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Our postwar inflation Is traceable in the first instance
to the excessive money supply which we created to finance war*
M j u s t m s n t of a peacetime economy to this large money supply almost
inevitably would have involved some general price increases*

The

transition could have been eased by a continuation of direot controlfr—
f

rationing

i'-w J U silu jU A ,vtu X 4

i

price controls— -for a period after hbe war until the :

supply of goods had been reestablished*

But we took off our direct

controls and let priees go their own way, which was upward*
The Federal Reserve had no wa y to restrain this development*
With our huge war-created public debt of sore than a quarter trillion
(tellers, the Federal Reserve had to support the Government securities
market*

Banks and other leaders were free to expand credit by selling

Government securities which the Federal Reserve purchased, and this
process created additional noney when we already had too much*

The

Federal Government had a budget surplus for a while, which helped to
keep inflationary pressures in check*
ta x e s

a a d m ade l a r g e

c o m m it m e n ts f o r

But last spring Congress reduced
w o r ld

a id

and a rm a m e n ts,

and th e s e

actions have almost eliminated the Government budgetary surplus*
We heed
under control*

bow

to

do

smoothing

to

bring our monetary inflation

Admittedly, the Federal Reserve eould check the

inflation by abandoning its support of the Government securities market
This would be very strong medicine indeed*
Other courses of action should be tried first*

Additional

authority should be granted to the Federal Reserve System by Congress,




s© that the Federal Reserve could o f f s e t tjjae cre d it-e a s in g e f f e c t s
^
u -tX -/ m
o f sa les by in s t it u t io n a l h old ers o f Government s e c u r itie s * Higher
short-term in te r e s t ra te s are a lso ia p e r a tiv e .
Beyond these steps are fundamental measures o f n a tion a l
p o lic y .
revenues

We need to r e s to re a budget surplus by in crea sin g tax
decreasing Government expenditures*

Obviously Government

expenditures cannot be decreased in the present in te rn a tio n a l c r i s i s *
C onditions o f in te rn a tio n a l peace have to be esta b lish ed *

That i s why

ptur fp r iig n p o l ic y i s o f such c r i t i c a l importance with re sp e ct to our
dom estic economy at the present time*
en force a world peace*




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