Full text of Papers of Allan Sproul : [Q and A for Flanders Hearings, Question 3]

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MmmIIob 3

s m

Mm

& M

s*

.
to the

W u m K ^ S jm S S B L

The shift la eaphasis of 8ysta« pftUqr reflected by the sufcstitutioa
of *correcting disorderly situations* for •aaintaiaing orderly conditions* is
tha Goveraaaat security market into la foot only part of a breeder m u f t f i i n t
of tbs role the central bank caa oad should j>lay la that laarfcet* Other policy
notions growing out of this reasaesaseat were tha limitation of S^stm Account
transaeticas to Treasury hills (exeest to eorraet disorderly conditions) and
tho limitation of transactions solely to the purpose of sapplyiag bank reserves
(agaia, oxse^t to oorroot disorderly conditions) • As a corollary, tha
System also eease& providing any tyre of diroot mrket sugrpert for T r n f n y
offerings of it# securities* And there not explicit recognitioa that tha aew
doctrine meant that tho Syataai would have ao concern with iatoraat rates in
tho ordinary conuet of its credit policy*
The s h if t la a s t a s i a to *e o rree tia t disorderly situ a tio n s* la
i t s e l f would aot havo preela4ed rogul*r operations la se c u ritie s other thas
Treasury h i l l a , designed to a ffo o t tho a v a ila b ility ®acl soot o f oroa.it*

Sat

i t would preclude operations la other se c u ritie s to influence th a ir p rices
except when auoh operations vers considered necessary or desirable fo r tho
promotion o f tho ob jectiv es o f cre d it policy*

Tho doolaioa to traiSo only i s

b ills # however, together with tho decision to operate s o lo ly fa r tho parpee#
o f s ffe o tin g bank reserves, has e ffs c tiv e ly elim inated operations i s se c u r itie s
other than Treasury b i lls except to correct disorderly aa**ot conditions ♦

la

shorty the combined e ffe c t o f tM s decision has boon to elim inate a l l tran aaction s the purpose o f wiieh ia to influence aarfcet conditions unless d is­
order develops*



It i« vary difficult to dofina either *orderly* or “
disorderly*
condition ia tarsia that wuid be generally acceptable. One of the reason*
for the shift of saphasis » i the difficulty of reaching agreement oa i&at
was implied by the eoasitaeut to Mistilt orderly aarfcet conditions* Eariag
i&e wa* sad the w r i f pouter years, tho maintenance of orderly aarket condi­
tions had some to bo understood fey aaisgr as y i i p w n with the “
pegging* of
prises of Government securities, It aoed not, of course, h&re that nooning*
In foot, prior to the entrance of tho halted St&too into Verld tftir XX, it
wmg taken to signify only action to atsderate adjastsioiits la the market for
Ooveyaaoat securities— for exssple, is the spring of 1937 and ia tho s?»oatiia
following tlio outbreak of war in Boropo in September 1939# Operations ia tho
lettor poriod were not limited to purchases at tiises of sssrfcel weakness, bat
includod later reversal of tho transactions through aalea vhea tho wnilcot was
sufficiently strong to absorb tha® readily*
Boring sad after tho oar (op to the ti*e of the Tre&sury-Faderel
Reserve *aooord*), however, federal Reserve open w i tst operatioae were at
saost tlaoi influenced by tho objective of sreventlng Tiel^p *>* «h«yrfr
lc®g^tot« securities fraa rising abivo predetenr±Qed-~«ltheugh not aliaor8
rigidly* fixed— -levels*

It not t*is typo of operation that asd* it impossible

for tho federal Reserve System to carry out its orodit policies with full
offeotiveaese*

Vhen investors offered securitiee for solo at tho •support

prices,* tho Systsa was forced to stake purchases* even If such gmrehasos ware
ia conflict with the objectives of its credit policies* Hits gave •tho markof
tho Initiative ia doloraiydttg tho amount of Federal Reserve credit e*teased,
and prevented offoetid® control over tha foneral availability of orodit by
tha Federal Seaerve authorities*




Aft** the *aceord,* the

System

regained

the

initiative in adjusting

its open market o?>er*tions to the needs of the economy, bat fears of becoming
inwolred in pegging operations again still colored System thinking*

There

was a general determination to awoid any action that sight be interpreted by
the

M ifeet

fts evidence that pegging Had not W e n

dropped

completely*

that is

the principal reaeon for the shift of emphasis from "maintaining orderly oaifcot
conditions* to "correcting disorderly situations**

there

still regains room

for differences of oplmiom ae to whcm "disorderly situations* exist, but the
area for differences of opinion is much less than was the ease with respect
to *melmtalmi&g orderly conditions** The question of whether or not to sot
should bo less difficult to decide and any action taken to correct disorderly
conditions

should

in the market*

bo subject to

mueh lo s s

If on effort Is to

howerar, the ores

of

be

misinterpretation

made

to cheek

uncertainty and difference of

and

*second

guessing*

Incipient f’
isorder,

o p in io is

considerately

widened*

BM jjaat ^ j J p e e n l i M i , iMttMUifrt I p a J tf M jjM tlitt ta canflbat i f

.aagsaj&aiUaJtotU^
grggr k .j^rfeg w .t

^eludigj: aorfcUop of jjg-

the Federal Open Market Committee at its meeting in H^roh 1953
adopted a procedural change in trading practices for the System Open Market
Account which Halted suoh transactions exclusively to ehort-tera OoYorsaent
securities, except for the correction of disorderly metfeet conditions* While
the Committee action specified *short~term* securities, in practice the System
Account has transacted business almost exclusively in treasury bills since
the chsnfo in trading practices w i adopted*
been in bills*

All transactions in 1954 hare

This limitation of open market operations reflected a belief

on the part of a majority of the Federal Open H»rfc«t Committee that its
adoption would encoura-e a broader, more independent, and more resilient
market for Oowcrsment securities*




m 4 **

A stu^r of tho

battraan tin FO^oral Bx » rr< % « $ « &

snd tha mrkst fo r G&vermmt saou ritias Had 'tom undartakan tsgr a s t m U I
subeosmittaa o f tfe# fadar&l Opan Iferkst CcsBialttea during 1$92»

?&a st*b~

raport ©ooeludadi tb&t tha in stitu tio n a l im ^ g t t n ft t i and n*ffe«%
organisation already id osristanea provided a sa tisfa c to r y foundation fo r tha
d*r*alop»«nt o f a br«*td and fr a * market i s *&lo!i p rices m t i a t t m i ra tes would
r e fle c t accurately tha undorlyins supply ***£ dsssand conditions a.ad therefore
m u ld cerea&nd tha confidence o f iw rastara.

I t vas concluded that tha p a rtia l*

pation o f tha System Open Nmrfcet Ammmt in tha ssarket exerted a se rio u sly
liia itin f influence on tha a b ility o f tha market sad tha d eeler organisation
to function %a e ffic ie n t ly as they & igit*

trading practises in tfea aarfcet for Oovermsent eeewrlilea require
t o t tha private dealer firs* asetis&s tfea risks of price fluctuation inherent
in a free aarket % ^asying tad aallia#, as principals, for their aim accounts*
tha breadth of tha market and its ability to respoad rssillently to changing
supply and dea&rid condition*, therefore, depend to considerable degree upon
tha villingaaca and ability of deeler* to quote firm prices and to audeo asvtoet*
(bay and sail) in voluige at cuoted prices*

In turn. If tha dealers are to

assuae the rides involved In s&aking broad markets and carrying positions, they
m e t have confidence in tfeelr ability to gauge tha relative importance of tha
various influences affecting tha s^rkat and to forecast tha price ds’
relopstente
that vlll remalt .froe tbese influences*
It m s the opinion of tha suhcoeftlttee, and this opinion sea accepted
by a jmjorlty of tfes Federal Open Market Cesaslttee, that tha unlimited p*rtioipatien of the Federal &es#rve Sygtess Account in

tom *a?fce% for n i i m i tBatarities

iapeeed an unreasonable handicap on tha ability of tha markets* professionals




to topprm&sm prlao aad yioX& -proai>oeto* Tho %ataa Account >soXda tho Xarfaal
aiagla fclook of agrkotabla Covorsaasat aaoarltXe** Vboa it tradoa, it in ia &
position ta asort aa ii&jawrtaat ittflaoaoo upon tho straota o of prlaaa m l
jrialda* At tfea « k m

trading for tho %atasn Aaaoaat it set jsotiratad

by p^ltt aoaaidoratisaa* aa It tl>o trading for othor aeooaato, bet it aatorod
into fa* broad poiioy f W y t M i that sly aot aXaaya bo prodiotabXe or *vta

uadarataod fey tho aoaXara# So&» daaXora* thoraforo, argaosWmad tho i u W
ooeatiitoo sad & aajoirity of tho FOdoraX Opoa Ka*fcot Caonittaa agrood— t&at if
tho S^rtaa Aooooat ia sXXovod to o^oraio la *11 aoctors of tho aai^ot* bM
particularly aboa it ©f*srat#a «ador iattsaatioaa to "aaiataia ordorly oondi-

tloaag« unerrtaiaty ia fotiorad and tho viiUagaota of doaXora to M k t brood
m vk a to la dirootly affactod*

itagriag or m X lim by th* 8yat*a ioooaat ia tho Gov*raatfHt sacuritioa
»*rk*t, ovaa If eonfiaod to iterWto'ra fellla, socoas&rily iaflaoaoot tho lovaX
aad atraotaro of aomirity arioaa &ad yiolda*

In additioa to tha dlroet offeot

apoa % o total aapply of ooe^ntioi tad apoa th* raXnttvo availability of
dlfforaat matoritiaa* the Fodorail ftMoi** orodit roXeaaod by parehaaoi or
aaatffrtd If taloa affoista iha aa&dy of m nvp n A ttma tho XovoXa of imtoroot
rataa#

fiat it *aa tho o?iaioa of tho majority oa i&o FodoraX Opoa Mtifcai

Cossnittaa that oforatioaa aoafiaod to Traaaury Mila# tho ahartoit.aatarily
»oe^ritiea# w m X d &a*a tbo Xooat affoot aaoa tfea lovoX aafi »iruct»ro of prtoo
aod yioXda*

X© tha firat ?X*oa# it mw raatwaad Hfcai ahaagot ia © p m mstort

iatafast rataa aad abort-torn aooarity yioXda roflaet mmey aaaditdoai ratkor
thaa tho -^amusd far «a^ tapply of ca^itaX
madaY^taXf «14o raago ia rafXootioa of

aad t&oy oaa aova vithia a
«ar%#t «of»ditloaa vlthoat

mtorialiy affooting pri^oa of tho Xoafor mtaritiss.




Xa tho aoeoad rX»oof

the

of tratilag is Troaaaif biXlm fey aanaarolal banka, ladaatrlal oorporo**

tic*-** aa£ otfeara is saieh groator 4ay to day th&a tha volaaa of trading is
Govarmaat Isaacs of longer &aturity,

ftiarofora* * %at«& Aaooaat iraaaao-

tioa of a gliroa also aadartakoa to aeooapliah a credit poller purpooo oaa bo
oxooatod aoro ro&dlly, aad with loss diroet l&paat oa r&toa, la tho trootury
M I X mrk#% *h«a la any otfeor aagaont of tho a**fc«&»
Tha oolaloa to raatrlct iyataa opvrntioaa to froearoy bill# w»a
sot *io**€t % Ito prepoaoata aa » limitation upon tha ability of tho fadaral
ioaorvo 0y*.taai to portom it* priaasjr function aa a eaatral bank* l.o*# tfeo
rocnlatiaa of tho ooat *a£ availability of o««#*eroiai bank orodit*

It woo

foXt that the doairod affaet of Symtm Aoaowat tYaaaaotlooo on haak raaarvaa
eould ba aoeoa^iiahad a* roodily through im&aaotio&a ia Troa»®ry bill® ao la
asqr oth^r aattirtty*

tho aa®* tteo* tfcoy asepactad that la a l » m d out

fraaly Ametloalai mart&oi tea ssoaaf* &**kat aoaALtloaa $«o&MMMft igr iystoas
ep*rztim *0 twd tho roaultiac lavala of g b o r V t i m iatoraot rmioo ooold iaflaoaco tho torma of erodlt throughout tho raaturity estraciuro ia tho direction
ladleatod % Floral Soaorva policy* thio would raauit froo ths arbiirago
proooas It imi a»*ugie& would ba ««t la eaotlon fey alart daoiara and tradora
whaaovor poroiotaat diaorofaacioa

or

rllifHlaii ftfpwod ta tho jaiUro of

intaroat r&toa*
tfe o v o fo r o * ©a th o b a a ia o f ®uoh a r f m o a t a *

th e o o j o r l t y

o f th a

Fo*a® tu 1 O poa J te rfc o t d o a a s itto o © o a o iu d o d t h a t * l a

th o l a t o r o a t o f p re a io tiu g

a f r o o r O o ^ a n m a a t a o o a r lt la a m r f e a t f ^ s a a a l a g

g r o a t o r b r a a d t h , d o p th , a a £

r o a lU o a a y ,
It

t r c a o a o t io a * c o u ld a n d s h o u ld b o l i a i t o d

o o n c la d o d , f fc r tfc o r * t h a t t h a S y s ta ® 1® n i p f t i i t W

e fc arg o d b y l i m i t i n g

o p « a a a r fc o t o p o r a t lo a a t o

t i i

c o a id b o a t b a d i * »

th o a a « o ii*J a c to d a c d a X y fO T th o

•^uarpoao o f a o p p ly la ^ o r a b a o r b la f b a a k r a a a r v a a *



t o fr o a o u r y M i l a *

«*» *f m

tho fiaal turn of this m**tioa aeas*» to h*oo baaa o*.ra?ally designed
t© briag ®at tho affirm tivo ftrgasania for tho polioy roforrod t®f oad to
proviso no op ortunity for nogv tlva arguments, although it ia aot Xikoly that
vaa tha intoatioa of tho Jolat Cosasittao* Hi# following paragrapha oontala a
briaf dlooaasioa, although it w o not roqaoaiod, of tho nogatlva aldo*
Tho roaaoaiag of tha majority of tho Fodoral Opaa Katfcot Causaltioo
la limiting %at«tt Aeoom% traaaaatloaa to Troaoury M i l a aad ia Xiadtiag tho
arpoaa of auefe tranaaaiiona to thoir affoot upoa bank roaorvoa woo not
aeeoptad by all tho ®m&ora of tho Coamittoo*

Xa tha viov of tho minority* It

i<aa uawiao for tfeo Systoa to ootabllah a rigid eosfsitissaat to trado only ia blUf,
although It vaa agrood that iraaaaationo la M i l a vow Id uaualXy accomplish tho
Syatom'o parpoao*

Farthsraoro, tho aiiaorlty w m H w thoaght It uftXikaly that

tho ohaago In oporatiag psvoofeuroo wmld eatoftraXly Improvo tho broadth, dopth
or roalXloaay of tho aarkat* and thoy holiovod HM»i tho limitations apoa tho
typo aad parpoao of %ata» Account operations
eopt

Of

im p lie d

®aoh too aarrow a eoa»

tho central bank's function*
Xa largo pari, tha aifforeaea of opinion grow out of differing ooa-

oopta of tho aoy ia which tho Government aa^uritiaa market operate**

Tha

majority believed tho usarket could develop into a broad, imperaonal meshanlsa
ia Vhieh gradaal aad orderly changes ia des®aa4 ami supply eoadltleoJi vould bo
reflected ia equally orderly changes ia priooa aad yields, if oaXy tho System
Account were out o? tha picture ao that doalara might rationalise thoir expec­
tations*

Tho minority, oa tho othar hand, viewed tho market aa oa# ia whiofe

tho isojor distarbiag forooa were tho so-called *nataral forces,* mot tho
System Account*

So long aa dealers perform tha dealer function the acceptance

of risk 1® unavoidable*

Tho principal uBceriftirrty orootod by tho Federal

Fes^rve System stasis from tiia possibility of shifts la it a baoio policy not f3rc»



the areas of the market la w^.ich It might operate* In fact, it In roiaonafcle
to beliere th? t from tto* to tlsse the possibility of Syete* assistance to tho
aarket, when needed, might well encourage dealers to aske broader saarkata than
they otherwise would*
Another pert of the disagreement within tho Federal Opoa Market
Cojsaittee staussed fro® differing interpretation# of the role a central beak
should play* Th# minority members beHevcd that the raepoasibilitic# of tho
Federal Beserve System aay not always be siet by System Account trensactiosa
Halted to Treaeury M i l e nor by parpoooa Halted to the effect oa bea t reeerves*
Diroot operation# la other sections of tho ssarfcetKy si times be the isost offin­
dent or only method by which a desired effeot on condition# in the credit sad
capital anrfceta oaa bo achieved* the record of tho Govonneat securities
market indicates that M&rbitrago> m y not bo relied upon aa a dependable
means of r e a l i s t aa objective la the longer mfcurltiea through transactions
la hills,
Host important, the minority argued that the Hesitation to trading
in treasury bills wae aa unnecessary restriction npoa the Qystcm** freedom
of action*

8y adopting a particular operating preoediire aa a rale of conduct,

tho System has needlessly created a situation wherein any operations outside
the rale, no Matter how worthy the imrpose* will truly create uncertainty and
confusion in the market* In the opinion of the minority ae&bera, tho federal
Heserve System has of its own volition Halted its capacity for flexible
central berating action to preaote economic stability*
W m t iUHjBMtt th»

f’
O

wcoaritm* -dtte

tamo far with the

m»3»r thli
p o licy

of limiting System Account

operations to treasury bills has, on the whole, been fairly satisfactory*



It ahould bo aotod, hovorar, fch* t la tho porlod aiaeo M&mb if53 tboro h*ro
booa only a few ooeaaioao on wich it in at & U likoly that any difforoat typo
o? operation aoaldl haro hsoa uariort&kaa, had tho policy not boost adoptod,
Tho ability of tho fodoral Boaorvo Qystoa to aaiat&ia tho doairod dogrea of
cotivyol orar tho a&grogato rolnao of aasahor bask roaorvo bolaacoa waa aot
affootod V

tho aooiaioa to opor&to oxelaaivoly is hill#.

If it ho «eco?tod

that Sy^toa Account oporatlono should ho sndortakon axolusivoly for tho purpoao of adding to or l&kiag m m f fro® mahor honk m t t r n in tho aggrog&to*
then Fodoral Soaorro o o u aark«t oporatioaa hava offoctivoly achlorod ihair
ssaraooo*
.|pwan» ip
Bat# is & sense, thia fcoga tho suoatios, oiaoo aaooptaaoo of *&oh a
limitation cm tho Xogltia&to parpoaoa of Systa* opoa aetrkat opor&tioag pro**
cladoi oosaidaratioa of tho ‘
ueation of ahothor tho Syatoa oaa faily ^taohargo
It* raapoaatMlltlo* ssoroly by rogalatiag tho miaao of baak roaorvoft* If
tho %ataa*a r aapoaaihilitioa aro sera broadly coacai^od to eoapriao taking
f
ahataror aotloa m y ho raquirad, vithia tho liadta of ita authority, to prow?to
tho condition# ia tho erodit and eapital aarkata most ooadanivo to ooonos&a
ataMlity and pro.ro as, thora may ho room for >faoatloi*iJS§ wfcotbar tho a a r m t y
rostrietod typa of opoa mmr&vt opor&tioa hat aeooapliahad all that could mao*
fally haro boon dono la all clrcaaataacoa# tho aaavor to thia caoation *1X1
dopaad sot oaly upon assumption* vith rogferd to tho rolo and r^apoaaifeility of
tho oontral bank, bat alao apo& rsryiag iatarpratatioaa of actual davalopBsonia*
l^&rthoraa#ft, it ahould ho raaaabarod that tho roatriotivo poXici*a hoiag
follow? W tho Fodor&l flaaorro B?$tm at tha timo tho limitation oa oporrtioa*
vas adopted, ia *sr«h 1953, aooa bogan to shift toward a policy of acttva oa»o
and that ordinarily aituatioaa calling for Syaiaa transaction# ia aocuritie#




fttttiM f tfeaa k i l *

a r a la a a l i k a l y

p n & a d a nh«a r a a ir i£ t i? a

t o a f ia a i d p a r ia d a o f aajgr a o a o y th a a l a

a ra d & t p a ila ia a & *a l a

a ffa « t*

Burial tha pario* of aarfeat iaiarbaaaa fca ilui lati
Tpnllitf
U m m

* » • W 5 3 # ther® n»r* good

t **

%h&

of Stop and

far bsliaidag that ofnara**

0r»tiK Opaa tfarkat ieaaa&t ia saearitiaa athar thaa t & U a aig»t

)UNi fraaa aara sffaotiaa in ( ^ ^ l a g tha rapid ptaMfet&f of aaaurity priaaa
ll Ifittt U b b « without ralaaiag asy ^*** f*daraX 8 # w m aradit than «»i
»n%li11j ralaaaad, tad &***&apa laaa.

Sarar&l Inftuaneoa feara

upm

tfaa m&©atia~

ftwrlH7 eos^itifl®# ia tka Mikott tfea Xaa$*tara 3 X/4 par caat feaada a d * fwr
-'x-%^3ipfljfp^1Lr
M U aa May 1 had tradad ata&dily At disaataita froa par aiaaa bafara tbair iaaua

dataf tha t raaaary had hmd aa unfarorabla ratpcmaa to it# big rafim&big af
;jigl|*laatag m 4 bm >ia ia tlia Xaat half of M f | a»4 tha m i aarilfiaataa had
fallaa ta a diaaanat feafara iaaaa$ it Ii&d baaossa loeraa»ta*iy apparaat that
bt
“* v
fettl traiiiiry had uadaraatiaatad ita «»sh aaada (p*rt5^mXariy aftar tha tiaaay
-

attrition ia tha rafandir**} and tha a&la of a aaw laaaa of Saptaafear tax
ftotiaijkatios feUla addad ta the praaa&ra* 1% tha aaitoatf aad atatanaata by
^faaaiisfy and % s t a a affieiala d&riag tha spring aaatiia had lad tha sas&ai
ta aaaaiala that **af* kit&#r iataraat vataa vara ia praapaot*

It aaaaot ba

n i l paaitivoiy at tbia diatasaa that parafcaaaa of bonda (and parfeapa par^iaaaa

af ^ a fi#*ta ta tha oartifiaata raf&adiag) v«ald haaa §*rava»tad or irraatXy
radsaaad tha jsri&a aroaiaa that oaaarrad, tat m r l e t aoureaa at tha tiasa iadiaatad that ainima p N l aaaa af tbia aart vaald bara W a n viavatl fey tha marfcat
aa ft «i|H that tfea % g t a » aaa dafiaitaly aaaearaad and iataadad ta ahaak aa^r
tan^attffy far tha ssa^cat to baaaaa prograaai^ly Ugfet«'r* It la avi4aatf howaaarf
that fWfefctaa af M X I a far % a t a * Opaa Marleat Aaaoant «ad tha aaa af ripmralia.ai

a p M M a t a (Ull ourehasea aad rapar^aaa agraaaanta aggrage tiag Bora than



~ 11 ~
Ji§ tallltei dollar* vara oatorad iato botnooa May U «ad M»y If) war# not
auffieiaai to turn tha ttdo ^rior t©

V*

* h a a f g r a a a ir a

parohasa of asoro than SO

a&XUoa dollar* of Hilo «t tho bottcw of tfco m a rk a t on fuooday* Jfca* I*
!**» on that day* smch of ih* r**i»toaoo to Jh* doeHs* gray oat »f th*
ajtaoltanaou* narahaaa

3*5 aillisa of loa$»tom bona* for fro*oary *eao^aia*

fteara vara w&doo^road remora that thosa vurefeaaea vara ia largar aaoirnt and
w r o actually ?** ifeo %«is» Opaa K&tfeot Account* It ban boon rojjortad that '
tfeaaa fallaoioao rsssora war* at Xoaat la part roopoaaiblo for tha oarfeot**
tWMfoaad

mM

reooraty*

m tom qam l

Aaothsr* though la s* # N ^ s t oooaotoa «haa transaction* la #*cn ri~

tiaa athar th*a bill* ss&^tii bar* ®»da an la£»ort*$t sontribatioa toward tha
broad
of

aim

o f 0ystoa policy

a aarlaa of

a a ca ritia * had

Ia r § *

ba*&

in

tfeo

sharply rsdaaad

was

6?#r

tha

rolaao

4*

o f ahort-tarw

tha

Kaoorvo Syaioa had

tha saddan,

sharp

tfeaafi

tho

* 4 *4 to tha iata m od iata a a ta rity nrnga*

IIW H m

*ho**«

to

so ta a ilv latoadod* vhilO

it ratoa on iatosaaadlato and loagor*4ar& iaasaa taadod to H*o*
radarul

aa

tha »pa<5o o f a fair ooathi# v h ilo

roon lt tma a *fearp daoliaa o f ahoiHNtom y la ld * dterint: tha airin g aewth*

i

raault

Tro«*u*y

< 1

la r a l* ladlaotiais aaalair aoaar

\ /

1?54*

spring ooath* o f

rofaading os>orationat

o<?ni*al*9ott volama o f iasaas
11

aroaa

at thia tiao to halp tha

aarteot

If tha

ad|tt*t to

la tha atractura of outstanding mturiiia* by galling

*hort»tom tosao* on ****** afaiaat tntarttodlatoa, tha iranaiiton to * loagor

mmm§* m aturity
t l m of rata*

la

than

tha

Yf*ft*aiy

MMk i l #

actually davalopad*

and tha *a rk *i

boan sonaidarably broador# Hat thi* cannot
of

judgjasnt.




bar* baan o ff*o t*d * lth l«aa d la i* * »

bo

proved,

tboa and later
It

might

hara

s»at ra^ala a aattor

1 2 »*■

It m s

no tad

aarii# r that

tho p fia e lp * !

?sdaraX Opoa lfcvteot Sos®&ttoo to ooafiaa

s<aa*14sr*tt*ft

I t s oporatioas

tha

Xaadiaf

i# Tmsurjr bill# ass

the dosirs to otlmloio groator broadth* daatli, and rosiliosoy la a fro*
varfcat* 4f»ilaUi ovidottoo

voald

iadio&to thot

farth*rod***t Xmmt not rooopiXsmblywby

tlio

©bjootivo

thin

oacal^alon

of

tho

h«» not

firsts*

boaa

Memm%

tv m m& trsnaaotiafia aatsld* tho M i l e»*rkot# At portad# i#oa tho mrfcot has
had particularly diffioalt adjaaiaont* to aafcaf c& m m ts bsro boon rocoivod
fraa

dosXors

m6

oi& *rs

t o t sossa aa&istsaea

froa

tho ^ratoa might

tealp

to

graaoto feraadsr trading* It has boon sold ttsut aggrsgpit# doaXor *paattios*a*
(tHo

i&TOntorlas *tii sh tofXooi tha

a-tftots at*o actually
too*Sos«j
o*Xy*

shrink in tho faco

to

hm

providing

son ttiM ti*#

tfeiXo

broador

thia aarkots
p rin cip al

and

and mora

bro&ath
of

to afetah tho .ptafasaioasis ob&

to

tho mttsot) haoo

now dosrsXopasnts a#

so proof

froa tho ifa ta a (porfespa ta k la t
promotsd a

«£i®at

tha

ssa feo

abjaotira

policy of «!AX%m

of sm#s) aaaXI

aaitost* tho ooAtlxmod

oosasioaal air paokots Xo&ds

m r o and ©or#

offorod t o t ooomslanai asalataaoa

fora Xarf# Xy

satisfactory

«bo

»h€3rw»

**Jes

to tha

a s ts a ily

bars

aslstftssa of

oonoladoa that tris

o f tha ahaags ia sxslloy bat aot f a t

boon attained*

* «uito uadoratandabXy, tho t*oal*rs tand to rodaco thair hoX??in£S
and to book aw*3r frsa offarln&s (if drappie# thoir bid <?*«oiatlooa) Hfeost
tondossaias toward vaakaass as*fsaar ia tho mr^ot* and to incroaao thoir holdings
aa# rsisa thoir b|4» afcaa tho aantoi jfeas* strength* Obviously this it* tha way
far dsslsrs to as*t*Ass thair prafits, bat It tand# to sooastmta tha itisfafi
ia pricas a a d to disoomrnia 'bread sad aeilvo trading by insraaiora* It la at
Xoast arguable th«t participation by tho Opoa Markot Account, to tho extant
of halting to adjust nRaroaaasa of sappiy-dtasaad relationship ia tha rsrloaa
mtaritioa, vsaXd toad to aXXori® to taa^rary distortions is the @ar^ot and
bolp to r re&oto ^ r«rk#t of gro&tor 4dapth, troadtfe, oa^ r^aiXiaaor*9