10:30 tomorrow morning.
W:
All right. Well, after that will you let me
know the result?
H.M.Jr:
Yes. He said he'd like to talk to me first.
W:
Yes. All right, Henry.
H.M.Jr:
I mean, that's when I was starting it, and then
from then on I'll keep after it until we clean
it up.
W:
That's grand.
H.M.Jr:
But we're starting - - Jesse and I - - at 10:30
tomorrow.
W:
All right. That's fine.
H.M.Jr:
Now what else?
W:
That's all. I'll see you tomorrow at 3:00.
H.M.Jr:
But this thing went off all right and having
Mr. Hull up there helped a lot.
W:
Well, that's fine. I'm awfully pleased about it.
Good-bye and thanks.
H.M.Jr:
All right.
120
December 2, 1940
5:21 p.m.
H.M.Jr:
Hello.
Robert
Doughton:
Hello, Henry. How are you getting along?
H.M.Jr:
Oh, wonderful. How are things by you?
D:
Well, I'm not complaining or bragging either
one.
H.M.Jr:
I 800.
D:
Never do much of either.
H.M.Jr:
I see.
D:
I thought maybe from what you said the other
night that you'd got an idea that I was stirring
up this tax question and was rather premature
on it.
H.M.Jr:
Oh, I was doing & little kidding.
D:
How?
H.M.Jr:
I was teasing you a little bit.
D:
Well, I thought perhaps 80 but I wanted you to
understand it exactly, if you didn't. I said
to the President, when I was down here some two
weeks ago and he was courteous enough and kind
enough to talk to me awhile about things in
general, that if we were going to have a tax
bill at all, if that wae his purpose - to call
on us for a tax bill, that I thought that &
conference sometime pretty soon in which you,
and the Senators and one or two from our
Committee with him would participate - why it
might be helpful.
H.M.Jr:
Yeah.
D:
And he just jumped right at it like a trout at
a grasshopper and went right to work for making
the - he seemed to be pleased with it and told
Colonel Watson to contact Senator Harrism, who
was out of the city, and see if he could meet
Regraded Uclassified
121
- 2 -
with us last Friday night, and he'd let me
know at once, and that afternoon he called me
and told me the plans were arranged - the
meeting was arranged.
H.M.Jr:
Well, I was just doing a little teasing, Bob.
D:
I'm not anyways anxious to get into any
headache or stomach ache either over excess
profits. You know what agony - how we went
through & Garden of Gothsemane on that.
H.M.Jr:
Yeah, now listen, old pal, don't you go
sensitive on me.
D:
How's that?
H.M.Jr:
Don't you get sensitive on me.
D:
Sensitive.
H.M.Jr:
Yeah, I mean, I want to feel that you could
tease me and I can tease you.
D:
Well, no, I wasn't being sensitive about it
but I just thought maybe you'd think I was
pushing it 8 little prematurely.
H.M.Jr:
No, no, no.
D:
Well, sometime, while I'm - will you have a
little time tomorrow?
H.M.Jr:
Well, tomorrow is a bad day but Wednesday is
better.
D:
Well, if I'm here Wednesday. Nothing urgent at
all. I just wanted to kind of talk over the
general situation. That can wait all right until
I come back.
H.M.Jr:
Well, I tell you, I've got a hell of a day
tomorrow, but if Bob Doughton wants to see me,
I'll drop everything.
D:
It's not that important. - when you don't have
a heavy day .....
H.M.Jr:
I'll always drop anything for you.
122
- 3 -
D:
No, no, it's not that important. I just wanted
to discuss the matter generally with you and I
can do it when I come back.
H.M.Jr:
O. K.
D:
But if I stay over Wednesday, I'll call you up
Wednesday morning.
H.M.Jr:
You do that and I'm at your service.
D;
Well, thank you. You're always kind and
courteous and fair and square in every way.
H.M.Jr:
Well, that's both ways.
D:
Well, thank you very much. Good-bye.
123
STRICTLY CONFIDENTIAL
ALLISON SHIPMENTS
: Oct. : Oct. : Oct. :Oct. 27: Nov.: Nov.: Nov.: Nov.: Total
: 6-12 :13-19 :20-26:-Nov. 2: 3-9 :10-16:17-23:24-30:
British
67
52
37
69
41
49
16
53
384
Army
6
9
11
11
3
-
3
3
46
Navy
-
-
-
-
-
-
-
-
-
Total
73
61
48
80
44
49
19
56
430
Office of the Secretary of the Treasury,
Division of Research and Statistics.
December 2, 1940.
124
December 2, 1940
CONFIDENTIAL
Dear Mr. Knoke:
Please let me acknowledge. on behalf of
the Secretary, the receipt of your letter dated
November 28, 1940, enclosing your compilation
for the week ended November 20, 1940. showing
dellar disbursements out of the British Empire
and French accounts at the Federal and the
BOGRS by which these expenditures were financed.
Faithfully yours.
(Signed) H. Merle Cochr
E. Morlo Cechran
Technical Assistant to the Secretary
L. V. Knoke, Require,
Vice President.
Federal Reserve Bank of New York.
New York, New York.
HM0:lap-12/2/40
Regraded Uclassified
125
FEDERAL RESERVE BANK
OF NEW YORK
November 28, 1940.
CONFIDENTIAL
Dear Mr. Secretary: Attention: Mr. H. Merle Cochran
Pursuant to Mr. Cochran's request, I enclose our
compilation for the week ended November 20, 1940, showing
dollar disbursements out of the British Empire and French
accounts at this bank and the means by which these expendi-
tures were financed.
Faithfully Whim yours,
L. W. Knoke,
Vice President.
Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. C.
Enclosures
yeor
SET
BVD NON 30 yes 821 21
BECEINGO
10
126
ANALYSIS OF BRITISH AND FRENCE ACCOUNTS
Strictly
(In Millions of Dollars)
Week Ended November 20, 1940. Confidential
BANK OF EXCLAND (BRITISH GOVERNMENT)
BANK
OF
FRANCE
DEBITE
CREDITS
DEBITS
CREDITS
Proceeds of
Other Net Inor.
Net Inor.
Gov't
Sales of
Credito
(+) or
Givit
Presendo
(+) or
Total
Expendi-
Other
Total
Securities
(incl.
Door, (-)
Total
Expendi-
Other
Total
of Gold
Other
Detr. (-)
PERIOD
Dobito
tures(a)
Debits
Crodits
Grid
(Ect.) (b)
adj'ts)
in Balanne
Debits
tures(s)
Debits
Credita
Sales
Credits
in Balance
1939
Aug. 31 - Sept.27
94.3
3,6
90.7
207.8
185.4
33.6
-11.8(d)
+113.5
19.4
6.0
13.4
11,3
-
11.3
- 8.1
Sept.28 - Hiv, 1
106.7
5.8
100.5
142.0
3.2
52.6
B6.2(e)
. 35.3
88.6
1
76.2
35.0
41.2
- 18.4
si.e
105.4
Inv. = - 29
191.7
8.9
182.8
105.6
57.8
25.0
23.0
- 85.9
78.6
)
82.2
55.1
27.8
ir 4.3
llov, 30 - Jun. 3
97.7
8.7
69.0
75.2
50.6
14.8
10.4
- 23.5
86.8
28.1
58.7
109.2
93.2
15.3
+ 26.4
1940
Jun. 4 - 31
54.8
16.8
36.0
43.4
20.6
17.8
5.0(f)
- 11.4
61.5
31.5
30.0
55.9
50.1
5.8
- 5.5
Feb. I - 28
124.8
15.4
108.8
108.3
56.7
17.2
33.7
- 15.9
72.7
32.8
39.9
71.5
54.8
18.7
- 1,2
Feb. 29 - Apr. 3
115.5
14.5
101.0
94.0
60,9
21,5
11.6(c)
- 21.5
99.6
35.9
63.7
105.0
75.4
£9.6
. 5.4
Apr. 6- - May
1
113.4
26.1
87.3
86.4
46.8
13.4
26.2(h)
- 27.0
84.8
20.4
55.4
78,7
60.7
18.0
- 6.1
May 2 - 29
100.9
23.6
77.3
126.2
93.2
7.1
25.9
+ 25.3
101.4
57.0
44.4
145.4
126.2
19.2
- 44.0
May 30 - July 3
283,2
145.3
137.9
319.3
301.3
5.1
18.9
36.1
(156.7(1)
127.3(1)
29.4
345.1(i)
335.6
9.5(1)
+188.4
July 5 - 31
249.7
156.7
93.0
225.0
212.2
2.0
10.8
- 24.7
7.3
6.3
1.0
3.2
3,0
0,2
- 4.1
Aug. 1 - 28
261.1
180.2
80.9
294.8
267.
1.0
26.4(1)
+ 33.7
8,9
0.5
8.4
10.9
10.4
0.5
4 2.0
First year of war
1293.2
605.6
1,187.6
1,828.2
1,356.1
211.2
250.9
+ 35.0
B66.3
416.6
649.7
1,095.3
900,2
195.1
+819.0
Ang. 39 - 011. 2
316.8
244.3
72.3
300.0
271.5
6.0
31.4(k)
- 7.9
8.6
6,4
4.2
1.3
-
1.3
- 7.3
Oct. 3 - 30
196.7
167.8
28.9
198.5
160.5
6.0
32.0(1)
1.8
0.5
0.3
0,2
0,5
-
0.5
-
Oct. 31 - Nov. 27
Nov. 28 - Dec. 31
WEEK ENDED
Nov. 6
55.4
47-7
7.7
61,2
47.2
6.0
8.0
t 5.8
0.4
0.1
0.3
0.2
-
0.2
- 0.2
13
74,6
62.8
11.8
76.5
62.2
4.0
10.3
+ 1.9
-
-
-
0.1
-
0.1
+ 0.1
20
52.4
31.6
20.8
64.5
50.6
6.0
7.9
+12.1
0,4
-
0,4
0.2
-
0.2
- 0.2
Avorage ockly Expenditures Since Outbreak ni Car
Transfero frrm British Purshasing Commission to
France (through June 19)
Bank of Conada for Prench Account
(See fontantés (in reverse olde)
$19.6 million
"leek ended November 20
$
million
England (through June 15)
27.6 million
Cusulation from July 6
87:5 million
England (since June 19)
60.4 million
(a) Includes payments for account of British Purchasing Commission, British Air Ministry, British Supply Board, Ministry of Supply Timber
Control, and Ministry of Shipping.
(b) Through June 19, these figures represent total sales of American securities in Second District reported for assount of the United Kingdom.
(Proceeds of these sales, however, may not have been credited to the Bank of England's account in all cases.) Beginning with the week ended
June 26, the figures represent transfers from the Bank of Montreal, Now York Agency, which is custodian for requisitioned American securities
held in this country. The transfers apparently reflect proceeds of official security sales, including those handled through private deals.
From June 17 to July 19, transactions in securities payable in specified foreign surrencies, including dollars, by United Kingdom residents
were prohibited.
(o) Includes payments for account of French Air Commission and French Purchasing Commission.
(d) Includes adjustment for (b) above.
(e) About 885 million transferred from accounts of British authorized bunks with New York banks.
(f) About $11 million transferred from accounts of British authorized banks with New York banks.
(g) About $8 million transferred from accounts of British authorized banks with New York banks.
(h) About $10 million transferred from accounts of British authorized banks with Now York banks.
(1) Adjusted to eliminate the effect of $20 million paid out on June 26 and returned the following day.
(1) About $2 million transferred from accounts of British authorized tanks with New York banke.
(k) About $2 million transferred from accounts of British authorized banks with New York banks.
(1) About $4 million transferred from accounts of British authorized banks with New York banks.
(m) About $2.2 million received from Federal Reserve Bank of Boston for use of Commonwealth Bank of Australia.
TO THE SECTETARY
TECHNICAL ASSIX ANT
711 to 71110
is 8 WV O; NON 0761
TAF DEPARTMENT
RECEIVED
127
ANALYSIS OF CANADIAN AND AUSTRALIAN ACCOUNTS
Strictly
(In Millions of Dollars)
Week Ended Nov. 20, 1940.
Confidential
BANK
OF
CANADA
COMMONWEALTH BANK OF AUSTRALIA
DEBITS
CHEDITS
DEBITS
CREDITS
Transfers
Transfers
to
Proceeds
Transfers from Official
Not Inor.
to
Proceeds
Net Incr.
Total
Official
Other
Total
of
British A/C
Other
(*) or Total
Official
Other
Total
of
Other
(+) or
Debite
British
Debite
Credits
Gold
For Own
For French
Credita
Door. (-) Debits
British
Debits
Credits
Gold
Credits
Decr. (-)
PERIOD
A/C
Salos
A/C
A/C
in Balance
A/C
Sales
in Balance
1939
Aug. 31 - Sept. 27
17.5
0.6
16.9
21.8
15.1
0,8
-
5,9
+ 4,3
-
-
-
-
.
I
#
Sept.28 Nov. 1
9.6
0.3
9.3
16.7
7.3
2.1
-
7.3
+ 7.1
-
,
1
I
-
-
-
Nov. 2 - 29
9.9
0.7
9.2
14.4
13.3
-
-
1.1
+ 4,5
1
I
1
1.9
1,9
-
+ 1.9
Nov. 30 - Jan. 3
30.0
-
30.0
32.8
13.3
3.0
-
6.5
- 7.2
2,5
-
2.5
5.8
5.8
-
+ 3.3
1940
Jan. 4 - 31
23.5
E
23.5
25.7
21.1
I
-
4.6
+ 2.2
5,2
0.3
4.9
3.3
3,0
0.3
- 1.9
Fob, 1- 28
23.1
-
23.1
17.0
16.1
-
I
0.9
- 6.1
3.3
0.1
3.2
2,4
2.2
0,2
- 0.9
Feb. 29 - Apr. 3
42.3
-
42.3
29.5
29.3
-
-
0.2
- 12,8
3.0
0.3
8,7
2,2
1,6
0.6
- 0.8
Apr. 4- May
1
35.2
1
23.2
42.9
24.8
15.0
-
3,1
+ 4.7
2.3
.
2,3
2.0
1,8
0.2
- 0,3
May 2 - 29
37.9
15.0
37.9
50.2
50,0
-
-
0.2
+ 12.3
1,2
0,2
1,0
2,6
1,7
0.9
+ 1.4
May 30 - July 3
44.1
I
44.1
72.5
72.2
-
-
0,3
+ 28.4
2.3
-
2.3
5.9
4.4
1.5
- 3.6
July 4- 31
S8.2
-
28.2
117.6
96.3
-
19.2
2.1
+ 89.4
4.6
-
4.6
5.0
4.2
0.8
+ 0.4
Aug. 1- 25
16.7
-
18.7
73.6
53.9
-
19.5
0.2
+ 54.9
6.8
I
6.8
5.0
3.4
1,6
- 1.8
First year of war
323.0
16.6
306.4
504.7
412.7
20.9
38.7
32,4
+181.7
31.2
0.9
30.3
36.1
30.0
6.1
+ 4,9
Aug. 29 - Oct. 2
44.3
,
44.3
43.9
16.4
-
27.3
0.2
- 0.4
6.7
-
8.7
8.0
6,7
1,3
- 0.7
1. 3 - 30
26.7
1
26.7
28.6
14.0
-
14.3
0.3
+ 1.9
10.1
7.5
2.6
7.9
6,5
1.4
- 8.2
31 - Nov. 27
Nov. 28 Dec. 31
WEEK ENTED
Boy. 6
10.2
-
10,2
22.0
15.5
-
6.4
0,1
+11.8
0,8
-
0.8
0.1
-
0,1
- 0.7
13
4,6
-
4,6
3.5
3.5
-
-
-
-1.1
0,1
0,1
.
2.6
2.1
0.5
+ 2.5
20
12.2
-
12.2
33.3
29.7
-
O.T
2.9
+21.1
1.1
0,4
0.7
0.7
-
0.7
- 0.4
Teekly Average of Total Debits Since Outbroak of War (Canada alone)
Through November 20
$ 6.6
million
LM
128
EXPORTS OF PETROLEUM PRODUCTS, SCRAP IRON AND SCRAP STEEL
FROM THE UNITED STATES TO JAPAN, RUSSIA, SPAIN, AND GREAT BRITAIN
AS SHOWN BY DEPARTURE PERMITS GRANTED
Week ended November 30. 1940
:
JAPAN
:
RUSSIA
:
SPAIN
:
:
:
GREAT BRITAIN
:
:
TTROLEUM PRODUCTS
Fuel and Gas 011 (including
Diesel 011)
104,206 Bbls.
---
96,100 Bble.
---
Crude -
Blended or California
High Octane Crude*
86,000 Bbls.
---
---
---
All Other Crude
184,696 Bbls.
---
---
---
Gasoline -
Gesoline À
---
---
---
Gasoline B
.
212,440 Bbls.
---
---
All Other Gasoline
35,333 Bbls.
---
i
!
pricating 011 -
Avintion Lubricating 011 ...
16,627 Bbls.
---
All Other Lubricating 011
98,820
---
2,000 Bbls. 37,416 Bols.
Tetracthyl Lend ...
---
---
---
---
"Boosters", such as Iso-
Detane, Iso-Hexane, or
Iso-Pentane
---
---
---
---
CRAP IRON AND SCRAP STEEL
Sumber 1 Heavy Melting Scrap
1,489 Tons
---
---
6,082 Tons
411 Other Scrap
3,298 Tons
---
---
8,012 Tons
ffice of the Secretary of the Treasury, Division of Research and Statistics.
December 2, 1940.
Pirce: Office of Merchant Ship Control, Treasury Department.
Any material from which by commercial distillation there can be separated
more than 3 percent of aviation motor fuel, hydrocarbon or hydrocarbon
sixture - President's regulations of July 26, 1940.
Aviation Gasoline,
4a defined in the President's regulations of July 26, 1940.
129
EXPORT-IMPORT BANK OF WASHINGTON
WASHINGTON
Warren Loe Pierson
Cable Address
President
"Eximbank"
December 2, 1940
My dear Mr. Morgenthau:
The Credit Martiniquais, Fort-de-Frence, Martinique,
made a general inquiry of this Bank regarding the possibility
of obtaining an exchange credit to permit the purchase in
this country and exportation to Martinique of urgently needed
products.
In response to our request for pertinent information
the Credit Martiniquais wrote to us, under date of November 23,
as per copy enclosed.
It will be sppreciated if the Department will indicate
the nature of the comments, if any, which it will be appropriate
for this Bank to make regarding the sections of the Credit's
letter marked in margin with red pencil.
Sincerely yours,
/s/ Warren Lee Pierson
President
Enclosure.
The Honorable
Henry Morgenthau, Jr.
Secretary of the Treasury
imc
Regraded Uclassified
130
CPEDIT MARTINIQUAIS
Port-de-Irruce
Fort-de-Frence, le November 23d. 1940
(Vertinioue)
PAR AVION
Export Import Sank of Washington
Washington
Gentlemen,
Your letter dated October 26th has been received,
We fully appreciate the kindness you have shown In your
realy and are pleased to furnish you the information you require.
REGULATIONS COVERING IMPORTS.- Importe of foreign goods are prohibited
unless a license is obtained from the authorities. A commission has been
annointed to examine the suplications made by merchants. The object
searched is to limit imports. Preference suplications 1e given in the fol-
lowing order!
1 Foodstuffs
2
Clothing
3
Sumplies for industry. fertilizers and petroleum products
Import of luxury goods is avoided. Automobiles, sundry items etc. are
authorized for normal necessities.
The commission who operates in Martinique sits weekly.
EXCHANGE LICENSES.- An immort license entitles the beneficiary to obtain
exchange from en authorised dealer in foreign exchange. Exchange 1s also
supplied by the Exchange Control Board for traveling expenses, insurance
remium, old debte etc..
Exchange ie supplied to Kertinique by the French Government and due to the
fact that all french assets are now frozen in the United States. the above
regulations cannot work satisfactorily for transactions in U S A dollars.
So far, the licenses are valid when the Treasurer of the United States give
the necessary licenses to transfer funds from the accounts of the French
Government to the credit of the account of Banque de le Martinique (Benk
of issue) with the French American Banking Corporation; incidentally private
French Weet Indian banks like ours would like to obtain a general license
No. 14 granted to banks in Netherland West Indies.
We would appreciate your opinion on this subject as we would
like to receive the same treatment by the United States as this accorded to
our competitors.
lap
Regraded Uclassified
131
Sheet No. 2, Nov. 23d, 1940
Export Import Bank of Washington
Washington
TRADE WITH THE UNITED STATES.- As you are probably avare, in peace time,
our island used to export all its products to France, where they enjoyed
a fine protection, this explains why our products to U. S. were nil.
Regarding our imports, 1/5 of the transactions were made with
the U. S. The main products purchased on your market consisted of:
Flour
Beef
Potatoes
Machinery
Automobiles and automobile parts
Tyres
Lumber
Shook and Staves
Fertilizers
Other products were imported from Latin America and were paid
in dollars. Our purchases vere made of:
Foodstuff
Cattle
Petroleum products etc.
Now, we can hardly import from France and Europe and we must turn
our eyes to your country.
We attach herewith a statement showing:
1 Normal quantity imported of required goods
2 Kinimum required in our opinion
3 Approximate value of goods
ESTIMATE OF OUR EXPORTS.- The principal products of Martinique now are:
Sugar
60 000 tons
Run
18 millions liters at 55°
Bananas
Canned Pine Apples
We assume it will be possible to sell small quantities of bananas in New
York, presumably 150 000 stems in the lot year and the export in two or
three years could reach 20 000 tons. As you are probably awere, the fruit
grown here does not fit the Americans' taste. But as we may organize
ourselves to produce "Gros Michel" there is every likelyhood that we will
be able to take a share of the American market.
The consumption of rum is very limited in America. It will be
possible to sell high grade TUB in small quantities. Possibly Mexico may be
& good customer for ordinary brand. Alcohol may be produced in large quantities.
Regraded Uclassified
Sheet No. 3. Nov. 23d, 1940
Export-Import Bank of Washington
Washington
132
Production of other products may be forecasted.
General.- Export of all products is prohibited unless a special license is
authorized by local authorities.
For the present time, and as we have resumed our exports to France. we
assume that provided the Treasurer of the United States agrees to authorise
transfers to the credit of Martinican Banks from frozen assets owned by the
French Government and being part payment of our exporte. ve may not need
your immediate cooperation.
The amount required for normal needs should not exceed $: 400 000
per month. We see no reason why the Treasurer of the United States could
not grant a license for this amount which does not exceed the minimum re-
quirements of Martinique. It is obvious that we will not reexport articles
badly needed here; if this was apprehended can you help us in this particular
point.
If an arrangement of this sort could be reached. we will have more
time to study the situation of the American market and to produce plants of
an easy sale in U. S. A.
Assuring you of our best cooperation. we are
Yours truly,
CREDIT MARTINIQUAIS
s/ 7
Le Directaur
NB.- Statement announced above
will follow by ordinary mail.
ehicopy
Regraded Uclassified
133
OFFICE
e
TREASURY DEPARTMENT
WASHINGTON
The
December 2, 1940.
Memorandum for the Secretary:
Subject: Notes on West Indies trip
1. In accordance with your orders Admirel Waesche
has been advised of your desire to have an additional
nerborcraft assigned to San Juan to elternate with the
present AB boat there, which is on 24-hour duty status
and can not take time off for necessary engine overhaul.
2. You ssked to be reminded to check as to why
Customs operated their own boat in San Juan instead of
turning this boat over to the Coast Guard, which would
furnish transportation for Customs officers in accordence
with your orders of some time ago.
3. The following information was given to you by
Lieutensnt Commander Johnson, USN, et St. Thomas:
The SS America on her first trip into
St. Thomas could not get the engines started
on her two large motor boats. On her second
trip she had borrowed boats and could not get
the engine on one of these started. On her
third trip into St. Thomas she could not get
the hoist to operate for-one boat and was
thereby delayed in sailing. On the last trip
the forward fell of E boat being lowered be-
came unhooked end the crew and boat gear were
dropped about fifty feet into the water leav-
ing the bost suspended by the after fall.
4. In connection with the establishment of a seaplane
buse in St. Thomas, the following information wes obtained
from local Navy and Marine Corps Officers (see attached
shert):
1. The present plans cell for establishment
of at seaplane base on part of the Marine reser-
vation on Lindbergh Bay with 8. ramp at point "A".
Regraded Uclassified
134
Memorandum for the Secretary -2-
December 2, 1940.
Lindbergh Bay, according to information re-
ceived, is not large enough for seaplane
operations. In taking off planes would be
forced to taxi out to the open water at
point "C" which would be unfavorable due to
rough water.
2. Local officers recommend acquisition
of land east of and adjoining the present
Submarine Base for establishment of the Sea-
plane Base. The planes would then land and
take off in the sheltered area "D" of West
Gregerie Channel.
3. The subject of underground hangers
and fecilities for the Marine land-plane base
was brought up by you and the local officers
pointed out that a site in the side of the
hill at "E" was very favorable from the view-
point of operations as well as feasability of
construction.
NOTH Kay
135
BRITISH EMBASSY,
WASHINGTON, D.C.
December 2nd, 1940.
Personal and Secret
Dear Mr. Secretary,
I enclose herein for your
personal and secret information a copy
of the latest report received from London
on the military situation.
Believe me,
Dear Mr. Secretary,
Very sincerely yours,
Lolaran
The Honourable
Henry Morgenthau, Jr.,
United States Treasury,
Washington, D. C.
136
Telegram received from London dated
November 50th, 1940.
1.
"Javelin" has arrived in harbour, she was
torpedoed shortly after fire opened. "Jackal" chased one
and remainder of flotilla chased two destroyers until
touch was lost in the dark.
B.
During afternoon three enemy bombers shot down
by fighter squadron protecting "Javelin".
3.
Several Italian destroyers bombarded Corfu on
November 28th, fled on the arrival of three British
bombers.
4.
Our bombers on November 28th attacked A/A
vessel at Assab. 81x near misses which probably caused
damage. British cruiser bombarded factory near Mogadishu
November 29th, considerable damage and fires caused. Her
A/C bombed and neer missed a D/F station. "Beaufort" A/C
torpedoed and sank a ship of about 8,000 tone in convoy off
Vlieland p.m. November 29th. "Rangireme" attacked by
raider on November 26th is believed sunk.
One convoy two hundred miles west of Bloody
Foreland and one in the Themes approaches bombed November
29th without suffering any damage.
B.
Convoys. Three convoys totalling ninety-seven
ships have arrived in home waters and an outward-bound
convoy of forty-two shipe has cleared North- Western
approaches.
8.
Italy. Six Wellingtons from Walta delivered a
heavy and successful attack on Port and railway station at
Brindisi. All returned safely.
7/
Regraded Uclassified
137
-8-
7.
Night of November 29th/30th. A total of
45 aircraft were despatched to attack the following
objectives;
Number of
Locality
Targets
Aircraft
Cologne
Hohenzollen Bridge
14 Heavy
Inland Port
Bombers.
Bremen
Naval shipyards
9 medium
4 heavy
Lorient
Naval Dockyard
8 medium
Channel Ports
8 medium
6 heavy
Aerodromes
6 medium
8.
In addition, two heavy bombers were detailed
to lay mines and one to drop leaflets in Puris area.
From the above operations one medium bomber is missing.
9.
German Air Force
Casualties at Liverpool reported about 150
killed, 59 seriously and 247 slightly wounded.
10.
Daylight of November 29th.
Enemy activity was slight: confined to Themes
estuary and south and south-west coasts.
11.
Night of November 29th/30th.
Enemy activity was again heavy and was directed
chiefly against southern London suburbs. The centre and
north were not attacked. About 300 bombers were engaged
including 120 over London. In addition, 25 aircraft were
mine laying. Our night fighters made 82 sorties. There
was very little major damage from bombing, although c
serious fire occurred at one gas works and three suburban
stations on the Southern Railway ware set on fire.
18.
Aircraft casualties in the above operations.
Home/
Regraded Uclassified
138
-3-
(Home front)
Enemy
By days
4 Bombers destroyed.
1 Fighter destroyed.
Total 5.
our losses.
8 aircraft with one pilot safe. One
bomber missing.
Regraded Uclassified
139
BRITISH EMBASSY,
WASHINGTON, D.C.
PERSONAL AND
SECRET.
2nd December, 1940.
Dear Mr. Secretary,
I enclose herein for your
personal and secret inf ormation a copy
of the latest report received from
London on the military situation.
Believe me,
Dear Mr. Secretary,
Very sincerely yours,
Loleran
The Honourable
Henry Morgenthau, Jr.,
United States Treasury,
Washington, D. C.
140
Telegram from Lendon dated 29th November.
1940.
1. NAVAL.
Destroyer patrola encountered Jerman
destroyers off Tanda End early this morning. After
A short engagement the enemy retired on !rest followed
Dy our ships. N.M.S. Javelin hit by two torpedoes
but floating on even keel. One enemy destroyer
believed damaged.
R.
Further reports.
Naval action in western Mediterrenean.
3.
Aircraft report critical demare to enemy ships
D, gun fire. One cruiser, probably eight inch severely
damaged, stopped and on fire. One destroyer stopped
cown by atorn and listing considerably. One destroyer
stopped with o. alight list. our navel aircraft claim
one hit on Littorio class battleship, one almost cer-
tainly an E-inch cruiser. These results by torpedo
bombers.
Our dive bombers obtained two very near
misses on =1% inch cruisers. 10 lest two aircraft.
8.0.0. Berwick twice hit, one Turret out of action, one
officer, seven ratings killed, nine retings wounded.
ship In full service. Two enemy aircraft shot down.
4.
Enemy last reported by our aircraft steaming
north of cast cont of Sardinia.
6. Night of 28th/29th. A total of 02 sircraft
were despatched to attach the following objectives:
/Docality
Regraded Uclassified
141
&
Locality.
Number of
Targets.
Aircraft.
Dusseldorf.
Gasworks, communi-
14 medium.
cations and naval
4 heavy.
armaments.
Mannheim.
Same targets.
26 heavy.
Stettin.
Same targets.
13 heavy.
Chent.
011 targots.
8 medium.
Channel ports.
14 medium.
6 heavy.
6.
Believed that Stettin attack, where weather
conditions admitted of good observation, very success-
ful.
Several fires and large explosions.
7.
In addition four aircraft successfully laid
mines.
8.
One aircraft 1a missing, two others came down
in the aoa, crows safe and one crashed, crew baled out
presumed safe.
9.
German AIr Force.
Night of 27th/28th. Casualties reported
London area, 15 killed, 62 injured. Fires started
in two oil tanks at naval fuel depot at Plymouth were
still burning at 7.30 same this morning.
10. Night of 28th/29th. Enemy activity heavy;
about 350 bombers and 50 mine layers being engaged and
especially directed against Lancashire.
11. Aircraft casualties in above operations (home
front)
Enemy by day - By our Fighters
Bombers
Fighters
Totals
Destroyed
-
5
5
Probable
-
2
2
Damaged
-
-
-
Regraded Uclassified
142
÷
Our losses: 8 fighters, with one pilot safe.
TWO hombers missing.
12. Malta.
During the night of 27th/28th. and day of
November 28th, enemy aircraft made seven ineffective
attacks against Valta including one upon en incoming
convoy. Three Italian fighters were shot down and
one bomber probably destroyed without loss.
13. Greece.
Military - No further reports.
14.
November 27th, our Fighters shot down one
Italian fighter and probably destroyed another over
yannina.
Regraded Uclassified
143
BRITISH EMBASSY,
WASHINGTON, D.C.
PERSONAL AND
SECRET.
2nd December, 1940.
Dear Mr. Secretary,
I enclose herein for your
personal and secret information a copy
of the latest report received from
London on the military situation.
Believe me,
Dear Mr. Secretary,
Very sincerely yours,
Lowan
The Honourable
Henry Morgenthau, Jr.,
United States Treasury,
Washington, D. C.
144
Telegram from London dated lat
December, 1940.
His Majesty's ship "Gillcia" escorting
convoy 200 miles off Blacksod Bay was near missed by
bomba from aircraft s.m. Two cesualties. His
Majesty's convoy ship "Saguenay" escorting convoy was
torpedoed north west approaches early on the lat.
She is proceeding to the United Kingdom.
2. Cruiser on trial in the Channel p.m./30th.
attacked by 2 enemy aircraft, Our fighters shot
down 1 no damage or casualties to cruiser,
3. Force of motor torpedo boats carried out sweeps
off Belgian and Dutah coasts night of November 30/December
1st at 0100/1 Jerman Santos 5993 tons reported being
torpedoed of Scheldt. Three engined German flying
boat 30 miles south west of Nissen liead was attacked
by our aircraft and had 2 engines damaged when last
seen.
4.
Night of November 30th/December lot.
No operations carried out owing to adverse
weather.
5. German Air Porce.
Birmingham,
Reported repairs progressing satisfactorily
with improvement in public utility services. Rest of
contres almost cleared.
6. Liverpool.
115 bodies have 80 far been recovered from a
large public shelter at Liverpool which received a
/direct
Regraded Uclassified
145
- 2 -
direct hit on the night of November 28th/29th.
7. sight of November 29th/30th.
Total casualties reported in London area
59 killed 308 wounded.
8. November 30th.
Four sweeps by enemy fighters some carrying
bomba took place over Rent; in one instance a few
penetrated to central London where minor bombing
occurred in Restminator and Chelses districts. Another
minor attack UND made over south west England. Some
shipping and coastal reconsaissances were flown and
considerable activity was reported in Dover straits
end Channel.
9. Night of Hovember 30th/December lst.
Enemy operations were almost entirely confined
to 6 heavy attack on outhampton by about 120 bombers.
About a dozen smokines were also laying mines. The
whole country as, clear of enemy aircraft by early
morning.
10. The attack upon Southampton started at 6.15 Dame
with incendiary bombs followed by high explosive and
lasted until 2 R.S. iroa soon started and became
serlous and extensive in the centre. Public utility
services were seriously interrupted and grave diffi-
culties in fire fighting were caused by temporary water
shortage. The telephone exchange was hit and put out
of action. Fires of varying intensity were esused at
Pirelli cable works, the ordnance survey office, a neval
store, the power station, two hospitals, the harbour
/board
Regraded Uclassified
146
- 3 -
board offices and in 3 ships in the dooks.
11. Enemy losses:
Destroyed 4
Probable 2.
In addition a M.E. 110 landed intact at
Swanage Brook aerodrome.
12. Our losses:
2 airciaft, 2 pilots safe.
13. Ethiopia.
On November 29th, eleven of our bombers
attacked a military camp south of Lake Tana. Buildings
were hit and fires started.
Regraded Uclassified
147
G-2/2657-220
RESTRICTED
M.I.D., W.D.
December 2, 1940.
No. 259
SITUATION REPORT
12:00 M.
This military situation report is issued by the Military
Intelligence Division, General Staff. In view of the occasional
inclusion of political information and of opinion it is classified
as Restricted.
I. Western Theater of War.
1. Air Force Operations.
Daylight operations by the Germans on November 30 and
December 1 were relatively light and were confined to southeastern
England, On the nights of the 30th-1st and 1st-2nd Southampton was
heavily attacked. The damage inflicted seems to have included in-
terruption of the rail lines to London.
The R.A.F. did not operate offensively on the night of
November 30-December 1, because of bad weather. Last night Lorient,
Brest and Wilhelmshaven were attacked.
II. Greek Theater of War.
The Greek High Command announced the capture of Pogradec
on November 30, 1940. The Italians refuse to admit its loss. The
Greek offensive effort is continuing, which would seem to indicate
that no limited objectives have been established. Air activity was
on a minor scale.
III. Mediterranean and African Theaters of War.
Fighting around Gallabat has been renewed. The Italians
report a success at Iregri, Kenya, west of Lake Rudolf. No impor-
tant air activity reported.
RESTRICTED
Regraded Uclassified
148
TREASURY department
INTER-OFFICE COMMUNICATION
DATE December 2, 1940
TO
Secretary Morgenthau
FROM
Mr. Haas AM
Employment under the Work Projects Administration increased
to 1,806,000 persons for the week ended November 20, 1940, a
rise of 21,000 over the previous week's figure.
Attachments
WORK PROJECTS ADMINISTRATION
Number of Workers Employed - Weekly
United States
Week ending
Number of Workers
1940
(In thousands)
May 1
2,059
May 8
2,009
May 15
1,970
May 22
1,945
May 29
1,926
June 5
1,858
June 12
1,785
June 19
1,714
June 26
1,665
July 3
1,608
July 10
1,620
July 17
1,659
July 24
1,690
July 31
1,701
August 7
1,709
August 14
1,708
August 21
1,698
August 28
1,691
September 4
1,690
September 11
1,687
September 18
1,689
September 25
1,704
October 2
1,747
October 9
1,762
October 16
1,768
October 23
1,776
October 30
1,779
November 6
1,783
November 13
1,785
November 20
1,806
Source: Work Projects Administration
149
WORK PROJECTS ADMINISTRATION
Number of Workers Employed - Monthly
United States
Number of Workers
1938
(In thousands)
January
1,901
February
2,075
March
2,445
April
2,582
May
2,678
June
2,807
July
3,053
August
3,171
September
3,228
October
3,346
November
3,287
December
3,094
1939
January
2,986
February
3,043
March
2,980
April
2,751
May
2,600
June
2,551
July
2,200
August
1,842
September
1,790
October
1,902
November
2,024
December
2,152
1940
January
2,266
February
2,324
March
2,288
April
2,092
May
1,926
June
1,665
July
1,701
August
1,691
September
1,704
October
1,779
Source: Work Projects Administration
Monthly figures are weekly figures for the latest
week of the month.
They include certified and noncertified workers.
150
WORK PROJECTS ADMINISTRATION
Number of Workers Employed
United States
Monthly W.P.A. Employment
Weekly W.P.A. Exployeent
1937
T936
1940
141
1939
1940
1941
AM.
MAY
JULI,
APL
BAYA
(M)
MAR
MAY
WAY
NOV
MAR.
suint
BILLIONS MILLIONS
MILA FOND
if
or
or
:
will
MIRKERS
WORKERS
MONATHS
3.4
J.4
12
ses
Jul
3.2
3.2
3.2
J.I
1,1
(1)
,
2,0
1.0
J.O
2.9
2.9
2.4
2.4
2.8
2.0
2.7
2.7
24
2.0
2,8
2.6
1.5
2,5
ne
2.4
2,4
1.6
2.3
2.3
2.2
2.2
122
12
241
2.1
2.0
2.0
=
.8
1.9
1.9
1.8
1.8
A
1.7
1.7
1.6
1,6
18
1.5
o
1.5
-
$
.
-
JAN.
MAR.
MAY
JULY
SEPT.
NOV.
JM.
MAR.
MAY
JULY
SEPT.
NOV.
JAB.
MAR.
al
à
di
-
-
J
5
.
-
e
E
7
#
of
=
E
J
1
.
4
M
.
123%
1937
1938
1939
1940
41
1919
1940
1941
-
SOURCE: WEIL PROJECTS ADMINISTRATION
- may of The insury
Trans - -
1-20-12
151
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE December 2, 1940.
TO Secretary Morgenthan
CONFIDENTIAL
FROM Mr. Cochran
Registered sterling transactions of the reporting banks were as follows:
Sold to commercial concerne
L83,000
Purchased from commercial concerns 1 9,000
the Federal Reserve Bank of New York sold L20,000 in registered sterling to
A non-reporting bank.
Open market sterling MAE ouoted at 4.03-3/4 until late in the day. It closed
at 4,03-1/2. Transactions of the reporting banks were as followe:
Sold to commercial concerns
-0-
Purchased from commercial concerns L1,000
Closing quotations for the other currencies were as follows:
Canadian dollar
13% discount
Swise franc
.2321
Swedish krons
.2385
Reichemark
.4005
Lira
.0505
Argentine peso (free)
.2355
Brazilian milreis (free)
.0505
Mexican peso
.2070
Cuban peso
8-9/16% discount
According to quotations received daily from Shanghai by New York banks, the
Shanghai Tuan displayed some weakness in terms of the U.S. dollar during the month
of November. From 6-1/8# on November 1, it moved off gradually to close at
5-25/32# on November 30. A quotation of 5-13/16# was received from Shanghai this
morning.
We sold $10,000,000 in gold to the Java Bank, to be added to its earmarked
account.
There were no new gold engagements reported to us today.
Regraded Uclassified
152
- 2 -
No gold or silver prices were received from Bombay by the New York banks.
In London, a price of 22-13/16d was fixed for both spot and forward silver,
1/16d lower in each case. The dollar equivalent of this price is 41.42#.
Handy and Harman's settlement price for foreign silver was unchanged at
34-3/4*. The Treasury's purchase price for foreign silver was also unchanged at
35÷.
Ve made eight purchases of silver totaling 785,000 ounces under the Silver
Purchase Act. Of this amount, 200,000 ounces represented a sale from inventory,
and the remaining 585,000 ounces consisted of new production from foreign countries,
for forward delivery.
We also purchased 200,000 ounces of silver from the Bank of Canada under
our regular monthly agreement.
pm
CONFIDENTI
153
December 2, 1940
9:40 a.m.
H.M.Jr:
Hello.
Mr. Hull's
Secretary:
He's coming right on, sir. (Pause).
Cordell
Hull:
Hello, Henry.
H.M.Jr:
Cordell, good morning.
H:
How are you?
H.M.J.:
I'm all right. Two things.
H:
Yeah.
H.M.Jr:
At 3:00 o'clock tomorrow Mr. Stimson, Knox,
Knudsen and Jones are coming to my office to
discuss this whole question of where do we go
from here with the British on their purchasing.
They want to place another $2 billion order.
E:
Yeah.
H.M.J.:
And it is so important that I'd like somebody
whom you have confidence in to sit in 80 that
they can tell you about it.
H:
That's at 3:00 o'clock tomorrow.
H.M.Jr:
Yes,
H:
All right, I'll stir up somebody.
H.M.Jp:
Well, somebody - could you maybe tell me who
it would be later?
H:
Yes.
H.M.Jr:
And, Cordell, I wonder if you couldn't work out
some way - for instance, on this Chinese thing,
I had Soong at the house last night trying to
get confessions from him before I went up there.
H:
Yes,
154
- 2 -
H.V.Jr:
And he would talk about a cable from Ambassador
Johnson - had I seen that - no. Well, had I
seen about what the Chinese Ambassador in Berlin
had been told by Ribbentrop? No, I hadn't seen
that. When I'm in a thing like this - sometimes
ignorance 18 bliss, but I would appreciate it
if some way was worked out that where I've got
to decide on lending $50 million - where I could
have the background.
H:
Yes.
H.M.Jr:
Don't you think that would be fair to me?
E:
Oh, yes, of course. Anything at all that
H.V.Jr:
I mean, I'm just going to be particularly
interested to hear what you've got to say
because it'll all be news to me.
Yes. Well, now, you went - I will expect to
give the general points to show the underlying
conditions and BO on and you'll deal with the
technical side.
H.M.Jr:
That's right. But I meant in the future if I
could have someone working with ne - where I
get the heat out on me like this
......
H:
of course that ought to all be done.
E.M.Jr:
..... whether it's the Argentine - I mean, there
18 background that you have through your diplo-
matio offices and I am completely in the dark.
H:
Now your 1dea, of course, this morning would be
for you to make your statement end then I'd
come along and answer any questions about the
general conditions
.....
H.M.Jr:
Well, I thought the other way around, if you
would give them the picture from the standpoint
of foreign policy.
H:
Well, I'll be glad to do that the best I can.
H.M.Jr:
And then when the question as to - any technical
questions - I'll take all responsibility on the
Stabilization Fund.
155
- 3 -
H:
All right, Henry. I'll get my papers together
right now with a view to it.
H.M.Jr:
But would you tell somebody somehow that in
the future that where we're in something like
this that I could get it and don't have to get
it second-hand?
H:
Of course.
H.M.Jr:
Right.
H:
Yeah.
H.M.Jr:
Thank you.
156
December 2, 1940
12:45 p.m.
er
H.V.Jr:
Hello.
12
16am)
Mr. Johnson: Yes, sir.
H.Y.Jr:
Mr. Johnson, would you give Senator Barkley a
message for me - this 18 Henry Morgenthau, Jr.
J:
All right, sir. I'll be glad to.
H.M.Jr:
Just tell him that I appreciate very much the
support he gave me today in the Committee.
J:
All right, sir.
H.M.Jr:
And I wanted to call him up and tell him how
I appreciated it.
J:
All right. I'll certainly be glad to tell him.
H.M.Jr:
And tell him I hope to see him when he gets back.
J:
All right, sir.
H.M.Jr:
Thank you.
J:
Good-bye.
157
December 2, 1940
4:00 p.m.
H.M.Jr:
Hello.
Operator:
Senator Wagner.
H.M.Jr:
Hello. Bob, you were swell.
W:
Well, I just wanted to find out whether every-
thing was satisfactory.
H.M.Jr:
Oh, wonderful, and I thought - Cordell just
took my breath away.
W:
Yes, yes.
H.M.Jr:
He went right down the line.
W:
Yeah.
H.M.Jr:
No, I thought the thing went beautifully and
I'm ever 80 much obliged to you.
W:
Well all right. I just wanted to make sure
about that.
H.M.Jr:
Are you 100% sure now?
W:
Yes, I am.
H.M.Jr:
0. K. I'm tickled to death I came up.
W:
Yeah, I am too.
H.M.Jr:
None of those so-and-sos - Taft or any of them
can say, well .....
W:
Oh, no.
H.M.Jr:
They can't say anything.
W:
No. It was the wise thing to do.
H.M.Jr:
Right.
W:
Yeah. All right.
H.M.Jr:
Ever 60 such obliged.
W:
All right. Good-bye.
158
December 2, 1940
5:19 p.m.
H.M.Jr;
Hello.
Operator:
Mr. Heller.
H.M.Jr:
Hello.
Edward
Heller:
Hello, Henry.
H.M.Jr:
Hello, Edward.
R:
How are you, sir?
H.M.Jr:
Oh, I'm fine.
H:
I want to apologize to you that I was such
a very bad political prognosticator.
H.M.Jr:
Oh, that's all right - you and a lot of other
people.
H:
I didn't know that California was going to be
80 good.
H.M.Jr:
Well, California, here I come.
H:
(Laughs). Henry, this 18 why I'm calling you.
I'm phoning you with a request that my friend,
Bill Malone, who is our Democratic State
Chairman - Bill had some conversation with the
Gianninf's before the election and they were
extremely helpful to us just before the election.
H.M.Jr:
Yeah.
R:
Bill was led to believe by Jesse Jones that
something might be done for them and I'm
phoning you at his request to tell you that.
H.M.Jr:
Wonderful.
H:
Well .....
H.M.Jr:
(Laughs). You've done your Boy Scout deed.
Now, go home and have a nice drink and tell
your wife that you've done a Boy Scout deed.
Regraded Uclassified
159
- 2 -
H:
I've done my Boy Scout deed.
H.M.Jr:
Yeah.
H:
All right.
H.M.Jr:
(Laughs). Hope to see you soon.
H:
O. K.
H.M.Jr:
(Laughs). All right.
H:
Thank you.
H.M.Jr:
Good-bye.
H:
Good-bye.
160
COUNCIL OF NATIONAL DEFENSE
COORDINATOR OF COMMERCIAL AND CULTURAL RELATIONS
BETWEEN THE AMERICAN REPUBLICS
TATE DEPARTMENT BUILDING
WASHINGTON. D.C.
December 2, 1940
MEMORANDUM FOR: The Honorable Henry Morgenthau, Jr.
FROM: Nelson A. Rockefeller
You will find, herewith, for your
confidential information a copy of our
weekly digest of the current activities
of the various departments and agencies
handling matters on inter-American concern.
Attachment
1776
161
COUNCIL OF NATIONAL DEFENSE
COORDINATOR OF COMMERCIAL AND CULTURAL RELATIONS
BETWEEN THE AMERICAN REPUBLICS
STATE DEPARTMENT BUILDING
December 2, 1940
WASHINGTON. D.C.
WEEKLY PROGRESS REPORT
ON ACTIVITIES IN RELATION TO THE OTHER AMERICAN REPUBLICS
COMMERCIAL
Raw Materials
Beef: Argentine Ambassador has asked assistance of Coord. office in
clarifying regulations concerning the placing of orders by Army
and Navy for Argentine corned beef, The office is taking up pro-
blem, which concerns interpretation of 1933 law, with interested
departments,
Coffee: The agreement was signed Thursday by U.S. and the 14 coffee-
producing countries.
Copper: President received information Friday concerning proposal
that his funds absorb 28% of excise tax,
Cork: Representative of Klein-Saks indicates to Coord. that from
6,000 to 20,000 tons are available annually in Brazil. Fluctua-
tion in this figure is due to lack of railway facilities, It is
stated that the Brazilian government would give priority to cork
purchased for U.S. defense purposes. This office has received
samples of raw and processed cork which will be examined by Bureau
of Standards,
Cotton Linters: Final report of Dr. Weidlein (Defense) indicates that
some 95,000 bales of Brazilian linters will be purchased during
year ending July 31, 1941.
Hides: Brand (Defense) feels that increased imports from Argentina,
Brazil, and Uruguay will probably continue Leather and Rubber
(Commerce) has compiled statistics on hide and skin exports from
L.A. countries for five-year period,
Industrial Diamonds: Purchase of L.A. industrial diamonds awaits de-
cision of Procurement regarding selection of experts to pass on
stones.
Manganese: Allen (Defense) and Wright (Mines) assembling data on most
economical L.A, doposits, While the Minas Geraes (Brazil) and
Chilean deposits appear feasible choices, Cuba's low-grade deposits,
1776
162
Page 2
December 2, 1940
which would require extensive development, seen a less favorable
selection.
Kanila Hemp: Unitud Fruit representative cake State, Agriculture,
Defense, and Coord. for 10-yoar guarantee against loss from In-
creasing Panama coreage. This office has agreed to pursue metter
which dupends to a large extent on whether the Navy will recommend
n guarantee plan. Sentiment of the above mentioned groups and the
proference of the Navy for short contracts indicnte that more than
a 5-ycar guarantee would be unlikcly.
Sitrates: Recommondation by Defonse for purchase of 300,000 tons con-
cludes Chiluan nitrate motter until construction of DEW powder plants
on west const.
Rubbar: Spot check of wild rubber being carried out by Stat
.Loa-
ther and Rubber (Commerce) has reported to Matorials (Defonse) on
re-exports of orude rubber to L.A. countries to nid Defense in
formulating policy regarding licensing of exports.
Other Enterials:
Coul: Litsls :nd Minerals (Commerce) has propered analysis of
U.S. rxports of conl to S.A. from 1914 to 1938 for Unritime Com-
mission. Cooon: Interest in Inter-In. Maritime Conference is delaying
prograss on cocon agroument.
Cotton: Textile (Commerce) has furnished Defonec with informa-
tion on nvailability of Sca Island ootton in the Ticst Indivs.
Dairy Products: Meeting of Datry Industries Supply Assn. Com-
mittoo on Prn-Am. relations hes boon postponed until Friday, Doc. 6.
Essential Oils: Representative of the Toilot Goods Assh., Inc.
of NOW York informs Agriculture that necessary supplies of products
used in their industry, normally coming from Southorn France, have
been cut off, and they are looking to this homisphere for their
production. About 170,000 people are annually employed in produc-
ing this products.
Pharmaccution] and Mudicinel Products: Chemical (Commuree) has
propered detrilyd compilation of German exports to L.K.
Venilla: Since then is n bottloneck in obteining seed pioces
for expansion of industry in Puerto Dico, and Lexico has placed an
smbargo on shipping such pieces, P.R. Experiment Station is snok-
ing the in Gunduloups. They hope to outain sufficient outtings
to produce at least 60 tons of benne 3 years from now, which would
to imereasing Puerto Rico's shore of U.S. consumption to about 20%.
Economic Divelopment by Countries
Argentine: Recommendation of Interdup. Crimp with regard to requests
by Argentine Mission hos buen submitted to Secretary Morgenthau
for considorrtion.
Regraded Uclassified
163
1776
Page 3
December 2, 1940
Chilc: The prospective $5,000,000 loan to the Central Bank of Chile
and the $5,000,000 of exchange expected from the proposed purchase
of n. 300,000 ton stockpile of nitrates should givo Chile about
10,000,000 in exchange. (The recunt Fomonto crudits of $12,000,000
will be used in part for edditional purchases from U.S.) It is
felt that the possible copper purchases would moet any additional
nouds of Chilo
Mr. Schnake, Minister of Fomonto, returns to
Chile today.
Cuba: Substantial agreement has been runched in the Cuban nogotiations
and an announcement may be expected shortly.
Paraguay: State has received momo on proposed Paraguayan projects.
Venezuela: At request of Venezuelen Government, Agriculture will send
group of soil exports hor.ded by Chief of Soil Conservation Surveys
to Venezuela to advise on soil conservation matturs.
General
Inter-American Development Commission: Two members of the Commission,
J. Rafaol Oreamuno, vico chrirman, and George K. Magalhaos, will
organize 5-man groups in L.A. countries to carry out program of
Commission. The first groups which will be solucted from industry,
finance, agriculture, and the profossions will bo ostablished in
Argentine, Bolivia, drazil, Chilo, Colombia, Roundor, Paragudy,
Poru, Uruguay, end Venezuela. The enterprises of the Commission
doal with: (a) exploration and exploitation of mineral resources;
(b) cultiveting and marketing of cultural and forost products;
(c) establishment end development of industrial plants.
British Mission: Discussions with mission continue.
Pan American Highway: In pust woek several persons have discussed
with Coord. office possibilitiva of furthoring Pr.n Am. Highway con-
struction; one suggestion mbodying onlistment of privnte capital.
Export Insurance: Coord. office has propered mumo on export insurance
for Ex-Im.
Inter-Amorican Bank: Mecting may be arranged with heads and operating
heads of foreign departments of N.Y. banks to nequaint them with
reasons for Inter-Am. Bank.
Tariff Statistics: Commission has mede avoilable to Defense statis-
tics on world production, world exports, and U.S. imports of
selocted strotogic and critical matorials. These statistics are
designed to present importance of L.A. countries as sources.
Regraded Uclassified
1776
WEEKLY PROGRISS REPORT, Part II
164
Pago 4
Documber 2, 1940
communications
Vovios) Mr. Whitney (Coord.) is in Hollywood in connection with the
moving picture program.
Radio: Mr. Francisco, who is now planning to lueve on Doc. 13 for
L.A., has discussed problum of effective short-wave broadcasting
with representativos of State, Nevy, Federal Communications, and
Education, ca well n.s. short-wave brondcesturs,
Sports: Coord. office will sponsor the visit of the Chilcan Ski T-am
in this country in February nt the invitation of the National Ski
Assn. The than will participato in computitions in Now Engliend,
Sun Valley, and the Pacific coost. Funds for the team's transpor-
tetion to and from U.S. will be reised by popular subscription in
Chile,
Transportation: Mr. Stimson's ruquest that aircraft production for
Army end Navy be given priority over expansion of commercial air-
lines may hinder U.S. mirlines from establishing themselves more
Firmly in L.A. during the war Coord. has agr.od to grant Inter-Am,
Escudrillo $16,000 to finance a flight to L.A. for survey of civilion
aviction in L.A. and for astablishing national groups to carry on
cooporativo inter-An, program related to civilian rviation.
CULTURAL
General: Coord. office compiling mater list of L.A. libraries, achools,
universities, muscums, professional, cultural, and scientific socio-
tits, etc., to be used in sending books, pumphlets, and other mate-
rials to L.S.
Education: Coord. office hns approved project to expend L.A. Institute
of University of Texas end will make eveilable 37,500 for this
purpose on condition University provides nt least some amount of
money for continuntion of exprinded program in subsequent years.
Publications: Active negotiations, working toward substantial rodue-
tion of postal book ratus to L.A., are in progress between Post
Office Dept. end Coord. office
Coord. office will probably aid
in financing distribution of free copies of the "Hispanle American
Historical Review" to lending literary figures in L.A.
ADMINISTRATION
Robert Newland, lonnod by Commerce, will serve na administrative
officer of branch office in N.Y. in charge of office management.
Wockly Progress Report No. 11
Regraded Uclassified
165
HSM
GRAY
Saigon via N. R.
Dated December 2, 1940
Rec'd 6:19 a. m.
Secretary of State,
Washington.,
24, December 2, 11 a. m.
Referring to Department's telegram No. 10, November 29, 6 p. m.,
to Hanoi. Please inform Rubber Reserve Company that Government General
accepts offer for 8,000 tons of rubber at prices and under conditions
outlined in the Department's telegram under reference provided that
buyer arrange for shipping space. Contract signed today with foregoing
proviso.
FLOOD
PEG
10
THE
YBA
LECHNITY
Yes
are
COPY
BWD DEC 2 we 5 23
EB
Regraded Uclassified
166
Prefared not
12/2 + undered gate
is =
167
Lindeteves, Inc., Commodity Statements
Às of November 23. 1940
STRICTLY CONFIDENTIAL
Orders Placed in the United States
Schedule I
Deliveries on Orders Placed in the United States
Schedule II
Current Status of Orders Placed in the United States
Schedule III
Office of the Secretary of the Treasury. Division of Research and Statistics
Prepared December 2. 1940,
Source: Lindeteves, Inc.
Note: Cusulative data begin October 19. 1940 and for orders include unfilled orders
as of that date.
168
Schadule I
Orders Placed in the United States by Lindsteves, Inc.
Classified by Commodity Group
As of November 23. 1940
STRICTLY CONFIDENTIAL
(In thousands of dollars)
Total
Orders
Orders placed vesk ended
Total
unfilled
placed
orders
Commodity group
orders 44
Oct. 19
Nov.
Nov.
Nov.
Nov.
Dec.
Dec.
Dec.
Dec.
Jan.
to date
of Oct. 19.
to Nov. 2
9
16
23
30
7
14
21
26
4
1940
1. Airfrases
1. Airplane englose
5 Airplane accessories
96.0
is
43.5
.8
.1
141.3
4. Total aircraft products
96.0
is
43.5
.8
.1
141.3
i, Marhine tools
223.1
14.9
29.5
6.1
7.7
251.3
1. Chestcal warfare materials
1. Prilosives A propellante
12.8
5.
12.5
9. Ordnance equipment
L. fen à tank equipment
259.7
ii. Motor vehicles
155.4
66.4
8.7
29.2
12. Ima à steel
675.3
142.3
55.7
81.3
79.3
1.033.9
P, Not-ferross metale
142.2
5.2
7.6
4.6
1.7
161.3
7.2
14, Textiles 4 clothing
5.7
1.5
15. Postetuffs 5 tobacco
16. Fetroleum products
17, Antials
625.7
15. Ship
624.4
1.3
69.7
19. Communications aquipment
20.6
49.1
z. Mater
607.1
21. All other
392.2
83.9
75.5
30.0
25.5
22. Total ono-aircraft products
2,238.9
314.2
238.9
122.0
144.7
3,056.7
23, Total commodities
2.334.9
315.1
282.4
122.8
144.8
3,200.0
24. Cerital
25. Grant total
2,334.9
315.1
282.4
122.8
144.8
3,200.0
Office of the Secretary of the Treasury. Division of Research and Statistics.
Prepared December 2. 1940.
Source: Lindetaves. Inc.
Cusulative date begin October 19, 1940 and include unfilled orders M of that date.
Regraded Uclassified
169
Schedule II
Delivaries on Orders Placed la the United States by Lindeteves. Inc.
Classified by Commodity Group
La of November 23, 1940
STRICTLY CONFIDENTIAL
(In thousands of dollars)
Yeek ended
Total
Comodity group
Oct.
Nov.
Nov.
Nov.
Nov.
Nov.
Dec.
Dec.
Dec.
Dec.
Jan.
to date
26
2
9
16
23
30
1
14
21
25
la
1. Airframes
2. Airplane engines
3. Airplane accessories
8.8
3.0
1.3
2.1
1.3
16.5
4. Total aircraft products
8.8
3.0
1.3
2.1
1.3
16.5
5. Machine tools.
-7
.6
31.4
1.3
15.2
49.2
5. Chemical varfare material
7. Explosives & propellante
5. Ammunition
9. Ordnance aquipment
10. Tanks à tank equipment
1.1
.6
-3
1.0
4.5
11, Motor vehicles
1.5
12. Iron & steel
74.5
51.0
32.4
71.4
36.2
265.5
15. Non-ferrous metale
1.2
3.8
4.2
z.6
15.8
4.0
14. Tertiles & clothing
15. Foodstuffs & tobacco
16. Patroleum products
17. acimals
18. Shice
19. Communications aquipment
1.1
5.2
10.4
19.7
36.4
20, Meber
a. All other
40.3
12.6
192.6
20.2
68.1
51.4
22. Total non-aircraft products
99.2
96.8
141.9
138.8
87.3
564.0
23. Total commodities
108.0
99.8
143.2
140.9
88.6
580.5
24. Della]
25. Grand total
108.0
99.8
143.2
140.9
88.6
580.5
Office of the Secretary of the Treasury. Division of Research and Statistics.
Prepared December 2, 1940.
Source: Lindateres. Inc.
Less than $50.
Note: Comulative date bagin October 19, 1940.
Regraded Uclassified
170
Schedule III
Current Status of Orders Placed in the United States
by Lindsteves, lac.
Vesk ended November 23. 1940
Classified by Commodity Group
STRICTLY CONFIDENTIAL
(In thousands of dollars)
Unfilled
Unfilled
Orders
Deliveries
Total
Total
orders
orders
Commodity group
during
during
orders
deliveries
beginning
end of
week
week
to date
to date
of week
week
1. Airfrance
2. Airplane engines
3. Airplane accessories
126.0
.1
1.3
124.8
141.3
16.5
N. Total aircraft products
126.0
.1
1.3
124.8
141.3
16.5
5. Machine tools
239.6
7.7
15.2
232.1
281-3
49.2
6. Chemical varfare materials
1. Explosives & propellants
5. Ammunition
12.8
12.8
12.8
9. Ordnance equipment
10. Table & tank equipment
11. Motor vehicles
227.0
29.2
1.0
255.2
259.7
4.5
265.5
12. Iron & steel
725.3
79.3
36.2
768.4
1,033.9
13. Non-ferrous notals
146.4
1.7
2.6
145.5
161.3
15.0
7.2
7.2
7.2
14. Textiles - elothing
15. Foodstuffs à tobacco
10. Petroleum products
17. Animals
16. Shipe
624.4
1.3
625.7
625.7
53.0
19.7
33.3
69.7
36.4
19% Comminications equipment
25, Timber
607.1
192.6
71. All other
401.6
25.5
12.6
414.5
22. Total non-aircraft products
2,437.3
144.7
87.3
2,494.7
3,056.7
564.0
2,563.3
144.6
88.6
2,619.5
3,200.0
580.5
23. Total commodities
24. Capital
25. Grand total
144.8
88.6
2,619.5
3,200.0
580.5
2,563.3
Prepared December 2, 1940.
Office of the Secretary of the Treasury, Division of Research and Statistics.
Sourcer Lindsteves, Inc.
*Less than $50.
Note: Cumulative date bagin October 19, 1940 and for orders include unfilled ordere as of that date.
Regraded Uclassified
171
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
CONFIDENTIAL
DATE December 2, 1940
TO
FROM
Mr. Haas
Secretary JOH Morgenthau
Subject:
The Business Situation,
Week ending November 30, 1940
Summary
(1) Business activity, on a seasonally-adjusted basis,
continues to rise. Some distortions in the usual weekly
indexes, however, have been caused by holiday influences.
The 7-point rise in the New York Times index of business
activity during the week ended November 23 cannot therefore
be regarded as measuring accurately the extent of recent
business gains.
(2) The commodity price rise has tapered off recently.
Host futures prices have sagged during the past two weeks,
although some commodities, such as zinc, have continued to
rise. A somewhat stronger tone appeared in the various
futures markets at the end of last week.
(3) Incoming orders in the steel industry continue to
exceed production, despite record tonnage output. Steel
scrap prices are again rising, having increased gradually
over the past three weeks, following a four-week period in
which they had held unchanged.
(4) Factory employment in October reached & new high
since 1937, while non-agricultural employment has risen by
2,000,000 persons since April, reaching the highest level
since 1929. National income payments rose in October to an
annual rate of 75.7 billion dollars.
(5) Exports rebounded in October, largely 8.8 B. result
of gains in shipments of aircraft, machinery, and other
war materials. Agricultural exports showed a seasonal rise,
but still remained at very low levels.
Regraded Uclassified
172
Secretary Morgenthau - 2
Business activity still rising
Business activity, after allowing for seasonal factors,
continues to rise, although not et the sensational rate indi-
cated by the spurt in the New York Times index of business
ectivity during the week ended November 23. (See Chart 1.)
The movement of the index during that week was apparently dis-
torted to some extent by undue allowance for the Thanksgiving
holiday. It should be pointed out that in 16 states, including
the important Pennsylvania and New England industrial areas,
the holiday W&B not observed until the following week. Fur-
thermore, the rise came on top of 8. rather sharp decline in
the previous week, which appears to have been due in part to
eccidentel factors.
Nevertheless, ample besis exists for the belief that the
sharp upturn in the weekly business index cannot be attributed
solely to statistical maladjustments. Thus reference to
Chart 1, lower section, will disclose that during the week
ended November 23 freight car loadings showed nothing like the
sweening declines which occurred in the corresponding week of
1939. In view of the normal seasonal down trend in freight
car loadings, and the observance of the Thanksgiving holiday
in 32 states, the decline of only 12,000 cars or 2 per cent
in freight loadings during the week 16 8. surprisingly strong
showing. On the other hand, electric power production, the
moet heavily weighted component of the Times index, shows B.
somewhat greater decline than during Thanksgiving week B. year
ago. (See Chart 1.)
Another evidence of 8. continuing upswing in industrial
activity may be seen in the curve of automobile production.
Contrary to earlier trade expectations, the post-holiday week
found entomobile production rising to a new high since May
1937, rather than dropoing below the levels of the middle of
the month.
Barron's index of business activity for the week ended
November 23 moved shead at & slower pace than the Times index,
but nevertheless made a very good gain to reach 8. new high
for the year. As a result the index stood at 122.9 B.B com-
pared with 120.5 in the previous week.
Regraded Uclassified
173
Secretary Morgenthau - 3
In view of the unusually large gain scored by the Times
index in the week ended November 23, partly at least due to.
too great an allowance for the holiday, a reaction seems in-
evitable for the ensuing week. Moderate declines are indicated
for the adjusted indexes of automobile and steel ingot pro-
duction, but declines in most other components are likely to
be sharp,
Steel output still below orders
Although the steel industry continues to produce at a
record volume, new orders continue to exceed production.
Thus, new orders received by the U. S. Steel Corporation during
the week ended November 21 (which included the Thanksgiving
holiday) although 18 per cent below the previous week, were
still 16 per cent above capacity. In contrast, the Corporation
W86 producing steel during the weeks mentioned at around 99 per
cent of capacity.
The industry as a whole maintained an unchanged level of
production at 96.6 per cent of capacity during the past week,
according to the American Iron and Steel Institute, end opera-
tions in the current week are scheduled fractionally higher at
96.9 per cent. Reference to Chart 2, based on Iron Age data,
will disclose that a gain last week in the important Pittsburgh
district and slight gains elsewhere tended to offset losses in
certain other centers. Such losses e.8 occurred probably were
due to the necessity of shutting down some open hearths for
repairs. The flattening out of production in the Philadelphia
district (see chart) may possibly indicate that the capacity
of that district has been over-estimated.
Trade comment indicates that orders for construction and
for the reilroads are increasing, while the automobile indus-
try is using a large amount of steel 28 a result of its recent
heavy volume of production. In connection with demand for
steel for construction purposes, it 16 interesting to note
that October orders for fabricated structural steel amounting
to 233,000 tons were at the highest level since April 1931,
and exceeded shipments of structural steel in that month by
nearly 100,000 tons.
The railroads are reported to have ordered about
650,000 tons of rails this fall, and trade sources indicate
that 300,000 tone more may be ordered before the end of the
year. This volume of orders compares with around 800,000
tons ordered in the last four months of 1939. About 7,500
more freight cars were on order at the beginning of November
Regraded Uclassified
174
Secretary Morgenthau - 4
than a month earlier, although the total on order was still
moderately below year-earlier levels. Despite the purchases
of new equipment that have been made thus far, a recent re-
port of the car service division of the Association of
American Railroads gave evidence of a tight situation in the
supply of large box cars, particularly in the west and
southwest.
In connection with price trends in the steel industry,
the Iron Age reports that more companies are showing & tend-
ency to insert "escalator" clauses in contracts to protect
themselves against possible rising costs next year in such
items as wages and steel scrap prices. Steel scrap has again
begun to rise, the Iron Age composite price having gained
33 cents a ton over the past three weeks, following four
weeks of unchanged prices.
New orders index lower
In addition to the decline in new orders for steel
previously mentioned, orders for textiles and for products
other than steel and textiles also showed declines during the
week ended November 23. (See Chart 3.) Much of this de-
cline, however, was probably due to the Thanksgiving holiday.
Furthermore, despite holiday influences, the combined index
still stood at a relatively high level.
Employment and income payments rise
The rising trend of business activity has brought about
a stendy rise in employment and consumer incomes, which in
turn provides the basis for an increasing demand for civil-
1an goods during the months ahead. The BLS index of factory
employment in October reached a new high since 1937, at 109.9.
This compares with the year's low of 99.0 in May. Estimated
total non-agricultural employment rose to 36,952,000 persons
in October from a low of 34,932,000 last April. The published
figures perhaps understate the actual rise in employment
(and payrolls), owing to difficulties in getting adequate
coverage of employees in plants recently established.
The broad total of national income payments 18 rising
gradually. Total payments in October were at an annual rate
of 875.7 billions, as compared with $75.2 billions in September
and a low for the year of $72.4 billions in April.
Regraded Uclassified
175
Secretary Morgenthau - 5
Retail trade improving
The rise in incomes, combined with other factors, brought
a strong increase in retail trade during August. (See Chart 4.)
Although during the following two months department store
sales and sales by stores in rural areas showed & decided
falling off, this has doubtless been a temporary setback. Re-
cently, in fact, department store sales have shown indications
of 8. renewed upturn. Sales in the week ended November 16
showed a gain of 12.8 per cent over last year, and in the week
ended November 23 a gain of 8.5 per cent. These compare with
only 4.1 per cent gain during the four weeks of October.
The cause of the decline in retail sales in September and
October despite rising incomes 18 not entirely clear. The fall-
ing off in rural sales has not been due to lower incomes. To-
tal farm income in October (including Government payments) rose
to $1,125 millions, which compares with $1, 042 millions in
Cotober 1939. (See Chart 5.) Rural sales of general merchan-
dise in October (lower section of chart), were elightly below
last year.
The September-October decline in retail sales was associ-
ated with the intensified bombing of England, the draft, and
pre-election uncertainties. It 1e perhaps not to be expected
that the increased employment and payrolls resulting from the
defense program should immediately be reflected in retail sales.
The previously-unemployed workers brought into factories this
fell will doubtless, for a time, use their surplus earnings to
pay off debts. Factory payrolls, furthermore, are only a part
of the broad total of consumer incomes which affect the volume
of retail buying, and which will expand steadily 8.8 the effects
of the defense program spread to other sections of our economy.
Commodity price rise slackens
Prices of basic commodities, both industrial materials
and food products, showed a tendency to level out during the
past week. (See Chart 6.) While prices of some commodities
(lower section of chart) reached substantially higher levels --
notably shellac, burlap, and coffee -- these were due to
special situations. Only five increases were reported during
the week in the spot prices of 28 basic commodities, while
12 prices declined.
Regraded Uclassified
176
Secretary Morgenthau - 6
The rise of 6.0 percentage points in burlan prices WGB
due to (1) the sinking of a British cargo vessel in the
Indian Ocean by enemy action, which has aroused some apore-
hension over future supplies among burlao consumers, and
(2) the ourchase of 60,000,000 sandbage by the Indian Gov-
ernment to strengthen the market, following weakness due to
a record jute crop. The rise of 3.5 points in shellac prices
followed an upturn in the Calcutta market, due to e. growing
scarcity of the qualities of shellac used in the United States
following a small shellac crop last fall. The scarcity will
continue until after the new crop is harvested some time
next spring.
A rise of 3.7 percentage points in coffee prices (the
BLS quotation is for Brazilian coffee) has been due to ac-
tion of Colombia in setting minimum prices on exported
coffee, and reports indicating that Brazil would follow.
These minimum prices are reportedly associated with the
cuote agreement signed last week in Washington, which 18
empected to result in higher coffee prices.
& substantial decline in tallow prices appears to have
been a reaction from an overbought situation that developed
on the recent extensive rise. Rosin prices are also sharply
lower, owing to a noticeable falling off in demand since mid-
November, and to the expectation of Government loans on
navel stores substantially below recent market levels.
Futures prices for most commodities have been sagging
over the past two weeks, although a stronger tone vas evident
at the end of last week. Zinc futures, however, have risen
sharply against the trends in other metal markets, despite
an increasing rate of production.
Aircraft and machinery fecture export rise
The stimulus which various war materials industries
have been receiving from export trade is again revealed in
the October export figures, which showed an increase in ex-
ports of domestic merchandise of $48,000,000 or 17 per cent.
This gain, which vas of slightly greater than the usual
seasonal procortions, carried the total for the month uo to
336,000,000.
Regraded Uclassified
177
Secretary Morgenthau - 7
Reference to Chart 7 will disclose that the largest
gains in dollar value were made by aircraft and machinery,
although automobiles, cotton, petroleum products and copper
also showed good increases. Following a sharp decline in
September, aircraft shipments rose $5,000,000 to $31,000,000,
the second highest figure on record.
Machinery exports of all kinds also showed an $8,000,000
rise with about one-half the gain being accounted for by
metal working machinery. Iron and steel exports (exclusive
of scrap) declined about 6 per cent from September's near-
record figure, but still represented around 20 per cent of
the month's total steel output.
Although agricultural exports rose in October in response
to the usual seasonal influences, they continued to account
for an unusually small proportion of our total export trade.
Thus, despite a rise of 51 per cent over the previous
month's unusually low figures, agricultural exports in
October still aggregated only $33,000,000 or 10 per cent of
total exports, as compared with 30 per cent in the corre-
sponding month a year ago.
Chart 1
SELECTED BUSINESS INDICES
178
BUSINESS ACTIVITY
PER
CENT
Segsonally Adjusted
Est. Normal 100
120
"40
110
100
#
90
vze
80
N , Times
70
JAN.
MAR.
MAY
JULY
SEPT.
NOV.
AUTOMOBILE PRODUCTION
ELECTRIC POWER PRODUCTION
CARD
KW HRS
THOUSANDS
U.S. and Canada
BILLIONS
150
2.0
wa
125
2.6
"2"
100
2.4
75
29
'se
2.2
so
R
2.0
25
N
Words fat
frison free /
0
1.8
BEPT
JAN
MAR
MAY
JULY
SEPT
NOV.
JAN
MAR
MAY
JULY
NOV.
FREIGHT CAR LOADINGS
CARE
CARE
THOUSANDS
Total
THOUSANDS
Marchandise LCL and Miss
900
É
850
800
on
4d
39
700
450
600
R
150
7-20
500
As a Agen
Ae By Am
400
250
JAN
MAR
MAY
JULY
SEPT
NOV.
JAN
MAR.
MAY
JULY
SEPT
NOV.
Para of the Secretary al the Transary
C-365
- / - - Selvices
Regraded Uclassified
STEEL OUTPUT AND RATED CAPACITY
Weekly Tonnage
1939
1940
1041
JFMAMJ J A a o N D J FMAM J J A 6. o N D , . M
TONS
TONS
Millions
U.S. Total
Millions
Capacity
1.6
1.6
1.4
1.4
1.2
1.2
Output
1.0
1.0
.
a
6
.6
4
.4
2
2
C
0
J F M A M J J A 5 o N D J F M A M J J A 5 o N D J 1941 F M
1939
1940
PRINCIPAL PRODUCING DISTRICTS
1989
1940
1941
1939
1940
1941
JPMAMJJASOMDJTMAMJJASONDJFM
JEMAM did A s D J F J A HONDJFM
TONS
TONS
Thousands
Thousands
Thousands
Chicago
Capacity
320
340
360
520
Pittaburgh
Capacity
280
320
320
280
280
280
140
240
240
240
200
200
Output
200
200
160
160
Output
160
160
120
120
120
120
no
so
NO
80
40
40
40
40
o
o
Youngstown
0
o
200
200
180
Philadelphia
160
160
160
120
120
120
120
80
80
eo
an
40
40
40
40
a
0
o
a
Claveland
Suffaio
go
80
so
so
40
40
40
40
0
e
a
e
Birmingham
40
40
40
40
Wheeling
o
o
e
0
Cincinnati
40
40
40
40
Detreit
o
0
0
6
di F M A M J , A . o M a J F M A M J J A. e e N o 1941 J . M
a # M A M J J A 5 o N o 4 F a A M J , A 9 o N D J # MI
1940
1939
1940
1941
1939
179
"Bosed - from Age date
- . - Sunday of - -
C-344
- - -
Regraded Uclassif
Chart 2
INDICES OF NEW ORDERS
180
Combined Index of New Orders and Selected Components
1938
1939
1940
0
o
M
A
o
N
Chart M
CONFIDENTIAL
M
a
PERCENTAGE
PERCENTAGE
POINTS
POINTS
210
210
200
200
ISN
190
180
180
170
170
100
160
150
150
140
140
130
130
Total (combined index)
1936 . 100
120
120
110
110
100
100
so
90
60
DO
United
70
70
60
60
Total excluding Steel and Textiles
50
50
&
40
Steel Orders
jo
30
20
20
to
10
Textile Orders
o
0
A
$
o
#
D
J
,
M
A
M
J
J
A
$
o
-
D
J
/
M
A
.
J
J
A
$
0
#
D
1938
1939
1940
Mine PM Secretary of the Treasury
- of - - I
1-B-C
Chart 4
RETAIL TRADE
181
Urban and Rural Sales of General Merchandise
1020 = 100, Adjusted
PLN
PER
CENT
CENT
Department Store Sales
100
100
90
90
1940
60
80
1939
70
70
1938
60
60
JAN.
FCB.
MAR.
APR.
MAY
JUNE
JULY
AUG.
SEPT.
ocT.
NOV.
DEC.
110
110
Variety Store Sales
100
100
1940
90
1939
90
1938
BC
80
70
70
JAN.
FEB.
MAR.
APR.
MAY
JUNE
JULY
AUG.
SEPT.
OCT.
NOV.
DEC.
120
120
Rural Chain Store and Mail Order Sales
110
110
1940
100
100
1939
no
90
1938
60
80
Tu
70
JAN.
FEB.
MAR,
APR.
MAY
JUNE
JULY
AUG.
SEPT.
OCT.
NOV.
DEC.
% Secretary of the Treasury
Drug - end -
C - 150-A
Regraded Uclassified
Chart 5
FARM INCOME AND RURAL SALES OF GENERAL MERCHANDISE 182
JAM,
MAR.
MAY
JULY
SEPT.
NOV.
DOLLARS
DOLLARS
WILLIONS
MILLIONS
Fars Income
INCL. RENTAL AND BENEFIT PAYMENTS
1000
1000
900
900
1937
800
800
1939
1938
1940
700
700
600
600
500
500
400
400
JAN.
MAR.
MAY
JULY
SEPT.
NOV.
PER
PER
CENT
CENT
Rural Sales of
General Merchandise*
200
1929 - '31 = 100 UNADJ.
200
180
180
1937
160
160
140
140
1940
120
120
19391
100
100
1938/
BO
80
60
60
JAM.
MAR.
MAY
JULY
SEPT.
NOV.
. DEPT. OF COMMERCE INDIX OF DOLLAR SALES OF GENERAL
MERCHANDISE IN SMALL TOWNS AND MURAL AREAS
Office of de Securitary of the Treasury
C-273-A
Date of - and -
Regraded Uclassified
183
MOVEMENT OF BASIC COMMODITY PRICES
Chart E
AUGUST 1939=100
1939
1940
OCTOBER
NOVEMBER
o
"
DI
J
F
M
A
M
J
J
A
5
o
to
D
DECEMBER
5
12
JANUARY
A
$
19
26
2
9
PER
16
23
PER
30
7
14
21
26
4
11
PLA
CENT
CENT
PER
CENT
Weekly Average
Daily
CENT
130
130
128
128
16 RAW INDUSTRIAL
125
125
MATERIALS
124
124
16 RAW INDUSTRIAL
120
120
MATERIALS
120
120
115
115
116
116
110
110
I
112
112
105
105
12 FOODSTUFFS
12 FOODSTUFFS
108
100
100
108
95
*
$
o
N
D
J
/
E
A
E
J
A
$
o
N
D
95
104
21
11
104
5
12
19
26
2
9
16
23
30
14
26
4
1939
1940
OCTOBER
NOVEMBER
DECEMBER
JANUARY
1940
Percentage Change for Individual Commodities, August Los to November 22, and to November 20, 1940
PCR
PER
CENT
16 RAW INDUSTRIAL MATERIALS
CONT
12 FOODSTUFFS
40
40
WOOL
HIDES
35
35
TALLOW
30
30
AMEAT
BUTTER
25
25
BOSIN
20
LEAD
STEEL SCRAP, pou,
20
SUGGA
BURLAP
BARLEY
ZING
STEERS
15
ENDLLAG
15
PLANKED
PRINT BLOTH
COPPER
COFFEE
10
10
MMAS
MINDER
BIL
STEEL SCHAP, EXP.
5
5
COTTON
SOMN
BILA
o
0
TIN
LARD
noss
-5
5
Aug. Low
Nov.22
Nov.29
-wa. Low
Nov.22
Nov.29
the of - Servicery el the Treasury
P. - 167 J
Interes of - - -
U.S. TOTAL TRADE AND EXPORTS. BY COMMODITIES
1010
-
on
114
-
--
034
-
DOLLARS
DOCLARS
advisions
-
set
TOTAL TRADE
520
4SC
+5%
ADD
4RC
354
Imports
MM
330
Exports
Including Resepents)
500
300
286
23C
zer
200
110
150
you
100
150
150
Trade Balance
100
100
49
so
o
o
-50
-ao
-100
426
ryse
yes,
1932
-
IMM
1933
1936
1987
non
1929
1940
EXPORTS OF U.S. MERCHANDISE
Total Nonagricultural
Selected Nonagricultural Commodities
DELLARS
DOLLARS
DOLLARS
DOLLARS
Millings
Millions
Milliams
Milliams
Machinary
- and State
Iran and Stael Strap
"
45
Scient
is
125
12
45
10
§
n
40%
sa
"
9
3
100
38
10
#
,
-
-
E
al
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Selected Agricultural Commodities
DOLLARS
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Milliam
Millions
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Tobacco
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201
No
9
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4
JMS
MAR
MAY
JULY
SEPT
NOV
L 14mg
Regraded Uclassifi
Pages 185-187 (dated Dec. 3 and 4)
placed in Book 335, pages 48-A,
60-A, and 161-A.
to
dis
this held one
149/40 at
10:45 an
and 12/10/40
BRITISH FINANCIAL
I SE UNITED STATES,
DECEMENT 1, 1940
DOPY NO. 1
STRICTLY CONFIDENTIAL
189
STRICTLY CONFIDENTIAL
BRITISH FINANCIAL REQUIREMENTS
IN THE UNITED STATES, DECEMBER 1, 1940,
These tables provide information relative to the
financial requirements of the sterling area for gold and
U. S. Dollars. They do not cover the requirements of those
parts of the British Empire outside of the sterling area
(1.e. Canada, Newfoundland and Hong Kong).
There are four tables: Tables I and II refer only to
the needs of the British Purchasing Missions; while Tables
III and IV refer to total requirements.
Table I presents a summary of estimated future payments
In the United States by British Purchasing Missions as of Dec.
1, 1940. The table covers balances due on existing commit-
ments and estimated commitments involved in additional orders
now under discussion, including those at present being nego-
tiated and those in the "X" Program. It does not include the
larger airplane, shipbuilding, and other programs that will be
fortheoming and will be submitted at a later date.
Table II presents detailed information with respect to
the data in Table I, classified by commodity group. The 10-
Division Army Plan 15 classified by itself because of the
difficulty of breaking it down into commodity groups; the value
shown 15 based on a War Department estimate. The table also
shows the estimated distribution of payments up to August 31,
1941 and subsequently, except for capital on orders to be
placed which is not distributed because of the lack of avail-
able Information. The distribution of the payments for the
10-Division Army Plan is arbitrary, the amounts prior to Allg.
31, 1941 being on account of estimated advances.
Table III shows the total requirements of the sterling
area for U. S. dollar payments (excluding any such payments to
Canada) between Sept. 1, 1940 and August 31, 1941 (the second
year of the war). This table summarizes the needs of the
British Purchasing Missions during this period together with
the sundry debit and credit items entering into the normal
balance of payments.
Table IV summarizes the general position of the sterling
Area for the second war year. This table cites the net require-
ments of the sterling area in both U. S. dollars and Canadian
dollars taking into account the assistance which the Canadian
Government have already given and may yet give in meeting the
latter requirement (the balance having to be met in gold). The
estimated amount of South African newly-mined gold is also taken
into account. The resultant final balance is an estimate of the
net amount required by the sterling ares in gold and dollars
over this period. This represents only the current items of
the final balance of payments, and does not take into account
any of the existing capital assets which may be liquidated in
order to meet the dollar expenditure of the sterling area.
British Embassy, Washington
December 7, 1940
Regraded Uclassified
STRICTLY CONFIDENTIAL!**
TABLE I
Forecast of Future Payments in the United States
to be made by British Purchasing Missions 1/
Summary Statement
November 30, 1940
(In millions of U. 5. dollars)
Balances Due
Additional
Additional
Sum of Balances
on Orders
Orders to
Orders to
Due on Orders
Already Placed
be Placed
be Placed
Already Placed
as of Nov. 30.
Now under
under "X"
and Estimated
1940
Negotiation
Program 2/
Additional Orders
Commodities
Aircraft
787
270
1,075
2.132
Son-aircraft
497
955
987
2,439
1,284
1,225
2.062
4,571
Total commodities
Capital
17
10
699
726
1,301
1.235
2.761
5,297
Grand total
British Purchasing Commission,
Statistical Division. New York.
December 7. 1940
1/ British Purchasing Commission. British Air Comission,
British Iron and Steel Corp. Ltd., and British Ministry of Shipping.
2/
This is the subject of the financial statement of Nov. 28,
1940, program entitled "Statement of the Estimated Value of Additional Orders
to be Placed under the Air. Munitions and Shipbuilding Programs with
Estimate of the Further Production Facilities required to supplement
recently under Discussion with the Administration together an
Existing Cepacity."
Regraded Uclassified
TABLE II
Paramet if Paters Payments is the Will States
STRICTLY CONFIDENTIAL
" be - by Iritial Purchasing Minalese V
Setailed Statement
foresher 30, 190
(In millives of 0.1. dollars)
Orders Already Planed
Additional la be Placed
idditional orders to be planed
be of Balances the and Lett-
for Dates Regridetion
under "I" Program y
anted Additional Orders
Orders
Payments
Cossolity
Planed
Made
Selecome
Entimated Paymente
level
Through
Through
Due
Payments
Beliented Payments
Retinated
After
After
After
After
Nov. 30
Nov. 30
Dec. 1
Apr.
August
Total
Dec.'40
*40
Apr. -
Augurt
Total
Dec.'40-
1940
Apr.
August
Total
1940
1940
Jam.'D
Mar,'42
1%)
Value
Ang.'42
1943
Value
Mar."Al
king.'d
190
1963
702.6
302.3
20.3
34.7
37.2
33.5
30,8
208,9
135.6
171.0
LB.0
51,0
71.0
605.0
217.0
114.0
1336.3
775.9
560ml
L
L dirglase Tagines
475.8
194.6
201,2
24.5
32.2
25,7
29,9
145.7
20,2
69.0
20,0
21.0
29.0
2%.0
87.0
46.0
143,0
626,2
134.0
192.3
le airplare Accounties
58.2
32.7
25.5
3.0
2,7
2.4
M
12,8
2.1
30.0
0.0
4.0
19.0
114.0
36.0
19,0
99,0
169.5
95.4
74.2
& Total Aireraft Products
1316.6
529.6
787.0
62,2
72,1
64.4
63,2
367.4
157.7
270,0
76,0
51.0
113.0
1075.0
340.0
179.0
556.0
2132.0
1901.3
626.7
139.5
85.4
56.1
16,9
11,2
7.5
1.9
132
2
LO.O
10,0
13.0
15,0
.
.
-
-
%.1
78,8
15,3
La Name Table
23
-
-
-
-
-
-
-
.
-
-
1
-
-
-
.
-
.
-
L. Materials
3
16.5
1.9
1.9
1.0
1.6
20,0
a.o
7,0
5.0
.
.
D.A
30d
13,3
T, Explacives 4 Propellanta
40.1
23,6
M
8,2
-
-
i.
135.0
$2.6
51,4
8.7
6.4
6,1
6,Y
33.4
21,1
79.0
25.0
28,0
26.0
107,0
23.0
25.0
99.0
268.6
MJ
106.1
23.9
270,0
49.0
58.0
163.0
69.0
20.0
a.c
as
US.S
180,9
227,9
1. Ordente Equipment
130.7
68,9
19.8
7,5
6.1
5.3
1.7
23.4
2.
127.4
25.7
101.7
6.0
5.3
7.7
100.0
40,0
35,0
25,0
301,7
129,1
72.6
7,1
28,1
47,6
.
-
-
-
I
-
-
17,7
17.7
,
d. Mar Teldales
12.7
25.0
17.7
4.6
5.9
5.9
in
-
-
-
-
-
-
-
2, in & Steel
269.4
143.4
100.0
30,0
30.0
20,0
10.0
360,0
-
-
630,0
270.0
360.0
10,0
-
530.0
30,0
140.0
-
-
-
,
-
13,1
12,9
3.0
1,6
-
D. Metals
53.7
38.2
15.5
3.9
3.3
2.0
1.7
3,0
.
-
-
-
-
-
-
-
:-
A
-
14. Testiles à Clothing
1,9
1,3
.6
-3
-2
2
-
-
-
-
-
-
-
-
-
-
1
2
-
-
-
-
15. & Tobacco
4.6
4.4
,2
.2
-
-
-
.
-
-
-
-
-
,
,
1
-
-
-
-
I
-
-
-
16. Patrolam Products
is
.5
-
-
-
-
-
-
,
-
-
17. Admis
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
18, Shipia
55,9
35.9
20,0
10,0
10,0
87.5
no
24,0
40,0
117,9
76.1
40.3
12,2
1.9
1.1
,5
2,3
,,
-
-
zus
17,0
9.5
1.1
"
:
27
1,1
3,0
6,0
2.0
2,5
2,0
24.0
8,0
w
12.0
39.5
29, Commulextions Systiment
11.9
2.3
#
-
-
.
.
-
-
-
-
-
-
#
1
-
-
-
-
-
*
-
20, Tialmo
-
1,5
1,3
J
.
-
All Dther
26,3
44.9
1,6
J
:-
2
a
,5
to
-
,
-
-
-
-
-
#
-
600.9
180.0
50.0
370,0
600.0
230.0
370.0
-
-
-
-
ILA, Repairment for 17 Division Any Plan
-
+
-
.
-
107.9
955.0
136.0
250,0
571.0
987.0
294.0
116.0
547.0
2435.7
1212.8
1221.9
22. Total Products
1022,0
SU
196.7
93.5
75.0
2.
37.4
124.0
265,5
1325.0
210.0
311.0
684.0
2062.0
634.0
325.0
1103.0
1570.7
2518.1
2052,6
23, Total Committee
2338.4
1054.9
1283,7
155.8
147.1
123.2
100.5
491.4
2.6
:-
10.0
-
or
a
499.0
-
-
-
526.3
E
DE
L. Capital
und
130.1
17.3
10,0
3-4
.7
L
8
200,0
ass
E
-
-
333
m
sur
200.9
-
=
-
.
-
-
-
-
a. Capital for 10 Division know Fish
-
-
-
123.9
100.9
LALO
266.0
1231.0
on
m
E
2761.0
-
-
5297.0
=
I
8
25. Great Total
206.3
1185.3
1901.0
165,8
150,5
Note It Brittan Purchasing Commination, Britten ALP Commission, Insta Irm end Steel Corporation and Brittah Ministry of Shipping,
Rele 21 This 14 Live of the financial statement of forminar 28, 1940, entitled *Statement of the with Estimated the Maintetration Value of Additional
Ordere Logather to with be Flaced as Botimate of the Purther Production Pastlities required to supplaint Existing
progres subject under the Mr, Musitions and Shipheilding Program recently Caparliz."
British Comminion
Relisting Division, Rev Tork
Demitter 7, 1920
Regraded Uclassified
192
STRICTLY CONFIDENTIAL
TABLE III
Estimated Balance of Payments of Sterling Area with the United States
and in U. S. Dollars to Countries other than Canada and Newfoundland
September 1, 1940 - August 31, 1941
(In millions of U. S. dollars)
I. Visible U. I. imports from and exports to United States
A. Oross payments on United Kingdom purchases (visible imports)
1. Payments by British Purchasing Missions 2/
a. Actual Sept. 1. 1940 - Nov. 30, 1940
(1) Commodities
517
(2) Capital
71
(3) Total actual payments Sept. 1, 1940 - Nov. 30, 1940
588
b. Estimated Dec. 1, 1940 - Aug. 32, 1941
(1) Commodities 3/
2.518
(2) Capital (on orders already placed) 4/
17
(3) Total estimated payments Dec. 1, 1940 - Ang. 31. 1941
2,535
c. Total payments by British Purchasing Missions
3,123
2. Other payments
a. Manufactures
86
b. Petroleum
54
c. Food
tale
d. Other rew enterials
97
.. Total other payments
281
3. Total payments on United Kingdom purchases
3,404
3. Less gross receipts from United Kingdom visible exports
164
c. Net balance of visible imports into United Kingdom from United States
3.240
II. Loss net balance of invisible exporte of United Eingdom to United States
16
III. United Kingdom adverse balance of payments with United States
3,224
IV. Loss net receipts from storling area (excluding U. K.) exports to United States
A. Gross receipts from exports
74
1. Australian gold
2. Marchandise
560
634
3. Total gross receipts from exports
3. Deduct gross payments on importe
1. Visible importe
334
la
2. Net balance of invisible importe
338
3. Total gross payments on importe
C. Net receipte from sterling area (excluding U. E.) exports to United States
296
T. Adverse belance of sterling area (including U. E.) with the United States
2.928
VI. Md expenditures in U. S. dollars and gold by sterling area in countries other than
the U. S. (excluding payments to Canada and Newfoundlend 1/)
248
VII. Net outgo in U. S. dollars and gold by sterling area (emluding payments to
3,176
Canada and Novfoundland 1/1
Brittish Babasay, Washington.
December 7. 1940
British Purchasing Commission. British Air Commission. British Iron and Steel Corp. Ltd.,
See Table IV, for Canada and Bewfoundland.
and British Ministry of Shipping.
See Table II, Item 23.
See Table II. item 24. No allowance is mão for capital on additional
British Purchasing Mission orders not yet placed.
Regraded Uclassified
193
STRICTLY CONFIDENTIAL
TABLE IV
Summary of the General Position
September 1, 1940 - August 31, 1941
(In millions of U.S. dollars)
I.
The net expenditure of gold and U.S. dollars
by the sterling area during the second war year,
excluding any gold or dollars paid to Canada, as
shown at the foot of Table III, is estimated at
3,176
11,
The adverse balance of the sterling area
with Canada and Newfoundland must also be dealt
with; for the second war year this is estimated at
...
880
Under our existing arrangements the Canadian
Government are helping us during the first six months
of the second war year to the extent of
150
Leaving a balance of
750
If repatriation of Canadian securities in the
last six months was no more than the first six months, vis. 150
This would leave to be met in gold or U.S.
dollars an amount of
620
...
III.
On this last assumption, therefore, the amount
which will have to be furnished in gold or dollars
during the second year of war is estimated at
3,796
IV.
Against this may be set the mining output of
South Africa during this period, which will be 5.
current addition to the monetary resources of the
United Kingdom. It is estimated at
480
V.
The balance remaining is
5,316
British Embassy, Washington.
December 7, 1940
Regraded Uclassified
194
ARGENTINA
Regraded Uclassified
Memorandum submitted by
Argentine delegation
196
Summary of attached Statement
The appended memorandum submitted by the Argentine
Government to Mr. Bell on November 17 makes the follow-
ing noints:
1. A foreign exchange deficit is anticipated in
1941 of as much as $160 million.
2. Serious internal difficulties, both sociologic
and idealogic would arise from such e situation.
3. The difficult situation may be expected to
continue for some time. If the war ends with a British
victory, Great Britain, doubtless financially exhausted
by that time, would probably continue the barter system.
If the Germans win, undoubtedly the barter system will be
greatly extended.
". Argentina believes that gold must continue R2
the basis of international exchange, that the barter
regime must be gradually discarded, that multilateral
trade is the only satisfactory form of international
commerce, and that Argentina must continue to fulfil
its external and internal financial commitments, and
must continue to receive productive foreign investments.
5. To accomplish these endo positive action is
necessary. Only the United States can take such action.
6. The Treasury Stabilization Fund could play A
primary role in a program of consolidating the Une of
gold throughout the Western Hemischere.
7. Meanwhile there is the immediate problem of
the deficit in the Argentine balance of payments, which
must be met as R part of the broad program of cooperation.
They auggest:
(a) Stabilization operations designed to
facilitate the inflow of capital
(b) Long-term low-interest gold loans
(c) Developmental loans which will creste
their own capacity to repay
(a) Triangular operations with Great Britain
(e) Purchases of surpluses by the United States.
Division of Monetary Research
Regraded Uclassified
197
Embajada
to to
Republice Argentina
CONFIDENTIAL MEMORANDUM
1.
The economic situation of Argentina is very serious.
It is estimated that next year's exports, from which the life
of the country fundamentally depends, will only reach 60% of
normal figures. A part of those exports will continue to be
paid in blocked exchange. There 1a 8. growing deficit in the
balance of payments in free currencies. If no measures are ta
kun to correct it, the deficit may amount to 160 million dollars
in 1941, that 1a, nearly half of our remaining gold reserves
after deduction of the specie being exported at present to con
tinue the fulfillment of the debt services and meet the adver
19 trade balance of the current year.
If so far totalitarian ideologies have only caught on
In omall groups of opinion without national significance in
our country, there is little doubt that the social and econo
min illa resulting from such a situation would give them consi
Marable impulsion. This fact must therefore be duly borne in
mind. Our Government is prepared to meet these difficulties
with B. plan of internal economic recovery. But this plan cannot
by itself, solve and eliminate wholly these grave latent dangers.
3,
Some of these complications are not new in Argentina;
they already existed but they have grown considerably worse. Our
exporta have remained stationary since before the world crisis,
and during the last few years an increasing portion of our fo
ruign trade has been carried out under the oppressive barter
1111
198
system. The continuation of the war will involve us more and
more in this system and the cessation of hostilities will in
no way solve the problem. If the war enda with a British vic
tory it cannot be conceived that Great Britain, doubtless f1
nancially exhausted by that time, would swiftly abandon the
barter system which she will have learned to operate with
great skill. If, on the other hand, the war ends with B German
victory it is not difficult to imagine what form trade with
the Reich will presumably assume since we will not be able to
elude the necessity of selling our export surpluses accepting
payment in blocked marks with the incalculable implications
that this would surely entail.
4.
It 19 not merely B temporary or circumstancial problem
which we set forth in this Memorandum. The question is far
deeper and it affects the whole economic, social and political
structure not only of Argentina but also of the other American
countries which are in 8 similar position. We are faced with
the possibility of seeing the disappearance of the fundamental
principles in which we have always believed, principles which
could only be saved by the decisive action of the United States
in promoting a vigorous continental cooperation. We believe
that gold must continue to be the basia of the international
monetary system and we do not desire to be increasingly tied
to the barter regime as e consequence of further losses of our
gold reserves. We believe that the fulfillment of the internal
and external financial commitments 1a essential for the economic
development of our country and we are willing to continue in
this respect our traditional policy. We agree that multilaterel
trade is the only satisfactory form of international commerce and
////
Regraded Uclassified
199
- 8 -
would like to emerge 88 soon as possible from the bilateral
system or to lessen at least its more pernicious consequences.
We might point out that circumstances have forced this system
upon us in recent years and that we have therefore no responsi
bility in its promotion. And finally we believe that in order
to raise the standard of living in our country we must not only
continue but strengthen our policy in favour of investment of
productive foreign capital, insuring stability of conditions,
free transfer and equality of treatment with national capital.
5.
All this requires bold and positive action. The passive
attitude of pointing out the evils is not enough. A definite
policy of economic cooperation is necessary. Circumstances have
never been more favourable for such a policy nor has it ever
been more necessary: the international situation, the common
adherence to the principles of the good neighbour and the enor
mous continental prestige of President Roosevelt.
6.
Neither Argentina nor any other American country can
escape the disastrous consequences of barter trade, unless a
continental monetary system based on the dollar is solidly or
ganized, assuring the free movement and use of gold. We must
avoid falling into the practices of barter in our effort to get
out of the consequences of rival systems of barter. We must not
evolve any system that may deprive B. country of the possibility
of selling its exportable surpluses in the market which it may
find most advantageous. This does not mean of course that arran
gements between producing countries for the selling of individual
products may not be desirable. The Exchange Stabilization Fund
could play a primary role in the organization of this conti
////
Regraded Uclassified
200
nental exchange system which, apart from its direct advantages
would allow the United States to consolidate the essential fune
tions of gold throughout the continent irrespective of the atti
tude that Europe may adopt in this fundamental question after
the war.
7.
A long term plan of continental economic cooperation -
within the aims of the Government of the United States as enume
rated more than once by the Secretary of State The Honorable
Mr. Cordell Hull - has necessarily to be based on B. previous
settlement of the exchange and monetary problems and in the de
velopment of trade within the continent. In so far as we are
concerned, we are convinced that in the course of a few years
we could develop a flow of new exports to the United States of
non-competitive mineral or manufactured products, provided cer
tain permanent facilities, such as the binding of custom duties
were essured to us. Thus some of the present acute problems
which are now of difficult or impossible solution would pass to
Et secondary level. This 18 essential.
Loans are B mere momentary expedient. Only the increase
of trade and investments creates solid ties.
8.
Meantime we have before us the immediate and pressing
problem of the deficit in our balance of payments. Import
restrictions cannot be applied too drastically or carried too
far without serious injury to our economic activities and without
unfavourable repercussions abroad. Therefore in order to miti
gate or altogether avoid these consequences we propose B. dis
cussion of the following possibilities or alternatives, within
the scope of the Agenda prepared by the Treasury:
a) Measures of monetary cooperation and control of
foreign funds. Argentina offers a vast field for the productive
Regraded Jclassified
201
- 5 -
investment of permanent capital of the United States. But capi
tal is not invested in the desirable quantities on account of
possible transfer hindrances and instability of the rate of
exchange. If we could eliminate these risks, the flow of capital
could increase considerably. There is in effect B vicious circle:
capital does not flow in because of the exchange uncertainty
and there 18 uncertainty of exchange because capital does not
flow in. If the Exchange Stabilization Fund would cooperate with
our Banco Central to afford this assurance, the problem could
be solved. The arrangement could work 8.8 follows: the Exchange
Stabilization Fund would buy pesos in the necessary amounts to
cover any dollar deficit arising between the amount of new CB
pital and the volume of the regular remittances of existing CB
pital. The Banco Central, in its turn, would guaranty the remittan
ce of those services at B. stable rate of exchange; should the
amount of new capital investments be greater than the amount of
the services to be made, the Banco Central would repurchase the
pesos from the Exchange Stabilization Fund and would form an
adequate dollar reserve. This arrangement could only refer to
permanent investments so as to avoid the inflow of great masses
of floating funds. An arrangement of this nature might assume
considerable importance and may clear the way for the general
solution of the long term problem.
b) Long term gold loans at 8. low rate of interost. We
would be prepared to mobilize or set aside an important part of
our metallic reserves to cover the service of the gold lent to
us, during & sufficiently long period of time as to tide us over
the difficulties of the probable duration of the emergency. Long
term and low interest are essential in order not to overburden
1111
Regraded Uclassified
202
- 8 -
the service of our foreign debt. Naturally if these loans were
granted to an extent large enough to convert our United States
debt, our situation would improve appreciably.
c) Export and Import Bank loans at reasonable terms and
at low interest rates. In the amortization of these loans the
exchange resulting from the export of our new products or from
the increase in the exports of non-competitive products, could
be used, without prejudice to the use of other sources of exchange.
d) Triangular operations with Great Britain. The frozen
sterling resulting from our present exports to Great Britain or
from the purchase of surpluses which Great Britain might effect
in Argentina - in accordance with and subject to a plan which
may be evolved - would be used in the purchase of Argentine
securities in British hands, especially railway securities. If
on this basis the United States would grant us loans, we could
thereby improve our exchange situation and at the same time ex
tend the program of repatriation of securities on much more
favourable terms inasmuch as we would pay Great Britain in dollars
and
e) Purchases of surpluses by the United States.
V.
These suggestions are in no way exclusive of any other
which may be found to be mitually satisfactory. But it would at
all events be advisable not to lose sight of the long term pro
blem. Temporary solutions should rather constitute the initial
stage of a program of this nature. It is our duty to express
in all frankness that the immediate solutions must be based on
the faith in the fulfillment of our commitments and on the con
fidence in the economic future of Argentina. We feel we deserve
that feith. We have made in the past and shall make in the pre
sent every necessary sacrifice to continue to deserve the faith
Regraded Uclassified
203
- 7 -
placed in us. As regards our economic future only a plan of
continental cooperation, boldly launched by the United States,
can save the Nations of this Continent from a precarious autar
chy or from the subordination of their foreign trade to systems
of barter of dangerous and far reaching implications.
Washington, November 16th. 1940
Rich in Sunday nov.17th 8:15am Secip yours
Treasury
and office
204
White's memo -Argentine
Situation - Summarized
Regraded Uclassified
Summary of attached Statement
TREASURY DEPARTMENT
205
INTER-OFFICE COMMUNICATION
DATE November 26, 1940
TO
Secretary Morgenthau
FROM
Mr. White
Subject: The Argentine Situation - Summarized.
1.
Argentine will be short of dollar exchange to the
extent of $80 million to $100 million in 1941,
under the following assumptions:
(a) That Argentina will be able to cut her imports
from the current rate of about $400 million
annually to $320 million. (Details of this es-
timate are in an appended memorandum.)
(b) That Argentina will obtain no gold or free
foreign exchange from her exports to England.
(c) That service payments ($40 million to the United
States, $50 million to England and $10 million
to Switzerland) will continue to be made as
formerly.
(a) That exports to the United States will be in-
creased by 20 to 30 percent.
(e) That the $20 million loan from the Export-Import
Bank will be available to pay for imports in
1941.
(f) This estimate does not include any new armament
program.
(g) It does not provide for any expenditures by the
United States on naval bases in the Argentine
area.
2. What are Argentina's dollar exchange assets?
(a) Argentina had $390 million in gold and $14 million
in free foreign currencies as of November 15, 1940.
She must have $100 million to fulfil statutory
reserve requirements. Her holdings of foreign
securities are negligible.
206
Division of Monetary
- 2 -
Research
(b) After the year-end settlements, Argentina
will have blocked sterling balances to her
credit of about 2.5 million pounds. By the
end of 1941 the British expect Argentina's
blocked sterling balances to total 9 million
pounds. They are willing to have Argentina
repatriate securities to reduce this balance.
The Argentines hope British exports will be
large enough during 1941 to prevent 8. sterling
balance. The British would presumebly be un-
willing to allow the conversion into dollars
of any portion of this balance unless, in
return, they could obtain dollar credits in
some feanion.
3. Budgetary Situation
The budgetary situation is much like ours.
There will be B. deficit on ordinary budgetary account
in 1941 of 220 million pesos with expenditures of
1,090 million pesos plus an additional deficit of
220 million pesos on account of special public works
expenditures.
4. Foreign Debt
The total debt of the Argentine National Government
was $1, 428 million at the end of 1939, of which 8367 mil-
lion was external debt. The debt of the provincial and
municipal governmente totals $697 million,
None of the national debt 16 in default. Only two
municipal dollar issues and one provincial dollar issue
are in default.
5. Foreign Investments in Argentine
Foreign investments in Argentine run $2 billion to
82.5 billion, of which the British have 65 percent and
Americans 25 percent.
6. Possibilities for Developing Argentine Industries
With Foreign Capital
(a) Argentine used to receive about 150 million
pesos annually of private capital for invest-
ment in the Argentine. This has disappeared
since the existence of serious exchange
difficulties. Argentina has recently received
Regraded Uclassified
207
Division of Monetery
- 3 -
Research
a small amount of refugee capital, some
fleeing Europe and some fleeing the United
States in fear of blocking. Prospects for
renewed private investment are remote unless
exchange difficulties can be solved and even
then the amount of private investment may
not be large--possibly 10 to 25 million dol-
lare during 1941.
(b) The projected industrial development program,
if financed by loans from the United States,
would result in heavy imports of industrial
equipment during the development period. This
would be in addition to the dollar exchange
requirements specified above. If not all such
loans were required to be spent in United States
they would help Argentina's exchange situation.
7. How long will the deficit in dollar exchange continue?
He believe that the defleit in dollar exchange for
1942 and possibly for subsequent years may be as large or
larger than that estimated for 1941.
Argentina will probably continue to have the sterling
proceeds of her exports to Britain blocked whether the
war continues or not. The occurrence of peace will tend
to reduce dollar requirements only in so far AB Argentina
is able to obtain from European countries come of the
commodities which, in the interim, she has been importing
from the United States.
8. Tentative conclusions reached by the Jones Committee
The Jones Committee has tentatively recommended that
100 million be extended to Argentina. Of this $50 million
would be supplied by the Export-Import Bank.
The remaining $50 million to be supplied by United
States Stabilization Fund operations if the Secretary of the
Treasury were to approve.
There was much talk of facilitating repatriation of
Argentine sterling securities, but no definite plans were
agreed upon.
Nothing was stated definitely as to Argentina's part of
ment, non-digcriminatory treatment of American exports, possible
the bargain, but the following were mentioned: a trade agree-
military cooperation as to bases, cooperation as to foreign
policy and to subversive activities.
Regraded Uclassified
208
THE ARGENTINE SITUATION
11-22-40
1. Dollar requirements in 1941
Argentina will be short in her trade with free exchange countries
on trade and service account to the extent of $80 million to $100 mil-
lion of dollar exchange.
(a) Trade with free exchange areas.
The following table is based on the best estimates which can
now be made as to Argentine exports for 1941 and upon the Argentine
estimate of the extent to which they can cut their imports. They have
submitted figures showing that if necessary they can cut their imports
to $300 million for 1941 88 compared with $400. million at current
levels:
Deficit in
Exports to
Imports from
Balance
(In millions of dollars)
United States
$90+
$120
$30
Canada
5
5
-
Total
$95
$125
$30
Other American Republics
$35
$ 45
$10
The total excess of imports requiring dollar exchange is
estimated to be about $40 million for 1941. This estimate is, it
must be emphasised, based upon the assumption that Argentine imports
will keep to the minimum level of $300 million and that exports to
the United States will increase about 10 percent above the current
level. The Argentine statement that they are considering cutting
their imports from the 1940 level by about 25 percent in value
amounts to a cut in volume of imports by perhaps 35 percent.
Great Britain than she anticipates, she might have to increase her
Should Argentina obtain a smaller amount of imports from
imports If this should prove possible, the deficit in dollar exchange
of similar articles from the United States and other places. would
be higher than the $40 million estimated above.
(b) Invisible items to free exchange areas.
payments on invisible items to the United States in 1941 will million. amount
According to Argentine estimates (which agree with ours),
$40
to
Regraded Uclassified
209
- 2 -
These are split into approximately $20 million for interest on the
public debt and $20 million for return on private investments and
other financial services.
The Argentine balance on invisible items with other free
exchange countries 18 not known, but this would not be an item of
much magnitude.
Total dollar exchange actually required.
Argentina will require. as stated above, $40 million for payments
on invisible items, plus $40 million to meet the deficit on trade
account, giving a minimum dollar requirement during 1941 of approxi-
mately $80 million.
(c) Trade with non-free exchange areas.
Although Argentina's balance of payments with non-free
exchange areas does not bear directly on the question of her current
dollar exchange needs, they are of interest in connection with the
broader problem and therefore are given below:
Our estimates of the trade situation with non-free exchange
areas is shown in the following table:
Argentine Exports and Imports for 1941
Exports
Imports
Balance
(Millions of dollars)
United Kingdom
$160
$90
€70
Other European and
Asiatic Countries
20
30
- 10
(d) Total exchange position with non-free exchange areas.
With maintonance of payments on invisible items to Great
Britain and Switzerland amounting to the equivalent of $60 million of
annually, sterling surplus with Great Britain on trade countries account of of
Argentina will have, under fairly severe curtailment
imports, million a and a deficit on trade account with other
$70 the of $10 million. Therefore, in the non-free exchange her
area equivalent as a whole Argentina may be expected in 1941 to balance
international payments.
Treasury Department
Division of Monetary Research
Regraded Uclassified
210
- 3 -
Argentine Estimate of Dollar Requirements
This figure of $80 million is substantially lower than the
Argentine estimate of $160 million. The discrepancy between the
Argentine and our estimate arises from the fact that the Argentine
estimate is based upon an assumption of exports to the United States
at the level of approximately $60 million, whereas Argentine exports
to the United States are currently running at $80 million, and we
estimate them at $90 million for 1941. Furthermore, the Argentine
figure is based on an estimate of imports from the U. S. of $175
million, whereas their proposed cuts reduce them to $120 million.
Argentina's exports to the dollar exchange areas have been
increased over the level of 1940 for the following reasons:
1. The United States defense program is likely to increase
the national income in the United States and result in larger all-
around imports.
2, It is also leading to systematic efforts to increase imports
of strategic and other scarce commodities from the Western Hemisphere.
3. Argentina herself is paying more attention to the United
States market and may be expected to develop some new trade here.
Conclusion on essential dollar requirements of Argentina for 1941.
The conclusion reached in the above estimates is that Argentina's
need for dollar exchange will be $80 million during 1941. Trade and
service payments to the non-free exchange areas will approximately
balance and even if they do not balance, there will be no need for
dollar exchange on account of these transactions.
Because it is difficult to estimate accurately Argentina's exports
and imports with dollar exchange areas, it is best to think of
Argentina's dollar requirements for 1941 as being in the neighborhood
of $80 million to $100 million. of course if the Argentine estimate of
the amount to which they can restrict imports is shown to have been
excessively optimistic, the shortage of dollar exchange may be much
higher than $80 million to $1.00 million.
Treasury Department,
Division of Monetary Research.
Regraded Uclassified
211
- 4 -
2. What are Argentina's dollar exchange assets?
Argentina has an ample gold supply - $400 million - to meet a drain
of dollar exchange of the sise estimated above for one year and probably
for two years. Legal currency and deposit reserves amount to approxins-
tely $1.00 million but if the gold drain approached within $1.00 million of
this figure, the ensuing loss of confidence would probably cause the
Argentine Government to take drastic measures to restrict the flow of gold.
(a) Gold and foreign exchange
According to the Argentine Government's estimate, their gold and
foreign exchange assets on November 15, 1940, were as follows:
Paper pesos
Dollars
(In millions)
Gold at home
1,096
326
Gold abroad
202
60
Gold in transit
16
4
Free foreign currencies
47
14
Blocked sterling
83
25
Blocked france
21
6
Blocked marks
5
1
1,470
436
Of whichs
In the balance sheet of the Central
Bank
1,353
403
Not included in the balance sheet
of the Central Bank
117
33
* Book value of gold at home has been converted into dollars at
the official buying rate of exchange.
The blocked foreign exchange is currently of no use in meeting their
dollar exchange problems and the total blocked foreign exchange ($32
million) is being rapidly reduced in the year and settlements BO that there
is apparently little need on the basis of the current situation to attempt
to work out ways of converting this blocked exchange into free exchange.
Argentines to use the blocked sterling, if any, which they will accumulate
The British-Argentine agreement will furthermore make it possible for the
in repatriation of their own securities.
approximately $404 million in gold and free foreign currencies, of $390
Subtracting blocked foreign exchange from the total, Argentina which possesses
million is in gold. Argentina must keep $1.00 million to fulfill statutory
reserve requirements.
(b) Argentine holdings of foreign securities.
information is available on Argentine holdings of foreign Prebisch 1000-
rities, particularly No dollar securities, but the statement of Mr.
is that these are negligible.
Treasury Decartment, Division of Monetary Research,
Regraded Uclassified
212
- 5 -
(e) Repatriation of Argentine securities
If Argentina succeeds in the coming year, because of arrange-
ments with the British or other countries, in repatriating any large vol-
use of its foreign securities, and in obtaining from the United States a
loan based in part upon these repatriated securities, the interest and
amortisation will create an additional need for dollar exchange. of
course, the loan itself will take care in part or in whole of the expected
deficit in dollar exchange.
(d) The blocked sterling proble
The British anticipate that by the end of 1941, the blocked
sterling balance to the credit of Argentina will be 19 million pounds.
They are willing to have Argentina repatriate securities to this amount.
However, they would presumably be unwilling to allow conversion into dol-
lars of any portion of this balance unless in return they could obtain
dollar credits in some fashion. Argentina hopes that British exports will
be large enough during 1941 to prevent a sterling balance.
Great Britain would perhaps be willing to increase her purchases from
Argentina if suitable financial arrangements could be made. If the United
States were willing to increase credits to Argentina on the basis of secu-
rities repatriated from the British Argentina would be able to take more
securities and would be enabled to increase her sales to the British. The
British on their part would like to see some portion of an American loan
used by Argentina for the purchase of more British goods.
3. Budgetary situation
Excluding the projected new areasent program and the projected
developmental program. the budgetary picture of Argentina is practically
the same in 1941 as in 1940. Though the 1940 budget contained & deficit
it was small enough to create no financial difficulties.
The budgetary situation as given to us by the Argentines is shown
in the table below:
Years
1940
1941
(In millions of paper pesos)
Budget to be covered by revenues
Revenues
935
870
Expenditures
1,085
1,090
Deficit
150
220
Budget to be covered by sale of bonds
181
220
Income forse.
223
220
Expenses
q
Deficit
Treasury Department,
nt acquated 440
Division of Monetary Research.
Regraded Uclassified
- 6 -
213
It envisages a deficit on ordinary account for the year 1941
or approximately 220 million pesos or $70 million, AThie deficit
compares with one of 190 million pesos for 1940. This estimate
does not include any of their projected armement program totaling
8330 million for ten years. This has just gone to the Congress,
It also makes no account of possible loss ($15 - $20 million)
in customs revenue through curtailment of imports.
40 Foreign Debt
None of the national debt is in default. of the provincial debt
only one dollar issue is in default. of the municipal debt only two
dollar issues are in default. of the sterling debt, only one provincial
issue is in default.
The foreign debt is composed as follows:
Dellar Debt
National Debt
$193 million
Provincial Debt
65 #
Municipal Debt
5 .
Sterling Debt
National Debt
44 #
Provincial Debt
18 #
Municipal Debt
2 #
Other
National debt in Swies france
132 #
National debt in pesetes
80 -
5. Foreign Investments in Argentina
The total amount of foreign investments in Argentina runs $2 billion
to $2.5 billion, of which the British hold approximately 65 percent and
the Americans 25 percent.
The British hold $240 million of government securities, $1,060
million of railways, $120 million of other utilities, and $140 million
miscellaneous.
American direct investments run $400million and holdings of
government securities (national and local) $230 million.
Remission of earnings has not been curtailed since 1933.
Treasury Department
Division of Monetary Research.
7
214
6. Possibilities for development of Argentine industries with foreign
capital
a. Development Program
The Argentine delegation has promised & statement on their
developmental program. Preliminary information indicates that salient
objectives will be construction of oil pipe lines, re-organisation of
railways which are badly in need of physical improvement, electrification,
development of water power, the development of industries to produce goods
for Western Hemisphere exports; the development of industries to produce
goods for home consumption which are now imported. Their very preliminary
and tantative estimates of the amount of capital which they would need and
could use over the next three years is between $150 to $200 million for
long-term developments, a substantial portion of which, possibly from one-
third to one-half, would be used for imports from the United States.
In the first please of any such developmental program there is
need for increased imports, particularly of machinery and rew materials.
It is the consensus on the American side that such 8 developmental program
could not result in & net decrease in customery imports in any period
shorter than five years. (During the five-year period there would, of
course, be an increase of imports on account of the developmental program.)
b. What are the chances of capital flowing to the Argentine during
the next few years?
In normal years Argentina used to receive approximately 150
million pesos for investment in the Argentine. But this mount has been
virtually wiped out as a consequance of the serious exchange difficulties
of the past few years. This last year, however, she received probably from and
$15 to $25 million gross of refuges capital, some of it fleeing Europe
some of it fleeing the United States in fear of blocking.
in the next few years - unless assistance is granted, there is little pos-
So long as Argentina's exchange picture looks as bad as it will
sibility that private capital will seek investment in Argentina.
If, however, arrangements are made giving to the prospective from 03- in-
vestor reasonable assurance of exchange stability and freedom
change restrictions, a it is not unlikely that during the next few years The from
cooperation $100 of the United States Foreign Funds Control could affect that
$25 to million of private capital may flow to the Argentine.
amount to some extent.
Treasury Department,
Division of Monetary Research.
Regraded Uclassified
- e -
215
7. How long will the deficit in dollar exchange continue?
The outlook for 1941 is that even with severely curtailed imports,
Argentina will have a deficit of $80 to $100 million in dollar exchange.
In the absence of credits or stabilization operations, this will mean M
loss of gold of $7 to $9 million monthly. The outlook for subsequent years
is equally bad in the event that war is continued, and can only be remedied
in the event of peace by Argentins's purchasing from Europe the goods which
she now takes from the United States.
It is believed that the Argentine deficit on dollar exchange for 1942
and possibly for subsequent years will be as great or larger than that 68-
timated for 1941. The reasons for this are the following:
a. In the event the war continues, Argentina will continue to
have the sterling proceeds of her exports to Great Britain
blocked as a result of her clearing agreement with England
and she will continue to find it necessary to import goods
from the United States rather than from England. In fact
as war goes on Argentina will be able to import less from
the United Kingdom.
b. In the event that peace occurs with either & German or
British victory, it is not likely that the sterling proceeds
of Argentine exports to European continent will be unblocked
to any considerable extent. Her requirements for dollar
change will only be lessened insofar as she is able to ob-
tain from Buropean countries commodities which in the interim
she has found it necessary to import from the United States.
With return of peace Argentina's dollar requirements could only be
met if Argentina drastically curtailed imports from the United States and
if the continent of Europe is in a position to supply these imports.
The estimates of dollar deficit running at the level of $80 million
are based on & great reduction in Argentina's imports. This reduction
could be maintained for a year or two, but since it includes sharp cuts in
over a longer period without impairing Argentina's economy and ability to
imports like cars and agricultural implements it could not be maintained
export.
Treasury Department,
Division of Monetary Research.
Regraded Uclassified
316
8. Possible Methods of Assistance
If it is decided to provide economic assistance to Argentina, the
following methods are open:
1. Increased private purchases from the Argentine
The only possibility of promoting increased purchases during
the next couple of years from the Argentine is through a trade agreement.
The Trade Agreements Committee is studying the possibility of tariff
concessions, some of which are important. There is a possibility of
some concessions being made on canned meats and flaxseed. The magni-
tude of any probable increase in trade is less than $10 million a year.
2. Purchases by the U. S. Government of Argentine surpluses.
A few of the Argentine surplus commodities may be saleable to
the U. S. Government for stockpile or defense needs. But aside from
wool of which a surplus of $20 million is now available and where the
trade prospects are good, and linseed with a surplus of $30 million and
where the prospects are bad, the total value of the products that the
United States might acquire would scarcely amount to more than
$10 million to $20 million.
3. Loans from the Export-Import Bank
Two types of loans from the Export-Import Bank can be made.
One for the purpose of promoting long-term productive projects, and the
other to enable the Argentine to import numerous categories of merchandise
during the emergency period that she might otherwise be forced to do without.
The proceeds of 8. developmental loan would be spent largely in
the Western Hemisphere and would be used for projects mutually agreed
upon. Such a loan would be designed to make the Argentine economy less
dependent on that of Europe. It would, however, make only a partial
contribution to their dollar exchange deficit, because most of the funds
would be spent on imports from the United States additional to those
which they are now taking.
The second type of loan would be one made for the purpose of
permitting the Argentine to have a higher level of imports than would
otherwise be possible during the emergency period without subjecting her
to serious drains of gold. Though the character of this loan beare some
similarities with the Stabilization operations described below, there
is at least one eignificant difference which appears to justify making
a Import Bank could bear a greater risk than the operations described would below
distinction between the two types of loans, A loan from the Export-
and would therefore bear a higher rate of interest. Produmably it
be made without the guarantees provided for with the stabilization
operations described below.
Treasury Department
Division of Monetary Research
Regraded Uclassified
- 10 -
217
40 Stabilization Operations
The United StatesStabilisation Fund may be able to provide funds
adequate to stabilise the exchanges for a considerable period. This
could be done by purchasing pesos up to a eaximum gold amount under
agreed upon terms and conditions. Pesos so acquired could be left on
deposit in Argentina for investment in Argentine industries. The risk
of possible exchange loss would be borne by the Argentine Government
and some assurance of compensation for such a loss might be required
in one or all of the following ways. It is important to note that
their remains a question of the legality of undertaking operations
extending beyond the period of the existence of the Stabilization Fund.
This point is being considered by the Legal Division of the Treasury
at this time.
(a) Guarantee of repurchase at our purchase price by
Central Bank of Argentina and additional guarantees
from the Argentine Government, perhaps in the latter
case in the form of special bonds.
(b) Pledging and earmarking in New York of that portion
of the gold in excess of legal minimum requirements
plus such gold as would be expected to be used to support
the peso. This type of collsteral is the least setis-
factory fromArgentins's point-of-view and would be one
theys would probably be reluctant to give inseauch as they
could not count gold pledged as part of their reserves.
In effect, the pledging of gold would have only slight
advantages over the actual sale and use of gold and use
of gold by Argentina without involving any apparent
extension of credit by the U.S.
A more satisfactory alternative from Argentina's point=
ef-view and one that would probably have little risk from
our point of view, would be for the Argentine Government
to agree to use her gold holdings only as a means of
repurchasing the pesos which the American Stabilisation
Fund would acquire. Such repurchasing would be made at such
time as the U.S. would request. In that way, Argentina
could include the gold in her reserves. If thought desirable
she could even keep an amount of gold on earmark in New
York adequate to cover our peso holdings, but that would
not be pledged except insofar as their agreement to repurchase
the pesos, if necessary, with their gold would constitute &
pledge.
(c) The U.S. could accept sterling in exchange for pesos and
the Argentine Government might be required to underwrite any
risk of less on such sterling undertakings.
(d) Argentine securities might be accepted as colleteral against
possible exchange less.
Theasury Department
Regraded Uclassified
218
White's memo -Treasury
proposals (11-27-40)
Regraded Uclassified
219
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATE November 27, 1940
TO
Secretary Morgenthau
FROM
Mr. White
Subject: Proposal for Treasury participation in economic
assistance to the Argentine Government
I would like to submit for consideration the following
plan for promoting stability in the doller-Argentine peso
exchange rate.
1. United States Treasury to agree to purchase during
1941 -- with funda in the Stabilization Fund -- Argentine
Desos un to $50 million, the pesos to be left on deposit
in the Central Bank of Argentina. The Central Bank of
Argentina would agree to pay interest on those deposits at
the rate of 1/2 percent above the Federal Reserve Bank of
New York rediscount rate.
The proceeds of (a) any inflows of capital into
Argentina, (b) of purchases by the U. S. Government of
defense stocks from Argentina, and (c) of any arrangements
made with respect to military bases involving dollar ex-
penditures in Argentina -- are all to be used AS soon 8.8
available to repurchase pesos held by the Stabilization
Fund.
2. The purchases of Argentine pesos to be made on
the following conditions to be agreed upon by the Argentine
Government:
(a) The Government of Argentina end Central Bank
of Argentina agree to repurchase the Argentine
pesos held by Stabilization Fund (with dollars
or gold) at the same price and in such amounts
and at such times 8.5 the Treasury shall request.
The requirement that 30 days' notice of B re-
quest to recurchase may be given might be 1n-
cluded in the arrangement.
(b) They shall further agree to use its gold reserve
to recurchase the pesoa if necessary.
(o) One or all of the following three conditions
may be imposed to safeguard the repurchase of
pesoe held by the Stabilization Fund AB follows:
220
Division of Monetary
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(1) The Argentines could be informally
requested not to reduce their present hold-
ings of gold on earmark with the Federal
Reserve Bank during 1941 to less than $50
million. (They now have about $70 million
on earmark.)
(2) The Argentine Government and Central
Bank would agree not to dispose of gold
holdings below $300 million 80 long as our
Stabilization Fund held pesos except with
the consent of the United States Treasury.
(3) The Argentine Government would agree
that during 1941 imports not to exceed a
rate of $200 million a year would be per-
mitted from countries requiring gold dol-
lars or foreign exchange payments.
(d) The Argentine peso official rate could be pegged
to the dollar. This is not an important economic
advantage but it would please the U. S. public.
3. The legal powers for such an undertaking by the
U. S. Stabilization Fund exist. A memorandum from Mr. Foley
to that effect is appended.
4. I can find no public statement made by you which
1s inconsistent with such an undertaking. A copy of
numerous statements you have made bearing on the use of
the fund 1s appended.
5. The risk of loss to the Stabilization Fund from
such an operation would be very small. Argentina has
5 times as much gold available for the repurchase of
pesos as would be required under the proposal. Both the
Central Bank of Argentina and the Argentine Government
would guarantee the repurchase. The credit record of
the Argentine Government is excellent. The Central Bank
is sound and well conducted. The only risk which the
Stabilization Fund would take in such an operation 1s that
both the Argentine Government and the Central Bank would
deliberately refuse to live up to its agreement despite
the fact that their gold assets were adequate. Even in
that event, adequate protection could be obtained by re-
quiring them to keep on earmark gold in the Federal Reserve
Bank of New York in excess of our peso holdings. Such gold
would not be pledged but since a license is required for
withdrawal, the Treasury could, in effect, protect its
interest.
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Research
6. The United States would acquire an instrument with
which to insure current and constant cooperation between
policies of both Governments with respect to foreign policy,
subversive activities, trade discrimination, etc. The
basis for close cooperation between the Treasuries would be
established and could provide opportunities for collabo-
ration in many ways, some of them unforeseen -- as was
the case with members of the Tripartite Accord.
7. The Argentine Government for its part would much
prefer stabilization operations to & loan because (a) the
interest cost would be substantially less, and (b) they
could regard our purchase of pesos not as a loan but as a
stabilization operation. Their financial prestige would
not be diminished by stabilization operations whereas a
loan makes their financial status appear weaker.
8. When on next June 30 the question of the existence
of the Stabilization Fund is raised, we would be in a much
stronger position to defend its reextension if we could
point to the stabilization arrangements with Argentina 8.8
a sample of the kind of work the Stabilization Fund was
doing and could do.
9. It is assumed that in return for any economic
assistance given by the United States that some quid pro
quo would be obtained such as one or more of the following:
(a) Non-discriminatory treatment to American
exporters as determined by State Department nego-
tiations.
(b) Consummation of & trade agreement nego-
tiated by the State Department.
(c) Acquisition or use of military, naval
air bases as determined by the President.
(d) Cooperation with us in their control
of foreign funds.
(e) Cooperation with the U. S. with respect
to foreign policy and handling of subversive
activities.
222
Opinion of General
Counsel - (11-27-40)
Regraded Uclassified
TREASURY DEPARTMENT
223
INTER OFFICE COMMUNICATION
DATE November 27, 1940.
Secretary Morgenthau
TO
FROM
Mr. Foley
Inquiry has been made as to whether the fact that the Stabilization Fund
powers (Section 10 of the Gold Reserve Act of 1934, S.B. amended) expire June 30,
1941 prevents the Secretary of the Treasury from entering into an agreement with
the Argentine Government and the Central Bank of Argentina under which the
Stabilization Fund would acquire Argentine pesos and the Government of Argentina
(
rould receive United States dollars in exchange over a period of time, perhaps
a. year. The agreement would also provide for the repurchase of the pesos by
Argentina and its Central Bank with United States dollars or gold at any time
determined by this Government upon giving thirty days' notice.
I believe that B. dollar-peso arrangement along such lines can be worked
out which would be entirely legal despite the expiration of the stabilization
powers on June 30 next.
I agree that it would be quite doubtful that a contract calling for pur-
chases after June 30, 1941 of pesos with dollars would be legal, since it would
be difficult to say that such a contract was "authorized by law" or "under an
appropriation adequate to its fulfillment". (R.S. 3732, as amended - U.S.C. Title
41, sec. 11)
However, a valid contract accomplishing the same purposes could be drawn
long either of the following lines:
(1) The Stabilization Fund, from time to time between now and June 30,
1941, could purchase the total amount of pesos agreed on, making payment therefor
in dollars at the stipulated rate. The pesos purchased would be set up in an
account on the books of the Central Bank of Argentina to the credit of our
Stabilization Fund. Payment for the pesos would be made by establishing an
Bank in account on the books of the Federal Reserve Bank of New York. Title
equivalent dollar credit in favor of the Argentine Government or ita Central
to the dollars an and title to the pesos would immediately pass to the Government
Government of Argentina would agree, however, that dollars would only be Bank with-
of Argentina and to the Government of the United States, respectively. The
drawn from the account in its favor on the books of the Federal Reserve would in
also weekly or that attempted withdrawal of dollars by Argentina in excess of the
fixed monthly amounts over the one-year period. The agreement
agreed provide amount would any inso facto constitute a. default under the agreement Stubilization obligating
Fund, and authorizing immediately the Federal Reserve Bank to retain the balance of Argentina dollar
Argentina to repurchase all of the pesos held by the the
account on its books and apply it in liquidation of the repurchase by
of the pesos.
Regraded Uclassified
224
Such an arrangement would be legal, since it constitutes an out-
718ht purchase by the Stabilization Fund prior to the expiration of the
powers and title to the dollars will have vested in Argentina immediately
upou such purchase, even though Argentine agrees to limited withdrawels
over period of time extending beyond June 30, 1941. Moreover, the fact
that Argentina has an obligation upon request to repurchase the pesos with
dollars after June 30, 1941 does not affect the validity of the contract.
do far 08 the United States and the Stabilization Fund are concerned, the
mirchase of the pesos with dollars constitutes merely the liquidation of
certain assets of the Stabilization Fund. Even if the Stabilisation Fund
watres on June 30, 1941, the liquidation of 15я assets is permissible,
that is, it would be entirely proper for the Secretary of the Treasury
after June 30, 1941 to liquidate any foreign currency held by the Fund and
cover the dollar proceeds into the Treasury. Congress did not intend tast
upon the termination of the Stabilization Fund powers foreign currencies
held by the Fund should be retained. The liquidation of the assets of the
Stabilization Fund on its termination is comparable to the liquidation of
the affairs of a corporation upon its termination, and in both instances
there is legal authority to cerry out such liquidation. Cf. (1900) 23 Op.
Atty.Gen. 163. The opinions of the Attorney General and of the Comptrailer
of t B Treasury cited below clearly indicate the existence of authority to
liquidate after the expiration date of an appropriation contracts and stoer
transactions properly entered into during the life of the appropriation.
Since foreign currencies held by the Stabilization Fund at the date of its
crication may be sold in liquidation, there is no legal objection to
entering into a contract prior to the date of the expiration of the
Fund which would essure the Fund of 1 oustomer for 8 parti-
cular foreign currency held by the Fund. This sind of agreement would
your to be not only legal, but prudent.
(2) Alternatively, the Secretary of the Treasury could acquire the
MSOS from Argentina before the expiration of the Stabilization Fund and
name payment for such pesos over a period of a year extending beyond June 30,
1041. In cases in which officers of the Government have sought, after the
expiration date of an appropriation, to use funds covered by such appropria-
tion for the purpose of paying for purchases properly made during the life
of the appropriation or otherwise to liquidate contracts made during the
11"E of such appropriation, the Attorney General and the Comptroller of the
Treasury have held that the appropriation in question may be used. (1877)
15 Op. Atty. Gen. 357; (1920) 32 Op. Atty. Gen. 359; (1901) 8 Comp. Dec.
345. Attorney General Charles Devens, in the opinion in 15 Op. Atty. Gen-
357, held that for two years after the expiration of an appropriation, the
unexpended and unobligated portion of the appropriation could be used to meet
commitments properly made during the existence of the appropriation.
9.w.7h
Regraded Uclassified
225
Secretary's testimony
re use of Stabil. Fund
226
STATEMENTS MADE BY SECHETARY MORGENTHAU BEFORE COMMITTEES,
IN LETTERS, SPEECHES AND PRESS CONFERENCES, RELATING
TO THE USE TO BE MADE OF THE STABILIZATION FUND
Report of Secretary Morgenthau's Press Conference,
March 21, 1940, Pages 11-13, 15-16
I have never felt that the stabilisation fund was designed to
earn money. We have earned money and a lot of money, but I have
never felt that that was the purpose of it and I still feel that the
stabilization fund, as long as I am here and trustee of it, I am going
to guard it with the last breath in my body against some unforeseen
emergency. But to use up that money now when there is no emergency
and no particular purpose would seem to me unwise. That is there for
some national crisis or emergency which I don't see today and I don't
see it on the horizon, but it is there and in this crazy world the
unforeseen and the impossible is happening every day and that money
is there and I feel Congress did me the great honor to make me the
trustee for that fund. I am still going to guard it carefully and
not use it when there is no national emergency.
Q. Would you then, Mr. Secretary, have any objection in principal
to Congress, which set up the trust fund, by its own initiative de-
creasing the size of the fund and turning it into the general fund for
use for these other purposes?
1. I believe the most sensible thing is to leave the stabilization
fund alone. Now it is there; we have guarded it; we have been fortunate
enough to have it increased slightly and I repeat that in this crazy
world the time may come where we may get down on our knees and be
thankful for the fact that it is there against something I don't see
now but which may happen. There is no need to use that instead to
circumvent the debt limit or anything like that. After all, France
held on to its gold - the Bank of France - until recently and they
resisted all similar pressure to take the gold away from the Bank of
France. It is there and I an sure they were very pleased that they
had it there to use it at this time.
Extension of Stabilization Fund and Powers, etc.
Hearing before the Committee on Coinage, Weights, and Measures
House of Representatives - March 3, 1939, pages 40-41, 42, 42-43
MR. ANDRESEN. Then this fund is not used to stabilize Federal
securities so as to afford a better market for the Treasury issues?
SECRETARY MORGENTHAU. It has never been used for that purpose.
And not only - I would like to use this opportunity to say - not
227
Division of Monetary
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only has this fund not been used for that purpose, but we have
scrupulously avoided, to use the market term, we have never attempted
to "rig" the Government market because I have felt it was unwise.
And we have never used any of our various trust fundo other than to
invest them as wisely as we thought possible. As you may know, we
are custodians for some 69 different trust funds. In those funds
we have three and one-half to four billion dollars' worth of securities.
And I am very happy that those trust funds are worth more today than
the time at which we bought the securities. But we have never gone
into the market to support an issue and we have never attempted more
than to stabilize the market, in that we try to buy when the Govern-
ment bonds are down. We don't try to buy when they are at the highest.
But we have been very, very careful, to use the market term, not to
"rig" the market. And as long as I am Secretary of the Treasury
I never will.
MR. ANDRESEN. Or has my of this $200,000,000 been used to affect
dollar exchange credit for my foreign power or group of individuals
in other countries?
SECRETARY MORGENTHAU. No. What WB try to do, sir, is as I say,
the purpose of this fund is in order to keep the minimum of fluctua-
tions in the dollar. And I think we have done it. So that the dollar
today is, or ranks, as the most stable currency in the world. And all
of our efforts are directed toward that end. I do not feel it is my
duty to assist other countries to attain that end. But under the 30-
called Tripartite Agreement WD do offer them certain technical machinery
so that they can, with their own money, stabilize the dollar, the
pound, the guilder, Swiss franc, or the Belgian franc, but always with
their own money.
MR. ANDRESEN. Ás I understand it, then, under no circumstances
is any of this fund used to give aid directly to the British Covern-
ment to stabilize their money or their pound sterling?
MR. KNOKE. That money is not being used by the Treasury for
that purpose.
MR. ANDRESEN. Yes. And we hear a. good many remarks made bout
the and I want to ask you this: In connection with the stabilisation fund,
activities of the Treasury and other agencies of the Government,
has of the stabilization fund been used in any manner other to finance war
a foreign any government in the purchase of armaments or any
supplies?
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228
Division of Monetary
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SECRETARY MORGENTHAU. I can answer that under oath to that
question: No.
And I will answer further. As long as I am Secretary of the Treasury
and as long as Congress gives me that responsibility, the answer is no.
I answered yesterday to it before the Senate committee, and I would
like the privilege of answering here again. If we ever become involved
in any war, I would come to this committee, and to the committee before
the Senate, and ask for guidance and directions as to how I should con-
duct myself in relation to the stabilization fund.
MR. ANDRESEN. Then this fund, from your answer, is to the effect
that it is not used in any manner as part of the foreign policy of
this Government with reference to supplying war supplies to any other
country?
SECRETARY MORGENTHAU. Mr. Congressman, under oath, it is not
used that way, directly or indirectly.
MR. ANDRESEN. Now let me turn just for a few questions with
reference to the gold matter which is up before the committee.
SECRETARY MORGENTHAU. May I -
MR. ANDRESEN. Yes.
SECRETARY MORGENTHAU (continuing). Offer information, because I
also read the newspapers?
MR. ANDRESEN. I an glad to have it.
SECRETARY MORGENTHAU. In connection with the so-called French
planes, the French are paying cash. The money is provided in their
budget. They are using the same machinery as England is using, namely,
they authorize the Bank of France to pay on presentation of certificates
of the manufacturers to the Federal Reserve Bank of New York. The manufacturer
of the planes will indicate on that certificate that he has finished
so many planes. And the money is on deposit, or will be on deposit
in the Federal Reserve Bank of New York, to meet those payments. And
that is the exact manner in which England was buying planes here. And
I would like also to add, if I may volunteer, in BO far as the
Johnson Act is concerned, I am in hearty sympathy with the Johnson
Act. And as long as I am Secretary of the Treasury I will not permit
any country that owes us one dollar to break in any way the law or
the spirit of the Johnson Act. And I will defend that just as long
as I am there. There have been occasions which countries have attemp ted
to circumvent the Johnson Act and I have refused to let them do it.
229
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Extension of Stabilization Fund and Powers, Etc.
Hearing Before the Committee on Coinage, Weights and Measures
House of Representatives - March 3, 1939, pages 58, 77-78, 80
MR. REED. Mr. Secretary, last week when you were here, as I
recall, you stated that in case of war, so far as the Administration's
stabilization fund was concerned, you would feel it to be your duty
to come to the Congress and ask advice and ideas as to how this fund
should be administered.
SECRETARY MORGENTHAU. That is right.
MR. REED. I think that every member of this committee has
confidence in your integrity and your good faith.
SECRETARY MORGENTHAU. I thank you for that statement.
Mr. Secretary, did I understand you to state to this committee
on March 3 that the stabilization fund is never used to support
foreign currency?
SECRETARY MORGENTHAU. I said that we do not use the stabilization
fund to support foreign currencies.
MR. SMITH. The law provides that the fund shall be used for
the stabilization of the exchange value of the dollar, does it not?
SECRETARY MORGENTHAU. That 1s correct.
DEVALUATION OF DOLLAR AND STABILIZATION FUND
Hearing before a Subcommittee of the Committee on Banking and Currency
United States Senate - March 2, 1939, pages 17-18, 27-28, 32
SENATOR TOWNSEND. Weren't the yuan transactions, above referred
to, the equivalent of loans to a foreign government for the purpose
of stabilizing a foreign currency of minor world importance, rather
than operations designed to 5 tabilize the American dollar?
MR. LOCHHEAD. I could not put them just on that basis, sir.
SENATOR TOWNSEND. Well, will you please say what basis you
would put them on?
SECRETARY MORGENTHAU. well, I can answer that: We do not
consider it anything formally loaned. I mean, the Chinese Government,
Regraded Uclassified
Division of Monetary
230
5
Research
through their central bank, wishes to acquire dollar exchange and,
in order to acquire this dollar exchange, they sell us a fixed
amount of yuan; and in exchange for them, we give them a fixed
amount of dollars. Now, in order to be sure that we are still
protected, they not only put up the yuan as collateral, but they
also put up, to at least 100 percent in gold, collateral equaling
the amount of dollars finished.
In other words, if they bought a million dollars' worth of
dollars, they would pay for them with a million dollars' worth of
yuan, and they would put on deposit with the Federal Reserve of
New York a million dollars' worth of yuan, plus a million dollars!
worth of gold as collateral.
SENATOR TAFT. What is the use of the stabilization fund? If they
have that gold, why do they go to New York to buy dollars, or buy dollars
in China? Why is there any use of the stabilization fund?
SECRETARY MORGENTHAU. Well, the answer is that the Chinese Govern-
ment evidently feels that it is a service that they need. It gives
them dollars with which to buy our merchandise. If they could get it
any other way, I take it, they would not come to us. Tie did not seek
the business. But in their desire to get dollar exchange, in order
to pay our merchants, they use this device.
And as far as we are concerned, you might say that the risk is
nil. We have not only the 100 percent gold collateral but the full
amount of the yuan.
SENATOR TAFT. But they could do the same thing if there were
no stabilization fund? They perhaps would do it in a different way,
but it would be a very simple thing to do, would it not?
SECRETARY MORGENTHAU. I do not know.
SENATOR TOWNSEND. Mr. Secretary, Senator Vandenberg placed
in the Congressional Record four questions which he said you were
willing to answer: This is the first one of them:
Is the Government of the United States under agreement with the
Governments of Great Britain and France to sustain the value of the
French franc and the British pound in relation to the value of the
American dollar?
SECRETARY MORGENTHAU. The answer to that question is "no".
Regraded Uclassified
231
Division of Monetary
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Research
SENATOR TOWNSEND (reading):
What is the nature and extent of this agreement, if any; and if
any, is it summarily revocable in the event that any of these nations
become involved in war?
You say there is none?
Are there any agreements of this same general nature with any
other foreign governments?
SECRETARY MORGENTHAU. No, sir.
SENATOR TOWNSEND(reading):
Does the Treasury construe its authority under the Stabilization
Fund Act to include the power to deal with wartime problems of inter-
national exchange precisely as with peacetime exchange without further
instructions from the Congress?
SECRETARY MORGENTHAU. Well, the best way I can answer that question
is this: In the Treasury, nobody is thinking of war.
SENATOR TOWNSEND. Thinking of war?
SECRETARY MORGENTHAU. Of war.
SENATOR GLASS: You had better be.
SENATOR TOWNSEND: Well, you are different from everybody else in
the country, aren't you?
SECRETARY MORGENTHAU. Well, I mean that in our operations we are
not making any plans for war - in the Treasury. And if there should
y
be a war, I would certainly come before the proper committees and ask
them for direction as to how we should conduct ourselves.
SENATOR TAFT- There is a purely hypothetical question which I
should like to ask you: Suppose there is & foreign war and suppose
you go out and do what you can to buy $2,000,000,000 worth of pounds:
Isn't the effect of that to give England the power to buy $2,000,000,000
worth of goods in this country, under the cash-and-carry provisions?
SECRETARY MORGENTHAU. Senators, if there is a war in any foreign
country, before we would use the stabilisation fund or any money in
the Treasury to assist any country in prosecuting that war, I would
como up before the proper committee and ask for guidance.
Regraded Uclassified
Division of Monetary
7
Research
SENATOR TAFT. I have no doubt you would, perhaps. But never-
tholess, the authority granted in this extension would give you
power to do that, would it not, if you did choose to do 00?
SECRETARY MORGENTHAU. To do what?
SENATOR TAFT. What I suggested: To buy pounds, and in effect,
create an English credit here of $2,000,000,000; and we would wake up,
in the end, and find ourselves with $2,000,000,000 worth of pounds
that were worth nothing? I am not asking whether you would do it.
ky question is whether that is not legally possible. Ton't that
legally possible?
SECRETARY MORGENTHAU. Well, if I lost all sense or reason in
the performance of my duty, I might do a lot of things.
GENATOR TAFT. In other words, it is legally possible?
SECRETARY WORGENTRAU. Well, a lot of things are legally possible,
Which you would not do under the rule of common sense.
STATEMENT OF SECRETARY MORGENTHAU BEFORE THE SUB-COMMITTEE CF MONETARY
PULICY, BANKING AND DEPOSIT INSURANCE OF THE SENATE COMMITTEE ON BANKING
AND CURRENCY, March 2, 1939, 10:30 A.V.
During these operations it is frequently necessary for the
Stabilization Fund to acquire foreign currencies. The Fund attempts
to carry out all such transactions with a minimim of risk. In the
past, we have been successful in avoiding risk of exchange loss
under which foreign exchange is immediately convertible into gold that
through special reciprocal arrangements between cooperating Treasuries at
fixed each day. Incidentally, it should be pointed out fre=
a because price we wish to avoid the possibility of an exchange loss we
quently forego the possibility of an exchange profit.
dollar and to because of unfavorable political or economic employed develop-
There are the currency of a country with small gold holdings sub-
also occasions when the exchange rate between the is
ments. jected The pressure Fund can be employed, and has occasionally been
in such circumstances, to help stabilize the dollar exchange.
For example, strong pressure against the dollar-yuan exchange
our arrangement with China was just such erchange an opers- and
tion. needed There was dollars in order to strengthen the dollar-yuan To eliminate
China rate, thus avoiding additional obstacles to our trade.
Regraded Uclassified
233
Division of Monetary
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Research
any risk of exchange loss, China agreed to repurchase the yuan at the
same rate at which the United States purchased them and China's promise
was backed by adequate gold and silver collsteral, which was kept on
deposit with Federal Reserve Banks.
An arrangement of like character was made with Brazil in 1937,
but owing to subsequent developments the arrangement was not utilised.
A similar arrangement was made with Mexico. We purchased Mexican
pesos and in exchange made dollars available. Again, as in the case
of China, the Mexican Government agreed to repurchase the pesos at
the price we paid for them and deposited edequate collateral with
the Federal Reserve Banks.
Letter to Hon, William B. Bankhead, Speaker of the House - Nov. 1, 1939
As is made clear by the above-quoted provision, the stabilization
fund may lawfully purchase foreign exchange only for the purpose of
stabilizing the exchange value of the dollar. It has been for this
purpose and not for the purpose of supporting the currencies of any
foreign country that the Fund has from time to time acquired foreign
currencies. Furthermore, I should like to state that the stabilization
fund is not acquiring any currencies of belligerent countries and is
at present holding 745 pounds sterling (approximately $2,980) and
3,652 French francs (approximately $82) which were acquired long
before the outbreak of the war.
Letter from Secretary Morgenthau, dated October 24, to Honorable Arthur
H. Vandenberg (Replying to Senator Vandenberg's letter of October 17, 1939.)
You write:
"I should like to inquire - if I am entitled to the
information - whether the stabilization fund is now
being used in connection with the stabilization of
the British pound and the French franc; and whether
there is any stabilization agreement under which we
continue to operate in conjunction with England and
France or any other foreign countries."
When I appeared before the Senate Committee on Banking and
Currency last March, Senator Taft raised the following questions
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234
Division of Monetary
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"Suppose there is a foreign war and suppose you go out
and do what you can to buy $2,000,000,000 worth of
pounds: Isn't the effect of that to give England
the power to buy $2,000,000,000 worth of goods in
this country under the cash and carry provisions?"
I would like to reaffirm the position which I took at that
time. My reply was, and still is, as follows:
"Senators, if there is a war in any foreign country,
before we would use the stabilization fund or any
money in the Treasury to assist any country in prose-
cuting that war, I would come up before the proper
committee and ask for guidance."
The stabilization fund is not acquiring any currencies of
belligerent countries and is holding only a trifling amount of
foreign currencies of belligerent countries acquired long before
the outbreak of the war.
I trust that this furnishes you with the information you
requested.
Conferences on
Argentine recuests
236
THE UNDER SECRETARY OF THE TREASURY
WASHINGTON
November 23, 1940
MEMORANDUM TO THE FILES:
Subject: Conferences on Argentine Financial Requirements
November 14, 1940 - Treasury
The Argentine representatives, consisting of the Ambassador,
Dr. Prebisch, Mr. Grumbach, and Mr. Verrier met in my office at three
o'clock. Those present representing the Government, besides myself,
were Assistant Secretary Gaston, Mr. Cochran, and Dr. White of the
Treasury Department: Mr. Collado of the State Department; and
Mr. Ravendall of the American Embassy in Argentina.
This was merely a meeting for the purpose of getting acquainted
with the representatives of Argentina. I told these representatives
that we were glad to welcome them to the United States and that we
would do everything within our power to facilitate their visit. I
expressed regret that the Secretary of the Treasury was not present to
greet them but that he had felt it essential that he get a vacation at
this time, and in his absence I wanted to assure them that the Treasury
was at their service and that they should feel free to come in and discuss
their problems with us at any time. I asked Dr. Prebisch if he would
be good enough to submit to the Treasury B. memorandum giving in some
detail the problem which Argentina faces and suggestions for help from
this Government. I stated that after this memorandum had been received,
it was probable that Dr. White and his experts would want to confer with
Dr. Prebisch and his experts. I also stated that if Dr. Prebisch wanted
to give the group present a general picture of the situation in Argentina,
we would be glad to hear from him.
Dr. Prebisch said that he would be glad to go over it in a general
way. He stated that Argentina was faced in 1941 with a trade deficit
of approximately $160,000,000; that it had lost its foreign trade with
Europe and it had been necessary to curtail imports from other directions
very drastically. In order for his country to carry through in 1941,
it would be necessary to either find new funds to finance the trade
deficit or further curtail imports. He said that Argentina had approxi-
mately $400,000,000 of gold but he felt that it was now getting to the
point where no more gold could be used in meeting a trade deficit.
Ee said he would be glad to submit the memorandum and hoped to have it
in our hands by the end of the week, after which we would have a further
discussion on the matter.
Regraded Uclassified
237
November 18, 1940 - Commerce
Under Secretary Welles called a meeting of the interdepartmental
representatives for eleven o'clock today in the office of the Secretary
of Commerce. Besides Secretary of Commerce Jones and Under Secretary
Welles, there were present Under Secretary Taylor, Mr. Clayton,
Mr. Baxter, Mr. Warren Pierson, Assistant Secretary Grady, Dr. Fels,
Mr. Collado, Mr. Ravendall, Mr. Revineky, Dr. White and myself.
Under Secretary Welles read the memorandum submitted by the Argentine
representatives in response to my request. He commented that it was his
belief that the memorandum formed the basis of a general discussion of
the Argentine situation.
Secretary Jones said that he thought that we might form a sub-
committee, headed by Under Secretary Taylor, to go into the memorandum
for the purpose of submitting a report on the whole financial situation
and just how it could be met. Mr. Jones said that he would appoint
Mr. Taylor and Mr. Clayton and Mr. Pierson to represent the lending
agencies and the Export Import Bank. Mr. Welles appointed Mr. Grady,
Dr. Feie, and Mr. Collado to represent the State Department. I said that
Mr. White and I would represent the Treasury. There seemed to be a general
feeling at thie meeting that while Argentina's past record on debt was
excellent, the situation now confronting that country made it quite
apparent that any loans which we make are quite risky. Strictly from a
business point of view, it probably should not be made, but from the
standpoint of the political situation and our good neighbor policy, it
was felt that something should be done for Argentina and whatever 18 done,
should be of a substantial character.
November 20, 1940 - Commerce
Under Secretary Taylor called B meeting of his subcommittee for four
o'clock today to consider the kind of a report which should be presented to
the full committee. Dr. White had informally contacted the representatives
of Argentina and secured a great deal of detailed information regarding that
country and had prepared A memorandum which we thought might serve as B.
basis for of report to the full committee. However, Mr. Taylor thought
that the report could take a simpler form and he said he would undertake
to draft one along the lines he had in mind. In White's report it was
stated that Argentina would need approximately $80,000,000 of additional
foreign exchange in 1941, this having been reduced from $160,000,000 as
a result of the agreement on the part of the representatives of Argentina
that their imports could be reduced by approximately $100,000,000. Certain
of the representatives of the subcommittee felt that the $80,000,000 was
too low and that the figure should be nearer $100,000,000. For the
purpose of the report Mr. Taylor said that $100,000,000 should be used
and for the nake of argument he was willing to solit that amount in half
and say that the Stabilisation Fund should take care of one-half of it
and the Export Import Bank should provide the other half and whatever
amount was needed for plant facilities. We made the point that
Regraded Uclassified
238
this was not a logical separation as the whole $100,000.000 was of
the same general character and could not be split into parts. It
was merely a current problem which had to be met and one-half of it
did not represent the current and the other half did not represent
8. long-term problem, but anyway, for the sake of this report it was
agreed that we might split it in this fashion. I also made the point
that we could not commit the Treasury to any program involving the
Stabilization Fund. Strictly speaking, the whole matter is not a
stabilization matter but strictly a trade deficit, but in view of what
happened in the past on Latin America, particularly Argentina, I would
have to wait until the Secretary returned to get an expression of policy
from him.
There was Home talk about security for these loans. It WELE under-
stood that the Argentine representatives do not want to pledge their
gold. They think that this would be bad psychology and from a legal
standpoint they would have to eliminate it from their bank statement.
I suggested that we might take what in effect is a moral pledge and,
if the Secretary is willing, we could agree to purchase over a period of
several months, not to go beyond June 30. 1941 unless the authority to
operate the Fund is extended by legislation beyond this date, Argentine
pesos of a maximum amount up to $50,000.000 with a. guarantee of both
the Government and the Central Bank and with the understanding that
the Bank or Government will keep in New York under earmark an amount
of unencumbered gold slightly in excess of the loan. It was thought
that this might be arranged and Dr. White indicated that he had
mentioned some such arrangement to the Argentine representatives and
they did not seem to object.
Mr. Taylor thought that the Export Import Bank loan might be used
to mome extent to permit Argentina to repatriate its securities owned
in Great Britain and as these securities are acquired, they might be
pledged BR security for the Bank loan. I do not believe that the
committee as B. whole was much in favor of loaning funds to help
Argentina acquire its securities from Great Britain.
November 22, 1940 - Commerce
Secretary Jones called a meeting of the full committee to consider
Grady, Dr. Feis, Mr. Collado, Mr. Ravendall of the State Department;
the report by Mr. Taylor.
Others present were Assistant Secretary
Mr. Pierson, Mr. Clayton, Mr. Baxter from the lending agencies and the
Bank: Mr. Rockefeller and one other gentleman from the Coordinator's
office: and Dr. White and myself.
subcommittee. It was read by Mr. Taylor at this full committee. After
Mr. Taylor had prepared the report but never submitted it to the
comments. I made the statement that this report was prepared by
the report had been read, Secretary Jones asked if there were any
Regraded Uclassified
239
Mr. Taylor end that the members of the subcommittee had not had an
opportunity of reading and commenting on it. I thought the Treasury
would like to have that opportunity. There was one thing which I
wanted to make clear - that the Treasury representatives have not in
any way committed the Stabilization Fund; that I wanted to discuss the
whole matter with the Secretary upon his return, which I understood
would be Wednesday, November 27th; and that I did not think any of the
report should be discussed with representatives of Argentina until it
had been discussed with the Secretary to see whether or not he is willing
to allow the Stabilization Fund to play a part in this program. I again
stated that strictly speaking, it was not a stabilization loan but that
possibly the Secretary might like to go along with the program being
formulated. I also stated again that we might enter into an arrangement
with Argentina under which the Stabilization Fund would purchase over the
next several months up to June 30. 1941, not to exceed a paximus amount
of $50,000,000, Argentine pesos with the guarantee of the Central Bank
and the Argentine Government to repurchase those pesos at a given rate,
with the understanding that the Government or Bank would keep under ear-
mark with the Federal Reserve Bank of New York an amount of unencumbered
gold slightly in excess of the pesos so purchased. I also said that in
other transactions of this character, although gold has been pledged
directly to secure the transactions, the rate of interest involved has
been one-half of one per cent above the discount rate of the Federal
Reserve Bank of New York which had made the transaction cont the debtor
government 14 per cent per annum.
The question again came up about repatriation of the Argentine
securities owned by Great Britain and the pledging of those securities
so repatriated with the Export Import Bank for its loan. Mr. Pierson
said that he did not think We ought to get into that and undertake to
acquire first mortgages on Argentine railroads; that it would be much
simpler from their standpoint if they met the loan to the Central Bank
and took the guarantee of the Government. After all, the securities on
& Government owned railroad in Argentina could not be much better than
the guarantee of the Central Government.
Secretary Jones said that he felt that nothing should be done other
than study should continue as in the past until the Secretary's return
on Wednesday, at which time he hoped I would go over the matter with
the Secretary with 9. view to getting a group together and mapping out
a program of procedure from this point on. I agreed to bring it to the
attention of the Secretary on Wednesday.
swfr
240
Status of Chilean Nego-
tintions - White's cemo
Regraded Uclassified
211
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATE November 29, 1940
TO
Mr. Bell
FROM
Mr. White
Subject: Present status of Chilean negotiations
connection for
with
argustment The
1. The Export-Import Bank has allocated A12 million to Chile
use in developmental projects. To date, arrangements have been made
for utilization of only $2 million of this amount.
In addition, Chile hopes that American concerns will supply
equipment and materials for these projects on credit to the extent of
$5 million. That probably accounts for the press statement of the
formation of a Chilean organization in New York to handle E 17 million
loan from the Export-Import Bank.
2. The Export-Import Bank has decided to allocate but has not
yet announced the allocation of 25 million to Chile for carrent ex-
change difficulties.
The State Department has received a report that exchange
arrears due American exporters amount to $8.5 million, including goods
for which exchange permits have been granted but for which there is
no exchange.
3. The Materials Section of the Defense Commission has recommended
the acquisition of 300 thousand tons of Chilean nitrates as a stock-
pile. The purchase will be made through R.P.C. subsidiaries and will
amount to $7 million or $8 million, of which Chile will get about
$5 million.
4. In addition, the *aterials Section of Defense has under con-
sideration the gradual purchase of 100 thousand tons of copper
(during 1941). The copper is not to go into a stock-pile, but is
to be fed out on Government contracts. If this is definitely decided
upon, probably 75 thousand tons of this amount will be purchased from
Chile. At present prices the purchase of 75 thousand tons of refined
Chilean copper would total about $19 million. The dollar exchange made
available to Chile will amount to something less than 50 percent of
the total expenditure on Chilean copper, or about 87 million to
$8 million. It was originally decided not to inform the Chilears at
this purchase, but this angle has now been dropped.
Regraded Uclassified
242
HM Jr's formal statement
before joint session
243
HM Jr's formal statement before
joint session of Senate Banking and
Currency Committee and the House
Coinage, Weights and Measures
Committee on Monday, December 2,
1940.
Clima
244
I asked Chairman Wagner and Chairman Somers on Friday to
call this meeting today so that I might lay before the members of
these two committees a matter affecting the operation of the Stabili-
sation Fund.
On other occasions when I have appeared before these committees
separately. particularly at the time when the extension of the stabi-
lisation powers was being considered in 1939, I discussed with you
very fully and frankly -- as I think you will agree -- all phases of
the operation of the Fund and sade available balance sheets and other
data for your study.
The reason for my coming before you today is that we have under
contemplation a type of transaction which differe in certain respects
from any into which ve have entered in the past and I should like to
explain it. There is an added reason for my coming. I have repeatedly
stated to you that I would not consent to the use of the Stabilisation
Fund to assist any foreign country in prosecuting a war without first
consulting these committees. The transaction we are contemplating is
one with China and for currency stabilization purposes. and I don't
think it falls in that category; but if there should be a. difference
of opinion on that point I don't want to be accused of quibbling where
my word is concerned.
For some time the Administration has been making a. very careful
study of the financial and economic situation in China with the possibility
in mind of helping to strengthen the dollar-yuan exchange rate. Recent
developments have made action in this field more urgent.
Regraded Uclassified
245
- 2 -
In July, 1937, the Treasury entered into a dollar-yuan
stabilization operation with China pursuant to which we agreed to
buy yuan up to a total of $50,000,000 and China agreed to repurchase
the yuan at the same rate and pledged an equivalent amount of gold
with us 88 security. This arrangement has been extended every six
monthe and under its present provisions will expire on December 31
of this year, with the usual option for renewal. The arrangement
with China WBS discussed fully by me and other officials of the
Treasury Department with your committees at the time you were con-
sidering the extension of the stabilization powers. Under the arrange-
ment we now hold $20,000,000 in yuan fully covered by pledged gold.
We nov propose to extend this agreement for & further period.
That fact in itself would not, I think, justify my coming before your
committees. However, in view of the present circumstances we have
under consideration modification of the provision which requires China
to pledge an amount of gold equal to the dollars made available in
exchange for yuan. In other words, if ve enter into the agreement
we are contemplating, we would purchase and hold an amount of yuan
up to $50,000,000, the repurchase of which will not be
covered
by pledged gold.
This would be strictly a stabilization operation, fully within
the powers granted to the Secretary of the Treasury, subject to the
approval of the President, by the Gold Reserve Act as amended, and of
course it is our purpose to safeguard the interests of the United States
by the fullest supervision over the execution of it,
Regraded Uclassified
246
Statement on Argentina
prepared but not used
Regraded Uclassified
247
HM Jr took this prepared statement with
him when he appeared before the
joint session of the Senate Banking
and Currency Committee and House
:
Coinage, Weights and Measures Com.
on December 2, 1940, but he did not
use it.
248
arguntina
I want to take advantage of this meeting to mention another
matter which concerns the Stabilization Fund.
As you doubtless know, there is in this country a special
commission from the Argentine seeking assistance from the United
States of a monetary and financial character. We have before us for
consideration a proposal to undertake Stabilisation Fund operations
between the dollar and the Argentine peso. The operations under
discussion would be comparable to the proposed dollar-yuan arrangement
which we have just been discussing. Argentina is faced with an acute
exchange situation due to the loss of some of its important markets
in Europe. The operation under consideration will, if undertaken,
strengthen Argentina's dollar exchange position and assist in solving
problems of common interest to that country and the United States.
Doaraded Life