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Mr. DOUGLAS. Mr. President, I ask
unanimous consent to introduce, out of
order, a joint resolution for appropriate
reference, sponsored by the Senator
from Arkansas [Mr. FULBRIGHT], the
Senator from Iowa [Mr. GILLETTE], the
Senator from New Hampshire [Mr.
TOBEY], the Senator from Vermont [Mr.
FLANDERS], the Senator from Minnesota
[Mr. THYE], and myself.
The PRESIDING OFFICER. Without objection, the Senator's resolution
will be received and read.
The joint resolution (S. J. Res. 45)
to vest in the duly constituted authorities of the Federal Reserve System the
primary power and responsibility for
regulating the supply, availability, and
cost of credit in general, introduced by
Mr. DOUGLAS (for himself, Mr. FULBRIGHT,

and Mr. THYE), was read by the Chief
Clerk, as follows:
Whereas the primary power and responsibility for regulating the supply, availgiillty,
and cost of credit in general is, and should
remain, vested in the duly constituted authorities of the Federal Reserve System;
Whereas policies with respect to financing
the Federal debt, as established by the Secretary of the Treasury, have a direct influence on the supply, availability, and cost of
credit: Now, therefore be it
Resolved, etc., That (1) notwithstanding
any other provision of law, including any
provision of law granting emergency powers




to the President of the United States, the
primary power and responsibility for regulating the supply, availability, and cost of
credit in general shall remain vested In the
duly constituted authorities of the Federal
Reserve System* and (2) the policies and actions of the Secretary c" the Treasury relative to money, credit, and transactions affecting the Federal debt shall be- made consistent with the policies of such Federal Reserve authorities.
Mr. DOUGLAS. Mr. President, I ask
unanimous consent that I may speak
briefly on the joint resolution.
Senator does not need to secure unanimous consent for that purpose.
Mr. DOUGLAS. Very well. Mr. President, six Members of this body, whose
names I have previously given, are today
introducing a joint resolution which does
two things, namely, first it reaffirms the
intention of Congress that the Federal
Reserve shall have the primary responsibility for regulating the supply of credit
and second it provides that the transactions of the Treasury in connection
with the public debt shall be made consistent with those of the Federal Reserve System.
The purpose of this resolution is to
give added courage to the Reserve System so that it will not be forced by the
Treasury to buy an unlimited supply of
Government securities. For such unlimited purchases merely swell the reserves of banks in the Reserve System
and hence make possible a six times
greater expansion of bank loans aqfl a
consequent increase in prices. Such
purchases by the Reserve have in fact
been largely responsible for the inflation
which has occurred since the outbreak
of the Korean hostilities. We can largely
prevent inflation if we adopt two policies: First, balancing the budget and
putting military expenditures on a payas-you-go basis so that the banks will
not have to create credit to finance Government deficits; second, preventing the
undue expansion of bank loans to private business. It is necessary for us to
deal with both of these problems. To
settle one without the other will be ineffective and incomplete. The resolution
is an attempt to deal with the second of
these issues.





The core of the difficulty to which this
resolution addresses itself does not lie in
an overlapping of legal powers, since the
legal powers of the Federal Reserve in
the field of credit regulation and those
of the Treasury in the field of debt management are generally clear-cut. The
difficulty arises because the policies of
either agency in its field cannot help affecting directly the policies of the other.
The purpose of the resolution is to make
it perfectly clear that whenever there
is a conflict of policy that concerns the
supply, availability, or cost of credit in
general, the policies of the Federal Reserve System shall take precedence, and
those of the Treasury shall be made consistent with Reserve policies.
Two points concerning the resolution
should be emphasized. First, this resolution is the result of extensive hearings
No. 40



held last year by the Subcommittee on
Monetary, Credit, and Fiscal Policy of
the Joint Committee on the Economic
Report. It specifically implements one
of the recommendations made by that


Second, this resolution in no way represents a sharp break with precedent.
The independence of the Federal Reserve
System from the Treasury was made
' clear by the enactment of the' Backing
Act of 1935, whereby the Secretary of
the Treasury and the Comptroller of the
Currency were relieved of their ex officio
membership on the Federal Reserve
Board. On this point, the legislative history is clear—particularly in the pronouncements of Senator Carter Glass,
sponsor of the act, and himself a former
Secretary of the Treasury.
On March 2, the Treasury and the
Federal Reserve Board issued a statement saying that they had reached—
a* full accord with regard to debt management and monetary policies to be pursued
,in furthering their common purpose to assure the successful financing of the Government's requirements and, at the same time,
to minimize the monetizatlon of the public
It is not clear just what this agreement means. The Treasury, at that
time, made a simultaneous announcement of a new issue of 2%-percent bojids,
into which the present 2 V2-percent)
bonds, maturing between 1967 and 1972,
can be refunded, but which will not be
transferable or redeemable until maturity. The purpose behind this type of
issue, with its increase of one-fourth bf
1 percent in the interest rate, is undoubtedly to take out of circulation the
some $20,000,000,000 of this type of bond
held by banks and institutions, and hence
to prevent them from being offered to
the Federal Reserve, and hence to prevent them from swelling the bank reserves. So far, so good.


But there is no information available
as to what the Federal Reserve System
has agreed to do so far as purchasing
Government securities in the open market in the future is concerned. No information on that point has been made
public, but it is this very point which is
vital to the problem at hand. If the
Reserve System has pledged itself to
buy these securities in unlimited quantities, then we may expect bank reserves,
bank loans, and prices to rise markedly,
and the alleged solution which was
greeted with so much enthusiasm will
be no solution at all. If, however, there
is an agreement to purchase in only
limited amounts—or for a brief period
of time, then only a temporary agreement and only a temporary solution will
have been found, and the issue of what
our permanent open market purchasing
policies should be will come up again
for decision, and will come up shortly;
and what may seem to be a settled matter may turn out not to have been settled
at all. The Federal Reserve Board's
past practice of complacently yielding


to the pressures and blandishments of
the Treasury indicates that unless its
courage is stiffened from outside, it is
likely to continue to yield, with unhappy
results to the country, for it has not developed habits of internal fortitude
which will insure its virtue unless we
give it help.
We do not wish to have the Federal
Reserve Board continue to be an inflationary agency; and we hope that the
introduction and, I hope, the subsequent
passage of this joint resolution will
serve to check these alarming tendencies.
Mr. DIRKSEN. Mr. President, will*
the Senator yield?
Mr. DOUGLAS. I am glad to yield to
my friend and colleague from Illinois.
Mr. DIRKSEN. The joint resolution
merely reaffirms powers which the Federal Reserve System already has, does
it not?
Mr. DOUGLAS. Yes; but it also says
that the Treasury Department in administering the national debt shall exercise its powers in conformity with the
general program laid down by the Federal Reserve System. .
Mr. DIRKSEN. The real purpose,
then, is to put a little backbone into the
Federal Reserve System; is it?
Mr. DOUGLAS. Yes in part. The
purpose of the joint resolution is to do
that partly by indicating that the Federal Reserve System has friends outside
of tfie Board, but primarily by stating,
as a matter of law, the supremacy of the
Federal Reserve System in the event of
a conflict of policy with the Treasury,
so that they will stand fast and will not
permit themselves to be used to inflate
the bank credit of the country.
Mr. SALTONSTALL. Mr. President,
will the Senator yield?
Mr. DOUGLAS. I am glad to yield.
Senator from Illinois [Mr. DIRKSEN] has
already asked one of the questions I
wished to ask.
My other question is this: Is the measure which the senior Senator from Illinois is discussing a joint resolution or a
concurrent resolution?
Mr. DOUGLAS. It is a joint resolution, rather than a concurrent resolution.
Mr. SALTONSTALL. If the measure
has for its purpose the stiffening of the
back of the Federal Reserve System,
why would not it be wiser to have it a
concurrent resolution?
Mr. DOUGLAS. In other words, so as
not to be subject to Presidential veto?
Mr. SALTONSTALL. Yes. The point
I have in mind is that a concurrent resolution on this subject would not change
the law in any way, but simply would
express the sense of the Senate and the
House of Representatives.
Mr. DOUGLAS. This resolution is
not designed actually to change the
existing laws which define the respective
powers of the Federal Reserve and the
Treasury, since, as I have said, there is
no serious legal conflict. What the resolution does is to state that in the event
a conflict of policy occurs, which affects
the supply, availability, and cost of
credit, the Federal Reserve System will



have primary power, and the policies of
the Treasury should be made consistent
with Federal Reserve policies. I think
that this constitutes, in effect, a restriction of the powers of the Treasury.
Mr. SALTONSTALL. Then it would
become, in substance, a change in the
law, would it?
Mr. DOUGLAS. It is an attempt to
make the debt management function
subordinate to the policy of maintaining
stable prices.
Mr. SALTONSTALL. In view of the
feeling of the administration on this
flatter, as expressed in the newspapers,
does the Senator expect to get anywhere
at all with the joint resolution?
Mr. DOUGLAS. I have great hopes of
doing so. I thought it would be well to
introduce it in a form which would have
the force of law, rather than as a concurrent resolution, because a joint resolution, which must be signed by the
President, has the force of law, whereas
a concurrent resolution, which is not
signed by the President, is merely an
expression of congressional opinion.
Mr. SALTONSTALL. So the Senator from Illinois has made that choice,
has he?
Mr. DOUGLAS. Yes. If I have made
the wrong choice, and if this measure
would be more appropriate in the form
of a concurrent resolution instead, the
committee to which it is referred aan
alter its form in reporting it to the
Mr. SALTONSTALL. The main purpose is to stiffen the back of the Federal
Reserve System. Is that correct?
Mr. DOUGLAS. Yes; and to clip the
wings of the Treasury.
Mr. DIRKSEN. Mr. President, will
the Senator yield again to me?
Mr. DOUGLAS. Yes; I am glad to
yield to my colleague.
Mr. DIRKSEN. I think it is a rather
distressing thing that while the power of
the President to appoint extends only to
the members of the Federal Reserve
Board, the President should undertake
to persuade the Federal Reserve System
to adopt such a course of action, under
the circumstances now obtaining, when
the Board should be almost unanimous
In its decisions regarding matters which
affect the credit and price system of the
I share the hope of the Senator from
Illinois. It seems to me that there has
been a political domination of the actions of the Federal Reserve System, and
that the Treasury has won in that little
contest, so that the management of the
debt comes first, and the problem of
credit flexibility comes second.
Mr. DOUGLAS. Let me say to my
good friend and colleague from Illinois
that, in practice, it probably will be
necessary to unify the debt-management
program with the credit functions of the
Federal Reserve System. In view of the
fact that Congress created coordinate
powers in both Treasury and Federal
Reserve, neither being superior to the
other, I think that it was a proper act
of the President and of the Treasury to
try to get a unification of policy. My
objection is not that they tried to get



actual Issues In the controversy. Then we
unification, but that the policy which
may be able to outline a program which
they advocated was wrong. They tried
would serve to control the money supply and
to make the powers of the Federal Rekeep the costs to the Treasury low.
serve System subordinate to the need
There are really four basic l&sues Involved
for maintaining a low interest rate on
In the controversy:
Government bonds, whereas I think
1. Is the current rapid expansion in the
what should be done is to have debt
money supply inflationary?
management subordinated to the gen2. Has the Federal Reserve the power to
stop it?
eral desirability of maintaining a stable
3. How much would It cost to stop it?
price level.
4. What would be an adequate program?
In short, I do not object to the fact
On each of these issues there can be honest
that they tried, but to the fact that
differences of opinion, and the major task
they tried in the wrong direction.
In resolving the conflict Is to narrow down
Mr. GEORGE. Mr. President, will the
the area of disagreement on each. If essenSenator yield?
tial agreement could be reached on these four
points, the basic policy decision should be
Mr. DOUGLAS. I am glad to yield
to the Senator from Georgia.
Mr. GEORGE. Let me inquire of the
I. Is the current rapid expansion in the
Senator from Illinois to what committee
money supply Inflationary?
the joint resolution is to be referred.
Between the start of the Korean War and
Mr. DOUGLAS. I am not the Presidthe end of 1950, the money supply (demand
ing Officer of the Senate, so I would condeposits and currency) increased by more
fide that matter to the Presiding Officer.
than $7,000,000,000, or 6 percent. In the
I had assumed that probably the joint
same period, wholesale prices went up nearly
resolution would be referred to the Com- • 12 percent, consumer prices more than 4 percent, and standard hourly wage rates around
mittee on Banking and Currency.
3 percent. What is the connection between
• the Increase in the money supply and the
Chair is informed that the joint resoincrease in prices?
lution will be referred to the appropriate
Few, if any, economists today hold with the
old theory that an increase in the money
Mr. GEORGE. If the joint resolution
supply will necessarily produce a propordirectly affects the powers of the Treastionate Increase In the price level. Rather,
one has to look at the facts in each case.
ury, I should think some consideration
Have the Increases in the money supply since
should be given to referring the joint
Korea been an Important source of inflation?
resolution to the Finance Committee.
Study of the facts suggests that In the
Mr. DOUGLAS. I do not wish to enfirst 3 months after Korea, money increases
gage in a jurisdictional dispute.
were mat a major source of Inflation though
Mr. GEORGE. No, neither do I; but
they may have contributed in a minor deI should like to have the Senator exgree. The main source was the wave of conpress his viewpoint in regard to the
sumer and business buying which resulted
from the starting of the Korean war and the
reference of the joint resolution.
Government plans for defense.
Mr. DOUGLAS. Has the Chair referIn spite of a 3-percent increase in producred the joint resolution? I am willing
tion and a shift of the Government from a
to abide by the ruling of the Chair in
cash deficit to a cash surplus, wholesale
that connection.
prices rose nearly 8 percent and retaU prices
more than 2 percent. Yet the more than
Chair has merely stated that the joint
seasonal Increase In the money supply was
less than 1 percent. There is little doubt
resolution will be appropriately referthat even If there had been no Increase in
red. The question of reference will be
the money supply, there would have been a
left to the Parliamentarian to decide.
major price rise.
Mr. DOUGLAS. I merely requested
But by the end of September, the main
that the joint resolution be appropriateImpact of the wave of buying had spent itself.
ly referred. I am ready to abide by any
Consumers were back to normal buying.
decision which the Chair or the ParliaFarm prices and food prices at wholesale and
mentarian may make in that connecretail were back to their August 1 levels and
the rise of industrial prices was tapering off.
A period of relative price stability might have
Mr. President, in connection with this
been expected.
matter, I ask unanimous consent to have
Actually, the month of October was one of
printed in the body of the RECORD, at this
relative stability. The wholesale price index
point, as a part of my remarks, an article
was no higher at the end than at the beginentitled "The Inflation Crisis," by Garning of the month.
diner C. Means, published in the WashBut then a rapid rise In prices began
ington Post for March 4, 1951.
again in November and has continued to the
present time, lifting the wholesale price inThere being no objection, the article
dex another 7 percent and retail prices anwas ordered to be printed in the RECORD,
other 2 percent. Was this caused by a furas follows:
ther wave of consumer buying, by the stepT H E INFLATION CRISIS
ping up of defense expenditure, or what?
(By Gardiner C. Means)
The rise in prices in November and December was not due to a new wave of conThe Federal Reserve has the responsibility
sumer buying. Consumer expenditure in the
for preventing an inflationary expansion in
fourth quarter was below that of the third,
the money supply. The Treasury has the
and was no more than could have been exresponsibility for managing the public debt
pected on the basis of the postwar relation
and keeping its costs as low as possible. The
between consumer expenditure and consumer
controversy between them has rested on the
assumption that these objectives are In major
Also, the Increased demand did not come
conflict and that one or the other must giv«
from Government spending. Expenditure on
the security program was about 1.5 billion
In my opinion, It Is possible to -serve both
dollars higher than before Korea, but other
of these objectives. To understand how this
expenditures were less and the Government
is possible, we have first to understand the



operation continued to produce a cash surplus.
Private construction and net foreign purchases did not increase.
The big Increase in demand came from
business investment in inventories and
equipment, which increased more than seasonally by over two billion dollars. At the
same time, commercial bank loans to business increased more than two billion dollars
over seasonal and the money supply increased by close to three billion dollars over
the normal seasonal increase.
It seems clear that the big source of extra
demand in the fourth quarter came from the
business side and was financed by the expansion in bank credit and the money supply. If they had not been able to borrow, it
Is reasonable to suppose that much of this
extra demand would not have been effective.
The conclusion therefore seems to be Justified that money expansion was the primary
source of inflation in the fourth quarter.
Even more important, if the present Treasury policy continues to be rigidly followed
by the Federal Reserve, a much greater inflationary money expansion is likely.

2. Has the Federal Reserv- the power to
stop monetary inflation?
The Treasury has contended that the
measures the Federal Reserve wants to take
to stop money expansion would not only
cost the Treasury in higher interest rates
but would also be ineffective "because a small
increase in interest rates would not limit
the demand for bank credit. Thus, the Secretary of the Treasury has stated that "fractional Increases in interest rates of Government securities" would not have "a real or
genuine effect in cutting down the volume
of private borrowing and in retarding inflationary processes." Recent studies of the
effect of interest rates on business behavior
support the view that small increases in interest rates will not significantly deter businesses from borrowing. If this were the
way in which the Federal Reserve was seeking to control the money supply, there
would be no reason to quarrel with the Secretary's position.
But the rise in interest rates is not the
method by which the Federal Reserve would
limit the money supply. Rather, it would be
a byproduct of a very effeotlve method
which it has the power to use. This is by
limiting the volume of bank reserves.
If a bank has more idle reserves than it
wishes to carry, it will almost certainly expand its loans and Investments (except, perhaps In time of depression). If it has no
idle reserves and cannot get additional reserves, it will not expand its loans and investments. Thus, if the Federal Reserve
were able to control the total amount of
bank reserves in existence, it could control
the volume of bank credit and the total
amount of money outstanding.
Actually, the Federal Reserve does now
have the necessary legal power to limit bank
reserves. All it needs to do is to reduce its
holdings of Government securities and perhaps raise its discount rate. There is no reason to question that this procedure would
be effective so far as limiting the money
supply is concerned. Probably a net sale of
one billion dollars of its 20-billlon-dollar
holdings of Government securities and a
moderate increase in the discount rate
would absorb all of the existing excess reserves and cause a gradual shrinkage in the
money supply.
Unfortunately, the selling of this amount
of Government securities and the refusal to
buy more would force down Government security prices and raise'the interest rates required on new issues. This increase in interest rates would not be the means by which
the Fedsral Reserve would limit bank credit
and the money supply as the Secretary of


the Treasury suggests, but would be a byproduct of using the very effective means
it has to the power to use.
On the other hand, the Secretary of the
Treasury is quite properly concerned at the
thought of lower prices on Government securities and higher interest costs on the public debt. The $257,000,000,000 Federal debt
places grave responsibilities on his shoulders, no less weighty than those on the
shoulders of the Federal Reserve for preventing inflationary money expansion. This
is the real heart of the issue between the
two agencies. Is it worth the cost in extra
Interest and In other ways to prevent further monetary inflation?

3. How much would it cost to stop monetary inflation?
The Secretary of the Treasury stated in
JanUary that a rise of one-half percent in the
Interest rate on the $257,000,000,000 of public debt would increase the interest cost of
the debt by $1,500,000,000 a year and the
present Congress would have to raise this
amount of extra taxes to prevent it from
being Inflationary. Later, simple arithmetic
forced him to change the figure of cost to
one and one-fourth billion. But a little consideration will show that even the smaller
figure is a gross exaggeration.
Twenty-five billion dollars of the debt does
not finally mature for 20 years and the Secretary of the Treasury would have to wait
that long before he had to refund it at the
one-half percent higher rate. In fact, none
of the $104,000,000,000 of marketable longterm debt matures and has to be refunded
in the next 2 years, though some of it could
be called if the Treasury wanted to pay the
extra interest. To this must be added the
special issues held by Government trust
funds and a large part of the nonmarketable savings bonds and notes which do not
mature and would not be cashed under a
sound program.
Thus, at the very maximum, less than half
the total debt matures or could be cashed in
the next 2 years. And if holders could be
made to keep a large proportion of their
savings bonds and notes, the extra half
percent interest charge would apply to only
a fifth of the total debt. On this basis, an
added one-half percent on the issues requiring refunding in 1951 and 1952 would amount
to between one hundred and four hundred
million dollars in 1941 and two hundred and
five hundred mil-ion dollars in 1952.
Of course, $20,000,000,000 of this debt is
held by the Federal Reserve and any extra
interest paid would come directly back to
the Treasury through the earnings of the
Federal Reserve, say $100,000,000 a year. Also,
the Treasury would recover in income taxes
some of the extra interest paid to the public.
Altogether, the extra taxes which the present
Congress would have to raise to pay for an
increase of one-half percent on all Government securities maturing in 1951 and 1952
is not likely to be more than two hundred
million and three hundred million dollars in
the 2 years, a far cry from the one and onehalf or one and one-fourth billion dollars
which the Secretary of the Treasury has
Of course, if higher rates had to be sustained permanently, later Congresses would
have to meet larger Interest charges. But
we are concerned with the problem of inflation in the present. If we were to get
into actual war, these later increases in interest costs would be a small price to pay
for avoiding a heavy head of inflationary
Bteam at the beginning of the war. If we
don't get into war, defense demands on production should be slacking off and a return
to lower interest rates would be more than
likely, so that the higher rate would never
be applied to the debt which does not mature in the next 2 or at most 3 years.


Account should also be taken of the fact
that if monetary inflation is not stopped,
the costs of the defense program would increase and would also require greater tax
The second concern of the Secretary of
the Treasury, that for the market value of
outstanding Government securities, presents
a different problem. If all interest rates
went up one-half percent, a 2 %-percent
bond due to mature in 20 years and initially
selling at par, would have to drop to a price
of $92.50 in order to yield 3 percent. It may
be that such a price drop would be serious,
particularly if the Treasury has to increase
the Government debt greatly in the future.
But at the present time, under pressure
from the Secretary of the Treasury, the Federal Reserve is forced to support practically
all Government long-term bonds at a premium. Thus, the Secretary of the Treasury
is insisting that the Federal Reserve should
pay a subsidy, sometimes as high as $5 per
$100 of bond, to any. bondholder who is
willing to sell his bond now. If anything,
the Government should require a slight penalty for anyone wanting to sell his longterm bonds now, Just as there is now a small
penalty on the cashing of savings bonds
ahead of their maturity.
The Secretary presents a more significant
argument for trying to hold long-term Governments at prices which will yield around
2y2 percent when he points out that the iy 2
percent rate has become a semi-institution
around which banks and insurance companies have built their policies.
Fortunately there is a very real possibility
that approximately the 2 y2 -percent rate on
long-term Government bonds can be retained at the same time that the Federal
Reserve objectives are achieved. The Secretary has assumed that, to carry out its objectives, the Federal Reserve would have to
lift up all interest rates practically by the
same amount. Such is not at all the case.
At the present time, short-term interest rates
are way below long-term rates. Historically,
this is the situation which has usually accompanied a depression, when short-term
prospects are poor but ultimate recovery is
expected. In boom times, short-term rates
have usually been above long-term rates.
It is highly probable that the Federal Reserve could continue to support long-term
Governments at about the 2 y2 -percent rate
and at the same time sell enough shortterms not only to offset the long-terms it had
to buy but also to mop up the excessive bank
reserves now outstanding. This would, of
course, raise short-term interest rates but
not long-term rates. How much this would
raise short-term rates is by no means clear,
but it seems quite likely that the whole program could be handled so that short-terms
were still below the 2% -percent rate, say, at
percent or less. If all the $41,000,000,000 of short-terms now outstanding were
in fact raised to 2 y4 percent, the extra interest over what they could now be refunded
at would cost little more, than $100,000,000
in 1951 and less than $250,000,000 in 1952,
not counting the extra interest paid to the
Federal Reserve itself.
It Is quite possible that such measures
would take us through the next two years
without departing significantly from the 2 y2
percent long-term rate and without further
monetary inflation. The Federal Reserve
banks now have $15,000,000 of shortterm Governments and only $5,000,000,000
of long-terms.
If they stop paying a
bonus to anyone willing to sell his longterms now and sell their short-terms so as
to (1) contract bank reserves by say one
billion dollars, and (2) have the funds to
support long-terms, their supply of shortterms should last quite a while. Certainly,
until such a program is attempted, discussions of a radical departure from the
2 -percent rate should be postponed.



4. What would be an adequate program?
If the policy of preventing monetary inflation had been adopted last summer and
fall by the Federal Reserve and accepted by
the Treasury, it is likely that it could have
been carried out without any important dislocation or confusion In the security markets. But now things have gone so far that
a fairly serious readjustment may be necessary, one which is likely to be less harmful
If quick.
To halt monetary inflation, the Federal
Reserve might adopt the following program:
1. Publicly announce that in its considered opinion the value of long-term Government bonds can be maintained in the
near future close to par without preventing
the necessary limitation on the money supply, and that it will cooperate with the
Treasury to this end.
2. Make clear to the Treasury (a) that this
does not mean supporting long-terms above
par as at present; (b) that It does mean
supporting them slightly below par until
such time as new or refunding issues of longterms have to be sold, when the support
level might have to be raised; (c) that this
Is not a permanent commitment but one for
the foreseeable future and may have to be
revised at a later date In the light of events;
(d) that this cooperation Is conditioned on
the Treasury's cooperation in not setting the
Interest rates on new security issues at rates
which are in conflict with the Federal Reserve's responsibility for limiting the money
supply. In practice, the rates on new Issues
ought to be arrived at by mutual agreement.
8. Raise rediscount rates to whatever level
Is necessary to prevent more than an appropriate amount of borrowing of reserves
from the Reserve banks.
4. Start selling short-terms at a rapid
rate, perhaps at once pushing the yield up
to 2V4 percent and selling what the market
will take at that rate with the expectation
the short-term rates will fall back somewhat after reserves have been sufficiently
reduced. If the contraction of reserves could
be brought about quickly, the Treasury
would have the benefit of the new and more
stable rates In Its July financing.
6. Allow the prlceB of long terms to fall
slightly below par but support them at a
level consistent with, say, a price of 98 for
a 20-year, 2 y2 -percent bond.
I believe that, In the absence of actual
war, such a program would be successful in
stopping money Inflation without undue cost
to the Treasury. Clearly the Government
already has these powers. It should use
Mr. DIRKSEN. Mr. President, will the
Senator yield for a parliamentary inquiry?
Mr. DOUGLAS. Certainly.
Mr. DIRKSEN. Mr. President, has
the resolution been referred?
not been.
Mr. GEORGE. Mr. President, I merely wish to suggest that if the primary
purpose of the joint resolution is to curb
the power of the Secretary of the Treasury, then I think obviously the joint
resolution should have its day in court,
so to speak, before the Finance Committee, as well as before any other committee to which it might be referred, because In the Finance Committee we
have very much to do with the Treasury, and necessarily so.
Mr. DOUGLAS. Certainly I am not
an expert on parliamentary procedure.
The senior Senator from Georgia knows
much more about this matter than I do.
However, I should think that the joint


resolution is certainly a measure with
which the Committee on Banking and
Currency is also intimately concerned.
Subsequently, the joint resolution (S.
J. Res. 45) introduced by Mr. DOUGLAS
(for himself and other Senators) was
referred to the Committee on Banking
and Currency.
Mr. WATKINS. Mr. President, I ask
unanimous consent to introduce, for appropriate reference, a joint resolution
and I request that it be read.
The PRESIDING OFFICER. Without objection, the joint resolution will
be received. The clerk will read the
joint resolution.
The joint resolution (S. Res. 46) to
relieve the Government of Italy of its
obligations to the United States under
the treaty of peace with Italy, and for
other purposes, introduced by Mr. WATKINS (for himself, Mr. BRIDGES, Mr.
WHERRY, M r . KEM, M r . DWORSHAK, a n d

Mr. MALONE) was read by the Chief
Clerk, as follows:
Whereas the treaty of peace with Italy,
entered Into on February 10, 1947, by the
United States and certain other nations, deprives Italy of her right of self-defense;
Whereas such treaty also prevents the
performance by Italy of her obligation under the North Atlantic Treaty to contribute
to the full extent of her capability to the
defense of Western Europe; and
Whereas certain territorial concessions required of Italy under such treaty of peace
are In violation of the provisions of the Atlantic Charter: Now, therefore, be it
Resolved, etc., That the United States (a)
hereby relieves the Government of Italy of
all obligations to the United States under
the provisions of the treaty of peace with
Italy, entered Into on February 10, 1947, by
the United States and certain other nations,
and (b) no longer considers such treaty as
obligatory upon the Government or citizens
of the United States.
Sic. 2. The President is hereby requested
(a) to call upon all other parties to such
treaty to take such action as may be necessary to relieve the Government of Italy of Its
obligations to such parties under such treaty, (b) to invite such parties to join with
the United States in an effort to negotiate a
new treaty of peace with Italy, and (c) to
join with such parties as may accept such
invitation in negotiating such new treaty.
Mr. President, we
are now engaged in debate on a manpower bill which has for its purpose the
raising of an army to protect not only
our own liberties but also the liberties
of the Atlantic Pact powers of Europe.
The joint resolution which I have introduced, for myself and on behalf of the
Senator from New Hampshire [Mr.
BRIDGES], the Senator from Nebraska
[Mr. WHERRY], the Senator from Nevada
[Mr. MALONE], the Senator from Idaho
[Mr. DWORSHAK], and the Senator from
Missouri [Mr. KEM], if passed, will relieve one of the nations of liabilities
which it is under at the present time,
and which prevent it from taking an
effective part in the defense of liberties
of Western Europe and of the democratic
nations of the world.
Denunciation of the Italian Peace
Treaty will open the way for Italy to
build up her own defenses against Communist aggression.
It will clear the
way for an effective Italian contribution


of the defense of the whole of Western
Europe. This will help to ease the burdens which other nations are being called
upon to bear. It should substantially
reduce the number of ground troops
which the United States may be required
to send to Europe. That is one of the
questions we have been discussing recently before committees, and one of the
questions we are discussing in this body
at the present time, in connection with
the pending bill.
There are 21 signatories to the treaty.
Among these are the Union of Soviet
Socialist Republics, the Byelorussian Soviet Socialist Republic, the Ukrainian
Soviet Socialist Republic, and the
Peoples Federated Republic of Yugo-.
slavia. China, which has since fallen
into the Communist fold, also was a signatory of the treaty, as were Czechoslovakia and Poland, which have since fallen behind the iron curtain.
The Italian Peace Treaty was negotiated in a spirit of harshness and revenge.
The treaty levied severe economic and territorial tribute on Italy.
It deprived Italy of its armed strength
and gave it in most part to Russia and
her friends.• Thus the Italian Peace
Treaty weakened Italy and strengthened
the military potential of the forces of
communism. I may say at this point
that, in making those statements, I am
not reflecting upon the United States
and other members of the Atlantic Pact
who were inclined to be more lenient
with Italy in view of the record which
she made in the latter part of the late
war, when she turned against the Axis
powers and aided the Allies.
But it
seems to me that we yielded to the pressures of the communistic nations, and
became to that extent parties to what
I think was a very unfair and vicious
The Italian Peace Treaty deprived
Italy of certain territory along its borders and placed the inhabitants of that
territory under the sovereignty of other
nations without consulting the will of
the people concerned. This was a violation of the spirit and the letter of the
Atlantic Charter.
The Italian peace treaty placed severe limitations on the number of men
Italy may have in her army, navy, and
air force and constabulary. Thus Italy
is deprived of the means of building up
her own defenses in relation to present
realities in Europe and is prohibited
from making an effective contribution to
the defense of Western Europe.
In 1938, when Italy was on the side of
the Axis Powers, she had a standing
army of 917,991; a standing navy numbering ^55,83 6; and a standing air force
numbering 103,555. It is very important
to note that this was backed up by
6,441,117 army reserves and 331,428 navy
reserves. Thus, in 1938, Italy's armeu
forces, including reserves, totaled 7,882,927. The treaty of 1947 puts a present
ceiling of 250,000 on Italy's armed forces.
In 1942, Mussolini considered Italy
unprepared for a large-scale conflict.
Italy then had a total of 2,860,000 men
in her army. These were backed up by
some 2,555,000 army reserves plus a
standing air force of 265,340 and an air
force reserve of 105,550. I do not have