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A PROPOSAL With * view to reconciling the debt management problem of the Treasury -with the problem of controlling credit by the Federal fSeoerre, the Secretary of the Treaeury autfaoriaee the fiscal and technical etaffe of hie departoeat to negotiate with the Federal Keaerve on the following baeies The purpoee of tide negotiation l» to reduce to a miniaua the creation of beak reserves throu^i nonetixation of the paolle debt without creating a nt&rteet pj^/chology »Malt would antail a lack of confidence in the etabllity of the Go^ewsgieni eecuactttee narfcet* ^wre specifically the purpose of the proposal i * to relieve the Federal Heaerve to tfoe f-ollcat extent practic5able of the otipport of tomtom Government© ?dthoat coraj«ellirc the Treasury to refinance maturing obligatiosjai teing this calendar year, or to finance nee And roquireraente, on the baala of ijjdetersd.'iable rtaisg interest rate** " Thie can be accorapliahfld within the fraaework of the 2-1/2% long-term interest rate pattern announced by the Secretary of the Treasury in his addreee before the Hew York Board of Trade an January 18* The propaaal invalres 3 eleoente, (1) a new norsMtrketablo security to tie issued in exehaoge for OHtetandiog lone-tens 2-0/5$ bond* of June mad Beceraher, 19$M3» (2) refunding the $1*0 billion of a t t a i n t securities between June 15 and T*o©nber 35 of this ye*r, and (3) the raising of new fande to finance the poreeeRt «ergsney« fhs&m elctnamts* *tiiX# inteirelated, will be dealt with s^parate^ # ixcmiics wtmom or nMKsssnsn s ^ BBH> rot QSmiypIliS !®fflXeiE0 BBSI50ST B03DB CF 256?~T^* I& €<maidw«*iafi of am agrts«gis£ on th* part of the Ft*fer&l B&surw to maintain a eSfcs&S# weurLtU* msffcrt* &# saom « p M i f i ^ l l y entUned ~2 ~ below, tlw geeretsry of the Tm&mxy wouM agree t e issue a 2**p4ma 29-year 2-3A^ iwmarketable security, isfeieh wuld not be redeemable by ' the freaa&iy prior t e m«feaaril%# hut sblefe « ^ d d he ttotafMfel* prier t o isatsiri^ fur !*&/%% $^mat Tmmm&y Betes* Ibm pm*pm® of thin offteriag m M he (a) to r e t i r e a Img* segment of tfc* ®Sf4^rfcil&e iebt* sftdtfe i s BOW cMudJENC diffie&alties fbr the FaiSeml Beserve* and (h) provide a degree of f l e x i b i l i t y fear holders of ^ e mm mmmim&M& MMwllgr hgr naMaag theia exchangeable for a 3*3/2$ 5-f^iar note tliat crcmM tit soM cm tbs Biar&et i n ease c cash fund* arc needed* At the s ^ e tine i t avoid© an increase in the cteaand obligations of the treasury• One ef the MBit* of the p?epessl i s that i t «ndda a prejsitfgiitg of th« securities market. I t i s beli«red t h a t t h i s exchange privilege would give bojereoey te the r e s t r i e t e i f**SMSity bonis ef lf6?~1f0 sinee the < *lchto" or exchange privilege would he attractive to lomg-tewi inventors she ami more interested in interest return thasn they are In speculative p o s s i b i l i t i e s . Thus, there w*mid be created a b\iyers f narket for the restricted Treasury bonds of 196?~?2# aM t e t h i s s&tent afaeaWE relieve tfas Federal Reserve of a great ileal of pressure. OmmirzMy-t i f iiarfeet omfiiimim «8u2d be restored tlirmi^t an msecp^voeal joint aia^iiiaeiiertt by the fi^sawtry aad Fedter^l ^ ^ f i that m ti^tmmmk had been roadbed* the present ssadost stapport problem of the Federal asserts might disappear* I t i s realised* of course* that ecmsidtratlofi HDUM have to be given by the technical staffs of the Xpcasuxy ami the F^dedral leserve as to the effect of t h i s aetloit on ether mit#tasdtog igarteetsble ssctiritiee in the Intermediate and lon^>-t©mi area* / ! • -3Do order to pawide for t5tia jaropoisal a fair aM reaaona&Le testing period, I t mmM be nettMmgr for ifee Federal deserve to agree to sup?5ort the eecuriti*a affected at pre cent yuai^e t levelst Ir. a spirit of cooperation tlie Federal Kseeerve and ^m Treasury ^ould become partners in the support program under which each agency would take a pro rata slrnre of aaqr purehaeea that sagr be required) that i% Hie Fedteral Reserve Open Market Aocouat would take a percentage of tht purchases and the treaairy nould take tot balance for Qcnmrmmit inveetaent aceotsnt* f t haa been suggested, for inatance, that the firat §200 million pm^kmrnsA w$$m? the agr*«a*at would be shared equally by the Treasuiy and the Federal ftwerve } tlmt the Treasury and Federal Seeerre would finance 75^ ajori £$$$ rei^pectively > of the eueeeediag #»00 urUllonj a&d that the Treaeory wsould carry the full amwt.£» eaceeee of ffitJO laiHion* This would mmm to be a reaeonabl* ba*t * of rwcha ee during * teeting period, but t h e » i s m inherent danger In the event of a *leak* that the Reserve l a ccsmi tted to a stated amount* While 1 % ia realised that the Federal Reserve a&ejbt not be wi lling to accept an n vpm end** agrfcersent, i t stust be recogni?5ed that public tonwledge of a itaitation wuuld not mmmm^b .^rket cenfidtence* -jnracai» or n s tto KCUIOR OF MASIUMG S&WROTES fascist jrom x? ASP memos. 25 or turs TS*K OGLB C RO tb» 6 atntht period* Jtae 1$ - IS^^^©r 25* tbt I S ^ a t f j w i l l bo n ^ b r t d to m t o i ^lnoat fliG tdllioa* of sfetusl&g oblip&icma* «deeCbndbP» of froat&ry- bill** Hnooeo© of tids refte«Sjsg dataadtai eoitfidtenao to tltf* *t*ybili% of tiwi Qomvxntai seoOTtt&ot maitet* fhartfovt* i t 1* imperative that the Treasury and tb* Federal 9mmnm reacli an agreemmt on it mon*t*ry-«tebt policy for ti»e balatioe of the calerxiar year, at le&at* Obviously, thie preptm t l e ^ i net b& «w»ribmmft witii anoartelBtGr* mim» understanding, and tbt prospect of rising interest rates* In nsturn far an xariertttniiiftg that thv F&tlaral Reserve woxtld maintain a stable prico level during thi» period of f infl^cing oo that the Treasury w o l d not be inquired to f iriance on & rising interest rate, the TreacPiuy mi^fe* agree to m poliugr mder whdeh the Wmimml mmrm wmxld £Bm tlit i^mzMmm tamrlt&aa MQrftePt to ®ajm«t i t s e l f befo» jfeat 3j£ around tbt &*3/ls^ dSj«N^«t smtt fwr prwmilii^# Fw» tbt !Braa«tixy point of vi«r i t mwild be dtalrablt to tsetend th&t period of •tabi2i,tgr for the to&tlon of the tntfvitmg^tart i t I t cfe^tlttl *b*tii*r tlit ftedtemi Wmrnrm *oul& be «123i»g to tamAt/fimSLt that far ahead* m tlit othtr band* i f a ®\mm? wm$$m r e l a M ^ ^ i p eoald be established between the technical stoffe of the Pedoral Rosorro and tbe Treaau3T# i t may bo poaeible to anggoa* m program of sjanetar^^-ctebt xaaimgeoent ifhioh might be acceptable to the poUcy*«akinp; ofriciala* -5On t&e ba*L# a£ 13* |img4*tt*» budget eptiimtee, acd witixrat asking i32immm So* an iaew«a» £itsa sew iase*, I t la estI»a%Bd t£*£ opr borro«Sjag« firas thin tiae to June ynt 13%2 will sespast to i^ppaaeliM^^r $83 blUiori, distributed as tollatemt m? V)$\ fgj£ billinai JvOy t ^ ^ billior»| Ootobtr 57^5 billiwij April 19!^2 f$«fc billi-vn, llasne figuree rak» y la *Mitij*i to th* cwh <*ttcit • Si* lipePM a t * * ** *»***i % * fWirHiifHwit wti&BSM bonds uitwzi'ta «TK! A xwialan of thft viAlida oa Timmn w Cfrnfersssoeo with & • Fodoral Tfceserra on t&* teeiinieal l«rv«l nl^ht b© halpfxil In IqrtaK out a jnigNM of debt exposition l a order th*t the Wmmm m& mmMm? ttffflLf m full imfeNr «ltfe tr,c fnmiaQr in minUiiJiinf a Ptarket S&r t&o oBoi&l%l#fi i£tR»* tiiey Iww b&&* !##&©&• I t i s £tm*mlty mmm&m& t£*t t b u * are no mibstantial onmKfc* # T J a®s>-£*tf& ftmtls m&k&u: irrvestemt at t3i* pr*Nn& tin£ # Scut people aiem to %M$k Umt Mmm wUX t * funte o t ^ f e c otlsor «mr«tt of immfamA fe^^^^ «t»tilx» thio ftSX after hmm- ^m3$m&* i t wre&i « « thai t b » e «ra2d tso m naod at tfeta tin* to afttttpi to ssv^tttftga €te laarisai « far ahead or to mmmm that tht 2~$/3$ 2@®$*%mm **te awttaBiod l a the 4te&s-*7 18 a&drese v i l l not be &pprs|ttdato* Tb€HneTor«j» i f m joint aiint>iaae^ient of th® Tr^ajsiirj" «D*I t>3» F«d»ral H«»«rv© i m M bo agreed nmnp KtUi a riaw to i w ^ t n ^ H i ^ ^ n«*«t confid)©nae, r*£mnmm *ii-ht bt -mde to tl^ f aet t>«at tlMi Sertee G bond or the Ijavogtawnt P«ries Bwid ismued in X9fc7 ^l^ht he mm$m available for . £ ptm&mm ty non-bank investors frssa t i s e to tdiae, the purpose of this reference being to indicate that there hae not been abwxJoneent of the poUey gUtewent in the January 13 addreoe, UMle tise following HdLg&t a^seaer arK&dy eptlaiatic, and wralri, of eeetf*e» etapeni * great deal upon U» effectiT«aae«e of eeleetiTO controls •ad otfaer f*etam effecting the aaraileMlitsr erf iiweetwente* thieve i e ft to iti ewnetltlre; mam of the public debt T*iich I t near holde, and sey eaakle the Treasury to ftcatuire new nosey by eeHing in the swnrifcet eotae of the reetaricted 2-0/2* bead* of 1967-72 prerieuely acquired fW Gov*rre*ent
@FedFRASER