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dkc IQG-2637
April 1,

CONFIDENTIAL

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

Division of Research and S t a t i s t i c s

PROSPECTIVE TREASURY FINANCING AND SYSTEM OPEN MARKET OPERATIONS
Tax r e c e i p t s in March below e a r l i e r estimates and r e v i s i o n s
in estimates of Treasury r e c e i p t s and expenditures for t h e remainder of
t h i s f i s c a l year and the next f i s c a l year n e c e s s i t a t e considerable changes
in the Treasury refunding plans and in t h e System* s program for open market
operations* Tax r e c e i p t s have been about a b i l l i o n d o l l a r s l e s s than
e a r l i e r estimates and the t a x reduction l e g i s l a t i o n w i l l lower r e c e i p t s
considerably over t h e next 15 months* At t h e same time t h e new m i l i t a r y
program w i l l cause an increase in expenditures# The Treasury debt r e t i r e ment program,therefore, w i l l have t o come t o an end, The current increase
in nonmarketable debt may be j u s t about s u f f i c i e n t t o take care of volunt a r y redemptions of maturing i s s u e s , but i t i s not u n l i k e l y t h a t a t times
during t h e next 15 months t h e Treasury may find i t necessary t o borrow
moderate amounts in the market in order t o maintain i t s cash balance a t a
desired level*
A p r i l - J u l y I9I4B
Treasury program* The second quarter begins with a Treasury
deposit balance of about 3«9 b i l l i o n d o l l a r s , or 800 million l e s s than had
been estimated on February 26* In order t o meet a cash d e f i c i t during t h e
second q u a r t e r , and another s u b s t a n t i a l one i n July and t o pay off volunt a r y r e t i r e m e n t s of maturing issues during the next four months, i t w i l l
be necessary for t h e Treasury t o discontinue immediately i t s program of
r e t i r i n g Federal Reserve-held s e c u r i t i e s * Already i t has cut r e t i r e m e n t s
of Treasury b i l l s below t h e amounts proposed by the Open Market Committee.
Maturities, other than b i l l s , include certificates of 1*3 b i l lion on April 1, 1*8 billion on June 1,'and 6.1 billion on July 1, and
3«1 billion dollars of bonds on June 15* It is estimated that voluntary
redemptions of these issues w i l l be about a billion dollars• Federal
Reserve holdings of 106 million of April 1 certificates are being paid
off, and 100 million of b i l l s are being retired on April 1 and again on
April 8*
This program will reduce the Treasures t o t a l deposits from 3#9
billion at; the eM af March-to about'2*6 billion at the end of June and to a
l i t t l e less than a billion at the end of July* (These figures do not include a billion dollars of free gold which the Treasury could use to
r e t i r e Federal Reserve-held debt.) The end-of-June balance is larger
than had been previously contemplated in order to allow sufficient funds
to meet the large cash payments in July* If the balance is drawn down
any more i t might be necessary for the Treasury tp borrow new money in
July*




- 2 Effect on bank reserves» These transactions will eventually
increase bank reserves, but this can be postponed until July by substantial calls on war loan accounts, At the end of March the Treasury has
approximately 2 billion in war loan accounts and an additional 2 billion
dollars on deposit with the Federal Reserve* The balance with the Federal
Reserve will be reduced during the early part of April by retirement of
some 300 million of Federal Reserve-held securities, which will have no
effect on the reserve position of banks * To maintain that balance and thus
avoid increasing bank reserves it will be necessary to make calls of 300
million dollars a week until the middle of May and somewhat more between
then and the middle of June* If the effect of the gold inflow on reserves
is to be an offset* the calls would need to be somewhat larger, but war
loan deposits would be reduced to a minimum that much q\jicker* On the
basis of the schedule proposed, they fall below a billion dollars by the
end of May*
The only other means of absorbing bank reserves would be another
increase of requirements at central reserve city banks p but this would
probably result only in sales of securities by banks in those two cities
and have no effect upon the situation in other banks where the credit expansion is taking place* Some reserves might be absorbed by inducing
banks or others to purchase Government securities from the System, but
this will be at the initiative of the buyers. An increase in short-term
rates would be the only measure available to exercise an influence toward
this end*
Fiscal Year
Revised estimates of Treasury receipts and expenditures for the
fiscal y e a r I9l4.8-i4.9t assuming tax reduction and allowing for an increased
military program, indicate a small budget deficit which will be slightly
more than covered by net receipts in Treasury trust accounts available for
investments It appears that only about 2 or 3 billion dollars will be
available for retirement of marketable securities; this amount will probably just about cover voluntary redemptions, leaving none for retirement
of Federal Reserve-held securities* This situation contrasts with previous
estimates of about 7 l/2 billion that might have been available for retirement of marketable debt*
Estimated receipts for the fiscal year are less than the January
budget estimates by about 2 billion dollars* This difference allows for
a decrease of around 5 billion in taxes due to the tax reduction legislation offset by an increase in receipts resulting from higher income estimates*
Estimated expenditures are about l± billion dollars larger than
previous budget estimates* This includes an additional 3*5 billion for
national defense and *5 billion for tax refunds* The increase for national
defense covers the additional cost of universal military training, aircraft
procurement, stockpiling, and the increase in the authorized strength of
the Army* If international relations worsen, it is possible of course th^t
additional expenditures for national defense will be greater than the
 amounts here contemplated*
There may also be a small increase in expenditures


for international purposes and a large payment (perhaps 1»5 billion
dollars) not included in budget estimates, may need to be made, sometime
during the next? year or so to refUnd certain amounts due to policy
holders under tfyp national service life insurance*
The schedule of receipts and expenditures during the next fiscal
year may bring about a reduction in the Treasury cash balance at certain
times to a lower level than is deemed advisable* According to the estimates,
the deposit balance (leaving out free gold) may fell to slightly below a
billion dollars in July and August and in October and November may be down
to an almost negligible figure* In these periods some consideration may
need to be given to new Treasury borrowing*




CONFIDENTIAL

ESTIMATED TREASURY CASH BALANCE

R&S 100-2637
April 1, ^

(In billions of dollars)

Item
Net receipts
Expenditures l /
Budgetary surplus
Change in nonmkt*. debt: t o t a l
Special issues
Other
•^Redemption of mkt* debt: t o t a l
Adjustment 2 /
Net change !UL balance
Balance, end of period 3 /
• •Redemption of mkt» debt*
Federal Reserve holdings
Other

ISkl
July-Dec» Jan.* Feb.* Mar. Apr.

4.3

19*2
,18.0
+ 1.2
+ 1*6
+ 1.6

,_2tit
+1.9
+ .5

- 2.9

+ .3
- ;8
- .2
+1.1+

+ -3
+ .2
2.9

- -9

- 2.0

+ .2

1+.3
2.7
+1.6
+ .2
+ .1
+ .1
,-2;2
+ .2
- .2

h.3 1 U.i

19U8
May June

Fiscal Years
191+9
Oct.- J a n . - Api>.
July Aug. Sept.. Dec. Mar. June 1947-i48: 19l48-ii9

6.2 2.7 2.8 ijj.7 2.1 2.1+ 5.0
8.8 1U.5 9.8 U+.2 i
5.0
3.8 io»5 11.2 12.0 .38.1
3.6 3*2 3.2
3.8 2.7
+2.6 - .5 - .k - .3 -1*7 - .3 +1.2 - 1.7 • 3.3 -2.2 + 6.1

- .2

- .2
-1**4

+ . 2 + . 2 + .5 + . 3 + .2
+ .2 + . 6 + . 6 + . 2 + .3
- .1+ - . 1 + . 1 - . 1
- .2
- . 3 - .5

- .2 + . 2
+ .8 " ••/. - .2
1+.9 1+.2 l+.o

-~lh

3.6

-1.7
1.9

+ .9 +1.1 + 2.5
+ . 5 +1.0 + 2.7
+ »i|. + . 1 - .2
- .5 - .6 - 8 . 0
• .3
+1.2 - 2.0 + 3.7-1.7 + .9
1.1
3.6
4.8 3.1
1.9 3.1

+
+
-

.3
.5
.2
t6

- .6 - 2 . 1 - .9 - .3 —
- .3 - .5 — - . 2 -"".6 - . 2 - . 1 - .5 - .1

U.8
.5 - .6 - 3.2

Note:

1+2.6
- 1^+
+ 3.5

+ 3.1
+ .2
- 2.i+

- .5
. 3.1 .

-1.1+

Assumptions underlying estimates for V)hl» 19^*S and 19i49 respectively as follows,, in billions of dollars: Personal
income, 197, 212, 219; Personal income tax collections^ after tax cut begixraing with 19U8# 21*©, 19<5, 20*0; Corporate Federal income tax liability, 10«0 and 9 # 8; Budget expenditures reduced from January official estimates
by .5 in fiscal I9I4S and increased by i±.2 in fiscal 19l;9*
* Actua 1

l/ Including net expenditures in trust accounts and clearing account*
2/Adjustment for difference between General fUnd balance and cash balance due principally to timing of receipts and
expenditures*
3/ Including free gold of about 1 billion dollars •

GOVERNMENT FINANCE SECTION, BOARD OF GOVERNORS




STRICTLY CONFIDENTIAL

Period

ESTIMATED TREASURY DEPOSITS AND RELATED
(In millions of dollars)
Treasury d e p o s i t s w i t h Federal Reserve Banks
Change
Arpoixrvfc
Tr» purv
Redemptions
(end of Calls
Other mktb. Income o f mktb. Other
period)
Bills
taxes
issues
bonds

ITEJB
i< a loan deposits
' "r
Change
Amount
New
Income
[end o f
securities
taxes
p e r i od )

A p r i l 1, 191+8
R&S IOC>-2637
Total
Treasury. .
deposits-*
Calls (end of
period)

Statement week ended:
—
—
191+8; March 3 *
+11+6
'—
+ 380 - 65
2*1+72
- 1+78 1,518
-100
-1+39
951+
- 6
—
10*
—
+101
- 558 1,618
+ 1488 - 11
751
2,369
-100
_
—
__
-101+
+1,629 - 5U
17*
2,372
-1,118 1,695
+ 78
677
-1+27
+1.L&8 - 9
- 11
_2l+*
+ 27
+ 78
- 1+92 1,799
1,1+58
-195
3,257
—
—
<-l31
+ 855
—
- 232 1,972*
+ 1,3
31
-91+
3#9i*l+*
r 15
1,97s*
+ 500
—
April 7
3,705
+ 88
—
—
- 550 2,110
+ 50
-225
-ToIJ!
£§93
+ 350
- 623 2,055
1+
1
+150
- 300 3*555
1*500 + 300 - 1 0 0
- 20
• 95
+ 225
21
+120
1,1+50 + 300 - - 300 3*1+00
+ 75
- 575 1,950
28
+ 50
-—
- 300
1#395 + 300 —
+125
+ H+5
3,219
- 500 1,821+
+ 290
«...
—
May
5
+110
+ 65
3,08^
- 300
1,3^5 + 300
- 600 1,699
12
+200
+100
+ 1+20
3,2Qt+
- 300
1,505 + 300
- 600 1,699
+105
+ 320
+180
19
- 300
3^109
1,1+25 + 300 —- 700 1.681+
26
+105
+ 205
1,1+30 + 1+00
—
- 1+00
2,89ii
- 600 10+61+
• 75
6 O
June
2
1,1+ob + " O
+ 80
2,389
- 600
-175
989
+ 1+5
+ H+5
- 600
—.
+ 32+0
+ 60
+ 300
+ 90
2,251+
- 300
9
- 600
- 25
839
1,1+15
+ 790
1 , 2 1 5 + 600
16
+200
+ 90
...
- 600
1,714+
529
- 90
-1,500
__
—
—
23
+115
+ 60
+1,110
- 600
701+
2,1+19
1*715
- io
—
—
30
860
+130
1,71+0
+ 25
- 550
2,600
+ 575
—
-1+60
July
7
+ J4O
1+75
1,^*75 • 500
+ 75
+ 295
—
- 500
- 600
1,950
-1+0
310
+ 60
+ 21+0
1,635
1+
1
- 300
• 75
1,375 + 3 0 0
- 600
21
+ 225
+ 200
- 200
+ 30
- 600
1,200
1,1+15
+ 75
215
—
—
—
28
+ 20
+ 70
—
-305
+ 175
- 600
775
1,080
Month:
19i+8 - March
+1+.681 - l o i ;
+ 70
+1+65
1,972* —
-2,805 1 , 9 7 2 *
-898
3,9U+*
-1+93
April
tl+78
+1,270
+350
1,600 +1,200 -SOU
-1,200
-2,393 1,600
3,200
-21+5
May
+520
-1,600
+1,260
-2,1+05
3,000
+1+25
2,055 +1,600
91+5
June
+1+50
+2,885
860
—
- 900
1,71+0 + 9 0 0
-300
+365
-3,800
2,600
+1,01,0
530 +1,000
July
900
+16O
+350
-500
—
370
-1,000
-2,750
•Actual
l/ Total Treasury deposits at Federal Reserve Banks and war loan deposit accounts; total does not include free gold,
which amounts to a little more than one billion dollars, and other small items in the General Fund balance*
GOVERNMENT FINANCE SECTION, BOARD OF GOVERNORS