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Jccauso of the Korean crisis a dangerous inflationary Situation
Is rapidly developing, fids is duo tottiourgent and incroasinu
military needs ami a rapid stepping up of business and civilian
<tean$s on top of an economy that l a been showing inflationary
pressures for aosetisi©, ©special!/ in the durable goods and housing
Price inflation is sure to develop when the d<^ind7supportod
by sonsy and credit e&ceeds the supply* The available supply of
saonoy and credit can bo increased only by the banking systes aakii^
loans to or iTuying securities frcea either the govemesent or the
public* In the present situation it is» therefore, Imperative if
price inflation is to be controlled, to stop the oversell -prowth
of loans and investments ty the banking systea, includirjc the
Federal Reserve• This can be prooptly brought about if the ¿overn2$ent will adopt without delay the required monetary and fiscal
Ouch a program would materially reduce civilian dessand and
thereby increase the supply of goods ¿available for the military needs
without the necessity of putting the country under all of i l onerous
wartime direct controls, unless the Eorean situation develops into
.¿arid War ill.
then it ¿ay not be necessary to go all the my
because it would likely be an atomic war that vould not last long.
In any ease, the following prograa is an urgent necessity and should
be carried out & iret* no setter «hat action m y be called for Sater;

KT a» mum


_ _

1. Ilequast every bank to unit© In a n^iorwlde velsmtary
agr^eownt to step baidl credit expansion
limiting now loans
»ade by any bank to the amount of Ioana peidj aeet the ¿ain
or loss in Its deposits by busying or sellili ¿overnsaent scour. . ties. accordingly. JSigfc^ban, pregraa would stabilise the
^ov^pmeist secùrlCies aarket, as eoli as tbo gemicai credit
situation. If this voluntary propres is not carried out, then
the federal Reserve should increase reserve requirements to
the legal liait and ¿et additional powers if necessary*

2• itequest the Insurance Caspa nies and the Ritual Saving»
Banks not to -sell their „overrent securities for the purpose
of ¿etting raoney to Increase their loam aid other investments.
This eoold avoid putting pressure on the Federal fissarvi to
support the government securities market, thereby crcatirc new
deposits and excess reserves in the 'ç&nkirç systaa.

3. UMgiaire the R»F*C* to stop rmkin., loans, except «hen
they aro for military purposes and cannot be gotten elserfhera*
Heduee the effective desasad for bouslag by requiring
F*!i*A* to rescind its recast reduction in interest rates ard
reduce its insurance coverage, thereby requiring heme owners
to ¿aake l r e : down pa^mnts; slowing up the approval of
sortie guarantees by the Veterans Administration and ¿sortinsurance by the F*H*A*$ requiring t i Federal National
Mortgage Association to Xlsit its purchases» of Insured and
guaranteed siortfagea to the amount told«
deduce the effective desaand for consumers durable
goods by giving to the federal fies«rve control of commmr
credit terms* which should be i a e sufficiently restrictive
as to dcwn payment ani .maturity to curb further»th of
the hugernXmrnnow outstanding*
6. Require the Treasury to permit short-term interest
rates to rise moderately and thereby take off the -ressore
for long tern Interest rates to go é&m* this chaise of
policy would mkú the goverraent securities sore attractive
^"x^^^^^bHc^iwMl miuce the need of the Mbirml Reserve
suppcrtir^ the market for govemasnt securities which creates
excess ¿¿oney and rakes impossible the restrictive monetary
policy that is called for»


The above six point pro^rau; l a the advantage of beisy^a'ule
to be put promptly into effect or rescinded to the of feet deeded
without rehuir inc. legislation, with the exception of consigner credit

1, lake no reduction in taxes this year*
2m -increase second and third class postal rates enoa^h
to «eet large post off tea deficits.
3* Close tax loopholes previously reemprended by the
Treasury, especially those where the ¿joverrsaent is losing
l r ; e aeounts of revenue*
a ,:
l * aeiepose a corporation excess profit tax of 7SÍ on
all net earnings above 1 : on first five -dllion of invented
capítol and
on a ^ balance, allowing a five
thousandtóemptíonof earning® subject to m m m profit t - *
5* ¿ieques€n3^"or to Mkt no demands for wa^e increases
while exceas profit tax is in effect*

to norv-bank Investors
6m The Troamay
long torn non-saarkwt bond* 15 ymr saturity irterost rats

Tb© above Fiscal /rograa is ©»ísential If the govormant deficit
Is to bo hold to 3 siitoja so that it can b® financed out si do tha
banking aysteo* This is also m essential requirement of the
Monetary and Credit Pregras suggested IT it ia to be successful.
Tha present situation calla for the people to save their mtmy
and purchase r-oc bonds* The^r cannot be expected to do this unless
the govem&ent takes tí» neeessar?- action to protect the purchasing
pernor of the dollar (their ^on«^) free further pries inflation,
chiclifeasalready boor* peraitted to go too far» The vigorous Credit
Monetary and Fiscal Program above outlined will accomplish this
purpose without the need £sr iaposin^ the objectionable harness of
diroct controls*