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BOARD OF GOVERNORS FEDERAL RESERVE SYSTEM Pate^l0****>«,17> Office Correspondence Tn From P arry_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ * o o d l l s f Thcraas_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Snhjer.t; im p r e s s io n s o f D ou glas _ _ _ _ _ _ _ _ _ _ _ _ _ _ C o a & ltte e h e a rin g s ______ W ith o u t a tte m p tin g t o g iv e a smmmary o r t o in d ic a t e a l l o f th e im p ortan t q u e s tio n s t h a t were r a is e d in y e s t e r d a y 's h e a r in g s , t h i s a o a o r s ndua i s f o r th s p u rp ose o f p o in tin g o u t a few im p o rta n t im p r e s s io n s w*>ich 1 ga in ed from l i s t e n i n g t o th e q u e s tio n s and an sw ers. The d i l g m a o f monatarv p o l i c y . I t seems c le a r from th e q u e s tio n s o f S e n a to r s D ou glas and F la n d e rs and Congressm an W o lc o tt t h a t th e y are f u l l y aware o f th e d i f f i c u l t y w hich tu e Cystam would fa c e i n en d eavorin g t o c a r r y o u t a r e s t r i c t i v e m onetary p o lic y in view o f th e la r g e p u b lic d eb t* Hr, " o l o o t t r e r e r t e d fr e q u e n t ly t o a q u e s tio n a s t o w hether so®e m&axm c o u ld be d e v o lv e d f o r s e t t i n g a s id e a p a r t o f th e p u b lic d e b t so t h a t i t c o u ld n ot be m o n e tise d . G en ator D ou g las a l s o r a is e d a q u e s tio n a s t o w hether th e la r g e volume o f Government s e c u r i t i e s h e ld by banks (h e m igh t nave m entioned by o th e r s a s w e ll) weakened th e System * a pow ers o f c o n t r o l . S e n a to r F la n d e r s asked whetn@r a s i t u a t i o n mifcht a r i s e when a r i s e in i n t e r e s t r a t e s p a id by th e ^ o v e rn a sn t would be d e s i r a b l e , T h ese q u e s tio n s w i l l ne#d some fu r t h e r c l a r i f i c a t i o n . Mr. in handling’ them e n e r s i l y in d ic a te d t h a t f l e x i b i l i t y i n open m arket o p e r a tio n s would be n e c e s s a r y t o d e a l w iti* them . ih e im p lic a t io n from t h i s i s t h a t s e c u r i t y p r ic e s would d e c l i n e . S e n a te r D ou glas wanted t o know abou t e x a c t ly what th e p ro c e d u re s o f ../s t e m open m arket o p e r a tio n s w ould be under th e c ir c u m s ta n c e s , lie ask ed bow th e System c o u ld s e l l s e c u r i t i e s when o th e r h o ld e r s would be en d e a v o rin g t o s e l l . 4 r . i l l i a .^ 8 d id n o t e x p la in th e p r o c e s s e s by w hich r e s t r a i n t m igh t be e x e r c is e d under th e s e c ir c u m s ta n c e s , f o r ex am p le, t h a t th e System m igh t n o t need t o s e l l bu t would o n ly need t o r e s t r i c t i t s bu yin g in o r d e r t o e x e r t r e s t r a i n t a g a in s t f u r t h e r e x p a n s io n . fillia *fc s .fo s t e r s o f th e C © s a lt t e e in t h i s c o n n e c tio n r a is e d a q u e s tio n a s t o w hat a d d i t io n a l l e g i s l a t i v e powers th e System would need — a r e th e r e may l e g i s l a t i v e r e s t r i c t i o n s on d is c o u n t ra t® a c t io n ? — on open m arket o p e r a tio n s ? sir. W illia m s f i n a l l y in d ic a t e d t h a t trie System: would need power t o change r e s e r v e r e q u ir e m e n ts , b u t he d id n o t in d i c a t e w hetner t h i s power c o u ld be used o r n o t w ith o u t lo w e rin g th e p r ic e s o f jo v e r a a e n t s e c u r i t i e s . He went on t o i n d i c a t e t h a t th e p o s e r t o in c r e a s e r e s e r v e re q u ire m e n ts was c o m p lic a te d cgr tarn p rob lem o f non® saber ban k a, go r e f e r en ce was mad® by anyone t o th e B oard’ s e a r l i e r p r o p o s a l f o r a s p e c i a l r e s e r v e re q u ire m e n t aa a means o f im m o b ilis in g a p a r t o f th e d e b t n or was sn y r e fe r e n c e made t o th e p o s s i b i l i t y o f i s s u in g s e c u r i t i e s o f ty p e s w /iich would en cou rage fir m e r h o ld in g o f th e d e b t and d is c o u r a g e fr e q u e n t s e l l i n g i s a n t i c i p a t i o n o f p o s s i b l e jp rice d e c l i n e s .
@FedFRASER