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Portland, Oregon

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January 24t1939
Hon Marriner S.Bccles,
Chairman Board of Governors Federal Reserve Systemt
Dear Sir:
listened to your address over I#B#C« last night
and understood you-as a private citizen- to say that
"deflation is just as bad as inflation",Is that correct?
So my way of thinking I would say that it is#
Will you advise me why on Aug 16t1936 the reserve requirements of ell member banks of the Ffeder8l Reserve System were increased 50$ by order of the Federal Reserve
Board of Governors! Why werfc reserve requirements increased
75$ on Mar lf1937 and on May 1*1937 100% of the legal requirements as of from June 21f1917 to Aug 15f1936? Soon after the Federal Reserve Board1s order of Aug 16t1936 the
people of the country learned that we were in a "recession".
The actions of the Board on Mar 1 and M8y l t 1937 in increasing reserve requirements first 75$ and then 100$ threw
us into a "depression".Is that not true?
The order of the Board on April 16f1938 in reducing reserve requirements of member banks to 75$ above the lega 1
requirements as of from June El,1917 to Aug 15f1936 had the
effect of raising stock and bond prices on the lew York
Stock Exchange and also feed the effect of causing prominent
men in business end banking circles to give out interviews
freely in the press that business conditions would be get*ting better.Such interviews were absent from newspapers
throughout the country from August 15f1936 until Apr 15 f
1938.To my way of thinking the orders of the Federal Reserve Board in increasing reserve requirements as above stated
is the direct cause of our present depression#It is inflation of the ?/orst sort#
If prices are to be brought to the 19E6 level as was advocated some months ago by the administration-hate not
heard any fireside chats along those lines lately-can that
not be brought about by reducing reserve requirements instead of persisting in a policy of deflation by the requirement of a 75$ increase in legal requirements as of
from June 21f1917 to Aug t 15 f 1936?
I am leaving tomnorrow night for lew York and would
appreciate having you answer this letter to me care of
Iiino&ln HotelfHew York Oity f I«Y #
I await your reply with interest*


January 27, 1939

Mr. Frederick H. ^chmalz
411 Alderway Building
Portland, Oregon
Dear Mr. kclmalz:
Mr. Iccles has asked me to acknowledge
and thank you for your letter of January 2^th in
which you comment *on his recent radio address and
in which you express the opinion that the raising
of reserve requirements by the Board of Governors
of the Federal Reserve System was deflationary in
its effect. Jin_this. particujb&r question, I*think
you will be interested to read a copy of the press
release in connection with that action. I am also
enclosing a copy of Chairman Eccles' speech before
the New Jersey £>amcers Association on May 13, 1938,
which includes a discussion of this question.
Yours very truly,

Lawrence Clayton
Assistant to the Chairman