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1, 1945. Mr. John •« Director of W:.r Hefeillfttitloa NMi U*-ccnversion, •Mhl&ftea, D, c. De.r Kr« 5nyder: I h.,ve i>e«n achriMd by Hr« lm*cw of UM Ntiieb jrcMI BMMl l f t « r / o u r testimony before' Ul« S - ttloa of UM KsntM Jucici:-.r/ CoMdLtt#i tdlat ^a aesid /ou a a of felM reaisDnii supoortim? ihe rtqpf It bh&t T i t l e IV of Powers Act foe extended for ft& I •Alt a f«ar« >ini.Ie »i »ay fct MMi Lat«r a.,,te Mk tn..t t h i s aut h o r i t y , which mm •pMMwrtd by Uii Bo^rd of QoVMFMNm • • ! i s e*divxiaistereci b / the fttd«ral Opta KoJrfcti Cosimttee, be placed on • pMiMiMt basi«, i t a&y not be tpfffltpvii&i at thia U n to make such & request. The authority thoald, however, be k«pt In .force a t l e a s t during the Ci>?siu:: fMT« ] flMd by Dan Bell tk*t Uie Treasury bat r^coi^neaaed i t s extension fof • uerioci of one year. d i i f ^r&u:..nr5:j to r;o cut of town, I -.m BM hcTewl.tii a brief snessorundms of rtiWMMi for £?ucU an ex t e n s i o n . V^r/ t r u l y yours, H. b. Eccies, ChalraMu I im m AUTHOR!IT FOE YSISIUL KSSISIE to mmnm> QommmMt mcwanm IBM I S mm® 61L1S8 mmcm Title IV of the Second War Powers Act Witmrlm® %h& Federal Banks to purohaaMr directly frost the Treasury oblifationB of the United States* with Wm proviso that the aiaowit trnld at any one tiise shall net excuMtd fife billion dollars* I t shcmld b# rioted that purchases and sales af umrenuatnii obligatiima e&n be sad© by tots F«dffral H«»trv« Bank* either In the open sMfcrk»t or dir&ctl^ fro® the Treasury only lay direction of the Federal open y&rk«t Cce»itte<»f which eonsiats of tiie ^i^ers of the Board of ur©ran?ors tmd of five repreeentatitpee of the Federal Heecarra Ba&la* 'fho guiding pH.noiple for c^n market oper&tloos i e stated 1r ih« law in the following language* m fbt tia©# character and of a l l snerb murchaeee mod ml&s stiall b# goverried with a *?i@w to f; eosa^nsft- aid' bntiirtesss mid with jneg^ndl &o Umir bearing the g®n«rsl aneM eltufttion of fcbe The «&therttgr for dJ,r»ct 194S) should ft® ®xt<m$®& tar tb* foUowiag reaaonsi mmg 1* Tmnmsxy trans&otlona uimvaidauil^ will ibav« to b@ large for eone tine to eo»e4 particularly in connection with the refolding of E* Ttee direct buying au&hority provides Um treasury i l t h a source to which i t can turn for funds in substantial aaount on l i t t l e notice to meet temporary situations m& contingencies that sight arise In the uncertain post-wsr period. -2- S* In the absence of this power for nm in &adh cases the would be obliged to make arrangeaents by which i t s securities wov*ld be sold to dealers in the market idth the asswrnee that they would be repurchased bf the Reserve Banks, This procedure not only would be in- convenient and troublesosat^ but would increase the expense of the operation without serving any use&il purpose. 4* It i s a flexible mechanism to ease the m&rmy market in periods of heavy drain, as for exasple around inconte tax dates• &r borrowing Jtrcsa the Federal H^»erve Itoka and expending tboe© fwids prior to tax dates the TreaainT' pafee fxinds into the market| a© the taxes are Feeo3<*edl then® epecial borrowic^a are reduced in amount and aoon retired. S» I t avoids the neeeeoltar of having the Treasury offer iiovernnent obligations for aale on the open market at a Lisa© when the market might be uneertaio tnd an adkiltional rmblie offering «ight add 150 the confusion of the market and &> hars to ifte vioTornawaQt1 s credit and to the holrtera of outstanding OoverniaeRt obligations• 6* Such purchases hare been atade principally to avoid tei^orary declines in aaember bank reservea armmd inecane tax dafcee and to supply funds to the Trmamxry pending receipts frnw taxe® or new ifiuiKts of securities* ft The Treasury can operate wi th a ssjaller cash balance than might be necessary If i t were required to carry a balance sufficient to proTide for a l l possible contingencies, thus effecting an interest saying to the Treasury* Since this Act was approved on March Zip 1942* i t has only been used occasionally and for brief periods, the attached table showing the dates and amounts of ^easury certificates so purchased by the Federal %%mr*m Banks* Copy HOLDINGS BY THE: FEDERAL RESERVE BANKS OF SPECIE SHORT-TERM TREASURY CERTIFICATES PURCHASED DIRECTLY FROM THE TREASURY SINCE M A R C H 1942 (In millions of dollars) Amount Date 1942 - June 16 19 20 22 23 Sept .15 16 17 18 19 Date Amount 1943 - Mar. 16 1,250 70 17 47 34 94 18 981 836 19 778 20 22 768 603 700 512 432 324 189 286 23 24 25 26 27 76 53 29 Nov. 27 28 30 Dec. 1 10 15 1943 - Jan. 29 30 Mar. 2 139 329 422 115 202 4 5 354 6 10 11 12 543 591 648 632 790 940 13 15 1,043 1,302 9 June 98 16 145 3 174 8 30 15 16 805 17 350 256 18 19 Sept. 8 9 10 11 1945- Mar. 384 304 104 40 659 212 11 126 13 14 15 16 243 246 214 179 424 258 15 4
@FedFRASER