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BOARD OP GOVERNORS OF THE FEDERAL Date To from RESERVE 8TSTEM TA ____________ Mr* Young Mr* Koch MESSAGE: This i s a copy o f a d r a f t o f a p o s s i b l e press r e l e a s e f o r Gov ernor E c c l e s ’ speech F r i d a y in 'V. " . "/-v ^ n >•*rr\ 4-w- rs -i-i tt « a Message delivered by F .R . 468 R e v . 1/47 Draft of Press Release for Chicago Bp— ch On* Bust face today's world and Its future vlth hop* but without too ouch expectation. Events have sored very rapidly these past few years. Three years ago, with our sole control of the atomic r bomb, ve seriEM have enforced a peace settlement In Russia with little risk of ear. Since then Suss la and her satellites have gained enorv ft* / a a v -J mously In economic and monetary strength. The Comunlst blits In South Korea has mads all of us reshape our thinking as to the kind of a world ws are likely to live In during the next decade. Fears and uncertainty of var h n In the back of many of our minds prior to June 2 % The events of that day and succeeding days have brought them/preclpltouslyf to the foreground. Mor will the end of the war In Korea mean the end of our present emergency. It has just begun and map- means the hel*4r| up and maintenance of a garrison state for many years to come. Two main problems face us In this emergency. rearm and rearm to the teeth. First, we must Secondly, ve must organise an economic mobilisation program at home to stop Inflation and at the sans tine keep our economy running as efficiently as possible. As for the reamanent progran, Russian aggression can be stopped if/,their bluff le eaULed and they -ase convince^that the United States will no longer permit further tyranny and conquest. This means (l) that ws must utilise all of our resources and labor as effectively as possible; (2) that ws must devote as much of our national product to - <c ” / defense expenditures as we can afford;and O (3) that ve mast !ftsk< the m z i i u a JieXp fron as many’.friendly nations [&£ poss lblellgr^at least keep them ^ neutral] Of equal importance to a rearmament program le an economic program designed to assure financial stability at horns. Two principal programs have been advanced in recent months to stop the Inflation. The first involves a comprehensive harness of direct controls including price and vage fixing and rationing of goods. The second is what I have previously called a set of functional rather than direct controls Involving principally fiscal and monetary measures designed to reduce the volume of purchasing power available in the hands of individuals and businesses. But there are no tvo ways of controlling inflation. Inflation stems from an excess of purchasing power over the available frolume of goods and services. Such an excess can only be eliminated by fiscal and monetary measures. Direct controls like mfcge and price fixing and rationing are not methods of stopping Inflation at all. They deal vith symptoms rather than disease lteelf. They merely divert soas of the evil effects of Inflation underground and postpone the rest. The cornerstone of a set of functional controls ami eeenomlc stab11teatism yfogum must be fiscal measures including principally higher taxes but also lower nonmilitary spending and a proper debt management policy, k prolonged period of partial mobilisation like the JL one we fact# must be financed on a pay-as-you-go basis. This Involves - 3 - As maximal efficiency in the spending of every tax dollar and «f maximum volume of tax receipts ao that the Federal budget can be at least balanced and preferably overbalanced. An adequate tax prograa oust be combined vlth a restrictive monetary and credit program If a functional economic stabilisation pro gram Is to work In stopping Inflation. People must not be allowed to /ALu^' bolster, through additional borrowing, and spendable Income that have been reduced by higher taxes. Basically, monetary and credit controls are needed to stop the growth of private bank credit. basis. This cannot be done on a voluntary Federal authorities must have the power to curb credit Inflation. This can be done In a number of vsye but every effective procedure most be utilised to decrease the volume of reserves available for use by ZLty commercial banks to back additional deposits which are^principal element/ In the money supply. A program of fiscal and credit measuree Is an absolute essen tial for an effective economic stabilisation program In the current situation. It must be accompanied, however, by a limited number of selective direct controls such as those ef certain scarce materials and facilities and a vigorous program to Induce people to save. A large volums of new savings by Individuals and businesses Is required to finance the larger plant, equlpmsnt and housing needs of a growing economy. If a broad and strong functional economic control program Is not adopted promptly and pvt Into effect vigorouslyM the Inflationary - k - spiral Is bound to continue or a pervasive netvork of direct controls and restrictions vlll be opposed without question. I Ither development would be calamitous• Inflation Injures most those least able to bare- Injury. strikes at the(fremocratlcjcors oflcapitalism. and moving force of our economic system. It It destroys the strength It must be stepped. Direct: controls vould not only seriously Impair the functioning of our economic system but vould also lead to the weakening and eventual destruction of the very aspects of our vay of life that ve are seeking to preserve In our defense agslnst Russian Communism.