Full text of Diaries of Henry Morgenthau, Jr. : Volume 46 : Part 2

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185

transmetted by
state Department
(Ree sec, 7. 1936) - - m, 1000

No. subjects Approval w Switcoviant of tripartite

mometary agreement of September m. 1988.

The Henorable

The Secretary of State,
Washington.

Sir:

I have the honor to refer to my despatch No. 4065
of November 4. 1935, relative to the adherence of Suitserland to the tripartite monetary agreement and to quote

the following translation of a commique appearing in
the seles press today. announcing the guies Government's

approval of this general principles of the tripartite
committee of September 20th:
eyes Federal Council has addressed to the
of the smoke Republica, the Basted

and the massed States of Movies a -

informing that that 18 has taken note
declaration concerning shoir intentions

- register to - IN and that as -

proves, for its part, the - principles tained

106

states, of

American Convention

of

gold.

Respectfully yours,

Hugh R. Wilson.

A true copy of the
signed original

mk
Enclosure:

Clipping.

File No. 853

ex/
In quistiplicate to Department

Gopies to American Rabaser, Parts,
and American Consulate General, strick

187

I I 96, 1986
No. subjects Approval by outsociant of subportite

monetary agreement of September 28, 1000.

The Henorable

The Secretary of State,
Washington.

sir
I have the honor to refer to - despetch No. 4668
S
of November 7, 1936, relative to the adharance of swits
erland to the tripartite monstary agreement and to quote

the following translation of a - appearing in
the Swiss press today, a the guise coverment's
approval of the general principles of the tripartite
convention of september -

or
the
<<<<
Election and - a the Federal - has addressed to

PEN - se THE
mm
regard
and
proves, for 10a pare, the general primining -

of - declaration

talmed

188

tained
sa thew Generation of of
the three
Federal commil

previously
the - have for
pose the admention, in Alcheration
States, of sulturiant to the

American Convention relative to the delivery of

gold."

Respectfully yours,

Hugh R. Wilson.

A true copy of I'm
signed original

mk
Enclosures

Clipping.
File No. 852
ak/mk

Is quistuplicate to Department

Copies to American Rebaney, Parts,
and American Committe General, skrich

189

I - n 1000
No. subjects Approval by suitseriand of tripartite

monetary agreement of September m, 1936.

The Henorable

The Secretary of State,
Washington.

sir:
I have the honor to refer to my despatch No. 4006
of November 7, 1935, relative to the adherence of Switzerland to the tripartite monetary agreement and to quote

the following translation of a - appearing in
the swies press today. amounting the swiss Government's

approval of the general principles of the tripartite
convention of September

The Federal demail Ins addresses to the

Governments or - Premises the stated
Kington, and - mised states of imaries a Informating them that 14 has Salem note

of their declarations concerning their
with regard to monetary police, and that is w

proves, for its part, the general principles tained

190

tained in the Conrection of September of
the three Powere. By Mis fernal

the Federal council continues the

previously - which have for their per

pese the adhesion, is collaboration with other
States, of switzerland w the French-English
American Convention relative to the delivery of
cold.

Respectfully yours,

Hugh R. Wilson.

A true copy of the
signed original

mk
Enclosure:

Clipping.

File No. 861
ex/sk

In quintuplicate to Department

Copies to American Enbassy, Parte,
and American Consulate General, strick

191

seen, November n. 1006

No. subject: Approval by Heitsorland of tripartite

monetary agreement of September 25, 1936.

The Honorable

The Secretary of State,
Washington,

sir:
I have the honer to refer to - despetch NO. 4665
3

of November 7, 1935, relative to the adherence of Seitserland to the tripertite montary agreement and to quote

the following translation of a / appearing in
the swiss press today. amounting the swice government's

approval of the general principles of the tripartite
convention of September 20ths

The Federal Council has addressed to the

Governments of the Promote Republics, the United

Kingdom, and the united States of America a -

Cention informing than that 18 has taken note
of thoir
declarations their intention

with regard to monetary polices, and that is proves, for 120 part, the general principles am
tained

192

tained is the Occuration of September with of
the three powers. by this formal
the redeval demail continuos the segatiations
previously announced which have for their pun
peas the adhesion, in collaboration with other
States, of switsoriend w the
American Convention relative to the delivery of
gold."

Respectfully yours,

Hugh R. wilson.

A true copy of the
signed original

mk
Enclosure:

Clipping.

File No. 002

ex/ms the
In quintuplicate to Department

Copies to American Embassy, Paris,
and American Consulate General, strich

193
TREASURY DEPARTMENT

Washington
FOR RELEASE, MORNING NETSPAPERS

Tuesday, November 24, 1936.

Press Service
No. 8-93

11/23/36

By authority of the President the Secretary of the Treasury announces

that as a further step in the direction of international monetary equilibrium
arrangements have been made to give effect to the desire of the Governments
of Belgium, The Netherlands and Switzerland to cooperate with the Governments

of the United States, Great Britain and France in accordance with the principles
of the tripartite declaration of September 25, 1936.
The Belgian Government notified the United States of its adherence to
these principles on September 26. Similar declarations of adherence have now
been received from the Governments of The Netherlands and Switzerland.

The Governments of the United States, Great Britain, and France welcome
the declarations of the Governments of Belgium, Switzerland and The Netherlands

expressing their adherence to the principles stated in the tripartite declaration of September 25.

Arrangements have been made by the United States Treasury for gold

transactions on a reciprocal basis with these three countries. These arrangements are given effect by public statements of the Secretary of the Treasury
which are annexed hereto:

(1) A statement supplementing the statement of the Secretar: of the
Treasury dated October 13, 1936, with respect to reciprocal transactions in
gold with certain countries, and withdrawing the statement of January 31, 1934,

relating to the sale of gold for export;
(2) A statement naming the countries of Belgium, The Netherlands and

Switzerland as complying with the conditions of the statement of October 13
as supplemented by the above statement.

194

-2-

In addition to the statements to which reference is made above, copies
of communications from the Governments of The Notherlands and Switzerland
are made public herewith.

195
TREASURY DEPARTMENT

Washington
FOR RELEASE, MORNING NE'SSAPERS,

Tuesday, November 24, 1936.

Press Service
No. 8-94

11/23/36

Supplementing the announcement made by him on October 13, 1936, relating

to the sale of gold for export, the Secretary of the Treasury states that
(hereafter, and until, on twenty-feur hours' notice, this statement of intention
may be revoked or altered) the United States, in addition to sales of gold to
the exchange equalization or stabilization funds of foreign countries, will
also sell gold for immediate export to, or earmark for the account of, the
treasuries, or any fiscal agencies acting for or whose acts in this connection
are guaranteed by the treasuries, of those countries whose treasuries or

fiscal agencies so acting or guaranteed are likewise offering to sell gold to
the United States, provided such offerings of gold are at such rates and upon
such terms and conditions AS the Secretary may deem most advantageous to the

public interest. The Secretary announces herewith, and will hereafter announce
daily, the names of the foreign countries complying with the foregoing con-

ditions. All such sales of gold by the United States will be made through
the Federal Reserve Bank of New York, as fiscal agent of the United States,

upon the following terms and conditions which the Secretary of the Treasury
deems most advantageous to the public interest:

Sales of gold will be made at $35 per fine ounce, plus
one-quarter per cent handling charge, and sales and earmarking
will be governed by the Regulations issued under the Gold Reserve Act of 1934.

The Secretary further announces that his statement of January 31, 1934,

relating to the sale of gold for export, is accordingly withdrawn.

196
TREASURY DEPARTMENT

Washington

Press Service

FOR RELEASE, MORNING NETSTATERS,

Tuesday, November 24, 1936.

No. 8-95

11/23/36

The Secretary of the Treasury today named the following additional
countries:
Belgium

The Netherlands

Switzerland

as complying with the conditions specified in his press release of October 13,
1936, as supplemented by his press release of November 24, 1936, Ter the

purchase of gold from the United States for immediate export or earmark.

--000---

197
TREASURY DEPARTMENT

Washington

Press Service
No. 8-96

FOR RELEASE, MORNING NETSPATERS

Tuesday, November 24, 1936.
11/23/36

The Secretary of the Treasury nakes public the following note from
the Swiss Legation, transmitted to the Treasury Department by the Acting
Secretary of State:
"LEGATION DE SUISSE

Washington, D. C.

November 21, 1936.

"Sir:

"I have the honor to inform you that I have been instructed by my
Government to convey to you the following:
'The Government of Switzerland has cognizance of the

declarations by which the Governments of France, Great Britain

and the United States of America have seen fit to express their

intentions with regard to their monetary policy and adheres to

the general principles stated in their tripartite declaration
of September 25.

"Accept, Sir, the assurances of my highest consideration.
(Signed) MARC PETER

Minister of Switzerland.
"The Honorable

R. Walton Moore,

Acting Secretary of State,
Washington."

198
TREASURY DEPARTMENT

Washington

FOR RELEASE, MORNING NETSPATERS,

Tuesday, November 24, 1936.

Press Service
No. 8-97

11/23/35

The Secretary of the Treasury makes public the following note from the
Royal Netherland Legation, transmitted to the Treasury Department by the
Acting Secretary of State:
"ROYAL NETHERLAND LEGATION

No. 3775

Washington, D. C.
November 21, 1936.

"Sir:"Acting upon instructions of the Minister of Foreign Affairs of the
Netherlands I have the honor to inform Your Excellency of the following
declaration made by my Government:

" The Government of the Netherlands has cognizance of the

declarations by which the Governments of France, Great Britain

and the United States have seen fit to express their intention
with regard to their monetary policy and adheres to the general

principles stated in their tripartite declaration of September 25,
1936.

"I avail myself of this opportunity to renew to you, Sir, the assurances
of my highest consideration.
(Signod) C. van Breugel Douglas.

Charge d'Affaires a.i.
of the Netherlands.

"The Honorable R. Walton Moore,

Acting Secretary of State,
Washington, D. C."

199

November 24, 1936.
12:20 P.M.
Present:

Mrs. Klotz
Mr. Bell
Mr. Upham

Mr. Opper
Mr. Haas

Mr. Taylor
Dr. Williams
Dr. Viner
Mr. White

Mr. Seltzer

Mr. Lochhead

Taylor:

H.M.Jr:

The first three points there are possibilities

of doing what you suggested could be done. Number
Three probably requires legislation; Numbers One
and Two probably don't. Number Four is simply an
initial operation which probably should be taken
in under any circumstances.

Now, may I read for my edification:
If 1. The General Fund of the Treasury could sell
securities to the market as a means of reducing
bank reserves on the occasion of gold inflow (and
could buy securities as a means of increasing bank
reserves on the occasion of gold outflow).
2. The Stabilization Fund could obtain Government
obligations from the Treasury in exchange for gold.
The Stabilization Fund could then sell securities
to the market'in order to reduce bank reserves on
the occasion of gold inflow (and could buy securities
from the market in order to increase reserves on the
occasion of gold outflow).
"

" 3. The Federal Reserve banks could obtain Government obligations from the Treasury in exchange for
gold certificates and sell securities to the market
in order to decrease bank reserves on the occasion

of gold inflow (and could buy securities from the
occasion of gold outflow).
Well, that's what the last bank act said we couldn't
market in order to increase bank reserves on the

do - that we could not do business between each other.

Bell:

That's right.

200

-2H.M.Jr:

What?

Bell:

That's right.
" 4. As an initial operation the Federal Reserve
banks could increase reserve requirements to
the limit now permitted by law, or could sell

H.M.Jr:

its Governments."

As between One and Two, as between the General

Fund and the Stabilization Fund, who of - those
who think that they'd rather see it done from the
General Fund, if they will raise their hands.
(No hands raised) Those who would rather see
it through the Stabilization Fund (great majority
raise their hands).
What are you doing with your hand (to Bell)?

Bell:

Doesn't make much difference to me.

H.M.Jr:

What did you do with your hand (to Opper)?

Opper:

I was neutral, because there's some slight legal

H.M.Jr:

Which should we be, practical or legal?

Opper:

Well, I thought I wouldn't vote.
Now, White, we'll get - we'll come back to you.

H.M.Jr:

advantages in Number One and because I can see
the practical advantages in Number Two.

Are there any economic reasons which favor One
or Two?

White:

If I may say so, I would like - or we would like
the opportunity of presenting the pros and cons

of this in a memorandum.
Taylor:
H.M.Jr:

This is very preliminary, obviously.
Well, let me say this, because I take it that it
is possible to do either One or Two. I think

that's quite exciting. Huh? Isn't it (to

Viner)?

Viner:

The Treasury did that in 1840, in 1860, and in

201

-31890 - it's an old - 1907.
H.M.Jr:

Taylor:

You see, that's the.advantage, Jake; I never
studied history.
How exciting was it at the time?

Viner:

It was quite exciting. There's a couple books
dealing with it. Kinney's "Independent Treasury
of the United States" is a treatise on it.

Williams:

He was finding fault with it, though.

Viner:

Yes.

Williams:

Ought to bring that in.

H.M.Jr:

I still say it is exciting to me, in my inno-

Viner:

It is exciting. Old things can be exciting,

H.M.Jr:

Well, I take it that - what did you say?
Unless they were ladies. I said old things can
be exciting -

Viner:

cence.

unless they're ladies.

Mrs. Klotz: That's funny.
You fellows want to develop this thing further
H.M.Jr:
(to Haas and White)?

Hass:

Oh, I would say on it - all that statement is just sets down the different alternatives. The

question of the pros and cons, the arguments
one way or another - yes, we'd very much like to

Viner:

Opper:

have an opportunity to develop, as we see it, the
advantages and disadvantages of doing it via
those different methods.
Then also there would have to be the - a legal
study of these things, just what could and would
have to be done from the legal standpoint.
Yes, we ought to.

202
4H.M.Jr:

Williams:

Well - After all, Williams and Viner are only
here for two days and I'd like to get the benefit
of what they have to say while they are still
here. See? And so, Williams, would you care
to talk to this subject?
In the first place, I think that we ought to do

Four before doing any of the others. The reason
for that would be to remove the excess reserves
in so far as that can be done, say, by raising
reserve requirements, and then you'd be in a
better position to operate. It would be very
difficult to do anything now that would be effective so long as you have two billion two hundred
millions of excess reserves outstanding. For
example, you could use up your whole Stabilization
Fund and there still would be excess reserves.
So the thing to do, it would seem to me, would
be to eliminate and get down to as close a normal
situation as we can, and then consider the three
methods as means of governing further inflow and
outflow of gold after Number Four is done.
And then, as among the three methods, the real
question in my mind is between Two and Three.

I think on the whole I favor Two, but I think

there is a very large question raised as between

Two and Three. I can see how in some circumstances

you might prefer to do it by Three; of course,

there is a legal difficulty.

H.M.Jr:

Three?

Williams:

Yes.

But the real question, the broadest questions
of policy and of future policy, is raised by
Two and Three. I think the advantages of Two
are very considerable in that you can now
contemplate a kind of two-fold set-up. You
could have a two-fold set-up, leaving the
Federal Reserve to use its portfolio for

internal credit control, and the Stabilization

Fund to take care of gold movements and external

control generally. And that may be the cleanest
set-up; I think it would involve a good deal of
cooperation, of course.

203

-5H.M.Jr:

Will you say that again, please?

Williams:

If you use Method Two, you could contemplate

in the future a division of function, the
Reserve Board using its portfolio for purposes
of internal credit control, and the Stabilization

Fund operating for external control, to take care
of gold inflow, outflow, and the rate of exchange,
that problem. But there would be many times when
the two questions interlocked, I think. For
example, you might desire to let gold inflow have
its effect on bank reserves at some time, and then
there would be times when you might want gold outflow to have a restraining effect on bank reserves,
so that there would be the necessity for close
cooperation.

The advantage of Three, if it is an advantage,
would be that the two types of operation would be
under - in one function, see? - and the possibilities
of conflict between the two kinds of considerations
would be lessened.

H.M.Jr:

What two?

Williams:

That is, having the Federal Reserve handle the
gold inflow-outflow problem as well as the

internal problem. This merely points out that
that is a possibility, if you could remove the

legal difficulty.

Now, the British method is the second, pretty
clearly, and we have that much precedent to go
by.

H.M.Jr:

Just let me ask one thing: that is, there isn't

a danger that we might soak up so much of this

gold that we would reach the saturation point
of stabilization and we find ourselves with the
Federal Reserve - let's say they had gone to the
maximum increasing their excess reserves and we

come along with the Stabilization Fund, begin to
absorb this gold and let's say we reach our limit,
we've taken the two billion dollars, and they say,
"Oh, you can't release- any of this because you're
going to go ahead and accentuate - "

Williams:

I think the only way you could reach your limit

204

-6would be the Stabilization Fund to have used

up two billion dollars, and didn't have any

more.

H.M.Jr:

Yes

Williams:

Then face the question of the desirability
of granting to the Stabilization Fund a
further borrowing authority; you'd have to

get legislation for it.

Viner:

Or you could use Number One.

Williams:

Or you could use Number One.

H.M.Jr:

In thinking this thing through myself - I
mean seriously - I was just joking with Jake I mean I've done a lot of thinking on this
thing. I kept always worrying that - well,
I can see this thing, but I am always afraid
of when we go to the end of the road, you've
used up two billion dollars, then the Federal

Williams:

Reserve says, "You can't at this time release
one hundred million dollers because this is
just the wrong time to do it."
Yes. Well, that's what I had in mind too: that
there might be a division, a difference in
opinion; but then you could go to the General
Fund.

H.M.Jr:

If necessary, and then you have unlimited borrowing powers.

(Unidentified) Not unlimited borrowing powers.
Well, of course, you couldn't absorb two billion
H.M.Jr:
dollars without Congress meeting once for the
legality.
Take the British method, for example. There
Williams:
is this difference between their method and the
way you would operate your Stabilization Fund:
You would get Government obligations into the
Stabilization Fund.

H.M.Jr:

(To Viner and Lochhead) Would you mind? It

distracts me. I'm sorry.

205

-7Williams:

H.M.Jr:

As now contemplated in this statement, the
Stabilization Fund would get Government obligations by an exchange for gold, by giving up

gold. Now, in the British method they really
go beyond that, and the equalization fund can
get securities from the Treasury without giving
up anything, and that opens the possibility
of an unlimited power, you see. It is really
the government power to sell securities.
But as far as you have explored this thing, it
looks as though we were on the right track: that
we can take this question, if we want to have
gold coming in, and remove it as an influence on
excess reserves, on the banking system.

Williams:

Without any question.

H.M.Jr:

And that's a very important thing.

Williams:

Yes.

H.M.Jr:

But you feel that before we do that the Federal
Reserve should first act and use the powers
that they have, and we should only do that That's right.
- after they - in other words, make them use what
they have first.
Yes, and with one modification. I would favor their
increasing reserve requirements right away - that
is, January-February - in order to clean up as
much of the excess reserves as they can. I don't
know that I would favor their going on to sell
their securities, because that raises another

Williams:
H.M.Jr:

Williams:

question.

H.M.Jr:

That's another question.

Williams:

It might be that it would be better for you to

H.M.Jr:

I think this is one of the most encouraging things
that I have seen for a long time. I'm terribly

come in then.

thrilled about it.

Do you want to contribute anything else?

206

-8Williams:

No, that's all I had.

H.M.Jr:

Now Dr. Viner.

Viner:

I find it hard to choose between Two and Three.
They both raise questions of machinery of cooperation, and I don't know under which one of those

two there would be less potentiality of conflicting objectives and of friction. But I would say

that in many respects they work - they do the same
thing; the question is who does them. The question
as to who is the agent that does them is not
necessarily the same question as that of who
decides that they shall be done. That would be a

Williams:

H.M.Jr:

matter not of the law; and I would say that none
of these operations ought to be done, no matter
which the set-up is, Two or Three or One - none
of the operations ought to be done except as a
credit control operation, and therefore with the
approval of the Federal credit control a gency.
I'd like to add one remark, if you don't mind.
It seems to me that it would be a good idea to
explore all three with the Board. I mean I don't
see that anything is lost. The question as
between Two and Three is really a major question.
I could see how it could be in the future.

Well, before I want that, I'd like to give our
own - they still have until Monday. I told that
to Eccles. They have till Monday to explore this
thing, see. They've got till Monday to do this
thing and I'd like to adjust this thing a little
further myself before I even let the Board know
I am thinking about it. Huh? I - I frankly
don't want to influence them if - at this time
in making up their own minds.

Williams:

I think their question, the question they're
thinking about, is Four really, and that could
be treated by itself. And then the question

what to do in the future is - well, it is a

question they ought to be doing more thinking
about. I'm glad to see that your mind has already
run on to what do you do after you raise the

requirements.
H.M.Jr:

Frankly, after I saw what happened here with all
those people and all the floundering, I got worried,

207
9

because it didn't seem to me that - oh well,
that they were - they were doing any original
thinking. I think that's a fair statement,
isn't it? I mean Number Four is the obvious
thing, and Viner:

I think they are also thinking of the question

of borrowing powers of their own.
Williams:

They have been raising these questions, but they
are still very vague. They've got their minds
on Four at the moment, but the others have been
under some discussion.

H.M.Jr:

Well, my own inclination is I think this question
of foreign exchange and gold and the handling of
gold, for the time being, should stay with the
Treasury, and that if it does - if the President
agrees with me - then I think it is our job to
find some way to remove that influence of the
gold - I mean on our internal situation.

Viner:

- when you want to remove it.

H.M.Jr:

I mean when it is necessary. I mean when it

becomes - when it becomes - how shall I say? a burden, or when it becomes an instrument that
you don't know how to handle.
Viner:

But who is to decide when the control of gold,

H.M.Jr:

Well, but it is much easier to decide when we know
what we can do. And all these people have been
floundering around and wringing their hands and
saying, "What are we going to do?"

Viner:

But it is an important question as to who is to

H.M.Jr:

Williams:

True, but up to now nobody knew, if you did
decide, what you could do.
You didn't see what you could do before; but now

H.M.Jr:

But I mean - well, we've been saying, "What are

internal gold, is exercising an injurious effect?

decide.

it is clearer.

208

- 10 we going to do about this gold coming in," and
all about exchange control and all that sort of
stuff, which simply circumvents instead of going
right direct to the thing. Now, all I say is if
I now know that at the proper time I could isolate
this gold from our domestic economy - I say that
one of my biggest worries has been removed.

Williams:

I agree. But there would always be the question
of whether the gold ought to be allowed to have
its effect or not; and so there would be need for
continuous consideration.

H.M.Jr:

Absolutely true. But, Professor Williams, isn't
it much easier? I mean I think that decision is

much easier now knowing that you've got something

that you can do. Now, when I worry is when I'm in
a dark room and I can't find the door. But if
suddenly there is a light and I see what that door
is, I know how to get out of the room, I stop
worrying and I don't mind being in the dark. But
up until now I've been completely surrounded by
four solid gold walls and there's been - with no
door; and now there is a door and I've stopped
worrying. But the only question is when to go
out.

Viner:

No, no, who's going to decide that the time has

H.M.Jr:

That is a joint decision between the President,

Viner:

Fine, that's all I want.
That's the nub of it really.

Williams:

come to go out of the door?

Federal Reserve Board, and the Treasury.

H.M.Jr:

But I've had four gold walls with no door. Now
I see the door.

Viner:

I'd say, on that basis, I don't much care, except
for legal convenience, which one of One, Two, or
Three you adopt.

H.M.Jr:

And I will say that we have demonstrated in the
last month that there is more cooperation between

209

- 11 the Treasury and the Federal Reserve than there
ever was when the Secretary was Chairman of the
Board - and with New York too.
Williams:

I think so too. I might add one further word.
It seems to me that One is not a good method,
although it might legally be more defensible,
because you would be dribbling out the securities

bit by bit, as I see it. Gold is flowing in,

and you couldn't tell how much, and you want a

very elastic instrument; and a portfolio of
securities in the Stabilization Fund, which

could be sold in small amounts or large amounts,
ordinary Treasury issue.

whatever we needed, would be better than an
Viner:
Williams:

They could sell over the counter as they please - whereas the Treasury can't do that.

Taylor:

Infinitely more flexible.

H.M.Jr:

Of course, what we have done - we've got 150 or

Lochhead:

H.M.Jr:

175 million dollars - we've been practicing this
right now - isolated. Is that right (to Lochhead)?
on well, we have practically that much isolated.
We've done it already. I mean we've actually done
it.

Williams:

That's your gold. But the question is of reducing

H.M.Jr:

We've kept that - we've kept them off the market,
so to speak. But that was the limit, and I've
been thinking about my limit. That's why I was
worried, that's why I was groping and - well, if
we let all this stuff come in there would be about
another 175 million gold come in. Did you know

excess reserves.

that?

Williams:

Yes. But I am still unclear in my mind as to
whether we all get the difference between the
gold flow and the change in excess reserves. It
is possible to get the gold. But by increasing
reserves - now, as I understand it, that's what
you want to avoid.

210

- 12 Viner:

And that's why you need this 175 million that's

White:

To the extent of that 200 million we were like
the British fund.

Williams:

- after you got it.

H.M.Jr:

Again, Viner and Williams, is there anything
else other than that? We'll have our own staff

been isolated.

.

explore this thing. Do you think you'll have
something Monday or Tuesday (to Haas)?

Haas:

(Nods affirmatively)

H.M.Jr:

Could you gentlemen come back again?

Viner:

It's possible.

H.M.Jr:

What?

Viner:

It's possible, if desired.

H.M.Jr:

Well, why not?

Viner:

I'm speaking for myself, I'm not speaking for

Williams.

H.M.Jr:

Well, I'd like to have you both here.

Williams:

I was wondering; isn't there an Open Market

meeting next week anyway?
H.M.Jr:

Wednesday. Why don't you come down Wednesday

Viner:

Bad day; it's the middle of the week and I

Haas:

We'd like as much time as possible. If that

(to Viner)?

lose both ways.

commitment is a firm commitment, of course, we
could meet it Monday, but the more time we have

the better.

H.M.Jr:

Well, I've got my financing and now that I know

there is a way I'd rather let it go over till

211

- 13 -

Taylor:

133

Monday a week - let it go over till Monday a
week; because now that I know there's a door
I'm going to quit worrying.
I don't think that that deadline with the Federal
Reserve Board need be kept, now that the other
decision has been reached that you are going to
keep January and February free.

Bell:

You haven't any commitment Monday with the Federal
Reserve Board. You gave them until Monday before
they announced it.

Taylor:

That all can be changed now, so you can change

H.M.Jr:

But they were saying they were going to come and

this other schedule.

see us and say they were thinking about this. Now
they've done it, so we'll make it Monday a week,
which is December 7.

Now, why not let's say you'll be back here
December 8 or on December 7?

Williams:

The seventh.

H.M.Jr:

How about the seventh and eighth; that's Monday

Williams:

I don't know if I can make it for the eighth,

H.M.Jr:

How about you (to Viner)?

Viner:

I think I could make it. You know, there's
this: that you may find you need some little
bits of legislation.
Well, they've got a week and a half to study

H.M.Jr:
Opper:

H.M.Jr:
Opper:

and -

the way my classes run.

that.

I just wanted to be sure.
You've got a week and a half.
There may be some things I don't see at first
thought.

212

- 14 H.M.Jr:

At
least it is safe to say that it is 80 percent
workable.

Viner:

Oh, it's workable.
Yes, it's workable.

Williams:
H.M.Jr:

But I just saw this gold coming; I saw them raise
excess reserves and another billion dollars worth
of gold coming in and they have reached their
top and they're going to ask Congress for more
authority to do it, and that thing wouldn't hold
this thing down.

Viner:

There is one other question, one other point I'd
like to make; that is between One and Two (I'm
just thinking aloud): the question as to whether
the expense of this operation is different in the
two cases; in one it would be a Stabilization Fund
expense and in the other it would be a General
Fund expense. Is that right?
No, no. In either case it would be a General Fund

Opper:

Bell:
Viner:

expense.

It wouldn't be the Stabilization. Financing
operation and an interest cost in either case.
Well then, in one case the Stabilization Fund
would be making money.

Bell:

Would be drawing the interest on the securities
so long as they hold them.

Opper:

Wouldn't be making -

Lochhead:

Yes; well, that is if -

Viner:

There is that difference. I don't know what it that it is important, but that ought to be canvassed.

H.M.Jr:

Viner:

Well, if we can make a little money for the
Stabilization Fund, Archie and I would love to.
That's one of the things that in the memorandum
ought to be worked out, as to where the expense

- 15 would be as shown on the Federal accounts.
Williams:

In the General Fund anyway.

H.M.Jr:

Anybody want to raise any point at this time
why we can't go till Monday a week on this
thing, December 7? Anybody? All right, fine.

214

142

1. The General Fund of the Treasury could sell securities
to the market as a means of reducing bank reserves on the occasion

of gold inflow (and could buy securities as a means of increasing
bank reserves on the occasion of gold outflow).
2. The Stabilization Fund could obtain Government obligations
from the Treasury in exchange for gold. The Stabilization Fund

could then sell securities to the market in order to reduce bank
reserves on the occasion of gold inflow (and could buy securities
from the market in order to increase reserves on the occasion of
gold outflow).
3. The Federal Reserve banks could obtain Government

obligations from the Treasury in exchange for gold certificates and
sell securities to the market in order to decrease bank reserves on
the occasion of gold inflow (and could buy securities from the market
in order to increase bank reserves on the occasion of gold outflow).
4. As an initial operation the Federal Reserve banks could
increase reserve requirements to the limit now permitted by law,
or could sell its Governments.

nov. 24. 1936

215

143

Memorandum of a Conference of Secretary Morgenthau with

Aubrey Williams, Acting Administrator of W. P. A.,

and Mr. Ross, his Chief Finance Officer, Mr. Bell
and Mr. McReynolds in the Secretary's Office at
10 a. m., November 25, 1936.

Mr. Williams gave the Secretary a copy of the Hopkins letter to
State Administrators setting up state quotas, which he promised at
yesterday's conference.

After Mr. Williams had again stated the plans that W.P.A. has
made for reducing their expenditures, the Secretary asked: What is your
position going to be from January to July for other Federal agencies)
Mr. Williams: They can go no further than they now have money to carry
them. Whenever their money is gone they are out unless the President
should decide to give them more funds.

Mr. Bell: The President has put the responsibility on you for
financing those projects.

Mr. Williams: If a project is located where there is need for
relief labor and we think it is a good project and the cost is not excessive,
we will do it, but we do not like those projects for we pay the entire
costs including the costs of material.
The Secretary: What about Public Health project - that is a good
project. How long will they run without additional money?
Mr. Williams: Until January 15th.

216

-2-

144

The Secretary: Can't you take care of that until February let?
How much will it take?

Mr. Williams: We will take care of that. It will require about
$50,000.

The Secretary: Let us review this situation again. You say you
are getting your own people down to 2,300,000 on January 1st?

Mr. Williams: That is the program.
The Secretary: If you do get down to that, do you have money

enough to carry you to February 1st? If you get every dollar that is
available can you run through January?

Mr. Williams: Here's the answer - we will have money enough to go

to January 15th. As I understand it from that point on we will have to
depend on using encumbrances previously made but not used up and the

amounts previously held available as cushions for administrative convenience,

and also if we get all the money that is left in the funds that have not
been committed.

Mr. Bell: I do not think the President is going to give you every
dollar that is left. There are other agencies he is committed to carry on.
The Secretary: How much money will you have going into January -

that is, not allotted to Hopkins?
Mr. Bell: About $20,000,000.
The Secretary: How much unspent of both appropriations from

allotments to other agencies?

Mr. Bell: I do not know, but there will be a large sum.

217

-3The Secretary: Let somebody study that and let us talk about it
again next week. I think we should keep at this until we have it
definitely worked out before the President gets back. I also want to talk
to you about the program we will have after February 1st. I never get a
chance to talk about more than one month in advance and I want to talk
about where you will be a year from now.

Mr. Bell: I think it is important that the President say something
in his Budget Message about the limitation on these relief expenditures.

It is unfair to the Treasury to leave this open.
The Secretary: We will talk about this again next week.

Mr. Williams: Do you want me to call you or will you call?
The Secretary: I wish you would call me.

218
November 25, 1936.
9:40 a.m.
H.M.Jr:

Some
of the boys were supposed to suggest that you
have
company.

Oliphant: What?
H.M.Jr:

That you had company and you decided that two hours

up the river would be nice.

0:

Well
- this is
what happened - they told me we'd
get inI about
noon.

H.M.Jr:

Yes.

0:

And I wanted to take advantage of that and talk
things over with Hastings and then when I got on
board I found that it didn't get in - that it got
in at 7 o'clock which I thought was very unreasonable
to ask him to get down there then

H.M.Jr:

Oh we thought there was somebody on board that you

had to see up the river.

(Laughter) Oh well it is exciting, isn't it?

O:

H.M.Jr:
0:

H.M.Jr:
0:

H.M.Jr:
0:

H.M.Jr:

Well Mac was all a-tizzy wizzy about it - I mean he didn't know what to do.
Well that's the way it was, see?
Yes, well then

It seems they changed the arrival time I guess after
the ship sailed.
Oh - well I'm just - how are you feeling?
I feel much better,1 Henry, and I'm bound to - I want
to thank you - I - I realize now that my judgment
wasn't any good. The trip was just what I needed.
Was it really?

O:

Yes.

H.M.Jr:

And the boat stayed there till you left?

219

-20:

Yes, and I had a grand set of men and I had a

H.M.Jr:

Good well I'd like to hear about it - I'm anxious..

0:

When will I be seeing you?

H.M.Jr:

Well I'm going - I'll be here Monday morning.

0:

All right.

H.M.Jr:

Yes.

0:

H.M.Jr:

Well I'm going to see a man here in New York and
then I'll come down probably this evening.
What's that?

0:

I'll be down this evening or tomorrow.

H.M.Jr:

Well -

splendid time.

0:

H.M.Jr:

Well everything's closed up tomorrow, isn't it?
Yes.

0:

Yes, well then I'll see you Monday.
Well do you really feel well?
Very very well, yes.

H.M.Jr:

Good.

O:

Is Morrison Shafroth - ah - when is he coming?

H.M.Jr:

December one.

0:

What?

H.M.Jr:

December one.

O:

December one.

H.M.Jr:

Yes.

0:

Everything else all right?
Everything is fine.

0:

H.M.Jr:

H.M.Jr:

220

-3

-

0:

Nothing to worry about?

H.M.Jr:

Not a thing.

0:

That's fine.

H.M.Jr:

All right.

0:

Thank you, Henry.

Glad to hear your voice.

221 Fin
November 25, 1936
11:50 A.M.
W.R.

Burgess:

Sir?

H.M.Jr:

Now, how are things today?

B:

Oh, they're fine; they're - they're up a little.

H.M.Jr:

Good.

B:

They'r going nicely.

H.M.Jr:

Now -

B:

One or two of the - of the longer bonds are just

H.M.Jr:

Yes

a - just a fraction off.

B:

H.M.Jr:

They note they're up a thirty-second; I've been
looking at those.
Now that the New York Tribune financial columns
are writing as though they were straight news

instead of editorials, they - I - I feel as

though they were wonderfully friendly, because
they stopped coloring them.

B:

H.M.Jr:
B:

H.M.Jr:
B:

Well, I - I confess I had a talk with Well, I mean - yesterday.
What? You had a talk with who?
"ith some of the boys yesterday.

H.M.Jr:

Did you?

B:

And I explained to them a little bit about how the
Treasury is playing fair with them.

H.M.Jr:

How the Treasury what?

B:

Was playing fair with them this time.

H.M.Jr:

Oh. Well, that's -

222

-2B:

I don't think they'd got that point fully.

H.M.Jr:

Oh, -

And I thought that the Times had a nice little
article on it this morning.

B:

H.M.Jr:

Yes. They both had the same. I wondered where
they got them from.

B:

Well, I chatted with them a little bit -

H.M.Jr:

Fine

B:

- very confidential, and -

H.M.Jr:

Fine

B:

H.M.Jr:
B:

H.M.Jr:
B:

- in a restrained way, but they got the point,

I thought.

Oh, very - well, it was - it was a - I mean I
immediately sensed something new.

(Laughing) Well, that's it.
Yes. Well, fine. Now, have you got anybody
lined up for next week, or any thoughts?
Well, I haven't had a chance to talk with George
about it and I want to do that. My preliminary
thought is - is that we ought to have somebody
from the bankers.

H.M.Jr:

The bankers.

B:

And - now, how would- Divine?
you like to see our - our

H.M.Jr:

Love to.

B:

I think it'd be a good idea.

H.M.Jr:

Love to.

B:

There's another chap who - who is outside the
usual circle who knows about savings banks; there's
Charlie Miller, who was at one time President of the

223

-3R.F.C. H.M.Jr:

Ah-ha.

- and who is now with the savings bank trust
company that - that does business for the

B:

savings banks.

H.M.Jr:

Ah-ha.

B:

He's an awful nice fellow.

H.M.Jr:

All right.

B:

I think he might be a good man to see.

H.M.Jr:

Now, I tell you, there are two fellows that I'd
like to see if they care to come.

B:

Yes

H.M.Jr:

And one is the President of the Manufacturers

B:

That's a good suggestion.

H.M.Jr:

Trust.

I mean I don't care whether he brings his bond

man up or not. I - just talk general conditions.

B:

I think he ought to bring his bond man, -

H.M.Jr:

Well, that's -

B:

- anyway.

H.M.Jr:

Well, that's all right.

B:

He's got a good bond man. I talked with him last
week.

H.M.Jr:

And then I'd like to see this hard-boiled baby,

B:

the President of the Guaranty.
rotter?

H.M.Jr:

Yep!

B:

I find that his - that Garner, his man, may be away.

224

-4H.M.Jr:
B:

H.M.Jr:
B:

H.M.Jr:

No, I want Potter.
You just want Potter?

Well, no - but I mean I'd like to see that baby.
I see. Yes, yes.
He's so tough I'd like to see him.
(Laughs) Well now, do you want to see Mills and

B:

Remp again?

H.M.Jr:

What do you think?

B:

Well -

H.M.Jr:

You don't think we're doing it too often?
I don't know I'm sure.
Think that over.

B:

Yes

H.M.Jr:
B:

I mean we've had them now so regularly, I don't
want them to get - you know.
They were - Mills was awful wrong last time, of

H.M.Jr:

Yes

B:

Remp was right.

H.M.Jr:

Yes. Think that over

B:

All right.

H.M.Jr:

Could you see George and then call me back?

B:

Yes, I will, I'll talk to him -

H.M.Jr:
B:

H.M.Jr:
B:

course -

Call me back, if you could, before - about - well,
just before 12:30, will you?

All right, all right, I'll - I'll see if I can get

225

-5hold of him.
H.M.Jr:

Will you do that?

B:

Yes

H.M.Jr:

And - let - let's see, I'd like to see Divine.
The
last fellow
time. who was right was Levy, you know,

B:

Yes -

H.M.Jr:

- of Solomon.

B:

- he was.

H.M.Jr:

Levy was right, you know.

B:

Yes, yes.

H.M.Jr:

Yes

B:

He's not much of a philosopher about things -

H.M.Jr:

No - well -

B:

- but he's got a good notion of the market.

H.M.Jr:

Yes, he seemed to.

B:

But Divine will give you a good deal of the same
stuff that Levy would.

H.M.Jr:

I see.

B:

That is, the - the fellow with his nose right on

H.M.Jr:

Well, perfectly frankly, I just - I don't care so

B:

H.M.Jr:

the market.

much actually about the bond men this time, but I
would like to use this as an excuse to see a couple
of these really important bank presidents.
I see, yes.
To get the general picture.

226

-6Yes

B:

B:

And I - and I'd like to use this as an excuse and
I - I'd be glad to see Divine. You think over
about the Discount or not, you see?
Yes, yes. I don't believe you want to do them

H.M.Jr:

No, I'd just as leave skip them this time.

B:

Yes

H.M.Jr:

And see Divine and see Mills.

B:

Well, I think if you did Divine and Gibson

H.M.Jr:

Yes

H.M.Jr:

every time.

and the bankers -

B:

H.M.Jr:

- and perhaps Charlie Miller.
Yes. What about Potter?

B:

And then - well, the only question about Potter
is whether his bond man is away. I think he -

H.M.Jr:

Well, even if he isn't I'd like to talk to him

B:

Yes, yes.

H.M.Jr:

Well -

B:

He - he'd probably keep his bond man here.

H.M.Jr:

if he - if he'd come.

Well, supposing you call up and call me back about
12:25, will you?

B:

All right.

H.M.Jr:

Thank you.

B:

Yes. Right.

227

November 25, 1936
12:22 P.M.
W.R.

Burgess:

Sir.

H.M.Jr:

Hello.

B:

I've just been talking with George about this list.

H.M.Jr:

Yes

B:

In the first place, he said he had this - this
general thought about it: -

H.M.Jr:

Yes

B:

In extending this invitation to these people -

H.M.Jr:

Yes

B:

- we ought to explain the situation pretty
clearly and carefully avoid giving the impression
that - that you didn't trust us to give you the
information, explain to them that - that you
used to have the Undersecretary come here and
in the absence of that you wanted to -

H.M.Jr:

Well -

B:

- supplement what you got from us by direct
contact, and so on.

H.M.Jr:

Well, the invitation is going to -

Operator:

Hello

H.M.Jr:

Hello.

B:

Yes.

H.M.Jr:

The invitation is - is going to them through
you.

B:

Yes

H.M.Jr:

And that's why I've always done it that way, That's right, yes.

B:

228

-2H.M.Jr:

So there shouldn't be any question.

B:

Ijust
think
we can take
a question
of - care of that all right;

H.M.Jr:

Well, you don't feel that way, do you?

B:

No, I don't have that feeling. I think it's a
good
thing
do
think
- for you to see them direct, only I

H.M.Jr:

Well,
just ahere.
few - it gives me the excuse, I'm
so isolated

H.M.Jr:

Yes, that's right.
I mean if I kept calling-these people up, it'd
be something different, but I extend the invitation -

B:

Yes

B:

H.M.Jr:

- through you.

B:

Yes. I think it's a thing that - that you have

H.M.Jr:

to protect yourself on constantly.
Yes. And also tell them that there's no publicity
connected with it.

B:

Yes, yes.

H.M.Jr:

Yes. If I had an Undersecretary, I wouldn't most

B:

Yes. Well, this gives you a good excuse for seeing

H.M.Jr:

Righto.

B:

That's the main point of it.

H.M.Jr:

Yes.

B:

H.M.Jr:

likely do this.

them once in a while.

But I think we can protect that in - in the form in
which we deliver the invitation.
That's right.

229

-3B:

Now -

H.M.Jr:

Now having got that over -

B:

He raises the question whether - whether, for your

H.M.Jr:

Yes

B:

- you couldn't perhaps handle two of them there,

H.M.Jr:

No, I - I - I - I don't - wouldn't feel comfortable
having either of them. I'd like - I'd only like to

dinner party, if you still want to have that -

say perhaps Potter and Miller. He likes the idea
of have somebody who I really know.

B:

At dinner, you mean?

H.M.Jr:

Yes.

B:

Yes, I see.

H.M.Jr:

No, I don't want somebody that - I mean if I'm

going to have anybody for dinner I want somebody
who I already know.

B:

I see. Yes, yes, yes. Well, I think - he was
thinking, I think, that in the case of Potter
perhaps it was a little bit easier to extend him
an invitation to come down to dinner than - than
just to come to see you; but I don't think that No, I - I mean a total stranger like Potter - I
mean I - I wouldn't want to invite him to my
house the first time.
I see. I see the point. I see the point, yes.

H.M.Jr:

Yes.

B:

Yes.

H.M.Jr:

Now, what else?

B:

He has a little qualification about asking Divine.

H.M.Jr:

Yes.

B:

H.M.Jr:

230

-4B:

He's a little afraid there might be danger that

H.M.Jr:

I don't care - I mean -

B:

Yes

H.M.Jr:

I mean I'll leave that to you. I don't have to

B:

Well, I think - I think you don't have to see him.

H.M.Jr:

No.

he'd use the information.

B:

H.M.Jr:
B:

see Divine.

Just as well not to perhaps.
I don't care.
Yes, yes. Well then, the - the names that we
went over together would be Potter, Colt of the
Bankers, Miller, Ward of the Irving possibly,
and Gibson of the Manufacturers. Now, that's
that's five. Now, there are none of those that
you know very well, are there?
No. I don't want too many.
-

H.M.Jr:
B:

Yes.

H.M.Jr:

Let - let - let's just start with Gibson and

B:

All right.

H.M.Jr:

And see if you can get those to come either Monday

B:

All right.

H.M.Jr:

See?

B:

Yes.

H.M.Jr:

And -

B:

There's Monday at three or Tuesday at eleven or

Potter, see?

or Tuesday.

three.

231

-5H.M.Jr:

Yes.

B:6

Yes.

H.M.Jr:

Well, it'11 be three people. Supposing you -

let's put it in this order: Gibson first,

Potter second.
B:

Yes

H.M.Jr:

Now, if neither of those can come, shall we
say Miller?

B:

Yes, I think Miller's good anyway; I think he
gives a lot -

H.M.Jr:

All right.

B:

- from your point of view.

H.M.Jr:

And then -

B:

Colt of the Bankers, I think.

H.M.Jr:

Colt, all right - Colt.

B:

We tried to get him and couldn't, see?

H.M.Jr:

All right, Colt. That gives you four.

B:

Yes.

H.M.Jr:

Briefly - I'll just make three appointments, see?

B:

I see.

H.M.Jr:

How many people does that give you now?

B:

That's - that's four people. If we put Gibson
first, Potter second, Colt third, Miller fourth,
that'd be four; but probably one of them can't
come.

H.M.Jr:

Yes. Well, do you want a fifth one in case
another one drops out?

232

-6Well, I'd next put - I'd put Ward, from the

B:

H.M.Jr:

Irving, next, I think.
Is - is that fairly important?

Well, you haven't seen him at all, and he's
one of the big banks, -

B:

H.M.Jr:

All right.

B:

- one of the great big banks there.

H.M.Jr:

All right.

B:

And he has a rather distinct point of view;

doesn't buy any Governments over about three

years.
H.M.Jr:

All right.

B:

(Laughs)

H.M.Jr:

All right.

B:

But he's quite an able fellow.

H.M.Jr:

All right. Well, that gives you five. And it'11

B:

All right.

H.M.Jr:

So I'11 keep Wednesday night open for you and

B:

Very good.

H.M.Jr:

If you still want our friends - you know -

B:

Yes

H.M.Jr:

- we can have them. I like those two boys.

B:

You mean Mills and Remp?

H.M.Jr:

Yes.

be Wednesday night; let's keep Wednesday night
open. Mrs. Morgenthau has company Tuesday night.

for whoever we think would be really important
to see when we get right down to it, see?

233

-7B:

Oh yes, they're good boys.

H.M.Jr:

Yes. So let's -

B:

H.M.Jr:

- let's make it tentatively for Wednesday.

H.M.Jr:

All right.
Now, I'll be on the farm and I think it's time

B:

All right. You're going to the farm for

B:

enough if you let me know Monday morning.

Thanksgiving?

H.M.Jr:

I'm going in about an hour.

B:

Good stuff.

H.M.Jr:

Yes.

B:

I hope you have a grand time.

H.M.Jr:

Yes. And then you could let me know Monday -

B:

All right, and I'll arrange for three of these
people.

H.M.Jr:

Thank you.

B:

On those three dates.

H.M.Jr:

Thank you.

B:

Very good.

H.M.Jr:

Goodbye.

B:

Goodbye.

234
5-16

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
To CONFIDENTIAL FILES
FROM

DATE November 25, 1936.
SUBJECT TELEPHONE CONVERSATION WITH

L. W. Knoke

BANK OF ENGLAND.

I called Bank of England at 10:52 and, in the absence of
Mr. Bolton on a brief holiday, spoke to Mr. Hawker who appears to be
Mr. Bolton's deputy.

I told him of the order to still £1,500,000 sterling received
from Banco Central in Buenos Aires and Hawker replied that they had

also today received an order from the same friends to buy $22,000,000
for delivery November 27. He had not done anything so far; the market
was nervous; he did not expect to touch the market unless dollars were

very strongly offered. He had recently been able to get spot dollars
through swaps and expected to continue these transactions as long as

the market permitted them. What he could not do in that way, he prob-

ably would do against gold. He did not expect to get through with the
order today.

Security markets in Europe this morning had opened rather

weaker, probably because of the fact that Hitler had called together
all Ambassadors for the purpose of making an important announcement.

However, when he actually only formally announced the anti-communistic
agreement between Japan and Germany, markets picked up a little. The

figure for dollars had ranged between 4.89 8/8 to 1/2 all morning, in
London, until New York opened and began offering dollars. There was

not a lot of business going through, he said.

LWK:KMC

235

FS

GRAY

Paris

Dated November 25,1936

Rec'd 2:05 p. m.

Secretary of State,
Washington.

1146, November 25, 5 p. m.
FROM COCHRAN.

'Paris Exchange and stock markets were nervous

especially before noon OVER prospect of statements by

Goebell's and over rumors of (1) threatened rupture
of diplomatic relations between Germany and Soviet
Government and of (2) heavy concentration of German

army on French frontier.
Since noon franc has improved against dollar and

latter is now offered at 21.46. Bank of France obliged
to give only small amount of sterling. Continued
steadiness of florin is believed due to short covering.
French rentes have recovered part of this morning's

two franc loss. Shares generally down as a result of
international situation, addition of three new countries
to tripartite pact credited wi th helping forward franc
yesterday and today.
Mitzakis, in L'INTRANSIGEANT, Paris, Emphasizes
that

236

FS

No. 1146, November 25, 5 p. m. from Paris

that the Extension of the arrangement to the three
new countries will have a very favorable psychological
and (END SECTION ONE)

HPD

BULLITT

237

LMS

GRAY

Paris

Dated November 25, 1936

Rec'd 3:45 p. m.

Secretary of State,
Washington.

1146, November 25, 5 p. m. (SECTION TWO)

technical Effect for the franc, and constitutes an
important forward step toward the reestablishment of
Economic PEACE. HE remarks that most of the European

and American countries are now moving gradually in the
direction of a modernized gold standard.
The financial Editor of the JOURNEE INDUSTRIELLE,

Paris, referring to the six-power cooperation, says
this is the nearest to stabilization that can be Envisaged and the maximum that could be obtained from

Great Britain, so that WE should be pleased with what
WE have.

FIGARO, Paris, referring to the new arrangement

says "There is thus found organized for all the free
currencies the best modus vivendi that could be hoped
for".
Under city notes, LONDON TIMES today says in
part;

"The business condition derived more solid

satisfaction

238

LMS 2-No. 1146, November 25, 5 p. m., SEC. 2, from Paris.

satisfaction from the announcement that Switzerland

as well as Holland had decided to adhere to the tripartite Exchange agreement than from international

political advices. It is not unnatural that the city
realizing the great difficulty of finding a solution
of the prolonged conflict between fundamentally differ-

Ent political ideas on the continent should feel that
international cooperation may be Easier to SECURE in
(END SECTION TWO.)
BULLITT
WSB

239

GRAY

JR

Paris

Dated November 25, 1936

Rec'd 3:30 p.m.

Secretary of State,
Washington.

1146, November 25, 5 p.m. (SECTION THREE)

the strictly Economic than in the political field.
Although it is in the nature of a 'gentlemen's agreement',
the extension of the tripartite agreement places on a
broader Coundation the Effort to diminish the obstacles

that block the way of international trade. The Extension
of the agreement may have far reaching Effects for the

reason that not only does it pledge the parties to
abstain from competitive currency depreciation but it
also sets up machinery for standardizing so far na
possible the various exchanges. Further the arrangement
now provides for free Exchange of gold between the

central banks of the countries concerned. In other
words the agreement aims at giving precision to the

value of the different currencies in terms of gold and
permits the resumption of the shipment of gold between

the various countries for the purpose of settling
balances that are owing. There is no more serious
obstacle

240

-2- JR #1146, November 23, 5 p.m. (SECTION THREE) from
Paris.

obstacle to international trade than currency

instability, for it was the break down of that stability
in 1931 which resulted in the Enormous contraction of

international finance and trade. Some countries were
compelled not only to adopt Exchange restrictions and

quotas to protect their currencies but to take
EXCEPTIONAL measures to render themselves less dependent

upon foreign manufactures. Owing to the virtual
Elimination of international (End section three).
BULLITT
WSB

241

GRAY

LMS

Paris
Dated November 25, 1936

Rec'd 3:40 p. m.

Secretary of State,
Washington.

1146, November 25, 5 p. m. (SECTION FOUR)

financing international trade for many countries has
been reduced to a cash or barter basis, their important
credit trade being largely suspended."
FINANCIAL TIMES and FINANCIAL NEWS, London, carry

rather full reports of press conference of Secretary of
the Treasury on new arrangement. The following paragraph
is taken from a Lombard Street article of the FINANCIAL
NEWS on the gold development.

"When in October last the tripartite gold agreement
was concluded Mr. Morgenthau announced it as a new type

of gold standard. Indeed it seems to be developing into
a new system and the new ban on private arbitrage is one
of the rules of the new gold standard. The trend of

evolution points to the gradual elimination of private
arbitrage and gold movements between monetary authorities.

Private arbitrage will survive however in connection with
the open gold market in London whence newly produced and

dishoarded gold will continue to be moved on private

initiative

242

LMS

-2- #1146, November 25, 5 p.m. (SECTION FOUR) from

Paris.

initiative. Even in this respect the experience since
September 26 has been that most gold that comes to the

market is bought for shipment for the monetary authorities
of the two recipient countries, the United States and
Switzerland. Before very long we shall possess quite a
considerable set of rules regarding the working of this
new gold standard. Let us hope that this (END SECTION FOUR)
BULLITT.
VSB

243

LMS

GRAY

Paris

Dated November 25, 1936

Rec'd 3:55 p. m.

Secretary of State,
Washington.

1146, November 25, 5 p. m. (SECTION FIVE)

time SOME sort of agreement will be reached as to what

exactly those rules are so that in future WE shall know
exactly when SOME of the participants in the arrangement do not play the new gold standard game. By codifying the rules as they develop the recurrence of the

bitter controversies of the late twenties and the
Early thirties could be avoided."
AGENCIE ECONOMIQUE carries remarks of Senator

Pittman on need for settling war debts. Radical
Socialist Deputy RENE Richard is scheduled to introduce
tomorrow a resolution inviting the French Government

to open negotiations with the United States for settlement of the war debts. European press carries numerous

stories to the Effect that Italy is negotiating with
the United States toward debt dettlement. (END MESSAGE)
BULLITT
KLP

244

November 25, 1936.

Honorable R. Walton Moore,

Acting Secretary of State.
My dear Mr. Secretary:

With the successful conclusion of our negotiations
of new monetary arrangements with Belgium, the Netherlands,
and Switzerland, supplementing the tripartite monetary
understanding of September 25th, I should like to express
to you my great appreciation of the very fine cooperation
we have had from the staff of the State Department. I am
particularly grateful for the constant helpful advice and
assistance of Dr. Feis and Dr. Livesey and I hope also that

you will find it fitting to convey to Mr. Cochran, in Paris,
my thanks and my commendation for the diligent and tactful
manner in which he conducted conversations with the representatives of the various European nations concerned.

I hope you will also convey to Secretary Hull, and
accept for yourself, my thanks to you personally for thus
placing the full facilities of the State Department at my
disposal in connection with these negotiations.
Sincerely,

(Signed) H. Morgenthau, Jr.

Secretary of the Treasury.

HEG/mah
"HEG"

245

COPY

November 25, 1936

My dear Mr. Cochran:

I am sending you herewith for

your personal and confidential information, a copy of a letter which
I have sent the Acting Secretary of
State.

I want to congratulate you on
the very intelligent and able manner
in which you handled the recent negotiations with Belgium, Holland and
Switzerland. It is a source of
great satisfaction to me to know
that in these negotiations I could
always count on your loyal assistance.
With kind personal regards, I
remain

Yours sincerely,

/s/ Henry Morgenthau, Jr.
Hon. H. Merle Cochran,

First Secretary,

United States Embassy,

Paris, France.

The Hannable

thery g

limitary of the Pressury
Department of the Jelemany
Washington, D.C.

kind thought
you many
thanks for
sending me the very

Comte Robert van der Straton. Ponther
Ambussadour de IM L Reider Polyas

interesting
press24release
dated
november

1 copy of this has been sent to our
Ambassador to Great Britain

1 copy sent to our Ambassador to France
1 copy to our Ambassador to Holland
1 copy to our Ambassador to Belgium

1 copy to out Ambassador to Switzerland
6 copies sent to H. M. Cochran

6 copies sent to Butterworth

Homi

caid

> - J. 3 in 2
) R France
June
Holland

Bilgi

Crehran
Parkyaday
6

6

copies Butternoth

247
TREASURY DEPARTMENT

Washington
FOR RELEASE, MORNING NETSPAPERS

Tuesday, November 24, 1936.

Press Service
No. 8-93

11/23/36

By authority of the President the Secretar: of the Treasury announces

that as a further step in the direction of international monetary equilibrium
arrangements have been made to give effect to the desire of the Governments
of Belgium, The Netherlands and Switzerland to cooperate with the Governments

of the United States, Great Britain and France in accordance with the principles
of the tripartite declaration of September 25, 1936.
The Belgian Government notified the United States of its adherence to
these principles on September 26. Similar declarations of adherence have now
been received from the Governments of The Netherlands and Switzerland.
The Governments of the United States, Great Britain, and France welcome
the declarations of the Governments of Belgium, Switzerland and The Netherlands

expressing their adherence to the principles stated in the tripartite declaration of September 25.

Arrangements have been made by the United States Treasury for gold

transactions on a reciprocal basis with these three countries. These arrangements are given effect by public statements of the Secretary of the Treasury
which are annexed hereto:

(1) A statement supplementing the statement of the Secretar: of the

Treasury dated October 13, 1936, with respect to reciprocal transactions in
gold with certain countries, and withdrawing the statement of January 31, 1934,

relating to the sale of gold for export;
(2) A statement naming the countries of Belgium, The Netherlands and

Switzerland as complying with the conditions of the statement of October 13
as supplemented by the above statement.

248
-

2

-

In addition to the statements to which reference is made above, copies
of communications from the Governments of The Netherlands and Switzerland

are made public herewith.

249
TREASURY DEPARTMENT

Washington

Press Service
No. 8-34

FOR RELEASE, MORNING NETSPAPERS,

Tuesday, November 24, 1936.
11/23/36

Supplementing the announcement made by him on October 13, 1936, relating

to the sale of gold for export, the Secretary of the Treasury states that

(hereafter, and until, on twenty-four hours' notice, this statement of intention
may be revoked or altered) the United States, in addition to sales of gold to
the exchange equalization or stabilization funds of foreign countries, will
also sell gold for immediate export to, or earmark for the account of, the
treasuries, or any fiscal agencies acting for or whose acts in this connection
are guaranteed by the treasuries, of those countries whose treasuries or

fiscal agencies so acting or guaranteed are likewise offering to sell gold to
the United States, provided such offerings of gold are at such rates and upon
such terms and conditions as the Secretary may deem most advantageous to the

public interest. The Secretary announces herewith, and will hereafter announce

daily, the names of the foreign countries complying with the foregoing conditions. A1:1 such sales of gold by the United States will be made through
the Federal Reserve Bank of New York, as fiscal agent of the United States,
upon the following terms and conditions which the Secretary of the Treasury
deems most advantageous to the public interest:

Sales of gold will be made at $35 per fine ounce, plus
one-quarter per cent handling charge, and sales and earmarking

will be governed by the Regulations issued under the Gold Reserve Act of 1934.
The Secretary further announces that his statement of January 31, 1934,

relating to the sale of gold for export, is accordingly withdrawn.
00o-

250

TREASURY DEPARTMENT

Washington

Press Service

FOR RELEASE, MORNING NE / STAPERS,

Tuesday, November 24, 1936.
11/23/36

No. 8-95

The Secretary of the Treasury today named the following additional
countries:
Belgium

The Netherlands

Switzerland

as complying with the conditions specified in his press release of October 13,
1336, as supplemented by his press release of November 24, 1936, for the

purchase of gold from the United States for immediate export or earmark.

--000--

251
TREASURY DEPARTMENT

Washington

Press Service
No. 8-96
FOR RELEASE, MORNING NETSPATERS

Tuesday, November 24, 1936.
11/23/36

The Secretary of the Treasury makes public the following note from
the Swiss Legation, transmitted to the Treasury Department by the Acting
Secretary of State:
"LEGATION DE SUISSE

Washington, D. C.

November 21, 1936.

"Sir:

"I have the honor to inform you that I have been instructed by my
Government to convey to you the following:
The Government of Switzerland has cognizance of the

declarations by which the Governments of France, Great Britain

and the United States of America have seen fit to express their
intentions with regard to their monetary policy and adheres to

the general principles stated in their tripartite declaration
of September 25.

"Accept, Sir, the assurances of my highest consideration.
(Signed) MARC PETER

Minister of Switzerland.
"The Honorable

R. Walton Moore,

Acting Secretary of State,
Washington."

000

252
TREASURY DEPARTMENT

Washington

Press Service

FOR RELEASE, MORNING NETSPAPERS,

No. 8-97

Tuesday, November 24, 1336.
11/23/36

The Secretary of the Treasury makes public the following note from the
Royal Netherland Legation, transmitted to the Treasury Department by the
Acting Secretary of State:
Washington, D. C.

"ROYAL NETHERLAND LEGATION

November 21, 1936.

No. 3775

"Sir:-

"Acting upon instructions of the Minister of Foreign Affairs of the
Netherlands I have the honor to inform Your Excellency of the following
declaration made by my Government:

The Government of the Netherlands has cognizance of the

declarations by which the Governments of France, Great Britain

and the United States have seen fit to express their intention
with regard to their monetary policy and adheres to the general

principles stated in their tripartite declaration of September 25,
1936.

"I avail myself of this opportunity to renew to you, Sir, the assurances
of my highest consideration.
(signed) C. van Breugel Douglas.

Charge d'Affaires a.i.
of the Netherlands.

"The Honorable R. Walton Moore,

Acting Secretary of State,
Washington, D. 0."

Oo

253
TREASURY DEPARTMENT
WASHINGTON

For immediate release.

PRESS RELEASE

193 .

Supplementing the announcements made by him on January 31 and February 1,

1934, to the effect that the Treasury would buy gold, and on January 31, 1934,

referring to the sale of gold for export, the Secretary of the Treasury states
that, hereafter, and until, on twenty-four hours notice, thisalso
statement of
intention may be revoked or altered, the United States will/sell gold for
immediate export to, or earmark for the account of, the exchange equalization

or stabilization funds of those countries whose funds likewise are offering

to sell gold to the United States, provided such offerings of gold are at
such rates and upon such terms and conditions as the Secretary may deem

most advantageous to the public interest. The Secretary announces herewith,
and will hereafter announce daily, the names of the foreign countries com-

plying with the foregoing conditions. All such sales of gold will be made
through the Federal Reserve Bank of New York, as fiscal agent of the United
States, upon the following terms and conditions which the Secretary of the
Treasury deems most advantageous to the public interest:

Sales of gold will be made at $35 per fine ounce, plus
one-quarter per cent handling charge, and sales and earmarking
will be governed by the Regulations issued under the Gold Reserve
Act of 1934.

Approved: Henry
The White House

11/05.27 1936

254

DEPARTMENT OF STATE
WASHINGTON

November 27, 1936.

Dear Mr. Secretary:

I thank you very much for your kind note, and
the copy of the Study of International Capital Movements which accompanied it.

I hope to be able to very soon tell you that your
request with reference to Mr. Butterworth will be complied with. My understanding is that you would like
him to be here shortly after Christmas and remain for
a couple of weeks. We made a cable inquiry of London
as to whether he can be sent.

Referring again to Senator Pittmen's mention of
the silver question to me, and my utter ignorance of
it, I will thank you to have someone write a short memorandum, giving me the principal things I should know in
order to talk with the Senator, if he comes at me again.
Of course I thoroughly understand that I have no business

discussing the silver matter with anyone, since it lies
in the jurisdiction of your Department, but perhaps I
cannot escape listening to the Senator.
With

The Honorable

Henry Morgenthau, Jr.,

Secretary of the Treasury,
Washington, D. C.

3

-

255

With all best wishes, I am
Yours very sincerely,

Rwalto mom

256
GRAY

MED

PARIS

Dated November 27, 1936
RECEIVED 4:35 p.m.

Secretary of State,
Washington

1155, November 27, 6 p.m. (Section one) .
FROM COCHRAN.

With NEW York closed yesterday the Paris

Exchange market was very quiet. There is a little more
business today. Bank of France is giving SOME

sterling at 105 point 15. Florin continues specially
strong as a result of short covering and in the opinion
of the FINANCIAL NEWS London as a result of impression
on Dutch and foreign CENTERS that adherence by the

Netherlands to the Tripartite money arrangements

signifies that the Dutch authorities intend to main.
tain the sterling-florin Exchange in the vicinity of
9. Swiss franc weaker following reduction in Swiss
Bank rate from two to one and one half per cent.
French rentes opened badly but closed with losses
of only from 55 to 85 CENTIMES. French shares lower

and internationals higher. Market is upset by threatened
recrudescence of serious French labor strikes and by

international political tension. And the space being
given

257

MED - 2 - #1155, November 27, 5 p.m. from Paris

given in financial press to gossip about prospects for
negotiation of settlement of French war debt to the

UnitEd States. While there is no great Effort to
veil the most compelling present motive for reconsideration of the French position, namely, the need
of new facilities for borrowing, SOME papers play
up the alleged significance to the United States of
the German-Japanese agreement and appeal for a solid

front of the three great democracies.
BULLITT
NPL

258
PARAPHRASE OF SECTION TWO OF NO. 1155 of November 27,

1936, from the American Embassy, Paris.

At noon today Mirianna Pennachio of the Bank of

Italy called to see me. He had received absolutely no
news from Rome as to any Italian negotiations for settling
war debts and receiving a loan from America. On the other
hand, he told me that his many contacts in the French
Financial community seem quite convinced that serious

negotiations on a war debt settlement are well advanced

between officials of the United States and France. During
the present period of unrest in Europe, Pennachio said

he is not very hopeful of Italian loans being floated on
the market in the United States, even though the Johnson

law might be satisfied by the Italians. A loan for
colonial developments would be their best chance, although
he doubted whether American capital would be willing to

give up the opportunity for gains on the present New York
Stock Market in order to take a chance on improvement of

Ethiopia by Italy. The main reason for amending the Italian
exchange regulations to allow withdrawal from Italy of
capital that may be newly placed therein, he said, was to
encourage remittances to Italy by (omission) which under
the regime of exchange control and sanctions had practically
ceased.

My Italian contact is pessimistic, being displeased
with French financial changes in the Cabinet. He found
officials at the Bank of France gloomy and dissatisfied
yesterday, due in part he thought to exchange difficulties

and in part to lack of efficient direction on the part of
the

259

-2the Governor of the Bank of France. Pennachio is of the

opinion that it is too early for war debt talks between
the French and Americans.
END OF MESSAGE.

BULLITT.

EA:LWW

260
November 27, 1936

CABLE TO PRESIDENT ROOSEVELT

(To be coded by Coast Guard)

"The following confidential information will undoubtedly be of
interest to you. The Bank Centrale Buenos Aires, Argentina, informed
the Federal Reserve Bank of New York that they would require $45,000,000

by the end of this month to provide which they would sell sterling in
London and purchase dollars in New York. They advised that these funds
are to be used by the Argentine Government to redeem the total of a
$45,000,000 loan in this market/ The necessary exchange orders were
placed by the Bank Centrale with the Bank of England and the Federal
Reserve Bank and by use of both the U. S. and English Stabilisation Funds
the orders are being executed without any disturbance to the exchange
market.

Morgenthau.

Note: This cable was read to Secretary Morgenthau today
It

over the telephone to the Farm. He approved it.

was also shown to Mr. Taylor and he approved it.

are

Fin
261
November 27, 1936

MR. RENTSCHLER

Attached you will find various memoranda covering existing U. S. Government

issues, as well as suggestions to be used in the December 15 financing. In
the case of the five-year Notes, we have suggested a 1 1/4% issue, although
we recognize that conditions of the market at this time would make it possible
for the Treasury Department to sell a 1 1/8% coupon. We believe, however, it
would be a mistake to cut the rate any finer than 1 1/4%.
We next suggest a ten-year 2 1/4%, which we think the market would readily

absorb, but do not particularly urge this issue as we feel the maturity conflicts with too many other Treasury obligations. We also suggest a fourteenyear 2 1/2% bond, which would fall due in 1950. We think this issue would be
very popular with the banks and be the initial step in a series of bonds
bearing a 2 1/2% coupon. 1950 is entirely open as there are no maturity or
optional dates in that year.
In a longer bond, we have suggested a 25-30 year 2 3/4% issue which we feel

would be the most desirable security for us to own. If the present market
continues to hold, this issue should be worth approximately a 2.60% basis, which
is equivalent to a price of 102 3/4. However much we prefer this issue, I question whether we can ask the Treasury Department to make such a generous offer.

You will note we have also listed a 2 5/8% bond due in twenty-five years, callable in twenty years. In this market, such a bond would probably go, but, in
my opinion, it would lack the enthusiasm that would attend the offering of the
other issues suggested.
Yields on 15-Year 2 1/2% Bonds
100 5/8
101 1/4

2.45
2.40

Yields on 20-Year 2 5/8% Bonds
100.39
101.16
101.96

2.60
2.55
2.50

Yields on 25-Year 2 3/4% Bonds
100.90
101.82
102.74

2.70
2.65
2.60

LEO A. KANE
LAK:DR

Enclosures

262

TREASURY DEPARTMENT
OFFICE OF THE SECRETARY
WASHINGTON

SECRET SERVICE DIVISION

November 27, 1936

MEMORANDUM

To:

Mr. Graves

From:

Mr. Wilson

Supplementing my memorandum of October 29 the following is

submitted with reference to the activities of the Secret Service
Division:

1. In compliance with the order of the Secretary establishing
fifteen standard districts for the law-enforcement agencies of the
Treasury Department effective December 1, Secret Service Districts
have been established with the following Acting Supervising Agents
in Charge:

District No.
1

2

Headquarters

Acting Supervising Agent

Boston, Massachusetts
New York, N. Y.

Harry L. Barker
William H. Houghton
William A. Landvoigt

Philadelphia, Pa.

3

Newark, N. J.
Baltimore, Md.
Atlanta, Ga.

4

5

6

Louisville, Ky.
Detroit, Michigan
Chicago, Illinois

7

8

9

10

11

New Orleans, La.
Kansas City, Mo.

12

Saint Paul, Minn.

13

Denver, Colorado

14

San Francisco, Calif.

15

Seattle, Washington

James J. Maloney
Harry Cooper
John C. Marsh
Alonzo A. Andrews
George F. Boos

Thomas J. Callaghan

Forrest V. Sorrels

William H. Davenport
Charles Mazey
Rowland K. Goddard

Thomas B. Foster

William R. Jarrell

2. I called a conference at Salt Lake City on November 25
of the three Acting Supervising Agents covering the Rocky Mountain

and Pacific Coast area, with the view of coordinating their activities in the eleven states embracing that area and I have received
an air mail report from them relating to the plans which they made
at that conference.

3. I have called a conference at New York City on November 28
of the five Acting Supervising Agents covering the New England and

263
-2-

Atlantic Coast area embracing fourteen states, which I will attend,
and a definite program will be made to coordinate their activities
to the end that in the future their operations may be more efficiently
directed at the past offenders and the leaders in the production of
counterfeit currency, in order to eliminate the larger sources of

counterfeit currency now in circulation. I will advise the Acting
Supervising Agents in these five districts that until further notice
I will attend a conference with them every two weeks at a central
point in the area to receive their personal reports regarding the
progress they are making in the program developed at our first meeting, and to make further plans with them to successfully carry out
that program.

4. I have called a conference of the five Acting Supervising

Agents covering the Great Lakes and Mississippi Valley area at
Chicago on November 30 and I will attend in order to set in motion
a program in the sixteen states embracing that area similar to the
program referred to above. I will require this group to meet at
least once a month to report their progress and will plan to be
present at such meetings.

5. I have arranged for the Acting Supervising Agents in the
South Atlantic and Gulf of Mexico area to meet at New Orleans on
November 30 in order to coordinate the activities of the seven
states embracing that area and to make plans to more efficiently

suppress counterfeiting in their respective districts. Monthly

conferences will also be held by the Acting Supervising Agents in
this area and I have advised them that I will plan to attend their
conferences or have a representative of this office present.
6. Seventy agents of this Service have been given a course
of instruction at the Bureau of Engraving And Printing at Washington,
and the Mint at Philadelphia, and by the Treasury Department hand-

writing expert. This instruction will continue until the entire

personnel of the Secret Service Division has been given advantage

of this training.

7. A circular is now being prepared which will be placed in
the hands of each agent, quoting the United States Criminal Code
and other acts and regulations relating to the various functions

of this Service, together with certain court decisions relating
to the laws we are called upon to enforce, and certain legal
forms which the agents are called upon to use from time to time.

8. A survey is being made of the field offices by Messrs.
Bernie and Dengler with a view of establishing a uniform office
system in each of the new district offices which will conform to

a system to be established in the headquarters office at Washington.

147

264
3

-

148
9. The titles Operative and Operative in Charge have been
abolished and the titles Agent and Agent in Charge have been established.
10. At Louisville, Kentucky, on November 14 Que R. Miller,
an associate of Count Victor Lustig and William Watts, was convicted on a charge of passing counterfeit $20 Federal Reserve
Notes and sentenced to ten years in the Federal Penitentiary.

11. The system of daily reports in use has been abolished
and a new system established which will furnish all the necessary
data and which will permit the agents to devote their activities
to more productive work than report-writing.
12. Arrangements have been made to establish posts of duty

of agents at Milwaukee and Toledo. Formerly the activities of this
Division at these points were covered by agents in travel status
from Chicago and Cleveland and it is expected that better results
will be obtained by having the agents stationed at these cities.

Acting Assistant Chief

f jw/w.

Fin
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE November 28, 1936.

TO

FROM

Secretary Morgenthau
Mr. Haas

Subject: December 15 Financing - Preliminary
I. Aggregate Volume of Financing
The aggregate volume of financing must provide for

(1) $358 millions of 27 percent notes maturing
December 15;

(2) $429 millions of 3 percent notes maturing
February 15;

(3) $400 millions of bills maturing December 15
and

(4) Replenishment of the Working Cash Balance to

the extent of $350 millions to $750 millions.

At the minimum, then, to take care of immediate needs, approxi-

mately $1,550 millions of new securities must be issued. If $750 millions of new money is raised instead of $350 millions (exclusive of funds
to retire maturing bills), the financing will aggregate about $1,950
millions.
II. New Cash Requirements

1. If we limit our new cash offerings to $350 millions:
(a) Our effective Working Balance will probably fall
to about $500 millions at the end of February, unless replenished by bill issues in January and February (In connection with the last financing, the Secretary emphasized
the necessity, under present conditions, of maintaining a
large Working Balance.);

(b) Our Working Balance will fall even lower if liti-

gation delays anticipated receipts from the Unjust Enrichment tax, and from Unemployment, Old-Age, and Railroad

Retirement taxes and trust funds, collections from which
were estimated at $338 millions to the end of February; and

265

266
Secretary Morgenthau - 11/28/36 - 2

(c) Our Balance will fall even lower if more than $500
millions of additional relief funds are made available. for

the balance of this fiscal year. (To keep within this limit,

non-recoverable "recovery and relief" expenditures, which
have averaged $289 millions per month during the past four
months, would have to be cut by 40 percent in the last half

of the fiscal year.)

2. If we raised $750 millions in new money, an adequate Cash
Balance would be assured against the contingency of delayed collections
resulting from litigation, and no further borrowing would presumably be
needed during the present fiscal year to provide up to $500 millions of

additional relief or other appropriations. As already indicated, however, it is possible to confine the December new cash offering to $350
millions and to raise an additional amount through bill issues in

January and February.

III. Suggested Note Issue

1. In view of the fact that $1,187 millions of the aggregate

financing involves the replacement of short-term obligations now outstanding, and in view of the size of the aggregate financing, it seems
best to repeat the practice, successfully employed in the past, of making a joint offering of notes and bonds. Both notes and bonds would be
offered for cash subscription in stated amounts, these amounts to be increased by the exchange subscriptions tendered by holders of the 27 and3 percent notes. The bill holders would be paid off in cash.

2. Five-year 11 percent notes: It appears reasonable to believe
that a 5-year 12 percent note will sell on a yield basis approximating
1.10 percent under existing market conditions. Such a yield basis would

mean a market price of 100-23/32.

The nearest comparable maturity, the 5-year 1-3/8 percent note, maturing six months earlier than the proposed

issue, is selling to yield 1.03 percent; the 5-year 13 percent note, maturing nine months prior to the proposed issue,

is selling to yield 1.02 percent; and the 5-year 13 percent
note, maturing one year earlier than the proposed issue, is
selling to yield 1.00 percent.

A premium of 23/32 of a point, which would rise to a premium
of 31/32 if the new issue sold on a 1.05 basis, as would be justified on a straight mechanical extrapolation, would appear to be

ample for a note issue. It is true that the maturing 21 percent

notes are at present commanding a premium in excess of 1-6/32

points ex-interest (the premium ex-interest on the 3 percent notes
is only 21/32 of a point); but there is no adequate reason to allow

fully for this premium, particularly in a note issue.

267
Secretary Morgenthau - 11/28/56 - 5

In the first place, the market premium on a maturing
issue is primarily determined by the market's speculative
expectations of the value of the preferential subscription

privilege that the Treasury will offer to holders of such obligations. If the Treasury always meets or betters the market's speculative expectations in this respect, the expected
premium could be worked up to two or three points as well as
one point.

In the second place, the premium offered on a note issue
should be smaller than that offered on a bond issue, because

the risk of price declines in short-term issues is very much
less than in long-term issues.

Finally, in making a joint note and bond offering, it
is better from the Treasury's standpoint to offer a higher
premium on the bonds than on the notes.

268
Secretary Morgenthau - 11/28/56 - 4

If the 5-year note issue were to carry a 1-3/8 percent coupon
rate, the premium would be no less than 1-11/32 points on a 1.10 percent basis, and 101-19/32 on a 1.05 percent basis.
IV. Callable Period in Long-term Bond Issue
As was brought out in a previous memorandum (dated November 17),

certain considerations, mainly of statutory origin, appear to make it

almost mandatory for the Treasury to confine future bond issues to
medium-term maturities, or alternatively, to longer-term bonds containing early and extended call periods.

It was noted that the operation of the statutory

Sinking Fund and the Old-Age Reserve Account, as at pres-

ent constituted, is estimated to provide funds for the
retirement of about $24 billions of the Federal debt
during the next 15 years, and $36 billions (more than the
total outstanding direct interest-bearing debt) in the
next 20 years. Further, the Unemployment Trust Fund,
other governmental trust funds, and the FDIC, as well as
other governmental corporations and credit agencies, may
also require large but indeterminate amounts of Government securities.

It was also noted that the use of budgetary surpluses for debt retirement, and the reduction of interest charges through refunding, in the event of lower
interest rates, are made extremely difficult unless a
large part of the outstanding debt contains extended
call periods.
Estimates based upon the existing statutes would indicate that no final maturity longer than 17 years is now

needed. On the other hand, it is not inconceivable that

Congress may revise downward the existing Sinking Fund and

Old-Age Reserve Account provisions; or that another depression or war may increase the public debt. If we confine

our bond issues to final maturities of 17 years or less,

the Treasury might be faced with an embarrassing concen-

tration of maturities in the event of such contingenies
being realized. By issuing longer-term bonds that are
callable after the first 10 or 12 years, the Treasury is
enabled to take full account of the existing statutory
requirements and to protect itself against the contingencies mentioned.

269
Secretary Morgenthau - 11/18/36 - 5

V. Suggested Alternative Bond Issues
The highest yield now obtainable on any outstanding direct or
guaranteed Federal obligation (excluding United States Savings Bonds)

is 2.59 percent. It is possible, therefore, by appropriate choice of

maturity, to break new ground in the reduction of interest rates on
post-war Government bonds.

1. 2-5/8 percent 10-18 year bond; This bond would mature
December 15, 1954, and would be callable after December 15. 1946.
Such a bond should sell on a yield basis not worse than 2.50 percent,
on which basis it would command a premium of 1-3/32 points. The
yields on comparable issues now outstanding are as follows:
Treasury 4's
Treasury 3-3/418
Treasury 3's
Treasury 2-3/418
HOLO

3's

1944-54
1946-56
1951-55
1951-54

1.85
2.04

1944-52

2.30

2.48
2.51

Because of the early call date of such a bond, it is easily conceivable that the market might price the issue on a substantially
better basis than outstanding issues of comparable final maturity; and
in this event the issue would command a premium well in excess of the
one here indicated as probable.

Professor Viner, in the conferences preceding the September financing, argued against the offering of medium-term bonds carrying
lower coupon rates and in favor of bonds of such long maturity as

would require a coupon rate of 2 percent or higher. His reason for
this position, he said, was that he feared the effects upon bank sole
vency of a rise in long-term interest rates if the banks continued to

purchase substantial amounts of Government bonds; and that banks could
be discouraged from further purchases by making the new issues of long
maturities.
In point of fact, however, banks are purchasing Government bonds
anyhow; and it is precisely the weakest banks as a class that choose

the longest-term issues - because of their higher yield. From the

standpoint of protecting the banking system - which appeared to be
Professor Viner's main criterion -, medium-term bonds carrying lower

interest rates would, because of their smaller vulnerability to price
declines, be far preferable to longer-term issues. Indeed, Professor
Viner specifically stated that he was not afraid of bank investments

in Government bonds maturing in 15 years or thereabouts on the ground

that these would shortly become relatively short-term obligations.

270
Secretary Morgenthau - 11/28/36 - 6

It is of interest to note that, judged by market behavior, there
has been a relatively greater demand for Treasury bonds of 10-15 years
and 15-20 years maturity than for bonds of longer maturity. Between
September 1st and November 27th the average yield of Treasury bonds of
5-10 years maturity declined by 14.7 percent; 10-15 years maturity, by
10.3 percent; 15-20 years maturity, by 7.2 percent; and 20-25 years
maturity, by 2.4 percent.

<K

2. 23 percent 10-25 year bond: This bond would mature
December 15, 1961, and would be callable after December 15, 1946.
Such a bond would have a maturity of 14 years longer than the longestterm Treasury bond now outstanding.

In the present market, such a bond could be reasonably expected

to sell on a yield basis of about 2.60 percent, on which basis it would
command a premium of 1-10/32 points. Even if it sold on a yield basis

of 2.65 percent, the premium would be 28/32 of a point; and the issue
would be protected even on a 2.70 percent yield basis, where it would
command a premium of 14/32 of a point. Because of the early call

period, on the other hand, it is altogether possible that the market
might #irrationally" price the issue on a basis as low as 2.55 percent

or even lower. On a 2.55 percent basis, the premium would be 1-24/32
points. The yields of the nearest comparable outstanding issues are:
Treasury 3-3/4's
Treasury 2-3/4's
Treasury 2-7/8's

1946-56
1956-59
1955-60

2.04
2.59
2.57

3-1/4's

1944-64

2.37

FFMC

As was indicated in the memorandum of November 17, the cost to the

Treasury of obtaining relatively long call periods has never been great
and is apparently negligible at the present time.

Fin 271
November 28, 1936.

MEMORANDUM

TO: The Secretary
FROM: Mr. Gaston

In carrying on its financing and refinancing in the last

three years the Treasury Department has given a great deal of

attention to the proper spacing of maturities. It has been

important not to concentrate too great an amount of maturities
in any one year or at any one payment date, but it has been
even more important to provide for sufficient maturities so
that the debt can be retired rapidly and in an orderly way
without unne cessary expense to the Government.

There have been occasions in the past when the Government has been embarrassed by not having maturities available

for which surplus funds could be used with the result that

substantial premiums were paid to buy in Government obligations.
In the years 1889, 1890 and 1891, for instance, the Treasury

had to pay out $48 millions in promiums to rotiro $270 millions
face amount of bonds. The average price paid then was 118.

We are very anxious to avoid any difficulties of thi s kind in
the future.
We are just about to enter on a period of reduction of
the public debt and, in view of the great strength of the tax

structure, it is our expectation that this debt retirement
may be quite rapid over the next ten or fifteen years. But

besides the retirement of the public debt from surplus revenues
there are other consi derations of great importance. Statutory

sinking fund operation will require the retirement of 10g billions
of the debt during the next fifteen years and 41 billions during
the succeeding five years. These retirements will be out of
the surplus of revenues.

But there are also various reserve accounts which will require large investments in Government securities and in order
to have securities available for this purpose it will be necessary
to retire equivalent amounts of outstanding debt. The old age

272

-

reserve account, it is estimated, will alone absorb 14 billions
of Government securities in the next fifteen years and 7 billions additional during the remaining five years.
This situation seems to require that the remainder of the
deficit financing be either in the form of medium term securities or of longer term bonds with an early call date and an
extended call period.
It is expected that the old age reserve account and sinking fund requirements together will begin to exceed the amount
of public debt available for retirement in 1953, and there are
the unemployment trust fund and other governmental trust funds,
as well as the F.D.I.C. requirements, and it may also be expected
that surplus revenues will materially exceed the amount necessary

for the statutory sinking fund retirements.

Consequently it seems the part of wisdom that we should
issue no now securities having a more advanced call date than
ten years hence.

Even if changes in the law should be made, which would

reduce the amounts available for retiring public debt, there
would still be strong reasons for an extended call period in
any new securities. Long call periods increase the opportunit

for refundings and consequent interest saving to the Government.

The refunding of the fully tax exempt 3 per cent First Liberty
Bonds and the 4/4 per cent First Liberties by this administration
and the refunding of the second Liberties by Secretary Mellon,
were all made possible by the fact that Secretary McAdoo had

incorporated fifteen year call periods in these issues. In oon-

trast are the Treasury 42'8 of 1947-52, issued under Secretary
Mellon on October 16, 1922. Even if it had been necessary to
increase the coupon to 4-3/8 on this issue, so as to make it
callable in 1937 instead of 1947, these bonds would have been
eligible for refunding next October at a coupon rate of 2-3/4
per cent or lower, assuming continuance of the present interest
rates. Under such conditions the interest saving over the term
of the bonds would have approximated 100 million dollars on this
one issue.

While the existing interest rates on Government obligations
may be considered low by past standards, there is no certainty
not go lower and the Treasury should not restrict
its freedom to take advantage of a possible further decline.
The cost to the Treasury of obtaining long optional call periods
has never been great and present market conditions indicate that
it would be insignificant now. The Federal Farm Mortgage Corporation has outstanding 34 per cent bonds maturing in 1964, but

273

-3.
callable in 1944, and these bonds are selling to yield only

2.39 per cent to the earliest call date. Treasury 3-3/4's
of 1946-56, with a call period of ten years, are selling to

yield 2.11, while Treasury 3-1/8ths of 1946-49, a three year
call period, are selling to yield 2.12 and the 3's of 1946-48,

with only a two year call period, are selling to yield 2.09.

274
OFFICIAL COMMUNICATION TO

SECRETARY OF STATE
WASHINGTON a.c.

DEPARTMENT OF STATE

Alk

WASHINGTON

November 28, 1936.

The Acting Secretary of State presents his
compliments to the Honorable the Secretary of the
Treasury, and encloses five copies of telegram No.
1152 of November 27, 1936, from the American Embassy,

Paris, regarding the indebtedness of France to the
United States Government.

Enclosure:

As stated.

RV

275

RB

GRAY

Paris

Dated November 27, 1936

Rec'd 3:02 p. m.

Secretary of State
Washington.

1152, November 27, 3 p. m.
On November 24 RENE Richard (Radical Socialist

Deputy for the Deux-Sevres) introduced a resolution

inviting the government to resume negotiations with
the United States with a view to the settlement FrancoAmerican debt. Subsequently Richard declared to

press that he felt it was indispensable to open
negotiations for the settlement of the !!Ellon-Berenger
accord, suspended since 1932. HE considered it was

high time to make a gesture to the United States to
Efface the misunderstanding on the debt question which
Exists between the French and American democracies.

With this End in view it was his intention to ask the
Chamber to pronounce itself at ONCE. The reasons for

this move are probably the feeling that if a debt
settlement can be made, the American market will then
be open for large borrowings by France, and also the

fear that Italy may be stealing a march by initiating
debt settlement negotiations with the United States.
The

276

RB

-2-/1152 November 27, 3 p. m. from
Paris

The OEUVRE, recalling that debts have hardly been
smoken of since DECEMBER 1932 when the Herriot Govern-

ment was overthrown by a coclition, reminds its
readers that Roosevelt has since taken Hoover's place

and that the President is credited with the intention
of shortly mcking a sort of declaration of PEACE to
the world inviting the nations to COME to an amicable

settlement of their differences.
"RESUME payments to America? asks the OEUVRE,

let us say simply that during the past four years
certain new facts have arisen which are of a nature to
change the atmosphere."

ThE introduction of the Richard bill has been
noted briefly in C. number of papers, one paper

indicating that it is the government's intention to
take the matter up with the United States prior to
December 15.
BULLITT

WSB

277

GRAY

FS

Paris
Dated November 28,1936

Rec'd 11:01 a. m.

Secretary of State,
Washington.

1161, November 28, 2 p. M.
FROM COCHRAN.

Unofficial Exchange trading at Paris very quiet
this forenoon. Belga some what offered from Brussels
on report of increase in unemployment as of November 21

and on prospect of imposition of 75% tax on profits
from gold dealings at time of Belgian devaluation.
Florin outstandingly strong. Paris-American banks
remark that Netherlands should be drawing more gold

from London than is now evident. As it is, gold
continues to leave London for NEW York at a price which
it SEEMS to my contacts here Either the Bank of the
NEthErlands or the Bank of England could afford to pay
for increasing their gold stocks. Guaranty has about
$15,000,000 of gold on water from India which will
proceed to NEW York unless above-mentioned condition
change.

French Chamber has passed Government's fiscal
reform

278

F3 2-No. 1161, November 28, 2 p. m. from Paris
reform bill. French labor situation appears somewhat

improved today.
KLP

BULLITT

279

COMMUNICATIONS TO

OF STATE
D.C.

DEPARTMENT OF STATE
WASHINGTON

In reply refer to
EA851. 5151/1158

November 30. . 1936

The Acting Secretary of State presents his compliments to the Honorable the Secretary of the Treasury
and encloses copies of notes addressed to the Minister

of Switzerland and the Charge d'Affaires ad interim of
the Netherlands in reply to their notes of November 21,
1936, regarding the policy of their Governments with

respect to the general principles stated in the Tripartite Declaration of the Governments of France, Great
Britain and the United States of September 25, 1936.

Enclosures:

To Minister of

Switzerland.
To Charge d'Affaires

ad interim of the
Netherlands.

Run

280

November 30, 1936

Mr. Bewley came in at 11:30 this morning to see the
Secretary. Mr. Taylor and Mr. Lochhead were also present.
The purpose of the call was to give the Secretary an answer
to his question of Saturday as to whether or not he should
make some reference at his press conference today to the
recent transaction in which the Argentine Government transferred $45,000,000 from London to New York for the purpose

of providing funds to pay off a bond issue, of that amount,
which they were calling for June 1937, although it did not
mature until June 1959. The Secretary's thought in announcing this was to draw attention to the use of the
stabilization fund facilities which permitted this transaction to be carried out without any disturbance to the
exchange market.

Stenographic transcript of the meeting follows:
Bewley: Well, I telegraphed what you asked me on

Saturday and I thought I had better bring down the reply.
They asked me to tell you that they would very much like
to meet your wishes, but they do think it undesirable
for either Government to refer to specific transactions
which are, in effect, private ones concerning banker and
customer, and they add that they would be grateful if you
could possibly see your way to keep your statement on
more general lines about the necessity of having an
equalization fund so as to prevent the money markets
being disturbed on these occasions, and they would be

delighted if you would choose to say that technical
arrangements between parties concerned are running very
smoothly, but without referring to specific transactions.
HM,Jr: Since phoning you, I have thought it over
and I don't think I am going to say anything, because
I am going to talk about my own financing this afternoon

and I would sort of have to drag this thing in by the

hair. Also, after thinking it over, it is a little too

fresh; a little bit too recent, so I think, as we say,
"we will skip it." I thought it was the best demonstration that I had seen and, of course, it isn't private in
the sense it is a Government affair.

Bewley: It's a Government affair, I know, but I don't
know -- the British are very stiff about the business of

281
-2-

banker and client.

HM,Jr: It's perfectly all right. As a matter of

fact,
I was going to phone you that I had given up the
idea.
Bewley: Then it obviously doesn't matter.

HM,Jr: No, it does not. I don't think I am going
to mention it at all. In a month or so, when I testify
on the Hill, they will say, What kind of things -- why

do you need it? Then in January I could say, You know,

six weeks ago, the question came up of the Argentine
Government paying off $45,000,000 and the transfer of
funds from London to New York, and due to our fund being
there we were able to facilitate the thing smoothly
which nobody could object to.

Bewley: Right..
HM,Jr: Nobody.

Bewley: I suppose not by that time.
HM,Jr: By that time I may have forgotten about it.
(General laughter.)
see

Bewley: If the Argentines don't object, I don't

HM,Jr: True. True. But I am not going to say

anything tonight.

Bewley: I guess that's all there is.
HM,Jr: But I appreciate your coming in, and the

answer.

Bewley: And I am glad it 18 not awkward for you,
because I was afraid you might be
HM,Jr: No. Now, when there is any doubt where any
partners in this thing are concerned, my attitude would
be not to do anything. If anybody has any doubt as to
the ethics involved, then I would much rather do nothing.

282

-3-

Bewley: Yes.
HM,Jr: What else do you know?

Bewley: Nothing.

HM,Jr: Did you see the newspaper article, this morning,
this thing that came out of Holland, If Holland Cautious on
Currency Pact."

Bewley: Yes, I saw that headline and wondered whether

it was true.

HM,Jr: Much as to say they are going to think it over.
I don't know whether you know it, but the thing definitely
we asked Cochran to tell them -- to point out to the Dutch
that when they agreed to this thing it meant that they could
not do any more sharp devaluation and we pointed that out
very carefully because one of you men brought it to my attention that they had not committed themselves as to further
devaluation and 1f they came in, they were committed and
Cochran very carefully pointed that out. You may want to
pass that on.

Bewley: Yes; I will pass it on.
HM,Jr: We carefully pointed that out -- once you are
in, no competitive devaluation.
Mr. Loc hhead: They subscribed to the September 25th

agreement.

Bewley: Yes.

HM,Jr: That's about all.
Bewley: I haven't got you the text of our actual statement yet, but I am hoping it will turn up.
HM,Jr: You have ours?

Bewley: Yes, we have got yours. I have asked for

ours, but I don't think there is any great hurry. It may
take a few days to come.

HM,Jr: I don't know of anything else. Thank you for
coming down.

283

NEW YORK TIMES

Nov. 30, 1936

HOLLAND CAUTIOUS
ON CURRENCY PACT
Nation Joins Tripartite Bloc
in Principle Pending
Definite Talks.
FISCAL FREEDOM SOUGHT

concluded, Holland wholenearcesly
will cooperate, because such action

will render the Dutch equalization
control easier, enabling it to spread
control over various currencies and
counter exchange speculation while
probably making it unnecessary for
Holland to bind herself to a fixed
gold price.

Belief is increasing that this will

Final Guilder Rate and Ultimate Ratio of Depreciation
Are Motivating Factors.

greatly assist de facto stabilization.
and perhaps promote a new kind of

gold standard for which, however,
an indispensable condition is the

breaking down of international
trade barriers.

By PAUL CATZ
Wireless to THE NEW YORK TIMES

AMSTERDAM, Nov. 27.-Holland's joining of the tripartite currency agreement is contrary to the
action of Belgium and Switzerland
so far that it means only adherence in principle to the declarations
of Sept. 25 and Oct. 13. Until tech-

nical details in cooperation with

Washington, London and Paris are

worked out, Dutch adherence is

only of theoretical value.
Although the Dutch authorities.
for several reasons, are cautious of
binding themselves to any International monetary pact, It neverthe-

less is certain that an early, full

technical agreement will be reached.

Holland's cautiousness is due prin-

cipally to a desire to retain the
fullest freedom regarding the
guilder rate and ultimate ratio of
depreciation. Once an agreement is

Holland's adherence, in principle,

already has brought about a repatriation of capital and pressure
on spot and forward sterling, foreing continual Dutch control buying
of sterling. It is expected here that
International gold dealings gradually will become the monopoly of
the central banks and equalization
funds, following last week's lead by

the United States, and this would
contribute greatly to the checking
of unsound speculation and lay the
basis for a modus vivendi of stabilIzation.

Europe, as a whole, has shown
only restricted recovery in 1936, the

political situation being a great
handicap. while gold-bloc currency

devoluation, only to a small extent
coupled with the demolition of trade
harriers, and Germany's increasing

autarchy constitutes a continued
check to the recovery trend.

284

Jov. 20, 1996

Mrs. E. s. Priormen
A. Leehhead

Please trencuit the following by cable to Professor Back, Shoughed,
Chima:

"Consider 11 desirable for you to return to the United
States for a stay of about one month. You are accordingly
authorised to make arrangements to preceed to the United States

at year earliest convenience. Morgenthen."

285
November 30, 1936.
4:32 p.m.
H.M.Jr:

Hello.

Operator:

Mr. Cochran

H.M.Jr:

Yes.

0:

Go ahead.

H.M.Jr:

Hello

0.0:

Go ahead please.

C:

Hello

H.M.Jr:

Hello Cochran.

C:

Hello Mr. Morgenthau.

H.M.Jr:

How are you?

C:

All right, sir. How are you?

H.M.Jr:

Very well.

C:

Mr. Morgenthau, it was - it's been suggested that

H.M.Jr:

Yes.

C:

So I just wanted to phone you from home tonight

H.M.Jr:

Yes.

C:

you might want to take up another problem over
here the same way you handled the currency question.

.....to tip you off confidentially that this

H.M.Jr:

matter has come up in a way that may make it
embarrassing or hard to handle later.
For us to handle?

C:

It might make it difficult to handle later.

H.M.Jr:

I see.

C:

This question has been discussed on a few occasions

H.M.Jr:

Yes.

when our friend Bill was with officials

286

-2and this morning he was called over to the

C:

Ministry of Foreign Affairs
H.M.Jr:

Yes.

C:

and they asked him to learn whether you
people at Washington would welcome an approach by
these people here to settlement of the war debt
through a - on account of what they call the
"commercial side."

H.M.Jr:

They do - on what?

C:

What they call the commercial side - that's the
foreign stocks

H.M.Jr:

I - I don't quite get that.
that's for sale over here

C:

H.M.Jr:

Wait a minute - say - say it again. I don't quite
get it.

C:

They call it the commercial side of the war debt.

H.M.Jr:
C:

Now what is that?
That was

by 400 million dollars worth of
surplus stocks which our Army left here and sold to
them.

H.M.Jr:

Ah-ha.

C:

You see the whole debt amounted to over four billion
dollars

H.M.Jr:

Yes.

as funded, while this item is only 400 million

C:

dollars.
H.M.Jr:

Yes.

C:

And what they want to know is whether if they made a
nice suggestion now

H.M.Jr:

If they what?

C:

something on that
commercial side

H.M.Jr:

Yes

stock, on that

287

-3would we welcome it.

C:

H.M.Jr:

Ah-ha.

C:

See?

H.M.Jr:

Well what I imagine will happen is this

C:

Tomorrow they'11 wire him - tomorrow or next

perhaps
- has wired in to-day asking for
instructions.

H.M.Jr:

They - they wired for instructions?

C:

Yes.

H.M.Jr:

To-day?

C:

Yes.

H.M.Jr:

Well that undoubtedly will come to me.

C:

H.M.Jr:

C:

Of course you
That - that will
can't tell them that I phoned you but I thought you
might inquire of the Secret Service - but that's it.

Now just a moment. It just so happens that Mr. Bell
is in my office and he knows more about this war
debt than anybody else, see? Just let me speak to
him a minute. Just stand by. (Pause for side conversation). Just stay on the wire please.

Yes, all right.
(Conversation aside with Bell - long pause)

H.M.Jr:

Hello

C:

Hello

H.M.Jr:

Bell has - he understands what this is, see?

C:

Yes.

H.M.Jr:

And I - the American papers carried that Bullitt
saw these people.

288

-4C:

Well
the trouble,
a lotthat's
of publicity
to it you see. They're getting

H.M.Jr:

Yes.

C:

...and I'm afraid that they may let it out that

they're approaching us on this narrow basis.
H.M.Jr:
C:

H.M.Jr:
C:

Yes.

And
total where
debt this constitutes only one tenth of the
Yes.

The - the next approach to war debts
you could never get it broadened again for the
whole debt probably.

H.M.Jr:

I g e t it.

C:

See?

H.M.Jr:

Well I appreciate your calling me and I'll - I think

C:

Fine. Well I just wanted to let you know that it

I can - I'll - I'll look into it.

H.M.Jr:

came up in that way.
Well -

C:

But I - while it isn't -

H.M.Jr:

They opened -

C:

- any desire on their part to reopen it but

H.M.Jr:

Well - I mean did the French open it or did we open

C:

They - they took this step; I don't know just where where the original one started.

H.M.Jr:

Yes.

C:

H.M.Jr:

it up?

But anyway they made the important approach to-day.
I see.

289

-5C:

And if we could just encourage them to - to in
their notes say they want to open negotiations
later,
but --it'11 protect them from anything
like this,

H.M.Jr:

I see.

C:

- putting it on that narrow basis.

H.M.Jr:

Ah-ha.

C:

See?

H.M.Jr:

O.K.

C:

All right, fine; that's all. Things are quiet
here, better to-day than they have been.

H.M.Jr:

Good. Well, things here - we've got a big financing
on next Monday.

C:

I notice you have that on schedule.

H.M.Jr:

It's about a billion and a half.

C:

Yes - yes.

H.M.Jr:

And I don't look for any trouble with it.
Oh, you ought to get that all right.
All right.

C:

Now, don't mention me of course in this.

H.M.Jr:

What's that?

H.M.Jr:
C:

C:

H.M.Jr:

I - I say you'd better not mention that I called
you on it.
on no, no, no - I'll just say that it was on the in fact I just got through a Press Conference and
they asked me about it. I'll call up Judge Moore
and say I was asked at my Press Conference, "What
is there to it?"

C:

Yes, yes.

H.M.Jr:

See?

290

-6C:

Well it - it ought to be over there by this time.

H.M.Jr:

O.K.

C:

Fine.

H.M.Jr:

Thank you.

C:

All right, sir.

H.M.Jr:

Goodbye.

C:

Goodbye.

291

PARTIAL PARAPHRASE OF TELEGRAM RECEIVED

11

FROM: American Embassy, Paris, France
DATE: November 30, 1936, 5 p.m.
NO.:

1167

FROM COCHRAN.

Paris exchange market very quiet. Bank of France

sold very little sterling at 105.15. Dollars offered
fairly freely by Lazard at 21.4525. Florin again the
market's strongest currency. French rentes rose 90

centimes to 1.55 francs of relief over failure of general strike to develop over past week end. Shares
fairly well bid. Forward franc still offered with labor
and budgetary difficulties in prospect.
I had a call this morning from de Castellane, the
Paris representative of Bankers Trust. He is of the
opinion that if an early war can be averted and if a
few shifts could be made in the present government, a

real pick-up should be experienced by France. So long
as the present line-up in the Government is rigidly main-

tained, he believes, sufficient confidence and capital
will not return to France. Daladier or Chautemps,
he thinks, should head the Government with Reynaud in

the Finance Ministry and Blum perhaps in Foreign Affairs.
END SECTION ONE.

BULLITT.
EA:LWW

292

My
PARTIAL PARAPHRASE OF SECTION TWO, TELEGRAM NO. 1167

of November 30, 1936, from the American Embassy, Paris

It is reported by an officer of the Urquijo Bank
of Madrid, who just arrived in Paris, that the principal
banking district, including his own, was badly damaged
by shells and bombs. He said a long drawn-out siege
seems likely, and expects Madrid to suffer increasingly
heavy destruction.

Resolution adopted at Praha by certain bank governors from Czechoslovakia, Yugoslavia and Roumania

stressed the need for definitive monetary stabilization,
urged solution of the problem of international indebtedness and recommended an international examination of
general methods of payment.
AGENCE ECONOMIQUE reports from Warsaw that in his

budget speech tomorrow Polish Minister of Finance will
voice government's strong opposition to devaluation of
sloty.
END MESSAGE.

BULLITT.

EA:LWW

293

November 30, 1936
5:40 P.M.
H.M.Jr:
R.Walton

How are you?

Moore:

Living.

H.M.Jr:

Well, I'm living. On this request of yours to

give you a memorandum on - on silver - Key
Pittman, see? Of course, what Key wants to know

is what's going to happen about silver legislation
and the price of silver.

M:

Yes

H.M.Jr:

And all during the campaign the President and I

M:

Yes

H.M.Jr:

And I frankly can't tell you what we're going to

steered clear from it.

do.

M:

Suppose I tell Key Pittman this; I'll just hear him
talk and I'll tell him that any of the questions

that may - he may propound he ought to take up with
you or the President.
M:

That's all right.
I think so.

H.M.Jr:

I don't mind your shoving it over here a bit.

M:

Yes.

H.M.Jr:

But I didn't want to not answer your letter -

M:

Yes

H.M.Jr:

- but quite frankly it all gets down to how much
are we going to pay for domestic silver and I swear
I don't know.

H.M.Jr:

M:

H.M.Jr:
M:

Well, that's what Key wants to know: how much money

you're going to pay him Sure; well I don't know.
- for Nevada silver.

294

-2H.M.Jr:

I don't know.

M:

By the way, the newspapers, some of them have been
saying that the President may come back; he may

think it's necessary for him to come back here
before the end of his vacation. I sent him a

telegram today. McIntyre phoned me from Florida -

H.M.Jr:

Yes

M:

- and he's in constant touch with the White House
and he thought it'd be well to send the President
a telegram saying there are no immediate problems
in the State Department, and so far as I can hear
there were no problems anywhere else that would
require him to be here before the middle of the

month.

H.M.Jr:

Ah-ha. Well -

M:

I hate - I hate to see him be denied the opportunity
to get some real rest.

H.M.Jr:

Yes

M:

Don't you think that he -

H.M.Jr:

Oh yes. I - I got a call in for him. He said he
was going to talk to me a little later, and I'm -

Ithe
want
to talk to him about our December financing President.

M:

Well, you - you don't think it's necessary for him
to come back here at once?

H.M.Jr:

I never saw the place so quiet.

M:

What's that?

H.M.Jr:
M:

I say it's - everything seems very quiet.
I think so.

H.M.Jr:

Yes.

M:

And I'm going - I hope - I hope you'll tell him when
you do talk to him that that's the general feeling

-3here.
H.M.Jr:

Righto.

M:

All right.

H.M.Jr:

Thank you.

296

PARTIAL PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Consulate, Geneva, Switzerland

DATE:479
November 24, 1936, 4 p.m. Rec'd Nov. 27, 9:10 a.m.
NO.:

Loveday tells me while the agenda for the financial
committee meeting on December 5 only includes the customary

technical financial questions concerning specific states,
that the three power currency declarations will come up in
the general discussion.
I am told by Loveday, who just returned from a visit
to London and Paris, that in respect of the foregoing as
related to commercial policy, he found an extremely negative
attitude on the part of the British, their general position being that the states at present imposing restrictions
must make the first move. Neither does he consider that
Paris can make the first move, due to the difficulty Blum
is encountering in the commercial policy already initiated
by him and due to his Government's general weakness. The

Eastern European States are not inclined to take action on
currency matters because of the rumored (repeat rumored)
weakness of the French currency.

Loveday naturally cannot forecast the line that may
be followed in the committee discussions, but he definitely
does not envisage any constructive results, or in partic-

ular, any initiative in which action would be involved.
GILBERT.
EA:LWW

297

w.

157

Paris, Revenues m. 1980.

Subject:

systems.com

JUNE as.

The Honorable

The Secretary of State,
Washington, D. c.

sir:
Reference is made to the Jabassy's despatch

No. 41 of October 21. 1956, concerning the text of
the Supplementary announcement. as published in
LX THMPS of October 16. 1956, by Mr. Morgenthen

netting forth the conditions under which the American
Treasury was prepared to buy and sell gold.
I now have the honor to forward horowish, for
the information and records of the Department, the

text of i the French press

of November 24. 1936, relating to the adhesion to the
monetary assingment of September as. 1986, of Holland,

switcorient and Belgim This commique embodies

298

the French translation or the commuique of the

American and British Treasuries in this respect,
and concludes with the following statement:
" AS far as 10 is concerned, the

French Government has the intention of
taking all necessary measures to the end
that the technical cooperation instituted
between the French, American and British
Exchange Equalization Funds shall be
extended to the banks of issue or

Stabilisation Funds of Belgium, Moland
and Switzerland. The monotary authorities
of these countries will honceforth benefit
from the same facilities as concerns the
delivery of gold against currencies, and
these monetary authorities will assure
similar treatment to the French Stabilization
Fund."

There is also enclosed, as clipped from the
London FINANCIAL TIMES of November 26, 1936, the

text of the declaration of the Government of the
Netherlands, the report of the correspondent of this
paper at Basel relating to the announcement of the
Swiss Federal Council, and the statement issued by
the British Government welcoming the steps taken by
Holland and Switzerland.

Respectfully yours,
For the imbassador:

Edwin 0. Wilson
counseler of Babasay

In quintuplicate.
Enclosures:

No.1 - 5 copies ofofFrench
commanique
November
26, 1980.
declaration from
FIRANOIAL YTMSS of

November 24, 1986.

157

AGENCE

ECONOMIQUE

ET

APRES L'ADHESION DE LA HOLLANDE
ET DE LA SUISSE A L'ACCORD MONETAIRE

Le ministère des Finances com-

munique
Dea le lendemain de la déclaration francoanglo-américaine du 25 septembre dernier, le gon-

vernement belge a annoncé qu'il y donnait son

adhésion. Le gouvernement hollandais et le gowernement suisse viewnent maintenant de faire connaltre leur décition de s'm rallier Également.
Le gouvernement français accueille avec faveur
les déclarations par lesquelles les gouvernements de
Relgique, de Suisse et de Hollande adhèrent ainsi
our principes exposés dans la déclaration tripartite
du 25 septembre.
A la suite de ces adhésions, des dispositions on:
été prises pour étendre à ces trois pays les arrangenents assurant les relations de change entre les
places de Paris, Londres et New-York, eui out fait

Pobjet d'un communique, en date du 13 octobre,
et pour établir la collaboration des fonds d'égalisation ou de stabilisation des changes.
Ces dispositions font l'objet des deur communiques suivants de la Trésorerie américaine et de la
Trésorerie britannique.

Communiqué de la trésorerie americaine

Comme suite aux avis donnés par lui les
81 janvier et 1er février 1984, prévoyant les achats
d'or par la trésorerie, et le 81 janvier 1984, concernant la vente de l'or pour l'exportation, le seeré-

taire du Trésor déclare que dorénavant, et tant
que, après préavis de vingt-quatre heures, cette
déclaration d'intention ne sera pas annulée ou

modifiee. les Etats-Unis, en dehors des ventes d'or
effectuées an bénéfice des fonds d'égalisation ou
de stabilisation de pays étrangers, vendront aussi

de I'te aux fins d'exportation immédiate (cu de
consignation d'er earmarked aux trésoreries (ou

aux agents financiers queleonques intervenant pour
leur compte ou dont les interventions en cette matière sont garanties par telles) des pays dont les
tréscreries (ou les agents financiers intervenant
ou garantis de la sorte) sont de la même manière
disposées à vendre de l'or aux Etats-Unis, pourvu

Communiqué de la trésores

que telles offres d'or scient faites à des taux et

P

dans des conditions tels que le secrétaire du Trésor
puisse les estimer les plus avantageuses du point
de vue de l'intérêt public. Le secrétaire du Trésor

ait connaltre en outre d'ores et déjà la liste des
pays étrangers qui remplissent les conditions ci-

sément adhere.

Le Gouvernement de Sa M
que la trésorerie des Etats-Uni
étendu à la Belgique, à la Holl
les arrangements établis en vue
de la_politique des changes la
que qui avait été visée dans la
octobre dernier. Le gouvernen
cueille cette nouvelle décision
s'harmonise avec les arrangeme

Bessus indiouées et cette liste sera complétée chaour. Toutes les ventes d'or de d'espect seront fai-

les par l'intermédiaire de la Banque de Réserve
Rédérale de New-York. agissant comme agent fiancier des Etats-Unis, aux conditions suivantes
ue le secreaure du Trésor estime les plus avantaeuses viu point de vue de Pinterêt public

L'or tera vendu au prix de 85 dollars par

les Etats-Unis d'Amérique
Royaume-Uni, d'autre part, la

e

de ces arrangements s'harmon

.

nce de fin, plus 1/4 % pour les frais, et les ventes
t. consignations seront soumises aux règles édiccs en application du Gold Reserve Act de 1934.
A la suite de ce communique, le secrétaire du
résor americain . fait connaltre oue dès mainteant il sjoutait sur la liste sus visee la Belgique, la
ollande et la Suisse.

Le gouvernement de Sa
avec plaisir les déclarations que
de Hollande et de Suisse ont
d'exprimer leur adhésion aux pr
ration tripartite du 25 septembre
même mois le gouvernement bels

les lignes générales de la cooper

tant entre les autorités moneta

celles de la Belgique, de la
Suisse. .

Les meaures du Gouverne
En ce qui ice-concerne. le go
a l'intention d- prendre les mest
que la cooperation technique ins
de stabilisation des changes h
d'égalisation américain et brita
aux instituta d'émission ou fond
Belgique, de Hollande et de S
monetaires de cos paya bénét
des mêmes facilités CN ce qui co
de Por contre devises, et elles

de stabilisation français an "

157 of
Enclosure No. a to Despates No.
November as, 1986.
from the Embassy at Paris.
300
FINANCIAL

vember 84, 1.0.
'His Mejesty's Government has

IX-POWER MONETARY
ACCORD.

noted with pleasure the declarations of
the Governments of the Netherlands and
Switzerland. which were issued yester
day. expressing their adherence to the

principles stated in the tripartite declaration of 25th September (when the

French frane was devalued). The

Belgian Government declared their
adherence to those principles on 26th
September

OLLAND AND SWITZERLAND
NOW ANNOUNCE ADHERENCE.
BRITISH TREASURY EXPRESSES ITS
PLEASURE AT DECLARATIONS.

S. EXTENDING ARRANGEMENTS FOR
THEIR CO-OPERATION.
Holland and Switzerland yesterday announced their adherence
the three-power monetary agreement of 25th September, aimed to
tabilise currencies.

Switzerland has decided to join the pact and adds that it will be

first to stabilise its currency if Britain, the United States and
france, signatories of the accord, do likewise. Belgium has already

His Majesty's Government are informed that the United States Treasury
are extending to Belgium, the Nether
lands and Switzerland the arrangements
for technical co-operation in exchange
matters which were referred to in the
statement published on 13th October.
His Majesty's Government welcome
this step, which is in harmony with the
arrangements already made between the

United States and this country and

between the United States and France

" The extension of this arrangement
also in harmony with the general

sis of mutual co-operation which
rists between the British monetary
athorities and the Belgian, Nether
nds and Swiss monetary authorities.

DUTCH DECISION.
Not Definite.
FROM OUR OWN CORRESPONDENT.

AMSTERDAM, 23rd Nov.

According to information gathered in
authoritative quarters, the Dutch Govern
ment's declaration on the monetary agree

ment does not mean an actual joining of
the tripartite accord. It means nly what

had been forecast in THE FINANCIAL TIMES

nnounced its adherence.

of 5th November that the Dutch authorities

UTCH STATEMENT OF POLICY.

ment, though it is highly probable that

The Dutch Government last night ordered the following declaraon to be made to the Governments in London, Washington and

Paris:-

The Dutch Government has taken due notice of the declaration

y which the Governments of France, Great Britain and the United
States have indicated their intentions in regard to their monetary
policy and agrees with the general principles laid down in their
ripartite declaration of 25th September, 1936."
It was officially added that the necessary preparations are being
nade in order to arrive at practical co-operation with the monetary
uthorities in those three countries.
These steps by Holland and Switzerland were welcomed by the

ritish Government in a stateent issued through the Treasury

is morning. This was as

llows

are investigating means to join the agrèe

shortly it will join.

It is emphasised that the guilder remains
completely free and that DO commitments
whatever in this respect have been under-

taken Also, there is no questi of stabili

sation of the guilder at the present level

The Dutch authorities, by issuing the

cautious declaration, do not desire to join
the tripartite agreement unconditionally, it
is believed They apparently want to keep

back-door open. It is. moreover, con-

dered as remarkable that the Dutch

Government does not declare its approval
in principle of the tripartite gold agreement

of 13th October

SWISS DECISION.
Natura. Step.
FROM OUR OWN CORRESPONDENT.

BASLE, 23rd Nov.

The Swiss Federal Council announced to

day that it had informed the Governments
of France. Great Britain and the U.S. that
it approved and was willing to co-operate in

the tripartite monetary pact of 25th
September It added that it will be the first
to Tabilise if these three countries do like

wise.

When Switzerland devalued the franc, the
principal reason given for this sudden step
was the monetary agreement reached between

France. Great Britain and the U.S to create
. general scheme of realignment of the principal currencies.

It was only natural for Switzerland, there-

fore. to join this agreement It was alreads
reported in THE FINANCIAL TIMES of 4th
November last that the Swiss National Bank

had been authorised to participate in the
agreement of 19th October regardin, free

exchange of gold between the countries

concerned

301

m.

157

notes. Invoice so, 1000.

Subject:

The Honorable

The secretary of State.
Washington, D. O.

sir:
Reference is made to the Zabasay's despatch

No. 41 of October 21, 1936, concerning the text of
the supplementary announcement. as published in
LE TREES'S of October 14, 1956. by Mr. Morgenthen

compling forth the conditions under which the American

Treasury was prepared to I end well gold.
I now have the heart to forward howewith, for
the information and records of the Department, the

test of the - published in the French press
of november 20. 1980, reisting to the admision to the

- - of september go. 1636, of juilant.
and Belgium. This - embodies
the

302

the French translation of the communicus of the

American and British Treasuries in this respect,
and concludes with the following statement:

- AS far as it is conserned, the

French Government has the intention of
taking all necessary measures to the end
that the technical cooperation instituted
between the French, American and British
Exchange Equalization Funds shall be
extended to the banks of issue or

Stabilization Funds of Belgium, Molant
and Switzerland. The monetary authorities
of these countries will henceforth benefit
from the same facilities as concerns the
delivery of gold against currencies, and
these monetary authorities will assure
similar treatment to the French stabilization
Fund."

There is also enclosed, as elipped from the
London FINANCIAL TIMES of November 24. 1936, the

text of the declaration of the Government of the
Netherlands, the report of the correspondent of this
paper at Basel relating to the announcement of the
Swiss Federal Council, and the statement issued by
the British Government welcoming the steps taken by
Holland and Switzerland.

Respectfully yours,
For the imbuseador:

Edwin C. Wilson
counseler of Nabasay

In quintuplicate.
Enclosures:
No.1 - 5 copies of of
French
communiqué
November
24, 1936.

2-5

declaration from

FINANCIAL TIMES of
November 24, 1936.

m.

157
at tests.

a

AGENCE ECONOMIQUE ET

no,

1000

F

APRES L'ADHESION DE LA HOLLANDE
ET DE LA SUISSE A L'ACCORD MONETAIRE

Le ministère des Finances com-

munique

Des le lendemain de la déclaration francoanglo-américaine du 25 septembre dernier, le gou-

vernement beige a annoned qu'il y donnait son

adhésion. Le gouvernement hollandais et le gowernement suisse viennent maintenant de faire connaitre leur.decision de s'y rallier également.
Le gouvernement français accueille avec faveur
les déclarations par lesquelles les gouvernements de
Belgique, de Suisse et de Hollande adherent ainsi
aux principes expcsés dans la déclaration. tripartile
du 25 septembre.
A la suite de ces adhesions, des dispositions out
été prises pour étendre à ces trois pays les atrangements assurent les relations de change entre les
places de Paris, Londres et New-York, qui out fait

Pobjet d'un communiqué, en date du 13 octobre,
et pour Etablir la collaboration des jonds d'égalisation ou de stabilisation des changes.
Ces dispositions font l'objet des deux communiques survants de la Trésorerie américaine et de la
Trésorerie britannique.

Communiqué de la trésorerie américaine

Comme suite aux avis donnés par lui les
81 janvier et 1st février 1934, prévoyant les achats
d'or par la trésorerie, et le 31 janvier 1934, concernant la vente de l'or pour l'exportation, le secrétaire du Trésor déclare que dorénavant, et tant
que, après preavis de vingt-quatre heures, cette
déclaration d'intention ne sera pas annulée ou
modifiée, les Etats-Unis, en dehors des ventes d'or
effectuées au bénéfice des fonds d'égalisation ou
de stabilisation de pays étrangers, vendront aussi
de l'or aux fins d'exportation immédiate (cu de
consignation d'or earmarked aux trésoreries (ou
aux agents financiers quelconques intervenant pour
leur compte cu dont les interventions en cette matière scnt garantie's par telles) des pays dont les
trésoreries (ou les agents financiers intervenant
ou garantis de la sorte) sont de la même manière
disposées à vendre de l'or aux Etats-Unis, pourvu

que telles offres d'or soient faites à des taux et

dans des conditions tels que le secréture du Trésor
puisse les estimer les plus avantageuses du point
de vue de l'intérêt public. Le secrétaire du Trésor
fait econaitre en outre d'ores et déjà la liste des
pays étrangers qui remplissent les conditions cidessus indianées et cette liste sera complétée chajour. Toutes les ventes d'or de l'espèce seront faites par l'intermédiaire de la Banque de Réserve
Federale de New-York, agissant comme agent financier des Stats-Unis, aux conditions suivantes
que le secretaire du Trésor estime les plus avantageuses we point de vue de l'intérêt public :

L'or eara vendu au prix de 35 dollars car

once de fin, plus 1/4 % pour les frais, et les ventes
et consignations serent scumises aux règles édictées en application du Gold Reserve Act de 1934.
A la suite de ce communious, le secrétaire du
Trésor americain . fait connaltre que dès maintenant il ajcutait sur la liste susvisée la Belgique, la
Hollande et la Suisse.

Communiqué de la trésorerie britanniq
Le gouvernement de Sa Majeste a ent
avec plaisir les déclarations que les gouvern
de Hollande et de Suisse ont publices hier
d'exprimer leur adhésion aux principés de la
ration tripartite du 25 septembre, auxquels le
même mois le gouvernement belge avait déjà e
sement adhere.

Le Gouvernement de Sa Majeste a été in
que la trésorerie des Etats-Unis d'Amérique
étendu à la Belgique, à la Hollande et à la
les arrangements établis en vue d'assurer at
de la politique des changes la coopeartion 1

que avait été visée dans la déclaration
october dernier. Le goavernement de S: ,
cueille cette nouvelle décision avec faveur.
s'harmonise avee les arrangements déjà pris

les Etats-Unis d'Amérique et. d'une par

Royaume-Uni, d'autre part, la France. L'ext
de ces arrangements s'harmonise également
les lignes générales de la coopération mutuelle
tant entre les autorités monétaires britanniq

celles de la Belgique, de la Hollande et

Suisse.

Les mesures du Gouvernement français
En cc qui le concerne, le gouvernement in
a l'intention 4- prendre les meaures ndcessaires

que la coopération technique instituée entre le
de stabilisation des changes francais et les
d'égalisation améticain et britannique soit étc
and instituts d'émission ou fonds de stabilisati
Belgique, de Hollande et de Suisse. Lea out
monétaires de cas pays bénéficieraient déso
des mêmes facilités en ce qui concerne la délive

de l'or contro devises, et elles asurcraient au

de stabilisation françcia un traitement and

Enclosure No. a to Despatch No.

304

157

November as, 1936,
from the as Peris.

FINANCIAL
34,

IX-POWER MONETARY
ACCORD.
NOV 24 1936

IOLLAND AND SWITZERLAND
NOW ANNOUNCE ADHERENCE.

His Majesty's Government has

noted with pleasure the declarations of
the Governments of the Netherlands and
Switzerland, which were issued yesterday, expressing their adherence to the

principles stated in the tripartite de
claration of 25th September (when the

French franc was devalued) The
Belgian Government declared their

adherence to those principles on 26th
September.

His Majesty's Government are in.
formed that the United States Treasury
are extending to Belgium, the Netherlands and Switzerland the arrangements
for technical co-operation in exchange
matters which were referred to in the
statement published on 13th October.

BRITISH TREASURY EXPRESSES ITS
PLEASURE AT DECLARATIONS.
U.S. EXTENDING ARRANGEMENTS FOR
THEIR CO-OPERATION.
Holland and Switzerland yesterday announced their adherence
the three-power monetary agreement of 25th September, aimed to

His Majesty's Government welcome
this step, which is in harmony with the
arrangements already made between the

United States and this country and

between the United States and France.

The extension of this arrangement

is also in harmony with the general
basis of mutual co-operation which
exists between the British monetary
authorities and the Belgian, Netherlands and Swiss monetary authorities."

DUTCH DECISION.
Not Definite.
FROM OUR OWN CORRESPONDENT.

stabilise currencies.

Switzerland has decided to join the pact and adds that it will be

the first to stabilise its currency if Britain, the United States and
France, signatories of the accord, do likewise. Belgium has already
announced its adherence.

DUTCH STATEMENT OF POLICY.
The Dutch Government last night ordered the following declaration to be made to the Governments in London, Washington and
Paris:The Dutch Government has taken due notice of the declaration

by which the Governments of France, Great Britain and the United
States have indicated their intentions in regard to their monetary
policy and agrees with the general principles laid down in their
tripartite declaration of 25th September, 1936."

AMSTERDAM, 23rd Nov.

According to information gathered in
authoritative quarters, the Dutch Govern-

ment's declaration on the monetary agree-

ment does not mean an actual joining of

the tripartite accord It means nlv what

had been forecast in THE FINANCIAL TIMES

of 5th November, that the Dutch authorities
are investigating means to join the agree-

ment, though it is highly probable that
shortly it will join

It is emphasised that the guilder remains
completely free and that no commitments
whatever in this respect have been undertaken. Also, there is no questi n of stabilination of the guilder at the present level.

The Dutch authorities, by issuing the

cautions declaration, do not desire to join
the tripartite agreement unconditionally, it
is believed. They apparently want to keep

a back-door open. It is. moreover, con-

sidered as remarkable that the Dutch

Government does not declare its approval
in principle of the tripartite gold agreement

of 13th October

It was officially added that the necessary preparations are being
made in order to arrive at practical co-operation with the monetary
authorities in those three countries.

SWISS DECISION.
Natura. Step.
FROM OUR OWN CORRESPONDENT.

These steps by Holland and Switzerland were welcomed by the

British Government in a stateent issued through the Treasury

his morning. This was as
ollows:-

BASLE, 33rd Nov.

The Swiss Federal Council announced to

day that it had informed the Governments
of France, Great Britain and the U.S. that
it approved and was willing to co-operate in

the tripartite monetary pact of 90th

September It added that it will be the first
to stabilise if these three countries do likewise.

When Switzerland devalued the franc, the
principal reason given for this audden step

was the monetary agreement reached between

France, Great Britain and the U.S. to create
. general scheme of realignment of the principal currencies.

It was only natural for Switzerland, there-

fore. to join this agreement I: was already
reporter in THE FINANCIAL TIMES of 4th

Nover iber last that the Swiss National Bank

had been authorised to participate in the
agreement of 12th October regarding free

exchange of gold between the countries
concerned.

305

A.

Paris, November m 1006.

157

are
nonetary e summer as.

Subject: of Holland, switterland,
1004

The Honorable

The Secretary of State,
Washington, D. 0.

Sir:
Reference is made to the Embassy's despatch

No. 41 of October 21, 1936, concerning the text of
the supplementary announcement. as published in
LR TEMPS of October 14, 1936, by Mr. Morgenthau

netting forth the conditions under which the American
Treasury was prepared to buy and sell gold.
I now have the honor to forward herewith, for
the information and records of the Department, the
text of the communique published in the French press
of November 24. 1956, relating to the adhesion to the
memotary errangement of September 25, 1936, of Holland,
Switnerland and Belgium. This comminique embodies
the

306

the French translation of the commique of the
American and British Treasuries in this respect,
and concludes with the following statement:

As far as it is concerned, the

French Government has the intention of
taking all necessary measures to the end
that the technical cooperation instituted
between the French, American and British
Exchange Equalization Funds shall be
extended to the banks of issue or
Stabilisation Funds of Belgium, Holland
and Switzerland. The monetary authorities

of those countries will henceforth benefit
from the same facilities as concerns the
delivery of gold against currencies, and
these monetary authorities will assure
similar treatment to the French stabilization
Fund."

There is also enclosed, as clipped from the
London FINANCIAL TIMES of November 24, 1936, the

text of the declaration of the Government of the
Netherlands, the report of the correspondent of this
paper at Basel relating to the announcement of the
Swiss Federal Council, and the statement issued by
the British Government welcoming the steps taken by
Holland and Switzerland.
Respectfully yours,
For the Ambassador:

Edwin C. Wilson
Counselor of Enbassy

In quintuplicate.
Enclosures:
No.1 - 5 oopies of French communique
of November 24, 1936.

8-5

declaration from

FINANCIAL TIMES or

November 24, 1936.
HMC/AG/Jf

307

Enclosure No. 1 to Deepatah
from

the

as, 1956,

Mabasay

AGENCE ECONOMIQUE ET F1
APRES L'ADHESION DE LA HOLLANDE
ET DE LA SUISSE A L'ACCORD MONETAIRE

Le ministère des Finances com-

munique
Des le lendemain de la déclaration francoanglo-américaine du 25 septembre dernier, le gouvernement belge a annoneé qu'il !/ donnait SON
adhésion. Le gouvernement hollandan et le gouver-

nement suisse viewment maintenant de jaire CORNOR-

tre leur décision de s'y rallier également.
be gouvernement français accueille avec faveur
les déclarations par lesquelles les gonvernements de
Belgique, de Suisse et de Hollande adhèrent ainsi
aux principes exposés dans la déclaration tripartite
du 25 septembre.

A In suite de ces adhésions, des dispositions on:
été prisex pour étendre à ccs trois pays les arrangements assurant les relations de change entre les
places de Paris, Londres et New-York, qui out jait
Pobjet d'un communiqué, CN date du 13 octobre,
et pour établir la collaboration des fonds d'égalisation ON de stabilisation des changes.
Ces dispositions font l'objet des deur communiques survants de la Trésoreric américaine et de la
Trésorerie britannique.

Communiqué de la trésorerie américaine

Comme suite aux avis dennés par lui les
81 janvier et 1" février 1934, prévoyant les achats
d'or par la trésorerie, et le 31 janvier 1984, concernant la vente de l'or pour l'exportation, le seeré-

taire du Trésor déclare que dorenavant, et tant
que, après préavis de vingt-quatre heures, cette
déclaration d'intention ne sera pas annulée ou
modifiée, les Etats-Unis, en dehors des ventes d'or
effectuées au bénéfice des fonds d'égalisation ou
de stabilisation de pays étrangers, vendront mussi
de l'or aux fins d'exportation immédiate (cu de
consignation d'or earmarked aux trésoreries (ou
aux agents financiers queleonques intervenant pour
leur compte ou dont les interventions en cette matière scnt garanties par telles) des pays dont les
tréscreries (ou les agents financiers intervenant
ou garantis de la sorte) sont de la même manière
disposées à vendre de l'or aux Stats-Unis, pourvu

que telles offres d'or soient faites è des taux et
dans des conditions tels que le secrétaire du Tréscr
puisse les estimer les plus avantageuses du point

de vue de l'intérêt public. Le secrétaire du Trésor
fait connaitre en outre d'orts et déjà la liste des
pays étrangers qui remplissent les conditions cidessus indiquées et cette liste sera complétée chajour. Toutes les ventes d'or de d'espèce seront fai-

tes par l'intermédiaire. de la Banque de Réserve
Fédérale de New-York, agissant comme agent financier des Etats-Unis, aux conditions suivantes
que le secrétuire du Trésor estime les plus avantageuses.du point de vue de l'intérêt public :

L'or sera vendu au prix de 85 dollars par

once de fin, plus 1/4 % pour les frais, et les ventes
et consignations seront scumises aux règles édictées en application du Gold Reserve Act de 1934.
A la suite de ce communique, le secrétaire du
Trésor américain a fait connaitre que dès maintepant il ajoutait sur la liste susvisée la Belgique, la
Hollande et la Suisse.

Communiqué de la trésorerie britannique
Le gouvernement de Sa Majeste a enregistré
avec plaisir les déclarations que les gouvernements
de Hollande et de Suisse ont publiées hier en vue
d exprimer leur adhésion aux principes de la déclaration tripartite du 25 septembre, auxquels le 26 du
même mois le gouvernement belge avait déjà expressément adhere.

Le Gouvernement de Sa Majeste a été informé
que la trésorerie des Etats-Unis d'Amérique avait
étendu à la Belgique, à la Hollande et à la Suisse
les arrangements établis en vue d'assurer au sujet
de la politique des changes la coopéartion technique qui avait été visée dans la déclaration du 13
octobre dernier. Le gouvernement de S. M. accueille cette nouvelle décision avee faveur. Elle
s'harmonise avec les arrangements déjà pris entre

les Etats-Unis d'Amérique et. d'une part, le

Royaume-Uni, d'autre part, la France. L'extension
de ces arrangements s'harmonise également ave
les lignes générales de la cooperation mutuelle existant entre les autorités monétaires britanniques et

celles de la Belgique, de la Hollande et de la

Suisse. .

Les mesures du Gouvernement français
En cc qui le concerne. le gouvernement français
a l'intention d- prendre les measures nécessaires pour

que la coopération technique instituée entre le fonds
de stabilisation des changes français et les fond
d' l'égalisation américain et britannique soit étendue
aux instituts d'émission ON fonds de stabilisation de
Belgique, de Hollande et de Suisse. Les autorités
monétaires de can pays bénéficieraient désormais
des mêmes facilités en ce qui concerne la délivrance
de l'or contro devises, et clies asureraient au fonds
de stabilisation français NR traitement analogur.

157

Enclosure No. a to Despatch No.
of November
from the Babesay at Paris.

28,

1986.

308

FINANCIAL TIMES

84, 1.06.

'His Majesty's Government has

SIX-POWER MONETARY
ACCORD.

noted with pleasure the declarations of
the Governments of the Netherlands and
Switzerland, which were issued yester
day, expressing their adherence to the

principles stated in the tripartite de

claration of 25th September (when the

French franc was devalued). The
Belgian Government declared their

adherence to those principles on 26th
September

HOLLAND AND SWITZERLAND
NOW ANNOUNCE ADHERENCE.

His Majesty's Government are informed that the United States Treasury
are extending to Belgium, the Netherlands and Switzerland the arrangements
for technical co-operation in exchange
matters which were referred to in the
statement published on 13th October

BRITISH TREASURY EXPRESSES ITS
PLEASURE AT DECLARATIONS.

S. EXTENDING ARRANGEMENTS FOR
THEIR CO-OPERATION.
Holland and Switzerland yesterday announced their adherence
to the three-power monetary agreement of 25th September, aimed to
stabilise currencies.

Switzerland has decided to join the pact and adds that it will be

His Majesty's Government welcome
this step, which is in harmony with the
arrangements already made between the

United States and this country and

between the United States and France.

The extension of this arrangement

also in harmony with the general
basis of mutual co-operation which
exists between the British monetary
authorities and the Belgian, Netherands and Swiss monetary authorities.

DUTCH DECISION.
Not Definite.
FROM OUR OWN CORRESPONDENT.

AMSTERDAM. 23rd Nov.

According to information gathered in

authoritative quarters, the Dutch Government's declaration on the monetary agree-

the first to stabilise its currency if Britain, the United States and

ment does not mean an actual joining of

France, signatories of the accord, do likewise. Belgium has already

had been forecast in THE FINANCIAL TIMES

announced its adherence.

of 5th November, that the Dutch authorities

DUTCH STATEMENT OF POLICY.

the tripartito accord It means nly what

are investigating means to join the agree
ment though it 18 highly probable that
shortly it will join.

Paris:-

It is emphasised that the guilder remains
completely free and that no commitments
whatever in this respect have been undertaken. Also, there is no quest D of stabilination of the guilder at the present level.

The Dutch Government has taken due notice of the declaration
by which the Governments of France, Great Britain and the United

cautions declaration do not desire to join
the tripartite agreement unconditionally it
is believed They apparently want to keep

tion

The Dutch Government last night ordered the following declarato be made to the Governments in London, Washington and

States have indicated their intentions in regard to their monetary
policy and agrees with the general principles laid down in their
tripartite declaration of 25th September, 1936."
It was officially added that the necessary preparations are being
made in order to arrive at practical co-operation with the monetary
horities in those three countries.
These steps by Holland and Switzerland were welcomed by the

ritish Government in a stateent issued through the Treasury

is morning. This was as

ollows

The Dutch authorities, by issuing the

a back-door open. It is mofeover. considered as remarkable that the Dutch

Government does not declare its approval
in principle of the tripartite gold agreement

of 13th October

SWISS DECISION.
Natura. Step.
FROM OUR OWN CORRESPONDENT.

BASLE, 3rd Nov.
The Swiss Federal Council anhounced to

day that it had informed the Government
of France. Great Britain and the U.S. that

it approved and was willing to co-operate in

the tripartite monetary pact of 95th

September. It added that it will be the first
to stabilise if these three countries do like
wise

When Switzerland devalued the frane, the

principal reason given for this sudden step

the rescribed between

France, Great Britain and the U.S. to create
. general scheme of realignment of the priocipal currencies.

It was only natural for Switzerland, there
fore. to join this agreement It was already
reported in THE FINANCIAL TIMES of 4th
November last that the Swiss National Bank

had been authorised to participate in the
agreement of 12th October regarding free

exchange of gold between the countries
concerned.

309

November 30, 1936

At the 9:30 group meeting this morning, the Secretary
told Mr. McReynolds to get from each Treasury activity
a weekly progress report on all research studies that are
being made. This report should also show who is working
on the studies and the approximate cost.
The progress report 18 to be handed to the Secretary

each Tuesday morning.

Mr. McReynolds was authorized to hire an additional

person if he needed anyone to assist him in getting this
information together each week.

The Secretary explained that all of the Bureaus are

making research studies and none knows what the other
is doing.

310

November 30, 1936.
10:37 a.m.

Operator:

Dr. Burgess.

H.M.Jr:

Hello

Burgess:

Hello sir.

H.M.Jr:

Burgess, on this conversation, I just want to bring
up one thing if you don't mind.

B:

Yes.

H.M.Jr:

We've been talking about new money and I thought

B:

Yes - yes.

H.M.Jr:

at my four o'clock press conference I want to
announce how much new money to give the market
that much additional information.

And, after going over the thing very carefully here,
we've made a tentative decision and we'll ask for
three hundred million new money.

B:

In addition to the - ah...

H.M.Jr:

Four hundred.

B:

Four hundred.

H.M.Jr:

Makes seven hundred.

B:

I see. That's larger than you've been thinking

H.M.Jr:

isn't it?
Well it's just - it's just this - without that and

including the bills the present series - the 16th of

March series.
B:

H.M.Jr:

Yes.

We'd go into the - well say up to the 13th of March
we'd drop down to five hundred million dollars.

B:

I see. Well that's a little thin.

H.M.Jr:

And that's a little thin.

311

-2B:

Unless you took an additional amount in January.

H.M.Jr:

We can but I - I - I simply feel this way and
that's why I'm calling you - that the market
will take almost anything we give them.

B:

H.M.Jr:
B:

H.M.Jr:

That's right.
I don't like to let the thing run down that low
and
Of course you could build it up with bills. (Laughs)
True but you fellows always (laughs) - argued against
that the last three and a half years.

B:

(Laughs)

H.M.Jr:

What?

B:

Yes that's true. I agree to that.

H.M.Jr:

What's that?

B:

That's true.

H.M.Jr:

I mean you've always argued against that as a means

and only to use for emergencies. I mean that's what
you drilled into me.

B:

Yes - yes.

H.M.Jr:

And I'm a very good pupil.

B:

(Laughs)

H.M.Jr:

No but seriously you told me that again and again...

B:

Yes I know.

not to do that. What?

H.M.Jr:
B:

H.M.Jr:

B:

That's sound.

Now here's a chance. I think - I don't want to
talk about anything just at this minute as to
prices, terms or anything else.
Yes.

312

-3

H.M.Jr:

I just want to settle one thing.

B:

Yes.

H.M.Jr:

And

B:

How will they square that with previous statements?

H.M.Jr:

It squares all right Dan says.
I see. That is that you can say that these bills
will be paid off in March.
Ah - these bills will be paid off in cash in March.
Just let me ask. (Aside: If we pay off that then

B:

H.M.Jr:

how much would the extra three hundred plus - how
much new money would it make then if we pay off the

bills in cash? Bell: In cash? H.M.Jr: Yes if

you say three hundred now. Did you say three and

three - six. Well we took 470. well then we never
estimated on it. How much - put it another way-

How much new money have we taken this year - outside

of bills? Bell: It'll take four hundred and seventy.
H.M.Jr: I get you. (Note: The rest of Bell's
answer could not be heard distinctly)

H.M.Jr:

Hello.

B:

Yes.

H.M.Jr:

We've taken 470 so far.

B:

Yes.

H.M.Jr:

Not counting Savings Bonds.

B:

Yes.

H.M.Jr:

Now you take 470 and 150 Savings Bonds is 620 and

B:

Well now the street has the impression that you said

then we add 320

at one time that you'd only take 700 million of new
money.

H.M.Jr:

Well I didn't say it. The President said it in

B:

Yes.

his Budget Summation.

313

-4H.M.Jr:

750.

B:

Yes. Yes.

H.M.Jr:

Now - ah - what I can say is - I mean if - no - now
when the President said 750 he did not have in mind
that he d have to ask more money for relief.

B:

I see.

H.M.Jr:

Now - now there's no question but what he's going

B:

I see.

H.M.Jr:

He - he set an upper - .upper limit of 500 you see?

B:

Yes.

H.M.Jr:

So that brings it to 1250.

B:

Yes - yes.

to ask for 500 more for relief.

H.M.Jr:

Now - ah - and he'll have to ask for that in January.
Of course you can also say that these Treasury bills There's an additional 50 Treasury bills in December
is going to be paid off in cash in March.
Ah - but Dan says that's not in the picture but I -

B:

Yes - yes.

H.M.Jr:
B:

H.M.Jr:

B:

H.M.Jr:

I will say that.

All I can say is this - what I said before - I mean
I don't want - I don't want to at this time say that
we're going to ask for money in January for relief.
I don't - I don't want to say that.
No I see - yes.
All I can say is that the Treasury has gone over
these estimates very very carefully

B:

Yes.

H.M.Jr:

and we've come to the decision that at this time
in order to maintain our balances at the strength that

314

-5we want it that we feel we need 300 million new money.
B:

Well I think that's all right. I don't think
anybody will really misunderstand that.

H.M.Jr:

And I'll simply say we've made a very careful
study and estimating as intelligently as we can
from now until the 15th of March that's what we
need

B:

Yes - yes.

H.M.Jr:

to maintain a healthy balance.

B:

Yes, well I think that's just the way to say it
and I think that's all right.

H.M.Jr:

And I don't want to say that the President is
going to ask - send a message up.

H.M.Jr:

No, of course not. You shouldn't do that.
Well they know it. They - anybody can take out
a pencil and paper and figure we'll be out of relief
money by the first of February.

B:

Yes - yes.

H.M.Jr:

What?

B:

Yes, well that's all right. I just wanted to be

B:

sure

H.M.Jr:

No, I will say that we've made very careful estimates
and in order to keep a healthy balance

B:

Yes.

H.M.Jr:

on hand till the 15th of March the best
estimates that we could make is that we ought to

have 300 million more cash.
B:

Yes - yes.

H.M.Jr:

How does that sound to you?

B:

I think that's all right. There is one additional

H.M.Jr:

Yes.

explanation of these Treasury bills

315

-6B:

yet.....that the market hasn't quite gotten on to

H.M.Jr:

Yes.

and that is that the main reason for starting

B:

those was to have a market maturity.
H.M.Jr:

Yes.

B:

That would be paid off in taxes.

H.M.Jr:

Yes.

B:

And I think you could perhaps mention that....

H.M.Jr:

Good.

B:

.....in addition.

H.M.Jr:

Good.

B:

That would clear that up a little I think.

H.M.Jr:

Good.

B:

But I think that's all right.

H.M.Jr:
B:

H.M.Jr:
B:

H.M.Jr:

But playing on the safe conservative side I'd
feel a lot happier if you'd take the extra 300.
Well then you ought to take it.
And after all things across the water are too
uncertain.

Yes - yes - yes.
And you know this billion dollar balance at present

B:

costs us only about a million and a half dollars.
That's right - yes - yes.

H.M.Jr:

But where can you get a cheaper insurance market?

B:

That's right - yes.

H.M.Jr:

"hat?

316

H.M.Jr:

That's all right.
All right.

B:

Yes.

H.M.Jr:

H.M.Jr:

I'll call you up a little later, Burgess.
All right - fine.
I'll call you up a little - I want to ask you

B:

Very good.

H.M.Jr:

Thank you.

B:

Goodbye.

H.M.Jr:

Goodbye.

B:

B:

something else a little later.

317
November 30, 1936.
10:37 a.m.

Operator: Dr. Burgess.
H.M.Jr:

Hello

Burgess:

Hello sir.

H.M.Jr:

Burgess, on this conversation, I just want to bring
up one thing if you don't mind.

B:

Yes.

H.M.Jr:

We've been talking about new money and I thought

B:

Yes - yes.

H.M.Jr:

at my four o'clock press conference I want to
announce how much new money to give the market
that much additional information.

And, after going over the thing very carefully here,
we've made a tentative decision and we'll ask for
three hundred million new money.

B:

In addition to the - ah...

H.M.Jr:

Four hundred.

B:

Four hundred.

H.M.Jr:

Makes seven hundred.

B:

I see. That's larger than you've been thinking

H.M.Jr:

isn't it?
Well it's just - it's just this - without that and

including the bills the present series - the 16th of

March series.
B:

H.M.Jr:

Yes.

We'd go into the - well say up to the 13th of March
we'd drop down to five hundred million dollars.

B:

I see. Well that's a little thin.

H.M.Jr:

And that's a little thin.

318

-2B:

Unless you took an additional amount in January.

H.M.Jr:

We can but I - I - I simply feel this way and
that's why I'm calling you - that the market
will take almost anything we give them.

B:

H.M.Jr:
B:

H.M.Jr:

That's right.
Ianddon't like to let the thing run down that low
Of course you could build it up with bills. (Laughs)
True but you fellows always (laughs) - argued against
that the last three and a half years.
(Laughs)

B:

H.M.Jr:

What?

B:

Yes that's true. I agree to that.

H.M.Jr:

What's that?

B:

H.M.Jr:

That's true.
I mean you've always argued against that as a means

and only to use for emergencies. I mean that's what
you drilled into me.

B:

Yes - yes.

H.M.Jr:

And I'm a very good pupil.

B:

(Laughs)

H.M.Jr:

No but seriously you told me that again and again

B:

Yes I know.

not to do that. What?

H.M.Jr:
B:

H.M.Jr:

B:

That's sound.

Now here's a chance. I think - I don't want to
talk about anything just at this minute as to
prices, terms or anything else.
Yes.

319

-3H.M.Jr:

I just want to settle one thing.

B:

Yes.

H.M.Jr:

And

B:

How will they square that with previous statements?

H.M.Jr:

It squares all right Dan says.
I see. That is that you can say that these bills
will be paid off in March.
Ah - these bills will be paid off in cash in March.
Just let me ask. (Aside: If we pay off that then

B:

H.M.Jr:

how much would the extra three hundred plus - how
much new money would it make then if we pay off the

bills in cash? Bell: In cash? H.M.Jr: Yes if

you say three hundred now. Did you say three and

three - six. Well we took 470. Well then we never
estimated on it. How much - put it another way How much new money have we taken this year - outside
of bills? Bell: It'11 take four hundred and seventy.
H.M.Jr: I get you. (Note: The rest of Bell's
answer could not be heard distinctly)

H.M.Jr:

Hello.

B:

Yes.

H.M.Jr:

We've taken 470 so far.

B:

Yes.

H.M.Jr:

Not counting Savings Bonds.

B:

Yes.

H.M.Jr:

Now you take 470 and 150 Savings Bonds is 620 and
then we add 320

B:

Well now the street has the impression that you said

at one time that you'd only take 700 million of new
money.

H.M.Jr:

Well I didn't say it. The President said it in

B:

Yes.

his Budget Summation.

320

-4H.M.Jr:

750.

B:

Yes. Yes.

H.M.Jr:

Now - ah - what I can say is - I mean if - no - now
when the President said 750 he did not have in mind
that he'd have to ask more money for relief.

B:

I see.

H.M.Jr:

Now - now there's no question but what he's going to

B:

ask for 500 more for relief.
I see.

H.M.Jr:

He - he set an upper - upper limit of 500 you see?

B:

Yes.

H.M.Jr:

So that brings it to 1250.

B:

Yes - yes.

H.M.Jr:

Now - ah - and he'll have to ask for that in January.
Of course you can also say that these Treasury bills There's an additional 50 Treasury bills in December
is going to be paid off in cash in March.
Ah - but Dan says that's not in the picture but I - I

B:

H.M.Jr:
B:

H.M.Jr:

B:

H.M.Jr:
B:

H.M.Jr:

will say that.
Yes - yes.

All I can say is this - what I said before - I mean
I don't want - I don't want to at this time say that
we're going to ask for money in January for relief.
I don't - I don't want to say that.
No I see - yes.
All. I can say is that the Treasury has gone over
these estimates very very carefully
Yes.

and we've come to the decision that at this time
in order to maintain our balances at the strength that
we want it that we feel we need 300 million new money.

321

-5-

Well I think that's all right. I don't think

B:

anybody will really misunderstand that.

H.M.Jr:

And I'll simply say we've made a very careful
study and estimating as intelligently as we can
from now until the 15th of March that's what we

need

Yes - yes.

B:

H.M.Jr:

to maintain a healthy balance.

Yes, well I think that's just the way to say it
and I think that's all right.

B:

H. M.Jr:

And I don't want to say that the President is

going to ask - send a message up.
You shouldn't do that.
No, of course not.

B:

H.M.Jr:

Well they know it. They - anybody can take out
a pencil and paper and figure we'll be out of relief
money by the first of February.

B:

Yes - yes.

H.M.Jr:

What?

B:

Yes, well that's all right. I just wanted to be
sure

H.M.Jr:

No, I will say that we've made very careful estimates
and in order to keep a healthy balance

B:

Yes.

H.M.Jr:

on hand till the 15th of March the best
estimates that we could make is that we ought to

have 300 million more cash.
B:

Yes - yes.

H.M.Jr:

How does that sound to you?

B:

I think that's all right. There is one additional

H.M.Jr:

Yes.

explanation of these Treasury bills

322

-6B:

....that the market hasn't quite gotten on to
yet...

H.M.Jr:

Yes.

B:

and that is that the main reason for starting

those was to have a market maturity.
H.M.Jr:

Yes.

B:

That would be paid off in taxes.

H.M.Jr:

Yes.

B:

And I think you could perhaps mention that...

H.M.Jr:

Good.

in addition.

B:

H.M.Jr:

Good.

B:

That would clear that up a little I think.

H.M.Jr:

Good.

B:

But I think that's all right.

H.M.Jr:
B:

H.M.Jr:
B:

H.M.Jr:

But playing on the safe conservative side I'd
feel a lot happier if you'd take the extra 300.
Well then you ought to take it.
And after all things across the water are too
uncertain.

Yes - yes - yes.
And you know this billion dollar balance at present
costs us only about a million and a half dollars.

B:

That's right - yes - yes.

H.M.Jr:

But where can you get a cheaper insurance market?

B:

That's right - yes.

H.M.Jr:

What?

-7

B:

H.M.Jr:
B:

H.M.Jr:
B:

H.M.Jr:

That's all right.
All right.
Yes.

I'll call you up a little later, Burgess.
All right - fine.
I'll call you up a little - I want to ask you
something else a little later.

B:

Very good.

H.M.Jr:

Thank you.

B:

Goodbye.

H.M.Jr:

Goodbye.

323

324

November 30, 1936.
11:03 a.m.

Operator:

Go ahead.

H.M.Jr:
Earl

Hello

Bailie:

Hello Henry.

H.M.Jr:

Hello - Earl?

B:

Good morning Henry.

H.M.Jr:

How are you?

B:

I'm fine. I apologize for calling you in business

H.M.Jr:

hours but I wanted, while the conversation was
fresh in my mind,
Yes.

to tell you about my conversation last night.

B:

H.M.Jr:

Swell.

B:

My little friend came to dinner.

H.M.Jr:

Yes.

B:

And I got a chance

H.M.Jr:

Good.

during the course of the evening

B:

H.M.Jr:

Yes.

B:

all this stuff in your paper is about a row between
my friend and this other fellow?"

H.M.Jr:

Yes.

B:

And he said, "You know I don't know. I've been
meaning to ask Arthur." He said, "I don't know a

....to say to him this: "Will you tell me what

thing about it."

H.M.Jr:

No.

325

-2Yes, and I said, "You mean to tell me you're as
much in the dark as I am then as to whether there's

B:

anything in it or not" and he said, "Absolutely. I
meant to ask Arthur before he got off on his holiday
but," he said, "I didn't see him. I didn't see him
after the second article."

H.M.Jr:

Yes.

B:

"And, therefore, didn't get a chance to."
Well do you believe that?
You know I can't decide whether to or not.

H.M.Jr:

Well you know when I

B:

H.M.Jr:

B:

I couldn't sleep last night for trying to decide

whether I was being kidded.
H.M.Jr:

Well I'll tell you why I don't believe it. The last

B:

Yes.

H.M.Jr:
B:

H.M.Jr:

B:

H.M.Jr:
B:

H.M.Jr:

time that thing appeared - whenever it was - a month
ago - I called up the man that did the writing, see?

He said, "Well I've been expecting a call from you" or something like that.
Yes.

And he said, "But don't think for a minute that I
didn't show it to your personal friend first before
I did it" - before it went in the paper.
Yes.

He said, "Don't think for a minute that your personal
friend didn't see it before it went in the paper."
That was after the first but not after the second.
Well I'm not talking about the recent things. I'm

B:

talking about the ones that happened
The ones that went before.

H.M.Jr:

Yes.

326

-3B:

Yes.

H.M.Jr:

Oh some months ago. Some months ago you know?

B:

Yes, I remember perfectly well.

H.M.Jr:

So I don't believe, in view of what happened, that
he would write this time No. 1 or No. 2 without
showing it to Arthur.

B:

I wouldn't have thought so either and yet our friend
here in New York is usually very frank.

H.M.Jr:

Yes, well

B:

So that if he - he must have decided not to be frank

H.M.Jr:
B:

before I started to talk to him.
Ah-ha. Well then you - you got no further.
I got no further at all and, as I say, I'm still
completely puzzled as to whether or not I was given
a ride- which was the first time he'd ever taken
me for one.

H.M.Jr:
B:

H.M.Jr:

Yes.

Or whether it was really true that he - they didn't
know - just as he said.
Well I'm afraid maybe being down here so long I'm
of a suspicious nature and I think you were being

taken for a ride.

B:

(Laughter) Well I got home without losing my life

anyway.

H.M.Jr:

All right now while I've got you on the phone in
view of our conversation that we had on Public

Utilities

B:

H.M.Jr:

Yes.

read Drew Pearson and Bob Allen - to-day's

column. It's in the Washington Herald this morning.

B:

The morning Washington Herald.

H.M.Jr:

Yes.

327

-4B:

I will.

H.M.Jr:

To-day's Washington Herald.

B:

O.K.

H.M.Jr:

I think you'll find it's very interesting.

B:

Well I shall do so promptly

H.M.Jr:

And

B:

.....and I'm much obliged to you for the suggestion.

H.M.Jr:

Yes, it's very interesting and after you've read it no hurry - I'd like to just laugh with you about it.

B:

Righto.

H.M.Jr:

You know what they do. They get the story and then
in order to cover up and not make it too obvious they

change it a little bit.

B:

Naturally.

H.M.Jr:

But they certainly got what you and I were talking

B:

about.

(Laughter) Well I will - I'll read it and then

sometime we can chat about it.

H.M.Jr:

Righto.

B:

Do you get back up on the farm a gain Henry?

B:

Not till Christmas now.
Not till Christmas.

H.M.Jr:

No.

B:

O.K. well I'll be talking to you before then.

H.M.Jr:

Well I appreciate - I'm awfully afraid they put

H.M.Jr:

sleigh-bells on and everything when they took you

out.

328

-5H.M.Jr:

I mean I hope I'm wrong because it's sort of running

my own friend down.

B:

Yes. Well he was in grand form last night.

H.M.Jr:

Was he?

B:

He was looking forward to going abroad after the first

H.M.Jr:

I see.

B:

And they were just as nice as they could be.

H.M.Jr:

Good. Well in the meantime everything is all right.

B:

O.K. yes.

H.M.Jr:

Thank you very much.

B:

Goodbye.

H.M.Jr:

Goodbye.

of the year on quite a trip.

329
November 30, 1936.
4:32 p.m.
H.M.Jr:

Hello.

Operator:

Mr. Cochran

H.M.Jr:

Yes.

0:

Go ahead.

H.M.Jr:

Hello

0.0:

Go ahead please.

C:

Hello

H.M.Jr:

Hello Cochran.

C:

Hello Mr. Morgenthau.

H.M.Jr:

How are you?

C:

All right, sir. How are you?

H.M.Jr:

Very well.

C:

Mr. Morgenthau, it was - it's been suggested that

you might want to take up another problem over
here the same way you handled the currency question.

H.M.Jr:

Yes.

C:

So I just wanted to phone you from home tonight

H.M.Jr:

Yes.

C:

to tip you off confidentially that this

matter has come up in a way that may make it

embarrassing or hard to handle later.

H.M.Jr:

For us to handle?

C:

It might make it difficult to handle later.

H.M.Jr:

I see.
This question has been discussed on a few occasions

C:

when our friend Bill was with officials

H.M.Jr:

Yes.

330

-2C:

.....and this morning he was called over to the
Ministry of Foreign Affairs

H.M.Jr:

Yes.

and they asked him to learn whether you

C:

people at Washington would welcome an approach by

these people here to settlement of the war debt
through a - on account of what they call the

"commercial side."
H.M.Jr:

They do - on what?

C:

What they call the commercial side - that's the
foreign stocks

H.M.Jr:
C:

H.M.Jr:
C:

I - I don't quite get that.
......that's for sale over here
Wait a minute - say - say it again. I don't quite
get it.
They call it the commercial side of the war debt.
Now what is that?

C:

by 400 million dollars worth of
surplus stocks which our Army left here and sold to

That was
them.

H.M.Jr:

Ah-ha.

C:

You see the whole debt amounted to over four billion
dollars

H.M.Jr:

Yes.

C:

.....85 funded, while this item is only 400 million

dollars.

H.M.Jr:

Yes.

C:

And what they want to know is whether if they made a

H.M.UT:

If they what?

C:

something on that
commercial side

H.M.Jr:

Yes

nice suggestion now.

stock, on that

331

3would we welcome it.

C:

H.M.Jr:

Ah-ha.

C:

See?

H.M.Jr:

Well what I imagine will happen is this

C:

Tomorrow they'11 wire him - tomorrow or next

perhaps - has wired in today asking for
instructions.

H.M.Jr:

They - they wired for instructions?

C:

Yes, ..

H.M.Jr:

Today?

C:

Yes.

H.M.Jr:

Well that undoubtedly will come to me.

C:

H.M.Jr:

C:

Of course you
That - that will
can't tell them that I phoned you but I thought you
might inquire of the Secret Service - but that's it.

Now just a moment. It just so happens that Mr. Bell
is in my office and he knows more about this war
debt than anybody else, see? Just let me speak to
him a minute. Just stand by. (Pause for side conversation). . Just stay on the wire please.

Yes, all right.
(Conversation aside with Bell - long pause)

H.M.Jr:

Hello

C:

Hello

H.M.Jr:

Bell has - he understands what this is, see?

C:

Yes.

H.M.Jr:

And I - the American papers carried that Bullitt
saw these people.

332

-4C:

Well that's the trouble, you see. They're getting

H.M.Jr:

Yes.

a lot of publicity to it

and I'm afraid that they may let it out that

C:

they're approaching us on this narrow basis.
H.M.Jr:
C:

H.M.Jr:
C:

Yes.

And where this constitutes only one tenth of the
total debt
Yes.

The - the next approach to war debts
you could never get it broadened again for the
whole debt probably.

H.M.Jr:

I g et it.

C:

See?

H.M.Jr:

Well I appreciate your calling me and I'll - I think

C:

Fine. Well I just wanted to let you know that it

I can - I'll - I'll look into it.

H.M.Jr:

came up in that way.
Well -

C:

But I - while it isn't -

H.M.Jr:

They opened -

C:

- any desire on their part to reopen it but

H.M.Jr:

Well - I mean did the French open it or did we open
it up?

C:

They - they took this step; I don't know just where where the original one started.

H.M.Jr:

Yes.

C:

But anyway they made the important approach to-day.

H.M.Jr:

I see.

333

5-

And if we could just encourage them to - to in
their notes say they want to open negotiations
later, but - it'11 protect them from anything

C:

like this, -

H.M.Jr:

I see.

C:

- putting it on that narrow basis.

H.M.Jr:

Ah-ha.

C:

See?

H.M.Jr:

O.K.

C:

All right, fine; that's all. Things are quiet

H.M.Jr:

Good. Well, things here - we've got a big financing

C:

I notice you have that on schedule.

here, better to-day than they have been.

H.M.Jr:
C:

H.M.Jr:
C:

H.M.Jr:
C:

H.M.Jr:

on next Monday.

It's about a billion and a half.
es - yes.
And I don't look for any trouble with it.
Oh, you ought to get that all right.
All right.
Now, don't mention me of course in this.
What's that?

H.M.Jr:

I - I say you'd better not mention that I called
you on it.
Oh no, no, no - I'll just say that it was on the in fact I just got through a Press Conference and
they asked me about it. I'll call up Judge Morre
and say I was asked at my Press Conference, "What
is there to it?"

C:

Yes, yes.

H.M.Jr:

See?

C:

334

-6C:

Well it - it ought to be over there by this time.

H.M.Jr:

O.K.

C:

Fine.

H.M.Jr:

Thank you.

C:

All right, sir.

H.M.Jr:

Goodbye.

C:

Goodbye.

335
November 30, 1936
5:40 P.M.

H.M.Jr:

R. Walton

How are you?

Moore:

Living.

H.M.Jr:

Well, I'm living. On this request of yours to

give you a memorandum on - on silver - Key
Pittman, see? Of course, what Key wants to know

is what's going to happen about silver legislation
and the price of silver.

M:

Yes

H.M.Jr:

And all during the campaign the President and I

M:

Yes

H.M.Jr:
M:

steered clear from it.

And I frankly can't tell you what we're going to do.
Suppose I tell Key Pittman this; I'll just hear him
talk and I'll tell him that any of the questions
that may - he may propound he ought to take up with
you or the President.

H.M.Jr:

That's all right.

M:

I think so.

H.M.Jr:

I don't mind your shoving it over here 8 bit.

M:

Yes.

H.M.Jr:

But I didn't want to not answer your letter -

M:

Yes

H.M.Jr:

M:

H.M.Jr:
M:

- but quite frankly it all gets down to how much
are we going to pay for domestic silver and I swear
I don't know.
Well, that's what Key wants to know: how much money

you're going to pay him Sure; well I don't know.
- for Nevada silver.

336

-2H.M.Jr:

I don't know.
By the way, the newspapers, some of them have been
saying that the President may come back; he may

M:

think it's necessary or him to come back here
before the end of his vacation. I sent him a
telegram today. McIntyre phoned me from Florida -

H.M.Jr:

Yes

- and he's in constant touch with the White House
and he thought it'd be well to send the President

M:

a telegram saying there are no immediate problems

in the State Department, and so far as I can hear
there were no problems anywhere else that would
require him to be here before the middle of the

month.

H.M.Jr:
M:

Ah-ha. Well I hate - I hate to see him be denied the opportunity
to get some real rest.

H.M.Jr:

Yes

M:

Don't you think that he -

H.M.Jr:

on yes. I - I got a call in for him. He said he
was going to talk to me a little later, and I'm -

I want to talk to him about our December financing the President.

M:

Well, you - you don't think it's necessary for him

H.M.Jr:

I never saw the place so quiet.

M:

What's that?

H.M. Jr:
M:

to come back here at once?

I say it's - everything seems very quiet.
I think so.

H.M.Jr:

Yes.

M:

And I'm going - I hope - I hope you'll tell him when
you do talk to him that that's the general feeling

337
-

here.

H.M.Jr:

Righto.

M:

All right.

H.M.Jr:

Thank you.

3

Treasury Department

Division of Research and Statistics
Date

Nov. 30

1936

To: Secretary Moagenthau
From:Mr. Haas

90K

Attached is Moody's Bond Survey
for November 23, 1936 which contains

,

the article I mentioned to you this
morning. It discusses the problem of

handling gold exports and imports and

their relations to the Stabilization
Fund. It is a short article beginning

on the first page and ending on page 2.

I think you will be interested in
reading the article in its entirely.

23 1936

DEPARTMENT

MOODY'S BOND SURVEY

ROOM

350

Copyright. 1936. by MOODY'S INVESTORS SERVICE. 65 Broadway. New York
ESTABLISHED 1909

NOVEMBER 23, 1936

VOLUME 28, No. 47

Published Mondays. Subscription rate $100.00 per annum. With Moody's Stock Survey $150.00 per annum,
Entered as second-class matter January 18, 1936, at the post office at New York N. Y., under the Act of March 3. 1879.

Bond Review and Outlook
High grades and Governments continued last week
their monotonous procession to new high prices.

There is no change in their outlook. In fact, the
year end dividend flood adds one more strength fac.
tor to the high grade market.

Medium grades are likely to continue irregular for
a period.

marketable assets. During the first nine months
of this year gold imports totaled around $800 millions, indicating a comparable increase in funds
here. The balance is represented by various short
term items.

Inevitably, any sudden or large withdrawal of
these sums would exert a downward pressure on
the domestic security markets. There is, however,
no present basis to expect such a development. The

foreign situation remains exceedingly disturbed.
Foreign Funds

Drastic Governmental action in regard to the
movement of foreign funds is not to be expected.
There appears in fact little cause for present concern by investors over adverse market develop-

There are signs of culmination of the British boom.
Prospects of recovery here continue favorable, and

comparison with almost any foreign outlook renders the more attractive the domestic prospect.

Furthermore, as previously pointed out in the
Bond Survey, the extensive dishoarding set in motion by the Gold Bloc devaluation is pouring a con-

ments in connection with foreign funds in this

siderable further volume of new capital on the

country and in domestic markets.
There is no question but that the great influx of
capital into this country, which has occurred on a
considerable scale since early 1934 when the dollar

markets of the world, and a substantial portion
thereof may be expected to come to this country.
Undoubtedly the concern of the Administration
over foreign funds is twofold; first, over the ex-

was fixed at its present gold content, has had a
considerable effect upon the level of American

pansionary effects they may have upon the domestic economy; second, over the deflationary effects

stock and bond prices. Economic maladjustments
abroad, foreign political uncertainties, the strength
of recovery prospects here and the repatriation of

about in the future.

their sudden and large withdrawal could bring

funds which had previously fled from the United
States, all have been instrumental in causing the
large influx of foreign funds which has undoubted-

ly tended to raise the price structure of our securities markets to a higher level than would otherwise have been the case.

The total volume of foreign funds in this country is in the aggregate around $7 billions. Foreign
holdings of domestic securities at the end of 1935
were about $8 billions (of which about two-thirds

consisted of common stocks). At the end of last
year there was also about $2 billions additional
long term investments consisting of fixed and non-

IN THIS ISSUE

Chicago, St. Louis & New Orleans R.R. Co., Memphis
Division First 4s, 1951
Cities Service Co. Debenture 5s
Dept. of Water & Power of City of Los Angeles, Calif.,
Electric Plant Revenue Ref. 4s, 1939-75

PAGE

129
131

130
127

Foreign Funds

129

Illinois Central R.R. Co., Refunding 4s, 1955

129

Interest Rate Potentialities
New Domestic Corporate Issues
New Issues-Offered and Proposed
Ratings-New and Revised

138

Review of Previous Recommendations

133

138
136

PAGE 128

MOODY'S

DAILY BOND YIELD AVERAGES
(Based on Closing Prices)
November, 1936
16

17

18

14

20

High

1935

Low

High

Low

120 Corp

3.71

3.70

3.70

3.69

3.69

3.69

4.14

3.69

4.75

4.15

Ana

3.14

3.15

3.15

3.14

3.13

8.14

3.42

8.13

3.80

3.42

3.30

3.30

3.30

3.29

3.28

3.29

8.63

3.28

4.25

3.63

3.85

3.84

3.84

3.82

3.82

3.82

4.30

3.82

4.83

4.31

4.53

4.52

4.51

4.50

4.51

4.52

5.20

4.50

6.40

5.23

4.01

4.00

3.99

3.99

3.99

4.00

4.65

3.99

5.37

4.67

Aaa

3.37

3.36

3.36

3.36

3.36

3.36

3.70

3.36

3.82

3.69

As

3.49

3.48

3.49

3.49

3.47

3.48

3.88

3.47

4.26

3.88

4.05

4.04

4.03

4.01

4.01

4.02

4.67

4.01

5.11

4.46

5.13

5.10

5.09

5.08

5.10

5.21

6.36

5.04

8.46

6.40

3.74

As
A

Bas

40R.R.

Baa

3.74

3.73

3.72

3.72

3.72

4.08

3.72

5.13

4.08

Ana

3.13

3.13

3.13

3.12

3.11

3.12

3.32

3.11

3.74

3.82

Aa

3.35

3.34

3.33

3.32

3.32

3.33

3.72

8.32

4.48

3.73

3.96

3.95

3.94

3.92

3.91

3.91

4.26

8.91

5.83

4.25

4.53

4.54

4.52

4.51

4.52

4.52

5.01

4.51

6.95

5.03

40 P. 1 U.

Baa

40 Ind.

3.37

3.38

3.37

3.36

3.36

3.36

3.68

8.36

4.35

3.69

Aaa

2.92

2.96

2.95

2.94

2.93

2.93

8.24

2.90

3.87

3.21

Aa

3.07

3.08

3.08

3.07

3.06

3.05

3.32

3.05

4.20

3.27

3.55

3.54

3.54

3.53

3.53

3.53

3.97

$53

4.61

3.97

3.93

3.92

3.91

3.91

3.92

4.23

3.91

4.81

4.24

5.59

6.31

5.58

6.97

5.78

5.37

5.61

Bas

3.93

30 For.

Daily averages

discontinue except

Baa

Fridays of each week

Ba

5.89

5.36

6.30

6.82

7.65

6.80

8.69

6.36

8.66

9.53

8.59

10.40

8.77

U. S. GOVERNMENT BOND YIELDS AND
Yield

2.08

2.08

2.07

2.05

2.04

2.05

PRICES*

High

Low

High

2.57

2.04

2.83

2.44

Low

High

Low

High

Low

Price 112.32 112.38 112.40 112.60 112.71 112.62 107.77 112.7 106.66 109.30

Government Guaranteed Obligations*

Price 104.50 104.42 104.53 104.71 104.82 104.67 100.92 104.82 99.41 102.61

*Average
of 8
guaranteed
issues.

SUNT

In essence the Stabilization Fund would be

1936
19

BOND

long term Treasury bonds. "Average of 4 fully

The Administration is probably attempting to
develop a plan that would tend to cushion the domestic economy against the effects of capital move-

ments. What may reasonably be anticipated is a
request to Congress for an extension and enlargement of the powers of the Stabilization Fund. Gold

imports might be withheld from the banking system by the Fund in order to avoid further increases

of member bank reserves. Gold exports might be
supplied by the Fund, thus obviating a reduction in

bank reserves. The authority under which the

a long period of life to serve during the present
transitory phase of monetary affairs. The Fund
would be concerned with international capital
movements and the external position of the dollar
The Federal Reserve System would deal with credit

and monetary problems intranationally. The to
would cooperate under the broad direction of a
Treasury. This would constitute a monetary
ganization almost identical with that which is
functioned successfully for some time in Gree
Britain.
The focusing of public attention upon the matter

of foreign funds here may well be a means for
preparing the way for a request for desired legisla
tive action. Certainly nothing new has occurred in

regard to foreign funds here and the situation
one that has been recognized for a long period

time.

We see no threat to the securities markets eithe
in the discussions emanating from Washington

garding foreign funds nor in the proposals like
to be made in January for extension of the life
the Stabilization Fund and probably for enlarge
ment of its powers. Should, in fact, the Adminis
tration be successful in making of the Stabilization
Fund a cushion between foreign developments and
the domestic economy, the result would be entire
favorable. Chances of curbing an unhealthy boen
would be greater. Dangers of sudden disturbance

from foreign causes would be lessened.

Fund operates expires January 30 next. The Administration will undoubtedly desire to have the

PUBLIC UTILITY BOND YIELDS BY RATINOS

Fund continued. It will very probably desire to

(Weekly Movements 1930-36)

have its powers enlarged as above.
Until many existing uncertainties can be cleared
away, a mechanism to act in the field of control of
capital inflow and outflow seems a necessary part

Any

4
s

of monetary organization. The chief new power
which might be requested for the Fund would be

e

authority to borrow money. Such power would en-

PUBLIC UTILITY
BONOS

10

of a gold outflow but not those of a gold inflow.

is
40

1

larged and the credit structure from becoming affected. As it stands the Fund can offset the effects

:

able it to absorb incoming capital in a way that
would prevent bank reserves from becoming en-

Such action could be taken by either the Treasury

wood
12

would be, in some respects, undesirable and decidedly cumbersome.

.

or the Federal Reserve System, but this method

MEMBER

an

1930
1931

1932

1933

1934

1935

PAGE 129

NOVEMBER 23, 1936

mentioned rates. This is true because they have

Interest Rate Potentialities

Thus far in the recovery monetary factors have
pointed to continuing declines in all types of interest rates; these factors have been repeatedly set

forth in the Survey. These factors are still operative and no reason has appeared to warrant any
expectation of an early change.
Some interest rates, however, have been much

more responsive to these monetary factors than
others. It now seems a fair conclusion that those
most responsive rates already have reflected fair-

ly adequately the monetary factors working toward ease and may not decline much further. Certain other rates, however, have been laggard and

seem apt to decline further. The outlook for various rates suggested by this line of thought may
be set forth as follows:

Open market short term rates probably are at,
or have seen, their low. These include the Treasury bill rate and the rates on bankers' acceptances
and commercial loans. The next movement in these
probably will be upward, although such a development is apt to be quite slow and no movement may
be seen for some time to come.

Call and time money rates are in nearly the
same position, but while they are unlikely to decline, their rise should be slower than the above-

been pegged by the banks and do not reflect com-

petitive money market conditions to the extent
that, for example, the Treasury bill rate does.

The long term money rate, measured by yields
on high grade bonds, seems likely to stabilize some-

where around present levels. It is less sensitive
than short term open market rates and should not
be affected even if such open market rates should

rise slightly in the course of the next six to nine
months.

Rates charged by banks to customers have declined somewhat but are still laggard. Those outside New York City and Chicago seem apt to decline further in the average. The averages in New

York City and Chicago may well decline a little
more, but are more nearly comparable to the long
term rate in their position.
Mortgage rates have been distinctly laggard and
should continue to decline for some time to come.
Installment and consumer credit rates generally

should decline further under the pressure of increasing competition.

The foregoing carries no implication of nearby change in the underlying easy money structure.
It is simply an attempt to compare the outlook for
various kinds of interest rates.

Individual Bond Recommendations
phis 4s were traded on the N. Y. S. E. as against

Chicago, St. Louis & New Orleans Railroad Co.
Memphis Division First Mortgage 48, 1951

$3,132,000 Refunding 4s) and increase current and
maturity yields. Moreover, it is believed that qual-

ity would also be improved. During recent years
the bonds ranged in price as follows:

An exchange into Illinois Central Railroad Company Refunding 48, 1955 would improve quality
slightly and marketability and increase current
and maturity yields.
Call Recent

Rating
from

Issue

Price Price

1936

Memphis 4a.
Refunding 4a

Yield

N.C.

99

4.04% 4.09%

93 1/2

4.28

into

Illinois Cent. R.R. ReA

funding 4s, 1955

1071/2

88 -75

96-81%

86%-66

1934

86%-8314

88%

1983

7214-46

Current Matur.

Chie., St. L. & N. O.
R.R. Memphis Div. 1st
Baa 4s, 1951

1935

99-8314

4.50

The above recommended exchange from Chicago,
St. Louis & New Orleans Railroad Company Mem-

his Division First Mortgage 4s, 1951 would imrove marketability (in 1935 only $186,000 Mem-

Although the Memphis 4s are secured by first
mortgage whereas the Refunding 4s are for the
most part secured by junior mortgages, the latter
bonds appear better protected than the former, as
they cover very important, heavy traffic mileage,
whereas the former cover a section of the system
which handles a relatively little traffic. The Memphis Division 4s are legal for savings banks in New
York and Connecticut, and the Refunding 4s are
legal for savings banks in New York and Massachusetts.

PAGE 130

MOODY'S

Department of Water & Power

BOND

SURVEI

of the City of Los Angeles, California

tric Corporation, which sells natural gas through

Electric Plant Revenue Refunding 48, 1939-75

electricity business. Both the Department
corporation charge the same rates for electric

out the city and does about 35 per cent.

These tax-free bonds are considered interesting

energy delivered within the city limits.

for income and suitable for medium grade investment purposes.

A

*Yield Basis

Issue

Rating

Elec. Plant. Rev. Ref. 4s, 1939-75

(Opt. 1945)
*For maturities subsequent to first callable date.

3.50%-3.55%

The Department of Water & Power of the City

Plans call for the acquisition of the Los Angeles

Gas & Electric Corporation's city electric distrib
uting system and for certain local properties of
Southern California Edison Company. Such plans
have a direct bearing on the position of the bonds

of Los Angeles, California, Electric Plant Revenue
Refunding 4s, 1939-75 are considered an interest-

of the Department of Water & Power under dis

ing medium grade municipal holding, which are
not without possibilities of improvement in investment quality over a period of time. Although un-

If acquisition of the Los Angeles Gas & Electric
Corporation properties is not consummated, 30
that the operating accounts of the Bureau of Pow.
er & Light would be affected in the future solely
by the influx of hydro-electric energy from Boalder Dam, it is confidently expected that the debt
service would be adequately covered by the pros

secured by lien on any specific property and in no

sense an obligation of any authority with power to
levy ad valorem taxes, the issue is afforded reasonable protection by earnings of the Bureau of Pow-

er & Light, which are pledged for payment of both
principal and interest on this issue together with
about $31,000,000 bonds, which have an equal
claim on revenues but are also general ad valorem
tax obligations of the city of Los Angeles.

Principal and interest requirements, including
both general city bonds and electric plant revenue

bonds outstanding as of June 30, 1936 are calculated as follows:

Year Ending
June 30th

1937

Approximate

Principal

Interest

$1,332,000

1938

$2,352,500
2,291,000
2,229,500

1,332,000
1,332,000

1939

1940

1,611,000

1941

1,622,000

1942

1,634,000
1,646,000
1,408,000

1943
1944

2.156.823
2,010,150
1.908.100
1,874,060

Total
$3,684,500

3,623,000
3,561,500
3,767,825
3,705,725
3,644,150
3,582,100
3,282,050

The operating income of the city plant, after

operating and maintenance expenses, but before
depreciation, has been as follows (years ended
June 30) :

1936
1935

$8,016,904
7,697,135
7,467,874
7,472,491
7,774,490

1931
1930
1929
1928
1927

$7,712,390
7,533,632
7,209,683

6,534,775
6,154,109

The above accounts do not reflect the changes
which will occur as the result of the induction of
power from Boulder Dam, which was first received
in volume around October 15, 1936. Formerly the

Department generated about one-third of its requirements for electric energy, purchasing the re-

mainder from Southern California Edison Company, Ltd. The Department now competes within
the city limits with the Los Angeles Gas & Elec-

cussion.

pective earning power of the existing facilities
Naturally, net income would be expected to decline
moderately during the first years of operation UD

der the contract with the Federal government for
the purchase of power from Boulder Dam, since
operating expenses would be increased, but this
tendency should be offset by a normal growth
the area and increased use of electric energy.

If the city purchases the Los Angeles Gas
Electric Corporation properties, the situation
would be changed to a certain extent. Under present market conditions it is likely that the purchase
price might be raised by the issue of 40-year serial
bonds, bearing as low as a 31/2 per cent. coupon and

having graduated principal maturities. Under such

an arrangement, debt service on the new issue
would add to the fixed charges some $2,170,000
nually. Such an addition could be covered by past
earnings of the existing system, but with smaller

provisions for depreciation. On the other hand
against this rise in principal and interest require
ments, there should be about a 35 per cent. rise
gross operating revenues without as rapid an
crease in operating expenses.

Thus, in either eventuality the Electric Plant

Revenue 1939-75 appear to occupy
from the
reasonably Refunding sound position 4s, standpoint the amount

earnings protection. Outstanding in

$22,799,000, of which only $1,851,000 mature prior
issued

to the optional date in 1945, the bonds were Re
last year to refund notes formerly held by the
construction Finance Corporation. Although the

NOVEMBER 23, 1936

PAGE 131

maturities prior to the optional date are not without interest as short term holdings, the main inter-

est is in the later maturities, which appear attractive for income among medium grade municipals.

Gross Revenues:
Electric

Natural gas
Manufactured gas

Crude & ref. oils.
Misc. util. etc
Total

Cities Service Company Debentures

Depreciation

Other Income

Total income
Int.. Disct... etc.

Among speculative issues these debentures are
considered interesting for income. Purchase and
retention are recommended where a large degree

Times chgs. earned

Rating
B

B

B

B

B

Issue

Debenture 5s, 1950
Debenture 5s, 1969
Debenture 5s, 1958
Debenture 5s, 1963
Debenture 5s, 1966

Recent
Price
75

Current
6.67%

1932

1930

000 Omitted

39,678 Notatated Not stated

42.157
34,344
2,161

31,511
2,217

99,114

96,275

116,971

4,175

4,154

4,544

40,748
42,497

181,951

173,835

153,807

168,022

21.867
17,384
45,615
37,164

22,297
17,221

17,744
18,269

39,297

42,041

36,990

37,828

18,367
18,820
42,427
36,961

1.16

1.00

1.10

1.15

204,760

Not stated
8,276
*84,863
31.078
*2.73

and other bonds held: 1932, $3,124,767; 1933. $2,601,191; 1934, $1,796,-

404: 1935. $1,877,225.

Yield

Maturity
8.00%

72%-731/2

*6.80

*7.09

72%-731

*6.82

*7.50

7214-73

*6.85

*7.30

6.73

7.08

74 1/4

1983

1984

Before depreciation. Includes discount on sinking fund bonds

of risk can be assumed for the liberal yields
afforded.

1985

*Computed on the asked price.

The position occupied by Cities Service Company
Debentures characterizes them as distinctly speculative, but they are regarded as possessing some interest in this category. The very nature of the sys-

The improvement shown in 1935 revenues from
natural gas and electric operations and in oil operations adjusted to a comparable basis with 1934, is
distinctly gratifying. The continuance of this trend
in the current year is indicated by results for the
first nine months of 1936 when gross revenues were
$141,924,970, compared with $133,066,285 for the

same period in 1935. The factors principally re-

Gas Corporation and the Cities Service Power &

sponsible for the gains in electric and natural gas
revenues in 1935 were increased demands for industrial use, promotional activities largely in the
direction of appliance merchandising, and the improvement in general economic conditions. In 1936,
the abnormal severity of the winter brought about
a sharp increase in gas sales for heating uses.
The reasons for the continuing gains in revenues
from oil, both in 1935 and in 1936, have been twofold. First, consumption of all oils has been measurably enlarged, and second, the higher and more
stable price structures for crude and refined products have assured more satisfactory "spreads".
Since a large portion of retail marketing costs is
fixed, the increase in volume of commodities sold

Light Company. The first two are holding com-

has had enlarged significance.

tem, with its substantial reliance on oil and natu-

ral gas operations, gives a permanently speculative background to the holding company's debentures.

Although directly and indirectly controlled subsidiaries of Cities Service Company numbered 116
at the end of 1935, it is estimated that over 70 per
cent. of 1935 consolidated gross revenues of $181,-

951,146 was derived from earnings of three principal subsidiary groups. These three are the Empire

Gas & Fuel Company (Del.), Arkansas Natural
panies for oil and natural gas subsidiaries, and the

In the tabulation incorporated below are given

third is the vehicle through which the major part

the changes in the various earnings statement

of the system's utility properties are controlled.

items for the stated periods in 1936 over 1935.

The following table indicates the derivation of

First
Quarter

consolidated gross revenues, and the system's earning power during the recent period of deflation and
subsequent recovery. Incidentally, it should be ob-

Res. for Cont. (Ded.)
Other Income
Total Income

served that earnings for 1932 are the first to in-

Min. Int.

clude the results of Federal Light & Traction

Company and subsidiaries, and that 1935 gross
revenues from crude and refined oils are not comparable with those for 1934 by virtue of the exclu-

ion in the later year of gross revenues of Louiiana Oil Refining Corporation and subsidiaries (in
ankruptcy). Gross revenues for 1934 adjusted to

in approximately comparable basis with 1935

would have been about $160,200,000, and revenues
rom crude and refined oils about $82,400,000.

Gross Revenues

15,496

(2,100

000 Omitted
Third
Quarter
Quarter
Second

+16

+283

484

+1,528

-246

Subs. Int & Pfd. Diva

-102

-118

+575

+350

Co's Int.

-186

Net Income

+1,141

+2,596

300
I-295

42

Total
+8,859

-2,875
+707

+1,577

-262

+315
-164

+1,240

152
327

+187

+1,101

-502

It will be observed from the above figures that
the most significant change was in the first quarter
of 1936, and that a decrease in total income was
in fact reported in the second quarter of 1936, with

only a small increase in the third quarter. The
relatively poor showing of the second and third
quarters in 1936 is primarily accounted for, in the
first place by comparison with extremely good re-

PAGE 132
MOODY'S BOND

sults for the same periods in 1935, and by the fact
that the second quarter is normally one of seasonally lower operations and profits. Incidentally the
item "Reserve for Contingencies," aggregating $2,-

875,000 for the first nine months of 1936, appears

to be provided primarily for possible levies for
taxes on undistributed earnings, and, to an undetermined extent, as a levelling device to stabilize
net earnings.

Barring a major disturbance affecting prices for
crude and refined oils during the coming winter
period of slackened demand, it is expected that
revenues of refining and marketing subsidiaries
will continue to equal or exceed results for comparable 1935 and 1936 periods. While it is possible

that declining production in the Oklahoma City oil
field may, over a period, result in lower aggregate
revenues from crude oil, expanding production in
Rodessa and other fields may well absorb the effects on consolidated income. Since natural gas
revenues were increased to an unusual degree, as

previously pointed out, by the abnormally severe
winter of 1935-36, some decline would no doubt be

recorded in revenues if milder weather should be
experienced in the coming months. The trend of
electric utility operations of the system is expected
to continue upward, since all but a nominal portion

of revenues is derived in areas free from governmental competition and such moderate rate reduc-

tions as are effected from time to time can apparently be absorbed without adverse effects.

Refinancing by companies in the Cities Service
System has to date been limited to $10,000,000, and
it is believed that approximately $140,000,000 more

of subsidiary debt could readily be refunded, with
a saving in annual charges of about $1,500,000.

The income statements of Cities Service Company alone do not as yet reflect the improvement

in system earnings. For example, in spite of the
fact that earnings of the three principal subholding companies have covered preferred dividend requirements, no dividends have been paid and Cities
Service Company has received no return on its sub-

stantial holdings of those preferred stocks. Earnings have instead been applied to the reduction of
interest charges through liquidation of bank loans

and debt to Cities Service Company, and the retirement of bonds. Income of Cities Service Company has been reduced by reason of the two latter

policies. Thus, excluding from 1935 earnings
the holding company unearned common dividends

from subsidiaries and the dubious item of "Dis
count on Sinking Fund Bonds and Other Bond
Held," the balance after interest charges of
747,998 was only $1,939,915. It is believed
Cities Service Company will be able to continue
drawing down sufficient income from subsidiaries

to meet interest on its obligations.

Financial circumstances of the system continue
to improve during 1935, although substantially the
entire decrease in current liabilities from $60,338
096 to $48,109,858 resulted from the lengthening
of bank loan maturities, for non-current notes pay
able increased $11,215,000. Current assets is
creased approximately $6,300,000 to $88,556,166

practically all of the rise being in cash. The
balance of Cities Service Company alone increased
during 1935 by $8,700,000 to $13,195,674, and note
payable were eliminated. This betterment resulted

largely from repayment of advances by subsid
iaries. It is anticipated that the working capital
position of the system and the parent company
have been strengthened during 1936 by increased
net income and by the net proceeds to the system

of over $8,000,000 from the Arkansas Louisiana
Gas Company financing.
Considering the very moderate margin of pro
tection for system fixed charges, it is important
observe the large amounts of outstanding subsidiary bonds, and preferred and common stocks, has

ing a claim on consolidated earnings prior
terest charges of the holding company. Subsidiary
securities in the hands of the public at December
31, 1935 totalled over $403,348,049 compared
outstanding debentures of $186,994,263.
Many of the practices of the system have been
those which the Holding Company Act was designat
to alter, and to the extent of its utility operations
group is subject to the adverse potentialities of
Act. However, 55 per cent. of gross revenues was de

rived from oil operations alone and a considerable
added amount from natural gas properties which
are not yet classified as utilities, so that the COD
tinued existence of the company is less in jeopand

than that of a strictly utility system. In addition
there is at least a fair possibility that the Holding

Company Act may be ruled unconstitutional
that the Act, either by enactment or in practice

PAGE 183

EMBER 23, 1936

be modified into a device for temperate reguon.

the basis of the system's earning power and
spects over the visible future and its indicated
dom from financial involvement, the company's

entures are considered interesting for income
ong speculative issues. Nevertheless, in view of

narrow margin of earnings over charges, the

importance of oil earnings and adverse potentialities of the Holding Company Act, the bonds
must be recognized as a holding subject to fairly
wide price swings such as those witnessed during
the past two weeks. Therefore, the debentures are
recommended only where a large degree of risk
can be assumed in return for the liberal yield afforded.

New Issues-Offered and Proposed
Koppers Company

gentine Republic
ternal Sinking Fund 41/28, 1971

First Mortgage & Collateral Trust 4s, 1951
These recently offered bonds constitute a well
protected medium grade investment. They are
considered moderately attractive for purchase
where an issue of this type is desired.

Moderately attractive at current prices slightly
above the offering, these recently offered bonds
appear satisfactory for income purposes on a
strictly long range basis.
Call
lating

Amount

Baa

$23,500,000

Price
*100

Offering

Maturity

Price

Yield

921/2

4.96%

On any interest date on 30 days' notice as a whole or in part
least $5,000,000).

The above bonds of the Argentine Republic were

blicly offered on November 19. Main details of
e issue appeared in the Bond Survey of Novem-

16, 1936 (page 147). The new issue (rated
aa, the proceeds of which will be used for the
demption of the External 6s, 1958, are the direct,
nsecured obligation of the Argentine government,

hich established a record of prompt debt payent during the depression years.
Under existing conditions the yield afforded on
he new bonds would appear slightly to over-esti-

ate the regard in which Argentine credit is now
eing held in this country. However, some demand
or the bonds is expected to develop from London
here Argentine 41/28 are currently selling on 4.65
er cent. yield basis. Furthermore, some market
upport, if necessary, is likely to be forthcoming,
ince the bonds are the first of a series of proposed
efunding bonds, and any wide recession from the
ffering price would naturally militate against the
success of subsequent flotations.

At the offering price the bonds appear modertely attractive as a sound, medium grade investnent, but appear in need of some seasoning. Mod-

rate commitments are endorsed for income on a
trictly long range basis.

Rating
A

Call

Offering

Amount

Price

Price

$25,000,000

*104

100

Maturity
Yield

4.00%

Except for sinking fund to November 1, 1939: at lower prices

thereafter.

The above bonds of Koppers Company (formerly Koppers Gas & Coke Company) were publicly
offered on November 18. Main details of the issue
appeared in the Bond Survey of November 9, 1936

(page 156). The call feature, which was made
known by amendment to the registration statement, provides that the bonds are callable except
for sinking fund at any time as a whole or in part
at 104 to November 1, 1939, and at lower prices
thereafter. The bonds are also callable for sinking
fund on any November 1, beginning with 1938, on
thirty days' notice at 102 to November 1, 1939, and
at lower prices thereafter.
The new bonds (rated A) constitute a well protected medium grade industrial holding. The company's balance sheet is satisfactory, and interest
requirements are covered by a good margin. Even
in depression periods the company should be able

to earn interest requirements by a satisfactory
margin. The outlook over the next few years is for
wider interest coverage, and consequent improve-

ment in investment strength for the bonds. The
bonds were in demand at the offering price, and
shortly went to a three point premium.

184
MOODY'S BOND SUBRE

Southern Natural Gas Company

aggregating $101,396,000 by a first mortgage
assets carried at $218,574,672 against which
depreciation reserve of $16,441,035. Fixed assets
$2,685,979 of unamortized expenditures of
ing character, as well as intangibles. Bonds
sent approximately a 57 per cent. mortgage 8
ciated fixed capital.

First Mortgage 41/28, 1951
Although currently priced approximately in line
with similar issues, these bonds do not appear

particularly attractive among medium grade
utilities.

Rating
Baa

Call

Amount

Price

$15,000,000

*105

Offering
Price
100

Maturity
Yield

4.50%

*On thirty days' notice to and including October 1. 1941. and at

lower prices thereafter.

There were offered on November 18 at par $15,-

000,000 First Mortgage 41/2s, 1951 of Southern
Natural Gas Company. A detailed description of
the issue appeared in the Bond Survey of November 9, 1936 (page 157). Since their offering the
new bonds (rated Baa) have advanced in price to
current levels of 1001/2 bid-101 asked.
The issue is medium grade, and is not considered

suitable for strictly conservative investment purposes. Although currently priced about in line with
issues of similar quality, the new bonds are not
considered particularly attractive. They do not
meet savings' banks requirements in any of the
more important states.

Consumers Power Company
A registration statement has been filed for an issue of
bonds of the above company, the offering to be made probably on or after November 30. Main details of the proposal
follow:

Interest Protection: Coverage in twelve months ended 0
ber 31, 1936 for total charges amounted to 2.96 t
Interest requirements on the debt to be outstands

would be covered 2.62 times on the basis of the
reported earnings.

Additional Bonds: Additional bonds may be issued to refair

or discharge underlying bonds in equal principal and to extent of 75 per cent. of expenditure for R

chase or construction of new property provided net
ings before depreciation are at least twice interest
charges on total funded debt.
Capitalization: On October 31, 1936, capitalization VII
resented by $101,396,000 funded debt, $70,682,823

ferred and $34,284,725 common stock, constituting
ratio of 49 per cent. funded debt and 51 per cent caps

stock. Ratio after this financing will be 52 per =

funded debt and 48 per cent. capital stock.
Financial Condition: October 31, 1936 -Current assets $
326,789; current and accrued liabilities, $6,625,037 Cash

$1,403,344; floating debt, $1,700,000.
Legality: Bonds of same mortgage meet legal requirement
in New York, Massachusetts, Maine, New Hampshire
California, New Jersey and other states.
Opinion: The new bonds will be high grade and suitable fr
conservative investment purposes. Rating As (subjet
to change only in case of amendments to the regists

tion statement which would affect the security da

issue).

B. F. Goodrich Company

Amount: $12,000,000.

Description: First Mortgage 31/ss, Series of 1936, due 1966.
Purpose: For reimbursing company for acquisitions and capital expenditures.

Call Feature: In whole or in part on any interest date on
thirty days' notice at par plus a premium of one quarter
of one per cent. for each year or fraction of unexpired
life, except that they are redeemable at par on or after
November 1, 1936.

Sinking Fund: A sum equal to at least 1/2 of 1 per cent.
of aggregate principal amount of funded debt is to be

deposited each November 1, and May 1, with trustee as
sinking fund. At least $125,000 semi-annually of such
funds must be used to purchase bonds of this or other
series at not exceeding call price. Moneya in excess of
$125,000 may be used to reimburse company for property additions through purchase or construction.
Nature of Business: Consumers Power Company, which is
the most important subsidiary of the Commonwealth
& Southern Corporation, serves substantially all of the
lower peninsula of the State of Michigan excepting the
Detroit area. Its income obtains predominantly from the
sale of electrical energy-approximately 71 per cent.
of total gross deriving from this source, with gas sales
accounting for nearly 22 per cent. and heating and water

representing virtually all of the small balance of in-

come. The region is very highly industrialized and revenue fluctuations tend to be wide in consequence.
Security: New issue will be secured equally with three other
series (3 1/2 per cent., 8% per cent. and 4 per cent.)

A registration statement has been filed for an issue
bonds of the above company, the offering to be made probab

on or after November 27. Main details of the proposal
Amount: $27,000,000.
Description: First Mortgage 414s, due December 1. 1956
Purpose: $17,571,000 of the net proceeds of this issue
be used to redeem company's outstanding First baland

No

gage 61/28, 1947 on February 1, 1937 at 107. The include

will be used for general corporate purposes,
additional working capital.
Call Feature: Redeemable as a whole or in part at any
on thirty days' notice (except for sinking fund)
to December 1, 1939 with successive reductions

per cent. on December 1 in each of the years 1989, fund

1947, 1951 and 1955. Also callable for sinking thereafe

103 1/2 to December 1, 1938, and at lower prices

Sinking Fund: Beginning December 1, 1937 and each fund

thereafter the company will pay into a sinking
amount sufficient to retire a minimum of $675,000
amount of this series, and an additional $185,000
amount, if consolidated net earnings for the preceus

calendar year exceed $7,000,000.
Nature of Business: B. F. Goodrich Company is one of
leading tire and rubber producers, ranking approximate Comp

equal in size with Firestone Tire and Rubber which
and United States Rubber Company, each of &
of more moderate coope than Goodyear Tire
Company. About 60 per cent. of the company's rubber
comprise tires and rubber, about 15 per cent.

PAGE 135

VEMBER 23, 1936

canvas footwear (made by the Hood Rubber Company),
and the remaining 25 per cent. consists of belting, hose,
molded goods, druggists sundries, etc. In the three years
ended with 1935 General Motors Corporation purchased
from Goodrich an average of approximately 2,000,000

tires annually or about 25 per cent. of the company's
output. The company supplies its own cotton tire fabric
requirements, but unlike Goodyear, Firestone and United
States Rubber does not control any rubber producing
properties.

urity: The new bonds will be secured by a first mort-

gage on substantially all of the fixed assets now owned
or heretofore acquired by the company, and also by the
pledge of all of the outstanding capital stock of Hood
Rubber Company, Inc. Goodrich Silvertown, Inc., and
Philadelphia Rubber Works Company. Also pledged as
security to the new bonds are certain stocks and bonds
of Canadian Goodrich Company, which represent a substantial portion of this company's total capitalization.
rings Coverage: Net income (adjusted to eliminate nonrecurring credits and debits) available for interest on
funded debt and Federal income taxes would have
covered interest requirements on the company's capitalization, after issuance of the new bonds, 3.85 times in
the six months to June 30, 1936 and 2.40 times in the
fiscal year 1935 as against 1.83 times in 1934 and 1.53
times in 1933.

ditional Bonds: Additional bonds not exceeding $18,000,000

may be issued in other series ranking equally with this
issue, subject to certain restrictions.
nnce Sheet: A consolidated balance sheet of June 30, 1936,
which did not give effect to the issuance of the new bonds
and the addition of between $8,000,000 and $9,000,000 of

new treasury funds, revealed a fairly satisfactory position. Current assets of $77,484,000 compared with current liabilities of $20,077,000. Cash amounted to $8,745,000. Notes payable to banks of $8,332,000 on June
30, 1936 are reported to have been substantially reduced
since that time. Current liabilities also included $1,989,000
of Hood Rubber Company bonds, due December 1, 1936.

nion: The new bonds will represent good medium grade
quality. Rating, Baa (subject to change only in case of
amendments to the registration statement which would
affect the security of this issue).

Kansas City Southern Railway Company
he Kansas City Southern Railway Company recently apa to the Interstate Commerce Commission for authority
issue $3,195,000 of Equipment Trust Certificates, Series
Dearing annual dividends of 3 per cent. and maturing in
en annual installments of $213,000 each on January 1,
B and on each January 1 thereafter to and including the
maturity. The certificates will be dated January 1, 1937
dividends will be payable semi-annually July and Jan-

1 of each year.
The proceeds from sale of the certificates will be used
purchase ten steam freight locomotives; 800 steel box
: 100 steel coal cars; four steel passenger coaches; one
dining car. The total cost of the equipment to be pured is approximately $3,993,735 indicating a cash payment
0 per cent.

Of the total issue $1,917,000 certificates (the last nine
arities) will be purchased by the Bankers Trust Company,
tee for Kansas City Southern Railway First 3s, 1950 with
in a fund representing part security for the latter bond.
balance of the certificates or $1,278,000 will be sold at

competitive bidding and will probably later be offered to the
public.

The Series F Certificates will probably be rated Aa, indicating good investment quality. Their attractiveness however, will depend on the price at which the various maturities
are offered for public subscription.

Oklahoma Gas & Electric Company
A registration statement has been filed for an issue of
bonds and an issue of debentures of the above company, the
offering to be made probably on or after December 3. Main
details of the proposal follow:
DETAILS OF FIRST MORTGAGE 396m, 1966
Amount: $35,000,000.

Description: First Mortgage 3%s, due December 1, 1966.
Purpose: Together with $9,500,000 debentures for refunding
of present mortgage bonds and debentures to be retired
as follows:
Issue

Oklahoma Power Holding

Price

Date

Amount

First 534. 1943

1021/4

Jan 11,1937

$682,800

First 5a. 1950.
Debenture 6a, A. 1940

103

Mar. 1,1937

101%

Jan. 11,1937

34,500,000
7,217,000

Oklahoma Gas & Electric

Call Feature: As a whole or in part on any date on thirty

days' notice at 1071/2 prior to December 1, 1941, and at
lower prices thereafter.
Sinking Fund: None provided. A maintenance fund requires

the expenditure of an amount equal to 15 per cent. of
gross operating revenues annually for maintenance, re-

tirements or the purchase of bonds.

Nature of Business: Oklahoma Gas & Electric Company, a
subsidiary of Standard Gas & Electric Company, is engaged exclusively in the sale of electricity. The operating field with a total estimated population of 590,000
embraces 214 communities in central and eastern Okla-

homa including Oklahoma City (185,390) and 23 in
western Arkansas, including Fort Smith (28,870). The
territory has experienced considerable growth, particularly along industrial lines. In recent years the production and refining of oil has been of increasing importance

in Oklahoma area, and it is estimated that during the

period from 1930 to 1935 inclusive the company derived
16 per cent. of total revenues from electric sales to the
petroleum industry. As last reported, industrial revenues
represented 31 per cent. of the total.
Security: New 8% series will be secured by a first mortgage

lien on all property. Net fixed assets exclusive of intangibles will be mortgaged to the extent of 53.7 per
cent. and bonded to the extent of 68.3 per cent. Book
values which include intangibles of $7,100,000 are to a
large extent stated on the basis of appraisals made by
Byllesby Engineering & Management Corporation, an
affiliate.

Interest Protection: Earnings (with maintenance and depreciation adjusted to 15 per cent. of gross revenues) for the
twelve months ended September 30, 1936 were equal to
3.62 times annual requirements on the First 8% 2.8
times requirements on all funded debt and approximately
2.35 times estimated fixed charges. On the same basis
average earnings for the past three calendar years were
equal to 3.10 times, 2.45 times and 2.00 times respectively.

Additional Bonds: Additional bonds of this or other series
may be issued for refunding purposes and also up to
66% per cent. of the cost or fair value, whichever is
less, of permanent additions in the process of construc-

PAGE 136

MOODY'S

tion on or constructed after December 1, 1936, subject

to certain restrictions.

Capitalization: Giving effect to financing capitalization will

consist of $35,000,000 First 3%s, 1966, $9,500,000 4 per
cent. Debentures, 1946, and $36,069,500 capital stock.

First Mortgage bonds will comprise 43.4 per cent. of
total, Debentures 11.8 per cent. and capital stock 44.8
per cent.

Financial Condition: On September 30, 1936, current assets
amounted to $3,985,225 as against current and accrued
liabilities of $2,528,000, the latter excluding consumers'
deposits of about $800,000.

Tax Status: Company agrees to refund the Pennsylvania
5-mills tax, Massachusetts income tax not exceeding 6
per cent. and, in the case of corporations other than
those incorporated under Oklahoma laws, the Oklahoma
income tax not exceeding 6 per cent. According to a recent decision of the District Court of Oklahoma County,
the Oklahoma income tax is void as applied to nonresident bondholders.

BOND

DETAILS OF DEBENTURE 1944
Amount: $9,500,000.

Description: Debenture 4s, due December 1, 1946
Purpose: Together with $35,000,000 First 3% 1966

refunding of
$44,500,000.

present bonded debt outstanding

Sinking Fund: Commencing December 1, 1937, an sufficient to retire $475,000 principal amount of delo
tures annually.
Call Feature: As a whole or in part at any time 00 to
day's notice at 104 prior to December 1, 1938, the
mium decreasing one half per cent. on December
1938 and each December 1, thereafter to and include

December 1, 1945. Bonds may be retired at para
after December 1, 1945.
Security: Debentures are a direct but unsecured obligate
of the company.
Tax Status: Company agrees to refund Pennsylvania Sell
tax and Massachusetts income tax not exceeding
cent.

Opinion: The new mortgage bonds will represent sound
quality and will be suitable for general investment pur-

poses. Rating, A (subject to change only in case of

amendments to the registration statement which would
affect the security of this issue).

Other Details: See description of First 3%s, 1966.
Opinion: Debentures will be of good medium grade Rath
Bas (subject to change only in case of amendment
the registration statement which would affect the ye
ion of these debentures).

Review of Previous Recommendations

Duluth, South Shore & Atlantic Railway Company Bonds
Net earnings of the company for the current year are
likely to be the best in ten years. Senior interest charges

on bonds held by the public will probably be earned
over one and three-quarters times in the current year.
Retention of various senior issues appears warranted
Duluth, South Shore & Atlantic Railway Company, a
subsidiary of the Canadian Pacific Railway Company
will, for the current year, make the best net showing in
about ten years. As shown below, interest charges on

1935

*1936

Omitted

(000's

at

Gross Revenues

$2,860

$2,771

Net Operating Income

as

582

Other Income
Total Income

$86

569

Balance Avail. for Charges
Senior Charges
IJunior Charges
Times Senior Charges Earned

$80

543

336

943

F

The bonds recently sold at 193% approximately in
line with their conversion value in terms of the common
stock, which recently sold at 681/4. If there is no intention on the part of the holder to convert to stock,
there is no longer any reason for delay in effecting sale.

senior bonds held by the public (as distinguished for
junior bonds held by the Canadian Pacific Railway, VII has received no interest for a long period of years)
covered 1.58 times in the twelve months ended Septe
ber 30, 1936.
,

Allis-Chalmers Manufacturing Company Convertible Debenture 4s, 45-Institutional holders are again advised to
effect sale. Holders in a position to own shares are advised to convert into stock.
The company has called for redemption on December
24, all of its outstanding Convertible Debentures of 1945.
The bonds are called at 103.
The bonds are convertible at the rate of 28.6 shares
of stock for each $1,000 bond. Directors recently declared an extra dividend of 50 cents per share of stock
and a regular quarterly dividend of 37 1/2 cents per share,
both payable December 24 to stockholders of record November 30. After these dividends total distribution for
the year will have aggregated $1.50 per share, or about
half estimated 1936 earnings.
Possibility of early call was mentioned in the Survey
of October 26, 1936 (page 179) when sale of the bonds
by institutional and other conservative holders was advised.

604

604

1.18

1.58

0.6

0.57

Times
Charges
80 1936.
Twelveall
Months
endedearned
September

Deficit

terest on bonds owned by Canadian Pacific

The substantial improvement in earnings that
in recent years reflects the greatly increased for int
activity and the consequent larger demand year is

chief traffic item. Last of

42 of the tonnage
which per is cent. Duluth's handled considerably consisted lat

ore. This year the percentage will be also help
Increased traffic in products of forest tonnage
materially.
Chief Commodities Carried LOVE
-Lumber-Iron OreRevTons

Rev.
enues

1928

1.054

$555

1929

1,161

646

1930

515

1982

158

456

Tons

000 omitted
$668

423

607

803

455

255
RE

174

264

92

115

712

1931

Tons

Revenues

766

enues

Pulp
Team

$899
291

246
121

53

12

in

10

215

1933

531

294

150

1934

755

876

152

226

1935

777

472

280

340

Outstanding is the fact that this year's iron
nage and the revenue derived from the figure
thereof will probably exceed corresponding

PAGE 137

(OVEMBER 23, 1936

1928 and 1929. This rapid recovery of ore tonnage and
ore revenues to the 1928, 1929 levels presumably reflects
improvements made to the South Shore Dock Company

property at Marquette, Mich. During 1930-1932 about
$1,350,000 was spent on the ore dock properties.
The Marquette, Houghton & Ontonagon Railroad Company General Mortgage 6s and the Duluth, South Shore
& Atlantic Railway Company First Mortgage 5a both
mature January 1, 1937. So far there has been no indication as to what the management intends to do about
these maturities. Duluth, South Shore & Atlantic Railway Company by itself is not in a position to effect a
refunding operation and whether or not the parent Canadian Pacific Railway Company will lend its financial support is not clearly indicated. Probably the most reasonable expectation is that extension of maturity will be
proposed. In this connection it is of interest to note
that the Marquette, Houghton & Ontonagon General
Mortgage 6s, 1937, originally matured April 1, 1925.
When they came due they were extended for ten years
to April 1, 1935. At the latter time most of the bonds
were further extended to January 1, 1937, but holders
of $71,000 principal amount who did not accept the
extension were paid off in full.
Inasmuch as the Duluth, South Shore & Atlantic Railway Company last year more than earned its senior
charges and will again this year more than earn senior
charges, it is possible that the Canadian Pacific Railway Company would purchase bonds of holders not accepting an extension, assuming extension of maturity
is proposed. There is, of course, no certainty in this connection. Much would depend upon the amount of bonds
involved.

In view of the fact that senior interest charges on
bonds outstanding in the hands of the public are being

covered with a good margin, a continued interest in

the three senior issues listed below seems reasonable
-for income at least, if not further price appreciation.
With respect to the South Shore Dock Company First
Mortgage 5s, which mature annually in varying amounts
to and including December 1, 1945-little risk attaches
to an interest therein as the Canadian Pacific Railway
in effect guarantees the payment of principal and interest.

Recent prices for the bonds of the company outstanding with the public follow:
Recent

Rating

Issue

South Shore Dock Co. First 5a to 1945
Marq. Hough & Ont. R. R Gen. 6a. 1937

Dul., S.S. & Atlantic Ry. First 5a. 1937

Price

100 bld
98-100
81%

1935 charges were earned 1.37 times, 1.18 times in 1933,
1.03 times in 1932 and 1.89 times in 1931.
Nine Months Earnings:
Gross Revenue
Maintenance of Way
Maintenaneve of Equipment

Transportation Expense
Net Railway Operating Income

Other Income

Total Income
Balance for Fixed Charges
Fixed Charges

Times Charges Earned

1935

1936

$4,208,056
565,781
581,742

$8,467,834
466,178
571,644

1,068,530
1,016,810
51,216
1,068,026
1,064,543
619,730

585,006

1.70

1.48

873,810
806,282
75,279
880,561
866,121

There has been no official statement regarding the
termination of the strike. However, traffic recently was
considerably heavier than a month ago. Whereas it
reached a low point of 1,383 cars in the week of September 26, it recovered to 2,382 cars in the week of
October 31. During the worst week carloadings were 35.7

per cent. below those of the same week last year, but
for the latest week reported (week ended October 31)

carloadings were only 0.6 per cent. below those of a year
ago.

Working capital position has been considerably improved this year. At the end of September current
assets were $3,155,000 including $1,750,000 cash compared with current liabilities of $808,000. On September
30, 1935 current liabilities were moderately in excess of
current assets. Working capital at the end of September,
1936 amounted to $2,347,000, close to three times annual

fixed charges.

Funded debt is represented largely by the First Mortgage 5s, 1969 (rated Baa). Although the current level
may seem high in relation to the price of 15% established
in 1932 on the New York Stock Exchange, there seems
no reason to sell in view of the strong working capital
position and the satisfactory coverage for fixed charges.
The bonds no longer have great price appreciation
possibilities, but they could advance five or six points
as they are callable only at 103. They were last recommended in the Bond Survey of October 19, 1936 (page
185) and recently sold at 97%

Louisiana Power & Light Company First 5s, 1957-Retention of these bonds for income is recommended, despite

the fact that they currently sell somewhat above their

call price.

The earnings of the Louisiana Power & Light Company, both gross and net, have enjoyed inordinate expansion over the elapsed portion of the current year;
the gain in gross having averaged over 23 per cent. in
the first nine months and in net to over 31 per cent.
As a result of this experience the coverage for fixed
charges rose from 1.92 times in the calendar year 1985
to 2.27 times in the twelve months ended September 30,
1936. The enlargement in the margin of protection for

uisiana & Arkansas Railway Company First Mortgage
5s, 1969-Charges are likely to be earned close to one
and three-quarter times this year. Working capital position is strong. Retention of First Mortgage Bonds for

charges was particularly gratifying in view of an increase of over 25 per cent. in the appropriation for

income and moderate price appreciation recommended.
Louisiana & Arkansas Railway Company, one of the

able to the vastly increased sales of power to other
utilities, who were obliged to buy additional blocks of
power because of the impairment In the efficiency of

few railroad companies to earn fixed charges fully in
each year and in each month of the depression period,
is doing considerably better this year than last year. As
shown below, fixed charges were earned 1.70 times in

the first nine months of 1936 compared with 1.48 times in
the same period of 1935.
Although gross and net results in October were poor

because of strike difficulties the probability is that the
1936 coverage for fixed charges will be better than that
of 1935 when fixed charges were earned 1.55 times. In

depreciation.

The magnitude of this improvement is in part attribut-

their hydro-electric generating facilities due to low water
conditions. While under more normal climatic conditions
this factor will have a diminishing influence upon future
earnings, the substantially increased demands for power
in that general area suggests the continuation of a high

level of earnings. The working capital position of the
company continues strong.

The First 5s, 1957 (rated A) are regarded among the

PAGE 138
MOODY'S BOND SUNVIL

more desirable of the medium grade issues. Although selling somewhat above their redemption price (which will be
104 1/4 after November 30, 1936), redemption over the
near future is considered unlikely and the bonds are considered worth holding for income. Most recently reviewed
in the Bond Survey of March 23, 1936 (page 491), the
bonds recently sold at 105%

& Refunding Mortgage 5s and $447,000 Second
4 1/28. The poor credit position of the Susquehama Morty

in no recent year earned fixed charges fully,
normal refunding operation. The parent, Eale provide
too, is not in a position to lend
As a result, the proposal to
appears assistance. Company, reasonable
extend thereto
by much material
Ralea
and consent
bondhelle
all, if holders of a

New York, Susquehanna & Western Railroad Company Bonds

advisable. bonds should After substantial -

-It is suggested that holders of First Refunding 58,

of not accept maturity extension, I

1957 and Second Mortgage 4 1/28, 1937 assent to proposed

difficulties would be a possibility, although in this

plan of maturity extensions. Retention of the General

nection the thought does present itself that

Mortgage 5s, 1940 appears a reasonable course,
New York, Susquehanna & Western Railroad Company.

minority holders of New York, Chicago & St. certain Las
Railroad Company 6 per cent notes, due originally Octo

controlled through stock ownership by Erie Railroad
Company, is asking holders of maturing bonds to consent to a plan of maturity extension whereby the First

ber 1, 1932 and subsequently October 1, 1985 did in
purchased at close to 100

a of the

Refunding Mortgage 5s, due January 1, 1937 (rated Ba)
and Second Mortgage 41/2s, due February 1, 1937 (rated
Ba) would be extended at the same rates of interest to
August 1, 1940 (the maturity date of the junior General
Mortgage 5s, 1940) with interest for the 3 1/2-year period
guaranteed by the Erie Railroad Company.

Company. It will be recalled the
connection that the Chesapeake & Ohio Railway Cos
Transportation & their Ohio bonds Railway Company, subsidiary by the Chesspak Virginia is

pany has a large stock interest in the Erie Railroad Can

pany as well as the Nickel Plate.

Although nothing definite has been said by either to
Susquehanna or the Erie with respect to what will is
done in 1940, it is possible to infer that the Erie agement hopes that by 1940 its earnings and financial
position will permit a successful refunding operation E
that time. All such thoughts are, however, purely jectural at this time.
The First & Refunding Mortgage 5s. 1937 recently

The company states that it "is unable to provide in
the usual manner by the sale of securities, or otherwise,
sufficient cash for the payment of these First Mortgage
Refunding bonds and Second Mortgage bonds at maturity" and asks holders of the bonds to consent to the
maturity extension and to signify such consent by deposit of the bonds with the New York Trust Company

sold at 921/2, the Second Mortgage 4 1/28, 1937 at 86%

The General Mortgage 5s. 1940 (rated Ba) selling
70, may quite possibly be benefited marketwise by to
management's proposal to extend the maturities of a
maturing senior bonds, particularly if, as seems probable

annual interest due January 1, 1937 on the First & Refunding Mortgage 5a and interest due February 1, 1937
on the Second Mortgage 4 1/28 is offered bondholders as
of the date of deposit.
There are outstanding with the public $3,744,000 First
The

volume

holders of most of the maturing bonds agree to for

extension.

NEW DOMESTIC CORPORATE ISSUES (8,000,000)

of

of the United States refunding will have operations been replaced continues by new very issues, high. in In most 1935 cases and 1936 bearing combined, lower coupons. more than 10 per cent. of the entire corporate fill

Productive

Bonds
New
2,667

1982

1,588
1,054

2,078
2,980

451

1,239

789

542

306

815

1988
1934

1935

Y

8,431
2,028

620

Aug

1,781

Sept

1,939

Nov
Dec

843

796

1936-Jan

24

209

Feb

106

Mar
Apr
May
June

22

158

455

35

2,116

1.801

Oct

811

1,782

74

151

94

a

2

as

112
17

20

June

so

...

120

115

182

82

121

115

129

24

29

156

185

42

230

27F

70

164

234

81

216

247

e
61

July
Aug
Sept
Oct

Issue

Refunding Total

85

Stocks
24

19

133

201

262

170

173

34

46

525

571

102

492

593

65

13

252

965

40

123

826

448

39

222

261

146

56

201

48

156

200

60

249

309

79

33

31

45

57

6

27

483

13

11

509

as
2

Pledmont
& Northern Railway Co.:
1st 3% 1966

"lat 846. 1966

As

Galesburg General obligations Sanitary District Illinois
A

dulf
Mobile
Railroad Co.
Equip.
2% s&toNorthern
1944
Hardeman County. Tennessee:
General obligations
Montana Power Co.:

1936-10 Mos.
1935-10 Mos.

643

2,647

8,290

258

1,481

1,737

999

113

NEW AND REVISED RATINGS

NEW RATINGS

Consumers Power Co.:

RATINGS REDUCED

A Consumers Power Co.:
Bas
1st 8% 1965

Deb serially to 1946

A

Ba

A

Ohio *lat Associated 41/20 1966 Telephone Co.:
Bas

Oklaho3%
-lat1906
Ges Electric Co.:

#209, Cook County. Illinois:
General obligations

Toledo, Peoria & Western Railroad:

1st lien coll. 1964

1st 140 1970

1st 40. 1944
Ba

"This rating has been assigned
formation in the registration statement (where

with the SEC has been examined

Bas

Wheeling & Lake Erie Railway Co.:
Equip. trust 214s to 1941

West
RATINGS Water Service RAISED Co.:
1stVirginia
4a. 1961

A

Bas latration statements are not required

Western 1st 4a Light 1966 & Telephone Co.

Ana

A

Bas

Ass
Ass

1st 316m 1965

Pittaburgh Equip. 2148 to West 1946 Virginia Rallway Co.

Proviso Township High School District

*1st & ref. bonds 1966

*Deb. 4a 1946

New

1/102

187

334

(Bda & Stks.)

100
1,526

40

Feb

July

g

144

1985-Jan
Mar
Apr
May

1,220

4,769
8,489

Bonds

.

1930
1931

8,188
2,885

3,854

Production

Issues

6

1929

Stocks

a

1927
1928

687

Total

i

1926

Refunding

Bas to A

other information has been examined
registration statements are, in practice or to the

ject to adment any time prior date

fering. The rating may be subject

if any amendment to the registration the
ment
should be filed which affects
Ity of the proposed new issue.

NOTE Our opinions and reports are based - information believed to be reliable. but they are not percented.

Printed

--

4

of New York. As an incentive to early deposit semi-

339 Fin
November 30, 1936.
10:10 A.M.
Present:

Mrs. Klotz

Mr. Bell

Mr. Upham
Mr. Haas.

Mr. Taylor.
Mr. Seltzer
Mr. Murphy
Mr. Lochhead

Mr. Harris

Mr. Gaston

H.M.Jr:

Now where's Bell?

Bell:

We will need new cash to run us up till March 15 -

of the estimates?

- Can you give us some idea

about 350 to 400 million dollars. I put in this
estimate -

H.M.Jr:

Excuse me. Why don't Seltzer change places with
Cy Upham? Then you can hear better.

I'm sorry; go ahead.
Bell:

This estimate contemplates 400 million dollars
of new money: 200 million in December on Treasury
bills and a hundred million in January on Treasury
bills; then it contemplates 500 million in December,
on December 15, in longer terms, 400 million of
which will be used to retire the maturing Treasury

bills. That will give you a balance of about 900
million going out of December, 800 million dollars
going out of January, and 600 million dollars going
out of February, which would be reduced to - about
the 12th, down to about 500 million. Then your taxes
begin coming in.

H.M.Jr:

12th of February?

Bell:

No, 12th of March.

H.M.Jr:

Oh. You said -

Bell:

I said we go out of February with 600 million
approximately. Then, until about the 12th of
March, at which time you begin to receive your

340

-2taxes, the balance will be further reduced
by 100 to 125 million, so that your balance
just before the 15th of March will be around
500 million dollars. Make it clear?
H.M.Jr:

Yes, I got it.

Bell:

Now, on March 16, 100 million dollars of the
Treasury bills issued in December for new

cash would mature; on March 17 and 18, another

100 million on each of those days will mature.

H.M.Jr:

Yes.

Bell:

So that the 300 million in new cash would

H.M.Jr:

Bell:

Well, I haven't agreed to that yet.
No, you haven't. I say this estimate contemplates I mean I haven't agreed - I wouldn't have all the
300 on the 16th, but - but whether it's on one
day or three days, this thing needs That's the picture.

H.M.Jr:

Let me see if I've got it. If we sell 300 million

Bell:
H.M.Jr:

mature March 16, 17, and 18.

dollars worth of bills into the 16th of March and
take a hundred million dollars new money, your
best estimate is that on the 13th of March we'll
have about 500 million dollars cash money.

Bell:
H.M.Jr:

Bell:
H.M.Jr:

That's right.
It's not enough.
Oh yes it is.
No - no - no; not with conditions as they are.
Now let me ask you some questions if you don't

mind. - Everything that goes on in this room today

is extra extra confidential; just can't be any I mean I don't have to say it, but if I didn't,
well, you might say, "Well, you didn't tell us,"
and so this is triple X, triple extra.

341

-3How
are you counting on windfall tax on themuch
index?
Bell:

I'm counting on the 80 million. But George's
estimate puts it in December. I've spread it

over January, March - - December, January and

February.
Haas:

We put it, but we were not so sure it's going to
be gotten, because it might be litigated and all
that sort of thing. I - but I don't think in
our estimates we - in our estimates we cannot
take that into account, but I think for practical
purposes you should take it into account.

H.M.Jr:

What?

Haas:

In other words, if you are going to have difficulty in collecting the tax because of legal
obstacles - I don't think we can take those
things into account in making our estimates,
but I think you should here in figuring your
financing.

H.M.Jr:

Then how much you figuring on for Social
Security?

Bell:

Well, the estimate is 35 million in January and
50 million in February; about 50 million in
March. I've taken about half of it in each case.

H.M.Jr:

I see.

Bell:

But this has flexibility in case those revenues
do not come in. We've got to put about 300
million dollars maturity in June, so that if we
do not get the windfall taxes we can begin middle
of January to put bill maturities into June up to
300 million dollars, which will replace all the
revenue you lose in windfall and Social Security
taxes.

H.M.Jr:

That still isn't enough.

Bell:

Well, you're going to get eleven hundred million
dollars in taxes in March.

H.M.Jr:

Says who?

342

-4Bell:

(Points to Haas)

Haas:

That's a little more firm than the windfall.

H.M.Jr:

Well, how firm?

Haas:

I think that is our usual grade of estimate.
Their estimates indicate that they'11 get over

Bell:
H.M.Jr:

twelve hundred million.

When - the 300 million bills we are selling now
into the 15th of March; when is the last week
on that?

Bell:

January 13.

H.M.Jr:

Then if we wanted to sell into June we could

Bell:

Yes.

H.M.Jr:

Are you pretty sure on your 500 million?

Bell:

Reasonably sure. I've kept the relief expenditures up on February - 210 million is the lowest.
Let me ask you this. How much do you figure that

H.M.Jr:

start right then, go right on.

Wallace is going to shoot out on these checks, huh?

Bell:

Very little of -

H.M.Jr:

Three A checks.

Bell:

Well, that's all the General; I'm keeping General
up around 300 million.
These estimates are all lined up for the better
picture, including 500 million dollars extra for

H.M.Jr:

Bell:
H.M.Jr:

relief.
hat's in?

Yes, sir.
Well, what harm would there be - instead of taking
extra hundred, let's say we took - well, the top
would be three hundred.

343

-5Bell:

What do you mean?

H.M.Jr:

300
million
extra cash
it seven
instead
of - on December 15, making

Bell:

Five.

H.M.Jr:

- of five.

Bell:

No harm except your balance would be large.

H.M.Jr:

Well, a large balance will give us - more or

Bell:

Well, it doesn't hurt your excess reserves in
the first instance. It may take money out of
the money market and pile it up in the Federal

less increase excess reserves?

Reserve Banks.

Seltzer:

It depends on how you handle your proceeds.

If you leave them with the country banks, it

will be increased when you spend.
Bell:

When you spend, though, the first instance
doesn t affect your excess reserves.

Seltzer:

It is the spending.
You have that in either case.

Bell:
H.M.Jr:

Well, I feel that, for the market's sake, this
afternoon I want to - I want to say this afternoon how much new money we are going to take.
I want to settle it down, see? What?

Bell:

Yes, I understand.

H.M.Jr:

Wayne, would you ask Dan any questions. Dan's
on the witness stand. What would you do?

Taylor:

I wouldn't go above 200, for two reasons, one
which isn't as important as the other: that you
one time said that you are going to take only

750 million for the balance of the fiscal year.

H.M.Jr:

Net 750. We've already asked for - how much?

Bell:

470 million.

344

6H.M.Jr:

We already have?

Bell:

Yes.

Taylor:

I'd keep a hundred of that out. On this question
of balance, for psychological reasons I wouldn't
use up the new money. I also think you can go
down on your balance; not materially, but I think
you can go down on it.
So, by a very mathematical system of reasoning,
I have come to figure a maximum of 200.

H.M.Jr:

Are you through?

Taylor:

(Nods affirmatively).

H.M.Jr:

George?

Haas:

I don't know, I was leaning towards a somewhat
larger balance than Dan has suggested. But

I think you can go perfectly safe on his suggestion. But I think if you want to be absolutely
safe - I think it would be better to continue
with your current practice of being somewhat
higher, because after all your expenditures in
"toto" are so much larger in recent times than
they have been, that I think that while you
probably can go through with this, it would be
a very serious situation if something occurred
that you couldn't meet your situation and had
to come out with some extra financing.

Gaston:

If you speak about 750 million of new money,

Bell:

No.

Gaston:

So that you've got 12 hundred leeway, less your
four hundred and something, which would give
you eight hundred; but you have got to count
your savings bonds borrowing, which will amount
to about, perhaps, 300 million out of that. That
would leave perhaps four or five hundred million

does that include - that did not include the
500 million for drought relief, did it?

dollars. And incidentally, you'll have about

60 to 75 million of savings bonds between now and

March 1.

345
7H.M.Jr:

In your estimates, first, was the - - The President
asked for 500 million. When you said the net
borrowing would be 750 for this fiscal year, did
that include 500 million dollars that the President
would ask Congress for?

Bell:

No, it didn't.

H.M.Jr:

It did not?

Bell:

No.

Gaston:

No, it did not.

H.M.Jr:

Just a minute, Herbert, please; just a second.
It did not?

Bell:

No, sir.
Then did you in your estimate - you do include the

H.M.Jr:

Bell:

You've got them for 25 million.
You've got I've got them down for 20 million a month.

H.M.Jr:

But they are down.

Gaston:

Oh, they're down.

H.M.Jr:

But the 500 million which we are going to ask for
for relief was not included?

Bell:

No, sir. It was only mentioned in the budget
message. The 500 million was not in any of
our budget statements. To get a true picture and if the President asks for and spends 500 million,
the 750 would be increased to a billion, 250.
The 750 would be increased to a billion, 250. Right?
That's right.

Gaston:

H.M.Jr:

H.M.Jr:

Bell:

C

savings bonds?

346

-8H.M.Jr:

All right, then, I say - I say, with the market
conditions as they are, we ought to make this

new money either 700 or 750.
Bell:

I have no quarrel with that.

H.M.Jr:

Whether it's 700 - The market expects 300

Bell:

300 million new money would make about 770

million of new money.

million. Your Treasury bills, see, don't count.

H.M.Jr:

No.

Bell:

They mature within the year.

H.M.Jr:

How much would it make?

Bell:

About 770 million, exclusive of savings bonds.

H.M.Jr:

Exclusive.

Bell:

Yes, sir.

H.M.Jr:

And including savings bonds?

Bell:

H.M.Jr:

Well, say 25 million a month. They don't run
that because you have anywhere from two to three
redemptions. They run a little over about 20
million a month, about 250 million for the year.
Well, let's say we went - let's just figure 770,

Bell:

I think you can put down 250.

Taylor:

He's light on that.
I think so too. I think we better put 350.
That's 1120, so we'd still be short - counting
350 we'd still be short 130 million. What?
That's right.
Well, let's put it this way: Who says I shouldn't,
who thinks it is a mistake that I should ask for

H.M.Jr:

Bell:
H.M.Jr:

plus how much for the savings bonds?

300 million new money. Anybody? Seltzer?

347

9

Seltzer:

I think you ought to raise it because - one thing,
we are counting on some new taxes, and we can't
estimate as closely on new kinds of taxes as we

Bell:
H.M.Jr:

can on others. In the second place, as you
pointed out, this 500 million of additional
relief expenditures has been mentioned; it isn't
part of the budget picture, but the President and
the press have all assumed that the money will be
raised, and you ought to be prepared to spend
that new money, that extra 500 million. Then,
to keep the additional relief expenditures within
500 million is going to take quite a little cutting
in relief expenditures and Congress may not go
along 100 percent on that. Then you have your
statement that the times call for a large cash
balance. Well, you get down to around 500
million and, even if it is just a few weeks it
doesn't seem to jibe with the previous statement.
It isn't a few weeks; it's a few days.
Well, even at that - I mean I estimated that a
billion dollar balance cost two million dollars;
it isn't costing that much now, it's costing about
a million dollars. And these short notes - God
knows what they'11 sell atl But right now the
cost is below two million dollars a year with a
billion dollar balance. Dan?

Bell:

(Smiles) The market, I should think, might have
a pretty hard time putting a rate on these three
months bills.

H.M.Jr:

Well, let's say - you want to say anything (to
Upham)?

H.M.Jr:

Well, I should like to see us begin borrowing to
offset gold inflow, according to this new idea,
so I'd be in favor of borrowing as much as
possible, not for the purpose of building up
the cash balance, but to set aside as an offset
to gold inflow.
That wouldn't do it.

Upham:

Beg pardon.

Upham:

348

- 10 H.M.Jr:
Upham:

This extra 300 million wouldn't do it.
I think some of it might be put aside.

Bell:

That's another problem which we've got to face
when you decide the policy.

H.M.Jr:

Isn't that purely internal?
If it is handled that way. If it is handled one
way, it is internal, if it can't be done the

Taylor:

other way.

Upham:

That's a special reason for liking to see you

Bell:

That's one way of doing it. You can borrow
three or four hundred million dollars now and

get as much as you can.

then use it later on to carry out that policy

you've been talking about.
H.M.Jr:

Upham:

But this - I don't want to do anything that
would block my handling the gold. Whether I do
or don't, I don't see that taking this extra
money - well, it doesn't make it harder.
No, no, it would make it easier. Perhaps I

shouldn't bring it into this discussion. It

would make it better.
H.M.Jr:

It wouldn't make it any more difficult. Well,

Murphy:

I'm very much in favor of the 300 million in
addition at the present time. It seems to
me that, with the uncertainties of the tax
situation and with practically everybody who

that's another reason. Murphy?

read the budget summary just automatically

adding the 500 million for relief, - I don't

think anybody took it without the 500 million
very seriously - it seems to very much indicate

it.

Bell:
Murphy:

My figures, Murphy, include the 500 million.
But I am speaking of your figures with respect
to the amount of new money needed to be raised.

349

- 11 H.M.Jr:

They
include the 500 million? You mean the 750
did?

Bell:

No. I mean my cash position estimates at the

Murphy:

present time include 500 million for relief.
Well, the figure that I stated it had been added
into was the 750. In other words, I think most
of the readers of the budget summary finished
reading it with a billion, 250 rather than 750
in their minds.

Bell:

I think that's right.

Taylor:

Really what it amounts to is your cash balance
doesn't - I mean the decision as to whether you
want to go down on your cash balance. The rest
of it is - in other words, you can do with 250
if you want to go down on your cash balance.
If you don't want it to go down, you can go up
as far as necessary to get your cash balance
where you want it.
That's all; it's whether or not you want your
cash balance at 500 million or -

Bell:

Bell:

- or whether you want it at 8 or a billion.
Well, then you can't forget the fact that the
Federal Reserve may do something which will upset
this bond market. It isn't as though we couldn't
use the money. we'll need it. If we don't take
it now we'll need it on the 15th of March.
You'll need it around the 15th of April.

H.M.Jr:

Well, we need it between now and the first of

Taylor:
H.M.Jr:

July.

Bell:

That's right, yes, sir.

H.M.Jr:

If we take it now, we will simply postpone the
June 15 bills. We couldn't begin them until maybe
February or something like that - selling bills
into June 15.

Bell:

We can commence those any time.

350

- 12 H.M.Jr:

Bell:

I mean we could postpone it a little bit.
That's right.

H.M.Jr:

If we don't take these 300 million, we'd have

to start
right in January selling bills into the
15th
of June.

Bell:

No, not necessarily -

H.M.Jr:

If you're going to keep a billion dollar balance.

Bell:

Oh yes, if you're going to keep your balance way

H.M.Jr:

up there, then you'd start right out.
Well, I don't think the Secretary of the
Treasury, with us staying - with things as they
are now, that I ought to let our balance go
below a billion dollars. My God! - last week,

until this Spanish general made a neutral zone
and conceded that to England, it was a pretty
serious thing; then he decided he'd have a
neutral zone and that particular thing blows
over. But each day there's been something like
that, now, and the - this thing, it's lovely now,
but supposing he hadn't, supposing England had
blown up something or something of England's blown
up - Phftt! People get their mind on the world
war instead of the bond market.
Archie, my Scotch friend?

Lochhead:

Well, I didn't - I don't know that my opinion
would have any bearing. I feel that either way
we'll have enough cash - with it or not. I think
it is largely a matter of, simply, policy in the
effect it would have on the American public as to
the financing we do. I don't think, from a prac-

tical matter, that we need to worry too much about

how much we borrow.
H.M.Jr:

Harris?

Harris:

Well, I don't know the angle of the needs at all,
but I know that the Street probably expects 250 or
300 million dollars new money, and I'd like -

H.M.Jr:

What?

351

- 13 Harris:

Around 250 or 300 million; but that's on that
750 billion estimate.

H.M.Jr:

Herbert, got any thoughts?

Gaston:

I should think you ought to get about 300
million, 350.

H.M.Jr:

Do you see any differences between - which
sounds better, 700 or 750?

Bell:

No difference. If you take 700, you'll take in

H.M.Jr:

I think so. But I want to settle this right

cash 750 to 770 anyhow; 700 is plenty, I feel.
now, this one question.

Say, we've got a nice bond market this morning.
Haas:

H.M.Jr:

It's going up so sharply; that may be another

reason for taking a little bit more.
Well, she's up a little bit, isn't she, Harris,
this morning?

Harris:

Well, I talked before the real opening. They
expected a very dull market until the -

H.M.Jr:

Supposing you go out and call them up and come

Haas:

H.M.Jr:

back and tell me what the feel of the thing is.
I mean recently the curve is just sharp.
The only thing I want to settle today is this,
and I want to give - Hello? (On phone)
(Has phone conversation with

W.R.Burgess; transcription of
Dictaphone record timed at
10:37 A.M., Nov. 30, 1936)

Now, once more. Anybody? The decision isn't
yet made. Anybody want to say it shouldn't be?
Everybody? Take your time. Anybody have any
ideas?

Bell:

I'm satisfied.

352

- 14 H.M.Jr:

Thoroughly?

Bell:

Yes. I think 500 would be enough, but if you'd
feel better with 700 I say take it. It just
cuts down the future borrowing during the next
six months, if you don't use it.

H.M.Jr:

Pardon me?

Bell:

It will just cut down the future borrowing during

H.M.Jr:

You and I know -

Bell:

Well, you wouldn't use it unless your taxes don't
come in. In other words, your balance on March 15
will be 200 million higher.
You know you're not going to get away with 500
million. What? Are we?

H.M.Jr:

Bell:

the next six months.

Bell:

I don't know. I was hoping so.
Well, so am I. But when we are doing financing,
we've got to leave the hopes out. Oh, we say
so, we put up a big bold front. I'll sign off
the original estimate - 2 billion, 196, was it?
2 billion, 136.

H.M.Jr:

How much?

Bell:
H.M.Jr:

2 billion, 136.
If it was kept down to 2 billion, 1, I'd be a

Bell:

Well, I'd have to be, I suppose.

H.M.Jr:

If it was kept down to 2 billion, 1, I think we'd

H.M.Jr:

very happy boy; so would you, huh?

be awfully lucky.
All right, gentlemen. Dan, would you mind staying
for a minute.

Fir353
November 30, 1936

MEMORANDUM OF CONFERENCE IN SECRETARY'S OFFICE
REGARDING DECEMBER FIFTEENTH FINANCING.

Those present besides the Secretary were Mr. Gibson,
President of the Manufacturers' Trust Company, New York, and

his principal bond man, Mr. Parks, and Mr. Bell.
The Secretary explained why he had called Mr. Cibson and

Mr. Parks down to his office from New York, namely, that it
had always been the policy for the Under Secretary to go to
New York prior to a financing and consult with various bankers
on the ways and means of meeting the Treasury financing problem.
Since the Under Secretary's position had been vacant he had

undertaken to handle the financing himself, but for obvious
reasons he could not go to New York for the purpose of dis-

cussing this problem with various bankers. He had, therefore,

resorted to the method of inviting the Presidents of certain
banks prior to each financing date to come to the Treasury with
their principal bond man and make suggestions regarding the

prospective financing. The Secretary explained to Mr. Gibson

that he invited representatives from about five banks for each
financing, endeavoring to spread the conferences among the

more important banks of New York City. Over a period of a year

this enabled him to get acquainted with the officers of many
banks and obtain their first-hand views on the Treasury problems.

-2-

354

The Secretary then pointed out that of course these
gentlemen were aware of the fact that the Treasury was approach-

ing its quarterly financing and wanted to get their views on the
matter. The Secretary told Mr. Gibson that he had just announced
to the press that the Treasury would require $300,000,000 of new
funds on December 15th, in addition to the refunding of the 2-3/4%
Treasury notes in the amount of $357,900,000, maturing December

15th; Treasury bills in the amount of $400,000,000, maturing the
same date; and 3% Treasury notes in the emount of $428,700,000,

maturing February 15th, making a total financing of $1,486,600,000.
Mr. Parks, the bond man for the Manufacturers' Trust Company,

stated without hesitation that if he were in the Treasury's position
he would offer a 2-3/4% Treasury bond of 1961-64. He said he

figured that that bond would sell on a basis of about 101-5/8 to
yield 2.65. He thought, assuming that conditions would remain
about the same as now, that it would later sell on e much higher
basis. He further said that he would finance the whole $1,486,600,000
by the issuance of bonds and would not resort to a note issue.
He was asked what he thought of a 2-1/2% bond. He said there

was not any doubt but what we could sell a 2-1/2% bond at an intermediate date and he would expect that in our conferences with other
bankers we would receive several suggestions of a 2-1/2% bond. He

prefers, however, to see the longer term bond of 2-3/4%
The Secretary then discussed with Mr. Gibson the conditions in
Germany. The Secretary asked Mr. Gibson if he had any first-hand

-3-

knowledge of conditions in Germany. He replied that he had been

following, so far as it is possible, the developments in Germany

very closely. He said that it was rather difficult to get reliable
information but what he had been able to obtain indicated that
conditions were much improved and that the German Government had

built up in England a foreign exchange fund, the amount of which

he could not estimate, through which it is financing some of its
foreign trade. He said he expected to sail for Germany about
January 22 to participate in the conferences on the so-called
"Standstill Agreement". Preliminary conferences would first be

held in London with only the creditors participating for the purpose of laying out a program, and then the conference would move

to Berlin where it would confer with representatives of the
German Government. He indicated that he would endeavor while there

to obtain first-hand information on financial and economic conditions in Cermany end be glad to advise the Secretary on his return
of such conditions.
He indicated to the Secretary that the American representatives
were at times at a distinct disadvantage because of the apparent
lack of cooperation between the representatives of our Government
and representatives of the American bankers. He gave as an exemple

that the British representative on the "Standstill Agreement" was
a Treasury man and a Director of the Bank of England. This representative not only had the confidence of the Government, but he had
the confidence of the banking community. Gibson thought that his

355

356

position might be made easier if he could express in some way the

Administrations interest in the problem. The Secretary told
Mr. Gibson that he thought there should be cooperation on matters
of this character and suggested that about 8 week or ten days
before he sailed to phone the Secretary and he would undertake

to secure an appointment with the President so that the three of
them could discuss this whole matter.

swe

Fin

November 30, 1936

FINANCING

The proposal to borrow on December 15th the sun

of $700M of new cash includes $400M to retire Treasury bills
maturing December 15th and $300M to increase general fund
balance to meet expenditures between December 15 and March 15.

In addition $300M will be borrowed on Treasury bills maturing
March 16th.

The President recently stated that additional funds
would be required for relief purposes from January 1 to June 30.
Budget Summation placed limit of $500M on this.

Present estimates of cash position contemplate carrying

relief expenditures along about as usual until March 15th.
Summary of new funds $ 470 M

Borrowed September 15th

Borrowed on U. S. Savings bonds
(November 27, 1936)

Proposed for December 15 (net)

Additional for relief requirements

Total borrowings

300

$ 901 M

Total new funds
Budget Summation

131

$ 750 M

500

1,250 M

357

Fin 358

November 30, 1936.

Listed below are various maturities of Treasury notes and
bonds, also their current estimated market basis and the

premium they would show above this market basis.
Suggested Coupon

Market
Basis

Premium

1.06

30/32nds

12/15/49

2.39

12/15/50

2.44

1 1/4 pts.
3/4 pt.

12/15/53

2.55

1 pt.1/32nd

12/15/54

2.56

12/15/85

2.68

1 3/8 pts.

12/15/66

2.69

1 pt.6/32nds.

Maturity

Probable

NOTES
1 1/4% (5 yrs.)

12/15/41

BONDS
2 1/2% (13 yrs.)
2 1/2% (14 yrs.)
2 5/8% (17 yrs.)
2 5/8% (18 yrs.)
2 3/4% (29 yrs.)
2 3/4% (30 yrs.)

30/32nds.

Finn

November 30, 1936

Mr. Gibson and Mr. Park saw the Secretary at 3 o'clock.

359

360

OFFICE

TREASURY DEPARTMENT
WASHINGTON

THE CRETARY

December 1, 1936

MEMORANDUM OF CONFERENCE IN SECRETARY'S OFFICE
REGARDING THE DECEMBER 15 FINANCING
11/30/36

Those present besides the Secretary were Mr. Charles A.
Miller, President of the Savings Banks Trust Company of New

York City, and a Trustee of the Savings Bank of Utica, and
Mr. Bell.

The Secretary told Mr. Miller that he had called him
down for the purpose of asking his advice on what, in his opinion,
should be done in connection with the financing problem facing
the Treasury on December 15.

Mr. Miller said that he had been talking with the representatives of the savings banks of the State of New York regarding

a policy of diversifying their holdings, but that usually, after

full discussion, they always come back to Government securities.
He thought that at the present time one thing which might interfere somewhat materially with the Treasury financing is the fact
that the New York banks will be required to pay out Christmas
funds to the extent of approximately $125,000,000. They are also

confronted with the fact that most banks, particularly country
banks, do not make up their minds regarding subscriptions until
the very last hour of the day on which the offering is announced.
Many of them who would like to subscribe lose out because they

do not get the subscriptions in on time. He had talked with
officials of many savings banks, and it is his opinion that they
will subscribe to approximately $100,000,000 of the Treasury
offering on December 15. During the past year these banks have of
increased their holdings in Government bonds to the extent and
about $175,000,000, of which $75,000,000 has been new funds and

$100,000,000 has represented a shift from municipal, state,
industrial bonds to Government bonds.

He said the market, of course, was expecting a total a issue
about $1,500,000,000 on December 15, and it also expects this

of note at about 12% He personally dislikes sell short them
five-year because many of the banks subscribe to bonds, He hopes
maturity at premium and then turn around and buy the notes.

that a the Treasury will continue the long term bonds.

361

-2Mr. Miller thought that a 2-5/8% bond would go and be
popular. He thought a 22% on a 10-20-year bond would be a
mistake. He said we could issue a 2% 45-48 but that he did
not recommend it. He thought that the general expectation was
that the Treasury would either issue a 23% 50-52, or a 2-5/8%
55-57, which would sell at approximately 101-6/32. He said
he had a further eccentric suggestion to make which he was quite

certain the Secretary would not like, and that is for the
Treasury to issue a long-term bond with a coupon of 2% for the
first ten years and a higher coupon (say, 3%) for the period
left, but callable at any time after the ten-year period.
He said that Dr. Burgess of the Federal Reserve Bank of
New York had asked him why it was that savings banks had preferred the intermediate maturity. His answer was that four
times during the history of the savings banks they had seen
their portfolios depreciate to such an extent that more than

40% of these banks were, theoretically, insolvent. It had to

be recognized that savings banks are somewhat like insurance
companies and have to keep their maturities such as to meet the

demands for withdrawals. He was not particularly afraid of a
similar situation within the next few years because he thought
that the Federal Government and the Federal Reserve System are

in a position to control interest rates. There is, therefore,

no immediate problem on this point. He repeated that savings

banks of New York State would subscribe between $85,000,000 and

$100,000,000 to the new bond issue and that practically all of

them would turn in their December and February maturities
amounting to approximately $11,000,000, in exchange for any other

securities offered.

The Secretary asked him point-blank as to whether he
would prefer a 22% over a 2-3/4% He answered emphatically

that he would prefer the 2ar.

Mr. Miller left with the Secretary a memorandum of his
views on the situation, which is attached hereto.

The Secretary asked Mr. Miller what the present attitude
savings banks toward real estate loans is. He answered that
of the attitude is generally favorable to good loans on real estate.
These banks are very anxious to make loans. It is generally known

362

-3-

that they are short on income. He was a little disturbed over
some of the policies adopted by savings and loan associations;
that is, making loans on poorly constructed houses. He thought
the housing problem was going along rather slowly. Many houses
now being constructed, as is always the case in a rising building
market, are not suitable for good loans and probably are not well

constructed. He expected that this would correct itself in due
time.

DWIB

Fn
Memorandum on

New York State Savi Banks' Investments in
United States Government Obligations
November 28, 1936

During the first six months of this year the 135
New York State savings banks increased their holdings of
United States Government obligations $187,000,000. Of
these banks 133 are members of the Mutual Savings Banks

Fund. Their holdings of Government ligations during
the same period increased $161,000,000. With respect to

these 133 banks it is interesting to notesthat $70,000,000
of the increase represented the employment f additional
money in bond investments and the remaining 91,000,000 represented the employment of funds obtained from the maturity

or sale of municipals, rails and public utilities. In other
words, the savings banks have recognized that United States

Government obligations are relatively more attractive than

other legal bonds, as the differential in yield between the
Governments and other legals is, and has been, extremely
small for some time.

Yield

U. S. Treasury 41% due 10/15/47-52

Union Pacific 4% due 7/1/47

Differential
Differential expressed in percentage
of yield on Government bond

12/31/24

11/28/36

3.91

2.06

4.58

2.25

.67

.19

17%

9%

The above calculation makes no allowance for the tax advant-

363

-2-

age gained by corporations through the holding of Governments in place of corporates.
Numerous municipal obligations yield less than

Governments. The prevailing small differential in yield
on Governments and other legals is probably due to the
fact that the investment market has had to absorb successive
issues of Governments during a period when but little new
money has been sought by other issuers of legal bonds.

Over the next year or two it is likely that the yield
differential will increase with corporate legals yielding
relatively more; as the market will be called upon to absorb increasing amounts of offerings by other issuers of
legal bonds, while the outstanding amount of United States

Government obligations is likely to increase but moderately.
Until the market yields have been adjusted so as to make

the other legals preferable to the Government issues, the

savings banks in all probability will continue their policy
of acquiring Governments at the time new issues are offered
by the Treasury and by purchases in the open market. The
savings banks have shown a decided preference for the
medium term Government issues with optional dates close to
1945.

The commercial banks' policy of buying chiefly

shorter maturities has forced down the yields of all issues

maturing prior to the 2 3/4s of 3/15/48-51, so that all
such issues currently yield less than 2.10% to their earliest
optional dates.

364

-3-

365

A Treasury 2 1/4% bond having an optional maturi-

ty of 12/15/45 and final maturity of 12/15/48 would be in
line with the savings banks' indicated preference for
medium term issues and would prove very attractive to the
commercial banks. The Treasury may have in mind the

issuance of a bond having an optional maturity in the late
50s. Such an issue would not be subscribed for or purchased for investment by the savings banks (or commercial

banks) to anywhere near the extent that an issue with the
shorter optional maturity would be. The attached schedule
of yields on outstanding Treasury bonds, as of November 24,

1936, indicates that the 2 3/4s of 3/15/48-51, the 3 1/8s
of 12/15/49-52 and the 2 3/4s of 6/15/51-54 are relatively
underpriced in the present market. Therefore the Treasury

will probably not consider any issue having an optional
maturity which would conflict with the three above mentioned
issues.

Purchase of Gov ernments by savings banks may be

largely concentrated in the three issues mentioned above

until they get in line with the market unless, of course,
the Treasury brings out the shorter bond in which event the
savings banks will probably become holders of the new issue
in an aggregate amount ranging from $40,000,000 to

$80,000,000, depending on their ability to acquire the issue
in the open market. The savings banks have been limited

in their subscriptions to 50% of their published surplus

-4-

366

366
which limits the maximum total subscription to about
$400,000,000. However, as the cash balances of the savings
banks are at present about $275,000,000, the savings banks'

aggregate subscriptions for the new issue will probably be
in the neighborhood of $100,000,000. Assuming an allotment

of about 10%, the savings banks will obtain on direct sub-

scription only $10,000,000. It is obvious that the savings
banks as usual will be forced to acquire additional amounts
in the open market as other subscribers dispose of their
holdings.
-

If the United States Treasury offered a 2 3/4% bond

maturing about 12/15/63 with an optional maturity of 12/15/58,
the issue would probably be absorbed by the market as it
would be immediately quoted at a substantial premium. However,

until investors become more accustomed to the present level

of interest rates, the low coupon and long maturity of such
an issue will cause holders to offer it for sale on each
occasion when they deem it advisable to lighten their port-

folio. Without spending any additional money for interest
the Treasury could offer a bond with a 12/15/63 final maturity by merely making the optional date 12/15/45 and

affixing a coupon rate of 2 1/4% for the period from date
of issue to 12/15/45. The coupon for the period from
12/15/45 to 12/15/63 could be 3%, and the Treasury would

be in a position to call the issue on any interest date
on or after 12/15/45 for transfer to the Social Security
Fund. As compared with the offering of a long 2 3/4% bond,

-5-

the interest cost could be reduced by issuing a 2 1/4%
bond with an optional maturity of 12/15/45 and a coupon
of 2 3/4% from that date to 12/15/54. This would be the
equivalent of a 2 1/2% bond maturing 12/15/49-54.
The straight 2 1/4% bond due 12/15/45-48 or the
combination 2 1/4%-3% 12/14/45-63 appear most desirable

from the Treasury's standpoint.

367

368
UNITED STATES TREASURY BOND YIELDS

November 24, 1936
Par
Amount
Coupon

Maturity

Outstanding

(in millions)

Current
Market

Price
11/23/36

Present
Annual Income

Market Value
on

Offered Price

(in millions)

Yield on
Offered Price

at Yield on

Market Value

(in thousands)

3 3/8

6/15/40-43

353.

108.34375

382.4

.98

3,747.5

3 3/8

3/15/41-43

544.9

109.56250

597.0

1.10

6,567.0

3 1/4

8/1/41

834.5

109.53125

914.0

1.15

10,511.0

3 3/8

6/15/43-47

454.1

110.75000

502.9

1.64

8,247.5

1/4

10/15/43-45

1,400.5

110.00000

1,540.5

1.70

26,188.5

3 1/4

4/15/44-46

1,518.7

110.00000

1,670.5

1.80

30,069.0

12/15/44-54

1,036.7

115.81250

1,200.6

1.87

22,451.2

3/4

9/15/45-47

1,214.4

106.34375

1,291.4

1.96

25,311.4

3 3/4

3/15/46-56

489.1

114.31250

559.1

2.05

11,461.5

6/15/46-48

1,035.9

107.87500

1,117.4

2.09

23,353.6

6/15/46-49

818.6

108.84375

890.9

2.10

18,708.9

759.

120.96875

918.1

2.09

19,188.2

3/15/48-51

1,223.5

104,25000

1,275.4

2.32

29,589.2

3 1/8 12/15/49-52

491.4

108.25000

531.9

2.38

12,659.2

6/15/51-54

1,626.7

102.84375

1,672.9

2.51

41,989.7

9/15/51-55

755.5

106.40625

803.8

2.48

19,934.2

7/8

3/15/55-60

2,611.1

104.31250

2,723.7

2.58

70,271.4

3/4

9/15/56-59

981.8

102.43750

1,005.7

2.59

26,047.6

3

4

2

3

1/8

3

4 1/4 10/15/47-52
2

2

3/4

3/4

3
2

Totals

18,149.4

19,598.2

406,296.6

The Weighted Average Maturity of all the above bonds on November 23, 1936

was 11 years 3 months optional, 14 years 10 months final and the

Average Yield on November 23, 1936 was 2.07%.

The 2 3/4s due 3/15/48-51 have an actual maturity of 11 years 4 months
optional and 14 years 4 months final and yield 2.32% on market.

369

Holdings as of July 1, 1936 by 135 New York
State Savings Banks of:

United States Treasury Notes
2 3/4% due 12/15/36
3%

due 2/15/37

$3,142,000
8,782,000

Subscriptions by New York State Savings Banks
through Savings Banks Trust Company to the

September 8, 1936 offering by the United States
Treasury of 2 3/4% Bonds due 9/15/59-56 totaled
$82,825,500.

370

Memorandum on United States Government Bond Market
November 30, 1936

As of November 23, 1936 the 2 3/4% bonds due

3/15/48-51 had a current yield of 2.32% to the earliest
optional date. The weighted average maturity of all United
States Treasury bonds at that time was 11 years 3 months on

the optional date and 14 years 10 months on the final date.
This weighted average maturity is almost identical with the
final and optional maturity on the 2 3/4s of 3/15/48-51, but
the average yield of all the United States Treasury bonds outstanding on 11/23/36 was only 2.07%, as against the 2.32%

yield on the 2 3/4s of 3/15/48-51.
If we compare the yield on the 2 3/4s of 3/15/48-51,
1. e., 2.32%, with the yields on the two 3 1/8% issues which
mature respectively one year and 9 months prior and one year

9 months subsequent to the 2 3/4% bond, we find that the 3 1/8s

of 6/15/46-49 yield 2.10%, or 22 basis points less than the
2 3/4s for a period of one year 9 months shorter maturity;
whereas the 3 1/8s of 12/15/49-52 yield 2.38% or 6 basis points
more than the 2 3/4s for one year and 9 months longer maturity.
At the same time we find that the 2 3/4s of 6/15/51-54 yield
2.51% whereas the 2 7/8s of 3/15/55-60 yield 2.58% or 7 basis

points more for an increase in maturity on the optional date
of 3 years 9 months and 5 years 9 months on the final maturity.

-2-

371

To sum up, a buyer would have to be particularly foolish
to purchase the 2 7/8s of 3/15/55-60 at a 2.58% basis when

he is in a position to purchase an obligation several years
shorter at a sacrifice of less than 3% of his total annual
income. The same thing holds true with respect to a purchaser of the short 3 1/8s, 1. e., the purchaser would have
to be equally foolish to purchase the 3 1/8s of 6/15/46-49
on a 2.10% basis when he can extend his maturity one year

9 months to the 2 3/4s of 3/15/48-51 and obtain a yield of
2.32%, or better than 10% more on his money in regular
annual income.

All the foregoing leads to the inevitable conclusion
that the 2 3/4s of 3/15/48-51, the 3 1/8s of 12/15/49-52 and
the 2 3/4s of 6/15/51-54 are the cheapest bonds in the present
market. The foregoing conclusion holds true to almost the
same extent on the basis of the corporate tax equivalent

yields. However, so many institutional investors, insurance
companies, savings banks and industrial corporations, have
purchased United States Government notes and municipal obli-

gations to such an extent that they no longer have need for
the tax exemption calculation with respect to their bond
holdings.

On the question of yield to maturity the three issues
mentioned still appear to be the most attractive, except for
the shorter extremely high coupon issues which everyone con-

-3-

372

fidently expects will be called on their earliest optional
dates.

The general comment in the market is that a note

issue will be brought out at a 1 1/4% coupon for five years.
Such a note should sell on about a 1.05% basis, or about
100 28/32s bid and 100 31/32s offered under present conditions. However such an issue would probably be outstanding

only for the amount of actual cash offering by the Treasury
as most holders of the maturing 2 3/4% notes and the 2/15/37
3% notes will turn them in for the new bond issue, on which
they anticipate higher premiums. The general expectation is
that a 2 1/2% bond due 12/15/50-52 or a 2 5/8% bond due

12/15/54-57 will be offered. Both of these issues would go
over as the premium at the present price level would be about
101 6/32. However, from the statement above, with respect to
the three cheapest outstanding issues at the present time,
it would seem that the Treasury is picking the worst possible
maturities from the standpoint of money costs to it. A 2 1/2%
bond due 12/15/46-56 would result in a new low for Government

subscription to bond issues under the present administration,
as the yield to maturity at par would only be 2.50%, whereas

the yield to maturity of the 2 3/4s of 6/15/51-54 is approximately 2.55%

The ideal all purpose issue for new cash and for conversion of the note issues due 12/15/36 and 2/15/37 would be
a 2 1/4% bond due 12/15/45-48.