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February 26, 191+0

Following are hastily prepared answers to the questions
raised in the agenda for the Round Table discussion.

The questions

have not been copied, but are merely referred to by number and letter.
X. A. 1. (a) Ho*
(b) No.
(c) No.
(d) Only to a moderate extent.
(e) Not enough to change the situation
(f) Probably none
(g) No large financing in sight.
(h) Improbable.

(a) Yes.
(b) Yes.
(c) No.
(d) No.
(e) No.

Requirements are not likely to be increased.

Board’s power to increase at the present time is limited to oneseventh of existing requirements or about 3900,000,000

It is not possible to predict the System’s actions,

but there is nothing on the horizon at present that would indicate
any desire

the Federal Reserve authorities to increase interest

It is probable that if Government securities are sold at all,

it will be for the purpose of absorbing still further additions to





reserves, rather than for the purpose of diminishing the existing

It is likely that banks are not buying more securi­

ties because short-term securities offer almost no return, and the
banks are hesitant about making long-time commitments.

Outside of

New York City foreign deposits cut no ice, and in New York, excess
reserves are so large that it is not likely that banks are influ­
enced in their investment policy by the presence of foreign deposits.

The level of Government security prices in relation to

underlying conditions is not particularly low and no decline in
prices of Government securities is likely to occur, except in a tem­
porary disturbance, such as happened]ast September.

It is probable that with the present attitude of banks,

interest rates would begin to advance long before excess reserves will
have disappeared.

A decline of excess reserves to between one and two

billion dollars would probably be accompanied by a sharp rise in shorttime money rates.

Long-time rates would be much slower to advance.


The Treasuryhas full discretion as to what purchases of

gold or silver it chooses to Biake.

In the case of silver, it is

supposed to keep on buying until certain objectives are achieved.


there is no time limit, so that the Treasury has practical discretion
in the matter.

There is no way of telling what the Treasury's inten­

tions are, but with regard to silver there is considerable agitation
in Congress to discontinue foreign silver purchases.


I do not know of any answer to this question.


In the present circumstances, it is likely that sales

of American goods to belligerents m i l continue regardless of the
prices of our commodities.

Other sales, however, would decline if

there were a substantial rise in our price level,

A price advance

sufficient to reverse the gold movement is not likely in the next
twelve months.

It seems improbable that the Treasury will ever for­

mally sterilize gold imports.

It would seem undesirable for the

Treasury to do so, because such action amounts to a direct influence
by the Treasury on reserves, which should be controlled by the - e
serve authorities and not by the fiscal authorities.

Paying out gold into circulation would diminish re­

serves only to the extent that gold was hoarded.

Otherwise it

would simply take the place of other currency without affecting

The amount of hoarding that would take place is not

likely to be large enough to make a real difference in the reserve

A full-fledged automatic gold standard is not likely

to b e restored for a long time to come, if ever.

The gold held by

the United States could be redistributed only in case this country
took a great deal more of foreign goods than it is willing at the
present time to take, or to refrain from exports, which it is not
likely to do.

Aside from that, redistribution is possible only on

the basis of large-scale international loans.

- k 6.

This is a highly controversial subject.

My personal

opinion is that for the present the best policy is to make no
change in the price of gold or in the policy of taking all gold

A reduction in the price of gold or an import duty at

this time ■would probably not reduce gold imports, because of the
great need of the belligerents for American goods.

Aside from

political considerations, a reduction in gold purchases or in the
price of gold at the present time would probably not have much
effect on commodity prices in this c ountry.

Technically gold purchases could be discontinued any

It is mot a question of the theoretical means, but of the

policy and consequences involved.

Further devaluation of the dollar

is hard to conceive*

The Treasury cannot absorb

the public debt.

reserves without increasing

The Federal Reserve can absorb reserves to the ex­

tent that it sells securities from its portfolio, or raises reserve

This has been discussed before.

The various authori­

ties are in constant communication and consultation with each other.

Government deficits in so far as they are financed by

banks purchasing securities increase the volume of deposits and re­
duce excess reserves.

In so far as they are financed by the purchase

of Government securities by others than banks, deficit financing
does not directly affect "Hie money market

- 5 3»

It looks as though the Treasury would not have to sell

any bonds in the money market during the next fiscal year.

I do not know.


I do not know.


Baby bonds are being sold at the rate of about

1100,000,000 a month.

This rate could increase considerably if the

present policy of paying an average interest rate of 2#9 per cent
is continued.

This policy amounts to a substantial subsidy to the

holders of baby bonds, four-fifths of which are probably not held by
s m l l investors.

It is doubtful whether there is any danger of this sort

in the picture.

I do not know.


The Treasury refunding policy has had the effect of

diminishing the supply of short-time paper and contributing to the
decline in short-time rates.

In general, it would seem better public policy to have

the Treasury not borrow on very long term.

If the rate is too high,

it is an unnecessary expenditure for the Treasury and if the rate is
too low, it is an unnecessary atibmwlMge cost and risk to the purchaser.

Even if commercial loans should increase by $1,500,000,000

or so, this would absorb only between two and three hundred millions of
reserves and would not be a big factor in the reserve situation.





Both a re likely.


I do not know.


Commodity prices are likely to show a slight advance

during the year, but not one equal to that in 1936-37•

One never can tell about the stock market, but we have

had in recent years substantial speculative advances in the market
without much borrowing.

It all depends on the character of the war, on the

character of the financing, and on the character of Government con­
trols that will be instituted.

I do not know.


I do not know, but what else can they do, in view of

the prevailing rates on high-grade corporate bonds, which are not

No answer.


No answer.


No answer.


It would seem desirable to reduce "right" privileges,

II. A.

if not to eliminate them altogether.





So long as trust funds are as large as at present, this

seems a good device.


No answer.

- 7 6,

No answer.


These Government agencies have assets of their own

and there is no reason why they should not have obligations of their

In our bookkeeping practice of counting the capital of these

Governmental agencies as expenditures of the Treasury and not making
any allowance for the value of the assets does not result in a true
picture of the Government’s financial

x ± hkx ± b x b . position.

In the

circumstances, it is better to have these corporations issue their
own obligations and carry them as their own liabilities.

The Government debt should be viewed in relation to

the national income.

There is no absolute limit.

Domestic debt

is merely a matter of the distribution of income and the part of
the income that has to be paid out in fixed charges.

The essential

matter is to have an adequate national income and the question of
public debt will solve itself.

No answer.


I think they are likely to and I think it is sound.


This is a question that needs to be decided in the
In existing conditional
light of prevailing economic conditions^un3’
*those thaC”
are in
immediate prospect, the answer is "yes".

I should say "no”.


I should say "no".


The Federal Heserve banks have little power to control

member bank reserves, but they can nevertheless exert a substantial
influence on money market conditions.



8 -

This question is so highly hypothetical that it

calls for no answer at this time»

In theory there are no limits.


I believe that any investor -who wishes to sell Govern­

ment securities for the purpose of using his funds for other purposes
would have no difficulty what-sa-ever.

No assets held in large volume

could be thrown on the market all at once without creating a disturbance.
The fear implied in question 10 seems to me to be groundless*

No answer*
The corporation/#»«***« deposits only up to |5,000, and


this guarantee would unquestionably prevent runs on the great majority
of banks.


No answer«