Volume 351, January 25 – January 27, 1940

DIARY Book 351 January 25 - 27, 1941 Regraded Unclassified - A - Book Page Allison Engineering Company See War Conditions: Airplanes (Engines) American Securities Owned by Foreigners See War Conditions: Foreign-owned American Securities - B - Bank for International Settlemente See War Conditions Business Conditions Haas memorandum on situation for week ending January 25, 1941 351 79 - C - China See War Conditions: Airplanes: China - P - Federal Bureau of Investigation Klaus memorandum - - 1/27/41 55 Financing, Government Debt Limitation, Tax-exempt Securities, etc.: Conference to discuss HMJr's testimony before Senate Finance Committee: present: HMJr, Haas, Kuhn, White, Sullivan, Bell, and Foley - - 1/27/41 239 a) Draft 261 Research and Statistics staff review, with en eye to strengthening, to be discussed by HMJr. Bell, and Haas - 1/27/41 297 Foreign-owned American Securities See War Conditions - G - Germany See War Conditions - H - Hemingway, Ernest See War Conditions: China - L - Lend-Lease Legislation See War Conditions Regraded Unclassified - X - Book Page Monetary Research, Divison of Additional research functions in connection with foreign funds control authorized 351 298 = I . National Arms Corporation See War Conditions: Ordnance (Rifles) - P - Palyi, Melchior (Doctor) HMJr asks Haas to check with Phillips as to qualifications as Treasury Consultant - 1/27/41 293 a) Haas memorandum 294,295 - R - - Research and Statistics, Division of Review of staff, with an eye to strengthening, to be discussed by HMJr, Bell, and Haas - 1/27/41 297 a) Discussion at 9:30 conference - 1/30/41: See Book 353, page 16 Rifles See War Conditions: Ordnance Rubber See War Conditions: Strategic Materials - S - Shipping See War Conditions Switzerland See War Conditions - T - Tin See War Conditions: Strategic Materials Regraded Unclassified - W - Book Page War Conditions Airplanes: Knudeen and HMJr discuss availability of British funds for 1956 planes (British type) - 1/27/41.351 284 a) Purvis told of conversation 287 b) HMJr may suggest discarding English type and placing orders for American types if delay continues on this delivery - 1/28/41: See Book 352, page 68 c) Purvis and HMJr discuss ways and means of payment - 1/29/41: Book 352, page 225 China: 100 P-40 planes for China discussed in Young memorandum - 1/27/41 300 Engines: Allison Engineering Company: Deliveries and shipments - 1/27/41 302,303 Bank for International Settlements Report on conditions sent by McKittrick (American Legation, Bern) - 1/27/41 233 China: Shipments from Rangoon, last three months of 1940 31 Hemingway (Ernest) given material on malarial situation and asked to report on traffic condition on Burma Road and Irrawaddy River - 1/27/41 54 Exchange market resume' - 1/25/41. 1/27/41 35,333 Export Control: Exports of petroleum products, scrap iron, and scrap steel, from United States to Japan, Russia, Spain, and Great Britain, as shown by departure permite granted for week ending January 25, 1941 318 Foreign Funds Control: Monetary Research, Division of: Additional research functions in connection with foreign funds control authorized 298 Over-all order: Hull asked by HMJr to set time for detailed talk 60 that State Department and Treasury may agree and Executive Order may be issued - 1/27/41 331 Foreign-owned American Securities: Securities and Exchange Commission asked to report on sales - 1/25/41 3,28 a) HMJr wants daily information - 1/27/41 296 Germany: Economic situation reported on by Heath - 1/27/41 56,60 Lend-Lease Legislation: Conference in Hull's office: present: HMJr, Rayburn. George, McCormack, Bloom, Johnson, Beaman, O'Brien, Deschler, and Hackworth - 1/26/41 42 a) Amendments offered by Democrate on House Foreign Affairs Committee discussed HMJr's testimony before Ways and Means Committee discussed by HMJr, Kuhn, White, Foley, Bell, Cochran, Young, and Schwars - 1/27/41 91 a) HMJr wants paragraph advocating economy in all non-defense appropriations - 1/28/41: See Book 352, page 66 UInclassified - V - (Continued) Book Page War Conditions (Continued) Lend-Lease Legislation (Continued): Foley memorandum on conference January 23, 1941, with subcommittee of Senate Foreign Relations Committee; Hull, Stimson, and Knox also present 351 279 HMJr's testimony before Senate Foreign Relations Committee: a) Draft 1 as prepared by White 162 b) Draft 2 as prepared by Foley and Kuhn, based on Draft 1 166 c) Final draft 183,216 (See also Book 352, page 3) d) Mimeographed statement 200 (See also Book 352, page 39) e) Press comment: Book 352, page 50 f) Henry III's comment enclosing clipping from "Cleveland News": Book 352, page 205 Senator George's radio speech as prepared by Kuhn and Foley - 1/27/41 319 Bill with amendments as given to Foley by O'Brien (House Legislative Counsel) used at meeting at White House on January 27, 1941 348 Military Planning: Reports from London transmitted by Halifax - 1/27/41 354,358 Ordnance: Rifles (Lee Enfield): National Arms Corporation correspondence with White House and Treasury concerning increased deliveries - 1/27/41 304 Purchasing Mission: See also War Conditions: Lend-Lease Legislation Tin and Rubber - additional purchases planned by British Purchasing Commission and reported to HMJr - 1/25/41 22 Knudsen and HMJr discuss availability of funds for 1956 planes (British type) - 1/27/41 284 a) Purvis told of conversation 287 Shipping: Losses - British, Allied, and neutral; General Miles (Assistant Chief of Staff) told he need no longer provide this information - 1/27/41 313 Strategic Materials: Tin and Rubber - additional purchases planned by British Purchasing Mission and reported to HMJr - 1/25/41 22 Switzerland: For heavy selling of American securities, see War Conditions: Foreign-owned American Securities 1 January 25, 1941 Mr. D. W. Bell Secretary Morgenthau I want Hadley to take a train to Chicago Sunday and spend a day or two in Chicago finding out what went wrong with our last note issue. Give him a letter to the Federal Reserve people there; also see that he is fixed up with a letter to call on the First of Chicago; also on Walter Cummings' Bank. Regraded Unclassified 2 January 25, 1941 Merle Cochran Secretary Morgenthau Please call up Purcell of the SEC this morning and ask him if there has been any foreign selling this week other than English selling. If so, what country and what agency they are using, and also the amount. I wouldn't be at all surprised if there has been selling, and I am anxious to have it today, if possible, and not later than Monday morning. Regraded Unclassified 3 TREASURY DEPARTMENT fee 4mg 1/27 to INTER OFFICE COMMUNICATION Bell can with tHes DATE January 25, 1941 TO Secretary Morgenthau FROM Mr. Cochran In compliance with the Secretary's memorandum instruction of this morning, I telephoned Mr. Purcell of the Securities and Exchange Commission at 9:45 and aked him to give me & breakdown of foreign selling, other than English, during this week, including information as to the country selling, agency utilized, and amount involved. Mr .Purcell has promised to try to get this information to ne this morning. From the daily reports which my office has received this week, based upon volume and value for regular transactions reported by thirty-three New York firms, it is evident that there has been heavy selling of American securities on Swies account. The net daily sales on Swies account were as follows: January 20, $97,000: January 21, $560,000; January 22, $709,000; January 23. $392,000; January 24, $811,000. The net total of sales by Switzerland wes therefore $2,569,000. The sheets from which these figures are taken are attached. In conversation by telephone with Mr. Knoke I have been kept informed of a decided tendency this week for Swiss and Swedish funds to be repatriated, out of dollars into Swise france, or converted into Argentine pesos. There have not only been security sales by these countries, but continued withdrawal of dollar balances. There has been evident a disinclination on the part of the Swies National Bank the last two or three days to pile up dollar balances. As stated in my daily report of January 24 to the Secretary, the Swias franc has recently improved 88 8 result of the move out of dollars into Swies france, and New York banks attributed yesterday's further advance primarily to the report from Switserland that Swies banks would only accept dollar exchange arising from normal commercial transactions. Since last May the Bank of Switzerland has been increasing its dollar balances in this country. an important part of such increment resulting from Swies holders of capital on this market selling their dollars to the Swise Central Bank against Swise france. The Swise National Bank has not, however, been converting such dollars into gold. Information coming to us reveals also the rather active withdrawal from New York banks of paper currency for Italian and Mexican account. Sales of securities to get dollars and liquidation of dollars to acquire Swies france or Argentine pesos. and withdrawals of bank notes by foreign interests have resulted largely from increasing rumors as to the imminence of imposition of further control of foreign funds on this market. My office has received various inquiries on this subject, beginning with last Sunday, from diplomatic missions in Washington as well as outside concerns. The Federal Reserve Bank at New York has had nervous cabled inquiries in regard to prospective control from the Central Banke of Switzerland and Ecusdor, B.M.S. Regraded Unclassified Transactions in domestic stocks executed on January 20, 1941 for account of foreigners (Values in thousands of dollars) Country Purchases Sales Net Purchases Net Sales Great Britain 9 9 France 8 8 Netherlands 5 5 Switzerland 70 167 97 Canada 15 21 6 Far East 41 68 27 Others 17 428 411 TOTAL 148 701 553 Thirty-one firms reporting volume and value for regular transactions. Regraded Unclassified Transactions in domestic stocks executed on January 21, 1941 for account of foreigners (Values in thousands of dollars) Country Purchases Sales Net Purchases Net Sales Great Britain 6 26 20 France Netherlands 3 3 Switzerland 61 621 560 Canada 23 79 56 Far East 10 11 1 Others 55 80 25 TOTAL 155 B20 665 Thirty-three firms reporting volume and value for regular transactions. Regraded riclassified Transactions in domestic stocks executed on January 22, 1941 for account of foreigners (Values in thousands of dollars) Country Purchases Sales Net Purchases Net Sales Great Britain 22 22 France Netherlands 1 1 Switzerland 34 743 709 Canada 13 53 40 Far East 1 52 51 Others 223 56 167 TOTAL 272 926 654 Thirty-four firms reporting volume and value for regular transactions. Regraded Unclassified FOR - - Trensactions in domestic stocks executed on January 23, 1941 for account of foreigners (Values in thousands of dollars) Country Purchases Sales Net Purchases Net Sales Great Britain 41 41 France Netherlends Switzerland 58 450 392 Canada B 49 41 Far East 33 32 1 Others 167 68 99 TOTAL 266 640 374 Thirty-four firms reporting volume and value for regular transactions. 7 Regraded Unclassified Transactions in domestic stocks executed on Jan. 24, 1941 for account of foreigners (Values in thousands of dollars) Country Purchases Sales Net Purchases Net Sales Great Britain 0.3 35 35 France 4 4 Netherlands 1 - 1 Switzerland 114 925 811 Canada 2 45 43 Far East 10 8 2 Others 420 9 411 TOTAL 547 1,026 479 Thirty-three firms reporting volume and value for regular transactions. 8 Regraded Unclassified 9 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE January 25, 1941 TO Secretary Morgenthau FROM Mr. Cochran STRICTLY CONFIDENTIAL At 11:15 this morning Mr. Knoke told me that the Bankers Trust had received an order from the Credit Suisse in Berne to sell $400,000 "at best". The Bankers Trust 1s endeavoring to consummate this transaction this morning, but finds that practically no Swiss francs are available. In an endeavor to obtain Swiws francs, the Bankers are now offering 23.45. as against the closing rate last night of 23,28. This brings the Swins franc to a new high, which may be pushed even further if the Bankers pursue their efforts to complete their order this late Saturday morning. New York understands that the Swise are convinced that there will be an extension of our Treasury control over foreign funds this weekend. At 11:20 Mr. Stopford of the British Embassy telephoned ne that his colleague in New York reported that Germans were removing contents from their safe deposit boxes in New York to their hotels. Mr. Stopford will give me any further information which he may receive on this point. B.M.S. Regraded Unclassified January 25, 1941. 10 11:35 a.m. H.M.Jr: Hello, Tom? Senator Connally: Yeh. H.M.Jr: How's your poker? C: My poker is - you fellahs cleaned me up 80 the last time I played for you, I haven't played any more. H.M.Jr: Oh my - C: I'm no poker player. I Just play when I'm with a crowd that has to play - I Just furnish the goat. H.M.Jr: I see. C: How are you? H.M.Jr: oh, I'm alive. C: Say, we're going to have a - down in Texas you've got a Chief National Bank Examiner, H.M.Jr: Yeh. C: - 8 man named Collier. H.M.Jr: Yeh. C : And a lot of the people are trying to get him to be - to serve on another year. He's going to - he's reached the retirement age in February I think it 1s - right now. H.M.Jr: Yeh. C: Well, I'm indifferent. If they want to continue him another year all right, but still, if he's to be retired I'm interested in the appointment of a Mr. Sandlin down there who is one of the National Bank Examiners in that area and has been for many years. H.M.Jr: Well, I'm glad to know that and I'll look into it personally. C: Well, look into it personally now. We don't - some of them are talking about sending some fellah out of the Department here down there but we don't like that sort of business. We expect & man who has been in that area and knows the banks and knows the people and knows the conditions would make 8. better examiner than some outsider. Regraded Unclassified 11 - 2 - H.M.Jr: That's right. C: Don't you think that's fair? H.M.Jr: Well, it certainly sounds like horse sense to me. C: This fellah Sandlin, you've got his record over there - H.M.Jr: Yeh. C: Will you not appoint anybody down there until I talk to you again? H.M.Jr: Unless it should be Sandlin. C: Yeh, sure. H.M.Jr: Do you want me to call you up on that? C: I'd like to. H.M.Jr: I certainly will. C: Bye, Henry. H.M.Jr: I won't do anything. I won't move across the street in Texas without talking to you. C: (Laughter) All right, thank you very much. H.M.Jr: Thank you. C: All right Henry H.M.Jr: Bye January 25, 1941 11:38 a.m. 12 H.M.Jr: Feeling all right? Bob Jackson: Yes, I'm feeling pretty good. H.M.Jr: That's good. J: I talked with the Secretary of State. H.M.Jr: Yes. J: He said he wanted to talk with Berle and that he would call me back later in the day. He called me back after you had left last night (I tried to reach you) and said that he had found that Berle was away and would not be back until Monday. H.M.Jr: I see. J: But that he would take it up with him immediately and call me. H.M.Jr: I see. Well - J: So it looks like Monday. H.M.Jr: We can wait. J: (Laughter) H.M.Jr: We waited this long. J: Yeh. H.M.Jr: Thank you, Bob. J: All right, Henry. Bye. January 25, 1941 13 11:40 a.m. H.M.Jr: Hello. Operator: The Postmaster General is out of the city. He'll be back on Monday. H.M.Jr: Who was there? Operator: The First Assistant. H.M.Jr: Let me talk to him. Operator: Right. I'll see if I can get him. H.M.Jr: Hello. Operator: The First Assistant is not there. I have the Second Assistant, Mr. Purdum. H.M.Jr: Who? Operator: Mr. Purdum. Purd - H.M.Jr: I know Purdum. Operator: All right. H.M.Jr: Hello. Purdum: Good morning, Mr. Secretary. H.M.Jr: How's Mr. Purdum? P: First rate. I hope you're well, Mr. Secretary. H.M.Jr: Well, I'm alive. That's something. P: (Laughter) Well, you're a busy man. You're a busy man. H.M.Jr: Mr. Purdum, I tried to get the Postmaster General and he's out of town. P: Yes sir. H.M.Jr: Could you see our mutual friend, Harold Graves? P: Yes, of course, I know him. H.M.Jr: I know you do. P: Yes sir. Regraded Unclassified 14 - 2 - H.M.Jr: I wanted him to talk to you about - to let you know and Ramsey Black know and Harold Ambrose - what we've got in mind on 8. campaign to raise some money to getting the savings of the country. P: Yes sir. H.M.Jr: And, could you see him this morning? P: I'll 800 him anytime you say. H.M.Jr: Well, he can be over there around eleven o'clock. P: That's all right, Mr. Secretary. H.M.Jr: And could you get in these other fellahs, so he could tell you what we are thinking of doing? P: Yes sir. I'll call them together. H.M.Jr: Anybody to - you 800 you've got a very fine plan over there. P: Yes sir. H.M.Jr: It's all ready and we just don't know whether we should go ahead on our own or whether we should back yours and we supply the ballyhoo - and we'd like the advice of the Postmaster General and his Assistants. P: Yes sir. Well, I'll call them together, Mr. Secretary, at such time - I'll have them available at such time as you may think Mr. Graves will be here. H.M.Jr: Is eleven - what time would you like it this morning? P: How about 11:15? H.M.Jr: 11.15 will be perfect. P: All right, and come to Room 5000. H.M.Jr: 5000. P: Yes sir. H.M.Jr: Harold Graves will be there. P: All right, thank you. H.M.Jr: Room 5000. P: Thank you. January 25, 1941. 15 11:50 a.m. H.M.Jr: Secretary, Ed. I'm seeing the President at 12:30 - 12:10. Ed Foley: Yeh. H.M.Jr: So I want to know what the exact status of the bill 1e - and the amendments. F: Well, we're still talking about language to fix the termination date on the powers. H.M.Jr: I see. F: And we haven't agreed on anything yet. Questions of materials under construction, you see, before the expiration date, what could be done with them after the expiration date - H.M.Jr: When do you think you'll be through up there? F: Well - H.M.Jr: What I'm getting at is, could you come to the house at one o'olock to have lunch with me? F: Sure. H.M.Jr: Supposing you be at the house at one o'clock then I could let you know what happened with the President. F: All right, that'll be fine. I'll be at your house at one o'clook. H.M.Jr: But you don't know whether Rayburn has called his meeting or not? F: No, I haven't heard anything at all. H.M.Jr: You see I was with Hull this morning for quite a while. F: Oh you were. H.M.Jr: Yes, he won't go unless the President tells him to. F: I see. Regraded Unclassified 16 - 2 - H.M.Jr: I'm seeing the President in a little while F: I see. H.M.Jr: Supposing you're at the house at one o'clock. F: All right, I'll be there at one. Thanks. 17 With the Compliments of The Minister of Sweden 1-05-41 FOREIGN MINISTER CHRISTIAN E. GUNTHER'S SPEECH Many civic meetings were held in various parts of Sweden Sunday, January 19, to support the new defense loan of 500,000,000 kronor. Among the speakers was Christian E. Gunther, Swedish Minister for Foreign Affairs, who delivered an address at Halmstad, on Sweden's west coast. The reason why Sweden's foreign policy was touched upon 50 light- ly at the opening debate in the Riksdag, said the speaker, was that there is very little that is new to mention just now, When a nation is determined to make the heaviest sacrifices for the preservation of its peace and liberty, it is not necessary to give repeated assur- ances that the government's policy is based on identical aims. As to this policy no doubt or dissension obtains today. The expression, "Sweden's relations with foreign powers is good," was again incorporated in the speech from the throne, after having been omitted from the King's address at the special session of the Riksdag last summer. This can be taken as an indication of the government's opinion that the present situation, in so far as it concerns Sweden, is somewhat loss dangorous than it was in August 1940. It gives me satisfaction to note, continued Mr. Gunther, that after fifteen months of dovastating war, Swoden still manages to ro- main outside the conflict without losing her independence. During the past year, which was so full of fatoful events for the North, voices were raisod in favor of a bolder foreign policy than that marked by strict neutrality. Today, however, most people agroo that such a policy would have meant scrious risk of involving Sweden in the groat war. If the advocates of such a course had occupied responsible posts in the government, they would probably have decided that the way already followed was more compatible with the country's welfare and happiness. The speaker then emphasized that a strict noutrulity in the war between the great powers was the principal foature of Sweden's foreign policy. Since the Russo-Finnish War was a local conflict separate from the main European struggle, our attitude was different, he said, corresponding montelosely to what is meant by the modern expression Regraded Unclassified 19 Deather -2- "non-bolligorent." All help which a third country can give without direct participation in the war was given to Finland. Had, however, pasaage through Sweden been granted to French and British troops, the great war would have been moved up here and Sweden would have been forced to give up her neutrality in the contest between the great powers With unparalleled unity the Swedish people followed the fight of its Eastern brother country. They rejoiced at the rugged stubborness and the determined energy of present-day Finland. We feel today, as we did in times gone by, that we are bound by fate to the Finnish people. We share the hope that on the basis of the signed treaty of peace Finland's relations with her mighty neighbor to the East may continue to be upheld in a friendly spirit. When Denmark and Norway were drawn into the maelstrom of war, continued the speaker, this was no isolated act, but rather an ex- pansion of the war between the great powers. Our people followed Norway's struggle with the same sympathy, the same fearful hearts, 1S it had followed Finland's battle. The war in Norway, however, was not a distinctly local one, but a part of the conflict between Great Britain and Germany. Our neutrality was therefore a continuation of the same foreign policy which we had adopted toward the war between the great powers ever since it began. It was therefore we declined during the fight- ing in Norway all requests for the export of war materials. Misunderstandinga among the Norwegians about Sweden's attitude during and after the struggle will be dissipated. The good neighbor relations which have existed ever since 1905 and the decpened under- standing, must not be lost. Responsible observers in Norway agree that a more accurate view is there coming to the fore. Mentioning also Denmark, Mr. Günther said that in the hard times which we are passing through Sweden feels its responsibility to contri- buto to the feeling of solidarity and kinship by which the Scandinavian countries are tied together. The events in Denmark and Norway shut off our trade Westward and necessitated & trade policy shift and an expansion in the Baltic area. The speaker here mentioned the new commercial treatics with Soviet Regraded Unclassified 20 Conther -3- Russia, Germany, and Italy. This expansion in new directions was néeded for Sweden's national oconomy. It did not, however, offer full componsation for the isolation from the West, particularly the trans- oceanic countries. A renowal of these contacts is still required for Sweden's full participation in a new and hoalthy Europe. In this connection the speaker warned against speculations con- corning this new Europe and Sweden's position thorein. "The bost way to fulfill our duty to ourselves and to the world," he said, "is to concentrate on the task of giving the country and the people the greatest possible economic, moral, physical, and military strength. While our position just now cannot be painted in bright colors, it does not give cause for dospair. The course of Sweden's foreign policy so far should be followed without deviations. The future is uncertain and certainly filled with danger. Complications of many kinds threaten along the way. Obviously, before the world situation again becomes stabilized, much is bound to happen, not the least in the North, The situation of our noighboring countries contain many difficult problems which may concern us directly and most closely. This prospect of an uncortain and hazardous future nocessitates a firm connection between foreign policy and national defense." The requisite for a thoroughly Swedish foreign policy, Mr. Günther continued, is 1 strengthening of our defense and keeping it st = peak as far as our resourcos permit. Sweden is not today ex- posod to the threat of an immediato attack from any direction. How- ever, experiences during the past war months have shown all too clearly that no country can rogard itself as boing outside the zone of danger. That Sweden does not do so 15 hardly necessary to mention. Naturally, Sweden cannot afford a defense to match the strong- ost armed big powers. But even a defenso which is strong according to our modost circumstances is casential, even of decisive importance for our ability to carry on this foreign policy. Nothing has been shown more clearly during this war than that the most dangerous thing for a small nation, lying close to two mutually antagonistic groat Regraded Unclassified 21 Günther -4- powers, is to constitute a military vacuum, or almost so, This is not primarily because the great powers, like so many beasts of prey, can be said to be disposed to throw thomsolves upon the woak ones just for the desire to conquer. It is rather because small countries without the ability or inclination to defend thomselves against attacks from the big powers are regarded by the latter ns a source of danger because they fear that other countries may occupy such de- fenseless territories, thereby gaining added strength, better start- ing points for attacks, and new land for the transit of troops, They want to get a head start and not be left bohind at the line. The address ended with these words: "The times demand unity and loyal determination. The Swedish people have shown that thoy have both and we have, thorefore, no reason for possimism." ****** Regraded Unclassified (Stated w b. Planted of the with to Mr. Bestures is the freedury M 10:30 .... Commany 85. 1941.) ADDITIONAL TIN AND RUBBER PURCHASED The suggestion that the Rubber and Notals Reserve Corporations should purchase an additional 100,000 tons of rubber and 50,000 tons of tin, for delivery after the completion of the existing contracts, and for payment in advance, is agreeable to the British Govern- Ymy ment. They think, however, that the former method, by which purchases were effected by agreement between the Reserve Corporations and the International Control Committees would not be workable in case of the new purchases, and that the arrangement would have to be that the Reserve Corporations should undertake to buy, and that the British and Dutch Governments would under- take to sell, the agreed quantities of tin and rubber at fixed prices with payment in advance. 2. The Dutch Government has agreed in principle, subject to the views of the N.E.I. authorities, whom they are consulting urgently. If the Britisn and Dutch Gov- ernments agree to participate in the scheme, it can be assumed that the International Committees will be prepared to fix the quotas at such rates that the tin and rubber will be forthcoming within a reasonable period. Some provision would be necessary in the agreement regarding this period. It would also be necessary for the agree- ment to contain provisions regarding ultimate liquidation of the stocks similar to those contained in the existing agreements with the International Committees. It is estimated that the total value of the additional 100,000 tons of rubber would be about $40 million, and that the British (sterling area) share of this would Regraded Unclassified - 2 - be about 57% or $23 millions. The total value of the additional 50,000 tons of tin is estimated at about #56 millions, and the British (sterling area) share of the proceeds is estimated at about 69% or less some changes tortright 8384 millions The total British share would thus be about $61 millions. It is not altogether clear at present from our cables whether it is intended that the Dutch should receive advance payment for their share of the deliver- ies, amounting to about #35 millions. Su owen chalkly " me seeming M with Clayton at 3 from, 25 a forp Washington, 24th January 1941. 10 THE 22044 your LECHNICY: 122121 YW1 OLHICE Ot. THE BYI MM 52 biN is 31 DEGYBIMENT BECEINED Regraded Unclassified 24 January 25, 1941 COMPIDENTIAL Dear Mr. Inske: Permit no to acknowledge. on behalf of Secretary Margestham, the receipt of year letter of January 23. 1941, enclosing your compilation for the week ended January 15. 1941. showing del- lar disbursements out of the British Empire and French accounts at the Federal and the means by which these expenditures were financed. Faithfully yours, I. Merlo Cechran Technical Assistent to the Secretary L. V. Enclos. Require, Vice President, Federal Reserve Boak of New York, New York, New York. HMO:1ap-1/25/41 Copy for Sery's files Regraded Unclassified 25 FEDERAL RESERVE BANK OF NEW York January 23, 1941. CONFIDENTIAL Dear Mr. Secretary: Attention: Mr. H. Merle Cochran I am enclosing herewith our compilation for the week ended January 15, 1941, showing dollar disbursements out of the British Empire and French accounts at this bank and the means by which these expenditures were financed. Faithfully yours, L. W. Knoke, Vice President. Honorable Henry Morgenthau, Jr., Secretary of the Treasury, Washington, D. C. Enclosure Regraded Unclassified dell' 40 SISTERY Statesty (in WillInes of Dollars) Rook Inded January 15, 1941. Confidential BANK OF ENGLAND (BRITISH COVERNENT) M.K 09 FRANCE DEBITS CREDITS DEBITS TREDITS Protecds of Other Net Insr. Not Inor. Gov't Sales of Credito (+) or Givit Princeds (+) "I" Total Expendl- Other Total Seturities 11051. Desr. (-) Total Expendi- Other Total of Gold Other Decr. (-) PERIOD Debito tures(a) Debits Credita Gold (Est.) (3) adj'ts) in Balabse Debits tures(1) Debits Credito Sales Credits In Balance 1939 Aug. 31 Sept.27 94.3 3.6 90.7 207.8 185.4 33.6 -11.2(d) +113.5 19.4 5.0 13.4 11.3 - 11.3 - 8.1 Sept.28 Nov. 1 106.7 5.8 100.9 148.0 3.2 52.6 86.2(e) + 35.3 86.6 - 75.2 35.0 41.2 - 12.4 S1.8 105.4 Nov. 2 - 29 191.7 8.9 182.5 105.6 37.8 25.0 23.0 - 85.9 78.6 ) 61.9 50.1 27.8 . 4.3 58.7 109.2 93.9 Nov. 30 - Jun. 3 97.7 8.7 89.0 75.2 50.6 14.2 10.6 - 22.5 86.8 E8.1 15.3 + 28.4 1940 Jan. 4 31 54.8 16.8 38.° 43.4 20.6 17.8 5.0(f) - 11.4 61.5 31.5 30.0 55.9 50.1 5.8 - 5.6 Feb. 1 - 28 124.2 15.4 108.5 103.3 56.7 17,9 33.7 - 15.9 76.7 32.8 39.9 71.5 54.8 16.7 - 1,2 Feb. 29 - Apr. 3 115.5 14.5 101.0 94.0 60.9 21.5 11.6(E) - 21.5 99.6 35.9 63.7 100.0 75.4 29.6 + 5.4 Apr. 4 - Mey 1 113.4 26.1 87.3 86.4 46.8 13.4 26.2(h) - 27.0 84.8 29.4 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 - 14.0 May 30 - July 3 283.2 145.3 137.9 319.3 301.3 5.1 12.9 4 36.1 156.741) 127.3(1) 29.4 345.1(1) 335.6 9.5(1) +188.4 July 5 - 31 249.7 156.7 93.0 225.0 212.2 3.0 10.3 - 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 2948 267.4 1,0 26.4(j) + 33.7 8.9 0,5 8.4 10.9 10.4 0.5 + 2.0 First year of war 1793.2 605.6 1,167.6 1,828.2 1,356.1 211.8 260.9 + 35.0 866.3 416.6 449.7 1095.3 900,2 195.1 +239.0 AUE. 29 - Ott. 2 316.8 244.3 72.3 308.2 271.5 6.0 31.4(k) - 7.9 8.6 4.4 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 I Oct. 31 - Nov. 27 241.0 201.1 39.9 259.5 210.0 18.0 31.5(m) + 18.5 0.8 0.1 0.7 0.7 - 0.7 - 0.1 Nov. 29 - Doc. 31 234.6 206.8 27.8 198.0 111.4 26.0 60.6(n) - 36.6 2.1 - 2.1 0.6 - 0.6 - 1.5 WEEK ENDED Dec. 24 54.8 50.1 4.7 27.5 0.2 B.O 19.3 -27.3 - - - 0.1 . 0.1 + 0.1 50.1 46.5 3.6 74.5 48.3 8.0 18.2 +24.4 - - - - - - - 31 Jan. 8 60.9 43.9 17.0 47.9 25.B 14.0 8.1 - 13.0 - - - 0.2 - 0,2 + 0.2 15 56.9 49.9 7.0 163,8 143.6 14.0 6.2 +106.9 0,8 - 0.8 0.2 - 0.2 - 0.6 Average eskly Expenditures Since Outbreak of Mar Transfers from British Purchasing Commission to $19.6 million Bank of Canada for Frenth Aconunt (See footnites (t) reverse side) France (through June 19) Voek ended Jan. 15 $ 0.1 million Sn/land (through June 19) 27.6 million Cumilation from July 6 110.8 million England (sinse June 19) 58.0 million Regraded Unclassified (a) Includes paymento for account or 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 reported for account of the United Kingdom. week (Proceeds of these sales, however, may not have been credited to in Securd District all casse.) Beginning with the ended June 26, the figures represent transfers from the Bank of Montreal, the New Bank York of England's account in outstodian in for requisitioned American securities deals. held in this country. The transfers apparently reflect proseeds of official Agency, which including those handled through private residents were prohibited. From June 17 to July 19, transactions in repurities payable In opecified foreign security carrencies, sales, including dollars, by United Kingdom (d) Includes adjustment for (b) above. (o) Includes payments for account of French Air Commissión and French Purchasing Commission. (e) About $85 million transferred from assinints of British authorized banko with New York banks. (f) About $11 million transferred from accounts if British authorized banks with New York banks. (g) About $8 million transferred from accounts of British authorized tanks with New York banks. (h) About $10 million transferred from accounts if British authorized banks with New 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 banks. (k) About $2 million transferred from accounts of British authorized banks with New York banks. (1) About H million transferred from accounts of British authorized banks with New York banks. (a) About $32 million transferred from acœ unte of British authorized banks with New York banks. banks. (a) About $6 million transferred from accounts of British authorized banks with New York Regraded Unclassified ANALYSIS OF CANADIAN AND AUSTRALIAN ACCOUNTS stri-tly (In Millions or Dollars) Wook Ended January 15, 1941. Confidential BANK 03 CANADA COMMUNWEALTH BANK OF AUSTRALIA DEBITS CREDITS DEBITS CREDITS Transfers Transfers to Proceeds Transfers from Official Net Inor, to Proceeds Net Incr. Total Official Other Twtal of British N/O Other (-) or Total Official Other Total of Other (+) or Debits British Debits Credits Gold For Own For French Credits Decr. (-) Debits British Debits Credite Gold Credits Deor. (-) PERIOD A/C Sales A/C A/C in Belence A/C Sales in Balance 1939 Ang. 31 - Sept. 27 17.5 0.6 15.9 21.8 15.1 0.8 I 5.9 4 4.3 - - I - - - 1 Sept.28 - N.w. 1 9.6 0.3 9.3 16.7 7.3 2.1 , 7.3 à 7.1 - - - - - - - Nov. B - 29 9.9 0.7 9.2 14.4 13.3 - - 1.1 + 4.5 - 1 - 1.9 1,9 - - 1.9 Nov. 30 - Jan. 3 30.0 - 30.0 22.8 13.3 3.0 I 6.5 - 7.2 2.5 - 2.5 5.8 5.8 - + 3.5 1940 Jan. 1- 31 23.5 - 23.5 25.7 21.1 - 1 4.6 A 2.2 5.2 0.3 4.9 3.5 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 3.8 2,4 8,2 0,8 - 0.9 Feb. 29 - Apr. 3 42.3 - 42.3 29.5 29.3 - I 0.2 - 12.8 3.0 0.3 8,7 2,2 1,6 0.6 - 0,8 Apr. 4 - May 1 38.2 - 23.2 42,9 24.8 15.0 I 3.1 + 4.7 2.3 - 3.3 2,0 1,8 0,2 - 0,3 May 2- 29 37.9 15.0 37.9 50.2 30.0 - I 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 8,3 - 2.3 5,9 4.4 1,5 + 3,6 July 1- 31 28.2 I 86.2 117.6 96.3 - 19.2 S.1 - 89.4 4,6 - 4,6 5.0 4,8 0.8 - 0.4 Aug. 1- 26 18.7 - 18,7 73.6 53.9 - 19.5 0,8 + 54.9 6.5 3.0 3-8 5.0 3.4 1.0 - 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 39 27.3 36.1 30,0 6.1 + 4.9 Ang. 29 - Oct. 2 44.3 Il 44.3 43.9 16.4 I 27.3 0.8 - 0.4 8.7 2.5 6.2 8.0 5,7 1,3 - 2.2 Oct. 3 - 30 26.7 1 26.7 28,6 14,0 1 14.3 0.3 + 1.9 10.1 7.5 2,6 7.9 6.5 1.4 - R.2 Oct. 31 - Nov. 27 35.2 - 35.2 69.6 49.2 - 16.7 3.7 + 34,4 3.1 0.6 25 3.6 2.1 15 é 0.5 Nov. 28 - Deo. 31 48.0 - 48.0 60,6 42.5 - 13.7 4.4 +12.6 4.8 a 4.8 6.8 4.8 2x0 2.0 WSEX ENDED Dec. 24 7.1 - 7.1 12.4 3,4 - 8.9 0.1 +5.3 0.1 - 0,1 0.3 0.1 0.2 + 0.2 31 13.7 - 13.7 2.0 1.6 - 0,2 0.2 -11.7 1.4 , 1.4 0.1 - 0.1 - 13 Jan. E 1.8 - 1.8 7.0 5.4 - - 1.6 +5.2 0.9 - 0.9 0.1 - 0.1 -0.8 15 9.0(a) 9.0 1,8 1.8 - - - - - 7.2 28 - 2.8 0.4 - 0.4 -24 leekly Average of Total Debite Since Outbreak of War Through Jun. 15, 1941 $ 6.8 million (a) $6.0 million trans ferred to Bank of Montreal. Regraded Unclassified 28 SECURITIES AND EXCHANGE COMMISSION WASHINGTON Trading and Exchange Division January 25. 1941 Mr. H. Merle Cochran, Technical Assistant to The Secretary of the Treasury, Washington, D. C. Dear Mr. Cochran: I am enclosing herewith for your information and that of the Secretary of the Treasury, a memorandum prepared by Mr. Walter C. Louchheim, Jr., Assistant to the Director of this Division, relative to securities transac- tions from foreign sources recently reported to this Commission, more particularly those emanating from Switzerland. This report was in preparation at the time of your telephonic request for information of this character and I am pleased to be able to make it available to you. I have advised Chairman Frank of the Secretary's recuest. He has asked me to repeat at this time the view, which he has on previous occasions expressed on behalf of the Commission, that some effective method of pre- venting foreign licuidation of securities on our markets in evasion of the present "freezing" controls should be undertaken. He also asked me to say that he would be very glad to participate in any conferences which the Secretary might feel proper to convene in order to present his views from the point of view of the Commission's responsibilities. Would you be good enough to convey this message to the Secretary? If there is any further information which we can get for you I shall be glad to be of service. Very truly yours, (Signed) Ganson Purcell Ganson Purcell Director Enclosure COPY lap Regraded Unclassified 29 MEMORANDUM Jenuary 25, 1941 TO: Ganson Purcell, Director Trading and Exchange Division FROM: Walter C. Louchheim, Jr. Assistant to the Director SUBJECT: Securities transactions from Switzerland There has been e. renewal of relatively substantial sales of domestic stocks from Switzerland since January 20, 1941, according to reports re- ceived by the Commission from 42 member firms of the New York Stock Exchange, According to these reports net sales have been in the following amounts: January 20, 1941 $ 97,000 January 21, 1941 560,000 January 22, 1941 709,000 January 23, 1941 392,000 January 24, 1941 811,000 These figures are, as you realize, partial primarily because they do not include transactions effected for foreign accounts through banks. An inquiry which has been made as to the source of this selling dis- closes that about 15 of the 42 reporting firms have received and executed selling orders for Swiss accounts during this period. Most of these orders were of smell denomination for regular customers of these firms end origi- nated in verious Swise cities. The firm of Dominick & Dominick, however, has the largest amount of selling during this period. Their transactions aggregating about one half of the total sales reported. This firm advises that it has received sub- stantiel selling orders from Lombardodier & Co. of Geneve, a private benk which has dealt with the New York firm for many years. These transactions were effected for three "sub-sccounte" of the bank. On January 24, 1941, this bank sold for these accounts over $500,000 of domestic stocks. On January 23. NL substantial amount was also sold for these accounts and on January 22, these accounts sold over $300,000 of domestic stocks. Dominick end Dominick advise that it has no knowledge as to the actual principals for whom these sales were effected as it receives the orders from and in the name of Lomberdodier & Co. of Geneva. It may be recalled that during the Fall of 1940 on the occasion of substantial seles being reported to the Commission from Switzerlend, 1n- ouiries were made as to the possibility that these transactions might con- stitute an evasion of the freezing orders and regulations of securities transactions from certain European countries. The results of these investi- gations were submitted to the Commission and have been discussed with rep- resentatives of the Treasury Department. During the current period investigated, i.e., January 20, through January 24, 1941. there have been no substential sales reported to the Regraded Unclassified 30 - 2 - Commission from other foreign sources with the exception of the sale on January 20, of 4,200 shares in the amount of $292,000 from Havana, Cuba. COPY:lap 31 No. 400 AMERICAN CONSULATE STRICTLY Rangoon, Burma, January 25, 1941. Traffic statements of Southwest Transportation Company show 32,185 tons of Chinese Government supplies shipped from Rengoon in last three months of 1940; shipments chiefly of gasoline and general cargo; little war na- terial received or moved; reports covering traffic in aircraft materials and factory supplies. THE HONORABLE THE SECRETARY Oa' STATE, WASHINGTON. Sir: I have the honor to report that 32,185 long tons of supplies for the Chinese Government were shipped from Rangoon by the South- west Transportation Company in the last three months of 1940, if the statements submitted by that company to the local Customs au- thorities are correct. The statements are obtained by the Con- sulate through the Defence Department of the Government of Burna. The only war materials included in the shipmonts made were, according to the statements, 21 tons of arms and accessories, 50 tons of emmunition, and 294 tone of explosives. As previously reported to the Department, 15,634 long tons of Government supplies were shipped from Lashio into China by the Southwest Transportation Company in the last two and one-half months of 1940. The exact period in which these supplies were shipped was from October 14th to December 29th, both inclusive, the traffic reports covering shipments by weeks. The Burna Road was reopened to prohibited raterials on October 18th. The movement of Chinese Government supplies from Rangoon to Lastic by rail 16 ordinarily much greater in volume than the covement of such surplies from Lashio into China by road, and the Southwest Company has stocks at Lashio as well 98 in Rangoon. No Imports of Ammunition. Copies of the statements submitted for the months of October, November, and December, by the Southwest Transportation Company, are enclosed horewith. These statements show that no ammunition was received at Rangoon during the three months, and that receipts Regraded Unclassified 32 of arms and accessories amounted to only 12 tons. In November there were imports of 1,112 tons of exclosives, and 618 tons of these supplies were still at this port at the end of December, It is stated that these explosives, consisting chiefly of TNT, with some smokeless powder for rifle ammunition and nowder for trench mortars, were obtained from the United States, that they were on the way to Haiphong when the Japanese moved into Indochina, and that they were re-routed to Manila and later forwarded from Manila to Asngoon. Gasoline received during the three months totaled 11,168 tons, according to the statements, and general cargo, 17,961 tone. Total receipts were 30,253 tone. Stocks on hand in Bangoon at the end of December amounted to 41,399 tons, including 13,102 tons of steel rails. Shipments by Intercontinent Corporation. The Intercontinent Corporation, the W. D. Pawley concern that has made all purchases for the factory of the Central Aircraft Kan- ufacturing Company at Loiwing, China, has submitted to the Customs authorities a traffic statement for the last six months of 1940. This statement shows 197 long tone of imported products forwarded from Rangoon to China. The products listed consist chiefly of 08- chinery and tools and other factory materials and parts, and most of them were imported direct from the United States on ships of the American Export and Isthmian Lines calling at Rangoon. Other prod- ucts listed comprise household, comissary, and office supplies, clothing, medicines, radio and motion-picture equipment, and motor tractors, and some of these supplies were imported from Hong Kong, China (Shanghai), and India. The only imports from Great Britain were 8 chain hoist and chain block duplex thread, which reached Ran- goon on the S. S. "Staffordshire" of the Bibby Line. Some supplies which left the United States on the "President Van Buren" were trans- shipped, and other American supplies shipped from Los Angeles on the Dutch steamer "Bloemfontein" arrived here on one of the several ships of the British India Steam Navigation Company which carried goods from Shanghai, Hong Kong, and India. The American vessels shown 88 direct carriers include the "Excelsior", "Steel Engineer", "Exporter", "Excellency", "Steel Exporter", "Illinoian", "Express", "Black 08- prey", "Explorer", "Exemplar", and "Exchang"". Statement by Dodwell and Company. A third statement of overland traffic to China recently submitted to the Customs authorities is that of Dodwell and Company, Limited, a British concern that handles the clearance and the forwarding or storage of airplanes and airplane materials and parts imported by the Intercontinent Corporation for shipment to China. The figures sub- mitted by this concern cover the four months from August to November 1940, and show 312 tons imported, 129 2/3 tons shipped to China dur- ing the period stated, and 561 3/4 tone on hand in Rangoon at the end of November 1940. Stocks on hand at the end of July 1940 were Regraded Unclassified 33 -3- approximately 379-1/2 tons. The statement also shows the United States as the source of all supplies, and contains 2. general description of goods identical with that used in previous statements, covering "in- terceptor aeroplane (Wright model 21) fitted with machine guns and radio, unassembled engines, airplane parts, plywood, steel and alum- inum and brass sheets, aluminum and brass castings, roller bearings, tools, airplane instruments, steel forgings, oxygen cylinders, navi- gation lights, primer pumps, jigs and fixtures, rubber grommets, grinding wheels, radio compasses, engine mounts, lubricating grease and oil, paints and dope, etc., etc.". The names of the vessels which brought to Rengoon the 312 tons of materials imported during the four months, and the quantities car- ried by each vessel, are given in the statement as follows: Vessel Flag Tons Cwt. "Excellency" American 39 8 "Bidevind" Norwegian 1 9 "Express" American 5 9 "Sonnavind" Norwegian 18 6 "Silver Sandal" British 52 17 "Black Osprey" American 3 13 "Illinoian" American 55 5 "Explorer" American 16 18 "City of Lincoln" British 27 18 (Transshipped; arrived on "Forthbank") "Exchange" American 5 10 "City Newport News" American 72 0 (Transshipped: arrived on "Shantung") "Exemplar" American 6 18 "Dubrovnik" Yugoslav 6 3 It is understood that the 72 tons of materials transshipped from the "City of Newport News", at Singapore, consisted of 39 cases of unassembled Vultee light bombers, which were to have been assembled at Loiwing, China. Respectfully yours, Austin C. Brady American Consul Enclosures: Statements, as indicated. Distribution: In quintuplicate to the Department. 800 ACB Regraded Unclassified 34 CARGO STATEMENTS OF THE SOUTHVEST TRANSPORTATION COMPANY. MONTH OF OCTOBER 1940. Materials Stock Last Arrived This Month Shipped Stock on Month (Tons) Port of This Month Hand (Tone) Shipment (Tons) (Tons) Arms, Accessories : 61 : 12 Liverpool : 3 : 70 Ammunition : 50 : - Hong Xong : 50 : 1 Explosives : - : - Penang : - : - Gasoline : 3.952 : 1,457 New York : 4,863 : 546 General Cargo : 39,268 : 4.734 Shanghai : 4,164 : 39,838 : : Rangoon : : Totals : 43,331 : 6,203 : 9,080 : 40,454 MOSTH OF NOVEMBER 1940. Arms, Accessories : 70 : I Manila : 18 : 52 Ammunition : - : - Shanghai : - : - Explosives : - : 1,112 Hong Kong : - : 1,112 Gasoline : 546 : 5,717 New York : 1,510 : 4,453 General Cargo : 39,838 : 5,751 San Francisco 5,201 : 37.388 : : Rangoon : : Totale : 40,454 : 12,580 : 10,029 : 43,005 MONTH OF DECEMBER 1940. Arms, Accessories : 52 : - Hong Kong : - : 52 Ammunition : - : - London : - : - Explosives : 1,112 : - Peneng : 294 : 818 Gasoline : 4,453 : 3,994 Manila : 4,949 : 3,498 General Cargo : 37,388 : 7,476 Singapore : 7.833 : 37,031 : : New York : : : : Los Angeles : Totals : 43,005 : 11,470 : 13,076 : 41,399 Note: It is stated that the 52 tons of arms and accessories on hand consist of heavy libers, and that the general cargo on hand includes 13,102 tons of steel rails. Teh:copy Regraded Unclassified 35 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE January 25, 1941 decretary Morgenthau TO FROM Mr. Cochren CONFIDENTIAL Registered sterling transactions of the reporting banks were an follows: Sold to commercial concerns L18,000 Purchased from commercial concerns 1 5.000 Dgen market sterling was quoted at 4.03-1/2. Transactions of the reporting DANKS very 15 follows: Sold to commercial concerne £13,000 Purchased from commercial concerns & The Swise franc, which closed et E three-year high of .2328 last night, opened 21 .2330 this morning. After remaining steady until mid-morning, the rate advanced repidly, end toward the close, E new high of .2355 bid was recorded, The final quotation was .2350 bid, It was learned that one New York bank received an order FOI the Credit Suisse, Berne, to purchase $400,000 worth of Swiss france at best. 60 shero rise in the rate reflected the difficulty experienced by the New York bank 1b executing even B. small pert of thie order on B. Saturday market. The New York MARY of 8 Swiss bank wes reported to have agreed to suggly about 50,000 Sviss france reginst dollars on the understanding that such dollars arose from ordinary commercial transactions. It was also reported that an order was received from Bulgeria to sell 3500,000 reginst Swiss france end that miscellaneous ordera to sell U. S, dollars in amounts ranging from $100,000 to $200,000 were received from Tokio, Shangbai and South America. Regarding the letter orders, the foreign currencies to be purchased were not disclosed. Except for come ingrovement in the Canadien dollar and Swedish Krons, the other currencies experiences little change. Closing quotations were: Canadian doller 16-5/8% discount Swedish krons 2386-1/2 Reichsmerk .4005 Lira 0505 Argentine DESO (free) 2375 Brazilian milreis (free) 0505 Mexican pera ,2066 Cuban peso 7-13/16 discount Chinese yuan .05-1/2 Regraded Unclassified 36 - 2 - We sold $2,000,000 in gold to the Central Bank of the Uruguayan Republic, which was added to its earmarked account. The Federal Reserve Bank of New York reported that the Bank of Canada shipped $5,277,000 in gold from Canada to the Federal for account of the Government of Canada, for sale to the New York Assay Office. The Bombay gold price was 1# higher at the equivalent of $34.02. Silver was priced at the equivalent of 44.874, a gain of 1/4+. CONFIDENTIAL jul CONFIDENTIAL 37 Paraphrase of Code Radiogram Received st the War Department at 14,52, January 25, 1941 Stockbolm, filed 14.00, January 25, 1941. In reply to your rediegram 83, the following information [about the German Air Force] has been received from & neutral colleague who has unusually reliable sources and who has recently returned from Germany. It is estimated that the total combat strength of the [German Air Force] is 18,000 [plane] and that daily losses (including training planes) average 30 planes. One hundred motors and 75 planse are produced daily. On January 1, there were 800 planes in Italy. Composition and location of air fleets], The 5th Laftflotte [air flest] consists of me destroyer (heavy fighter) and one pursuit division and some trans- port or bombing planes which are located in Norway, Finland and Denmark. Since October 1, there has been a considerable reduction in Norway and Finland. Commanded by General Stumpf. The 3d Luftflotte commists of 5 bomber, one dive bomber, - pursuit and 2 destroyer (heavy fighter) divisions. Located in Southwastern France. Commanded by Sperle. The 1st Luftflotts has 3 pursuit and 3 training divi- sions and is stationed in Paland. The 4th Laftflotts consists of & beaber and DDD persuit divisions. Stationed in Rumania and Southern Certify. CONFIDENTIAL Regraded Unclassified 38 CONFIDENTIAL Commanded by General Lahr. The 2d Luftflotte emsists of: 3 bember, 2 dive bomber, 2 purvuit, one destroyer (heavy fighter) and one transport or bombing divisions. Stationed in the Seine through the Netherlands. Commanded by Kesselring. WADDELL Distribution: Secretary of Har State Department Secretary of Treasury Asst. Secretary of Var Chief of Staff War Plans Division Office of Naval Intelligence Air Corps 0-3 0-4 CONFIDENTIAL - 2 - Regraded Unclassified CONFIDENTIAL 39 Paraphrase of Code Rediegrem Reserved as the Ver Department et 10:23, January 25, 1941. London, filed 14:25, January 25, 1941. 1. On Friday, January 24, planes of the Coastal Commi - regular patrols bembed an oil refinery at & French part and were responsible for the destruction of - German semplane. Oa that day and during the preeeding night unfaverable weather conditions essued the cancellation of all flights of the Bomber Command, 2. During the night of January 24-25 there were no German planes over Britain. During the preceding day single German planse were active over Cardigen Bay, Bristol Channel and Dorset. One German raider nas intercepted over the Firth of Forth and TM das- aged by & British fighter plane. 3. The Reyal Air Fores has been active in several African theaters. At Neghelli in Ethiopia aster transport concentrations and military buildings were attacked by British planes from Kenya. Three Italian boaber planse were destroyed in a raid on Jekas w British beabers based in the Suden. Airfields in Marana, Derta and Apellenia, all in Libya, and the harber at Rhades METO attacked by Rgyptian-based British planes. 4. British troops in Jarabub, Libya, were ineffectively sttached by six Axis bomber planes. 5. The markly condition of airfields in France and the recent unfaverable weather conditions are primarily responsible for the fact that for the last five nights there have been no German night CONFIDENTIAL Regraded Unclassified 40 CONFIDENTIAL attacks on Britain. In addition, however, German mintenance and recrganisation activities in preparation for the launching of more intensive raids against England are also believed to be partly responsible. 6. Germn airplanes are responsible for the sinking of three British cargo boats 150 miles off the west coast of Ireland, SCANLON. Distribution: Secretary of Tar State Department Secretary of Treasury Asst. Secretary of War Chief of Staff War Plans Division Office of Naval Intelligence Air Corps - 2 0-3 CONFIDENTIAL - 2 - Regraded Unclassified 41 CONFIDENTIAL Paraphrase of Code Radiogram Received at the War Department at 10:43 A.M. January 25, 1941 Rome, filed January 25, 1941. It is reliably reported from Italian East Africa that Italian air forces there have become almost wholly ineffective from bombardment, combat losses, and weathering. There were four hundred planes in Italian East Africa last June but very few of these can fly at present. Traffic in the Red Sea suffers no interference worth mentioning. The Italian Air Force is got- ting out of Cirensica entiraly. Communication with East Africa by air through Libya is probably closed, for the time being at least. FISKE. Distribution: Secretary of War State Department Secretary of Treasury Aust. Secretary of War Chief of Staff War Plans Division Office of Naval Intelligence Air Corps CONFIDENTIAL Regraded Unclassified 42 January 26, 1941 MEMORANDUM FOR THE SECRETARY'S DIARY Secretary Morgenthau and Ed Foley attended a meeting at the office of Secretary Hull on Sunday, January 26, at 11:00 a.m., on the Lease-Lend Bill. Others present were Speaker Rayburn, Senator George, Congressmen McCormack, Bloom and Johnson; Messrs. Beaman, O'Brien, Deschler and Hackworth. Secretary Hull said the purpose of the meeting was to discuss amendments which the Democrats on the House Foreign Affairs Committee could offer. Speaker Rayburn said that four possible amendments occurred to him that he would like the group to consider: (1) a time limit on the President's powers, (2) a limit on the countries which could be aided under the bill, (3) provision for executive reports to Con- gress on operations under the bill, and (4) provision for payment in needed raw materials. The Speaker asked Congressman Bloom if any additional amendments suggested themselves to him. Mr. Bloom pointed out that most of the talk had to do with the use of our navy as convoys and a time limit upon the exercise of executive nower. Regraded Unclassified 43 - 2 - After a general discussion it was decided (1) that a limit should be placed upon the time when the President may authorize the heads of the Army and the Navy to enter into agreements, no restriction, however, to be imposed upon carrying out agreements after the time that such agreements could be entered into had elapsed; (2) that no limitation on the countries which could be aided under the Bill would be imposed; (3) that provision for reports to Congress of all information not incompatible with the public interest not less frequently than every ninety days should be inserted; (4) that consultation should be had by the President with the Chief of Staff of the Army and the Chief of Operations of the Navy in such manner as the President might prescribe before material on hand could be released; (5) that provision be inserted to the effect that nothing in the Act should be construed to give the President power to convoy ships with our Navy. Speaker Rayburn asked that Mr. Beaman, Mr. Hackworth and Mr. Foley get together and work out the necessary language to give effect to the changes agreed upon. The Speaker also suggested that a meeting be arranged with the President some- time on Monday to give his approval to the proposed changes. Regraded Unclassified 44 - 3 - There was a discussion as to whether or not some Republicans should be present. Secretary Hull and Speaker Rayburn talked to the President on the telephone and he said that he did not want Congressman Fish in his House but they could work out some plan to bring certain other Repub- lican leaders down to see him about the changes if that would be helpful. The meeting broke up about 1:15 p.m. Regraded Unclassified Saturday, January 25th, Foley and Beaman worked up these four amendments. They were discussed in Hull's office Sunday, January 26th. 45 \ 46 (e) No defense article shall be manufactured, precured, tested, inspected, proved, repaired, outfitted, reconditioned, or otherwise put into good working condition pursuant to this section, unless such action, in the opinion of the Secretary of War, the Secretary of the Mavy, or the head of the department or agency of the Government concerned, can reasonably be completed before July 1, 1943; and no defense article shall be released for export, nor shall title or possession thereto be transferred, pursuant to this section after June 30, 1943. Neither I 2018, I I - I I July 20 1043. nut 48 rage 3, after line 30, insurt the following: (4) I a 1 set 2 8 z I s b r I a I provided I 3 1 the Nonkrelity Ast w 1989, w navel ressols of the United states. 49 Page 4. line s, before the "ther" insurt "(a)" page 4, after line 11, insurt the following: (b) the President from time to time, - not less frequently them - every ninety days, shall transmit to the Congress a report of eperations under this Ast except much information as he doems 1% not compatible with the public interest to disclose. Reports provided for under this subsection shall be trensmitted to the Secretary of the Senate w the Cleak of the House of Represembatives, as the case may be, if the Senate or the House of Represembatives, as the case my no, So not in session. Regraded Unclassified CONFIDENTIAL) 50 CONFIDENTIAL PARAPHRASE A telegram dated January 26, 1941, from the American Embassy at Chungking repeating a message from the American Consulate at Kunming reads substantially A8 follows: According to trustworthy sources the remaining bridge across the Mekong River which will carry automobiles was, on January 23, badly damaged by a Japanese aerial attack. It is said that all cables on one side of the bridge have been severed. It 18 estimated by Chinese informants that repairs cannot be completed before the end of two weeks. The Chinese Chief of Staff, General Ho, 1s said to have departed for Mengtze for an investigation of Chinese defense arrangements in southeastern Yunnan. Reports are heard on many sides that there are being sent into Yunnanfu many Central Government troops. THE Regraded Unclassified 51 Purapharese CONFIDENTIAL of Code Indiagree Received at the War Department n 18:05, Junuary 26, 1961 Beigrade, filed 18:45, Junuary 25. Colonel Donsvan and I were informed w the Minister of Year today that the German military attachs had given him the plans for the invasion of the British Isles, in outline. the Cervens will enbark their min effort from Calais. It will be supported by massed aviation and also by three - of thirty submerines cash. The air strength of Germany was 20,000 to Great Britain's 8,400, Toussaint claimed. In the epinion of the Minister of War, the effensive will be launshed this spring. Be thinks, however, that the main effort will be turned against Ireland. He added that in his statements Toursaint had been careful not to discuss Ireland. The British, in Penis's opinion, ought to start at - to compy Ireland and got the defenses ready. FORTIER. Distribution: Secretary of War State Department Secretary of Treasury Asst. Secretary of Yes Chief of Staff War Plans Division Office of Neval Intelligance Air Carps CONFIDENTIAL Regraded Unclassified 52 CONFIDENTI AT, Pursphase of date Rediegram Received at the Yes Department 7104 I : 14. INL. * Leadon, filed 12:00, Jamery 25, 1941. 1. On Saturday, Jamuary 25, and during the preseding night planes of the British Geastal Common damaged and German plans and banbed agreement shipping and vessels of the German Havy at Leviens. Adverse weather during this pariod cansed either the abondonment or the cansellation of all flights by planse of the Benber Consant. 3. During the night of Jamary 25-25 33. Eval was attacked and raids were carried out over the Irish Sea and the south Cernish coast by 13 German planes. On the preseding day German air operations consisted of one attack in the Nerfolk-Suffolk area, raide against aershant shipping and reconnaissance along the coast line. 3. British beaters operated is several theaters in Africa. Tvo Azie planes vere destroyed and attacks were carried out against motor transport consentrations, Italian positions and railway - tration points in the Redan area. The Bengari and Maritan sirfields vers beated by British planse based in Zopt. Yys And planes vere destroyed in these raids. British planse attacked the railroad - Djibouti and a Italian - in the Kenya theater. 4. One German plane of Glenn Martin conformers vas fied over Cibralter and are Junkers benter curried out over Malta. In what was the first instance of the use of General air- craft in the inland Mayan theater, a British aparred forse Met CONFIDENTIAL Regraded Unclassified CONFIDENTIAL 53 Mechill vas attacked w German dive bothers. & Press reports telling of ricting in Turin and Milam and of the Evitish compation of Derma, Libya, cannot be confirmed w the Ver Office. SCANLANE Distribution: Secretary of Valir state Department I off I Asst. Secretary of Var Chief of Staff Var Plane Mvision Office of Navel Intelligence Mr Corps 6-5 CONFIDENTIAL Regraded Unclassified 54 Regraded Unclassified January 27, 1941. Dear Mr. Hemingways In accordance with our telephone conversation, I - enclosing some photostate of the material taken from Secretary Morgenthau's files relating to the malarial situation on the Burns read. The Secretary would be interested in getting your views not only on the matter I mentioned over the phone and on the situation on the Burna road, but also on the traffic condition on the Irrawaddy River. It is the Secretary's understanding that the river is navigable up to 150 miles from the Chinese border, but that owing to the desire en the part of the Burna Government Rail- my to imerease the traffic over its read the Chinese Government is reluctant to fully utilise the river. The Secretary suspects that the failure to utilise the river may be explained on grounds even less creditable than the one suggested above. The Secretary wishes you good luck on your trip. Sincerely yours, (Signed) H. D. White H. D. White, Director of Monetary Research. Mr. Ernest Headnguay, Lembardi Notal, 111 East 56th Street, New York, New York. 1/27/41 - Mailed, special delivery, from Mr. White's office - 5:00 p.m. (Miss Mengel took to Post Office) NOW:ls 1/27/42 55 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION strectly CONFIDENTIAL DATE January 27, 1941 TO Secretary Morgenthau FROM Nr. Klaus FBI reports: January 22. Through Archie Lochhead at our suggestion a secret contact is in the process of being effected with someone in the Foreign Department of the Chemical National Bank, which heretofore has not supplied information to FBI. January 22. More on T. V. Soong. Be advised the British that Chiang WES disappointed in the size of the British loan; after his recent appointment with Secretary Morgenthau, Soong advised China that he was experiencing difficulties in his British and American negotiations because of the strict exchange control which they wished to impose in order to prevent Japan from being benefited and that they were critical of the Stipulation (?) Fund Committee and of Dr. Young. January 23. An anonymous communication from West Palm Beach, Florida, states that an Italian whose name is Count Cicogna gets information from the Office of the Secretary of the Treasury and other Federal departments in Wash- ington and reports to the Italian Library of Information (Ugo d'Annunsio) and the Italian Consul. We are attempting to find out whether there is any Count Cicogna; the language of the excerpt indicates the anonymous informer to be a foreigner. 821 Regraded Unclassified 56 COPY DEPARTMENT 07 STATE WASHINGTON Jamiary 27. 1941 The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury and transmits a confidential memorandum dated January 7, 1941 from Mr. Donald R. Heath, First Secretary of the American Embassy, Berlin, regarding the Germen economic situation. together with e strictly confidential memorandum of the same date, reporting B. relevant conversation with a well- informed German official. Enclosures: Two memoranda from Embassy, Berlin, January 7. 1941. dm Regraded Unclassified 57 EMRASSY OF THE UNITED STATES 08 AMERICA Confidential Berlin, January 7. 1941. Memorandum for Treasury from Heath During my three weeks' absence from Germany there have been only two economic developments of any significance: 1) the reduction of the interest rate on government long term borrowing from 4 to 3 1/2 per cent, and 2) the resumption of the stock market rise, following a temporary recession during the latter part of November and the first half of December, to the highest average quotations since 1929. The reduction of the interest rate was generally expected 8.8 an act of deliberate policy and as a consequence of the surplus of funds seeking invest- ment. War Financing. The most recent indication of government borrowing WES the debt statement for September. The net increase of government debt during that month was 3.2 billion marks. During the first eight months of the war government borrowing, both long and short term, averaged only about 2 billion marks per month and during the latter part of that period borrowing vas at 5 lower rate than during the first few months of the war, The spring offensive marked an increased scale of government borrowing, the monthly average for the period from May to September inclusive being 3.2 billion marke and there is no indication since the September debt report of any let-up. On the contrary, according to all accounts Germany has in the last few weeks increased the number of men under arms, presumably involving increased government expendi- ture. State Secretary Reinhardt has made a statement that there will be no increase in taxes during the year (see Embasey's telegram No. 27. January 6. 6 p.m.). Increased government expenditures and purchasing power against 3 declining quantity of consumption goods intensifies the problem of potential and eventual inflation. It 18 to be noted that practically all business firms paid the customary Christmas bonuses this year not only to their present 8th- ployees but also to those who are in military service. Currency and credit expansion. The Reichsbank report for December 31 (see my telegram No. 45. December 7. 3 p.m.) recorded new highs in currency circulation and credits. There is always a striking expension of Reichsbank credit and currency circulation at the end of the year, but at the end of this December note circulation stood at 2.2 billion marks above that of December 31, 1939 and the total of Reichsbank investments (government and commercial bill holdings, collateral loans and security holdings) was 3.2 billion marks higher than 8. year ago. The price and consumption controls are still functioning with essential efficiency and have prevented this monetary expansion from resulting in B. runaway price inflation. Presumably Germany 18 still far eway from any such eventuality, but during the past few weeks there in observable a slight deterioration of the efficiency of the price and consumption controls and an increasing if as yet not dangerous development of the tendency of & flight from the mark. The increasing prevalence of Schleichhandel (illicit trade), Regraded Unclassified 58 - 2 trade). particularly in goods brought back from the occupied countries, is a common topic of conversation and is corroborated by the increasing and prominently publicised reports of convictions and the increasing severity of the price regulations. The Stock Market Rice, There has been an almost steady rise in stock market quotations, as measured by the Reich Statistical Office's stock market index, since the end of 1939, somewhat retarded in June and July, but continuing at an even greater rate since than. The general index of all stocks rose by 30.5 per cent from December 1939 to November 1940. The in- creases of the three groups making up the general index were 34.2 per cent for the manufacturing industries, 30.2 per cent for trade and transportation, and 24.8 per cent for the extractive and heavy industries. Particularly marked rises were shown in shipping stocks, which rose by 83.5 per cent from December 1939 to October 1940, and stocks of the metal, machine and vehicle industries which rose by 38 per cent during the same period (later Reich Statistical Office indices are not yet available). The Borsen Zeitung weekly index of quotations on the Berlin stock exchange, which measures stock quotations on the last day of each week, rose by 5 per cent from the 2nd of November to the 4th of January, but this period was marked by a recession lasting over three weeks from the latter part of Movember through the first half of December. During the two weeks from December 21 to January 4 the index rose by 2.5 per cent. As in the period to October, the most phenomenal rises were in shipping stocks which rose, according to the Borsen Zeitung index, by 15 per cent, so that the net rise has been roughly 110 per cent since the end of 1939. The rising trend of stock quotations has undoubtedly to a great extent been due to the liquidity of the money market and 8. natural adjustment to the sinking trend of interest rates and yielda on fixed interest securities. Two other elements which have probably also played a role in this development are speculation on Germany's victory and a tendency toward a flight from the mark. The speculative element is illustrated particularly in the case of shipping stocks. While it is true that their market value had fallen very low, e rise st this time. especially such a large one, is purely of a spacu- lative nature, in view of the fact that the shipping companies have gaid practically no dividends since 1931. The Food and Haw Materials Situation. Statistical date B.B. to Germany's food and materials position are simply not available. Probably, almost certainly, the official figures for the grain harvest are misleading in that they include a much larger area than for the harvest figures in 1939. Nevertheless there 18 no indication of present or early food shortage in Germany itself. At the beginning of the war I quoted an authoritative source who was, I believe, speaking sincerely as saying that there would be no decline in German rations for the first two years of the war, after which time there would be a very gradual deterioration in quantity and blockade should be lifted or Russia should really substantially increase quality of available foods, particularly B8 regards fats, unless the its Regraded Unclassified 59 3 its supplies. As regards major raw materials, iron ore has of course ceased to be 8. problem. There has been & slight tightening of the provision of petroleum products for non-military consumers but there are still too many military and civilian vehicles performing non-essential services in operation to give any ground for belief that there is any present anxiety on that score. It 18 obvious, however, that lubricante are a problem. The elevators and street railways give audible evidence of the scanty employment of lubricants. The secret of Germany's position as regards minor metals is being kept remarkably well. There is evidence of increased scarcity and strain in this respect as indeed there is in the whole economic position, but it 1s & very gradual development. At the present time there is no evidence of any major economic weakness which might imperil the operation of the German economy and the prosecution of the war during the next year. An extremely well-informed contact touched vaguely and briefly on Germany's general economic position in a conversation which is separately reported. He said that, while it was true that the economic position WRS not a major problem for Germany at present, many strains and weaknesses were already apparent and, if the war lasts three or four years, economic weak- ness would result in Germany's defeat, always provided the enemy was able to develop and apply the full potential of its resources. I believe that this is a sincere and expert opinion. In conclusion, it must be stated that there 16 always one imponderable in the economic situation, that of morale. While some deterioration of the efficiency of the consumption controls has been observed, the discipline and morale of both consumers and workers has suffered no significant impair- ment - as yet. (Signed) Donald R. Heath Donald R. Heath, First Secretary of Embassy Approved (Signed) Leland Morris Leland Morris, Charge d'Affaires ad interim DRH:KK alm Regraded Unclassified 60 AIR MAIL ENRASSY OF THE UNITED STATES OF AMERICA Berlin, January 7. 1941. Strictly Confidential MEMORANDUM For Treasury from Heath and for the Department's information. In my memorandum of January 7 I quoted an opinion of an extremely well informed contact as to Germany's general economic position. The following is an account of my conversation with him. For identification of this contact see my personal letter to Mr. Livesey. As an opening gambit in my conversation I remarked to my contact that the German press still stoutly maintained that Germany was economically invulnerable even if the war should develop into a stalemate of many years duration. He said that that was not the case, that already too many strains and weaknesses were apparent and that if the war lasted three or four years Germany's economic weakness would result in her defeat provided the enemy was able to develop and apply the full potential of his resources, He declined to specify just what the strains and weak spots were. He went on to complain that neither from Germany, England or America was there any indication of a constructive political and economic program which would give Europe the stable peace that everybody desires. Even if Germany should by good fortune be victorious the National Socialist principle of racial superiority would make the establishment of & really cooperative Europe end B. durable peace impossible. Possibly the National Socialist leaders might see the necessity of abandoning this principle, but he thought it extremely unlikely. Further he was disheartened by the change in psychology of leading economic officials of the Reich. Previously they had realized that trade must be on a basis of reciprocal benefit. Now they were increasingly tending to use Germany's position of might to enforce sharp trade and financial bargains on European states, 8. practise which, if continued, would render impossible the establishment of a situation of economic cooperation and confidence. As for England, it looked as though Churchill had no other plans than to return to the status quo of a eystem of anarchistically independent and competing European states. This would be no solution. Whether Germany was victorious or not, there could not be any return to a Balkanized Europe. There could be political autonomy but there must be economic integration and removal of economic berriers. The difficulty was that if States were allowed to retain political autonomy they would Regraded Unclassified 61 - 2 - insist on economic autonomy as well and the special and selfish economic groups of each state in their desire for privileges and security would push for higher and higher economic barriers and protection. The formation of a European League of Nations would be unavailing unless the League not only had the intention but the police power necessary to enforce economic cooperation and restrain the forces of economic particularism and special interests. A League of Nations or a European Court without such a police force would be useless. As long AB most European peoples were opposed to the idea of a supernational police force or army, to enforce cooperative measures if necessary, it would be impossible to maintain B. regime of economic liberalism and capitalism in Europe would disintegrate to the benefit of communism. Ee concluded his conversation by asserting the necessity of someone presenting a sincere and a practical and intelligent program of political and economic reconstruction and organization of Europe as en alternative to continuing the destructive war. /s/ Donald R. Heath Donald R. Heath First Secretary of Embassy Approved: /a/ Leland Morris Leland Morris Charge d'Affaires ad interim DRH/hu COPY Regraded Unclassified 62 C 0 P Board of Governors Y of the FEDERAL RESERVE SYSTEM Washington Office of the Chairman January 27, 1941 Dear Ed: Thanks for yours of January 22 enclosing a stenographic transcript of the meeting held in Secretary Morgenthau's office on the afternoon of January 21 in re bank holding company legislation. Yours sincerely, (Signed) M. S. Eccles M.S. Eccles Chairman Mr. Edward H. Foley, Jr. General Counsel Treasury Department Washington, D. C. Regraded Inclassified 63 Jummy 22, 1941 - Here to a stenegrayble trenscript of the meeting held is the office of Securetary Margestion yesterday 1 payment s 2 1 company legislation. Sincerely yours, (Signed) F. N. Polor, Jr. Benewable Harrinov 8. Bookse Chairman, Board of Governare of the Federal Reserve System Federal Reserve Building & s Inclosure 1/23141 Orig. sent by Special Messenger - 1/22/41. ce: Miss Chauncey Regraded Unclassified 64 January 21, 1941 3:00 P.M. RE BANK HOLDING COMPANIES Present: Mr. Delano Mr. Schenker Mr. Bell Mr. Crowley Mr. Foley Mr. O'Connell Mr. Eccles H.M.Jr: Who is missing? Delano: Ecoles. H.M.Jr: Jesse Jones couldn't come. (Mr. Eccles entered the conference.) H.M.Jr: Jones just phoned he couldn't come. Do you want somebody? Eccles: Well, it is too late to get them now. H.M.Jr: Well, this will only one of maybe several, but if you want anybody, I will lend you O'Connell or Ed Foley or Schenker. They are all lawyers. Eccles: Well, we have got some lawyers. Bell: You don't want a lawyer? Eccles: Well, I can usually get along a damn sight Regraded Unclassified 65 - 2 - better without them. (Laughter) H.M.Jr: Well, the purpose of this meeting is, we sent the President a letter on January 3, suggesting he mention again in his message the way he did in 1938 something about the Bank Holding Bill, and I got a memorandum the way the rest of you did, that we should get together, and we put in this little portfolio the various things that happened on the bill going back to '38. I don't know whether you have had time to look at it or anything else, but in this report which Mr. Jones made on March 17, '38, it was a unanimous report at that time in regard to the bill and we sent over to the President what he put in his message on the bill, and he put it in, and the message is there and the present bill, so I think everything covering the thing is in this little thing here which the Comptroller got up for me. Eccles: Yes. Well, I had better make a report on what our situation is. When I got this message from the President, I called the Board and discussed it and we feel we have been very badly treated in this whole matter. In the first place, three years ago this thing was under discussion, and I haven't had 8 chance to go through this file. I wasn't here at the time. I checked up on - the Board has taken no action. There is no record in the minutes of the Board at all on this; and as a matter of fact, I haven't had a chance to check it thoroughly with Ransom, who was acting at that time. I came back here and went over it with the Board, and I was not in favor at all of the particular bill. I mean, I have been in favor for 8. long while of holding company legislation dealing with the holding company Regraded Unclassified 66 - 3 - picture in a proper and adequate way, but I wasn't in favor of this particular bill and nothing was done about it until Leo, he will recall, I think it was in '39, apparently got busy with the bill and you called him pretty hard on that action. I remember very well sitting in here and you called Leo at that particular time for under- taking a bill without consultation and discussion with the rest of us. H.M.Jr: In '39? Crowley: No, No, that -- Ecoles: It wasn't '40. Crowley: The Holding Company Bill was drafted for Glass by us in 1938. We had a conference, and I think we all pretty well agreed that the legislation - that is when the message - the President sent his message up, do you recall? H.M.Jr: Yes. Crowley: I think you are confused on that, Marriner. I don't recall that he (Secretary) and I ever had any disagreement; but the thing that brought about a disagreement between us was on the Glass Bill that dealt with bank examinations. Wasn't that right? But it had nothing to do with holding companies. That was a year later. Eccles: It was the Holding Company Bill after this bill that was introduced. It was not this bill, it was another bill. Foley: I remember vaguely the incident, but I think that Leo is right. I think we were talking about -- Regraded Unclassified 67 - 4 - Crowley: We were talking here. The Holding Company Bill was up, Marriner, in December of 1938; and the President put it in his message in March, 1938. Now, in 1939 Carter talked about an examination bill - or not Carter but some one from the Hill. That was what that discussion was about. Eccles: The Brown Bill? Crowley: Brown Bill, but that had nothing to do with holding companies. Rocles: That is what it was. Well, it was a Bank Bill then. Well now then, I remember the Secretary was - we had a meeting in connection with it, and you (Secretary) were pretty well upset because Leo had gone ahead and done this. Well, anyway, this is the situation. Here is a bill now that we haven't been consulted about; and after all, we have had seven years of the only administration that the law provides for holding companies. In 1933, before I came to Washington at all, Congress saw fit to give to the Federal Reserve Board, rightfully or wrongfully, the administration of this particular job with inadequate powers, to be sure, and we have felt for a long while that the powers were not adequate to deal with the problem; and suggested as a substitute for '38, the type of program that would have been a practical program that would have gotten at dealing with this problem. Since that time, because every one thought - I know we did - that there would be & piece-meal legislation, that the Wagner hearings were going to take up a lot of matters Regraded Unclassified 68 - 5 - that had been in - that needed some correction, and possibly matters of controversy, and this bill, this particular bill, without any con- sultation with the only agency that has had the administration of this function - it is drawn up over here in consultation with, apparently, Mr. Crowley; because in a letter to the President he is not only familiar with the bill but recommended that the President say something about it in his message, which the President didn't say. Crowley: Now wait 8. minute, let me -- Eccles: And -- Crowley: Wait just a minute, Marriner. Eccles: Let me get finished now. The bill is then introduced and, of course, all we know about the bill is what we have read in the newspapers, and we naturally got a copy of the bill itself. Now, I am - the President says, "Please make out & program." We have been always ready to make out a program in connection with this sort of a bill. I feel pretty sure that the President in the first place possibly doesn't know that the Federal Reserve Board has the responsibility and the administration of this question, and has had for quite a long while and possibly should be as familiar, if not more familiar, with the whole problem than anyone else, and ought to have some idea as to ways and means for working it out. I am sure, too, that he doesn't know that this proposal has been drafted and made and we were never even consulted about it, and I would doubt very much if he knows that the whole thing is picked up bodily from the Reserve System and transferred over to the FDIC. Regraded Unclassified 69 - 6 - Now, unless we can clear away some of that brush, there just isn't, it seems to me, an awful lot to talk about. I am perfectly - have always been willing torecognize this problem and to work out a program to deal with the problem; and I think there isn't anybody who knows more about what the problem is than we do and - but we can't come here - even if I was willing to, I am perfectly sure the Board wouldn't do it - and rubber stamp a bill that has already been introduced without our con- sultation, without consultation with us, and that takes away the complete administration from us. Crowley: Now, may I talk to you a minute? Eccles: All right, you go ahead now. Crowley: In the first place, you talk about this bill being drafted without Federal Reserve being consulted. I didn't see the bill until after Senator Glass had introduced it. As a matter of fact, I haven't read the bill to his day, but the Federal Reserve -- H.M.Jr: What is that, Leo? I an sorry. Crowley: I didn't see the bill until after Senator Glass introduced it. My being in this thing was purely incidental. I came over to kind of raise a little hell about your (FRB's) interference on Federal Deposit Insurance, and this talk about this holding company bill was only incidental to another business. Now, the Federal Reserve seemed to assume that they are the only ones that have any right to interfere in the other fellow's business. Eccles: We haven't introduced any bills. Regraded Unclassified 70 - 7 - Crowley: No, but you have made a hell of a lot of public proclamations. Eccles: All right, but it is public. Crowley: And I just want to tell you now for my sake, as Chairman of the Federal Deposit Insurance, I would appreciate you keeping out of our business. Now then, as far as legislation is concerned, I am willing to go along on legislation -- H.M.Jr: Leo, let's keep it clean. Do it with a smile, as long as you do it with a smile. (Laughter) Crowley: I am willing to go along on legislation. I don't want to be like Henrik Shipsted, when he voted against the President's bill because he didn't think it went far enough. Two years ago we all agreed that something should be done on holding companies. I don't care who drafts the bill, but I am not going to S urrender the things I believe in nor do I feel at any time that when someone else comes around here and does something that Federal Reserve comes around and raise this question a bout piece-meal legislation. With that reservation, I am willing to sit around and talk about anything, but this bill is now before the Senate and there is no other bill pending. H.M.Jr: I will make my position perfectly clear. This bill as introduced is a hundred per cent within the President's message, the way he set it up two years ago, and which, as far as I know, at that time in '38, the Federal Reserve -- Eccles: It was three years ago. H.M.Jr: It was '38. Regraded Unclassified 71 - 8 - Eccles: Three years ago. H.M.Jr: And as far as we know, Ronald Ransom, who was Acting Chairman, advised through Jesse Jones that there was complete agreement. Eccles: With the President's message. The bill hadn't been worked out at that time. H.M.Jr: And if on your return you weren't in agreement with the President's message, you certainly never let me know. Eccles: Well, there was no bill. The point is, there was in -- H.M.Jr: And if I could just finish - and three times now before the Appropriations Committee I have said that I thought that the bank holding situation was an unhealthy and unwholesome one, and Congress should do something about it. Perfectly frankly, I have gotten tired of waiting for the Federal Reserve to do anything about it, 80 I took the initiative. I mean, the Federal Reserve Board has had plenty of opportunity, as you say, for seven years to do something. Eccles: We haven't prepared or introduced any bill whatever since the Banking Act of 1935. H.M.Jr: And - well, here is the situation, and it demands attention; and as I say, nobody else seemed to worry about it except the Comptroller and Mr. Crowley and the SEC. Schenker: I don't want to inject myself, Mr. Secretary, but in connection with the preparations of investment companies, we deliberately omitted the bank holding companies who would come Regraded Unclassified 72 - 9 - within the purview of the definition of the investment companies, all predicated on the assumption that it was going to be dealt with very quickly and therefore there shouldn't be any overlap of jurisdiction, and I think I made that statement on the hearings and that is why they took it out. H.M.Jr: But that is the situation. There wasn't any personal offense meant to you as Chairman of the Federal Reserve, but frankly I was very restless that after all the difficulties I have had with the bank holding situation, that nothing is going to be done to correct it and no one else took the initiative, 80 I did and I am wholly to blame for it. I take full responsibility for the whole thing. It is my initiative and I take the entire responsibility. Now, if personally you or any of your Board over there are offended, I am very sorry; but the entire responsibility is mine. The bill is there. I am under the impression that it is wholly within the thing of three years ago; and if the Board wants to introduce their own bill or doesn't want to go along on this -- Eccles: Well, we would like to do either one of two things, either sit down and see if we could work out a substitute bill that in our opinion would meet the situation, and & program that we would believe in; or introduce an alternative bill, which I suppose, of course, a committee of Congress would have hearings on, possibly, and it would result in a merger of possibly the two bills, or they could take the bill that is up there and we could support a holding company bill with such modifications as, in our judgment, the bill should have. There are three ways of doing it. Regraded Unclassified 73 - 10- Crowley: Well, Marriner, wait just a minute. I don't think that - Mr. Secretary, that the Federal Reserve - if you are going up there on hearings on this bill, this bill that is before us, then we should have the right of all of us expressing ourselves on the bill. Now, we didn't draft this bill. We are willing to go along on it. If the Federal Reserve are going to introduce a bill, Federal Deposit is going to reserve the right to introduce a bill; you are just never going to get anything at all. All you will have is chaos. Eccles: Then we should sit down and start from scratch and get a bill. Crowley: I don't agree with that, Marriner, because every time a piece of legislation comes along here, one fellow wants to tear it apart and start from scratch and embarrass the piece of legislation. Now, if there -- Eccles: You don't expect we are going to support 8. bill that we have had nothing to do with and simply say, "Why, this thing has been so handled that it ought to be transferred over to the FDIC"? Crowley: We all have supported bills in the past that we didn't have anything to do with the drafting of. Eccles: And we have opposed bills, too. H.M.Jr: Well, could I ask for this? Would the Board care to give me a memorandum where they take objection to this bill? Eccles: Well, I will take it up with them and see if they would be willing to do that. H.M.Jr: I think -- Regraded Unclassified 74 - 11 - Eccles: Certainly we would file - we would no doubt be asked, naturally, by Congress, to state -- Foley: You have already been asked, haven't you, Marriner? Eccles: No. Foley: I thought each one of us had been asked to report on this measure. Crowley: We have. Foley: You have and the Comptroller has, and I assumed that the same thing went to you. Eccles: Maybe it has come in in the last day or two. We are asked to report on a lot of bills just as & matter of routine. Then there are other cases where it isn't altogether a matter of routine. Now, a lot of the routine requests are not always responded to; and where it is other than a routine request, they are always responded to. Foley: I should think this would fall in the category of being other than routine. Eccles: What I mean is, it depends how the request comes. It may be just the girl in the committee sends it to you as a matter of routine, and on the other hand, it is sometimes the chairman of the committee or the subcommittee that is handling it wants a report, which is the difference. Foley: I think they want a report on this, because I think they intend to hold hearings. Eccles: I would think they would, but up to the present time - what I meant, Ed, was that possibly what we had gotten was a letter that a girl in the Regraded Unclassified 75 - 12 - office would send out as a routine matter. I am not referring to this as a routine bill. H.M.Jr: Well, supposing you think it over and talk with your Board; and if you care to make any suggestions, let me know so I can let the President know and we can see where we go from here. I am interested to know where the Federal Reserve thinks this is not a good bill. Eccles: Yes. H.M.Jr: To know where do they disagree, what provisions in this bill they don't like. Eccles: We would like, I think - what I would like would be to propose what we would consider an alter- native proposal, we feel, that would meet the situation and one that we would feel that we could defend before committees of Congress. Now, anything that is done on this bill, I realize that we have got to go before committees of Congress, and we have got to answer questions. We have got to support whatever position we take. You have got to give it public support, and I would like for us to consider the type of support, or the objection, the alternatives, that we would give before a committee of Congress. That is going to ake a little time. You can't take a thing like this and prepare 8. case for Congress and do it in 8. few minutes; and I say that we wouldn't want to take some position with you (Secretary) and give you a report on the thing and suggested alternatives unless we felt that we were going to stand by it in case we want up before Congress, so it is one preparation, really, in effect, isn't it? Regraded Unclassified 76 - 13 - H.M.Jr: Surely. Whenever you are ready, let me know. I doubt if they will start hearings on this thing until we get this lend-lease bill out of the way. As soon 8.5 your Board knows, let us know. Is FDIC satisfied with this bill? Crowley: Well, let me say this to you, that the FDIC, I presume, like every other agency in Washington, have their own views they would like to inject in this legislation, but as I assume, we can't do that without destroying the legislation; and we feel that there should be a curb put on these holding companies and for that reason we are willing to go along and give the bill whatever help we can in our testimony. It is the only bill that is there. Now, if everyone is going to have the right to inject their own theories in this thing here, of course, we would want the right to inject ours. H.M.Jr: I was under the impression that this bill was satisfactory to you. Crowley: I say we are willing to go along and give testimony in favor of this bill; but if there are going to be any changes in this bill, then we wqnt the right to go into the thing ourselves, too. In other words, if the Federal Reserve are going to inject changes in this bill, we want to be sure to reserve our rights in the matter. Do you get my idea? H.M.Jr: No. I thought the bill was entirely satisfactory to you the way it was written. I didn't know there were any changes you wanted in it. Regraded Unclassified 77 - 14 - Crowley: You understand that we are perfectly willing to go along on this bill and 20 up there and testify for it; but if the Federal Reserve come along and make changes in this bill, we want to reserve our rights to talk about it. To modify their changes? Growley: Yes. L...Jr: That is all right. Recles: Sure. You will be testifying on something else, not this bill, though. Crowley: You mean that you would draft a new bill. H.S.Jr: No, what Marriner means is that you are reserving the right to testify on any changes that the Federal Reserve may suggest. Rccles: That is right. Foley: lie has a right to object. nooles: You don't know what they are, you haven't approved them, but here is a bill that you have apparently approved. Therefore, you wouldn't want to testify against any part of this bill; all you would want to testify for or against is changes that We may propose. Crowley: marriner, let me tell you this as far as we are concerned in this bill. e didn't see the bill until after Senator Glass had introduced it. Now, I don't know particularly about the fine points of the bill, but everything in the bill in principle, we are in sympathy with. coles: Well, we are not, so you are in 8. little bit different situation than me are. Regraded Unclassified 78 - 15 - H.M.Jr: Well, I don't think - Marriner, unless you have got something else. Eccles: No, I haven't a thing, because all I - I haven't had 8. chance to think about it. We have had a couple or three days vacation here and I haven't - you called this, I think, Saturday morning or Friday. H.M.Jr: I don't know, somewhere around there. Eccles: Yes, Friday afternoon, so I took a bunch of this stuff home with me; and all I know about it is what I have been able to r ead over the weekend here. H.M.Jr: Is that all the questions? Regraded Unclassified 79 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION CONFIDENTIAL DATE January 27, 1941. TO Secretary Morgenthau FROM Mr. Haaq MA Subject: The Business Situation, Week ending January 25, 1941. Summary (1) Commodity prices levelled out last week, with price indexes for both raw industrial materials and foodstuffs showing virtually no change. The most important exceptions were the textile group, including wool, cotton, print cloth, and burlap, all of which advanced moderately. (2) Despite various reports of considerable reduction in the price of lumber, the BLS wholesale lumber price index shows little change since the end of December, while changes in individual items have been limited in extent. (3) Our new orders index remained at a high level during the week ended January 18, although 7 per cent lower than in the preceding week. Steel and textile orders were both some- what lower, more than offsetting an increase in other compo- nents. New orders for steel were at 151 per cent of capacity, as compared with 170 per cent in the previous week. (4) Total lettings of structural steel for the week ended January 21 rose to the second highest level since the defense program began, while heavy engineering contracts awarded dur- ing the week ended January 23 were sharply above those of the previous year. (5) Total non-agricultural employment in December, accord- ing to the Department of Labor, reached 37,100,000, a. new high for recent years, and nearly 1,500,000 greater than December 1939. (6) The FRB index in the first three weeks of January has made further gains above the 136 level established in December, Judging from the movement of weekly indexes of business activity. The New York Times index in the week ended January 18 rose 0.3 to a new high of 123.8, while Barron's index rose 0.6 to a new high of 128.6. Regraded Unclassified 80 - 2 Commodity prices flatten out Commodity prices levelled off last week as trading sleckened in many commodity markets. The BLS price index of rew industrial materials was unchanged from the preceding week at about the average level maintained since mid-November. The index of foodstuff prices advanced fractionally, after a series of steep increases beginning in late December. (See Chart 1, upper section.) Prices of materials used in the textile industry were the most important exception to the general tendency among indus- trial materials, as wool, cotton, print cloth, and burlap all increased. (See Chart 1, lower section.) Wool spot prices rose 1.6 per cent in the week ended January 24, although futures prices were lower at the end of the week, partly in response to reports that wool exports from Australia for commercial purposes are to have shipping priority over wool to be stored in the United States for strategic purposes. Government wool requirements for the year beginning July 1, 1941 will be substantial, according to trade expectations, and some bullish sentiment recently has been based on the belief that announcement of these large requirements may be expected by March or April. Low non-military consumption last year leads manufacturers to expect increased buying this year. Re- ports of unusually low stocks in licensed warehouses and combing establishmente tende to confirm last week's reports of e bottleneck in the combing and dyeing branch of the industry. The American Woolen Company announced last week that orders for fall 1941 on worsteds for men's wear are being taken on a basis of about 11 per cent price increase over 6 months ago, an increase in line with trade expectations. The advance amounts to about 25 cente a. yard. Activity in the cotton textile industry 18 largely re- sponsible for moderate increases in print cloth and cotton prices. A report from the Commodity Credit Corporation of in- creased cotton under loan as of January 20 provided further support for cotton prices. The Corporation indicated that 2,851,000 bales of 1940 cotton were under loan, an increase of 106,000 bales since January 9. Burlap prices advanced moderately on trade news that no relief is In sight for the tight shipping situation from India. Regraded Unclassified 81 - 3 - Prices for hides were lower on news of a deoline in prices in Argentina. Lower prices for rubber reflected heavy arrivals in the United States, and reports of a large world production. Futures prices for rubber were higher at the end of the week, however, partly in response to reports of a record level since 1929 in factory shipments of pneumatic casinge during 1940, together with higher priced offerings from the Far East and reports that cargo space from produc- ing countries 18 limited. Rosin and flaxseed prices were again somewhat higher, su gesting a continued rise in prices of paint materials. Foodstuff prices resist further increase The advance in hog prices came to an end last week and prices declined somewhat, thus confirming the trade Judgment that the price advances were partly the result of weather condi- tions which interfered with travel on highways. The relatively elight increase in corn prices calls attention to the fact that the recent advance in the price of hogs has improved the corn-hog feeding ratio, which is now favorable to hog pro- ducers for the first time in more than a year. Steers de- clined also, apparently following the lead of hogs. Both lard and cottonseed oil spot prices advanced some- what in spite of the decline in the price of hogs. It ie estimated in the trade that no more than 60 per cent of the lards and oils manufactured this season have been marketed, a low proportion for mid-January. The increase in sugar prices follows reports of December sugar deliveries above those expected, and the probability of a new record high consumption for 1940, together with a reduo- tion in year-end stocks. Cocoa prices continued their former decline. Wheat prices fell off on a better outlook for the United States winter wheat crop, and upward revision in Argentine and Canadian crop estimates. Building material prices little changed The BLS index of building materials prices advanced some- what further in the week ended January 18, rising 0.1 point above the high reached in the week ended December 28, 1940. (See Chart 2, upper section.) The previous noticeable in- creases in building material prices have been largely the re- sult of steep increases in the lumber index, which reached & high of 119.3 in the week ended December 28, compared with A 1940 low of 94.3. Regraded Unclassified 82 The BLS index of wholessle lumber prices (center sec- tion of Chart 2) has flattened out for a month or more. The index of 118.6 reported for the week ended January 18 10 but slightly lower than the peak of 119.3 reached in the last week of December, which 18 in contrast to various reports that substantial reductions have been made in lumber prices. However, some of the lumber quotations used in the index as of January 18 are for early-January dates. A list of quota- tions for 10 lumber items purchased for Camp Knox, 96 reported to the National Defense Commission, showed an average decline of 10.9 per cent between November 6 and January 15. These, however, may have represented special prices to the Government on large-soale purchases. Individual lumber items show little decline Chart 3 shows percentage changes in the wholesale prices of 44 individual lumber items which compose the BLS lumber in- dex, from their respective 1940 lowe to the latest quotations available December 26 and January 24. The group index itself 18 practically unchanged between the December and January dates, while few individual items show striking changes. The two items which had increased most on December 26, "pine timbers No. 1" and "pine boards No. 2 common", have now declined somewhat, while "pine dimension No. 2" has increased. The lateet prices for these three items represent wholesale quotations collected between January 7 and 11. All three are Southern pine, widely used for cantonment construction in the South. The item (No. 2 Southern pine common) for which Commissioner Henderson believed $25.00 at the mills to be adequate, WEB quoted in wholesale markets, January 7 - 11, at $32.62. The greatest increases between the selected dates in December and January are reported for "birch No. 1 common", "gum sap No. 1", and "gum No. 1 common", all of which are used for furniture and interior mill work. Certain types of pine lum- ber, on the other hand, showed noticeable declines. In view of the attention focused recently on the need for lumber, production has increased only moderately. According to the National Lumber Manufacturers' Aesociation, production in the week ended January 18 was only 16 per cent above the corresponding week last year, 8.6 compared with a 5 per cent increase in the third week of December. It 18 true that the seasonal low for production comes in the week ended January 18, but since both shipments and orders have continued consider- ably above current production for several months, a deficiency 18 accumulating. From the West Coast comes 8. report that & prospective shortage of shipping in the spring may force & Regraded Unclassified 83 - 5 - substantial amount to be sent by rail, thus adding a further influence toward increasing lumber costs. New orders index at high level despite decline Our index of new orders for the week ended January 18 de- clined about 7 per cent. However, reference to Chart 4 will disclose that the index still stands at a very high level. It will be noted that both steel and textile orders declined while other items in the aggregate rose. Despite the decline in new orders for steel, this component remains at the highest level since October 1939. Although our index of textile orders during the week ended January 18 showed a further recession from the rise which occurred at the beginning of the month, trade sources estimate that sales of print cloth and related items during the past week were nearly twice 8.8 large AB production. Cot- ton mill activity during December on a seasonally-adjusted basie reached the highest level on record. Cotton consumption during that month was in excess of any previous month with the sole exception of March 1937. In the face of this unusually strong showing it 18 interesting to note that the New York Times seasonally-adjusted index of weekly cotton mill activity during the current month has risen even above its December level, and reached a new record high in the week ended January 18. Woolen mills also are reported to be operating at an un- usually high rate. This branch of the textile industry has received 8 heavy volume of Government business 8,6 a result of the defense program and has a large backlog of orders. Steel orders maintain high level The volume of new business booked by the steel industry last week was sustained at an exceptionally high level. The latest report of new orders booked by the U. S. Steel Corporation (as of January 16) showed new orders at 151 per cent of capacity, compared with 170 per cent in the previous week. Order books of nearly all steelmakers are filled for first quarter business, and despite producers' insistence upon complete specifications, customers in some instances are trying to cover second and even third quarter require- ments. The Iron Age states that the industry itself 18 seek- ing by close scrutiny of buyers' needs to prevent excessive stocking, which might result in the imposition of special Regraded Unclassified 84 - o - priorities. According to the same source, many export ordere from neutral countries are not being accepted because mills are unwilling to quote firm prices for longer term delivery. The situation in iron and steel scrap prices remains un- settled, lower quotations being reported in some districts but few of these are regarded as firm. There 18, however, B. tendency toward stability in the Chicago and Pittsburgh dis- triots, with many people expecting prices to become stabilized around $21.50 for No. 1 heavy melting scrap at Pittsburgh. This 1e $1.50 above the level recently suggested by Mr. Henderson of the National Defense Advisory Commission. The increasing pressure of production scrap apparently 1s responsible for lower prices at Detroit. Last week the American Iron and Steel Institute announced that, based on a survey representing 95 per cent of the capacity of the country, present plans of the steel industry call for an expenditure of $282,000,000 for new productive equipment during 1941, as compared with $171,000,000 actually spent in 1940. Production this week 18 scheduled at the rate of 97.1 per cent, on the basis of new capacity, compared with 96.5 per cent (revised) last week. The rate 1e lowered because of an increase in the capacity base to 84,148,000 tone at the end of 1940, representing an expansion of about 3 per cent since the end of 1939. Structural steel orders higher as heavy construction increases Due largely to the awarding of an order for 30,000 tone of structural steel for a naval ordnance plant in West Virginia, total lettings of construction steel during the week ended January 21 rose to the second highest level since the defense program began. (See Chart 5, lower section.) The weekly total of 79,000 tone was 75 per cent higher than the previous week and no less than 130 per cent above the corresponding week of 1940. The rise in construction steel lettings, of course, re- flects the continuing high level of activity in the heavy construction field. Thus, heavy engineering contracts awarded during the week ended January 23, as reported by the Engineering News Record, showed another sharp rise to a level exceeded only a few times since the defense program got under way. (See Chart 5, upper section.) The weekly Regraded Unclassified 85 7 total of $156,000,000 contrasts strongly with the figure of only $33,000,000 recorded in the corresponding week of 1940. Contracts awarded for construction for the Federal Govern- ment amounted to $102,000,000 or the highest figure since last October. Employment and payrolls rise in December Total non-agricultural employment reached 37,100,000 in December, a new high for recent years which is nearly 1,500,000 greater than in December 1939. The increase of 540,000 from November to December represents the largest December increase in 11 years. The major portion of the gain was in manufacturing and construction. Factory employ- ment increased contra-seasonally to the highest level on record. Factory payrolls rose 5.4 per cent, the largest December increase since 1919, reaching the highest level since June 1920. Industrial production higher in January The FRB index in January has made further gains over the 136 reached in December, judging from the recent trende of weekly business indexes. In the week ended January 18, the New York Times index of business activity rose to a new record high at 123.8 as compared with 123.5 in the previous week. Barron's index in the same week rose 0,6 point to 8 new high of 128.6. The principal factors in the latest week's rise in the New York Times index were contra-seasonal gains in electric power production and cotton mill activity. In addition the adjusted index of automobile production showed a good gain as a result of another greater than seasonal increase in auto- mobile production. The principal offsetting factor was a contra-seasonal drop in "all other" freight carloadings, re- sulting largely from lower shipments of coal and grains. The adjusted index of steel ingot production declined moderately, Preliminary data for the week ended January 25 reveal a slightly less than seasonal rise in steel ingot production, and a less than seasonal decline in automobile production. Regraded Unclassified 86 MOVEMENT OF BASIC COMMODITY PRICES AUGUST 1939 - 100 1940 1941 NOVEMBER DECEMBER JANUARY FEBRUARY D of F # A MARCH M al A a o M D. J. , M M 16 23 30 Z 14 21 28 4 U. 10 25 e 15 22 0 15 PLA PER PER PER GENT Weekly Average CENT DENT CENT Daily 1.30 1.50 128 128 125 125 16 RAM INDUSTRIAL 16 RAW INDUSTRIAL 124 MATERIALS 124 MATERIALS 120 120 120 120 115 115 116 116 110 110 12 FOODSTUFFS 112 112 105 105 12 FOODSTUFFS 100 100 108 108 95 DI - F M A. = J 95 A - e 104 104 N D J / M A M 16 23 30 7 14 21 28 4 11 16 25 I 5 15 22 I B. 15 1940 1941 NOVEMBER DECEMBER JANUARY FEBRUARY MARCH 1940 1941 Percentage Change for Individual Commodities, August 1940 Low to January 17, 1041, and to January 24, 1041 PER PER DENT CENT ITALLING 37.1% 16 PAR INDUSTRIAL MATERIALS 12 FOODSTUFFS 50 50 - 47.m 40 40 wince D.M. 30 30 The 30.05 - 29.08 PLACE(S) 27.18 400004 D.S. IMP 24.13 BIL 23.48 TRANSLEY 22.4 20 PRINT SLOTE 16.3 THE 20.00 ALEAD 15.8% 20 COFFEE 16.7% MEING 15.1% - LARD 16.00 ARTEEL SIMP, DOM. H.R 13.25 JOSIN 11.00 13.05 AMELLAE 0.6 10 - 11.0% 10 TEXTTON 6.4% NATURE SERAP, EXP. 5.5% - 1.38 TIME 14% 0 TILE . o PSTIS --- -10 -10 Aus. Los Jam.17 Jan.24 Aus. Low JAM.17 Jan.24 Office of - Security of - Transary F 187 - 85 - of - - - BUILDING MATERIAL PRICES B.L.S., 1926=100 MONTHLY WERELY* FER PER PER PER CENT CENT CENT CERT Combined Indes Combined Index 105 105 104 104 100 100 100 100 95 95 96 56 90 90 85 85 92 92 1937 1936 1939 1940 1941 J A 1 o - DI J F - A - J 1940 1941 Componsats of Indes of Building Material Prices 1937 1938 1939 1940 1941 1940 1941 PER FER PER PER CENT CENT CENT SENT 95 DAICK AND TILE 95 BRICK AND TILE 92 92 50 90 COMONT CEMENT 124 124 12 B 120 120 120 120 LONSERY STRUCTURAL STEEL 115 115 116 116 TTO 110 112 112 105 105 108 106 100 100 STRUCTURAL STEEL 104 104 95 95 Limites 90 90 100 100 as BS 96 96 90 90 BB 06 PAINT ETC. 6 as B4 84 80 80 PAINT. Eye, PLUMBING 75 75 B BO PLUMING 105 105 76 76 100 100 87 96 E ALL OTHER ALL OTHER 95 95 92 & 90 90 8 es 88 - 1937 1938 1939 1940 1941 J A 5 o - D J F . & et J 1940 1941 MENTHLY FIGURES CONTAIN REVISIONS NOT INCLUDED is THE WEEKLY. No al like Secretary of - Transury Char - . - w - Regraded Unclassifie PRICE INCREASES FOR SELECTED TYPES OF LUMBER Percentage Increase From 1940 Low To Selected Dates' PER Pine,boards.No 2 com 51.6% CENT Pine. dimension. No 2 48.4% 48 Pine, timbers, No/ 47.3% 44 Gum, sap No./ 43.5% Pine, boards. No 3 com 40.5% 40 Douglas fir flooring "C" 40.0% Pine. dimension, No/ 39.2% Pine boords, Ponderosa, №3 39.0% Douglas fir. ziding. "C" 37.9% Douglas fir, flooring "8" 37.0% 36 Douglas fir, No.2 364% Douglas fir. drop siding 32.3% 32 Ook. No./ com 30.9% Gum, No./ com 28.7% Ook flooring 28.4% 88 28 Pine, finished. "B" & better 27.7% Douglas fir, No./ com. 27.5% Pine. "8" & better 26.3% LUMBER. GROUP INDEX 25.8% 24 Hemlock, No./. piece 22.2% Pine flooring. 8' & better 21.3% Douglas fir. timbers No./ 21% Maple flooring, 2nd. grade 20.9% Douglas fir, No./ 20.5% 20 Pine, Ponderosa. No.2 19.9% Spruce. eastern 18.8% Birch, No./ com. 17.4% Poplor, No./ com. 17.0% Pine lath, No./ 16.7% 16 Pine, Ponderosa, shop №2 15.7% Pine, shop No.2 15.3% Cedar shingles No / 13.7% Chestnut 12.5% 12 Pine boards, No. 3 northern 112% Pine boards. No.2 com 10.3% 8 Cypress. shop No./ 8.5% Cypress. "C" grade 7.6% Cypress, À grade 6.8% Maple. hard 4.3% Redwood. finish 2.7% 4 Redwood, siding 1.8% Redwood boards, No./ 0% Douglas fir lath ox Red cedar siding 0% Cedar shingles 0% 0 1940 Low Dec.26.1940 Jan.24.1941 * Latest Quotations available on Dec 26, 1940 and Jon 24. 1941 Note: Lumber items are there used in B.L.S. lumber price index P-210-A Regraded:Unclassifi 89 INDEXES OF NEW ORDERS Combined Index of Now Orders and Selected Components 1940 Chart 4 CONFIDENTIAL 1939 A . o . B di F M A M J A $ 0 1941 . a PERCENTAGE - A POINTS EAGENTABLE POINTS 220 220 210 210 Total (combined Indexi 1036 - 100 200 200 190 190 180 180 170 170 160 160 150 150 140 140 130 130 120 120 110 110 100 100 90 3 90 80 Total excluding Steel and Textiles 80 70 70 $ 8 50 50 40 40 disc) Orders 30 30 20 20 10 Textile Orders 10 o 0 A $ o . D all = A = - A $ 0 a D J / # A # of J A # o . B 1939 1940 1941 - - The Services el the Treasury - of - - - 1-8-0 CONSTRUCTION AND STRUCTURAL STEEL ORDERS ata JAN. MAR. MAY JULY SEPT. NOV. DOLLARS DOLLARS MILLIONS MILLIONS Heavy Engineering Contracts Eng. News Rec., Daily Ave. 40 40 35 35 30 30 1041 25 25 06 1940 20 20 1939 15 15 10 10 5 5 JAN. MAR. MAY JULY SEPT. NOV. TORS TORS THOUSANDS THOUSANDS Structural Steel Orders a 80 1941 60 60 1939 40 40 20 20 1940 o 0 JAN. MAR. MAY JULY SEPT. NOV. - INCLUDING OUTLYING POSSESSIONS or THE U.S. Office of the Secretary of the Treasury Division of Research - Regraded Unclassif 91 January 27, 1941 10:00 A.M. RE AID TO BRITAIN Present: Mr. Kuhn Mr. White Mr. Foley Mr. Bell Mr. Cochran Mr. Young Mrs. Klotz Mr. Schwarz H.M.Jr: Would you make a note for me, Dan - this has nothing to do with this thing - this suggestion comes from Harry, and I really think it is an excellent suggestion. In my statement to the Ways and Means, I have read it hastily, and I don't see that we have stressed anything about economy, and I want -- Bell: Does this come from Harry, you say? H.M.Jr: Yes. White: It must have been one of my dreams. H.M.Jr: He dreamed this. And 1 want to put in a whole paragraph there on stressing economy on non-defense items. Bell: Well, that is quite contrary to what the budget shows. H.M.Jr: I never saw the budget. I am going to send it over to the President and mark it before Regraded Unclassified 92 - 2 - it goes up. Bell: I am in favor of it, but -- H.M.Jr: I am going to put it in and send it over to him, and he is going to have a look at it. Bell: O.K. H.M.Jr: But I think every once in a while Harry gets a good idea. White: You are not specifying just what you are to economize on, are you? H.M.Jr: Non-defense items. White: Oh well, that is not a specification. That is just a pious wish. Bell: Non-defense and non-service. H.M.Jr: Well, I will tell you what I would do. If it was up to me, I would consolidate N.Y.A. and C.C.C. White: You mean you would cut down on that? H.M.Jr: The two of them now have appropriations of around four hundred million, you see, and I would cut it to about one hundred fifty. With 800,000 men under arms, I don't even know why you need a C.C.C. organization. They have taken all the officers away, haven't they? Bell: I don't know. White: They won't spend the money if they don't have the boys, you know. Regraded Unclassified 93 - 3 - H.M.Jr: Just find out a little bit about what has happened to the C.C.C. I think all the military part has been taken away. Bell: Well, they made some attempt last year to take them away as reserve officers, but they rehired them as civilians. I don't know whether they have been called. H.M.Jr: And I would cut the agricultural thing just in half. I think $500,000,000 will keep up the domestic price of food in these times, and it is plenty. Or, to put it another way, $500,000,000 to pay the farmers to grow less to sell it for more is enough. White: Well, I don't know whether they are bene- fiting in any way by the war. H.M.Jr: I have always thought a billion dollars to bribe the farmer to grow less to sell it for more was always a billion dollars too much. White: If you put it in those terms, you make your own case. H.M.Jr: You have no trouble with me of taking the $500,000,000 of the agricultural program and devoting it entirely, 500,000,000, to food stuffs, the entire 500,000,000 to food stuffs to feed our people. Bell: I think that is right. Klotz: That is right. H.M.Jr: If you took $500,000,000 and devoted the entire amount to food stuffs, you would get something. Regraded Unclassified 94 - 4 - (Telephone conversation with Mr. Eccles follows:) January 27, 1941 95 9:59 a.m. H.M.Jr: Hello. Operator: They expect Chairman Ecoles in about fifteen minutes. H.M.Jr: When he comes in I want to talk to him. Operator: Right. 10:03 a.m. H.M.Jr: Hello. Marriner Ecoles: Hello, hello. H.M.Jr: Marriner? E: Yes. H.M.Jr: Good morning, this is Henry. is Yes. H.M.Jr: This is I think an acknowledgement of your letter. I doubt that I am going to answer it formally, Marriner. Hello. E: Yes. H.M.Jr: But, what I'd like to do very much - I have the first draft of my statement before Ways and Means for tomorrow - Wednesday rather. Hello. E: Yes. H.M.Jr: Hello. E: Hello. H.M.Jr: Can you hear me? E: No, not very well. H.M.Jr: Where are you? E: Hello, H.M.Jr: Where are you? You're not at your office? E: No. I've got a cold. I've been sick here for about three days. I got the flu. 96 - 2 - H.M.Jr: Oh my God! I said I've got my statement - - my first draft of the statement I'm going to make before Ways and Means. E: Yes. H.M.Jr: And I'd like very much to have you and your Board members read it. E: Yes. H.M.Jr: And get your criticism. E: Yes. H.M.Jr: I say that's my answer to your letter. E: Yes. H.M.Jr: Now, are you well enough to do it? E: Yes. I think I'll go down after a while. I'm feeling a little better than I have been. H.M.Jr: Well, I'm sorry - Who should I send it to, Marriner, it's only the first draft? E: Well, you send it on over to - send it to my office. H.M.Jr: Yes. E: And there's two of the Board members who are out of town but let's see, there's four of them there. H.M.Jr: Yeh. E: And, what I was going to suggest too (I was going to call Dan but I'll tell you now that you're on the phone) in connection with type of financing that might be possible to do in the future in order to get securities in the hands of the savers. H.M.Jr: Yes. E: I've asked our boys here for some little time to be looking into that sort of thing. H.M.Jr: Good. E: And what I'd like to do is when we get something to give you the benefit of any suggestions that we have. Regraded Unclassified 97 3 H.M.Jr: I'd like to have them and I'm putting quite a lot into this statement about that. is Yes. H.M.Jr: So maybe if you've got something good we can put it right in there. E: Yes. Well, I don't know how - I don't know whether they'll have anything or not. They worked a little on it last week and I was talking to Piser about it and I thought we might also get Ralph. Ralph is, of course, interested naturally in the market generally and if we got - if we give those fellahs a chance, it more or less - it puts them in the future when they are advising with reference to marketing. H.M.Jr: Well, if you'll - E: If they have something to say about it - H.M.Jr: Yeh. E: What is it? H.M.Jr: Look, if I could have your suggestions back by four, because we'll be working on this tonight. E: Yes. You mean your statement. H.M.Jr: My statement. E: Yes. You send it over and I'll see what I can do. H.M.Jr: Right. E: I'll get - I expect to be down there the first thing this afternoon and I'll get them on the phone in the meantime. H.M.Jr: All right. It will be over in your office within a half an hour. E: All right. I'll tell them It's coming. H.M.Jr: And you tell them to keep it if you don't mind, of course it's confidential. E: Yes, I'll tell them. H.M.Jr: Thank you. 98 - 5 - H.M.Jr: I thought that all out by myself. I am very proud. Bell: What letter was it in reply to? Klotz: The letter -- H.M.Jr: Haven't you seen his letter? Bell: No. H.M.Jr: I will show it to you. Do you mind, Dan, just stepping out a minute and telling your office to send this over with a little note to Chairman Eccles? No, Mrs. Klotz will do it. Klotz: I can do it. Bell: You don't want to send that one, do you? H.M.Jr: Do you mind? And say in a little note in it that any suggestions they have, if they will send it back to you by four o'clock. Don't you think this is smart? Bell: Well, I think it is all right. I don't know what it is supposed to -- H.M.Jr: Well, he wrote me a letter complaining of the lack of cooperation and all the rest of it. Well, this affects the financial structure of the country. Bell: Sure. I think they would like to help on the Hill on this Bill. H.M.Jr: Sure. Do you mind, Dan? Bell: No. (Mr. Bell left the conference.) Regraded Unclassified 99 - 6 - White: Mr. Secretary, before you close the subject, may I make one brief re- quest? I think it is a good thing to economize where you can for the fiscal year of '42 -- (The Secretary left the Conference.) White: Look, don't you think Ferdie, that it would be better if at this point here when you speak of this table, "I want to show you British gold and dollar assets", say, "the table which I am going to read now was composed by the" -- Kuhn: I thought you wanted to leave it out of the whole statement. White: No, I referred only to he reconciliation of their figures, not to this form of participation. Kuhn: It should be added, certainly. White: There are two things. It shows the group prepared it on the basis of -- Kuhn: Isn't that at the beginning? (The Secretary returned to the Conference.) H.M.Jr: All right, make your little speech, Harry, come on. White: Well, if there is time, what I would like to see done, and it shouldn't take very long, is a recommendation made to t he President of specific cuts and the justi- fication for each item. That way it will differ from the usual desire merely to curtail expenditures. I would like to get Regraded Unclassified 100 - 7 - a crack at the recommendation as based by evidence and argument on these various items. H.M.Jr: Well, you will have a chance tomorrow morning. White: Well, I think somebody ought to prepare it who is in favor of the cuts and then let you have a chance to examine it. I mean not tomorrow morning, but -- H.M.Jr: Well, we will work on the statement tomorrow for Wednesday. White: In other words, if you feel it should be cut, I think you ought to go down the line and say where and why to the President, I don't mean to the public. H.M.Jr: Well, I think it is popular, and I like to be popular, and that is why I am going to do it. White: I don't believe that. H.M.Jr: What, that I like to be popular? I have never been popular, so after eight years, why not try and be popular? White: Well, I assume you wouldn't recommend a cut unless you have a good case, and if you have got a good case, you wouldn't mind anybody else examining it. H.M.Jr: That is true, but I want to be popular. White: If you are right, you will be popular. H.M.Jr: Not necessarily. Regraded Unclassified 101 - 8 - White: I think in this case you will. H.M.Jr: You can be wrong and popular. White: Yes, but you would rather be right and popular, you know that. H.M.Jr: You get back to two wrongs don't make a White. Foley: This hasn't been mimeographed yet. (Laughter) H.M.Jr: Harry is holding me up. If I suppressed Harry, Harry would say "you go in there and I want you to say something, and you won't even listen to me". Seriously. White: Seriously, I think -- H.M.Jr: You see, you can't stop him. I am ready to go. Do you want to get on this state- ment? White: Let's go. H.M.Jr: All right. Before I go, I want to say that editorial in today's Times by Elliott Bell was swell. I think that is good for another letter. Kuhn: You do? H.M.Jr: Sure. Kuhn: I wouldn't overdo that. Klotz: That is marvelous. H.M.Jr: O.K., all right. 102 - 9 - White: Well, it wouldn't do for & letter from you, but it might very well do for a letter from Kuhn. H.M.Jr: You could say it was your suggestion to the press as to how to handle that. Kuhn: I only gave him a copy of the letter. That was all. I only said it might interest him. H.M.Jr: It is the best one I have seen. Now, if Harry will quit fooling and get down to business, because Ed Foley is nervous. Ferdie, the longer you stay with this crowd, you realize, if anybody thinks I can have my own way in this crowd - you write something, and Harry says, "take out those colorful words". You heard him last night. I want to be popular? Not a chance. White: If I would cut out fooling. I would like to tell a story. (Laughter) H.M.Jr: "The Secretary of State has outlined the broad policy behind this Bill. The Secretary of War and Navy will tell you how this Bill will strengthen the defense of the United States. I am going to con- fine myself to the financial facts and figures of life which relate to this Bill." How did that slip in? KUhn: Facts and figures? H.M.Jr: Of life. Klotz: He is kidding. Regraded Unclassified 103 - 10 - H.M.Jr: Who has not seen this? Young: I haven't seen it. H.M.Jr: The New York Tribune wrote a column. They said at last Mr. Morgenthau had learned the financial facts of life. Who hasn't seen it? Raise their hands. "The British Government is now committed to buy a billion three hundred million worth of purchases in this country, most of them to be delivered in '41." Are you satisfied with this figure, Phil, a billion three? Young: I don't know what it means from the text. A billion three is not the value of the purchases. A billion three is the amount yet to be paid. H.M.Jr: How would you say it? Young: Well, it is a billion three hundred million dollars of unpaid commitments on orders placed. H.M.Jr: What is that? Young: It is a billion three of unpaid commitments on orders placed. H.M.Jr: That is right, "is now committed to a billion three worth of purchases in this country." They have got a billion three worth of orders on our books. Young: No, they have got double that, minus what has been delivered. White: I think Phil's way of stating it is more accurate. Young: What did I say before, a billion three of (Mr. Bell returned to conference.) Regraded Unclassified 104 - 11 - unpaid commitments? Is that what I said? White: On orders already placed. Young: On orders already placed. H.M.Jr: Unpaid. Why not put it simply, "the British Government owes us a billion three hundred million dollars?" Young: On orders already placed. H.M.Jr: On orders already placed." Did you hear that? Bell: Owes American manufacturers or American contractors? Klotz: Us. Bell: American firms. H.M.Jr: British Government -- White: Owes American firms. H.M.Jr: "American manufacturers a billion three hundred million dollars for orders already placed --on orders placed" All right? Young: That is right. H.M.Jr: "Most of them to be delivered in '41." Young: That is right. H.M.Jr: Is that important to put that in? White: It should be a separate sentence if it is going to be included. 105 - 12 - H. K. Jr: Is that important? Young: Well, most of them - I would rather stick to the dollar value and say, "most of which will have to be paid in '41." White: "Most of this sum falls due in '41." Young: You're mixing up quantities and dollars. White: "Most of this sum has to be paid in 1941 or falls due in 1941." H.M.Jr: Why not nut it this way. "This bill would have to be largely met in the calendar year of 1941." Foley: Well, that gets confused with the legis- lation. H.M.Jr: Well, this sum -- Foley: All right. H.M.Jr: "This sum will largely have to be met in the calendar year of 1941." Young: That is right. H.M.Jr: Now, I am not going over this again, so if anybody doesn't like it - I will do it sen- tence by sentence, you see. Say it once. Are you fellows together? "It has enough gold and dollar exchange" -- Foley: You are making a master copy, aren't you, Harry? White: Yes, I did on those. Regraded Unclassified 106 - 13 - H.M.Jr: "It has enough gold and dollar exchange assets to pay for what it has ordered." Bell: "To pay for these unpaid - for these commitments.' H.M.Jr: Why not put it this way? "It has enough gold and dollar exchange assets to meet commitments already made." Bell: "These commitments." You have got unpaid commitments right above it. Kuhn: "All the commitments." H.M.Jr: Well, "to meet these commitments." That separates what Phil keeps - the dollar commitments. Young: Stick to the dollars. H.M.Jr: "It has enough gold and dollar exchange to meet these commitments." Cochran: You have to have "assets" there. H.M.Jr: Well, "dollar exchange assets to meet these outstanding commitments." I like outstand- ing commitments. Young: You don't want to spell out the assets? H.M.Jr: Oh, well, don't worry, "but the British just haven't got the dollars and can't get them to pay for anything like what they will need from now on. White: I should prefer to see that statement, "and cannot get the monetary --" H.M.Jr: I would simply say, "the British just haven't got the dollars, and no way has 107 - 14 - been disclosed to me yet - I don't think that is it. "The British just haven't got the dollars to pay for any- thing like what they need from now on." I think I would leave out "and they can't get them." "But the British just haven't got the dollars to pay for anything like what they need from now on." Bell: Do you want "dollar exchange"? "Just haven't got the dollar exchange?" H.M.Jr: Oh, I think that is too technical. White: You wouldn't want to out out "from now on"? They may be able to get along for a little while. Foley: I think "from now on" is necessary, Harry, because you are distinguishing between what you have ordered and have got money to pay for and what you are going to order in the future. White: What they need. They have already ordered some and they need it. Foley: All right. White: "What they need to order." Klotz: "From now on", yes? Foley: "What they will need to order from now on." H.M.Jr: I don't like that. I think the need is sort of all-inclusive. I don't like the "need to order". I don't like that. I mean -- White: If you out out "from now on", you can simply Regraded Unclassified 108 - 15 - say "what they will need." H.M.Jr: I would put it, gentlemen, "they just haven't got the dollars to take care of their additional needs." White: That is all right. Foley: That is all right, to say that. White: All right? Foley: O.K., sure. H.M.Jr: Did you work on this alone, Ferdie? Oh, you and Ed? White: They worked until two this morning. H.M.Jr: Who did? White: These two. H.M.Jr: When did you ever get through with George? Foley: We finished with George about ten o'clock. H.M.Jr: Does he like it? Foley: Yes. H.M.Jr: You were up until two? Foley: Yes. H.M.Jr: I was up until one thirty, but not - well, it was kind of work, too, going to this play and entertaining these people after- ward. 109 - 16 - Foley: I was going to call up last night after I saw George, but I thought I would bother you. Neither Taft nor Wheeler or any of those fellows that are making so much noise around this committee - the fellow that is laying for you today is Vandenberg, and I thought you would like to know that, because you always get along with him pretty well. He doesn't hurt when he throws them in. H.M.Jr: He doesn't do what? Foley: Hurt. White: He is pleasant. Foley: He has got a good sense of humor, and you handle him pretty well. H.M.Jr: Where did you get that from? Foley: George told me. H.M.Jr: You know where he gets his from? Chemical Bank in New York. There is a fellow up there that feeds it to him. Archie Loch- head found that out. The vice-president of Chemical feeds him this stuff. Now, "I have come here today to put this problem before you" - change this. "I am glad to have the opportunity to come here today", not to put, "to lay this problem before you". Young: Discuss. White: To place? Foley: Lay is all right. 110 - 17 - H.M.Jr: "Lay this problem before you." Bell: You could say, "I am glad to have the opportunity to come before you to give you all the information possessed in the Treasury." H.M.Jr: That is much better. Bell: That leaves out some of the answer. H.M.Jr: Harry, who would help you if you had a stenographer sitting next to you? Foley: Have Miss McGuire come in, because we had it done in our office. H.M.Jr: And bring an extra copy? Foley: Yes. H.M.Jr: Just let's - what did you say, Dan? Bell: "I am glad of the opportunity to come here today to give you all the information in the possession of the Treasury", something like that. Foley: On what? Bell: Well, following what you have - "in the possession of the Treasury on this problem". Foley: "This problem we have got here." H.M.Jr: Dan, I think the way I said it, if you don't mind -- (Miss McGuire entered conference.) H.M.Jr: Good morning. There is a chair right there. 111 - 18 - Do you want to sit by the corner of the desk? It will be a good place to rest. We are on page 2, Miss McGuire, at the top. The rest they can give you after- ward. Foley: Do you want to say that again, Dan? H.M.Jr: No, if you don't mind, I don't like that. "I appreciate the opportunity of being invited to come here today to lay before you this problem, or lay this problem before you, and I am desirous of giving you all the information in the possession of the Treasury." All right, gents? Young: That isn't so, is it? Bell: I think it would be better if you said, "lay all the information on this problem in the possession of the Treasury." Young: You are not giving them anywhere near the information you have. H.M.Jr: He is right. Well, then, how did I have it? McGuire: "I appreciate the opportunity of being invited to come here today to lay this problem before you, and I am desirous of giving you all the information in the possession of the Treasury." White: "Significant information." H.M.Jr: Wait a minute. "And I am desirous of dis- cussing - and I am desirous of"- just go back again once more, please. 112 - 19 - McGuire: "I appreciate the opportunity of being invited to come here today and lay before you this problem - to lay this problem before you --" H.M.Jr: "And to discuss this problem with you fully." That is good, isn't it, Phil? Young: Yes. H.M.Jr: All right, Ed? Foley: Right. H.M.Jr: O.K., people? Bell: Does that go on, or is that all of it? H.M.Jr: No, "I should like to put in the record", and 80 forth and so on. Bell: O.K. That is the first sentence, "to come before you to discuss this problem fully"? H.M.Jr: Yes. Bell: O.K. H.M.Jr: Now just give me that sentence. McGuire: "I appreciate the opportunity of being invited to come here today and discuss this problem with you fully." H.M.Jr: Just say it once more. McGuire: "I appreciate the opportunity of being in- vited to come here today and to discuss this problem with you fully." 113 - 20 - H.M.Jr: Yes, that is all right. And then it goes on, "I should like to put in the record a number of tables and other facts which I have already submitted to the House." I think that is all right. Are you satisfied, Ferdie? Kuhn: Is this to take the place of the intro- duction? Foley: No, just the first sentence. Kuhn: Oh, certainly. H.M.Jr: We have a purist with us in Philip Young, who objects to our saying, giving them all the information, and he happens to be right. Kuhn: That is right, Phil is right. H.M.Jr: Yes. Once in a while! You never know. I mean, he has got this Mohawk Valley conscience. Young: That is bad. (Laughter) It gets purer as you go up-state. H.M.Jr: I didn't say New England, because I don't think so much of New England conscience. You can't both have a New England conscience and run a clipper or a trader. Anyway, "the first is a table showing the available assets"- "first is & table" - wait a second. Bell: "The first table shows" -- H.M.Jr: Yes, "the first table shows available assets in the" - all right, Miss McGuire? McGuire: Yes. 114 - 21 - H.M.Jr: "The first table shows available assets in the United Kingdom in gold and dollar balances and privately-held American securities and in British-owned proper- ties in this country." White: I think the word "privately-held" might be erroneous now, because the Government has had them vested in American securi- ties. H.M.Jr: What would you say? White: I would merely say "in American securi- ties and British-owned properties in this country." H.M.Jr: All right. Have it read "in American securities" and cross out "privately- owned". "In American securities and British-owned properties in this country. These are figures which governments normally keep confidential and closely guarded. They are being submitted to you with the consent of the British Government so that you can know what their position is." White: Half of those figures aren't kept confi- dential and unguarded, 80 I wonder whether we had better not say "some of this data". You see, it only refers to the gold they have and one or two other items. Much of this data governments normally keep confi- dential. H.M.Jr: What? Cochran: In war time, I think they keep it all confi- dential. 115 - 22 - White: The number of investments which are in this country? Bell: Sure. I think much of this data, as Harry says, much of this data is closely guarded and confidential. H.M.Jr: Oh, I think that that is all right. I mean, it is good to get that sentence in to impress them. Bell: You did say almost that in the House. H.M.Jr: It is all right to repeat it. "These are figures which governments normally keep confidential and closely guarded, but they are being sumbitted to you with the consent of the British Government so that you can know what their position is." Young: "Its position." H.M.Jr: What? Foley: No, it says governments. Cochran: The British say "their", and we would say "its". H.M.Jr: Well, I don't know why you have to say that, "so that you can know what their position is". I think that that is anti-climax. "These figures are being submitted to you with the consent of the British government", ari leave off the rest. Strike out "so that you can know what their position is". I don't think it is necessary to explain that. Now, "Table I, December 31, 1940, gold, 292; official dollar balance, 54; private dollar balance, 305; U.S., 616; direct investments, 902 billion 166." Incidentally, everybody Regraded Unclassified 116 - 23 - should read today's editorial in the Times on this thing. It is the best job that has ever been done, on the financial thing, since I have been here. I don't know of anybody that has done as good a job as that. "The total British gold and dollar ex- change assets of two billion 167 on December 31. The British exclude as unavailable 305 billion of private dollar balances, regarded as necessary for the conduct of business; 30 million of gold scattered in different parts of the world; and 21 billion on account of forward exchange contracts. This leaves a total of one billion 811 in gold and dollar exchange assets which the British regard as available for purchases in this country." I am satisified. Cochran: Did they definitely want that 30 million excluded, Harry? White: They have given us later figures which have reduced and changed that, but I take it you didn't want to use their latest figures. H.M.Jr: You mean later since the Bloom letter? White. No. H.M.Jr: How much difference? White: Well, they have reduced that 30 million to - by 20 million dollars, almost. It is down to 11, I think. e 117 - 24 - H.M.Jr: You mean because they have used it? White: No, they have found it, or it has suddenly become available, or they have collected it from scattered places. H.M.Jr: Do you want me to change it again? Foley: No. !I.M.Jr: No. "Now, I want to give you"- no, I don't like that. Bell: "Next table." M.M.Jr: "May I now give you - If Bell: Or, "I should like to present next." Klotz: Yes. H.M.Jr: Yes, I think what Bell - "I should like to present next." You have got to be a little deferential in that thing. They like it, you know. "May I present next to you a table - " O.K., Miss McGuire? McGuire: Yes. I.M.Jr: "To you a table of the estimated dollar exchange - dollar expenditures, receipts of the British Empire, excluding Canada, for the calendar year '41." Now, Harry, everywhere else you excluded Canada and Newfoundland. White: You are right. H.M.Jr: Did I get you? Regraded Unclassified 118 - 25 - White: You did. H.M.Jr: Wonderful! White: You didn't get me, you got Ferdie. H.M.Jr: Wonderful. I want to make a little con- fession, though. I went over the Bloom letter for twenty minutes before you fellows came in, so I am a little bit posted, you see. That is marvelous. Excluding Canada and Newfoundland. Good old Newfoundland. "For the calendar year of '41. This will show you what the British have contracted for in war materials, other purchases here, and what they can count on from exports and other sources of dollars to help in meeting these obliga- tions." It is all right with me. Young: Well, it isn't what they have contracted for. H.M.Jr: Louder, Philip. Young: It isn't what they have contracted for, it is for how much. H.M.Jr: How would you word it? Bell: I think it is just a commitment. Klotz: Yes. H.M.Jr: How would you word it? Young: How much instead of what. H.M.Jr: Where? I am not with you, Philip. Young: "This will show you what the British have Regraded Unclassified 119 - 26 - contracted for in war materials and other purchases." H.M.Jr: What would you say? Young: You don't tell them what war materials they have contracted for. H.M.Jr: How would you do it, Phil? Klotz: How much. Young: Well, it is the value of what the British have contracted for. Bell: Well, it doesn't show that. These are the unpaid commitments, aren't they, which they are going to now liquidate? This will show you what the British have to meet. H.M.Jr: I have got it. "This will show you the dollar value that the British have con- tracted for." How is that? Bell: I don't think SO. Young: It is the same thing we had on the first page, isn't it? Bell: Yes, that is right. These are the unpaid commitments that you are going to pay for. H.M.Jr: All right, I am listening for a suggestion. Bell: Wait a minute until I get the table. Young: What was the language used on the first page, Harry? White: "This will show you what the British still 120 - 27 - owe, and what they have contracted for." H.M.Jr: That is the matter with that? Young: It doesn't show what they have contracted for. It shows the dollar value of what they have contracted for. Foley: Well, I mean this is - I think it is much better to put this in B. style that swings along instead of trying to make it so technically accurate. We are not going to release this and put one in front of each committee member. This isn't going to appear as the Secretary's statement in the New York Times, like Hull's. H.M.Jr: Why? Foley: Because. it isn't that kind of a statement. Mite: I think if you say "this will show you what they still owe on what they contracted for". It implies value. Bell: How about, "this will show you what the British have to pay out for war materials and other purchases already contracted for"? I.M.Jr: "This will show you what the British have to pay out." Bell: You see, you are talking about the calendar year '41. "This will show you what the British have to pay out for war materials and other purchases already contracted for." Young: "Just what the British owe for war materials and other purchases." That is what it is. Regraded Unclassified 121 - 28 - H.M.Jr: I don't think - I don't see why the last one isn't the best. "This will show what the British owe. "This will show what the British owe." White: American manufacturers again? Bell: Well, I suppose it does if you take in the parentheses, a hundred and nineteen million to be paid after January, '42, it shows what they owe. White: I would be - you see, it does more than that. It does other things as well. "This will show you what the British will receive and what they will have to pay out", so I am wondering whether the first sentence isn't enough. Don't you think if you took everything out after? Kuhn: Not to my mind. It is a big table, and I think what this table is going to show them is distinct from what other tables show them. H.M.Jr: I don't see what is the matter with it the way it is. "This will show what the British have contracted for." White: Well, "this will show you among other things", and then you can say the rest of it. H.M.Jr: How would this be? "This will show what the British owe on contracts - on out- standing contracts." "This will show what the British owe on outstanding contracts, war materials, and so forth." That is correct, isn't it? "This will show what the British owe on outstanding contracts. Regraded Unclassified 122 - 29 - White: Outstanding dollar contracts, yes. H.M.Jr: Do you think you have to repeat that? White: "This will show what the British owe on outstanding dollar contracts." Foley: Don't say "dollar". You won't know whether they are in this country or where they are. H.M.Jr: "This will show what the British owe on outstanding contracts to American manu- facturers. This is plain. Is that agreeable to you, Ferdie? Kuhn: Sure. H.M.Jr: "This will show what the British owe on outstanding contracts to American manu- facturers for war materials and other purchases here." Now, isn't that correct, Phil? Young: Yes. H.M.Jr: All right? Young: Yes. My only objection to this - "what the British have contracted for in war materials and other purchases", it looks as though you are going to itemize machine guns, rifles, and tanks and so on. H.M.Jr: I think, "this will show what the British owe on outstanding contracts for war materials and other purchases here." Is that agreeable to you, Bell? Bell: Aren't you going right on, then, "what they Regraded Unclassified 123 - 30 - can count on"? H.M.Jr: Oh yes, "what they can count on". Kuhn: What receipts? H.M.Jr: From exports and other sources of dollars. Bell: "From exports and other dollar sources." Just the way it is. I would take out the comma after "on". H.M.Jr: Have you got it? McGuire: Yes. "This will show what the British owe for outstanding contracts to American manu- facturers for war materials and other pur- chases here and what they can count on from exports and other sources of dollars to help in meeting these obligations." H.M.Jr: Would you do it once more? McGuire: "This will show what the British owe on outstanding contracts --" IL.M.Jr: "On" or "for"? Bell: "On." K.M.Jr: All right. O.K., I am satisfied. McGuire: Want me to read it again? H.M.Jr: Please. McGuire: "This will show what the British owe on outstanding contracts to American manufac- turers for war materials and other pur- chases here and what they can count on from exports and other sources of dollars to help in meeting these obligations." Regraded Unclassified 124 - 31 - H.M.Jr: All right, now, Table 2, "Estimated Dollar Expenditures and Receipts of British Em- pire, Excluding Canada, from January 1 to January -- McGuire: Do you want to add "Excluding Newfoundland" there? II.M.Jr: Yes. Shite: Wherever you see "excluding Canada", add Newfoundland. II.M.Jr: Yes. Gentlemen, that is wonderful. That sets me up all morning. Where are we? Bell: Table 2. H.M.Jr: "Estimated Expenditures and Receipts of the British Empire Excluding Canada and New- foundland. Dollar expenditures. A., U.K. payments to be made on total purchases from the United States. 1., Sums to be paid during 1941 on orders placed before January 1, 1941 (In addition $119 million will fall due after January 1, '42. 2., Imports from United States not purchased through the British Purchasing Commission, largely on private accounts, $280; $1554. B., Purchases by Empire countries (exclud- ing U.K. and Canada) from United States during 1941; 1., Commodity imports; 2., Payments for shipping, tourist expendi- tures, interest payments, etc.; C., Purchases by Empire countries, excluding Canada, from areas outside the United States requiring gold or dollars; 1., Purchases by Empire countries (chiefly U.K.) from areas outside the United States and Canada requiring dollars; 2., Payments by Empire countries (chiefly U.K.) to Regraded Unclassified 125 - 32 - Canada and Newfoundland. Total dollar requirements for all transactions, $3,019. Dollar Receipts. Assets of U.K. - receipts for Empires, excluding Canada and Newfoundland, $1,555. Now I want to show you how the British gold and dollar exchange assets have declined, by more than two and a quarter billion dollars - 11 "Now I want to show you." I don't say that to the committee. Dan, give me some committee language instead of saying "now I want to show you". Foley: "Next I want to bring to your attention." H.M.Jr: That is all right. White: Or, "I should like to next - If Cochran: "I want to explain to you - If H.M.Jr: "Next may I bring to your attention." Klotz: Or, "may I explain", that is good. H.M.Jr: Well, we can use that again. We have another table. Bell: Or, "now I come - If H.M.Jr: Remember, whoever made that. Cochran: Yes. H.M.Jr: "Next may I - If Foley:- "Bring to your attention." H.M.Jr: "Bring to your attention how British gold and dollar exchange assets have declined." Foley: "The manner in which - If Regraded Unclassified 126 - 33 - Kuhn: It is better to say, "next may I explain how, or, "may I bring to your attention a table showing." H.M.Jr: Well, you say it, Ferdie, and she will write it. Kuhn: "Next may I explain how British assets have declined." White: This is not being pedantic, but I should prefer at this point to say, "next may I submit you a table showing how," be- cause the explanation is not his; it is the British government's. The table is the important thing, and it is not our explanation; it is theirs. H.M.Jr: One person has to decide it, so decide it. Kuhn: Well, I should leave it -- H.M.Jr: Go ahead. Kuhn: Easier and friendly, "next may I explain how British assets have declined". H.M.Jr: All right. Cochran: It is gold and dollar assets, the same. H.M.Jr: "How British gold and dollar assets have declined, by more than two and a quarter billion dollars, between the start of the war and the start of 1941." Now I just want to rest here & minute. I wonder - I would like to get in something to say - I know it is difficult to believe this, but we - let them - I guess so. Regraded Unclassified 127 - 34 - Kuhn: Mr. Secretary, after this table, you go into some explanations of these other- wise unbelievable figures. H.M.Jr: O.K. Bell: How about saying, "during the first six- teen months of the war"? White: Yes, I think SO. Bell: That starts the story. H.M.Jr: What is that, Dan? Bell: At the last. Foley: "During the first sixteen months of the war," that is all right. H.M.Jr: "Sixteen months of their war." That "their" is a very important word. I am serious. "Of their war." Klotz: It is ours, too. H.M.Jr: That is just what I am afraid the committee would ask he. Oh my, my, my, my - Table 3. "Estimated Gold and Dollar Expenditures and Receipts of British Empire, Excluding Canada and Newfoundland, from September 1, 1939, to December 31, 1940." Sixteen months - let's see, payments and so forth. This I know. "Payments" and so forth. White: I think there should be inserted there, "compiled by Treasury Department, Depart- ment of Commerce, and Federal Reserve Board from data. It will give it a little more prestige, and they did help. Regraded Unclassified 128 - 35 - H.M.Jr: All right, now how would you like that? "Compiled - If White: Just insert after the word "compiled", "by Treasury Department, Department of Commerce, and Federal Reserve Board." Bell: Would that be better at the top there, or is that a sort of footnote? H.M.Jr: I think at the top. White: If he is going to read it, I think "com- piled from". H.M.Jr: Now, while we are right on that at the moment, I thought, Dan, of the possibility of inviting Gardner to sit up there with us, plus this - something - Jones. What is his name? Bell: Grosvenor Jones? Cochran: I have seen Gardner in committees, and he will bother you to death if he has a chance. White: Amos Taylor is very talkative, and I don't know if there are any others you have had any experience with, but he may be differ- ent before a committee. H.M.Jr: Who is talkative? Who is it? White: Amos Taylor, not myself. (Laughter.) I got it. H.M.Jr: God, that is marvelous. Foley: I wouldn't take anybody from the Federal Reserve Board. Regraded Unclassified 129 - 36 - H.M.Jr: The fewer we have, the better. You think if you have Harry it is enough? White: Oh, it is more than enough, it is too much. (Laughter.) Bell: They will be there, but let them sit in the back of the room. Foley: Let them sit with the boys. H.M.Jr: It is just interesting. Now, you notice how I have tried to get this cooperation, and what happened when I want it? Bell: Well, that is a good reply. White: Professional jealousy. H.M.Jr: All right. Bell: I don't know whether it bothers you or not, but I don't like the details of the figures put after the total. H.M.Jr: Well, Mr. Bell, we will take your word - Bell: No, you will have to read it. White: Yes. H.M.Jr: You mean over here? Bell: No, you see, the first indented figure. That is a total of the billion 380 above it. White: I feel as Dan does, but the others felt this way. Regraded Unclassified 130 - 37 - H.M.Jr: Well, on this matter, Dan is supreme. Bell: No, you have to read it. I think it depends on your eyes, whether you want to read the total and say it is made up of the following. H.M.Jr: Well, how would you do it? Bell: I would rather read it, "goods delivered, $660; advance payments, $570; capital assistance, $150; total, $1380." That is the way I would read it. H.M.Jr: And put the $1380 at the bottom? Bell: Yes. H.M.Jr: And put the word "total". Would you explain that to her right now? Foley: Better do it right now. Bell: You understand that, don't you? McGuire: I didn't hear. H.M.Jr: Switch the total, a billion 380, down opposite the 150 in the indentation, and make a line in the 150. Put the 1380 after that in the next column. McGuire: You like it just one line down or shift it over? Bell: I would just shift it over, and then I would do the same thing with the 125 and 24, put a line under that and drop the 197 down. Foley: You had better come over here and show Regraded Unclassified 131 - 38 - her, Dan. Flotz: Yes. Foley: All those tables will have to be done over now. If it isn't important I wouldn't do it, because we won't have this done in time, Mr. Secretary. H.M.Jr: I am telling you what I am going to do right now. We will bring Miss McGuire up to page 10, and then she can give it to somebody else and they can get started on it. Foley: All right. We will have to have that machine of Miss Chauncey's, too. would you have somebody send that down there? That is the only other one is the same type. H.M.Jr: All right. Young: Harry, where did you get your figures on billion three? Thite: On the what? Young: Of $1380? Shite: Took the same ones they used the last time. S.C.Jr: Harry, give Miss McGuire the first page so that she can have the corrections. White: O.K. On the second paragraph of the first page, it should read as follows: Regraded Unclassified 132 - 39 - "British government now owes American manufacturers one billion three hundred million dollars on orders already placed. This sum will largely have to be met in the calendar year of 1941." (The Secretary on White House phone.) H.M.Jr: Hello Thank you Listen, General, I was thinking of sending the Coast Guard out for you last night Yes Well, I'll be darned Well, the next time you have trouble, let me know and we'll send & boat from the Coast Guard down for you Yes Well, last night I reminded him Did he tell you that this morning? This morning? Since I talked to him? No, well, I talked to him last night Well, you ask him again and last night he changed his mind, and he said he would go He forgot about the three sailors. This is purely & Navy affair 133 - 40 - Well, there are three sailors in this thing. Seriously, I talked to him last night, and he has forgotten all about it. Ask him once more, will you? Because last night the last thing I did when I left, I said, "will you go?", and he said, "yes" Ask him once more Well, ask him - Ask him once more He knew darned well it was. Just ask him once more. He had a great laugh over it last night What? I think you will find he will go, but if he doesn't, let me know later Well, ask him once more Thank you Listen, I thought you would get a great kick out of it Of course he would out of this. But just ask him once more. Yes. I think it would be good for him What? What is it? Yes, you see 134 - 41 - Five minutes behind - I said, "thank you". II.M.Jr: Are you fellows all right physically? Foley: Sure, we are all right. We are just nervous, and I am afraid we won't have it done. H.M.Jr: Don't worry. This will be out of my office - half of it is done now. The other half will be done within the hour. Foley: All right. H.M.Jr: Relax. Foley: O.K. (Stenographer entered the conference.) Foley: This is Miss Shelley, Mr. Secretary. H.M.Jr: I know her. She may not know me, but I know her. (Laughter.) H.M.Jr: I am on page 10. "One vital factor in this drain of assets was the collapse of France last summer." I am just wondering now, just a second. To put it a little the other way around. "France collapsed last summer. This was one of the vital factors in the drain of assets." Which is better? The way you have got it? Kuhn: I think so, because the table uses the Regraded Unclassified 135 - 42 - phrase "drain of assets", and is dealing with that, and now you want to explain it. H.M.Jr: All right. "One vital factor in this drain of assets was the collapse of France last summer. The French had at least as much as the British in gold and dollar assets in this country; these resources were avail- able, together with the British, to pay for purchases here in the first nine months of the war. When the French collapse came, last June, the British took over all French contracts in this country - ". Is that correct? For all ostensible purposes? Young: French government contracts. There are a lot of private contracts still turning up. Bell: Don't you think that means the French government? Foley: You are talking about British defense here. H.M.Jr: "The British took over all the French con- tracts in this country, although they no longer had the help of French money to pay for them. British liabilities were doubled. They were left to face Germany alone." Bell: Were thus doubled? Kuhn: Well, it wasn't only thus, Dan; because there were other factors that doubled their burdens, such as loss of the raw materials they were able to get from France, and they had to get it from America. It wasn't en- tirely the taking over of the contracts. Foley: We added "thus" before, and he broke it up Regraded Unclassified 136 - 43 - this way for that reason. Bell: O.K. White: Don't you think the French government would have bought some materials and raw materials? Would the British government have stopped buying just because of the French? I am a little bit doubtful about this. The British government were supposed to have bought all they could anyway. H.M.Jr: They didn't. Kuhn: But the British were getting - they were getting steel from Lorraine, and things like that, which they now have to come to America for, weren't they? R.M.Jr: Sure. A lot of things they were getting - White: Yes, but they would have needed a lot more. Kuhn: I think it is an accurate statement. H.M.Jr: I think it is a little bit dramatic, and nobody is going to breek this thing down. I think it is 8. good noint which a lot of people have overlooked. And it is a little bit something new, Harry. White: It is all right. H.M.Jr: It is the only fresh thing so far we are bringing in that we haven't mentioned be- fore. We have got to have something fresh. "British liabilities were doubled. They were left to face Germany alone. Their Regraded Unclassified 137 - 44 - financial resources here were cut in half." Their combined financial resources. No? Bell: No, it is the British. Poley: It is the British. M.M.Jr: "Their financial resources here were cut in half. The result was that the British began to lose vold and dollar assets twice as fast after June as before; and they have continued to lose them at the faster rate ever since." That is all right with me. City: Tell, I don't know whether I an being meticulous here, but they can't both double their liabilities and have their assets cut in half. You are counting this thing twice, aren't you? L.C.Jr: No, because we froze the French ansets. We have still -ot them, 2 billion dollars worth of French gold here, haven't ne? We: But they took ever their orders. That meant they had more bills to pay. R.S.JF: And we took over the French assets. Mith: If they had the French assets they wouldn't have the liabilities. The French would have had the liabilities. M.Dr: But they diân't get the French assets. They took ever the liabilities and not their assets. Regraded Unclassified 138 - 45 - White: That way of stating it. They took over their liabilities but not their assets. Foley: We can add that. H.M.Jr: All right. Fix it up. White: "The British took over - " Foley: Right after "they were left to face Germany alone", strike in -- White: "They took over the French liabilities but not their assets." That would be accurate. H.M.Jr: All right. Foley: "The British financial resources here were cut in half." H.M.Jr: What is the matter, Ferdie? Kuhn: I think that is correct. White: They weren't British resources, they were French resources against liabilities. The British took over those liabilities, but they didn't take over their assets. Bell: The British had the same assets, but they were made to meet double liabilities. They weren't cut in half. White: That is right. So I say if you say the British took over their liabilities but not their assets, it would be correct. This way it is counting the thing twice. Young: You have already said it in the preceding Regraded Unclassified 139 - 46 - sentence. Joley: British liabilities were doubled. Do you have to have that? Dite: That is right. "They were left to face Germany alone.' I think the next sentence, for purposes of accuracy, micht well come out. L...Gr: Now, wait a minute, so far there are no changes. They no longer had the French money to pay for it. That takes care of that. Dritish liabilities were doubled. Lite: Fine. O.K. "They were left to face Germany alone." C.X. "Their financial resources here mere cut in half." That is where I think - their resources weren't cut in half. Their joint resources. Tuhn: Suppose that came out? ell: I don't think that would hurt it. ....Jr: I don't think that would hurt it.. Just strike out "their financial resources here were cut in half". Happy, earry? Wite: Yes, 1 think that is more nearly accurate. And it doesn't hurt it at all. That is all right. "Ther were left to face Termany alone. The result was that the Sritish began to lose rold and dollar assets twice as fast after June AS before; and they have continued to lose them at the faster rate Regraded Unclassified 140 - 17 - ever since." I wonder if that is necessary. Young: "At that rate." Foley: "At the accelerated rate." Thate: Does that mean if France had still been with them that England wouldn't have spent any more than she was spending here in the first six months, which was very small? Weren't there a lot of orders which were just getting going? They were going to spend more money anyway. The only reason they weren't spending it is because they claim they didn't get the orders, they didn't have the Purchasing Commission -- M.A.Jrt Now, wait a minute. The English - I may use round figures - had an expeditionary force of two or three hundred thousand which they sent to France, and while they had the French army of five million men, their expenditures were at that rate. Now, when they lost the army of France plus the French manufacturing resources, their purchases have to increase. lite: That is true. They had to be larger than they would have otherwise been. E.M.Ir: I don't know how much bigger they would have been. White: But they would have been bigger even if France hadn't -- E.E.Jr: Oh yes, but nothing like - I think that is Regraded Unclassified 141 - 48 - all right, but the only thing I don't like, but they have continued to lose them. I like this. "The result was that the British began to lose gold and dollar assets twice as fast after June as before.' Bell: Period. H.M.Jr: Period. Now let me just read back over there, because this is powerful stuff. "When the French collapse came last June, the British took over all French contracts in this country, although they no longer had the help of French money to pay for them. British liabilities were doubled. They were left to face Germany alone. The results were - was that the British began to lose gold and dollar assets twice as fast after June as before." I think that is all right. "This war is now costing Great Britain more than fifty million dollars a day, or almost two-thirds of her national income. The British - ". Now, wait a second. "The British war is now costing Great Britain" - this fifty million is what they spent at home, Ferdie. White: I think that should be put in sterling and then you would avoid that difficulty. It is not dollars they are spending, but it is sterling. H.M.Jr: I think that would take care of it. White: Everybody can add it. Regraded Unclassified 142 - 49 - "This war is now costing Great Britain more than twelve million pounds a day." .hite: The British government, really. It is costing Great Britain more, probably. In Great Britain, you would have to include the destruction of the buildings and a lot of other things they are now under- going. Soll; How about saying "the British"? That is what we have used in the preceding para- graphs referring to the government. I have got it better yet. "The British are spending more than twelve million pounds 2. day." Fulds: "On this war." Tell, they are just spending it. Tite: Tell, that is the British -- They are spending more than that if it is not war expenditure. Entry: If it is only two-thirds of their national income. Tite: It would either have to be the government or - I think that "this war is now costing the British -overnment more than twelve million pounds sterling every day". Fell: I think that is all right. Mite: And then you can add "that is approximately equivalent to fifty million dollars 8. day". Regraded Unclassified 143 - 50 - H.M.Jr: Well, that isn't necessary. Bell: Well, somebody will ask that. H.M.Jr: Well, they can multiply. Let them ask. How would you put it, Harry? White: "This war is now costing the British government more than twelve million pounds sterling every day." H.M.Jr: I wouldn't say sterling, "twelve million pounds". White: Well, there are many kinds of pounds. H.M.Jr: All right, "twelve million pounds sterling". White: "Each and every day." H.E.Jr: Got it, young lady? Shelley: Yes. H.M.Jr: Would you read what you have on that? Shelley: "The war is now costing the British government more than twelve million pounds sterling every day." H.M.Jr: All right, "or almost two-thirds of her national income". White: It is 60 per cent. H.M.Jr: Or say -- Bell: Three-fifths. White: Is that almost two-thirds, or is that a Regraded Unclassified 144 - 51 - little more than half? Foley: Well, say three-fifths. II.M.Jr: Why not say 60 percent? White: Roughly about 60 percent. H.M.Jr: Or"approximately 60 percent of her national income". Kuhn: You can't say "her", if you mean British government. "Of the national income. Bell: It is national income. Cochran: Is 50 their latest figure, Harry? White: What? Cochran: Is that their latest figure? White: Well, it is an estimate. H.M.Jr: Read the sentence, please. Shelley: "This war is now costing the British government more than twelve million pounds sterling every day, or approxi- mately 60 percent of the national income." H.M.Jr: "Of the" or "of its"? Kuhn: There is only one national income, isn't there? H.M.Jr: All right. "The British are raising about 40 per cent of this cost by taxing their people at home." I would leave "at home" off. Regraded Unclassified 145 - 52 - White: There is an important point that might be injected there, that this expenditure is rapidly increasing - "and this expen- diture is rapidly increasing". R.M.Jr: Is it? White: Yes. Well, it is much higher - each quarter it has been greater. M.M.Jr: Well, that would come after that first sentence, wouldn't it? Bell: That would be a new sentence, wouldn't it? R.M.Jr: All right, "and this expenditure" -- ...Lite: "Steadily increasing", if you like. H..Jr: "Is steadily mounting." All right? Shelley: Yes. That is at the end of the first sentence? Thite: You can just keep this in mind if you want to on that point. In June, 1940, they were spending at the rate of three billion pounds a year. In October, six months later, it was at the rate of three billion six. In the last month that we have, it was at the rate of four billion two. H.M.Jr: Four billion -- Mite: At the rate of fourbillion two hundred million pounds a year, showing how the rate of increase goes up. Regraded Unclassified 146 - 53 - H.E.Jr: Now, give it to me once more. Shelley: "This war is now costing the British government more than twelve million pounds sterling every day, or approxi- mately 60 percent of the national income, and this expenditure is steadily mounting." Kuhn: That is all right. H.M.Jr: "The British are raising about forty per- cent of this cost by taxing their people." Leave off "at home". The only place I might like to put the "et home" is, "the British are spending - British government is spending twelve million pounds - how would that first sentence read? Thelley: "This war is now costing the British government more than twelve million pounds sterling." Zell: That includes their expenditures in the United States. No, it doesn't. Roll: Sure. ....Jr: It doesn't, does it? White: Yes, they have to pay out in sterling what they get in dollars, so if you put it in sterling that takes care of their sterling expenditures. Dell: That is their budget expenditures. Shite: That is right. Regraded Unclassified 147 - 54 - H.M.Jr: Well, just cross it out - are you with us? Shelley: Yes sir. K.M.Jr: That "at home" comes out. "To give you an idea of what the British people are doing to pay for the war, you may be interested in the following table comparing British and United States taxes at the" - Please put this, "to give you some idea of what the British are doing to pay for the war, you may be interested in the follow- ing tables comparing the British and United States taxes. 11" All right? White: That "United States" means Federal, you know. Is that clear? B.M.Jr: Yes. Foley: I think it is clear, Harry, because you don't locate this couple anywhere. You want to be sure and read "married couple" this time, "with two dependents in the house". H.M.Jr: Where is that? Foley: At the very top. H.M.Jr: The joke is, normally I an so nervous about fighting time to get this out, but today Ed is nervous. As long as one fellow is nervous, it is all right. Bell: You have got to have somebody. H.M.Jr: I would rather have Ed do it. Regraded Unclassified