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Sv,. FILES MAR 1 2 1948 THE WHITE HOUSE WASHINGTON September 26, My dear Mr. Chairman: You are requested to submit to me by November 1, 19^7, such material as you would propose for inclusion in the State of the Union Message or the Economic Report of the President to be transmitted to the Congress in January 19^8. This material may be submitted in form suitable for inclusion in the drafts of these messages. It may relate to proposed statements of administrative policy by the President, legislation to be recommended to the Congress, or recommendations for other types of action. Replies to this request should also include any views which you may care to present at this time concerning special presidential messages during the session of Congress beginning in January ^8 You are also requested to submit to me by November first a report showing the character of legislation of concern to the Federal Reserve System which you anticipate may be considered by the Congress. Your report should show the subject matter of the anticipated bills, the position of the Federal Reserve System on each subject, whether you wish to recommend such legislation to the Congress, and the names of other departments and agencies which, in your Judgment, are Interested in the same subjects. The report should not be in great detail, but should contain sufficient information to identify the subjects upon which legislation may be introduced or requested. This report will not, of course, replace the individual submissions required by Bureau of the Budget Circular No. A-19. Replies to these requests should be accompanied by five copies. Where necessary, supplementary materials may be submitted later than November 1, but not later than December 1, 19^7. The White House staff, the Council of Economic Advisers, or the Bureau of the Budget, as appropriate, may make additional requests for material, or arrange for discussions with your representatives to whatever extent may be required. Very sincerely yours Honorable Marriner S. Eccles, Chairman, Board of Governors, Federal Reserve System, Washington, D. C. lotmter 7, 1947. Dear Cl^rk: I tm encloz-ine a drait of • few pTtgrmpha thst the President might tri«fe to consider including in his laess&ye in lealin, vith tne credit side of the inflation w I t refers, in gMMTftl t-r.-ris, tr the n^ed for t ictu e. legislation to hive the Federal Opra A rk«t Cxxuittee of the Federal iteserve Sygtca authority to pot iato effect a special reserve requirement butt would iiave a definitely restr'aiviir.^ effect in creation of UkflaAiaaaij ban* credit* Tnis is a MMnrbftt cori: lex subject which I hope to discuss vith you Monday noon. In the aeantiad, hoveve;, ycu I !;-.ive an opportunity to look over the enclosed drftft of an explanatory Maoraadai which is cc/rc?ct in a l l the essential-:: but on vnich I w.,nt to ao sc:*e ore v/ork on details over the I would c.ifc>o like to taring over to yxm on U-ac s ae additional sui^estions, relative to other SiSpects of the credit s i t u a t i ; . . , vhich you %.?'/ vi^-h to consider for inclusion in the u&mtmgtt. Sincerely y-'urs, Enclosure The Hc.;or^bie Clark M. Clifford, Special Counsel to the President, The White House. 0ader pWlfeiliag WWJI'liiini off Mp&tyafKt *nd /•reduction, > i t h d shortages sf t s s T MMi r&v .v&teric.ls, any increase in the outstanding of credit, extvndtd to in.-iylau-sls or tofcmair; «*;:•, uou.'-d ixxcn.v.sm VOIUJSG immtd for ;'Oods W& MttlMM without increasing tot 1 output* GOT? Accordifig rnstfeirt ^olicy -.t this tla© should be dir&et*$ tovmrd rostra in i j tsnaicn of credit beyond vh&t i s necessary to ®6int^ in the highest pronucticn. To this end, I r^eosiTiend that the Congress ?riv« canside'p to an interrfcl.ted progr••.-« designed to ^ s t r i c t grovth in the country's money supply that vould signify deasnd on rices* nd thus intensify upvsrd rssmxre Such 8 program collf for thi'ee closely related MiMPHN One is restoration, under specific legislative authority from the Congregs, of regulation of consumer in&t»latent credit. The zec-nd, of gMWfcf* ia ortrr-.c©, i s ie^l^l t i n to provide, cj an eMkr^ency Ae$^re9 ^-^Kferabiy for tferc* ve-rs, raithcrity under vhich %11 b&oks eogfijied in th* service of receiving and ...syiag out rieaand deposits rat.y be re; aired to hold9 in addition to .resent required fp#«rr©s, some specified propo tloa of their de-.-oslts in the fora of cash and interbr'-.fik deposits or la tmiMif b i l l s , ce tificstfee or :otes. Trie efi'ect of this authority, vh.ch ghouls bt ! • the Federal Dy«l M rket 0«Rltt#« of the Federal ?^:-v:ve Sygt^j,, woald to retard l.-;fiati-- nary ereetiost of btak credit. Third, of vara-souat import-nee, |g lotUaMMI of I budt'.etsry surr.lus -ad the r&yi-ig off cf as auch M ponttlt tf the .ublic debt h by th© b&nkia^' syste^u Ve HMMlU fo: ego &11 iowrMMKl ex. eaditures, w fMtVftl, s t : t e or local, vhich can be avcided v«itogether or deferred until the current intent?© deasn&B for Itbor &nd ranteri»ils asve abated* Rigid •corioa|jrf prudent expeuditure for t i i i l i a i Gr/rei-maental purposes only, end (iefenaent of t«ix reduction should ^o hsmd in h?»-nd as long as inflationary confront u s . •illMill 7, Pe--:.r Johns I n cnclo-i. cf i •- '.•'• • . • • r- for ytttr lnf«nartit« I copy Is • •• : - l ; I l u m M t r t over : t o Cj-j-rfe C l i f f o r d t - '• . I In < t n e e t l o n tine !hr*«id*ftt* • t»0<M e t « k l » ^ a c i i ' c ^ - ; .. s 41 erclc r •r?c- a KM IT , ra i bf t© Ltfc '} i« a crellsdnarr d* ft of r*f< rsscf is these ?t;t CT l^tion ihftt voiii-: author- t : '•€ liftitl i t tad d#po*itf •:•:' >•••:. t o Lee «i-. ; llUI* I MMtLliM h*N r e e l e d you a r e f o r t i s e , but ho e , e?en ? o , t h a t >•"•" - - t'JK.Lty t o look over t h e ;-ro ^ * i MMA i t « vhieb 1 MI i o n ywa »r« i n 9impht%m Bcmor«M« John V, 8nyd*r, B—l»imj of tht •- r, , r _ »ir oM tfUl w 7, 19-47, Dear Lee: I •• -snclosing copies of materiel which I have sent to the Secretary and to Clark Clifford in connection vith bank credit aspects of the President's message to the special session. One enclosure suggests sone paragraphs that the President may vish to consider including in the message. The other enclosure is a preliiainary draft of a aenor&nduB which explains the proposed legislation authorizing the Federal Open Market Coasmittee to establish a special reserve against demand deposits. I am working out soiaa details of this raeaorftnduci over the week-end, but the enclosed draft gives the important features of it. I hope you nay find soaie tiase in /our busy life to look this over, because I am confident you will l,e in full accord vith the objective sought, Needless to add, I weXeaM the opportunity to discuss it vith you on Monday. Sincerely, The Honorable Archibald L. MU Wiggins, Under Secretary of the Treamiry, Wnshington 25, D. C. Bhclosures - 2 ETsra (i // V ///7/y / Under prevailing conditions of employi»ent tad production, with continued shortages of labor rad raw materials, any increase in the outstanding voluiae of credit, extended to individuals or to business, woula increase demand for goods and services without increasing total output. Accordingly, Government policy at this tiie should be directed toward restraining extension of credit beyond what is necessary to Maintain the hlfhftft possible production. To this end, I recoiamend that the Congress give consideration to an interrelated ptogr&a designed to restrict growth in the country's •aoney supply that would minify dtaaad find thus intensify upward pressure on ;..rices« Such a prograa calls for tnree closely related -.enures. One la rest oration, uuder specific le^i-l^tive authority froia the Congress, of regulation of consumer lintlinfflt credit. The second, of greater importance, is legislation to provide, aa an emerjen•••:• measure, preferably for three years, authority under which all bankfl engaged in the service of receiving and paying out defend deposits a#v be rec-ired to hold, in addition to present required reserves, some specified proportion of their deposits in the fora of easftj and interbank Aapoaltf or in Treasury bills, certificates or notes. The effect of thll authority, vhich should be vested in the Federal Open :~kirket Committee of the Federal Reserve System, would be to retard inflationary erection of bank credit. Third, of ->are.niount iin.ortance, is continuance of a budgetary surplus and the paying off of as much ai possible of the ;;ubiic debt held by the banking system. Ve should forego all Government expenditures, whether federal, state or local, which can be avoided altogether or deferred until the current intense demands for labor and materials have abated. Ri&id economy, prudent expenditure for essential Governmental purposes only, and deferment of tax reduction should go hand in hand as long us inflationary dangers confront us*
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