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William McChesney Martin, Jr., Papers Box 16/Folder 1 http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Series IV, Subseries B General Correspondence T*1 - * tZL IN I f\ L, "Fan-phrase of this message is not required. Handling and transmission cf the literal plain text of this message as c ;nce of the INCOMING MESSAGE accordance with the provfsicns of paragraphs MILATTACHE LONDON FROM :ma NUMBER : SVC 538 SUBJEa 'BUSINESS SITOATtON AND GOVT SECURITIES DATE ACTION TO : MARKET. =0800202 JULY 49 RECEIVED: op INFO TO SECURITY: CONFIDENTIAL DECODED BY: TYPED BY: JfRJ Pis Pass to Seoy Snyder: 1HE FOLLOWING IS GEORGE HASS* REPORT ON THE BUSINESS SITUATION AND ffiE GOVT SECURITIES MARKET. INDUS 2RIAL AC!EVITr IH THE iARLY PAHT OP JULY HAS BEEH CURTAILED BY HOLIDAY INFLUENCES, VACATION SHJTDOMS AND CURmiLED COAL OUTPUT. A PARTICULARLY SHARP DROP HAS OCCURRED IN STSSL OUTPUT, WI3H STEEL OPERATIONS ffilS WEEK SCHEDULED AT OKLY 61*2 PERCENT OF CAPACITY. CST THE OOHER HAND, INDICATIONS OF IMPROV^ISNT HAVE APPEARED IN SOME INDUSTRIES WHICH HAVE UNDERGONE SHARP READJUSTS* IS, SUCH AS TEXTILES AND NONFB8ROUS 1IE3BLS. FOLLOWING AN UPTORH IN OUTPUT OF WOOLEN TEXTILES IN MAY, TRADE REPORTS NOW INDICATE THAT AN BJPROVMHHT HAS ALSO OCCURRED IN NEW ORDERS RECEIVED BY RAYON PRODUCERS. SIMILARLY, IN THE NON5ERROUS METALS DHXTSORY, AN INCREASE IB THE DMAND FOR LEAD AND COPPER HAS BEEN NOTBD. IN EdCT, THE PRICE OF COPPER ROSE YESTERDAY FOR THE FIRST TIME SINCE ffiS DECLINE IN 3HE PRICE OF THIS MET&L GOT UNDER WAY EARLY IN THE SHSNG. A SUSmiNED HIGH LEVEL OF CONSTRUCTION ACTIVIST CONTINUES TO BE A SmONG EBAURE OF THE BUSINESS SITOATION. NEW CONSTRUCTION EXPENDUJRES IN JUH1 ROSE MORE THAN SEASONALLY, AND SLIGHOLY EXCEEDED OHE CORRESPONDING MONTH LAST YEAS. ENGINEERING CONSTfflJCTLQH CONTRACT AWARDS, AS REPORTED BY HIE ENGINEERING NEWS RECORD, LAST MONQH ROSE TO 2HE HIGHEST LEVEL SINCE AUGUST 1942 http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ON A AGL (9) 6-48-1 OM-1 3469- 2506 CONFIDENTIAL INCOMING MESSAGE M1LATTACHE LONDON FROM : NUMBER : *** SUBJECT : DATE ACTION TO : RECEIVED: INFO TO SECURITY: : DECODED BY: SVC TYPED BY: page two* VALUE BASIS, AND EXCEEDED YEAR-EARLIER LEVELS BY 20 PERCENT. HOWEVER, THE VALUE OF CONSTRUCTION CONTRACT AWARDS (INCLUDING RESIDENTIAL) AS REPORTED BY 3HE F. W. DODGE CORPORATION FOR 37 EASTERN STATES, FOR THE PERIOD JUNE 1-E2, WAS ABOUT 10 PERCENT BELOW THE CORRESPONDING PERIOD LAST YEAR. BASIC COMMODITY PRICES HAVE STRENGTHENED SOMEWHAT RECENTLY, WHILE STOCK PRICES HAVE RISEN ABOUT 5 PERCENT FROM THE LOW FOR THE YEAR REACHED 3 WEEKS AGO. MEANWHILE, BUSINESS LOANS OF WEEKLY REPORTING MEMBER BANKS HAVE SHOW ANOTHER DECLINE FOR THE TWENTJT*FOURTH CONSECUTIVE WEEK. THE GB5BRAL PRICE LEVEL SHOWED A H7R3HSR DECLINE LAST MON1E. HOWEVER, THE DECREASE IN THE WEEK ENDED JUNE 28 WAS VERY SLIGHT, WITH THE BLS ALL* CCMMODITY WHOLESALE PRICE INDEX RECEDING ONLY 0,1 PERCENT TO 153.1. THE DOMINANT mCTOR IN SHE DECLINE WAS A DROP IN THE PRICES OF FABM PRODUCTS, ALTHO PRICES OF ALL COMMODITIES OTHER THAN FARM PRODUCTS AND FOODS AGAIN DECREASED SLIGHTLY. BASIC COMMODITY PRICES HAVE STRENGTHENED SLIGHTLY RECENTLY, BUT SHE RISE IS ffiE BLS INDEX OR 28 BASIC CQyMODITIBS SINCE THE MIDDLE OF LAST WEEK HAS BEEN RELATIVELY SLIGHT. AN INCREASE 3N THE FOODSTUFFS COMPONENT WAS THE PRINCIPAL FACTOR IN THE SMALL ADVANCE, ALTHO THE INDUSTRIAL RAW MATERIALS GROUP ALSO ROSE SLIGHTLY. A SUBSTANTIAL RISE IN WHEAT PRICES WAS THE OUTSTANDING FACTOR IN THE ADVANCE IN THE FOODSTUFFS GROUP, WHILE A RISE OF 1 CENT PER POUNB IN TH8L?&IflSoQ]fc469-2506 http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis CONFIDENTIAL INCOMING MESSAGE MILATTACHE LONDON FROM : NUMBER :I|AR SUBJECT : DATE : ACTION TO : RECEIVED: INFO TO SECURITY: : DECODED BY: page three TYPED BY: COPPER CONTRIBUTED IMPORTANTLY TO THE SMALL INCREASE IN THE INWSTRIAL BAW MATERIALS GROUP. KB RISE IN THE PRICE OP COOPER IS ESPECIALLY SIGNIFICANT, SINCE IT IS THE FIRST PRICE INCREASE IN THE NONFE8ROUS MET&LS GROUP SINCE THE DH3LINE IN NONFSRROUS MET&LS PRICES GOT UNDER WAY LAST MARCH. REFLECTING THE INCREASE IN THE PRICE OF COOPER, A LEADING FABRICATOR HAS RAISED THE PRICE OF COPPER AND BRASS PRODUCTS. FURTHER EVIDMCE OF AN UNDERLYING IMPROVEMENT IN THE MARKET FOR COPPER IS SS5E IN A RISE IN C OPPER SCRAP PRICES. THE DEMAND FOR LEAD ALSO HAS IMPROVED CONSIDERABLY IN RECENT WEEKS AND THE MARKET FOR LEAD HAS A FIRM UNDERTONE, ALTHO NO PRICE INCREASE HAS OCCURRED THUS FAR. ON THE OTHER HAND, THE MARKET FOR STEEL SCRAP OS STILL WEAK, WITH ANOTHER REDUCTION OF $1 PER TON IN STEEL SCRAP AT PHILADELPHIA LAST WEEK. STOCK PRICES HAV E SHOES PE&SISTEKT STRBJGTH RECENTLY, AND HAVE RECOVERED SLIGH3LY MORE 1HAN HALF OF THE LOSS SUFFERED IN TBS DECLINE FROM MIEMIAY TO JUNE 13, WHEN PRICES HIT THE LOWEST LEVEL OF THE YEAR. SINCE THAT DATE THE DOW-JONES AVERAGE OF 65 STOCKS HAS RISM ABOUT 5 PERCH! T. THE DOWkJONES STOCK AVERAGES HAVE CLOSED HIGHER IN THE LAST 5 TRADING SESSIONS OHUS SHOWING A STEADY RISE SINCE JUNE 28. 3 IT IS OF INTEREST THIS WAS THE DATS OF THE RECENT ANNOUNCB1ENT OF THE FEDERAL 0PM MARKET COMMITTEE. THE ENSUING RISE IN PRICES OF US GOVT SECURITIES AND HIGH-GRADE BONDS UNDOUBTEDLY HAS BSE2I A COUmiBUTING FACTOR IN RECENT STOCK MARKET STRMG3H. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis AGL (9) 6-48-1OM-13469-2506 CONFIDENTIAL INCOMING MESSAGE MILATTACHE LONDON FROM : NUMBER : *** ^C SUBJECT : DATE . ACTION TO : RECEIVED: INFO TO SECURITY: DECODED BY:P*6e f^Of 538 TYpED BY. THE ALMOST UNINTERRUPTED DECLINE IN STEEL OUTPUT SINCE MID-MARCH HAS BEEN FOLLOWED BY A SHARP DROP OP 18,7 POINTS IBIS WEEK, WI3H OPERATIONS SCHEDULED AT ONLY 61.2 PERCMT OF CAPACITY. WILE THE INDEPENDENCE DAY HOLIDAY HAS A CONTRIBUTING FACTOR IN THE DECLINE, IT SHOULD BE NOTED THAT THE DROP IN THE CORRESPONDING WEEK LAST YEAR WAS CHLY 4.9 POINTS. IN ADDITION TO THS EFFECTS OF SLACK DBIAND AND VACATION SHUTDOWNS, THE NEARBY OUTLOOK FOR STEEL OPERATIONS IS CLOUDED BY THE POSSIBILITY OF LABOR TROUBLES. THE US STEEL CORPORATION YESTERDAY REJBCT3D WAGE AND OTHER DSIANDS OF BBS CIO UNITED STBELWORKERS, AND A STSEL STRIKE MIGHT POSSIBLY DEVELOP • OS JULY 16 AS A RESOLT OF THIS ACTION. AN BUaiENT OF STRENGTH IN THE DEMAND FOR STEEL CONTINUES TO 3E PROVIDED BY A HIGH OUTPUT OF AUTOMOBILES. AFTER RISING TO THE HIGHEST LEJTHL SINCE 1929 IN THE WEEK ENDED JUNE 26* ESTIMATED OUTPUT OF PASSHJGER CARS AND TRUCKS H THE US AND CANADA LAST WEEK DECLINED ABOUT 6,800 UNITS TO 146*200. A FACTOR IN THE MODERATE MOP IN OU1PUT LAST WEEK WAS THE CUREOIMHIT IN OPERATIOHS AT SOME PLANTS CAUSM) BY THE HEAT. DESPITE A07ERSE WORKING CCK* DITIONS, HOWEVER, THE OUTPUT OF CARS AND TRUCKS LAST WEEK WAS 30 PERCS3T HIGHER THAN IN THE CORRESPONDING WEEK LAST YEAR. MEANWHILE, BUSINESS LOANS CONTIMJE1 TO DECLINE. COMMERCIAL, INDUSTRIAL, AND AGRICULTURAL LOANS OF WEEKLY REPORTING MaiBER BANKS IN JOB WEM ENDED JUNE 29 SE01TO A FURTHER DROP OF fill MILLIOH. THIS COMPARES WI5H A DECREASE OF OHLY |10 MILLION IN THE CORRESPOND!^ WEEK LAST YEAR. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis THESE CONFIDENTIAL INCOMING MESSAGE MILATTACHE LONDON FROM : NUMBER : SUBJECT DATE . ACTION TO : RECEIVED: INFO TO SECURITY: DECODED BY: P*ge ftTQ TYPED BY: WAR SVC 638 SHOWN UNINTERRUPTED DECLINE SINCE EAELY IN JANUARY, AND OH JUNE 29 HERE ABOUT $1,160 MILLION BILOW LAST YEAR'S LEVEL. REAL ESTATE LOANS OF TJEEKLY REPORTING MEMBER BANKS IN THE WEEK ENDED JUNE 29 SHOWED A SMALL INCREASE TO A NEW HIGH. "OTHER* LOANS, MICH INCLUDE INSTALUCEHT LOANS, ALSO ROSE TO A NEW HIGH DURING THE PERIOD, WITH AN INCREASE OF $60 MILLION. DEPARMEHT STORE SALES IN THE WEEK ENDED JULY 2 WERE 11 PERCENT BELOW 3HE CORRESPONDING WEEK LAST YEAR IN DOLLAR VALUE. THIS COMPARES WITH A DECLINE OF 7 PERCENT BELOW YEAR-EARLIER LEVELS IN THE FOUR WEEKS 5KDED JUNE 25 AND A DECLINE OF 4 PERCENT FOR HE YEAR TO DATE* A DISCUSSION OF 3HE GOVT SECURITY MARKET FOLLOWS* ffiERE HAVE NOW BEEN SIX SRADIBS DAYS SINCE THE 0PM MARKET C<M£ITTEEfS ANNOUNCEDT ON TUESDAY EVEHING, JUNE 28. DURING 1HE FIRST FOUR DAYS, 3EERE WERE SHARP ADVANCES IN ALL SECTORS OF THE OOVT SECURITY MARKET. IN 1HE LA^T 2WO DAYS, EOWKViat, BOND PRICES HAVE LEV3*ED OFF. THREE ISSUES HAVE SHOWN NET DECLINES FOR THE TWO-DAY PERIOD* PRICES OF MOST OF 3HE RB4AINIBG BC«D ISSUES, HOWEVER, HAVE SHOWN SMALL GAINS RANGING UP TO 4/32. MR ROUSE TOLD ME 1HAT ffiE LEVELING OFF IN BOND PRICES CAME ABOUT BECAUSE HE GOT IN TOUCH WIOH VARIOUS «OVT SECURITY DEALERS TO PROTEST 3HE FACT 1HAT 3HE* HAD NOT BEEN COOPERATING IN OHE FIRST FOUR TRADING DAYS AFTER THE ANNOUNCEMENT. MANY OF THE DEALERS HAD BEM S O&IEWHAT GREEDY. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis THEY WERE HOLDING BACK AND AGL (9) 6-48-1OM-13469-2506 CONFIDENTIAL CONFIDENTIAL INCOMING MESSAGE M1LATTACHE LONDON FROM : NUMBER : TOR SVC 538 SUBJECT : DATE : ACTION TO : RECEIVED: INFO TO SECURITY: DECODED BY: P8*6 six TYPED BY: NOT FEEDING ISSUES TO THE MARKET FROM THEIR PORTFOLIOS. THE LONGEST RESTRICTED &-1/2 IS NOW QUOTED AT A BID PRICE OP 102*15, A NET GAIN OF —22/32 SINCE JUNE 28* THE SHORTEST RESTRICTED BOND, THE a.l/4'S OF 1959-62, HAS GAINED 31/32* IS QUOTED AT 106.07. THE LONGEST BANK-ELIGIBLE 3.1/2 A NET GAIN OF 1-7/32. NET GAINS FOR SHORT AND INTER* MEDIATE TERM BANKp. ELIGIBLE BONDS EXCLUDING THOSE CALLAGE IN 1949, RANGE FROM 3/32 TO 14/32. BECAUSE OF EASY MONET MARKET CONDITIONS CERTIFICATES AND BILLS HAVE NOT SHARED THE BOND PRICE LEVELING-OFF WHICH HAS OCCURRED THESE PAST TWO DAYS. YESTERDAY'S ADVANCES WERE THE SHARPEST OF THE PRESENT MOVE. ADVANCES WERE LESS EXTENSIVE AND THE LOWEST BILLS WERE IN CHANGED. TODAY'S THE LONGEST CERTIFICATE OF BTDEBTSUESS GLOSS) AT A BID PRICE TODAY TO YIELD 1.03 PERCHHT. SHIS COMPARES WITH A CLOSING BID OF 1.22 PERCENT OR TUESDAY OF LAST WEEK. TODAY* S CLOSING BID ON THE LONGEST TREASURY BILL WAS 1.00 PERCENT, COMPARES WITH 1.17 PERCENT ON JUNE 28. THIS THE AVERAGE RATE ON THIS WEEK'S TREASURY BILL OFFERING IAS 1.052 PERCENT. THIS COMPARES WITH AN AVERAGE OF 1.168 PERCENT ON THE LAST POUR WEEKLY tffii*S[JRY BILL OFFERINGS. THERE HAVE BEEN NO SALES OF TREASURY BONDS FOR SYSTEM ACCOUNT SOLD #L4.3 MILLION OF BILLS AND $5 MILLION OF CERTIFICATE TODAY. THE MARKET HAS BEEN ORDERLY AND GENERALLY THIN, VOLUME HAS BEEN THE SCARCITY OF SUPPLY. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis THE LIMITING FACTOR ON THE DOWNTURN IN YIELDS OS GOVTS AGL (9) 6-48-1 OM-1 3469- 2506 CONFIDENTIAL CONFIDENTIAL HAR SVC 558 page seren HAS MET HfLTH PROMPT RESPONSE -IN TEE PRIVATE LENDING FIELD. ICIPAL BOND PRICES HAVE ADVANCED. CORPORATE AND MUN* IN VIEW OF THE BETTER MARKET SITUATION, UNDERWRITERS AND DEALERS HAVE MADE StJBSIfcNTEAL PROGRESS IN REDUCING HEIR INVHSTORIES OF UNSOLD MUNICIPAL AND CORPORATE BONDSQf OHE DISCOUNT CORPORATION, ON TUESDAY, REDUCED BANKERS* ACCEPTANCE RATES BY 1/8 to 1/4 OF A POINT* http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • signed fQLET TELEGRAM RECEIVED id—37113-1 From: ACTING SFC TREASURY Date: OPO JULY 2?, 1949 No.: Code: CLEAR Received: JULY 23 840AW SECRETARY CF THE TREASURY SNYDER. UNITED PRESS SAYS PRESIDENT HAS DELAYED SENDING TO CONGRESS PROGRAM! OF $1,450 MILLION FOREIGN MILITARY AID. SUBMISSION PREVIOUSLY FORECAST FOR TODAY FOLLOWING SENATE RATIFICATION NCRTH ATLANTIC PACT VOTE 82 TO 13. OF TWELVE PARTICIPATSNG NATIONS WE SEVENTH TO RATIFY. FORECASTS ON MILITARY *m AID PROGRAMS AID $1,030 MILLION WOULD GO TO PACT SIGNATORIES. HOUSE DEFEATED B R A N N A N FARM SUBSIDY PLAN, TTTEN REPEALED A! KEN FLEXIBLE PRICE SUPPORT SYSTEM WHICH WAS SCHEDULED TO GO NTC FFFFCT NEXT JANUARY, AND VOTED ONE YEAR EXTENSION PRESENT PRICE SUPPORT LAW. UNITED PRESS SAYS SENATE WILL LET B R A N N A N PLAN DIE BUT OPPOSES EXTENDING PRESENT LAW. WASHINGTON POST SAYS SENATOR ELMER THOMAS DROPPED EFFORT TO H A V E STOCKPILING LIMITED TO ONE YEAR SUPPLY AND NO LONGER EXPECTS RESCINDING OF $600,000,000 OF CURRENT STOCKPILING APPROPRIATION. SYLVIA PORTER COLUMN SAYS TIME HAS ARRIVED FOR CUTBACK IN WARTIME EXCISES. HOLDS TREY M A K E NO ECONOMIC OR SENSE WHEN WE ARE TRYING RESTIM.ULATE BUYING. REPORTS MOUNTING RR PRESSURES MAY BRING ACTION THIS SESSION. CITES UNEMPLOYMENT FUR INDUSTRY. TYPED: FSP/1130 http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis JULY 23 THE SECRETARY OF THE T R E A S U R Y WAS H I NGTO N December Twentieth 1949 Dear Bill: Each day of our association makes me more and more aware of the excellent service you are rendering in your capacity as Assistant Secretary - not only to me personally but also to the Treasury. At this time, I wish to thank you for the many thoughtful things you do to lighten my burdens, and, in addition, I wish to commend you on the outstanding job you are doing in supervising and directing the operations of the Office of International Finance. I realize that a large part of the credit for the successful way in which that organization is operating is due to your able leadership, and that your advice and cooperative assistance has aided materially in the solution of the many international monetary and financial problems that arise daily. As the Christmas season is now approaching, I wish to extend to you and your family my best wishes for a very pleasant holiday. It is also my hope that you will enjoy the best of health and happiness in the New Year. Honorable William McC. Martin, Jr. Assistant Secretary of the Treasury Treasury Department Washington, D. C. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Dear Bill, This copy of my letter to Secretary Snyder is for your information. S. H. B. cc Mr. Wm. McC. Martin BOARD OF TRANSPORTATION THE CITY OF NEW YORK NEW YORK 13, N. Y. S H. B I N G H A M CHAIRMAN June 5, 1950 Hon. John W. Snyder Secretary of the Treasury U. S. Department of the Treasury 15th St. & Pennsylvania Ave., N.W. Washington 25, Q. C. Dear Mr. Snyder * I want to thank you for the opportunity I had on Saturday to discuss some of the problems confronting the transportation industry in this country. It was a most stimulating and enlightening meeting. As you know, I have been in the city transit field since 1915, in all capacities from surveyor to Chairman of the Board of Transportation of the City of New York. My appointment by Mayor O'Dwyer was the first appointment to the Board from the ranks. I have also studied main line railroad operations here and abroad. I was in the military railway service in both wars, serving as Assistant to the Director General, Military Railways, ETO during the last war, and spent three years prior to the invasion on the planning and design of equipment. Your intimate knowledge of this highly technical field was most impressive. As promised, I am sending you, under separate cover, copies of some of the reports and studies I have made. To make these studies my services were loaned by the City of New York. I would be pleased to assist you and Bill Martin on the same basis. I am certain that a request for my services made to Mayor O'Dwyer by your office would be very cordially received and honored. I hope that you will find this material of interest and that the opportunity to continue our discussion will arise. With kindest personal regards, I remain http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Sincerely, S. H. Bingham Chairman G 0 I T Birch-Seville Apia. fort Lauderdale, florida December ?» 1950 Bear Secretary Snyden Bespit© the "beguiling and beneficent beauties of florida sad ay need for the rest I aa having, I have "been unable to keep my aind from the present world crisis (including Korea) and the threat it involves for the security and the strategic position Of the TJnited States and for the free, civilized vorld we wish to retain and build. I know there is all too little I can do about it (or perhaps all too little I know about it), but I have nevertheless allowed my concern to find expression in a few notes on what I think al-ht be done, I am sending them oa to you for whatever worth they may have. Many of these thoughts I have discussed vith Bill Martin over the past several months, fhey are certainly not strikingly original, and 1 know they are not fully rounded or complete, or written with full knowledge of th^ strategic and political situation. I believe, however, they are shared by responsible people who are no more interested than I as in political recrimination or crying over past mistakes, but who are deeply concerned ov<;r the survival of the United States ant'i who wish to avert ejiy further deterioration in our weakened strategic position. If at any point they may soxind critical of past policies, it is only to point the way to what I, at least* regard as essential to our future and the future of a free, civilized world, So, for what they are worth, I send them along. If they have no other use, they will &t least have served to express som« of Wf concern* With every goofl wish to you in the noble struggle you are mstking, I smt as always, admiringly and sincerely yourtt http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis A PBQgHAM fOB tf.3. IBA2JKRSR2P II.THB TO§I fhe present crisis facing the United States (la its "broad sense and not limited only to the ismediate Korean situation) should make olear that our war and post* war policy, i.e., our political (diplomatic) policy, has been found wanting, for ire are now confronted with the threat and fear of another world war, which is the failure of diplomacy* In considering the security of the tSaited States and our present strategic position, we find there has occurred during the past ten years a substantial alteration in the world "balance of power - to onr serious detriment - arising from the following factors, among othere: I* fhe defeat of Germany and Japan* 2» fhe weakening in the power of the British Bspire and Commonwealth. the "building up of the strength of Coniraunist Bussia, through means including external aggression (absorption of the Baltic States, the Balkans, Sastera Germany, etc*) and internal aggression designed to weaken other countries (subversion, spies, capture of control of labor unions and media of public opinion). fhe displacement of Chiang Kai-shek fey the Chinese Communists - thus converting China with its vast aillicms fro» a nation friendly to the Hoi ted States and the Western powers to a nation which is openly hostile and is eabarked upon aggressive expansionism akin to that of Coanranist Bassia (e.g., fibet, Korea). Our future policy Eust be designed among other tilings to restore some balance of power throu^i building uy offsetting blocs of power (our Allies, Oenaany, and Japan), through underainin? the power of Cofiraunist Bussia and Cosaaunist China, and through rolling bm«k the Iroa Curtain* It seems clear that the policy of containment of Bussian CosKmnism which ve hare pursued has not prevented further successful aggression and penetration by Cocnaunist Russia and Communist China* It seems equally clear that a defensive policy is 'bound to fail and thsit we must evolve an offensive policy which will in fact roll "back the Iron Curtain* In formulating future policy, it may "be helpful to review recognizable elements of our paet policy which have "been found wanting! 1. Attempting to cooperate with Coasmunist Bussla in the belief she could be persuaded to peaceful policies. 2. Primary, if not virtually exclusive, emphasis on Barope in our foreign policy and efforts to curb Coiawonist lussia. 3* Secondary eisphasis on, if not virtually abandonment of, China and the rest of Asia* . Defensive or containment tactics against Comaranist Bussia« http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 5« la our policy and propaganda, always trying to catch tip with the last Communist lie* 6. Working with and throit^i a United Hatioas organisation which includes Communist Bassia. **• premises of a Hey. Policy* It in submitted that the present U.S. strategic crisis demands a reorientstion of our forei^ political policy - oa the diplomatic, economic, Informational and psychological warfare fronts - based on somewhat different and realistic premises. These premises would Include, among others, that: 1* 3$e Common!3t expansionist offensive started years ago oa all fronts - in the Baltic States, the Balkans, Central Burope, Western Surope, Middle last, Asia, Latin America, and in the United States that the offensive is world-wide and not restricted to Europe, and that the outbreak of the Korean war was the dramatic manifestation of a war which had Been waged for years. 2. Btxssian Communist aggressive expansionism is revolutionary, dynamic, Ideological, conspiratorialt subversive, oriental (with complete disregard of human life), and ruthless "beyond Western "belief, and is coupled with traditional Russian nationalistic expansionism* 3. Communist aggression is made up of external and internal aggression against other countries - and is world-wide in its scope and activities. *fr. The Busslan Communist "bureaucracy, living oa a higher standard than Russia produces, will attempt to absorb and live off other countries and will feed its own people hate, violence and terror as part of its power program. 5* Chinese Communists are not primarily agrarian reformers but are puppets, stooges or allies of Moscow - their leadership largely Moscow-trained and oriented. 6. Our policy and approach mu«t be world-wide to meet and counter the world-wide policy and approach of Communist Russia. ?. We aloae cannot compete on a military manpower basis with the Communist BUBsian and Chinese millions. Ill* A Program for U.3« leadership in the fret World. A program for U.S. leadership in the free world should include, among other things, the following! 1. file urgent build--up of U.S. military potential and the military potential of like-minded, effective and willing Allies. 2. Shifting our policy to the •political offensive la the diplomatic, informational and psychological warfare fields and working out * detailed program to "be implemented day after day in successive waves of political attack to roll back the Iron Curtain. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 3* Begin by publicly proclaiming all Communist Russia's violations of International agreements and under standings during the war and postwar periods (it ia understood they number over fifty violations in the post-war period alone). **•* la view of these violations and the demonstrated external and internal aggression of Cocrauaist Bassia, repudiate forthwith U.S. adherence to and obligation under the Potsdam, Yalta and Teheran agreements with CoiaiBunlst Bussia. (fhis will in part reestablish our moral position with the non-Coiar^unist peoples of the Balkans and Asia,) 5* Intensify a sira-ole informational and propaganda campaign throughout the world on Russian (and Chinese) GomEiunist ai&sv purposes, actions and performance eorrpared with U.S. aims, purposes, actions and performance* (Besponsible observers in other countries report our present informational and propaganda campaigas are too hi^-brow and ineffective to combat simpler and cruder Bassian techniques*) 6*. Intensify direct subversive campaigns (met excluding bribery) ia the Balkans, Eastern Germany, China and other parts of Asia, and in Hussia aiding and financing anti-Consminlst underground and opposition movements. (Dollars and lives invested in these activities are many times more effective than general economic aid or subsidies, as the fiassians well know and have consistently practiced to our disadvantage aad strategic loss.) 7* Organize and help equip and finance a volunteer international brigade for freedom recruited fros escapees and refugees from Communist terror ~ teles (including General Anders and his thousands of loyal soldiers), Czechs, Hungarians, Sumaaians, Bulgarians, Latvians* Isthonians, Lithuanians, Russians, Chinese, and others, including volunteers fros other countries, willing to fight Coaaaunist oppression aad to restore freedom* Use these forces wherever necessary to engage aad repel Communist troops. 8. Permit and assist the Germans aad Japanese to rearm as rapidly as possible, since we must not over-commit our manpower or try to engage the Bussians or Chinese or other Corastinists on a manpov/er basis* 9* Discontinue cur quarantine and immobilisation of the Formosa Chinese and allow them to fight where they wish - oa the Chinese mainland or elsewhere, to engage, tie down or divert Coscaunlst forces and aid guerilla forces in China. 10, form an alliance, if possible, with the fi^httra of Asia aad the Middle last - I.e., the forks, the Iranians, the Pakistanis, the Siamese, the Filipinos and others. In the Moslems we may well find effective, active allies. India may or may not formally join such an alliance, but may, la fact, cose along. Although this alliance probably could not be selfoperating (as is the Forth Atlantic Treaty), we should commit ourselves to furnish military arms aad equipment. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 11, In Europe we should put our emphasis on the need for an effective demonstration of their recognition of the world-vide character of Communist aggression and of their readiness to rearm themselves and undergo sacrifice on an equal "basis. Our help should "be almost exclusively in military arms and equipment provided there is a demonstrated will and ability to 12. Sxeept for aid through the permanent institutions (international Bank, International Monetary fund, Bxport-Import Bank), special economic aid, which has not conspicuously succeeded in creating the required determination now so sorely needed, should "be reduced to a minimum (possibly for Austria, Greece, Western Germany temporarily). Self-reliant allies operating on an economically competitive basis will generally be found to be stronger and more dependable than subsidized or procured allies* 13* la the United Rations, we should go on the offensive, charging Communist Sussia and Communist China with aggression - both external and internal* fhe U.I?, to date has been very much to Comimnist lussia1* advantage as & convenient and effective propaganda forum. We must, in the U.$. and elsewhere, give up the game of always trying to catch up with the last Communist lie. We must go on the offensive in telling the truth and beating the Communists to the propaganda punch. (The United Nations should represent a moral and spiritual force for peace, freedom and civilization,. Communist Hussia and her satellites have perverted the U.I*, if their presence there may not indeed be said to make a travesty of it. The departure of Communist Bus si a and her satellites from the U.N. would not be a tragedy to be feared; it mi^it well serve to clarify and reestablish the moral position of the U.I.) The only way to combat the Eussian and Chinese Communists is to go on the political, propaganda and subversive offensive against them and to avoid, if possible, engaging our limited II* S* manpower against them la wars which wold bleed us white* alternative to the positive policy enunciated above may well be to lose Asia to the Communists, to be thereafter obliged to abandon Barope, and to go strictly on the oasis of a defense of the United States with our limited XI. S* manpower* http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis