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Subjccti Background for the Meeting Chairman Marti*

Aa background for yetor Monday mMtia| v iib th« monetary
policy "Quadriad," this memorandum (a) summarise* recent
developments in the monetary sphere and (b) reports soma mis*
jiving* about possible future developments.

R ec en t V e r e lo p m e n t*

Within the framework of already existing policies and the
constraint Imposed by die balance ef payment* position, the fed
ha* continued to operate effectively to maintain relatively free
credit availability at stable to declining long-term interest rates*
Yield* ca long-terra government and private securities have re* .
| cently been la the neighborhood of their prevlon* lows lor the year
(reached last May)} hi some case* new lo w for the year hare been
set in the last week or two.
In part, this Is doe te tit* slowing down e f the pec* of economic^
expansion and the attendant weakening of the demand bn credit* How*
- erer, the fact that total bank deposit* and currency Increased by %
Z ;:
billion in October - - the largest month-to-month Increase this year
suggests that the f> d has recently been permitting some expension mi
total bank credit.
fre e reserves have been maintained at about $400 million.
The Treasury bill rate ba* recency been nudged «p to abeet
1, 6 percent to check outflow* e f capital to foreign center** 1* an ^
apparent effort to prevent the transmission of these upward pres•ares to long*term interest rntee, the Fed purchased nearly

$1C3 million of longer-torm (over one y«nr) *ecurltlet early (Ms
month* o££ifcttinj a portion of t&eta p ^ch isc* by eajci of chart*
tarra *ecurltlc».
Nothing further wa* don* thl# pa*t week, but th« early-Norember
"nudge" or M
twi»tH operation Kgeln d&niocstretec vtL&t can be done.

It. Apprehenelon* tor the Futjre
The three Council M«mbtri had lunch on Saturday with 0«orga '
Mitchell, your on* * m u minority on th« E ou d of Oortr«ort, Gcorge'a
serlou* re»erratloii* with reaped to current domestic mooetary policy,
and hi* proposal* for change ere io a m «r li»d In the attached copy otf
hi* remark* at U it veek’* me*ting of
fo d Op*tt~Mark«t Conaniittae«
Hit even more b&*ic concern (not included in hit written rernarke)
i* with pc»*ibl* development* on the International front, and with the
*e*pon*e that ha fear* would amerg* if wa eaperlascad the auddea trial*
of a run on the dollar* Unlea* wa prepare carefully la advance for fuek
a c rU ii, ha feel* that tha inevitable raaponaa vould be ft efcarp and
drastic tightening of credit and related mea* urea which would not&niy '
hav* bad domtitle conae^oaucea, bat **t back t o t y*ar* tha pro*pt«t*
for eon* tractive darelopmeat* U iatamatf»aal monetary (otptretlM . ■
Although you hara In ap«ration a AoMjatftfcafeoa long-range bal­
ance of payment* and International monetary problem*, it may ba
adviaahl* to turn aur attention back to *hort~|na preparedne** on tMi

WaUar V. HeUar

Comment* oi Oovanior Ga&ygf Mitchell
ljt 19^1

Tcrci^lsH^g policy la l?ia cm rent economic airaosp&#ra It
exceptloyally dlXflctilt.
l'Sfct pervastly*


of aaetfctr

e»rU «r, l«st

thrutt tlio »«em to b )

po»t*ar-typa raeaealoa team

fo r a tas&tlaabla tlgsdilca&t wjh>

rabidly /a<fla$ lido th« obllrioa

d "eo


Tha eetmomy con*lac a* to akaoifc |olt* *• boGvecor^omlc and political* '
tsU rcal aad irdarzatlooal *•

feet It d^ea It *t par capita *«ro , 1 .*,, wtfl*

deflated GHP p*1
! capita &owt&g ad cfgrj ftcyrt chaaga, a# U dld Vcftr*ea


teccrcd and third ^a&rtara tad probably will fcetwwa tka third aad

fourtlu Aa acsndmy la vttlck OK? 1 not rlalag faatav fhaa tba grovc-fk
in population t« oo* fh# Ima^t wa k a rt at o w m Iw i aa* oaa (bat «4 vaat

o&ara ta kar*


aa* It ceoforma aaltkar t« oar &etda w r o u aapicadoaa

aad U la a ^ _ a »


: ' : L' . : 't
' , :^ ' ! ?

SometMag v ill feappe* wklcfc W ill s tir (ba acaaoray trots par capita '
•era, Emay ta ila g fr* raogwttfcaT^ y oot, fartadfagft+ fayalgfca^'
vaicMaf KalpUtaly, gt aaa/ gat «p aad fa. ftllawtag a pwWtanftal redaction

la taxat at

aq^danHal liuraaaa U dafanaa tpaadBagf ft w*ald mara auraly

^a la a ga paetttaa tf irapaaftry policy gara d * lacyaattagly aari* a» l ow i iHl
a«ada a Idghat p rtartty tkaa tt glvaf Am fadtractahla yraMam atf tryteg ta
r i h h l i aa arftifl<iat »ate «eractara 0 w


t ^ k ^ fir ^ ^


Tr.a problem Is a^proi.chtr.3 a crlrii ftsvj® bscseta tko #art cf
ecs-^ca/ wo fears it geacrfctlaj a largo tnd tacr«4 §loj amcnmt c f seringa#
•which la tw3 fy?a plAy of market* would bo pul to *rork ky <!U?pro3tiag (!b«

Ir r J a f c c t T B t a c i m e t ’u r e .


Uso c o jp o r e .t * a r e a , * k l ^ k t * v o l o l p r o f i t *

* grcwlnj >o!nm« of iepr«c!it!on ciar^e* It bcirj maintained whllo


Isrt-l^ry epea€lng it rcducct! as4 capital t?*o£lag It irvollng oil* Tlx# ■
rceuli pcJc.t# tc**‘sur4 A flat ol bucket fl fuad* *vmil*bl* fa* inroctmeat
*3 4 a doclls® la capital flaancl&f fko*4j» la tbo co&rumtr ajr&a* Cows .

of Barl&£t ccciliai# to gww, >i UaM tVoit ( b i « w bo e&UforUod m




"jy »d l*«re ti«m rf. * Dob* repayzooai* aro b^fiaalog to catck «p vttk

n«w debt ext*a*locta» 4*4 Ci# velara* of tftvjaf• flowing fo poaalca fuad#
aai InaararKf companion ffMr* wttk tffuUxUf. At tho Dm * tix e* wo-"
teem to bo getting a aMft la ft* ttrmcturo c cotnaey *atta& wtlfc ffca
dodlBo la

*t<xk market a*4 Iko AmtalAol aralUMIIty o f eojyorato

*Ad caunMpti getatice# forcing a dlroxiioa ol **▼!*§• lato tkrift

. .v'
‘^ ' * V»

rw "

: ••• ' V : . .

; ’<■


rs '

■ \;

jLgaiatt CM# backgrooaJ of rUtag prtrato aartagt a»4 4^cMaiag
' ; V f- * - •' . .
; ■■

' ^ 4 v ' ^ - . r .:



pHrato ow<fit m »<U, 6 t y * 4onl Cora<Mo>t 4 w «i*tapyoar to W m 4|,

w a ctmtraefdlcal f t m

, at lout ?o*«g!k fiscal acttau f W o A W t g i



& i5' ' />'
Y T “ :o

,^4:•... -s

- •^ j r =^I4c

waa la balaaco la tka aoeoai ^oartor, <a* » aoam allf W jv iU i k i U ,

Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102