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December 10, 19^7»
In view of the fact that some of the press has emphasized a d i f f e r ence in viewpoint between Secretary Snyder and myself in regard to the
Boardfs so-called special reserve proposal, I would like to take this opportunity to clarify the record. I have discussed the matter with the Secretary.
The f a c t i s that the area of agreement between us i s much more complete than
has been represented* Such difference as exists i s in evaluating the degree
of restraint on inflationary expansion of bank credit that would be exerted
by the special reserve requirement. He has expressed to this Committee some
doubt as to i t s effectiveness. I am more sanguine about i t . We both f e e l
that whether the special reserve i s needed at a l l or whether some stronger
measure of restraint may be needed next year depends on factors which cannot
be determined in advance" with certainty at this time. We are in f u l l agreement:
1. That the most effective anti^inflationary measure has been and
should continue to be a vigorous f i s c a l program to insure the largest possible
budgetary surplus consistent with the Governments obligations at home and
2. That coupled with an intensified savings bond campaign, the
program accomplishes two vital purposes«. To the extent that savings of the
public are invested in savings bonds., spendable funds are taken out of the
market place at this time of excessive demand and insufficient supply and
can "be used to pay off maturing debt held by the banking system. Likewise,
a budgetary surplus can be used to reduce bank-*held debt« Both measures
reverse the process by which the money supply was increased during the war
and are effective anti-inflationary influences.
3* That the program which the Treasury and the Open Market Committee have been pursuing during the year has been effective and will continue to exert restraint during the next few months, when the Treasury w i l l
continue to have a substantial cash balance that can be used to reduce bankheld public debt.
U* That some additional restraint may be expected as a result of
the joint statement of Federal and State bank supervisory authorities
cautioning banks against overextension and inflationary lending.
5. That the problem w i l l present a different phase when current
debt-payment operations are no longer available. I f i t appears that other
restrictive steps are needed, increased reserve requirements or possibly some
stronger measure may be necessary.
6. That this will depend on the course of events and in part upon
self-imposed restraint by the banking community, which haß gained a broader
understanding of the problem as a result of discussions before Congress and
in the press.
7. That the Board1s proposal i s not in any sense a substitute f o r
but a supplement to the f i s c a l program and direct action on other fronts
where inflationary forces are generated but cannot be corrected by monetary
 f i s c a l policy alone.




8. That under present and prospective conditions i t is essential
to maintain the established 2 - l / 2 per cent rate on long-term marketable
Government securities,

That restraints should be reinstated on instalment credit.

The area of disagreement, therefore, narrows down to whether the
special reserve would be appropriate i f additional measures prove necessary
to limit the now unrestricted access of the banking system to reserves upon
which a multiple expansion of bank credit can be b u i l t .