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N o v em b er 2 4 , 1971

D e a r M r . P r e s id e n t:
I fu lly u n d e rsta n d y o u r i n t e r e s t in th e q u e stio n of w hat is
happening to the m o n ey supply, and 1 h av e a lr e a d y in fo rm e d
you co n fid en tially of th e p o licy th a t I h a v e s e t in m o tio n .
You m a y a ls o be in te r e s te d in w hat I r e c e n t l y s ta te d p u b licly
(N o vem b er 1 1, 1 9 7 1 ) in an a d d r e s s a t th e New Y o rk S to ck
E xch an ge:




"T h e fin a n cia l c lim a te in o u r co u n try is b ro a d ly
co n d u civ e to b u s in e s s exp a n sio n .
"T h e c o m m e r c ia l banks a r e in a highly liquid
co n d itio n , a s is c l e a r f ro m th e f a c t th a t th e y h a v e
i n c r e a s e d th e ir holdings of m a rk e ta b le s e c u r i t i e s
by o v e r $ 3 5 b illio n s in c e th e end of 1969 , b e s id e s
m aking m a s s i v e re p a y m e n ts of t h e ir b o rro w in g in
th e E u r o - d o l l a r m a r k e t and d e c r e a s in g th e ir in ­
d e b te d n e ss to th e F e d e r a l R e s e r v e b an k s.
"T h e sa v in g s and loan a s s o c ia tio n s and m u tu al
sa v in g s banks a r e enjoying r e c o r d sa v in g s in flo w s.
T h e ir g ain s in the f i r s t 10 m o n th s of th is y e a r to ta l
$ 3 1 b illio n , c o m p a re d w ith $16 b illio n in a ll of 1970
and $ 7 b illio n in a ll of 1 9 6 9 .
"T h e liq u id ity of n o n -fin a n c ia l b u s i n e s s e s - - a s
e v id e n ce d by th e r a tio of quick a s s e t s to to ta l c u r r e n t
l i a b i l i t i e s - - h a s a ls o been ris in g s i n c e th e m id d le of 1 9 7 0 .

-2-

" M o r e o v e r , th e in flation p re m iu m in i n t e r e s t r a t e s
is in p r o c e s s of being squ eezed out. I n te r e s t r a t e s h ave
fa lle n s h a rp ly s in c e m id -A u g u st and y e s t e r d a y 's d e clin e
in th e d isco u n t r a t e re c o g n iz e d th a t f a c t .
" F i n a l l y , I ca n a s s u r e you th a t m o n e ta ry p o licy w ill
continu e to f o s t e r o r d e r ly e co n o m ic exp a n sio n .
" T h e g ro w th of the n a rro w ly defined m on ey s u p p ly -th at i s , c u r r e n c y in c ir c u la tio n plus d em and d e p o sits
in public h a n d s - - h a s been a t a 7% annual r a t e f r o m
D e c e m b e r 1 9 7 0 to O cto b er 1 9 7 1 . T r u e , grow th in
th is n a r r o w ly defined m oney supply h a s slow ed in th e
p a st few m o n th s . H o w e v e r, b ro a d e r m e a s u r e s of m on ey
continue to show m o d e r a te ex p a n sio n .
"S o m e o b s e r v e r s h av e p ro je c te d th e r e c e n t slow
grow th of th e n a r r o w ly defined m oney supply into the
fu tu re , and th e y h a v e e x p r e s s e d c o n c e r n . W hat th e s e
o b s e r v e r s fa il to r e c o g n iz e is th a t the r e c e n t slow grow th
is a te m p o ra fy d e p a rtu r e f ro m a lo n g e r ru n m o d e r a te
g row th p ath . T he only re s p o n s ib le p ro je c tio n th a t c a n
be m a d e ab ou t F e d e r a l R e s e r v e p o licy is th a t th e S y s te m
w ill p ro v id e ad eq u ate r e s e r v e s to fin an ce a v ig o ro u s ,
but s u s ta in a b le , e x p a n sio n . ”
r
S in c e re ly y o u r s .

A rth u r F . B u rn s

T he H o n o rab le R ic h a r d N ixon
T h e P r e s id e n t of th e U nited S ta te s
T h e W hite H ouse
W ash in gto n , D. C .




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