The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
Reproduced from the Unclassified I Declassified Holdings of the National Archives
A
Form P. R. 567
END
SHEET
KIND OF MATERIAL OR HUMBER
333*-C-l
na m e
Open Market Policy Conference
Open Market Operations
or s u b j e c t
DATES ( I n c l u s i v e )
A p r
PART NUMBER
Part 1
— Dec
1930
Reproduced from the Unclassified I Declassified Holdings of the National Archives
3
FEDERAL RESERVE BOARD
WASHINGTON
O F F IC E O F G O VER N O R
-
[December 30, 1930
Memo randam for the Board
^In talking with Dr, Burgess this afternoon at four o‘ clock,
he reported that the total purchases of Governments for delivery
today, made yesterday and today, due to the firmness in the money
market in Hew York in connection with the year end requirements
of^the hanks, amounted to $32*000*000*,
He stated that during
the afternoon they fe lt the situation had "been eased sufficiently
to justify refusal to purchase on offerings from dealers of
Government securities*
In addition, h ills were bought ta the amount of $7*000,000,
of which $2 , 000,000 were on repurchase agreements, and $18,000,000
of Governmftnts on repurchase agreements also*
These figures are
merely rough.
She Bankfs operations in Governments, as I have already
reported to the Board verbally in recent weeks, included a purchase
of $40,000,000 par value, about* amounting to $43,000,000 in cash
value, made on one occasion from the Manufacturers Trust Company
which desired to redace its h ills, payable with the New York Bank,
aad $5,000,000 bou^it on Saturday afternoon from the Public National
which also found itse lf borrowing too heavily from the federal
Reproduced from the Unclassified / Declassified Holdings of the National Archives
Beserve Bank in connection with withdrawals of deposits due to runs
started in the days following the closing of the Chelsea Bank and
Trust Company.
The purchases from the Manufacturers Trust Company
and the Public Rational were reported in o ff hours by Governor
Harrison, in the case of the Manufacturers, and by Mr, Case on
Saturday afternoon in connection with the Public National Bank, and
I stated that I fe lt the Board would not object to these purchases
in the light of a ll the circumstances attending them."
Reproduced from the Unclassified / Declassified Holdings of the National Archives
Ootow
10 ,
mo*
Him* Lynn P* Talley,
Governor, Federal H«««m Bank,
Dallas, Texas*
J&ear Oownor Talleys
la tha absence of Mr* Mayer# I aejuaoaledge
tha receipt of youar le tte ro f October 6! enoloslzig
a oopy of your lattar of that data to Governor
BarrIson, Chalrmmx of tha Open Market Polloy
Conferenoe*
I shall take pleasure in bringing tha
oorreapondanoe to Mr# Mayar* a attention upon hia
return to the office.
Very truly yours,
Reproduced from the Unclassified / Declassified Holdings of the National Archives
33
F ED E R A L
RESERVE
BANK
OF DALLAS
October 6, 1930
Dear Governor Meyer:
I am enclosing herev/ith a copy of a letter which
I have today written to Governor Harrison, Chairman of the Open
Market Policy Conference.
The enclosure I think is entirely self-explanatory,
without the necessity of my extending the letter of transmittal.
Yours very truly,
G o v e r n o r
Mr. Eugene Meyer, Governor
I'ederal Reserve Board,
Washington, D. C.
October 6t 1990*
Mr* George L, Harrison,
Chairmaa Open n%rket Policy Conference,
Hsw York City*
Dear Governor Harrison:
Your le tter of October 8, with a copy of tho minutes of tho mooting
of tho Open Market Joliey Conference hold la Washington cm September Eg, 1930,
Is received* I have rood tho draft of tho minutes, of which you woro good
enough to say that aay suggested correction* w ill receive consideration, and
I fool that your record reflects what transpired ao accurately ae possible
without including a dotail of tho discussioa which took plaeo* I thoroforo
have ao special ocsraeats to wake*
Your lot tor of Ootobcr S, confirming your telegrar. of that dato aad
eaclesiag a copy of tho Federal Beserve Board's lottor of October 8, approving
tho asworandum adopted oa aeptember 85 by a m Jylflc jMftP of tho Open Market
Policy Conference 9 has also been received* tJfSiothe Open Hiarkst Polioy Conforoaoo looted to approve tho polioy sot oat ia tho wwaorandow aad this action
has now beea approved aad mad* of rooord by tho Federfl Reserve Board, with
reservations oaly aa to coatlngeacies, I t lo new tho policy of tho System aad
wo my bo expected to go along with it In tho usual wiy*
la tho lest few days we have received some allotments of b ills that
1norease our holdings aad fTc« this X would assume that tho market is measuring
tho anouat of additional funds required for seasonal purposes by the amount of
b ills i t is offering to you froa day to day* I hope, therefore, that this actioa
w ill be allowed to express Its e lf without interfereace arising froa anxiety over
a probability of a volume of b ills not beiag offored which, ia your judgment,
prevents ar su fficiiat amount of fuade ia the market at this time. It seems to
m that aay over-supply of funds la the market now w ill be ladleated and ex
pressed in a failure to offer b ills to you in any substantial volume. I do not
fool the same anxiety or eoncera over aay moderate increase ia rediscounts at
this season as you aad your associates have expressed ia the Open Bterket Policy
Conference meeting!* There of course aay come days whea the market would appear
to be a lit t le b it short aad redlsoouats wight iaorease accordingly. My thought
would not be to imncdlately bay some goveraweats when that occurred, but to wait
a few days to see whether or aot i t were in reality a temporary condition and.;
might subside without the neeoaeity of buying aa additional araoua* of governawats* Should too quick actioa be taken, in the subsequent knowledge that i t
was a temporary condition, surplus funds would be furaished the market and the
ease would be lacrea&ed, whioh would be contrary to the policy adopted by the
Conference at its last meeting*
i
i
I have afcout cows to the conclusion that except in emergency situa
tions governments are a poor instrument, or I wight say aot the best instrument
for opea awrket operations, aad that b ills eoaetitute a very much more satis
factory medium* In using b ills , however, the danger of error lies ia too
j
|
|
\
f
quickly cutting oar ainimn haying rat# or cutting i t too lo *t out of
anxiety over th# pr#par amount of b ills coming ia . To take a rather extreiae
long view, I think we are proa# to use tha goverament aeouritiea bacauae
thay are available aad wa ask* so comparison between tha present conditions
and conditions under which tha opaa market policy of tha System would be
exercised had there been no war and no consequent glut of government securitie#* Carrying thia thought a lit t la farther, there w ill come a time whan,
da# to a decreased supply of government eeeurities or tha increased absorp
tion of tha aaount outstanding due to increaa# ia savings for investment,
government securities w ill not present their present availability for opaa
market operations. Unless, therefore, in tha asantia# wa train tha market
to asasur# its z ia a d a hy b i l l # aad rediscounts, we shall later on be under
tha necessity of undertaking education along that line*
Th# M il rata at tha preeent time ia too 1cm hut i t haa reached
Its present levels hy reason af mat over-purchase of govarmamta* This is
net saying that tha h ill rata should he increased at thia tins, because
having aad# tha ai#take af letting tha rat# aink too lav aa the result of
other operations, i t w ill have to atay there until some aeaas are available
for withdrawing th# axeeaa of funds now in the aarkat wi thout creating alarm
or bringing ab**t a too sudden reaction that could vary well he aiataken for
a reversal of policy«
T h ia coiwae&t, as you appreciate no doubt, is largely a repetition
of the substance o f th# stateasnts 1 aad# la explaining, for the benefit of
th# J o in t G o a fs r a a c e , a y r e a a o n far not voting at the laat aeeting. In order
that th#a#
mJRfT h# corr#atly and adequately expressed and reaorded in a
a a n n a r s a tld M B fc s tc s ry ’ t # a # , 1 taa ssnding a copy of this le tt#r to the Federal
Be##rt# Board*
Tour# very tru ly.
Governor
oiW
HE. HIM L U r l ^
MR. JAMES
CUNNINGHAM
ME. MILLER ^— — -MR* POLE v /
jfflfTlloCMLUro
Please note aad return
GOT, METER.
Reproduced from the Unclassified I Declassified Holdings of the National Archives
’ •ELEGRAM
FEDERAL RESERVE SYSTEM
3 3 3. -c-l
(L E A SE D W IR E SE R V ICE )
/
RECEIVED AT WASHINGTON, D. C.
/rf-3- 3 0
•61bfa
NewYorlc
Board
Oct 3 1220pm
W&shn
►z
The Federal Beserve Board has approved of recommendation contained
in report of open market poDicy conference dated September 25
1930
Will for?/ard full copy of boards letter Just received
V- 1. toviuniaff
nrnnwo ovnos: im
Harri:>on
1228pm
UCf4
Tfct'
Qa*nje*
foofi
CcoWHsOi,
9—11001
Reproduced from the Unclassified / Declassified Holdings of the National Archives
O o to b e r
Hr* George L. Harrison,
Open M rk v b Polioy Conference,
Federal leserve Be©k,
Hew York, I# T §
V
»•** < * * • « » Harrison*
f
$'dL S O '
*
Th* f i ml Beport/of the Open Market Policy Oonferenoe,
transmitted % you on Se^eaberSOth^ has bw a fu lly con
sidered t*y tho Board*
Th# Board '..md©rst©nd« that th* Conference I t of th* opinion
that no change o f tho existing situation with regard to wmgr
n te t is desirable * neither firming o f rates nor seeing of rates*
end that, thereforet no operation* In the open aarteot ere eontea*
plated, except as they aty beooae necessary to oounteraet faotors
threatening a disturbance of the statue quo with respeet to money
rates*
It is the understanding o f the Board that the Authority
asked by the Conference ^to purchase or se ll Government •^ u ritle s >
li^ t o proteet the existing l e v e l cf rates, not to alter It#
X aa writing to advise you that tho Board le prepared to ap
prove tho purobaso or sale of Qoveraaent securities oithln tho lim it*
proposed In tho Biport o f th* Gonferenoe, for the purpose of aa|n~
talning stability of rates under present conditions, suoh authority
to run until an agreeable dato next January, unless a change In
Reproduced from the Unclassified I Declassified Holdings of the National Archives
» 2 »
condition* before that tiae oh uld waleo a rmrlm and rooon**
nidojration of Open Marfeet policy advisable at ah earlio r data.
It w ill be undoretood that aueh purohaoea or
w ill
bo m d e in consultation with the Governor of tho Board orf in
hit ftbeanoe, tho Acting Kxooutlre Offloor o f tho Board, exoept
purchases or «aleo m&do in atnull amount* In puroult o f •&
understood progma or In tho event of a eudden «fc>rgeney#
It will bo understood further that tho preeont notion
of tho Board In opprevtsig tho roooRMadation of tho Confer-
onto supersedes tho aetion t* k m
on Septesabor Srd*
Tory truly youra,
Sugmw iioywrg.
ifffWrpCBr
Reproduced from the Unclassified I Declassified Holdings of the National Archives
1
r
/
October 2, 1930*
Dear Governor Harrisons
The final Report of the Open Market Policy Conference, transmitted by you
has been fully considered by the Board.
fhe Board understands that the Conference is of the opinion
that no change^*. the existing situation with regard to money rates
is desirable - neither 4 firming of rates nor
of rates;
and that, therefore, no#operations fun Qjj WRss^wwwat in the open mar
ket are contemplated, except as they may become necessary to counter
■d m l i s & w era
act
factors threatening a disturbance of the status quo with re
spect to money rates.
It is the understanding of the Board that the
authority asked by the Conference to purchase or sell Government secur
ities is to protect the existing level of rates and not to alter it*
/
I am writing to advise you that the Board is prepared to ap
prove the purchase or sale of Government securities within the limits
proposed in the Beport of the Conference, for the purpose of maintainrates under nresent conditions*
such authority to ran until an agreeable date 4*r January, unless a
changd in conditions before that time should make a review and re
consideration of Open Market policy adtisable at an earlier date.
to possible changes of conditions
Board may wish tf ^ire. tMe
the light of changed ^conditions
http://fraser.stlouisfed.org/
Federal
Reserve Bank of St. Louis
I
outlook^ and for that reason is
Reproduced from the Unclassified / Declassified Holdings of the National Archives
- 2 -
setting no d e f n ^ e time limit t^bfee projyfeaA of the recommendation
of the Conference.
n
R
It will be understood^ that the present action of the Board
in approving the recommendation of tlie Gonference supersedes the
action
on September 3rd,
Yery truly yours,
Eugene Meyer,
Governor.
Mr. George L. Harrison, Chairman,
Open Market Policy Gonference,
/
Federal Beserve Bank,
/
New York, N. Y.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
V
J
i 3.
J
e /h r z (L E A S E D W 9 HE S E R V IC E )
RECEIVED A T W ASHINGTON, D. C.
y * —*;i ■"
RECEIVED
185bmr
New York Sept 30 317p
Sl'F'50 1930
arnamo*
Eugene Meyer
Washington,.
Xa-
3 3 i .- C ' X
3 ^
The following report and reooramendationybf open market policy conference
the substanee of which was reported to the Federal Reserve Board at
the joint conference last Thursday, is submitted to the Board for
it’s consideration and approval:
“The open market policy conference has considered the preliminary
memorandum submitted to it by the chairman and has reviewed at length
general business and credit conditions.
"In view of the continued severe depression in business activity,
trade, and commodity prices in this country, as well as the rest of
the world, it is the sense of the co ference that it should be the
Reproduced from the Unclassified I Declassified Holdings of the National Archives
-■
’
TELEGRAM
FEDERAL RESERVE SYSTEM
(r_EASEP W IR E SE R V ICE )
RECEIVED A T WASHINGTON, D. C.
-
2-
poii°y of the system, so far as possible, to maintain the preseiffc
easy money rate position in the principal money centers, it being
the opinion of the conference that under present conditionsjno^
further easing of such money rates would be advisable and that
^
no firming of such rates would be desirable whether because of
seasonal requirements, gold exports, or other causes.
It is,
therefore, recommended that the executive committee be authorized,
if necessary, to supplement bill purchases by the purchase of
Government securities in the event that the seasonal demand for
federal Reserve credit, gold exports, or other factors should tend
unnecessarily to tighten present money rates, and that in the event
-j
that any conditions should develop# which would require sales of
government securities to execute this policy, the executive committee
*-**•»
Reproduced from the Unclassified I Declassified Holdings of the National Archives
FEDERAL RESERVE SYSTEM
(LEASED WIRE SERVICE)
RECEIVED A T W ASHINGTON, D. C.
-3 -
should be authorized to make such sales* It is understood ,
&SKX&X however, that if the committee ^should have to buy
ior sell) more than #100,000,000 of Government securities to'
maintain the status quo
, new authority should be procured in
accordance with the prescribed procedure. "It is recommended that
there should be another meeting of the open market policy conference
early in January , unless a change in conditions suggests to the
board or the members of the conference the advisability of an earlier
meeting.
n
The minutes of the open market policy conference which will contain
this report will be transmitted to the Board as soon as drafted and
available for distribution.
Harrison, Chairman, Opea-5I^ESt^-^K<3y^->
-— — —
>
_
_
A
ooOp
C-.;7 1 1930
Reproduced from the Unclassified I Declassified Holdings of the National Archives
3
Federal R eserve Bank
o f
N e w Yo r k
eptember 5, 1950
Dear Mr. Lie01elland:
Let me acknowledge the receipt of the Board1a letter of September
5 ^reporting the action of the Board in granting authority requested by the
Open Market Policy Oonference for the purchase of Government securities up
to ^50,000,000 if necessary, as a supplement to bill purchases in offsetting
seasonal demands for credit, gold exports, or other influences towards
firmer money which might interfere with the continuance of present money
conditions.
I note also the Board's suggestion that the whole question of
open market policy be reconsidered at an open market meeting at the time
of the Governors1 Conference.
We appreciate the Board1s action in this matter, as it places us
in a position to deal effectively and promptly with conditions which may
arise.
authority.
Very truly yours,
Randolph Burgess
Deputy Governor
Reproduced from the Unclassified I Declassified Holdings of the National Archives
September 4, 1930*
i
Dear ftorar&or Gaiklast
Your letter gt August 29 A addressed to Governor Young, waa
received and broo^it to theTftentlon of tha Board at tha same
meeting at which It had under consideration the recommendation
of the O p m Market policy Conference that it ba authorised to
parchaae Government securities up to f60,000,000. As you
probably kaow, tha anthorlty waa repeated with tho understand
ing that it would bo exercised only if necessary aa a supplement
to bill pnrchaaee In offsetting season al demands for credit,
gold exports or other Influence toward f laser money, whioh sight
interfere with the continuance of present money conditions.
The Board waa la agreement with year position that the
procedure followed by the Open Market Polloy Conference la this
instance was|ao| la harmany with the resolutions establishing it,
under whioh a meeting of the Confsim®* should have been held
for dissuasion of the propoaed action among the memhera of the
Conferenee and with the Board* it waa explained to the Board,
however, that the matter waa handled la the way it was,
principally because of the unsettled situation in the Board due
to vacation absences of msmhera aad to the resignation of
Governor Young*
Furthermore the Board had Just determined to call the fall
conference of Governors for October 6 and in view of this fact
anar^fchr^aHEeinPaoT~tTrBtropen market matters have been so ffcilly
canvassed during recent months, it did not eeem desirable to ask
the Governors to come to Washington for a special meeting of the
Open Market Follcy Conference at this time* fhe Board therefore
granted the authority requested by the Conference with the further
understanding that the whole question of policy will be recon
sidered at the governors* conferenee*
In advising Mr* Borgese, as Secretary of the Oonferanca, of
Its action, the Board pointed out Its feeling regarding the
procedure followed and stated that It did not wish 0 precedent
established.
?ery truly youra,
8* II* McClelland,
Assistant Secretary*
Hr* Jno* U. Calkins, Governor,
Federal leeerve Bank,
San Francisco, Calif.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
TELEGRAM
FEDERAL RESERVE SYSTEM
(L E A SE D W IR E SE RV ICE )
RECEIVED AT W ASHINGTON, D. C.
164bfa
r»tr NY
TvTV
NewYork
417p
A T *7 t »
JjUL 71U
m m J&0
---•------- --------- ,
Sept* 2B
O
"at B O A R D MBITTING.
SEP
Washn
3 1330
J
H
ft***
In view of the desirability of maintaining the present easy
money position and the possibility that seasonal requirements
and gold exports may bring about a change in the situation if no
action is taken a majority of the members of the open market
it
policy conference recommends the authorization of a purchase
of government securities up to f50,000,000 with the understanding
t\
that th&s authority is to be exercised only if necessary as a
supplement to bill purchases in offsetting seasonal demands for
credit
, gold exports , or other ^Influences to-wards firmer
money
w h ioh might interfere with the continuance of present
money conditions. We should appreciate your advising us of the action
P S. eOTHftXMBMT F&IMTIMB firflC I:
* — 11901
of the board on this reco^nmendation
W
*
W ^
W
^
J- w
^
w
AJ. i * w * * ^
v-w w
w j.*
I
*
b
U
r
S
6
S
S
3
2
3
5
r
Reproduced from the Unclassified I Declassified Holdings of the National Archives
F e d e r a l R e s e r v e B ank o f S an F ra n c is c o
J N O .
U. C A L K IN S ,
$
governor
August £9, 1930
Mr* R* A. Young,
Governor, Federal Reserve Board,
Washington, D. C.
My dear Governor Young:
Mr. Case (apparently in the absence of Governor Harrison)
called this morning and explained that they wished to have approval
of their proposal to buy Governments when and if they deemed it
expedient to do so in the near future.
He told me that eight of the governors had assented, three
were absent, and, therefore, I presume that mine will be the only
negative expression.
On the last occasion when money was put into the market
Mr. Case also called on the telephone and discussed the matter, and
I said that I would assent in that instance but felt that before
further operations there should be a conference. I do not believe
that it is possible to reach a reasoned conclusion without dis
cussion, and it is obviously impossible to have adequate discussion
over long distance telephone, discussion that involves twelve or
more individuals.
My own impression at this moment is that there is no
reason to expect the injection of additional credit into an already
redundant situation to bring about the effects desired, and while I
think most of us would feel that considerable gold exports should be
at least partly offset by additional investments, I am not yet con
vinced that it will be expedient for us to put money into lie
market on every occasion on which gold is exported or to put money
into the market to the extent to which gold is exported.
" a t t o a & d "Um aniiti.
SEP 31930
9
O
'%■#
Reproduced from the Unclassified7 Declassified Holdings of the National Archives
Mr. R. A, Young
Page 2
However, I am writing this letter not to argue the
entire field over, but to express again my view that the present
procedure, which, as I see it, is exactly contrary to the
procedure contemplated when the Open Market Policy Gonference was
set up, is not the right procedure, and that the Open Market
Policy Gonference should adopt an affirmative or a negative policy
effective until cancelled or reversed after adequate discussion
and consideration.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
Fe d e r a l R e s e r v e B a n k
o f
3
Ne w Yo r k
PERSONAL
August 26, 1950
Mr. A. M. Stone,
Secretary to Governor Young,
Federal Reserve Board,
Washington, D. C.
Dear Mr. Stone:
In accordance with your telephone request, I take pleasure
in sending you herewith a copy of letter addressed to Governor Young
Yd-th respect to open market operations dated August 14, 1930. \
Encl.
3
Reproduced from the Unclassified / Declassified Holdings of the National Archives
3 3 3 .-t
6
Fe d e r a l R e s e r v e
o f
Ba n k
N e w Yo r k
■■■■* i
August 18, U S D .
Dear Governor Young:
In my telegram q f A M ^ , 6 jreqoeatlng tha Federal
Reserve Board’s approval of the immediate purchase of
$25,000,000 of government securities for System Account, I
informed you that as a result of our talks fcy telephone with
all of the other Federal reserve banks I could report that
they were in favor of the purchase as a partial offset to
current export movements of gold*
On August 8 I received a letter from Governor Norris
dated August 7 in ^hich he set forth some reservations which
he had about approving the purchase at that particular time;
and in the belief that the exchange of correspondence which
I had with him may be useful for your records, I am enclosing
copies of it*
Faithfully yourp*?
//
Honorable E* A* Young,
Governor, Federal Keserve Board,
Washington, D* U*
enclosures (5)
'
J. H* CASE,
Chairman*
ra
Reproduced from the Unclassified / Declassified Holdings of the National Archives
COPY
FEDERAL RESERVE BANK OF PHILADELPHIA
August 7, 1930*
Mr* J. H. Case, Chairman,
Federal Reserve Bank,
New York City.
My dear Mr. CasesWe have this morning your wire stating that the immediate
purchase of $25,000,000 of government securities for the System
account has had the approval of each of the twelve banks and of
Governor loung, and that the purchase will probably be effected to
day*
Inasmuch as this purchase has been approved fcy the other
banks and by the Board, our opinion about it is immaterial.
We
will accept our allotment, but for the sake of the record, I want to
advise you that we do not approve of the purchase at this time.
In
my telephone conversation with you on Tuesday, I said that we had
been opposed to the purchase of governments for the purpose of forcing
additional Federal Beserve credit into an already glutted money market,
but that the purchase of governments to offset gold exports was a
different proposition, which we were ready to consider on its merits.
I think you will recall, however, that I added that it was our feeling
that purchases should be postponed until there was distinct evidence
that gold exports had reached a point where they were having an effect
on interest rates, or at least until there was general apprehension
that they might have such an effect.
On Wednesday morning the matter was discussed at our board
meeting, and it was the general opinion of our directors that an in
crease of 1/2 of 1%, or even of 1$, in the call loan rate on the New
York Stock Exchange was immaterial - that it was, if anything, rather
wholesome.
There has been no advance in the abnormally low rate on
bankers acceptances, nor in the commercial paper rate.
»e have noted
no expressions by business men or financial writers of any fear that
interest rates were likely to advance*
In these circumstances, we feel that a purchase of governments
is unwise.
We presume that the gold exports are due principally to the
withdrawal of foreign balances in this country because of the excessively
low rates prevailing here.
Interference by the Federal Reserve System
in the direction of maintaining or still further lowering these very low
rates will naturally tend to bring about further withdrawals of foreign
balances, and therefore further exports of gold.
It seems to us, there
fore, that action of this sort tends to start the operation of a vicious
circle, and further that the Systems large holdings of governments will
constitute a serious problem when business picks up and interest rates
begin to advance*
I am,
Very truly yours,
(Signed) t*eo.
w* Norris,
Governor.
Reproduced from the Unclassified I Declassified Holdings of the National Archives
COPY
August 8, 1930.
Dear Governor Norris:
While it is always a pleasure to hear from you, I must con
fess that your letter of August 7, which I have just received, is
quite disconcerting*
You will recall that in the talk which you and I had by
telephone on Tuesday, August 5, I referred to the recent gold export
movement in particular and stated that this factor, coupled with other,
minor factors, had effected a substantial change in the reserve
position of our New York City banks, so that not only had their reserve
surplus disappeared but they were also considerably in debt and would
probably have to borrow a substantial amount Tuesday night.
(As a
matter of fact they did borrow some $85,000,000 additional cm Tuesday,
bringing their total borrowings to approximately 1150,000,000.)
I
further stated that both Governor Harrison and Governor Young felt that,
in view of this new development, some additional purchase of short-term
government securities was in order and that the immediate proposal, to
which I was asking your approval, was to purchase $25,000,000 of government
securities this week in order partially to offset the conditions to which
I had referred.
I also mentioned that I proposed to go the complete
round of the reserve banks for their approval.
I understood you to say that the set of facts which I presented
certainly justified a change of viewpoint and that you cordially
Reproduced from the Unclassified I Declassified Holdings of the National Archives
COPY
2.
approved of the proposed action.
jve:
r Norris.
8/8/30.
You went further and asked me if I
had talked with Governor McDougal of Chicago;
and you mentioned that
if Governor McDougal did not approve of the purchase at this time you
would like me to call you back, as you would be most interested in knowing
what his line of reasoning would be in opposing the purchase; also, that
if there were opposition from that quarter, you would be interested
personally in talking with McDougal by telephone in order to find out just
what his reason would be.
As a matter of fact I did go the whole round of the reserve
banks on Wednesday and talked with the governor, or other executive of
ficer in charge, of each of the other eleven banks.
I found that
Governor McDougal was away, but in his absence I had a most satisfactory
talk with Deputy Governor McKay, who frankly stated that he felt that
the gold export movement completely altered the views which Chicago
had previously expressed and that Chicago would cordially approve
the proposed purchase at this time.
After talking with the officials of the eleven banks I sent
a telegram to Governor Young.
Copy of the telegram is enclosed for
your information.
In view of the fact that I reported what I conscientiously
believed to be the facts; viz., that the other eleven Federal reserve
banks had approved of the proposed purchase, it is disappointing to
receive your letter stating MI want to advise you that we do not approve
of the purchase at this time.11
After my talk with you I really felt
that you were a fairly strong supporter of this program;
and in view
of the record which I have made by telegraphing to the Federal Beserve
Board and by placing a memorandum in our own files, I am not a little
Reproduced from the Unclassified / Declassified Holdings of the National Archives
COPY
3,
Governor Norris.
embarrassed by receiving your letter.
Sincerely yours,
J. H. CASE,
Chairman.
Mr. Geo. w. Norris,
Governor, Federal Reserve Bank of Philadelphia,
Philadelphia, Pennsylvania*
enclosure (l)
8/8/30.
jF .............................................. .
_
_
_
_
_
_
-----------
Reproduced from the Unclassified I Declassified Holdings of the National Archives
COPY
Federal Reserve Bank
of Hew York
OFFICE CORRESPONDENCE
TO:
Files
FROM:
J. H. Case
Date:
August 8, 1930.
11:45 a. s»
Subject: Letter from Governor
Norris to J. H. Case
8/7/30.
This morning, upon receipt of Governor Norris*s letter (original
attached), I telephoned him and stated that, in view of our conversations
last Tuesday, August 5, and Wednesday, August 6, I was very much surprised
to receive his letter of August 7.
I explained to him that I had set
forth in a letter which I was proposing to send to him my views of what
had actually transpired.
With his permission, I thereupon read the
suggested answer to him, which he said he had no objection to my sending,
assuring me that there would be no misunderstanding on his part with
regard to it.
After listening to my letter Governor Norris stated that he
was not surprised that I had misunderstood or misinterpreted his views
and that he felt that the responsibility for this misunderstanding rested
with him.
He explained that after he had hung up the receiver the thought
came to him that possibly his statement to me concerning his offer to
telephone Chicago might be interpreted by me as indicating a willingness
on his part to undertake to get Chicago into line, whereas, while he was
not unsympathetic to the proposed purchase, his real thought was that
he believed It was a question of timing and felt that a little further
time should be permitted to elapse before the actual buying took place.
In reply I repeated that In conversation with him my proposal
was that we buy $25,000,000 of government securities "this week” and
that the question as to a major operation later would have to be deferred
pending subsequent developments.
U
C ytfg
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority £ • 0 • V23Slg>
CQFI
3 3
3
Federal R eserve Bank
o f
N e w Yo r k
CONFIDENTIAL
August 14, 1930
Dear Governor Young:
During the statement week ended last night, the holdings of
government securities in the System Account have been increased $85,000,000,
this being the purchase referred to in my letter of August 7, 1930;
The
holdings in our own investment .account have shorn a small increase, about
$4,000,000.
This increase is temporary and represents purchases made in
anticipation of the maturity of Treasury bills on .August 18 and held for
the time being in our portfolio. Sales contracts, which, due to some firm
ness in money during the week had gone up to^Sbout $5,000,000. have now been
entirely paid off.
The market, for United States Government securities has been quite
dull with small fractional changes in both the long and short-term securities
on the downward side.
The average selling price for the long-term bonds
at the close of the statement week was 104.57, the same as the previous
week,the high for the year being 104.77*
During the past week the position of the New York banks has grad
ually become more easy, but notwithstanding this there appears to be con
siderable reluctance on their part to make commitments in government secur
ities at present prices.
There has not been much activity in the bill market during the
past week, dealers' sales while not large were slightly in excess of their
purchases so that portfolios show a slight reduction to 132,000,000.
The
prevailing money conditions have caused some of the banks to offer us mod
erate amounts of their shorter bills, our purchases in this respect having
resulted in an increase of $24,500,000 in System holdings of bills o^med
outright.
Our other operations reflect reductions of $1,500,000 in for
eign suspense account and $1,600,000 in bills held under sales contract
agreements, so that the result of our transactions for the week reflect a
net increase of $21,400,000 in bills held by the System.
Very truly yours,
(Signed) L. R. Rounds
L. R. Rounds
Deputy Governor
Honorable Roy A. *oung,
Governor, Federal Reserve Board,
Washington, D. C.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
Authority E •0•V23Sfe>
Jt
n'*' ■
5 •^
Aa«aat U , X93Q,
S o ar M r. Oooai&ghaats
B its w ill adm owlodgo ro o o ip t o f ro a r lo tto r -o f. A u g arl 7 th and 1 mb
a fra id th a t th o toiophcm * eo aa ae tio a «s» so b«& th a t yom fl» » t havo » i* ~
understood ao ovor tho tolopho&o boc*u*o X cannot m a lX ro fa rriu g in any
way to th o w ith d raw al o f a o c u rity iaaraotiaoiita If - fo ro ig a n o t lo s t im tho
Aaariofl& aa^kot •
Xa ro p ly to yo u r in q u iry ft* to w hat was caa#la« thm increaatd :d ao an d
fo r ro o o rro a r o d it, ay to lo p lio ao ro p ly wao th a t I t o aa* about fro a c o ld
o s p o rt* and oaaoonal ro q o lr apopto . t e l t r , whwn X w iro d yom* X ftta to d th a t
t a * aXaaot o a tira ly oaaoaA 1w p U o xp o rt» and Tory X ittlo o f i t , I f an y,
by aoaaonaX ro ^ jftir onoato » B o ftr tr * X fe«*a th a f lo r a s b afo ro no n o * aa
o f tho eXooo o f baei&ooo A a fu i 8 th and I t appoaro tb a t se&sonfelsiaar ren jjy
ro q o tro m a tt a u i bo b a ria * to n * a ffo e t bocaaao ,tho fodoraX S ato rvo o ra d lt
om tetaad las mm o f A n® a*t 8 tk aaa lo la rg o r « a o » ^ than oaa bo aeeoantod
fo r tgr «oXd acnromont.
Tory truly youra*
&. A. Youn*.
T
Reproduced from the Unclassified I Declassified Holdings of the National Archives
irorm jno.JLcsx.
"v "v
1
Office Correspondence
T o ___ governor Young__________________
FEDERAL RESERVE
^
H
O
J
, ~C ■
board
Subject:.
At the meeting of the Federal Reserve Board this morning, you were
authorized, In the absence of a quorum of the Board, to approve discount
rates down to 3#, if and when voted by any Federal Reserve Bank* and, as
a result of Mr* Platt’s motion you were authorized to approve a discount
rate for the Federal Reserve Bank of Boston dovn to 2-l/a$*
Ton were also authorized, in the event of further redcBwendat1one by
the Open Market Policy Conference of approval by the Board of additional
purchases of Qcvcxmssit securities, to confer by telephone with the absent
asobers of the Board, and if a majority of the Board is in favor of the
proposed opum market operation* to approve additional purchases of
securities as reccaaended by the Conference.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
FEDERAL RESERVE BOARD
ADDRESS OFFICIAL. CORRESPONDENCE TO
n « n a N a t M . i(n s i n « b o a r d
August 7, 1930
Mr. B. A. Young,
Governor of the Federal Reserve Board,
Washington D. C.
Beer Governor?
,
L
J
"Sit i n g confirming mv telegram to m
of this.
JLaaJUn which I gave my approval to the purchase of twenty-five
million of Government Securities hy the Open Market Investment
Committee; said purchase to he made during the week, and that
no further purchase of government Securities he engaged i n u n t i l
the whole credit situation has again been reviewed, a n d a £ s o the
effects of this purchase is noted on the credit situat^f^n.
It is now three weeks since I left Washin^xon, and of
course I a m a little bit hazy as to what has developed in the
credit situation,
I have noted your statement^ffowever, that the
reason this request is made at this time is
to the fact that
we have been losing some gold from the Counifry.
I recall, h o w
ever, that in our telephone conversation jrf yesterday you stated
that the lose of gold has been due largpoy to the withdrawal of
Security Investments by foreign countries from our markets.
Personally, I do not c a r r / o give a continuous approval
to any further Open Market operations in order to relieve a
tightening situation which is caused by the withdrawal of
Securities Investments by foreign nations in the American market.
It has too much the appearance of underwriting so called Security
Loans for foreigners, and I doubt the w i s d o m of any policy that
could be interpreted in that light.
I a m heartily in favor of reducing our discount rates
at anytime that it would offer any encouragement to business and
commerce, but to get excited about the withdrawal of gold from this
Country which is due to the calling of Loans by foreigners does
not in my judgment come wi t h i n the duties of the hoard as outlined
in the Federal Reserve Act.
I a m sure, however, that the members of the Board who are
in Washington with you at this time and also your own judgment will
be sufficient to handle this situation without permitting any
— — -----
m
m
..
Reproduced from the Unclassified / Declassified Holdings of the National Archives
F E D E R A L RESER VE B O A R D
WASHINGTON
ADDRESS OFFICIAL. CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
Mr* R. A, Y oung
#2
8/7/30
question to develope as to what the intentions ©f the Federal
Beserve are in regard to easing the present depressed business
conditions of the Country.
With all good wishes,
I am
Yours very truly,
Reproduced from the Unclassified I Declassified Holdings of the National Archives
WESTERN UNION TELEGRAM
a— *rs 6
W
«p»
S fe & g r a p f; © fJ tc tf
671V KD 1S COLLECT
C R ESC 0
IOWA 1 0 5 9 A AUG 7 1930
GOVERNOR R A YOUNG
FEDERAL RESERVE BOARD WASHINGTON
HAVE NOTED FULLY YOUR W IRE
PURCHASE OF TWENTY F I V E T H I S
OF SIXT.tf/wOULD APPROVE T~
WEEK LET T ER FOLLOWS
E H CUNNINGHAM
Reproduced from the Unclassified I Declassified Holdings of the National Archives
Form. 148 A
FEDE» vA . R E S E R V E BOAr^C
LEASED W IR E SERVICE
W A S H IN G T O N
The telegram given below is hereby confirmed.
—7
f
"> - 7 __
"
#
^
_________________________________________
2— 9454a
q fo
Aogutt 6, 1930.
X. H« Ounningham
Orotoo# lowa.
/
^
ed
/
In again roviawing tho information in roply to your inquiry I advita that
in my opinion tho condition* art duo almost ontiroly to loot of gold and lit t la
I f any at tho rosult o f toatonal ro^uiramontt. Tho lattor thould dovolop
Tory shortly howovor. fho ooranittoo hat awdifiod it t original intontion aad
only r*qu«»t« to h*s»atfai tt ad to hoy twonty-flvo thit wotk aad await
rosultt whan tha tituation w ill again ho roviowod noxt wotk. HoprooontatiYoo
o f a ll twalYO hanka haYo approved thit program and a ll oomfcort of tho
Board Including Jamat aro raady to approva
Toung
Official Butinottt
Chargot ?odoral Botorvo Board.
/z.jzj’
% 1*7 / S O
Reproduced from the Unclassified / Declassified Holdings of the National Archives
1
F o rm 148
TELEGRAM
3
FEDERAL- R E S E R V E B O A R D
LEASED WIRE SERVICE
W A SH IN G T O N
2- » * b*
J ttg ttd # t 1930.
Cat* * KowYork*
Lj»orui» o f Bo and o o l prooont la # S iic t t t t t i C oaaU too o f Ih o Boartt
ap p ro val th a r**o a n « U U o B o f til# Op«a ktarkot P o l to y O onforaaco and
a a tto r i* * * porohaaa o f U ta ijr -fi? # m illio n d o lla r t fio *«rco o n t toeurlUaa.
Iona*.
AT EXECUTIVE CX5MMETTBU
MEEHNG-,
AUG 7
1930
Reproduced from the Unclassified I Declassified Holdings of the National Archives
-ELEGRAM
- C 'i
FEDERAL RESERVE SYSTEM
(L E A SE D W IR E SERVICE)
RECEIVED AT W ASHINGTON, D.
16lb fa
MiiiBXIBQv
NewYork 420p -^ug 6
^oung
Washn
Open market policy conference requests Federal Reserve Board’s
approval of the immediate purchase of twenty five million dollars
of government securities for system account. As I have advised
you in my telephone conversation yesterday and to-day I have
discussed this matter by telephone with the Governors of£ seven
Federal Reserve Banks and in the absence of the governor with
the chairman
or deputy Governor of the four other federal reserve
banks and they as well as this bank are in favpr of this purchase
as a partial offset to current export movement of gold.
It is understood that discussions will be continued the early part
of next week as to advisability of further purchases
ft. ft. OOVSaXVINT
PRINTING e iT lC I' 1028
-------------------------------------------------------------------------------------— -----------------i in ,
mm .
Reproduced from the Unclassified / Declassified Holdings of the National Archives
d e c l a s s if ie d
Authority E • D« V23Sfc»
F> *
£*
Fe d e r a l R e s e r v e B a n k
o f
N e w Y o r k
CONFIDENTIAL
n ’Ri s p o s
July 25, 1930.
Dear Governor Young:
When I wrote to you on July 2 3 11 had intended to
enclose, as of possible interest to you, a copy of an in
formal memorandum which has been prepared in the hank with
respect to the probable seasonal increase in Federal re
serve credit between August and December of this year.
Un
fortunately, however, my other letter was written hurried
ly just before I left the bank and I failed to refer to
the memorandum, which I am now enclosing.
Please remem
ber that the text of this memorandum is merely an intraoffice discussion of probabilities, or rather possibilities,
and that I am forwarding it to you principally because of
the tables which it includes showing the seasonal changes
in Federal reserve credit over the past several years, and
the estimated demand for credit for the coming year based
upon our past experiences.
While, as I stated in my letter of July 25, we
feel here that we should attempt to avoid any change in
the money position which will result in a firming of rates,
at least until such time as business and commodity prices
show some definite signs of improvement, nevertheless we
have learned so often from past experience that conditions
may change rapidly and unexpectedly, that any general
statement of this kind should, of course, be accepted
only in the light of conditions as we now see them.
http://fraser.stlouisfed.org/
iFederal Reserve Bank of St. Louis
t/
------------------------------------- "IL- ..----Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
Authority E ■0» V23S4?
F ED ER AL R ESERVE B A N K OF N E W YC
Governor Young
ly 25, 1930
Indeed, as we have stated in the past in our discussions with
the Federal Reserve Board relative to our present easy money
policy, we should, of course, be prepared at any time to amend
that policy quickly and, if necessary, vigorously, as soon as
conditions require it.
In the meantime, however, as those
conditions no?/ appear, it occurs to us, as I stated in my earlier
letter, that we may soon find it desirable to supplement purchases of bills by the purchase of government securities in an
amount at least sufficient to offset exports of gold and the
approaching seasonal demand for credit,
Very truly yours,
Governor
Mr. R. A. Young,
Governor, Federal Reserve Board,
Washington, D. C.
GLH.MM
Enc.
http://fraser.stlouisfed.org/
IFederal Reserve Bank of St. Louis
Reproduced from the Unclassified / Declassified Holdings of the National Archives
d e c l a s s if ie d
Authority B ■0 • \23Sio
July 22, 1930
THE
FINANCING OF 1930 AUTUMN TRADE
..................I,............................... I ■!■■■—I .......................................HI . l^ ■
-
This week will, in all probability, mark the lowest point In the demand
for reserve funds that will be reached at least tintil the latter part of January.
After the July month-end it is to be expected that the beginning of seasonal curren
cy and credit requirements will appear, and that from the latter part of August
until the middle of October the increase, in these requirements will be accelerated,
after which there will be a slight lull, followed by a rapid increase in currency
circulation for the holiday trade from late November until Christmas.
A normal in
crease in the demand for reserve funds would be 200 to 225 million dollars from
next week until the middle of October, and an additional 250 million or so in the
five weeks preceding Christmas to provide currency for the holiday trade;
a total
increase of around 470 million*
There are several difficulties in the way of estimating in advance pre- .
cisely how these seasonal requirodents are to be met this year.
The first is
uncertainty as to the amount to be provided - a more than seasonal increase in
production and trade, possibly accompanied by a rise in commodity prices, would
tend to increase currency and credit requirements, while less than the usual in
crease in business activity or a further decline in commodity prices would tend to
restrict the amount of funds required.
In any event, however, it is unlikely that
on account of changes in business activity or in prices tho demand for additional
reserve funds will exceed or fall short of tho amounts indicated above by more than
50 million dollars to October, or 100 million to the Christmas maximum,
A further cause of uncertainty as to the amount of reserve funds that
will be Inquired during the coming months is the movement of gold.
During the
first half of this year the net gold flow wa& substantially in favor of this country,
and was an important factor in the reduction in the amount of Federal Reserve
credit in use*
The net gain of gold has diminished steadily in each month since
March, however, and within the past week French francs and Canadian dollars have
risen above the gold export points, so that an outflow of gold to Franco and Canada
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
Authority E • 0» \23Sio
Z
has occurred*
If these recent tendencies result in an outflow of gold sufficient
to more than offset any further gold receipts which may como fro® the Orient or
from South America, the demand for Reserve Bank credit will be correspondingly in
creased.
In previous years the seasonal increase in Reserve Bank holdings of ac
ceptances has to a considerable extent supplied the additional Reserve Bank credit
required for the autumn season.
Frequently there has been some increase in member
bank indebtedness at the Reserve Banks in September, however, and a further increase
in December, and these increases have been accompanied by higher money rates.
In attempting to estimate how far the autumn increase in the demand for
Reserve Bank credit can be met this year through the purchase of bills by the System
the first uncertainty encountered is in regard to the increase which will take
place in the amount of bills in the American market.
The severe decline in foreign
trade and in ccsraaodity prices which has o ccu rred d u rin g re c e n t months will probably
tend to reduce the volume of export and import bills below the amount that might
otherwise have been anticipated.
On the other hand, the unsatisfactory condition
of the COTiaodity markets has r e s u lt e d in a larger volusae of bills to finance the
domes tic s to r a g e of commodities than is usual at this time of year.
Any consider*
able reversal of these conditions in foreign trade or in c o m o d i ty markets might be
expected to have its effect on the volume of bills coming into the market.
In
addition, the relative position of money rates here and in London ftiay also be ex
pected to influence the volume of bills in this market.
Reserve Bank acquisitions of bills will depend, further, upon the policy
of the Reserve Banks with respect to buying rates;
potential buyers on other short investments;
the yields obtainable by other
and the position of the large New
York banks with respect to indebtedness or surplus funds.
In view of all the uncertainties contained in the situation, it is
—
, »
-
—
—
—
-
—
—
-
- —
The table on the following page contains an estimate of the accumulative increase
over the present |re«K in the amount of Reserre Bank credit which will be required
.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
d e c l a s s if ie d
Authority E . 0 » 123S4?
z
hag occurred.
If these recent tendencies result in an outflow of gold sufficient
to more than offset any further gold receipts which nay come from the Orient or
from South America, tho demand for Reserve Bank credit will be correspondingly in
creased.
In previous years the seasonal increase in Reserve Bank holdings of ac
ceptances has to a considerable extent supplied the additional Reserve Bank credit
required for the autumn season*
Frequently there has been some increase In member
bank indebtedness at the Reserve Banks in September, however, and a further increase
in December, and these Increases have been accompanied by higher money rates*
In attempting to estimate how far the autumn increase in the demand for
Reserve Bank credit can be met this year through the purchase of bills by the System
the first uncertainty encountered is In regard to the increase which will take
place in the amount of bills in the American market*
The severe decline in foreign
trade and in commodity prices which has occurred during recent months will probably
tend to reduce the volume of export and import bills below the amount that might
otherwise have been anticipated*
On the other hand, the unsatisfactory condition
of tbs consaodity markets has resulted in a larger volume of bills to finance the
dcsaestic storage of commodities than is usual at this time of year.
Any consider
able reversal of these conditions in foreign trade or in comodity markets might be
expected to have its effect on tho volume of bills coming into the market*
In
addition, the relative position of money rates here and in London may also be ex
pected to Influence the volume of bills in this market*
Reserve Bank acquisitions of bills will depend, further, upon the policy
of the Reserve Banks with respect to buying rates;
potential buyers on other short investments;
the yields obtainable by other
and the position of the large New
York banks with respect to indebtedness or surplus funds*
In view of all the uncertainties contained in the situation, it is
necessary to make a number of assumptions before any definite estimates can be made*
The table oil the following page contains an estimate of the accumulative Increase
!
I
over the present week in the amount of Reserre Bank credit which will be required
l
'
■4u i } i.\
Reproduced from the Unclassified I Declassified Holdings of the National Archives
d e c l a s s if ie d
Authority B • 0 ■V23Sfc>
during the next five months;
an estimate of the amount of bills outstanding in
this country at the end of each month;
ings at the end of each month.
and an estimate of Reserve Bank bill hold
These estimates are based on the following
assumptions:
L*'"'
(1)
That the seasonal increase in the demand for credit and
currency will be neither greater nor less than usual;
(2)
That the volume of bills in this market will show a some
what smaller proportionate increase than usual, due
to reduced foreign trade and low commodity prices;
(3)
That gold exports and imports will approximately balance
during the remainder of tho year;
(4)
That money conditions will remain practically unchanged
until December, and Reserve Bank buying
will be kept at pressnt levels
.....
\
(In millions of dollars)
Estimated Demand for
Reserve Bank Credit
Accumulated
increase over
week ended
Week ended
July 26
July
Aug.
♦*
2
9
16
M
23
n
30
Sept. 6
n
13
t*
20
»
27
Oct.
4
n
11
M
18
»»
25
Nov.
1
n
8
15
»
22
«
29
Dec.
6
tt
13
H
20
n
27
If
+
♦
+
+
♦
♦
+
♦
12
41
33
30
50
101
131
142
132
♦
♦
+
+
+
+
+
+
♦
♦
♦
*
198
228
172
186
242
235
218
236
289
308
371
470
August
Bankers Acceptances
Estimate
Estimated
Reserve Bank
of bills
outstanding
Holdings
.Amount
Accumulated
Accumulated
Amount
increase
increase
at end
at end
over July
of month
over July
of month
1,300
170
1,300
0
190
+
20*
70
September 1,350
♦
50
240
+
October
1,500
+ 200
360
♦ 190
November
1,550
+ 250
395
♦ 225
December
1,600
♦ 300
430
+ 260
i a i
* This increase in Reserve Bank holdings without an increase in outstandings is
based on the assumption that the System will get some bills from dealers
prosent portfolios before the first of Sept amber, either through outright
purchase or through repurchase agreements.
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority
E •0»V23Sk
4
These estimates indicate that if there is a normal demand for credit and
currency during the next two months, the increase in the Systemfs bills is not
likely to meet these demands fully, so that in the absence of any additional gain
of funds to the money market, through gold movements or Reserve Bank purchases of
Government securities, somewhat firmer money conditions may be expected, especially
in September.
In the latter part of October, the increase in tho System's bill
holdings is likely to overtake tho increase in tho demand for Reserve Bank credit,
with consequent relaxation of money market conditions,
Tho holiday currency re
quirements are likely to be met largely by a temporary increase in member bank
borrowing at the Reserve Banks, though probably in part through acquisitions of
TJ* S* securities under repurchase agreements.
Under present conditions, however, considerable variations from these
figures would not be surprising.
If, for instance, the recovery in business should
materially exceed tho usual seasonal increase in activity, a corresponding increase
in the demand for Reserve Bank credit might be expected, and the tendency toward
firmer money would be accelerated*
On the other hand an unusual increase in
foreign trade or a considerable recovery in commodity prices would tend to cause
an increase in the volume of bills in the market, so that a larger amount of
Reserve Bank credit could be supplied through the bill market*
As for gold movements, if any considerable net outflow should occur during
the coming months, it would require a further addition to Federal Reserve credit
which might be expected to cause further rediscounting and firmer money unless it
were offset by purchases of Government securities.
Source of Funds to Meet Seasonal Requirements in
Previous Years
Supplementing the estimates presented on the foregoing pages, the figures
on the following page are presented to indicate the size of the demand for Federal
Reserve credit in previous years;
the anount supplied through bill holdings;
and
the amount supplied through discounts or U. S* security holdings, in addition to
changes required to offset gold movements*
W—
--------------------------------- ---------------------------------------------------------------- ------ ----------Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority
E •0• V23Sfe>
5
In reviewing
ies
igures, tho following con
.erf
ons should be taken
into account:
(1)
Figures are monthly averages of daily figures, and therefore
do not reflect the full changes from the mid-summer low
points to the December high points;
(2)
The volume of bills in the American market prior to 1987 was
not over half tho present volume.
INCREASE IN RESERVE BANK CREDIT
REQUIRED TO FINANCE AUTUMN REQUIREMENTS
(Monthly averages of daily figures; increases over August of each year;
in millions of dollars)
Actual Increase
in F. R. Credit
over August
Average
Change in
Gold Stock
Change in
F. R. Credit
if there had
Been No
Change in Gold
Amount of
F. R. Credit
Supplied
Through Bills
Purchased
Increase
in other
F. R# Credit
Chiefly
Discounts
and Securities
1924
September
October
November
December
+
+
♦
♦
102
176
854
407
+
-
1
10
1
9
+
♦
+
+
101
166
255
398
+ 68
+ 150
4- 838
♦ 388
♦
+
♦
+
1925
September
October
November
December
+ 04
♦ 178
+ 209
♦ 364
♦
♦
♦
+
12
17
33
23
♦ 96
♦ 195
♦ 848
+ 387
♦ 81
♦ 93
♦ 147
♦ 164
+ 75
+ 108
+ 95
883
1986
September
October
November
December
+ 75
♦ 119
♦ 115
+ 242
«•
♦ 79
+ 184
♦ 185
♦ 856
♦ 80
♦ 50
♦ 103
♦ 140
♦
♦
4
5
10
14
1987
September
October
November
December
♦ 94
♦ 161
♦ 284
♦ 475
1
- 19
95
- 169
♦
♦
+
96
136
+ 168
★ 339
+
♦
+
1988
September
October
November
December
1929
September
October
November
December
Average
1982-1929
September
October
November
December
♦
♦
♦
♦
♦
♦
+
♦
51
74
255
267
80
133
191
313
+
♦
♦
♦
♦
♦
-
♦
♦
♦
59
74
+ 88
+ 116
4
93
♦ 148
♦ 189
♦ 306
43
♦ 109
♦ 163
♦ 805
+
103
151
♦ 801
+ 363
48
190
893
305
+
7
15
33
24
♦
*
♦
♦
17
30
23
27
★
10
18
18
8
+
+
♦
♦
+
+
+
♦
♦
68
104
878
840
105
813
♦ 178
♦ 196
90
151
809
381
♦
♦
+
-
m
+
+
-
♦
•
44
♦ 114
+ 163
+ 199
39
16
17
70
+
*
+•
+
+
50
33
86
101
55
39
98
58
37
109
106
44
46
37
46
188
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority E . 0 • 1235&>
1
Federal R eserve Bank
o f
,
o
N e w Yo r k
CONFIDENTIAL
July 25, 193a*- -'*1
& \
\
‘
Dear Governor Young:
$2
I
P" 7
I
\
C'f I
On July 3 I forwarded to the Federal Reser^e^ c
\
Board a copy of a letter dated the same day which I slnt
to each other Federal Reserve Bank outlining our vie?/s
^
concerning business and credit conditions.
We have now received letters in reply from all
of the Federal Reserve Banks except the Federal Reserve
Bank of Cleveland.
While it is probable that the Federal
Reserve Board has received copies of these letters direct
ly, nevertheless in order to be certain I want to forward
them to you for your information.
Governor Fancher acknow
ledged my letter on July 16 by telephone when he explained
that both he and the majority of his directors felt at that
time that while everything that the System can do to
facilitate recovery in business and commodity prices should JZ j2—.
be done nevertheless, it was their opinion, that continued
purchases of government securities would not contribute sub
stantially to that recovery and that, therefore, they would
not then favor further purchases.
I am also enclosing for your information a copy
of a letter dated July 18 which I sent to each Federal
Reserve Bank acknowledging their communications and further
Reproduced from the Unclassified I Declassified Holdings of the National Archives
d e c l a s s if ie d
Authority
F ED ER AL RESERVE B A N K OF N E W YO,
_
E ■0 • V23Sfc>
_____
Governor Youn
7/23/30
discussing conditions in the New York money market.
It is,
I think, self-explanatory.
However, even since our letter of July 18 the gold
export movement which had begun at that time has assumed
sufficient proportions to raise the question whether the
System will be able to increase its bill portfolio in suf
ficient amount to offset both the gold movement and the usual
seasonal demand for credit and currency.
Our best present
estimate is that in order to maintain present ease in the
money position it will probably be necessary to supplement
bill purchases with purchases of government securities.
We believe firmly that we should avoid any change
in the money position with resulting firming of rates at
least until such time as business and commodity prices show
some definite signs of improvement.
With that in mind it may be advisable upon short
notice to call a meeting of the Open Market Policy Conference
to consider whether the changed situation caused by the gold
movement and the approaching seasonal demand might now justi
fy purchases of government securities in an amount at least
sufficient, with the purchase of bills, to offset the gold
movement and the normal seasonal increase in Federal Re
serve credit, or if such a meeting is undesirable or im
practicable, members of the committee might be sounded out
to ascertain whether, in view of these changed conditions,
they would object to such purchases for System account or
Reproduced from the Unclassified
I Declassified Holdings of the National Archives
DECLASSIFIED
Authority
FED ER AL RESERVE B A N K OF N E W YO
E • 0 • V235&?
Governor You.
7/23/30•
for the account of such banks as care to participate in them,
In any event, I shall hope to keep closely in
touch with you as the situation develops.
Very truly yours,
Geqrge L. Harrison,
Governor.
Hon. R. A. Young,
Governor Federal Reserve Board,
Washington, D. C.
Enes.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
Authority E • 0»\23Sk
FANCHER
COPY OF ^BTS LET TEH ALSO SENT TO Gr"TEp'TQIB TALLEY M B
WITH A SLi JL ilNGE IN FIRST PARAGRAPH.
COPY OF THIS LETTER SENT TO ALL GOVERNORS EXCEPT
TALLEY AND FMCHER
CONFIDENTIAL
July 18, 1930
Dear. Governor
I want very much to thank you for your interesting letter
of July
in reply to mine of July 3 concerning business and credit
conditions.
We have now received responses from most of the
Federal reserve banks and these letters constitute such an illumin
ating discussion of Federal reserve policy that with the permission
of the writers I am enclosing copies of all that have been received.
A reading of these letters discloses that a majority of
the Reserve banks are in agreement with the opinion of a majority
of the executive committee
of Government securities should be made at that tiiae.
In con
formity with the opinion of the committee no further purchases have
been made since the purchase of #50,000,000 in the early part of
June.
Since the end of June, even since my letter of July 3,
conditions in the money market have changed irith rapidity.
Around
the first of the month money v/as relatively firm and rates rose
slightly in connection with the usual half-year needs and holiday
currency requirements.
tenth of the month.
This condition continued until about the
In the past few days, however, due largely
to a reversal of the situation in the market for bankers acceptances,
conditions have altered appreciably.
Up until about the end of June the total amount of bills
outstanding and the amount offered to the Reserve banks had been
steadily declining in accordance with or perhaps even more rapidly
Reproduced from the Unclassified / Declassified Holdings of the National Archives
d e c l a s s if ie d
Authority
E • 0 *\2 3 Sifc>
2.
7/18/SO.
than the usual seasonal tendency,
normally this decline might have
been expected to continue well into August.
In the past few weeks,
however, a cuite contrary tendency has begun to make itself evident.
Indeed in the last few days a large amount of new bills appears to
have come into the market due in part to the early drawing of bills
to finance cotton and grain exports, and in part to a shift of ac
ceptance financing from London to New York because of the more
favorable rates obtainable in this market.
Furthermore, the firm
ness of money over the first ten days of July, which was followed by
a slight increase in market rates for five and six months bills, and
by a slight increase in acceptance rates, and as a consequence large
amounts of bills were offered to us and to the market by member banks.
Dealers portfolios have been increased to about 1*100,000,000, and Fed
eral Reserve System holdings of acceptances have gone up approximately
$35,000,000 to about $170,000,000.
\
....
This unexpected increase in the total bill holdings of the
System has of course put out Federal reserve credit just as the pur- ''
chase of Government securities would have done, and it is therefore
doubtful whether we would have wanted to continue the purchase of such
securities, even if authorized to do so, during the period when or as
long as the bill portfolio was increasing at this rate.
Latterly or
since about July 10 because of these purchases of bills, coupled with
the return of currency to the banks after the holiday, together with
the usual return flow of funds from the interior to Mew York, money
has again become easier.
As a result the principal New York City banks
have paid off all of their discounts here and at present have a surplus
of reserves.
Thus, the condition which we have desired, and for the
attainment of -which we believed purchases of Government securities
might be necessary, has been achieved during the past ten days in
j
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
Authority £ • 0 » V23Sfc>
3.
7/18/50.
natural course through developments in the bill market which could
hardly have been anticipated.
As we pointed out in our letter of July 3, we believe that
the important end to be achieved in present circumstances is that the
money center banks should be substantially out of debt and that there
should be some surplus funds available.
As just stated this condi
tion no?; exists largely as a result of the increase in the System bill
portfolio, but it is, of course, difficult to foresee how long it will
continue.
It will necessarily depend on a number of factors.
The foreign exchanges have strengthened during recent weeks
and $4,000,000 of gold was shipped to France on July 16.
$4,000,000 is to be shipped to France today.
Another
Any substantial gold
movement would of course have an important bearing upon the money
position and reserve policy.
So also the approaching usual fall de
mand for credit will be an important factor in the picture.
It is
still our belief, however, that so long as commodity prices and
business conditions do not show any marked signs of improvement it
will be desirable to maintain an easy money position with the prin
cipal banks in the money centers substantially out of debt and sur
plus funds available for the bond and mortgage markets.
Whether it
will be necessary for the System to purchase additional amounts of
Government securities to accomplish that objective will of course de
pend upon developments.
At the moment, as we see it, the continued
increase in the System1s bill portfolio appears to be adequate.
But
a falling off in bill purchases, a gold export movement, or the ap
proaching seasonal demand for credit, might cause a rapid change in
the outlook and thus suggest the importance of an early reconsider
ation of open market policy.
Indeed it might be desirable to have a
y
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority E • 0 • \23Sb
7/18/50
4•
meeting of the Open Market Policy Conference a little later on in
any event.
Faithfully yours,
George L. Harrison,
Governor.
Governor,
Reproduced from the Unclassified / Declassified Holdings of the National Archives
d e c l a s s if ie d
Authority B • 0 ■\23Sifc?
COPY
FEDERAL RESERVE BANK OF BOSTON
CONFIDENTIAL
July 9, 1930.
Mr. George L. Harrison,
Governor, Federal Reserve Bank,
New York, N. Y.
Dear Governor Harrison:
I had expected to see you in New York on Thursday and to have had the
opportunity of discussing with you in person the general policy outlined in
your letter of July 3, but owing to the unexpected call which Mr. Paddocfc, our
I5eputy Governor, has received which will necessitate his leaving fbfr the West
at once owing to serious illness in his family, I find it will be impossible
for me to leave heme.
I have read with the greatest care and interest the arguments which
you set forth in your letter concerning the attitude of the directors of the
New York bank and the reasons for the policies which they have pursued during
tiie past several months. It is needless for me to say that I am thoroughly in
sympathy with the aims and purposes of those policies, but, on the other hand,
I am tool) yet convin^d t.hr>t. tfiw increased rairchases of Government securities
H y _ % ayat.ftffi wi n hrinp about the desired ends, ana may not only frustrate
’
those ends but may do actual haim.
In your letter you state that you are asking for a frank expression
of views from each Federal Reserve Bank, and I feel that what I shall say not
only will voice my own views but those of the other members of the board of
this bank. In your letter you enclosed a chart showing the sequence of bond
prices from 1921 to 1927 in relation to tiie holding of securities of the
Federal Reserve System. IXiring that period there was a very large and contin
uous increase in deposits by the banks in the country, and in the case of the
member banks largely through the increase in time or savings deposits which
I am led to believe did not represent strict savings deposits. IXiring that
period there was little, if any, increase in commercial borrowings, new
financing and transportation enabling commercial houses to run on small in
ventories and to finance themselves without the aid of commercial banks. This
brought about an accumulation of funds in the hands of these banks that were
invested either in collateral loans or in bonds and stocks. In other words,
a large proportion of the long term bonds and notes that were issued during
that period were either carried on collateral loans or went into the portfolios
of commercial banks and not into the hands of the ultimate investor. Through
most of that period there was also a large increase in the gold stock in the i
country, or at least until the summer of 1927, and I am led to believe that
1
these factors had quite as much influence on the bond market as the Federal
\u
Reserve securities shown on your chart.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
Authority
B • 0 • U3Sfe>
2
As I look back on that period, the average investor turned stockminded, investing either all or a largo proportion of his actual savings in
stock equities instead of bonds and was not attracted by foreign bonds.
In
1928 and 1929 we had, if I may use the term, an over-production of bonds, both
domestic and foreign, and this situation was aggravated by the large increased
issue of common stocks. The bond market, which had been supported up to that
time largely by the connnercial banks, was affected by the fluctuating and some
what downward trend of the total deposits of banks, that latter, no doubt,
affected by the export of gold during that period, and also affected by the
ordinary investor’s inability to relieve the situation because of the large
issuance of common stocks in companies in which he was already interested or
I po which he has been accustomed to turn.
This over-production of capital issues
in 1920 and 1929, both in bonds and in stocks, not only affected the stock
market but also the bond market, so that even at the present time a large
majority of banks, at least in this district, still show considerable deprecia
tion in their bond accounts.
Since the crash in the stock market of last fall, there has been an
accumulation of investment money in the hands of the commercial banks, and it
has been our thought that in reducing the discount rate of this bank it would
encourage the member banks to reduce the rate of interest allowed on such
balances (and such has been the case) and that this reduction would bring pres
sure on the investor to withdraw his balance and invest his funds.
We are in accord with the opinion that the desired aim of the reserve
bank policy is to help business and that business might be helped by a better
bond market, especially in connection with foreign issues, but we do not want
to see the bond market largely dependent on the purchases of the commercial
banks. In fact, our commercial banks would appear to have a sufficient amount
of their assets tied up in bonds at the present time, especially so if their
deposits are going to decline through the withdrawals of this investment money,
so the real problem is to get this volume of money awaiting investment into
the bond market and not into the stock Market.
During the past week I have mde- a point of interviewing the partners
of several of our prominent banking houses and they have confirmed my views
that the investors are still stock-minded, and that the only thing that would
change the investor’s point of view is a continued experience of finding stocks
unattractive through a falling stock market, or the appreciation that even at
present prices from the point of yield stocks are not attractive.
The release of credit through purchases by the Federal reserve banks
of Government securities goes largely to member banks, and they in turn, unless
they buy bonds will probably take that money and loan it in the stock market,
and this increase of credit would tend to aid the stock speculator thereby in
creasing stock market prices, and the psychological effect on the investor
would be to invest his money in stocks. The buying of Governments by reserve
banks also weakens to some extent the ability of the reserve banks to aid
member banks, if an unusual situation develops. I should like to see the
volume of credit kept as near statu quo as possible, and therefore, of course,
I would favor the purchase of Governments to offset any export of gold which
might affect the volume of credit in the domestic market.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
d e c l a s s if ie d
Authority E ■0 » 123Sb
3
I think it is up to the banking houses to create the bond market
with the assistance of the commercial banks in encouraging investment in bonds
among their customers and carrying now issues on collateral loans pending
distribution, and for the reserve banks to simply keep in a position to aid
the member banks in that policy or in adjusting their reserves. There is a
strong feeling, I find, among the directing powers of our large city banks
against the operations of the reserve banks in connection with the purchase
and sale of Government securities, and I think that same feeling exists not
only in Boston but in the other large centers. Our directors, more especially
the Class B directors, have been consistent in their feeling that the reduction
of discount rate, and a continuance of a low discount rate, would probably help
business, and do little or no harm, but on the other hand, they feel that the
release of additional credit with the present ense of money in the outside
market, should be handled by the member banks. Whether they have been influenced
by this general opinion which exists among the officials of the large city banks,
I cannot say.
When I compare the yields of certain of the so-called investment stocks
with the yields on bonds, I cannot help but reach the conclusion that stock
prices are still inflated, and as I look back over the Dow, Jones Index and see
that stock prices are still considerably higher than they were in 1928, in which
year the prices were considerably higher than they had been in the previous
decade, and with the general outlook of future business, I feel that my conclu
sions may in most cases be justified. It seems to me that during the period
covered by your chart, - a period covering steadily increasing deposits, and a
period which I look back on as one when many banking houses had a demand for
bonds which they had difficulty in meeting, - many bonds doubtless were put out
at that time of a character and at prices that would not be justified today.
New issues that have come out recently and that have been put out at satisfactory
rates have evidently sold readily. I think that is the case of the last
Pennsylvania issue, with the telephone issues, and certain others. On the other
hand, I am very much disappointed at the reaction of the so-called Reparation
bonds. These were placed apparently unusually well; in fact, I had supposed
that the entire issue had been placed on investors* orders, and I think I am
right in saying that some of the banking houses did not get their full allotment,
and yet, as soon as the syndicate was dissolved these bonds sagged back to one
or two points under the issuing price, - a fact that I cannot understand, and I
feel that that reaction has affected adversely the bond market, although I am
led to believe that since the first of July the general bond market has been
improving, and without any additional assistance from the Federal Reserve System.
It is my impression that there is still hanging over the market quite
a volume of undigested bonds, bonds which may have been issued on terms un
satisfactory to the general investor, and until those are cleaned up, and a
rather intensive effort is made to change the attitude of the investor from
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority
E •0» U3Sfe>
4
stocks to bondst nothing that the Federal Reserve System can do through the
purchase of Governments will be helpful, and, as I said before, may be harmful
and delay just the readjustment which we believe desirable. I am not so sure
but what many of the members of the bond houses themselves are leaning toward
stocks rather than bonds, for I know of several investment trusts or blind
pools in common stocks that are either handled by investment houses or by
certain representatives of those houses, I do not believe that any of us can
quite estimate the enormous amount of investment funds that have gone into
investment trusts or been handled by investment managers, or in these socalled blind pools. A large majority of that money has gone into stocks rather
than bonds, and I do not know how that feature of investment business can be
changed, or whether it is desirable to have it changed, but I do believe that
it is a factor in our general credit situation which should be more carefully
considered by our banking houses, and efforts made to issue a class of security
which would be attractive to either that class of investment money or to the
average investor. This, of course, would mean fewer bonds and more stocks, or
bonds issued in some way to compete with the attractiveness of stocks.
I trust that you will pardon the length of this letter, but I have
been led to give my views rather fully, as I agree with you that the present
situation is a very critical one, and one which we should all study and try to
solve with an open mind.
I am,
Very sincerely yours,
(Signed)
FHC/D
Frederic H. Curtiss,
Chairman.
Reproduced from the Unclassified
I Declassified Holdings of the National Archives
DECLASSIFIED
Authority E ■C) • V235&?
COPY
FEDERAL RESERVE BANK OF PHILADELPHIA
July 8, 1930.
My dear Governor Harrison:
I am going away on Thursday for a fortnight’s vacation,
and as I have a number of matters to arrange for, it would be im
possible for me to attempt a detailed reply to your letter of July
3rd. Before leaving, however, I do want to set down a few random
observations in reference to the bond market.
It is true that the average price of bonds is not advanc
ing, and that there is no broad and active market such as might be
anticipated with the existing low rates for short-time money. What
is the reason for this? Partly from my own observation, and partly
from information for which I have asked in the last few days, I
would say that there were three principal reasons - first, the fact
that the constant pressure which has been applied upon member banks
by Reserve Banks throughout the country during the last year or year
and a half to get out of debt has probably led a great many banks to
take advantage of any appreciation in any of their holdings, to sell
enough bonds to accomplish that purpose. Secondly, because the in
dividual investor has not yet freed himself from the effect of the
propaganda that was so general last year that stocks were, in the
long run, a better investment than bonds, because in times when the
purchasing power of the dollar was low a fixed return on a bond meant •:'u~
practically a reduction of income. Those who acted on this theory
have been pretty badly burned in the last nine months, but they are
not yet ready to go back to bond purchases. Thirdly, the large volume
of new issues which have come upon the market. 'T note a statement in
one financial weekly that for the first half of this year bond issues
totaled over 3 1/2 billions, compared with 2 billions in the first half
of 1929, and less than 3 1/2 billions in the first half of 1928.
I talked yesterday with Mr. Law, President of the Penn Mutual
Life Insurance Company - an old institution which has over 2 billions
insurance in force - and this morning with Mr. Hopkinson, of Drexel &
Company, who told me that he had frequently discussed the matter with
his partners here, and with their partners in New York, and that his
views were, he thought, the views of all of them. Mr. Law told me
that since the first of this year they had bought (for the first time)
over 5 million dollars preferred stocks,had increased their bond hold
ings by about 15 millions, and had also increased their holdings of
mortgages, but that the increase in mortgages had not been as large as
Reproduced from the Unclassified / Declassified Holdings of the National Archives
d e c l a s s if ie d
Authority
B • 0 * \23S(?
he would have wished it to be, because they could not get the
mortgages.
Mr. Hopkinson said that he would call the bond market
"pretty good”; that there was little or no trouble in selling highgrade bonds, although the sales were principally to institutions, the
small individual bond buyer being out of the market. Both he and Mr.
Law ascribe this fact to the stock-buying propaganda of last year, to
which I have already alluded. In answer to my question whether he
thought that any railroad, public utility, or industrial corporation!
with good credit, had any difficulty in securing capital funds at the
present time at very reasonable rates, he replied nNo.w He added that
while the question whether a corporation had to pay 6f0 or 6fo for the
capital to make an extension or improvement might be determinative, he
thought it made little or no difference whether the rate was 4 1fz% 5
or 5 1/2$. To the further question whether, as a distributor of bonds,
he would like to see some stimulant applied to the market, he again
replied in the negative, adding that he was alv?ays opposed to artificial
attempts to interfere with natural laws; that if a stimulant were to be
applied that would raise bond prices, all dealers would naturally sell
bonds at the prevailing prices, and that when this artificial stimulant
was withdrawn there would be a regrettable reaction.
I am thoroughly in accord with you on the desirability of
bringing about, if possible, a better world distribution of capital.
Conditions in this respect seem to be improving. For the first half of
this year, the sales of foreign bonds in this country were over 758 mil
lions, which is in excess of the totaljbr the whole of last year. That
the improvement is not greater is due, I think, not to any action or in
action of ours, but to the kind of talk indulged in by Mr. McFadden,
papers like the Chicago Tribune, and a certain group of Senators.
I have sought this information* not for the purpose of bolster
ing up my own view of the matter, but with the honest purpose of chang
ing my view if facts weru other than as I supposed them to be* I must
say that the information I get from these two sources tends to confirm
my own View of the -Pniij:! ftganftaa gnd nmii.sdcgn of attempting to depress
still further the abnormally low interest rates now prevailing. I am,
Very sincerely yours,
(Signed)
Mr. George L. Harrison, Governor,
Federal Reserve Bank,
New York City.
G-eo. W. Norris,
G-overnor.
^
r
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority
E • 0 • V23S(p
COPY
FEDERAL RESERVE BANK OF RICHMOND
July 10, 1930*
Dear Governor Harrison:
I am sending you herewith copy of a letter
which I sent out on yesterday to our directors with
respect to further open market purchases of securities
and my reasons for the opinion, which concurs with that
of your hank, as set forth in your letter. I think I
will send a copy of this letter to each member of the
Executive Committee of the Open Market Policy Conference.
They had the opportunity to express their views at the
meeting of the Executive Committee, and I think it j,n
order to express my own views as a member of the full
committee#
Very truly yours,
(Signed)
GJS-CCP
Encl.
Mr. George L. Harrison, Governor,
Federal Reserve Bank of New York,
New York City*
Geo, J. Seay,
Governor*
Reproduced from the Unclassified I Declassified Holdings of the National Archives
d e c l a s s if ie d
Authority
B •0•\23S(p
(Copy of Letter to Directors)
FEDERAL RESERVE BANK OF RICHMOND
CONFIDENTIAL
July 9, 1930,
Dear Mr.
On June 27 we received from the Secretary of the Open Market policy
Conference a copy of the minutes of the Executive Committee, which held a meet
ing in Washington with the Board on June 23.
At that time there came up for
consideration the question whether the Federal Reserve System should continue
the purchase of government securities with the view of aiding the business
situation through the credit market. It was generally agreed that business
was very sick indeed, not only in this country but throughout the world# After
a review of conditions, it was voter) fmir +n r"e)‘a'l~Vir> ona-nmi
that it was,
ffoft desirable at-Hxl^-ti.me fnr. the Tfederal Reserve System to undertake any
further open market purchase of securities. The New York bank was the only
bank represented on the Executive Committee voting in favor of further purchas
es. At the meeting of the committee, members of the Federal Reserve Board
present were: Platt, Hamlin, James, and Comptroller Pole.
On yesterday we received from Governor Harrison a letter giving in
extenso the views of the directors of the New York bank relative to business
and credit conditions, of which I enclose a copy.
In my letter of June 13
to our directors, I stated that it appeared to me that we would very shortly
be called upon to consider whether the System should continue the purchase of
government securities, and I then expressed the opinion that this bank could
very well afford to join, as a matter of policy, in the continued purchase of
securities if approved by the conference or a majority thereof.
I now unequivocally give it as my opinion that the flvstem should con-_
pnT>^haPA nf securities in a limited amount each week, say, §>25,000,000
a week for at least two or three weeks, witn tne"desire and m the.hope or giv
ing a stimulus, or at least encouragement, to business and vn
hnpR
the
effecjjLUr-'be-benef4-e4al. My belief is that the directors of the New York
bank are correct in their position. It is my own conviction that the injection
of a reasonable amount of Federal reserve credit into the situation will be more
effective in results than- the existing very low discount rates of the principal
Federal Reserve Bank. It seems to me that the reasoning of the New York bank
is good and sound.
That is to say, no certainty is felt that either low dis
count rates or further purchases of government securities will of themselves
stem the decline in commodity prices or restore business activity; and they are
certainly right in holding that both of these influences are inherently helpful,
although many other factors may have to be called into cooperation to bring about
immediate, or early, favorable results. They are also unquestionably right,
from my own point of view, that under existing conditions the continued purchase
of securities can do no harm, and since in principle and in practice and in
[///
Reproduced from the Unclassified / Declassified Holdings of the National Archives
d e c l a s s if ie d
Authority
E •0» V23Sfc>
2
experience this is inherently a helpful influence, there is a strong likelihood
that it will accomplish some good. As I view the matter, it is a favorable time
to accumulate a strong portfolio of investments, with the view of establishing
a measurable control of the credit situation later on if, perchance, there should
develop a tendency to use credit too extravagantly for speculative purposes, as
was the case in the latter part of 1927 and subsequently. Perhaps you read in the
recent economic report of the Royal Bank of Canada that unless the Federal Reserve
System did fnrp.R its credit into circulation, tnere would develop a depression as
severe as in 1920 and 192ll That opinion may be taken for what it is~wortn, but
at least it shows that minds in other countries are at work to make use of all
tho factors which experience has taught us aid in stimulating recovery from busi
ness depression.
There seems to be an opinion held not only in this country but in other
countries that, notwithstanding the temporary cheapness of short-time credit and
a plethora of such credit, there is a shortage of capital funds. During the
first five months of this year, nearly $3,000,000,000 of new securities were- issued.
There are those who contend that the depression in the security markets is due to
an overissue of securities, just as the depression in the commodity market is at
tributed to an overproduction of raw and manufactured goods. That may be. But
that there are uses to which capital funds can be put, and that there is a world
wide shortage of capital funds, I believe there can be little, if any, doubt. It
is certainly true in other countries; and, as it appears to me, one of the influx
ences which has operated to bring about depression in other countircs — and by
retroaction in this country — is the cessation or decline in the exportation of
capital from this country. Other countries have not the means to purchase from
us as freely as they would like to purchase and as they could purchase to advan
tage. I believe that is admitted. We are feeling very severely the decline
in our exports, although a considerable part of that decline (expressed in dol
lars) may be duo to lower prices.
Notwithstanding the purchase of $50,000,000 of government securities,
the volume of Federal reserve credit in use, expressed by the System's holdings
of bills and securities, declined $63,000,000 between June 4 and June 25. Last
week's statement of the Federal Reserve System showed that during the week endu
ing July 2, the amount of Federal reserve credit in use increased £134,000,000,
but that was caused by an increase in money circulation of ^127,000,000 for holi
day purposes. Of course other factors entered into the increase but the chief
factor was the demand for currency. During that week, borrowings from Federal
Reserve Banks increased ^>30,000,000, notwithstanding the purchase of bankers'
acceptances amounting to ^55,000,000, and about ^13,000,000 of government securities
taken over under repurchase agreement. The call lo^.n rate rose from 2fo to 3$,
All of tho foregoing facts demonstrate a need of Federal reserve funds,
even though the demands outlined above may be of only a temporary nature. But
the time is fast approaching when demands for credit of a purely seasonal
character will increase, and as I view the case, this makes it all the more a
propitious time for supplying Federal reserve funds to the market,
rNo.t for many years have I seen such general discouragement over the
)
business outlook, and at the present moment this~i‘cc±ing is”pcrhaps fit its--- *
Reproduced from the Unclassified / Declassified Holdings of the National Archives
d e c l a s s if ie d
Authority E • 0» U3Sfe>
3
latest depth. The improvement in the long-time money market, or in the bond
market, has been very much less than the rates for short-time funds would lead
us to expect. While business will not embark upon long-time undertakings unless
it can see a profitable outlook, and while an addition to capital funds supplied
by the Federal Reserve Banks through the purchase of government securities would
not necessarily induce those into whose hands these capital funds might come
to enter into long-time undertakings, nevertheless it cannot be disputed that a
plentitude of capital funds will trickle into use through whatever openings are
offered, with the result of increased activity and improvement of sentiment*
Since April 30, the loans of all reporting member banks up to July 2
have increased only $15,000,000, During that time their deposits increased
$419,000,000, and looking around for the employment of these funds, the banks
increased their investments by $329,000,000, while their borrowings from Federal
Reserve Banks during the period increased only $10,000,000. If by reason of
tho injection of Federal reserve credit into the market, bank deposits are in
creased in the usual way,— as they will be,— the banks themselves will in
crease their investments if there is no increased demand for loans. This in
itself will give material aid to the security markets in a perfectly legitimate
and helpful way. Loans on securities by these reporting member banks between
April 30 and July 2 increased only ^41,000,000, and all other loans increased
by about the same amount, so that the banks were driven into the investment
market for the use of their funds. Plentitude of credit would likewise drive
individuals into the investment market.
It is thus by an increase of the supply of capital funds that eventual
good will be brought about. I am therefore in favor of the continued purchases
of government securities by Federal Reserve Banks, partly because if we do not
make these purchases we will be guilty of neglecting the only means by which we
can contribute to the recovery of business, and partly because, as I believe,
the result cannot be otherwise than favorable, even though it may be only to a
limited extent.
The pressure of abundant capital funds will inevitably find an
outlet.
Very truly yours,
GJS-CCP
GEO. J. S-iAY,
Governor.
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority
E • O■V23Sfe>
COPY
FEDERAL RESERVE BANK OF ATLANTA
July 11, 1930.
Dear Governor Harrison:
I acknowledge receipt of your letter of July 3rd relative to
your views and the views of your Directors as to further purchases of
governments. Your letter was most interesting because of the able man
ner in which those views were expressed.
Fortunately, we had a meeting of our
reserved your letter in order that it might be
for advice or instructions from them as to the
further governments at the rate of $25,000,000
pation in such purchases.
Directors today and I
presented to our Board
policy of purchasing
a week and our partici
I
presented to our Directors the report of the meeting of the
Executive Committee of date <JUn© 23rd and specifically called their at
tention to the action of that Committee on the question of further
purchases of governments and to Governor Norris* expressed opinion in
those minutes on that subject. I also called the attention of the
Directors to the letter of Governor Calkins giving his reasons for dis
approving the first purchase of $50,000,000 of governments. So that our
Directors had before them, first, the report of the Executive Committee,
second, the views of Governor Norris, third, the views of Governor Calkins,
and fourth, your own views and the views of your Directors as expressed in
your letter of July 3rd.
In submitting this question of policy and of our bank*s part in
that policy to the Directors, I give my own views as follows:
"In this report I have given you the action of the Executive
Committee of the Open Market Policy Conference and the individual views
of Governors Calkins, Norris and Harrison. I cannot agree with the con
clusions of Governors Norris and Calkins. I. do agree with the arguments
and conclusions of Governor Harrison. I do believe that the Reserve
System has a responsibility T6Ward the bond market, as an instrument to
ward financing new enterprises, furnishing long time capital and
stimulating the world market. I do not believe that money is redundant
for long time investments. I appreciate the fact that the bond market,
in so far as governments are concerned, is strong and is fairly strong
as to high grade bonds, but I do feel that a surplus should be kept in
the money market to stimulate the bond market. Such a surplus may be
supplied through government purchases.
r-------------------------------------------------------------------------------------------------------- - -- -----------Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
Authority
E ■0 • U3S4?
2
"As I see it, the alternative to buying governments is to do
nothing. The rediscount rate has already been lowered in New York, the
money center of this country, to 2 1/2 per cent. This would appear cer
tainly to be low enough and many might be justified in thinking it is too
low* In my opinion a further reduction in the rediscount rate at that
central bank might be taken as evidence of alarm at present conditions
and in increasing that alaJrm might be more harmful than helpful.
"Some believe that the present situation must work out of it
self; that outside or artificial help will not avail. I feel that a
patient is entitled to every remedy. Inaction of the Reserve System
might in my opinion be construed as indifference or mightHbe accepted
as_liQ|i(itency. I should dislike for the System to confess either. I
therefore feel that the System should purchase governments and that our
bank:-:should favor and participate in such purchases to the extent of its
power, and that as a System policy the System should actively aid in this
manner at least in a restoration of business activity. It may take a
long time for the money put into the market to seep into our own district
or into the markets of the world and benefits from it may be hard to dis
tinguish or recognize because of the extended depression in the nation
and in the world, but we will at least feel that the System chose an ac
tive rather thtn a waiting and inactive part in restoration."
After a very full and interesting discussion on the part of
our Directors a resolution was adopted approving the policy of purchasing
governments at the rate of $25,000,000 per week and the participation of
this bank to the extent of its power in such purchases*
I am glad to communicate to you this action of our Directors
and my own position in this matter.
With my warm personal regards, I am
Sincerely yoursr
(Signed)
B-C
E. R. Black,
Governor.
Reproduced from the Unclassified
I Declassified Holdings of the National Archives
DECLASSIFIED
Authority
E ■0» U3Sfc>
COPY
FEDERAL RESERVE BANK OF CHICAGO
CONFIDENTIAL
July 10, 1930.
Mr. George L. Harrison,
Governor, Federal Reserve Bank of New York,
New York, New York.
Dear Governor Harrison:
Your letter of the 3rd instant was duly received.
It refers to the recent meeting of the Executive Committee of the
\
Open Market Policy Conference, at which time a majority of those,present-xetod ^J/
that in,their opinion it would be inadvisable to make further -purchases of
Governmentsecurities for the System account. It also reviews the statement
which you made at the meeting of the committee in Washington, wherein they
were advised that on June 19 your directors had voted that in their opinion
further purchases of Government securities should be made in the amount of
about $25,000,000 a week, and advises that following the action taken in
Washington, your board had again given consideration to the question involved;
had reiterated its views in favor of further purchases of government securities,
and had suggested that you communicate with the governors of all Federal re
serve banks, in order that they might be fully informed as to some of the
reasons why your board has been in favor of doing everything possible with a
view to facilitating the recovery of business, the inference being that the
proposed purchases would be a step in that direction.
I
note particularly that while your board does not feel that low
discount rates or additional purchases of government securities will of
themselves fix conanodity prices or restore business, they believe further pur
chases of government securities may accomplish some good, and, in any event,
can do no harm. I also note your reference to the view held by your board of
directors that the System should take all possible steps, whether through
adjustment of discount rates or open market operations which may facilitate a
more active and stronger bond market, believing that this course will make
available needed capital funds for new enterprise and at the same time will
restore to some extent the now seriously curtailed purchasing power of some
foreign countries.
The views which I expressed before the committee with respect to the
recent purchase of ^50,000,000 of government securities and the question of
additional purchases were substantially as follows:
r
——
---------------------
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
Authority E • 0» \23Sfe>
2
When the |50,000,000 purchase was under consideration, I was of
the opinion that the extremely low rates for credit then prevailing offered
no resistance to the use of credit for any or all legitimate purposes, and
that it seemed to me the available supply of credit was then in excess of the
needs of business. Consequently, I did not approve of the purchase referred
to, and it was for the same reason that I could not consistently support the
suggestion that further purchases should be made in the amount of about
$65,000,000 per week.
As matters now stand, there appears to be an abundance of funds in
the market, and under these circumstances, as a matter of prudence, I believe
that it should be the policy of the Federal Reserve System to maintain a
position of strength, in readiness to meet future demands, as and when they
arise, rather than to put reserve funds into the market when not needed.
In the past it has been clearly demonstrated that as the result of
long-continued abnormally low rates for credit, banks and other lendors of
money are driven to take risks which otherwise they would not assume, and
while there is apparently no danger at the moment of over-speculation in
stocks, speculation might easily arise in some other direction. Thereforet I
amjg6t iin agreement witrh yrm-r n-in»
placing of additional reserve
credit in tho market under conditions now current wcnn do no harm.”
As you are fully aware, through informal conferences which I have
had with you from time to time, followed by your comprehensive statement made
to the conmiittee at its meeting in Washington, I have at least in a general
way been well informed as to tho underlying reasons upon which the convictions
of your board have been based. Accordingly, I have been able to keep our
directors quite well informed, but even so, since your letter goes into greater
detail and perhaps touches some points not heretofore discussed, I shall be very
glad to submit it to our committee at its next meeting.
You will of course understand that I shall be very glad to have you
convey the views expressed heroin to your board of directors.
Very truly yours,
(Signed)
LK
B. McDougal,
Governor.
J.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
Authority E • 0 » V23S4?
COPY
FEDERAL RESERVE BANK OF ST. LOUIS
July 9, 193©.
Mr. Georg© L. Harrison,
Governor, Federal Reserve Bank,
New York, N. Y.
Dear Governor Harrison:
Your letter of the 3rd was received by Governor Martin prior to his
leaving for a vacation. He discussed the subject with me and I have since
shown the letter to other officers of the bank and today read it at the
meeting of our Executive Committee.
We appreciate your writing us at length giving your views of the
situation and the reasons back of your recommendation to buy more governments.
We, too, are favorable to having the System contribute to the fullest extent
to facilitate a recovery of business. The discussion here develops the idea
that excessive efforts in the interest of fictitious easy money may have just
the opposite effect from "that intended. It has been suggested that such
efforts have the psychological effect of increasing the feeling of uncertainty
and thus discouraging buying other than necessity demands. I have talked with
a number of business men and in almost every instance they are aware that the
Federal Reserve Banks are exerting unusual efforts to stimulate business by
easy money, but the effect is greater cautiousness on the part of business
until the turn is evident.
When Dr. Burgess talked with Governor Martin the early part of last
month regarding the recommendation to purchase 25 or 35 million in governments,
which later resulted in the purchase of 50 million, the Governor indicated the
feeling of our officers when he stated that we are not in a position to judge
this matter from the broad, general standpoint, particularly as it may have to
do with international affairs, to the same extent the New York officers and
directors are, but that we are more influenced by conditions in the Eighth
District and from that standpoint we can see no justification for increasing
the holdings of governments. Th^.t is likewise true today. On the other hand,
it is our desire to cooperate, as evidenced by our participation in recent pur
chases for System account. This is the time of the year when the demands of
our member banks should normally increase and this with the fact that our
present reserve is slightly under the average for the System, together with
the fact that our total holdings of government securities are somewhat heavy,
places us in the position of
wanting to at this time commit ourselves to
participate in any purchases *that may be made in tho immediate future.
\^y
Yours Very truly
(Signed)
0. M. Attebery,
Deputy Governor.
Reproduced from the Unclassified I Declassified Holdings of the National Archives
d e c l a s s if ie d
Authority
E •0•U35£?
COPY
FEDERAL RESERVE BANK OF MINNEAPOLIS
July 7, 1930.
Mr. George L. Harrison,
Governor, Federal Reserve Bank,
New York, N. Y.
Dear Governor Harrison:
Replying to yours of July 3rd, regarding action of the Open Market
Policy Conference Executive Committee, I agree with you that the Federal
Reserve System should do everything within its power to facilitate and hasten
the recovery in business, and should bo in a position so that, looking back
in future years, it cannot be said that we neglected any opportunity or put
any obstacles in tho way of prompt recovery. However, it soens to me that
there is danger of stimulating financing which will lead to still more over\y/f
production while attempting to mate it easy to do financing which will increase
consumption*
Then, too, as I read the chart which accompanies your letter, bond
prices today are practically on a level with February, 1927, and not so very
far from ?foere they were at the peak in 1928, and we are faced with the danger
of stimulating buying at a high figure which will show purchasers a hoavy loss
when business again gets active and money rates rise. I should say that nine
out of ten of the country bond buying banks in this district have shown a
heavy depreciation in the bond account due to purchases in 1927 and 1928 and
will be very slow to repeat the experience now.
As a matter of fact, tho investment account of tho reporting member
banks is higher today than it ever has been, except for a very short period in
1928, and it seems to me a much safer way to let nature take its course and
not try to force matters artificially at this time.
Yours very truly,
(Signed)
WBG-C
W. B. Geery,
Governor.
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority E • 0* V2356?
COPY
FEDERAL RESERVE BANK OF KANSAS CITY
July 15, 1930.
My dear Governor Harrison:
Your letter of July 3 was held over until our board meet
ing and was read in their presence and we also discussed it in our
organization a good deal. I want to congratulate you on your fine
defense that you made of New York’s position in the Open Market
Policy Conference at Washington, June 23.
Personally, we would like the earning power of a few mil
lion dollars of government securities but we are so far removed from
the real activities that would justify this that we hesitate to take
a position at this time. Business in the Tenth District is not so bad
yet as seems to be reported and, though it is slowing down and the low
prices of farm ccmmodities are discouraging, we are watching with a
good deal of interest the operations of the Federal Farm Board* As
you known, Mr. Legge and Secretary Hyde have been out here in the middle
west defending their position; they have critics and they have supporters*
Thu real test of the business conditions as the result of this slump will
be felt here in the fall more than now. Wo arc anxious to help in every
way we can to improve these conditions but we don*t feel that we want to
go u p against a four to one -position of the Open Market Policy Conference.
But your letter was very interesting and very enlightening and has had
more attention by our board and our organization than anything of the kind
for some time.
Assuring you of my highest personal regards and confidence in
your judgment and your ability, I am
Most sincerely yours,
(Signed)
Hon. George L. Harrison,
Governor, Federal Reserve Bank of New York,
New York, N. Y.
W. J. Bailey,
Governor.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
Authority
E ■0•U3Sk
COPY
FEDERAL RESERVE BANK OF DALLAS
July 15, 193Q.
Dear Governor Harrison:
Your interesting letter of July 3 was duly received and as suggested
I read it to our Directors at their last regular meeting, at which all Directors
were present except one* Our Directors, as well as all of our senior officers
who also read your letter, appreciate very much indeed your writing us the views
of your Board and your courtesy in supporting these views with the arguments
drawn from their experience and their observations of the present situation.
You should have had an earlier reply but in view of your familiarity with my
own views, frequently expressed on recent occasions, and your knowledge that our
Directors end officers are in complete harmony with these views, I am convinced
that my having delayed an answer to your letter has not created any suspense on
your part.
I hope that you will not be disappointed when I write you that our
f
Directors wererliojDimpreased with the arfiiTnanta which you presented. They are
quite willing to go along with the System majority view in any case, even to a
fairly limited degree of expedient action, but not inclined to countenance much
interference with economic trends through artificial methods to compose situations
that in themselves grow out of events recognized at the time as being fallacious.
Putting the view in my own language and in a way that I have expressed it several
times at our conferences, they are unwilling to interpose direct action in a period
of reaction to a previous period of action that perhaps, shall I say, was not
courageous enough or did not go far enough in its preventive attributes.
I hope that you have not misunderstood and will not misunderstand our
policy as being one directed toward pressure in the present circumstances, or one
directed in favor of firm money, or that we are opposed to easing in the circum
stances that have existed since last October. We are all profoundly of the opinion
that there should be no obstacles to an easing of credit on the part of the System
but that such easing should be in seme proper ratio to that which would ensue
naturally from the reaction. The thought is simply this — that a direct effort
toward ease on the part of the System should not through artificial means transcend
the force of reaction measured by the force of action at the high point of the
force of action in the opposite circumstances* To illustrate — rediscount rates,
in view of the reaction, would naturally fall to a certain point, but if through
artificial and arbitrary action, rediscount rates are reduced beyond that natural
point and open market transactions are used to force a rediscount rate below that
point to which it would naturally fall, then reserve credit would be forced into
illegitimate channels and the total amount of credit, based upon the excess reserve
credit released, would find its way into long term investments where it does not
belong, and the tendency would be far another period of inflation to ensue without v/
stopping at the natural point of readjustment from which recovery would proceed
in a natural way*
We all deplore the worldwide fall in prices in all categories. Prices,
however, are made by transactions and markets are simply the place where prices
are reflected. We do not believe, therefore, that markets have reached a stale
mate. If that were true there would be no fluctuations in prices either downward
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
Authority
E • 0» V23Sfe?
Z
or upward and this would indicate that no business was being transacted. Hie fact
that there is a fluctuation in prices, even though such fluctuations may be down
ward, indicates that business is being done and though it may not be in large
volume, what business is done at each level is bound to result in an erosion of
surpluses. To put that question quite bluntly, if coumodities are too cheap, why ux
doesn’t someone buy them?
We have been impressed with the preliminary report of the Census Bureau,
showing that on April 1 there were only two million people unemployed in the United
States. We appreciate the fact that of all the statistics gathered, perhaps those
relating to unemployment are the most inaccurate. We are inclined to believe, also,
that the number of unemployed has increased since the census date, but that this
has been largely in the reduction in the hours employed rather than in any tremen
dous increase in the number wholly unemployed. We make this statenant based upon
information that has come to us in recent weeks of compromises that have been
effected between employers and groups of employes. Unemployment will increase in
direct ratio to the increase in real wages.
We think also that we should not lose sight of the fact that much of
the purchasing power which has been lost or eliminated for the time being, was
merely potential purchasing power based upon a consideration of the continuance of
inflation and was measured largely by paper profits that disappeared with the stock
market crash.
The improvement in the quality of goods as one of the principal products
of competition, is a most important factor in present under-consumption. Goods
have reached a stage of such high quality that the intervals between purchase and
replacement have became much longer than formerly and this trend will continue in
direct ratio to the improvement in quality. This principle is of course affected
by whimsical influences that occur in boom times of inflated business and to the
extent credit is used to make purchases instead of buying with savings. In a
period of reaction, however, the volume of sales of the higher quality of goods
declines and the trend is toward the purchase of the lower quality and lowerpriced merchandise, either as a temporary expedient or in order to confine the
dollar amount of purchases within the limits of income. Over-production arises
from ample capital and a high use of credit. When over-production occurs, there
fore, there must be a compensating decline in the use of capital and credit and
both become redundant. If a demand for capital appears in such instances it must
assuredly come from enterprises that were undertaking to do business on deficient
capital during the period of inflation and moreover through an excessive use of
credit instead of capital, and the demand for capital in such circumstances is an
admission of the pinch of liquidation and capital is therefore sought to accom
plish it.
Some of our Directors felt that at least two of the arguments which you
presented were contradictory. If what I have said above has any merit and over
production flows from an ample use of capital and a high use of credit, and you
virtually stated this in your letter, then the satisfaction of a demand for
further capital supplies would tend to increase over-production.
At our last meeting our rediscount rate was maintained at 4# because
our Directors felt that the conditions in this distriat did not warrant a reduc
tion in the rate. Our purely seasonal borrowing has been almost exactly in the
same volume this year as last year and while the number of borrowing banks has
increased by some fifty or sixty, the average per bank borrowing is #10,000 less
Reproduced from the Unclassified I Declassified Holdings of the National Archives
d e c l a s s if ie d
Authority
E • 0» V23Sfc>
3
than it was last year. With the city bank borrowing arising last year largely
from a depression in bond prices, a withdrawal of funds from the district attract
ed by the high rates in New York, the stock market speculation and a withdrawal
of funds for the purpose of making purchases after the crash, practically elimi
nated, we have felt that the reduction of 1$ in our rate from last year's figure,
is and has been sufficient. One of our Directors, however, voted against the
maintenance of a 4$ rate and was in favor of a 3 1/2# rate. The other Directors,
however, felt that a reduction in our rate would express a stultification of their
view in regard to excessive open market operations.
Our Directors have always been very firm in their actions and quite
willing to act upon thoir own initiative and to assume full responsibility for
their decisions. As an illustration of their policy in this regard, in March
1929, our Board unanimously adopted a very firm policy applicable to those banks
which were lending in the call money market or on securities generally, and at
the same time borrowing from us. This policy was carried into effect simply but
none the less firmly and all of our banks that were lending in the call market
and heavily on listed securities, were required to cease borrowing from us and to
liquidate their indebtedness to this bank. One of these banks argued with us
until May 21, and liquidated its line on that date. Another was recalcitrant and
rebellious but at the meeting of our Board on October 7, 1929, our Directors by
a standing, unanimous vote called the line of that particular member, amounting
to approximately $1,750,000, and which was mainly secured by governments.
-—
We have a high respect for New York as the financial center of the
country and a terminal market and we try to fully appreciate its responsibilities.
Moreover we realize that as long as New York is all right so is the country. How
ever we also think that it should assume responsibility for what it does not do
as well as what it does undertake, and that it should have the fortitude to meet
a period of reaction and go through an era of readjustment patiently and calmly,
acting in accordance with conditions as they are found, instead of undertaking to
make conditions as they are desired, with the result of shaking their congestion
out on the country. We realize that what we did here during the period of the
business and stock market boom did not have any effect on the general situation
and wasn’t even a drop in the bucket, but it was an expression of what we be
lieved to be a correct principle and it showed the member banks in this district
a determination to enforce our policies and we would stand for no trifling.
May I not at the risk of being misunderstood, use a figure that illus
trates how we feel about the present situation, and which connotes our opposition
to the policy advocated by your Directors of which your letter is an expression.
If a physician either neglects a patient, or even though he does all he can for
the patient within the limits of his professional skill according to his best
judgment, and the patient dies, it is conceded to be quite impossible to bring
the patient back to life through the use of artificial respiration or injections
of adrenalin.
We are still convinced that capital must flow from savings, either
represented by an excess of income over expenditures, from profits or from the
creation of new wealth, and we are not convinced even by your fine letter, that
it can be supplied with reserve bank credit.
We also feel that the quality of
capital issues has a lot to do with it too, and have the feeling that the inferior
quality of many issues that are being used as the instruments of capital has quite
as much to do with the situation as tho over-abundance of issues generally.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
declassified
Authority E • 0 • V23Sk
In closing this tedious letter I desire very much to reiterate our
oft-repeated statement that we will abide by the majority view of the System
and that we will participate in open market purchases to the extent that our
collateral and reserve position will permit when those purchases are advocated
or confirmed by a majority view, and will cheerfully assume our part of the
responsibility for that view should it subsequently develop to have been in
error.
Sincerely yours,
(Signed)
Mr. George L. Harrison, Governor,
Federal Reserve Bank of New York,
Now York City.
Lynn P. Talley,
Governor.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
Authority E • 0 » 123S<p
COPY
FEDERAL RESERVE BANK OF SAN FRANCISCO
July 10, 1930#
My dear Governor Harrison:
Thank you very much for your comprehensive and inter
esting letter of July 3* 1 have not read it to our Directors
as there has not been an opportunity, and will not bo before the
seventeenth* I have, however, read it to* and discussed it with
our Executive Committee, and I think that what follows may be
fairly said to be the unanimous view of the Officers and Directors
of this Bank, as your expressions are those of tho unanimous opin
ion of th<j Officers and Directors of the Now York bank* (For the
sake of brevity, may I hereafter use you, we* utc., intending in
each case what is indicated above.)
There is no difference between your views and ours in
regard to present conditions. It is possible that the depression
is a little less acute here than on the Atlantic coast, and also
that, as we usually enjoy a rnoro rosy outlook, w o may not be quite
so much depressed* However, at the moment, we are enjoying a
season of physical fog as well as economic fog so that altogether
I think the psychological atmosphere is comparable*
There is no difference between your view and our view
as to what condition it is desirable to accomplish, nor as to the
obligation of the Federal Reserve System to do any, and all things,
which can be properly done to facilitate, expedite, or encourage
business recovery*
There is, however, a very marked difference between your
view and ours as to what should be done, and as to the effect of
those things that you propose if they were done* Unfortunately, I
think it is necessary to state most of our views in a negative foim,
as follows:
1* We do |not^believe that the creation, promotion, or
encouragement of a bond market is within tlie province of the Federal
Reserve system, nor do we believe that any efforts which may be put
forth by the System will result in such an improvement of the bond
market as to favorably affect general business or foreign trade* It
is, of course, undesirable to inject political terms, but it appears
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority
E • 0 • V23Sfc>
2
to be unavoidable inasmuch as it appears to me that your propo
sals are to a degree political. It is our belief that no encour
agement of the market for foreign bonds can counterbalance the
destructive effect upon our foreign trade of the tariff bill recently approved.
2. We believe that to make credit progressively cheaper
and more abundant mav cause an unfavorable psychological reaction,
rather than a favorable one.
3. We believe that the volume of credit forcibly fed to
the market up to this tim© has had no considerable good effect,
certainly no discernible effect in the last few months* We also
believe that every time we inject further credit without appreci
able effect, we diminish the probable advantage of feeding more
to the market at an opportune moment which may come.
This is a mere repetition, but I think this argument will
bear reiteration because the argument that you advance; that is,
Mso while there may be no definite assurance that open market
operations in government securities will, of themselves, promote
immediate recovery, we cannot foresee any appreciable harm that
can result from such a policy, and believe that the seriousness of
the present depression is so great as to justify taking every pos
sible step as to facilitate improvement,” appears to be that on
which you place most emphasis, raising, of course, the question
which is the whole question, as to whether the operation you pro
pose will or will not facilitate improvement.
Surely no one
would oppose, believing it would facilitate improvement, and no
one propose, believing that it would not facilitate improvement.
The chart which you enclose is interesting, but appears
on too small a scale to be really convincing*
It shows generally
at times that we were buying, the bond market was improving, and
vice versa, but shows a number of variations like 1925 and 1926,
when we were selling heavily and the bond market steadily advanc
ing. In other words, the study as shown on the chart does not
appear to me to be sufficiently convincing to justify a final con
clusion.
The foregoing may contain nothing but repetition of mv
letter of June 17, probably because our views have not changed
"since that letter was written. I appreciate very much your industry
and conscientiousness in setting forth the situation as you see it
/
^
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
Authority
E •0» V23Sfe>
3
so fully, and certainly hope that you will continue to give us the
benefit of your views.
There is one other suggestion, not relating to policy,
but to procedure, which perhaps I should not include in this letter;
that is, that it appears to me that, when a major operation is pro
posed and the approval of the members of the Open Market policy Con
ference sought by telephone, with the result that a majority of one
supports the proposal, an actual conference should be called before
such proposal is put into effect, as it is, of course, obvious that,
after a round table discussion, a majority of one might be converted to
a minority of one. I do not by any means intend this as criticism of
what was done, but as a suggestion regarding future procedure. I am
not eager to take trips across the continent in mid-sunnier unless it is
necessary, but I would much prefer to undergo whatever hardship is in
cident to such a trip than to enjoy comfort in this salubrious climate
at the cost of some responsibility for what I believe to be an undesir
able record, which might come home to trouble us.
Yours very truly,
(Signed)
Mr. George L. Harrison,
Governor, Federal Reserve Bank of New York,
New York City.
Jno. U. Calkins,
Governor.
Reproduced from the Unclassified I Declassified Holdings of the National Archives
F o r m No. 131.
Office Correspondence
To
Federal Reserve Board__________
Mr. Noell_____________________
J
FEDERAL RESERVE
80480
rw
July 21. 1950.
Subject:._____________ _______________
_ ' ____ __________
There is attached hereto, for your information,
___
^
from the Governor of the Federal Reserve Bank of Dallas, submitting a"copy
of his reply, under date of July 15, tfj Governor Harrison’s letter of
July
regarding the advisability of farther purchases of Government
securities.
Gov. Young]
Mr. Platt,
Mr. Hamlin,
Mr. James,
Mi*. CunninghAi.
Mr. M i l l e r ^ ^ H ^ ^ '
Hr. P o l e W ^
Please circulate promptly and return to this office.
Reproduced from the Unclassified/ Declassified Holdings of the National Archives
FEDERAL R E S E R V E BANK
O F DALLAS
July 16, 1930.
Federal Reserve Board
Washington, D, C.
Gentlemen:
For the Board's information I am enclosing a copy of my
reply to Governor Harrison's letter of July 3, a copy of which he
advised was sent to the Board*
His letter was written as a result
of the negative action of the Executive Committee of the Open Market
Policy Conference at its meeting on June 23, in reference to the
favorable recommendation of the New York bank for the further pur
chase of government securities by the System.
Yours very truly
R e p r o d u c e d fr o m t h e U n c l a s s i f i e d
I
D e c l a s s i fi e d H o l d i n g s of the N a ti o n a l A r c h i v e s
Baar kyraracr li&rriaent
tmat iutara#t.inc lattar of July 3 waa duly raocired and m aufgantad
X raad It to our mraetora at thair la#t ro^ular m m & l m * ** which all Mraetora
wara praaast axoapt ana* @«r
m »all aa all of w
aanior offioor#
who alao road ycmr lattar, appraoiata wary i«oh l&Aaad your writing u« the yiawa
of ywir Boar* and your oo*8"ta*y In
tt » a tlaw* with tha arjruwanta
drawn froe thoir «xp«rieiMt and thoir obaarvwti ona of the praaant »1 tuation*
J m ehoald M m bad an earlier reply hot in Tiew of your fam iliarity with say
own viewa, frequently expreeeed on recant oeeaaiona, and your knowledge I I # our
Slrootoim a»ft offleor* are ia a©i*i!#§« t e « s iy with the*« ri*ws, I m
that ay %mvtm delayed m answer ~to your lot tor hea not created any «*t#penee m
your $«r%*
!
\
I hope that you will not bo disappoints when | write you that our
Uireot&ra woro not i^reased with the argwatnta which you pr rented..They are
f»lte willing t© go aloiu* with tho 3y§lam n»Jority riow in any caw, m r m to a
fairly limits degree of expedient aotion, but not inclined to countenance riuoh
interference with e e w i o d a tranda through artificial aetboda to eoKQ*>ee el nations
that in theaeelyea m m - out of evanta rooosniaod at the tino a# beinp: fallacious,
rotting tho irlipt in m$t m m
in * m y that I hfcve exprazeed it eeveral
tiiwa at our conferences, they taro unwilling to intarpoee direct notion in a period
of reaction to * p t m i m m period of aotion that perhapa, nhall 1 aay, waa not
courageous enough or Aid not go far onongfe it lta preventive attribute*.
t hope that you have not misunderstood and
not misunderstand mrr
polity aa boln^ one Oireeted toward preaaure in tha present circuraetancee, or one
directed im favear of firw aoney, oaf that wo ere opposed to easing in tho cireuastaaoee ttiat ha*e axlatod ainoo laat Ootobor. m m m a ll profoundly of tr»a opinion
ttet tfeora'should bo ao obataclaa to an oaain^ of orodit on tho part of tha Syataa
but tiiat mch aaain^ ohotild bo in aosaa propar ratio to that whieh would mem
naturally fron tha raaction, fha thow^ht la aiajjly thia — that a dlroot effort
toward m m m tho part o f tha Byrten aho^ild not through a rtifie ia l w m m tmnaoond
tl»
of roactioo Maoarad by tha faraa of aotloa at Wm h i^ point of tha
tm m of action ia tha oppoaita circtmatancaa* f@ llln atrata *** radiacoimt ratea,
in H i * # f t M ahMn%i«nt wwili m i m m X k f fa ll to %
pointf but if tlrssti
a r t ifie ia l and arbitrary action, rcdiacount ratea are reduced Wyond t&at natural
point and opan mrkat tranaactioaa ara ucad to foroa a rodlaoount rat# balow that
point to ufoim . it w m M w & m & X f i l U ( than r@aarw> orodit woulJ be foroad into
illa^ itiaa to ohanaols and tha' total aatmnt
cradit, b<i»od upon tho axceos m m rim
crodit raleasad, would find ita way Into lost torra lnTootaonto wharo it aoae not
balon$, and tha tandanoy would ba for anothar period of inflation to « m m without
atop^iag At tha naTurid poI»T^rraadjn»traont fro^whiclTrecovary wrniTa rroceod
iT5 a natural way.
l» all ^flflara tha wwrldwida fall im jriean in mil oattg^iaa, >ricoa,
howavar, ara oada toy tranaactiona aad market* are airway tha gias# whora pricaa
ara raflaotad* la do not baliayo, thwrafora, that nsarkato haya raachad a atala»a-t## If that wara trua thar© would ba no fluctuationa in pricaa aitl^f downward
R e p r o d u c e d fr o m fh e U n c l a s s i f i e d
I D eclassified
H o l d i n g s of the N a ti o n a l A r c h i v e s
or upward and tuts would imlioat# that j | Imalmmm woo be ins transacted. ftm fact
tfiat thero 1* % fluctuation In price#, *f*a though mush fluctuation* m y be down*
ward, lndicotea that bunineae is belntf doo# and though It may not be in'larpp
▼oluan. »>*t buuinosn la d m # at w c h l#yel la bound to result In an eroaian or
surplus®*. <m put that Queetlcm quit# bluntly, if coaaaxSiUe# ere too cheap, why
doeonn sotsossio buy than?
I#
been iapreeaed with tha prelliaiiiary report of the Cewm# ureau,
m m lm that ©a 4 ^ U U 4 ^aNl ware only tWQ_JBHIion people uaagployed In the !M H I
Stat#** 'i# appreaiat* tho fact that of a ll tha atatTe^Ioir g*tto*iNUl^rhajHt tk*o#
relating to
ore the xaoat Iwm-mmim* m mm inclined to believ#, ala©
%Mt the xno&or of unemployed haa inoafooiiod alnoe tlso eenous d&to, but ttsat thio
ha# bean largely in tha reduction in tfe» feouto employed yntHgf than In any traraandoua tncreaae in tha nawb#r wholly uivewployod. to m k * thia etateraaot baood upon
Sjgosaftt&ttft that baa con* to na 1 b recent week# of cowpraoleee that h m * 1mm
effected batweon aag>loy«ra oisd
of employee. unemployaeat w ill im v m m in
diroot ratio to tha iacre&ao in raal wa#*#.
10 think aleo that w# abould not Xoaa el^ht of tha fact that laeoh of
tha punshaainc power which has bean lo«t or eliminated for the tDae bei^, wo#
wwraiy potential ^ # ^ a # i ^ power b&oed upon % oonoldaamtion of tha oo&ttiwsiofl^ of
inflation and waa seaeured largely fey fi#«r proflta that disappeared with the atook
oorkat oraah*
f&o fcqprovesoirt $» tha fuoiitr of w d » a# on# of ffco ptnoipol protet#
of ooe^atitioa, is a '?so#t ii^jortoat factor in praaeut uadar-eonouapt ion. Good#
have reached a atape of aueh high quality that the interyola between purchase and
replaceiaeat hare begone such longer than formerly and this trend w l U continue in
direct ratio to the i«prove«#nt in quality, fhi# principle la of couroe affected
by whiaelcal influences that oe<rur in booa tinea of inflatad twalneoe and to tha
octant credit la ua*4 to saiga jmrchooee inataad of buying with seringa. 1» a
period of reaction, however, tha woltm of aalas of tba higher quality of ^ooda
deoliaea and the trwsd ia towao-d the purehaae #f the lower quality and low**- ,
priced aarchaadloa, eithar aa a temporary axpodiost
In order to oonfine tha
dollar auwtmt a# pwHiooo* within tha I M ^ I Off
0f«3f*^M»da0t4oB ariaaa
fro« aeiple oapltal and a high uaa of credit. 'Whan orer-produetloa 00cure,
focre, tbaire »m»t be a ooa^>anaatlng dacllna In tha use of capital and credit and
both beooaa radusdant. If a danand ftaar oapital appeera in aucfe itaBtanoea it « o t
aaamredly ooraa tmm antarprlaaa that ware undartaking ^ do bu«lna«« on deficient
capital during the period of infl»ti<m and ^ e o T e r through an exccaclva uae of
srodit inat#ftd of
and tfe# danand f^r oapltal in such
1*
adtslaeioa of tha piaah of liquidation and capital ia therefore
to
plia^ it«
Hoo» of our Directora felt that at leaat two of % m m m m m to whio^ you
preaented were contradictory. If what I hare aald above haa any worit und orerproduction flows from on os|>l® uee of capital and 0.high uea of credit, and you
virtual^ atated thie in your let tor, then tho
of o dewnad for
fwttmp capital e^plioo wo^ti tond I# Increaae oiro^p*©<^9tli*ft*
k% m m laat iwetin^ our redia*ouat rato wae aiaintained at 0 beoauao
our mrootoam M t that tho condition# in thla diatriot did not warmat a reduc
tion in the rat** Our puraly eeAaosal borrowing law boos alnoet exaotly In t’-e
aaia# toIwm thia year a# laat year aad whil# th# number of borrowing banka haa
in«r#a*#« by aon# fifty or n i ^ , tb * * * m m * p#*
te m m rtm 1 » |10#00© la#*
R e p r o d u c e d fr o m th e U n c l a s s i f i e d / D e c l a s s i fi e d H o l d i n g s o f the N a ti o n a l A r c h i v e s
& * » It m m l m % yv*r* m t &
«ity fcft»k
ariaintf laat f » i largely
from € depreaeion in bond prleee, ft w t m & m m t of fund* m a t t&* itatriot attracted
toy
high rate# in m m York, th* atoek amrfcet speculation and a withdrawal of
fuada for the purpose of Making jwrohaeee after Hn« eraali, practically aliednafcod,
»
f&l* that tlia reduction of 1# in our rata from laat y m r ' e figure, ic and
ima bn*» «4fflolft«*t* one of our imrettora, however, voted aipimst tha imlsteaamft
of a 4$ rata and w&a I* favor of ft S|$ rata* 'fti# other Mreetora, however, felt
t&at a reduction in our rate would expresn a stultification of their view in re
gard to exoesiilve opan market operationa.
■0m C r e a t o r s have al*aya been very f i » is their aotioaa and $<#
william to act upon their o w initiative and to- ae^nwa f a H reeponeibility for
thair dooialoaa. A* an Uluetratioa of thair policy 4s thic regard, im l$ar#h
i#S#f CPUT Board unaniwouely adopted a w r y firm policy applicable to ihoae banka
which war© leading in tha call rsottey aarfcet or m eeeuritiee £©ner&lly, and at
the m m t i m borro*iaii
«** fhl»
wue carried into effect elrqply but
none tha leaa f t a & p ft»d mil- of on* baatea that **r© lending. in th* eall m&tort
and heavily on 11atad aeurltiea, were required to eeaa© borrowing from us and to
lifuliat# thair indebtedaeea to thla bank, one of theae banka ar^tuad with ue
until way 21, and liquidated It# line m that data. Am-lkm*' m » recaloitrant and
ra ball locus but at tha naeting of our :3o«rd on October 7* 19£9, our Hreetora by
/
ftj^aad&ag*
the line «f tlmt jfcrtl«miar
amounting
^
to approodiwtely
,700,000^ a S 3 whT^vfcfTSalnly aeeured by>*ovem®?)te.
w# have a high, respect for San Year* aa
of tha
oountry and ft
iseapket and m try to- fully appreciate it* i^iipoaaibilitlaa*
Ser#0*ftr m realise that aa long m W m York la all right eo i« tha country* nmt*
ever wa alaa t&Jjft that it should aaeuse rceponalbility for what It doea not do
aa vail aa what it doea undertake, and that it afcould have tha fortitude to meat
a period of reaction and go through an era of raadjuataent patlaatly and oalraly,
aaticg In ftoaordftaae with eonditioaa aa they are found, inatead of undertakiag to
iBftke ooaditlona aa they «et# deaired, with tha roault of ahakin<r thair ooT^ation.
out on the country, fft realiaie that what we did here during tha p m lot of tiia
buBisaaa and a took raerket ^oo« #14 not have any effect on the funeral al tuation
and waan*t even a drop i« the buaket, but it waa an oxpraaelon of wiiat we be
lieved to m ft correct principle and it atowed the raeabar banka in this diatrlet
a determination to anforoe our pollolea and wa would etond for no trifling.
m y I not at the rlafc of bei « mlauaderetood, uee a flpera t&at illuahum m feel about the present aituetien, and which oonnoteo our opposition
to the jN&itty advocated by f w m il^e o t W # of which your letter is an ©xprcaeion.
If ft phyalclan either na^lftete a patient, or ©van thouf;h he doea all he can for
tha patient within the liaita of hie profaaeional aklll a«o<ffdinjK to biff beat
jud^aast, and tha patient dleet it la coaeaded to ba ^uita ij^>oaaible to
the patient baak to life through the uae of artificial reapiratioa or injactiona
of adi*a»ilia.
trat«i
m are a t i U ooavinoad t ^ t aafltal m a t
frost aavinea, either
repre»e»ted by aa exeeaa of incase o w expendituraft, from profita or frtm the
m m u m of m m wealth, m & we are ^5t a^svi^eai a w %y ycwr fli» letter,
it oaa be a l l i e d with reaerva bank credit. ^ alao feel that the quality of
capital laauee haa a lot to do with it too, and have tha fueling tbat t/»
inferifflp quality of m n y U a u e e that arc b a l m need aa the inatnnttenta of capital
'haa' fuite aa m c h to do with the aitmtioa aa the ®**r»ab*fiid&a#« of iaeuea
R e p r o d u c e d fr o m th e U n c l a s s i f i e d / D e c l a s s i fi e d H o l d i n g s o f the N a ti o n a l A r c h i v e s
•4 *
IM Q&Mlm t h i a tadioua lattar I aaalap*
atteh to- m itm m tm w
stataw it that if# ni34 abide by ttm
tty ti-tm of the ayatasa.
and that ire w ill participate In open aarket purcha&ea to the extent that our
collateral and reaerre poaition w ill permit whan thoee ptirohnaee are advocated
or eonfiraiei by a iw jorlty vU m , m & w ill cheerfully aaauaa our part of the
responaibility for that view #&©«!« it subsequently develop to hanr® bean is
•TMP*
Utneercly youra,
§ o v a r » e r
Mr* @ w r p 1*.* »rrle«at Sovwmar
Federal Beaer?# Baals of New York,
H m York City,
Reproduced from the Unclassified I Declassified Holdings of the National Archives
F o r m X o . 131
FILS COt
Office Corresponuence
To.__
Bach Member of the Board*
From
Mr. m M k
ttm.m
m
m
FEDERAL RESERVE
BOARD
Date_
Subject
"hmmm* f m jrntt
mmt
*
m w
*■ £#***# i&Mt m m
u &#
rnmmm.m s£ t&« *W*m
mm#**
m*
t o m*mim
m m m t o m #t W m '$mm *t W * m m
#f $»* ?©*&
*• •**>•*% • farther |m«Niee« of U
lM
i *i< x irltle *.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
Authority E • 0 • V23S\o
Fe d e r a l R e s e r v e
o f
CONFIDENTIAL
Ba n k
N e w Yo r k
July 5, 1950*
Dear Mr. Platt:
For the information of the Federal Reserve
Board, I am glad to transmit herewith a copy of a letter
which we have today dispatched to the governor of each
of the Federal reserve banks, briefly summarizing the
reasons which have prompted our directors to advocate
continued further purchases of government securities.
Very truly yours,
Hon. C. S. Platt,
c/o Federal Reserve Board,
Washington, D. C.\
Reproduced from the Unclassified / Declassified Holdings of the National Archives
d e c l a s s if ie d
Authority
E • 0« V23Sfe>
SENT TO THE GOVERNOR OF EACH FEDERAL RESERVE BANK.
AND MR. CURTISS, FEDERAL RESERVE BANK OF BOSTON.
'5 S S S B S S E
Dm
t
O o w a a r Koiria:
la hara al#*fc&y f«ir**r&a& to yoa a pralialaary draft of tka
miatita® of til# w m t i M of the axaoutlra ooaaittaa of tlia 0$*m Markat Policy
Confaranaa b#14 I* ttaafclagtoa on Juna 23.
As you will ha*a obaarrad fro*
t b o M aiABtaa, ft ■fcjeepity of ti* M « b a r a of tha oowadttaa irotad that In
thair opinio* it m a ( »»t)<liMiiytlbla ftt that time for th© Jfadaral Raaarra
3yataa to uadartaka aay f&rthar opan aarkat purchaaaa of gcrrarmMit »ecuritiaa.
Aa a m s a l t of this aeticm by tha coaaolttaa ao reoo i M a d ation was
automittad to the eoafaraaoa aa a vbola, aad ahila tha riaoa of tha aanaittaa
w«ra raportad to tha ftdaral Raaarva Boaurfi, ao racoanaadation wets ptat bafora
than tor eoasiAaratiaa.
Aft I r«port«d at tha aaatiag.of tha oanrtttaa i& Saahiagtofi,
our diraetora to tad on Juaa 19, ftftftr tha coaplation of tha puroba*# of
tha *50,000,000 prarioualy autltol*i»ad by tha oonf •ranoa, tbftt# la their
opinion, furtbar purobaaa* ip am u otmt of afe«Mt 710,000,000 a w*ak ahould
ba contiaaad.
I paraooally farorad aach perohftaaa during the diwauaaion*
in vaaahlmgtoa, and o m diractora, at thair jitetiSf on Jima 86, reiterated
thair Tlaaa with reapect to the importance of a aoatimaaaaft of that pro
gnat*
In faet, they ffclt ao aarseetly tha aaad of ooatimttiag tbaaa pur*
ohaaaa of goTenanant securities that tbay hare auggeated that I write to
you outlining aovaa of tha reaaaaa i&y the Fadaral Haaarra Bank of New York
baa for ao aaay aonthe favored having the federal Reserve Syatom do avary-*
thing poftftibla and aitkift its poaar to facilitate & recovery o£ btjsineaft*
R e p r o d u c e d fr o m th e U n c l a s s i f i e d / D e c l a s s i fi e d H o l d i n g s o f the N a ti o n a l A r c h i v e s
declassified
Authority
E • 0 • \23St>
V
Governor m
i«
JUly
l#SO*
They do not feel that low dinoaunt rates or further purchases
of governne&t securities will of tfeeaaelvec fix coaaodi ty prices or restore
busineeB activity.
There are fern n m y othar factor* involved in the situa
tion to expect that any such credit operations would, or could,,alone ac- '
ooapliah these objectives.
They do feel, however, that further purchases
of goiferaaeat aec*iritiea la circuiastan&ea such as the present* can d o :
;®0j^
possible hana and will likely acooapllsh some good.
Aa they view the situation It is about this:
The United
steta# amd nost other countries of the world are in the aidst of a aevere
business depression.
The deoline in bus1ness activity hue been exeat as
Judged by alaost every available index.
Uaessploynient ie serious.
Cossaodity
price© hate suffered the moot severe and rapid decline since the poet-war
deflation of 1921, and are now about 12 per cent less than a year ago.
decline has baas, most pronounced in the last few weeks.
The
Profit margins
are seriously cut* purchasing power has been reduced, and rasny people are
facing unemployment and distress.
fihile it' is no dsmbt true that this depression is, in part
at leaet, the result of cauaes quite unrelated to monetary condition® and
clearly outeide the control of the heoerve r.yutem, there are nevertheless
aomajaapacta ofj t h e sltuation w l t h respect to which the noaerve System has
a direct responsibility#
Overproduction of certain basic commodities,
both actual and potential, has no doubt played a large part in developing
present conditions.
On the other hand, it is also true that undercon
sumption, dm® to credit restrictions and high rates during 1828 ana 1029,
a atoppage of the flow of capital, and an Interruption of economic activity'
in many sections of the world, has also been an important factor in the
present depression.
But whether tue present depression ie due more to
R e p r o d u c e d fr o m f h e U n c l a s s i f i e d
I D e c l a s s i fi e d
H o l d i n g s o f th e N a ti o n a l A r c h i v e s
declassif Te d
Authority
E ■0 • \23 S t
$
Governor Norria
July 3, 1900.
overproduction or aor« to underconsumption, It mini b# agreed that there is
a aurplua of jaaiiy baai# ooaEiodltiea awaiting distribution, caBiaodltias which
arw wanted and needed ia wway aactiona of tha world which have not th# power
This aurplua of unsold goods m sy not, in iseay caaaa* ba
to paafehaae tham.
great, but unfortunately the mar# exlatanoe of on unsold aurplua hanging
o*ar the warkat la a dominant faator in tha courae of tha prioa of any co»aodity.
Anything, therefore, that can be don* to atSanlata ecoaoaic
activity and thua provide & aarket for that surplus, however great or how
ever snail, will ha a steadying influence and a vital factor in the recovery
of prices and buainaaa.
Our directors hava believad, therefore, that whatever atapa
tha itaaarva ayata®
operatione, to
say
taka, whathar through discount rataa
f&oilltata a
*ore
a*tl*# and
which capital funds may ha saade available
to
thoaa parts
of
atronger
for
If in
strong
or
oarket
through
distributed
the world whewi puxohaaiag powar la now aarioualy » »
Tola ia eepecially
tha conditlona aa thay now axiat thare
to ba bo substantial riak incident
active and
market
na« enterprise
tailed* should 'ha taken jproiaptly and courageously.
trae, tkey fa*l,
b&ad
or op«n
to
bond aarket will run
each
a
vary
omtraa.
©an -ha aald
Stimulating
little danger of
an
anconvagliig
unnecessary borrowings by those c o n c a m a which already hava surplus pro
ducts
or
ample aapaeity
to
prodnae.
un
tha othar hand, auch
a
oawra#
will taaka ava liable neoeaaary capital fto»d» to thoaa l
*ho .itow lack capital
and will tbna do saaeb to raviv* oomfcl «*0RiQN&ft acttditioaa, restore per*
chasing powar and tand to distribute our twappljjui goods into fla Ida whero
thoy ara ao urgently needed*
During 1928 and 1929 tho diversion of world credit into tha
ap8<ml&iiwa nartotta very aavaraly $**%?iatad certain typaa of maw financing
R e p r o d u c e d fr o m th e U n c l a s s i f i e d / D e c l a s s i f i e d H o l d i n g s of the N a ti o n a l A r c h i v e s
declassified
Authority £ •0 •\23Sk
....
..... ’___
Oarer nor Ncrrie
throagt the bond aarket.
Money beosae difficult to obtain for building
operations and other non enterprlaes in many aaifceta,
ings in tfcia aarket war© greatly reduoed m M
oonsequcaee new redueed.
Tuly 3, 1990*
Use foreign borrow
ffcrei#* buying froo us la in
Indaad, current figures relating to our foreign
trada indicate a .drop in tha pas* four or ft*** aonthe of m m
aa ooapared with laat yeer.
20 par cant
Svsn i f we take into account tfe* decline in
ccaaodity prions, t&e a*ount of good# being «xpqpi#d £*©» tha Uaitad Stataa
to world aarket* la- now a^Aetantially leee than laat year.
All tha evidence
indiaataa that we have surplus good* to sell n&d that there are- other perta
of tha world -that are in need of those goods.
To etiiaalate their distribu
tion to tha points where needed beeosaa a Matter Of the aoet vital iaportance
if the decline in e o m o d i t y prices ia to Ins checked and business la to be
restored to normal activity,
Ia previous 'bttsiasse 'depraaeiojBa^ recovery baa never taken .
place out 11 thara has been a strong bond aarket throu#i Mil oh new enterprise
requiring Long tine #spital a n y be fina&oed.
So ahile thsre la no
ooa-
eidersble danand from buaineaa for short tine aoney at the preeent tin*, ^
and ahort tlae aonsy aay be said gs&erally to b e plentiful and cheap in
nany sections of the country and other parts of the world, there la never\ theleee % large dssatnd for loag tlaef capital for new undertakings.
1
The
(
bond narket haa in the paet sevsrel aonthe been able to absorb a very conaldarable voltwe of these new iaeuea but it la not yet vlgoroua nor la it
able to supply oil of the funds which legitimate bmsinsaa* both at hotae
and abroad, so a»ch dsaanda*
ttd» % p e a r s to our director a to be a situation in which the Re
serve Systea haa soae responsibility.
Aa indicated In the attached chart,
whenever the Federal Reaerve System enberke upon a progrem of purchasing
goversasot eecurltlea, tho bond market has beoooe more active and atronger.
R e p r o d u c e d fr o m th e U n c l a s s i f i e d / D e c l a s s i fi e d H o l d i n g s o f the N a ti o n a l A r c h i v e s
DECLASSIFIED
Authority E ■0 •
8-
Ootarnor Norris
July &* 1930.
Whsn the Syetsa buy* securities, tbort time aoney becooes aore plentiful and
cheaper.
It also becoa»s loss profitable In eonp^rlson with long time
money, and it has been dssKmstrated In tbs pest th-t In such circumstances,
through a further increase in tbs reserves of asmber banks money will be
unde aval labia for tbs bond aarket or shifted to the bond aarket from the
short tlas aarket or ftswe other lnvestaents lens profitable than bonds.
Furchasee of securities which bate been *ade thus far bate
aided in relieving tbe aaeiber benics from tbe pressure of indebtedness at
the Reserve Banks and In a aeasure bare provided the Market with surplus
funds anal lable far use in tbs bond and mortgage aarket.
'
But to a large
extent these purchases which bate been node thua far have been offset by
declines to rediscounts and in tbe bill portfolios of tbe federal reserve
banks so that tbe total of Federal reearve credit has shown a net decline,
erven asking elloweaoe for gold Inporta.
It bee been our belief, there
fore, that purchases of government securities should be continued to the
extent neoseaary to keep aoae supply of surplus funds in the money aarket
as a stimulus to tbe bond aarket, at least until such time as there aay be
seas evidence of a recovery in business.
This aay not involve any very
large amount of further purchases* fcnt our directors feel thot additional
purchases at tbe present time are not only desirable but necsnnnry if the
System is to do its utnost for tbe accomodation of businssa and trade. J
Even since tb# meeting of tbe ©owaittee on June 23 there baa
been a further seasonal tendency for the bill holdings of tbe System to
diminish and
sobo
tendency for discounts to increase* thou«$ this movement
waa interrupted by the unusual dsaand for funds incident to the end of tbe
aonth and holiday currency requirement a which led to increases of bo'tb
bills and discounts ant brought the total of reserve bank credit outstaadiag
R e p r o d u c e d fr o m th e U n c l a s s i f i e d
I D eclassified
H o l d i n g s of the N a ti o n a l A r c h i v e s
declassified
Authority
E ■0•\23Sk
Governor Norr
to $1,060,000,000.
July 3, 1930.
Tha avanta of thi* pariod have llluatrated the t x t r e M
aaneitivaaaae of the basin at praaant to aay lndabtcdaee t at th* Resarva
banka*
Even the relatively awall aaMttt of addltioaal borrowing which
New Tork City baafc* found aace***ry wa* acooapealed by aft increase of oo«
par cent 1ft tha call loan rat*.
It la time evident that aa even asaall
•aount of borrowing under preaent o end It ion* la aa effective a raetralnt
aa eobetantlally a greater t a w l aaa a year ago.
eeaeon when tha M U
ThI* ia normally a
holdings of the Syate* diminish ami wtaaa tha extra
demand far ftmde for crop aoviag begina to be felt*
ft i», therefore, *
tlae whaa there la naad for «e to be particularly alert to avoid lncreaeee
of xadlaeowftta, avas apart f)raa a nore general policy of operating positive
ly in wttprplying the market with surplaa fund*.
So while thara aay ba no d*fialt* aeenrance that opaa aarket
;
|
operation* In govamnent eeourities will of t b « e elves prooote any isnedl&te
recovery, wa cannot foraaaa any appraolable h a m that can result from stich
a policy and beliara that tha aariooaaaaa of tha praaant dapraaaIon 1* ^d o
greet aa to Jnstify taking every poesible *tap to facilitate laproiamant.
Thia lattar ia being written Largely beoaase oar director*
f M l that it ia fair to then an* to i&m polioiaa which thay have pxxranad
so a a m a a t l y In th# paat eeveral month*, to give you aaa* idaa of tha reaaoa*
which hare prompted not only oar rata radaotloaa but oor advocacy of further
porchaeee of gofanmaat aacuritiaa.
X hope you will plaaaa aaaapt It ia
that spirit, and with the imdare tending that our diractora feal keenly the
naad for a. continued aid frank; exchange of viawa aaong the Faderal rasarva
banka and tha Board, especially at suoh a critical time aw tha praaant.
I hopa you will plaaaa f*#l fraa to a bow thia lattar to your offioar# or to
R e p r o d u c e d fr o m th e U n c l a s s i f i e d
I D e c l a s s i fi e d
H o l d i n g s of the N a ti o n a l A r c h i v e s
DECLASSIFIED
Authority
%
E • 0 • \23S£?
Q m & m t x t Horria
your directors and to write us equally frankly what
July 3, 1930,
way be
your own view*
is the hop® that «e aay than facilitate a ooraaan approach to our preosnt
problen.
1 aa taking tha liberty of sanding a similar lattar to tha
governor of eaofc other federal reeerve bank &n£ a oopy to tha federal Reaerre
Board*
vary truly yours,
George I** Harriaon,
OoTamor*
Mr. George W. florria.
Governor, federal Reserve Bank of I’tdlfeMgi&fe*
Philadelphia, Pa.
c j.
6 ?/
i o r k
Department
105
BUYING
V/1//1
BUYING,
VIA K/////J
BUYING
BUYING
BUYING
7.
«
BILLIONS
OF
DOLLARS
% 1.<
INVESTMENTS
9 5
LW KLY
SERIES
REP. B K S .
R E VISED
3
SELLING l\
S E U J N G l IS E L L IN G
SELLING
1919 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929
.2SC
Reproduced from the Unclassified / Declassified Holdings of the N ational A rchives
PRICE INDEX
ij
Reproduced from the Unclassified
I Declassified Holdings of the National A rchives
of the National Archives
3 3 3'
June 24, 1930.
IHMfr Dootor Miller:
Mr. Hoell hat advl*ed im of your deeira to be kept informed of
any major development* 1» Syatea Credit Policy during your absence,
and accordingly I aa writing to review events which lad up to tha
reduction la tha la* Tork rata on laat Thureday.
At thalr aaetlng on June 6 tha la * Tork director*, at floTamor
It to t&e Board* reviewed condition a, and whlla
thay fait that thara «&• not aooh thay could do directly to create
more activity i » M i n a • a, nevertheless, thay fa ll that *lth tha world
dapraaaloai l&ifctt*4»*§a# cowaodlty prloaa aad export trade, and with
»o definite evidence, that condition* ara battar, the Syatea ahould
do *hat***r I t could to. remove any pcnalbla obataclat to recovery,
and more dlractly through the eaort time money
to influence
and build
a bond market through which the directora think raoovery
aaat ultimately be expected.
It waa their feeling than, Governor
Harrtao® tinted# that the *•* tork rata *hould aoca go
8 1/2 par
oant. Governor Harrison informed the Board that hl» directora a g a i n
raieed the question on June 13 and would have voted unanimously for
a reduction had ha recommended it, but that h# urged them to put it
off a week a* it would be better to wait until the affect of tha
purchaaa of fifty million of Government •ecuritlea could be obeerved
and the Treasury quarterly financing *a* over, and tha reparation*
loan was out of the way.
Harrlaou ai^lalmad
In oonneotion with the vota to reduce tke rate on June 20,
Governor Harrlaoft eta ted that li|* director* -had-no undue ei^cctation*
aa to what a red»c||c»;would accompli *&» la etated tkat that? policy
had not baan predicated upca.Ike thought 'that' anything the Syetem
oould do would of Iteelf etop the decline or that It oould In any
direct **y
prtca# battar or imaur* grafter bualne** activity,
but they ***** deelred to do »hat ia within the power of t&e bank to
remove any po**lble obst&ole* or to facilitate reoovery whan the time
comtt for business to pick up.
Some of t&e
<llf#oior# -pointed out* he etated, that while
figure*, a*
do sot *how any Improvement, tha fact
m a t be taken Into account that they would «how an even greater da*
cllne If It were not for activity ia public utllltle*, railroad* and
aamloipalltlea, which have proceeded fairly actively aa a reeult of
bual####
Doctor M ille r ....... 2
6-24-30
the administration’s program of last winter.
Ur. Owen D. Toting has pointed out, however, that if price*
continue to decline and other line* of business and industry do not
give their *upport, the utllitie*, railroad* and municipalities
cannot be expected to continue their construction and equipment
program*, and the time will come when they themselves must slow up.
Governor Harrison alao reported that he believe* on the whole
the director* of the New York Bank feel that there i* not much hope
of veal improvement for *everal month*, and some of them feel
improvement will not be marked before next year. They are particular
ly concerned about the export trade and feel that a revival of our
forelga Markets depend largely upon a bond market, aad tiw
of
a goxi aod strong bond mallet rest upon a continued ease ia the ,
short time money market more than anything else*
One other statement which Governor larriaon iaade to the Board
was that in hi* opinion,when tne demand for credit does coiae th*#5ystera
will have to be prepared to consider when and how rapidly it will
Increase rate*, because In his Julgiaent, a 2 l/2 per cent rate is
a recognition of a *eriou# depression, and in his present Judgment,
should not be long maintained in the face of any really substantial
demand for bask credit whether from increased business activity or
other causes.
then you left the effective buying rate of the New York Bank on
However, the good demand
has resulted in a steady reduction in dealers1 rates which has been
followed by the $e* York Bank until they are now down to their minimum
rate of 2 per cent on 90 day bills.
A request for a further reductio
in the minimum to 1 3/4 per cent was made when the discount rate was
reduce* last Thursday, but this has not yet been acted upon by the
bills was 2 1/4 per cent up to 90 day*.
Board*
You will recall when the purchase of 50 million of Government
securities was authorized several weeks ago it was agreed that after
tne purchase and been made conditions should be reviewed. Accordingly
tne Executive Oomalttee of the Open Market Policy Conference met here
yesterday. Governor tarrison reported hi s opinion, which is concurred
in unanimously by the officers and directors of the New York Bank,
that purchases of Governments not to exceed 25 million a week should
be made for the next couple of week*. In fact, lest Thursday his
directors unanimously voted that 25 million a week should be purchased
for the next two week*. The reasons for the Hew York po sit ion are
substantially the same as those recited above in support of the dis
count rate reduction.
He stated that it is the theory of the officer
and directors of the New York Bank that a good part of the difficulty
at tne present time is the lack of purchasing power in various parts
of the world which are not in a position to take up surplus commoditle
6- 24- 30 .
S r. t f i l l t r ........3
fro* tht marktts and tat only way, thrcugn a monetary operation* that
it would be possible to rtvivt buying power is through the export of
long tint capital to those parts of the world where purchasing poorer
hat been curtailed, the approach btlng to the bond market. He
stated that pur«iba*e» of Governments could do m h a m at there is no
danger at the moment of speculative revival, and that Having a
historical record that purchase* of Govematnts havt always been
helpful to tha bond saarktt, It Is ftIt In New tork that tney should be
nade. Howevtr, tne other four ambers of the Executive Coinralttee «
M-tttrs. Paddock, Norris, F&ncher and McDoug&l did not feel tnat any
further purcnf-sts should bt made unler existing e- sy condition*!. They
stressed the fact that txctpt for tteady borrowers their member banks
are not in debt, but on the contrary art having difficulty In employing
their funds, sad the vote was four to one that no reconraendation should
bt made to the Conference.
I btlltve tbi» cover* the field In which you are interested pretty
wall. While a fair voluae of routine business la continulng, I do
not believe tuert ha* been anything worth raentioning other than the
fact that Cleveland hat been here with tentative plan* and estimates
an the Pittsburgh building and has been authorised to
a&t®&«
The legislative situation has been quite interesting with Congrest
yesterday e n a b lin g the vtttrans* bill in the f a c t of the warnings by
F rt s ld tn * Hoover and Secretary Mellon that such .a c tio n till probably
nectssltatt aa inor ease in taxes. I suppose, however, that you get
fairly prosapt ta d cooplete ntws o f such developments.
^
1 hope very m m k that you had a pleasant voyage and that you art
no* enjoying tht Italian cllaate, althou^i I do not see how the tan
could bt much brighter or the sky bluer tnan they art here today.
Tours sincerely.
£* M. McClelland,
Assistant Secretary.
Son. A. C. Millar,
Cart §u&ranty> Trust Company,
4 PIact dt la Concorde,
Peris, ?ranct.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
Jporm N o . 131.
4
Orrice Correspondence
T o --------------M r . P U t t ---------------------------- ----------
FEDERAL RESERVE
BO
AR
D
'3
3 ;
i ■ 'C 'i
Date Jun» 21, I9SO
Subject:.
From--------- lh v J*oCl « l I « nd---------------------------- --------------------------
2— 8496
OF O
There are affieahed haryfoft jaaplaa of the letter addressed to
Governor Toung fey (lovernoi Calkin*, summarising the reasons for the
San Francisco Batik not participating ia the resent System purehase
of Government securities* It was understood at the meet lag yesterday
that you would present Governor Calkins1 letter to the 2xeoutive
Coan&ttee of the Open Market Poliey Conference wtiloh meets here Monday*
Fe d e r a l R e s e r v e
o f
Ba n k
N e w Yo r k
June 17, 1930
Dear Mr* McClelland
,,--
s ^Qr yOUP courtesy in sending
randum of notes which you took
at the meeting with the Federal Reserve Board yes
terday morning.
I have taken advantage of your
suggestion to make some changes which I think more
nearly represent what was in the back of my mind*
I hope that it will be agreeable to you to incor
f
porate them in your notes.
Very truly yours,
Governor
Mr. E. M. McClelland,
Assistant Secretary,
Federal Reserve Board,
Washington, D. C.
Enc.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
y 3
................
Fe d
eral
R
eserve
Ba
n k of
S a n Fr a n c i s c o
June 16, 1930
Mr. Eoy A. Young,
Governor, Federal Reserve Board,
Washington, D. C.
My dear Governor Xoung:
j
C
Recalling somewhat late a remark you made to
the effect that when a bank disapproves of the
recommendations of the Open Market Policy Conference
it might properly advise the Board as to the reasons
for its disapproval, I think I may briefly summarize
our reasons for not participating in the $50,000,000
Governments recently purchased as follows:
&• With credit cheap and redundant we do not
believe that business recovery will be accelerated by
making credit cheaper and more redundant.
b. We find no reason to believe that
excessively cheap money will promote or create a bond
market, seeing evidence in the recent past to the
contrary, and, further, do not consider the promotion
or creation of a bond market one of the functions of the
Federal Reserve System.
We believe that there may come an opportune
moment to put money into the market when that action will
have a beneficial effect and feel that if, at such a time,
our open market portfolio of Governments is excessive
there may be hesitation to increase it.
There is much more that might be argued, but I
have endeavored to summarize briefly*
3 - ~ c ~(
Reproduced from the Unclassified / Declassified Holdings of the National Archives
J\mm 16, v m
Pmt i n n w r SftrriftMi
will ym p&mm. £#£& mm tho •noloaad
«f mfom tefcm at tlw
thi*
Rwsmitig and
m of *xty
fm m&X£
l & m t<* h*v» m & m in.it tHsf****#' it i# xm#$> in th*
s&xutttft $£ tltm dm$4*
your#,
8*
M#
&*#!*$&*£ $ # § ^ * 1*7
Hr. 0*©# l * awprii^t o^«r%»ar«
IWaraJ
JSinfcj
Mm f w n B £» Y.
(nfeoloaur#)
^&j2£
<3/h/0 t f n ( % o
Reproduced from the Unclassified / Declassified Holdings of the National Archives
Governor Harrison stated that at his directors meeting two weeks ago,
they reviewed business conditions in their relation to credit conditions, and while
they felt there was notmuch they could do directly to create more activity in business,
nevertheless, they felt that with the world depression in business, commodity prices
and export trade, and with no definite evidence that conditions are better, the Sys
tem should do whatever it can to remove any possible obstacles to recovery, and, more
directly through the short-time money market, to influence and build up a bond mar
ket through which the directors think recovery must ultimately be expected*
It was
the feeling, he stated, that the New York Bank rate should soon go to 2-1/2$*
He stated that his directors again raised the question last Thursday and
would have voted unanimously for a reduction had he recommended it, but that he urged
them to put it off a week as it would be better to wait until the effect of the pur
chase of fifty million of Government securities could be observed and the Treasury
quarterly financing is over and the reparations loan out of the way*
While he was unable to commit his directors in advance, Governor Harrison
stated that in view of the discussion at the meeting last Thursday, unless there is
some substantial change in the meantime, he is of the opinion they will vote unani
mously at their next meeting for a reduction in the rate to 2-1/2$.
In Governor Har
rison9s opinion, his directors have no undue expectations as to what a reduction in
the rate will do#
Their policy has not been predicated on the thought that anything
the System could do would of itself stop the decline or that it could in any direct
way make prices better or insure greater business activity, but they have desired to
do what is within the power of the Bank to remove any possible obstacles or to faci
litate the recovery when the time comes for business to pick up*
Some of the directors pointed out, he stated, that while business figures
as a whole do not show any improvement, the fact must be taken into account that they
would show an even greater decline if it were not for activity in public utilities,
Reproduced from the Unclassified I Declassified Holdings of the National Archives
railroads and municipalities, which have proceeded fairly actively as a result of
the Administrat ion program of last winter*
Mr* Young has pointed out, however, that
if prices continue to decline and if other lines of business and industry do not give
their support,.the utilities, railroads and municipalities cannot be expected to con
tinue their construction and equipment programs ana the time will come when they,thenfcselves, in A
stated that he believes on the whole, the feeling of the directors of
the Federal Reserve Bank of New York is that there isn’t m c h hope of real improve
ment for several months, and some of them feel .improvement may not be marked before
next year.
They are particularly concerned about the export trade which has such a
direct effect upon commodity prices and feel that a revival of our foreign markets de
pends largely upon the bond market, and that hopes of getting a strong bond market
rest upon a continued ease in the short-time money market more than anything else*
In response to the Ohairruan’s question as to what effect the proposed re
duction would have on the Bank of England, Governor Harrison said he had not yet com
municated with the bank, but his feeling is that if the Federal Reserve Bank of New
York should reduce its rate on Thursday, the Bank of England would probably go down
the next week*
Mr* Hamlin explained to Governor Harrison that there will probably not be
a quorum of the Board present on Thursday and inquired whether amy action that the
Board might take now authorising approval of a reduction in the New York rate, if vot
ed by the directors on Thursday, might be construed as initiation by the Board of
the reduction in rate.
Governor Harrison replied that he thought not, since he had
come to Washington to advise the Board that as he sees it now, he will recommend the
reduction next Thursday, and, on the basis of the discussion last week, he has every
reason to believe that his directors will unanimously approve of it*
Any action by
the Board now would therefore be simply in expectation of the bank’s possible action
A
next Thursday.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
-3Governor Harrison also stated that, in his opinion, when the demand for
credit does qoebs, the System will have to be prepared to consider when and how rapid
ly it will increase rates, because in his judgment, a 2-1/2$ rate is a recognition
of a serious depression and in his present judgment should not be long maintained in
the face of any really substantial demand for bank credit whether from increased busi
ness activity or other causes*
Reproduced from the Unclassified / Declassified Holdings of the National Archives
Governor Harrison, stated that at his directors meeting two weeks ago,
they reviewed business conditions in their relation to credit conditions, and while
they felt there was not much that they could do directly to create more activity
in business, nevertheless, they felt that with the world depression in business, con*modity prices and export trade, and- with jio definite evidence that conditions are bet
ter
the System should do whatever it
can to remove any possible obstacles to recovery, and, more directly through the short
time money market, to influence and build up a bond market through which the directors
think recovermanst ultimately be expected*
/14SHew York Bank, should soon go to 2-l/2$*
It was the feeling, he stated, that the
He stated that his directors again raised the question last Thursday and
would have voted unanimously for a reduction had he recommended it, but that he urged
them to put it off a week as it would be better to wait until the effect of the pur
chase of fifty million of Government securities could be observed* and the Treasury
quarterly financing is over and the reparations loan out of the way*
CfvjLuCa
W adA'(u-,'
u->
While he was unable to speate**^ his directorsJ Governor Harrison stated
that in view of the discussion at the meeting of his directors last Thursday, unless
there is some substantial change in the meantime, he is of the opinion they will vote
unanimously at their next meeting for a reduction in the rate to 2-1/2$♦
In Governor
Harrisonrs opinion, his directors have no
expectations as to whet a
*
reduction in the rate will do* Their policy has not been predicated on the thought
d m m
Aa ami df’ti'rjveinJ)
that anything the System could do wofldjStSp the decline, or that it ^ild.make^^Tces
better or
^«en^to do what is within the power of the
(L ju
m u tv t
^ ^
_ ____
SpaiM* to (facilitate m e recovery when the time comes for business to pick up /aul new'
of the directors pointed out, he stated, that whileafliM* business
aoo ufuUt. m
am
figures.stSCl nine 11 ilillH rnm. TTTTT riiTilf nilmi Tin taken into account that they would show ^
($tt H A / k
Reproduced from the Unclassified I Declassified Holdings of the National Archives
greater deelinp i f i t were not fo r activity in publip u tilitie s , railroads ant ntnie ip a litiis * JfcVj *sm * OP'Riuupu proooedeT'tairly
Mr* Young has poinl
w t , however, that i f prices continue to decline and i f other linos o f business aad in*
dustry do not give J$&ir support thejiJbiXities, railroads andjaunicipalities cannot
• « « # 2**t4fr<¥t*uT>i*4uiu5^
be expected to eontiime"3BPMBB8Bto/^n^ mo tib# wild come whon thJ^asisTslow upf
__________________________________________ ~
themselves^
y
Ho stated that he believes on the whole, the feeling of the directors o f
Aid.
the federal Beserve Bank of Hew York Is that there isn*t laieh hope o^improvement \m * £
%4AA*Odl M^aCZLs
h»A^lr*1tew«Au-r
hf***
^ s n ^ H i ^ W ^ piwii» *■ >i lh> ysaw, and sons ©5 them fe e l M q ftiM *r next
YtoXbOAhAif
WAV*
They are^ooncejniedr
-m
,
^n SpB O E V ^and fe e l that ^revival o f oar foreign markets dependa^pen the bond market,
and that hopes of getting a strong bond market rest upon a continued ease in the
short time money market more than anything else*
In response to the Chairman's question as to what effect the proposed
T**
reduction would have on the Bank o f England, Governor Harrison said he had not^eos**
/ A /G
sonicated with the bank, but his fe e l is that i f the Federal Beserve Bank of How York
should reduce its rate on Thursday, the Bank of England would probably go down the
aext week*
He ■•■lit tin 1i«<
+w ***** •»>»«►*«>>
tt»«t
Tin hn11«Tii tin finmfr irf n *»v nf—rTfT,a Tti^li^— twt Wj>~ T***- ^nnVi__
Hr* Hamits explained to Governor Harrison that there w ill probably not
be a quorum o f the Board present on fborsday and inquired whether any action that the
Board might take now authorizing approval o f a reduction in the New York rate, i f vot
ed by the directors on muradayfepafed be construed as M a i t i g a by the Board o&
the .reduction in re&e* ^Governor Harrison replied thatx y f sijf■ss up ■lnili uullen
m A cmi'-n)
m*r
..
_ %
—^rf ‘I ........ rnr" lly *w
that as he sees it now, he
w ill
lad the reduction. and,
the basis of the discussion last week, he haa
n
every reason *o believe that his directors 1^.11 umniiaousl y
/W
.
export trade 4Mn» G h C ti^
tdbu)Mht^fSmufeu /fa. smM k
Reproduced from the Unclassified / Declassified Holdings of the National Archives
Governor,Hamriaon %lao stated thatj^rtien 4fea demand for credit does cane
'foe Syat«tt
when and how rapidly It will increase ra1
iiLhis judgment, a
rate is a recognition
depress ion and^ahoild not
£2L
italnsd. in the face of
fa-.
4 u U . (M U f
01
P W a
& U M J b
fift y
.
m c w m
#
/f «M U A h
<u& t
Reproduced from the Unclassified / Declassified Holdings of the National Archives
Z- X '
/Q
M
^
— <s
^iii.ii^
/
o
i"
. tp i
a
■— z#"^
A
th
d
°
*)
V
£?/ ✓ v o
i*
#/
i
/C-
y9 1
S ' s~->
X/*'
**
-z— r
to
_>
?
?
»
*r*
J <*j> / * SX-. J
*<
^
'■*'" J
Cr
/ x «v
^
*
<"■*— r
**
■""'^
s* '~~*> ^
j
~~
**> j/jf'
'~yr *~ ^
jj^ / * ^ 4 . of
Y
j
£r X
(
*V * - »
^
J~~s^
?' 6
JL~-
fi
^
/O
—
b 0 ■/* /
h
V iP ®
©
y
P
n
~V
♦>
r
4
S*)
o
c-*
i-'
' % ~t-r t
/*
b*
eX^
■) s '
Reproduced from the Unclassified / Declassified Holdings of the National Archives
(/
J
X
/I f*) tf~) / A
A *
/*
j S
- 7
i /
( t
s s *
r > - j *
9
/*
A
>S
^
s *
s
f\
y
A
S*
{ /
J ^
/ / "
/ *
S *
U
C ^Q
if
A
#»
,
> r>
/-
. j
r
J ^
t/ ?
‘ y
^ 7
P
y J**>
S
/
i
J
?
— <-r
*• ^
>»/■
v_^
j-s
<-
£
JL ^
ff) u>
^
/ _
y
^ ^
/^ I
/V
^
v1
/
<=
0
t-t-.
j
q
J
<7 ^ e
-S
i
S ~ S * J*
~ *s
d r.
*>
— 9
£f |
\j
J
^
—
_/<*
- 'V
^
<—
^
7 *^ ^
/?
J^r-k
i-^-r
^
/” “
^
{ £> 7
jJ* ^ / s
h-
^
—
^
S 3- < / *1
£f v
^
/l-
s ^ ' /$■ J -» J-t /
V iv
(
/
- u '
S '
*© (
£ \ r v
^
\^>
^
<j
<T
\*»m
\
S>
'- A -
*
y O
^
If'
/ y
"
- /
^ /*^\
yj
y
.
iu~',.
^
S
£*
* Q^€L^
^
.I
/
^
7 ^
"7
^
^
*
^
~—
y s**is d b
^ /J
J?
Y
v
c/
&
^
/
^
— ^
G*0' V ~-c*/ ^
J
£ -< >
7 ^
j
c^r
J
c>
— ^
>25^*
f
pT
z^7^
v ^ +-i*p t^i
^
^
-& -* <*“** \
Reproduced from the Unclassified / Declassified Holdings of the National Archives
£
<w
<L>
/
r
yt
/S'
J
^
JZS
J2 ^
r r
y*
it
A
A *
s
rl ? «
2-
— e-7
A ?
r
?
L—
It
J
^
Cy
*
S
&
tt
~B
/ v
^
J*'
^
;
ty —
Z ^ \
~ 7
^
1
&
y
i/J ^ -7(
^
v
/i
*t ✓ ' v / *
—
s^7
<*
^
f
't
Z'
<0 I
£
I f'
c
6*0. \
f
y
t
/>;'
- y ^
/
^
*
'/ * * ( ? %
A
3
f
r
J
J ' 'P y
3
'''2-^
/ f ----<— *
— -r' Y
t y~t «-*» s
,— a
^
£
^
*—
i_^.
s'
o^r
‘
Reproduced from the Unclassified / Declassified Holdings of the National Archives
Jwm 3, 1950
Dear Governor Barriaoni
Governor Young him directed ate to aubait to you
for verification the following report which he raade at
the meeting of the Board today after presentation of
your teiograa regarding the purchase of Government ee*
curitlea hy the $ycteait
*fhe Governor stated that Governor
Harr laon advised him that of the iteooutive
Committee of the Open Market foliar ConferFederal Keaerve Banlcs of Boston,
Now York and Cleveland approve tho reoon**
mendation contained In the above telegram,
while Philadelphia and Chtoago disapprove*._—
Of th© twelve bank*, ho stated*(Bo^ii, No t
York, Cleveland, Rlohwond, Atls.rtfca, Minnea
polis and Santas Oity approve, Philadelphia,
^Chicago, Dallas and San Franolsoo disapprove,
eielpliia mad ggr rranoliuq f W T 1"
th>t ■nao flaTtm— Kfal wight b»-j»mah«ae+^afr«ir,;)
and thexFederal Reserve Bank of St# Louis Interpoaoa no objection, (although teilned in —
J ,
f
, p
p<AXf
M C U M ^ ^ *>
f
1
Very truly yourat
;)&*•
i W * ' ft
Uif
I. H* BoOUlUnd,
Assistant Seoretary
16% George U Harrison, Governor,
Federal Reserve Bank,
m m York, IT* Y*
A ? H - O u
yk%y^luhi£
St
Reproduced from the Unclassified / Declassified Holdings of the National Archives
J
\\
jvtuo s # i m
Dear Governor Burrlsont
This mill oonfim ay telephone oonveraatlon
with you today rogordiag oonaldoration given by
tho Board to the reoaatt&adatlon of ft majority of
th® Sfcoouti/o OQMFilttoe of tho Opoa flfcriwt Policy
Conference and a aajortty of tho O o i m m o m of mil
Fodom&l l l o e o r v o BruJoi fen* tho irorohaso Of HOt tO
oxoood *25*000*000 & week of Geroraaosifc itourltiw
for tho next two m aoka* with tho undorataTidlng
that at tho o»d of that tSao tho situation will
again bo reviewed*
Aa I ftdrlood yot% tho proooduro reooaawniod was aBcrenrod
tho Board*
fory truly youra*
&• JU Young*
Governor
l&r* George L* Bwrlaon, Oovoraar*
Fodoral loaonro Bank,
Sew York* H* Y.
Reproduced from the Unclassified I Declassified Holdings of the National Archives
""ELEGRAM
--s — *f — \
- 5
^
FEDERAL RESERVE SYSTEM
(L E A S E D W I R E S E R V IC E )
R E C E IV E D A T W A S H I N G T O N , D . C .
y - '3 - 3 o
115bfc
■^oird
Hew Tork. M
Washn
June 5 41 Sim
Regarding telephone conversations with reference to purchasing Governments,
a majority of executive oomnittee of open maricet policy conference and
a majority of all members of conference favor purchase of not to exceed
§25,000,000
a week for the next two weeks with the understanding that
the matter will be again reviewed at that time, Federal Reserve Board
was this morning advised in detail of sentiment of executive committee
and conference as well as opinions of individual members* Have just been
advised by Federal Beserve Board that it approves of recommendations of
majority of conference.
2—11901
V S. GOYEBNMBKT
NUNTONI MWICS: 10M
Harrison
323pm
Reproduced from the Unclassified / Declassified Holdings of the National Archives
i
-ELEGRAM
—
—
—
FEDERAL RESERVE SYSTEM
3
3
(L E A S E D W I R E S E R V IC E )
5 2 b fa
R E C E IV E D A T W A S H I N G T O N , D . C .
ITQwYOtft m
Governor Roy H
1235p June 3 _
^
A Young
Washn
H fhis telegram is to oonfiim telephone conversations of thursday yesterday
and to-day,
Our directors , while approving unanimously the report^
^
2 * 3 ?/
the open market policy oonferenoe of its meeting of May 21 and 22 after a
thorough discussion voted on May 29 that in their opinion it now seems
desirable for the system to undertake the purchase of Government securities
in moderate amounts, in reaching this conclusion our directors had before
them evidence that the current business depression was continuing without
any important indication of improvement . It was their belief that the hope
of greater business aotivity and increased purchasing power for our surplus
products depends at least to some extent upon the finanoing of new
undertakings both at home and abroad through the bond market, while the
directors appreciate that it is impossible to foreoast accurately the
» . S. eOTEBXMVir*
VUXTDM vm n : » M
%--- 11001
S
Reproduced from the Unclassified I Declassified Holdings of the National Archives
E L E G R A M
FEDERAL RESERVE SYSTEM
(L E A S E D W I R E S E R V IC E )
/
R E C E IV E D A T W A S H I N G T O N , D . C .
extent of the effect of the proposed purchases , nevertheless they feel
that
the money position is so delicately balanced that even a slight addition to
the available reserve funds mi^it prove helpful both fron the poifat of view
of its direct influenae on the bond market and in the
psychological
benefit which might also arise. In any event it seems clear thnt small
purchases of Government securities at this time could do no h a m and a test
with the hope that they might be of some benefit seems desirable.
Since the meeting of our directors on thursday we have discussed the
question of purchases of Government securities with the members of the
executive committee of the open market policy conference and with the
Governors of all other j? R Banks.
A majority of the executive aormiittee and
a majority of the Governors of all reserve banks are now in favor of
purchasing not to exceed 25 million dollars a week of Government securities
for the next two weeks with the understanding that at the end of that tine
ft. ftOVBBNMSNT PUXTEN* M T 1 M : I M
2 ------119111
Reproduced from the Unclassified I Declassified Holdings of the National Archives
‘ELEGRAM
FEDERAL RESERVE SYSTEM
(L E A S E D W I R E S E R V IC E )
R E C E IV E D A T W A S H I N G T O N , D . C .
the situation would again be reviewed.
We should appreoiate the action of the Board upon thia proposal of P
majority of the conference. ^
http://fraser.stlouisfed.org/
8. fiOTBBMMSMT rmiNTIXa M TIIOI: 10M
Federal Reserve Bank of St. Louis
Harrison
1158am
A.T B O k u O W iBISTUMO,
J U N i- 1930
2—11001
Reproduced from the Unclassified / Declassified Holdings of the National Archives
Fe d e r a l R e s e r v e B a n k
of
Ne w Y o r k
Dear Mr. McClelland:
I am returning herewith some papers which
Governor Harrison borrowed when he was in Washington.
Very truly yours,
mdolph Burgess
Mr,
M* McClelland,
Assistant Secretary,
Federal Reserve Board,
Washington, D# C#
w?J3 .H
end.
/
I c-l
mi
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority
E-0•\23%>
33 3,3
COHJTDENTIAL
f he Conference has considered a prelJaiafcry memrandum reviewing ,
domestic business and credit condition* and has discussed at length the
present trends in world trade, commerce and commodity prices*
Particular
consideration was given to the rapidly declining volume of our export
trade and it* probable relation to the decline in commodity prices in this
country*
It appears to the Conference that conditions in business, agrl~
culture and trade are still seriously depressed* not only in this country
but evidently throughout the rest of the world as well*
It is the sense
of the Conference that these conditions merit continuous carseful observa
tion by the Federal Reserve System in order that the System will be pre
pared to aot promptly in the event that conditions further develop in such
a way as to make action seem advisable* .
In the present circumstances, however, it does not appear to the
Conference that any affirmative recommendation as to Open Ifcrket operations
is advisable just now.
But it is the sense of the Conference that if the
situation so develops as to retire an Open Mfcrket operation by the System
the members of the Conference will fee prepared to reconvene or else, if a
meeting of the whole Conference is not practicable, to act proi$>tly on
recommendations of its Sreeutive Committee,
Huy U 9 1930*
AT B O A R D MEETING.
JUN 2 ” 1930
AT ROA
! > M P'.fP*'*'! {•*>••
MAY 2 2 1930
Reproduced from the Unclassified / Declassified Holdings of the National Aichives
d e c l a s s if i e d
Authority
Fe
d eral
Re
E•0•\23Sk
se r v e
Ban k
of
P
h il a d e l ph ia
Dear Governor Toung
About a month ago you wrote to Governor Norris
to ascertain his views with reference to having a meeting of the
Open Market Conference Committee, suggesting that the relations of
the Federal Reserve System to current trends should be reviewed with
a view of determining whether the System’s position should be read
justed, etc., and remarking at the close of that letter that an ex
pression of the views of any bank not participating in the meeting
of such a conference, if it occurred, would be appreciated,
notwithstanding that that conference was not held, I am
taking the liberty of expressing some views as to the discount policy
which I have submitted to our board recently in connection with sug
gested reduction of our discount rate*
With the abundance of money
at this time and low rates of interest, one feels the System justly
can be blamed for being in a wrong technical position*
Of #958,000,000.
of Federal reserve credit in use, only $237,000,000. were issued for re
discounts, and #703,000,000* for the purchase of bankers bills and
Government securities.
The latter represents money voluntarily put in
the market by the Federal reserve banks.
We are in a remarkably good
strategic position, but technically our holdings of Government securit
ies and bankers bills are unjustifiably large.
„ M
«,„»
,0,
With so reduced a de- '
„
serve credit in use through voluntary operations?
of Federal
. . o „ t or
*
To reduce the amount
reserve credit in voluntary use by selling, say #200,000,000.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
d e c l a s s if i e d
E■0•\23%>
Authority
€
!
I
/
v
5
/ F e d e r a l Re s e r v e B a n k o f P h i l a d e l p h i a
/
Pa g e
To
of Government securities, as we have heard suggested, porobably
would force the member hanks to borrow from the System, the position
of the System would be better technically if it showed, say $450,000,000.
of rediscounts, and #500,000,000. of bankers bills and securities, but
to make the shift with our present rates of discount would increase
the cost of credit to the business community.
make them feel that our policy had been changed.
This would tend to
If the larger
number of member banks, however, could get their money at 3 or
there could be no objection to this shift on account of the cost.
Would it sot.be an exercise of good judgment, and advisable,
for several Federal reserve banks, say Cleveland, Philadelphia, St.
Louis, Minneapolis and San Francisco, to reduce their rate to
it would.be grand to have Chicago put its rate down to
then have
the Open Market Committee sell at least #200,000,000. of Government
securitiee.
One feels that if this resulted in changing $200,000,000.
of the System’s investments from Government securities and bankers bills
to bills rediscounted, its position would be bettered, it would be con
forming with tradition, that when the member banks were in debt to the
System the System was in closer contact with member bank operations,
*
and it might have a tendency to prevent member banks putting their
funds into investment securities, evidence of which we see.
I am presenting this as a matter of national or System-wider
discount policy, not at all as a local question for the guidance of
asy bank, believing it to be In harmony with the Idea of readjusting
the System’s position as referred to in your letter.
Reproduced from the Unclassified I Declassified Holdings of the National Archives
May 12, 1930.
Dear Mr. Worthington:
fhis will acknowledge receipt of your letter of Hay 6th. from
^lch I observe that your earning* at thepreaent time areno tluf ficlent to off-set your expenses and that you hare a*de a request of
Governor Harrison to he allotted a larger participation in the open
aarlwt holding# of the Syeteou I have talked with Governor Harrison
over % e telephone and I feel quite tore that he will he glad to let
yon have a larger proportion*
X observe also that your hank would like to porchaee certifi
cate® of indebtedness ia y e w own district, hut hesitate about doing
so if you feel that such action would he in conflict with the open Mar
ket policy agreement. The amount you mention is insignificant and
really would only increase your earnings $1,300 a aonth, aad if that is
all there is to the problemt I don*t believe the Board would concern
Itself about the ao*ter. nevertheless 9 there are other reserve haulr*
that are rtuanlng behind in their earnings aad Just at the moment the
Syetem as a w h o l e %n not earning its expenses and dividends.
If you wish to acquire sufficient short-time Government cer
tificates to enable you to meet your dividends and expenses at the
present tirae, it would msan the purchase of approximately $25,000,000,
aad if other reserve banks took stellar action, you can readily see
*hat it would involve a real opea maifeet operation and instead of in
creasing the earnings of the Systea, it would obviously decrease the
earnings; ia fkot, if fedexal Heserve policies are to be put on an
earning basis. It would be more desirable to sell Government securities
than to buy, because such action would increase the earnings of the
Syetea.
fhe federal Reserve Bank of Sew Yoxfc, however, has no keen
concern about their earnings aad X an quite sure that they will allot
sufficient to you to aake a better lowing, ttoder these circumstances,
I believe it would be better if you would refrain from buying for your
oen account at this time until the System determines whether or not
they mrnt to ease further by the purchase of Government securities or
tighten by the sale of Government securities.
Yours very truly,
Mr. C. A. Worthington, Sep. Gov.,
Tederal Beserve Bank,
Kansas City, Missouri*
raor.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
Fe d e r a l R e s e r v e Ba n k
M .L .M 9 C L U R E
CHAIRMAN BO m' - i . O' w ■-< . G*r O r.
AN D FEDERAL RESERVE AGENT
W . J . B A I L E Y , Go v e r n o r
O F
C .A .W O R T H IN G T O N , De pu ty Go v e r n o r
J . W . H E L M , Ca s h ie r
JO H N
P H I L L I P S , J r .,A s s t .C a s h ie r
E . P . T Y N E R , A s s t .C a s h ie r
G . E .
Ka n s a s C i t y
W ^ .L .P E TR IK IN
DEPUTY CHAIRMAN
BOARD OF DIRECTORS
B A R L E Y , A s s t .C a s h ie r
A .M . M 9ADAM S
M . W . E . P A R K , ASST.CASHIER
ASST. FEDERAL RESERVE AG E N
AND SECRETARY
G . H . P I P K I N , A s s t .C a s h ie r
N . R .O B E R W O R T M A N N , As s t .C a s h ie r
May 8, 1930,
/
,
Honorable Roy A. Young,
Governor,Federal Reserve Board,
Washington, D.C.
vs.*
Dear Governor Young:
W
You may have observed from reports of this bank that our
expenses, dividends, and usual depreciation allowances, et cetera, for
the first four months of this year were more than 1200,000 in excess
of our earnings.
It is estimated that on the basis of earning assets
held April 30 our expenses, et cetera, for the year will exceed earnings
by approximately $755,000. We have written to Governor Harrison, as
Chairman of the Open Market Policy Conference, reciting these facts and
suggesting that, i f possible, we would like to be granted a larger allotment of open market purchasea, or to purchase a portion of the holdings
ivf-fttty~retrrr5TrT?ftflarw1 reserve bank that might be in a position to sell.
Our directors in a meeting today have also suggested that we purchase any
and all Treasury Certificates of Indebtedness that may be offered locally
by member banks and others (not dealers.)
I
am writing to obtain your suggestions on this subject and also
to ask whether the purchase of Treasury Certificates of Indebtedness might
be considered as in conflict with the open market policy.
The amount in
volved would probably be small and the total of such offerings would prob
ably not exceed an average of $500,000 per month. I am, therefore, of the
opinion that this would not conflict with our open market policy agreement,
and i f it does not, we would like to make the plan effective immediately.
We do not mind our earnings running slightly behind our expenses but to end
the year as far behind as the present estimate indicates would undoubtedly
subject us to considerable criticism from member bankers and others.
Assuring you of ray appreciation of any comments you may care to
make, I am
Yery truly yours.
Deputy Governor,
CAW:L
Reproduced from the Unclassified / Declassified Holdings of the National Archives
<
June 3, 1930*
!Che Federal Reserve Board having -under consideration the
recommendation of the
.
requesting
^j ^ j %0
the executive coninittee of the Open Market Policy Conference "be
authorized to purchase
°- short time
Government Securities, to which request the federal Reserve Banks
of Chicago, Boston, Cleveland, Atlanta, and Minneapolis, have given
their approval; and
,
^
Whereas, a discount rate of 3$ m s established at the federal
Reserve Bank of Hew York on May 2nd; and
Ihereas, a discount rate of 3|$ was established at the Federal
Reserve Bank of Boston on May 8th; and
Ihereas, the effective discount rate at the
Cleveland,
Aa*/*
1
_
Atlanta* aafr Minneapolis Federal Reserve Banks is 4^;
■
A
«
TEEHEFOEE B1 IT KSSQIVS3)
Shat the Federal Reserve Board, after doe consideration of the
credit situation, respectfully request the Boardjof Directors of the
Chicago, Cleveland, Atlanta, aed Minneapolis^Tederal Reserve Banks,
at their convenience, to give the Federal Reserve Board the reasons
that prompted their approval of further easing of the credit policy
through open market operations on the part of the System while their
are retailing $ discount rate well above the discount rate in
effect at tfefe Federal reserve hanks in the system; and, how, in their
opinion, such a policy can he construed as being in harmony with the
intent and purpose of sub-paragraph (d) of Section 14 of the Federal
Reserve Act;
// *
.
/)
AT BOA&f* MIstfTONa
J U N 1 -1 9 3 0
wf
/0
'
/
^
Reproduced from the Unclassified / Declassified Holdings of the National Archives
BE IT FURTHER RESOLVED
That further consideration of the pending request from the
Open Market^ Conference ii— ittm of the System he deferred until
replies have "been received from the above mentioned hanks.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
F o rm . N o . 131
/ /
FEDERAL RESERVE
O f f i c e
C o r r e s p o i K * e i
,e
B0ARD
iw
i. iflTO
To___
All Members of the Board____
Subject:
From
Mr* McClelland____________
_______________________ ______
_________w ^
•»o
By direction of the Governor, there is attached hereto letter
dated April
from Governor TalleyJ commenting upon the credit
sTSation and expressing the opinion that an early meeting of the
Open Market Policy Conference is not a matter of great importance:
/
''Governor Young
Mr. PlattV _
Mr. Hamlin
Mr* James
Mr* Cunningham
Dr. Miller,
Mr. Pole
Please circulate promptly and return to this office.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
C O P T
April 501 1930.
Dear Mr. Sproul:
Receipt is acknowledged of vour letter of April 24th.
confirming telaphone advice of the action of the hoard of
directors of your bank in voting to eatabllA a rediscount
rate of 5$, which action was not approved by the Federal
Reserve Board. From your letter, the Board has noted that
your directors on that date made no change In your bank#s
existing schedule of buying rates.
With regard to your letter of March 20th* advising
of the action of the board of directors of your bank in
voting to request the Federal Beserve Board to reduce to
2 1/2$ the rate established by it as the minimum buying
rate; for the purchase of bankers accept anees by your bonk,
which action Governor Harrison informed Governor Toung was
reviewed by your directors at their meeting on April 24th,
you are advised that the Board today kept under review the
request for the establiatummt of a minimum buying rate of
2 1/2$ and determined the minimum buying rate of your bank
to be 2 3/4#.
Very truly yours9
(Signed) B. M. McClelland
1. M. McClelland,
Assistant Secretary
Mr. Allan Sproul, Secretary
Federal Reserve Bank,
Hew Tork, N. T.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
.\ A.
r
• \ Sl
%
#
'P)£l
~ W A /
■'s. /
v>
Dear Governor Young:
At the meeting of our directors last Thursday,
recent developments in credit and business conditions were
reviewed at some length in their relation to the rate and
credit policies of this bank.
It may interest you to have
the following brief summary of the principal factors in the
situation which were considered:
(a)
Wholesale commodity prices continue to de-
cline so that the last available weekly index indicates a
level lower than at any time since the United States enter
ed the war in 1917.
(b)
March figures for trade and^production show
considerable declines from February and on the whole were
lower than at any time during the current movement.
(c)
Such figures as are available for April show
that building contract awards continue to run substantially
below last year.
On the other hand, car loadings of mer
chandise show some increase in the first two weeks of April,
though this may possibly be due to the late Easter trade.
Gar loadings of heavy freight show about the usual seasonal
decline.
(d)
Current quarterly reports of many industrial
corporations show large declines in volume and profits from
a year ago.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
F E D E R A L R E SE R V E B A N K O F N E W YC
(e)
of
1 9 3 0
____
*
________
G O V e T O O r
Y O U n g i
/
^
r i l
2 8 ,
1 9 3 0 .
Our export trade for the first three months
shows a decline of about #280,000,000 from the same
period of
1 9 2 9
- a net decline of slightly over 20 per_CB&t.
Imports have declined about the same percentage.
(f)
The bond market has shown some weakness the
past two weeks with a slight decline in prices and some
backing up of new issues.
We have felt that the financing
of new enterprises and the restoration of purchasing power
for commodities whose prices are still declining, depends
in part at least upon the strength and activity of the bond
market and that the revival of foreign purchasing power for
our exportable surplus is largely dependant upon new capital
acquired through the bond markets of the world, including
the American bond market.
(g)Gold continues to move to America - net imports
amounting to almost $200,000,000 so far this calendar year.
(h)
Some of the foreign exchanges, especially the
South American exchanges, are weak relative to the dollar.
(i)
Member bank credit has on the whole shown little
expansion in recent weeks and Federal reserve credit con
tinues to decline.
On last Thursday total borrowings by
all banks in this district were at a low record of recent
years - approximately $35,000,000.
(3)
Our reserve percentage is approximately 8S per
cent.
The stock market has been irregular and on
the whole weaker during the past few weeks and in all the
above circumstances there appears to be less risk of a too
Reproduced from the Unclassified I Declassified Holdings of the National Archives
Governor Young
F E D E R A L R E S E R V E B A N K O F N E W YC
/ r*il 28, 1930
rapid expansion of bank credit collateraled by securities.
It is, of course, difficult in the scope of a letter
to review in any great detail the various matters discussed
by the directors or to give the views of individual directors
with respect to them.
The above summary, however, refers
to some of the main facts which were before the directors
when they took action with respect to the discount rate at
their meeting last Thursday.
"
Very truly yours,
Governor
Hon. R. A. Young,
Governor, Federal Reserve Board,
Washington, D. C.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
3
X-
-
3
? , - C ^
Date:
2 - 5 ' - J 1<?
FOR ANSWERS SEE:
i.
2.
tM/io
s.
V / w / 3 ,0 —
r/zy/j©
4.
.
5
6.
V />?A 6
7-
?/v3/3 ®
8.
9.
.
10
"ylfi6
V'/V'S/50
tfy f/'it}
11 -
12
.
*4J>! j^ o
sJ'ylfliO
Reproduced from the Unclassified I Declassified Holdings of the National Archives
FEDERAL RESERVE
OF B O S TO N
W. P. G.
WILLIAM
WILLIAM
KRICKEL
BANK
HARDING, G O V E R N O R
W. PADDOCK, D E P U T Y G O V E R N O R
Wl L LETT, C A S H IE R
K. CARRICK, S E C R E T A R Y
FREDERIC
ALLEN
HOLLIS
w'
w
0 '/Vj H C
D E P U T Y C H A IR M A N O F T H E B O A R D
A S S IS T A N T C A S H IE R S
ELLIS G.HULT
ERN EST M. LEAVITT
L. WALLACE SWEETSER
H. CURTISS
C H A IR M A N O F T H E B O A R D
AN D FED ER A L RESERVE A G E N T
CHARLES
F. GETTEMY
A S S IS T A N T F E D E R A L R E S E R V E A G E N T
April 25, 1930*
Hon* B. A. Young,
Governor,
Federal Reserve Board,
Washington, D* C*
Dear Sir:
In reply to your inquiry of April 19, 1930. X6S76. [I am writing
to advise you that we consider it would be desirable to hold a
meeting of the Open Market Policy Conference and that it would
be convenient for me to attend such a meeting if it were called
for May 5*
f
Dsputy Governor*
r
Reproduced from the Unclassified I Declassified Holdings of the National Archives
~C'l
Fe d e r a l R e s e r v e Ba n k
W. J . B A l L E Y , G o v e r n o r
C . A . W O R T H I N G T O N , D e p u ty G o v e r n o r
J - W - H E L M , C a s h ie r
J O H N P H I L L I P S , Jr.,A S S T.C A S H iE R
E . P. T Y N E R , A s s t . C a s h ie r
G . E . B A R L E Y , A s s t . C a s h ie r
M -W . E . P A R K , A s s t . C a s h ie r
M .L .M 9 C L U R E
O F
Ka n
sas
c h a ir m a n
C
of
d ir e c t o r s
W 1 L . P E TR IK IN
ity
DEPUTY CHAIRMAN
BOARD OF DIRECTORS
A . M . M 9A D A M S
ASST. FEDERAL RESERVE AGENT
AND SECRETARY
G . H . P I P K I N , A s s t. C a s h ie r
N . R . O B E R W O R T M A N N , A s s t.C a s h ie r
a
Bear Governor Young:
board
AND FEDERAL RESERVE AGENT
April 25, 1930.
x
This is in reply to your letter ...af- Apr11 19 .y I delayed a couple
of days in answering your letter beeause our regular board meeting was held
yesterday and I wanted to discuss this matter with them.
If it is thought desirable, our bank will have a representative
at the meeting on May 5, but the following is about the consensus of opinion
of our board. We feel that the Federal He serve system should be slow in dis
posing of United States securities and should be even more careful about buy
ing any more under present conditions. Hfiere is quite a feeling among the
banks throughout the middle west that the Board*s buying and selling of govern
ment securities has worked to the disadvantage of those who were considerable
holders of government securities* Of course, they are far removed from the
motives that actuate and have actuated the Open Market Committee in making
these purchases, but it was the unanimous feeling of our board yesterday that
this matter should be dealt with very carefully and very little done at the
present time.
We are wondering whether there will be a Governors* Conference held
any time in the near future and why this matter could not be discussed at that
time* Hi is is merely a suggestion and if the Board feels that it should have
this conference on the open market policy it would be perfectly agreeable to us
out here.
I am back at my desk every morning but I cannot say that I am 100$
all right. I am much better than I was before taking my vacation and hope of
course for the best. I have missed the conferences and the meetings of the
committee but I know I have been able represented by Mr. Worthington. I hope
to attend at least the next Governors’ Conference.
Assuring you of my hipest personal regards and with congratulations
on the manner in which you have conducted the responsibilities of your posi ion
as Gbvernor of the Board, I am,
Most sincerely yours,
Hon* Boy A* Young,
Governor, Federal Reserve Board,
Washington, D. C*
Reproduced from the Unclassified / Declassified Holdings of the National Archives
FEEERAL RESERVE BANK
m NEW YORK
April 24, 1930*
S i r s :
This will oonfixa
(1) Governor Harrison's advice to you by telephone this after
noon that at the meeting of tte board of directors it was
"Voted, subject to review and determination of the Federal
Reserve Board, to establish a rate of Ifcree per cent for all re
discounts and advances, effective from the opening of toislnees
April 25, 1930, and until further notice end superseding the
existing rate, but with the understanding that this action of
ths board of directors of the bank Is predicated upon approval
or disapproval by the Federal Reserve Board today*"
and
(2) the subsequent advice received from you by telephone that ths
establishment of ths three per cent rate in accordance with such vote
was disapproved by the Federal Reserve Board,
Ths following schedule of buying and repurchase agreement rates
was presented and no charges were made:
Bankers accept at cess
Minimum established by the board of directors - 5#
Currently effective minimums
1 to 120 days
5 and 6 months
Repurchase
- 3%
- 3 l/4$>
- $£
Trade bills?
Minimum established by tbs board of directors - 3 1/2#
Currently effective minimum - 3 1/g#
Government repurchase - 3 1/2#
Respectfully,
Federal Reserve Board,
Washington, D. 0*
(Signed) Allan Sproul
Secretary
Reproduced from the Unclassified / Declassified Holdings of the National Archives
"That the Federal Reserve Bank of New York be advised that
the Federal Reserve Board has received the advice that the
directors of that bank have established a rediscount rate of
3 £ , with the understanding, however, that their action is
predicated upon approval or disapproval by the Federal Reserve
Board today, and that the Board disapproves the antinn, of the
New York directors and has determined that the rate of the bank
AT BO&.ifi Mfefmw-i.
APR U
1930
Reproduced from the Unclassified I Declassified Holdings of the National Archives
The Governor reported the substance of a statement made to him by
Governor Harrison over the telephone of the reasons ushich had led the
Board of Directors of the Hew York Bank to vote a reduction of its dis
count rate*
The reasons had mainly to do with national and international
conditions, such as the trend of business, commodity prices both in
America and in Europe, money rates, the foreign exchanges and gold movements
Further discussion of the national economic and credit situation ensued
which developed a considerable variance of opinion between the New York Bank
and the Federal Reserve Board with regard to Federal Reserve policy*
It
appeared that the members of the Board were still of the same opinion with
regard to factors and conditions affecting Federal reserve policy as they
were at the time the Board issued its call for a meeting of the Open Market
Policy Conference early in May - to the effect that the immediate objective
in credit policy should be the maintenance of stability rather than further
easing through Federal reserve action*
Reproduced from the Unclassified I Declassified Holdings of the National Archives
ELEGRAM
FEDERAL RESERVE SYSTEM
( L E A S E D W I R E S E R V IC E )
R E C E IV E D A T W A S H I N G T O N , D . C .
193b©t
Newyork 4§6pm April 24 1930
\„
:^ j
j
YOUNG
Washington^
Referring r o n r letter April 19 X-&&76 Cnd our subsequent conversations
in Washington I agree with suggestion that we hare early meeting
of open market policy conference but as mentioned on telephone this
morning would much prefer to defer such meeting until around middle
of May, This will have added advantage of further opportunity to
prepare for a possible governors conference at same time.
Harrison
msf
«. oomunaoct
p&umxa •mo ■ roe
m
im
Reproduced from the Unclassified / Declassified Holdings of the National Archives
^
r|
w
f7
v
*
j
i
2 T 1930
;
Mr. R. A, Young, Governor
Federal Reserve Board,
Washington, D. C.
jj
I
Of/t'fTO!
Cli?
l. Oi
G()
i.'.n) v I(*.
i;r
it.^
j\|o
i ?h■.i, [
|
Dear Governor Young:
Receipt of
is acknowledged.
Without the background or the thou^t that is in the minds of others
as an incentive, and with our more or less limited horizon, we do not
consider it a matter of great importance that a meeting of the Open
Market Policy Conference he held as early as May 5, There seems to be
a fair degree of stability at the present time in the money market, and
ttoigh^business may be regarde^aa-JtE&tic,'it is more* likely to move
upwar^^lian^foTmiraittV if the^later seasonal influences are eliminated.
We realize that no seasonal credit demand from business has occurred and
therefore the decline has been what it is plus the normal seasonal up
turn in the spring.
I have a letter from Mr. Case under date of April 17, which
expresses at some length and considerable patience the Hew York Bank’s
view of the credit situation. This letter is in response to my letter of
xApril 10,merely one of transmittal, enclosing a copy of a letter that I
wrote you on the same date and a copy of my memorandum submitted at our
last Directors’ meeting , copy of which I also sent you. It is quite
likely that he wrote the Board at about the same time and along the same
line and if he did so his letter probably had something to do with prompt
ing your X-letter of the 19th.
t
His letter displays a restlessness and a spirit of melancholia
that we do not regard as well founded. As a matter of fact the situation
in reference to three phenomena that he emphasizes has materially brightened
since the receipt of his letter* He regards money market conditions as
having been fairly firm so far as New York is concerned since the last week
in March, and points out that on the date of his letter a more substantial
amount o? bnnka-rg hil la were being carried in the sales contracts than
*
usual and describes a pressure in this direction. NewYork's market tele
gram yesterday stated that dealers* sales were quite substantial with few
new bills coming out and that dealers* portfolios had been substantially
reduced. Moreover on yesterday the call rate dropped to 3^ with money
offered outside at 5. I understand of course that the last mentioned con
dition doesn’t mean much because it merely represents the amount left over
at the close of the market, whatever that amount might be, and could be as
small as four or five million dollars and yet be enough to establish a rate
lower than the closing call rate.
He also emphasizes the stagnation and low prices in the commodity
markets but on yesterday May contracts in the cotton markets advanced 51
points and the general level of prices in that commodity was up $2.00 a
'K
R ep rod uced from the U n cla ssified / D ecla ssified H oldings of the N ational A rchives
-2 -
bale. Recently we have seen a steady upward trend in the petroleum
industry and on yesterday the head of one of our large independent oil
refining interests told me that all curing the latter part of march and
this month he had been withdrawing stocks from storage for the first time
in several years, resulting in a decrease of 90fo in that item*
hr. Case also expresses a desire tc help the bond market by
easier money. In view of the total amount of new financing, which has
been largely bonds and debentures, practically no common stock financing
coming out, that has been put out in the first quarter of the year, I
can’t bring myself to believe that complaints in that direction are
justified. It is quite true that the aggregate volume in the first quar
ter of this year is substantially below the sane period last year, but
it ranks well with the first quarter of 1928 and even with the years of
1926 and 1927. Probably some of these issues have proven sticky and are
responsible to some extent for the increase that has taken place in bro
kers loans, and the issue houses and the lending banks are expressing
themselves dismally in the hope that the accumulations in the hands of
the underwriting syndicates may be shaken out.
The bond market was very dull yesterday and seems to be soft.
The fact remains, however, that the market has been able tc carry what
ever congestion has occurred without unduly firming money rates, and
the borrowers whose obligations the securities are have received the
proceeds and therefore the stimulation on business should be just the
same as it would be if the securities are distributed.
In addition to these three factors, Mr. Case discusses our
foreign trade and foreign financing and tlie effect on the market of
our raw materials, brought about by money conditions in this country
durirg 1928 and 1929. My own opinion is that our tariff situation is
having more effect on this than anything else. This is a long story and
ir. view of the fact that there is nothing we can do about it, I shall not
discuss it further.
The serious situation as I see it is that m are continuing to
receive gold, which has the effect of further lowering the purchasing
power of tbe countries from which it comes. L.Iy belief is that the necessity
for these importations is largely the service on the twelve billion dollars
of capital that we have already exported and. that this service must be
paid in cash in view of the substantial decrease in our imports of manu
factures and raw materials from other countries. If we increase our foreign
lending under present conditions it simply increases the burden of paying
the service charge and accentuates the necessity of increasing our impor
tation of goods. Any further penetration of foreign industry by American
capital and genius is resented, yet it looks like that in view of our own
tariff situation, this penetration must continue with the motive of in
creasing foreign industrial activity with American capital and selling the
products to other countries than the United States.
I do not think I am prejudiced toward the forthcoming issue of
reparation bonds, notwithstanding the fact that they represent inflation
in themselves, because they are a substitute for capital that was destroyed
during the war and must remain outstanding until that amount of capital
can be re-saved. If it is expedient that a substantial amount of these
r"”............ .................... .....
Reproduced from the Unclassified I Declassified Holdings of the National Archives
-3 '
bonds be floated in this country, it may be essential that we take them.
I know that it has been a bitter disappointment to New York to have to
advise a probable curtailment of the amount of these bonds that could be
floated in this country as compared with the first estimate or tentative
commitment. The trouble seems to be, however, that the ease and the
amount of funds made available for their absorption has been in the mean
time absorbed in something else, whether involved in the congestion of
new domestic issues or absorbed in stock speculation I am unable to say.
The action of the stock market over recent weeks has been a
matter of concern but in the last two or three weeks the tendency toward
the revival of speculative mania seems to have subsided and the market
has had what the come-on boys call a technical reaction — whatever that
means. They don’t seem to be able to get the public in very much; there
fore, I do not believe that that is as much of a factor for concern as it
seemed that it might be some weeks ago.
I have written you more at length concerning our views of the
present situation than I intended or than you probably expected at this
time. The main point is that we do not think we should be in such a
deuce of a hurry to do something and we do not think we should get our
selves in tiie attitude of hunting borrowers. As far as this bank is
concerned we have done practically no business this year but it has not
worried us because we believe that money will become fashionable again
because it always has.
If the Board decides to call an Open Market Policy Conference
meeting on May 5, this bank will be represented. I make this statement
not because we feel that a meeting at that time is altogether-necessary,
(unless there are reasons for it of which we are not informed) but be
cause we feel that if the procedure is to be carried forward under the
revised plan, it is the duty of each Federal reserve bank to be repre
sented and participate in the discussions and be conversant with the
factors involved in the conclusions.
Dr. Burgess will visit us on May 1 and 2, and we snail there
fore have an opportunity to get some closer information than we possess
at the present time.
Very truly yours,
Reproduced from the Unclassified I Declassified Holdings of the National Archives
FEDERAL. RESERVE BANK
OF D A LLA S
April 22, 1930.
CONDITION OF MEMBER BANKS MARCH 27, 1930
To the Member Bank Addressed:
Condition reports as of March 27, 1930, of all member banks in the Eleventh Federal
Reserve District show deposits aggregating $973,955,000 (exclusive of Government
deposits) reflecting a decrease of $93,249,000 from March 27, 1929, and a decrease of
$60,848,000 from December 31, 1929. Loans and discounts, as compared with March 27,
1929, show a decrease of $44,512,000, and borrowed money a decrease of $4,832,000.
Borrowings from all sources March 27, 1930, were $8,261,000, of which $5,842,000
represented borrowings from the Federal Reserve Bank of Dallas.
COMPARATIVE STATEMENT
Total deposits
Individual deposits
Loans__________________________
Borrowings from Federal Reserve Bank.
All other borrowings
Ratio of Loans to Deposits
March 27,1930
(All Member
Banks)
Dec. 31,1929
(All Member
Banks)
March 27,1929
(All Member
Banks)
973.955.000
846.774.000
685.518.000
5.842.000
2.419.000
73%
1,034,803,000
865.773.000
713.786.000
13,391,000
3,590,000
68%
1,067,204,000
922.297.000
730.030.000
11,382,000
1,711,000
69%
Yours very truly,
Governor.
wmm
— :
--------------------------- :
------
Reproduced from the Unclassified I Declassified Holdings of the National Archives
F e d e r a l Re s e r v e Ba n k
of Atlanta
O FF IC E
GO
OF
V E R N O R
April 23, 1950.
Dear Governor Young:
have vpur l&t.te£~.o£~~
April 19/5r^ative to a suggested meeting "oi1 "the Open Market Policy Conference for May 5.
■
/
/
I think such a meeting
on that date would be desirable and if
called I will attend.
With my warm personal re
gards, I am
Sineer
>vernor
Mr. R. A. Young, Governor,
Federal Reserve Board,
Washington, D. C.
A.
/Q
/
Reproduced from the Unclassified I Declassified Holdings of the National Archives
FEDERAL RESERVE BANK OF CHICAGO
230
OFFICE
OF
THE
SOUTH
LASALLE
,
-£-{
STREET
April 25, 1930.
GOVERNOR
Honorable Roy A. Young, Governor,
Federal Reserve Board,
Washington, D. C.
Dear Governor Young:
The receipt is acknovvledged of mur...letter of
from which I observe that because
of the developments since the last meeting of the Open Market
Policy Conference consideration is being given to the possibil
ity of calling another meeting of the conference for Monday/
May 5. This for the purpose of determining whether the conditions now current or prospective are such as to make it / r*'",
either advisable or necessary to adjust the System1s position
toward the money market.
I believe that the time is opportune for such
a meeting; that the exchange of views on the subject will be
helpful, and that some action may be necessary, if for no
other purpose than to safeguard against a recurrence of the
excessive use of credit for speculative purposes. If such
a meeting is called, I shall be very glad to attend.
Very truly yours,
LK
Governor!
"* K
Reproduced from the Unclassified / Declassified Holdings of the National Archives
OF
S t .L o u t s
April 23, 1930.
Hon. Roy A. Young, Governor,
Federal Reserve Board,
Washington, D. C.
m n
Dear Governor Youngs
Your letter...of April I&Bi. ji;-S576Ws been
duly received and it seems to me that a meeting of the
Open Market Policy Conference would be desirable. If
such a meeting is called for May 5th I will be present.
Yours very truly,
Governor.
I
!
Fed
eral
Re
ser ve
Ba
n k
OF M I N N E A P O L I S
April 23, 1930.
Hon. R. A. Young, Governor,
Federal Reserve Board,
Washington, D. C.
.
Dear Governor Young:
Replying to vourj3 of the..19th.[x6,576)1 I think
that a conference in the" near ruture would, probably be
a very wise move, but the date, May 5th, would be a very
inconvenient day for me end also for Dr. Burgess, who
aots as Secretary for the conference.
Dr. Burgess is to be here on May 4th and 5th
to speak at the Annual Dinner of the Minneapolis Chapter
of the A.I.B. and I have asked him to stay with me while
here. He is planning to leave here on a late train after
the meeting on May 5th, and if the conference could be put
over to Wednesday, May 7th, we could both make it very
easily together, or if it is desirable to have it on Monday
the following Monday would be entirely satisfactory.
Yours very truly
W. B. Geery
Governor
WBG-C
Reproduced from the Unclassified / Declassified Holdings of the National Archives
F e d e r a l R e s e r v e Ba n k
of
Ph ila d elph ia
925 C H ESTNU T STREET
G E O R G E W. N O R R IS , g o v e r n o r
W J.LLIAM H . H U T T , DE PUTY GOVERN OR
C -A . M 9 IL H E N N Y , c a s h i e r
/J
R IC H A R D L .A U S T IN
CH AIRM AN O F TH E B OARD AND
FE D E R A L R E SE R V E AG E NT
A L B A B .J O H N S O N
ASSISTANT CASHIERS
W ,J .D A V IS
R. M. M IL L E R ,O R .
^
DE PU TY C H A IR M A N O F T H E B O A R D
J A M E S M .T O Y
S .R . EAR L
ARTHUR E .PO ST
A S S IS T A N T F E D E R A L R E S E R V E A G E N T
E R N E S T C. H IL L
A S S IS T A N T F E D E R A L R E S E R V E A G E N T
Aprl3r*32acL 1950,
I R. A. y
i | M"v
My dear Governor Young:I have this morning
in reference to a proposed meeting of the Open Market F<
Policy
Conference. The topic which yon suggest for discussion - "Whether
the Sjyste® portfolio of governments should be maintained at its
existing level” - has been in my mind for some time, and you may
possibly recall that at the March meeting I suggested that I
should like to hear it discussed. As a matter of fact, this par
ticular matter was not discussed at that meeting.
■
The question whether another meeting should be called
for May 5th ii difficult to answer, and illustrates the inconven
ience of having every bank represented in the Conference membership.
Personally, I do not think that the sale of (say) #100,000,000
governments would have any particular effect on the situation, beyond
possibly acting as a temporary wet blanket on the stock market. On
the other hand, it might be regarded by some of the other banks as
being a reversal of Open Market policy, and a matter upon which they
would like to have the opportunity of expressing their views and
casting their votes. If they have this feeling, I would not want
to deny them the opportunity.
I have agreed to preside at two annual meetings on May 5th,
and would regret to have to cancel these engagements. If the meeting
is called for that date, this bank will therefore be represented by
Deputy Governor Hutt. I am,
Very trul
'4a i d l t y k
Governor
Hon. R. A. Young, Governor,
Federal Reserve Board,
Washington, D. C.
*
-c~t
F e d e r a l R e s e r v e B .v x k
OF
ClJWJTCX^MVX)
April 22, 1930
Dear Governor Young*
lour l e 1 1 e . r . - j a X . . . . A s received.
It so happens that the week of May fifth
is a particularly bad one for me to at
tend a meeting of the Open Market Policy
Conferen ce .
If the meeting could be put over
one week,
I could attend, but I doubt
my ability to be present on the fifth.
Awaiting advice from you as.to the
date of the conference,
if one is called
in the near future, I am,
Hon.
Roy A. Young,
Governor,
Federal Reserve Board
Reproduced from the Unclassified / Declassified Holdings of the National Archives
http://fraser.stlouisfed.org/
IFederal Reserve Bank of St. Louis
F e d e ra l R e se rve Bank
of
o ^
Ric h m o n d
April ^
1950.
Bear Governor Xoung:
We have received your letty g* thm 19
lag the advisability of another conference of the Open Market
Committee.
It will be entirely agreeable and convenient to
me to attend.
It appears to me that the movements of bank credit
are not subject to much criticism at the present time.
From
the middle of January to the middle of April, or April 16,
Federal reserve credit as expressed in the holdings of bills
and securities declined $200,000,GOG*
The loans and invest
ments of reporting member banks increased only $148,000,000,
while their deposits increased #165,000,000*
Brokers* loans
have increased in a very pronounced way, the total increase in
that period being $760,000,000$ but loans on securities of the
reporting member banks increased only $404,000,000, practical
ly all of it in Hew lork, where member banks are not borrowing.
All other loans decreased $437,000,000, so the banks appear
only to be keeping their funds employed.
All of the report
ing member banks were borrowing only $65,000,000.
The chief question for consideration appears to be
\jf
whether we should deliberately withdraw funds from the market
with the view of bringing about liquidation of security loans
or preventing further funds going into security loans.
There
does not appear to be any need of putting additional funds in
to the market.
The security market offers about the only
cheerful prospect on the horizon.
Vexy truly yours,
GJS-CCP
Hon. E. A. Young, Governor,
Federal Reserve Board,
Washington, D. 0.
_
Reproduced from the Unclassified / Declassified Holdings of the National Archives
3 "3 ?>.~c *
FEDERAL RESERVE BOARD
°
WASHINGTON
X-6576
ADDRESS OFFICIAL CORRESPONDENCE TO
TH E FEDERAL. RESERVE BOARD
April 19* 1930.
Bear Sir:
Money marketf and related development® since the
last meeting of tile Open Market Policy Conference March.
24-35 have been such "as to lead to some thought here, as
'elsewhere, that the relation of the Federal Reserve System
to current, trends should be reviewed with a view of deter
mining whether thd System* s jjosiiioii shduld fee readjusted; and, more particularly, whether the System portfolio of
G$?erii&6nts should be maintained at its existing level.
With. these considerations in mind, I am writing
to ask whether you think a meeting in the near future is
desirable, and whether it would be convenient for you to
attend, if the meeting were called for Monday, May 5th.
It is realized tl^at not all members of the Conference
may find it convenient to at tend ^especially those living
at a distance; and the fact that
meetings of the Con
ference have already been held this year is not overlooked
by the Board.
A written statement of views would be appre
ciated by the Board from any bank not participating in
t&e meeting of t o Conference, should it be called.
Very truly yours,
H. A. Toung,
Governor.
TO Alt GOVEWORS.
V
■III
Reproduced from the Unclassified / Declassified Holdings of the National Archives
April 19, 1930.
IS j U u . £ U /
■##wjjwbia fliiBiHi’aiBSs:
Money market and Jcisadarett- developments since the last meeting
of the Open Market Policy Conference liarph 24-25 have been such as to
S
~ -. j .< '
^
J
.
lead to some thought that the relation of the Federal Reserve System
A
a.
to current trends should be reviewed with ■fee view of determining
whether the System’s position should be readjusted;- and, more partic
ularly, whether the System portfolio of Governments should be main
tained at its existing level.
With these considerations in mind, I am writing to ask
whether you think a meeting in the near future is desirable, and
whether it would be convenient for you to attend, if the meeting -warecalled for Monday, May 5th.
It is realized that not all members
of the Conference may find it convenient to attend, especially those
living at a distance; and the fact that two meetings of the Conference
have already been held this year is not overlooked by the Board.
A written statement of views v rtT T be appreciated by the
Board from any Q tm m m fK not participating in the meeting of the
V "
Conference, should -©fie be called.
Very truly yours,
0£616TH<W
'B*-! M f c M
U ’ VOB
a.,
T-V
Reproduced from the Unclassified / Declassified Holdings of the National Archives
F o r m N o . 131.
Office Correspoii.Je.-ce
FEDERAL RESERVE
BOARD
Date.__April 1 7 , 1930.
Subject:.
From.
Mr. James.
I21 view of the conditions shown in the Federal Reserve Board
press release for April 1 7 th, 1 9 3 showing condition of weeklyreporting member hanks, which discloses the fact that loans on
securities to “brokers and dealers by member banks is higher notr ^
than in any period excepting October 30th and November 6 th,--I"wish
to offer a motion that the Board give consideration to calling a
meeting of the Open Market Policy Conference at an early date, with
a view of arranging for the disposal of not less than fifty million
Government securities*
APB 18 1930
Reproduced from the Unclassified / Declassified Holdings of the National Archives
F o r m N o . 131
Office Corresponuei.je
FEDERAL RESERVE
,i0A
R
D
From
April 3.?, 1950
-'■7 ’’J
% "
To
Date
V'
_______ Subject:.____________________________
__________________________,
Federal Reserve Board___________
^ :j J
Mr. McClelland._________ '
____________________________
For your information.
this office.
Please circulate promptly and return to
Gov. Young v y
Mr. Platt,*'
Mr. Hamlin,
Mr. James,
Mr. Cunningham
Mr. Miller,'
Mr. Pole.
%\.mjiM)
Reproduced from the Unclassified / Declassified Holdings of the National Archives
T-
ii
F E D E R AL
RESERVE
BANK
OF D A L L A S
April 10, 1930*
Dear Governor roung:
Thinking that it might be a matter of special interest to
you, I have had extracted from my report to our Directors at their last
meeting, my memorandum on the credit situation* This memorandum is of
course included in the copy of the minutes of the Directors* meeting, but
in tlnat form it is no doubt more unwieldy and less convenient for you to
read than in the form I am sending it to you*
The enclosed memorandum shows the considerations which were
included in our Board's decision to reduce our rate from
to 4# at the
last meeting. I think you will readily see in the memorandum my attempt
to examine both sides of the medal, but without equivocation on my part
that the weight of action lay upon the side of a reduction. Probably you
will also interpret my thought that due to an artificial ease having been
initiated by the System, that in addition to the situation in our district whether or not an effect of such artificial ease - we have a condition made
for us that left little else to be done except a reduction in our rate.
*
It will interest you to know that of seven members present
at the meeting, thre^ voted in favor of the reduction and three voted
against it, with Chairman Walsh breaking the tie by voting in favor of the
reduction* It is also* interesting to observe that the classes of directors
did not vote solidly. Two Class A Directors voted for the reduction and
one against it; one Class B Director voted affirmatively and the other
negatively, and this was also true in reference to the Class C Directors.
Our Directors supported unanimously the views which I ex
pressed at the last Open Market Conference. I do not believe that you will
find the enclosed memorandum inconsistent with either the views that I ex
pressed or out of harmony with the action of the Conference. Moreover the
events which were forecasted at that time have occurred. The open market
bill rate has come back to a proper relationship with the existing System
rnipimiTm buying rate, indicating that the minimum
rate suggested has
been unnecessary, and certainly would have been unwise had it been put into
effect. The stock market has gone on its meteoric way and it appears that
some $675,000,000 of credit has already been absorbed in that category. So
far I have found no reason for the increased activity and rising prices in
the stock market other than cheap money. Fortunately the public does not
seem yet to have been attracted in any great degree to participate, as
evidenced by the fact that apparently direct loans on securities have not
increased to any extent. It merely seems that the professionals so
are using the excess supply of money in the market which is not being ab
sorbed by business, to play with among themselves. How long it will be
before the traders begin to encroach upon the normal supply of credit
do not attempt to say*
— - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
1 ,"1
"
Reproduced from the Unclassified I Declassified Holdings of the National Archives
-2 -
I call your attention to a suggestion in the memorandum in
reference to the possible wisdom of selling ^50,000,000 Governments back
to the market at this time as a gesture toward withdrawing some of the
excess funds, instead of waiting until the time when present stock market
operations will increase rediscounting. Of course this amount could be
immediately re-purchased, or probably they should not be sold at all if
such action might bring about a violent reaction.
Apparently the excess funds are not continuing to help the
bond market very much as they seem to be principally employed in stock
market operations. The bond market has been moving sideways and there
has been much uncertainty expressed in the last two or three weeks.
Yours very truly,
Mr. B, A. Young, Governor
Federal Heserve Board,
Washington, D. G.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
CREDIT SITUATION
April 7, 1950
Reserve bank credit in use in the Eleventh District reflected a substaitial
reduction during March*
From the high point of $13,953,000 on March 1, loans to
member banks declined to the low point, §5,440,000, on March 25*
There was a grad
ual upward trend, however, from this date to the close of the month, at #i ich time
they amounted to $6,400,000, Bankers acceptances, which on March 1 aggregated
t
§16,626,000, likewise reflected1& gradual reduction during the period and reacted a
low point of $8,347,000 at the close of the month.
United States Government secur
ities owned showed no change, although our participation in the Open Market Committee’s
purchases of United States Government securities increased .'55,000,000 on March 20 to
#15,649,000.
This was the only change in our special participation account during
the month and was occasioned by the repurchase of a like amount of government secur
ities sold on February 18 to the Open Market Committee on a sixty day repurchase
agreement.
The changes enumerated here represent a decrease of approximately
$15,000,000 in loans to member banks and in our holdings of bankers acceptances,
each account having reflected a fifty percent reduction during the month.
Although
the exercise of our option in the repurchase of $5,000,000 of government securities
had the effect of partially nullifying the decrease in earning assets, they, never
theless, reflected a reduction during the period from $50,383,000 to f;40,433,000.
City banks, which were indebted to the Federal Reserve Bank in the amount
of |9,100,000 on March 1, effected liquidation during the month of 07,100,000 which
represented a decrease from 16 to 10 in the number of borrowers.
On the other hand
the number of borrowing country banks increased from 86 to 107, representing an
increase of 21 borrowing banks with an increase in amount of 8700,000 to $4,400,000
at the end of the month.
The weekly statements of reporting member banks, which constitute the major
banking strength of the district, reflected an increase in United States Government
deposits for the February 26 - March 26 period of £15,000,000, together Y/ith an.
-1-
Reproduced from the Unclassified / Declassified Holdings of the National Archives
increase of approximately y2,OOO,OOO in demand and time deposits.
Investments
in United States Government securities increased ^7,000,000, commercial loans
decreased some $10,000,000, while loans to brokers and dealers in securities
increased approximately ;!12,000,000, the difference being represented by an in
crease in cash and exchange and a decrease in borrowings at the Federal Reserve
Banks.
According to statements of reporting member banks in leading cities
of the country, deposits during the February 26 - March 36 period increased ap
proximately $704,000,000, constituting demand deposit increase of 8260,000,000,
time deposit increase of 0211,000,000, with United States Government deposit
increase of $233,000,000.
creased $560,000,000.
Total loans and Investments during this period in
This expansion was not in the form of commercial loans
however, which reflected a decrease of $84,000,000, but on the other hand was
represented by loans to brokers and dealers in securities, #iich increased
$543,000,000.
While bank loans and investments during the period expanded
.^560,000,000, the leading member banks have been able to reduce their Federal
Reserve Bank borrowings from $152,000,000 to ^47,000,000, the latter figure
comparing with a total of .^>779,000,000 a year ago.
In this connection I might mention that the total increase in time
deposits for the period is due largely to the fact that banks do not quickly
readjust their rates on time deposits, which rate is normally, so far as this
district is concerned, 4°/o9 and it is fairly stable at that iigure.
.Therefore,
when the extraordinary ease came into the market, around the March 15 Govern
ment financing period, there was undoubtedly a very strong tendency toward
bringing funds out of the trading market and taking advantage of the batek rate,
due to a disposition on the part of the owners of the funds to wait to see just
what the market was going to do.
This evidently has not brought about a
m
;
Reproduced from the Unclassified / Declassified Holdings of the National Archives
tendency to an outright conversion of demand deposits into tine deposits, due
to the fact that demand deposits, which show substantial increase, have, likewise, been affected somewhat by the same causes that have affected time deposits.
The effect of any tendency to convert demand deposits into time deposits
would
be to release reserves and add to the ease in the market insofar as rates are
concerned.
The substantial decline in commercial borrowing, and the absence of
any demand, would indicate that the substantial increase in the net demand
deposits has come from the commercial segment, and would also indicate that
;
payment for merchandise previously shipped ?jas running at a much higher ratio
|
to new shipments than Tsas formerly the case.
I
I
|
According to weekly statements of reporting banks, brokers loans re-
]
fleeted rather substantial increases for the weekly periods ending March 5,
|
12, and 19, amounting to $94,000,000, :137,000,000 and 0131,000,000, respec-
I
i
tively.
j
verted to the upward trend for th© period ending April 2, having increased
!
during the latter week by 1148,000,000 to a grand total of -3,968,000,000*
They declined, however, ^31,000,000 during the fourth period but i?e-
Although our Federal Reserve Note circulation declined i5,345,000 from
\
j
J
February 26 to March 26, and contributes to the ease in the credit situation,
it need not be considered an important factor in this discussion.
The decline
is purely seasonal and because of the fact that the circulation was higher on
i
I
February 26, due to the disturbed banking situation in the district for three
weeks prior to that date, the decrease in circulation may be pretty well dis
regarded.
Under date of March 7 Mr. J. H. Case, Chairman of the Board of the
j
Federal Reserve Bank of New York, wrote us in Governor Harrison*s absence abroad,
|
expressing the Hew York Bank’s general view of the credit situation as a result
-3 -
of their own survey. The letter called attention to the trend toward easier
rate having continued perhaps even more rapidly than was anticipated at the
time of the Open Market meeting in Washington in January, yThis was due to gold
Imports, principally from Japan and South .America, am^mting to o55,000,000 in
2’ebruary, which was not foreseen at that time.
Th^re was further ease coming
partly from a continued credit liquidation, ajya '
the rapid decline in Federal Re
serve Note circulation was even a greaterjractor,
Even in view of these circum
stances and apparently without takingJfnto consideration the additional ease that
would occur at the tax period on M^srch 15, the [Federal Reserve Bank of New York
on its own account and with the approval of the Federal Reserve Board, set about
to make what was described as a terafrorary purchase of 1:50,000,000 of Government
securities, gradjjstb^ over the succeeding next few weeks. This purchase, however,
was cqjiirtfSiiated in two transactions of approximately 025,000,000 each, and con.eluded almost immediately after the decision and approval.
The proceeds of this
purchase were put into the market aihnost simultaneously with funds piling up from
the check float from tax payments and the redemptions of the Treasury maturities
on March 15 prior to the collection of tax payments.
Money became sloppy and on
one day the call rate dropped to 2% and the bill rate dropped to as low as 2 -f/>
bills up to 90 days maturity,
the market was evidently very badly misled and bill
dealers* portfolios were practically liquidated.
The New York banks were ever in
their reserves to such an extent that they were led to run too far below their re
serves in the succeeding period with the consequence that when the Treasury*s over
draft to the Federal rese ve banks was paid off and due to the fact that the money
market lost tUnds rapidly withdrawn under the low rate, they were compelled to
borrow rather heavily for the next succeeding few days.
Mr.
C as& *s
letter suggested that it was likely that an Open Market meeting
would be called for Monday, March 24, and this was later confirmed by the Federal
Reserve Board,
On March 15 I replied to Mr. Casefs letter, setting forth our
the
views rather fully,/purport of the letter being that we not only questioned
hut were conclusively opposed to any further artificial ease in the money
situation and that we did not believe that any further initiative steps should
be taken by the System.
I read this letter to the regular meeting of our
Executive Committee on March 17 and found the members of the Committee much in
sympathy with the views that I had expressed.
I attended the Open Market
meeting in Washington on March 34 and 25, at which all of the banks were rep
resented.
Before leaving for the meeting, however, I received Mr. Case's letter
of March 18 in acknowledgment of my letter of the 15th.
In that letter I was
advised that the St, Louis and Minneapolis banks, beside ourselves, were the
only banks heard from to that date that appeared to be in disagreement with the
policy.
Chicago and Kansas City had not been definitely heard from but the
statement was made in the letter that all the other banks faere in agreement
with the steps that New York had taken.
It seems that the fact that these
eight banks had accepted participations in the |>50,000,000 purchase by New
York on its own account, was assumed to be an expression of approval.
At the
Open Market meeting, however, I found that all but the representatives of the
New York and Atlanta banks shared the views which I had expressed in my letter
to the Federal Reserve Bank of New York of March 15.
It seemed at the meeting that Governor Norris of the Philadelphia
bank and I were called upon to lead the discussion and present these views
at the first session of the conference, which was a joint meeting with "the
Federal Reserve Board.
Governor Young stated that the Board had before it an
application from the New York bank for a minimum buying rate of
for bills.
There was, however, a discussion in which it was rather clearly indicated both
Reproduced from the Unclassified / Declassified Holdings of the National Archives
on the part of the New York bank and the Board, that there was no intention to
reduce the rediscount rate of the Federal Reserve Bank of New Y^rk below the
which was fixed and approved on March 13*
The representatives of the New
York bank expressed the view that due to maturities of approximately .,100,000,000
in bills then held by the System, within the next thirty days, that some steps
should be taken to maintain the portfolio.
The majority view of the conference,
however, was that the market should be le#t to its own devices &hd that for the
time being at least natural forces should be allowed free play without further
interference on the part of the System, and that in all likelihood the bill market
would firm moderately, making it unnecessary for the change in the minimum buying
rates for bills to be made.
At the afternoon session with only the representatives of the Federal
Reserve banks present, and after only a very brief discussion, the acting secre
tary of the conference, Dr. Burgess of the New York bank, prepared and submitted
the following memorandum, which was unanimously adopted:
"The Open Market Committee, including informally representatives of
all the reserve banks, has considered the information submitted in the
Chairman*s preliminary memorandum, by the Federal Reserve Board, and
by representatives of the several banks.
?rJhile Treasury tax period pperations have distorted the neartine
view of the money situation, it is clear that since the meeting of the
Committee on January 28 and 89 money conditions have eased substan
tially and money has became more freely available and the ease has
been extended from the short time to the long time money market.
"The Committee believes the steps already taken by the Federal
Reserve System in easing the money market through open market opera
tions have gone as far in providing the stimulus of easy money for
business use as seems desirable at this time. The Committee believes
from the Unclassified/ Declassified Holdings of the National Archives
that at present there is no occasion for further purchases of
Government securities,
"In the interest of flexibility and preparedness for the unex
pected, the Committee favors a reduction in the minimum buying rate
on bills, fixed by the Reserve Board, to 2-1/2$*
It is the sense
of the meeting, however, that in the absence of some developments
that cannot now be anticipated, bills should not be bought below 3$*w
Since the meeting there have been three or four successive increases
in bill rates by dealers so that at the present time the effective selling^pfiftes
are 2-3/4# for bills up to ninety days, 2-7/8% for bills up to 120 d^ys, and 5%
for four months to six months maturities*
This has made unnecessary any further
x""
reduction in the minimum buying rates, confirming the Judgment of the conference
as expressed at the meeting.
While for a few days call money continued at
following the excessive ease for only one day, it firmed to 4% and has since
been steady at that rate#
On Wednesday of last week the dealers made very sub
stantial sales of short bills to the System, following a substantial increase in
their sales contracts at the close of the previous week*
The increase in discounts
which might have followed the rapid decline of the bill portfolio has been negli
gible and the dealers* sales have evidently, through natural processes, cared for
the situation in a satisfactory manner*
The recent increased activity in the stock market and the rapid rise in
security prices with a slowing down in both the activity and rise in bond prices,
have confirmed ray own opinion that the easing processes on the part of the System
went too far and have resulted in a spurt of speculation based solely on easy
money in the fac* of discouraging factors in practically all other directions,
unless we can assume that such activity, notwithstanding the rather high prices
which have been attendant, is a forerunner of business recovery some months hence,
which we know from past experience might easily have a historical foundation.
-7-
c\
"V'
My own view at the present is that it would do no harm but might on the other
hand prove beneficial for the System, probably at this period, to execute a
gesture toward this situation which might be expressed by selling say $50,000,000
of Government securities back to the market, being ready of course to repurchase
them instantly, should the gesture be taken over-seriously*
In any event, it
would remove the #50,000,000 which has been put in the market by the last purchase
of that amount of securities, that seems clearly to have created an excess ease
to that extent.
Considering the situation from a national viewpoint, I am convinced
that our present discount rate is correct if it were possible to compare it with
the discount rate in New York of 4$*
My view ie further strengthened by reason
of the fact that there is an equal discount rate in London and New York with a
firm sterling rate which was recently at the export gold point*
The earlier part
of this discussion has no doubt indicated to you that the statistical situation
in this district points to a justification of a 4$ discount rate for this bank*
The differential of 1% between our rate and the New York rate does not seem in
itself to be a factor in a reduction of our rate at this time, in view of the fact
that we have no evidences of any outside borrowing that should properly be done
in this district, either by banks or commercial interests*
At the present time,
beside New York, there are six banks with a 4$ rate and five banks with a 4ij$ rate.
In many respects the present year bears a close resemblance to the
comparable period in 1927, with the exception that the business recession has been
more severe in 1930 than iji 1927;
commodity prices are lower, and, because there
is a much smaller dollar proceeds of production in this district this year than in
1927, no doubt the debit trade balances against the district are considerably larger.
Our ^tasoount rate
at that time was 4$ and remained so until August 12, 1927, when
it was reduced to 3g$.
Our city banks are meeting with a demand on the part of
the makers of existing lines for a reduction in rate but the downward course of
-8-
Reproduced from the Unclassified / Declassified Holdings of the National Archives
these rates on current loans has lagged very considerably.
Undoubtedly a reduc
tion in our rate to 4$ would increase the pressure on our city banks for lower
rates, but holding our rate at 4-gfc would not remove the pressure in that direction
that is being exerted at the present time and over a period of the last three or
four weeks,
I think the Board in its consideration of the discount rate should take
cognizance of a possible effect upon bankers balances in this district if the rate
should be reduced to 4$,
The banks in Dallas and Fort Worth pay 2~J$ on bankers
balances; in Houston the rate is, I understand, half the Federal Reserve Bank
discount rate with a minimum. of 2$ and a maximum of 3$.
I ara not informed what
basis the San Antonio banks use but the minimum rate is likely 2$.
Tly thought is
that if our reduction in rate would have a material bearing on the rate paid in
this district on bankers balances and these rates should be reduced following the
reduction in our rate, that the tendency would be to drive bankers balances out of
the district into call loans and to a lesser extent into bills, and raise the ques
tion of city bank borrowing for other than business purposes*
In view of what appears to be an extreme economy in the use of credit in
this district at the present time and a similar trend for the immediate future, I
think that the weight of recommendation is on the side of our reduction to a 4%
rate,
I would be much gratified if we should find it possible to operate for the
next few months on a 4^ rate, and that there would be no firming of rates generally
in the late summer just prior to our principal crop movement and seasonal business
activity,
I always have the fear that a too rapid easing of rates due to open
market transactions, although for the purpose of stimulating business revival,
might bring about such illegitimate uses of credit as to require opposite action
and a firming of rates just when business is beginning to make a showing.
-9 -
Reproduced from the Unclassified / Declassified Holdings of the National Archives
Fe d e r a l R e s e r v e
o f
Ba n k
Ne w Yo r k
April 10, 1950.
Dear Governor Young:
We acknowledge receipt of
us that the Federal Reserve Board, after consideration of the report
made at the conference meeting on March 24, is in agreement with the
statement contained in the report; viz., that the steps already taken
by the Federal Reserve System in easing the money market through open
market operations have gone as far in providing the stimulus of easy
money for business use as seems desirable at this time.
We observe
your statement that, for this reason, the Board concurs in the con
clusion that at present there is no occasion for further purchases of
Government securities and that, except in the event of some unforeseen
development, bills should not be bought below 3%.
It is further noted that the Board desires to keep under
review for the present at least the question of a reduction to 2 1/2%
in the minimum buying rate on bills.
Faithfully yours,
J* H. CASE,
Chairman of the Board.
Honorable R. A* Young,
jBrbvemor, Federal Reserve Board,
/ Washington, D. C.
f the National Archives
/
'••J
W
April d 9 1930*
y.u/
Dear Itr. Caae:
~i' 3 f
3
-
jo
J
The ?ederal Reaerve Board htui had under con
sideration t ^ ^ i ^ K K r l L a N ^ at the conference meeting on
liaroh 24th. ft la in- agreement with tho etatenant con
tained In the report that tha atepe already takan by tha
Federal Be**r*a.Syat** In eaaing the money market through
opan Market operatiana hare gone .as far in providing the
atlnulua of easy noney for buaineaa uae aa m m a deairabla at thla tine. It, therefore, ooncura in tha conclu
sion that at present there la no oaoaalon for further
purchaeee of (knreraarat eeeuritiea>nd that, except in
the event of boom unforeseen developnent, bllla ahouXd
no-V be bou^it below 3ffc* "
*
.In vi*# of the trend of bill rat*a ainoe tbe
date of the m e e t l y however, the Board deeire* to keep
under review for the time being the queetion of a reduc
tion to S-l/ajt In the Minimal buying .rate m bilie*
Very truly youra,
St# Am YOUsHfl,
Governor.
Hr* J* H. Caee, Aotinc Chairaan,
Open Market Policy Conference,
Federal Reserve Bank,
Tfarw York City, II. Y.
y
w/
<
Reproduced from the Unclassified / Declassified Holdings of the National Archives
I***'1’
F E D E R A L RESERVE B O A R D
W A S H IN G T O N
OFFICE OF GOVERNOR
April 8, 1930
Ca$e:
Dear
The Federal Reserve Board has had under considera
tion the repor\ made at the conference making on March
24th*
It is irkagreement with the st^rement contained
in the report that the steps already Mken by the Federal
Reserve System in Yasing the money market through open
market operations have gone as faj^ln providing the stim
ulus of easy money fbr business y&e as seems desirable at
this time* It, therefore, congers in the conclusion that
at present there is noXoccastan for further purchases of
Government securities akd th^ft, except in the event of some
unforeseen development, NbiJ^s should not be bought below
j{
111 view of the treria\pf bill rates since the date of
the meeting, however, jjhe Board desires to keep under re
view for the time beMg theYquestion of a reduction to
2 l/2*£ in the minimjyfo buyina rate on bills. T.Tnrfcgr eujgtn
Tlttt. ntiQn^Q
be loifi
'
. nt^rf
n
.
a change m s
be prepared
Very truly yours,
R. A* Young,
Governor
Mr* J. H* Case, Actim^unairman,
Open Market PoliflfjfConference,
c/o FederaJ^eserve Bank,
Newjfcf^k, N. Y.
BOA&t> MBETING.
APK 8
1930
Reproduced from the Unclassified I Declassified Holdings of the National Archives
3 3 3,
2!*s Open lisxiait Qmaiittoo, lasludliig iaTonaaULy representatives
of all the vwmevm btix&s, has aousiaoroa the in to m m ttm mibyitted in the
Qh&irraeiji#*s prsllsdmry
by tho 'm ^sm X Boson* Board* mSL by
m ffm m u tutivoo of tha several bailee*
& ile treasury tax p rlo d operations have distorted the m>ar~ttoe
view of the s w m y situation* it Is ole&ir that elnas the nestlac o f the coqr
tolttae wx Jonu&xy iS and 29 m ^ r oonditioiis have oamS substantially sad
Ht»a beoane snore freely avilabl® arid the eo&e has boon extended fron
tho short tia * to the long tins zao&oy imrket*
H m Oomittoe believes tho step* already token by tho F®doi?ml
aogowo n y u tm i n
w m ltu z tho m m ty Market tbrougi open aarkot operations
hove aono o» far in .providinu tho otlu*lus of -easy mmmy for busi&ess use
ms seem dec iruble at this time*
fho oaeasittoe believes that &t preecnt
there Is bo oooualon for further purahaaoe of uovernmeat seeurifies*
In tho Interest o f fle x ib ility m & pr©poredaess fo r tho uimmd»
posted, iho aaemitttiO Ikvom a reduotian la tho ntalimisi buying rate m
h ills , fi»e d hr the lissom Board, to
It is tho m n m or th©
dieting, hoeofer* that in tho abeeoao o f si*ie developiamte ttat oaonot
M r bo anticipated, b ills ahouJUi not bo bought boloer
Jh&vvwZ
AT B O A R D M E ^ S n Q .
pmR
880
@FedFRASER