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FEB 12/1941

January 27,

Dear Marriner:
In accordance with the Secretary's telephone conversation
this morning, I am transmitting herewith four copies of the
first draft of his proposed statement before the Ways and Means
Committee on Wednesday on H. R, 2653»

As we will be working on

this this evening, I should appreciate it if you could let me
have any suggestions or comments you care to make on it before
four o'clock*
Sincerely yours,

Under Secretary of the Treasury

Honorable Marriner S. Eccles,
Board of Governors of the
Federal Reserve System,
Washington, D« C,


FEB12 1941
Hi#n I f l r * t appeared >»for« you taut spring at th# ti»# tha
of 19^*0 was und*r confederation, th« Mational Ocf«n««
pro&raa than b«for* Congrami #a» 1»«* tb«n $^9000,000,000«

X told

you tfcgt on th» b^tln of thf»t program th« Glance of th« borrowing
authority und<ir th* ^*»a«r«a duet limitation of $1*590001000,000
b« eo»pl«t«ly #xhaa«t«d and th# t»orkia^ balance of th* Tr«»«ury would
in thii caiondax y#*r 19^1 •
t h i t » i t u i t i o n . Gorier*** provided in %m f i m t


Jft vi#* of

Act of

for th* i»«u*nc» of not aor« than Pi t 000 v 000 9 000 of Jihort-t«r»
to raine fundt to fin»nc» tho Kationml Pcf«ai««
Uto **»• Act provided additional tax<i«, «o«t of vhieh w«r« int«nd*d to
*# u»«d to r«tir« within fi*# /««r» any fl«f«n»« ooli«iitioa« it«u»d imdor
thic authority.

A« I r^portod to yon, th« i?rovi»ioni of the M i l th«n

ponding \mfor* yrnir Oe»i»itt«Mi w«r* nuffieimt to »«#t %h« *ituition as
i t «xi«ted at that tt«w«
ValftAOfT'of borrowiw^ auftioritar on Jmiaiirjr 1,
$8X7.000,000 un<l»r th« £4»n«ral l i a i t a t i o n , awt $2,7oU,(KX),

nith teirrowiiM; authority *uffietent only for tha m«x* thr*«

X MI th»r#for* appanrtag l>*for<* you today 1ft support of
for th« olliti&ation of th» partition l a

tha dsbt U n i t , MiMM th« d«Ht U n i t to $65,000,000,000 1
«r««t#r f l e x i b i l i t y In our financing t»p?r%tian«, *m& pr«vl<l«* th«t tht

fffOR a l l ftxtur« i«mie« of 0ov«maMmt »#ettrltl#«, Voth

and indirect, b# «ubj«et to a l l 7td»ral t^»T««.
Boe®a«* of ri^ld clvmr** in «««irld conditions, our
Satlomil l>*fnn»«i t5ro«r«», according to th«
hm» aow Vtwi i»^f#a#«4l ua^til i t napr«^mt#« «^|»roidisat*ly $ ^ , ^ 0 , 0 0 0 , 0 0 0
in approprlrtitm*, oontrmct mo.tlion*«tloa«t itisut r«oo«a«ad tlonn.


*«tlmit«<l *3q>«R4ititrmi profi^a* l»isln<l®4 ia %hl« ftnAg«t will r o w l t la
4«fiei%« for th# fit*** y#«r<i 19^1 w ^ 1 9 ^ of MM than
la T1#W of thin
I t would fet nxhrltal»l« to und*rtnir» to flnane« I t thnm^jh th« i«*ru*nc«
of «hort-t#ns ««ei}ritia<i anil th«ir r#tlr«^#Kt out of aajmar'-'aA taxan
a «!>#eiflnd p*rt»6 a* oontawplatail i a th« f i m t Ravunuo A«t of

for th# no at

- 3 t>ttrch**#<i fcy busk* r«*mltin& In A further inflation of deposit«•

1 i«

hlgfrl/ rt»«irabie to avoid »«eh infi&tlcm it,* much *« no*«i>»l* «md to M M
*xt«nt thi* mm *• aoeo«pU«&«d by lftvttlng lon$»t«rm obi? ^ t i o m at tract 1T»
to p«r»an«nt laTtstor« o«t*id« of th» b«akin« 9j*tm.

I t %*m* el««r,

th«r»for» v that th# provision* of l«w authorising th« l»«ttitiMs« of
$^,000,000,000 of »hort-t«m public d«^t oblimtioa* and th«ir r«tlr«»<mt within fiT* y*sj"« out of a*ra*rk#<l t«y«» nhsuld b« r«p«atl*d.


atl»o clu^rly in<lie»t« that tht ««n<M^l d«¥t
limitation of ^,OCK>,OOOtOOO «u*t b« inor«A«#d.


to insr«at# this U n i t to an «MOU»t tuffisiimt to «nitlil« tht
to ««#t a l l of i t * finaiioiaie r*f|iiir«aiiatf for th# atrt two fi»cml
30, 19s*?.

1 ^li«9¥# thmt th# anotmt fi««d in

for thi*
feringv a« to n»«th«r MMW of v i t a l iw3X»**t*y«5# in «oen<iotloB
%hm flnm.<$im of th« national I3ef«ii«« profT««. »»4 that in this

tt#nt a»4 i t # ^«nci©«.

I toldi yon l«s«t y»ar thmt i f i t W N

•, Z mvLltl i««m« Hatlonal D«f«n«ff 9«rl«« o b l i ^ t i o n « «nbj«ict to

Fod«ral taxo««

Th« discretionary authority of tho treasury to Isroo

n«eurttl«« imbjf»©t to a l t F#d#rs& t«xo« i« «mfla#d to Twm*xary not*
with m maturity of fr©» on* to flvo yeart.

A* to nil othar typos of

Qov*?ra»#iit s«eurltl««, th« law i t * « l f dofinit«Xy flx«
fro» trxaiion and th«rs 1« no Alfterotloaary authority la
offleo of tho ©ovomawit to y«ry tho«« nxtnptlona*
Ordinarily, tho Tro&oury ws«l*i haro ral«o4 in Poeosi^fir 1 9 ^ a
«ub»t«ittlfiX aaeifflt of additional eauih anrt i t would h^vo e&rriod out
l t o ufual prograa of r«fttadin^t throo sonth* i s advoneo, the o
•Mro^tlius $193?D9OQO9OOO t u t maturo on Maroh 1% 19**1.

Sho nonoy aiwrkot

At that tlno affordod tho fr*»a«ury an oxeollont opportunity to refund tho
largo maturltl<»e »nd m l no tho additional oath Roodod largoly through tho
oolo of loa®»tor» l^ondu*

Hownvor, witiciratlm: th»t tho O&nfroon would

ooiioldor th« quootlon of tax *xo»ptio&» in this ao««ion t i t «oo»od to no
hi«hly dooirafelo that tho Troanury itako no further offoro of lon#-t«r»
t«x»oaconi>t ooeorltioo u n t i l this (k>ni$r*m h«d h®&, em opportunity to con* 1 dor
tho qu*»ttlon a^aio la tho li^ht of th« hn«o d«f mm* fln&n&n& program
b«foro u«.

X decided, thoroforo v to dofor our rofundine pro«ra» and to

-3tt«*t aar lanodfftto ea«h r*<julr#tt#nt« tfervufth t h t *al* of
not««, th* ineown fro» mfefeh i* «tsfcj#et to a l l ?*d#ral %*xm9 l a
ordf>r to j^v# t h l t 0®t»$r»ii* na wi^isortmilty to eon«ld«r t1i# qu#*tl0a of
*H«itt*tin f r tii«-«T««ption«« from V*dmr*l *^etMrltl#*.

X cenf«rr»d ^ I t h

« ^ayn and Vman* <knml%\*m of %h« i5ou«« maA th«
of Urn ®mm.%* anH


to than *hat 1 hwi i » nind

t h a t I & tnklac th««» « t ^ « I t imp «r hop# t h s t QcmcrM* «mld
•n*ot l«^i*l tSon «hi€h «iuld p-iaovld« that th# incoa« from a l l
thu P«d«rnl C^v#mKi<mt or
to a l l ^«d«rfel tA*#t«


of I t *

t %#11*V4 t h a t

•aplninwi to t h « i a*t » i t h thmtr hearty a-^rov»l.

I J ^ «tir» tM«

th* iRpcMrtonc* of proapt *etion i a
no thut tfeo Trowmury «•« tftkn 9t«rm ^ r«ft»tA th#
In «4v«nc^ of thftt <!&t*»
S#ctlo« ? of H, I ,


mmmAm 9«otlon ?1 of

itttft Aet* «« «n«n&*<l9 «o • • to l i s i t th# two* wwmat of public

lummd und#r th* authority of thAt Act to « i wvnyit not to

•xetod in %hm aggregate 165,000,000,000 ont*tiuvUn« at any on# tl»«.
?Wi aa«nd**nt a* written will r»p«al unction 81(b) of tkat Act
th* iftttijsne* of $U,000,000,000 fmem aammt of National

An previously #»plaln#d, thi« incr«aa»d l l n l t a t l o n w i l l

for th« <mrr«nt mid «n«uin^ fiwtml ymmrm*
A c t i o n 3 mend* faction 32 of th» ^«eoad LiWrty load hot to a*
toferat*d«»i3th* mithority vtndttv ^hieh United $tat«« %ria«» Bonds &**•
i««u#d, la order, f i m t , that th« 'fVeanur/ »ay i«<m# such bon^« with
aaturiti««i up to tw«nty ye»*r»; s»eoad, that i t any i«9tkn ^r«a«ury
«#rtifieat## with -Wftturiti<»« up to t<^a y«mr*v and, third, to
th« $«erot«rar control ovar tho unount of sow i**u*# of S«nriac*
Boada and of e*rtifiestt#« nMeh Majr 1»« halA at any on« Ua« V any on*

In addition, thin 9#etlon nould mithoris«» th# SeerAtnry to

«tfl«R>c or proTida other ttaanii to *vid«ae« pay»«nt« for S««¥iiig»
Bond« and caving* eartifieatat 0 Attd to provide for tho #xdMin«» of

c«rtificat«« for s«nria^s Bond*.

Tfei« woisld s t r a i t th*

-7of tho Twmmnt to e«*ry on a prognm wwnhut «iail*tr to xhm war
««*in«* and Triwwury »&vin&$ e*rtif*er***Mi prograffft during th«
pro«ratt« which provided ntan* for popular participation in tfe* financing
of that %r throng waving m a l l naotmi«, «ma &t th«


Ufe« w*r«

in raining mi>»tnntl«I -«ount«i of fund* d i r # c t l / faroa tho

Ihmr* i s nMpl<> •vid«ae* of a r*»l dotiro on %h#

of th» Amoricfln people to do their part ««d th« Troojnirsr i * «o«i anadout
to rowsh uttjr ladividUAl who doniroti to inr#st hi# *srii^?», bov**«r wudl
with tho OoT^rcuMMit for %hm pnrpo** of h#lpin« to flnmum tho d*fon«o

In t h i s connection, th» Tr«a«ury intondu to off me Gov«m»«it

«#imriti«« of a cheraotor i^tich «hcnild f » e i l l t « t o and onooura^o t h r i f t
and t«vinc»»

It i» ^y hop# that a tmtNtantial part ©f th# 4#f#a,««

for *hid& wi hav# to k i m w funds enn ho fiaftneod out of th# rool
of th p
pro«ont law f l s M th# Kuairlmua of !?«riiic* Bond* *foi<3h ma is*iiri<iis«l
In any on« 3N»»r at $10,000 tm&> twaunt.

ttior* 1* no author!ty

in th« froamiry to incr«a»# or doeroitvo t^5i* aaaount to n#«t
co ml I t loot,

fhi* ««otlon propo*«« to $Lr% tJs© "e©r#tit^ of tho

%h« authority to fix ih# msoaiitit which ewgr »# hold V W P»r«on at any
em* ttito.

I •»XI#Y# that ouch £l**t&ility !• MMtt d#«ir«*l9»
of %b* prtype^A M i l j»rovl«t<*< thAt a l l obli ~ftUo»» l««u<»d

of tfe* UnlioA ^t»t«o t •hftll. & to ooth prlaeipol a»l let«r««t or othor
%o $&1 %*xm mw or

you lnowv ovory wtimiml •trstiofi for th« ;>«•« twenty y#ar« hat
tho ooMplotn «Xi»itt^tlon of t».ae«#»owpt ««earlti#«*
now Wforo you uropontn that th« '*nit#d $tat«« Oov«ra»*nt
tho ffltftt »to|i ^J illKlOiito t h t t uml##tra©l« foatwre ffMi our
lay rroTidiai; that a l l fatwro Opy#Mriwnwat t»cttrlt!##,
th* nuthoritir of tho Bo«o«A Lioortr i H i **t t or
corpomtlon, ln«tra««ntglity f or oth#r iNConoy of
of »»/ oth»r act of Compro**. nhull b« «^oj«et to a l l F*d#r«l
(^*d#r thl« Bill, th# onn«r« of th#*« «*iraFiU#n would pay
&x#* on inoono froa thai ooureo «*nd tlw« h»lp fi&amteo tH* proonat
National Zbf •&## or any fmtitro fironnui of th«

Seetioa 5 of th« $ropo«#d M i l t#ntia«to« ««rtala ofeool«t« authority
to Ismto debt obligation* which th« TrwMRiry clom not n##d and which,
tisar#for# t night &* well fe# r«p#al»d MMS #li*ia&t*d fr©« th« «t&tat«

Th# di#bt l l a l t a t l o n fix«d Vy Action ^ l t an ft»«nd»d by thin M i l ,

will th#n ^« all ineltiftiYft*

It al#o r«|>«Alt faction 301 of Titlo IXX

of %s f l r « t li«T«itt» Act of 19to t flftiich »«t« «p a tipeei&l fund to eoa«l«t
of •mrmerk^ tnx*« for th« p«tir«m#at of say
tho Xmtion^l Bnfomi« d#l»t limitation of


pointed out, thin *<?etion oon*titvt«« •& «nd««lra»l« r « i t r i e t i o a on public
at A ti»# «h<m th* ffr««t««t froodoii of action i« 9imonti«.l*

S oontAias th@ utwd »^rin« elauto to protoet th« Hghtt of
th# holdom of
ta# authority of th« l»wt
X MI mr» %hm nos^ora of thin Cowaitto* appreciate that i t w i l l
«oon b« n#«s#f«ary for tho fromwry to rai«o aAditionAl fund» for i t *
own recount and alto for tho E#<3*m«triaetio!i rianaeo Corporatioa to swot

- 10 «xp«adlUur«« \m&*r th« <mlar«*d Nation*! D«f«a*» progr&a now \md«r way
aad that prompt piMitta&i of thi« wiamira wilX gr«atl3f f^elXit«t«
h**dlin- of oar probl«Mi«

draft - l - ?