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FEDERAL RESERVE BANK OF NEW YORK MISC. 4. 1-120 M-1-20 OFFICE CORRESPONDENCE Governor Strong FROM DATE SUBJECT September 23, 192-1- EMPlOYMent IncuirY W. R. Burges8 I am sending herewith all of the returns which we have thus far received in response to our employment inquiry. I have not attempted to make any tabulation or summary of the results as they are in the main ippressionistic rather than exact. I have had extra copies made of a statistical statement concerning changes in the working force in the yards of the New York Shipbuilding Corporation, since it seems to me that this statement might be placed with any data which the Committee is putting tcgether. _ iSC.0.1-110.1-1-20 FEDERAL RESERVE BANK OF NEW YORK OF ICE CORRESPONDENCE TO FROM DATE Governor Strong September 24, 1921 SUBJECT W. R. Burgess The attached page, taken from the Financial and Commercial Chronicle for August 27, 1921, gives in full the report made by Mr. Davis to the Senate Committee. The essential figures making up the total estimate of unemployment are as follows: ,Inufacturing and mechanical industries (including building trades) Mining Transportation.. Trade and clerical workers Domestic and personal service 3,900,000 250,000 800,000 450,000 335,000 5,735,000 TOTAL It is clear that in his letter Mr. Davis qualified his estimate much more fully than one would have been led to believe by later comments. The letter points out that practically the only figure in the estimate for which substantiating evidence is available is that for industries. The letter further points out that the figures submitted are simply for the numbers of persons released from occupations, rather than the number of persons unemployed. The estimate of 3,900,000 released from manufacturing and mechanical industries is based on a survey made by the United States EMployment Service in January, 1921, a copy of which is attached. The amount of unemployment found by this survey has been brought down to date in accordance with the-percentage changes shown by current reports to the Employment Service by about 1,560 concerns. appears to me to be somewhat too high. The estimate The survey was in no sense a census, but was rather a collection of opinions and miscellaneous records. The other data which we have available, and which seem to me somewhat more substantial in character, MMC,A.90M-1,0 FEDERAL RESERVE BANK OF NEW YORK _ " tember DATE1aP OF -ICE CORRESPONDENCE TO Governor Strong FROM W. 1, Burgess 24, 1921 SUBJECT: - 2indicate a somewhat smaller decrease in the number of employees. The indices for both the United States and for New York State which we have been carrying and which are illustrated by the diagrams which I am sending in the accompanying report, show a decline in employment in industrial establishments of New York State of about 30 per cent between the highest point in 1920 and the present,and in the United States as a whole of 24 per cent from the high point of 1920 to the present. The modest survey which the twelve Federal Reserve Banks made of the employment situation in April of this year showed a reductian'of 24 per cent between April, 1920 and April, 1921. I am attaching a copy of our lonthly Review which contains a report of that survey. While none of these three studies are as pretentious in their scope as the survey made by the United States Employment Service, they have the advantage of greater uniformity of treatment and closer control over the method of collecting figures. On the basis of these other figures, I should think that 3,000,000 would be much nearer to the actual number of persons released from industry than 3,900,000. Concerning mining the situation is somewhat peculiar in that reduced operations of the mines in general mean more part-time work rather than unemployment. Er. R. H. Williams tells us that there is little free movement of workers in the mining industry and that from repeated experience they are probably better able to go through periods of slack work than most other industrial workers. Of course slack work is chronic in the mining industry, as it is an overmanned industry. In determine what considering the number of unemployed to/ general measures of relief should be undertaken, I should question the wisdom of including the miners. That they need is more 1.1ISC.3.1-9014-1-20 FEDERAL RESERVE BANK OF NEW YORK OF -10E CORRESPONDENCE DATE TO SUBJECT -ROM mining. They are a specific problem unto themselves. I have no way of checking the figures on transporatiorl. They seem extraordinarily high in view of the fact that railroads have to keep on operating in times of depression on almost as large a scale as in other periods. The shipping group is of course a large one, but 800,000 seems to be altogether too high. As to trade and clerical workers, the department stores of this City report to us that there has been practically no diminution in their working forces and the reports which the Federal Reserve Board receives from department stores all over the country indicate that the volume of business being done is as large in terms of goods sold as in 12.0. There has of course been a considerable release of clerical workers from public service, banks, and business of all kinds, but here again, the figures appear to me to be somewhat large. The number of workers in clerical work in the United States as reported by the 1:110 census was 1,737,000. I do not believe that there has been a 25 per cent reduction in this group. In view of the census figures showing an extraordinarily small proportion in 1V20 of workers in domestic and personal service/, I should doubt whether there had been any notable reduction in the number in this group. This is one of the groups in which reduction in times of depression takes place most slowly because the number of workers in this group is an expression of the standard of living of the people and the standard of living changes very slowly. 4 own estimate would be that the number of persons released from different occupations has been more nearly in the neighborhood of 4,000,000 than of 5,700,000. Of this number, it is clear that a considerable proportion has other occupations. been absorbed by I should think that the number absorbed by agriculture, schools, and miscellaneous occupations would take care of in the neighborhood of one-third released. of the 4,000,000 FEDERAL RESERVE BANK OF NEW YORK September 26, 1921 Dear Governor Strong: You may not have seen the attached clipping from yesterday's New York Times. It gives in considerable detail the exact method followed by the United States Ehployment Service in their survey of unemplojment last January, which was the basis for the recent estimate by the Department of Labor of the number of unemployed industrial workers. One or two features of the method used are worthy of note: -Nine men covered the entire United States. One man for example, had as ais allotment, Enine, Hew Hampshire, Vermont, liassachusetts, Rhode Island and Oonnecticut. The men selected had, as far as we can learn, no special knowledge of employment and certainly no specific statistical training. In most of the states there were no available figures and the estimates made were based simply upon the opinions of a number of interested people. The final result for each district was an average of the various sets of estimates I do not believe that it is possible to secure a result upon which reliance can be placed by such methods as these. Very truly yours, W. Randolph Burgess Statistics Department Governor Strong, 0/0 Federal Reserve Board, Wasnington, D. O. The worldwide decline in commoity rices which set in last spring, has, ul;own conaiderable acceleration durilw tht, ,q11 C- *.Ne United Stttea. From the p et month, ssiAmlally in Crftit Brittoh Aficas aro down from TO% to 141. Id In prices are dog'', ill, while thc vrioue price indices in the United :Antes 31,4°1 show declines of from 15% to 22%. Asubstftntisi portion of these declines has ocoorred In Ue tt sixty days, and already there aro signs that the lowarrices for raw meto)riel and goods et eholosale are beginning in f;oms casos rklflected in Total/ prices 'ma that thus Conc,uners aro beginning to rf. ceive the "Anefit of the enhanced buying iover of the dollar. NiPLE3A4L ?nICL INDICES f Decline durinA_2-test month rt,erted United States 7ureao of Labor This eankte index (12 busic commoditiss) v:".;-- Dunts Rradstreets . rItish 7.0 17.6 ,i :zr -3 5.42444 4.3 7.3 15.7 cv, Z'-. a .2 5.4 4.4 --+ ,7 k .1' 2.1 conom1st Statist French Italian Japanese Canadian Swedish 1 Dillt 24.9 /4,/rtAbucer 9.9 ' ,.7.9 2.1 26.5 (--;t-t--'-''-'? li.e F.9 4.4 2.5 Auotralian Calcutta 5.2 :'.5 Cancellation of orders by aanufacturers and merchants, and post2oner,ent of jorchasing by consumera havq, locou;snied th.,* fall In comic:My ;Jices strod au as at home. In the United Ststae, ghere the wice decline of th ot six months is the most abrupt since that of tbe first six month43 or AM accon;y,nyin,i, the close the Civil ear, the tendencies are necessarily causing substential interruptions ,,ind readjustments In mnny inJustrien,. The orlsrly manner in ,thich these readjustments 11,, have proceeded ham been greatly fmoilitated by the existence of the ereeent machinery for the maintenance of credit flexibility end elaaticity. Troughout the year credit has taen at all timee evelleble, RS the Federal Reserve Board pointed out in its statement of October 15, for ie spite of the rapid moveeenta of funds frem one part of the country to another, member banks neve always felt ready to extend edditionel credit where such A pouree seemed neceeeery end eound, knowing thtt they could in turn fall back upon their Federal Aeserve .Benke It is probable that in no pert of the country hes the demand for credit been felt more acutely than in New fork City. In the seotember number of the Reviee, the movevents of funds in end out of hew fork for the preceding three months were eet out in considerable detail. Further drafte in October and Noveeber upoe the Nee York- City elks have reduced their depoaito $250,O00,000. Not only have they been called upon to mike direct advances to industry, commerce and egriculture in all tarts of the country, but they have been called upon for Indirect advances as well, through loam to interior corresoondent banks for the accomodation of their local ClIstomerm. In Teeny of the Now York banks the demands of interior banks. have been the heaviest on record, exceeding even the atcomodetion they required before the estebliehment of the FederalReeerve System. Among those eaking for 'Gene are any banks abloh have never borrowed before. On the other hand On June 1 361 e country benks0.n thie district re gradually getting out of debt. .;ut of 771 member banks. eere borrowing from the Federel #eserve Bonk. On November 20 the number of borrowere was reduced to 211. Just as with incre4eine 01008 the volumo of credit incremsed, so with falling T.TiCCII the volume of credit has lately showna, tendency to decrease. The folloAng charts Pato* the course of credit during MO. The fluctuations of loose end de,ealts are shown by the figuree of the 825 banks which report weekly end which reflect accuretely the banking conditions of the entire country. The recent decline is the volume of credit which these figures indiente is in turn shown in the decreesed rediscounts end circulation and in the increased reeorve peroenteges of the Federal heserve System, the latter having risen from 425 on October i.e to 44e1 on November 19. 11418,3 I STAT.9600-1021 FEDERAL RESERVE BANK OF NEW YORK O ICE CORRESPONDENCE To Governor Strone DATE SUBJECT: February 1 192 2 War College address -rom___W._11Ii_urga.s In the absence of hir. Snyder I have been over the correspondence with General LeGlachlin and the attached cow of your address last year at the War College. The subject which General IcGlachlin suggests does not seem to me a promising one. In the first place, I do not believe that the method of payment for war material was in any large degree to blame for congestion at shipping terminals. It was the custom to insrect and accept practically all war material at the factory and it is my impression that payment was not as a rule dependent upon receipt at a terminal. Congestion at ports was more largely due to lack of any coherent program during the early days of the War. The supply bureaus had no exact information as to what shipping capacity would be available from time to time or even concerning how many men they would be called upon to supply with overseas equipment. It was not, I think, until the early monthS of 1C,16, that there was an authorized schedule of troop embarkations and of drafts on the basis of which the supply bureaus could make their purchases and ship their goods. The wording of contracts which determined the precise method of payment was a detail which could be and was modified as the army program assumed more coherent form. Ln interesting talk could well be made on the form of war contracts: what method of payment they should provide, whether they should be on a cost plus basis, how they might be modified from time to tine, under what arrangements they might be canceled on the termination of hostilities. This is a technical problem quite apart from the general problem of financing the War and it is one an which we should find it extraordinarily difficult to assemble data. It would Seem to me that last year's address was admirably adapted to the War College audience practically without change. STAT,000110.21 FEDERAL RESERVE BANK OF NEW YORK ICE CORRESPONDENCE _ To .e Governor Strong %.1 DATE January 5, SUBJECT: W. Randolph Burgess At Mr. Snyder's request I am sending herewith tables containing the information requested in your memorandum of January 4, together with some additional data which seem pertinent. The attached diagrams seem to me significant. There has been a quite remarkable correspondence between the amount of discounted bills held by the Federal Reserve banks and the average rate of discount. The amount of bills held appears to be somewhat the same kind of measure of the Reserve Bank situation as the reserve percentage would furnish if it had not been put out of business by gold imports. The second diagram shows the way our buying rate for bankers bills, which has been free to fluctuate with the market, has risen in the past three months, while our discount rate has remained stationary. READ AND NOTED,' fr. 1923 A FEDERAL RESERVE BANK - OF NEW YORK August 4, 1923. IN REPLY PLEASE REFER TO Reports-WRB Governor Benjamin Strong, C/0 Cragmore Sanatorium, Colorado Springs, Colorado. Dear Governor Strong: I am attaching herewith a report of the inquiry into the unfunded credit balance, undertaken by the Department of Commerce, together with a copy of Mr. Jones' letter. It looks like a pretty good job and furnishes further substantiation of John tqlliams' contention that the unfunded balance has been, and is, comparatively small. The figures would clearly be smaller still if reports had been received from import as well as export houses. Mr. Snyder sails today on the "Franconia." With best wishes, Sincerely yours, W. Randolph Burgess Manager, Reports Department. LGD Ence. COPY DEPARTMENT OF COMMERCE Bureau of Foreign and Domestic Commerce WASHINGTON July 27, 1923. Mr.Carl Snyder, Federal Reserve Bank of New York, 15 Nassau Street, New York, N.Y. Dear Mr. Snyder: At last we have closed the books on our accounting of the unfunded credit balances due our banks and industrial and trading concerns on July 1, 1921 and July 1, 1922. Although this inquiry was instituted last December, and although a number of follow-up letters were sent out, the returns have come in very slowly. However, I think we have done all that could possibly be done towards getting complete data. I inclose a summary of the returns in duplicate, which I would ask you to submit to Governor Strong. We should be very much interested in any deductions which you might care to make from these My own thought is that one great weakness lies in the fact figures. that the industrial and trading concerns circularized were almost entirely engaged in export trade, so that the accounts payable are much less Unless, of course, one assumes that our imports than they should be. It is are very largely paid on a strictly cash or near-cash basis. probably true that a portion of our imports paid in cash is very much larger than the corresponding proportion of our exports. These data have been recently submitted to Dr. John H. Williams and will be used in connection with his study of our balance of international payments for 1922, as well as in our own study which will be published at about the swab time as that of Williams'. It is our intention shortly to destroy the sheets containing Do you see any reason why they should replies to our questionnaire. be retained, especially in view of the fact that the data has been taken off on long sheets which can be put away in our confidential files! With kind regards, I am Sincerely yours, (Signed) Grosvenor M. Jones, Chief, Finance and Investment Division. Inclosure-47567 ,Finance and Investment Division. Data on Unfunded Credit Balances Outstanding, July 1, 1921 and July 1, 1922. NET STATILiaTT Accounts receivable and Accounts payable 1921 and 1922. A Banks Reports from 221 banks (of which 102 had data to reoort) show: Accounts receivable July 1, 1922 - 079,000,000 July 1, 1921 - i;666,000,000 Decrease (July 1/21 to July 1/22) 4187,000,000 Accounts payable July 1, 1922 - 4418,000,000 - 358,000_000 " July 1, 1921 Increase (July 1/21 to July 1/221 4 60,000,000 Industrial and trading concerns Reports from 524 industrial and trading concerns (of 384 had data to give) show: which .,ccounts receivable, July 1,1922 - 4384,500,000 July 1,1921 - 510,500,000 Decrease (July 1721 to July 1/22) 4126,000,000 Accounts payable, July 1, 1922 July 1, 1922 Increase (July 1/21 to July 1/22) 0 47,500,000 45,0J0,000 2,500,000 Statement Total Accounts Receivable and Total Accounts Payable. Accounts Receivable July 1, 1922 July 1, 1921 Banks Business Concerns otal 4666,000,000 4479,000,000 510,500,000 384 500,000 cl,176,500,000 4863,500,000 Accounts Payable Banks Business Concerns 358,000,000 4418000,000 45,000,000 47,500,000 Total 403,000,000 065,500,000 Net amount due American bankers and business concerns (chiefly 4398,000,000 4 773,500,000 exporting) Decrease in net due July 1/21 to July 1/22 4375,500,000 j, -2- 715ccess of accounts receivable over amounts payable. Banks July 1, 1922 July 1, 1921 Decrease 61,000,000 308,000,000 ',1:247,000,000 Industrial and trading concerns (chiefly exporting) 4337,000,000 July 1, 1922 465,500,000 July 1, 1921 Decrease '.,;123,000,000 Combined banks and industrial and trading concerns: 4398,000,000. July 1, 1922 773,500E000 July 1, 1921 Decrease 075,500,000 = 48 % ralele 5 IIM-II23 FEDERAL RESERVE BANK OF NEW YORK --OFFICE CORRESPONDENCE Governor Strong FROM DATE August 31, 191 3 SUBJECT: W. Randolph Burgess We have been working on the suggestion in your memorandum of a couple weeks ago, and attempting to compute the reserves released by the transfer of demand to time deposits.. We have been pretty much baffled to make any reasomble estimate of the amount of the transfer. About the most rational estimate seems to be based on the assumption that the normal rate of increase for time deposits due to savings would be about the same as the increase in deposits in savings banks, which is a yearly increase of about 5.8 per cent. Between June 30, 1917 and June 30, 1922 the increase in tire deposits in national banks was $1,341,00u,000 greater than the normal increase on this basis. The reserves released to 7 per cent. would amount to '94,000,000, which would support about-5_ times -as much deposits or leans, or about $500,000,00G in 5 years. This is, of course, a more dm:: in the bucket compared with gold imports. I wonder if we ought not to think ul) a cure for the fluctuations in credit due to the quential expansion. foreign gold movement before we tackle this less conse- I feel too uncert- in to make much of a ease in the matter. or the validity of our computations I am going to keep our peole working on it, however, until we produce something sound enough to send to the Board. Incidentally I have been getting together figures to show the effects on reserves of the establishment of the System. down the whole thing somewhat comprehensively. I hope before long to set FEDERAL RESERVE BANK MISC. 3. i-75M-9-23 OF NEW YORK OFFICE CORRESPONDENCE To Mr. J. H. Case 1. January 12, 1924. Basic Conditions in Money Markets and Suggestions for Open Market Program. SUBJECT- W. R. Burgess FROM DATE Basic Conditions. While money is now extraordinarily easy and many of the conditions are present for a period of inflation and speculation, it does not seem to me that such a period is yet upon us. In the field of business and commodity prices there is no evidence whatever of inflation or speculation. Commodity prices are hovering at the low points reached in the past month or two. Business is continuing to recede in volume rather than increase. The employment figures for December showed a decrease, as did also the production of steel, carloadings and a number of other indexes. The flood of return of currency and the decrease in bank loans since the first of the year seems to me clearly to reflect reduced business activity and continued caution in operations. In the stock market alone is there evidence of an expansion and there we have very far from a runaway market, in spite of the pronounced efforts of many speculators to create a bull market. While stock prices are com- paratively high, the street loan accounts are only moderately so, particularly i allowance is made for a seasonal increase at the be- ginning of the rear. It 07 my belief, therefore, that while the situation clearly c7ontains a threat of serious inflation, the time has not yet come to sell securities, particularly in view of the limited amounts now held, but that we should rather continue to acquire more as far as we can do so without making easier a market already very easy. 192 WkAA-P.A43 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE 192._ DATE SUBJECT. FROM -2- 2, The Program. It seems to me wise to continue buying cer- tificates and notes carefully as they are offered and as far as it can be done without affecting the market. The best opportunity for purchasing would appear to be in the latter part of February and early March, when spring needs of business begin to be felt and when there is ordinarily some tightening in money rates, but some small quantities might be purchased before that time. Purchased Bills. It seems clear that some arrangements should be made by which the $300,000,000 of bills held by the system should be subject to somewhat the same control as our holdings of certificates and notes, and that in general the policy should be followed of maintaining the bill portfolios at present, but letting them diminish as they mature at times when certificates were being sold. In order to accomplish this end it is clearly necessary to secure some understanding between the Reserve Banks. Earning Assets. If the present movement toward reduction of the earning assets of the system continues, it is clear that many of the banks will be flat and unable to earn expenses. This makes more difficult an agreement as to purchased bills and raises the question as to a common policy in the whole matter of earnings. Of course, if a business boom should begin this difficulty would hardly arise. FEDERAL RESERVE BANK .3 0 OFFICE CORRESPONDENCE OF NEW YORK TO Mr. Jay DATE February 15, SUBJECT: W. R. Burgess FROM In accordance with Governor Strong's suggestion, -I have reviewed with care the citations in Professor Bullock's letter from the Federal Reserve Bulletin and our own Review. I do not find any ground for differing from Professor Bullock as to the statements made in these different articles. I do not find in these quotations, however, what seems to me adequate ground for asserting that we over-emphasized caution. That was done in the bulletin and our own review was to point out (1) that production and trade were in exceptionally large volume in the spring of 1923; (2) that large unused credit facilities existed; and (3) that the use of further amounts of credit would be of doubtful value in stimulating a further increase in industry and trade. It seems to me that the outcome has demonstrated the wisdom of exactly the action that was taken. It is clear from the later decline in 'production and from the accumulation of stocks in a number of industries, that production in certain lines, even as it was, had been somewhat overdone. If there had not been a word of caution it seems entirely likely that production would have been much more overdone, that interest rates would have risen, that we should have been forced to raise our discount rate, and that the ultimate result would have been much less satisfactory than the present situation, in which the country appears to be in sound condition and perhaps ready for an increase in industrial and business activity. FEDERAL RESERVE BANK , OF NEW YORK lar OFFICE CORRESPONDENCE To 192_ DATE SUBJECT- FROM - 2 - I have been interested to review the weekly letters of the Harvard Economic Service, and they appear to me to offer a reasonable explanation of Professor Bullock's feeling. I find that in a number of the issues the prediction is made quite definitely that production would continue at a high level throughout 1923. For .example, the weekly letter of March 31, 1923 contains the following sentence: "We believe that the upward trend of business will continue throughout the remainder of the year," and the letter for May 5, 1923 says: "We forecast, therefore, the maintenance of a high level of manufacturing output and business activity, accompanied by firm or rising wholesale commodity prices and firm or rising money rates for the remainder of 1923." The Harvard Service was not alone in this prediction. The decline in business certainly occurred earlier than I had anticipated it and I think Mr. Snyder would give similar testimony. it becomes necessary to find a reason. in warnings against inflation. Since the decline did take place Professor Bullock finds a reason The study of our indexes of the volume of trade, which are now available, leads me to feel that the cause of the decline . is probably to be found more largely within industry itself. In the spring of the year we were probably having a certain amount of over-production. Many industries were certainlY getting into a state where additional outkut would only be made at the expense of a higher wage bill and decreased effic- FEDERAL RESERVE BANK OF NEW YORK -#ICE CORRESPONDENCE 192_ DATE To SUBJECT: 0 FROM 3 iency, which cut down profits-. was in many cases at least That is, I think the psychology of caution based on the internal condition of industry as well as on the generally cautious atmosphere, which there is no doubt we helped to create. Of course a good many had a hand in the little game of warning the public and I am a little amused to notice that the Harvard Service commented at the time we raised our discount rate to 4 1/2 that this was probably a preliminary step to raising it to 5 per cent. This is certainly a vigorous type of warning, in view of what the educated public knows about the meaning. of increases in our rates. Of course the picture is not complete without a discussion of our open market policy, but that is another story. Broadly speaking, there has been rather general agreement among economists that one of the,most useful contributions to business which &:ny- body could make would be to help restrict the swings of the business cycle. Our efforts, along with those of others, were precisely in that direction and I think there would be general agreement that the result was good. Its most serious evil consequences was to ruin a number of predictions as to the future course of business. - PIECED/Ft CY 8OVERia8 %try FE pOr..--TvE MISC. 3.1-75M-9-13 BANK bf'YORK OFFICE CORRESPOND To__ Governor Strong DATE SUBJECT: March_ 14, The. McNary-Baugen Bill W. R. Burgess FROM -MAR 14 At Mr. Snyder's suggestion I have reviewed the McNary-Haugen bill and the following comments supplement his memorandum. The bill is a very clever attempt to create benevolent monopoly price control in a field where coordinated action is more difficult than anywhere else. trade, It is a governmentally organized combination in restraint of lt is frankly class legislation. But aside from these theoretical objections the most serious criticism of the bill appears to me to be found in its probable results in practice. Will it work? I do not think the equalization scheme would work. Suppose the price of wheat were fixed by the Commission at $1.50 per bushel)and in order to cover losses through sales abroad of the surplus the farmer was to receive 25 cents in scrip and the balance in cash. This scrip would be of Blight and Now if a trader offered a farmer $1.30 or $1.35 cash for his doubtful value. wheat, the deal would be to the advantage of both parties. The farmer would get more cash instead of scrip; the trader would save 15 or 20 cents a bushel on his purchase. It would be very hard to convince all the farmers of this country that they could not sell their wheat or other products freely to the best bidder. If this happened on a large scale the receipts from the scrip sold would be in much smaller quantity than the losses of the corporation from foreign sales. The corporation would shipwreck financially and the market price of wheat would be considerably under the fixed price. 192_4 MK.3.1-75M-9-23 FEDERAL RESERVE BANK OF NEW YORK OFFICE. CORRESPONDENCE To 192_ DATE SUBJECT FROM - 2 - This argument is simply to the effect that a regulation which makes it illegal freely to buy and sell commodities, particularly when the parties to the transaction are the scattered and individualistic farmers, cannot be enforced. Effect on Production. If the bill were passed the production of wheat and other products in which an emergency was declared would immediately increase. Instead of an 800-million bushel crop we might well have a 1,000-million bushel crop, as marginal land was brought into production by the prospect of higher prices. This would create a larger surplus to be dumped in foreign markets; it would lower the world price; and increase the losses of the corporation to be made up by the sale of scrip. In the course of a very few years the farmer mould be paid so largely in scrip that the return on his wheat would be very close to the present price. The cost of living would have been increased without the slightest gain to the farmer, and the condition for which a remedy was sought would be even more aggravated, for the productive capacity in wheat would be enlarged. Effect on Foretni Relations. The Republican National Platform for 1920 contains the following sentence: "We favor a liberal and generous foreign policy founded upon definite moral and political principles, characterized by a clear understanding Of and a firm adherence to our own rights, and unfailina rtqaect for_the_rights of others." It needs no argument to prove that the dumping of large quantities 1011SCA.I,N-943 FEDERAL RESERVE BANK 0 OFFICE CORRESPONDENCE OF NEW YORK 192__ DATE SUBJECT: To FROM 3 of American wheat in foreign markets at an artificially reduced price is not in keeping with respect for the rights of other nations. There is nothing which has been more vigorously resisted in this country than the dumping of foreign products here. Effect on Prices. We have made a computation which shows that the proposed scheme, if it could be put into effect, would bring the farm products index of the Department of Labor up from 145 to 175 or thereabouts, (1913 . 100 per cent). At this level the prices of farm products would be out of line with other prices, due to the fact that certain farm products, such as cotton, are selling at unusually high prices. Since farm products is one of the largest elements in any price index, the Department of Labor index would be increased from 151 to about 158 or 159. This increase in the general price level would carry in its train a whole series of effects which it is difficult to foresee. There would be effects on the volume of bank credit, foreign exchange, money in circulation, etc. Once we start playing with such fundamental economic factors as prices we set in motion a series of events and unforeseen consequences. which lead to remote We disturb the economic equilibrium and shake public confidence. Puttin the Government in business. 4 The Export Commission and Corporation proposed by the bill have powers and duties almost impossible to fulfill sucessfully. They must sell MISC. 3. I-75M-9-23 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE 192_ DATE SUBJECT FROM -4 abroad something like 500-million dollars' worth of farm products. They must estimate the export surplus and the probable selling price abroad of all the commodities in which an emergency is declared to exist, and they must make these estimates so precise that the corporation will come out clear. They also have the power to deal in foreign exchange, to make loans, to maintain storage warehouses, facilities for transportation, and facilities for processing commodities. The executive officer who is to be responsible for these matters is to receive a salary of $10,000 a year. The administration which undertakes the burden of sponsoring a corporation of this sort is undertaking a terrible responsibility. is putting the Government in business with a vengeance. It Our experiences with the Shipping Board, government control of railroads, etc., have demonstrated the desirability of the Government's keeping out of this type of gigantic financial and business undertaking, unless the ends to be served are clearly for the public good and the plan is clearly practicable. ; .54cubolq arusl Ice.dT taao7dA ba.m t2 )r..c.t) 111W loqqc Q 4 earxl-i37 1-01.,-4/1Y'PP,1+ IC' 3,1 31 odw loo/130 1' poogot$ /0 z nc_ JI 5,1e41- e&soiliqqxe quO .sowenoftv ' tpt -nomob mut ois tablio711el 10 ecJ 8141 lo stuo niqL.;',1-010#10von odd 'to ed at P!: uAiar tykAa.flebriu eeerdeL. ; 21 bcz brio71, Uduq -10 olz MIK. 4. 11,00M % FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To Governor Strong DATE August 18, 1924197 SUBJECT W. R. Burgess FROM I have made the attached analysis of some of the outstanding deficiencies of the latest Chase bulletin, so that we might have it available for any use which seemed wise. att. c'e a, ASSERTIONS WHICH ARE NOT IN ACCORDANCE WITH THE FACTS "So far we have had no policy to meet the inflow of gold." (Page 21). The Federal Reserve System has had a definite policy, set forth in part in the 1923 annual report of the Federal Reserve Board. "Excessive Federal Reserve Bank earning assets due to a feekkag_ELILiepart of the Federal Reserve authorities that they owe it to their stockholders to earn expenses and dividends at all times." (Page 3, also some thought on Pages 5, 6, 23, 24). Program of open market purchases has been determined not as Mr. Anderson states, but as stated in the annual report of the Federal Reserve Board for 1923, page 16, "That the time, manner, character, and volume of open market investments purchased by Federal Reserve Banks be governed with primary regard to the accommodation of commerce and business and to the effect of such purchases or sales on the general credit situation." "Dividends of Federal Reserve Bank stock should be paid out of this surplus. There appears to be nothing in the law to forbid this but there seems to be, some doubt as to the legality of it in Federal Reserve circles." Dividends have already been paid by the Reserve Banks for the first half year with the knowledge that at least a part of the dividends will be paid out of surplus. An opinion of the Attorney General rendered on April 27, 1922, settled the matter definitely. There is not the slightest doubt of legality in the minds of Federal Re- serve officials. Several statements dealing with the effect of open market operations. "In the present state of declining trade, both incoming gold and Federal Reserve Bank investments are reflected almost entirely in an increase of member bank balances, with immediate and even violent effect upon the money market." (Page 3). ,ths,Federal-Raserve Banks wo arket_100.,tov-200-Tilli doIIErg-,qtheir lc 1 mone would dUappeairoverni t." GaYernmeft secuAil.ki Wage 4). "If, for example, the Federal Reserve Banks should sell a hundred to two hundred million dollars of Government securities, they would promptly cancel a large, almost exactly equivalent amount of member bank reserves. They would have to be paid out of the liquid assets of the other banks in the country, and this would be primarily by checks drawn on the Federal Reserve Banks themselves. 2. These checks would be cancelled with corresponding debits to member bank balances, and with a corresponding reduction in the total of member bank balances. 2% call money would disappear overnight." (Page 23). "When a Federal Reserve Bank makes a loan or an investment, it makes payment therefor with its own liabilities, which liabilities are accepted as final payment by other institutions leading to a net increase in the volume of funds in the market." From these quotations, it is clear that Mr. Anderson has an erroneous im- pression of the relation of the money market to the Federal Reserve System. He appears to imagine that the money market is divided into two water-tight compartments, in one of which the borrowings of member banks takes place in response to commercial needs, while in the other, the open market operations of the System take place. As matter of fact, it is familiar to careful students of the money market and was set forth in the latest annual report of the Federal Reserve Board that the open market and discount operations of the reserve banks cannot be separated. If the Federal Reserve Banks were to sell securities in the market there would usually be an equivalent increase in member bank borrowings and no decline in the reserve deposits of member banks. Similarly the purchase of securities usually leads to a decline in the rediscounts of member bunks but does not affect reserve deposits. The fact is that the purchases of open market holdings by the Federal Reserve System during the past year have not resulted in additions to the total volume of credit save to a very limited extent, but have simply changed the form of part of the earning assets of the reserve banks from rediscounts and bill holdings to holdings of Government paper, and the present total of earning assets is near the lowest since 1917 and about 300 million dollars lower than a year ago. This erroneous impression which Mr. Anderson has of the effects on the money market of open market operations by the Federal Reserve Banks vitiates his entire presentation. The whole matter was adequately set forth in the annual report of the Federal Reserve Board in a why which makes Dr. Anderson's misinterpretation quite inexcusable. 3. "Approximately 40% of the member bank balances, which constitute the primary supply of funds in the money market, thus rest on the earning assets of the Federal Reserve Banks." (Pages 4 and 5). This leaves out of account altogether Federal Reserve notes and other curIn fact, rency placed in circulation originally by borrowing at the Reserve Banks. all currency in circulation rests on Reserve Bank earning assets just as much as do the member bank reserves. Earning assets are less than 12 per cent. of the reserves plus currency in circulation. "The added complication of excessive Federal Reserve Bank earning assets has created, in conjunction with the gold, a very great artificial excess of reserve money." (Page 9). Mr. Anderson attempts to show the existence and size of this excess by comparing the amount of reserve credit available in 1917 with the present amount. He asserts: "From the standpoint of prices and volume of business activity, we needed at that time (in April 1917) more money and bank credit than we need to-day even making allowance for the growth of population." This argument is supported by stating that the general average of commodity prices was 19% higher in April 1917 than to-day while business activity was very intense as against the present state of business slack. It is quite erroneous to assume that wholesale commodity prices represent the general price level and determine the need for bank credit. While wholesale prices are lower than they were in April 1917, wages are very much higher, rents are very much higher, and the cost of living is higher. A computation of the general price level which takes into account wages and retail prices, as well as wholesale prices, indicates that the price level is at present about 34 per cent. higher than in April 1917 and therefore a much larger volume of bank reserves is required as a basis for the country's business. As a matter of record, the change in total available bank reserves, including all money outside the Treasury and Federal Reserve Banks, and reserves of member banks in the Federal Reserve Banks shows an increase of about 40 per cent. The difference between this increase and the increase in the general price level is easily accounted for by the growth in the country's trade in the seven years since 1917. There is no 4. tremendous excess of reserves as Mr. Anderson imagines. 7. "Certain English writers have for four years been expecting us to have a violent boom and flare-up of commodity prices as a consequence of the gold which has been coming to us. As their predictions have failed they have explained the failure on the interesting but mythological theory that Federal Reserve Bank policy has prevented the gold from having its normal effect. They are quite mistaken in this. Federal Reserve policy has intensified the influence of the (Page 7). gold." Mr. Anderson appears to forget in this passage, that the policy of purchasing seturities in the open market, which he criticizes so severely, dates only from November 1923, whereas the English writers are concerned with the four year period. Mr. Anderson also forgets that when we take the four year period into consideration, the earning assets of the Federal Reserve Banks have been reduced from nearly $3,500,000,000 to about $800,000,000 and that this decrease has considerably more than offset the *1,500,000,000 in gold imports since the fall of 1920. Even since November 1923, there has been a de- crease in Federal Reserve earning assets amounting to *200,000,000 or nearly sufficient to offset all of the gold imports since that date. That has happened has been that member banks receiving gold imports have utilized those imports directly to pay off their debts at the Reserve Banks and gold utilized in this manner has been retired from circulation without any effect upon the credit structure. The retirement of rediscounts and advances at the Federal Reserve Banks by this and other means has been more than sufficient to offset all the gold imports received. This procedure may perhaps be ascribed to the mere existence of the Federal Reserve System rather than to its policy, although it would have been possible for the System to follow a policy which might have led to the use of new gold for credit expansion rather than for paying off debts. In any case, it is clear that the English writers are nearer to the truth than is Mr. Anderson. In the past month or two in New York City, the member banks have become substantially out of debt at the Reserve Bank and gold imports are being felt more directly on the volume of credit. If Mr. Anderson had limited his comments to this period, it would be nearer to the truth but he makes his assertions in regard to the past four years. 5. Aside from these actual errors in fact, it is perhaps worth noting what Mr. Anderson suggests as the proper policy for the Federal Reserve Banks to pursue. He says: "There should be a drastic reversal of the open market policy of the Federal Reserve Banks. Instead of buying Government securities or open market paper when money is easy and rediscounts are falling off', they should sell under such conditions; and instead of selling open market paper or Government securities when money is tight, they may sometimes be well advised to buy under such conditions lotting out slack and taking up slack." (Page 22). If we apply this rule it means that the Federal Reserve Banks should endeavor to make money easy at times when business is booming and speculation is running high, but that they should endeavor to make money tight when business is in the doldrums and requires encouragement. Mr. Anderson consistently emphasizes the need for removing the fluctuations in interest rates. He pays no attention however, to the provision of the Federal Reserve Act that discount rates and presumptively open market policy of the Reserve Banks shall be determined with a view of accommodating commerce and business. The Federal Reserve System has been following the policy that it was its duty, in accordance with the terms of the Act, to encourage business at times of depression but to discourage excessive activity at periods of unwise expansion. Mr. Anderson is greatly concerned over the present easy money and yet he does not point out definitely what the evils are. Business does not seem to be injured materially by the present easy money but is rather benefiting from it. The easy money may have the effect of facilitating a return of Sterling to par which* Mr. Anderson admits, is a necessary step toward the recovery of the world. In fact, there does not seem to be any real ground for Mr. Anderson's great concern over the present ease in the money market. It is also worth noting that if Mr. Anderson's suggestions were followed the Reserve Banks would now have no portfolio of securities and would hence have no weapon to combat on speculative expansion which might now arise as a result of gold imports. RAL RESERVEARIA4 F MX. 114M4-24 Jr "OF NEW YORK OFFICE CORRESPONDENCt To Governor Strong FROM W.R. Burgess DATE December 30, _192.4 c-i,___Inventories and Forward Buying, December 1924. DEC 3 9 "' The following paragraphs summarize our recent interviews on the status of inventories and forward buying: Iron and Steel: IronAge, (Messrs. Koon and Smart) Stocks in consumers hands were reduced to very small proportions by curtailed buying during summer. Recent buying has in general not covered needs beyond the first quarter of 1925, and forward orders are still considerably below the usual level. No evidence of buying in excess of actual needs. United Metals Selling Co. (Anaconda Copper Co.) Mr.Welch. Consumers are buying only for actual needs. In recent years they have not been disposed to speculate in raw materials, due to sharp price changes. Machine Tools: Niles, Bement, Pond Co. (Mr. Cornell) Inquiries have increased, but actual contracts show no material expansion. Cotton Goods: Hunter Mfg. and Commission Co. (Mr. Walcott) Buyers have recently shown more disposition to cover requirements for a moderate distance ahead. Mill buying of raw cotton probably equals that of a year ago, but the amount still to be done is larger, as mills now face expanding operations. Wm. Iselin & Co. (Mr. Cromwell) Cotton goods are in a fairly good position, compared with other textiles, but forward orders are still below the usual quantity for this time of year. Woolens and Worsteds: Wm. Iselin & Go. (Mr. Cromwell) Woolen mills are fairly well sold up, but worsted are still in difficulties. Mills have bought raw wool only a short distance ahead, as supplies are considered adequate. Silk Goods: H.R. Mallinson & Co. (Mr. H.R. Mallinson & Mr. Hanson) Buyers are placing email but numerous Staple silks have improved gradually. Forward buying is not up orders, which is favorable to continued good business. Wm. Iselin & Go. to normal. (Mr. Cromwell) Sales have improved considerably, but forward business is not up to normal and Mills have not covered raw silk requirements very it is still a buyers' market. far ahead, as they feel supplies are adequate. FEDERAL RESERVE BANK MISC. 3. I-60M..1.21 OF NEW YORK OFFICE CORRESPONDENCE To Governor Strong FROM W.R. Burgess December 30, Inventories SUBJECT: ___ and 1924 Forward Buying,_DeOember 1924. -- Knit Goods: DATE 2 Wm. Iselin & Co. (Mr. Cromwell) Current business fairly large, but retailers have placed not more than half their season's requirements and re-ordering isdow. Department Stores: R.H. Macy & Co. (Mr. Knauth, Merchandise Control) No perceptible change in department store policy, which is to maintain quick No evidence of inadequate turnover rather than speculate in inventories. stocks in hands of wholesales or manufacturers, or of competition for goods. Lord & Taylor. (Mr. Shipley, Merchandise Mgr.) In last few years, retail stores have been inclined to carry smaller stocks and Mr. S. sees no probability of a change. to maintain stronger cash position. Goods in Storage - New York City: N.Y. Fire Insurance Exchange (Mr. Robb) Total premium income on storage warehouse underwriting in New York City-in 1924 will run about same as last year, which was $45,000,000, compared with $39,000,000 Presin 1922, $38,000,000 in 1921, and $48,000,000 in 1920, the highest year. ent factory capacity and rail efficiency make large inventories and large forward buying unnecessary. ************** The tables on the following page summarize the principal available statistics relating to stocks and unfilled orders. For reporting department stores in this district, outstanding orders and stocks on hand have run throughout 1924 lower than in 1923, and have generally been close to 1922. The second table relating to the country at large shows the facts for a wider range of commodities. During 1924 unfilled orders for iron and steel and building materials have run lower than last year, although since July the discrepancy in iron and steel has become somewhat less. Commodity stocks in 45 lines have run higher than lest year and have increased slightly since mid-summer, reflecting increases in raw and manufactured commodities other than foodstuffs. tAdS,C. PEDERAL RESERVe SANK S. 1-64M-1-1 OF' NEW YORK OFFICE CORRESPONDENCE Governor Strong ro Second District, December 30, _192,4, Inventories and Forward SUBJECT Buying, December 1924. W.R. Burgess FROM I. DATE_ Department Stores Average Monthly Jan-Mar. !_12,E=Iefl July-Sept. Outstanding Orders: (In per cent. of total purchases of previous 1922 1923 1924 year) 8.1 5.1 6.8 6.8 5.1 4 2 +2 t5 5 -fr 3 6.5 End of Oct. Nov. 8.2 7.3 9.4 7.8 6.7 6.3 6.9 6.8 5.5 -1 -2 +- 1 -+ 8 4-14 0 0 Stocks on Hand: 1922 1923 1924 (Per cent. change from previous year) II. United States July 31, 1924 Index (a) % Change from year previous Unfilled Orders: (1920 ay. = 100) Total, 8 commodities Iron & Steel (1) Building materials (2) (b) Stocks on Hand: (1919 ay. = 100) -7A,*-- ,iSeik1.4 Total, 45 commodities Raw foodstuffs (3) Raw materials for' manufacture (4) Manufactured foodstuffs (5) , S.g,Manufactured commodities (6) 44 31 96 October 31, 1924 Index - 35 - 47 43 34 -+ 30 138 154 130 87 164 -7 4-- % Change from year previous -20 -23 -11 ufga'-/ 131 153 95 89 161 2-4 + 5 + 6 +26 +15 4- 36 4-9 4-23 4- 17 Steel (U.S. Steel Corporation) locomotives, merchant pig iron, steel sheets (independent mills). Maple and oak flooring, face and clay fire brick. Sugar, wheat, corn, oats, eggs, poultry, fish, apples, coffee. Cotton, cottonseed, flaxseed, rosin, turpentine, petroleum (crude), tin. Meats, wheat flour, butter, cheese, rice. Refined oils, cottonseed oil, cement, brick, flooring, lumber, enamelware, zinc, pig iron, newsprint. 4 -1 FEDERAL RESERVE BANK MISC.3.1.6°M-4.24 OF NEW YORK L.eigFICE CORRESPONDENCE DATE itirTrTrie January 1, 1925_192._ SUBJECT W. -ROM_ urgess I am attaching a rough draft of a suggested expansion of the last half of your biography contained in Miss 6leecker's letter to Mr. Derby under date of December 9. I think if you could dictate a few paragraphs about your experiences in .1907, including suggestions on the Aldrich plan, it would be most appropriate. Was there any citation in connection with the cross of the Chevalier of the Legion of Honor? If there is such a citation I .think it would be appropriate to include it, as perhaps also any citation in connection with the doctor's degree at Princeton. Can I help you further with this? c2%L cZ cJm 2L 44 zt, Att. 7 4,10.--tA *74"C'42:4--147'. e pieta, S A FEDERAL RESERVE BANK .GC.1-444 OF NEW YORK F ICE CORRESPONDENCE SUBJECT _Governo: :trong Febr1.4+,4 y 5, DATE _ W. R. Burgess tOM Here is another draft of your bioL National Cyclopedia of ,aerican Biography. .hy for the The chief point bit is that section here the study might be expanded u I have dropped plan. dealing with your work on the ,Ildrich a line to the editor to him saying that we hope to forward the material before very long.- I am sorry this has betn ao delayed. getting our annual resort into final shape We are juLA and it hub absorbed most of our working time. frum You may be interested in the attached note John h13 :ii . you King, although I suspect he has written also. _19e: FEDERAL RESERVE BANK OF NEW YORK CE CORRESPONDENCE DATE_March 12, 1925. SUBJECT: Benj. Strong My thought about the analysis of the latest McFadden Bill, and of our policy in dealing with it, is roughly as follows: A careful mathematical analysis should be made of the bill to show what the effect will be upon reserves, etc.; or deflationary, whether it is inflationary what classes of banks will be benefitted and what classes hurt, if any, etc. Then we should have a clear analysis made of the bill as to the general effect upon the banking business of the country, and A more particular statement as to its effect upon the Reserve Banks, not only as to what they may be restricted in doing as a result, but upon their policy generally, which would include, of course, consideration of gold exports. The above relates simply to the provisions of the bill. But in connection with this I want to send a. letter to Governor Crissinger suggesting some sort of an approach to the public. Some of our leading economists should be advised of the views we hold; some of the best-newspaper men; and certainly some of the bankers, including level headed, responsible men who may be on the Executive Council of the American Bankers Association. And I should suppose a few members of Congress should be made aware of just what the bill will do. The entire Reserve Bank organization should be well posted and able to discuss it intelligently, so that they may answer the inquiries of bankers and business people. And, finally, it would be desirable to bring the matter to the attention of some of the country's business FEDERAL RESERVE BANK OF NEW YORK ,E CO. SPO ENCE Dr. Burgess "ROM Benj. Strong DATE_ March 12, 1925. SUBJECT. -2- organizations, who might find very definite and specific grounds of objection. should think such concerns as those who accept and deal in bills, and those who issue bankers credits in connection with commercial transactions might be very definitely interested. All of this should be worked up merely as an outline for Governor Crissinger, and, when it has been done, then we should ask for a decision as to whether the Federal Reserve Board will deal with the matter thoroughly, or whether some other means shall be undertaken. I FEDERAL RESERVE BANKIr 444 _ FFICE CORRESPONDENCE 662. Afr". itt To Governor Strong SUBJECT: FROM Mr. Snyder and Dr. Burgess Bill 01 it OF NEW YORK _ ATE March 13, 1925 192 The Effect of the New McFadden As Mr. Harrison points out, it is impossible to calculate the full effect of the proposed measure because, while it seems to abolish the issue of Federal Reserve notes against gold or bankers/ acceptances, and to restrict this practically to eligible paper, it does not repeal the provisions of Section 13 which make possible such an issue in another way, by "working the pump." As it stands, then, the only direct effect of the measure would be the return of 40 per cent of the present Member Bank reserve deposits, or about 865 millions, to the Member Banks. As these banks now held, at the last combined statement, some 527 millions of cash, or "till money," presumptively this amount would be released for use by the banks, since the 40 per cent of reserves returned to them as cash would be much above their present cash holdings. Eventually the most profitable use of this released cash would be to deposit it with the Federal Reserve banks for the basis of further loans, or investments; so this would mean a net loss to the Federal Reserve System of only about 339 millions of cash. As the Reserve System would still have ample gold reserves against note expansion, this would mean that the Member Banks could, at a maximum, then expand their loans or investmentsLa, ?proximately ten times the amount of bank cash released, or something 1VW;five billions of dollars, provided, always, that the Member Banks were willing to rediscount sufficiently to secure notes to supply the demand for currency created by this expansion of bank As the ratio here is about five to one, an expansion of 5 billions credit. would require approximately 1 billion of added currency. On the basis of no further rediscounting, the possible expansion under these amendments would then be only about one-third this, or approximately a billion and a half of dollars. Assuming, however, that the plain intent of the amendments, to restrict the issue of Reserve notes to the basis of eligible paper, would be carried out by further necessary changes in the Act, the maximum amount of Federal Reserve notes would then be cut down to 400 millions, requiring the This, with the net retirement of 1327 millions of Federal Reserve notes. loss of 339 millions in reserves, would bring the total loss of gold to the System up to about 1666 millions. As the required reserves on what would be left of notes and reserve deposits would then be only about 615 millions, this would still leave nearly 600 millions for a basis of expansion as indicated above. In other words, on any interpretation it would be a highly inflationary measure. 'c I tva (3j.1(.);A0E 7.7-1/\\ c sza = 011111M 1 r GI-OGISIAL. 1,G.Gr% V C. OF NEW YORK 1 .CE CORRESPONDENCE DATE- Governor Strong FROM Mr. Snyder and_DrBurgesa_ March 13, 1925 ...,ECT_The_EfffIct of_the New McFadden 2 Bill For the purpose of clearness or simplicity the calculations may be set forth as follows: March 4 Present note issue Total discounts To be retired 1727 millions Present Member Bank reserves Reduced by 40 per cent Leaving 2166 866 1300 Present gold in System Less notes Reserves Leaving 2860 tt 2192 668 " 400 1327 1327 millions " 865 Required gold reserves 40% on 400 million notes 160 mil. dep. 455 " 35% on 1300 n Leaving free gold Present cash in Member Banks Eventual free gold in System 615 53 527 580 " 4 tECEIVED 3OVER1\10 ITS OFFICE !Iv?i 1925 3 = FtUtRAL XtbLAIV, LIAM( OF NEW YORK OFFICE CORRESPONDENCE To MisS M. S. Bleecker DATE May 5, 1925. SUBJECT: W. R. Burgess FROM The only change in the new edition of the First Ten Years is the addition of pictures. out some time ago. annual report. Att. . I am attaching also a release which we gave I wonder if he has been sent a copy of our latest .0 C. 'Er 1 FEDERAL RESERVE BANK 4. I-200M-7-24 OF NEW YORK OFFICE CORRESPONDENCE Miss Bleecker DATE June 15, SUBJECT: W. R. Burgtoil ROM 3uggest the following reports to be sent to Governor Strong during his absence: Daily letter to the Federal Reserve7:Board 45. Weekly 3usinese and Financial Summary Weekly-gold report MonthIy Review i.eport of open mexket committee 192_5- mtsc. S. t-soN-I-25 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE -,ro Governor Strong DATE July :3, 192.5-M SUBJECT W. R. Burgess FROM I think the notes and reports which the other officers are sending cover practically everything of interest, except perhaps the money market. Last Monday call money went to 6 per cent for a short time and rates, as shown by our daily letter, continued high during the week. appear to be two principal explanations for this high money: There The first was wire transfers, indicated not only by our wire figures, but also by a decrease of about 80 million between June 15 and July 1 in the street loans of out-oftown banks. This movement appears to have been partly the natural backwash of funds after Treasury transfers to this district had created a vacuum elsewhere, but it is probably due in part also to an effort of out-of-town banks to show a clean elate on June 30. The second cause is currency withdrawals for the holiday, which have amounted to more than 30 million in this district alone. The banks were well up on their reserves last night and are paying us off in part today. No purchases were made for the special investment account to meet this tight money situation, since it was obviously a temporary movement and reflected in considerable measure window dressing for the June 30 statement. I think on the whole the influence of the brief period of tight money has been beneficial as a kind of warning that there is not really any extra money lying around loose. Today's operations included a withdrawal of $585,000 Of gold bars and coin for export to the new Mexican "Bank of Unico." This follows a FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE -SO Governor Strong DATE July 5, SUBJECT: W. R. Burgess FROM 2 -shipment of approximately $1,000,000 to the same destination in June. You may recall that we had an inquiry suggesting total shipments of about $7,000,000 over a period of six months. Mr. Jay and I have just returned from Chicago and Cleveland and we fegard the trip as very much worth while, as I believe he is writing you. worked over the A. B. A. Committee report with Ayres and I think it will be a good one. Mr. Crane is reported to be sailing on July 4. (#2) MISC. 3. IIOI-2M FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE Governor Strong To FROM DATE (Copy to Mr. Case) July 10, 19254n_ SUBJECT W._R._Burgess This has been another quiet week and I think most of the special events are being covered by memoranda from the various officers. The money market has been what Mr. McGarrah would can comfortable, with call money between 3 3/4 and 4 per cent, and practically every day. bank reserves equal to requirements The market has been losing through transfers for the past two days and our loans to hew York City banks are well up to 100 million dollars. Money has just gone to 4 1/2, reflecting some withdrawals to the interior, currency withdrawals, and a little averaging up. is underlying firmness in the market. It is perfectly clear that there Short governments, for example, are not well taken. The stock market continues strong and street loans are at new high points. There is, however, a distinct undercurrent of belief that the turn is not far off. One report is that pools are having great difficulty in unloading their stock because the public is more wary; another report is that houses find great difficulty in persuading their customers to unload. Perhaps these are two phases of the same trouble. Our business reports for June continue to indicate some lessening in business in certain lines, but in the main things are holding up well and better trade in the fall is generally anticipated. corner has been turned. The steel people believe that the Prices, at least, are somewhat firmer. Mr. Sailer tells me that the Niagara Fire lease has been executed and alterations are under way. Also, that two prospective renters are considering the sixth floor of this building, but that no new definite propositions have been made anywhere. misc. s. t-soit=1,5. 1#2 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE DATE Governor Strong July 10, 195-IS2_ SUBJECT: W. R. Burgess FROM -2 Talley is replacing McKinney as Governor at Dallas and Colonel C. C. Walsh, of San Angelo, Texas, has been appointed Federal Reserve Agent. The Tribune man just called me up to say that your visit to Germany to visit the Reichsbank with Governor Norman has just come out on the news slips. It is evidently impossible to keep the movements of central bank officials quiet at this stage of the world's history, and I wish, therefore, that we had told the boys when you left; but it cannot be helped now and they will print a thousand surmises. I am, of course, telling them that this is your usual visit to Europe which you have made practically every year. Mr. Jay and I are working away on public relations matters, preparing at the moment a brief hand-book for easy reference on Federal Reserve matters. I am enclosing a. copy of a speech which Mr. Traylor, of Chicago, is giving tomorrow, in which we had a hand and to which wide circulation will be given. Willis is out with another diatribe, which makes him even more vulnerable. Hot here and very damp. Att. WRB:R (No. 3) MISC. 3. I -75M -9 23 FEDERAL RESERVE BANK OF NEW YORK -OFFICE CORRESPONDENCE To Governor Strong DATE_ July 17, 1925. 192_ SUBJECT: W. R. Burgess FROM_ Not many officers writing today, so I shall have to tell the story. our It has been a quiet week, with two outstanding exceptions, work on public relations matters and a good deal of discussion of policy. Mr. Jay is writing about the progress on the first of these. A discussion about policy arose from Mr. Younz's discovery at the executive committee meeting on Monday of the present level of street loans, He had been under the impression that the which he had not realized. decrease which followed our action in February had been maintained and was shocked to discover that it had not. He suggested a report covering street loans and related credit matters as bearing on any action which it might be desirable for us to take. I think his feeling was that the present level of street loans indicated a dangerous situation, which might result in break, and occurred to him that it might be better to put on it pressure and to have some liquidation now rather than in the fall, when it might interrupt the course of business and prove more serious. We accordingly wired you (an afternoon when I was absent) and prepared the attached report. The report was reviewed carefully at the officers' council meeting on Thursday morning and was read to the directors Thursday afternoon. There was unanimous agreement to the recommendations made that no change in rates or open market operations was immediately desirable. The money market was turning easier about the time the cable was sent to you. After firm money on Monday heavy transfers came in and the (No. 3) FEDERAL RESERVE BANK OF NEW YORK t(4iiii"12C3 E To CORRESPONDENCE DATE Governor Strong W. R. FROM_ SuBJECT. Burgess - 2 - movement was inward on Tuesday and Wednesday also. and so far today. July 17, 1925. 192.__ It split even yesterday Money went off on Tuesday and reached 5 1/2 for yesterday; it renewed and has maintained at 3 3/4s today. a while The banks have been pretty well up in their reserves since Tuesday and are only borrowing 8 million so far today. Federal funds are 3 to 3 1/4. It is perfectly clear that the stiffening of rates for the last week in June and the first week in July was largely due to temporary causes and that we may anticipate moderately easy money through most of August, with the exception of the jet August 1 period; that is, there is no indication/of any large or continuous movement of funds to the interior. The recent inflow here has more than offset the transfers out, which occurredt/Efew weeks before. There may be some movement outward in the next few weeks, but I should doubt if it began seriously until September. We have been looking over the September 15 figures &bit, as far as we can judge them from this distance, and it looks like very close to an even break between receipts and payments for the period. The news of your presence in Germany created some newspaper discussion, but on the whole the boys handled it very quietly and sympathetically. I think the statement the Reichsbank gave out yesterday went very well and was helpful. I am enclosing a note which Wasson sent me, which is water over the dam now but indicates the newspaper man's reaction. The Traylor speech is getting wide publicity and I think is serving exactly the purpose you had in mind in discussing an article in an agricultural paper on the Bank of England arrangement. The Chicago bank gave it wide (No. 3) FEDERAL. RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To DATE_ Governor Strong July 17, 1925.____192_ SUBJECT r"-) W. R. Burgess FROM circulation to farm periodicals. - 3 - The regular clippings will show you how the New York papers handled it. Reverting to the discussion of policy above, I am afraid my discussion and the memorandum may give the impression that we are a little asleep at the switch in watching the present stock market movement, whereas the situation is being watched very closely, and I believe the feeling is that some sale will be made from the special account whenever it seems most desirable. It seems pretty clear, however, from your cables and our reviews of the business situation, that we want to avoid a raise in rate as long as possible and we do not want to take action which will force such a raise on us. I think what we do need is a number of good statements from other sources pointing out the extent of the present stock market movement. Ayres has such an article in his last bulletin. I wish that the street loan figures were public property just now, from this point of view at least; I think they would have a restraining influence. We are going to work on the little inquiry of your letter of July 7. Encs. ITRB:R IVIPERAL pl onT BANK OF NEW 11RK MISC. 3. 140M-1.14 OeFICE CORRESPONDt.NCE Governor Strong To July 24, 19.25A92_ DATE SUBJECT: W. R. Burgess FROM We have received a letter from the Bank of France asking us to receive and convert six million dollars of gold bars and to Their letter and our cabled reply &reattached. pay the proceeds to Morgan's. The gold is due to arrive next Thursday, and we are considering buying it ourselves. At the directors' meeting yesterday some time was spent in reporting to the directors all of our foreign relationships and they were shown the attached statement, summarizing the present status. .Mason tells me that he and Parmalt presented the express rate case to the Interstate Commerce Commission on Wednesday for about three hours. In general, they were favorably receiv&I and the Commission took the case under advisement. Deputy Governor Peple of the Richmond bank has been here all week and we have been going over with him the various proposals for public relations work, agreed upon at the Chicago meeting. As a result we have been gradually discover- ing what can and what can not be done, with the time and ability at our disposal. All of the banks have approved the new ratios of distribution for acceptances and they are now in effect. The money market is unusually firm for this time of year and month and rates have been running up to 4 1/2 per cent frequently this week, in spite of the fact that the banks were only slightly under in their reserves. banks are Tonight the in to borroW fi.om us somewhere around 50 million dollars, although there appears to have been an ample supply of funds in the street., It looks to me as if vacations and golf were interfering somewhat with the maintenance of narrow reserve margins. There were, however, heavy transfers out late in the day. (No. 3) FEDERAL RESERVE BANK MISC. 3. I-60M-1-24 OF NEW YORK DATE.. -C)1=FICE CORRESPONDENCE To Governor Strong 24, 1925_p 192_ SUBJECT. W. R. Burgess FROM - 2 - There continues to be general anticipation of firmer money in the fall, together with more active trade. We hear differing reports about the Australian loan. Kenzel gets the impression that the distribution has gone well, but from other sources comes the report that it is a bit sticky and likely to slump when the peg is removed. There appears to be some belief that it was written with a 'little too low a rate. Rather a disconnected memorandum today, in the midst of many interruptions. Erica. FEDERAL RESERVE BANK MISC. 3.1,5111-943 OF NEW YORK OFFICE CORRESPONDENCE To Governor Strong FROM DATE July_bl, 1_925 192 SUBJECT: W. R. Burgess Mr. Jay and Mr. Harrison are writing about specific matters, and I am enclosing also memoranda dealing with the case of one Pedro Merla, who came to It us with an introduction from Mr. Winn and has been going through the bank. therefore remains for me only to report current "gossip." He is a Mexican Congressman Perhaps a further word about Sena'r Merla. who is visiting this country to prepare legislation for the next Mexican Congress on three topics: Farm loan banks. Oil. kJ:mink of issue. He has completed his investigations on the first two topics and has His visit to us was preparatory to preparing legislegislation under preparation. He is an intelligent young man,who lation to establish a bank of issue in Mexico. His negotiations in respect to credit relations makes a very good impression. between this bank and a new bank of issue are not, I suspect, to be taken very While he was here in the bank we gave him an ample supply of information seriously. I think that there is nothing to be concerned about "B" but no information "A". with regard to his visit,but that it assists moderately and slightly towards the establishment of a bank of issue in Mexico. You will be interested in the attached clippings from the Dow-Jones news tieker of yesterday, together with a clipping from the New York Tribune of this morning, which we inspired,, with the idea that it w4A better to anticipate About the only way to prevent misfuture stories about your movements in Europe. leading and harmful dispatches seems to be to give out carefully prepared statements such as you arranged in Berlin. Mr. Sailer tells 'me that July expenses of the bank are likely to total $532,000, as compared with a budget of $562,000, $540,000 in July, 1924, and The salaries of a number of our people on three months $544,000 in June, 1925. "departure salary" have lapsed. I lunched, this noon, with Professor Haney of New York University, who is acting for the Program Committee of the American Economic Association in the We discussed the program for the Federal reserve absence abroad of Allyn Young. Reed, who meeting to be held in connection with the annual December meetings. wrote the book on Federal reserve policy, has already been secured as one speaker. Mr. Mitchell, of the City Bank, has declined to speak - reason not specified. Professor Haney is going to try to get George Roberts of the City Bank, and we disIt seems to me cuseed,also,having the discussion led by Allyn Young and Stewart. that we ought to have one Federal reserve person on the program and that Stewart is If Mr. Roberts refuses, as he may after Mr. Mitchell's refusal, the logical one. we have talked of Mr. Alexander, of the Bank of Commerce, Carter Glass, and Melvin Trailor. It seemed to us that two speeches, with two discussions and 5. 1-75M-9-23 \ FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE DATE July 31, 1925. 192_ Governor Strong SUBJECT: FROM W. A, Burgees_ 2. Have you any probably discussion cut off at that point, would make a good meeting. We may have to go ahead before there is an opportunity to act on anysuggestions? thing you suggest, but the chances are that it will drag along for some weeks. As to money conditions: money weakened a bit yesterday to 3 3/4% for a few hoursAfollowing a considerable flow of funds to New York for two days previous. The enclosed sheet shows that things are tighter to-day and, I suspect, are likely to continue so well over the first of the month. One begins to hear, on a good many hands, of a spreading feeling of caution I have just been talking with GarrQtt, financial editor as to the stock market. of the Evening Post, and he is going to talk caution in his Saturday edition, as I You will note by the clippings that Dow-Jones think Franz Schneider will, also. has made another estimate of brokers loans, this time not quite so bad as on the We have taken particular pains in our eview going through to-day last occasion. to point out the position of loans on stocks and bonds, and I think perhaps they Their fluctuations, after all, reoffer a way out of some of our difficulties. flect rather closely the changes in brokers loans, and they have long been a matter of public knowledge., What I have been hoping, and I think it will happen, is that the security market will ease off by its own weight, which will leave us in a position to have freer regard to the international money situation. It has been the unanimous opinion of the officers, in cabling you with regard to the situation here, that we do not need to be seriously concerned at This belief seemed to me to be based on present about the stock market situation. two factors: one, the hope just mentioned above,that any abnormalities in the present situation would correct themselves; and, two, the feeling that present prices and volume of loans are not seriously abnormal. On the other hand; it has, I think, been the feeling of the officers that if this stock market should coast along until early fall without any decline, and if there should be added to it a considerable increase in business activity, together with an increase in open market money rates, it would then be difficult for us to avoid an increase in our rate. Ends. yr^ FEDERAL RESERVE BANK 3. 1-10N-1-23 OF NEW YORK OFFICE CORRESPONDENCE DATE Governor Strong August 7, 1925;91_ SUBJECT: W. K. Buigess FROM We are enclosing as complete as possible a set of clippings concerning the Bank of England change of rate. It seems to me that the reception of the change was very good here, the major emphasis being on the achievement of the British in gaining a technical position which made such a change possible It within a little more than three months of the resumption of gold payment. is too early to get any indication of the actual effect, if any, on the New York market. I think possibly the most important effect will be the encourage- ment to trade and financial activity from the inference which many have drawn that the lowering of the Bank of England rate means that ours will stay put. The stock market seems to be strong today thus far. I am sending along also today the material requested in your letter of July 7 to Mr. Jay, having to do with the balance of international payments, and including also a memorandum from Mr. Snyder on the general subject. Miss Rose is largely responsible for the compilation of the data, which I think you will find in good order. We have appended complete supporting tables in each case, so that you can have somebody work out the detail at any point which you desire, although I suspect that all you want is a summary on each point. My own feeling on this whole problem is that the discussion of the problem in the past has underestimated the importance of new financing. I suspect that in the past, before the war, England could never in any one year have actually collected all the interest or principal due her. What she _actually did was accept equities in foreign countries, in lieu of interest S. IIOl-Z5 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE -0 IS2_ DATE SUBJECT: FROM -2payments and payments on principal. further pledge of collateral. She really took another I. 0. U. with a And I suspect that the ability of European countries to pay the United States interest and principal in the future depends upon our willingness to accept further obligations of those countries. From this point of view there is little practical limitation to the amount which Europe can pay us each year. The limitation is largely psychological and has to do with the extent to which we will accept European securities. And this ,involves a curious paradox; our willingness to accept European securities de-ends in no small measure upon our judgment as to whether or not they can pay. Mr. Jay got away Saturday and is planning to be back September 3rd. Case is back looking very well and full of pep. Ws are continuing to spend an enormous amount of time on public reltions work and we are getting a good deal of favorable publicity. You will )ubtless notice among the clippings a number of quotations from Melvin Traylor, Id the Periodical heview reports a couple of bits. You may be interested also the attached release on acceptances, which we prepared and which I think will have a good circulation. We are working away at material for the inquiry. Nothing unusual in the money market. Conditions are firm as usual over the first of the month, with call rates running between 4 1/4 and 4 1/2, and the New York City banks borrowing from 100 to 150 million. There is no indication as yet of any considerable transfer of funds to the interior beyond the usual monthly movement. Encs. http://fraser.stlouisfed.org/ WRB:R Federal Reserve Bank of St. Louis FEDERAL RESERVE BANK OF NEW YORK August 14, 1925. Dear Governor Strong: Mr. Case, Mr. Harrison, and Mr. Sailer are all writing today and there is little to add. I have received your letters of August 1 and am glad to be able to have such a good basis for discussing your absence with the newspaper men. As it happens, however, we have been able to avoid any real difficulty on the subject. I have talked pretty frankly with most of them along very much the same line as your letter suggests, and they have all been very decent about handling any news that came through. Wasson himself is abroad at the present time and he may look you up somewhere there. I think your thought of giving the boys a statement when you return is excellent. I think on the whole it would be safer, and in the interest of maintaining cordial relations, to give such a statement to the Wall Street men rather than to the men who meet the steamers, if it is possible to dodge the steamer men, or put them off with some very brief statement to the effect that you found European conditions generally better than on your last trip and that the trip was simply your usual visit to correspondent banks, combined with a holiday, and of no special significance. I will find out a little more about how this can best be handled and write you further. AS to the money market, there is very little change in the position. The street loan account continues to edge up a little every week or two, but FEDERAL RESERVE BANK OF NEW YORK 2 Governor Strong, Biarritz, France. August 14, 1925. ) K.) the total increase since you left has been only about 60 million. The stock market averages are acting about the same way, withomAsamiralternate rises and recessions, and the averages are now only a few points higher than when you left. There is still no considerable commercial demand for loans, although the last Federal Reserve statement gives some indication of a slight increase in the demand for currency. I am leaving tonight for a holiday, which I shall spend at Highlands, and shall be within easy calling distance if anything arises here. Gidney will take care of affairs in the agent's function until Mr. Jay returns the first of September. There is going to be too much boiling here in September for me to delay vacation until then, with any hope of getting any. Mr. Case, with Mr. Roberts' help, will see to it that there is no break in the flow of information to you. I shall be back for a few days toward the end of the month to help in getting out the Monthly Review. Sincerely yours, W. Randolph Burgess Benjamin Strong, Esq., Biarritz, Fr-taco. ?OFF E SERVICE DIVISIO. E SLIP DATE MES,SX_NCIER SECTION September 19, 1114 DEPARTMENT i.iDIVISION PO- -CU-- e..-A-4117, kForcs c - FROM N. B. SECTION 1 undertaa$I4,r are sendiru the D.E. the otkottv RBs, the photogrtph ticl the report on certmint tests. A. 6. 'tileecker ... A. 12,i/2s------- USE TH,S FORM INSTEAD 0, OFFICE ENVELOPE WHEN POSSIBLE, DEPARTMENT DIVISION SECTION it TO INSURE PROMPT SD 1,..S.C3, TF t DELIVERY ALL COMMUNICATIONS SHOUL,D El-DISTINCTLY LABELED 4111 FEDERAL RESERVE BANK MISC. 3. 1.1011-1-25 OF NEW YORK OFFICE CORRESPONDENCE Governor Strong FROM V DATE October 8, 1925 tn._ SUBJECT FL Burgess suggel3t that the group of economipts to meet Dr. 6chacht be ma e up br. follow: H. A. E. GILA:Idler, BLI-Ic of Commerce David Friday, 54? Tn,nsportation Building, 13 Street N. W., H Vashiugton, D. C. George Roberts, N-timil City Bgnk Tesle7 C. Mitchell Bureau of Economic Research, 181 wet 12 Street, New Iork V:...lter W. Stewart, Federal neserve Board O. M. W. Sprague, Hrvard University Edwin h. k. Seligman, 34 Test 66 Street, New York Allyn Young, Harvard University laien D. Young, General Electric Company Lerrd F. -,;:evelamd Trust Company Jaoob Hollnder, 180 Eutaw Place, Baltimore, MaryL,nd FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE DATE Governor Ctrong October 8, 1921. 22_ SUBJECT: FROM For the group of journalists I think the folleyxing should probably be included: D. Noyes, Ne York Times Geoffrey Faroons, New York Herld Tribune VM.ter Lippmann, Net VorId- Fr!inz Schneider, Ne;.. York Sun B. C. Forbes, Ne,- York ,,merican Kent Cooper, .,ssocited Press I. F. Hamilton, rall '..1-treet Journal Paul T. G&rrett, Ne INPB:R York Evening Post tEL-mdo:.'10 ueda gravoilot elLt licit& I alabAilluot , .a eaii4TIfaa 004,D=1i Itea110e0 eaudi-IT LITilti 51ot 7e1 anam 14 ti 1 sJ 1.;. ' 1-om lio/ Aol 1aebtenif3?, atJa ..1.101- =Yon 12wd-iol a.,.....3.1-tosp, *ma 'el tri*X ttio.ii kt.ersuot .15011-L. 1. 0.1,3114;C, wif..nava cif ,velit As.s. ed FEDERAL RESERVE MISC. 4. 1-200M-7-24 OF NEW YORK OFFICE CORR SPONDENCE T6) Governor DATE 192-5. December_Pl, SUBJECT: Burgess FROM 'v:e have a pretty complete file on all foreign loans, which we have made up by clipping the advertisements from the papers. These advertisements usually contain nearly all the information which appears in the prospectuses, but we are now making arrangements to secure the prospectuses as well as the newspaper advertisements, so that our file may be complete in every detail. VJRB:R ik 0-6 htt/0 FEDERAL RESERVE SANK OF NEW YORK April 50, 1926. Dear Governor Strong: I have been over the list of things that Miss Bleecker is sending and it seems to be pretty complete. You may note that we are now carrying in the Business Summary a table which gives the aggregate figures, by weeks, for the gains and losses to the market as we report them on our hourly reports. Mr. Harrison is covering the gold movement to Canada and the progress of affairs in Washington. My trip to Washington was postponed because of Mr. Miller's continued testimony, and I have no word as to when I am to go. The most obvious result of our change in rate has been a stimulation of a redistribution of borrowing at the Reserve Banks. Transfers to the in- terior since the rate change have totaled something like 050,000,000, and Wednesday's statement shows that discounts at Reserve Banks other than New York were reduced $45 000 000 in the week, whereas our own discounts were increased by about $75,000,000; and this afternoon the banks are taking $57,000 000 more from us; to offset a very heavy movement of funds to the interior, together with currency payments and gold withdrawals. Tonight the hew lork City banks owe us $148,000,000, but are well over in their reserves and will undoubtedly come down some 50 or 40 million tomorrow. Clearly, if the other banks hold their rates a redistribution of this sort is logical, although of course it is accentuated at this time by the usual end of the month transfers. FEDERAL RESERVE BANK OF NEW YORK 2 Governor Strong April 30, 1926. I think it is now clear that the rate change has been generally well As you will see by the clippings Miss Bleecker is sending, the news- received. papers were most of them favorable, although the Chronicle took its usual crack at us. The directors reported yesterday that the comments they had heard were largely favorable, although Mr. Reynolds reported that he had heard three types of comments from bankers immediately after the rate was changed. The first comment was to the effect that the change was foolishness; the second that it was ---- foolishness, and the third that it was .---- ---- foolishness. I lunched today with the statisticians and economists and their testimony from various industries bore out what our own figures are showing, that business is continuing at a remarkably high level and that there has been as yet no real cessation. Retail sales of automobiles for 17arch for all makes of cars in 27 states were 20 per cent ahead of last March's. cent ahead and General Motors 50 per cent ahead. Ford was 3 per The sales in April thus far are at almost the same tremendous pace end there is little indication of a letup. New building projects for the first 20 days of April are running well ahead of last year and at very nearly the pace of March. The steel plants appear to be again increasing their volume of operations, with better orders from the building and automobile industries. There are more blast furnaces coming in. All of this in the face of some continued price weakness; prices of scrap iron are still going off and lumber prices are off a bit. The net con- clusion of the group appeared to be, however, that the downward movement in business is likely to be postponed for a few months, and probably until summer. Mr. Curtiss cane in yesterday and is opposed to a change in the Boston rate at this time, which a number here thought was a wise position to take. FEDERAL RESERVE BANK OF NEW YORK 5 Governor Strong April 300 1926. The Federal Reserve Board has approved the appointment of the Czecho- C7 Slovakia National Bank as correspondent. Our board yesterday approved Mr. Jefferson's leave of absence in the fall. I am attaching herewith a letter received from Governor Crissinger concerning the Belgium matter, and also a letter and memorandum which Mr. Case sent Governor Crissinger in order that he may talk intelligently about our rate change in case he is called before the House committee. By the time you get this letter you and your economic confreres will, I suppose, have settled the Indian currency question, and I suppose congratulations are now in order. We shall be much interested in hearing the story when the experts return. Very truly yours, FEDERAL RESERVE BANK OF NEW YORK May 7, 1926. Dear Governor Strong: I am just back from Washington after spending Tuesday, Wednesday and Thursday there, and appearing before the committee a half day on each of those days. The discussion of the Haugen Agricultural Bill for boosting prices of agricultural products was going on and the committee only held one session a day, except on Wednesday, when their morning session was devoted to hearing Major J. R. Bellerby, whom you may remember as a visitor at the bank about a year ago while he was working for the International Labor Office. Bellerby had been well coached up by Sprague and did a very good job in pointing out the importance of international matters in the determination of our policy. Bank of England. He paid a very high tribute to our arrangement with the The only point in his testimony which might possibly lead to difficulty is his emphasis on the desirability of an international monetary conference, but he qualified his recommendation in that regard by saying that the same result might be produced by informal means and that in any event the time was not yet ripe for suCh a conference. He suggested as an alternative for the Strong bill the insertion in the preamble to the act of "to maintain the gold standard and the value of gold and to promote business stability." This is Sprague's suggestion, but with some slight modification. I talked mostly about the money market and our relation to it, in- cluding a careful description of the methods by which we follow developments in the market. I also got into the record a statement of factors considered FE.DERAL RESERVE BANK OF NEW YORK 2 Governor Strong in making rate changes at their request. o May 7, 1926. There had thus far been no straight- forward statement of that sort put into the record and I think it makes a good antidote to the emphasis on prices alone. I also suggested that the danger of an automatic adjustment of complicated economic matters, such as the price stabilizers have in mind, is perhaps illustrated by some of the difficulties arising from the British plan of adjusting wages by prices, and I showed them charts of wages and prices in this country and Great Britain. They seemed to be much interested in these things and seemed very The only point at which there was any serious question was on re- friendly. purchase agreements. Both Mr. Wing° and Mr. Goldsborough raised the question as to the legality of these transactions. Board for a statement concerning They are asking the Federal Reserve the legality, as I think Mr. Harrison has indicated, and they are asking us also to prepare a statement of the general purposes to be served by the repurchase agreements. In my discussion all I attempted to do was to deal with the importance and necessity of our aiding the dealers. After the discussion was over Mr. Wingo told me privately that he now felt convinced that we were on sound legal ground, although he wonders whether it would not be well to have somewhat more specific authorization written into the act so that there would be no doubt. The committee would like to have this full statement on the repurchase agreements placed in their hands, with sufficient copies, so that each member of the committee could study it and then have another session on it. They have suggested my coming back for that and other matters with Mr. Harrison. Governor Crissinger has already called on Mr. Harrison for the preparation af the legal memorandum. FE5ERAL RESERVE BANK OF NEW YORK Governor Strong 5 May 7, 1926. It was clear to me that the committee had been hearing outside criticism of our arrangements with dealers and this gives us a chance to Oa^ bring the whole thing out into the open and finish it off. As you will see from Miller's testimony, he made three principal recommendations: That the Reserve Banks be given in some way greater control over A speculation. That the office of Federal Reserve Agent and Chairman be separated and the Agent's job held by a lesser person. That open market operations be conducted under the orders of the Federal Reserve Board. I gathered from a number of comments that the committee was not greatly impressed by these recommendations and recognizes that they are simply an attempt to extend the power of the Reserve Board, which does not meet with their favor. esterday the committee adjourned until next )1(*19-4-11-ftehingtmc week without any definite plans, although I rather gathered it was their inten- tion to keep this hearing going pretty vigorously for some time, and McFadden suggested to Goldenweiser that he might call each member of the Federal Reserve Board and Goldenweiser himself. Goldenweiser tells me that Hamlin in par- ticular is making careful preparation. Money conditions here remain about as they were last week, with the bew Xork banks owing us well over 100 million dollars and the bill dealers in for about 40 million, SD that money is firm at 4 per cent, and there is still a tendency for funds to move to the interior. the first of the month. Part of this may be blamed on It, of course, raises the question as to whether we ought to make further purchases in the open market, but I do not think it would FEDER/kg. RESERVE BANK OF NEW YORK 4 May 7, 1926. Governor Strong be a good idea until there is a little more indication of less active business. There is no such indication at present. Street loans increased over 150 million dollars between the time you sailed until the first of May, largely due to increases for the account of the New York banks, but they have gone down 100 million since May 1 and are now only a little over 50 million above the lowest point, so there is nothing to worry about there. Mr. Sailer is back looking very well. Mr. Jay is in Chicago making a speech before the Industrial Club. Mr. Case is leaving tonidat for a week. Very truly yours, e24A--pa-o--sf, Mr. Benjamin Strong, C/0 Bank of England, London, England. 41, FEDERAL RESERVE BANK OF NEW YORK May 14, 1926. Dear Governor Strong: Perhaps the most interesting event of the past few days has been the passage by the Senate, without a division, of the McFadden Bill, as amended. Prior to the passage an attempt was made to restore the Hull amendment, but was defeated by a vote of 60 to 17. An account of all this is given in some of the enclosed clippings, together with some vigorous remarks made by Mr. Glass on the subject of the Hull amendment and the position taken by the American Bankers Association. There are various opinions about what will happen to the McFadden Bill in conference, but nobody of course knows. I am enclosing copy of a letter which I have received from Bellerby which reports his activities in regard to the Strong Bill. On reflection I do not think I like Bellerby's inclusion of the phrase "value of gold" in his proposed text "to maintain the gold standard and the value of gold and to promote business stability." original form is better. It seems to me Sprague's However, I suspect the committee is ready to follow the form that you may want to suggest, if any. Harrison is now in Washington conferring with the Board on the memorandum concerning repurchase agreements and he telephones today that he has arranged that the whole memorandum, legal and otherwise, will be prepared here and submitted to the committee through the Federal Reserve Board. This makes it possible to make a single finished job of it and is FEDERAL RESERVE BANK OF NEW YORK 2 May 14, 1926. Governor Strong much more satisfactory than preparing two memoranda on different phases of the matter. Mr. Alexander attended our directors' meeting yesterday to discuss the program for the Advisory Council meeting next Friday. The council proposes to meet on Thursday for a day preliminary to the meeting with the Board on Friday in order to decide on what they want to discuss with the Board. Mr. Wetmore will be in New York on Monday for a discussion with Mr. Alexander and perhaps with some of the officers here, and then will spend Tuesday and Wednesday in Washington with individual members of the Board; all of which indicates that the council proposes to make something of their work. has invited the council Board has asked the Dr. Miller to dinner on Thursday night. The questions which the council are more interesting and broader in scope than usual and in addition the council itself has a number of questions. It seems clear that there will be some discussion on the relation between the Reserve Banks and speculation, and in particular that Dr. Miller's suggestion that an attempt should be made to limit the use of Federal Reserve tive purposes will be discussed. funds for specula- Mr. Alexander seems to be fully alive to the difficulties of that problem. Supplementing the cables on the matter of a possible credit to France, Mr. Young, who was not present when the matter was discussed on Monday, said yesterday that he hoped he would never be called on to vote for the extension of credit to any country until it had a sound plan for monetary stabilization. This is similar to views expressed by other directors, which support your own position without any qualification. It was thought by a good many here that the conclusion of the British general strike would be followed by some recovery in the stock market, but this has not proved to be the case. The market is very dull and trading is FEDEFrAL RESERVE BANK OF NEW YORK Governor Strong running less than a million shares a day. May 14, 1926. Money has been 3 1/2 per cent to 4 per cent all week and moderately firm. The New York City banks have been in debt between 75 and 100 million dollaxs. The bill dealers have had larger portfolios than at almost any time in the past, due to the fact that over the first of May the banks dumped a great many bills to adjust their position. The bill dealers now owe us more than 60 million dollars. afternoon the l'ew iork City banks came in for This about 41 million dollars and owe us tonight nearly 130 million dollars; but they can pay off at least 40 million tomorrow and still have their reserves in good shape. The fact seems to me to be that there has been no liquidation throughout the country outside of the liquidation in street loans, and that liquidation has been partly offset by some increase in commercial borrowint and some further demand for currency. The consequence is that the country needs nearly as much Reserve Bank money now as it has at any time in recent months. On top of this there has been some shifting of borrowing from other centers to New iork because of our change in rate. Wednesday's report shows that total bills discounted outside of the New York district were only 369 million dollars. Funds have been moving toward New York in moderate amount this week, but not enough to offset several previous weeks of outward move- ment, and today the movement was outward again, as shown by the three-thirty money sheet I am enclosing. I em also putting in a table summarizing the status of the street loan account, which as you see is now very close to the low point of April 15. There is every indication of continued business activity on a large scale. Although I believe that a break is coming, it is certainly a long time on the way, and there is still a chance that industry may get itself into bad shape, with large inventories and overproduction, before the " FEEI.Eg-AL RESERVE BANK OF NEW YORK 4 Governor Strong May 14, 1926. 0 recession appears. 0 I do not see anything in the present situation, however, to give alarm. Mr. Jay reports a good trip to Chicago and to St. Louis. He found a good deal of misunderstanding in both places as to our rate changepand talked to some of the Reserve Bank officers and a small group of the St. Louis bankers concerning some of the major factors of the background and found these gentlemen very sympathetic as they understood more of the circumstances. We are all delighted at the result of the Indian hearings and are anxious to hear the details. Very truly yours, Mr. Benjamin Strong, C/o Bank of England, London, England. En es. f Copy of letter from Mr. Bellerby to Dr. Burgess, dated May 8, 1926 63 Oxford Street, Cambridge, Mass. 8 May 1926 My dear Dr. Burgess, I am writing to remind you of your kind offer to get me out of a hole in the matter of supplying (1) a list of countries which had (a) resumed the gold standard (b) stabilised their exchange rates with the dollar, (2) a copy of the Resolutions of the Genoa Financial Commission. It seemed to me that since these would need to be included in an appendix together with other resolutions and evidence I am submitting, it would be best if the items you promised to supply might be sent direct to myself, so that I may place them in their due order in relation to the other matter. I could also, in that way, insure due acknowledgment being paid to the source of each document. As regards the Genoa Financial Resolutions, it seems to me that it would be well to publish the whole twelve, especially in view of their being out of print now and nobody holding any responsibility for their re-publication. So, if you could send me the whole series of twelve I should be most grateful. I was sorry not to be able to stay to the end of your evidence at Washington on Wednesday. It was going exceedingly well when I left you; and if your nerves were still continuing to cause you trouble, that certainly was not evident to the outside observer. You looked - 2- Li as if you might have been doing that sort of thing every day of your life; and what was said was most clear. I saw Lombard on Wednesday night for 3 hours and also stayed Thursday night and part of Friday with Irving Fisher, as a result of which I think I have brought them round to the acceptance of the Sprague test, to which they were initially very much opposed. In- cidentally, the whole subject of my visit was to consolidate the Sprague test in the mind of the Committe, so as to rebutt all the other suggestions which had been put forward. Anything else I attempted was mere clothing for the one purpose I had primarily in view. Unless something very untoward happens I think the Sprague tellt will become the future basis. Though it may be little early to speak now. Please give my kindest regards to friend Snyder. all good wishes to your self Very sincerely yours, (Signed) J. B. Bellerby With Misc. 3. 1-50M-R.25 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE TO Governor_atrongReport s _Department FROM DATE May 14 Confidential_Report_on Mold Reserves and Foreign Accounts for SUBJECT: week ende.1 riay Following a decline of $132,000,000 in the two previous weeks, gold reserves of the New fork Reserve Bank recovered 432,000,000 in the week ended. May 12. The principal gain was in a return flaw of ordinary commercial and financial funds from the interior and there were also small gains in Treasury transfers and Reserve Bank settlements of acceptance transactions. Currency and. coin receipts also exceeded payments, notwithstanding the withdrawal of $5,000,000 gold for shipment to Canada. There was no change in earmarkings of gold for foreign accounts, the total remaining at $53,000,000. Free balances of foreign correspondents were reduced $300,000 to $4,970,000 due largely to payments from the Reichsbank account. Holdings of bills declined. 4500,000 to $67,150,000, maturities of $1,100,000 from the National Bank of Hungary account and $150,000 from the Reichsbank being only partly offset by additions of $500,000 to the Swiss National Bank of Zurich and. $250,000 to deNederlandsche Bank account. The proceeds of bill maturities from the account of the National Bank of Hungary were invested. in Treasury securities and we also purchased. 4750,000 of Treasury's for the Bank of England, so that total security holdings advanced to 471,975,000, an amount about twice as large as our custodies for foreign account at the beginning of the year. This increase has been chiefly in the Bank of England account which advanced 427,750,00G during the period. May gold movements to date include exports of 8,000,000 to Canada and net exports of $240,000 through the Port of New York. Gold exports from the United States in April aggregated $17,900,000 and imports, $13,100,000, making a net export of 44,800,000 for the month of April. 192_6_ STREET LOANS; (Based on confidential daily reports from 41 New York City banks) High point, Dacember 31, 1925 - $2,962,000,000; 1926 low point, April 15, - $2,198,000,000. Millions of Dollars For own account For correspondents Total Balances, Out-of-town correspondents Amount May 13 905 1,326 2,231 690 C.Liag,211, Previous day +6 Week Ago -32 -18 -12 + 4 -28 +14 - 4 Feb.15,1926 -300 -414 -714 - 29 FEDERAL RESERVE BANK OF NEW YORK May 21, 1926. Dear Governor Strong: The most absorbing topics of conversation in the bank this week have been the officers' golf tournament, the official status of the Bank Polski, and the rescuing of the bill market. The officers' golf tournament takes place Sunday at Eddie Kenzel's course. I think the attached schedule of the event may amuse you. Harrison is covering the Dank Polski, which leaves the bill market to me. Following our change in discount rate in April we made only a moderate reduction in our bill buying rates, with the thought that that course would encourage distribution at a time when the amount of drawings was diminishing. Just prior to and following our change of rate the bill dealers put their rates down, bringing 90-day bills to 3 1/8. That happened was that in succeed- ing weeks bills began to pile up in the dealers' hands and distribution was very _slow. Dealers' portfolios rose to perhaps 120 million, the largest amount that they have ever held. The principal causes of this situation were, it seems to me, two: first, that the dealers had pitched their rates a little too low, anticipating easier money than actually occurred; and second, with our buying rates a bit above the market banks were loath to take bills because they could not melt them down except at a loss. This was particularly true during a period when they were borrowing substantially from us. Of course, both of these causes arise from the anticipation of an easier money market than has in fact developed. FEDERAL RESERVE BANK OF NEW YORK 2 May 21, 1926. Governor Strong On last Monday the dealers raised all their rates 1,/8, except for the short 1 to 30-day maturities, and we followed that up yesterday by bringing our rates down to the market. into These two changes have started the market activity once more and it looks as though all difficulty would be corrected. The New York City banks still owe us 100 million dollars, besides 60 million we are advancing on bills. this Money has gone to 4 1/2 per cent afternoon, after remaining steady most of the week at 3 3/4; so there is no immediate prospect of sloppy money, although money is available to meet every genuine need. We are still losing funds somewhat to the interior. The June 15 Treasury financing is going to carry with it some interesting problems. Mr. Case had a talk with Dewey this morning and finds that the Treasury will be able to meet its maturities and interest payments wholly from income tax receipts and the British debt payment, and without using any of the balances now on deposit with member banks. June 15 operation will probably leave the Treasury with a Infact, the balance of 80 million in the Reserve Banks by June 20, which we shall have to figure out a plan to take care of without disturbing the market. We have 36 million of June maturi- ties in the open market account which Mr. Case proposes to get authority to replace, partly in advance of June 15. We are selling 33 million from the A. P. O. account to Morgan to use in the British payment, and we are buying 3rd's in replacement, so there is a bit of buying to do for the Treasury before we replace our maturities. Business continues active, but with some further signs of an impend- ing letup in the textiles and iron and steel. Building contracts awarded through April, and into May, continueiargely- above last year, although April permits were a bit off. et FEDERAL RESERVE BANK OF NEW YORK 5 Governor Strong April 21, 1926. The stock market is feeble and street loans have reached a new low point, 40 million under the lowest point in April and 800 million under the high point on December 31. The recent decreases have been largely in the funds held for out-of-town correspondents. We are looking for the Reserve Board examiner in the near future and a set of rules governing our relations with him has been carefully drawn up and all officers and chiefs thoroughly instructed as to Very truly yours, Mr. Benjamin Strong, C/o Bank of England, London, England. Encs. procedure. May 7, 1926. TO FROM J. H. Philbin, Secretary, Officers Group courtesy of In my notice of April 28 I informed you that, through the Mr. Kenzel, the privileges of the Green Meadow Golf Club at Harrison (near Rye), New York had been extended to the officers of the bank for their annual tournament for Governor Strong's Cup, to be played on Sunday, May 23. Sixteen acceptances have been received, which will permit four well balanced foursomes, and I am sure you may look forward to spending a most enjoyable day. In order, however, regular club members as that so large a number of visitors shall inconvenience the little as possible, it has been agreed to start the last foursome at not later than 9:00 a. m. ready Will you please, therefore, be present and to tee off at the time indicated below: The "Highboys" foursome Starting time 8:45 a.m. The'lkplorers" foursome Starting ttme 8:50 a.m. The "Oddfellows" foursome Starting time 8:55 a.m. The "Goodfellowship" Foursome Starting time 9:00 a.m. Mr. Barrows Jones " " Mason " Philbin Handicap Mr. Case " Crane " Matteson " Gilbart Handicap 30 Mr. Gidney " Schneckenburger " TenEyck " Vansant Handicap Mr. Jay 60-1f-44:.11-'' Handicap 40 6 6 6 " " " " " " Kenzel " " Hendr Joke 11 " Snyder " played. either lift or put. Events 10 15 30 " U. S. G. A. rules govern all play except that the penalty loss of distance only. No Stymies. Stymies will not be hole may be requested to 0 for 6 10 17 20 30 25 40 out of bounds is The player whose ball is nearer the Championship - Match play 3/4 handicap (taken where indicated on the ca Prize for winner - Prize for low net (full handicap) - Prize for low gr first tee in each foursome plays his first match play The first player off the round against the third player off, and the second player plays likewise against the fourth player. The subsequent matches will be decided by matching cards; all cards to be given to Mr. Jones or Mr. Barrows. FEDERAL RESERVE BANK MISC. 3. 140M-4-24 OF NEW YORK OFFICE CORRESPONDENCE To Governor Strong FROM Reports bepartment DATE_ May 21, Confidential Report on Gold Reserves and Foreign Accounts for week ended May 19. SUBJECT- Gold reserves of the New York Bank advanced $9,000,000 further in the week ended May 19. The principal gain was in Treasury transfers to this district to meet May 15 interest payments, and we also gained somewhat in Reserve Bank settlements of acceptance transactions. In addition, counter receipts of gold exceeded counter payments for the second week. These gains, however, were partly offset by a movement of ordinary commercial and financial funds to the interior, following the influx of commercial funds to this center during the previous week. For the seventh consecutive week, total gold earmarkings for foreign account remained at $53,000,000. LQ At $4,970,000 free deposit balances of foreign correspondents apt-e.a.red Holdings of bankers acceptances were reduced virtually unchanged. $2,700,000 further to $64,500,000 and are at the lowest level since the week This reduction was the result chiefly of maturities of December 23, 1925. of $2,100,000 from the Reichsbank and $600,000 from the account of the National Bank of Hungary. Custodies of securities increased $200,000 further to $72,200,000, due to additional purchases of Treasury securities for the National Bank of Hungary in reinvestment of a part of the proceeds of bill maturities. Gold movements during the reporting week were practically For the month to date there have been exports of $8,000,000 gold negligible. to Canada and net exports of $167,000 through the Port of Aew York. FEDERAL RESERVE SANK OF NEW YORK May 28, 1926. Dear Governor Strong: The two matters of unfinished business from last week were the Bank Polski and the bill market. We have received satisfactory assurances from the State Department and from the Bank Polski itself, which leaves no course open but to renew the loan and honor their drafts. That has ac- cordingly been done, although the situation clearly needs careful watching continuously. I assume Mr. Harrison is giving you all the details of this transaction. The bill market is working out of its difficulties, although two days ago the dealers' rates for unendorsed 90-day bills were raised 1/8 further to facilitate distribution. out of 90-day bills. As a consequence they are now cleaned Their sales contracts with us are down to 29 million, although this reduction is largely due to outright purchases for the system. The market is now running on an even keel. The movement of funds has been in this direction for the past week and last night the New York City banks owed us only 64 million dollars. There was a loss of funds yesterday, largely through currency withdrawals, and today currency is being paid out and we are losing through the transfers as well; so that the New York City banks may owe us up to 100 million to balance their accounts for the week. The money situation is generally regarded as comfortable, but without any sloppiness. Stocks have been a bit stronger for several days. - This article is protected by copyright and has been removed. The citation for the original is: “In and Out of the Banks.” The Wall Street Journal (New York, NY), May 28, 1926. FEDERAL RESERVE BANK OF NEW YORK June 4, 1926. Dear Governor Strong: We have just completed a preliminary tabulation of retail trade statistics for the month of May from 52 stores in this district and find that their sales were 5.7 per cent larger than in May last year. It is a very satisfactory increase, which seems to me to indicate that retail trade is going forward at a steady pace without any interruption other than occurred earlier in the spring, due to cold weather. Automobile production was more than 400,000 cars and building contract awards continue in large volume with little evidence of a decrease as yet. The only points in the business horizon where there seems to be genuine evidence of difficulty is in the textiles and iron and steel. Textiles are apparently in pretty bad shape, with very large price concessions and diminishing production. The output of iron and steel is still large, butdecreasing, and likely to decrease further. I do not believe, however, that we were wrong in anticipating some recession in business in the second quarter of this year. You may remember that the textile trades were among the earliest to be affected in 1921. What appears to be happening is that business is receding a bit, but doing so very slowly; and I doubt if our volume of trade index crosses normal on the way down for several months to come, and I do not think it will go very low even at that unless real estate and building and automobiles begin to crack. depends on how much things are overdone in the next few months. Much FEDERAL RESERVE BANK OF NEW YORK Governor Strong 2 June 4, 1926. It is quite remarkable how steadily the system's earning assets have been maintained at a level between $1,100,000,000 and $1,200,000,000. c> closing a chart which gives these figures by days. Practically the I am en- only change since the first of the year has been some slight shift of borrowing from other districts to New York. The New York City banks now owe us a little over 100 million and their requirements seem to be satisfied by an amount of borrowing between 75 million and 100 million. The steadiness of the earning assets of the system reflects a considerable degree of stability in the total amount of bank credit in use. The follow- ing table shows the changes in different types of loans and investments for all reporting member banks: Loans and Investments all Reporting Member Banks (in millions of dollars: January 27 26 May Change Loans on stocks and bonds 5509 - 5295 204 Commercial loans 8278 8408 + 130 Investments + 5477 5705 228 Total loans and investments 19426 19579 153 4 You will note that total loans on stocks and bonds are off lion, whereas street loans are off 700 million. able shift from broker to private borrowing. New York City, only 200 mil- There has clearly been a consider- This is particularly true outside of The decrease in loans on stocks and bonds has been almost all offset by increases in commercial loans and in bank investments. As you see, there has been a considerable increase in bank investments in the past few weeks, in the face of a considerable volume of rediscounts at the Reserve Bank. even This in- crease in investments has accompanied strong bond prices and, as you will observe, there has been a further recovery in stock prices in the past few days. I think there has been an erroneous impression among the banks here that money was going to be very sloppy, and banks have increassed their bond holdings in anticipation of this event. DERAL RESERVE BANK OF NEW YORK Governor Strong June 4, 1926. Mr. Jay and Mr. Harrison, I believe, are covering most of the matters Q outside of the money market. up unfinished tasks. We are getting a little chance these days to clean I have been working on the discussion of the Chronicle criticisms to insert in your testimony, and have also been correcting proof of my own testimony. John Rovensky has resigned from the Bank of Commerce and has been made first vice president of the Bank of America, where he is directly in line for the top job. George Roberts has written a fine piece monthly review, a copy of which I am enclosing. out the Strong bill in his Mr. Mitchell is also writing a good letter to Mr. Strong on the sane subject, in reply to a circular letter which Strong has sent about to a great many bankers and others asking their opinion about his bill in revised form. The revision is worse than the original, very wordy and just as objectionable. The professors were here a week ago looking very chesty ad hearty and reporting great success, at which we were much delighted; and your letter giving a full account of proceedings has also given us a vivid picture of the whole affair. ' Very truly yours, 4C'4118.41"1'-744 Mr. Benjamin strong, C/o Bank of England, London, England. Encs. MILLIONS OF DOLLARS EARNING ASSETS ALL F.R. BANKS This article is protected by copyright and has been removed. The citation for the original is: “Paris and London Formulating New and Far-Reaching Commercial Treaty.” Federal Trade Information Service (Washington, DC), June 3, 1926. Misc. 3. 1.50M-8.25 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE .0 FROM Governar_Btr erg Bap4rts_DeoP rtmen t DATE June4 Report on Gold_____ Reserves and Foreign Accounts for la_andeA_Jume-Z.-- SUBJECT Gold reserves of this bank declined 431,000,000 during chiefly as the result of the more or less usual the week ended June There was loss of funds to the interior over the first of the month. also some loss of gold reserves due to counter payments in excess of receipts but this and other losses in miscellaneous accounts were about offset by gains in Treasury transfers and in Reserve Bank settlements of acceptance and security transactions including payment to us by other Federals for their share of 0,500,000 of securities purchased in partial replacement of June, 15 maturities in the Special Investment Account. at Total gold earmarkings for foreign account were unchanged 53,000,000. A reduction of 300,000 in the Bank Polski account and :. 200,000 in the Reichsbank resulted in a decline in total free balances of foreign correspondents t o 44,300,000, the lowest level for any reporting date since July 15, 1925. The balance of the Bank Folskils indebtedness to the System was increased 41,500,000 to 48 , 9 00 , 0 0 0 . In bill holdings the principal changes were increases of 41,000,000 in the Swiss National Bank of Zurich account and 0850,000 in the Reichsbank, and decreases of 575,000 in the National Bank of Hungary and c.,125,000 in deNederlandsche Bank account. Consequently, total bill holdings advanced The purchase of an additional 4564,000 of 4;1,175,000 to 465,000,000. Treasury securities for the National Bank of Hungary in reinvestment of the proceeds of bill maturities advanced holdings for that account to 44,297,000 and custodies for all accounts to 03,100,000. May net gold exports through the Port of New York and to Canada were 48,369,000, according to preliminary figures; For the first three days of June, there have been net exports of 4239,000 at New York. 1926_ June 10, 1926. Dear Covernor Strong: Your ,etter of May 2.5 from Bone arrived this morning with the enclosed report to r. lielion and the furtaer private letter. ke are em- barr ssed by not neving. received any documents from London, except Ina papers welch Proteeeors evregue and Hollender orou6,ht with them. Those papers, hosever, include everything except he prepared statement which Mr. George Roberts pre6en4ed to the Comeiseion. We are putting together uocumente 1 to 7, 68 eentiened in your letter, and eunding them forward tomorrow to Mr. ';elion, toeether witn your report, and we -re sending the private letter steparetely. It ht.43 been quite a chore 1,J ke the necessary corrections in the documents. I have had e chance to 0 1.4rouh molt of the evidence and it is delightful reading. I hope the Commiseion *ill print sufficient copies of tne evidence so that it can be dietributed with :Acme freedom in this country. It will make a most interesting economic document. I am enclosing an ccount of the latest meeting of the Stable l'oney League, which ee all ignored by non-attendance. I am going into seclusion agsin tomorroe on the Sting bill evidence and will leave the letter writing to other officers. I suspect you are feel- ing that toe /low of let era in your direction is more then adequate. .eincerely yours, Ir. Benjamin Strong, C/o Bank of England, London, Engl r3t, . (11101V .1.. .i 6iaut *00 lbeti 231101j eciJ -ff6 tii. bi i'o iJ.i t3 wrdoirs .104.fel e.tovisq e. . ROL{ : ju1t J1 a1,1tug alas bq_airzort :1196,t oriJ. Anlbooe boaoloao heirL,o6i :3nivAn ica ibwLLofl Lira, be.a.fgea(i leri.togoi luoT bms nol.reM .eids I0oxa olobn41 moll ,-.411,:latuoc,L. sootiT 'to aloobetoil noinw di oS .noidotento0 oAloon .114 Anlimoa bats oe,t,tel -iu,;y al beacistaast ,S* lucx rtz,E;sonn enst 53it M Qj 1 aJnorsunot, .1 0: 011 te1or13 b eJlirp flood Cifi .t.staJaunci.:iiitit° SI ..t1 erit..tieg ttbitlanl 0.*-,k0i1 erre:gag ;tcibox.0 - beae,,IAd bct.m tionoblva o ct5on..;110 bwri slrl 00 ;)V.93 to &olqoo J1e1o1lio4 /nilq ili4 noleiA003 40/0 iscrod'I . i 0441 1utJ. kj /do .1-1Intion oldJ nl tobtiefixo dliw eudEzii.Zh 4 n t/ JLtoka tmaielvu tA1 ..taespoob oimencoo saLIFelnint .te.oai yonoM old6,t8toscaltioci: JiiLL osit to rnuc3an1.-.olono e.gitx 111w et iLs oonablvo LLiJ no1 -leoct els &soy Joaqaue . ex1J- ao wo-rroino_t .eltlortto .o.1-4mpoika cositt erica ti nL noleulooe. ojol o. iEo..z4. cUii. ni 111%1 oat:: to fOi J t1.t valuoy, ,74aal,te alistetrisa .11 tba',4,4ctil 'to AnAla o\D .h-i4i,stabsto,i FEDERAL RESERVE BANK OF NEW YORK June 24, 1926. Dear Governor Strong: Mr. Harrison's cables of June 18 and 21 will have told you of the general progress of things in the money market. exactly according to Hoyle. The progress of events was Money went to 3 3/4 and 3 1/2 for two or three days around the fifteenth, and then came back to 4 last Friday. it has been 4 1/2 and 4 1/4. Since then The Treasury's decision to invest 40 million of its balance resulting from tax payments in sinkirg fund purchases has prevented any large Treasury balance from piling up. In fact, our latest report shows a Treasury balance of only 20 million dollars for the system. At the present time the New York City banks owe us only about 40 million dollars and money is comfortable. The banks are lcising today in the transfers and it seems clear that the tendency will be toward firmer money next week. Mr. Case, I believe, is sending you the report and minutes of the Open Market Committee. The gist of the thing was that they decided to buy or sell 50 million additional seourities temporarily to take care of the end of the month, but otherwise to leave the portfolio at its present amount of 275 million. It is still doubtful how much it will be desirable to do in the way of temporary purchases. I have an idea that after last December's performance a number of the New York City banks will be more willing to put out money, particularly with our rate at 3 1/2. I also have the feeling that a temporary crack in the nose may be a good thing for the stock market. There has been a fearful amount of twaddle about very easy money this summer, and that talk has FEDERAL RESERVE BANK OF NEW YORK helped feed the stock market. 2 Governor Strong June 24, 1926. A little runup in rates just now might be a healthy demonstration that there is no great surplus of money kicking about. (7 If there is any real pinch in money the action of the committee makes it possible to deal with it. In looking over last year's figures I observe that there was some evidence of firmer money in the second half of July and during August, and I suspect the same tendencies will appear again this year. In fact, I think that there is a bit firmer undertone in the market now than there was a month ago. The bill dealers lifted their offering rates on 90-day bills to 3 3/8 again yesterday. They have never really cleaned up their portfolios. Time money seams to be pretty definitely at 4 1/4, which is rather firmer than it was a month ago. The stock market went off quite vigorously yesterday and I think the reaction may continue next week, with firmer money. Street loans are up 100 million dollars from the low point, but are still about 700 million under peak. This apparent inconsistency between the strength of the stock market and the comparatively small street loans, has been a bit puzzling, but I think we have found the explanation. I suspect you were able to read between the lines of our cable and make the interpretation yourself. happened is this. tomers for margin. What seems to have When the market was going off brokers called on their cus- In New York that margin was met partly by the supplying of additional collateral and partly by liquidation of stocks. In other parts of the country inveetors were not in a position to provide extra collateral but went around to their banks and borrowed directly on securities, sending cash to their New York brokers. increase in direct loans loans The result was a liquidation of brokers loans, but an to customers on stocks and bonds, so thkt the total on stocks and bonds by banks outside New York City remained practically FEDERAL RESERVE BANK OF NEW YORK unchanged. a Governor Strong June 24, 1926. Another factor which would tend to produce the same result would be a distribution of stocks into stronger hands. In any event the total loans on stocks and bonds by all reporting member banks are now only about 150 million under the total at the end of January, while brokers loans are 750 million lower. I think it is clear that the total amount of credit employed for the holding of seclarities is within some 150 million of the amount when the market was at its top. Similarly, the total earning assets of the Federal Reserve Banks are practically the same as they were at that time. Increases in commercial loans and in bank investments more than make up for the decrease of loans on stocks and bonds and the total amount of bank credit, as indicated by the reporting member banks, is 500 million larger than at the end of January. There does not seem to me to be anything very alarming in this situation. I think the atmosphere is much soberer than it was early in the year. If money remains moderately firm and if business continues to work off a little, as I think it will, I do not think there will be serious speculative excesses, although we may have another mild burst or two. One of the rumors which is going about just now is that the purpose of the recent rally was to distribute stocks to the public and it was quite noticeable that the rally was led by United States Steel and General Motors. A number of brokers report that the public is not very much in the market, but that of course is very difficult to determine. In connection with all this discussion it is interesting to see the attitude of the Stable Money people. I sat next to Irving Fisher a few weeks ago at lunch and he suggested that what we ought to be doing was buying securities, and J. H. Rogers made the same suggestion yesterday. simple universe. They live in a beautifully Our basic commodity index, by the way, hit a new low point for the year this week at 142, although this move comes after a number of weeks of comparative stability. FEDERAL RESERVE BANK OF NEW YORK 4 Governor Strong The business situation is little changed. a bit worse. Iron June 24, 1926. The textiles are getting and steel production is being slightly reduced, but the latest report is of better orders for iron and steel and somewhat firmer prices. It is clear that building is going to be active for the balance of the year. The automobile people are announcing more price cuts, a further reduction in one of the latest being the price of Fords, ranging from 15 to 40 dollars, with the further change that Ford now furnishes starters and other equipment without extra charge. This makes it amount to a cut of 75 to 100 dollars. I wonder if you ever ran into a chap named Charles, who is secretary of the American Defense Society. I first met him some years ago when he came to tell me about a scheme he had for beating the stock market, which was based upon the ratio of a country's gold holdings to its total currency circulation. He has a complex in favor of complete gold cover for notes, as nearly as I can understand it. He has recently bobbed up again, this time with a great interest in the activities of the Stable Money Association in his capacity as secretary of the American Defense Society. He has discovered that the Stable Money people have associated with themselves a number of parlor radicals, some of whose activities will not stand very close investigation. He thinks this is one reason for fearing that the association may be genuinely dangerous. A further interesting fact about Mr. Charles is that he seems very well acquainted indeed with McFadden, and I think that that connection gives us a clue to the lineage of some of McFadden's ideas. He has been telling Congressman Strong and McFadden something of his findings with regard to the Stable Money Association. I have, of course, indicated to Mr. Charles that we cannot concern our- selves with the personalities of the Stable Money Association, but he is keeping me informed as to what is going on. when they meet in the fall. The committee have asked to have him appear FEDERAL RESERVE BANK OF NEW YORK Kenzel, Gidney, Governor Strong 5 June 24, 1926. Hendricks, and Downs, and Mr. Treman are just back from the New iork State Bankers Association reporting a profitable session. Chase of the First Trust and Deposit of Syracuse was elected president, and Mr. McGarrah was elected vice president, which means he will be president next year. This represents an effort to make the activities of the association of genuine importance. It is very good of you in the midst of your vacation to take time to answer my letters so interestingly. Please feel no obligation to do so. Mr. Harrison tells me he has forwarded copies of all the testimony since Dr. Miller's. testimony. We are still working on putting into shape your and my It is a slow job because so many inserts are called for. Sincerely yours, 4"-zeir5/t-W. Randolph Burgess Mr. Benj. Strong, C/o Bank of England, London, England. I FEDERAL RESERVE BANK OF NEW YORK July 2, 1926, Dear Governor Strong: The stook market continues to boil. After a little hesitation last week it has been very strong this week, particularly in the case of some of the big industrials with large surplus earnings, where a melon may be cut. Steel has hit 144. U. S. There has, however, been no general rise of stocks to com- pare with the movement of a few of these leaders and, as you see by the daily letter, the industrial average is still about 8 or 9 points under the year's high. All this in spite of firmer money conditions this week, but 4 1/2 Wednesday afternoon, yesterday, and today. to worry about. The money situation gave us nothing It was not necessary to make any temporary purchases. We sold. 25 million thirds from the special account and replaced them from the market. The Treasury paid for these by drawing 25 million from their balance with depositary banks left over from the March issue. Since this withdrawal was made all over the country and our purchases were made in New York, it had a tendency to put money into this market temporarily. Transfers to the interioi were not as heavy as might have been expected, - the banks out there having obtained funds by increased borrowing from their local Reserve Banks. Meantime, the New York City banks showed a great willingness to put money into the market and let borrowings appear on their June 30 statement, as indicated by the fact that money went from 5 to 4 1/2 the middle of the day on Wednesday, June 30. Street loans of the New York City banks increased 55 million that one day. The New York City banks owe us 116 million today. This large borrow- ing was necessary to take care of heavy currency withdrawals, considerable FEDERAL RESERVE SANK OF NEW YORK 2 Governor Along July 2, 1926. transfers to the interior, and increased deposits over the half year. I should think that rates might stay at 4, 4 1/4, or 4 1/2 per cent most of next week. It will not be long after that before the seasonal tendency for firmer money begins to set in. Moreover, I think other influences on the stock market are apt to be negative rather than encouraging. There is increasing evidence that the Florida situation is flattening out badly. There have already been a half a dozen bank failures, and there may well be 20 or 50 more. I think some other sections which have been having real estate booms will also prove fruitful of losses. There are a number of other weak points in the situation with which we are all familiar. Meantime, however, most of the big industrial concerns seem to be well geared up to meet any situation. Last night Mr. Aarrison took the midnight train with all of our testi- mony, exhibits and memoranda in his brief case to deliver to Mr. McFadden, and he tells me today over the telephone that they are now delivered and that matter is off our minds, for the present at least. We have been rather steadily at it for a number of weeks and very vigorously at it for some days. It has been quite a chore getting together all the insertions, including memoranda on the Chronicle, repurchase agreements, and, for my testimony, a stAement of powers which the Reserve System possesses for stability. I think the material is now pretty bomb- proof and I was greatly impressed, in reading galley proof for the past few days, with the high quality of the Whole thing. document. It is going to be a very important 6e shall probably see page-proof and make an index. Additional copies of the testimony before the Indian Commission have at last arrived. I find that express packages of that sort are frequently hellup for weeks in the express office here and we can greatly expedite the process if FEDERAL RESERVE BANK OF NEW YORK Governor Strong July 2, 1926. we have a description of the package together with information as to the date and place of shipment, and the consignee. O'Connor, the head of the finance section of the U. S. Chamber of Commerce, was in yesterday and tells me that they are planning to go forward with that study of the Federal Reserve System which they proposed a year ago. It means the appointment of a large number of committees of prominent business men, the employment of some expert staff, and a kind of oombindation of investigation and publicity. You may remember that we were a bit doubtful about this program a year ago, when they suggested it, particularly as it seemed likely to concentrate on recharter. I think the picture has greatly changed this year. The Strong bill and the activities of the Stable Money Association have given much broader reason for the proposed study and I think perhaps the Chamber's work may provide the means for offsetting any harmful results which may follow from mistakes of the Stable Money Association. Lombard is going about the country now lining up tilahundreds of business men to support the Stable Money Association. He is clearly a thoroughly dangerous person, - a fact which I think O'Connor appreciates. Meantime, of course, we are keeping hands off en- I think Later Stewart will serve on the steering committee of the tirely. Chamber's investigation. At any rate I greatly hope he will. The McFadden bill seems to be deed for this session. The latest suggestion was one from Carter Glass that the bill be passed without compromise reference to branch banking. I doubt if this would commend itself to the House. In any event it seems too late now for a last minute compromise. The matter will be up again in the fall. It is hot and close here and it is a fine time for you to be aww. You can realize from the clippings to what extent you are in the limelight here. I do not get the impression, however, that there is any real mis- apprehension concerning your position and activities. I find that when the FEDERAL RESERVE BANK OF NEW YORK 4 Governor Strong July 3, 1926. newspaper men make inquiries it works pretty well to ask them in return 0 what they think they would do if they were you and were abroad. question usually satisfies them. Sincerely yours, Mr. Benj. Strong, C/o Bank of England, London, England. That FEDERAL RESERVE BANK OF NEW YORK July 9, 1926. Dear Governor Strong: By the time you get this letter the money market will have settled back to a more normal status, I trust, and we shall have cabled you to that effect. But just now the thing we are interested in is the very heavy borrow- ings of the member banks, which reached a high point, as we indicated in our cable, of 190 million on Wednesday. Their loans increased 137 million in the five business days from July 1 to July 7. We got over the window dressing period without the slightest difficulty and the borrowings never ran up much beyond 60 million. Then on July 1, 2, and 3, there were heavy currency withdrawals and transfers to the interior, so that the market lost over 120 million. All this made quite a problem but it was finally decided not to make any purchases in the market, partly because money conditions were so steady with the call rate at 4 1/2 and no real stringency, partly because the stock market was acting up and would not be injured by a little pressure, and also because it was clear that the condition was due to temporary causes and would be corrected shortly. Yesterday the banks paid off 15 million dollars and brought their borrowings down to 175 million. They may pay off a little today, but in any event they will start the new week tomorrow about 40 million over in their actual reserves. Only about half of the 35 million dollars of Fourth of July currency has been returned and more will be in next week. some transfers from the interior. Also, next week should see It therefore seems as though the banks could FEDERAL RESERVE BANK OF NEW YORK Governor Strong, 2. July 9, 1926. reduce their borrowings next week to 100 million dollars or less. One interesting feature of the financial transactions over the halfyear period was the movement of street loans. Just as last year the out-of- town banks pulled money out of the street at the end of the year and have now put it back in, OD that the picture shows a big increase on June 50 in loans by New York City banks, but a decrease since that time of 80 million. The total of street loans is 150 million higher than the low point. As far as future money conditions are concerned, it seems clear that what has taken place in the past week is evidence that it only takes a little extra demand to firm up money conditions Quite considerably. I think this means inevitably that the fall demand will bring with it somewhat firm money conditions, which will give us an important problem in policy. I take it that one important phase of the question is the relation of rates here and in London. A good foreign exchange man told me yesterday that with 90-day bills d 3 5/6 here and 4 1/4 to 3/8 in London, and with the present discount on forward exchange, there is no particular attractiveness to move funds in either direction. We have almost a precise balance. The future relationship of the two markets, then, seems to depend a good deal on how they reflect respectively the seasonal tendencies and the busiress tendencies as well. As far as the domestic situation is concerned, I think if you were here you would feel that the most important fact was that the psychology is reversed from what it was last spring. At that time recession was in the air. At present there is much more confidence and a good deal of blind talk about how the present tremendous prosperity will continue forever. I have just been attending the meeting of the Atlantic States Shippes Advisory Board at Atlantic City, going down with Mr. Chellis Austin to explore the euestion whether there should be a bank committee as a part of their organization. FEDERAL RESERVE BANK OF NEW YORK 3 Governor Strong July 9, 1926. There does not seem to be anything very definite for such a committee to do at present. But the interesting thing was the reports which different groups of shippers made on business conditions in their several industries. The ooncen- sus of opinion seemed to be that the movement of goods over the third quarter would be very close to the second quarter, but that the tendency was downward, tA)414D although I must say there were a good many failed to see any downward tendency. Sincerely yours, r Mr. Benj. Strong, C/o Bank of ringland, London, England. WIT :R 7 MISC. 3. 1 80 M 12-25 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE 7o FROM Governor Strong Reports Department DATE July 9 Confidential Report on qold Reserves and Foreign Accounts.for SUBJECT: weekended July 7 Total gold reserves of this bank were reduced 4107,000,000 during the week ended July 7 after advancing 071,000,000 during June. The loss was chiefly in the usual first of the month movement of commercial and financial funds to the interior which was accentuated, this month by the heavy disbursements which occur at the half year end. There were other losses in Treasury transfers and Reserve Bank settlements, and withdrawals of holiday currency from us early in the period were only partly offset by a return movement on the 6th and 7th. Ire released 4750,000 of gold from the Swiss National Bank of Be me account and credited the proceeds to the Bank of England's account with us. Earmarkings for the Swiss Bank are new 45,730,000. Free balancesof foreign correspondents increased about 1,000,000 to 05,800,000 due to an increase of 05009000 in both the Bank of England account and the Reichsbank account. The total of loans to the Bank Polski was reduced 4600,000 further to 44,900,000. Bill holdings were reduced 4160,000 chiefly as the result of maturities from the Reichsbank's ownership. The purchase of 05,000,000 Treasury securities for the Bank of ngland advanced holdings for that account to $55,250,000 and total security holdings for all accounts to so,soo,00e. July gold. movements through this port were Unimportant thus far, restating in a net import of 0200,000. 192 6 CHIEF FOREIGN OFFICE PARIS 10 SQUARE DESNOUETTES (19 BOULEVARD VICTOR) WHALEY-EATON SERVICE WASHINGTON. D. C. MUNSEY BUILDING "A CAPITAL INSTITUTION" CABLE ADDRESS: WHEAT America Letter No. 412. All rights reserved. FOUNDED 191E1 TELEPHONES1 7679 7727 FRANKLIN July 24, 1926. For Clients Only. Dear Sir: The following, in substance, is a conversation with an important official whose opinions carry weight in the conduct of the Government: Q. Would it not be highly beneficial for this country, on its own initiative, to cancel the war debts? A. It would have been right after the war, but it is politically impossible now. Moreover, had we cancelled then our trade gains might readily have been greater than our direct recoveries now are likely to be. Q. The country is hardly in a state of military preparedness. it safe to incur the hate of all Europe? Is A. The strong are usually hated by the weak. I do not think that feature of the case is substantially important. Q. Assuming that the Allies should be willing to reduce the Dawes Annuities to a point where Germany would and could pay with fair grace, would it not be good policy for the United States to reduce the war debts in proportion? A. That is what the Germans and others are now proposing. Such a solution would have economic results of the highest importance, but it would not lessen criticism of the United States, because such criticism has become the stock in trade of European politicians. Nevertheless, it is about what we are going to come to. Q. Do you think the franc can be stabilized at present values? A. Again there is political danger. Were the franc stabilized at two cents, say, stabilization would no sooner get well under way than the politicians would be demanding that the value be raised to three cents. A whole new set of illusions would be constructed, filling franc security-holders with hopes of a In gradual return of the paper franc to the old gold parity. any event, stabilization at present values would mean the beginIt would be a palliative ning of a long and painful movement. rather than a remedial measure. The introduction, on the other hand, of a new currency at the old par, drastic as it would be, would in the event be best for France. And there is ample It would be gold in France to make such a maneuver a success. the quickest and the best way to bring French currency back to normal and completely to restore confidence. a 7/24/26# 2. Q. Do you think France is inherently sound? A. Unquestionably,. Q. Will payment of the debts reduce the standard of living in Europe? A. Undoubtedly. Differences in taxation constitute a real differential in cost of production. Payment of the debt penalizes the European in two ways. First, he must work longer hours and produce more in order to earn the excess revenue necessary to meet the debt payment, and, secondly, he must accept wages that enable his employer to meet the competition in world narkets that lower taxation in America entails. As wage scales in Europe are normally law, there is no room for sacrifice except at the cost of food and drink and housing. From a selfish viewpoint, therefore, it would seem to enhance our chances in world But world trade, it is trade if we insist on debt payments. well to remember, depends on the ability of the world to buy. America has very little she can sell to poverty-stricken populations, except foodstuffs. A prosperous Europe could absorb many American automobiles. There are other factors and, on the whole, economists agree that cancellation would benefit our overseas trade. Q. TThuld it not be possible to secure valuable economic concessions in return for debt cancellation? For instance, might it not pay us to remit the British payments in return for an agreement by London to eliminate rubber restriction and aim, say, at an approximate,price of 35 cents the pound for that commodity A. I am against trades of that character, particularly where they would have to be more or less secret. Governmental price-fixing is economically suicidal. I am aware, of course, that war loans heretofore made in history were denominated loans only in order that the creditor country might have trading material at the peace table, and not with any idea that such loans would ever be repaid. But the United States has never been in the habit of buying policies for cash. Q. VJOuld you favor cancellation by indirection ing to lower our tariff barrier? A. Decidedly not. Our purpose in the world should be to bring the rest of the nations up to our standard of living, not to lower our standard to theirs. Q. Do you expect a comprehensive stabilization plan to be worked out this summer? It is a country rich in what economists regard as virtues. But it is a law-price country, which adds greatly to its difficulty in liquidating external debts. The best young men, who normally now would be furnishing initiative and resourcefulness for business enterprise, are dead. The war took them as first toll. France, as it were, has lost a generation, as has England. In estimating the capacity of a country I doubt if our to pay, this is one of the imponderable factors. people have given it sufficient consideration. that is, by arrang- 3. 7/24/26. A. It is probable, or rather possible. "I under:Stand that GovernorsStrong and Norman hare done heroic.work and have what they think is_a workable_apheme. Moreover, they think it workable one may be certain that it is. It all 'depends, one may suspect, on the willingness of France to divorce her banking from politics. When there are iron-clad assurances on that score, stabilization will be certain. if FEDERAL RESERVE BANK OF NEW YORK July 19, 1926. Dear Governor Strong: Our cable of last week and Mr. Onsets letter, which goes forward today, will have covered the general credit situation pretty thoroughly. Money renewed at 4 1/4 this morning and has gone to 4. The market is gain- ing on the transfers from the interior, member banks are starting the week about even in their reserves, and the New York City banks owe us less than 100 million dollars. Thus the prospects seem to be for moderately easy money conditions this week, although it will be time in the next few weeks for the seasonal demand to begin. their sales at The commercial paper dealers are still reporting most of 4 per cent, but they are beginning to sell some of their I think it at 4 1/4 and there is an increase in the amount of borrowing. will not be paper many weeks before 4 1/4 becomes the prevailing rate. Time money is now 4 1/2, except for occasional transactions in shorter maturities at Ninety-day bills are 3 3/8, with a few transactions 4 3/8. at 3 1/4. during still taking place My guess is that the bill rate will overtake our discount rate August. With regard to the business situation, we had a careful review of the whole picture last Friday at our luncheon of economists and I spent the weekend with Ayres, Stewart, and George Roberts. Even such confirmed pessi- mists as we are have to admit that the anticipated business recession is a good many hours behind the running time scheduled for it. The figures which FEDERAL RESERVE BANK OF NEW YORK 2 Governor Strong July 19, 1926. are now in indicate that business during the second quarter was somewhat less good than during the first quarter of the year, but the decline was not sufficient to be termed a recession and the figures are now well above normal in most lines of business. In particular the building industry, the steel in- dustry, and the automobile industry are holding up remarkably well. In fact the year 1926 is likely to produce new high records of output for automobiles, probably iron and steel, building, railroad traffic, and some other phases of business. The continuation of active business seems to be due in oast to the continuation of a large consumption of material, particularly in automobiles and building, and it seems to be partly due to a change in the psychology which makes people more willing to place orders further ahead. If I had to guess I would think that business in the third quarter will be almost up to the second of quarter, but that by the time the fourth quarter be sufficiently overbuilt and overproduced to this year is reached we may require a period of readjustment. A few months ago I had the feeling, as I think you did, that this very long continued prosperity had been too good to endure and that a more vigorous recession would have taken place before this. why maladjustment has I suppose the principal reasons not yet occurred are these: By more efficient methods and more intelligent management; we have avoided a labor shortage or labor difficulties. By faster transportation, which has made forward ordering unnecessary, and because of a downward tendency in world prices, we have avoided price inflation. By gold imports end increased use of Federal Reserve facilities, we have avoided credit stringency. At almost any time in the past such a long extended period of prosperity as we have had recently would have been followed by a labor shortage and disturbances clogging of transportation leading to advance ordering, large inventories and advanc- FEDERAL RESERVE SANK OF NEW YORK Governor Strong ing prices, and further by credit stringency. July 19, 1926. Without the 100 million of gold we have imported and the 100 million increase in Federal Reserve earning assets, it is clear that money would now be tight. I think it is a fair question which many people raise when they say that, now we have disposed of the old bugaboos which previously pounced down upon and destroyed our prosperity of previous periods, we may now enjoy continuous and uninterrupted prosperity. It may be possible, and yet I suspect that the only safe position for a dispenser of credit to take is one of skepticism. The old maladjustments of the business cycle were based in the last analysis on humaa psychology, which is quite unable to act always with philosophical moderation, but successively overdoes and underdoes whatever it undertakes; and I feel sure that we are finding ways now to overdo our prosperity, particularly in building and real estate. It is very difficult, however, to estimate the time or extent of any recession which may take place. We clearly have no precedents which apply directly to this kind of situation. As to the stock market, it is now about as high as it was in the spring. Rails are several points higher and industrials are several points lower. The outlook, moreover, as reflected by brokerage houses and others is much more optimistic than it was last spring. I think there is a much more general feeling that the present values are based upon substantial foundations than there was last spring and there is some basis for this belief, first, because the yield of a number of securities has been increased by an increase in the rate of dividends or by distributions; second, the prosperity has continued longer than had been anticipated, with excellent business earnings; and third, because brokers' loans are much smaller. Colonel Ayres has been doing a perfectly tremendous amount of work for the last eight or ten months on the movement of stock prices, and some of this FEDERAL RESERVE BANK OF NEW YORK 4 Governor Strong July 19, 1926. work seems to me to have an important bearing on the normality or abnormality of present prices of industrial stocks. One job that he has done is to compute the prices andyields of all the dividend-paying industrial stocks traded in on the New York Stock Exchange each month for the past 25 years. With these figures as a basis it is possible to compare over a period of years the relationship between stock prices and their yield. This is done on the back page of his July circular, which I am enclosing and which I think you will find interesting. It is the soundest rational justification for present stock prices that I have seen. I am including a number of other papers which I think you will find of interest, including the Tribune's account of a recent sporting event which I judge to be a good account, having checked it up with a number of eye witnesses. If anything, the contest appears to have been closer than the account would indicate. Sincerely yours, W. Randolph Burgess Ence. WRB:R MISC. 5. I 60 MI FEDERAL RESERVE BANK I 1-25 OF NEW YORK OFFICE CORRESPONDENCE DATE SUBJECT: FROM . July 15, FIRST NATIONAL BANK, AMITYTILIE, N. Y. A. J. LIM - Cashier Percy L. Hall called and discussed his bank's Southern loans, which he said totaled $77,000. Stock Exchange collateral. About 50% of this total is secured by The balance, save a small amount, is secured by Southern banks, bills receivable. while this may be a slow work-out Cashier Hall feels that the maximum loss that his bank will sustain in this connection will be about 05,000. He stated they ware very fortunate indeed to be in their present position, and gave the F. R. Bank of New york entire credit for the large reduction in his bank's southern loans (which totaled $623,000 on 8/24/23 against their present total of *77,000). If news should get out tnat his bank is connected with the Witham system, he said a slight flurry might occur in Amityville and wanted us to be famil.. r with their present position in case he neoded our assistance. (rk t9E__6 MISC. 3. 1 60 111 FEDERAL RESERVE BANK 12-25 OF NEW YORK OFFICE CORRESPONDENCE Governor Strong FROM Reports DepnrtmAnt DATE July 16 Confidentinl Beport_on Gold Reserves and Foreign Accounts for SUBJECT, week ondadJu1y-14. Gold reserves of the New York Reserve Bank during the week ended July 14 regained 436,000,000 of the 4107,000,000 lost There was a return of commercial funds in the previous Week. from the interior and of currency from circulation within the Gains in Treasury transfers were offset by an adverse district. balance of Reserve Bank settlements. Are released 43,,.:.50,000 of gold from the earmarkings for the Swiss National Bank of Berne and their balance so held is now 429480,000. Free balances of foreign correspondents wdre reduced about 41,300,000 to 44,500,000 chiefly as the result of payments of 41,000,000 from the Bank of England account and 4400,000 from Our loans to the Bank Folski were reduced the Reichsbank account. Acceptance holdings declined $1,700,000 further to .)3,200,000. 4400,000 principally due to maturities from the Reichsbank and The purchase of 47,000,000 de Nederlandschs Bank's holdings. Treasury securities for the Bank Of England, 41,200,000 for the Agent General for Reparation Payments, and 41,000,000 for the Swiss National Bank of Zurich raised total security custodies to 490,000,000. July gold movements to date include net imports of 4100,000 through the Port of New York and 41,500,000 from Mexico. This Shipment from Mexico Mak9S a total of 46,500,000 received from that Figures on June gold movements country since the middle of June. between the United States and other countries show imports of 018,900oo0 and exports of 43,300,000, resulting in a net import of 415,600,000. 1926_ FEDERAL RESERVE BANK OF NEW YORK July 30, 1926. Dear Governor Strong: Money has just gone to 5 per cent after a °Duple of weeks at 4. This seems to be a logical development of the end of the month and is in keeping also with a tendency for money rates to grow steadily firmer. Commercial paper is now generally 4 1/4 instead of 4 per cent; is 4 1/2 to 4 3/4; time money bills are unchanged. Our loans to New York City banks are steady around 100 million dollars and system earning assets are about 1100 million, or about 100 million more than a year ago. After a temporary slump last week the stock market For some is boiling agai n. weeks the trading has been unusually °concentrated in a few stocks. A quarter to a third of the trading has been in General Motors, United Statea Steel, Dodge, and Hudson. above 147. General Motors has passed 190 and steel has gone What appears to be happening is that there are a number of very strong pools operating in the market and that there is very little public participation. The pools appear to be hoping and praying that by fall they can generate a market in which the public will be interested. From what I gather from other sources, the enclosed clipping from this morning's Times seems to be a pretty accurate comment. There has been no particular change in street loans for some weeks. Business in general continues to be excellent. The principal weak spots where trouble may be generating appears to be building and real FEDERAL RESERVE BANK OF NEW YORK estate. Governor Strong July 30, 1928. There are increasing reports of very soft real estate markets in a number of different localities and the building materials market seems to be increasingly a buyer's market. Building contracts and permits have been since early in the year aad there is some anticipation tendency will continue; it will certainly be logical for it to do gradually working off that so. this There is probably overproduction at a number of other points, perhaps most notably in silk, where the stocks of finished articles are very large. There is nothing, however, in the business situation which gives good volume cause for immediate alarm and it seems clear that there will be a of business for the balance of the year. The business sentiment continues optimistic, perhaps a little too optimistic. About the hearings in Washington, that they had all been forwarded to you. had said. I passed I find that I was wrong in saying I misunderstood something Mr. Harrison on to him that paragraph of your latest letter. I am leaving tonight for my vacation, which I shall Jersey coast within easy reach of the bank. spend on the I shall be in the latter part of the month to get out the September 1 Review and will keep in touch with things. Sincerely yours, Mr. Benj. Strong, 0/0 Bank of England, London, England. Enos. WRB:R The Public Not "In." canva..s of some of the larger Stock Exchange ho,uses yesterday dis- closed the fact that despite the ''boiling' mot arket, they are doing little Ian they had anticipated for midsummer. In other words, it is only the houses with pool connections and affiliations with banking institutions, which are doing a big business at the present time. In most wire houses the same conditions prevail and the orders ter in by 100, 200 and 300share lots, which is not very pleasing to the heads of these firms when they see a total of almost 2,500,000 shares dealt in on the Exchange. These men feel perfectly confident from the evidence of their own books that the public is not in the Steck market, and that the big transactions which had Wall Street so excited yesterday were to a large extent professional and the work of pools. The head of one large house said yesterday that the loans of his firm had advanced scarcely . $1,000,000 from the low point of the year. 4uoi Western Pacific pf. (U 300 West. lin. Telegraph 5,200 W'house Air Brake (t7 3,000 W'house E. & M. f.4). 79% 65 19% 13% 4,500 Weston Elec. Instrum 600 Wheeling & Lake Eni 32 18 900 White Eagle Oil (2) 29% 25 19,400 White Motors " 's 51 rigs 400 White Rk. M. 38% 26 85%1 7 147% 1374 134 105 48 34 99 12% 222 47% 18 91% 6 13514 44% 201 39% 24 69 602 327/ 20 101 91% 89 6 3 8 3 22 3 69 pf. 400 White Sew. Ai 41,600 Willys-Overland 300 Willys-Overland pf. (7 100 Wilson & Co. 4,600 W'lworth (F.W.) Co. ( 200 Worthington Pump 2,900 Wright Aeronautical ( Yale & Towne Mfg. 9,200 Yel. Truck & roach (72 ,ch pf. 300 Yel. Trk. & & T. 10,900 Youngstown RIGHTSEXPIRE. 8,100 Am. Tel. & Tel., Aug. 2,900 Cuba Co., Sept. 8 2,700 Int. Cement, Aug. 11 2,500 Int. Tel. & Tel., Sept. 5,000 N. Y. Air Brake, Aug. 500 Reading, Jan. 1 5,800 Yellow Tr. & C., Aug. Dividend rates as given in the abov based on the latest quarterly or half-3 noted, extra or special dividends are not Partly stock. t Partly extra. $ Pi § Payable in common stock. If Plus 3% rate. b Ten per cent. in common stock Payable when earned. e Pap stock. d Alm. 1 /SA eho,.. atnear MISC. 3. 1 60 M 12-25 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE 70 FROM Governnr strong_ -Reports-Wartmont DATE SUBJECT: July 30 Confidential Repert on g-old Reserves and Foreign Accounts for meek-ended-July-2as An increase of 43,000,000 during the week ended July 26 carried gold reserves of the New York Reserve Bank to 41,005,000,000, an amount, however, 449,000,000 lower than the total on June 30. The largest gain to this bank Was in commercial transfers and check settlements but we also gained through Treasury transfers and gold On the other hand, the balance of inter-Reserve Bank settleimports. ments was against us and the movement of currency over the counter was outward, For the third consecutive week the total volume of earmarked gold was unchanged at 449,600,000. Free deposit balances of our foreign correspondents increased 1,200,000 as t%-)e re.,7M-, of receipts of 41,500,000 for _cyments the Reichsbaak account which were only slightly offset ' Loans to the Bank Polski were reduced from various other accounts. Bill holdings declined 41,900,000 41,700,000 further to 41,300,000. A purchiefly due to maturities from the Reichsbank's holdings. chase of 45,000,000 of Treasury's for the Bank of England account increased security holdings for that account to 467,250,000 and custodies for all accounts to 496,100,000. For the Port of New York, gold imports during the first In addition 29 days of July were 4600,000 and exports, 41,400,000. to gold movements through this port, shipments of 0,000,000 from,Mexico were received in New York, and yesterday 44,500,000 of gold VMS withdrawn from us for export to Canada, accompanying an advance in CanadNet exports ian exchange to a premium of 3/16 of one per cent. for the month to date. 4300,000. 192 6 THIRTY THREE LIBERTY STREET NEW YORK f2t- 11,,edLAi-ertv w 01. raftt et_ mf-atilil Ala) G,-e-124 et'; -4'19 4. -a"ze-4; 4- /4,-,t :ZZ3 -14 1A 24 ,c4ye. Oft4fT 41-P 4:8-i° 4e-2-4/ el^ 043 A4-k 4r7,41i.L #.4 41.4k 4-7 e.a,644 L A-as, 4re", e-4a.t or 6 4o ex. #.42.&44 4t-A- cf, c& ri4 14rzI A (L)-*, ,Le? 6-1-4L4 oft4to /7_74 kt.7,a.p 13 * #4 L THIRTY THREE LIBERTY STREET NEW YORK fe-&-e7 ,ge_eaLl Al z1C- # J e(;11 -e6U 4E- afrLeAA:Azt 04-e 04h T47r1f) Z41 eA- 312-11 tt,.;1 /9_.& az tLr te44, &Jr L.1 )20_--e e1/4/ a-dk `L4 411-4-4-1---Ke: 7/.4- /68-1/1.4Q te 40-e4 V y . c.f;A 4 WZ, L4 6rL;4. . LeS:4-1% za-1.4_ C14- d it-e ./tA-.-7 'k. 4 64A e /ee1. vtr-x,4 - 6f4.--4z e s-;c 4-6-//2-* 6}, 4,, `'it:r81-744-1'Q al44_ oe--0 is, 4-1 4-`r tc-":& /et( Aft"jL4' StleS fre:411* 64_ *--ez THIRTY THREE LIBERTY STREET NEW YORK rtaai 42-44 mr-a-it-eaN Cr_ D.Z 4°,0 12A44 444 .8"561 "--44---40-421t* Te=4, e-.4a-k CL ALZ-P '11,1 alt; d4, d-lewn-4( ,142&_4 Ai Xe. 6.re-At etze.,2, z ) THIRTY THREE LIBERTY STREET NEW YORK 1-'1 ,ge-P-,174 -1g74 it 1*1 ,ata 1 rds.xt tre,, aL_ oie;se' .40-e4 a-4, ArCe-d) az ete 44-12.4.4.42 L_ 14-"L"`""j4lt-Q. ttn:(2. ri (1)7<-1 As-:4JN --&-k et4 e4fe.ev._ Ai-.4.4) ),A GLA.J.k, 61, 't" --40-e-t74-to-Q_ Orli. 6C- Lcrec-ira Misc. 3. 1.50M.8.25 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE 7.-0 Dr. Burgese, FROM Miss Bagwell DATE Jnnimry 14, 1927. SUBJECT: 192_ European Consumption Estimates - It seems extremely difficult, from the available data, to make any very accurate comparisons of European consumption of food and other consumable materials, as before and since the War. It is, of course, easy enough to make estimates, and from such estimates conclusions have been drawn which are difficult either to prove or disprove. We may take, for example, the case of wheat and wheat flour. European countries (outside of Russia) normally raise about two-thirds of their own supply and import the other third. The reported figures show that, in the four years ending with 1925, European wheat crops outside of Russia averaged about 18 per cent below the immediate pre-war averae, and that their total imports from outside countries averaged about 10 per cent higher. This would suggest that consumption may have been lower bydreath-qi per cent in the post-war period. But it is very doubtful if production figures, especially, are accurate that any hard and fast conclusion can safely be drawn. so As regards our own exports of wheat and wheat flour, these were, of course, very heavy in and since the War, but in the last few years have fallen off sharply. But this decline in our own exports has been just about compensated oy the great increase in Canadian exports of wheat, which are now the largest in the world. Combining the exports from the two countries, we find that since 1916 the exports of wheat from this Continent have varied very little from a level of about three times the pre-war average. These heavy exports have, of course, been due largely to the dieturbane.e of Russia as a large wheat exporter and would naturally be affected by the return of Russia to its former role. But the actual increase in wheat exports from this Continent over the pre-war appears to be considerably larger than the decrease in Russian exports, so that it seems probable that other countries, principally those of Eastern Europe, have also fallen off in their available exports. As regards meat imports into Europe, there appears to have been a quite striking increase, amounting to something like 50 per cent of pork products and around 80 per cent in beef products. Our own contribution towards this has been principally in pork products, and these in the most recent years have been about 75 per cent above the immediate pre-war average. These heavy imports may have been due to the greatly reduced meat production of Central Europe, but this is the sort of production which can be very quickly stimulated, and we are now more than eight years away from the close of the War. Misc. 3. 1.50M.8.25 FEDERAL RESERVE SANK OF NEW YORK OFFICE CORRESPONDENCE 70 Dr. Burgess FROM Miss Bagwell DATE January 14, 1927 192 SUBJECT: European Consumption PlAtimmtes--2 These increased meat imports into Europe have, therefore, tended to support the rather paradoxical belief advanced in some quarters that there actually has been a rise rather than a. decline in the standards of average This equally would be a theory difficult to prove or living since the War. disprove. But it does appear from the shipping figures that European foreign trade has made a very remarkable recovery in the last four years, and that in some countries, at least, this increase would be nearly sufficient to make up the relative deficit caused by the War. It is very difficult to make use of money values for such a comparison, but there is a very fair measure of this trade in the actual tonnage of ships entered and cleared from the principal ports, especially for measuring the average rate of increase. In the ten or fifteen years just preceding the War, this rate of increase in tonnage cleared in the eight principal shipping countries was very If such a rate had been continued from 1913 close to 4- per cent per annum. straight through to this year, it would mean a total increase of about 75 per cent. The actual increases for the four principal Central European shipping countries were: A France Germany, nearly Belgium Netherlands Increase of total for these countries (0/1,,, , 6 -60=per cent '50331 465o n 100 50 per cent Four other principal shipping countries, Great Britain, Italy, Norway and Sweden, appear to have made no such gains; and as these eight countries do the larger part of the total shipping of Europe outside of Russia, this naturally But it at least seems clear that there lowers the average for all of Europe. could have been no such increase in the countries named if there had not been a quite marked recovery in their industrial activity, and hence in their foreign trade. ' j L-rldot Even the immense loans made to Europe and other foreign countries would be quite inadequate to cover the immense purchases of Europe for food and cuv-andZ64.4., crude materials7 AI., 3. 1.504.8.25 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE ro Dr. Burgess FROM Miss Bagwell DATE January 14, 1927 92_ SUBJECT: European Consumption EPtimpt,RA__3 There is, of course, a variety of definite quantity data, such as, for example, production of coal, iron and steel and similar products, which indicates that European production has gained very little beyond immediate pre-war levels; but our own experience in this country, where we have such an extraordinary variety of information and can make very wide and definite comparisons, is that it is quite dangerous to draw too hard and fast conFor example, our production of pig iron and clusions from such barometers. even our total railway traffic has grown at no such rate in the last five years as in the five years preceding the War, and yet these five years have been years of great industrial expansion and prosperity. As regards the decline in European consumption of cotton and our own exports of cotton to Europe, we have a gain that stands quite by itself. cavak. In the first place, our own production of cotton has, until the last year or two, been greatly reduced, which resulted in very high prices for American cotton and a corresponding decline in the demand for cotton goods. In consequence of this low rate of production our average share in the total of the world's cotton production has declined from a pre-war average of about 62 per cent to recently around 54 per cent. And, on the other hand, Europe's share in the total mill consumption of cL cotton has likewisev that is, we have absorbed about one-third more of our own cotton product at home, and other countries outside of Europe, India and Japan especially, have increased their share of mill takings from 18 to 28 per cent. As a combined result, out exports of cotton to Europe in the last three completed crop years, have been about one-third less than the last three Bilt this appears to have been due as much to the small years before the War. cotton crops and high cotton- prices, and to increased competition by this country Europe's exports of and other countries with Europe, as to any other cause. manufactured cotton have fallen off, while the cotton manufacture of the United And the world's cotton crop States, Japan and India has sharply increased. has averaged, in the last .E'Yee completed years (not including the current crop year) about 10 per cent higher than the trare*W11 years before the War. We have then, in sum, about this situation: our exports of wheat and wheat flour and pork products are very much heavier than pre-war, and the total European consumption of these products (outside of Russia) appears to have been slightly below pre-war levels. On the other hand, imports of meat products into Europe have very heavily increased, while cotton imports have very seriously decreased. Misc. 3. 1.501.8.25 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE -- To FROM Dr. Burgess DATE SUBJECT- January 14, 1Q27 European Consumption Estivates--4 Miss Bagwell And shipping therefore, presumably, higher now than before and this is especially in the eight principal European shipping countriee, and the total foreign trade, appears to be considerably the War, and very markedly higher than five years ago; true of the four Central European countries named. This investigation has consumed a great deal difficult to obtain the data easily and much of it had separate sources of information. It is not nearly as wish, but it has been very carefully done and we think the facte of the case. of time because it seemed to be dug out from satisfactory as we could represents substantially Misc. 3. 1.50M825 FEDERAL RESERVE SANK OF NEW YORK OFFICE CORRESPONDENCE To Governor Strong FROM Mr. Snyder DATE SUBJECT : _MeNaryetlaugen February 18, 1927 Bill As the McNary-Haugen Bill neared its passage I have been thinking about it a little, and with a feeling that poseibly, under favoring circumstances, the scheme could have a fair measure of success. But I fear that the proposed set-up, of an unwieldy board of twelve members, nominated by conventions of cooperative associations, etc., would prove fatal. I was wondering a little if one way out might not be if the President could make his veto on the ground of the kind of organization propos d. Would not such a board of twelve men, probab y not unattracted by the salary, almost inevitably foredoom it to failure? But if the direction of the whole plan cØild be in the hands of one man, or, say, three men, all just the right t pe, I am not sure that it might not achieve some interesting results. have watched with a good deal of interest the workings of the Stevenson Committee on rubber, the Brazilian valorization of coffee, and the con rolling of sugar grinding in Cuba, and while without doubt the winds of f rtune have favored each of these, it is always true that the skillful ariner may do fairly well even when the winds are not so favoring. At least it seems as though t ere might be a fair chance as to cotton, corn and hogs. It looks as i wheat would be hopeless without the cooperation of Canada, and perhaps Au ralia. Rice, I know nothing about. But if there could be a re sonable control of expecte,tions, would not the problem be nearly half solv d? It was clearly 30-cent cotton and low-priced corn that wrecked the S. th and made it plant 17 million more acres of cotton in 1926 than in 19'1. I suppose there would be a wild outcry at the thought of limiting th price of any particular commodity, or keeping it near to some given fi re; but probably that would be the only possible means of keeping down to high expectations and preventing overproduction. I wish the President ould have been advised to center his efforts on getting the measure into a ntore workable and practical form. The country would certainly go with him on/that. Possibly the political side would wreck the whole scheme anyway. But you will remember that there was a good deal of that feeling about the original Federal Reserve Act, and if the present scheme could have the same kindly fate that the other had, to come, as I see it, under the aegis of a genius, it might likewise disappoint expectations. I do not know if these are matters that interest you, but I am sending it along. 192 FEDERAL RESERVE BANK AMC. 9.1 60M 7-26 OF NEW YORK ICE CORRESPONDENCE To I Governor _Strang ROM__ 14 DATE Jun e 26, SUBJECT: Burgess A careful review of Mr. Warburg90 draft makes me think it is moat effective with very few changes. have indicated one or two modifications which t think will atreagthea it, the reasone for which I think will be obvious to you. There are a number of other spate where the expression is a little more exaggerated than you or I would naturally use, but they all go with tae general effect and tone, which are remarkably good. WRB:R att. 1924. The men, who under the leadership of John T. Pratt, formed and constituted the National Budget Committee,desire to record their deep sorrow at his untimely death. In11919, when the Committee was organized, the number of those who were able to envisage the im4-1 pelling necessity:pr'the adoption of a budget system by our country was pitifully small; artdc-- ---4133=Aitter-e-14A-Ben-s- of----Alteitrit4-d------Sttrtsw, there was onlY oneAwhoxcoupled -Asti-M1 a full vision of the great object to be achievede_villr the courage and unselfishness to give his entire self -40 to the accomplishment of an endtwhich then appeared4 yond the reach of actual attainment. During the years of the operation of the Committee, Mr. Pratt gave his 4im6 and his energies without reserve. There were times when he carried on the Committee's work almost singlehandedly, and when it was only his moral and material support that enabled the Corn- mittee to keep its flag flying. - It is due IA no small degree to the untiring efforts and never failing idealism of Mr. Pratt that the United States today enjoy thut. benefits of an orderly system of budgeting, an owes him a deep debt of gratitude. the country -2- 0 It must be a consoling thought to those near and dear to him that their grief is shared by his friends and admirers all over the United States. Mr. Pratt's old associates of the National Budget Committee desire to express to his family their heartfelt sympathy; they will always cherish the memory of their loyal friend and inspiring leader. July 7, 1927. To Governor Strong F. W. R. Burgess The resolution wording and the form of engrossing have been agreed to by Messrs. Leffingwell and Warburg. Colonel Stimson is out of town. Ames & Rollinson is now going ahead with the work. W. R. Bi...chh,4 S 01-A.X4 3041 9 26 FEDERAL .RESERVE BANK' OF NEW YORK OFtICE CORRESPONDENCE To Governor Strong SUBJECT: W.R. Burgess FROM I have it with given Mr. McGarrah. about it at the moment 'ABB:R att. DATE* neaember 14,____ 1922. Article referred to in_ Governor Norman/A letter of November 15, 1927. a good deal of thought to this and have discussed Neither he nor I sees anything which Some day the opportunity may came. can be done FEDERAL RESERVE BANK OF NEW YORK June 8, 1928. PERSONAL AND CONFIDENTIAL Dear Governor: I have wished a good many times since my return that there were a chance for a talk with you, both about the experiences abroad and the developments here. You have probably heard by now the first half of this story pretty completely from 'alter Stewart- I haa hoped on the trip home to get further along with the gold exchange standard report, but found it took most of the trip to write a speech for the New Jersey Bankers /Association, which had to be thrown away because it was too acid for our people here. Since then we have been pretty completely absorbed by the current credit situation, though our people are working ahead on the gold exchange report and I have sent Stewart an introduction, copy of which I am attaching herewith. ( /4.i,kc etv-,444--g,,,,, 4.1.9 /46vi.44.0 '16---4- Ot-Plra 4 I have a feeling now, for the first time, that we are beginning to get on top of the credit situation, though it is clearly a different kind of thing than anything I have experienced since coming with the bank. When e look back at 1923, 1925 and 1926 and realize how little was necessary to deal with those situations it becomes clear just how different the present picture is. The new feature of the situation is that the loans and investments of the member banks are beginning to decline. Since the first of May the liew York City banks have liquidated .It'80,000,000, mostly call loans, and there is evidence of some real pressure that is shown by 5 3/4 to 6 per cent, time money and some 6 1/2 and 7 per cent call money. The very high call money rates, however, are stimulating the usual economic flare-backs in the form partly of some flow of foreign funds to this market, some flow from other districts, but more particularly a shift of corporation funds from bank deposits to street loans. Loans by "all others' '1a,ve increased FEDERAL RESERVE BANK OF NEW YORK 2 Governor Strong 6/8/28. nearly $400,000,000 since the first of May. The net result-of this - plus gold exports - has been that the New York banks have lost $175,000,000 of deposits during May and have met this partly by reducing their own loans and partly by increasing their borrowings with us. But meantime brokers loans have continued to increase with the exception of two weeks. The psychology, I think, has changed, perhaps as a result of a feeling of pressure by the banks. As you will observe stock prices have broken badly on a number of days, although they are not down fur. We discussed all this very thoroughly at Officers Council and Directors' meetings yesterday, and Sprague and I had a considerable session in Washington early in the week with some of the Board people and some of the governors who were attending the Chamber of Commerce meeting on the Federal Reserve System. It was clear to me, very shortly after I landed and particularly after the Open Market meeting, about which Mr. Case has, I think, told you, that the outside banks were disinclined to take the leadership in raising rates, partly because there have been many reactions from business, and partly because of an evident feeling that it was up to us to lead on such a move regardless of the technical economics of the situation. feeling is now strong in the Board, and I think The in many of the banks, that we should deal with the situation in other ways than by rates, if possible, and the discussion at our meeting yesterday tended in the same direction. Vith so large a volume of member bank indebtedness in New York, averaging about $250,00Q,000, borrowing has become more continuous. My reasons for optimism-. about the situation are cld-4-441 tier/A-- First, that we understand the situation better and are prepared to A act vigorously, Second, that the banks are feeling the pressure, and Third, that the public atmosphere appears to be changing. rj) FEDERAL RESERVE SANK OF NEW YORK Governor Strong 3 6/8/28. This whole experience leads me to wonder whether, as a long run policy, we should not consider working toward a position where our open market holdings are larger, our discounts are much smaller, and our discount rate relatively higher, if that can be done, and I am inclined to think it could if the discounts were small enough. The Chamber of Commerce meeting affords no cause for concern. There were about one hundred there, including a dozen Federal reserve people, a number of economists, and a fairly good representation of bankers and business men. report presented at The the meeting was good on the whole, although there were some undesirable recommendations. The worst of the recommendations were killed in the meeting, so that the final resolutions are tame and involve so little change that the report may die in the Chamber Board. I had a fine visit with Sprague and brought him back to New York for a day, partly to work on our economic survey problems, but mostly to talk over our own problems with him. e had an interesting lunch with him and Messrs. Case, "McGarrah and Snyder. I think the new bank organization is working well and happily and need not worry you. I should like to be listening in on some of your discussions, for the struggles over here have not yet obliterated the vividness of the European problems. I am appalled by the suggestions of delay in stabilization of France which have been appearing in the press. A continuance of the artificiality of international money markets under dominance of the French position would certainly create puzzling problems. I am hoping this is newspaper talk. I seem to detect in your messages that you are continuing to feel better, which I devoutly hone. Sincerely yours, Mr. Benj. Strong, C/o Morgan 4: Co., http://fraser.stlouisfed.org/ P-ris, 'rance. Federal Reserve Bank of St. Louis -6,,,71(444N-74:. 4147-441-1( FEDERAL RESERVE BANK OF NEW YORK June 15, 1928. Dear Governor: Today's advance made it clear that the liquidation is con,inuing, but all the reports indicate that it is doing so in orderly fashion. There are no rumors yet of failures of stock exchange houses, etc., although our friend who has been buying up banks in Jersey is getting squeezed and today had to sell one of his banks to the directors. A number of his compatriots are reported to be in trouble, - all of which will be wholesome. The principal feature that appears to need watching at present is some congestion in the bond market and some slackening off in new issues. I think the party is over, but do not believe we can afford to let up too quickly or there will be trouble again. On the other hand, we have got to be ready to move promptly in the other direction when the time comes. We got through the tax day with 5 1/2 per cent money, but it might go lower on Monday or Tuesday. By liednesday the market will be tight again. All goes well here. Sincerely yours, Mr. Benj. Strong, c/o Morgan & Company, 14 Place Vendome, Paris, France. WEB:R http://fraser.stlouisfed.org/ ,?nc. Federal Reserve Bank of St. Louis FEDERAL RESERVE BANK OF NEW YORK CONFIDENTIAL June 26, 1928. Dear Governor Strong: There is just time before the mails close to acknowledge and thank you for your most interesting letter of June 13. I am particularly glad to get your point of view and to know that we arc so closely in agreement, as you will have gathered by my previous letter which crossed yours. I have just been reviewing the figures in preparing a leading article for our Monthly Review. The liquidation of credit, which has been principally reflected in a decline of 300 million dollars in brokers loans, has been confined almost wholly to New York. The total loans and investments of the New York City banks are off about 200 million dollars since May 2 and their deposits are off 400 million dollars. Outside of New York City there has been no reduction in the total volume of credit. The banking figures, moreover, do not tell the whole story because increases in loans to brokers for the account of others partly compensated for the decline in bank credit during May. Thus the liquidation has not yet gone very far, though I hope that this week's figures will show a continuation. Under these conditions we run the same danger as last February in relieving the pressure too soon. I quite agree,however, that we must be very alert, particularly in view of the change in the international movement of funds which is following the French stabilization. So far the domestic price and business situation does not appear to have been unfavorably affected by high money rates although, as you say, there is a considerable lag which must be provided for. .L RESERVE BANK OF NEW YORK Governor Strong, Morgan & Company, Paris, France. 2 There does seem to be confusion in Riot's letter. June 26, 1928. What actually occurred was that we earmarked 50 million of gold and shortly thereafter they increased their free balances with the commercial banks, not with us. They advised us at the same time of the possibility of taking 30 million dollars more of gold as a maximum, but as yet we have heard nothing further as to that. I an interested and pleased to see that the French stabilization program follows so closely the proposals which Quesnay had in mind at the time I last discussed the matter with him, and particularly that the reserve percentage is 35 per cent and not 40. our counsel was in the same direction. I an glad to note that here again Miss Holmes is sending along a bunch of clippings about the French stabilization, which may interest you. I am grateful for your kind words about my trip. I enjoyed every minute of it and it gave me just the psychological kick that I needed. I am glad you are feeling better. Sincerely yours 44-7-fa-4-41-1 Mr. Benj. Strong, c/o Morgan & Company, Paris, France. VIRB : R FEDERAL RESERVE BANK OF NEWYORK July 6, 1928. Dear Governor Strong: The situation certainly changes fast. A few minutes after I wrote you last week the stock market began boiling again and this week's brokers' loan figures show an increase of 140 million dollars. The question is now whether the pools will be able to get the public in again. I do not think they can but they may be able to make more trouble for us. The 10 per cent money on Monday reflected the end-of-themonth window dressing piled on top of heavy borrowing. In the con- fusion the banks overborrowed heavily on Monday and on Tuesday found themselves with large reserves with which they partly paid us off, but the drop in money rates Tuesday was primarily due to the fact that their checks put on the street on Tuesday were not collected until Thursday so they got a day's free interest. present 5 1/2 per Cent money, I think, will prove The temporary. I am preparing a memorandum for our directors next Thursday, looking forward to a meeting of the open market committee on July 18. The situation is still very puzzling and I am anxious to talk it over with Harrison when I see him before many hours. Sincerely yours, e0,--10,44414Mr. Benj. Strong, C/o Morgan & Company, 14 Place Vendome, Paris, France. da-te-4- July 12, 1928. A little less than a year ago, or on August 4, 1927, our discount rate was reduced to 3 1/2% with a view of stimulating the European exchanges, thus making it possible for Europe to buy our agricultural products as they came to market. Accompanying that easier money program, which was effective in stimulating the exchanges and in bringing about lower rates in the money maiket, considerable stimulation occurred in the stock exchange security markets and in bond trading. Coincident with our low rate policy, Europe and South America have since taken approximately $500,000,000 of our gold. This probably has gone abroad to stay so that the American credit base has been definitely and permanently contracted by that amount. Following a continued expansion in credit this year, the System in January began selling Government securities and has since reduced its portfolio from a peak of $423,000,000 to $75,000,000. On February 2, 1928, and again on May 17, 1928, the Federal Reserve Bank of New York increased its discount rate from 3 1/2% to 4% and from 4% to 4 1/2% respectively. The combination of the loss of gold, the sales of securities and the mark- ing up of our discount rates has naturally had the effect of materially increasing rates in the money market. Time money is now quoted at 6%, call money 6% to 8%, commercial paper about 5% to 5 1/4%, bills approximately 4 1/4%, short-term Governments about 4 1/4%, while long-term bonds have sold off with corresponding increases in the yield. Meanwhile, member banks' in- debtedness to the System has been steadily increasing and now ranges between 41,000,000,000 and 41,100,000,000. Under present conditions there does not appear to be much chance of liquidating this indebtedness in the near future. 2 July 12, 1928. As the result of firmer rates for money in the market, the foreign exchanges are now again somewhat depressed and unless fairly strong measures are adopted now, it seems not unlikely that as the crop moving season approaches this autumn, agriculture may again be confronted with depressed exchanges plus high money rates. Under these circumstances it seems desirable that prompt consideration be given to raising our discount rate. In this connection, consideration has been given to recommen- dation of a raise of 1/2% and 1% respectively. The great preponderance of opinion among the officers is the belief that a 1/2% increase at this time will prove effective. It is believed that such an increase will result in considerable liquidation, permitting of gradual retirement of some part of member banks' indebtedness. Having in view the fact that there probably will be the usual seasonal demand for additional credit this autumn, it seems not unlikely the rate increase if made today will so set the stage as to make it that possible for us to go into the market during the autumn and again build up our portfolio of Government securities. This program would enable the mar- ket to meet the autumn demand for money without forcing our banks to it by increasing their indebtedness to the Federal Reserve Bank. obtain FEDERAL RESERVE BANK OF NEW YORK July 15, 1928. Dear Governor: You may be interested in the attached memorandum which our directors had before them at their meeting yesterday, and a most interesting meeting it was, with a fine discussion. Owen Young really carried the day and there was only one negative vote. This ought to put a nail in the coffin, although stocks are moderately strong today. It seems to be possible that there may not be a further heavy liquidation. It is somewhat a problem of the in- trinsic value of the common stocks today and there are arguments on both sides of the question. But even a few weeks of quiet ought to pave the way for the kind of program we have in mind. We started the weekly cable service with the Bank of France yesterday. Sincerely yours, Mr. Benj. Strong, c/o Morgan & Company, 14 Place Vendome, Paris, France. VERB: B. encs. NOTE: I sent the memorandum which was attached to Dr. Stewart, through Mr. Siepmann. - B.S. A _ FEDERAL RESERVE BANK OF NEW YORK RRESPON'OENCE ,L OA Mr. burgess OF MIRO). _EsA14., atrosi FR Comiarit:on of thto ruts, :,tsdit.count of this BAiu iaid the riato of diw- count of ti* e .N.ok of-England, liana of Manse, ReiOnotant aad the r.,,ank of If ..nythint, (wl.n to obUined danUry 1, 1420 to the Aly .14,AA, fro& ratea charged or cooMeroiul cocomg:od.-tIon by co:axereill Luise in those countr1eL4 it will to of or telegram. A ooiy of the karagra n in Ay letter/to Mr. J-y, writtori fros ia I opposed ttie swondiont to the boderal AOscrve atev'sadtny oorretiondsuce which lie, or Qthor5ut the '.. authoriving the *ro.ro.5tiv* had eitn tho Feder,1 Rs. verve Loard indicating ci,osition to the aten&Aint. . A stAttacnt of Lancet rte' for wady since Januxry l, 1Z2G, ty ,eriods, sh..rted if conveniont. Thle ahould snot wootythnce mtes, osrtifioAtes of indobtedns. ruteL, *to ct eitosang, call ic-ul r&tes, eLoexcauge time 1.oat mtge., .ad costzerciA (v-r Any written evidence in our int ..00, or eorresio do:Joe, inuioating our 2;-.44icy in the saAtri of rte %ad credit oont,rol in :ios Yo 31onta;. ,ast t1f,,too:. This should includo qiCI,i0O Of .11 ainute te.-"xt14 on thie subject durin, Oze pqriod, oitnt.4 direetors' or xesative cAaittco. A. states:eat, by Ariods, for theo dighteon month*, thowin theamount our loans ,inti invoitaanta, olassified ano in total. d. A Etutswent of til4 nuater of sew-law:don t of natiootl and ettite Lanky ra,uiroa ty Fedemi and Etuto LiOft. Of tli0 three vtatec- embraced in' our district; the mmtler reo/ired by the Clearing houze; and the nuistr ro,cired to to'madt Ly direct:: E. 7. A st,U4!.ent by mr. CKeo of how we de4It Vita 10* Y,:rt City i:.unws which were iarg0 borrower aurni,, tnis 0.,rior- of cintsen mont.sL. 8. 146a0 ono sill nevi to.go LtiOK through the irctorslf,a4nuteL, the es,o,Liv,,., soamitt've minutes, and the files of the bane, froa d..te oto Nn to ttl) -o FEDERAL RESERVE SANK OF NE.W YORK CE C ON1DENCE SU EJ EC, TO Ztronf. FROM t here theC. gred to civ e 1.t tab reigns of examlAtioas, to tot 4.11 of tht. data correo,oP6enee, etc., alto the Coa,trciior of the Cureney, Re6ervv, .flL ocretari of Ue ire oard, ;vita tho ;:eilret?,,ry or P9deral Lou, mad !any isonai oorresAndence of tti. Jape or asine on this auL,Jact, egicu will ihiAoht the 41culty ahlea pla by addreroed of tht? letterv bxo Orieneod in getting thic data. cj ronLy toll.Warburgi. otherE may La ad6re,;bod to Governor Hording or to C4/: r,or iu1jj. .orr.oauot withr, Starreek, * evamihdx in taie dietrict;, shouid ciat, isv X lnea. s tiken n&Lion,4 teht Lottere both to 4aid fru. tile ttis uanoAl ehouid be locaon at. A Ceborio,ion of the wort of tho a4ter lAak ReiNliche DokartAe0.; the iriod, the gind of wiviee VIt hes en giVon them atout oredit conditione; tho noH.-:ir of ai,,iotlag of eatiatry Lin - avid nuit:or vioiti, rade to !nember bankiscb.r1nk. thi at our tnI nc ho wail they ire attended; no the general ghar4oter of the dicguemione credit csimditiot)e tiald posioiee tthe;,e mt.etinge. t." 1U. As cum leta extracts ae koseibie from this Foderal Reserve :ulletln, from nthly Roview, trial, any tOdrssee mode 4 the ;:4fricers. of the blina, And tr. loirepondeno both ,r. y . td ti, pervonF" rr-k4,;,Ueace and the tuirroteinglineo .01.3,1 4- ) alth the .F.-derui Reserve ::Gard and it lAggberS, and with the officmrti of cheory Dertenti to indicate our rolioy Ourint; ti .oriod (a.:,,: ,142i track ir,to cr 1919) ca,Aior,ing banze againit t4ucolation tt4t1 i)x.,,analon; , .406ft prowci. :& noun ohterpriseR; and, in thtt recont i, riod, after lisoidation toA plaee, the eiellr ...._... .,-. dtta indicAtiL taat our attitude eat, then to uree tha bant.t to take or of their cuvtomere AT :. . ,!.t I made et the gauntry basket's meeting early this ye..Ar at the ';:obritom*i Aylodtli6,t1 I; Illi not to fore.* lituigation./ Tree might ingiude refereneo tu tit addrw,s i two extreots from the Conference of 6evernor 'held in krill and a gener.=.1 atat,2uent nvB BAN YORK CO DENCE - OAT. AALLY 21,4421 ,aJ EC, Cues- wad any other °Moore, it4=t tha 4ttitAo which they had at,,meo tow rd weAtvr t-2,:nke j. t40 city. It .-Aakou.i.c re t.r:_h_ht out that MEW eOflt4 reLeonsiiie for etarti.,!. the movoueht for buying oome,aroi.i "'sr. 0*6 wore it etould ,iho he dialted the,t we h4ve never twlen stop,' to tring ttout abeo1ute oredit restrlotion, ue to stoot exoh,,Dge sieouittion, -and the detaiie of our ,oi.toy. in that regard need not bs .r1tt. t, hut 1 wart comrlete figuree uf the etook ehon4hge iontoo:unt a4 uad of the &tool. oxoa,age lowL uocount ted bynt, Of Lae 01.0011. e oov:iring the kast eighteen month4. tNer f:Aif also' L 3 amount of out..oftoen money loaned on thu eaohaage, and-the &mount -of Net ric ney loaned on the xchance, and udould give a oh.J.rt or tit Jo of the rates durinE the !eriod. 4 A%teirent from Mr. Staniey of the Guarthty Trwt COnkeny (to Le tmined nficiontiAliy) of the voiusie of iurchileee of gr%in and ootton exiert biliovand tiuAlux export bliis, durilkg the orriod of their hc.,vieet borrowing from A owOote record of offioers' aaiaries, from the,organiyttion cf tLe tkwn to th, ,reAnAL nt in too great detei1 tind elaboration, i:vt so ke to show 4h,e hos tho inorleo have devolo,cia eitt the 1,, creates inAforoe. (Refer to 6 siekeh in whioh he sontione the inereaee from'4:.4)80)O,to V4JX40C0 in 1.11)14-.144) The groeth of the force ehuuid te &wen, und ouzeolly tho. trUWth7111,a16 VOitaits of busines, add the ,-ohount which eau for ,coouht c,f the ire4.sury. 15. A reeerd of ityroli 4nereases) of bonue paymvnts) hf our motion in regard to Lonueev.) of the Oak440 of the inores of t7714010 in ,.tyroli at the Leginninc of 1i2 ) of our .nalysie t the Gott ,f vin; of the tlatrek,a of ort&IL of our olericu tad the Audy thtt we Itthe of livin4 eonditionb fur Liag oierat) of our rel,tive level.with th-A of other LuAktal an ttt: oa.nge6ir r r ne amount IA3r cai;ita, other detu.ii to \ FEDER-AL RESERVE BANK OF NEW YORK IDENCE DATE TO *Nip 21, SUBJEc, -4- FROM PLOA tnkt our olerke are hot olwr,id and tnAt the LW n600k4ty for takiaii chIVIr t41 Litorty L4 tbe incrovseiii tho vo4lize or Lufill:e,t 4,1 .coi hot oursisn4d. fiefor to tn 0::ganizttion and Subtremsury for0,1 oontrattoowith too oos4arativeiy stAtion4ry 1,1110 other iortlnout fatitcre thit justify our kelk,ry niiey. nurA.or oeaniloyes) 'el in this the argtment bent to the Feder&I Rei.erve 'curd to juvtify the salary in- crese in 14)2 . .11,1 th clftes, of !00416 4Lonts, with the figureo la. Jay nnAl giyink owai,ariconz of our t,:a141.rie .AW thei:..e in tiv2; .o.i.41he Nee York LA4k60 ma, rioon tatoe o. our se.ari.a with thot of other Rorer e 14. A otatehient of the coot of our roti catAo ier eiuure foot; oo.t tAnk groper, exo.oelve of tu.ult& e.ad other item:,, not 4hoo1ute,y bOiidinA rduoo t to tot:: eutic foot baeleir add 1. co4 or XT. &iiIersi stetouleht of the ue,ods of the lied for outhority to go ahoo %nk whion rae oubzitted to tbe fie$A.rve Boxrd in we (brief) Tro bride," decriition/ of th,(. oh.foteriv, ,roviuion, with to. buildinz, L'et from ;the reoretAion dieleion, of the aeseiebiy ro,z,s, of Vas tut, of We ve.ult by old methoo of oonetruotiou nô two oo,A, of our ..rooiA.d vid the saelni, ilue to tus v-uit test; 'int; cue to uoini; &md incluoe at of th5 nuaL:a. of 4A.,,logo wo havo.000upied, includin, the sarehouge in the haount of v.Aea we QCCLI,.intais trot, 46d -areet, two tht toe nui.,Lo-c of floorq AL tn the rent:A rw; ti;4Taio AAA; th4,o. e 0,tiort mt.) thKt neesotred'on oar rented ty tlAd E,tritabio Buieingl Intbs 4nd the mto at whioh QL Lrizon P11t1 r N ktatoa.sot of ort:roroedin, in the vILrioui. de- of the hulLbr of c,ice of tuiorculot.io in tho force; of tha nuuttor of 'cal]ing at L., :end Le,--irtwent, every bond t occurred durineuonvereionwhon, or tho crutl (witicA.ine the numbr 4f ,120:00 tha,t puri)oee; reo,t1,.., tItheamt ,f the date the ovlice.ntified %lc. of Unql wht0CoW tle to Lion ui the 11k, of the DERAL RESERVE SANK OF NEW YORK dul 21, -e1 F10E CORRES ONIDENCE -6- ZArong 4f the Wall .'.t.rset explon:lon, and gonarally of the scattered i. difteren% vau1Le as far u,toen aw 440 Etreet; and ohch whicn 40 hol.; 6110k emery day; i30i;.4t0 ,A14 in tue total a.ount, a wecorition the v,Lule of eecuritiot 4nd (meth which J,ust bit taxon out od the nuvler of weft in. the ,rotectioh foroe'And the On t of oiler:Ai:16 the esti:Aerial RAI tusy t4r trd; the coe,t to the olerae .per luncheon :served; the hea0Mts of service in th3 tier; buildiaL. All of thit cuA te ex,re:-Ado i U. Lriafoet 4sitle tom, simply the facto vithout laboration.. 15. Th4 iLt t.Trowluridgete eacioyment; of 4r.. ho,flie; U e acohitectal competition wfia- held; dlte when Eitz waw,emloyed; the nundution Coo,Any; 18. thedt.e -whoa the date when the engineers were AuloyAl the the cil4to of the proliminAry fooadatioos examiaation by the cite when the first idurchene of mil ett,tattJ A utatee,ent of our trlixeling exi;onz:e account; Allat it (Poeta per diam, exciire of railroad taro, 4,ad how much of .it ie Vvv-o6r BeLatione repartlAult; a atA,teaent of my on wx,enA, adoount, e,nd or woat it conclwte (Zro tile it five yesr,i probaLly oaly railrcid fro ooverin6 tripe to 16.:44hihtL.on); a complete Aislyeil. or the ex;ionas to36,,urit of tee hank, ehowine it growth from the teginniniA, .it.4 a deaeriptioa (41 the s.,thode of octroiling exioneer; %Ad entorela cchoxy, with th.3 forse of vouchers, etc., u:Atd; thEqattu, of oom;wtitivo tiddin,g; tNe Qapenbes of the kktnw; the caution which iia.t hosa givea rec,rd. tee sto;s se am tkin L. furtuer redoes exponeew; and a ec..aration of the itemc t*tween tho 3 whion are conLroilatie J.nci thou* Whist cannot be controlLod, wuch, for in*tance, so Pederll F0661143 ;:vard steersente, eeet of to lieue4 etc:. \ loto 17. A etuteent, vith otort if ;iceeitio, dtiodelts, note of our losn. ,A1J6 th;.4 floctuutiow i4 our nd reietvo accuptsor the lt. oioteen 42ov:the; es anlAysis \'4 Ree,erve L-ti4L, with ouittio ni4tion et our xLothed I FECJERAL. RESERVE BANK OF NEW YORK I 11-710E CORRESPONDENCE DATE411:4 2,17 .411, SUBJ,CT: :OM a3 Eonj. -6- ronic. tOiiOY in porchaeing ail-a for other A *r-tr A spielAti etatewent wallt4d oy .,enator -immones the deVille Or 'hien are to obtioad trAn Ar. Eddy. Ti e should Lo , repared very ,;omktly.. /. borrowir A etatmeent et the fluctuations in the dei?otite 404 leant:, lave tzente, and/ etc., Al ieriedal of the San Tor city meaiber banks' (better tate only ,Tatiattan and give the L'0144 by letter or nuator) during the erio6 of sintoun mouth-. Thim 6hould bo preparoC that it 'iii khoe Lho heavy kuil on'the Nee York bank& oaut-ed 4 withdrawals of dlkoaits to the interior and by demanda okon No* Iork. hanks ter 4.6004,LOG4tiOW, fros' the interior. . J, for Covernor fiarding, We have toe° data in the Eank, eboain no the :,1,5* ahre inore:Ited their I(V.ag to out.of-ton banke, firms, etc., during Ctim porloo of vtrain. Any data that oe can U6, alreNtly in L40 b,nk, may be later euk,ltionted, if need ta, by a Ailt4Lie 01406 . na.ara to '6,9 *out to 1;116 Likortat banka, but thib 8,40U40 not he tient, hooever4 until later. Thie semoranduiVis ;reparee in five co,418, for Lesors. Cia., &Alma,-k)urcey 44/701.bili who are aaked to take charge of getting out the loteriai, vita 1;0. a6elart 4ce Vaat thtoy a _,od, and doing wo ju t ac ,;roa,tly aeoiLa. ujU esios4 rel4 Vae tenoraeUus, fke tote of muggeetions thi.t he an offer, and let me bv bLi y Le.arneae or teiegrAt in Wathlogton tons-rot:. Brevity means seed and better understandir61 FEDERAL RESERVE BANK OF NEW YORK September 23, 1921. Dear Doctor Burgess: I have just finished reading the report which accompanied your memorandum of September 22 relating to unemployment. It is exactly what I wanted, and I cannot refrain fram saying it is such an admirable report that I am sure it will be of great value to the members of the conference. One point on which I should like to have some information, is the basis of statistics on unemployment issued by the Department of Labor, and the basis of the comparison which they nake with former years. Speaking from memory I recall that they recently estimated that 5,600,000 men had been released from industrial employment. I have heard that these figures are arrived at by taking some 1,700 industrial establishments and then applying some system of averages to the total of industrial employes in the country and comparing them with the peak of employment during the war. I should like to get this in more detail, as well as have a critical examination of the basis of these figures made and see whether they are not, in fact, misleading, as I believe they are. Any further material you get I should greatly appreciate having as soon as it can conveniently be sent. Nany thanks for your help. Very truly yours, Dr. W. R. Burgess, C/o Federal Reserve Bank, 15 Nassau Street, New York BS/RAH '.3optamLor 24 1921. ..rootor 3ur4;-es8: have lust finiahad re:4110g- the report whi a4 aoomossial wonr oralanm of Septombor 22 rel tl.a, to uaal4;loosat. It iz extotly ttat adr/roblo rovrt ..antad, aad Ialalut rofrttin fzem oavi.:4,2, it lz tirAt -m vire it :11 wO of ,raut Ar.lte to UWDrocnitora of tic. aonfaronoe. oc tuf,r=tion, is tie 0-ae peirit it alleh I should 1-1:ze to 21.7.ve a-sis oe stetiotio:- on tam.:Tployloal. lowaed b; tho Doprtr.oat or Laoor, aad the L-iii of tho oomvaris..in hich Cloy tAke with forma° ye.Lrs. from me.:7ni7 I?Quail Clat jre rooen.".ly ite 41am-..inC that 5,300,0W =on had oocma elaZ1:74.1t Ih;...o hoard th t those auureo ere rulkasel. rIVIA arrivod at ,y tiAL4, ztAm 1,700 inZ4utr'..a3. eztablilamntz and then arlaWinC rgle total of ind-chutrial employcs. in the ocantry some oystoc.1 of averat;es and caspaensiei it tha peak of amolojmunt 0321n, tho war0 Ishould lige a 21,..ve a critic:A_ ez.zaraination to 014 tLis I. Awro buziz of VIC= f13-ures ni,do and see of tha ther tboy arc not, in fr.ct, ml,AALdirk asI o1ievo they ure. Lny further rt4I cia Jot I hould zreatly 4proolute /want; ss pow. as it zaa conSenlantly ho saat. tiaaks for your help. 'to, truly youea, 1h*. W. £t..2airzoss, C/o 20.tra1 Rozervo 254744 16 lele4aau Street, Iicr. FEDERAL RESERVE BANK OF NEW YORK O September 28, 1921. Dear Doctor Burgess: Thank you for your note of the t6 containing further information in regard to the figures of the Department of Labor. I have suspected the figures of being inaccurate, and feel very sure that they are, and sincerely hope that the conference on unemploy- ment will clearly disclose that fadil(21 1:11N1 Very tru4.Yours, 4,11Lc ALuk. Dr. W. R. Burgess, Statistics Department, Federal Reserve Bank, 15 Nassau Street, New York. AE V NE, -./RK iFFICE CORRESPONDENCE To Dr. Burgess FROM Governor Strong DATE Feb. 14, 1922 192 SUBJECT. Colonel Ferguson was my host in Washington and treated me most delightfully when I was last there. I would like if possible to get him the studies to which the Attached letter refers, and change the letter so as to indicate that we are sending him them, or at least point out in detail where they can be obtained. The statements contained in my address, which came I think from Mr. Snyder, indicate that efforts at price control completely failed in the desired result. BS.MM at t. M-4-22 MISC. FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE Oanow- To 192 DATE SUBJECT FRG dw1l' Etut&o jr o4f-o-to 42- racettnAq 0-74,0(atc_) 4,ci4,3p run, t-zo &art?) itg-to- MAP kr:W-5 CA-7~c-) ?_t_c -tfrayi/y' /1ka-CA:re t9-1 77vi4Z--) f(ct,f (-a es2f-pnt_ayl - 4A- Cg7Avnyffei cAr fie 15-10-r - ttAt1L-v tA-; 144,t- 17/wtt 0-CA 774,tilk-f 7144L----6,7,A4LeziA,k; tVd JikAi dov) 6r5 . a air-v) g-(74v) ktuttuA4- naufte-i- fact ClchinivititJ Gr4z_oc-f- ik-take_k 714,1LE4v11771,-, . hkater ify traALA' a fru- tccittcc-_ kno MISC. .0 M-4-22 FEDERAL RESERVE BANK OF NEW YORK oFFICE CORRESPONDENCE To DATE 192 SUBJECT: FROM AuteA.1 iratt:r /qzttea7Lt4 11174_17u ML Q (P/Lo--ce - 041-2,Z& Cte-6110 ake 64 CY cr-a_9? IX-Fsaraui fit' yei, f-xv-rk dctx_ Crue_c_e_t_Csa-sLq4J (0-ctiAg 7ktel 11. 73(A__4 Auk t;cioq. 130-43D1) ,rfktuf-- rke) ut-ek OttivVriicuLt-1 ( m 4 Tetfr,, Vaistr< tue-ryvt tic kritease n010 ror Mr. burgess) misc.4.1-Inws-a FEDERAL RESERVE BANK OF NEW YORK uFF10E CORRESPONDENCE To Mr. Burgess DATE Aug. 25, 1924 1 SUBJECT: Governor Strong FROM Attached is a very confidential memorandum which Mr. Winston somewhat in a spirit reading; of irony, which you might was prepared by :7be interested in also Mr. Snyder. Please see that it is returned to me without fail as Mr. Winston does not want ES .MM att. it to leak. #2.Am..... FEDERAL RESERVE BANK OF NEW YORK Spa, Belgium, July 21, 1925. Dear Dr. Burgess: Now that mail is coming regularly, I am getting your reports, which are very interesting, but which I shall acknowledge separately, because my other letters to the noeX ficers of the bank will cover everything I have in mind. 40:1just want to let you know that they are appreciated. Very truly yours, Dr. W. R. Burgess, Assistant Federal Reserve Agent, Federal Reserve Bank of New York, 33 Liberty Street, New York. FEDERAL RESERVE BANK OF NEW Yo R K Biarritz, France, August 1, 1925. My dear Dr. Burgess: I was very glad to have the report on the stock market situation, but, unfortunately, it came after my cable No. 4 was sent, caused, I presume, by the usual delay in the mails. I am writing Mr. Case about the rate matter (as Mr. Jay will be away). And I am also writing you a separate letter about the newspaper men, so that you may show my letter to them if you think it wise to do so. With best regards to all at the office, Sincerely yours, h Dr. w. R. Burgess, Assistant Federal Reserve Agent, Yederal Reserve Bank' of New York, 33 Liberty btrcet, New-York. in c. MISC. 4. I -240M-1-24 6 FEDERAL RESERVE BANK OF NEW YORK Or FICE CORRESPONDENCE To DrBurgess DATE June 13 1925 SUBJECT FROM Will you please be good enough to let me have a list of such reports as Governor Strong would find it useful to have sent abroad this summer. to him while It is desirable to keep the number down to those which will be of real value, and yet have them comprehensive enough to keep the Governor in touch with the situation and conditions here. 192._ FEDERAL RESERVE BANK OF NEW YORK Biarritz, France, August 1, 1925, My dear Dr. Burgess: )/11,4(' Thank you for sending me a copy of Mr. Wasson's 17 - ter, and of your reply."9//f / 1/6 mistake for me to leave without Possibly it was taking them into my confidence, but you and they must remember that there are considerations on the other side of this question. Had the news been spread abroad of my sailing, I would have been met on this side with endless importunities from representatives of the press to explain the object of my visit; and undoubtedly would have been beseiged by all sorts of people to do all sorts of things which I could not do, or would not want I have been through the same thing before many times to do. and the embarrassments resulting from such trips when they are heralded in advance ere much greater possibly than representatives Besides that, it might of the newspapers understand themselves. have given some official character to a trip which was largely for And that might have made it necessary for me to accept pleasure no end of invitations which I did not want to accept, and which would very much have reduced the pleasure of the trip for both my daughter and for me. Mr. Wasson, I believe, is misinformed in regard to Mr. Morrow and Mr. Leffingwell. Neither of them intended to make any statement, and when I saw them on the boat the night we left, I found that they had been discovered by the representative of the Wall Street Journal. And it is my impression that neither of them had given any statement prior to sailing, although I did not ask them definitely. I am scrry to have Mr. Wasson take the position that the newspapers have an inherent right to information of this sort. Surely one has the privilege now and then of going to Europe for a holiday without telling the newspaper men about it, and even to come over here for informal visits with some bankers. I think they attach altogether too much importance to the whole affair. I do at times resent the urgency and the importunity with which members of the press make demands, Surely they would resent very as distinguished from requests. strongly any urgency or insistance on our part in the publication of material which they do not want to publish; and why should' we not resent their urgency and insistance upon publishing stuff which we do not want published? ..AL Biarritz, France 8.1,25 Dr. Burgess RESERVE BANK OF NEW YORK Mr. Wasson is right when he says that I dislike publicity, but it is not a matter of personal like or dislike. really a question of what is best for the bank. It is It may be that I shall give the boys a statement on my return, and I would appreciate any suggestions that you or they may have to make about it, - whether it should be given to the men on the steamer, or to the Wall Street men. Please write me when you have a chance. Sincerely yours, Dr. W. R. Burgess, Assistant Federal Reserve Agent, Federal Reserve Bank of New York, 33 Liberty Street, New York City. FEDERAL RESERVE BANK OF NEW YORK Hotel Majestic, Paris, kranco, August 18, 1925. Dear Dr. Burgess: Many thanks for your memorandum of the seventh and the papers I have not had a chance as yet to study them fully, which accompanied it. but will do so and shall probably write something to Winston in the course of a few days. It is much more important to get a debt settlement which will leave room for monetary reconstruction over here than it is to collect more money and prevent monetary reconstruction. We get a little evidence in the clippings of the publicity work that you refer to, and my only word of caution is not to become involved in anything that savors of propaganda. Of course I know you will have that in mind. with the banks borrowing from $100,000,000 to $150,000,000 as early as the middle of August, it looks as though the fall demand will be considerable. But I rather agree that the rates are not likely to get If they do, we must buy some more securities. objectionably high. The reports get are most illuminating, and help to keep me up to date, and to avoid the vacuum which otherwise must be filled on return. Best regards. Sincerely yours, Dr. W. R. Burgess, Assistant Federal Reserve Agent, Federal Reserve Bank of New York, 33 Liberty Street, New York. - Hotel Majestic, Paris, France, August 20, 1925. Dear Dr. Burgess: I am grateful to you for your report of :uly 31. The attitude we took with Senor Pedro Merle was absolutely correct. We certainly cannot make a banking arrangement with a hypothetical bank of issue, which hasn't yet got a charter, or officers, or anybody to make contracts. Of course I am sorry about the publicity regarding my be avoided, but if the newspaaer men bother you about it, you can tell them that by observing some caution I have been spared the necessity of doing many things which I would not want to do, and of declining to do things which would be embarrassing to decline. Any advance notice over here of my arrival mould have kept me pretty busy. Fortunately, skipping from one place to ancther, and going to some resorts as well as to the capitals, as well as staying in Paris in a hotel which is suite unfashionable, has spared me a good deal. trip. It could not I wish that I could be more sympathetic about all the Federal Reserve System and recharter. It would suit me perfectly to have the whole thing left alone for a while for a good sound sleep. over on my return. We agitation regarding the can talk it If the American Economic Association meeting must be a ederal Reserve party, as seems the case, I should think Carter Class ould be an excellent man to make a talk, although you may have difficulty in getting him. We have got to be a bit cautious about that stock market this fall. If business looks up at home, following good crops, and these funding arrangements are conclude, and then some important countries over here undertake monetary reform, az is not impossible, we might have another burst of enthusiasm at home, and we would then have to do something about it. But I guess it will keep until I am back and we have a chance to talk it all over. I have read all of the reports with much interest. There has been a good deal of emphasis laid upon the moderate amount of commercial borrowings as distinguished from borrowings on securities. It seems to ma the explanation is simple enough. We have had a great period of refunding and capital raising. Transportation, utility and industrial corporations have raised capital am paid off bank loans, and actually had money to loan. The result is Paris, France Dr. Burgess 8.20.25 lower borrowings, heavy flotations of securities, and more security borrowings. whole thing. I believe that this explanation lies at the root of the Sincerely yours, r. W. R. Burgess, -f-,ista.lit Federal Reserve Agent, ederal Reserve Bank of New York, 33 Liberty Street, New York. (2) Hotel Majestic, Paris, France, Auguet; 25, 1925. Dear Dr. Burgess: Thank you for your letter of the fourteenth. will be guided by your views about n. statement and try to duck the men on the steamer. rbet you read my letter to Ur. Case about the rate situation, as it partly answers yours. shall do tho best T can to give when I get you all a report think will make our decision as to the few months easier than it can be until I do back which I policy of the next return. sincerely yours, '. R. Burgess, Esq., Assistant Federal Reserve Agent, Federal Reserve Bank of New York, 33 Liberty Street, Now York, MlSC FEDERAL RESERVE BANK 4. 1-200M-7-21 OF NEW YORK OFFICE CORRESPONDENCE To Governor Strong FROM DATE October 50, SUBJECT: W. R. Burgees The nerspaper men are very anxious to see Dr. Schacht, and after our understanding with them that there would be an opportunity it would be too bad if anything'slipped up so that they miesed the chance. possible to make any definite appointment now? Is it For ifNo. 131. Office Correspondence TNDr. FEDERAL RESERVE BOARD iili r ei s s From Dee November 2, 1925 Subject: Benj. StronE 2--8495 cfn g *1% NON gib.1 pOINikYLtqb Your memorandum of October 30, in regard to Dr. Schacht giving an interview to the members of the press, reaches me here in Washington. As I think you are advised, Dr. Schacht will be in Chicago this week, but he will be-here long enough after bis return, and, as promised, will see the newspaper men. be arranged when I get back. It can FEDERAL RESERVE BANK OF NEW YORK Hotel du Cap d'Antibes Antibes, June 6, 1926. Dear Doctor Burgess: I have your letters of April 30th, May 14th and May 21st, all having been read with much interest, and none of them acknowledged because I have had no time for the routine mail. The following are the only comments that occur to me: A program for meetings of the Advisory Council should be prepared at least a month in advance to give them time to study. Any proposal to amend the Federal Reserve Act so as to eliminate the use of Federal Reserve funds for speculative purposes is a folly. e cannot identify the funds once they are borrowed, nor control their use. Attempts to do so will be fruitless and just cause trouble. I think we need none of us worry about credits to France by American bankers until they have got a complete and sound plan. I have my- self talked with Governor Norman, Mr. Lamont, Morgan Harjes & Company, Clarence Dillon, the Paris representative of Blair & Company /,Mr. Monet)and others, and I think they all agree as to the unwisdom of any credit until there is a asound plan. None of our directors need have any anxiety on that score. If Morgan & Company should decide to consider lending them some money, they will certainly advise us in advance, and I shall expect my associates to keep in touch with them in New York. I hope our rate change works out all right. There seems to be a note of doubt in your letter, but with prices declining, I cannot see ground 9,,,OERAL RESERVE BANK OF NEW YORK (: for uneasiness. June 6, 1926. Dr. Burgess. 2. It was inevitable that large borrowings would be transferred to New York when the rate change was made, and the fact that our portfolio has been maintained indicates that we still have a grip on the market, which is as it should be. But you will have to look out for the June 15th maturities or we will have a money jam then. Some temporary purchases in the market may be necessary. Many thanks for your fine letters, which keep me so well informed. I will be glad to hear how the golf match turned out. Please give my best to everyone at the office. Sincerely yours, 14; ifitt&itit Dr. W. Randolph Burgess, c/o Federal Reserve Bank of New York, New York. FEDERAL RESERVE SANK OF NEW YORK Hotel du Cap d'Antibes, Antibes, June 7, 1926. Dear Doctor Burgess: Your note of May 28th is just received. I hope you will write me fully when you have time giving details of such report as Sprague and Hollander make on their return. As I am now loafing and out of contact with things, there is no news to send. Sincerely yours, Dr. W. Randolph Burgess, c/o Federal Reserve Bank of New York, New York. FEDERAL RESERVE BANK OF NEW YORK Hotel du Cap d'Antibes, Antibes, June 11, 1926. Dear Dr. Burgess: V I find I have failed to acknowledge your letter of May 7th, and at this late date comments would seem rather stale. If we get a record of the hearings subsequent to Dr. Miller's, which I have, it would interest me a good deal to read it and give me a little understanding of the situation in case I am called again. It keeps my conscience easy to get such reports as yours. Otherwise I am likely to feel a bit of a slacker! The reports in the newspapers and what I get from the office indicate that you are probably being puzzled a bit about the money market and the possibility of a revival of stock speculation. The situation will need watching. So long as we have a large portfolio, we have the situation in hand. I noticed in Dr. Miller's testimony a statement that he thinks we are now carrying too many Governments. 2 He is all wrong. The situation over here could develop overnight in such a way that we could get 200 or 300 millions of gold, and it is those Government securities that we must rely upon to protect us. There is some growth in France of the idea that stabilization of the franc should be attempted at once, even though involving great sacrifice, and that it should be supported by, first, a Government loan in the United States, and second, the utmost freedom in using the Bank's gold reserve. If Germany should undertake cash payment of reparations to France, and France should undortake stabilization with Italy and Belgium following suit, and the wretched British coal strike not be settled, I could see quite a little gold going to FEDERAL RESERVE BANK OF NEW YORK America. Dr. Burgess. 2. June 11, 1926. I admit the contingency is somewhat remote, but we cannot afford to be forced into a position where our only protective measure would be dissipated, because a high bank rate would not help us a bit, in fact would make matters worse, and a low bank rate might deliver us into the hands of the speculators. Our security through this period of readjustment over here is going to be eternal vigilance in looking ahead, and I see nothing in Dr. Miller's testi- mony which indicates that he is looking further ahead than the end of his own nose, nor indeed that he has a comprehension of the world monetary problem. Sincerely yours, Dr. W. Randolph Burgess, c/o Federal Reserve Bank of New York, New York. Orothiefi C.. BENJ. STRON 1010 WI 111_ Hotel du Cap d'Antibes, Antibes, June 21, 1926. Dear Dr. Burgess: Yours of June 4th is just received, and what you send is all very interesting. Dodge's article in the Federal Trade Information Service is not a patch on what we get over here, sample of which, from a newspaper at Nice, I am enclosing. I will be interested in hearing the outcome of the Open Market Committee meeting in Washington, which I presume will be along now in a few days. I am glad to get your letters. They keep me well informed. Best regards. Sincerely yours, Dr. W. R. Burgess, c/o Federal Reserve Bank of New York, New York. a REI"C.FIN,E:rm Lilft, 4 126 This article is protected by copyright and has been removed. The citation for the original is: Barral, Jean. “La Corde au Cou! [The Rope Around our Neck!]” L’Eclaireur du Soir (Nice, France), 1926. The original clipping is preceded in the file by a typewritten translation into English. Hotel du Cap d'Antibes, Antibes, June 29, 1926. Dear Doctor Burgess: Your letter of June 10th regarding the Indian evidence reached me only yesterday. It does not call for any special reply, so I am merely acknowledging its receipt, with many thanks. Sincerely yours, Dr.W. Randolph Burgess, c/o Federal Reserve Bank of New York, New York. BS:11 FEDERAL RESERVE BANK OF NEW YORK Hotel du Cap d'Antibes, Antibes, July 3, 1926. Dear Dr. Burgess: I am returning the proposed circular in regard to the ratio of bank capital. In its present form, it seems to me little likely to give rise to uneasiness such as I had feared at home. Either the text has been changed, or else a few weeks' rest here has made me less apprehensive in such things. I can see no objection to its publication. Of course this appears as an official circular. Our official circu- lars, as a rule, have been confined to matters having to do with the operation of the Federal Reserve Bank, and it seems to me is really a magazine article in the form of rather questionable an official Bank circular. it a character that hardly strikes me as being justified. into the regular monthly bulletin instead? Sincerely yours, Dr. Ir. Randolph Burgess, cio / Federal Reserve Bank of New York, New York. to put what It gives Ilhy could it not go WASHINGTON: D. C. CHIEF FOREIGN OFFICE rm PAR. WHALEY-EATON SERVIR 10 SQUARE DESNOUETTES (19 BOULEVARD VICTOR) 0 """nvtuNsey BUILDING "A CAPITAL INSTITUTION" CABLE ADDRESS: WHEAT FOUNDED 1919 JUL Itre RATEL FFIHNoisigs: NKL larklals American Letter No. 409. All July 3, 1926. - rights reserved. For Clients Only. Dear Sir: 1. In view of the many surmises as to Governor Strong's mission abroad, and with particular reference to stories that he has offered many millions of American Federal Reserve credits for stabilization of the Belgian, French and Italian currencies, We have had careful inquiries made, in various capitals, and the following may be regarded as authentic in all essentials: Governor Strong has offered no Federal Reserve credits of any sort to France, to Belgium or to Italy. Governor Strong has not seriously conferred with any political financiers. He has carefully avoided undertaking a function that is outside his line, although it is true that efforts were made by more than one Finance Minister to negotiate with him. Governor Strong was not sent to Europe on a special mission by the President. He has been in conference with the heads of European banks that are correspondents of the Federal Reserve Bank of New York, as is customary. The one special mission Governor Strong had in view was accomplished quickly. It was, it is intimated, strictly a British banking matter. There have been some negotiations relative to French credits, but these negotiations were and are conducted by private persons. 2, AMERICAN POSITION: The American position in reference to French credits may De epitomized as follows: It was one thing to grant credits to the Bank of England and it is another to grant them to the Bank of France. The former institution is free from all political coercion, although backed to the limit by the British Government, which is stable and economically sound. The latter institution, on the other hand, has recently been conducted on accepted principles only because of the heroism of its Governor, who was constantly subject to attack by political elements and who has finally been removed. Federal Reserve resources are the most sacred trust 7/3/26. 2.. The responsible authorities would not dream of committing the System to a credit program that would involve it in the vicissitudes of political currencies. Nor could they sanction credit operations in cases where Governments are obviously lacking in stability and where this instability is likely to reflect itself in arbitrary instructions to the banks of issue. Neither is it an American It is to be recollected habit to pour money into rat-holes. that even the arrangement for comparatively small credits to Belgium fell through. fund. in America.,. PROMISES: Although no commitments of any kind have been made by America, and least of all a promise, there has been, and still is, a sort of understanding that both the United States and Britain are ready, when strong hands have taken strong measures, to assist in stabilization of depreciated European currencies. But the intent to stabilize must incontrovertably have been demonstrated in advance, as was the case with Germany. American authorities are ready to go a long way to bring all of Europe back to gold, but the first "rescue movements" must be from inside, not outside, the countries affected. The Federal Reserve System has almost unlimited capacity to aid through its ability to purchase foreign bills. It will be noticed that gold has been moving to Britain the past several weeks. SITUATION: At this date, then: (a) No Federal Reserve credits for France, Italy or Belgium are under negotiation; (b) Responsible authorities do not believe that the French franc will be stabilized at 35 or 40 to the dollar. On the contrary, the best neutral opinion is that the franc, when stabilized, will be at the old par, approximately 5 to the dollar. PROPAGANDA: It was natural, in view of speculative and other attacks on depre- ciated currencies, that the countries affected should have encouraged propa- ganda intended to give the impression that enormous American credits were being arranged; and that politicians, for domestic purposes, should, have represented themselves as resisting exorbitant foreign demands. The facts, however, are as stated in the foregoing paragraphs. TRANSPORTATION: merce Commission There are three important situations before the Interstate Com- and they can be briefed seriatim: Hotel du Cap d'Antibes, Antibes, July 16, 1926. Dear Doctor Burgess! I have yours of July 2nd, with a fine report of what has been going on. Many thanks. Mr. Warren is in communication with the Secretary of the Indian Currency Commission in regard to a supply of the complete printed report and testimony for circulation in America, and I will ask him to let you know the result . I would like to see the galley of our statements before the Peuse Committee whenever it is ready, and am glad that you all feel satisifed with it. A recent letter stated that the balance of the record of the hearings was being sent to me, but it has not yet come. I have Dr. Miller's complete statement, but nothing else. rhat you write about the Stable Money Association is no more than I expected. Their activities trouble me, and I am wondering where the money comes from to maintain them. I hope you are not all suffering from heat and overwork while I am loafing in this delightful place. Sincerely yours, Dr. W. Randolph Burgess, c/o rederal Reserve Bank of New York, New York. BS:M Hotel de l'Europe, Amsterdam, August 3, 1926. Dear Doctor Burgess: There are so many letters to be written that I am just sending you this acknowledgment of your letters of July 9th and July 19th. I read them always with much interest. You enclosed a memorandum about the First National Bank of Amityville, which reminds ma that on this Witham Bank business, Mr. Case did a grand job. think he deserves a medal from some of those banks who were coaxed out of their difficult and dangerous position. Sincerely yours, Dr. W. Randolph Burgess, c/o Federal Reserve Bank of New York, New York. BS:11 Hotel de l'Hurope, Amsterdam, August 11, 1926. Dear Doctor Burgess: Governor Strong has asked he just to acknowledge for him the re- ceipt of your letter of Ally SOth, about the market and business situation, which he read with much interest, SA he always does your letters. re are moving on to Basle tomorrow, there we expect to meet Dr. After that, plans are uncertain, and PaChmann of the Swiss rational Bank. the Governor will perhaps roturn to Paris, or else go 73ast to Budapest and Prague. !Ir. rarren, Who has become a real PLrician, will probably join us at Basle, It looks as though we would not sail before September 15th or 22nd, but no doubt by the tine this reaches you, the cables will have given you a better idea as to that. 1th best regards, T am Sincerely yours, Dr. V. Randolph Burgess, c/o Federal Reserve Bank of New York, New York. 13$ :M FEDERAL RESERVE BANK OF NEW YORK Biltmore, N. C. Sunday, January 9, 1927. Dear Dr. Burgess: You have, probably, escaped the lightning bolt - and if you like thunderbolts. I'm truly sorry. This is mainly to let you know that I have not and do not withdraw one word of what I said to you in my apartment. It is also to let you know that finding your own appointment not now possible, I am to-day unreservedly urging that Mr. McGarrah be appointed, and am also trying to persuade him to accept. If knowledge of our good will, of our appreciation of your work, and worth, - is a satisfaction, - you have that in full measure, - and we all want you to know it. stand by the ship. Get old and bald and grey - as some of us are - and She needs you at the braces and halyards. My beet to you always, Yours, Dr. W. R. Burgess. FEDERAL RESERVE SANK vod 18 1927 OF NEW YORK Stuyvesant Road, Biltmore Forest, Biltmore, N.C., February 15, 1927. Dear Doctor Burgess: I am much interested in the memorandum of January 14th about European consumption. There are only two points that I will refer to now, as the probability of my dealing with the matter at present is rather remote. One is to call attention to the fact that when examining a price factor in the prosperity of the classes producing these export goods in this country, one must bear in mind that we are not dealing with the total crop when considering exports, but merely with the marginal production which influences the price of the whole crop. If capacity to sell this marginal pro- duction is impaired for any reason, the suffering resulting to the entire producing community is caused by a comparatively :mall shrinkage in consumption. My belief has been that we are suffering from the arrest of the normal increase in consumption which should have occurred during the past seven years, rather This than from an absolute contraction of the amount consumed before the War. is commented upon in the second page of the memorandum, in referring to meat. The paradox of a great general price inflation, even considered on the basis of gold values, for manufactured goods which embrace a vast category of luxuries, at the same time that the values of necessities of life such as meat, cereals and cotton have declined, is something that needs explanation. least, I am still "from Missouri". We will refer to this later. Sincerely yours, Dr. W. R. Burgess, 33 Liberty Street, New York City. At sc. 3. I 601417-20 FEDERAL RESERVE SANK OF NEW YORK OFFICE CORRESPONDENCE To DATE ffc September 12, SUBJECT PRomGevernor Strong, To aid Mr. Alexander in considering the procedure leading up to the rate change inaugurated on July 29 by the Federal Reserve Bank of Kansas City, the following statement shows in chronological order the various meetings and other actions prior thereto._ May 9, a meeting of the Open Market Investment Committee was held in Washington at which a memorandum was submitted discussing this whole situation, and this resulted in the authorization of purchases of $100,000,000 Government securities in the open market, of which, however, only about $30,000,000 were purchased. June 28, Dr. Rist and M. Ricard of the Bank of France arrived in New York, having come for the purpose of discussing the whole central bank problem and the relations between the European and American money markets. July 1, Governor Norman cf the Bank of En,land and Dr. Schacht YiV ::7L f:z 7ce-_-:ca(tgemtleen com;In-Jo,.e discussion toc.k place as we inmediately left New York :f 1-011:,/f_7z z: and spent five or six days at a private house on Long Island. July 6, Messrs. Norman, Schacht, Rist, Hoard and -)trong went to Washington and spent most of July 7 in discussion with the members of the Federal Reserve Board, lunching with them at the Hotel Willard. July 8, the members of the Open Market Committee, Messrs. Harding, Norris, Fancher, McDougal and Strong, together with Governor Crissinger, spent the day in New York, most of it devoted to a discussion of these same subjects with Messrs. Norman, Schacht and Hist. Thereafter the visitors from abroad left on different dates, the last, Governor Norman, sailing on July 20. July 27, a meeting of the Open Market Investment Committee was held in Washington for the purpose of reviewing the situation, especially in the light of the meetings previously held, and because the authority to purcheee securities up to $100,000,000 was expiring on August 1st. In addition to all the members of the Open Market Investment Committee and the members of the Federal Reserve Board then in Washington (Dr. Miller and Mr. Cunningham were away) there were present Governors Young of Minneapolis Biggs of St. Louis. 7 0 FEDERAL RESERVE BANK OF NOW YORK OFF!ICE CORRESPONDENCE DATF 10 FROM September 12, SUBJECT GOVPrnny strong - 2 - Dr. i3urgess of the Federal Reserve Bank of New York. Governor Bailey was in Washington the day previous when Governor btrong was also there, in order to discuss the situation with the Federal Reserve Board, and left at once for Kansas City as his meeting occurred the following day and he had to return in order to lay the matter before his directors. At this meeting of the Open Market Investment Committee a memorandum was submitted similar to theona submitted at the meeting of May 9. are 0 Following this discussion, on July 29, the Federal Reserve Bank A few of Kansas City reduced ite rate to 3 1/2 per cent. days later the Federal Reserve Bank of Boston reduced its rate, requesting the Federal Reserve Board to make the announcement simultaneously with the announcement of the rate reduction in Now York when that occurred On August 5, the Federal Reserve Bank of New York reduced its rate to 3 1/2 per cent., and that reduction, together with the Boston rate was announced on the eerie day. The other changes werenmds in the following order: Cleveland, August 6 Augumt 12 Dallas, August 13 Atlanta, Richmond, August 16 On September 7, two Meeting days having elapsed in Chicago, the Federal Reserve Board reduced the Chicago rate to 3 1/2 per cent. and announced it. Oa September 8, Philadelphia reduced. On September 10, San Francisco reduced. Minneapolis September 9 and 10, Governor '''trong was in Washington on other matters having to do with the Treasury Department, his visit there having been arranged witaMr. Parker Gilbert prior to the ,action by the Federal Reserve Board in reducing the Chicago rate, and his visit there was not a result of the Board's action or in any way related to it. 7 192.- 01416C. 3.1 601417.26 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To Dr. Burgos° A ' SUBJECT FRomGovernor Strong (To be inserted at the proper place where there is of our ettitude in regard to the Chicago change a discussion of rate.) When Governor Crissinger and the members of the Open Uarket Committee were in Kora York Governor Crisinger suggested that he and I should visit Cleveland and Chicago for the purpose of meeting the directors of those two'banks and ing the situation personally. when I as next in Washington. explain- He raised the question a8ain either by telephone or I thought it over, consulted my assooiates here, and decided that it would be unwise for no to appear before the directors of any - other Reserve bank for the purpose of discussing n rate chane by that bank, and accordingly wrote Governor Criesinger, copy of my leLter on that subject among those accompanying this memorandum. .being rdiec. 4 A NO FEDERAL RESERVE BANK OF NEW YORK UN I( OF r ICE CORRESPONDENCE To Dr. Burgess FROM Governor Strong The attached DATE October 27, 190_ SUBJECT note from Lubbock explains itself. If you will make a note of the contents and send it beck to me I will acknowledge it. Misc. 4 A 184J , , FEDERAL RESERVE BANK OF NEW YORK ,-FFICE CORRESPONDENCE Tr*, Dr. Burgess FROM Governor Strong SUBJECT. It would throw an we could get figures giving importing during this year. DATE interesting light on the German situation if some analysis of the type of stuff Germany is FEDERAL RESERVE BANK MISC. 4 A 126M-4-27 OF NEW YORK '7FICE CORRESPONDENCE To FROM Dr._Burgese DATE November 29, 1927 SUBJECT: Governor Strong Attached is a very interesting letter from Mr. Jay and the newspaper clirpings referred to. Could you have someone go through these and mark the portions which are of sufficient consequence for me to read? Also will you be good enough to attend to the circulation of the letter within the office among those officers mentioned in Mr. Jay's letter, and then be sure that it all gets back to me, as I have not yet acknowledged it. ur-6-2-c2, 192_ FEDERAL RESERVE BANK OF NEW YORK Op:TE December 1, 1927 ICE CORRESPONDENCE -Or. Burgess SUBJECT Governor Stropg referred to in Governor Norman's Will you please read the article has arrived other officers, whether the time consider, with the letter and for us to do something about it. 44, - lea_ Sr. argess. 2. t is aIreaSy o'eseervaUts e to arrest thick it soma to azeirease parpeaeo, -aaarip Sties. 6/12/28 - moats ca zeta for situatiaa areteekas sem erery intereetiag na enahae to. get held moixatt At we4 pr ea 4, Grand Hotel, Grasse, June 13, 1928. PERSMIAL 11E4, 1, 411 \ Dear Dr. Burgess: a I don't dare cable you about matters in New York, for I am too eaw 4? f!V? much out of touch to risk any definite opinion. 4 On the other hand, there is almost no news of myself to cable which would justify doing so. A letter has just reached me from Dr. Charles Rist of the Bank of France, advising quits fully of the progress towards stabilization, and in it he refers to earmarking 50 millions more gold and drawing upon their outside deposits for #100,000,000 to increase their balances with us. The letter was a little ambiguous, and I am not sure Whether the figures really a an express what they are doing. This of course comes on top of pretty heavy gold Shipments, our 44_ r' sales of securities and increased discount rates, and will give the Federal -eee Reserve System the most complete control of the money market whieh it could desire. am always afraid at the Bank of lay in sudden Changes of policy. hesitation and consequently de- I think we sometimes overlook the fact a that the effects of any given program last for some time beyond the point at which they are discontinued, and that them is consequently a considerable , lag in the effect of a change of policy being felt. as you know, that later in the year There in a possibility, England may take some gold from us. --A I doubt if they take more than half of their balances. On the other hand, the great change in money conditions in New York will have a tendency - 6/12/28. Dr. Burgess. 2. which it seems to me is already observable - to arrest exports of gold for 0 exchange purposes. ities. The situation presents some very interesting possibil- Unfortunately, T. am unable to get hold of up-to-date figares of our statement here, and that makes it even more difficult to have even a hazy opinion, but I went to make the following very tentative suggestion, with some hesitation. It may appear necessary, in connection with these gold maneuvers by France and England, for us to take over a. part of the portfolios, with the possible consequence that: 41+, (a) An increase in our Government holdings will be shown; (b) Some pretty heavy losses will be inflicted upon our best friends. If the pressure on the money market gets to be too severe, it may be a good thing to dhow some relaxation in our position. And if we can ad- just the position of our correspondents by taking over bills on which they will suffer no great loss, I should hope it would be done. But I am afraid of these losses on long-time Governments and for that reason have been urging that we keep the maturities as short as possible. The mein point of this letter is to suggest the need of watching carefully for evidences that the moment has arrived to change our position and begin to buy back some Governments in the market, as distinguished from what we may take over from our correspondents. 1 am addressing this letter to you, although it was intended also for Mr. Mc Garrah and Mr. Gass, partly because I have long time and partly it the because I shall make not written you in a excuse for advising you of the very admirable impression gained by our friends here from your visit. That applies to both Paris and London. I am sure you made a real contribu- Dr. Burgess. 6/12/28. tion and that it was appreciated, and I hope you felt repaid by the interest of the meeting and the new contacts you made. With warmest regards to all it the office, believe me Sincerely yours, P. S. - I enclose a copy of Dr. Rift's letter referred to as well as a copy of my reply. Dr. T. R. Burgess, 33 Liberty Street, New York. BS:g above, Royal Hotel, Evian-les-Bains, July 18, 1928. Dear Dr. Burgess: With ample time for reflection, I am thinking about the change in the situation at home a great deal. The suggestion in this letter may already have been anticipated. Since a year ago this time, there have been very considerable changes in the Reserve Bank position as to gold reserves, Government bond holdings, discounts, bills owned, on the one in currency outstanding. Unenlightened readers of our figures may cas- side; and on the other side, ually conclude that the Increase in our earning assets from under a billion to about credit. 11 billion dollars represents an This we know is not the case. change of consequence in expansion of Federal Reserve Bank Why not make an analysis of every each item in our statement, that is, loss of over t400,000,000 of gold from the stocks of last September, sale of Government securities, the reduction in bills owned, reduction in currency outstanding, etc., and show that the increase in discounts, with the exception of a small part of it, is all accounted for by changes in our position which involve no expansion of our credit. Theso figures would, I believe, be most enlightening to our directors and justify publication in our Monthly Review. strike you! Sincerely yours, Dr. W. R. Burgess, 33 Liberty Street, New York. BUM Bow does it tcv\ Royal Hotel, Evian-les-Bains, July 18, 1928. Dear Dr. Burgess: I am sending you a copy of a lecture delivered by Dr. Bachmann last month, together with his letter and my reply. Obviously, the lecture cannot be published in its present form. Gramar, rhetoric, idiom and everything needs revision. Besides that, it needs to be recast a little bit in order to be of interest to the American reader. It is, however, to me a very interesting discussion of one of the rather obscure monetary problems over here and well worth publishing in one of the banking Journals which has the proper class of readers. Besides that, Dr. Bachmann has a little liking for this sort of thing, and I would like very much to please him. My suggestion is that you or one of your associates go over the article carefully and recast it, then write Dr. Bachmann that, at my sug- gestion, you have taken the liberty of putting it in form suitable for the American reader, and arrange to have it published if you can, not as the lecture itself but as a revision of a lecture delivered by Dr. Bachmann, etc. This will avoid any charge of disingenuousness if it should be read in Switzerland. Dr. Bachmann is a very fine, upttanding member of the central banking fraternity and one of our beet friends over here. Best regards to you and all of the "gang". Sincerely yours, Dr. W. R. Burgess, 33 Liberty Street, New York. BS:M