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COPI

BOARD OF GOVERNORS
ar

THE

FEDERAL RESERVE SYSTEM

Office Correspondence
To.

Governor Ransom

From_

Date September 18, 1942

Woodlief Thomas

Subject: Future Trend of savings

We have received a confidential memorandum from a
member of the staff of the Securities and Exchange Commission
giving further comments on estimates of individuals1 liquid
savings, which were published by us in the last Review of the
Month, and giving also seme rough estimates as to probable
savings in the latter half of this year and in 1943. These
figures are summarized in the following table:
Individuals1 Liquid Savings
Estimates of S. E. C.
(In billions of dollars)
Probable
2nd half
Year
19L2
Total.

15.0+

48

Currency and bank deposits....
Securities (mostly U.S.Govt)..

11.

40

Insurance and pension reserves
Liquidation of debt—net*...

2-3
1.2

6

2
^Decrease in consumer debt less increase or plus decrease in
debt on home mortgages.
The most striking point of these figures is the large
amount of funds that will be available either to purchase securities or to put into bank deposits. Whereas total savings through
these channels in the first half of 1942 amounted to 7.2 billion
dollars (compared with a total for the whole year 1940 of 6.6
billion), it would appear that at least 11.5 billion dollars will be
available for these uses in the latter half of 1942 and about 40 billion in the year 1943.




The memorandum states—
"...It is impossible to estimate with any precision
the proportion which will take the form of cash and deposits, but in any case there will be a vast increase

To: Governor Hansom, page 2




in the amount of such funds — much too large for safety.
At present, the most ambitious nev* tax plans under consideration by Congress would sop up considerably less
than ten billion dollars of the above amount (in 1943)*
leaving substantially over thirty billion dollars in the
form of voluntary purchases of war bonds and additions to
cash and deposits. At best, therefore, much still remains
to be done before the excess of inflationary funds can be
considered as effectively controlled.
Conclusions
"In the near future, the growing disparity between the
rising national income and the declining supply of consumer
goods will, in view of price fixing and rationing, result
in a veiy large increase in total liquid saving, including
undoubtedly seme rise in purchases of Government securities.
However, in the,absence of a comprehensive forced saving plan
or some similar device, there is reason to expect that a very
considerable portion of this saving will take the form of
currency and demand deposits. For reasons suggested above,
the existence of a substantial amount of such excess funds
will create inflationary pressures in the various sectors
of the econoaay and will seriously aggravate the problem of
overall control.11

(Signed) W. T.