The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
F.D. 12A.3 S 5 No Federal Reserve Bank S"-Mb/ua District No. 2 Correspondence Files Division P4PlIQ'S SUBJECT I.STRON -roS.P. G/1-8 E-1-2r , .74) 7 .2., - /1.1.3 February 114 In1. ky dear Mr. Gilbert: Thank you for your note ot the 10th, enclosing copy of the Treasury Department's .5.ummary of Advancer) under the Transportation Act. Yours very truly, Honorable S. P. '.3iibert, Jr., Treasury Department, Xashington, D. O. BS := MISC. S4.1.11111.1,-20 1 FEDERAL RESERVE BANK OF NEW YORK SENT BY SEND TO FILES COPY OF TELEGRAM ktbruary 7, 1921. Albert. Treasury. Vire received. Personal and Confidential Aosta-an you have received the nnoded information regarding lsoal conditions 6hloh might affact times from Case. He Is ah.sent this Teak 3trong February 15, 1921. Dear Mr. Gilbert: Would you mind reading th enclosed, quite con- fidentially, and returning It te me. The memumadum was prepared for my personal information, but if it would he of service to you, i must ask you to regard it as quite private and personal, for obvious reasons. Yours very truly, - Honorable S. P. Gilbert, Aseistant Secretary of the Treasury, Treasury Department, Washington, D. C En c. BS:MV March 5, 1921. Dear Mr. Gilbert: ,e7 1. Thank you for your note of the P3rd, and ,7 the interesting chart which accompanied it. Yours vary truly, Benj. !:trong, Governor. Honorable S. P. Gilbert, Assistant Secretary of the Trsasury, Washington, D. C. BS:MM March 'T6, 11. My dear Ur. Gilbert: Thalik you. for your note of the 16th, ar1 the various enclosures. Ishall reake an effort to do sole- thing in thic matter right away. Yours very truly, Honorable S. P. Gilbert, Jr., Assistant Secretary of the Treaaury, Washington, D. C. BS:a May 16, 1921. Dear Mr. Gilbert: Enclosed is a memorandum of the proceedings of the Eighth National Foreign Trade Convention, held in Cleveland, May 5--7, 1921. You may already have received a copy; if not, I hope you will read the first page and the portion of the second page which I have marked. Some one with sufficient foresight must exercise some influence upon developments from now on which may well have the effect of making us the world's greatest selling market, and the world's poorest buying market, simply because our costs of production are higher than those in other parts of the world. ' Yours very truly, Honorable S. P. Gilbert, Jr., Assistant Secretary of the Treasury, Treasury Department, Washington, D. C. Enc. MAI 17, 1921. Dear Mr. Gilbert: Tbkalir you for your note of the lath instant, eaolosing ccpy of Secretary MeIlea's letter of May I', addressed to 3ermtor Frelingbuyeen. Yours very truly, Benj. Strong, Governor. Honorable S. P. Gilbert,Jr., ALeistuat Secretry of the Treasury, Treasury Department, D. C. 135:11i1 May 2.3, 1921. Dem- Mr. Gilbert: I am enclosing copy of a letter just received from Mr. r4A-e-Sasakis, who has something to do with economic research work in the Bank of Japan. Please note his reference to speculatore being alert to seize the opportunity of cheap money, etc. Con- ditions in Japan save gone through the same cycle of developments, which we are experiencing, only somewhat in advance of curs, and I have no doubt thet the results of cheap money here under preeent conditions would be the saraf) as those which are apprehended in japan. Yours very truly, Governor. Honorable S. P. Gilbert, Jr., Aseistant Secretiiii7erthe Treasury, Treasury Department, Washington, D. O. EiSsIIM" Enc. FERSONAL AND CONFIDENTIAL May 23, 1921. Dear gr. Gilbert: I am grateful to you for your personal and confidential letter of May 21. I have heard eomething of a -eeting of the sort described in your letter, end would regret very much if euch a meeting were held without opportunity being afforded for wee one representing this bank to expreee the views which we think are material to the determinetion of the country's policy, especially There seem at the present time to in regard to foreign loans. be three or four outstanding questions in the minds of members of the Cabinet, so far as I can gather from the newspaper reports appearing from time to time, and such statements as are made to me personally. The-, two important ones are: Business must be stimulated and encouraged by every possible means, and one means will be lower discount ralese at the several Federal reserve banks. Our export trade 'must be stimulated, and this might be brought about by requiring that the proceeds of loans negotiated in this market by foreign governments or other foreign borrowers, be applied to the payment of debts owing in this country, or to the purchase of goods in this market, and that unless this is done such foreign loans be discouraged. As to the first proposal, we have discussed it, and corresponded about it at considerable length. I can only repeat what I have previously stated, that in my opinion rate reductions will have no effect of importance in relieving cases of distress, such as now exist in the agricultural section, unless the reductions are of such character and extent as to really encourage borrowing from the reserve banks. In other words, unless they encourage a period of expansion and inflation with all the accompanying evils of speculation and extravagance. Whet 1.6 needed is a die- continuance of pressure to liquidate, and free extension of credit to institutions Honorable S. P. Gilbert, Jr. May 25, 1921. welch need it, and will demonstrate thet they realize their duty of taking care of clients who are embarrassed and need time in which to improve their position, as the result of new crops made at lower costs. I think I cannot do better than luote Bagehot's golden rule which forty or fifty years ago effected a real revolution in banking theught in London and has since, more or less, determined the Bank of England's polio' under conditions eimilar to the present. As to the second, it appears to me that these gentlemen who advocate re- strictions on foreign loans do not fully appreciate where the difficulties lie with our foreign trade. They are various and cooplicated, and probably cannot be overcome by artificial restrictions or stimulations. In the first plane our export trade depends upon our capacity to compete with other producing nations, ehicb means that we must be able to produce as cheaply as they do, or cheaper, and we will deprive ourselves of our ability to do so if we now engage in a policy of expansion and encourage speculation so as to arrest the orderly development of the process of readjusting production costs, particularly that part of cost which is wages. In the second place, one of the most serious, if net the most serious, difficulties encountered by our export trade is the present premium on dollars, end especially the erratic and rapid fluctuation in the foreign exchanges. Curtailment of borrowings by foreign governments in this market would simply have the effect of deferring the date of restoration of normal conditions in the exchanges. Even if the statement is true that the proceeds of the Belgium loan was largely used to pay for wheat in Argentina, the effect is to improve the relation of exchanges between Argentina and this country, where the present premium of 40%, or thereabouts, on the dollar has the effect of making it difficult, if not impossible, for Argentine buyers of our goods to remit in payment. The more loans ee are able to make to foreign countries, the greater will be the relief to the exchanges, the sooner will stable conditions be started, and the easier it will be for the citizens of other e/' e3 nations to trade with us. Honorable S. P. Gilbert, Jr. May P3, 19P1. If Belgium borrows in New York for the purpose of buying wheat in Argentina, it means that they oanebuy wheat cheaper in Argentina than in this market, ane until that wheat is marketed there will be no opportunity for Ise to sell wheat to Belgium. But it also means that the Argentine banks will have command of dollars in New York with which to pay for goods already sold in Argentina, or to buy more goods here. To close the doors to such loans would be to seriously interfere with the creation of just such conditions as would enabTe us to export our produce. It seems to we that care must now be exercised not to oncourege those who are looking to the government, that is to say, to the new adminietration, to effect some miraculous cure in the economic eitueeion which cannot be dminietered by any knoen method, except it be by resorting t3 infletien with the danger of a recurrence of all of the difficulties of the last two years. I should hope that our government would see the wisdom of incorporating in any progrem adopted such policies as the following: Ao reduction of rates 'Alice would encourage speculation. Discontinuance of pressure upon borrowing member banks to liquidate loans which would cause losses and hardships to borrowers. Free extension of credit Oy reserve banks in the agricultural sections to enable the rise croe to be mede. Encouragement of foreign borrowing in this market without my restriction as to the application of the proceeds. Liberalizing the regulations of the Federal Reserve System es to acceptance credits representing our import an export trade, particularly the lateer. (8) The prompt funding of the debt of the allied nations to our government present upon liberal terms, which will defer payments of interest during theAperiod of pressure upon the exchanges. With this I em enclosing a little summary of testes -which may be of some interest to you in this connection. #4 Honorable S. P. Gilbert, Jr. May 73, 1921. KM writiag you this personally and confidentially, but wish to say in conclusion thut I believe conference, such as the one to be held on Wednesday, will be helpful if it produces some constructive thought along the above lines, but w111 be distinctly harmful if it results in a lot of proposed restrictions, with the idea that we can build a stone well around this country and look after our own interests without regard to conditions in the rest of the world. Your very truly, Benj. Strong, Governor. Honorable S. P. Gilbert, Jr., Assistant Secretary of the Treasury, freasury Doidirtment, Washington, D. C. BS:MM F. S. Since dictating the above, I have received a telegram frow Mr. Hoover, usking me to attend the meeting about which you wrote. E. IL Extracts from Bagehot's "Lombard Street." "The reeagement or the money merket is the more difficult because, ee has been eeriwie of internal panic and external demand for bullion cozeonly occur togetter. The foreign drain emetios the bank till; and that emetinese, and the resulting rise in the rate of discount, tend to friehten the market. The holders of th reserve have therefore to treat two opposite maladiee at once: one requiring stringent remedies, and eepeciel'y a rapid rise in the rate of intereet; end the other an allevietive treatment with large and ready loans. "Before lbe had much specific experience, it was not essy to prescribe for this compound dieeeee; but nee we know hoe to deal with it. We must look first to the foreign drain, and reise the rate of interest as high as may be neceseary; unless you C.fin etoe the foreien expert, you cannot allay the domestic alarm; the Bank will get poorer and poorer, and its poverty will protract or renew the apprehension. A.111 at the rete of interest so laieed, the holders-- one or more--of the finel bank reserve must lend freely. Very large loans at very high rates are the beet remedy for the worst malady of the moeey market, skean a foreign drain le added to a domestic drain; any notion that money is not to be had, or th-t it nay not be had at any price, only raises elare to panic and enhances panic to madness. But though the rule is Clear, the greatest delicacy, the finest and best skilled judgment, are needed to deal at once with such great and central)/ evils." "Nothing, therefore, can be sore certain than that the Bank of England has in tele respect no peculiar privilege: that it is &limply in the position of a bank keeping the bunking reserve of the country; tke.t it rust in time of panic do whet all other eiailer bank must do; that in time of eenic it eust advance freely and vigorously to the public out of the reserve. *And with the Bent of England, as with other batiks in the sesie case, theme advance, if they are to he wade at all, shou,d be made ea es, if possible, to obtain the object for which they are mede; the end is to stay the panic, and the advances ehould if poseible stay the panic; and for tbis! pureoee there are two rules; "First. That these loans should only be mede at a very high rate of interest; this will operate as a heavy fine on unreasonable timidity, eed will prevent the greatest number of applications by eereoea who lo not recuire it. The rate should be raieed early in the panic, so thct the tine may be paid early; that no one may barn:* out ef idle precaution without paying well for it; that the banking reserve may be protected es tar as possible. "Secondly. That at this rate these advances should be made on all good bunking securities, and be largely es the public ask for theme The reason is plain: the object is to stay alarm, and nothing therefore should be done to cause alarm; but the way to cause alarm is to refuse Bowe one who has good security to offer. The eees of this will spread in an instent through all the money merket at a moment of terror; no one can say exactly who carries it, but in half an hour it will be carried on all sides, and will intensify the terror everywhere. No advances indeed need be made by which the Bank will ultimately lose. The amount of bad business in commercial countries is an infinitesimally mall fraction of the whole business; that in a panic the bank or tanks holding the ultimete reserve should refuse bad bills or bed securities will not mqee the panic really worse, the 'unsound' people are a feeble minority, and they are afraid even to look frightened for fear their The great majority, the majority to be protected, !Ire the 'pound' people, the people who have good security to offer. If it is known tilt the Bnak of England is freely advancing oa what in ordinary times is reckoned a good security,--on wbt is then commonly pledged and easily convertible,--the alarm of the solvent merchants and hankers will be stayed; but if securities really good and usually convertible ,rt- refused by the Bank, the alarm will not abate, the otter loans mdc will fail in obtaining their end, and the panic kill become worse unsoundness may be detected. and worse. "It may be said that the reserve in the Banking Department will not be enough for all such loans. If that be so, the NInking De,artment must fail; but lending is nevertheless its best expedient,--this is the method of making itsLmoney go the farthest, ,,nd of enabling it to get through the panic if anything will -enable it. MakinE no loans, f.j.s we hhve seen, will ruin it; making large loans and stopping, as we have also teen, will ruin it. The only safe plan for the Bank is the brave plan,--to lend in a panic on every kind of current security, or every sort on which money is ordinarily and usually lent. it -.10 not, nothing will save it." This policy may not cave the Bank; but if 6 1921 Ity floor Gilbert: /- I am forwarding It erourith a lotter iron inackett, with a formidnble sot of flueetienirdrec. V r'e have :looked them throut and find that pry' etim3.17 all but 0110 nre 1u171.i.thed currently, so thin: *they could ver7 el desired, bp furniolled, if it vc...0 ?erlit..1)s you will take The matter tql 1.7ith the fitate Deparixiont, rind inr!teato to me 'ht pert of re%1y thav would like to !'Le:ore mr.do, 17 any. I havo aoknorledged his letter and odviood him that the inquiry 'mad be fore",.,Arded to ashin!,:ton. Lancorely yours. DZIJALIIN STIUXIG, CiPovernor 3. P. Gilbert, t 3-o-6-rotary of the Treaoury, Departzient, D. Juno 'It, 191. COhFIDENTIAL Dear ir. Gilbert: Thaak you for your confidential note of June 11. I agrc3e with the doubts expressed in your letLer as to the wisdom of supervision uf foreign loans plaoad in the Aaerican 1;arket; hut I have be un.f.er the impretieion tht, it van unly the desire of the administration that both the State and Treasury Departthente be advi8e6 of rieguti4tione in advance of their conclusion. I did not understand th:A, either department intended to take any affirmative action. The 41aintenance of our export trade generally depends ucon foreign credits, an4 if they al.e restricted fn any say, in the long. run it would come out of our exports. of busiT:ess should be encouraged and nut die- c1 courage, especially at a time when Verica has a surplut of products for extflC. hen mzet of the worldowee us L.;:nsy Ezywu.,y. lcure very truly, Benj. Strong, Governor. :donorable S. P. Gilbert, Jr., Assistant Secretary of the Treasury, Washington, D. C. Juno PO, 1221. 14 y dear Ur. Gilbert: Thank you for your note of June 15, ia relation to the questionaaire i-)repareO by the League of Mations. 1 hope you can get the documents back to me, together with those Menti,aned in your letter, '3 ail! send the batch to Blackett, together witn some otter material euch as will enable thew to coml-ileLe he JA6wera. ir fact we may decide Lo curvlete them azid seae. them entirely un- officialiy, and upon our own rescarsibility, *it,h an indication that they do not come from the governwent in any wa.y, and that qe have Ifled out tbe questione from ecurcee o1 informtion sva.iitbe to the tubilc, principally those which we will tranazit to them Ith the documents. `1,urs very truly, Benj. strong, Governor. Honorable S. P. ialloert, Jr., Assistent Secretary of the Treasury, Treasury De2artment, lashine,ton, D. C. BS:tiM June 24, 1921. iy dear Mr. Gilbert: I have your letter of June 22, and am grateful to you for the varioue enclosures, which I shall take plea ure in. forwarding t r. Blackett, with other reports which I shall collect for his inforTation. Yours very truly, Benj. Strong, Clovernor. P. Gilbert, Honorable LEsistant Secretary of the Treasury. Treasury Department, Washington, D. C. June 27, 1921. Hon. S. P. Gilbert, Jr., . Assistant Secretary of the Treasury, !fir Treasury Department, Washington, D. C. Dear Mr. Gilbert: I thank you for the return of the economic and financial questionnaires prepared by the League of Nations, which accovanied your letter of June 24. Inasmuch as it is the desire of the State Department that no Governmental agency of the United States Government shall have any relations directly or indirectly with the League of rations, we shall be pleased to acquiesce to their request by not filling out the questionnaires above referred to. Very truly yours, Benjamin Strong, Governor. Jena 10P1. ; deer Mr. Gilbert: Onle yeeterday word reached me that your nnme was before the Senate for eonfirmation of your appointment to fill tho new effice Under-Secretery of the Treasury. 1 eieh I might heee teen tbc first to coregratulete you ueoa this appointment and to cend yau my good wishes er succese. To be euite nendid, I feel thet Secretary Mellon is to be more congratulated theJ1 you, and he certninly ha e sheen god sense in asking you to accept the office. If the appointment is intended to be permenent, it will be all. the more agreeable end satisfactory to ell of us at the Federal Reeerve Bank in the aecurance that we rill continue our Treasury Department reletions PO larsely with you. You do not need any assurance from me, or from my asecciatee in the bank, of our earnest desire to do everything in our power to asniet you in your work. call upon us without hesitation or limit. With my very best wishes, Sincerely yours, honorable S. P. GLIjegezIA.Jr., Assistant Secretary of the Treasury, Treaaury Department, Washington, D. C. Please July 15, 19?1. FERSoNAL Dear Mr. Gilbert: I *46 particularly pleased to have your note of July 15, in regard. to the Comptroller's addreases. Of course, we have a, great many things to occupy our time here, but I am debatin44sdom of writing an article for one of the financial papers, or possibly the New York Timee, dealing specifically with some of these ridiculous notions, of which the Comptroller's plan is a notable example. Yours very truly, Honorable S. P. Giplut, Jr., Undersecretary of fEe Treasury, Treasury Department, Washington, D. C. BS:Mk July 18, 1921, PERSAAL Dear r. Gilbert: Replying to your personal nets of the 18th, I fear it would be imposeible for me to prepare the article until such later date that my temperature will have been reduced to a point where interest in the enterprise 16 la6t. shalawait until cooler weather comec. /ours very truly, Honorable S. F. Gilbert, Jr., Undersecretary 3f tgTreasury, Treasury Department, Washington, D. C. ES:R*1 Certainly i Vaanington, D. O. August 9, 1921. My dear Mr. Gilbert: My friend, mipasonAlt, an, Governor of the Bank of Aigland, is on his vay to this ooWii.frroi Steamship Celtic, accempanied by one of the Directors of the Bank of 114and, Sir Ch2xles Addis. They arc coming for the purpose of visiting with me and discussine7 matters of importance to the Federal Reserve Bank and to the Bank of 'inland, which is our correspondent in London. Because of the maw courtesies Nelich have bean extended to ma by these gentlemen, aid, through them, by the British Government, bn the occasion of my recent visits to London, I m exceedingly anxious that they should be suitably received on their arrival in Now York; that every facility be Accorded them to disembark without inconvenience and delay due to the eMamination of luggage, etc; and especially that I be afforded opportunity to go dawn end meet the Celtic at cuarantine on the sane boat which carries the inspeetoes and newspa)er men. The Celtic will probably arrive, as I understand, next sunday orlonday, will you, therefore, be good enought to give the necessary airections to enable the above requeet to be 00mAied with throu6e. the Treasury Officials in New York. Governor Nonnon and Sir Charles Addis are making this visit quite unofficially and quietly, and do not wish their Dresence to be advertised. Thanking you in anticipation, I am, Sincerely years, -ler Secretary of the Treasury, Alineten, D. C. BS.YSB Signed in Mr. Otrong's absence. August 18, 1921. Dear Mr. Gilbert: I thank you for your letter of August 10, enclosing copy of a letter written to Honorable George W. Aldridge, Collector of the Port, in connection with the arrival of Mr. Montagu C. Norman and Sir Charles Addis. Mr. Aldridge was good enough to send me a Revenue cutter pass to meet the Celtic at quarrantine, and has also given instructions to expedite the landing of Mr. Norman and Sir Addis on their arrival. I am indeed grateful to you for having attended to this matter for me. Yours sincerely, Honorable S. P. CIAlbertJr., Under Secretary of the Treasury, Treasury Department, Washington, D. C. 18:VM September 14, 1921. Dear Mr. Gilbert: Sometime ago Mr. Casenave, the French /laced Representative in this country, asked me if I would be able to arrange for one of the representatives of the French Government to wake some inquiries as to the methods eq,loyed by our government in the administration of the income tax laws. Today I have received a call from Mr. Jean de Hincquesen, Inspector of Finance, who is also the accredited representative of the Bank of ascertain just what arrangements of this France in New York, who desires to character can be made. I have told him that to enable him to make such a study it would be necessary to get certain permits from the officers of the Treasury, and I am writing to ineuire whether it would be eossible for you to give such authorities to us or to the Collector of Internal Revenue at New York, as will enable him to wake a little study of our methods on the ground. He wishes at the outset to obtain information erincipally upon the following points: (1) How income tax returns are made so as to insure body of the tax payers (?) that e large do not escape. How the actual collection of the funds is effected. How the transfers of the funds to the credit of the Treasury are made. How delinquent tax payers or tax debtors are discovered and checked up. After obtaining some information on these eointe, he some further information checked and controlled. with regard will wish to have to the methods by which expenditures are September 14, 1021. #2 Mr. de Rincqueeen advises me that under their new Income tax law they are faced with a good many new problems which puzzle them, and further- more, they feel their present machinery is antiquated and inadequate or the purpose of administrating the ?reeent law. His government will be deeply grateful for any assistance which we can render them. I would greatly appreciate favorable action upon this reeuest, and, of course, some of the men in this bank would be glad to aseist in the inquiry if you think it desirable that they should do so. Tours very truly, Honorable S. F. Gilbert, Under Secretary of the Treasury, Treasury Department, Vaehington,D. C. BS:11F,i .:tishington, D. C., October 24, 1921. Dear Ur. Gilbert: I have just received from the office Mr. F. R. Varderlip's letter addresed to -Mr. H. Y. Benedict of New ',Park pointing out that Mr. Vandorlip has encouraged the tustrian Government to send some representatives to this country to attempt some negotiations with regard to the ,Ustrian debt to-the United States I am very sorry that this has transpired. Grain CluRration. It aeons to me that the visit can be productive of no good until the so-called "Funding Bill" passes and that, I understand, is not in such shape at this time that ' any prophecy can be made as to its probable passage. I am writing :1°. Benedict as per enclosed copy and roUld be glad to have your sugrestions of anything further that occurs to you and should'be.done. Very truly yours, Governor. Hon. S. F. Gilbert, Jr., rider Secretary of the Treasury, shington,D. Enclosure. October Z..1, 1921. Dear Mr. Gilbert: This letter will be presented to you by my friend, Mr. Eigo Futai, Deputy Governor of the Bank cf japan, who is visiting this country as financial adviser to the Japanese Delegation attending the Conference on Limitation of Armament. Mr. 'utai is a warm personal friend with whom I have had many most enjoyable visits while in Japan, and from whom I received many courtesies while there. I am anxious that he should become acquainted with you and with the members of the Treasury Department. Anything that you are able to do to make his visit in Washington an enjoyable and profitable one will be greatly appreciated by Yours faithfully, Honorable S. P. Gilbert, Jr., Under Secretary of the Treasury, Treasury Department, Washington, D. C. BS:MM October lilt 1921. Dear Mr. Gilbert: With this I at enclosing a copy of a letter of introduction which I have just sent to my friend, kr. Eigo Fukai, which will explain itself. His quarters while in Rashington will be with the Japanese Delegation to the Conference on Limitation of Ammament. Mr. Fukai wax one of the financial advisers to the Japanese Delegation to the Peace Conference in Paris. At one time he represented the Bank of Japan in London, and when a young man was private secretary to Marquis Matzukata. Mr. Fukai speaks English fluently and is one of the best informed men that I met in Japan. shall greatly appreciate any courtesies that you are able to show him, and especially any assistance which you are able to render him during his etay in Washington.. Thanking you in anticipation, and with cordial regards, believe me, Yours very truly, Honorable S. P. Gilbert, jr., Under Secretary of the Treasury, Treasury Department, taehington, D. C. Enc.. November 1, 1921. Dear Mr. Gilbert: The enclosed correspondence in regard to Mr. Thomas R. Lill explains itself. Mr. Lill has formerly been assoc- iated with our Mr. Oakey, whose opinion I would accept without reserve as to Mr. Lill's qualifications. If the Philippine Government can get a few men of that character in the service, they will be difficulties will be much lessened. Yours very truly, Honorable S. P. Gilbert, Jr., Under Secretary of the Treasury, Treasury Department, Washington, D. C. BS:titM En c. fortunate and our November 2, 1921. My dear Mr. Gilbert: Thank you for writing me under date of October 29, enclosing copy of your letter to Mr. Ochs. I had already read the article, and had it in mind to either talk with Mr. Noyes or take luncheon, under a standing invitation, with the editorial stafP of the New York Times, and discuss these matters, when your letter arrived. After our telephone conversation this morning, I assume that there is nothing further that you care to have me do just now; but I stand ready whenever I hear from you. Yours sincerely, Honorable S. P. Gilbert, Jr., Under Secretary of the Treasury, Treasury Department, Washington, D. C. BS: MM FEDERAL RESERVE BANK OF NEW RK November 2, 1921. PERSONAL Dear Mr. Gilbert: ential reply to your inquiry of November let about This is a.voulT conf It was only to-day that I found opportunity to discuss the matter Mr. Rounds. with my associates, owing to my continued absence. the moment, and especially because of We are all agreed that at a program developed at the recent Conference of Governors which especially requires Mr. Rounds, attention, it is quite out of the question for us to spare him either temporarily or permanently. Of course, this does not mean that we will not expect you to make him an offer of a position if you feel that you need him, and have a position which he would be interested in considering; but as for letting him go in the expectation of taking him back at the end of a period, I think that just now would be out of the question, as we would have to replace h'm with some one righ awa . ,/ .I hope you will t mind my making this ubject the text for 9/letter on Y/' ,y( about. write, or speak to a matter which it has trig been in my mind Please understand thit these suggestions the official attViude of the e.,47--- Itegi_dutiefiz bank in re purely personal, aspect to its duties not represent Fiscal Agent, and f al views which I are only per more intim United e with reference to the personal and nofficial relations ben the Treasury of the and its officers. atee and this It has bee eaeury of the led to express to y our policy ever sine we were appointed Fiscal Agent of the ited States, (and rqp4ated instructions have been given by me c(C! to my associates emphasizing the mportance of the policy) of renOefing every possible assistance to the authorized by law, or not. reasury, whether it appeared to be required or This includes lending men when their services are Honorable S. P. Gilbert, Jr. #2 0 November 2, 1921. C)needed, furnishing information, advice, assistance, support, and comfort, defendina. the Treasury against its enemies and critics, and in every possible way in our powerprumAing its interest. We intend to continue to do that. On the other hand, there has been a distinct chill to my enthusiasm for this policy, and to that of some of my associates, because during the period when the Federal Reserve System was being attacked, abused and misrepresented, there has not been one whisper or statement emanating from the Treasury Department of the United States, either its present officials or those that preceded them, in defense of the System. The difficulties which the reserve banks are now encountering are entirely the outgrowth of the situations created by the war, and of the attitude of cooperation, and the policy of subordination, which the reserve banks willingly and enthusiastically pursuea during the war and immediately subsequent to it. Neither Mr. McAdoo, Mr. Houston, Mr. Glass, Mr. Leffingwell, nor any present officer of the Treasury, so far as I am aware, has publicly or privately in any influential or important way undertaken to share the responsibility with the System, or defend it against its It is suggested to my mind that critics. inasmuch as the present officers of the Treasury naturally had no responsibility for the policies of that day, they are not called upon to defend those policies. That may well be true; but I feel, on the other hand, that when the integrity and good faith of the officers and directors of this bank aneattacked, as they have been, that some affirmative position might have been taken by the Treasury Department, because in those matters the Treasury is well aware of the facts, whether under the present or former administration. In my present frame of mind, I am beginning to believe that we are subject to two things; as to the old is administration, its disposition to let the critics place the blame, if any blame can be placed, upon the Federal Reserve System alone, and not to assume any share of it; as to the present administration, to wait and see what the outcome is before deciding to defend the System or not. November 2, 1921. #3 0b It always has been, and always will be, my policy to get a matter of this sort out of my mind and out of my system, frankly, when it arises, and I an only writing this letter after long deliberation; but I would be the last one to ask for any defense in my own behalf. I am not doing so no because the occasion for it is passed; but 1 am inclined to think that it is a matter which you and your associates in the Treasury will need to think about some day, if you expect to maintain the efficiency of the service which is now rendered to the Treasury by the reserve banks, and especially by this bank. You will not get it if the type of men who now run the bank leave its service for other institutions; and they will do so if this movement to attack the bank's management has any measure of success. Three of our officers have within the last week or ten days mentioned to me the possibility of their leaving in case their future in the bank is what would be indicated by the unwillingness of its friends to support it, and at least two of them are the men upon whom you depend more than any others for the business which we transact for the Treasury. This letter is for your own eye and no other, and I believe especially you will understand the friendly spirit in whia it is written. Yours very truly, Honorable S. P. Gilbert, Jr., Under Secretary of the Treasury, Treasury Department, Washington, D. C. BS:MM November 9, 1921- Dear Mr. Gilbert: The enclosed personal and confidential memorandum In regard to Mr. Kenneth Lord may be worth considering in connection with the me, and Mr. Savings Morgan will Division. If so, please advise be very glad to interview kr. Lord. Yours very truly, Honorable S. P...likbert, Jr., Under Secretary-Trtreasury, Treasury Department, Washington, D. C. Enc. 135: MM 'Fs "'leer 1-0."( ecember 7, 1921 Ct (-'41 Dear Mr. Gilbert: I tIlank you for your letter of December 5, enclosing copy Of the address of Sir H. Strakosh to the Sef.x)nd Ap,c,ornbly Commission of the League of :iations on the work or the Financial Committee, and copy c f the recommendations of the International Financial Confer-nee at Brut..zsels to which reference in made in the address. I shall be pleased to read the papers mentioned and apprecyour courtesy in forwarding them to me. Yours very truly,, Honorable S. P. Gilbert, Jr., Under Secrettp.ry tirthe TrosSury, Treasury Department, 'Washington, D. C. Gb.MA December 9, 1921. Dear Mr. Gilbert: The copy of the Annual Report of the Secretary of the Treasury on the state of the Finances for the fiscal year ended June 30, 1221, has been received, together with your letter of December 7, for which accept thanks. It will give me pleasure to read the report, and I am glad to have thp same for the information it contains. Yours very truly, Benj. Stroag, Governor. Honorable S. P. Gilbert, Jr., Under Secretary 'Tr' rirIteasury, Treasury De2artment, Washington, D. C. GB.WM (74 4,-4- ,i.,> ice - COP/ OF TELEGRAM January 31, -12k. S. P. Gilbert Washington. heferring to our corresponaence with regard torecent developments tenaing to classify Victory notes as obligations which are to be traaea in in the short-term money market, it occurs to me that this program might be further accelerated if you were tolequest the various Feaeral reserve banks in whose aistricts there is now a real open market for short-term Treasury certificates, etc., to also make similar temporary aavances to dealers against Victory notes as well as against short-term certificates. CASE. February 3, 1922. Dear Mr. Gilbert: I was orly able yesteriay to r,hd Sir Henry Strako.los address, y u tare icod enough to send me last December. know hil quite well. fellow, hnd I He is a very unusual and exceedinEly able if he, and others like him, woull only keep playing on this atcpr it may he that com-on sense will ultimately prevail in some of these matters abroad. Teu:s very truly, Honorable S. P. Gilbert, Jr., Under Secretary of the Treasury, Treasury Department, Washington, D. C. BS.MM February 9, 19217. PERSONAL Dear Mr. Gilbert: Last month the directors of the Federal Reserve Bank of lanes appointed a new Governor in place of Van 7sndt. cumstances are fully known to Governor Harding. The cir- Van Xendt had eome experience some years ego in the Ptilippinee ir the Treasury Department under kr. Tsft. He has been a bank examiner, bank officer, and an officer of the Federal Reserve Bank of Dallas. He is 50 3geers old, eltheugh s man of young appeerance and much energy. The members of the Federal Reeerve Board are ew,re of Lis capacities. Philippines? Do you thin V he might be of eervloe in the He is not acqueinted with foreign exchange, but has a splendid groundwork in general banking and finance. Yours very truly, Honorable S. P. Gilbert, Jr., Under Secretary of the Treasury, Treasury Department, Washington, D. C. BS. MM February 18, 1922. Dear sir. Gilbert: Thank you for your note of the 17th in regard to former Governor Van Zandt. YOurs sincerely, Honorable S. P. Gilbert, Jr., Under Secretary of the Treasury, Treasury Department, Nashington, D. C. ES.MM March 15, 192?. Governor Strong I referred the attached correspondence to Mr. akey for perusal during your absence. G. B. AWcans in Phili inesW Oppose Maj.Gen. McIntyre [Special Cable Dispatch) 01 ILA, February 17.The American Chamber of Commerce has petitioned Gov. Gen. .President Harding through to remove Major Gen. Frank ntyre as chief of the Bureau of ular Affairs. It is alleged that he Incompetent to cope with big issues antagonizes sentiment here, and t he is out of harmony with Gen. od. According to Judge Williams's egations in the Chamber of CornGen. ' rce, published in full to-day, have Intyre's recommendations judgn often contrary to the best offint of business interests and . dom here. Ilod Wood did not know of Gen. the Gen. chamber's intention to denounce McIntyre and merely forwarded the resolutions without comment. (Copyright, 1922. by the Public Ledger Co.) FEDERAL RESERVE BANK OF NEW TORII //L-' TIME,/ TO ,. INTEROFFICE ROUTE SLIP 7 OFFICE SERVICE MESSENGER SECTION CI TE .7-... /--7--c, 7.., REMAR IDEPARTMENT DIVISION SECTION / / FROM N. B. ., DEPARTMENT DIVISION SECTION USE THIS FORM INST6%0 'OF OFFI E ENVELOPE WHEN POSSIBLE. TO INSURE PROMPT AND ACCURATE DELIVERY ALL COMMUNICATIONS SHOULD BE DISTINCTLY LABELED Ae. ANgamummassaaasas_ larch 15, My dear Mr. Gilbert: I thank you for your letter of March 11, enclosing copy of letter from the Bureau of Insular Affairs of the lar Department, with respect to Mr. Thomas R. Lill. I note that Mr. Lill's services can not be utilized for the present owing to no vacancy existing. Yours very truly, Honorable S. P. Gilbert, Jr., Under Secretary Ortte'lreasury, Treasury Department, Yashington, D. 0. .MM FEDERAL RESERVE BANK OF NEW YORK PERSONAL April 21, 1922. Dear Mr. Gilbert: This is 8 very personal and private communication to convey to you my reply to LeffingwelrrrieNcer of April 15. is too vigorous, please rend his let If you think it gain, which I enclose. would like to have his letter back, I as my reply. I feel about Leffingwell's comments somewhat as I feel about that executive order abo t payinQut requires consultati4n and deal better to have t i1tie ta sold, that in a situation which amount of give and take, it is a great isculion before a commitment is made, either of opinion or )?,ction do you feel about it? Sincerely, Honorable S. P. Gilbert, Jr., Under Secretary of the Treasury, Treasury Department, Nashington, D. C. BS.MM encs. May 17, 1927,. Dear Mr. Gilbert: This is to acknoaledge receipt and to thank you for your latter of May 1, a:7pending copy of a letter dated May 14, addressed to you by General McIntyre mith respect to the possibility of an avointment in the Philippine 'National Bank for Mr. Van Zandt. Ycurs very truly, Benj. Strong, Governor. Honorable S. P. Gilbert Jr., Under Secretary of the Treasury, Treasury Department, Nashington, D. C GB.MM May 19, 1922. PRIVATE AND CONFIDENTIAL: Dear Mr. Gilbert: So far se I can gather, there is some chance that the British Government might step interest on the debt. forward quite promptly If they do, you are bound to have a ' bonus bill. Very truly yours, Honorable S. P. Gilbert, Jr., Under Secretary of the Treasury, Wachington, D. C. `f3S.MSB and pay May 25, 1922. PrF.F.7,0F.AL ARP CONFIDENTIAL !Iy. doer tir. Gilbert: Thank You for wur cf the 20th- T hve alrody read the 7:7ecretry's letter t.) 5'AlwAor VcCumber, f...nd of course reallTe tivt there deficit notwitheindinj .11.r.t may be p1i on ferci;7n lonus. Cr' the other hqnd, the mere r7ct cr nn; :v4tion pn0 ;'rom f,,ayment pa.yxente on th(,,, princip,l, or rt least what mav be roal.iae sale of ferei,f, g*vernment bonds, will 'e Very truly yours, Governor. iionorabie S. P. Gilbert, Jr., Pnder f3ecretexy t-f thc, Treury, Treasury Departwnt, ife17.Angton, r. c. be cocfir- f the Ire'As c frequontly oY.preseed that the intere7it on the losne incoTe cut cf which bonus liabilities mf4y be met. >4' nes7 r.n.cr,,Ire-4 source of June PERSONAL AND C3NFIDENT1AL 1912. Dear Ir. Gilbert: I have been catchilg 11,7 with your correspondence tb v-r. Cass in regard to Treasury financing, and have had more than one talk with Hr. Coas so as to familiarise myself with ycur ViAfe and his as they havo developed. Tt is always danilerous to prophesy, but good financint; involves a forsard vision, an I not r1tir:E711 oemment specifically upon your imgrum, ;hie 1rr. Case lenetb, but to point out a few peculiarities of our prosent situation has dons sith which T. believe people 5,re not generally familiar. PlEASP cc:molder this elec an acknowledgment of your telegram just received advising of the Imminence of thr announcement of the new offering. Under our Americen bank5ng system prior to the intronucti.') of the Federal Reserve Syster, times of liquidation and debt paying were accompanied by a large accumulatimn of surplus ban} reserver throughout the United States, prioci17ally carried by all or the tanks mf the ocuntry with their recorve agents. In those days there was very little borrowing by any bark from any other Lank, the maximum at no time, I believe, exceeding-Or millions. Those surplus tank re,serves resulted in ths establishment of abnormally low rates of interest in the market for all kirds of tank paper, and the abnormal ease of money mas one of the direct results attributable to our inflexible system, just as much as vere the abnormally high raton of interest which at times developed shen tank reserves became deficient. This has alfer changed in revolutionary fashion. There is no such thing in this country to-day as a great surplus of tank reserves, outside of that Honorable S. P. Gilbert, Jr., held by the reserve banks. June 5, 1222. As liquidation produced free funds in the hands of the banks of the country, those free funds were applied to repaying borromin,..78, prin- The result of this change in our affairs is cipally from the reserve hanks. perfectly obvious. Rates are not liable to go as abnormally low as under the old system any more than they are likely to go abnormally high. You may safely conclude, therefore, that %lay great further ease of money can snly result from oils ef two things: one would be a further gave of lieuidation, which me do not now anticipate mill occur; and the other would be a general release of Federal reserve tank credit, either through large ievesta nts anaer section 14, or redeeine the rates charged to meters under eecticn 15. My ?arsenal opinion is that ee have abeet seen the belies, of interemt rates, with the eceeible exception of a short erled thie noraer ven may hove acme mid-summer dullnees of business that would cause a floe of funds to lee York: but I hardly see hoe that could last beyond the harveet season. The point of th.:a letter is to indicate to you my belief that it mould be mise be do as large an amount of financing (I refer °specially to the refunding of Victorys by exchange for s. nem issue of Treasury notes) at the present time as is possible. A b I have reocatedly etatcd to you, were we to see a run-away speculation not only in securities but in commcditiee, I think it mould be the duty of the Federal reserve banks either to advance their rates (the influence of which would be alight) or to let their abort-time investments run off (the influence of which eould be considerable). I sae many little indications that the great surplus ef investment funds in the country luta been pretty well absorbed for the moment. Ne see many indica- and tions that business is reviving,Aagricultural, industrial and commercial demands for credit are likely to increase. le have seen an enormous increase in the stock June 5, 1922. 3 exchange loan account, and we have seen some tendency for new issues of securities to back up in the hands of the distributers. a warning that with some Does not this constitute in itself t5 billions maturing within the next year, that that portion made up of Victory notes, P ay t2 1/2 billions, should be gotten out of the m ay to a large extent now? Any prophecy as to the future is dangerous, and I ask yu to accept this with reserve on that account, but as the best expression as to tho 2uture course of the money market that I am capable just now of giving you. Very truly yc,urs, Benj. Strung, Governor. Honorable P. Gilbert, Jr., Under Secretary of the Tre4..sury, Treasury Depai-tment, Nashington, D. C. BSAM PERSONAL AND CONFIDENTIAL June 12, 19*2. Dear Mr. Gilbert: Your note of June 10 is just received, and I am most grateful to you for keeping me posted about the matter referred to. I am hoping that the outcome will be all right. If you feel disposed to do so I hope you *ill take the opportunity of saying to Mr. Mellon that if Governor Harding is reappointed to his present position, I believe that the country and the System mill be greatly benefited by appointing Mr. Howard, President of the Federation of Farm Bureaus, as a member of the Federal Reserve Board. Nhile that organization has sometimes been regarded as over-critical of the Federal Reserve System, I believe it to be a responsible and conservative organization of the agricultural interests of the the guidance of men of prudence and misdom. learn of Mr. Bogard convincec me President to be conducted under That I have been able recently to that he would be a useful a sound representative spokesman for the is that in case the country and agricultural member of the Board and interests. My only should take this view, that Mr. Pk-ward induced to accept, and if the matter reaches that ear could not be stage I think there are members of the Farm Bureau organization who mould to-:day be glad to urge him to accept if they 4ere given the opportunity. Again thank you for your letter. Very truly yours, Benj. Strong, Governor. Honorable S. P. Gilbert, Jr., Under Secretary of the Treasury, Treasury Department, Nashington, D. C. June 19, 191?. PERSONAL My dear Gilbert: I have read the newspaper accounts of what transpired in connection .c.rith the attempt to introduce political appointments into the Treasury, with concern as veil ae ith deep interest and finally with the g.reatest apprecigtion of the stand -which Mr. Mellon has taken. I do not like b.:: Trite letters en matters of this sort, as sometimes they are misunderstood, especially as nave no desire to curry favor with a Chief for whom my admiration is constantly growing. If, however, vi u think that he would understand such a letter, please hand him the enclosed - otherwise be good enough to teaif it up. Of course, it le quite private and confidenti al. Let ri,o add that what I am writing 11_, r. Ae1lon is equally addressed to you. yours very truly, Honorable S. P. Gilbert, Jr., Under Secretary of the Treasury, Treasury Department, ashington, D. C. b,S.MM enc. is iv %cc...AA I"' 41" PERSCINAL June TT, 19??. Dear kr. Gilbert: Replying to your note to meke a fee reflections. of the 2eth. I knot that you want them to be frank, and I greatly apereciate your giving ee u chance possible, and Your note affords me the opportunity disclaiming any to write you. To make them as brief as desire to write an address for you, they are the following: In varying degree for sometime past I have feared the development of this "soft" money movement, and personally believe sooner that this Administration muct or later come out definitely in oppostion to these demands to debauch our This mill monetary system. be an opportunity for you to do so in a part of the country where the sentiments you express may not be very popular. I by Senator to meet this ern convinced that the principles contained in the bills introduced Lenroot and the needs of congressman Anderson are the ones which are the agricultural people statement then I would suegest that ef the iest. separate eystem for the Parmer, but simply scheme, it drave money from the capital (a) the simplest It creates no net renders the present existing for the farmers benefit. agencies more effective If you agree with the plan be expressed in language and that emphasis be placed upon twe points: best designed (b) Ey introduoing centers, that is, credit the from the centers debenture where there ie a surplus of credit, to the agricultural districts where there is a shortage of credit, and eill thereby release a certain amount of local bank credit now needed for the local merchant and general berm-er ehe pay that he regards as excessive interest rates. at times is required to 2 Honorable S. P. Gilbert, Jr. June 37, 19?2. My debasement of the currency is all be the advantage of the large producer, and all to the disadvantage of the email producer and the laborer. This is especially true of the laborer. Oen inflation occurs, prices rise, but wages lag behind. The laboring man gets his share, so to speak, of the inflated values through increases in gages, which generally necessitate strikes, and a certain lith his wages higher he sill enjoy a short period of amount of suffering. artificial prosperity ellen he can indulge in extravagance; then the day of reckoning comes with a business reaction that thross him out of employment. He suffers He is the last to be benefitted shea prices are rising, and the first both eaye. to be thrown out of empleyment when rices collapse. Edison's first question was to ask -what eeuld be the value or\gold if the principal banking nations of the erld demonetized their currencies. bffhand, many pecple were inclined to answer that gold would find a certain level of vein*, depending upon its usefnallneee in the arts, etc., and the extent of the dleMand fr it, implying thet it would be at a discount. The question is most misleading. Measured by ehat standard of value eeuld it be at a discount? 4 nee currency which was substituted for demonetized gold i Obviously, in any The fact is, however, that gold ould probably instantly go to a great premium and the new currency to a great discount. Gold delinot acquire its value through the coinage lags of the various n lionsIwhich simply fixed a standard as to the quantity of gold in a The value of gold is traditional - historical. given coin. Through many centuries, generation after generation of human beings have learned by experience the that gold i77ne article in the world which alwayc seems to retain purchasing power; ehereas other kinds of currency at one time or another have depreciate 0 -when measured in gold values. The instinct to hoard gold and to put savings into gold eould be stimulated by any such proposal as that of Edison or Ford. \ Gold would go to a prenium, the nee currency to a discount, and the utmost confusion would arise in prices. The very effort to stabilize prices by the issue of so- called"energy currency" or "warehouse currency" currency values that can be imagined. ould result in the most unstable June ?7, 5. '?ere I making such an address (although X presume you could not take this eosition) I would go as far as I dared in expreseine sympathy with the position of those members or Congress who are commonly called the Farm Bloc. I think some o:! the things that they have proposed are fantastic, but they do represent a constituency that hae endured a period of real suffering ead distress and they cannot be blamed for making efforts, even though some of them are misguided, to help their people cut. Further than thet, I think their methods have in eome instances been wrong - but their purpose, that is to afford relief to their on constituency, is beyond challenge. Finally, I ar frank to clay that I think that an address of this character to such an audience - or at least in that section of the country - is filled with gun powder, and being made by an officer of the Government, and a high one at that, aill have e considerable element of political Interpretation given to it which,cannot be .voided. I eieh you success in preparing the address, and would hate to face the task myself. Good luck to you. Yours very truly, 40noreble S. P. Gilbert, Jr., Under Secretary of the Treasury, Treasury Department, lashington, D. C. BS.MM July ?,e, 1922. PRIVATE AND CONFIDENTIAL .. 3 :it- Mr. Gilbert: Enclosed are the figures indicating the amount of tiorrovings at this bank by veeks from November 30, 1921 to date, divided-so Fie to bo4 loans to all of our member banks, loans to all :lel York City I. banks, and loans to those mhich ire claw-48.e 4911 Street banks. The daily figures you already have, and I hope in satisfactory form. Yours very truly, Benj. Strong, Governor. kionorable S. P. Gilbert, Jr., Under Secretary of the Treasury, Treasury Department, lashington, D. C. en c. Loans of the Federal Reserve Bank of New York as of close of business on Wednesday of each week) from Nov. 50, 1921 to July 19, 1922, the latest date for which weekly figures are available. (In millions of dollars) Discount Rate Date 1921 . Nov. Dec. Dec. Dec. Dec. 1922 . Jan. Jan. Jan. Jan. Feb. Feb. Feb. Feb. Mar. Mar. Mar. Mar. Mar. Apr. Apr. Apr. Apr. May May May May May All Net York City Banks To Wall Streets Banks 21 28 125 148 135 157 131 103 122 107 135 116 4 199 125 111 11 18 25 1 8 15 21 1 8 16 22 164 144 97 85 74 118 119 155 140 101 90 68 64 69 74 88 66 62 19 26 5 Si. 21 47 88 8 10 48 45 54 48 39 7 4 1/2 200 14 29 5 12 17 24 31 5 July 12 July Banks 227 214 238 213 50 June 7 June 14 June 21 June 28 July To all Member 19 42 54 4 88 108 74 94 84 59 96 83 43 53 14 12 20 25 42 25 28 9 8 25 8 8 9 7 52 77 47 72 48 45 67 65 51 17 1 o 2 11.5 31.5 11.5 15 o 213 o o 18.5 o o 0 o 41 58 413 64 *Banks described as "Wall St. Banks," are those which make loans to Stook Exchange Brokers; and excludes strictly commercial banks and trust companies which do no "Wall St." business. to Nadi Street Banks each day fro november 3, 1921, when thts. discount rate of the Federal Reserve Bank of new York W416 reduced from 5 per cent to 4-1/2 !e6r Cent, to June 22, 1922, Naen tde rate waa reduced to 4 per cent, and froui June 22nd to July 24th.* L4o,ans in kdi ,ions Wa te of Do] ' il*Fi Die- ut cot Rate 1921 : in 1 a i ons -71.7 of 1.4:lars it ts : C : : : count li tte 1921 : Nov. 3 85.3 : Dec. 19 4 : 20 5 100.4 97. : 21 7 18. 9 109. : : 10 12 95. : 22 23 24 14 IF 16 17 18 19 21 22 23 25 26 28 29 30 4-1/2 87.5 88.5 : 80. : 80.1 : 120. 139.2 137.8 124.9 113.1 108.0 115.1 112.5 100.8 100.3 103.4 : : : : : 1 2 3 5 8 7 8 9 10 12 13 14 15 16 17 50 31 6:7 1r7 115.8 102.3 83.5 118.3 1922 Jan. 3 4 117.8 : : 5 11(1)1i:;, 8 : 7 : : 108. E 105.4 104.5 101. 143. : 9 10 11 12 : 13 139 : 128.8 128.9 122.2 130.3 126.5 136.2 139.1 127.4 107.1 105.5 95.5 97.6 : 14 16 : Led. 27 28 29 : 101.7 120. 133.5 168.4 103.9 95.5 84.9 89.2 75.9 59.4 17 : ;36:5 18 19 74.2 20 21 23 24 25 25 27 28 1,3 0:1 47 85.2 81.5 88.4 ; 30 48. 36.7 53.9 50.9 55.7 t 31 48.1 . . : 4-1/2 -..can3 to 1111 Street BInks etca dty fro November 3, 1921, waen tae discount rite of the Federal Reserve BInk of New York was reauced from 5 per cont to 4-1/2 per cent, tc June 22, 1922, ,yaen the rate was re(luced to 4 per tent, and from June 22nd to July 24ta.* (Conttd) Lo-..na Date in Millions of Lolltra Discount Rate : : -,.01,148 : count Rate of lioliars : : 1922 P443- in Millions Date 1922 : Feb. 1 40 . 3 4 a 7 8 g 10 11 14 15 16 17 18 20 21 4-1/2 43. 58. 75.256.4 70.5 70. 67.2 15.3 20.8 - : Mar. 19 : : 20 21 22 23 24 25 : : - : - : : : 12.7 : 54.3_ 54.8 28.7 15.21.8 9.9 31.4- : . 23 24 . 25. 2.3 Apr. 27. 31. 4 lg. 1 5 31.5 8 7 : 49. 18.3 27 28 31 28.8 00.8 9. 11.5 3 31.4, 0r. ..... 27 28 29 30 0. 0. 0. 2. 40. 38. 9 17.1. 17. : 17. : 10 11 34.8 29.5 27. 24. 11.5 Mar. 1 2 3 4 a 7 8 9 10 11 0. 10. 11. 1. 1. 0. 7.5 7.8. 13 10. 14. 2. 15 16 17 18 0. 4 . : : : : : : : 0. 0. 0. 25. 9. 15. 17 18 le. 13 14 15 21.7 19 20 21, 22 24 26 28 27 28 29. : 10. 13. 0. 0. 5. 0. 0. 0. 0. 15.2 8. . -111[11111.- °NNW' -WW1.1,11, 3. Lo Nail Street BAnks oaten diy from hdvaJiber 5, 1921, when tae discd,,nt riteof tae FederkiLl Reserve Bink of fiew 'fork was reduced from 5 per cent to 4-1/2 per cent, to June 22, 1922, when tae rate wAs reduced to 4 per cent, And from June 22nd to Jul4 24th.* (Canton) ..-in Miiiions ,...004s DAte of Doliars Diecount . : Date RAte uoille in MilLiOn8 of LoLivs Diacount Rate : 4-1/2 1922 4-1/2 1922 : 10. 20. 'June 2 w d 4 : 14 15 0. 0. 20 : 16 O. 5 24.4 : s qo .0 : 17 18 19 1 0. 20 I; 10 11 12 15 14 16 16 17 18 19 20 21 22 23 24 25 28 27 29 o. 0. 0. o. 0. 0. 0. 0. 0. 0. o. 0. 0. 0. : 21 : 22 25 24 25 28 : 1 t : : 27 : 28 : 29 30 : July 1 2 0. : : : 18.5 : 5 : a 11.7 : s 1. : : : 10 11 : : : : 12 : 16 : : 17 18 19 47 l.0 1 10. 8 21.9 11.7 9. 5.2 7 il. 5 5 8 9 10 11 12 15 Pi 55.1 35.1 38. 31. 41. 11. 19.7 18. 16. 7 o. 2 Juno 0. o. o. 0. 0. 45:7 : : 31 o. 0. o. 0. o. 0. .5 : 3 4 9 la 14 15 : 20 : : : : 21 22 25 24 53.4 55.4 58.4 54.7. 58. 58. 51.5 31.5 40. 25. 15.5 11.5 11.5 17. 44. 84. 32.9 46.1 14.7 14.7 5. *B4n,te descrihed .8 "Wall St. BAnks", ire taose *hien me loins to Stock Excain6e erocers; And excinuee strictly commercii binks and trust compinies which do no "Nal. St." busines2. August 2, 1922. CONFIDENTIAL Dear Mr. Gilbert: Mr. Moran came in this morning and I expected to hand him the enclosed document, but not being certain of his return am send- ing it to you. You may already have seen it. I knov nothing about the people from whom it comes, but presume that TvIr. Moran does. Yours sincerely, honorable S. P. Gilbert,'Jr., Under Secretary of the Treaeury, Treasury Department, iashingt(-)n, D. C. enc. August 3, 19?.2. GONFIDEATIAL Dear Mr. Gilbert: I am grateful to you for your confidential letter of August 1, and for the enclosure 0/bleb accompanied it. Superficial conclusions in regard to the policy of this bank with respect to its rate of discount and in general its pol,icy in employing its funds by investmeet in bills and freasury certificates might well lead not only to a misunderstanding of the whole situation but resul t in efforts \,o impose upon the bank a rate find investment policy hich in the long run mould prove to be disastrous. As I have repeatedly stated to you and written to you, and as has been explained to the Federal Reserve Board, the primary con- sideration whieh has melted the directors and officers of this bank to gradually build up an investment account as its loans to member benks ere eedd off as in order that we might not entirely lose control or forego our influence upon the money market. The emeloyment of our investment account - as I have e.xpleined to you - is no about the only method u2on Yhich le may rely for exerting any effect unca a dangerous speculetion should it develop. But .further than that, the preparations nee being made by the I British Government to pay interest upon the debt-owing to our Government he . already necessitated nd will probably continue to necessitate large shi2mente of gold to this country. The effect of these further additions to our reserves are directly inflationary and the only method by which the inflationary effecte of heavy gold imports may be offset is by our lieuids.ting our investment August 5, 2 account and taking an equal amount of funds out of the market. are doing from time to time and expect to continue to do to 19?,?. This 'we the extent that our position permits. Efforts to induce the lowering of pur discount rate or to about a. change in our ,00licy in these regards .would simply serve to defeat rogram which has been adopted after much study and is being ;ursued with careful regard to all the circumstances. at the same time that ye were :Liquidating drive the T1 ember bring Jere our discount rate reduced our investments it would simply It would in .fact nullify banks to borrowing from us. what we are now undertaking to do to meet a situation which cannototherwiee be controll The activity in the stock market is no longer calling for the employment of increasing amounts of credit as .vas true some months ago; e believe we are checking the inflationary effects of gold find that our oolicy, as you are well aware, is with the success of the imports; we not in any way interferring Treasury's refunding oper.!Aions; and I think I should frankly advise you that should attempts be made to modify this program, and especially thould heard, if e they be attempted without our having opportunity to be would feel it neces.sary to lodge a vigorous protest with Secretary of the Treasury. Yours very truly, Benj. Strong, GO ver,n5t. Honorable S. P. Gilbert, Jr., Under S6cretary. of the Treasury, Treasury Department, fllashington, D. C. 1-S. the PERSONAL AND CONFIDENTIAL August 3, 1922. Dear Ar. Gilbert: Replying to your letter of the first in regard to exchanges of 4 5/4 per oent. Victory notee for the nee 4 1/4 2e, cent. Treasury notes, r. Cese is to-day communicating 4ith the reserve banks ellich hold Victory notes, advising them what Re did, that we gather that you will be glad to aea exebangeg effected, and stating that if they do not make the ex- change direct, ee *ill be glad to handle the transaction fur them in this market to the extent poeeible, along the lines of our on exchange. I have just had a talk with the President of the Metropolitan insurance ComrAny, rho inAicates that they will aeain take up con- sideration of exchanging some tie milliors which they hold. rhey had de- cided not to do so, but I think possibly a little better understanding of the situation may induce them to change their decision. Yours very truly, Benj. Strong, Governor. Honorable S. P. Gilbert, Jr., Under Secretary of the Treasury, Treasury Department, Nashington, D. C. http://fraser.stlouisfed.org/ Federal Reserve 115.MM St. Louis Bank of August 4, 1922. PERSONAL Dear Mr. Gilbert: )4° Referring to your note of July 22 about that speech you contemplate making in Montana, I an enclosing a memorandum of what I had in mind to suggest. It w,".s written by our iv: . Roberts. But let me point cut that this is full of prickers. Some intelligent people may say that if inflation is such a crime, why did the Treasury inflate as they did in 1919 1920, and ghy did the reserve banks permit themselves to be drawn into such a policy. I am sending this suggestion to you for such use as you care to make of it upon your own responsibility, but on reading it over I cannot but feel that it might be misunderstood. Yours very truly, Benj. Strong, Governor. Honorable S. P. Gilbert, Jr., Under Secretary of the Treasury, Treasury Department, Sashington, D. C. BS.MM en C. August 4, 7=ERSONAL AND CONFIDENTIAL 1.9.S.?.. Deer Mr. Gilbert: Think you for your rarer (:,ff August 2, encicsiny, copy of yvur personal .,')nci confidential letter t_At August Cane. Beflre /riting yk-fu ir ddreesed to Ir. eten tu rega.ri t.) the prograi, there in nc-riie in-forffiation that I vtr. 'lead in regnri t be:1i valunt.R, and I shall bo7,1e to frite you nonaeti,loe next ;mak. Iowa very truly Pft.j. s ro g , Governer. Honorable S. .. Gilbert, -jr., the Treaeury, Un,ler Se:;retary Treasury Department., Washington, D. C. August 0, 1922. Dem Mr. Gilbert: Supplementing Governor Strong's letter to y.0 of August 7 in reply to your inquiry of August 4 as to the present *herotbounts of Charles N. Fowler, I learn, upon uiry, that gr. Fowler has an office at 44 heaver Street, New Iork City, and that tie residence address is 527 Rivereide Drive, hew York. Trusting that this informetion will serve your purpose, I am, Very truly yours, J. h. CASE, uty Governor. Honorable S. P. Gilbert, Jr., Under Secretary of the Treasury, Washington, D. C. JHC MAE August 9, 1922. PERSONAL AND CONFIDENTIAL Dear Mr. Gilbert: Your favor of the fourth instant, in regard to exchanges of Victory notes for the 4 1/0 notes, is just received on my return to New York. In my final talk with Ar. Fiske of the Metropolitan Life Insurance Company he pointed out that the exchange would cost them about 450,000 in income. He saia that he would prefer to await the maturity of their holaings am he would then assure us that any offer of exchange then maae would be promptly accepted. Obviously, I felt unwilling to request him definitely to take think a loss of that amount but I entire holdings whenever the you can count on their exchanging their maturity date arrives. Very truly yours, BENJ. STRONG, Governor. Honorable S. P. Gilbert, Jr., Under Secretary of the Treasury, V,ashington, D. C. CONFIDENTIAL August 11, 19?....3. My dear Mr. Gilbert: I have read your ply of August 8 and no letter of August 1 addressed to Mr. Case and his re- yours of August 10, all relating to the Treasury's program for the next six months or so. The first outstanding impression from; your letter is the very large amount of issues to be made in a comparatively short period. it involves no enlargement of the total borrowing, a very large Mile, to he sure, proportion of the money to be obtained must be sought from new investors and subscribers to pay off old investors who will doubtless 4ant cash, and it is the lary,ertt turnover of that character with a that the Treasury has yet undertaken. Therefore, it is surrounded greater degree of uncertainty than has been the case with previous issues. The second impression that I gain is the difficulty of dealing with both the Victory notes and the dar Savings certificates effectively and economically by any exchange offer. the results that were The previous offerings of that character have not produced a.nticipated or desired. The third impression is the very considerable physical difficulty pith which the reserve banks will be confronted in the last tym. .weeks of December in handling the enormous number of people 4th whom we must deal in paying off the called bonds, effecting physical exchanges, and especially in dealing with the owners of the rnaturing lar Savings certificates. These physical difficulties are being studied no by the officers of the bank and ffe hope to submit some suggestions in the near future. As to the specific proposals contained in your I offer the following comments: letter of August 1, may Honorable S. P. Gilbert, Jr. 2 Paragraph (1). August 11 Of course, our experience would indicate that 1922. vith the rates suitably adjusted to the market ee could count on Septemter 15 upon realiz- ing any amount of cesh required upon an offering of one year certificates, but as stated ebove, I would doubt the success of in exchange offer - that is, I would doubt its producing any very coneiderable amount of Victory notes. The rate su-eested in this paragraph as possible at that time Pay indeed prove to be the case, but a 4 per cent. five Fear note just no' _could not be sufficiently attractive. There is possibly less doubt of the success of a 5 1/2 per cent. one year certificate Gelling in adequate volume. I an inclined to express a little darning as to your confidence in an easy money market in the middle of September. Much depends upon the strike and the extent to vhich the crop movement has gotten under way and *bother the railroads are in shape to handle the Paragraph (2). harvest ,,rnmtly. If conditions appear to be satisfactory I :could rather prefer to see the long time bond offering made in Seetember rather than in October. If the offering !yam not a complete success it eould than afford a period of recuperttion beteeen September 15 and the December maturity; and the period between October 15 and the date ellen you eould need to offer the nod bonds to retire the called Victory notes is rather short in case the offering proposed for October ere not fully successful. am inclined to think that you under-estimate the importance of organized methods in placing a loan for t500 millions. That is a very large amount of investment moley to get on one offering, and of course it depends for its sucoees entirely upon the rate being sufficiently attractive. It Is difficult to form an estimate from present data of just Mat can be expected of the market as to a 4 per cent, taxable bond maturing in 20 or 50 years,beering in mind of °Puree that the interest basis is aleays figured in the market to the date when a bond may be called and not to the date it may run if not called. In order to get some idea of market buses of e 4 per cent. taxable bond, ve have calculated the interest basis of the 3 per cent. Panama Canal bonds, which at the present price 3 of 92.41 is 3.35 ser cent. Honorable S. P. Gilbert, Jr. August 11, 1922. This is for a bond sholly tax secret Mich matures in lPel - the.t is, 39 years. qe have veade a similar calculation for the Fcurth 4 1/4 ear eent. Liberty loan bond, essuming a maturity in that case of 191, ,shich elves the bond a market value of 102.90. By taking the difference in interest bsiB beteeee the taxable and non-taxable tend and reducing this to a 4 per cent. besie, ea find that theoretically at the eresent earket values of these to issues, a 4 per cent. texatle bond ehould have a. market value of 100.44 if maturing in 1933 - that is, 11 years; of 100.68 if maturing in 1942 - that is, 20 years; of 100.57 If maturing, in g52 - that. Ic, 30 years; of 1.00.99 if maturing in 1961 - that is 39 years. This calculation may be a bit misleading because the limited issue of the Penema Canal 3e, and because of the special circumstences surrounding the use ehich is made of those bonds by certain classes of owners. I think it may be fair to assuise that they sell at a little higher price and a someehat lover interest basis relatively than do the various taxable issues. The amount of the issue also has an In V/04 of all the circumstances I think important bearing upon the market price. I vo ul d leen towards meking the efrering of a long time bond in September, and offer a smaller ameunt than t500 millions, thereby giving yourself the benefit of a good teet of the market ae Tell as ample weenrtueity to make other arrangements in the light of what la disclosed as ,the result of that offering. Paragraph (3). It is very difficult ?ore to accept your suggestion that t,-.n issue of $1 billion of long time tends can safely be relied upon as the means of financing the December payments. It is a very large issue to place and eill need to be attractive in terms, and your feeling about iseuireg a 4 per cent. bond seems to be so strong that I am led to urge that the assount of long time boeds to be ofrered be materially reduced belom this figure. Inability under the present ta heve the lessee undertritten greatly increases the risk of the Treasury, and the amount. to he raised is so large that it emphasizes the need for making the preliminary offering earlier then October 15. Honorable 3. P. G'ilbert, Jr. 4 August 11, 19?a?. while December 1 is not a had tine to offer the tonde because of the heavy interest and dividend payments for reinvesteent all this coming into the merket, around the first of the year - I revertheless wculci err on the side of caution in deters:int:1n the meunt to be offered. es tion oaln for no corfeent. Paragre eh (4). This F u Paragraph (5). The ehysioal difficulties of handling the exchange of ler Sa.vinge certificates 1.8.nd of r: king the payeent of the rash to those ho do not accept new securities are so great that I think the Treasury will necessarily be called upon to make some interest sacrifice in order to start exchanges at least a month before January 1, and notvithstending that it will overlap the heavy onerations on !December 1 end December 15. IL lould not surprise me et all if there vere a million and a half people in the City of liev York alone that hold Yar Savings certificetes and Thrift stairs maturing on January Even if there is only one 1lIon, I think ee must realiee that the handling of this anorrone number of reople, even though it were dietributed rong all the Post Offieee and Sub-retetione and all the banks and their braechen in !lee York City, neverthelees involvee R. very serious eroblem. For that reason I eould strongly urge that arrangements bet made to start exchanges just as soon as eosible certairly not later then December 1. In general, I agree with you that at least $1,500 millions of the short dett of the (bverneent should not be funded at the preeent time, and I would be rather eurprieed if it does not traneaire that. this figure may have to be increeted e the result of some issues of short securities, to take care of the portion of the called Victory notes and the !far Sevings certificetes beyond what is anticipated by the entline contained in per letter. In i;eneral as to the interact rate on a long time bond; it is too early as yet to have a final opinion. It ..vould be unitise to consult the dealers or bankers, and you doubtless have it in mind to take that matter up for final August ii, 1922. 5 consideration in cape the first offering is made in October, say e.ozetimie around the middle or September; or If you ehould decide to 77 ale an offering of a long time bOtn.d in September, you 111 probably vant to decide about the rate sometime -within the next two veel. if you arrive at a determination as to when the first long time bond offering ehould be made within the, nest few days and will advise us I think I 'would be inclined they to take t ffr or three of the beet bond nten in the city into our confidence and sek their advice, but of course we ...would not think ot" doing so bxcept .with your consent. Please understand that these comments are in the light of conditions to-day, which may materially ohm e -within a few days because of the strike situation and 'within a few weeke, because of the kr ?rcttobing demands upon the money market fer flnancing the crop movement. Yours very truly, Penj. Strong, Governor. Honorable S. P. Gilbert, Jr., Under Secrotary of the Treasury, Treasury Department, 4ashington, D. C. PS.IIM August 14, 1922. CONFIDENTIAL My dear Mr. Gilbert: Replying to your confidential note of August 12, I an very sorry that anything contained in my letter of August 11 may have led you to aNindon the holiday, and the fishing trip which I understand you were contemplating. But, on the other hand, I an convinced that the floating of a long time loan is not eoing to be as easy as you seem to feel, and that should you determine to place such a loan at 4 per cent. it eould, in my opinion, be hazardous to defer the offering until October because I believe the possibilities of only a partial success are sufficient to meke it hazardous to have that offering made only two months before a much larger offering must be negotiated in order to meet the called Victory notes. This will be the first long time loan offered by the Treasury since the ear enthusieem eae employed to rake the previous long time loans a success and since the Liberty Loan organizations have been diebended. loan The Victory as not a long time loan, and the Fourth 4 1/4e Iere floated, as you realize, upon 6a. Nave of expansion and with all the enthusiasm of the ear prevailing throughout the country and with the Liberty Loan organization at the highest stage of efficiency ghich it reached. A loan of t500 millions, or even lees, running anywhere from 20 to 50 years, or even from 10 to 50 years, must be very widely and generally distributed in order to be fully sold. The largest investors will not be so attracted because of the heavy taxes; large trust funds, endowment funds, and funds of that character cannot afford to buy them in large amounts. This wi 1] net apply to insurance companies, savings banks, and,(unfortunately) to commercial banks and trust companies because of the difference in the tax situation. August 14, 1922 _er organization is not equipped now to effect a widespread distribution; we must rely almost entirely upon the activities of the banks. There is no profit to tieni in handling the business except a deposit for a short period. And if these difficulties are coupled with an offering of a less desirable bond - say a 4 per cent bond - as indicated in your letters, I would fear a good deal of difficulty in placing 5 loan of $500 millions. If a smaller offering than $500 millions were made it still might be possible to accept oversubscriptions, but that policy did not work very well in the war, and it might deter subscribers if they knew that further large amounts of the bonds might come on the market due to an oversubecriptione I would very much regret having the Treasury face the choice of either an incomplete subscription, on the one hand, or asking the banks to take up the loan, on the other haslet - the latter would ee a distinct reversal of the Treasury's policy of getting a side distribution of its loans. If you have determined to come to Iviee York, I hope you do not defer doing so as long as a week or ten days. Should I possibly determine to go abroad to attend the conference of the banks of issue, it might be possible to arrange for a conference of the' Governors of the reserve banks just before the offering was made sc.; that your selling organization might be brought togtther ind inspired with the necessity for making a good strong effort to get a good distribution. I would rather like to see the meeting of the Governors held before leaving for Europe anyway, and am throwing out this sugges- tion in advance of writing to Mr. Platt. fill you let me know how it strikes you? Yours very truly, Benj. Strong, Governor. ifienorable S. P. Gilbert, Jr., Under Secretary of the Treasury, Treasury Department, Vashington, D. C. Auguet 24, 1922.. CONFIDENTIAL Dear Lir. Gilbert: Your persons.1 and confidential note of the 22nd in regard to the Treasury'e prograra is just received on my return from ,toc.,,ds It correctly expres.ees the vie e that I held at the time I erote you, the only doubt in my mind being as to the amount of bonds that could be sold. It would be illuminating if you could have some one in the ereasury prepare a schedule shoeing at what point the income of an individual investor is subject to so heavy income tax that. he can hardly afford to buy a 4 1/4 per cent. bond that io subject to incon,e tax. It will give you a good idea from the tabulation of incore tax returne ef the very el .4) distribution that gill be required in order to make a large loan e. success. An offering in Septeeber gill not have the advantage of coincident maturity of a long time note issue ehich has been so largely held by investors who sill be eeking a reinvestment of funds. to ceution in fixing the emeunt Of couree, all of this points he c N'ered in Se2t,amter. Since 4 riting you last, week, I think for the first tine I have realized the ianinence of the pasesge of the bonus bill by the Senate. If the press dispatches are reliable, there is in fact 9, possibility that a vote sill be taken on the bill as early as Saturday of this leek. In my opinion, the sentimental effect of the Inaesage of that legislation without any provision of revenue to meet the payments, eill be most unfavorable to the Treasury's refunding operations. The total amount of possible obligation throen upon the Treasury has been so widely advertised as running betveen $4 and 5 billions that it .will create the impression - whether justified or not - that the Treasury August ?,4, 1922 #2 will be faced Nith the need for raising large amounts upon nee issues of securities beyond the very large !amounts ithich must in any event be issued for refunding purpoees. The investing public is very easily influenced by such developments, and if the .08.esage of the bonus bill. oecurs at about the time that this first issue is to be 7,1 & de the effect 4111 be met unNverable and the extent of the effeet can only be surmised as there eill not be time for the country tobe educated am to the exact financial obligetion which it imposes. It nay veil be that the hazard '4111 necessitate reeorting to ome shorter tine obligation, and thet regain 4ould be, to my mind, unfortunate becauee it point only too eerte.inly to enlarged purchaeee by the banks of the country rather then by investors, and a further expeneior. 4) f taree inve.;tenents and depoeite. Yours veri truly, Strong, 1lDeerner. ilonorable S. P. Gilbert, Jr., Under 2etcretary of the Treasury, lashineton, D. C. BS.MM August ?,4, 191?. PERSONAL AND CONFIDENTIAL y dear Lir. Gilbert: I read the article to whieb you refer, but & not think that it represents financial sentieent. The question in my mind is as to the origin of all of this publicity on the subject of the Combtroller succeeding Governor Harding. Yours very truly, Honorable S. P. Gilbert, Jr., Under Secretary of the Tres.sury, fashington, D. C. BS.UW Se)tember 5, 19??.. CONFIDENTIAL Dear Mr. Gilbert: Your favor Au,iust 31 is received al() the rigu, res ?ropered by Mr. McCoy are certainly most illuminating. They exhibit the necessity of vide distribution if 4te are to have a successful altering of taxable bond. Outside of the corporations, the big buyers really do net exist. Yours ver,,, truly, Benj. Strang, Geve..rnar. Honorable S. P. lilbert, Jr . , Treasury Department, ington, D. C. b.S.vto September 20, 1922. PERONAL ANL CONFIDENTIAL 4 dear Ur. Replying to your personal and confidential note of September 18, in regard to Nurray Huldert's outburst, I thin,c yaa have stated the facts and my personal view is strongly against doing anything about it at all. The controversy is jrat 'Kept alive by answering critics, wad I hope tbe matter will be allowee to rest. This feeling is shared, 1 beiieve, by my associates. Respectfully, Ponorable S. P. Gilbert, Jr., Undersecretary of the Treasury, 'Ashington, L. C. September 25, 1922. PERSONAL My dear Mr. Gilbert: Thank you for your note of September 214 which was presented to-day by Mr. Pollak of the Wiener Bank-Verein. had an interesting chat with him and am to see him later for the purpose of discussing conditions in Austria and Central Europe. I.bave some fear that his task in settling the Austrian bank liabilities here will be made difficult both for our bankers and for him, unless something fairly definite can be known in regard to the assts of the Alien Property Custodian, the claias against . them and what the chances are of recoveries from that source. have told Mr. Pollak that I will be glad if he will keep me posted as to what he is accomplishing and will later write you in regard to the difficulty that I apprehend. Yours vary truly, Honorable S. P. Gilbert, Jr., Under Secretary of the Treasury, Treasury Department, Washington, D. C. 35. MM 0EFSONAL Septemoer 29, 192. Dear Mr. Gilbert: My point about the Alien Property Custodian's interest in Mr. Pollak's endeavor lies in the fact that I believe many people are under the impression that the Alien Property Custodian is in possession of aesets which will some day be applied to liquidate claims against enemy governments. They may hesitate to deal with him until they kno* better about the chances of a more favorable outcome from the Alien Property Custodiar. I pointed out this difficulty to him, but of course gave him no encouragement that these matters should be dealt with officially. In fact, it was rather the contrary. What strikes me as a res nsibility of our government, however, is obvious. If banks are to deal intelligently with private negotiations, they should know something from their government as to what the government's policies may be and as to what the assets are and the claimsand what the outoome lay be. Is not this reasonable? Yours very truly, Benj. Strong, Honorable S. P. Gilbert, Jr., Under Secretary of the Treasury, Washington, D. C. BS.MM Governor. October 19, 1922. PEKSONAL AND CONFIDENTIAL Dear Ur. Gilbert: Replying to yours of the 17th instant, we have been gradually increasing our buying rateson bills until they have advanced from about 3 per It is important not to have this change teco7e cent. to 3 3/4 per cent. You will observe, however, that our bill holdings are not intoo rapid. creasirvg and they have a wider distribution at the higher rates. Of course, if the rate gets up to 4 ;er cent., it would be an indication that our discount rate wae too low. I expect to be in Washington tte latter r,,art of newt week and be'ieve that you awl the Secretary and I should have a [,retty thorough discussion of these market conditions they relste to your OPP oerations in the market. Yours very truly, Benj. Stron, Governor. Honorable S. P. Gilbert, Jr., Under Secretary of the Treasury, Treasury Department, Washington, D.C. 35.MM COPY- YITH FEDERAL RESERVE BANK OF NEN YORK PRIVATE AND CONFIDENTIAL October 20, 1922. Dear Er. Gilbert: The resignation of the British Cabinet is no more than I expected, and as I telephoned you a few days ago, it was forecast in a cable which I received intimating the probability of a further delay in negotiations for the funding of the British debt. This delay will afford opportunity for the making of certain investigations which we discussed (if this work has not already been done), and I am taking the liberty of outlining? something of what is in my mind in a letter to you rather than to !:r. "Yadsworth because we have had opportunity to discuss it at length and I have not been able to do so with him. Mile what I am writing Is directed especially to the British situation, it applies in greater or less degree to the situation of all the debtor governments, and I refer only to the British debt because that happens to be the one which is next to be dealt with. One of the most serious difficulties encountered by the French Government in dealing with the adjustment of reperstion payments by Germany arises in my opinion from the fact that the people of France have never been fully informed upon the subject of reparations, that the sentiment exists in France that Germany can pay and must be made to pay, and that no government can remain in office which proposes a compromise or adjustment of reperations which does not in a general say conform to a well In view of this crystallised public oA_Hion on that subject. i'rance has been forced to political situation, the Government of resort to the threat of occupation of the Ruhr and other sections of Germany in the event of a default, a course which would be disasterous to the French because of the costs involved and Ly best opinion is because an army cannot collect reperations. almost entirely from timidity by that this situation has arisen the French Government whichlas led to an unwillingness to disclose the true facts and that it would have been wiser at the outset for the' Government of France to squarely face the question of reparations uoon the theory that Germany can be made to pay only within her capacity to pay and no more. These remarks are intended to draw attention to the rather paralell situation in this country. Our people have been .44L,e) C x6/ 43t, -141-444 4/9e.,6 lea to believe (as the result of statements which are based upon inadequate data - and some of them inspired by nolltical motives) that in general most of the debts cr7ins to this country by the debtor governments are collectible. They cannot state the grounds for this belief, but are simply repeating that they have heard in a general way from various sources. It is certainly time that a careful painstaking investigation of the debt situation unon a basis of capacity to pay should now be conducted, and laid before the country at the proper tine and in the proper way. in order to establish the basis of such an investigation, it is well to considers first, in what way payments may be made. All students of this subject will agree that for a country like England, the making of external payments, such as this, can be accomlished only by the following means: FIRST: Shininents of gold. THIRD: By substituting private loans in this Export of goods in excess of those imported. country for the government loans. FOURTH: By the liquidation of foreign investments owned by British prIvote investors. An investigation of these four possible methods of wiyment should disclose something of the capacity of the British notion to repay the debt now owing to our government and especially whether that capacity Is equal to meting the limitations imposed by the funding bill. FIRST - As to gold shipments; the gold resources of Great Britain should be carefully examined and a study should be made for the purpose of disclosing to what extent, on the one hand, Great Brit-in can afford to part with gold and thereby indefinJt-ly Cofer the .reestablishment of the gold standard, and, on the other hand, to what extent it Is safe for Us to receive further shipments of gold without dislocation of our domestic credit situation, This investigation, it seems to me, should include an examination of the African gold. production, of its present dionostion, of the extent to which India can command gold from Africa and from England, and, as throwing some light upon gold movements, the history of gold shipments between England and this country should be reviewed together with their relations to prices, interest rates and trade balances. Such an investigation 1 am certain will disnaose that the possibilities of gold payment are exceedingly limited unless we are preoared to face a com2leto and long-extended breakdo-cn'of the gold standard in Europe and the rest of the world, and some real peril to our own monetary syeten. SEC= - The extent to which England may be expected to renay by excess shipments of goods .to the rest of the world over imports will be most difficult to ascertain, but some light may be throfn uoon the subject by En examination of the Dritish foreign trade prior to the outbreak of the war; the extent to -3.- C) which the result of that trade as reflected in the visible movement of goods, plus the invisible balance of payments, may be expected to produce a net fund applicable to the service the new be of the debt. In this connection, it may be tariff shouldhave presumed to studied to ascertain what effect upon those classes of commodities which we have heretofore habitually purchased In 2nglend. THIRD - The extent to which the British Government may be able to borrow rrivately in our markets in order to repay not only by loans to the Treasury All be governed some extentratket and by the degree investment conditions here, but also to policy desirable from our own to which we may consider such a interest and Point of view. For exemple, if the payment ofBritish Government amortization of the principal necessitated the borrowing from 200 to 300 millions a year in this market, would The it be wise to permit or encourage them to do so? should various be examined considerations to be weighed in this connection borne in mind that such a program and di-cussed end it should be apnlied to thp entire debt owing to this country would ultimately foreign result in such a vast interest by American investors in a profound government loans that might in the course of years have effect upon our political relations with other countries. FOURTH - The amount and cheracter of British investments in foreign countries should be examined for the Puepooe of ascertaining the possihaities of payment by recourse to these investments, but obviously a study should be made as to the method by which such inv-etment could be made available for the purpose. I think it would be safe to say that there are only two methodsawhich could be employed to this end, both of which involve dangers of very certain them as character. First, the .British Government might expronriete was Cone during the war. Such a policy would arouse such bitterness of feeling that I very much doubt if it could be resorted to except under conditions where we would be obliged to admit that we had completely lost the symp-,thy and friendship of the British people. The other means would be less obvious to the public but equally the dangerous to the restoration of stable economic conditions. If to pound sterling under the pressure of obtaining dollars in order repay this debt beceme'progressively depressed, as was the case after sterling was unpegred, there would gradually arise a premium upon foreign owned securities in the hands of Britieh investors, such any which mlght lead to the sale of large amounts of them. Butthat of disorganizing to comnerce, Including occurance would be so our on country, that one would hesitate to advocate such a policy of destruction. I have written the above simply as suggestions for a 6burse of investigation designed to throw some light upon various they con be means of payment which exist, unon the extent to which will probably employment. It employed, and upon the effect of their be found as the result of such an investigation that the repayment of the debt to this country by Great Britain can be safely * accomolished through the employment of resources which will be found available under all four of the means suggested, but that a period of 25 years will not be sufficient for the purpose, that the amount of payments mast be small at first and gradually increased, and that in connection, with the scheme of payments adopted, some element of flexibility must be introduced so that reduced in case the pound sterling the rate of payment may bebe accelerated in case it should rise becomes depressed and may above parity with our currency. May I take the liberty of suggesting that the In the additionsil time now afforded as the result of the change along ivestigation Pritish ninistry can well be employed in an The data already some such line as that roughly outlined above. Treasury Department State, the In possession of the 1)epartment of of Commerce, and accessible to the Federal and the Department .Reserve 7aoard and the Federal eserve Bank of New York can I as believe be marshalled in the course of a fell months, If, Britain 1-..eat of what should hope, it resulted in a clearer view should be allowed for and how long a pe3iod is capable of paying to me the Funding Commission could the payment, then it seems report and recommendation go before Congress with a definite contemplate the entire repayment of the debt which would in fact by the British Government, but not necessarily within the strict limitations of the funding bill, and here would be afforded opportunity for a possible and friendlysolution of the problem as to the principle debtor. Yours very truly, (Signed) Honorable S. P.,Gilberi-,Jr., Under Sscreatry of the Treasury, Treasury Department, lashington, D. C. BS.L1, Ben j. Strong October 25, 1222. ODNFIDENTIAL 331' Yr. ...ibert: Think yol for your note of October 21 and the report which accompenied it rezt,:anr.te7tate 3' of Soviet Russia. You 4cubtlebE observed that the on/y item which might 3e couside:ed as gold iE the one ,Iner the title "Precious irett.le"- 307 poo,00n rubles. I gruld annent that with &ome reservation as a true statement of the a7,ount of gold held by the Soviet bank. Yours very truly, Benj. Strong, Governor. Honorable S. P. Gilbert,-Jr., Under Secretary of the Treasury, Washington, D. C. BS.A0 . PRIVATE AND CONFIDENTIAL Dear Mr. October 27, 1922. Gilbert: The market rate for bills is now squarely four per cent. W have got to watch our discount rates now with the bill rate as high as that and zith the stock exchange rates uniformly above ours. But I doubt if any action need be seriously considered until te are able to judge whether the ee.sonal demand is not responsible for most of the change that is taking place in the general rate level. Referring to the document glitch you showed me yesterday afternoon. I have given it a good deal of thought and am convinced that every reason exists for the making of some lest paragraph of the such statement, at least to the extent embodied in the pencil memorandum I handed you. regard such an action as equal in importance to the veto In some ways I would of the 'bonus bill, and as to its political tisdom, if that is any consideration % to be entertained at all, it will make more votes than anything that could now be done. Further reflection makes me feel this so strongly that I am inclined to urge you to take some step, if they are possible, to to the President in the strongest possible terms. Yours very truly, Honorable S. P. Gilbert, Jr., Under Secretary of the Treasury, Washington, P. C. have this represented November CONFIDENTIAL 1322. Deer Mr. :1158rt: I ea encleeing tie teekly business Ind financial suseeary prepared for our directors and call your attention to the curve on the first page sh)*ing a sharp adyenoe in deposits an in loene end Investmente not only in New York City out in all dietricts as reported by the reporting ben-, and this should be considered In connection with the very sherp decrease in earning aseets which took place in the Beale month in the Federel Reserve 3enk or Nee 'ork and to s somewhat less extent in the earning aesete of all reserve banks. The indication is, partly at least, thet the government loan in October rwelled botb the deposit and the loan accaunt. At the meeting: of the Inveetment Committee in Cleveland on Teeeday, every member or the committee Agreed gener- ally that the folloeing commenie gore justified in regard to the loan and its effects: First: Thera tns a certain amount of padding of subecriptione by brokers and others eho vented to scalp s narroe profit and who immediately became sellers of tho bores. Second: hils ot generally the case in Ne* 'York City where allotments to the banks were very email indeed, it ens neverthelees true in some parts of the country that bangs had subscribed to the loan for the Rieke 3f tbe depoeit and at once the bonds were delivered they started to cell the, and this selling combined with the "First" is that caused the decline. Third: That a large loan of this character here payment ir made by credit, engages the active efforts of all banks to mal,e sales to their 2 Honorable S. P. Gilbert, Jr. !Ake. Nevember customers generally so ae to get the benefit of the deposit. Fourth: That the effect of payment by credit is nevertheless to inflate the ban).ine eeeitien. Fifth: Teat the depoeits et the 4overnment's credit are employed very prometly in lone of ene or another cheracter, and that when they are withdreen froe the depoeitery Isants they do not generally withdrew the loans which they heve *de, in order te me4ea goed deficient reserves, but et leeet some of them go to the reserve beak end rorre,. the TEMbOTE ef the eoevi,tes *red th-t every effort =et male hareefter te afrect distributicn ef bond etside of the bulks and thst the only 'Teethed by etict infletien of the benking position es t reeult of the large depeeits can be prevented is by the immediate employment of th: Puede by tee Treeeury in the retirement of' cutetandine debt, end if this preeeee can ba spoode ui beyond whht, has heretofore been the cave it till check the teneency to inflate someetet and reduce the borroeine demendeupon the Federal Peeeree 3ank3. AT elon en the einutes cf the eeeting Nave been ezTroved by the members of the coeeittee, I Enali send you o copy hice will throe elope light upen the ee.eceselon et, the meeting ene the attitude or the committee. The eeetine was ettendsd by Mr. Mitchell of the Federel Feeerve Board, rhe ie themfbre faxiliar It 'ghat transpired. It as felt by tha members af the co4W4-,tee that in vin7 of the a vuece in te;e eerest rite for bankers aceeetencee te 4 per cent. or over teet seee better dietribntten of these bills eight no be eerected, eut If they lid not distribute naturelly among benlie end other buyere it would be desireble for us to eugeest to all the Federal Reserve Banks that they liquidate further amounts of their governmeni. securities, preferably by selling them to the Treesury, against xhich we eeuld continue purehames ' of / bills in November 2, 1922 the market so as to maintain the rate at about 4 per cent if possible. Obviously, should the rate on these bills, as well as on the government tificates - except thos of very short rate of 4 per cer- maturity - reach a level above our discoune cent., it might become necessary for us to advance our discount This we had hoped would not be necessary for sometime yet. rate. Will you be good enough to read in connection with this letter, one that I wrote you sometime ago describing exactly the effect which the operations of the Federal heserve System had upon the money market, in that under the present system there was no surplus banking reserve and that consequently it was not to be expected that rates would - at any rate for sometime - reach the abnormally low levels which heretofore occurred after a period of liquidation. Yours very truly, Benj. Strong, Governor. Honorable S. F. Gilbert, Jr., Under Secretary of the Treasury, hashington, C. C. BS.Mti Enc. Plovemper 3, 1922. COAFIDENT1AL, Dear Ar. Gilbert: I an in receii,..t of your favor of NoveTber 1st, and as to the first part of it in regard to the distribution, of bills, so far the distribution has not been very active but I hope to get a report to send you shortly op that subject. As to the last part of your letter, I agree with you heartily, but can you:or Secretary Mellon convince others that the policy you advocate is the best/ If any g3 tatement of an official natur i to be Trade, it would distress ale very much to have it in any such terms as the one I saw in Wa.shingtol. I air very sure it would do a great deal of harm. Yours very truly, Benj. Strong, Governor. fionorab'e S. F. Gilbert, Jr., Under Secretary or the Treasury, Washington, D. C. BS.MN November ?, 1922. Dear Mr. Gilbert: I have given considerable thought to the subject eatter of your letters or October 50 and Nevem:per 1., 1922, dealies with the remeining Govern- ment security inveatments of the Federal reserve banks. I le'srove your suggestion that the Federal reserve banks disease of their uncalled Victorys in the open ;narket rather then by direct sal e to the Treasury for Sinking Fund Account, and after consulting with the other riembere of' the oomeittee on centralized execution of orders, I have to-day sent the telegram appearing Delow to the six Federal reserve banks bolding F25,71%050 unealled Victory notes as follows: Boston Phil adelphl 8. $5, 656,000 ,150 Cleveland fin sae City Dallas San Francisco 9,822,500 10,850 161,250 10 0fi5 300 g;25,716,050 Total (copy of telegram) "Treasury ie desirous of having Yed.eral reserve banks holding uncalled Victory notes dis7pose their holdings and euggeste selling in open market es met helpful progrem. Such ection has anprovel entire Comeittee ehich suge,ests reinvestment in Bankers, bills to the extent that reinvestment is deemed desirable. According to record e you hold of uncalled Victorys. 'Would appreciate your wiring me if foregoing procedure acceptebi.e advising also to what extent Oceenittee can serve you in consummating transactions. STRONG, Chairnan." I note that the Treasury now hold for the account of tee Alien Property Custodian slightly more than $40,000,000 of the new 4 1/21 Treasury bonds which you desire to have sold at the average cost price of about 100.07 or better, the proceeds of such sales to be immediately- reinvested in United States Treasury 2 a November 9, 1922 tificates of Indebtedness maturing in 1923, to be acquired at the then market prices from the remaining holdings of Federal reserve banks. I venture to say that it may take a considerable period of time, possibly a month or so, to oonsumeate such a transaction, but meanwhile as opportunity offers we will undertake to follow your instructions and resell some of the new Treasury bonds to the market. With reference to your further suggestion that the Federal reserve banks should dispose of a good part, if not all, of their Treasury notes, I think the banks generally would be willing to do this provided they could be sold without loss. The present adverse quotetions are likely to prove a formidable stumbling block to that program. Our own holdings of Treasury notes (t11,500,000 4 1/4% due September 15, 1926), were acquired at the time the notes were issued by turning in a aimilar amount of Victorys in exchange, and the notes stand on our books at about e 4.10 basis, while today's market quotations show a yield of about 4.40. Under the circumstances I think it might be well to defer taking this particular note matter up with the Federal reserve banks at least until the sale of the uncalled Victorys herein referred to has been consummated. With regard to new financing, I am hopeful that it will not be necessary to bring out an issue, even a small one, before the December offering. This course eill give the market a rest, a good chance to settle down, and make it just that much easier to effect the important financing in December. With respect to the large cash balances of *250,000,000 or more now on deposit in the War Goan Deposit Account, I understand it is your intention to con- tinue to use these funds as rapidly as possible in redeeming the 1922 maturities, and to that extent simplify the heavy operations that lie ahead cf us during the balance of this year. Yours very truly, Benj. Strong, Governor. oorable S. P. Gilbert, Jr., - Secretary of the Treasury, 'on, D. C. november 10, 1922. My dear Mr. Gilbert: I have your two telegrams of to-day advising that there will be no offering of certificates this month nor any announcement to that effect. All of this I think is very wise indeed. In view of the proposed rayment of t50,000,000 by the 3ritish Government on the 15th, which Mr. Case advises me is definitely arranged, I sincerely hope that we may meet with some success in antici2ating further amounts of the December 15 maturities. This will afford a saving In interest and 4 reduction of the turnover on that date which might he embarrassing in that it is eo likely to create an artificial ease of Funds. These Funds are likely to go into Stock Exchange loans and then again cause difficulty when we come to withdraw them from the market. Mr. Case and I have been discussing the matter this morning and he will have a. word with you by telephone. Yours very truly, 3enj. Strong, Honorable S. P. Gilbert, Jr., Under Eecretary of the Treasury, -I4cshington, D. C. 3S.MM Governor. November 27, 1922. GONFIDENTIAL Dear Mr. Liiibert: Inforea.tion ha juet reached me from reliable sources abroad in regard to one or two matter concerning which you are doubtless interested and possibly Assietent Secretary WadE.2.worth is equally so. It appears that Zimmerman, has been formally appointed Comeissioner to serve in Austria under the proposed plan of rehabilitation and that Ja,nesen, who as you know is an officer in the Netional Bank of Belgium, Is seriously coneiderin3 aceepting appointment of Lievernor of tho new bank of Austrian issue. Arrangements for legislation in the various countries concerned in this plan are now beini considered looking toward the issue sometime next spring of a gua.rantead Austrian loan. But I hear the opinion expressed that the likelihood of e succeasful public lesue under the scheme now eroposed is still remote. Presumably, any sueh loan vould have to he taken by the a.esisting .-.4overnments. I am also advised it is pocsible that some private effort is being made by the Dutch and SWise representatives who served an the Committee of Experts to advise the German Government in regard to reparetions, to arrange some sort of an international loan or foreign credit for the purpose of Er- assieting Germany in stabilizing the exchange, and somewhat along the lines indicated in the report of the experts. The erospects o t success of this private effort, which does not seem to have been officially confirmed, seems somewhat remote because of the probable inability of agreement among the Allied nations as to a moratorium applying to reparation payments. 2 Honorable S. Gilbert, Jr. 1\16-trembar 27, 1922. Of course, the German Government is anxious to secure such a loan for stabilization purposes; and France for the purpose of anticipating reiparations. But I think it may be assumed that the British Government is not likely to further any such plan until some final scheme -!'or dealing with the re2arF:tion Oeb.ts with uermany is actually assured. It should also be borne In mind that both Holland .and Switzerland have large interests in mark exchange: rhich ?pleat 5e ..ssociatad tith this effort to arrange L foreign than. I have been informed that kr. J. P. Eilorgan rather ttkes the British point of view. Will jou be good enough to regard this as quite confidential. Yours very truly, 13eni. Strong, Governor. Honorable S. P. Gilbert, Jr., Under Secretary of the Tresury, Washington, D. C. 3S. 184 Aovember 29, 1922 Dear 14r. Gilbert: My physician, Dr. George D. Stewart of 417 Park Avenue, York City, is having no end of trouble, he tells me, in New adjusting his tax The field agent with whom he is returns. dealing is Mr. Edward J. Murray, and the deputy collector whom he ha e seen is Niorris Cohn, room 620 Custom House Building. I think the difficulty arises from Dr. Stewart, who is an exceedingly busy man, leaving the income tax returns to an inexperienced preparation of his secretary, and this has resulted, as I understand, in his failing to make the deductions which a physician or surgeon is permitted to make for costs of instruments, etc. At any rate, he tells me there is a difference of a considerable sum of money which he is certain he should not justly be reeuired to rely, end. I am wondering whether there is not some way of having this case reviewed, with -a for the fact that Dr. Stewart is one of the city and in every way reliable. Yours sincerely, Honorable S. Under P. Gilbert, Jr., Secretary of 'ias'nington, D. C. BS .MA! the Treasury, reasonable regard leading surgeons of the December 1, 1922. CONFIDENTIAL. Dear Mr. Gilbert: Referring to my letter of November 27, developments in regard to the reorganization of the finances of the Austrian Gtvernword has just reached me that at the laet moment Zimmerman failed to definitely accept the appointment es Commissioner, owing to certain technical restrictions imposed u2on the ;:,owers to be 3ut I am also informed that he has conferredonthe Commissioners. not finally and definitely declined to serve. yours very truly, Eleni, Strong, Governor. Honorable Giloert, Jr., Under Secretary of the Treasury, 'Washington, D. C. FEDERAL RESERVE BANK OF CHICAGO TELEGRAM GENERAL FILE COPY OUTGOING December 13; 1922. Albert, ashington. onf 'lent la'. Rave just learned rTok ard is consiiering important He thould be iromptly advi sod if his appointment is o ?for. oontelplated; others' ise he may make some other orramitment. ,tronk;. FORM 46-16 100M SETS 1,8,0 01545 December 21, 1922. Dear lir. G'ilbart: Thank you heartily for your nibe letter of December It got stuck to the back of some other mail, and I regret that its acknowledgment was overlook-ad on that account. Th ank you very much for your interest in Dr. Stewart's tax matter. Yours sincerely, honorable S. P. Gi1bert,4., Under Secretary of the Treasury, hashington, D. C. B&W Jamery 5, 1923. rier Mr. Gilbert: As euested in our telephone com-e-stion inomming,I m uomg.ents on tne proposed bills for the roller Gr the agri_cultural exire7.s interests introeucsd by 6enators Capper end Lenroot. Au I V.i.04 the situauion, thel,0 Fro two main questions, first, the establiithment of adequeo means of Ointributin:. :--cicu!ltv,rs.1 credit, t,!Y: or drawine uoon surplus creeit furs in. certqn ca'ctirs in orer to en:oly ar]ditional credit to those districts wter e arr. ::,sficient. The so-called Lenroot bill as originally Planned, end subz7equent1y modified, -,Tas designed to accomplish both of ttess nurposse. As you know, It provided for the creatlen of a farm credit department in ewh of the twelve Farm Land. Bbnke. These departments were to farm mortgage departments. seoarate csnri dictinot from Vle They- were tn have authority to i,;ruo debentures in amounts net exceeding ten times the amount of their dspital anr!, In order to take cf the peA loads, the rere to have authority to rodiscount it the Feeeral Reserve Ssnks all agrroultural paoer he]d by then vhen wi_thIn a maturit7 of six months, and. h.5 subsegnently amended wher within maturity of rine months. IL these two ways additional working cr,pital over and above the amornt of their paid-in capital was T;0 be procured. It *9!i no concemolated in the bill that the Fr Lr1 B,inks sb.0 lend directly to individual farmers except when grouped together in organiTed cooperative associations. Generallyspeaking their funds are to be availed of only by redis- count or purchase of paper from existing primary credit organisations such as national banks, state banks, trust comienies, livestock loan associations, 1.5.23. Mr. Gilbert 2 cooeer, ive merketing ansociationr and term credit mesocietione. In other words, the chief purpose of this bill is to erovide s mesnc of rediscount for existing banks, trust companies end loPn and credit aseocietlens ehoee customere are tea farlere themeelvee. T'-eee eeistine points 07 eontect ellen functioring proper- ly ere e2fficientlet broad al; distributine eeeotn, totir I believe +het the provieioneeLieh is incorpore.te0 ir both the Lerroot end Cepper Mlle Per the Lee'bereele f Lhe ea ,ller state herke ir the Faders' Pet-me r3etee :,t1-' 4o much tc el.:,Je-eeteel by fecilitete e still eetter dietributier of credit, erreeislly C.redit deperteer'ete lend direetle to oreenieed cooperetive tze per eT the &sr:eclat-ken, or fLrrere. But tate currone of i11 is' tc rrcrifIP q Tseare of drnerine additi)nel credit to the agrteuleurel section? en(' °or to reeeene I beleva thEt the Lenroot bill i.e better ele to eccemeltsh thie thee the Cseeer bill. First, I believe that the denture' of the Fem. 'bald Henve, even witheut the tex-ezemet feetere, ouldLeve e meet' better reerket teen te debenturer er colle.teral truat notes of e nurber of ineividuel credit er redieeeunt coreereMons with emell eeei'vel ef' tleA kind provided to tile Ckppor bill, end, meeend, tl!e previelen ir the Ienreot hill Federal which authoriee the Lend Fianks te rediecount agrieelturel peer eit BEeerve Leoke when it comes' within nine months of meterity is F meet effeetlee mens of providine Purther credit for the peek lode. It nay be euegeeted that the Ceeper bill eieht rtmorded se.15.F to give to the Lediecount Corporations of that bill power to rediscount their peper with the Aesorve 3kreee, Out I believe It would be eoet umfortunete to extend the facililee .J,41 T!eseree Benks to a possibly very large number of ineviCunl leen e rporations with small capital and with none of the reetrietione er ebligatione impoeed on member banks of the PeserveFletem. It is proper, however, and would be a real help to have the twelve Land Benke, which operate under the jurisdiction and supervision of an efficient Federal board, empowered to rediscount eith the Federal Reserve Banks under proper safeguards and with their indoreement. Mr. Gilbert 3 As T view the situttion, the Lenroot bill, in principle, occomelisnes al/ that is needed to servo the problem no* confronting the agricultural sections althoagh it is now rather roughly drawn and in anumber of details should .he seeede,:'.. I ieve, a You do, that the deeentufte autbori7ed to bp i?eled seeild not be tax-exempt. liaitaden upon t - I believe, also, 't.ht tt,ere Eheule be ne stetutorY rates e: -Uscouui ahereed be the Le,nd Okr11, . There ie no neeeso r. eeLti. een whet should he the current rate of diecount end the rte e paid on whaL ,eve been the last levee of iebenturee. Sc, also, telleee t'eet there the borreeer is etare rite of the no o ohlitien peetat. a discount of paper on welch fete of iutereet 1-V2t cr more iu exceee of the current The ere matters tawt wirbt much eetter be left to the reeulstioe axi contrel of the Ferm Loan 'rd tiler, to eeeree ereeisiore of lew. I ag. ease oepooed, /0 you are, to e Treaoure contribution amounting to es much ar !!120,000,000, the =leoent k,tlich I uneeratend iP no proposed in the teereet bill, but I -elieee th.at thL bill end the eredit deperteente crested by it could function properly on e much smaller capitallantion than that which has been ruegerted. If, as I believe, e capitel of !,2,000,C00 or . 3,00°,000 for the credit department of eeeh Land Bank would fere the, beeie of all additional credit that mey be reeuir-d then I feel that the 'ill might he no drawn as first to induce eubecriptione by the public, end eubsoquently by the Treasury in the event that public eubscriptione are not sufficient. You etated on the telephone that there htve beee pome sugge,rte:.ene that the Lenroot bill oueht to be mended by providing for an even greater ceeitelization. If it were intended that the Fr m Land Banks should 14A0 only direet leans oet of a revplvie fund such as the War Finance Coreoration he, any means of eaking a turnover either through the Federal Reserve Banks or by drawing in new funds through the stle of debentures, it might be essential further to enlarge the eapitelization, but with the provisions in t'le bill meking possible the issue of debentures end the rediscount of eligible paper when within nine months of maturity, the Land Banks will be able to procure, Mr. Gilbert 4 l'AttOU 1.5.23. ereet emcent of cpitell, se much edditionel credit se iF no% reeded for their sueneeeful operatior RF rediecount corporations. While I have always oppoeed the principle of goeerneentel earticipetion in any sort of egricultural credit, it eeene to me far better that the Treeeury sbeeld contribute t30,000,000 or 00,000,000, if it le neeeesary to do ao, to eezeetee '-fect!ve re,i!eeeeet ccencretien for the primary SOU,cFW. of aer1cul- ".e erietine ben',.e. trust comeentes and ben eesoeietione, terel then to deviee effeetive, - if RUC 9 ea the Ceprer bill, ehich I believe would be mueh. less dee,elnr cuffieient additionalcredit cYt Into the evelculturel sections. The elpital of the proposed credit departeente of the Lend banke te railed by a provisiee ir t ee. the 7ar Fineaoe Cer,ecretion shell in the first inntance zetecribe for whet:ever amount is determined upon RE needed, and te Imn cerente as and when nee,,i,d. The life of the War Finence Corperstion iteelf atould be extended for 'nether veer, and, pending ite liquidetion, etrenuoue efferta miz.ht be mede to effect the eale of the nee etock of the Lend Banks to private interests. Fhetever Fmount umder the preferibed minimum might not be 'eln up by outside cepitel shou3, uron liquidation of the W r Finence Corporetion, he trensfarred to the Tre Thie mecheniem Till inFure immediate funde for the new credit departmente and will, et the same time, efford an opportenite to efect a eale of the cepitel to the cut-nide before the Trees:tire telres it 077r. Incidently this might meke a most effective mewls of licuidatine the Vier ?inane, Cerporetien when that time errivee and rill, at the eee time, give the ne% coeporetion aF,oine bueinese. KiEht it not be better, then, to adopt the principles of the Lenreot bill, eliminate the tax-exempt feature, reduce the amount of the cepitalization, and provide for Tressury be reiced, than to 4.uto, Pac4t,ran contribution only in the event that privete capital cannot itroe over the Thole plan solely becauee of the objection to Mr. Gilbert 5 1.5.23 One more thing, - I understand that the Caper bill has elrealy been reported by the Senate Banking and Currency Committee and that it is likely that the If that im true, 'here will t:e before Senate for consideration two bills vastly difTerent in .)17, Pld o . the Unless Lenroot bill will be reported next week. there le somewhere a. ntrong guidiric! hand it it difficul to fere;Fee rt-,t the compromised product. be I would like to urge, ae I Lbve dons befrs, that the And, Treasury take hold, if neoessarr-dthrough c coffereace of six or csven of tl:ore most directly interested, agree upon some plan that will net only he content with the principles ve 0.1 stand for, tu-1-. to you already, I do not believe that tL.c i will also work. *r bill will -Nerk. "4/,'-v truly yours, Honorable S. F. Gilbert, Jr., Under Secreter of the Treasurr, Wastingtn, D. C. t I PERSONAL AND CONFIDENTIAL January 8, 1923. Dear i4r. Gilbert: Yours of January 8 about the article in the Journal of Comeerce has I have greet difficulty in making out whet Dr. Willis is just reached me. driving at. He has a very cool and unenthusiastic article in the Journal of the Academy of Political Science for last month, in which - aeon,: other thle:.;e been a certain amount of nepotism in the I think ?oesibly, however, we are all inclined to give his views a little more personal direction than is just to Dr. Willis. Undoubtedly, some of his experiences connected with the Fecerve System have is an implication that there has manageeeet of the Reserve l,anke. tended to I am very sorry that it should be so because he sour him a bit. could be of great help to ue, especially at this time when the outlook for the System is a doubtful one. the As to the question of financial leadership; I am vary much amused by viewswhich he expressee. At no tine has the ileeerve S-yetem been oo free as it ha E since gr. Mellon from anything approaching control by the Treasury took office; tbet is, since the Re...eerve i3Tuke r.,?,, z.-11; I think, on the other hand, it is faieeto say that to funct,ion in at no time have the officers at the Treasury given so willingle,Feld quite properly, sympethetic attention to the views expressed by the Reserve aanks in connection with the Treasury's financial operations. Thie is 53.1 as it sl-rbu-Id be, xrid I cannot explain Dr. Willis's article except as being more of a criticism of the Reserve Board than it is of the Treasury. It iF. sort of a beck-handed crack at the noard, if it is anything; and is not the best course in these matters to ignore the all? If you would like to have me talk with Willis, I would be glad to do so, but doubt if there is mucb to be gained by it. tours very truly, gonor ab 1 e S. P. Gilbert, jr,., Under Secretary of the Washington, D. C. Treasury, January iJd, i925. Dear :lir. Gilbert: Thai L.1,u for your covering the cost cA7 in th to of your railrohd aric: p-uilmaa tickets Washington on the ibta. it 13alcays a pleasure to serve you st pkcity, so do not hesitate to call u.,ori us Very truly ye,12's, CASE. Honorable S. FvG114.4,,fr., Under 6ecretary of the Treasury, Yiashington, D. C. - In any vt- ny time. OFFICE CORRESPONDENCE To 192_ DATE SUBJECT: FROM 4.t6- i/i JO/ 01)&0, 1Ahhc3 dryt, em,(-A ktf-s.. 4-y Oa; 40-tk ,44J "65 tat_e-ottc -mkt COM( tC1/10V0 -1-4,z,0 cut.A 54:hAritA, kt ami-e l7/0-7&) A".4 (;-c' t/i- °Gum° itot-f- /ei-& (Lc x?' 6-ffuti, ata to-zo-r IW efek_f? att- (4-75C4ourvy pit_c 7/tk6Levut1 kccoc At et, Vw 02- -fkur flo-x_ /41, rot-rst Itz 04-;ecic ty, c,2 kv-tt_ IW triAzt ate, iirrmArd fr-ce./(---toccrvv-vc) ,tootte_41 Ctwt1 cut,) tcat,0 /4 COi (-4-- Ike acce-ritt,i >u)-to atviJc_tuco Cetrr-Er4-c-0-)1:- q bA:cuis cusLtec_6)--- 77Lccuni,(_-1 771-4 1- 00-writh t1-1cJ altarivIAA-IF" e'42.tetA, , c[a4162k 091( 74 1zix-ida /t/E),7 6coz.Lcuri trvc ef. ettftl ) 6: CceziA 771ce-IL-0" tick ecrri-ce- CtAirtu F711-4t4c: rac? ati- (3 coru,0 7)44,c4.Ic ai oCce cfavit aArz. 407 ) actuertza,---- 77A-e 6A_I 51e; 0-1" fict-A-Vc luttt-c('I.c47-c. CfruA taa yttaAA.r_ ttfctisi, 77.1-6 attict , (erkrur &)1,604- (61(eATA: ((,-0 y4,14,trak__ t`, , 041.0A tretetif tkiut idea- fev _ atcerk-, /11,6L6k,,, ia ate-) 771-E. fee-r1- ._ (kW; _x_4;, . «Jet " arf-d- Ls?7 VACat9)0 fkOL ca,L, fka4 AA; e-14 , ct olt; ort-ratt 7)tt-r 8 fees c( ffeAtvir "'ST Ae February 20, 1923. PERSONAL AND CONFIDENTIAL: My dear Xr. Gilbert: I have just been over the memoramlum which you enclosed in your letter of February 16, but without any pride of authorship! I am mther taken with the genoral idea expressed, but I feel thtt this Is so much s matter for exchange of views that I suggest proposing it to the British and getLing If it would be desirable to do it unofficially, their reaction. can probably arrange to do so througl Mr. Norman as a personal mayter. What do IOU think? Sincerely yours, Honorable S. P Gilbert, Jr., Under Secretory of the Treasury, WPshington, D. C. 9S.Mari FEDERAL RESERVE BANK OF NEW YORK copy PFFSOYAL AND CONFIDENTIAL: February 21, 1923. Tear Mr. Silbert: This morning brings yours of the 19th, on the. subject of the exchange problem relative to the British debt settlement. Elaborating what I have already written, the following suggestions are strongly in my mind as worth considering 1. hi1e the problem discussed in the 1920 report of the Secretary of the Treasury, levee 60-65, wae no different then than now, circumstances, (such as the German mark collapse) have changed and, in my opinion, favor less definiteness in any obligation to be assumed by either party than may then have seemed feasible. The provision on page 63 for payment in sterling drafts does not seem to accomplish It would simply mean that with sterling at a premium, se would have the anything. right to ask for payment in sterling and then have sterling to sell. exeetly what the British But that is Treasury would do anymay in making payments in dollars, - simply sell sterling and buy dollars, - and the prevention of n sterling premium would not be accomplished any better by hawing a change in the ling. party doing the sel- What would be required is just whet I suggested in the memorandum I left with vou; that is, an increase in the amounts paid. setting up forms of machinery Nothing is accomplished by to carry out the purpose, so long as the parties are agreed in the purpose. 2. Any schemelbr converting the propoeed 3 - 3-1/2% obligations into a marketahle bond, payable in sterling at a fixed rate, (say per of exchange) or in dollars, presents many difficulties. Without elaboration, they seem to be principally the following: a. The variable rate, provisions for anticipation and deferring, how to distribute amortization payments, etc., would. re- FEDERAL RESERVE BANK OF NEW YORK 2 Mr. Gilbert 2.21.25.COPY quire the orention of a %holly different bond, in my opinion. If sold in London the discount love would likely be large under eny probable coWitionr no to be enticip,ted. If the British ere Reed to essume the discount lose, it would be better to rely upon n simple right to cell for tirger peymente end let thee do their own borroeing in their own enrkee. end pay what they muet. Sales by our Covernment of a British bond in the London market would be a fruitful source of dicpute wnd bwd feeline. The :Awn #,ould be no more then e club, ,recticwlly, and better plane are poesible which would require no clube. se can have no objection to the British delaying ptements, within the limit& of the agreement; or increasing payments without limit, so lone ac the exchange market is protected; and (what so few people comprehend) we ere deeply con- cerned thet there shall be neither premiums nor discounts an the currencies, nor violent fluctuations. The British interePt is siailnr an equal to our keen. To expreve in simple lwnguage, and te t definite obligation upon the ptrtiee, en evect pltn for increeeine or decrensing peemente in ceee of sevancee or declines in one currency or the other, impreesee me NS unnecessary, end poeeibly involving some hazarde, if attee.pted beyond the limited propoeels contained in my memoranfium. The important consideretions nre the following: Stnble rte s of exchange Return to par, eithin gold points, as BD= as possible 5. Resumption of free gold peymente by Greet Britian and thereafter Its maintenance by both parties. Similar conditions brought about in some eix or seven other countries ehere geld payments cen no doubt be resumed as soon es done by the British. FEDERAL RESERVE BANK OF NEW YORK 5 Mr. Gilbert e-g@PY The imeortance of such a resumption bill be eppreciAed when it iP realized thet with dollars, sterling, yen, and guilders back at per (within gold chipping points) probebly W or more of the world's foreign teede eould he freed of the hazarde and speculative comelicetions of the exchange fluctuation or the past eight yeerF. This leads to your letter of the 19th and the larger aspects of the Eterling market. e heve discursed and eorreeponded with the Governor of the 'Rank of Fngland upon thip ruhiect for two years pest end are egreed even though the that British debt IF successfully funde4/there are still serious difficulties in the way of exchange stabilization, principally those having to do with paymente of reparations by Gereany and, in turn, such payments to Gre-t, Britein by Allied Govern%ents ae may ee required folloeing our refunding. Notwithstendine this, It eould be our expectation to continue discuesion of the matter, especially if the exchange provisions of the '3.ritish funding mereement are favorable, rith the hope of arrivine at acme plan, even if not a cemprebensive one at first. The part to he taken by the Bent( of rneland and the Federal reserve Rank If comparatively simple. It should, hoeever, su leeent, or, In fact, funementelly rest upon e satisfactory and effective agreement Re to the debt. It eoulel, in a word, be our expectation to buy bills an eermerk gold, in the respective warkets, ae exchenee movements mede it desirable to do ro, and, of course, it is possible that a gold loan (eocalled) might be considered at the outset, although the writer has never considered such a loen to be in fact more than a gesture. It peems to me im,ertent to draw out the point of view of the "ftitish Treesury as to any specific provision, as soon as possible, as that me), disclose weeknessee in the plan. 8* Finally-, stated in order of importance, I eelieve the a, eeeent.should contain The general decleretion referred to in your letter Provision for accelerating payments if sterline goes to 4 premium Mr. Gilbert 4 FEDERAL RESERVE BANK OF NEW YORK 2.21.25. copy Provision for deferring payments (within the limitations of the agreement) in case sterling declines, such provision to be suggested by the British Some such plan of payment as is out'ined on page 2 of the memorandum, although this is of less importance, and whenever a satisfactory agreement is concluded, it should, if possible, be followed by some agreements or understandings between banks of issue, loe-eing to improving conditions in the exchange market. It would be helpful to read the full terms of the agreement, whenever you are able to let me belt it. An additional copy- of this letter is enclosed. which I should be glad to have delivered to Acting Governor Platt for the information of the Federal Jeerd on matters relating to our foreign exchange diecuesions. Very truly yours, Honorable S. P. Gilbert, Jr., Under Secretary of the Treasury, VInehing.ton, D. G. 12.S.MSB eserve February 26, 1923. PFIVATE AND CONFIDE:F.1AL tier tar. Gilbert: Under separate cover I 1: writing you about the 9ritish agreement. Your letter containing the draft, Thas dated February 22, sent "special blivery", but only re,chee_ my office 9:45 SEturdaj, the 24th. morning. Plec;se note 6nveloo. Very truly yours, Honorable S. P. Gilbert, Jr., Under Secretary of the Treasury, Washington, D. C. BS.MSB Enc. m. It appears not to have been mailed in ;asticgton 'till Friday the +um on th 5. the condition of February 2e, 1923. PEF,SONAL At CONFILENTIAL: near Mr. cilnert: Wijth thie T em returning the copy of the rough draft of the British nanding egreement, on shich I have mede eome pencil notations, also memoranda commenting u1)0 the verious points shich you eill find numbered. As this draft will Jeubtlees be eonFiderehly changed in lengueee and form, I am now sending only comeente, sitteout attempt to m'Ae any considerable chereeeF in the language. It will be a qrot aid in further considering this utter to beve the encineed reugh draft, with me cencil notes, returned to De, Is I have retained no co y. plen. Aleo I am witheut e copy of the Act of Congress approving the funding I have retained copies of the memoranda of eoirte. I am teem that the delay in receipt of 'our letter of the 22d he unaseiJably delayed thiF reply. Very truly your, Honor e ') S. P.C011bert, Jr., Under e--erstary of the Greaeury, WaehingtOn4 D. C. March 6, 13. CONFIDENTIAL: Deer kr. Gilbert: Your of Merch 4, with the revise draft of the Pritieb funding agree- ment and the Senate bill, are duly received. The egreement is of such immense imi:ortance that I hesitate to send any further comments in the nature of R "lest word" without eeme further reflection. So I may Pend another nete tomorrow, and will return the draft then enyway. Of course keep the copy containing my former notes. In general I think the agreement is a fine, simple document, without smbiguoue phrasing. clear and It may need some polishing, end, if there is time and opportunity, I would apprecivte seeing it egain when about finished. The following suggestions may be eorth considering I. Pace 2, Peragraeh 2. The language indicetes t'let the entire $4,600,000,000 will fell due, normally, December 15, 1984. This would imply that the entire principal is kept alive "ill maturity on the basis of a typioal lean cumulative sinking fund obligation. But is this literally true? Does not the debt really mature according to the schedule of pa3mente? A rev words will cure this; if I em right in the comment. Page. 4, first peragreeh. The language might imply thet after one such postponement had been made and repaid, others could not he subsequently made; add the Aorde "until all amounts previously postpone have been fully repaid" or something like that! Pages 5 and e, Paragraph 5. 6hi1e there is provision in paragraph e for fixing the rate of exchange, it seems to me that paragraph 5 is rather uncertain as to intention. Does it mean the United States, can fix any Mr. Gilbert 2 rate of exchange in any currency? 3.8.215 The British will surely object to that, and Does not tte spirit of the agreement indicate thet - properly. It is a dollar debt and normally be be repaid in dollars If repayable in any other currency it will be simply as n meesure of mutuel value to protect the respective dollar - sterling exchanges In that event the only other currency 'would be sterling, certeinly not francs, or lira, etc. Therefore why not let paragraph 5 relate just to dollar bonds and rely upon paragraph 8 to cover the terms for sterling bonds. Also I think paragreph 5 (near the end) might read as folloes "Tha United Stetee, before offering any such bonds for srle to the public, "in Great Britain, etc." (words underlined are new) The last sentence (persgraph 5) is FO brord se to appear to offer opportunity for a hostile Secretary of the Treasury in later years to impose very burdensome rules upon the other party. I certainly think this should be made clear that the rules, etc., must be reasonable and within the terms and spirit of the agreement. Also, on farther thought, I feel quite certain that the intention will be cleerer if earegraph 5 is made to cover dollar bonds for public sell', and paregreph e for sterling bones, etc. 4. jfe think, a mietaiee. FDY9erape 0. The rate of exchange suggested, 4.87, is, Premiums and discounts on dollar - sterling exchenge are figured above end below exact gold parity, vhich is ;4.5885plus, per full weight eovereign. Therefore, the gold shipping point is that point above or below 4.8885plus which produces a difference equel to all coet (including assay charges, freight, insurance, boxing, abrasion, interest, and incidentals) of laying down gold in the merket whose exchange is at c. preeium. The amounts involved here are so enormous, that I feel sure the exact gold +equivalent should be "nominated in the bond." There are some changes of phrase, which I am considering end will Mr. Gilbert 3 They take some further thought. eend tomorrow. Page 3, Peragraph 3. 5. Insert word "made" after eord "states" third line of this paragreph 8. hef 3, Paregraph 3, lest line. e. The words "good deliveries" sre difficult to exesztly define. It depends upon business custom, etc. - it very difficult thine to define. why not say "s'Iall be in such negotiable form, free of defecement or mutiletion, as tie constitute en sccepteble trensfer of title under then existing rulee of the Tressury, which apply to securities of the United St5te5.4 7. This would include our fiscal agency rules_ As preliminery to sending you a new suggestion for peragrapb 8, tomorrow, plesse consider that I am rather doubtful of the reasonablenese of requiring the British to "meke edvence pent of principal in such amounts as be necessary etc." may It might be too much for them, and ts are just guePeing es to what the future hes in store for us anyway. are any deferred payments I am cleer that If there unrepaid, they should then be psid up. A blenk check up to billions (beyond unrepsid, deferred instalments) I think is much too uncertain and possibly too harsh. I'll try and suggest another formula later. In general, the possibilite of celemity grorine out of this egreement lies entirely in the possibility of a 3ritleh default. 'Mille remote, It could only occur, so far es human foresight can judge, because those are foreign payments. would suffer, though not as much as they, because or such a default, - and I think our own interest requires that the additional obligations contemplated, - for exchanee purposes, - be most serepulously safeguarded. R situation, with sterling above our gold shipping point, in %which the 9rit1sh could not find means to make these additionel payments; be tee case only in event 3ritish domestic credit we at such lo e ebb that the Governeent could borroe neither et home nor abroed. it wou Ur. Gilbert 4 6.C.23 So plese let me have another tvLenty-four houre to chew on this. Sincerely, Honorable S. P. Gilbert, Jr., Under Seoretnry of the Tresnury, Weehington, D. C. copied from aenuscript. Meech 7, 1923. CONFIDENTIAL: Deer Mr. 011bert: Unexpectedly long session with the Dentist end Doctors have made it difficult to nend you another draft of peregreph 6 of the funding egreement, as I had hoped, before leevine for Colorado on Fri. The enclosed rough draft may he suggestive, but possibly the folloeing will expreRe better Abet is in my mind - 'ho paragraph, in my view, should contain the following provisions: Both parties desire gold standard, free gold payment, nnd stehle excheeges restored rire:! meinteined. The first named provisions (as now recited) sre to protect Greet Britain egeinst decline in pound. Greet 'ritain will repey al) deferred inetelmente in case sterling Roes to premium, - uot exceeding, eey, t , in steted period or periods, An order to protect dollar. I bad hoped to avoid a fixed amount to be peid in Advence, in case of a sterling premium still continuing, but there in really no way that e- occurs to me to avoid doing so, without leaving the Amount either to be determined by the Secretary, by events, or by later agreement, and I would therefore prefer to omit (d) and substitute some such lenguege as you already have in the lest peragreph of this (0, making the British obligation to repay apply to deferred amounts tkad errengements for advence payments to be eorked eut when the need arises. My yesterday's letter covered the other parts of paregrteph C. Mr. Gilbert 2 3.7.23 P1e,3se let me know if tbere le enything further thet I can do. it ip a privilege. Sincerely, honcreble S. P. Gilbert, Jr., Under Secretary of the Treasurj', Wa.ehington, P. C. copied from manuscript. A,-,r1.1 12, 1923. Dear Governor Stronto I am returning to you for signature your letter to Gilbert, with 9, few slight changes which -,roved. r. MP.son has Also letter witt, check for t455.78 to be sent to the Complissicnor of internal itevenue, which r.Mason considers the rroper .procedure to fellow under the circumstances. Tours sincerely, tr. Lienj. Strong, c./0 (%-galor Sanatorium, Colorado 3rin.i, Colorado. Enos. Colors.do Springs, ':',olorade April 16, 1923. Dear Mr. Gilbert: I am sanding you with thim the tile of papers relatin to my ifICXYr0 taxos for the yer.;rs 1918 - 1919 - 7,920, and would like to ask you to conciliar the facte. VI books fand returns have been exand.ned by ine-eotors three or four times, and the 1%14 inspection :nada was in August, lci21, which There is no ;lowered the years 1918 - 19'19 - 1920 above mentioned. objection to that so long ke they get the job done and quit bothering the takpayer; but now it seems, at this late date, that I awl adviteed that the ReVelltiO inspector and the 3ureau t4aaltington do not agree with respect to the taxable interest on Liberty boAs, and another r:orrection nin loss ie necessary, and finally I ,trR asked to sign an agreement of :ay right of recovery if the Treasury is wrong. Alec the agreuntent intizates that mat;..ere will be expedited if i sign away III rights. It allEOUildt. like the old bureau "red tape soalr the taxpayer" stuff to me, End on that score I get bit riled. 'Jut for another reason. (And that is what inspires this leter.) I ni7 really indignant. We are facing a deficit .thie yefx of a large 611Th 0.00 to t2a0 millions', I judge - and have some hundreds of millions or uncollected tso:es awaiting effort over the smell fry, like Why wasteo nuch time adjutitsent. me? Get =1.;:ftr.ir the big amounts ?An d let there triflinf!. errors waiti So much for that. *y best to you. Sincerely, IsrAtble S.. P. Gilbert, Jr., c/o TreRsury Department, Washington, D. C. FEhSJAA AI) CFILZLL April 18, Deer Gilbert: Referrine to our eychnage of teerams yesterday tad your /ire which received this orninc, 1 regret to observe that preueat Treawury bnlences in Pederki Reserve b,nks d not ,erkit of redemption of Septet ber maturities as of to-day. 41th respect to the stgestion that wo try somo s ;(es in the mmricet, honestly be,levc tht this is P most invAvisable thins for we to el.tgest to the oawnitte at the preeent tire. Please bear in mind in this retard that at the iNshiagton Conference there wts considerable discussf.co, but4-t.en overnors on the -ne }lend ,,r.d the Fedmita Reserve Board on the other, itt respect to the right of the Borrd of of the irefigury to dictkte lc to the purchase and sale of securities in the open *arket. This dtectIsIlon tormirmted in a modific4tion of the oreamble originally Aopted by the Bonrd. y best judgment ia that for the present there hao teen qtite enowh pr-1sure from tau Board &nd thu Tres ry, that it is 4ot is words the slt to unduly press this &otter further just nos. In Aber Ils for the myercise of a bit of ,4tiea-te. As I dvised y,u on 3ondty,in trAnatitting tho copy of the linutes of the Philade-,:his com-ittee mectinw this questior of further sCes on the market Wile thoroughly one over t that confere)ce, the feeling we pretty deneral thtt in view of the possibility of A advsnce in rates in the as.,:r future it was not 6dvIspble to re-Pell to the ,,,rket any trobttntial block of Goverment securi- ties from the Federed Reserve portfo!lo if such ,:ctlen were to be shortly followed by a rote incre,se. I thereupon seized urnn that oniortun,ty tc- evIgk'est an ulter-. n,tive course, nowelY, thkt it would be * nice thin for the corAttee to coopergAm se, April 18, 1928. C., -ith the Treasury's, eepreesed desire to have the Federal Reserve benks liquidate their Government securities by tenderine the Trensury all of the Sept- ember nertif'o-tes for redemption at par and interest. As you have steted that there le elsreer nmeunt of September maturities outstanding than is neceesary, naturally felt that this offer would commend iteeLf to you. After some discussion all members of the co ittee cordielly :,,,greed to recer end to their respective Boards that all September certific,tes held in portfolio be offered to the Treasury et par and interest. The Tressury to nfve the privilege of teking them up at such If you heve not sufficient fundu on hand to time as would suit its convenience. take up the whole t!6,000,00C.. why not make s stlrt and t ke up 'some pert of them this week -nd the bs'ance later on? For your thformetton I am enelosine with this a memoreldem shewine thget, the Septeeber meturitlea ere held by nine benks, in the aggregete sum of e35,94Z,500., and I RID honing I emy hear favorably from you about this in the near future. Developments of the past week have but strengthened ey conviction thst the time has arrived when K advance in the discount rete should be made here, but I an heartily in sympathy -with the idea that kr. Crissteger should immediately quelify me Governor, !awl promptly accept the invitation of the New York Chember of Coreerce come here and rake an address which will contain seme irportent state meat with respect to the preaent'credit tendenv'ee, the steterent to be of each a charecter as to pave the wey for an increeee. I enclose a copy of current inforzetion from Was'e-ten which may be of interest to you. Very truly yours, 5. P. Gilbert Jr., Esn Ur0Ve ?ark Asheville, North Carolina. J. H. CASE, April 18, 1923. Memo. on Credit Policy. Examination of the banking position today as compared with 1920 must make due allowance for the fact that the foundation upon -,vnich any inflation may occur has teen tremendously broadened by reason of the large increase in the country's gold stocks. The danger point in the 1923 reserve ratio therefore, is considerably above that of 19a), and a like measure of inflation may be attained without the corresponding expansion of member banks borrowings from the Federal Reserve System. The facts as charted seem to show that commercial loans and investments Of member banks have gone up more than 43, 000 ,000 ,OOO. during the past year or thereabouts and re fully as high as the 1919-20 maximum. The simple fact is, therefore, that a great credit expaision has already taken place, based largely on the extraordinarily large gold imports of the past two years instead of being based solely on Federal reserve bank credit as was the case in 1919-20. The two important questions to be determined at this time are:- Will further credit expansion actually increase production and facilitate distribution of goods. In view of what has already taken place, should our discount rate continue to be about 1% below open market rates, thereby stimulating further expansion. It should be borne in mind that if, as and when our rate is increased it normally happens that a considerable further expansion of credit continues for a brief period. The recent report of the President's Committee on Unemployment, states that the main objective is "to flatten out the alternating cycles of abnormal prosperity aid resultant deflation, so that business may be spread out rare evenly and the recurrent disasters avoided." According to Secretary Hoover's statement, the hypothesis upon which the committee has worked is that "when industry has been restored to full production further price rises are artificial inflation." The socalled boors, which the committee points out has always preceded depressions and in some instances panics, comes of consumption demands exceeding full production capacity. The report of this committee goes on to state, "Individual banks and the Federal Reserve System as an organization have a responsibility for checking undue expansion by credit control, and in concluding, it recommends that more study be given to this subject. It further adds that excess gold now in the American banking system, might constitute a factor tending to undue price enhancement, with consequent relapse later." The American ranker in comment ing upon this report editorially says: "Every one agrees that the causes of the periods of depression originate in the over-expansion and inflation that occurs during a period business and o of prosperity. Thus if an hin - is to be done impart to it a great er amount of st ab il it y the contro 1 mist be applied in the period of prosperity. We are now in a period of prosperity and fortunately the report of this committee, begun in a period of depression, has been issued at just the right time because the actions of the business world in this period of prosperity will determine the extent and the nature of the period of depression which is to follow." votat The foregoing is sound and it seems AMC unreasonable to assume that the Federal Reserve System is looked to by the Country to protect the credit resources of the nation from exploitation. COPY CONFIDENTIAL August 6, 1923. Dear Jr.i Gilbert: Have you given any thought to the disposition of the outstanding bonds of the 4% Loan of 1925 which become February 1, 1925 ? redeemable on and after I notice that there are $118,489,900 outstanding, of which $84,820,800 and $1,768,000 are on deposit to secure national bank notes and Federal Reserve Bank notes respectively. Of course at the money rates now prevailing, it would pay the Treasuryto let these bonds run along, but even if such conditions should prevail when these bonds become redeemable I would he interested to know what you thrik of the advisability of retiring them because they carry the circulation privilege. I think we all agree that national bank notes constitute an unscientific form of currency and that it would be desirable to retire them on that account, and with a view to reducing the different kinds of currency in circulation in this country. By redeeming the outstanding bonds of the 4% Loan of 1925, you would automatically bring about the retirement of at least $84,000,000 of national bank notes. In addition to these 4% bonds there are close to $600,000,000 2% Consols redeemable on and after April 1, 1930, which also carry the circulation privilege, and these two issues make up the bulk of the *793,000,000 circulation bonds now outstanding. If they were paid off gradually and no further bonds with the circulation privilege issued, most of the national bank notes would be entirely out of the way. While I appreciate that in order to redeem these circulation bonds the Treasury Hon. S. P. Gilbert, Jr. -2- 8/6/23. might have to reborrow at a higher rate or use surplus funds which otherwise might be used to retire through purchase at less than par, government bonds bearing higher coupon rates, nevertheless I am inclined to think that such a course would be desirable and that the Treasury would be justified in following it in order to retire most of the national bank notes. I should be glad to have an expression of your views on this. Very truly yours, (Signed) Honorable S. P. Gilbert, Jr., Under Secretary of the Treasury, D. C. Washington, J. H. Case. Deputy Governor. 0 Kvember 22, 1923. Deer Mr. Gilbert: It WEIS good of you to write ma so cordially, now that our ways seem to pert, after all these years. Our relations have teen a great csuee for eatiefacticn to as Lli la the bunk. If we have been of some little service in your work, indesd yJu hay_ equally been our stalwart friend in cure. No reply to your letter would be adequit' mithout expr:a ing the great ,fmiration I have foryou or., for our a;lendid achievamcmt: in the Ireasury. To 1eye, record ,f wblic 5rvice of hiphset ordcr, wnieh the -ublic kill never understand and aporeciate as fully ,s do your intimate asc.ocietes like myself. I wish you every success and much harroinese. Very sincerely, :Lonorable 6. P. Gilbert, Jr., c/o Messrs. Craveth, Henderson & de Geredorf, 52 William St., New York, N. Y. BS.111/