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Forta * . tt.
BOARD OF GOVERNORS
OF 1 HE

FEDERAL RESERVE SYSTEM

Office Correspondence
Ohaiman Ecolem

From

Lauchlin Currie

Date

November 22, 1958^

Subject:
A preliminary survey of
existing expenditure programs wliich are
being financed without use of direct
public debt, or which might be so financed*

In accordance with the request at yesterday*s meeting of the
Fiscal Comaittee, I have sent copies of the attached to the members
of the Committee*




November 21, 1938 #
A PRELBFLOIARY SDKV1Y OF EXISTING EXP22TOITURS PROGRAMS
1HICH ARE BEING FINANCED ISITHOOT USL 0 1 DIRECT PUBLIC DEBT,
OR VMLCE MIGHT BE SO FINANCED*

Findings
I - Over $1 billion of guaranteed debt might be substituted at
any time for public debt, if suitable administrative and legislative
action were taken. Any such immediate reduction of the public debt
would be at the expense of a corresponding reduction in later years*
(a) the R. F # C. has #600 million of borrowings from the
Treasury which it could retire by issuing its own debentures.
This requires no legislation.
(b) If new legislation were enacted, another one-half billion
dollars of direct public debt might be retired by issuing guaranteed bonds against existing assets. The R. F. C* might retire part
of its capital stock and the HOLC might take over shares of savings
and loan associations owned by the Treasury. Assets of the
emergency crop loan program, assets of the rural rehabilitation
program and assets that have been transferred to the U. S. Maritirie
Commission might form the security for issues of newly authorized
bonds or notes of Federal agencies.
II - Expenditure programs now in existence to the amount of some
half billion dollars a year might be financed without the use of direct public debt, providing suitable administrative and legislative
action were taken.




This conclusion rests on the following considerations:




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(a) A number of Federal corporate agencies, whose capital
stock is owned in whole or in part by the Treasury, will automatically continue to make loans largely without further use of the
direct public debt* Among these are the United States Housing
Authority, the Commodity Credit Corporation, the Federal Home
Loan Banks and the banks and corporations of the Farm Credit
Administration. The one of these which will clearly be expanding
its assets steadily is the United States Housing Authority; its
loans, to be financed with guaranteed bonds, may reach a total
of $150,000,000 by next June and may increase by another
#300,000,000 in the following fiscal year*
(b) If the R* F. C* undertakes to finance all its further
loans by issuing guaranteed notes, a loan expansion which might
amount to anything from #50,000,000 to #250,000,000 could be
financed without instead of with the use of direct public debt*
This would include loans to municipalities in connection with
the P* W« A* program, loans to railroads, loans to public utilities, and loans through the R. F # C*fs subsidiaries, the
Export-Import Bank, the R* F* C* Mortgage Company and the Federal
National Mortgage Association*
(c) If suitable legislation were enacted, certain other
expenditure programs already in existence, which may run from
#100,000,000 to #200,000,000 a year, might be financed without
instead of with the use of direct public debt*

The most promis-

ing of these programs for this purpose include Rural Electrification




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loans (now financed partly through the R* F. C # and partly
through appropriations), 7, C« A* emergency crop loans, BanfcheadJones farm tenant loans, Farm Security Administration rural
rehabilitation loans and V. s # Maritime Conm&ssion ship construe*
tioiu
III - The possibilities of shifting any substantial part of
current budgetary expenditures to self-financing agencies appear
limited* However, an extension of the programs mentioned above
through self-financing corporations might lessen the necessity
for other large and continuing budgetary expenditures such as
work relief and public works. Thus a shift of certain existing
programs to a self-financing basis plus the initiation of new
Government activities that could be so financed would permit,
either directly or indirectly, a budgetary balance to be attained
more quickly, yet with no more danger, than is now possible*