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The f o l l o w i n g i s a message from Mr. Sproul - d i c t a t e d by Miss Regan t o Miss Egbert over the telephone on 11/21/4.7 a t 5:15 p * ^ . 1. I have thought over what you said yesterday about r a i s i n g Reserve Requirements i n C e n t r a l Reserve C i t i e s . 2. We have a v e r y tender government s e c u r i t y market. 3. An increase i n reserve requirements o f C e n t r a l Reserve C i t y Banks a t t h i s time would n o t accomplish a n y t h i n g b u t a s h i f t o f government s e c u r i t i e s t o us a t grave r i s k o f serious f u r t h e r unsettlement o f the market. 4. To do a n y t n i n g now merely t o demonstrate t h a t we have used a l l o f our present powers would be f o l l y . 5. I t h i n k we should keep on w i t h our present considered program which can be e f f e c t i v e so l o n g as the Treasury has s u r p l u s funds t o r e t i r e s e c u r i t i e s we h o l d , and t h a t we should use our power t o r a i s e reserve requirements l a t e r when we can get the b e n e f i t o f i t s p s y c h o l o g i c a l e f f e c t w i t h o u t present s e r i o u s danger o f f o r c i n g our hand on Op erf. Market operations« 6. I t h i n k your testimony b e f o r e Senate Committee could best take same general l i n e based on my b e l i e f t h a t the e x t e n t t o which the c u r r e n t expansion o f bank c r e d i t i s the cause o f i n f l a t i o n has been exaggerated, and my b e l i e f t h a t the present measures o f combating the f u r t h e r expansion o f bank c r e d i t have been unduly minimized. 7. I f we are going t o r e s t r i c t bank c r e d i t s u f f i c i e n t l y t o c u t down c u r r e n t demand by reducing c u r r e n t disposable incomes we are going t o have t o r e s t r i c t p r o d u c t i o n and cause some unemployment. I n the present s t a t e o f t h i s country and the w o r l d I doubt whether t h i s i s d e s i r a b l e even though we must run the r i s k o f g r e a t e r unsettlement l a t e r on.
@FedFRASER