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BOARD OF GOVERNORS

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FEDERAL RESERVE SYSTEM

Office Correspondence
Xo

Chairman E<?oles

From

Date j^ary 17, i9ho .
Subject: The* Pftrifsral Net C o n t r i b u t i o n

Hflnyy 1?,rhrn <;t.nr>

t n Buying

The possible deflationary effects of the program proposed in
the Presidents Budget Message should not cause serious concern for the
next six months at least* The Governments net contribution to buying
power, which is currently running at the rate of around 1300*000*000 a
month, is expected to continue at about this level during the first half
of 19l|£U A possible decline in business activity in the next few months
will, therefore, not be intensified by an abrupt curtailment of Government net expenditures as was the case in 1937• The following table gives
my best judgment of the probable course of the net contribution figures
quarterly through I9I4-O as compared with the recent past* The estimates
for the first two quarters of 191+0 are considerably more reliable than
those for the last two, because the latter depend upon Congress adhering
rather closely to the expenditure recommendations for the fiscal year
submitted in the Budget Message.
STJlffl&RY TABLE OF NET CONTRIBUTION FIGURES SINCE 1936,
WITH ESTIMATES THROUGH 191*0
(Monthly averates in millions of dollars)
Adjusted
receipts

let
contribution

701

350

727

351
372

659

355
556

608

528

80

676
797

550
527

811

796

509
1+97

126
270
312
299

859
837
772

553
565

272

550

222

825

5U7

278

Adjusted
outlays
Actual
1936-January-June*•«•••••*••»
July-December* •
***
1937"" January- June •
••••••
July-December••••*•••••*
1938-January*-June •. •***•*•••*
July-December*•**••••*••
1959"January-June•*••*••••••»
July-December*•••••*••••

103

Estimated
19i|.O-January-March* »*••*••**•
April-June•••••••««•••••
J u l y September • •••••••••
October-December*•••••••




306

- 2 -

Comments
1« First half of I9I+O. During the first half of 1 l - the
9|0
Federal net contribution is expected to continue close to the recent
high level• Outlays are expected to be above 1939 and, in fact, at a
higher level than in any previous six-month period in post-war years,
but this gain over 1939 should be offset by increased receipts reflecting chiefly the larger income tax collections from 1939 incomes.
In this connection, it should be noted that these figures for
the net contribution are lower than would be indicated from the estimates
in the Budget Message• I believe that the Treasury estimates of receipts,
particularly income taxes and customs, are decidedly too low and the
budget estimates of expenditures are slightly high*
2• Last half of I I . U The anticipated decline in the net con91C
tribution from the second to the third quarter of I I . is largely due to
94O
the seasonal drop in agricultural benefit payments and in the Works
Projects Administration expenditures• The final quarter recovery reflects
mainly the seasonal increase in agricultural benefits and the continued
growth in national defense outlays•
3« First half of 19lil« Although the Budget Message indicates
that the Federal net contribution may be considerably reduced during the
first half of ISUl, any precise figures presented at this time would have
little value because of the many uncertainties in regard to Congressional
action on the Presidents recommendations on expenditures suad taxes and
the large margin of error in any revenue estiinates that far in the future.