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J A £ 1/- ./ fa 'Ai ff iSW A L/r A /gjfo y 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$s on top of an economy that l a been showing inflationary is pressures for aosetisi©, ©special!/ in the durable goods and housing sector. * a Price inflation is sure to develop when the d<^ind7supportod by sonsy and credit e&ceeds the supply* The available supply of saonoy and credit can bo increased only by the banking systes aakii^ loans to or iTuying securities frcea either the govemesent or the public* In the present situation it is» therefore, Imperative if price inflation is to be controlled, to stop the oversell -prowth of loans and investments ty the banking systea, includirjc the Federal Reserve• This can be prooptly brought about if the ¿overn2$ent will adopt without delay the required monetary and fiscal (Uwl 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 ls 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 mxm.il ^ _ _ 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 4 ^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 ads' sortie guarantees by the Veterans Administration and ¿sortinsurance by the F*H*A*$ requiring t i Federal National re 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 sd as to dcwn payment ani .maturity to curb further L.ro»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» *f j The above six point pro^rau; l a the advantage of beisy^a'ule is to be put promptly into effect or rescinded to the of feet deeded without rehuir inc. legislation, with the exception of consigner credit r^uLationa. FISCAL rfiOURAM 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 i all net earnings above 1 : on first five -dllion of invented 01 capítol and on a ^ balance, allowing a five rr thousandtóemptíonof earning® subject to m m m profit t - * a; 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 (•W 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 .ir 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*
