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FEDERAL RESERVE BANK
OF NEW YORK

r Circular N o. 3 7 9 6 1
L Decem ber 20, 1951 J

T o all Financing In stitution s in the
Second Federal R eserve D istrict:

E nclosed is a reprint o f the leading article in the Federal R eserve

Bulletin fo r N ovem ber 1951, entitled “ V oluntary A ction to H elp Curb
Inflation. ”

It describes the events leading to the establishment o f the

V oluntary Credit R estraint P rogram , review s the principles o f the
P rogram , and evaluates its effects. W e believe that this inform ation
will be o f special interest to you and w ill be useful in explaining the
principles o f the P rogra m to you r custom ers.




A dditional copies o f the reprint w ill be furnished upon request.

A llan

S proul,

President.

VOLUNTARY ACTION TO HELP CURB INFLATION

Since t e s a t o t e Korean war, s v r l
h tr f h
eea
new measures have been introduced and
e i t n measures used more i t n i e y f r
xsig
nesvl o
t e purpose o curbing i f a i n r p e s r s
h
f
nltoay rsue
which r s l i p r from e c s i e c e i ex­
eut n at
xesv rdt
pa sion. One o t new measures, th Vol­
n
f he
e
untary Credit Re t a n Program, provides
srit
on a nationwide b s s a means whereby al
ai
l
major groups of lending i s i u i n can par­
ntttos
t c p t i an o e - l e f r t help check i ­
iiae n
vral fot o
n
f a i n The cooper i e e f r s o p r i i
lto.
at v f o t f a t c ­
pants i t i Program t c r a l t e u e o
n hs
o uti h s f
c e i f r s e u a i e purposes and t d v r
rdt o pcltv
o iet
funds from n e s n i l t e s n i l u e
on s e t a o s e t a s s
have been very help u i li t ng o e - l
f l n mi i v r a l
c e i expansion while a t e same time a ­
rdt
t h
s
suring adequate funds f r t e defense e f r .
o h
fot
The Voluntary Credit R s r i t Program
etan
was e t b i h d a a supplement t , r t e
salse s
o ahr
than a a s b t t t f r general c e i r ­
s
u s i u e o,
rdt e
s r i t measures. I i very d f i u t t ap­
tan
t s
ifcl o
p a s t e o e - l c e i needs of t econ­
rie h vral rdt
he
omy or t s y whether t e granting o a
o a
h
f
p r i u a loan may have undesirable i f a
atclr
nl­
t o a y r p r u s o s By screening r q e t
inr eecsin.
euss
f r s o t and long-term financing on t e
o hrh
b s s o broad c i e i f r e s n i l and nonai f
rtra o s e t a
e s n i l u e , however, lending i s i u i n
seta ss
ntttos
can help t r s r i o e - l c e i expansion
o etan vral rdt
and a s r t a a a l b e funds a e employed
sue ht vial
r
f re s nil p p s s
o s e t a ur o e .
The e f c i e e s o any measure o pub­
fetvns f
f
lcp l c depends t a g e e t n on a f l
i oiy
o r at x e t
ul
understanding o is l m t t o s a w l a
f t iiain s el s
is c p b l t e . To expect t e Voluntary
t aaiiis
h
Credit R s r i t Program t do more than
etan
o
i i capable o doing would be a damaging
ts
f
s
t is s c e s a would isown f i u e t em­
o t ucs s
t
alr o
ploy f l y t means a is d s o a . Since
u l he
t t ipsl
t e Program i dependent on t support
h
s
he
which i g t from lending o f c r , p b i
t es
fies u l c




ofcas businessmen, and the general pub­
fii l,
lc a b i f statement of is o j c i e and
i,
re
t betvs
methods o operation may be u e u .
f
sfl

R E P R IN T E D
FEDERAL
FOR

N e e d f o r C r e d it R e s t r a i n t

I became apparent soon a t r th out­
t
fe
e
break o war i Korea t a comprehensive
f
n
ht
measures would have t be adopted f r t e
o
o h
purpose of r s r i i g i f a i n S e u a i e
e t a n n nlto. p c l t v
and s a e buying by i d v d a s and bu
cr
niiul
si­
n s e i a t c p t o of defense needs and
ess n niiain
p s i l wartime sh r g s brought about a
osbe
o ta e
rapid advance i p i e during the summer
n rcs
o 1 5 . Much o t i buying was f n n e ,
f 90
f hs
iacd
from e t e c oi e or n c s i y with bor­
ihr h c
eest,
rowed funds, and t e r s l i g expansion
h eutn
o t e money supply helped t s s a n and
f h
o uti
multiply i f a i n r p e s r s
nltoay rsue.
The Defense Production Act o 1 5 ,
f 90
which became e f c i e September 8 au­
fetv
,
t orized the establishment of s l c i e regu­
h
eetv
l t o s t r s r i consumer instalment c e i
ain o etan
rdt
and some forms of r a e t t mortgage
el sae
c e i . While consumer instalment c e i
rdt
rdt
regu at o had an almost immediate e f c i
l in
fet n
t a a e , t impact of t r a e t t mort­
h t r a he
he e l s a e
gage c e i r g l ti n was considerably de­
rdt e u a o
l y d l r e y because of loan commitments
ae, agl
made p i rt the e f c i ed te of r g l t o .
ro o
fetv a
euain
The Act did n t however, a t o i e ex­
o,
uhrz,
cept on a voluntary b s s th reg la i o
a i , e u t on f
such other important c e i a e s a b s n s
rdt ra s uies
and S a e and l c l government borrowing
tt
oa
o conventional mortgage lending on e i t
r
xs­
ing p o e t e . During the l s h l of 1 5 ,
rpris
at a f
90
c e i i t e e a e s continued t expand i
rdt n hs ra
o
n
response t demand. Business borrowing
o
from commercial banks r s 5 b l i n dol­
oe
ilo
l r, a shown i t e t b e while both S a e
as s
n h al,
tt
and l c l government and corporate new
oa
FROM

RESERVE
NOVEM BER

B U L L E T IN
1951

VOLUNTARY

A C T IO N

TO

long-term financing remained a f i l high
t ary
lvl.
ees
In cr e a se s

in

Selected

T ypes

of

C r e d it ,

1 9 5 0 -5 1

[In b illion s o f dollars)
S ecu rity issues

C on­
sum er
loans

R eal
estate
m ort­
gage
loans

4 th Q . .

-0 .5
1 .3
1 .7
0 .8

1 .8
2 9
3 .0
3 .1

0 .0
-0 .1
2 .5
2 .5

1.1
1 .6
0 .9
1 .3

1 .2
0 .9
0 .8
0 .7

1951— 1st Q . .
2 nd Q . .
3 rd Q . .

-0 .7
-0 .1
0 .1

2 .5
2 .9
2 .3

1 .8
-0 .1
1 .0

1 .6
2.2
1 .4

0 .6
1 .0
0 .8

Period

1950— 1st Q . .
2nd Q . .

loa n s o f
com m er­
cia l banks

C orp o­
rate new
capital

S ta te and
local g o v ­
ernm ent

S ou rce.— F ederal R eserv e B oard , H o m e L oa n B ank B oard ,
D e p a rtm e n t o f C om m erce, Securities a n d E x ch a n g e C om m ission ,
a nd B on d B u yer.
N o t e .— D a ta o n con su m er a n d real esta te m ortg a ge credit and
com m e r cia l b a n k business loa n s represen t net changes in ou tsta n d ­
in g a m o u n ts; th ose o n c o r p o r a te new ca p ita l a n d Sta te a n d local
g o v e r n m e n t se c u rity issues are gross a m ou n ts o f n e w issues w ith
n o a c c o u n t ta k en o f retirem ents o r red em ption s.

I was expected t a m t r a s a l c t o s
t
ht a e i l loain
and s o t g s building r s r c i n , and s ­
hrae,
etitos
e
l c i e r s r i t of r a e t t mortgage
etv etan
el sae
c e i would i time n c s i a e some over­
rdt
n
eestt
al curtailment of investment e p n i r s,
l
x e d tu e
including b si e inventory accumulation
u n ss
and plant and equipment expe d tu e S a e
n i r s, t t
and l c l government c p t l ex e di u s
oa
a i a p n t re ,
and r s d n i l c n t u t o . N v r h e s,
eieta o s r c i n
e e t el s
the outlook f r 1951 was f r a s b t n i l
o
o
usata
volume of investment, some e s n i l t t e
seta o h
defense e f r but some n n s e t a and de­
fot
oesnil
f r a l . A t t l volume o investment a
erbe
oa
f
s
l r e a t a a t c p t d f r 1 was bound
a g s h t n i i a e o 951
t itniy ifainr pesrs epcal
o nesf nltoay rsue, seily
i financed through borrowing which r ­
f
e
s l e i a d i n t the money s p l , and
u t d n d it o s o
upy
even t some e te t i financed from p s o
o
x n f
at r
current s v n s The problem, t e e o e
aig.
hrfr,
was one of d ve t g l b r and m t r a s
i r in a o
aeil
from n n ss n a u e t defense produc­
o e e ti l s s o
t o and th expansion o b s c i d s r a
in
e
f ai nutil
c p c t , employing whatever measures were
aaiy
a a l b e and could be used e f c i e y t
vial
fetvl o
accomplish t i d v r i n
hs i e s o .
Since a s b t n i l p r of t e investment
usata at
h
contemplated by i d v d a s b s n s e , and
niiul, uiess
S a e and l c l governments would be f­
tt
oa
i
nanced with funds obtained from banks,
insurance companies, and other financing
i s i u i n , t e r s r c i n o such f n n ntttos h etito f
iac
2



H E L P CURB IN F L A T IO N

ing could a d i the di e s o o l b r and
i n
vrin f ao
m t r a s t e s n i l p o e t . The Defense
a e i l o seta rjcs
Production Act of 1 5 , i Sec o 7 8 au­
9 0 n ti n 0 ,
thorized financing i s i u i n t e t r i t
ntttos o n e n o
voluntary agreements and programs t r ­
o e
s r i c e i i such manner a would f r h r
tan rdt n
s
ute
the o j c i e of the Act. Voluntary r ­
betvs
e
s r i t of t i type would require the a t v
tan
hs
cie
cooperation of s p l e s of short-term work­
upir
ing c p t l a well a long-term investment
aia s
s
funds.
I s i u i n l i v s o s including lf and
ntttoa netr,
ie
property insurance companies, commercial
and mutual savi s banks, and savi g and
ng
ns
loan a s c a i n , a e a present t e p i c p l
soitos r t
h rnia
s ur e of long-term investment funds, while
o cs
commercial banks have long been major
s u c s of short-term b s n s c e i . Dur­
ore
u i e s rdt
ing t postwar period 1 4 - 0 a di i s t
he
9 6 5 , d t on o
th investment p r f l o of t e e i s i u
e
otois
h s ntt­
t o s accounted f r 88 per cent of the i ­
in
o
n
c e s i r a e t t mortgage d b , and f r
r a e n el sae
et
o
77 per cent of the i c e s i long-term co ­
nrae n
r
porate and S a e and l c l government d b .
tt
oa
et
IN S T I T U T IO N A L H O L D IN G S

O F D E B T , D EC EM B ER 1950

REAL ESTATE
MORTGAGE

CORPORATE
LONG TERM

STATE ANO
IO C A I GOVERNMENT

FEDERAL
GOVERNMENT

0

50

100

to ta l

o u ts ta n d in g

150

200

250

Billions Of Dollori
N o t e . — F ig u r e s

on

d eb t:

D ep a rtm en t

of

C om m erce estim ates. F ig u r e s on in stitu tion al h o ld in g s : life in ­
su ra n ce com p an ies— In stitu te o f L ife In s u r a n c e ; p r o p e r ty in ­
su ran ce com p an ies— T h e S p e c ta to r In su r a n c e Y e a r B o o k ; m u ­
tual sa v in g s banks— N ation al A s so cia tio n o f M u tu a l S a v in g s
B a n k s ; com m e r cia l banks— F ed era l R e s e rv e S y s t e m ; sa v in g s
and loan a ssocia tion s— H om e L oa n B ank B oard .
T o t a l lon g-term c o r p o r a te debt, d efin ed as deb t h a v in g an
o rig in a l m a tu rity o f on e y ea r o r m ore fr o m date o f issu e, e x ­
clu d es in tercorp ora te b o rro w in g .
F ed era l and S ta te and local
g ov ern m en t deb t in clu d es both sh ort- a n d lon g-term b u t ex clu d es
p o rtio n held b y a ge n c ie s and trust and sin k in g fu n d s.

At t e end o 1 5 , a shown i the c a t
h
f 90 s
n
hr,
they held t r e f u t s of a l r a e t t
he-orh
l e l sae
mortgage d b , over h l of a l S a e and
et
af
l tt
l c l and long-term corporate d b , and over
oa
et
t o f f h o Federal debt outstanding.
w-its f
I t e investment and lending a t v t e o
f h
ciiis f

VOLUNTARY

A C T IO N T O

t e e financing organizations could be d ­
hs
i
r c e , through a program of voluntary
etd
c e i r s r i t toward t e r s r c i n o
r d t etan,
h etito f
s e u a i e u e o c e i and the di e s o o
pcltv ss f rdt
vrin f
funds from n n s e t a t e s n i l pur­
o e s n i l o seta
p s s t e e was a r a p s i i i y t a such
oe, h r
el osblt h t
a t o would help t check i f a i n r p e ­
cin
o
nltoay r s
s r s and f c l t t th d v r i n of l b r
ue
aiiae e i e s o
ao
and m t r a s t e s n i l u e .
a e i l o seta ss
In accordance with the p o i i n of t e
rvsos
h
Defense Production Act of 1950 and r l t d
eae
e e u i e o d r and upon i v t t o of t e
xctv re,
niain
h
Board of Governors of t e Federal Reserve
h
System, r p e e t t v s o commercial banks,
ersnaie f
lf insurance companies, and investment
ie
bankers undertook t s t up such a program.
o e
Following a s r e of conferences t a began
eis
ht
i the f l of 1950 t e e emerged, on March 9
n
al
hr
,
1 5 , a program o voluntary c e i r s r i t
91
f
r d t etan.
With t e approval of t e Attorney General,
h
h
a l t e was s n by the Board t a l p i a e
etr
et
o l rvt
financing i s i u i n i t e United S a e ,
ntttos n h
tts
requesting t e r cooperation i accomplish­
hi
n
ing t e o j c i e of th Program.
h betvs
e
Adequate safeguards were e t b i h d by
salse
th Defense Production Act t a s r t a
e
o sue ht
t e e would be no infringement o a t ­
hr
f ni
t u t s a u e . A r p e e t t v o t e Fed­
r s ttts
ersnaie f h
e a Reserve System i present t re r s n
rl
s
o peet
t e p bl c i t r s i p a t c l y a l r g on l
h u i neet n rcial l e i a
or n t n l meetings of t o e taking p r i
a io a
hs
at n
the Voluntary Credit R t a n Program.
es r i t
Moreover, t e Program by is very nature
h
t
excludes one of the primary i c n i e t
netvs o
c l u i e a t o by c l i g f r the l m t t o
olsv c i n
aln; o
iiain
of lending a t v t and hence o lenders’
ciiy
f
pois
rft.
In c n r s t general measures which i ­
otat o
n
f u n e the o e - l supply o c e i , and s ­
lec
vral
f rdt
e
l c i er s r i t which i f u n e t e demand
etv etans
nlec h
f r s e i i t e o c e i through regula­
o p c f c yp s f r d t
t o of loan terms and c n i i n , t e Vol­
in
odtos h
untary Credit R s r i t Program s e s t
etan
ek o
d r c t e flow o c e i away from noniet h
f rdt
e s n i l and s e u a i e u e by the volun­
seta
pcltv ss
t r a t o of len e i approving or d s
ay cin
d rs n
i­
approving a p i a i n f r f nd . To do
plctos o u s
t i i has been n cessary t have c r a n
hs t
e
o
eti
c i e i t a would be of a d i a s s i g
rtra h t
i n sesn



H E L P CURB IN F L A T IO N

o j c i e y t e merits o i d v du l loan
betvl h
f nii a
a p i a i n and proposed bond and s o k
plctos
tc
o f r n s i r l t o t o e - l economic
f e i g n eain o vral
c
onditions and requirements.
R s o s b l t f r formulating and apply­
epniiiy o
ing such lending c i e i r s s with t e i ­
r t r a et
h n
s i u i n p r i i a i g i t Program. For
t t t o s a t c p t n n he
t e r guidance the Board of Governors has
hi
drawn l a e s from the p i a e lending f e d
edr
rvt
il
together i a National Voluntary Credit Re­
n
s r i t Committee. The f nctions o t e
tan
u
f h
National Committee include t formula­
he
t o o appropriate general lending stand­
in f
ards t a may be applied throughout t e
ht
h
country and t e coordination o the work
h
f
of numerous r i
eg onal committees. The r ­
e
gional committees, whose members a e ap­
r
pointed by th National Committee, a s s
e
sit
the thousands o p r i i a i g financing i ­
f atcptn
n
s i u i n i applying t e es a d r s While
tttos n
hs tnad.
n it e the National Committee nor t e
e hr
h
r gional committees have any a th r y t
e
u o it o
d r c t p l c e o t cooperating f n n ­
i e t he o i i s f he
iac
ing i s i u i n , they can and do e e t con­
ntttos
xr
s d r b e i f u n e on t e thinking and de­
ieal nlec
h
c s o s of lending o f c r and upon prospec­
iin
fies
t v borrowers who know o the Program
ie
f
and a e i sympathy with is p i c p e and
r n
t rnils
ojcie.
betvs
The o i i a conference group, i prepar­
rgnl
n
ing the Statement of P i c p e , and t Na­
rnils
he
t o a Committee, i d fting t e B l e i s
inl
n ra
h ultn
which explain the a p i a i n of t e e p i c ­
plcto
hs rni
p e t s e i i c e i a e s were f l y aware
l s o pcfc r d t ra,
ul
of t e d f i u t e t a would be involved i
h ifclis h t
n
formulating and applying comprehensive
and p e i e r l s and r g l t o s t accom­
rcs ue
euain o
p i h th purposes oft Program. Moreover,
ls e
he
i was f l t a d t i e r l s and r g l t o s
t
et h t e a l d u e
euain
would not be compatible with t e voluntary
h
c r ct r of the Program, and might w l
ha a e
el
discourage many i s i u i n from even a ­
ntttos
t
tempting t p r i i a e
o atcpt.
I was deemed b t e t phrase t e stand­
t
etr o
h
a
rds i f i l broad terms, t t y t ex­
n ary
o r o
p e s a point o view r t e than a h s o
rs
f
ahr
ot f
d t i e and s e i i c i e i f r lending
eald
pc f c rtra o
p a t c s and t r l upon t w ll n e s o
rcie,
o ey
he i i gn s f
lending i s i u i n t conform t the s i i
ntttos o
o
prt
3

VOLUNTARY

A C T IO N

TO

of th Program. Hence, lending s andards
e
t
s t f r i i i l y i t e Program’ Statement
e o th n t a l n h
s
of P i c p e were very general i c a a t r
rnils
n hrce,
attempting primarily t d s i g i h between
o itnus
financing which contributed t the produc­
o
t o and d s r b t o of e s n i l goods and
in
itiuin
seta
s r i e and financing which served merely
evcs
t e f c a t a s e of ownership of e i t n
o fet r n f r
xsig
s c r t e or p y i a a s t or t permit
euiis
h s c l ses
o
s e u a i e purchases o s c r t e and com­
pcltv
f euiis
mdte.
oiis
A

reas o f

R e s t r a in t

As th Program developed, more s e i i
e
pcfc
lending standards were formulated t guide
o
r s r i t i p r i u a c e i a e s In gen­
etan n a t c l r r d t ra.
e a , th a e s s l c e by t e Committee
rl e r a e e t d
h
have been t o e i which a t a or a t c ­
hs n
cul
nii
pated expansion o c e i was s b t n i l
f rdt
usata,
s a u o y s l c i e c e i r s r i t were not
t t t r eetv r d t etans
a p i a l , and f r which the f n n i l i s i
plcbe
o
i a c a nt­
t t o s p r i i a i g i th Program were a
uin atcptn n e
major source o c e i . Between March and
f rdt
September 1 5 , the National Committee
91
i s e ' s x B l e i s s t i g f r h gen a
sud i ultn, etn o t
er l
p i c p e t guide p r i i a t i meeting
rnils o
atcpns n
demands f r inventory l a s b s n s c p ­
o
on, u i e s a i
tl expenditure f n n i g S a e and l c l
a
iacn, tt
oa
government borrowing, c r a n t p s o r a
e t i y e f el
e t t c e i , borrowing by f r i n r , and
sae rdt
oeges
borrowing on u l s e s c r t e . Of t e e
n i t d euiis
hs,
the frtfour a e o most widespread i t r s ,
is
r f
neet
and a e d s u s d i some d t i i th f l
r icse n
eal n e o­
lowing s c i n .
etos
In v e n to r y L oans

In t months following t outbreak o
he
he
f
war i Korea, b s n s i v n o i s expanded
n
uies netre
s a p y Between June and December 1 5 ,
hrl.
90
t t l book v
oa
alue of manufacturing and t a e
rd
i v n o i s r s n r y 8 blin dlas
n e t r e o e ea l
ilo olr.
Much of the i c e s was i raw m t r a s
nrae
n
aeil,
and a good p r of i was financed with bank
at t
c e i . For example, purchased m t r a s i
rdt
aeil n
t e hands of manufacturers i c e s d n a l
h
nrae ery
3 5 b l i n d l a s or 30 per c n , i the ls
. ilo olr,
et n
at
s x months o 1 5 , and manufacturers’
i
f 90
i v n o i s of goods i pr c s and whole­
netre
n oes
s l r ’ i v n o i s each r s about 1 p r
aes n e t r e
oe
8 e
cn.
et
4



H E L P CURB IN F L A T IO N

During t i same p r o , a shown i t e
hs
eid s
n h
c a t b s n s loans o commercial banks
hr, u i e s
f
i c e s d about 5 b l i n d l a s A major
nrae
ilo olr.
p r o t i i c e s appears t have repre­
a t f hs n r a e
o
sented l a s f r purchasing or carrying i ­
on o
n
v n o i s A s e i l survey of b s n s l a
etre.
pca
u i e s o ns
made by t e l r e weekly reporting mem­
h agr
ber banks between June 28 and November 1
r v a d t a 60 per c of th ne funds
e e le h t
ent
e t
advanced was estimated t be inventory
o
l a s of which more than 80 per c was
on,
ent
advanced t d a e s and p o e s r o a r ­
o elr
rcsos f gi
c l u a commodities.
utrl
C O M M O D IT Y PRICES,
BUSIN ESS IN V E N TO R IE S . A N D B A N K L O A N S

N o t e .— P rices , B u rea u o f L a b or S ta tistics in d e x fo r 28 b asic
com m od ities, la st w eek iu m onth.
B u sin ess loa n s in clu de co m ­
m ercia l and in du stria l lo a n s o f all in su red com m ercia l b an k s at
en d o f m on th ; J u n e and D ecem b er fig u res fr o m ca ll rep orts
o f F ederal D ep osit In su ra n ce C orp ora tion , oth er m onths esti­
m ated b y F ed era l R e s e rv e fr o m w eek ly rep ortin g m em ber bank
data.
In v en tories , U . S . D epa rtm en t o f C om m erce da ta on
total m a n u fa ctu rin g a n d tra d e in v en tories at en d o f m on th ;
bonk v alu e, u n a d ju ste d fo r seasonal v ariation.

While t e e groups customarily borrow
hs
r t e heav l from banks in t e l s h l
ahr
iy
h at a f
of t e y a , such borrowing and th inven­
h er
e
t r accumulation t a i permitted were sub­
oy
ht t
s a t a l l r e i 1950 than was required
tnily a g r n
f r t e ord rl movement of a r c l u a
o h
e y
giutrl
c o s That s e u t on was an important
rp.
p c la i
element i t i period i in i a e by t e
n hs
s dctd
h
sharp p i e i c e s s which oc
rc nrae
curred. The
average o 28 b s c commodity p i e ad­
f
ai
rcs
vanced 50 per c between end-of-June 1950
ent
and mid-January 1 5 . I v n o i s continued
91 n e t r e
t r s sharply through t e e r y months o
o ie
h al
f

V O L U N T A R Y A C T IO N T O

19 and were a e t a r i a i y high l v l
51
t xrodnrl
ees
i mid-March when the National Commit­
n
t e held is i i i l meeting and s l c e t i
e
t nta
e e t d hs
a e a t s b e t o is frt B l e i .
r a s he u j c f t is u l t n
The Committee pointed out t a e c s i e
ht xesv
inventory accumulation had contributed d ­
i
r c l t a r s i wholesale and r t i p i e
e t y o ie n
eal r c s
t l v l beyond t o j s i i d by t supply
o ees
h se u t f e
he
s t a i n and t a an important p r o t e
iuto
ht
at f h
abnormal inventory i c e s was being f­
nrae
i
nanced with borrowed money. The Com­
mittee expressed t e hope t a al p r i i a ­
h
ht l atcpt
ing financing i s i u i n would r f a n from
ntttos
eri
financing inventory i c e s s above normal
nrae
l v l r l t v t s l s or reasonable require­
e e s e a i e o ae,
ments a determined by other a a l b e yard­
s
vial
s i k , and a s t a a l p r i i a t would
tcs
lo ht l atcpns
encourage borrowers who already had e c s
xes
i v n o i s t bring them i l n a promptly
netre o
n ie s
a p s i l i order t reduce t e amount o
s osbe n
o
h
f
c e i o t tanding.
rdt u s
Plant

and

E q u i p m e n t F in a n c in c

Pr
ospects o good b s n s f r some time
f
uies o
t come and o ma e i l and equipment
o
f tras
sh
ortages t a would r s l from i c e s d
ht
eut
nrae
defense production, a w a the n c s i y
s ell s
eest
o expanding productive c p c t f r such
f
aaiy o
v t l m t r a s a s el aluminum, and pe­
i a a e i l s te,
troleum, encouraged businessmen t r v s
o eie
t e r c p t l expenditure plans sharply up­
hi aia
ward i th months following t e outbreak
n e
h
o war i Korea.
f
n
Early i 1 5 , according t surv y made
n 91
o
es
by t e Department o Commerce and Secu­
h
f
rte and Exchange Commission, b s n s e
iis
uiess
a a group were planning t spend nearly 24
s
o
b l i n d l a s during the current year f r
ilo olr
o
the enlargement and modernization of t e r
hi
fclte. These e r i r e p c a i n , which
aii is
ale x e t t o s
now appear t have understated th a t a
o
e cul
1951 volume of plant and equipment out­
l y ,c l e f r a t t lexpenditure one-fourth
as a l d o oa
l r e than the previous peak expenditure of
agr
1 . b l i n i 1 4 . Such major defense o
92 ilo n 98
r
defense-supporting i d s r e a s e l alumi­
n u t i s s te,
num, petroleum, e e t i power, and r i ­
lcrc
al
roads accounted f r roughly h l of t
o
af
he
a t c p t d c p t l e p nd t re . Of t e r ­
n i i a e aia x e i u s
h e




HELP

CURB IN F L A T IO N

maining h l , an important p r represented
af
at
expansion t a appeared t be postponable
ht
o
without detriment t the defense e f r .
o
fot
Though many o t e e b si e expansion
f h s u n ss
programs would be f a c d a i previous
in n e , s n
postwar y a s out o r t i e e r i g , a
er,
f eand anns
number would n c s i a e e t r a financ­
eestt x e n l
ing through bank or insurance company
l a or t e s l of s c r t e . In 1 4 , f r
o ns
h ae
euiis
98 o
example, with b s n s expenditures on new
uies
p
lant and equipment t t l n 1 . b l i n
o a i g 92 ilo
d l a s corporate new c p t l i s e t f­
olr,
a i a sus o i
nance plant and equipment amounted t
o
4 2 b l i n s m l r y i 1 5 , with expendi­
. ilo; iial, n 9 0
t r s of 1 . b l i n new c p t l i s e f r
ue
8 6 ilo,
aia sus o
t i purpose t t l d 3 0 b l i n While not
hs
o a e . ilo.
much more than one-fourth o c p t l ex­
f aia
penditures might be financed i t i man­
n hs
n r a pr j t d i c e s i c p t l expendi­
e,
o ec e n r a e n a i a
t r s of 25 per cent f r 1 5 could be ex­
ue
o 91
pected t r s l i a s b t n i l i c e s i
o eut n u s a t a n r a e n
t volume of s c r t i s e . Though many
he
e u i y sus
of t e e expenditures were i defense or de­
hs
n
fense-connected i d s r e , i was recognized
nutis t
t a t i was an a i which voluntary a ­
h t hs
rea n
c
t o could prove u e u i obtaining t e
in
sfl n
h
postponement of n n s e t a p o e t and
oesnil rjcs
the d v r i n of t e c e i they would have
ieso
h rdt
required t more e s n i l p r o e .
o
seta u p s s
While t Committee f e s t a c p t l
he
el h t a i a
expenditure programs should be held t a
o
minimum during the p e e t emergency, i
rsn
n
t i t r s of reducing i f a i n r p e ­
he n e e t
nltoay r s
s r s and f c l t t n t use o l b r and
ue
a i i a i g he
f ao
m t r a s where most e s n i l t the def s
aeil
seta o
en e
e f r , isrecommendations i t i a ea have
fot t
n hs r
o n c s i y been somewhat c rcumscribcd.
f eest
i
For one t i g the Statement of P i c p e
hn,
rnils
excluded from review loans guaranteed or
i s r d or authorized a t purpose by a
nue,
s o
Government agency. For another, th Com­
e
mittee has not been i a p s t o t d s
n
oiin o i­
courage d r c l o tl y t be financed out
iety u a s o
of accumulated b s n s sa i g or through
uies vns
pre io s arranged commitments. Thus, is
v u ly
t
recommendations have r l t d t new f n n ­
eae o
iac
ing f r c e r y n n s e t a investment pur­
o lal o e s n i l
pss
oe.
5

VOLUNTARY

A C T IO N

TO

To the extent t a no e e t a c p t l ex­
h t n ss n i l a i a
penditure programs were t be financed with
o
the proceeds of s c r t f o a i n , the par­
e u i y lttos
t c p t n i s i u i n were i a s r t g c po­
iiaig ntttos
n taei
s t o t e e t a r s r i i g i f u n e In r ­
iin o x r
etann nlec.
e
cent y a s more than h l o the d l a
er,
af f
olr
amount of new c p t l i s e has been placed
aia sus
d r c l with f n n i l i s i u i n , e p c a l
iety
i a c a ntttos s e i l y
lf insurance companies, and most p b i l
ie
ulcy
o e e s c r t e a e s l through investment
ff r d e u i i s r o d
bankers.
On April 2 , the Committee i s e Bulle­
0
sud
t n No. 2 c t n long-term financing which
i
iig
might be postponed t a more p o i i u
o
rptos
t m . This included l n and s c r t i­
ie
oa s
euiy s
s e f r such purposes a : ( co s ru t n
us o
s 1) n t c io
of f c l t e t improve the competitive p s ­
aiiis o
oi
t o of an indi d al producer of nonessen­
in
vi u
ta goods; ( ) expansion and modernization
il
2
expenditures of concerns i d s r b t o o
n itiuin r
s r i e l n s where t e d s r b t o or s r ­
evc ie
h itiuin
ev
i e i not defense supporting; and ( ) ex­
c s
3
pansion and modernization programs f r
o
the manufacture of consumer goods not r ­
e
l t d t the defense e f r .
ae o
fot
State

and

L o c a l G o v e r n m e n t F in a n c in g

Credit expansion by S a e and l c l gov­
tt
oa
ernments has been s b t n i l during t e
usata
h
postwar p r o . As d c ss d on pages 1 5 eid
is u e
36
60 o t i B u l l e t i n , r l t v l l r e amounts
f hs
eaiey a g
of long-term c e i have been obtained by
rdt
S a e and l c l t e t fina c t e r postwar
tts
oaiis o
n e hi
c ns ruction programs. Many of t e e pro­
o t
hs
grams a e sil f r from completion. More­
r tl a
o e , the tax-exempt s a u of S a e and l c l
vr
tts
tt
oa
government s c r t e , which makes them
euiis
very a t a t v t c r a n i v s o s i a pe­
trcie o eti netr n
r o of high p o r s i e income t x s f ­
id
rgesv
ae, a
c l t t s the financing o continued l r e ex­
iiae
f
ag
p n i u e . In order t curb t e p t n i l
edtrs
o
h oeta
i f a i n r p e s r s inherent i a s t a i n
nltoay rsue
n iuto
of t i t p , the National Committee has
hs y e
recommended the deferment of public works
not urgently needed f r p es r a i n o pub­
o r evto f
lc h a h and s f t or f r purposes d r c l
i e lt
aey
o
iety
rltd t dfne
eae o ees.
6




H E L P CURB IN F L A T IO N

On May 3 1 5 , i B l e i No. 3 the
, 91 n ultn
,
Committee recommended postponement o
f
such c p t l o t a s a t
a i a u l y s hose f r r c e t o a
o erainl
fclte, war memorials, and t e a q i i
aiiis
h cus­
t o of p i a e y owned u i i i s and o s ts
in
rvtl
tlte
f ie
and r g t -o - y not immediately needed.
i h s f wa
The Committee a s expressed the view t a
lo
ht
s l i r ’bonus i s e were i f a i n r under
odes
sus
nltoay
the c
onditions then p
revailing and should
be postponed u t l such time a immediate
ni
s
purchasing power might be needed t coun­
o
t r c unemployment and when i might be
eat
t
more b n f c a t the v t r n In a d t o ,
eeiil o
eea.
diin
i s i u i n l lende s were urged t encourage
ntttoa
r
o
l c l governments t balance t e r operating
oa
o
hi
budgets and t hold t a minimum sh r ­
o
o
ot
term borrowing i a t c p t o of re e u s
n niiain
vne.
R e a l E s t a t e M o r t g a g e C r e d it

The r l of voluntary a t o i supple­
oe
cin n
menting and reinforcing s l c i e c e i r ­
eetv r d t e
s r i t measures i p r i u a l well i l s
tan
s atclry
lu­
t a e by developments i the r a e t t
rtd
n
el sae
mortgage c e i a e . In an e f r t curb
rdt ra
fot o
the rapid expansion of r a e t t mortgage
el sae
c e i , the Board of Governors of the Fed­
rdt
e a Reserve System, e e c s ng t e au h i y
rl
x r i i h t or t
granted i by t e Defense Production Act o
t
h
f
1950 and r l t d e c ti e o d r i s e with
e a e xe u v r e , s u d
the concurrence of the Administrator o t e
f h
Housing and Home Finance Agency is
t
Regulation X, e f c i e October 1 , 1 5 .
fetv
2 90
Simultaneously the Federal Housing Ad­
m i tration and Veterans Administration
in s
adapted t e r r g l i ns t t new stand­
h i e u at o o he
ards developed by th Board.
e
The establishment of t e e r g l t o s
hs euain,
which applied t Government-guaranteed
o
mortgages on new and e i t n h s s t
x s i g ou e , o
non-Government-guaranteed, or convention­
a, mortgage l an on newly constructed
l
o s
h s s and t l a on c r a n c a s s o
ou e ,
o o ns
e t i lse f
commercial pr p r y brought about a sharp
oet,
d c i e i t e number of new houses s a t d
eln n h
tre
i 1 5 . On t e other hand, f i u e t i ­
n 91
h
alr o n
clude c e i extended on conventional terms
rdt
f r t purchase o e i t n houses enhanced
o he
f xsig
the competitive advantage of such p o e t e
rpris

VOLUNTARY

A C T IO N

TO

i t r a e t t market, and i many c s s
n he e l s a e
n
ae
t e r t a s e s were accompanied by an ex­
hi rnfr
pansion of r a e t t mortgage debt which
el sae
added t i f a i n r p e s r s
o nltoay rsue.
The National Voluntary Credit R t a n
es r i t
Committee, i B l e i No. 4 i s e on June
n ultn
, sud
6 and r v s d i some r s e t on Septem­
eie n
epcs
ber 5 recommended t a new conventional
,
ht
mortgage loans on e i t n one- t f u xsig
o or
family r s d n i l u i s together with o h r
eieta nt,
te
indebtedness outstanding on the p p r y
ro e t ,
should not exceed t e l m t which Regula­
h ii
t o X imposes on new c s ruction or a
in
on t
l m t of two-thirds of the f i value o t e
ii
ar
f h
p o e t , whichever i g e t r The Com­
rpry
s rae.
mittee a s recommended t a l
lo
h t oans on
l r e r s d n i l p o e t e and on commer­
ag r eieta r pris
c a, a r c l u a , and i d s r a property
il g i u t r l
nutil
should i most c s s not exceed t o t i s
n
ae
w - h rd
of th f i value and should be made only i
e ar
f
c r f l screening a t purpose i d c t s t a
aeu
s o
niae ht
they a e i harmony with t e Voluntary
r n
h
Credit R t a n Program.
es r i t
E v a l u a t io n o f t h e P r o g r a m

The Voluntary Credit R t a n Program
es r i t
has been one o the f c o s contributing t
f
atr
o
the abatement of i f a i n r p e s r s dur­
nltoay r s ue
ing the l t spring and summer o 1 5 .
ae
f 91
I s c n r b t o , however, must be ev
t otiuin
aluated
i the l g t of other f c o s
n
ih
atr.
For one t i g i f a i n r p e s r s have
hn, nltoay rsue
been l s e e and c e i demands have been
esnd
rdt
reduced by a d l n i demand f r c r a n
ec i e n
o eti
t p s o consumer durable goods, l q i a i n
ye f
iudto
o some t p s o i v n o i s and a marked
f
ye f netre,
i c e s i in i i u l ’current s v n . For
nrae n dvdas
aig
a o h r, th Program i only one o a number
nte
e
s
f
of measures f r c r a l n t e use of c e i
o utiig h
rdt
f r s e u a i e purposes and f r d v r i g
o pcltv
o ietn
a a l b e funds from n n s e t a t e s n
vial
oesnil o se­
ta u e .
il s s
Since the primary function of t e Volun­
h
t r Credit R s r i t Program i one o d ­
ay
etan
s
f i
r t n the flow of a a l b e c e i r t e
ec i g
vial rdt ahr
than o regulating t e o e - l volume o
f
h vral
f
c e i expansion, is e f c i e e s a an a t rdt
t fetvns s
ni
i f a i n r measure was g e t y enhanced
nltoay
ral




HELP

CURB IN F L A T IO N

by the Treasury-Federal Reserve accord
reached i March 1 5 . Following the a ­
n
91
c
c r , the Federal Reserve System abandoned
od
is p l c of purchasing United S a e Gov­
t oiy
tts
ernment s c r t e a l r e y predetermined
euiis t a g l
and i f e i l p i e — a p l c t a had en­
nlxbe r c s
oiy ht
abled holders t dis o o Government
o
p se f
s c r t e a w l ,g n a ly without incurring
e u i i s t i l e er l
l s e , whenever more a t a t v loan or i ­
oss
trcie
n
vestment opp r n ti s presented themsel e
o tu i e
v s.
This p l c had r s l e i s b t n i l addi­
oiy
eutd n usata
t o s t bank r s r e .
in o
eevs
The e i t n e of a f e r and more f e i l
xsec
re
lxbe
market f r Government s c r t e has caused
o
euiis
many financing i s i u i n t r s r c t e r
n t t t o s o etit h i
lending a t v t e and forward financing
ciiis
commitments and t i has helped t check
hs
o
o e - l c e i expansion. Thus, with t e
vral rdt
h
Federal Reserve System acting t r s r c t
o e t i t he
growth of t t l c e i , i has been p s i l
oa rdt t
osbe
f r the Voluntary Credit R s r i t Program
o
etan
t function with g e t r e f c i e e s
o
r a e fetvns.
That t e Voluntary Credit R s r i t Pro­
h
etan
gram, together with other s l c i e and gen­
eetv
e a c e i r s r i t measures, has achieved
rl rdt etan
c s derable s c e s i d ve t g c e i from
on i
u c s n i r in r d t
s e u a i e and n ne s n i l a t v t e t e ­
pcltv
o s e t a ciiis o s
s n i l u e i suggested by t e postponement
eta s s s
h
of a number of proposed s c r t o f r n s
euiy feig
and by th s i t i lending a member banks
e hf n
t
from nondefense t defense and d f n e
o
eessupporting i d s r e . As shown i t
nutis
n he
t b e the amount o new l a s granted t
al,
f
on
o
C hances

in

C o m m e r c ia l ,

In d u s t r ia l ,

L o a n s , b y I n d u s t r y , M id y e a r

A g r ic u l t u r a l

and

through

O ctober

|ln m illion s o f dollars]
Business o f borrow er
M a n u fa ctu rin g and m in in g:
F o o d , liq u or, a n d t o b a c c o ............................
T extiles, apparel, and le a th e r....................
M eta ls and m etal p r o d u c t s .........................
P etroleu m , coa l, ch em ica ls, a n d ru b b er.
O th er m an u fa ctu rin g a n d m in in g ............
Trade— w holesale and r e ta il............................
C o m m o d ity d e a le rs.............................................
Sales finance c o m p a n ie s ....................................
P u b lic utilities and tra n s p o rta tio n ...............
C o n s tru ctio n ................ ..........................................
A ll o th e r ty p es o f b u sin ess...............................

1951

1950

+ 52 1
-2 1 7
+537
+68
+75
+40
+394
-1 0 4
+318
-6 1
-6

+413
+ 130
-1 7
+ 19
+ 17
+272
+ 690
+324
+50
+55
+ 113

L oan s classified as to business.
L oan s n ot so cla ssified ..............

+ 1.565
-2 1 4

+ 2 .0 6 5
+ 809

T o t a l ............................................................................

+ 1 .3 5 1

+ 2 .8 7 4

N o t e .— D ata fo r 1951 w ere co lle cte d a t the request o f the
N a tion al V olu n tary C redit R estraint C o m m itte e from a b o u t 220
w eek ly rep ortin g m em ber banks. D ata fo r 1950 are from a special
su rve y o f selected m em ber bank s in leading cities. A lth ou g h the
cov era g e is less co m p lete fo r 1950 than fo r 1951. all o f the large
bank s that co o p e ra te d in th e 1950 su rvey are in clu ded in 1951.

VOLUNTARY

A C T IO N

TO

manufacturers of metals and metal products
and t p b ic u i i y and t a s o t t o con­
o u l tlt
rnprain
cerns was s b t n i l y g e t r from midyear
usatal r ae
through October 1 5 than i the c r e
91
n
or­
sponding period of 1 5 . On t e other hand,
90
h
the amounts granted t wholesale and r t i
o
eal
trade c ncerns, commodity d a e s and s l s
o
elr,
ae
finance companies were s b t n i l y l s t i
u s a t a l es h s
year than ls,a was t t t l o alcommer­
at s
he o a f l
c a, i d s r a and a r c l u a l a s
il n u t i l
giutrl on.
No o e - l f g r s on t e number of loan
vral iue
h
a p i a i n denied or postponed by fi a ­
plctos
n nc
ing i s i u i n i accordance with t e prin­
ntttos n
h
c p e o t Program a e a a l b e While,
i l s f he
r vial.
a noted i the statement on pages 1 6 - 5
s
n
326
of t i B u l l e t i n , a s b t n i l number o
hs
usata
f
c s s have been r f r e t one or another
ae
eerd o
o the r g o l committees f r recommenda­
f
e i na
o
t o s financing i s i u i n have themselves
in,
ntttos
i t e majority of c s s taken the i i i t v
n h
ae
ntaie
i approving or denying financing r q e t
n
euss
on t b s s o recommendations contained
he a i f
i t e n ti n B l e i s In c s s where
n h a o al u l t n .
ae
proposed s c r t o f r n s or loan ap l c ­
euiy feig
pia
t o s have been r f r e t r ional commit­
in
e e r d o eg
t e , and where such r g
es
e ional committees
have recommended a a n t t proposed
g i s he
s c r t i s e or l a , t e financing i s i
euiy su
on h
nt­
t t o s involved have almost without ex­
uin
c io s r g y supported committee recom­
ept n t on l
mendations.
One of th i i i l d t r e t t th Pro­
e nta e e r n s o e
gram’ s c e s the e i t n e o l g l y bind­
s ucs,
xs e c f eal
ing commitments t provide funds t a
o
ht
had been made before t e Program came i t
h
no
e i t n e has i r c n months become ls
xsec,
n eet
es
important. Data c l e t d i connection
olce n
with the Program show, f r example, t a
o
ht
45 lf insurance companies, whose com­
ie
bined a s t r p es n 85 per cent o a l lf
ses e r e t
f l ie
insurance company a s t ,had 4 5b l i n dol­
ses
. ilo
l r of commitments outstanding a t e end
as
t h
of April 1 5 . Of t i amount roughly 1 7
91
hs
.
b l i n represented proposed financing o de­
ilo
f
f n e and defense-supporting a t v t e and
es
ciiis
t e remainder nondefense b s n s a t v t e
h
u i e s ciiis
and mortgage financing o home p r h s s
f
ucae.
By t e end of August, however, t e t t l
h
h oa
8



H E L P CURB IN F L A T IO N

of such commitments had been reduced t
o
3 7b l i nd l a s a shown by the c a t As
. ilo olr, s
hr.
other commitments a e worked o f more
r
f,
L IF E

IN S U R A N C E

C O M P A N Y C O M M IT M E N T S

Billions ol Dollori

(illioni ol Oollof

APB 30. 1951

AUG 31.1951

X o t e . — O u tsta n d in g com m itm en ts t o a c q u i r e d o m e s t i c loans
a n d in vestm ents. D ata com p iled b y L ife In su ra n ce A s so cia tio n
o f A m erica fr o m rep orts subm itted b y 45 l i f e in su ra n ce c o m ­
panies w hose com b in ed assets represen t 8 5 per cen t o f a ll l i f e
in su ra n ce com p a n y assets.

and more current financing w l come un­
il
der t Program.
he
In encouraging lending o f c r o financ­
fies f
ing i s i u i n and businessmen i general
ntttos
n
t c ns
o o ider t r l of c e i i an i f a i n
he o e
rdt n
nlto­
a y s t a i n and i providing them with
r iuto
n
standards by which t judge the r l t v
o
eaie
e s n i l t of proposed u e of c e i , t e
setaiy
ss
rdt h
Program has perhaps achieved is g e t s
t raet
sces
ucs.
C o n c l u s io n

Voluntary c e i r s r i t i an extremely
rdt etan s
u e u adjunct t general c e i r s r i t
sfl
o
rdt etan
measures and should be furt e developed
hr
f r us whenever i f a i n r p e s r s
o
e
nltoay r s ue
t eaten d r ciation of t e d l a . I t e
hr
ep e
h olr f h
i t r a i n l s t a i n does not worsen, t e e
nentoa iuto
hr
may be a tendency f r t s ns of urgency
o he e e
and t e s i i o cooperation developed i
h prt f
n
t i period of n t o a emergency t become
hs
ainl
o
submerged i competitive s l - n e e t a de­
n
efitrs s
f n e production g a s a e approached. With
es
ol r
employment, personal income, and b s n s
uies
expenditures on plant and equipment a
t
record l v l and defense expenditures i ­
ees
n
c e si g r p d y f r h r t s o a l c e i r ­
r a n a i l , u t e et f l r d t e
s r i t measures may le ahead.
tan
i

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