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Managua, D. N., Nicaragua, November 25, 1941. 197 No. 206 Subject: Gold Shipments from Japan. The Honorable The Secretary of State, Washington. Sir: I have the honor to refer to the Department's circular telegram of November 15, 1941, referring to shipments of gold from Japan to Nicaragua and to report that according to well informed financial sources there have been no shipments of gold arriving from Japan recently. In response to a specific request for information on this subjeet presented to the National Bank of Nicaragua, the Manager of the Department of Issue made the following statement: "I wish to inform you that this Institution has no knowledge of any shipments of gold arriving from Japan to this country. "We know only of letters of credit opened by Japanese firms through New York banking institutions, issued in U.S. Dollars, for the purpose of guaranteeing the fulfillment of contracts made with Nicaraguan exporters." In as such as commerce between Nicaragua and Japan is conducted almost entirely on a compensation basis, it would appear unlikely that shipments of gold to or from Japan will occur in the near future, How- ever, should any information concerning such shipments be obtained it will be despatched to the Department without delay. Respectfully yours, Pierre de L. Boal. 10221/863.4 EBL/jwb A true cory of the signed original (1) JB Copy:bj:12-4-41 C 198 0 P FEDERAL RESERVE BANK OF NEW YORK December 3. 1941. Dear Sir: Attention: Mr. F. F. Dietrich Supplementing our letter of November 21, we enclose the following: 1. Copy of cable No. 68 dated November 28, sent by us to Banco de Portugal, Lisbon. 2. Copy of cable No. 40 dated December 2, received by us from Banco de Portugal, Lisbon. Very truly yours, /a/ D. J. Cameron, D. J. Cameron, Manager, Foreign Department. The Honorable, The Secretary of the Treasury, Washington, D. C. Encs. Copy:vv:12-4-41 199 0 P Y COPY OF OUTGOING CABLEGRAM November 28, 1941. Banco de Portugal Lisbon No. 68 Your letter No. 25013 Treasury Department re- quests information as to how payment for gold will be made. In this connection refer to your letter No. 21650 covering a previous transfer. FEDERAL RESERVE BANK OF NEW YORK Copy:vv:12-4-41 200 0 P Y COPY OF INCOMING CABLEGRAM Received on December 2, 1941 Lisbon, Dec. 2, 1941. Federal Reserve Bank of New York New York No. 40 Your cable No. 68 Payment was made in Swiss francs. Banco de Portugal. Copy: w:12-4-41 TREASURY DEPARTMENT 201 INTER-OFFICE COMMUNICATION DATE December 3, 1941 TO FROM Secretary Morgenthau Mr. Cochran STRICTLY CONFIDENTI Mr. Livesey telephoned me and sent me from the Department of State late yesterday evening the three attached cablegrams dated November 27. November 30 and December 1, respectively, from the American Minister at Bangkok, concerning the purchase of gold from Thailand and the possible extension of a credit to that country. The Thailand treasury now has under earmark with the Federal Reserve Bank at New York $9,000,000 of gold. Under arrangements with Japan, the Thni Government is receiving gold from the Japanese Government against ticals. With such ticals Janan has been obtaining tin, rice, rubber, etc. from Thailand. Our Minister reports that the Government of Thai intends to sell at least 44,000,000 ticals worth of the Japanese gold to the United States Mint. With the tical worth 35 cents today, such a sale would approximate $15,000,000 U. S. currency. I fail to see any figure as to just how much of the Japanese gold has actually been received in Theiland, Our Minister reports that there is no dollar exchange available in Thailand for purchase of supplies desired from the United States, and apparently no means of acquiring such dollar exchange except through our Government. He said the immediate need is for a credit of $8,000,000 U. S. currency, half of which would be utilized by the Government and half by the market. The Minister reports that the Government of Japan has released the Government of Thai from the original condition that none of the gold acquired from Japan should be resold. The Government of Thailand does not want to dispose of its $9,000,000 of gold safely held in United States. Furthermore, it would not want to ship the Japanese gold to the United States with the present heavy risks and expenses. The question is raised as to whether we would be willing to purchase such gold to be deposited in Manila, Australia, or, preferably. Singapore. Mr. Livesey stated that both Under Secretary Welles and Assistant Secretary Berle were interested in some credit arrangement being made for Thailand, and that Mr. Berle had referred this correspondence urgently to Mr. Livesey yesterday for action. I am sending copies of this memorandum and attached correspondence to Messrs. Bell, Foley, Morris and White. Will you give me any instructions? 13mg. 202 0 P Y DEPARTMENT OF STATE WASHINGTON December 2, 1941 In reply refer to FD 892.51/236 The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury and encloses copies of telegram No. 537. dated November 27. 1941, copies of the paraphrase of telegram No. 540, dated November 30, 1941. and copies of the paraphrase of telegram No. 544. dated December 1, 1941. from the American Legation, Banglook, Thailand, concerning the purchase of gold from Thailand and the extension of credit to that country. Enclosures: 1. From Legation, Bangicok, No. 537. November 27. 1941. 2. From Legation, Bangkok. No. 540, November 30. 1941. 3. From Legation, Bangkok, No. 544, December 1, 1941. Copy:1c:12/3/41 COPY:RPB:SS (COMPARED ALH 203 GRAY Bangkok Dated November 27, 1941 Rec'd 12:22 p.m. Secretary of State, Washington. URGENT 537, November 27, 3 p.m. The Hong Kong and Shanghai Banking Corporation, the one remaining source of United States dollar exchange during recent weeks, has now been told that no further allotments will be supplied. Consequently no (repeat no) further imports from the United States are possible even when export permits are granted. This state of affairs during the present political orisis cannot help but be injurious to the American and British position in Thailand as well as a great additional hardship to the country itself. I earnestly request that the Department endeavor to bring about 10 anPOSEIVBA allotment of dollar exchange to this market. I LECHNICVE (22121)W) feel confident the Thai Government would be willing to sell sterling for dollars to supply DEC 5 b 38 commercial needs. (ECEIVED HSM PECK PARAPHRASE OF TELEGRAN RECEIVED 204 FROM: American Legation, Bangkek, Thailand. DATE: November 30, 1941, 5 P.M. NO.: 540. 1. The British Financial Adviser to the That Government, Mr. Dell, handed me on November 29, 1941, a " of a telegram to be used in striet confidence, which he sent to Waley and the Bank of England on November 28 through the British Legation. It showed that arrangements between the Japanese Minister Futani and the Minister of Finance made on November 27, 1941 were as follows: 2. There are two credits of 10,000,000 ticals each which were opened on August 2, and November 2. These will be repaid entirely in gold which will be shipped to Bangkok from Japan. A third credit of the same amount may be opened on the same terms on February 2 if it is necessary. The Yokohoma Specio Bank and the Thai Banking Consertium com- pleted these transactions. 3. There will be shipped to Bangkok all of the 25,000,000 ticals worth of gold which was sold to the That Treasury by the Government of Japan last August. Another sale of the same amount will be completed. The ticals from this sale will be made available in part on the shipment date and in part on the delivery in Bangkok of the gold, Japan consented to the demands of the Minister of Finance that all of the gold which has been acquired in these five transactions may be disposed of freely by the Thai Government, 4. It is stated -2 205 4. It is stated in this telegram that it is the intention of the That Government to ask the Government of the United States to extend to it a credit of $8,000,000 in United States currency. This sum is for the use of the market as well as the Government and will be divided equally between the two. The Government, however, would intend to sell at least 44,000,000 ticals worth of gold to the mint of the United States. In this way the total credit would be repaid. Further, the Government would intend gradually to sell the dollar exchange to the market and the Thai Treasury, thus retiring from circulation most of the That currency notes which as a result of the purchases of gold will have to be issued by the Currency Department. 5. Up to the present time it has been the demand of the Government of Japan that none of the gold which has been bought from it should be resold, but Japan has changed regarding the present transaction. (*) By which consent has been given by the Government of Japan to free use Mr. Doll comments as follows: Japan is unable to use its native gold production which amounts to 1,000,000 fine ounces yearly because of freesing orders. Without doubt Japan wants to buy as much rice as possible for military reasons. A part of the new credits is being used to acquire large amounts of Thai notes including those of the smallest denominations by Japan. 6. A copy of a memorandum was also handed to me by Mr. Doll. It was dated November 28, and was addressed to the Minister of Finance. In it was a description of the proposal -su 206 preposal which is to be made to the Government of the United States. It was my understanding that this momerandum had been approved and upon it will be based a communication of the Foreign Affairs Minister of Thailand. Lastly, Dell gave me a letter which he wrote himself on the 29th of November in which he made the statement inter alia that it made the authorities in Thailand very happy to have nine million dollars worth of gold in New York where it was safe. They want as soon as possible to send a large part of the recently acquired gold out of the country. If the desired credits were granted by the American Government, he said, the cost in ffeight and insurance involved in sending the gold cover to the US in the present circumstances would be prohibitive. It would be preferred by the That authorities to have the gold deposited in government banks in Manila, Australia, or Singapore, but especially in the last-named place because no marine riskwwald be entailed in shipping it there. It was made clear in the letter that immediate dollar credite in this procedure are a consideration of minor importance comparatively speaking. To enable the Government of Thai the put assets which are realizable in (*) which can be used during the war and after the present period of danger is the main objective. This is the reason that rather than use the gold which is now in the United States as security for credits the That Government would prefer infinitely to ship more gold out of the country. I was asked by Dell to obtain information by telegraph whether OF not 207 or not the American authorities would want to buy gold acquired and deposited in the manner which has just been described. 7. I said that I would send the inquiry by telegraph but I rather think that before replying the State Department will want to wait for a formal proposal from the Government of Thailand. This proposal may be expected within the next two days. PECK 10 THE SECURIVER OLLICE OE THE D*: DEC S bW 2 30 RECEIVED PARAPHRASE OF TELEGRAN RECEIVED 208 FROM: American Legation, Bangkek, Thailand. DATE: December 1, 1941, 4 p.m. NO.1 544. THE FOLLOWING IS URGENT FOR THE SECRETARY OF STATE. 1. The Government of Thailand was pressed by the Japanese to advance tieals against you credits in August. The Government of Thailand would not do this but courageously insisted on payment in gold-thinking to avoid any entanglement in the yen bloo and hoping that Japan would have no gold. The Thai Government demanded shipment to Bangkek and refused Japan's request that gold be "earmarked" and left in Japan. On the 27th of November negotiations eulminated when Japan asked that the Government supply 80,000,000 ticale in notes against deposits of gold in Bangkek. So long as the gold was left for free use, the Thay@Gvernment felt that it was without power to refuse Japan's request. This is about the way that Mr. Doll, British Financial Adviser to the Thai Government, described those events to me and appears to be believable. 2. In Bangkek no (repeat no) US dollar exchange has been obtainable for a number of days. This lack of US dollar exchange has brought about a practical enbarge on all US purchases whether by private individuals, firms or by the government. The sending of money for the support of students in the Philippine Islands and the us, cannot be effected. This hall left a depressed feeling and the result -8- 209 result has been actual hardship. A condition such as this is not (repeat not) helpful to enthusiastic resistance to Japan and the support by the people of Thailand of the principles upheld by Great Britain and the US. 3. of course, it can not be denied that the purchases of Japanese gold by Thailand have circumvented the supposed objective of the British and American freezing orders because these purchases have made less difficult Japan's acquirement of tin, rice and rubber. It may be noted, in extenuation, that the Government has unswirvingly protected British and American opportunity to buy the same materials without insistency so far as receiving the all important dollar exchange is concerned. A course of impartiality has resolutely been followed by Thailand. The Government of America and the Government of Great Britain can hardly expect this small country to go any further than it has in disregarding the treats of a plundering and powerful neighbor when they cannot promise military assistance to the Government of Thailand which it has repeatedly asked for. 4. For that reason I sincerely believe that Thailand should be given an allotment of dollar exchange right away- it would be only fair, as well as politic. Whether or not Thailand's gold shall be purchased outright or accepted as security is not so important in comparison to the desirability of extending assistance and encouragement to this country in a time of crisis. Security could well be relaxed in view of Thailand's honorable financial record. with the exception of the small portion to be used for personal remittances, 5. Momentarily, I as expecting a communication pertaining to this general subject from the Minister for Foreign Affairs, PECK 10 THE LECHHICVT OLLICE OE THE & DEC S bli 2 3a DECEIVED TREASURY DEPARTMENT Mids 211 INTER-OFFICE COMMUNICATION For DATE December 3. 1941 TO Secretary Morgenthau FROM Mr. Cochran CONFIDENTIAL Registered sterling transactions of the reporting banks were as follows: Sold to commercial concerns Purchased from commercial concerns 57,000 £48,000 Open market sterling was again quoted et 4.03-1/2, and there were no reported transactions. In Now York, closing quotations for the foreign currencies listed below were B.B follows: Canadian dollar Argentine peso (free) 11-7/16% discount Venezuelan bolivar .2383 .0515 .5775 .2070 .5275 .2580 Cuban peso 1/8% discount Brazilian milreis (free) Colombian peso Mexican peso Uruguayan peso (free) We purchased $1,125,000 in gold from the earmarked account of the Bank of Mexico. No new gold engagements were reported. In London, spot and forward silver were again fixed at 23-1/24, equivalent to 42.67#. The Treasury's purchase price for foreign silver was unchanged at 35t. Handy and Harman's settlement price for foreign silver was also unchanged at 35-1/88. We made DO purchases of silver today. AMP. 212 2- The Federal Reserve Bank's report of November 26, listing deposits of banks in Asia with the New York agencies of Japanese banks, showed that such deposits totaled $60,183,000. an increase of $550,000 since November 19. Also reported were selected items from the statement of the Yokohama Specie Bank's New York Agency; these showed no appreciable change. The report of November 26, received from the Federal Reserve Bank of New York, giving foreign exchange positions of banks and bankers in its district. revealed that the total position of all countries was short the equivalent of $3,448,000, a decrease of $410,000 in the short position since November 19. Net changes were as follows: Short Position November 19 Country England** Europe Canada Latin America Japan Other Asia All Others $ 992,000 (Long) 2,515,000 310,000 (Long) 185,000 161,000 2,331,000 32,000 (Long) Total $3,858,000 Short Position Change in Short Position November 26 - $412,000 $1,404,000 (Long) 2,571,000 406,000 (Long) + - 183,000 200,000 - + 2,382,000 78,000 (Long) $3,448,000 + - 56,000 96,000 2,000 39,000 51,000 46,000 - $410,000 *Plus sign (+) indicates increase in short position, or decrease in long position. Minus sign(-) indicates decrease in short position, or increase in long position. **Combined position in registered and open market sterling. CONFIDENTIAL 213 BRITISH EMBASSY WASHINGTON, D.C. December 3rd, 1941 PERSONAL AND SECRET Dear Mr. Secretary, I enclose herein for your personal and secret information a copy of the latest report received from London on the military situation. Believe me, Dear Mr. Secretary, Very sincerely yours, Halifash The Honourable Henry Morgenthau, Jr., United States Treasury, Washington, D. C. 214 Copy No. 14 BRITISH MOST SECRET (U.S. SECRET) OPTEL No. 14 Information received up to 7 a.m., 2nd December, 1941. (I) A British destroyer and a Drifter, name unknown, shot down two German bombers off the HUMBER yesterday. Two British cruisers with 2 destroyers on the evening of the 1st intercepted and sank one destreyer, one 8,000 ton tanker and one 6,000 ton merchant ship, all South-bound, about 80 miles N.N.W. of TRIPOLI (L). On the evening of the 1st a British cruiser intercepted in the South Atlantic, a vessel of about 11,000 tons which scuttled herself on a warning shot being fired. (II) MILITARY LIBYA. 30th/1st. The enemy attacked in strength from Southwest with tanks and infantry and captured SIDI REZEGH, A counter-attack by our troops was unsuccessful and early on 1st the 15th German armoured Division renewed the attack from the South-west and captured BIR EL HAMED. Our armoured forces counter-attacked at first light from the South-east and by mid-day appeared to be in the BIR EL HAMED area where the position was very confused. In the frontier area on the morning of the 1st an attack by our troops on enemy positions North-West of Libyan OMAR met with stout resistance, Some progress has been made but the situation is obscure. RUSSIA. MOSCOW Sector - Heavy fighting is continuing but no appreciable change has been reported. ROSTOV Sector - Information received establishing that the Russians hold ROSTOV but does not indicate how far to the West of the town the Germans have retreated. (III) AIR OPERATIONS 30th/1st. HAMBURG - 122 aircraft attacked in good weather and dropped 160 tons of H.E. and 9,000 incendiaries. 64 tons of H.E. and 3,500 incendiaries were dropped on EMDEN. Ground haze and searchlight glare prevented definite pin-pointing but many fires were seen at both places. 1st and 1st/2nd. Bomber operations cancelled. At dusk Hudson made several hits on two merchant vessels at KRISTIANSAND, -2- 215 LIBYA. Tomahawk fight reported in yesterday's summary was carried out by one British and one Australian Squadron. 15 enemy aircraft were destroyed and 15 damaged. Three Tomahanks were lost but all pilots are safe. 30th - 5 Squadrons of light bombers attacked M.T. in the SIDI REZEGH - EL DUDA area, Beaufighters destroyed two and damaged 9 enemy aircraft on the ground at MARTUBA. 1st December - Offensive patrol of Naval Hurricanes and Tomahawks engaged 20 Ju. 88's escorted by 12 Me. 109's and some Italian G. 50's. They destroyed one Ju 88 and 3 Italian fighters and probably destroyed two German and two Italian and damaged 3 German fighters. Two Tomahanks are missing. A reconnaissance Ju. 88 was also shot down South-East of MADDELENA. (IV) G.A.F. 1st/2nd. About 60 German aircraft operated principally off the East Coast. (v) AIRCRAFT CASUALTIES In operations over and from the British Isles - German - 3 . destroyed, (VI) The activities of the Russian Air Force over the last fort- night have been such as to indicate that they have at least 1,000 aircraft operating to the South of KURSK, of which about 50% are serviceable, Recent activities in the Southern Sector moreover have not been accompanied by any noticeable falling off in the scale of operations in other sectors, (VII) The number of Japanese aircraft now estimated in French INDO-CHINA is about 250 of which about 160 are in the South, 88 Fighters (of which at least one Squadron and probably two are of latest type), 70 Light Bombers, 83 heavy Bombers and 9 Reconnaissance. 216 RESTRICTED 0-2/2657-220; No. 559 M.I.D., W.D. 11:00 A.M., December 3, 1941 SITUATION REPORT I. Eastern Theater. Ground: Russian attempts to break out of Leningrad continue. The German advances north and south of Moscow continue. The Voronezh-Moscow railroad is threatened. The situation west of Rostov is unchanged. Air: German sources mentioned the strong support furnished their troops advancing against Moscow by bombers and dive-bombers. II. Western Theater. Air: Coastal Command aircraft attacked German shipping off the coast of Norway yesterday, and last night bombed objectives in occupied France. Last night German bombers raided a seaport on the southwest coast of England, and also claimed to have damaged ship- ping off the English coast. III. Middle Eastern Theater. Ground: The Axis has maintained control of the corridor south of Tobruk. Rezegh, Zaafran and Bir el Hamad are held by the Axis. Fighting continues on a reduced scale, weather conditions are poor, no change in the situation in the frontier area or at Gialo. No news concerning activity of the long-range desert group patrol south of Mecheli and in the coastal area northwest of Agedabia. RESTRICTED 217 TREASURY DEPARTMENT Washington FOR RELEASE, MORNING NEWSPAPERS, Thursday, December 4, 1941. Press Service No. 28-72 12/3/41 Secretary of the Treasury Morgenthau today announced the December 15 financing, offering, through the Federal Reserve Banks, for cash subscription, $1,000,000,000, or thereabouts, of 2-1/2 percent Treasury Bonds of 1967-72, and $500,000,000, or thereabouts, of 2 percent Treasury Bonds of 1951-55. An additional amount of $50,000,000, or thereabouts, of 2-1/2 percent Treasury Bonds of 1967-72 may be sold to Government Investment Accounts during the next month. For the benefit of small investors, preferential allotments will be given to cash subscribers up to $5,000 of the bonds of either or both series, where delivery in registered bonds 90 days after issue date is specified; those who enter such a subscription for preferential allotment may not enter any other subscription for the same issue. The Treasury Bonds of 1967-72 now offered for cash subscrip- tion will be an addition to and will form a part of the series issued pursuant to Treasury Department Circular No. 670, dated October 9, 1941. They are identical in all respects with such bonds, with which they will be freely interchangeable. The bonds are dated October 20, 1941, and bear interest from that date at the rate of 2-1/2 percent per annum, payable semiannually on March 15 and September 15, with the first coupon due March 15, 1942, for a fractional period. The bonds will mature September 15, 1972, but may be redeemed, at the option of the United States, on and after September 15, 1967. The Treasury Bonds of 1951-55, also offered for cash sub- scription at this time, will be dated December 15, 1941, and will bear interest 2 percent per on andofDecember 15. annum, payable semi- annually June at 15 the rate The bonds will mature of the December 15, 1955, but may be redeemed, at the option United States, on and after December 15, 1951. 218 -2- The bonds of both series will be issued in two forms: bearer bonds with interest coupone attached, and bonds registered both as to principal and interest. Both forms will be issued in the denominations of $50, $100, $500, $1,000, $5,000, $10,000 and $100,000. Pursuant to the provisions of the Public Debt Act of 1941, interest upon the bonds now offered shall not have any exemption, as such, under Federal Tax Acts now or hereafter enacted. Otherwise the securities will be accorded the same exemptions from taxation as are accorded other issues of Treasury bonds now outstanding. These provisions are specifically set forth in the official circulars released today. Subscriptions will be received at the Federal Reserve Banks and Branches, and at the Treasury Department, Washington. Banking institutions generally may submit subscriptions for account of customers, but only the Federal Reserve Banks and the Treasury Department are authorized to act as official agencies. Subscriptions for the bonds from banks and trust companies for their own account will be received without deposit, but subscriptions from all others must be accompanied by payment of 10 percent of the amount of bonds applied for. The bases on which subscriptions will be entertained from the various classes of subscribers were publicly announced yesterday and the limitations then fixed will apply separately to subscriptions for each series of bonds. The right is reserved to close the books as to any or all subscriptions or classes of subscriptions for bonds of either series at any time without notice. The basis of allotment of subscriptions will be publicly announced, and payment for any bonds allotted must be made or completed on or before December 15, 1941, or on later allotment, and in the case of 2-1/2 percent Treasury Bonds of 1967-72 must include accrued interest from October 20 to December 15, 1941 ($3.8674 per $1,000 face amount ). The texts of the official circulars follow: 219 UNITED STATES OF AMERICA 2-1/2 PERCENT TREASURY BONDS OF 1967-72 Dated and bearing interest from October 20, 1941 Due September 15, 1972 REDEEMABLE AT THE OPTION OF THE UNITED STATES AT PAR AND ACCRUED INTEREST ON AND AFTER SEPTEMBER 15, 1967 Interest payable March 15 and September 15 ADDITIONAL ISSUES - TREASURY DEPARTMENT, 1941 Office of the Secretary. Department Circular No. 672 Washington, December 4, 1941. Fiscal Service Bureau of the Public Debt I. OFFERING OF BONDS 1. The Secretary of the Treasury, pursuant to the authority of the Second Liberty Bond Act, as amended, invites subscriptions, at par and accrued interest, from the people of the United States for 2-1/2 percent bonds of the United States, designated Treasury Bonds of 1967-72. The amount of the public offering is $1,000,000,000, or thereabouts. In addition to the amount offered for public subscription, $50,000,000, or thereabouts, of these bonds may be allotted to Government investment accounts. II. DESCRIPTION OF BONDS 1. The bonds now offered will be an addition to and will form a part of the series of 2-1/2 percent Treasury Bonds of 1967-72 issued pursuant to Department Circular No. 670, dated October 9, 1941, will be freely interchangeable therewith, are identical in all respects therewith, and are described in the following quotation from Department Circular No. 670: "1. The bonds will be dated October 20, 1941, and will bear interest from that date at the rate of 2-1/2 percent per annum, payable on a semiannual basis on March 15 and September 15 in each year until the principal amount becomes payable. They will mature September 15, 1972, but may be redeemed at the option of the United States on and after September 15, 1967, in whole or in part, at par and accrued interest, on any interest day or days, on 4 months' notice of redemption given in such manner as the Secretary of the Treasury shall prescribe. In case of partial redemption the bonds to be redeemed will be determined by such method as may be prescribed by the Secretary of the Treasury. From the date of redemption designated in any such notice, interest on the bonds called for redemption shall cease. "2. The income derived from the bonds shall be subject to all Federal taxes, now or hereafter imposed. The bonds shall be subject to estate, inheritance, gift or other excise taxes, whether Federal or State, but shall -2- 220 be exempt from all taxation non or hereafter imposed on the principal or interest thereof by any State, or any of the possessions of the United States, or by any local taxing authority. "3. The bonds will be acceptable to secure deposits of public moneys, any privilege of conversion. but will not bear the circulation privilege and will not be entitled to "4. Bearer bonds with interest coupons attached, and bonds registered as to principal and interest, will be issued in denominations of $50, $100, $500, $1,000, $5,000, $10,000 and $100,000. Provision will be made for the interchange of bonds of different denominations and of coupon and registered bonds, and for the transfer of registered bonds, under rules and regulations prescribed by the Secretary of the Treasury. "5. The bonds will be subject to the general regulations of the Treasury Department, now or hereafter prescribed, governing United States bonds." III. SUBSCRIPTION AND ALLOTMENT 1. Subscriptions will be received at the Federal Reserve Banks and Branches and at the Treasury Department, Washington, Subscribers must agree not to sell or otherwise dispose of their subscriptions, or of the securities which may be allotted thereon, prior to the closing of the subscription books. Banking institutions generally may submit subscriptions for account of customers, but only the Federal Reserve Banks and the Treasury Department are authorized to act as official agencies Others than banking institutions will not be permitted to enter subscriptions except for their own account. Subscriptions from banks and trust companies for their own account will be received without deposit. Subscriptions from all others must be accompanied by payment of 10 percent of the amount of bonds applied for. The bases on which subscriptions will be entertained from the various classes of subscribers are contained in Treasury press statement of December 3, 1941, a copy of which is attached. The Secretary of the Treasury reserves the right to reject any subscription, in whole or in part, to allot less than the amount of bonds applied for, and to close the books as to any or all subscriptions at any time without notice: and any action he may take in these respects shall be final. Subscriptions for 2. amounts up to and including $5,000 where the subscribers specify that delivery be made in registered bonds 90 days after the issue date will be given preferred allotment. In each such case a subscriber may not enter any other subscription, and payment must be made as provided in Section IV of this circular. Allotment notices will be sent out promptly upon allotment, and the basis of the allotment will be publicly announced. IV. PAYMENT 1, Payment at par and accrued interest from October 20, 1941, for bonds allotted hereunder must be cade or completed on is or notbefore so December 15, 1941, or on to 10Inpercent thepayment amount of bonds application laterup allotment. every caseof where Applied completed, for shall, the upon payment declara- with tion made by the Secretary of the Treasury in his discretion, be forfeited to the United States. Any qualified depositary will be permitted to make payment by 221 -3- credit for bonds allotted to it for itself and its customers up to any amount for which it shall be qualified in excess of existing deposits, when so notified by the Federal Reserve Bank of its district. Accrued interest at 2-1/2 percent from October 20, 1941 to December 15, 1941 on $1,000 face mount is $3.8674. V. GENERAL PROVISIONS 1. As fiscal agents of the United States, Federal Reserve Banks are authorized and requested to receive subscriptions, to make allotments on the basis and up to the amounts indicated by the Secretary of the Treasury to the Federal Reserve Banks of the respective districts, to issue allotment notices, to receive payment for bonds allotted, to make delivery of bonds on full-paid subscriptions allotted, and they may issue interim receipts pending delivery of the definitive bonds. 2. The Secretary of the Treasury may at any time, or from time to time, prescribe supplemental or amendatory rules and regulations governing the offering, which will be communicated promptly to the Federal Reserve Banks, HENRY MORGENTHAU? JR., Secretary of the Treasury. 222 UNITED STATES OF AMERICA 2 PERCENT TREASURY BONDS OF 1951-55 Dated and bearing interest from December 15, 1941 Due December 15, 1955 REDEEMABLE AT THE OPTION OF THE UNITED STATES AT PAR AND ACCRUED INTEREST ON AND AFTER DECEMBER 15, 1951 Interest payable June 15 and December 15 1941 TREASURY DEPARTMENT. Department Circular No. 673 Office of the Secretary. Washington, December 4, 1941. Fiscal Service Bureau of the Public Debt I. OFFERING OF BONDS 1. The Secretary of the Treasury, pursuant to the authority of the Second Liberty Bond Act. as amended, invites subscriptions, at par and accrued interest, from the people of the United States for 2 percent bonds of the United States, designated Treasury Bonds of 1951-55. The amount of the offering is $500,000,000, or thereabouts. II. DESCRIPTION OF BONDS 1. The bonds will be dated December 15, 1941, and will bear interest from that date at the rate of 2 percent per annum, payable somiannually on June 15 and December 15 in each year until the principal amount becomes payable. They will mature December 15, 1955, but may be redeemed at the option of the United States on and after December 15, 1951, in whole or in part, at par and accrued interest, on any interest day or days, on 4 months' notice of redemption given in such manner as the Secretary of the Treasury shall prescribe. In case of partial redemption the bonds to be redeemed will be determined by such method as may be prescribed by the Secretary of the Trensury. From the date of redemption designated in any such notice, interest on the bonds called for redemption shall cease. 2. The income derived from the bonds shall be subject to all Federal taxes, now or herenfter imposed. The bonds shall be subject to estate, inheritance, gift or other excise taxes, whether Federal or State, but shall be exempt from all taxation now or hereafter imposed on the principal or interest thereof by any State, or any of the possessions of the United States, or by any local taxing authority. 3. The bonds will be acceptable to secure deposits of public moneys, but will not bear conversion. the circulation privilege and will not be entitled to any privilege of 4. Bearer bonds with interest coupons attached, and bonds registered as to principal and interest, will be issued in denominations of $50, $100, $500, $1,000, -2- 223 $5,000, $10,000 and $100,000. Provision will be made for the interchange of bonds of different denominations and of coupon and registered bonds, and for the transferthe ofTreasury. registered bonds, under rules and regulations prescribed by the Secretary of 5. The bonds will be subject to the general regulations of the Treasury Department, now or hereafter prescribed, governing United States bonds. III. SUBSCRIPTION AND ALLOTMENT 1. Subscriptions will be received at the Federal Reserve Banks and Branches and at the Treasury Department, Washington. Subscribers must agree not to soll or otherwise dispose of their subscriptions, or of the securities which may be allotted thereon, prior to the closing of the subscription books. Banking institutions generally may submit subscriptions for account of customers, but only the Federal Reserve Banks and the Treasury Department are authorized to act as official agencies Others than banking institutions will not be permitted to enter subscriptions except for their own account. Subscriptions from banks and trust companies for their own account will be received without deposit. Subscriptions from all others must be accompanied by payment of 10 percent of the amount of bonds applied for. The bases on which subscriptions will be entertained from the various classes of subscribers are contained in Treasury press statement of December 3, 1941, a copy of which is attached. 2. The Secretary of the Treasury reserves the right to reject any subscription, in whole or in part, to allot less than the amount of bonds applied for, and to close the books as to any or all subscriptions at any time without notice; and any action he may take in these respects shall be final. Subscriptions for amounts up to and including $5,000 where the subscribers specify that delivery be made in registered bonds 90 days after the issue date will be given preferred allotment. In each such case a subscriber may not enter any other subscription, and payment must be made as provided in Section IV of this circular. Allotment notices will be sent out promptly upon allotment, and the basis of the allotment will be publicly announced. IV. PAYMENT 1. Payment at par and accrued interest, if Any, for bonds allotted hereunder must be made or completed on or before December 15, 1941, or on later allotment. In every case where payment is not so completed, the payment with application up to 10 percent of the amount of bonds applied for shall, upon declaration made by the Secretary of the Treasury in his discretion, be forfeited to the United States. Any qualified depositary will be permitted to make payment by credit for bonds allotted to it for itself and its customers up to any amount for which it shall be qualified in of excess of existing deposits, when so notified by the Federal Reserve Bank its district. V. GENERAL PROVISIONS 1. As fiscal agents of the United States, Federal Reserve Banks are authorized and requested to receive subscriptions, to make allotments on the basis and up to 224 the amounts indicated by the Secretary of the Treasury to the Federal Reserve Banks of the respective districts, to issue allotment notices, to receive payment for bonds allotted, to make delivery of bonds on full-paid subscriptions allotted, and they may issue interim receipts pending delivery of the definitive bonds. 2. The Secretary of the Treasury may at any time, or from time to time, prescribe supplemental or amendatory rules and regulations governing the offering, which will be communicated promptly to the Federal Reserve Banks, HENRY MORGENTHAU, JR., Secretary of the Treasury. 225 December 4, 1941 9:30 a.m. GROUP MEETING Present: Mr. Buffington Mr. Morris Mr. Barnard Mr. Blough Mr. Graves Mr. Bell Mr. Cochran Mr. Gaston Mr. Kuhn Mr. Sullivan Mr. Haas Mr. Schwarz Mr. Thompson Mr. White Mr. Foley Mrs. Klotz H.M.Jr: Herbert? Good morning. Gaston: Good morning. H.M.Jr: I am glad to meet this staff again. We have all been submerged for three days trying to borrow a little money, I hope successfully. Gaston: You asked Mr. Pehle for a report on something that was shown on that investigation, and the answer is that the transactions happened before the freezing control, but they are looking into some other phases of it. H.M.Jr: I see. Well, you know, the question arises on the books of that firm; how many other transactions are there like that besides for this one man? -2- 226 Gaston: Yes. H.M.Jr: Ithat. mean, maybe this firm is doing a lot of Gaston: Yes. I take it from his memorandum that he is H.M.Jr: going into that but we will call him up. Will you? Maybe there are a lot of other transactions of that kind. Gaston: Yes. H.M.Jr: I have had my suspicions of that firm for a long time. Gaston: You perhaps noticed that he made a speech, this man made a speech before a gathering of bankers day before yesterday. The story was in the New York papers. H.M.Jr: No, I didn't. What else? Gaston: I haven't anything else. H.M.Jr: Foley can tell you what I did yesterday. Gaston: Yes, I learned something about that situation. That matter has been a matter of common rumor around New York for some months. H.M.Jr: Well anyway, a man is on his way. We ordered him from Chicago. Anything else, Herbert? Gaston: That is all. H.M.Jr: Foley? Foley: The Customs guard in Honolulu was given ten years of hard labor by the judge and our people are on their way home by Clipper. H.M.Jr: Well, I think he got off easy. -3- Foley: 227 I think he got off much easier than he would have gotten off if the Treasury hadn't intervened. H.M.Jr: When will I get a report, how many more people in Customs have not got police records? Gaston: There are a lot of police records, but it is going to be a terrific job if we have to go all through Customs. I have a preliminary report on what is disclosed by fingerprint files in the Department of Justice and it shows some rather interesting things but they are mostly offenses before they went into Customs. H.M.Jr: This thing of getting the police records of all of them is going to be a tremendous job. Well, I don't care how big it is, I would do it, Herbert. I very much would like to have it done. Gaston: Yes. H.M.Jr: When the man comes back who is out there I would like to thank him for what he has done, your (Foley's) man, or is he the west coast man? Foley: No, he is here. H.M.Jr: Bring him in and introduce him. Anything else? Foley: No. Sullivan: You had asked me to see Congressman Elliott. H.M.Jr: Yes. Sullivan: He talked with you on the phone. Mr. Blough and I went up and saw him and I think he is all straightened out. Here is a report to you. H.M.Jr: Just file it? 4- 228 Sullivan: That is right. H.M.Jr: Good. Has anybody heard or seen Randolph Paul? Sullivan: No, I was going to ask you if you wanted me to phone him. H.M.Jr: He was supposed to have been here either yesterday or today. If he is in town today I would like to see him. Sullivan: All right, I will find out. I have the recommendations from Mr. Helvering about the two corporation experts. He gave me a list of five different men and recommended two. I think when you are ready I can get them both over here. H.M.Jr: When are we going to have another tax meeting? Sullivan: That is what I am wondering. H.M.Jr: How about three o'clock this afternoon? Sullivan: It is all right. If Randolph is in New York, do you want him to fly down for this? H.M.Jr: Well, I would tell him this. I am going to be here through until noon Saturday and I would like very much to see him before I go away. Sullivan: All right. H.M.Jr: Not particularly for this, but I would like to see him. Sullivan: I see. H.M.Jr: Anything else? Sullivan: No, sir. -5- Cochran: 229 Mr. Bell and Mr. White and I met on Thailand this morning. Mr. Bell can tell you what we did. H.M.Jr: All right. George, what did you want? Buffington: The Glenn Martin Company want thirty-one thousand of those folders which we have sent them. They decided to distribute them. H.M.Jr: Good. Buffington: An employer came in to see me yesterday -- H.M.Jr: That is quite an accomplishment. They say Glenn Martin, the great individualist, if he is with you he will do anything within reason for you. Buffington: He sees the need for it. H.M.Jr: Once he is convinced, then he is your friend. Buffington: An employer came in yesterday who employs three thousand men and said that they had made an investigation and that they felt that very few of their employees were prepared financially to pay their taxes in March. He was quite disturbed about it. They are working out a plan whereby the men will go to the local banks to borrow the money if necessary and the company will quietly guarantee their accounts, which I think is constructive. He also says that he is disturbed because they are not aware of the penalties for failure to file or to pay. I would like to make an investigation through several of the Federal Reserve centers to see if that same thing is true in other instances. If so, we ought to talk with some employers about how they are going to handle it. H.M.Jr: I would do it. What else? 230 Buffington: That is all. H.M.Jr: You never brought me in Gunther, the brewer. Buffington: Well, he offered to send his advertising I thought I might get a case of beer out of it. manager, who is a woman, and I thought probably H.M.Jr: we had better not do that. (Laughter) You mean you will take care of the situation? (Laughter) Buffington: I have so far. H.M.Jr: All right. When you need any help let me know. I can offer you the services of my son up until one o'clock. Buffington: He apparently has been tied up on something, and said next time he was down he would make it a point to stop in. H.M.Jr: What about the case of beer, do you get that too? Buffington: I presume so. That is all. H.M.Jr: All right. Blough: I sent in several charts from time to time. H.M.Jr: I get them and believe it or not I read them. Blough: I have a couple more. I don't know if you H.M.Jr: wish them this morning. I would save them until three o'clock. I am still looking for the company that pays over forty percent, or in that neighborhood. I am amazed. I thought I would find some who were paying I was under the impression some were paying up in the sixties, in percent. 7-- 231 Blough: We might find one or two but there wouldn't H.M.Jr: Well, you haven't given me any that pay over Blough: No, I think that is right. I can say for the be very many. forty-five. members of the staff here that I have had a lot of these charts, not the excess profits ones, but the other ones, photostated in letter size, black and white, no colors, but if they are interested in accumulating charts of that kind I have some sets here and I will be glad to make them available. H.M.Jr: Blough: What else, Roy? I think that is all until the tax meeting this afternoon. Barnard: Nothing. Kuhn: I have nothing. H.M.Jr: Harold? Graves: Mr. Mack gave me the information about the two companies that Senator O'Mahoney talked with you about. H.M.Jr: Oh yes. Graves: And with Mr. Foley's approval I have turned that matter over to Mr. O'Connell, who is studying it and I thought if you approved we might have him, when he has finished his study, go down and talk with the Senator. H.M.Jr: Joe O'Connell? Graves: That is right. H.M.Jr: Good. -8- Graves: 232 On the space matter, the Public Buildings Administration apparently has decided that it will not itself take over the H Street property. That makes it possible for that Rockefeller matter to be settled, but it still leaves Public Buildings Administration in the Procurement Building. Apparently what they intend to do is to defer a move from the Procurement Building until the completion of some temporary buildings down here on Constitution Avenue about midJanuary. H.M.Jr: If that is really mid-January, that isn't too bad. Graves: No, it is not too bad. Well, it is a question, I suppose, of how quickly they can complete those buildings they have. They have completed some within thirty to forty-five days, so that is where we stand on the space thing. H.M.Jr: Anything else? Graves: Nothing else. H.M.Jr: Barnard, could you find out, unless you already know, what success, if any, Cliff Mack is having in getting some men out of the engineering school? Barnard: I don't know but I will find out. H.M.Jr: Would you? George, the President read and was very much pleased with that chart on Navy. Haas: H.M.Jr: Fine. You got my memo on the questions he asked me? 233 -g- Haas: Yes, I will try to get the answers today. H.M.Jr: And then will you send a copy of that to the Secretary of the Navy, Under-Secretary of the Navy, and Chief of Naval Operations, with a letter from me. Haas: I have done a third of that. H.M.Jr: What is this? Haas: That is a chart on the employment in the air- craft industry. H.M.Jr: Fine. George, this statistics on Graves' work once a week is enough. Haas: All right. H.M.Jr: Mondays will be time enough. Haas: All right, I will do that. H.M.Jr: When will you have Maritime Commission? Haas: Tomorrow morning. H.M.Jr: You know, the President's questions were very interesting. You understood what he meant? - 10 Haas: 234 Yes, the time they designate the amount of completion, how long the lapse is - what is the time elapsed from that time until the check is received by the individuals and they are disbursed. H.M.Jr: Do you think we ought to send the Director of the Budget one of those, Dan? Bell: I think it would be information in which he is interested. H.M.Jr: Then prepare a letter for me to the Director of the Budget. Bell: This question came up at Cabinet. The Navy, you know, has been bragging quite a bit about their schedule, and the President laughed at them and said, "Sure, you put your schedule out on an eighthour basis, and now you are working three shifts, so you are taking credit for being way ahead of schedule. He says, "Why don't you put your schedule on a three-shift basis, and then let's see how you stand?" So he asked for a memorandum on that. I thought it was rather interesting in view of all the publicity they have had on it. H.M.Jr: But you think I ought to send it to the Director of the Budget? Bell: Yes, I think it would be very interesting. Haas: All of them? H.M.Jr: All of them, yes. My thought was, the Navy chart, I wouldn't send it to the Army. I would just send the Navy to the Navy, you see. Haas: I see. - 11 H.M.Jr: Harry? White: We had a meeting last Friday, I think, of 235 Mr. Carswell and Cox. The decision was that the Lend-Lease would be most reluctant to extend their practice to include the sort of thing that Howe wanted, but they would be in a better position to know whether they wanted to do that if they knew what the status of the Canadian exchange situation was. To us it looked good. Carswell thought that the changed status would alter its prospects, so we are now examining that so the letter that we are answering is in a tentative form. Final decision has been made. In that meeting Carswell mentioned that Canada had a couple of hundred Hurri- canes which they practically finished, which England didn't want because it wasn't good enough for them, and they had offered them to the Russians for sale. I mentioned that in the light of yesterday's discussion. H.M.Jr: The Russians don't want them? White: I don't know. H.M.Jr: Have they offered them to the Chinese? White: No. I don't know. They had offered them to the Russians, and it was a question as to whether the Russians would have the gold to pay for it or not. I think they were offered for sale for gold, but I am not positive, and with respect to the bombers which Phillips raised a question about, you remember the letter you got a couple of months ago several weeks ago stating that that decision had already been made. H.M.Jr: Well, we will see. - 12 - 236 Merle, when you attend a meeting like that, I don't know whether Mr. Bell wants to be kept posted or not, but tell him, and then if he doesn't want to be kept posted, that is up to him, you see. Cochran: I have sent him a copy of the memorandum of yesterday's meeting. Bell: What one? H.M.Jr: I had a meeting yesterday with Sir Frederick Phillips. I don't know how much of that you want to follow. Bell: I would like to follow that. H.M.Jr: You sent him a copy? Cochran: Yes, he gets a copy of all of those. H.M.Jr: Anything else, Harry? White: That is all. Schwarz: I have been trying to find out where the International News Service got hold of our attitude on the Vinson profit limitations. Bell: It looks like they got something over in the Budget. I talked with some of our people here. You may be asked at press conference - I think you probably will be, because it ties in with the excess profits situation-- H.M.Jr: What is my attitude, John? Sullivan: You haven't made any decision on that at all. You understand that the Vinson investigating committee is bringing out a report. H.M.Jr: I meant to ask you about it. I read that, and - 13 - 237 I meant to ask Sullivan about it. Have I written a letter on it? Sullivan: No, sir. Schwarz: A report has been prepared, I understand, on H.M.Jr: Have I signed it? Sullivan: I don't think so. H.M.Jr: Well, then, that story-- Bell: It hasn't gone to the Budget to get clearance. Foley: No, I think it is held up here. John wanted the profit limitation bill. it held up until the Vinson committee made its information available to the public. H.M.Jr: Then it came out of here. Schwarz: Then the leak is here. H.M.Jr: The story is that I have written a letter, isn't it? And that I had made a report to the committee. Well, have I? Schwarz: That we had prepared one for the committee. Sullivan: You will recall that I suggested that I ask Doughton not to send anything down for a report, and you said, "No, don't do that. You will be put in the position of holding it up." "Well, I said, "then if it comes down, and It certainly will, we will just by-pass it until we have had time to study the report of the committee." And you said, "Yes." I think that - I don't recall whether a letter has gone to Budget, but I know one was prepared. - 14 H.M.Jr: 238 Could you, between now and ten-thirty, let me know? Sullivan: Oh, yes, I will. H.M.Jr: If I have signed it, because if I haven't, it is very simple. I will simply say, "Well, gentlemen-- Sullivan: I know you haven't signed it. I may have. H.M.Jr: Well, you may have. Sullivan: I will find out and let you know. H.M.Jr: Will you do that? Sullivan: Yes, sir. H.M.Jr: Thank you. Sullivan will clear it up. Schwarz: The other matter you may well be pressed on is Senator George's statement that was in yesterday's papers. H.M.Jr: What was that. Schwarz: That any substantial increases in taxes now would upset our economy, and that we had better do most of our financing through borrowing, which is-- H.M.Jr: Well, he has changed. Schwarz: He has changed position. Bell: It is quite a statement. He said we had exhausted the taxing power, or we would if we went much further. Schwarz: He said we could go to some new sources and some changes in rates on existing sources, but - 15 - 239 not large increases. H.M.Jr: When I concentrate on financing, I miss everything, I hope, except financing. Last week he made a statement that we ought to do it at the source. Schwarz: That is right. Bell: This looked like a prepared statement. It was quoted. Schwarz: It was just an interview. H.M.Jr: Did he see the President yesterday? Schwarz: I don't believe so. H.M.Jr: He was on the ticker for seeing the President. You might look that up, and you might look up whether he gave it out before or after he saw the President. Schwarz: He gave it out night-before-last. Gaston: It was in the morning papers. Kuhn: The general comments are the best on it this morning. H.M.Jr: My answer is very simple. I will just keep saying, "Until I appear before the committee, Schwarz: I don't think I will say anything." That is all. Morris: Do you want to do anything about this last paragraph in the letter to the Budget about-- H.M.Jr: Yes. I want to see a couple of people right after this meeting, if you don't mind waiting outside. We will finish it then. I will say now I want Mrs. Klotz to stay and Bell and - 16 - 240 Graves and Kuhn. Bell: Stay on that? H.M.Jr: On something else. If you would stay behind, then we will clear up the rest. Bell: Then I will tell Heffelfinger to go on to the Byrd Committee. H.M.Jr: Yes, because you are going to be here at ten-thirty at my press conference, Dan, but I want to see Bell and Kuhn and Graves and Mrs. Klotz, and then if you (Morris) stay, I will tell Bell and Graves to stay, and we will clear up that other thing, if you don't mind waiting. What else? Morris: That is all. H.M.Jr: Harold, did you have somebody look into Mrs. Dorothy Bellanca. Graves: Yes, I have a report about that. H.M.Jr: You might give it to me. Want to talk to me about it? Graves: Now? H.M.Jr: No, but-- Graves: Any time. I have a written report. H.M.Jr: Well, ask Fitz to fix you up with an appointment. Graves: Yes. H.M.Jr: Oh, yes, and I got a - what happened, Ferdie, on the Wheeling Steel Company's orchestra? Kuhn: Well, the Wheeling Steel Company is very - 17 - 241 delighted that we are interested in them. They are not an orchestra of steel workers. It is a company orchestra made up largely of relatives of steel workers. H.M.Jr: But not actually steel workers? Kuhn: Most of them are not actually steel workers. H.M.Jr: Then I am not interested. Kuhn: That is what I thought, but it is a company proposition, and the company was very pleased that we were interested in them. H.M.Jr: No, I thought it was like the needle workers put on. Kuhn: No. H.M.Jr: Like Pins and Needles. Kuhn: Any relative of a steel worker can join the Wheeling Steel workers' orchestra. Haas: What degree of kinship. H.M.Jr: How far had we gotten? Morris: You had gotten through me. H.M.Jr: Something else? Morris: No, I am through. H.M.Jr: Bell? - 18 Bell: 242 On the creditfor Thailand, I understand the State Department is very much interested in giving this credit, and if you gave it, of course it is purely political. They have nine million dollars in gold in New York, which they apparently do not want to use. We understand that Japan has sold some fifteen million dollars in gold to the Thailand Govern- ment. Merle doesn't think that more than five of it has been delivered. Now, we could enter into an arrangement with that Government similar to F the one you entered into with Russia for purchasing gold. Probably you shouldn't exceed the five million that now seems to be available. You could run that for sixty days, and then we could convert it into a credit if that is what you would like to do. H.M.Jr: Who in the State Department is interested in it? Bell: This says Berle and Undersecretary Welles. H.M.Jr: Well, it would have to come from Hull direct. Bell: Of course I assume that they would be interested in it if they could keep Thailand in opposi- tion to the Japanese Government. H.M.Jr: Well, I will tell you what you do, if this is agreeable. Let Merle go over and see Mr. Hull's secretary. What is his name? Cochran: Stone or Gray. H.M.Jr: Stone. Tell him about this and tell him that if Mr. Hull would - wants this done, if he would write me a little note, why, we would be glad to do it, but I don't want to undertake it unless I get a note over Mr. Hull's signature. - 19 - 243 Bell: I think we ought to do it along that line. H.M.Jr: No, no, but I don't want to do it unless I I don't believe we ought to purchase the gold and leave it over there. get a memo from Mr. Hull. Cochran: Eight million is the figure that comes from Bangkok, and they have nine million here, so I think, Dan, you might go above the five. We might make it eight. H.M.Jr: What do you say, Dan? Bell: I have no objection to that. I was wondering if we shouldn't probably make it in two installments, hoping by the time the second installment came along they would have had delivery of the second five million of gold from Japan. H.M.Jr: How much have they got here? Bell: They have got nine million of gold in New York, earmarked. H.M.Jr: So we are not taking any chances? Bell: We will have to have a secret understanding with the Federal Reserve. They might have to release that gold. H.M.Jrs Harry, where are you on this? White: I think it is wholly to be determined by political considerations. It is not an economic matter at all. They don't need the money, and I am in agreement that under no conditions ought we to buy the gold there. H.M.Jr: Well, I won't move unless I get a little letter over Hull's own signature. - 20 - 244 Cochran: I will go over and see him. Pell: This hasn't come from the Government yet. It comes from the Minister out there. H.M.Jr: Well, I repeat, I want to make sure that this Bell: All right. is what Mr. Hull wants. Here is a further liquidation of the Railroad Administration. The President has to approve it. H.M.Jr: Am I still Director General of Railroads? Bell: Yes, you are licked there. H.M.Jr: Am I? I never did use that pass. You know, for a while I was Director General of the Railroads. I could have gotten a wonderful pass. Did I ever have a pass? Klotz: No. Bell: I think you did have one once. H.M.Jr: I never used it, though. Bell: Here are some memoranda for your files on the Byrd Committee meeting. H.M.Jr: Bell: Oh, yes, good. And we will have the others as we go along. Dr. Goldenweiser asked if his office, and just his office, could have these figures on the British financial situation. I talked to Harry about it, and he sees no objection if we can get a definite understanding that they will go no further than his office. - 21 - 245 H.M.Jr: British financing, what does that mean? Bell: The current figures that we get from the British White: We get figures almost every week of what cash they have. When you spoke to the British, you on their balances. said it was going to be kept within the Treas- ury. I don't know, it is not -H.M.Jr: Well, I think that we ought to ask Sir Frederick's permission. I think we ought to ask his permission, and I would give it to him on a thirty-day lag. That is good enough for them. What? Bell: I don't know, they like to have them currently. They know that we get them weekly. H.M.Jr: What would they do with them? Bell: Oh, they would just know what their balances are in this country, and they claim that they need it in their operations, as to what the possible withdrawals might be. White: It isn't "they", it is probably Walter Gardner. Bell: That is right. H.M.Jr: Well, Number one, I would ask Sir Frederick Bell: Phillips' permission, and two, I would do it on the basis of a thirty-day lag. I take it Harry can ask Sir Frederick next time he comes in. H.M.Jr: Will you do that? White: Shall I write a note for your signature, to do it formally? H.M.Jr: Yes. What else? - 22 White: 246 By the way, I did inform Mr. Bewley and he told me he would inform Mr. Phillips right away - that was within an hour after you had given that answer last week. H.M.Jr: On this Russian business? White: You asked Sir Frederick whether he had heard your answer? H.M.Jr: Yes. White: I didn't give it to him; I gave it to Bewley. H.M.Jr: Bewley didn't pass it on, evidently. White: I don't know. Bell: We got very good publicity on our regulations. H.M.Jr: Yes. Bell: I still have my fingers crossed. I had a number of telephone calls last night, one sort of criticizing us for reopening the '67 '72's. They thought we were going to kill that market, and probably get down to one and a quarter or one and a half. H.M.Jr: Who was that? Bell: Oh, one fellow was Gil Martin. Do you know Gil Martin, Dave? Morris: No, I don't. Bell: He is one of the dealers. Schwarz: The only dissenter seemed to be the Herald Tribune. They said our timing was bad. H.M.Jr: The financial writer of the Tribune has lost his sense of humor. I haven't. - 23 Schwarz: 247 They were pretty sour. Bell: And others thought we were a little too liberal in our regulations. None of the papers have said that. H.M.Jr: I thought we got good publicity. Bell: Got good publicity out of it, but I still have H.M.Jr: my fingers crossed. Can I say that one of the reasons for the regulations was that one of the Federal Reserve Districts didn't carry out our orders? Bell: I think that we are probably as much to blame as anybody for not having some standard, at least I think we ought to feel that way until they have had a chance to operate. H.M.Jr: O.K.- Well, you will be in here anyway. Bell: Yes. H.M.Jr: Anything else, Dan? Bell: One more thing. We have a lady employee down in Loans and Currency who has had forty-five years' service, and has been extended once. Under the President's policy, she wouldn't be entitled to a further extension. Mr. Broughton and Mr. Wesley, who is chief of the division, do not want to ask for an extension. She is very popular and very capable, and we have a petition here from one hundred and twenty-eight employees asking that she be extended. It is unusual. What would be your policy in that? H.M.Jr: Well, the first thing, I would like to know what her financial condition is. Bell: She would like to stay on, and the understanding is that she needs the money. - 24 - 248 H.M.Jr: Do you know that she does? Bell: We could find that out. Klotz: If this legislation passes that is pending now it would give her that much more, too. Bell: Klotz: Bell: That is right, and that is probably one reason she would like to stay on. I don't blame her. The legislation that is now pending would give her half her salary as a pension, where if she retires now I think she would get at the most around thirteen hundred dollars. Thompson: Twelve or thirteen hundred. Bell: She would get about twenty-one hundred if she stayed on and this bill passed. H.M.Jr: You are setting a precedent. Bell: Setting a precedent. Of course, there have been precedents, but whether or not we ought to go this far down the line. Of course, we gave Miss O'Reilly about three extensions and we gave Mr. Simon you notice, about six extensions. You notice where he retired the other day at seventy-six. H.M.Jr: Well, you know how I am on those things. I would give it to her, sure. Bell: Well, that is the way we feel about it. Thompson: I think in these times where it is so difficult to get help, the policy should loosen up a little bit, if they are capable. H.M.Jr: Sure. - 25 - 249 Bell: We may get turned down across the way. H.M.Jr: We will try it. Bell: If you are willing, I am. H.M.Jr: Sure. Bell: O.K. That is all I have. Thompson: That report on reports is a very voluminous affair. There are over a thousand reports in the Department. It will be ready possibly by tomorrow. There is an example of the way we are putting it up, covering the Procurement Division. Customs has over a hundred reports, and there are quite a number of them. I think it is a healthy survey, because we have been able to study them and perhaps eliminate a good many of them. H.M.Jr: Have you heard what I said to Professor Gas- ton about wanting the police record on all men who had police power? Gaston: Yes, you know there isn't merely the matter of searching personnel files, but there is a matter of going to records to see what has occurred that hasn't come to people since in addition to what their personnel records show. That is more important than the other, I think. H.M.Jr: As a matter of fact, Herbert, with so little coming into the United States, I shouldn't think Customs would be terribly busy. Gaston: As a matter of fact, their receipts now are greater than last year's. Last year was greater than the year before, and on top of that they have had all this Export Control stuff, and - 26 - 250 a lot of actual searching stuff. H.M.Jr: There has been no tourist business, and that must have taken them a lot of time. Foley: In Mexico. H.M.Jr: They don't pay any duty. Bell: It is all officials. Foley: They stay three days. Gaston: With all this policing going in and out, they are busier than they have been when things were wide open. H.M.Jr: Well, this thing of a police officer in the Treasury, checking his record, all police, I don't want to be caught in that position again. Gaston: We are going to find a lot of people that have police records that we won't want to dismiss. It is more a matter of what is a man's attitude, is he truculent, is he a trouble maker? H.M.Jr: Well, Herbert, I may disagree with you on that. White: Doesn't it depend what the police record is on? I have a police record. I once hit a guy (laughter). Bell: Traffic violations and so on. White: And he happened to be a policeman. H.M.Jr: I don't mean traffic regulations. Foley: I always thought you were a cop hater, Harry. White: I could run faster than he could (laughter). - 27 H.M.Jr: 251 That is the most conceited remark I have heard you make in a long time. You sound like an Australian. White: An Australian or an Englishman. Klotz: What? H.M.Jr: He is just bubbling. You will hear it after a while. What is it? Thompson: That is a form that is ready for you. H.M.Jr: Oh, yes. Do you want to hang on to that? Thompson: I had one other matter, if I can stay just a half minute, to clear with you. H.M.Jr: All right. O.K. TREASURY DEPARTMENT 252 INTER-OFFICE COMMUNICATION DATE December 4, 1941 TO FROM Secretary Morgenthau Mr. Cochran In accordance with the instructions of the Secretary, Messrs. Bell, White and Cochran met this morning at 9 'clock to recommend measures which might be taken to meet the foreign exchange requirements of Thailand, as outlined in the memorandum. accompanied by three cablegrams from the American Minister at Bangkok, which I submitted to the Secretary yesterday. At the 9:30 meeting Mr. Bell informed the Secretary that his committee of three was of the opinion that the most feasible arrangement for Thailand would be one similar to that first consummated with Russia. That is, the Treasury might undertake to buy gold from Thailand for delivery ninety or one hundred eighty days later, with a 95% down payment being made to the credit of the Treasury of Thailand with the Federal Reserve Bank at New York. If the arrangement required extension beyond ninety or one hundred eighty days, due consideration would be given thereto, but a service charge of 1-1/2% should be imposed after the first maturity. The committee of three did not favor taking delivery of gold from Thailand either in Bangkok Manila or Australia. Mr. Cochran pointed out that apparently not more than $5,000,000 out of the $14,000,000 of gold which Japan was understood to have sold to Thailand had yet been delivered in the latter country. It was explained that the Treasury of Thailand has $9,000,000 of gold under earmark with the Federal Reserve Bank at New York but does not desire to dispose thereof at present. Mr. Bell made the suggestion that we might have some informal understanding with the Federal Reserve Bank of New York not to release this earmarked gold so long as Thailand might be in arrears with respect to delivery of gold contracted to the Treasury. The Secretary appreciated that any arrangement with Thailand would be in- spired solely by political reasons. He desired, therefore, to receive a formal letter from Secretary of State Hull indicating the desire of his department that the Treasury undertake a credit arrangement with Thailand. The Secretary instructed me to go to the State Department and let one of the Assistants in Mr. Hull's office know of his desire for such a letter if the matter is to be studied in the Treasury. 11 called at Mr. Hull's outer office and told Mr. Gray the purpose At of my visit. o'clock He I said that Mr. Hull had inquired about me since my return from China. Consequently, Mr. Gray volunteered letting Mr. Hull know that I was in the office. The Secretary received me immediately and talked with me for an hour in regard to China. When I brought up the Thailand credit question, I found he was femiliar therewith. It was decided that I should talk with someone in the Far Eastern Division and that the latter should clear a draft letter with the interested officials of the Department of State before submitting it to the Secretary. After this conversation. I went to the Far Eastern Division and -2- 253 reviewed the matter with Assistant Chief George Atcheson and two of his colleagues. We tried to get in touch with Mr. Livesey but the latter was at the Export-Import Bank. Mr. Livesey telephoned me at 2:30. The Far Eastern Division had told him of my visit. I renewed the request to Mr. Livesey that he write a letter for Mr. Hull's signature if the State Department desired that the Treasury Department consider favorably a credit arrangement to Thailand. I explained to Mr. Livesey our interest in having some collateral arrangement, provided this might not vitiate the whole character of the arrangement, or be unacceptable to the State Department for political reasons. Mr. Livesey said he would immediately draft a letter and consult Mr. Berle thereon. At 3 o'clock this afternoon the Secretary talked with me by telephone, and I gave him the foregoing information. I told the Secretary that our request of the State Department for a letter signed by Mr. Hull had brought the question of the political desirability of an American Government credit to Thailand directly to a focus since there had been a difference of opinion in the Department of State thereon. Consequently, this had been a desirable step. J. m/f 254 December 4, 1941 10:24 a.m. HMJr: Colonel Hello. Donovan: Henry. HMJr: Yes. D: Jim Baxter was entranced with his visit yesterday. HMJr: Oh, really? D: Yes. HMJr: Well..... D: And, of course, I hope it's clear to you; but 1f it isn't clear, anything that we've got here is yours. HMJr: D: Well, what could be nicer? Now, I tell you one thing that I suggest that you might be interested in. HMJr: Yes. D: I told you and I think Baxter enlarged on it this experiment we're making in visual pre- sentation. HMJr: Yes. D: Now, on this - I think for the first time - the President comprehended the depletion of Russian industry HMJr: Yes. D: And I'd be glad to let you see those two mape if you send - I'd be willing to send anyone over, but I think it would be better for you to have your man come over HMJr: Yes. -2- 255 and see my secretary, and I'd make them available together with some ethnographical D: maps HMJr: Oh, wonderful. 80 you could take a look at them. D: HMJr: Why I'11 have Kamarck come over. D: Yeah, he's a good boy; and they like him here HMJr: Good. .....80 they - and if there's anything else that he asks for, he'll get. D: HMJr: D: HMJr: D: HMJr: Well, I'll tell Kamarck that you have something and he should go over and get it. God, Henry, it's a terrible thing to me; I think these fellows, if they're caught, ought to be held for treason in disclosing those war plans. Oh, well, if that happened to me, I'd be so sick I don't know what I would do. And I think that they disclosed there are the more "America First" plans than any real victory plan. I think there - but that doesn't excuse it. Well, if that happened to me - you're referring to the Washington Herald. D: Yes. HMJr: Well, if that happened, I'd - I just would be 111. D: Oh, God, it's terrible. HMJr: Yeah. D: All right, Henry. HMJr: Thank you. D: All right. HMJr: Thank you. 256 December 4, 1941 10: 34 a.m. HMJr: Hello. Allan Sproul: Hello, Mr. Secretary. HMJr: Yes, Allan, how's it going? S: Well, I think it's going all right, and I think it will go all right. The market is down with the opening, but the sixty-seven, seventy-two's are a hundred and one twenty-four bid now, and the new two's are about about a hundred and one and twenty thirty-seconds or thereabouts. HMJr: Well, look, I've got to see the press. Can I S: say that the thing has been well received? Yes, I think you should say that there was a HMJr: No. S: little uncertainty at the opening. because of the new instructions as to subscription. HMJr: No, no. I'm not going to say that. I'll let S: (Laughs) They never overlook a chance. HMJr: S: HMJr: S: HMJr: the New York Tribune say that. But it's - but I mean, the thing is all right, isn't it? I think the thing is all right. Is it in the bag? I should say so. Okay. S: All right. HMJr: Thank you. 257 December 4, 1941 The Secretary related the following to Mr. Foley following Judge Mack's call on the Secretary: "After telling me his usual group of stories, I gathered from John E. Mack that evidently what they have been doing is they have been trying to work on Shea on the question he came in to see me about and the formal letter he left with me (attached), because he wants to transfer that stock. I told him that I very seldom got in on that thing. He said, Well, could he have Homer Cummings to see you (Foley) and I said yes, that would be the normal thing for him to see you; that this was a matter to be taken up with the Committee. And I told the Attorney General I would tell him and I will tell him.' Mr. Foley: "That is not what he indicated to you in his telephone conversation. He was talking about continuation of the action up in Wilmington and about the two slants, (1) the Swiss crowd wanted, and the present Corporation, and he thought because Mack was in chargerwe ought to continue the present Corporation. HM,Jr: "Why we should transfer the stuff from the Dutch to the Swiss -- just as if I knew nothing about it -I would say no. After all, we cooperate with the Dutch and Switzerland is a big question mark especially in view of the fact that during the past few days there is all this question of German pressure on Switzerland. "Then the other thing, he told me that the Attorney General and the President and Ambassador Bullitt met last night, evidently to discuss this company, and that Ambassador Bullitt phoned him that he would accept a Directorship in this company -- but leaving the letter behind -- and in case they voted these Directors out that he would resign. I suppose what he means, the controlling company in Switzerland, if they voted that 258 -2- "I said, "Bill Bullitt asked my advice on this thing and I told him not to do it and I think he is a damn fool to have done it. " So Mack says, "Maybe I am a damn fool." I said, "The situation are different." I said, "Bill Bullitt is now an Ambassador on the payroll of the United States. (Bullitt must be awful crazy to get something to do to accept Di- rectorship on this Company and he said to me when he told me he wanted to go on it that his father had al- ways advised him not to take a Directorship where he was just a front.) 259 GENERAL ANILINE & FILM CORPORATION 230 PARK AVENUE NEW YORK TELEPHONE MURRAY HILL 4-1300 December 4, 1941 Honorable Henry Morgenthau Secretary of the Treasury Washington, D. C. Dear Mr. Secretary: There are pending before the Treasury applica- tions for permits to transfer certain large blocks of stock of General Aniline & Film Corporation, to-wit, 1,550,000 B shares, from certain Dutch nationals and the nominee of one Dutch national to I. G. Chemie, a Swiss corporation. There is also pending before the Chancellor in the State of Delaware a proceeding to bring about a meeting of the stockholders of this Corporation for the purpose of electing a Board of Directors. The decision of the Treasury on the said appli- cations for permits for such transfers is, therefore, of great importance in the premises. I therefore respectfully request the Secretary of the Treasury to ensure a speedy decision on the said applications. Very respectfully yours, gohn JOHN E. MACK, E mack President 260 December 4, 1941 12:00 Noon HMJr: Hello. Operator: The Attorney General. HMJr: Hello. Francis Biddle: Hello, Henry. HMJr: Good morning. B: Good morning. HMJr: Well, John E. Mack didn't ask me what you thought he was going to ask me at all. He's left a formal letter with me in which he's asking that we grant him a license to transfer the control of this General Aniline from the Swiss Company to the I mean, from the Dutch to the Swiss. B: Well, that's a technical matter. He was going to ask you about the - what he wants to do and what Homer Cummings wants to do, is for us to make a motion to have the matter postponed for another three months. HMJr: Well, he didn't - I got that from Foley before I saw Mack. B: Yes. HMJr: But he didn't say a word about it. B: Well, that's queer. I just don't understand it, because that was the main thing he was going to speak about. HMJr: He never mentioned it, and he's given me a formal letter and then he's sending Homer Cummings around to see Foley to plead on this particular thing and nothing else. B: Well, I - well, what does Ed think? We have to make up our minds anyway. HMJr: On this particular -2B: 261 Yes. No, on the postponement. I think we ought to postpone it, because I think that if we don't and if there's an election, the Chemmie Company is going to grab it. HMJr: Well, I'11 tell Ed to call you himself. B: Yes. HMJr: He's in the room now. B: You have no particular views? HMJr: No, because it's too complicated. Whatever Ed B: Very good, Henry. HMJr: says will be all right with me. Now, let me just ask you one other thing as a matter of curiosity. Bullitt was at our house Monday night for supper. B: Yes. HMJr: And he asked me about going on as a director. He asked me last night, too. B: HMJr: And I told him, "Bill," I said, "I think as an do it." Ambassador of the United States he shouldn't B: Well, I said I didn't see any objection to it difficulty. Well, then he said to me, "Well, that's the advice my father always gave me, 'never be a director where you're just a front.' but I thought he ought to off if there was any HMJr: B: Well, he is going on. HMJr: That's what Mack told me. B: Yeah. HMJr: And he said that if I. -3B: 262 Well, I think this is a little different, because this obviously a case in which it is very important for us to have Government officials acting on the board. I think it's a little different from the usual case. HMJr: Well, I was just curious. Now. B: Well, that's all Bill said to me. He said, "Now, do you see any harm as far as it goes?" I didn't think of the Ambassadorial feature, but I said, "Bill, nobody knows where this thing's going to land. If you do it, you'd better send your resignation to me undated that I can use any time that I think it would embarrass you while HMJr: you're in Africa." Well, just as a matter - I'm just curious. B: Yeah. HMJr: B: Now that you think, here he is, an Ambassadorat-large. Would you take - would you recommend that normally? I don't think it would make very much difference. It's a little - I mean, he's going on this special mission of the President and he spoke to the chief about it; and I gather the chief - I think that this is a much better crowd than that other crowd, Henry, too. HMJr: Oh, there's no question about that. B: Yeah. HMJr: I'm not - this is purely personal, because I advised him not to. He told me that's the kind of advice his father always gave him. Then he did it anyway. B: Yes. HMJr: So that's what my advice is worth. B: (Laughs) I don't think probably if I'd have said the same it would have made the slightest difference. Bill just likes to take your 4- 263 advice because he wants to talk about himself. HMJr: B: HMJr: B: Well, anyway, I - so the way the matter stands now, I'11 tell Foley to get in his office and call you up. Now, if Ed and I disagree, I may speak to you tomorrow about it. That's all right. All right. HMJr: Thank you. B: Check. 264 December 4, 1941 12:18 p.m. HMJr: Hello. Robert Rouse: How are you this morning? HMJr: Oh, I'm all right. I - how are you? R: Well, I got in all right. HMJr: Yeah. R: I feel the same way, I guess. HMJr: I guess so. But it's worth being tired for. R: Right. HMJr: It's going all right, ain't it? R: It's going fine. There has been some buying in the market this morning of the last bond as being outstanding. HMJr: R: There's been what? Some buying in the sixty-seven, seventy-two's in the market. It's presently the hundred and one, twenty-six bid. HMJr: Yeah. R: And I think the thing's in very healthy shape. It's been well received both ways. The amount of business today in the market is small, but it's more on the buy side than the sell. HMJr: Well, everything is - and they like our regu- lations all right? R: Yes. I think by and large there are some angles of it they don't, but the comments I've had from people - for example, Tompkins called me up and the bankers and B. B. and the Mutual Life. HMJr: Yeah. 265 -2R: And we had comments from several others. And HMJr: Good. R: Once in awhile I've had a comment - a detail - the principle of it, they all like very much. that they didn't think one thing was right or another thing was right; but that could be straightened out another time. HMJr: R: Well, it was very useful having you down here, and I appreciate your being here. Well, that's awfully nice, sir. I'm glad to help in any way I can, as you know. HMJr: Well, it was very useful. R: Good. HMJr: Thank you. R: Thank you. December 4, 1941 266 2:55 p.m. HMJr: Hello. Operator: Mr. Barnoff is not in his office. I have Mr. Trannell. HMJr: Hello. Niles Trammell: Hello, Mr. Secretary. HMJr: Hello, Mr. Trammell. T: Yes, sir. HMJr: Mr. Trammell, I have before me your telegram to Mrs. Klotz about Mr. Sarnoff's suggestion. T: Yes. HMJr: Now, of course, I'd be delighted to invite Leopold Stokowaki, but I'd just like to raise this question. T: Yeah. HMJr: How would the maestro feel about having another conductor there? T: Itodon't it atthink all. that he will have any objection HMJr: You don't. T: No. I just want to tell you what happened. I had a luncheon here in my luncheon room yesterday HMJr: Yes. at which time I had Mr. Castro, the conductor T: from Latin-America HMJr: Yes. T: ..... and Mr. Stokowski and Mr. Sarnoff and the -2- 267 Consul General from the Argentine HMJr: Yes. and as we left, Mr. Sarnoff just took it T: HMJr: on himself to invite Stokowski to come, see? Yeah. He done it. T: And Stokowski accepted. HMJr: I see. Well, then there's nothing to do. T: No. I think it'11 be all right. In fact, I'm positive it will be. The maestro, as a matter of fact, recommended to us that we employ Stokowski. HMJr: He did. T: Yes. HMJr: Yeah. T: It was on his recommendation that we took him. HMJr: I see. T: Otherwise, we would never have taken him. We asked him who we should get, and he said, "Why, by all means if you can get Stokowski, get ,him.' HMJr: I see. T: And I think that will be perfectly acceptable. HMJr: T: Well, I just - they've all got me so frightened of the maestro, that I don't want him to throw down his baton at the last minute, that's all. (Laughs) Well, I'm positive that that will be all right. If there is any question about it, blame it on me. HMJr: Yeah, but that wouldn't help it if he blew up. T: Well, he won't blow up, no. -3HMJr: T: HMJr: T: 268 Well, we'll send him an invitation today. Well, that's very kind of you. But, we - well, anyway, I'm a little timid about it; but if he's invited and he's accepted, there's nothing to do but to do it. Right. It's already happened, and I knew that the thing was - I felt that maybe you might question the thing and I thought I'd telephone you about it. HMJr: T: Well, that's all right. But I'm quite positive that it will be all right with the maestro. T: All right. It's on your head. (Laughs) All right. I'll take the responsibility. HMJr: Thank you. T: All right. HMJr: Good-bye. HMJr: 269 December 4, 1941 3:03 p.m. Merle Cochran: Yes, Mr. Secretary. HMJr: Merle. C: Yes, sir. HMJr: C: HMJr: I'm making just this much change on the distribution the cables. I want to leave it just the wayofit is now. Yes, sir. But I'm putting the sole responsibility on you that I get the important ones. C: All right, sir. Fine. HMJr: But, now who gets copies now? C: It depends on the message. Bell gets a copy of everything. Harry White gets, I think, a copy of everything - yes, he does; and then we split it up on freezing. Anything on foreign funds control, of course, goes to Pehle, Bernstein, White, Foley and Bell. As I say, Bell and White get copies of every telegram that comes in here. HMJr: C: Well, let Bell, White, and Dave Morris get copies of - Dave Morris, Bell, White, and Foley Bell, White, and Foley. HMJr: ..... get a copy of everything. C: Copies of everything. HMJr: Those four. C: All right, sir. HMJr: See? C: Yes. HMJr: But I'm looking to you to see that when there's -2- 270 something important , I get it. HMJr: You look to me to get to you anything important. That's right. C: All right, sir. HMJr: Thank you. C: And may I tell you just one thing? I went over to Mr. Hull's office HMJr: Yes. C: C: and when they told him I was out there, he had me come in and he wanted me to talk to him about China HMJr: C: Good. and then I talked with his Chinese - or Far Eastern men - and they're working on a letter to you on Thailand. HMJr: Good. C: Now, there's a little division over there on whether they should go ahead, 80 I think you've done right. This focuses the whole question and they'11 thrash it out before the Secretary signs anything to you. HMJr: C: Well, it's too important for me to do a thing like that. Oh, of course it 18. No, no. We're doing it the right way. HMJr: C: Well, I'm glad you agree. I do, absolutely. Mr. Hull was very nice, and I enjoyed the visit with him. I was glad to get over. HMJr: I'm glad you saw him. C: So we'll have this either this evening or 271 -3tomorrow. I told him we had to have it to- morrow. HMJr: All right. C: And I'11 watch this other thing, then. HMJr: Thank you. C: Thank you, sir. Chauncoy Miss FOR TREASURY DEPARTMENT 272 INTER-OFFICE COMMUNICATION DATE December 4, 1941 TO FROM Secretary Morgenthau Mr. Cochran While in the Far Eastern Division of the Department of State this morning I spoke of the delay in communicating with our offices in China, and inquired whether the removal of the United States gunboats Luzon and Oahu from the Yangtze Patrol to Manila might not make this situation more difficult. Mr. Atcheson stated that the Navy was also contemplating the removal from Hong Kong of the gunboat Kindanao. Consul General Southard at Hong Kong has sent in a long cablegram of protest against such action and State now has the matter up with Navy. It will be recalled that our messages to State and Treasury representatives in Chunging Hong Kong and Shanghai are transmitted by Naval Radio to the United States gunboats at the respective ports. There now remain one gunboat at each of the three ports. Occasionally in the past the gunboat stationed at Hong Kong has cruised away from that harbor for two or three days and communication was impossible during its absence from port. If one of more of the vessels should now be removed, State will consider setting up a radio station of its own, probably to be manned by one or two Naval operators, since such an arrangement has been made at other places. Within the past fortnight some messages received by the State Department from China have been delayed as much as six days. 16. ml.f. TREASURY DEPARTMENT Miss Channeer, For 273 INTER-OFFICE COMMUNICATION DATE December 4, 1941 TO Secretary Morgenthau FROM Mr. Cochran Dr. Per Jacobsson, Swedish economist of the B. I. S. is now in Lisbon awaiting a plane to bring him to the United States on a visit financed by the Carnegie Endowment. An international group is to discuss post-war problems. It is my understanding that Jacobsson will visit Washington while in this country. We should be able to obtain some information of interest from him, since he has been in Switzerland during the war and has been able to do some traveling in Central Europe. At the State Department today I met Mr. Matthews, formerly our reporting man at Paris and Vichy, who is now being transferred to London as Counselor of Embasay. Mr. Matthews will be out of town a few days, but on his return will call at the Treasury before leaving for his new post. KMP. TREASURY DEPARTMENT 274 WASHINGTON December 4, 1941. TO MR. BELL: RE: Summary of morning meeting of the Joint Committee on Reduction of Non-defence Expenditures - December 4. The morning session, December 4, convened at 10:00 A. M. and adjourned at 12:00 Noon. The meeting was taken up by testimony of Mr. James J. McEntee, Director of Civilian Conservation Corps. Mr. McEntee furnished a great deal of information con- cerning various activities of the Corps. The principal point he brought out was the fact that the Corps has cost to date $2,278,000,000. He broke this figure down to show how it was spent and how it had benefited various industries, as follows: $172,000,000 for heavy automotive equipment, such as trucks, tractors, etc. 93,500,000 for lumber and construction material for camps 173,000,000 for clothing 30,000,000 for shoes 20,000,000 for small tools 400,000,000 for food. Probably the most important statement made by Mr. McEntee was to the effect that in his personal opinion there is no need to carry on the Civilian Conservation Corps at the present time solely from the relief standpoint. He claims the value of the Corps at present is in the amount of work it does and stated that in his opinion if the Corps were discontinued Congress would appropriate money through other agencies to do a great deal of the work which the Corps is now doing. He reiterated later in his testimony that in his opinion only two factors justify continuance of the Corps -(1) The amount of work it is doing, and (2) The benefit which young men receive from membership in the Corps. 275 -2- He stated that if the Congress did not consider this to be sufficient justification for the continuance of the Corps, it should be abolished and that he could see no justification for the continuance of the Corps from the standpoint of relief. The committee will meet again at 2:00 P. M. to hear representatives of WPA. More complete minutes will be prepared as soon as possible. 1018 276 TREASURY DEPARTMENT WASHINGTON December 4, 1941. TO MR. REAL RE: Summary of afternoon meeting of the Joint Committee on Reduction of Non-defense Expenditures - December 4. The afternoon session, December 4. convened at 2:00 P.M. and adjourned at 3:45 P.M. The meeting was taken up by the testimony of Mr. Francis H. Dryden, Assistant Commissioner of Work Projects Administration, who was accompanied by Mr. Arthur Burns and Mr. M. B. Catlin. Mr. Dryden made a general statement concerning the needs of WPA and stated that it was anticipated that relief needs will increase during the winter months. He pointed out that at the present time there were two million unemployed persons eligible for WPA relief, of which one million were on the WPA rolls. Including the dependents of those on the WPA rolls, it is estimated that from six to seven million persons are benefiting by the WPA program. Mr. Dryden stated that from January to September, 1941, over one million persons voluntarily left the WPA rolls to take private employment. In reply to an inquiry by Congressman Doughton as to the continued need for the WPA program, since the need for employment is less and the States are able to carry a greater part of the relief burdens and the Federal Government less able to carry such relief burdens in view of the cost of the defense program, Mr. Dryden stated that he agreed there was less need for relief than there was some years ago, but that the needs of the one million persons now employed on the WPA rolls were probably more acute than the needs of the persons employed on the rolls some few years ago. He pointed out the cost of living has increased 9% since last year and 11% since June, 1939. Congressman Doughton stated that it was going to be very difficult to get a new tax bill enacted into law unless the Congress can convince taxpayers that non-defense expenditures are being out. He assumed that it would be better to have less debt pass on to future generations and less taxes to burden the people with at present even if we may have some hardships in a few cases. Mr. Dryden stated that he did not think the unfortunate people on the 277 WPA rolls who could not obtain employment should be pointed out as a group to bear the sacrifice involved in cutting WPA expenditures. Senator McKellar pointed out that the MPA as well as the 000 and NYA were all started as temporary measures and if there was ever any time when these agencies should be discontinued, now was the time when the country was more prosperous than it has ever been. He observed that spending $875,000,000 for charity was not a small matter when the Congress had to look to taxpayers to raise such money. The committee is to convene again at 10:00 A.M. on Friday, at which time representatives from the Agricultural Adjustment Administration, the Soil Conservation Service, and the Farm Security Administration are expected to testify. I understand from Mr. Bell, Secretary to Senator Byrd, that these will probably be the last agency people to testify before the committee. later. A more complete memorandum of this meeting will be prepared wit -. CELLS - - - -- - TREASURE CLARENCE - arm & a -- 278 Congress of the United States JOINT COMMITTEE ON REDUCTION OF NONESSENTIAL FEDERAL EXPENDITURES HEARTMEN CREATED PURSUANT TO SEC. 001. OF THE REVENUE ACT OF 1941 Dec. 4, 1941 S. Honorable Henry Morgenthau, Jr., The Secretary of the Treasury Washington, D. C. My dear Mr. Secretary: The next meeting of the Joint Committee on Reduction of Nonessential Federal Expenditures will be held Friday, December 5, at 10:00 a.m., in the House Ways and Means Committee Room in the Capitol. With best wishes, I am Faithfully yours, Harry J. Pump attended 279 DEC 4 1941 Dear Mr. Smith: I have been advised that the estimate of appropriation for the Defense Savings staff for the fiscal year 1943 has been reduced from $5,900,000 submitted by the Treasury, to $4,800,000. I understand that this estimate is based upon the 1942 appropriation increased by an anticipated deficiency of $1,200,000. I do not think that I need to advise you that I am somewhat surprised at this action on the part of the Budget in reducing this vital estimate in view of the size of the Treasury's total financing program. I am sure you do not wish us to be hampered in any way in this program because of the lack of funds. One month after we started the present Defense Savings Bond and stamp program last May 1, the deficit for the fiscal year 1942 was estimated to be $12,800,000,000, which represented an increase of more than $3,000,000,000 over the January estimate. Also, at that time we had pending a tax bill from which we anticipated approximately $2,500,000,000 of additional revenue in the fiscal year 1942, leaving $10,000,000,000 to be financed through social security and unemployment taxes, and the sale of Savings Bonds and other Treasury securities in the regular manner. This program of selling Defense Savings Bonds was adopted, as you know, in order to place as many of the Treasury securities as it is possible in the hands of the investino public and to keep them out of the hands of the banks, thus avoiding an increase in bank deposits and helping to control the inflationary trend. Now the revised Budget deficit as of October 1, 1942, even after passage of the tax bill under which we will get approximately $2,500,000,000 of additional -2- 280 revenue, is still $12,600,000,000. It is quite clear, therefore, that we have to raise through the sale of Defense Savings securities and through open market operations more than $11, 000,000,000 during this fiscal year, excluding the funds required for governmental corporations and credit agencies. I just do not see how the Treasury can avoid a tremendous increase in bank deposits through Treasury financing operations unless the sale of Defense Savings securities is materially increased. As you know, this is going to cost money. While we are not informed as to what the Budgetary program is for 1943, there are definite indications that the Budget deficit for that year will be substantially higher than the contemplated deficit for the fiscal year 1942. If this is true, it certainly magnifies the Treasury's financing problem and will make all the more necessary for it to use every means at its command to increase the sale of Defense Savings securities. The Treasury 18 willing to accept the $4,800,000 estimate for the fiscal year 1943 with the very definite understanding that, 1f circumstances justify it, we will be permitted to increase our program and ask for additional funds for this purpose as the program develops in line with the other Administration policies to control inflation. Very truly yours, (Signed) H. Morgouthan, and Secretary of the Treasury The Honorable The Director of the Budget. DWB:nle 12-1-41 Veach, Capital Bell'a ffer Copie n.m.c. office 281 DEC 4- 1941 TO THE PRESIDENT: In Executive Order No. 7034, issued May 6, 1935. you directed the Secretary of the Treasury, through the Commissioner of Accounts and Deposits (now the Commissioner of Accounts), to perform certain accounting control and reporting functions in connection with the administration of the Work Relief Program. On June 18, 1935, there was issued, with your approval, Regulation No. 1 under the order, prescribing the administrative procedure for the maintenance of a system of accounts and disbursements. Executive Order No. 7034 and Regulation No. 1 (Treasury Department Circular 543) have been supplemented and amended subsequently; however, the basic principles contained therein remain in effect. Pursuant to the authority granted in the executive order, the Treasury Department established accounting offices in each of the several states and possessions. Among other things, these state accounting offices maintain a separate account for each approved project, in order to ascer- tain that expenditures are kept within the prescribed limitations; they also make a preaudit of payrolls and vouchers before transmission to Treasury disbursing officers for payment. The appropriation to the Treasury Department for the fiscal year 1942 for the purpose of carrying on this work is $2,025,000, as compared with an appropriation of $4,268,000 for the fiscal year 1941. This reduction of $2,253,000 was predicated on (1) a decrease of about 50% in the estimated volume of work-relief payments, (2) the consolidation of 47 of the state offices in 15 regional offices*/ and (3) improvements in administrative procedure. In order to perform this work during the balance of the fiscal year within the funds available there has been made, with the cooperation of the Work Projects Administration, a survey to determine what steps might be taken to effect the necessary economies. As a result of this survey it is recommended that the Treasury Accounts Offices be relieved of the following functions, effective January 1, 1942: (1) The maintenance of a separate account for each approved project of the Work Projects Adminis- tration. (2) The receipt and examination of encumbrance and obligation documents of the Work Projects Administration except formal numbered contracts and such other documents as must be forwarded to the General Accounting Office in connection with the audit and settlement of disbursing officers' accounts. (3) The verification of checks issued by disbursing officers. (4) The receipt of notices of check stock deliveries from the Bureau of Engraving and Printing to disbursing officers and the periodic inventorying of stocks of unused checks. a/ In certain cases, principally possessions, no consolidations were made. -2- 282 (5) The verification of wage rates on payrolls of the Work Projects Administration against wage classification schedules and the computation of wage rates. The assumption of the additional responsibilities by the Work Projects Administration may be accomplished with no additional expense to that agency other than that resulting from the possible reclassification of a limited number of accounting positions. In lieu of the keeping of individual project accounts by the Treasury Department arrangements have been effected with the Work Projects Administration for periodic inspections of the accounts, records and procedures of the Work Projects Administration Finance Offices by employees of the Treasury Accounts Offices. Except as otherwise herein provided, Regulation No. 1 (Treasury Department Circular 543), as amended and supplemented, will remain in full force and effect. Secretary of the Treasury APPROVED: 283 TREASURY DEPARTMENT WASHINGTON THE December 4, 1941 SECRETARY My dear Mr. President:Section 12 of the Federal Control Act approved March 21, 1918, provides in part as follows: "That moneys and other properties derived from the operation of the carriers during Federal Control are hereby declared to be the property of the United States. Unless otherwise directed by the President, such moneys shall not be covered into the Treasury, but such moneys and property shall remain in the custody of the same officers, and the accounting therefor shall be in the same manner and form as before Federal Control. "At such periods as the President may direct, the books shall be closed and the balance of revenues over disbursements shall be covered into the Treasury of the United States to the credit of the revolving fund created by this act. on The Secretary of the Treasury, successor to the Director General of Railroads has to his official credit with the Treasurer of the United States a balance of about $72,000 on this account, of which not more than $32,000 will be needed in the final liquidation of the affairs of the Railroad Administration. There is also a balance of about $453,000 to the credit of the appropriation "Federal Control of Transportation Systems", which is the revolving fund referred to in Section 12 above. This balance will not be needed to make any further payments on account of Federal Control. POPDEFENSE BUY UNITED The appropriation should not, however, be entirely closed out at this time because of certain receipts which will continue to come 2 .. 234 in during the process of liquidation, which are authorised and directed by the act to be deposited to the credit of that appropriation. It is my desire to decrease these balances carried on the books of this Department. With this in view I recommend that $40,000 of the balance standing to the credit of the Secretary of the Treasury, successor to the Director General of Railroads with the Treasurer of the United States be transferred and deposited to the credit of the appropriation "Federal Control of Transportation Systems", which will then bring the balance in this appropriation up to about $493,000. Of this sun I recommend that $400,000 be transferred to the surplus fund of the Treasury. These are, of course, only bookkeeping entries and do not involve any net cash payments to or from the Treasury or affect the budget. If you approve of the course of action proposed, I shall be glad if you will be good enough to so indicate on the bottom of this letter and return it to me. Faithfully yours, Secretary of the Treasury. The President, The White House. Approved: December 4. 1941. 285 DEC 4 1941 My dear Mr. President:- Section 12 of the Federal Control Act approved March 21, 1918, provides in part as follows: "That moneys and other properties derived from the operation of the carriers during Federal Control are hereby declared to be the property of the United States. Unless otherwise directed by the President, such moneys shall not be covered into the Treasury, but such moneys and property shall remain in the custody of the same officers, and the accounting therefor shall be in the same manner and form as before Federal Control. # . "At such periods as the President may direct, the books shall be closed and the balance of revenues over disbursements shall be covered into the Treasury of the United States to the credit of the revolving fund created by this act. The Secretary of the Treasury, successor to the Director General of Railroads has to his official credit with the Treasurer of the United States a balance of about $72,000 on this account, of which not more than $32,000 will be needed in the final liquidation of the affairs of the Railroad Administration. There is also a balance of about $453,000 to the credit of the appropriation "Federal Control of Transportation Systems", which is the revolving fund referred to in Section 12 above. This balance will not be needed to make any further payments on account of Federal Control. The appropriation should not, however, be entirely closed out at this time because of certain receipts which will continue to come 286 in during the process of liquidation, which are authorised and directed by the act to be deposited to the credit of that appropriation. IS is - desire to decrease these balances carried on the books of this Department. With this is view I recommend that $40,000 of the balance standing to the credit of the Secretary of the Treasury, successor to the Director General of Railroads with the Treasurer of the United States be transferred and deposited to the credit of the appropriation #Federal Control of Transportstion Systems", which will them bring the balance in this appropriation up to about $492,000. of this sum I recommend that 8400,000 be transferred to the surplus fund of the Treasury. These are, of course, only bookkeeping entries and do not involve any not cash payments to or from the Treasury or affect the budget. If you approve of the course of action proposed, I shall be giad if you will be good enough to so indicate on the bottom of this letter and return it to no. Faithfully yours, (Signed) 3. Morgenthau. Jr. Secretary of the Treasury. The President, The White House. Approved: November , 1941. O'D/ 11/18/41 By Messonow Veach's copies to shompson 287 The chart referred to is the same as that attached to ltr to Admiral Clerk today (12/5/41) 288 DEC 4 1941 My dear Mr. Secretary: There is enclosed a copy of the chart which we prepared on the basis of the figures which you submitted showing the status of contract authorisetions and appropriations to the Navy Department. I should like to keep this chart up to date on a monthly basis, and should appreciate it if you would make the necessary arrangements for the figures to be supplied to Mr. Name in the same way as you did in response to my letter of November 5. Sincerely, (Signed) R. Morgenthan. In The Honorable, The Secretary of the Mary. Washington, D. C. Enclosure By S.S. 12:25 pm copy handed t President by Accy on 12/3/41. UM wrKLives 12/3FILE COPY 289 December 4, 1941 MEMORANDUM FOR THE SECRETARY ILS Subject: Status of preparatory tax studies and conferences. The various matters which have been under recent consideration by the Secretary and the group working with him on the tax program are summarized in this memorandum. A. Amount and timing of taxes needed for inflation control. 1. Shoup Study. The study initiated by Mr. Shoup has been further revised in a series of conferences with persons from the Treasury and from other governmental departments and agencies. The results are being written up. Further revision of the estimates at this time would require substantial work in collecting and compiling additional data. 2. Research Committee on "Income, Expenditure, and Prices. To provide periodic new estimates of national income, defense expenditures, price rises, and effects on them of various governmental policies, along the lines of the work begun by Mr. Shoup, a Treasury research committee, including representatives from the three research divisions, and an interdepart- mental committee are being set up with Mr. Haas as Chairman. B. Personal income taxation. 1. Supplementary withholding tax. Further analysis of this tax is proceeding in the Division of Tax Research but no further group meetings have been held on the subject. A memorandum summarizing the advantages and disadvantages of this form of tax was prepared sometime ago and submitted to the Secretary and the group. Charts showing estimates of income distribution and a table showing an estimated breakdown of withholding 290 tax liabilities by income classes have been distributed to members of the group. A technical committee studying the problem of administering such a tax has been holding regular meetings. 2. Tax on increased incomes. Some further study of the tax on increases in incomes has been made. A rough estimate of the revenue which the so-called "Paul Plan" would produce has been pre- pared. A memorandum indicating the advantages and disadvantages of this form of taxation has been prepared and submitted to the Secretary and the group. 3. Speeding up of tax collection. The proposal to withhold in 1942 part of the 1942 income tax liabilities as a substitute for a withholding tax in that year has received further consideration. A memorandum indicating the advantages and disadvantages of the tax has been prepared and submitted to the Secretary and members of the group. The technical committee working on the administration of the supplementary withholding tax has been considering also the administrative problems of withholding part of the regular income tax. C. Corporation taxation generally. 1. Possibilities of greater revenue from cor- porations. Estimates have been prepared indicating the increases in revenue which would be experienced if (a) two-thirds of corporate net income were taken in taxes, or alternatively, (b) if all corporate net income in excess of 6 percent of invested capital were taken in taxes. D. Excess profits taxation. 1. Classification of corporations for excess profits taxation. A technical committee headed by Mr. Barnard has been reexamining the excess profits tax problem to ascertain what classification of corporations might be feasible and what recommenda- tions for basic change in the law might be made. 2. Charts. Charts on specific companies have continued to be prepared and those completed include most of the large steel companies, some aircraft companies and certain other companies. -3 - 291 E. Sales taxation. 1. Retail sales tax. A memorandum was prepared and submitted to the Secretary and the group, indicating the advantages and disadvantages of a retail sales tax as a method of combating inflation. 2. Sales tax with compulsory savings feature. The suggestion to impose a sales tax with a compulsory savings feature has been subjecteto further analysis in the Division of Tax Research. F. Coordination with other agencies. 1. Mr. Leon Henderson has submitted a suggested list of articles for the imposition of defense excise taxes. Mr. Richard Gilbert of his office conferred with Mr. Blough on the Treasury tax proposals and participated in the conferences on the amount of taxes needed, which was discussed above (A-1). 2. Mr. Krost of Chairman Eccles' office has conferred with Mr. Blough on two occasions. No memorandum has been received as yet from this source but it is understood that a memorandum has been sub- mitted by Mr. Krost to the Chairman. 3. Mr. Blough endeavored to clear up some misconceptions about the program with Mr. Gerhard Colm who is the tax and fiscal policy man for Mr. Harold Smith, Director of the Budget. The discussion was devoted primarily to the relative merits of various methods of attacking the inflation problem. 292 DEC 4 1941 Ky dear Mr. McCermacks This is in reply to your letter of November 22, 1941, concerning the application of the tax on admissions to entertainments held for men in the military and naval service within the limits of the training camps or stations. You have made inquiry (1) whether the tax is applicable to admissions to entertainments of this kind: (2) whether regulations of the Department could provide adequate relief from payment of the tax: and, (3) if not, whether the Department would favor the enactment of legislation to grant as exemption for admissions under the circumstances described. By the enactment of Section 541 of the Revenue Act of 1941, the Congress terminated the exemptions previously granted under Section 1701 of the Internal Revenue Code for admission charges for the benefit of religious, educational. or charitable institutions or organisations. As you know, the reason for termination of the exemptions was that any indirect benefit to such organizations was incommensurate with the administrative difficulties involved. Consequently, the admissions tax is assessed upon the amount paid for admission to any place and now applies to entertainments held within the camps for service men. In view of the express statutory provisions now in force by reason of the Revenue Act of 1941, 18 would not be possible administratively by means of regulations to great relief from the tax. The Treasury Department has, however, submitted to the Bureau of the Budget a report stating that this Depart- ment does not oppose the enactment of legislation which would exempt from tax amounts paid for the admission of soldiers and smilers to theatres and other activities operated by the Yer Department or the Havy Department within the areas maintained by the military or naval 293 establishments. provided the not proceeds from said admissions are used exclusively for the welfare of the military or naral forces of the United States. Because of the apparent purpose to benefit the mon is military service and to encourage their attendance at theatres and other activities within the posts, campa, reservations. and other areas maintained by the military or establishmente, rather than to aid the organisation conducting the activity. the Treasury Department would not consider such legislation a precedent for the ultimate restoration of the exemptions se recently abolished. Sincerely yours, (Signed) R. Morgenthan, ⑉ Secretary of the Treasury Henorable John V. NeCeranck, House of Representatives, Washington, D. C. By CWDshdr 11-29-41 Messenger Dixor 2:34 294 C 0 P Y OFFICE OF THE MAJORITY LEADER HOUSE OF REPRESENTATIVES WASHINGTON, D. C. November 22, 1941 Honorable Henry Morgenthau, Jr. The Secretary of the Treasury Washington, D. C. My dear Mr. Secretary: I have had called to my attention a situation that I feel is of importance at least from a psychological angle if not from a financial angle for the men in the service of the U. S. Army. In the various camps of the country, the United Service Organization and Camp Shows, Inc. are conducting an entertainment program for the men of the various camps. I have been informed that in the larger camps an admission of twenty cents is charged, which is nominal, and in the smaller camps an admission of fifteen cents is charged, this charge being necessary in order to help defray expenses. I was also informed that the admission tax must be paid by the enlisted men attending the entertainments. You and I know that these entertainments are not being conducted for any financial profit, but are of importance in the lives and morale of those in the Army. It seems to me that if the tax is applicable, it would have a very fine effect. in addition to being a desirable policy, if legislation were enacted that would eliminate the necessity of the young men in the Army paying this particular tax. I will appreciate it if you will advise me: (1). If this tax is applicable to entertainments of this kind; (2) if the regulations of the Department can meet the situation; (3) if not, would the Department favor legislation that would eliminate the payment of this tax. With kind regards, I am Very sincerely yours, /a/ John W. McCormack MAJORITY LEADER 295 Computation of tax liability on 1940 income under present law Jones & Laughlin Steel Corp. year. Return filed on a consolidated basis, for the calendar The invested capital method is used in computing the excess profits tax. Computation of excess profits tax 1. Net income 2. Adjustments in arriving at excess profits net inc. 3. Excess profits credit and specific exemption 4. Adjusted excess profits 5. Excess profits tax 6. Balance of net income, after E.P.T., subject to normal tax and surtax 7. Normal tax 8. Surtax 9. Total income and excess profits taxes 10. Total income & excess profits taxes as a percent of net income 12,328,462 . 855,393 14,834,696 - 1,650,841 None 12,328,462 2,958,831 862,742 3,821,573 31.0 Invested capital credit Amount of invested capital $ 5,000,000 at 8% 400,000 211,138,509 206,138,509 at 7% 14,429,696 Total credit Average earnings credit 14,829,696 (data not available) COMPUTATION OF TAX LIABILITY ON 1940 INCOME UNDER PRESENT LAW JONES AND LAUGHLIN STEEL CORP. Invested Capital Method Net Income $12.3 mil. E. P. Credit $14.8 mil. Adjusted Excess Profits -$1.7 mil. Normal Tax Net Income $12.3 mil. I. Computation of Excess Profits Tax 100% 100% 80% 80% Adjustments Excess of +$0.9 E.P.Credit -$1.7 60% 60% E.P. Credit $14.8 40% 40% 20% 20% 0 0 4 12.3 10 0 2 6 8 MILLIONS OF DOLLARS Net Income II. Computation of Income Tax and Balance after Tax 100% 100% 80% 80% Balance after Tax $8.5 60% 60% 40% 40% Surtax$0.9 20% 20% Normal Tax $3.0 0 0 2 0 4 8 MILLIONS OF DOLLARS 6 10 12.3 Net Income Office of the Secretary of the Treasury Owepan of Tax Research B-249-14 297 Computation of tax liability on 1940 income under present law Wheeling Steel Corporation Return filed on a consolidated basis, for the calendar year. The invested capital method is used in computing the excess profits tax. Computation of excess profits tax 1. Net income 2. Adjustments in arriving at excess profits net inc. 3. Excess profits credit and specific exemption 4. Adjusted excess profits 5. Excess profits tax 6. Balance of net income, after E.P.T., subject to normal tax and surtax 7. Normal tax 8. Surtax 9. Total income and excess profits taxes 10. Total income & excess profits taxes as a percent of net income 6,619,588 + 493,498 6,676,592 436,494 219,072 6,400,516 1,536,124 447,786 2,202,982 33.3% Invested capital credit Amount of invested capital 94,594,167 5,000,000 at 8% 400,000 89,594,167 at 7% 6,271,592 Total credit Average earnings credit 6,671,592 (data not supplied) COMPUTATION OF TAX LIABILITY ON 1940 INCOME UNDER PRESENT LAW WHEELING STEEL CORP. Invested Capital Method Adjusted Excess Profits $ 0.4 mil. Normal Tax Net Income $ 64mil. Net Income $ 6.6 mil E.P. Credit $ 6.7 mil I. Computation of Excess Profits Tax 100% 100% 80% 80% 60% 60% E.P. Credit Adjustments $6.7 +$.5 40% 40% E.P. Tax $0.2 20% 20% o 6.6 0 6 4 I 0 5 MILLIONS OF DOLLARS Net Income 3 2 II. Computation of Income Tax and Balance after Tax 100% 100% 80% 80% Balance after Tax $44 60% 60% E.P. Tax $0.2 40% 40% Surtax$0.4 20% 20% Normal Tax $1.5 0 0 I 0 Office of the Secretary of the Treasury Owner of Tax Research 4 MILLIONS OF DOLLARS 2 3 5 6 6.6 Net Income B-249-15 299 Computation of tax liability on 1940 income under present law Republic Steel Corp. Return filed on an unconsolidated basis, for the calendar year. The invested capital method is used in computing the excess profits tax. Computation of excess profits tax 1. Net income 2. Adjustments in arriving at excess profits net inc. 3. Excess profits credit and specific exemption 4. Adjusted excess profits 5. Excess profits tax 6. Balance of net income, after E.P.T., subject to normal tax and surtax 7. Normal tax 8. Surtax 9. Total income and excess profits taxes 10. Total income & excess profits taxes as a percent of net income 27,838,653 . 2,061,110 21,717,762 8,182,001 4,863,201 22,975,452 5,514,108 1,608,032 11,985,341 43.1% Invested capital credit Amount of invested capital 5,000,000 at 8% 400,000 309,468,025 304,468,025 at 7% 21,312,762 Total credit Average earnings credit 21,712,762 (Data not supplied) COMPUTATION OF TAX LIABILITY ON 1940 INCOME UNDER PRESENT LAW REPUBLIC STEEL CORP. Invested Capital Method Net Income $27.8mil E. P. Credit $21.7 mil Adjusted Excess Profits $ 8.2 mil Normal Tax Net Income $ 230mil I. Computation of Excess Profits Tax 100% 100% 80% 80% 60% 60% E.P. Credit $21.7 40% 40% E.P. Tax #4.9 Adjustments +$2/ 20% 20% 0 0 27.8 20 10 MILLIONS OF DOLLARS 0 Net Income II. Computation of Income Tax and Balance after Tax 100% 100% 80% 80% Balance after Tax $15.9 60% 60% E.P. Tax $4.9 40% 40% Surtax $1.6 20% 20% Normal Tax #5.5 0 0 10 20 MILLIONS OF DOLLARS 0 Office of the Secretary of the Treasury Design of Tax Research 27.8 Net Income B-249-12 301 Computation of tax liability on 1940 income under present law Inland Steel Co. Return filed on an unconsolidated basis, for the calendar year. The income method is used in computing the excess profits tax. Computation of excess profits tax 1. Net income 12,425,922 2. Adjustments in arriving at excess profits net inc. - 211,709 3. Excess profits credit and specific exemption 4. Adjusted excess profits 5. Excess profits tax 6. Balance of net income, after E.P.T., subject to normal tax and surtax 7. Normal tax 8. Surtax 9. Total income and excess profits taxes 10. Total income & excess profits taxes as a percent of net income 9,234,930 2,979,283 1,741,570 10,684,352 2,564,244 747,655 5,053,469 40.7 Invested capital credit Amount of invested capital 5,000,000 at 8% 400,000 112,129,625 $ 107,129,625 at 7% 7,499,074 Total credit Average earnings credit 7,899,074 9,234,930 302 COMPUTATION OF TAX LIABILITY ON 1940 INCOME UNDER PRESENT LAW INLAND STEEL Co. Income Method Net Income $12.4 mil. Adjusted Excess Profits $3.0 mil. E. P. Credit $ 9.2 mil. Normal Tax Net Income $10.7 mil. I. Computation of Excess Profits Tax 100% 100% Adjustments 80% 80% -$0.2 60% 60% E.P. Credit$9.2 40% 40% E.P. Tax $1.7 20% 20% 0 o 0 12.4 10 4 8 2 6 MILLIONS OF DOLLARS Net Income II. Computation of Income Tax and Balance after Tax 100% 100% 80% 80% Balance after Tax $7.4 60% 60% E.P. Tax $1.7 40% 40% Surtax $0.7 20% 20% Normal Tax $2.6 0 0 0 2 4 6 8 MILLIONS OF DOLLARS Office of the Secretary of the Treasur 10 12.4 Net Income 303 THE COMMANDANT OF THE UNITED STATES COAST GUARD WASHINGTON 4 December, 1941. MEMORANDUM FOR - Assistant Secretary Gaston. Subject: Repairs to the Secretary's plane. I am attaching hereto, a copy of a memorandum from the Engineer-in-Chief, dated 3 December, 1941, regarding the repairs to the Secretary's plane. We have been keeping in close touch with this situation, and you will note that the Navy now state that the completion date is changed from 15 December, to 29 December. I am very sorry that this delay has occurred. annan in Will you please bring this matter to the attention of Secretary Morgenthau? R. R. WAESCHE Rear Admiral, U. S. Coast Guard, Commandant. Inclosure. COPY AV-26 304 UNITED STATES COAST GUARD Washington, 3 December, 1941. MEMORANDUM: From: Engineer-in-Chief To: Commandant. Subject: Model R50-1 airplane V188 (Lockheed); change in estimated completion date. A progress report received from the Naval Aircraft Factory indicates that the completion date for repairs to subject 1. airplane has been changed from 15 December, 1941, to 29 December, 1941. This delay is evidently due to necessary modifications to the new wing panels inasmuch as the new panels were not exactly similar to the damaged panels. 2. /s/ P. B. EATON, Acting. THE WHITE HOUSE 305 WASHINGTON December 4, 1941. MEMORANDUM FOR H.M. Jr. To speak to me about this. F.D.R. 306 THE WHITE HOUSE WASHINGTON H 1.1.9. Vill lifence bands tong The Tindi Minious fill 307 DEC 4 1941 Dear Henrys It is a pleasure to write you that the space matter which you brought to my attention has been settled to Mr. Rockefeller's satisfaction. with kind regards, I an Sincerely, (Signed) Henry The Honorable, The Vice President of the United States, By Messenger Didon 234 n.m.c. 308 VICE PRESIDENT'S OFFICE 11-28-41 Mrs. Klotz: The Vice President has just sent Secretary Morgenthau a wire AS per attached copy. He asked me to also send this copy to you at the office. ManyHerro Mary /Hus a Personal Secretary to The Vice President Vice President - official 309 SERVICE DESIRED x DROWN UNICE LETTER DEFERRED COPY OF WESTERN UNION TELEGRAM NOVEMBER 28, 1941 HON. HENRY MORGENTHAU, JR. SECRETARY OF THE TREASURY FISHKILL, NEW YORK (TELEPHONE: BEACON 211) REFERENCE IS MADE TO SPACE MATTER DISCUSSED THIS AFTERNOON. IT IS NOT DESIRED TO JEOPARDIZE LEND LEASE ACTIVITIES IN ANY WAY BUT WE MUST ALSO PROTECT OTHER IMPORTANT DEFENSE ACTIVITIES. THEREFORE, I REQUEST THAT YOU DEFER THE MOVE OF PUBLIC BUILDINGS ADMINISTRATION ABOUT A MONTH AS THAT WILL PERMIT THEM TO OBTAIN SPACE IN EMERGENCY BUILDING UNDER CONSTRUCTION. WOULD APPRECIATE EARLY REPLY. H. A. WALLACE Confirmation sent to Office of Secretary Morgenthan 310 DEC 4 1941 My dear Mr. Vice President: I am enclosing copy of report on our experts to some selected countries during the week ending November 22, 1941. (dated11128) These reports are obtained with the cooperation of the Department of Commerce from the expert declarations currently filed with the Treasury Department. Sincerely yours, (Signed) 1. Morgenthan. 30. Secretary of the Treasury The Vice President, United States Senate, Washington, D. C. By Messenger Enclosure n.m.c. HDFinch 12/3/41 copies-W litiouffice Ret to Secks office 311 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE December 4, 1941 TO Secretary Morgenthau FROM Mr. Haas Subject: Employment in the Aviation Manufacturing Industry 1. Employment in the aviation manufacturing industry is reported at 317,000 for September 1941, the latest month for which data are available. There were 8 percent more factory workers employed than in the preceding month, and 136 percent more than a year ago. 2. During the first 9 months of 1941, employment in the industry was increased by 90 percent. The number of employees added to factory payrolls was 150,000, as compared with 69,000 for the same period last year. 3. All the major manufacturing plants contributed to the industry's expansion in employment since the first of the year. The greatest gain was reported by Lockheed, an increase of 17,000 workers. Boeing, Consolidated, Douglas, and Martin were next, with increments of approximately 10,000 each. 4. The attached chart shows total employment in the industry, and in selected companies, since January 1937. Data from which the curves were plotted are given in the accompanying tables. Attachments Table 1 312 Employment in Aviation Manufacturing Industry (Airplanes and Airplane Engines) 1937-1941 1937 1938 1939 22,100 23,700 25,251 24,100 24,200 27,875 1940 1941 Airplanes Jan. Feb. Mar. 67,000 Apr. May June 25,200 22,800 35,973 23,400 22,050 41,425 23,800 24,450 52,800 5,500 6,500 6,989 6,000 6,600 7,825 6,600 6,900 8,727 6,400 6,772 9,289 6,600 6,847 12,600 July Aug. Sept. Oct. Nov. Dec. 58,000 60,500 64,500 73,000 80,000 90,000 97,448 105,362 115,241 123,492 131,200 138,900 149,700 155,800 167,048 175,371 190,200 210,729 229,938 250,191 Airplane Engines Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. 13,900 15,800 17,300 18,600 20,800 22,900 25,400 27,019 28,981 32,633 34,199 36,045 38,550 40,468 42,869 44,849 48,546 51,816 54,702 63,304 66,889 177,450 190,168 198,669 211,897 223,917 242,016 265,431 293,242 317,080 Total Industry -- Airplanes and Airplane Engines Jan. 27,600 30,200 32,240 Feb. Mar. 30,100 30,800 35,700 31,800 29,700 44,700 29,800 28,822 50,714 71,900 76,300 81,800 85,600 93,800 102,900 115,400 124,467 134,343 65,400 157,691 167,245 Apr. May June July Aug. Sept. Oct. Nov. Dec. 30,400 31,297 Office of the Secretary of the Treasury, Division of Research and Statistics. ( Source: Bureau of Labor Statistics. 147,874 November 29, 1941. Table 2 313 Employment of Selected Aircraft Manufacturing Corporations 1937-1941 1937 1938 1939 Jan. 615 222 654 Feb. Mar. 850 290 808 1940 1941 Bell Aircraft Corp. 859 865 912 896 840 873 440 1,410 718 235 703 213 606 799 1,192 1,480 1,963 2,413 3,355 3,597 3,865 1,834 1,493 2,380 1,726 1,700 2,749 1,249 1,736 2,989 1,109 1,798 3,985 1,380 2,285 4,749 Jan. 3,169 2,540 968 Feb. Mar. 3,246 2,518 819 3,099 2,104 832 2,617 989 1,408 2,580 981 2,540 Apr. May June July Aug. Sept. Oct. Nov. Dec. 4,309 5,043 5,754 6,540 7,036 7,738 7,743 8,677 9,117 Boeing Aircraft Co. -- Seattle Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. 5,137 4,942 4,759 4,198 5,190 5,882 6,571 6,926 6,940 6,391 5,351 5,657 6,939 8,104 7,960 7,740 7,739 7,920 8,720 11,145 16,261 2,837 3,477 3,807 4,349 5,040 5,821 6,743 7,836 9,289 11,018 12,355 12,118 13,135 14,097 14,251 13,886 13,547 14,007 15,238 18,484 21,682 Consolidated Aircraft Corp. Apr. May June July Aug. Sept. Oct. Nov. Dec. (Continued on page 2) Office of the Secretary of the Treasury, Division of Research and Statistics. Source: Bureau of Labor Statistics. November 29, 1941. 314 Table 2 (continued -2) Employment of Selected Aircraft Manufacturing Corporations 1937-1941 1937 1938 1939 1940 1941 Curties-Wright Corp. -- Buffalo 1,241 2,211 3,802 4,380 1,500 2,347 2,939 1,933 2,310 2,848 5,016 5,213 5,698 6,314 6,531 6,597 2,202 2,736 1,562 2,007 3,491 3,447 Jan. 5,591 6,328 4,334 Feb. Mar. 5,961 6,173 4,177 6,653 4,672 5,445 5,532 4,028 6,318 6,771 4,110 10,362 Jan. 910 1,577 2,305 Feb. Mar. 1,094 1,594 3,509 1,338 1,797 5,699 1,383 1,997 5,324 1,428 2,123 5,156 Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. 4,744 6,824 8,273 8,902 9,607 9,946 10,537 11,431 13,191 13,966 14,324 7,682 7,889 8,010 Douglas Aircraft Co., Inc. Apr. May June July Aug. Sept. Oct. Nov. Dec. Lockheed Aircraft Corp. Apr. May June July Aug. Sept. Oct. Nov. Dec. 11,952 12,077 13,119 14,033 14,656 14,957 14,662 14,898 14,219 14,158 14,726 16,120 5,157 4,768 4,362 4,400 5,016 5,591 6,599 7,296 7,582 8,517 10,056 17,054 18,057 19,313 21,502 22,678 25,019 25,940 25,647 26,472 11,544 12,031 13,028 14,829 15,418 19,640 23,865 26,247 27,855 10,904 (Continued on page 3) Office of the Secretary of the Treasury, Division of Research and Statistics. Source: Bureau of Labor Statistics. November 29, 1941 315 Table 2 (continued -3) Employment of Selected Aircraft Manufacturing Corporations 1937-1941 1939 1937 1938 1,364 1,814 2,905 1,716 1,892 4,092 2,044 2,134 6,029 2,032 2,341 10,070 1,818 2,777 11,174 829 1,713 2,223 889 1,935 2,457 841 2,400 3,125 1,272 2,685 2,992 566 2,530 3,795 Jan. 2,350 2,245 1,826 Feb. Mar. 2,444 2,168 1,766 2,497 1,972 1,952 2,439 1,880 2,123 2,338 1,774 2,588 1940 1941 10,984 9,407 9,133 9,010 14,039 13,771 13,216 15,482 16,180 18,313 21,082 23,299 24,474 Glenn L. Martin Co. Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. 9,357 9,133 9,513 11,200 10,019 11,414 12,871 13,829 North American Aviation, Inc. Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. United Aircraft Corp. (excluding Pratt & Whitney) Apr. May June July Aug. Sept. Oct. Nov. Dec. 4,049 4,324 4,154 4,371 4,336 4,782 4,918 4,916 5,111 5,828 6,064 6,867 2,757 3,051 3,468 3,735 3,912 4,282 4,823 5,016 5,445 7,767 8,247 8,736 9,590 9,803 9,770 9,693 9,986 10,004 7,011 7,652 7,418 7,492 7,718 7,974 7,963 8,224 8,638 6,010 6,105 6,401 (Continued on page 4) Office of the Secretary of the Treasury, Division of Research and Statistics. Source: Bureau of Labor Statistics. November 29, 1941. 316 Table 2 (continued -4) Employment of Selected Aircraft Manufacturing Corporations 1937-1941 : 1939 : : 1938 : : 1937 1940 1941 742 938 959 4,057 4,325 : : Vultee Aircraft, Inc. 364 Jan. Feb. 440 Mar. 1,008 Apr. May June 560 533 July Aug. Sept. 430 288 334 662 Oct. Nov. Dec. Office of the Secretary of the Treasury, Division of Research and Statistics. Source: Bureau of Labor Statistics. 1,334 2,127 2,618 2,857 3,531 3,652 3,733 3,851 4,544 5,096 5,022 4,955 4,864 4,842 4,678 November 29, 1941. Table 3 317 Employment of Selected Airplane Engine Corporations 1937-1941 1937 1938 1939 1940 Jan. 218 262 454 Feb. Mar. 229 297 466 238 339 558 238 382 642 266 439 901 1,114 1,261 1,610 1,958 2,766 3,254 3,917 4,595 5,282 6,280 6,295 6,394 151 153 134 1941 Allison Engineering Co. Apr. May June July Aug. Sept. Oct. Nov. Dec. 6,422 6,720 7,012 7,114 7,670 8,133 8,420 9,192 9,888 Continental Motors Corp. (Airplane Engine Division) Jan. Feb. Mar. 153 152 138 162 144 171 Apr. May June July Aug. Sept. 135 146 203 152 142 243 Oct. Nov. Dec. 288 344 358 368 378 388 398 382 567 732 855 875 953 1,057 1,063 1,186 1,235 1,245 1,230 1,240 1,270 Lycoming Division of Aviation Manufacturing Corp. Jan. 849 729 519 Feb. Mar. 581 638 889 704 521 657 711 765 819 873 870 Apr. May June 901 549 573 756 514 644 762 506 689 July Aug. Sept. Oct. Nov. Dec. 1,607 1,661 1,645 1,695 1,080 1,459 1,320 1,576 (Continued on page 2) Office of the Secretary of the Treasury, Division of Research and Statistics. Source: Bureau of Labor Statistics. November 29, 1941. 1,717 1,729 1,706 1,859 1,890 318 Table 3 (continued - 2) Employment of Selected Airplane Engine Corporations 1937-1941 1937 1938 Jan. 1,931 2,567 2,264 Feb. Mar. 2,119 2,489 2,659 2,384 5,642 6,549 7,158 7,541 7,765 2,555 3,066 8,504 2,384 3,394 9,121 9,449 9,406 2,227 5,022 11,228 5,411 6,081 6,537 1939 1940 1941 : Pratt & Whitney Aircraft Apr. May June July Aug. Sept. 2,471 Oct. Nov. Dec. 2,618 9,794 10,377 12,287 13,483 14,286 14,865 15,824 16,633 17,524 17,959 17,720 Wright Aeronautical Corp. -- Paterson Jan. 2,254 2,607 3,398 2,515 2,705 3,771 2,800 2,930 3,997 7,882 8,682 9,491 10,151 2,690 3,184 4,026 10,726 Feb. Mar. Apr. May June 6,984 July Aug. Sept. Oct. Nov. Dec. 12,847 13,136 13,415 13,849 14,241 14,643 15,150 15,602 16,081 11,240 11,864 2,608 3,374 Office of the Secretary of the Treasury, Division of Research and Statistics. Source: Bureau of Labor Statistics. 5,141 12,408 November 29, 1941. 319 STRICTLY CONFIDENTIAL EMPLOYMENT IN AVIATION MANUFACTURING INDUSTRY Factory Wage Earners EMPLOYEES Thousands EMPLOYEES Thousands Total Industry (Aircraft and Engineer 280 280 240 240 200 100 160 140 120 120 so so 40 40 1941 Selected Aircraft Manufacturing Companies Selected Airplane Engine Companies EMPLOYEES EMPLOYEES Wright Aermastical Carp Ca Stem Martin The Dougles Aircraft Co 22.5 25.0 29.0 22.5 1937 ... 1934 1940 - 1938 1934 **** 100 my Lockhead Aircraft Carp ⑉ 27.8 1031 Boeing Aircraft Co 140 1929 1924 .. Press and Whitney Aircraft 27.5 .... ... . - Consolidated Aircraft Corp 1934 1939 1940 - . .... **** .. Engineering .. 1931 .... 1934 1940 1941 Addition 1939 1948 1** United Aircraft Corp 15 ... 1937 Corp - se Aircraft Corp 1939 1434 .... ... Carp 1000 1999 1001 ... .... 1+++ 1411 1020 1934 1044 1841 1989 1999 - .... 1499 1949 1000 1. 104 320 DEC 4 1941 My dear Mr. President: The Treasury Cryptanalytical Unit has deciphered a radio message from a German agent in Brazil reporting to Germany November 17, 1941, the significant portion of which is as follows: "I REPEAT AFTER RETURN FROM TRIP THE URGENT REPORT RECEIVED DATE NOVEMBER 8TH FROM MY ABSOLUTELY RELIABLE INFORMANT WHO SITS IN THE USA EMBASSY AND ALREADY TURNED OVER TO ATTACHE STOP ORIGINAL TEXT IN DOUBLE POINT. IN THE NEXT TWO TO SIX WEEKS AN OVERTHROW OF THE GOVERNMENT WILL TAKE PLACE INDIRECTLY ON THE INSTIGATION OF THE USA GOVERNMENT IN CONJUNCTION WITH ARGENTINE GOVERNMENT STOP OVERTHROW WILL BE MADE BY OSWALDO ARANHA AND HIS PARTY AND NO RESISTANCE IS EXPECTED STOP SHOULD THE LATTER NEVERTHELESS OCCUR USA AIRPLANES APPROXIMATELY THREE HUNDRED AND ARGENTINE LANDING TROOPS WOULD BE AVAILABLE TO SUPPRESS ANY DISTURBANCES STOP THE ARGENTINE MISSION WHICH RECENTLY WAS HERE IS REPORTED TO HAVE PROPOSED TO VARGAS TO RESIGN AND INTRODUCE CONSTITUTION STOP ARANHA WOULD BE FOREIGN MINISTER AND CAMPOS PRESENTLY MINISTER OF JUSTICE WOULD BE PRESIDENT END I AM BEING KEPT INFORMED. URGENTLY REQUEST ADVICE WHETHER I SHOULD PURSUE THIS MATTER FURTHER STOP I am bringing this matter to your attention not merely because of the contents of the message but because of the indication that the Germans claimsto have an agent in our Embassy in Brazil. A report decoded by our cryptanalysts on November 14 showed that the Germans claimed to have a female secretary employed in our Mission in Quito, Ecuador. Double point is, I am told, probably a form of 321 -2microscopic photography used by the Germans for the transmission of highly confidential messages by post. Faithfully yours, (Signed) S. Morgoather. se. Secretary of the Treasury. by Messenger Sevent Service 40 The President The White House. SK:EHF/mp 12/4/41 I'll Golij office 322 December 4, 1941 My dear Mr. President: The American Consulate at Casablanca, Morocco, advised us that on November 21st the French cruiser Primauguet, of 8,000 tons, arrived at Casablanca with approximately $250,000,000 worth of gold on board and that this gold was deposited in the Moroccan State Bank in Casablanca. I have inquired of Mr. Stopford, of the British Embassy, "how come"? His preliminary answer was that sometimes they let these French naval vessels proceed without interference; other times, they don't. I certainly question that $250,000,000 of gold being deposited at Casablanca is for any good purpose and I thought that you would like to know about this particular transaction. Yours sincerely, (Agd) Henry 12:35 pm. The President, The White House. By S.S. 323 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE TO FROM December 3. 1941 Secretary Morgenthau Mr. Cochran STRICTLY CONFIDENTIAL In accordance with oral instructions given to me by the Secretary at 2:15 this afternoon, I spoke by telephone at once with Mr. Stopford of the British Embassy. I gave him the information contained in the cablegrams of November 21 and 24 from the American Consul at Casablanca in regard to a shipment of 250 tons of gold from Daker to Casablance on the French cruiser Primaguet, which gold it was understood had been transferred to the Koroccan State Bank. In answer to my question as to how such a shipment could take place, Stopford stated that he would like to consult the Navel authorities at the Embassy and call me back. At 4:30 this afternoon Mr. Stopford telephoned to state that the position was that the British Naval vessels are ordinarily not attempting to interfere with Vichy French Naval vessels operating along the African coast. When it is a case of a Vichy merchant ship, the British do interfere provided they are in a strong position and no Naval convoy is involved. Stopford made the point that the policy is very flexible. The information in regard to this gold shipment was highly interesting to him, and he thought this might be valuable in determining which way the flexible policy under reference should be directed. He thanked us sincerely for the information. pmp TREASURY DEPARTMENT 324 INTER OFFICE COMMUNICATION DATE December 3,1941 TO FROM Secretary Morgenthau Mr. Kamarck Subject: Information on the Primauguet (secured from Captain Heard, Foreign Intelligence Branch, Director of Naval Intelligence) 1. The Primauguet is an 8,000 ton cruiser carrying 6-inch guns in the service of Vichy France. 2. The Primauguet, like other Vichy French naval vessels, moves freely in West African and Medi terranean waters. In line with our policy of limited collaboration with Vichy France, the British have never attempted to interfere with the Primauguet's movements. So far as our navy knows, this is still true. 325 COPY PARABHRASE OF TELEGRAM RECEIVED FROM: American Consul, Casablanca, Morocco. DATE: November 21, 1941, 6 p.m. No.: 635. This morning (21st of November) the cruiser Prima Uguet arrived from Dakar. V. Stafford Reid, American Vice Consul, reports on the basis of information from a port contact that the cruiser has brought gold for Banque de France account. He also said that several hours after the arrival of the ship, he counted nine trucks with guards who were armed leaving the port evidently with boxes holding the gold. Presumably those boxes were taken to the Moroccan State Bank. Reid was not able to follow them. RUSSELL 326 COPY PARAPHRASE OF TELEGRAM RECEIVED FROM: American Consulate, Casablanca, Morocco DATE: November 24, 1941, 5 p.m. NO.: 643 Reference is made to our telegram no. 635, dated November 21, 1941. Confirmation has been given by a reliable contact of Vice Consul Canfield that the gold which Vice Consul Reid reported to be aboard the ship PRIMAUGUET has now been transferred to the Moroccan State Bank. Two hundred and fifty tone was the total weight of this gold. RUSSELL 327 December 3, 1941 Memorandum for the Secretary: Cable 635, dated November 21, from Casablanca, was delivered to the Treasury November 24, at 12:24 pm (noon) and a copy was furnished Mr. Morris on the same day. Cable 643, dated November 24, from Casablanca, was delivered to the Treasury November 25, at 12:23 pm (noon) and a copy was furnished to Mr. Morris on the same day. There does not, therefore, appear to be any undue delay on the part of the State Department and I presume you will not, therefore, wish to write a second letter to Secretary Hull. N.M.Chauncey 0 328 0 Y FEDERAL RESERVE BANK OF NEW YORK December 4. 1941 CONFIDENTIAL Dear Mr. Secretary: Attention: Mr. E. Morle Coohran I as enclosing our compilation for the week ended November 26. 1941. showing dollar disbursements out of the British Empire and French accounts at this bank and the means by which these expenditures were financed. Faithfully yours, /s/ L. W. Incke, L. V. Knoke, Vice President. Honorable Heary Morgenthau, Jr., Secretary of the Treasury. Washington, D. C. Enclosure Copy: 12-5-41 - ANALYSIS OF BRITISH AND FRENCH ACCOUNTS OF CREDITS DELIVE PERIOD Total Gov't Expendi- Other Total Debits tures(a) Debits Credits Net year of war (8/29/39-8/28/40)* Tar period through December. 1940 soond Lyear of war 1,793.2 605.6 2,792.3 1,425.6 Sales of Securities Gold (Official)(b) (+) or Other Dear.(-) Creditz(c) An Balance mm DEBITE Not mar. Proopeda Of Gov't Expendi- Other tures (d) Debits 866.3(e) 416.6(e) 449.7 Total Debite Total Credits Products Other Sales Credits 900.2 195.1(e) 229.0 900.2 196.2 +220.1 Oct, 30 - Dec. in Balance 1,356.1 52.0 420.1 35.0 1.356. 72,793.1 2,109.5 108.0 575.6 10.8 878.3 421.4 456.9 1.098.4 82,189.8 1,193.7 274.0 722.1 - 13.2 36.9 4.8 34.1 8.8 - 8.8 -30.1 176.2 20.1 2.0 154.1 35.3 0.3 0.3 0.5 - 0.5 0.2 0.3 0.3 1,187.60 2,203.0 1,792.2 140.9 105.9 35.0 77.3 31.2 109.0 Door. (-) 828.2 410. 1941 Aug. 28 - Oct. 1 Oct. 2 - Oct. 29 OF of Gold 150.9 0.8 150.1 +41.9 0.3 - - 0.3 3 Dec. 4. Dec. 31 1942 BEEK ENDED: 5 12 19 26 17.3 46.5 20.2 29.2 16.0 29.6 20.6 20.1 4.2 9.5 14.2 6.4 16.2 16.4 - 16.2 25.3 - - 16.4 25.3 9.1 - 1.0 Ave. TR Workly Expenditures Since Outbreak of War (through June 19,1940) $19.5 Million England (through June 19,1940) 27.6 million England (since June 19.1940) 42.7 million *For monthly breakdown see tabulations prior to April 23. 1941. **For monthly breakdown see tabulations prior to October 8, 1941. (See attached sheet for other footnotes) 8.1(f) -.30.3 - -3.8 0.1 0.1 0.1 0.7 - 0.7 0.1 -.4.3.3 15.1 11.5 - - 15.1 - Nov. 0.1 0.1 - 0.1 - 0.6 - - - 0.1 -15.1 +.0.1 Transfers from Brien Purchasing Commission to Bank of Canada for French Account Week ended November 26. 1941 Cumulation from July 6, 1940 162.2 million million (a) Includes payments for account of British Purchasing Commission, Britt ish Air Ministry, British Supply Board, Ministry of Supply Timber Control, and Ministry of Shipping (b) Estimated figures based on transfers from the Now York Agency of the Bank of Montreal, which apparently represent the proceeds of official Brit inh sales of American securities, including those effected through direct negutiation. In addition to the official selling, substantial liquidation of securities for private British account occurred, particularly during the early months of the WRT although the receipt of the proceeds at this Bank cannot be ident ified with any accuracy. According to our data suppliedthrough by theDecember, British Treasury and released by million. Secretary Morgenthau, total official and private Britiah liquidation of securities 1940 amounted to $334 (a) Includes about $85 million received during October, 1939 from the accounts of British authorized banks with New York banks, presumably reflecting the requisitioning of private dollar balances. Other large transfers from such accounts since October, 1939 apparently represent the acquisition of proceeds of exports from the sterling area and other currently accruing dollar receipts. (d) Includes payments for account of French Air Commission and French Purchasing Commission. (e) Adjusted to eliminate the effect of $20 million paid out on June 26, 1940 and returned the following day. (f) Includes $2.5 million transferred Australian account at this bank; excludes $9.3 million of "overnight" items, which were included in previous week'sfrom credits. ANALYATA GANABEAN AND AUSTRALIAN ACCOUNTS (13 of Dollars) BANK CANADA (and Canadian Government) OF DEBITS Proceeds to Total Debita PERIOD First year of war (8/29/39-8/28/40)+ A/C of Other Total Credits Sales A/O A/C 1 For French Other Credits Net Incr. (+) or Decr. (-) Proceeds to Total in Balance Debits Official British A/C of Other Total Debite Credita Gold Sales Oat. 30 -> Dep. Dec. in Balance 306.4 504.7 412.7 20.9 38.7 32.4 +181.7 31.2 3.9 27.3 36.1 30.0 6.1 4.9 477.2 16.6 460.6 707.4 534.8 20.9 110.7 41.0 +230.2 57.9 14.5 43.4 62.4 50.1 12.3 4.5 460,4 23.1 462.0 52.2 246.2 3.4 123.9 18.3 9.0 0.5 10,2 81.2 2.8 62.9 + 29.1 72.2 10.7 55.5 - 88.5 31.0 16.7 - 2.1 0.7 7.9 37.4 19.7 11.9 7.8 - 17.7 8.2 5.5 2.7 8.0 5.9 2.1 +.0.2 460.4 23.1 - - 21.2 +1,6 1941 Oct. 2- Oct,29 Other Credits Net Incr. (+) or Decr. (-) 16.6 Second year war Aug, 28 - Oct. For Own CREDITS Transfers 323.0 War period through December. 1940 Gold DEBITS Transfers from Official British A/C Debite Confidencial COMMONWALTH BANK OF AUSTRALIA (and Australian Government) CREDITS Transfers Official British Wook Ended Novambar 26. 1941 37.4 - - La 31 1942 NEEK KNOKD Nov. 5. 0.1 12 8.0 - 8.9 8.0 10 12.2 - 12.7 26 8.7 9.0 - 8.7 6.1 3.2 4.5 3.6 3.2 9.9 3.7 - 2.1 Weekly Average of Total Debita Since Outbreak of War Million through November 26, 1941 U 7.5 For monthly breakdown see tabulations prior to April 23, 1941. - For monthly breakdown see tabulations prior to October 8, 1941. - - 2.9 - 0.9 - 1.1 - 6.2 - 2.9 -3.5 -9.5 +1.2 2.1 0.1 2.1 F. 3.5. 3.5 2.6 2.5 0.1 0.1 0.5 6.2 5.6 0.7 - 0.5 - 0.5 - 1.6 0.6 +.6.1 0.7 0.5 -2.8 -2.1 332 COPY THE BRITISH SUPPLY COUNCIL IN NORTH AMERICA Box 680 Benjamin Franklin Station Washington, D. C. December 4, 1941 Dear Cochran, We have received a copy of a telegram which Hall-Patch sent to the Treasury which said that the Stabilization Board had asked him to issue notifications to British approved banks in Shanghai to the effect that:- (a) The banks were requested to allow withdrawals from foreign currency deposit accounts on their books only in Chinese national dollars on the basis of the official rates of exchange, and (b) Withdrawals by payments in currencies other than Chinese national dollars at the official rates of exchange should be made only with the prior approval of the Board. Similarly the prior approval of the Board would be needed for internal transfers from one account to another and payments in foreign currency notes. It appears that both the local American and British banks are concerned about the risk of legal action if they refused to act on the instructions of foreign currency account holders because of complying with the notifications mentioned above. I suppose that Fox will have consulted you about this. and perhaps we might discuss the pointe arising at our forthcoming meeting. I have not heard what London's attitude on the matter is. Yours sincerely, T. K. Bewley Mr. H. Merle Cochran United States Treasury Washington, D. 0. COPY:lap-12/5/41 333 DATE: December 4, 1941, NO.1 454. FOR FOX FROM TREASURY. National City and Chase Banks have raised with Treasury Department the question as to the custody of Chinese currency notes and as to the risks assumed by the Shanghai offices of those banks in connection with such custody. We have advised the banks that these are matters which must be worked out with the Stabilization Board. We are air mailing copies of this correspondence but pass on for your early consideration the suggestion of the banks that the Chinese currency notes be destroyed. You may wish to take up with the appropriate Chinese authorities the matter of destruction of the currency notes. Foregoing is also being cabled to American Consul, Shanghai, and to American Embassy, Chungking. HULL (FL) The above telegram was repeated to American Consul, Shanghai, China, No. 1096, December 4, 1941. The above telegram was repeated to American Embassy, Chungking, China, unnumbered, dated December 4, 1941. 334 TELEGRAM SENT GRAY MA December 4, 1941 6 p.m. AMEMBASSY, CHUNGKING, (CHINA). 281. FROM TREASURY. QUOTE REfErEncE your 432 of November 6. This request for information to be submitted to the Chinese commission for the control of foreign EXchange was made prior to the announcement of the new program Embodied in the general licenses issued by the Treasury Department on November 12. In view of the new program it is believed that the Stabilization Board of China will acquire information concerning transactions in which China 18 interested. Please advise Fox of this cable. END QUOTE HULL (FL) FD:FL:ME FE 335 TELEGRAM SENT GRAY MJL December 4, 1941 6 p.m. AMERICAN CONSUL, SHANGHAI (CHINA) via N. R. 1093 FROM TREASURY FOR YOUR INFORMATION. FOLLOWING MESSAGE IS BEING CABLED TO FOX. QUOTE WE have licensed Chase National Bank NEW York to pay Nederlandsche Indische Escompte Maatschappij Batavia account Chase Bank Shanghai $1,200,000 in COVER of Chase Bank Shanghai credits issued prior to November 12, 1941 covering shipments from Java to China and to pay American Express Company Bombay $80,000 for account Chase Bank Shanghai in cover of Chase Bank Shanghai credits issued prior to November 12, 1941 covering shipments from India to Shanghai. Chase National Bank has been advised informally that you are being advised of the foregoing and further that our license merely permits the financial transaction and in no way affects the responsibilitiss of the Chase Bank Shanghai as an appointed bank to the Stabilization Board of China. END QUOTE. HULL (FL) FD:FL:VCL FE MUTATIS MUTANDIS to Hong Kong as Department's no. 449 of DECEMBER 4, 6 p.m. 336 PARAPERASE OF TELEGRAN SENT TO: American Consul, Hong Kong, China. DATE: December 4, 1941, 10 p.m. NO.: 453. THE FOLLOWING IS FROM TREASURY FOR FOX. QUOTE Reference is made to your 475 of November 6, 5 p.s. in which the request of the stabilisation Board of China was expressed that Bangue Belge pour l'Etranger not be designated RS en appointed bank. The Belgian Ambassador to the United States has now protested on behalf of Bangue Belge pour 1'Strenger the omission of that bank as an appointed bank. Consideration is being given to the desirability of advising the Helgian Ambessador that, since the Bancue Helge our 1'Etranger WRS not included in the list of banks recommended for designation as appointed banks by the Stabilization Board of China, it was not included in the list of appointed banks and to further suggest to the Belgian Ambassador that Banque Belge pour 1'Strencer should present its request for designation as an appointed bank to the Stabilization Board of China for consideration by that Board. Your comments on this procedure will be appreciated. END QUOTE HULL (FL) 337 TELEGRAM SENT EJ GRAY December 4, 1941 5 p.m. AMERICA.N CONSUL, HO NG KONG, (CHIN..) VI. N. R. 448 QUOTE For Fox from Treasury for your infor- nation. Following message is being cabled to American Consul, Shanghai. Reference your 1692 of November 15 you are advised that the term 'fully Effected in paragraph (1) (d) (111) of General License No. 58 means payment in United States dollars. Such payments must have been fully Effected prior to November 12, 1941, and on November 12, 1941, the consignor of the shipment must have had no further suns or other things of value owing to him in connection with such shipments. Similar restrictions apply to shipments from Shanghai to the continental United States via Manila and consular invoices should not be certified by you covering such shipments unless the terms and con- ditions of General License No. 58 are fully complied with. END QUOTE. HULL (FL) FD:FL:11E Nutatis nutoncis to Shanghai C.S Department's no. 1092 338 December 4, 1941 Mr. Livesey Mr. Geohras will you kindly send the following cablegreat American Consul, Hong Kong. For Fox free treasury. Mr. 0. F. Thomas, an American citizen, is sailing from Sea Francisco December 6 for Mamila after extended leave of absence in the United States. Thomas is Assistant Manager of Shanghai branch of National City and has had many years experience is China and elsewhere abroad. National City is willing to release Thomas if the Stabilisation Board of China would be interested is employing him. It is suggested that the Board sight wish to contact Mr. Thomas through the Maaila or Hong Long branch of the National City with view to possible employment. From your eablegram and Cochran's report treasury understands Board needs a few Americans with experience in banking, exchange centrol and organization. Treasury will let you hear shortly ea replacement for Frese and perhaps also with respect to additional assistance. mg HMC:da:12/4/41 0 0 339 P Y TELEGRAM SENT GRAY MA December 4, 1941 Midnight AMERICAN CONSUL, HONG KONG (CHINA) VIA N. R. 455. FOR FOX FROM TREASURY. QUOTE Mr. C. F. Thomas, an American citizen, is sailing from San Francisco December 6 for Manila after extended leave of absence in the United States. Thomas is Assistant Manager of Shanghai branch of National City and has had many years experience in China and elsewhere abroad. National City is willing to release Thomas if the Stabilization Board of China would be interested in employing him. It is suggested that the Board might wish to contact Mr. Thomas through the Manila or Hong Kong branch of the National City with view to possible employment. From your cablegram and Cochran's report Treasury understands Board needs a few Americans with experience in banking, exchange control and organization. Treasury will let you hear shortly on replacement for Frese and perhaps also with respect to additional assistance. END QUOTE HULL (FL) FD:FL:VCL Copy:1c:12/6/41 340 TELEGRAM SENT HRL GRAY December 4, 1941 7 p.m. AMERICAN CONSUL, HONG KONG, (CHINA) VIA N.R. 450 FOR FOX FROM TREASURY FOR YOUR INFORMATION. Following message is being cabled to American Consul, Shanghai: QUOTE Reference your 1713, November 18. You are advised that in those cases where an importer has United States dollars on deposit with an appointed bank the approval of the Stabilization Board of China is required before an appointed bank may notify a domestic bank that the transaction satisfies the terms and conditions of General License no. 58. You will hear from us further on your other inquiry. END QUOTE HULL (FL) FD:FL:ME FE MUTATIS MUTANDIS to Shanghai as Department's no. 1094 Copy: ww: 12-6-41 0 DEPARTMENT OF STATE WASHINGTON In reply refer to December 6, 1941 FD The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury and encloses copies of telegram No. 450, dated December 4, 1941, to the American Consul, Hong Kong, China. The text of this message was also telegraphed to the American Consul, Shanghai, China, for his information, as Department's No. 1094. Enclosure: To Consul, Hong Kong, No. 450, December 4, 1941. Copy:vv: 12-6-41 341 DEPARTMENT OF STATE Washington In reply refer to FD December 4. 1941 The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury and encloses copies of telegram no. 526, dated December 3. 1941, from the American Consulate General, Hong Kong, China, concerning Chinese currency deposits now frozen in Hong Kong. Enclosures From Consulate General, Hong Kong, no. 526, December 3, 1941. ehicopy 12-4-41 0 MAY 342 Hong Kong via M. Dated December 3. 1941 Rec'd 12:58 p.m. The Secretary of State, Washington. 526, December 3. Reference Hong Kong's telegrams 476, 477 and 478 of November 7 quoting messages for Treasury from Fox and Cochran and confirmed by despatch 1046 November 7 and enclosures reporting action by Hong Kong Government to control unduly large operations in Chinese currency in this colony. Local authorities now report that their action has been effective in greatly reducing so-called ealack market operations. Meanwhile the trading license has been suspended of the Hong Kong gold and silver exchange which apparently was doing big business in Chinese currency notes and Government instructed it to settle outstanding transactions at Hong Kong dollars one hundred fifty five to Chinese national dollars one thousand. Chinese Vice Minister of Finance visited here recently as result of which Chinese Ministry of Finance as Stabilization Board of China establishing a joint office in Hong Kong to deal in cooperation with the British authorities with the problem of Chinese currency deposits now frozen in the colony. Sent to the Department, repeated to Chungking, Peiping and Shanghai. SOUTHARD DD ehicopy 13-4-41 0 343 0 P Y THE CHASE NATIONAL BANK OF THE CITY OF NEW YORK December 4, 1941 2-45-ECF BY HAND Mr. L. W. Knoke, Vice President Federal Reserve Bank 33 Liberty Street New York, N.Y. Dear Mr. Knoke, We are in receipt of instructions from the Amtorg Trading Corporation, New York, requesting us to notify you, as fiscal agent of the United States, that, in accordance with the instructions of the Treasury Department of the United States, we are authorised to deposit forthwith all of the gold arrived on the s/s "Dombass" with the San Francisco Mint for account of the Secretary of the Treasury. According to an exchange of telegrams with our San Fran- cisco representative, delivery was taken yesterday of the abovemen tioned gold, which was deposited at the San Francisco Mint for account of the Secretary of the Treasury. Kindly forward copy of this letter to the Treasury Depart ment at Washington. Yours very truly, /s/ E. C. Funck E. C. Funck Second Vice President copy:kma 12/5/41 344 December 4. 1942 Mr. Cochran Mr. District Mr. Raymond, co-essager of the Bank of China, New York, called me today and said that his bank had received from one of its correspondents, the Bank of Asia, Dangles. the following eables *Please wire market buying rate per ourse of gold". Mr. Raymond said that he would wire the Bank of Asia that the Treasury purchases gold at $35 less 1/4 percent per fine ourse and less the usual Mist charges. Mr. Raymond further explained that the Deak of Asts is whelly over by either citisens OF residents of Thailand, some of when are Chinese. and that his bank regularly opens eredite for the Bank of Asia. Dangleek, to cover exporte to Thailand. Ea also said that be uniorsteed that Thailand was considerably short of dollars and he velanteered the information that his bank insists es 100% coverage is dollars for all credits opened by 11 es behalf of the Bank of Asia, Bangkak. FD cilap-12/4/41(2) c 345 0 Y DEPARTMENT OF STATE Washington In reply refer to December 4, 1941 FD The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury and encloses copies of the paraphrase of telegram 161, dated December 2, 1941, to the American Legation, Bangkok, Thailand, concerning the question of credit assistance to Thailand. Enclosure: To Legation, Bangkok, no. 161, December 2, 1941. eh:copy 12-4-41 346 PARAPHRASE OF TELEGRAM SENT TO: American Legation, Bangkok, Thailand DATE: December 2, 1941, midnight NO. : 161 e This telegram is in reference to the Legation's telegram of November 27, 1941, no. 537. It is suggested that you note telegram no. 140, sent by the Department on the 6th of November, 1941, concerning making dollars available immediately in receipt of notice from you by telegraph that rubber has been shipped. The attention of the Department is being currently and syspathetically given to the question of credit assistance to Thailand. HULL ehscopy 13-4-41 c 347 Y PARAPHRASE OF TELEGRAM RECEIVED 03 SCASS FROM: American Embassy, Buenos Aires, Argentina DATE: December 4, 1941. 8 p.m. to NO.: 1377 This is in reference to the circular telegram of the Department sent at of6 p.m. on the 14th of November. Secretary 1941. Today the Central Bank has informed the Embassy the Honorable to that the only gold shipment from Japan which was received of anclosed conies here was the one which was described in Despatch no. 3354 dated December of the Embassy dated October 22. It was to pay for Airse Hundae merchandise which was shipped on October 25 to Japan cram conderging from and possibly to cover shipments made before that time. ARMOUR From Buenoz Airus, no. 3377 December 1942 Copy:jpt 12-8-41 Copyijon 12-8-41 348 DEPARTMENT OF STATE Washington In reply refer to December 6, 1941 FD The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury and encloses copies of the paraphrase of telegram 1377. dated December 4. 1941, from the American Embassy. Buenos Aires. Argentina, in reply to a circular telegram concerning gold shipments from Japan. Enclosure: From Embassy. Buenos Aires, no. 1377. December 4. 1941 Copy:jpt 12-8-41 TREASURY DEPARTMENT 349 INTER-OFFICE COMMUNICATION 21.05 DATE December 4, 1941 For TO Secretary Morgenthau FROM Mr. Cochran CONFIDENTIAL Registered sterling transactions of the reporting banks were as follows: Sold to commercial concerns Purchased from commercial concerns £48,000 £13,000 Open market sterling remained at 4.03-1/2, and there were no reported transactions. In New York, closing quotations for the foreign currencies listed below were as follows: Canadian dollar Argentine peso (free) Brazilian milreis (free) Colombian peso Mexican peso Uruguayan peso (free) Venegualan bolivar Cuban peso 11-3/8% discount .2380 .0515 .5775 .2070 .5275 .2580 1/8% discount We purchased $21,000 in gold from the earmarked account of the Central Bank of Costa Rica. The Federal Reserve Bank of New York reported that the following shipments of gold were consigned to it: $2,652,000 from Canada, shipped by the Bank of Canada for account of the Government of Canada, for sale to the New York Assay Office. 2,235,000 from Colombia, shipped by the Bank of the Colombian Republic for its account, disposition unknown. $4,887,000 Total We were informed that, during the week ending November 29, Bombay gold prices fluctuated greatly due to continued speculative activity. The highest trice reached was equivalent to $36.42, and the closing quotation for the week worked out to $35.81, or 35$ higher than the November 22 price. Silver in Bombay was equivalent to 44.76 on November 29, or 1/8 lower than the quotation for November 22. 350 In London, spot and forward silver were again fixed at 23-1/24, equivalent to 42.67d. The Treasury's purchase price for foreign silver was unchanged at 35 Handy and Harman's settlement price for foreign silver was also unchanged at 35-1/84. We made no purchases of silver today. qml. CONFIDENTIAL 351 BRITISH EMBASSY WASHINGTON, D.C. December 4th, 1941. Personal and Secret. Dear Mr. Secretary, I enclose herein for your personal and secret information copies of the latest reports received from London on the military situation. Believe me, Dear Mr. Secretary, Very sincerely yours, Halifax The Honourable Henry Morgenthau, Jr., United States Treasury, Washington, D. C. Copy No. 14 BRITISH MOST SECRET 352 (U.S. SECRET) OPTEL No. 17 Information received up to 0700, 3 December (I) NAVAL MEDITERRANEAN. A British destroyer was torpedoed on 1st December by enemy aircraft to eastward of TOBRUK and has returned to ALEXANDRIA under her own steam, SOUTH ATLANTIC. Reference OPTEL No. 1, 72 survivors, 5 of whom have since died, have been picked up from British cruiserwhich was torpedoed and sunk on November 24th. Attacks on shipping. 2nd. A ship of medium tonnage outwardbound to FREETOUN was shelled by a U-boat 200 miles South of the AZORES, & British tanker of medium tonnage was mined and sunk off the Norfolk Coast, (II) MILITARY LIBYA. Nothing additional to OPTEL No. 16. RUSSIA. Nothing additional to official comuniques. (III) AIR OPERATIONS 2nd and night 2nd/3rd. No offensive operations carried out by Fighter or Bomber Command, Coastal Command report promising attacks on enemy shipping off STAVANGER and on Naval Barracks NANTES, Four aircraft are missing. LIBYA. Night November 30/1st December. 20 tons of bombs were dropped on BENGHAZI harbour; large fires were started among railway sidings and at base of Cathedral Mole. 4 engined aircraft was destroyed on BARCE aerodrome. One of our bombers is missing. 1st December. (Addition to OPTEL No. 16). A Beaufighter damaged 12 lorries Eastbound near SIRTE and set on fire 2 road tankers. Our fighters carried out over 220 Sorties on offensive sweep and bomber escort and, in combat, destroyed 9 enemy aircraft probably destroyed 4 and damaged 4. Our losses 6 fighters (2 pilots safe). 2nd. In MISURATA-HOMS LIBYA area a Beaufighter damaged 14 Eastbound lorries and set 5 road tankers on fire. (IV) G.A.F. 2nd/3rd. 11 hostile aircraft operating between LANDS END BRISTOL CHANNEL - ANGLESEY of which 6 flow over-land, Our night fighters destroyed 2 enemy Bombers. 353 BAN OPTEL No. 17 (V) Aircraft casualties in operations over and from British Isles: German, 2 destroyed; British, 4 aircraft missing. OPTEL No. 18 LIBYA. Up to three o'clock p.m. 3rd December bad weather has hampered air and ground operations only noticeable enemy movement has been South from EL ADEM onwards towards EL GOBI, Our mobile columns and patrols continue to haress enemy on SOLLUM, EL ADOM and BARDIA - TOBRUK roads. A small enemy vessel entered SOLLUM Harbour morning 2nd December, but was driven out by machine gun fire from SOLLUM Barracks. 354 Copy No. 14 BRITISH MGST SECRET (U.S. SECRET) OPTEL No. 15 Supplement to Resume of Operational Events covering period of 20th - 27th November, 1941. (I) NAVAL The 15th Canadian troop convoy arrived (?home waters) on 23rd. MEDITERRANEAN. Light forces were operating off Libyan Coast in support of our military operations and cruisers and destroyers have been disposed to intercept reinforcements by sea. Our shipping losses were exceptionally light. No casualties from submarines or mines were reported. Enemy minelaying by aircraft in British waters continued on most nights but situation is kept well in hand especially as regards rapid reopening of temporarily closed ports. (II) MILITARY LIBYA. By November 22nd the armoured corps had succeeded in bringing the greater part of the German 15th and 21st armoured divisions to battle and during the next 2 days in a series of heavy engagements ranging over the deser heavy casualties were inflicted and received, The burden of fighting then passed temporarily to infantry while the armoured (?formations) were withdrawn for organization. New Zealand troops supported by British infantry tanks completed pressure on enemy and on the 26th succeeded in finally closing the routes to west. The (?Germans) have been making desperate attempts to break out to West with their surviving tanks and with those romnants of HALFAYA and SIDI OMAR garrisons which succeeded in withdrawing from frontier. In General Auchinleck's opinion it is "all satisfactory and shows that our pressure is telling more and more". RUSSIA. After a period lasting several weeks when threat to MOSCOW seemed to be decreasing the new and expected German drive at KLIN at North and East of TULA aimed at RIAZHSK and RAZAN from South have once more in- creased considerably the danger to capital. Every available man and vehicle is being thrown into this attack which however would be brought to a standstill (71f) another than (which is possible) were once more to turn roads into mad. Northwest of ROSTOV. Germans have yet to cross the River and then to consolidate their left flank before they can advance further South Eastwards. In CRIMEA, SEVASTAPOL is still holding out and Germans have not yet at tempted to cross at KERCH, -2- OPTEL No. 15 355 JAPAN. Land forces are believed to be disposed as follows: JAPAN 7 Divisions, 1 Tank Regiment; KOREA 1 Division; SAKHALIN 2 Divisions; MANCHUKUO 26 Divisions, 7 Tank Regiments; NORTH CHINA 9 Divisions, 12 Mixed Brigades, 2 Tank Regiments. CENTRAL CHINA 6 Divisions, 7 Mixed Brigades, 1 Tank Regiment; CANTON 3 Divisions, 1 Tenk Regiment; SHATOW 1 Mixed Brigade; FORMOSA 3 Divisions; HAINAN 1 Division; NORTH INDO-CHINA 1 Division; SOUTH INDO-CHINA 3 Divisions, 1 HOT Tank Regiment. Total: 62 Divisions, 20 Mixed Brigades, 13 Tank Regiments. JAPAN is in a position to invade THAILAND whenever she wishes to do so. EAST AFRICA. After a lull of 2 months while rainy season provented movements a final British advance of 30 miles ending with capture of GONDAR has brought East African campaign to an end. YUGO-STAVIA. Bulgarian troops have been moving into district round and South of NISH. The Germans are thus (?using) Bulgarian Army (?to assist) their repression of Serbians having probably failed to induce Bulgarians to go and fight for them in RUSSIA. GREECE. The German garrison in CRETE has been increased from 14,000 to 30,000 roughly from 1 to 2 divisions, The total of German divisions in BALKANS remains however the same, namely 14. TURKEY. A system of field defence is being constructed east of Sea of MARMORA along a line of SAKARIA River. Ten thousand labourers are said to be at work. (III) AIR OPERATIONS. U.K. AREA. Bad weather persists; all night bombing operations were cancelled on 4 nights; on remaining 3 a total of 193 tons of high explosive and more than 13,000 incendiaries were dropped. Principal objectives - BREST, LORIENT and EMDEN, Attacks on enemy shipping continued with success; several vessels some of medium tonnage were claimed as hit or narrowly missed but owing to difficulty of accurate observation in many cases a near estimate of total tonnage destroyed or damaged cannot be given, There were several enemy attacks on our shipping but otherwise German air activity was on a very low scale, 3 enemy A/C were destroyed by night and 1 JU, 88 lost its bearings and landed intact, CENTRAL MEDITERRANSAN. Axis Convoys on Libyan Sea route have been reconnoitred and were attacked on several occasions: 1 Italian oruiser was hit by aircraft - torpedo. Shipping in Tripolitanian Sicilian and Italian Harbour was raided, and it is estimated 14,000 tons of it, at Sea or in harbour were sunk or damaged by our aircraft, 356 - 3 as OPTEL No. 15 LIBYA. R.A.F., R.A.A.F., S.A.A.F. and a squadron of Free French Blenheims all gave intensive and effective support to our attack in Western desert. Every form of military objective was attacked by night bomber and/or by fighters and light bombers by day. Armoured units mechanical transport tanks lorries and aircraft in air and on ground were especially selected for destruction. Our fighters constantly patrolled battle area by day and also by night, and on at least one occasion caused a German night bombing formation (?heavily) escorted to jettison its bombs. The enomy armoured raiding column provided a good opportunity for air and ground co-operation: this force was shadowed and harassed by our aircraft before being brought to battle by our armoured troops. Aircraft from MALTA shared in many of these operations. For (?Axis) air activities and situation see my OPTEL No. 6. (IV) EXTRACTS - from photographic and intelligence reports on results R.A.F. air attacks - on enemy territory in Europe. NURNBERG. The Aluminium Works received several direct hits causing a stoppage of work. DONGES. About 600 tons diesel oil were lost in our raid of 2829 September. LILLE Area. A further report tells of recurring spread of disorganization of industry caused by our attacks on the electric power supply. 357 BRITISH EMBASSY WASHINGTON, D.C. December 4th, 1941 PERSONAL AND SECRET Dear Mr. Secretary, I enclose herein for your personal and secret information a copy of the latest report received from London on the military situation. Believe me, Dear Mr. Secretary, Very sincerely yours, Hawfer The Honourable Henry Morgenthau, Jr., United States Treasury, Washington, D. C. 358 Copy No. 13 BRITISH MOST SECRET (U.S. SECRET) OPTEL No. 16 LIBYA. To A.M. 2nd December. Throughout lat December very heavy fighting continued in area BIR EL HAMID - KAASRAM (three miles further east) SIDI REZEGH, in which enemy succeeded in splitting junction of New Zealand Division with TOBRUK garrison, and forced us to withdraw to South. TOBRUK garrison still hold EL DUDA. By night 1/2 December our main concentration including our armoured forces was on line of track TIGH EL ABED (SHEFFERZEN to EL GOBI) from whence enemy moving south of escarpments were being harassed. Portion of New Zealand Division were patrolling West from MENASTIR (fourteen miles N.N.N. of BARDIA). Indian troops were clearing up frontier area where enemy still hold BARDIA, area SOLLUM - HALFAYA, and a point six miles N.W. of SIDI CMAR. By morning second December our patrols were forward on line of 68⑉ carpment from a point twenty miles west of BARDIA through a point six miles W.S.W. of SIDI REZEGH, thence to EL GOBI. Armoured car patrols operating on enemy L. of C. West of ACROMA were successful, and destroyed enemy M.T. (II) AIR During first December, four Blenheim squadrons with fighter escort bombed enemy M.T. and tanks south of SIDI REZEGH at noon, Details obscured by cloud but large fire started among vehicles. In afternoon one Maryland squadron with fighter oscort attacked about three hundred M.T, north of SIDI REZEGH. Bombing was very effective, many vehicles destroyed. Dump inside BARDIA perimeter also bombed causing a very violent explosion and large fires. TREASURY DEPARTMENT 359 INTER OFFICE COMMUNICATION DATE December 4, 1941 TO Secretary Morgenthau FROM Mr. Kamarck Subject: O.C.I. Report: Observations of Vincent Sheean on his trip to the Far East. Highlights 1. Singapore The British commander-in-chief, Brooke Popham (RAF officer), is disliked by his naval subordinates. The Australian generals lack confidence in the British and insist on autonomy for their troops. The RAF seems very pleased with the American Brewster fighters and Martin bombers that they have. 2. Thailand The Siamese will resist a Japanese invasion but feel resistance 18 hopeless. Many of the Siamese officials would cooperate with the Japanese. 3. American Burma Road Flying Force The force has 64 P-40's but has no spare parts. The fliers lack confidence in the P-40, disliking its slow rate of climb and lack of altitude. Morale is bad since most of the force are mercenaries or draft-dodgers. Since it 18 doubtful whether this force could defend the Burma Road against the Japanese, it may be worse than no force at all. 4. Chungking There is a frankly pro-Nazi group of government officials, among whom are the Minister of War, General Ho Yin-Ching (very influential and the principal pro- Japanese leader); the Chief of the Ordnance Department, General Yu-Ta-Wei; the Secretary of the Kuomintang, General Wu Te-Cheu, The Foreign Minister, Quo-Tai-Chi, and Madame Chiang Kai-shek are pro-democratic. Madame Sun Yat-Sen is kept isolated. Division of Monetary -2- 360 Research Corruption principal orook".is prevalent, Madame Kung being "the No supplies are allowed to pass to the Eighth Route Army. It has not been paid since January 1941. Chiang Kai-shek's best army is used to blockade it. The guerrillas and Communists continue to fight, however.the "The guerrillas far more actual fighting than regular troopsdo do." No resistance was made to the Japanese advance on Changsha. The Jape marched in and marched out again. General Ho Yin-Ching then claimed a victory. The Chinese attack on Ichang appears to have been sabotaged in some way. Chiang Kai-shek "tells the most barefaced lies without a change of expression". The regime strongly relies on its repressive police and concentration camp system. The whole government is waiting to see what is going to happen in Russia. The officials anticipate great personal benefits from the Lease-Lend Bill. 5. Predictions The Japanese will attack the Burma Road from Indo- China. If the Minister of War, General Ho Yin-Ching, is in charge of the defense, little resistance will be made. If the Germans make great progress in Europe, the Ho Yin-Ching group will try to reach an agreement with Japan. Source and Degree of Reliability Statement dictated in this office by Mr. Vincent Sheean, newspaper correspondent, who returned from the Orient on Clipper arriving in San Francisco, November 27, 1941. in the Far The East:following are Mr. Sheean's observations on the situation Singapore: Duff Cooper's report outht to be ready almost any time now and from conversations that I had with him I gather that he is going to recommend some unification of the command out there. He would have an idea of suggesting an Australian for the supreme job. I don't know if he has stuck to this idea or not since his visit to Australia, He also thought that it might be advisable to have a British cabinet minister in charge there, but he may hesitate to recommend this because it will look as if he is trying to create a job for himself. The situation between the naval and military commands apparently requires thorough rearrangement. Brooke-Pophan is not popular with the navy at all, and the Admiral Geoffrey Layton makes no secret of his dislike for him. Layton calls him "Brooke Popoff", and the general impression seems to be among the officers stationed there that Pophan spent all his time playing to the Callery and giving interviews. I think Duff Cooper has done a Good job in the Far East and it is extremely possible that they would keep him there for the duration of the war. de seems far better suited to that kind of work than he was for the ministry of information in England. I had a long talk one day with Gordon Bennett, the Australian Commander who WILS extremely frank in his criticisms of the British. He told me that the one thing that he and the other Australian generals would insist upon at all times WILS autonomy for their troops. When I left, the Australians were defending the state of Johore in the approaches to Singapore. I asked Gordon Bennett if the Australians would reinforce the army troops in the north in case of invasion, and he said: "Not on your lifee---We will never mix our troops with the Indian army". I saw some of their work on the coast at and near Mersing. This seems to be the place most favored as a probable spot for Japanese landing. They are building a network of defenses in depth on the hills there and the work may be finished by now. The road from Mersing to Singapore is the only good road through the jungle and would be extremely vulnerable to bombing. But also it should be fairly easy to defend. The jungle on both sides of this road is particularly impassable with thickly tangled vines and undergrowth. The R.A.F. bombers that they have.seems very pleased with the Browsters and the Martin In Bankok I ot the impression that some of the government people, in particular Prince Varn Vaidin, the advisor to the foreign office, would not too violently oppose the Japanese. This does not apply to the Prime Minister or to the Foreign Minister, both of whom, I believe, would take flight to Rangoon or Singapore when the Japanese came in. I believe it would be easy for the Japanese to form A native Thai government in Bankok after a military occupation. The occupation itself would not be difficult. They all say they will resist but as Prince Varn Vaidia explained to me this resistance would not be much and would be done not in any hope of keeping the Japanese out but merely because of their historic responsibility to defend the country. He said it was a duty to posterity to make some defense even though it WILS hopeless. I did not trust Prince Varn Vaidia at all and found it difficult to believe anything he said. The foreign minister, although obviously very frightened, is a much more credible personality. I did not see any airfields, aviation equipment, or military works. The Thais don't show anything to visitors or even to our naval and military Attaches, Our M. A. has been trying for over 6 months to see an airfield and has not succeeded yet. Information from Siamese sources indicates that the Japanese are installed already at the two airfields D near Chingmai near the Burma border. Some of Chennault's young men were intending to get lostbyover have probably done now.that area and make some photographs which they I visited Chennault's outfit at Toungoo on the road to Mandalay. This was about November 1st. I stayed overnight and talked to a lot of the pilots. I do not think their morale is very good and I am very much afraid that in a clash with the Japanese they would come off badly. The chief reason for this is, of course, that they are a mercenary force. They all went out there because they were offered a lot more money than they ca get in our own army and navy. They tend to complain a great deal of everything and seem to be on the worst possible terms with the British and Australians of the R.A.F. Their equipment consisted at this time of 64 P-40's with no spare parts. They crashed one of the P-40's and were taking it apart for the spare parts when I was there. Chennault wants republic planes of the P-48 type or Vultees of the P-43 but has re- ceived none. These pilots have no confidence in the P-40 and never have ceased to complain. They particularly dislike its slow climb and lack of altitude. They also had a lot of ammunition trouble and in general have many complaints. Nevertheless, Chennault is a remarkable man and he may be able to turn them into coherent and efficient forces. He told me that if the Japanese attacked before December he could not go into action with this force, but if they attacked after December 1 he would put his planes in. They would presumably operate in Yunnan and indeed they may be there already. Chennault, for some reason, did not wish me to mention that I had visited this force and I have not referred to it in print. He ap- parently was wishing to regard it as a secret although everybody in the Orient knows about it. I do not know whether it is at the request of the Burma government or the Chinese government or the American government that this secreey is maintained. It seems to me ill-advised because all kinds of rumors are floating around about this American force and various exaggerations and misrepresentations are current. In general, people seem to think it is a creat deal larger than it actually is. Chennault hopes to have a hundred fighter pilots to TO into action in defense of the road but rumor exaggerates this number into several hundreds. When I WILS there he had sixty. There are people in his force who are not simply mercenary. Joe Alsop is one, and I met two or three others, but the body of the force is simply there for the money. Not only this, but 5 or 6 of them took this job-in order to get out of service in our own army and navy. They broke their contracts and went home after 8 week or two in Burma. There have been three accidents, two of them fatal. I think that the whole idea will have to be abandoned at some point. If we could supply fully equipped fighter squadrons under American orders, something could be done, but it seems to me rather doubtful if this force, in its present state,would be able to defend the Burma Road. Moreover, it would be very unfortunate from every point of view if, in the first clash with the Japanese, American pilots and equipment proved to be inferior. In Chungking I was astonished to discover that there is a quite frank and outspoken pro-Nazi group. General Yu-Ta-Wei made no secret of his admiration for the Germans and his confidence in their victory. He is Chief of the Ordnance Department and I had a letter to him from the Chinese Ambassador to the United States. He spoke to mo partly in German and offered it as his opinion that American help to China would consist of half measures and that these would come too late. The German words he used were, "Verspatete Halbmassnahmen". General Ho Yin-Ching, the Minister of War, is another of this group. General Wu Te-Cheu, the secretary of the Kuomintang,in another. There are several other generals and ministers who expressed the same opinions and are rather incredulous towards the lend-lease policy. D This does not apply at all to the Foreign Minister, Quo-Tai-Chi, who is affirmed adherent of the democratic countries and believes that they will win the war. The balance is, of course, held by the Generalissimo who up to date has always expressed himself strictly in favor of the democracies. It should, however, never be forgotten that his military advisers for years were Germans and I believe the relationship has never wholly been dropped. General Falkenhausen, who is now the Nasi Governor of Belgium and the Netherlands, was a great friend of General Chiang Kai-Shek and all this group of generals. Among the Liberalizing influences around the Generalissimo the most important is probably that of his wife who certainly is very pro-democratic in sentiment. The corruption and incompetence of the Chungking government are very Creat. This is no doubt well known to our War Department. Investigations have been started at various times into the various forms of corruption but they nearly always have to be dropped because they lead straight to the family of the Generalissimo and his wife. Among the most notorious of these WILS the investigation of the aviation commission. This had to be dropped when it was shown that most of the plunder had been done by Madame Kung and her son David, a sister and nephew of Madame Chiang. The principal orook in the outfit by all testimony seems to be Madame Kung who is a kind of a financial genius with no soruples of any sort. In Hongkong I had several long talks with Madame Sun-Yat-Sen. She disapproves heartily of the plunders and fortunes of her sisters and their husbands. She went up to Chungking last year in an effort to start some kind of slie reform. but she WEE kept practically prisoner in the Kun house and WE S never allowed to talk to any of the leading Generals alone. She told be In confidence that also Was never permitted to talk alone to Chiang Zai Shek. One of her sisters W& S always present. She made 6. trip with the two sisters up to Chengtu, then capital of the province of Szechwan, It WILB R kind of set visit and they were mich observed and photographed. Nevertheless, Madame Sun-Yet-Sen's luccage WILS searched for 4 hours by the police before it WILS delivered to her. She attended the meeting of the Central Committee of the party and addressed them for about an hour asking them to return to the principals of Sun-Yat-Sen---to give up the wholesale robbery which goes on in Chungking and to lead simpler lives in view of the starvation of the people. when she stopped talking, General Wu, the secretary of the party, rose and said to the assembly that Kadame Sun-Yat-Sen was un- fortunately not very well. Thic WEL 8 the end of her efforts and she then returned to Hongkong seeing that she could not do anything. I don't think there is any stalling on relief supplies or medical aid, but on the other hand it is allocated on strictly political plans. No thing is allowed to CO to the guerillas or to the Communists. Everything is distributed among Chiang's own troops no matter what instructions come alon with the stuff. Anything for the northeast area or the 8th Route Army is stopped and diverted to Chiang's troops. The 8th Route Army has not been paid since January, 1941, and all com- munication with the 8th Route Army area ceased about C months aro. It is now in touch with Chunckin only by radio. The number of concentration camps has risen rapidly during this year and there are now 14 in the un-king area. One of these labor camps or correctional camps is directly underneath the house of the British Ambassador on the hill. The people who are sant to concentration camps are accused either of being Communists or of committing frauds. Torture is extremely common and follows all the usual Chinese traditions. Burying alive and various forms of mutilation are in force through the ares Chiang controls. The head of the political for police is more powerful than ever and he has even sometimes dared to arrent some of Madam Chiang Kai-Shek's ladies in the New Life Movement. A good many executives of the Chinese Industrial Cooperatives have also been arrested, charged either with Communism or with fraid. I WAS told that the resistance at Shensi took place only as result of an impassioned speech by Vadame Chiang. The Minister of War, He Yin-Ching, had decided that the troops should retreat before the Japanese advance without Fiving battle. This is, of course, the usual system. Madame Chiang is anid to have made A passionate speech to the Military Affairs Committee calling for resistance and she won out. No resistance WILS offered at Changsha and the Japanese simply came in, selzed the crops, stayed a month, and got out again, thus enabling Ho Yin-Ching to claim a victory where none in fact existed. The action at Ichen WAS a very mysterious affair. The plans were drawn by the Russian advisers but were abandoned in the middle and the 3,000 men who Cot into the city on the night of October 9 had to fight their way out again on the 10th and 11th when no reinforcements were brought up. The city is surrounded by Japanese strong points which fire in all directions and this oricinal force suffered very heavy loss. I saw 10 of the mustard Cas cases in the military base hospital. On this visit I was accompanying a Mendelson of the Marruder Mission, formerly of Walter Reed capital, wilo said tast in his opinion nothing but mistard CHS could AVA caused ese escarotic burns. There were 26 of the CHE Cuses that started lor the base hospital but all the others died on the way. The medical services are miserably inadequate and underpaid. They struggle on with most commendable spirit but it is an uphill job. There are supposed to be 23 doctors in each base hospital but hardly half of these are qualified in any way for medical or surgical practice. The appointments are made for political reasons and very often the man who is carried on a payroll as s doctor is not a doctor at all and doesn't ever visit the hospital. The surgeon general, Dr. C. T. Lui, is a hard-working, conscientious doctor who does his best against the steady sabota.re of the generals. The same conditions apply in the public health service. A pair of leather shoes costs $375 in Chungking and public health doctors monthly we is only $400. If they did not have the rice rations they could not live at all on the salaries, Their wives are reduced to all sorts of expedients to piece out this small sum of money. They have asked a grant of $300,000 Chinese dollars as a subsistence supplement but when I left Dr. Kung the Finance Minister had not yet granted it. The Minister of War is supposed to be the principal pro-Japanese in the government. lie WILB not a Kuomintang. He WAS a northern war lord. He has advanced so rapidly that he is now the strongest force in the overnment with a single exception of Chiang Kai-Shek. They were talking of moving him down to Yunnan for resistance if the Japanese attack the Burma Road. In my opinion he would offer very little resistance. He tried to convince ae and Edward Morrow, when we talked to him that he tiou ht Japan WILS going to attack Burna itself instead of Yunnan. He seens to place his chief reliance on the fact that the terrain, at least for the first 100 miles, is extremely difficult. This of course is true but then it is also true that no difficulties of terrain would make much difference if there WILS no really determined resistance. The Yunnan situation seems to be A little bit better than it was. The old Governor has pretty well accepted the supremacy of the Chungking government and has admitted Chungking troops to Kunning. He has even considered Giving up his privilege of taxing the stuff that comes in on the Burma Road in exchange for a financial consideration. He and Mr. Miaw, the tin magnate who is his principal adviser, like practically everybody else in Kunming and Chungking, is eagerly awaiting the expected benefits of the Lend-Lease bill. All of these generals see marvelous opportunities in such A flood of material. They all live in great luxury. There is no rationing system whatsoever, and although the people are starving you can buy anything you want in the streets of Chun/kin if you have enough money. I lunched and dined with various generals and cabinet ministers and the table was always groaning with a great variety and amount of food. At Madame Chiang's house there are as many kinds of food as you could see in New York. These people think nothing of having delicacies flown in from Hongkong, even California oranges in a country which is itself full of oranges. Their salaries are all small but this, of course, means nothing for they have free access to the treasury. They tell me it has been years since Chiang Kai-Shek thought of accounting for any money at all. When he wants a million or five million or ten million he simply notifies his brother-in-law Kung, Finance Minister, who then has to find the money. I found Chiang Kai-Shek very much more confident and sure of himself than when I saw him 14 years ago. He has the nerve of the devil himself and tells the most barefaced lies without a change of expression. DONFID IAL Edward Korrow asked nim what IF L tonded to do about the corruption and inefficiency about the burna Road to quite calaly said that there was no problem of the Burma Road at all. : asked him 10% he WILS applying the principles of Sun Yat Sen and 2 said PAMI ~ lanely, "The first principal, nationalism, WILS 50 effective; the second principle, the people's rights, 30% effective; and the 3d principle the people's welfare, 20% effective". Actually the people have no rights of any sort and as for their welfare, it has ceased to exist. The 9th Plenum or Party Congress was to have been held in November and AS been post- poned again until December 15. This is the only thing that even remotely suggests democracy in the Chian regine, but it is a very feeble administration. The Central Committee has sent out circulars telling the leaders of the party that they cannot introduce novel cestions. They will have to stick to the azenda prepared in advance. Anybody with any independence of view will, of course, stay away from this meeting because there is no possibility of speaking at it. The three subjects to be discussed are: foreign policy, the relations with the Communists, and, I think, the military situation. There will be set speeches by ministers and no discussion. Madame Chiang Kai-Shek is one of the most interesting and im- portant figures in the government. She no longer has any official rank, having given up the airforce after she discovered that her sister was making millions out of it. She talked to me chiefly about the problems of relief and her work with was orphans, but I ILID convinced that she plays an important political part. Her adviser, Mr. Donald the Australian, is now in Honolulu but is said to be a movin back to Chungkinn. Mademe Chiang is so Americanized that I believe her pro-democratic sentiments are real. However, she can do very little to diminish the rigors of a police regime and the concentration camp. She left her husband last year and went to stay with her sister in Hongkonz. I believe that this was because some of her Methodist Your Ladies had been ar- rested on charges of Communism. The Generalissimo feels completely lost without er and insisted on Cetting her back. She handles all his forein correspondence and is invaluable to him because she is an educated woman and knows the West. I an convinced that she writes everything he has to say on foreign affairs. He is himself a very limited and uneducated man and could never have filled the part he plays in the world without her. Her pro-democratic sentiments, however, are not strong enou to make her fight the Ho Yin-Ching Cang. They are all waiting to see what is roing to happen in Russia, and apparently most of them expect & German victory. I an told that they expected it to come very much sooner than this. I went to the Soviet Embassy on the day of the anniversary of the Revolution, November 7, and all the leading figures of the rovernment turned up there, whatever their relations with the Russians may have been. General Magruder has had a good many opportunities to get the Russian point of view on military matters and I gather that they have been very frank with him. The Communists are outlawed in Chungking but they keep a representative of the 8th Route Army there. The 8th Route Army and the Communist rezime in general is centered at Yenan in the northwest. But Chiang Kai-Shok has put his best army along their western flank to out them off from communication with Russia. He has also blockaded them by means of a system of strong points and nobody is allowed to Co into the area. Guerillas and Countrists, however, continue to firht the Japanese in all the areas mort of the rivor. The 4th Houte Aray which WILD supposed to have been exterminated earlier this TORT by Chian Kai-Shek is actually firhtin at present moment in Shantan I believe that this Cuerilla force Toes right up to the walls of Share hai. The Guerillas do for more actual fighting than the regular troops do. My guess about Japanese action is that they will attack the Burma Road across the Province of Yunnan. The most obvious point of attack is up the French railway from Laoka in Indo China. The terral is mountain and jungle, very difficult. Nevertheless, all the hi-hest authorities in Chungking believe that the attack will be made ore. Once the Japanese get beyond that first 100 miles, I can't sec any reason why they shouldn't get to Kurming all right and cut the road. Except for Chennault's force, there is no Chinese airforce any more. I have no idea what they did with their planes but there are none to be seen. Naturally, no Russian aid is arriving. In the event of WILT between Japan and the U. S., a lot of people in Chungking seem to think Canton would be retaken by R combined American British and Chinese action. If this ever happened, it would save a lot of attacks over the Burma road which is extremely unsatisfactory at the best. The Lend-Lease supplies could then CO in at Canton and over the railroad. In my opinion our best Friends in Chunkin are Qwo-Tai-Chi, the Foreign Minister, Madane Chiang, and the people in the Medical and Public Health Service. do Yin-Ching is a menace who should be watched closely. His gang is in fairly constant communication with Wang-ChinWei's gang at Manking. There are fairly frequent meeting S of these supposed enemies in Hongkon Hongkong is, of course, A reat center for political intrigue. Nobody in Chungking speaks very violently arainst Hang-Ching-Nei. I am convinced that if the events of the world should turn very strongly in Germany's favor, this Ho Yin-Chin gang would make an effort towards an arrangement with Japan. All summer lon they have expected Japan to withdraw from China and move into Siberia. Japan's failure to do so has upset their calculations and, of course, at the present moment they are playing the pro-American card very strongly. But they are not to be trusted in any way. They look for great personal benefits from the Lend-Lease bill and unless they are watched they will get them. They are all very adept in the science of lining their own pockets. Even the most honest of them such as Mr. T. V. Soong appear to have almost innumerable houses and motor cars all over the place. T. V. has three houses in Chungking and three or four in Hongkong, mostly very big places. He has another at Kumming and 8 great many scattered around elsewhere. Chien Kai-Shek has about a dozen houses. All of the Chungking big shots have country houses in the hills to which they retire during the bombing season. The president, Lin Sen, is said to be in bad health and, with any luck, may die soon. If this happens it may be possible to et rid of General Ho Yin-Ching by making him president where he would be relatively out of harm's way. Just now he is a very dangerous element in the whole situation. 368 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE December 4,1941 TO FROM Subject: Secretary Morgenthau Mr. Kamarck Summary of O.C.I. Report on Political Tendencies of American Ukrainians 1. The Ukrainian organizations in the United States are split into two groups: the "nationalist" or proGerman and the pro-Soviet. The "nationalist" leaders work closely with Germany and the Nazi Party and are active in carrying on Nazi propaganda in the United States. 2. The Ukrainian "nationalist" pro-Nazi elements carry on their activities through their Ukrainian mutual aid insurance societies. These societies have millions of dollars of assets and are possibly subject to the Foreign Funds Control. The report, therefore, recommends that funds of these organizations be frozen. 369 COORDINATOR OF INFORMATION WASHINGTON, D.C. December 2, 1941 Dear Henry: You might want to read this carefully because of the concluding paragraph on page 14. Sincerely, Bill William J. Donovan The Honorable The Secretary of the Treasury Washington, D. C. 370 THE POLITICAL TENDENCIES AMONGST THE POPULATION OF UKRAINIAN DESCENT IN THE UNITED STATES onfidential No. 4 . C 371 THE POLITICAL TENDENCIES AMONGST THE POPULATION OF UKRAINIAN DESCENT IN THE UNITED STATES The centres of Ukrainian activity in Europe. The centre of all the Ukrainian groups in Europe of a more or J.ess irredentist nature was before the war, and is during the present war -- Berlin. These groups used to believe and believe now in nationalistic ideals, based on the aim to create the Ukrainian state out of Russian, Polish, Hungarian and Roumanian territories. Within the central Berlin area two basic revolutionary political tendencies are at work since the end of the first world war; they are represented in the Hetman Organization and in the Organiza- tion of Ukrainian Nationalists ( the Ukrainian abbreviation OUN ). Both these parties were instrumental in shaping the trends of the tendencies for Ukrainian independence. The Hetman Organization, under the direction of Hetman Paul Skoropadski, united for the most part Ukrainian elements, coming from the Russian areas. This organization, created under the pressure of the German authorities with the Army of Occupation in 1917, had at first monarchistic and rightist tendencies. In exile it constituted an organization with a limited number of supporters and with headquarters in Berlin and branches in Prague, London and the United States. It was financed solely by Germans, who kept it alive in expectation of the realization of its aims in Eastern Europe. With the advent of Hitler, this organization secured not only a stronger support but also a certain influence, among others with Rosenberg. The nucleus of the Organization of Ukrainian Nationalists, which during 1921 - 1939 was subject to many transformations, was composed at first of political emigrants and soldiers as well as of members of the revolutionary government of Western Ukraine, who after the occupation of Eastern Galicia by 2- 372 Poland took refuge in Germany, Austria and Czechoslovakia. In the years 1921 - 1939 the ranks of the Ukrainian Nationalists Organization were increased by Ukrainian emigrants, deserters, students on study - from Poland. This organization too has been supported financially by Germany mainly for the purposes of deversion and espionage in Poland as well as for political reasons; the closer being to foment confusion; the more distant - the realization of German imperialistic aims in the East. It was headed by Konowalec and after his murder - by Melnyk, The Organiza- tion of Ukrainian Nationalist was and is of a republican and radical-social character. Both organizations since the advent of Hitler joined the ideology of totalitarianism. Both organizations used to receive and are receiving instructions in various fields ( espionage, diversion, propaganda, political problems) from the following Reich's cells: 1/ Abwehrabteilung at the Reichswehr-Ministerium which has a Ukrainian section. 2/ Aussenpolitisches Amt, which is Rosenberg's bureau and more strictly the bureau for foreign affairs of the Hitler party. Rosenberg's assistants in the Ukrainian matters at the outbreak of war were: Dr. Leibbrandt and Schikedanz. 3/ Auswaertiges Amt, where major Heiden-Hagen was in charge of Ukrainian affairs at the outbreak of war. 4/ Dienststelle, Ribbentrop's special bureau outside the Auswaertiges Amt, which had an especially created Ukrainian Department. 5/ Ministry of Propaganda - the Ukrainian press and literature. -3 - 373 This constitutes a very general outline of the centres of Ukrainian activity at the service of Germany. The details, pertaining to the activities of Ukrainian centres in Europe will be contained in a treatise to follow. A general outline of the most important Ukrainian organizations and political centres in the United States. The present treatise gives a general picture of Ukrainian activities in the U.S.A.; during the next phases of collaboration the political activity of various organizations, groups and persons from among the American nation of Ukrainian origin will be treated in more detail. The Ukrainians in the United States are organized in political associations or mutual aid-insurance societies, the statutory activities of which are restricted to a mutual aid of a material character. These latter societies have considerable capitals, amounting to millions of dollars. Contrary, however, to their legalized constitutions, all the mutual aid organizations are active also in the political field, these activities being to a considerable degree tied up with the Ukrainian activities in Europe. Because their political program bears a close similarity to the basic propaganda theses of the axis powers and taking into considera- tion the fact that the direct contacts with Europe and especially with Eastern Ukraine and Russian Ukraine are at present enormously difficult - it is highly probable that these organizations cooperate with the diplomatic posts of the axis powers in the U.S.A. Below are discussed activities of various organizations, their political tendencies, their press and publications. (4) 374 Organization for the Rebirth of Ukraine. ( Orhanizacia Derzhawnoho Widrozdzenia Ukraini - ODWU ). This is one of the financially strongest organizations. It has its own fund designated to help the fight for Ukraine's liberty. It is composed of three groups - the male, the female and the youth organizations. The female organization constitutes the so called Ukrainian Golden Cross. This organization is not a member of the International Red Cross for it represents a stateless people; it is also busy in the political field. Organization for the Rebirth of Ukraine has as its aim the achievement of the independence of Ukraine, which should be created, according to the organization's wishes, out of territories not only Russian, but also - Polish, Hungarian and Rumanian. In realizing these plans, it is in the closest contact with the Organization of Ukrainian Nationalists in Europe, mentioned in the preceding paragraph. It represents the pro-Hitler ideology and, hoping for independence by Reich's will, it conducts Nazi activities in the United States in all branches. The headquarters of the Organization are in New York, 149 - 2nd Avenue, in an old house. The president of the organization is Dr. Aleksander Granowskij, professor of Minnesota University. He was an Ukrainian officer. At the head of the Ukrainian Golden Cross ( also in New York ) is Stefania Galiczyn and the youth organization is headed by Chester Monastyrski and Roman Lapica ( New York ). The central authorities of the organization for the Rebirth of the Ukraine are further in direct contact with the most important leaders of the Organization of Ukrainian Nationalists in Berlin. The means (5) 375 of establishing contact ( probably through the German Embassy ) constitutes a subject of our interest. The German intelligence service sends from time to time its emissaries to this organization. For instance among others eng. Mikolaj Sciborski ( during the present war ) and Omeljan Senyk Hrybiwskij ( before the war ) were sent to it; they conducted Hitler activities within the U.S.A. and lately mysteriously disappeared in the Ukraine, joining the staff of German intelligence service. The Organization for the Rebirth of Ukraine is closely mixed up with the affair of Dr. Viereck and Prescott Dennett. Prescott Dennett, owner of the Press Agency Columbia Press Service, who has been arrested for conducting Hitler propaganda in the U.S.A., was at the same time a man of trust of the Ukrainian Nationalists; his office served as an office of the secretaryship of the Ukrainian Congress, which sent out propaganda letters and pamphlets. There exists a suspicion that many members of the Organization for the Rebirth of Ukraine are at the service of Germany, that they collect data pertaining to the industry and defense of the U.S.A. In Pittsburgh, Pa., there has been even established a special film concern, which under the guise of artistic work, intends to take pictures of all objects of interest to the German intelligence service. The activities of this organization have also been the subject of the Dies Committee investigation. ( v.9, pp 5259 - 5321 ). Organization for the Rebirth of Ukraine publishes two monthlies - one in English "The Trident", another in Ukrainian - "Ukraina" ( the address identical with the address of the organization's headquarters ). In addition, in the organization's headquarters, there is a library which sells nationalistic pamphlets imbued with definite Hitler ideology. (6) 376 United Hetman Organizations. ( Soyuz Hetmanciv Derzhavnykiv ) This group cooperates closely with Hetman Skoropadski's organization in Berlin. It represents thus the political views of this organization. With regard to tactical problems, it often coordinates its attitude with that of the Organiza- tion for the Rebirth of Ukraine. It deploys a great activity. It also is in close contact with the Berlin organization and, similarly to it, is at the service of Germany. The instructions come either from Hetman Skoropadski or else directly from Rosenberg's Aussenpolitisches Amt. The headquarters and the main strength of the organization are in Chicago ( 845 N. Western Ave. ), but the members of this organiza- tion are scattered generally all over the States. The main activities of the Hetman Organization are concentrated in the hetman sicz units, formed into military detachments and organized militarily with the ranks of hetman, setnik ec.t. The relations between the Hetman Organization and the Greek- Catholic church are good. The son of Hetman Skoropadski Danylo Skoropadski, who lives permanently in London, visited the States already during the war, in order to establish contact in his father's name with the American Hetman Organizations. The most important person in this organization is Aleksander Szapowal ( the address of headquarters ), who at the same time edits the organ of the organization: "Our Banner" ( Nasz Stiag ). The outstanding figure is John Koos, who as late as on September 30th, 1938, sent Hitler a telegram congratulating him that he managed to settle the minorities problem in Europe. (7) 377 Ukrainian National Association. ( Ukrainski Narodny Sojuz - UNS ) Headquarters: 81-83 Grand Street, Jersey City, N. J. Founded in 1894, this organization has about 400 branches in the U.S.A. It has about 40,000 members and a joint-stock of 6 million dollars. While in principle it is a society of mutual assistance, its activity is largely political. The Ukrainian National Association represents a definitely pro-Nazi trend and pursues an active propaganda on this line, which, it is true, has been rather disguised in recent times. The most important individuality among its members is Dr. Luka Myszuga ( the address of the headquarters ). Although he holds no official position in the organization, he must be considered as its real leader. The difference between the Ukrainian National Association and the Organization for the Rebirth of Ukraine or the #hetmanians consists more in tactics than in ideology. The Ukrainian National Association is less revolutionary in its methods and hopes to attain the same objectives by means of political agreements. There is a close personal contact between the Ukrainian National Association and the Organiza- tion for the rebirth of Ukraine, since almost all the executive officers of the Ukrainian National Association are members of the Organization for the Rebirth of Ukraine. Dr. Myszuga was invited in 1939 by the German Ministry of Propaganda to go to Europe, visited Berlin and Vienna, where his broadcast was introduced by Dr. Goebbels. He remains in touch with the Ukrainian "Espionage and Sabotage School" in Berlin, on behalf of which Omelian Senyk - Hrybiwskij (mentioned already on page 5) visited the U.S.A. The mail of the latter during his stay in this country was addressed to the Ukrainian National Association or to Dr. Myszuga. -8- 378 The Ukrainian National Association publishes the daily "Svoboda" ( 81-83 Grand Street, Jersey City, N. J. ) where a series of articles on high explosives appeared early this year. They contained instructions how to manufacture bombs and were written by Dmytro Horbach, chemical engineer, who was member of the Ukrainian guerilla detachments formed against Poland during the Polish campaign. The president of the Ukrainian National Association is Mikolaj Muraszko and its general secretary, Dymitr Haliczyn, both of them counting among the leaders of the Organization for the Rebirth of Ukraine. Dymirt Haliczyn is in possession of all the addresses and contacts with Nazi agents in Europe. The liaison officer between the Organization for the Rebirth of Ukraine and the Ukrainian National Association is a certain Eugeniusz Lachowicz ( the address of the headquarters ). . An important role in the Ukrainian National Association is played by the two brothers, Michal and William Piznak. Michal Piznak is lawyer and counsel to the Ukrainian National Association. His office is located at 51 Chamber Street, New York City, and his residence is at 1225 East 95th Street, New York City, where he lives with his brother. He was the most active member of the reception Committee in honour of Danilo Skoropadski, son of the "Hetman", who visited the United States on behalf of the German Ministry of War. William Piznak was arrested by the Federal Authorities in New York according to the Sullivan Law. Police found while searching their premises a large number of arms machine guns, granades and gun powder. William Piznak explained that he was a collector of arms. () 379 Dr. Myszuga is in contact with men of science whom he uses for pro-German and Ukrainian propaganda purposes. Recently he delivered a lecture at Columbia University, which had been organized by the Section of Eastern European Languages and the Ukrainian National Association. His lecturing activities are supported by Prof. Clarence Manning; this latter is a friend of Dr. Friederiech Anhagen, who was indicted under the foreign agent's registration act, for not complying with the registration law. The Ukrainian National Association supports the publishing activity of the Yale University Press. Recently two books have been published: "The History of Ukraine" and "Bohdan, Hetman of Ukraine". Both books decidedly anti-Russian and anti-Polish, advocating the idea of an independent Ukraine. It may be supposed, that since the German assets in the United States have been frozen, the Ukrainian National Association from its considerable capital finances German propaganda. National Aid Association. (Ukrainska Narodna Pomicz) A society for mutual assistance, uniting Orthodox Ukrainians under the leadership of Bishop Teodorowicz. Publishes a weekly "Narodne Slowo". Is under the influence of the Ukrainian National Association, to whom it is politically close and under whose political guidance it works. The most outstanding personality in this is Mr. Curkowski. Anti-Polish, anti-Soviet and pro-German trends dominate. ( Providence Association. of Ukrainian Catholics in America ) 380 ( Prowidinnie ) Headquarters: 817 North Franklin Street, Philadelphia, Pa. A society of mutual assistance, uniting the Ukrainian Catholics. Before the war it had little political ambitions, but recently through its daily organ "America" shows a trend coming close to the "hetmanians". This change was brought about by a new collaborator, Bohdan Katamaj, who considers himself representative of Skoropadski in the U.S.A., and probably has been entrusted with the task of winning new adherents among the Greek-Catholic clergy. Before the war, Katamaj took part in the Ukrainian organization in Lwow and collaborated with the Ukrainian daily, "Ukrainski Wisti". He was accepted to the Providence Association as organizer of the youth section. Here he won many sympathisers and eventually worked among the older members as well. On March 13th, 1940, Katamaj was in conference in Berlin with Skoropadski, who probably gave him his instructions. His influence in the Providence Association is gradually strenghtening from which it may be deducted that the pro- German policy of this organization is increasing. Elections were held this month for the executive committee of this organization for 1942. It was undoubtedly due to the influence of Katamaj that the present chairman, Rev. Lotowicz, failed to be reelected, his place being taken by the Rev. Wlodzimierz Bylynskij. Katamaj is in close contact with Bishop Constantine Bohaczewski and his aids, Rev. Tarnawski and Seneszyn. He also was in touch with Bishop Buczko, who, after having done similar work to Katamaj's, left the United States on November 6th for the Vatican and probably later for Lwow. Katamaj is responsible for lessening the influence of Wlodzimierz Lotowicz in the Providence Association, a former Secretary General of the Organization and former 381 editor of "America". Lotowicz represented but a moderate filo-German tendency. Ukrainian Workmen's Association. Headquarters: 524 Olive Street, Scranton, Pa. This is also a mutual assistance society of about 25,000 members with a joint stock of approximately 4,000,000 dollars. It was founded to counter-balance the nationalist organizations and aimed at uniting the democratic elements among the Ukrainians. In this field several of the best known Ukrainians such as Miroslaw Siczynski, Wlodzimierz Lewicki, Miroslaw Czyz, Nikifor Grigoriew, were active members. They would like to see Ukraine as an independent state, based on democratic lines. The rather undecided political ideas of this organization at a time when different political trends among the Americans of Ukrainian descent were "increasing led to some fundamental changes within the Association during its Convention, held on April 19-24, 1941. At this Convention the communistic elements prevailed. The former leaders, with the exception of Czyz, were removed from the executive committee of the Ukrainian Workmen's Association and the daily "Narodna Wola" published by the organization. These changes were brought about by the communistic elements, who demanded that the Ukrainian Workmen's Association take an outspoken pro-Soviet stand. Unknown communistic leaders headed by Korpan were elected. One of these, S. Stephen Mostowyj, went as far as to organize a branch of the Ukrainian Workmen's Association in form of a press agency under the name of "Ukrainian Committee to Combat Nazism". Therefore, today the organization is under communistic influence. - 12 382 The former leaders left this organization and joined another named the "Defense of Ukraine", which for a long time had been without any political importance. For the last few months this latter has been publishing a fortnightly paper "Hromacki Holos". Ukrainian Section of International Worker's Order. League of American Ukrainians. The activities of these two organizations is connected with American communist activities in this country and like them went through different changes. Up to the time of the outbreak of the Soviet-German war the Ukrainian communists were adherents of isolationism and opposed the U.S.A. foreign policy. But from June 22nd their viewpoint has changed. It should be stressed that the Ukrainian communists work under instructions coming from Moscow, which they fulfill to the letter. Favorable political situation enabled the spread of communistic propaganda among the Ukrainian masses and was undertaken on a large scale. It was directed in two different ways - it tends to unite all the undecided and democratic elements and fights unconditionally the Ukrainian nationalists, disclosing their contacts with Hitler's agents. The Ukrainian communists are active in every field, publishing books, periodicals, pamphlets, organize meetings and lectures in all Ukrainian centres. Their main object seems to be to exploit the present favorable situation in order to win even for the less favorable future the largest possible circles. The communist daily "Ukrainski Szczodienni Wisti" plays a very important part in these activities. Under the slogan of "aid to Russia" meetings are held throughout the United States, where communist propaganda is skillfully introduced. 383 Ukrainian communists are touring the United States. Among them the most prominent are: M. Tkacz, editor of the "Ukrainski Szczodienni Wisti", Tarnawski and Kniazewicz. The Ukrainian communists announced their intention of participating in the Slavonic Congress, scheduled for November 21-23, in Pittsburgh. It appears that the Congress was intended to be another platform for communist propaganda, but as most of the important Slavonic organizations refused to send their representatives it was canceled. The present treatise is intended to give a general survey of Ukrainian activities in this country. More detailed data is being prepared. As we may deduct from the above the Ukrainian groups in the U.S.A. are dominated by two distinct tendencies pro-German and pro-Soviet. The nationalist organizations have formed a sort of unity in their pro-Nazi policy and many facts seem to prove that they are in close contacts with Germany, either through the nationalist organizations in Berlin or through some yet unknown Nazi agents in U.SA. Within the last few months it was observed that the Ukrainian nationalist tried to keep their activities under cover. This may be explained by the fact that they are carried on within the associations of mutual assistance. These associations dispose of considerable funds and fear investigation by the Federal Authorities and the possible freezing of their assets on charges of anti-American activities. The same fact explains why the opinions of the nationalist Ukrainian press less definite. 14 - 384 Therefore, investigation should be directed not against the organizations themselves, but against their leaders, who hold the direction of their policies and respective documents. It would be advisable to take note of the expenses of different Ukrainian Societies and eventually freeze their funds, as it is obvious that after the freezing of the German assets in this country the Ukrainian organizations are financing pro-German propaganda. 385 Coordinator of Information THE WAR THIS WEEK No. 8 SECRET November 27 - December 4, 1941 The spectacular rout of Axis forces on the Rostov front and the blunting or renewed drives to encircle Moscow have again awakened hope that the power of the great German thrust to the east may finally be spending itself. On the other hand, the opposing armies in the Libyan desert are still locked in indecisive conflict, new and far-reaching demands are believed to have been made at Saint Florentin on the now flaccid leaders of the Vichy government, and war and peace are resting in uneasy balance on the knife-edge of the Kurusu negotiations. The developments of the week offer the basis for moderate optimism on the part of the enemies of the Axis. CRISIS IN THE FAR EAST Fresh massing of troops in Indochina has rudely shaken the negotiations with the Japanese. President Roosevelt has asked for a formal explanation of this development, and Secretary Hull has spoken sharply and discouragingly of the intransigence of the Japanese. 386 -2No fewer than 20,000 soldiers are believed by our consul to have disembarked at Saigon during the five days prior to November 26, and the Navy confirms a report that seventy Japanese transports carrying about 30,000 troops and large quantities of war materials are moving southward from the central Chinese coast. Total numbers of troops in southern Indochina are now estimated at somewhere between 70,000 and 100,000, a figure which suggests operation not merely against Thailand but beyond. MID in Hanoi estimates that Japanese material as of November 25 included 300 cannon, 260 tanks, 600 automobiles, and 3400 tractors and trucks. These are being rapidly augmented. Our consul at Saigon further reports that the public no longer views the preparations against Thailand as bluff, and MID believes that the occupation of Thailand offers the most likely line of action. The requisition of a big hospital and the excellence of imported equipment lends color to the belief that the Japanese mean business this time. The weather also invites the invasion of Thailand. The sharply demarcated rainy season is now coming to an end. The -- 387 fields are drying, and sometime within the first two weeks of December they will probably be in condition to permit the movement of tanks and other vehicles, even off the highways. The best evidence suggests that the Thai will offer real resistance only if the Anglo-Saxon powers come strong- ly to their aid. Commentary on this attitude is offered by the baldly candid statement of the Thai Minister of Foreign Affairs to the British Minister in Bangkoki Thailand, he said, has little faith in British promises in the light of recent experience of European countries with British performance. Despite the essential secrecy enveloping most of the Kurusu negotiations, indications point clearly to a hardening of resolution on both sides and the rapid formation of a diplomatic impasse. British determination is reflected in the arrival on Tuesday at Singapore of the newly created Eastern Fleet of the Royal Navy headed by the Prince of Wales and including at least one other capital ship. On the other hand, the Associated Press story from Manila on December 1 -4. - 388 gives an erroneous impression of the combat readiness of the American volunteer airforce organized in Burma under Colonel Chennault to fight for Chiang Kai-shek. The fact is that some of the planes to be used by this American group still lack spare parts, and while supplies are being rushed to them, they are not yet ready for sustained combat duty. TOWARD THE ENCIRCLEMENT OF MOSCOW The Battle of Moscow is still the touchstone of the immediate future. The Nazi pincers to the north and south of the city have been rapidly extended during the past week, and although counteroffensives have blunted the German drives, the Soviets admit that the situation remains acute. Observers both here and in Moscow point out that the Germans must succeed before the turn of the year or postpone their offensive until Spring. With frozen roads and riverd, conditions can normally still be exploited in December, but later the heavy snows and intense cold interpose severe handicaps on military action. THE VALUE OF MOSCOW Moscow is a prize well worth the tremendous effort of the Germans. Its fall after encirclement would probably entail further heavy losses in Russian equipment and captured -5- 389 troops. It would mean the disruption of the railroad system in European Russia (which fans out from the Capital) and serious interference above all with the north-south com- munications near the war zone. If the whole of the greater Moscow industrial area were taken, the country's industrial capacity would suffer a very heavy blow (estimates of indus- trial capacity in this area run as high as 30 per cent of the total for the U. S. S. R.). Finally the fall of Moscow would have widespread psychological repercussions, favorable to the Nazi cause in such countries as Japan and France and depressing to the morale of the Russians and of the antiAxis powers generally. Russia is now weaker, in relation to Germany, than at the outset of hostilities, according to MID's estimate of the situation for the next four months. But organized Russian armies standing behind the Volga (and perhaps as far west as Moscow) are forecast for the coming spring. Limiting factors in the transportation system handicap an effec- tive American contribution to this critical struggle, the report notes. Allied aid has been planned on the basis of a total Russian import capacity of 500,000 tons a month, but -6- 390 it is not certain that even this inadequate figure can be reached. PARADOX AT ROSTOV: A NAZI RETREAT The Germans have finally suffered a striking reverse, and have been driven back from the key city of Rostov in what the Russians describe as a disorderly rout. Having announced the capture of Rostov with radio fanfare only a week ago, Nazi propagandists were loath to yield the city so soon and have been fighting a rearguard action: first, the withdrawal was to permit a bombardment of Rostov (reprisals for Russian guerrilla activity), now it is rationalized by unhappy reference to the masses of men the Russians have been willing to sacrifice. Meanwhile the Russian press and radio is jubilant over the retreat and declare that the myth of German invin- cibility has finally been shattered. At a moment when the Germans are throwing every ounce of strength into the strug- gle for Moscow, however, they may well be willing to accept a temporary reverse in the south which they feel can be retrieved later in the winter. -7- 391 THE FIGHT FOR LIBYA The initial optimism of the British (based upon the knowledge of superior force) has been shaken by the sharp resistance of the Germans and notably by the break-through southeast of Tobruk which has reunited armored units and has resulted in the fall of Sidi Rezegh and Bir-el-Hamid, Nevertheless the Axis armies which have not been appreciably reinforced in past months still occupy a difficult position, and Axis radio efforts have reflected no great optimism. Rome radio first stated aggressively that Axis forces were wiping out the British, and then turned to the line already adopted by Berlin--that the Libyan theater of war is of minor importance to the Axis cause. Forecasting the prospects for the entire Middle Eastern theater during the next four months, MID does not anticipate a grand scale strategic offensive by either side. The limited strategic offensive of the British in Libya, if successful, probably would force Germany to attempt entry into Tunisia and to occupy Algeria and Morocco. For their part the British probably will not be able to carry their -8- 392 advance through Tripolitania without a considerable pause for reorganization. MICE AND MEN AT SAINT FLORENTIN of the results of the meeting of Goering with Petain and Darlan on Monday there is nothing yet beyond specula- tion, to which, however, some limits may appropriately be set. From Bern the widely rumored demands of the Nazis are said to include: permission to use French North Africa as a base of military operations, the use of French ships to transport troops to Africa, and the cooperation of the French navy with personnel chiefly German. The Nazis have officially requested facilities at Bizerta, Mers-el-Kebir and Dakar, according to an official of the Foreign Office in Madrid. It is difficult to believe that Vichy has either the will or the strength to resist fresh German demands. Hitler can always flaunt the threat of complete occupation of France. At the same time he can offer very attractive concessions to the men of Vichy, which Darlan at least could readily put to political use. Hitler can capitalize 393 9- Petain's paternal anguish for the imprisoned poilus and offer their return; he can offer the #liberation* of part of the occupied zone. Darlan might even be willing to accept the Nazi occupation of North Africa, which could be termed "protective custody" of the colonies against the dangers of British attack. #RESISTANCE* IN NORTH AFRICA In the face of threatened German action, stirrings of resistance are in evidence in North Africa. Weygand's dismissal has made a deep impression in French circles there. From Tunis it is reported that there is open discussion of North Africa declaring itself free, and in Algiers General Delattre de Tassigny is mentioned as potential leader of the resistance. Such a govement could only hope for success with sub- stantial foreign assistance. This might come from a more rapid and spectacular British victory in Libya than forecasts now suggest is likely. Our consul in Tunis declares that such assistance should come from this country-and promptly-unless we wish to close up shop and write off our investment in that part of the world. A more modest program is offered by Pierre Zyautey, nephew of the great Moreecan, 394 who urges that, if we wish to maintain our prestige in North Africa and preserve that area as an eventual military base for the expulsion of the Nazis from Italy and France, we should at least immediately resume negotiations on some form of economic aid. LEND-LEASE AID FOR THE TURKS The President took a notable step forward when he extended direct lease-lend aid to Turkey on Wednesday. It is believed that this measure will have a significant effect in solidifying Turkish resistance to Nazi threats at a time when the future policy of the Turks is of vital concern to both sides. BRAZILIAN APPROBATION AND SUSPICION Brazilian comment on our action in Dutch Guiana is reported as very favorable, although the public is disap- pointed that Brazil did not participate. On the other hand, the Brazilian army continues to be prey to ugly suspicions that our army intends to #seize" the northeastern sector of their country. Feeling has sufficiently cooled, however, to - 11 - 395 permit us to proceed with earlier plans for the establishment of naval plane patrols at Recife and Maceio. (Typed from Varitype Copy) 396 Paraphrase of a Secret Confidential Restricted Message received at War Dept. at 11:55 a. m. December 4 CONFIDENTIAL 1941 Xxits From (Classification Stamp) London Received in I.B. Filed 3:30 3:50 December 4 . 194..1 X p.m. December 4 194. 1 No. 1220 1. The following is derived from an unofficial source but is thought to be sound: a. British correspondent in the Libyan battle on the night of December 3 - 4 dispatched by wire the statement that a tank assault launched by the Nasis was repulsed only by three British batteries of 25-pounders from stations elmost in the infantry positions. b. A comment of a British officer was that victory for one side or the other in the next phase night depend on the relative ability of the wo in repairing disabled tanks in the present quiet period. a. It is reliably reported that the R.A.F. has air superiority and is able to deny dive bombers access to ground troops. More effective support of tanks by planes 1s still required. d. The British 2-pounder gun suffers by comparison with the 6-pounders used by Next tanks. Despite this weakness in armanens, 3ritish tanks are faster and more unreaverable, 2. The following is a summary of War Office information a. British mechanised groups maintain their attacks on the Axis on the Tobruk - Bardia and Trigh Capus so roads. Similar groups met Mast light mechanised formations at Gambut and it is reported that motorised elements of about 1,000 can strength had proceeded AS far as Sidi Azeis. The Axis is preparing defensive positions at E1 Gobi. 3. The Office of Military Operations and Intelligence released a I.B.No. 6. 12/4/41. 337 Paraphrase of Secret Confidential Restricted Message received at War Dept. CONFIDENTIAL 194 at p.m. (Classification Stamp) From m. Filed . 194. m. a. m. . Received in I.B. lp.m. 194 No. Page 2, statement night of December 3-4, a summary of which follows: 8. It is wrong to assume that the Libyan campaign is ap- proaching its termination. Large Axis elements are still to be disposed of West and Southwest of Tobruk and the reanants of the three Axis armored divisions may continue to be dangerous. b. Speaking generally of the Libyan campaign it was stated that so far, fighting might be described as "The Battle of the Parallelogram in which a large majority of the Axis positions in the Sidi Ouar Sollum sector have been eliminated and those which are still maintained along the coast are out off. Axis advanced supply depota have been taken and the largest portion of the térrain in the parallelogram has been mopped up. Only in the Northwest angle are to be found the remnants of three Axis armored divisions. ROYOR. I. B. No. 18/4/41 6 Indicate distribution by check for one copy. by figure for more than one. Message center Indicate recipient of particular copy by drawing circle. Ch.IB DEPARTMENT C. B. 17-B x MA ONI 2 GHQ OASW SW A x x FL CIB Div. Mr. Air OCAC 5 X H 10 WPD Y BES x CAAY BW C/B USW ACB, 0-2 ACS, 04 AC8, 0-4 X 5 X a WES OES EES LAS Armd. YES I X A State Classification Stamp DAD N.A. Mission RAN OLIA RB Treast x ary Ordnance Field Artillery Infantry GOVERNMENT PRINTING OFFICE 15-24181-1 CONFIDENTIAL 398 RESTRICTED G-2/2657-220; No. 560 M.I.D., W.D. 11:00 A.M., December 4, 1941 SITUATION REPORT I. Eastern Theater. Ground: The Germans claim Russians made an attack over the ice at Lake Ladoga against Schlusselburg, which was repulsed. The attacks north and south of Moscow continue. In the Donets Basin, the Germans admit they are fighting 40 miles west of Rostov. Germans claim they have stopped the Russian advance. Air: In reporting that new Russian attempts to break out of Leningrad had been frustrated, the German High Command stated today that the Nazi Air Force has been bombing Leningrad day and night and has destroyed a section of the Murmansk railway. II. Western Theater. Air: No reports. III. Middle Eastern Theater. Ground: The Axis reports only fighting of a local character. The British say they have turned to the defensive south of Sidi Rezegh with line of communications extending along the Trig el Abd from Sheferzen to Bir el Gobi. Patrols to the Sidi AziezCapuzzo areas continued. Bardia is held by the Axis. Weather has been very bad, with sand storms and rain storms. Both forces are reorganizing after the recent battle. No further news from Long-Range Desert Patrols south of the Gebel el Achdar and on the coast northwest of Agedebia. No news from the column at Gialo. RESTRICTED