View PDF

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

MEMORANDUM FOB. THE PRESIDENT

Subjccti Background for the Meeting vri.th 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.
L

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* .
t
| 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
froot*

WaUar V. HeUar
Enclo»ure*




CONFIDENTIAL
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*

Fearc

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

ckaaga#**;

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
,:t
-

tht

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
’?
3S

o&ara ta kar*

m

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
aa




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«
c>v

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

h

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-"
rw
teem to bo getting a aMft la ft* ttrmcturo c cotnaey *atta& wtlfc ffca
i
dodlBo la

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

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

. .v'
‘^ ' * V»
'

rw "

: ••• ' V : . .
-'
'

-.
; ’<■

V
'

rs '

■ \;
:

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

'
' ^ 4 v ' ^ - . r .:

:

e,-v

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
i
>
'
3

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

^'^-*-*:4
'r,

z

& 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