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f FEDERAL RESERVE BANK OF NEW YORK January 21, 194-2. Hon. Marriner S. Eccles, Chairman, Federal Open Market Committee, Board of Governors of the Federal Reserve System, Washington, D. C. Dear Chairman Eccles: Enclosed is a copy of a memorandum which sets forth our latest views (one or two differences of opinion remain to be composed) on those aspects of Treasury financing which have been the subject of our discussions with the Treasury over the past few months. The interest rates used in setting up the two alternative short-term tap issues are suggestive rather than definitive. There is room for some flexibility here, but we have tried to take account of such factors as competition with tax anticipation notes, interference with the broadening of the Treasury bill market, and present rates for outstanding market obligations. Yours faithful Vice Chairman, Open Market Committee, Enc. c TREASURE FINAMCING On September 28, 19411 the Federal Open Market Committee, the Conference of Presidents of the Federal Reserve Banks, and the Board of Governors of the i i Federal Reserve System agreed upon the following statement of views, & copy of •ahich was given to the Secretary of the Treasury by Chairman Ecclesi 11 In the present emergency (1) The Treasury should take further stepa to obtain the maxima amount of its borrowed funds from lenders other than commercial bariko; (2) The Treasury and the Federal Reserve authorities should expedite their efforts to decide what additional powers over bank credit should be recommended for the Federal Reserve System, and we express the view that additional powers are needed] (3) As a complement to these steps, a pattern of rates on United States Government securities should be determined jointly by the Treasury and the Federal Be serve authorities from tine to time and should be supported by such measures as may be necessary, including open market operations by the Federal Reserve System*11 The magnitude of our war program directs immediate attention to the 1st and 3rd sections of the above statement* Obtaining Borrowed Funds .from Lenders Other than Commercial Banfts, (1) The President's budget message submitted to the Congress on January 7, 1942, indicated that expenditures of the Federal Government during the fiscal year 1942*1943 (beginning July 1, 1942) would be approximately #60 billions, (2) On the basis of the estimates given in the budget message, including the revenue from proposed new taxes, the Federal debt will increase from $70,600,000,000 on June 30, 1942, to $110,400,000,000 on June 30, 1943* an increase of $39,800,000,000 (3) The net public borrowing contemplated in the fiscal year 1942-1943 totals 133,615,000,000. (4) slaking allowance for possible sales of Defense Savings Bonds under the present selling program, and a net increase over the fiscal year in the amount of ^^MBe*** notes ami d*po&ti&ry bocd* mitsiaa&Ug, i t ftppwurs lik#l^r that to $25 billiaasi w i l l h t w to fee ©bt&ifWMi &yfc&a«al* of GovaxtHHrat swcurlt^e* to grave araMreltgr of th* tr«*8«ry*3 tsfclag fwtiwsr «tep«f to of 1&«#* lxMr3ro««»d funcis policy 1« to for to the tkm ml0 of of of of t&# / kinds; th* laterf©r©s «tth tls« of their th« for' tb« h o l e r s of &* tapped witfe but ^hie absuld t» ewto to r«*afe (?) It lit for of such offer luge sight Isiter«#t tmttt £ f^t 1$ years or cf f a©tic* &ft&r Sat o&llttbl* prior to 1* be#u fc*I4 for (b) f t t * «fflft *«<» » f # a f<MP «f If told I I a/a if if 155: i t in SOt »i3T tO ©f f#ur Pattern of fi&fteff (1) Our experience in the l a s t war, the experience of other countries in this war, a&& msr present ©&p*s*itgr for the mitageaent of the &Qn*taxy *md credit resources of the country, a l l indicate that this program should sot be ea*t in the. ©Id pattern of rising rates of interest as the war progresses* 8oae oeasiirs of prioe fixing 1* required in the field of credit, just as in other fleliis, when the Goverasent i s the principal borrower in the oaritet *ad the emiae of i t s borrowing i s the defense: of oiar national existence* (2) It l s t therefore, desirable, and the existing situation In the aosey and the &or$rtm&nt secoritgr nt&rket saakea i t praetic&bi*, to det«raine t efitahlish, -mk* v^^-w a pattern of g%t*# for United States (ktvenauesit securities wMeh will for 'the preheat, the general teras of tre&anry fin&aeing, (3) I t 1# s«i|^»iite4 tfe&t t^e range of rates established by #aon a pattern should be, for the present, £ro» 3/8-i/^ to * 1/2S» ^or obiigsttions other than Series S DeA femte: Savings Bonds* tlie lower limit of tiie range and tbe short-term rates in general could have sose flexibility without disturbing the «axianai or long-ters rcte, be revised upward later i f a» L9 thus intetusifying tfc* the a & enough the general jp«ttem &t rates which has aire«4y been estalilished, and ste#ra a middle course betifeen the dcajger of e. subatsntial decline la. the prl«eji of iAg securities on the om hand, and the danger of starring investors *®& investing institutioae on the &t&«?« (4) rate establishaent a»d maintenance of stioh & pattern of rates does not require the excessive v&lxm* of excess r*a*tV9& which has characterised reeent years* It does ooat«Rii)lat« th«.t when mass*** reserves have shrank to aore aanageahle proportions they will be ja&inUined in sufficient voiuae to ea*bl« banks to assist the financing to Caterer extent is ne«e««*rr* Si* ^p»gra«t to be suecessful* r • T C ..*~ - , * really mkftomm« p*ri «f ^ it fcilifcy / lie t» \KCQ&&% to teyr on («) that tiw (5) is pmp&m& tm %&%$ tanuuiltigA to m r t t o * ristffi&@'iEg« A •t&t«e««fe ^ tho c r e d i t policy ^ l o h w i l l b»fc0»$is§fc»a%wltls - C XL"
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